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Governors of Arab Banks Discuss Cross-Border Payments

Governors of Arab banks meet at a roundtable meeting on Central Bank Digital Currencies (CBDC) in Jeddah, Saudi Arabia. (Asharq Al-Awsat)
Governors of Arab banks meet at a roundtable meeting on Central Bank Digital Currencies (CBDC) in Jeddah, Saudi Arabia. (Asharq Al-Awsat)
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Governors of Arab Banks Discuss Cross-Border Payments

Governors of Arab banks meet at a roundtable meeting on Central Bank Digital Currencies (CBDC) in Jeddah, Saudi Arabia. (Asharq Al-Awsat)
Governors of Arab banks meet at a roundtable meeting on Central Bank Digital Currencies (CBDC) in Jeddah, Saudi Arabia. (Asharq Al-Awsat)

Merits of using digital currencies in cross-border payments, specifically inter-Arab payments, were discussed on Monday by governors of Arab banks at a roundtable meeting on Central Bank Digital Currencies (CBDC) in Jeddah, western Saudi Arabia.

Many central banks in the Arab world have the infrastructure that enables them to launch digital currencies, especially the countries of the Gulf Cooperation Council (GCC).

GCC member states have proved they possess the tools and expertise needed in implementing digital currency programs. This was indicated by a survey conducted by the Arab Monetary Fund.

The survey found that 76% of 17 Arab central banks are studying the possibilities of issuing CBDCs.

In a speech at Monday's event, Saudi Central Bank (SAMA) Governor Fahad Al-Mubarak highlighted the need of the financial sector tapping into all information technology, including artificial intelligence and digitization.

The Fourth Industrial Revolution brought about emerging technologies and innovative work models that could help the financial sector reduce costs and offer better service, Al-Mubarak pointed out.

Urging the central banks to make better use of the new technologies to revitalize the Arab economies, he said these banks should take stock of the distinctive needs and characteristics of each country while issuing digital currencies.

He also suggested analyzing the possible impacts of issuing a digital model of sovereign currencies and conducting the necessary tests with a view to better understanding of future policies and legislations.

Abdulrahman Al Hamid, who currently serves as Director General Chairman of the Board in the Arab Monetary Fund, noted that there is an accelerating pace of digitization of financial services.

Digitization, according to Al Hamid, is largely driven by innovation in financial infrastructures, the use of distributed records technology, and the provision of various aspects of digital currencies to central banks.

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Business

COP28 Concludes 1st Week amid Expectations for Agreements

Expo City in the Emirate of Dubai, where the COP 28 conference is being held. (EPA)
Expo City in the Emirate of Dubai, where the COP 28 conference is being held. (EPA)
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COP28 Concludes 1st Week amid Expectations for Agreements

Expo City in the Emirate of Dubai, where the COP 28 conference is being held. (EPA)
Expo City in the Emirate of Dubai, where the COP 28 conference is being held. (EPA)

At the end of the first week of the COP28 conference held in Dubai, UN Climate Change Executive Secretary Simon Stiell, on Wednesday, called on the countries participating in the talks to raise the bar of ambitions and reach clear agreements at the conclusion of the conference.
“All governments must give their negotiators clear marching orders. We need highest ambition, not point-scoring or lowest common denominator politics,” he told a news conference.
According to information obtained by Asharq Al-Awsat from the corridors of the conference, the work now falls on the state commissioners to put all the proposals on the table, before submitting them to officials and ministers, who are expected to reach an agreement at the conclusion of the conference.
For his part, Saudi climate negotiator Khaled Al-Muhaid said in a session on Tuesday evening that the 2015 Paris Agreement “was a great success for all of us”, adding that the “challenge now is how to keep all passengers on the train.”
The latest draft of a global climate agreement presented three options regarding the future of fuel. Sources at the conference indicated that all of the three decisions have good views, with varying rates of acceptance and adoption, but still close in proportion to each other.
“At the end of next week, we need COP to deliver a bullet train to speed up climate action. We currently have an old caboose chugging over rickety tracks,” Stiell told the reporters.
The heated deliberations coincided with climate reports confirming that the year 2023 was the hottest in history, and that November witnessed the warmest autumn in the world ever.
The head of the United Nations Development Program, Achim Steiner, urged countries participating in COP28 not to criticize any side at the conference, saying that Western countries are also sitting in a glass house with regard to oil production.
He pointed in this regard to the United States, Canada, Norway and the United Kingdom, all of which he said wanted to expand their oil production.

