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Trade War

Newsletter 46 - November 21, 2020

Dexter Roberts
Nov 22, 2020
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Welcome to the latest edition of Trade War, newsletter 46. The big trade news is the creation of the world’s largest trade group, the Regional Comprehensive Economic Partnership (RCEP), one that China is in, but excludes the U.S.

Meanwhile, expectations that a new Biden administration will lead to a serious reset in U.S.-China relations seem overblown. Beijing keeps pushing to build up a domestic chip industry and further signs emerge of the imbalances in China’s fast-recovering economy, amidst growing debt fears.

Cementing China’s position as rules writer

The world’s largest trading group, 15 countries including China, Japan, South Korea, Australia, New Zealand, and Southeast Asian nations, but absent the U.S., was formed last Sunday in Hanoi, Vietnam, reports Reuters.

“RCEP may cement China’s position more firmly as an economic partner with Southeast Asia, Japan and Korea, putting the world’s second-biggest economy in a better position to shape the region’s trade rules,” writes Reuters.

Twitter avatar for @joshjonsmith
Josh Smith @joshjonsmith
Fifteen Asia-Pacific economies formed the world’s largest free trade bloc on Sunday, a China-backed deal that excludes the United States, which had left a rival Asia-Pacific grouping under President Donald Trump.
reuters.comAsia forms world’s biggest trade bloc, a China-backed group excluding U.S.Fifteen Asia-Pacific economies formed the world’s largest free trade bloc on Sunday, a China-backed deal that excludes the United States, which had left a rival Asia-Pacific grouping under President Donald Trump.
6:49 AM ∙ Nov 15, 2020
102Likes69Retweets

New obstacle to U.S. influence

“The agreement covers more people than any singular regional trade agreement in history, as there are more than 2.2 billion people living in the member states,” reports The Hill, and “sets a new obstacle against U.S. influence in the region.”

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
"the agreement covers more people than any singular regional trade agreement in history, as there are more than 2.2 billion people living in the member states."
Twitter avatar for @RobChaney1
Rob Chaney @RobChaney1
Your talk comes at the perfect time, @dtiffroberts https://t.co/WhnH7QjVuV
4:20 AM ∙ Nov 16, 2020

Better US-China relations under Biden? Ball’s in Xi’s court

The million dollar question those interested in better Sino-U.S. relations are now considering: will a new Biden administration improve the battered relationship?

Asked about whether Biden should lift the Trump tariffs on China at the virtual Bloomberg New Economy Forum, former USTR Charlene Barshefsky had, I think, the right answer.

The ball is just as much in Beijing's court: "It would be important for China to think about what Xi Jinping would do" to fix the battered relationship..

Twitter avatar for @neweconforum
Bloomberg New Economy Forum @neweconforum
Rebalancing the U.S.-China relationship won't just be President-elect Joe Biden's responsibility. "It would be important for China to think about what Xi Jinping would do," says former U.S. Trade Representative Charlene Barshefsky. #OurNewEconomy trib.al/dme7Vii
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1:59 AM ∙ Nov 17, 2020
52Likes25Retweets

Running afoul of international norms

A Biden Justice Department is also likely to continue to pursue a wide range of cases against China, including over intellectual property, corporate espionage, hacking, and influence operations on U.S. soil, following the “China Initiative” established under Trump in 2018, reports the Associated Press.

“Even after Democrat Joe Biden’s administration arrives, the law enforcement focus on China may not look radically different, in part because of actions by Beijing that U.S. officials, lawyers and analysts say run afoul of international norms,” writes AP’s Eric Tucker.

China’s orderliness and the West’s chaos

A recent article by a top security official in China has warned that the country’s relationship with the U.S., including through the global supply chain, is a risk to national stability, reports the South China Morning Post.

“Against the backdrop of US-China confrontation, China faces increasing uncertainty and instability in its external environment,” Guo Shengkun, a member of 25-strong Politburo, wrote in an article compiled in a just-published book looking at what the next five years will bring to China.

COVID-19, however, has highlighted Chinese success with failure in the West, he wrote. “During the pandemic, we seized important achievements in a short time and have posed a great contrast between ‘China’s orderliness’ and ‘the West’s chaos’,” he wrote.

Twitter avatar for @sehof
Sense Hofstede @sehof
Tense rivalry with US will foster political volatility in China, warns domestic security chief Guo Shengkun – SCMP
scmp.comUS rivalry will foster our political instability: China security chiefThe
2:24 AM ∙ Nov 14, 2020
17Likes6Retweets

China’s quest for tech self-sufficiency

China is continuing to try to ramp up its indigenous chip industry in the face of tech tensions with the U.S., reports the Wall Street Journal’s Liza Lin. Already nearly $38 billion has been raised through stock offerings and asset sales, says S&P Global Market Intelligence—more than double last year’s total.

