The year the Australian dream died

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By Tiffanie Turnbull
BBC News, Sydney

At the age of 31, Justin Dowswell never imagined he’d be living in a shared room in his childhood home.

He had a full-time, well-paying job in Sydney, and had rented for a decade before an unprecedented housing crisis forced him to upend his life and move back in with his parents, two hours away.

“It’s humbling,” he says. But the alternative was homelessness: “So I’m one of the lucky ones”.

It’s a far cry from the promise of the Great Australian Dream.

Where the American Dream is a more abstract belief that anyone can achieve success if they work hard enough, the Australian version is tangible.

For generations, owning a house on a modest block of land has been idealised as both the ultimate marker of success and a gateway to a better life.

It’s an aspiration that has wormed its way into the country’s identity, helping to shape modern Australia.

From the so-called “Ten Pound Poms” in the 1950s to the current boom in skilled workers moving from India, waves of migrants have arrived on Australia’s shores in search of its promise. And many found it.

But for current generations the dreams proffered to their parents and grandparents are out of reach.

After decades of government policies that treat housing as an investment not a right, many say they would be lucky to even find a stable, affordable place to rent.

“The Australian Dream… it’s a big lie,” Mr Dowswell says.

A perfect storm

Almost everything that could go wrong with housing in Australia has gone wrong, says Michael Fotheringham.

“The only thing that could make it worse is if banks started collapsing,” the head of the Australian Housing and Urban Research Institute tells the BBC.

Underpinning it all is that buying a house is astronomically expensive – the average property now costs about nine times an ordinary household’s income, triple what it was 25 years ago.

It’s particularly dire for the three quarters of Australians who live in major cities. Sydney, for example, is the second least affordable city on Earth to buy a property, trailing only Hong Kong, according to the 2023 Demographia International Housing Affordability survey.

Australia has made home ownership virtually unattainable for almost anyone without family wealth. Last month the boss of a major bank, ANZ, said home loans had become home loans had become “the preserve of the rich”.

Chelsea Hickman and Justin Dowswell

Supplied

That’s left people like Chelsea Hickman questioning their future. The 28-year-old fashion designer always imagined she’d become both a homeowner and a mother, but now worries that may be impossible.

“Financially, how could I ever afford both? The numbers just do not add up,” she says.

She tells the BBC from her Melbourne shared house that despite working full-time for almost a decade, she can’t even afford to rent an apartment by herself. Her friends are in a similar boat.

“Where did it go wrong?” she says.

“We did everything that everyone said we should do, and we’re still not reaching this point where we’re going to have financial independence and housing security.”

Tarek Bieganski, a 26-year-old IT manager, laughs when asked if he thinks he’ll ever own property.

“It’s just so obviously out of reach that it’s not really even a thought anymore,” he says. “And this is coming from someone that, really, has got it pretty good.”

But with interest rates rising faster than at any time in Australia’s history, even many of those who have scraped their way on to the property ladder now live in fear of falling off it.

Foodbanks are being overwhelmed by mortgage holders struggling to keep their heads above water. Hordes of people are picking up extra jobs. Many pensioners have been forced back into work.

It’s not doom and gloom for everyone though.

A woman runs past an auction sign in Sydney

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The level of home ownership across the nation – while significantly dropping for young people – has overall stayed around two-thirds.

And those Australians are quite content to see house prices climb and their wealth grow.

That’s difficult to stomach, Ms Hickman says, especially given how many households – one in three – now own a property other than the one they live in.

“I understand that people are like ‘Well, I worked hard to get these millions of houses’ and blah, blah, blah, and I’m like, ‘Okay, well, good for you. I work hard too and I just want one house’.”

‘Grapes of Wrath stuff’

As a result, millions of people are trapped in the rental market, seeking to create a watered-down version of the Australian Dream as tenants.

But that’s no paradise either.

Vacancies are at unprecedented, prolonged lows – to the point that councils across the country are begging people with empty holiday homes and short-term rentals to move them on to the long-term market.

And, with the greater demand, rents are skyrocketing.

Australian news has been awash with stories of massive rent increases and images of desperate people queuing to inspect properties riddled with defects and – in some cases – obviously covered in mould.

“It’s Grapes of Wrath stuff,” Dr Fotheringham says, referring to the famous Great Depression-era novel about a family struggling to build a life.

