Dec 5 (Reuters) – Ratings agency Moody’s cut its outlook on China’s government credit ratings to negative from stable on Tuesday, in the latest sign of mounting global concern over the impact of surging local government debt and a deepening property crisis on the world’s second-largest economy.
The downgrade reflects growing evidence that authorities will have to provide more financial support for debt-laden local governments and state firms, posing broad risks to China’s fiscal, economic and institutional strength, Moody’s said in a statement.
“The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector,” Moody’s said.
China’s blue-chip stocks slumped to nearly five-year lows on Tuesday amid worries about the country’s growth, with talk of a possible cut by Moody’s denting sentiment during the session, while Hong Kong stocks extended losses.
China’s major state-owned banks, which had been seen supporting the yuan currency all day, stepped up dollar selling very forcefully after the Moody’s statement, one source with knowledge of the matter said. The yuan was little changed by late afternoon.
The cost of insuring China’s sovereign debt against a default rose to its highest since mid-November
“Now the markets are more concerned with the property crisis and weak growth, rather than the immediate sovereign debt risk,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.
The move by Moody’s was the first change on its China view since it cut its rating by one notch to A1 in 2017, also citing expectations of slowing growth and rising debt.
While Moody’s affirmed China’s A1 long-term local and foreign-currency issuer ratings on Tuesday, it said it expects the country’s annual GDP growth to slow to 4.0% in 2024 and 2025, and to average 3.8% from 2026 to 2030.
Analysts say the A1 rating is high enough in investment-grade territory that a downgrade is unlikely to trigger forced selling by global funds. The other two major rating agencies, Fitch and Standard & Poor’s, rate China A+, which is equivalent to Moody’s. Both have a stable outlook.
China’s Finance Ministry said it was disappointed by Moody’s decision, adding that the economy will maintain its rebound an positive trend. It also said property and local government risks are controllable.
“Moody’s concerns about China’s economic growth prospects, fiscal sustainability and other aspects are unnecessary,” the ministry said.
STRUGGLING FOR TRACTION
Most analysts believe China’s growth is on track to hit the government’s target of around 5% this year, but that comapres with a COVID-weakened 2022 and activity is highly uneven.
The economy has struggled to mount a strong post-pandemic recovery as a deepening crisis in the housing market, local government debt concerns, slowing global growth and geopolitical tensions have dented momentum.
A flurry of policy support measures have proven only modestly beneficial, raising pressure on authorities to roll out more stimulus.
Analysts widely agree that China’s growth is downshifting from breakneck expansion in the past few decades. Many believe Beijing needs to transform its economic model from an over-reliance on debt-fuelled investment to one driven more by consumer demand.
Last week, China’s central bank head Pan Gongsheng pledged to keep monetary policy accommodative to support the economy, but also urged structural reforms to reduce a reliance on infrastructure and property for growth.
DEEPER IN DEBT
After years of over-investment in infrastructure, plummeting returns from land sales, and soaring costs to battle COVID, economists say debt-laden municipalities now represent a major risk to the economy.
Local government debt reached 92 trillion yuan ($12.6 trillion), or 76% of China’s economic output in 2022, up from 62.2% in 2019, according to the latest data from the International Monetary Fund (IMF).
In October, China unveiled a plan to issue 1 trillion yuan ($139.84 billion) in sovereign bonds by the end of the year to help kick-start activity, raising the 2023 budget deficit target to 3.8% of gross domestic product (GDP) from the original 3%.
The central bank has also implemented modest interest rate cuts and pumped more cash into the economy in recent months.
Nevertheless, foreign investors have been sour on China almost all year.
Capital outflows from China rose sharply to $75 billion in September, the biggest monthly figure since 2016, according to Goldman Sachs.
($1 = 7.1430 Chinese yuan renminbi)
Reporting by Gnaneshwar Rajan in Bengaluru and Kevin Yao in Beijing; Editing by Tom Hogue and Kim Coghill
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View of the Portuguese parliament on the day of the vote on the 2024 state budget bill on final reading amid Prime Minister Antonio Costa’s resignation, in Lisbon, Portugal, November 29, 2023. REUTERS/Pedro Nunes/File Photo Acquire Licensing Rights
LISBON, Nov 29 (Reuters) – Portugal’s parliament on Wednesday extended tax breaks for foreign residents until the end of next year despite criticism that the scheme has stoked housing prices to levels unaffordable to many Portuguese.
