Category Archives: Business

India Passes China for World’s Largest Population

April 20, 2023 By in Asia, Business, China, Demographics, Geopolitics, India, Investment, Politics, Population Tags: , , , , , , , , , , , Leave a comment

Mark your calendar. Today is the day that India holds more people than anywhere else on Earth, after two centuries of Chinese population supremacy.

Hot on the heels of the world surpassing 8 billion total people, India has surpassed China to become the world’s most-populous nation, according to fresh data.

India is now home to 1,428,600,000 people, according to newly released numbers from the United Nations, which you can find on its World Population Dashboard. China is home to a mere 1,425,700,000.

It’s a momentous shift. India’s economy is younger and still growing, while China is suffering from an ageing population and the low birthrate that’s a hangover from decades of the one-child policy, whose generations are now marrying and having their own children at less-than-replacement rate.

This story first appeared on TheStreet.com and its subscription service Real Money. Find the original story here.

Multinational companies are already keen to diversify production away from an overdependence on China due to geopolitical tensions as well as rising wages. Add to that equation the greater relative attraction of the Indian market, likely to grow at a faster pace than China for years to come.

So it is with impeccable timing that Apple is opening its first stores in India, with an outlet in Mumbai and then in New Delhi. India has also improved the attractiveness for international retailers with changes in the law that allow direct ownership of local stores, whereas companies used to have to work through a local partner. Apple has sold for 25 years into India through third parties.

Apple is now also making iPhones in India for sale to the local market, and is also ramping up production of its goods in Vietnam. The company will likely be making one-quarter of its products outside China by 2025, according to JPMorgan Chase, up from less than 5% now.

The official confirmation in the change in the population world order comes today, although of course demographics rely on estimates and censuses conducted over periods of time. The U.N. Population Fund has just released its State of World Population report for 2023, which you can find here.

India will begin to see its population shrink, too, and likely in fairly short order, within two to three decades. Already, 31 of its 36 states are seeing the population decline, but the remaining five states have such a high fertility rate that they offset the others.

India’s population growth reportedly peaked at 2.4% in the 1980s but has dropped to 1% as of 2020. However, the last Indian census was in 2011, and the country delayed the population count that was due to occur in 2021 due to the pandemic. The United Nations has updated the 2011 count based on fertility, mortality and migration rates.

The world passed 8 billion people in November 2022. To me, that’s too many. But the United Nations would rather cast the numbers in a positive light.

“For many of us, it represented a milestone that the human family should celebrate,” Natalia Kanem, the executive director of the U.N. Population Fund, writes in the new report, “a sign that people are living longer, healthier lives and enjoying more rights and greater choices than ever before.”

Kanem does make an excellent point that birthrates aren’t the be all and end all. Increased gender equality can offset problems in both low-birthrate nations, by encouraging women to enter the workforce, and in high-birthrate nations, by giving women more agency in family planning.

The United Nations says that around 24% of women and girls are “unable to say no to sex,” while 11% are unable to make decisions over contraception. Such families are unable to control unplanned pregnancies, while the poorest people may lack access to contraception even if they’re allowed to avail themselves of it.

World population growth is now at its slowest pace since 1950. Just eight nations will account for half of the projected growth in population by 2050.

China’s shrinking, ageing population is entering a world that nations such as Japan and Italy already inhabit. In fact, two-thirds of the world’s people live in places where the fertility rates are below the “replacement rate” of 2.1 births per woman. As mortality rates decrease, it makes sense that fertility rates fall, too.

In China, it is also a rising standard of living and rising incomes that are leading to a decline in the birthrate. Many Chinese families say they would rather focus their resources on a small number of children — often choosing to have only one child where they’re legally allowed and politically encouraged to have more — to give them a better start in life.

India’s fertility rate has fallen from 5.7 children per mother in 1950 to 2.2 births per woman today. So it is on the cusp of shifting into decline.

Often forgotten in this discussion is the effect of migration. A country with a shrinking population can quickly offset that effect by encouraging more workers to move there from abroad. Immigration is a dirty word in today’s politics. But it can be a boon to an economy that is struggling under an “inverted pyramid” of population, with a bulging older demographic slice supported by a tinier young generation.

We should also reconsider how we measure economic success. Figures for gross domestic product rely so much on growth that they “praise” a country that concretes over its entire wilderness to populate it with cities and factories. Gross domestic happiness is forgotten.

The U.N. report calls on governments to strengthen pension and healthcare systems in response to these demographic changes, as well as to promote exercise and healthy ageing, and protect migrant rights.

Japan’s Trading Houses Get Buffett-Backed Trading Boost

April 13, 2023 By in Asia, Business, Investment, Japan, Stock market, Warren Buffett Tags: , , , , , , , , , , , , , , Leave a comment

Warren Buffett sees something in Japan’s sogo shosha conglomerates, and says he’ll throw out the idea of co-investment deals while visiting his holdings in Japan.

Warren Buffett’s desire to sample more Japanese-equity flavor continues to boost the Tokyo market. The Topix closed 0.8% higher on Wednesday, matching Tuesday’s 0.8% bump, after Buffett indicated he intends to increase his holdings in Japan, and specifically its storied sogo shosha, or trading houses.

This story first appeared on TheStreet.com’s subscription service Real Money. Click here to see the original.

Buffett via his Berkshire Hathaway holding company owns a decent chunk of each of the five biggest Japanese sogo shosha: Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo. Berkshire first revealed holdings of at least 5% in an August 2020 filing, indicating it had spent US$6 billion on the stakes, then increased its holdings to 6.6% of all five in November 2022, and now announces it holds 7.4% of each.

“We’re very proud of that,” Buffett says in an interview with the Nikkei business daily. He will be meeting with those five trading houses this week “to really have a discussion around their businesses and emphasize our support.”

True to form for value-driven Buffett, the trading houses are very “real” businesses that are sprawling and complex but serve very essential purposes. With their roots in commodities and goods trading, they have expanded to become investment holding companies, too, much like Berkshire Hathaway in fact.

Buffet went on to indicate that Berkshire would be open to co-op investment with or alongside the trading houses. “We would love if any of the five would come to us ever and say, ‘We’re thinking of doing something very big’ or ‘We’re about to buy something and we would like a partner,’ or whatever,” Buffett said.

Although the trading houses are currently the extent of Berkshire’s holdings on the Tokyo market, Buffett says additional investments in Japan are “always a matter of consideration.” The five trading houses are his current focus but “there are always a few I’m thinking about.” This is his first trip to Japan since August 2011.

The trading houses are a kind of conglomerate specific to Japan, dating to the mid-1800s and Japan’s period of reopening to the world as the reign of the isolationist Tokugawa shogunate ended. The earliest trading houses were zaibatsu family-run conglomerates, with the trading house operating in-house to supply goods, transport and finance to the group’s various businesses. After World War II, another cluster of trading companies formed in the Kansai region to deal in commodities such as textiles or steel.

The trading houses played a major role in the overseas expansion of “Japan Inc.” in the 1980s, helping source goods and provide financing for companies that weren’t all that experienced internationally because of Japan’s 200+ years of closure to the outside world. As Japanese companies became more comfortable with their own overseas operations, the trading houses boosted their business in insurance, transportation, property development and project management — very much lines of business that Buffett likes.

The global scope of the conglomerates and the similarities with his own holding company are not lost on Buffett. “We feel that these five companies are a cross-section of not only Japan but of the world,” he says. “They really are so much similar to Berkshire. They own a lot of different things.”

However, the trading houses are perpetually lowballed in valuation, trading under 10x forward earnings, some would say for a reason. They are so diversified that they are hard to categorize, and critics contend their very nature is an oddity of Japanese history that no longer serves a purpose. Growth has been hard to come by for these giants, while their core operations are open to disruption to trade such as we’ve seen in the wake of the pandemic and due to the war in Ukraine.

Marubeni and Sumitomo in particular took write-downs to their operations in Russia during the tax year that ran through March. Profits when they come out are expected to drop for all five trading houses due to Russian disruption and pandemic effects.

