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Predictions for the year from the FT’s tech correspondents

This was a blockbuster year for tech, in which the share prices of Microsoft, Google, Apple, Amazon, Alibaba, Tencent and Facebook continued to soar and a host of start-ups went public.

Here at the Financial Times, we brought you a range of exclusive news, including a major security breach at WhatsApp, the departure from Apple of the iPhone designer Jony Ive, and Google reaching quantum supremacy.

This was also the year when Samsung released a broken folding phone, Facebook tried to launch a new currency, the Uber IPO crashed, Jack Ma left Alibaba, the US-China tech war showed no signs of cooling, London’s King’s Cross had to retreat from facial recognition, and the data economy continued to be a major concern.

Here is what our tech correspondents are looking forward to in 2020.

Richard Waters, West Coast bureau chief, sees slowing progress in AI, renewed interest in blockchain and another year of attacks on Facebook.

Next year will not bring a full-blown AI Winter — the name given to the times when AI has fallen out of favour — but there will be a definite nip in the air.

After all the promises, the limitations of deep learning will loom large, as companies discover how hard it is to get results from their own data. There will be at least one high-profile example of a company that puts too much faith in the output of a smart algorithm, with embarrassing results.

Another much-hyped technology, on the other hand, will come back into favour: Blockchain.

Cryptocurrencies will get an official seal of approval as other central banks follow China in looking to issue their own digital currencies. And while behind-the-scenes applications (in supply chains and the back-office functions of banks) will make steady if unspectacular progress, a hit app in the consumer market will highlight the potential for a new generation of decentralised online markets.

But crypto’s wild, speculative phase has longer to run: another year of wild volatility is as likely to leave bitcoin at $30,000 as $1,000.

Meanwhile, with a US election late in the year, Facebook will spend another year as everyone’s favourite punch bag (OK, that’s an easy one).

Caught between the free-speech zealots and the opponents of fake news, Mark Zuckerberg will continue to look uncomfortable trying, and failing, to come up with a credible rationale for why Facebook does not make deeper changes to its service.

When the dust has settled and the history of the 2020 election is written, however, it will be agreed that Fox News did more to foster partisan division than any online social network.

Yuan Yang, the FT’s Beijing technology correspondent, forecasts more rows between Washington and Beijing, data protection to become a priority for China, and at least one embarrassing leak.

The battle between the US and China over technology is going to get louder. A big Chinese tech company — most likely ByteDance, the maker of viral video app TikTok — is going to be hit with restrictions by the US, and Beijing is going to get tougher on US companies in return.

As China’s tech companies try to wean themselves off the US supply chain, there will be flashy announcements of new Chinese-made chip designs.

What will be interesting will be the role of US companies, like Qualcomm, or US-originated research projects, like RISC-V, in helping Chinese companies achieve their goals. Just because they are US companies does not mean they want to go along with the US government’s decoupling — they still have plenty of business in China. Researchers will also still want to collaborate across borders.

Rather than invest in the US, Alibaba, Tencent and ByteDance will expand their investment in Europe. And rather than fundraising in US stock markets, a crop of start-ups will list on Shanghai’s new Nasdaq-like Star Board. The government wants its best companies to list in China, and will relax regulations in order to help, as well as pushing behind the scenes at companies. Ant Financial’s much-delayed IPO will finally show up in Hong Kong, the mainland, or both.

Data security will become an even hotter issue in China. Over the past two years, Beijing has pushed to improve cyber security, fearing citizens’ data could get into the hands of foreign enemies. Next year the government will draft two laws on protecting personal data and data security. One of the last things it did this year was to publicly tell off companies who were sucking up too much data with their apps. In 2020, there will be more severe punishments for poor data protection, with one of the tech giants getting a hefty fine to set an example.

Despite that push, there will also be several major data leaks that will be embarrassing for the government. China’s local governments are hastily building out surveillance systems that are tracking citizens’ locations by the second, aided by facial recognition cameras and mobile phone trackers, and all this data has to be stored somewhere. Some of it will end up on unsecured databases that anyone with an internet connection can leaf through. When researchers and journalists come across these databases, they provide a great opportunity to peek inside the workings of the Chinese police state.

