China escalates fight against new Covid outbreak and US blame game

Chinese authorities have intensified their battle against a new wave of coronavirus cases — as well as a blame game with the US — in an effort to suppress a series of outbreaks in and around Beijing.

Officials said on Wednesday that they would check on anyone who had entered the Chinese capital since December 10 and tightened control measures in two districts of the city.

Authorities have been spooked by an outbreak in Hebei province, which surrounds the capital, the country’s worst since last spring. Of the 88 locally transmitted cases confirmed across China on Tuesday, 19 were discovered in Hebei and another six in a Beijing district that borders the province, triggering mass testing and targeted lockdowns in the capital.

Officials have also restricted movement in and out of Shunyi, a popular residential area where the city’s main airport is located.

The deteriorating situation comes almost exactly a year after the virus first emerged in the central city of Wuhan and just weeks before the annual Chinese new year holiday, when hundreds of millions of people criss-cross the country.

But Chinese officials have strongly contested most experts’ assertion that the virus originated in or near Wuhan, where a team of World Health Organization experts is investigating the roots of the pandemic.

The hottest topic on Chinese social media on Wednesday was “Fort Detrick”, a military facility in Maryland where the US army conducts germ research. Hua Chunying, China’s chief foreign ministry spokesperson, has said Fort Detrick should be investigated as a possible source of the pandemic.

Some Chinese officials have previously peddled unproven conspiracy theories that coronavirus was “imported” into Wuhan by members of a US military team that competed in a sports event there in 2019.

Ms Hua and other Chinese officials have been repeatedly enraged by the Trump administration’s suggestions that coronavirus may have escaped from a Chinese research facility in Wuhan. The US State Department said last week it had “reason to believe” several researchers at the Wuhan Institute of Virology came down with “symptoms consistent with both Covid-19 and common seasonal illnesses” in late 2019.

Chinese state media outlets have also tried to sow doubts about the efficacy of western Covid-19 vaccines in an effort to counter what they say is biased foreign criticism of China’s vaccine development programme.

Joe Biden’s incoming administration is not expected to escalate the war of words with China over the origins of coronavirus. The president-elect has also pledged to reverse Donald Trump’s decision to withdraw from the WHO.

But the Trump administration has enacted a late series of sanctions targeting Chinese officials and companies that Mr Biden is unlikely to unwind, given broad bipartisan support for a tougher approach to Beijing.

Mike Pompeo, US secretary of state, said on Tuesday that the US government considered Chinese repression of Muslim Uighurs in the northwestern region of Xinjiang to be “genocide”. Antony Blinken, Mr Biden’s nominee to be secretary of state, told a Senate confirmation hearing that he agreed with the designation.

Additional reporting by Xueqiao Wang in Shanghai

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Jack Ma makes first public appearance since Ant’s cancelled IPO

Jack Ma has resurfaced in a short online video praising China’s teachers, marking the first time the billionaire has been seen in public since the dramatic suspension of Ant Group’s planned $37bn initial public offering.

The Chinese tech entrepreneur and founder of ecommerce group Alibaba dropped out of public view after criticising the country’s regulators and state-owned banks in late October, prompting speculation over his whereabouts. In the wake of the speech, Mr Ma was dressed down by officials in Beijing and regulators halted the IPO of Ant, the payments firm he controls, which was set to be the largest ever.

Mr Ma also skipped the filming of a TV talent show he created for African entrepreneurs in November, which he had been set to judge.

“My colleagues and I have been studying and thinking, and we have become more determined to devote ourselves to education and public welfare,” said Mr Ma, according to local media. The video was posted online on Wednesday.

Mr Ma’s video came as Alibaba faces an antitrust investigation that has hit its share price and the tech group tries to raise billions of dollars in a bond offering.

Alibaba’s Hong Kong-traded shares rose as much as 6.3 per cent after the video emerged.

Mr Ma said it was the “duty and responsibility of our generation of business operators” to support China’s rural teachers and education.

A spokesperson for the Jack Ma Foundation said Mr Ma had “participated in the online ceremony of the annual Rural Teacher initiative event on January 20”.

