Author: CensorBiz

The price of Bitcoin and other cryptocurrencies has fallen dramatically in recent months. Still, many investors are excited about the future of digital currencies despite the risks. VOA’s Michelle Quinn reports from San Francisco. VOA footage by Matt Dibble and Michelle Quinn.
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China’s factory activity contracted unexpectedly in July after bouncing back from COVID-19 lockdowns the month before, as fresh virus flare-ups and a darkening global outlook weighed on demand, a survey showed on Sunday.

The official manufacturing purchasing managers’ Index (PMI) fell to 49.0 in July from 50.2 in June, the National Bureau of Statistics (NBS) said, below the 50-point mark that separates contraction from growth and the lowest in three months.

Analysts polled by Reuters had expected a reading of 50.4.

“The level of economic prosperity in China has fallen, the foundation for recovery still needs consolidation,” NBS senior statistician Zhao Qinghe said in a statement on the NBS website.

Continued contraction in the energy-intensive industries, such as petrol, coking coal and ferrous metals, contributed most to pulling down the July manufacturing PMI, he said.

Sub-indexes for output and new orders fell by 3 points and about 2 points in July, respectively, while the employment sub-index edged down by 0.1 point.

Weak demand has constrained recovery, Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc, said in a research note. “Q3 growth may face greater challenges than expected, as recovery is slow and fragile,” he added.

The official non-manufacturing PMI in July fell to 53.8 from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.

China’s economy barely grew in the second quarter amid widespread lockdowns, and top leaders recently signaled their strict zero-COVID policy would remain a top priority.

Policymakers are prepared to miss their GDP growth target of “around 5.5%” for this year, state media reported after a high-level meeting of the ruling Communist Party.

Beijing’s decision to drop mention of the target has doused speculation that the authorities would roll out massive stimulus measures, as they often have in previous downturns.

Capital Economics says that policy restraint, along with the constant threat of more lockdowns and weak consumer confidence, is likely to make China’s economic recovery more drawn-out.

Faltering recovery

After a rebound in June, the recovery in the world’s second-biggest economy has faltered as COVID flare-ups led to tightening curbs on activity in some cities, while the once mighty property market lurches from crisis to crisis.

Chinese manufacturers continue to wrestle with high raw material prices, which are squeezing profit margins, as the export outlook remains clouded with fears of a global recession.

China’s southern megacity of Shenzhen has vowed to “mobilize all resources” to curb a slowly spreading COVID outbreak, ordering strict implementation of testing and temperature checks, and lockdowns for COVID-hit buildings.

The port city of Tianjin, home to factories linked to Boeing and Volkswagen, and other areas tightened curbs this month to fight new outbreaks.

According to World Economics, the lockdown measures had some impact on 41% of Chinese companies in July, though its index of manufacturing business confidence rose significantly from 50.2 in June to 51.7 in July.
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Danira Ford is a lifelong resident of New Orleans, Louisiana. Like tens of thousands of the city’s inhabitants, she has struggled to find an affordable place to live for her and her five children.

“Affordable housing would bring stability,” she said.

“My kids can’t play sports, be in band or get tutored on their homework because mommy needs to pick up extra shifts to cover rent,” Ford continued. “An affordable home would let them live more like normal children.”

A 2018 report by the United States Department of Housing and Urban Development (HUD) estimated that 80% of New Orleans households pay more for housing than they can afford. The Greater New Orleans Fair Housing Action Center recently estimated that 30,000 families in the city are languishing on a waitlist for an affordable housing voucher from the Housing Authority of New Orleans. By issuing a voucher, the city is agreeing to pay up to a certain amount of the voucher holder’s rent.

But the problem extends far beyond New Orleans. In a May 2022 news release on the Biden Administration’s housing supply action plan the White House said that while estimates vary, financial research company Moody’s Analytics estimates that the shortfall in the housing supply is more than 1.5 million homes nationwide.

In a 2021 white paper “Overcoming the Nation’s Daunting Housing Supply Shortage,” by Moody’s Analytics, co-authored by Jim Parrot, a nonresident fellow at Urban Institute, and Mark Zandi, chief economist at Moody’s, the U.S. has less housing available for rent or sale now than at any point in the last three decades.

As federal, state and local officials search for solutions, an ongoing affordable housing crisis is having real effects on residents.

Ford and her family, for example, have been waiting for an affordable housing voucher for more than a decade. Without it, she has cobbled together only enough money to live in the farther reaches of the metropolis, away from many of its amenities.

“It’s far from my work, it’s far from my kids’ schools, it’s far from grocery stores, it’s far from public transportation, it’s far from friends,” Ford said. “When it’s all you can afford, what choice do you have? But, also, what kind of life is it?”

Getting pushed out

Since the onset of the coronavirus pandemic, potential homebuyers and renters across the U.S. have seen real estate prices skyrocket and the supply of available units plummet. According to a Pew Research Center study last year, 85% of Americans said availability of affordable housing was a problem in their community. Forty-nine percent of respondents indicated it was a major problem, up from 39% just three years earlier.

According to HUD, housing becomes a problem when a household spends more than 30% of its income on home-related costs. This is known as “cost burdened,” a designation that applies to nearly 1 in 3 Americans.

Exacerbating the problem, Real Estate brokerage company Redfin found rent has risen sharply over the past two years, as much as 40% in some metro areas, while according to data this year from the U.S. Bureau of Labor Statistics, real wages — or the amount workers earn relative to inflation — has actually fallen by 1.2% since the end of 2019.

Workers can no longer afford to purchase or rent homes in the neighborhoods they once could.

“The result is that thousands of residents — mostly people of color — get pushed farther and farther outside of desirable neighborhoods,” said Maxwell Ciardullo, director of policy and communications at the Louisiana Fair Housing Action Center.

Evidence of the trend isn’t hard to find in New Orleans. Just east of the city’s famed French Quarter, the Bywater neighborhood was once considered a dangerous area, a perception that helped keep rents low. Over the past 20 years, however, helped in large part by its faring better than most during Hurricane Katrina, the Bywater has seen one of the area’s most rapid increases in home and rental prices.

