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China’s push to cut carbon emissions boosts risks for the north



Workers cut up coal carts in Dec. 2019 at a coal mine in Mentougou, west of Beijing, where many mines have been shut as China scrambles to cut carbon emissions.

Greg Baker | AFP | Getty Images

BEIJING — China’s bond defaults are increasingly concentrated in a part of the country whose growth could face greater pressure from tough new restrictions on carbon emissions, according to analysis from Nomura.

Fifteen regions in the northern half of China, including Beijing and Inner Mongolia, accounted for 63.4% of the number of national bond defaults last year, up from 51.5% in 2019, according to Nomura’s estimates published in an April 27 report.

It’s the latest sign of growing economic disparity within the country, where GDP and population growth in the north already lags that of the south. Now, China’s pledge to to reduce carbon emissions by 2030 means production restrictions are coming for the northern region’s economy.

“The new environmental campaign has the potential to hit North China — where a majority of steel, aluminum, and other raw materials are produced and processed — especially hard,” the Nomura analysts wrote.

“Since most of those steel and aluminum plants are in low-tier (less developed) cities, the public financials of these cities will likely be disproportionately impacted, adding to credit default risks,” they said.

Historical factors

North China is home to many state-owned enterprises and heavy industries. That meant the region was disproportionately affected beginning in the late 1980s, when China began to reduce the role of state-owned enterprises in the economy, causing many workers to lose their jobs.

Meanwhile, South China has more export hubs like the provinces of Guangdong and Jiangsu. The region counts Shanghai and Shenzhen among its major cities, and was an early beneficiary of China’s move to allow more foreign and privately-run businesses into the relatively closed domestic market.

Historical factors, as well as overcapacity built up following the 2008 financial crisis, have contributed to further weakness in the north, the Nomura analysts said. They estimate North China contributed to just 35.2% of national nominal GDP last year, with per capita GDP just about three-fourths of that in South China.

The north also relies more on debt. Outstanding corporate bonds as a percentage of GDP in North China rose to 52% in 2020, versus 30% for South China, according to Nomura.

“The north/south divide could become an important factor for credit differentiation in the years ahead,” the report said. “Indeed, we have already observed some deterioration in the capacity of the North China provinces to obtain funding from bond markets.”

The north accounted for 10% of national corporate bond issuance in the first quarter, down from 42% for all of last year, the analysts said.

Investors grow wary of greater risks

Financing a renewable energy shift

As China looks to balance growth with reducing carbon emissions, tapering pressure on carbon-heavy projects may not be enough. Privately-run businesses in renewable energy can find it difficult to get financing from a system in which the largest banks are state-owned and prefer to lend to similarly state-backed enterprises.

One option for financing renewable energy projects can be issuing “green” bonds, of which $15.7 billion dollars’ worth was sold in China in the first quarter, according to Reuters, citing data from Refinitiv. That volume was almost four times what it was a year ago, the report said.

Foreign investment bodies like the World Bank-affiliated International Finance Center have gotten increasingly involved as well. Some of the project plans IFC lists on its website for China include wastewater treatment and solar power.

The scale of IFC’s financing in China has grown from $500 million annually 15 years ago, to $1 billion a year more recently, with about 60% related to climate, said Randall Riopelle, acting regional director for East Asia and the Pacific and country manager for China for IFC.

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Chip shortage expected to cost auto industry $110 billion in 2021



The ongoing semiconductor chip shortage is now expected to cost the global automotive industry $110 billion in revenue in 2021, according to consulting firm AlixPartners.

The forecast is up by 81.5% from an initial forecast of $60.6 billion, which the New York-based firm released in late January when the parts problem started causing automakers to cut production at plants.

Mark Wakefield, global co-leader of the automotive and industrial practice at AlixPartners, said a number of factors have contributed to the increase, including a fire at a plant near Tokyo for chip supplier Renesas and weather-related kinks in the automotive supply chain.

“The pandemic-induced chip crisis has been exacerbated by events that are normally just bumps in the road for the auto industry, such as a fire in a key chip-making fabrication plant, severe weather in Texas and a drought in Taiwan,” he said in a press release. “But all these things are now major issues for the industry — which, in turn, has driven home the need to build supply-chain resiliency for the long term.”

AlixPartners is forecasting that production of 3.9 million vehicles will be lost this year as a result of the shortage. That’s up from January’s forecast that estimated the shortage would cut production of 2.2 million vehicles.

In the U.S., the shortage has caused the Biden administration to order a 100-day review of U.S. supply chains. About $50 billion of President Joe Biden’s $2 trillion infrastructure proposal also is earmarked for the American semiconductor industry.

Automakers such as Ford Motor and General Motors expect the chip shortage to cut billions of their earnings this year. Ford said the situation will lower its earnings by about $2.5 billion in 2021. GM expects the chip shortage will cut its earnings by $1.5 billion to $2 billion.

