cross-posted from: https://feddit.org/post/1212562

Archived link

In Laos, the tiny Asian country, China became the largest foreign investor with some $5 billion spread across 745 projects, overtaking Thailand. The China-led strategy was meant to protect countries like Laos from economic shocks — instead, it led to them. Today Laos is struggling to repay the billions it borrowed from China to fund the hydroelectric dams, trains and highways, which have drained the country of foreign reserves. As repayments drag, external debt is rising, a vulnerability exacerbated by the pandemic and rising global fuel and food prices.

The escalating public debt in Laos has sparked global discussions regarding the sustainability within the region. This concern primarily stems from China’s increasing role as a significant financier of Southeast Asian infrastructure projects, raising fears that China might be using debt to gain geopolitical leverage by ensnaring impoverished nations in unmanageable loan agreements.

When President Xi Jinping of China proposed the Belt and Road Initiative (BRI) in a pair of speeches in 2013, the initiative became popular in the developing world, where almost all countries face infrastructure deficiencies. Beijing has loaned almost $1 trillion to developing nations in the past two decades. But China was specifically providing debt and burdening borrowing countries with high-interest rates they could not repay.

[...]

BRI has also been criticised as an effort to export China’s authoritarian model, as a number of major loan recipients have poor records of democracy and civil liberties like in Cambodia and Laos in Asia.

What then results is called ‘Debt-trap diplomacy (DTD),’ now associated as a Chinese policy tool connected to BRI. The approach to Debt-trap diplomacy begins by China intentionally lending excessively money to low-income indebted states that cannot later repay Chinese debt. Loan taking nations see a rise in public debt. However, it is difficult to say how much Chinese financing is going to infrastructure in Southeast Asia because the Chinese effort lacks transparency. China’s loans are largely coming from the two policy banks: China Development Bank and China EXIM Bank. They borrow on domestic and international capital markets and lend with a spread, so they expect to be financially self-sufficient.

In an interview with the Wall Street Journal, the long-time associate of The Black Swan author Nassim Nicholas Taleb said a severe crash is on the way and stocks could lose more than half their value, while acknowledging that his latest warning should come as no surprise.

“I think we’re on the way to something really, really bad—but of course I’d say that,” Spitznagel said.

Since Fortune is mostly citing WSJ, here's an archive of that WSJ story. From that source:

Governments have been so active tamping down any conflagration in the economy that the dry brush of debt and other hidden risks have built into the ingredients for a severe blaze.

How should mere mortals without access to tail risk hedges respond to his prediction? Probably by doing nothing, says Spitznagel.

“Cassandras make terrible investors.”

Cross posted from: https://beehaw.org/post/15094770

Archived version

Developing countries owe China an estimated $1.1 trillion, and more than 80% of China’s loans are to countries experiencing financial distress, according to AidData, a research lab at William & Mary. Despite this, China rarely agrees to loan forgiveness or principle reduction, preferring to negotiate longer repayment plans on a case-by-case basis.

• Despite promises of two-way trade, African exporters have little access to Chinese markets for their goods. Most of China’s imports from the continent are oil, gas and minerals.

• The result is a more one-sided relationship than China says it wants.. One that is dominated by imports of Africa’s raw materials and that some analysts argue contains echoes of colonial-era Europe’s economic relations with the continent.

• With the annual Forum on China-Africa Cooperation (FOCAC) set to take place in September, China is expected to announce new projects in Africa. But its lending practices are coming under scrutiny. Several countries that have taken on debt have found themselves forced to make drastic cuts to domestic programs or raise taxes in order to repay the loans.

• Kenya, for example, spends about 60% of its revenue on debt payments, with about one-third of that money going to pay the interest on loans.

cross-posted from: https://feddit.org/post/865985

The fatalistic tag “garbage time” began popping up on social media platforms over the past month. It was given a more recent boost when state media and commentators lined up to denounce the phrase and any suggestion that decline would follow downturn for China.

“This is a catchphrase insinuating that there’s no help and no hope, denying and downplaying everything in China,” [state-owned media outlet] Beijing Daily said in a commentary last week.

It follows another buzzword China’s censors have targeted as a threat to stability since it broke into the mainstream three years ago: “lying flat,” a call to a slacker life of limited ambition and quiet protest.

[...]

There are other signs China’s collective confidence has suffered, according to survey data collected by Stanford University professor Scott Rozelle and others published in summary last week by the U.S. think tank Center for Strategic and International Studies.

Rozelle found Chinese respondents to a survey were more pessimistic than they had been two decades ago, more likely to blame structural factors for determining whether a person is rich or poor and far less likely to believe hard work pays off.

In 2004, 62% agreed “in our country, effort is always rewarded." That dropped to 28% in the 2023 survey.

cross-posted from: https://feddit.org/post/860815

The Chinese banking sector is facing a severe crisis. In just one week, 40 banks disappeared, and the collapse of Jiangxi Bank has further deepened the sector's problems.

Cryptocurrency market analyst Sigma G also examined the situation in China's banking sector. He points out that the leading cause of the problems is the deep recession in China's real estate sector. Over-indebted developers and local governments fail to repay loans, leading to financial instability. Property prices have plummeted, and construction projects have been halted, further burdening the economic system.

The author also highlights the issue of hidden bad debts. Banks have used asset management companies (AMCs) to offload toxic loans, creating an illusion of stability. However, a new banking regulator, the National Financial Regulatory Administration (NAFR), has begun cracking down on these practices by imposing fines and increasing oversight.

Many Chinese cities and even entire regions are drowning in debt. The liabilities were so high that local government representatives sent envoys to Beijing in the spring. They are negotiating terms for repaying billions in loans. Unpaid debts are increasingly weighing on regional economies, threatening national economic growth.

cross-posted from: https://feddit.org/post/859855

Archived version

In 2025, Russia’s Central Bank plans to fully roll out the digital ruble — a new form of currency that, according to officials, can be used on par with cash and electronic payments, and holds the exact same value as the traditional ruble.

The Russian authorities insist that this new tool is safer than cash and that the fees for using it will be lower than for other electronic payment methods. Every digital ruble has its own unique code, which theoretically makes it possible for the Central Bank to restrict its use — and, according to experts from the digital rights group Roskomsvoboda, to monitor citizens’ transactions.

