Finance

At the annual Asia-Pacific Economic Co-operation summit in San Francisco, all eyes are on the meeting between Xi Jinping and Joe Biden. But when it comes to competition between the two great powers in Asia, the most consequential decisions will be made—or rather not be made—behind the scenes.Trade negotiators had hoped the summit would yield an announcement on the Indo-Pacific Economic Framework (ipef), America’s offering on trade to 13 regional economies, intended as its main weapon in the battle for economic influence in Asia. Instead, a decision by the Biden administration to halt discussions on digital trade has frozen an important part of an already limited agreement. There will be no announcement on the trade portion of ipef, one of the deal’s four pillars. With American elections now just a year away, further progress will be difficult.Digital trade is a large and growing category, covering online services, cross-border flows of data and e-commerce. In 2017, when Donald Trump withdrew from the Trans-Pacific Partnership (tpp)—a more comprehensive agreement than ipef—Asian countries had little hope of greater access to American markets. Support for opening up digital commerce was one of America’s last claims to international openness. Indeed, the usmca agreement with Canada and Mexico, signed by Mr Trump in 2018, prohibited both customs on digital products and data localisation (the practice of forcing companies to store data in the country where it is collected).But concerns about the sway of America’s tech giants have made Democrats, including Elizabeth Warren, a left-wing senator, sceptical about looser digital-trade rules. Those on both sides of the aisle want to ensure they are not restricted when regulating artificial intelligence (ai), says Sam Lowe of Flint Global, a consultancy. Mr Biden’s change of heart reflects these shifts.For liberal economies in the region, this is only the latest disappointment. In 2020 Chile, New Zealand and Singapore signed a pact covering issues from paperless trade certification to co-operation on future areas of interest, such as ai and fintech. Just as the tpp grew out of a deal between New Zealand and Singapore in 2000, participants hoped to tempt America into deeper agreements by getting the ball rolling themselves. That now looks unlikely.In the wake of America’s retreat, data localisation may follow. India and Indonesia recently passed privacy laws without strict localisation requirements. That was in no small part due to American advocacy, says Nigel Cory of the Information Technology and Innovation Foundation, a think-tank. Without such pressure, countries will be more likely to take a nationalistic path.American policy in Asia is now focused on limited bilateral deals that support Mr Biden’s industrial policy, which seeks to boost domestic manufacturing. The visit by Joko Widodo, Indonesia’s president, to Washington this week is an early step in negotiations over minerals for batteries (Indonesia accounts for almost half the nickel that was mined globally last year). And the government of the Philippines is pushing for a similar agreement.At the same time as America is withdrawing from multilateral deals, China is throwing its hat into the ring. The Asian superpower has little chance of joining the Comprehensive and Progressive Trans-Pacific Partnership, which succeeded the tpp. But the Regional Comprehensive Economic Partnership, a 14-member trade deal that came into effect last year, will bind Asian economies more tightly to it.In the contest between America and China for influence over Asian trade, only one side is making progress. Few Asian governments started out with high hopes for the ipef, which even its most ardent supporters conceded was no equivalent to the formal trade deals once pursued by American negotiators. Yet the agreement, whenever it comes, will now fall short of even that low bar. ■ More

Citigroup will soon begin layoffs in CEO Jane Fraser’s corporate overhaul, CNBC has learned.
Employees affected by the cuts will be informed starting Wednesday, with new dismissals announced daily through early next week, according to people with knowledge of the situation.

Jane Fraser, CEO of Citigroup Inc., during an interview for an episode of “The David Rubenstein Show: Peer-to-Peer Conversations” at the Economic Club of Washington in Washington, D.C., March 22, 2023.
Valerie Plesch | Bloomberg | Getty Images

Citigroup will soon begin layoffs in CEO Jane Fraser’s corporate overhaul, CNBC has learned.
Employees affected by the cuts will be informed starting Wednesday, with new dismissals announced daily through early next week, according to people with knowledge of the situation.