His charitable foundation has focused over the past year on Covid-19 relief efforts both in China and globally. Mr Ma has been hailed as a hero in Africa for donating medical supplies to the continent.

Additional reporting by Nian Liu in Beijing

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We dropped MyPillow because of weak sales, not politics, retailers say

Two leading US retailers have countered claims from the head of a pillow company that they have dropped the brand over his outspoken support for Donald Trump, saying that the decisions were driven not by politics but by poor demand for the products.

In a series of interviews, Mike Lindell, who runs Minnesota-based MyPillow, accused some of the country’s biggest chains, including Bed Bath & Beyond and Kohl’s, of caving to pressure from left-leaning activists over his backing for the outgoing US president.

“They’re scared,” he told the rightwing Right Side Broadcasting Network.

However, two of the retailers named by Mr Lindell said on Tuesday that they were removing the privately owned company’s products because of weak sales.

“There has been decreased customer demand for MyPillow,” department store chain Kohl’s said. Bed Bath & Beyond said: “We have been rationalising our assortment to discontinue a number of underperforming items and brands. This includes the MyPillow product line.”

The dispute, on Mr Trump’s final full day in office, illustrates the difficulties facing corporate America over how to deal with the country’s increasingly divisive politics.

Mr Lindell has for months been among the most vocal of any business chief in his backing for Mr Trump, and repeated his unsubstantiated accusations of widespread voter fraud in the November election. In contrast to other Trump sympathisers who distanced themselves after the attack on the US Capitol this month, the entrepreneur has continued to support the president’s calls to overturn the results.

Since the Capitol assault, executives across corporate America have been eager to avoid supporting a president accused of undermining the rule of law. Yet they also risk a backlash from the right.

Sebastian Gorka, a former aide to Mr Trump, wrote on Twitter on Tuesday: “If you’re a Patriot, how about you never buy anything from Kohl’s or Bed Bath & Beyond until they stock Mike Lindell’s MyPillow products again.”

Mr Lindell said the online furniture retailer Wayfar and Texan grocery chain H-E-B were also dropping MyPillow. Neither responded to a request for comment.

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Boardroom drama shakes China’s biggest chipmaker SMIC

When Liang Mong-song threatened to quit as co-chief executive of China’s largest chipmaker, it was an extraordinary moment even for the notoriously hot-tempered industry veteran.

The departure of Mr Liang, 68, who joined Semiconductor Manufacturing International Corp in November 2017, would have amounted to declaring defeat in his quest to help China’s largest chipmaker catch up with international rivals such as Taiwan Semiconductor Manufacturing Corp and Samsung Electronics.

Last month, what appeared to be a resignation letter by Mr Liang circulated on Chinese social media, hitting SMIC’s shares. Mr Liang appears to be staying — he was included in SMIC’s latest public list of board members and executives, dated December 31. According to people close to him, negotiations are ongoing within management over resources and the company’s future focus.

But the episode highlighted how China’s strategy of building a self-sufficient, world-class semiconductor manufacturing industry is heavily dependent on engineers and executives poached from Taiwanese competitors.

Taiwanese talent has been the lifeblood of China’s chip sector since Richard Chang, an industry executive brought up in Taiwan, founded SMIC in 2000 and hired a team of engineers from TSMC, the world’s largest contract chipmaker.

Mark Li, a Hong Kong-based analyst at investment bank Bernstein, estimates that “easily hundreds, maybe thousands, and if you include semiconductor design, maybe even tens of thousands” of Taiwanese staff now work in China’s chip industry.

China needs that expertise to help it run fabrication plants and develop more advanced process technology, which Taiwan has perfected.

Mr Liang is one of the industry’s most senior and technologically brilliant executives, according to former colleagues and analysts, following lengthy stints at TSMC and South Korea’s Samsung. He has also significantly accelerated SMIC’s technological prowess, taking mass production of chips from 28 nanometres to under 10nm in just over three years. That represents a significant leap in the miniaturisation of semiconductor technology that took rivals much longer to master.

