TheChek News Flow

Engine maker Rolls-Royce’s shares fall 6.5% after problems on one of Hong Kong-based carrier’s long-haul jets

Cathay Pacific said it had started an inspection of its entire fleet of Airbus A350 aircraft as a “precautionary measure” following an engine problem on one of its long-haul jets.

The Hong Kong-based carrier said on Monday it had identified an “engine component failure” in a Zurich-bound A350 aircraft that forced the plane to return to Hong Kong. The engines for the wide-body plane are made by Rolls-Royce but the airline did not specify the component in question.

Shares in Rolls-Royce, the sole provider of engines for A350 jets, fell 6.5 per cent in London on the news. Airbus shares were down 1.6 per cent.

Cathay said it was the first of its kind to have failed on any A350 worldwide.

“This component was the first of its type to suffer such failure on any A350 aircraft worldwide,” said Cathay in a statement. “We have identified a number of the same engine components that need to be replaced, spare parts have been secured and repair work is under way.”

The inspection of Cathay’s fleet of 48 A350 aircraft means passengers will face delays and cancellations in the coming days. The airline has cancelled at least 24 return flights up to Tuesday.

Although the cause of the problem is not yet known, industry executives will be watching the situation closely after a recent string of issues with aircraft engines that have proven disruptive and costly to airlines.

Rolls-Royce’s Trent XWB engines power both variants of the A350: its XWB-84 engine powers the smaller A350-900 variant, while its XWB-97 engine powers the larger model, the A350-1000.

Rolls-Royce said it was “aware of an incident involving Cathay Pacific flight CX383 from Hong Kong to Zurich” and confirmed that the aircraft was powered by Trent XWB-97 engines.

The company said it was “committed to working closely with the airline, aircraft manufacturer and the relevant authorities to support their investigation into this incident” but declined to comment further.

Airbus referred questions to Rolls-Royce and the airline, saying it was aware of the situation. Europe’s aviation regulator EASA said it would be “monitoring any information coming out of the technical investigation”, adding that it would take “decisions on any fleet level action as required”.

There are 86 A350-1000 jets in operation globally, according to Airbus data to the end of July. Cathay is one of the largest operators of A350s, including 18 A350-1000.

Other large A350-1000 operators include Qatar Airways, BA and Virgin Atlantic. All three airlines have been contacted for comment.

In 2022, Volkswagen’s board fired chair Herbert Diess after a rocky tenure in which, while pushing employees to move fast into the electric vehicle age, he reportedly angered powerful German labor leaders and regional government officials. The last straw, analysts said, was the failure of a core Diess project—internally designed software that would run its EVs and, Diess said, set the company apart from its competition, including Tesla. After Diess boasted that he would turn VW into a “software-driven mobility company,” VW EVs suffered delays, chronic connectivity glitches and screens that abruptly went dark and froze.

Diess’ successor, Oliver Blume, tried everything to fix the software nightmare, but nothing worked. Two months ago, he threw in the towel: He committed to invest up to $5 billion in electric truckmaker Rivian, whose operating software gets extremely high marks from critics; the exact amount will be based on undisclosed financial and technical milestones. Blume hopes that by leaning on Rivian’s technology, VW will finally produce EVs that its customers will covet and recommend to friends.

In a sense, Blume is continuing Diess’ strategy. Over the last six years, Volkswagen has invested more than $21.5 billion to acquire equity stakes in at least 15 EV, battery and software companies in the U.S., Europe and China, most of them startups, according to regulatory filings and deal announcements.

So far, none of the investments has made VW stand out in the EV race. In the first half of 2024, VW’s global EV sales were flat year on year, and in July, sales of VW’s electric ID.4 in Europe—the company’s main market—fell 40% from a year earlier. VW did not respond to emails seeking comment.

If VW is suffering buyer’s remorse, it’s not alone: All the major traditional car companies have put down multiple bets on EV, battery and materials startups over the last four or five years, and almost none has paid off, at least not yet: Tesla continues to struggle to ramp up production of dry battery electrodes five years after acquiring Maxwell Technologies, the San Diego startup that invented the technology. General Motors has had a similarly frustrating eight-year experience since acquiring Cruise, a developer of self-driving technology in which it has invested about $8 billion.

VW’s bets include $300 million for a 19.7% stake in California lithium-metal battery developer QuantumScape; $1.6 billion for a 20% share of Swedish battery maker Northvolt; $2.6 billion for a 42% stake in Argo AI, a self-driving startup; and $560 million for a 26% stake in Chinese battery maker Gotion.