The move tracks with a timeline set by Fraser in a Sept. 13 memo. She announced five new divisions whose heads report directly to her, resulting in the departure of a handful of senior executives. The next phase of disruption will be “communicated and implemented by the end of November,” and “final changes” will be done by the end of March 2024, Fraser said at the time.
Fraser is under pressure to improve Citigroup, which has been mired in a stock slump as headcount and expenses have ballooned in recent years. The CEO, who took over in March 2021, is at a pivotal moment as she faces deep investor skepticism that the bank can hit performance targets she outlined last year.
Employees who have lost their roles may be able to apply for other positions, and Citigroup will offer severance pay where eligible, the bank’s human resources chief told workers last month.  
The full extent of job cuts are still being determined, but managers and consultants working on the project — known internally by its code name, “Project Bora Bora” — have discussed dismissals of at least 10% of workers in several businesses, CNBC reported last week.
Workers have flocked to internal chat platforms with questions about the impending cuts, according to the people, who declined to be identified speaking about personnel matters.

A Citigroup spokeswoman declined to comment Wednesday beyond the statement it offered to CNBC previously:
“We’ve acknowledged the actions we’re taking to reorganize the firm involve some difficult, consequential decisions, but they’re the right steps to align our structure to our strategy and deliver the plan we shared at our 2022 Investor Day.”
This story is developing. Please check back for updates. More

The Swiss lender last week began selling the bonds — which were at the heart of controversy during its emergency rescue of Credit Suisse earlier this year — for the first time since the takeover.
The wipeout of $17 billion of Credit Suisse AT1 bonds in March, as part of the rescue deal brokered by Swiss authorities, caused uproar among bondholders and continues to saddle the Swiss government and regulator with legal challenges.

Sergio Ermotti, CEO of UBS gestures during a panel discussion at the Swiss-American Chamber of Commerce in Zurich, Switzerland January 18, 2019.
Arnd WIegmann | Reuters

UBS Group CEO Sergio Ermotti says the “incredible” market demand for the bank’s recent issuance of AT1 (additional tier one) bonds is a “signal to the Swiss banking system.”
The Swiss lender last week began selling the bonds — which were at the heart of controversy during its emergency rescue of Credit Suisse earlier this year — for the first time since the takeover.

Ermotti told CNBC on Wednesday that he was “more than encouraged” by the massive oversubscription received for last week’s return to the market.
“The AT1 demand was incredible — $36 billion of demand for what happened to be $3.5 billion of placements — and in my point of view, it was probably the highlight in a sense of the confidence is restoring not only for UBS, I would say also it is a signal to the Swiss financial system,” Ermotti said.

The wipeout of $17 billion of Credit Suisse AT1 bonds in March, which was part of the rescue deal brokered by Swiss authorities, caused uproar among bondholders and continues to saddle the Swiss government and regulator with legal challenges. Some commentators suggested that it had undermined confidence in the traditionally stable and reliable Swiss banking system.
“The first reactions were based on emotions or people that were very loud because they had their own interest, but I think that, as time went by, people had enough chances to really look at the idiosyncratic situation, and also probably look more carefully into the prospectus of what is written,” Ermotti told CNBC’s Joumanna Bercetche on the sidelines of the UBS Conference in London.
“Those bonds were designed to be there for those kind of situations so I think that people over time, or the vast majority of the people, are coming down to a more balanced way of looking at matters,” he added. More

In the last few weeks, top policymakers have announced more support for the economy, primarily struggling local governments.
The International Monetary Fund last week cited Beijing’s policy announcements as a reason to raise its China growth forecast for the year to 5.4%. The IMF also raised its 2024 growth forecast to 4.6%.

BEIJING — China on Wednesday reported better-than-expected retail sales and industrial data for October, while the real estate drag worsened. 
Retail sales grew by 7.6% last month from a year ago, above the 7% growth forecast by a Reuters poll.