“And that’s resulting in a demographic shift,” Ciardullo told VOA. “In the year 2000, the census tract that encompasses most of the Bywater had 74% Black residents. Just 20 years later, that was down to 37%.”

Multifaceted problem

A crisis of this magnitude stems from many causes.

The white paper blames the shortage of affordable housing primarily on the 2008 financial crisis. In the years that followed, a shortage of land, lending, labor and building materials drove up the cost of building new homes. This cut into contractors’ profit margins and reduced their incentive to build.

The coronavirus pandemic exacerbated the problem as more Americans sought larger homes where they could telework and live comfortably during lockdowns.

“In New Orleans, we were certainly experiencing these issues,” Ciardullo said, “but we also had some unique challenges, such as an aged housing stock and a lot of gentrification.”

“You used to be able to buy a home for really cheap,” said Alton Osborne, co-owner of the Bywater Bakery. In the 1990s, he bought a home in the neighborhood that he still owns today.

“They were blighted, but at least they were affordable,” Osborne said. “Nowadays, you have a lot of people who moved here from out of town and bought those homes, rehabilitated them, and now they’re worth a lot more. Is it a good thing? Is it a bad thing? It’s complicated, but what’s certain is a lot of people don’t have enough money to live in this neighborhood anymore.”

Short-term rentals

One of the most high-profile reasons for New Orleans’ lack of affordable housing is the prevalence of short-term rentals, through Airbnb and other services, popular with the throngs of tourists who visit the city.

“In the Bywater, you’ve got entire blocks now taken over by Airbnb,” Osborne said.

According to the Inside Airbnb website, which looks at the rental service’s impact on communities, the city has more than 5,500 short-term rental units on Airbnb alone — dwellings that could otherwise go to local tenants. Renting to tourists at high prices also tends to drive up the rents on other types of units.

It’s simple math, according to Bywater Neighborhood Association President John Guarnieri.

“A landlord can make a ton more money renting short term on something like Airbnb than they can by renting to locals with a long-term lease,” he said. “It’s not even close.”

New Orleans City Council has worked in recent years to combat the problem by passing laws regulating how much of each property can be used as a short-term rental, as well as limiting the number of guests allowed per unit. Additionally, fees from each booking are used to contribute to a citywide affordable housing fund.

“It’s a good and important step,” said Ciardullo, “but enforcement has been severely lacking so far.”

In addition to attempting to regulate short-term rentals, lawmakers across the U.S. have sought to address the affordable housing crisis with proposals as varied as raising the minimum wage, mandating rent control, subsidizing affordable housing and pursuing partnerships with developers.

In New Orleans, the City Council passed a zoning ordinance that allows the construction of larger buildings if a percentage of those units are made available at affordable prices.

Policies like these can take years to bring about tangible results, but several large projects in the Bywater are said to be close to breaking ground. But forcing change in a neighborhood can trigger resistance from existing residents.

“As neighbors, we’ve learned to fight back against so much development,” said Julie Jones, president of the Neighbors First for Bywater organization. “It’s just too much for one neighborhood to be expected to take. We like our Bywater as it feels now.”

Jones is far from alone. As each housing project is announced, more residents seem to worry about its effect.

For example, a plot of land awaiting development into a 90-unit mixed income residential building currently serves as a de facto park for the community. As the project’s groundbreaking nears, neighbors bemoan the eventual loss of this greenspace.

New Orleanian Danira Ford just shakes her head.

“I understand they enjoy that space,” she said, “but for families like mine, affordable housing like this would change our lives. We’re not talking about a park. We’re talking about a home and a new and better life.”
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Pakistan’s military chief has reportedly sought help from the United Sates in securing the early disbursement of an International Monetary Fund loan as the high price of energy imports pushes the cash-strapped South Asian nation to the brink of a payment crisis.

General Qamar Javed Bajwa spoke by phone to Deputy U.S. Secretary of State Wendy Sherman earlier this week and raised the issue, government sources told VOA late Friday on condition of anonymity.

Pakistan last week reached a staff-level agreement with the IMF for the revival of a multibillion-dollar bailout package. However, the deal is subject to approval by the lender’s board, which is due to meet in late August. Islamabad is expected to get about $4.2 billion under the loan program, starting with an initial tranche of about $1.2 billion.

Foreign Ministry spokesperson Asim Iftikhar Ahmad has confirmed the phone contact between Bajwa and Sherman but did not share details.

“Well, I understand conversation has taken place, but at this stage, I am not in direct knowledge of the content of this discussion,” Ahmad told a weekly news conference in Islamabad.

A State Department spokesperson in Washington would not directly confirm whether the conversion had taken place.

“U.S. officials talk to Pakistani officials regularly on a range of issues. As standard practice, we don’t comment on the specifics of private diplomatic conversations,” the spokesperson told VOA.

Nikkei Asia first reported Friday on the Bajwa-Sherman contact, saying the Pakistani military chief asked for the White House and Treasury Department to use their leverage to help speed up the release of the loan. The United States is the largest shareholder in the IMF.

“Yes,” the sources in Islamabad said when asked whether the two officials had spoken on the matter involving the IMF loan disbursement. The outcome of Bajwa’s appeal was not known immediately, however.

Critics attributed the delay in the release of the loan to Pakistan’s track record of not living up to commitments to undertake crucial economic reforms.

Late on Friday, Bajwa also spoke by phone to General Michael Erik Kurilla, the commander of the U.S. CENTCOM.

The army’s media wing in a statement quoted its chief as telling Kurilla that Pakistan “values its relations with (the) U.S. and we earnestly look forward to enhance mutually beneficial multi-domain relations based on common interests.”

The statement quoted U.S. commander as pledging “to play his role for further improvement in cooperation with Pakistan at all levels.”

The approval of the IMF program is key to Pakistan’s access to other avenues of finances for the country, including the World Bank and the Asian Development Bank.

Pakistan’s central bank foreign exchange reserves have dwindled to just about $8.5 billion, barely enough to cover a few weeks of imports, and its currency has fallen to historic lows against the U.S. dollar in recent days, with inflation at its highest in more than a decade.

Shortly after negotiating the deal with the IMF, Prime Minister Shehbaz Sharif’s coalition government said it would “very soon” receive the first tranche of $1.17 billion.

