FT : China’s top lenders tout limited exposure to western banking crisis

China’s top lenders tout limited exposure to western banking crisis
Beijing’s biggest banks encouraged by stress tests against US and European risk

China’s biggest banks say they have escaped unscathed from the financial crisis in the US and Europe, following the collapse of Silicon Valley Bank and Credit Suisse.

China’s top lenders — Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China — have all reported there was no direct damage to their books from last month’s emergency rescue of Credit Suisse by UBS and failures in the US banking sector.

“Even from an indirect or spillover effect perspective, the impact [to China’s banking sector] is very limited,” said Ji Zhihong, vice-president of the country’s second-largest bank CCB at a briefing last week, when all the main banks reported strong earnings.

China’s banks and other financial institutions are still reporting to regulators the results of stress-testing against what they see as a potential minefield of new risks that includes exposure to European and regional US banks. According to staff carrying out the tests, only limited exposure has been found.

The scrutiny highlights lingering market concerns over Chinese banks’ cash management and liquidity against the backdrop of growing geopolitical tension and financial system turbulence.

Zhang Yi, vice-president of Bank of China, which has the largest amount of foreign exposure, said that while his bank had not been hit by the crisis, it still planned to adjust offshore assets and deposits.

“No matter what the reasons were for the problematic foreign institutions, it eventually results in stress and runs on deposits . . . we’ll make sure that maturity and pricing between assets and deposits has no big mismatch,” he said.

The biggest lesson for China’s financial system planners and regulators is not to “create the environment” that puts banks into a similar position as SVB and Credit Suisse, said Chen Long, co-founder of Beijing-based research company Plenum.

“The radical change of monetary policy is a very bad idea. If you have to raise interest rates by 300 [basis points] in a year, that is definitely going to cause a lot of strain on the banking system. Some banks, if they are well managed, have ways to prepare. But not everyone is well managed.”

ICBC, the world’s biggest bank, reported net profit of Rmb360bn ($52bn) for 2022, up 3.5 per cent on the prior year. The other top banks reported similarly robust — or better — profit growth.

The net interest margin, a key gauge of bank profitability, remained steady or eased slightly for the top banks, suggesting resilience in their credit books.

The results came despite subdued economic growth in China and during an unprecedented downturn and high levels of corporate debt in the property sector, a major driver of the economy.

The banking crisis has dented China’s faith in the wisdom of regulators in Europe and the US. Chinese regulators had been following measures such as requiring banks to set up “living wills” after bankruptcy or takeover events.

“The framework of regulating banks globally now looks insufficient at least,” Chen said.

“The irony is that the Swiss are viewed as leaders in how to regulate banks. Then Credit Suisse, the [country’s] second-largest bank failed,” he added.

Despite better than expected financial results, China’s top lenders each warned of persistent risks, stemming mostly from the property sector.

At CCB, the non-performing loan ratio for property nearly doubled year on year. China’s real estate sector has been rocked by a series of developer bond and loan defaults, as stringent debt control on the real estate sector choked the industry’s liquidity lines.

“The property sector will take time to recover, so the hangover on asset quality will last for a while,” said Liu Jiandong, chief risk officer at the Bank of China.

>>> Barron’s Weekend Summary:

Barron’s Weekend Summary:

Cover Story:
For months now, Congress, the White House, the US military, foreign governments, and a range of other institutions have been warning about the risks posed by TikTok. TikTok CEO Shou Zi Chew recently spent five hours testifying before an extremely hostile House Committee on Energy and Commerce. In the opening minutes, Rep. Cathy McMorris Rodgers (R., Wash.) declared TikTok to be “a tool to manipulate America,” asserting it “should be banned.” For TikTok, it was all downhill from there. Critics like Rodgers think the person with the most power at TikTok is Chinese President Xi Jinping. If you believe TikTok is a tool for China to spy on Americans and distribute propaganda, then details about the ownership and management structure don’t really matter. But those details are of keen interest to investors—and so is the potential fallout if the app is actually banned. TikTok is a unit of ByteDance, a China-based internet conglomerate and the world’s most valuable privately held venture-backed company with an estimated valuation of $225B.

Interview:
-This week, Barron’s features Cheryl Mickel, who oversees money markets, short-term taxable bonds, and stable value for T. Rowe Price’s fixed-income group, She looks for opportunities amid the chaos—even in the short-term debt of banks. Mickel is one of Barron’s 100 Most Influential Women in US. Whether the recent troubles among U.S. regional banks and some European giants will become a widespread crisis has yet to be determined, says Mickel, who heads T. Rowe Price’s U.S. Taxable Low Duration Group, overseeing more than $100 billion in assets. But rather than hunker down, Mickel’s team is searching for opportunities to lock in higher yields.

Tech Trader:
Lyft has been a terrible stock, losing almost 90% of its value since its March 2019 initial public offering. While the ride-sharing company’s financial results have rebounded from a pandemic-era swoon, it continues to lose ground to rival Uber. To stanch the bleeding, Lyft’s board this past week made a dramatic management change, conceding that Lyft needs a new plan: CEO Logan Green and President John Zimmer, who founded Lyft 16 years ago will step down in the weeks ahead. To replace them, the board made a surprising choice: Lyft director David Risher, who while having impressive credentials, hasn’t played a significant role at a for-profit business in more than two decades. He spent the early part of his career at Microsoft, then joined Amazon in 1996 as employee No. 37. Amazon founder Jeff Bezos put him in charge of expanding the e-commerce business beyond books. Risher left Amazon in 2002.

