China Targets ‘Ambitious’ Growth Without Road Map to Get There

March 7, 2024 By alexfrewmcmillan in Asia, China, Communist Party, Geopolitics, Hong Kong, Investment, Politics, Stock market Tags: Asia, Beijing, China, Chinese Communist Party, Covid-19, economy, Hong Kong, Investment, Stock market, stocks, Two Sessions Leave a comment

Investors are disappointed about the lack of detail from China’s legislature as Premier Li forecasts growth of “around 5%.”

China has set a challenging target for GDP growth this year “at around 5%” as its legislature holds its annual meeting that sets the tone for the rest of the year.

On the surface, the target seems achievable. It’s essentially unchanged from last year, when the target was a slightly more specific “around 5.0%,” with 2023 growth coming in at 5.2% in the end.

But we need to dig a little deeper into those targets. Last year benefited from coming off a low base because much of China was locked down for large parts of 2022, making for flattering year-over-year comparisons. That won’t be the case now.

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And any hopes for the Chinese economy to come roaring back to life after the Covid-19 pandemic have fizzled. A loss of corporate and consumer confidence, lackluster demographics, the trend toward “friendshoring” and difficulties deploying international capital across the Bamboo Curtain provide a pessimistic backdrop.

Given the strong headwinds blowing against the Chinese economy, not least of which is the gale of negative trends afflicting China’s property market, a 5% target for 2024 is “ambitious” in the eyes of Commerzbank. It will undoubtedly require stimulus that will need to be rolled out with better coordination among the various ministries and levels of government.

A ‘Very Challenging’ Mark to Hit

Providing that stimulus is a problem. Local governments are still staggering under the weight of debts run up during the costly, failed fight to eliminate Covid-19. Now those local administrations are hit by the reality that private developers have little to no appetite to buy land, one of the main ways that a local government raises funds.

Investment firm Nomura said it will be “very challenging” for China to hit the mark. The numbers for January and February have been lackluster. Beijing officials anticipate inflation of around 3.0% this year, which means nominal growth will need to run at 7.4% for 2024.

“Beijing should step up central government spending and encourage regions with relatively healthy balance sheets to increase spending as well,” the Nomura China economics team headed by Ting Lu wrote in a note to clients. The central government should expand quantitative easing, allow local governments to issue special bonds and refinance others to swap out hidden debt.

But the current budget leaves little room for such spending. What’s more, 12 Chinese provinces have been highlighted as high-risk, financially. The revenues of local government-managed funds, which last year raised 87.5% of their money from land sales, are budgeted to rise by only 0.1% this year.

“We believe this target is still overly optimistic,” the Nomura team noted, “considering the continued downward spiral of the property sector.” Those local-government funds saw revenues contract 10.1% in 2023, well below the target of 0.4% expansion.

In other words, all is not well, particularly at the local level. Beijing will need to figure out some way to turn around the loss of confidence in the property market, and in private developers in particular, which has led to a stalling of transactions as well as a negative wealth effect for property owners.

Premier’s Lower Profile

China has a history of hitting government forecasts, with most economists believing the data are “massaged” if the numbers don’t cooperate. But even Premier Li Qiang admits it is a lofty goal for 2024.

“It is not easy for us to realize these targets,” Premier Li said in delivering the forecast as part of the government work report to nearly 3,000 delegates in the Great Hall of the People in Beijing. “We need policy support and joint effort on all fronts.”

China’s legislature is holding its annual “Two Sessions” meetings this week, with the legislative National People’s Congress taking place alongside the advisory Chinese People’s Political Consultative Conference. The work report calls for the creation of 12 million jobs in urban areas, the highest target ever set, and maintaining the urban jobless rate at around 5.5%, although there were no specifics on how to achieve either goal. Defense spending will rise 7.2%, the same increase as last year.

For the first time since 1993, Li did not hold a news conference after delivering his speech. That downgraded the profile of China’s No. 2 official, with Premier Li also technically the highest-ranked civil servant in China. Beijing said Li will not give such a briefing during his five-year term, barring “special circumstances.”

No. 1 on all fronts, of course, is Chinese President Xi Jinping. Xi, who is also general secretary of the Chinese Communist Party, and he is calling on the legislature to develop “new quality productive forces,” according to the official wire service Xinhua. These high-tech initiatives should help upgrade traditional sectors to “high-end, intelligent and green industries,” although Xi said it is “necessary to prevent a headlong rush into projects and the formation of industry bubbles.”

