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China has halted planned cross-borde

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We start the new year with three developments out of China.
Beijing flexes its muscle: China has halted planned cross-border listings between Shanghai and the London Stock Exchange because of political tensions with the United Kingdom, according to Reuters.
The suspension of the Shanghai-London Stock Connect is the latest example of fallout related to the Hong Kong protests to hit companies that are exposed to China.
According to Reuters, politics was behind the suspension of the stock connect mechanism, which has been touted as an important step in the opening up of China’s capital markets.
The suspension comes just weeks before the United Kingdom will leave the European Union, a departure that makes the country’s relationships with big economies such as the United States and China even more important.
The episode highlights the tough choices facing Prime Minister Boris Johnson as he seeks to negotiate new trade deals that are needed to boost Britain’s stagnant economy.
HSBC targeted: Pro-democracy protesters in Hong Kong attacked HSBC (HBCYF) branches on the first day of the new year and vandalized a pair of bronze lions outside the bank’s headquarters in the city.
Protesters accuse the bank of colluding with authorities and frustrating efforts to fund the demonstrations.
Hong Kong New Year's Day march called off after bricks and petrol bombs thrown
At issue is the closure of an HSBC account held by a nonprofit group raising funds for the protests, and the subsequent arrest of four of its members on money laundering allegations.
The bank said in a statement last month that the account closure was “completely unrelated” to the arrests. On Wednesday, it condemned the “repeated” vandalism of its branches.
HSBC was established in Hong Kong in 1865, and is the biggest bank in the financial hub. But like many other global companies that use Hong Kong as a base, it does a huge amount of business in mainland China.
Other companies to come under pressure from the Hong Kong protests include Cathay Pacific (CPCAY), Disney (DIS), Prada (PRDSY) and Swatch (SWGAF).
Central bank acts: The People’s Bank of China has moved to stimulate the country’s economy, giving banks the green light to increase lending by roughly $115 billion.
The PBOC on Wednesday announced a relatively small reduction in the amount of capital banks are required to keep in reserve, freeing up additional money ahead of Chinese New Year, when demand for cash increases due to holiday gift giving.
China’s economy is growing at the slowest pace in decades, and the country’s central bank made a series of adjustments last year aimed at stabilizing growth amid the fallout from the trade war with the United States.
Economists expect the country’s central bank to continue to act. Among the possible moves: another cut to the reserve requirement ratio, or an interest rate cut.

The latest on Carlos Ghosn’s great escape

Japanese authorities have raided the house where fugitive auto executive Carlos Ghosn was staying before he escaped to Lebanon earlier this week, possibly via Turkey.
The latest:
  • Local media reported that Tokyo district prosecutors entered the property where Ghosn had been living on Thursday.
  • CNN affiliate TV Asahi said that prosecutors were working with police to access CCTV video around his home as part of their investigation.
  • Turkish state media reported that seven people have been detained on suspicion of helping Ghosn flee to Lebanon. Police have reportedly detained four pilots of a private airline, two ground staff and the director of a cargo company.
Bottom line: It is still not clear how Ghosn, who is a citizen of France, Brazil and Lebanon, was able to slip out of Japan, where he was awaiting trial on charges of financial misconduct.
It’s very unlikely that Ghosn will be returning to Japan because the country does not have an extradition treaty with Lebanon, where the former Nissan and Renault boss spent his childhood and enjoys popular support.
The implications: “No matter what [Japan does] now, it is very difficult to overcome the embarrassment of letting go one of the most high-profile suspects” of corporate scandal since World War II, said Keith Henry, the founder of Asia Strategy, a research and policy firm based in Tokyo.

Warren Buffett sticks to his guns

According to the Financial Times, Tiffany & Co. (TIF) approached Warren Buffett about making a potential bid after the US company received an offer from luxury giant LVMH (LVMHF).
But the Berkshire Hathaway boss rejected Tiffany’s advances. Why? He thought the asking price was too steep, according to the FT.
Buffett has lamented the fact that valuations for many companies have become prohibitively expensive given that the stock market keeps hitting new record highs. And he has continuously stressed that he won’t overpay for deals.
Yet Berkshire Hathaway (BRKA) is now sitting on $128 billion in cash. And Buffett wrote in the company’s annual shareholder letter in February that he hopes to make “an elephant-sized acquisition.”
There was intermittent chatter last year that Berkshire may be interested in struggling California utility PG&E, and there were rumors that Buffett may want to buy a major US airline, such as Southwest (LUV). Berkshire already owns shares in Southwest, as well as Delta (DAL), American (AAL) and United (UAL).
For now, though, it looks like Buffett will continue to resist the urge to splash out.

