[Global Morning Briefing] summarizes global news reported by Seoul Economic Daily.
Germany, France Push for 70% European Parts, Striking at Chinese Cars' "Made in Europe" Strategy
After the European Union agreed to cut imports of Chinese hybrid vehicles by more than half, Germany and France have aligned on new criteria requiring that parts procurement and research and development also take place in Europe for a vehicle to qualify as European-made. The measures aim to block Chinese automakers' strategy of simple local assembly and to push for technology transfer.
Germany and France agreed on the 16th that, starting in 2028, vehicles must undergo final assembly in Europe and source more than 70% of parts value excluding batteries from within the region to qualify for government subsidies and public procurement benefits. The recognized scope covers the EU's 27 member states in principle, and R&D activities to secure intellectual property rights are also required. Earlier, on the 9th, the EU agreed with China to cap imports of Chinese hybrid vehicles at 350,000 units a year, less than half this year's projected 800,000. The restriction applies for four years from December, with the ceiling rising 6% annually. In October 2024, the EU also imposed definitive countervailing duties on Chinese electric vehicles for a five-year term.
Chinese companies are scrambling to respond. In Spain, CATL, Chery and SAIC Motor have built or acquired plants, while Chery will begin production at Nissan's Sunderland plant next year and is setting up an R&D center in Britain. BYD, by contrast, may fail to meet the standards at its Hungary plant because of the share of Chinese-made parts, and it shelved plans for a plant in Turkey in June.
South Korea faces a different situation. Tariffs on Chinese electric vehicles stand at just 8%, and subsidies differ little between domestic and imported cars, while Chinese-made vehicles accounted for 35.0% of the market in the first half of this year. Kim Pil-soo, a professor at Daelim University, stressed that tax credits and R&D support are needed to strengthen the competitiveness of domestic electric vehicles.
AI Data Centers Caught in Four Bottlenecks as Debt-Fueled Growth Comes Due
Construction of data centers, the core infrastructure for artificial intelligence, is being delayed one after another, blocked by four bottlenecks: funding shortages, power shortages, local opposition and added costs from design changes. With neoclouds that expanded on borrowed money taking the first hit, The New York Times said the weak link in debt-dependent AI growth has been exposed.
According to regulatory information provider RegLayer, at least 47 large projects in the United States have been delayed or withdrawn. AllianceBernstein estimates that only 35% of facilities under construction or planned in the U.S. are viable. By Jones Lang LaSalle's tally, 57% of projects worldwide are running more than three months behind schedule.
Funding problems are most pronounced at CoreWeave, the largest neocloud. Its debt has reached $72 billion, and the coupon rate on its corporate bonds has topped 15%, putting it in speculative-grade territory. Circular financing, in which the company borrows against AI chips purchased from Nvidia, is also being tested. Nvidia Chief Executive Jensen Huang defended the company, saying its financial condition is improving by the day, but the market puts the probability of default at more than 60%.
Power shortages have shaken even politically backed investment pledges. According to the Financial Times, Microsoft withdrew from a 50-megawatt lease agreement with British neocloud Nscale after it emerged that the facility would not receive power until after 2030. The agreement was part of a 22 billion pound investment that U.S. President Donald Trump promised during a state visit, together with Keir Starmer, then the British prime minister.
Local opposition is another variable. In a survey by the Annenberg Public Policy Center, 61% of U.S. residents opposed new data centers in their area, and the Financial Times reported that more than 1,000 communities pushed for construction moratoriums or similar steps this year. In New Mexico, after power supply permits failed to materialize, Oracle notified investor Blue Owl that it could not pay rent.
The delays are spilling over into design changes and higher costs. A facility Cipher is building in Texas saw its design altered at the request of tenants Fluidstack and Anthropic, adding $359.3 million in costs and pushing completion to the first quarter of next year. The Financial Times said the AI boom has run into real-world limits after only a few years.
Trump Backs Netanyahu Nine Days Before Israeli Election, Pledging "Complete Support"
U.S. President Donald Trump publicly endorsed Prime Minister Benjamin Netanyahu's reelection nine days before Israel's general election on the 27th of this month. It is the first general election since Hamas's surprise attack on Oct. 7, 2023.
Trump posted a letter to the Israeli people on the social media platform Truth Social on the 18th, local time, praising Netanyahu as a "great wartime prime minister" and an excellent partner in standing up to Iran. He also signaled that he would bring the war to a close unless Iran quickly changes its stance. In an interview with Axios, he said he had the endorsement in mind from the start but simply did not want to make it too early.
The relationship between the two has not always been smooth. Trump has aired differences over the war with Iran, Lebanon and Gaza, and in June of this year he called Netanyahu "crazy" and said he would have gone to prison had it not been for him. In a Newsmax interview three days earlier, he also showed wariness, saying he trusts no one in the world of politics.
The endorsement is read as an effort to bolster Netanyahu as the odds grow that he could remain as caretaker prime minister even if he fails to secure a majority. The Knesset has 120 seats, and a coalition winning at least 61 forms the government, but polls project both the Netanyahu camp and the opposing camp to finish in the low 50s. Reuters reported that in that case Netanyahu could lead the government on an interim basis until the next general election.
Still, many see the effect on the race as limited. The New York Times said many Israelis now view Trump as an unpredictable leader and that his influence will fall short of what it once was.
Takaichi's First-Year Report Card: Wages and Stocks Up, Yields and Yen Under Pressure
Japanese Prime Minister Sanae Takaichi has signaled that deficit-covering government bonds could be issued to fund a cut in the consumption tax rate on food, which takes effect in April next year. It marks a step back from the government's earlier position that the cost would be covered through spending restructuring alone, and the controversy over fiscal burdens is flaring again two days before the administration's first anniversary.
At a House of Councillors budget committee session on the 19th, Takaichi said the government would manage bond issuance appropriately but did not rule out issuance itself. The consumption tax cut will run for two years and, combined with income-linked benefit support, is expected to cost about 10 trillion yen (about 84 trillion won). Japan's national debt stood at 204.4% of gross domestic product last year, the highest among major advanced economies, meaning further bond issuance could add to pressure for a weaker yen and higher interest rates.
The administration points to wages, investment and stock prices as its achievements over the past year. Real wages rose from a year earlier for eight straight months, and private capital investment reached a record 129 trillion yen last year. The Nikkei average also climbed above the 70,000 level at one point, up more than 30% from a year earlier.
In the markets, by contrast, the strains have shown. Japan's long-term interest rate rose from about 1.6% when the administration took office to above 3% in September, and the exchange rate climbed from about 151 yen to the dollar to as high as about 163 yen, still above 160 even after joint U.S.-Japan intervention. At a September summit, Trump expressed dissatisfaction with the weak yen. The Nikkei newspaper noted that interest rate increases and yen weakness followed each time Takaichi unveiled expansionary fiscal plans.
Takaichi rejected characterizations of a "Takaichi weak yen" and "Takaichi high rates," stressing that a strong economy and fiscal sustainability are not an either-or choice.
