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April 23 2019

Commentary by Eoin Treacy

Trump Stirs Alarm That He May Be Giving China a New Trade Weapon

This article by Shawn Donnan and Jenny Leonard for Bloomberg may be of interest to subscribers. Here is a section: 

Details of the U.S. commitments and how the enforcement mechanism will operate remain scant. But Mnuchin’s comments have caused plenty of raised eyebrows from legal scholars to the business community and Congress.

If the U.S. allows China reciprocal enforcement powers, it would make China “judge, jury and executioner as to whether we have honored our obligations,’’ said Daniel Price, who served as a senior economic adviser to President George W. Bush and is now at Rock Creek Global Advisors in Washington. “I don’t think the U.S. business community is sufficiently alert to the risk of constantly being exposed to unilateral enforcement action by China.”

Details of the U.S. commitments and how the enforcement mechanism will operate remain scant. But Mnuchin’s comments have caused plenty of raised eyebrows from legal scholars to the business community and Congress.

If the U.S. allows China reciprocal enforcement powers, it would make China “judge, jury and executioner as to whether we have honored our obligations,’’ said Daniel Price, who served as a senior economic adviser to President George W. Bush and is now at Rock Creek Global Advisors in Washington. “I don’t think the U.S. business community is sufficiently alert to the risk of constantly being exposed to unilateral enforcement action by China.”
 

Eoin Treacy's view -

The quid pro quo of testing and enforcement is a clear risk from the impeding trade deal between the USA and China. Perhaps most important of all is that if the deal goes ahead as suggested above it represents a clear admittance that China is on par with the USA geopolitically. That may have already been a fact but it is quite something else to codify it in a treaty governing trade.



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April 18 2019

Commentary by Eoin Treacy

On Target

Thanks to Martin Spring for this edition of his ever-interesting letter. Here is a section on the coal market which I found particularly illuminating: 

While climate-change activists make a lot of fuss about the US, where emission of greenhouse gases has been in decline, they aren’t demonstrating loudly about China -- which attacks developed countries for not doing enough, while itself doing most to worsen it,

The New York Times reports that China, the world’s leading emitter of greenhouse gases from coal, now admits it’s burning up to 17 per cent more coal than its government previously claimed when it signed up for the Paris accord.

And it’s making things worse. Across China the government is building a fleet of new coal-fired stations with 259 gigawatts of capacity, while outside the country it’s financing even more new coal plants, providing $36 billion for 399 gigawatts.

“Chinese bankers and project planners like coal-backed projects because they are cheap,” says the energy consultancy IEEFA. “While they are restricted by Chinese pollution and emissions targets at home, they are free to fund coal-backed projects abroad.”

Eoin Treacy's view -

The standard of living attained by China’s middle class has resulted in a clear call for cleaner air and the government is intent on showing progress. However, there is no getting around the fact that coal fired power stations are cheap to build and run and are very reliable. Moreover, China has plenty of experience building them and there is a ready market for coal in emerging markets, not least in India and increasingly Africa.



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April 18 2019

Commentary by Eoin Treacy

The World's Biggest Electric Vehicle Company Looks Nothing Like Tesla

This article by Matthew Campbell and Ying Tian for Bloomberg may be of interest to subscribers. Here is a section:

In automotive circles, Wang’s predictions of the combustion engine’s imminent demise often meet profound skepticism. Chinese sales of new-energy vehicles, a category comprising plug-in hybrids, pure EVs, and fuel-cell cars, more than tripled from 2015 to 2018, but they still account for only 4.5 percent of the total. The doubters, he argues, underestimate the country’s capacity for reinvention. “The Chinese way is to replace everything at once,” Wang says. “When we switched from black-and-white to color TVs, it took three years. In the West it was 10. Going from feature phones to smartphones took about one year. In Europe it was three. Cars will be the same. It will go very fast.”

Eoin Treacy's view -

China is a massive oil and gas importer but has abundant coal reserves. It therefore has a clear incentive to use less gasoline and natural gas and more coal. Electric vehicles fit squarely into that equation. Since coal is massively polluting nuclear energy is another growth industry in China.




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April 15 2019

Commentary by Eoin Treacy

China Stocks Fall as Better Data Dim Prospects of More Stimulus

This article from Bloomberg News may be of interest to subscribers. Here is a section:

"The credit data lifted expectations on market liquidity and economic fundamentals," said Wang Jianhui, a Beijing-based analyst with Capital Securities Co. "It provided an excuse for investors who wanted to bottom fish stocks after last week’s correction. But it’s more likely a technical rebound as there hasn’t been any substantial change in fundamentals."

The decline in mainland shares came after some companies issued profit warnings. In Shenzhen, Jiangling Motors Corp. sank by the 10 percent daily limit after it predicted an 84 percent decline in first-quarter net income from a year earlier.

Shandong Chenming Paper Holdings Ltd. slid 8.9 percent after saying its first-quarter profit may plunge 94 percent to 96 percent.

"While the macro numbers suggest a recovering trend, things are still looking weak in the micro segments including corporate profits," said Shen Zhangyang, a Shanghai-based strategist with
Northeast Securities Co.

Eoin Treacy's view -

The catch-22 facing policy makers is if they stimulate too much, they risk a bubble developing but if they don’t do enough, they risk a contraction. That is a clear reflection of the role liquidity has played in the evolution of the bull market over the last decade and how reliant on stimulus it is for continued expansion. They generally err on the side of caution so that is supportive of continued support.



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April 12 2019

Commentary by Eoin Treacy

PBOC Support to Stay Even Amid Credit Upswing

This article by Chang Shu and David Qu from Bloomberg Economics may be of interest to subscribers. Here is a section:

The robust rate of credit expansion this year doesn’t rule out continued monetary easing. We think that’s still needed to help the economy find a solid footing, though the focus should increasingly shift to targeted measures.

Broad-based easing is still needed to provide liquidity to the banking sector so it can sustain the expansion in credit. The need is higher in 1H and we continue to see the possibility of reductions in the reserve requirement ratio, with the first potentially coming as early as in April.

There’s less of a necessity for an interest rate cut, in our view.

Targeted measures are important for channeling funding to sectors in greater need of funding -- small, private firms -- to lower their effective borrowing costs.

Eoin Treacy's view -

The result of the People’s Congress was to declare victory in the containment of the shadow banking sector and to signal a clear willingness to boost credit growth to reinvigorate speculative activity. That has resulted in the stock market popping on the upside, reversing the pattern of deterioration that prevailed for all of 2018.



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April 08 2019

Commentary by Eoin Treacy

Economic Think Tank Says Korea Now in Recession

This article by Choi Hyun-mook and Shin Su-ji for ChosunMedia may be of interest to subscribers. Here is a section:  

The state-run Korea Development Institute on Sunday said Korea is slowly going into recession. The KDI said Sunday that the economy is "in a phase of gradual slowdown" as demand both overseas and at home shrinks.

Until last October, the institute had said Korea's economy was improving.

According to market researcher CEO Score, investment at 855 subsidiaries of Korea's top 60 businesses fell 3.1 percent last year to W98.5 trillion (US$1=W1,139).

Some 35 of them slashed spending last year. Samsung's cutbacks were particularly drastic with 46 subsidiaries reducing investment by 25.7 percent to W28.5 trillion.

Eoin Treacy's view -

South Korea is deeply embedded in the global economy and as a major electronics and vehicle exporter its health is an important barometer for the wider global economy.



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April 02 2019

Commentary by Eoin Treacy

Taipei blasts 'provocative' Chinese fighter jet incursion across Taiwan Strait line

This article by Jesse Johnson may be of interest to subscribers. Here is a section:

However, Glaser said that the Chinese “haven’t done so for at least a decade, likely longer.”

“I’ve been told that Chinese jets approach the midline, but then veer off,” she said.

The flight came just after Taiwan President Tsai Ing-wen capped off a tour of several Pacific nations with a visit last week to Hawaii, where she said she had formally submitted new requests to the United States for F-16B fighter jets.

The U.S. has no formal ties with Taiwan but is bound by law to help it defend itself and is the island’s main source of arms. The Pentagon says Washington has sold Taipei more than $15 billion in weaponry since 2010.

China is suspicious of Tsai and her pro-independence Democratic Progressive Party and any push for the island’s formal independence.

Chinese President Xi Jinping said in January that Beijing reserves the right to use force to bring Taiwan under its control, but would strive to achieve peaceful “reunification.”

Beijing has called Taiwan “the most important and sensitive issue in China-U.S. relations” and has bolstered its military presence near the island, sailing its sole operating aircraft carrier through the Taiwan Strait in January and March of last year and holding large-scale “encirclement” exercises and bomber training throughout 2018.

Eoin Treacy's view -

Anything that promotes the notion of Taiwan declaring statehood is being met with progressively more strident efforts by China to stamp it out. Xi Jinping has succeeded in having his doctrine written into the constitution and he is economic plan is to make China the preeminent global economy. However, the crown jewel for any Communist Party leader, something that would ensure he is remembered forever in the annals of history would be to reacquire Taiwan.



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March 29 2019

Commentary by Eoin Treacy

Chinese Stocks Wrap Up Best Quarter Since 2014 With a Huge Rally

This article from Bloomberg News may be of interest to subscribers. Here is a section:

Friday’s surge in Chinese stocks rounds up a winning quarter for the country’s investors. China’s equities have outrun every other national market in the world in the three-month period. The CSI 300 Index’s 29 percent rally is its best since the end of 2014, when the nation’s equity bubble was forming. Apart from a Taiwanese chipmaker, a Brazilian steel producer and Latin America’s largest utility, all the top 30 performers on MSCI Inc.’s emerging-market benchmark are Chinese companies.

Managing a momentum-driven investor base, where turnover is in the hands of almost 150 million retail traders, has always been a challenge for the government. China’s experienced two massive bubbles in the past decade, with a tight-grip approach to tame the rally backfiring in 2015, drawing the ire of foreign investors. Analysts predict Beijing will be more successful this time in engineering a slow bull market.

“It’s a critical time for the market,” said Liao Zongkui, an analyst at Lianxun Securities Co. “Investors are keeping a close eye on earnings from heavyweight companies. A good results season will be a big confidence boost, and will ensure the stock-market rally can continue.”

Eoin Treacy's view -

Veteran subscribers will be accustomed to our long-time contention that monetary policy beats most other factors most of the time. That’s particularly true on Wall Street and is an even more important factor in the age of extraordinary monetary policy. In China, the state dictates the fate of the market so it is clear that bull markets are state sponsored.



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March 20 2019

Commentary by Eoin Treacy

Italy set to formally endorse China's Belt and Road Initiative

This article from the Financial Times may be of interest to subscribers. Here is a section:

Chinese investments have become increasingly contentious in the EU. Diplomats in Brussels and influential western European capitals have long worried the 16+1 grouping of China and central and eastern European states, including 11 EU members, is a Trojan horse to divide the bloc. Beijing has denied this suggestion.  EU member states such as Germany and France have pushed for tougher screening criteria for Chinese investments. They want the bloc to develop a more unified strategy amid rising tensions over the security implications of using Chinese technology from companies such as Huawei, the telecoms group. Other countries including Greece and Portugal, where Chinese groups have invested billions of euros since the financial crisis, have adopted a more lenient approach.

Eoin Treacy's view -

I can’t help but think of the adage “a drowning man will clutch at a straw”. Italy’s populist administration has need of both funds for investing in public works and also a desire to snub the federalist ambitions of Northern European creditors. Meanwhile, China has a clear ambition to draw European countries within its sphere of influence in an effort to cement export markets and to weaken the chances of a concerted effort to blunt its expansionism.



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March 18 2019

Commentary by Eoin Treacy

China Wants Its Stock, Bond Markets to Step Up Funding Role

This article from Bloomberg News may be of interest to subscribers. Here is a section:

“We need to create a strong capital market,” Guo Shuqing, the country’s chief financial regulator, said at the National People’s Congress, China’s top legislative session which wrapped up last week. “We could do more work especially in the capital market -- stock market, bond market -- for direct financing.”

China is trying to transform how it funds its economy after decades of relying on state-run banks that benefit from the implicit backing of the nation’s treasury -- but tend to direct most loans to other government-owned companies. The difficulty that small and private firms have in securing funding was one reason for an explosion of shadow-banking, and the rapid increase in debt and risk that came with it.

Spurred to act by a record $34 trillion debt pile, authorities in recent years have cracked down on risky loans, squeezing businesses that relied on such funding. While leaders including Guo have called on the banks to do more to finance private companies, lenders are grappling with their own concerns about loan quality and default rates. Even so, outstanding banks loans in China have increased by about 27 percent since 2016, while capital-market funding rose by around 15 percent.

“We shouldn’t put all the pressure on banks,” Xu Kuijun, an NPC delegate and vice president at Bank of China Ltd. In Shanghai said in an interview at the sidelines of the gathering. “We have to rely more on direct financing, and capital markets should do more.”

Eoin Treacy's view -

There is nothing says “We are done with tightening” quite like the statement “capital markets should do more”. The dominant policy narrative in China for the last three years has been the need to curtail speculation and most particularly in the shadow banking sector.



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March 13 2019

Commentary by Eoin Treacy

China's economy is 12% smaller than official data say, study finds

This article by Gabriel Wildau for the Financial Times may be of interest to subscribers. Here is a section:

For years, the sum of China’s provincial GDP has exceeded the national figure, a clear sign of statistical inflation at the local level. The National Bureau of Statistics (NBS) has previously acknowledged that “some local statistics are falsified”, and in 2017 the central government accused three provinces in China’s north-east rust belt of fabricating data. 

The Brookings paper highlights how the NBS in Beijing struggles to make adjustments to the inflated data it receives from local officials. The analysis finds that the central government’s adjustments to local data are mostly accurate before 2007-08 but “after this date no longer appear to be accurate”. 

The NBS said last year that it would assert greater control over provincial data collection beginning in 2019 to eliminate discrepancies between local and national data. 

“NBS has done a lot of work to weed out the fake numbers added by local government, but it just doesn’t have enough power and capacity, nor the right incentives,” Michael Zheng Song, economics professor at the Chinese University of Hong Kong and a co-author of the paper, told the FT. “It would be unfair to blame NBS for fabricating GDP numbers.”

Eoin Treacy's view -

The reliability of Chinese data has been an enigma investors’ have been pondering for decades. It’s not really a question we can answer with any degree of confidence so the best course of action is to monitor the actions that can be backed up with some degree of confidence.



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March 08 2019

Commentary by Eoin Treacy

Email of the day on differences between the performance of the FTSE A50 Index and the Shanghai A-Shares Index.

Would you care to comment on the different behaviour of the China A-50 future and the A-Share indices themselves?  It has been ironic, and frustrating, that while you and all the media talk of surging A-Share prices, the A-50 future, which is the one one can actually trade, has come down very sharply in the last few days.