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How Technology Saved China’s Economy – The New York Times

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Landing in Shanghai recently, I found myself in the middle of a tech revolution remarkable in its sweep. The passport scanner automatically addresses visitors in their native tongues. Digital payment apps have replaced cash. Outsiders trying to use paper money get blank stares from store clerks.

Nearby in the city of Hangzhou a prototype hotel called FlyZoo uses facial recognition to open doors, no keys required. Robots mix cocktails and provide room service. Farther south in Shenzhen, we flew the same drones that are already making e-commerce deliveries in rural China. Downtown traffic flowed smoothly, guided by synced stoplights and restrained by police cameras.

Outside China, these technologies are seen as harbingers of an “automated authoritarianism,” using video cameras and facial recognition systems to thwart lawbreakers and a “citizen score” to rank citizens for political reliability. An advanced version has been deployed to counter unrest among Muslim Uighurs in the inland region of Xinjiang. But in China as a whole, surveys show that trust in technology is high, concern about privacy low. If people fear Big Brother, they keep it to themselves. In our travels along the coast, many expressed pride in China’s sudden rise as a tech power.

China initiated its economic miracle by opening to the outside world, but now it is nurturing domestic tech giants by barring outside competition. Foreign visitors cannot open Google or Facebook, a weirdly isolating experience, and the trade deal announced Wednesday by President Trump defers discussion of those barriers.

But unlike the Soviet Union, which failed in a similar strategy, China is effectively creating a new consumer culture behind protectionist walls as a tool of political control and an engine of economic growth.

It comes at a crucial moment. Flash back to 2015, when China appeared to be on the verge of the first recession since it began reforming the economy, four decades ago. China’s average income had reached the middle-class phase when developing economies often stagnate. Its working-age population had just started to shrink. Runaway lending, unleashed by Beijing to fight off the global recession of 2008, had pushed private debts to 230 percent of gross domestic product, up from 150 percent.

This was the largest borrowing spree ever in the emerging world, and binges that size had always led to major downturns. But while China’s growth has slowed, according to official numbers, from double digits in 2010 to barely 6 percent, it has yet to suffer its first recession.

What changed was the unexpectedly rapid rise of a new digital economy, now estimated at more than $3 trillion, or a third of national output. Anchored by internet giants such as Alibaba and Tencent, the tech sector was not only counterbalancing the decline in older industries such as steel and aluminum but was also largely debt free. So the bigger the digital economy, the greater China’s capacity to manage mounting debts in the old economy and keep growth alive.

By 2017, tech already accounted for as large a share of output in China as in Germany. A Tufts University survey ranked China the most rapidly evolving digital economy in the world. And the chief executive of Visa quoted a Beijing regulator saying that some 18 months earlier, the nation’s tech giants “were way too small to worry about, and now they’re way too big to do anything about.”

The available studies rely on data at least two years old and probably understate how rapidly China is leapfrogging into the developed world as a tech power. It has more than tripled research and development over the past decade to $440 billion a year, more than in all of Europe. Today nine of the 20 largest internet companies in the world are Chinese (alongside 10 from the United States and one from Canada).

Explosive growth in online banking is helping to fuel 20 percent annual growth in consumer lending and an overdue shift from export manufacturing to domestic consumption as the main driver of economic growth. Set up in 2015, Alibaba’s MYbank has extended loans to 16 million customers, including “3-1-0” microloans that require three minutes to apply, one second to approve and zero humans involved.

Automation is killing off jobs. At Hema grocery stores, owned by Alibaba, little white robots work the lunch counter in place of waiters. Gym patrons follow the steps on a giant video screen embedded in the floor, no trainer required. Shenzhen residents say criminals have been driven off the streets by the surveillance cameras.

Yet on balance, tech is probably creating more professions than it destroys. A recent International Monetary Fund paper estimates that after subtracting the jobs it eliminates, digitalization accounts for up to half of all job growth. Alibaba platforms alone host millions of small companies, which over the past decade have added 30 million jobs — more than China has lost in heavy industry.

China’s tech revolution was made possible by two of the forces that were expected to slow the economy. The population may be aging, but it still provides a vast market in which tech start-ups can blossom. And though growth normally slows when countries attain a middle-class income, in China the new middle class provides the main customers for new mobile internet services.

No other country has this combination. India has the population, not the income. Brazil has the income, not the population. And these democratic societies are also far more suspicious of government surveillance than China is. Witness the widespread controversy over the rollout of biometric IDs in India.

In China, at least outside Xinjiang, the relatively mild concern about personal data has helped fuel the boom in digital payments and e-commerce. China is the world’s largest e-commerce market by far, and fleets of motorbikes painted in the colors of online delivery companies park five to six rows deep outside malls and office towers.

