1/ As we prepare to leave
#Hualien
, which is still trembling — seemingly small aftershocks nearly every half hour, or even more frequently — here is our big piece on the quake with
@joyuwang
and
@ByChunHan
Pretty interesting stuff from Commerzbank.
Economists have long cast doubt on the effectiveness of tax cuts -- vs. infrastructure spending etc -- for short-term stimulus in the U.S. because people/firms tend to save a lot of the bounty.
Now
#China
discovering the same problem.
(1) Major KMT argument in
#TaiwanElection
was more integration with CN economy is necessary for growth.
Not clear this is true though.
TW weathered the
#TradeWar
better than nearly any other Asian exporter bc of big surge in direct exports to the US.
Hong Kong is the most free economy in the world—in theory. In reality, most residents struggle to get by, and have little say in their political or economic future. via
@WSJ
The great irony of the
#trade
war is that with declining investment returns and ugly demographics, China needs a more open, competitive economy -- like the US is advocating for -- more than ever
#China
’s tech crackdown has grabbed headlines but the biggest danger may be lurking somewhere far more familiar, says
@jackycwong
Over-enthusiastic—or terrified—regulators risk tripping up the real heart of China’s economy:
(1) Underpinning so much of the commentary on U.S-
#China
"decoupling" is the assumption that the U.S. will be just fine.
That is questionable.
The US depends on China for engineers since it can't be bothered to educate its own.
(1) China's gummed-up monetary policy transmission in 3 charts.
If they can't fix this, outlook for 2019 is pretty bad.
#PBOC
cuts to banks' reserve requirement ratio (RRR) successfully pushes financial system liquidity back higher...
1/ Nice shout out on my piece from
@crampell
at WaPo, who I’ve been reading for many, many years.
And she’s absolutely correct—the US should stop shooting itself in the foot and be much more welcoming of skilled immigrants, from both China and elsewhere
I'm sure this will get drowned out in the election coverage.
But here's my latest on
#China
and what its radical new shift towards self-reliance means for growth.
In a nutshell = a very risky strategy which could easily go wrong.
Now what? Possible "doom loop" btwn Trump, the Fed & PBOC, i.e.
- Trump concludes Fed will ease to offset tariffs
- adds more tariffs
- PBOC eases to counter,
#CNY
falls
- Lower China $ imports hit global growth
- Fed eases further
- PBOC eases further...
Is this really what Beijing wants for
#HongKong
?
Why bother trying to build goodwill and soft power with mask donations, BRI, etc if the world is going to be watching you tear gas your own people, weekend after weekend, for the foreseeable future?
Doesn't seem optimal.
#Steel
has fallen just 10% in the
#COVID19
sell-off even though inventories have reached mountainous levels.
If the Chinese housing market + construction don't roar back in April, steel could be the next commodity to get crushed.
"China made very similar commitments when it joined the WTO.... Pledges to rein in state subsidies made 20 years ago are now being offered up agaIn... Beijing’s promise to “work towards” enforcing international conventions on labour standards are also laughably weak."
Europe has handed China a strategic victory. The remarkable short-sightedness of a not-so-geopolitical European Commission and a What-is-good-for-VW-is-also-good-for-Europe GER Chancellor. via
@FT
The Chinese media blackout on the
#Trump
tariff threat is truly amazing.
On wallstreetcn (华尔街见闻)one of the main Chinese language financial newswire-like websites, only one mention of Trump since Sunday morning.
On his call for lower US interest rates, naturally.
This from
@NickKristof
, who was in Tiananmen in 89, is the best on China I’ve read in a long time.
Hits all the key points on Taiwan, reckless nationalism in both countries, & most importantly—the incredible lack of self-awareness in DC right now
#China
stocks up sharply after State Council call for quicker muni bond issuance & infrastructure build, support for "reasonable"
#LGFV
financing, abundant liquidity.
