China prepares boost for economy as foreign investors turn hostile

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Policymakers in China have some tough challenges ahead as the country’s economic recovery slows while foreign investors turn increasingly hostile. 

Beijing is expected tomorrow to unveil stimulus measures and cut interest rates in an attempt to reinvigorate an economy weighed down by a property slowdown, weaker trade and record youth unemployment. The country’s reopening, which was expected to give a jolt to the global economy, has also failed to revive confidence.

As a precursor, Beijing yesterday announced measures to manage short-term liquidity in the banking system and lower costs for companies, including tax breaks and measures to cut their borrowing costs and channel loans to certain sectors.

Foreign investors meanwhile are turning cold. Global fund managers, deterred by geopolitical tensions and lower growth are rushing to meet demand for new Asian investment products that exclude China.

The country’s tech groups have also been badly hit by fleeing foreign investors who are selling shares even in profitable big names such as Tencent and Alibaba. “China is getting cancelled and the economy is a dumpster fire,” said one Hong Kong-based analyst.

The worsening relationship with the US is also a constant reminder of what happened to those who backed Russian companies before Vladimir Putin’s assault on Ukraine led to billions of dollars of value disappearing.

The bearish mood towards China is not universal. Billionaire investor Ken Griffin told the FT yesterday that China could still prop up the global economy this year, helping avert an “ugly” showdown in growth if the US fell into recession. And Chinese tech is still in demand in some quarters: the EU for example continues to fund Huawei to run research on next-generation communications systems despite several member states banning the tech group from their telecoms networks. 

Western companies continue to “de-risk” their supply chains by shifting sourcing away from China. Bunzl, the British distributor of products that range from plastic spoons to PPE, said yesterday it was diversifying its sourcing into countries such as Mexico, India, Vietnam and Malaysia.

Some of the rhetoric in markets echoes cold-war thinking. Diana Choyleva, chief economist at Enodo Economics, writes in the FT today that investors need to pick a side as Washington and Beijing battle for economic and geopolitical supremacy.

With the two countries so far ahead in cutting-edge technology, the weapon of choice in this battle, other players have little chance of creating their own independent sphere of influence, she argues.

“Given that both are happy to use economic coercion and sanctions to press their technological advantage,” she says, “countries, companies and investors will be under growing pressure to choose whose technology they want to use and cannot do without.”

Need to know: UK and Europe economy

The UK economy grew by 0.2 per cent in April, driven by a rebound in consumer spending (and fewer strikes). However, data yesterday showing British wage growth accelerating pushed UK short-term borrowing costs above the level reached during the turmoil following the “mini” Budget last autumn. Here’s an explanation of why the labour market seems to be defying gravity.

UK households should expect energy bills to remain high as wholesale prices are still well above the average before the Ukraine war. They could get even worse if suppliers are unable to prevent struggling customers from running up large debts, according to the head of Centrica, British Gas’s parent company.

Britons can also expect food prices to increase when post-Brexit border charges are introduced next January, industry bodies warned. The EU said trade barriers with the UK would likely “deepen further”.

The UK’s pandemic preparations were damaged by austerity and resources having to be diverted to Brexit planning, the Covid inquiry heard on its first day in session.

France’s finance minister Bruno Le Maire told the FT that he would cut public spending after the country narrowly escaped a downgrade in its credit rating.

Investors also seem to be cooling on Germany, where sluggish manufacturing output, slowing consumer spending and weak export growth, together with high inflation and rising borrowing costs, have caused the economy to shrink in the past two quarters.

In better news for the eurozone, factory production rose more than expected in April, driven by a big jump in Ireland.

Swedish central bankers have found a new culprit for surging inflation: Beyoncé. The singer’s decision to start her world tour in Stockholm in May led to a surge in local hotel prices that in turn meant inflation rose more than expected.

Need to know: Global economy

Russia restarted oil exports to North Korea after a pandemic hiatus, while Pyongyang plans to deliver more weapons to Moscow.

Chief economics commentator Martin Wolf says urgent action is needed to help developing countries that have been particularly hard by the polycrisis of the pandemic, supply constraints, war in Ukraine, soaring inflation and tightening money and financial conditions.

Our new graphical presentation explains how the subsea cable market is at risk of dividing into eastern and western blocs as the US pushes China out of the internet’s plumbing.

Need to know: business

Vodafone and Three-owner CK Hutchison agreed a deal to combine their UK mobile businesses and create the country’s largest operator. The deal will reduce the number of networks in the UK from four to three, prompting a likely challenge from regulators.

Shell, Europe’s largest energy company, is boosting its dividend and cutting spending as it tries to “simplify” its business and increase investor confidence.

A Big Read examines the plight of Croatia’s Fortenova, a kind of local equivalent of Walmart that has a similar supersized effect on the country’s economy. The retailer is still struggling to ditch its Russian owners and its failure would undermine the food industry across the western Balkans.

A US judge put a temporary block on Microsoft’s $75bn acquisition of games company Activision Blizzard pending an antitrust investigation. The EU has already cleared the deal, while the UK has blocked it.

Saudi Arabia has spent almost $8bn acquiring and building stakes in gaming companies in the past 18 months to dominate the global industry. Savvy Games Group, wholly owned by Saudi’s $650bn Public Investment Fund, has led the charge.

The bosses of Goldman Sachs and Morgan Stanley said they were seeing “green shoots” in their struggling investment banking businesses, which have seen activity damped by higher interest rates.

The World of Work

Should we pay more attention to food labels marked “harvested by hand”? Columnist Sarah O’Connor argues that companies making a point about the use of human labour should also provide some detail of the pay and conditions under which those people worked.

The big accounting firms should increase pay for junior auditors if they want to make the profession more attractive to young recruits, says the chair of the UK regulator.

Columnist Tim Harford discusses productivity hacks in the new Working It podcast and whether there is a link between personal and national productivity.

FT Alphaville discusses a paper from McKinsey on the effects of generative AI on knowledge workers.

Some good news

US researchers have developed a way of manipulating genes to suppress the population of an insect known to destroy soft-skinned fruit in North America, Europe and parts of South America.