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A new model for Chinese growth

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This year China’s economic growth rate is set to fall behind the rest of Asia for the first time since 1990. This prediction by the World Bank, if materialized, does not only indicate a slowdown in global wealth creation. With President Xi Jinping appointed to a third term by a Communist Party congress starting next weekend, he is also challenging Beijing to find new sources to propel the world’s second largest economy.

China has had slowdowns in the past but this time its specific problems are structural. Although the country’s controversial “zero Covid” policies have dealt a heavy blow, the long-term weaknesses stem from Real estate market crash And the growing pressure in the finances of the local government. Even after the expected recovery after Covid, these drags on the economy are likely to persist. It is highlighted by a rapidly aging society and a decline in the birth rate of about 45 percent between 2012 and 2021.

Likewise, the waning of the massive tidal waves of rural-to-urban migration that fueled China’s industrialization boom is eroding the momentum behind city-building. Inefficiency in the allocation of capital diminishes the returns to employing a large pool of national savings. And while China’s role in international trade remains strong, US sanctions on trade and technology could affect its competitiveness over time.

All of these problems are structural to some extent. They vow economic It may be very different from the past three decades of China. If the World Bank’s forecast of 2.8 percent growth this year is confirmed, it would represent a sharp drop from Beijing’s official target of 5.5 percent. It can also portend significantly slower growth rates in the long run.

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It has long been believed that the solution is for China to aim for it Increase in consumer spending. Doing so would require more redistribution to poor and middle-income families, leaving them with more available income to spend on themselves – in part by reducing the factors that drive them to save a significant portion of their income.

The very high level of Chinese household savings is one reason behind China’s high gross national savings rate – which is 44 percent of GDP compared to the OECD average of 22.5 percent. It reveals the reasons that drive families away from salt more than any other country on earth.

The disintegration of the state-run economy since the late 1980s has shattered the “iron rice pot” of housing, health care, pensions and other benefits, instilling a sense of insecurity. Hundreds of millions of workers who have migrated from farms to factories in recent decades are ineligible for city welfare benefits, forcing them to save. The one-child policy, introduced since the 1980s, means that parents do not expect to rely on an extended family into old age.

These pressures—along with underfunded state pensions, and spiraling costs for education and medical treatment (and exacerbated by corruption in hospitals)—reinforce a savings mindset. This reduces consumer spending, especially when most asset values ​​decline along with real estate prices and stock market indices. Building a more sophisticated financial system can ensure that a less massive amount of savings will finance more productive investments.

If China is to put growth on a more sustainable footing, it needs to empower consumers. In particular, Beijing should allocate massive remittances into state pension funds for both urban and rural residents. This will cost a lot but if Xi is serious about creating “shared prosperity” for future generations, he should make it a priority.

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Economic

Bank of Mexico expects to complete sale of Citibanamex next year by Reuters

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© Reuters. FILE PHOTO: A Banamex bank logo is seen at a branch in Mexico City, Mexico November 17, 2017. REUTERS/Henry Romero/File Photo

MEXICO CITY (Reuters) – Bank of Mexico Governor Victoria Rodriguez said on Wednesday that selling Citigroup Mexican retail bank Citibanamex (NYSE::) is “complicated” and the sale is supposed to be completed next year.

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UK mortgage lenders promise more support for vulnerable groups

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UK mortgage lenders have agreed to take a more consistent and supportive approach to homeowners struggling with the cost of living crisis, a measure prompted by a Treasury meeting with Chancellor Jeremy Hunt and attended by consumer champion Martin Lewis.

“We expect each lender to live up to its responsibilities and support any mortgage borrowers who are finding it difficult at this time,” Hunt said after a roundtable with executives from the country’s largest banks on Wednesday.

Meanwhile, the UK’s Financial Conduct Authority, the financial watchdog, Post the draft guidance Identify key ways to support customers, including patience programs similar to those introduced at the start of the COVID-19 pandemic.

Bankers also recommitted to offering borrowers an opportunity to move to fixed-rate mortgages, without affordability tests, once their existing deals expire if their payments are up to date.

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The chancellor is concerned that there are wide differences in how different banks deal with customers in financial difficulty, an issue that has consistently focused the spotlight on Lewis, a journalist and activist.

Hunt warned lenders to do everything they can to help vulnerable clients through the tough months ahead.

