Trade War

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Trade War

Newsletter 102 - February 12, 2022

Dexter Roberts
Feb 13, 2022
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Trade War

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Welcome to the 102nd edition of Trade War.

China pumps a record amount of credit into economy but consumer demand still weak. State agencies are investing in ever more private companies as overall enterprises age. And rich business people face rising risks.

Mandarin Oriental chief calls Hong Kong a “very poor” base for business. Identity of the Beijing Olympics mystery spectators is revealed. And new anonymous essay predicts Xi’s hubris will sabotage his political future.

China pumps credit but households not spending

China’s banks made record loans in January, part of Beijing’s efforts to boost flagging growth, but households continued to stay on the sidelines, reports Bloomberg News.

Banks made 3.98 trillion yuan ($626 billion) of new loans last month, the most going back to 1992, according to the People’s Bank of China. January typically sees a surge in lending.

“Authorities have pivoted toward stabilizing the economy after growth took a sharp downturn in the latter part of last year as a result of a property market slump and sporadic virus outbreaks,” reports the financial news service.

“Local governments have started to speed up bond sales to boost infrastructure spending, while the PBOC has cut interest rates and pushed banks to extend more loans,” says Bloomberg.

The surge in loans however is hiding weak consumer spending. Short-term household loans dropped for the third month in a row, from a year earlier. Medium and long-term household loans - mainly mortgages - fell for a second consecutive month as the housing market continues to suffer.

“We should not assume the upside surprise in January credit data will be quickly transformed into an upside surprise in economic performance,” said a note by Nomura Holdings economists.

Twitter avatar for @SofiaHCBBG
Sofia Horta e Costa @SofiaHCBBG
Chinese banks extended a record amount of loans in January. There are signs of weakness in the economy though, especially among consumers. 8/10
bloomberg.comBloomberg - Are you a robot?
6:04 AM ∙ Feb 11, 2022
218Likes38Retweets

State agencies investing in private firms

While China’s local governments have long supported private companies by providing tax breaks, loans and cheap land, now they are increasingly investing directly in the enterprises, reports Bloomberg News’ Tom Hancock.

According to research done by the University of Chicago, Tsinghua University and the University of Hong Kong, China’s more than 37 million registered companies are owned by 62 million private individuals, but also 40,000 state agencies, ranging from central level institutions down to village organizations, which often take stakes through state-owned companies.

“Companies owned by state agencies, most at the local-­government level, have been increasing their partnerships with private companies. The average state stakeholder now invests in companies owned by almost 16 private owners, up from eight a decade ago,” reports the financial news service.

With the average number of owners per company unchanged, this shows that every state entity has nearly doubled the number of private enterprises it invests in, according to Chang-Tai Hsieh, a business professor at Chicago’s Booth School.

In 2019, of the 7,500 richest individuals owning businesses, over half had at least one company with a state shareholder. This creates companies that are “not fully state-owned firms but also not really private firms,” Hsieh says. “It’s this murky gray area, which I think is the dominant corporate structure in China today.”

“The distinction between state-owned and private has been important for policymakers outside China and for analyzing the Chinese economy,” says Meg Rithmire, a professor at Harvard Business School. “That boundary is eroding.”

Twitter avatar for @hancocktom
Tom Hancock @hancocktom
New feature on a shift in China's economic model towards the state taking minority stakes in private companies, and how China's fastest growing city in the decade to 2020 - Hefei - is seen in China as demonstrating how the model works
bloomberg.comBloomberg - Are you a robot?
9:18 AM ∙ Feb 7, 2022
139Likes48Retweets

China’s companies getting old

“Everyone knows China's population is aging, but turns out its population *of companies* is also getting older,” tweets Gavekal Dragonomics China research director Andrew Batson. “An interesting new IMF paper finds that "the share of firms under 10 years old fell from around 70 percent in 2003-04 to around 30 percent in 2017-18.”

“After impressive growth in the 2000s, largely driven by the rapid growth of young private firms, China’s productivity has more recently stagnated,” the IMF writes.

“Given looming demographic headwinds and diminishing returns to state-led investment, China’s medium and long-term growth prospects are set to become increasingly dependent on its ability to reignite productivity growth.”

Twitter avatar for @andrewbatson
Andrew Batson @andrewbatson
Everyone knows China's population is aging, but turns out its population *of companies* is also getting older. An interesting new IMF paper finds that "the share of firms under 10 years old fell from around 70 percent in 2003-04 to around 30 percent in 2017-18."
Image
6:44 PM ∙ Feb 10, 2022
23Likes6Retweets

Making profit a party-granted privilege

Business people run an increasing risk of being caught up in anti-corruption campaigns and China’s opaque legal system, reports Bloomberg News’ Blake Schmidt.

