Evergrande and the end of China’s ‘build, build, build’ model

Valued at $41bn in 2020, the spectacular unravelling of the property group exposes deep flaws in Beijing’s growth strategy

James Kynge in Hong Kong and Sun Yu in Beijing 

© Qilai Shen/Bloomberg | A development in Shanghai

A dramatic video filmed in the southwestern city of Kunming in August hints at the scale of China’s property bubble. 

Onlookers can be heard screaming in awe as 15 high-rise apartment blocks are demolished by 85,000 controlled explosions in less than a minute.

The unfinished buildings, which formed a complex called Sunshine City II, had stood empty since 2013 after one developer ran out of money and another found defects in the construction work. 

“This urban scar that stood for nearly 10 years has at last taken a key step toward restoration,” said an article in the official Kunming Daily after the demolition.

Such “urban scars” are common all over China, where Evergrande — the world’s most heavily indebted property company — is suffering a liquidity crunch that could prove terminal. 

The crisis at the company, which as recently as two years ago ranked as the world’s most valuable property stock, highlights both the speed at which corporate fortunes can unravel and the deep flaws in China’s growth model.

Evergrande, for all of the high drama of its meltdown, is merely the symptom of a much bigger problem. 

China’s vast real estate sector, which contributes 29 per cent of the country’s gross domestic product, is so overbuilt that it threatens to relinquish its longstanding role as a prime driver of Chinese economic growth and, instead, become a drag on it.

A worker carrying buckets at the construction site of the Raffles City Chongqing in south-west China’s Chongqing municipality © Wang Zhao/AFP/Getty Images

There is enough empty property in China to house over 90m people, says Logan Wright, a Hong Kong-based director at Rhodium Group, a consultancy. 

To put that into perspective: there are five G7 countries — France, Germany, Italy, the UK and Canada — that could each fit their entire population into those empty Chinese apartments with room to spare.

The average size of a household in China is just over three people. 

“We estimate existing but unsold housing inventory is in the range of 3bn square metres, which is enough to house 30m families, conservatively,” Wright says, explaining his calculations.

Oversupply has been a problem for several years. 

What changed is that last year China decided the issue had become so chronic that it needed to firmly address it. 

President Xi Jinping had also run out of patience with the excesses of the property sector, say observers, and Beijing formulated “three red lines” to reduce debt levels in the sector. 

Evergrande is proving to be the first big victim. 

While on Wednesday it said it would meet its payment obligations for one domestic bond, a big crunch point comes on Thursday when Evergrande needs to make an interest payment on a US dollar bond. 

As the company falters, its undoing raises a fundamental question for the world’s second-largest economy: has China’s property-driven growth model — the global economy’s most powerful locomotive — run out of road?

Yes, says Leland Miller, chief executive of China Beige Book, a consultancy which analyses the economy through proprietary data. “The leadership in Beijing has been more worried about Chinese growth than anyone in the west.

“There is a recognition that the old build, build, build playbook does not work any more and that it is actually getting dangerous. The leadership now appears to be thinking that it can’t wait any longer to change the growth model,” Miller says.

Ting Lu, chief China economist at investment bank Nomura, says he does not expect Evergrande’s woes to trigger an economic collapse. 

But he believes Beijing’s attempts to transition from one growth model to another could significantly depress annual growth in coming years.

A housing complex developed by Evergrande sits unfinished in Luoyang © Carlos Garcia Rawlins/Reuters

“There is unlikely to be a sudden stop,” Lu says. 

“But I think China’s potential [annual] growth rate will drop to 4 per cent or even lower between 2025 and 2030.”

Wright says the property sector is becoming a threat to financial, economic and social stability — it has already sparked protests in several cities. 

“It is very difficult to provide a compelling narrative that China’s potential growth will exceed 4 per cent in the next decade,” Wright adds.

Miller echoes that sentiment. 

“We are set for a roller-coaster ride in policy and in economic growth,” he says. 

“I would not be surprised if a decade from now GDP growth was 1 or 2 per cent.”

If such projections prove correct, the Chinese growth “miracle” is in peril. 