Lewis previously warned that a “perfect storm” was brewing for homeowners in the spring, as soaring energy prices, double-digit inflation and interest rates projected to exceed 4 percent next year make repayment unaffordable.

Bank of England data suggests that a third of borrowers in fixed-rate deals will have to refinance in the next two years – the equivalent of hundreds of thousands of households a month – at much higher rates. Earlier this year, it was the average price for a fixed-five-year deal more than doubled to more than 6 percent.

In addition, the Office for Budget Responsibility’s Office of Financial Oversight said last week that home prices are expected to fall 9 percent over the next two years and could remain below their current level for five years.

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In a separate statement, the FCA outlined the different ways banks can provide relief to customers. These include extending the term of the mortgage, switching to interest-only payments for a temporary period, moving customers to a different interest rate or allowing them to make reduced monthly payments.

The FCA would also allow banks to use automation to “provide forbearance at scale” and proactively identify similar groups of borrowers who might benefit from the same method of forgiveness.

The regulator said it recognized the need for “flexibility and scope to adapt its approach to meet the operational challenge of many clients who need assistance at the same time”.

“If you’re struggling to pay off your mortgage, or worried you might, you don’t have to struggle on your own. Your lender has a range of tools available to help, so Sheldon Mills, FCA’s executive director of consumer and competition, said. You should contact them as soon as possible.

Banks must respond to the proposals by December 21.

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Exclusive: Canada’s largest pension plan, CPPI, is ending the pursuit of cryptocurrency investing

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© Reuters. FILE PHOTO: A representation of bitcoin is seen in front of a stock chart in this illustration taken on May 19, 2021. REUTERS/Dado Ruvik/File Photo

Written by Divya Rajagopal

TORONTO (Reuters) – Canada’s largest pension fund, CBB Investments, has ended its efforts to study investment opportunities in the volatile cryptocurrency market, two people familiar with the matter told Reuters.

The reasons behind CPPI’s abandonment of cryptocurrency research were not immediately clear. CPPI declined to comment but said it has not made direct investments in cryptocurrency. He pointed to previous comments on cryptocurrency by its CEO, John Graham, in which he sounded cautionary.

The people added that CPPI’s Alpha Generation Lab, which studies emerging investment trends, put together a three-member team in early 2021 to research cryptocurrency and blockchain-related businesses, with a view to potential exposure.

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But sources said CPPI gave up the chase this year and redeployed the team to other regions.

CPPI’s move also comes as two of Canada’s largest pension funds have divested their investments following the collapse of cryptocurrency exchange FTX and cryptocurrency lender Celsius, which collapsed this year.

Earlier this year, CPPI CEO Graham said the pension plan, which manages C$529 billion ($388 billion) for nearly 20 million Canadians, did not want to invest in digital currencies simply for fear of missing out.

“You really want to think about the intrinsic value of some of these assets and build your portfolio accordingly,” Graham said in a June speech. “So I’d say crypto is something that we keep looking at and trying to understand, but we haven’t really invested in.”

It was not clear when CPPI dropped its plan. One source said the team was actively evaluating investment opportunities in late July this year, but the second source said the team finished its work earlier than that.

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Details of CPPI’s quest to invest in cryptocurrency and its decision to end it were not previously reported.

The sources declined to be identified because the information was not made public.

Canadian pension funds’ exposure to the cryptocurrency sector has come under scrutiny in the aftermath of the FTX debacle. While Canadian pension funds are not prohibited from buying cryptocurrencies, they are known for risk-averse investment strategies to generate steady returns for retirees.

While CPPI has avoided investments in cryptocurrencies, some of its peers have been caught up in the chaos of the sector this year. The Ontario Teachers’ Pension Fund (OTPP), which oversees approximately C$242 billion in assets, has written off its C$95 million investment in FTX. OTPP said it was “disappointed” with its investment in FTX.

Earlier this year, Canada’s second largest pension fund, Caisse de dépôt et placement du Québec (CDPQ), said it had canceled its C$150 million investment in bankrupt crypto lending firm Celsius. CDPQ has initiated legal action against Celsius in Bankruptcy Court.

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The Ontario Municipal Employees Retirement System (OMERS), which manages C$121 billion, made three allocations to crypto-related companies through the business of OMERS Ventures between 2012 and 2018, but exited all investments in 2020.

Another Canadian pension fund, OP Trust, told Reuters it has investments in the offshore digital asset fund space. She said the investment in core encryption technology.

($1 = 1.3650 Canadian dollars)

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