 

Business

Saudi Crown Prince, Putin Urge All OPEC+ Countries to Join Output Deal

This handout picture provided by the Saudi Press Agency (SPA) shows Saudi Crown Prince Mohammed bin Salman (R) walking with Russian President Vladimir Putin during a welcoming ceremony in the capital Riyadh on December 6, 2023. (Photo by SPA / AFP)
This handout picture provided by the Saudi Press Agency (SPA) shows Saudi Crown Prince Mohammed bin Salman (R) walking with Russian President Vladimir Putin during a welcoming ceremony in the capital Riyadh on December 6, 2023. (Photo by SPA / AFP)
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Saudi Crown Prince, Putin Urge All OPEC+ Countries to Join Output Deal

This handout picture provided by the Saudi Press Agency (SPA) shows Saudi Crown Prince Mohammed bin Salman (R) walking with Russian President Vladimir Putin during a welcoming ceremony in the capital Riyadh on December 6, 2023. (Photo by SPA / AFP)
This handout picture provided by the Saudi Press Agency (SPA) shows Saudi Crown Prince Mohammed bin Salman (R) walking with Russian President Vladimir Putin during a welcoming ceremony in the capital Riyadh on December 6, 2023. (Photo by SPA / AFP)

Saudi Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud and Russian President Vladimir Putin have commended the close cooperation between them and the successful efforts of the OPEC+ countries in enhancing the stability of global oil markets.

A joint statement said Thursday that they stressed the importance of continuing this cooperation, and the need for all participating countries to adhere to the OPEC+ agreement, in a way that serves the interests of producers and consumers and supports the growth of the global economy.

Following last week's OPEC+ meeting, Saudi Arabia agreed to extend voluntary oil output cuts of 1 million barrels per day (bpd) into the first quarter, while Russia said it would continue to curb oil exports by 300,000 bpd and additionally reduce its fuel exports by 200,000 bpd in January-March.
The total curbs amount to 2.2 million bpd from eight producers, OPEC said in a statement after the meeting last week.

The Crown Prince and Putin met at Al-Yamamah palace in Riyadh on Wednesday.

They praised the increase in the volume of trade between the two countries, as the volume of bilateral trade in the year 2022 increased at a rate of 46% compared to the year 2021.

They affirmed their intention to continue the joint work to enhance and diversify trade between them, and to intensify communication between the private sectors in the two countries to discuss promising trade and investment opportunities and transform them into active partnerships.

The two sides also stressed their keenness to continue working to enhance mutual and joint investments in the two countries, enable the private sector, exchange visits, hold joint investment forums and events, develop the investment-attractive environment, provide the necessary enablers, and solve any challenges in this field.

The joint statement said that Putin welcomed the Kingdom’s launch of the “Saudi Green Initiative” and the “Middle East Green initiative” and affirmed Russia's support for the Kingdom’s efforts in the field of climate change by implementing the circular carbon economy approach launched by the Kingdom and approved by the leaders of the G20 countries.

The two sides stressed the importance of adhering to the principles of the Framework Convention on Climate Change and the Paris Agreement, and the necessity of developing and implementing climate agreements by focusing on emissions rather than sources.

They also expressed their desire to maximize the use of local content in energy sector projects, cooperate to stimulate innovation, apply emerging technologies, including artificial intelligence in the energy sector, and develop its ecosystem.

