US Business

China’s premier called for more to be done to stabilise the world’s second-largest economy, issuing an unusually stark warning as the country’s zero-Covid strategy bites into growth.

China is the last major economy welded to a policy of mass testing and hard lockdowns to eliminate virus clusters, but the strict curbs have battered businesses.

Restrictions around the nation in recent months — including on the manufacturing hubs of Shenzhen and Shanghai, as well as the breadbasket province of Jilin — have tangled supply chains and dragged economic indicators to their lowest levels in around two years.

In some ways, the challenges now are “greater than when the pandemic hit hard in 2020”, Premier Li Keqiang told a State Council meeting on Wednesday, according to a readout by the official Xinhua news agency.

“We are currently at a critical juncture in determining the economic trend of the whole year,” Xinhua quoted Li as saying.

“We must seize the time window and strive to bring the economy back onto a normal track.”

Li also said officials ought to make sure there is “reasonable” growth in the second quarter, fuelling fears that the country’s target for yearly expansion of around 5.5 percent may not be met.

Li’s remarks are the latest in a growing chorus of calls from officials and business leaders for more balance between stopping the virus and helping the ailing economy.

On Monday, the central bank and banking regulator urged financial institutions to boost lending, citing pressure on the economy, Chinese media reported.

This came as retail sales plunged 11.1 percent on year in April while factory output sank 2.9 percent — the worst showing since the early days of the Covid crisis.

And the urban unemployment rate edged back towards its February 2020 peak.

In March, and particularly in April, indicators including employment, industrial production and freight dropped “significantly”, Li said at the Wednesday meeting.

He stressed the importance of coordinating virus control and economic development, according to Xinhua.

On Thursday, the State Council will also send teams to 12 provinces to oversee local work in implementing state policies, the report said.

– Wilting growth –

Two more companies sounded a warning Thursday on the impact of the stringent Covid measures, with e-commerce titan Alibaba reporting its annual profit was down nearly 60 percent.

The group warned its domestic business has been “significantly affected by the Covid-19 resurgence in China”, and said it had decided not to offer its usual financial outlook for the year ahead.

In addition, tech giant Baidu reported $140 million in net loss over the January-March period, while co-founder Robin Li warned that “challenges related to the virus continue to pressure” their operations.

China’s current outbreak — fuelled by the Omicron variant — is the worst since early in the pandemic in 2020.

Financial hub Shanghai has been almost entirely sealed off since April, crushing businesses, while curbs are creeping in across the capital Beijing with no clear end in sight.

The government has offered tax relief and a bond drive to help industries, and President Xi Jinping earlier called for an “all-out” infrastructure push.

But analysts cautioned that growth will keep wilting until China eases its rigid virus controls.

S&P Global Ratings this month lowered its full-year growth forecast for China from 4.9 percent to 4.2 percent due to Covid curbs.

And Nomura analysts warned in a recent note that there is “increasing potential for negative GDP growth in the second quarter”.

Wednesday’s State Council teleconference involved an unusually large cohort of officials, Chinese outlet The Economic Observer reported.

The economic woes come in a pivotal political year for Xi, who is eyeing another term in power at the Communist Party Congress this autumn.

China’s economy is a key driver of global growth and is crucial domestically for the Communist Party, which has based its legitimacy on delivering steady expansion and improved standards of living.

Broadcom announced Thursday a $61-billion deal to purchase cloud computing firm VMware in a giant tech transaction that expands the chipmaker’s software offerings.

The cash and stock deal — one of the biggest tech mergers ever — will merge chipmaker Broadcom’s software assets into those of VMware, a leader in cloud computing and virtualization technology.

The combination is designed to boost Broadcom’s offerings to customers enabling “greater choice and flexibility to build, run, manage, connect and protect applications at scale across diversified, distributed environments,” said a joint press release from the companies announcing the deal.

Led by chief executive Hock Tan, Broadcom has grown by acquisition, reporting fiscal 2021 revenues of about $27.5 billion.

In 2017, Broadcom made an unsolicited offer to acquire rival chipmaker Qualcomm for $117 billion, but the transaction was blocked by then-president Donald Trump’s administration on national security grounds. 

Qualcomm’s activities are mostly in the United States, but it is based in Singapore.

The deal with VMware would dilute Broadcom’s dependence on semiconductor revenues amid concerns of “chip cycle peaking,” said a note from UBS that also alluded to concerns about higher debt levels due to the deal.  

Under the transaction, VMware shareholders can elect to receive either $142.50 in cash or slightly more than one-fourth of a Broadcom share for each VMware share. That represents a premium of 49 percent compared with VMware’s stock price Friday before news reports of the deal surfaced.

