Month: September 2024

Both Olaf Scholtz, German Chancellor, and Ursula von der Leyen, European Commission president, have issued warnings to EU businesses about the need to ‘derisk’ from their investment in China. They, amongst others, cite the growing geopolitical risks in the Taiwan Strait as a major future problem which could leave German companies with deep ties to China stranded, and Germany cut off from access to the raw materials their manufacturing industry needs.

German business, led by its car manufacturers, seemingly have done the opposite.

German direct investments in China stood at €7.3b for the first half of 2024, compared with €6.5bn for the whole of 2023. It continues to accelerate with €2.48bn in the first three months of 2024, rising to €4.8bn in the second quarter.

It’s comfortably the largest market for new car sales in the world. Data from Statistica shows China China registered 25.6m new cars in 2023. Well ahead of the US with 15.5m, the EU with 12.9m and India with 4.1m.

Based on the sheer size of the market China is an impossible market for any global car manufacturer to resist. Most will openly admit that unless they are in China, they are out of the global business. Moving away from it is not an option they will consider, as China will most likely shape the future of both car consumption and production for many years to come.

It is also a market which has become tougher for non-Chinese manufacturers who have worked on a joint venture basis and enjoyed healthy profits for decades. In mid-2023 Chinese-owned and Chinese-led car makers took the majority market share over foreign brands. In 2024 research from Dunne Insights shows they have sizeable 62% market share.

This rapid swing is thought to be the result of a combination of patriotic sentiment and technological change. Sentiment against US car brands, for example, is likely to strengthen with constant news of US sanctions and trade friction. US car brand sales have declined faster than German sales possibly as a result. What has accelerated the change is the rapid move to Electric Vehicles which surged in 2021, and now outsells combustion engine car sales. EVs in China tend to be Chinese branded, whilst non-Chinese manufacture remains predominantly focused on combustion engine cars. They are being left behind.

If this wasn’t enough, the Chinese government has provided subsidies to some of China’s EV key supply chain players, with battery manufacturer CATL at the top of the list.

America’s General Motors sold 4.1m units in China in 2017 and 1.8m in 2024. It announced it is pulling away from China this month. We can read that very simply as a defeat to domestic competition, not as a strategic de-risking of the business due to Taiwan concerns.

Fears of a Chinese EV invasion may be overblown. However, the geopolitical risks highlighted by Olaf Scholz and Ursula von der Leyen are unlikely to play a major part in decision making process for global car manufacturers for some time. They have more existential threats to address.

What is GDP and How is it Calculated?

Gross Domestic Product (GDP) is a key economic indicator that measures the total monetary value of all goods and services produced within a country’s borders over a specific period, typically a quarter or a year. Every government in every country wants to drive growth in GDP, as it generates greater revenue for public spending without having to increase taxes. Without growth their options are to cut or freeze spending on public services, increase taxes or increase debt.

There are three primary approaches to calculating GDP:

1. Production (or Output) Approach
This method calculates GDP by adding up the value of all goods and services produced in the economy, subtracting the cost of inputs used in production. It focuses on the value added at each stage of production.

2. Expenditure Approach
This is the most common method, which calculates GDP by adding up total spending on all final goods and services produced within a country. It is calculated using the below:
• C: Consumption by households
• I: Investment by businesses
• G: Government spending
• X: Exports of goods and services
• M: Imports of goods and services

3. Income Approach
This approach calculates GDP by summing all incomes earned by individuals and businesses in the economy, including wages, profits, rents, and taxes, minus subsidies.
Each of these methods should, in theory, produce the same GDP figure, as they are just different ways of measuring the same economic activity. What’s important is that the number goes up.
If GDP falls for two successive quarters – or three month periods – that is defined as a recession.

Speaking in the Downing Street ‘rose garden’, made famous during the pandemic for lockdown parties and ‘that’ Dominic Cummings interview, Keir Starmer delivered a sobering speech on 27th August that sets the tone for the budget at the end of October.

It’s “going to be painful” he said, asking the country to “accept short-term pain for long-term good”.

The £22bn ‘black hole’ in public finances was repeated. He admitted removing winter fuel allowance was a difficult choice but said there will be more “difficult decisions” to come and that “broadest shoulders should bear the heavier burden”.

Speculation about tax rises are inevitable when using language like that, with Rishi Sunak the first to point to it as the inevitable outcome of a Labour government.

There was no detail on what the budget would contain but the PM did re-iterate his his pledge, made during the election campaign, that the government would not raise National Insurance, income tax or VAT. Chancellor Rachel Reeves has taken a similar line.

Attention will inevitably fall on inheritance tax, capital gains tax, and tax relief on pensions as the alternative sources of increased tax revenues, and ones which theoretically target those with more wealth or higher earnings.

Changes to pensions relief, such as the introduction of a flat rate of relief, are rumoured annually ahead of almost every budget, and rarely turn into reality. Then again, so does an Oasis reunion…

Whatever happens our objective is to utilise the tax allowances which are available to you to the maximum, and that remains core to our ongoing service to you.