Finance

Bali, a holiday destination in Indonesia, and Busan, a port in South Korea, are not easily confused. The former produces little industrial machinery; the latter falls short on year-round tropical weather. But the two have something in common. They are among the regions of Asia now imperilled by the less-than-impressive reopening of China’s economy, and the prospect of a prolonged slowdown.Many Asian countries benefited from Chinese growth over the past two decades, becoming entwined with the world’s second-largest economy. Since China is in the midst of a real-estate slump, with property investment down 9% in the first seven months of the year, these countries now face a headache. China is less of a big buyer of their wares than it was. According to data released on September 7th, its imports dropped by 7.3% in the year to August.In the richer parts of the continent, makers of semiconductor circuits and car parts are nursing losses. South Korean exports to China fell by 20% year on year in August. On September 4th the government pledged fresh support, announcing loans for exporters worth up to 181trn won ($136bn), in addition to tax breaks and other schemes earlier in the year. Between January and July exports from Taiwan to mainland China and Hong Kong fell by 28% against a year before. Almost 10% of the country’s gdp is driven by mainland Chinese consumption and investment, estimates Goldman Sachs, a bank.Some exporters may hope that China’s slump, which has been exacerbated by a global slowdown in sales of electronic goods, has bottomed out, since the year-on-year decline in imports has stabilised. But most do not expect a rapid turnaround. The Korean Chamber of Commerce and Industry recently published a survey of 302 domestic companies that export to China. Almost four in five expected the slump to continue. Without more fulsome stimulus from the Chinese government, such low expectations are likely to be met.In South-East Asia tourist numbers are yet to return to anything like their pre-covid levels. Thailand received just 1.8m Chinese travellers between January and July, compared with more than 11m in 2019. A new government in Bangkok last week announced it would relax visa rules to encourage Chinese visitors to return. Several countries in the region have tourism industries large enough to affect their overall balance of trade. In Cambodia, Laos, Malaysia and Thailand, tourism accounted for between 9% and 25% of total exports in 2019—before covid struck—with China the largest source of visitors to all four.image: The EconomistA few Asian countries, such as India, Indonesia and the Philippines, are less exposed to the slowdown, according to Vincent Tsui of Gavekal Research. Their smaller industrial bases mean they have forged fewer Chinese connections over the past two decades. Mr Tsui believes this lower exposure accounts for the better performance of the countries’ currencies against the dollar this year (see chart).Even during an economic slump, not everything moves in the same direction. Thailand’s exporters of durian, a pungent fruit that is inexplicably popular across much of Asia, have been recent winners. In the first seven months of the year, Chinese imports of the fruit have risen by 52%, relative to the same period last year. Thai officials credit new transport links, particularly a train line connecting Laos and China, for the boom. Sadly for the rest of Asia, not everyone is a Thai durian farmer. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Most people would go to London, New York or Hong Kong to find the world’s outstanding financiers. But perhaps Mumbai deserves a look. After all, it is home to three men who rebuilt India’s banking system after its enfeeblement by a wave of socialist experiments that began in the 1950s. The last of these giants, Uday Kotak, announced his retirement from Kotak Mahindra Bank on September 1st.First to retire, in 2020, was Aditya Puri, who left Citibank in the 1990s to create hdfc Bank, which is now worth almost twice as much as his former firm. Second, in June this year, was Deepak Parekh, who left Chase in the 1970s to build one valuable institution himself, in housing finance, before assisting others, including Mr Puri. Finally, Mr Kotak leaves behind an outfit that leads in areas from conventional lending and investment banking to asset management and insurance. The earliest investors in his project received unimaginable returns: a $120 stake would be worth $40m today. His company went public in 1992; its shares have since made a gain of 12,000%.Each of the three giants played a part in recreating a dynamic private sector. The government had taken a sledgehammer to Indian finance, starting in the 1950s with the nationalisation of insurance firms, before taking over private-sector banks between 1969 and 1980. Mr Kotak began his work in 1985, not long after leaving business school. His first activity, like that of Goldman Sachs’s founder Marcus Goldman, was discounting notes. Mr Kotak paid 12% for funds he lent at 16% to suppliers waiting for payment by Tata, a conglomerate, and other companies with strong credit. In 1989 he moved into automotive finance. Cars were in short supply, making them excellent collateral. Mr Kotak arranged to buy in bulk from Maruti Suzuki, the leading manufacturer, then distributed the vehicles through dealerships on the condition that they were financed.As India’s economy opened up in the 1990s, Mr Kotak started new subsidiaries: investment banking for public listings, then insurance and finally commercial banking in 2003. He was not alone in seeing opportunity. Thousands of financial institutions were established in India during the 1990s only to be wiped out by the global financial crisis of 2007-09. But Mr Kotak, along with Messrs Parekh and Puri, avoided the common mistake of providing credit based on political and personal criteria, and made it through.Kotak Mahindra’s market capitalisation peaked in 2021 at $59bn. It has since dropped to $42bn, despite superb growth, profits and credit quality. The peak came just after a rule on bosses’ tenure was imposed by the Reserve Bank of India (rbi), which set a firm end to Mr Kotak’s time in charge. (Mr Puri suffered a similar fate.) Rather than push on to the last day, Mr Kotak stepped aside a bit early, noting he had a large event to plan: his son’s wedding.The names of two candidates to succeed Mr Kotak have been submitted to the rbi for its blessing, as is now required. The head of the central bank, in turn, is appointed by the prime minister. Although an era of explicit financial nationalisation has ended, a quieter one has emerged. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Chinese tech giant Tencent is launching its artificial intelligence model “Hunyuan” for business use at an annual summit on Thursday.
That’s according to Dowson Tong, CEO of the cloud and smart industries group at Tencent, who spoke with CNBC’s Emily Tan in an exclusive interview ahead of the event.
The gaming and social media giant was also set to release an AI chatbot on Thursday, according to an online post.

