China sets growth target of ‘around 5%’ for 2024

China has set an economic growth target of “around 5%” for 2024 in its newly released Government Work Report and announced the issuance of “ultra-long” special bonds for major projects.

The world’s second-largest economy also plans to target an urban unemployment rate of around 5.5%, the creation of 12 million new urban jobs and a consumer price index increase of around 3%.

The targets for gross domestic product (GDP) and other economic indicators were published as part of the opening of the National People’s Congress annual meeting. Premier Li Qiang, who delivered the report, also announced that China is to remove restrictions for foreign investment in manufacturing.

China set a deficit-to-GDP ratio of 3% for the year, back down from a rare upward revision to 3.8% late last year from the original 3%.

The work report also states that Beijing will issue yuan (CNY) one trillion ($US138.9 billion) in “ultra-long” special treasury bonds this year to fund major projects aligned with national strategies, while CNY3.9 trillion of special-purpose bonds for local governments will be issued this year, a CNY100 billion increase from last year.

“We should appropriately enhance the intensity of our proactive fiscal policy and improve its quality and effectiveness,” the work report said.

Targets for GDP and other economic indicators are issued as part of the opening of the National People's Congress annual meeting in Beijing, which more than 2,800 delegates are attending.

Last year China’s economy grew by 5.2%, just above the official target of 5%.. The economic rebound from the Covid-19 pandemic was slower than many anticipated, while growth was undermined by a slump in real estate and sluggish exports.

This year, China plans to target an urban unemployment rate of around 5.5%, the creation of 12 million new urban jobs and a consumer price index increase of around 3%. The 2024 targets were unchanged from those set for 2023.

In 2023, the National Bureau of Statistics reported that the country averaged a 5.2% unemployment rate in cities and created 12.44 million jobs. The consumer price index rose by only 0.2%, reflecting lacklustre demand.

The work report stresses the need to “ensure both high-quality development and greater security,” preventing risks and maintaining social stability, among other tasks. It calls for implementing the decisions and plans of the Communist Party of China’s Central Committee.

 

Asian Development Bank will direct 55% of funding to climate loans by 2030

The Asian Development Bank (ADB) will allocate 55% of its financing toward addressing climate change by the end of the decade, up from less than 40% now.

"There's an overwhelming lack of funding to address, climate change, food security and other global challenges," Tomoyuki Kimura, director-general for the ADB's strategy, policy and partnerships department, told Nikkei Asia.

Last year, the ADB raised climate change commitments from its own resources by 46%, to US$9.8 billion, of which US$5.5 billion was allocated toward climate change mitigation to reduce greenhouse gas emissions and $4.3 billion for adaptation.

The ADB traditionally devoted about 80% of these commitments to mitigating climate change, but the organisation is shifting funds heavily toward adapting to extreme weather events in Asia.

Asia’s warming is outpacing the global average. Its temperatures rose at roughly double the rate between 1991 and 2022 compared with the previous three decades up to 1990, the World Meteorological Organization reports.

In 2022 alone, climate change affected over 50 million people in Asia, causing more than US$36 billion in economic losses.

Financing needs for climate change will total US$600 billion per year through 2030, the United Nations Framework Convention on Climate Change reports. A Group of 20 panel of independent experts has urged the ADB, the World Bank and other multilateral development banks to expand financing to combat climate change.

However, Japan and Western nations have little fiscal scope for extending additional money to such lenders.

“While maintaining the highest [AAA] credit rating, we’re working to expand financing through the effective use of capital, by reassessing organisational management and by mobilising private-sector funds," said Kimura.

 

Japan’s Nikkei finally breaks 40,000 level

Japan’s Nikkei stock index, which peaked short of the 40,000-point mark at the end of the Eighties, has finally risen above the level 35 years later.

On 22 February, the Nikkei passed its previous all-time high of 38,915.8, reached in 1989 as Japan’s economy was on the precipice of an asset crash that sparked several “lost decades” of economic stagnation. The rally has extended into this week, pushing the Nikkei to a new record closing high on Monday of 40,109.23, up 198 points or 0.5%.