Obsessive dedication

People who know Mr Liang attribute this success to his almost obsessive dedication to technology. That has earned him respect but also frequently sparks conflict with colleagues. “We are moved by his enthusiasm for work,” said one engineer at SMIC.

“He is very strict on the technology, very rigorous. His requirements are very high,” said Charles Hsu, chairman of Taiwanese semiconductor company eMemory and a friend of Mr Liang. “He is like: ‘This is the requirement. You need to meet this. There is no negotiation.’ But if [you use] this personality to deal with other people, then it is very difficult.”

As the US tries to block China’s development of advanced chip manufacturing through sanctions and export bans, that kind of expertise is more important than ever. “China’s demand for semiconductor executives and engineers from Taiwan will increase. They will poach even more aggressively,” said a western expert who follows the industry on both sides of the Taiwan Strait.

The US has blocked supplies of equipment SMIC needs for chip fabrication with processes more advanced than 10nm — exactly the area Mr Liang is developing at the group.

In response, China has focused on expanding manufacturing capacity for older chip technologies and reducing its dependence on foreign software and machinery. Last month, SMIC unveiled a joint venture with two Chinese state funds that will invest $7.6bn in a new fabrication plant for more mature chips, which the company classifies as 28nm or older.

Line chart of SMIC's share price in HK$ showing Sanctions and executive drama hit SMIC's stock

But that pivot represented a setback for Mr Liang. He has had frequent disagreements over strategy with his Chinese co-chief executive Zhao Haijun, given that Mr Liang’s remit has been to help SMIC catch up technologically with its rivals. People directly familiar with SMIC said any strategic shift that redirects resources away from that goal would undermine Mr Liang’s position.

“The entire industry’s direction this year is not in line with the advanced process technology [Mr Liang] has been pushing these years,” said one SMIC engineer.

Describing the Taiwanese working at Chinese chip companies as “mercenaries” who jumped ship for much higher pay, a former TSMC executive said senior officers such as Mr Liang carried a responsibility to pursue influence and resources for the junior Taiwanese managers and engineers they bring with them.

“In that situation, he has to fight — not only for himself but also for his people,” the person said.

Resignation threat

In his letter to the board last month, Mr Liang blamed his threat to resign on SMIC’s failure to consult him on the hiring of Chiang Shang-yi, his former boss at TSMC, as deputy chairman. “I think you probably no longer need me to work hard and fight for the company’s future,” he wrote.

When Mr Chiang retired as TSMC executive vice-president for research and development in 2006, Mr Liang was passed over as his successor and subsequently left to join Samsung. SMIC has not explained its rationale for hiring Mr Chiang.

People who know Mr Liang said he viewed the top job at SMIC as a chance to lead extraordinary advances in technology — an opportunity he felt he had previously been overlooked for at TSMC.

“If he really quits SMIC now, the mission he has committed to so passionately will have failed,” said the former TSMC official.

That could spell a broader failure for Chinese efforts to build a chip manufacturing industry on Taiwanese talent.

“Many Taiwanese companies, first and foremost TSMC, have [now] added legal and financial obstacles against people leaving for Chinese rivals,” he said. “It is nearly impossible that there would be another Liang Mong-song.”

Additional reporting by Qianer Liu in Shenzhen

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Singapore steps up bid to become Asia Spacs hub

Singapore’s stock exchange is accelerating plans to become the first major bourse in Asia to list special purpose acquisition companies, aiming to capitalise on a surge of foreign investment in fast-growing technology start-ups.

SGX said it would begin a formal consultation within two months into allowing blank cheque companies to list in the city-state. The exchange has already held talks with global banks and issuers, according to multiple people involved in the discussions.

Singapore would be the first exchange in Asia to join the rush of tech-focused Spacs, one of the hottest asset classes in the US, where blank cheque vehicles raised a record $80bn in 2020. 

Sponsors raise capital by listing Spacs and then hunting for a company to acquire or merge with. The structure provides companies an alternative route to going public to expensive and time-consuming initial public offerings.

Tan Boon Gin, chief executive of SGX’s regulatory unit, said this month that the exchange had received a number of expressions of interest. By giving issuers a faster path to market and more certainty on pricing, Spacs “would benefit capital markets both locally and regionally”, according to the exchange.