A line of people waiting to inspect a house

ABC News

Social or subsidised housing – once a safety net for those on low or moderate incomes – is not an option for most Australians either. The number of homes available is less than half of what is needed to meet immediate demand and wait lists are years long.

And all of this is happening at a time when natural disasters and climate effects are wiping out swathes of housing stock, making even more parts of the vast Australian continent effectively unliveable.

The crisis is tipping people into homelessness or overcrowded living conditions. Demand for housing support is so high that some charities say they’ve been handing out tents.

One Tasmanian woman told the BBC she and her four kids spent over six months crammed into her mother’s spare room after the family was knocked back for more than 35 properties while languishing on the social housing wait list.

Melbourne woman Hayley Van Ree told us her rental prospects were so bleak that her mother raided her own retirement fund to buy an apartment and is now Ms Van Ree’s landlord – eliciting what she describes as a confusing mix of relief, embarrassment and guilt.

“Friends who have parents who are in property have this kind of morbid knowledge that when their parents die, they might be ok,” Ms Van Ree says. “I hate that it’s my reality.”

Hayley surrounded by boxes

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Mr Dowswell is now back in Sydney, having finally secured an apartment after six months, but says the ordeal has been a massive tax on his finances and mental health.

“It was just demoralising… the more you think about it, the angrier you get,” he says.

Investment or right?

In 2023, the national conversation shifted from how expensive it is to buy a home, to how difficult it is to secure any kind of affordable home at all.

An end to pandemic-era rent and eviction freezes, record migration, rapidly escalating interest rates and construction delays conspired to leave housing in Australia in the worst state it has ever been, experts warn.

But the crisis is the result of “50 years of government policy failure, financialisation and greed”, wrote leading finance journalist Alan Kohler in a recent Quarterly Essay.

Particularly critical was what happened at the turn of the millennium, he argues. Until that point house prices in Australia had kept pace with income growth and the size of the economy – but this began to shift when the federal government introduced tax changes which incentivised the buying and selling of homes for profit.

Australian homes now cost 118 times a disposable income. . .

A sharp spike in immigration and government grants pushed up house prices in that era too, but Mr Kohler says it was these tax breaks that forever changed the way Australia thinks about housing.

“It will be impossible to return the price of housing to something less destructive… without purging the idea that housing is a means to create wealth as opposed to simply a place to live,” he wrote.

Doing so will upset a large class of voters, which will take courage and innovation from policymakers, he adds.

And that’s something critics say successive governments at federal, state and local levels have struggled to muster.

Some point to decades of neglect for social housing, or the persistence with grants for first homebuyers, which are popular but don’t work as they should and actually drive up prices further.

Others argue planning and heritage laws have been too easily abused to limit developments, often by existing residents reluctant to see changes to their suburbs and investments.

Then there’s the fear of overhauling those lucrative tax incentives for property investors – with the most recent promise of reform rejected at an election in 2019 and now abandoned.

“Housing needs to be seen as an essential service and right before an investment,” Mr Dowswell says. “There is definitely a moral imperative to act… [but] selfishness will get in the way.”

People march through Sydney in a housing rally

Getty Images

National Housing Minister Julie Collins told the BBC there are “challenges” to tackle, but that her government – elected 18 months ago – is delivering “the most significant housing reforms in a generation”.

It has created or expanded schemes to help prospective buyers, though they have strict requirements and limited places. It has also promised to build thousands of new social and affordable houses – a small dent in the waiting list – and set up an investment fund to support future projects. Alongside state governments, it has pledged to create a National Housing and Homelessness Plan and beef up protections for renters.

The government is pulling other levers too: it announced earlier this month that it would halve Australia’s immigration intake and triple the fees for foreign homebuyers, both things they argue should help ease the strain.

Advocates support these changes but say they are just more tinkering around the edges of a system that needs heavy reform.

Those the BBC spoke to say that the Australian Dream has been demolished, eroding the foundations of the nation’s identity.

Australia has long thought itself the land of a fair go.

“[But] education and hard work are no longer the main determinants of how wealthy you are; now it comes down to where you live and what sort of house you inherit from your parents,” Mr Kohler says.

“It means Australia is less of an egalitarian meritocracy.”

Or as Ms Hickman sums it up: “It’s rigged.”

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China can accelerate surge in foreign bond inflows

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The large waves of foreign capital suddenly racing China’s way are raising a vital question for 2024: is sentiment toward Asia’s biggest economy swinging back toward positivity?