• The issuer of this new form of currency is the Central Bank itself, a key difference to conventional bank transfers. Responsibility for its use and management will fall on the state, not on commercial banks. When customers deposit funds into their digital ruble accounts, they will effectively be lending their money to the authorities.

• At the same time, commercial banks will be responsible for all account operations, as well as for ensuring security. Clients will be able to manage their digital rubles through commercial bank apps.

• Each digital ruble will always be worth exactly one ruble. However, it’s possible that the authorities will restrict how digital rubles can be spent; the Central Bank may encode certain rubles, for example, so that they can’t be used for gambling or buying alcohol.

• Unique codes on each digital ruble will allow the government to directly monitor citizens’ spending when they use the new form of currency.

• The digital ruble could become a major tool in the Central Bank’s management of Russia’s finances, allowing not only the monitoring of transactions (the government already surveils non-cash payments) but also “instantaneous and direct control over monetary policy.”

• According to the lawyer, the government could use it to instantly implement currency redenomination or impose broad restrictions on money use. “During the COVID restrictions, for example, it would have been possible to use digital rubles to ban payments for [travel] tickets and hotels,” the lawyer said.

I personally would not be interested in buying a new car. They depreciate in value too quickly and do the same exact job as a used car.

Used cars also have been run so lemons that come from the factory have been filtered out or fixed.

Legal experts say the acquittal of 28 defendants facing Panama Papers-related money laundering charges raises questions about the progress of anti-corruption efforts in Panama and beyond, as the country’s new president welcomed the outcome of the trial and called the original journalistic investigation a “hoax.”

In a statement released on Friday, Panama’s judicial branch said the judge Baloisa Marquínez did not find enough evidence to reach a guilty judgment and dismissed a host of electronic evidence presented by prosecutors for not meeting chain-of-custody protocols and authentication standards.

Carlos Barsallo, a Panamanian attorney and former president of Transparency International’s Panama chapter, said the decision reflected a blunder by prosecutors since many of those documents were obtained by authorities during an inspection of the offices of Mossack Fonseca, the Panamanian law firm at the center of the Panama Papers leak. Digital documents, like emails, should have made it easy to maintain the chain of custody, Barsallo said.

“From a global perspective, it shows the difficulty of these cases and the necessity for the prosecution to have more resources — not just economic, but also human resources and technical know-how,” Barsallo said.

Archived version

• Communist-run Laos has come to the fore after it opened a high-speed rail line with China in 2021 that cost the landlocked country about $6 billion. While the development is seen by many as the start of a ramp up in infrastructure that directly connects China with Southeast Asia, it has raised concerns of a build-up in debt for Laos and other smaller countries.

• China is by far Laos’ biggest creditor, accounting for about half of the $10.5 billion in external government debt. The tiny nation had $13.8 billion in total public and publicly-guaranteed debt at the end of last year, amounting to 108% of its gross domestic product.

• Laos’ external debt payments in 2023 reached $950 million, almost double the amount compared to 2022,, making the country defer $670 million in principal and interest payments. The World Bank has said in the past that such moves have provided temporary relief in recent years.

• Laos' development is seen by many as a further chapter of China's 'debt-trap diplomacy' as Beijing offers developing countries financial loans under often opaque condition, leaving them grappling with repayments while it supports China’s efforts to expand its economic and political influence in foreign countries.

• For example, Sri Lanka fell into default for the first time in its history back in 2022 after its foreign reserves dwindled. Last month the South Asian nation said it reached final restructuring agreements worth $10 billion, including with an Official Creditor Committee of bilateral lenders and China’s Exim Bank. Sri Lanka's port, however, is now owned by China.

• China dismissed the “debt-trap diplomacy” allegations.

Malaysia and Thailand are the latest nations in Southeast Asia to express interest in joining the expanded BRICS group of emerging economies.

Archived version

• Nepal has shied away from signing a plan to implement China’s ambitious Belt & Road Initiative (BRI) in the Himalayan nation. Resisting immense pressure from Beijing, Nepal’s Prime Minister Pushpa Kamal Dahal refused to greenlight the signing that would have paved the way for the implementation of nine mega and more than a dozen major BRI projects in Nepal.

• That’s because soon after Nepal signed the BRI framework agreement in May 2017, India launched a massive but silent campaign to educate and explain Nepal’s political leadership, economists, bureaucrats, diplomats, academia, media and civil society leaders the pitfalls of China’s BRI to them, making Nepal’s top politicians and others fully aware of China’s sinister plan to ensnare nations into a debt trap through the BRI.

• PM Deuba eventually told China that Nepal would only agree to a small component of the cost of BRI projects in the form of loans. However, the interest on such loans should not be more than what multilateral lending agencies like the World Bank and Asian Development Bank (ADB) charge for their loans (one per cent per annum).

• This was not acceptable to China which charges more than two per cent on the loans it gives to other countries to finance BRI projects. Also, China insists on the contracts for these projects being awarded only to Chinese companies and refuses to do away with or water down penalty clauses (in case of failure to repay the loans on time).

What also worked against China was Nepal’s experience with the Pokhara International Airport which cost US $ 305 million. China’s Exim Bank provided a loan of about US $ 215 million at 2 per cent interest. Chinese firms were awarded contracts for construction and technical works.

Allegations of shoddy construction, inflated costs and mismanagement by the Chinese have fuelled public anger against China in Nepal. The airport has turned into a huge liability (read this) since no commercial and scheduled flights are operating from there.

cross-posted from: https://feddit.org/post/374497

UniCredit said on Monday it was challenging the terms set by the European Central Bank (ECB) for the Italian bank to cut its exposure to Russia, and seeking a ruling from the European Union's General Court, as well as a freezing of the request in the meantime.

Euro zone banks still involved with Russia more than two years after Moscow invaded Ukraine have come under growing pressure in recent weeks from the bloc's supervisors, as well as U.S. authorities, over their ties to the country.

A complex regulatory backdrop, involving Western sanctions against Moscow and local laws in Russia where the Italian group runs a retail bank, meant it had to "seek clarity and certainty" on the actions it needed to take, UniCredit said in a statement two and a half years after Russia's full scale invasion of Ukraine.

