This week we examine global developments from a wide range of topics. We begin by investigating the cracks appearing in the foundation of the Chinese economic miracle. We then move to examine how Niger’s coup has global ramifications. Next, we discuss how the global food supply chain is becoming more vulnerable to market shocks, and we end this week’s newsletter by looking at the race playing out globally between different battery types for electric vehicles.

Turmoil at Zhongzhi sparks alarm over China’s $3tn shadow finance sector

Thomas Hale, Wang Xueqiao, & Cheng Leng, Financial Times

Weeks of missed payments by one of China’s largest investment groups, Zhongzhi, has increased worry for China’s “shadow finance” sector amid growing panic about the state of China’s economy, which is struggling to recover after the Covid-19 pandemic. Zhongrong, partly owned by Zhongzhi, is one of China’s biggest players in the shadow financing market, also known as the trust industry. Firms have said that Zhongrong failed to repay trust products last week, which has further panicked investors. Because shadow financing is often directed into China’s property sector, the Zhongzhi group turmoil is fueling speculation of spillover effects from the country’s real estate crunch. As Country Garden, China’s largest private homebuilder, missed bond payments last week, analysts believe that a vicious cycle of shrinking liquidity for the real estate market may be underway. It is likely that, if the Zhongzhi group’s crisis is endemic to the industry, debt problems in the real estate sector will spill over to other sectors, such as commercial banks.

China’s Downturn Shows Decreasing Confidence in Beijing

China Turns to Well-Honed Playbook: Cut Rates, Hide Data

Jason Douglas & Stella Yifan Xie, The Wall Street Journal

China’s Economic—and Social—Contract Is Fraying

Nathaniel Taplin, The Wall Street Journal

As China reels from a real estate crisis, rising tensions with the US have lowered consumer spending and led to economic malaise, leading authorities to respond by withholding data and cutting interest rates. Analysts say that Beijing is hiding key indicators of economic well-being which could further dampen confidence in the country’s economy for foreign investors. This strategy may backfire, however: the lack of transparency has made investors jittery about getting involved in the world’s second-largest economy. Most significant has been Beijing’s decision to stop publishing youth unemployment data, which, according to recent reports, has reached over 20%. Consumer price reports reveal that prices in China fell last month from a year earlier, another significant worry for the country’s economy.

One of the most significant takeaways from China’s apparent slowdown is that Chinese households’ confidence in their financial future has plummeted. A primary reason that China’s wealth exploded in recent history was the privatization of the country’s housing stock, which became one of the world’s largest transfers of wealth to households in history. Housing, for Chinese families, has served as a critical asset in securing their financial future. The recent real estate crunch, which was coupled with some of the most severe Covid lockdown policies in the world, shattered this relationship. Chinese households have responded by paying down debt on an unprecedented scale. Major Chinese real estate companies have seen downturns, as well. As of yet, Beijing is unwilling to prove to households that it has their best interests at heart by expanding its balance sheet and providing the economy with some much-needed stimulus.

The Global Implications of Niger’s Coup

After Niger’s coup, the drums of war are growing louder

The Economist

Out of Africa, a New World War?

Andreas Kluth, Bloomberg

Niger’s military coup leaders have broken a deadline set by the Economic Community of West African States (ECOWAS) to reinstate the country’s elected president, Mohamed Bazoum. ECOWAS had threatened to use force to reinstate Bazoum if the junta did not follow through, and it looks like diplomatic solutions to the crisis are growing ever more elusive. A group of ECOWAS, United Nations (UN), and African Union mediators was denied entry into the country. Other countries in the region, particularly Mali and Burkina Faso who have also seen their civilian leaders overthrown by military leaders, have declared their support for Niger’s junta in any armed conflict with ECOWAS. Nigerien officials have reportedly traveled to Mali to request assistance from Wagner, a Russian military group operating in the country. Despite the rising tensions, experts and officials still say that military action would be a last resort.

The developments in Niger have global ramifications. The coup leader’s desire to ally with the Wagner group, which serves as an important arm of Russia’s foreign policy apparatus in Africa, as well as support Russia’s campaign to kick out any countries from the West, shows that Moscow sees itself locked in conflict with the US-led West globally, not just in Ukraine. As Moscow and Beijing see it, the entire world is a stage where the battle for world order can be played out. Niger’s case may be just another step along the path toward a third world war.

Global Food Security is Becoming More Fragile

The Hunger Profiteers

Jennifer Clapp & Phil Howard, Project Syndicate

Feed People, Not Factory Farms

Peter Singer, Project Syndicate

Heat, War and Trade Protections Raise Uncertainty for Food Prices

Eshe Nelson, Ana Swanson, & Jeanna Smialek, The New York Times

Analysts are warning of heightened volatility and higher prices in the grain market for the foreseeable future, even as the market has settled from the twin disruptors of Covid-19 and the initial fallout from the war in Ukraine, which catapulted prices to record highs. Certain near-term factors such as Russia’s withdrawal from the Black Sea Grain Initiative and its subsequent assault on Ukrainian grain export infrastructure and grain silos have continued to hinder the market in the short run. In the long run, additional factors are set to heighten volatility and prices, such as windfall profits from increasingly powerful and centralized agribusiness corporations; extreme weather events, including drought, that will harm harvest; increasing input costs, including labor, insurance, fertilizer, etc.; protectionist policies designed to reduce the cost of food in the short term domestically at the expense of long term stability globally; and net-zero emissions efforts that will increase cost throughout the supply chain. The result is that those most vulnerable to food shocks, especially in developing countries, may see conditions worsen, as food becomes more expensive and less available globally.

Rival battery technologies race to dominate electric car market

Harry Dempsey, Peter Campbell, & Christian Davies, Financial Times

Lithium-ion batteries are critical for a wide range of electronic devices, including green energy technologies for electrical storage and electric vehicle power generation. The industry is expected to grow $700 billion a year by 2035, while investment in battery plants, mines, and processing facilities will have hit $730 billion by that year. Yet the shape the industry takes will be driven by both technical and geopolitical factors resulting from the types of batteries produced. Lithium-ion batteries are comprised of anodes and cathodes to allow charges to flow and two types of cathodes currently exist in the market: NMC and LFP. The difference comes down to chemical composition and some other factors such as cost, weight, driving range, charging time, number of charges over the lifecycle of a battery, and safety. China accounts for 75% of the production for these batteries, while accounting for 99% of LFP, resulting in a political question over reliance on Chinese production. Additionally, differences in composition pose questions for supplier nations, sinking or supporting mineral exports for lithium, cobalt, manganese, and so on. Finally, the development of alternatives such as a sodium-ion or solid-state battery could shake up the market as well. Therefore, while the market’s future is bright, its ultimate shape and the players at the top remains to be seen.