Investors will be and already are debating this very question now that China has racked up a nearly six-fold increase in foreign buying of bonds in November from October – 251 billion yuan (US$33 trillion) of inflows.

But here’s the better question:

What can Chinese leader Xi Jinping do to lean into the trend and broaden it?

The obvious answer is for the People’s Bank of China to keep doing what it’s done in recent months. Governor Pan Gongsheng’s team has been a study in restraint as other top central banks took decidedly activist approaches to 2023’s economic and financial uncertainties.

Despite the wreckage of Xi’s Covid lockdowns and China’s property crisis this year, the PBOC only cut official rates twice. It prioritized targeted liquidity to money markets to boost growth.

Granted, Chinese borrowing costs are already at record lows. But Pan’s determination to put yuan stability ahead of Japan-like bursts of extreme stimulus – even as deflation stalked the economy – is now paying dividends in the form of big bond inflows.

Of course, Team Xi displayed its own restraint in 2023, foregoing the massive stimulus jolts investors everywhere expecting.

But as 2024 arrives, it is high time for Xi’s government to accelerate moves to build more international and robust capital markets. It is equally important to internalize and heed warnings from Moody’s Investors Service.

On December 5, Moody’s downgraded Beijing’s credit outlook to negative from stable, citing “structurally and persistently lower medium-term economic growth” and a cratering property sector.

The good news, as Moody’s pointed out, is the “economy’s vast size and robust, albeit slowing, potential growth rate, support its high shock-absorption capacity.” The bad news is that headwinds hitting cash-strapped local governments and state-owned enterprises are “posing broad downside risks to China’s fiscal, economic and institutional strength.”

China wasn’t happy. The Finance Ministry acknowledged it was “disappointed” with Moody’s outlook cut. “China’s economy,” the ministry retorted, “is shifting to high-quality development, new drivers of China’s economic growth are taking effect and China has the ability to continue to deepen reforms and respond to risks and challenges.”

As such, Beijing officials called concerns about the country’s growth, fiscal trajectory and economic prospects “unnecessary.”

Yet Xi’s reform team, led by Premier Li Qiang, would be wise to internalize what Moody’s is saying and heed its warnings. The reason is that, fair or not, Moody’s is highlighting the broader conventional wisdom about China’s 2024.

Clearly, the 251 billion yuan jump in foreign bond inflows in November is an important ray of hope. At a minimum, it raises the specter that China can recoup 2022’s record outflows of 616 billion yuan (US$86.3 billion).

“The bond market remains bullish, and market rates will trend lower,” analysts at Guotai Junan Futures write in a note to clients.

Yet sustaining inflows at this pace requires bold policy upgraded to increase transparency and competitiveness.

In recent months, another mainland milestone came into focus: the yuan’s fast-rising share of global payments to the 3.6% mark. Although China still lags behind America’s 47% share by a healthy margin, it would be at Washington’s peril if the US ignored the nearly 2% jump in yuan use in the first 11 months of 2023.

This year, the yuan overtook the euro to become the second-most-used currency in trade, according to data from the Society for Worldwide Interbank Financial Telecommunication, or SWIFT. As of September, the yuan’s share of SWIFT payments hit 5.8%.

Some of this increase reflects China’s rising economic status; some reflects concerns about the health of the dollar as Washington’s debt tops US$33 trillion. And some reflects the work Xi’s government has done to internationalize the currency since 2016.

That was the year when the PBOC, then under Governor Zhou Xiaochuan, secured a place for the yuan in the International Monetary Fund’s “special drawing-rights” program. The yuan’s inclusion in the IMF’s exclusive club of reserve currencies, joining the dollar, euro, yen and pound, was a pivotal moment for Beijing’s financial ambitions.

Over time, Xi’s reformists took it out for a ride by increasing the channels for foreign investors to tap mainland stock and bond markets. Shanghai stocks were added to the MSCI index, while government bonds were included in the FTSE Russell benchmark among others.

As demand for the yuan surges, Beijing is tolerating a stronger yuan as rarely before. Arguably no policy would jolt Chinese growth faster or more convincingly than a weaker exchange rate. Yet Xi’s Ministry of Finance has avoided engaging in a race to the bottom versus the yen, earning it points in market circles.

