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China must take action now on net zero pledge

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Last month President Xi Jinping pledged, in remarks to the UN General Assembly, that China would be carbon neutral by 2060.

That is 40 years from now. More than half a human life, on average. So does it actually matter when we see the disastrous effects of climate change all around us today?

The short answer is yes. President Xi’s declaration is a surprisingly important step forward in the global response to climate change. It has the potential to help cut heat-trapping emissions significantly — in China and around the world.

But the commitment must be accompanied by short-term emissions cuts to be meaningful.

China is the world’s largest emitter of heat-trapping gases. Last year its emissions were roughly 27 per cent of the global total — more than the US, Europe and Japan combined.

China’s climate policies are a study in contrasts. On the one hand, the country consumes more coal than the rest of the world put together. During the first half of 2020 Chinese authorities approved the development of many new coal-fired power plants.

Yet China also leads the world in deployment of solar power, wind power and electric vehicles. Its energy efficiency policies are ambitious and successful. There are no known climate deniers in the Chinese leadership.

So why is Beijing’s pledge significant?

First, it implies dramatic changes in the country’s energy system. Last year more than 85 per cent of China’s primary energy came from coal, oil and natural gas, all of which produce carbon dioxide. “Carbon neutrality” requires an almost complete transition from those fuels to non-emitting sources, such as solar, wind, hydro and nuclear power. It requires that CO2 from any remaining use of fossil fuels be captured and permanently stored or offset.

Second, long-term goals are part of China’s political culture. A 2049 goal — which includes being a “prosperous” and “culturally advanced” society — already shapes policymaking. Beijing is currently working on its 14th Five-Year Plan. The country’s capacity for long-term planning far exceeds that of many other nations.

Third, the declarations will shape decisions within the Chinese system for years to come. Any pronouncement by President Xi carries enormous weight with Chinese decision makers at all levels.

His far-reaching consolidation of power is a matter of global concern, particularly when it comes to human rights, but decisions from broad policies to discrete investments will now be evaluated in part based on their contribution to meeting the 2060 goal. In many cases other factors, such as short-term GDP growth, will be more important. But when decisions are being made, the goal of decarbonising the Chinese economy will now be measured and accountable.

Finally, President Xi’s pledge sends a message to countries around the world. The world’s largest emitter has declared that it will achieve carbon neutrality by a certain date. Governments around the world will feel a combination of pressure and inspiration to follow this example.

Almost 70 countries and the EU have already pledged to make their economies “net-zero” greenhouse gas emitters by mid-century, consistent with holding global average temperatures from rising more than 1.5 degrees to avoid the most catastrophic effects of climate change.

In the US, the voters have a chance to decide the question in this election. President Trump continues to deny the science of climate change. Former vice-president Joe Biden, in sharp contrast, has called for massive investments in clean energy and pledged to put the US economy on a path to net zero, by 2050.

Yet one risk lurks within Beijing’s announcement. In addition to committing that China would achieve carbon neutrality before 2060, President Xi also declared that the country’s emissions would peak before 2030. That was a disappointment to many observers. The Chinese government had already basically made the same pledge in 2014, and leading analyses suggest that China has the capacity to reach peak emissions well before 2030. Instead of ambition, the next decade looks more like business as usual.

The Chinese philosopher Lao-tzu said: “A journey of a thousand miles begins with a single step.” In that spirit, the 2060 goal will be seen as meaningless, with damage to his reputation globally, if Beijing does not take steps toward achieving it in the short term. There will be several opportunities to do so in the months ahead, including in the 14th Five-Year Plan (for 2021-25) and national climate action plan the country submits under the Paris Agreement.

Forty years is a long time. But if the Chinese government starts now to set itself on a serious path towards carbon neutrality in 2060 — or well before if global ambition continues to mount — it will make a major contribution to the fight against climate change.

John Podesta, founder of the Center for American Progress, served as counsellor to President Obama, co-ordinating the administration’s climate change programme, and chief of staff to President Clinton.

David Sandalow, inaugural fellow at Columbia University’s Center on Global Energy Policy, has served in senior positions at the White House, state department and US department of energy.

The Commodities Note is an online commentary on the industry from the Financial Times



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Wall Street stocks follow European and Asian bourses lower

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Equities updates

Wall Street stocks followed European and Asian bourses lower on Friday after markets were buffeted this week by jitters over slowing global growth and Beijing’s regulatory crackdown on tech businesses.