Eoin Treacy's view -

Thank you for this email which highlights an interesting development. The FTSE-50 is much more concentrated that the Shanghai A-Shares Index which has 1453 members. In fact, its largest constituent, Ping An Insurance, occupies 12.31% of the Index. That is the largest weighting for an insurer in any of the China focused indices and ensures the Index does not track the performance of the mainland market as closely as one might like.



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March 05 2019

Commentary by Eoin Treacy

China Sees Tough Battle in Boosting Growth Without Debt Blowout

This article from Bloomberg news may be of interest to subscribers. Here is a section:

In all, Li rolled out tax cuts worth almost 2 trillion yuan ($298 billion) and pledged further stimulus ahead. While that emphasis on stronger fiscal policy can be seen as a loosening from last year’s vow to curb financial risks and trim the budget, the overall goal is still to buffer the economy without letting debt accelerate once more. That’s a balancing act that will be severely tested should any new threats to growth appear.

“It’s a big fiscal push,” said Michael Spencer, global head of economics at Deutsche Bank AG in Hong Kong. “There’s a reluctance to just turn on the infrastructure tap if they don’t need to.”

Li warned that China faces a graver and more complicated environment this year. He’s trying to rekindle lending to the private sector, mindful that the total debt pile is approaching 300 percent of GDP. “China must be fully prepared for a tough struggle,” he said.

Eoin Treacy's view -

Fiscal stimulus is in fashion and why should China be any different? The global economy is transitioning from a period of synchronised global monetary expansion to fiscal expansion. That is also stimulative but is likely to have more of an effect on consumer demand that central bank balance sheets.



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March 01 2019

Commentary by Eoin Treacy

Chinese Shares Gain Global Sway Thanks to Index Firm's Move

This article by Shen Hong and Michael Wursthorn for the Wall Street Journal may be of interest to subscribers. Here is a section:

Analysts say managers of funds that track MSCI’s emerging-markets index, such as the iShares MSCI Emerging Markets exchange-traded fund, are expected to make the necessary changes to bring their vehicles in line with the new weightings.

BlackRock Inc.’s global head of markets and investments for iShares and index investing, Manish Mehta, welcomed MSCI’s move, saying “the gradual addition of onshore Chinese securities deepens the investment opportunity for global investors, and we look forward to continued development in the market and regulatory environment to facilitate this increased access.”

Morgan Stanley analysts estimate that foreign inflows into mainland Chinese stocks could reach $100 billion to $220 billion a year over the next decade, with foreign ownership of the market rising to as much as 10%, from 2.6% now.

Eoin Treacy's view -

It will be impossible for the vast majority of foreign investors who invest in emerging markets to avoid China when these index changes go through. The MSCI Emerging Markets Index is already heavily weighted by Chinese companies and with the introduction of the State-Owned sector and smaller Chinese tech companies the influence of China on perceptions for the entire emerging world will only increase.



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February 28 2019

Commentary by Eoin Treacy

In China, Distressed Debt Can Be AAA

This article by Chris Anstey and Lianting Tu for Bloomberg may be of interest to subscribers. 

Enter the Foreign Raters! authorities have a record of pulling out the stops to aid some corporate debtors, including pressuring creditors into providing funding even after a company has defaulted. So it’s hard to imagine they’d be patient with downgrades by a foreign ratings company that could make it difficult for a troubled borrower to refinance.

Yet regulators in Beijing recognize that allowing credit to be priced based on the risk of the borrower could make investment across the economy more efficient. The People’s Bank of China says a certain amount of defaults can be healthy. And it sees foreign investors as a catalyst for reform. Given that those investors would prefer ratings akin to what they’re used to elsewhere, China in 2017 opened the door to the big three global ratings companies to operate wholly owned units.

S&P has hired at least 30 analysts for its Beijing office, preparing to open for business soon, says Simon Jin, chief executive officer of the company’s new China unit. The question on the minds of observers is just how S&P, along with Moody’s Investors Service and Fitch Ratings—if and when they follow—will manage to produce ratings that enjoy the confidence of international investors while also expanding business in a market that may not welcome hard truths about creditworthiness. Jin says “there is genuine demand for objective and reliable ratings in China” and that S&P plans “to provide Chinese market participants the same standards of transparency and independent analysis as we do anywhere else in the world.”

Eoin Treacy's view -

China’s growth since it began to open up over the last few decades has been supported by protectionism on the one hand but by outright support for domestic industry on the other. That manifested itself in free land for factories, generous open- ended credit availability through the banks, zero to low taxation, lax or no regulation, ignoring environmental standards and the creation of markets for the products produced. That resulted in rampant credit growth and, with clear government support, there were very low credit standards provided it served the national interest of industrialisation and full employment. 



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February 25 2019

Commentary by Eoin Treacy

Wild Week Ahead for Trump, Kim, Brexit, Cohen and Fed's Powell

This article by Tony Czuczka for Bloomberg may be of interest to subscribers. Here is a section:

After days of buildup, Trump kicked off the week by delaying a threatened increase in U.S. tariffs on Chinese imports and dangling a summit with President Xi Jinping at Mar-a-Lago, his Florida retreat, if “both sides make additional progress.” Along the way, he slapped down Lighthizer on a semantic point. Earlier, the two sides were haggling over how to ensure Beijing lives up to its promise to not weaken the yuan. Trump then reported substantial progress, including on currency.

And

Look for Powell to offer signals on what’s next for the Fed during two days of congressional testimony. When they last met, policy makers broadly backed ending the runoff of the central bank’s balance sheet. Lighthizer, who testifies Wednesday, may give a sense of how likely the U.S. is to impose tariffs on auto imports. The European Union is threatening to hit back. U.S. fourth-quarter gross domestic product, due Thursday, is expected to show 2.5 percent expansion last year, short of the Trump administration’s ambitious goal.

Eoin Treacy's view -

The Shanghai A-Share Index rose 5.95% as investors raced to price in the conclusion the trade war is over. The Index has been trending downwards for more than a year but broke its sequence of lower rally highs two weeks ago and extended that advance today.



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February 22 2019

Commentary by Eoin Treacy

U.S. Bets on China's Special Envoy in Trade Talks

This article by Lingling Wei and Bob Davis for the Wall Street journal may be of interest to subscribers. Here is a section:

While Chinese negotiators offered to stop providing government subsidies that distort prices and put Western rivals at a disadvantage, they haven’t so far produced a list of subsidies they would be willing to eliminate, the people said.

Instead, the Chinese side so far has focused its offer on greater purchases of U.S. agricultural and energy products such as soybeans, crude oil and liquefied natural gas, they said.

Whatever deal is struck, the U.S. is also seeking guarantees it will be enforced and a means to resolve disputes.

“It’s one thing to write something on a piece of paper,” said Secretary of State Mike Pompeo on Fox Business Network on Thursday. “It’s another thing to have enforcement mechanisms. And I know our trade team is hard at work, making sure that the American people get that.”

Eoin Treacy's view -

How likely is it that the USA and China will reach a trade agreement? I think it comes down to two factors. What is it that the USA wants from a deal and what is China willing to give up?



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February 20 2019

Commentary by Eoin Treacy

The Reasons Why China's Stock Rally Is Nearing $1 Trillion

This article from Bloomberg News may be of interest to subscribers. Here is a section:

The rally since January has added more than $893 billion to the value of the country’s equities, lifting Shenzhen’s risky startups and state-backed giants alike. The rebound has been so quick and widespread that it’s already triggered signs of overheating in four of China’s major benchmarks. The CSI 300 Index’s 15 percent rally is its best start to any year in a decade, and turnover across all exchanges is near the highest since March.

While valuations have been low for months, Chinese equities really took off only after another set of weak economic data made monetary policy easing almost a certainty. Gains intensified when the new securities watchdog eased restrictions on trading, encouraging an increase in leveraged bets. Ample liquidity and a streak of foreign buying have fueled volumes.

“It’s essentially a reflection of change in investor expectations,” said Wang Chen, a Shanghai-based partner with XuFunds Investment Management Co. “The rally’s been driven by a return in risk appetite and a valuation catch-up.”

Eoin Treacy's view -

Bull markets in China tend to be state sponsored. China’s stock market is dominated by the actions of huge numbers of retail investors who are accustomed to taking cues from the government on when to participate.



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February 18 2019

Commentary by Eoin Treacy

China Stock Rally Accelerates as Momentum Hits Three-Year High

This article from Bloomberg news may be of interest to subscribers. Here is a section:

A rally in Chinese equities steepened Monday as bumper credit figures for January added to signs of increased stimulus.

The Shanghai Composite Index jumped 2.7 percent by the close, taking its rebound since a Jan. 3 low to 12 percent, as turnover on mainland exchanges reached a 10-month high. The small cap ChiNext index in Shenzhen, typically the most speculative part of the market, soared more than 4 percent. The surge weighed on government bonds, with the 10-year yield climbing the most in two months.

The nation’s equities, which were the world’s worst performing in 2018, are starting to take off as the new securities regulator eases curbs on trading and an economic slowdown spurs monetary easing. In a sign of how broad the rally has been, the relative strength of four major indexes have all climbed above 70 -- a level that signals to some traders an asset may be overheating. The last time that happened was May 2015, when the equity market was in a bubble.

Eoin Treacy's view -

I posted this chart of the impact tightening measures have had on the Chinese shadow banking sector a month ago. It is a clear signal both of the reasons for the slowdown in economic activity and the rationale the authorities now have to declaring the policy a success. It is increasingly likely that the Chinese authorities are now willing to start stimulating the economy again.



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February 12 2019

Commentary by Eoin Treacy

Trump Open to Letting March 1 Deadline for China Tariffs Slide

This article by Saleha Mohsin and Margaret Talev for Bloomberg maty be of interest to subscribers. Here is a section:

President Donald Trump said he is open to letting a March 1 deadline to raise tariffs on Chinese products pass without penalty if the two sides are near an agreement, sending a conciliatory signal as talks to resolve a trade war between countries continue.

“If we’re close to a deal where we think we can make a real deal and it’s going to get done, I could see myself letting that slide for a little while,” Trump said to reporters during a cabinet meeting on Tuesday. “But generally speaking I’m not inclined” to delay raising tariffs, he added.

Negotiators from the world’s two largest economies began their latest round of talks this week ahead of the March 1 deadline for additional U.S. tariffs on Chinese goods. Trump has threatened to more than double the rate of tariffs on $200 billion in Chinese imports.

Eoin Treacy's view -

It would really be bad form to introduce new tariffs while productive discussions are still ongoing so it is quite likely the March 1st deadline will be exceeded. That does not guarantee a deal will be struck but it is in the interests of both parties to make some form of agreement. What is almost certain is there will be an agreement to hold further talks.



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February 11 2019

Commentary by Eoin Treacy

Trump Has China Where He Needs It

This article by J. Kyle Bass and Daniel Babich may be of interest to subscribers. Here is a section:

“Water keeps the boat afloat but can also sink it” is a Chinese proverb that neatly summarizes the nation’s current economic predicament. The debt that has hydrated the Chinese financial system for the past 10 years is now drowning it.

During the darkest days of the financial crisis in 2008, China launched a 4 trillion renminbi ($593 billion in today’s dollars) infrastructure plan that was accurately described as pulling the global economy out of recession. This infrastructure stimulus plan never ceased, and by 2017 the 4 trillion of spending ballooned to 14 trillion, according to China’s National Bureau of Statistics.
 
At first, China benefited from the economic reforms of the 1990s, its ascension into the World Trade Organization and the resultant inflow of foreign investment by Western companies. By 2009, the previous decade of strong growth meant wages and price levels had risen such that China was no longer a low-cost manufacturer. This made it implausible that exports could drive economic growth. Therefore, China’s central bank printed money to fund a gargantuan stimulus program. 

History tells us that growth that is funded by excessively rapid credit and money creation can lead to a variety of asset bubbles and to financial, credit and currency crises. A broad measure based on data from the People’s Bank of China and other agencies that includes both bank assets and shadow banking assets such as wealth management products, trust beneficiary rights and trust loans, places China’s total credit at $48 trillion, about 3.7 times its gross domestic product. That compares with $24 trillion for the U.S. despite China having an economy that is 37 percent smaller. China’s decade of rapid credit creation and investment spending has led to soaring property values, despite high vacancy, and low wage levels. These led to tepid export growth and a stagnating economy as the export industry lost competitiveness.

Eoin Treacy's view -

China has a mountain of debt that is concentrated in the regional banking sector and municipal governments. In attempting to wean the economy off of reliance on stimulus they have closed off successive avenues of credit ranging from interbank loans, P2P lending/shadow banking, US Dollar denominated debt. That withdrawal of credit has been one of the primary contributing factors in the underperformance of Chinese assets over the last 18 months.



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February 04 2019

Commentary by Eoin Treacy

Foxconn Says It Will Move Forward With Wisconsin Plant After Conversation with Trump

This article from the Wall Street Journal may be of interest to subscribers. Here is a section: 

On Wednesday, a top aide to Mr. Gou said high labor and production costs in the U.S. would make it difficult for Foxconn to compete with rivals if it manufactured LCD displays in Wisconsin. Louis Woo, a special assistant to Mr. Gou, said Wednesday that roughly three-quarters of Foxconn’s Wisconsin jobs would be in research, development and design, instead of manufacturing.

The back and forth came after the Taiwanese contract manufacturer fell short of a job-creation target in Wisconsin last year to obtain tax credits, amid a tight U.S. labor market. The Wall Street Journal reported in November that Foxconn considering bringing in engineers from China to Wisconsin as it struggled to find personnel locally.

Wisconsin state lawmakers lauded Foxconn’s announcement Friday. “We want to thank President Trump for his commitment to Wisconsin workers—our state has an ally in the White House,” said state Assembly Speaker Robin Vos and state Senate Majority Leader Scott Fitzgerald, both Republicans.

Eoin Treacy's view -

The performance of the share epitomises just how exposed the company is to the deteriorating relationship between the USA and China, hence the willingness to persist with building its factory in Wisconsin.  



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February 01 2019

Commentary by Eoin Treacy

China Meets Foreign Investors' Demands With Latest Rule Changes

This article from Bloomberg news may be of interest to subscribers. Here is a section:

China’s authorities have given international investors an early Spring Festival gift: ready access to almost all areas of the country’s capital markets.

Proposed changes announced late Thursday as part of a slew of new regulations include letting offshore funds trade more types of futures and options. Just days before the biggest holiday in the Chinese calendar, regulators also had something for domestic investors, including scrapping an automatic margin call threshold, allowing more types of collateral for certain loans and lowering capital requirements for riskier assets.

The measures targeting overseas firms will greatly expand the scope of the Qualified Foreign Institutional Investor program, one of the key channels into China, highlighting the authorities’ determination to open up their financial system and meet demands from international institutions for broader access.

The moves will give foreigners the same range of investment options as local players, said Yang Hai, an analyst at Kaiyuan Securities Co.

“Institutions looking to hedge and even short-sell Chinese stocks are likely to enter the market in future,” as a result of the changes, said Yang. “I think it has something to do with the China-U.S. trade negotiations, but it’s also about the financial opening promise.”

