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your-dietician · 3 years

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A Reckoning for the Chinese Economy

New Post has been published on https://tattlepress.com/economy/a-reckoning-for-the-chinese-economy/

A Reckoning for the Chinese Economy

Many observers look at China and see its leadership playing a masterful game. They see China refusing to bend its policies to fit global norms and successfully going its own way. The reality is that Beijing has tried to bend repeatedly under President Xi Jinping but has almost broken each time and has had to fall back on its old ways—which are not succeeding. The quantity and the quality of China’s growth (looking past the anomalies of the pandemic period) have both deteriorated. And unless the leadership of the Chinese Communist Party finds its way back to the path of economic liberalization, China’s future will look very different from the rosy picture the CCP paints.

The urgency of reform is a happy result of China’s rise to middle-income status from the extreme poverty it experienced just a few decades ago. It is nothing to be ashamed of. But the applause that China has earned for its economic successes will subside if Xi fails to tolerate policy debate and accept more constrained political ambitions that admit the limits of the CCP’s capabilities.

An honest assessment of recent setbacks suggests that time is running out. Investors and businesses in China and abroad, as well as other governments, have so far gone along with the pretense that China is either succeeding at reform or understandably choosing to defer it; few have been willing to conclude that China has tried to reform but failed. Xi may believe that he has another decade to tinker with the country’s economic model. Taking stock of the many major policy plans that the CCP has launched but then abandoned indicates otherwise: there are at most a few years to act before growth runs out. If China’s leaders wait until the last minute, it will be too late.

STUCK IN THE MIDDLE

In recent years, China hawks in the United States have asserted that they were right all along: China has not reformed and never intended to do so. Some have even suggested that the CCP has been deceiving Washington since 1972, when U.S. President Richard Nixon went to China and normalized relations with Beijing. China, according to this view, was merely feigning an appetite for liberalization. That is a misreading of China’s economic path. During the reform era ushered in by Deng Xiaoping in 1978, the party relaxed its control over economic forces such as inflation, internal capital flows, and unemployment. To stoke growth and innovation, Beijing let foreigners into strategically sensitive corners of the Chinese economy, such as telecommunications and aerospace. Sacred cows of communist ideology were sacrificed along the way. When Deng began the reform process, the state was setting almost all prices for goods and services; by the time China joined the World Trade Organization in 2001, all but a few prices were being set by market competition. In the 1990s, the CCP allowed more than 100,000 state-owned firms to close, resulting in more than 20 million layoffs. By 2020, the party had let foreigners build businesses in China worth $3 trillion, many of them in direct competition with Chinese incumbents.

As significant as these policy moves were, however, they were the easy part: they mostly required bureaucrats to simply get out of the way. Officials didn’t grow a market; they let a market grow out of a morass of government planning. Reduced state intervention and the dismantling of cross-border investment barriers, internal fees, and taxes transformed China’s economic trajectory. In the decades after 1978, annual GDP growth rates of 5.5 percent or less—typical for low-income countries—accelerated into the double digits, turning China into an economic juggernaut.

But by the time the global financial crisis hit in 2008, Beijing had picked all the low-hanging fruit. To ensure continued strong growth, the party needed to lean in, promoting good governance and fair competition and imposing hard constraints on wasteful investment—delivering on the challenges faced by any successful modern regulatory state. For the next four years, however, easy credit became Beijing’s main tool, and annual debt service costs catapulted from an estimated three trillion to eight trillion yuan. When Xi rose to the top of the CCP in 2012, growth had slowed to single digits, and the return on state investments in infrastructure was falling. This is what economists call “the middle-income trap”: once a country emerges from poverty, it becomes harder to deliver growth.

Xi came to power with a mandate to take charge.

Xi came to power with a mandate to take charge. From the start, he moved to consolidate his own authority, shrinking the Standing Committee of the Politburo from nine members to seven and personally chairing virtually all the important groups responsible for policymaking. As his point person on the economy, Xi chose Liu He, a well-known proponent of marketization. Xi set a high bar for reform, issuing a manifesto in 2013 known as the “60 Decisions.” He pledged to make the market “decisive” in guiding economic outcomes and to recast the role of the government in a manner that liberal Western economists would welcome: maintain macroeconomic stability, deliver public services, ensure fair competition and regulation, and address market failures. Xi was convinced by his economists that without bold action, China would face its own internal debt trap. If the party failed to transform the economy, Xi wrote during his first year in office, “we will find ourselves in a blind alley.”

Liu got to work. In the spring of 2013, policymakers set their sights on parts of the financial system that were swelling with risky liabilities. Banks were issuing short-term wealth management products at high interest rates and using the proceeds to invest in riskier long-term assets. The People’s Bank of China, the country’s central bank, decided to shock those banks into better behavior by cutting off their access to short-term funding. The move had massive unintended consequences: the banks were so surprised that they stopped lending immediately, causing short-term borrowing rates to rise from around two or three percent to between 20 and 30 percent. Chinese stock markets plummeted by more than ten percent as traders tried to access cash through any liquid asset available. The PBOC quickly backed down and restored short-term funding to banks. As the central bank had feared, however, this only invited more risk-taking. From 2013 to 2016, borrowing via the short-term money market quintupled, and there was an explosion of so-called shadow lending, with Chinese banks providing money to third-party institutions, which in turn sought higher returns by going through unregulated channels (such as offering margin loans for stock market speculation) and by lending to riskier borrowers.

TWO STEPS FORWARD, TWO STEPS BACK

This interbank market crisis was just the first sign of what has become a pattern during the Xi era: bold attempts at reform followed by retreats when those attempts trigger instability and upheaval. The pattern recurred in 2014, when Beijing took steps to make it easier for Chinese companies to invest abroad directly, a necessity if they were to graduate from manufacturing basic goods for export to running global businesses. And invest they did, with outward foreign direct investment rising from $73 billion in 2013 to a high of $216 billion in 2016. The explosion of outbound investment was far more significant than anyone had anticipated. Some of these investments earned China bragging rights as a global player—the acquisition by Anbang Insurance of the Waldorf Astoria, for example, and the financing of a venture with Carnival Cruise Lines by the China Investment Corporation, a sovereign wealth fund. But as these foreign assets piled up, China’s foreign exchange reserves, built up over years thanks to consistent trade surpluses, fell by almost a quarter (from nearly $4 trillion to below $3 trillion) as Chinese players sought dollars to invest abroad. By the end of 2016, the CCP, anxious over the rapid outflows, decided that reform could wait and reimposed capital controls. Outbound investment has been stagnant ever since.

Tax policy was another area in which Xi moved aggressively at first. In June 2014, the Politburo approved a national fiscal and tax reform plan that, among other things, called for the Finance Ministry, headed by Lou Jiwei, to rein in the borrowing and spending of local governments and to introduce property taxes. Those tasks were supposed to have been completed by 2016. Five years past that deadline, however, the ministry has made little progress; local government debt has actually increased since the reforms were initiated, and the now retired Lou has publicly warned about the fiscal risks looming over the system.

Knowing that government spending could not fuel growth forever, Xi’s team turned to the corporate sector. Xi pledged to reduce the overbearing role of the state and to make room for businesses to manage their commercial activity with less political interference. Pilot programs set out to empower independent directors to make decisions on strategy and leadership, paring back the role of CCP committees. Other reforms were supposed to clarify which industries were well suited to market competition and which required continued state control. Both of those efforts stalled, however, and since 2017, the party has retained its hold on all corporate affairs at state-related companies and has sought to increase its influence over private firms, including foreign ones.

When Xi came to power, the party also tried to unleash equity markets to ease the financing burden on state banks. The debt levels of local governments and state-owned enterprises were a constant worry, and the prospect of using equity-market listings to deleverage was irresistible. Beijing envied the dynamism of Western stock markets. In 2013, the government simplified the requirements for initial public offerings, and within a year, 48 IPOs had been completed and another 28 had been cleared by regulators. Officials also lifted restrictions on margin trading, and editorials in state-controlled newspapers encouraged people to pile into increasingly bubbly stocks. Soon, China saw the downside of its gambit. In June 2015, after official support for the unsustainable trend was called into question, the bubble burst: within a month, the market lost a third of its value. Today, despite a substantial expansion of the overall economy, the market remains 25 percent below its 2015 high.

UNINTENDED CONSEQUENCES

Banking was another area in which Xi hoped to make strides. In October 2015, the PBOC announced a long-awaited milestone: the full liberalization of interest rates on bank deposits and loans. Those rates had previously been set by the central bank with guidance from the State Council, the central government’s chief administrative authority. That system prevented banks from competing with one another for depositors and borrowers. Until the early 2010s, rates were fixed far lower than market conditions would have dictated, which meant households were effectively subsidizing state borrowers: depositors should have received higher rates on their savings, and borrowers should have paid higher lending rates. That had the effect of encouraging overinvestment by state-owned enterprises in industries that were already dogged by overcapacity and reducing household consumption.

To address these problems, the central bank permitted banks to compete by offering depositors interest rates up to 50 percent above official benchmark rates; the ceiling had previously been just ten percent. Soon after, the deposit rate cap was eliminated altogether—in principle. In practice, banking officials worried that smaller banks would create instability if they competed based on market forces, and so they maintained an informal rule that deposit rates should remain no more than 50 percent higher than the benchmark rate. Those training wheels remain in place today: interest rates have been nominally liberalized, but little has truly changed, and banks are still restricted in how they can compete for customers.

Another goal of Xi’s financial liberalization strategy was to secure the International Monetary Fund’s recognition of the yuan as a reserve currency worthy of inclusion in the basket of currencies on which the IMF bases its Special Drawing Rights (SDRs), a unit of account that central banks use to make transactions. The PBOC hoped that if the yuan had that status, it would encourage other central banks to purchase assets denominated in yuan, making China’s markets more attractive to foreign investors.