Some 30,000 people are secretly detained in China each year, up 10-fold under Xi Jinping compared to the decade before he came to power in 2012, according to Madrid-based Safeguard Defenders, a rights group.

And while many of those detained are dissidents or activists, Beijing is increasingly focusing attention on wealth and business people, under its “Common Prosperity” program. China’s anticorruption agency pledged in January to “show no mercy” in its aim of breaking the ties between money and power.

“The Communist Party says it’s tackling corruption, anticompetitive behavior, and financial and security risks; critics say it’s reining in threats to its dominance,” writes Schmidt.

The party is demonstrating that “making profit is a privilege, not a right. Big tycoons can continue at the grace of the party,” Steve Tsang, director of SOAS University of London’s China Institute told Bloomberg.

Twitter avatar for @business
Bloomberg @business
“You’re talking about a detention system into which anyone could disappear at the drop of a hat": How China's opaque legal system targets billionaires
trib.alBloomberg - Are you a robot?
11:59 AM ∙ Feb 8, 2022
22Likes17Retweets

Mandarin Oriental says Hong Kong ‘very poor’ base

The chief of the Mandarin Oriental luxury hotel group is considering temporarily moving company executives from Hong Kong, write the Financial Times’ Primrose Riordan and Chan Ho-him.

James Riley, the Mandarin Oriental’s chief executive told the Financial Times that Hong Kong’s extremely strict zero-Covid restrictions made the city a “very poor” base for operations.

“Increasingly, most of my key senior executives are now traveling or are outside Hong Kong. My chief operating officer, who’s based in Hong Kong, left 15 months ago. And I have no plan for him to come back because he can’t do anything here,” said Riley, a 25-year resident of Hong Kong.

“When the borders are shut, this is a strange place from which to operate. Because you can’t go and visit a hotel or visit a customer or visit a potential owner. You can’t go anywhere,” he said.

Twitter avatar for @primroseriordan
Primrose Riordan @primroseriordan
Exclusive: Mandarin Oriental chief pushes for his top execs to temporarily relocate from Hong Kong and says the city has become a “very, very poor” base for business due to border controls w/ @ThomasHHChan
ft.comSubscribe to read | Financial TimesNews, analysis and comment from the Financial Times, the worldʼs leading global business publication
2:05 AM ∙ Feb 10, 2022
283Likes159Retweets

Xi, architect of his own defeat

As this fall’s 20th Party Congress approaches, a new anonymous essay has appeared attacking Xi Jinping and predicting his eventual downfall, writes translator Geremie R. Barmé.

“Political power struggles in the People’s Republic of China have an ineluctable rhythm. Every five to ten years the quotidian thrum of wrangling reaches a dramatic crescendo as the contention between individuals, factions and elites is focussed on the spoils of power,” writes Barmé.

“An Objective Evaluation of Xi Jinping,” a 40,000-character essay penned under the name Fang Zhou & China, is “the first public salvo in China’s 2022 ‘selection year’,” according to Barmé.

“At this historical juncture someone with a strong personality and formidable political skills—someone like Xi Jinping, in fact—was capable of dominating with considerable aplomb the Party nomenklatura. On top of that was Xi’s personality: he’s more ruthless than anyone else. That is to say, Xi Jinping took advantage of the limitations of his opponents as well as the Party as a whole and simply terrorized everyone into submission,” writes Fang Zhou & China.

“It is obvious that no individual or group within the Party can rein Xi Jinping in. Thus, Xi will be the architect of his own defeat. His style of governance is simply unsustainable; it will generate ever newer and greater policy missteps,” the essay predicts.

And Xi’s far more assertive approach towards other countries will help contribute to his downfall: “China has been in the process of integrating with the world for decades and no single individual can turn back the tide. The Communist Party simply won’t allow the vision of one man to engage in a new cold war with the rest of the world.”

“Over time, elites on both sides will collaborate and foment the kind of political crisis that will create a rift between Xi and the Party. Then he will be faced with mass disaffection and people piling on to bring him low. He will end up as a votive offering placed on the altar of political reconciliation,” writes Fang Zhou & China. “The chasm between Xi Jinping’s hubristic self-belief and stark reality is his Achilles heel.”