VW made most of these and other investments from 2018 to 2021, a period when panic erupted among traditional automakers who feared the world was quickly shifting to EVs. All were desperate to catch up with Tesla, and to do so began throwing money at almost any startup promising a razzle-dazzle new EV battery, or an EV that might rival Tesla’s.

“The investments are symptomatic of what the industry looked at initially,” said Philippe Houchois, an industry analyst with Jefferies International. “The [automakers] took stakes to make sure they were up to speed on technology, one of which was batteries, with the view of following Tesla.”

“Of course, as time goes on, priorities change,” Houchois said. “So not all those investments necessarily make sense today.”

In the 2000s, major automakers mostly ridiculed Tesla CEO Elon Musk’s claims that the world was going electric. By the late 2010s, though, they were no longer laughing—Tesla’s Models 3 and Y were selling in large numbers around the world and generating fat profit margins. The incumbents went into a frenzy to catch up.

First, they sought to understand what Tesla was doing right. At VW, Diess decided that the company should vertically integrate, just as Tesla had done, said Tom Narayan, an industry analyst with RBC Capital Markets.

In 2018, Diess began scooping up equity stakes in startups that could prove of use to VW, including QuantumScape, Northvolt, Gotion and Argo. In 2021, he bought a 7.4% stake in electric van maker TuSimple, 25% of next-generation battery maker 24M Technologies, and 11% of battery maker Forge Nano. In 2022, Diess bought 3.5% of silicon battery developer Group14 Technologies and a 60% stake in a joint venture with Chinese autonomous driving startup Horizon Robotics.

But the buying spree did not seem to help VW gain an EV sales foothold. In July 2022, the VW board fired Diess. A year later, Blume, his successor, put his own stamp on VW strategy, one that looked a lot like Diess’: While choosing to largely ignore most of Diess’ early investments, Blume stuck with his predecessor‘s strategy of seeking outside help to resolve VW’s main shortcomings—disastrously low sales in China, and glitchy software. In 2023, Blume bought 4.99% of Chinese EV maker Xpeng Motors, and this year VW formed a 50-50 joint venture with Rivian.

With the investment in Rivian, Jefferies’ Houchois said, Blume had made a pragmatic move. “There is more realization that maybe it’s more complicated than we think and we may not have the skills. So instead of developing the software in-house, then let’s go seek help outside.’”

Over the last year or so, the heat has largely gone out of the EV and battery industries as consumers wait for better and cheaper models, as well as wider availability of public charging. I wondered what all those investments that VW—and its rivals—made added up to.

Houchois said they may not add up to anything, but that the spending made sense at the time. “In hindsight, would carmakers have made those investments in battery companies if they had known what they know now?” he said. “Probably not. But it’s easy to rewrite history.”

Narayan said I was asking the wrong question. “I don’t think of it like these are some home-run investments; it’s more about dipping your toe into different technologies,” he said. “We don’t really know how the industry is going to evolve; we do know EVs are going to be mainstream. These guys are just trying different routes.”

Vice president visiting company’s hometown of Pittsburgh for Labor Day, as Nippon Steel works to shore up deal support

Vice President Kamala Harris is planning to voice her opposition against Nippon Steel’s 5401 -0.85%decrease; red down pointing triangle pending purchase of U.S. Steel X -1.69%decrease; red down pointing triangle, adding another high-profile critic to the deal initially reached in December.

The Democratic presidential candidate is visiting Pittsburgh for the Labor Day holiday and is expected to say at an event that U.S. Steel should remain domestically owned and operated, according to a Harris campaign official. Her stance appears to mirror President Biden’s position on the purchase.

Biden in March signaled his opposition to the deal without explicitly saying he would block Nippon Steel’s $14.1 billion purchase. Former president and Republican nominee Donald Trump has said he would stop the deal if he wins a second term. Several members of Congress, including Republican vice presidential nominee Sen. JD Vance, have also said they are opposed to the deal.

The United Steelworkers union has steadfastly opposed Nippon Steel, arguing that the company hasn’t provided sufficient commitments to keep the union-represented mills open and guarantees to honor U.S. Steel contract with the union.

Nippon Steel has said it accepts all the terms and obligations of U.S. Steel’s existing contract with the union that runs until 2026. The company has said it would also refrain from layoffs through the life of the contract.

Nippon Steel has pledged a big infusion of investments in U.S. Steel’s aging plants in Gary, Ind., and outside of Pittsburgh. The Japanese company last week nearly doubled its spending commitments for U.S. Steel’s oldest plants to $2.7 billion over the next several years, aiming to counter anxiety from employees and municipal leaders that Nippon Steel would close the mills.