Under the extension, applicants must show they have prepared their move to Portugal during 2023, namely through an employment or a housing contract signed by the end of December.
Launched in 2009, the scheme allows people who become residents by spending more than 183 days a year in the country to benefit during a 10-year period from a special 20% tax rate on Portuguese-sourced income derived from “high value-added activities”, such as doctors and university teachers.
Other benefits of the scheme – known as Non-Habitual Resident – include tax exemptions on almost all foreign income if taxed in the country of origin and a 10% flat tax rate on pensions from a foreign source.
It was introduced to attract investors and professionals as Portugal suffered from the financial crisis.
Portuguese citizens who lived abroad for five years or more can also apply.
Prime Minister Antonio Costa promised in October to close the scheme by the end of the year, calling it a “fiscal injustice that is no longer justified”. It was one of the measures included in the draft 2024 budget.
But after Costa’s resignation earlier this month, his ruling Socialist Party backtracked, suggesting it should stay open until the end of next year. The decision was approved on Wednesday in the final vote on the budget bill.
The Socialists said in a statement it was important to “safeguard the legitimate expectations of people who have already made the decision to immigrate or return to Portugal”.
Official data showed that over 74,000 people had benefited from the scheme by the end of 2022. Last year the tax exemptions
cost the state budget more than 1.5 billion euros ($1.65 billion), an annual increase of 18.5%.
($1 = 0.9106 euros)
Reporting by Sergio Goncalves
Editing by Catarina Demony and Gareth Jones
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The trading floor of Norges Bank Investment Management, the Nordic countryÕs sovereign wealth fund in Oslo, Norway, June 2, 2017. REUTERS/Ints Kalnins/File Photo Acquire Licensing Rights
OSLO, Nov 28 (Reuters) – Norway’s $1.5 trillion sovereign wealth fund, the world’s largest, should include private equity investments in its portfolio, allocating up to $70 billion, the country’s central bank recommended on Tuesday.
The Norwegian finance ministry in March asked the executive board of Norges Bank, which manages the fund, to assess whether unlisted shares should be added as an asset class.
Some 3-5% of the fund’s assets could gradually be moved to private equity funds, equivalent to between $40 billion-$70 billion, the central bank said in a statement.
A final decision will be made next year by parliament. It has previously rejected requests by the fund to move assets into private equity, arguing it could be too costly and would hamper the ability to judge its performance on an ongoing basis.
The fund, which invests Norway’s surplus oil and gas revenue abroad, is the world’s biggest single stock market investor, owning some 1.5% of all globally listed shares, and has stakes in more than 9,200 companies.
“Norges Bank considers it a natural evolution of the investment strategy for unlisted equity investments to be permitted on a general basis,” the central bank wrote in a letter to the finance ministry.
“A broader investment universe will provide more investment opportunities and help the fund benefit from a larger share of global value creation than today,” it added.
At the end of September, 70.6% of the fund’s assets were invested in listed stocks, 27.1% in fixed income, 2.2% in unlisted real estate and 0.1% in unlisted renewable energy infrastructure.
By way of comparison, the ten largest investors in private equity had an average of $80 billion invested at the end of 2022, Norges Bank said.
The fund in 2018 sought permission to acquire unlisted shares via private equity funds or by investing alongside such funds, but the then-government rejected the proposal, arguing it would impede transparency and drive up asset management costs.
But in 2022, a government-appointed commission again raised the topic of private equity, arguing that this could allow the fund to invest in promising companies at an earlier stage and thus potentially earn higher returns.
Reporting by Victoria Klesty and Terje Solsvik; Editing by Essi Lehto, Anna Ringstrom, Louise Rasmussen and Jan Harvey
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Canada’s Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland walk holding the 2023-24 budget, on Parliament Hill in Ottawa, Ontario, Canada, March 28, 2023. REUTERS/Patrick Doyle/File Photo Acquire Licensing Rights
OTTAWA, Nov 21 (Reuters) – Following are some of the commitments the Canadian government made in its Fall Economic Statement released on Tuesday.
