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FirstFT: Fed warns of risks China real estate sector poses to US economy

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The Federal Reserve has warned that stresses in the Chinese real estate sector “posed some risk to the US financial system”, pointing to heavily indebted property companies like Evergrande as a potential source of global contagion.

“Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States,” the Fed warned in its biannual Financial Stability Report.

On the domestic front, the Fed also warned that a “steep rise” in interest rates could lead to a “large” correction in risky assets, in addition to a reduction in housing demand that in turn could lead to lower home prices. Employment and investments could take a hit too as borrowing costs for business rose.

The US central bank said it was worried about China because the nation’s “business and local government debt remain large; the financial sector’s leverage is high, especially at small and medium-sized banks; and real estate valuations are stretched”.

Do you think stresses in the Chinese real sector pose global risks? Tell me what you think at firstft@ft.com. Thanks for reading FirstFT Asia. Here’s the rest of the news — Emily

Five more stories in the news

1. Tesla shares slide after Musk’s Twitter poll backs stake sale Shares in Tesla closed down nearly 5 per cent, making it the second-worst performer on the S&P 500 and the biggest drag on the index after millions of Twitter users polled by chief executive Elon Musk concluded that he should sell 10 per cent of his stake in the electric carmaker.

2. Toshiba considers splitting itself into three companies The proposal is just one of several under discussion by Toshiba as Japan’s most famous conglomerate seeks to rebuild its market value and address the demands of activist shareholders.

3. US charges two individuals over ransomware attacks Authorities have brought criminal charges against a Ukrainian and a Russian national for their roles in high-profile ransomware attacks, as part of a sprawling global crackdown on digital extortion groups.

4. SoftBank unveils $8.8bn share buyback SoftBank founder Masayoshi Son has promised a ¥1tn ($8.8bn) share buyback programme over the next 12 months, yielding to investor pressure after the company’s Saudi-backed Vision Fund disclosed a record quarterly loss of ¥825.1bn.

5. Xi lays groundwork for third term Xi Jinping has summoned hundreds of senior Chinese Communist party officials to Beijing for a meeting that was expected to pave the way for a historic third term in power. Mao Zedong and Deng Xiaoping are the only two other leaders of the Chinese Communist party to have secured a third term in the party’s one hundred year history.

COP26 digest

Barack Obama was given a standing ovation after his speech. “Vote like your life depends on it, because it does,” he said. © REUTERS

Today’s Moral Money, our sustainable finance newsletter, has five things to watch at COP26 this week. Click here to read and sign up to the newsletter, publishing every weekday during the Glasgow summit.

The day ahead

UK foreign secretary continues south-east Asia visit Liz Truss will travel to Thailand and Indonesia after arriving in Malaysia on Sunday. She will meet officials in the region to “deepen economic and security links” with the UK. (Reuters)

Earnings Companies reporting results today include Associated British Foods, Aveva, Bayer, Coinbase, Direct Line, Mediaset, Munich Re, Nissan, Porsche, Salvatore Ferragamo and Swiss Life.

What else we’re reading

China’s self-isolation is a global concern Beijing’s zero-Covid policy is damaging international business and global governance, writes Gideon Rachman. And as the outside world transitions towards living with low levels of the disease, contact with foreigners may look even more dangerous to China.

© James Ferguson

Tokyo subway attack exposes subtler dangers in the city Passengers’ terror was heightened by rules which prevent train drivers using their initiative. The fear was not only of the lone madman, but of an institutional failure to recognise the need for flexibility, writes Leo Lewis.

Don’t chuck out the chintz — or the Billy bookcase Ikea is rolling out an international programme to take back used items and resell them under the name “Buy Back and Resell”. It is quite the U-turn by furniture’s global superpower in the name of sustainability. But If Ikea now feels the need to atone for its past, how about you, the consumer?

Central bankers’ different readings of inflation Policymakers have outlined starkly different responses to the global surge in inflation, with senior US and UK officials signalling that interest rates are likely to rise soon in their countries despite such a policy shift remaining a distant prospect in the eurozone.

Travel sector braces for post-pandemic world After losing $6tn during the coronavirus crisis, the global travel industry — from hotel groups to airlines — must navigate a precarious-looking future.

House & Home

Take a look at these five homes with literary connections for sale. From a Georgian house in Berkshire where Jane Austen was a frequent guest to John Steinbeck’s cottage in Long Island.

The former summer home of Pulitzer Prize-winning novelist John Steinbeck

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