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Chinese Economy Risks Deeper Slowdown Than Markets Realize – Financial Post

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(Bloomberg) — China’s economy risks slowing faster than investors realize as President Xi Jinping’s push to cut its reliance on real estate and regulate sectors from education to technology combine with a power shortage and the pandemic.

Bank of America Corp. and Citigroup Inc. are among those sounding the warning that expansion will fall short this year of the 8.2% anticipated by the consensus of economists. The slump could last into next year, forcing growth below 5%, they warn. Outside 2020’s 2.3%, that would be the weakest in three decades.

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Strategists at Bank of America muse that Xi may even be embracing a once-in-two decades restructuring of the economy akin to Deng Xiaoping’s modernizations of the late-1970s and Zhu Rongji’s revamping of state-enterprises and finance in the 1990s.

“If so, the data flow from China could confound even the pessimists, and we are on guard for that scenario unfolding,” the strategists, led by Ajay Kapur, told clients in a report last week, in which they predicted growth of 7.7% this year and 4% in 2022.

Beijing is determined to shift its economic model from its boom years, in which the country loaded up on debt and propelled itself to become the second-largest economy. 

Xi is now overseeing a plan to stabilize debt growth — in order to ease financial risks — curb inequality and channel financial resources into hi-tech manufacturing to counter the threat of technology restrictions from the U.S.

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Data released last week already showed a sharp slowdown in growth to 4.9% in the third quarter from 7.9% in the previous quarter, with more pain likely to come as electricity shortages persist.

Even before the pandemic hit, China was surprising economists with slower-than-expected growth caused by Beijing’s resolve to ease debt risks, which meant it avoided broad stimulus even as the U.S.-China trade war threatened expansion.

After modest easing to cushion the worst effects of the coronavirus, its debt-control policy resumed, with real estate companies such as China Evergrande Group feeling the biggest impact.

Xi also set about seeking to reshape the consumer technology, private tutoring and real estate sectors, with officials arguing they represent a wasteful use of the country’s limited resources. Officials have mostly embraced the resulting slowdown.

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China’s Premier Li Keqiang in March announced a growth target of “above 6%” for the year. While analysts saw this as a signal that Beijing was prioritizing other policy goals such as financial stability and environmental protection above economic growth, most at the time saw the target as extremely conservative.

“I’ve joked that maybe Li Keqiang knew more than we did,” said Bert Hofman, a former director of the World Bank’s China office who now heads the National University of Singapore’s East Asian Institute.

But Beijing has signaled in recent weeks that it could loosen some policies, telling banks to pick up the pace of mortgage lending even as it repeated vows not to use the property sector as a short-term stimulus.

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Any policy loosening in the next few months will be aimed at “preventing disaster” rather than supporting growth, Hofman said. 

“As long as growth is above 6%, I think China would feel relatively happy,” he added.

People’s Bank of China Governor Yi Gang recently said he sees about 8% expansion for this year, and to achieve that, the economy would only need to expand 3.9% in the current quarter, according to calculations from Bloomberg Economics.

China’s slowdown comes as the global recovery from Covid-19 risks losing momentum.

“When China’s economic engine sputters, growth fizzles the world over,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong.

Among those at risk from less investment in China are commodity exporters such as Australia, South Africa and Brazil. Slower trade could also hit the likes of Malaysia, Singapore and Thailand. The impact could be felt further afield, according to Tuuli McCully, Singapore-based head of Asia-Pacific economics at Scotiabank. 

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“Countries such as Chile and Peru ship significant amounts of commodities to China and will feel the impact of weaker real estate and other fixed asset investment activity in China,” she said.

Financial market spillovers may be more contained given the 18% peak to trough correction in China’s CSI 300 Index this year did not spark global contagion, said Alvin Tan, head of Asia foreign-exchange strategy at Royal Bank of Canada in Hong Kong. One possible upside from a cooling Chinese economy is that it could alleviate global inflation pressures, Tan said.

“Nonetheless, the net impact is decidedly negative for a world that is still recovering from the pandemic,” Tan said.

For now, even the most pessimistic economists expect growth to come in above 7.5% this year, a relatively rapid rate for an economy the size of China’s. Beijing has set a goal of doubling gross domestic product from 2020 levels by 2035, which implies annual growth of around 5%. That may prove to be a floor for policy makers.

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China could see real estate investment fall 10% in the first half of next year and still achieve 5% annual growth as its credit cycle is close to its bottom and fiscal policy could pick up ahead of a crucial Communist Party congress in the autumn, said Bo Zhuang, China economist at Loomis Sayles Investments Asia.

He predicts Beijing could set a growth target around 5.5% for next year.

Still, the recent weakness when combined with concerns over Evergrande is prompting analysts to wonder if they remain too sanguine on near-term prospects.

Bank of America’s strategists outlined a “bearish scenario” involving a disorderly adjustment to the real estate market in which property prices fall 10%, cutting sales and deterring banks from lending to the sector. In that scenario, growth could reach as low as 7.5% this year and 2.2% in 2022.

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The other risk is that China’s policy makers may struggle to flick the switch back to growth mode if they feel that’s needed. Citigroup economists led by Xiangrong Yu noted that the electricity shortages that are crimping industrial production will make it harder to cushion growth by boosting investment in infrastructure. That kind of policy could only work next year once the power crunch eases, they said.

Local governments are also struggling to find viable projects to invest in while property developers’ tight financing has slowed their land purchases, threatening to undermine a $1 trillion revenue source for local governments.

“Property and energy problems will continue to affect growth in the fourth quarter,” said Houze Song, a China economy researcher at U.S. think tank, the Paulson Institute. It “seems likely that full year growth will end below 8%.”

©2021 Bloomberg L.P.

Bloomberg.com

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A timeline of events in the bread price-fixing scandal

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Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

The Canadian Press. All rights reserved.

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S&P/TSX composite up more than 250 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

The Canadian Press. All rights reserved.

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