#Stimulus
has clearly arrived: how far will it go? Read here:
US markets are in full froth mode as evidenced by
#GameStop
and
#silver
but the Fed's hands are tied by the weak economy.
Not so in China -
#PBOC
is sending clear signals of concern.
Why hasn't China's "socialist market economy" stagnated like the Soviet Union did?
One answer: market discipline from direct competition with foreign firms.
Last in our series: forsaking export-led growth could be disastrous.
One of China's largest "grey rhinos" is poking its nose out of the bush again, says
@jackycwong
. Also featuring a fantastic, and slightly bizarre accompanying photo
(1) Business didn't desert HK during the
#HongKongProtests
- but did stop investing.
One possibility for what happens now is that investment strike essentially becomes permanent, meaning slower growth + more resentment.
Big $HSI fall not encouraging.
I wrote on the
#Ukraine
crisis from China's perspective and what it might mean for the future.
Essentially some benefits to Russia's isolation for China's energy security, but the joint sanctions move will raise a lot of hackles in Beijing.
"Many senior Hong Kong officials, including the city’s leader, Chief Executive Carrie Lam, have said they hadn’t seen the complete draft even as they tried to reassure residents..."
A mockery of the idea of a high degree of autonomy.
One of 2018's big mysteries is why, with so many private firms in obvious distress, has private investment in
#China
held up?
My answer:
#property
. Until that turns, we won't see how bad things really are.
Meantime, Xi's speech didn't offer much hope:
(1) ICYMI: The final piece in our series on the US and China's slide towards a new Cold War like competition.
How to bargain with a
#China
that has effectively become the world's supply chain?
Main hint: don't go it alone.
Surely
#China
will soak up all that cheap
#oil
?
Don't be so sure.
Beijing will undoubtedly keep filling its SPR, but China already had more oil products than it needed before
#COVID
ー19, and spent the last couple months stocking up on crude.
#OilPrices
If this isn't a sign of the times, I don't know what is.
@jackycwong
points out that Chinese liquor maker Kweichow Moutai is now worth more than ICBC, the world's biggest bank.
Finally got the first “jab” and whole process was very smooth.
I’m one of the ones slightly more at risk for an adverse reaction so they gave me a little red sticker (like in grade school) + had me wait around a bit longer.
All good so far!
#HKTwitterGetsVaxxed
#GetVaccinated
The collapse of the
#China
's wealth management product industry & private enterprise bond finance in tandem.
WMPs had huge problems but did provide a way for private companies to issue bonds.
That's gone now.
Totally different mood today in this sometimes impersonal and irritable city.
Taxi driver gave me a huge grin this morning as he told me the road was blocked.
#HongKong
1/ ICYMI, my latest:
Nov's explosive
#ChinaProtests
reflect the terrible collateral damage from
#ZeroCovid
, but the backdrop is deep structural changes in China's economy.
Whatever happens now, companies shouldn't assume this will be a temporary one-off.
The sudden furor over H&M’s declaration on dropping
#XinjiangCotton
— months ago — is a sign of things to come.
@Birdyword
and my column on the unpalatable choice facing Western consumer brands in China.
1/ My latest, on the migratory habits of chips in Asia.
The US has threatened sanctions on anyone who ships many, if not most varieties of
#semiconductors
to
#Russia
.
But they keep showing up there anyway. My piece looks at some of the ways they travel.
Investors are used to thinking of commodities as a straightforward
#inflation
play.
But there are some unusual risk factors this time around—particularly for metals like
#steel
and
#aluminum
.
My latest:
ICYMI
@melissakchan
and I spoke with the BBC yesterday on what the new
#NationalsecurityLaw
means for
#HongKong
.
The law is so broad that simply holding placards and flags resulted in arrests yesterday.
It also criminalizes acts outside Hong Kong.