Eoin Treacy's view -

China is willing to open up its financial system to overseas investment but not its technology, communications, online retail or other sectors. There is a clear reason for that delineation. The risks to China’s economy reside within the financial system. The most basic premise of insurance is to pool risk. By giving overseas investors access to the financial system the risk from overleverage is shared and therefore the risk attached to the domestic market is reduced. The same rationale does not apply to other sectors which is why opening up continues to remain slow.



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January 29 2019

Commentary by Eoin Treacy

Iron Ore Market Shudders as Dam Disaster Spurs Supply Concerns

This article by Krystal Chia for Bloomberg may be of interest to subscribers. Here is a section:

Iron ore investors are attempting to gauge the fallout from the dam burst at one of Vale SA’s mines, amid concerns the disaster will have ramifications beyond the affected operation in Brazil that could tighten the market in the short term and offset weakness from a slowdown in China.

Futures on the Dalian Commodity Exchange extended gains on Tuesday to head for the highest close in more than a year, after the benchmark price for immediate delivery surged to $78.80 a ton on Monday, the highest level since March. Shares of Australia-based miners rallied, with gains for BHP Group, Rio Tinto Group and Fortescue Metals Group Ltd.

In Brazil, “it seems likely that there will be an extensive increase in safety tests over the coming weeks and months,” Capital Economics Ltd. said in a note, raising its end of first quarter forecast to $75 a ton. “These tests may highlight other vulnerabilities in the system that could lead to temporary
cutbacks at one or more mines until the issues are addressed.”

Eoin Treacy's view -

This is not the first time a dam breach has impacted Brazilian supply and led to loss of life. In fact, BHP and Vale have only just reached a settlement with the communities affected by the Samarco accident in 2015. 



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January 29 2019

Commentary by Eoin Treacy

Mnuchin Signals Chance to End China Tariff War Ahead of Talks

This article by Saleha Mohsin for Bloomberg may be of interest to subscribers. Here is a section:

U.S. Treasury Secretary Steven Mnuchin said that if China presents enough trade concessions to President Donald Trump, there is a chance that the administration may seek to lift all tariffs. “Everything is on the table,” Mnuchin said early Tuesday during an interview on Fox Business News “Mornings With Maria” program. The Treasury chief is set to meet with top Chinese officials in Washington on Wednesday and Thursday alongside U.S. Trade Representative Robert Lighthizer about a month before the U.S. is set to escalate the trade war with China with fresh tariffs.

Trump and China’s Xi Jinping gave their officials until March 1 to work out a deal on “structural changes” to China’s economic model. If they fail, Trump has promised to raise the tariff rate on $200 billion in Chinese imports to 25 percent from 10 percent. The collapse of talks would dash hopes of a lasting truce that would remove one of the darkest clouds hanging over the world economy.

 

Eoin Treacy's view -

Considering what is at stake in terms of economic growth for both China and the USA and the impact a deterioration in relations would have on an already edgy stock market, at least a commitment to continue talking is likely. It would be unreasonable to raise tariffs further while that is ongoing.



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January 28 2019

Commentary by Eoin Treacy

GMO Quarterly Letter Q4 2018

Thanks to a subscriber for ths report which may be of interest. Here is a section on the outlook for 2019:

Eoin Treacy's view -

A link to the full report and a section from it are posted in the Subscriber's Area.

There are two particularly pervasive views among institutional investors right now. The first is that emerging markets are due a period of outperformance and are cheap on relative value measures, particularly versus the USA. The second is the Dollar is going down in a big way from here, which of course would boost the prospects for emerging market currencies



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January 25 2019

Commentary by Eoin Treacy

Tencent Scores Twin Game Approvals After Months-Long Freeze

This article by Lulu Yilun Chen may be of interest to subscribers. Here is a section:

China’s gaming industry, which generates more than $30 billion of revenue, was hammered in 2018 after regulators froze approvals for new games, preventing companies from making money off their hits. That spurred Tencent’s first profit drop in at least a decade and helped wipe about $200 billion off its market value at one point. Regulators are now working through a backlog of thousands of games that accumulated as a result -- more than 350 have been cleared since December.

“Although the news flow on game approvals remains positive, we view the most important games in the pipeline are PUBG and Fortnite,” Mizuho analysts led by James Lee wrote. “These games are likely in the back of the queue due to political tension with Korea and the U.S.”

Eoin Treacy's view -

Computer games are engrossing but more importantly the trend of online play creates diverse communities of people that identify with one another outside of racial, class, gender, age or other stereotypes. The banning of the Nei Han Duan Zi jokes site last April was initiated because it offered an outlet for people who laugh at authority and it had become a forum for nonconfirmism. The banning of new computer games was less about protecting childrens’ eyesight and more about controlling social interaction. 



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January 24 2019

Commentary by Eoin Treacy

Wilbur Ross on the trade Negotiations

This quote may be of interest to subscribers:

...We're miles and miles from getting a resolution and that shouldn't be too surprising. Trade is complicated. There are lots and lots of issues, not just how many soybeans and how much LNG but even more importantly, structural reforms that we really think are needed in the Chinese economy. And then, even more important than that, enforcement mechanisms and penalties for failure to adhere to whatever we agree to.

People shouldn't think the events of next week will be the solution to all of the issues between the United States and China. It's too complicated a topic. Too many issues. That's different from saying we won't get to a deal. I think there's a fair chance we do get to a deal.

Eoin Treacy's view -

How confident is China in its claims to be a global superpower? That’s the only real question in measuring how likely they are to agree a meaningful trade deal with the USA.



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January 23 2019

Commentary by Eoin Treacy

China Risks Real Hard Landing This Time

This article by Nathaniel Taplin for Bloomberg may be of interest to subscribers. Here is a section:

In other words, in the past year, banking-system liquidity has risen by about a fifth, but net credit growth has fallen by about a third. The reason is clear. Shadow finance outstanding fell by a full 10% in 2018—by far the sharpest contraction on record.

Regulators realize they have a problem. They are now trotting out new central bank lending facilities to goad banks into extending credit to small enterprises. And the economy still has some cushions. Infrastructure investment is rising again. Consumers are struggling, but less than headlines would suggest.

Both of these bulwarks aren’t as strong as a couple of years ago—consumers are more indebted and a separate campaign against off-balance sheet infrastructure fundraising is still crimping investment. If the property market falls apart, China will be in serious trouble.

China’s inefficient financial system has long needed surgery. By excising the shadow banking system without a proper transplant to replace it, regulators risk killing the patient.

Eoin Treacy's view -

China’s headline government debt is comparatively small by international standards. However, its private sector debt is larger than the USA’s government debt. By first cutting off access to funding from the state banks, then cutting off shadow banking, then banning US Dollar loans, successive windows for funding have limited access of businesses to capital.



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January 18 2019

Commentary by Eoin Treacy

China Is Said to Offer Path to Eliminate U.S. Trade Imbalance

This article from Bloomberg News may be of interest to subscribers. Here is a section:

China has offered to go on a six-year buying spree to ramp up imports from the U.S., in a move that would reconfigure the relationship between the world’s two largest economies, according to officials familiar with the negotiations.

By increasing annual goods imports from the U.S. by a combined value of more than $1 trillion, China would seek to reduce its trade surplus -- which last year stood at $323 billion -- to zero by 2024, one of the people said. The officials asked not to be named as the discussions aren’t public.

The offer, made during talks in Beijing earlier this month, was met with skepticism by U.S. negotiators who nonetheless asked the Chinese to do even better, demanding that the imbalance be cleared in the next two years, the people said.

Economists who’ve studied the trade relationship argue it would be hard to eliminate the gap, which they say is sustained in large part by U.S. demand for Chinese products.

Eoin Treacy's view -

On the face of it this is good news because it at least suggests the USA and China are engaging in productive discussions and some initiatives to end of the impasse are being discussed. The stock market continues to unwind the overextension relative to the trend mean as it prices in optimism that a deal with be struck.



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January 17 2019

Commentary by Eoin Treacy

Defense Intelligence Agency Chinese Military Power Report

This report on China’s military readiness may be of interest to subscribers. Here is a section:

China’s double-digit economic growth has slowed recently, but it served to fund several successive defense modernization Five-Year Plans. As international concern over Beijing’s human rights policies stymied the PLA’s search for ever more sophisticated technologies, China shifted funds and efforts to acquiring technology by any means available. Domestic laws forced foreign partners of Chinese-based joint ventures to release their technology in exchange for entry into China’s lucrative market, and China has used other means to secure needed technology and expertise. The result of this multifaceted approach to technology acquisition is a PLA on the verge of fielding some of the most modern weapon systems in the world. In some areas, it already leads the world.

Chinese leaders characterize China’s long-term military modernization program as essential to achieving great power status. Indeed, China is building a robust, lethal force with capabilities spanning the air, maritime, space and information domains which will enable China to impose its will in the region. As it continues to grow in strength and confidence, our nation’s leaders will face a China insistent on having a greater voice in global interactions, which at times may be antithetical to U.S. interests. With a deeper understanding of the military might behind Chinese economic and diplomatic efforts, we can provide our own national political, economic, and military leaders the widest range of options for choosing when to counter, when to encourage, and when to join with China in actions around the world.

Eoin Treacy's view -

China is building aircraft carriers and a daisy chain of military bases from the Persian Gulf back home. No one would engage in that kind of expense unless they wish to project power and protect their interests internationally.



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January 15 2019

Commentary by Eoin Treacy

China Presses on With Tax-Cut Strategy as Lending Stabilizes

This article from Bloomberg news may be of interest to subscribers. Here is a section: 

China’s government is turning increasingly to tax cuts as the first line of defense against a slowing economy, as credit data released Tuesday showed some vindication of its gradual stimulus strategy.

Further evidence of the dominance of fiscal measures emerged, as senior policy officials pledged that tax reductions on a “larger scale” are in the pipeline, amid worsening output and trade data. JPMorgan Chase & Co. economists estimate the total impact will be around 2 trillion yuan ($300 billion), or 1.2 percent of gross domestic product.

That’s a departure from the infrastructure binges coupled with massive monetary stimulus that were deployed in the aftermath of global financial crisis. Beijing is trying to put a floor under the economic slowdown without another debt blowout, with some success: Credit growth exceeded expectations in December, and the central bank has managed to curb riskier shadow banking throughout the year.

"At the moment the room for monetary policies is limited, and fiscal policies such as tax cuts are the crucial tool," said Cui Li, head of macro research at CCB International Holdings Ltd. in Hong Kong. The high leverage and property prices have limited the chances of massive monetary stimulus, she said.

"But as a pro-growth measure, tax cuts will take effects at a slower pace compared to infrastructure binges," she said.

Eoin Treacy's view -

The influence of the consumer on China’s economic future is helping to shape the policy response to the slowdown. Consumer spending now makes up a lot more of the economy than it did a decade ago. Meanwhile the consumer is considerably less levered than the corporate and semi-state sectors, so fiscal easing is less likely to create a disruptive bubble in the short term.



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January 14 2019

Commentary by Eoin Treacy

China's Slumping Trade Adds Pressure for Settlement With Trump

This article from Bloomberg News may be of interest to subscribers. Here is a section:

Chinese shipments are already under pressure from slowing demand from top trade partners -- Europe’s recovery is under question, with Germany triggering recession fears, Japan is facing a tougher 2019 and the U.S. itself forecast to see waning growth after a robust 2018. China’s exports to the U.S., European Union, Hong Kong, Japan and Taiwan all fell from a year earlier. South Korea’s exports--often viewed as a bellwether for world trade--fell in December.

"There is a clear downward trend," said Zhou Hao, an economist with Commerzbank in Singapore who was among the few to accurately forecast a December contraction in exports. "This is not just due to the trade war and tariffs. On top of those, the major drag is slowing global demand."

While China is no longer as dependent on trade, as the world’s largest exporter, factory output, profits and employment still hinge on demand from overseas. Its domestic appetite also affects production by commodity and machinery exporters around the world. Stabilizing trade is one of the goals the leadership set for 2019, on top of supporting employment, investment and the finance sector.

Eoin Treacy's view -

One of the primary reasons China was so willing to engage in outsized stimulus in response to the credit crisis was because of the impact the loss of demand in the USA and Europe has on the economy. The collapse in the oil price contributed to the loss of demand from the Middle East and other commodity producers. The loss so quickly of its traditional sources of foreign income both resulted in the stimulus and the commitment to support the growth of the domestic economy.



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January 07 2019

Commentary by Eoin Treacy

The rhetoric is changing, but Xi Jinping is staying the course

This article by George Magnus for the Financial Times may be of interest to subscribers. Here is a section:

The 40th anniversary of Deng Xiaoping’s opening up of the Chinese economy, and the end-of-year Central Economic Work Conference last month, suggest that Mr Xi is prepared to accede to change but not to anything that threatens China’s core interests. He cannot risk caving in to US pressure. Foreign companies and SOEs will still be required to buy and prioritise locally. Local governments and tech companies are bound to support the security, innovation, and industrial transformation of the state. Industrial policy designed to boost China’s technological and military capacity is not up for negotiation. Changes to intellectual property laws are aimed more at small businesses rather than SOEs and big technology companies. Changes in foreign ownership caps and technology transfer will have to go some way for foreign companies to back away from reconsidering supply chain strategies. So, while we can anticipate some flexibility in the optics of Mr Xi’s negotiating stance, no one really doubts that he is firmly in control, and remains committed to both the Made in China and Belt and Road strategies, which are enshrined in the party’s constitution.

Eoin Treacy's view -

Liu He, Xi’s top economic advisor, turned up at the talks between the US and China today despite the fact they were to be led by mid-level officials. That’s a signal China is taking these negotiations seriously.

The simple fact is that if China wants to achieve its ambitions of becoming a global super power in a military, economic, technological, political and cultural sense it needs to placate the USA today so that it can show its true strength later. That, in fact, was exactly the strategy Deng followed when he advised the Party to hide its strength and just play along with the global economy in opening up.



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January 04 2019

Commentary by Eoin Treacy

Cuts Banks' Reserve Ratio to Ratchet Up Support for 2019

This article from Bloomberg news may be of interest to subscribers. Here is a section:

This may in part be a reaction to the bad PMI data and the equity market sell-off we have seen," said Michelle Lam, a greater China economist at Societe Generale SA in Hong Kong.

“They’re trying to restore market confidence and need to ease credit conditions to boost lending to the private sector and because of high seasonal demand for cash.” China’s manufacturing purchasing managers index fell into the contraction territory last month, the weakest since early 2016. Early indicators for December signal the economic slowdown is deepening, after official data showed industrial production growth was the weakest in a decade and industrial profits fell
for the first time in almost three years in November.

Stimulus Pledge
Chinese financial stocks surged Friday as Premier Li Keqiang visited the nation’s biggest banks and pledged more support for the economy. Li said China will strengthen the scale of its counter-cyclical adjustments of macro policies and further cut taxes, while urging banks to take full advantage of tools including reserve ratio cuts, and to support private and small businesses’ financing needs.