Bankers said SGX would be well positioned to attract Asia-based and regionally focused acquisition vehicles that have listed in the US, such as Bridgetown Holdings, a Spac backed by Hong Kong businessman Richard Li and Silicon Valley investor Peter Thiel.

Bridgetown raised $595m in a US IPO in October, making it the biggest Spac focused on south-east Asia. Bridgetown 2, which launched this month, is seeking to raise $200m to target additional Asian companies.

Udhay Furtado, co-head of Citigroup’s Asia equity capital markets business, said there was a “backlog building” of financial sponsors aiming to list Spacs targeting Asian companies, especially in south-east Asia.

More than five Spacs by Asia-based sponsors in the US have announced plans to list or have gone public in the first two weeks of 2021, including one by Hong Kong-based Primavera Capital and Princeville Capital.

SGX’s pursuit of Spacs comes as some of south-east Asia’s highest-profile unicorns, or private companies worth at least $1bn, are expected to seek public listings this year. Those include ride-hailing apps Grab and Gojek, valued at $16bn and $10bn, respectively, and Indonesian ecommerce start-up Tokopedia, recently valued at $7.5bn.

SGX, which has suffered a string of delistings, could be an early mover because it has greater incentive to allow in Spacs, Mr Furtado said. The exchange’s push follows earlier, less fruitful attempts to attract tech names, such as partnerships with the Nasdaq and Tel Aviv exchanges.

The Singapore exchange is also facing competition from regional rival Hong Kong, which has drawn a steady stream of “homecoming” listings by Chinese tech groups seeking to reduce their dependence on Wall Street amid tensions between Washington and Beijing.

“[SGX] may not be able to compete with the Hong Kong exchange in terms of tech IPOs so it’s trying to find another edge,” said Margaret Yang, a strategist at DailyFX.

The Hong Kong stock exchange has not been an option for Spacs in Asia because of its tight rules around “backdoor” listings, imposed over concerns about listed cash shells that can access funding without full IPO scrutiny.

However, Spacs have been criticised for lacking transparency and providing greater returns for sponsors than for shareholders.

One investment banker in Singapore said SGX had proposed changes to the US Spacs model to make blank cheque vehicles more “investor-friendly”, including requirements to ensure only qualified sponsors could raise a Spac and changes to incentives so that sponsors could not walk away with an outsized financial gain.

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India’s consumers bear the brunt of New Delhi’s inflation paradox

Along a lane in a Mumbai neighbourhood lined with chai stalls and vegetable carts, visitors usually have to dodge commuters, motorcycles and even animals to shop. But now, like so many streets in India, it is unsettlingly quiet.

Vijay Kotian, a 35-year-old selling vegetables, fruit and pulses from his roadside perch, faced a paradox. There were fewer buyers for his fare, but prices were higher.

“Customers are getting angry because prices are increasing from Rs20 to Rs40 to Rs50 [$0.20-$0.68],” he said, citing tomatoes as an example. “They ask why I’m increasing my prices. But it’s not me.”

Mr Kotian’s predicament encapsulates a challenge for India since the coronavirus pandemic struck in March: stubbornly high inflation despite a huge economic contraction.

Retail inflation remained above the Reserve Bank of India’s mandated target of 6 per cent for eight months from April, soon after the country entered a months-long lockdown. It touched a six-year high of 7.6 per cent in October.

The consumer price index finally fell within the RBI’s target at 4.6 per cent in December, thanks partly to a drop in vegetable prices, providing some respite to low-income shoppers struggling to fill shopping bags and politicians fearful of popular outrage.

But economists have warned that India, which for years has struggled with runaway price increases, must balance the urgent need to revive growth with keeping food, transport and commodities prices under control.

“The key question that comes with inflation is: is this a return to the dark ages or are these passing dark clouds?” said Aurodeep Nandi, an economist at Nomura.

While he did not believe it was the former, Mr Nandi warned that “there are still dark clouds looming ahead”.

