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China’s Covid Protests Began With an Apartment Fire in a Remote Region

As smoke crept through the 21-story apartment building in far western China, panicked messages filled the residents’ chat group. “On the 16th floor, we don’t have enough oxygen,” a woman gasped in an audio message. “Soon our children won’t be OK.”

Another person added a plea about the people in apartment 1901: “They wouldn’t be able to open the door. Can you break into it and take a look? There are many children inside.”

Many who heard the reports were shocked, not by a tragedy in the remote city of Urumqi, but because it had taken firefighters three hours to control the fire. People across the country believed the delays happened in part because of the pandemic restrictions that have been a running source of discontent throughout the country. The impact has reached into the heart of Chinese politics.

Excerpts of residents’ panicked conversation began to circulate on social media, along with videos of the emergency response. They showed fire crews struggling to get around barriers to approach the building. Videos showed fire crews’ water streams falling short of the fire as its flames slithered toward the top of the apartment tower.

Pandemic controls imposed by Chinese authorities around, and possibly inside, the apartment building had delayed the fire response, neighbors and family members of those killed have said. That would mean that the death toll, which many believed was much higher than the official tally of 10, was ultimately in part a product of China’s strict, already widely detested zero-tolerance Covid policy. The government denies all that.

Outrage spilled onto the streets of Urumqi, the capital of the heavily Muslim Chinese region of Xinjiang, where residents had been locked down for more than 100 days. Footage of the fire and the protest in Urumqi spread on Chinese social media and on the popular do-everything app

WeChat.

Firefighters sprayed water on a residential-building fire in the city of Urumqi that killed 10 and triggered protests against Covid-19 lockdowns.



Photo:

Associated Press

To large numbers of Chinese people who have had the experience of being locked inside their own apartments because of Covid controls, the words and images flowing out of Xinjiang conjured a scenario that seemed terrifyingly plausible.

“The 100-plus day lockdown is real. The many deaths from Covid controls are real. Discontent has accumulated and is destined to erupt,” said a user on the Twitter-like

Weibo

platform in one widely endorsed comment about the fire.

Within days, the protest would spread throughout China, growing into the largest show of public defiance the Communist Party has faced since the 1989 pro-democracy protests at Tiananmen Square. The demonstrations have posed a rare challenge to the recently extended rule of Chinese leader

Xi Jinping,

compounding the government’s challenges over how to ease its Covid restrictions.

Large protests erupted across China as crowds voiced their frustration at nearly three years of Covid-19 controls. Here’s how a deadly fire in Xinjiang sparked domestic upheaval and a political dilemma for Xi Jinping’s leadership. Photo: Thomas Peter/Reuters

China has experienced public outrage over its strict Covid-19 restrictions before, most of which the authorities had managed to contain online. Going back nearly three years, the death from the coronavirus of Li Wenliang, a doctor who was punished for warning others about the initial outbreak in Wuhan, unleashed a flood of grief and anger.

This September, a bus crash in Guizhou province that killed 27 people who were being sent to quarantine in the middle of the night raised an outcry about steps taken to control the coronavirus.

Mourners in Hong Kong paid their respects in February 2020 to Chinese physician Li Wenliang. Dr. Li raised early alarms about the coronavirus outbreak in Wuhan but was silenced by police, only to die of the disease himself.



Photo:

jerome favre/EPA/Shutterstock

More recently, after an announcement that Covid restrictions would be eased led to little actual change, public frustration spilled out onto the streets. Workers at

Foxconn Technology Group’s

main plant in the city of Zhengzhou, the world’s largest iPhone factory, clashed with police while protesting a contract dispute with roots in pandemic lockdowns. In some Beijing neighborhoods, people argued with officials over the legality of controls.

In maintaining the lockdowns in Xinjiang, local authorities have been able to rely on the country’s most advanced and suffocating security apparatus, originally built to carry out a campaign of ethnic re-engineering against the region’s 14 million Uyghurs and other Turkic Muslims.

Most if not all of the fire’s victims belonged to these groups, according to relatives and overseas Uyghur activists. Discrimination by China’s Han majority against Turkic minorities has long fueled ethnic tensions in the region, which exploded into deadly race riots in Urumqi in 2009.

Yet in the past week, the sides found common cause, at least temporarily, in anger over the fire.

According to an official account published in the state-run Xinjiang Daily newspaper, the blaze began on the 15th floor, in the apartment of a Uyghur woman who was having a bath in a home spa when a circuit breaker flipped. She flipped it back, then was alerted by her daughter to the smell of smoke. When she re-emerged from the bathroom, flames had risen to the wooden ceiling from the bed.

A community worker arrived just as they were fleeing the flames, according to Xinjiang Daily. He called the fire service at 7:49 p.m. last Thursday, then helped rush the pair and their neighbors downstairs.

A still taken from a social media video shows a fire truck shooting water at the burning residential building in Urumqi. The fire and delays in fighting it proved a catalyst for nationwide protests against Covid-19 lockdowns.



Photo:

REUTERS

At the ground level, burning debris had begun falling over the doorway. Those who couldn’t leave through the front gate in time had to climb out of a window from an apartment, the newspaper reported.

Firefighters didn’t reach some of the apartments until around 90 minutes after they were called, according to posts on the chat group.

Video footage showed that traffic-control structures had to be removed as a line of fire trucks waited, causing delays. The government denied the structures had been installed for pandemic-control reasons.

At a press briefing convened late Friday night as protests unfolded, officials said that three fire trucks from a nearby station arrived at the scene five minutes after the fire was reported, but they were blocked by cars that had to be moved.

On social media, residents said those cars had been parked there for months during the fall Covid lockdown, and the engines couldn’t start.

Li Wensheng, Urumqi’s fire chief, said at the press briefing that some residents’ “self-rescue abilities were weak,” a comment that added to the simmering anger.

The Xinjiang and Urumqi governments didn’t respond to requests for comment.

Han residents of Urumqi led the protests that unfolded in the freezing night air the day following the fire. Uyghur residents have faced the strictest lockdowns and largely stayed home out of fear they would bear the brunt of any reprisals, overseas activists said.