Chinese stock indices in Shanghai, China, June 2015

Aly Song / TPX Images of the Day / Reuters

The trouble, however, was that currencies in the SDR basket are supposed to be freely usable in international transactions and traded frequently. China’s capital controls made it hard to meet those criteria. To get around that stumbling block, Beijing claimed that there was in fact a liquid market for yuan—in Hong Kong, which maintains an offshore yuan market where currency rates can fluctuate more than in China itself. The problem with this workaround became clear when Beijing suddenly depreciated the yuan in August 2015 in an attempt to unify prices on the mainland and in Hong Kong. Alarming capital outflows resulted, facilitated by the very Hong Kong market that the PBOC had been promoting.

The IMF did eventually agree to add the yuan to the SDR basket in November 2015. At that point, China’s central bank backed away from liberalizing the Hong Kong currency market, squeezing the liquidity out of it and diminishing its role as a trading center. Six years later, the offshore pool of Hong Kong yuan remains small, the currency still accounts for only a limited share of international cross-border transactions and a modest proportion of global foreign exchange reserves, and China’s capital controls are still in place.

By the summer of 2016, Liu and the rest of the CCP leadership had grown weary of the risky lending activity that had led to the stock market bubble and the interbank market crisis. China’s financial system, they feared, was starting to look like that of the United States before the subprime crisis of 2007–8. So Beijing embarked on a deleveraging campaign to shrink the shadow banking system and reduce systemic financial risks. First, the central bank fixed short-term borrowing rates higher, which raised overall interest rates but did not significantly reduce credit volumes. Then, Beijing toughened regulatory rules to prevent banks from parking funds with third-party institutions in order to skirt regulations. As planned, the volume of new credit fell, but this had the effect of throttling the economy throughout 2018, because it turned out that borrowers from shadow banks were not only engaged in speculation but also investing in property development and local infrastructure. Once again, Beijing had to pull back, abandoning its aggressive deleveraging efforts and allowing credit to rise again, particularly for local governments.

The pattern of restoring central control after failed attempts to liberalize may be reaching its apex in one of the most important stories to come out of China in the past year: Beijing’s crackdown on financial technology firms. This has led to antitrust actions against the technology giants Alibaba and Tencent and the shelving of an initial public offering for Ant Group, an Alibaba subsidiary.

The applause that China has earned for its economic successes will subside if Xi fails to tolerate policy debate.

The CCP has presented these steps as pro-consumer reforms, which seems reasonable in a world where many other countries are looking to rein in their tech titans. But for Beijing, the moves mark the end of a crucial financial opening. In the early 2010s, these firms were given a free hand by party technocrats who hoped that financial innovations would force ossified state-owned banks to become more productive. This succeeded, at least in fits and starts: the new firms made the financial system work for previously underserved customers. But innovation also came with new risks, such as peer-to-peer lending platforms that offered high rates to depositors and even higher rates to borrowers. When many of the borrowers defaulted, investors protested, believing erroneously that the platforms were guaranteed by the government. In August 2018, thousands of people showed up in the heart of Beijing’s financial district to demand compensation. A regulatory crackdown on peer-to-peer lenders commenced, in a prelude to this year’s scrutiny of Ant Group. The crackdown has been successful in reducing financial risks, but it has also reversed the benefits of reform, as many low-income consumers now have fewer choices in accessing credit.

The pattern of macroeconomic policy in the Xi era is clear: each attempt at reform has produced a miniature crisis that has threatened to become a bigger one, prompting the CCP to revert to what it knows best—command and control. The official line, of course, is that there were no failures and that China is inexorably marching forward with Deng’s agenda of “reform and opening.” In a speech in December 2020, Xi boasted of having launched 2,485 reform plans, meeting the party’s targets on schedule. The next month, the official newspaper, the People’s Daily, concurred, saying that 336 high-priority reform goals had been “basically accomplished” and lauding “significant breakthroughs in comprehensively deepening reform.”

Privately, Chinese economists acknowledge that this is not the case. But they contend—not without merit—that the challenges afflicting market economic systems since the global financial crisis provide ample reason to proceed slowly. As Chinese Vice President Wang Qishan reportedly told then U.S. Treasury Secretary Henry Paulson in the midst of that crisis: “You were my teacher, but now here I am in my teacher’s domain, and look at your system, Hank. We aren’t sure we should be learning from you anymore.” During the Trump era, even the United States—long the world’s leading proponent of economic liberalization—seemed to call its free-market convictions into question.

But the real story is neither China’s reform success nor its reform hesitancy. Xi has tried but largely failed to push ahead with the agenda that Deng launched in 1978 and that Xi’s predecessors all sustained. The consequences of that failure are clear. Since Xi took control, total debt has risen from 225 percent of GDP to at least 276 percent. In 2012, it took six yuan of new credit to generate one yuan of growth; in 2020, it took almost ten. GDP growth slowed from around 9.6 percent in the pre-Xi years to below six percent in the months before the pandemic began. Wage growth and household income growth have also slowed. And whereas productivity growth—the ability to grow without needing to use more labor or resources—accounted for as much as half of China’s economic expansion in the 1990s and one-third in the following decade, today it is estimated to contribute just one percent of China’s six percent growth, or, by some calculations, nothing at all. All these data points signal a loss of economic dynamism.

HIGH STAKES

Why is it important to understand that Xi did not resist reform but instead failed at it? The reason is that when it comes to China’s prospects, perceptions matter. If investors, businesses, and other governments believe that Xi has spurned reform but that China can deliver growth without it, then they will endorse and invest in Beijing’s model. But if they understand that Xi has in fact attempted to liberalize but retreated to a low-productivity command-and-control economy, then they will hesitate, if not withdraw, and insist that Beijing do the hard work of policy reform before it can earn their trust.

Based on Xi’s own belief that without reform China will hit a dead end, a reckoning appears to be inevitable. The question is when it will arrive and whether Beijing will take the bold steps that every country that has escaped the middle-income trap has been forced to take. Skeptics of China’s continued progress have been wrong before, and they must explain what is different now to justify their bearishness. Three factors are most compelling. First, in recent years, interest on debt alone (never mind principal) has grown to double the value of annual GDP growth: this situation is causing bank failures, restructurings, and major defaults of state-owned enterprises. Second, for the first time since the mass starvations of the catastrophic Great Leap Forward, the working population is shrinking, which will result in a smaller labor force and fewer people buying property in China’s oversupplied housing market. And third, from 1978 to about 2015, the United States and other world powers went out of their way to engage with China and smooth its path to global opportunities. That is no longer the case, even if open-market democracies have not formed a consensus about the right stance to take on China going forward. In many ways, the tailwinds China enjoyed from global enthusiasm about its rise have become headwinds.

If Beijing cannot induce private firms to ramp up their investment and cannot persuade major economies to remain engaged with China, then the country’s clear economic outlook will cloud over. Xi-era reform efforts have already precipitated a series of minicrises, each one shrinking the space for trial and error in the future. The high-tech wizards whom the CCP was so recently celebrating as the heroes of a new digital future are now scurrying to prove their fealty to the party rather than pushing officials to allow them to compete and innovate more aggressively. With business and household debt levels already extremely high, China can scrape out perhaps two or three more years of economic stability by piling on further loans, as long as global capital flows and supply chains do not dry up. If firms and investors do pull back, or if China needs to raise interest rates more aggressively at home, a reckoning could happen much sooner.

Beijing has options to ease this transition, but it cannot avoid it. Unlike Japan when its asset bubble popped in 1991, China is not a mature, high-income nation. Growing rural incomes will make China stronger but will not produce trophy cities or high-tech machines. Xi’s “dual circulation” campaign envisions a revolution in consumer spending. That, too, is a possibility, provided Beijing shifts from supporting firms to forcing them to serve consumers. And by selling off state enterprises, China could raise trillions of dollars to retire debt, fund health care, and pay for carbon abatement, all while stoking healthy private competition. These and many other avenues to sustainable growth are available. But in each case, the party’s insistence that in “government, military, civilian, and academic; east, west, south, north, and center, the party leads everything” would have to be sacrificed—and to date, that has been a bridge too far.

At some point, China’s leaders must confront this tradeoff: sustainable economic efficiency and political omnipotence do not go hand in hand. Throughout history, leaders faced with this conundrum in China and elsewhere have tried to hide falling productivity to buy time and keep searching for a way to have it all. And indeed, a number of statistics have lately been made unavailable in China. Beijing will point to its record of exceptionalism, but if it were to find a way to maintain stability, state control, and economic dynamism all at once, it would be the first country in history to do so. In light of the muddled reform record of the Xi years, skepticism seems justified.

If China meets the fate of other middle-income nations that failed to reform their way out of declining productivity, the picture will darken. Asset prices for property and corporate bonds will fall significantly, causing political discontent as people see their wealth evaporate. With faltering confidence and too much riding on the credibility of government promises to ensure stability, new investment will dwindle, job creation will slow, and the tax and revenue base will shrink. All of this has already begun to happen, but Beijing will be forced to make much harder choices going forward.

That will mean a time of painful austerity for China and also for its partners abroad, who have come to count on China as a buyer of iron ore, a purveyor of development assistance, and a direct investor in startups and many other enterprises. This will have immense geopolitical consequences, as a recalibration of great-power competition takes place. Beijing could turn more belligerent in search of solutions. Conversely, it could return to the domestic development focus of prior years, reverting to Deng’s admonition to keep the party’s focus limited.

