By Bilal Hafeez 13-09-2019
In: top-picks, China & Hong Kong

Top Picks: China

3rd December

China is facing classic developing market issues; transitioning to a service-based economy and problems to protect IP.

China Issues Guideline for High-Quality Trade Development ( The Chinese government looks to shift its trade towards services and implement more environmentally friendly policies for industrial production. [Bullish China]

China Bids to Lead World Agency Protecting Intellectual Property (Foreign Policy) China is attempting to lead the World International Property Organization (WIPO) – the UN agency responsible for maintaining standards and protecting IP. Part of the reason for this is that China has more of its own IP, which it wants to protect globally. But the US is naturally pushing back on China’s bid to lead WIPO. [Bearish Equities]

26th November

China cannot escape its structural drags. Policymakers are trying to mitigate the impact of an aging population. China will soon become a trade deficit country, which has implications for global bonds. And we can’t forget the festering issue of HK unrest which could end up restricting Chinese access to foreign capital.

Why Has China’s Trade Surplus (Just About) Gone Away? (Conversable economist) Timothy Taylor reviews IMF forecasts that China will run small trade deficits rather than surpluses in coming years. The three compelling factors for this are a services deficit (partly due to tourism), greater domestic consumption and an incomes deficit on net foreign assets. [Bearish US bonds]

China’s Desire to Control Hong Kong Will Not End Well – for China, Hong Kong or the Rest of the World (George Magnus) Hong Kong is China’s bridgehead to the international capital market and vice versa. A further deterioration in the Hong Kong situation may lead to financial sanctions against China, which could backfire. [Bearish HK, bearish China]

China Unveils Plan for Tackling Population Aging (Xinhua net) Chinese government has unveiled a medium- and long-term framework for tackling China’s aging population by 2022. Measures include reforming income distribution, steadily raising pension reserves, and increasing medical and nursing care for the elderly. [Bullish Chinese Health Care]

19th November

You can’t get away from the credit problems of China. Small banks are suffering, and policymakers are struggling with financial stability.

Upbeat Outlook from Chinese Banks’ Profits Masks Growing Problems for Small Banks ( Higher balance of local government bonds and lower funding costs help smaller Chinese banks with their performances, but small banks still lack competitive advantage in attracting savings. [Bearish China small banks]

The Afterlife of Marx’s Footnote on Chinese Currency (Andrew Batson) The only Chinese monetary thinker cited in Das Kapital, Wang Maoyin,was an advocate of market independence. Beijing’s approach today over this subject matter seems to deviate from this path.

As The 2020s Dawn, China’s Search for Financial Stability Isn’t Getting Easier (George Magnus) Underperformances of smaller banks and lenders, an acceleration in the amount of foreign debt and an increasingly large amount of under-reported, non-performing loans are giving China a headache over its financial stability problems. [Bearish china credit]

12th November

Facing slowing economic growth, Chinese President Xi Jinping is willing to offer some concessions in the short-term to limit the trade war damage – it seems as though both sides have notes how harmful it all is. China is now also seeking partners elsewhere and hopes to grow warmer to Russia before Europe does.

How The iPhone Widens The US Trade Deficit With China (VOX) The iPhone case unambiguously demonstrates that conventional trade statistics significantly inflate China’s trade imbalance with the US. Importing one iPhone X from China generates a $330 trade deficit for the US. [Bullish CNY]

Masayoshi Amamiya: Japan’s Experience and Its Implications For China – Monetary Policy And Financial System(BIS) Japan has already “been there, done that” when it comes to issues facing China – aging population, slowdown, struggle with policy. As the economic and financial ties between the two countries grow stronger, there are increasing opportunities for the two central banks to cooperate e.g. last year they signed a currency swap agreement.

China’s Growing Presence on The Russian Market and What It Means For The European Union ( Europe and China are competing against each other to become Russia’s biggest trading partner. However, Europe has competitive advantages in certain sectors that China aims at. [Bullish Russia]

All the International Brands That Have Apologized To China (Sup China) Sup China drafts a list of high-profile brands that have given in under the Chinese governmental pressure after stepping over the “red lines” of certain sensitive issues.

2nd November

Last week we looked at China’s growing laundry list of troubles. This week has been big for the CCP, and its Fourth Plenum is sending out mixed signals regarding the changes in the power structure within the Party. These changes are going to affect China’s next steps in addressing its urgent diplomatic and economic concerns.