Demonstrations were fueled by the group chat conversations and footage of obstructed fire trucks, as well as by videos circulating online that appeared to capture the screams of people from the smoldering building. “Open the gate!” one woman could be heard shouting in horror in one video.

On Saturday night, several female students stood for hours on the campus of Communication University of China in Nanjing, holding blank sheets of paper in silence, widely taken to be a reference to Chinese censorship. A male student from Xinjiang offered a tribute to the victims in Urumqi and to “all other victims nationwide,” saying he had been a coward for too long.

A man was arrested on a Shanghai street when protests erupted following a deadly apartment-building fire in China’s Xinjiang region.



Photo:

hector retamal/AFP/Getty Images

That same night, dozens of people in Shanghai gathered for a vigil with flowers and candles near a street named after Urumqi. Passersby joined in, and the crowd grew into the hundreds. Just past midnight, some demonstrators began chanting for Mr. Xi to step down.

Similar protests emerged in half a dozen Chinese cities and more than a dozen university campuses in the following days. In several instances, demonstrators chanted “We are all Xinjiang people.” Others called for democracy and free speech.

Chinese authorities have devoted enormous resources to building domestic security and surveillance systems specifically designed to prevent such wide and unified outbreaks of dissent. While protests aren’t uncommon, scholars who study China say they are almost always local events with little capacity to spread.

The Cyberspace Administration of China issued guidance to companies on Tuesday, including Tencent Holdings Ltd. and ByteDance Ltd., the Chinese owner of short video apps TikTok and Douyin, asking them to add more staff to internet censorship teams, according to people familiar with the matter. The companies were also asked to pay more attention to content related to the protests, particularly any information being shared about demonstrations at Chinese universities and the fire.

In imposing its stringent Covid controls, human-rights activists and other observers say, the Communist Party created an issue that China’s citizens only have to look out their front door to understand. Some Uyghurs affected by the fire said the fear and frustration stemming from pandemic controls crossed deep-seated ethnic divides.

Marhaba Muhammad, now a resident of Turkey, said she read news of the fire with a sense of horror. She recognized the building as the home of her aunt, whom she last visited in 2016, shortly before leaving China. The family lived in apartment 1901, the subject of one of the desperate messages left in the residents’ chat group.

Ms. Muhammad said she and her family abroad learned that the aunt, Qemernisahan Abdurahman, 48, had died in the apartment, along with four children age 5 to 13.

Ms. Abdurahman’s husband wasn’t there. He and an elder son were detained as part of the crackdown in Xinjiang in 2017 and now are imprisoned, said Ms. Muhammad and her brother, Abdulhafiz Maiamaitimin, who lives in Switzerland.

“This news is so painful. No one imagined,” she said.

Qemernisahan Abdurahman, 48, with 3 of her four children who died in the fire in Urumqi.



Photo:

Marhaba Muhammad

In apartment 1801, directly below where Ms. Muhammad’s aunt and children died, a woman also died along with her children, according to Abduweli Ayup, a Uyghur activist in Norway who spoke with relatives and neighbors of the fire victims.

Han Chinese don’t have to fear the level of oppression faced by Uyghurs, Ms. Muhammad said, referring to the Chinese government’s detention of upwards of a million Uyghurs and other Turkic Muslims in internment camps and prisons—a practice the United Nations has said may constitute a crime against humanity.

Yet “after the fire, they realized that Uyghurs today would be the Chinese tomorrow,” she said.

Police have targeted protest participants by using some of the surveillance techniques honed in Xinjiang to target Uyghurs. In chat rooms used to organize demonstrations, protesters have reported police scanning the smartphones of pedestrians for overseas apps such as Twitter and Telegram, a common experience on the streets of Urumqi.

A lawyer representing more than a dozen protesters taken by police said she believes many of her clients were tracked through mobile-phone data, another echo of the Uyghur experience in Xinjiang.

On Tuesday, Chinese-Australian activist and cartoonist Badiucao, who goes by one name, reposted a widely shared video of police on the Shanghai subway checking the phones of passengers on Twitter. He appended a single phrase: “Xinjiang-ization.”

Protesters in Beijing lighted candles during a protest against China’s strict zero-Covid measures.



Photo:

Kevin Frayer/Getty Images

Write to Austin Ramzy at austin.ramzy@wsj.com and to Wenxin Fan at Wenxin.Fan@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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China Dials Back Property Restrictions in Bid to Reverse Economic Slide

For much of the past year, China’s economy has been reeling under Xi Jinping’s dual campaigns to rein in soaring property prices and to stamp out any traces of Covid-19 within the country’s borders.

Now, as he moves to loosen pandemic restrictions, China’s leader, Mr. Xi, is signaling a reversal of his real estate crackdown, too, a tacit acknowledgment of the economic pain and public frustration that the two policies have engendered.

China’s central bank and top banking regulator issued a wide-ranging series of measures aimed at bolstering housing demand and supply, according to a notice circulated on Friday to the country’s financial institutions and officials involved in policy-making. The authenticity of the document was confirmed by people close to the central bank.

The new policies, which were signed off on by Mr. Xi, according to the officials involved in policy-making, unwind some of the previous restrictions aimed at curbing property developer debt and give lenders permission to extend loans to home builders in financial trouble.

“These property measures, on top of announcements of Covid loosening, are a clear indication that Beijing’s efforts to support growth are intensifying,” said

Michael Hirson,

head of China Research at 22V Research, a New York-based firm focused on investment strategy.

While local governments across China have taken more modest measures to ease some of the pressure facing real-estate companies, the new bundle of 16 measures represents the single biggest step yet to rescue a sector that has for decades been a key pillar of growth for the world’s second-largest economy.

The property measures had led to falling home sales, hurting overall growth in the real-estate sector.



Photo:

Cfoto/Zuma Press

Chinese home prices for decades outpaced the rate of broader economic growth.



Photo:

Anthony Kwan/Bloomberg News

The new measures are “massive in scale” and amount to “targeted credit easing for the property industry,” said

Dan Wang,

chief economist at

Hang Seng

Bank China, who drew a contrast with previous rounds of incremental support measures.

As developers face looming loan repayment deadlines, regulators are eager to avoid any systemic risks in the financial sector triggered by a wave of potential defaults, Ms. Wang said. Even so, she added, “demand for home purchase remains weak,” with any reversal in housing-market sentiment likely to depend on the longer-term outlook for the economy.

