Beijing’s new tech management technique

That is an audio transcript of the FT News Briefing podcast episode: ‘Beijing’s new tech control strategy’

Marc Filippino
Good morning from the Monetary Occasions. At present is Wednesday, January 18th, and that is your FT Information Briefing.

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On Wall Avenue, we’ve bought a story of two large funding banks. China’s lifting its crackdown on tech corporations, but it surely gained’t be giving up its management. And US shareholders wish to know extra about corporations’ abortion insurance policies. I’m Marc Filippino and right here’s the information you must begin your day.

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Two of Wall Avenue’s strongest funding banks got here out yesterday with fourth-quarter earnings. Goldman Sachs and Morgan Stanley each reported plunging earnings. And buyers pummelled Goldman shares, however they flocked to these of Morgan Stanley. The FT’s Brooke Masters explains the totally different responses.

Brooke Masters
Properly, mainly, buyers freaked out about Goldman as a result of there was a way that Goldman has not succeeded find other forms of income sources and is extremely dependent nonetheless on funding banking. Goldman additionally has been making clear that its authentic plan, which was to get very centered on client banking, hasn’t been working very effectively. In the meantime, Morgan Stanley shares popped as a result of Morgan Stanley might level to its wealth administration division. That is serving to wealthy individuals handle their cash, the place they’ve file income. And the CEO there, James Gorman, has been attempting for years to focus extra consideration and extra sources on steady income in issues like funding administration, asset administration, wealth administration. And this was precise proof in that in 1 / 4 the place funding banking income was horrible, wealth administration did rather well.

Marc Filippino
So Brooke, did Goldman Sachs’ CEO David Solomon come out yesterday and say something about how the financial institution may pivot to try to recuperate from this?

Brooke Masters
He’s no dummy. He’s mainly stated, look, we’re going to do wealth administration and asset administration as effectively. As a result of in a world the place there’s a variety of earnings inequality, I imply, the highest half has some huge cash. These individuals want locations to place their cash. And Goldman needs to get in on that.

Marc Filippino
So, Brooke, you’ve already stated this, however I believe it’s essential to level out that Morgan Stanley and Goldman Sachs are funding banks. However US industrial banks reported quarterly earnings final week, they usually did poorly, too. What are you able to inform us about that?

Brooke Masters
What’s fascinating for the industrial banks is that they had been in 2022 raking it in on what’s referred to as web curiosity earnings, which is the distinction between what they pay depositors for placing their cash with the financial institution and the charges they’ll cost on loans. As a result of what occurs when rates of interest rise, banks instantly begin charging extra for loans, however they don’t immediately have to start out paying cash, extra money to depositors. And so it’s been an amazing yr for web curiosity earnings. However JPMorgan is warning, and I believe everybody else agrees, that that hole is gonna need to, is gonna begin closing. So there’ll be much less cash to be made as a result of depositors produce other locations to place their cash. They will return to purchasing bonds. You realize, they’ll go to the smaller banks which are paying higher charges on CDs and issues like that. So I believe for the entire banks, the brilliant, one of many shiny spots, which was web curiosity earnings is it’s going, it’s not unhealthy, but it surely’s simply not gonna be nearly as good because it was.

Marc Filippino
Brooke Masters is the FT’s US monetary editor.

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China’s tech shares have staged a giant rally. Hong Kong’s Cling Seng tech index, which is stacked with Chinese language corporations, has soared virtually 60 per cent since its lows final October. This comes because the nation reopens and as Beijing lifts its crackdown on expertise corporations. This week, China’s large ride-hailing app Didi stated it was going to be allowed to enroll new customers for the primary time in a yr and a half.

Ryan McMorrow
Didi is form of the poster youngster for the tech crackdown, in order that’s undoubtedly a sign that this tech crackdown that has been occurring for the previous two years is coming to an finish.

Marc Filippino
That’s our China expertise correspondent Ryan McMorrow. As he studies, Beijing isn’t giving up management over its new expertise corporations. It’s bought a special technique. It’s buying golden shares or what’s recognized in China as particular administration shares.

Ryan McMorrow
So beginning in round 2015, the Chinese language authorities got here up with this proposal to purchase these stakes. It’s often a 1 per cent stake and a board seat and a few affect over the content material that these personal information corporations or content material corporations are placing out. And in 2016, 2017, Chinese language state teams began taking small stakes in, at that time it was principally start-ups. After which it’s simply form of grown in measurement from there. After which most just lately, we now have an increasing all the way in which to China’s largest tech corporations like Alibaba and Tencent and ByteDance.

