ALEX BRUMMER: Xi Jinping is losing his luster

ALEX BRUMMER: Xi Jinping is losing his luster

Xi Jinping is losing its luster: Chinese leader’s threats against Taiwan have soured economic ties with the West, says ALEX BRUMMER

The intriguing question about China before Covid-19 was how long it would take to overtake the United States as the world’s largest economy.

With annual growth rates between 8 and 10 percent, the transition point was expected sometime this decade.

Circumstances have changed dramatically. Donald Trump, for all its mistakes, saw China as an economic, trade and security threat.

Dispute: President Xi’s actions in Hong Kong and the threats against Taiwan have also clouded economic relations with the West

His hopes of shifting manufacturing to the US may have been wishful thinking, but efforts to curb technology transfer, one of the engines of productivity, have proved effective.

President Xi’s actions in Hong Kong and threats against Taiwan have also worsened economic relations with the West.

The most difficult thing for China has been its zero-tolerance approach to Covid-19. The frequent lockdowns and disruptions in global supply chains have severely reduced production.

As a result, China is in the unusual position of fiscal and monetary easing while much of the rest of the world is moving in the opposite direction to counter rising inflation.

The cut in China’s medium-term interest rate is intended to address several issues. These include a slowdown in manufacturing, faltering retail sales and flagging industrial production. Youth unemployment is high at 19.9 percent.

There is also excessive lending to real estate companies like Evergrande and a mortgage market that is struggling with a Ponzi scheme.

Cheap Chinese goods have been one of the factors that have helped keep western prices under control. But strong Chinese demand for oil has been problematic.

Slower growth in China means lower oil prices and Brent crude fell sharply in both spot and futures markets. Lower prices at the pumps can already be seen.

So it’s a shame that the historical relationship between oil and natural gas prices is being distorted by sanctions resulting from the Ukraine conflict.

mining missteps

The rapidity with which major miners have attempted – with varying degrees of success – to adapt to the environmental, social and governance (ESG) agenda may have been premature.

The war in Ukraine changed the dynamics for the immediate term as Germany returned to coal burning and nuclear power and attitudes towards North Sea drilling changed.

BHP sold its petroleum business to Woodside as part of its decarbonization efforts. Rio Tinto has abandoned its coal mines in Australia and Anglo American has decanted its South African coal at Thungela Resources.

Only Glencore held onto coal in Colombia with spectacular financial results.

The attempt at decarbonization hurt shareholders in hindsight. It may not be looking good politically, but there are spectacular dividend payments and share buybacks from Glencore, Shell and BP.

Thinking longer-term, Rio and BHP have their sights set on nickel, zinc and copper – all important ingredients for the electrification of the automobile. This is despite the question of whether the fossil fuel production needed to power the electricity grids will ever be green enough if the climate change chips fail.

Many energy analysts believe that hydrogen cars, already available in Tokyo, could prove to be more durable technology. Gaining control of the copper and nickel resources is not proving to be so easy.

As part of his Rio cleanup campaign, Chief Executive Jakob Stausholm is seeking full control of Mongolia’s troubled Oyu Tolgoi project with a £2.2bn bid for the minority stake.

Full control would not only give it exclusive access to one of the world’s largest copper deposits, but could also provide an opportunity to brush up on its ESG credentials, which have been so badly damaged by the destruction of Australia’s sacred Juukan Gorge.

BHP’s efforts to take control of rival Oz Minerals – with access to nickel and copper – for £4.8bn also hit a hurdle as Oz rejected the offer.

Both Rio and BHP undoubtedly have the financial firepower to overcome the obstacles. Investors will not thank them if a lack of strategic planning means they overpay for resources that could pose serious ESG risks.

Pacific Heights

Battered by the Covid collapse in flying hours, it’s been a torrid time for Britain’s leading engineer Rolls-Royce.

Derby will be relieved that Malaysia Aviation is signaling confidence in the future by ordering 20 Airbus A330neos powered by Trent 7000 engines. The future for widebody aircraft lies in the Pacific.