Broadcom will also assume $8 billion of VMware debt.

VMware was spun out of Dell Technologies in 2021.

Michael Dell and private equity firm Silver Lake, who own 40.2 percent and 10 percent of VMware shares respectively, have signed in support of the deal so long as the VMware board backs the transaction, the press release said,

Shares of VMware rose 0.9 percent to $121.65 in morning trading, while Broadcom gained 1.9 percent to $541.89.

Is the war in Ukraine sounding the death knell for attack helicopters? The large number destroyed has sparked a debate among experts over whether the aircraft are under-performing or being used poorly by Russian forces.

Saturated with anti-aircraft defences, both long-range systems and short-range missiles that can be carried and launched by a soldier (Manpads), the skies above Ukraine are deadly for helicopters.

The numerous videos on social media of Russian helicopter gunships being shot down are very public evidence of the extent of the losses.

Russia has lost at least 42 helicopters since its February 24 invasion and Ukraine seven, according to specialist blog Oryx, which has recorded material losses from photographs and videos taken from the battlefields.

Attack helicopters were designed to aid troops and tanks on the battlefield.

They are armoured themselves and heavily armed, but as the conflict shows, they too are extremely vulnerable.

Experts are divided as to why.

“Since those early days of the war, the air defences of both sides have had a clear deterrent effect on helicopter operations,” according to Sash Tusa, an aerospace and defence analyst at Britain-based Agency Partners.

“These unpleasant reminders of the realities of high-intensity warfare against near-peer adversaries are in turn undermining the case for further investment in and maintenance of Western air assault capabilities, whether fixed- or rotary-wing,” he wrote in the specialist magazine Aviation Week.

In other words, the future of the helicopter as an assault craft is in question, according to Tusa. 

– ‘Russian fiasco’ –

Other experts point to Russian mistakes, such as the helicopter assault on the Gostomel airport near Kyiv at the opening of the invasion, which Ukrainian forces repelled.

Joseph Henrotin, a researcher at the Paris-based Institute of Comparative Strategy, called the operation a “Russian fiasco” that had nothing to do with the capabilities of the helicopters, but with how they were used.

“The Russians did a poor job,” he said. “Before an airborne operation, you have to ensure the skies have been cleared and anti-aircraft defences wiped out.”

One of the major surprises of the war is that Russia did not gain air superiority at the start of the conflict by suppressing Ukraine’s anti-aircraft defences, a mission normally carried out by fixed-wing aircraft and missiles rather than helicopters.

Michael O’Hanlon, an expert at the Brookings Institution think tank in Washington, agreed the problem is not with the helicopters but how the Russians are using them.

“They aren’t outdated, but assaulting a predictable location when an enemy is on alert won’t generally work,” he told AFP.

Yet the conflict in Ukraine is very much like the war envisaged by Soviet and NATO experts during the Cold War, when the current generation of attack helicopters were developed.

That includes the Russian Mi-24 and Mi-28, earlier versions of the Ka-52, and the US Apache and Franco-German Tiger.

“They were conceived in an epoch where they might have been engaged above Germany or Poland, with a very high density of fire and threats for helicopters,” said Henrotin.

– ‘Bloody reminder’ –

Patrick Brethous, a former general who headed up the helicopter detachment of the French special forces, said that before predicting the end of attack helicopters one had to look at how the Russians and Ukrainians were using them.

“We’ve seen many Russian helicopters flying by day, 300 feet from the ground, being shot” down, said Brethous, who now works as a military adviser to Airbus Helicopters.

“It’s an employment of the helicopter which is very dangerous,” he noted, saying they are better used for night operations and should be flown closer to the ground to avoid enemy missiles.

Henrotin also believes that the conflict “is a fairly bloody reminder for the Russians of the fundamentals: a helicopter should not be used alone” but in conjunction with other types of military forces.

Military experts call that a combined arms approach, where aircraft, armoured vehicles, artillery and infantry work together, providing complementary effects to overcome an enemy and protect one another.

Tusa believes helicopters’ future as an assault weapon is being thrown further into doubt as many of their missions can now be carried out by much cheaper drones.

But Henrotin said that although drones can complete some of their missions, such as reconnaissance, they are complementary and cannot do everything as they lack an attack helicopter’s firepower.

For example, a Turkish Bayraktar drone used by Ukrainian forces can carry four missiles, whereas the Russian Ka-52 helicopter, with its 12 missiles and rocket capacity, remains “the gunboat of the sky”.

Russia’s central bank cut its key interest rate Thursday following an emergency meeting, as authorities seek to rein in the ruble which has surged in value despite the conflict in Ukraine.

The Bank of Russia slashed the rate to 11 percent from 14 percent, saying external conditions for the economy remained “challenging, considerably constraining economic activity.”