The S&P 500 closed down 0.5 per cent, although the blue-chip index still notched its sixth consecutive month of gains, boosted by strong corporate earnings and record-low interest rates.

The tech-focused Nasdaq Composite slid 0.7 per cent, after the quarterly results of online bellwether Amazon missed analysts’ forecasts. The tech conglomerate’s stock finished the day 7.6 per cent lower, its biggest one-day drop since May 2020.

According to Scott Ruesterholz, portfolio manager at Insight Investment, companies which saw significant growth during the pandemic may see shifts in revenue as consumers move away from online to in-person services.

“[Consumers are] going to start spending more on services, and so those businesses and industries which have benefited in the last year, companies like Amazon, will be talking about decelerating sales growth for several quarters,” Ruesterholz said.

The sell-off on Wall Street comes after the continent-wide Stoxx Europe 600 index ended the session 0.5 per cent lower, having hit a high a day earlier, lifted by a bumper crop of upbeat earnings results.

For the second quarter, companies on the Stoxx 600 have reported earnings per share growth of 159 per cent year on year, according to Citigroup. Those on the S&P 500 have increased profits by 97 per cent.

But “this is likely the top”, said Arun Sai, senior multi-asset strategist at Pictet, referring to the pace of earnings increases after economic activity rebounded from the pandemic-triggered contractions last year. Financial markets, he said, “have formed a narrative of peak economic growth and peak momentum”.

Column chart of S&P 500 index, monthly % change showing Wall Street stocks rise for six consecutive months

Data released on Thursday showed the US economy grew at a weaker than expected annualised rate of 6.5 per cent in the three months to June, as labour shortages and supply chain disruptions caused by coronavirus persisted.

Meanwhile, China’s regulatory assault on large tech businesses has sparked fears of a broader crackdown on privately owned companies.

“It underlines the leadership’s ambivalence towards markets,” said Julian Evans-Pritchard of Capital Economics. “We think this will take a toll on economic growth over the medium term.”

Hong Kong’s Hang Seng index closed 1.4 per cent down on Friday, while mainland China’s CSI 300 dropped 0.8 per cent, after precipitous slides earlier in the week moderated.

Japan’s Topix closed 1.4 per cent lower, after the daily tally of Covid cases in Tokyo surpassed 3,000 for three consecutive days. South Korea’s Kospi 200 dropped 1.2 per cent.

The more cautious investor mood on Friday spurred a modest rally in safe haven assets such as US government debt, which took the yield on the 10-year Treasury, which moves inversely to its price, down 0.04 percentage points to 1.23 per cent.

The Federal Reserve, which has bought about $120bn of bonds each month throughout the pandemic to pin down borrowing costs for households and businesses, said this week that the economy was making “progress” but it remained too early to tighten monetary policy.

“Tapering [of the bond purchases] could be delayed, which in many ways is not bad news for the market,” said Anthony Collard, head of investments for the UK and Ireland at JPMorgan Private Bank.

The dollar, also considered a haven in times of stress, climbed 0.3 per cent against a basket of leading currencies.

Brent crude, the global oil benchmark, rose 0.4 per cent to $76.33 a barrel.

Unhedged — Markets, finance and strong opinion

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US regulators launch crackdown on Chinese listings

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US financial regulation updates

China-based companies will have to disclose more about their structure and contacts with the Chinese government before listing in the US, the Securities and Exchange Commission said on Friday.

Gary Gensler, the chair of the US corporate and markets regulator, has asked staff to ensure greater transparency from Chinese companies following the controversy surrounding the public offering by the Chinese ride-hailing group Didi Chuxing.

“I have asked staff to seek certain disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective,” Gensler said in a statement.

He added: “I believe these changes will enhance the overall quality of disclosure in registration statements of offshore issuers that have affiliations with China-based operating companies.”

The SEC’s new rules were triggered by Beijing’s announcement earlier this month that it would tighten restrictions on overseas listings, including stricter rules on what happens to the data held by those companies.

The Chinese internet regulator specifically accused Didi, which had raised $4bn with a New York flotation just days earlier, of violating personal data laws, and ordered for its app to be removed from the Chinese app store.

Beijing’s crackdown spooked US investors, sending the company’s shares tumbling almost 50 per cent in recent weeks. They have rallied slightly in the past week, however, jumping 15 per cent in the past two days based on reports that the company is considering going private again just weeks after listing.