After Austria's Raiffeisen, UniCredit has the biggest exposure to Russia, where it runs a top 15 bank, among European lenders.

Raiffeisen has no plans to take legal action against the ECB over the request to reduce its Russia-related business, a spokesperson has said.

"For anyone who believes that Ukraine's fight against Russia is important for the security of Europe, the fact that UniCredit stayed in Russia, made profits, and is now suing the ECB over their attempts to get it to leave, this doesn't look good," said Nicolas Veron of Brussels think tank Bruegel.

After the Federal Reserve disclosed JPMorgan Chase's stress test results 2024, the bank said in a statement that the Fed's projections for a particular asset - the 'Other Comprehensive Income (“OCI”) - was overestimated.

"Based on the Firm’s own assessment, the benefit in OCI appears to be too large", the bank says. The meaning of this is that its losses under the exam should actually be higher than the regulator's findings.

According to the Fed's projection (new table opens as pdf), JPMorgan was assigned $13 billion in OCI, more than any of the 31 lenders in this year’s test. It also estimated that the bank would face roughly $107 billion in loan, investment and trading losses in that scenario.

Without specifying a number, the bank said that should its analysis be correct, "the resulting stress losses would be modestly higher than those disclosed by the Federal Reserve".

Some media reports say the new findings may delay JPMorgan' stock repurchase plans, although the banks did not publicly comment on that.

The move is not as unusual as it may seem. In 2023, Citigroup and Bank of America made similar moves and claimed their projected income would differ from the Fed's results. There have also been critics claiming that some aspects of the annual stress test exams were too opaque.

Archived version

• A residence priced $15 million was sold within hours
• Buyers snatch 200 large flats priced from nearly $5 million

Shanghai’s luxury real estate market is a bright spot in China’s bleak property sector. It’s the only one among the country’s mega cities that’s still attracting people to put down money in an asset class that has otherwise been abandoned.

[...] The move is driven by rich Chinese — many dwelling in the Yangtze River Delta region that Shanghai is part of — who are parking their money only in surefire investments [...] buyers are a mixture of locals and outsiders, many from the neighboring Zhejiang and Jiangsu provinces, according to sellers and developer advisers. Shanghai allows non-local homebuyers if they’ve paid income taxes for three years.

[...] Shanghai’s more affluent and entrepreneurial demographic is helping with the rebound, whereas the capital has more people working for state-owned enterprises and the government, meaning they already have access to government-subsidized housing.

[...] the trend is expected to cool down in the second half, after pent-up demand is released, according an analyst.

Local governments in China have asked several companies to pay tax bills dating back as far as the 1990s, underscoring their need for funding given the uneven economic recovery and persistent housing slump.

A number of listed firms have said in exchange filings in recent months that they’ve gotten government demands to pay tens of millions in back taxes and warned investors this could impact their earnings.

V V Food & Beverage Co. said last week that a liquor-making unit was told to pay some 85 million yuan ($11.7 million) on income it “failed to disclose” for about 15 years starting in 1994. ChinaLin Securities Co., Ningbo Bohui Petrochemical Technology Co., Zangge Mining Co. and PKU HealthCare Corp. have issued similar statements.

China’s local governments are facing unprecedented pressure to expand revenues because economic growth is slowing and the contracting real estate market has sent income from land sales plunging. Their already elevated debt stockpile is limiting their ability to leverage up further, forcing the central government to borrow more and give them the funds.

The tax recovery is “likely due to the fiscal distress of local governments,” said Xing Zhaopeng, an analyst at Australia & New Zealand Banking Group. “I think they need some money to pay by quarter end” because regional authorities usually pay contractors of government projects then, he added.

Local governments booked less than 5.8 trillion yuan in revenues under the general public budget and the government-fund account, which include taxes and land sales income, in the first four months of the year. That figure was less than the more than 5.9 trillion yuan in the same period last year, according to data from the Finance Ministry.

Their spending also fell to just under 10 trillion yuan from 10.4 trillion yuan a year earlier.

China’s economy is buried under a great wall of debt and Xi Jinping’s answer is to add more bricks. The president has sanctioned an extraordinary programme of borrowing by the central government to steer the $18 trillion behemoth to “high quality development”. In doing so, he is piling risk onto the country’s last decent balance sheet.

There is nothing new in the Chinese central government taking on more debt in a time of crisis. But the latest plan, outlined in March by the State Council, to sell special sovereign bonds with maturities of up to 50 years is a departure from a tested formula.

Such debts used to be indeed special, with only three new issuances by the People’s Republic before last month. All had a one-off policy goal or specific emergency to deal with, such as bailing out insolvent state-owned banks in 1998. This time, the government will sell 1 trillion yuan ($138 billion) in ultra-long-dated, special sovereign bonds. These issues will continue over “each of the next several years”, and the policy goals are broad.

Much of the proceeds will be used for investment to support “major national strategies”, per the State Council. Beijing would help finance the construction cost of schools and hospitals in grain-producing counties, for instance, to reinforce food security and thereby China’s self-sufficiency. Additionally, new industries such as semiconductors, electric vehicles and artificial intelligence will be prioritised as China races to establish a growth model led by domestic consumption, a green economy and innovation, rather than one that depends on infrastructure, land and labour.

Taking on more borrowing at the central government also will consolidate Xi’s grip on economic planning and resource allocation, potentially helping China to reduce wasteful investments. Crucially, expanding the central government’s balance sheet will ease the future burden on cash-strapped local governments that are responsible for most spending.

Heavy lifting

Xi’s borrowing plan addresses a problem created by a tax-sharing system introduced in the 1990s which allows Beijing to take a lion’s share of the national tax revenues. By 2022, per Ministry of Finance data, local governments were responsible for nearly 90% of total government expenditure but they needed to make do with about 50% of total government revenue.

The squeeze gave rise to local government financing vehicles, known as LGFVs, and prompted municipalities to lean on property market income including land sales to balance their books. Property incomes accounted for more than 40% of local government income in 2020. It dwindled quickly thereafter due to Xi’s “three red lines”, a deleveraging campaign that ultimately led a Hong Kong court to order the liquidation of Evergrande, the world’s most indebted real estate developer.

