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HONG KONG, May 22 (Reuters Breakingviews) - A great wall of debt may not be an obstacle to Xi Jinping’s effort to boost spending in the world’s second-largest economy. By some measures, China’s president has already dug deep to prop up slowing GDP growth. Now officials are taking a broader view of the country’s balance sheet. This may open up a new fiscal chapter for the People’s Republic.

Despite a de-escalation this month of a global trade war, China still faces additional 30% tariffs on its exports to the United States. A property crisis, deflationary pressure and unemployment fears mean savers are hoarding money instead of spending it.

Yet there is limited space to unleash further stimulus according to orthodox rules. In the past, the State Council rarely budgeted a deficit larger than 3% of GDP, a threshold similar to the now-defunct Maastricht criteria for the euro zone. Yet China has breached that limit three times since the Covid pandemic.

This year, Premier Li Qiang plans to increase the deficit to 4% of national GDP. Overall, factoring in other public accounts the central government uses to fund spending in social security, infrastructure and other areas, China’s actual deficit could climb to 9.9% of GDP this year from 7.7% in 2024, HSBC estimates.

So far, Beijing has had no trouble financing extra spending. Issuances of special sovereign bonds in 2024 and 2025 have topped 11.2 trillion yuan ($1.55 trillion), or nearly 10% of GDP. Proceeds have funded schemes including cash subsidies to consumers who replace old appliances, vehicles, and electronics. That is on par with the ratio of stimulus China spent over two years to mitigate the impact of the 2008 global financial crisis.

Although China’s overall government debt is as high as 124% of GDP per International Monetary Fund estimates, opens new tab, Beijing insists it can still spend more. One source for this confidence may be a new willingness to focus on what China owns as much as on what it owes.

NEW CHAPTER

Alongside discussions of debt, officials are suddenly talking up the value of the government’s assets. These include stakes it holds in giant companies such as the $214 billion Bank of China (601988.SS), opens new tab and $203 billion PetroChina (601857.SS), opens new tab.

In a report, opens new tab presented to lawmakers in December, the State Council noted net assets of China’s public sector in 2023 amounted to 184 trillion yuan, roughly $25 trillion, or 136% of Chinese GDP by the end of last year. The People’s Bank of China is emphasising a similar point. In its monetary policy report for the first quarter, the central bank compared China, the United States and Japan by weighing up not only their government debt but also their state assets.

Citing a report by the Chinese Academy of Social Sciences, the central bank suggests China’s gross government assets amounted to 166% of GDP by the end of 2022, and further that its equity interest in state-owned enterprises is 119% of GDP or five times the international average. Based on that measure, the central bank concludes its government’s debt expansion is “more sustainable” than those by other large economies.

China would not be the first country to take a broader measure of its balance sheet. In October, the UK changed its headline government debt target as its finance minister, Rachel Reeves, pledged to “invest, invest, invest”. She said the government will focus on public sector net financial liabilities. That includes public sector assets like student loans as well as liabilities.

In New Zealand, which changed its fiscal anchor in 1989, public net worth has improved every year, aside from four years after the 2008 financial crisis, the 2011 earthquakes and the pandemic. It’s difficult to directly link the new accounting method to economic growth, but a strong balance sheet may have helped New Zealand respond effectively to huge shocks.

Chinese leaders hinted at a similar shift as far back as July: a resolution after the Third Plenum, a key meeting held once every five years, stipulated, opens new tab the potential introduction of “national macro balance sheet management”.

SWEAT IT

A new model to think about China’s public finances would be helpful. Local governments’ revenue has relied heavily on land sale income since the 1990s. They’ve been badly squeezed by a property market slump that began in 2020. If Beijing now wants state assets to anchor fiscal policy, there are multiple ways it can leverage them.

One option is for local governments to pledge state assets, instead of property projects, as collateral to obtain loans. In December 2020, Guizhou, a mountainous province in southwest China, transferred, opens new tab part of its stake in $275 billion Kweichow Moutai (600519.SS), opens new tab, a winemaker, to a new government vehicle and has been using that entity’s healthier balance sheet to pay down debt and secure financing. Jiangsu, a coastal province north of Shanghai, among others, is taking similar steps.

