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Chinese banks: Covid will overtake real estate woes in the new year

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Foreign news broadcasts show horrific footage of Chinese hospitals full of coronavirus patients. Nearly half of the passengers on recent flights from China to Milan have tested positive. The Chinese economy is itself sick, correspondingly. As a result, banks will bear a heavy financial burden.

Data suggests that Beijing’s sudden reversal of its restrictive policies regarding the non-spread of the COVID-19 virus caused this to happen. ruin Worse than the widespread lockdowns. Chinese factory activity contracted in December at its sharpest pace in nearly three years. The non-manufacturing index, which measures construction and services sector activity, fell to 41.6 from 46.7 in the previous month. This was well below the 50-point mark that separates contraction from growth.

Chinese health authorities estimate that 250 million people, or about 18 percent of the population, contracted the virus in the first few weeks of December. The real percentage should be closer to the numbers reported by Italian health officials monitoring flights from Beijing.

This points to a severe labor shortage and supply chain disruption. Manufacturing will continue to slow and companies’ financial distress will rise.

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The real estate sector is already in deep trouble. Real estate prices and sales volumes were falling amid slowing consumer demand. The retail and entertainment sectors are also exposed. They would normally expect $110 billion in sales during the Lunar New Year holiday. This year, injuries were the only surge that mattered.

Outside of the real estate business, most major companies have the ability to weather the storm. Small businesses are more at risk. Chinese authorities expect big banks to support troubled companies with soft loans and outright bailouts. Local developers and regional banks are among the previous recipients.

Non-performing loans to Chinese banks had already reached a record high of 3 trillion renminbi ($436 billion) by the middle of last year. Beijing asked major lenders to step in to prop up the housing market with another Rmb1.9 trillion last year. It is increasingly being leveraged in other sectors. China’s debt as a percentage of GDP reached a historic record in the first half.

Shares of the largest banks, including Bank of China, Agricultural Bank of China and China Construction Bank, have fallen in the past six months. China’s largest industrial and commercial bank is down by a tenth and trades at 0.4 times that of tangible books – less than half the price of foreign peers such as HSBC. China’s economic recovery will come at the expense of domestic lenders and their shareholders.

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Economic

First: Musk summons the head of the Saudi Wealth Fund

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good morning. This article is an in situ version of our site FirstFT the news. Subscribe to our site AsiaAnd the Europe/Africa or The Americas A release to send straight to your inbox every weekday morning

good morning. Elon Musk summoned The head of Saudi Arabia’s Public Investment Fund is sued over a 2018 tweet alleging that the Tesla chief had “secured financing” to take the electric car maker private.

Tesla’s legal team filed papers with PIF Governor Yasir Al-Rumayyan’s office manager on December 19, according to court documents filed in California federal court on Tuesday. Musk’s team is seeking Al-Rumayyan, who is also the chairman of Saudi Aramco, to testify at the trial, which is set to begin in San Francisco later this month.

Any definitive testimony from Al-Rumayyan could focus on the discussions the PIF had with Musk before announcing the “financing secured.” The investors who filed the lawsuit allege that Musk manipulated Tesla’s stock price when he tweeted in August 2018 that he had financing to take the automaker private at $420 per share. Deal did not materialize.

Musk has previously said, in public appearances and in court documents, that a “handshake” agreement was reached with Al-Rumayyan and the fund to raise the funds needed to take Tesla off the public markets.

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  • Market news: Tesla shares It fell on the first day of trading in 2023 After shipments of the new batch of cars came in below Wall Street expectations, while the US tech track also pushed Apple’s market value below its peak by $1 trillion.

1. The European Union set to require Covid testing for travelers from China It is expected that the European Union Enforce Covid-19 tests prior to departure Travelers from China within days to try to prevent that country’s infection from spreading to Europe. A spokesman for the European Commission said the “overwhelming majority” of the 27 EU member states requested action at a meeting in Brussels yesterday.

