By Seunggyu Lim

SEOUL (Reuters) -South Korea’s financial services regulator has asked major commercial banks to prepare around $4 billion in financing to support a credit cooperative hit by customer withdrawals, two banking sources familiar with the matter said on Monday.

An official at the Financial Services Commission said it could not confirm the amount or other details, but it had asked the banks for cooperation in preparing liquidity through repurchase-agreement facilities to aid MG Community Credit Cooperatives (MGCCC).

“(Authorities) are closely monitoring the liquidity of MGCCC,” the official said, declining to be named due to the sensitivity of the matter. The commission had no further comment.

Depositors were lining up last week to withdraw funds from a branch of the cooperative after local media reported a rise in non-performing loans tied to real estate projects. The branch, in the city of Namyangju east of Seoul, is due to be closed soon.

South Korea’s top financial authorities pledged on Sunday to ensure liquidity at the credit cooperative, which has nearly 1,300 branches, saying in a statement that MGCCC’s capital ratio and liquidity far exceeded regulatory ratios and it had sufficient cash-equivalent assets.

Sharply rising interest rates and a cooling property market have raised concerns about the potential impact on Asia’s fourth-largest economy.

South Korea’s five major commercial banks have signed or are in the process of signing repurchase agreements with the credit union, said the sources, who declined to be identified because of the sensitivity of the issue. Repurchase facilities allow for raising cash in exchange for collateral, such as bonds.

Woori Bank, Hana Bank, Shinhan Bank, KB Kookmin Bank and NongHyup Bank had been asked to make financing available to MGCCC, although the actual amount extended to the credit union would depend on deposit withdrawals, the sources said.

The sources added that each of the banks was asked to prepare 1 trillion won of financing, or 5 trillion won in total ($3.84 billion), as potential support.

State-run Korea Development Bank and Industrial Bank of Korea are also setting up repurchase agreements with the credit union, Yonhap news agency reported on Monday, citing unnamed financial industry sources.

MGCCC and the banks did not immediately respond to requests for comment.

MGCCC said in a statement last week that its debt delinquency rate was manageable and it would work with the Interior Ministry to improve its financial soundness.

Sunday’s statement, from officials at the Bank of Korea and the Ministry of Finance as well as the Financial Services Commission, added that withdrawals at MGCCC had slowed and new deposits had been coming in since last Thursday.

An investor note from Citi last week played down the risks from the incident but warned of negative effects on economic growth from the indebted real estate sector.

“We don’t see systematic risks from the event,” said Kim Jin-wook, an economist for Citi in Seoul, adding that any negative effects would likely be far less than those of a missed bond payment by a theme park developer late last year.

South Korean financial authorities coordinated with financial groups to set up a liquidity programme last November when a missed bond payment by theme park developer Gangwon-Jungdo Development sparked worries about a credit crunch.

($1 = 1,302.7800 won)

(Reporting by Seunggyu Lim; Additional Reporting by Jihoon Lee and Joyce Lee; editing by Edmund Klamann and Jason Neely)

By Byron Kaye and Lewis Jackson

SYDNEY (Reuters) – The cost of serving up a sandwich with a cup of coffee has hit the roof across Australia’s vaunted cafes, squeezing profits and forcing a wave of closures for those that managed to survive the COVID slump.

The A$10 billion ($6.6 billion) Australian cafe industry, the world’s biggest outside Europe per capita, is shaping as an early, visible casualty of a perfect storm of rising utility bills, produce costs, wages and rents plus a slowdown in discretionary spending brought on by interest rate hikes, say economists and people in the industry.

A Reuters analysis of popular cafe orders found the cost to commercially produce a steak sandwich, including all overheads from electricity to cuts of beef, rose by one-sixth in the past two years, while discretionary spending flatlined, effectively wiping out the 10% profit margin typical of the industry.

The cost to make a flat white, one of the most popular Australian coffee orders, jumped by nearly one-fifth.

The result is smaller profits, a shrinking pool of regular customers and business owners heading for the exit.

“The cost of living started to bite, especially on people who used to come in for a daily meal,” said Jack Hanna, a former World Latte Champion who closed Goodsline Cafe in downtown Sydney last month, two years after opening to rave reviews and spending roughly A$1.5 million on the fitout.

“People are just not willing to spend money on discretionary items when the supermarket also costs quite a lot. We had to increase our prices and pay staff a living wage,” Hanna added.

Damian Krigstein, a nearby cafe owner who helped Hanna pack up Goodsline, said his business, Bar Zini, plans to convert to takeaway to cut costs.