China can also sweat its assets harder. China Securities Regulatory Commission is pushing listed firms to boost payouts. Dividend payments of state-owned enterprises to the central government amounted to 1.2 trillion yuan, up more than 15% on the year, according to Securities Times, a state-run financial newspaper. Proactive ‘market value management’ is now a top criteria for appraising the performance of executives of public sector firms.

Asset disposals can help too. Selling off 10% of state-owned enterprises’ assets could raise revenue equivalent to 11% to 21% of GDP, according to Rhodium Group. China went down this path in the 1990s, privatising national heavyweights such as China Mobile and PetroChina to tap U.S. dollars.

Dag Detter and Ian Ball, authors of the book Public Net Worth, opens new tab, advocate for the more productive use of government assets but insist reliable data is a prerequisite to this approach. Beijing did not respond to a request from Reuters Breakingviews for a detailed breakdown of its state assets, but China has promised more transparent reporting of its financial accounts.

To be sure, over the years China has found ways to crank up debt, and it is not clear if it is ready to kick that habit. Effective management of its assets also will require Beijing to interfere less with how they are run. These days American investors also are lukewarm on Chinese equities, and many companies trade at multiples below their book value, making it politically fraught to execute sales. Even if it can generate proceeds, the government cannot fund ongoing spending from one-time asset disposals.

Ultimately, by convincing others to take a broader view of its balance sheet, Beijing might hope to improve perceptions of China’s creditworthiness and set the tone for bigger fiscal stimulus. Measuring its state assets is a good start, the next challenge will be managing them.

Toto Wolff of Mercedes-AMG: Inside F1’s financial engine

The team principal and CEO of Mercedes-AMG discusses why F1 is now a magnet for institutional investment and why the sport’s next chapter could be its most disruptive

LVMH boss criticises EU efforts to reduce Donald Trump’s tariffs

Bernard Arnault says the bloc’s negotiations with Washington have got off to a ‘bad start’

LVMH boss Bernard Arnault has criticised the EU’s efforts to strike a deal with the US to reduce Donald Trump’s tariffs, saying the bloc’s negotiations with Washington had got off to a “bad start”.

The chief executive of the French luxury company, one of Europe’s largest businesses by market capitalisation, urged the EU to engage “constructively” in negotiations with the Trump administration as he highlighted how the UK had quickly struck a trade deal with Washington.

“The United States is the world’s largest market, and it is very important to reach an agreement with the US for Europe,” Arnault told a French parliamentary hearing on Wednesday. “So far, things seem to me to be off to a relatively bad start.”

Trump and British Prime Minister Sir Keir Starmer unveiled the UK-US trade deal earlier this month, about five weeks after the president first announced “reciprocal” tariffs that hit many of America’s major trading partners, including Britain.

By contrast, it transpired last week the EU had only just started detailed talks with the US about a deal after a period of deadlock.

Trump’s 20 per cent “reciprocal” tariff on EU goods exported to the US has been halved until July 8 to allow for negotiations between the two sides.

Arnault said: “The negotiations must be conducted constructively . . . and therefore with reciprocal concessions. You saw what the British did, who negotiated very well. I hope to be able to convince Europe, with my limited resources and contacts, to take a similarly constructive stance.”

The US is LVMH’s biggest market, and tariffs threaten to further dent the luxury industry’s sales at a time when the sector was already contending with a slowdown due to weaker Chinese demand, among other things.

The majority of luxury goods are made in Europe, with little prospect of shifting the industry’s production en masse to the US, although Arnault said earlier this year that LVMH was looking at options to expand its limited manufacturing footprint there. 

Arnault has built a personal relationship with Trump, whom he has known for decades, and attended the president’s inauguration in January.

So far, only the UK has finalised any relief from Trump’s trade war through a deal, by securing a tariff-free quota for its steel exports to the US and a lower levy of 10 per cent for 100,000 cars bound for America.

The US and China agreed a ceasefire in their trade war this month, slashing tariffs on each other’s goods for at least 90 days, to allow for negotiations. Trump has paused reciprocal tariffs on most of America’s trading partners, but maintained a baseline levy of 10 per cent on imports.

The talks between the US and EU have been progressing slowly, with the bloc saying it has struggled to clarify what Washington wanted until last week, when the Trump administration sent a letter listing its demands.