The easing of real estate and Covid restrictions comes just weeks after Mr. Xi secured another five years in power at a closely watched Communist Party congress. With Mr. Xi having consolidated political control, he now faces the prospect of a third term in office facing the country’s worst prolonged economic slowdown in decades.

Much of the economic weakness is a direct product of his campaign-style clampdowns to crush Covid and, starting last year, tame a four-decade-old property market boom that officials have warned may be a bubble.

The property measures led to increased defaults by property developers, rising bad debts for banks, falling home sales and investment—all of which have weighed heavily on overall growth in recent quarters.

China’s gross domestic product expanded just 3.0% in the first nine months of 2022, well below the government’s official full-year target of about 5.5%, set in March.

China Evergrande Group, long the country’s largest developer, is now its biggest debtor.



Photo:

ALY SONG/REUTERS

Chinese home prices have for decades outpaced the rate of broader economic growth, driving more credit into real estate speculation and further pushing up property values. Authorities in recent years have repeatedly tried to break the vicious cycle with various tightening measures, only to loosen them whenever growth appears threatened.

By 2019, the total value of Chinese homes and developers’ inventory was $52 trillion, according to

Goldman Sachs Group Inc.,

twice the size of the U.S. residential market.

As Beijing tightened the screws on developers last year—and then reaffirmed their commitment to the tougher rules—several private developers began to teeter on the brink of crisis. Among the most prominent was

China Evergrande Group,

long the country’s largest developer and now its biggest debtor, though the concerns have spread to other large private players.

More than 30 developers have defaulted on their dollar-denominated bonds. International investors have dumped their bonds, driving price levels to new lows and leaving even the strongest private developers struggling to sell new debt.

Shares of Chinese property developers surged on Monday following the news.

Country Garden Holdings Co.

, one of the country’s largest real-estate companies by contracted sales, jumped 40% in early trading in Hong Kong, taking its gains this month to more than 200%. A Hang Seng subindex of property stocks rose 7%.

Prices of dollar bonds of developers that haven’t defaulted on their debt—including

Agile Group Holdings Ltd.

and

Longfor Group Holdings Ltd.

—also rose sharply from deeply distressed levels, as investors placed bets on their potential recovery. 

As the broader economic pain mounted this year, regulators and regional governments moved only modestly to try to avert a full-blown housing crisis, introducing limited measures such as tax rebates, cash rewards and lower down payments, as well as providing banks with window guidance to increase property lending. But those piecemeal moves have so far failed to reverse sentiment and lift the sector.

In October, sales at the country’s 100 largest property developers fell to the equivalent of $76.7 billion, down 28.4% from a year earlier and the 16th straight month of year-over-year declines, according to China Real Estate Information Corp., an industry data provider.

As foreign investors and home buyers lose confidence in China’s property market, developers are offering cars and pigs to boost sales. WSJ examines ads and policies to see how the country’s real estate turmoil could ripple out into the global economy. Photo composite: Sharon Shi

Now, with a new leadership team in place after the party congress—one packed with party members loyal to Mr. Xi—the top leader is moving toward a more concerted approach to shoring up the economy, part of a broader effort to brace for greater competition with the U.S.

“It seems that room for policy easing has widened post-party congress,” said

Larry Hu,

a Hong Kong-based economist at Macquarie. “After the impact of previous efforts turned out to be muted, policy makers are giving a big push now to get credit to flow to the property sector.”

Credit has been a particular headache for developers, since many had relied on heavy borrowing to build new projects and stay afloat. In the first nine months of this year, funds raised by China’s property developers dropped by 24.5%, according to data from the National Bureau of Statistics.

The new notice, jointly issued by the People’s Bank of China and the China Banking and Insurance Regulatory Commission, doesn’t represent a total reversal of Mr. Xi’s earlier efforts to tamp down exuberance in the sector.

‘Policy makers are giving a big push now to get credit to flow to the property sector.’


— Larry Hu, a Hong Kong-based economist at Macquarie

The notice, which has been billed as a package aimed at ensuring the sector’s “stable and healthy development,” still underlines the need to curb speculative real estate buying, repeating Mr. Xi’s mantra that “housing is for living in, not for speculating on.”

Under the new measures, developers’ outstanding bank loans and some types of nonbank credit due within the next six months can be extended for a year. Repayments on developers’ bonds can also be extended.

In addition, banks are encouraged to offer financing to unfinished housing projects and negotiate with home buyers on extending mortgage repayment, an apparent effort to help defuse growing resentment among those who have boycotted mortgage payments since the summer.

Banks are also encouraged to offer financing to support acquisitions of real-estate projects by financially sounder developers from weaker ones.

The new policies require financial institutions to treat state-owned developers and private developers equally, a measure that appears aimed at addressing banks’ reluctance to lend to private developers, according to

Yan Yuejin,

research director at Shanghai-based E-House China R&D Institute, a research firm.

“Regulators are making all-round efforts to target a soft landing for the property sector,” said

Bruce Pang,

chief China economist at Jones Lang LaSalle. Still, with the measures’ heavy skew toward improving liquidity for cash-strapped developers, he said, “these measures likely aren’t enough to avert the slowdown in the physical market.”

—Rebecca Feng contributed to this article.

Write to Lingling Wei at Lingling.Wei@wsj.com, Cao Li at li.cao@wsj.com and Stella Yifan Xie at stella.xie@wsj.com

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Home buyers are backing out of contracts in the Sun Belt, especially in Las Vegas, Phoenix, Tampa and Texas

The tide has turned, and buyers are now backing out of deals in the Sun Belt as rates rise and home prices remain unaffordable.

Once pandemic boomtowns, 15.2% of homes in cities in the Sun Belt that went under contract in August fell through, or roughly 64,000 homes nationwide saw deals dropped, a new report from real-estate brokerage Redfin Corp.
RDFN,
-5.33%
said.

A year ago, only 12.1% of home buyers were backing out of deals. Typically 12% of deals fell through prior to the pandemic, Redfin said. But the last time this number spiked — prior to this fall — was at the onset of the coronavirus pandemic in March/April 2020.

