Finance

China on Thursday announced its most targeted measures yet for boosting consumption, which has remained lackluster since the pandemic.
Authorities announced they would allocate 300 billion yuan ($41.5 billion) in ultra-long special government bonds to expand an existing trade-in and equipment upgrade policy.
The policy at least doubles the subsidies for new energy and traditional fuel-powered vehicle purchases to 20,000 yuan and 15,000 yuan per car, respectively.

China’s retail sales grew by 3.7% in the first half of the year from a year ago.
CNBC | Evelyn Cheng

SHANGHAI — China on Thursday announced its most targeted measures yet for boosting consumption, which has remained lackluster since the Covid-19 pandemic.
Authorities announced they would allocate 300 billion Chinese yuan ($41.5 billion) in ultra-long special government bonds to expand an existing trade-in and equipment upgrade policy. The document was jointly published by the National Development and Reform Commission — China’s economic planning agency — and the Ministry of Finance.

“There have never been such specific measures” aimed at consumption, Bank of China’s chief researcher Zong Liang said in a phone interview Thursday, according to a CNBC translation of his Mandarin-language remarks.
He noted how the new policy links Beijing’s ultra-long bond program — announced in March — with consumption.
“This is a very important measure for implementing the Third Plenum,” Zong said. He was referring to a high-level meeting of Chinese leaders last week that only occurs twice every 10 years, and which typically sets the tone for economic policy.

The latest Third Plenum concluded with the release of several major guiding documents over the past weekend that reaffirmed Beijing’s long-term interest in bolstering advanced tech. The official communique focused on “deepening reform.” It also said China would work to achieve its full-year national targets, but disappointed many analysts by not indicating major policy changes.
Policymakers have started to act in the last week. The People’s Bank of China unexpectedly cut interest rates on Monday, amid other changes, and on Thursday cut its medium term facility lending rate.

The National Development and Reform Commission on Thursday then announced the expanded policy to support consumption.
“The move is a three-birds-with-one-stone action: Spurring consumption, absorbing industrial output, and [solidifying] economic growth to meet the pledged target of 5%,” said Bruce Pang, chief economist and head of research for Greater China at JLL.
The policy at least doubles the subsidies for new energy and traditional fuel-powered vehicle purchases to 20,000 yuan and 15,000 yuan per car, respectively.
The measures subsidize a range of equipment upgrades, from those used in farming to apartment elevators. Officials noted Thursday that about 800,000 elevators in China have been used for more than 15 years, and that 170,000 of those had been used for more than 20 years.
The policy also laid out specific subsidies for home renovations and consumer purchases of refrigerators, washing machines, televisions, computers, air conditioners and other home appliances. The document said each consumer could get subsidies of up to 2,000 yuan for one purchase in each category.
In allocating the roughly 300 billion yuan in ultra long-term bonds for local government to use for the subsidies, the policy noted the central government would take back any unused funds by the end of 2024.
“This means they’re stressing the money must be spent,” Zong said. He noted that the 300 billion yuan designation also reflects “a new way of thinking” which can have impact at scale.

Sluggish retail sales

The measures are coming at a time in which China’s consumers have been unwilling to spend, partly due to uncertainty about future income and the real estate slump.
China’s retail sales grew at a slower 2% year-on-year pace in June, which Zong said “was not ideal.”
Concerns about China’s lackluster consumer spending have recently gained a higher profile in a country where public discussion can be tightly controlled.
Trip.com co-founder James Liang this month called for Beijing to issue consumption vouchers, according to “The East is Read” newsletter that cited Liang’s post on Chinese social media platform WeChat. The same publication pointed out that Li Yang, head of the National Institution for Finance & Development (NFID), in late May highlighted China’s declining consumption.
China reported retail sales growth of 3.7% in the first half of the year, slower than the 8.2% pace recorded in the year-ago period.
That means “the pressure on spurring consumption is rather large,” Liu Xiaoguang, a professor at the Academy of Development and Strategy at China’s Renmin University, said in a presentation to reporters Thursday, according to a copy seen by CNBC. That’s according to a CNBC translation of the Chinese.
Liu noted that the housing market has yet to reach a clear turning point, and it would take time for one to solidify.
But he said with China’s recently announced plans for “deepening reforms,” the economy could grow by 5.3% this year, versus 5.1% without such measures. More

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Chinese electric car companies are outspending Tesla and traditional fuel-powered cars on research and development as a ratio to sales.
Many Chinese automakers already spend as much as or more than their global peers on R&D as a percent of revenue, a significant increase from many years ago, Paul Gong, autos analyst at UBS, told CNBC.
Geely’s vice president of autos R&D, Ren Xiangfei, told CNBC late last month that while the company is looking to improve both hardware and software for cars, the latter can provide more differentiation.

