China’s Shuddering Economic Engine – The New York Times

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Widespread lockdowns and mass quarantines in China has had far-reaching consequences for the global economy.
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Good morning. Citigroup reported quarterly profits that beat analysts’ expectations, while BlackRock and Wells Fargo missed estimates. “Investors are simultaneously navigating high inflation, rising rates and the worst start to the year for both stocks and bonds in half a century,” said Larry Fink, BlackRock’s C.E.O. (Was this newsletter forwarded to you? Sign up here.)
China’s economy grew at its slowest pace last quarter since the coronavirus appeared in Wuhan in 2020, when the country shut down, shrinking the world’s second-largest economy for the first time in nearly 30 years. The economy expanded 0.4 percent in the second quarter from a year earlier, the National Bureau of Statistics reported today, much lower than the 1 percent that economists surveyed by Bloomberg had expected. The slowdown was caused by widespread lockdowns and mass quarantines from China’s zero-Covid policies that have brought some business activity to a near standstill, The Times’s Daisuke Wakabayashi reports. Youth unemployment soared, shops and restaurants closed, and housing sales slumped.
In 2020, while the rest of the world was gripped by the crushing economic effects of the pandemic, the Chinese economy recovered quickly and charged ahead, as Beijing ordered factories to reopen to meet global consumer demand. This time, however, the signs aren’t as promising. The report cast doubt on China’s ability to reach its growth target of 5.5 percent for 2022.
For a better understanding of how China’s Covid policies have hurt economic growth, our colleague Chris Buckley, The Times’s chief China correspondent, talked through the big issues with Jonathan Wolfe, a writer on our coronavirus briefing.
The lockdown in Shanghai in April and May “gummed up industrial production, logistics and retail in a very important part of China,” Buckley said. With workers ordered to stay home, the port in Shanghai, one of the busiest in the world, created delays that caused a ripple effect of shipping congestion.
The threat of further mass quarantines has heightened investor wariness and could derail China’s attempt to revive growth. The continued efforts to eradicate outbreaks by locking down cities “creates enormous pressures on local officials and populations,” Buckley said, as it can be challenging to extinguish “smaller bursts across the country” with every changing variant.
The major issue ahead is “the draining effects of uncertainty about the country’s Covid policies — especially citywide lockdowns — on economic activity,” Buckley said. That uncertainty has made it difficult for the business world to make investment decisions, including when to buy property.
China’s slowdown could ease global inflationary pressures — but that hasn’t happened yet. A cooler economy could slow consumer spending in China and ease supply chain congestion, keeping prices of Chinese exports in check. If lockdowns in China continue, however, the country’s role in keeping down inflation isn’t guaranteed.
Senator Joe Manchin pulls the plug on climate and tax talks. The West Virginia Democrat’s decision dealt a blow to President Biden’s domestic agenda, and it will make it difficult for the president to take action on anything beyond prescription drug prices and health care subsidies. Manchin said he would not support funding for climate initiatives or raising taxes on wealthy Americans or corporations.
Amazon reportedly cuts its private-label selection. Facing weak sales and increasing regulatory pressures, the retailer has scaled back that business and is considering closing it entirely, The Wall Street Journal reported. Amazon’s practice of selling products from its own house brands next to those of its competitors had attracted antitrust scrutiny.
The payments start-up Stripe lowers its internal valuation by 28 percent. It’s the latest sign of how economic uncertainty and the volatile stock market have affected private companies. The sell-off of tech stocks in the public markets has prompted private start-ups to evaluate whether their soaring valuations over the past two years will hold up.
Alphabet appoints Marty Chávez to its board. Chávez is a partner and vice chairman of the investment firm Sixth Street. He spent 20 years at Goldman Sachs, where he held a number of roles including C.F.O. Chávez will also serve on Alphabet’s audit and compliance committee.
Ivana Trump is dead at 73. The businesswoman and ex-wife of Donald Trump helped build his real-estate empire, but she was better known for being one half of the quintessential 1980s New York power couple. The police were investigating whether Trump fell down the stairs at her Manhattan townhouse.
The N.B.A. has taken a minority stake in the company 15 Seconds of Fame, DealBook is first to report. Terms of the deal were not disclosed. The investment is part of the N.B.A.’s effort to bulk up its technology and fan offerings, as leagues more generally look to new ways to use media to engage fans.