Chinese President Xi Jinping. Image: Facebook / GeekWire

Increasing trust among global investors, though, requires a clear and bold commitment to structural reforms. Topping Xi’s to-do list are:

  • increasing transparency,
  • prodding companies to strengthen governance,
  • crafting reliable surveillance mechanisms,
  • developing an independent credit rating system and
  • building a robust market infrastructure.

The more Xi develops dynamic capital markets, the more foreign investors will send waves of capital China’s way. And the more willing mainland households will be to invest in stocks and bonds over real estate.

Another top priority is devising a broader network of social safety nets to encourage households to spend more and save less. This step alone would help recalibrate growth engines from exports and excess investment to domestic demand.

These reforms would go a long way to reducing the frequency of the boom/bust cycles that all too many investors associate with China and to change the subject from the regulatory crackdowns of the last three-plus years that started with Alibaba Group’s Jack Ma.

Here, Xi’s government did itself no favors this month with controversial new gaming restrictions. Although Beijing has throttled back a bit, investors fear a crackdown on the world’s largest mobile arena.

“Although we think the short-term selloff is likely to continue in the coming days, given investor frustration and negative readthrough to internet and general China equity regulation risk, we believe the share price reaction to the exposure draft is overdone,” says JPMorgan Chase & Co. analyst Alex Yao. “We expect a negative but insignificant impact on Tencent and NetEase’s gaming monetization.”

All this shines a bright spotlight on the big China reform question: Does Xi’s government need more stimulus to create space to shake up China’s economic model?

“For the past year and more, investors have been waiting for a different type of pivot in China: when the government finally gets serious about growth again,” says economist Andrew Batson at Gavekal Research.

Still, recent signals from Beijing “showed an attempt to find a new balance between growth concerns and broader objectives that top leader Xi Jinping has laid down, such as technological self-sufficiency and national security.”

Barton adds that a “recalibration would be welcome to investors.” He notes that “arguably the major issue afflicting economic policy in 2023 has been the government’s conviction that it could have its cake and eat it too. The hope was that a long-term drive to build high-tech industries and bolster the country against external threats could double as a short-term stabilization plan.”

“But that strategy suffers from a time inconsistency problem,” Batson says. “The favored growth sectors of the future, even big ones like electric vehicles, are simply too small today to offset the damage from the rapid decline in the property sector.

Batson adds that “the government has shown it’s happy to throw vast sums of money at ‘good’ sectors through industrial policy, but real economic stabilization requires broad-based support of aggregate demand – allowing the ‘bad’ sectors to get money, too. On this front, the language from [recent deliberations in Beijing] showed more willingness to deploy the traditional levers of fiscal and monetary policy.”

Even more important, though, is creating conditions necessary to ensure today’s capital inflows lead to tomorrow’s prosperity.

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FIKRA ACE Accelerator 2023 picks Global Psytech and Pewarisan as winners

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Opportunity for cohort to run Proof-of-Concept projects with industry partners
Fikra Ace lays foundation for future innovation & collaboration in Islamic finance

FIKRA ACE, an extension of the Securities Commission Malaysia’s (SC) Islamic Capital Market (ICM) ecosystem efforts since 2021, is dedicated to advancing Islamic fintech through systematic approaches by identifying innovative fintech companies, supporting…Continue Reading

MAS imposes S.9 million penalty on Credit Suisse over misconduct by relationship managers

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SINGAPORE: Credit Suisse has been hit with a S$3.9 million (US$2.9 million) civil penalty by the Monetary Authority of Singapore (MAS) after the bank failed to prevent or detect misconduct by its relationship managers in the Singapore branch. The bank’s relationship managers had provided clients with “inaccurate or incomplete post-tradeContinue Reading

Vietnam police arrest senior official over illicit sand mining

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HANOI: Police in Vietnam arrested a top provincial official on Monday (Dec 25) in an investigation into illegal sand mining, the government said. Mining sand – mainly for concrete used in construction – has boomed in Vietnam in recent years, prompting dire warnings over the environmental impact of overexploitation. NguyenContinue Reading

China’s economic miracle isn’t over yet

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While pundits not long ago were debating China’s rise, the emerging consensus is now heralding an end to the “China miracle.” 

China’s old model of credit-fuelled, investment-driven growth has been severely undercut by the real estate crisis, as well as weak consumption and export demand. But recent data suggests that recovery has regained momentum.

China’s real GDP growth rate in the first three quarters of 2023 reached 5.2% year-on-year. Solar cell, service robots and integrated circuits production increased by 62.8%, 59.1% and 34.5% respectively in October 2023. 

