Finance

China’s property woes and U.S. sanctions have hit some cities hard

Published

3 months ago

September 3, 2024

BEIJING — China’s property struggles and U.S. sanctions have significantly affected some of its cities, even as others benefit from Beijing’s tech push, Milken Institute’s best performing cities China index showed Tuesday.

Since 2015, the index has studied China’s large- and mid-sized cities for their economic vibrancy and growth prospects. The latest version generally compares data for 2023 with that of 2021. Last year, the institute did not publish a report due to a reassessment of its methodology.

Hangzhou, capital of the eastern Zhejiang province and home to Alibaba and other tech companies, ranked first in this year’s rankings.

While other cities, such as Zhuhai, once a “rising star,” dropped in the rankings due to the slump in real estate.

The city, in the southern province of Guangdong near Hong Kong, fell 32 places from the previous index published in 2022 to 157th place.” Suddenly no one bought houses.

Builders didn’t have much money to complete their projects,” Perry Wong, managing director of research at the institute, told reporters in Mandarin, translated by CNBC.

Property and related sectors once accounted for more than a quarter of China’s gross domestic product. But in 2020, Chinese authorities started cracking down on real estate developers’ high reliance on debt.

Wong added that real estate dragged down growth for several of the main cities in that region, except for Dongguan. The city of factories, home to Huawei’s sprawling European-style campus, was instead hit by U.S. sanctions. Dongguan dropped 15 places in the Milken index rankings to 199th place.

There are 217 cities in the index. While the nearby metropolis of Shenzhen went up in rankings, the city landed in 9th place, behind Beijing. A majority of the Chinese companies initially blacklisted by the U.S. were based in Shenzhen or Beijing, Wong pointed out in an interview with CNBC.

“Zhuhai is an extremely good place to do service jobs, to do even production jobs, high-end production jobs in biotech,” he said. “So [excluding the real estate impact] it should have a pretty promising future.”

Another city affected by the geopolitical drag on exports is Zhengzhou, capital of the Henan province and home to iPhone manufacturer Foxconn. Zhengzhou fell to 22nd place, down from 3rd.

Historically, Wong pointed out, having control of Zhengzhou, Hefei, and Wuhan have been critical to ensuring control of the country.

From an economic perspective, Hefei, in the Anhui province, and Wuhan, in Central China’s Hubei province, fared better in the latest index.

Wuhan surged by nearly 30 places to second, while Hefei remained among the top ten. Wong attributed this to Wuhan’s efforts to keep factories running during the pandemic, allowing the city to rebound quickly, while a university in Hefei received direct government support for technological development.

As for Hangzhou’s success, the institute’s research pointed to the city’s growth as a hub for e-commerce, manufacturing and finance.

But asked on CNBC’s “Squawk Box Asia” if Hangzhou’s success could be replicated, Wong said it would be difficult, partly due to the outperformance of the local property sector that’s increased living costs.

Finance

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

Published

2 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.

Bloomberg | Bloomberg | Getty Images

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

9 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.