Has Xi Jinping’s War Countdown Begun? (Project 2049/Taipei Times) Taiwan’s military defences and diplomatic outlets are heavily outsized by mainland China’s. Regional expert Ian Easton describes how recent changes in China’s military structure could foreshadow a conflict with Taiwan. [Bearish Taiwan markets]

Xi’s in Charge: What the Fourth Plenum Tells Us about Xi Jinping’s Hold on Power (CSIS) The CCP has recently initiated its Fourth Plenum of the Nineteenth Party Congress. The convention focuses primarily on strengthening CCP capacity and governance. Notably, it has a specific session on ‘Xi Jinping Thought’, showing the president’s firm grip on power. [Bullish Chinese SOEs]

26th October

China’s laundry list of issues continues as the Government is searching for new ways to revive the slowing economy and protect investors and companies against a US large-scale backlash. We look at their plan to double spending on infrastructure. At the same time, the rich Chinese are becoming richer and hoping to surpass their American peers.

China’s Growth Much Worse Than Reported, What About the US? (Money Maven)Argues that the Chinese economy is doing worse than might be currently portrayed. Desperate to avoid a slowdown, the Chinese government is launching 770bn yuan infra projects to boost the economy, double that of last year. Bullish near-term Chinese growth and hence stocks

Locking China Out of the Dollar System (Project Syndicate) Given the dominance of the dollar, a US restriction on capital flows have more far-reaching effects than any trade tariff. Trump is reportedly considering restrictions on US portfolio flows into China, including a ban on US pension funds from investing in China and delisting Chinese firms from US stock exchanges. Capital controls are coming to the US – could hurt dollar.  

There Are More Wealthy Chinese than Americans for the First Time (CNN) The average American is still much richer than their Chinese counterparts and China still has only a quarter of the millionaire count of the US, but it’s rising up the charts quickly. Now there are more rich Chinese than Americans in the top 10%.

19th October

They say bad things come in bundles – in the case of China it rings true. Their economic growth sank to a 26-year low in the latest quarter amid pressure from a trade war with Washington and weaker consumer demand. We feature two pieces looking at the recent NBA controversy which is now grabbing attention.

China Has Begun to Shape and Manage the US, Not the Other Way Around (The Atlantic) US thought it could change China, but recent NBA controversy suggests China could be changing the US. I’ve been thinking that Western countries are more and more trying to copy the China political model.

Corporate Subservience to China Exposes the Hypocrisy of Woke Capitalism (Quillette) Lists other cases, apart from the NBA, where companies espouse liberal values but caved with China.

12th October

Controversies around Hong Kong remain, and we look at how the recent undertaking of the NBA is a wider warning sign to the rest of the World. China is often scrutinised as benefitting of a developing country status so we explore the potential of change.

China Bends Another American Institution to Its Will (The Atlantic) By taking on the wildly popular NBA, and especially the even more popular Rockets, China’s leader, Xi Jinping, is blowing a whistle on companies and countries around the world that he can easily be destructive using no weapons.

Myth Busted: China’s Status as a Developing Country Gives it Few Benefits in the World Trade Organization (The Conversation) Donald Trump and Australian PM Scott Morrison argue that China is effectively a developed economy that receives unfair benefits by joining the WTO as a developing economy.

The China Cultural Clash (Stratechery) China’s boycott of the NBA is about more than the pro-Hong Kong tweet from the Houston Rocket manager Daryl Morey. The way that the Chinese government influences public opinions from social media apps and the Great Fire Wall is creating an even wider division between the country and the West.

With the US and China, Two Types of Capitalism Are Competing with Each Other (Stigler Center, University of Chicago Booth School of Business) Branko Milanovic’s new book argues against China’s view as a socialist state. The state-led authoritarian capitalism model has hugely contributed to China’s rapid economic growth in the past few decades, and China’s economic success undermines the West’s claim that capitalism and liberal democracy must be linked with one another.

4th October

HK troubles are poised to stay and only get worse and China is now blaming Washington for their involvement. As CCP are celebrating their 70th birthday, we look at how they are slowly losing their dominating grip.

Will the Trade Conflict Confound China’s Ambitions? (George Magnus/Carnegie-Tsinghua Center for Global Policy) The Chinese government and the CCP wished for a celebration for the republic’s 70th anniversary, but a number of pressing matters have cast clouds over their heads. The trade conflict with the US had much greater externalities than expected on a lagging Chinese economy, which had become increasingly integrated with the rest of the world. Finding a solution to the unrest in Hong Kong is proving another huge, hot potato.

China’s Impact on Global Financial Markets (NBER) Examines shifts in the structure of China’s capital outflows over the past decade, and how Chinese institutional investors had become the major channel of China’s foreign investment outflows. In contrast to the presumptions of many, these investors, in fact, overweigh sectors and regions where China has a comparative disadvantage.

People’s Republic of China Reaches Age 70 (Econospeak) Examined the PRC’s rapid socioeconomic and political transformation 70 years since its founding days. The CCP could be seen as a dynasty of modern age. But aside Hong Kong and now Taiwan, the expansion of power and influence across much of the world, especially through the Belt and Road initiative, may be running into limits.