“China is investing heavily in computer chips and stepping up efforts to cultivate homegrown talent as it accelerates its quest for technological self-sufficiency amid a tech trade war with the U.S.”

Twitter avatar for @JChengWSJ
Jonathan Cheng @JChengWSJ
China is investing heavily in semiconductors and stepping up efforts to cultivate homegrown talent as it accelerates its quest for technological self-sufficiency amid a tech trade war with the U.S. @lizalinwsj @raffaelehuang @ByXiaoXiao @DanStrumpf on.wsj.com/2UyjKxn
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2:31 AM ∙ Nov 17, 2020
86Likes53Retweets

China’s lopsided recovery

Even as China’s economy showed strong growth in October, there were signs of the continuing unbalanced recovery, reports the South China Morning Post.

While industrial production grew 6.9 percent, beating analyst expectations, retail sales grew less at 4.3 percent, and missed predictions of 5 percent growth.

Meanwhile, fixed asset investment grew by 1.8 per cent over the first 10 months of 2020, ahead of the expected 1.6 percent growth, “powered by a huge uptick in investment in the primary industries – such as mining, farming, quarrying – and hi-tech sectors,” the Hong Kong paper writes.

Twitter avatar for @michaelxpettis
Michael Pettis @michaelxpettis
Good description of China's very lopsided October data release, with @fbermingham making clear both what is good and what is bad about China's growth recovery.
scmp.comChina’s economic growth continued last month, but imbalances remainChina’s economy expanded strongly in October, as the recovery in consumption continued to gather pace, data from the National Bureau of Statistics (NBS) released on Monday showed.
7:14 AM ∙ Nov 16, 2020
23Likes3Retweets

Corporate defaults sparking new debt fears

A Chinese chipmaker, an auto venture that makes BMWs, and a coal miner are all among the government-owned companies that have recently defaulted or delayed debt repayments, sparking renewed fears about China’s heavy debt burdens.

“A series of high-profile defaults involving state-owned companies in China — normally a safe pick for investors — have jolted the credit market and rattled investors,” reports CNBC.

“The pandemic and increasingly stringent regulations from central authorities could restrain local governments’ power to coordinate financial resources, and even the willingness to provide support,” S&P Global Ratings said.

LGFVs rear their ugly heads again…

And for another kind of worrisome debt—that held by China’s local administrations through LGFVs or local government financing vehicles - check out this interactive map from MacroPolo which shows the situation by province (Guizhou, the poor interior province I wrote much about in my recent book, turns out is the worst of all.)

Twitter avatar for @MacroPoloChina
MacroPolo @MacroPoloChina
From Beijing to Guangdong, we visualized every Chinese province and regions' local government financing vehicle debt. You can also click to see a breakdown of LGFV performance & how provinces stack up nationally:
macropolo.orgChina’s Debt Hangover - MacroPoloChina’s debt problem is mainly a local one. This map shows the extent to which local government financing vehicle (LGFV) debt has put a drag on regional GDP. All 31 regions and provinces are ranked based on LGFV debt’s drag on the economy. Click to see a breakdown of LGFV performance and how each pr…
8:49 PM ∙ Nov 21, 2020
8Likes7Retweets

Notable/In Depth

Here is a good (and long) thread on RCEP and how to understand its importance, from Carnegie Endowment’s Evan Feigenbaum.

Twitter avatar for @EvanFeigenbaum
Evan Feigenbaum @EvanFeigenbaum
1: Long thread follows … A lot of the commentary on RCEP today, some of which disses it as a minimalist trade deal, misses the point. If you’re American, you can’t just look at it while ignoring the larger context of 25 years of change in Asia.
7:53 PM ∙ Nov 15, 2020
419Likes166Retweets

Here’s a new bipartisan report on what the U.S. needs to do to meet the Chinese science and technology challenge, put out by UC San Diego and the Asia Society Center on U.S.-China Relations.

Twitter avatar for @DavidBarboza2
David Barboza @DavidBarboza2
A new bipartisan report on how US can meet the China challenge in science and technology. Lots of prominent people on the working group: @SusanShirk1 @YashengHuang @bnaughton @AnjaManuel1 I've just gone through portions; must read for China watchers..
1:42 AM ∙ Nov 17, 2020
14Likes1Retweet

A chart and report from MacroPolo that illustrates Silicon Valley’s changing views on China: from copycat to in-China competitor to global competitor..

Twitter avatar for @neilthomas123
Neil Thomas 牛犇 @neilthomas123
Silicon Valley's rapidly changing views on China: 2010-2013: Copycat, Potential Market 2014-2016: Market, Tech Inspiration, In-China Competitor 2017-2020: Global Competitor, Tech Warning Sign According to my @MacroPoloChina colleague @mattsheehan88 macropolo.org/how-silicon-va…
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6:04 PM ∙ Nov 19, 2020
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