On the plus side for a value investor like Buffett, the trading houses have been engaging in share buybacks, increasing the value of existing shares. And they pay very solid dividends indeed, as high as 5.01% for Sumitomo.

The share prices of the trading houses have all blossomed since Buffett bought into them. Part of that is the effect of other investors following Buffett’s lead. In the past year, both Marubeni and Mitsui are up by more than 30%, while Mitsubishi has advanced 15.6%.

They’ve all basked in Buffett light in the past two days. Itochu is up 4.8%, Marubeni is up 7.7%, Mitsubishi is up 4.4%, Mitsui is up 5.1% and Sumitomo is up 6.0%.

Buffett also discussed the sell-down of Berkshire’s stake in Taiwan Semiconductor Manufacturing Corp., the world’s largest chip foundry. Berkshire bought more than US$4 billion in TSMC stock between July and September 2022. But it ditched 85% of that holding in quick order, an unusual move for Buffett, who typically likes to retain core holdings for years if not decades. By the end of 2022, however, Berkshire held only US$617 million in TSMC stock.

Buffett said geopolitical tensions are a “consideration” in the divestment. He believes that TSMC is well-managed but that Berkshire has better places to deploy its capital.

One reason investors have been particularly excited about what Buffett has to say in Japan is that Berkshire Hathaway is marketing another offering of yen-denominated bonds. It’s expected to price those this week.

Berkshire did the same thing three years ago before buying the stakes in the trading houses. One underwriter told the Nikkei that these new bonds will be used to roll over existing debt. But savvy Buffett doesn’t like to tip his hand before he plays it. Watch for any indication that the money is going toward other companies in Japan, which would be sure to get a stock-price boost from the Buffett seal of approval.

Biden Promises U.S. Military Will Defend Taiwan if Attacked

May 24, 2022 By in Anthony Albanese, Asia, Australia, Business, China, Communist Party, Fumio Kishida, Geopolitics, India, Indo-Pacific Economic Framework, Investment, Japan, Politics, Quad, South Korea, Trans-Pacific Partnership, U.S. President Joe Biden, United States, Yoon Suk-yeol Tags: Leave a comment

Surprising even his own staff, the U.S. president overshadowed the launch of the Indo-Pacific Economic Framework for Prosperity.

The response from U.S. President Joe Biden came firm and clear. Would the United States get involved militarily to defend Taiwan, a move it has avoided so carefully in Ukraine?

“Yes,” Biden said bluntly in Tokyo on Monday. The reporter who asked the question, not quite believing her ears, says “You are?”

“That’s the commitment we made. That’s the commitment we made,” he repeated.

With that statement, Biden ensured that today’s unveiling of the Indo-Pacific Economic Framework, his signature commercial pact in Asia, would be overshadowed by defense. A country accused of presenting “all guns and no butter” delivered a large shipment of both.

This story first appeared on TheStreet.com and its subscription service, Real Money. Click here to see the original story.

It’s the second time recently that Biden has spoken off the cuff about a U.S. military response to an invasion of Taiwan and replied in much the same way. During a town hall event last October, he was asked if the United States would come to Taiwan’s defense if it was attacked by China. “Yes,” Biden replied. “We have a commitment to that.”

It is a change in tack. U.S. presidents always dodge the question of whether the U.S. military would defend Taiwan. They hide behind “strategic ambiguity,” fudging that they uphold the “One China policy,” which is deliberately vague.

China insists on the “One China principle,” one key word of difference, stating that the Beijing government is the only legitimate government in China, which includes Taiwan. On the U.S. side, the “One China policy” recognizes the Beijing government as the legal government of China, but only “acknowledges” China’s position that China also includes Taiwan, without agreeing that it’s true.

Confused? You should be. It allows the United States to keep Beijing sweet while maintaining unofficial relations with Taiwan. The U.S. stance was first stipulated in 1972, when then-president Richard Nixon used the “One China policy” as a way to say “You sort this one out” to the Chinese on both sides of the Taiwan Strait while doing business with both.

But Biden was very clear. The United States military would defend Taiwan if China invades it. Or in diplomat-speak, “any unilateral effort to change the status quo using force.”

It has become a more pressing issue after Russia invaded Ukraine, which Russian President Vladimir Putin says should be part of Russian soil. White House officials scurried today just as they did back in October to walk back Biden’s comments on Taiwan, asserting that there’s no change in U.S. policy. But you could say that under Biden, it is becoming more clear. A Chinese military invasion would be met with a U.S. military response.

China bristles

Not surprisingly, Beijing was furious in its response to Biden’s statement. “The Taiwan question is purely China’s affair,” a foreign affairs spokesman said. “There is no room for compromise or concession.”

China urges the United States to stand by the “One China principle,” using that word of difference again, and to “refrain from sending wrong signals to Taiwan separatist forces to avoid causing grave damage to bilateral relations.”

Biden first hinted at this change last August, when the United States withdrew from Afghanistan. He promised “we would respond” to an attack against a fellow member of NATO, adding “same with Japan, same with South Korea, same with Taiwan.” Taiwan had never before been presented with the same kind of promise of defense as those other allies.

Japanese Prime Minister Fumio Kishida, speaking alongside Biden today, was also asked how his country would respond if China invades Taiwan. He beat around the bush, like leaders always do. Japan is equally ambiguous on the status of Taiwan.

“We asserted the importance of peace and stability of the Taiwan Strait, and the peaceful resolution of the Taiwan issue,” Kishida said, adding that there is no change in the “fundamental position” of the United States and Japan.

“In Asia, we are against any unilateral effort to change the status quo using force,” Kishida added. “In Asia, peace and stability must be upheld and defended.”

That last word, “defended,” may also represent a very subtle shift by Japan, since we are parsing sentences today. Japan is increasing its “self-defense” forces, having agreed to a pacifist constitution after World War II that forbids it fighting a war. But it has 105 U.S. fighter jets on order, the F-35 Lightning, and in March launched the first of 22 new Mogami class stealth frigate ships as it beefs up its capability to respond to threats overseas.

Kishida told Biden that Tokyo is ready to take a more robust defensive stance, including the ability to retaliate. That will include a “considerable increase” in the Japanese defense budget, Kishida said.

As for the Framework…

Today was supposed to be the big unveiling of the Indo-Pacific Economic Framework for Prosperity. It’s a kind of Trans-Pacific Partnership-lite, after the U.S. withdrawal from the TPP trade deal in 2017.

The exact roster of the 13 participating nations was a secret until today. They are the United States and Japan, together with Australia, Brunei, India, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand and Vietnam.

The IPEF is so far light on trade, and light on detail. The framework looks to build on four pillars: the Connected Economy, concentrating on digitization, including cross-border standards for data flows; the Resilient Economy, improving supply chains; the Clean Economy focusing on clean energy and decarbonization; and the Fair Economy, to enact and enforce standards on taxation and transparency and against money laundering and bribery.

We will see where it heads. National Security Advisor Jake Sullivan says not having trade in the agreement at all “is a feature of IPEF, not a bug.” It’s a deal intended to reflect a services-dominant, data-driven world.

While the United States says the IPEF is an open framework that other nations can join, it is presented as an alternative to Chinese interests in the region. It’s also an attempt at economic reintegration with Asia after a period of withdrawal.

“Especially as businesses are beginning to increasingly look for alternatives to China, the countries in the Indo-Pacific Framework will be more reliable partners for U.S. businesses,” U.S. Secretary of Commerce Gina Raimondo said in outlining the deal. She calls it a “turning point in restoring U.S. economic leadership in the region, and presenting Indo-Pacific countries an alternative to China’s approach to these critical issues.”

For now, though, negotiations are only just launching for the IPEF. There are no firm commitments or agreements, with today only the “starting gate,” in the words of Raimondo.

Taiwan, pointedly, is not part of IPEF. The United States says it will deepen bilateral trade ties with the island instead.

Next up: The Quad Squad

There will also be a meeting on Tuesday in Tokyo of the leaders of the Quad, the “Asia Pacific democracies” partnership consisting of the United States, Japan, India and Australia. Biden will also meet one-on-one with Indian Prime Minister Narendra Modi and the new Aussie leader.