It was Xi’s clarion call that “Houses are for living in, not for speculation” in 2019 that led to strict measures on credit levels for Chinese developers that were laid out in August 2020. With the property market now in free-fall, that phrase was omitted from the government work report for the first time since its 2019 inclusion.

Otherwise, there were pretty pictures painted of plans to boost growth, but no major structural reforms and no injection of stimulus. The Beijing government left its inflation target at 3%, same as every year in the last decade bar Covid-infected 2020, and left monetary and fiscal policy largely unchanged.

Investors are clearly disappointed by the lack of overt stimulus and market support. One economist called it a “target without a plan,” given the absence of moves to bolster consumption, turn falling wages around and address the deflationary period that China first entered as of last summer.

We can see the reaction most clearly in the Hong Kong market. The benchmark Hang Seng Index led the losses in Asia on Tuesday as the target was announced, with the Hong Kong market off 2.6% to a two-week low. Similarly, the Hang Seng China Enterprises Index of Hong Kong-listed mainland companies fell 2.6% and the Hang Seng Mainland Properties Index of Chinese developers fell 2.4%.

We also can see how the Beijing government would like to order the stock market to rise back up. Trading on Tuesday in mainland markets was masked by buying from state-owned funds, causing the CSI 300 blue-chip index of the largest listings in Shanghai and Shenzhen to rise 0.7%.

State-Supported Rally Doesn’t Last

But that’s window dressing directed by mainland administrators to make the government look good. It can’t and won’t last. The CSI 300 sank 0.4% on Wednesday with the state support removed. The Hang Seng, meanwhile, clawed back 1.7% on Wednesday on a day most Asian markets moved higher.

I was joking with an East Asia-focused fund manager that I’m waiting for Beijing to declare that from now on it only will allow investors to buy shares and never sell. The market would crash as everyone heads for the exits as fast as possible before such a new rule is imposed. While that’s a joke, I’m sure Beijing officials have considered something similar.

Chinese officials last month moved to curtail the ability to short stocks and to prevent quant funds from trading large volumes of stock that might disrupt markets. One prominent fund was barred from trading for three days for so-called “disorderly” trading. Securities regulators also told major institutional investors not to reduce equity holdings at the open and at the close of each trading day – effectively, a partial selling ban.

Economists, meanwhile, still forecast that China will miss its growth mark, with the World Bank forecasting growth of 4.5% for the mainland economy in 2024 and the International Monetary Fund predicting 4.6%.

India Passes China for World’s Largest Population

April 20, 2023 By alexfrewmcmillan in Asia, Business, China, Demographics, Geopolitics, India, Investment, Politics, Population Tags: Apple, China, Contraception, Demographics, Family planning, India, Migration, One-child policy, Population, Retail, United Nations, Women's rights 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.

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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.

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

May 24, 2022 By alexfrewmcmillan 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: Trans-Pacific Partnership 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.

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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 alexfrewmcmillan in Asia, Australia, Business, China, Communist Party, Geopolitics, India, Indo-Pacific Economic Framework, Investment, Japan, Politics, Quad, South Korea, Stock market, United States Tags: Australia, Donald Trump, Fumio Kishida, Geopolitics, India, Indo-Pacific Economic Framework, Japan, Joe Biden, NATO, politics, Quad, Samsung Electronics, Solomon Islands, South Korea, Trans-Pacific Partnership, U.S. President, United States, Yoon Suk-yeol 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.

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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.

China Sets ‘Highly Challenging Target’ for Economy

March 7, 2022 By alexfrewmcmillan in China, Communist Party, Coronavirus, Covid-19, Investment, Politics, Real Estate, Stock market Tags: 20th Party Congress, CCP, China, Chinese Communist Party, CSI 300, economy, growth forecast, Hang Seng, Li Keqiang, National People's Congress, Stock market, Topix, Xi Jinping Leave a comment

Premier Li Keqiang stresses stability and the importance of 100 million ‘market entities,’ even as Beijing keeps up its regulatory assault on the private sector.

China will target growth of 5.5% in 2022, at the high end of expectations but still far off the double-digit pace we’d grown used to, as the Middle Kingdom grew to become the world’s second-largest economy.