Buyers were most likely to back out of deals in the Sun Belt, the company added, in cities such as Phoenix, Tampa, and Las Vegas. Buyers were least likely to back out of purchases in big cities, including San Francisco and New York.

“A slowing housing market is allowing buyers to renege on deals because it often means they don’t need to waive important contract contingencies in order to compete like they did during last year’s home-buying frenzy,” Redfin noted.

Contingencies can include inspections to see if there’s any issues with the home, or whether they can get the mortgage required, or whether the appraisal is different from the agreed-upon amount.

‘A slowing housing market is allowing buyers to renege on deals.’


— Redfin

And “some buyers may also be backing out of deals because they’re waiting to see if home prices fall,” the company added.

More than a quarter of buyers looking to buy a home in Jacksonville, Fla. backed off in August, Redfin said, which is the highest percentage among the major 50 metro areas in the U.S. Las Vegas, Atlanta, and Orlando followed. (Top 10 list below)

These destinations were hotspots during the pandemic for buyers as they were affordable and in the era of remote-work.

But that’s changed.

“Sun Belt cities including Phoenix, Tampa and Las Vegas attracted scores of house hunters during the pandemic, driving up home prices,” Redfin said.

“Now their housing markets are among the fastest-cooling in the nation, giving buyers the flexibility to bow out,” they added.

Redfin analyzed Multiple Listing Services data going back to 2017 to analyze the drop-outs.

The share of buyers backing out of deals was the lowest in Newark, N.J., at 2.7%, followed by San Francisco, Nassau County, N.Y., New York City, and Montgomery County, Pa.

A big reason for the cancellations is high rates. The 30-year is at 6.29% as of Sept. 15. That’s up from 2.88% a year ago.

Homes are also still expensive. While existing-home prices are coming down, the median price of an existing home in the U.S. is still $389,500 in August, up 7.7% from a year earlier, the National Association of Realtors said.

‘I advise sellers to price their homes competitively based on the current market.’


— Sam Chute, a Miami-based real-estate agent at Redfin

With this tough backdrop of nervous buyers, “I advise sellers to price their homes competitively based on the current market,” Sam Chute, a Miami-based real-estate agent at Redfin said, “because deals are falling through and buyers are no longer willing to pay pie-in-the-sky prices.”

To be clear, the indigestion in the real-estate market was deliberately constructed: Home prices coming down as a result of higher rates and sellers reacting to lower demand is a “good thing,” Federal Reserve Chairman Jerome Powell said during a Wednesday press conference when they announced the rate hikes. 

“Housing prices were going up at an unsustainably fast level,” Powell said. 

“For the longer term, what we need is supply and demand to get better aligned, so that housing prices go up at a reasonable level …and that people can afford houses again,” he added. “The housing market may have to go through a correction to get back to that place.”

These are the top 10 cities where deals are falling through:

City Percentage of pending sales that fell out of contract
Jacksonville, Fla. 26.1%
Las Vegas, Nev. 23%
Atlanta, Ga. 22.6%
Orlando, Fla. 21.9%
Fort Lauderdale, Fla. 21.7%
Phoenix, Ariz. 21.6%
Tampa, Fla. 21.5%
Fort Worth, Tex. 21.5%
San Antonio, Tex. 21.1%
Houston, Tex. 20.6%

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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Humana, CVS Circle Cano Health as Potential Buyers

Humana Inc.

HUM 0.67%

and

CVS Health Corp.

CVS 0.06%

are circling

Cano Health Inc.,

CANO 32.17%

according to people familiar with the situation, as healthcare heavyweights scramble to snap up primary-care providers.

The talks are serious and a deal to purchase Cano could be struck in the next several weeks, assuming the negotiations don’t fall apart, some of the people said. Cano shares, which had been down nearly 7%, turned positive and closed up 32% after The Wall Street Journal reported on the talks with Humana and other unnamed parties, giving the company a market value of roughly $4 billion.

Bloomberg subsequently reported CVS’s interest.

It couldn’t be learned which other potential buyers might be in the mix, but Cano could be Humana’s to lose as the health insurer has a right of first refusal on any sale, part of an agreement that was originally struck in 2019.

Miami-based Cano operates primary-care centers in California, Florida, Nevada, New Mexico, Texas, Illinois, New York, New Jersey and Puerto Rico, according to documentation from the company. It mainly serves Medicare Advantage members, a private-sector alternative to Medicare for seniors.

Ties between the companies run deep: Cano was Humana’s biggest independent primary-care provider in Florida, serving over 68,000 of its Medicare Advantage members at the end of last year, according to a securities filing. Cano also operated 11 medical centers in Texas and Nevada for which Humana is the exclusive health plan for Medicare Advantage, the filing added.

Humana has already established a footprint in primary care, which it continues to expand. Earlier this year, its CenterWell Senior Primary Care business joined with private-equity firm Welsh, Carson, Anderson & Stowe to open about 100 new senior-focused primary-care clinics between 2023 and 2025, building on an earlier, similar partnership.

At its investor day last week, Humana’s chief executive,

Bruce Broussard,

said that the company sees a total addressable market of over $700 billion in “value-based” primary care for seniors. He noted that Humana has accelerated its investment in the sector over the past five years, becoming the nation’s largest senior-focused primary-care provider.

There has been a frenzy of deal making involving large companies scooping up primary-care assets as a means of getting closer to patients and providing them more personal service.

Amazon.com Inc.

agreed to purchase the parent of primary-care clinic operator One Medical for about $3.9 billion in July, while CVS Health Corp. agreed to buy

Signify Health Inc.

for $8 billion earlier this month.

Cano went public in 2020 through a special-purpose acquisition vehicle backed by real-estate investor

Barry Sternlicht,

who sits on its board. The deal valued the company at $4.4 billion.

Cano has been the target of two shareholder activists this year, both of which independently pushed for its sale.

Dan Loeb’s

Third Point LLC currently has a roughly 5% stake in the healthcare company. In March, he pointed to the market’s unfavorable view of companies that went public through SPACs as a reason to explore strategic alternatives.

Then in late August, Owl Creek Asset Management LP sent a letter to Cano’s board stating that it had amassed a roughly 4% stake and urged the company to hire investment bankers to explore a sale to a strategic buyer.