The Nikkei gained 28.2% throughout the whole of 2023, well ahead of the Standard & Poor’s 500 in the US, which itself enjoyed a bumper year.

It has made a further gain of almost 20% so far this year, lifted by strong performances by technology firms amid the AI boom. The weakness of the yen is also attracting foreign investors, and helping Japanese exporters sell abroad.

Japanese stocks have attracted cash from overseas as investors take advantage of the cheap yen and corporate governance reforms that have boosted shareholder returns.

Japan’s overall economy, however, has continued to struggle with anaemic growth amid structural challenges that include a shrinking population and rigid labour force. The Japanese economy officially entered recession earlier this month, relinquishing its place as the world’s third-largest economy to Germany.

Richard Hunter, head of markets for Interactive Investor, commented: “The Nikkei  has been the beneficiary of the exodus from Chinese shares, quite apart from its own currency weakness adding to the attraction, propelling the main index to over 40000 for the first time.

“The strength in tech shares has been an additional feature, while the latest report on GDP implied that growth could actually be revised to positive from negative, which would reverse the previous thought that Japan was actually in a technical recession.”

 

‘Debt debasement’ trade ramps up as US deficit grows, says Bank of America

Bets hedging against the impact of the growing US debt pile are ramping up, according to Bank of America.

The US is adding US$1 trillion worth of debt to its total balance every 100 days, BofA strategists estimate in a recently issued note. That amounts to around US$3.6 trillion worth of debt taken out every year.

The government also appears to be spending more than ever on its military budget, with funding “domestic bliss” and military aid for conflicts overseas costing 9.3% of GDP over the last four years, the bank said.

“Little wonder ‘debt debasement’ trades are closing in on all-time highs,” strategists added, pointing to popular hedges against the US dollar, like gold and bitcoin. Gold prices are up about 6% in the past six months, while after rising 50% so far this year.

That enthusiasm has mostly been attributed to the approval of spot exchange traded funds (ETFs) earlier this year and the coming halving event, though bitcoin proponents have long touted the crypto as a hedge against the debasement of the dollar and the underlying US financial system. 

 Analysts have been warning that the pace of borrowing threatens to diminish the appeal of US government bonds as the flood of supply becomes difficult to absorb and high interest rates make servicing the debt more and more expensive. The ”debasement” of US Treasurys, the market for which is the world’s  largest and most liquid, could make it harder for the government to fund itself as buyers dwindle, suggest analysts.

Over the next five years, the US could soon be spending more on debt interest payments than it does on defence, per an estimate from Capital Group, making it the second-largest burden on the budget.

The national debt has been of particular concern for markets as policymakers continue to spar over budget cuts. The US now risks a partial government shutdown from this weekend if agreements are not reached.

 

Brazil’s dengue fever epidemic creates rising human and economic toll

Brazil, which was one of the countries hardest hit by Covid-19, faces a growing human and economic toll from an epidemic of dengue fever.

At least six Brazilian states in addition to the Federal District are facing dengue epidemics and 17 cities have declared a state of emergency as the country has already registered one million cases of dengue in the first two months of 2024, more than half the 1.6 million cases confirmed last year; which itself was almost 18% higher than in 2022. A total of 214 fatalities were recorded in January and February.

Brazil's public health-care system, the Sistema Único de Saúde (SUS) has struggled to cope, resorting to field hospitals like the one in Brasília and tents in strategic points around its cities to triage patients with suspected cases of dengue.

The mosquito-borne viral disease — which causes symptoms like fever, rash, muscle and joint pain in mild cases and can lead to persistent vomiting, bleeding from the gums and nose, difficulty breathing and death when it becomes haemorrhagic — had only occurred in seven countries before 1970.

But over the past 20 years, the World Health Organisation (WHO) reports the number of yearly dengue cases has increased by eight times with 100 to 400 million registered worldwide every year. Now, roughly half the world's population is at risk of infection.

The impact of dengue on Brazil’s economy could reach Real (BRL) 4.4 billion (US$889 million) in productivity losses in 2024, according to an estimate released last week by the Federation of Industries of Minas Gerais (Fiemg).