Chinese tech giant Tencent is launching its artificial intelligence model “Hunyuan” for business use at an annual summit on Thursday, Dowson Tong, CEO of the cloud and smart industries group at Tencent, told CNBC in an exclusive interview ahead of the event.
The news comes days after Baidu revealed a slew of AI-powered applications on Tuesday in the wake of more supportive regulation.

Tencent has said it was internally testing its Hunyuan AI model on advertising and fintech. The gaming and social media giant is also set to release an AI chatbot on Thursday, the company said in an online post.
Tencent is integrating Hunyuan’s capabilities with its existing products for video conferencing and social media, Tong told CNBC.
The company operates WeChat, a widely used messaging and payments app in China, and video conference platform Tencent Meeting.

Baidu and several other Chinese companies received the green light in the last few weeks to release AI-powered chatbots to the public.
Similar to ChatGPT, the bots purport to respond to queries in a human-like, conversational fashion — but primarily in Chinese. Some, such as Baidu’s Ernie bot, also convert text to images and video, with the help of plugins.

OpenAI’s ChatGPT isn’t officially available in China. The chatbot releases follow new Chinese regulation on generative AI that took effect Aug. 15.
When asked about the rules, Tong pointed out that such artificial intelligence is so new that no one knows what impact it will have on society.

“It’s prudent to put in some guardrails in place,” he said. That will help make sure the technology or the services being offered are of high enough quality so they don’t create and distribute false information, he said.
Chinese authorities said the “interim” rules that took effect last month would not apply to companies developing the AI tech as long as the product was not available to the mass public.
That’s more relaxed than a draft released in April that said forthcoming rules would apply even at the research stage.

Development constraints

While Beijing has shown it is more supportive of generative AI than initially feared, Chinese companies also face U.S. restrictions on obtaining advanced semiconductors. The most cutting edge versions of the high-tech chips, known as graphics processing units (GPUs), allow companies to train AI models.
“The constraint that we’re facing will hinder the progress, the speed of development,” Tong told CNBC in response to a question about U.S. restrictions.