Industrial production rose by 4.6% year-on-year in October, faster than the 4.4% pace predicted by the Reuters poll.
Fixed asset investment for the first 10 months of the year grew by 2.9% from a year ago, missing expectations for a 3.1% increase.
Investment into real estate fell by 9.3% during that time, a steeper decline than the 9.1% drop reported for the first nine months of the year.

CHONGQING, CHINA – NOVEMBER 5, 2023 – High-rise buildings are seen in downtown Chongqing, China, November 5, 2023. (Photo by Costfoto/NurPhoto via Getty Images)
Nurphoto | Nurphoto | Getty Images

“Clearly, the property sector remains a weak spot for the economy, which requires further support in the foreseeable future,” Hao Zhou, chief economist at Guotai Junan International, said in a note.
Funds raised by property developers fell at a steeper pace of 13.8% in October for the year so far, versus a 13.5% drop as of September.

National Bureau of Statistics spokesperson Liu Aihua said real estate remained in a “transition period of adjustment.” That’s according to a CNBC translation of her Mandarin-language remarks.
She claimed that in October, there was “marginal improvement” in real estate development and commercial housing sales.
Real estate and related sectors have accounted for about a quarter of China’s gross domestic product.
UBS analysts estimated that share has declined to about 22% this year. New home sales have dropped, while large property developers such as Country Garden have defaulted on their debt.

Unemployment at 5%

Liu declined to share a specific time for resuming the youth unemployment report.
For overall unemployment, she noted it was expected to remain stable, but said there were “structural contradictions” that would require more policy support.

Unpacking retail sales

Within retail sales, sports and other leisure entertainment products saw sales surge by 25.7% in October from a year ago, the data showed.
Catering, as well as alcohol and tobacco, saw sales surge by double digits. Auto-related sales rose by 11.4% from a year ago.
“Retail sales in October was particularly strong, beating even our above-consensus estimates,” Louise Loo, lead economist at Oxford Economics, said in a note Wednesday.
“At this juncture we are skeptical that the now-three consecutive months of strong retail sales data are pointing to a permanent upshift in consumers’ spending propensities,” Loo said.
“Year-to-date retail sales data showed low value discretionary items emerging as an outperforming segment, consistent with what we think is typical of weak economic recoveries (when the consumer’s willingness to spend rests on smaller-ticket items),” the Oxford Economics report said.
Online retail sales of physical goods grew by just 3.7% in October from a year ago, according to CNBC calculations of official data accessed through Wind Information.
However, online sales of non-physical goods surged by 40% year-on-year in October, the analysis showed.
The first week of October marked the final big public holiday for the year in China, known as Golden Week. Official data showed domestic tourism spending recovered to nearly 2019 levels, but that was partly due to more people staying within the country since overseas trips had yet to fully return to pre-pandemic levels.

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In the last few weeks, top policymakers have announced more support for the economy, primarily struggling local governments. Beijing has also taken steps to stabilize the massive real estate sector, which is expected to become a smaller part of the economy in the long term.
The International Monetary Fund last week cited Beijing’s policy announcements as a reason to raise its China growth forecast for the year to 5.4%. The IMF also raised its 2024 growth forecast to 4.6%.
When it comes to real estate, “the pressure remains,” the IMF’s First Deputy Managing Director, Gita Gopinath, told CNBC in an exclusive interview.

“There remains a lot of stress in the market. There remains weakness in the market,” she said. “This is not going to be over with quickly. It’s going to take some more time to transition back to a more sustainable size.”
In other signs of lackluster demand, China’s consumer price index fell by 0.2% in October. However, the so-called core CPI, that excludes food and energy prices, rose by 0.6% from a year ago.
China’s imports unexpectedly rose in October from a year ago in U.S. dollar terms, according to customs data released last week.
However, exports fell by a greater-than-expected 6.4% during that time, the data showed. More

The size of unfinished, pre-sold homes in China is about 20 times the size of developer Country Garden as of the end of 2022, Nomura analysts said.
“We estimate that there are around 20 million units of unconstructed and delayed pre-sold homes,” the analysts said.
Country Garden has been the largest non-state-owned developer in China by sales.