The estimate assumes that Brazil will reach a record 4.3 million dengue fever cases by the end of the year and that workers will take an average of seven days of sick leave.

Fiemg also estimates a total economic impact of BRL20.3 billion from the three major arboviruses combined – dengue, Zika and chikungunya. This includes BRL15.1 billion in productivity losses and BRL 5.2 billion in treatment costs, for a total impact of about 0.2% of Brazil’s GDP. The more labour-intensive sectors of the economy, such as services, will be the most affected.

Brazil is not the only countryr where dengue is spreading, with Peru also in the throes of an epidemic. Bangladesh, Nepal, Pakistan, Sri Lanka and Vietnam have also seen dengue spike dramatically. Niger, a subtropical country, reported its first case of the disease in 2022. And in the past year, high-heat US states such as Texas, Florida and California have seen a smattering of unexpected cases of dengue.

 

HSBC and Standard Chartered explore ‘transition’ credits for coal

HSBC Holdings and Standard Chartered are reported to be developing a new kind of financial instrument that’s designed to monetise the shift away from high-carbon assets.

The so-called "transition credits" aim to accelerate the decommissioning of high-carbon coal plants. This initiative seeks to create a tangible financial incentive for reducing carbon emissions by closing coal-powered facilities ahead of their scheduled retirement.

Transition credits are designed to capture the financial value of emissions saved by early coal plant retirements. They promise to add a new dimension to the controversial carbon offsets market, offering a more targeted approach towards curbing the world's reliance on coal, particularly in regions like Asia where coal dependency is high.

Marisa Drew, chief sustainability officer at Standard Chartered, highlighted the challenge of incentivising coal plant shutdowns in coal-dependent markets, emphasising the need for innovative financial solutions.

The banking industry is at a crossroads regarding coal financing. While some institutions have shunned coal for its heavy carbon footprint, others, like HSBC and Standard Chartered, are exploring ways to clean the economy rather than just their balance sheets. HSBC's co-chief executive for Asia-Pacific, Surendra Rosha, stressed the potential of transition credits to address the financing gap in coal phaseouts, marking a significant shift from policy to execution in the battle against climate change.

Despite the innovative potential of transition credits, their development is still in its infancy, with key standards and principles yet to be established by authoritative bodies like the Integrity Council for Voluntary Carbon Markets. However, the finance sector is optimistic about creating a robust, transparent market for this financial instrument, as evidenced by projects like ACEN Corp.'s early retirement of the South Luzon coal plant in the Philippines. This initiative, among others, illustrates the tangible impact transition credits could have on accelerating the transition to cleaner energy sources.

The introduction of transition credits by HSBC and Standard Chartered represents a significant step forward in the financial sector's efforts to combat climate change. By providing a financial mechanism to support the early retirement of coal plants, these banks are paving the way for a more sustainable future. As this market develops, it will be crucial to establish clear standards and transparency to ensure its integrity and effectiveness.

 

WTO talks conclude without major deals struck

Last week’s high-level conference of the World Trade Organization (WTO) that continued into Saturday concluded without deals being reached on agriculture and fisheries, throwing into doubt the effectiveness of the multilateral trade body.

WTO member countries meeting in Abu Dhabi agreed to the extension of a moratorium on e-commerce tariffs for another two years amid efforts to support the growth of trade globally, despite India and South Africa opposing the move.

They also agreed to speed up discussions on dispute settlement reforms at the trade body, according to a WTO document released late on Friday.

“We agree to maintain the current practice of not imposing customs duties on electronic transmissions until the 14th Session of the Ministerial Conference [in 2026],” the document reads. “The moratorium and the Work Programme will expire on that date.”

Since 1998, WTO members have periodically agreed to extend the moratorium, with the previous extension agreed on in June 2022 during the body's 12th ministerial conference.