Infrastructure and manufacturing investments expanded by 5.9% and 6.2% in the first ten months, offsetting the 9.3% contraction in real estate investment. Outside of the real estate sector, private investment grew by 9.1%.

Consumption also saw a strong rebound, though exports fell by 6.4% year-on-year in October 2023, marking a six-month consecutive decline in line with weak global demand and the trend towards deglobalization.

Still, China’s automobile exports will likely exceed four million units by the end of 2023 — a milestone in China’s industrial upgrading and its move towards the higher end of the value-added chain.

The real estate crisis has raised concerns about the Chinese economy, revealing the necessity of restructuring the highly leveraged and speculation-fuelled property sector. Beijing’s 2020 “three red lines” policy aimed to accomplish this, with the current slowdown in the housing sector a deliberate policy choice.

While this adjustment will produce financial losses for investors and creditors, the financial risks will likely be contained for four reasons.

China’s property market is a growing drag on the economy. Image: Screengrab / CNBC

First, direct bank financing for real estate developers accounts for 2.5–3% of total bank loan balances, home buyers account for 80% of housing-related debt and the historical default rate for mortgages is only 0.5%. Second, real estate prices are monitored by the government and housing price decline has been limited.

Third, unlike Japan in the 1980s, Chinese companies have not extensively used real estate as collaterals and unlike the 2008 US subprime mortgage crisis, China’s real estate industry has not experienced large-scale subprime lending or financialization. 

Finally, as a large proportion of the real estate industry’s debt is domestic debt denominated in renminbi, the People’s Bank of China and state-owned asset management companies can provide necessary liquidity or capital to support banks when needed.

The real estate sector’s balance sheet has shrunk by 1.7 trillion yuan (US$240 billion) — a mere 1.4% of GDP. It is unlikely that the real estate sector will trigger a widespread financial crisis.

Going forward, the real estate sector will stabilize thanks to both supply and demand side policies. 

On the supply side, credit is selectively being directed to real estate developers to complete unfinished housing projects. On the demand side, recent relaxations in down payment for second or third properties, reduced mortgage rates, and a new property sales tax rebate are incentivizing home buyers.

But the real estate sector will remain subdued due to slowing urbanization and population growth. The challenge is to find alternative growth engines to replace the outsized investment in the real estate sector.

China must continue to invest in research and development and produce productivity-driven growth. China is now leading in many strategic technologies, such as new energy vehicles, artificial intelligence and 5G. 

As investment in the real estate sector falls, credit has been directed to the industrial sector to continue financing industrial production and innovation. China must also continue to boost household consumption. 

Final consumption expenditure has contributed to 57% of GDP growth in the past decade, though Covid-19 and property market readjustments have dampened consumption demand.

To encourage household consumption, China first needs to provide conditions for the private sector to create more jobs and raise wages. The Central Committee’s July 2023 31 Point Plan to promote the private economy’s growth may reassure entrepreneurs that the government will continue to provide them with financial resources and market access.

The central government should roll out a job guarantee program where jobs are created at the local level and funded by the central government. These jobs could hire youth and provide skills training to meet private sector demand, transitioning participants into private jobs when available. This will alleviate youth unemployment and bolster consumer confidence as income is secured.

University graduates attend a job fair on June 23, 2022 in Zunyi, Guizhou Province of China. Image: China News Service / Qu Honglun

The central government should also enhance financing support for local governments. While local government spending plays an important role in economic stabilization, they continue to struggle with crippling debt due to the economic slowdown and limited land sales. 

The central government should consider significantly raising fiscal transfers to local governments to enhance their ability to spend counter-cyclically and manage debt. The recent issuance of one trillion central government bonds for fiscal transfers to local governments is a good first step, but the magnitude needs to be much larger.

Despite facing various challenges, China’s economy is still growing steadily and the government has multiple policy tools to guide and support the economy. It is premature at best to fan the flames of a “collapsing China” narrative.

Yan Liang is Kremer Chair Professor of Economics at Willamette University, Oregon.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Nippon-US Steel deal sparks a knee-jerk backlash

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Nippon Steel’s plan to acquire US Steel has triggered an uproar among the US Congress, the United Steelworkers and economic nationalists alarmed by the buyout of an American icon and the US$14.9 billion deal’s potential implications for US employment and the economy.