Leaders of the steelworkers union dismissed the additional investments unless the commitments are included in the union’s contract. “Nippon talks a big game, but at the end of the day, a press release is not a contract,” David McCall, the union’s international president, said in a statement.

Kamala Harris to oppose Nippon Steel’s $15bn bid for US Steel

Democratic candidate is the latest to come out against the deal in the latest blow to Japanese company’s takeover hopes

Kamala Harris will say that US Steel should remain owned and managed by Americans during a visit to Pennsylvania on Monday, according to an official from her campaign, dealing the latest blow to Nippon Steel’s hopes of buying the company. 

Harris’s expected comments about a proposed foreign takeover of US Steel echo US President Joe Biden’s own opposition to the deal with Nippon Steel. However they have new significance since Harris, Biden’s vice-president, is now the Democratic nominee for president.

Harris will make the comments in the city of Pittsburgh, as she celebrates the Labor Day holiday and courts blue-collar union votes in two critical industrial swing states. Before travelling to Pennsylvania on Monday, Harris will make a stop in Michigan.

“The vice-president is expected to say that US Steel should remain domestically owned and operated and stress her commitment to always have the backs of American steel workers,” a Harris campaign official said on Monday.

Nippon Steel’s planned $15bn acquisition of US Steel has faced a bipartisan political backlash, as populist economics and the protection of domestic manufacturing replace the US’s long-standing consensus in favour of open investment.

Donald Trump, the former president and Republican nominee for the White House, has also vowed to block Nippon Steel’s US Steel bid.

The Japanese group has hired Mike Pompeo, the former secretary of state under Trump, to lobby in favour of the deal, and pledged to ramp up its investment in US Steel facilities if the transaction is completed. The statement from Harris, however, will complicate that push.

Harris has gained the endorsement of most of the key US labour unions, which are a powerful constituency within the Democratic party and help rally voters in key battleground states.

Both the United Steel Workers and the United Auto Workers have backed Harris since she entered the race.

While union leaders are strongly in favour of Harris, and have repeatedly attacked Trump as a phoney champion of the working class, the vice-president is still facing a battle to win over rank-and-file union members who have drifted towards the Republican party in recent years.

One exception to Harris’s support in organised labour is the Teamsters Union, which represents 1.3mn members including truck drivers and construction workers. It has declined to endorse a presidential candidate so far.

Sean O’Brien, president of the Teamsters, spoke at the Republican convention in July, but suggested he was open to backing Harris if she sat for an interview with him.

According to the FT’s polling tracker, Harris leads Trump nationally by 3.7 percentage points with little more than two months to go before election day.

She holds narrow leads in Michigan, Wisconsin, Nevada and Pennsylvania, which should be sufficient to win the presidency, while Trump has a slight edge in other battleground states including North Carolina, Arizona and Georgia.

New flagships are bowing in Shanghai, Ningbo and Macau, as well as a WeChat Mini Program.

MILAN — Stone Island’s rush to beef up its direct-to-consumer network is betting on the Chinese consumers with three store openings furthering the Italian company’s footprint in the country.

The brand, owned by Moncler Group, opened new outposts in Shanghai and Ningbo this month and is gearing up for its retail debut in Macau next month.

“Following the internalization of our distribution and the establishment of our new regional office in Shanghai last November, these new openings underline the progress we are now making in structuring our DTC network in China, a market which offers significant potential for the Stone Island brand in the years to come,” Robert Triefus, chief executive officer of Stone Island, told WWD.

The new stores add to the existing retail network in China and the Asia Pacific region, which already includes units in Beijing, Shenzhen, Chengdu, Nanjing and Hong Kong.

In sync with the blueprint of other Stone Island stores developed by Rem Koolhaas’ OMA/AMO studio, originally debuted in Rotterdam and later rolled out to the outerwear specialist’s other retail destinations, including Chicago and Stockholm, the new flagships incorporate blasted sand and rammed earth, with vibrant colors spicing up the industrial-tinged aesthetics.

The Shanghai unit inside the TaiKoo Li QianTan retail development covers 1,872 square feet, while the boutique in Ningbo’s Hankyu mall is the largest with its 2,000 square feet of retail space. The flagship at Macau Galaxy is to open on Sept. 7 over 1,506 square feet.