Business

Oil Rebounds from 6-month-low

FILE PHOTO: A tanker truck used to haul oil products operates at an oil facility near Brooks, Alberta, Canada April 18, 2018. REUTERS/Todd Korol/File Photo
FILE PHOTO: A tanker truck used to haul oil products operates at an oil facility near Brooks, Alberta, Canada April 18, 2018. REUTERS/Todd Korol/File Photo
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Oil Rebounds from 6-month-low

FILE PHOTO: A tanker truck used to haul oil products operates at an oil facility near Brooks, Alberta, Canada April 18, 2018. REUTERS/Todd Korol/File Photo
FILE PHOTO: A tanker truck used to haul oil products operates at an oil facility near Brooks, Alberta, Canada April 18, 2018. REUTERS/Todd Korol/File Photo

Oil prices reclaimed some ground on Thursday after tumbling to a six-month low in the previous session but investors remained concerned about sluggish demand and economic slowdowns in the US and China.

Brent crude futures rose 27 cents, or 0.4%, to $74.56 a barrel by 0613 GMT. US West Texas Intermediate crude futures rose 24 cents, also 0.4%, to $69.62 a barrel.

"Oil markets may have been oversold," which could mean the recovery is a "short-term rebound", Tina Teng, a markets analyst with CMC Markets, said in a note.

In the previous session, the market was spooked by data showing US output remains near record highs even though inventories fell, analysts at ANZ said in a note.

Some of the bearishness was also a result of higher product fuel inventories, the ANZ analysts said.

Gasoline stocks rose by 5.4 million barrels in the week to 223.6 million barrels, the EIA said on Wednesday, far exceeding expectations for a 1 million-barrel build.

Oil prices have fallen by about 10% since the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, announced a combined 2.2 million barrels per day voluntary output cuts.

A Reuters survey found that OPEC oil output fell in November in the first monthly drop since July, as a result of lower shipments by Nigeria and Iraq as well as ongoing market-supporting cuts by Saudi Arabia and other members of the wider OPEC+ alliance.

Business

Saudi 2024 Budget: 1.172 Trillion Riyals in Revenues

The Saudi Cabinet approves the 2024 budget (SPA)
The Saudi Cabinet approves the 2024 budget (SPA)
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Saudi 2024 Budget: 1.172 Trillion Riyals in Revenues

The Saudi Cabinet approves the 2024 budget (SPA)
The Saudi Cabinet approves the 2024 budget (SPA)

The Saudi government, in a meeting chaired by King Salman bin Abdulaziz on Wednesday, approved the Kingdom’s 2024 budget.

While next year’s revenues are estimated at SAR 1.172 trillion, total expenditure is projected at SAR1.251 trillion, resulting in a limited deficit of SAR79 billion.

After the budget’s approval, Crown Prince Mohammed bin Salman highlighted the achievements of the Kingdom since the launch of its national transformation plan “Vision 2030.”

He commended the government’s ongoing structural reforms in both the financial and economic realms, aiming to sustain economic growth in light of the substantial developmental opportunities and resources available to the Kingdom within the framework of Vision 2030.

This strategic vision, guided by the directives of King Salman, has notably contributed to the clear and significant increase in the non-oil sector’s contribution to Saudi Arabia’s Gross Domestic Product (GDP).

The Crown Prince emphasized the government's commitment, as reflected in the fiscal year 2024 budget, to stimulate economic growth through an expansion of government spending.

He clarified that the budget figures serve as a supportive framework for numerous programs and initiatives, encompassing investments to enhance infrastructure, improve the quality of services provided to citizens, residents, and visitors.

Additionally, the budget allocates resources for the development of promising economic sectors, fostering investment attraction, stimulating industries, increasing local content, and boosting non-oil Saudi exports.

He commended the pivotal role played by both the Public Investment Fund (PIF) and the National Development Fund (NDF).

The Crown Prince also affirmed the ongoing efforts to enhance the Kingdom’s public financial performance by increasing financial capacity and building government reserves.

This approach aims to strengthen the Kingdom’s economic resilience, maintain sustainable levels of public debt, and empower the nation to confront any future developments or crises.

Furthermore, he stressed that the increase in spending is primarily driven by the government’s commitment to continually improve the level of public services.

The implementation of various projects and the expansion of spending on sectoral and regional development strategies aim to bring about positive structural changes, expanding and diversifying the economic base.

The Crown Prince also emphasized the development of partnerships with the private sector, aiming to empower and incentivize it to play a role in achieving economic diversification.