Nio’s second factory in the city of Hefei has around 2,000 human workers and 756 robots.
CNBC | Evelyn Cheng

BEIJING – U.S.-listed Chinese electric car companies are spending more on research as a ratio to sales than Tesla, according to CNBC analysis of the four automakers’ first-quarter earnings.
It’s a strategy for survival in China’s cutthroat auto market, the largest in the world. New energy vehicles, which include both battery and hybrid-powered cars, have grown rapidly to more than 40% of sales.

Many Chinese automakers already spend as much as or more than their global peers on R&D as a percent of revenue, a significant increase from many years ago, Paul Gong, autos analyst at UBS, told CNBC. “In certain cases, even in terms of absolute dollars, it has bypassed.”
Of the four U.S.-listed Chinese electric car companies, Nio ranked first, spending nearly 29% of revenue in the first three months of the year on research and development. That’s far higher than Tesla’s ratio of 5.4% in the first quarter and 4.2% in the second. Elon Musk’s company is known for having a relatively low ratio.
It’s less clear whether that higher spending can translate into long-term competitiveness.
Nio has operated at a loss for years and only seen deliveries for its premium-priced cars pick up in the last several months. In addition to car launches, the company has in recent years held events to promote its battery services and other tech, including one on car “quality” in late June.

“Everyone is talking about involution right now,” Feng Shen, chairman of Nio’s quality management committee said in Mandarin at the event, translated by CNBC. He was referring to a popular term in China to describe fierce competition, especially in the electric car industry.

“What companies should [compete] on is quality,” Shen said, adding that “if you can’t do a good job on quality, there’s nothing you can say.” He laid out Nio’s wide-ranging plan for boosting product quality, starting primarily with new tech and supply chain innovation.
Shen, who is also executive vice president of Nio, was previously president of luxury EV brand Polestar in China and worked in quality management at Ford Motor in the U.S. and China.
Nio in September 2022 opened its second factory in Hefei city, a manufacturing hub for many car companies. The factory has around 2,000 human workers and 756 robots, which automate much of the production.
“The key is to digitize every stage of manufacturing,” William Li, founder and CEO of Nio, told reporters in June, according to a CNBC translation of the Chinese remarks. He said if the digital system can be integrated across multiple levels of suppliers, the company can easily identify problems.
When asked about global production, Li said Nio would adhere to the same manufacturing standard but did not detail overseas plans.

Supply chain proximity

Hefei is the capital of Anhui province to the west of Shanghai. The region is called the Yangtze River Delta, which China claims is home to so many factories that a new energy vehicle manufacturer can find all the necessary parts within a four-hour drive.
China’s Ministry of Industry and Information Technology told CNBC in a statement that it has worked with car manufacturers and suppliers to create hundreds of best-practice cases and application benchmarks for smart manufacturing in the industry.
“A key competitive advantage for Chinese companies in China is actually the highly effective or efficient supply chain,” said Jing Yang, a director in Fitch Ratings’ Asia-Pacific corporate ratings division, with a focus on Chinese autos.
She noted that can help Chinese electric car companies respond more quickly to customers and market needs than traditional automakers.
Another part of the region, Zhejiang province, is home to Hong Kong-listed auto giant Geely and its U.S.-listed electric car subsidiary Zeekr.
Zeekr’s first-quarter results show the company spent 13% of sales on research and development. Parent Geely, which did not break out the figure in its first-quarter report, has spent at least 4% of revenue on research in the last four years, up significantly from prior years.  
Geely’s vice president of autos R&D, Ren Xiangfei, told CNBC late last month that while the company is looking to improve both hardware and software for cars, the latter can provide more differentiation.
“From users’ perspective, the functions that bring more surprises must be implemented through software,” Ren said in Mandarin, translated by CNBC.
Car software includes driver-assist, in-car entertainment and security features.
Ren noted that new energy vehicles can support more of these functions since they come with a larger battery than traditional fuel-powered cars.
“This will introduce a new concept, the software-defined car,” he said.
Geely last month launched its “Aegis Short Blade Battery,” which the automaker claims passed above-industry standard tests without exploding.
It’s a rival to BYD’s “blade battery” that arguably launched the company into its position as an EV leader. Geely ranked second in new energy vehicle sales in the first half of the year, putting Tesla in third place, according to the China Passenger Car Association.
Ren said the new battery, which is set for initial deployment in Geely cars, increases production costs by about 1,000 yuan (about $137.69) versus competitors’ vehicles.
Since the chemical formula for making batteries is relatively mature, it’s now more important to ensure consistency in manufacturing, he said. “That requires the support of a smart factory.”
Geely has also released an electric car architecture called SEA that it says allows for quicker production of different sized vehicles.
“Vehicle platform is probably the most important thing to look at, and then consistency with their approach,” said Taylor Ogan, Shenzhen-based CEO of Snow Bull Capital.
He said it’s important to see that a company is delivering something fairly soon after announcing it, and that there are separate teams already working on future product releases. “I think that’s the clear differentiator,” he said.

