Gas shortages: what is driving Europe’s energy crisis?

Supply shortfalls and an over-reliance on volatile imports are contributing to record prices

David Sheppard in London 

© FT montage; Reuters: Getty Images


If you live in continental Europe or the UK the natural gas that heats your home this October is costing at least five times more than it did a year ago. 

The reasons are varied: among them are earthquakes in the Netherlands, China’s attempt to clean up its air and Russian president Vladimir Putin’s power politics.

But the impact is clear. 

The record prices being paid by suppliers in Europe and shortfalls in gas supply across the continent have stoked fears of an energy crisis should the weather be even marginally colder than normal. 

Households are already facing steeper bills while some energy intensive industries have started to slow production, denting the optimism around the post-pandemic economic recovery.

And while some in the gas industry believe the price surge is a temporary phenomenon, caused by economic dislocations owing to coronavirus, many others say it highlights a structural weakness in a continent that has become too reliant on imported gas.

“Europe principally has two options for additional gas supplies as it is so heavily reliant on imports: Russia or cargoes of liquefied natural gas,” says Tom Marzec-Manser at ICIS, a consultancy. 

“Neither of those sources have worked as Europe might hope during this crisis.”

The transition to cleaner energy such as wind and solar has had the effect of pushing up demand for gas — often viewed by the industry as a medium-term “bridging fuel” between the eras of hydrocarbons and renewables. 

But the long-term target of creating net zero economies in the UK and Europe has also sapped investors’ willingness to put money into developing supplies of a fossil fuel they believe could be largely obsolete in 30 years. 

Meanwhile, Europe’s domestic gas supplies, run low by decades of rapid development, have declined by 30 per cent in the past decade.

Europe’s attempts to be a global leader on climate change have arguably fed into the wider changes in the market. 

They have pushed the fast-growing economies of Asia to move away from coal, only to find that countries such as China and India are now rivals for the same supplies of LNG that Europe has come to rely on from countries such as the US and Qatar.

The gas industry used to operate almost entirely on point-to-point pipelines that kept regional competition to a minimum. 

The rapid growth of the LNG industry means seaborne cargoes have now created something more akin to a global market similar to oil.

“Every year China connects up to 15m homes in its coastal cities to the gas grid — that’s like adding a Netherlands and a Belgium worth of demand every year,” says Henning Gloystein at Eurasia Group, a consultancy. 

“So when it gets cold in China the gas price goes up in the UK and Germany.”

European governments argue that “volatile” gas prices reinforce the need to accelerate towards renewable energy. 

But there are concerns that the problems could trigger a backlash against renewables if consumers start to believe the price of the energy transition is too high.

“Some people are trying to portray this as the first crisis of the energy transition,” says Fatih Birol, head of the International Energy Agency, which advises governments and is largely funded by OECD nations. 

“They would be wrong, but if this is the dominant voice coming from this situation it may become a barrier to the policies we need to enact to make the energy transition work.”

‘Swing supplies’ start to dry up

The world’s oil consumption remains relatively stable throughout the year with only small fluctuations between the seasons. 

Gas demand, however, is far stronger each winter owing to its role in domestic heating.

While there is a baseload of gas demand all year from electricity generation and industry, such as fertiliser and steel producers, the winter peaks can be far higher across the northern hemisphere. 

About 40 per cent of total gas consumption in the UK goes directly to heating homes, largely condensed into a period of five-six months.

The industry manages these cycles in various ways. 

The chief one is storage — pumping gas underground during the low-demand summer months that can then be called on when the weather turns cold. 

The other is access to swing supplies that can rise or reduce as needed. 

One of the big problems the UK and Europe faces, however, is that the main sources of these supplies are not working as they once did, creating the conditions for more volatile gas prices.

Groningen, in the Netherlands, is Europe’s largest gasfield, but it has seen its huge supplies slowly depleted © Jasper Juinen/Bloomberg


Europe’s largest gasfield, Groningen, in the Netherlands, was designed to be a significant swing supplier, with production boosted or suppressed to help balance supply with demand, allowing other gasfields to produce freely all year round. 

But Groningen has become a liability for the Dutch government. 

As its huge supplies slowly depleted, small earthquakes were triggered in the surrounding area, causing damage to homes and businesses.

As political pressure mounted, the decision was taken to begin shutting it down, with the field now pumping three quarters less than in 2018. 

