The U.S. Treasury Department announced Friday it had formally established two new working groups to discuss China-U.S. economic and financial issues, a tentative sign that communication is improving between the two countries following a trip to Beijing by Treasury Secretary Janet L. Yellen this summer.
Taipei, Taiwan – China may be headed for negative economic growth in certain sectors and regions this year as it struggles with the worst economic indicators since the start of the pandemic, economic analysts have warned.
China’s Communist Party (CCP) has locked down tens of millions of people since the start of 2022 to contain the spread of the Omicron variant, severely impeding key economic sectors, including services and manufacturing.
The draconian measures have disrupted production at factories operated by firms from Foxconn to Tesla and Toyota, and crimped retail sales as millions have been forced to stay at home.
The Purchasing Managers’ Index, a key metric that measures the health of the manufacturing sector, fell to 49.5 percent in March and 47.4 percent in April, according to China’s National Bureau of Statistics. A reading below 50 indicates a contraction. In Shanghai, the most populous city, first-quarter retail sales fell 3.8 percent compared with the previous year.
As Beijing warns against deviating from its controversial “dynamic Covid Zero” strategy, there are few signs of a respite from the economic bleeding on the horizon.
On Tuesday, WHO Director-General Tedros Adhanom Ghebreyesus said China’s strategy is not sustainable and a “shift would be very important,” in a rare public criticism of the country’s handling of the pandemic.
Shanghai, a key financial and manufacturing hub, has been under some form of lockdown since late March, while much of Beijing is at a standstill as authorities scramble to roll out increasingly strict controls to avoid a city-wide lockdown.
‘Worst set of numbers’
“The takeaway of what we’re seeing in China right now is hands down the worst set of numbers that we have seen in terms of economic performance since the initial downturn that took place in 2020,” Shehzad Qazi, managing director of China Beige Book, which surveys about 1,000 businesses in China each quarter, told Al Jazeera.
China Beige Book’s April results showed that revenue and margin growth had fallen across China’s manufacturing, retail, and services sectors, with new hiring returning to early pandemic levels and borrowing sharply down.
None of this bodes well for Beijing’s ambitious target of 5.5 percent gross domestic product (GDP) growth in 2022, said Qazi, as the pursuit of ‘zero COVID’ at all costs renders traditional economic tools, such as monetary stimulus, largely ineffective.
“Credit can only be put to use if you have normal economic activity, or you have businesses that are functioning,” Qazi said, adding that the CCP is “very limited in what it can do if you’re simultaneously forcing people to stay home”.
Far from adjusting the draconian pandemic strategy, authorities have in recent days tightened restrictions in Shanghai and Beijing. More than 373 million people across 45 cities were under some form of lockdown as of mid-April, according to an analysis by Japan’s Nomura Holdings.
Qazi said he expects the economy to shrink in the second quarter of 2022 if such measures continue, although a full-blown recession is less certain. China last reported a quarter of negative growth in April 2020 but has not experienced a recession — defined as two consecutive quarters of contraction — since the 1970s.
Even without a full-scale recession, lockdowns could create uneven growth between northern and southern China as well as among industries, said Gary Ng, Asia-Pacific economist for Natixis, a French investment and corporate bank.
“Even though it may not enter into a recession as a whole country, if we look at certain provinces, I wouldn’t be surprised to see negative growth for some of the provinces with strict lockdowns,” Ng told Al Jazeera.
While Shenzhen, a manufacturing hub neighbouring Hong Kong, exited its lockdown earlier this year relatively unscathed as factories continued to operate, Ng said exporting the “Shanghai model” elsewhere could have serious economic ramifications.
Tommy Wu, lead economist for Oxford Economics in Hong Kong, said one particularly concerning metric is the effect of lockdowns on logistics and supply chains, with truck flow data at about 30 percent of normal levels.
Wu said he expects the disruptions to last through the second quarter of 2022 with a “ripple effect” on Asian and global supply chains and uneven growth across China’s economy.
“It’s not as bad as 2020, but this is still pretty significant, more significant than what we’ve seen over the past couple of years,” he said.
“I think the official statistics will still tell you a very weak growth … but I would say that there will be contraction at least in some sectors like consumption and also manufacturing.”
Beijing has called attention to growing economic risks in the lead-up to a key National Congress in October without acknowledging that its zero-tolerance policies have been anything less than successful.
This year’s party congress holds particular significance as Chinese leader Xi Jinping is set to seek an unprecedented third term in office.
At a Politburo meeting last month, China’s top leaders emphasized the importance of infrastructure spending and construction to economic recovery, despite the government’s efforts in recent years to reduce the huge debts on the balance sheets of state-run firms.
