This is an audio transcript of the FT News Briefing podcast episode: ‘China’s central bank overhaul’
Kasia Broussalian
Good morning from the Financial Times. Today is Tuesday, January 7th, and this is your FT News Briefing.
Justin Trudeau is resigning as Canada’s prime minister. And the outlook for Germany’s solar panel industry is a bit cloudy. Plus, China’s central bank is planning a policy overhaul. I’m Kasia Broussalian, and here’s the news you need to start your day.
[MUSIC PLAYING]
Canadian Prime Minister Justin Trudeau announced that he is stepping down.
Justin Trudeau voice clip
I intend to resign as party leader, as prime minister, after the party selects its next leader.
Kasia Broussalian
Trudeau, who has been in power for nearly a decade, spent months battling a paralysed government and dismal approval ratings.
Justin Trudeau voice clip
My friends, as you all know, I’m a fighter. Every bone in my body has always told me to fight because I care deeply about Canadians.
Kasia Broussalian
But last month, a number of key allies pulled their support, and then members of his Liberal party turned against him.
Justin Trudeau voice clip
This country deserves a real choice in the next election, and it has become clear to me that if I’m having to fight internal battles, I cannot be the best option in that election.
Kasia Broussalian
Trudeau said that he was suspending parliament until March 24th to give his party time to pick a new leader.
[MUSIC PLAYING]
Germany’s all-important solar panel industry isn’t shining so bright these days. Companies have been hit by slowing demand and quite a few are now laying off workers and even filing for bankruptcy. My colleague Laura Patel has been looking into what that means for Europe’s green transition. Hey, Laura.
Laura Pitel
Hey, Kasia.
Kasia Broussalian
So talk to me a little bit more about the scope of this slowdown in Germany’s solar industry. How big is the bust?
Laura Pitel
So we’re talking about quite a specific sector here, which is the sector that install solar panels on residential homes. And they had enjoyed a real boom in the last few years, particularly after the Russian invasion of Ukraine, which sent energy prices soaring and made this idea of installing solar panels on your home really, really popular. But now they’re having a real slump. Something like a 30 to 40 per cent decline was experienced in 2024 compared to the previous year. And that has driven a broader slowdown more generally in Germany and actually across Europe.
Kasia Broussalian
Well, yeah. Tell me a little bit more about what’s behind that decline, because like you said, it seems like solar was having a moment there for a while.
Laura Pitel
Yeah, I think there’s a multitude of reasons. One thing is that the energy prices have actually come down a bit. That’s reduced the incentive a little bit for solar panels. Interest rates have gone up, which means that the cost of borrowing to install one of these systems has gone up. People usually have to get some kind of financing package because they’re quite expensive. And at the same time, China has been flooding the European market with cheap solar panels, and that has increased competition on the sector. And some companies, as you said, are really struggling.
Kasia Broussalian
All right. So there are a few different reasons for the slowdown. And now this is starting to impact the industry more broadly. How big of a deal is that?
Laura Pitel
Well, Germany is Europe’s most important solar market, and it’s actually the fifth biggest solar market in the world. And Germany is also a country that has very ambitious climate targets. It wants to be completely carbon neutral by 2045. Now, nobody’s saying that that’s all about to kind of fall apart, but it does kind of add to the challenges of these already very ambitious targets. Germany wants to install 19GW of new solar capacity each year. And last year in 2024, they managed 16, which is not miles off. But I think the slowdown in residential solar contributed to a slower pace of growth than the country had experienced in previous years. So they’re gonna have to find a way to ramp it back up again or to compensate more with commercial solar panels on kind of factories and other industrial facilities to make up for the slump in residential demand.
Kasia Broussalian
And looking ahead, then, how are investors feeling about the industry in Europe in the medium and long term?
Laura Pitel
I think in the medium to long term, people are actually still pretty optimistic. They’re not saying that this is a disaster. You know, there are 3mn residential homes in Germany that have solar systems. And so there’s a lot more room for growth. But I think this is just a kind of symptom of what people in the industry called the solar coaster, which is a real boom and bust, like a wild ride kind of experience that the sector can have. And it’s been a bit of a difficult time over the last 12 months. Some companies are not going to survive it. Some will hopefully emerge stronger. But it’s been a bit of a rocky road recently.