“It takes away one source of flexibility,” says Laurent Ruseckas, Emea executive director of gas and renewables at IHS Markit.

The UK faces similar issues. It has much lower storage capacity than most countries in Europe — a legacy of being energy independent in the heyday of North Sea supplies — a position that has been worsened by the shutdown of the Rough storage facility, off the east coast of England, three years ago. 

That decision cut the UK’s storage capacity from 15 days of winter demand to at most five.

The good news for Europe is that it has more LNG import capacity than any other region. 

The UK imported almost 20 per cent of its gas in 2019 through LNG shipments, alongside pipeline flows from Norway and the EU to offset declines in domestic production. 

The bad news, however, is that, Asian gas demand has grown so rapidly — expanding by 50 per cent over the past decade, led by a tripling in consumption in China — that LNG cargoes have become much harder to secure in 2021. 

What was supposed to be a reliable source of flexible supplies suddenly appears a lot less so.

For instance, the UK government no longer names Qatar, one of the two largest LNG exporters, as a main supplier. 

The majority of Qatar’s cargoes sail east, where buyers have been paying a premium to attract shipments.

“LNG will remain tight,” says James Huckstepp, Emea gas analyst at S&P Global Platts. “So it will come down to industry cutting demand to balance the market if it’s a cold winter.”

Whether renewable developments will have the same capacity to stabilise global energy prices if gas supplies remain tight remains untested © Christopher Furlong/Getty Images

Industry plays Russian roulette

Arguably the most important factor in all of this is Russia. 

Continental Europe gets more than a third of its total gas supplies from Gazprom, Russia’s state-backed monopoly pipeline supplier. 

It is a relationship that has developed over decades, but has more recently been poisoned by the fallout from Moscow’s 2014 annexation of Crimea from Ukraine.

The EU is often characterised by critics as vulnerable to its reliance on Russian gas supplies. 

But the relationship is more complex. 

The EU initially pushed for a Russian shift away from long-term contracts linked to oil prices, a move that indirectly created a pricing system more reflective of gas market dynamics.

However, Gazprom’s reliability has been called into question this year. 

A long 2020-21 winter meant storage facilities in both Russia and continental Europe have been drained to low levels. 

And Gazprom has done little to help Europe refill, declining to ship additional supplies via Ukraine beyond what had been secured under long-term contracts.

Ukraine and other countries in eastern Europe have accused Russia of trying to “weaponise” gas supplies, partly to pressure Berlin to accelerate the approval of the politically controversial Nord Stream 2 pipeline, which will bypass Ukraine to deliver supplies direct to Germany through the Baltic Sea.

In September, Putin derided “smart Alecs” in the European Commission for pushing for market-based pricing, suggesting they were at fault for the surge in prices now threatening European economies. 

“The Russian view is the EU asked for this world,” says one senior western trading executive. 

“Now they’re welcome to enjoy it.”

The gas industry is fiercely divided over whether Russia is playing games with supplies. 

In one camp analysts argue that Moscow has had to prioritise filling its own storage facilities and that domestic consumption has risen in recent years, leaving it with less gas to export.

The logo of the Nord Stream 2 gas pipeline project is seen on a pipe at the Chelyabinsk pipe rolling plant in Chelyabinsk, Russia © Maxim Shemetov/REUTERS

Others suspect that while there are elements of truth in Russia facing challenges in boosting supplies to Europe, there has also been a degree of opportunism on Gazprom’s part — both to raise the gas price and to further Moscow’s political ambitions. 

They believe these stretch from sealing approval for NS2 to reminding Europe not to neglect fossil fuel producers in its rush to decarbonise. 

The IEA said last week it believed Russia could send roughly 15 per cent more gas to Europe this year.

“Either Russia is playing games because of NS2 or they don’t have enough gas,” says Eurasia Group’s Gloystein. “[Either way] you can’t rely on them.”

It means Europe’s three main sources of swing supplies have become a lot more precarious all at the same time.

Marzec-Manser at ICIS says that while LNG supplies should increase in the coming years as more projects come on stream, consumers need to brace for a period of higher energy costs. 

“At least until the summer of 2023 we should assume wholesale prices are not going to fall back to the levels of the pre-Covid years,” he adds.

Europe may face even more long-term competition for gas supplies. 

Russia started supplying China with gas through the Power of Siberia pipeline two years ago, but it is fed by fields that have never been used to supply Europe. 