“When you look around Sydney and you look at so many businesses for lease, institutions from when you were a child just completely gone now, people losing their livelihoods – it’s scary times,” said Krigstein.

Before COVID-19, hospitality venues were about one-third of Australian small businesses advertised for sale. Now there are more businesses up for sale, and the percentage of hospitality venues is closer to half, with asking prices being discounted by up to 50% of historic market values, say selling agents.

“Many of these hospitality vendors are simply exhausted after surviving COVID,” said Peter Meredith, a broker at SBS Business Brokers. “They are relieved to get out of leases.”

About one-sixth of cafes advertised for sale now close down before finding a buyer.

“People are starting to panic with increased electricity, wages, rent,” said Guy Cooper, a director at Link Business Sales Australasia, which has more than 400 hospitality businesses for sale nationwide.

Australian Securities and Investments Commission data showed business insolvencies in May at the highest monthly rate in eight years as COVID-related government protections expire.

So far, the insolvencies have been dominated by construction firms, but hospitality is expected to overtake it in the next year, says CreditorWatch, a credit reporting agency.

CreditorWatch CEO Patrick Coghlan said while a business-to-business organisation can raise prices 10% or 20%, that’s not possible in hospitality.

“You can’t charge A$30 for a bacon and egg roll. There’s no real respite.”

COST PRESSURES

Driving inflation, energy prices have jumped as much as 30% after the Ukraine war disrupted coal and gas markets, while wholesale produce costs have surged after years of extreme weather events.

With unemployment near the lowest on record, wages are rising, too, including for hospitality staff.

In addition, the pandemic increased cafes’ reliance on third-party delivery platforms which take a cut of revenue.

To combat inflation, Australia’s central bank has raised interest rates by 400 basis points in 14 months, the fastest tightening in a generation. It paused in July but warned it may resume hiking if inflation, still running at 7%, fails to slow.

As rising utility bills and a collapse of consumer spending make it impossible to make rent, David Cox, a cafe owner from Sydney’s suburbs, said he is selling, with expectations he will lose at least 60% of the A$170,000 he spent buying and refurbishing the business two years ago.

“The mortgage rates have done a lot of damage,” said Cox, 59, who recently laid off his three casual staff when daily takings dipped from A$1,000 last year to A$200. Cox’s monthly energy bill is about to jump from A$3,000 to A$3,800, nearly all his revenue.

“Some of my regulars I used to have will still come and get coffee and say, ‘We had to bring lunch. We just brought it in from home,'” he said.

($1 = 1.5103 Australian dollars)

(Reporting by Byron Kaye and Lewis Jackson in Sydney; Editing by Praveen Menon and Sonali Paul)

By Katie Paul

NEW YORK (Reuters) -Mark Zuckerberg has pitched Meta’s Twitter copycat app, Threads, as a “friendly” refuge for public discourse online, framing it in sharp distinction to the more adversarial Twitter which is owned by billionaire Elon Musk.

“We are definitely focusing on kindness and making this a friendly place,” Meta CEO Zuckerberg said on Wednesday, shortly after the service’s launch.

Maintaining that idealistic vision for Threads – which attracted more than 70 million users in its first two days – is another story.

To be sure, Meta Platforms is no newbie at managing the rage-baiting, smut-posting internet hordes. The company said it would hold users of the new Threads app to the same rules it maintains on its photo and video sharing social media service, Instagram.

The Facebook and Instagram owner also has been actively embracing an algorithmic approach to serving up content, which gives it greater control over the type of fare that does well as it tries to steer more toward entertainment and away from news.

However, by hooking up Threads with other social media services like Mastodon, and given the appeal of microblogging to news junkies, politicians and other fans of rhetorical combat, Meta is also courting fresh challenges with Threads and seeking to chart a new path through them.

For starters, the company will not extend its existing fact-checking program to Threads, spokesperson Christine Pai said in an emailed statement on Thursday. This eliminates a distinguishing feature of how Meta has managed misinformation on its other apps.

Pai added that posts on Facebook or Instagram rated as false by fact-checking partners – which include a unit at Reuters – will carry their labels over if posted on Threads too.

Asked by Reuters to explain why it was taking a different approach to misinformation on Threads, Meta declined to answer.

In a New York Times podcast on Thursday, Adam Mosseri, the head of Instagram, acknowledged that Threads was more “supportive of public discourse” than Meta’s other services and therefore more inclined to draw a news-focused crowd, but said the company aimed to focus on lighter subjects like sports, music, fashion and design.