Kasia Broussalian
Laura Patel is the FT’s Berlin correspondent. Thanks, Laura.
Laura Pitel
Thanks, Kasia.
[MUSIC PLAYING]
Kasia Broussalian
US corporate bankruptcies hit a 14-year high in 2024, the most since the global financial crisis. Data from S&P Global Market Intelligence says almost 700 companies filed for bankruptcy last year. That’s up 8 per cent from 2023. Businesses like Tupperware and Spirit Airlines got hit by high interest rates and a lack of consumer demand. Now things are starting to look a little better. The Federal Reserve has started reducing rates, but it’s also signalled that cuts might be few and far between in the future.
[MUSIC PLAYING]
China is planning a few major changes to its monetary policy. The People’s Bank of China will now focus on one main interest rate rather than a few different ones. And it wants to give Chinese banks more say in how much they lend out and to whom. The PBoC hopes this will make the system more efficient. The FT’s Robin Harding has been following this historic shift and he joins me now from Hong Kong. Hey, Robin.
Robin Harding
Hi there.
Kasia Broussalian
So explain these changes a bit more to me. What exactly has China’s central bank said?
Robin Harding
So the China central bank, the People’s Bank of China, has said to us is that during 2025, they want to shift further towards using a price-based policy as their main tool for monetary policy and control in China’s economy. In order for that to make sense, what you really have to understand is how things have worked in China up until now and what the People’s Bank of China has historically done is used a quantity-based policy. They’ve said, how much do we want the loan books of banks to expand, ie how much should you lend? And they’ve given that guidance to the banks and the banks have gone off and done it. With a price-based policy, what you do is you adjust the interest rate and then you leave it up to the banks to decide, well, if that’s the interest rate, this is how much we want to expand credit.
Kasia Broussalian
So the shift by the PBoC see here is essentially going from saying something like, now this is the amount of credit growth we want to, this is the interest rate that we’re going to set and we’ll see how much credit growth we get.
Robin Harding
Very much, yes.
Kasia Broussalian
And what does China want to fix with these changes?
Robin Harding
So if you think about it, there’s a few big issues with having these quantity-based targets for credit growth. So if you’re a bank and you’re sitting there thinking, well, I’ve got to increase my loan book by 10 per cent this year, then you’re really just going to shovel out the credit and you’re going to shovel it out to the people who demand the money the most. And for a long time in China, that was the property sector and infrastructure. And the end result was that China built far more property when it needed to. Lots property developers went bust. And China’s economy is now being suffering from this huge overhang of unsold property. So that’s the problem with these quantity-based targets. You tend to fuel these bubbles of activity, this overcapacity, and then you end up with bad debts.
Kasia Broussalian
So the goal here then is to move away from that with this policy change. But how easy do you think that’ll be to implement?
Robin Harding
There are some significant obstacles. The big problem the PBoC is wrestling with is that China is in a situation really quite close to deflation so they need to reflate the economy. And certainly the central government, which in Chinese system has actual control of monetary policy, the PBoC is not an independent central bank in the same way that the Fed or the ECB is. The central government is still very keen to direct credit towards favoured sectors such as high-tech manufacturing. So it’s still not 100 per cent clear how far the PBoC will be allowed to move in the direction that it wants to go in.
Kasia Broussalian
Got it. But let’s say that this new policy does pan out. How might it influence China’s economy in the long run?
Robin Harding
The Chinese economy, in the long run, the real prize is greater efficiency and the use of capital. China has succeeded amazingly well today by having these huge investment-driven booms in different sectors, in infrastructure and real estate, in manufacturing. But it’s becoming rather clear that the limit to that is being reached. So the real prize for China and the reason why the PBoC is so keen to do this is because it should allow a new wave of more efficient growth.
Kasia Broussalian
Robin Harding is the FT’s Asia editor. Thanks, Robin.
Robin Harding
Thank you very much.
[MUSIC PLAYING]
Kasia Broussalian
You can read more on all of 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]