In the decade from 2000 to 2009, China’s GDP growth averaged 10.4 per cent a year. 

This stellar performance abated during the decade from 2010 to 2019, but annual GDP still grew by an average of 7.68 per cent.

Any fall in growth would be swiftly felt worldwide. 

China has long been the biggest engine of global prosperity, contributing 28 per cent of GDP growth worldwide from 2013 to 2018 — more than twice the share of the US — according to a study by the IMF.

“Even if China avoids a sharp and sudden crisis,” says Jonas Goltermann at Capital Economics, a research firm, “its medium-term prospects are much worse than generally acknowledged.”

Crossing Xi’s ‘red lines’

The risks that spring from the Evergrande saga encompass both financial contagion — especially in the offshore US dollar bond market — and the prospect that a flagging property sector will strike at some of the vital organs of the Chinese economy, potentially depressing GDP growth for years to come.

The fallout from the crisis is already considerable. 

Evergrande’s plummeting share price has slashed the company’s market capitalisation from $41bn last year to about $3.7bn now. 

And concerns around its possible collapse triggered a global markets sell-off this week. 

Some 80,000 people in China who hold about Rmb40bn in the company’s wealth management products are waiting nervously to see whether Evergrande will honour payment obligations. 

Offshore bondholders are bracing for a default, perhaps as early as Thursday, with one bond due to pay interest trading at about 30 per cent of its face value.

Xi Jinping at the Chinese Communist party’s Congress in October 2017, where the president said ‘houses are for living in, not for speculation’ © Wang Zhao/AFP/Getty Images

But potentially longer lasting impacts derive from the broader fall in China’s property market. 

It is clear that the real estate sector is in a tailspin, with sales in 52 large cities down 16 per cent in the first half of September year on year, extending a 20 per cent decline in August, according to official data.

An even more consequential trend for China’s political economy is the collapse in land sales by local governments, which fell 90 per cent year on year in the first 12 days of September, official figures show. 

Such land sales generate about one-third of local government revenues, which in turn are used to help pay the principal and interest on some $8.4tn in debt issued by several thousand local government financing vehicles. 

LGFVs act as an often unseen dynamo for the broader economy; they raise capital through bond issuance that is then used to fund vast infrastructure projects.

“We expect land sales revenue to get much worse,” says Nomura’s Lu.

This dwindling ability of local governments to raise finance to spend on infrastructure has the potential to depress Chinese growth considerably. Fixed asset investment, which last year totalled Rmb51.9tn ($8tn), constitutes 43 per cent of GDP.

Distress is already evident in an offshore US dollar bond market, where some $221bn in debt raised by several hundred Chinese property developers is trading. 

Big chunks of the market are currently priced for default. 

“A full 16 per cent of the market is trading at yields of over 30 per cent and 11 per cent of the market is trading at yields of over 50 per cent,” Wright says.

Yields of over 50 per cent suggest defaults are likely, he adds.

Ultimately, the fate of such bonds, and almost all other offshoots from the malaise in Chinese property, depends on Beijing. 

The Chinese state owns almost all of the country’s large financial institutions, meaning that if Beijing orders them to bail out Evergrande or other distressed property companies, they will follow orders.

In some overseas markets the idea that Evergrande’s distress may presage a “Lehman moment” — recalling the chaos that followed the collapse of US investment bank Lehman Brothers 13 years ago — has gained traction. 

But given Beijing’s influence and vested interests, the analogy does not easily fit.

Security personnel form a human chain outside Evergrande’s headquarters in Shenzhen, where people gathered this month to demand repayment of loans and financial products © David Kirton/Reuters

“Unless China’s regulators seriously mismanage the situation, a systemic crisis in the country’s financial sector is not on the cards,” says He Wei, an analyst at Gavekal, a research company.

Indeed, the main cause of Evergrande’s crisis and the downturn in the broader property sector is Beijing itself. 

The “three red lines” that the Xi government announced last year stipulate that developers must keep debt levels within reasonable bounds.

Specifically, it says that the ratio of liabilities to assets must be below 70 per cent, the ratio of net debt to equity must be below 100 per cent and the ratio of cash to short-term debt must be at least 100 per cent. 