Gazprom is now studying construction of Power of Siberia 2, a pipeline that would connect the fields in western Siberia — which do supply Europe — to China by 2030.

Ruseckas at IHS Markit says this would give Russia the option of “where to send the gas on a month-to-month basis”, potentially creating more uncertainty around supplies to Europe.

“Put yourself in Russia’s shoes,” adds Ruseckas, “I think they valued this role of being Europe’s main supplier and thought they should be respected. But if Europe is to decarbonise, ‘why should we keep being Mr Nice Guy?’”

The Datai coal mine in Mentougou, west of Beijing. As China has moved away from coal, it has joined the competition for the same supplies of LNG as Europe © Greg Baker/AFP via Getty Images

Investor confidence

Despite the short-term boost to cash flows and share prices, the wider gas industry has not uniformly welcomed record prices. 

“This is not ‘good for gas’ that prices are so high,” says Paddy Blewer at the International Gas Union, an industry body.

The industry concern is that although it still hopes to act as a bridge fuel during the energy transition, recent price rises have left it besieged on all sides. 

Gas executives point to the US, where the shale industry has sharply reduced coal consumption, leading to a steep drop in emissions, and record carbon prices in the UK and Europe, which have the potential to do the same.

The gas industry has been criticised for being disingenuous. 

While it produces about half the CO2 of coal when burnt, methane emissions — an even more potent greenhouse gas — are released during extraction and transportation and have come under growing scrutiny. 

French power company Engie backed out of a US LNG deal this year, reportedly under pressure from the French government over methane concerns.

“Energy needs to be affordable, reliable and clean and the gas industry is struggling on all three fronts right now,” Gloystein says.

The hope is that if the industry tackles methane emissions, as many companies have pledged to, it can still play a role. But the International Gas Union wants governments to think harder about policies — from drilling restrictions in the US to licensing delays in the UK — they believe have damaged the industry’s ability to keep the world well supplied.

“Governments have attacked the supply side while executing policies that actually boost demand for gas, like higher carbon prices,” Blewer says. 

“We want to cut emissions but electrification hasn’t moved fast enough to say we don’t need hydrocarbons any more, so the role gas can play should be recognised.

“But gas developments take many years and billions of dollars so require investors to feel confident they will get repaid,” adds Blewer.

A liquefied natural gas tanker is tugged towards a thermal power station in Futtsu, east of Tokyo, Japan © Issei Kato/Reuters


For now, policymakers are largely left hoping that Russia follows through on hints that it could increase gas supplies this winter, or that the weather will be mild.

In the longer term, cutting demand and finding alternatives is critical. Some analysts have drawn comparisons with the 1970s Arab oil embargoes. 

They spiked prices but triggered an energy efficiency drive and the development of resources in regions like the North Sea and Alaska, ushering in almost two decades of relatively cheap oil.

Whether renewable developments will have the same capacity to stabilise global energy prices if gas supplies stay tight remains untested.

Birol has urged governments to stay the course and to use this moment to solidify plans to decarbonise quickly, even if they need to find ways to cushion voters from the full extent of the gas price rise this year.

“I cannot predict how long or how harsh this winter will be,” the IEA chief says. 

“But I do know that after winter, spring will come and clean energy transitions will continue.”

The politics of the yield curve

Robert Armstrong


Yesterday I wrote about how lots of smart people think that the yield curve has recently gone from being possibly too steep to definitely too flat. 

To sum up:

1.- Lots of investors were confident the Federal Reserve would not tighten interest rates for a long time, and made leveraged bets on short rates staying low and long rates rising, but

2.- Inflation has stayed hot and other developed market central banks have started to tighten or started talking about tightening, so

3.- Lots of investors now think the Fed is going to tighten soon and too much, causing

4.- The short end of the curve to rise (anticipating the Fed raising rates) and the long end to fall (anticipating the Fed raising rates too much), forcing 

5.- Those leveraged bets to be unwound, flattening the curve even more than it would be otherwise, a classic market overshoot.

It’s worth noting that, even ignoring the overshoot, the investors in step 3 might just be wrong. 

That is, the Fed might not tighten too fast and too hard this time, whatever other central banks are doing.

I had an interesting conversation about this with Thomas Tzitzouris, who is head of fixed income at Strategas Research. 