The Trader:
-The debt ceiling has been forgotten amid the banking turmoil, but it’s still there and could cause a chaos situation of its own. The US federal government hit its self-imposed debt limit of just under $31.4T in January, and Congress appears to be barreling toward a protracted fight over lifting it in the coming months—or else risk a disastrous first-ever US default. Markets have taken notice, but they don’t appear overly concerned just yet. A high-stakes standoff over raising the debt ceiling in 2011 resulted in credit-rating firm Standard & Poor’s downgrading the US sovereign debt rating. That wasn’t without cost. The yield premium on U.S. Treasuries has consistently been one to two percentage points higher relative to German bunds since 2011 compared with before the downgrade, notes Richard Bernstein, chief investment officer of Richard Bernstein Advisors.
-Another earnings season is just around the corner and it could help the market decide if it wants to head higher—or retest its 2022 lows. Analysts predict that S&P 500SPX +1.44% earnings per share will decline 4.6% in the first quarter of 2023 compared with a year earlier, according to Refinitiv. That would follow a 3.2% year-over-year decline in the fourth quarter. Revenue is forecast to continue growing—by 1.7% as of the latest consensus estimate from Refinitiv—but high inflation and a tight labor market are pushing costs up faster than firms can raise prices.

Features:
-Elon Musk is right to call for a six-month pause on all “training” of AI systems more powerful than OpenAI’s cutting-edge GPT-4. A breather, at least in theory, would allow the industry to develop shared guardrails for this fast-evolving technology.
Musk may have personal reasons to take a swipe at OpenAI, which he helped start in 2015 (more on that in a moment). But more important than Musk’s individual opinion is that of the other 1,800 or so tech experts—some of them current and former executives at AI startups—who also signed an open letter published this week calling for the six-month pause. Given the known and unknown risks that smart technologists associate with “generative” AI, the industry should err on the side of caution.
-A ban on TikTok would accentuate the current generational divide and disproportionately hurt GenZ viewers, who are, by far, the largest contingent of users. According to 2023 data from Insider Intelligence, 46% of TikTok users are in Gen Z, which the researchers define as people born from 1997 to 2012. They’re trailed by millennials, who make up 34% of users, Gen X (12%), and baby boomers (7%). That’s a shift from other social-media apps: Millennials are the biggest users of Instagram, Facebook, and YouTube. A little more than half of Gen Z adults say they oppose a nationwide TikTok ban, according to a survey from public-opinion research firm SocialSphere. In contrast, 34% of millennials shared that view, SocialSphere found. That survey didn’t include older generations, but in a national poll by CBS News/YouGov, 61% of respondents supported a ban.

European Trader:
-Rolls Royce stock is revving up. But it’s not the Rolls Royce you might be thinking about. The company doesn’t actually make cars anymore—that unit has been a subsidiary of Germany’s BMW since 2003. Rolls-Royce largely makes turbofan engines for aerospace use. Its biggest rivals are General Electric and Pratt & Whitney. Not Bentley. Shares of Rolls-Royce Holdings have jumped this year under new Chief Executive Officer Tufan Erginbilgic on hopes he will turn things around after years of underperformance. Rolls-Royce’s underlying profit rose more than 50% in 2022. The company gets the bulk of its income from servicing aircraft engines, and it says that engine flight hours, a key metric, will continue to increase this year. It expects flight hours to reach as much as 90% of the prepandemic levels of 2019 this year. They were at just 65% of that in 2022.

Emerging Markets:
-The technology sector has been moving out of China on a phenomenon that’s being described as techxodus. Potential beneficiaries of the China techxodus stretch from Mexico to Poland, Malaysia and Vietnam. Potential losers are global consumers, who may have to pay more for their gadgets as humming Chinese supply chains, built up over two decades, fragment. “Companies have experienced significant margin improvement from being in China,” Mehdi says. “They’ll have to find other ways to take the cost out.”
US restrictions on advanced semiconductors for China, which ratcheted up last October, are one driver of the search for alternatives, but not the only one. Chinese labor costs have climbed 40% since 2010. Russia’s invasion of Ukraine, and the mass exit of foreign companies there, pushed investors to contemplate a repeat with China and Taiwan.

Commodities:
-As of March 30, the S&P GSCI, a benchmark for investments in the commodity markets, fell more than 7% for the first quarter. “Risk aversion, triggered by persistent rate hikes, coupled with idiosyncratic risks such as warmer-than-normal weather conditions, have resulted in synchronous downsides and created weakness” in commodities, says Hakan Kaya, senior portfolio manager of the Neuberger Berman Commodity Strategy NBCM exchange-traded fund.
Energy fell the most, with the S&P GSCI Energy index down 12% quarter to date. Natural-gas prices on the New York Mercantile Exchange lost 53% in the first three months of the year. Newcastle coal futures on ICE Futures Europe declined over 56%, after prices more than doubled last year. U.S. and global benchmark crude futures trade more than 7% lower for the quarter.

Streetwise:
-This week, Jack Hough has some good news: The banking crisis has shifted from panic to unease, “overnight deposit runs suddenly seem so early March. Thanks to quick policy action, small banks are leaking vital cash to industry giants and money-market funds in a much more orderly way.” Moreover, Hough observes that peak debt-ceiling danger is still distant and he looks for some opportunities to invest ‘risk capital,’ noting that stocks are just the thing for that pointing out some bargains. Savita Subramanian, a stock strategist at BofA Securities, reckons that the index is priced for 7% average yearly returns over the next decade. Near term, she calls 5% returns on cash “a compelling alternative.” But surely, says Hough, stockpickers can find individual good deals highlighting Walmart, Philip Morris International, which got analyst upgrades this past week, while Amazon will host an investor day that starts Tuesday.