Tim Bradshaw, the FT’s global tech correspondent, looks forward to a 5G iPhone, snazzier headphones, and either the rebirth or death of games consoles.

It turns out that only one gadget prediction really mattered over the past 10 years: that the smartphone would continue to be dominant.

The arrival of a 5G iPhone and broader deployment of faster wireless networks in 2020 could spur a bigger wave of handset upgrades over the coming year. 5G may be more incremental than revolutionary, but it was the addition of 4G to Android devices starting in 2010 and the iPhone 5 in 2012 that allowed smartphones to fulfil their potential over the past decade. At the very least, 5G will bring smartphones more gaming, more video — and more anxiety about just how quickly we will burn through our mobile data allowances.

While it is still hard to imagine that anything can separate our eyes and thumbs from our pocket supercomputers, Silicon Valley has designs on our ears. The breakout success of Apple’s AirPods in the past 18 months means that wireless earbuds have replaced smartwatches as the industry’s new “wearable” accessory focus.

Research group IDC estimates that sales of what it calls “earwear” reached 139.4m units in 2019 (double the number of smartwatches sold during the year), with shipments reaching 273.7m by 2023. In 2020, expect Amazon, Google and Samsung to step up their efforts to turn headphones into a platform for their competing virtual assistants, while AirPods copycats will proliferate at CES in January.

Towards the end of 2020, a new hype cycle will begin for video games, with Sony and Microsoft readying their next-generation consoles for the holidays. Both the Xbox Series X and PlayStation 5 will offer 8K resolution (what comes after 4K’s “ultra-HD”? Super-HD? Mega-HD?) and “ray tracing”, a more dynamic and naturalistic way of bouncing light off in-game objects and environments.

But with Microsoft also set to launch its cloud gaming service to compete with Google’s Stadia, and the continued popularity of cross-platform multiplayer games such as Fortnite, perhaps 2020 is the year that another too-frequent prediction of the past decade — the death of the console — finally starts coming true.

Why 2020 could be a very busy year for US bank mergers

The BB&T and SunTrust tie-up provides a template for future deals

Predictions that a rush of big US bank mergers is just around the corner are perennially popular, but the facts rarely co-operate. While small community banks continue to link up, deals worth more than a few billion dollars are hard to get done.

That said, the pieces do seem to be in place to make 2020 a busy year for deals, as falling profits and the presidential election sharpen minds at the 4,700 or so banks across the country.

The stage has been set this year by a series of tie-ups, which began with a really big one. Two southern banks, BB&T and SunTrust, hooked up in February to create a bank called Truist, with $460bn in assets. 

That is still small compared with the four mega banks: JPMorgan Chase, Bank of America and Citigroup all have at least $2tn in assets, while Wells Fargo is there or thereabouts. But the deal puts Truist in the top 10 and proves that good-sized deals can get done post-crisis, at least under the bank-friendly regulators appointed by Donald Trump.

Just as important as the size of the Truist deal was its structure. The nominal buyer, BB&T, paid in shares at almost no premium. This “merger of equals” allowed the two sets of shareholders to split the cost savings over time, rather than having the target bank’s investors extract their pound of flesh at the outset.

This is key, because shareholders hate it when a bank they own pays a premium for a rival. Two deals in 2018 that included meaty premiums — Fifth Third/MB and Synovus/Florida Community — resulted in the shares of both buyers taking an immediate beating. Paying now for earnings growth tomorrow is just not in vogue. So Truist raises hopes that the biggest regional banks might follow the no-premium trend, creating banks with the heft to challenge the giants. 

Consumers should hope they do. The dominance of the big four is a real threat to competition. The multibillion-dollar tech budgets of the biggest players mean they are able to improve their mobile banking tools and their underwriting systems in ways smaller banks simply cannot match. The fact that the biggest banks have captured the majority of US deposit growth in recent years is just one piece of evidence. The tide might be turned if the likes of US Bancorp of Minneapolis ($488bn in assets), M & T of Buffalo ($126bn) or Birmingham, Alabama’s Regions Bank ($128bn) can get meaningful deals done. 

