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Ratings agencyMoody’sslapped a downgrade warningon China’s credit rating on Tuesday,saying costs to bail out localgovernmentsand state firmsandcontrol itsproperty crisiswould weigh on the world’s No. 2 economy.

The downgrade reflects growing evidence that authorities will have to provide more financial support for debt-laden local governments and state firms, posing broad risks to China’s fiscal, economic and institutional strength,Moody’ssaid in a statement.

Historically, about one-third of issuers have been downgraded within 18 months of the assignment of a negative rating outlook.

“The outlook change also reflects the increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector,” Moody’s said.

China’s blue-chip stocks slumped to nearly five-year lows on Tuesday amid worries about the country’s growth, with talk of a possible cut by Moody’s denting sentiment during the session, while Hong Kong stocks extended losses.

China’s major state-owned banks, which had been seen supporting the yuan currency all day, stepped up US dollar selling very forcefully after the Moody’s statement, one source with knowledge of the matter said.

The yuan was little changed by late afternoon.

The cost of insuring China’s sovereign debt against a default rose to its highest since mid-November.

“Now the markets are more concerned with the property crisis and weak growth, rather than the immediate sovereign debt risk,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.

US-listed shares of Chinese companies fell, with Baidu off 0.5%, Alibaba Group Holding down 1.1%, and JD.com Jdropping 1.9%.

The move by Moody’s was the first change on its China view since it cut its rating by one notch to A1 in 2017, also citing expectations of slowing growth and rising debt.

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WhileMoody’saffirmedChina’s A1 long-term local and foreign-currency issuer ratings on Tuesday — saying the economy still has a high shock-absorption capacity — it said it expects the country’s annual GDP growth to slow to 4.0% in 2024 and 2025, and to average 3.8% from 2026 to 2030.

Moody’s main peer, S&P Global, said later in a long-scheduled global outlook call that its big concern was that “spillovers” from any worsening in the property crisis could push China’s gross domestic product growth “below 3%” next year.

Moody’s outlook downgrade comes ahead of the annual agenda-setting Central Economic Work Conference, which is expected around mid-December, with government advisers calling for a steady growth target for 2024 and more stimulus.

Analysts say the A1 rating is high enough in investment-grade territory that a downgrade is unlikely to trigger forced selling by global funds.

S&P and Fitch, the other major global rating agency, both rate China A+, the equivalent of Moody’s A1, and have stable outlooks.

China’s Finance Ministry said it was disappointed by Moody’s decision, adding that the economy will maintain its rebound and positive trend.

It also said property and local government risks are controllable.

“Moody’s concerns about China’s economic growth prospects, fiscal sustainability and other aspects are unnecessary,” the ministry said.

Most analysts believe China’s growth is on track to hit the government’s target of around 5% this year, but that compares with a COVID-weakened 2022 and activity is highly uneven.

The economy has struggled to mount a strong post-pandemic recovery as the deepening crisis in the housing market, local government debt concerns, slowing global growth and geopolitical tensions have dented momentum.

A flurry of policy support measures have proven only modestly beneficial, raising pressure on authorities to roll out more stimulus.

“We spent the better part of three years watching China have this sort of off-and-on reopening from the pandemic, and this was the year they finally sort of officially reopened,” said Art Hogan, chief market strategist at B Riley Wealth in New York. “But the pace at which the economy has recovered from that has been disappointing.”

Analysts widely agree that China’s growth is downshifting from breakneck expansion in the past few decades.

Many believe Beijing needs to transform its economic model from an over-reliance on debt-fueled investment to one driven more by consumer demand.

Last week, China’s central bank head Pan Gongsheng pledged to keep monetary policy accommodative to support the economy, but also urged structural reforms to reduce a reliance on infrastructure and property for growth.

After years of over-investment, plummeting returns from land sales, and soaring costs to battle COVID, economists say debt-laden municipalities now represent a major risk to the economy.

Local government debt reached 92 trillion yuan ($12.6 trillion), or 76% of China’s economic output in 2022, up from 62.2% in 2019, according to the latest data from the International Monetary Fund.