>>> Weekend Papers Summary

Weekend Papers Summary

NEW YORK TIMES
-Trump Prepares to Surrender as New York Braces for Protests. Former President Trump is likely to answer charges before a judge on Tuesday, with the Secret Service in tow. His lawyer said he would not take a plea deal.The case, which could drag on for months and whose outcome is far from clear, is likely to test the country’s institutions and the rule of law.
-Biden’s Response to Trump’s Indictment? 4 Ways to Say No Comment. President Biden believes that presidents should not comment on pending legal matters. He also does not want to be baited into a reaction.
-Trump is likely to be arraigned on Tuesday. The charges against Donald J. Trump will be formally unsealed when he is arraigned. He is the first former U.S. president to be a criminal defendant, and his indictment puts the legal and political systems in uncharted territory.
-How did Alvin Bragg resurrect the case against Donald Trump? A year ago, the investigation into the former president appeared from the outside to be over. But a series of crucial turning points led to this week’s indictment.
-Storms kill at Least four people as tornadoes tear through Midwest and South. Tornadoes in Arkansas injured at least 30 people. A person was killed and at least 28 others hospitalized after a roof collapsed at a theater in Illinois.
President Biden surveyed the damage from a tornado that killed 26 in a small town in Mississippi last week.
-How a Trump-era rollback mattered for Silicon Valley Bank’s Demise.
An under-the-radar change to the way regional banks are supervised may have helped the bank’s rapidly growing risks to go unresolved.
-Why did Schwab, a Financial Giant, suffer in the regional banks panic? Like Silicon Valley Bank, the company holds billions in bonds that have declined in value. But it has access to billions in cash, if needed, analysts say, and is much more diversified.
-Fox news suffers major setback in defamation case. A judge said the suit would go to trial, for a jury to weigh whether the network knowingly spread false claims about Dominion Voting Systems, and to determine any damages.
-Bracing for Fights Ahead, Russia and Ukraine step up recruitment. After a winter of intense battles and heavy losses in Ukraine’s east, both Russia and Ukraine are taking steps to replenish their depleted forces.
-Analysis: espionage charge complicates effort to free detained reporter. The Biden administration recently secured the release of two Americans convicted in Russia, but even fabricated charges of spying can raise the stakes. Because of a bad facial recognition match, Randal Reid spent nearly a week in jail, falsely accused of stealing purses in a state he had never even visited.
-A Judge has temporarily blocked a Tennessee Law That Restricts Drag Performances
A federal judge held the law hours before it was to take effect, saying there were legitimate questions about whether it violated the First Amendment.
-An Israeli police officer has fatally shot and Arab outside Holy Site in Jerusalem. Officers killed the man early Saturday outside the Aqsa Mosque compound, known to Jews as the Temple Mount, and risking tensions during Ramadan.
-Man Guilty in Hate-Crime Killing of Asian Immigrant Sentenced to 22 Years. Jarrod Powell pleaded guilty to attacking Yao Pan Ma on an East Harlem street because the victim was of Asian descent.

THE FINANCIAL TIMES
-Minutes after Donald Trump released a statement on Thursday night calling a Manhattan grand jury’s vote to indict him on criminal charges “political persecution” and a “witch-hunt”, Republican Florida governor Ron DeSantis leapt to the former president’s defense.
-Two years on from the January 6 Capitol riots, and following a familiar call to arms from former president Donald Trump, it was widely feared that crowds of his supporters might swarm the streets of New York to protest his indictment by the Manhattan district attorney.
But by Friday afternoon, the anticipated hordes were conspicuously absent.
-Fox will have to go to trial to defend its coverage of the 2020 US presidential election, a judge ruled on Friday, denying the cable network’s attempt to prevent a $1.6B defamation case brought by voting machine maker Dominion from being decided by a jury.
-This week, just as China’s entrepreneurs were beginning to look like an endangered species, one of the most powerful regulators abruptly changed its tune. From now on, decreed the Cyberspace Administration of China, the “legitimate rights” of the corporate class would be respected. No one would be allowed to bad mouth the country’s bosses anymore.
-The rapid increase in interest rates exposed cracks in how some banks have managed their balance sheets. Three lenders have collapsed, a fourth is still on the ropes. Billions have been wiped off the market valuation of banking stocks. The crisis has big implications for US regional banks and their investors. Perceptions of risk have shifted sharply. Tougher regulation and lower profitability seem inevitable. Beyond this, US interest rate policy may now follow a gentler, slower trajectory.
-German industrial group ThyssenKrupp has revived plans to sell its submarine and maritime systems unit, a move likely to face scrutiny from politicians and government officials as Berlin seeks to boost its defense manufacturing. The decision was announced by employee representatives on Friday in an email to workers seen by the Financial Times. Employee representatives make up half of Thyssenkrupp’s supervisory board.
-Worried about a sharp deceleration of growth caused by tight Covid restrictions last year, President Xi Jinping has launched a charm offensive to convince domestic and foreign capital that the world’s second-largest economy is reopening for business.
-Sanna Marin has deftly handled the Covid-19 pandemic, Russia’s full-scale invasion of Ukraine and Finland’s bid to join NATO. Despite those achievements, the prime minister is struggling to shake off her two rightwing rivals in parliamentary elections on Sunday. “Sanna Marin has two different images, said Hanna Wass, vice-dean of the University of Helsinki. “Internationally, she’s a superstar. In Finland, she’s more of a polarizing figure.”
-Italy’s privacy watchdog has temporarily banned the popular artificial intelligence service ChatGPT made by Microsoft-backed OpenAI, as policymakers across the world seek to respond to the rise of AI products.
The nation’s data protection authority on Friday said it would block access to the chatbot in Italy, while it examines the US company’s collection of personal information during a recent cyber security breach among other issues.
-On Friday evening, Virgin Orbit appeared to be teetering on the brink. Its shares had crashed after an emotional Hart told staff on Thursday evening that the company had “ceased operations for the foreseeable future”.
Last-ditch talks were still under way with potential investors, said several people with knowledge of the situation, but even they were increasingly gloomy. If the discussions fail, Virgin Orbit could file for Chapter 11 bankruptcy early next week, they said.
-A decade and a half later and Kelleher is once again centre stage in a banking crisis — this time as chair of UBS, the Swiss lender that agreed to rescue its fierce rival Credit Suisse two weeks ago. The 65-year-old, who prefers to operate in the shadows, has been thrust into the spotlight after orchestrating the first ever union of two global systemically important financial institutions. UBS’s $3.25B rescue of Credit Suisse will create the world’s fourth-largest bank — with 120,000 staff and $5tn of assets under management — and by far the most important financial institution in Switzerland.
-The chair of UniCredit applauded the Italian bank’s shareholders for cutting “through the noise” and backing a remuneration package that could push chief executive Andrea Orcel’s pay to €9.75M. UniCredit’s remuneration policy won the backing of 70% of the investors who attended the bank’s virtual annual meeting on Friday, ending months of controversy over the proposed pay deal.

