Middle Kingdom Microscope (Grant’s Current Yield Podcast, 30 min listen)
The podcast features an interview of Carl Walter. He’s a veteran China watcher, having spent over twenty years in Beijing. He argues President Xi is engulfed by problems. These include the trade war with the US, Hong Kong unrest, an economy that is slowly plunging, a huge debt problem, and now a surge in illegal organ harvesting. Many in the region are concerned about the militarisation of the South China Sea, which breaks the 2016 agreement with President Obama. Walter highlights the failure of Baoshang Bank, which despite being small has $80 billion of assets in a banking sector of $40 trillion and is causing trouble throughout the interbank market (at 8 mins in). This reveals the fragility of the banking system. It is the biggest in the World, with total assets representing 47% of World GDP and a high concentration in the top four banks. Part of the challenge of watching China is the lack of information transparency. Walter argues that even the senior leadership of China has neither precise data nor an interest in knowing how the economy is performing. The system is increasingly based on telling the official story and showing loyalty.
Why does this matter? A stark reminder that all is not well in China, despite official rhetoric to the contrary. This suggests that under President Xi, China appears to be becoming more fragile.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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