In October, China unveiled a plan to issue 1 trillion yuan ($139.84 billion) in sovereign bonds by the end of the year to help kick-start activity, raising the 2023 budget deficit target to 3.8% of gross domestic product from the original 3%.

The central bank has also implemented modest interest rate cuts and pumped more cash into the economy in recent months.

Nevertheless, foreign investors have been sour on China almost all year.

Capital outflows from China rose sharply to $75 billion in September, the biggest monthly figure since 2016, according to Goldman Sachs.

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Politics

PM issues warning to European leaders ahead of ECHR talks

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PM issues warning to European leaders ahead of ECHR talks

Sir Keir Starmer has called for a tougher approach to policing Europe’s borders ahead of a meeting between leaders to discuss a potential shake-up of the European Convention on Human Rights (ECHR).

The prime minister said the way in which the ECHR is interpreted in courts must be modernised, with critics long claiming the charter is a major barrier to deportations of illegal migrants.

His deputy, David Lammy, will today be in Strasbourg, France, with fellow European ministers to discuss reforms of how the agreement is interpreted in law across the continent.

In an opinion piece for The Guardian, Sir Keir and his Danish counterpart, Mette Frederiksen, said the change was necessary to prevent voters from turning to populist political opponents.

Small boat crossings have risen this year. File pic: PA
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Small boat crossings have risen this year. File pic: PA

What’s the issue with the ECHR?

The ECHR, which is the foundation of Britain’s Human Rights Act, includes the right to family life in its Article 8.

That is often used as grounds to prevent deportations of illegal migrants from the UK.

More on Asylum

There has also been a rise in cases where Article 3 rights, prohibiting torture, were used to halt deportations over claims migrants’ healthcare needs could not be met in their home country, according to the Home Office.

The Conservatives and Reform UK have both said they would leave the ECHR if in power, while the Labour government has insisted it will remain a member of the treaty.

But Sir Keir admitted in his joint op-ed that the “current asylum framework was created for another era”.

“In a world with mass mobility, yesterday’s answers do not work. We will always protect those fleeing war and terror – but the world has changed, and asylum systems must change with it,” the two prime ministers wrote, as they push for a “modernisation of the interpretation” of the ECHR.

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System ‘more than broken’, says asylum seeker

What is happening today?

Mr Lammy is attending an informal summit of the Council of Europe.

He is expected to say: “We must strike a careful balance between individual rights and the public’s interest.

“The definition of ‘family life’ can’t be stretched to prevent the removal of people with no right to remain in the country [and] the threshold of ‘inhuman and degrading treatment’ must be constrained to the most serious issues.”

It is understood that a political declaration signed by the gathered ministers could carry enough weight to directly influence how the European Court of Human Rights interprets the treaty.

The UK government is expected to bring forward its own legislation to change how Article 8 is interpreted in UK courts, and is also considering a re-evaluation of the threshold for Article 3 rights.

David Lammy will swap Westminster for Strasbourg today
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David Lammy will swap Westminster for Strasbourg today

The plans have been criticised by Amnesty International UK, which described them as weakening protections.

“Human rights were never meant to be optional or reserved for comfortable and secure times. They were designed to be a compass, our conscience, when the politics of fear and division try to steer us wrong,” Steve Valdez-Symonds, the organisation’s refugee and migrant rights programme director, said.

Sir Keir’s government has already adopted several hardline immigration measures – modelled on those introduced by Ms Federiksen’s Danish government – to decrease the number of migrants crossing the Channel via small boats.

Read more: UK’s immigration shake-up explained

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Beth Rigby: The two big problems with Labour’s asylum plan

Starmer-Macron deal ‘a sticking plaster’

Meanwhile, French far-right leader Jordan Bardella told The Daily Telegraph he would rewrite his country’s border policy to allow British patrol boats to push back small vessels carrying migrants into France’s waters if he were elected.

