Finimize - 🇨🇳 China's tough break

What’s going on here?

Tech titans IBM and Meta formed an AI alliance, set on pushing back the veil that’s shrouding the tech’s development.

What does this mean?

AI has the potential to save the world, end the world, and make a lot of important leaders very rich. So concerned that some of the biggest companies in the space may be less than laser-focused on the first one, some of the smartest minds have come together with a mission to develop AI solutions safely, slowly, and openly. The “safety squad” includes tech heavyweights like IBM, Intel, Oracle, and Meta along with acclaimed institutions like Harvard and Imperial College London, all hoping that the whole will be greater than the sum of its parts – for the world’s sake. That leaves Microsoft-backed OpenAI, Tesla, Alphabet, and Amazon on the outcasts’ table for once, but there’s no guarantee that the tortoise will beat the hares in this race.

Why should I care?

Zooming out: Let’s take things slow.

The alliance’s finer details haven’t been hammered out yet, but that’s right on brand for a group advocating for a slower approach. So is the committee format as a whole: it takes a lot longer for a group of companies with different individual backgrounds to reach a consensus than it does for a room of stereotypical tech heads to agree. And with much of the world concerned that AI developers’ breakneck speeds could end in a crash, this slow-and-steady force may attract quite the fan club.

For markets: More is more.

Despite being a slow burner for decades, AI became this year’s most popular theme overnight when ChatGPT launched. And it brought its reliable buddies along for the ride: a gaggle of high-tech chipmakers, including market darling Nvidia. The more the merrier, as far as they’re concerned, since that gang of suppliers stands to win a new customer every time an AI competitor comes along.

What’s going on here?

Ratings agency Moody’s just downgraded China’s credit outlook to negative, doubtful that the weakening economy can balance out heavy debt.

What does this mean?

China’s embattled property market has been weighing on the economy ever since the government cracked down on the sector’s debt two years ago. Evergrande’s infamous default led to cracks across the industry, which, in turn, undermined everyday savers’ confidence in the value of their homes. And because that’s most folks’ biggest asset, Chinese shoppers have been curbing their economy-fueling spending and saving instead. What’s more, global economies – contending with inflation and inflation-fighting interest rates – are ordering less from China’s factories. Take all that together, and you can see why Moody’s doubts China’s ability to bring home the bacon and pay off its piling debts.

Why should I care?

For markets: Markets can be a step ahead.

Moody’s targeted the US last month, citing the government’s eye-watering borrowing as a reason to downgrade its credit outlook. But just like with China, a worse outlook doesn’t mean that a country’s credit rating is automatically lower – in fact, it’s pretty rare for the rating itself to be downgraded. Mind you, when markets catch wind of a possible downgrade, they can fall pretty fast. That's worth keeping in mind, because by the time the downgrade actually comes, most investors will have probably factored it all in anyway.

Zooming out: Everyone needs something to aspire to.

China is expected to announce its economic targets for next year later this month, which investors will use to measure the country’s progress going forward. Problem is, it would take a miracle to resolve the property market’s problems anytime soon, so China needs to find another industry capable of pumping money into the economy. Or, more likely, it’ll have to borrow cash to get the job done itself.