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This is an audio transcript of the FT News Briefing podcast episode: China’s middle class dreams of leaving

Jess Smith
Good morning from the Financial Times. Today is Friday, July 1st, and this is your FT News Briefing.

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Jess Smith
China’s middle class is fed up with Covid lockdowns and many are searching for a way out. And on Wall Street, things just keep getting worse.

Katie Martin
It’s been an absolute stinker of a first half of the year. Somehow we’re already halfway through 2022 and it’s just been horrendous.

Jess Smith
We’ll hear more from our markets editor Katie Martin. But first, the US Supreme Court yesterday reined in regulators’ ability to reduce carbon emissions. I’m Jess Smith, in for Marc Filippino. And here’s the news you need to start your day.

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Jess Smith
The US Supreme Court yesterday dealt a blow to President Joe Biden’s plans to fight climate change. The court ruled that the country’s top environmental regulator, the EPA, was not authorised by Congress to reduce carbon emissions when the agency was first set up in 1970. The decision limits the EPA’s power to regulate greenhouse gas emissions from power plants. The suit was brought by a host of Republican states and the coal industry. In the dissenting opinion, liberal justices argued that the EPA does have the authority to regulate stationary sources of pollutants that are harmful to the public — and that includes greenhouse gases.

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Jess Smith
Investors have been fleeing the world’s biggest equities market as US central bankers raise interest rates and as worries about global growth continue to mount. This year, US stocks have shed about $9tn in value. Here’s the FT’s Katie Martin.

Katie Martin
It’s an enormous amount of money. It’s more than I get paid in a year. I daresay it’s even more than you get paid in a year. The S&P 500 is down 20 per cent or so, so far this year. It’s had the worst first half of the year of any year since 1970. It’s just been abysmal.

Jess Smith
Katie’s our markets editor and she joins me to talk more about this abysmal year.

Hi, Katie.

Katie Martin
Hey, how you doing?

Jess Smith
I’m doing well, thanks. So what’s going on here? Is it largely a reaction to rising interest rates?

Katie Martin
It’s certainly the biggest issue for investors and for stocks. So, you know, there are large parts of the stock market where there are companies whose valuations really hinge on low interest rates. And for investors to look at, not necessarily companies that make money today, but companies that will make money in future, that only works really if inflation is really low and if interest rates are really low. That is absolutely no longer true. You know, that sort of changes the equation for a lot of companies out there financially. Central bankers, one of the things they’ve been doing this week has been a get together in Portugal. They’ve been putting their hands up and saying, OK, we have to accept that inflation doesn’t work quite how we think it works. There is no way that we can get this inflation back under control without there being some pain in the economy. But we simply have to get inflation back under control because if we let it keep spiralling higher, then that’s worse.

Jess Smith
Are investors surprised at that or did they have some hope that somehow the Fed could manage a painless landing?

Katie Martin
So, you know, hope is the last thing to die. You know, there has been some hope that maybe they can come up with some magic trick that will soften the blow here. But that hope has been receding, particularly over the past month.

Jess Smith
And Katie, are we seeing this kind of pain in other big equities markets like Europe?

Katie Martin
Yeah, generally, to a lesser extent, we’re seeing it everywhere. There are some stock markets like for example, you look at the FTSE 100, which is more or less flat in the UK so far this year. But again, that’s because of the UK’s very heavy weighting towards energy stocks and commodities companies. They’ve been having a great ride. But so different stock markets have been affected differently depending on what the kind of make-up of those markets is. But in the US, where you do have these massive tech names, there’s certainly a lot of pain. And you know, the obvious question is, OK, are we done now? You know, this has been a historic pullback. Is it time to snap up some bargains? That’s the question that investors are asking themselves. And the general vibe I’m getting, at least from people that I talk to, is, yeah, not just yet.

Jess Smith
Katie Martin is the FT’s markets editor. Thanks so much, Katie.

Katie Martin
Pleasure.

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Jess Smith
In China, hundreds of millions of people are chafing under the government’s strict Covid lockdowns. Many middle class citizens are now starting to think about escaping. There’s been a huge surge in online searches about how to emigrate. Our China correspondent Ed White has been reporting on this phenomenon called runxue, which roughly means the study of how to get out.

Edward White
What this runxue is saying is that many, many Chinese people are sitting locked up in apartments or in suburbs in big cities across China, unable to live their normal lives. They’re unable to necessarily go to work, to go to the classrooms. They’re unable to get their kids out to play. All of these sorts of things that we take for granted as the coronavirus lockdowns have kept going and going in China and the thought that they could keep going for years ahead, that has made people think, you know, what? Is there a way out? Can I leave China for good? And that’s where this trend has come from.

Jess Smith
So economically speaking, how bad have things gotten for the middle class?

Edward White
So if you look at the headline metrics, China is teetering on the edge of a rare quarterly recession. Growth, of course, in China has been slowing for a long time, but in reality, people’s lives have kind of kept getting better. So, you know, people’s jobs have improved, people’s spending ability have improved. And now it’s just a sense that actually going forward, things might not improve that much. The other thing that I would say is an important part of this trend and that we’ve just seen in recent months, is that for a long time, people were blaming the local government to how the lockdowns were being implemented. There was this chaos and this something that was happening to one person in one apartment would be different in the neighbouring apartment. Now what we’re seeing is that the complaints that we’re hearing about are far more directed at Beijing and the policy rather than the local government, and it’s now affecting people in a way that’s making them question the government.

Jess Smith
Ed, do we know of people who are actually leaving the country and turning this study of escaping into reality?

Edward White
The middle class, feasibly, you know, if they had money in normal times when borders were open, they could maybe find a way if they were committed and made a plan over a long period of time. But at the moment, China has ruled that all unnecessary travel is not allowed. So that means that if you want to go, you can try and book a ticket, you can even try and get some visas organised and things like that. But you might find that when you get out to the airport you’re not gonna be allowed on a plane, so, or at least not be allowed through customs. So it’s very, very difficult.

Jess Smith
Ed, you know, all this frustration over lockdown hasn’t just led to people searching online for ways to leave the country. There’ve also been some small protests. Do you think all of this could lead to any change? I mean, do you think the government is taking note?

Edward White
The answer is we don’t really know. We don’t know how much of what the ordinary people in China are talking about gets pushed up the line to Xi Jinping. However, you could say that they are making some changes, very minor, things like trying to standardise the amount of time that one might spend in quarantine if they’re a close contact or if they have the virus. Also standardising and shortening the time for people travelling back to China from overseas. I think we can see that there are some changes taking place. How much of that is trying to appease the middle class? I’m not so sure, but at least it’s a signal that maybe some of these messages are getting through.

Jess Smith
Ed White is the FT’s China correspondent.

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Jess Smith
Before we go, the European Union yesterday struck its first free trade deal in three years. It’s with New Zealand. The agreement gets rid of tariffs on EU exports to New Zealand, and New Zealand’s meat and dairy industries will have better access to European markets. Also part of the deal, New Zealand farmers will have to stop using protected EU names like feta and Manchego cheese.

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Jess Smith
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. We’ll be taking Monday off for the July 4th holiday. We’ll be back Tuesday with the latest business news.

The FT News Briefing is produced by Sonja Hutson, Fiona Symon, Marc Filippino and me, Jess Smith. We had help this week from Michael Lello, David da Silva, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz, and Cheryl Brumley is the FT’s global head of audio. Theme song is by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.

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