In addition to rolling out its physical presence in China, Store Island has debuted this month on Tencent’s WeChat Mini Program to bolster its online presence in the country. The digital destination’s design reflects the brand’s global e-commerce site, the company said.

Stone Island, which is marking 42 years in business in 2024, directly operated 85 stores as of June 30. It also runs 13 monobrand wholesale stores.

As reported, earlier this month the brand has opened its first store inside London department store Harrods, also a move to ramp up DTC operations.

In the first half of 2024, Stone Island revenues totaled 188.9 million euros, a decrease of 6 percent as the company DTC strategy rolls out. In the second quarter of the year, revenues for the brand amounted to 75.9 million euros, down 4 percent at constant exchange rates, with strong double-digit growth in the DTC channel almost entirely offsetting the decline in the wholesale channel.

In 2020, Moncler acquired 70 percent of Sportswear Company SpA, owner of the Stone Island brand, before taking full control of the firm the following year. Triefus joined Stone Island as CEO last year after 15 years at Gucci, where he had risen to the role of CEO of the brand’s Vault and Metaverse Ventures in addition to his position as senior executive vice president, corporate and brand strategy.

Savings programme launched last year has fallen short by several billions of euros at the group’s flagship brand

Volkswagen is considering shutting factories in Germany and ditching a pledge not to cut jobs before 2029, according to VW’s works council.

A savings programme launched last year has fallen short by several billions of euros at the company’s flagship brand. Daniela Cavallo, chair of the council that represents VW’s workers, said in a note circulated to employees that the VW brand’s chief executive Thomas Schäfer had on Monday “admitted” that planned savings had fallen short, pushing the brand into the red.

“As a result, the executive board is now questioning German plants, the VW in-house collective wage agreements and the job security programme running until the end of 2029,” Cavallo said.

Volkswagen said that from the board’s perspective, the brands within the company “must undergo comprehensive restructuring”.

The group CEO Oliver Blume said: “The European automotive industry is in a very demanding and serious situation. The economic environment became even tougher, and new competitors are entering the European market. In addition, Germany in particular as a manufacturing location is falling further behind in terms of competitiveness. In this environment, we as a company must now act decisively.”

Under German rules, works councils are elected to represent worker interests and sit on the supervisory boards of larger companies, such as VW.

The announcement comes as leading European carmakers are feeling the impact of lower demand in China and at home.

Compared to some of its European rivals, VW is exposed to problems in its biggest market of China, where consumer demand has weakened and competition from domestic carmakers is intensifying.

Un réseau d’intermédiaires dans des pays comme le Kazakhstan, l’Arménie et la Turquie permet de contourner les restrictions en détournant des produits interdits vers la Russie. Cette situation stimule les économies d’Asie centrale et du Caucase, tandis que l’Union européenne peine à enrayer ces fuites.

La semaine dernière, un haut fonctionnaire du ministère des affaires étrangères, Dmitry Birichevsky, a déclaré que la Russie se préparait à faire face à des décennies de sanctions occidentales. Cela ne devrait pas poser trop de problèmes. L’économie connaît, en effet, une croissance dynamique à un taux annualisé de 4 % au deuxième trimestre, après 5,4 % au trimestre précédent, malgré l’un des régimes les plus sévères jamais imposés. Le commerce continue de prospérer. Comment l’expliquer ?

Pour en percer les raisons, il suffit de regarder le Kazakhstan. L’année dernière, l’industrie technologique de cette république d’Asie centrale a triomphé. Depuis le début de la guerre en Ukraine, les entreprises européennes se sont vues interdire de vendre la plupart des produits technologiques en Russie, alors qu’elles étaient auparavant les principaux fournisseurs de ce pays. Mais la minuscule industrie technologique du Kazakhstan, qui compte une cinquantaine d’entreprises, semble avoir comblé le vide. Ses exportations vers la Russie sont passées de 40 millions de dollars en 2021 à 298 millions en 2023. Et ses importations d’électronique en provenance d’Europe se sont également envolées, passant de 250 millions d’euros à 709 millions. Les entreprises kazakhes se sont-elles développées comme par magie ou les entreprises russes ont-elles plutôt trouvé un chemin détourné vers leurs anciens fournisseurs européens ?

L’Asie centrale organise un vaste détournement des sanctions

Le Kazakhstan est l’un des nombreux pays où le commerce avec la Russie et l’Europe a connu un essor mystérieux depuis l’invasion de l’Ukraine. Les autres sont l’Arménie, l’Azerbaïdjan, la Géorgie, la Turquie et les quatre autres Etats d’Asie centrale. Les exportations de l’Union européenne vers ces pays ont augmenté de 46 milliards d’euros en 2023, soit 50 % de plus qu’en 2021. Cela équivaut aux trois quarts de la baisse des exportations européennes vers la Russie entre 2021 et 2023.