He noted demand for computing power overall far exceeds supply in China. To mitigate the shortage, he said companies are “focusing on specific use cases, building models of the appropriate size.”
“And we are hoping that the supply of the GPU compute will be larger in the coming months, and therefore the development of these technologies can get faster.”

AI for business

Tencent is just one of many companies in China — ranging from startups to phone maker Huawei — that have rushed to announce AI products this year. In August, Alibaba announced it was opening its own AI model to third-party developers.
Artificial intelligence requires industry-specific training for the technology to generate value, Tencent’s Tong said. He listed business use cases in tourism, finance, public services and customer service.
“We believe many different customers, in fact, would benefit more by leveraging open-source models and use their own enterprise data to train for their own models to meet the very specific needs in their industrial use cases,” he said.
That designated use can also help with data protection, he said. More

A man passes by a GameStop location on 6th Avenue in New York, March 23, 2021.
View Press | Corbis News | Getty Images

Check out the companies making headlines in extended trading.
GameStop — The video game retailer surged 5% after posting an increase in sales for its latest quarter. GameStop reported revenue of $1.164 billion in the second quarter, up from $1.136 billion in the year-ago period.

American Eagle Outfitters — Stock in the clothing retailer slipped 2.6% after American Eagle reported second-quarter results. Revenue came in at $1.2 billion, meeting Wall Street estimates, according to LSEG, formerly known as Refinitiv. American Eagle’s earnings beat expectations, coming in at 25 cents per share, while analysts called for 16 cents per share.
C3.ai — Shares slipped as much as nearly 6% in extended trading after C3.ai forecast a larger-than-expected operating loss for the fiscal second quarter. The company is calling for an operating loss of $27 million to $40 million, while analysts polled by StreetAccount anticipated a loss of $20.5 million. For the latest quarter, C3.ai posted a loss of 9 cents per share, excluding items, on revenue of $72.4 million, while analysts called for a loss of 17 cents per share on revenue of $71.6 million, according to LSEG.
ChargePoint Holdings — ChargePoint stock slipped 10% after the company reported a fiscal second-quarter revenue miss. The electric vehicle charging infrastructure company noted $150 million in revenue while analysts polled by LSEG forecast $153 million. ChargePoint also said it would cut its global workforce by about 10%.
Verint Systems — The analytics company shed 13% in extended trading after missing on earnings and revenue in its second quarter. Verint posted adjusted earnings of 48 cents per share, while analysts polled by FactSet forecast 57 cents per share. Revenue came in at $210.2 million, falling short of the estimated $57.4 million.
Dutch Bros — The drive-through coffee chain lost more than 5% in after-hours trading after announcing a public offering of $300 million in shares of its Class A common stock.
— CNBC’s Ethan Kraft and Darla Mercado contributed reporting. More

The Tesla logo is seen on a charging station in Virginia, Aug. 16, 2023.
Celal Gunes | Anadolu Agency | Getty Images

Check out the companies making the biggest moves midday.
Roku — Shares popped 2.94% after the streaming company announced it would lay off 10% of its staff, consolidate office space and look to trim other expenses. Roku also boosted its third-quarter revenue guidance to between $835 million and $875 million, versus prior guidance of $815 million.

Tesla — The electric vehicle maker shed 1.78%, falling along with other major tech-related names. The Wall Street Journal also reported late Tuesday that Tesla CEO Elon Musk borrowed $1 billion from SpaceX the same month he acquired Twitter.
AMC Entertainment — Shares tumbled 36.8% after AMC said it plans to sell up to 40 million new shares to raise cash. The issuance of additional shares was expected after it converted preferred APE shares into AMC common stock in August.
Apple — The tech giant dropped nearly 3.58% following a report by the Journal that China banned the use of iPhones and other foreign-branded devices by government officials at work. Bank of America estimates up to a five million to 10 million unit headwind if such a ban went through and was enforced.
AeroVironment — The maker of unmanned aircrafts soared 20.74% after it reported adjusted earnings per share of $1, well above the 26 cents expected from analysts polled by LSEG, formerly known as Refinitiv. Revenue also beat expectations, coming in at $152 million, versus the $129 million expected.
NextGen Healthcare — The stock rallied 14.65% after private equity firm Thoma Bravo said it would acquire the health-care software provider for $23.95 per share, 17% higher than where the stock closed Tuesday.