Yet these deals are not easy to pull off, said Rodgin Cohen of Simpson Thacher, a lawyer who specialises in bank M&A. “You need CEOs that get along and trust each other,” he said. “You have to be able to negotiate the non-financial issues — the most important of which is who will be the new CEO.”

Two recent midsized, no-premium deals have held out reasons for hope. The IberiaBank/First Horizon and Texas Capital/Independent mergers created banks with $75bn and $48bn, respectively, to be headquartered in Memphis and McKinney, Texas. The shares of both the buyers and the sellers got a bump-up when the deals were announced.

Banks that are considering a deal could be feeling some time pressure, too. The prospect that a Democrat could take control of the White House in January 2021, and might take a dim view of bank deals, has many analysts talking about a window of opportunity that will close in the spring of next year — given such deals can take seven months or more to close. Mr Cohen points out that even if Mr Trump wins again, there might be personnel changes at the Federal Reserve or the other regulatory agencies, which could make deals harder.

Marty Mosby, banks analyst at Vining Sparks, thinks that the politics may be less important than the fact that low interest rates continue to squeeze bank margins and the benefits of cost-cutting programmes are beginning to fade. The result is that in 2020, earnings could be flat to down. “It will feel kind of late-cycle,” he said, adding that this “gets people thinking strategically”.

Brian Klock of KBW agrees. The Boston-based analyst is looking for earnings-per-share growth of about 2 per cent for the industry next year, and notes that most of that is driven by share repurchases and the cost benefit of the deals that have already been done. “Without those, we’d have no EPS growth at all,” he said.

Are slowing profits, a tight political calendar, and the recent success of no-premium deals enough to spur major mergers? It comes down, in the end, to Mr Cohen’s point about chief executives. The old saying in the industry is that banks are sold, not bought. Bosses have it pretty good: an interesting job, a big pay cheque, prestige. Doing a low-premium deal requires somebody to give all that up.

In sum, the economics are lined up for a big 2020 for bank mergers. The psychology remains to be seen.

Scientists battle to save ice masses from effects of warmer summer temperatures

After visiting the Gornergletscher in 1880, Mark Twain wrote that time spent near glaciers was a reminder of man’s “tolerable insignificance”. Yet high in the Swiss Alps, it is man’s intolerable significance that is fast becoming clear.

Soaring summer temperatures linked to climate change are having a profound effect on Switzerland’s 1,800 glaciers. Scientists estimate that 2 per cent of the country’s glacial mass has melted this year alone — enough to fill a 25m swimming pool for every Swiss citizen.

“Glaciers make climate change visible,” said Jean-Baptiste Bosson, a glaciologist at the International Union for Conservation of Nature.

The deterioration of Switzerland’s glaciers is being mirrored around the world as ice masses, even in the highest mountain ranges, shrink because of warmer temperatures. In Switzerland, four of the hottest years in history have been in the past five years.

A study by Mr Bosson projected that more than half the world’s big glaciers would be lost by 2100. “We tried to answer the question: ‘how are they evolving and how will they evolve over the next century?’,” said Mr Bosson. “The answer is that even in the most optimistic case, we are going to lose at least a third of their volume.”

Glaciers store 95 per cent of the world’s fresh water. Even if the recent run of unusually hot summers were to end, the lost ice cannot be quickly replaced as the compaction process that forms glaciers takes decades.

Swiss scientists first began to notice that Alpine glaciers were shrinking about 40 years ago. Daniel Farinotti, a glaciologist at Zurich’s ETH university, noted that the period in the 1960 and 1970s was the last time that they advanced. Since 1980, however, Switzerland’s glaciers have lose 37 per cent of their mass, with the pace accelerating in recent years.

“The truth is that even if we were to stabilise the climate . . . the glaciers would not freeze as they are now. They would continue retreating,” Prof Farinotti said. “Present day glaciers are still sized for the climate of years ago. They take time to adjust.”

A spate of deaths in the Swiss Alps in recent years have been blamed by experts on the changing climactic conditions. In 2018, the last year for which full figures were released, 13 people died on glaciers alone, thanks to far greater instability than usual. The number is more than double the recent average.