HANGZHOU, CHINA – NOVEMBER 15, 2023 – An aerial photo shows a new property under construction in Hangzhou City, Zhejiang Province, China, Nov 15, 2023. On the same day, data released by the National Bureau of Statistics showed that from January to October 2023, the national real estate development investment was 9,592.2 billion yuan, down 9.3% year on year; Of this total, the investment in residential housing was 7,279.9 billion yuan, down 8.8 percent. (Photo credit should read CFOTO/Future Publishing via Getty Images)
Future Publishing | Future Publishing | Getty Images

BEIJING — The size of unfinished, pre-sold homes in China is about 20 times the size of property developer Country Garden as of the end of 2022, according to a Nomura report on Wednesday.
Country Garden has been the largest non-state-owned developer in China by sales. It ran into financing troubles this year, and defaulted on a U.S. dollar bond last month, according to Bloomberg News.

“We estimate that there are around 20 million units of unconstructed and delayed pre-sold homes,” said Nomura’s Chief China Economist Ting Lu and a team.
About 3.2 trillion yuan ($440 billion) is needed to complete those remaining units, according to the analysts’ estimates.
Apartments in China are typically sold ahead of completion. Ensuring construction of the homes has been a government priority since delays make people less willing to buy new apartments.

At some point next year, the issue of home delivery could turn into a social issue and endanger social stability, and Beijing may eventually need to significantly ramp up policy support.

“In our view, amid the collapsing property sector and widespread credit fallout among property developers, home buyers might get increasingly impatient while waiting for the delivery of their purchased new homes,” the Nomura report said.
“At some point next year, the issue of home delivery could turn into a social issue and endanger social stability, and Beijing may eventually need to significantly ramp up policy support,” the analysts said. “We see this as the key to truly restoring the confidence in the property sector and economy.”

Last year, many homebuyers in China decided not to pay their mortgages on property purchases due to long delays in construction. Developers have faced a financing crunch since Beijing’s crackdown in 2020 on their high reliance on debt. Covid-19 restrictions last year also made construction difficult.
“Assuming 20% volume growth in new home completions for the current year, developers will only manage to deliver 48% of the homes pre-sold between 2015 and 2020, leaving 52% still subject to delays,” the Nomura analysts said. More

The PGA Tour said it will begin to offer professional players direct equity ownership in the new company that will be formed after it reaches a deal with investors.
Talks with the Saudi Public Investment Fund are the tour’s “top priority,” Commissioner Jay Monahan wrote in a memo.

Tiger Woods of the United States and Rory McIlroy of Northern Ireland walk to the 11th fairway during a practice round prior to the 2023 Masters Tournament at Augusta National Golf Club on April 03, 2023 in Augusta, Georgia. 
Ross Kinnaird | Getty Images Sport | Getty Images

The PGA Tour said Tuesday it will begin to offer professional players direct equity ownership in the new company that will be formed after it reaches a deal with investors, according to an internal memo obtained by CNBC.
The tour is currently in negotiations working toward an investment agreement with Saudi Arabia’s Public Investment Fund, which owns LIV Golf, and the DP World Tour. The talks with PIF and the DP World Tour remain the tour’s “top priority,” PGA Tour Commissioner Jay Monahan said in Tuesday’s memo.

The sides reached a framework agreement earlier this year to combine the business interests of the golf leagues. The development triggered anger and criticism, including from players such as Rory McIlroy. The Senate held hearings to investigate claims that the deal was meant to increase Saudi Arabia’s influence in the U.S. through sports investments.
The new program outlined in Tuesday’s memo is the latest move to align the interests of PGA Tour players with the business itself.
“At the point we secure outside investment, this would be a unique offering in professional sports, as no other league grants its players/members direct equity ownership in the league’s business,” wrote. “We recognize – as do all of the prospective minority investors who are in dialogue with us – that the PGA TOUR will be stronger with our players more closely aligned with the commercial success of the business.”
Monahan also wrote that the Tour’s agreement with PIF and DP World Tour has generated interest from other investors. The board is currently reviewing private investors’ bids and will keep negotiating to select finalists, he added.
Last week, Fenway Sports Group Chairman Tom Werner acknowledged that the company has held talks with the PGA Tour, but declined to comment with any further details. There’s been speculation that Fenway could come up with an offer that tops the Saudis’ bid. More