High inflation has long been a source of concern to Indian authorities as demand from the fast-expanding economy and population exacerbated goods shortages. After years of mixed responses, the central bank in 2016 adopted an inflation-targeting mandate in order to try and manage the imbalance.

Anger over high onion prices has been linked to the downfall of more than one government. In September, Narendra Modi’s government banned onion exports because of concerns over soaring prices.

Retail inflation has been led by volatile food prices

The drop in food inflation in December partly reflected the patching up of supply chains that were upended by India’s strict lockdown, which limited the availability of transport and labour.

But other measures of inflation have showed signs of pressure that predate the pandemic, picking up after several years of comparatively tame price rises. Core inflation, which excludes food and fuel, remained stubbornly high last month at 5.6 per cent, compared with 5.8 per cent in November, according to brokerage Edelweiss.

That continued even after the lockdown brought growth to a halt. India’s economy is expected to shrink more than 10 per cent in the year ended March, according to the IMF. The country has recorded more than 10m coronavirus cases, the world’s second-highest tally, and more than 150,000 deaths.

Anxiety over inflation has prevented the Reserve Bank of India from cutting interest rates since May, and many economists expect it to continue holding off in the months to come — due partly to accelerating commodity prices.

The economy has shown signs of improvement from its lows last year, with indicators including manufacturing, railway traffic and tractor sales picking up.

India’s economy is expected to contract sharply before rebounding

But Shumita Deveshwar, an economist at advisory firm TS Lombard, said inflation could complicate India’s recovery.

Tepid private investment, which has been trending lower since 2018, has exacerbated the country’s chronic supply-side shortages, such as the infrastructure needed to get vegetables from farms to shops. This results in significant price mark-ups that stoke inflation, she said.

“This is an age-old problem for India,” said Ms Deveshwar. “As growth recovers and demand starts to pick up, what we will see is supply lagging demand, which basically recreates the conditions” for inflation.

Recent agricultural reforms introduced by Mr Modi and aimed at allowing farmers to sell directly to private buyers rather than state-backed market yards could streamline supply chains and reduce some of these inflationary inefficiencies.

“If [the reform] is run the way it’s meant to be, I’d think we’d be in for much better-behaved food inflation,” said Radhika Rao, an economist at DBS.

The contentious laws, however, were suspended by the Supreme Court following a backlash from farmers.

Inflation in other areas continues to cause problems. Many automakers, such as India’s largest, Maruti Suzuki, raised vehicle prices this month citing, in part, high commodity prices.

A survey of manufacturers by IHS Markit in December found that inflation in input costs, such as materials and labour, had risen to the highest level in two years.

All the while, India’s economic recovery remains tentative. Industrial production in November dropped 1.9 per cent, according to data released this month.

Even as Covid-19 infections have dropped from nearly 100,000 a day in September to fewer than 20,000, some economists fear that a resurgence in cases could hamper the turnround.

For Vinod Prasad, a 57-year-old vendor selling towels in Mumbai, inflation remains a worry, with prices about 20 per cent higher than before the lockdown.

And there were few signs of an economic revival. On one recent evening, he had yet to make a single sale for the day. “No one comes,” he said.

Additional reporting by Andrea Rodrigues

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Coronavirus latest: US shows encouraging hospitalisation trends as UK sets daily death record

Banks are squeezing the supply of loans to European businesses and households in expectation of higher bad loans due to the impact of lockdowns, a European Central Bank report showed. The ECB’s quarterly survey of banks found a growing proportion of them are tightening lending conditions, particularly in France.

Hong Kong’s unemployment rate hit a 16-year high as its economy was battered by the coronavirus epidemic. The jobless figure for October to December rose to 6.6 per cent, a 0.3 per cent increase from the previous three months. The retail, accommodation and food sectors suffered from stringent social distancing measures.

The United Arab Emirates is accelerating the rollout of its coronavirus vaccines as the Gulf federation seeks to overtake its newfound ally Israel as the world’s most inoculated nation. The UAE, which has vaccinated around 20 per cent of the population, is starting to catch up with Israel, which leads with a 29 per cent rate.