To offset the shrinking of its work force, China needed to increase the productivity of the workers who remain. And as the tech boom took off around 2015, productivity growth began to recover after flatlining for nearly a decade. The I.M.F. paper argues that the economy is bound to slow in coming years, but will slow much more sharply if digitalization stalls than if it continues at the current rapid pace.

No economy can rise in an unbroken line forever, and mounting debts and a declining labor force still weigh on China. By making online loans so readily available to Chinese households, tech may compound the risk of financial crisis.

But for now, it looks as though the tech revolution came along just in time to put off the day of reckoning and rescue the Chinese economy from a deeper downturn.

Ruchir Sharma, author of “The Rise and Fall of Nations: Forces of Change in the Post-Crisis World,” is the chief global strategist at Morgan Stanley Investment Management and a contributing opinion writer. This essay reflects his opinions alone.

The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.

Follow The New York Times Opinion section on Facebook, Twitter (@NYTopinion) and Instagram.

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Lebanon’s mass protests turn violent as the economy and the banks approach collapse – The Globe and Mail

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Riot police pass flames rising from the tents of the anti-government protesters, in Beirut, Lebanon, on Jan. 18, 2020.

Hussein Malla/The Associated Press

The mass demonstrations in Lebanon that brought down the government in October entered a new, dangerous phase over the weekend when battles erupted between protesters and police, pushing the economy another step closer to collapse.

Various media reports said the clashes Saturday night, near Beirut’s main police station, and Sunday night at the parliament buildings injured about 400 protesters, with 120 taken to hospital. Dozens were arrested. Police used water cannons to clear the streets and fired tear gas canisters and rubber bullets.

Human Rights Watch accused the riot police of “launching tear gas canisters at protesters’ heads, firing rubber bullets in their eyes and attacking people at hospitals and a mosque.”

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Lebanon has been on the edge of anarchy since mid-October, when the nearly bankrupt government announced a series of new taxes, including one on WhatsApp calls, that sent hundreds of thousands of people from all sects into the streets.

Within two weeks, Saad Hariri, the Sunni prime minister who was struggling to come up with an economic salvation plan, and his cabinet resigned, just as the Lebanese economy and the banking system were falling apart.

The protests were largely peaceful. That changed last week, when commercial bank outlets and the Banque du Liban, the central bank, were attacked. Over the weekend, the protests expanded and turned into pitched battles between protesters and police. “Another day without a government, another night of violence and clashes,” said Jan Kubis, the UN’s special co-ordinator for Lebanon, in a tweet Sunday.

The protesters want the appointment of a new cabinet composed of independent technocrats who can launch a crisis plan to stabilize the economy. As the demonstrations turn violent, the pressure is mounting on the political blocs controlled by the Sunni, Shia, Christian and Druze parties to put their differences aside and appoint a cabinet under prime minister-designate Hassan Diab, an engineer and academic who has won the parliamentary support of the big Christian and Shia coalition, including Hezbollah, Iran’s powerful political and paramilitary proxy in Lebanon.

The political stalemate has pushed the economy and the banking system into turmoil. A senior Lebanese government technocrat, who is not being identified by The Globe and Mail, said: “We have clearly reached the point where the system is financially, economically and politically dead. The protests will be violent.”

When the weekend protests erupted, geopolitical tensions in Lebanon were already high. The U.S. assassination on Jan. 3 of Qassem Soleimani, Iran’s top military commander, brought Iran and the United States to the brink of war and put Hezbollah on high alert. After the killing, Hezbollah leader Hassan Nasrallah, whose militia is more powerful than the Lebanese army, called for attacks on U.S. military sites.

The Lebanese economy suffers from endemic corruption, lack of capital investment – Beirut’s roads and power plants are crumbling, and the city has no public transportation system – and an unbalanced financial system that is running short of U.S. dollars, which are used to support the fixed peg between the dollar and the Lebanese pound (also known as the lira). The peg is becoming unsustainable, and the pound, whose fixed rate is 1,500 per dollar, is now trading on the black market at about 2,300.

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The financial crisis has triggered a run on the dollar, which has drained the liquidity of the commercial banks. To stem the outflow, the banks recently implemented informal capital controls, which have squeezed the supply of the currency to families and businesses, many of which are going broke. The anger over the short supply of dollars helped spark the protests in October. Lebanese social media is full of videos showing fights between security guards and irate bank customers.

On Monday, a note published by the economics team at Byblos Bank said the financial crisis is severely damaging the economy. New car sales fell more than 33 per cent last year, and the hotel occupancy rate in Beirut in November, a month after the protests started, was a mere 18 per cent; a year earlier, it was 69 per cent.