NY POST
-Former President Donald Trump is facing at least one felony charge of falsifying business records in the indictment handed down by a Manhattan grand jury over an alleged hush money payment to Stormy Daniels, sources told The Post on Friday. The charge of falsifying business records in the first degree is a class E felony, the lowest level felony, and it is the top charge in the indictment secured by Manhattan District Attorney Alvin Bragg’s office. f convicted on the felony count, Trump, 76, faces up to four years in jail. He could also receive probation and no jail time.
-Google parent Alphabet is slashing more of its lavish employee perks as the tech giant scrambles to cut costs and keep pace in the ongoing race to develop advanced artificial intelligence. The company will close some of its “micro-kitchens” that were stocked with free drinks and snacks and shutter cafeterias with lower foot traffic as part of the efficiency drive, according to a memo signed by Google CFO Ruth Porat and other top executives. Google will also trim its spending on company-provided equipment such as personal laptops, with top brass making “changes to what’s available and how often it’s replaced,” according to the memo.

FT : China escalates tech battle with review of US chipmaker Micron

China escalates tech battle with review of US chipmaker Micron
Beijing launches national security probe in retaliation against Washington’s curbs on semiconductor access

China launched a review into US chip manufacturer Micron Technology on “national security” grounds, as Beijing retaliates against Washington’s increasing curbs on Chinese access to semiconductor technology.

In a statement released late on Friday, the Cyberspace Administration of China said it would review imports of Micron’s products in order to maintain national security, ensure the security of its information infrastructure and prevent risks caused by product problems.

Nasdaq-listed Micron Technology is America’s largest maker of memory chips. Its shares fell 4 per cent in the US following the announcement.

The semiconductor industry is at the heart of economic decoupling between the world’s two superpowers. In October last year, Washington introduced expansive chip export controls in an effort to slow China’s progress in artificial intelligence and super computers. Since then, the Netherlands and Japan joined the US in imposing more restrictions.

The CAC announcement late on Friday marks a retaliatory move from Beijing and adds to the challenges facing businesses caught between the two countries.

The Biden administration has intensified economic pressure on China, with a special committee in Washington adding to bipartisan scrutiny on US businesses operating in the mainland. In response, companies in China are exploring how to diversify their supply chains.

In September last year, Micron announced it would receive around $320mn in subsidies from the Japanese government to expand co-operation with the US.

Despite China adopting a more conciliatory tone to business as it reopens from years of isolation during the pandemic, there are signs there could be more retaliation in response to Washington’s restrictions.

Last week, top US business leaders including Apple chief Tim Cook largely kept a low profile at the China Development Forum, an annual opportunity for them to meet top officials in Beijing.

The Netherlands and Japan in January reached a deal with the US regarding semiconductor exports, with the latter unveiling restrictions on 23 types of equipment on Friday. The deal is designed to cut off China’s access to advanced chips that could be used in sophisticated weaponry and machines.

Tan Jian, the Chinese ambassador to the Netherlands, last month warned of “consequences” if the country went ahead with export curbs.

In its quarterly report published in March, Micron said that “the Chinese government may restrict us from participating in the China market or may prevent us from competing effectively with Chinese companies”.

It also warned over the risk of losing access to rare earth materials that are mainly produced in China.

“Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor memory manufacturers who are able to obtain sufficient quantities of these materials from China,” the company said.

In a statement provided to Bloomberg following the announcement of the investigation, Micron said it was communicating with the Chinese regulator and co-operating fully.

>>> US Close Dow +1,26% S&P +1,44% Nasdaq +1,74% Russell +1,93%

Closing Stock Market Summary

The stock market closed out this final session of Q1 with sizable gains. The main indices moved up right out of the gate and spent most of the day inching higher. A sharp upside move in the late afternoon had the S&P 500 close above the 4,100 level.