Switzerland’s lucrative winter sports sector is feeling the impact. As far back as 2005, locals in the Andermatt area, high in the Alps near the Gotthard pass, were having to cover the Gurschen glacier in blankets during the Summer to help maintain winter skiing conditions. In some resorts, melting ice deep under snow levels has wiped out some pistes altogether.

The hydroelectric sector that is the source of most of Switzerland’s electricity is also being affected by changes to watercourses.

Meltwater has led to fish stocks disappearing from some rivers, according to the Swiss Federal Office of the Environment. Scientists believe that temperatures and levels of bodies of water, such as Lake Geneva, could change in the coming years.

Switzerland is a signatory to the 2015 Paris climate accord that aims to cut carbon emissions radically, but concrete action to reduce greenhouse gases has been slow.

Voters are beginning to wake up to the threat. A petition for a referendum on climate change targets under Switzerland’s system of democracy gained more than 120,000 signatures. The initiative proposes binding legal targets for Switzerland to become fully carbon neutral by 2050. The proposed law change was formally sent this month to the government which has until next year to make a counterproposal.

“Glaciers are part of our identity,” said Céline Pfister, who is part of the campaign. “The glacier initiative is really a bottom-up movement,” she added.

While many Swiss are incredibly environmentally conscious — diligently sorting household recycling into neat bundles — the country has a highly developed outward-looking industrial sector which skews its overall carbon footprint. Switzerland’s economic security is perhaps the only thing its citizens place on a par with the beauty of their natural environment.

Ms Pfister said her initiative would mean: “No fossil fuels. No oil. No coal. No gas.”

Yet, in the coming days, the country will fail to meet its existing emissions reduction targets. Switzerland has a 2020 goal, written into law, of a 20 per cent reduction in emissions benchmarked to 1990. It has only reduced emissions by 12 per cent.

Some Swiss communities, those most affected by glacial retreats, say they cannot wait for government action. In Pontresina, south-east Switzerland, the local authority is battling to save the Morteratsch glacier that sits high above their village.

One project, led by Johannes Oerlemans, a Utrecht University climatologist, involves laying a system of aerial pipes over the glacial channel, which mists the glacier with water in the hot summer months. The idea is that the water turns to snow, blanketing the glacier with an additional insulating layer.

“The system could potentially work anywhere,” said Prof Oerlemans, “but the engineering challenges are huge. We want to cover an area of one-and-a-half square kilometres. That means 1,000 tonnes of snow a day.”

While the modelling indicates that the scheme should succeed, it will take decades before it actually reverses the fate of the glacier.

And it is, as Professor Oerlemans laments, a palliative measure unless governments take real action to tackle climate change. “If the Paris agreement becomes reality then there is a chance. But if nothing happens . . . this is a hopeless cause.”

Moscow pushes lifestyle shift in country stereotyped for its heavy drinking

Smirnoff’s first vodka warehouse in central Moscow is becoming an arts and culture complex. Cheering fans at the Russian capital’s ice hockey derby are fuelled only by non-alcoholic lager. And the ubiquitous pavement kiosks that once sold vodka bottles and dried fish snacks taped to the windows now deal only in newspapers and soft drinks.

Long stereotyped as a nation of heavy drinkers, Russia has defied traditional clichés over the past decade as alcohol consumption has halved between 2008 and 2018, according to government statistics, driven by strict new state policies and a surge in health-conscious middle classes and incomes. 

Russian president Vladimir Putin has made a healthy lifestyle a major part of his public relations image, in stark contrast to predecessor Boris Yeltsin’s infamous penchant for the bottle. The latter’s televised drinking, singing and dancing, and slurred speeches came to symbolise Russia’s inebriated decade after the fall of the Soviet Union.

“Our leader is completely compliant with a healthy way of life. He plays sports, he shows as a role model how to work hard but maintain a healthy lifestyle,” said Veronika Skvortsova, the country’s health minister, who has led a pan-government crusade against the bottle.

A dramatic fall in alcohol consumption has coincided with a rise in life expectancy to an all-time high. “We have been heading towards this, focusing completely on this goal,” she said. “When I arrived in the ministry in 2008, the annual consumption of alcohol was 18 litres per capita . . . My strategy was to make every minister in the entire government feel a little bit like they were the minister of health.” 