Enbridge, Dominion Energy — Enbridge’s stock fell 5.89% after Dominion, which slipped 1.8%, said Tuesday it would sell its three natural gas distribution companies to the pipeline operator for $9.4 billion.
Harley-Davidson — The motorcycle maker gained 3.16% after it authorized the repurchase of up to an additional 10 million shares.
GitLab — The technology platform stock added about 0.5% on the back of better-than-expected second-quarter results. Adjusted earnings per share came in at 1 cent, versus the 3 cent loss expected from analysts polled by LSEG. Revenue was $140 million, topping the $130 million expected.
Zscaler — The cloud security stock dropped 2.7% despite beating analysts’ expectations for the fiscal fourth quarter and issuing strong guidance. Zscaler reported adjusted earnings of 64 cents per share, excluding items, on revenue of $455 million. Analysts surveyed by LSEG expected 49 cents in earnings per share and $430 million in revenue. The company also said current-quarter and full-year earnings and revenue should beat Wall Street’s respective consensus estimates.
Asana — Shares fell 13.17% after Asana’s management noted weakness from the technology sector and the disproportionate exposure the company has to pullbacks from companies in the space.
Dexcom — Shares of the medical device company, which focuses on continuous glucose monitoring, rose 6.53% after Dexcom revealed data in an investor presentation Tuesday that CGM adoption increased after patients initiated GLP-1 obesity drugs. The stock has been under pressure this year due to the attention being paid to the weight-loss drugs.
Southwest Airlines — Shares of Southwest Airlines fell 2.6% after the company narrowed its unit revenue outlook for the current quarter. The air carrier said it expects revenue to fall between 5% and 7% for the quarter ending Sept. 30, compared to the same period a year ago. In July, Southwest said revenue could drop as little as 3% this quarter from last year.
— CNBC’s Tanaya Macheel, Alex Harring and Michael Bloom contributed reporting. More