But Sharif is under increasing pressure from ousted Prime Minister Imran Khan, who is demanding the government step down and hold snap general elections in Pakistan.

Khan criticized Bajwa for reaching out to Washington, saying “it is not the job of an army chief to talk to the U.S. on financial matters.” The deposed prime minister told local ARY television channel in an interview the army chief’s move had demonstrated that neither the IMF nor foreign governments trust the Shehbaz administration.

Analysts noted, however, that both civilian and military leaders in Pakistan have traditionally conducted economic dealings with Washington, citing the army’s role in  Pakistani politics and foreign policy matters.

Khan alleges Shehbaz conspired with Washington to orchestrate his government’s ouster in a parliamentary vote of confidence in April, triggered in part by rising inflation. The U.S. rejects the charges.

The former prime minister indirectly also has accused the military chief of playing a role in his removal from office, charges the army rejects as politically motivated.

Khan and his Pakistan Tehreek-e-Insaf party are campaigning hard to stage a comeback in the next election widely expected to be held by October. The opposition leader has organized and addressed massive anti-government public rallies across Pakistan since his ouster.
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The European Union’s statistical office, Eurostat, on Friday estimated inflation is expected to reach a record 8.9% in July, while the Eurozone and EU economy overall continued to grow during the first quarter of 2022.

In its report, Eurostat indicated inflation in July was driven largely by the energy sector with 39.7% growth, down from 42% in June. The food, alcohol and tobacco sector follows, with a rise of 9.8%, compared with 8.9% in June. The non-energy industrial goods sector grew 4.5% compared with 4.3% in June, and the services sector grew 3.7%, compared with 3.4% in June.

For months, inflation has been running at its highest levels since 1997, when record-keeping for the euro began, leading the European Central Bank to raise interest rates last week for the first time in 11 years and signal another boost in September.

Meanwhile, Eurostat also reported Friday the eurozone’s seasonally adjusted GDP increased by 0.7% and by 0.6% in the EU overall, compared with the previous quarter. In the first quarter of 2022, GDP had grown by 0.5% in the euro area and 0.6% throughout the EU.

The positive numbers come despite stagnant growth in Germany, Europe’s largest economy. France showed modest 0.5% growth, while Italy and Spain exceeded expectations with 1 and 1.1% economic expansions, respectively.

Eurostat says the numbers for both GDP growth and inflation are preliminary flash estimates based on data that are incomplete and subject to further revision.

The Associated Press, citing regional economic analysts, reports a rebound in tourism following the COVID-19 pandemic helped drive economic growth. The analysts caution, however, that inflation, rising interest rates and the worsening energy crisis are expected to push the region into recession later this year.

Some information for this report was provided by the Associated Press.
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A breakthrough agreement announced by Senate Democrats on Wednesday, which would dedicate hundreds of billions of dollars to addressing climate change and other Democratic priorities, is designed to raise federal revenues by increasing taxes on wealthy Americans and large corporations. But the agreement sidesteps an international tax agreement brokered by the Biden administration.

That agreement, which is meant to require large multinational companies to pay taxes in the countries where they do business and to pay a global minimum of 15% on profits worldwide, is opposed by Senator Joe Manchin, the conservative Democrat who has withheld his vote on a number of the Biden administration’s priorities. Manchin said he is concerned that U.S. companies will be placed at a disadvantage if the U.S. implements the law and other countries do not.

The 15% global minimum tax is distinct from a 15% minimum tax on corporations that is reportedly in the deal that Manchin struck with Senate Majority Leader Chuck Schumer.

The agreement in the new proposed deal applies to “taxable income” and takes many deductions and adjustments into account. The international deal applies to “book income,” which corporations report on financial statements to shareholders and is typically a much larger figure. 

Ironically, the failure to implement the law could harm U.S. tax revenues while doing little to benefit companies based here. A provision in the agreement allows other countries to impose additional taxes on multinational corporations if their home countries do not tax their profits at a minimum rate of 15%. 

According to Congress’s Joint Committee on Taxation, if the U.S. were to adopt the agreement and implement that rule, the Internal Revenue Service would collect an additional $23 billion in 2023, and nearly $319 billion in the 10 years ending in 2032. The committee says failure to adopt the rule could mean those revenues flow to other countries’ treasuries. 

Adoption slow

The U.S. is not the only country slow in adopting the new rules. European Union negotiations over implementation recently hit a snag when Hungary declared itself unwilling to raise taxes on its domestic corporations. The United Kingdom and Japan have drafted implementation guidelines, but they are not yet official. 

The overwhelming majority of countries that signed on to the accord have still not taken steps to actually put it in place. 

“This entire process has been very uncertain and difficult to predict,” Will McBride, vice president of federal tax and economic policy at the Tax Foundation, told VOA. “It’s actually introduced a lot of uncertainty into international tax, although it was initially pitched, and continues to be pitched, as a way to create certainty for taxpayers.” 

135-country agreement

The global minimum tax is part of a larger international taxation framework developed under the auspices of the Organization for Economic Cooperation and Development and the G-20 group of large economies. The deal brought together more than 135 countries in an effort to control “base erosion and profit shifting,” known by the acronym BEPS.  

BEPS refers to tax strategies employed by multinational corporations. The practice involves strategically placing operations in low-tax jurisdictions, thereby eroding the tax “base” of their home countries, and then “shifting” profits earned internationally so that they are paid in those low-tax jurisdictions.  

The OECD estimates that as much as $240 billion in global tax revenue is lost to BEPS every year.  

Two pillar

The agreement, finalized in 2021, has two pillars. The first includes a mechanism for allocating a share of large multinational corporations’ profits to the countries where their products and services are actually consumed, preventing those profits from being booked in tax haven countries. 

The second pillar includes a 15% minimum tax rate on those profits across all countries in the agreement. The pillar also contains a mechanism meant to prevent participating countries from reducing their tax rates in order to attract companies to their shores. If a country does not tax corporate profits earned within its borders at 15%, other countries have the ability to “top up” their tax assessments of those companies in order to bring its total tax rate up to 15%.  