The controversy has prompted questions over whether Didi had told investors enough either about the regulatory risks it faced in China, and specifically about its frequent contacts with Chinese regulators in the run-up to the New York offering.

Several US law firms have now filed class action lawsuits against the company on behalf of shareholders, while two members of the Senate banking committee have called for the SEC to investigate the company.

The SEC has not said whether it is undertaking an investigation or intends to do so. However, its new rules unveiled on Friday would require companies to be clearer about the way in which their offerings are structured. Many China-based companies, including Didi, avoid Chinese restrictions on foreign listings by selling their shares via an offshore shell company.

Gensler said on Friday such companies should clearly distinguish what the shell company does from what the China-based operating company does, as well as the exact financial relationship between the two.

“I worry that average investors may not realise that they hold stock in a shell company rather than a China-based operating company,” he said.

He added that companies should say whether they had received or were denied permission from Chinese authorities to list in the US, including whether any initial approval had then be rescinded.

And they will also have to spell out that they could be delisted if they do not allow the US Public Companies Accounting Oversight Board to inspect their accountants three years after listing.



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Wall Street stocks climb as traders look past weak growth data

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Equities updates

Stocks on Wall Street rose on Thursday despite weaker than expected US growth data that cemented expectations that the Federal Reserve would maintain its pandemic-era stimulus that has supported financial markets for a year and a half.

The moves followed data showing US gross domestic product grew at an annualised rate of 6.5 per cent in the second quarter, missing the 8.5 per cent rise expected by economists polled by Reuters.

The S&P 500, the blue-chip US share index, closed 0.4 per cent higher after hitting a high on Monday. The tech-heavy Nasdaq Composite index climbed 0.1 per cent, rebounding slightly after notching its worst day in two and a half months earlier in the week.

The dollar index, which measures the US currency against those of peers, fell 0.4 per cent to its weakest level since late June after the GDP numbers.

“Sentiment about the economy has become less optimistic, but that is good for equities, strangely enough,” said Nadège Dufossé, head of cross-asset strategy at fund manager Candriam. “It makes central banks less likely to withdraw support.”

Jay Powell, the Fed chair, said on Wednesday that despite “progress” towards the bank’s goals of full employment and 2 per cent average inflation, there was more “ground to cover” ahead of any tapering of its vast bond-buying programme.

“Last night’s [announcement] was pretty unambiguously hawkish,” said Blake Gwinn, rates strategist at RBC, adding that Powell’s upbeat tone on labour market figures signalled that the Fed could begin tapering its $120bn a month of debt purchases as early as the end of this year.

The yield on the 10-year US Treasury bond, which moves inversely to its price, traded flat at 1.26 per cent.

Line chart of Stoxx Europe 600 index showing European stocks close at another record high

Looking beyond the headline GDP number, some analysts said the health of the US economy was stronger than it first appeared.

Growth numbers below the surface showed that consumer spending had surged, “while the negatives in the report were from inventory drawdown, presumably from supply shortages”, said Matt Peron, director of research and portfolio manager at Janus Henderson Investors.

“This implies that the economy, and hence earnings which have also been very strong so far for Q2, will continue for some time,” he added. “The economy is back above pre-pandemic levels, and earnings are sure to follow, which should continue to support equity prices.”

Those upbeat earnings helped propel European stocks to another high on Thursday, with results from Switzerland-based chipmaker STMicroelectronics and the French manufacturer Société Bic helping lift bourses.

The region-wide Stoxx Europe 600 benchmark closed up 0.5 per cent to a new record, while London’s FTSE 100 gained 0.9 per cent and Frankfurt’s Xetra Dax ended the session 0.5 per cent higher.

In Asia, market sentiment was also boosted by a move from Chinese officials to soothe nerves over regulatory clampdowns on the nation’s tech and education sectors.

Beijing officials held a call with global investors, Wall Street banks and Chinese financial groups on Wednesday night in an attempt to calm nerves, as fears spread of a more far-reaching clampdown. Hong Kong’s Hang Seng rose 3.3 per cent on Thursday, although it was still down more than 8 per cent so far this month. The CSI 300 index of mainland Chinese stocks rose 1.9 per cent.

Brent crude, the global oil benchmark, gained 1.4 per cent to $76.09 a barrel.



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