Energy price inflation weighs on China

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Disruption of energy markets and food price inflation has caused discomfort to the Chinese, but Beijing is eager to move forward with a policy of self-sufficiency that has accelerated since Russia invaded Ukraine.

Official data published on Friday showed better than expected factory output and retail sales in China during August, up 4.4 per cent and 5.4 per cent year-on-year. However, it is unlikely to much change the outlook among economists who have revised down growth forecasts due to the property downturn that has seen local government financing vehicles buy vast quantities of land with borrowed funds to bail out cities and provinces.

Separately, analysts at Goldman Sachs have forecast that China’s infant population will decline on average 7 per cent a year over the next five years. It raises the possibility that by the end of this year deaths in China could outnumber births.

Meanwhile, Joe Biden has urged his administration to pay close attention to inbound technology investment in an effort to address security threats from China. Though the nation was not mentioned explicitly in the US president’s executive order, it is understood the list of high-tech sectors included in plans are significant targets for Chinese espionage.

Hawkish attitudes in the US on chipmakers may play into the hands of the UK government as it makes a renewed push for a dual-listing of chipmaker Arm in London and New York.

Disrupted Times will not be published on Monday due to the UK bank holiday and funeral of Queen Elizabeth II. It will return next Wednesday.

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Need to know: the economy

Sterling dipped by 0.8 per cent in morning trading to $1.137, its lowest levels since 1985, after UK retail sales fell sharply in August. The Office for National Statistics reported consumers struggling with rising prices, with the demand for goods decreasing by 1.6 per cent between July and August, restoring a downward trend that has persisted since July 2021.

The figures pose a renewed challenge for the UK’s central bankers, with the Bank of England’s monetary policy committee likely to raise interest rates for a seventh consecutive time when it meets next week. Damped spending may encourage a smaller increase in rates of 0.5 per cent rather than 0.75 per cent.

The World Bank warned leading central banks yesterday to moderate their rate hikes to prevent the global economy plummeting further than necessary. The Washington-based institution told policymakers to co-ordinate actions to reduce the overall amount of tightening and instead focus efforts on boosting production without stoking inflation.

Latest for the UK and Europe

Ahead of a mini-budget next week, the UK government is taking the battle to Wall Street in the hopes of raising the City’s confidence. Plans to scrap a cap on bankers’ bonuses have been labelled a risky political move, but it’s a smaller part of a wider plan to undo proposed increases in national insurance and establish a government target of 2.5 per cent economic growth.

On the energy front, British and Dutch gas prices have fallen as continental gas storage and flows from Norway stabilise. News comes as the German government announced it would take the national subsidiary of Russian oil company Rosneft under state control, in a move mirroring the one taken with Gazprom Germania following the Russian invasion of Ukraine.

Global latest

Economists are warning that inflation could be harder to shift in some countries as workers in Europe and South America have successfully secured deals linking wages to inflation. In Brazil and Argentina there are claims the practice is becoming an important part of entrenching inflation. However, commentators have suggested that maintaining people’s purchasing power is also vital in preventing deep recessions next year.

A study by the World Weather Attribution Group has found that recent flooding in Pakistan was 50 per cent more intense due to climate change. Heavy rain has affected more than 33mn people in the region and pressure is likely to grow on the UN General Assembly, which meets next week, to provide more support to poorer nations that have borne the brunt of environmental catastrophes.

Need to know: business

Design software company Figma will be acquired by Adobe in a cash and shares deal, valuing the company at roughly $20bn. Figma was part of a wave of new browser-based design tools when it was founded and is a direct competitor to Adobe’s XD.

Patagonia’s founder has decided to transfer ownership of the company into a not-for-profit trust with any profits invested in causes tackling climate change. In an open letter, Yvon Chouinard wrote: “Earth is now our only shareholder.” Voting stock will remain under family ownership to ensure the company “maintains our values”, according to Chouinard.

Senior partners at KPMG have urged the firm to suspend leadership at its business in the United Arab Emirates after claims that nepotism, cronyism and a culture of fear were being stoked by the group’s Lower Gulf chief executive. Partners also raised concerns over falling profits and unusually high salaries for independent directors of the company’s board.

Science round-up

Vibrations could soon be used to restore stroke patients’ lost sense of touch. A portable device, developed by researchers at the University of Hertfordshire, produced a 30 to 40 per cent improvement in the ability of clinical trial patients to feel things. The novel concept could be rolled out to poorer parts of the world where most stroke cases occur.

The World Health Organization has reported that at least 17mn people in Europe experienced long Covid during the first two years of the pandemic. Modelling, based on data compiled by the University of Washington, found women were twice as likely as men to experience the condition.

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Looking on the bright side of life . . . 

Visiting Iraq for a new show, Michael Palin has written about the “cheerfulness in shattered surroundings” as he travelled through Kurdistan into federal regions in the south of the country. In Baghdad he reports “real hopefulness” despite a political stalemate, but he cautions that volatility remains in a place where there is pervading evidence of recent conflict.