“China may actually trade off its deleveraging call with basically the short term economic growth in the short run,” said Ng, adding that loose monetary policy could also help companies weather the storm.
Natixis has estimated that for China to hit its 2022 GDP targets, infrastructure investment would need to grow by nearly 18 percent, harkening back to pre-2017 levels. Some of that growth has already started as infrastructure spending grew 8.5 percent in the first quarter compared with 2021, but it still has a way to go, the bank said.
On the consumption side, Ng authorities may look to reduce down payments and interest rates for first-time and even second-time homebuyers.
The real estate sector is expected to recover from a low point at the end of 2021 and the start of the year – when major companies like Evergrande defaulted on loans – while there are signs of a possible reprieve for beleaguered tech companies.
After Beijing launched a sweeping regulatory crackdown on the tech sector in 2020, imposing restrictions on data collection, service fees, and even app usage in pursuit of “common prosperity”, state media has in recent weeks flagged the need for greater support for the industry.
China Beige Book’s Qazi said the issue may return to the national agenda in 2023 or 2024, but for now, the CCP is focused on maximum stability and calm financial markets as it heads into its October meeting.
In the meantime, “zero COVID” appears here to stay.
Oxford Economics’s Wu said it may begin to shift towards a more “dynamic” definition of the strategy as Beijing finds itself both unable to admit defeat and also in need of economic recovery.
Under such an adjustment, provincial and city governments could start to gradually lift lockdowns by area as individual districts are cleared of COVID cases and relax more extreme measures, he said, while continuing with mass testing.
“This year, even though I think it’s really challenging to meet that [growth target], they will try as hard as possible,” Wu said. “It’s an important political year so it’s important for them to balance things out.”
US-China Relations Thaw With Groups to Discuss Economic, Financial Issues – Bloomberg
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U.S., China agree to forge new economic, financial dialogues
The working groups will hold regular direct meetings for “frank and substantive discussions on economic and financial policy matters,” the Treasury statement said. It added that the dialogues would also include and “exchange of information on macroeconomic and financial developments.”
The high-level meetings will be led by Yellen on the U.S. side. China’s economic czar, Vice Premier He Lifeng, will oversee the work led by different agencies in Beijing. U.S. Treasury officials will hold dialogues for the economic working group with Beijing’s Finance Ministry, while the financial talks will take place with representatives from China’s Central Bank.
The new dialogues are part of broader efforts by the White House to reestablish communication channels between Washington and Beijing on a range of geopolitical, security and economic matters following talks between President Biden and Chinese President Xi Jinping in Bali last year. Those efforts have been hampered by hot-button issues, including the discovery of a Chinese spy balloon over the continental United States in February and rolling U.S. trade restrictions aimed at limiting Beijing’s access to U.S. technology.
Nonetheless, the two sides have made strides this year. After abruptly canceling a visit over the spy balloon furor, Secretary of State Antony Blinken traveled to Beijing in June. Yellen’s visit in July was followed by Commerce Secretary Gina Raimondo’s in August, where she announced that the two sides had agreed to hold an official ongoing dialogue on commercial issues, beginning in early 2024, drawing in individuals from the private sector with the aim of resolving issues over U.S. commercial access to the Chinese market.
The new dialogues agreed to by Yellen and He appear to have a broader scope, but it is unclear how often the meetings will take place. In Friday’s statement, the Treasury Department said they would happen at a “regular cadence.” Chinese official media released a brief statement confirming the establishment of the working groups that was sparse on detail, but said the group plans to hold “regular and irregular” meetings.
“These Working Groups will serve as important forums to communicate America’s interests and concerns, promote a healthy economic competition between our two countries with a level playing field for American workers and businesses, and advance cooperation on global challenges,” said Yellen in a statement posted on X, the site formerly known as Twitter, on Friday following the Treasury Department announcement.
Regular high-level economic dialogues between Treasury officials and Beijing were mostly dismantled in 2017, when the Trump administration began implementing sweeping tariffs, trade restrictions and sanctions against Beijing — many of which have remained in place or been extended under the current administration.
Before Yellen’s visit in July, no U.S. treasury secretary had visited Beijing since 2019, when then-Secretary Steven Mnuchin and a team of negotiators conducted limited talks following a total breakdown in discussions months before.
While the new working groups signal a thawing in the economic relationship, communication between the two sides remains fragile. Beijing routinely expresses skepticism of U.S. commitments and has accused officials in Washington of failing to follow through on high-level discussions. Officials in Beijing maintain that the United States has arbitrarily broadened trade and economic restrictions to contain China’s economic growth under the guise of national and economic security.