Economists are not well equipped to predict which grand political choices leaders will make. History does demonstrate, however, that every nation graduating to high-income status has gone through systemic crises, especially in banking. Those that accept the necessity of adjustment and jettison the fantasy of efficiency without reform come out more competitive. China has a strong legacy of embracing reform and adjustment, which has accounted for its rise. Reform is not a Western agenda being pushed on China: it is China’s modern birthright. After a decade of failed efforts to carry it out, Beijing is looking for an easier way. Xi must rediscover that reform is the hardest route, except for all the others.

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silviajburke · 7 years

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China Will Lose This Battle

This post China Will Lose This Battle appeared first on Daily Reckoning.

There are few true “laws” in economics. Most of the so-called economic laws are highly conditional and only apply in limited circumstances and for brief periods of time.

One of the few economic theories that comes close to being an ironclad law and has stood the test of time is the “Impossible Trinity.” The key to understanding it is the word “impossible.”

Right now China is falling victim to the Impossible Trinity.

China’s inevitable failure will result in a maxi-devaluation of the Chinese yuan (CNY) in the coming months, as I explain below.

The theory of the Impossible Trinity is that an open economy (meaning one that is open to trade and capital flows) cannot pursue three specific policies simultaneously.

The three policies that cannot be pursued at the same time are: an open capital account, a fixed exchange rate and an independent monetary policy.

The first part of the Impossible Trinity is an independent monetary policy.

This simply means that your central bank can set rates where they want without regard for what other central banks are doing.

The second part of the Impossible Trinity is the open capital account.

This refers to the ability of investors to get their money in and out of a country quickly and easily.

The third part of the Impossible Trinity is a fixed exchange rate.

This simply means that the value of your currency in relation to some other currency is pegged at a fixed rate.

An economy can attempt to pursue all three policies, but it is certain to fail sooner rather than later.

The only question is the exact timing of the failure and the particular policy that must be abandoned as a result.

The reason the Impossible Trinity is impossible is because of the difference in interest rates — in this case, the difference between Chinese and foreign interest rates.

Consider the case of a country — call it Freedonia — that wants to cut its interest rate from 3% to 2% to stimulate growth. At the same time, Freedonia’s main trading partner, Sylvania, has an interest rate of 3%.

Freedonia also keeps an open capital account (to encourage direct foreign investment).

Finally, Freedonia pegs its exchange rate to Sylvania at a rate of 10-to-1. This is a “cheap” exchange rate designed to stimulate exports from Freedonia to Sylvania.

In this example, Freedonia is trying the Impossible Trinity. It wants an open capital account, a fixed exchange rate and an independent monetary policy (it has an interest rate of 2%, while Sylvania’s rate is 3%).

What happens next?

Savvy investors borrow money in Freedonia at 2% in order to invest in Sylvania at 3%. This causes the Freedonia central bank to sell its foreign exchange reserves and print local currency to meet the demand for local currency loans and outbound investment.

Printing the local currency puts downward pressure on the fixed exchange rate and causes inflation in local prices.

Eventually something breaks.

Freedonia may run out of foreign exchange, forcing it to close the capital account or break the peg (this is what happened to the U.K. in 1992 when George Soros broke the Bank of England).

Or Freedonia will print so much money that inflation will get out of control, forcing it to raise interest rates again.

The end result is that Freedonia cannot maintain the Impossible Trinity. It will have to raise interest rates, close the capital account, break the peg or all three in order to avoid losing all of its foreign exchange and going broke.

In this example, you just have to substitute China for Freedonia and the U.S. for Sylvania.

When it comes to China, the most likely outcome is a Chinese maxi-devaluation.

Investors should soon brace for a financial earthquake from China that will reverberate around the world.

Based on far smaller yuan devaluations in August 2015 and December 2015, the repercussions of a new devaluation will not be confined to China. The U.S. stock market crashed over 10% on both prior occasions.

An even larger correction could be expected when the maxi-devaluation comes. A flight to quality in gold is another predictable result.

Regards,

Jim Rickards for The Daily Reckoning

The post China Will Lose This Battle appeared first on Daily Reckoning.

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ipopang · 4 years

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#Chinese Lawyers #Doing Business In China #IPO Law #Chinese Attorney #Legal Representative In China #China Business Attorneys #Chinese Law Firm #China Venture Capital #Chinese Business Law

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forextutor-blog · 8 years

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New Post has been published on Forex Blog | Free Forex Tips | Forex News

!!! CLICK HERE TO READ MORE !!! http://www.forextutor.net/yuan-faces-major-event-risks-despite-holiday/

Yuan Faces Major Event Risks Despite Holiday

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The offshore Yuan dropped below the PBOC’s daily guidance on Friday, the first time since January 4th. As of 3:00PM EST, the offshore Yuan remained stronger than the onshore Yuan. Chinese mainland financial markets will be closed from January 27th for the Lunar New Year and reopen on February 3rd; Hong Kong’s financial markets will be closed from January 27th and reopen on February 1st. FX volume around this major Chinese holiday is expected to fall significantly. However, there are a couple of top event risks that traders will want to keep an eye on when Hong Kong’s and mainland’s markets reopen on next Thursday and Friday.

China will release the Caixin PMI manufacturing print for January on Thursday, which is expected to drop slightly to 51.8 from 51.9, yet still in the expansion territory. The country’s industrial sector has showed improvement in the fourth quarter with multiple enhanced indicators. Yet, a more important question is that whether the recovery can be sustainable amid continued national production cuts and declining global demand. Investors who want to trade this news would first look to China’s official January PMI read to be released on Tuesday as a leading indicator: The official gauge includes the same five components in the Caixin PMI and uses the same calculation method. But, keep in mind that these two indicators measure companies in different sizes so they do not necessarily move in the same direction all the time.

Two major event risks from China’s counterpart is Fed’s February rate decision on Wednesday and the U.S. January Non-farm Payroll (NFP) print on Friday. The USD/CNH has been retracing within a range after the offshore Yuan strengthened to a two-month high. Within such a context, moves from the U.S. side may give out more clues on the next trend for the Dollar/Yuan. For Fed’s release on Wednesday, the benchmark interest rates will likely remain unchanged, with an odds of only 12% of a rate hike. There will be no updates on economic forecasts and no press conference from Chair Yellen; the major focus will be on the sentiment in Fed’s minutes. Also, the January U.S. labor market report is expected to heavily weigh on the Dollar/Yuan after China’s onshore markets reopen. Two weeks ago, Yellen addressed on positive development in the labor market. If the NFP print on Friday came in stronger, it will provide more support to the U.S. Dollar.

In addition to event risks, traders will want to watch Chinese regulators’ moves: The PBOC has been tightening onshore liquidity with a tweaked credit strategy. The Central Bank unexpectedly lifted two interest rates two days before the Chinese New Year, when the regulator normally increased cash injections in the past to ease holiday liquidity shortage. SAFE, the FX regulator, announced on Thursday to strengthen oversight on foreign exchange transactions in relate to trade and on cross-border Yuan transactions. On Wednesday, China Banking Regulatory Commission issued guidelines requiring banks to strengthen management on funds for outbound investment. Tightened regulations have been seen in Chinese markets and this will likely continue to be the case after the Lunar New Year.

Yuan Faces Major Event Risks Despite Holiday Yuan Faces Major Event Risks Despite Holiday https://rss.dailyfx.com/feeds/all $inline_image

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englishchinesetranslations · 4 years

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Until now, Donald Trump’s incipient trade war with China has been notable for its ineptitude. The list of demands presented by the US delegation in Beijing included a US$200 billion reduction in the trade deficit within two years, and the overnight scrapping of several libraries’ worth of trade and investment regulations that have been carefully crafted by Beijing to favour Chinese companies.

No Chinese leader, would accept them, and certainly not a muscular nationalist like Xi Jinping, who already hopes that history is going his way.

Trump’s behaviour continues to create winning scenarios for China, allowing it to pose as a staunch defender of global free trade, while continuing its harmful, restrictive practices-

This is a missed opportunity to tackle significant problems in China’s trade and industrial policy – problems that urgently need a response, not only from the US but also from other advanced economies that have suffered by it and stand to suffer further. But Trump’s behaviour continues to create winning scenarios for China, allowing it to pose as a staunch defender of global free trade, while continuing its harmful restrictive practices.

To develop an effective defence of their interests, China’s trading partners need first to abandon some illusions. In the 19th century, an excited British textile manufacturer dreamed of the fortunes that would be made in Lancashire if every “Chinaman” were to add just one foot to the length of his shirt tails. This mix of hope and ignorance lingers on: the persistence of it in the face of reality is testament to China’s skilful deployment of its most powerful weapon – the irresistible attraction of market opportunities in a country home to one fifth of the world’s population.

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China is playing the West for fools

BY BRUNO MAÇÃES

So let’s be clear: yes, the market is huge. No, China does not intend to open it in ways that will assist the US, the UK or any other advanced economy.

What is likely, particularly in a weakened post-Brexit Britain, is China’s continuing effort to use the UK as a bridgehead. It has already happened with China’s nuclear industry with Hinkley Point and the promise to China that it will be allowed to build and operate nuclear plants in the UK; with digital infrastructure (the Huawei-BT deal), and now, the MOU that Liam Fox has just signed with Tencent, a Chinese digital services giant that answers directly to state security in China.