The thinking behind the design is that it eliminates the benefits a corporation gets from moving to a low-tax country, while simultaneously encouraging governments around the world to adopt the 15% rule, because if they do not, other governments will collect the additional taxes anyway. 

“Under Pillar Two, it’s the country of residence that gets the first crack at taxing the foreign income of their multinationals,” Thornton Matheson, a senior fellow at the Urban-Brookings Tax Policy Center, told VOA. “But if they don’t do that, then the countries in which they operate can effectively tax their subsidiaries as if they were subject to such a rule.” 

“If the European countries were all applying this, it could undermine U.S. revenues,” she said, adding that such a situation would create an incentive for the U.S. to put the agreement into force. 

Doubts about effectiveness

Some experts remain doubtful that the global minimum tax, even if it were adopted universally, would actually end the practice of countries using financial incentives to attract corporations to their jurisdictions. 

Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, told VOA that even with a 15% minimum tax in place and strictly enforced, there are a multitude of ways that governments can deliver other benefits that offset that burden. 

As an example, he pointed to the legislation currently working its way through Congress that would provide billions in subsidies and tax credits to the semiconductor industry in order to spur growth in U.S.-based production. 

“If you have a minimum tax of 15%, and then give $50 billion plus $24 billion of tax credits to semiconductor companies, what does that tell you? To me as an economist, that’s a negative tax. And other countries will do the same for industries that they regard as critical to their security or livelihood, or whatever the rationale is,” he said.

McBride of the Washington-based Tax Foundation noted that the agreement has an explicit carve-out that prevents direct subsidies from being counted as an offset to a company’s tax burden. 

“It actually incentivizes countries … to go with direct subsidies as a way to attract companies,” he said. 
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The U.S. president and members of his administration are avoiding the “R word” – recession – despite the assertion by opposition party politicians and some economists that the country’s economy now meets that definition.

Speaking in the White House State Dining Room on Thursday, President Joe Biden said Federal Reserve Chairman Jerome Powell, as well as “many of the significant banking personnel and economists, say we’re not in recession.”

He then outlined the job growth and high-tech investment during his administration, concluding “that doesn’t sound like a recession to me.”

Biden’s remarks came after the Commerce Department released data on Thursday showing the U.S. economy has contracted for a second straight quarter, a traditional benchmark for a recession.

The president and his administration’s chief financial officer, Treasury Secretary Janet Yellen, are to make remarks later in the afternoon about the nation’s economy.

The gross domestic product of the United States – the broad measure of goods and services produced in the country – shrank at a seasonally adjusted annual rate of 0.9 percent in the April through June period, according to the Commerce Department’s Bureau of Economic Analysis. That follows a 1.6% decline in this year’s first quarter.

“Popularly we are in a recession, because most people think that a recession involves two consecutive quarters of negative economic growth, and we’ve got that,” Desmond Lachman, an economist at the American Enterprise Institute, told VOA.

Consumer sentiment “now is close to record low levels, they’re struggling with high inflation, the wages are getting eroded, they’ve lost a lot of money on the stock exchange. So, consumers don’t feel good about the economy,” added Lachman.

Recessions in the United States are officially declared by the National Bureau of Economic Research, but such determinations are made in retrospect. Its definition of a recession is based on a significant decline in economic activity over numerous months, taking into consideration such factors as employment, output, retail sales, and household income.

“They [the BEA] only make that judgment, something like six months or a year after the numbers look like they’re indicating the recession. So, in short, it’s too early to say that we’re officially in a recession,” said Lachman.

In the meantime, economists outside the government and elected officials are free to spin the numbers to make their own declarations.

“The Biden White House can play word games and try and contort the English language as it sees fit in order to advance its radical and harmful agenda. What this administration cannot change is the fact that American consumer confidence continues to fall under Biden’s watch,” said Steve Moore, an economist with FreedomWorks, a conservative advocacy group. “Americans are overwhelmingly pessimistic about the state of the Biden economy, and no wordplay over the definition of ‘recession’ can change that.”

Numerous Republican members of Congress quickly took to Twitter immediately after the data was released to declare the country is now in a recession.

“Democrats threw us into recession,” said Senator Ted Cruz, a member of the Senate’s joint economic committee.

“Biden and his army of woke journalists can obscure this all they want, but they cannot escape this fact: America is in a recession,” declared Carlos Gimenez, a congressman from Florida and member of the House transportation and infrastructure committee. “Hardworking American families deserve so much better than what this administration has put us through in the last year.”

“The U.S. is officially in a recession, thanks to the Democrats’ reckless spending. Americans are suffering because of Joe Biden’s America-last policies,” said Jeff Duncan, a congressman from South Carolina and a member of the House Energy and Commerce committee.

Inflation in the country hit a 40-year high of 9.1 percent last month. The country’s central bank, the Federal Reserve, hiked interest rates on Wednesday by three-quarters of a percent, its latest such increase to try to tame price hikes, but a move some economists warn could trigger a recession.

“The problem with the Federal Reserve is they do too little, too late,” according to Lachman. “By the time that they started raising interest rates at the beginning of this year, the inflation genie was well out of the bottle – we had multi-decade highs in the inflation rate. The same thing is now occurring this time around that the Fed keeps raising interest rates, even though there are rather clear signs that the economy is slowing.”

Lachman, a former official of the International Monetary Fund, noted that the actions by the Federal Reserve have put a lot of developing economies under pressure as capital that had flowed to those countries has returned to the United States, and a stronger dollar is making it difficult for those countries to fund their balance of payment deficits.

“Once the United States economy slows, it means that the export markets for the emerging market countries isn’t as robust as it was before. So, we could see difficulty for the emerging market, certainly the remainder of this year, but there might be relief next year, once the Fed stops this interest rate hiking cycle and begins cutting interest rates,” predicted Lachman.

“Our goal is to bring inflation down and have a so-called soft landing, by which I mean a landing that doesn’t require a significant increase in unemployment,” Powell told reporters on Wednesday. “We understand that’s going to be quite challenging. It’s gotten more challenging in recent months.”
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The United States is due to release economic growth data from April to June on Thursday, amid fears the economy could be approaching a recession.

Forecasters estimated slight growth in the second quarter of less than 1%.

The previous quarter saw the gross domestic product decline 1.6%.