Avec l’aide militaire, les sanctions constituent la principale contribution de l’Occident à l’effort de guerre de l’Ukraine, mais contrairement aux missiles à longue portée, elles n’ont jusqu’à présent pas eu beaucoup d’effet. Après deux ans et demi, l’économie russe résiste bien. Il est difficile de dire quelles entreprises européennes s’adaptent simplement aux nouvelles restrictions et lesquelles contournent les sanctions. Mais il se trouve que les plus fortes hausses des échanges commerciaux transitant par les pays tiers ont été enregistrées pour les produits qui font désormais l’objet de restrictions sévères. Les responsables politiques européens tentent de colmater les fuites, mais cela implique de se montrer ferme à l’égard des gouvernements de certains des voisins les plus difficiles de l’Europe.

Les composants fabriqués en Europe arrivent toujours en Russie

L’essor de ce commerce caché vers la Russie s’explique d’abord par la persistance des ventes de produits interdits. L’UE a adopté 14 trains de sanctions, dont le dernier date du 24 juin. Ces sanctions interdisent aux entreprises fabriquant tout ce qui pourrait être utilisé sur un champ de bataille d’exporter vers la Russie. Cela inclut les semi-conducteurs et les drones, mais aussi les roulements à billes et les fours à micro-ondes. Malgré cela, plus de la moitié des équipements de combat que la Russie a acquis entre février et août 2022 contiennent des composants fabriqués en Europe ou en Amérique, selon le Royal United Services Institute, un groupe de réflexion londonien.

Par exemple, la croissance la plus rapide des exportations de l’UE vers le Kazakhstan et l’Arménie a concerné les produits chimiques, l’électronique et les machines, des groupes de produits soumis à de lourdes sanctions. Les exportations de machines de l’UE vers le Kazakhstan ont doublé entre 2021 et 2022, puis ont encore augmenté de 23 % en 2023 pour atteindre 6,4 milliards d’euros. En 2023, l’Arménie a importé d’Europe deux fois plus de produits chimiques, cinq fois plus de matériel informatique et quatre fois plus de produits électroniques qu’en 2021. Il y a aussi les marchandises qui sont passées en contrebande à travers les frontières et qui ne sont pas prises en compte dans les statistiques commerciales officielles.

Les envois peuvent passer par plusieurs intermédiaires avant d’arriver en Russie. Certains exportateurs de Turquie et d’Asie centrale n’ont vraiment aucune idée de la destination des marchandises qu’ils expédient. Mais d’autres le savent très bien. L’année dernière, les États-Unis ont imposé des sanctions à un réseau d’entreprises européennes organisées par Mayak, un conglomérat russe, pour transporter des équipements interdits via l’Ouzbékistan et l’Arménie. En juin, ils ont découvert deux réseaux différents d’outilleurs européens expédiant du matériel en Russie, l’un via la Turquie pour Ostec, une entreprise publique russe, et l’autre via le Kirghizstan pour Newton-ITM, une entreprise aérospatiale russe.

Une véritable manne pour l’Asie centrale et le Caucase

Conséquence de ce détournement massif : les économies d’Asie centrale et du Caucase semblent bénéficier de la guerre. Collectivement, le PIB des cinq républiques d’Asie centrale a augmenté de 6 % en 2023, contre 4 % en 2022, tandis que l’économie arménienne a progressé de 8 %, contre 5 % en 2022. Un secteur logistique en plein essor a vu le jour et le fret augmente de 20 % chaque année. Pour les dirigeants européens, c’est une mauvaise nouvelle. « Nous nous attendions à quelques fuites, explique un fonctionnaire, mais pas de l’ampleur que nous connaissons aujourd’hui. » En décembre, la douzième série de restrictions de l’UE a visé pour la première fois des entreprises d’Arménie et d’Ouzbékistan. Depuis, les bureaucrates ont brandi la menace de nouvelles sanctions à l’encontre des pays tiers et des Européens qui y exportent, mais ils n’ont pris des mesures qu’à l’encontre de quelques entreprises. Pour chaque société inscrite sur la liste noire, une autre est enregistrée ailleurs.

