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Under The Radar – 24 September

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This week, we discuss:

  1. Biden administration raises the cap on refugees

  2. China’s real-estate bubble has echoes of 2008

  3. Streaming Wars

Biden administration cap on refugees

What happened?

The Biden administration is seeking to nearly double the number of refugees admitted to the United States, starting October 1st, as per the State Department.

What does it mean?

Under Donald Trump, the refugee cap was reduced to the lowest level in the history of the refugee program – 15,000. After facing backlash for not raising the cap, Biden initially raised the number to 62,500, and has now increased it further to 125,000. The administration’s recommendation cited the necessity to address needs generated by humanitarian crises around the globe as the primary reason for raising the intake.

Whilst the State Department has made their intentions surrounding the cap clear, the matter must go to Congress for a vote. Tony Blinken, Secretary of State, has said that he looks forward to having “a meaningful exchange with Members of Congress” on the administration’s proposed changes.

The change of policy comes as tens of thousands of Afghan refugees wait at US military bases to be resettled in the United States. Considering the heavy criticism over the hasty withdrawal of forces that left behind many Afghan citizens, as well as interpreters and those who helped US forces, the administration may have felt pressure to do more for those stranded.

According to the Refugee Processing Centre, only 7,637 refugees were admitted into the US between October 2020 and August 2021, despite the increase in capacity. Given this meagre intake, it remains to be seen whether the proposed changes will have material impact on the number of those accepted into the US. Should there be no major change, we can expect Biden’s critics to point to this as a virtue signalling exercise lacking meaningful action.

China’s real-estate bubble has echoes of 2008

What happened?

Evergrande – China’s second-largest property development company – is $300 billion in debt. Worry over the company’s ability to repay creditors has resulted in a decrease in share price. Unfortunately, this has had a snowball effect and dealings in the company’s bonds have been suspended.

What does it mean?

The 2008 Global Financial Crisis had its roots in the 2000s US property market boom-and-bust, which spread to European property markets, in turn fuelling the Eurozone Crisis.

As it stands, China builds 15 million new homes every year off the back of a huge expansion of credit. So the question is whether we are about to see a collapse of the Chinese real estate sector triggering another global recession, akin to the 2007/8 crash.

The answer hinges on whether the Chinese government has the means to stem the fall-out from Evergrande. Fortunately, Beijing is in a strong position as many key players in the industry are state-owned, and in any case, the CCP effectively has a carte blanche in what it demands of big business.

Nonetheless, this is still new territory. Novel types of finance have evolved rapidly in China, with provincial governments being highly autonomous – to the extent of holding sway over the financing vehicles central to property deals.

One potential outcome is Xi Jinping reins in the burgeoning crisis at home, but not before sparking a selling-spree in property-based assets abroad. For though there is no intrinsic link between the idiosyncratic situation in China and our own over-priced housing stock, social contagion is a powerful force. Will 2021 be China’s version of 2008? Watch this space.

Streaming Wars

What happened?

DAZN, the sports streaming service owned by billionaire Sir Leonard Blavatnik, is in advanced talks to buy BT’s sports business.

What does it mean?

BT successfully challenged decades of Sky’s dominance over sports broadcasting. And with the arrival of streaming giants like DAZN and Amazon, the market is entering a new era of disruption.

Due to the pro-competitive nature of this deal, there isn’t any indication that the Competition and Markets Authority will intervene in what has recently become an increasingly interventionist environment, despite there being mixed implications for consumers.

On the bright side, tuning in for the North London Derby will no longer be dictated by who your broadband provider is. The emergence of DAZN and Amazon in the market will eliminate the practice of tying broadband and sports packages together. And, at least in the short term, lead to lower prices as they contend for subscribers and market share.

But more competition will ultimately require more subscriptions to watch your team play, which will prove costly in the long run. Bidding for broadcasting rights is an expensive game, meaning DAZN and Amazon will increase their prices as they absorb more of the fixtures list. Eventually consumers may well pine for the days when Sky was a one-stop-shop for all things sport.

The real winner in this deal is BT, whose share price rocketed after the news emerged. Ultimately, BT had their finger in too many pies and could no longer justify the Premier League price tag, which is best left to tech-outfits like DAZN with private equity cash to burn. Instead, BT can turn their attention to far more strategically important investments that serve the public good: levelling-up Britain’s connectivity by rolling out more 5G and full-fibre.

This Week’s Must Reads

  1. ‘Autumn budget must show financial firepower behind “levelling up”‘ by Richard Partington for The Guardian

  2. ‘Why Biden bet it all on mandates’ by Peter Nicholas for The Atlantic

  3. ‘The UK faces an energy crisis. Could nuclear play a vital role?’ by Jonathan Ford for The Financial Times

  4. ‘How long will Rishi Sunak last?’ by Andrew Adonis for Prospect

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