*invest an additional C$15 billion in new loan funding, starting in 2025-26, for the Apartment Construction Loan Program, for a total of more than C$40 billion in loan funding. This investment will support more than 30,000 additional new homes, bringing the contribution to more than 101,000 new homes supported by 2031-32.
*invest an additional C$1 billion over three years, starting in 2025-26, for the Affordable Housing Fund. This investment will support non-profit, co-op, and public housing providers to build more than 7,000 new homes by 2028.
*help remove barriers to internal labor mobility, including by leveraging federal transfers, and other funding, to encourage provinces and territories to cut the red tape that impedes the movement of workers, particularly in construction, health care and child care
*deny income tax deductions for expenses incurred to earn short-term rental income, including interest expenses, in provinces and municipalities that have prohibited short-term rentals. It will also deny income tax deductions when short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements.
*propose to spend C$50 million over three years, starting in 2024-25, to support municipal enforcement of restrictions on short-term rentals.
*introduce a new Canadian Mortgage Charter, which outlines how financial institutions are to work to provide tailored relief and ensure payments are reasonable for borrowers.
*the Canadian Radio-television and Telecommunications Commission will conduct a prompt investigation of international mobile roaming charges, and will provide an update and concrete next steps in 2024.
*work with the Canadian Transportation Agency to ensure that airlines seat all children under the age of 14 next to their accompanying adult at no extra cost
*explore removing the rule that restricts Canadian pension funds from holding more than 30% of the voting shares of most corporations. It also proposes to require large federally-regulated pension plans to disclose the distribution of their investments, both by jurisdiction and asset-type per jurisdiction, to the Office of the Superintendent ofFinancial Institutions
*begin buying up to C$30 billion of Canada Mortgage Bonds, starting as early as February 2024
(Reporting by Steve Scherer and David Ljunggren)
(steve.scherer@thomsonreuters.com; +1-647-480-7889)
Keywords: CANADA BUDGET/FACTBOX
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French Minister for Economy, Finance, Industry and Digital Security Bruno Le Maire and French Junior Minister for Public Accounts Thomas Cazenave leave following the weekly cabinet meeting at the Elysee Palace in Paris, France, September 27, 2023. REUTERS/Johanna Geron Acquire Licensing Rights
PARIS, Nov 19 (Reuters) – France wants to reduce government spending on office space and may consider real estate sales in a bid to reduce the state deficit, the budget and finance ministers said in a media interview on Sunday.
The government also plans to review unemployment benefits for seniors, they said.
Budget Minister Thomas Cazenave told La Tribune that the government wants to reduce the amount of office space occupied by the administration by 25%.
“There is real leverage for savings there, in particular given the new ways of working,” he said, referring to the increase in home working following the COVID-19 pandemic.
He said the ratio of office space area per civil servant is 24 square metres (258 square feet), far above private industry standards, and the government wants to reduce that to 16 square metres.
“We may also consider real estate sales,” he added.
Asked about whether the government could achieve its target of reducing the unemployment rate from 7% to 5% by 2027, Finance Minister Bruno Le Maire said this would require reviewing social policies, notably unemployment benefits.
“We have worked hard to move from 9% to 7%, but to move to 5%, courageous choices need to be made… All the schemes that feed seniors’ unemployment must be reviewed,” Le Maire said.
Cazenave also confirmed that the government will seek an additional 12 billion euros of spending cuts for the 2025 budget, as discussed with Prime Minister Elisabeth Borne on Thursday.
“We confirm spending cut targets of 16 billion euros ($17.5 billion) for the 2024 budget, and we are already preparing 12 billion of savings for the 2025 budget,” he said, adding that the government was still aiming to reduce its deficits to 4.4% of GDP in 2024 and 3.7% in 2025.
($1 = 0.9168 euros)
Reporting by Geert De Clercq; Editing by Hugh Lawson
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A worker assembles a new bike frame at the Pashley bicycle factory in Stratford-upon-Avon, Britain, June 30, 2022. REUTERS/Phil Noble/File Photo Acquire Licensing Rights
LONDON, Nov 17 (Reuters) – Britain announced a 4.5 billion-pound ($5.59 billion) investment programme for key manufacturing industries on Friday, with the automotive sector taking up a large chunk of the funds to support the move to zero emission vehicles.