More on the COVID outbreak in China:

  • The European Union has Offer free Covid-19 vaccines to China, an offer promptly rejected by the Chinese government.

  • China Contract on factory activity In December, according to a special survey, it highlights the economic costs of the country’s sudden abandonment of the strict zero Covid regime.

2. Sam Bankman Fried pleads not guilty to the criminal charges Founder of FTX The petition was entered in federal court in Manhattan On Tuesday, just weeks after his arrest in the Bahamas at the request of US federal prosecutors and his subsequent extradition. The eight counts include telephone fraud, conspiracy to commit commodity and securities fraud, conspiracy to commit money laundering, and campaign finance violations.

3. Kevin McCarthy loses his first two major votes It was Kevin McCarthy fight of his political career After losing two votes to be elected Speaker of the United States House of Representatives, he became the first majority party leader in a century to falter in early balloting.

4. The new Israeli Minister of Security makes a surprise visit to Al-Aqsa Itamar bin Juffair They arrived at the Al-Aqsa Mosque compound, the third holiest site in Islam, just after dawn is under tight Israeli security protection. His tour of the compound, which has historically been a hotspot for Israeli-Palestinian tensions, lasted about 15 minutes and passed without incident, according to Israeli authorities.

5. Low oil prices help tame inflation in Turkey Turkish inflation slowed down in December For the second month in a row, recording a sharp decline as the cost of fuel and food fell. Annual consumer price inflation reached 64.3 percent in December, according to data released by the government statistics office on Tuesday. It was the fastest decline in the annual rate in at least 22 years.

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Line chart of the annual change in consumer prices (%) showing the decline in the inflation rate in Turkey

next day

Myanmar Independence Day The nation will celebrate 75 years since it declared its independence from Britain.

Philippine President visits China President Ferdinand Marcos Jr. continues his three-day visit to China, where he is He is expected to meet Chinese President Xi Jinping. On the agenda is a discussion of China’s actions in the South China Sea. (Reuters)

Transport strikes in the UK About 40,000 RMT members will Theater strikes Today, Friday and Saturday in a dispute over wages, job security and changes in work practices. Train users have been warned to “only travel if absolutely necessary”.

What else do we read?

The Covid Generation in China: Growing Inequality Behind Xi’s Transformation Xi Jinping’s administration took a dramatic U-turn last month, ending its no-Covid policy of lockdowns, mass testing and careful contact tracing. One of the less discussed reasons for this was how the policy was sharpened China’s already high levels of social inequalityEspecially among urban and rural residents.

Make business better in 2023 From rethinking networking in the hybrid age to getting a pay raise and leaving the job well – here’s a roundup of some The most useful career guidance for FT Throughout the year to help you hit the ground running in 2023.

Opinion: BoJ needs courage to change course Yield curve control was introduced in Japan in 2016 to boost economic activity and stimulate inflation. With core inflation in November at its highest level in 40 years, A policy shift is necessary. It will be painful, Megan Green writes, but the longer you delay acting, the worse.

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Top Glove strives to have as clean an image as their products After suffering a reputation crisis in recent years, the leading manufacturer of rubber gloves has a strong incentive to convince outsiders that it is committed to employee welfare and work ethics. But as Western policy makers are tightening scrutiny of global supply chainsthe suffering of the Malaysian company could be an indication of the problem of other industries.

Asset managers are bracing for a tough year of cost cutting Facing global asset managers long overdue account Falling assets force them to cut costs and make difficult decisions about where to invest for growth. Most are also under pressure to find money to develop their technology and win new customers, which is cutting staff costs and lowering bonuses.

Take a break from the news

From Vermeer’s new exhibition at the Rijksmuseum in Amsterdam to Joni Mitchell’s first full solo show in 20 years, Here are the top tickets for 2023 From the world of art, music and entertainment.