MC13 saw the world’s trade ministers come together to discuss the most pressing challenges facing global trade and agree a way forward. It concluded with agreements to:

• Protect tariff-free digital trade
• Help developing countries reap the benefits of free trade, and
• Redouble efforts to establish a fully-functioning dispute settlement mechanism by the end of this year

WTO Director-General Ngozi Okonjo-Iweala said the talks came up “against an international backdrop marked by greater uncertainty than at any time I can remember.

“We have achieved some important things and we have not managed to complete others,” she said, while insisting that the “glass was half full.”

 

UK government announces £360 million manufacturing funding package

Ahead of Wednesday’s budget announcement, the British government has pledged a new investment package to help make the UK “a world leader in manufacturing”.

Worth a combined £360 million (US$456 million) from government and industry, the funding will support research and development (R&D) and manufacturing projects in sectors where the UK is – or could be – world-leading, by unlocking investment from the private sector.

The figure includes almost £200 million for aerospace R&D projects, to develop energy-efficient and zero-carbon aircraft technology needed to achieve net zero aviation. There is also £73 million of joint funding for “cutting-edge automotive R&D projects” for electric vehicle technology, to make them more efficient and competitive.

The Treasury explained that supported by more than £36 million of government funding awarded through Advanced Propulsion Centre UK (APC) competitions, this includes four projects which are developing technologies for the next generation of battery electric vehicles, making them more efficient and competitive, led by companies including automotive manufacturers YASA and Empel Systems.

The government is also contributing £7.5 million to help two pharmaceutical companies to spend £84 million to expand their UK plants; Almac, a pharmaceutical company in Northern Ireland produces drugs to treat diseases such as cancer, heart disease and depression, while Ortho Clinical Diagnostics of Pencoed, Wales, produces medical testing products.

Chancellor of the Exchequer, Jeremy Hunt, said that the money would help secure jobs and grow the economy: “We’re sticking with our plan by backing the industries of the future with millions of pounds of investment to make the UK a world leader in manufacturing, securing the highly skilled jobs of the future and delivering the long-term change our country needs to deliver a brighter future for Britain”.

 

Central banks are winning their anti- inflation fight, says BIS

The world's ventral banks are on the brink of victory in the fight to bring the global surge in inflation back under control, claims the Bank for International Settlements (BIS).

The Basle, Switzerland-based BIS – often dubbed the central bankers' central bank due to its regular behind-closed-doors meetings of the world's top monetary policymakers – said there was cause for “cautious optimism” in its latest quarterly report.

“Central banks have taken decisive action and thus prevented inflation from becoming entrenched,” the BIS's Monetary and Economic Department head Claudio Borio told reporters. “At the same time, economic activity has been remarkably resilient, and the financial system has held up well.”

The BIS has been gradually becoming more hopeful about the outlook. At the end of 2023 it said progress in beating back inflation had been encouraging, but stressed at that point that central banks were not out of the woods.

While there was the usual caution that risks remain, Borio noted this time how the “daylight” had narrowed significantly between when markets expect interest rates to start falling again and what the big central banks have been signalling.

“The fact that financial markets have converged on central bank views suggests that, on this occasion at least, central banks had a better appreciation of the risks,” Borio said.

 

Deutsche Bank “to file liquidation suit against Chinese developer Shimao”

Deutsche Bank is preparing a liquidation lawsuit in Hong Kong against Chinese developer Shimao Group, reports Reuters citing two sources.

Shanghai-based Shimao is among the many Chinese developers that have defaulted on offshore bonds, after it missed the interest and principal payment for a US$1 billion offshore bond in July 2022. After that missed payment, its entire US$11.7 billion worth of offshore debt is deemed to be in default.

If confirmed, Deutsche Bank’s suit marks a rare move by a foreign firm that comes amid rising credit defaults and China’s deepening property sector crisis.

The German bank, which is one of the creditors of Shimao, is looking to file the petition this month after it found the developer’s debt restructuring terms unacceptable, said the two people with knowledge of the matter.

Once a top 20 developer in China, Shimao presented its offshore debt restructuring terms to creditors last December after 18 months of negotiations. One of the sources said Deutsche Bank’s credit exposure to Shimao is linked to private dollar bonds.