A second consecutive negative quarter would meet the informal definition of a recession.

Thursday’s report comes a day after the Federal Reserve again raised the benchmark interest rate as it tries to bring down inflation.

Some information for this report came from The Associated Press and Agence France-Presse.
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Chinese authorities are promising to establish an initial rescue fund of $11.8 billion (80 billion yuan) to offset a looming crisis in the real estate sector, where homebuyers routinely purchase residences from developers’ plans and begin making mortgage payments before the dwellings are finished. 

By having customers purchase homes “off plan,” builders can receive construction financing and shift risks — such as costly pandemic-related supply chain delays and bankrupt builders — to the middle-class homebuyers. 

For many buyers, the risks seemed worth it. But then China’s COVID-cooled economy strained many family budgets, and draconian lockdowns stalled work on residential projects. As home prices fell, some buyers found themselves paying mortgages on properties worth less than what they had agreed to pay. That was followed by the tightening policies in August 2020, when the central government realized real estate developers’ debt was getting out of control, and draconian lockdowns stalled work on residential projects. 

Amid all this, many homebuyers announced they would stop making mortgage payments to banks until work resumed on unfinished projects. 

Experts say the boycott is a byproduct of two decades of insufficient oversight over a red-hot real estate sector. One economist likened the situation to a Ponzi scheme, a type of fraud that pays existing investors with funds collected from new investors. 

Reuters describes the promised rescue fund as the first step in creating a “war chest” of as much as $44 billion (300 billion yuan). The state hopes the effort, announced Sunday, will not only help property developers resolve a debt crisis but also restore confidence in the real estate sector. 

A state bank official who declined to be named due to the sensitivity of the matter told Reuters that the fund would initially be set at 80 billion yuan through People’s Bank of China and China Construction Bank. 

High risks, low supervision

Mr. Fang, a real estate developer in China and the United States who asked that VOA Mandarin not use his real name for fear of reprisal, said while U.S. banks supervise and control loans issued to off-plan property developers from groundbreaking to occupancy, Chinese banks offer less supervision. 

According to China’s presale housing regulation, funds received from sales of homes must be used to build them, a process supervised by the Ministry of Housing and Urban-Rural Development and banks.

In practice, however, poor supervision is common, according to Fang. 

In this environment, Chinese developers “want to take big risks,” Fang said. 

Instead of putting buyers’ mortgage payments toward construction of their homes, Fang said, Chinese developers buy more property. 

With the economy and housing market cooling off, it is “basically suicidal” to buy more land on the assumption that developing it will pay for finishing construction underway elsewhere, Fang said. 

‘A bit like a Ponzi scheme’

An economist in China, who requested anonymity due to fear of reprisal, told VOA Mandarin that real estate companies have never been regulated. 

“When the economy is good, with the continuous expansion, most of the properties can be delivered. But when the economy is not good, it becomes a bit like a Ponzi scheme. If there is no follow-up funding, they will not able to complete construction,” she said. 

A Chinese banking regulator said on July 21 that it will coordinate support to property developers in need of loans after homebuyers stopped making mortgage payments, usually putting the money into escrow accounts instead. 

At a press conference in Beijing last Thursday, Liu Zhongrui, director of the Statistical Information and Risk Monitoring Department of the China Banking and Insurance Regulatory Commission (CBIRC), said that banks and other government departments will meet reasonable financing needs of real estate developers. But he did not give details. 

“We actively strengthen the coordination and cooperation with the Ministry of Housing and Urban-Rural Development, the People’s Bank of China and other departments, and support local governments to more effectively promote the work of ‘guaranteeing the delivery of buildings, protecting people’s livelihood, and maintaining stability,'” Liu said. 

The earliest “mortgage boycott notice” by more than 5,000 homebuyers appeared in April 2021 in Taiyuan, in the northern province of Shanxi, after a local developer’s project languished unfinished for more than two years. 

Letters to banks

Last month, homeowners in Jingdezhen, in northeastern Jiangxi province, sent a letter to their banks announcing they were suspending mortgage payments because of the delayed delivery of residential units purchased off plan. Since then, homeowners of more than 300 unfinished residential projects nationwide have sent similar public letters to banks. 

Last week, some 200 frustrated home buyers in Wuhan demonstrated outside a bank regulator’s office, according to an article in The Wall Street Journal. 

It’s unclear how many homebuyers are involved in the protests because Chinese censors are clamping down on news of mortgage boycotts, Reuters reported.

A study, the “2022 National Unfinished Building Research Report,” published July 18 by the Shanghai-based E-House China Research and Development Institution, a think tank that analyzes the real estate market, found that 54% of homeowners who issued mortgage suspension notices came from the central China province of Henan, home to a billion-dollar banking scandal.

According to the report, the value of mortgage loans involving unfinished buildings nationwide was $133.2 billion (900 billion yuan) in the first half of 2022, accounting for 1.7% of the national mortgage balance. 

“This industry is a mess, and no one used this kind of quantitative analysis to analyze it before,” Yan Yuejin, the report’s author and the think tank’s director of research, told VOA Mandarin. 

Although 1.7% does not sound high, it is already very high and poses a serious risk for banks, Yan said. “The banks’ tolerance rate for this [kind of] nonperforming loan … should not exceed 1%.”
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The U.S. Senate has passed a $280 billion initiative that would boost domestic production of microchips and provide support for a key industry that competes with overseas countries including China. VOA’s Congressional Correspondent Katherine Gypson reports.
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Meta Platforms Inc. issued a gloomy forecast after recording its first ever quarterly drop in revenue Wednesday, with recession fears and competitive pressures weighing on its digital ads sales. 

Shares of the Menlo Park, California-based company were down about 4.6% in extended trading. 

The company said it expected third-quarter revenue to be in the range of $26 billion to $28.5 billion, which would be a second consecutive year-over-year drop. Analysts were expecting $30.52 billion, according to IBES data from Refinitiv. 

Total revenue, which consists almost entirely of ad sales, fell 1% to $28.8 billion in the second quarter ended June 30, from $29.1 billion last year. The figure slightly missed Wall Street’s projections of $28.9 billion, according to Refinitiv. 

The company, which operates the world’s largest social media platform, reported mixed results for user growth. 