The finance ministry said the funds will be available from 2025 over the course of five years, with 2 billion pounds earmarked for the car industry, 975 million pounds for aerospace and 960 million for clean energy.
The plans form part of the Autumn Statement that finance minister Jeremy Hunt will present on Nov. 22, hoping to revive the fortunes of both a stagnant British economy and the governing Conservatives ahead of an election expected next year.
“Our 4.5 billion pounds of funding will leverage many times that from the private sector, and in turn will grow our economy, create more skilled, higher-paid jobs in new industries that will be built to last,” Hunt said in a statement.
Hunt separately told reporters the commitment was “new money”, rather than a reallocation of previously announced spending, and that Britain favoured targeted support over blanket subsidies.
“We’re not getting into a global subsidy race,” he said.
As of the third quarter, British business investment stood 4% higher than its pre-pandemic level – a better performance than Germany, but some way behind France and the United States, according to a Reuters analysis of OECD data.
Earlier on Friday the IPPR think tank, which describes itself as an advocate for progressive policy, published a report that showed years of incoherent industrial strategy had badly hurt business investment in Britain.
“It’s time to be clear about the UK’s strategic objectives, like growing the green manufacturing and services we need for the future, and then to use every tool in the box to get us there,” said George Dibb, head of the Centre for Economic Justice at IPPR.
Hunt is considering making permanent a time-limited tax incentive that is designed to spur corporate investment, according to the boss of telecoms giant BT (BT.L), who said any such move would be a “game-changer”.
($1 = 0.8056 pounds)
Reporting by Andy Bruce, Editing by Kylie MacLellan
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[1/2]A Cuban flag waves in a boat docked at Bayfront Park is seen before sailing in a flotilla towards Cuba in support of Cuban protesters against its deteriorating economy, in Miami, Florida, U.S. July 23, 2021. REUTERS/Marco Bello/File Photo Acquire Licensing Rights
HAVANA, Nov 14 (Reuters) – Cuba wants to tap its fast-growing overseas population for fresh investment to lift its sinking economy, a top foreign ministry official told Reuters this week, as the communist-run nation looks to overcome its worst downturn in decades.
Food, fuel and medicine shortages have pushed a record number of Cubans to leave their Caribbean island home in the past two years, sapping the nation of resources necessary to jump-start an economy already shackled by the pandemic and stiffened U.S. sanctions.
This migration wave includes many young people and “is having the greatest impact in history in terms of demographics, because of its composition,” said Ernesto Soberon, director of Consular Affairs for the Cuban Foreign Ministry.
Soberon told Reuters in a wide-ranging interview in Havana on Monday that the exodus represents a loss but also an opportunity as the government seeks to revive the ailing economy.
Cuban expats have already invested in bed-and-breakfasts, eateries and other activities on the island, but Cuba would like to see more capital flow, he said.
“Today Cubans abroad have no limits on how they can participate in the economic life of their country,” he said, referring to restrictions once placed upon them by the government.
Over 400 Cuban citizens living in more than 40 countries arrive on the island this week to discuss Cuba’s evolving economy and other issues with the government – the first such conversations between Cuba and its ballooning diaspora in nearly two decades.
The conference is expected to attract Cubans living off island but with favorable views of their home country, including businesspeople, economists, and members of foreign resident associations.
The landscape has changed dramatically since the last time the two groups formally met in 2004, under former leader Fidel Castro. Around 2.5 million Cubans and their descendents now live off the island, Soberon said.
Cuba in 2021 lifted a ban on private enterprise, considered a scourge under Castro. And the island’s government, which once limited the travel of its citizens, now allows most to come and go freely, though it still restricts dissidents, athletes and some others.
Some things, however, have not changed, said Soberon, who said the Cold War-era U.S. embargo has only stiffened over the years, with sanctions complicating the financial transfers needed to start and run a business.
“You can’t just go back and forth with a bag full of cash,” he said.
The administration of U.S President Joe Biden has shown tepid support for small business on the island but says Cuba must improve its human rights record before it grants concessions. It stopped short recently of announcing expected new measures to ease the flow of capital. In addition, some Cuban Americans have little appetite for working with Cuba’s government.