He agrees that we have over-flattened here, but he offers up a good explanation for why so many investors think the Fed will screw up — because the Fed always does:

“The Fed has made the same mistakes again and again over the last 40 years: tightening too aggressively. Even when they get behind the curve, they catch up too quickly . . . 

“Since 1990 the Fed has not had reason to aggressively flatten the curve, but they have done it anyway . . . Every time we see the curve flatten, Fed staffers, board members, and chairs think they know more than all the cowboys on bond desks all over the world.” 

Fed leadership always has some explanation or other for why the curve flattens ominously, other than their own ineptitude. 

But, Tzitzouris says, they have always been wrong. 

How do we know when the Fed has gone too far? 

Any time the Treasury curve inverts. 

Because there is no credit risk in Treasuries, only term premia, in theory the curve should never invert unless the short end is forced artificially high.

Here for context is a chart of the Fed’s policy rate and the 10-year minus 2-year yield curve spread (data from the Fed). 

When the blue line falls below 0, you have an inversion:


Inversions are so bad, Tzitzouris argues, because they help Wall Street and hurt main street. 

Low long rates drive the value of long-duration, high-quality assets (stocks, Treasuries, mortgage bonds, what have you) up. 

Good news for financial institutions. 

Meanwhile, small businesses and consumers, who borrow money at rates set on the short end, get stung.

The 2006 inversion was particularly disastrous:

“This was, in my opinion, the greatest monetary policy mistake since the Great Depression. 

Simply put, this curve violated multiple rules of arbitrage, and was a warning that the Fed had tightened so egregiously, and so miscalculated the trajectory of inflation, that the curve was warning of a lost decade of near zero growth to come. 

That’s more or less exactly what we got.”

If the Fed was serious about supporting main street while tightening policy, Tzitzouris says, they would do all their tightening at the long end, not just slowing bond purchases, but throwing them into reverse. 

But this would get Fed chair Jay Powell fired instantly, because Wall Street would scream for his head even as the US Treasury yowled that their funding costs were out of control.

The question of Powell’s job security is of course relevant just now. 

As Tzitzouris points out, Powell is an unusually dovish chair, who seems to care about what the yield curve is saying. 

He might be the guy to break the over-tightening tradition. 

And he could count on support form Richard Clarida, his dovish vice-chair, along with New York Fed chief John Williams. 

It seems slightly odd to bet on a hawkish mistake with those three in the most important jobs at the Fed.

Furthermore, two hawkish Fed leaders, Robert Kaplan and Eric Rosengren, just lost their jobs in a trading scandal.

But the tricky thing is that President Joe Biden is about to decide if Powell will serve another term. 

Any replacement is very likely to be dovish too, but how much political muscle would a new chair have to stand up to the remaining hawks, like the notorious loudmouth James Bullard, or Esther George? 

Whether Powell, or whoever is next, can keep the troops in line is suddenly an important issue for investors.

Bubbles are very bad

Markets people like to make fun of GMO because the big asset manager is basically the guy who comes to the party and drones on about how unhealthy alcohol is.

Jeremy Grantham, GMO’s founder, insists we are in the biggest asset bubble since 1929 (he has said it in Unhedged, in fact). 

And GMO is constantly publishing papers saying that asset valuations revert to the mean, so you should look for cheap assets and be careful with expensive ones — a strategy that has been abysmal for more than a decade.

Recently my acute colleague Jamie Powell pointed out that GMO has been forecasting negative seven-year returns for US stocks continuously since 2013. Boy oh boy has that been a bad call so far.

That said, returns at GMO’s funds have been pretty good. 

Their global equity allocation fund — which should allow them to express their scepticism about the US — has returned close to 10 per cent a year over a decade, for example. 

Sure, that’s way short of the S&P 500, but pretty solid for a global value fund in a decade dominated by US growth stocks.

I note all this because (to extend my metaphor) alcohol is in fact bad for you. 

Owning high-valuation assets when a bubble bursts is horrible. 

GMO has published a very nice graphic that shows just how horrible. 

It tracks how long after various bubble peaks it took investors to get back to an annualised real return of 6 per cent — that is, the canonical long-term return on stocks.


“Bubbles inflict deep and cruel wounds, and it is right and prudent to avoid them, exploit them, or dance around them as best we can,” the GMO asset allocation team writes.

Now, one response to this is: well, duh. If you know you are at the peak of a bubble, and you are in a position financially and professionally to get out of the market and wait, do it. 