Tech companies vs. automakers 

UBS’s Gong cautioned the ratio of research spend to sales, sometimes called R&D intensity, isn’t a definitive measure of tech innovation.
“If they can sell more cars with a better profitability that basically means their innovative ways are probably right. Some of it may not be in cool features,” Gong said, noting it could include systemized cost cutting. “Less fancy, but really powerful.”
Xpeng had an R&D intensity of 20% in the first quarter. Li Auto’s was only 11% but the company’s range-extender cars have far outsold pure battery-electric vehicles.
When it comes to absolute U.S. dollars, Hong Kong-listed BYD spent the equivalent of $1.47 billion on research in the first quarter, or 8.5% of its revenue. That’s more than Tesla’s $1.15 billion spend on research and development during that time.
For the future, electric car companies are trying to differentiate themselves in terms of battery and software – two categories dominated by CATL and Huawei, respectively, said Jing Liu, professor of accounting and finance, and director of the investment research center at the Cheung Kong Graduate School of Business.
Liu said it’s unlikely that a company can produce a better product than either supplier, but that means that ultimately it is difficult for automakers to stand out in a market where consumers can easily switch between brands.
Huawei has touted it spends at least 10% of revenue on R&D. CATL’s intensity ratio was 5.4% in the first quarter.
— CNBC’s Sonia Heng contributed to this report. More

Job seekers are feeling less confident about their ability to land a new gig.
The labor market has cooled from a red-hot pace in 2021 and 2022. The unemployment rate has increased and businesses aren’t hiring as readily.
While data suggest the labor market remains strong, further cooling could be troublesome, economists said.

Nitat Termmee | Moment | Getty Images

Workers are souring on the state of the job market.
Job seeker confidence in Q2 2024 fell to its lowest level in more than two years, according to a quarterly survey by ZipRecruiter, which has tracked the metric since Q1 2022. That decline suggests workers are more pessimistic about their ability to land their preferred jobs.

Workers had reason for euphoria two to three years ago: The job market was red-hot and, by many metrics, historically strong.
It has remained remarkably resilient even in the face of an aggressive interest-rate-hiking campaign by U.S. Federal Reserve to tame high inflation.
However, the labor market has slowed gradually. Workers are now having a harder time finding jobs and the labor market, while still solid, could be in trouble if it continues to cool, economists said.

“There actually now is reason in the data to understand why job seekers are feeling kind of gloomy,” said Julia Pollak, chief economist at ZipRecruiter. “The labor market really is deteriorating and jobseekers are noticing.”
Demand for workers surged in 2021 as Covid-19 vaccines rolled out and the U.S. economy reopened broadly.

Job openings hit record highs, giving workers ample choice. Businesses competed for talent by raising wages quickly. By January 2023, the unemployment rate touched 3.4%, its lowest level since 1969.
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Workers were able to quit their jobs readily for better, higher-paying ones, a period that came to be known as the great resignation or the great reshuffling. More than 50 million people quit in 2022, a record high.
The U.S. economy was able to avoid the recession that many economists had predicted even as inflation declined significantly. However, many Americans still felt downbeat on the economy, a so-called “vibecession” — a sentiment that persists despite the overall economy’s relative strength.
Many job metrics have fallen back to their rough pre-pandemic levels, however. The rate of hiring by employers is at its lowest since 2017.
“The postpandemic excesses of the U.S. job market have largely subsided,” Preston Caldwell, senior U.S. economist for Morningstar Research Services, recently wrote.

The unemployment rate has also ticked up to 4.1% as of June 2024. While that rate is “consistent with a strong labor market,” its steady rise is the “troubling factor,” Nick Bunker, economic research director for North America at the Indeed Hiring Lab, wrote in early July.
The labor market’s broad readjustment has been “mostly welcome” as it comes back into its pre-pandemic balance, Bunker said. But any further cooling “is a riskier proposition,” he said.

“For now, the labor market remains robust, but the future is uncertain,” he wrote in early July after the federal government’s latest batch of monthly jobs data. “Today’s report shows the temperature of the labor market is still pleasant, but if current trends continue the weather could get uncomfortably cold.”
Worker sentiment could rebound if and when the Fed starts cutting interest rates, which could help households by reducing borrowing costs, Pollak said.
“People seize on good news and get very excited,” she said. More

The typical worker will get a 4.1% annual raise for 2025, down from 4.5%, according to a WTW survey.
That growth is still high relative to the recent past.
Company pay increases are largely dictated by supply-and-demand dynamics in the labor market.
The job market has cooled from a scorching level in 2021 and 2022.

