Is China’s economic slowdown here to stay?

0:02Good morning from the Financial Times. Today is Thursday, July 16th, and this is your FT News Briefing. Energy companies are raking in cash because of the data center boom, and China's growth is at its lowest in decades. Plus, the State Department looks a lot different under U.S. President Donald Trump. The department is now sort of a shell of itself where career Foreign Service officers describe kind of this culture of fear and silence. I'm Mark Filippino, and here's the news you need to start your day.

0:43Energy companies that are going public are pulling in a lot of money, more than at any other point since the start of the century. Flotations by energy companies raised a little more than$12.5 billion in the first half of this year. That's according to the data firm DealLogic, and it's the highest level for a half year since the dot-com boom. Access to energy has emerged as a key bottleneck in bringing data centers online, and that's what's causing this surge in fundraising. As we told you a little while back, investors who have been betting on chip makers now appear to be switching to companies that might be able to power these data centers.

1:17Some of the winners include manufacturers of electrical distribution equipment. Other companies are using gas, geothermal, and even nuclear power.

1:31China's quarterly growth rate has fallen to one of its lowest levels in decades. It's the result of weak consumer demand and falling investment. And it was below the already diminished target that Beijing had set for the year. The FT's Thomas Hale joins me to discuss this. Hiya, Tom. Hi there. So, Tom, what's the most notable thing for you about this growth data that came out on Wednesday? So the GDP data itself is obviously the headline figure, but China also releases monthly indicators. These include data on retail sales, data on what's called fixed asset investment, which is a gauge of investment.

2:06And these indicators for several months and in the data we saw this week really do raise real questions over the health of the Chinese economy. Retail sales are up 1 % year on year in June. They declined in May for the first time since 2022. And the fixed asset investment data has been declining for several months now. It's now down 5.7 % so far this year compared to the same period a year earlier. So that is signaling a real issue with investment in China. I want to focus in on the investment figures. Why are they in particular so low? Well, the fixed asset investment data in China rose at the start of this year and is now falling again.

2:46So it's looking like there is fiscal pressure somewhere on investment in China. China's property sector has been struggling since 2021 when Evergrande, the world's most indebted developer, defaulted on its international debts. But what's different this year and late last year is that the overall investment number as part of this fixed asset investment is declining. Also, there have been signs since the middle of last year of potential pressure from the central government on curbing excessive investment and curbing this enthusiasm that has characterized China for three decades to pursue these ambitious investment projects to drive growth.

3:26So that's a potential tension in the incentives facing local governments in China that could be related to this decline in the fixed asset investment data that we're seeing. Was there any good news for China's economy? So China also reported trade data this week. That data showed exports soaring again. Exports were up 27 % in June. Imports rose by even more, but we're still seeing very strong export growth. And the more that issue becomes apparent, the more that there's a sense that trade is playing a very important role in driving activity domestically. Given this data and the upsides you just mentioned, And is China entering a kind of new normal with lower growth expectations than it's seen in the past?

4:11I think this is really a very significant moment. There's a sense now of a potential grind here, you know, that question of where is growth going to come from in future. The steps that have been taken so far to try and stimulate consumption seem to not be enough to really move the needle against this big backdrop of this property slowdown, which has been such an important growth driver for decades or had been. So really, the property sector looks like a very important part of the equation for policymakers here. Tom Hill is the FT's Shanghai correspondent. Thanks, Tom. Thank you.

4:52Traders are warning that the crude oil market is about to run dry. That's because the Strait of Hormuz is largely shut down again. It happened after the ceasefire between the U.S. and Iran disintegrated earlier this week. And at this time, there isn't much of a backup supply to draw on. The concern from traders comes as the International Energy Agency said its member countries already dispensed almost three-quarters of an emergency stockpile release. Now there are just weeks left before the remainder of those supplies to the market is gone. The Strait of Hormuz carried about one-fifth of the world's oil supplies before the conflict started.

5:26At the time of this recording, the price of Brent crude was sitting at nearly$86 a barrel.

5:37When the U.S. and Iran signed the now defunct Memorandum of Understanding last month, American diplomats were not the ones to negotiate it. Instead, President Trump relied on his personal confidants, like his son-in-law Jared Kushner. And that's no coincidence. The president has repeatedly criticized the Department of State as part of the so-called deep state. We will demolish the deep state. We will expel the warmongers. They are people that don't get it, although in some cases they get it. They get it for their wallets. That's President Trump speaking on the campaign trail back in 2023. Since then, the agency responsible for America's foreign policy has been struggling to keep both its workforce and its legitimacy.

6:25Abigail House-Loner is the FTE's U.S. foreign affairs correspondent. She joins me now. Hi, Abby. Hey, Mark. So, Abby, set the scene for us. Can you just tell us how things typically work at the State Department? Well, typically, the U.S. State Department has, for over 100 years, been the face of America to the world. It has embassies all over the world and consular offices. And more than half of those posts are run by career foreign service. That is people who train to be diplomats who are meant to set their politics aside and serve the administration, whoever that may be, Republican or Democrat.

7:06And they're supposed to, you know, maintain and improve America's relationships with different countries. They're sort of the tip of the spear in foreign policy. And how has that changed under Trump in his second term? Well, Trump came in and sort of immediately went to war with the State Department. He put his friend Elon Musk in charge of shutting down USAID, the foreign assistance wing of the government that worked closely with the State Department. And, you know, since then, he's basically slashed thousands of jobs at the State Department. And in their place, the department is now sort of a shell of itself where, you know, career foreign service officers describe kind of this culture of fear and silence where the decision making is done in increasingly tight circles of political appointees.

8:06and special envoys trusted by Trump. Yeah, and on top of that, the president has allowed half of all U.S. ambassador posts to just stay vacant. Abby, how is this all playing out? Let's take the Iran Memorandum of Understanding as an example. If you talk to any former diplomat, especially those who have negotiated with Iran on behalf of the United States, you know, everybody says across the board, and actually you hear Trump say this too, they are master negotiators. OK, and Trump dispatched Steve Whitcoff, his old business partner and donor golf buddy, who he made special envoy for peace negotiations and Jared Kushner to do the negotiations for a lot of that.

8:54and not present for much of it have been career Iran experts from the State Department. You know, there was one former ambassador who was most recently the U.S. ambassador to Jordan under Biden, who put it really bluntly to us, just said the Iranians, you know, they come prepared. They have their experts in the room. They've been doing this a long time. And the Americans just didn't show up with the same experience. And she said the U.S. got taken to the cleaners. Now, we should mention that officials frame the cuts as, quote, thoughtful and deliberative plans to realign the department with Trump's America First agenda.

9:36A State Department spokesman also told you that he rejects the idea that major decisions are made without, quote, meaningful input from experienced professionals. Abby, given what you told me, do you think that the State Department can return to what it was like before Trump's second term? No, is the short answer. A lot of the folks we talked to for this story are really pessimistic. And that's because obviously so many Foreign Service officers have been fired or have opted to leave, take jobs in the private sector. And on top of that, what we hear from foreign diplomats is that America has proven to be pretty fickle in the realm of foreign policy.

10:22And so who's to say that it won't just seesaw from one administration to the next? Abigail House-Loner is the FT's U.S. foreign affairs correspondent. Thanks, Abby. Thanks, Mark.

10:37You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news. Thank you.

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