In June, Evergrande was failing on all three metrics and was therefore forbidden from raising additional debt — triggering its current crisis.

‘Common prosperity’

If it is true that Beijing is the main cause of Evergrande’s predicament, then it stands to reason that it can end the current market meltdown by taking its foot off the property sector’s throat. 

But deep structural forces in the economy have convinced China’s policymakers that property can no longer be a reliable dynamo for sustainable economic growth, analysts say. This is not only because of Xi’s famous phrase that “houses are for living in, not for speculation,” made in a 2017 speech.

For one thing, the demand picture has changed utterly from when Beijing pushed through free market reforms in the late 1990s that touched off the biggest real estate boom in human history. 

China’s population is hardly growing. In 2020, only 12m babies were born, down from 14.65m a year earlier in a country of 1.4bn. The trend may well become more pronounced over the next decade as the number of women of peak childbearing age — between 22 to 35 — is due to fall by more than 30 per cent.

Some experts are predicting that the birth rate could drop below 10m a year, throwing China’s population into absolute decline and further dampening demand for property.

A housing complex built by Evergrande in Huai’an, eastern Jiangsu province © AFP/Getty Images

Houze Song, an analyst at Chicago-based think-tank MacroPolo, says the situation is exacerbated by the phenomenon of “shrinking cities”. 

After around three decades during which hundreds of millions of people left their rural villages to settle in cities, the biggest migration in human history has now dwindled to a trickle.

About three quarters of the cities in China are in population decline, says Song. 

“A decade from now, even assuming that some people will leave for growth cities, more than 600m Chinese citizens will still live in shrinking cities.”

China is faced with a risky transition. 

It is starting to shift its growth model away from an over-reliance on real estate to more preferred engines of growth such as high-tech manufacturing and the deployment of green technologies, analysts say.

Here again, the impetus comes from Xi. 

A list of eight priorities released following an economic planning meeting in late 2020 not only denounced the “disorderly expansion of capital” — understood to have been code for speculation in property — it also advocated technological innovation and the pursuit of carbon neutrality. 

Such a transition may take several years to achieve, analysts say. 

But it is clear from Xi’s recent exhortations on the need for China to follow “common prosperity” that he is serious. 

The propensity of real estate to leapfrog in value in sought-after areas while remaining undercooked in low-rent districts has been blamed for widening the inequality gap between rich and poor.

“The slogan of ‘common prosperity’ is a narrative change that paves the way for a shift in the growth model,” says Miller. “It clarifies that a drop in GDP growth is not a failure for the Chinese Communist party.”

Yet, ordinary people across China are suffering the pain of the country’s property market meltdown. 

Xu, 36, who asked not to be fully identified, lives in the central city of Xinyang and works as a secretary at a local factory. 

Her mother bought a high-yield investment product from Evergrande to help cover the medical bills for her late-stage lung cancer.

But the promised 7.5 per cent returns from the investment, which cost Rmb200,000, have not materialised. 

Instead, Evergrande is refusing to pay out as it conserves cash to stave off potentially huge defaults.

“My parents have put all they have into Evergrande,” says Xu. 

“This is no longer just an economic issue,” she adds, “this is absolutely a huge social issue. 

There will be serious consequences if the issue doesn’t get properly solved.

“If my mother’s health situation deteriorates because of this,” adds Xu, “I am going to fight Evergrande every day.”

Additional reporting by Thomas Hale in Hong Kong

Aukus: How transatlantic allies turned on each other over China’s Indo-Pacific threat

Biden’s security pact with UK and Australia comes at the cost of deep resentment in Paris and Brussels

George Parker and Sebastian Payne in London, Anthony Klan in Sydney, Katrina Manson in Washington, Anna Gross and Victor Mallet in Paris 

© FT montage; Getty Images; AP | Emmanuel Macron felt betrayed by the secret alliance struck between Joe Biden, Boris Johnson and Scott Morrison at the G7 summit

The meeting between the leaders of the US, UK and Australia on the fringes of the G7 summit on June 12 seemed innocuous enough — the resulting four-sentence communique, vowing to “deepen” co-operation in the Indo-Pacific, a footnote to the celebration of western entente after Donald Trump’s exit from the White House.

