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Newsletter 131 - September 11, 2022

Dexter Roberts
Sep 11, 2022
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Trade War is a reader-supported publication. If you haven’t already, consider becoming a paid subscriber now.

Welcome to the 131st edition of Trade War.

China’s cash-strapped local governments face impossible triple demand: fight Covid, lift growth, and cut debt, all at the same time. And as lockdowns spread, China’s cities and people are hostage to Xi’s stringent pandemic policy.

Beijing touts strong FDI numbers but much of it is ‘round-tripping.’ Apple warned on using Chinese chips in its newest iPhone. And German government moves to make investment in China tougher for its companies.

Constitutional amendment likely to further consolidate Xi’s power. Xi invokes ‘self-reliance’ but in reality is more a strong state nationalist, than a Maoist. And Russian losses in Ukraine bad news for China.

Plus:

  • Chinese entrepreneurs become outsiders in a country that once idolized them

  • Residents over 60 make up one-fifth of population in many Chinese provinces

  • Chinese are relatively wealthy but not so happy, graph shows

  • Beijing global media makes inroads in countries around the world

  • Former U.S. president Trump shows his fascination with Xi’s authoritarianism

China’s dilemma: fight Covid, lift growth & cut debt

The latest financial news from China? The decision to delay Shanghai’s annual Lujiazui Forum likely because of a nationwide surge in COVID, is getting lots of attention.

No doubt that is because it has messed up the plans of a lot of movers and shakers in the global finance world.

The very high profile event scheduled originally for Wednesday and Thursday earlier this week, was to be attended by China’s top market and finance regulators as well as economists and scholars from around the world. The official reason for postponing what would have been the 14th annual forum was the need to hold “further discussion on the key topics,” the organizers said.

But that’s not the financial story that really matters for China, I argue in a commentary for The China Project.

“For that, one needs to go deep into the hinterlands to the arid western province of Gansu. That’s where a local government finance vehicle — or LGFV, one of the thousands of loosely regulated finance institutions that China’s cities and townships rely on to raise money — almost defaulted.”

“Under pressure to fight COVID, stimulate growth, and reduce debt all at the same time, China’s local governments are in an impossible situation. Ultimately, at least one of the three targets will have to be jettisoned and the repercussions for the country — a surge in infections and mortality, a continually slowing economy, or alternately, a renewed jump in destabilizing debt — won’t be easy to manage. Perhaps that’s an important “key topic” for discussion at the next Lujiazui Forum.”

Twitter avatar for @michaelxpettis
Michael Pettis @michaelxpettis
"Under pressure to fight COVID, stimulate growth, and reduce debt all at the same time, China’s local governments are in an impossible situation." @dtiffroberts thechinaproject.com/2022/09/09/the… via @thechinaproj
thechinaproject.comThe financial news that really matters: The local government cash crunch holding back China – The China ProjectA real estate meltdown, prolonged COVID restrictions, debt, and economic uncertainty: Something has got to give.
5:02 AM ∙ Sep 10, 2022
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