The reaction has been particularly strong in President Joe Biden’s birth state of Pennsylvania, where US Steel’s headquarters and several plants are located. Senator John Fetterman, a member of Biden’s Democratic Party, issued a populist statement saying:

I live across the street from US Steel’s Edgar Thompson plant in Braddock. It’s absolutely outrageous that US Steel has agreed to sell themselves to a foreign company. Steel is always about security – both our national security and the economic security of our steel communities. I am committed to doing anything I can do, using my platform and my position, to block this foreign sale.

This is yet another example of hard-working Americans being blindsided by greedy corporations willing to sell out their communities to serve their shareholders. I stand with the men and women of the [United] Steelworkers and their union way of life. We cannot allow them to be screwed over or left behind.

Fetterman was joined in opposition to the deal by a bipartisan group of politicians including Senator Bob Casey (Democrat, Pennsylvania), Senator J D Vance, (Republican, Ohio), Senator Josh Hawley (Republican, Missouri), Senator Marco Rubio (Republican, Florida), Congressman Chris Deluzio (Democrat, Pennsylvania) and Pennsylvania State Senator Jim Brewster (Democrat).

Do they have a case? On December 18, Nippon Steel and US Steel announced the signing of an agreement under which Nippon Steel will acquire 100% of US Steel in an all-cash transaction priced at $55 per share, equivalent to an equity value of $14.1 billion, Nippon will also assume US Steel’s debt, bringing the deal’s total enterprise value to $14.86 billion.

The purchase price is nearly 40% above US Steel’s closing stock price on December 15 of $39.33 and 57% more than the rival offer made by iron and steel company Cleveland-Cliffs last August, which valued US Steel at $35 per share.

US Steel’s share price jumped 26% to a 12-year high the day the Nippon transaction was announced and closed at $47.97 on December 22. Nippon Steel agreed to pay about 12 times earnings for US Steel, which is almost twice its own current valuation.

The Wall Street Journal noted, “that by shelling out so much for US Steel, Nippon [Steel] is actually making a bet that the American manufacturing renaissance will succeed, with steel demand heading structurally higher.” But, it continued, “That still won’t stop politicians from taking potshots.”

Cleveland-Cliffs CEO Lourenco Goncalves issued a statement saying:

We identified US Steel as an extremely undervalued company with significant synergy potential when combined with Cleveland-Cliffs, creating a union-friendly American champion among the top 10 steelmakers in the world.

Even though US Steel’s board of directors and CEO chose to go a different direction with a foreign buyer, their move validates our view that our sector remains undervalued by the broader market, and that a multiple re-rating for Cleveland-Cliffs is long overdue. We congratulate US Steel on their announcement and wish them luck in closing the transaction with Nippon Steel.

Closing the deal, however, could be difficult amid the nationalistic backlash. Senator Vance said, “Today, a critical piece of America’s defense industrial base was auctioned off to foreigners for cash.”

For cash plus the assumption of debt, actually, and a lot more than the competing offer. In short, a great deal for US Steel shareholders.

Japan’s Nippon Steel already has a hefty industrial presence in the US. Image: Twitter Screengrab

Nippon Steel’s share price declined after the announcement, dropping more than 5% on December 19. Since the end of November, when word of the transaction may have been circulating, it is down 13%. This raises a question: Is Nippon Steel making an overpriced mistake?

Judging from the reaction of the United Steelworkers, it might be. In both the announcement of the acquisition and its presentation to investors, Nippon Steel emphasizes that all of US Steel’s commitments to its employees and agreements – including collective bargaining agreements – with the union will be honored.

But United Steelworkers International President David McCall has his doubts. “We remained open throughout this process to working with US Steel to keep this iconic American company domestically owned and operated, but instead it chose to push aside the concerns of its dedicated workforce and sell to a foreign-owned company,” McCall said.

“Neither US Steel nor Nippon [Steel] reached out to our union regarding the deal, which is in itself a violation of our partnership agreement that requires US Steel to notify us of a change in control or business conditions,” he said.

“Based on this alone, the USW does not believe that Nippon [Steel] understands the full breadth of the obligations of all our agreements, and we do not know whether it has the capacity to live up to our existing contract,” McCall added.

Labor has good reason to fear corporate takeovers, but it is American, not Japanese, management that is known for mass lay-offs.