Monthly active users on flagship social network Facebook came in slightly under analyst expectations at 2.93 billion in the second quarter, an increase of 1% year over year, while daily active users handily beat estimates at 1.97 billion. 

Like many global companies, Meta is facing some revenue pressure from the strong dollar, as sales in foreign currencies amount to less in dollar terms. Meta said it expected a 6% revenue growth headwind in the third quarter, based on current exchange rates. 

Still, the Meta results also suggest that fortunes in online ads sales may be diverging between search and social media players, with the latter affected more severely as ad buyers reel in spending. 

Alphabet Inc., the world’s largest digital ad platform, reported a rise in quarterly revenue on Tuesday, with sales from its biggest moneymaker, Google search, topping investor expectations. 

Snap Inc. and Twitter both missed sales expectations last week and warned of an ad market slowdown in the coming quarters, sparking a broad sell-off across the sector. 

On top of economic pressures, Meta’s core business is also experiencing unique strain as it competes with short video app TikTok for users’ time and adjusts its ads business to privacy controls rolled out by Apple Inc. last year. 

The company is simultaneously carrying out several expensive overhauls as a result, revamping its core apps and boosting its ad targeting with AI, while also investing heavily in a longer-term bet on “metaverse” hardware and software. 

Meta executives told investors they were making progress in replacing ad dollars lost as a result of the Apple changes but said it was being offset by the economic slowdown. 

They added that Reels, a short video product Meta is increasingly inserting into users’ feeds to compete with TikTok, was now generating over $1 billion annually in revenue. 

However, Reels cannibalizes more profitable content that users could otherwise see and will continue to be a headwind on profits through 2022 before eventually boosting income, executives told analysts on Wednesday. 

“They are being greatly affected by everything,” Bokeh Capital Partners’ Kim Forrest said, referring to the economic slowdown as well as competition from TikTok and Apple.  

“Meta has a problem because they’re chasing TikTok and if the Kardashians are talking about how they don’t like Instagram … Meta should really pay attention to that.” 

On Monday, two of Instagram’s biggest users, Kim Kardashian and Kylie Jenner, shared a meme imploring the company to abandon its shift to TikTok-style content suggestions and “make Instagram Instagram again.” 

Not persuaded

CEO Mark Zuckerberg did not appear to be swayed, however. 

About 15% of content on Facebook and Instagram is currently recommended by AI from accounts users do not actively follow, and that percentage will double by the end of 2023, he told investors on the call. 

For now, at least, the metaverse part of Meta’s business remains largely theoretical. In the second quarter, Meta reported $218 million in non-ad revenue, which includes payments fees and sales of devices like its Quest virtual reality headsets, down from $497 million last year. 

Its Reality Labs unit, which is responsible for developing metaverse-oriented technology like the VR headsets, reported sales of $452 million, down from $695 million in the first quarter. 

Although Meta has recently slowed investments as cost pressures increased, executives reassured investors it was still on track to release a mixed-reality headset called Project Cambria later this year, focused on professionals. 

Meta broke out the Reality Labs segment in its results for the first time earlier this year, when it revealed the unit had lost $10.2 billion in 2021. 

Its second-quarter operating profit margin fell to 29% from 43% as costs rose sharply and revenue dipped. 

In November, Chief Financial Officer David Wehner will become Meta’s first chief strategy officer. Susan Li, Meta’s current vice president of finance, will become CFO.
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The U.S. Federal Reserve is expected to impose a second major interest rate increase Wednesday in an effort to combat soaring inflation.

Observers say the central bank will likely announce an interest rate hike of three-quarters of one percentage point. The expected rate hike would be similar to one last month — the biggest boost in nearly three decades as the U.S. inflation rate soared to an annual rate of 8.6%, the highest in 40 years.

The U.S. economy has seen rising demand for goods and services among consumers as the global COVID-19 pandemic has steadily waned. But that has also led to the rising cost of most commonly used items, such as gasoline, food and clothing, as well as major items like cars, appliances and furniture.

The decision by the Federal Reserve to increase the interest rate consumers pay to borrow money is aimed at lowering such demand, which could help lower prices and bring inflation back down to the central bank’s target rate of 2% per year — but without pushing too far and causing a recession, which could lead to job losses and more economic pain.

All three major U.S. stock indices closed lower Tuesday after giant retailer Walmart cut its profit outlook and warned that rising prices of food and gasoline were prompting consumers to cut back on buying higher priced goods like electronics and clothes.

Some information for this report came from The Associated Press and Reuters.
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Two decades ago, China’s factory-driven economy awed the world as it expanded at more than 10% per year. But the country has missed double-digit growth over the past decade. The GDP shrank from April to June this year compared with the previous three months, though it topped the same quarter of 2021, but just barely.

Economists tell a consistent story about how the drop happened: Lockdowns to stop COVID-19 infections hurt factory work and export shipments. They say those setbacks added to financial hardships among China’s top property firms and the shocks of a 2021 crackdown on major Chinese tech icons. 

China’s $18 trillion economy, the world’s second largest after the United States, shrunk 2.6% from April to June compared to the first three months of the year. 

“China’s economy has seen signs of disruption since February due to the impact of COVID-19 outbreaks in a number of Chinese cities,” said Rajiv Biswas, executive director and Asia-Pacific chief economist at S&P Global Market Intelligence. He called industrial production, retail sales and port operations particular trouble spots. 

“The resulting disruption to retail sales and industrial production has been quite severe during April and May. And in Shanghai, port operations and logistics were also quite heavily disrupted during April,” Biswas said. 

Shanghai is China’s chief port city. The central government ordered lockdowns there in April. 

China’s economy grew close to 10% per year from 2003 to 2010, World Bank data show. Annual growth gradually slowed through 2019 before dipping to 2.2% in the first pandemic year, 2020, and rebounding to 8.1% last year.

Pressure on jobs, spending 

The lockdown-weary country recorded more than 6% unemployment in April, compared with nearly 5% (4.8%) at the end of 2021. Younger workers  and smaller firms have been hit especially hard, analysts say.  

Individuals contacted by VOA in Beijing, Shanghai and the inland city of Changsha this week said they knew about the employment crunch but felt their own jobs were stable.