Pour trouver une véritable solution, il faudrait obtenir l’aide des gouvernements du Caucase et de l’Asie centrale. Ce n’est pas une mince affaire. Les hommes politiques de la région apprécient leur proximité avec la Russie et tirent souvent un profit personnel de la violation des règles. Néanmoins, les Européens pourraient leur offrir des compensations. L’Arménie a récemment commencé à fermer les entreprises qui commercent avec la Russie, après que l’UE lui a accordé 270 millions d’euros sous forme d’aide, de prêts et de contrats. L’Europe pourrait aussi recourir à la méthode du bâton plutôt qu’à celle de la carotte et étendre les interdictions d’exportation aux pays tiers. Mais cela pourrait mettre en péril ses dernières sources de gaz en Azerbaïdjan. La question est bien de savoir si l’UE veut vraiment un régime de sanctions plus strict pour l’Ukraine. Son comportement actuel montre que ce n’est pas le cas.

For the first seven months of 2024 local government proceeds from land sales slid over 20%

China’s property crisis has hit local governments hard, drying up a key source of income as land sales crumble. Fiscal reform plans have sparked hope relief is on the way, but economists see little progress.

Cash-strapped and indebted, regional governments are seeking alternative revenue streams to compensate for falling land and tax income. That is a worrying sign that fiscal conditions are deteriorating, analysts say, and bodes ill for China’s sputtering economy.

For the first seven months of 2024, China’s tax revenue fell 5.4% on the year, reflecting continued economic malaise and tax cuts. Local government proceeds from land sales slid over 20%, Ministry of Finance data showed.

In contrast, China’s fiscal income from nontax items—including proceeds from state-owned assets sales, fines and confiscated property—jumped 12% during the period, with most going into local governments’ pockets. That compared with a 3.7% annual drop in 2023.

“The continued double-digit growth of nontax revenues suggests cash-depleted local governments may have sought to raise penalties, as they grapple with declining land sales revenue,” Nomura economists said in a recent note.

In July, nontax revenue rose nearly 15% from a year ago, sustaining June’s double-digit pace of growth, Nomura calculated based on official data.

While nontax income offers relief for regional governments, economists warn it isn’t sustainable. And as it tends to be less transparent, could further erode already-weak consumer and business confidence.

One issue is poor data on sources of nontax revenue. This leaves room for speculation, especially amid a recent string of local news reports of instances in which authorities gave out big fines for minor infractions.

But there’s no consensus about what’s driving nontax revenues. Economists at Galaxy Securities said it is unlikely to be extra fines, noting that revenue from penalties typically makes up about 9% to 12% of China’s annual nontax income.

The major driver, some officials and economists say, is the monetizing of local government assets.

Since last summer, cities across China have been doubling down on selling and leasing out state assets—anything from unused buildings and parking lots to mineral reserves.

The strategy has proved particularly successful in wealthy areas like Jiangsu province, where it contributed the bulk of a roughly 30% surge in nontax revenue in January-May, official data showed.

“This follows the central government’s urging for local governments to address their debt burdens, even resorting to extreme measures like ‘selling everything to pay off debts,’ especially in regions facing high debt pressures,” said Wenyin Huang, a director at S&P Global Ratings.

With traditional revenue sources untenable and newer ones uncertain, resolving the debt issue is a challenge.

A district government in Chongqing city caused a stir recently by setting up a task force to “smash iron pots and sell the steel”—a metaphor for disposing of its assets at all costs—to pay down debt.

It is unclear how many profitable assets local governments have left, and who’s buying them, some analysts say. In some cases, local administrations have been moving assets from one pocket to another, asking state-owned firms to buy up assets, recent government reports found.

Beijing seems to have taken note, with officials at high-level meetings renewing vows to help shoulder the fiscal burden.

Plans include boosting central government transfers to regional administrations, granting a larger share of consumption-tax revenue to local governments and letting them tax more items. But analysts say the plans lack detail, with scant progress made.

“Despite high market expectations for proactive fiscal support early this year, fiscal challenges appear more severe and persistent than previous years,” Goldman Sachs analysts said in a note.

The dim economic situation complicates matters.

Arresting the property sales decline would revive local governments’ ability to generate revenue, S&P said in a report, but recovery also depends on pausing the expansion of fiscal-relief programs China has rolled out since 2018.

The programs, which entail progressively lower tax rates and tax refunds, among other things, have battered local governments’ self-generated operating revenues, S&P said. Without these, “revenue growth could have been much more robust across the board.”

Macroeconomic headwinds hinder revenue-generating power, said S&P’s Huang, adding that “delays in revenue recovery could prolong attempts to stabilize debt, which continues to rise.”