New Australian Prime Minister Anthony Albanese, from the center-left Labor Party, has been swiftly sworn in so that he can fly to Japan to take part. It looks likely that Albanese will gain the 76 parliamentary seats necessary – the party is ahead in 78 races – for him to govern without forming a coalition. If not, he must make a deal with climate-minded independents and/or members of the Green Party for support.

Outgoing Liberal leader Scott Morrison had accused Albanese of being weak on China. Albanese will be accompanied in Tokyo by new Australian foreign minister Penny Wong, who is Malaysian Chinese by background. All eyes will be on how Albanese handles Australia’s current antagonistic relationship with China and what he has called a Chinese Communist Party that is more “forward-leaning” and “aggressive.”

“Butter and guns” were also both on display in Biden’s two-day trip to South Korea, where he visited both a Samsung Electronics factory and the Osan Air Base. It was at Osan, now a U.S. Air Force base, where U.S. troops were first deployed in the Korean War, with “Task Force Smith” fighting the Battle of Osan in 1950 as their first engagement with North Korean troops.

New South Korean President Yoon Suk-yeol has agreed with Biden to explore ways to expand joint military exercises that always infuriate North Korea. The two presidents appear to be taking a tougher stance on North Korea, with Biden saying at the air base that they pledged “our readiness to take on all threats together.”

Would Biden meet with the North Korean leader, Kim Jong-un? “That would depend on whether he is sincere, and whether he is serious,” Biden said. We’ll have to take the U.S. president at his word.

Biden Visits Korea and Japan With Rare Opportunity

May 24, 2022 By in Asia, Australia, Business, China, Communist Party, Geopolitics, India, Indo-Pacific Economic Framework, Investment, Japan, Politics, Quad, South Korea, Stock market, United States Tags: , , , , , , , , , , , , , , , , , Leave a comment

On his first Asia spin as president, Joe Biden will find a surprisingly warm welcome, and is due to launch an economic framework for US-Asia relations.

Joe Biden is today starting his first Asia trip as U.S. president, visiting South Korea and Japan with an unusual opportunity to cement alliances with these key Asia Pacific democracies. He will be mindful all the time of the threats presented by a nuclearized North Korea and by China, with its promise to conquer Taiwan, by force if necessary.

I’m watching Biden’s first steps in Korea, where he has made a Samsung Electronics chip factory in Pyeongtaek his first stop. Samsung chief Jay Lee has been excused from attending his accounting-fraud trial to take Biden on a tour, where they’re joined by new South Korean President Yoon Suk-yeol. Samsung in November announced a US$17 billion chip factory near Austin, Texas, and is showing off its advanced 3-nanometer chips for the first time on Biden’s visit.

This story first appeared on TheStreet.com and its subscription service Real Money. Click here to see the original story.

During his five-day Asia stay, Biden will find fertile ground to forge friendships with new U.S.-friendly leaders in both Tokyo and Seoul, arguably the best opportunity in two decades to do so. Rivals China and North Korea, meanwhile, are both battling Covid-19 outbreaks that undermine domestic popularity for the leadership in Beijing and Pyongyang.

Still, U.S. and South Korean intelligence suggests that North Korea may well test another long-range intercontinental ballistic missile during Biden’s visit, or possibly even conduct its first nuclear-bomb test since 2017. Biden cancelled an intended trip to the demilitarized zone between the two Koreas, and there’s been no progress on denuclearization talks since he became president.

Biden arrives in Asia at a time that leaders have newly taken office who have pledged to improve relations with the United States. Japanese Prime Minister Fumio Kishida moved into the Kantei on October 4, while Yoon was inaugurated on May 10. Yoon may push for South Korea to join “the Quad,” the alliance of Pacific democracies that currently consists of the United States, Japan, Australia and India.

The U.S. president is due for a summit with Yoon on Saturday, then will fly to Tokyo on the next day, where he is set to launch the Indo-Pacific Economic Framework on Monday, May 23. The framework is a U.S.-led initiative designed to counter criticism that the United States has focused only on security issues in Asia. China champions the Regional Comprehensive Economic Partnership free-trade deal that went into effect with 14 other Asia Pacific nations on January 1. But the United States has been accused of an “all guns and no butter” approach.

The “IPEF” is very vague and in its early days. An early draft obtained by the Financial Times shows that member nations have agreed only to “launch negotiations” on trade. But even that assertion may be watered down in a planned two-page statement simply to say the countries are starting consultations that could lead to negotiations that might amount to something. Phew. The language was literally being finalized on the Air Force One flight to Seoul.

Biden is attempting to undo some of the damage done when former president Donald Trump pulled out of the Trans-Pacific Partnership, an executive order Trump literally signed on Day 1 when he took office in January 2017. Kishida in Tokyo will likely nudge Biden to consider rejoining the recast 11-nation partnership, which Japan had championed, although there’s been no indication the United States is considering that.

The IPEF will be a weak TPP substitute. It does not include any improved access to U.S. markets for Asian nations, whereas the TPP promised free-market access for many goods. But the IPEF will attempt to address infrastructure, supply-chain resilience, clean energy, and digital trade. Kishida will join Biden at the unveiling, with South Korea, Australia, New Zealand, the Philippines and Singapore likely to join Japan and the United States in the deal.

Biden will then attend a Quad summit in Tokyo on May 24. The four-way partnership has risen in profile since it was rebooted in 2017, having been on hiatus since Australia withdrew in 2008 in a bid to improve Aussie relations with China. How things have changed. Australia is once again “all-in” on the Quad, and is now instead embroiled in trade disputes with China, which it has also accused of meddling in domestic politics to the extent of attempting to get a Beijing “agent” elected to national office.

The Quad, whose leaders met in person in September at the White House, has made progress on public health with the Quad Vaccine Partnership, pledging 1.2 billion vaccine doses globally, and on infrastructure. It has also formed a coordination group to “deliver transparent, high-standards infrastructure” in the region, a response to China’s Belt and Road Initiative. It is also working on green energy, lower-emissions shipping and high-tech supply chains for goods like semiconductors.

But it has yet to make much obvious headway in handling the military threat China poses in the Pacific. Beijing has basically gotten away with its island-building program to construct missile, naval and air-force bases on islands in the South China Sea. There’s been deadly conflict on the Himalayan border between Indian and Chinese troops, where China has again built structures in contested no-man’s land.

Most recently, Australia in particular has been alarmed by a security pact China has struck with the Solomon Islands, which could see Chinese troops based in the island nation. U.S. officials have said they would need to respond to any deployment of Chinese paramilitary troops to a country that saw heavy fighting on Guadalcanal during World War II, after Japan built naval and air bases there. Aussie defense minister Peter Dutton said in response to the China-Solomon security pact agreed in April that “Australia should prepare for war,” claiming China is “on a very deliberate course at the moment.”

The leadership in Canberra is in question. Australia holds national elections on Saturday, in which it is mandatory to vote. The opposition, left-leaning Labor Party holds a very slight edge over the conservative Liberal Party, and its unpopular Prime Minister Scott Morrison, or “ScoMo.” If there’s a change in leadership, it’ll be a scurry to take part in the IPEF signing and the Quad summit, with Biden due to meet the leaders of India and Australia on the sidelines.

Unusually, a group of around 25 independent candidates known as the “teals,” almost all women with successful careers, may hold the balance of power in Australia. Inaction on climate change has fueled frustration with the “gray-haired men fighting for power,” as Damien Cave put it in The New York Times, in a country that produces the world’s highest levels of coal-generated greenhouse gas per person, and that faces devastating now-annual bushfires and floods.

One of Biden’s key differences from his predecessor on the foreign-policy front is his ability to forge multinational diplomatic alliances. He held a summit at the White House on May 12-13 for the leaders of the nine Southeast Asian nations in ASEAN, at which they agreed to strengthen economic ties, improve health security, collaborate on smart manufacturing and develop renewable energy. Most pointedly, they pledged maritime cooperation and to maintain “the South China Sea as a sea of peace, stability and prosperity,” noteworthy since China claims almost all of that sea as its own territory.

