China’s growth response falls short

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New moves from China to address faltering economic growth, a flailing property sector and a weakening currency have fallen flat, disappointing markets and throwing doubt on the country’s growth targets.

The People’s Bank of China today cut the one-year loan prime rate, a reference for bank lending, by less than expected, while leaving the equivalent five-year rate, significant for mortgage lending, unchanged.

Share prices and the renminbi fell in response, while Citigroup cut its China growth forecast, joining other Wall Street banks in casting doubt on whether the country will hit its official target of “about 5 per cent”.

Calls for more government stimulus have grown after recent data showed the economy slipping into deflation (read our explainer here), exports falling and youth unemployment soaring so much that the government has decided to stop publishing the figures altogether.

Stephen Roach, an academic at Yale, says Chinese policymakers, by opting for a combination of market-based and state-directed solutions are unwittingly engaging in “whack-a-mole” — an approach that creates more problems than it solves.

Today’s moves come as Beijing attempts to step up its influence on the world stage by turning the Brics bloc of emerging economies into a full-scale rival to the G7.

As the FT revealed, several countries including Iran and Venezuela could be invited to join the core group of Brazil, Russia, India, China and South Africa at a summit in Johannesburg from Wednesday. 

Some existing members are sceptical. China sees itself as the natural leader of the global south but other leading players such as India are wary of allowing the Brics to become a China “club”. And South African president Cyril Ramaphosa, host of this week’s summit, has also made clear that his country would “not be drawn into a contest between global powers”.

India and Brazil have also expressed doubts about adding new members, highlighting tensions over whether the Brics bloc should remain an economic forum for diverse developing nations.

As our new Big Read explains, the jockeying comes amid the birth of a new world order, in which America’s role as sole superpower comes to an end and traditional alliances give way to more fluid arrangements where “middle powers” can flex their muscles and take advantage of US-Sino tensions.

FT foreign editor Alec Russell characterises the changes as a move to a new “à la carte” world. “The age of the western set menu is over. And the new menu, while heavily influenced by two lead chefs, is still being written,” he writes.

Need to know: UK and Europe economy

The Office for National Statistics said UK core inflation had begun to fall in the past two months according to a more sophisticated analysis than used normally. It found the underlying annual rate had dropped to 6.8 per cent in July, down from 7 per cent the previous month and 7.3 per cent in May.

Asking prices for UK homes recorded their sharpest August drop since 2018 in another sign that the property market is cooling. Housebuilder Crest Nicholson issued a profit warning and said sales were slowing.

European natural gas prices jumped as the prospect of a strike at a liquefied natural gas producer in Australia intensified fears of disruption to global supplies.

Germany’s deputy chancellor Robert Habeck proposed increased scrutiny of Chinese direct investment in critical sectors such as semiconductors and artificial intelligence.

Shares in Turkish banks slumped after the country’s central bank said it would begin to unwind a scheme to protect depositors whenever the lira depreciates against the dollar and the euro. It said at the weekend it would begin to deter savers and businesses from stashing funds in foreign exchange protected savings accounts.

Need to know: Global economy

Ecuador’s presidential election is heading for a run-off on October 15 after
leftist Luisa González scored 33 per cent of yesterday’s vote, ahead of centrist candidate Daniel Noboa on 24 per cent.

Anti-corruption campaigner Bernardo Arévalo won a landslide victory in Guatemala’s presidential election. Analysts are braced for a tense transition and efforts to block Arévalo from taking office or governing effectively.

An FT Big Read tells the story of Lebanon’s discredited central banker Riad Salameh and how his rise and fall mirrors that of a country blighted by deceit and corruption.

India is launching a voice-based payments system powered by artificial intelligence as part of push to bridge internet and literacy gaps in rural areas.

Ethiopia is looking for $20bn from international institutions and foreign investors to help fund its recovery from a two-year civil war.

Need to know: business

Domino’s pizzas will no longer be available in Russia after the US brand’s local operator said it was following other western companies in leaving the country. Many businesses have suffered financial losses as a result of selling at significant discounts or closing their Russian operations. Moscow has also carried out forced nationalisations of some foreign-controlled businesses.

The global private funds industry is bracing for one of the most sweeping regulatory reforms in its history as the US Securities and Exchange Commission prepares to impose tough rules on private equity, real estate and hedge funds. The changes would also affect overseas managers who take money from US investors.

US restrictions are failing to dampen Chinese hunger for the latest AI microchips — even though they have been deliberately hobbled for the Chinese market to limit their capabilities.

Our series on next generation battery makers continues with a look at the potential winners and losers as car manufacturers, mining companies and battery developers all vie for a piece of the action.

Another Big Read looks at the potential for driverless taxis now they have been permitted to operate in San Francisco despite local resistance. Will the rest of the world follow suit?

The World of Work

There may not be as many annoying fish taco-eaters and gym-gear wearers, but hybrid working has made offices noisier places for many people, writes columnist Pilita Clark, as companies cut back on space and herd staff into the cacophonous wastelands of open plan.

Some good news

It can be difficult for doctors to distinguish between common viral infections, bacterial infections and inflammatory diseases in children. New research however indicates that looking at gene patterns in their blood could significantly speed up diagnosis.