In a note published earlier this month, the Carnegie Middle East Center, led by Maha Yahya, said the crisis has left the banks “effectively insolvent and illiquid” and will push Lebanon into deep recession, trigger high inflation and push up poverty rates dramatically. “The consequences of the current path are catastrophic,” it said.

It recommended a 10-point plan to reverse Lebanon’s fortunes that would include debt restructuring, recapitalizing the banks and a sovereign bailout of as much as US$25-billion that would be overseen by the International Monetary Fund. Many Lebanese think such a bailout is inevitable but fear that IMF demands for government spending controls – austerity – might push the economy into a long, Greek-style recession.

Our Morning Update and Evening Update newsletters are written by Globe editors, giving you a concise summary of the day’s most important headlines. Sign up today.

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IMF sees no turnaround in sight as it predicts sluggish global economic growth – The Globe and Mail

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IMF Managing Director Kristalina Georgieva is seen during the annual meeting of the World Economic Forum, in Davos, Switzerland, on Jan. 20, 2020.

FABRICE COFFRINI/AFP/Getty Images

Global growth appears to have bottomed out but there is no rebound in sight and risks ranging from trade tensions to climate shocks makes the outlook uncertain, a top International Monetary Fund official said on Monday.

For 2020 and 2021, the IMF trimmed back its global growth forecasts, mostly due to a sharper-than-expected slowdown in India and other emerging markets, even as it said that a U.S.-China trade deal added to hopes the activity was bottoming out.

With trade wars weighing on exports and investment, the global economy expanded by 2.9 per cent last year, its slowest pace since the global financial crisis, despite near synchronized central bank easing that added half a percentage point to global growth.

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“We have not reached a turning point yet,” IMF Managing Director Kristalina Georgieva said told a news conference on the eve of the annual meeting of the World Economic Forum (WEF) in the Swiss ski resort of Davos. “The reality is that global growth remains sluggish.

“Just in the very first weeks of the new year we have witnessed increased geopolitical tensions in the Middle East and we have seen the dramatic impact that climate shocks could have. We saw them in Australia as well as parts of Africa.”

The IMF now sees growth at 3.3 per cent this year, below its October projections for 3.4 per cent and also cut the 2021 forecast to 3.4 per cent from 3.6 per cent.

The reductions reflect the IMF’s reassessment of economic prospects for a number of major emerging markets, notably India, where domestic demand has slowed more sharply than expected amid a contraction of credit and stress in the non-bank sector.

The IMF also said it marked down growth forecasts for Chile due to social unrest and for Mexico, due to a continued weakness in investment.

The Fund said that an easing of tensions between the United States and China, which had stunted GDP growth in 2019, had boosted market sentiment, amid “tentative” signs that trade and manufacturing were bottoming out.

BOOST FOR CHINA, NOT U.S.

The Fund’s cautious outlook assumes that there are no additional flare-ups in U.S.-China trade tensions but Georgieva warned that the root cause of the problem is not yet fixed.

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“The underlying causes of trade tensions and the fundamental issues of reform of the trade system are still with us.”

The IMF upgraded China’s 2020 growth forecast by 0.2 percentage point to 6.0 per cent because the U.S. trade deal included a partial tariff reduction and canceled tariffs on Chinese consumer goods that had been scheduled for December. These tariffs had been built into the IMF’s previous forecasts.

But the Fund did not give a boost to its U.S. growth forecast for China’s pledges to increase purchases of U.S. goods and services by $200 billion over two years. Instead, the IMF said 2020 U.S. growth would be 0.1 percentage point lower than forecast in October, at 2.0 per cent because of the fading stimulus effects from 2017 tax cuts and the Federal Reserve’s monetary easing.

Economic growth in Canada is forecast to be 1.8 per cent in 2020 and 2021, unchanged from projections made in October.

Eurozone growth also was marked down 0.1 percentage point from October, to 1.3 per cent for 2020, largely due to a manufacturing contraction in Germany and decelerating domestic demand in Spain.

India saw a sharp, 1.2 percentage point cut to its 2020 growth forecast to 5.8 per cent, the IMF’s biggest markdown for any emerging market, because of the domestic credit crunch. Monetary and fiscal stimulus is expected to lift India’s growth rate back to 6.5 per cent in 2021, although this is still 0.9 percentage point lower than forecast in October.

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Other emerging markets saw forecast downgrades, the IMF said, including Chile, which has been hit by social unrest. Mexico will grow just 1.0 per cent in 2020, down from 1.3 per cent forecast in October.

With files from The Associated Press

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