How China Sees the Hong Kong Crisis (Foreign Affairs) Beijing has been acting fairly restraint towards the protests in Hong Kong. A firm belief is that the majority of Hong Kong elites and part of the Hong Kong public would be Beijing’s allies in solving the problem. Beijing also heavily criticise the US involvement in the matter, as it believed that Washington sought to inflame radical sentiments in Hong Kong.

China’s Hong Kong Problem (Project Syndicate) Chris Patten, the last British governor of Hong Kong heavily criticises the way China is handling the protests. Instead of undermining international trust with their behavior, they should affirm their intention to uphold China’s commitments under the Joint Declaration treaty and guarantee HK’s freedoms and high degree of local autonomy until 2047.

Hong Kong’s Protesters are Outfoxing Beijing Worldwide (The Atlantic) The key figures who lead the Hong Kong protests are now having the public opinion high ground on several international occasions – especially in the western world. They are better at utilising technology and social media to voice their opinions, have their cases heard by a much wider audience, and seek moral support.

28th September

China in the 2020s: A More Difficult Decade? (George Magnus) In-depth view on China and argues for a much weaker CNY that could end seeing the Chinese economy stay the same size relative to the US in dollar terms over the next 5-10 years.

The New Battle in Hong Kong Isn’t on the Streets; It’s in the Apps (MIT) Activists are using Airdrop, livestreams and maps to circumvent authorities.

Ownership Structure and the Cost of Debt: Evidence from the Chinese Corporate Bond Market (Bank of Finland) Finds state, institutional and foreign ownership reduce spreads.

Third Rehearsal for National Day Celebrations Concludes (Xinhua) About 300,000 people were involved in the rehearsal and related supporting services! 70th anniversary of the founding of the People’s Republic will be on Oct 1

Experts Dismantle the Ugly Political Plot that the United States will Manipulate the Hong Kong-related Bill (Xinhua, Chinese) Lengthy piece in Chinese featuring experts arguing against US Congress’ ‘Hong Kong Human Rights and Democracy’ Bill. The law would change US relations with HK in response to the protests. The article’s narrative is that the Bill is encouraging protests.

20th September

Some past allies of China are changing their tone, HK troubles could continue unless the democratic deficit is corrected. Plus, China is upping its propaganda AI game.

How Hong Kong Got to this Point (Brookings) Analyzes the “hybrid” nature of Hong Kong’s governmental and political structure. It also explains how the current procedure of electing Hong Kong Chief Executives caused civil discontent amongst Hong Kong residents.

Blackstone’s Schwarzman: China’s Economic ‘Miracle’ Came at the Expense of the US and the West (CNBC) Blackstone had string ties with China, so interesting change in tone.

Xi Stresses Integrated Media Development (Xinhua) Government wants “to boost integrated media development and amplify mainstream tone in public communication so as to consolidate the common theoretical foundation for all Party members and all the people to unite and work hard.” Hmm propaganda-AI?

13th September

Evaluating International Impacts of China-Specific Shocks in an Input-Output Framework (Bank of Finland) Thorough working paper that estimates impact of China slowdown or trade war on the growth of key countries. On growth, Korea, Australia and Germany are most sensitive.

We Can’t Secure 5G Networks by Banning Huawei Gear (Defense One) 5G network are based widely-distributed software-define digital routing and small-cell antennas. This means any part of the network, including Internet of Things (smart fridges) could be infiltrate the system. US government needs to partner with business on this – otherwise US networks will be vulnerable.

Is China Fudging Its GDP Figures? Evidence from Trading Partner Data (San Fran Fed) They find that using other countries import data (Fed’s so-called C-CAT index) can track Chinese growth. Over time, official Chinese GDP has become more accurate, but it still understates the volatility of growth.

A Requiem for “Blame It on Beijing” Interpreting Rotating Global Current Account Surpluses (Chinn and Ito) Argues that relative fiscal policies rather than the savings glut explain global imbalances

6th September

Can Presidents Block Investment in China? (Council on Foreign Relations, 4 min read). Apparently Trump could use International Emergency Economic Powers Act of 1977 (IEEPA) to prevent US companies from making future investments in China. He could also use it to make it harder to continue to do business in China.

China to Take Targeted Measures for Steady Economic Growth (State Council, 2 min read) Official announcement that RRR cuts are their way. Credit has been surprisingly lacking this year, so this could provide a boost. Bullish for risk markets.

The Background to HK Turmoil (Xinhua, 4 min read). The op-ed was written in Chinese and argues that unrest in HK was caused by the increase living expenses for HK residents, the inability to afford housing, lack of upward mobility and the inability of the local government to respond to requests from the public.

Hong Kong Leader Carrie Lam to Withdraw Extradition Bill That Sparked Protests (WSJ, 5 min read) Withdrawing the bill no longer the top priority among the “five demands” from the Hong Kong protesters – the top one is holding to account the police officers attacking protesters. Doubt this will ever happen!