The bonanza could not last for ever. After reaching record volumes in recent months, despite Western embargoes, dwindling domestic production and the risks of navigating the Black Sea, Russia’s crude shipments fell to 3m barrels a day (b/d) in August, some 800,000 lower than the April-May average and below pre-war levels. They are likely to remain sub-par. On September 5th Russia said it would extend a “voluntary” 300,000 b/d cut first announced for August to the end of 2023 (the baseline for this reduction is unclear).Sagging exports deprive the Kremlin of treasure just when it wants to replenish its military arsenal. In August federal-tax revenues from crude sales dropped to just $8bn, down from $10bn in July and $13bn in August last year, according to estimates by Viktor Kurilov of Rystad Energy, a consultancy (see chart). The rouble, which was for a long time another symbol of Russian resilience, has crashed to near 100 to the dollar, its cheapest since the invasion. Both slumps have injected urgency into Russia’s efforts to earn more money from every drop of crude it pumps out. Three types of tactics feature in its new playbook.image: The EconomistThe first—chasing higher prices for the fewer barrels it sells—has faced difficulties. Between January and August, the price of Urals, Russia’s main grade of crude, averaged $59 a barrel, down from $83 in the first eight months of last year. In large part this was because of a lower global oil price, which fell from $104 to $81 over the period. But Western embargoes, which make it easier for other buyers, such as China and India, to negotiate probably played a part, too. So did the g7’s “price cap”, which bans Western shippers and insurers from facilitating Russian crude exports unless the fuel is sold below $60 a barrel.More recently, though, the strategy of chasing higher prices has seen some success. Expectations of peaking interest rates in America, as well as production cuts both by Russia and Saudi Arabia, have helped lift the global oil price, which rose above $90 a barrel for the first time this year on September 5th. This benefits Russia, which in recent months has built a “grey” fleet of tankers—often ageing ships owned by obscure intermediaries in the Gulf, Hong Kong or Turkey—and a state-backed insurance system that insulates much of its distribution network from the price cap’s effects. It is also shipping less from the Black Sea and more from its Baltic and far-eastern ports, where breaches of sanctions are harder to detect. Since mid-August Urals has been trading above $70 a barrel.The West is unlikely to push for stricter enforcement of its price cap: it wants to keep Russian oil flowing to avoid supply shortfalls later this year if the global economy rebounds. Therefore gains in the price of Urals look secure, even if it will be difficult to persuade customers to accept smaller discounts relative to the global oil price. India insists that the rising price of Urals has eroded the grade’s competitive edge, especially compared with Gulf crude. This is a little disingenuous. Urals continues to trade at a solid $7 rebate to the cheapest grade of Saudi crude, reckons Kpler, a data firm, although it is a superior blend. India’s obduracy hints that it probably has the upper hand in talks.As Russia sells less crude, it is also trying to sell more of its premium refined oil—its second tactic for keeping proceeds afloat. To do so, it can process more crude through its refineries by mobilising idle capacity, which Kpler estimates at 10% of the total. Analysts reckon it will postpone much of the maintenance scheduled for this month to autumn next year. And it is maximising yields of diesel, a highly profitable product, to the detriment of jet fuel. In August the country exported more such “clean” products than during the same month in any of the past five years.The third way that Russia is trying to compensate for lower crude shipments is by developing new channels to distribute its oil. Exporters are discreetly cranking up piped flows to those European countries that still can, and do, buy Russian oil: namely, the Czech Republic and Hungary. Analysts expect this to continue until 2025, by when the Czech pipeline operator should have capacity to take more crude from a conduit linking it to Italy.Russia is also starting to send more cargoes through the Arctic, which could cut the cost of shipments to China. The route is 30-45% shorter than those departing from the Baltic and Barents seas. Kpler data show an eightfold rise in Russian crude tankers using this path in 2023. Navigating the Arctic is possible only in the summer and early autumn but Russia, betting on global warming, is targeting year-round sailing by 2025. That may come too late to support the war effort. Much of what will decide Russia’s export receipts in the interim—starting with the state of the global economy—remains beyond its control. ■ More

The European Commission on Wednesday listed six tech giants — Alphabet, Amazon, Apple, Meta, Microsoft and ByteDance — as gatekeepers under its new Digital Markets Act.
The Digital Markets Act is a groundbreaking piece of legislation that aims to encourage greater competition in digital markets and ensure greater choice for consumers.
The rules could lead to some big changes for the platforms of Big Tech companies.

The logos of Google, Apple, Facebook, Amazon and Microsoft displayed on a mobile phone with an EU flag shown in the background.
Justin Tallis | AFP via Getty Images

The European Commission on Wednesday said it designated six tech giants as “gatekeepers” under its new Digital Markets Act — a strict set of rules that could shake up the business models of large digital platforms.
Amazon, Alphabet, Apple, Microsoft, Meta and ByteDance will have six months to bring their core platform services into compliance with the obligations laid out in the EU’s DMA, the commission, which is the executive arm of the European Union, said in a press release.

The commission said it deems Amazon, Apple, Alphabet, Meta, Microsoft and China’s ByteDance as “gatekeepers.” The term refers to massive internet platforms which the EU views are restricting access to core platform services, such as online search, advertising, and messaging and communications.
The bloc also opened five new market investigations into U.S. tech giants Microsoft and Apple, evaluating whether some of the companies’ services should or should not qualify as gatekeepers.
As part of these probes, the EU will study submissions from Microsoft and Apple. The EU believes that Microsoft’s Bing, Edge and Microsoft Advertising platforms and Apple’s iMessage service meet the bar to be considered gatekeepers. Microsoft and Apple argue otherwise.
The EU will also investigate whether Apple’s iPadOS, the operating system behind the Cupertino, California, tech giant’s line of iPad tablets, should be pronounced as a gatekeeper, even though the European Commission says it does not meet the criteria.
The Digital Markets Act is a groundbreaking new EU law that aims to clamp down on anti-competitive practices from big tech players. Smaller internet firms and other businesses have complained of being hurt by these companies’ business practices.