The positive disposition today followed some relatively pleasing inflation data this morning. Briefly, the PCE Price Index slowed to 5.0% yr/yr in February from 5.3% in January while the core-PCE Price Index, the Fed's preferred inflation gauge, dipped to 4.6% from 4.7%. The direction of these moves is a welcomed development, but the pace at which these indices are decelerating leaves a bit to be desired.

Investors were also reacting to the Michigan Consumer Sentiment survey for March, which showed that year-ahead inflation expectations slowed to 3.6% from 3.8% in the preliminary reading and 4.1% in the final February reading.

Strength from the mega cap space had an outsized influence on index level performance today and throughout Q1. The Vanguard Mega Cap Growth ETF (MGK) rose 1.8% versus a 1.5% gain in the Invesco S&P 500 Equal Weight ETF (RSP) and a 1.4% gain in the market-cap weighted S&P 500. The MGK rose 18.9% this quarter versus a 2.4% gain in the RSP. 

All 11 S&P 500 sectors closed with gains led by consumer discretionary (+2.6%), real estate (+2.2%), and communication services (+2.1%). Meanwhile, the energy (+0.6%) and utilities (+0.8%) sectors fell to the bottom of the pack. Notably, the energy and utilities sectors were among the worst performers this quarter with losses of 5.6% and 4.0%, respectively. The financial sector was another top laggard this quarter, falling 6.1%.

Treasuries saw an uptick in buying interest following this morning's data releases. The 2-yr note yield settled the session down five basis points to 4.06% and the 10-yr note yield fell six basis points to 3.49%.

  • Nasdaq Composite: +16.8% YTD
  • S&P 500: +7.0% YTD
  • S&P Midcap 400: +3.4% YTD
  • Russell 2000: +2.3% YTD
  • Dow Jones Industrial Average: +0.4% YTD

Reviewing today's economic data:

  • February Personal Income 0.3% (consensus 0.3%); Prior 0.6%; February Personal Spending 0.2% vs consensus of 0.3%; Prior was revised to 2.0% from 1.8%; February PCE Prices 0.3% ( consensus 0.4%); Prior 0.6%; February PCE Prices - Core 0.3% ( consensus 0.4%); Prior was revised to 0.5% from 0.6%
    • The key takeaway from the report is that it only showed a slight deceleration in the yr/yr PCE and core-PCE price indices, which gives the Fed an argument to continue hiking rates.
  • March Chicago PMI 43.8 (consensus 42.5); Prior 43.6
  • March Univ. of Michigan Consumer Sentiment - Final 62.0 ( consensus 63.4); Prior 63.4
    • The key takeaway from the report is that the failure of Silicon Valley Bank had a limited impact on sentiment, which had already been pressured by growing concerns about a potential recession. On a positive side, year-ahead inflation expectations receded to 3.6% from 4.1% in February.

Looking ahead to Monday, market participants will receive the following economic data:

  • 9:45 a.m. ET: March IHS Markit Manufacturing PMI - Final (prior 49.3)
  • 10:00 a.m. ET: February Construction Spending (consensus 0.0%; prior -0.1%) and March ISM Manufacturing Index ( consensus 47.5%; prior 47.7%)

(ZH) "Unprecedented" Chinese Genetic Experiment May Lead To Army Of Radiation-Re

"Unprecedented" Chinese Genetic Experiment May Lead To Army Of Radiation-Resistant Super Soldiers

Reports out of China continue to confirm that scientists there are still seeking to push through barriers with Frankenstein-like experimentation on genes with an eye toward the manipulation of human DNA - any and all ethical considerations be damned. What could go wrong?
The Hong-based South China Morning Post has a doozy of a headline out this week based on a breakthrough announcement by a team of scientists linked to the Chinese military, working in Beijing: "Chinese team behind extreme animal gene experiment says it may lead to super soldiers who survive nuclear fallout."
The project was first unveiled in the Chinese-language journal, Military Medical Sciences, and has been gaining more and more media attention and interest within the scientific community, but is also raising serious ethical quandaries, despite the experiment being defended by its overseers as "totally legal".
Science Photo Library via Getty Images: Colored scanning electron micrograph (SEM) of a "water bear," or tardigrade.
According to details, the military scientists say they've successfully "inserted a gene from the microscopic water bear into human embryonic stem cells and significantly increased these cells’ resistance to radiation."
"They said success in this unprecedented experiment could lead to super-tough soldiers who could survive nuclear fallout," SCMP writes. The initiative involved the experimental introduction into human DNA (utilizing embryonic cells) of a key gene found the water bear. The gene in question gives the microscopic creature rare resistance to radiation and other extreme environmental effects.
Scientists have long considered that water bears, also known as tardigrades, may hold genetic secrets which could one day be key to human survival and longevity. The eight-legged tiny animal which is smaller than a millimeter in length, has been described as follows:
Tardigrades are tiny, cute and virtually indestructible. The microscopic animals are able to survive in a pot of boiling water, at the bottom of a deep-sea trench or even in the cold, dark vacuum of space. In August, an Israeli spacecraft carrying tardigrades as part of a scientific experiment crashed on the moon, and scientists believe they may have survived.
Having isolated the Tardigrade's gene capable of producing shieldlike proteins which can protect against radiation and other harms, the Chinese team said it "found a way to introduce this gene into human DNA using CRISPR/Cas9, a gene-editing tool now available in most bio-labs," according to the SCMP review of the experiment.
"In their laboratory experiment, nearly 90 per cent of the human embryonic cells carrying the water bear gene survived a lethal exposure to X-ray radiation, according to the team led by professor Yue Wen with the radiation biotechnology laboratory at the Academy of Military Sciences, Beijing," the report continues.
Image source: Tass
But the team acknowledges some huge 'unknowns'...
Adding an alien gene from the water bear into human embryonic cells could lead to harmful mutations, or even kill the cells because of the genetic gap between the two species, a risk Yue’s team was aware of, according to their paper.
The shielding proteins are "unique to the water bears. The immunity response after cross-species expression is unknown, and it can lead to some safety issues", they wrote.
They envision possible future application of their genetic manipulation technique centered on water bear experiments in cases related to treating acute radiation sickness for first-responders, military personnel, or anyone near a nuclear fallout zone. They also foresee the era of the future 'super soldier' and genetically altered humans capable of surviving nuclear apocalypse.

