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Worst drought in a century hits Brazil as it fights to overcome Covid

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The worst drought in almost a century has left millions of Brazilians facing water shortages and the risk of power blackouts, complicating the country’s efforts to recover from the devastating impact of the coronavirus pandemic.

The agricultural centres in São Paulo state and Mato Grosso do Sul have been worse affected, after the November-March rainy season produced the lowest level of rainfall in 20 years.

Water levels in the Cantareira system of reservoirs, which serves about 7.5m people in São Paulo city, dropped to below one-tenth of its capacity this year. Brazil’s mines and energy ministry has called it country’s worst drought in 91 years.

“Lately we’ve been without water every other day, but it was usually at night. But on Thursday we had no water all day,” said Nilza Maria Silva Duarte from São Paulo’s working class east zone.

José Francisco Goncalves, an ecology professor at the University of Brasília, said the drought was having a devastating effect on the important farming industry, which accounts for about 30 per cent of gross domestic product.

“The lack of water in the rivers and reservoirs means farmers won’t be able to irrigate their lands, which will lead to a fall in agricultural production,” he said.

A farmworker stands beside the dry banks of the Jacarei River © Jonne Roriz/Bloomberg

He predicted the drought would “fuel inflation and commodity prices on a global scale, and decrease Brazilian GDP. It has direct repercussions.”

Jose Odilon, a farmer from Ribeirão Preto, a booming agricultural hub in the interior of São Paulo state, said his sugarcane crop had been badly affected.

His vast plantation is dotted with heavy farming equipment — much of it automated — to strip the cane of its leaves, harvest the stalk and then dump it into an awaiting fleet of Mercedes lorries for transport to the local mills.

“We’re going to suffer more due to the lack of moisture in the soil,” he explained. “This is really hindering development.”

Odilon blamed an inversion of the La Nina weather pattern, which has meant more rain falling on the Amazon basin and less in the country’s south.

Map showing extreme drought in southern Brazil

Marcelo Laterman, a climate campaigner from Greenpeace Brazil, said the drought was “directly connected” to deforestation in the Amazon, which last year surged to its highest level in more than a decade. The forest’s water recycling system plays a vital role in distributing rainfall across South America.

As hydroelectric power accounts for about 65 per cent of Brazil’s electricity mix, the drought has also curtailed electricity production. This has forced a switch to the more expensive thermal power, pushing electricity prices for businesses and consumers up to 40 per cent higher this year, according to estimates.

“Our current model based on hydroelectric and thermal energy is not sustainable,” Laterman said. “The increase in droughts puts pressure on the reservoirs of hydroelectric plants and the answer we have is the activation of thermoelectric plants — which, in addition to being expensive, increases greenhouse gas emissions and worsens the problem.”

Brazil’s government has issues warnings of possible blackouts, stoking fears that energy use will be rationed. Local media have reported that the government was preparing a decree on rationing to control electricity use in times of shortages. The ministry of mines and energy said it was discussing energy rationing with “large consumers and industry for times of greater energy demand.”

Low water levels in the Jacarei River can be seen at the Jaguari Reservoir near Joanopolis, Sao Paulo state © Jonne Roriz/Bloomberg

Silva Duarte said: “Our electricity bill is definitely more expensive, and I don’t know how we’re going to manage because our salary hasn’t increased. They said prices will increase further. Where will it stop?”

The drought comes as Brazil grapples with the economic and social effects of the pandemic. Almost half a million Brazilians have died from Covid-19, the second worst of any country after the US, and the death rate remains above 2,000 per day.

The country’s vaccine rollout has also lagged and is only starting to gather pace. Just over a quarter of Brazil’s 212m people have now received a first shot.

With consumer prices increasing more than 8 per cent in the year to May, inflation has combined with high levels of unemployment to hit the nation’s poorest citizens.

Less than half of Brazilians now have access to adequate food all the time, with 19m people, or 9 per cent of its inhabitants, facing hunger, according to a the Brazilian Research Network on Food and Nutritional Sovereignty and Security.



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China reaffirms plans to beef up oversight of foreign listings

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Chinese politics & policy updates

Beijing reiterated its intention to strengthen oversight of overseas listings on Friday, capping a volatile week during which contradictory policy signals rocked the share prices of Chinese companies.

At its mid-year meeting, the Chinese Communist party’s politburo stated its determination to “improve” the regulatory framework for companies listing shares overseas. It was the first time the politburo, comprised of the party’s top 25 officials, had specifically addressed the issue.

Chinese regulators have been angered by Didi Chuxing’s decision to press ahead with a $4.4bn initial public offering in New York last month, despite their concerns about the ride-hailing group’s data security practices.