More consequential for the French delegation was Emmanuel Macron’s first bilateral meeting with Joe Biden that day, before an evening beach barbecue at Cornwall’s Carbis Bay. 

“The US is back,” Biden told reporters as he sat next to the French president. 

“Leadership is partnership,” Macron noted.

Paris’s assessment about what happened in England could not have been more wrong — nor its sense of betrayal more intense when it discovered last week that Biden, Boris Johnson and Scott Morrison had in fact given a fresh impetus to a strategic alliance that would reshape security in Asia to contain China’s rising military aims. 

The pact would rip up a French-led $36bn contract to build 12 diesel-powered submarines for Australia and undercut Macron’s ambitions in the Indo-Pacific.

France’s ensuing diplomatic fury — it recalled ambassadors from Washington and Canberra, and pushed to postpone a key EU-US trade meeting — has opened the biggest rift among western allies since the US-led invasion of Iraq in 2003. 

On Wednesday, after talking to Macron, Biden appeared to concede that France had been ill-treated. 

He agreed to meet the French president in Europe next month to reset relations. 

Even so, the feud is likely to deepen growing doubt in Europe over the US’s reliability as an ally amid Washington’s foreign policy shift to Asia.

The so-called Aukus alliance signals to Europe that “it is not perceived as a global player with whom the United States will gain [from a deeper] co-operation, at least in the Indo-Pacific,” said Marie Jourdain, visiting fellow at the Atlantic Council and former French defence official. 

This decision and the transatlantic row raised the question of “the European allies’ importance for the United States regarding competition with China and Russia”, she added.

Canberra has doubts but Paris keeps the faith

Australian officials said Paris had ignored signs that the contract was in trouble, including when Pierre-Eric Pommellet, the head of French submarine builder Naval Group, landed in Adelaide in February to headlines that Morrison had ordered a review of the Barracuda deal signed in 2016.

Pommellet had hoped to move the contract along the “detailed design” phase to unlock a big payment. 

But he returned home empty-handed.

In reality, Canberra had been looking to back out of the French contract for months, Australian officials said. 

Morrison had concerns about its cost and the slow progress in creating local jobs and transferring technology. 

In January 2020, the country’s auditor-general revealed in a report that the defence expert advisory committee had urged the government to explore an alternative to the French submarines as early as 2018.

There were leaks in the Australian media about government discontent. 

In Paris, inquiries about what looked like an “active smear campaign” in the press against the deal were met with reassurance from Australian counterparts, a French official involved in the talks said. 

The French view was that cost overruns and delays were to be expected in such a big defence contract.

Many of Pommellet’s interlocutors were not themselves in the know about the secret plan B, an Australian defence official said. 

But France also failed to grasp the implications of Australia’s increasing worries over China’s military might in the Indo-Pacific.

Canberra had come to the conclusion that diesel-powered submarines — which it had requested in the initial tender — were no longer the best way to keep Beijing at bay. The French had their own nuclear propulsion technology; in June, they even asked Canberra whether it wanted to shift to nuclear, according to Paris diplomats.

Pierre-Eric Pommellet returned home from Australia empty-handed © Fred Tanneau/AFP/Getty

The US propulsion technology is one of the “crown jewels of the American military” because it allows submarines to be stealthy when submerged and helps evade sonar detection, said Thomas Shugart, former US commander of a nuclear-powered submarine and now at the Center for a New American Security. 

(The French insist that their diesel-fuelled water pump jet technology is actually quieter than reactors’ permanently running cooling systems.)

But beyond the technological debate, the Morrison government had decided to cement a broader alliance with the US. Canberra had reckoned the Trump administration would never share its technology. 

The installation of Biden in the White House provided a new opportunity, an Australian defence official said. 

In early 2021, Morrison set up a small cabinet committee, which he chaired, to explore a US deal — one in which the UK was to play a role.

BoJo and ScoMo hatch a plan B

Jean-Yves Le Drian, France’s foreign minister, later dismissed the British role in the Aukus pact as akin to being “the fifth wheel on a carriage”. 