Premier Li Keqiang delivered a forecast of GDP growth of “around 5.5%” while giving his annual work report to the National People’s Congress, the Chinese Communist Party’s yearly agenda-setting meeting for the country’s economy.

“This is a highly challenging target,” Société Générale economists Wei Yao and Michelle Lam say in a research note. It is an acceleration from the two-year compound growth 5.1% rate established in 2021, and there are plenty of headwinds blowing against the Chinese economy.

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Top of the list: China still has a “zero-Covid” policy that requires a disruptive snap local lockdown wherever cases break out. It’s hardly a realistic approach in the face of the hyperinfectious Omicron variant. A leading Chinese virus expert has hinted at a change in approach, as I mentioned on Friday, with the potential for China to move toward “Chinese-style coexistence with the virus,” whatever that means.

It’s vague language that allows the Chinese Communist Party to carve out any old “live with Covid” strategy that it likes, explaining away any aberrations by saying they’re necessary in China. It would be a face-saving step designed to discourage too many people from asking why such harsh lockdowns were ever necessary.

But the CCP has so far struck a fine balance by avoiding an overload of the Chinese healthcare system, which is not strong outside the major cities, while permitting much of daily life to return to normal. This has been achieved by barring nearly all overseas travel. The number of Chinese passports issued in the first half of last year was just 2% of the number issued in the first half of 2019.

China set a growth target of “over 6%” for 2021, and official growth came in at 8.1%. Given the wild swings in the economy produced by the pandemic, China also cites the 5.1% average compound annual growth rate over 2020 and 2021, combined.

Li, speaking to around 3,000 delegates in the Great Hall of the People on Saturday, laid out the lowest growth target since 1991. He acknowledges that China “could face more difficulties and challenges this year,” and pledges that China will issue C¥2.5 trillion (US$396 billion) in tax refunds in 2022, in support of the private sector.

President Xi Jinping directed a series of regulatory crackdowns over the course of the last 18 months, in particular targeting Big Tech but also highlighting the “disorderly expansion of capital.” Quite what the “orderly expansion of capital” looks like is unclear; the criticism, part of the overarching “Xi Jinping Thought” that’s now codified in the Chinese Communist Party charter, gives license for the party to curb the power of the private sector, and take down a notch both Chinese “unicorn” companies and its billionaire entrepreneurs.

Meetings like the NPC owe a lot to the Marxist-Leninist roots of the Chinese Communist Party, and the “five-year plan” style of a command economy. Li praised the work of “market entities, over 100 million in number,” for having responded “with fortitude and resilience” to the shocks of the last year. “Employment is pivotal to people’s well-being,” he continued, suggesting the party is not at this time in a position to push its difficult overhaul of its inefficient, bloated state-owned enterprises. “Our efforts to keep market entities afloat are aimed at maintaining stable employment and meeting basic living needs.”

China is resisting direct stimulus from the government to support the economy as it slows, and Li said the government will target a fiscal deficit of 2.8% of GDP this year, down from 3.2% in 2021. But economists believe Beijing will continue to roll out dovish policies this year, and is even warming to the property sector, where prices have gone into reverse. It kept its inflation target at “around 3%,” and the forecast for land sales stays flat, an optimistic call given that many parcels of land are going unbought due to the financial deleveraging forced on developers.

The SocGen team calculate that the measures announced at this meeting equate to fiscal stimulus of around 3% of GDP. That’s one percentage point larger than the economists expected. Li frequently stressed “stability,” and he repeated the Communist Party’s clarion call that “housing is for living, not for speculation,” suggesting it will pull support once again if home prices start to rise.

It is not yet therefore time to consider buying the beaten-down shares of Chinese developers. Li warned that “land prices, home prices and general housing market’s expectations should be stabilized,” with affordable housing and an expansion of the rental-housing stock high on his list of priorities. Nomura says the overall impression, coupled with no mention of imposing a property tax, is that policy has turned “slightly friendly” toward the beleaguered property sector.

The NPC, coming on the heels of the closing ceremony for the Beijing Winter Olympics on February 24, marks the second major marker for the Chinese government this year. It is building toward the 20^th Party Congress, likely in November, the latest installment of a key leadership overhaul that’s held once every five years. At this Party Congress, Xi will be seeking an unprecedented third term as president, having pushed through a change in the constitution that will allow him to run again. He will surely be unopposed but must still muster the support of the party. Xi wants to be able to declare victory over the coronavirus and point to solid steering of the economy.