Dutch artist Vermeer
Vermeer’s Girl with a Pearl Earring will be part of a stunning collection of works by 17th-century Dutch masters at the Rijksmuseum from February

Thank you for reading and remembering that you can Add FirstFT to myFT. You can also choose to receive a FirstFT push notification every morning on the app. Send your recommendations and feedback to firstft@ft.com

asset Management – Discover the inside story on the movers and shakers behind a multi-billion dollar industry. Participation here

next week Start each week by reviewing what’s on the agenda. Participation here

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India’s Toyota unit warns of potential customer data breach by Reuters

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© Reuters. FILE PHOTO: A Toyota logo is seen at a Toyota dealership in Zaventem, Belgium on November 25, 2022. REUTERS/Joanna Geron

(Reuters) – Data breach in Toyota India’s Motor Company (NYSE) said on Sunday that it may have disclosed some personal information of customers.

Toyota India said it has notified Indian authorities of a data breach at Toyota Kirlskar Motor, a joint venture with India’s Kirlskar Group.

TKM said in an emailed statement, without disclosing the scale of the data breach or the number of customers affected.

An unrelated issue with Toyota Motor Corporation’s T-Connect service likely leaked about 296,000 pieces of customer information, it said last October.

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Chinese factories are suffering from the end of the zero covid policy

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Factory activity contracted in China in December, according to a private survey, highlighting the economic costs of the country’s abrupt abandonment of its strict zero Covid regime as it grapples with a nationwide wave of infections.

The Caixin Purchasing Managers’ Index, a special measure of operating conditions in China’s manufacturing sector, showed a reading on Tuesday of 49 for December, its lowest since September and down from 49.4 in November.

Official PMI data in China, released over the weekend, showed a sharp drop in economic activity. The manufacturing and services measures came in at 47 and 41.6 respectively, both falling to their lowest levels since early 2020 at the start of the Covid-19 pandemic. A reading below 50 indicates contraction, while a reading above 50 indicates expansion.

China’s economy, which until recently was severely strained from restrictions designed to keep the virus at bay, is now struggling. The effect of sudden reopening And the outbreak of the disease in major cities.

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as many as possible Hundreds of millions of people may have been infected With COVID by late December, according to internal government estimates, just weeks after authorities began easing President Xi Jinping’s anti-COVID measures.

In Beijing and other major cities, hospitals have been overwhelmed by a wave of elderly and frail patients Supplies of fever medicine and antivirals sold out.

Carlos Casanova, chief economist at UBP in Hong Kong, suggested that while pandemic restrictions were an initial drag on growth in the fourth quarter, the “explosion in Covid cases” was the most important factor in the weak PMI data.

“The main message from the PMI data is that the wave of reopenings has proven very disruptive,” said Julian Evans-Pritchard, chief China economist at Capital Economics. “The market’s euphoria from the shift away from type zero Covid has overlooked how disruptive the shift has been.”

The virus will be officially downgraded on January 8, when international arrivals will no longer be required to quarantine.

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Weak manufacturing activity in December – which marked the fifth consecutive month of declines for the Caixin Manufacturing PMI – followed a prolonged period of economic fragility. Other metrics, including retail sales, an important measure of consumption, also deteriorated at the end of 2022.

China’s CSI 300 index of shares listed in Shanghai and Shenzhen has fallen 1.5 percent over the past month, although it has risen in the past week since announcing the end of Covid zero.

China’s economy It is set to miss its 5.5 percent annual growth target for 2022 — already the lowest in decades — as economists polled by Bloomberg had forecast full-year growth of just 3 percent.

In addition to the wave of Covid infections, policymakers are grappling with a real estate crisis that has weighed on the economy for more than a year. As well as slowing exportsthat supported growth during the early stages of the pandemic.

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However, the Caixin survey bore little silver lining to the outlook for the economy, with plant managers reporting increased confidence for the coming year as the rapid spread of cases fueled expectations after the peak of the wave had passed.

“It’s almost certain by February that things will get over the worst and start to pick up,” Evans-Pritchard said.

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