This strategic approach seeks to enable the labor market to absorb more Saudi workers, create job opportunities, and reduce unemployment rates among Saudis.

The total number of Saudis in the workforce has risen to 2.3 million this year.

Additionally, there is a focus on improving the investment environment to make it attractive, thereby increasing both local and foreign investment, fostering non-oil exports, and enhancing the non-oil trade balance.

The Crown Prince further elaborated on the ongoing journey towards economic diversification by supporting promising sectors.

The Kingdom aims to increase tourism targets to 150 million visitors, both domestic and international, by 2030. Efforts also include building a vibrant sports sector.

The commitment to developing the industrial sector, a vital component of the Saudi economy, was emphasized as well.

This involves diversifying the industrial base and value chains. The goal is to triple the industrial GDP to SAR 895 billion by 2030, making a significant contribution to the development of non-oil exports.

The PIF, as a key investment arm, complements government efforts to diversify the economy, along with the pivotal role played by the NDF and its affiliated funds in providing easy financing for the private sector.

Addressing the Kingdom’s regional and international role, the Crown Prince affirmed its commitment to global security and stability, recognizing them as essential factors for development and prosperity.

The Kingdom is dedicated to enhancing supply and value chains to serve the economic development of all countries globally.

The Crown Prince reaffirmed the Kingdom’s determination to continue enhancing its economic attractiveness for both local and foreign investments in the coming year.

Business

Saudi Arabia Announces Tax Breaks to Foreign Firms With New HQs

A general view of Riyadh city, Saudi Arabia, February 20, 2022. REUTERS/Mohammed Benmansour
A general view of Riyadh city, Saudi Arabia, February 20, 2022. REUTERS/Mohammed Benmansour
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Saudi Arabia Announces Tax Breaks to Foreign Firms With New HQs

A general view of Riyadh city, Saudi Arabia, February 20, 2022. REUTERS/Mohammed Benmansour
A general view of Riyadh city, Saudi Arabia, February 20, 2022. REUTERS/Mohammed Benmansour

Saudi Arabia announced on Tuesday it would grant 30 years of tax relief to multinationals establishing regional headquarters.

This comes less than a month before a January 1 deadline for multinationals to open regional headquarters in Saudi Arabia or lose out on government contracts.

The tax-relief package includes a zero-percent rate for corporate income tax and withholding tax, the investment ministry said in a statement.

"This new incentive gives business more visibility and certainty for future planning as multinational corporations expand their presence in the region through Saudi Arabia, while also taking part in our own transformation journey," AFP quoted Finance Minister Mohammed al-Jadaan as saying.

"We look forward to welcoming more multinational corporations to participate in projects across all sectors, including our giga-projects and in preparation for the hosting of such events as the 2029 Asian Winter Games and Expo 2030."

More than 200 licenses have been granted under the program to date, the Saudi investment ministry said.

Other benefits under the program include the ability to apply for unlimited work visas and a 10-year waiver on quotas for hiring Saudi nationals.

Business

Houthi Attacks on Ships in Red Sea Threaten Global Trade

The Red Sea connects Africa and Asia and is a vital corridor for maritime shipping. (Photo: Reuters)
The Red Sea connects Africa and Asia and is a vital corridor for maritime shipping. (Photo: Reuters)
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Houthi Attacks on Ships in Red Sea Threaten Global Trade

The Red Sea connects Africa and Asia and is a vital corridor for maritime shipping. (Photo: Reuters)
The Red Sea connects Africa and Asia and is a vital corridor for maritime shipping. (Photo: Reuters)

Tension escalated in the Red Sea after ships were attacked while crossing the vital path that links Europe to the Arabian Gulf and Sea, all the way to East Asia, raising fears of new disruptions in global trade, including energy supplies.

On Sunday, the Pentagon said a US warship and three commercial ships were attacked off the coast of Yemen, raising concerns that the Houthis, who targeted Israeli ships last month, are expanding their campaign in response to the war in Gaza.

US National Security Advisor Jake Sullivan said on Monday that the attacks were “totally unacceptable,” adding that the United States was in talks with other countries about forming a naval task force to ensure the safe passage of ships in the Red Sea.

