Chinese economy ‘in dire straits’

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China today cut a key interest rate as new data confirmed a slowdown in the world’s second-largest economy.

The People’s Bank of China unexpectedly cut the medium-term lending rate – through which it provides one-year loans to the banking system – by 10 basis points to 2.75%, the first cut since January and underscoring the concern in Beijing over declining consumer demand.

The country’s economy barely escaped contraction in the second quarter, according to new data released after the central bank’s decision, as consumer and factory activity faltered in the face of repeated pandemic shutdowns.

Retail sales and industrial production rose, but much less than expected, while youth unemployment hit a record 19.9%. Growth in the second half is expected to be further dampened by Beijing’s zero Covid strategy and a slowdown in exports.

Chinese stocks fell on disappointing data, putting them on a different course from rising stock markets in other major economies like the United States and undermining investor confidence in the global outlook.

Several Chinese cities are experiencing new or extended lockdowns and in Shanghai authorities are testing drones to ensure residents scan their health codes on a mandatory smartphone app – dubbed “digital handcuffs” for their use in social control – when they enter a building.

The decline in consumer confidence was evidenced by weakening sales of high-end products, such as the market for second-hand luxury watches and bags. Rising geopolitical tensions are also worsening the outlook for industries such as semiconductor manufacturing, while demand for chips used in smartphones and consumer electronics has slumped.

Chinese investors, hit by market sell-offs and widespread defaults in the country’s struggling real estate market, sought alternative assets such as jade, while cash-strapped consumers launched a new trend for foods soon to expire.

Inflation, although lower than in other major economies, remains at its highest level in two years, according to data released last week.

Lockdowns and strict quarantine rules, however, remain the main drivers of the new pessimism. To take just one recent example, international schools in Hong Kong are struggling to hire teachers ahead of the new school year.

“China is definitely in a very desperate situation,” said Xingdong Chen, an economist at BNP Paribas. “The problem now is that there is no effective demand. If you don’t allow people to go out and consume. . . there is no request. »

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Need to know: the economy

The British Opposition Labour Party unveiled proposals to deal with soaring energy prices, including a freeze on bills, paid for by extending the windfall tax on North Sea oil and gas producers. The two candidates to become the new Conservative Prime Minister are under pressure to follow suit.

Latest for UK and Europe

Liz Trussthe Tory Prime Minister’s voting favourite, said she would make Downing Street the UK’s ‘economic nerve centre’ so he would have more of a say in matters normally the prerogative of the Treasury and with powers increased to push through its program of tax cuts and deregulation.

FT research has shown that the UK bill for debts and social benefits would rise by more than £50 billion next year due to rising inflation and interest rates. James Kirkup of the Social Market Foundation think tank says the UK needs to make tough decisions on taxes and utilities.

Latest World

China has stepped up pressure on Taiwan after a US congressional delegation visited with a new round of military exercises in its effort to isolate the island.

Some 100 million Americans in a quarter of the land area of ​​the United States are threatened by a “extreme heat beltby 2053 as temperatures rise, according to a new report. The current solar belt, which stretches from Florida to southern California, is one of the fastest growing regions in the country.

Rising consumer spending after the lifting of pandemic-related restrictions helped the japanese economy grow at an annualized rate of 2.2% in the second quarter. Headwinds remain due to a further resurgence in Covid cases, rising import costs and slowdowns in major trading partners.

Chief Foreign Affairs Commentator Gideon Rachman reflects on his trip to South Africa and a growing sense of disappointment with Cyril Ramaphosa’s presidency.

Sri Lankan bonds were downgraded to default status by S&P Global after the country missed payments as its political and economic crisis continued. Lack of foreign currency to pay for imports has caused shortages of fuel, food and medicine amid double-digit inflation.

We apologize for a spelling mistake in the last issue of DT. Columbia is obviously spelled that way, rather than Columbia.

Need to know: business

Rising interest rates and rising construction costs threaten to stifle the recovery in office market in Europe. In the UK, the shift to working from home has wiped out entire swaths of downtown restaurantsespecially in the financial district of London.

5.5mn lot from UK small enterprises, which employs three-fifths of the country’s workforce, could collapse without government intervention to help deal with soaring energy costs on top of rising wage bills and raw material costs, supply chain issues and Brexit fallout. Speaking of which, a new report sheds light on the damage leaving the EU has done to the country’s labor market.

Percentage increase bar chart from the second quarter of last year showing that costs for SMEs almost doubled in the three months to June 2022

The sale of Britain’s largest semiconductor producer to a Chinese-controlled company has intensified the debate on how to protect the domestic chip industry, as our Big Read explains. Government intervention is also a hot topic in American politics, where conservative interest in rebuilding the country’s industrial base may finally win out over free-market fundamentalism.

game companies have been impacted as players return to “real” activities and reduce spending. Console producers, video game publishers and gaming chip makers have all reported lower demand after renewed interest during the pandemic.

The long list for FT Business Book of the Year Award is outside. The 15 headlines, chosen by FT journalists from nearly 600 entries, highlight some of the biggest challenges facing the business world, from supply chain disruption to changing labor markets and to runaway inflation.

Energy update

A german energy An official told the FT the country needed to cut its gas consumption by a fifth to avoid shortages this winter. He also warned that the longer-term cost of ending Germany’s dependence on Russia would be “very high gas prices” with big consequences for business.

State controlled Saudi Arabia became the latest oil company to break quarterly profit records following the windfall gains caused by the war in Ukraine. Net profit reached $48.4 billion, a 90% year-on-year increase and the group’s highest revenue since its IPO in 2019.

American producers still refuse to increase production even though they enjoy windfall profits. Oil prices are also the main topic of today’s News Briefing podcast.

Coal producers are also experiencing extraordinary growth. Thungela, South Africa’s biggest thermal coal export, reported profits up more than 4,000% in the first half of the year.

Marc Carneyformer head of the Bank of England and co-chair of the Glasgow Financial Alliance for Net Zero, said governments must seize the opportunity to switch to sustainable energy, backed by the firepower of the global financial sector.

Covid cases and vaccinations

Total number of global cases: 582.2mn

Total doses administered: 12.4 billion

Get the latest global picture with our vaccine tracker

Some good news…

The start of the UK football season has highlighted the important community work being done by many clubs and fan-led initiatives. A good example comes from Partick Thistle Glasgow supporters who successfully raised donations, funded by the club, to provide free subscriptions for local causes and organizations.

Partick Thistle supporters
Partick Thistle fans have collected donations to provide free season tickets for local causes © Tommy Taylor/Partick Thistle Football Club

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