Twitter avatar for @iandenisjohnson
Ian Johnson @iandenisjohnson
"Xi will be the architect of his own defeat. His style of governance is simply unsustainable:" Geremie Barme's partial translation via @chinaheritage of Fang Zhou & China (方舟與中國) a compelling harangue making the rounds.
chinaheritage.netRequiem for an Autocrat — Fang Zhou on Xi Jinping’s End of DaysXi Jinping’s Empire of Tedium, Appendix III 霸 Political power struggles in the People’s Republic of China have an ineluctable rhythm. Every five to ten years the quotidian thrum of wrangling reaches a dramatic crescendo
1:53 AM ∙ Feb 11, 2022
279Likes89Retweets

Sullivan to China: don’t give Russia a ‘wink and nod’

If China gives Russia a “wink and a nod or a green light” to invade Ukraine, they will face global consequences, said National Security Advisor Jake Sullivan in a recent press conference.

Beijing too will be unable to provide the economic support to make up for likely sanctions and export controls. “[The U.S. and its allies] are 50 percent-plus of global GDP, China and Russia are less than 20 percent,” says National Security Advisor Jake Sullivan. “We are well situated to be able to deal with any threat or challenge that would be posed to us by any autocracy in the world.”

Twitter avatar for @thorstenbenner
Thorsten Benner @thorstenbenner
Sullivan: If 🇨🇳gives „wink & nod“ to Kremlin‘s invasion, it will pay price especially in eyes of 🇪🇺. 🇨🇳cannot compensate 🇷🇺losses through sanctions. Goes against „hype“ about 🇨🇳🇷🇺statement & says he believes in strength of US & allies: „We have >50% of global GDP, they have 20“.
7:56 PM ∙ Feb 11, 2022
109Likes45Retweets

Beijing Olympics’ mystery spectators

With most foreign and Chinese sports fans not allowed to attend the Beijing 2022 Winter Olympics, the audience in the stands instead is a combination of local and foreign VIPs and diplomats, report the Wall Street Journal’s Jin Yang and Liza Lin.

According to the event organizers, some 150,000 people who are being carefully screened for Covid are being allowed to the games in Beijing and Zhangjiakou, Hebei. That number will fill about one-half the total available seats for all Olympic events.

“The exact identity of those in attendance has been shrouded in some secrecy. Some employees at Chinese state-owned enterprises who have been invited were told that they must abide by confidentiality rules, refraining from posting on social media or discussing their attendance with outsiders without authorization,” the business paper reports.

Twitter avatar for @jingyanghk
Jing Yang @jingyanghk
Who are the spectators at the #BeijingWinterOlympics? How did they get there? That's the one big question since the Games started. We tried to investigate. Here's what we found. wsj.com/articles/beiji… via @WSJSports @WSJ w/ @lizalinwsj @ZhaoReddy @qianweizhang @stuwoo
wsj.comAt the Winter Olympics in Beijing, the Fans Are Seen, but Not HeardBeijing 2022 organizers have also been eager to ensure that the stands aren’t completely empty, but the identity of those in attendance has been shrouded in some secrecy.
2:22 PM ∙ Feb 12, 2022
4Likes1Retweet

Notable/In Depth

China’s long obsession with doing things on a huge scale is part of a “politics of grandeur” that has existed for thousands of years, reports the AP’s Stephen Wade.

“The idea is to give more to impress upon external audiences that we have so much to give you, that nobody else can compete with that,” Georgia State University’s Maria Repnikova told the news service.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
2/"geometric patterns of streets and districts allow the state to better surveil and control its population. Authoritarian states like contemporary China are able to do so while facing little opposition from civil society." On how China uses its huge scale
apnews.com‘Politics of grandeur’: 2 Olympics and China’s love of bigChina’s affinity for going big isn’t new. It goes back to a dozen dynasties that ruled China for thousands of years — one of which re-created an entire army of terra cotta warriors to be buried with an emperor. It’s a tradition of projecting large-scale power that was adopted by the Chinese Communis…
6:17 PM ∙ Feb 10, 2022

China’s family planners have announced their aim to “intervene” in abortions among unmarried women and teenagers, reports Sixth Tone’s Luo Meihan.

Twitter avatar for @SixthTone
Sixth Tone @SixthTone
China’s family planning association said it would “intervene” in abortions among unmarried women and teenagers in a bid to “improve reproductive health” starting this year, domestic media reported Monday.
ow.lyChina’s Family Planning Body to ‘Intervene’ in AbortionsAuthorities said the move, which targets single women and teens, aimed “to improve reproductive health.”
1:15 PM ∙ Feb 10, 2022
37Likes38Retweets

China must recognize that “the ‘sissy men’ & ‘otokonoko’ phenomena may cause some youth to avoid or fear normally falling in love, getting married and having children . . . impacting population growth,” writes a Chinese Academy of Social Sciences scholar.