Anyone who still imagines that as yet untapped markets beckon in China for Brexit Britain should pay close attention-

China’s policy is not a secret: it is clearly set out in a string of documents that detail the regime’s industrial masterplan. These include the National Medium- and Long-Term Science and Technology Development Plan Outline (2006-2020), the State Council Decision on Accelerating and Cultivating the Development of Strategic Emerging Industries (SEI Decision), and, the shortest and most succinct iteration, the Notice on Issuing “Made in China 2025” published in 2005. This is not light reading, but anyone with an interest in the shape of the future China envisages would be advised to take a look. In particular, anyone who still imagines that as yet untapped markets beckon in China for Brexit Britain should pay close attention.

In them, the Chinese government helpfully lays out its strategy: to keep barriers to the China market high, to enforce technology transfer and to acquire foreign companies that possess advance technologies, all to help China leap-frog the risky and difficult innovation stage, to upgrade its industrial technologies and to become dominant both domestic and global markets. Extensively recorded elsewhere, is the third route to the acquisition of advanced technologies – industrial and digital espionage.

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China is playing the West for fools

BY JULIET SAMUEL

The starting point for China’s vision is uncontentious: by pursuing a traditional catch-up strategy, aided by WTO membership and globalisation, foreign investment, and a huge and hardworking population, China has attained middle-income status, become the world’s second largest economy and accumulated a substantial, though not inexhaustible, war chest of foreign currency to spend.

But the next bit is tricky: growing from poverty to middle-income status is relatively straightforward; getting through the middle-income trap to become a rich country is tougher, especially when burdened with an ageing population, incumbent resistance, a shrinking workforce, too much debt and a legacy of industrial damage to the country’s life support systems.

Some countries make it; most have not. According to The World Bank’s China 2030 report, published in 2013, of the 101 economies classified as ‘middle-income’ in 1960, only 13 had become ‘high-income’ by 2008. The advice of a paper published last year by the Asian Development Bank was that “the starting point… has to be the existence of political will to embark on an innovation-focused strategy with the requisite active policies to implement it”.

The end result of China’s strategy, if successful, will be the loss to advanced economies of hard-earned competitive edge-

That is a lesson China has taken to heart, realising that it needs to upgrade its industrial technologies and raise its productivity as fast as possible and China deploys every means at its disposal to achieve it – begging, borrowing, acquiring and, yes, stealing advanced technologies from those who have them, in a range of practices, some of which are illegal under WTO rules and most of which are characterised as unfair. The end result of this strategy, if successful, will be the loss to advanced economies of hard-earned competitive edge. It is a prospect that has provoked alarm not only in the US but also in Europe.

Every country is entitled to upgrade its technology and to grow. The contentious point for China’s partners and competitors is how it is done. China deploys a wide range of restrictive practices: compulsory joint venture arrangements that only win regulatory approval if they involve technology transfer; digital industrial espionage on a grand scale; and the targeted acquisition of high-tech companies while reciprocal investment into China is prohibited. This is not so much an uneven playing field as a cliff face that foreign competitors are obliged to climb, in the hope of reaching the sunlit uplands of the huge Chinese market.

It’s a Morton’s Fork dilemma, as many western partners have testified: they either hand over their most valuable asset in the hope of accessing one of the world’s largest markets, or they stay out, and wrestle with the downside of exclusion.

The issue is less about the current balance of trade than who owns the future-

The impacts are documented in the US Trade Representative’s Section 301 Report into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, and it is clear that the serious issue is less about the current balance of trade than who owns the future and how the game is played.

Made in China 2025 highlights high-tech industries, automotive, aviation, machinery, robotics, high-tech maritime and railway equipment, energy-saving vehicles, medical devices and information technology among others, with the ambition of achieving future market dominance in these areas. The ambition is import substitution and the terms employed – “indigenous innovation” and “self-sufficiency” – are no more concealed than the targets set out to achieve them. These include a deadline for increasing the proportion of domestically produced components to 70 per cent by 2025, enabled by large subsidies and low-cost government backed finance to favoured Chinese enterprises.

The second aspect – making life difficult for foreign operators in China, is also copiously documented. As a recent report from the Berlin-based MERICS think tank put it, while Chinese high-tech companies enjoy massive state backing, the foreign counterparts face:

“The closing of the market for information technology, the exclusion from local subsidy schemes, the low level of data security and the intensive collection of digital data by the Chinese state. As China’s own smart manufacturing capabilities mature, it is likely that the Chinese state will further step up its discriminatory practices and restrictions of market access in the field of smart manufacturing.”

The outbound aspect of Made in China 2025 is the acquisition of international high-tech companies, facilitated by the open nature of advanced economies. But China’s acquisitions are directed by state strategy, funded with capital that hides behind opaque investor networks. As the MERICS report points out:

“In the long term, China wants to obtain control over the most profitable segments of global supply chains and production networks. If successful, Made in China 2025 could accelerate the erosion of industrial countries’ current technological leadership across industrial sectors. As illustrated by the fierce discussions surrounding recent high-profile high-tech acquisitions, governments in Europe and the U.S. increasingly perceive this dimension of China’s quest for technological upgrading as a crucial and pressing challenge.”

There are many possible responses. Unfortunately President Trump is unlikely to choose the most effective: a firm alliance with the EU and other powerful trade partners to enforce and defend the rules.

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hoanvu-2016-us · 4 years

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jeudi 7 mai 2020

KHI TRUNG CỘNG KHÓ KHĂN THÌ BẮT VIỆT NAM GỠ

Đỗ Ngà

(truy cập từ https://danquyenvn.blogspot.com/2020/05/khi-trung-cong-kho-khan-thi-bat-viet.html)

Doanh nghiệp FDI: Đình công đòi tăng lương

Trừ những quốc gia tiên phong luôn dẫn đầu thế giới phát triển thì không bàn làm chi, nhưng những quốc gia nào muốn đi lên từ đói nghèo thì bao giờ họ cũng bắt đầu bằng mở cửa rồi nắm bắt quá trình chuyển giao công nghệ. Mở cửa thì dễ, nhưng nắm bắt quá trình chuyển giao thì khó. Trên thế giới, không mấy quốc gia chuyển hóa thành công quá trình này. Khi quốc gia nắm bắt tốt quá trình chuyển giao thì tất nền kinh tế sẽ biến đổi cả chất lẫn lượng. Nội lực nền kinh tế tăng lên và dần dần thoát khỏi sự lệ thuộc vào FDI. Điều này nó tạo nên sự phát triển bền vững cho đất nước.

Còn nếu không nắm bắt quá trình chuyển giao, khi ấy, nền kinh tế sẽ rất mong manh dễ vỡ. Với một nước nghèo khi mở cửa, thế nào chất lượng đời sống toàn dân cũng được nâng lên, điều đó kéo theo giá cả sinh hoạt đắt đỏ và giá lao động cũng leo thang theo năm tháng. Khi giá lao động leo thang thì lợi thế nhân công giá rẻ dần dần bị biến mất, điều đó kéo theo lợi nhuận kiếm được của các doanh nghiệp FDI cũng không còn nhiều như trước. Và tới một ngưỡng nào đó, các FDI sẽ rút đi để tìm môi trường đầu tư mới mang lại cho họ lợi nhuận nhiều hơn. Ngưỡng đó, người ta gọi là bẫy thu nhập trung bình. Thường những nước có thu nhập bình quân đầu người sấp xỉ mức trung bình thế giới là tiệm cận bẫy thu nhập trung bình.

Hiện nay nền kinh tế Trung cộng đang tiến rất sát với bẫy thu nhập trung bình. Những nhà đầu tư đến từ Hoa Kỳ, EU, Nhật, Hàn trước đây đến ồ ạt và đã từng biến Trung quốc thành công xưởng của thế giới, nay họ đang cảm thấy ngột ngạt khó thở vì 3 nguyên nhân cơ bản: nguyên nhân thứ nhất là giá nhân công của người Trung quốc không còn thấp nữa làm cho lợi thế cạnh tranh của họ giảm; thứ nhì là những doanh nghiệp trong nước của Trung cộng đã lớn mạnh và chính họ cũng rút rỉa dần nhân công chất lượng người Trung quốc từ các FDI; và thứ ba là chính sách ưu đãi không bình đẳng giữa doanh nghiệp trong nước và doanh nghiệp FDI của chính quyền CS Trung quốc. Chính vì thế mà lúc này là lúc mà các doanh nghiệp FDI bắt đầu tính bài rút dần khỏi thị trường Trung quốc để chuyển hướng đầu tư sang khu vực khác nghèo hơn. Dịch COVID-19 chỉ làm cho tiến trình nhanh hơn thôi chức thực chất, các doanh nghiệp FDI tại Trung quốc cũng đã tính bài rút từ trước đó mấy năm rồi.

Nền kinh tế Trung quốc chắc chắn chững lại từ năm 2020, và qua dịch họ cũng không thể nào hồi phục lại tốc độ tăng trưởng khoảng 6% năm 2019 được. Bởi vì đã đến lúc các doanh nghiệp FDI tính đường rút, trong khi đó chiến tranh thương mại Mỹ-Trung cũng chưa có dấu hiệu chấm dứt thì càng đẩy nhanh quá trình rút mạnh hơn. Vậy đứng trước khó khăn này, Trung cộng sẽ đối phó ra sao?

