Finance

China should focus on fighting deflationary pressure

Published

2 months ago

September 6, 2024

Yi Gang was governor of the People’s Bank of China from 2018 to 2023. He is pictured here speaking at the Peterson Institute for International Economics in Washington, DC, US, on Saturday, April 15, 2023.

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SHANGHAI — China’s policymakers need to focus on boosting domestic demand, Yi Gang, former head of the People’s Bank of China, said Friday at the Bund Summit in Shanghai.

“I think right now they should focus on fighting the deflationary pressure,” Yi said, adding that “the key word is: how to improve domestic demand, how they can successfully deal with the situation of the real estate market as well as the local government debt problem, and influence the confidence of society.”

“At this point, proactive fiscal policy and accommodative monetary policy are important,” he said.

In contrast to high inflation in the U.S. and Europe, China’s consumer prices fell in 2023 and have only picked up marginally so far this year as domestic demand remains lackluster.

The latest CPI read, due out on Monday, is expected to tick up from 0.5% year-on-year growth in July to 0.70% in August, according economists polled by Reuters. That would still be only the fastest since February’s 0.7% CPI increase.

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Yi said he expected the consumer price index to “converge above zero by the end of the year,” while the producer price index would likely reach zero, after negative prints in recent months.

The core CPI, which strips out food and energy prices, rose by 0.4% in July from a year ago, down from 0.6% in June and May.

Yi was PBoC governor from March 2018 to July 2023. Pan Gongsheng is the current head of China’s central bank.

Zou Lan, director of the PBoC’s monetary policy department, told reporters Thursday the central bank still had room to lower the reserve requirement ratio, which determines the amount of cash banks need to have on hand. It is just one of the PBoC’s several monetary policy tools.

In July, Chinese policymakers announced major support for a trade-in policy to boost consumption. While central and local authorities have also taken steps to bolster the massive real estate market, sales and investment in new properties have still fallen.

“The challenge for Chinese policymakers is to manage the housing crisis, and to ensure that there is enough domestic demand to maintain the high level of economic growth,” Jeffrey J. Schott, senior fellow at the Peterson Institute for International Economics, told reporters Thursday.

“That is so important for the Chinese economy and for moving more and more people up to higher standards of living,” he said.

Contrast with Japan

Chinese consumption has remained lackluster since the pandemic. In the major cities of Beijing and Shanghai, retail sales fell by 3.8 % and by 6.1%, respectively, in July from a year ago, official data showed.

Major factors behind low consumer sentiment include uncertainty about future income and the wealth impact from the real estate market slump.

“Central banks should avoid prolonged deflation even if it is mild, that could affect wage determination,” Haruhiko Kuroda, former head of the Bank of Japan, said during the same panel session as Yi.

Kuroda pointed out that China’s current deflationary situation has been far shorter than what Japan faced. But he said that 15 years of deflation in Japan prevented wages from going up significantly, until the last year or two.

— CNBC’s Sonia Heng contributed to this report.

Finance

U.S. ‘industrial renaissance’ is driving a rebound in fundraising

Published

6 hours ago

November 20, 2024

Business Finance News

Jonathan Gray, president and chief operating officer of Blackstone Inc., from left, Ron O’Hanley, chief executive officer of State Street Corp., Ted Pick, chief executive officer of Morgan Stanley, Marc Rowan, chief executive officer of Apollo Global Management LLC, and David Solomon, chief executive officer of Goldman Sachs Group Inc., during the Global Financial Leaders’ Investment Summit in Hong Kong, China, on Tuesday, Nov. 19, 2024.

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An “industrial renaissance” in the U.S. is fueling demand for capital, Marc Rowan, CEO of Apollo Global Management said at the Global Financial Leaders’ Investment Summit in Hong Kong.

“There is so much demand for capital, [including through debt and equity] … What’s going on is nothing short of extraordinary,” Rowan said on Tuesday during a panel discussion.

This demand has been supported by massive government spending, particularly on infrastructure, the semiconductor industry and projects under the Inflation Reduction Act, said the asset manager, who is reportedly in the running for Treasury Secretary position under President-elect Donald Trump.

“What we’re watching is this incredible demand for capital happening against a backdrop of a U.S. government that is running significant deficits. And so the capital raising business, I think that’s going to be a good business,” he said.

Industrial policies, including the CHIPS and Science Act and the 2021 infrastructure legislation, warrant billions in spending.

Rowan added that the U.S. has been the largest recipient of foreign direct investment over the past three years and is expected to stay at the top spot this year as well.

Rowan and other panelists also identified energy and data centers — needed for artificial intelligence and digitization — as growth sectors requiring more capital.

Blackstone President and COO Jonathan Gray told the panel that data centers were the biggest theme across his entire firm, with the company employing billions on their development.