The problem is almost everyone fails one of those two tests. Grantham may know when we are in a bubble and won’t get fired for saying so; most money managers don’t and will.

Another response is: valuations are high and we have had a great run. 

Diversify away from the stuff that has done best, hold a little more cash than usual, and plan for lower returns over the next 10 years.

Reshuffle the Fed Board Now

Under the leadership of Jerome Powell, the US Federal Reserve seems headed for a massively consequential monetary-policy mistake. The best way to prevent it is to replace Powell with Lael Brainard, a Fed governor since 2014.

Simon Johnson



WASHINGTON, DC – Appointing the Chair of the Board of Governors of the United States Federal Reserve is at least as consequential as choosing a US Supreme Court justice. 

But while no Democratic president would put a Republican on the Supreme Court, President Joe Biden may be giving serious consideration to reappointing Jerome Powell, a Republican appointed four years ago by President Donald Trump, as Fed Chair.

The main argument being made in favor of reappointing Powell is that “the Fed has done a good job.” 

Looking forward, however, under current leadership the Fed seems headed for a massively consequential policy mistake. 

The best way to prevent this outcome is to replace Powell with Lael Brainard, a Fed governor since 2014.

The Fed is in the process of figuring out when and how to tighten monetary policy, in the first instance by removing some of the quantitative easing that was intensified during the early phases of the COVID-19 pandemic. 

Reducing the volume of monthly bond purchases will push up longer-term interest rates, and this will likely be followed by increases in short-term interest rates.

If the Fed’s top officials decide that prices are rising too fast, they can tighten monetary policy sooner and to a greater extent. 

Recent indications, in the form of public speeches by three Republican-appointed Fed governors – Randal Quarles, Michelle Bowman, and Christopher Waller – suggest that some officials are moving in the “tighten sooner” direction. 

This is despite the fact that the data do not yet paint a clear picture, and temporary supply disruptions continue to drive many price increases. 

The risk of a serious policy mistake is high and rising under Powell, and would represent a major setback for Biden’s Build Back Better agenda.

There are currently five Republicans and one Democrat on the Board of Governors. 

If some version of the Quarles-Bowman-Waller view prevails, as seems likely given the current Board configuration, the result is likely to be premature tightening of monetary policy. 

Powell himself has a track record of raising interest rates first and asking questions later when the economy is expanding. 

He has also shifted to a more “hawkish” view, emphasizing the risks of inflation in recent weeks – as reflected in leading market commentary.

Other things being equal, tighter monetary policy will tend to slow the economy, resulting in the creation of fewer jobs than would otherwise have been possible. 

Pressure in the labor market will decline as the demand for workers falls, which will lead to lower wage increases – or perhaps even a reversal of recent gains.

Central banks around the world, including the Fed, deserve credit for their actions during the COVID-19 crisis, but that is now in the rearview mirror. 

The most important macroeconomic task now is careful management of the recovery. 

That includes a full, equitable recovery of the job market at higher wage levels, without creating excessively high inflation (which undermines everyone’s purchasing power). 

Getting this right will require careful analysis of the relevant economic indicators, appropriate leadership of the Fed’s professional staff, and persistent and effective persuasion of other top officials.

The obvious alternative as Chair is Brainard, a Democrat who is a long-time Fed governor and was previously a Treasury official with decades of experience in the trenches of macroeconomic policymaking. 

She is a professional economist who has helped shape US monetary policy by convincing Republican colleagues to follow her lead both before and during the COVID-19 crisis. 

She also cares deeply about better worker outcomes, sensible financial regulation, and addressing climate change, and helped save the Community Reinvestment Act, which supports lending to low-income communities. 

On all of these issues, her values are fully aligned with Biden’s.

Brainard is a better fit for Chair, given the tasks US monetary policy now faces in fulfilling the Fed’s “dual mandate” of full employment and price stability. 

It is in no way a politicization of the Fed to pick the best available experienced official to be in charge of handling what we expect to happen next.

This is the best possible time to make a switch, precisely because there is agreement at the top of the Fed about the goals its monetary policy should achieve in the next few months: keep short term interest rates very low through the end of 2021. 

If there is any confusion in the bond market about the Fed’s policy stance, the pandemic demonstrated that – when needed – the central bank has ample tools to move interest rates and affect the availability of credit at all maturities.