Semiconductor chips are extremely important components of new vehicles for areas like infotainment systems and more basic parts such as power steering and brakes. Depending on the vehicle and its options, experts say a vehicle could have hundreds of semiconductors, if not more. Higher-priced vehicles with advanced safety and infotainment systems have far more than a base model, including different types of chips.

“There are up to 1,400 chips in a typical vehicle today, and that number is only going to increases as the industry continues its march toward electric vehicles, ever-more connected vehicles and, eventually, autonomous vehicles,” Dan Hearsch, a managing director in AlixPartners’ automotive and industrial practice, said in a statement. “So, this really is a critical issue for the industry.”

AlixPartners expects the largest impact to production in the second quarter and then progressively get better during the second half of the year and into 2022, Hearsch told CNBC.

“By Q3, there’s enough to get everybody back up and running for the most part,” he said. “And then in Q4, we should get humming again and then next year get back to normal, hopefully.”

That doesn’t mean supply constraints will be completely solved next year, but Hearsch said automakers should have enough semiconductors to produce as many vehicles as they want.

The global automotive industry is an extremely complex system of retailers, automakers and suppliers. The last group includes larger suppliers such as Robert Bosch or Continental AG that source chips for their products from smaller, more-focused chip manufacturers such as Renesas or NXP Semiconductors.

Much of the problem begins at the bottom of the supply chain involving wafers. The wafers are used with the small semiconductor to create a chip that’s then put into modules for things like steering, brakes and infotainment systems.

The origin of the shortage dates to early last year when Covid caused rolling shutdowns of vehicle assembly plants. As the facilities closed, the wafer and chip suppliers diverted the parts to other sectors such as consumer electronics, which weren’t expected to be as hurt by stay-at-home orders.

Hearsch said the top priority for companies right now is “mitigating the best they can the short-term effects of this disruption,” which may include everything from renegotiating contracts to managing the expectations of lenders and investors.

Stellantis CEO Carlos Tavares said the automaker, which was formed in January through a merger between Fiat Chrysler and French automaker PSA Groupe, isn’t ruling out ways to be repaid by suppliers for the parts problem.

“It’s too soon to say. We don’t know yet the total of the financial impact … It’s going to be massive,” he said Wednesday during the during the Financial Times Future of the Car Digital Summit. “But it’s clear that it’s a competitive game … we will not exclude that possibility.”

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Amazon hiring 75,000 more workers in latest job spree



An Amazon warehouse

Getty Images

Amazon is hiring 75,000 workers across its warehouse and delivery network in the U.S. and Canada, the company said Thursday. The company will also offer a $100 bonus to new warehouse and transportation hires who show proof of their Covid-19 vaccination.

Amazon said the jobs will offer an average starting pay of $17 per hour, reflecting its recent wage increases, which bumped up pay by between 50 cents and $3 an hour for more than half a million of its U.S. operations employees.

The hiring push comes as businesses are looking for labor in an increasingly tight market. Some businesses say they’ve struggled to find workers as a result of expanded jobless benefits. Critics have argued that employers should consider raising wages to attract workers.

Companies including Chipotle and McDonald’s have announced wage hikes in recent days to attract employees. To that end, Amazon is offering a signing bonus of up to $1,000 in some locations as an additional tool to lure workers.

Amazon has aggressively hired new employees throughout the coronavirus pandemic, bringing on 500,000 workers in 2020 to help it meet a surge in e-commerce demand. At the same time, it has plowed profits back into physical expansion, opening new warehouses, air hubs and other facilities at a breakneck pace.

The new hires will ensure Amazon has enough employees across its expanded footprint, the company said. It’s looking to fill positions in nearly every corner of the country, with the most open roles available in Arizona, California, Kentucky, Michigan, Pennsylvania, Washington and Wisconsin, among other states.

Amazon hasn’t required its front-line workers to get vaccinated, but it has nudged employees to get vaccinated by offering them a bonus of up to $80. New workers will get $100 for showing proof of vaccination. Other companies including Target, McDonald’s and Kroger have also offered incentives to employees who get the Covid-19 shot.

Amazon in March began rolling out on-site vaccination clinics at warehouses in Missouri, Nevada and Kansas. Since then, Amazon said, clinics have rolled out to more than 250 warehouses across the U.S. and Canada, covering more than half a million front-line warehouse and delivery workers.

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Tesla’s Model Y slumps in China sales rankings, data shows



Zang Yi charges her Tesla car at a charging point in Beijing, China, April 13, 2018.

Thomas Peter | Reuters

BEIJING — Sales of Tesla‘s newest model for the Chinese market lost steam in April, according to data from China’s Passenger Car Association.

The budget Wuling Hongguang Mini EV held onto its rank in April as the best-selling new energy vehicle in China, the association said Wednesday.

Tesla’s Model 3 ranked second, followed by BYD‘s “Han” luxury sedan.

But Tesla’s Model Y, which launched to customers in China in January, fell to sixth place, down from third earlier this year, the data showed.

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