Business Of Fashion : How Bad Will the US Luxury Slowdown Be?

How Bad Will the US Luxury Slowdown Be?
Sales growth has slowed sharply after a two-year surge. But analysts expect the American luxury market to bounce back soon, as brands open more stores and adapt their offer to changing tastes.

High energy prices and inflation, geo-political turmoil and the tightening of monetary policy have taken their toll on consumer sentiment, dampening the “YOLO” attitude that drove unprecedented growth for luxury fashion brands since the pandemic.

But after slumping last year, shares in most listed luxury groups are now trading around multi-year-highs, suggesting that investors are increasingly confident that demand for high-end products will defy the general gloom.

To be sure, improved valuations are mostly being driven by hopes for a rapid rebound in Chinese spending following the lifting of strict anti-coronavirus measures. But the rosier outlook is also informed by a growing sense that in spite of macroeconomic gloom and a financial panic, the slowdown in the US market — luxury’s growth engine since the pandemic — may be less severe than expected, and relatively short-lived.

Even amid interest rate hikes, layoffs and a banking panic sparked by the collapse of two regional banks in March (Silicon Valley and Signature), the US market is expected to grow 7 percent this year, analysts at HSBC said. Bernstein expects sales to American clients to grow between 5 and 7 percent — a sharp slowdown compared to the last two years, but far from a collapse.

American luxury sales have exploded since the pandemic, rising 35 percent over 2019 levels to reach €113 billion last year, according to consultancy Bain. Last year alone luxury brands’ sales rose 25 percent in the region even as a deteriorating economic picture pounded the stock and housing markets.

But cracks finally started to show in November, with sales of entry-level luxury products slowing sharply in the holiday season. The US market is “taking a breather,” Gucci- and Saint Laurent-owner Kering’s chief financial officer Jean-Marc Duplaix said in a February press conference. “Aspirational clients in particular are sort-of taking a break.”

Growth slowed more sharply from the start of the year, dropping to a low single-digit rate, market sources and analysts estimate. Credit and debit card data from Mastercard showed a 4 percent year-on-year increase in apparel spending for February, with consumers putting an “emphasis on pricing and value” in their choice of retailer, the payments company said.

Still, luxury brands are determined to hold onto the flood of new customers they’ve attracted since the pandemic — a breakthrough in a market where fashion buyers have long been hooked on discounts, and even wealthy households tend to prioritise other categories like houses and cars (not to mention experiences like restaurants and travel).

Brands have been staging big-budget marketing events like Versace’s March show in Los Angeles, accelerating the pace of targeted clienteling initiatives like dinners with celebrity guests and couture pop-ups in places like Napa Valley and the Hamptons.

And, even as growth slows, brands have forged ahead with plans to roll out new stores in fast-growing second- and third-tier cities, where pockets of wealthy consumers have long been overlooked, and whose expansion has accelerated since the pandemic. Think Hermès in Naples, Florida; or Saint Laurent in Charlotte, North Carolina.

“Brands are not pulling back on their plans [for store openings],” New York-based luxury consultant Robert Burke said. “We’re able to gather more data than ever about local markets, and realised the strength of cities like Denver, Colorado or Nashville, Tennessee. There’s a pocket of customers in these cities that just love to shop.”

“The growth in cities like Nashville or Charlotte, it’s structural. It’s not going to disappear,” Kering CEO François-Henri Pinault said.

Refurbished and expanded stores in the most visible shopping capitals are also underway: Tiffany’s “Landmark” project — a complete overhaul of its iconic flagship store on 5th Avenue — is set to open in May. Valentino is set to open an expanded Madison Avenue location later this year.

Analysts expect that store openings, as well as revamped collections, will help to re-energise sales, with growth picking back up (albeit at a more modest pace) from the second half of the year. The industry will also face easier comparisons as it annualises Americans’ rebound in travel, which conspired with a strong dollar to drive a sharp increase in tax-free shopping in Europe in the second half of last year (to the detriment of US stores).

“There’s been an exodus of wealthy shoppers to Europe and you’re following two years of exuberance,” HSBC analyst Erwan Rambourg said. “Right now we see the US demand for luxury as being in a bit of an air pocket, but we think it’ll pick back up.”

An aesthetic shift toward more timeless, elevated styles could also help brands keep growing in the US: attracting more mature clients who weren’t as interested in luxury’s recent logomania, and who are more likely to be insulated from inflation and layoffs. “Timeless luxury is very relevant right now,” Burke said.

But that same aesthetic shift could also ratchet up the pressure on luxury’s aspirational customers: many lower-income consumers and HENRYs (High Earners Not Rich Yet) who splurged on $900 sneakers in recent years would balk at paying $4,000 for a suit. More some, keeping up with changing tastes may require trading down to less expensive brands.