Twitter avatar for @DariusLongarino
Darius Longarino 龙大瑞 @DariusLongarino
Chinese Academy of Social Sciences scholar: “[We] should especially take notice that the ‘sissy men’ & ‘otokonoko’ phenomena may cause some youth to avoid or fear normally falling in love, getting married & having children…impacting population growth.” opinion.huanqiu.com/article/46RgVb…
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2:07 PM ∙ Feb 8, 2022
46Likes23Retweets

“Here is my attempt to debunk in as little words yet as comprehensively as possible that A) there is no social credit score and B) a social credit score is not going to happen in the future either, writes MERIC’s analyst Vincent Brussee.

Twitter avatar for @Vincent_WDB
Vincent Brussee @Vincent_WDB
Here is my attempt to debunk in as little words yet as comprehensively as possible that A) there is no social credit score and B) a social credit score is not going to happen in the future either. And also why we should care.
Twitter avatar for @merics_eu
MERICS @merics_eu
The idea that China gives every citizen a “social credit score” continues to capture the imagination of many. Vincent Brussee @Vincent_WDB debunks common myths about the system: https://t.co/qzYivDMkM4 https://t.co/f1hkDs0jst
5:19 PM ∙ Feb 11, 2022
114Likes30Retweets

Beijing’s decisions to censor a report on U.S.-China decoupling “shows that economics and trade have also become hypersensitive in the political landscape that defines China today,” I say to Dagens Industri (in Swedish.)

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
"It shows that economics and trade have also become hypersensitive to the political landscape that defines China today," says Dexter Roberts of the @AtlanticCouncil. Enjoyed talking to @johannylander of @dagensindustri
di.seCensurerad kinesisk rapport: Kina förlorar teknikkrigetHONGKONG. En ny kinesisk universitetsrapport slår fast att Kina kommer vara den stora förloraren i teknikkriget med USA. Anledningen är bland annat att kinesiska ai-experter föredrar att jobba i USA. Pekings reaktion på varningen: censurera rapporten.
8:26 AM ∙ Feb 10, 2022
1Like1Retweet

"Socialist, capitalist, Leninist: what to call China? . . . For a one-word description of China’s system that is both analytically precise and historically accurate, 'Leninism' does the trick,"writes Gavekal Dragonomics’ Andrew Batson.

Twitter avatar for @JChengWSJ
Jonathan Cheng @JChengWSJ
"Socialist, capitalist, Leninist: what to call China?…For a one-word description of China’s system that is both analytically precise and historically accurate, 'Leninism' does the trick." @andrewbatson
bit.lySocialist, capitalist, Leninist: what to call China?Does it matter what we call China? Does it really make a difference what term we, as outsiders to China’s political and economic system, attach to that system? Certainly it is not going to ma…
5:31 AM ∙ Feb 9, 2022
13Likes4Retweets

Chinese believe they should have the right to criticize their government, write CSIS scholars Illara Mazzocco and Scott Kennedy in a new report, “Public Opinion in China: a Liberal Silent Majority?”

Twitter avatar for @KennedyCSIS
Scott Kennedy @KennedyCSIS
Chinese believe they should have the right to praise or criticize government policies. See this & many other findings on PRC citizens' views of public policy in our latest report, csis.org/features/publi….
Image
5:01 PM ∙ Feb 10, 2022
5Likes2Retweets

Swelling debt, decoupling and its shrinking population could end China’s goal of becoming the world’s largest economy, report Bloomberg News’ Eric Zhu and Tom Orlik.

Twitter avatar for @shehzadhqazi
Shehzad Qazi @shehzadhqazi
Even in the base case scenario the assumption has to be China makes serious progress on domestic consumption within the next ~7yrs? Without big jumps in retail and services spending (excl property) slowdown is the most likely scenario. @TomOrlik
bloomberg.comBloomberg - Are you a robot?
8:24 PM ∙ Feb 11, 2022
7Likes2Retweets

Book event: ‘Today Hong Kong, Tomorrow the World’

Not one to miss: longtime journalist and writer Mark Clifford will be discussing his new book Today Hong Kong, Tomorrow the World, at the Overseas Press Club of America next Wednesday evening. Register in this link.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
Not one to miss: @MarkLClifford will be discussing his new book "Today Hong Kong, Tomorrow the World" (which is great) in conversation with @jodifs at the @opcofamerica next Wednesday evening.
opcofamerica.orgBook Night with Mark Clifford to Discuss ‘Today Hong Kong, Tomorrow the World’ - OPCJoin the OPC for a Book Night on Feb. 16 to discuss with Mark Clifford’s new book, Today Hong Kong, Tomorrow the World: What China’s Crackdown Reveals About Its Plans to End Freedom Everywhere.
6:36 PM ∙ Feb 10, 2022

Montana, the Big Sky state

Montana living up to its reputation as the Big Sky state.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
Blue skies today
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1:14 AM ∙ Feb 8, 2022
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