Borrowing binge

The additional borrowing is riskier this time. In 1998 China was on the verge of joining the World Trade Organization. Powered by robust exports and a youthful workforce, its trajectory was firmly on the up. Geopolitical tension, however, has taken steam out of the world’s second largest economy. Its sheer size and its existing indebtedness are an issue too.

The central government’s balance sheet remains tidy for now. Its outstanding borrowings amounted to 24% of GDP at the end of 2023, the International Monetary Fund estimates, among the lowest of major economies. If all else remains equal and China issues special sovereign bonds to the tune of 1 trillion yuan each year for the next decade, its borrowings would rise nearly 8 percentage points to almost 32% of last year’s GDP, Breakingviews calculates.

The problems stack up elsewhere, however. Explicit local government debt amounted to another 31% of GDP by the end of 2023, per the IMF, LGFVs account for a further 48%, and other government funds another 13%, bringing the augmented debt up to 116 trillion yuan, about $16 trillion, or 116% of GDP – a 35% increase on 2018, the IMF calculates.

Corporate debt adds another 123% of GDP, much of it issued by state banks and owed by state-owned enterprises, plus there’s household debt at 61% of GDP, per Fidelity which calculates gross debt at over 300% of GDP.

Borrowing more doesn’t sound like “a basket of comprehensive measures” to resolve risks stemming from local government debts, as the ruling Communist Party’s Politburo called for last year. The potential costs of bailing out those authorities and making the shift to the new growth model is why Moody’s and Fitch, two of the three major rating agencies, have put China’s sovereign rating on negative outlook since December.

More than two decades ago Zhu Rongji reacted indignantly to Hong Kong newspapers’ assessment that he was China’s “deficit premier” when his government started selling long-term construction bonds at smaller amounts. He insisted his cabinet was investing in quality assets, for future generations of the People’s Republic. This gamble paid off and the projects, including a power grid and an extensive mobile telecommunication network, laid the foundation for decades of growth.

By the time the new wave of sovereign debt matures, the People’s Republic would be celebrating its 100th anniversary and, if all goes well according to Xi’s plan, it will be a “strong and modern socialist country”. Long before then, however, it will be clear whether China can defy a debt crisis, as it has done so for decades, and simultaneously revive growth. There will be even less room to borrow its way out of problems next time.

Archived link

For over half a year, Russian companies have been facing difficulties in processing payments with China. Fearing secondary sanctions, banks are refusing to transfer funds, leaving importers unable to bring goods into the country. Vladimir Putin raised this issue during his visit to Beijing in May, but the situation doesn’t seem to have improved.

On December 22, 2023, U.S. President Joe Biden signed an executive order allowing sanctions to be imposed on banks from third countries if they are caught aiding the Russian military-industrial complex. Once blacklisted, these companies would be banned from holding correspondent accounts in American banks, meaning they’d be unable to conduct any dollar transactions. Following this order, dozens of Chinese financial organizations refused to accept transfers from Russia — not only in U.S. dollars but also in Chinese yuan.

On June 12 of this year, Washington tightened its demands. Previously, transactions involving five sectors of the Russian economy — technology, defense, construction, aerospace, and manufacturing — were under scrutiny. Now, the U.S. Treasury has expanded the definition of the military-industrial complex to include all companies previously sanctioned under Executive Order No. 14024. This means that the number of Russian entities that foreign banks must avoid to maintain access to dollar transactions has significantly increased. According to Castellum.AI, there are more than 4,000 such organizations.

Biden’s executive order — neither in its new nor old versions — has yet to be enforced against banks from third countries. So far, representatives of the U.S. administration have only issued verbal warnings: Secretary of State Antony Blinken expressed “serious concern” about the supply of machines and microelectronics to Russia, and Treasury Secretary Janet Yellen publicly mentioned the sanctions risk during her visit to China in early April.

This was enough to trigger significant shifts in trade between Russia and China. By the end of 2023, trade turnover had increased by 26 percent to a record $240 billion. However, in April 2024, China’s customs authority reported a 15 percent reduction in deliveries of cars, equipment, and other machinery. Bloomberg noted that exports to Russia fell for the first time in two years, linking this to sanctions risks. Chinese exports to Russia also fell in May, and Russian customs confirmed the continued decline of imports from Asia. Russia’s Central Bank acknowledged that it had become generally more difficult for Russian banks to open correspondent accounts abroad, even in “friendly” currencies, and directly linked this to “sanctions the United States adopted in December 2023.”

The issue was also discussed at the St. Petersburg International Economic Forum. Industry players reported that money transfers from Russia to China could take as long as three months, and even then might end up being returned to the sender. Businesses complained that they couldn’t even pay for theater decorations or children’s displays. Pavel Brun, the head of MasterProf, said his company hasn’t been able to arrange the supply of plumbing fixtures. “It’s like walking through a minefield,” he told Business FM.

Finding a workaround

Some hopes were pinned on Vladimir Putin’s mid-May visit to China. However, although Putin mentioned that the payment issue was discussed, he didn’t provide any specifics, and business owners confirmed that the difficulties in making payments persisted even after the delegation returned to Moscow.

A source in the trade industry told Reuters that the typical way Russian businessmen solve this problem is by going “from bank to bank, opening current accounts.” “If their payment doesn’t go through, they go to the next one,” the source explained. In response, Chinese financial institutions have started imposing additional requirements, such as asking for an office lease agreement in the province where the bank is located. “While this would have seemed like a harsh requirement before, we have no choice now,” business owners commented to Kommersant FM.

One of the most promising options was to open an account at the Chinese branch of the Russian bank VTB. The demand for this was so high that businesses were often left waiting as long as a year to open an account. VTB Bank CEO Andrey Kostin promised to more than double the staff to speed up this service. However, in its broadened interpretation of Russia’s military-industrial complex, the U.S. Treasury directly named VTB as one of the banned entities for transactions. This will likely complicate the bank’s operations.