Biden noted a joint desire to see an Indo-Pacific that is “free and open, stable and prosperous, and resilient and secure.” The United States committed US$150 million in infrastructure initiatives with ASEAN op top of support of US$100 million made after Vice President Kamala Harris visited Southeast Asia in August.

Former president Donald Trump alienated just about everyone, and championed an isolationist policy of the United States going it alone. He opted to skip ASEAN meetings when he was in power. Given Trump’s antagonism toward NATO, which he repeatedly hit up for money, it is hard to imagine him having any success calling on Europe to present a united diplomatic front against Russia after its invasion of Ukraine. Then-German chancellor Angela Merkel was pretty upfront with her disdain for Trump; French President Emanuel Macron backed off their early “bromance,” saying the lack of U.S. leadership under Trump had led to NATO’s “brain death.”

Trump saved his warmest words for hardmen dictators like Russian President Vladimir Putin, describing Putin’s early moves in Ukraine as “genius.” Putin “was a friend of mine,” Trump told the golfer John Daly in March. “I got along great with him.” His attempts to curry favor with North Korean leader Kim Jong-un led to a great photo op as Trump became the first U.S. president to step across onto North Korean soil, but ultimately produced no progress on the diplomatic front.

Trump also criticized the “horrible” terms of trade with South Korea. He took Japan to task for not buying enough U.S. autos, while ignoring that many American models are way too big for Japanese streets. That informed a decision to impose higher tariffs on Japanese steel. Trump criticized Japan and South Korea, too, for failing to pay enough for the U.S. troops stationed on their soil.

The Biden administration rolled back the Trump-era tariffs on Japanese steel as of April 1. With this first Asia spin, Biden will be hoping to strengthen U.S. influence across the Pacific, both in terms of the economy and the security of the region. These first small steps may help improve the direction of U.S.-Asia policy, after many Asian nations began to sense that Washington was retreating from Asia. The United States, and its leader, are back here in Asia again.

Have I Been Given a Dodgy Pfizer Shot in Hong Kong?

March 24, 2021 By in Asia, Business, China, Coronavirus, Covid-19, Hong Kong, Investment, Stock market, Vaccine Tags: , , , , , , , , , , , , , , , Leave a comment

Lies, damn lies, and statistics in the vaccine age, as Hong Kong and Macau stop administering the Pfizer/BioNTech drug.

This story first appeared on TheStreet.com on Wednesday, March 24, 2021.

I’ve been given a dodgy vaccine dose.

Hong Kong and Macau have today suspended delivery of the Pfizer/BioNTech/Fosun shots. The Chinese local distributor, Fosun, requested the halt of the first batch of the vaccine to reach these shores. Batch 210102 consists of 585,000 doses. Eight days ago, I got one.

The markets moved on the suspension. The Hang Seng Index opened slightly lower after yesterday’s 0.8% drop in the S&P 500. But as morning word broke of the vaccine halt, the Hang Seng faltered, ending Wednesday down 2.0% at its lowest level in more than 10 weeks. The Hong Kong benchmark is now in a technical correction. It has fallen 10% since a February 17 peak.

Now, I’m not too worried. About the vaccine, at least. I’m worried the negative news will delay shots getting into arms, and ultimately the economic opening up of Hong Kong and Asia in general.

There have been reports of “more than 50” instances of defective packaging for the Pfizer drug made by front-line nursing staff. Those reported defects include cracks in the tops of the glass vials, leaks, or stains on the outside. There’s no apparent safety threat.

The defective doses have been thrown out. Fosun, which received the packaging complaints, wrote to the governments in Hong Kong and Macau, telling them to suspend use of the drug as a precaution. It’s undecided how long the suspension will last. Fosun distributes the drug in China, while Pfizer sends it around the rest of the world.

The sudden halting of the BioNTech vaccine will raise further doubts in the minds of a Hong Kong public that is already highly skeptical about getting inoculated, as I explained before I got my shot. The Pfizer/BioNTech drug is one of only two available so far in Hong Kong. The administration of the Chinese-made Sinovac vaccine can continue.

We need to be very careful about how we respond to such reports. The tendency, as I exaggerated at the start of this article, is to think “Oooh, vaccine, dodgy.” AstraZeneca (AZN) is contending with far worse such misperceptions. The authorities should investigate if the Pfizer doses already administered have had the right strength.

I was, by chance, asked to provide some media training today for a major fund manager. The media coaching is something that I do very occasionally, when my corporate news sources request it. Here I was, giving the reporter’s eye view to companies administering their PR.

My early comments focused on three biases that are prevalent in today’s media: negative news bias (we remember bad news better), availability bias (we ascribe greater importance to news we’ve recently read) and confirmation bias (we seek out, by choice of news source or through algorithmic suggestions, news stories and data that support what we already believe).

The halting of the vaccines has Availability Bias written all over it. So, too, do the issues over the AstraZeneca jab concerning both blood clots in Europe and the veracity of its 79% efficacy rate.

An easy way of thinking about the combination of these biases: You never read about a plane that doesn’t crash.

It’s an exaggeration, we have all probably read a story about a pimped-out Gulfstream or a stealth bomber or two. We just remember the plane crashes.

Nevertheless, there have been an average of 14 fatal accidents for commercial and cargo planes globally per year over the last five years, according to the Aviation Safety Network, resulting in 345 deaths per year. In 2020, there were five commercial passenger-plane accidents, killing 299 people.

There were 42,060 people who died in vehicle crashes in the United States alone in 2020. The pandemic and empty roads seem to have encouraged reckless driving: the figure was up 8% over 2019, and the highest since 2007, even though people drove 13% less. What’s more, the fatality rate per 100 million miles driven spiked 24%, the largest annual jump ever, since the National Safety Council started collecting data in 1923. Speed, drugs and perhaps empty roads coupled with a deadly pandemic that encourage reckless behavior are factors.

Hardly anyone is afraid of hopping in a car. Plenty of people are terrified to fly. Yet even when you break it down into accidents per mile travelled, driving is far more dangerous.

It is far more dangerous to get Covid than to get a Covid vaccine. Covid is killing more than 20,000 people per week in Europe. Controversially, it might have been advisable for Europe to continue to give people the AstraZeneca vaccine even if they knew it was causing dangerous blood clots… but on further investigation, and to the best of our knowledge, it is not, anyway.

I need to write “to the best of our knowledge,” because we’re handling a health emergency in real time. The newly developed drugs involve vaccines developed in a year, when the process normally takes a decade. We have learnt a lot about Covid over the course of the pandemic, and will continue to learn about both it and the drugs designed to contain it.

Many European nations screeched to a halt with their AstraZeneca programs when the red flag was raised over concerns about suspiciously timed blood clots. At that time, there were 18 cases of cerebral sinus vein thrombosis, of which one was fatal, out of 20 million people vaccinated in Europe. That’s 0.00009% blood clots, and 0.000005% that were fatal.

Random chance determines that some people are going to get blood clots, and that seems to be what has been going on, although the clotting issue is still being investigated. In fact, the number of blood clots was lower than average in the general population, AstraZeneca says. But blood clots have become the plane crashes of the vaccine age.

Here in Hong Kong, I can tell you every single case of hospitalization after someone got a vaccine. On Monday, the latest info available, there were 20 people taken to hospital after receiving a dose, as this daily report outlines. “A female aged 58 suffered from dizziness,” one report starts. “A male aged 46 suffered from palpitation and increase in blood pressure,” another begins. “A female aged 20 suffered from loss of consciousness and abdominal pain,” and so on.

While this public record may be necessary, it also isn’t all that useful. What we want to know is, did the vaccine cause those effects? Did the person faint or get high blood pressure because they were stressed out? As a direct result of the drug? Because they don’t like needles? Or because they watched a scary movie on their phone while they waited?

Our Negative News Bias tells us it’s directly because of the vaccine drug. Our Availability Bias tells us everyone feels faint, when in fact 20 Hong Kongers had typically very minor reactions out of 23,400 people who got a dose that day: 0.085%. And we don’t even know why those 0.085% of people had that response. Confirmation bias tells anti-vaccers they were right all along.