Nevertheless, Meta’s ability to distance itself from controversy was challenged immediately.

Within hours of launch, Threads accounts seen by Reuters were posting about the Illuminati and “billionaire satanists,” while other users compared each other to Nazis and battled over everything from gender identity to violence in the West Bank.

Conservative personalities, including the son of former U.S. President Donald Trump, complained of censorship after labels appeared warning would-be followers that they had posted false information. Another Meta spokesperson said those labels were an error.

INTO THE FEDIVERSE

Further challenges in moderating content are in store once Meta links Threads to the so-called fediverse, where users from servers operated by other non-Meta entities will be able to communicate with Threads users. Meta’s Pai said Instagram’s rules would likewise apply to those users.

“If an account or server, or if we find many accounts from a particular server, is found violating our rules then they would be blocked from accessing Threads, meaning that server’s content would no longer appear on Threads and vice versa,” she said.

Still, researchers specializing in online media said the devil would be in the details of how Meta approaches those interactions.

Alex Stamos, the director of the Stanford Internet Observatory and former head of security at Meta, posted on Threads that the company would face greater challenges in performing key types of content moderation enforcement without access to back-end data about users who post banned content.

“With federation, the metadata that big platforms use to tie accounts to a single actor or detect abusive behavior at scale aren’t available,” said Stamos. “This is going to make stopping spammers, troll farms, and economically driven abusers much harder.”

In his posts, he said he expected Threads to limit the visibility of fediverse servers with large numbers of abusive accounts and apply harsher penalties for those posting illegal materials like child [censored]ography.

Even so, the interactions themselves raise challenges.

“There are some really weird complications that arise once you start to think about illegal stuff,” said Solomon Messing of the Center for Social Media and Politics at New York University. He cited examples like child exploitation, nonconsensual sexual imagery and arms sales.

“If you run into that kind of material while you’re indexing content (from other servers), do you have a responsibility beyond just blocking it from Threads?”

(Reporting by Katie Paul in San FranciscoEditing by Kenneth Li and Matthew Lewis)

BEIJING/SHANGHAI (Reuters) – China’s passenger vehicle sales fell in June, data from the China Passenger Car Association (CPCA) showed on Monday, as a stumbling economic recovery led to more consumer caution on big-ticket spending.

Car sales in June totalled 1.91 million units, down 2.9% from last year, CPCA data showed. It was the first monthly contraction since January. However, sales advanced 2.5% to 9.65 million units in the first half of the year.

Meanwhile, sales of new energy vehicles (NEVs), including pure battery electric cars and plug-in hybrids, jumped more than 25% in June, accounting for roughly 35% of the total car sales. NEV sales surged more than 37% to 3.09 million units in the first six months.

Both Tesla and rival BYD made record deliveries of their China-made vehicles in the second quarter, despite an uncertain recovery for the sector.

Chinese automakers counted more on overseas markets to sustain their sales growth, with car exports soaring 56% in June.

However, Tesla’s share in China’s market of pure electric and plug-in hybrid cars fell to 8.8% in the second quarter from 10.5% in the first three months, according to a Reuters calculation based on CPCA numbers.

With domestic consumer demand weak, the world’s largest auto market has been grappling with a price war triggered by Tesla in January that has since spread to more than 40 brands offering discounts on their vehicles.

While the price cuts initially boosted sales, the market’s recovery has been losing steam, prompting authorities to roll out more buyer incentives, including purchase tax breaks for EVs.

Two days after organising an industry-wide pledge to avoid “abnormal pricing”, the China Association of Automobile Manufacturers (CAAM) retracted on Saturday, citing antitrust law.

The joint pledge by 16 automakers, including Tesla, BYD, Nio, Li Auto and Xpeng had been interpreted by some as signalling a truce in a price war that crippled industry earnings.

(Reporting by Qiaoyi Li, Zhang Yan and Brenda Goh; Editing by Dhanya Ann Thoppil, Robert Birsel)

By Leika Kihara

TOKYO (Reuters) -Many regional areas of Japan saw small and mid-sized firms aggressively raise wages, reflecting intensifying labour shortages, the Bank of Japan (BOJ) said on Monday, underscoring its growing conviction that wage hikes were broadening.

In a quarterly report, the central bank also said some firms were considering raising the prices of their goods and services to guard against the prospect of rising labour costs.