“When I think climate, I think jobs—good-paying, union jobs,” proclaims Joe Biden, America’s president. Ursula von der Leyen, the head of the European Commission, says that her “Green Deal” offers a “healthy planet” for future generations, as well as “decent jobs and a solemn promise to leave no one behind”. Sir Keir Starmer, Britain’s probable next prime minister, promises to back “a new energy company that will harness clean British power for good British jobs”. The state will intervene. The planet will be saved. Jobs will come. And they will be good.Politicians across the rich world agree that industrial policy—wheezes which aim to alter the structure of the economy by boosting particular sectors—deserves to make a comeback. Just about all agree that it should focus on climate change. But is there actually any logic to combining the two? Industrial policy seeks prosperity in the form of economic growth and jobs; climate policy seeks lower emissions and the prevention of global warming. Marrying two aims often means neither is done well. As politicians pour trillions of dollars into green industrial policy, they will increasingly have to choose between the two objectives.The argument in favour of any climate-change measure starts with externalities (those costs or benefits not borne by producers). There is a missing market for pollution, since emitting greenhouse gas is free. It is thus oversupplied, despite the fact that it hurts others. One way to tackle this is by putting a price on carbon, as many countries are doing. Yet doing only this might encourage investment in making dirty technologies more efficient, and as a result allow fossil fuels to extend their lead over clean tech.Hence the need to combine carbon prices with subsidies for clean-tech research. In a paper published in 2016, Daron Acemoglu of the Massachusetts Institute of Technology and colleagues argue that, under such a regime, subsidies would do most of the work in redirecting technological progress towards clean energy. Only after alternatives to polluting tech had become better and cheaper would carbon pricing take over by encouraging their uptake.Would such a regime, prudent though it may be, satisfy the political desire for green jobs? Consider the lithium-ion battery, which powers electric vehicles. In 2019 the chemistry Nobel prize went to three scientists for developing it: John Goodenough, then at the University of Oxford, a British university; Stanley Whittingham of ExxonMobil, an American oil firm; and Yoshino Akira of Asahi Kasei, a Japanese chemical firm. Yet none of these countries dominates production of such batteries. China does. Research produces its own set of externalities (positive ones), since knowledge tends to be shared. As firms would rather not give competitors a leg-up, that makes it undersupplied.The most efficient climate-change policy—taxing carbon and subsidising research—is unselfish. As Dani Rodrik of Harvard University, an advocate of industrial policy, has noted, not only is the social return from investing in green research higher than the private one, so is the international return higher than the national one—meaning that both companies and governments tend to underinvest in it. The greenest policies may therefore not create many jobs. By contrast, greenish policies that create jobs may at least have the merit of making climate action acceptable to voters leery of spending on things that benefit other countries.But as the rich world proceeds along this path, difficulties will emerge. Economists have traditionally criticised industrial policy on the grounds that governments are bad at it. Their ineptitude comes in two forms. First, politicians struggle to “pick winners”. They lack the ability to identify which tech will win out. Although in the late 2000s the American government offered a loan guarantee to Tesla, which eventually emerged as a successful electric-vehicle maker, it also offered support to Solyndra, a solar-power firm that went bankrupt. This lack of knowledge among politicians contributes to the second problem: rent-seeking. Industrial policy offers a way for companies to capture public funds via lobbying. Governments fail to cut off failing businesses, since doing so means admitting that they wasted public money in the first place.The new economics of industrial policy, as put forward by Reka Juhasz of the University of British Columbia, Nathan Lane of the University of Oxford and Mr Rodrik in a paper this year, rests on the idea that such problems can either be solved or have been exaggerated. A disciplined government that cuts off bad investment can avoid waste. Clarity and transparency when it comes to goals will help politicians jettison weak companies.Striking a blowMaybe. But this is where climate and industrial policy become uncomfortable bedfellows. A firm could deliver good jobs while not being any greener than its competitors. Is that a failure or a success? Is an investment that cuts emissions while displacing workers a worthwhile one? Moreover, it is unclear whether, say, guaranteeing a loan to a loss-making clean-tech firm, such as a bail-out for Siemens Gamesa, a German wind-turbine maker, which was confirmed on November 14th, is throwing good money after bad or investing in the climate. Recent strikes by American carmakers were partly motivated by the idea that manufacturing cleaner electric vehicles will mean fewer jobs than assembling their petrol-powered counterparts—a difficult situation for a government committed to green industrial policy. Such policy seeks to improve international competitiveness, deliver high-paying work, make the economy grow, revitalise poorer regions and cut emissions at the same time. In reality, these goals are often opposed.The more ambitions industrial policy becomes, the harder it will be for politicians to exercise the control advocates say is needed. Many governments, including America’s, also want industrial policy to bolster national security, for instance. Taken together, such aims risk an almighty mess. ■ More