But Canberra saw Britain, which has shared nuclear technology with the US since 1958, as a potential intermediary to help Australia secure Washington’s technology.

One morning in March, British navy officers Tony Radakin and Nick Hine were filled in on the plan for the first time by Australian defence and military officials during a video call in London.

It seemed far-fetched that this call would initiate a pact uniting the US, Britain and Australia as allies against China in the Pacific. 

The news that the Australians hoped to switch from conventional to nuclear-powered submarines was a “huge leap”, a UK defence official said.

“The UK was well placed, from its own experience, to explain what technology-sharing arrangements would be acceptable to the American nuclear establishment,” Malcolm Chalmers, research director at London’s Royal United Services Institute, said. 

“It’s a big step for a complex that is highly sensitive about security leaks.”

After Canberra and London took the proposal to Washington, representatives from the three countries intensified work, a senior US official said. 

The personal relationship between Morrison and Johnson — two populist conservative politicians — came into play, according to British and Australian people involved in the talks. 

Johnson made a point of putting “ScoMo” on the guest list for his G7 summit in Cornwall.

The US judged that informing Paris was Canberra’s job. 

But Australian officials say it was not in their interest to alert Paris; keeping the French deal alive heaped pressure on Biden to agree a deal that would bring huge industrial rewards to the US.

Emmanuel Macron, second left, and former Australian prime minister Malcolm Turnbull, centre, on the deck of HMAS Waller, a Collins-class submarine operated by the Royal Australian Navy, in Sydney in May 2018 © Brendan Esposito/AFP/Getty

France knows something’s afoot but is left in the dark

Meanwhile, Paris was starting to fret. 

It turned to Washington for clarification — US company Lockheed Martin was due to be part of the contract. 

Through June and July, Macron’s diplomatic adviser Emmanuel Bonne, defence minister Florence Parly and Le Drian separately expressed worries over the contract to their US counterparts, according to officials briefed on the talks.

Their interlocutors were mute or claimed not to know. 

On September 10, Le Drian and Parly each requested to speak with their US counterparts, Antony Blinken and Lloyd Austin. 

No calls took place until after the Aukus agreement was announced on September 15 (paving the way to a more formal 18 month-consultation phase). 

The pact was confirmed in the morning by Biden’s national security adviser Jake Sullivan to French ambassador Philippe Etienne, who had requested an emergency meeting at the White House. 

“A stab in the back”, Le Drian commented on French radio the following day.

“It’s a pretty serious crisis between France and the US. 

The presidents and ministers have discussed it, and that’s good — but trust is not yet restored and that will take time,” said Maya Kandel, director of the US programme at France’s Institut Montaigne.

Joe Biden with Scott Morrison, left, and Boris Johnson announcing the agreement on September 15 © Oliver Contreras/Pool/EPA/Shutterstock

Johnson’s inner circle said they had thought through the consequences for the Macron relationship of pursuing the Aukus idea — dubbed “Operation Hookless” in London. 

“There was a bigger prize at stake,” they said.

But some British diplomats say Johnson underestimated the implications for London’s long-term relations with its European neighbour and defence partner. 

“A number of people have woken up to the fact they have caused quite serious damage to the relationship with France,” said Sir Peter Ricketts, former UK ambassador to France. 

“You can’t fix this in the short term. This is one of those occasions when the French remember.”

After meeting Biden in the Oval Office on Tuesday, Johnson brushed off the row with Macron, saying “Donnez-moi un break”. 

That evening at the Australian embassy in Washington, the crisis with France was “extensively” discussed, according to someone in attendance. 

But the overriding mood was celebratory. 

At the end of the meal — courgette flowers stuffed with goats cheese and Wagyu beef with polenta — Johnson and Morrison signed each other’s menus.

Additional reporting by Helen Warrell

domingo, septiembre 26, 2021


Update your calendar

The future of meetings

How to get employees, clients and investors into a room

Alobby can shape the first impressions of a business. Guests at the building housing the New York headquarters of Jefferies, an investment bank, were once greeted by a section of the Berlin Wall purchased from the East German government. 