Cano has been backed by health-care-focused private-equity firm InTandem Capital Partners since 2016. The firm mainly makes investments in small-to-midsize companies.

Write to Laura Cooper at laura.cooper@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the September 23, 2022, print edition as ‘Humana, CVS Target Cano Health.’

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U.S. Home Sales and Prices Fell in August as Mortgage Rates Rose

The U.S. housing market slowed for a seventh straight month in August, the longest stretch of declining sales since 2007, as higher mortgage rates continued to undercut buyer demand.

Home sales look poised to decline further in the coming months, economists say, as mortgage rates recently topped 6% for the first time since 2008, when the U.S. was in a recession. Many first-time buyers have been priced out of the market, and existing homeowners are opting to stay put rather than give up their current low rates.

“As long as mortgage rates remain elevated, sales will remain depressed,” said

Daryl Fairweather,

chief economist at real-estate brokerage

Redfin Corp.

The decrease in home sales is rippling through the economy. Consumers are spending less on housing-related items such as furniture and appliances, while construction of new single-family homes has also slowed.

Sales of previously owned homes dropped 0.4% in August from July to a seasonally adjusted annual rate of 4.8 million, the weakest rate since May 2020, the National Association of Realtors said Wednesday. August sales fell 19.9% from a year earlier.

The housing market has softened in recent months as the Federal Reserve aggressively raises interest rates to cool the economy and bring down high inflation. The Fed approved raising its benchmark federal-funds rate by 0.75 percentage point Wednesday.

The Fed’s interest-rate moves have led to higher mortgage-interest rates and increased borrowing costs for home buyers by hundreds of dollars a month, pushing many out of the market. The average rate on a 30-year fixed-rate mortgage was 6.02% in the week ended Sept. 15, up from 2.86% a year earlier, according to housing-finance agency

Freddie Mac.

The pandemic-fueled housing market activity in mid-2020 when many Americans moved to larger houses with more outdoor space while spending greater time at home. Bidding wars were widespread, and homes were often snapped up in a matter of days.

The recent increase in mortgage rates is expected to further weigh on home sales this month and next. Homes typically go under contract a month or two before the contract closes, so the August data largely reflect purchase decisions made earlier in the summer. Mortgage rates rose to 5.81% in June, then pulled back for much of the summer.

Economists have long said that renting and investing in the stock market is a better investment than owning a house, and in 2022 that could be especially true. WSJ’s Dion Rabouin explains. Photo illustration: Elizabeth Smelov

The drop in demand is reducing buyer competition, and home-price growth has slowed from last year’s rapid pace. But prices remain above where they stood a year ago, because the number of homes for sale is still below normal levels.

The median existing-home price rose 7.7% in August from a year earlier to $389,500, NAR said. Prices fell month-over-month for the second straight month after reaching a record high of $413,800 in June. While prices typically decrease in the late summer, the monthly declines have been bigger than normal, said

Lawrence Yun,

NAR’s chief economist.

The combination of high prices and rising interest rates has pushed home-buying affordability near its lowest level in decades. General economic uncertainty is also keeping buyers on the sidelines, said Odeta Kushi, deputy chief economist at

First American Financial Corp.

“To make the biggest financial decision of your life, you need to have some confidence in the economy, in your job, in the labor market,” she said.

Consumer sentiment toward the housing market fell in August to the lowest level since 2011, according to

Fannie Mae.

Many buyers rushed to purchase in the first few months of the year, because they expected mortgage rates to rise, reducing the number of buyers left in the market today, said Redfin’s Ms. Fairweather. “We’re experiencing an especially cold fall and winter, because the spring was so hot,” she said.

Philip Natale went under contract to buy a new home in Henderson, Nev., in December. By the time he locked in an interest rate this spring, rates had climbed from around 3% to above 5%, pushing up his monthly payment by several hundred dollars.

Philip Natale, with his mom, Michelle, in hat, says rising interest rates pushed up his monthly payment on a new Henderson, Nev., home. Charlie and Ashley Richards bought their first home in Charleston, S.C., in September. Philip Natale; Sandra Dawson

“It’s horrible,” he said, but he hopes to refinance the loan at a lower rate within the next year or two. “The first 12 to 18 payments are probably going to be a big bummer,” he added.

To save on costs, Mr. Natale is eating out less and has decided to delay buying a car. “I just don’t want to feel the stress of adding a car at the same time as I’m buying a home,” he said.

In the four weeks ended Sept. 11, 7.2% of homes on the market each week had a price drop, up from 3.8% a year earlier, according to Redfin. Homes on average sold for 0.5% below their final list price, compared with 1.1% above list price a year earlier.

Nationally, there were 1.28 million homes for sale or under contract at the end of August, down 1.5% from July and unchanged from August 2021, NAR said.

“Home-price growth is likely to continue to decelerate,” Oxford Economics—which forecasts that existing-home sales will fall further through the end of the year—said in a note to clients. “But the limited supply of homes for sale will likely prevent too steep a decline.”

Charlie and Ashley Richards, who are both 29, started shopping for the first home in Charleston, S.C., in June after they found out their rent was going up by $800 a month. 

“We got into the market at the right time. Stuff was starting to slow down a bit,” Mr. Richards said. “There were a handful of houses that we looked at that had been on the market for 30 to 60 to even 90 days.”

They bought a house this month for about 3% below the asking price. “I’m very excited,” Mr. Richards said.

Write to Nicole Friedman at nicole.friedman@wsj.com

The new home market, which accounts for about 10% of home sales, has also shown signs of weakness. A measure of U.S. home-builder confidence fell for the ninth straight month in September to the lowest level since May 2020, the National Association of Home Builders said this week. About one-fourth of builders surveyed said they had reduced prices in the past month, NAHB said.

Residential permits, which can be a bellwether for future home construction, also fell 10%, though housing starts rose 12.2% in August from July, the Commerce Department said this week.

News Corp,

owner of The Wall Street Journal, also operates Realtor.com under license from NAR.

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Individual Investors Ramp Up Bets on Tech Stocks

Technology stocks have taken a beating this year. Many individual investors have used it as an opportunity to double down.