Australia’s chief medical officer has said the country will return to ‘some sort of normal’ this year following its Covid-19 vaccination programme, but international travel is still some time away. Paul Kelly said the vaccine effort would not allow Australia to reopen its borders, due to high infection levels elsewhere.

The Ring at the London Metal Exchange

The London Metal Exchange is to propose permanently shutting its Ring, where metals have been traded since its founding in 1877, a move that would mark the end of in-person trading of commodities in Europe. The exchange’s decision would come after it temporarily halted trading in the Ring last year because of the pandemic.

Halliburton, one of the world’s three biggest oilfield services companies, reported a fourth-quarter decline in income to $160m, or 18 cents per share, from $285m a year ago. That marked a 60 per cent rise from the previous three months, when oilfield activity in the company’s key US market remained depressed.

Bank of America’s fourth-quarter net income rose by almost $600m, driven by the release of loan loss reserves, capital markets revenues and net interest income that climbed for the first time in more than a year. Quarterly net income rose to $5.5bn but total revenue, at $20.1bn, fell short of expectations of $20.5bn.

Travel restrictions, store closures and fewer festive gatherings dented Swiss chocolatier Lindt & Sprüngli’s business. Organic sales dropped 6.1 per cent to SFr4.02bn ($4.52bn) in 2020, which resulted in an almost 11 per cent year-on-year decline. Shares in Lindt dropped 2 per cent on Tuesday.

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Netflix signals stock buybacks to come as subscribers hit 200m

Netflix will no longer raise debt to fund its spending spree on television shows and films and may begin returning money to shareholders through buybacks, marking a milestone in the company’s evolution as it said it had passed 200m subscribers. 

Since 2011 when Netflix leapt into original programming with House of Cards, the streaming pioneer has funded content through high-yield bonds, as it sought to outspend Hollywood studios and build an enticing catalogue. 

Netflix’s latest quarterly figures on Tuesday underscored how successful that strategy had been: it had nearly 204m subscribers at the end of 2020, it said, having added 37m new paying customers during the year. 

Some 8.5m of those were added in the quarter to the end of December, eclipsing analyst forecasts of 6m.

“We believe we no longer have a need to raise external financing for our day-to-day operations,” Netflix said in a letter to investors, adding that it would explore stock buybacks.

The shares jumped about 10 per cent in after-hours trade.

The California-based company has delighted investors in recent years despite burning billions in cash. Netflix had promised that as it hooked more customers and raised subscription prices, eventually it would no longer need to keep raising junk debt to fuel its content spending. 

That thesis has largely played out, helped by a global pandemic that lured people stuck at home in lockdowns to Netflix’s streaming platform and kept it comfortably ahead in the race for subscribers. Its fiercest rival, Disney Plus, has 87m subscribers globally.

The majority of new sign-ups in the fourth quarter came from outside the US. In October, Netflix raised prices in the US, its largest market, by $1 to $14 a month for its most popular plan. 

Revenues in the quarter jumped 22 per cent from the same period last year to $6.6bn, in line with analysts’ forecasts. Net income fell to $542m, from $587m a year ago.

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Donald Trump says his movement ‘just beginning’ in farewell remarks

Donald Trump has vowed the movement he started as US president was “only just beginning”, acknowledging the imminent handover of power while avoiding any reference to president-elect Joe Biden by name in a farewell address from the White House.

In his final pre-recorded remarks posted before he departs the US capital for Florida on Wednesday, Mr Trump touted his administration’s accomplishments and the personal role he played in everything from his trade war with China to the Covid-19 pandemic.

“I took on the tough battles, the hardest fights, the most difficult choices — because that’s what you elected me to do,” Mr Trump said on Tuesday, calling himself “the only true outsider ever to win the presidency”.

He asserted that his administration had “restored American strength at home and American leadership abroad”.

“The world respects us again — please don’t lose that respect,” he said.

Mr Trump also highlighted his tough stance on China and role in overseeing what he called “a series of historic peace deals in the Middle East”.

“I am especially proud to be the first president in decades who has started no new wars,” he added.