In the London office of Slaughter and May, a law firm, water trickles down an atrium wall into a shallow pool made of natural stone. 

The San Francisco home of Salesforce, a software giant, welcomes visitors with a 106-foot (32-metre) video wall displaying anything from soothing waterfalls to Pac-Man clips.

As covid-19 shut offices around the world, those crucial first impressions were mediated by video calls. 

With workers stuck at home, corporate meetings—with underlings, fellow workers, clients and investors—turned almost entirely virtual. 

Anything that used to involve people crowding into spaces, from performance reviews to shareholder jamborees, roadshows and initial public offerings, moved to cyberspace.

Since March 2020 the Nasdaq exchange in New York has held more than 150 virtual bell ceremonies. 

The Hong Kong Stock Exchange has conducted at least 140. 

The aggregate amount of time people spent on Microsoft’s Teams video-conferencing platform tripled to 45m hours a day. 

Zoom went from being a moderately successful startup to a verb (and, for some people, a four-letter word).

Now that many companies are reopening their offices and reconfiguring their work arrangements into something hybrid, they are also rethinking their approach to meetings. 

Love them or (more often) loathe them, powwows are an integral part of modern commerce. 

Managers must therefore decide which parts of remote experience, if any, they want to keep. 

A poll of more than 7,000 people in ten countries by Zoom found that two-thirds would prefer a mix of virtual and in-person meetings in future. 

As with all work that is part remote and part not, in other words, the future of meetings looks messy.

Fully virtual meetings are not going anywhere. 

Zoom’s shares fell sharply on August 30th but only in response to an announcement that its growth had slowed in the latest quarter. 

Lumi, a service which helps organise shareholder meetings, says that 90% of this year’s gatherings will be fully remote, compared with 11% in 2019. 

OpenExchange, a firm that provides virtual and hybrid events for companies and investors, expects to run 200,000 of them in 2021, up from 4,000 in 2019.

The rampant Delta variant of covid-19, which is forcing firms to postpone their fuller return to the conference room, is one reason. 

But not the only one: virtual meetings allow more people to attend than if participants had to travel to distant locations. 

Online gatherings can also be more flexible. During the pandemic British workers scheduled meetings at times they would normally be commuting to and from work, according to research by Doodle, a scheduling service.

Video conferences also seem to work just fine for many purposes. 

Deloitte, a consultancy, surveyed 1,000 executives in America involved in private-equity transactions and mergers and acquisitions. 

It found that 87% of respondents said their firms were able to close deals in a purely virtual environment. 

More than half would prefer to maintain this after the pandemic.

But virtual get-togethers have drawbacks, too. 

More can be packed into a day, leading to Zoom fatigue (another phrase that has entered common parlance). 

They are also less likely to end on time. 

A study by Microsoft showed that the average meeting in Microsoft Teams lengthened from 35 to 45 minutes, compared with a year earlier (probably because they lack physical prompts such as people getting up to leave or the next group barging into the conference room for their own conclave).

Hybrid meetings where some people are present in person and others dial in present a particular challenge. 

Most organisations have underinvested in the audiovisual technology that ensures that those dialling in are seen, heard, and do not feel like second-class citizens. 

In most pre-pandemic meeting rooms such considerations were an afterthought. Poor lighting and ill-placed microphones are common.

Such technical niggles can be fixed with better technology and cleverer design of office space. 

Companies are experimenting with larger, higher-quality screens, voice-tracking cameras that follow the speaker and tools that limit background noise.

Software that transcribes or records meetings is becoming standard, easing pressure on employees to attend every session. 

Silicon Valley giants such as Microsoft and Facebook want to take things a step further, developing an augmented-reality “metaverse”, where users anywhere can interact with one another in real time.

Not everyone is convinced. 

Some companies are pushing back against the virtual culture. 

Many Wall Street bosses have taken a hardline position against remote work, including meetings. 

JPMorgan Chase called employees back to offices earlier than most. 

It is now urging its bankers to get back on planes to meet clients in person. 

JPMorgan’s boss, Jamie Dimon, has made the firm’s fleet of private jets available to managing directors. 

This summer an informal contest kicked off at the bank, with employees awarded points for face-to-face client meetings. 