In fact, US Steel’s workforce shrank from 29,000 in 2018, when then-president Donald Trump slapped a 25% tariff on imported steel, to less than 23,000 in 2022. That figure is set to drop by another 1,000 due to the downsizing of the company’s plant in Granite City, Illinois, which was announced on November 28 this year.

All in all, US Steel’s workforce has been slashed by 25% since 2018. Trump’s tariff was supposed to protect American jobs but had the opposite effect, and the union couldn’t and apparently still can’t do anything about it.

Ironically, Dan Simmons, president of United Steelworkers Local 1899, which represents the workers in Granite City, told reporters that “The optimistic side of this [the acquisition] is that Nippon [Steel] was a part of a joint venture back many years ago with National Steel, when I was an employee then and they were a good partner to have.”

Rather than downsizing, Simmons says, “The right decision would be to fire those furnaces back up and make steel again because prices are very good.”

Nippon Steel may do just that. Its rationale for the acquisition includes the attractiveness of the US steel market, where quality standards are high and the rebuilding of manufacturing and infrastructure are expected to support long-term growth in demand.

It also needs to get behind the wall of tariffs first erected by Trump and built out by Biden that is unlikely to be dismantled regardless of who wins the presidential election in November 2024.

Nippon Steel has been operating in the US through joint ventures and largely- or wholly-owned subsidiaries since the 1980s. Wheeling Nippon Steel began as a joint venture with Wheeling-Pittsburgh Steel in 1984 and is now a 100%-owned subsidiary.

It was followed by the establishment of Nippon Steel Pipe America, International Crankshaft, the Indiana Precision Forge and Suzuki Garphyttan steel bar and wire companies, Standard Steel (steel wheels) and the steel sheet joint ventures NS Bluescope and AM/NS Calvert, which ArcelorMittal and Nippon Steel bought from ThyssenKrupp in 2014.

Nippon’s acquisition of US Steel, if it is completed, will be its ninth investment in the US. It would add US Steel’s integrated steel mills in the US and Slovakia to those of Nippon Steel in Japan, India, Thailand, Brazil and Sweden. Nippon Steel has downstream operations in China, Southeast Asia, the Middle East, Brazil and the US.

The deal would raise Nippon Steel’s total annual crude steel capacity from 66 to 86 million metric tons as calculated using the methodology of the World Steel Association – i.e., the sum of the nominal full production capacity of companies in which it has a 30% or greater equity interest.

Nippon Steel would then vault from 4th to 2nd place in the world steel rankings, overtaking Ansteel and ArcelorMittal to become nearly two-thirds the size of China’s top-ranked Baowu Steel, which has an annual crude steel production capacity of about 130 million metric tons.

The acquisition was unanimously approved by the boards of directors of both companies. It is subject to approval by US Steel shareholders and regulatory authorities, neither of which is expected to oppose the deal.

Nippon Steel plans to fund the transaction primarily through borrowings from Japanese banks, from which commitment letters have already been received. The deal is expected to close in the second or third quarter of 2024.

If US Steel had instead accepted Cleveland-Cliff’s offer, the combined entity would have had a monopoly on blast furnace steel production in the US and a dominant share of the market for steel used in the US motor vehicle industry.

As part of the Nippon Steel Group, the US steel industry will remain competitive. US Steel will retain its brand name and headquarters in Pittsburgh under the deal.

On December 19, Senators Fetterman and Casey and Representative Deluzio sent a letter to Treasury Secretary Janet Yellen, who is also chair of the Committee on Foreign Investment in the United States (CFIUS), urging her to block the proposed acquisition. They wrote:

With the passage of the Inflation Reduction Act, the Infrastructure Investment and Jobs Act, and the CHIPS and Science Act, the United States has acted to make the US market the most competitive in the world and to reshore critical supply chains. Allowing for the ownership of a major industrial participant in infrastructure and clean energy investments to be acquired by a foreign entity would be a step backwards in our commitment to supply chain integrity and economic security.”

We question whether a foreign company that has been found to be dumping steel into the US market at prices below fair market value is the best buyer for US Steel. Of further concern, Nippon Steel has facilities in the People’s Republic of China, a foreign adversary of the US.”

Senators Hawley, Vance and Rubio likewise wrote to Secretary Yellen, saying in a statement:

The transaction was not entered into with US national security in mind… [It] was not the product of careful deliberation over stakeholder interests, but rather the result of an auction to maximize shareholder returns.

