This is a recording of FT news summary podcast episodes: Beijing fears social unrest due to property crisis

Jess Smith
Good morning from the Financial Times. Today is Monday, August 1st. And here is your FT News Briefing.

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Europe and Britain are easing Russian oil sanctions. Investors are returning to the cryptocurrency market. And in China, struggling property developers are delaying construction projects, and millions of frustrated mortgage holders don’t know when their homes will be finished.

Sun Yu
A few of them had the guts to take to the streets, but a lot of them stopped paying their mortgages.

Jess Smith
We’ll talk about Beijing’s latest attempt to fix the asset crisis. I’m Jess Smith, for Marc Filippino, and here’s the news you need to start your day.

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This week, the Bank of England meets, and policymakers there are under pressure to accelerate the pace of monetary tightening. The US Federal Reserve and the European central bank recently announced unusually large interest rate hikes to try to combat persistent inflation. The UK central banks raised interest rates by a quarter of a percentage point increase. The Governor of the Bank of England, Andrew Bailey, said that when policymakers gather on Thursday this week, a half point increase is possible, but it is not locked in.

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The global energy crisis is forcing Western powers to ease their efforts to limit Russia’s oil trade. Britain has delayed plans for a coordinated ban with the European Union on providing insurance to Russian oil tankers. That was due to concerns that the immediate imposition of restrictive measures around the world would cause crude oil prices to spike.

Tom Wilson
The UK’s cooperation is absolutely important as the UK – and Lloyd’s of London in particular – is the largest marine insurance market in the world.

Jess Smith
That’s our senior energy reporter Tom Wilson.

Tom Wilson
So really for the global ban to take effect, the UK needs to be a part of it. So the EU went ahead on the basis that they believed the UK would follow suit, and then the UK held back from speeding up as we expected. And now the reason for that is concern that doing so could pull large amounts of Russian oil out of the market and raise prices. Essentially, they delayed to see if they could work with the other G7 countries to figure out how to apply this variously complicated price cap mechanism before imposing this kind of ban. And then hopefully they can have the kind of dual effect they’re looking for, which is to cause economic pain for Russia while preventing massive economic pain for the rest of the world by driving up prices. both up and therefore inflation.

Jess Smith
And in another move, Tom said the EU had also quietly introduced a subtle revision to some existing restrictions on dealings with Russian oil exporters.

Tom Wilson
And in particular, this is most relevant to Rosneft, the Russian state-owned oil producer, previously European companies were prohibited from entering into all financial transactions with Rosneft, but now here they have introduced a new level of exemption, which says that European companies can deal with Rosneft and potentially pay for oil to Rosneft if that oil is to be exported or delivered to other countries outside the EU.

Jess Smith
It’s FT senior energy reporter Tom Wilson.

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A painful collapse in the cryptocurrency market earlier this year scared many investors. But some are starting to come back. Investment products that track crypto assets have raised around $400 million since the beginning of last month. That was the longest period of sustained weekly net inflows since March. This is Scott Chipolina of the FT.

Scott Chipolina
Now that the market seems to have stabilized, at least for a moment for a few weeks, some have begun to think that perhaps this crypto winter is over. On social media, I started to see some common points and stories that some crypto advocates would say. An example is cryptocurrencies as a hedge against inflation. It’s very, very difficult to have anyone make that case for obvious reasons in recent months. But I think, you know, over the last couple of weeks, when there’s been some degree of stability, at least by crypto standards, maybe some people are looking at whether those arguments can be compelling. return or not. I’m not saying they are, myself. I just think it could be one of those areas of speculation that could start to gain a little more momentum for some investors.

Jess Smith
That’s the FT’s digital asset reporter Scott Chipolina.

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In China, officials are worried about social unrest stemming from the country’s property crisis. Real estate developers are burdened with debt, they cannot complete construction projects. So millions of people are paying mortgages on unfinished homes. The FT’s Sun Yu reports that Beijing is currently working with a $150 billion bailout fund to try to tackle those stalled projects.

Sun Yu
The relief project itself is not huge to some extent as there are many unfinished projects across the country. It’s the kind of backlash against the government from angry hosts that worries Beijing. So to that end, the bailout is crucial because even today’s conservative estimates indicate that at least 7 million to 8 million homebuyers are having a hard time seeing their homes. completed on time.

Jess Smith
What is the frustrated landlord Sun Yu doing that worries Beijing?

Sun Yu
Well, some of them have the guts to take to the streets. But a lot of them have stopped making mortgage payments. It’s just beyond their capabilities. I mean, they make around 5,000 to 6,000 Rmb per month and their mortgage payment per month will be 3,000 to 4,000. So more than half of their monthly income goes to mortgage payments, and now they can’t get their home back.

Jess Smith
What are you hearing from the host? I mean, what did they tell you about their situation and how do they feel about it?

Sun Yu
One of these landlords, he used to be a real estate broker, and he basically understands the field very well. He bought it three years ago, but at the time he thought it was a great bargain, the price was really high, but he thought the price would only go up. But then he told me he didn’t expect things to go downhill so quickly. I think he has a mortgage of Rmb4,000 per month. So he’s basically spending 2/3 of his income on mortgage payments without getting his house back on time. The delivery of the house was delayed for at least nine months, and after that he was unable to get married. He’s really upset about it because if you want to get married, you need to have a family first. And he told me he felt desperate for a lot of other hosts. Therefore, ordinary people in China always have a feeling of despair and disillusionment.

Jess Smith
So is this government bailout aimed at helping developers complete projects so they can eventually hand them over to owners?

Sun Yu
Unnecessary. The idea now is for the local government or organizations owned by the local government to take over these projects, and then they will borrow the project funds from the central bank or commercial bank to complete the project. into them. So it will have nothing to do with the developers this time. That’s the idea because the developers owe a lot of debt, the government doesn’t want them involved to some extent.

Jess Smith
So why is the government handing these projects over to local officials? I mean, can local officials complete projects more successfully than the original developers?

Sun Yu
This is a really good question, and this is the challenge that the government is currently facing because local government is not really more efficient, number one. Second, the problem with completing these projects is that many of these projects have come with a lot of debt. So to some extent the government wants to find a way out of these debts or just ignore these debts and focus on completing the projects. But can they do the same? It’s an open question because as soon as these projects they get any new financing, the old creditors, yes, the suppliers, the contractors, they go after the money. So that’s the challenge. So who do you pay first? The oldest creditors or the project itself or even the bondholders? That’s the problem.

Jess Smith
Sun Yu is the FT’s China economic correspondent. Thank you, Sun Yu.

Sun Yu
Sure.

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Jess Smith
You can read all of these stories at FT.com. This is your daily FT news summary. Make sure you check back tomorrow for the latest business news.

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