China’s economic growth is at its slowest since 1992

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China’s economic growth is sputtering

The country’s economy grew at its slowest pace in nearly three decades, showing how the U.S.-China trade war and a global economic cool-down are taking their toll.

Growth in the second quarter was just 6.2 percent, according to Chinese officials. That’s the lowest it has been since modern record-keeping began in 1992, and at the bottom end of government forecasts. (It may also be worse: Economists widely doubt the truthfulness of Beijing’s numbers.)

It shows the limits of Beijing’s ability to juice its economy, some experts say. China had sought to spur growth by spending more on infrastructure projects and cutting taxes, which led to a surge of economic activity in April. Then things slowed after trade talks with the U.S. broke down in mid-May.

Blame trade — but not just with the U.S. Exports fell 1.3 percent in June from the same time a year ago, while imports slid 7.3 percent. Keith Bradsher of the NYT notes, “While the trade war has hurt American purchases from China, economic weakness in Europe and many Asian countries has caused overseas demand to weaken far more broadly.”

Expect Beijing to try more economic stimulus. Analysts say the government will probably lower interest rates and increase infrastructure spending (again), though it’s unclear whether that will help much in the long term.

And to pile on debt. The country’s debt reached 247 percent of its $13 trillion economy by the end of March, up five percentage points from the end of 2018, according to Macquarie. Some Chinese bankers worry that they will be asked to extend more loans to businesses that will go bust as the economy continues to weaken.

More: U.S. manufacturers are continuing to move production of goods out of China. And a new report by McKinsey & Company shows that the world is becoming more exposed to China — while the country is becoming more economically reliant on its own consumers.

Is a $5 billion fine for Facebook tough enough?

The Federal Trade Commission approved a roughly $5 billion fine against Facebook for mishandling users’ personal information, Cecilia Kang of the NYT reports. Plenty of people think it should have been more.

• The penalty is the result of an investigation into the way Facebook shared data with Cambridge Analytica.
• The settlement still needs final approval from the Justice Department, though such agreements are rarely rejected.
• If approved, it would be the biggest-ever federal fine against a tech company, eclipsing the $22 million imposed on Google in 2012.
• The penalty underscores rising frustration in Washington with Silicon Valley’s practices, and is one of the most aggressive regulatory actions by the Trump administration.

But Facebook’s shares rose on the news, to $205.27, in after-hours trading on Friday. That’s the stock’s highest price in the past 12 months, and shows that investors had been expecting worse. (One mind-boggling way to think about it: The punishment for Facebook’s biggest scandal yet increased Mark Zuckerberg’s net worth.) For context, the company generated $15 billion in revenue last quarter alone, and $22 billion in profit last year.

Some lawmakers now want a harsher punishment. “It is clear that fundamental structural reforms are required,” Senator Mark Warner, Democrat of Virginia, said in a statement. “With the F.T.C. either unable or unwilling to put in place reasonable guardrails to ensure that user privacy and data are protected, it’s time for Congress to act.”

More: Congress is scheduled to grill Big Tech executives this week over their market dominance.

How the rich welcomed Jeffrey Epstein after jail

The financier spent 13 months in jail from 2008 and 2009, after securing a plea deal that helped him avoid charges of sexually abusing minors. When he emerged, high society embraced him, the NYT reports.

• Thanks to contacts like the publicist Peggy Siegal, he attended film screenings and secured high-profile guests for his dinner parties, including Prince Andrew of Britain and the journalists George Stephanopoulos and Katie Couric.
• His money was welcomed for philanthropic donations, including to Harvard.
• And he befriended socialites like Dr. Eva Andersson-Dubin, a champion of women’s health whose friendship renewed his credibility.

“The lenient agreement he reached with prosecutors — his plea involved one girl and the crime was prostitution, which made it look like the teenager was in part to blame — gave others a reason to dismiss his wrongdoing, decide he had already paid his penalty or not question what had happened,” the NYT reports.

But the scandal finally cost the labor secretary his job. Alexander Acosta announced his resignation on Friday, saying questions about the 2008 plea deal he brokered for Mr. Epstein as a federal prosecutor were a distraction.

Mr. Epstein’s network of recruiters are also under scrutiny in a new AP report that explains how they sought out poor young girls to work as “masseuses” for Mr. Epstein.

More: Hedge fund managers have been curious about how Mr. Epstein operated his business. And prosecutors accused the financier of trying to influence potential witnesses in late 2018 by paying them $350,000.

Huawei may lay off hundreds in the U.S.

The Chinese tech giant is reportedly planning steep job cuts in its American operations even after President Trump granted it some relief from a U.S. blacklisting, Dan Strumpf of the WSJ reports.

The layoffs would be at Huawei’s U.S.-based R.&D. unit, Futurewei Technologies, Mr. Strumpf reports. It employs 850 people in states like Texas, California and Washington. Some employees have already been notified, and further cuts are expected to be announced soon.

The cuts come after the Trump administration blocked businesses from supplying U.S.-sourced products and services to Huawei, Mr. Strumpf writes. The move prevented Futurewei from communicating with Huawei offices in China, since Futurewei’s work in the U.S. would have qualified as American technology.

Limits on Huawei are expected to soften. Regulators could start approving licenses for companies to sell products to Huawei in as little as two weeks, Reuters reports, citing an unnamed source.

But Huawei officials are pessimistic about the Trump administration’s actions. The company’s chairman, Liang Hua, said at a news conference on Friday that it had yet to see any benefit from Mr. Trump’s lifting of the export ban and called for a complete reprieve.

Lawmakers weigh banning Big Tech from financial services

The House Financial Services Committee is said to be studying a proposal to prevent large tech companies from functioning as financial institutions or issuing digital currencies, according to Reuters.