Replacing Powell with Brainard would signal continuity of policy in the near term and the importance of Biden’s values for the longer haul. 

Now is the right time to send that message.


Simon Johnson, a former chief economist at the International Monetary Fund, is a professor at MIT's Sloan School of Management and a co-chair of the COVID-19 Policy Alliance. He is the co-author, with Jonathan Gruber, of Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream and the co-author, with James Kwak, of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown. 

$100 Billion. That’s What It Will Take to Phase Out Carbon Emissions.

By Larry Fink

A factory in East Java Province, Indonesia.Credit...Ulet Ifansasti for The New York Times


As the leaders of the World Bank and the International Monetary Fund meet this week, they have a chance to reimagine how the world can use finance to reduce the risks from climate change.

For the economies working toward the goal of achieving by 2050 a net-zero world — one where we have removed as much of our carbon emissions as we produce — a huge obstacle will be mobilizing enough private investment to help developing countries do their part. 

In the coming decades, emissions from fast-growing emerging markets such as Brazil, India, Indonesia and South Africa are expected to increase at faster rates than those from rich countries like the United States, the members of the European Union and Japan. 

If this comes to pass, the entire world will be overwhelmed by the effects of climate change.

Achieving the net-zero transition will require unprecedented levels of investment in technology and infrastructure. 

Investments in low-carbon projects in poor countries will need to total more than $1 trillion a year — more than six times the current rate of investment of $150 billion.

Governments can’t finance this scale of investment alone, and emerging markets have struggled to attract private capital. 

Institutional investors, like pension funds and insurance companies, are wary of putting people’s savings into markets where there may be worries about political stability, credit risk and the enforceability of contracts. 

These types of investors have a duty to act in the best financial interests of their stakeholders. Making emerging markets a viable option for institutional investors will take structural reforms requiring many years — time the world doesn’t have.

New Delhi.Credit...Manish Swarup/Associated Press


So how do we get the necessary levels of investment in time?

Rich countries must put more taxpayer money to work in driving the net-zero transition abroad. 

Their current efforts, while growing, are insufficient — the current level of emerging-market climate investment includes just $16 billion of grants annually from the governments of developed countries.

Based on research by my company, BlackRock, stimulating $1 trillion per year of public and private investment to reduce emissions will require closer to $100 billion in grants or subsidies from countries that can afford it, like members of the Organization for Economic Cooperation and Development and China. 

While the figure seems daunting, especially as the world is recovering from the Covid pandemic, a failure to invest now will lead to greater costs later.

The climate disaster will not respect national borders. 

Without global action, every nation will bear enormous costs from a warming planet, including damage from more frequent natural disasters and supply-chain failures. 

Investing $100 billion in public funds annually over the next 20 years would prevent costs of at least 10 times that amount — the likely consequence if we fail to meet the 2050 target for net zero.

An essential part of raising the scale of capital necessary to transition emerging market economies to net zero will be using public finance to raise more private capital. 

Government funding in the form of grants and subsidies can absorb some of the risks that come with investing in emerging economies. 

They can make climate projects a viable option for institutional investors.

Today, the amount of private capital raised for every grant or subsidy is dismal. 

The World Bank and other multilateral development banks estimate that for every dollar of public capital they have lent, they attract, on average, less than a dollar of private finance. 

By sharing some of the risks that deter private investors from investing at all, government finance can help make emerging markets a realistic proposition for private investors.

Multilateral institutions like the I.M.F. and the World Bank are often criticized for being too slow to adapt when faced with crises. 

One alternative is to design new financial institutions to deploy capital to fight climate change.

But I believe it is possible to reinvent the existing multilateral development banks, multilateral agencies and climate funds so that they can channel grants and subsidies from developed countries more effectively. 

We need to leverage the local knowledge of these institutions and invest in solutions like green banks that can take this capital and blend it with international public and private finance.

My hope is that the leaders now meeting in Washington are willing to be bold and push international bodies to overhaul their approach to climate finance for poor countries. 

Time is running out.


Larry Fink is the chairman and chief executive of BlackRock.

China's Self-Destructive Tech Takedown

China’s leaders think that they can crack down on the country’s private technology sector and still deliver material progress as state-owned companies take over. But by reversing the policies that enabled decades of rapid growth, they risk imperiling the unique economic model they seek to sustain.