As an alternative, businesses have started using banks in third countries as intermediaries, sending money through companies in Hong Kong, Kazakhstan, Kyrgyzstan, the U.A.E., and other “friendly” jurisdictions, rather than directly from Russia, according to Reuters sources. This scheme can prove costly: intermediaries may charge a commission of several thousand dollars per transaction, they don’t guarantee success, and the sender will have trouble getting the money back if the payment fails. Goods may also be confiscated in the intermediary countries. Nevertheless, half of the payments are currently processed this way.

Some companies have started using cryptocurrency to make payments to China, specifically the stablecoin Tether, which is pegged to the U.S. dollar, reports Bloomberg. Instead of waiting months, payments are processed in 5-15 seconds, and without the hefty commissions intermediaries charge. However, there are risks for Chinese partners: since 2021, the local regulator has deemed all cryptocurrency transactions illegal. To circumvent these issues, an even more unorthodox solution has been devised: Russian steel companies are now bartering metal for any goods that Chinese businesses are willing to offer. This way, no cross-border financial transactions are needed at all. Both Russian customs and the Industry and Trade Ministry have noted the growing popularity of this bartering system.

If businesses still need to make monetary payments, they often turn to small rural banks in northeastern China. According to Reuters, these banks, located along the Russian border, are willing to accept transfers and have less stringent compliance requirements. However, due to high demand, even these banks have waiting lists to open an account that stretch for several months.

The System for Transfer of Financial Messages (SPFS) — Russia’s SWIFT analogue for domestic and international transactions — could potentially help. However, VTB has complained that too few foreign companies are currently connected to it. Additionally, the system was developed by the Central Bank, which deters non-residents from using it due to sanctions risks. And with good reason: Bloomberg pointed out that the E.U. and the G7 could jointly impose sanctions for connecting to the system.

Ripple effects

Paradoxically, the current payment issues are having a positive impact on the Russian economy. The inability to transfer money has hit imports, thereby reducing the demand for foreign currency. This supports the ruble exchange rate, as noted in the Central Bank in official reports. The bank doesn’t believe this factor will have a significant impact on GDP.

However, as Sofia Donets, the chief economist at Tinkoff Investments, told RBC, these problems will ultimately lead to additional costs for sellers. The Moscow-based investment company Tsifra Broker concurs that prices for many goods could rise if timely shipments can’t be ensured. Categories making up the largest share of Chinese exports to Russia are at risk: equipment, land transport vehicles, electrical machinery, and electrical equipment.

Currently, importers are complaining that fraudsters are trying to exploit the situation: they write to Russian entrepreneurs posing as Chinese partners and notify them of a change in banking details. There’s been at least one known case where a business ended up sending money to an account, only to find that they couldn’t reach the sender afterward and were left without the paid-for goods.

Some market participants believe that resolving the payment crisis will depend on how much banks can earn from conducting such operations. For instance, Anatoly Semenov, director of the Parallel Import Association, points out that so long as the markets of countries unfriendly to Russia are of interest to Chinese businesses, they won’t openly violate the sanctions regime and risk their investments. Banks in Turkey and the U.A.E. are also refusing transactions with Russia. Against this backdrop, The Bell estimates that imports from some countries have dropped by a third this year.

Archived link

Wealth and corporate taxes remain a sticking point between countries at the United Nations negotiating the roadmap for a framework convention on tax, which could herald a radical shake-up of the global tax system.

The first round of talks to establish parameters that will guide the creation of the convention — initially opposed by wealthy countries including the United Kingdom, the United States, and some members of the European Union — concluded on May 8.

Some progress was made amid ongoing tensions between higher-income members of the Organisation for Economic Co-operation and Development, or OECD, and African U.N. member states, now backed by a coalition of developing countries known as the G77.

“Both the developed and developing countries agreed easily on environmental taxes but strongly disagreed on taxes for wealth,” said Abdul Chowdhary, a senior program officer for South Centre Tax Initiative, a Geneva-based think tank representing developing countries from Africa, Asia, Latin America and elsewhere.

“The developed world took the view that the reforms to tax the world’s wealth are being addressed already by the OECD and the developing world believes that the OECD has been inadequately addressing the matter and that the U.N., too, should be able to do so,” said Chowdhary.

In November 2023, the U.N. General Assembly voted overwhelmingly to adopt a resolution tabled by Nigeria calling for an inclusive U.N. forum to tackle international tax dodging, corporate tax reform, wealth taxes, environmental taxes, and more.

Such a move would shift power away from the OECD, which has shaped the global tax agenda for decades but has been described by some observers as a “rich countries’ club” that sets international tax policy behind closed doors.

"It has been quite absurd and sad to see their hesitation, because the failure of the global tax system is a problem that has major impacts on people in all regions of the world, and we are in urgent need of solutions." — Tove Maria Ryding, tax coordinator at the European Network on Debt and Development

The OECD has defended its “proven track record enabling significant changes in the international tax landscape” and argued the U.N. should not undermine ongoing efforts to curb cross-border corporate tax avoidance. Most notably, the OECD brokered the landmark 2021 tax agreement that included a commitment by nearly 140 countries to set a minimum 15% tax rate for multinational corporations.

During the recent negotiations at U.N. headquarters in New York, led by an intergovernmental committee tasked with drafting “terms of reference” to shape the U.N. tax convention next year, two main blocs clashed over procedural issues, alongside substantive ones.

Many countries that voted against a legally binding framework convention — a sort of “global constitution” under which rules, known as protocols, are set — argued for looser terms of reference that experts noted may ultimately weaken the convention.

Disagreements also emerged over the committee’s decision-making mechanism: the developing countries’ bloc favored voting by a simple majority if no consensus emerges, whereas the wealthy countries’ bloc argued for consensus-only decision-making, which could allow a minority of states to wield veto power.

“The second and biggest flashpoint is on the issue of voting,” Chowdhary said.

“The developed countries are insisting on decision-making via consensus but the developing world says that consensus will only lead to watered-down resolutions and leave the convention as inconsequential as the OECD.”

The second session of negotiations is scheduled to run from July 29 to Aug. 16. Then, the committee’s goal will be to finalize the draft terms of reference in August to be voted on by the U.N. General Assembly before the end of the year.

