Transcript: This bond market rally is epic

This is an audio transcript of the FT News Briefing podcast episode: ‘This bond market rally is epic’

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Joanna S Kao
Good morning from the Financial Times. Today is Thursday, December 21st, and this is your FT News Briefing. 

A global rally in government debt is surpassing everyone’s expectations. And people in China are opting out of the country’s state health insurance system. Plus, we look at whether factories can help employ India’s massive population. 

Benjamin Parkin
Unlike its neighbours, China or Bangladesh, India is not known as the factory for the world, but is hoping to become one. 

Joanna S Kao
I’m Joanna Kao, in for Marc Filippino, and here’s the news you need to start your day. 

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The bond market is in the middle of an epic rally. Ten-year US Treasury yields fell below 4 per cent on Wednesday and have dropped by almost a full percentage point since the end of October. Now, remember, with the bond market, as yields fall, prices go up. The rally blows past what major banks had forecast yields to be by the end of 2024. That’s more than a year early. Investors have been super optimistic ever since the Federal Reserve signalled it might start cutting interest rates sometime next year. Swaps markets are now pricing in six interest rate cuts from the US central bank in 2024. At the end of October, the expectation was just three.

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An unprecedented number of people are foregoing healthcare coverage in China. Millions have dropped out of the state health insurance system in the past year, and enrolment could fall even further this year. That could have some pretty significant consequences for the world’s second-largest economy. The FT’s Sun Yu has been following the issue and joins me now. Hello. 

Sun Yu
Hi. 

Joanna S Kao
So what’s the scope of this problem? Just how many people are dropping out of China’s state health system? 

Sun Yu
Last year, almost 20mn people dropped out of the healthcare system. And this year, I would say almost equal or a bit more than that number of people dropped out of the system. So the absolute figure isn’t that big given the fact that China has 1.4bn people. What’s worrying is that this is the first time ever that we see a drop in the net enrolment in this government-subsidised program. 

Joanna S Kao
And what’s behind this drop? 

Sun Yu
There are a few reasons. First of all, the premium has more than doubled since 2016 to around $54 per year, which actually didn’t seem a lot, right, in the west. But it is a lot of money for migrant workers or farmers or rural residents in China. A lot of them couldn’t afford even this tiny amount of money given the economic slowdown. 

Joanna S Kao
So what happens to those who are uninsured? Is there some kind of safety net? 

Sun Yu
I’m afraid not. And this is especially true for older people in the countryside who basically do not have a stable source of income, who also do not have a high level of pension compared with their counterparts in big cities. Also, a lot of parents are reluctant to pay for health insurance for their young children in the hope that these young children are healthy enough to be able to weather any illnesses. 

Joanna S Kao
Wow. What are the larger ramifications of people foregoing health insurance for China’s economy? 

Sun Yu
The Chinese authority has been trying very hard to sort of shift the economic model from one that is driven by investment to one that is driven more by consumption. But in order to encourage people to spend, they need to feel secure. And one important element in this is that they need to have a good health insurance program. I think for now, given the still sort of low level of dropouts, the immediate impact isn’t that big. But going forward, there’s a big chance that this trend will carry on into the coming years. And that definitely would bode very badly for China’s domestic consumption. 

Joanna S Kao
Sun Yu is the FT’s China economics reporter in Beijing. Thanks, Sun. 

Sun Yu
Sure. 

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Joanna S Kao
How does a country like India create enough jobs for nearly 1.5bn people? It’s a tough problem to solve. Only about 40 per cent of adults are part of the labour force. And for women, it’s even worse at around one in four, according to some estimates. India’s Prime Minister Narendra Modi sees manufacturing, especially in the garment industry, as one way to boost employment for women. This is part two of our three-part series on the new face of India. Today, the FT’s Ben Parkin and Jyotsna Singh visit a factory in southern India which could provide part of the solution to India’s employment problem. 

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Benjamin Parkin voice clip
So we’re standing on the factory floor. It’s just row after row of hundreds of workers, almost all women. 

Benjamin Parkin
Shahi Exports is India’s largest garments manufacturer. One of their factories is based an hour outside the city of Mysore. And it makes everything from ski gear for Columbia Sportswear to jumpers for H&M.