Trade protections can and should induce foreign investment that expands domestic production and creates American jobs. This corporate takeover is out of step with those goals. Allowing foreign companies to buy out American companies and enjoy our trade protections subverts the very purpose for which those protections were put in place.

NSC [Nippon Steel Company] does not share US Steel’s storied connection to the United States, and its financial interests are tied into those of Japan. Earlier this year, NSC received more than $3 billion in subsidies from Japan’s Ministry of Economy, Trade and Industry. And NSC has even flouted American trade law. As recently as August 2021, NSC was found guilty of unlawfully dumping flat-rolled steel products into the US market.

The world’s leading business dailies have taken issue with these nationalistic views. The Wall Street Journal, for one, criticized both what it sees as a throwback to protectionism and the inability of politicians to distinguish between Japan and China. It asked: “Do they think the Japanese are going to bomb Pearl Harbor?”

US Senator Marco Rubio is among those opposed to the deal. Photo: Asia Times Files / AFP / Stefani Reynolds / Getty Images

The Financial Times, in an editorial entitled “The misguided US backlash against Nippon Steel raises a question of trust,” asks “If Japan does not count as a legitimate buyer of assets in the US, who does?”

Japan’s Nikkei said “US Steel takeover opposition sends the wrong message to Japan” and quotes Joshua Walker, president of the Japan Society, saying that “It sends all the wrong messages. We can’t celebrate Japan as our most important and critical ally and then attack Nippon Steel with the type of xenophobic rhetoric we are seeing.”

All this puts Biden, a self-proclaimed strong supporter of both labor unions and the US-Japan alliance, in a tight spot. In a statement issued by the White House, National Economic Advisor Lael Brainard said:

The President believes US Steel was an integral part of our arsenal of democracy in WWII and remains a core component of the overall domestic steel production that is critical to our national security. And he has been clear that we welcome manufacturers across the world building their futures in America with American jobs and American workers. However, he also believes the purchase of this iconic American-owned company by a foreign entity—even one from a close ally—appears to deserve serious scrutiny in terms of its potential impact on national security and supply chain reliability. 

At this point, it seems likely Biden will pass the buck to Treasury’s CFIUS to approve or reject the deal. But the final decision may not be made until June or even September, which will put the US Steel-Nippon deal in a politicized spotlight in the run-up to the November 2024 election in an important swing state.

Follow this writer on Twitter: @ScottFo83517667

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Panel highlights AI’s growing influence

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In: South-East Asia

PUBLISHED : 22 Dec 2023 at 04:00

Artificial intelligence (AI) will play a more important role in 2024, according to a panel at an event held at the British Club in Bangkok yesterday.

The British Council hosted the event, which included five panellists from different sectors who discussed challenges and trends to watch for next year.

Assistant Professor Ake Pattaratanakun of Chulalongkorn Business School said that improvements in AI, especially in generative AI, are not existential threats to society.

“Instead of worrying about AI taking our jobs, we should see AI as a tool we can work with,” she said.

With the rise of ChatGPT, Dall-E and Midjourney, AI technology has become readily accessible, so people ought to understand the new tools that are now available, she said.

Jantima Hiraga, Country Manager for Pearson Education in Thailand, also emphasised the increasing role of technology and AI in education and in the workplace. She also raised concerns regarding AI ethics, highlighting both the responsible use of AI technology and biases which may be inherent in an AI’s processes.

Ms Jantima said that the AI policy landscape in Thailand is limited and noted that the European Union had just signed an AI Act into law. AI governance is needed to mitigate risks, she said.

Wit Sittivaekin, a prominent media figure, said Thailand is a regional hub and will benefit from global trends of increased investment in electric vehicles (EVs).

He said that investment in EVs, especially from Chinese firms, will greatly benefit Thailand, which he sees as a small and open economy.

Asst Prof Romyen Kosaikanont, an economics lecturer at Mae Fah Luang University and a leading expert in gender equality, highlighted sustainable development as something Thailand needs to work on in 2024.

Although progress has been made on this front, she says that the education system needs to transform to ensure flexible learning pathways and prepare students for modern work environments.

Asst Prof Ake said he remained sceptical about economic growth next year, seeing increasing fuel and fertiliser prices as a challenge.

He also predicts interest rate hikes from both the International Monetary Fund and World Bank and believes that central banks across the world will adopt a more hawkish stance to curb inflation in 2024.

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