US Central Command said it was studying “appropriate responses” to the attacks that endangered the lives of crews from several countries, as well as threatening international trade and maritime security. It added that although the attacks were carried out by the Houthis, they were “fully enabled by Iran.”

This new threat to shipping - which could affect trade from crude oil to vehicles - comes following major pressures on supply chains due to the Covid-19 pandemic and the Russian war in Ukraine, which increased inflation and led to a global economic slowdown.

“The Red Sea route matters,” Henning Gloystein at consultancy Eurasia Group told the Financial Times.

“It matters even more for the Europeans, who get all their Middle Eastern oil and LNG through the Red Sea,” he added.

Since 2019, the Houthis and other suspected Iranian proxies have attacked multiple ships in the Middle East, seized oil tankers and launched attacks using limpet mines attached to their hulls, according to a report by the Financial Times.

“The oil market has become too complacent about risks that the Gaza conflict will expand regionally and threaten oil and gas infrastructure and shipping in the Red Sea and Gulf,” Bob McNally, founder of Rapidan Energy and a former adviser to the George W Bush White House, was quoted as saying.

McNally added that material interruption in regional energy flows could reach 30 percent.

Ship-owners are now exploring safer, but more expensive, alternative routes and are demanding greater protection in Middle Eastern waters. An alternative route involves going around the Cape of Good Hope, near Cape Town, and sailing along West Africa, a much longer and more expensive path.

According to the Financial Times report, ship-owners are already having to pay more for insurance, as well as diverting vessels and investing in additional security measures.

Marcus Baker, head of marine at insurance broker Marsh, said that some insurers had already increased rates during the week before Sunday’s Red Sea attacks, in one case by as much as 300 per cent. He added that the market “is going to have to react” to the latest incidents.

Business

Saudi Arabia Rules Out Phasing Out Oil Usage

The cost of complete transformation will be steep and may lead to the collapse of the entire global economic system (AFP)
The cost of complete transformation will be steep and may lead to the collapse of the entire global economic system (AFP)
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Saudi Arabia Rules Out Phasing Out Oil Usage

The cost of complete transformation will be steep and may lead to the collapse of the entire global economic system (AFP)
The cost of complete transformation will be steep and may lead to the collapse of the entire global economic system (AFP)

In the heat of deliberations at COP 28 in Dubai regarding the critical energy future dossier, Saudi Energy Minister Prince Abdulaziz bin Salman categorically dismissed any approval for a gradual phase-out of oil usage.

The minister reiterated in an interview conducted on Monday evening that Saudi Arabia, along with other nations, would not entertain such a step.

Speaking to Bloomberg, Prince Abdulaziz affirmed that no one, especially governments, believes in a phasedown of oil.

On another note, the energy minister dismissed Western donations to a new climate loss and damage fund as “small change.”

Prince Abdulaziz noted that Saudi Arabia, the world's biggest oil exporter but not a contributor to the new UN fund, had earmarked $50 billion for climate adaptation in Africa.

The loss and damage fund for vulnerable nations, a major win at the start of the COP28 climate talks in Dubai, has attracted about $700 million so far from donors including the European Union and the US, a sum criticized as insufficient by campaigners.

“Unlike the small change offered for loss and damage from our partners in developed countries, the Kingdom through its South-South cooperation announced in the Saudi Africa Summit in Riyadh last month the allocation of up to $50 billion,” Prince Abdulaziz said in a video message to the Saudi Green Initiative forum, held on the sidelines of COP28 in Dubai.

“This will help build resilient infrastructure and strengthen climate resilience and adaptation in the African continent directly through Saudi stakeholders,” he added.

Saudi Arabia has revamped its energy sources, invested in renewables and improved energy-efficiency as it tries to decarbonise its economy by 2030, Prince Abdulaziz affirmed.

“You cannot go to undeveloped countries or developing countries and ask them to do the same measures of the transition,” Yasir Al-Rumayyan, chairman of Saudi state oil giant Aramco, told the forum.

“Especially people who don't have access to energy,” he adde.

He said he heard an African minister say “in order for us to have growth, we have to carbonize first then to decarbonize.”