Li did not mention the Russian invasion of Ukraine, but the geopolitical distress haunts this year’s proceedings. China is staying largely silent, not wishing to criticize its ally, Russia, but is therefore giving tacit support of the war. It is attempting to cast itself in the role of peacemaker, but it may find it hard to push Russian President Vladimir Putin to the negotiating table at a time he appears recalcitrant. Putin is insisting on the “demilitarization” of Ukraine, but China – whose officials stress over and over again the importance of national boundaries and “sovereignty” – has done nothing to criticize the clear violation of Ukraine’s borders.

Chinese shares are dropping today in synch with other Asian markets. The CSI 300 of the largest companies in Shanghai and Shenzhen ended down 3.2%. As is usual when there’s selling in this downturn, Hong Kong has fared worse than most, with the Hang Seng lurching 3.7% lower.

It’s another heavy day of selling on Asian markets on Monday, with the Topix in Japan closing down 2.8%, and all major indexes lower. The day began badly after oil shot up, with Brent crude up 8.9% at the time of writing, having risen briefly above US$130 per barrel. That hurts most Asian nations, which bar Malaysia all import large amounts of oil. The United States is leading the charge in figuring out how to restrict and sanction oil shipments out of Russia, the world’s third-largest oil exporter.

The Sensex in India is also down 2.7% at the time of writing. China and India bookend the United States as the three largest importers of oil in the world.

Indonesia is also a major oil extractor, although the former OPEC member is now a net importer of oil. Still, the production levels out of Southeast Asia are insulating those markets slightly on Monday. The Jakarta Composite Index were down 0.8%, Singapore stocks were 1.0% lower an hour before the close, and Malaysian equities were off 2.3%.

Will Asia Catch Back Up in 2022?

January 4, 2022 By alexfrewmcmillan in Asia, Australia, China, Communist Party, Coronavirus, Covid-19, Geopolitics, Hong Kong, Investment, Politics, Real Estate, Stock market Tags: "Live with Covid", "Zero Covid", 2022 lookahead, 2022 preview, 20th National Congress, Alibaba, Alibaba Group Holding, Asia, Australia, Beijing Olympics, China, China Evergrande Group, Chinese Communist Party, Chinese developers, Didi Global, Hang Seng Index, Hong Kong, India, IPO, KOSPI, Living with Covid, Nifty 50, Sensex index, Singapore, South Korea, Stock market forecast 2022, Stock market performance, Straits Times Index, TAIEX index, Taiwan, Winter Olympics Leave a comment

For Asia, 2021 was tease. It was a year that often promised something better, only to deliver everything worse. It’s hard to escape the feeling at the end of the year that we are back in much the same position as when it began.

This story originally appeared on Jan. 3, 2021 on TheStreet.com and its subscription service Real Money. Click here for the original story.

Will 2022 see the Asia Pacific region finally escape its cycle of opening up, then locking down again? There were tentative attempts to welcome foreign visitors once again in countries like Thailand, Vietnam and Indonesia. That gave way to a hellish pattern of waves of virus washing over the region, with all the travel bans, curfews and stay-at-home orders that unfold in response. Asia’s production schedules and shipments have been heavily disrupted as a result.

China persists in its zero-Covid strategy, an ultimately impractical approach that is exported to Hong Kong as East Asia’s financial hub attempts to open the mainland borders. Anyone returning from overseas must spend three weeks in an expensive hotel. China will likely maintain its position at least until the “coronation” of President Xi Jinping for a third term. That will come in the power reshuffling confirmed during the weeklong 20^th National Congress, the latest in a series of once-every-five-years major meetings that is due to happen in October or November. March will see the growth target set at the annual National People’s Congress.

Before that, the Beijing winter Olympics will go ahead from February 4-20 in front of Chinese spectators, if all goes to plan. The winter events will make Beijing the first city to host both summer and winter games. But the political undercurrents are strong. The Olympics will go ahead minus diplomatic delegations from the United States, United Kingdom, Canada and Australia, in protest of the human-rights violations in China’s westernmost Xinjiang province, and the death of civic society here in Hong Kong. China says those politicians weren’t invited in the first place…

Other governments in the Asia Pacific region, led in this regard by Singapore, Australia and New Zealand, appear willing to try something other than “zero Covid.” Ratchet up the vaccine rate, do your best to protect and triple-jab the vulnerable, and learn to “live with Covid.” This seems the sensible approach.