Fantastic article by
@LandersWSJ
on the parallels btwn Japan and China -- and many of the same points as our piece on 2025 yesterday . US may be misreading the real nature of the threat from China, namely its financial system via
@WSJ
(1) In the 5th of our series on US-
#China
decoupling,
@Birdyword
and I examine the nuclear option for the US: targeting CN banks' dollar funding.
CN can't really retaliate.
But slow growth & high debt means weaponizing the $ carries LT risks for the US.
1/ As
#Evergrande
’s dollar bond moment of truth arrives,
@jackycwong
and I pondered the risk that its individual woes morph into something much worse.
Now you see it, now you don't -- certain key data points on private sector financing have disappeared as the subject becomes more politically charged in China.
Wow. The 8 "rumor-mongers" who first raised the alarm on the
#WuhanCoronaVirus
and were threatened by police were doctors.
Hard to have a more clearcut example of downsides of censorship than this.
Seems like a watershed moment.
Wuhan hospitals had SARS cases. It turns out that all eight were doctors; at least one of them had contracted the
#coronavirus
while treating patients. A commentator from the Supreme People's Court weighed in that the eight were giving their opinion to the best of their
Good thread on how the US, despite massive healthcare spending, is in some ways uniquely vulnerable to the
#coronavirus
.
Low insurance coverage + high annual deductibles =
Lower incentive to seek care, esp. early in the year.
#COVID
ー19
#CoronavirusOutbreak
The U.S. experience with a pandemic early in the calendar year will be uniquely challenging given that the vast majority of Americans have privately administered plans that (increasingly) rely on deductibles/cost-sharing as a fairly blunt utilization-management tool.
#China
cuts key lending facility
#MLF
rate for first time since 2016, 5 bps.
MLF is the basis of China's new benchmark loan prime rate.
Looks like a response to rising bond yields and weak Oct PMI.
Skeptics will take
#China
's pledge to go carbon neutral by 2060 as a political gambit -- a convenient wedge issue btwn Europe and the U.S.
Some truth to this. CN needs to show it's serious on reducing
#coal
burn: recent movt is in the other direction.
There's little doubt
#China
handled the pandemic better than any other major economy.
But it also benefited in 2020 from some good luck, which obviated the need for more aggressive stimulus.
A clear sign of how quickly the Sino-US conflict has spun out of control + taken on a life of its own.
Original hawk is now a dove, and the original rationale for escalation -- trade/IP -- completely forgotten.
Reading my Jan article and shaking my head:
Before the trade deal, Lighthizer aligned on tactics w/ the admin’s uber hawks who favor a pressure-only approach vs China. With the Phase One trade deal, he’s more aligned w/ the admin’s few remaining globalists to preserve parts of the relationship.
#Yuan
selling off sharply this month. Markets should probably be more worried about
#Fed
and
#PBOC
parting ways -- China's success in containing outflows wasn't just about capital controls
"She had remembered a joke she’d read from the Soviet Union: an officer once arrested a person handing out fliers on Red Square, only to find that the fliers were blank.
Undeterred, the officer shouted: 'You don’t think I know what you wanted to write?'"
Here's a chart that should make
#steel
companies very nervous.
Chinese steel product output (supply) is growing nearly as fast as property investment (demand) for the 1st time in years.
Higher Chinese exports, lower global prices ahead?
Having tried everything else, the
#Trump
administration is finally throwing up its hands and giving multilateralism a try as a way to pressure
#China
.
The next phase of the trade war -- or rather supply chain war -- will look quite different.
Even before coming into effect, the Uyghur Forced Labor Prevention Act had a devastating impact on sales of
#Xinjiang
cotton -- inventories are roughly a million tonnes higher than they were last year.
But the story in polysilicon is totally different.
Chinese coal power roared back in Jan/Feb, up almost 10% -- seems pretty clear both citizens and steel plants started getting power back after the pollution crackdown went overboard in Nov and Dec
Beijing's unyielding stance on
#hongkong
belies its still-deep dependence on the territory. The cost of intervention could be much higher than widely appreciated
Are foreign manufacturers giving up on China?