15 Seconds’ product is effectively a digital souvenir. Guests at a game, or any public event where they know they’re being filmed, can download clips of themselves using the company’s app or those of its licensees, like the Philadelphia 76ers. (Think embarrassing moments on the Kiss Cam.) The leagues and 15 Seconds of Fame share revenue from sponsors like Mars Wrigley.
The company has had partnerships with the N.B.A., M.L.B., the Australian Open and others. The investment in 15 Seconds is “a continuation of the N.B.A.’s commitment to embrace innovation and new technologies,” Scott Kaufman-Ross, the league’s head of gaming and new business ventures, told DealBook. Other investors in the company include the late Kobe Bryant.
Owning digital media has become increasingly valuable. It has become a tool for everyone from gaming companies to media franchises to bring people to their apps and potentially create new subscribers. The N.F.L., for example, struck a partnership with Dapper Labs for its “N.F.L. All Day” platform. And Penn National Gaming paid $2 billion to acquire Score Media & Gaming last year, adding sports news and information to its arsenal as it dukes it out for more sports-betting customers.
— Maria Shagina, an expert on Russia sanctions at the International Institute for Strategic Studies, who spoke to The Wall Street Journal about how Chinese firms are increasing sales to Russia of goods with potential military uses.
Crypto companies offering loans and high interest on deposits — like Celsius, which froze user withdrawals last month and declared bankruptcy this week — are getting pummeled in the markets and the media, as a meltdown forces restructuring and consolidation in alternative banking.
“If it’s too good to be true, maybe it is,” Gary Gensler, the S.E.C. chair, said in an interview with Yahoo Finance yesterday, referring to crypto lending platforms’ promises of high returns. Under his watch, the S.E.C. effectively blocked the exchange Coinbase from launching a proposed interest-generating product, Lend, and cracked down on BlockFi’s lending offering.
The collapse of Celsius also proves a point for champions of decentralized finance, or DeFi, platforms — anonymous, automated programs governed by code, not traditional contracts. Advocates say these systems are better than centralized finance platforms like Celsius that have left customers stranded.
When Celsius declared bankruptcy, Robert Leshner, founder of the DeFi lending protocol Compound, tweeted, “Moments ago, @CelsiusNetwork demonstrated why transparent, autonomous, open source #DeFi applications are superior.” His system, where code is law, got the $157 million it was owed by Celsius, while Celsius customers may never get paid. To DeFi believers, this proves their programs, which are susceptible to hacks and exploits, are still less risky than dealing with companies that resemble banks but don’t share their obligations. Earlier this month, the crypto research firm Messari tweeted, “Where select centralized lenders fail, DeFi lending protocols demonstrate the versatility and efficacy of a fully functioning and transparent system.”
Celsius has paid back its remaining debt to DeFi lenders, but its customers’ deposits remain frozen. To finance operations, the company borrowed crypto backed by collateral on DeFi platforms. DeFi transactions are controlled by “smart contracts,” or computer code that executes transactions automatically when specific sets of conditions are met. Crypto devotees have said that code can be a better arbitrator than traditional regulators. A few weeks ago, Celsius owed nearly $650 million to the platforms Maker, AAVE, Notional Finance and Compound, collateralized by about $1.6 billion in crypto. To unlock that collateral, Celsius had to repay. In a filing yesterday, the company said it now owes only $3.2 million, collateralized by $6.6 million in DeFi loans. On the other hand, its customers’ deposits were pooled for use at Celsius’s discretion, including to back loans, and customers still can’t access their assets.
Celsius says it’s not a bank. As its lawyers explained in bankruptcy court yesterday and customers have learned the hard way, “Celsius accounts are not bank accounts, deposit accounts, savings accounts, checking accounts or any other types of asset accounts.” On its website, the company says it was started to “provide fair and transparent services that have been abandoned by banks — fair interest, low rates for loans, and lightning quick transactions.” One thing banks have not abandoned, of course, is insurance on deposits.
Elliott, the activist investor, has reportedly built up a big stake in Pinterest in recent months. (WSJ)
The fast fashion giant Shein is reportedly trying to improve its environmental image ahead of a 2024 I.P.O. (Bloomberg Businessweek)
A sharp global drop in routine vaccinations among children during the pandemic threatens lives. (NYT)
“People Have Money but Feel Glum — What Does That Mean for the Economy?” (WSJ)
Amazon reportedly gave more than $1 million to a new coalition fighting antitrust regulation, without disclosing the funding. (Bloomberg)
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