“At least I don’t know of any friends around me who are jobless, and I’ve not heard that many complaints,” said a fashion importer who spoke on condition of anonymity.

Chinese consumers are now spending less than normal because they cannot go outside during mandatory closures, or they fear cuts in income from eventual job losses, said Alicia Garcia-Herrero, chief Asia-Pacific economist at French investment bank Natixis, who is based in Hong Kong. 

Retail sales grew at a low of 3% in June, even as lockdowns eased, Garcia said, pointing to “very negative sentiment as well as very slow growth in disposable income.”

“It is very clear that the household sentiment remains very negative, perhaps because of the uncertainty of future lockdowns as mass testing remains pervasive,” she said. 

Setbacks in property, tech, global confidence 

Last year, the economy was already faltering due to problems in real estate and tech. 

A number of big name Chinese property developers began to default on billions of dollars’ worth of loans last year, according to consultant firm Dezan Shira & Associates, who said homeowners who bought units through a “pre-pay model” are now refusing to pay mortgages on unfinished homes.

In tech, Chinese regulators began in cracking down on the country’s most powerful firms in late 2020, including e-commerce giant Alibaba Group and social media juggernaut Tencent. Regulators have cited concerns about monopolistic activity and data security.  

China’s economic malaise is worrying world markets because the “slope” of recovery is less steep than it was when COVID-19 hit in 2020, said Zerlina Zeng, a senior analyst at the CreditSights research firm in Singapore. Missed mortgage payments threaten the value assets, including property, she added.

Disruptions to export shipping and manufacturing in China have hobbled supply chains in much of the world, in turn adding to inflation and fears of recession.

Is the worst over? 

Officials in Beijing are nudging the economy forward again by spending on infrastructure. The GDP is already showing signs of recovery, Zeng said. Demand for cement and cars, including electric ones, is already up, she said. Officials are also relaxing last year’s tough stance on the tech industry, Zeng added.  

“Overall, we are seeing a better macro picture” this quarter, she said. “We think that for sure, [the economy] is going to recover but that the slope of the recovery is not going to be as good as what the market had expected back in the first quarter of this year.” 

Any future lockdowns will probably target neighborhoods rather than all of Shenzhen or Shanghai as the government did earlier this year, Zeng said. But she cautioned that China’s goal of 5.5% economic growth this year is “very ambitious.”

The government-run China Daily posted an investment bank editorial last week calling for 5.3% economic growth year on year from July through September, and 5.9% in the final months of 2022.
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World economic growth is slowing and the prospects for a quick recovery are gloomy, the International Monetary Fund said Tuesday.

The IMF said it expects growth to slow from last year’s 6.1% advance across the globe to 3.2% this year, four-tenths of a percentage point lower than it forecast in April.

“A tentative recovery in 2021 has been followed by increasingly gloomy developments in 2022 as risks began to materialize,” the IMF said. “Global output contracted in the second quarter of this year, owing to downturns in China and Russia, while U.S. consumer spending undershot expectations.”

The Washington-based international finance agency said that “several shocks have hit a world economy already weakened by the pandemic: higher-than-expected inflation worldwide – especially in the United States and major European economies – triggering tighter financial conditions; a worse-than-anticipated slowdown in China, reflecting COVID-19 outbreaks and lockdowns; and further negative spillovers from [Russia’s] war in Ukraine.”

The IMF said the price of consumer goods, especially for food and energy, is increasing throughout the world. The cost is expected to rise by 6.6% in advanced economies this year and by 9.5% in emerging market and developing economies, with both figures up nearly a percentage point from the IMF’s earlier projection.

“The risks to the outlook are overwhelmingly tilted to the downside,” the IMF said.

It said the war in Ukraine “could lead to a sudden stop” of Russia’s export of natural gas to European countries and that “inflation could be harder to bring down than anticipated” if employers cannot find enough workers to meet their labor demands or inflation increases at a faster pace than expected.

The IMF said that a “plausible alternative scenario” to its already diminished forecast would be a world economy “in which risks materialize, inflation rises further, and global growth declines” to about 2.6% and 2% percent in 2022 and 2023, respectively, figures that would put growth in the bottom 10% of outcomes since 1970.

“With increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers,” the IMF said.

The IMF forecast came as policy makers at the U.S. central bank, the Federal Reserve, began two days of meetings in Washington with the expectation they will announce another three-quarters of a percentage point increase in the Fed’s benchmark percentage rate on Wednesday, an effort to curb rampant inflation in the U.S., the world’s biggest economy.

With June’s 9.1% year-over-year surge in consumer prices in the U.S. – the fastest pace in four decades – the Fed has already boosted its prime lending rate this year from near zero percent to 1.6% and expects to end 2022 at 3.4%.

Increases in the Fed’s interest rate reverberate through the U.S. economy, with higher borrowing costs for car loans and consumer goods. By making it costlier to borrow money, the Fed’s expectation is that consumers and businesses will cut their spending and thus help curb inflation.
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Zimbabwe’s central bank has introduced gold coins that it hopes will ease citizens’ demands for foreign currency. But economists and ordinary Zimbabweans are skeptical.

At the official launch of the gold coins in Harare on Monday, John Mangudya, head of the Reserve Bank of Zimbabwe, said the coins are designed to reduce demand for U.S. dollars in the country.

Zimbabweans are largely shunning the weak local dollar in favor of U.S. greenbacks, which Zimbabweans see as more acceptable abroad and better at holding their value long term.

Mangudya said he hoped that Zimbabweans will now opt for the gold coins, which cost about $1,800 each.

“We are now providing that store of value to ensure that people do not run to the parallel market in search for foreign currency to store value,” he said. “And there is no other better product that can be used to store value other than gold.”

Mangudya said the coin is a sign of respect for the people of Zimbabwe.

“We know what you have been going through in terms of the fear factor of losing value and therefore we are providing this gold coin,” he said. It’s a genuine gold coin to ensure that it is saved and invested there.”

Mangudya said 2,000 coins will be manufactured, with future production depending on the public’s appetite.

Prosper Chitambara, a senior researcher and economist at the Labor and Economic Development Research Institute of Zimbabwe, said despite the bank’s hopes he doubts the coins will drastically reduce demand for American dollars.