When you look at the 26.9% gain for the S&P 500 in 2021, the 21.0% gains for the Eurozone stocks in the Euro Stoxx 50 index, and the 14.3% advance in London’s FTSE 100 index, it has been a disappointing year for Asian equities. There’s scope for them to gain ground in relative terms.

The S&P Asia Pacific Broad Market Index, which tracks developed markets in Asia, posted a loss for 2021, down 0.6%. But that was a better showing than the S&P Asia Pacific Emerging BMI, which netted a 2.3% decline for the year. China-linked plays had a torrid time.

There were solid gains for the Tokyo market, with the broad Topix index up 10.4% for the year. But it was a tougher time for export-oriented companies, as reflected in the poorer 4.9% showing for the Nikkei 225, which tracks big-caps and multinationals. Those kinds of companies should benefit in the year ahead from a weaker yen, as the Fed boosts the dollar by raising rates.

I’ve indicated before that the Japan market will be a safe haven in 2022. We can be certain that the central Bank of Japan will maintain its exceedingly easy monetary policy, with Japanese interest rates still negative at -0.10%. Inflation is not a concern, as yet, in Japan – in fact, it is desirable. The central bank and the government have struggled to achieve a 2% inflation target since setting that as a goal way back in 2013.

The Japanese economy should post strong (for it) growth of 3.2% in 2022, according to IMF estimates, up from 2.4% last year. It’s a similar pace of growth as you’d find in South Korea, Taiwan and Singapore, all typically more dynamic in recovery mode. Underpinning it all, the Japanese government under new Prime Minister Fumio Kishida passed a record US$490 billion stimulus spending package in November, bucking the trend toward tapering in other developed markets.

Value Partners, the Hong Kong-based asset manager, indicates that “investor sentiment towards Japan remains weak, and needs time to pick up,” it states in its 2022 market outlook. “Corporate earnings will likely continue to recover and we view that Japan will be one of the very few countries that will continue to have earnings upgrades.”

Australian stocks also delivered steady if not stellar performance, with the S&P/ASX 200 index up 13.0%. “With pent-up demand following Q3 lockdowns, a high vaccination rate, elevated confidence and rebounding mobility, the stage is set for a strong six months” in Australia, Nomura predicts in its global economic outlook for 2022.

Singapore’s Straits Times index didn’t quite post double-digit gains, up 9.8% in 2021. Like Australia, Singapore is now exceptionally poised having vaccinated the vast majority of its populace. The jobs market is improving, while the strength of high-end manufacturing and pharmaceuticals should stand the city-state in good stead for the year ahead. It’s a likely outperformer.

The problems with supply chains globally hurt South Korea, where the Kospi advanced only 3.6% all year. Despite the heavy influence of semiconductor producers on the Seoul market, electronics- and tech-related exporters did not experience the stellar kind of year they had in 2020, when the world couldn’t get enough gadgets to keep people company in lockdown.

Korea will have presidential elections in March, which add an element of uncertainty to the market. The central Bank of Korea also became the first in Asia to raise rates back in August, did so again in November, and will likely continue to tighten throughout 2022 to combat rising prices and home-price inflation. Rates may rise to 1.5% by the end of the year. That makes it a hard market to like for now, with South Korea’s highly indebted population sure to struggle under straightened circumstances. There’s pressure on the Seoul home market, where prices have doubled in the last five years.

The strongest showing in Asia came in India, where the Sensex posted a 21.7% gain for 2021, with the Nifty 50 up 23.8%. In fact, it’s been a very strong showing by the Mumbai market since the original depths of the first wave of Covid back in March 2020. The Indian market has more than doubled since then, with the Sensex up 111.1%.

That’s come on the back of breakneck growth, the world’s strongest major economy with a pace of 9.5% in 2021, likely to moderate to 8.5% in 2022. Reflecting that slowdown, Indian equities have flagged since mid-October, down 5.7% in the last 10 weeks of the year, so there’s no surging strength to carry them into the new year.

“While India enjoys a long-term secular bull market with expanding new-economy sectors, and is still in the upward profit cycle, we are cautious as valuations are at extreme levels versus the rest of Asia,” Value Partners notes.