Not exactly—but the stars are aligning for the long-predicted effort to diversify away more decisively.
My latest:
@mcgregorrichard
Big kudos to
@Chao_Deng
and Grace Zhu for great reporting. Kicker is also killer:
“I’ve been with the bank for 10 years and have never seen service this good,” he said.
Huge surprise. And as
@ChadBown
recently noted, the phase one deal takes US average tariffs rates on China down less than 2%.
Hard not to conclude this deal is mostly about trying to tilt the narrative -- rather than reality -- in the president's favor ahead of US election.
Re-upping this in light of weak
#China
April exports, -2.7% YoY against +14.2% in March.
We've been telling investors for weeks to expect weaker April data, particularly for exports. Big base effect + the March VAT cut nearly guaranteed a weak April.
Could get even uglier for Chinese stocks.
VAT cut flattered the March manufacturing/export data, meaning payback is likely in April. So you could have a May of trade tensions + weak-ish macro data
1/ My latest:
One of the most alarming dvlpts of recent days, even before the H&M
#Xinjiang
dust-up, were the very broad CN counter-sanctions against EU entities, including on EU members of parliament
By cracking down so hard on corruption, the Xi administration may have inadvertently undermined one of the Chinese system's greatest strengths -- its flexibility and tolerance for local experimentation
via
@WSJ
Interesting moment for
#China
data -- output, housing and trade still look ok, but PPI starting to hint at weakness.
Housing and econ data over next 2 days will be key
Tencent beat analysts' estimates yesterday thanks to strong revenue growth from gaming.
But but leveling up further from here will require skillful play indeed, says
@jackycwong
Wow. Some ugly stuff if this is the real resolution.
Sec. 4: "Central government departments related to maintaing natl security shall, according to the need, set up structures in
#HongKong
, and carry out their responsibilities in accordance with the law."
#nationalsecuritylaw
#Breaking
thread: Official doc of
#HongKong
national security law resolution revealed by souces - the new law will prohibit secession, subversion of state power, terrorism & foreign interference. It'll be listed under annex 3 of basic law, bypassing scrutiny of local legislature.
And more.
We highlighted this in Jan as another reason for modest not overwhelming monetary stimulus.
Rock/hard place: to support infrastructure & biz investment, need looser monetary policy. But that also pumps up property, crowds out consumption.
Global
#PMIs
are starting to send a pretty ugly signal... fact that Chinese output is growing so much faster than orders particularly worrying. Return of overcapacity?
(1) Nice column by
@Birdyword
on the cost of
#China
's constant bullying of neighbors like India.
It may win discrete economic/military fights but forfeits leadership on regional trade agreements & standard setting because neighbors simply don't trust it.
#China
housing coming under pressure again.
Still no big policy response. Why?
Inflation, keeping powder dry are certainly factors.
But also clues external headwinds are ebbing:
US PMI, semiconductor sales, global mfg PMI showing hints of bottoming.
(3) If the US wants to "decouple" and stay ahead, it needs to start investing seriously in science and math education.
And also in government funded R&D again.
All of that probably means higher taxes -- especially since the risk of military conflict is now rising as well.
China Caixin
#PMI
at nearly 3-year high latest evidence of a light industry uptick in China.
Unlike the competition + big banks, we've been highlighting this for months: read
@WSJheard
#China
or miss out.
A defeat at the hands of one of India’s wealthiest men—who employed some bare-knuckle business techniques—shows Amazon has a tough road ahead in the crucial growth market says
@MeghaMandavia
@Birdyword
Think Japan has a lot of leverage right now for many reasons.
If they really presented a united front on trade with the US CN would be in serious trouble. And if JP were to advocate for Taiwanese membership in the CPTPP...
US-
#China
relations used to be anchored by the principle of common interests.
But these days, a different immutable law of the universe -- Murphy's Law -- seems more apt.
That should deeply worry everyone: