Transcript: Local Chinese banks get a lifeline

This is an audio transcript of the FT News Briefing podcast episode: ‘Local Chinese banks get a lifeline’

Sonja Hutson
Good morning from the Financial Times. Today is Friday, January 5th. And this is your FT News Briefing.

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One of the world’s top gold producers has fired its chief executive. Environmentalists are worried about how difficult it is to track fishing boats. And inflation is rising again in Europe’s biggest economy. Plus, China is injecting a record amount of money into local banks to keep them afloat. I’m Sonja Hutson, in for Marc Filippino. And here’s the news you need to start your day.

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Endeavour Mining yesterday alleged that its CEO, Sébastien de Montessus, committed, quote, serious misconduct related to an irregular $5.9mn payment. The board is still investigating the allegation. Endeavour also said someone made a separate allegation against de Montessus last year about his personal conduct with employees. De Montessus has not responded to a request for comment, and Endeavour shares closed down 10 per cent in Toronto on Thursday following the announcements.

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A new study that came out on Wednesday highlighted a major problem with the world’s industrial fishing industry. Most of the boats are not tracked and that’s causing a lot of problems for those trying to protect fish populations and marine environments. Here to talk to me about it is the FT’s Susannah Savage. Hey, Susannah.

Susannah Savage
Hi there.

Sonja Hutson
So this study by the conservation group Global Fishing Watch, it actually mapped out the locations of some of these normally untraceable ships. But, Susannah, can you give me a sense of the scale of the problem? Just how many shipping vessels are flying under the radar? And do we know roughly where they are?

Susannah Savage
Yes. So this study took place between 2017 and 2021, so quite a long period, including Covid. And it found that at any given moment, there were 63,000 vessels in the world’s oceans. Around half of those were industrial fishing vessels, and three-quarters of those were off-radar or were not publicly tracked. Now where they were, the places include many around Africa and south Asia and a large number in south-east Asia, where roughly 70 per cent of the world’s industrial fishing vessels seem to be.

Sonja Hutson
You know, I’m actually really surprised to hear that it’s so normal for these ships not to be tracked.

Susannah Savage
Well, it’s actually really interesting if you compare, for example, agriculture or other extractive industries on land where there’s a huge drive to map these and plot these almost down to the last metre, and we just don’t see this in the seas. And a lot of campaign groups, for example Oceana, are pushing for governments to mandate that vessels are publicly trackable so that we can see what’s happening in the seas, what these extractive industries are doing, and to see the potential harm or just the consequences of that.

Sonja Hutson
What exactly did this study reveal about how these vessels are conducting business around the world?

Susannah Savage
Well, it raised the possibility for the vessels to be doing illicit activities. So a lot of these vessels simply just don’t have what we call automatic identification system or AIS transponders. These broadcast the location and identity of the ships to coastal authorities and to other vessels. But others of them deliberately turn off these devices in order to engage in illicit activity. So that might be illegal fishing or forced labour or, you know, abuse of people working on the ships. And the study also revealed that some of these untracked ships are entering into marine-protected areas. That includes the Great Barrier Reef, for example, which is obviously a problem because these areas are protected because they’re vulnerable marine ecosystems. So ships really shouldn’t be entering into them.

Sonja Hutson
And just how big of a deal is it that there hasn’t been good tracking and oversight into fishing?

Susannah Savage
It’s a huge deal because we have overexploited fish populations, which means fish are being caught faster than they can reproduce. And this has been happening for a long time. And that creates a huge problem, not just in terms of marine habitats, but also in terms of livelihood. I think it’s around half a billion people around the world that rely on fishing industries in some way for their livelihoods, and many of them are in developing countries. The study also showed, you know, there’s increasing development in terms of energy infrastructure, wind turbines, oil platforms in the seas. And so that creates conflict over space, which needs to be managed. And so going forward, we have this huge ocean economy or blue economy that’s been developing and so far, or until this study at least, completely unmapped. So, yeah, this is, according to the study’s authors, a first step towards addressing that.

Sonja Hutson
Susannah Savage covers commodities for the FT. Thanks, Susannah.

Susannah Savage
Thank you.

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Sonja Hutson
The European economy got some unwelcome news yesterday. Inflation in both Germany and France went up in December. It was especially dramatic in Germany. The inflation rate there rose from 2.3 per cent to 3.8. The new numbers make it less likely that the European Central Bank will start cutting interest rates in March, which is what investors had been hoping for. Government subsidies on things like gas, electricity and food were helping to push down inflation numbers. But a lot of those subsidies have been reduced. Price data for the whole eurozone will come out today.

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Chinese local authorities are pumping unprecedented amounts of money into regional banks. They’re doing it in the form of special-purpose bonds. It’s all part of a bid to improve the health of these lenders that have been hit hard by the country’s property crisis. The FT’s China business and finance reporter Cheng Leng joins me now to discuss. Hi there.

Cheng Leng
Nice to be here.

Sonja Hutson
So Cheng, first of all, why has the property crisis hit regional banks so hard in particular?

Cheng Leng
So the short answer is that they lend heavily to the local property projects, which makes their loan book very concentrated and at the same time very fragile when a crisis hits. And most lenders across China are also heavily exposed to mortgages. This also emerge as a credit risk for regional lenders when a growing number of borrowers can’t afford to pay back on time during an economic downturn.

Sonja Hutson
OK, so they’re really heavily exposed. But can you give me a sense of just how many regional banks are vulnerable?

Cheng Leng
China has a national network of more than 4,000 banks. They rarely go under in the past two decades because regulators want to maintain some sort of social and financial stability in the market. But fears over their health have been increasing since 2021. So since then, regulators have become more vocal about the need for sector-wide consolidation. And this year alone, we have seen more than 20 so-called village banks in northern and western regions that have emerged or absorbed by larger banks.

Sonja Hutson
Yeah. And that brings us to these special-purpose bonds that I mentioned earlier. So tell me a little bit about them. What exactly do they do? Who issues them? Who buys them?

Cheng Leng
So this instrument was introduced in 2020 to help banks through the Covid pandemic. So local governments are the fundraisers and the financial institutions or other state-owned enterprises can buy them. And last year, Chinese provinces have injected a record $31bn of capital via these bonds into weak regional banks. That has more than tripled from the previous year.

Sonja Hutson
Wow. OK. So are these bonds gonna make a real material difference to the health of this sector? I mean, what else is the government doing to help prop it up?

Cheng Leng
Well, it does help. But with the amount issue so far, this tool alone might not be able to fundamentally change a weak capital position. It’s a drop in the ocean. But it does help to avoid imminent credit risk. And the regulators have become more vocal in pushing for capital injections and a stake purchase of stakes in some of the distressed regional lenders. The central bank has also created a separate financial stability fund to provide some emergent liquidity to curb a contingent risk of weak banks. But many analysts argue that it maybe also too weak for a proper safety net. So ultimately, it’s the recovery of China’s economy that will define the future fate of those regional lenders.

Sonja Hutson
Cheng Leng is the FT’s China business and finance reporter. Thanks so much.

Cheng Leng
Thank you.

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Sonja Hutson
You can read more on all these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

The FT News Briefing is produced by Kasia Broussalian, Fiona Symon, Marc Filipino and me, Sonja Hutson. Our engineer is Monica Lopez. We had help this week from Sam Giovinco, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

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