The crackdown on alcohol is a major about-turn from a government that only 13 years ago launched a state-produced, super low-cost vodka marketed to its poorest people. Since 2010, excise tax on alcohol has been raised, sales banned after 11pm and in sports events, adverts barred from television and drinking prohibited in public spaces. 

At nine litres of pure alcohol equivalent per year, the average Russian now drinks less than people in France or Germany, according to World Health Organization (WHO) data. 

Ms Skvortsova said her next push — to reduce the average drinking level below the WHO’s official healthy limit of eight litres of clear alcohol or equivalent per person per year — will involve increasing to 21 the legal age to buy alcohol more than 16.5 per cent, and teaching the benefits of abstinence to children as young as three. “We are honing our strategy in how to combat bad behaviours,” said the doctor of neurology. “We want to make living healthily a habit . . . on a subconscious level.” 

Alcohol has long been a major health issue in Russia. Before the clampdown, it was the biggest external factor in deaths of working-age people. Of those who died in hospital of pneumonia, 90 per cent had alcohol in their blood. Since 2008, average life expectancy in Russia has increased by five years to 73 last year. “Obviously these are connected. It is one, big contributor to the increase,” said Ms Skvortsova.

While the first Alcoholics Anonymous group in Moscow was founded in 1988, there are 165 groups in the capital alone.

“In Russia, few people know that [these activities] are happening right around them in their areas, inside social centres, or church buildings nearby: recovering alcoholics are helping other alcoholics embark on the path of sobriety,” said Natalia Matveeva, who heads the Moscow network of support groups.

Reducing drinking is also seen by the government as a means to increase productivity and economic output, and reduce crime. “It is known that a certain proportion of crimes might not have happened if it weren’t for alcohol. According to the Russian ministry of internal affairs, in 2018 every third case involving a breach of the law involves intoxication,” said Ms Matveeva. 

The health crusade, which has also involved a campaign against cigarettes, is expanding to combat recreational drugs and the rise of alternative tobacco products. 

“It is very important that this progress [reducing smoking] does not reverse. The lobbyists which fight against a healthy way of life can find very tricky ways to go from traditional cigarettes to e-smoking,” she said.

“I think they are even more dangerous than natural tobacco. We are planning the same restrictions against e-cigarettes that we have against other tobacco products.” 

There is also no chance of Russia following some western states in legalising marijuana for personal or medicinal use, the minister said. “Absolutely not. Public opinion is completely negative on this,” she said. “I think that it is against humanity [to legalise cannabis].”

The $1.6tn US student debt nightmare

45m students are paying off debts to the federal government — and many are struggling

Sarah Voorhies lost her mother while at Vermont Law School. Although she was an excellent student in her first year, the loss of her only close relative caused huge disruption to her studies.

“It was hard for me dealing with the grief,” says Voorhies. She had already paid tuition fees and taken out a loan, but her grades failed her. She was expelled for academic failure in 2011.

Without a law degree, she did not earn enough in her back-up profession to pay the debt she had accumulated as a student. Her initial loan ballooned from $70,000 to $160,000 in just a few years, as interest payments multiplied.

Voorhies is one of 45m students who are paying off debts to the federal government after seeking its help to fund their university studies. Millennials aged between 25 and 34 years old account for one-third of this number. They have faced a particularly harsh economic environment in the past decade, including the recession that followed the financial crisis, stagnating wages and rising tuition costs.

For many of this generation, higher education has not only failed to deliver on its promise of prosperity but left them trapped in a student debt nightmare. As the issue emerges as a big theme of the 2020 US presidential election, experts are urging policymakers to tackle the spiralling US student loan crisis. What are the ramifications for those suffering its worst effects?

The debt cycle

Many millennials struggling with their student loans have taken more than one job to make ends meet or opted to refinance debt several times. Some seek help from public refinancing programmes, often falling into the trap of paying increased interest rates or failing to qualify for assistance. Others have tried to disappear from the system or even declared bankruptcy in their mid-twenties.

A heavy burden of student debt brings wider economic consequences, including lower rates of home ownership, small business creation and consumer spending. Donald Trump, US president, has acknowledged the seriousness of the student debt problem, describing it as “outrageous”. Federal student loan debt totalled $1.6tn in 2019, or 8 per cent of the country’s national income. Trump pledged to reduce that number during his presidency, but measures to tackle the issue have so far failed to deliver.