Sabine Weyand, the European Commission’s top trade official, told EU member state ambassadors in a briefing note that the bloc should not succumb to the US desire for “quick wins”.

But Arnault said a US-EU agreement was critical for industries like France’s cognac sector, which employs some 80,000 people.

LVMH owns Hennessy cognac, which has already been hit by falling sales in the US and China, where an anti-dumping probe in response to EU restrictions on Chinese electric vehicle sales is under way. 

In the worst-case scenario where both the Chinese and US markets become closed to cognac, it would be “catastrophic” for the European economy, leading to job losses, Arnault said.

“We must do everything with Europe to prevent this . . . because the day it happens it will be too late,” he added.

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Telegram jumps to $540mn profit despite founder facing legal peril

Messaging app’s finances are booming even as chief Pavel Durov fights French case over alleged content failings

Telegram leapt to a $540mn profit last year, as the messaging app achieved rapid growth despite the ongoing threat to its leadership from French legal proceedings against its founder Pavel Durov.

The Dubai-based group told investors that revenues reached $1.4bn in 2024, up from $343mn a year earlier, according to a company presentation seen by the Financial Times. The company also went from a $173mn loss in 2023 to its first annual profit.

According to people familiar with the matter, the bumper earnings were shared with potential backers ahead of Telegram launching a bond offering of about $1.5bn in order to buy back existing debt. The debt sale, which began on Tuesday, could wrap up as early as next week.

The results suggest Telegram has been boosted in part by a surge in paying users and gains from tie-ups related to the cryptocurrency it founded.

The growth comes despite doubts over the group’s future following its founder’s detainment by French authorities in Paris in August last year.

Durov, who was born in Russia but now has French and United Arab Emirates citizenship, faces charges around the app’s alleged failure to address criminality including child abuse and terrorism on its platform. The case could result in a prison sentence.

In recent days, Durov has attacked authorities over the case. On Monday, he wrote that while French intelligence services had indicated that fighting child sexual abuse was the pretext for his detainment, “their main focus was always geopolitics”.

Durov had previously claimed he refused a request by Nicolas Lerner, head of French intelligence, to ban conservative voices in Romania ahead of elections in the country. “Falsely implying Telegram did nothing to remove child porn is a manipulation tactic,” he wrote on X. The French intelligence service has rejected Durov’s claims.

Telegram now has more than 1bn monthly active users globally and is run by a small team of about 60 staff, while outsourcing most of its moderation to contractors.

According to several people familiar with calls with potential investors of the deal, Telegram’s chief investment officer John Hyman said the company has hit all of its financial milestones and that a potential initial public offering was possible if markets became more friendly. 

The company also acknowledged that the French investigation could be a barrier to an IPO, but noted that it could be resolved as early as this year, one of the people said.

The new bond offering, which is being sounded out at a 9 per cent yield, would give investors an option to buy shares in any future IPO at a 20 per cent discount, mirroring the terms of previous bond sales, the person added.

According to the investor documents, about half of Telegram’s 2024 revenues worth $1.4bn came from what it labelled “partnerships and ecosystem”, while about $250mn came from advertising and $292mn from its premium subscriptions.

The partnerships and ecosystem business stem largely from developers building their own so-called “mini apps” directly into Telegram in areas such as commerce and gaming.

This platform is underpinned by the Ton blockchain, which was originally developed by Telegram but is now maintained by the open source community. Its Toncoin cryptocurrency is deeply integrated into the app and used for payments on mini apps, or for buying Telegram advertisements.

Previous filings seen by the Financial Times show its business last year profited from deals with third-parties related to Toncoin, as well as sales of its own holdings of the cryptocurrency. 

According to the investor documents, Telegram is targeting revenues of $2bn in 2025, a year-on-year increase of 46 per cent. It is also aiming to achieve $720mn in profit next year. The group had about $530mn in cash as of February 2025, a figure that does not include its cryptocurrency assets. 

Telegram, which is fully owned by Durov, has issued about $2.4bn in bonds over the past four years, according to the documents. Between September and December 2024, it repurchased $375mn of its outstanding bonds, it said in the documents.

In the presentation, Telegram also pointed to opportunities around artificial intelligence, saying it was becoming the largest open platform for “conversational AI”.