The Nasdaq Composite Index—home to the big tech stocks that propelled the market’s decadelong rally—has fallen 21% in 2022. Shares of

Amazon.com Inc.

AMZN 10.36%

and the parents of Google and

Facebook

META -1.01%

have suffered double-digit declines as well, stung by higher interest rates and souring attitudes about their growth prospects. 

Yet many of those stocks remain the most popular among individual investors who say they are confident in a rebound and expect the companies to continue powering the economy. 

In late July, purchases by individual investors of a basket of popular tech stocks hit the highest level since at least 2014, according to data from Vanda Research. The basket includes the FAANG stocks—Facebook parent Meta Platforms Inc., Amazon,

Apple Inc.

AAPL 3.28%

,

Netflix Inc.

and Google parent

Alphabet Inc.

GOOG 1.79%

—along with a handful of others like

Tesla Inc.

and

Microsoft Corp.

Meanwhile, Apple, chip company

Advanced Micro Devices Inc.

and the tech-heavy Invesco QQQ Trust exchange-traded fund have remained among the most popular individual bets since 2020. 

Interest in risky and leveraged funds tied to tech and stocks like

Nvidia Corp.

has also swelled, a sign that investors have stepped in to play the wild swings in the shares. 

It has been a fruitful bet for many. Tech stocks have been on the rebound of late, partly on investor hopes for a slower path of interest-rate increases in the months ahead. The Nasdaq gained 12% in July, its best month since April 2020, outperforming the broader S&P 500, which rose 9.1%.

Individual investor Jerry Lee says: ‘The market is severely undervaluing how much tech can actually play into our lives.’



Photo:

Peggy Chen

“I’m extremely bullish on tech,” said Jerry Lee, a 27-year-old investor in New York who co-founded a startup that helps people find jobs. “The market is severely undervaluing how much tech can actually play into our lives.” 

In coming days, investors will be parsing earnings reports from companies such as AMD and

PayPal Holdings Inc.

for more clues about the market’s trajectory. Data on manufacturing and the jobs market are also on tap. 

Mr. Lee said he recently stashed cash into a technology-focused fund that counts Apple and Nvidia among its biggest holdings, after years of pouring money into broad-based index funds. His experience working at firms such as Google has made him optimistic about the sector’s future, he said.

Gabe Fisher holds stock in Meta Platforms, Amazon and Alphabet.



Photo:

Ethan Kaplan

Even last week when many of the industry’s leaders, including Apple, Amazon and Alphabet, warned their growth is slowing, investors pushed the stocks higher and expressed confidence in the ability of the companies to withstand an uncertain economy. Apple logged its best month since August 2020, while Amazon finished its best month since October 2009, helped by a 10% jump in its shares on Friday alone.

Many investors also pounced on the tumble in shares of Facebook parent Meta Platforms. The stock was the top buy among individual investors on the Fidelity brokerage Thursday when it fell 5.2% in the wake of the social-media giant’s first-ever revenue drop. Tesla,

Ford Motor Co.

and leveraged exchange-traded funds tracking the tech-heavy Nasdaq-100 index were also widely traded that day.

Gabe Fisher, a 23-year-old investor near San Francisco, said he is holding on to stocks like Meta, Amazon and Alphabet. 

“Even if these companies never grow at as fast of a pace, they’re still companies that are so relevant and so prevalent that I’m going to hold on to them,” Mr. Fisher said.

He said he also has a small position in

Cathie Wood’s

ARK Innovation Exchange-Traded Fund that he doesn’t plan to sell soon, even though the fund has lost more than half of its value this year. 

Other investors have been turning to riskier corners of the market. Leveraged exchange-traded funds tracking tech have been the third- and fourth-most-popular ETFs for individual investors to buy this year, behind funds tracking the S&P 500 and Nasdaq-100 indexes. These funds allow investors to make turbocharged bets on the market and can double or triple the daily return of a stock or index.

Many individual investors have also turned to the options market to bet on tech. Bullish bets that would pay out if Tesla shares rose have been among the most widely traded in the options market, according to Vanda. Individual traders have spent more on Tesla call options on an average day this year than on Amazon, Nvidia and options tied to the Invesco QQQ Trust combined, according to Vanda. The firm analyzed the average premium spent on options that are out-of-the-money, or far from where the shares are currently trading. 

Jeff Durbin, a 59-year-old investor based in Naples, Fla., said he regrets missing out on buying big tech stocks decades ago.  

He has scooped up shares of companies like artificial intelligence firm

Upstart Holdings Inc.

and

Shopify Inc.

SHOP -3.01%

—and hung on despite their sharp swings. Shopify, for example, dropped 14% in a single session last week as it said it would cut about 10% of its global workforce. It’s painful, but I missed out on things like Amazon and Netflix when they were cheap,” Mr. Durbin said. “Who is going to be the Amazon and Apple 20 years from now?”

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Kellogg Splitting Into Three Companies as It Shifts Focus to Global Snacks

Kellogg Co.

K 1.95%

said it plans to break up its business into three companies, seeking to jump-start its larger, faster-growing snacks business while helping its namesake cereal brands regain their footing on supermarket shelves.

The move, which Kellogg said would separate snacks such as Pringles, Cheez-Its and Pop-Tarts from cereal-aisle staples including Frosted Flakes and Froot Loops, aims to create more agile, focused companies and marks a shift from the food industry’s decadeslong strategy of pursuing acquisitions and building scale.

“Bigness for bigness sake doesn’t make a lot of strategic sense,” said Kellogg’s Chief Executive Steve Cahillane, who will head the $11.4 billion snacking business, which accounted for 80% of Kellogg’s net sales last year.

The Covid-19 pandemic delivered a boost in sales for Kellogg and other food makers, as families prepared more meals in their kitchens as they stayed home from work and school. The grocery industry now is working to retain that momentum, but food makers over the past year have been battered by rising costs for fuel, labor, ingredients and packaging, creating what Mr. Cahillane called an unprecedented stretch of inflation.

Kellogg said it expects to complete the split by the end of 2023, with the North America cereal business potentially separating first, followed by its plant-based foods business as the third company. Kellogg said it also is considering selling the plant-based foods unit, which is predominantly composed of the

MorningStar

Farms brand. It has yet to name the individual companies.

