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China loosens Shanghai restrictions as economic woes mount


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Good evening,

Shanghai’s shops welcomed city residents back today after a gruelling two-month lockdown that had confined 25mn people to their homes in one of the strictest anti-Covid lockdowns in China since the pandemic began.

Policymakers will be hoping that the (still partial) reopening of stores and public transport in China’s biggest city and financial centre can help address the sharp slowdown in growth fuelled by the country’s zero-Covid strategy of mass testing, harsh lockdowns, travel bans and forced quarantine.

The damage has been widespread, from retail sales, which were down 11 per cent in April, to manufacturing, which shrank for the third month in a row in May, according to new survey data out this morning. Fresh restrictions announced today in Hong Kong are a reminder that the virus is still far from done.

During the pandemic peak periods of 2020 and 2021, Chinese manufacturing benefited from surging demand for computing and domestic tech. However, as economies reopened the emphasis shifted to services, denting demand for Chinese exports, which grew just 3.9 per cent in April, the slowest rate since July 2020. Rising inflation, fuelled by Russia’s invasion of Ukraine, makes a repeat of the previous export-led recovery, supported by domestic consumption, even less likely. The country also remains mired in a property sector crisis.

As our colleagues at Nikkei Asia report today, big name manufacturers such as Apple are starting to move some of their production out of China after the strict lockdowns in and around Shanghai dented supply chains.

The country’s leaders have acknowledged that it will struggle to record positive growth in the current quarter and potentially fall short of its annual target of 5.5 per cent as it continues to battle coronavirus outbreaks. President Xi Jinping could even become the first Chinese leader in almost 50 years to see growth fall behind that of the US.

The slowdown also has serious implications beyond China’s borders. As our excellent visual representation of the country’s woes explains, its economy had been expected to continue to drive about one-fifth of all global GDP growth until at least 2026.

However, the FT editorial board says the deteriorating outlook could provide an opportunity for Beijing to not only reconsider aspects of zero-Covid, but also its treatment of foreign direct investors, many of whom are planning to pivot away from the country.

A focus on reducing red tape and ensuring equal treatment with local competitors could help alleviate some of the gloom, it adds. “What is good for them is good for China’s own economy.”

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Need to know: the economy

Eurozone unemployment remained at a record low of 6.8 per cent in April, official data showed today, with the relative strength of the labour market a key item on the European Central Bank’s agenda when it meets to discuss monetary policy next week. The news follows record inflation figures published yesterday of 8.1 per cent in the year to May. Meanwhile, retail sales in Germany, the bloc’s biggest economy, fell by a more than expected 5.4 per cent in April. Unhedged writer Robert Armstrong contrasts Europe’s cost-push inflation with demand-pull in the US.

Crude oil prices yesterday breached the $120 mark thanks to increased global demand and disruption of supplies from Russia. EU leaders agreed to stop most imports, while Russian oil cargoes were also hit by an insurance ban. Here’s our explainer on what the measures mean for global markets.

Line chart of Brent crude ($ per barrel) showing global oil benchmark breaches $120 against backdrop of fuel shortages

Latest for the UK and Europe

Wall Street banks warned of the “grim outlook” for the pound as high inflation and an economic slowdown lead to further declines for the UK currency. Soaring energy bills are one of the biggest problems for consumers and our Money Clinic podcast offers some tips for beleaguered households. Even the seemingly unstoppable rise of house prices seems to be cooling a little.

Line chart of Sterling effective index showing pound falls against currencies of major trading partners

Disrupted times could well be the new slogan for UK airports. Staff shortages have led to travel chaos, just as the country’s busiest week for flying since the start of the pandemic gets under way with the school half-term break and a two-day public holiday for the Queen’s platinum jubilee. A summer strike is also looming over pay.

Western sanctions and embargoes are beginning to hit Russian consumers, but buoyant revenues from energy exports and interventions from President Vladimir Putin are helping cushion the impact. Unemployment has remained steady and inflation has begun to slow.

Global latest

US Treasury secretary Janet Yellen admitted she was “wrong” last year about the threat of rising inflation. US president Joe Biden told Federal Reserve chief Jay Powell that he would respect the “independence” of the central bank as it begins to tighten monetary policy and ramp up interest rates. Robert Armstrong detects a whiff of optimism in recent personal consumption data.

International economy news editor Claire Jones examines the differing approaches to monetary policy among the world’s central banks and what they mean for investors. And if you’ve only got time to read one analysis today, try Martin Wolf’s latest: Twelve propositions on the state of the world.

Sri Lanka has appealed for food aid from its neighbours as its debt crisis intensifies. Fears around global food supplies have sparked a rush for potash, a crucial crop fertiliser that Russia and Belarus supply 40 per cent of. Sanctions are causing collateral damage for developing countries that are unable to buy grain from Russia.

Global health expert Nina Schwalbe calls for a new global compact on vaccines after Covid-19 and now monkeypox have highlighted hoarding by richer countries. Recent efforts to waive intellectual property rules for Covid jabs are a good start, but more needs to be done to spread manufacturing capacity and development plus shift the business model from charity to self-reliance, she argues.

Need to know: business

Pfizer will exit Haleon, its joint consumer health venture with GlaxoSmithKline, after its stock market debut next month in the largest London listing for a decade. GSK meanwhile is buying Boston-based biotech Affinivax in a $3bn deal to bolster its vaccines business. Takeda, Asia’s largest pharma company, says the risk of a global recession, the impact of Covid-19 and the war in Ukraine could force drugmakers to cut prices.

Small UK businesses are struggling to cope with the spiralling costs of energy, goods and services, with more than half reporting elevated input prices, according to an official survey. Even discount retailers are finding it tough as the economic outlook weakens. B&M’s forecast of lower profits sent its shares diving 11 per cent yesterday.

A senior executive at BlackRock, the world’s largest asset manager, told the Financial Times that the exodus of foreign talent from Asia was temporary and that the region remained attractive despite political tensions and repeated lockdowns.

Executives are buying shares in their own companies at a rapid rate in what some analysts say is an encouraging sign for the US stock market. “Insiders are saying ‘we don’t see a massive event coming’ . . . [that] these are really good buying opportunities,” says one portfolio manager.

Airbus is boosting jet production in one of the strongest signs yet that the aviation industry is overcoming the turbulence of the pandemic. But while there is clear demand for new energy-efficient planes, supply chain problems have complicated the manufacturing process, writes industry correspondent Sylvia Pfeifer.

Brooke Masters, US investment and industries editor, says retailers are increasingly mining their huge customer bases to cross-sell other companies’ products and earn some useful commission, while their core businesses suffer from soaring input prices and supply chain problems.

The World of Work

Diversity, equity and inclusion strategies are now commonplace in major companies, but one thing is often missing: class. Our latest Working It podcast examines why so many working-class people feel alienated and how companies can help them thrive and advance.

Covid cases and vaccinations

Total global cases: 524.9mn

Total doses given: 11.8bn

Get the latest worldwide picture with our vaccine tracker

And finally . . . 

As Britain enters a long holiday weekend of celebrations for the Queen’s platinum jubilee, art critic Jackie Wullschläger looks at 70 years of royal portraiture and the long history of regal image management.

The Queen sits for a portrait by the artist Lucian Freud in 2001
The Queen sits for a portrait by the artist Lucian Freud in 2001 © David Dawson/Bridgeman Images

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