Hinterhaus Productions | Stone | Getty Images

Many workers will see their annual raise shrink next year as the job market continues to cool from its torrid pace in the pandemic era.
The typical worker will get a 4.1% pay raise for 2025, down from 4.5% this year, according to a new poll by WTW, a consulting firm.

This is a midyear estimate from 1,888 U.S. organizations that use a fiscal calendar year. Actual raises may change by year-end when the companies finalize their salary budgets.

The size of workers’ salary increases is “driven primarily” by the supply and demand of labor, said Lori Wisper, WTW’s work and rewards global solutions leader. Affordability and industry dynamics play lesser roles, she added.
Companies in the survey would likely pay their annual raises by April 1, 2025, she said.

Job market was ‘unbelievably robust’

Worker pay in 2021 and 2022 grew at its fastest pace in well over a decade amid an “unbelievably robust” job market, Wisper said.
Demand for workers hit records as Covid-19 vaccines rolled out and the U.S. economy reopened broadly. Workers quit their jobs readily for better, higher-paying ones, a trend dubbed the great resignation. More than 50 million people quit in 2022, a record.

Companies had to raise salaries more than usual to compete for scarce talent and retain employees.

The prevalence of incentives like signing bonuses also “grew dramatically,” said Julia Pollak, chief economist at ZipRecruiter.
Almost 7% of online job listings offered a signing bonus in 2021, roughly double the pre-pandemic share, according to ZipRecruiter data. The percentage has dropped to 3.8% in 2024.
“I’m not sure I’ll ever see that kind of job market in my lifetime again,” Wisper said of 2021 and 2022.
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Now, the job market has cooled. Hiring, quits and job openings have declined and the unemployment rate has increased.
Companies may feel they don’t need to offer as much money if they’re not getting as many applications and have fewer job openings, Pollak said.

Almost half — 47% — of U.S. organizations expect their salary budgets to be lower for 2025, according to WTW. (Companies set a salary budget and use that pool of money to pay raises to workers.)  
The current environment “feels like we’re seeing more normal circumstances, where demand is back to where it was pre-pandemic in 2018 and 2019, which was still a very healthy job market,” Wisper said.
Additionally, after two years of declining buying power amid high inflation, the lessening of pricing pressures in recent months has boosted workers’ buying power.

Still high relative to recent past

While the typical 4.1% projected raise is smaller than that during the last pay cycle, it’s “still kind of high” relative to recent years, according to Wisper.
For example, the median annual pay raise had largely hovered around 3% in the years after the 2008 financial crisis, she said.

The increase to more than 4% during the pandemic era was notable: Salary growth tends to fall instead of rise, Wisper said. For example, it was around 4.5% to 5% in the years leading up to the financial crisis, and had never fully recovered, she said.
It’s “something that’s never happened before,” Wisper said. “And [the raises] have stuck, to a degree.”

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Four of the world’s largest chip equipment manufacturers have more than doubled the share of their China revenue since late 2022, Bank of America analysts said.
“China accelerated its purchase of semi manufacturing equipment since the U.S. imposed tighter export restrictions in October 2022, aiming to develop its own semi manufacturing capability,” the report said.
The research found the companies’ China revenue more than doubled from 17% of total revenue in the fourth quarter of 2022 to 41% in the first quarter of 2024.

A worker produces chips at a semiconductor manufacturing enterprise in Binzhou, China, on June 4, 2024.
Nurphoto | Nurphoto | Getty Images

BEIJING — Four of the world’s largest semiconductor equipment manufacturers, including ASML, have seen the share of their China revenue more than double since late 2022, Bank of America analysts said in a report Monday.
“China accelerated its purchase of semi manufacturing equipment since the U.S. imposed tighter export restrictions in October 2022, aiming to develop its own semi manufacturing capability,” the report said.

The BofA analysis looked at Lam Research, ASML, KLA Corp. and Applied Materials.
The research found the companies’ China revenue more than doubled from 17% of their total revenue in the fourth quarter of 2022 to 41% in the first quarter of 2024.
“Tech, especially semi, is at the center stage of trade tensions with China, which could be more at risk if tensions further escalate from here,” the report said.
The U.S. in October 2022 started imposing sweeping export controls on U.S. sales of advanced semiconductors and related manufacturing equipment to China. Last week, Bloomberg reported, citing sources, that the Biden administration was considering broader restrictions on semiconductor equipment exports to China that could affect non-U.S. companies.
Beijing, meanwhile, has sought to bolster its tech self-sufficiency, a goal top leaders reaffirmed at a key policy meeting last week.
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