“How much can this help the economy remains to be seen,” said Tao Dong, vice chairman for Greater China at Credit Suisse Private Banking in Hong Kong. “The central bank has been handing liquidity to the banks, but the banks are unwilling to lend. This is a classic case of banking disintermediation amid the
down cycle.”

Eoin Treacy's view -

China’s bank reserve requirements have been cut significantly over the last few years with little sign just yet that the banks are willing to voluntarily take on more risk. That is particularly true for the corporate sector now that defaults are a reality.



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January 03 2019

Commentary by Eoin Treacy

January 02 2019

Commentary by Eoin Treacy

Hong Kong Stocks Have the Worst Start to a Year Since 1995

This article from Bloomberg News may be of interest to subscribers. Here is a section:

Further evidence of slowing Chinese growth weighed as a closely-watched manufacturing gauge had its lowest reading since May 2017.

“There are a lot of uncertainties lying ahead,” said Banny Lam, head of research at CEB International Investment Corp. “The markets will likely be stuck in a downtrend over the next few
weeks.”

Property stocks were among Wednesday’s biggest decliners on the Hang Seng Index, with China Resources Land Ltd. and Country Garden Holdings Co. both falling more than 6 percent.

“Some funds are readjusting their positions for the new year and may be dumping stocks in sectors with an uncertain outlook like property and health care,” said Linus Yip, a Hong Kong-based strategist with First Shanghai Securities Ltd. “That’s why we’re seeing a sell-off.

Eoin Treacy's view -

Hong Kong has some of the highest property prices in the world which are a function of extraordinarily low interest rates, abundant and persistent demand from well-heeled mainland residents. Tightening liquidity is a significant threat to that trend persisting while ebbing demand from Chinese residents amid downward pressure on the domestic economy is also a concern.



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December 31 2018

Commentary by Eoin Treacy

Email of the day on a China slowdown

Many thanks for another great year of top-class service. All the very best for 2019 and beyond. The following article in today's Observer gives on-the-ground evidence of the slowdown in the Chinese economy. 

Eoin Treacy's view -

Thanks for your well wishes, your kind words of encouragement and Happy New Year!

Here is a section from the article:

“People have started to reduce or even stop spending money because they don’t expect the economy will perform well,” said Ye Tan, an independent economist based in Shanghai. “Companies and individuals are wary about the economy.”

Going into 2019, China faces not just a slowing economy but also a protracted trade war with the US, a pile of debt that threatens the world economy along with the Chinese financial system, and a populace demanding better environmental, labour, and health protections.

Next year, China’s leaders face some of the most difficult policy decisions they have had to make in years. Analysts say they are confronting a choice between pushing headline growth through Beijing’s traditional levers of infrastructure spending funded by debt, or painful reforms that lower financial risk but raise the possibility of unemployment, and ultimately social instability.

Officially, China’s economy is humming along. Economic growth is expected to slow to 6.3% next year, after reaching 6.6% in 2018. The economy expanded by 6.5% in the third quarter, the country’s slowest quarter since 2009.

Yet economic indicators from auto sales to manufacturing activity are all flashing red. In November, growth in China’s manufacturing sector stalled for the first time in more than two years. Annual auto sales in the world’s largest car market are on track to contract for the first time since 1990.



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December 27 2018

Commentary by Eoin Treacy

China says direct trade talks with U.S. in January, pledges more opening

This article by Yawen Chen and Ryan Woo for Reuters may be of interest to subscribers. Here is a section:

China has also said it will suspend additional tariffs on U.S.-made vehicles and auto parts for three months starting on Jan. 1, adding that it hopes both sides can speed up negotiations to remove all additional tariffs on each other’s goods.

Bloomberg, citing two people familiar with the matter, reported on Wednesday that a U.S. trade team will travel to Beijing the week of Jan. 7 for talks.

A person familiar with the matter told Reuters last week that talks were likely in early January.

In yet another reconciliatory sign, China issued on Tuesday a so-called negative list that specifies industries where investors - domestic or foreign - are either restricted or prohibited.

The unified list is seen as another effort to address concern among Western investors that there is no level-playing field in China. Investment in key Chinese sectors, however, is still prohibited.

Gao said China would “comprehensively” remove all market access restrictions for foreign investors by the end of March, in areas not included in a foreign investment “negative” list published in June.

Eoin Treacy's view -

China has a lot more to lose from a trade war than the USA. While it is difficult to get accurate statistics on the health of the economy the simple fact that car sales are declining at a rather rapid pace is a clear signal the Chinese consumer is at least holding off on making purchases. Here is a link to an article from the Wall Street Journal covering the story and here is a section: 

In the frenzy, some companies became complacent, assuming growth would be endless and easy to capture, according to Mr. Gong and other analysts. Then the growth evaporated. Sales grew 3% in 2017 and declined 2% in the first 11 months of 2018.

China now has enough factories to build 43 million cars but will produce fewer than 29 million this year, according to consulting firm PwC. While foreign and domestic auto makers alike find themselves under pressure, the slowdown has hit those that misread the market hardest of all.



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December 20 2018

Commentary by Eoin Treacy

U.S. Accuses China of Broad Economy Espionage as Tensions Simmer

This article by Tom Schoenberg, Chris Dolmetsch and Jennifer Epsteinfor Bloomberg may be of interest to subscribers. Here is a section:

Secretary of State Michael Pompeo and Homeland Security Secretary Kirstjen Nielsen said in a statement they were “concerned” that the alleged operation violated a 2015 agreement China made with the U.S. to stop supporting cyber theft of intellectual property and trade secrets.

The indictments against the two, unsealed in federal court in Manhattan on Thursday, underscore one of the primary U.S. grievances in the ongoing trade fight between the Trump administration and Beijing: the systematic theft of U.S. intellectual property and forced technology transfers from companies doing business in China.

Those complaints are a central issue in negotiations U.S. and China are working under a 90-day deadline President Donald Trump and Chinese President Xi Jinping set after agreeing Dec. 1 to halt additional tariffs and trade penalties. Since July, the two countries have imposed tariffs on a combined $360 billion in each other’s imports, a bruising conflict could undermine the global economy at a time when growth is leveling off.

The hackers, known in the cybersecurity community as Advanced Persistent Threat 10, stole information from companies in an array of industries, including banking and finance, telecommunications, biotechnology, automotive, health care and mining, according to the indictment.

The group hacked the U.S. Navy, making off with the personal data of more than 100,000 personnel, and successfully infiltrated computers linked to NASA’s Jet Propulsion Laboratory, the indictment said. Zhu and Zhang were indicted in abstentia.

Eoin Treacy's view -

Industrial espionage has been a major part of China’s technological evolution policy for the last decade and longer. In fact the data collection underway has been on a scale that dwarfs that of any other country with the possible exception of the USA itself. Here is a link to an article from the New York Times highlighting how China has been listening to European diplomatic communications for years. Here is a section:

Unlike WikiLeaks in 2010 or the Russian hack of the Democratic National Committee and other Democratic Party leaders in 2016, the cyberattack on the European Union made no effort to publish the stolen material. Instead, it was a matter of pure espionage, said one former senior intelligence official familiar with the issue who spoke on the condition of anonymity.

It also displayed the remarkably poor protection of routine exchanges among European Union officials after years of embarrassing government leaks around the world.

In this case, the cables were exposed after a run-of-the-mill phishing campaign aimed at diplomats in Cyprus pierced the island nation’s systems, said Oren Falkowitz, the chief executive of Area 1.

“People talk about sophisticated hackers, but there was nothing really sophisticated about this,” Mr. Falkowitz said. After getting into the Cyprus system, the hackers had access to passwords that were needed to connect to the European Union’s entire database of exchanges.

Area 1’s investigators said they believed the hackers worked for the Strategic Support Force of the People’s Liberation Army, part of an organization that emerged from the Chinese signals intelligence agency that was once called 3PLA.



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December 18 2018

Commentary by Eoin Treacy

Xi's Speech Gives No Hope for Stock Traders as Asia Markets Sink

This article by Moxy Ying for Bloomberg may be of interest to subscribers. Here is a section: 

Expectations that Xi’s speech would give stocks a boost (or at least, prevent a sell-off) were thwarted, and since “nothing special” was announced, Asian shares are following the overnight sell-off in the U.S., said said Castor Pang, head of research at Core Pacific-Yamaichi International HK.

Francis Lun, chief executive officer of Geo Securities, agreed. Investors were disappointed by the speech as they had been expecting some comments on economic stimulus or the further opening-up of the Chinese economy, he said. “But he didn’t mention it. That’s why A shares dropped 1 percent and also dragged down Hong Kong stocks.”

Eoin Treacy's view -

Xi Jinping doused hopes he would be a reformer by denouncing Deng’s policy of hiding the nation’s strength and playing nice with the international community. Instead he has asserted China’s intention to be more assertive internationally, to become independent of the Dollar’s patrimony and to become independent technologically.



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December 13 2018

Commentary by Eoin Treacy

Markets Conclude U.S. Is Riskier Than China

This article by Matthew A. Winkler for Bloomberg may be of interest to subscribers. Here is a section:

They would be pricing in various economic realities: the slowing rate of U.S. economic growth, the U.S. government's exploding debt, the diminished Treasury revenue caused by the 2017 tax cuts, and the Fed's pursuit of a monetary policy keeping rates well above their average for the decade.

Investors see growth slowing, and it shows. Extreme fluctuations in the stock and bond markets the past month reflect investor anxiety over the transition from a brightening economy to the creeping sense that the best of this cycle has come and gone.

U.S. government debt is also moving in the wrong direction. Since 2016, when the federal budget deficit as a percentage of gross domestic product declined to a decade-low of 2.2 percent from more than 10 percent in 2009, the deficit nearly doubled to almost 4 percent. GDP increased to a record $19.39 trillion at the end of 2017 as the annual rate climbed to 2.2 percent from 1.8 percent in 2007. But U.S. growth will deteriorate to an annualized 1.9 percent by 2020, according to economists surveyed by Bloomberg, putting more pressure on the widening deficit. Revenue isn't stepping in to close that gap. The Trump tax cuts are estimated to increase these deficits by $1 trillion during the next 10 years.

Eoin Treacy's view -

China can borrow at cheaper rates than the USA right now. Is that a big contrary indicator or is it the shape of things to come?



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December 05 2018

Commentary by Eoin Treacy

China's State Media Offers Some Clarity on U.S. Trade Deal

This article from Bloomberg news may be of interest to subscribers. Here is a section:

There’s still no official statement from Beijing that the deal reached Saturday to not raise tariffs is only for a 90-day period and is dependent on the outcome of talks. China’s government has been slow to formulate its response to the summit as senior officials were still out of the country with Xi,
Bloomberg News reported.

The Global Times is affiliated with the state-run People’s Daily, and published a separate Chinese-language editorial on Tuesday noting that the U.S. had made no mention of Beijing’s “Made in China 2025” plan in any statements after the Xi-Trump meeting, nor criticized China’s industrial policy. China’s government has yet to issue official comment on those details.

The day after Xi and Trump met, the WeChat account of the People’s Daily’s overseas edition published an article detailing some of what was discussed at their talks. The article was by Mei Xinyu -- a researcher at a think tank under the Ministry of Commerce -- and cited a White House statement.

It explained that China and the U.S. had agreed to work together on issues including widening market access, protecting intellectual property rights, avoiding forced technology transfers and jointly fighting against cyber theft.

The China Daily also published a commentary on Tuesday noting the 90-day period, explaining it was a truce and saying the U.S. would likely escalate the trade war if no permanent deal was achieved.

Eoin Treacy's view -

If we look at history, all emerging economies have engaged in some form of industrial espionage. China is bigger than other emerging market in terms of both population and market scope and likewise its concerted effort to acquire know-how by any means necessary has been epic in scale. A true signal China has all it needs in terms of technology expertise, as well as having the confidence that it can innovate on its own quickly, would be if did in fact start to uphold intellectual property rights. Quite whether that would be good or bad news is something I suspect has not yet been debated in government circles.



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December 03 2018

Commentary by Eoin Treacy

G-20 Gives Markets a Short-Term Respite

This article by Mohamed A. El-Erian for Bloomberg may be of interest to subscribers. Here is a section:

For the economic reasons discussed here, the most likely outcome was in the middle of that range: a cease-fire with a pathway to a more decisive de-escalation of tensions – or, to use a recent historical parallel, an agreement similar to the one that followed the White House visit of EU President Jean-Claude Juncker in July. And that is what materialized, with the important addition of a three-month deadline for progress.

At the end of almost three hours of what the White House called “highly successful” discussions, the U.S. agreed to refrain for 90 days from implementing additional tariffs on $200 billion of imports from China. In return, China promised to use the time to make progress in three areas of concern to the U.S. and other countries: relaxing an array of nontariff barriers, including joint-venture requirements, that result in forced transfers of technology, operational models and other proprietary information and business practices; combatting intellectual property theft and other cyber interferences; and reducing the bilateral trade surplus by importing “very substantial” quantities of certain goods from the U.S.

Eoin Treacy's view -

The G-20 ended as expected with smiles all round but with not a great deal to report other than a hiatus in the trade war and commitment to go back to talks. There is a little chance of China making anywhere close to the concessions demanded of the USA so it is quite likely the market will be back on tenterhooks by the time late January comes around.



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November 30 2018

Commentary by Eoin Treacy

The Big Picture

Thanks to a subscriber for this report from Societe Generale which may be of interest. Here is a section:

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

By this stage subscribers much be wondering why I am posting so many reports that express a bearish view. The simple fact of the matter is I am reposting these reports in an effort to highlight the fact that the last time my inbox was so filled with bearish reports was in the immediate aftermath of the credit crisis.

It seems that the one thing every analyst has learned from the credit crisis is to be hyper alert to any sign of trouble lest they miss out on calling the next big decline. It occurs to me that the investment community is falling into the trap of fighting the last war all over again, even though we are now in uncharted territory in terms of both monetary policy and the quantity of debt outstanding.



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November 29 2018

Commentary by Eoin Treacy

Long-term themes review October 29th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities.

2018 has represented a loss of uptrend consistency for the S&P500 following a particularly impressive and persistent advance in 2016 and 2017. Many people are therefore asking whether this is a medium-term correction or a top. There is perhaps no more important question so let’s just focus on that for the moment.



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November 23 2018

Commentary by Eoin Treacy

Japan's Inflation Stalls at 1% as Risks to Price Gains Gather

This article by Yuko Takeo for Bloomberg may be of interest to subscribers. Here is a section: 

Slow but steady improvement in Japan’s core inflation gauge has come to a halt as a host of forces gather that could see price gains begin to slow.

Consumer prices excluding fresh food rose 1 percent in October from a year earlier, as expected by economists. That’s just half way to the Bank of Japan’s 2 percent target with the prospect of falling energy costs and lower charges from mobile-phone carriers pointing to weaker price growth ahead.

Eoin Treacy's view -

The decline in oil prices is a significant benefit for consuming nations like Japan, India and China. In that regard it is disinflationary rather than an outright drag on the economy. Nevertheless, Japan needs inflation so companies can regain pricing power and promote more dynamism in the economy.



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November 22 2018

Commentary by Eoin Treacy

Beijing to Judge Every Resident Based on Behavior by End of 2020

Thanks to a subscriber for this article from Bloomberg news which may be of interest to subscribers. Here is a section:

China’s plan to judge each of its 1.3 billion people based on their social behavior is moving a step closer to reality, with Beijing set to adopt a lifelong points program by 2021 that assigns personalized ratings for each resident.

The capital city will pool data from several departments to reward and punish some 22 million citizens based on their actions and reputations by the end of 2020, according to a plan posted on the Beijing municipal government’s website on Monday. Those with better so-called social credit will get “green channel” benefits while those who violate laws will find life more difficult.

The Beijing project will improve blacklist systems so that those deemed untrustworthy will be “unable to move even a single step,” according to the government’s plan. Xinhua reported on the proposal Tuesday, while the report posted on the municipal government’s website is dated July 18.

Eoin Treacy's view -

Anyone who has ever attempted to teach anything to anyone will be familiar with the experience that what you think of as important may not gel with what your presumed student thinks. As a teacher you never really know if you are getting your point across.

I was thinking about that while in Singapore last month. The country has had unparalleled success in turning a backwater into a private banking powerhouse through a commitment to improving standards of governance and rule of law. However, Singapore has also been the subject of much criticism for the strict social control policies they pursued on the way to prosperity. China has long regarded Singapore as a case study so what did they learn?



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November 16 2018

Commentary by Eoin Treacy

China Is Giving the World's Carmakers an Electric Ultimatum

This article from Bloomberg News may be of interest to subscribers. Here is a section:

The world’s biggest market for electric vehicles wants to get even bigger, so it’s giving automakers what amounts to an ultimatum. Starting in January, all major manufacturers operating in China—from global giants Toyota Motor and General Motors to domestic players BYD and BAIC Motor—have to meet minimum requirements there for producing new-energy vehicles, or NEVs (plug-in hybrids, pure-battery electrics, and fuel-cell autos). A complex government equation requires that a sizable portion of their production or imports must be green in 2019, with escalating goals thereafter.

The regime resembles the cap-and-trade systems being deployed worldwide for carbon emissions: Carmakers that don’t meet the quota themselves can purchase credits from rivals that exceed it. But if they can’t buy enough credits, they face government fines or, in a worst-case scenario, having their assembly lines shut down.

Eoin Treacy's view -

China is the world’s largest market for automobiles so what they decide is permissible within their market is likely to shape the plans of manufacturers for the globe. One of the primary reasons companies have been announcing plans for lots more electric and hybrid vehicles over the coming years is because of the Chinese mandates. That is the primary driver behind the capacity build in the battery sector which needs to ramp up substantially if the demand growth profile is to be reached.



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November 15 2018

Commentary by Eoin Treacy

China's Growth Engines Lose $32 Million a Minute as Markets Sink

This article by Bloomberg News may be of interest to subscribers. Here is a section:
 

Nonstate companies have lost at least $992 billion in market value since mid-June, or about $32 million for every minute of trading, according to data compiled by Bloomberg and WisdomTree Investments Inc. In October their shares tumbled at the fastest pace in more than three years relative to companies with government ownership. Local corporate borrowers, almost all of them privately owned, defaulted on a record $6.6 billion of debt in the third quarter. At least 57 nonstate businesses have accepted government bailouts in 2018. Such a wave of quasi nationalizations would have been unthinkable just a few years ago.

The pain has been felt at companies large and small—from internet behemoth Tencent Holdings Ltd. to Jiaxing Linglingjiu Electric Lighting, a producer of thermal bulbs whose owner is weighing whether to ditch the business to go farm a plot of land in China’s rural northeast. “When we meet with fellow factory owners, we don’t ask, ‘How’s business?’ like in previous years,” says Xu Xihong, who started Jiaxing Linglingjiu in 2009 after moving into a factory abandoned by a bankrupt state-run manufacturer of electric fans. “Now it’s ‘Do you think you will make it through the year?’ and ‘When are you going to get evicted?’ ”

Donald Trump’s tariffs and the Federal Reserve’s interest-rate hikes have played a role, but the biggest triggers have been local. By far the most important: the Chinese government’s almost two-year campaign to rein in the country’s $9 trillion shadow banking industry—financial companies that aren’t regulated like traditional lenders. While the clampdown was designed to make China’s financial system safer and more transparent, it’s crimped a key funding channel for private-sector companies that lack access to state-run banks. Faced with a drying up of credit and the country’s weakest economic expansion since 2009, more small businesses are defaulting on debt or liquidating.

Eoin Treacy's view -

The availability of credit and how it is disbursed throughout the economy has been a point of contention in China for decades. The simple fact is that the government and banks do not make enough available but then impose tough growth targets on the regions to meet which encourages credit expansion by any means necessary.



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November 12 2018

Commentary by Eoin Treacy

A Fifth of China's Housing Is Empty. That's 50 Million Homes

This article from Bloomberg News may be of interest to subscribers. Here is a section:

Soon-to-be-published research will show roughly 22 percent of China’s urban housing stock is unoccupied, according to Professor Gan Li, who runs the main nationwide study. That adds up to more than 50 million empty homes, he said.

The nightmare scenario for policy makers is that owners of unoccupied dwellings rush to sell if cracks start appearing in the property market, causing prices to spiral. The latest data, from a survey in 2017, also suggests Beijing’s efforts to curb property speculation -- considered by leaders a key threat to
financial and social stability -- are coming up short.

“There’s no other single country with such a high vacancy rate,” said Gan, of Chengdu’s Southwestern University of Finance and Economics. “Should any crack emerge in the property market, the homes to be offloaded will hit China like a flood.”

Eoin Treacy's view -

China does not have a property tax so the cost of speculating on property is almost zero. The vast majority of residential units are delivered as empty shells because developers know consumers will want to fit out the apartment to their own specifications. However, that also means there are large numbers of apartment buildings that are vacant and are left to rot because investors are holding them for appreciation purposes rather than ever intending for anyone to live in them.



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November 09 2018

Commentary by Eoin Treacy

China Has More Distressed Corporate Debt Than All Other EMs

This article by Selcuk Gokoluk for Bloomberg may be of interest to subscribers. Here is a section:

China’s debt, both distressed and otherwise, account for a quarter of all securities included in the gauge, which tracks about 660 dollar notes with a par value of at least $500 million. The Asian nation is home to the developing world’s biggest bond market.

The jump in China’s distressed bonds helped fuel an increase in borrowing costs for emerging-market companies to the highest level in more than two years. The impact of the trade war on the Asian nation has compounded pressure on developing assets, already reeling under the strain of higher U.S. interest rates and Treasury yields.

 

Eoin Treacy's view -

In markets with well-developed corporate bond markets we can come to some estimation of what to expect from the default rate. It’s going to be based on history and may or may not be accurate but at least there is some historical context. China is a country with no history of defaults because everyone always got bailed out.



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November 06 2018

Commentary by Eoin Treacy

A War Beyond Trade

Thanks to a subscriber for this report from Deutsche Bank which may be of interest. Here is a section:

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

The value of any contract is heavily dependent on the values of the counterparties signing it and the authority of an agreed party to enforce the terms. When the signees are countries then enforcement and the legal wrangling around differing interpretations of what is entailed can take years and, even then, if one party decides not to accept a ruling there is not much that can be done. The USA’s bipartisan institutional realization that China is a not a reliable contract counterparty now represents a significant obstacle to more than a cursory trade agreement being negotiated.



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November 02 2018

Commentary by Eoin Treacy

Trump Said to Ask Cabinet to Draft Possible Trade Deal With Xi

This article by Jenny Leonard, Saleha Mohsin and Jennifer Jacobs for Bloomberg may be of interest to subscribers. Here is a section:

President Donald Trump wants to reach an agreement on trade with Chinese President Xi Jinping at the Group of 20 nations summit in Argentina later this month and has asked key U.S. officials to begin drafting potential terms, according to four people familiar with the matter.

The push for a possible deal with China was prompted by the president’s telephone call with Xi on Thursday, the people said, requesting anonymity to discuss internal deliberations.

Afterward, Trump described the conversation as “long and very good” and said in a tweet that their discussions on trade were “moving along nicely.”

Trump asked key cabinet secretaries to have their staff draw up a potential deal to stop an escalating trade conflict, the people said, adding that multiple agencies are involved in drafting the plan. It was unclear if Trump was easing up on U.S. demands that China has resisted, and reaching any accord still faces significant hurdles.

 

Eoin Treacy's view -

The mid-term elections are on Tuesday so it is hard to view any political utterance as anything other than noise until that event has passed. The decision to write a draft proposal for a trade agreement does not mean it will be something the Chinese can sign without conceding defeat in the trade war so this is far from a settled topic. Nevertheless, even a word of encouragement for beaten down Chinese shares was enough to pressure shorts.



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November 02 2018

Commentary by Eoin Treacy

China cracks down on foreign currency transfers for property deals

This article by Michael Smith for The Australian Financial Review may be of interest to subscribers. Here is a section:

The decision to publish the cases, which involved millions of dollars in fines, is seen as a warning that the government is less willing to tolerate what is considered a grey area in the country's capital control rules. Liu Xuezhi, an economist at China's Bank of Communications, said this showed Beijing's crackdown on offshore commercial deals was being extended to individual investors.

"The government regulation on foreign currency is becoming more thorough. They are extending supervision from corporates to individuals," he told The Australian Financial Review.

"The tight control on foreign capital will be maintained for the next one or two years. This would bring an impact to the Chinese investors who are planning to buy properties overseas, including Australia."

Zong Liang, a senior researcher with the Bank of China, said he expected the move to more closely monitor transactions would stay in place for the next five years and weaken the appetite for Chinese investors in Australian property.

Eoin Treacy's view -

China needs to control capital flight if it is to have any hope of navigating a future of lower leverage, higher defaults and modest growth. Chinese people have been most active in getting money out of the country by buying property which is a significant outlay and is coming under increasing scrutiny with potentially worrying repercussions for international property markets.



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October 31 2018

Commentary by Eoin Treacy

China Says More Aid Coming as Downdraft From Trade War Rises

This article from Bloomberg News may be of interest to subscribers. Here is a section:

The signal of increasing urgency came just hours after purchasing manager reports showed an across-the-board deterioration that risks spilling into a broader drag on global growth. The world’s second largest economy is being damaged by its trade war with the U.S. and a domestic debt cleanup.

With those pressing constraints, officials have added modest policy support so far, ranging from tax cuts to regulatory relief, rather than repeating the fiscal firepower seen after a previous slowdown. Investors seem unpersuaded by the drip-feed approach with the yuan hovering around a decade low and stocks sliding.

“Accepting slower growth has long been a challenge for Beijing, but now the rate of slowdown is firmly out of the comfort zone,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “In recent years the balancing act has been addressing risks in the financial system against pressure to stabilize economic growth. It appears the latter is again more of a priority.”

Eoin Treacy's view -

Major rallies in Chinese mainland stocks tend to be state sponsored. It’s the Communist Party’s equivalent of a central bank put and it’s something investors have tended to wait for before committing to a rally.



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October 27 2018

Commentary by Eoin Treacy

Kyle Bass Speaks with CNBC's David Faber

This article from CNBC may be of interest to subscribers. Here is a section:

BASS: You know, the Chinese are in the worst financial situation they’ve been in, in the last 17 years because they operated domestic economy where they control the printing press, they control the press narrative, they control the price level and they control their people as we’ve seen them detain over a million of them in Jingjang for their religious preference. So they can change a lot of things domestically, but their -- the arbiter of the Chinese plan is their cross rate or their exchange rate with the rest of the world. China Inc.’s working capital account is now going South because they’re running what we believe to be a structural and more permanent deficit on the current account. And so, i.e., their working capital, their dollar balance whether it’s dollars, euros, yen or pounds, it’s mostly dollars. And their dollar balances is headed south. And so, the U.S. is in a very particularly interesting negotiating position today. We are in the strongest negotiating position we’ve ever had against China. They’ve kind of leveled the playing field a little bit more with their, let’s say, subversion of WTO rules, their intellectual property theft and basically everything they’ve done to take advantage of the U.S. over the past 15, 17 years.

Eoin Treacy's view -

China has the domestic economy on lock down and has an epic local government debt issue. It also has some of the largest deposits of any banking sector as well as large sovereign reserves. The only clear way to match liabilities with assets while also depreciating the currency, to support the export sector, is to avoid capital flight.



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October 25 2018

Commentary by Eoin Treacy

Long-term themes review October 4th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.



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October 22 2018

Commentary by Eoin Treacy

Asian Stocks Bulls Have 4 Percent China Market Rally to Thank

This article by Nguyen Kieu Giang for Bloomberg may be of interest to subscribers. Here is a section:

Quite a bit happened in the 67 hours since the market closed Friday and reopened in China to help support stocks:

CSRC spokesman Chang Depeng said China supports overseas-listed companies to participate in M&A of A-share listed companies.

President Xi Jinping vowed “unwavering” support for non-state firms, while the country’s stock exchanges committed to help manage share-pledge risks.

China also released its widely expected plan to cut personal income taxes after data showed the nation’s economy grew at the slowest pace since 2009.

PBOC adviser Ma Jun expects policy measures will support the market, and the nation’s central bank strengthened the yuan fixing by most since Sept. 21.
 
There was also a bullish Goldman report that sent securities firms in both Hong Kong and the mainland surging.

Eoin Treacy's view -

We saw the first evidence that the Chinese administration is aware of the decline in the stock market and willing to do something about it last week and the above factors are a further iteration of that. That has at least provided a catalyst for a reversion back towards the mean



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October 19 2018

Commentary by Eoin Treacy

China's New Strategy for Curbing World's Worst Stock Slide

This article from Bloomberg news may be of interest to subscribers. Here is a section:

Economic policy makers including Vice Premier Liu He, who also weighed in on Friday, are now left walking a tightrope. To fortify the nation’s negotiating position on trade with the Trump administration, they need to stem the $3 trillion stock rout and support growth at home -- all without giving up on their goal of containing soaring debt levels.

"China is under pressure on multiple fronts," said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong. "Logically, all this pushes China to make a deal, yet I don’t think there is a deal to be had."

While the Shanghai Composite opened lower on Friday morning after the officials’ statements, it rallied in the afternoon and closed with a 2.6 percent gain. Some investors speculated that China’s “National Team” of state-backed funds stepped in to add some oomph to policy makers’ verbal intervention.

Eoin Treacy's view -

China started jawboning the market higher today which is a welcome sign that the administration is beginning to pay attention to the rout in domestic shares. Talking the market higher is free so it is usually the first recourse officials resort to in their efforts to support markets. However, it will need to be followed by clear action to arrest the decline if negative investor sentiment is to be influenced.



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October 17 2018

Commentary by Eoin Treacy

China May Have $5.8 Trillion Hidden Debt With 'Titanic' Risk

This article by Eric Lam for Bloomberg may be of interest to subscribers. Here is a section:

The focus on funding to sustain growth at the local level echoes a broader shift in the central government, which last year was focused on reducing leverage in the financial system. That phase is essentially over, thanks in part to an escalating trade war with the U.S., according to Citigroup Inc. analysts.

“The markets are right, in our view, to feel more concerned about the sustainability of China’s debt and the increased financial risks,” said Liu Li-Gang, chief China economist at Citigroup in Hong Kong. He also saw “renewed pressure” on the yuan.

Even with the central government’s shift toward stimulus, however, S&P sees Beijing determined to “bring discipline to the financing practices of local governments and their LGFVs.” That ultimately may mean local authorities aren’t fully able to keep LGFVs afloat, however, and the bottom line is “the default risk of LGFVs is increasing.”

Eoin Treacy's view -

Last week China announced it was increasing the number of Systemically Important Financial Institutions (SIFIs). That measure is aimed at clearly signaling there is a group of banks the government is going to support come what may. That’s not so unusual but it does raise the broader question of what about the rest?



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October 17 2018

Commentary by Eoin Treacy

Trump Opens New Front in His Battle With China: International Shipping

This article by Glenn Thrush for the New York Times represents a further deterioration in the US/China international relationship. Here is a section:

The withdrawal is part of a concerted push by Mr. Trump to counter China’s dominance and punish it for what the administration says is a pattern of unfair trade practices. The move is expected to be announced on Wednesday, according to senior administration officials.

The Universal Postal Union treaty, first drafted in 1874, sets fees that national postal services charge to deliver mail and small parcels to countries around the world. Since 1969, poor and developing countries — including China — have been assessed lower rates than wealthier countries in Europe and North America.

While the lower rates were intended to foster development in Asia and Africa, Chinese companies now make up about 60 percent of packages shipped into the country, taking advantage of the lower rates to ship clothing, household gadgets and consumer electronics. Many websites now offer free shipping from China, in part because of the cheap postal rates, administration officials say.

Eoin Treacy's view -

Privately-owned Chinese companies are among the largest third-party sellers on major internet venues like eBay and to a lesser extent Amazon. A US based seller pays a minimum of $2.66 for a small package with tracking from the US Postal Service. Sellers from China pay domestic local rates on international shipping. It might take longer to arrive but there is no way to beat Chinese sellers on price and particularly for small-sized goods.



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October 16 2018

Commentary by Eoin Treacy

Tumbling Car and House Sales Pose Fresh Challenge to Chinese Markets

This article by Joanne Chiu for the Wall Street Journal may be of interest to subscribers. Here is a section:

China Galaxy International analyst Tony Li said the U.S.-China trade dispute and a stock-market selloff were weighing on consumer sentiment. “Consumers have turned more cautious and are less willing to spend much on luxury items,” he said.

The holiday slowdown was bigger than expected, and investors should closely watch for any further weakening this year, he added.

Meanwhile, Goldman Sachs said escalating trade tensions, slowing growth and policy uncertainty have weighed on Chinese stocks. In a pessimistic case, if annual growth slows to 6% and the yuan falls a further 5% against the dollar, shares could decline 10% more, the bank said.

Eoin Treacy's view -

I was chatting with Mrs. Treacy yesterday about the slowdown in China and she passed along this link to a story from epochtimes.com detailing how recent homebuyers are disgruntled with the steep discounts’ developers are now offering on properties. Here is a section:

On Oct. 2, more than 40 new homeowners in the city of Jingdezhen in Jiangxi Province gathered in protest outside the sales office of a property developer, and angrily shouted complaints such as “refund our money” and “we bought in the evening, and the price dropped in the morning.”

The next day, in Shanghai’s high-end Pudong District, dozens of new homeowners congregated in front of a housing development, carrying signs emblazoned with the slogan “Refund my hard-earned money.” The developer, Country Garden, had lowered prices from 35,000 yuan per square meter ($470 per square foot) to 26,000 yuan overnight.



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October 11 2018

Commentary by Eoin Treacy

China Shares Sink Most Since 2016 as 1,000 Stocks Fall by Limit

This article by Kana Nishizawa for Bloomberg may be of interest to subscribers. Here is a section:

Hong Kong didn’t fare much better, with the Hang Seng Index dropping 3.5 percent, the biggest in eight months. Tencent Holdings Ltd., the most valuable stock listed in Asia, slid 6.8 percent to extend a record losing streak to a 10th day.

Chinese shares have been the ground zero for the trade war with the U.S. The Shanghai Composite has lost 24 percent in the past 12 months, one of the worst performers among 94 global gauges tracked by Bloomberg, with the majority of the decline happening this year. A slowing economy and weakening currency is only adding to the gloom.

"Panic? The general mood among fund managers is more like ‘playing dead,’" said He Qi, portfolio manager at Huatai Pinebridge Fund Management.

Telecom and technology shares led declines on the mainland, with ZTE Corp. and 360 Security Technology Inc. tumbling more than 9 percent. Tech shares also dropped the most in Hong Kong, following the sector’s rout in New York.

Volume on the Hang Seng Index and China’s large-cap CSI 300 Index was about 70 percent more than their 30-day intraday average, according to data compiled by Bloomberg. Foreign investors dumped 3.6 billion yuan ($520 million) onshore shares through Hong Kong-China stock links. "It’s been a rough day," said William Wong, head of institutional sales trading at Shenwan Hongyuan Securities HK Ltd.  

Institutional investors have been reducing their portfolio, while we see hedge funds shorting in Hong Kong." A crackdown at Chinese borders on undeclared goods also hurt luxury goods companies, with Prada SpA tumbling 10 percent, the most since September 2017. Jiangxi Ganfeng Lithium Co. dropped as much as 33 percent on its trading debut.

"Negative sentiment is outweighing any positive catalysts, and investors would take any rebound as a chance to sell," said Louis Tse, Hong Kong-based managing director at VC Asset Management Ltd., adding that Shanghai shares may fall further after breaking the key support level. "If we’re talking about seeing an end of the tunnel -- I don’t think so."

Eoin Treacy's view -

There is no doubt that increasing tensions between China and the USA have been one of the factors contributing to the underperformance of the Chinese market so far this year. However, the tightening of credit standards, particularly cutting off funding lines for the shadow banking sector and regional banks has also been an important consideration in the underperformance.



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October 09 2018

Commentary by Eoin Treacy

The Markets Are a Jungle. Good Thing Felix Zulauf is Your Guide

Thanks to a subscriber for this interview of Felix Zulauf which appeared in Barron’s. Here is a section:

Eoin Treacy's view -

A link to the full interview is posted in the Subscriber's Area.

China is busy trying to paint itself as the protector of the global trade network but this amounts to doublespeak when we look at their actions rather their words. China has abused the international web of trade relationships to boost its own economy and was allowed to do so because of a mistaken belief that prosperity would breed liberalism. Western leaders bet the livelihoods of millions of their own citizens on China eventually evolving into a free market liberal democracy but that has failed to materialise. If anything, China’s authoritarianism is becoming even more engrained.



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October 08 2018

Commentary by Eoin Treacy

Email of the day on China's domestic semiconductor industry

Picking up on today’s big picture commentary, as well several recent comments about China’s mission to create a semiconductor sector, I attempted to identify the largest Chinese based semiconductor manufacturers and assess whether they might benefit from such an initiative. I noted that SMIC (Semiconductor Manufacturing International Corporation) based in Shanghai is listed in HK ((981:HK) and the US (SMI:US).   Do you feel that Chinese semiconductor manufacturers, such as SMIC, might stand to benefit from further state investment in the local sector to enable more independent control over their supply chain of semiconductors? The SMIC Chart at this stage would certainly not support this hypothesis as it has underperformed the SOX Index, but seems to be quite oversold.  Your insight into this topical issue would be much appreciated.

By the way, for whatever reason, code 981:HK is shown in the Chart Library as China Green Holdings Limited (actual stock code 904:HK) and not SMIC! 

Thank you for the excellent service - I look forward to starting virtually every day here in Sydney with your valuable and insightful video commentaries. 

Eoin Treacy's view -

Thank you for this email and I am delighted you are enjoying the daily video commentaries. I've also amended the ticker for SMIC.

China has demonstrated time and again that it has no interest in importing chips that could offer a backdoor for foreign governments into its IT networks. At the same time, it has pioneered a major offensive to insert its own devices into the bones of the global IT infrastructure so it can do its own listening. Both of those objectives mean having a domestic chip manufacturing industry is essential to Chinese government policy.



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October 05 2018

Commentary by Eoin Treacy

China Used Tiny Chip in Hack That Infiltrated U.S. Companies

This article by Jordan Robertson and Michael Riley for Bloomberg may be of interest to subscribers. Here is a section:

A notable exception was AWS’s data centers inside China, which were filled with Supermicro-built servers, according to two people with knowledge of AWS’s operations there. Mindful of the Elemental findings, Amazon’s security team conducted its own investigation into AWS’s Beijing facilities and found altered motherboards there as well, including more sophisticated designs than they’d previously encountered. In one case, the malicious chips were thin enough that they’d been embedded between the layers of fiberglass onto which the other components were attached, according to one person who saw pictures of the chips. That generation of chips was smaller than a sharpened pencil tip, the person says. (Amazon denies that AWS knew of servers found in China containing malicious chips.)

And

One Friday in late September 2015, President Barack Obama and Chinese President Xi Jinping appeared together at the White House for an hourlong press conference headlined by a landmark deal on cybersecurity. After months of negotiations, the U.S. had extracted from China a grand promise: It would no longer support the theft by hackers of U.S. intellectual property to benefit Chinese companies. Left out of those pronouncements, according to a person familiar with discussions among senior officials across the U.S. government, was the White House’s deep concern that China was willing to offer this concession because it was already developing far more advanced and surreptitious forms of hacking founded on its near monopoly of the technology supply chain.

In the weeks after the agreement was announced, the U.S. government quietly raised the alarm with several dozen tech executives and investors at a small, invite-only meeting in McLean, Va., organized by the Pentagon. According to someone who was present, Defense Department officials briefed the technologists on a recent attack and asked them to think about creating commercial products that could detect hardware implants. Attendees weren’t told the name of the hardware maker involved, but it was clear to at least some in the room that it was Supermicro, the person says.

The problem under discussion wasn’t just technological. It spoke to decisions made decades ago to send advanced production work to Southeast Asia. In the intervening years, low-cost Chinese manufacturing had come to underpin the business models of many of America’s largest technology companies. Early on, Apple, for instance, made many of its most sophisticated electronics domestically. Then in 1992, it closed a state-of-the-art plant for motherboard and computer assembly in Fremont, Calif., and sent much of that work overseas.

Over the decades, the security of the supply chain became an article of faith despite repeated warnings by Western officials. A belief formed that China was unlikely to jeopardize its position as workshop to the world by letting its spies meddle in its factories. That left the decision about where to build commercial systems resting largely on where capacity was greatest and cheapest. “You end up with a classic Satan’s bargain,” one former U.S. official says. “You can have less supply than you want and guarantee it’s secure, or you can have the supply you need, but there will be risk. Every organization has accepted the second proposition.”
 

Eoin Treacy's view -

China aspires to global domination and the Communist Party is willing to deal, cajole, bribe, beg, borrow and steal to get what it wants. The Belt and Road Initiative is a big part of that. Whereas attempting to create a domestic semiconductor sector is major part of the Made In China 2025. The interruption of the supply chain for the global chip manufacturing sector has been underway for years and is only now becoming public. It represents further evidence that there is no lower limit to what China is willing to do to achieve its goals.



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October 03 2018

Commentary by Eoin Treacy

Long-term themes review August 15th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities. 



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October 02 2018

Commentary by Eoin Treacy

Beijing axes coal and steel production curbs as economy slows

This article by Emily Feng for the Financial Times may be of interest to subscribers. Here is a section:

However, experts said that even the lower targets were ambitious because last year’s air pollution levels had already dropped significantly. 

“Both a 3 per cent or 5 per cent reduction from last winter’s PM2.5 levels would be a tough target to reach because levels already fell 25 per cent last winter thanks to very strict policies and very favourable weather conditions,” said Lauri Myllyvirta, a campaigner at Greenpeace, the environmental group. 

The easing may have been prompted by a public outcry. Winter curbs on coal, including on heaters used by many residents in smaller cities and villages, left millions freezing as local governments scrambled to provide gas heating. 

By imposing emissions targets rather than specific production cuts, China shifted responsibility to local rather than central officials which could also weaken enforcement. “Notably, policies and enforcement this year is left largely to local governments, leaving them to choose between the risk of missing pollution targets or disrupting the newest construction splurge,” said Mr Myllyvirta.

Eoin Treacy's view -

Just how committed is China to environmental protection? China does not have the same green lobby we have in the West. Rationing coal without supplying alternatives was a heavy burden for people in Northern China last winter. That makes the point clearly to consumers that if they want clean air it comes with sacrifice. On a day to day basis most people would rather be warm with bad air than freezing.



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October 01 2018

Commentary by Eoin Treacy

Trump Lauds Nafta Successor Accord, Chides Tariff 'Babies'

This article by Shannon Pettypiece and Andrew Mayeda for Bloomberg may be of interest to subscribers. Here is a section:

The new agreement makes modest revisions to a trade deal Trump once called a “disaster,” easing uncertainty for companies reliant on tariff-free commerce among the three countries. U.S. stocks climbed on Monday toward records, while the Canadian dollar and the Mexican peso gained. The S&P 500 Index climbed 0.6 percent by 12:29 p.m. in New York.

Trump cited in particular provisions governing automobiles, raising the portion of their content that must originate within the region to 75 percent, from 62.5 percent, and requiring at least 40 percent of a car to come from workers whose pay averages more than $16 per hour. The president called those rules “the most important thing” for him.

Eoin Treacy's view -

The cosmetic changes to the NAFTA agreement provide some protections for workers but no so much that the fabric of the agreement is going to be fundamentally changed. That’s a significant development of North American markets since the trade they do with each other is at least as significant as what is done with the rest of the world.



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September 26 2018

Commentary by Eoin Treacy

How China Is Losing the World

This article from The Diplomat may be of interest to subscribers. Here is a section:

But to the more attentive, a new counternarrative is also starting to emerge, which stands against this tale of an ever more powerful China that can name its terms and act without restraint or pretense. As more and more people start to know far more about the China model, and to see it manifested in their daily lives, doubts start to grow. The sharp treatment of Taiwan, the actions in Xinjiang, the incredible, pervasive growth of the surveillance state in China and its annexation of almost every aspect of life without any institutional or legal restraint – all these register in some form and shape a little resistance.