Still, “luxury goods are seen to be addictive: the boost in self-esteem they provide is hard to give up,” Bernstein analyst Luca Solca wrote in a recent note to clients. “The expectation is that European and US consumers will prove sticky and won’t give up on buying luxury goods products.”

CrunchBase : The Week’s 10 Biggest Funding Rounds: Coursedog And Graphiant Lead

The Week’s 10 Biggest Funding Rounds: Coursedog And Graphiant Lead In Down Week

Last week we speculated if we were seeing the immediate effects of Silicon Valley Bank’s collapse with so few large rounds. This week, it seems almost impossible to deny the bank’s failure is having at least some short-term effects on fundraising. Again, this may only be temporary — as the bank helped facilitate closing deals by providing credit facilities before VCs would actually collect money from LPs — but there certainly seems to be an effect as there were no nine-figure rounds this week in the U.S.

1. Coursedog, $90M, edtech: Ever not get into a class you really wanted to take when you were in college? Sure, everyone who went to school has confronted that problem. Cousersedog raised $90 million from JMI Equity to help solve that exact issue. The New York-based startup has created an “academic operations platform” for higher-education institutions, helping in curriculum planning, course scheduling, event management and catalog management. In total, it helps colleges schedule classes better. More than 170 institutions use the platform, including Columbia University — the alma mater of Coursedog’s founders. Founded in 2018, the company has raised nearly $113 million, per Crunchbase.

2. Graphiant, $62M, information technology: Connecting a company’s data centers, clouds and other tech services can be difficult. San Jose-based Graphiant, an edge services provider, is looking to make that simpler and faster. The startup raised a $62 million Series B led by Two Bear Capital. Its founder and CEO — Khalid Raza — knows the tech space well. He previously founded networking startup Viptela, which was bought by Cisco Systems in 2017 for $610 million. Founded in 2020, Graphiant has raised $96 million to date, per the company.

3. DataDome, $42M, cybersecurity: Bad bots are everywhere, but that doesn’t mean companies are defenseless. New York-based DataDome helps companies fight against AI-powered online fraud and bot attacks. Just last year, the startup says, it stopped more than 250 billion online fraud attempts. That track record likely helped it raise a $42 million Series C this week led by InfraVia Growth. Founded in 2015, the company has raised more than $80 million, according to Crunchbase.

4. P97 Networks, $40M, fintech: Everyone pays at the pump these days (assuming you don’t have an EV). Houston-based P97 Networks, one of the companies that makes that possible, raised a $40 million equity financing led by Portage this week. P97 provides mobile commerce and digital marketing to the convenience retail, auto industry and fuel markets. The company’s platform is used in more than 65,000 convenience stores and gas stations. It also is used at over 240,000 EV chargers — if you do have an EV. Founded in 2012, the company has raised nearly $110 million, according to Crunchbase.

5. Modern Electron, $33M, energy: Bellevue, Washington-based Modern Electron, a hydrogen heating company, raised a $32.8 million round, per a report. The cleantech startup has a solution that decarbonizes gas use by converting it to clean hydrogen onsite without CO2 emissions, and another that converts heat to power. Its investors include Bill Gates and At One Ventures. Founded in 2015, the company has raised nearly $74 million, per Crunchbase.

6. Sonoma Biotherapeutics, $30M, biotech: South San Francisco-based biotech firm Sonoma Biotherapeutics received a $30 million equity investment from Regeneron Pharmaceuticals. Founded in 2020, the company has raised $365 million, per Crunchbase.

7. Type One Energy, $29M, energy: Madison, Wisconsin-based fusion power startup Type One Energy closed a $29 million round co-led by Breakthrough Energy Ventures, TDK Ventures and Doral Energy-Tech Ventures. The funding is the company’s first.

8. Spiral, $28M, fintech: New York-based social impact fintech startup Spiral closed a $28 million Series A led by Team8. Founded in 2019, Spiral has raised $42 million, per the company.

9. Perplexity AI, $26M, artificial intelligence: San Francisco-based Perplexity AI, a conversational AI-powered search engine, raised a $25.6 million Series A led by New Enterprise Associates. Founded in 2022, the company has raised nearly $29 million, according to Crunchbase.

10. LeapXpert, $22M, enterprise software: New York-based business communication platform LeapXpert locked up a $22 million Series A+ round led by Rockefeller Asset Management through its Technology Ventures Group. Founded in 2017, the company has now raised $36 million, per Crunchbase.


Big global deals
The top three rounds all happened outside the U.S. this week.

  • Columbia-based Isar Aerospace, a satellite startup, closed a Series C worth approximately $169 million.
  • China-based DeepWay, a maker and developer of electric commercial vehicles, raised a Series A of approximately $112 million.
  • The France-based crypto hardware maker Ledger added another $108 million to its previously announced Series C. The firm raised its initial Series C of $380 million in June 2021.

WSJ : Artificial Intelligence Is Teaching Us New, Surprising Things About the Hu

Artificial Intelligence Is Teaching Us New, Surprising Things About the Human Mind
Thought is ever-changing electrical patterns unconnected to individual neurons. Meta is working on a system to read your mind.

The world has been learning an awful lot about artificial intelligence lately, thanks to the arrival of eerily human-like chatbots.

Less noticed, but just as important: Researchers are learning a great deal about us – with the help of AI.

AI is helping scientists decode how neurons in our brains communicate, and explore the nature of cognition. This new research could one day lead to humans connecting with computers merely by thinking–as opposed to typing or voice commands. But there is a long way to go before such visions become reality.