The reward was reportedly a meal with JPMorgan’s top brass. 

Mr Dimon may be on to something: seven in ten respondents in Zoom’s study thought that it was important to meet clients physically.

Fearful of forsaking good ideas that emerge from spur-of-the-moment meetings, many companies are reshaping their spaces to facilitate such serendipity whenever workers do deign to show up at the office. 

A poll of 400 international firms by Knight Frank, a property consultancy, found that more than half expect the share of collaborative spaces in their portfolios to increase over the next three years. 

Nokia, a Finnish maker of telecoms equipment, says that from next year around 70% of its office space will be dedicated to collaboration and teamwork. 

Dropbox, a cloud-storage firm, has sold its headquarters in San Francisco. 

Its new sites, known internally as studios, will feature larger conference rooms with versatile layouts.

And whereas big majorities of people tell surveys they favour hybrid work, they clash over what this means for meetings specifically. 

With respect to large gatherings the clear preference seems to be for virtual settings, which 61% of Zoom’s respondents favoured, compared with 39% opting for the physical conference room. 

But the preferences differed by gender, with around 44% of men preferring to attend large group meetings in person, compared with just 33% of women (whom studies show to be less likely to speak up in meetings and likelier to be interrupted by men). 

With respect to smaller team meetings, remote workers were split evenly between wanting to join in person and preferring to do so virtually. 

And some countries’ work cultures look particularly averse to virtualisation: 41% of French workers insisted they would only meet in person (see chart).

Some decisions will be straightforward enough. Meetings where crucial calls are made or new clients introduced will almost certainly take place in-person. 

When it comes to less consequential yet still important confabs, the calculation will be more complicated. 

One thing is certain. 

A great many meetings will remain a pain for managers to schedule and, for many of their subordinates, a pain to attend. 

Airlines Are Flying Again, but People Aren’t Giving Up Private Jets

Private-aviation services are running at full tilt even as commercial flights come back

By Jon Sindreu

VistaJet's top of the line Bombardier Global 7500 private planes are in high demand. PHOTO: VISTAJET

Private jets turn out to be a difficult habit to kick.

Although airlines have re-established routes to popular summer destinations, rich people are still paying to fly privately to places like Miami, Mexico, the Caribbean and even Europe. 

Vista Global, a Malta-based company that caters to this elite pocket of the aviation market, reported a record month in July, even after rapid growth in the first half.

Business-jet purchases are sensitive to economic downturns, and never quite recovered from the 2008 crisis. 

During the pandemic, executives have stopped traveling, and the Delta variant of the coronavirus is putting a wrench in carriers’ plans to lure them back.

Yet the Covid-19 crisis isn’t like past recessions. 

The rich didn’t rush to sell their planes and, in fact, more people turned to light aircraft to go on vacation and sidestep airports. 

Vista Global’s pay-by-the-hour subscription service, VistaJet, said 71% of incoming requests are from customers who haven’t regularly used business aircraft before. 

Many first-time users also opt for semiprivate services such as Vista Global’s Uber-like ride-sharing operation XO, or the fractional aircraft ownership model offered by Warren Buffett’s NetJets.

With brokers focused on optimizing the use of existing fleets, the companies that make private jets have yet to really benefit from the trend. 

What investors want to see is a permanent increase in demand for new planes, particularly the large top-of-the-range models that have eaten up manufacturers’ investment budgets in recent years.

Bombardier’s Global 7500, General Dynamics ’ Gulfstream G650ER and Dassault Aviation’s Falcon 6X—as well as the in-development Falcon 10X—all have ranges above 6,000 miles and price tags north of $50 million. 

They were built to benefit from a much-touted boom in Chinese private aviation that never lived up to expectations.

Now, though, it looks like part of the extra demand for private flying caused by the pandemic will stick around, prompting plane orders. 

Despite higher utilization, private jets seem to be an increasingly scarce commodity. 

The good news extends to big models: According to the latest survey by Jefferies, private-jet brokers now expect heavy and medium-size jets to experience the strongest post-Covid recovery—a U-turn from their responses in January. 