It highlighted a new partnership with Elon Musk’s AI group xAI. The messaging group said it had integrated xAI’s Grok chatbot into Telegram “with plans to promote it within the platform and split the resulting revenue”, without disclosing further details.

The tie-up marks the first major expansion by Grok into a new social media service beyond Musk’s X platform. 

Durov and Musk are also aligned by their stances on free speech. On Sunday, the X owner shared Durov’s post about the French intelligence request on Romania to his 220mn followers writing: “Wow”. 

Telegram declined to comment.

The Norwegian has become a lightning rod for shareholder criticism as chair of both companies

After garnering an early reputation as a successful if somewhat boring Norwegian chief executive, Helge Lund has now found himself at the centre of corporate drama at not one but two of Europe’s biggest companies.

The 62-year-old former McKinsey consultant has become a lightning rod for shareholder dissatisfaction at oil and gas group BP and drugmaker Novo Nordisk as chair of both businesses.

At BP, Lund has presided over a board that changed both strategy and chief executives, while facing pressure from a large activist shareholder and drawing protests from several big, more traditional shareholders.

At Novo Nordisk, he initially led the Danish group on its rapid accession to become Europe’s most valuable company, riding a wave of huge demand for its pioneering weight loss drug Ozempic. But in the past year the share price of the company has halved, culminating in the shock ousting of its popular chief executive last week.

Lund is one of Europe’s leading industrialists. But can he regain the trust of shareholders at two such important companies? He appears to have his work cut out according to the shareholders I have spoken to. The share price performance of both companies suggest their views are representative.

“Over the past 6-12 months, he has not done a good job. He is likeable and friendly but he is not demanding enough. His time is running out,” says one smaller Danish shareholder in Novo. And one BP shareholder, a substantial European institutional investor, adds: “We are not seeing an inquisitive board that is receptive to shareholders, or questioning enough of management.”

The one-time pharmaceuticals executive came to fame in his native Norway as a young chief executive of Statoil, the national oil and gas champion, for a decade up until 2015. Under him, Statoil — since renamed Equinor — swallowed the oil operations of local rival Hydro and expanded internationally, although the latter has become more controversial due to big historical losses in its US business. His remaining executive career was shortlived but extremely lucrative after he became head of BG Group in 2015, only for Royal Dutch Shell to announce eight weeks later that it was taking it over.

Lund then moved into the non-executive world, in 2018 becoming chair of Novo, at the time a decent-sized but rather dull diabetes drugmaker. Together with chief executive Lars Fruergaard Jørgensen, he oversaw an extraordinary period that saw Novo make global headlines due to its weight-loss drugs. Its share price rose more than six-fold by 2024.

But the past year has been much tougher, as fierce competition from Eli Lilly led to a slump in both profit growth and share price. On Friday, Lund announced the departure of Jørgensen but left some shareholders frustrated by what they saw as a lack of clarity on why he had taken such a dramatic step. “We wanted to see a stronger chair, who is pushing management. We are worried that he has been distracted by the mess at BP,” says the Danish investor.

Lund declined to comment, as did BP and Novo. But allies of the Norwegian believe he has been able to devote enough time to both companies, bringing a broader perspective that can benefit Novo and BP alike.

His biggest challenge has arguably come at the UK oil and gas company, which he has chaired since 2019. Lund’s job was to oversee two transitions — to more renewable power, and in recruiting a new chief executive — but faltered on both. A big change in strategy in 2020 to embrace renewables was itself reversed this February, while BP fired Lund-backed Bernard Looney as chief executive in 2023 for knowingly misleading the board over past relationships with colleagues. Over the past year, the BP share price has fallen by a quarter.

Allies argue that it has been a tumultuous period for BP, marked by extraordinary events from the Covid pandemic and Russia’s invasion of Ukraine to Looney’s departure and the arrival of hedge fund Elliott Management agitating for the company to slash its spending on renewables.

But a quarter of the votes on Lund’s re-election in April went against him despite his promise to leave his position, mostly likely by next year — it was the biggest protest vote against a FTSE 100 chair in five years. That indicates many shareholders are not in a forgiving mood at BP. Unless the share price performance of Novo Nordisk turns around quickly, shareholders at the Danish company are likely to be of a similar mindset.