Irene Ovonji Odida, a Ugandan lawyer and member of the Independent Commission for Reform of International Corporate Tax and South Center Tax Initiative, has offered technical support to the African member states working on the convention. She said that although wealthy countries have attempted to exert pressure on developing countries to abandon their most far-reaching and radical goals, momentum is with the Global South.

“Currently, on substantive issues, the majority — over 60 countries — want corporate taxation included in the [terms of reference] as a substantive issue to ensure equitable taxation of [multinational corporations],” Odida said, adding that some “Western countries see this as a duplication of the OECD” process toward a global minimum tax rate.

The extent to which countries wanted the terms of reference to include high-level commitments to address corporate taxation, clamp down on profit-shifting, and tax ultrawealthy individuals’ incomes and assets varied within the two blocs. Brazil again floated its proposal for a global minimum tax rate for billionaires, which the U.S., the U.K. and South Korea dismissed as a domestic policy issue, according to the Tax Justice Network advocacy group.

All countries broadly agreed on the need to leverage taxation to address climate and environmental crises, though with different emphases on the preferred mechanisms.

Similarly, several countries referred to the issue of “domestic resource mobilization,” but some used it to emphasize the importance of capacity building while others took a broader view, calling instead for the committee to consider the fair allocation of taxing rights and wider sustainable development goals, TJN reported.

Russian inflation accelerated in May to the highest in more than a year, adding to pressure on the central bank to hike the key rate to curb price growth.

Annual inflation reached 8.3% last month, from 7.84% in April, the highest since February last year, Federal Statistics Service data showed late Friday. Price growth jumped to 0.74% in monthly terms from 0.5% in April.

Bank of Russia Governor Elvira Nabiullina last week warned of the possibility of a “significant” rate hike in July if inflationary pressures don’t start to ease. That came after the central bank held the rate at 16% for the fourth meeting in a row, as Russia’s war in Ukraine continues to overheat the economy and stoke inflation.

With government spending on the rise, Nabiullina has been turning more hawkish as economic growth, local demand and price increases have consistently outpaced the central bank’s expectations. The bank said June 7 that it anticipates inflation will return to its 4% goal in 2025.

Archived version

Along the western edge of Canada’s Saskatchewan province, by a bend in a lake ringed by endless stands of black spruce, a small outpost has been carved out of the forest to mark what just might be the hottest new mining project on Earth today.

It is a desolate, unforgiving spot.

Even in April, the snow is still caked hard to the ice that coats the lake. Bone-chilling winds howl day and night. And there are no towns or villages or, for that matter, signs of life at all — beyond the occasional black bear or wolf — within a 50-mile radius.

What Saskatchewan has, though, is uranium. Lots of uranium. The bedrock is so loaded with it that the area around just one stretch of the lake, it is believed, could generate enough nuclear energy to power more than 40 million homes for a quarter century.

In one corner of the camp, deposit samples — small, black, radioactive bars — are all neatly laid out, row after row, in racks. Adam Engdahl throws on protective gloves, picks up one of the samples and beams. “This is my favorite.” Engdahl, a geologist with a startup mining outfit called NexGen Energy Ltd., proudly passes it around. It’s surprisingly heavy, like a dumbbell — a tell-tale sign, Engdahl says, of a bar that’s densely packed with uranium minerals.

Saskatchewan at the Center of Canada's Uranium-Mining Boom: World Nuclear Association sees Canada potentially overtaking Kazakhstan as largest uranium producer.

For the longest time, no one much cared about any of this. Not after the 2011 Fukushima disaster. Nuclear energy was once again too scary, and uranium, the delicate and deadly fuel that powers the reactors, became a sleepy backwater in the global commodities market. But as climate change intensified and governments across the world were drawn anew to the steady carbon-free power generated by nuclear plants, interest in uranium deposits like this one picked up — slowly at first and then, after Vladimir Putin invaded Ukraine, at a frantic pace. Suddenly, much of the world needed an alternative to Russian energy.

Today, there are 61 nuclear power plants under construction globally. Another 90 or so are in the planning stage and more than 300 have been proposed. There’s even a push to re-open old plants that had been shuttered years ago.

The surge in the price of uranium is a testament to the magnitude, and speed, of this pivot back to nuclear. Over the past five years, the metal has climbed 233% — more than triple the gains in gold and copper even after declining a bit in 2024.

The mania has spilled over into the stock market, where traders are wildly bidding up shares of uranium companies. Many of the miners in Canada have soared more than 400% over the past four years, and NexGen now has a market value of almost $4 billion even though it hasn’t sold a single pound of the metal and doesn’t expect to do so until at least 2028. Some of the biggest names in finance have piled into the sector: Li Ka-shing, Steven Cohen, Stan Druckenmiller, among others.

China, India Lead Nuclear-Power Expansion: As new reactors come online, the world faces a growing need for additional uranium ore.

The boom, of course, could go bust. Plenty have in the past. Some 130 miles to the north of the NexGen camp, Uranium City offers a stark reminder of this. Once a bustling mining community, it’s little more than a ghost town today. (Population at last census: 91, according to Statistics Canada.) All it would take is another fatal accident to seriously test the new-found enthusiasm for nuclear power. And even if the world is spared another meltdown, the thorny issue of how — and where — to dispose of the radioactive waste remains a key vulnerability to any initiative to build a bunch of reactors.

Even in Canada, which could soon be the world’s No. 1 uranium producer, pockets of hostility toward nuclear energy remain. British Columbia, a province that, like Saskatchewan, is loaded with natural resources, still has a ban in place on mining the metal and building nuclear plants. For the most part, though, Canada’s leaders have embraced the moment. Prime Minister Justin Trudeau recently made uranium mining a key element of the country’s net-zero emissions plan, an ironic twist for a leader who took office a decade ago pledging to shift the economy away from commodity extraction and all its harsh ups and downs.

Right now, a uranium bust feels like a distant worry.

In February, at a can’t-miss annual gathering of mining industry types just outside Miami, the uranium guys stole the show. Investors and bankers showed only passing interest when the gold and lithium miners got up to speak, leaving rows of empty chairs in the Diplomat Beach Resort, but they packed in tight whenever a uranium executive took the podium.