Như ta biết một nền kinh tế mạnh là nền kinh tế có GNP lớn hơn GDP. Nghĩa là nước nào có đầu tư ra nước ngoài nhiều hơn là nước ngoài đầu tư vào họ chứng tỏ nền kinh tế đó mạnh, còn ngược lại là nền kinh tế yếu. Lấy Việt Nam làm ví dụ. Được biết cho đến nay tổng giá trị đầu tư của Việt Nam ra nước ngoài chỉ là 22 tỷ đô-la, còn tổng vốn đầu tư FDI vào Việt Nam lên đến 211,78 tỷ đô, gấp gần 10 lần. Vậy nếu giả sử khi FDI rút thì sao? Thì khi đó nền kinh tế Việt Nam sẽ ngã nhào vì nội lực quá yếu. Khi FDI rút đi nó sẽ làm GDP giảm nghiêm trọng và đồng thời nó để lại một lực lượng lao động đông đảo phải thất nghiệp. Đó mới là điều đáng lo ngại. Và trên thực tế, ngay lúc hàng loạt các FDI rút đi, nhiều quốc gia đã không thể vượt qua bẫy thu nhập trung bình và từ đó họ không còn cơ hội bứt phá nữa. Các quốc gia như Argentina, Brazil, và Nam Phi là ví dụ. Tương tự như vậy khi các FDI rút đi, Trung cộng cũng phải gặp cảnh khó khăn này. Trung cộng sẽ dính bẫy nếu họ không thể vượt qua cú sốc này.

Bài học thành công của Hàn-Đài-Sing khi vượt qua bẫy thu nhập trung bình còn đó. Như vậy để không bị cú sốc do FDI rút đi, thì những quốc gia này đã làm gì? Thứ nhất họ phải chuẩn bị nội lực kinh tế đủ mạnh khi đó những doanh nghiệp quốc nội đủ sức để tiếp nhận hết lực lượng lao động do FDI để lại; thứ nhì tăng đầu tư ra hải ngoại (tiếng Anh là outward direct investment – ODI) nhằm khai thác lợi nhuận từ các nước nghèo hơn để bù đắp lại phần thiệt hại do FDI rút đi; thứ ba là cải tổ chính trị, để tạo môi trường đầu tư minh bạch và công bằng cho các FDI. Khi FDI mất lợi thế nhân công giá rẻ và họ không được đối xử công bằng với các doanh nghiệp trong nước, thêm vào đó chính quyền thiếu minh bạch thì tất họ không thiết tha ở lại làm gì nữa.

Theo một bài báo trên tờ China Briefing thống kê thì từ năm 2003 đến 2014 thì tổng vốn đầu tư ra hải ngoại – ODI của các doanh nghiệp Trung quốc luôn thấp hơn nguồn vốn FDI từ nước ngoài đầu tư vào nội địa đại lục. Chỉ có năm 2015 thì ODI vượt qua FDI nhưng sau đó từ năm 2017 đến thì ngược lại, ODI lại thấp hơn so với FDI. Đến năm 2019, FDI của Trung quốc là 136,7 tỷ đô còn ODI chỉ có 110,6 tỷ đô. Mà như ta biết, kể từ năm 2019, các doanh nghiệp FDI của Trung quốc bắt đầu rút mạnh vì chiến tranh thương mại Mỹ-Trung, ấy vậy mà ODI của vẫn không thể vượt qua FDI. Từ con số này, chúng ta có thể thấy rằng, nội lực của nền kinh tế Trung quốc đang đi xuống. Vậy với nội lực đang xuống như vậy, liệu Trung quốc có chống đỡ được khủng hoảng tất yếu này không? Câu tả lời là “khó!”.

Hiện nay để chuẩn bị đối phó khó khăn lâu dài, Trung quốc chắc chắn không cải tổ chính trị, mà thay vào đó họ đẩy mạnh nguồn ODI để khai thác mạnh các thị trường ngoài Trung quốc. Và tất nhiên, nền kinh tế nào dễ khai thác nhất sẽ được Trung quốc nhắm đến. Chắc chắn Việt Nam là mục đích đầu tiên. Ngày 30 tháng 4 năm 2020 tờ Thời báo kinh tế Sài Gòn đã đăng bài “Nhà đầu tư Trung quốc gia tăng 'thâu tóm' doanh nghiệp Việt giữa Covid-19”. Trong bài cho biết các nhà đầu tư Trung cộng đã chọn thâu tóm doanh nghiệp Việt thay vì đầu tư theo dạng FDI, vì sao? Bởi đơn giản, Trung quốc muốn bắn 1 mũi tên trúng 2 mục đích. Mục đích thứ nhất là loại bỏ cơ hội phát triển doanh nghiệp Việt; thứ nhì là muốn mượn đường xuất khẩu sang các thị trường khác để hưởng lợi. Việc làm này giống như, Trung cộng đang bị mất máu thì họ sẽ chọc vòi sang cơ thể ông Việt Nam để hút máu về mình vậy, thật là nguy hiểm.

Khi Trung quốc khủng hoảng, chắc chắn Việt Nam sẽ lao đao chứ không có cơ hội đón bắt dòng đầu tư từ Trung quốc dời sang như nhiều người tưởng. Bởi đơn giản tầm Việt Nam không đủ tận dụng lợi thế đó. Để đón bắt cơ hội, chỉ có những nước khác ở Đông Nam Á khác như Thái Lan, Indo, hay Mã Lai mà thôi. Còn Việt Nam? Chỉ có thể chết chùm theo nó. Đó là hậu quả của việc để nền kinh tế đất nước quá phụ thuộc vào Trung cộng.

-Đỗ Ngà-

Tham khảo http://www.mpi.gov.vn/Pages/tinbai.aspx?idTin=44963&idcm=208

http://tapchitaichinh.vn/…/hoat-dong-dau-tu-cua-viet-nam-ra…

https://www.cnbc.com/…/china-says-its-foreign-direct-invest…

https://www.china-briefing.com/…/chasing-chinas-outbound-d…/

http://thoibaotaichinhvietnam.vn/…/nhat-ban-khuyen-khich-do…

https://www.thesaigontimes.vn/…/nha-dau-tu-trung-quoc-gia-t…

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cardamomoespeciado · 4 years

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Corona pushes Korean companies to the edge

4/7 (Tue) 5:40

Toyo Keizai Online

Corona pushes Korean companies to the edge

New virus pneumonia is spreading in Korea, and aviation demand is falling sharply. Photo: Incheon Airport, Korea, with no tourists (Photo: Reuters / Afro)

The new coronavirus has seriously affected Korea's entire industry. It covers all Korean domestic industries, regardless of manufacturing or service industries.

事態 This situation has broken the expectations of the government at the beginning of the year, saying that "2020 is a V-shaped economic recovery". "In addition to the overall economic downturn, the coronavirus has started to slow the Korean economy further, especially because of its reliance on overseas markets, leading to an international supply chain," said Song Tae-eun, a faculty of economics at Yonsei University. Some companies are tough, jobs will worsen and the economy will worsen further. "

■ Disruption of the automotive supply chain

現代 A representative example of the damage this time is the Hyundai Motor Group. It has been hit hard by the spread of corona and the collapse of the global supply chain. It is expected that demand for automobiles will decrease in the future.

現代 On March 19, 2020, Hyundai Motor's stock price dropped to 65,900 won (about 5780 yen). This has returned to the level of May 2009, when full-fledged growth in international markets began after the Lehman shock. The stock prices of key companies in the group, such as Kia Motors and Hyundai Mobis, have fallen sharply.

Hyundai Motor's worldwide sales reached the lowest level in 10 years. Worldwide sales in February 2020 were 235,745 units, down 10.2% year-on-year. Sales in China have dropped sharply, with February sales down to 1007 units. It was 38,017 units in February 2019. During the same period, the sales volume of Kia Motors decreased from 20,203 units to 972 units. Operations at local factories in China have been suspended, and sales offices have also been closed.

影響 The effects of the disruption of the global supply network are even more widespread. The company had procured a wiring harness that connects various electronic components to the vehicle body from a Chinese factory, but operation of the factory was suspended for several days. This has been affected not only by Hyundai Motor and Kia Motor, but also by Renault Samsung, Korea GM and Sanyong. The disruption of the international supply chain has become a prime example of the negative impact on industry.

Fortunately, the infection situation in China seems to be in the convergence phase. The peak is seen in Korea as well. But another problem began. Coronavirus spread to the United States and Europe, the largest export markets for these companies, is likely to reduce local demand.

1January to March 2020 was a severe result due to the stagnation of the Chinese market and the collapse of the supply chain. From April to June, red lights began to light on sales in the US and Europe.

■ Decline in demand in Europe and the United States is inevitable

現代 Hyundai Motor's sales performance in February 2020 held up in North America and Europe, avoiding a significant decline in business performance. After China responded to the deployment of the THAAD (ground-based missile interception system) in 2017 and retaliated against South Korea, the company focused on sales in Europe and the United States. As a result, North America and Europe accounted for 51.7% of total sales of Hyundai Motor Group in 2019.

According to Kim Jin-Wu, a researcher at Korea Investment Securities, "the major automakers around the world are continually losing operations at factories in Europe and the United States. The economy is deteriorating, and a decline in demand is inevitable."

A worker at Hyundai Motor's Alabama plant in the United States has been shut down since the morning of March 18, after an employee was diagnosed with a new type of coronavirus infection. In Europe, plant operation may be interrupted. The company's Czech factory union has called for a 14-day suspension of operations and thorough quarantine.

The crisis for finished car manufacturers is also a crisis for the auto parts industry. Mando, Korea's second-largest auto parts maker, recently recruited volunteers for manufacturing jobs. The company will also promote in-house job sharing (circular leave, in which employees take time off without turning off employees). The decision is based on the belief that if car sales continue to slump, factory operation rates will fall further.

It is the company's decision to resign in manufacturing since 2008. Battery makers and steel makers have a great sense of crisis. According to the worldwide sluggish sales of automobiles, worsening business results in the first half of 2020 are inevitable. Three battery shell manufacturers in Korea, including SK Innovation, LG Chemical and Samsung SDI, have production bases in Europe and the United States, and are now at risk of plant shutdown.

The shipbuilding industry, which has suffered over the past few years, has also been dim. Korea Shipbuilding and Oceans recently said, "We are directly affected by the world economy and have no choice but to prepare for the worst situation. We need to completely reconsider the 2020 orders, business goals and business plans that were drafted earlier this year." Appealed to employees.

(4) The semiconductor industry, which is the mainstay of the Korean economy, is worried that the recovery phase of the market will be slower than direct damage such as sales. It has emerged from the steep decline in 2019 and is expected to recover from the beginning of 2020, but it is possible that the recovery will be even slower.

■ Travel demand has almost disappeared

It is no exaggeration to say that demand in the travel and aviation industries has almost disappeared. The Korea Airlines Association estimates that the sales of eight Korean airlines in the first half of 2020 will decrease by at least 5,087.5 billion won (about 450 billion yen). International passenger traffic in February fell 47% year-over-year, and it is certain that it will worsen in March.

According to Incheon International Airport, the number of passengers using the airport between March 1 and 15 was 417,093 (inbound and outbound total), down 85.2% year-on-year. The number of passengers on March 11 fell to 10,522, and the number is about 10,000. The airport had the fewest passengers at 26,773 on May 20, 2003, when the spread of SARS (Severe Acute Respiratory Syndrome) peaked.

数 In 2017, the number of passengers decreased due to the conflict between THAAD and Korea. 2019 was affected by the Korea-Japan trade conflict. The aviation industry is now facing the worst crisis with the coronavirus, and is said to be "the time to survive and survive." With business operations virtually suspended, they have to withstand fixed costs and wait for the situation to subside.

The airline has taken paid and unpaid leave for employees. Korean Air has called for cabin attendants to take unpaid leave, and Asiana Airlines also has given all staff 10 days of unpaid leave. Six LCCs (cheap airlines) also have paid or unpaid leave or reduced work.

20 About 20% of all aviation industry employees, about 40,000, are said to be on leave. In addition, we are accepting applications for unpaid leave for pilots (about 300 people) who have been suffering from chronic shortages. For example, the pilot union at Easter Airlines has offered the company a voluntary return of 25% of wages in order to overcome the business crisis and share the pain.

■ Bankruptcy companies continue in the travel industry

The biggest problem is that you don't know how long you should endure. Looking back at the 2003 SARS and the 2015 MERS (Middle East Respiratory Syndrome), infectious diseases had a major impact on aviation demand for a few months, and then needed up to six months to recover demand .

言っ Even if the new coronavirus is lulling, it is likely that the situation will continue until at least the first half of 2020. Therefore, it is necessary to endure 2020. "Even if we reduce fixed costs, such as unpaid leave, the amount is less than aircraft leasing and additional costs. For airlines that do not receive cash support from the parent company in the group, It will not be easy to get over the crisis. "

The travel industry is even more serious than the aviation industry. Some companies have gone bankrupt rather than closed. According to some surveys, 56 general travel companies in Korea and overseas went out of business from January 20 to March 13. Large hotels in the center of Seoul have been closed temporarily, and foreign group tourists have been the main customers. These hotels will be suspended until the end of April.

Meanwhile, the petrochemical industry is suffering from falling oil prices. Korea's largest company, S-Oil, is considering recruiting volunteers for the first time since its founding in 1976. Companies that are not affected by the new coronavirus, but have already lost their strength due to management difficulties, have been pushed to the forefront of this situation.

For example, Hung-A Shipping, Korea's fifth-largest shipping business, has finally applied for joint management of its creditors. Coronavirus was not the main reason that the application was driven. To date, the company's earnings have deteriorated since 2016 due to the oversupply of vessels on the Southeast Asian route and the deterioration of the container market. Until now, sales of assets have been repeated, but no improvement has been obtained.

斗 Doosan Heavy Industries, which had been declining in sales, was also in trouble. The company recruited voluntary retirees in February. The business condition has deteriorated enough to consider company-wide leave. The company should redeem the bonds in 2020 by 1,243.5 billion won (approximately 110 billion yen), giving out the majority of its holdings by June, starting with 600 billion won in April (about 53 billion yen) There must be. Given the company's ability to generate cash flow, it's too large. (Korea `` Chuo Ilbo Economist '' March 30, 2020)

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businessliveme · 5 years

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China’s Belt and Road Plan Is Getting Lashed by Coronavirus

(Bloomberg) –Terms of Trade is a daily newsletter that untangles a world threatened by trade wars. Sign up here. Xi Jinping’s Belt and Road Initiative has long been seen as a way to project China’s influence around the world. Now, the coronavirus is showing how the trade and infrastructure program can help export the country’s troubles.

The deadly outbreak is prompting delays and disruptions to China’s construction and investment plans overseas, risking years of planning and hundreds of billions of dollars in economic diplomacy. Quarantine measures are preventing Chinese workers from making it to foreign building sites, domestic firms supplying overseas projects face acute labor shortages and fears are mounting that workers will inadvertently spread the virus to new locales.

Projects that have been affected since the virus emerged in December include a $5.5 billion high-speed rail line in Indonesia. There’s also a separate railway initiative in neighboring Malaysia, construction projects in Sri Lanka and corporate expansion plans in Pakistan.

The disruption has exposed another pitfall of the region’s growing dependence on China’s backing for major infrastructure projects. Even as the pace of new coronavirus cases slows in China, host countries remain wary of avoiding future outbreaks, with deadly infection surges in places like Iran, Italy and South Korea serving as a warning about how quickly a small cluster can spin out of control.

“While there are risks of delays and cancellation of projects, there are also risks in early resumption,” said Bonnie Glaser, who has advised the U.S. government and directs the China Power Project at the Center for Strategic and International Studies in Washington.

Xi “seems determined to demonstrate that life is returning to normal and he wants to get the economy churning again,” Glaser said. “Resuming BRI projects is probably among his goals, not only for economic reasons, but also because BRI activities are a lever to enhance Chinese political influence.”

Even before the outbreak, Xi had been seeking to rebrand and scale back his Belt and Road ambitions amid an economic slowdown at home and backlash from some partner nations concerned about the costs. The U.S. has led a global campaign against the program, arguing that China’s reliance on loans locked poorer countries in “debt traps” while advancing its own strategic aims.

The virus has thrown up another hurdle, as countries bar or quarantine Chinese visitors. One official involved in BRI planning in Beijing said last week that a failure to stop the virus spreading outside of China would inevitably take a toll on projects.

Still, another Chinese official in Beijing said that the impact to key projects remained limited and that significant disruptions were likely to remain an issue only in the short term. That optimistic assessment was echoed Thursday by Vice Chinese Foreign Minister Ma Zhaoxu at a briefing on international support for coronavirus actions.

“The impact of the outbreak on the construction of BRI is only temporary,” Ma told reporters in Beijing. “We are willing to work with all parties to continue to promote the high-quality construction of BRI. We have full confidence in this.”

The same day, however, Indonesian Coordinating Minister for Maritime Affairs and Investment Luhut Pandjaitan acknowledged that the multibillion dollar Jakarta-Bandung high-speed railway — a flagship BRI project — was likely to face delays. More than 300 workers remain stuck in China.

In neighboring Malaysia, a dozen of the roughly 200 Chinese workers building the $10.4 billion East Coast Rail Link hail from Wuhan, the city at the center of the outbreak. They’re not allowed back to the Southeast Asian nation, while other workers can return after a 14-day quarantine process.

In Pakistan, which hosts numerous BRI projects spanning power and construction, two companies — Engro Polymer & Chemicals Ltd. and Pakistan Oxygen Ltd. — have said their projects face slowdowns because their Chinese contractors alerted them to delays stemming from hampered mainland facilities.

There has been widespread disruption to efforts in Sri Lanka, where Chinese investment is building the massive Port City Colombo, an expansion of the capital city via land reclamation.

The Ceylon Chamber of Commerce recently reported that about half of 100 firms surveyed said that business was affected by the coronavirus outbreak. Government road and apartment construction projects involving Chinese contractors have slowed down, said Nissanka Wijeratne, secretary general of the Chamber of Construction Industry of Sri Lanka.

Chinese workers returning to Port City Colombo have self-quarantined and there have so far been no major delays at the country’s biggest construction site, said Thulci Aluvihare, head of strategy and business development for the project, which is being built by state-owned China Communications Construction Co.

The virus may prompt a shift in focus by Chinese firms in the future, according to Arv Sreedhar, Singapore-based executive director at investment firm Atlantic Partners Asia. “China is under incredible stress from the current situation and has other priorities for its money, such as coming to an acceptable agreement with the U.S. on the trade war, and fighting both the health and financial aspects of the coronavirus,” he said.

Investment Shrinks

That puts political pressures on BRI partners, as well. Developing nations such as Cambodia, Laos, Myanmar and Pakistan might be afraid to aggressively tackle the virus for fear of alienating China, research firm Fitch Solutions said in a note on Thursday.

“That these countries, which are heavily dependent on China’s patronage, have so far reported zero or just a few confirmed cases, and we believe that this could be attributed to both low access to health care, which is likely to inhibit infection detection, and a desire to avoid antagonizing China by ‘overreacting’ to the outbreak,” Fitch Solutions said.

China’s overseas investments were already beginning to tail off and consolidate before the virus brought the country’s industry to a standstill.

The American Enterprise Institute and the Heritage Foundation, which have tracked 3,600 major Chinese overseas transactions since 2005, found that outbound investment last year totaled just $68.4 billion. That’s a 41% plunge from 2018 and the lowest in a decade. The figure is far less than the Chinese Ministry of Commerce’s official tally of $124.3 billion in total overseas investment last year.