Soberon said the conference on Nov. 18 and 19 would review mechanisms already in place, like remittances, that have already begun to serve as seed capital for small businesses for Cubans on the island.
“That will ultimately raise their standard of living so that they want to spend their lives here in Cuba and not abroad,” he said.
Reporting by Dave Sherwood, Editing by Rosalba O’Brien
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A look at the day ahead in U.S. and global markets from Mike Dolan
A more modest yearend schedule of Treasury debt sales than many feared helped bonds rally overnight while the Bank of Japan closed out a scary October for world markets on Tuesday with another modest tightening tweak.
A hectic Halloween of policy meetings, big macro reports and another slew of company earnings is seeing most world markets shave off the sharpest edges of a rough month, just as the Federal Reserve kicks off its latest two-day gathering.
But relief in Treasuries, the villain of the piece for several weeks, is probably the most significant marker for the remainder of the year.
On Monday, the U.S. Treasury said it expects to borrow $776 billion in the fourth quarter of the year, less than $852 billion it has previously indicated and below Wall St forecasts.
Officials said the reduced tally was down to an increased revenue estimate and that was mainly because tax payments from California and other states that had been previously deferred due to natural disasters were now flowing to Treasury coffers.
Given that the announcement in July of third-quarter borrowing of more than trillion dollars was largely responsible for the bond market selloff since, the more benign forecast for the final three months dragged 10-year benchmark yields back further from bruising 16-year peaks above 5%.
With hopes the resurfaced risk premium for holding long-term debt may ease as a result, 10-year yields were as low as 4.82% on Tuesday – some 20 basis points off recent highs.
Even though the Bank of Japan further loosened its grip on long-term interest rates on Tuesday by re-defining 1.0% as a loose “upper bound” rather than a rigid cap, markets took some solace it wasn’t more draconian. Even though 10-year Japanese government yields jumped as much as 7bps to 0.96%, the yen weakened again sharply past 150 per dollar and the Nikkei 225 index of leading stocks rose (.N225).
And there were further soothing noises for world bonds, even if not for global growth, from surprisingly weak Chinese business surveys for October. Chinese stocks (.CSI300) underperformed and closed lower yet again.
Adding to the mix on Monday was a retreat in crude oil prices to their lowest since the October 7 attacks on Israel, as Israel’s land invasion into Gaza advanced slowly and pressure to up stuttering humanitarian aid to the besieged citizens there increased.
Crude prices steadied around $83 per barrel on Tuesday, with market speculation about a rise in U.S. shale oil output circulating following recent major acquisitions by Big Oil firms.
In Europe, falling energy stocks (.SXEP) bucked a more positive wider market due to a 4.2% fall in BP (BP.L) after third-quarter earnings missed analysts’ forecasts.
Overall, the picture pointed to another positive day for Wall Street stocks, with futures marginally positive ahead of the open as the Fed meeting gets underway. The S&P500 (.SPX) rebounded after an awful month on Monday to clock its best day’s gain since August – but it remains on course to record its third straight month of losses since 2020.
The U.S. central bank is expected to leave policy rates unchanged again on Wednesday as it assess the final-quarter trajectory of inflation and the economy after a bumper Q3.
With the October jobs report due Friday, the latest consumer confidence reading for this month tops the economic diary on Tuesday in the meantime. The likes of pharma giant Pfizer and construction bellwether Caterpillar are on a heavy earnings slate.
