This is an audio transcript of the FT News Briefing podcast episode: ‘Xi Jinping opens China’s Communist party congress

Marc Filippino
Good morning from the Financial Times. Today is Monday, October 17th, and this is your FT News Briefing.

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The UK’s fourth chancellor in four months commences with damage control this week. US banks are getting a boost from higher interest rates. And China’s Communist party congress is underway this week in Beijing. The long agenda boils down to this.

Tom Mitchell
Is Xi Jinping gonna win big or is he gonna win really, really big?

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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The UK’s new Chancellor of the Exchequer, Jeremy Hunt, yesterday said Prime Minister Liz Truss is still in charge. Today, well we can’t be sure. Truss sacked her last chancellor, Kwasi Kwarteng on Friday. He’s the one who helped deliver the budget plan that threw UK markets into turmoil. The plan was central to Truss’s own leadership. Now she says she’s gonna undo parts of it. And Chancellor Hunt said he’ll set out a new budget on October 31st. Here’s the FT’s George Parker.

George Parker
We’re gonna find out in the next few days, starting on Monday, whether the markets will give him that long or whether they’re gonna continue punishing the British government for what they see as an incredible economic strategy. The pressure is very much on the bond market, people have been on a massive sell-off of British government bonds that continued on Friday afternoon after Liz Truss’s announcement about reversing parts of her package. And of course, as bond price goes down, interest rates go up and that feeds through into the mortgages of a middle person.

Marc Filippino
And what about on the political front, George?

George Parker
On the political front, I think we’re beyond the point of no return. We’ve had in the course of Sunday three Conservative MPs coming out openly and calling for Liz Truss to resign. But that’s the tip of the iceberg. Virtually the whole political party has concluded that she’s lost control, not just that she’s made a major economic error, but in the course of that, she’s squandered a large part of the governing Conservative party’s appeal as a party of solid economic reputation, management of the public finances.

Marc Filippino
Are there already discussions about who’s gonna replace Truss? I mean, she’s only been prime minister for a little over a month.

George Parker
Well, there’s plenty of conversations going on about who might replace her. The problem is the Conservative party can’t yet decide on who that should be. And that’s probably the one thing that’s keeping Liz Truss in her job at the moment. The fact is the Conservative party hasn’t quite worked out how or when she should be replaced and by who. In terms of names being mentioned, well, Rishi Sunak, of course, was the former chancellor of the exchequer who warned that this would happen if Liz Truss won the leadership he was up against in the leadership contest over the summer and lost. But he’s quite a divisive figure. Jeremy Hunt, of course, now is the chancellor has a reassuring bedside manner. Could he be a unity figure? But then there are other people like Penny Mordaunt, who took part in the leadership contest, she’s the leader of the House of Commons. Suella Braverman, the home secretary. The problem is that if it was easy enough to organise a straight coronation and the whole party could agree to come in behind one particular candidate, that might make things simple, but that isn’t the case. There’s a whole lot of different theories about who might replace Liz Truss.

Marc Filippino
George Parker is the FT’s political editor.

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More US bank earnings are out this week. The big banks out so far with their financials have shown that a slowdown in deals or the scarcity of initial public offerings are being offset by great net interest income.

Joshua Franklin
Which is really just measures the amount of money that they make from making loans.

Marc Filippino
The FT’s Joshua Franklin covered last week’s earnings reports from JPMorgan Chase, Wells Fargo and Citigroup. They’re all benefiting from the Federal Reserve’s aggressive interest rate hikes.

Joshua Franklin
What was particularly interesting is that it didn’t just show them being able to charge more for the loans that they are making, given that the Federal Reserve is lifting benchmark interest rates. But really they’re able to make these loans without simultaneously rewarding customers with significantly higher rates that they’re paying on their deposits. This is so-called deposit betas. So keeping deposit betas low is good for banks because it means that they can pocket a lot of the interest rate increases themselves.

Marc Filippino
What about the banks that are coming out with earnings today?