Going forward, China could concentrate its BRI programs in fewer countries, working to avoid criticism by making its outbound investment less aggressive and one-sided, said Derek Scissors, a resident scholar at the American Enterprise Institute.

Xi could “retrench and advertise more loudly that the BRI is a group effort,” he added. “It’s going to be harder for host governments over the next year to tout their supposedly close relationship with China as contributing to development.”

The post China’s Belt and Road Plan Is Getting Lashed by Coronavirus appeared first on Businessliveme.com.

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phgq · 5 years

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More BSP rate cuts seen in 2020 vis-à-vis growth, nCoV

#PHnews: More BSP rate cuts seen in 2020 vis-à-vis growth, nCoV

MANILA -- Economists still see another cut in the Bangko Sentral ng Pilipinas’ (BSP) key policy rates this year after the 25 basis points reduction Thursday but said the next reduction depends on developments on the novel coronavirus (2019-nCoV), among others.

In a report released Friday, Fitch Solutions said it is, in the meantime, keeping its 6.3 percent growth forecast for the Philippine economy this year and the 3.1 percent average inflation rate despite the risks from the 2019-nCoV.

It said the nCoV scare is forecast to impact the economy through tourism and trade but the unit of Fitch Ratings said it needs to get more figures before it revises its projection on these two items.

The Philippine government has implemented a ban against the entry of tourists from mainland China, Hong Kong and Macau as a result of the outbreak.

This is seen to make a dent on the Philippines’ tourist arrivals since Chinese nationals account for 12 percent of arrivals in the Philippines as of 2018 and Fitch Solutions said share of tourism in the domestic economy’s output is about 25 percent.

This is also seen to “significantly” hurt the domestic gaming industry since about 26.4 percent of the workers are accounted for by the Chinese, the report said.

Foreign direct investments (FDIs) is also projected to be affected since FDI inflows from China, the world’s second-largest economy, has risen to about 10 percent during the Duterte administration.

The report said “a disruption to outbound Chinese travel could disrupt investment plans,” it said, citing that “this could pose some risks to funding for infrastructure and would mean larger government contributions instead.”

It said while Fitch Ratings is currently maintaining its forecasts “we believe that the risks to the downside posed by the viral outbreak will prompt the BSP to make another pre-emptive cut to the policy rate in H120, taking it to 3.50 percent.”

The 25 basis points cut in the BSP’s key rates resulted in the drop of the overnight reverse repurchase (RRP) rate to 3.75 percent, which, in turn, brought the country’s real rate to 0.85 percent.

Last January, inflation rate rose to 2.9 percent from month-ago’s 2.5 percent.

The report said the country’s real rate is considered attractive compared to those of other emerging markets (EMs) outside the region.

“As such, we believe a further cut would see little peso volatility in response, with exchange rate volatility still at relatively low levels as measured by at-the-money options contract,” it said.

“Moreover, improved reserve buffers and a stable outlook for global growth will keep investor sentiment in check,” it added.

ANZ Research forecasts another 25 basis points reduction in the BSP rates in the second quarter this year after the pre-emptive cut Thursday.

“However, a higher-than-expected impact from the coronavirus may extend the easing cycle further,” it said.

Capital Economics forecasts an additional 25 basis points cut on BSP rates in the coming months due to weak growth outlook.

It said while it forecasts the country to be “more insulated from the economic fallout of the coronavirus than most other countries in the region” the ban against tourists from China, Macau and Hong Kong will affect the tourism and industry sectors.

This burden will add to the earlier risks like the slowing consumption growth and weak exports, it said.

It cited that even before the coronavirus problem came out Capital Economics already discounted that the economy can sustain its 6.5 percent output in the last quarter of 2019 due to existing challenges.

“Growth now looks even more likely to fall short of the government’s 6.5-7.5 percent target this year,” it said.

On the other hand, Capital Economics is optimistic that the inflation rate will not be an issue for the BSP despite its rise due to faster food inflation and since dipping to 0.8 percent last October.

“The big picture is that the headline rate is still comfortably within the Bank’s 2-4 percent target band and it is likely to stay there throughout the rest of 2020,” it added. (PNA)

***

References:

* Philippine News Agency. "More BSP rate cuts seen in 2020 vis-à-vis growth, nCoV." Philippine News Agency. https://www.pna.gov.ph/articles/1093269 (accessed February 08, 2020 at 02:14AM UTC+14).

* Philippine News Agency. "More BSP rate cuts seen in 2020 vis-à-vis growth, nCoV." Archive Today. https://archive.ph/?run=1&url=https://www.pna.gov.ph/articles/1093269 (archived).

#Philippines #News #Filipino #Pinoy #Tourism #Politics #Culture #Editorial #Environment #Society #History

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chartlab · 5 years

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CALL FOR SUBMISSIONS: 2019 ECUST & USF Doctoral Consortium at The 4th East China University of Science and Technology – University of San Francisco International Symposium

2019 ECUST & USF Doctoral PDW

Quick Facts

Important Dates:

Submission Deadline: 10th May 2019 (24:00 midnight Hong Kong time)

Notification: 17th May 2019

Doctoral PDW Day: Sunday, 26th May 2019

Submission Details:

Online Submission: [email protected] SUBJECT LINE: CBSI DOCTORAL PDW

Template: Submissions should follow the American Psychological Association for formatting, with 12 size font and double space (main text only).

Submission Content: (1) 1-page application letter, (2) 2-page research summary (including references), and (3) a 1-2-page CV.

Chair:

Matt Monnot, University of San Francisco, USA ([email protected])

Faculty Mentors:

Roger Chen, University of San Francisco

Ping Lu, University of Chinese Academy of Sciences

Matt Monnot, University of San Francisco

Liang Wang, University of San Francisco

At the conference: Accepted submissions will be presented at the Doctoral PDW.

Message from the Doctoral PDW Chair

The 4th East China University of Science and Technology – University of San Francisco International Symposium provides an opportunity for doctoral students to explore and develop their research interests in an interdisciplinary workshop, under the guidance of a panel of distinguished researchers. We invite students who feel they would benefit from this kind of feedback on their dissertation work to apply for this unique opportunity to share their work with students in a similar situation as well as senior researchers in the field. The strongest candidates will be those who have a clear topic and research approach, and have made some progress, but who are not so far along that they can no longer make changes. In addition to stating how you will benefit from participation, both you and your advisor should be clear on what you can contribute to the Doctoral PDW.

What is the Doctoral PDW?

The PDW has the following objectives:

Provide a setting where students can present their work and meet other students.

Provide feedback on students’ current research and guidance on future research and career directions.

Offer each student comments and fresh perspectives on their work from researchers and students outside their own institution.

Promote the development of a supportive community of scholars and a spirit of collaborative research.

Contribute to the conference goals through interaction with other researchers and conference events.

The PDW will be held on Sunday, 26th May 2019.

It will be a single-track event with the following single session:

Session Details: The Chair will assign one senior faculty mentor to a small group of participants to comment/critique the submitted papers in a round table format. Each student is required to prepare a one-page handout to distribute to fellow participants at the table.

Preparing and Submitting your Doctoral PDW Proposal

A Doctoral PDW proposal must be submitted via email to [email protected] with the SUBJECT LINE: CBSI DOCTORAL PDW by 10th of May 2019 (12 am midnight Indonesian time). The proposal must have the following components, submitted as a single Word Doc or PDF file:

A one-page application letter outlining the stage of your doctoral program, what you wish to achieve at the PDW, how your participation could benefit your dissertation research and your future career, and what you could contribute to other participants at the PDW.

In addition to the one-page letter, a two-page dissertation research summary (of any length, but not to exceed 3 pages including references) describing central aspects of your doctoral work. Key points include:

Motivation that drives your dissertation research

Research objectives/goals/questions

Background/literature review of key works that frames your research

Your research approach and methods, including relevant rationale

Results to date and their validity (if available)

Your current Curriculum Vita (1-2 pages).

Doctoral PDW Selection Process

The review and decision of acceptance will balance many factors. This includes the quality of your proposal, and where you are within your doctoral education program. Candidates who have a clearly developed idea, who are formally considered by their institution to be working on their dissertation, and who still have time to be influenced by participation in the PDW will receive the strongest consideration. Participants in the PDW will be selected via a curation process by the Doctoral PDW Committee.

Over and above an assessment of research quality, the selection process will also consider additional factors. The goal is to identify a set of students that will benefit significantly from the event and support each other in their growth. As a group, the accepted candidates will exhibit a diversity of backgrounds and topics.

Submissions should NOT be anonymous. However, confidentiality of submissions will be maintained during the review process. All rejected submissions will be kept confidential in perpetuity. All submitted materials for accepted submissions will be kept confidential until the start of the conference, with the exception of title and author information, which will be published on the website prior to the conference.

Upon Acceptance of your Doctoral PDW Proposal

Authors will be notified of acceptance or rejection on 17th May 2019. Authors of accepted submissions will receive further information about attending the Doctoral PDW, preparing your presentation, and registering for the conference. Please note your registration fee is waived if your proposal is accepted.

At the Conference

All participants are expected to attend the entire conference. For more information see Appendix A.

Each student will present his or her work to the group with substantial time allowed for discussion and questions by participating faculty mentors and other students. Being accepted into the Doctoral PDW is an honor and involves a commitment to giving and receiving thoughtful commentary with an eye towards shaping the field and the future research agendas of the participating doctoral students.

Appendix A

The 4th East China University of Science and Technology – University of San Francisco International Symposium:

Foreign Direct Investment from Emerging Market Economies in an Era of Global Uncertainty

Date: May25-26, 2019

Location: Shanghai, P.R. China

Currently, the international economic structure is undergoing tremendous changes. On one hand, anti-globalization sentiment and subsequent protectionism keep rising across the developed economies. The protectionist trade policies of United States, and the China-US trade war in particular, are causing the world economic system to undergo turbulent adjustments and hindering foreign direct investment from emerging market countries. On the other hand, emerging market countries have also strengthened supervision of transnational capital flows to avoid capital loss and cross-border arbitrage activities. These factors together determine that investors from emerging market countries cannot follow the conventional model of the past and instead, must search for a new path for future investment.

Take China as an example. As the Chinese government tightens its control over overseas investment, China’s outbound foreign direct investment in 2017 fell by 30% from the previous year. Under the influence of trade protection policy, the Committee on Foreign Investment in the United States (CFIUS) rejected more than $2 billion in acquisitions in the first five months of 2018. Affected by the above factors, Chinese companies sold about $9.6 billion of US assets in the first five months of 2018. The total investment in the US was only $1.8 billion, down 92% from the same period in 2017 (Rhodium Group, 2018). The frustration over investment in the United States and the government’s control over cross-border investment have led Chinese companies to seek new investment opportunities. According to the statistics of the Ministry of Commerce of China, in the first half of 2018, the valueof Chinese companies’ mergers and acquisitions in Europe increased by 40%, which is 4.5 times the amount of US mergers and acquisitions. At the same time, Chinese companies’ M&A transactions in the “One Belt One road” countries amounted to 43 cases, accounting for 20.8% of the total transactions in the same period; the newly added investment in the “One Belt One road” countries was $7.4 billion, rising 12% year-on-year and reaching a total of 12.9% in the same period. The direction of China’s foreign direct investment is quietly changing.

Similarly, in the context of global change, other emerging market economies are also facing the same foreign direct investment choices. So, what changes have occurred in foreign direct investment in emerging market countries, industries and enterprises? What lies behind these changes? How should the strategy of foreign direct investment in emerging market countries be adjusted? What will be the direction of foreign direct investment in emerging market countries in the future? These issues need to be extensively discussed and answered.

Given these gaps, the Institute of Management and Organization, School of Business, ECUST, together with the Chinese Business Studies Initiative (CBSI), School of Management at University of San Francisco, will launch their4thinternational symposium on May 25- 26, 2019. This symposium will provide a platform for sharing ideas and insights among scholars and business executives in terms of current and future research on these issues. During this two-day symposium, various sessions including paper presentations, keynote speeches, and academic and industry panel discussions will be organized. Scholars, business executives, entrepreneurs, and policy-makers are invited to join us in the discussion.

Theme:

This symposium aims to provide a platform for both scholars and practitioners to share ideas. Any topics related to foreign direct investment and emerging market multinationals are encouraged and appreciated here.

Keynote Speakers (updating…)

Mike W. Peng University of Texas at Dallas

Oded Shenkar The Ohio State University

Changqi Wu Beijing University

Submission Guidelines

We invite scholars to present research and identify questions that concern foreign direct investment from emerging market multinationals. Your submission must include a 1-2 page extended abstract with the following components (where relevant):

Purpose

Design/methodology/approach

Findings

Research limitations/implications

Practical implications

Important Dates

Symposium Date: May 25 and 26, 2019

Submission Deadline: April 20, 2019

Registration Deadline: May 10, 2019

Registration fee:￥600 or US$100 (￥400 or US$ 60, for students)

Account payee: 033296-08017003862

Payee: East China University of Science and Technology

Bank of deposit: Caoxi branch, Shanghai, The Agricultural Bank of China

Remittance remark: Name+University+School（Please be sure to indicate！）

Contact Information

Abstracts should be submitted to: [email protected] additional conference information and questions, please contact: [email protected].

Conference Chairs

Haifeng Yan East China University of Science and Technology

Xiaohua Yang University of San Francisco

The Planning Committees (in alphabetical order of surnames)

Taotao Chen Qsinghua University Ping Deng Cleveland State University Gloria Ge Griffith University Manli Huang South China University of Technology Donghong Li Qsinghua University Lei Li University of Nottingham Ningbo China Weiwen Li Sun Yat-Sen University Yu Li University of International Business and Economics Jane W. Lu China Europe International Business School Ping Lv University of Chinese Academy of Sciences Yimin Wang Shandong University William Wei MacEvan University Bing Wu East China University of Science and Technology Jianzu Wu Lanzhou University Xianming Wu Wuhan University Hongming Xie Zhejiang University of Technology Hui Xu Nankai University Xiaojun Xu Fudan University Gracy (J.Y.) YANG University of Sydney Xiao Zhang Nanjing University Qinqin Zheng Fudan University

Program Chairs

Yuanyang Song East China University of Science and Technology

Liang Wang University of San Francisco

Program Committees

Bing Wu East China University of Science and Technology

Yi Ke East China University of Science and Technology

Haibo Zhou East China University of Science and Technology

Qihu Wang East China University of Science and Technology

Qiong Wu East China University of Science and Technology

Molin Wang East China University of Science and Technology

Roger Chen University of San Francisco

Matt Monnot University of San Francisco

from CALL FOR SUBMISSIONS: 2019 ECUST & USF Doctoral Consortium at The 4th East China University of Science and Technology – University of San Francisco International Symposium

#CALL FOR SUBMISSIONS: 2019 ECUST & USF Doctoral Consortium at The 4th East China University of Scien

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paulckrueger · 5 years

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Finger on the trigger, China policy put

What’s a China “policy put”?

Unlike most developed markets, Chinese central bank (PBOC) operates more like a part of the government rather than an independent organization. Its official objectives include maintaining financial stability and performing functions prescribed by the State Council[1]. Along with the major state-owned banks and policy banks, PBOC has funded government’s fiscal expansion in the past decade, attempting to smooth the economic cycles and to stabilize job market. While most of the traditional central banks in developed markets have similar goal at the end, inflation target has been their main priority. China however is a command economy with the state, rather than the market, being the most influential force driving growth and cycles. It’s easier and more promising for the government to coordinate the funding for its fiscal projects, instead of leaving this task to the invisible hands. As the banks’ credits were channeled to infrastructure and community projects undertaken by state-owned enterprises and local governments, China’s excess credit – as measured by the credit growth, or the growth of total social financing (TSF), in excess of nominal GDP growth – swung in the opposite direction of the fundamental economic trend (chart 1). Investors see this proactive government strategy as a “policy put”.

Lesson of previous policy put

The most obvious result of China’s policy put is the surge of leverage (chart 2). Between 2007 and 2018, TSF rose from about 120% of GDP to almost 215%, and debt to GDP rose from about 160% to over 260% (2017). In the first wave of stimulus in 2009, the government successfully cushioned the economic downturn. After the economy was stabilized and real GDP growth landed at 10% levels, the country only managed to slow down the leverage increase but didn’t reduce the leverage built up in previous years. Then the second wave of economic downturn arrived in 2012 as real GDP growth dropped to high 6% range till 2015. In this period, the leverage resumed and although this soft landing was successful in stabilizing growth, it eventually contributed to one-notch downgrade of its sovereign rating by both S&P and Moody’s in 2017. In this period, consumer prices remained very steady given that the government was actively controlling the prices of goods and services, but the wages rose steadily nevertheless. To the contrary of the consumer prices, asset prices have been volatile. China newly built commercial residential price index (new-built is the most active market in China) went through 3 major cycles ranging from about -5% to +10% during this period, despite of an extraordinary amount of austerity measures put in place for the property market. The wealth effect created by the excess credit growth boosted demand of foreign goods, foreign investments and outbound tourist spending. This partly contributed to gradual dissipation of current account surplus, decline of the foreign exchange reserves, and pressure on the exchange rate. On 11 Aug 2015, USDCNY depreciated by 3% to 6.39 in a single day, and the exchange rate further tested 7.0 in 4Q 2016. During the period, the government introduced various administrative measures on the currency exchange and capital control, which successfully stabilized the exchange rate.

The credit fueled fiscal stimulus orchestrated by the PBOC is a powerful counter-cyclical policy tool and it is very effective in creating jobs and stabilizing economic growth, but ultimately, we think the capacity for China to implement its policy put is constrained by the layman maintaining their confidence in the currency. Accordingly, it’s essential for the government to maintain a tight capital control. As the government institutionalizes tight capital control, surplus liquidity trapped in the country could be difficult to be contained and it could result in volatile asset prices.

Investment implication for 2019: Don’t fight PBOC

In 2019, China’s economy faces new challenges from many facets both internally and externally, and this underpins our view that we should see another policy put. In fact, we might have already seen a bit of it, given that for the first two months in 2019, net new credit deployed to long term corporate loans has already reached the level of 2H 2018 (chart 3). PBOC and the Chinese banks are ready to support the economy by extending credits to government projects and mending the credit transmission mechanism so that credits could be flowed to the required segments of the economy, in case of further risk escalation such as the trade negotiation with the US turning sour. The key investment implication of this policy put is that we should not be too bearish about China, including CNY, China government bonds and China credits. In particular, China government has a tight control on the exchange rate through administrative measures, and the CNY may or may not fluctuate along with the country’s fundamental.

We need to be watchful that some of the policy put may already be in the price, and there are a few moving parts globally, such as US-China trade negotiation and expectations of Fed’s policy stance. Among the major FICC asset classes in China, we see decent asymmetry in RMB-denominated bonds due to a dovish PBOC and potential appreciation if a deal is reached, which is the reason why we are moderately constructive towards such bonds on an unhedged basis. Outside China, we expect the policy put, if we see one, may benefit capex commodities (e.g. copper, iron ore and steel) and the countries exporting these commodities.

______________

[1]PBOC: Purposes and Functions

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