Marc Filippino
Ryan, is that this about controlling content material or is it to maintain tech corporations rising?

Ryan McMorrow
Properly, it’s undoubtedly each. Particularly now with the financial system stuttering, numerous individuals unemployed and international buyers working away from China, the tech crackdown actually couldn’t proceed. So as a replacement, the federal government has actually, to a point, has began taking these 1 per cent stakes to get affect over these corporations, however not in such a heavy-handed method because the tech crackdown did. So it provides them a direct say in how these corporations are working. And particularly, it provides them a direct say on content material, which has all the time been what the Chinese language authorities is most centered on as a result of they’re simply so fearful about messaging and what their inhabitants is listening to they usually need to have the ability to management that.

Marc Filippino
Now, I wished to ask you about one tech firm specifically, because you’ve carefully adopted Beijing’s buy of a stake in ByteDance, which is the corporate that owns the social media firm TikTok. And as you reported, a authorities entity purchased a 1 per cent stake within the firm. And with that, they have been capable of nominate a director they usually tapped the man who seems to be an excessive nationalist.

Ryan McMorrow
So we did just a little little bit of analysis on the Communist Celebration official that they introduced in. His title is Wu Shugang. And really, a few decade in the past, he attracted consideration for saying very nationalistic stuff on-line. He referred to as all liberal Chinese language individuals traitors and instructed them to go to hell for preaching human rights and freedom. And he now has a say excessive three executives on the platforms. And if the corporate needs to do any mergers or acquisitions or distribute earnings, that each one one thing he’s now concerned in as a board member right here.

Marc Filippino
That’s the FT’s China expertise correspondent, Ryan McMorrow.

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There’s a big wave of shareholders who’re demanding that US corporations present particulars about their abortion insurance policies. This all started after the US Supreme Courtroom final yr overturned the federal proper to an abortion and left it as much as particular person states to resolve insurance policies. The FT’s governance reporter, Patrick Temple-West, has been reporting on this and joins me now. Hello, Patrick.

Patrick Temple-West
Whats up.

Marc Filippino
So what corporations are we speaking about right here and what do shareholders really need?

Patrick Temple-West
We’re monitoring a file variety of US corporations right here: American Specific, Eli Lilly. Shareholders have an interest to know what dangers these corporations face as they make changes for workers who may have to journey out of state to obtain reproductive care and likewise what kind of dangers they face from state legal guidelines.

Marc Filippino
So are these calls for principally coming from progressive teams that help abortion rights?

Patrick Temple-West
Sure, principally from the left. These are organisations that really feel strongly about abortion particularly and had filed some shareholder proposals on this in earlier years, however solely underneath a handful. Now it’s actually a wave. So there are these shareholders who’re primarily involved about reproductive rights from the conservative perspective. They’re once more in what dangers corporations face once they object to their state’s abortion legal guidelines. That is the case with Eli Lilly, primarily based in Indiana. And there, the corporate is going through a shareholder proposal from a conservative group as a result of the corporate got here out and opposed the state abortion legislation and stated we’d have to have a look at hiring or shifting workers elsewhere as a result of it is a workforce threat for us.

Marc Filippino
Now, how are corporations responding to those shareholder calls for?

Patrick Temple-West
What occurs in most circumstances is corporations attempt to block shareholder proposals that they don’t like on the Securities and Alternate Fee. The fascinating factor to see is how will the SEC rule on these? Is the company going to permit these for a vote? Precedent says they are going to. They’ll simply say, OK, it is a important sufficient threat that the corporate must put this for a vote for its shareholders, after which would have corporations and shareholders do about it. Corporations may wish to say, OK, you understand, we’re simply going to proactively disclose extra details about this. We actually don’t need this to go to a vote as a result of that might backfire on us. Or if it does go to a vote, how are the massive shareholders going to rule on these items? Massive query is how BlackRock and Vanguard are going to vote on these shareholder proposals. That’s one thing that we’ll be watching very carefully within the weeks and months forward as these come to a vote.

Marc Filippino
Patrick Temple-West is the FT’s governance reporter. Thanks, Patrick.

Patrick Temple-West
You’re welcome.

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Marc Filippino
You possibly can learn extra on all of those tales at FT.com. This has been your day by day FT Information Briefing. Ensure you examine again tomorrow for the newest enterprise information.

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