“Maybe the bottom line is we should be less idealistic and more practical,” he added.

The decisive affirmations from Saudi Arabia come at a time when tensions have infiltrated the corridors of COP 28, dominating discussions on the future of energy.

According to updated preliminary drafts of the summit’s closing statement, all perspectives appear to be on the table and evenly poised thus far.

Business

Egypt’s Non-Oil Private Sector Contraction Slows Down in November

The contraction of the non-oil private sector in Egypt slows during November, but business confidence declines to the lowest level in 11 and a half years. (Reuters)
The contraction of the non-oil private sector in Egypt slows during November, but business confidence declines to the lowest level in 11 and a half years. (Reuters)
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Egypt’s Non-Oil Private Sector Contraction Slows Down in November

The contraction of the non-oil private sector in Egypt slows during November, but business confidence declines to the lowest level in 11 and a half years. (Reuters)
The contraction of the non-oil private sector in Egypt slows during November, but business confidence declines to the lowest level in 11 and a half years. (Reuters)

The Standard & Poor’s Global Purchasing Managers’ Index showed on Tuesday that the contraction of the non-oil private sector in Egypt slowed in November, but business confidence in the sector fell to its lowest level in 11 and a half years.

The group said in its report that the Purchasing Managers’ Index in Egypt, adjusted in light of seasonal factors, rose to 48.4 points in November from 47.9 points in October, noting that the index was still below the 50 level that separates growth from contraction.

The report noted that high inflation rates and a continuing decline in production and new orders led to a drop in business activity expectations over the next 12 months to their weakest levels since data collection began in April 2012. Inflationary pressures also led to a sharp decline in sales to customers, which contributed to decreased hiring and procurement.

According to the report, levels of production and new business continued to decline strongly in November, although the rates of decline slowed from those recorded in October.

According to the companies surveyed, historically high inflation rates continued to reduce customer demand, while some companies indicated that unresolved import issues were restricting business activity.

Although the decline in production and new business was widespread across all sectors studied, it was particularly noticeable among wholesale and retail companies.

As demand rates continue to deteriorate due to inflationary pressures, non-oil producing companies in Egypt recorded the lowest level of confidence in future activity in the history of the series. The data showed that expectations were only slightly positive, while the manufacturing and construction sectors presented pessimistic forecasts.

David Owen, Senior Economist at S&P Global Market Intelligence, said: “Optimism in the Egyptian non-oil economy is eroding as we approach the end of the year, as economic challenges arising from the Russia-Ukraine war put additional pressure on costs and capacity at businesses. While the resulting downturns in new business and output were not as severe compared to those seen at the start of the year, they are also showing no signs of letting up, stretching a sequence of decline that goes back to late 2021.”

Business

Saudi Private Sector Activity Continues to Grow in November as New Orders Rise

Manufacturers are very optimistic about the next 12 months as they expect a favorable business climate. (SPA)
Manufacturers are very optimistic about the next 12 months as they expect a favorable business climate. (SPA)
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Saudi Private Sector Activity Continues to Grow in November as New Orders Rise

Manufacturers are very optimistic about the next 12 months as they expect a favorable business climate. (SPA)
Manufacturers are very optimistic about the next 12 months as they expect a favorable business climate. (SPA)

Saudi Arabia’s non-oil private sector continued its rapid growth during November, driven by the rise of new orders to the highest level in 5 months, according to the Riyad Bank Purchasing Managers’ Index.

The seasonally adjusted Riyad Bank Purchasing Managers' Index slowed to 57.5 in November, from 58.4 in October, but remained well above the 50 mark signaling growth.

According to the report issued by the bank in cooperation with Standard & Poor’s, the index continued to indicate a rapid expansion in the non-oil private sector during the month of November, despite evidence indicating an acceleration of price pressures to their highest levels in nearly a year and a half.

The report added that the rise in raw material prices led to a renewed increase in companies’ sales prices, but demand rates remained strong and new business flows rose at the highest rate since June, with companies acquiring new customers and increasing investment spending.

Naif Al-Ghaith, chief economist at Riyad Bank, said that the Saudi PMI has “shown positive signs of expansion, driven by strong sales, increased orders and effective marketing strategies.”