• “The draft legislation, ‘Keep Big Tech Out of Finance Act,’ describes a large technology firm as a company mainly offering an online platform service with at least $25 billion in annual revenue.”
• “A large platform utility may not establish, maintain or operate a digital asset that is intended to be widely used as a medium of exchange, unit of account, store of value or any other similar function,” the draft legislation states.
• Violation of the new rules would reportedly result in a fine of $1 million per day.

The bill is a clear response to Facebook, which recently announced plans to create a cryptocurrency called Libra.

It’s unlikely to pass, as many lawmakers, especially Republicans, would view the bill as a threat to U.S. innovation. But it’s a strong signal to Facebook and others that lawmakers plan to keep a tight rein on Silicon Valley regarding financial innovation.

Is it time to fight the Fed?

As evidence accumulates that economic growth may be slowing more rapidly than the Fed expected, investors may want to reconsider whose side to be on in the fight between the central bank and a possible recession, Conrad De Aenlle of the NYT writes.

• “Stock investors seem to be fixed on the view that the central bank will bail them out while the economy is still healthy,” Mr. De Aenlle writes.
• The markets “have grown accustomed to the idea that it will fix everything,” said Tad Rivelle, the chief investment officer for fixed income at TCW. “That’s a dangerous, misplaced idea. Market forces always overwhelm anything central banks can do.”
• Mr. De Aenlle adds that “changes in Fed policy take up to a year to affect economic growth,” and it’s unclear whether the central bank could move fast enough to head off a recession.
• “It’s definitely time to be risk-off in U.S. assets,” said Rob Arnott, the chairman of the investment advisory service Research Affiliates. He added that the stock market was “expensive by just about any measure you look at, and “priced to give you terrible forward-looking returns.”

Peter Thiel on Google’s ‘seemingly treasonous’ China work ?

The billionaire investor thinks the feds should open an investigation into Google’s ties to China, Axios reports. Speaking at the new National Conservatism Conference yesterday, he said, according to Axios:

• “Number one, how many foreign intelligence agencies have infiltrated your Manhattan Project for A.I.?”
• “Number two, does Google’s senior management consider itself to have been thoroughly infiltrated by Chinese intelligence?”
• “Number three, is it because they consider themselves to be so thoroughly infiltrated that they have engaged in the seemingly treasonous decision to work with the Chinese military and not with the US military ... because they are making the sort of bad, short-term rationalistic [decision] that if the technology doesn’t go out the front door, it gets stolen out the backdoor anyway?”

Those questions “need to be asked by the F.B.I., by the C.I.A.,” he said, adding: “I’m not sure quite how to put this, I would like them to be asked in a not excessively gentle manner.”

Google came under scrutiny last year over plans to work on a censored version of its search service for China. It’s unclear whether the situation is as severe as Mr. Thiel suggests.

Revolving door

GlaxoSmithKline is said to have appointed Jonathan Symonds, a former C.F.O. of Novartis, as chairman.

The British banking start-up Revolut reportedly plans to name Martin Gilbert, the former co-chief executive of Standard Life Aberdeen, as chairman.

Bank of America has named Neil Kell, a senior investment banker, as the head of its global tech, media and telecom equity capital markets business.

Jefferies has hired Jonathan Slone, the former C.E.O. of the Chinese brokerage CLSA, as the chairman of its Asia operations.

The speed read 

Deals

• Anheuser-Busch InBev called off an I.P.O. of its Asia Pacific business, citing weak market conditions. But poor reception from potential investors was also likely to blame. (Reuters, Bloomberg Opinion)
• Volkswagen formally agreed to invest $2.6 billion in Ford Motor’s self-driving car division, at a $7 billion valuation. (NYT)
• The drug maker Gilead Sciences agreed to invest $5.1 billion for a bigger stake in Galapagos, a Belgian biopharmaceutical start-up. (WSJ)
• The luxury retailer Barneys is said to be considering filing for bankruptcy protection. (Reuters)

Politics and policy

• Puerto Rico is finalizing a plan to exit bankruptcy protection, which could pit the island’s government against hedge-fund creditors. (NYT)
• President Trump drew accusations of racism after tweeting that four minority congresswomen should “go back” to the countries they came from — despite three having been born in the U.S. (NYT)
• The acting head of the I.M.F. has backed efforts by central banks to ease monetary policies. (FT)

Trade

• China said it would impose sanctions on American companies involved in a recently proposed sale of more than $2 billion in arms to Taiwan. (NYT)
• Officials from Britain and Iran are discussing how to ease tensions over a seized Iranian oil tanker suspected of carrying oil to Syria. (WSJ)
• Japan’s trade action against South Korea has taken a page from the Trump administration playbook. (NYT)

Tech

• A federal judge ruled that Amazon did not unduly influence the course of the Pentagon’s $10 billion cloud project. Now the Defense Department must choose between Amazon and Microsoft as its contractor of choice. (NYT)
• Here’s a look inside the huge databases of photographs that are powering facial recognition technology. Also, how the Florida D.M.V. sells personal data to marketing companies, and how Palantir’s software user manuals reveal the extent of information available to law enforcement. (NYT, ABC, Vice)
• Amazon’s Prime Day sale starts today. And the summer buying bonanza has become far bigger than Amazon, bringing sales and risks for other retailers. (NYT)

Best of the rest

• It looks increasingly likely that Boeing 737 Max jets will be grounded until next year. (WSJ)
• Consolidated Edison apologized for a five-hour blackout in Manhattan on Saturday evening. (NYT)
• President Recep Tayyip Erdogan of Turkey has vowed to lower interest rates in his country by the end of the year. (Bloomberg)
• How Netflix’s lobby has become the town hall of Hollywood. (NYT)

Thanks for reading! We’ll see you tomorrow.

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