Taiwan also outperformed as a market, a rare year when it did not move in lockstep with South Korea. The Taiex index added 23.7%, with electronics makers booking strong orders. Taiwanese companies also benefitted from sanctions and restrictions on some mainland Chinese manufacturers. In Taipei, retail traders became very active in the market, and have not been hampered by the higher rates seen in Korea. The Taiwanese central bank may start to raise rates next year, which could stem the tide of retail flows.

There was a narrow 0.2% loss in the Philippines, where the process of vaccinating 110 million people across 7,000 islands proving exceptionally difficult. The task is even more trying in the world’s largest archipelago, Indonesia, with the world’s fourth-largest population of 274 million people spread across 17,000 islands.

The commodities boom and increased digitalization of the Indonesian economy drove the Jakarta market up 10.1% in 2021. Vaccination rates and the success of “back to normal” business will dictate the future direction of equities in both island nations this year.

More than anything, 2021 became the year that the full vulnerability of investors in China was exposed. A series of sudden, overnight regulatory actions made it eminently clear that the Chinese Communist Party puts its own interests and its diktats over the Chinese people far above any common capitalist concerns about investor protection.

First, the for-profit tutoring industry was essentially banned. Then young people were restricted to at most three hours of videogame playing over the weekend. Next came an assault on Big Tech, with all China’s largest tech companies called in for a dressing down, and ordered to change their ways. Most recently, the country has started revising its securities laws to restrict how and where Chinese companies can go public.

Caught in the crossfire were the poor investors who bought into the “China story,” such as those who subscribed to the international offering of DiDi Global, the Chinese ride-haling market leader. Its business should be a huge growth market – scratch that, it is a huge growth market. But DiDi ran afoul of rules that didn’t exist, fulfilling the requirements of securities regulators for a foreign listing but failing to appease the newly-powerful, previously obscure cyberspace-security review office.

DiDi saw its apps stripped from Chinese app stores, and was barred from signing up new customers. That tanked its business, with the company last week posting a US$6.3 billion loss for the first nine months of the year. And it tanked its stock, an immediate descent days after its June 30 listing that leaves it down 64.8% as of the end of the year.

So it was Chinese and Hong Kong stocks that saw the most-pessimistic mood all year. The CSI 300 index of the largest stocks in Shanghai and Shenzhen fell 5.2% over the course of 2021.

Life was even worse here in Hong Kong, where the much-hated National Security Law continues to be used to pound pro-democracy activity, and anyone deemed “anti-patriotic.” The benchmark, the Hang Seng index, plunged 14.1% over the last 12 months.

Hong Kong’s mix of overseas-inclined Chinese companies, in particular those that also have U.S. listings, drew it down. The city also has a hefty influence from Chinese property developers. Many of those are in or on the brink of default, led by China Evergrande Group, which lost virtually all its value, down 88.8% over the last 12 months.

Hong Kong has been my home for the last 20 years, but it’s terrible to see it suffer so. We are walled in by excessive quarantine, treated to an East Germany-style police state, and are losing the international attractiveness that a once-free city has surrendered.

In Beijing, there is no sign that Chinese regulators will ease up their pressure on overleveraged developers. President Xi has cast scorn on investor-owners, repeating his insistence that “Houses are for living in, not for speculation.” This flies in the face of conventional wisdom, where the incredible unpredictability of the stock market leads anyone with any money to look to invest it in property, first and foremost.

Not that consolidation will be a bad thing in the long run in the property industry. There are too many Chinese developers, 103,262 of them as of 2020, the last count by Statista, a number that grew 21.1% in a decade. Fly-by-night behavior and overborrowing to fund rapid development drove land prices sky high, and homes in the biggest cities are the domain only of the wealthy.

But it is a painful correction as the model is disrupted of pre-selling flats off plan, then racing through development to the next project. Local and provincial governments have based their budgets on aggressive land sales projections, too, so there’s desperation at that level and reports of deep wage cuts among local Communist Party officials.

I don’t see any way to recommend Chinese stocks in 2022, except as a completely contrarian or bottom-feeding play. They are too unpredictable at this stage. Someone is going to make a lot of money when Alibaba Group Holding rebounds. It’s an extremely profitable company that saw its share price fall 47.8% in 2021 in a move that had nothing to do with its fundamentals. But a bet on the company is essentially a bet on what kinds of regulations the Chinese government will implement, without warning. It is not your conventional rebound story.