Senior party and government officials have subsequently vowed stricter oversight of overseas listings, which will now require clearance from the country’s internet regulator. Didi’s shares have plunged as other Chinese companies cancelled or delayed plans to list outside of the country.

Investor confidence in Chinese tech companies was further dented on Monday when Beijing revealed draconian new rules for the country’s booming private education sector. The share prices of New York-listed tutoring companies collapsed, after which a senior securities regulator sought to reassure financial executives that Beijing was not seeking to ‘“decouple” Chinese companies from US and other overseas markets.

The comments by Fang Xinghai, vice-chair of the China Securities Regulatory Commission, on Wednesday helped stop a broader sell-off of Chinese shares. But they were not enough to prevent a more than 20 per cent monthly decline in US-listed Chinese tech companies.

Chinese officials have shown no sign of reining in their crackdown of the country’s largest tech groups for alleged violations of monopoly and data security laws.

Separately, China’s transportation ministry on Friday signalled an intensification of the measures against Didi and other ride-hailing groups. It said in a statement that companies in the sector must improve compliance over network and data security management to better protect customers’ personal data. Stronger supervision of antitrust practices, as well as improved rights of workers in the sector, was also needed, it said.

The statement did not name specific companies but noted that the government’s transport sector oversight is being directed by President Xi Jinping.

The Chinese government is conscious that the campaigns against tech and education companies could dent already fragile private sector confidence as the government tries to boost slowing economic growth.

Liu He, a Chinese vice-premier and the country’s top economic and financial official, sought to reassure representatives of small and medium-sized enterprises on July 27, acknowledging that they were the “main source” of employment. “The Chinese economy will do well only if SMEs do well,” he added.

While China has rebounded strongly from the Covid-19 pandemic, officials have been concerned by slowing infrastructure investment — an essential driver of the world’s second-largest economy. The politburo suggested it would encourage more fiscal spending and local government debt issuance to accelerate economic growth.

The Chinese government has also struggled to contain a new outbreak of Covid-19’s Delta variant, which has spread across the country from an airport in eastern China.

Additional reporting by Edward White in Seoul



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More questions than answers in a Hong Kong courtroom

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Hong Kong politics updates

Leaving Hong Kong’s district court last week, I saw a group of pro-Beijing people waving the Chinese national flag. They had a handwritten banner saying: “Injustice waiting to be undone.”

In July 2019, more than 100 white T-shirt-clad men armed with metal rods indiscriminately attacked pro-democracy protesters, journalists and commuters in Yuen Long station. The incident shocked Hong Kongers to their core.

Last week, seven of the so-called “white shirts” attackers were sentenced to between three and a half and seven years for rioting and wounding. Friends and families of the victims sat in the public gallery. They were joined by supporters of the white-clad men. An old man carrying the red flag into the public gallery cried, “This is unjust. We have to report the case to President Xi Jinping.”

But for many people, the Yuen Long incident was one of the darkest moments during the 2019 Hong Kong anti-government protests.

I was on the streets that day, covering the protesters when they defaced Beijing’s main office in the territory — the first time they had targeted an important symbol of the national government. As the police tear-gassed the area, a protester told me to go to Yuen Long. It was the first I had heard of the incident.

Police officers arrived at the scene late, despite numerous emergency calls, and a nearby police station shut its gate. The alleged police inaction, both on that day and afterwards, has fuelled public distrust of law enforcement.

“Such unscrupulous mass lynching has caused great panic among the citizens and the court must impose a deterrent sentence on the perpetrator,” said Judge Eddie Yip as he read out his judgment. “The passengers’ defences were only a few umbrellas and a few brave young bodies standing at the front,” Judge Yip added.

However, to the victims, the public and even the defendants, the tough sentences have not resolved public discontent, and many questions remain unanswered. For example, despite arresting 63 people related to the case, no mastermind behind the attack has been identified and only eight white-shirts have been brought to court. By contrast, police have arrested thousands of pro-democracy activists, including alleged leaders such as Jimmy Lai and Joshua Wong.

A victim who tried to protect a journalist, and who was hit in the mouth during the attack, told the FT: “If we can’t find out who directs this, who’s involved and bring them to the public, the court is not going to solve this, nor [be] able to help in solving this.”

The wife of Tang Wai-sum, who was sentenced to seven years for his part in the attack, organised a press conference against the “harsh” judgment. “My husband is only an ordinary villager, a small-business owner,” she said. He was only there to “protect his home”.