Shares of Canada’s Bombardier, the only pure-play manufacturer, have gained almost fivefold over the past year.

“Our four Global 7500s have made us extremely popular. 

They are always full and the yields per hour they are giving us are far above the rest of the fleet,” said Ian Moore, chief commercial officer at VistaJet, which will now buy at least eight more.

To be sure, long-range luxury models need a lot of traffic to make them profitable, and much of their current mileage is on restricted international routes that will eventually reopen to commercial traffic. 

But private jets could capture a bigger share of business travel when it returns too. NetJets and Jet Edge also announced further plane purchases in August.

Another firm engaged in breakneck fleet expansion is New York-based Wheels Up. 

Its shares are publicly traded following a merger with a blank-check vehicle that completed in July. 

This means investors finally have a straightforward way to bet on the “Uber of private jets” strategy. 

Wheels Up stock is down 25% since the listing, which could be an attractive entry point. 

The company is still losing money, but its revenues rose 88% in the first half.

Investors who aren’t wealthy enough to fly private may still want to consider booking a ride on the market trend.

The Deeper Roots of Today's Inflationary Policies

by David Stockman


The pre-1971 history proves beyond a shadow of doubt that you don’t need a fixed rate of inflation to enable economic growth, as today’s central bankers and their Wall Street acolytes endlessly insist. 

And it also reminds us that there is not some innate tendency for the currency to relentlessly depreciate.

Today’s 2% inflation mantra was constructed from the erroneous research by Milton Friedman and his disciple, Ben Bernanke, based on the period before WWII. 

They studied the Depression years after 1929 and basically concluded that we need inflation to avoid any possible similar deflation period. But they failed to look at the crucial 15-year period preceding the Great Depression.

What happened was this.

In November 1914, the Fed opened for business and was then promptly drafted to finance America’s ill-fated entry into World War I (WWI).

The effect of massive money printing to finance the war was a 51% depreciation of the dollar’s purchasing power by the crest of the post-WWI inflation in June 1920.

Governments had sold war bonds to both their investor class and average citizens alike, promising that they would be redeemed after the end of hostilities at the pre-war gold parity.

Strange as it sounds to modern ears, governments back in those days took their promises — especially in matters of money — extremely seriously.

The attempt to resume gold convertibility at the pre-war parity (which was the sound thing to do) is what led to the Great Depression.  

As with any major crisis, this was a difficult period for all the people and would have been totally unnecessary if the government wouldn’t have inflated the dollar in the first place.

What is not said is that the Great Depression would have been a lot less painful and much shorter had it not been for Roosevelt’s New Deal.

As shown by the chart below, the US dollar was well on its way to the restoration of its 1914 value, having recovered 60% of the loss from the June 1920 bottom by the time FDR’s (Franklin D. Roosevelt’s) 100-day New Deal was enacted in June 1933.

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The New Deal put the kibosh on sound money when Roosevelt devalued the dollar by 59% in early 1934, and requiring all holders of gold and gold certificates to surrender them in return for unbacked U.S. Treasury bonds.

But by then, the natural part of the depression—the purge of WWI and Roaring Twenties excesses—was already over.

Yet, what the fiat money twins — Friedman and Bernanke — did was to blame the restoration of the dollar’s value in the early 1930s for the Great Depression. 

They referred to this positive development by the negative term "deflation" and held that it resulted from the fact that the money supply (M1 or currency and deposits) in the banking system contracted sharply during the four years after the October 1929 crash.

The so-called "deflation" was really nothing more than a belated and old-fashioned attempt to purge the economy of war inflation, a process that the world at that time well understood.

The 1929–1933 did not prove that capitalism has some kind of deflationary death wish nor that gold-backed money inherently causes economic contraction.

Market capitalism does not slip into an irreversible deflationary spiral on its own.

And we certainly don’t need central bankers to target a 2.00% or better rise in the general price level so that inflation doesn’t run too close to the 0.0% edge and risk slipping into the abyss. 

There is no abyss — that’s just a convenient fiction of Keynesian central bankers.

Editor's Note: The Fed has unleashed the most destructive monetary policies in our history, and it's just the beginning.