Transcript: Beijing bets on manufacturing

This is an audio transcript of the FT News Briefing podcast episode: ‘Beijing bets on manufacturing’

Jessica Smith
Good morning from the Financial Times. Today is Monday, April 22nd, and this is your FT News Briefing.

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Tesla shareholders are bracing for a painful earnings report. Oil markets seem to have brushed off the escalation in the Middle East. And China is revving up manufacturing, which means more exports.

Joe Leahy
It just seems inevitable that this year is gonna be a big year for trade tensions.

Jessica Smith
I’m Jess Smith and here’s the news you need to start your day.

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Tesla’s first-quarter earnings are out tomorrow, and they could be the worst in seven years. Elon Musk’s pioneering electric car company faces slowing demand and a brutal price war. Shareholders also want to know about a plan to move company headquarters from Delaware to Texas. And they want clarity on whether Tesla’s executives are steering the company towards being a large-scale manufacturer or a smaller provider of autonomous technology.

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Oil prices have been surprisingly stable, even after Iran attacked Israel with a barrage of drones and missiles and Israel struck back. The FT’s Myles McCormick says investors were ready for the attacks and had priced them in. He joins me now to talk more about what’s going on in oil markets. Hi, Myles.

Myles McCormick
Hey, how’s it going?

Jessica Smith
It’s going well. Myles, can you tell us a bit more about what’s been keeping oil markets from panicking?

Myles McCormick
Yeah. So to some extent, investors saw this coming as of a few weeks ago when Israel struck Iran’s consulate in Damascus. And that pushed up oil prices and pushed Brent up above $90 a barrel for the first time since October. And the kind of tit-for-tat we’ve seen since, even though they are direct strikes from Iran onto Israeli territory, and from Israel onto Iranian territory, have been very contained, very kind of signalled strikes that traders kind of anticipated once there was that original outbreak of conflict between the two. And for now, at least, the conflict hasn’t grown beyond what traders were expecting at that point a couple of weeks ago.

Jessica Smith
I want to ask, though, about another critical factor when it comes to oil market thinking, and that is supply. What’s going on with global oil supplies right now?

Myles McCormick
Yeah. So that’s another kind of important element of this. And another reason perhaps why we haven’t seen much of response in the oil price. And there’s a few elements to point to here. First is that Opec have taken a lot of supply off the market over the past little while that they could, at any point, put back on the market where the price to rise efficiently. Iranian exports are at their highest in about six years, despite sanctions that they’ve been hit with. And one key difference between now and previous decades is that the biggest producer in the world is, in fact, the US. So there is huge volumes of oil coming from Texas and North Dakota that are supplying the global market, meaning that supply disruption in the Middle East is not as much of an issue as it might have been, say, in the 1970s.

Jessica Smith
So would all this US production be enough to fill a gap if there was a big disruption in oil supplies from the Middle East?

Myles McCormick
Yeah. No, it’s a really good question. And I think the simple answer is no. At the moment, the kind of transformation we’ve seen in the US, and the shale revolution, that’s transformed it into not only the biggest player in the world, but the biggest supplier in the history of the world is enough to contain kind of marginal disruptions to supply or worries about disruptions to supply. But were there to be a very real material hit on oil supplies coming out of the Middle East, the oil that’s produced by the US would not be enough to contain that surge. And that’s in part because the US producers have vowed not to ramp up production even if prices surge because they’re under huge pressure from Wall Street to return money to investors rather than embarking on expensive drilling campaigns.

Jessica Smith
Myles McCormick is the FT’s Houston correspondent, he covers the energy industry. Thanks, Myles.

Myles McCormick
Thanks for having me on.

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Jessica Smith
This week, two of the world’s biggest drugmakers will face off in a London court over the technology behind coronavirus vaccines. Moderna alleges that Pfizer and BioNTech infringed on two of its patents in their use of the critical mRNA platform. BioNTech and Pfizer say the patents are invalid. If Moderna wins, it would be in line for a share of the profits that Pfizer and BioNTech make from their vaccine. Experts say the ruling could influence other legal battles over the lucrative mRNA technology.

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China is hoping that a boom in manufacturing can rev up the country’s economy. Manufacturing was behind better than expected growth in the first quarter of the year. And to talk more about this, I’m joined by our Beijing bureau chief, Joe Leahy. Hi, Joe.

Joe Leahy
Hello.

Jessica Smith
Joe, can you recap for us the economic data that just came out and what it says about China’s economy?

Joe Leahy
So first-quarter GDP came in a lot stronger than people were expecting it, almost a full percentage point stronger. And this seemed mainly to have been driven by China’s growing exports and also investment in manufacturing. I think this was a significant result, just because it shows that Xi Jinping’s pursuit of manufacturing as one way of compensating for the huge slowdown in China’s property sector, is already starting to show signs of coming through in the economic data.

Jessica Smith
Joe, what has China’s government been doing to boost manufacturing?

Joe Leahy
So if you look at the data for credit, instead of flowing into property, a lot of state bank credit is now flowing into manufacturing. And this sort of follows calls from the top leadership to pursue what they call high-quality development. And they’re also talking about new quality, productive forces, which people generally take to mean investing more in high-end manufacturing, especially products for the green transition, such as electric vehicles, solar panels, wind energy, batteries, all these sorts of things.

Jessica Smith
And as you reported, these things are getting cheaper and they’re being exported. I mean, what does a Chinese manufacturing boom mean for other countries?

Joe Leahy
So China argues its cheaper goods are helping with the inflation problem in the west and also helping with the green transition. But in Europe and the US, there’s a concern that this overcapacity is leading to dumping of products in other markets. And of course, in Europe, we’re seeing the controversy of EVs from China flowing into Europe and the allegations coming from the European side, that these are heavily subsidised products and should be subject to higher tariffs. So we’re seeing a huge kind of reaction coming from the industrialised nations. And part of that is because this wave of cheap exports coming out of China is competing directly with high-end industries in Europe and the US, you know, such as automotives and the green transition industries. And the concern, of course, is that these industries are gonna get wiped out by these cheaper Chinese exports that are coming over. So it just seems inevitable that this year is gonna be a big year for trade tensions.

Jessica Smith
Joe, I wanna go back to Beijing’s effort to boost manufacturing. As you mentioned earlier, it comes after a huge crisis in the property industry. But can manufacturing offset the problems in the property market?

Joe Leahy
People say this is not enough, especially the green transition industries. They’re just not big enough to compensate for such a huge sector as the property sector, which used to be one-third of, you know, China’s GDP. But, you know, every little bit helps. And I think for the Chinese government, manufacturing and exports is kind of an easy thing to turn to when you really need to pull growth out quickly. The key thing that the government requires in the long run is to somehow stabilise that property market and restore consumer confidence. But the big question is: Is Beijing’s current strategy the right one to achieve that restoration of consumer confidence? And I think many people are very sceptical.

Jessica Smith
Joe Leahy is the FT’s Beijing bureau chief. Thanks, Joe.

Joe Leahy
Thanks.

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Jessica Smith
Before we go, many Parisians plan to flee their city this summer when visitors flood in for the Olympic Games. And many are renting out their apartments to visitors. Problem is, so many Parisians have that same idea, there’s now a glut of listings forcing owners to lower prices. According to one data group, only about one-third of available Airbnb rentals in the Paris area have been booked so far, and more than 3,000 new listings are coming online each month.

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You can read more on all these stories for free at FT.com when you click on the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.