The policy-setting meeting was originally set to take place on June 10 but the central bank surprised the market by announcing Wednesday that an extraordinary meeting would take place the next day.

“Financial stability risks decreased somewhat, enabling a relaxation of some capital control measures,” it said in a statement on Thursday.

The Bank of Russia said it “holds open the prospect of key rate reduction at its upcoming meetings.” 

Central Bank head Elvira Nabiullina said that Russia managed to stabilise the economy but it was too early to “exhale calmly”. 

“As the economy adapts, it will be difficult for both companies and citizens,” she said after the meeting.

“The first months were a time of tactical decisions: the first shock of the sanctions had to be counteracted,” she added.

“As a result, we managed to protect financial stability and prevent an inflationary spiral. But this, of course, does not mean that we can exhale calmly.”

The next rate-setting meeting is set to take place on June 10.

After the West slapped Russia with debilitating sanctions over the start of Moscow’s military campaign in Ukraine in February, financial authorities introduced strict capital controls to boost the economy.

Since then, the ruble has staged a spectacular rebound and strengthened by around 30 percent against the dollar.

After the decision on Thursday, the ruble weakened 

by 7 percent against the dollar. 

A strong ruble is not desirable for the Russian government, which fears it can hit budget revenues and exports. 

Generally, lower interest rates are unattractive for foreign investment and decrease the value of a country’s currency.

– ‘Dollar is shrinking’ –

The Kremlin said on Wednesday the government was paying “special attention” to the strong ruble but President Vladimir Putin sought to cast the rallying currency as a positive development.

“As we know, the dollar is shrinking, the ruble is strengthening,” he said on Wednesday.

But analysts say the strong ruble is a sign of Russia’s weakening economy.

“The ruble strength reflects high oil/energy prices, but mostly a collapse in import demand with sanctions. That suggests that growth is going to be massively challenged — likely deep recession this year,” wrote Timothy Ash, an emerging markets strategist at BlueBay Asset Management.

“A strong currency will not help that and will also stall the ruble value of oil export earnings to the budget, boosting the budget deficit,” he added.

The government had earlier taken steps to loosen capital controls but the ruble continued to appreciate.

On Monday, Russia’s finance ministry announced domestic companies would have to sell 50 percent of their foreign currency export earnings, a reduction from 80 percent earlier. 

“High oil and gas revenues are providing policymakers with a lifeline, allowing them to row back emergency economic measures,” said William Jackson, chief emerging markets economist at Capital Economics.

Europe’s top stock markets rose Thursday after a mixed Asian showing, as traders assessed chances of a global recession in the wake of runaway inflation.

Analysts warn that interest rate rises by central banks aimed at curbing the highest consumer price rises in decades could push the world economy into a downturn.

Bucking the trend on borrowing costs however, Russia’s central bank on Thursday slashed its key interest rate following an emergency meeting, as authorities seek to rein in the ruble which has surged in value following the invasion of Ukraine.

The ruble, which Wednesday hit a seven-year dollar high, was down nearly three percent after Russia cut its interest rate to 11 percent from 14.

The ruble has been buoyed by capital controls and high energy prices amid the Ukraine war.

In the United States, central bankers stressed their “strong commitment and determination” to bring raging inflation under control via further large interest rate increases, according to the minutes of the latest policy meeting released Wednesday.

With US inflation rising at the fastest pace in nearly four decades, the Fed’s policy committee early this month hiked the key rate by a half point — the biggest increase since 2000.

Most members said similar increases “would likely be appropriate at the next couple of meetings”, according to the minutes.

“The Fed’s minutes were hawkish but… with policymakers sounding optimistic and in control,” noted Victoria Scholar, head of investment at Interactive Investor.

Across Asia on Thursday, stock markets were mixed after Chinese Premier Li Keqiang’s warning  that the world’s number two economy was in some ways worse off now than during the early days of the pandemic.

It comes as China persists with a zero-Covid policy to eradicate the fast-spreading Omicron virus variant.

The economic agony caused by lockdowns and other strict containment measures has hammered growth across China and knocked global supply chains.

Recent economic data has shown that a series of pledges by Beijing to kickstart growth has essentially fallen flat owing to a lack of concrete action, while analysts said the easing of the Covid policy was the only thing investors wanted to see.

There is a general feeling among commentators that China’s economic growth will fall well short of the government’s target this year.

