17th September 2019

Written by Aidan Reid (Associate)

Childhood assumptions of China's inevitable rise to economic supremacy are questioned by Aidan Reid in today's Daily Briefing.

Good morning,

There are certain assumptions I have grown up with since I was a child. For example, Ash is destined to always try to catch them all in the Pokémon world, and China will continue to grow at a rapid pace to become the world’s undisputed super power.

Well, it turns out what they say about assumptions really is true, because in a new episode of the Pokemon series, Ash finally won a championship, becoming a Master in the process. Meanwhile, China’s seemingly unstoppable economic rise has in fact started to slow.

Its latest industrial production figures revealed only a 4.4% increase in the year to August, the slowest rate of expansion since 2002. Other economic measures also dipped, with retail sales falling to a still enviable 7.5%  rate of growth and continued fears that GDP will also miss the Chinese government’s minimum target of 6 to 6.5% growth for the year. Interest rate cuts and quantitative easing are among the levers being considered by the government to avoid a scenario any European nation would be utterly delighted with.

The reasons for this possible slowdown centre around the trade war between China and the United States. The increased tariffs (with the latest round putting 15% on popular Chinese imports) have had the double impact of reducing demand and seeing Chinese companies reinvest in other markets. The resulting impact is both a reduction in cash supply  and a fall in demand for products that finding alternative buyers is unlikely to overcome in the short term.

While Ash (who by now should be 32) must clearly be looking to retire and release Pikachu back into the wild, it is possibly too soon to claim China’s ‘economic miracle’ has halted. The growth rates, while reduced, are still the envy of developed nations. In a world in which the climate emergency must surely begin to be prioritised over economic growth, a slower, more sustainable form of growth is likely to be the order of the day for all. And, there are green shoots of economic activity that may point to further growth for China such as their advanced adoption in areas such as fintech and online payment systems and digital currencies which may well see China take the lead in how we do business globally in the near future.

Despite my childhood conviction, recent events show that China’s economic rise has never really been inevitable. However, it remains a nation growing at a formidable rate, and by many metrics still likely to become more powerful than any other in my lifetime.

News

Boris Johnson saw his visit to Luxembourg to meet with Jean-Claude Junker overshadowed by his meeting with the nation’s prime minister, Xavier Bettel. He did not attend a scheduled press conference after loud booing from protesters, leading to him being openly criticised by Bettel for his failure to offer meaningful solutions to the Brexit crisis. Meanwhile, Jo Swinson is to close the Liberal Democrat party conference for the first time today.

A team of American universities has announced a potential method for tackling the common cold and other similar viruses. Experiments have revealed that, by targeting an essential protein inside our cells, their treatments were able to provide “complete protection” in initial tests on human lung cells, though it is not expected to be ready for human trials for some time.

US officials have claimed satellite images and intelligence sources back up accusations that Iran was behind attacks over the weekend on Saudi Arabian oil refineries. It is expected that, if confirmed, military action may take place in retaliation. The price of oil has risen to nearly $70 per barrel as a result of the disruption.

Israel holds its second General Election in a year, with the final polls indicating that a tense evening awaits current prime minister, Benjamin Netanyahu. His right-wing Likud party are expected to be level with the centrist Blue & White party on the most seats, with 35 each in the 120-seat Knesset.

Business & Economy

The largest party in Germany’s Bundestag, the Christian Democrats, has proposed doubling taxes on domestic flights in Germany as part of a range of efforts to reduce carbon emissions. It would provide exemptions for airlines which eventually switch to engines not powered by fossil fuels.

Aldi has announced plans for a significant expansion of its presence in the London area. It proposes to open up to 250 stores in the area by 2025. The announcement comes as its 2018 sales figures showed an 11% increase, down slightly on the previous year. (£)

Haulage firm Eddie Stobart has indicated its annual profits will be “significantly below” market expectations. The warning comes as its share price remains suspended after it failed to report its half-year results last month due to accounting errors. (£)

The American manufacturer of OxyContin, Purdue Pharma, has filed for bankruptcy. The moves comes as the owners of the firm seek to persuade US states to accept settlements for the 2,600 lawsuits which have been brought against the company for its perceived role in the opioid crisis.

Markets

What happened yesterday?

The impact of significantly increased oil prices had knock on effects on the London stock exchange, including on airlines. IAG and Wizz Air saw their share prices fall by up to 3% as a result of expected cost increases, though it is expected the former is well placed to cope. The FTSE 100 and 250 both closed down by 0.63% and 0.67%.

The uncertainty as a result of the attacks on Saudi Arabia’s oil refineries also impacted the American markets. The S&P 500, the Dow Jones and the Nasdaq all saw falls, with only the energy and utilities sectors collectively registering an increase in share price. The impact of a strike by employees at General Motors is also expected to take a toll.

Whats happening today?

Finals

City Lon Inv Finsbury Food Petra Diamonds          Util

Interims

21st Cent Tech Albion. Tch Vct Gresham House                                                                                                                   

Learning Technologies Group Ovoca Bio Gazprom Neft Spire Healthcare

AMGs BCA     Warehouse Reit

Columns of Note

Karen Allen has detailed for the Guardian the potential implications of the fourth industrial revolution for African nations. The piece highlights efforts by Ghana, Nigeria and South Africa to lead the charge to embrace new technologies in finance and communications. Recent attacks on key utilities and cryptocurrency exchanges, though, are claimed to have exposed the surface-level dangers of embracing digital. She also highlights concerns over the ability of these nations to protect its citizens’ data as internet usage expands. Ahead of Jo Swinson’s Liberal Democrat conference speech, Patrick Maguire considers for the New Statesman whether the party’s ambition to win between 80 to 200 seats has credibility. He highlights that it has gone from targeting 40 marginals to expanding this list to 80 realistic prospects for winning a seat. During the conference, many have also claimed that Brexit has significantly shifted voting patterns, potentially in the party’s favour if it can become the voice of Remain. He also cites some who feel this could lead to a failure to manage expectations in the manner of ‘Clegg-mania’ in 2010. (£)

Did you know?

Oktoberfest begins on Saturday, with up to 6 million litres of beer expected to be drunk during the festival.

Parliamentary highlights

Today

House of Commons

No business due to prorogation. Will next sit on Monday 14 October.

House of Lords

No business due to prorogation. Will next sit on Monday 14 October.

Scottish Parliament

Topical Questions Scottish Government Debate Investing in our Credit Unions The Impact of the UK Government’s Family Migration Policy on Scotland Members’ Business Macmillan Cancer Support’s World’s Biggest Coffee Morning TOMORROW House of Commons No business due to prorogation. The House will next sit on Monday 14th October. House of Lords No business due to prorogation. The House will next sit on Monday 14th October. Scottish Parliament Portfolio Questions Education & Skills Health & Sport Scottish Conservative debate Mismanagement of NHS Construction Projects Restoring Trust in Criminal Sentencing Members Business debate CHAS, Keeping the Joy Alive