William R. Rhodes, Stuart P.M. Mackintosh



WASHINGTON, DC – Global equity markets appear transfixed by the Chinese property developer Evergrande, which seems poised to default on part of its massive $300 billion debt as the country’s real estate market cools. 

Investors are right to be alarmed. 

China’s property sector accounts for almost 30% of GDP, and there is a well-established link between housing busts and deep recessions.

But property-sector woes are not the only economic danger China faces in 2021-22. 

The Chinese government’s mounting crackdown on the country’s burgeoning tech sector may pose an even greater threat. 

After all, China’s dynamic tech firms have the capacity to innovate and drive growth just when the digital revolution, coupled with the green transformation, requires a strong private sector and robust investment flows.

Yet, President Xi Jinping, fearing that firms such as Alibaba, Tencent, and Didi Chuxing have amassed too much wealth, data, and power, has stepped up his attacks on the tech sector this year. 

Big Tech’s implicit challenge to the Communist Party of China’s monopoly of power has apparently become too serious to ignore.

The regulatory clampdown is wide-ranging and increasingly harsh. 

In July, for example, the Chinese authorities removed Didi – the country’s dominant ride-sharing app, with 377 million annual active users – from app stores, soon after the company’s successful IPO in the United States. 

The intervention caused Didi’s share price to crash by about 20%.

The move against Didi is only one episode in a multifaceted battle between the CPC and China’s tech titans. 

The authorities have also cut Alibaba down to size, by canceling the planned IPO of its fintech affiliate Ant Group and ordering Alibaba to sell its media holdings, including the South China Morning Post. 

The company’s founder, Jack Ma, has thus paid a heavy price for his risky decision to criticize Chinese financial regulators last year.

To be sure, other countries also are taking political and legal action against Big Tech, but their measures are far more limited, and are couched in antitrust terms. 

Consider, for example, the US congressional scrutiny of Facebook, Google, and Twitter, or the European Union’s long-running antitrust actions against Google, Microsoft, and Apple. 

The nature and breadth of the Chinese government’s recent attacks on the country’s most successful private tech companies are qualitatively different, and may have significant adverse effects on innovation, productivity, and economic growth.

China’s shift toward greater state control over leading tech firms, including the embedding of CPC cells within them, risks dampening these companies’ remarkable dynamism. 

By aggressively moving away from supporting the private sector, the Chinese authorities risk killing the golden goose of rapid economic growth and the best hope China has to secure the “common prosperity” that Xi wants.

According to a recent study by McKinsey & Company, the share of Chinese urban employment supported by private enterprises more than quadrupled between 1995 and 2018, from just 18% to 87%. 

The share of exports generated by the private sector more than doubled over the same period, from 34% to 88%. And private-sector fixed-asset investment jumped from 42% to 65% of the total. 

The message in the data is clear: clamping down on the private sector and threatening innovators is not the way to ensure sustained rapid growth.

Chinese entrepreneurs can read the writing on the wall. 

They understand that their political and regulatory room to maneuver is shrinking, and that the balance has shifted in favor of state-owned firms and public officials. 

And they understand that this uneasy atmosphere is likely to persist.

The danger now is that more CEOs and their firms will pull back, inhibiting investment and innovation. 

In fact, this may already be happening. 

Data from the People’s Bank of China show that lending to small- and medium-sized private-sector enterprises grew by 6.7% in 2019, only half the rate at which lending to state-owned firms increased. 

And businesses that lack sufficient funds cannot invest, iterate, or innovate.

China’s leaders think they can crack down on the private sector and still deliver material progress as state-owned companies take over. 

But new technologies and private-sector dynamism, along with the freedom to innovate, experiment, create success stories, and sometimes make mistakes, are all essential elements of China’s rapid transformation and economic evolution. 

State-owned enterprises do not have a similar track record of achievement.

Unfortunately, Chinese policymakers, busy celebrating the CPC’s 100th anniversary this year, appear to be drawing the wrong lesson at the wrong time. 

By reversing the policies that enabled decades of private-sector-driven growth in favor of greater state control, they will imperil the unique economic model they seek to sustain.


William R. Rhodes, a former Chairman, CEO, and President of Citibank, is President and CEO of William R. Rhodes Global Advisors, LLC and author of Banker to the World: Leadership Lessons from the Front Lines of Global Finance.

Stuart P.M. Mackintosh, Executive Director of the Group of Thirty, is author of Climate Crisis Economics.