Mr Trump referred briefly to the violence that engulfed the US Capitol earlier this month, but did not acknowledge the role he himself had played in the events leading up to the attack, including questioning the veracity of the November election results and encouraging protesters to march down to the home of the US Congress. Mitch McConnell, the Republican Senate majority leader, accused the president and others of having “provoked” the rioters earlier on Tuesday.

“All Americans were horrified by the assault on our Capitol,” Mr Trump said. “Political violence is an attack on everything we cherish as Americans. It can never be tolerated. Now more than ever we must unify around our shared values, and rise above the partisan rancour and form our common destiny.”

At another point, he stated that “above all” his administration had “reasserted the sacred idea that in America, the government answers to the people”.

Mr Trump acknowledged several times during the speech that he was preparing to “hand over power to a new administration at noon on Wednesday”.

“[We] pray for [the new administration’s] success in keeping America safe and prosperous,” he said, without mentioning Mr Biden. “We also want them to have luck — a very important word.”

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Italy’s PM survives crunch confidence vote

Italy’s prime minister has narrowly survived a crunch vote of confidence in his fragile coalition government as the country grapples with twin health and economic crises.

In a vote held in the Italian Senate on Tuesday Giuseppe Conte won 156 out of 296 votes, short of the 161 senators he would need for an absolute majority but enough to pass because of 16 abstentions.

While the result will allow Mr Conte’s coalition of the one-time populist Five Star Movement and centre-left Democratic party to carry on, it also leaves the government severely weakened at a time of acute national emergency.

The confidence votes in Mr Conte were triggered when Italia Viva, a small party led by former Italian prime minister Matteo Renzi, quit the coalition last week over criticisms of its handling of the pandemic.

If Mr Conte had lost the Senate vote, he would have been forced to hand in his resignation to the president, Sergio Mattarella, and Italy would have been plunged into a full political crisis.

Italy has suffered more than 82,000 deaths during the Covid-19 pandemic, the second highest toll in Europe. This month the Italian government announced a further increase to its planned budget deficit for this year to allow for more spending to fight a brutal recession.

Ahead of the vote Mr Conte had pledged to introduce greater proportional representation in elections, a move interpreted as an attempt to woo lawmakers from the smaller parties that this would benefit.

Mr Renzi’s Italia Viva ultimately opted to abstain from the Senate vote, meaning Mr Conte needed the approval of fewer lawmakers to survive than if his predecessor had voted against the government.

On Monday Mr Conte easily won a vote in the Italian lower house but he had been scrambling over the weekend to win over enough senators to scrape though in the upper chamber, where the exit of Mr Renzi’s party deprived the coalition of its majority.

With Mr Conte’s unconvincing survival, attention in Rome will now swing back to how his weakened coalition will move forward in spending around €200bn in EU pandemic recovery money

On Monday Paolo Gentiloni, an ex-Italian prime minister and the current EU commissioner for economic and monetary affairs, said Italy’s recovery plans needed “to be discussed and strengthened” but he did not single out the country for criticism.

Yet with a without an absolute majority in Italy’s upper house, Mr Conte’s coalition faces an uphill battle to pass meaningful reforms at a time when the country faces the worst economic crisis since the second world war. Italian governments require a Senate majority to pass meaningful legislation, including annual budgets.

“He risks being a lame-duck prime minister from now on,” said Francesco Galietti, founder of the risk consultancy Policy Sonar. “Conte will try to make it look like a victory but the whole house of cards could easily collapse further down the line.”

Both Mr Conte and Mr Renzi had earlier in the day exchanged strong words in speeches to the Senate. Mr Conte accused the ex-prime minster of causing instability during “a challenge of epochal proportions”, defending his coalition government’s record in fighting the pandemic.

“The whole political class risks losing contact with reality,” Mr Conte said. “Was there really a need to open a political crisis at this stage?”

Mr Renzi responded that, instead of being irresponsible for bringing the country to the brink of a political crisis, the exit of Italia Viva from the coalition was meant to avert a further escalation of “a health and economic crisis”. 

“We have been asking for a turnround for months,” the former Italian prime minister told the Senate. “It is not true that we have been irresponsible, we have been far too patient,” he said. 

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