The National Rally leader called Sir Keir’s “one-in, one-out” agreement with Emmanuel Macron, which includes Britain returning illegal arrivals in exchange for accepting a matching number of legitimate asylum seekers, a “sticking plaster” and “smokescreen”.

Read more from Sky News:
PM warns of ‘lost decade of kids’
Storm Bram brings 90mph winds and rain

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Far-right, 30, and France’s most popular politician

He said that only a complete overhaul of French immigration policy would stop the Channel crossings.

Mr Bardella is currently leading in opinion polls to win the first round of France’s next presidential election, expected to happen in 2027, to replace Mr Macron.

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Technology

Amazon pledges a massive $35 billion worth of investments in India’s AI space through 2030

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Amazon pledges a massive  billion worth of investments in India’s AI space through 2030

Employees stand near an The Amazon Inc. logo is displayed above the reception counter at the company’s campus in Hyderabad, India, on Friday, Sept. 6, 2019.

Bloomberg | Bloomberg | Getty Images

Amazon on Wednesday committed to investing over $35 billion in India’s cloud and artificial intelligence space by 2030, as hyperscalers race to get a foothold in the market. 

The commitment, unveiled at the Amazon Smbhav Summit in New Delhi, builds on nearly $40 billion already invested in the country. 

In a press release, Amazon said the new funds will target AI-driven digitization, export growth and job creation, aligning with India’s national priorities to build up its local AI environment.

By 2030, Amazon said the plan is expected to generate an additional 1 million direct, indirect, induced and seasonal jobs in India, quadruple exports to $80 billion and deliver AI benefits to 15 million small businesses.

The investment highlights Amazon’s bet on India’s booming digital economy, where it has been building fulfillment centers, data centers and payments infrastructure. 

It also comes soon after Microsoft announced plans to invest $17.5 billion in India’s AI infrastructure as Big Tech players accelerate their push into the market. 

“We are humbled to have been a part of India’s digital transformation journey over the past 15 years,” said Amit Agarwal, senior vice president for emerging markets at Amazon. 

“Looking ahead, we’re excited to continue being a catalyst for India’s growth, as we democratize access to AI for millions of Indians.”

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Politics

Trump to begin interviews with Fed chair finalists this week: FT

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Trump to begin interviews with Fed chair finalists this week: FT

The race for the new US Federal Reserve chair is nearing the finish line, with US President Donald Trump reportedly set to begin interviewing finalists for the top job this week. 

According to a report from the Financial Times on Tuesday, Treasury Secretary Scott Bessent has presented a list of four names to the White House.

One of these is former Fed governor Kevin Warsh, whom Bessent is scheduled to meet with on Wednesday. Another is National Economic Council director Kevin Hassett, who is seen as the frontrunner for the role. 

Another two names would be picked from a list of other finalists, which includes Fed governors Christopher Waller and Michelle Bowman, and BlackRock chief investment officer Rick Rieder.

Source: Financial Times

Trump and Bessent are expected to hold at least one interview next week, as a decision looks likely to be announced in January.

However, Trump has revealed he already has his eye on one particular candidate. 

“We’re going to be looking at a couple different people, but I have a pretty good idea of who I want,” Trump said to journalists on Air Force One on Tuesday. 

Kevin Hassett is a frontrunner for Fed chair role

The upcoming round of interviews suggests that Hassett may not be the clear lock in for the role as previously thought, though he is seen as the favorite.

Earlier this month, prediction market odds on Kalshi and Polymarket shot up for Hassett significantly following comments from Trump at the White House on Dec. 2. 

While welcoming guests, Trump labeled Hassett as “potential Fed chair” leading many to assume the president had let a major hint slip.

Related: Trump’s national security strategy is silent on crypto, blockchain

With Hassett’s odds spiking to 85% after Trump’s comments last week, they have since declined to around 73% for Hassett, while Warsh’s odds sit at 13% on Kalshi at the time of writing, which has floated around this range over December. 

Odds for next Fed chair. Source: Kalshi

Regardless of who ends up taking over as chair, the move is bound to impact crypto markets under the new leadership.