Beijing’s big bailouts

This is an audio transcript of the FT News Briefing podcast episode: ‘Beijing’s big bailouts’

Marc Filippino
Hey, guys. Over the past couple of weeks, we’ve been telling you about FT Edit. It’s this great app for your iPhone and iPad that gives you access to eight of the FT’s best stories every weekday. Well, today, Dr Tim Spector is standing in as guest editor and he’s curated topics that are close to his heart, like nutrition, healthcare, science and sustainability. He’s also written a bonus article explaining why they’re all so important. You can read today’s guest edit by Dr Tim Spector completely free with no obligation. Find the link to FT Edit in our show notes.

Good morning from the Financial Times. Today is Wednesday, March 29th, and this is your FT News Briefing.

[MUSIC PLAYING]

The head of JPMorgan will testify over his bank’s relationship with Jeffrey Epstein. And IPOs are hot in the Middle East. Plus, the FT’s James Kynge tells us why China has been issuing bailout loans to countries in its overseas lending programme.

James Kynge
The Chinese government needs to protect the loans that its own banks have made.

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

[MUSIC PLAYING]

Sources tell the FT that JPMorgan CEO Jamie Dimon will testify under oath about the bank’s decision to keep Jeffrey Epstein on as a client. The deposition follows two lawsuits. One is from an alleged victim of the late sex offender. The other is from the US Virgin Islands, where Epstein had a home. The suits claim that JPMorgan benefited from human trafficking and ignored internal warnings about Epstein’s behaviour. Epstein banked with JPMorgan from 1998 until 2013. The lender has described the claims as meritless. Dimon’s deposition is scheduled for May. It will be held behind closed doors.

[MUSIC PLAYING]

The Middle East has become a hotspot for initial public offerings. Last year, a record 51 companies raised $22bn on the public market, mostly on exchanges in Abu Dhabi, Dubai and Riyadh. Here’s the FT’s Gulf correspondent, Simeon Kerr. 

Simeon Kerr
I mean, we’ve really seen it starts with the big oil and gas companies. I mean, these are the most biggest and profitable companies in this oil-rich region. The Aramco IPO generated huge interest. Aramco, the Saudi energy giant, huge interest around the world. And also we’ve seen in Abu Dhabi National Oil Company spinning off various of its subsidiaries. A whole string of them through petrol distribution to petrochemicals. That’s what kick-started it. Then there’s also been other government-related entities going public. Now what we’re seeing is increasingly purely private sector firms are coming in. Family businesses are a huge part of the business scene here.

Marc Filippino
So Simeon, why is this happening now?

Simeon Kerr
I guess the real reason we’re seeing this are the various confluence of factors coming together at the same time. Oil prices have been high for a sustained period of time. There are much more political stability than we’ve had in recent years. And then at the same time, many of the big governments in the region have launched big reform programmes, including privatisations. All this is coming together to drive capital markets activity.

Marc Filippino
Now, there have been market booms in the Gulf before. Is this one any different?

Simeon Kerr
What’s different this time is the size of the offerings and the number of the offerings in terms of companies coming going public. Different kind of companies. More of them raising more. I mean, really, these markets feel that they are reflecting the region coming, you know, taking its place in the global financial world after, you know, having played such an important part in terms of crude oil markets and increasingly investing huge on gas revenues abroad. Now, the region is trying to diversify away from oil. And a big part of that is a focus on capital markets and a focus on privatisation.

Marc Filippino
That’s the FT’s Gulf correspondent Simeon Kerr.

[MUSIC PLAYING]

US prosecutors have accused former FTX’s chief executive Sam Bankman-Fried of bribing Chinese officials. This brings the number of counts against the former CEO of the crypto exchange to 13. FTX collapsed last November in what’s being called one of the biggest financial frauds in US history. The US filed a revised indictment yesterday that alleges BANKMAN-FRIED paid $40mn in cryptocurrency to one or more Chinese government officials. And he did this to try and regain access to trading accounts that had been frozen by Chinese authorities. Bankman-Fried is currently on bail at his parents’ house in California. He’s awaiting trial after being extradited from his home in the Bahamas.

[MUSIC PLAYING]

A study out this week shows that China granted more than $100bn in rescue loans between 2019 and the end of 2021. The bailout loans went to developing countries across the globe, like Argentina, Belarus and Mongolia. They’re part of China’s huge overseas lending programme called Belt and Road. The FT’s global China editor James Kynge says the findings are big.

James Kynge
This is the first time that we’ve seen the total number of China’s bailout loans to its famous Belt and Road Initiative. It shows that the Belt and Road Initiative is really in trouble. Not to put too fine a point on it, it shows the wheels are coming off.

Marc Filippino
So, James, the FT’s reported on projects that China has funded in countries like Sri Lanka that have gone sour. Do these bailout loans go to troubled projects directly?

James Kynge
Actually, the lion’s share of this 240bn in loans is what’s called swap line lending. What this really means is that this is a loan from the Chinese central bank to the central bank of that developing country to prevent that country from, you know, defaulting on a whole raft of Chinese loans that is aimed at preventing that country from effectively going bust, rather like Sri Lanka is at the moment.

Marc Filippino
Why doesn’t China just let these countries default?

James Kynge
The Chinese government needs to protect the loans that its own banks have made to those countries. If there was going to be widespread default throughout the developing world, those Chinese banks would really suffer because they have been engaged in lending to the Belt and Road Initiative over the last, you know, decade or so. You know, the Belt and Road Initiative is really all about recycling Chinese finance and getting projects for China’s big construction companies and winning friends in the developing world. This has been China’s big political push.

Marc Filippino
So this study was done by the World Bank and researchers in the US and Germany, and it looked at Beijing’s bailout loans in the three years leading up to 2021. Do you have a sense of what’s happened since then?

James Kynge
All the indications are that another huge chunk of rescue lending was necessary in 2022 and will be again in 2023. So the big question is when does China get off the hook of all of this rescue lending around the world? You know, with the current financial environment of heavy debts and rising interest rates as the developed world tries to fight inflation, this only means that the debt stress in the developing world is intensifying. So if it suddenly stops lending, that will precipitate defaults in these countries and lead to further defaults. And it may well be that China has to increase this level of rescue loans to the developing world. It’s a very uncomfortable situation that Beijing finds itself in.

Marc Filippino
James Kynge is the FT’s global China editor. Thanks, James.

James Kynge
Thank you very much.

[MUSIC PLAYING]

Marc Filippino
Before we go, Apple is pushing further into finance. It may not have a bank yet, but yesterday the iPhone maker launched its own buy now, pay later programme. That’s the online instalment payment service that consumers use when they can’t pay the whole amount immediately. You might have seen brands like Affirm and Klarna pushing the option when you’re checking out online. Apple’s getting help with its new service from Goldman Sachs, and it’ll use MasterCard’s network since Apple doesn’t have its own license to issue payment credentials directly. So what’s this new service called? I actually got to hand it to them on this one. It’s pretty good. It’s Apple Pay Later. 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.

[MUSIC PLAYING]