In other positive news, General Motors (GM.N) and the United Auto Workers struck a tentative deal late on Monday, ending the union’s unprecedented six-week campaign of coordinated strikes that won record pay increases for workers at the Detroit Three automakers.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* U.S. Oct consumer confidence, Oct Chicago business survey, Oct Dallas Fed service sector survey, Q3 employment costs, Aug house prices
* Federal Reserve starts 2-day policy meeting
* U.S. corporate earnings: Pfizer, Caterpillar, AMD, Amcor, Amgen, Marathon, MSCI, Caesars, Global Payments, Sysco, Eaton, Franklin Resources, Allegion, Assurant, AMETEK, Equity Residential, GE Healthcare, First Solar, Incyte, Paycom, Match, Bio-Techne, WEC Energy, Hubbell, Echolab, Zebra, ONEOK, Xylem
* U.S. Treasury auctions 12-month bills
By Mike Dolan, editing by Christina Fincher, <a href=”mailto:mike.dolan@thomsonreuters.com” target=”_blank”>mike.dolan@thomsonreuters.com</a>. Twitter: @reutersMikeD
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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Coronavirus disease (COVID-19) treatment pills Paxlovid and molnupiravir are seen in boxes, at Misericordia hospital in Grosseto, Italy, February 8, 2022. REUTERS/Jennifer Lorenzini/File Photo Acquire Licensing Rights
WASHINGTON, Oct 27 (Reuters) – Most people will retain access to Pfizer’s (PFE.N) Paxlovid and Merck’s (MRK.N) Lagevrio COVID-19 oral antiviral treatments for little or no cost even after the U.S. government starts handing over their distribution to the commercial market next month, health officials said on Friday.
The government has been overseeing distribution of the treatments, alongside vaccines and tests, but has transferring that work to traditional commercial channels. Commercial ordering for the treatments is set to start on Nov. 1.
The U.S. government paid around $530 per course for Paxlovid, the most commonly prescribed at home COVID-19 treatment in the country, and made it available at no cost.
Pfizer said last week it had set the price for Paxlovid at nearly $1,400 per course before rebates and other discounts to insurers and pharmacy benefit managers are taken into account.
“The launch of these products, which is what’s going to happen on Nov. 1, is not going to bring sudden changes because there’s still an ample supply of federally-owned therapeutics with millions of treatment courses still in the field,” said a U.S. Department of Health and Human Services (HHS) official.
“Most people who need therapeutics will continue to be able to access the treatment they need at low or no cost, both during this transition, as well as after this transition to the commercial market,” he said on a call with journalists.
Providers will be able to order government-supplied Lagevrio until Nov. 10 and Paxlovid until Dec. 15, the official said, and the government is encouraging them to keep distributing the federal-owned supply they have at no cost until it expires or runs out.
Under an agreement with Pfizer allowing the return of 7.9 million courses, the credits for the returned doses will underwrite a program keeping Paxlovid free of charge for patients insured under the Medicare and Medicaid programs through the end of 2024, and to uninsured and underinsured patients through 2028, the official said.
Returns will begin on Nov. 15, the official said, and will be accepted through the end of the year. The government is recommending returns start in December enough time for the establishment of patient assistance programs and securing of commercially-labeled doses.
Reporting by Ahmed Aboulenein
Editing by Marguerita Choy
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[1/2]Hong Kong Chief Executive John Lee delivers his annual policy address at the Legislative Council in Hong Kong, China October 25, 2023. REUTERS/Tyrone Siu Acquire Licensing Rights
HONG KONG, Oct 25 (Reuters) – Hong Kong’s leader focused on bolstering the property market and stabilising the ailing economy in his annual policy blueprint on Wednesday, while confirming new national security laws would be enacted next year to counter meddling by “external forces”.
Chief Executive John Lee said Hong Kong’s economy, which contracted 3.5 percent last year, would “resume growth this year” as inbound tourism and consumption improved, and unemployment fell.
Hong Kong’s economy grew 2.2% in the first half of the year, and is expected to grow four percent this year. year-on-year.
Lee noted, however that the external environment remains challenging given interest rate hikes in some advanced economies, with Hong Kong investment and asset markets “negatively impacted.”
NEW SECURITY LAW
Lee, who was sanctioned by the U.S. government for his role in cracking down on freedoms after mass pro-democracy protests in 2019, also emphasized the need to further bolster national security.
“External forces continue to meddle in Hong Kong affairs,” he said, without giving specifics or naming any country.
Despite Hong Kong’s attempts to restore the city’s international reputation and lure more capital, further security legislation including anti-espionage laws, known as Article 23, would be enacted by the end of 2024, Lee said.
Some Western governments have criticised the ongoing national security clamp down, which has led to the imprisonment of many opposition democrats and closure of liberal media outlets.
Reporting by Clare Jim, Twinnie Siu, Jessie Pang, Donny Kwok; Writing by James Pomfret; Editing by Simon Cameron-Moore
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