The Hong Kong government reports that around 403,000 people have so far been vaccinated against Covid-19. Of those, 150,200 received the BioNTech vaccine, and 252,800 got the Sinovac jab. So about one-quarter of the original BioNTech Batch 210102 has been administered. The second Batch 210104 of 758,000 doses is all in storage.

The Sinovac numbers are higher because it was available first, and was for a while the only anti-Covid dose you could get. Mainland China is encouraging people to get a Chinese-made vaccine if they want streamlined entry to China, even though a Chinese vaccine is not available in many places, including the United States.

The BioNTech vaccine has been proving far more popular with the folks I know. Yesterday, about twice as many people signed up for the BioNTech/Pfizer shot as the Sinovac option. Its 95% efficacy figures are far higher than for Sinovac, which has variously been cited as 50.4% effective in Brazil, 65.3% in Indonesia and 91.3% in Turkey. The World Health Organization suggests a minimum efficacy of 50% – meaning 50 out of 100 people have total immunity – for a vaccine to be approved.

I’ve already indicated that I do not think the Sinovac drug should have been cleared in Hong Kong. The company has not released its clinical trials data to the public. It has not been properly peer reviewed. Hong Kong has broken its own public health rules to approve the drug, desperate to get a Chinese alternative into arms first before any “foreign” drug.

The 95% efficacy rate of the Pfizer/BioNTech drug has yet to be challenged. Should these defect reports dent its reputation in the public eye? According to the Hong Kong director of health, there have been eight incidents of cracked BioNTech vials, 22 air-pressure issues leading to leaks, 16 reports of vial seals being loose, and 11 cases of stains or marks on the outside.

That’s 57 incidents out of a batch of 585,500 doses. That’s a rate of 0.0097%. I like those odds. I’ve got an appointment to get my second dose three weeks after the first – assuming that this temporary halt in the vaccine program lifts.

It’s an appointment I intend to keep.

Australia Reportedly Faces Secret Trade Ban by China

November 10, 2020 By in Asia, Australia, Business, China, Communist Party, Coronavirus, Covid-19, Politics, Stock market Tags: , , , , , , , , , , , Leave a comment

This story first appeared on TheStreet.com.

https://realmoney.thestreet.com/politics/australia-reportedly-faces-secret-trade-ban-by-china-15481731

Is China punishing Australia by imposing a secret ban on a series of Aussie imports? That appears to be the case, with November 6 reportedly set as the day for the ban to begin.

Beijing has ordered a halt to the import of a wide range of Australia products, with at least seven product categories temporarily banned, according to a Bloomberg report citing “people familiar with the situation.”

The hit list would stop inbound shipments into China of coal, barley, copper ore and copper concentrate, sugar, timber, wine and lobster, the report states. The sources asked to remain anonymous because the information is sensitive.

Any temporary ban on commodities such as coal and copper would go much further than previous one-product restrictions, normally on high-profile consumer goods. China is Australia’s top trading partner, accounting for A$136 billion in imports into China in 2018, according to figures from the Australian government, with A$78 billion in Chinese goods heading the other way. That total two-way volume is up 35.8% since 2016.

Ore shipments explain why Australia punches above its weight as China’s sixth-largest source of imports, on par with Germany. Australia’s total trade ranks it as China’s 14th largest partner, matching the size of the Aussie economy.

China often changes visa restrictions for its citizens without any public notice. It often tries out policy changes in the securities industry by letting industry insiders experiment without any official announcement of a change in the rules to see how things go. And it occasionally restricts permissions for the import of certain specific goods in retaliation of perceived slights.

But China normally publicizes its punishments on trade. So it is unusual that Aussie exporters are in the dark on any trade ban about to come down.

The effects are already being felt.

Lobsters languish

Tons of live Australian lobsters have been left stranded on the tarmac of a Chinese airport, The Sydney Morning Herald reports, with customs clearance taking too long for the shellfish to reach restaurants before they are spoiled.

Australian Trade Minister Simon Birmingham says he knows about the reports of “customs clearance issues” on premium shellfish shipments into China. Paperwork suddenly becomes hard to come by if China wants to punish companies from a particular nation or multinational. So-called “health and reliance checks” have been holding up shipments into Shanghai, with China the destination for 94% of Australian rock lobster exports.

The trade minister said “discriminatory screening practices” imply a breach of World Trade Organization rules and a breach of the China-Australia Free Trade Agreement.

I doubt Beijing’s bigwigs are going to let that bother them. World Trade Organization (WTO) and United Nations rules and protocols are very useful when China wants something, less so when they don’t suit Beijing.

Virus vitriol

China and Australia are at odds diplomatically after Australia requested an independent investigation into the origins of the coronavirus. Australia has also sent its warships to participate in “freedom of navigation” trips through waters that China claims in the South China Sea.

China pushes dodgy evidence of centuries-old fishing trips by Chinese vessels as justification for a land grab over the oil-and-gas-rich waters right up to the shores of the Philippines, Brunei, Malaysia and Vietnam. All those nations are fighting China with legal challenges over their territorial rights.

The trade restrictions began in May, when China introduced heavy tariffs on Australian barley and suspended imports of beef from some Australian slaughterhouses.

China has since launched an investigation into whether Australia’s wine producers are dumping bottles at cut-rate prices on the Chinese market. The Australian cotton industry says Chinese spinning mills have been told to stop buying Australian cotton.

Pressure tactic

The China International Import Expo is taking place this week in Shanghai, at which President Xi Jinping sung the praises of international trade. Officially, China’s commerce ministry has denied that Australian goods are under a ban.

Trade analyst Jeffrey Wilson told The Guardian this is a classic example of “gray zone” diplomacy, where China is attempting to scare Australian companies over access to a key market, using trade to exert political pressure.

“The ambiguity is by design,” he says. “It’s not a trade war, it’s psychological war.”

Shares in Treasury Wines Estates fell 8% in Thursday trading in Sydney after the maker of Penfolds wines said China’s drinks industry is requesting Beijing to impose unprecedented retrospective tariffs on Australian wine already sold in China. That’s part of an anti-dumping investigation launched in August by China’s commerce ministry.

Spying spat, too

Besides their public diplomatic spats, China and Australia are also engaged in a clandestine fight over spying and undue political influence over Aussie politics.

Sunny Duong, a Chinese-Australian community organizer, on Thursday became the first person charged over foreign interference in Australian politics under new Australian national security laws. Duong, who heads the Oceania Federation of Chinese Organisations from Vietnam, Cambodia and Laos, has been a prominent donor to the pet projects of various Australian politicians.

There are no details as yet as to what Duong, who has been very public with his appearances alongside Australian politicians, is supposed to have done wrong. But the Australian Federal Police raided several properties in Melbourne on Oct. 16 in relation to the investigation.

Australia’s spy agency, the Australian Security Intelligence Organisation (ASIO), has worked with the FBI-equivalent federal police on a counter foreign interference (CFI) taskforce in a year-long investigation.

“The CFI taskforce has taken preventative action to disrupt this individual at an early stage,” Australian Federal Police deputy commissioner Ian McCartney said, according to The Guardian. “Foreign interference is contrary to Australia’s national interest, it goes to the heart of our democracy. It is corrupting and deceptive, and goes beyond routine diplomatic influence practiced by governments.”

ASIO began warning in 2017 of Chinese influence attempts to control Australian politics through donations and sympathetic politicians.

In a blockbuster 2019 allegation, ASIO said it was investigating evidence that Beijing attempted to plant its operative as an elected official into the national Australian government. ASIO went public after news media broke the story. A Melbourne luxury car dealer, Bo “Nick” Zhao, reportedly told ASIO he was offered a “seven-figure sum” to run for government by a Chinese spy ring. Zhao was found dead in March 2019 from unexplained causes in a Melbourne hotel room.

