Category Archives: Communist Party

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.

What the Hitchhikers Guide to the Galaxy Has to Say About Covid-19

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

Global stock markets have now shed US$5 trillion in value in response to the Covid-19 coronavirus. Starting to get alarmed yet?!

Fall back to the advice “Don’t Panic.” I was eight when one of my favorite novels, The Hitchhikers Guide to the Galaxy, came out in 1979. On the cover of that guide, a kind of Lonely Planet for all the planets, are those two reassuring words. We’re told they appear in “large, friendly letters” on a “small, thin, flexible lap computer.”

The hitchhikers guide, a kind of Wikipedia that predated the Internet, has a humorous entry about the planet Golgafrincham. Bear with me, there’s a point here in the end.

[This story originally appeared in Real Money on TheStreet.com. Click here to see the original story.]

Golgafrincham’s poets were fond of making up stories about how the planet was going to end. Maybe it would be as a result of it crashing into the sun, or the moon crashing into it, or 12′ piranha bees. A tale that it was about to be eaten by a mutant star-goat got its residents to organize three arks: Ark A of leaders and scientists; Ark B of useless people like hairdressers, middlemen and telephone sanitizers; and Ark C of the little people who made stuff and got stuff done. Ark B took off first, sent toward a distant insignificant planet, which turned out to be our prehistoric Earth. The wise folk in Arks A and C stayed put after they got rid of the useless people. Tragically, those Golgafrinchans who remained all died out from an infectious disease contracted from an “unexpectedly dirty” telephone.

Is this our dirty telephone? No, we are the middle managers, lawyers, hairdressers, phone sanitizers. The useless ones. These are 12′ piranha bees. We’re saved!

Back to reality. There are so many unknowns surrounding this disease. I’ve been living with it here in Hong Kong since early this year, having survived through SARS in 2003, too. I caution investors who are worried about the health of themselves and their portfolios to keep a calm head.

Strangely, it has been the sudden emergence of clusters of the disease in South Korea, Italy and Iran that has spooked the markets. These clusters have people the world over rushing to buy industrial-strength face masks, stock up the hand sanitizer, panic-buy canned goods.

Here in Hong Kong, people have been stockpiling rice (which mainly comes here from Thailand, not China), and toilet paper, because a tabloid story said all the toilet paper factories in China would start making masks. I stood today behind an elderly lady buying a US$1 bag of bread, who compulsively reached for the huge stack of toilet paper standing by the checkout. She hesitated, didn’t buy in the end. I could a thought bubble, “If it’s run out, then why is there this huge stack?!”

What investors should be worrying about is the fact that China essentially shut down for more than a month. I’m sorry that almost 3,000 people have died. I’m sorry almost 84,000 people are infected. Here in Hong Kong we have 94 cases, which is 0.001% of the population. Last year, 34,157 Americans died of the flu.

So yes, I am avoiding taking public transportation, and I wear a mask when I’m going to very crowded places. I wash my hands, a lot. But I’m not wearing a mask non-stop. I bet a lot of those 94 infected people wore masks, but took them off at group meals, an apparent source of many infections. If I do get the Covid-19 virus, as a healthy Gen Xer, there’s every chance I’ll survive.

Global manufacturing is going to be stumbling to correct for parts failing to arrive for months to come. Eventually that is going to spill over to other sectors: it’s not much good buying Microsoft (MSFT) shares if Lenovo (LNVGY) has stopped making computers.

Markets hate uncertainty, that’s the cliché, and the situation we find ourselves in is full of them. South Korea now counts 2,337 cases, the most outside China, but at least the Korean peninsula shares an extensive border with China. How it cropped up in Iran and Italy in large numbers is a mystery, and that’s what seems to have finally punctured the protective bubble around investors.

You know the numbers. The S&P 500 has entered technical correction, a drop of 10% or more, faster than ever before. In six trading days, it has come off 12% since last Wednesday’s record high. A record high, one month after Wuhan broke out! We’ll see a few more records broken before this is all over, I’d imagine. The Dow’s 1,191-point fall on Thursday was also a new single-day high.

Asian equities are also ailing. This has been a brutal last trading day of the month, with Japan’s Topix down 3.7%, China’s CSI 300 down 3.6%, Korea’s Kospi down 3.3%, a similar fall for Australia’s ASX 200. These are large single-day falls for markets that have generally been selling off since mid-January.

Not since the Lehman Brothers crisis have we seen such selling. Of course, all asset classes are going to have to contend with virus fallout. Are equities more at risk because they had climbed so high?

Analysts at Goldman Sachs (GS) are predicting that members of the S&P 500 will post no earnings growth at all in 2020. That’s a compound effect from the severe decline in China’s economy, resultant disruption in global supply chains for U.S. companies, and eventually a slowdown in the U.S. economy itself, which is 68% driven by consumer spending.

That seems like a sensible path of calculation. The blanket panic selling, however, isn’t wise. Equally, I think it would be incredibly sad if the Tokyo Olympics this summer got called off.

Bargain-hunting investors should not step into the markets now. There is too much uncertainty, and above all too much herd panic. Day traders on the other hand may find these happy hunting times. Shareholders should be holding companies to account for their exposure to Chinese manufacturing disruption, and chaos in supply chains.

The Hitchhikers Guide has little to say about Earth as a whole. “Mostly harmless” is its entire entry. Covid-19 is a nasty pneumonia, certainly not harmless. But investors should for now fear manufacturing sickness above any infected telephone.

China’s New Leaders Are No Threat to President Xi

October 26, 2017 By in Asia, China, Communist Party, Geopolitics, Politics Tags: , , , , , , Leave a comment
China’s New Leaders Are No Threat to President Xi

China’s new roster of top leaders have shuffled into their places on the red carpet for their curtain call, the procession leaving no question as to who is in charge. President Xi Jinping has been reappointed to head the Communist Party, with no one waiting in the wings as his nominated heir.

What’s more, not one of the new members of the Politburo Standing Committee, China’s cabinet, is under the age of 60, meaning none of them is likely to succeed Xi when and if he stands down at the end of his second term in 2022.

It’s a highly unusual move, unprecedented in recent years, leaving Xi to continue his push for reform and fight against corruption unquestioned. Critics worry that Xi’s “rule” has evolved into a dictatorship, the president eliminating rivals who question his positions and squelching stories about his family’s amassed wealth.

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