China’s risky reopening
China is finally
retreating from sweeping zero-Covid policies, with wide-ranging relaxations to long-term tough restrictions. It’s a high-risk move at home, and could have a wider detrimental effect on global markets.
Xi had previously called Covid a “devil virus” that only an “all-out people’s war” could vanquish. But now, his government is allowing home quarantines for the first time and ending test requirements for people in public places, as the extent of economic damage from pandemic controls has become clear.
China’s economy grew just 3 per cent year on year during the first nine months of 2022, well below Beijing's year-end target of 5.5 per cent. Both exports and imports contracted by their biggest margin in years as global demand for Chinese goods weakened.
Thomas Hale explains how, in practice,
arbitrary rules concocted by local officials have made travel within the country harder than it has been for decades. Popular discontent spilled over in late November.
Chinese stocks gained on news of the rules relaxing. But by removing strict controls, failing to vaccinate older people and to boost ICU capacity, China
now risks a Covid “winter wave”, with 1mn Covid deaths according to modelling.
As
Leo Lewis points out, European markets have so far benefitted from weak Chinese demand for gas. Speedy Chinese growth may renew supply chain constraints and intensify inflationary pressure.
Meanwhile, China’s real estate market is
in crisis, pushing increasing numbers of young people
to rent not buy their homes.
The cooling homebuying market comes as Xi’s government’s moves to make more affordable rented housing available, part of his drive for “common prosperity”.
Corporate Germany adjusts to life without cheap gas
In Europe, countries are
making progress on energy policy, cutting their gas demand by a quarter to shed reliance on Russia. They have found alternative sources and are making changes to curb demand.
In Germany and Italy, the EU’s two largest gas-consuming countries, demand fell 23 and 21 per cent respectively last month. It dropped more than a fifth in France and Spain.
“Industry is proportionally driving the biggest reductions,” says one expert. “And this is clearly the result of clear market pricing.” In other words, high prices disincentivise use.
But November was unseasonably warm. All that may change as cold weather bites.
Germany in particular is struggling. Its industrial economy
is trying to reinvent itself for an era without cheap gas from Russia, prompting deep concern about the future sustainability of its business model, which has long been predicated on cheap energy.
Companies across the country are scrambling to adjust to the near-disappearance of Russian gas by dimming the lights, switching to oil - and even cutting production. Some are considering moving their operations to countries where energy is cheaper.
“It’s the company’s biggest crisis since the second world war,” says the chief executive of one of Europe’s oldest porcelain manufacturers, which fires cups, vases and plates in kilns heated to 1,600C.
“We’re living hand to mouth.”
Sunak’s woes: debt and strikes
In the UK, confrontation between the government and unions is
rapidly turning into one of the biggest tests on Rishi Sunak.
The PM is under pressure to speed up strike-busting legislation, with MPs demanding new union curbs in the face of the biggest wave of industrial action since 1989.
More than 1mn working days will be lost to strike action in December, based on unions’ plans for action by postal workers, NHS staff and civil servants. Unions say their staff are under so much pressure they are already failing to deliver basic public services.
But MPs are asking why the government has not enacted legislation designed to keep railways running during strikes, promised three years ago by Boris Johnson. The bill was only introduced in October, meaning it is unlikely to come into force until next year at the earliest - too late for the current wave of disputes.
Despite the disruption, public sympathy for striking public sector workers is growing. Find out how industrial action is likely to affect the wider UK economy
here.
In more problems for Sunak, the UK government will be forced to issue about £240bn in gilts a year for the next six years in order to support its spending - a historic debt deluge.
Subsidising household energy bills, paying for public services and servicing interest on existing debt has set the stage for a half-decade of bond sales.
That is leading to questions about who is going to buy all the UK gilts.
“I don’t think the market has quite come to terms with the scale of all this,” says one asset manager. “It’s cataclysmic.”
Spotlight on ESG
In business news, Norway’s oil fund is to
vote against companies without net zero targets. The $1.3tn sovereign wealth investor, the world’s biggest, will also reconsider groups that overpay their executives.
“Yes, we can be [more vocal] and I think we will be . . . we can vote more against the companies where we have different expectations about how they behave,” Nicolai Tangen, the fund’s chief executive, told an FT event in London.
Tangen’s words are a warning to corporations worldwide. The oil fund on average owns 1.5 per cent of every listed company.
Also this week, it emerged that BlackRock’s chief Larry Fink was
put under pressure to resign over ESG “hypocrisy” by UK activist fund Bluebell Capital Partners.
Bluebell this week published a letter it sent to Fink last month, which contended that BlackRock changed positions several times on investing in thermal coal production while failing to live up to Fink’s widely publicised sustainability commitments.
BlackRock dismissed the charges. But critics on both sides of the sustainability debate have rounded on the world’s largest money manager in recent months.
German asset manager DWS is also battling greenwashing accusations. This year it was accused by a whistleblower of misrepresenting the share of its assets invested using ESG criteria, triggering investigations by the Securities and Exchange Commission and German authorities. Its chief executive was ousted.
New chief Stefan Hoops this week
promised to lift its dividend by almost 50 per cent and possibly hand investors more, in an effort to salvage the situation.
Best of the rest of business news
Vodafone has lost its chief executive. Nick Read will leave at the end of the month after a turbulent year, in which the company’s share price tumbled and investors accused management of poor performance.
Activist investors have put pressure on the company to overhaul its sprawling array of businesses and ditch underperforming units.
One investor warned “there are no quick fixes anymore”, saying there were “bad decisions that were taken and not taken”.
Cat Rutter Pooley argues that
ousting Read is not enough: Vodafone needs a radical new chief, preferably from outside.
“It needs someone willing to unsentimentally sacrifice its sacred cows,” she writes. “Otherwise investors face years of slog as management attempts to eke out improvements while untangling an unwieldy mess.”
Keep up with companies news
here.