As is typical, China has countered that Australia has been spying on China on a mass scale, instigating defections, spying on students and feeding false stories to the news media. A foreign ministry spokesman, Zhao Lijian, said in response to a report that Australia has tried to bug the Chinese embassy in Canberra that Australia is playing the “part of the victim, peddling rumors and stoking confrontation by staging a farce of the thief crying ‘stop thief.'”

Chinese exiles say they have faced intimidation from pro-Beijing squads while sheltering in Australia. It is a similar situation to what other Chinese exiles say has been happening in the United States. It appears these shadowy squads are sent to silence Beijing’s critics or force them to return to face Chinese courts through threats against their families in China or abroad.

Australia was the first country to ban the Chinese tech giant Huawei Technologies from involvement in the country’s 5G mobile phone network. It cited national security concerns.

However, China is particularly angry over Australia’s demand for an investigation into the roots of Covid-19. It has worked very hard behind the scenes to force concessions from the World Health Organization as to how it will investigate the virus, with the WHO leaving many key decisions to China, and hobbled in its attempts to send its own scientists to the virus epicenter in Wuhan.

‘The End of Hong Kong’ in New Treason Law

May 22, 2020 By in Business, China, Communist Party, Hong Kong, Stock market Tags: , , , , , , , , 1 Comment
‘The End of Hong Kong’ in New Treason Law

Beijing has given up playing the game of pretending that Hong Kong is governing itself. You could potentially be charged under the city’s new national-security law.

China’s showcase political conflab, the National People’s Congress, began today. First item on the agenda? A full-frontal attack on Hong Kong freedoms.

The second order of business was an item of non-business. Premier Li Keqiang opted not to set a growth target for 2020, something that’s always established when the meeting normally meets in March.

It had planned to set a rate of “about 6%.” But the uncertainties surrounding the Covid-19 recovery and global growth, not to mention the rekindled U.S.-China trade war, have scotched all that.

That first item is sending Hong Kong stocks south, with the Hang Seng plummeting 4.6% in early afternoon trade. The benchmark started lower, and just keeps going down. Shareholders should be very worried about their holdings in Hong Kong.

Chinese shares are also dragged down, with the CSI 300 of largest stocks in Shanghai and Shenzhen down 1.6%. There should be intense political pressure on China over this issue. We will see how far Britain and the United States are prepared to push Beijing over rights when money and trade is at stake.

Don’t be fooled by the coverage of this issue, which mainly indicates that a “controversial” new law has been proposed.

It’s not just controversial, it’s illegal. Pro-democracy lawmaker Dennis Kwok is only slightly exaggerating that “This is the end of Hong Kong.” It means Beijing will directly rule Hong Kong.

When China got its hands on Hong Kong in 1997, it promised that the former British territory would be allowed to keep its laws and operate autonomously for 50 years, until 2047. It signed the Sino-British Joint Declaration to that effect, a legal contract lodged with the United Nations. Hong Kong also established its constitution, the Basic Law, and elected its own government.

That government decides Hong Kong’s laws. It says so in the Basic Law. The government is stacked to Beijing’s favor, with half its members appointed rather than elected. Even then, the pro-Beijing camp struggle to shove through their legislation.

With this new law, the mainland government is simply enacting a new law of its own directly, in Beijing, and imposing it on Hong Kong. It plans to write the new “security” law into the Hong Kong constitution directly, bypassing the Hong Kong government altogether.

So Beijing is dispensing with any pretence that Hong Kong governs itself. It says it got “frustrated” with waiting for the proper legal process to occur.

It would be, I suppose, similar to the federal government bypassing states altogether and writing a sedition law, perhaps with capital punishment, directly into the state constitution of all 50. It would mean the end of any power for state governments.

That is vitally important in the case of this new law. Hong Kong, which guarantees free speech, has a totally different view of what kind of conversations about the government are allowed. Mainland China restricts free speech massively, censors discussion, leaving no one comfortable in criticizing the Communist Party in public. You can get locked up for decades for doing so, potentially executed. The international coverage of this issue is being blacked out on TV screens and blocked online as I write.

I can currently criticize the Communist Party all I want, here in Hong Kong. With this new law, my ability to write these articles will be severely curtailed.

All this is being done under the guise of “national security,” the catch-all phrase beloved by dictators and authoritarian governments the world over. “National security is the bedrock underpinning the stability of the country,” Zhang Yesui, the spokesman for the National People’s Congress, said as the Communist Party’s flagship meeting kicked off on Friday.

It’s a poorly run, unstable and weak country if its bedrock is stopping criticism of that country. A proud, strong nation should be able to take criticism on the chin.

We don’t yet know what will be in the new law. The central government is today due to table a resolution to allow the Standing Committee of the National People’s Congress to craft and pass the new national security law for Hong Kong. Translation: the rubber stamp government will approve the top leaders writing a treason law for Hong Kong.

The new law will ban secessionist and subversive activity, as well as foreign interference and terrorism, according to the sources at the South China Morning Post. So foreign entities and people can also be charged.

It presents a real dilemma for Secretary of State Mike Pompeo. He has delayed a report on how autonomous Hong Kong actually is until after this meeting in Beijing. He must certify an annual assessment that Hong Kong is self-governed enough to justify separate trade status. That is very much in doubt.

China is already referring to last year’s pro-democracy demonstrations as terrorism, and says anyone flying a foreign flag at a march is promoting Hong Kong independence. Of course, the Communist leaders are furious that people have been burning and stamping on the Chinese flag, booing the national anthem, and even breaking into the government chambers here to spray-paint over the Hong Kong flag.

Hong Kong’s constitution does state that the city has to pass a national security law, in its Article 23. So-called Article 23 legislation was put forward by the Hong Kong government in 2003, but pulled after 500,000 people marched in opposition to it in the streets.

Now the Beijing government has lost patience with playing the rigged game that it set up. It figures that it will simply directly rule Hong Kong in this case, banning criticism of itself, how China is governed, how Hong Kong is governed. Presumably you, in the United States, could be prosecuted for “foreign interference” should you criticize the party and step foot in Hong Kong.

So beware. This law really does mean the end of Hong Kong’s autonomy. It is dangerous for us all.

This story originally appeared on Real Money.

Australia and India Lead Mid-Week Selling for an Asia in Recession

March 20, 2020 By in Asia, Australia, Business, China, Communist Party, India, Investment, Politics, Stock market Tags: , , , , , , , , , , , , , , , , , , , , , , , , 2 Comments

There are country-specific reasons why Australia, India and Thailand are leading Asia’s plunge, but the whole region is in recession, S&P correctly says.

The wildly unpredictable movements of equity markets continued apace on Wednesday. Despite the strong rally on U.S. markets the day before, when the S&P 500 rose 6%, almost all Asian markets again posted sizable losses here on Wednesday.

The biggest losers are in Australia and India. I’ll briefly explore why each of those two markets is performing particularly poorly.

In Australia, there are massive daily moves in either direction, sometimes even intraday. The S&P/ASX 200 was down 6.4% at the close Wednesday after posting its biggest single-day gain in 20 years on Tuesday. Now that gain has been wiped out! Since hitting a record high on Feb. 20, the index has corrected 31.2%.

Australian equities are dominated by the Big Four banks – Commonwealth Bank CMWAY, Westpac Banking (WBK) , ANZ ANZBY and NAB NABZY – all of which are seeing their shares oscillate as central banks shift policy globally. The Oz market also has a healthy dose of commodity stocks such as the gold miners BHP Group (BHP) and Rio Tinto (RIO) , and commodities are getting crushed, even gold. There’s also a hefty listed real estate sector and renters are going to start struggling to pay up. Oh, and let’s not forget that Australia’s main customer is China, which isn’t buying.

India follows suit

Indian shares again sold off hard on Wednesday, with the Sensex down 5.6% at the close. Indian shares have now corrected 30.1% in the month since Feb. 19, one of the worst performances in Asia. Foreign institutional investors have been heavy sellers, placing a higher risk premium on Indian stocks than before the outbreak.

India only has 137 declared Covid-19 cases so far, and it’s a bit of a mystery why the world’s second-largest country by population has been spared so far. It may be that only a few people are being tested. While ultraviolet light does kill viruses in general, there has been no scientific proof that hot weather deters Covid-19, so it may be that developing markets that often are hot either haven’t been hit yet or tested well. Of course, developing nations will struggle the most in a health care sense if the disease sets in.