For Travis McPherson, NexGen’s chief commercial officer, the whole thing was a bit overwhelming. So many investors were clamoring for one-on-one face time with him that he just bounced from meeting to meeting for two days straight. By the end, he had held 60 sessions, a number that conference organizers told him could have set a record. “We were joking with them,” McPherson said, “four years ago, when we went, we probably held the record for the least number of meetings.”

Uranium Supply Deficit Projected to Widen: Demand from nuclear reactors seen outpacing supply through 2040

A big part of the allure of the uranium business is the sense that supply and demand are out of whack. Demand for the metal from China, India, Japan, the US and Europe is rising at a significantly faster pace than miners can pull it out of the ground. By one estimate — from Treva Klingbiel, president of TradeTech, a data provider for the industry — demand could outstrip supply by more than 100 million pounds per year through the 2030s.

“There is no substitution when you own a nuclear reactor,” says Mike Alkin, chief investment officer at Sachem Cove Partners, a firm outside New York City that invests exclusively in uranium and uranium-mining stocks.

The isolation of Russia is only adding to the supply shortfall. Not only are European countries scrambling for alternative fuels to replace the Russian natural gas that powered many of their electricity plants, but they — and much of the rest of the world — had relied on Russia for raw and enriched uranium, too. As the Ukraine invasion drags into its third year, several countries are taking steps to procure the metal from elsewhere. The US is outright banning Russian uranium.

The supply-demand gap is “like a freight train coming down the tracks,” Alkin says.

There are uranium deposits scattered across the Earth — from Kazakhstan, currently the world’s biggest producer, to South Africa. But few are as rich as those in Saskatchewan’s Athabasca Basin.

This is where NexGen’s camp, along the edge of Patterson Lake, is located. Rival outfits are rushing in all around it. A few miles to the west, Fission Uranium Corp. is close to breaking ground on a project of its own. Just to the east, F3 Uranium Corp. is exploring. Go a little farther east and Denison Mines Corp., Orano Canada and Cameco Corp. — which operates the world’s most prolific uranium mine today — are starting new projects, boosting capacity at existing ones and re-opening shuttered mines.

Kazakhstan, Canada Supply More Than Half of the World’s Uranium: Kazakhstan produced 40% of the world’s mined supply of uranium, followed by Canada at 21%.

The ground is so chock full of minerals here that at some mines, including NexGen’s, the uranium will have to be diluted before it’s sold. This purity is the result of formations that began to take shape more than a billion years ago. As erosion drove a gap between underground rock beds from different periods, dense clusters of the metal were created.

Leigh Curyer, the founder and CEO of NexGen, calls his mine site — and the Athabasca Basin, more broadly — “a freak of a location.” Orest Wowkodaw, a mining analyst at Scotiabank in Toronto, prefers the term “unicorn.” By his estimate, the NexGen mine will account for 13% of the entire global supply.

Curyer, 52, is an Australian native and accountant by trade. It was back in 2010, when he was working at a private equity firm in London, that he became intrigued by the Athabasca Basin. He had been tasked at the time with assessing uranium projects across the globe, and a geologist he met along the way convinced him that the western half of the basin had huge potential. Lots of high-grade deposits, the geologist suspected, had been left untouched.

This was a decidedly contrarian view. Most experts believed the vast bulk of the metal had been scooped up during one of the earlier uranium rushes. Curyer was undeterred. And so after the Fukushima disaster triggered a collapse in uranium prices, he cobbled together a group of investors to buy up a chunk of the land and mineral rights around Patterson Lake on the cheap — they paid the equivalent of just $3 million — and started drilling in 2013.

The prospectors in Saskatchewan thought he was nuts. “They were laughing at us, saying ‘What are you going over there for?” Curyer said. At best, they told him, the site was “small and spotty.”

Ten months into the project, it appeared the naysayers might be right. NexGen had put 20 drills into the ground and had little to show for it. Curyer was getting anxious. Uranium exploration is a tricky thing. Drill holes can be painfully close to metal concentrations — as little as five meters away — and still fail to detect them. Most explorers run out of money before they find the big one.

The NexGen team kept burning through cash until finally, on a frigid winter day in early 2014, attempt No. 21 delivered the moment Curyer had been waiting for: The sample was packed with high concentrations of uranium. The 30th hit the motherlode.

Today, Patterson Lake is a hive of activity. It has some 25 heated tents, a fitness center, cafeteria, portable offices and geology labs. Workers pore over uranium samples and map out mine construction plans. In quieter moments, they cut holes in the ice and fish for trout and pickerel.

Curyer still finds it hard to believe he’s in charge of what will be, if all goes according to plan, the world’s top-producing uranium mine. He remembers how investors would tease him, even after those drill holes confirmed how much uranium was under the lake. “People used to say to me, ‘How’s it feel having the world’s best discovery in the world’s worst market?”’

Curyer’s hopeful he’ll get the final permit he needs to build the mine by the end of this year. If not, then early 2025. Shovels will go in the ground, he says, the following week.

Data for May due this week is forecast to show a resumption of loan growth after a shock contraction in April, the first for almost two decades. But nobody expects a return to the days when Beijing would engineer borrowing booms to speed up the world’s second-biggest economy.

Especially since the 2008 crash, China has pumped out credit to build homes and infrastructure, which kept the economy humming. Now it’s stuck in a housing slump and already has plenty of roads and high-speed rail. Policymakers are seeking new ways to sustain growth — like high-tech manufacturing — that won’t rely so much on expanding debt.

China's Loan, Credit Growth Keeps Slowing Amid Weak Demand

The People’s Bank of China has repeatedly signaled it has no intention of revving up the lending engine again. Even if it wanted to, there’s little demand for credit. Government bond sales picked up last month, but the real estate crisis has left Chinese households and businesses reluctant to finance spending or investment by taking on new debts.

“Household savings that used to go into property are now going into the financial system, but there aren’t enough borrowers on the other side,” said Adam Wolfe, an emerging-market economist at Absolute Strategy Research. The PBOC is “trying to create a new normal for credit growth,” he said.

If that effort succeeds, Chinese debt may lose its status as a strong leading indicator for the country’s business cycle — and hence for global commodity markets.

To see how that’s worked over the past 15 years or so, one useful guide is the credit impulse, which measures the ratio of new debt to gross domestic product. It shows four distinct spurts of stimulus since 2009.