Kellogg’s stock price rose about 3% on Tuesday. Shares were already up 4.8% this year as of Friday, bucking the broader market slump. The S&P 500 packaged foods and meat index on Tuesday was down about 3% so far in 2022.

Kellogg’s breakup plan follows splits announced last year by General Electric Co. and Johnson & Johnson. In the food sector, Kraft Foods orchestrated a similar split about 10 years ago, spinning off its North American grocery business to focus on its faster-growing snack brands including Oreos and Triscuits, a business it named Mondelez International Inc.

Sara Lee Corp. in 2012 split its business into two companies, one a meat-focused operation renamed Hillshire Brands Co., and an international coffee and tea business called D.E. Master Blenders NV.

Hillshire, D.E. Master Blenders and Kraft all later merged with other big food companies.

The largest of Kellogg’s three planned companies would be the global snacks business, which would include brands such as Pringles and Cheez-Its, and breakfast items including Eggo waffles and Pop-Tarts. It also would include Kellogg’s international operations—fast-growing noodle business in Africa and cereal sales overseas.

“The snacking business will have all household names with just the right level of scale,” Mr. Cahillane said. “And when you don’t have the ‘conglomerate effect,’ you can get a lot more done.”

Kellogg said it would use its international cereal supply chain and retailer connections to expand Cheez-Its and other snacks globally. In recent years, Kellogg’s Pringles brand has gained momentum in Europe and Latin America, which executives said paves the way for others in its portfolio.

Snacks have been a driver of Kellogg’s growth and an area of particular interest to Mr. Cahillane since he joined the company almost five years ago. In 2019, he sold off Kellogg’s nearly $1 billion Keebler cookies and fruit snacks business to better focus on Kellogg’s other snack brands, which were already getting more of the company’s marketing and innovation resources. Since then, Mr. Cahillane said, he has been calculating a bigger corporate split.

“The pandemic pressed pause on a lot of things,” Mr. Cahillane said. “The time is right, now.”

Mondelez, the biggest global snack company, for years has added brands through small acquisitions, and on Monday it said it would acquire Clif Bar & Co. for $2.9 billion plus the potential for more tied to earnings targets. That deal could increase competition against Mars Inc.’s KIND bar brand, which Mars bought in 2020, and Kellogg’s smaller RX Bar business, which it acquired in 2017.

Mr. Cahillane said Kellogg would continue to pursue snacking acquisitions following the split.

Other food companies have reshaped their own operations.

General Mills Inc.

took on a substantial pet-food business via acquisitions, and divested less-profitable brands such as Green Giant vegetables and Hamburger Helper.

Campbell Soup Co.

has faced investor questions about whether it would be better off splitting its snack business and soup operation in two, though executives have maintained that they are better off together.

Kellogg’s decision to spin off its North America cereal business, with about $2.4 billion in sales last year, comes as it seeks to reverse sales declines and boost profit margins.

Consumers for years have been moving away from breakfast cereals, and Kellogg’s operations more recently were disrupted by a strike among factory workers and a fire at one plant that knocked out production and cost the company market share.

Corporate titans General Electric and Johnson & Johnson both announced in late 2021 that they were splitting, two of the latest in a long string of conglomerate break ups. Here’s why big businesses divide and what it could mean for investors. Photo illustration: Tammy Lian/WSJ

Kellogg, the second biggest U.S. cereal supplier after General Mills, has regained 4 percentage points of market share this year, Mr. Cahillane said. Still, Kellogg’s North America cereal sales fell 10% in the three months ended April 2 from the prior year, largely because of to supply-chain problems, the company said.

“Frosted Flakes doesn’t have to compete with Pringles for resources,” Mr. Cahillane said. “Economists might say we can do that without splitting. But we don’t live in a textbook, we live in the real world.”

Kellogg’s plant-based foods business, with estimated 2021 net sales of $340 million, as a stand-alone company will first aim to expand in North America and eventually globally, Kellogg said.

Meat alternatives have found traction in grocery stores’ freezer aisles and meat cases, though competition has grown. Kellogg in early 2020 brought out a line of plant-based burgers and tenders called Incogmeato, part of an effort to compete against

Beyond Meat Inc.

and Impossible Foods Inc.

Mr. Cahillane said MorningStar’s Incogmeato can be more aggressive with investments in technology and its supply chain once it no longer is contributing to Kellogg’s bottom line.

Some Wall Street analysts said divvying up Kellogg could hurt each business’s ability to secure competitive prices using the larger conglomerate’s purchasing power.

Piper Sandler’s

Michael Lavery

said that it could cost some 2% of Kellogg’s current total sales for each business to take on their own sales force, distribution system and other previously-shared expenses. Analysts with investment research firm Morningstar Inc. said that Kellogg’s snacks business could thrive on its own, though the benefits for the cereal and plant-based operations were less clear.

Kellogg said the North American cereal and plant-based foods businesses would both remain based in Battle Creek, Mich. The global snacking business would be based in Chicago, Ill., with dual corporate campuses in Battle Creek and Chicago.

Moving the snack company’s headquarters to Chicago will locate it in a city that is home to other food companies as Kellogg looks to hire and expand the business.

Boeing Co.

and

Caterpillar Inc.

said in recent weeks they planned to relocate their Chicago-area headquarters to Arlington, Virginia and Irving, Texas, respectively.

Write to Annie Gasparro at annie.gasparro@wsj.com

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Prepare yourself: ‘The U.S. housing market is at the beginning stages of the most significant contraction in activity since 2006’

‘I don’t think that home sales are going to grind to a complete halt. They’ll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it’s been.’


— Len Keifer, deputy chief economist at Freddie Mac

The U.S. housing sector is in the midst of the biggest slowdown in over a decade, one economist says. But don’t expect prices to fall back down to earth just yet.

“The U.S. housing market is at the beginning stages of the most significant contraction in activity since 2006,’” Len Keifer, deputy chief economist at Freddie Mac
FMCC,
-1.82%,
tweeted.

“It hasn’t shown up in many data series yet, but mortgage applications are pointing to a large decline over summer,” he explained.” He said home-purchase mortgage applications are down 40% from their most recent peak in 2021.