Here in Hong Kong, we’ve had virus cases confirmed among Hong Kong tourists returning from India trips. State governments in India are starting to shutter schools, malls, movie theaters and so on, an economic danger because domestic consumption accounts for around 60% of the economy. Travel and tourism, around 7.5% of GDP, will suffer immensely with tourism visas being cancelled.

There are some India-specific issues that add an extra layer of worry. Yes Bank, a private bank established in 2004 as an alternative to state-backed institutions, has collapsed and is being bailed out by the Reserve Bank of India, the nation’s central bank. Also, violent attacks against Muslim minority by radical Hindu nationalists have left scores dead. Those ethnic tensions are not going to be helped by any downward spiral in the economy.

It isn’t pretty elsewhere, either

While Australia and India have fared worst here on Wednesday, other markets alternate to outdo each other in poor performance. Japan was one of the only sources of green on screens, with the Topix up a narrow 0.2% on Wednesday after the Bank of Japan announced it will support the market by buying ETFs. But the Topix, a broad measure of all big Japanese stocks, is down 26.2% this year.

Thailand’s SET index has fallen 33.7% in 2020, by a small margin the worst year-to-date performance in Asia. Thailand gets 11% of its GDP from tourism, and that’s dead – technically, down 44% and getting worse. The Philippines, where stocks are down almost as much, 31.7% in 2020, has simply shut down its stock exchange, saying it couldn’t guarantee the health of folks on the floor. The blood pressure of investors is another health disaster altogether.

It’s going to take a coordinated global response when it comes to fiscal and monetary stimulus to get everyone on the same page. It also will take cooperation among medical bodies and addressing transportation links if we’re going to get out of the coronavirus mess. The unilateral, single-nation responses are firing buckshot when we need a .458 Winchester Magnum, the kind of Big Game rifle the ranger carries when I’ve been on walking safaris in South Africa.

Investors are sensibly responding to economic disruption rather than simply rates of infection. Korean stocks lost 4.9% in a market dominated by big exporters and heavy industry.

Hong Kong’s Hang Seng index closed down 4.2% on Wednesday, even though the rate of new infections is now slow in East Asia. Most of Hong Kong’s new cases are coming from abroad as Hong Kongers hurry home ahead of travel shutdowns around the globe. The Hang Seng hadn’t risen as high as other Asian indexes due to the pro-democracy protests here last year, so the benchmark is down “only” 20.9% in 2020.

Mainland China, where this all started, is seeing its stocks spared the worst of the selling. The CSI 300 index of the largest shares in Shanghai and Shenzhen fell 2.0% on Wednesday, and the whole index is down only 11.2% this year. That’s half the size of the general selloff around Asia. But treat Chinese share movements with skepticism. Domestic retail investors drive the trading and don’t have many other places to put their money. They are also notorious momentum traders. Mainland stocks are also essentially options on companies rather than genuine holdings, because Communist Party policy can change literally overnight without warning and shut your favorite company down. The party also has cash to spend on stimulus.

Recession is here

I was a guest on RTHK Radio 3’s drive-time business show “Money Talk” Tuesday morning, talking about the disastrous economic figures out of China on Monday. The jobless rate is at a record high, manufacturing has slowed a record amount, and retail sales cratered by a record margin.

One point I made is that, given the shutdowns already under way in Italy and Spain, we can expect similar figures out of those economies in the next month or two. And as more countries corral movement and stop public gatherings, we will see that economic pain spread.

So I chuckle a wry laugh when I hear forecasters predicting that we’re heading for recession. We are in recession, people! It’s here now.

The backward-looking economic output figures will confirm that assessment in the future. I hate the new piece of business jargon that an analyst is attempting to “nowcast” activity. But real-time assessments and common-sense assessments are what we need right now.

I’m digesting a particularly gloomy set of reports from Standard & Poor’s. The rating agency isn’t pulling any punches.

“Asia-Pacific Recession Guaranteed” is my light reading right now. It’s a quick hit. The “enormous first-quarter shock” in China means its growth will shudder to 2.9% in 2020, S&P says, a gutsy call because the Communist Party was keen on “predicting” growth of “around 6%.”

S&P is using the traditional definition of two down quarters in a row to define recession. By other measures, countries such as India and China need to achieve outsize growth just to keep the floods of people moving from the countryside to the city gainfully employed.

This new report says the “rising scale of the shock will leave permanent scars on balance sheets and in labor markets” in Asia. I concur. The rating agency believes US$400 billion in permanent income losses is going to be wiped off profit-and-loss statements.

S&P forecasts aggregate growth will fall by more than half in Asia to under 3% for all of 2020. It envisions a U-shaped recovery.

V-shaped, U-shaped, it’s all a question of how deep and how long this recession is going to last. All downturns are temporary unless you think the world economy is going to zero, which it’s not. But how bad will this get? We don’t know. The costs are continuing to add up, meaning we can’t count the final tab yet.

China Posts Worst Economic Performance on Record

March 20, 2020 By in Asia, Business, China, Communist Party, Geopolitics, Investment, Politics Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , Leave a comment

Monday’s numbers for production, retail sales and the jobless rate are all the worst on record for China. Asian shares continued heavy selling despite central-bank support. [This story first appeared on TheStreet.com.]

China has posted its worst production and sales figures on record on Monday, as a series of firsts continue to be set in Asia, almost all of them on the downside.

The economic numbers released on Monday are far worse than predicted by forecasters, indicating that China’s factories essentially shut up shop in the first two months of the year. Retailers stopped buying, too, e-commerce not able to offset the empty stores nationwide.

Industrial output fell 13.5% for the January-February period, from the prior year. That’s the worst reading on record since Reuters began tracking the figure in January 1990. A poll by the news agency had anticipated a 1.5% rise.

Retail sales plummeted 20.5%, also the first decline on record, despite an increase in online purchases of goods like groceries. Shopping malls and high streets have become ghost towns, and a logistics logjam due to a lack of delivery people has delayed e-commerce orders. A survey of economists by Bloomberg had anticipated only a 4.0% fall.

China’s unemployment rate has risen to 6.2% for February, up from 5.2% in December. That, too, is a record high jobless rate since the government started publishing figures.

Investment also sank 24.5% for the January-February period, the first drop in record, and far worse than the dip of 2.0% forecast by economists. (Combining the two months negates the impact of Lunar New Year, which fell in January in 2020 but February in 2019.) Investment into property, the holding of choice for wealthy Chinese citizens, shrank by its largest amount on record, and home prices stalled for the first time in five years.

Early predictions of the impact of the coronavirus suggested there would be a rapid V-shaped recovery in China. But the location of the virus outbreak in the “Chicago of China” rapidly impacted travel and trade. The epicenter, Wuhan, is a major inland port on the Yangtze River, as well as a north-south and east-west node on railway lines. It is the center of China’s auto manufacturing.

Economic figures for March may be even worse than those recorded for the first two months of the year. Consumer confidence has been shaken to its core, and it’s unclear what will encourage it to return.

Official figures claim that China registered only 16 new cases of the coronavirus on Sunday, and 12 of those stem from “imported” cases of people arriving from abroad. But with the country opening back up to human movement, there’s potential for a second outbreak. One Hong Kong news report out of Wuhan states that doctors there are releasing patients from temporary hospitals if a lung scan shows no scarring, without testing for the virus, since test kits have run low.

During the SARS outbreak in 2003, which centered on southern Guangdong Province as well as Hong Kong, China did not enter any significant lockdown. With the Covid-19 disease, the top leadership effectively ordered half the country’s 1.4 billion people to stay home. That has complicated the return of workers from the Lunar New Year, and only around 75% of Chinese companies are back in business.

The cessation of production is far more extreme than in 2003, hence the huge and unprecedented impact on industrial production. This has broad implications in the West. Even if demand returns around the world, that is no good if there is no supply of goods.