“We’re doing it in equity, we’re doing it financing … this is a space we like a lot, and we will continue to be all in as it relates to digital infrastructure.”

Fundraising and M&A recovery

Other panelists at the summit organized by the Hong Kong Monetary Authority said that capital raising was well-positioned to recover from a recent slowdown.

According to David Solomon, Chairman and CEO of Goldman Sachs, capital raising activity had reached peak levels in 2020 and 2021 amid massive Covid-era stimulus but later became muted amid the war in Ukraine, inflation pressures and tighter regulation from the Federal Trade Commission.

There has been a recent pick up in activity as conditions have normalized, along with expectations of friendlier regulation on dealmaking from the FTC under the incoming Donald Trump administration, Solomon said.

While there remains an inflationary backdrop and other risks in the current environment, Ted Pick, CEO of Morgan Stanley said that the consumer and corporate community are “by in large, in good shape” as the economy continues to grow.

“This environment has been one where, if you are in the business of allocating capital, it’s been great,” he said, adding that the group was now gearing up to get into “raising capital mode.”

“That is [the] hallmark of a growing and thriving economy, which is where the classic underwriting and mergers and acquisitions businesses take hold,” he said.

Solomon predicted that these trends would see “more robust” capital raising and M&A activity in 2025.

Finance

Visa & Mastercard execs grilled by senators on high swipe fees

Published

13 hours ago

November 19, 2024

Business Finance News

The Senate Judiciary Committee convened on Tuesday for a hearing on the alleged Visa–Mastercard “duopoly,” which committee members from both sides of the aisle say has left retailers and other small businesses with no ability to negotiate interchange fees on credit card transactions.

“This is an odd grouping. The most conservative and the most liberal members happen to agree that we have to do something about this situation,” committee chair and Democratic Illinois Sen. Dick Durbin said.

Interchange fees, also known as swipe fees, are paid from a merchant’s bank account to the cardholder’s bank, whenever a customer uses a credit card in a retail purchase. Visa and Mastercard have a combined market cap of more than $1 trillion, and control 80% of the market.

“In 2023 alone, Visa and Mastercard charged merchants more than $100 billion in credit card fees, mostly in the form of interchange fees,” Durbin told the committee.

Durbin, along with Republican Kansas Sen. Roger Marshall, have co-sponsored the bipartisan Credit Card Competition Act, which takes aim at Visa and Mastercard’s market dominance by requiring banks with more than $100 billion in assets to offer at least one other payment network on their cards, besides Visa and Mastercard.

“This way, small businesses would finally have a real choice: they can route credit card transactions on the Visa or Mastercard network and continue to pay interchange fees that often rank as their second or biggest expense, or they could select a lower cost alternative,” Durbin told the committee.

Visa and Mastercard, however, stand by their swipe fees.

“We consider them incentives, some people might consider them penalties. But if you can adopt new technology that reduces the risk and takes fraud out of the system and improves streamlined processing, then you would qualify for lower interchange rates,” said Bill Sheedy, senior advisor to Visa CEO Ryan McInerney. “It’s very expensive to issue a product and to provide payment guarantee and online customer service, zero liability. All of those things, and many more, senator, get factored into interchange [fees].”

The executives also warned against the Credit Card Competition Act, with Sheedy claiming that it “would remove consumer control over their own payment decisions, reduce competition, impose technology sharing mandates and pick winners and losers by favoring certain competitors over others.”

“Why do we know this? Because we’ve seen it before,” Mastercard President of Americas Linda Kirkpatrick said, in reference to the Durbin amendment to the 2010 Dodd-Frank Act, which required the Fed to limit fees on retailers for transactions using debit cards. “Since debit regulation took hold, debit rewards were eliminated, fees went up, access to capital diminished, and competition was stifled.”

But the current high credit card swipe fees for retailers translate to higher prices for consumers, the National Retail Federation told the committee in a letter ahead of the hearing. The Credit Card Competition Act, the retail industry’s largest trade association wrote, will deliver “fairness and transparency to the payment system and relief to American business and consumers.”

“When we think of consumer spending, credit card swipe fees are not the first thing that comes to mind, yet those fees are a surprisingly large part of consumer spending,” Notre Dame University law professor Roger Alford said. “Last year, the average American spent $1,100 in swipe fees, more than they spent on pets, coffee or alcohol.”

Visa and Mastercard agreed to a $30 billion settlement in March meant to reduce their swipe fees by four basis points for three years, but a federal judge rejected the settlement in June, saying they could afford to pay more.

Visa is also battling a Justice Department lawsuit filed in September. The payment network is accused of maintaining an illegal monopoly over debit card payment networks, which has affected “the price of nearly everything,” according to Attorney General Merrick Garland.