“Many regions reported cases where wage increases by small and mid-sized firms were broadening at a degree unseen in recent years,” the BOJ said in the report analysing the economic situation of regional areas.

The assessment suggests the country’s tight job market is emerging as a fresh factor that could sustainably keep inflation around the BOJ’s 2% target, meeting the condition the central bank has set for phasing out its massive stimulus.

But the BOJ’s branch managers overseeing big cities said there was uncertainty on whether firms will keep hiking pay next year, heightening the chance the central bank will spend more time gauging the outlook before tweaking its ultra-loose policy.

“If companies can earn enough revenues to pay for higher wages, there’s hope wage rises will continue. Given uncertainty over the outlook, however, it’s premature to say decisively that this will happen,” Takeshi Nakajima, the BOJ’s Osaka branch manager, told a news conference.

Tetsuya Hiroshima, the BOJ’s Nagoya branch head, said many firms were worried about the impact slowing global growth could have on their earnings.

“Many firms see the need to keep raising wages. But whether they will do so next year will depend on the business environment going forward,” said Hiroshima, who oversees the Chubu region – home to auto giant Toyota Motor Corp.

With inflation exceeding its 2% target for more than a year, markets are speculating that the BOJ will phase out its massive stimulus that has drawn criticism for distorting market pricing and narrowing financial institutions’ margins.

The BOJ has said it needs more evidence that inflation will sustainably meet its price target, accompanied by solid wage growth.

Companies offered the biggest pay hike in three decades this year to compensate households for the rising cost of living. The hope among BOJ officials is for wages to keep rising next year and underpin the economy by giving households purchasing power.

In the Chubu region, the economy is recovering as automakers ramp up production due to easing chip supply disruptions. But consumption is patchy with supermarkets complaining of households reverting to frugal spending, Hiroshima said.

In the quarterly report, the BOJ raised its economic assessment for three of Japan’s nine regions, and maintained it for the remaining six regions.

Monday’s report will be among the factors the BOJ will analyse to formulate fresh quarterly growth and inflation forecasts at its next policy meeting on July 27-28.

(Reporting by Leika Kihara; Editing by Edmund Klamann, Jacqueline Wong, Sharon Singleton and Simon Cameron-Moore)

By Clare Jim

HONG KONG (Reuters) -For most young adults, moving out of home is a rite of passage but in Hong Kong – notorious for its chronic lack of housing – it’s usually an unaffordable dream.

Silver Ho, a 26-year-old hair stylist assistant who was tired of arguing with his parents, counts himself as one of the lucky ones. Two months ago, he landed a spot at a new so-called “youth hostel”, which offers rooms for young adults that are subsidised by the Hong Kong government and can be rented for up to five years.

His 22 square metre (240 square foot) twin-bed room he’ll share with another person is only a bit smaller than the public housing unit he shared with his parents.

Ho also pays rent of just HK$4,400 ($560) per month, 27% cheaper than a space in a sub-divided flat in the same neighbourhood. Such partitioned units often have no personal bathroom and are barely big enough for a bed.

The hostel programme, ramped up last year under pressure from Chinese President Xi Jinping, is aimed at tackling youth frustration with housing – a factor Beijing believes contributed to the anti-government pro-democracy protests that rocked the city in 2019.

It’s also aimed at nurturing what the government considers to be good responsible citizens and providing opportunities for self-development.

Applicants – who must be younger than 31, earn less than HK$25,000 ($3,200) a month and have less than HK$380,000 in assets – are chosen after interviews. They are also required to do 200 hours a year of community service or approved activities to keep their rooms.

For Ho, gaining a room at the BeLIVING hostel has meant independence and saving on commuting time. It’s the first to have been converted from a hotel under a new scheme and unlike the city’s three other hostels, is conveniently located in the bustling commercial area of Causeway Bay.

“I now have more time in the salon to learn new skills and practise. That helps increase my chances of getting a promotion,” he said.

HOME TRUTHS

Hong Kong has been the world’s least affordable housing market for 13 consecutive years, according to research firm Demographia, and housing woes are widely blamed for most of the city’s social problems.

Public housing units are available for low-income people but the average waiting time is 5.3 years. Families and the elderly are favoured, so the chances of one going to a young single person are close to nil.

Hong Kong’s hostel programme first started in 2011 but only gained momentum after Xi visited the city last July and said the government must do more to tackle youth housing and job problems while creating more opportunities for self-development.

At the time, the city had only one hostel with 80 beds. Since then, however, the government has pledged to boost supply.