In the past, issues about China were once disparate; now they are being linked and form the basis of a critical counternarrative. Suddenly, there is more sympathy for Taiwan, for example. More people in Europe and the United States are starting to be uneasy about the ways in which Confucius Institutes are allowed to operate in Western establishments without similar freedoms for Western equivalents in Chinese ones. They wonder why Chinese can buy, invest, and work so freely in their environments while it is so difficult for foreigners to do the same back in China. They wonder why Chinese lobbyists and activists are able to freely express their ideas in London, Sydney, or Washington, and seek to influence outcomes that matter to them there, when there is precious little space for this sort of activity back in China.

Eoin Treacy's view -

The true talent in a kleptocracy is knowing who to bribe. Afterall there is no point spending the money if the person taking the payment is not in a position to effect the result you wish or is subject to dismissal. Something China is finding out is that in a democracy, politicians who are seen to mortgage the future of the country to a foreign power are less than likely to win the next election.



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September 20 2018

Commentary by Eoin Treacy

S&P, Dow Hit Record Highs as Trade Fears Abate

This article by Vildana Hajric for Bloomberg may be of interest to subscribers. Here is a section:

China is said to be planning to cut the average tariff rate it charges on imports from the majority of its trading partners as soon as next month. On Wednesday, Premier Li Keqiang his government wouldn’t devalue the currency in order to boost its exports amid the trade war.

“When we get days where there isn’t trade and tariffs escalation, which is in the news with us every day, market participants can focus more on fundamentals, and fundamental drivers continue to paint a pretty equity picture,” Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, said by phone. “We’re striking a nice balance between good economic news and not becoming concerned yet about inflation.”

Eoin Treacy's view -

The Dow Jones Industrials Average hit a new high and the Dow Jones Transportations Average is trading within striking distance of another new high. While Dow Theory does not tend to get a lot of coverage these days it would be hard to argue that we are presented with anything other than at least a short-term bullish environment.



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September 18 2018

Commentary by Eoin Treacy

September 12 2018

Commentary by Eoin Treacy

Ray Dalio Spells Out America's Worst Nightmare

This article by Brian Chappatta for Bloomberg may be of interest to subscribers. Here is a section: 

“We have to sell a lot of Treasury bonds, and we as Americans won’t be able to buy all those Treasury bonds,” Dalio said. That means foreign investors will have to step up. And they probably would, as long as the dollar remains strong.

Otherwise, Treasury’s dollar-denominated interest payments to buyers in China, Europe and Japan will be worth less and less.

But, to Dalio, that’s not going to happen. “The Federal Reserve at that point will have to print more money to make up for the deficit, have to monetize more and that’ll cause a depreciation in the value of the dollar,” he said. Pressed by interviewer Erik Schatzker, he said “you easily could have a 30 percent depreciation in the dollar through that period of time.” For context, the Bloomberg Dollar Spot Index fell 8.5 percent in 2017, and that was considered massive.

It all leads up to this critique of how the U.S. has gone on a borrowing binge in recent years. Remember, the $15.3 trillion Treasury market was the $4.9 trillion Treasury market a decade ago.

“We have the privileged position of being able to borrow in our own currency because we have the world's leading reserve currency. We are risking that by our finances — in other words, borrowing too much.”

Eoin Treacy's view -

Unfunded liabilities are not only a US problem but are something that governments right across the OECD will need to eventually address. Ray Dalio’s view that the rise in populism we are seeing today is a symptom of a wider problem gels with my own. Considering we are seeing this disaffection with the status quo during an economic expansion where unemployment is low, it is likely that the jump to the fringes of the political spectrum will only intensify during a recession.  



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September 12 2018

Commentary by Eoin Treacy

Asian Stocks Are Caught in the Longest Sell-off in 16 Years

This article by Ian C Sayson for Bloomberg may be of interest to subscribers. Here is a section:

“We see that light at the end of the tunnel, but we’re still kind of in the darkness ourselves,” Citi’s Peng said. Investors need more concrete catalysts before they step in to buy stocks. “So that’s the challenge for money managers.”

“We are looking to be more constructive on Asian equities in the next quarter, if the current correction continues. Valuations will be more attractive and worth a look then,” said Jason Low, senior investment strategist at DBS Bank Holdings Ltd.

“The good news is that valuations are looking more attractive now and technicals are oversold, which suggest that Asian stocks could be poised for a rebound in the next few months,” Jasslyn Yeo global market strategist as JPMorgan Asset Management.

Eoin Treacy's view -

Among the top 18 holdings in the iShares MSCI Emerging Markets ETF, 9 are from China. The addition, first of overseas Chinese companies and Hong Kong listed companies followed by mainland listed shares has represented a significant reweighting of the basket over the last decade. Since so many commodity producers rely on Chinese demand growth for exports the country’s influence is even greater than might initially be apparent.



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September 11 2018

Commentary by Eoin Treacy

How Should China Respond to Changing U.S. Attitudes?

This article by Fu Ying, vice chairperson of the Foreign Affairs Committee of China's National People's Congress, and of the Academic Committee of China's Institute of International Strategy at the Chinese Academy of Social Sciences may be of interest to subscribers not least because it appeared on Bloomberg and appears to speak directly to investors. Here is a section:

In fact, changes in U.S.-China relations may help to push China’s own desired reforms. Some requests raised by U.S. companies, such as increased market access, dovetail with recommendations from China’s leaders. The government is, in fact, opening up: Eight out of the 11 market-opening measures announced by President Xi Jinping in April have been put in place, covering banking, securities, insurance, credit rating, credit investigation and payment, and so on. The government is also working harder to improve the business environment and strengthen intellectual property protections for both Chinese and foreign enterprises. Chinese reformers can turn outside pressure to their advantage, using it to bust through internal
resistance to necessary changes.

But make no mistake: The Chinese people will stand firm against U.S. bullying over trade. There is talk about China’s economy “sliding down” as a result of the trade war. Some expect China to succumb soon. I can tell you that this is wishful thinking.

Yes, China is in the process of deleveraging, which is uncomfortable and painful. But it is a price worth paying for sustaining healthy development. It’s worth remembering that China adopted a stimulus program to help overcome the global recession triggered by the 2008 financial tsunami in the U.S. And it’s worth noting that the trade war may slow the necessary process of deleveraging.

Eoin Treacy's view -

China is now the self-appointed champion of free markets and international trade not least because is has most to lose from any change to the global market equilibrium. The opening up of protected sectors within the Chinese economy are focused on the most heavily overleveraged sectors, where a desire from fresh capital and risk sharing is a priority. There is no sign that the higher growth areas of the economy are suddenly going to become open for foreign investment or that China’s domestic champions are ready for international competition in their home market.



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September 06 2018

Commentary by Eoin Treacy

China's $29 Trillion Ball of Money Rolls to a Long-Ignored Haven

This article from Bloomberg news may be of interest. Here is a section:

Bank deposits, shunned for years by the nation’s return-hungry masses, are suddenly looking attractive again as higher-yielding investments prove riskier than many had anticipated. China’s household deposits rose in July at the fastest annual rate in a year -- an influx that analysts say may accelerate after the nation’s stock market sank at the quickest pace worldwide, hundreds of peer-to-peer lending platforms shuttered and companies defaulted on their debt at an unprecedented rate.

“People around me are all asking the same question: Where is the safe place to put our hard-earned savings?’’ said Anna Teng, a 30-year-old marketing manager in Shanghai who’s been shifting her assets into deposits after losing about 20 percent on her equity investments since May and falling victim to a fraudulent P2P lending platform.

Eoin Treacy's view -

Chinese banks, particularly the mid-size and regional segment, need deposits so retail investors pulling out of high yield or high leverage instruments is good news on that front. However, the banks will also miss out on the fees they were collecting from those products and will therefore need to figure how to boost revenues somewhere else. Just how they are going to be able to do that when risk appetite is waning is rather a challenge.



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August 30 2018

Commentary by Eoin Treacy

China's biotech revolution

Thanks to a subscriber for this report from UBS which may be of interest. Here is a section:

Eoin Treacy's view -

A link to the full report as well as a section from it are posted in the Subscriber's Area 

China’s toxic air and rapidly aging population mean it has a higher incidence of cancer than most other countries. At the same time the country has an underdeveloped medical infrastructure, particularly beyond the tier-1 cities. There is every reason to believe China will approach the challenges of its healthcare system by co-opting the success it has had with its digitalisation so telemedicine and artificial intelligence will form part of the diagnostic process. Meanwhile the streamlining of the clinical trial system will ensure a lot more drugs make it to market. The big question for innovative teams will be how they can protect their intellectual property.



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August 23 2018

Commentary by Eoin Treacy

Alibaba's Sales Surge as Jack Ma's Free Spending Bears Fruit

This article by Lulu Yilun Chen for Bloomberg may be of interest to subscribers. Here is a section:

Alibaba’s been busy expanding its Hema supermarket chain and now operates 35 of those stores -- a mix of sit-down dining and groceries plus delivery hub. Much cash also is flowing into China’s $1.3 trillion food retail and services industry, where it’s trying to hold its own against delivery giant and super-app Meituan. Alibaba said Thursday it’s teaming with SoftBank to put more than $3 billion into Ele.me. Alibaba now intends to merge Ele.me with Koubei, another unit focused on connecting restaurants to the internet.

Ma is also spearheading an expensive foray into the $4 trillion retail sector. Alibaba acquired a department store chain with 29 stores and 17 shopping malls last year and also bought a slice of China’s largest hypermarket chain. It’s been shelling out on content for its Youku video-streaming service to stay abreast of Tencent and Baidu Inc. And heavy investment in datacenters for its cloud computing arm helped almost double revenue in that division to 4.7 billion yuan.

However, those burgeoning businesses may be helping mask a slowdown in Alibaba’s bread-and-butter business, said Steven Zhu, an analyst with Pacific Epoch.

Customer management revenue -- the lucrative fees it charges for helping merchants with marketing -- grew just 26 percent in the quarter, from 35 percent in the previous three months. That reflects how rivals such as JD.com Inc. and Pinduoduo Inc. are siphoning off Alibaba’s merchants and may affect the bottom line in coming quarters, Zhu said.

“This is probably the slowest growth ever,” he said. “They are swapping high-quality revenue with low-quality revenue.”

Eoin Treacy's view -

Amazon bought a supermarket chain so Alibaba bought a supermarket chain. The USA has Grubhub so Alibaba bought ele.me and is also getting into the broader retail sector through the purchase of a department store chain. There is no denying that these are more conventional businesses than the high growth online expansion that fuelled Alibaba’s initial growth spurt. The fact the company is also talking about primarily focusing on the Chinese domestic market raises questions about its commitment to overseas expansion.



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August 17 2018

Commentary by Eoin Treacy

China Builders Tap Local Bonds at Record-Low Rates on Easing

This article for Bloomberg News may be of interest to subscribers. Here is a section:

Combined bond maturities in onshore and offshore markets for the sector amount to $76.5 billion through the end of 2019, according to data compiled by Bloomberg. Builders are expected to tap both markets to meet the refinancing needs.

"We expect onshore issuance will remain strong after a pick-up in recent months," said Franco Leung, property analyst at Moody’s Investors Service. "Offshore issuance slowed recently, but we expect issuers will continue to tap the offshore bond market given the maturity walls in the coming 6 to 12 months.”

Eoin Treacy's view -

China came down hard of local currency debt issuance from 2015 when it looked like the pace of property market price appreciation was going to cause a bubble from already elevated levels. That action was the causal factor behind the growth of the shadow banking system and the massive growth in foreign debt sales.



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August 14 2018

Commentary by Eoin Treacy

China's Economy at a Glance

Thanks to a subscriber for this report from from NAB which may be of interest. 

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

The SHIBOR interbank rate is perhaps the clearest indicator that the process of deleveraging has either ended or is at least taking a breather. One of the clearest takeaways from my family’s recent visit to China was the abiding sense of unease many people were exhibiting and that was no doubt a reflection both of the tightening of credit and the increasingly overbearing position adopted by the administration.



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August 10 2018

Commentary by Eoin Treacy

China, Russia prepare for strategic security talks in Moscow as pressure from United States grows

This article from the South China Morning Post may be of interest to subscribers. Here is a section:

After Chinese President Xi Jinping consolidated his leadership position with the removal of a two-term limit on the presidency and Putin won re-election in March, “the basic building blocks for future cooperation on security issues are somewhat more solid”, said Elina Sinkkonen, a senior research fellow at the Finnish Institute of International Affairs.

“Such language, together with the US sanctions on Russia and trade issues with China certainly influence top level calculations in Moscow and Beijing,” she said.

Alex Gabuev, a senior fellow at the Carnegie Moscow Centre, said the two neighbours had also seen their interests becoming increasingly overlapped in areas ranging from security in Central Asia to the future of Afghanistan, Africa and North Korea.

“Both countries want to keep each other in the loop, explain their intentions and cooperate when possible”, he said.

Eoin Treacy's view -

The enemy of my enemy is my friend is about as old an adage in geopolitics as I can think of.



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August 03 2018

Commentary by Eoin Treacy

China Steps In to Support Yuan By Boosting Cost to Short

This article by Tian Chen for Bloomberg may be of interest to subscribers. Here is a section:

China stepped in to try to cushion the yuan after a record string of weekly losses saw the currency closing in on the key milestone of 7 per dollar.

The People’s Bank of China will impose a reserve requirement of 20 percent on some trading of foreign-exchange forward contracts, according to a statement on Friday evening.

That will effectively make it more expensive to short the yuan, and is a tactic that the central bank used to stabilize the currency in the aftermath of its shock devaluation in 2015.

The change is aimed at preventing macro financial risks as the currency market shows signs of volatility amid recent trade frictions, the PBOC said. The yuan surged in offshore trading and U.S. stock-index futures turned higher after the news, though the moves pared after China detailed how it plans to retaliate against U.S. tariff proposals.

Eoin Treacy's view -

It’s pretty clear that China wants a weaker currency, just not all at once. Today’s action to pressure shorts should help to stem the decline but it does nothing to stop people simply converting currency. That point is unlikely to be a lost on those who continue to harbour bearish attitudes.



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August 01 2018

Commentary by Eoin Treacy

China trip report July 2018

Eoin Treacy's view -

This was another highly enjoyable and educative trip to China for the Treacy family. One of the reasons we love visiting Guangzhou is because it is close to the factories Mrs. Treacy deals with but is also the gastronomic capital of China. The city is replete with wonderful dining options and the quality of food on offer is of a high standard. I’ll write a separate review of restaurants on another occasion.

This poster is in just about every public space from railway stations to the tube, to the barriers around building sites in Guangzhou. The first question I asked myself is why it needs to be in English as well as Chinese. Internet searches using English language terms do not return results even if one is using Baidu or other Chinese search engines and the vast majority of the domestic population does not read English. Therefore, the message is meant for a wider audience or the use of English is intended as a form of legitimisation of the ideals expressed.



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July 24 2018

Commentary by Eoin Treacy

China adds fiscal and monetary stimulus to support growth 24 July2018

Many thanks to Niru Devani for this report on China.