“Even the demand for U.S. dollar as a store of value, it will also rise because there are still a lot of uncertainties relating to the convertibility of these gold coins — are [they] internationally tradeable, especially given the trust and confidence issues?” Chitambara said.

Chitambra also expressed caution about the coin.

“Most people may not have money to buy this since most citizens are literally living from hand to mouth,” Chitambara said.

One of those Zimbabweans struggling to get by is Christine Kayumba, a high school teacher in Harare.

“The issue of gold coins to us teachers in Zimbabwe, is something we can dream of,” Kayumba said. “It means a teacher who is getting a salary of $190 to $200 would need nine to 10 months to buy one gold coin.”

For Kayumba, that $200 of salary pays for transport, food, rent and money to send children to school. It’s money to live, she said, not to buy a gold coin.

“So, I believe the gold coins were meant for the rich people, not the ordinary teacher or any civil servant in Zimbabwe,” she said.

Mangudya told reporters Monday that gold coins of lesser value would be minted in future to cater for people who have fewer resources.
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German business morale fell more than expected in July, the Ifo business sentiment survey showed on Monday, as the institute that compiles it said high energy prices and looming gas shortages had left Europe’s largest economy on the cusp of recession.

The Ifo institute’s closely watched business climate index dropped to 88.6, its lowest in more than two years and below the 90.2 forecast in a Reuters poll of analysts. June’s reading was marginally revised down to 92.2.

“Recession is knocking on the door. That can no longer be ruled out,” said Ifo surveys head Klaus Wohlrabe.

Germany faces the threat of gas rationing unprecedented in generations this winter following a significant drop in supplies from Russia, whose president, Vladimir Putin, the West accuses of weaponizing energy in response to sanctions levied against him over the war in Ukraine.

Russia says it is conducting a “special military operation” there to fight nationalists.

Russia this month shut down the Nord Stream 1 pipeline that supplies Germany with gas via the bed of the Baltic Sea for 10 days of maintenance that some feared would be extended.

Pumping resumed on Thursday, but at only 40% of capacity.

Wohlrabe told Reuters in an interview that if German gas deliveries continued at that level “there will be no recession.”

However, Germany’s gas network regulator said on Friday that, if gas through the pipeline continued to be pumped at only 40%, the country would need to take “additional measures” to reach the 90% of storage capacity set as a target to avert winter rationing.

The government has said it would prioritize residents over the corporate sector in the event of rationing, and Monday’s Ifo index, which surveys about 9,000 firms, showed expectations for business to significantly worsen in the coming months.

“The Ifo business climate index, like the purchasing managers’ index, now clearly points to a downturn in the German economy,” said Commerzbank economic analyst Jorge Kraemer.

“How bad it ends up unfortunately lies mainly in Putin hands.”

S&P Global’s flash Purchasing Managers’ Index (PM) for German services and its index for manufacturing both fell to 49.2 in July, data showed on Friday, below analyst forecasts for them to hold above the 50 mark that separates growth from contraction.
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Treasury Secretary Janet Yellen on Sunday said the U.S. economy is slowing but pointed to healthy hiring as proof that it is not yet in recession.

Yellen spoke on NBC’s “Meet the Press” just before a slew of economic reports will be released this week that will shed light on an economy currently besieged by rampant inflation and threatened by higher interest rates. The data will cover sales of new homes, consumer confidence, incomes, spending, inflation, and overall output.

The highest-profile report will likely be Thursday, when the Commerce Department will release its first estimate of the economy’s output in the April-June quarter. Some economists forecast it may show a contraction for the second quarter in a row. The economy shrank 1.6% in the January-March quarter. Two straight negative readings is considered an informal definition of a recession, though in this case economists think that’s misleading.

Instead, the National Bureau of Economic Research — a nonprofit group of economists — defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

Yellen argued that much of the economy remains healthy: Consumer spending is growing, Americans’ finances, on average, are solid, and the economy has added more than 400,000 jobs a month this year, a robust figure. The unemployment rate is 3.6%, near a half-century low.

“We’ve got a very strong labor market,” Yellen said. “This is not an economy that’s in recession.”

Still, Yellen acknowledged the economy is “in a period of transition in which growth is slowing,” from a historically rapid pace in 2021.

She said that slowdown is “necessary and appropriate,” because “we need to be growing at a steady and sustainable pace.”

Slower growth could help bring down inflation, which at 9.1% is the highest in two generations.

Still, many economists think a recession is on the horizon, with inflation eating away at Americans’ ability to spend and the Federal Reserve rapidly pushing up borrowing costs. Last week, Bank of America’s economists became the latest to forecast a “mild recession” later this year.

And Larry Summers, the treasury secretary under President Bill Clinton, said on CNN’s “GPS” Sunday that “there’s a very high likelihood of recession,” as the Fed lifts interest rates to combat inflation. Those higher borrowing costs are intended to reduce consumer spending on homes and cars and slow business borrowing, which can lead to a downturn.

On Wednesday, the Federal Reserve is likely to announce its second 0.75% point increase in its short-term rate in a row, a hefty increase that it hasn’t otherwise implemented since 1994. That will put the Fed’s benchmark rate in a range of 2.25% to 2.5%, the highest level since 2018. Fed policymakers are expected to keep hiking until its rate reaches about 3.5%, which would be the highest since 2008.

The Fed’s hikes have torpedoed the housing market, as mortgage rates have doubled in the past year to 5.5%. Sales of existing homes have fallen for five straight months. On Tuesday, the government is expected to report that sales of new homes dropped in June.

Fewer home sales also means less spending on items that typically come with purchasing a new house, such as furniture, appliances, curtains, and kitchenware.

Many other countries are also grappling with higher inflation, and slower growth overseas could weaken the U.S. economy. Europe is facing the threat of recession, with soaring inflation and a central bank that just last week raised interest rates for the first time in 11 years.

European Central Bank President Christine Lagarde also sought to minimize recession concerns in a news conference last Thursday.

“Under the baseline scenario, there is no recession, neither this year nor next year,” Lagarde said. “Is the horizon clouded? Of course it is.”
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