It now aims to provide 3,000 beds in five years through hotel-to-hostel conversions, which would come on top of 3,400 planned under the first programme that are either being built from scratch or through redeveloping properties owned by non-profit groups.

A survey by the Concerning Youth Housing Rights Alliance published in May suggests the hostels will have limited appeal with close to 90% of respondents saying they don’t plan to apply. Most are instead prioritising saving up to purchase their own flat one day.

That said, applicants for the BeLIVING hostel outstripped the number of beds 5 to 1.

New BeLIVING resident Chelsea Tung sees her move as both a chance to live with her boyfriend while putting aside money for a flat of their own.

“I’ll be able to save up for a downpayment here,” the 23-year-old insurance agent said.

The programme faces several hurdles.

It may be hard to boost the number of hostels as hotels, previously hit hard by three years of pandemic restrictions, are now seeing more demand.

Non-profit groups that run the hostels are also struggling to find a sustainable financing model.

The group that runs the city’s first hostel built under the government scheme said all its rental income goes towards building maintenance and project management.

“We need to think of ways to cut costs and to raise funds to keep operating,” said Carrie Wong, a supervisor at the Hong Kong Federation of Youth Groups.

Ngai Ming Yip, a professor of housing and urban studies at City University of Hong Kong, said the hostel scheme will only provide a limited amount of supply and only goes so far in ameliorating frustration among the city’s youth.

“The root of the problem is not only housing. Research has shown it’s related to young people’s views towards opportunity, outlook, politics, democracy, everything,” he said.

($1 = 7.8136 Hong Kong dollars)

(Reporting by Clare Jim; Editing by Anne Marie Roantree and Edwina Gibbs)

BEIJING (Reuters) -China’s producer prices fell at their fastest pace in over seven years in June, while consumer prices teetered on the edge of deflation, adding to the case for policymakers to use more stimulus to revive sluggish demand.

The worsening factory-gate price deflation and the move by consumer prices towards deflation for the first time since February 2021 bode ill for China’s economic growth.

Momentum in China’s post-pandemic recovery has slowed from a brisk pickup seen in the first quarter with demand for industrial and consumer products weakening, raising concerns about the health of the world’s second-largest economy.

“We think the more challenging deflation environment and sharp slowdown in growth momentum support our view that the PBOC has entered a rate-cutting cycle,” said economists at Barclays in a research note.

The producer price index (PPI) fell for a ninth consecutive month in June, down 5.4% from a year earlier, the National Bureau of Statistics (NBS) said on Monday, the steepest decline since December 2015. That compared with a 4.6% drop in the previous month and a 5.0% fall tipped in a Reuters poll of analysts.

The consumer price index (CPI) was unchanged year-on-year, compared with the 0.2% gain seen in May, driven by a faster fall in pork prices. That dashed expectation for a 0.2% rise and was the slowest pace since February 2021.

Nomura expects consumer prices to fall 0.5% year-on-year in July, even taking into account a potential rise in service inflation as a result of the summer holiday season.

The weaker-than-expected inflation readings knocked financial markets with the yuan falling and Asian stocks also dipping into the red.

“We expect headline inflation to rise to around 1% by the end of this year. But this would still be soft and won’t constrain the PBOC’s ability to loosen policy further,” said economists at Capital Economics.

“That said, with credit demand weak, and the currency under pressure, we think the bulk of support will come through fiscal policy. We expect only another 10 basis points of policy rate cuts this year.”

Beijing has set a target for average consumer inflation in 2023 of about 3%. Prices rose 2% year-on-year in 2022.

China last month cut policy rates to boost liquidity and vowed to take measures to promote household consumption.

For producer prices, the biggest year-on-year declines were seen in energy, metals and chemicals as domestic and foreign demand weakened.

“The accelerating decline in PPI reflects the still weak real estate and construction sector as well as the strength of industrial production,” said Bruce Pang at chief economist at Jones Lang Lasalle.

“However, the year-on-year decline in the PPI is likely to have bottomed out and is expected to narrow gradually in the second half of the year,” said Pang.

China’s central bank is likely to cut lending rates further, said Hu Yuexiao, analyst at Shanghai Securities, who expects reductions in the reserve requirements ratio and interest rates in the second half.

However, economists say small cuts in rates will not have a big impact on demand for loans as families and businesses repair balance sheets damaged by COVID and repay debts, forcing Beijing to rely on fiscal stimulus and other means to spur demand.

(Reporting by Liangping Gao, Ella Cao and Ryan Woo; Editing by Sam Holmes)