This is an audio transcript of the FT News Briefing podcast episode: ‘Hong Kong’s bull run leaves China in the dust’
Sonja Hutson
Good morning from the Financial Times. Today is Wednesday, July 2nd, and this is your FT News Briefing.
The UK government got its welfare bill over the line, but only after huge concessions. And Hong Kong’s stock market is leaving mainland China’s in the dust. Meanwhile, China has a chokehold on the world’s critical minerals, can France change that?
Camilla Hodgson
What’s at stake really is the kind of viability and functioning of integral supply chains from wind turbine manufacturing to car manufacturing in Europe.
Sonja Hutson
I’m Sonja Hutson, and here’s the news you need to start your day.
[MUSIC PLAYING]
UK Prime Minister Keir Starmer gutted his welfare reform bill yesterday. And only then got it through the House of Commons. But the move leaves a multi-billion-dollar hole in the country’s public finances. Starmer faced a massive rebellion from his own Labour party over the controversial bill. It was initially supposed to save £5bn, but now experts say the government could even lose money on it.
This U-turn leaves chancellor Rachel Reeves in a tough spot. She’ll have to look at other ways to raise money, like increasing taxes.
[MUSIC PLAYING]
Hong Kong’s stock market is on a bull run. Chinese mainland equities, not so much. They’re basically flat so far this year, while the Hang Seng index is up 20 per cent, that’s the most Hong Kong has outperformed the mainland since 2008. Here to explain what this divergence tells us about the Chinese economy is the FT’s William Sandlund. Hi William.
William Sandlund
Hi. How are you?
Sonja Hutson
Doing well, thanks. So what has investors so excited about Hong Kong stocks?
William Sandlund
It does seem that most of the side performance is being driven by Chinese investors going into Hong Kong. So Hong Kong’s benefited because there are a number of Chinese technology companies like Alibaba and Tencent that are listed here that aren’t available on mainland exchanges.
In particular, since the release of DeepSeek, there’s been this huge wave of enthusiasm for Chinese technology companies, especially from investors on the mainland. And we’ve seen that show up in these record-breaking southbound flows as Chinese investors get exposure to Chinese technology names.
Sonja Hutson
OK, so a lot of money is flowing from mainland China to Hong Kong. Why aren’t investors feeling the love for Chinese equities?
William Sandlund
Well, part of it is just the lack of these large tech companies listed in mainland China, but the other significant reason is that China’s economic recovery this year hasn’t been great. There was a lot of optimism last September after the government released a stimulus package.
There has yet to be a fiscal follow-through on those measures, and so there are long-term difficulties China is facing with deflation, weak consumer sentiment, falling property prices. And on top of all of that, you have trade tensions with the US that have weighed on sentiment in China.
Sonja Hutson
Yeah. Tell me a little bit more about how the trade war with the US has influenced these two stock markets.
William Sandlund
Well, Hong Kong has actually benefited from its position as a intermediary between China and the US at this time. It has seen a huge number of IPOs this year as Chinese companies list in the city, looking to capitalise on this revival in its market. In China, it’s been much more directly affected by trade tensions with the US, and that’s weighed on business sentiment, which in turn affects retail investors.
And there’s a lot of uncertainty over the shape of a trade deal, and many investors and analysts think that China is actually waiting on more clarity on the shape of this trade deal before they roll out more forceful measures to revive the domestic economy.
Sonja Hutson
Well, do analysts and investors then expect Hong Kong to continue to outperform the mainland?
William Sandlund
Well, Hong Kong, you know, it’s more of a financial centre and it’s really been boosted by Beijing’s policies to kind of revitalise its capital markets and open the pathway for Chinese companies to IPO here, they’ve just eased restrictions on, domestic mainland Chinese investors to bring more money into Hong Kong.
So there’s been this really deliberate attempt to kind of revitalise Hong Kong at a time when markets on the mainland have been much more subdued. And Hong Kong has a fully convertible currency. It’s pegged to the US dollar. It has deep liquid financial markets. It makes it a really attractive place for Chinese companies to raise capital and for investors to feel safe buying companies.
Sonja Hutson
William Sandlund is the FT’s Asia markets correspondent. Thanks, William.
William Sandlund
Thanks so much for having me.
[MUSIC PLAYING]
Sonja Hutson
Eurozone inflation rose just a tad to 2 per cent in June. That’s a notch above May’s 1.9 per cent figure. But it’s right at the European Central Bank’s medium-term target. Economists say that means the central bank will likely hold interest rates steady at the next meeting in July. The ECB has already lowered rates eight times since last June. And President Christine Lagarde said last month that the Central Bank was likely to slow things down.
[MUSIC PLAYING]
European companies are trying to shake their reliance on China for critical minerals, and now they’re turning to France to fill the gap. This comes after Beijing upended supply chains by imposing export restrictions in April. That was in retaliation to US President Donald Trump’s so-called liberation day tariffs.
Here to talk more about this is the FT’s commodities correspondent Camilla Hodgson. Hi, Camilla.
Camilla Hodgson
Hi. Good morning.
Sonja Hutson
So give me some of the details here. Just how reliant is Europe on China’s rare earth minerals
Camilla Hodgson
Enormously, almost entirely. And that’s not just a Europe problem. China totally dominates the rare earth supply chain. But for Europe in particular, China’s supply is about 98 per cent of the EU’s rare earth magnets. And those are the magnets that go into things like defence applications and electric vehicles, all sorts of stuff.
Sonja Hutson
OK, so lots of stuff that is super important strategically to a lot of countries in the west, but why is France in particular seen as the best place for Europe to become more self-sufficient in these minerals?
Camilla Hodgson
Well, France is one option among really not very many. The thing with France is that it has a history, perhaps around the ‘90s of some earth’s processing in particular. So where you take what’s been mined and you separate it, and you process it into a material that could be used in magnets, for example. And that knowhow, that knowledge, some of the expertise, the people that worked in the sector still are in France. And so I think the country and European companies in the sector are looking to kind of revive that. Even having two or three, a handful in France creates a kind of cluster effect.
Sonja Hutson
OK. So it seems like France already has a lot of the infrastructure that’s needed to process these raw materials. How do they compare with China?
Camilla Hodgson
Well, at the moment, there is sort of no comparison. It’s really a drop in the ocean. France’s capabilities compared to China’s and efforts in France will take a while to ramp up. It takes time to build these facilities and to get them up and running. No one has huge surplus stocks of rare earths really in Europe.
And I think it’s also important to say that western companies are not necessarily looking to cut China out of their supply chains. This is more to do with diversifying their sources of supplies so that if there is a problem in future, if country X restricts exports, then they have alternative places to turn to.
Sonja Hutson
Well, Camilla, what’s at stake would you say if France can’t get up to speed quickly enough in this rare earth space? Does Europe have any other options that they’re looking into?
Camilla Hodgson
What’s at stake really is the kind of viability and functioning of supply chains, really integral supply chains from wind turbine manufacturing to car manufacturing in Europe and really elsewhere, because these are global supply chains and global companies that are relying on this Chinese rare earth production.
There are companies here and there, Brazil, for example, has deposits of rare earths and there are companies looking to develop an industry there or grow the industry there. Also, the US is very interested in becoming more self-sufficient in the space. But again, it’s all very early stage, so it’s not something that we are gonna see suddenly change next year or the year after.
Sonja Hutson
Camilla Hodgson is the FT’s commodities correspondent. Thanks, Camilla.
Camilla Hodgson
Thanks so much.
[MUSIC PLAYING]
Sonja Hutson
You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.
[MUSIC PLAYING]