In other countries, the costs of higher education are often heavily state-funded or capped. In the UK, universities can charge a maximum of £9,250 a year in undergraduate tuition fees for UK and EU students. Annual rates charged by US universities, however, range from $10,000 to $50,000 for the more prestigious degrees.

Tuition costs for a four-year bachelor degree can reach $200,000. Those studying law, a postgraduate degree, will pay another $50,000-$60,000 on top. A law degree at Harvard costs $65,875 in tuition alone. At Princeton the price tag is $51,870.

Parental support is a primary source of revenue for higher education. But a study published by HSBC in 2018 found that the average shortfall in total expenses for US students, after taking parental help into account, was $82,100.

Root causes

Ben Miller, a researcher at the Centre for American Progress, a think-tank in Washington DC, says the crisis is mainly the result of cuts in federal and state funding. Federal funding has consistently fallen as a percentage of overall revenue for universities from the mid-1960s to 1990 and has stagnated since 2007. A similar trend emerged in US state funding in the early 1980s. Each recession has led to deeper cuts, not reversed during periods of growth.

Tuition costs, on the other hand, have risen since the 1950s. Universities have shifted part of the schools’ financial burden to students, in turn boosting their federal loan debts.

Tucker Ebersole, a 25-year-old manufacturing safety specialist from Pennsylvania, relied heavily on federal support when studying environmental health at Millersville University in Pennsylvania.

He took a $33,000 federal loan with a variable interest rate of 3 to 4.5 per cent. When that was not enough to cover tuition and living expenses, Ebersole sought help from his parents, who also applied for a federal loan. They borrowed $118,000 at 6.5 per cent from a public loan programme called Parent Plus. Ebersole worked part-time through college and at one point had two jobs.

“I would go to class from 7:30am-1pm, go to my first job from 1:30pm-5pm, then get to my second job at 5:30pm and would work until 2am,” he says.

That still wasn’t enough to escape the debt burden. After graduating, Ebersole moved back in with his parents to save on rent but could hardly afford the monthly debt payments. He is now looking for a part-time job on top of his full-time job.

“Growing up, schools and teachers made it out that a four-year degree was the only way to be successful,” he says. “[But] a college degree has turned from a tool for a better future to a luxury for upper-class families.”

Broken model

Most students believe a degree will lead to a high income, enabling them to pay off their student debt. But the old model has come under pressure as incomes have stagnated over the past decade. “The return on a degree is far lower than 20 years ago,” says Miller.

Leanna Harrison, a college science graduate from Wright State University, Ohio, thought that getting a degree would be her way out of poverty. She recalls reading a leaflet on job prospects suggesting salaries of about $60,000 a year. She took out a $64,000 federal loan to foot the bill and now makes closer to $36,000 a year.

Like many Americans, she turned to federal programmes for support, successfully applying for an income-based repayment plan, a government-funded initiative that caps federal loan repayments at 10 per cent of a borrower’s income. Harrison started paying $700 to $800 a month towards her student debt but realised that the overall debt was not going down.

Federally-supported income-based repayment plans tend to make borrowers worse off, argues Miller. Unlike in the UK, the interest rate increases with time and the US government does not forgive the debt after 30 years.

Harrison realised her rate had gone up to 6.2 per cent and that the outstanding interest was $15,045. Her debt went from $60,000 to $79,119. “I feel overwhelmed and like I can’t get ahead of it all,” she says.

Defaulting is another option. But if a debtor chooses to do this, the US government can take about 15 per cent of their discretionary income, subsidies and other taxes. The loan remains intact, with a higher default rate applied to it. Any future income — including social security income, a federal subsidy to support low-income people over 65 years old — can be captured. “The system is essentially punitive,” says Miller.

Another way out is to work in the public sector. Under the public forgiveness programme, student debts of public workers are cancelled after 10 years. But only certain loans and payment plans are considered: Harrison, who worked for six years in a public hospital as a laboratory scientist, found that more than one-third of her federal loan debt was ineligible. 