Benjamin Parkin voice clip
You know, it’s a huge, huge operation in an otherwise very rural, quiet area, mostly with agricultural land. So this is the kind of thing that, you know, creates mass employment in an area where people would otherwise probably be working in agriculture or emigrating to cities. 

Benjamin Parkin
Unlike its neighbours, China or Bangladesh, India is not known as the factory for the world, but it’s hoping to become one. India became the world’s most populous country this year and the government is trying to figure out how to give 1.4bn people jobs. Many think factories are the answer.

Maheshwari
(Speaking in a local language)

For Maheshwari and women like her, these jobs can be transformational. She grew up in a nearby village and, like her parents before her, started out as a seasonal worker on nearby rice farms. Now, she’s a mid-level manager at Shahi. 

Maheshwari
(Speaking in a local language)

Maheshwari tells us that her friends in agriculture would earn around Rs5,000 or about $60 in the harvest months. The rest of the time they often had no work, meaning they could barely afford enough food for themselves. 

Maheshwari
(Speaking in a local language)

Now she works year round and earns more than double what she could have made in a month working in agriculture. Maheshwari says this helps her support her household of five people.

Prime Minister Narendra Modi took office in 2014, and since then he’s tried everything from subsidies to roadshows to try and kick-start India’s manufacturing sector. There have been some successes. Apple, for example, is making more and more of its products in India. But as a share of India’s economy, manufacturing has actually shrunk since Modi took office to around 13 per cent of GDP. Factories like these are few and far between in India. 

Harish Ahuja
We see that India has so much potential but it’s not growing here. 

Benjamin Parkin
That’s Harish Ahuja, Shahi’s managing director. 

Harish Ahuja
We have got 95 per cent of input in the country compared to Bangladesh, which has left their workforce. Everything has come from overseas. And India is the largest grower of cotton. What is the reason, you know? Why is it not growing in the same scale as what is going in Bangladesh or Vietnam? 

Benjamin Parkin
Economists debate the reason for this. But while we’re in Shahi, we get a taste of one. Within half an hour of being there, there were two power cuts. 

Benjamin Parkin voice clip
How often do you get the power cuts? 

Unnamed manager at Shahi Exports
We have regular power cuts because of rainy . . . 

Benjamin Parkin
The manager tells me they happen pretty often during the rainy season, three or four times a day. And that adds up when you’re trying to be part of an ultra-competitive global supply chain. 

Unnamed manager at Shahi Exports
It would take at least 5 to 6 minutes for our repair again, to restart the machines. 

Benjamin Parkin voice clip
Right. OK. For the back-up generator and then to restart the machines. 

Benjamin Parkin
Harish argues that India’s labour laws make it hard for factories to run as long as their rivals in China or Vietnam. These include strict limits on work hours, hiring and firing. 

Harish Ahuja
So it is not like in ’40s, 1940s, ’45, no, when the labour laws were made that time in order to . . . very hard to find jobs. So then they had made the very stringent laws, but now they are just not working on that now. So as times have changed, we should start, you know, working on that. 

Benjamin Parkin
While these regulations need reform, worker protections exist for a reason. Over decades, these factories have gained a reputation as dangerous places to work, and Shahi has faced its own complaints, including over delayed compensation — something managers say they have now addressed.

Maheshwari, the mid-level manager at Shahi we heard from before, is actually very happy with her experience at Shahi. But she acknowledges that working in a garments factory is a tough life. 

Maheshwari
(Interviewee speaking in a local language)

She welcomes the decent salary. But she doesn’t want this kind of life for her children. She hopes the money she earns will be enough to fund their education and give them a chance of one day becoming engineers or doctors. 

Maheshwari
(Interviewee speaking in a local language)

The future of the Maheshwari family has a lot riding on these factory jobs. And so too does India’s ambition to be the world’s next economic power.

For the FT News Briefing, I’m Ben Parkin. Special thanks to Jyotsna Singh for her help reporting and producing this piece. 

Joanna S Kao
In the third part of our series, we’ll look at India’s booming fertility industry.

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You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news. 

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