I say tomato, you say pangolin
Celeste Kidd, a psychology professor at the University of California, Berkeley, was surprised by what she discovered when she tried to examine the range of opinions people have about certain politicians, including Barack Obama and Donald Trump.

Her research was intended to explore the widening divergence of how we conceive of subjects to which we attach moral judgements – such as politicians. Previous work has shown that morally-fraught concepts are the ones people perceive in the most polarized ways.

To establish a baseline for her experiment, she began by asking thousands of study participants about their associations with common nouns, in this case animals.

What she discovered was that even for common animals – including chickens, whales and salmon – people’s notions of their characteristics are all over the map. Are whales majestic? You’d be surprised who disagrees. Are penguins heavy? Opinions vary. By quizzing people on many such associations, Dr. Kidd was able to amass a pool of data that clusters people according to which of these associations they agree on. Using this method, she found that people can be grouped into between 10 and 30 different clusters, depending on their perception of an animal.

Dr. Kidd and her team concluded that people tend not to see eye to eye about even the most basic characteristics of common objects. We also overestimate how many people see things as we do. In a world in which it feels like people are increasingly talking past one another, the root of this phenomenon may be the fact that even for citizens of a single country speaking a common language, words simply don’t mean the same thing to different people.

That might not seem like a very profound observation, but what Dr. Kidd’s research suggests is the degree to which that’s true may be much greater than psychologists previously thought.

Arriving at this insight required the application of a tool of mathematics that makes many kinds of AI possible – known as a “clustering model”.

The most important feature of AI which enables new kinds of research, says Dr. Kidd, is the same that makes possible AI chatbots like OpenAI’s ChatGPT, Google’s Bard, and Microsoft’s Bing chat: It’s the capacity of modern computer systems to process a lot more data than in the past. It “opens up a lot of possibilities for new insights, from biology to medicine to cognitive science,” she adds.

Cracking the brain’s neural code
In her research, Tatiana Engel, an assistant professor of neuroscience at Princeton University, uses the same kinds of networks of artificial neurons that are behind most of what we currently call artificial intelligence. But rather than using these to better-target ads, or to generate fake images, or compose text, she and her team use them to interpret the electrical signals of hundreds of neurons at once in the brains of animals.

Dr. Engel and her team then go a step further: they train networks of artificial neurons to perform the same tasks as an animal – say, a swimming worm. They then find that those artificial networks organize themselves in ways that reasonably approximate the way they’re organized in real animals. While neural networks in the brain are vastly more complicated, the result of this simulation is a model system that is both close enough to its biological equivalent, and simple enough, to teach us things about how the real brain works, Dr. Engel says.

One key insight this yields is that the actual substance of thought – the patterns that constitute the mind you’re using to read this sentence – is dynamic electrical activity in our brains rather than something physically anchored to particular neurons.

In other words, in contrast to what neuroscientists once believed about how we make decisions, there are no “eat the chocolate” neurons and “don’t eat the chocolate” neurons. Thinking, it turns out, is just electrical signals zooming about inside our heads, forming a complex code which is carried by our neurons.

What’s more, AI is letting scientists listen in on the things that happen in our brains when we’re not doing anything in particular.

“This allows us to discover the brain’s internal life,” says Dr. Engel.

Do androids dream of electric sheep? We don’t know yet, but we may soon be able to determine if humans are thinking about the real thing.

Real-life mind reading
If a research lab owned by Meta META 1.97% Platforms, Facebook’s parent company, figuring out how to read your mind makes you at all uncomfortable, you’re probably not going to be a fan of what the rest of the 21st century has in store.

Historically, it’s been very difficult to measure brain activity inside our heads, because the electrical signals generated by our brains, which are miniscule to begin with, must be measured from outside of our skulls. ( Elon Musk’s aspirations for his Neuralink startup notwithstanding, opening up our heads and putting in brain interfaces hasn’t proved popular.)

But progress in artificial intelligence techniques is yielding a more-powerful amplifier of those weak brain signals. Meta’s AI lab published research on one such mind-reading technology last summer.

Meta scientists didn’t actually stick anyone in a brain scanner. Instead, they used data on brain signals gathered by researchers at universities. This data was captured from human subjects who were listening to words and phrases, while sitting in non-invasive brain scanners. These scanners came in two varieties: One was the sort of electrodes-embedded-in-a-swim-cap with which many people are familiar, called an EEG (short for “electroencephalogram”). The other looks like a supervillain’s attempt to create a world-crushing megabrain, called a MEG (for “magnetoencephalogram”).

To analyze this data, researchers used a type of AI called a “self-supervised learning model.” Without this technique, the latest generation of AI chatbots would be impossible. Such models can extract meaning from giant pools of data without any instruction from humans, and have also been used to try and figure out what animals are communicating with each other.

A little less than half of the time, Meta’s AI algorithm was able to correctly guess what words a person had heard, based on the activity generated in their brains. That might not sound too impressive, but it’s leaps and bounds better than what such systems have been able to achieve in the past.

Alexandre Défossez, a scientist at Meta who was part of the team that conducted this research, says that the eventual goal of this work is to create a general-purpose “speech decoder” that can directly transform our brain activity–our thoughts–into words.

Imagine texting a friend just by thinking about it – as long as you’re wearing an EEG cap at the moment, at any rate. The technology could have a big impact on the lives of people who are unable to communicate in other ways, adds Dr. Défossez.

It’s just one more example of the way that AI might someday give us the tools for improving our individual and collective well-being – or at least an explanation for why, in the age of social media, both of those things frequently seem so deranged.

Write to Christopher Mims at christopher.mims@wsj.com