For financial markets the Holy Grail is a perfect leading indicator—a gauge that is both simple to monitor and consistently accurate in foretelling the future. In reality, such predictive perfection is unattainable. It is often hard enough to grasp what is happening in the present, let alone the future. A perfect real-time indicator would thus be a potent goblet of knowledge, if not quite the Holy Grail, for investors and analysts to drink from. Recently they have turned their attention towards one impressive candidate: the Sahm rule.Developed by Claudia Sahm, a former economist at the Federal Reserve, in 2019, the rule would have been capable of identifying every recession since 1960 in its early stages, with no false positives. This is no mean feat given that the body which officially declares whether the American economy is in recession sometimes needs a full year of data. The Sahm rule, by contrast, typically needs just a few months.image: The EconomistLike all good rules, it is parsimonious. If the unemployment rate increases by half a percentage point from its trough of the past 12 months, the economy is said to be in a recession. To smooth out the figures, which jump around, both the current unemployment rate and the trough are measured as three-month moving averages. At present the Sahm indicator stands at 0.33 percentage points. It would not take much for it to reach the half-point mark. If the unemployment rate, which hit 3.9% in October, rises to 4.0% this month and 4.1% next month, the economy would, according to the Sahm rule, be in a recession.What about in reality? As Ms Sahm herself is quick to point out, her rule describes an empirical regularity, not an immutable law. What is more, the post-pandemic economy may have fostered the exact kind of conditions that violate this regularity. During downturns companies fire workers, and the layoffs typically go well beyond the Sahm rule’s half-point line.This time, though, the increase in the jobless rate appears to have been driven less by a reduction in demand for workers and more by an increase in their supply. The American labour force, including both people in work and looking for jobs, has expanded by nearly 3m, or 1.7%, since the end of last year. During that same time the number of jobs has increased by about 2m, or 1.2%. “If workers come back and the jobs haven’t caught up with them, the unemployment rate can drift up,” says Ms Sahm. “But then as the jobs catch up, the unemployment rate doesn’t spiral upwards.”For Ms Sahm the sudden fame of her measure has brought with it an additional wrinkle. She has had to grapple with the world taking her rule in a different direction from her initial intent. Ms Sahm was not trying to get into the forecasting business, much less into timing financial markets. Rather, she wanted to come up with a benchmark for triggering automatic payments to individuals in order to insulate them from a recession. “Many people have asked me if we are going into a recession,” she says. “Almost no one has asked me what policymakers can do about it.”Considering the paralysis in Congress, it is a fair bet that policymakers will not do much of anything if unemployment continues to rise in the coming months. So Ms Sahm is now in the curious position of rooting against her own rule, and hoping that America skirts a recession. ■ More