Student debt weighs more heavily on low-income workers who either fail to finish their undergraduate degree or cannot manage to pay off that last $10,000. Minorities, including Hispanic and black students, are disproportionately affected, as are women.

The burden of student loans is likely to widen the wealth gap, as poorer people take longer to pay their debts and struggle to save for their own children’s future. “It’s a sad irony that [the government] took measures to take people out of poverty and now uses those same measures to send them back into it,” says Miller.

Seeking solutions

How can students avoid falling into a debt disaster? Mark Williams, a lecturer in finance at Boston University, urges parents and students to give more thought to course and university selection. “Students, supported by their parents, want to go to the best university, the most prestigious. They think they’ll hit the lottery when what they should be thinking about is the best financial fit for the career they want.”

Some should consider going to cheaper universities, such as community colleges, then transferring to the more prestigious ones for their final years to save on tuition, Williams says.

Some people work before taking a degree so they can build a savings war chest. Others move to the state of their chosen university until they qualify for residency, so they will pay cheaper “in-state” tuition rates.

President Trump has proposed further cuts in federal funding and shorter degrees, and early this year floated a plan to cut 10 per cent from the Department of Education budget. At the other end of the scale, Democratic presidential candidates Elizabeth Warren and Bernie Sanders want to forgive or cancel chunks of debt and pay for it with taxes on the rich.

Although experts are sceptical that these pledges will see the light of day, they see signs of hope in the action taken by some states to support universities. Tennessee, Indiana and Michigan have tried to raise funds for state colleges, reversing the decades-long downward trend.

“We used to have a deal where states would subsidise public higher education so students could afford college without debt,” says Miller. Today, some states are trying to rebuild this role, he adds. 

Given the slow pace of reform, however, many former students are likely to remain locked in debt for years to come. “The reality is I will probably be paying off these loans the rest of my life,” Harrison says.

New plant expected to double production capacity of its Model 3 sedan

Tesla has lined up Rmb11.25bn ($1.6bn) in cheap new financing from a consortium of state-backed Chinese lenders as it races to start deliveries of its mass-market Model 3 sedan from its Shanghai Gigafactory.

The electric carmaker is counting on the new plant to supply the massive Chinese automotive market while sidestepping shipping costs and tariff uncertainties, which this year already forced Tesla to raise and lower prices with the twists and turns of Washington’s tit-for-tat tariff battle with Beijing.

The new Shanghai plant was built in record time with groundbreaking in January of this year and Chinese authorities giving Tesla the go-ahead for mass production in November. The plant will double Tesla’s production capacity of its Model 3 sedan, analysts say.

Tesla announced it had struck a deal with four Chinese lenders for an Rmb9bn term loan to finance construction and production at the Shanghai plant, secured by the land and buildings there, and a separate Rmb2.25bn unsecured revolving credit facility. 

The carmaker used a portion of the financing to pay off an earlier Rmb3.5bn loan that was due next year. 

Analysts say the loans from the state-backed lenders came with preferential terms — Rmb borrowings from the facilities bear interest at less than the Chinese central bank’s market rate, while dollar borrowings on the revolving facility are priced at the London interbank rate plus 0.8 per cent. In contrast, a Tesla bond due in 2025 yields 5.8 per cent, according to Bloomberg. 

Most Chinese companies borrow above the central bank’s market interest rate, said Shen Meng, director at Chanson & Co, a boutique investment bank in Beijing. “With the trade war and the softening economy, the government puts great symbolic significance on Tesla’s project,” he added. 

The Shanghai factory is Tesla’s first manufacturing site outside the US and also China’s first car plant wholly owned by a foreign company. 

The ample state funding made available for Tesla contrasts with tight conditions at dozens of China’s electric vehicle start-ups, which are struggling to raise new capital and running into flagging demand for their cars after a rollback of consumer subsidies this summer.

Sales of new energy vehicles, including hybrids and battery powered cars, fell 45.2 per cent in November, from a year earlier, after halving in October.

That could be a problem for Tesla as well as it aims to start shipping cars next month.

“The slowdown in the auto market is the wild card,” said Tu Le, head of Sino Auto Insights, a consultancy. “At least it’s not going to impact them in the short term as they’ll be ramping up production for the next six months.”