If you know what social changes Beijing is going to push next, and which companies it will target, perhaps you can make that kind of call. If not, there are better places to invest your money where you can be sure your ownership is valued, protected, and means something.

Australia Reportedly Faces Secret Trade Ban by China

November 10, 2020 By alexfrewmcmillan in Asia, Australia, Business, China, Communist Party, Coronavirus, Covid-19, Politics, Stock market Tags: ASIO, Australia, China, Coal, Commodities, Copper, Lobster, politics, Sanctions, Stock market, Tariffs, Trade 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 14^th 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.

Chinese Investors Doubt Trump’s Talk Over Virus ‘Proof’

May 7, 2020 By alexfrewmcmillan in Asia, China, Communist Party, Coronavirus, Covid-19, Geopolitics, Investment, Politics, Science, Stock market Tags: biosafety level 4, BSL-4, China, Chinese stocks, Conspiracy theory, coronavirus, Covid-19, CSI 300, Donald Trump, Harbin, Mike Pompeo, Snopes.com, Wuhan, Wuhan Institute of Virology Leave a comment

It seems Chinese investors have called President Trump’s bluff.

Markets in Shanghai and Shenzhen resumed trade on Wednesday with early losses, after a five-day long weekend. That was the first time for investors to respond to renewed hostilities that again threaten China-U.S. trade.

But Chinese shares ended the day with modest gains. The CSI 300 blue-chip index rose 0.6%. Chinese punters are paying more attention to the likelihood of Chinese stimulus. The Communist Party is keen to keep its citizens happy ahead of its major political meeting now due to start on May 22. The central People’s Bank of China also appeased U.S. hawks by setting the Chinese yuan at a neutral rate, at 7.07 to the U.S. dollar.

At this stage, Trump’s attacks amount to hot air. In Chinese, we call it “blowing water,” or chit chat, idle talk.

Trump last Thursday threatened China with new tariffs. This week, U.S. Treasury Secretary Steve Mnuchin warned of “very significant consequences” if China doesn’t follow through on commitments to buy U.S. goods made in its “Phase 1” trade deal with the U.S. Those are worrying sounds here in Hong Kong, bashed last year by trade war winds.

On Tuesday, Trump said the U.S. is ready to dish the dirt about how a Chinese lab mishap led to Covid-19 cursing the world. He earlier told a reporter he has seen evidence that gives him a high degree of confidence that the virus originated from a Wuhan lab. But when asked what the evidence is, he said “I can’t tell you that. I’m not allowed to tell you that.”

Trump now says the U.S. will issue a full report on the origins of the virus. “We will be reporting very definitively over a period of time,” Trump said on Tuesday.

Trump has yet to prove that he is not propagating yet another conspiracy theory when he claims that the SARS-CoV-2 coronavirus leaked from the Wuhan Institute of Virology, China’s first biosafety level 4 lab. Numerous scientists have stepped forward to say the DNA indicates the virus is of natural origin, not man-made.

There are plenty of people here in Hong Kong who believe the lab theory too, without a shred of evidence. I’m sorry, but when U.S. Secretary of State Mike Pompeo says he has “enormous evidence” that Chinese lab technicians messed up, show us the proof. Otherwise keep quiet until you are ready to do so. It’s not just hot water, it’s irresponsibly vague.

For the rest of this story, check out Real Money on TheStreet.com.

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

March 20, 2020 By alexfrewmcmillan in Asia, Australia, Business, China, Communist Party, India, Investment, Politics, Stock market Tags: Asia, ASX 200, Australia, Banking, China, coronavirus, Covid-19, economy, Equities, Finance, GDP, Hang Seng, Hong Kong, India, Investment, Jobless rate, Manufacturing, Retail, Retail sales, S&P, S&P 500, Sensex, Stock market, stocks, Unemployment 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 alexfrewmcmillan in Asia, Business, China, Communist Party, Geopolitics, Investment, Politics Tags: Asia, CCP, China, Chinese, Chinese Communist Party, Chinese virus, Communist Party, coronavirus, Covid-19, economy, Equities, GDP, Hong Kong, Industrial output, Industry, Inflation, Investment, Jobless rate, Manufacturing, Retail, Retail sales, SARS, Stock market, stocks, Unemployment, Virus, Wuhan, Wuhan virus 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%.

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