FirstFT: China growth hopes fade after ‘policy disappointment’

Receive free Global Economy updates

Good morning. China has cut a benchmark lending rate but defied market expectations for broader loosening, prompting economists at Citigroup to downgrade their annual growth forecast to 4.7 per cent.

Citi analysts attributed their forecast downgrade to “policy disappointment”, part of a growing sense that China’s full-year economic growth will fail to hit Beijing’s official target of “about 5 per cent”. Policymakers are grappling with a slowing economy, a weakening currency and a property cash crunch.

The one-year loan prime rate, a reference for bank lending, was cut 0.10 percentage points to 3.45 per cent, the People’s Bank of China announced on Monday. The equivalent five-year rate, which is closely watched because of its relationship to mortgage lending, was kept steady at 4.2 per cent.

Economists polled by Bloomberg had unanimously projected 0.15 percentage point cuts to both the one-year and five-year rates. The outcome was “quite surprising and, frankly, it’s a bit puzzling”, said Hui Shan, chief China economist at Goldman Sachs. Read the full story.

‘Whack-a-mole’ economic playbook: The modern Chinese economy is a blended system of market-based and state-directed “solutions” — an approach that creates more problems than it solves, writes Stephen Roach.

Here’s what else I’m keeping tabs on today:

Xi Jinping in South Africa: The Chinese leader begins a state visit to South Africa — a rare trip abroad for Xi — ahead of this week’s Brics summit in Johannesburg. China will push the emerging-market bloc to become a geopolitical rival to the G7, as leaders from across the developing world gather to debate the forum’s biggest expansion in more than a decade.
Japan: The government is set to decide on when to begin discharging treated radioactive water from the Fukushima nuclear power plant, a plan that has provoked in backlash in the region.
Thailand: After weeks of stalemate, parliament will vote on the prime ministerial bid of Srettha Thavisin from the Pheu Thai party, which announced a pact on Monday to form a government with military-backed parties. (Reuters)
Results: BHP, Baidu, China Aircraft Leasing Group, Kingsoft and Redbubble report earnings.

Five more top stories

1. Arm, the chip designer owned by SoftBank, has filed a preliminary prospectus for a Nasdaq listing set to take place early next month, starting the final countdown to the biggest US initial public offering in almost two years. Bankers and start-up backers hope a successful debut for Arm would help to reopen the IPO market after an 18-month drought, particularly for new tech listings.

2. Mukesh Ambani’s Jio Financial Services made a weak debut on the Indian market on Monday, with share prices falling by 5 per cent in their trading debut to give the company a valuation of $19bn. The drop on the first day of trading reflected investor scepticism about the company, which has yet to lay out details of how it plans to compete against dominant players, such as Bajaj Finance. Here’s what analysts expect from JFS.

3. Australian prime minister Anthony Albanese arranged an internship for his son at PwC in 2021 in the latest sign of the close ties between the government and consultancies. The internship took place two years before it was revealed that a senior partner in PwC’s tax practice had leaked confidential government information to colleagues both in Australia and overseas. Read the full story.

4. A centre-left anti-corruption outsider has won Guatemala’s presidential race in a landslide. Bernardo Arévalo beat former first lady Sandra Torres, as voters in Central America’s largest economy became the latest in the region to reject the establishment over a failure to tackle graft. But Arévalo faces an uphill battle in governing, analysts said.

5. Exclusive: Ukraine nears deal with insurers to cover grain ships travelling to and from Black Sea ports, a vital step in attempts to create a safe corridor for exports after Russia withdrew from a UN-brokered deal last month. Oleksandr Gryban, special envoy for Ukraine’s economy ministry, provided details to the FT about the potential deal.

The Big Read

Welcome to the à la carte world. As the post-cold war age of America as a sole superpower fades, the old era when countries had to choose from a prix fixe menu of alliances is shifting into a more fluid order. The stand-off between Washington and Beijing is presenting an opportunity for much of the world: not just to be wooed but also to play one off against the other — and many are doing this with alacrity and increasing skill.

We’re also reading . . .

Gideon Rachman: Like Japan and South Korea, China has a shrinking population but it has fewer ways to manage the change.
The value of university: As employers decide that job candidates no longer need degrees, the benefits of college years need spelling out, writes Emma Jacobs.
AI chips: Chinese orders for the latest advanced US processors have soared despite the fact that the chips have been deliberately hobbled for the Chinese market to limit their capabilities. Here’s why.

Chart of the day

Competition among battery producers is shaping up to be an all-Asian tussle, with China’s CATL by far the global leader. Korean business LG Energy Solution and Chinese group BYD are scrambling to catch up, with Japan’s Panasonic and SK On and Samsung SDI of Korea also in the running. Who will be winners in the new battery era?

Take a break from the news

Our list of the best new books on economics includes a defence of free markets in The Capitalist Manifesto, and John Coates’ The Problem of Twelve on the troubles that arise when a small number of actors obtain influence over the politics and economy of a nation.