Alex Yeung, a pro-Beijing YouTuber, sat next to Mrs Tang at the press conference. “The judge is ‘yellow’,” he said, pounding the table angrily. He was referring to the colour used by pro-democracy groups. “I hope the national security law and the independent commission against corruption will investigate this judge.”

The victim who was hit in the face, who was also a witness in the case, said: “both sides are asking for truth: the protesters want to know who directed this, the villagers [locals in Yuen Long] or pro-Beijing people are also making clips they say reflect the ‘truth’. So we need to have an institution to lay out the facts and find all the things behind [it].”

Attempts to find out the truth have been hindered. Bao Choy, a journalist who investigated police conduct during the attack, was convicted and fined for the criminal offence of making false statements.

At one point the police attempted to define the incident as a “mass fight” and “conflict” between “people with different political beliefs” instead of an attack. Seven other people, including former legislative councillor Lam Cheuk-ting, who was injured by the attackers, have been charged with participating in a riot. This trial has been adjourned to 2023.

One court may have made a decision about what happened at Yuen Long, but many people feel the truth is yet to be revealed.

nicolle.lui@ft.com



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Beijing seeks to ease fears on Wall Street after tech crackdown

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Chinese equities updates

China’s securities regulator has sought to pacify concerns among international investors and banks after tough new restrictions on private education companies sent shockwaves through markets.

Regulators in Beijing held a call with executives from global investors, Wall Street banks and Chinese financial groups on Wednesday night, according to three people familiar with the matter. One of the people said there were about 12 attendees including executives from BlackRock, Fidelity, Goldman Sachs and JPMorgan.

The call sought to reassure the groups after China issued an effective ban on the country’s $100bn private tutoring industry at the weekend.

News of the call boosted Chinese shares, which had suffered a punishing week amid a slate of regulatory action. The Hong Kong-listed shares of internet groups Tencent and Alibaba jumped 8.4 per cent and 6.7 per cent, respectively, as the broader Hang Seng Tech index rose 7 per cent.

China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks was up 1.5 per cent, while the tech-focused ChiNext index gained 3.7 per cent.

Line chart of Hong Kong share price (indexed to 100) showing China tech stocks bounce after regulators hold call

One person briefed on the call hosted by the China Securities Regulatory Commission said it showed that the Chinese government was not “completely tone-deaf to international investors’ sentiment”, but added that it did not do much to assuage concerns about future regulatory policies.

“These policies are not coming from the CSRC, they’re coming from much higher up. It’s clear there will be more to come, that’s obvious to everyone,” the person said.

During the call, CSRC vice-chair Fang Xinghai told the international groups China was committed to allowing companies to access capital markets and that the action on education technology businesses was an isolated situation, according to the person.

The person said that a number of people asked the CSRC about whether regulators would target the “variable interest entity” structure that many large Chinese tech groups have used to list overseas. However, the questions were not answered definitively, the person said.

The crackdown on private tutoring companies included restrictions on their ability to use the VIE structure, which has also been used by tech companies including Alibaba and Pinduoduo to list in the US. The structure, which is not legally recognised in China, allows global investors to get around controls on foreign ownership in some Chinese industries.

The latest restrictions on tutoring groups prompted worries that regulators could target the structure more widely.

Fang said he was not interested in talking to journalists when contacted by the Financial Times.

One person close to the CSRC said regulators “didn’t expect the policy to have such a big impact on investor sentiment and [are] keen to send the message that it is business as usual . . . but everyone felt the crackdown is too much and there is no regulatory boundary. Investors will have to reprice China risks going forward”.

Regulatory pressure from Beijing on tech groups has escalated rapidly over the past month. Authorities have initiated an overhaul of how Chinese companies list overseas and the country’s cyber security regulator has announced plans to review all overseas listings of groups with more than 1m users on national security grounds.

The new cyber security rules were announced just days after ride-hailing app Didi Chuxing raised $4.4bn in a New York initial public offering last month. Its shares have since fallen 40 per cent.

The actions have prompted a scramble on Wall Street to redirect IPOs of Chinese companies from New York to Hong Kong. The US has not approved a major transaction from a Chinese group since the Didi episode left global investors nursing large losses.

Tencent spooked markets further on Tuesday when it announced it was suspending user registrations for its flagship WeChat app while it upgraded its security technology to “to align with all relevant laws and regulations”.

Chinese state media has sought to put investors at ease in the wake of sharp falls for shares in Shanghai and Shenzhen. An article on Wednesday by Xinhua said the CSRC maintains an “open attitude” on where Chinese companies list.

BlackRock, Fidelity and JPMorgan did not immediately respond to a request for comment. Goldman Sachs declined to comment.

With additional reporting by Edward White and Ryan McMorrow



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