China's Credit Cycle Fails to Pick Up Again

As recently as early 2021, China was building its way out of the pandemic in a credit-fueled construction boom that sucked in raw materials from across the planet and helped drive a broad commodity rally.

Around that time, Federal Reserve researchers concluded that China’s credit policies explained more than one-fifth of all commodity-price movements since the global financial crisis. In a separate study, they estimated that when China’s credit impulse rose by 1% of GDP, it delivered a matching boost to global trade – and a 2.2% increase in commodity prices – as well as lifting the Chinese economy.

But since 2022 the credit impulse has essentially flatlined.

“The credit growth data is still a reference to gauge Chinese industrial activities, but it’s a less-strong indicator now,” said Li Xuezhi, head of Chaos Ternary Research Institute, a commodity analysis firm. The economy used to be led by property and infrastructure investments, but the “new quality productive forces” that Beijing is now backing involve other forms of financing like venture capital, Li said.

The lending slowdown is spurring debate over various alarming scenarios for China’s economy. One is a “liquidity trap,” where lower borrowing costs are unable to stimulate growth. Another is a “balance sheet recession,” where households and companies are focused on clearing debts rather than spending.

As China seeks a growth model based on improving productivity instead of expanding debt, the PBOC’s priority is to make sure existing funds are used more efficiently, according to Wolfe. To the extent it succeeds, “the relationship between aggregate credit and the industrial cycle should break down,” and there are signs that it already is, he said.

Authorities took steps in recent years to rein in over-indebted real estate developers and clean up so-called hidden debt owed by local governments, which doesn’t appear on their balance sheets. Property and local government financing vehicles accounted for about 70% of new credit generated over the past decade, according to an estimate by Zhang Bin, a researcher with the Chinese Academy of Social Sciences.

The PBOC is also trying to make sure credit is reaching the real economy, instead of idling within the financial system. Authorities have cracked down on loopholes that allowed companies to make fake loans, arbitraging between higher deposit rates and cheaper borrowing.

An era when loan growth was seen as a key benchmark, by investors and policymakers alike, has left banks with incentives to plump up their numbers.

A case in point is the short-term interbank loans known as bankers’ acceptances. Their cost fell to the lowest level this year in May, according to data from Zhongtai Securities Co. That’s usually a sign that lenders are swapping bills with each other to boost loans

because they’re struggling to find companies that want to borrow.

Even if such techniques help to boost the loan figures coming this week, investors won’t be impressed and will look deeper, said Mary Xia, research director at Beijing Jifeng Asset Management Co.

“The market understands that the weak credit growth is due to problems on the demand side,” she said.

Group of Seven leaders are set to reach a political agreement to provide Ukraine with $50 billion of aid using the profits generated by frozen Russian sovereign assets, according to an Elysee official.

However, the technical details of a deal will need to be finalized after a G-7 leaders’ summit taking place in Italy this week — meaning that it could be a while for a final agreement to be concluded, said the French official, who spoke on condition of anonymity.

The French view followed comments by the US on Tuesday that leaders had all but reached a political deal. People familiar with the negotiations in both countries said the aim would be to disburse the funds by the end of the year.

G-7 participants cautioned that beyond any agreement — which is expected to be one of the main deliverables of the summit — some remaining issues on how it will work are complicated.

Officials on both sides of the Atlantic have for months been discussing how to use the profits generated by the about $280 billion in frozen Russian central bank funds, most of which lies immobilized in Europe.

The proceeds from the frozen assets are estimated to be worth between €3 billion to €5 billion annually. The EU has already agreed to provide Ukraine the profits twice a year, but the US has been urging G-7 allies to find ways to frontload the support in order to provide Kyiv with more immediate support.

Complex issues that will need to be ironed out include figuring out how to structure any loans to Ukraine, how risks are shared among allies and ensuring that the assets remain frozen for years.

US National Security Advisor Jake Sullivan told reporters during a gaggle aboard Air Force One on Wednesday that discussions were continuing and making good progress.

“What we are working toward is a framework that is not generic — that is quite specific, in terms of what it would entail,” he said. “But of course, the core operational details of anything that is agreed in Italy will then have to be worked through and the leaders would give direction to the experts to work that through on a defined time frame,” Sullivan added.

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Eat your heart out Elon Musk and X.com, China’s Alipay is the real ‘everything app.’

If there’s one thing most of us probably didn’t think to wish for when it comes to ewallet features, it’s an artificial intelligence (AI) “mini app” for detecting baldness. Yet here we are, in a time when Alipay, China’s biggest payments application, has debuted exactly that.

Like most ewallet/payments applications, Alipay allows users to connect their bank accounts to the app in order to streamline payments both online and at the point of purchase. But Alipay takes things much further than just payments.

Purported to be a “superapp” for locals, Alipay’s many features include ride sharing, mobile phone services, bill payments, coupon and travel services, shopping, and social media functionality.

The app’s newest feature is quite a departure from its other utility-based features: an AI-powered hair loss detector.

According to a report from the South China Morning Post, users can upload pictures of their scalps for processing by an image recognition system trained on thousands of medically-relevant images. The app then gives users suggestions up to and including recommending medical care when applicable.

Alipay — which is built by Antgroup, Alibaba’s fintech subsidiary — unveiled its AI-powered “Medical Assistant” feature back in April of 2024. The new hair loss detector has been added in as part of this suite.

The big idea behind combining a digital wallet application, lifestyle services app, and a medical tool is purportedly for convenience and streamlining. However, while such apps are popular in the east they’ve yet to find similar purchase in Europe and North America.

One proponent for the multimodal, “superapp” concept is Elon Musk. He’s gone on the record numerous times stating that he’d like X.com to become an all-in-one app comparable to offerings from the Chinese market.

But privacy watchdogs across the globe have steadily rung out the warning that such apps consolidate user information in such a way that user privacy and security are subject to the whims of the application’s owner and whatever entities have access to the data.

In the case of Alipay, for example, the Chinese government has made it clear that user data must be available to the government. While there’s no official word on exactly how data is being used, it would ostensibly be a technologically trivial matter to build and operate a database of user activity — essentially creating a real-time citizen activity tracker.