– Key figures at around 1030 GMT –

London – FTSE 100: UP 0.1 percent at 7,533.65 points

Frankfurt – DAX: UP 0.6 percent at 14,088.70

Paris – CAC 40: UP 0.7 percent at 6,342.31

EURO STOXX 50: UP 0.6 percent at 3,698.83

Tokyo – Nikkei 225: DOWN 0.3 percent at 26,604.84 (close)

Hong Kong – Hang Seng Index: DOWN 0.3 percent at 20,116.20 (close)

Shanghai – Composite: UP 0.5 percent at 3,123.11 (close)

New York – Dow: UP 0.6 percent at 32,120.28 (close)

Euro/dollar: UP at $1.0714 from $1.0685 on Wednesday

Pound/dollar: UP at $1.2613 from $1.2579

Euro/pound: UP at 84.94 pence from 84.89 pence

Dollar/yen: DOWN at 126.69 yen from 127.26 yen 

Brent North Sea crude: UP 0.7 percent at $114.86 per barrel

West Texas Intermediate: UP 0.9 percent at $111.31 per barrel

Ukraine’s foreign minister, lawmakers and mayors made long journeys by car, train and plane to the Swiss Alps to convince global elites to send more help to repel Russian invaders.

As the four-day World Economic Forum in Davos wrapped up on Thursday, they were returning home without the heavy weapons they desperately want or the new sanctions they demand against Moscow.

But while major announcements were not expected in Davos, the summit gave the Ukrainians a chance to press the world’s political and business leaders face-to-face for urgent help after three months of fighting.

Ivan Fedorov, the mayor of the southeastern city of Melitopol, drove from Zaporizhzhia to Warsaw, then by plane to Zurich, and again by car from Zurich to Davos — a two-day trek.

“It’s very important for us (to come to Davos) because for a long time Russian propaganda and diplomacy worked very well,” Fedorov told AFP.

“Civilised countries must be united with Ukraine… not with their words but with their deeds,” said Fedorov, who was held for several days by Russian forces in March.

President Volodymyr Zelensky led the pleas in a headline speech via videolink at the start of the confab, while the Ukrainian delegation included the star power of Kyiv mayor, Vitali Klitschko, and his brother Wladimir, the former heavyweight boxers.

“Usually, Davos is considered a place where people only talk, but we took the opportunity to also discuss and agree on some issues with our counterparts,” said Foreign Minister Dmytro Kuleba, who travelled by train, car and plane.

– ‘Russian War Crimes House’ –

The gathering was also a chance for Ukraine to push its case to gain candidate status to join the European Union.

Ukrainian officials and lawmakers took the opportunity to meet corporate chief executives as Kyiv seeks help to rebuild the country.

Another major concern raised in Davos was the Russian blockade preventing Ukraine, once the world’s breadbasket, from exporting its wheat to countries that depend on it.

Kuleba said Ukraine was in talks with the United Nations on the idea of opening a safe passage for ships out of the port of Odessa, which would require de-mining the harbour and getting security guarantees from Moscow.

But the main refrain in Davos was Kyiv’s more immediate need for military help to defeat a better-armed Russia. 

To press their case, they reminded the world of the atrocities of conflict.

With Russians banned from attending this year’s meeting, Ukraine took over Moscow’s usual residence in Davos, turning the “Russia House” into the “Russian War Crimes House” and covering its walls with images of dead bodies.

Zelensky used Davos to urge the West to show more unity with Ukraine, singling out Hungary for holding up an EU embargo on Russian oil, while Kuleba lamented that some are “dragging their feet” on providing heavy weapons.

Washington and European countries have poured billions of dollars’ worth of arms into Ukraine, but Kuleba appealed for multiple-launch rocket systems to match Russian firepower.

– ‘Full-court press’ –

The Ukrainians also made it clear that the endgame of the war should be defeating Russia, not ceding territory as former US secretary of state Henry Kissinger suggested in a video appearance at the WEF.

German Chancellor Olaf Scholz, who addressed the forum on its last day, said Russian President Vladimir Putin will not be allowed to dictate peace in Ukraine.

“Our goal is crystal clear — Putin must not win this war. And I am convinced that he will not win it,” Scholz said.

Scholz, however, did not directly address Ukrainian criticism that Berlin was not moving fast enough in supplying tanks and armoured vehicles. 

Alexander Stubb, the former prime minister of Finland, said he had advised Ukrainian delegates that they should use Davos as a “communication exercise”.

“The West is strongly on their side, but there’s always the risk of war fatigue,” Stubb told AFP, adding that the Ukrainians should use a “full-court press”.

“I do think Davos is the right place to communicate,” said Stubb, now the director of the School of Transnational Governance at the European University Institute.

The lobbying may have worked, with Kuleba saying that “some weapons that we discussed here… will be on their way pretty soon.”

He conceded, however, that he “will arrive in Kyiv before new weapons arrive or new sanctions are introduced”.

“But this is the political process,” he said. “It takes time.”