For instance, the mobile operating systems of Google and Apple — which are the primary mobile OS platforms worldwide — charge a 30% fee for in-app purchases, which companies including Spotify and Epic Games have claimed are too high.
Apple said it remains “very concerned” about the privacy and data security risks that the Digital Markets Act poses for its users. The company has said that the DMA could lead to weakened security for its iMessage platform — the EU wants Apple to make it easier for iMessage to work with rival messaging services, such as WhatsApp.
“Our focus will be on how we mitigate these impacts and continue to deliver the very best products and services to our European customers,” an Apple spokesperson said in an emailed statement to CNBC on Wednesday. 
Notably, the EU also designated ByteDance as a gatekeeper. Its social media platform TikTok has come under greater scrutiny globally, with regulators fearing its growing popularity and its potential for spreading disinformation to a young audience.
EU lawmakers have also raised concerns about the prospect of influence from Beijing over TikTok, including the possibility that government authorities could use the app to spy on users. More

Boston Federal Reserve President Susan Collins on Wednesday advocated a patient approach to policymaking.
However, she noted that if the improvement in inflation data is fleeting, “further tightening could be warranted.”

Federal Reserve Bank of Boston President Susan Collins stands behind the Jackson Lake Lodge in Jackson Hole, where the Kansas City Fed holds its annual economic symposium, in Wyoming, August 24, 2023.
Ann Saphir | Reuters

Boston Federal Reserve President Susan Collins on Wednesday advocated a patient approach to policymaking while saying she needs more evidence to convince her that inflation has been tamed.
In remarks that aligned with sentiment from other key central bankers, Collins said the Fed may be “near or even at the peak” for interest rates.

However, she noted that more increases could be needed depending on how the data shakes out from here.
“Overall, we are well positioned to proceed cautiously in this uncertain economic environment, recognizing the risks while remaining resolute and data-dependent, with the flexibility to adjust as conditions warrant,” Collins said in prepared remarks for a speech in Boston.
Those sentiments mesh with recent statements from Fed Chair Jerome Powell and Governor Christopher Waller. Both also supported the patient approach while cautioning that they view recent positive developments on inflation with caution and are ready to approve additional rate hikes if needed.
In a CNBC interview on Tuesday, Waller contended the Fed can “proceed carefully” on policy while noting that it had been “burned twice before” in the past few years on inflation that appeared to be slowing but then turned around.
In her speech, Collins also noted some good news on inflation, as the Fed’s preferred gauge rose just 0.2% in July while wage growth also seems to have slowed.

However, she cautioned that “it is difficult to extract the signal from the noise in the data.” If the improvement is fleeting, “further tightening could be warranted,” she said.
“There are promising developments, but given the continued strength in demand, my view is that it is just too early to take the recent improvements as evidence that inflation is on a sustained path back to 2%,” said Collins, who is a nonvoting member this year on the rate-setting Federal Open Market Committee. Collins will vote again in 2025.
Collins also spoke on the lags with which Fed policy is thought to work.
Generally, economists believe it takes a year to a year and a half for rate hikes to seep through the economy. However, Collins said that Covid-related factors and the general strength of household and corporate balance sheets could lengthen those lags, calling for more caution on policy.
“The goal is an orderly slowdown that better aligns demand with supply, which is essential to ensure that inflation is on a sustainable trajectory back to target,” she said.
Market pricing points to a strong likelihood that the Fed will not raise rates at its Sept. 19-20 policy meeting, according to CME Group data. However, it’s a close call for the Oct. 31-Nov. 1, with traders assigning about a 43% probability of one last increase. More