Joshua Franklin
I think it will be a similar trend for Bank of America and will be interesting to see whether or not they follow the likes of JPMorgan and Wells Fargo, which both increase their guidance for net interest income for the end of the year. And also gave pretty positive guidance for 2023 when it comes to that whether or not we see similar actions by BofA.

Marc Filippino
Are investors reassured by this? I mean, how are they feeling about the climate that we’re in right now for US banks?

Joshua Franklin
I think it’s still one where investors feel there’s a lot of potential downside risk. So the big question for the banks, obviously, they’re making all this money from loans, but what is the credit risk that they’re taking on and what’s the credit environment that they’re going to be heading into. Banks, again, they were all saying that everything that they’re seeing in their numbers shows that US consumers and US corporations are in strong health. That credit conditions remain really strong. But you had Jamie Dimon, who’s the CEO of JPMorgan Chase. He thought US consumers had about nine more months of savings that would allow them to spend at their current rate before potentially things get a little bit more difficult.

Marc Filippino
That’s the FT’s US banking editor, Joshua Franklin.

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China’s leader, Xi Jinping, yesterday delivered a speech to thousands of clapping party delegates. They’re in Beijing this week from all over the country to attend a crucial Communist party congress.

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Marc Filippino
Xi’s speech lasted nearly 2 hours. Xi repeated Beijing’s plan to unify with Taiwan peacefully, but he refused to denounce the use of force. He warned the US not to further support Taiwan. This congress is also when new leaders ascend to power and also on Xi’s agenda, a plan to have himself be appointed for a third five-year term.

Tom Mitchell
So he will, after this congress, be set to be China’s undisputed paramount leader for at least 15 years, potentially 20 or 25.

Marc Filippino
That’s our Beijing bureau chief, Tom Mitchell. He says this is what this meeting is really about.

Tom Mitchell
I think it comes down to is Xi Jinping gonna win big or is he gonna win really, really big? And one way of explaining that is kind of one of the most exciting moments at any party congress is when you get the members of the new politburo standing committee revealed. It’s kind of like the revelation of a new pope. Seven men, it’s always men, walk out from behind a curtain in order of their rank. What we know for sure is Xi Jinping will be at the head of that line, but the composition of the rest of the committee is a real secret.

Marc Filippino
Tom, is there gonna be any changes of economic policy coming out of this party congress?

Tom Mitchell
There may be some hints, but the thing with party congresses, they tend to be very heavy on rhetoric and light on detail. And I think what we’re gonna hear is a lot of emphasis on some of the big themes of Xi Jinping’s two terms in power. For example, his commitment to common prosperity, which is all about spreading the wealth in a more fair manner in China, cutting down on the power of tech companies, reining in property prices. You know, the big policies that he’s emphasised over the past five years, we’ll probably hear a lot about that. But typically when you get a new, or in this case, a renewed leadership team at a party congress like this, it typically takes a year for them to come out with a detailed policy document. Now, Xi Jinping loves to surprise. He loves to take gambles. It’s not out of the question that he could reveal a more detailed policy blueprint earlier than would normally be the case.

Marc Filippino
So Tom, you’ve written about this, but what are some of the concerns about Xi Jinping having such total power and now staying in office for seemingly an unlimited amount of time?

Tom Mitchell
Well, I think the risk is that Xi Jinping’s grip on political power is so strong and unchallenged that when he makes errors in the economic sphere, they tend not to be corrected. Now that’s happened before. Mao Zedong, the party’s revolutionary hero, made catastrophic errors, but he stayed on in power because he was Mao Zedong. No one could challenge him. There had been a very healthy correction every ten years in China, and that’s gonna be thrown out the window. Now, the riposte to that from people who admire Xi Jinping, and there’s a lot of people who do, is that China’s at a pivotal moment in its history. China needs a strong leader to stand up and get China through this pivotal moment in history. Arguably, like FDR, Franklin Delano Roosevelt did in 1940, and FDR was probably right. You know, his leadership worked out. And that’s kind of the argument for Xi Jinping. So we’ll see whether or not he’s another FDR.

Marc Filippino
Tom Mitchell is the FT’s Beijing bureau chief.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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