“Firms anticipate a continuous increase in output, fuelled by a robust inflow of new projects,” he added.

He noted that manufacturers, in particular, were highly optimistic about the next 12 months as they anticipate a favorable business climate.

Al-Ghaith went on to say that the wholesale and retail sectors also showed signs of strong expansion in November, in line with the overall positive sentiment in the Kingdom’s non-oil private sector economy.

“This bodes well for Saudi Arabia's economic growth and suggests a favorable environment for businesses in various industries,” he stated.

Business

China Blue-chip Stocks Hit 5-year Lows, Yuan Eases after Moody's Move

People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang
People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang
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China Blue-chip Stocks Hit 5-year Lows, Yuan Eases after Moody's Move

People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang
People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang

China's blue-chip stocks slumped to an almost five-year trough on Wednesday while the yuan currency extended losses, as markets grappled with Moody's cut to China's credit outlook at a time of growing worries about the economy's stuttering recovery.
The ratings agency issued a downgrade warning on China's credit rating on Tuesday, saying costs to bail out local governments and state firms and control its property crisis would weigh on the world's second-largest economy.
China stocks opened down with the CSI300 Index touching its lowest level since Feb. 2019, before recouping earlier losses. It was up 0.2% by midday, while the Shanghai Composite Index was down 0.1%.
Chinese markets have had a torrid time this year as a shaky economic recovery and a deepening property crisis have added to geopolitical challenges, including protracted Sino-US tensions over tech and trade.
The CSI300 Index has tumbled 12.2% so far this year and is set to record one of the worst performer in the region.
The Hang Seng Index, meanwhile, rebounded roughly 0.7% in morning trade, with tech shares leading gains.
"The CSI300 index was hit the hardest in terms of valuation, as the index gets more allocations from foreign investors. Adding the impact of Moody's cut, the index may find a bottom and rebound soon," said Pang Xichun, research director at Nanjing RiskHunt Investment Management Co.
Foreign capital recorded a net inflow via the northbound trading link as of midday, after three consecutive sessions of outflows.
"Moody's decision to downgrade its outlook on China's debt is the latest link in a long string of recent disappointments for investors in Chinese equities," said Yasser El-Shimy, investment analyst at The Motley Fool.
China's economic recovery has shown signs of losing steam quickly after an initial burst in consumer and business activity at the start of the year, weighed down by an ailing housing market, local government debt risks and slow global growth.
FRAGILE YUAN
In the currency market, China's yuan slipped against the dollar on Wednesday even as major state-owned banks continued their efforts to stabilise the currency.
The central bank, the People's Bank of China (PBOC), extended its months-long trend of setting daily guidance fix at levels stronger than market projections, which traders and analysts have widely interpreted as an official attempt to keep the currency stable.
On Wednesday, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1140 per dollar prior to market opening, 13 pips weaker than the previous fix of 7.1127. But it was 336 pips firmer than Reuters estimate of 7.1476.
"The strong yuan fix continues to convey a message of support for the yuan as domestic demand remains fragile and China's property market continues to struggle to find a foothold," Maybank analysts said in a note.
The spot yuan rate opened at 7.1570 per dollar and was changing hands at 7.1578 at midday, 98 pips weaker than the previous late session close.
China's major state-owned banks stepped up US dollar selling forcefully after the Moody's statement on Tuesday, and they continued to sell the greenback on Wednesday morning, Reuters reported.
The yuan has had a volatile year, having weakened 6.14% to the dollar at one point before recouping some of the losses on growing bets that US interest rates have peaked.
The yuan strengthened 2.55% in November, its best month this year, but it is still down 3.6% year-to-date.
Other global ratings agencies, Fitch Ratings and S&P Global Ratings, made no changes to their respective China credit ratings.
Fitch affirmed China's A+ rating with a stable outlook in August, while S&P Global said on Wednesday it has retained China's A+ rating with a 'stable' outlook.
"We last affirmed our A+ long term ratings on China in June with stable outlook and there has been no changes to that yet," said S&P in an emailed response to queries from Reuters.