Most recently, Beijing accused the United States of ongoing economic “bullying” after Biden in August signed an executive order to establish a screening mechanism for outbound investments and to restrict U.S. investment in advanced Chinese technologies, including semiconductors.
“President Biden committed to not seeking to ‘decouple’ from China or halt China’s economic development. We urge the U.S. to follow through on that commitment, stop politicizing, instrumentalizing and weaponizing tech and trade issues,” said Chinese Foreign Ministry spokesman Wang Wenbin following the August announcement.
Yellen and other U.S. officials have sought to push ahead with efforts to reopen channels of communication, while warning that the Biden administration will continue to take targeted actions to protect U.S. national security.
“It is vital that we talk, particularly when we disagree,” said Yellen in her statement on X on Friday.
Net zero: Will Rishi Sunak’s changes to climate policies save money?
LONDON — Amid growing international criticism, British Prime Minister Rishi Sunak has defended watering down key U.K. climate policies.
In a press conference Wednesday, Sunak announced a series of major U-turns on climate policies, including delaying by five years the target to ban sales of new gas and diesel cars — which will now come into force in 2035 rather than 2030 — and a nine-year delay on phasing out gas boilers, which will now come into force in 2035.
Sunak insisted he was not slowing down efforts to combat climate change. But his government’s own climate adviser called the prime minister’s assertion that the U.K. would still succeed in meeting its 2050 net-zero target “wishful thinking.”
Sunak said the changes were about being “pragmatic” and sparing the British public the “unacceptable cost” of net-zero commitments.
His home secretary, Suella Braverman, told the BBC that the Conservative government was “not going to save the planet by bankrupting British people.”
The government’s Climate Change Committee — independent advisers on cutting carbon emissions — estimates that meeting Britain’s legally binding goal of reaching net zero by 2050 will require an extra $61 billion of investment every year by 2030.
But the committee has said that once the savings from reduced use of fossil fuels are factored in, the overall resource cost of the transition to net zero will be less than 1% of GDP over the next 30 years. By 2044, the committee has said, breaching net zero should become cost-saving, as newer clean technologies are more efficient than those they are replacing.
Criticism at home and abroad
Sunak’s overhaul of his green targets has been met with criticism at home and internationally.
Former U.S. Vice President Al Gore described the changes as “shocking and disappointing” and “not what the world needs from the United Kingdom.”
Some in the prime minister’s own Conservative Party warned that the changes risk damaging Britain’s reputation as a global leader on the climate.
Sunak decided not to attend the United Nations Climate Summit in New York this week, making him the first British prime minister to miss a U.N. General Assembly in a decade.
Former Conservative minister Alok Sharma, who chaired the 2021 COP26 U.N. Climate Change Conference in Glasgow, told the BBC Wednesday’s announcement had been met with “consternation” from international colleagues.
“My concern is whether people now look to us and say, ‘Well, if the U.K. is starting to row back on some of these policies, maybe we should do the same,'” he said.
In the U.K., Sunak’s announcement prompted a backlash from climate activists, car manufacturers and the energy industry.
In a statement, U.K. Ford chair Lisa Brankin said, “Our business needs three things from the U.K. government: ambition, commitment and consistency. A relaxation of 2030 would undermine all three.”
And the chief executive of one of Britain’s largest energy suppliers, Eon UK, said the move was a “misstep on many levels.”
Sunak’s pivot occurs as extreme weather due to climate change is growing more frequent
Sunak said the announcement was part of his desire for a more “honest debate” about what reaching net zero will actually mean for the British public.
But he has come under criticism from the British media for claiming to scrap measures that some have pointed out never existed as formal government policy in the first place, such as taxing meat and requiring households to have seven different waste and recycling bins. (The government had previously said it wanted to standardize waste collection in England, although the plan was subsequently delayed and never became policy).
Political analysts say Sunak’s gamble marks a shift for the prime minister, who has spent his first year in office largely steadying the ship after the tumultuous governments of his predecessors Liz Truss and Boris Johnson. With a general election coming up next year, they say, Sunak has chosen net zero as a dividing line.
Sunak’s pivot away from more aggressive action on global warming occurs as extreme weather is becoming more frequent and more intense around the world, including the U.K., because of the effects of climate change. Scientists say this will continue as long as humans continue to emit planet-warming greenhouse gases.
In the U.K., temperatures hit 40 degrees Celsius (104 degrees Fahrenheit) for the first time on record in July 2022. The World Weather Attribution network says this would have been “basically impossible” without climate change.
During this week’s climate summit in New York, London Mayor Sadiq Khan said the capital faced what he called the “incredibly worrying” prospect of seeing 45-degree Celsius (113 degrees Fahrenheit) days in the “forseeable future.”
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