China’s efforts to get its economy firing on all cylinders are now going to be deterred by a lack of demand, too. The travel bans put in place around the world, and a rising number of lockdowns in major economies such as Italy and Spain, will only further dampen economic activity in Asia.

China’s top leaders were due to announce their “forecast” for full-year economic performance in 2020 at a meeting on March 5. But the event has been postponed due to the virus crisis. The Communist top brass had reportedly agreed a “target” of around 6% when they gathered late last year, and are now debating whether to lower that.

Hong Kong’s economy is also suffering through what amounts to a virtual shutdown. Figures released on Monday showed that there were only 199,000 tourist arrivals in February. That is normally the same number of tourists who arrive in a single day, equating to a 96% decrease. Even at the height of SARS, which centered on the city, 427,000 visitors arrived in the month of May.

The lessons learnt during SARS have however led to far fewer cases of Covid-19 occurring (so far) here in my hometown. Although Hong Kong is next to mainland China, it has only recorded 148 cases, far fewer even than Singapore, at 226, despite Hong Kong having a population that is 32% larger. Social distancing and staying at home, as well as a rapid response to track relatives and friends of those infected, seems to be working.

Asian markets continued their panic selling on Monday, despite moves by the U.S. Federal Reserve to slash interest rates, and an emergency meeting by the central Bank of Japan. New Zealand and South Korea also cut interest rates.

Australian stocks have crashed 9.7% on Monday, their biggest fall since “Black Monday” in 1987. That comes after an extraordinary day’s trade on Friday, which saw the S&P/ASX 200 fall 8.1% at the start, only to close with their strongest one-day gain in more than a decade, of 4.4%. Financial stocks led the selling on Monday, and investors will also have been unnerved by those historically bad activity numbers out of China, the largest source of demand for Australian exports.

Japan’s Topix declined 2.0%, despite BOJ action. The Japanese central bank moved up a policy meeting by two days, and agreed to purchase bonds and other financial instruments, as well as expand corporate finance.

Chinese shares fell 4.3% on Monday after the economic-output figures, and the Hang Seng in Hong Kong dropped 4.0%. Singapore’s Straits Times index lost 5.3%. Indian shares were the biggest fallers outside Australia, the Sensex down 7.9%.

Global Markets Finally Follow Asia’s Lead on Covid-19

March 12, 2020 By in Asia, Business, China, Communist Party, Investment Tags: , , , , , , , , , , Leave a comment

The coronavirus has finally infected global markets over the last two weeks. It’s taken a while to fester. But the outbreak has now spread from China’s CSI 300 to Asian, European and, finally, U.S. stocks.

I’ve been warning since Jan. 21 that a mystery SARS-like disease was hitting China, and likely to spread globally. The World Health Organization was due to meet the next day to decide if the outbreak is a “public health emergency of international concern.” I pre-empted that the answer is “Yes.”

The WHO ruled “No.” The Wuhan coronavirus is an emergency only for China, the global health body ruled on Jan. 22. How wrong they were.

Investors worldwide have had more than a month to prepare for this week’s selloff on global markets. Even while car factories in South Korea, Japan and Serbia were shuttered because they couldn’t get parts, U.S. stocks climbed toward all-time highs. Now the reality of worldwide manufacturing pain is sinking in.

Jaguar Land Rover’s CEO, Ralph Speth, expects the company to run out of some parts shortly. The British carmaker, a Tata Motors (TTM) subsidiary, says it has “flown parts in suitcases from China to the U.K.”

Isaac Larien, the CEO of Bratz dollmaker MGA Entertainment, says it has enough Chinese parts for another month. “The timing couldn’t be worse,” he told The Washington Post. “In 41 years in the toy business, this is the worst disaster I’ve seen.”

So I’ve been surprised it has taken this long for investors outside greater China to respond. Yes, China’s financial markets are ring-fenced, so there’s little direct connection from its A shares to other equities. But this infection in the “factory to the world” has had a severe effect in China, and I believe the supply-chain pain has only just begun.

Korean shares have fallen 18% since mid-February. Japanese stocks turned south earlier, but are now down 22.9% since the start of the year. Hong Kong stocks saw a short-lived rally, but are off 16.3% since virus concerns first got real in mid-January. So the radius of stock-market pain is expanding.

Nomura estimates today that 74.1% of Chinese businesses have resumed work after the Lunar New Year lockdown, and only 61.6% in the worst-affected areas. They base that off the Baidu Migration Index, which shows 49.2% of China’s population has returned to where it was pre-virus. Most migrant workers, in other words, have stayed put.

By the end of March, 91.8% of businesses outside Hubei Province should be operating, the Japanese investment bank predicts — quite optimistically, if you ask me. This crisis has already defied expectations.

Early comparisons looked at the impact of SARS in 2003. It made sense because the diseases are quite similar. SARS was short-lived, a deadlier virus that nevertheless only resulted in 813 fatalities globally. Economists and market watchers globally raced to release reports about a similar “V-shaped recovery” from Wuhan Acute Respiratory Syndrome.

Given enough time, all recoveries are V-shaped. This is a little like warning that markets will be volatile. Yes, the WARS effects will not continue forever, and China’s economy is not going to slide into permanent decline. What’s yet to be determined is how deep and wide the V is.

It’s understandable that economists have been slow. They are better at explaining what’s happened than predicting what’s to come, particularly with an unpredictable disease. Yet simple math should have suggested a sizable impact from the Covid-19 virus hitting right as much of China was on the move for the most-important holiday of the year.

China has a much greater importance to the global economy now than in 2003. The Middle Kingdom’s economy stands at $14.2 trillion for 2019. It was one-quarter the size, $3.6 trillion, when SARS hit. China only began its economic opening up in earnest in 1997. So the country has also become far better-integrated into the global supply chain.

Likewise, common sense should have told the WHO to act earlier. Many people in Hong Kong fault the organization as being beholden to Chinese funding. I’m not sure if that’s accurate, but the body has certainly bent over backward to praise China for its response, criticizing the rest of the world for lacking preparedness instead.

Not every nation can respond as China has, by locking down large proportions of its population. Nor should they.

Chinese authorities have carried out a remit to “round up everyone who should be rounded up,” a random dictum that’s sounds a lot like rounding up the usual suspects. As a result, authorities in the county of Tongbai have been training SWAT teams to noose, then hood uncooperative suspects who refuse to wear a mask. Each Chinese province is unleashing tens, even hundreds of thousands of tin-pot Communist Party local representatives or uniformed volunteers, based on a block-level grid system. Each one has their own crazy way of outcompeting the other to win what President Xi Jinping calls an all-out “people’s war” on the virus.

Consider the confusion in Wuhan. On Monday, the city government said non-residents were free to leave the city if they weren’t infected or under quarantine. By noon, that advisory was withdrawn. The city’s top brass said the announcement was “unauthorized,” and there was no change in the lockdown.

As a result, China is as much at war with its own people as the virus. Even after the immediate virus crisis passes, it may take months for those block-level dictators to relinquish their hold on the people and allow life to get back to normal. For now, you have “escapees” shinnying down drainpipes from five floors up just to get out of their apartment blocks if they don’t have the right “hall pass.”

The way the virus has popped up with pockets of infection in South Korea, Iran and Italy has been strange. But it suggests we may need to get used to the Covid-19 virus being a way of life, worse than the flu, a dangerous pneumonia, but something people learn to coexist with.

The WHO may be right that most nations are not prepared for that eventuality. The H1N1 swine flu, essentially a new and nastier but normal influenza bug, sent 60.8 million Americans to hospital and killed 12,469 of them, according to the Centers for Disease Control. Its worldwide mortality was a whopping 151,700 to 575,400 people, the vast majority young people in Southeast Asia and Africa.

Honestly, I don’t remember H1N1 all that well. It certainly doesn’t stick in the brain as something that killed half a million people. Here in Hong Kong, SARS and its 298 deaths in this city carries a lot more cultural resonance.

It appears Wuhan pneumonia is going to have far greater impact, both practically and culturally. Just as they should take reasonable precautions over their own health, investors should start assessing public companies for their exposure to the supply-chain effects of Covid-19.