Purchases and refinance applications are in fact down to the lowest level in 22 years.

Mortgage applications as a data point “gives you a sense of where the market might be headed,” Keifer said in an interview with MarketWatch, “because that’s the early stages of when people are looking to buy a home. And if the volume of applications falls, that tends to indicate that in a month, month and a half, mortgage originations of home closings will also decline.”

Keifer expects home sales to henceforth “slow quite a bit over the summer.”

Meanwhile, Freddie Mac data released on Thursday morning revealed that mortgage rates have risen, on the back of rising interest rates and inflation.

To be clear, “I don’t think that home sales are going to grind to a complete halt,” Keifer stressed. “They’ll just slow. People will still be able to sell homes, but it may take you just a little bit longer than what it’s been.”

Would prices fall as a result of a ‘contraction’?

While some may jump to the conclusion that weaker data represents a possible fall in home prices, experts caution otherwise.

“Does this mean that house prices are going to crash? I don’t think so,” Keifer said.

Freddie Mac’s research shows that when interest rates go up, while home sales and mortgage originations go up, house prices won’t necessarily fall or rise. “They tend to be stickier,” Keifer said.

“And while the rate of growth tends to slow, they don’t tend to fall,” he added.

Write to: aarthi@marketwatch.com



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Credit Suisse Fund Accuses SoftBank Over $440 Million Investment

A

Credit Suisse Group AG

CS 1.68%

fund accused

SoftBank Group Corp.

9984 -0.59%

in U.S. court filings of orchestrating transactions that rendered worthless a $440 million investment the fund had made to finance a SoftBank-backed company.

The filing, made Thursday in a U.S. District Court in California, asks a federal judge to permit the Credit Suisse fund to serve a subpoena on a U.S. arm of SoftBank. The filing, which says that the fund is preparing to sue SoftBank in the U.K., deepens the dispute over the demise of Greensill Capital, a supply-chain finance company that tumbled into insolvency earlier this year.

Greensill made loans to companies that served as advances on expected payments from those companies’ customers; Greensill packaged the loans into securities, which investment funds run by Credit Suisse bought.

One such company was Katerra Inc., a U.S. construction startup. The Credit Suisse fund held $440 million in notes backed by Greensill’s lending to Katerra, and when Katerra ran into financial trouble last year, Greensill forgave the lending.

SoftBank was an investor in both Greensill and Katerra, and in the U.S. court filing the Credit Suisse fund said SoftBank “orchestrated a deal” that cut the fund out of any possible proceeds without telling the fund.

A SoftBank spokesman declined to comment, as did a spokeswoman for Credit Suisse.

SoftBank put money into Greensill at the end of 2020, and Credit Suisse executives expected that money would go to their funds to make good on the Katerra loan—instead, it ended up in Greensill’s German banking unit, The Wall Street Journal reported in April.

In June, the Journal reported that Credit Suisse had dissolved a personal banking relationship with SoftBank founder

Masayoshi Son

and clamped down on transactions with the company.

The court filing made Thursday is known as a Section 1782 petition, in which a party can ask a U.S. court to order evidence-gathering for a proceeding outside the U.S. The Credit Suisse fund argues that it has taken enough steps toward suing SoftBank in the U.K. to justify the subpoena, which seeks a variety of documents.

Write to Charles Forelle at charles.forelle@wsj.com

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China Evergrande Spillover Risks Can Be Controlled, Central Bank Says

China’s central bank sought to ease concern about potential contagion from

China Evergrande Group’s

debt crisis, saying the risk of the developer’s problems spilling over into the financial system was controllable.

Zou Lan, head of financial markets at the People’s Bank of China, on Friday said Evergrande had blindly diversified and expanded, Chinese state media outlets reported. That had led to its operations and finances seriously deteriorating, Mr. Zou said. But he added that the risk exposure of individual financial institutions to the developer isn’t big.

The company recently reported the equivalent of more than $300 billion of total liabilities, including $89 billion of debt.

Mr. Zou said relevant authorities and local governments are currently resolving the situation based on rule-of-law and market-oriented principles.

He said they were urging Evergrande to step up its asset disposals and resume projects to protect the interests of home buyers, and that financial authorities, the housing ministry and local governments would cooperate to provide funding support so projects could restart.

The central bank official added that Evergrande’s problems are an individual phenomenon and that land and housing prices have remained stable, which he said were signs of a generally healthy real-estate industry.

The central bank hasn’t directly addressed Evergrande’s challenges since the developer fell behind on dollar-bond payments last month, though it has said it would support the housing market. In August, it and other financial regulators summoned Evergrande executives to a meeting, telling them the company needed to resolve its debt issues without destabilizing the property and financial markets.

Home sales by China’s major developers fell sharply in September, a typically strong month. Fantasia Holdings Group Co., another Chinese developer, earlier this month said it failed to make a dollar bond payment, adding to the malaise surrounding China’s highly indebted property companies.

Evergrande, China’s most indebted property developer, has kept global markets on edge and sparked protests at home as it struggles to survive. WSJ explains why the company’s crisis is raising questions about the state of the world’s second-largest economy. Photo: Alex Plavevski/Shutterstock

Separately, Hong Kong’s Financial Reporting Council said it was investigating whether recent financial statements by Evergrande had adequately addressed so-called going-concern issues, or warnings made in accounts if there are question marks about a company’s ability to stay afloat.

In a statement Friday, the audit watchdog said it had “identified questions about the adequacy of reporting on going concern” in the Hong Kong-listed company’s most recent annual and first-half accounts and in the auditor’s report by PricewaterhouseCoopers for 2020. The regulator said it had begun an investigation of PwC’s audit and an inquiry into Evergrande’s recent accounts.

The Wall Street Journal reported last month that PwC hadn’t included a going-concern warning when it signed off on Evergrande’s 2020 accounts. However, the bar to issue such warnings is high, and any concerns about the company’s financial health may have been insufficient to trigger such a notice, the Journal reported.

China Evergrande Group: Stalled Construction, Massive Debts

Write to Elaine Yu at elaine.yu@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the October 16, 2021, print edition as ‘China Plays Down Risks From Evergrande Crisis.’

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