Eoin Treacy's view -

Niru Devani's view

China announced a combination of tax cuts and infrastructure spending late yesterday  to boost growth. The fiscal measures are another sign that the authorities are worried about how the trade war with the US will exacerbate a weakening domestic economy. External “uncertainty” was cited as one of the reasons for the stimulus measures. At the same time, the authorities are keen to allay concerns that China is abandoning structural reform which would damage its credibility on the international stage that it has worked hard to build.



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July 20 2018

Commentary by Eoin Treacy

Is there complacency over Chinese woes?

Thanks to Niru Devani for this article on China.

The Chinese markets turned around today from being down around half a percent to rise by over 2% by the close with the renminbi stabilizing. There was some speculation that the authorities had been supporting the currency to slow down the pace of decline. There was also talk that they would add liquidity into the system to support the equity market.

The yuan has fallen by over 8% since late March and is at a one-year low against the dollar. The renminbi’s fall is partly a catch-up with the other currencies that have fallen against the US dollar. The dollar has been strong this year because of widening interest rate differentials with the Federal Reserve being the only major central bank raising rates. However, the currency has also fallen because of softer economic growth and trade tensions with the US. The Chinese authorities are likely to tolerate a weaker currency as long as it falls in an orderly manner and smoothing its decline from time to time as they appear to have done today.

The current phase of renminbi weakness has not yet led to a global market panic similar to the one we saw in late 2015 and early 2016. However, it is one of the key concerns on investors’ minds. So far, the pressures have been felt in the commodities markets where copper, often described as the metal with a PhD in economics because of its past record of being a lead indicator of economic growth, has fallen sharply since early June, declining by about eighteen percent over such a short time. The tariff war has clearly been a big contributor as has the strength in the dollar which has negatively affected various other commodities with the exception of oil which is being moved by other factors.  Asian equities and other emerging markets have also been hit hard over the last few months. The Chinese equity market is in correction territory having fallen by 20% from its highs in January while the Hang Seng index is at a ten month low.

The tariff war is unlikely to come to a resolution before the mid-term Congressional elections. The concern is that the weakness in the Asian and emerging markets spreads to the developed markets. Other than the Nasdaq index, most other major markets have not made new highs since January. The best case scenario is that the consolidation in these markets continues for longer, the worst being that they react more sharply to the falls in Chinese and emerging markets. China is at least as important a factor as the US and merits watching closely.
 

Eoin Treacy's view -

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July 17 2018

Commentary by Eoin Treacy

Long-term themes review July 17th 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.



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July 16 2018

Commentary by Eoin Treacy

Long-term themes review June 22nd 2018

Eoin Treacy's view -

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

I realise this summary at 4600 words is getting rather lengthy which is why I decided to right another book to more fully explore the issues represented by the rise of populism and what that means for markets and the global economic order. I’ve agreed an August/September deadline so hopefully it will be available this year.



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July 12 2018

Commentary by Eoin Treacy

MercadoLibre Shrugs Off Amazon With Brick and Mortar Focus

This article by Carolina Millan and Ed Hammond for Bloomberg may be of interest to subscribers. Here is a section:

"Our way of competing successfully is to look at all the players, see what they have that we think is great, and if we can incorporate that into our model, we will, but mostly play our game," Galperin said while speaking from Allen & Co.’s Sun Valley conference, and musing about this year’s global soccer championship. "As you know, we’re looking at the World Cup -- we try to play our game and use our advantages and our strengths. We have a great network of sellers, a great brand, we’re investing very heavily, we already have scale."

Shares of MercadoLibre gained as much as 2.2 percent in New York, the most intraday in almost a week.

It’s also betting on brick and mortar investments to improve service. Earlier this year, MercadoLibre announced a partnership for a 38,000-square meter distribution center in the greater Buenos Aires area. In addition, the company, which is providing loans to merchants and payment processing platforms, is working on a digital wallet that offers returns on whatever money is left, Galperin said. Infrastructure -- notoriously poor in Latin America -- is also a priority.

Eoin Treacy's view -

Many commentators have made the point that social media companies require broadband by either mobile or fixed line access to generate income from a market and therefore have an interest in promoting internet access. However, that is equally true of online retail. Wherever ubiquitous internet access is available online retail flourishes, along with its disruptive influence on the conventional retail sector. These maps of the internet’s pervasiveness may be of interest. 



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July 10 2018

Commentary by Eoin Treacy

China in Ten Charts A New Impossible Trinity

Thanks to a subscriber for this report from ANZ which may be of interest. Here is a section:

However, China faces a new policy trilemma: if President Xi Jinping truly prioritises reforms over growth, we must see more corporate defaults or foreign borrowing. But if the government does not want higher offshore USD debts, they must sacrifice some growth. They can’t have all three. 

Removing the implicit government guarantee is a necessary evil. Since the national fiscal audits in 2013 and 2015, the central government has tried to detach itself from ill-defined liabilities, notably the local government financing vehicles (LGFVs). 

This is done via taming shadow lending (slide 5). Since these activities were a key funding source for LGFVs, SMEs, and other borrowers which major banks do not serve, we must see credit spreads surge as a result of the deleveraging process (slide 6).

Many corporates opted to borrow from offshore (slide 7) in 2017. However, the rapid rise of foreign debt has triggered policymakers’ concern (slide 8). In Q1 2018, China’s foreign liabilities hit a record high of USD1.8trn (29% y/y), extending its uptrend since Q1 2016. 53% of it was USD debt and 64% were short-term debt. Meanwhile, Q1 also saw China’s first current account deficits since 2001 (slide 9). Going forward, the outlook for China’s FX reserves position deserves attention. 

We believe that slowing GDP growth is not a risk; the temptation to pump prime the economy is. The RRR cuts in April and July are unlikely to be monetary policy responses to growth risks. Any impact from the US-China trade war is still insufficient to halt the deleveraging process (slide 10). Thus, we believe the cuts are a response to the normalised ‘M1-M2 gap’ (slide 11) which indicates shadow lending is under controlled. Chinese regulators are tackling credit allocation on banks’ balance sheets under the flag of ‘structural deleveraging’. GDP growth will still slow (ANZ: 6.3% for H2, slide 12). Market sentiment will be poor. But targeting growth over reform will be worse, in our view.

Eoin Treacy's view -

A link to full report and section from it is posted in the Subscriber's Area.

China has banned borrowing in US Dollars and it is closing off funding to highly leveraged regional governments, infrastructure projects and businesses. At the same time, it is allowing the default rate to rise. If we were asking where borrowers are supposed to get the funding they need to refinance or continue operations, we have our answer. Defaults are going to rise further.



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July 09 2018

Commentary by Eoin Treacy

China Stocks Rebound With Biggest Gain Since 2016, Yuan Climbs

This article from Bloomberg News may be of interest to subscribers. Here is a section:

Chinese stocks are still among the world’s worst performers this year. In addition to the trade war threat, investors have been troubled by a domestic deleveraging campaign weighing on liquidity, signs of an economic slowdown, and a weaker currency.

The Shanghai index is in a bear market after dropping more than 20 percent from its January high. “There’s room for a technical rebound after the selloff in past few weeks, while regulators’ positive comments on A shares showing value also helped,” said Shen Zhengyang, Shanghai-based strategist with Northeast Securities Co.

The Shanghai Stock Exchange said in a statement Sunday that valuations of companies listed on the exchange and big-cap blue chips are at reasonable or even relatively low levels when compared with peers in major economies. Value is emerging after recent declines, it said.

China International Capital Corp. said there’s medium-to- long term opportunities in A shares as valuations and sentiment have hit the bottom, while brokerages including Citic Securities Co. and Essence Securities Co. now expect the market to rebound.

Credit Suisse Group AG remains cautious, forecasting further losses over the coming weeks. It added that the downside would be limited by solid fundamentals.

Eoin Treacy's view -

The Renminbi has bounced over the course of the last week and is looking increasingly likely to stage a reversionary rally back towards the region of the trend mean.



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July 05 2018

Commentary by Eoin Treacy

With Tariff Deadline at Hand, Businesses Brace for the Fallout

This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

And China has been shifting soybean purchases to Brazil, from which it bought nearly 30% more beans in May than it had a year earlier, according to research firm CEIC. Chinese importers have mostly stopped buying U.S. soybeans, said Paul Burke of the U.S. Soybean Export Council, and agricultural giant Cargill Inc. worries about a longer-term shift to other suppliers.

By value, soybeans are the top item targeted by Beijing’s proposed tariffs; China imported around $14 billion in U.S. soybeans last year, according to Wind Information

In all, China’s tariffs would cover 545 categories of U.S. products, while the U.S. tariffs would cover 818 categories of products from China.

Eoin Treacy's view -

The USA and Brazil are by far the largest exporters of soybeans in the world and if China is no longer buying soybeans from the USA it will soon run out of places to buy. What happens when Brazil’s stores run out? China is not about to stop consuming tofu, soybean oil, soy sauce or other soy products. With prices at such low levels, farmers are going to be planting fewer soybeans and that will create a supply shortage at some point.



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July 04 2018

Commentary by Eoin Treacy

China to be less interventionist on yuan than in 2015

This article by Kevin Yao for Reuters may be of interest to subscribers. Here is a section:

While the intervention underscored Beijing’s desire to inject confidence in markets that have been roiled by the trade war fears, the sources say policymakers would tolerate a weaker yuan to help cushion a slowing economy and take some of the sting out of Washington’s proposed tariffs on its exports to the United States.

“Policymakers believe some yuan depreciation is okay, but they don’t want to see it falling below 6.9. Appropriate currency depreciation is needed given that the economy faces downward pressure,” one policy insider said.

A second policy source echoed those views: “there is no big problem with the yuan depreciation. It could be beneficial as the economy is slowing. We are able to control capital outflows. There is no need for aggressive intervention.”

Eoin Treacy's view -

China is not going to tolerate having a strong currency when it is the subject of trade tariffs aimed squarely at containing its economic and geopolitical expansion.



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July 04 2018

Commentary by Eoin Treacy

Copper May Need a Very Hot Chile to Save it From a Cool China

This note by Benjamin Dow for Bloomberg may be of interest to subscribers. Here it is in full:

Looking at LME copper's current price levels, ie near a 10-month low, it seems it would take more than the risk of labor conflict in Chile to keep the red metal from slipping further to $6,000 per tonne -- especially considering the state of the Chinese economic path, which is currently searching for answers.

Verbal intervention in the tumbling yuan and the do-or- don't nature of the deleveraging debate don't give copper longs much of a handle to grasp. In addition, there's the tense wait for the global trade-war boot to drop, and the fact that copper has risen for seven of the past ten quarters. Chilean mine strikes may have to be acrimonious and long to save Dr. Copper.

Eoin Treacy's view -

China is the world’s largest consumer of industrial resources and its markets are currently in a state of flux as measures to contain speculation are being complicated by worries about trade tariffs. Meanwhile the trend of workers demanding higher pay is not isolated to any one country so there is scope for labour disruptions but that is a not a predictable outcome.



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July 04 2018

Commentary by Eoin Treacy

Replaced His Acura's Windshield. Then the Self-Driving Feature Tugged Him Into Oncoming Traffic

This article by Bill Howard for Extreme Tech may be of interest to subscribers. Here is a section:

“I thought [the repair} was a pretty standard procedure,” Ash told CBC News. But after the repair was completed, when he went to drive the car, “It was actually pulling me into oncoming traffic. … it was a startling feeling to have the steering wheel actually pulling you into traffic.” Ash said he was able to control the car and get it back into lane.

According to Ash, a technician at the glass shop pointed at the camera, but Ash doesn’t recall hearing that person suggesting having the camera re-calibrated, which would most likely be at the dealership. Ash told CBC there was fine print in the invoice that talked about having the camera re-calibrated — fine print being the thing almost no one ever reads until there’s a problem. And the manual, which many people do read, says nothing about this.

Eoin Treacy's view -

It is to be hoped that assassinating the driver for using an independent vendor is a bug rather than a feature of self-driving cars. On a more serious note the obvious path to profitability for car companies is to make money on maintenance and repairs if they are constrained by the profitability of the vehicles. That is particularly relevant for electric cars where companies are losing money on every vehicle.



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July 03 2018

Commentary by Eoin Treacy

Taiwan's Technology Secrets Come Under Assault From China

This article by Chuin-Wei Yap for the Wall Street Journal may be of interest to subscribers. Here is a section:

 

Taiwanese government officials and company executives say China is deliberately targeting Taiwan, whose manufacturers make chips for the biggest American companies, including Apple Inc., Nvidia Corp.and Qualcomm Inc. They say China aims both to pressure what it considers a breakaway province and to pursue its goal of reducing its reliance on foreign suppliers.

Technology-theft cases more than doubled to 21 last year from eight in 2013, according to official data. Taiwanese authorities and attorneys say they mostly haven’t indicted Chinese entities believed to be the ultimate beneficiaries, often for political reasons and because they don’t believe they would be able to enforce court judgments on the mainland.

While China manufactures most of the world’s smartphones and computers, it imports almost all the semiconductors needed to provide the logic and memory that run the gadgets. Last year, China paid $260 billion importing chips—60% more than it spent on oil. Chinese leaders want homemade chips to account for 40% of locally produced smartphones by 2025, more than quadruple current levels.

Eoin Treacy's view -

China’s Achille’s heel in a trade war is that it depends on imports of semiconductors to fuel the continued evolution of its higher value-added manufacturing sector. It can put tariffs on soybeans but it still has to import semiconductors and that is not only a business weakness but a geopolitical issue for the country.



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July 02 2018

Commentary by Eoin Treacy

China Rebound's Gone Within a Day as Even Biggest Stocks Crumble

This article from Bloomberg News may be of interest to subscribers. Here is a section:

The list of negatives facing the $6.6 trillion stock market is growing. The economy is already showing signs of vulnerability to a U.S. trade war before new taxes are levied at the end of this week. Analysts and investors alike are struggling to keep up with the yuan’s descent, while there’s been little sign of heavy state intervention to stem the slump in either stocks or the currency. Concern is also growing over the health of the country’s massive property market.

"Sentiment will remain bad in the near term," said David Qu, economist at Australia & New Zealand Banking Group Ltd. in Shanghai. "The market doesn’t hold high hopes that China and the U.S. will find a way out before the tariffs are imposed."

The Shanghai Composite has only risen on four days out of the past 15, and on each occasion the gauge has closed lower the following trading session. A momentum indicator is near a five- year low, while losses in Chinese bourses have topped $2 trillion since January’s peak. In percent terms, the Shanghai measure is the world’s worst after Argentina with a 22 percent retreat in the period.

"It would be a bad time to buy right now as pessimism prevails," said Liang Jinxin, Shanghai-based strategist with Tianfeng Securities Co.

Eoin Treacy's view -

Prime Beijing and Shanghai Property prices are not far off the levels of the world’s most expensive property markets on a price per square metre basis. China is a large country with a middle class larger than the total population of either the USA or EU but it is also a middle-income country where the ability to buy a home is beyond the reach of an increasingly large proportion of the citizenry.



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June 29 2018

Commentary by Eoin Treacy

Kevin Rudd on Xi Jinping, China and the Global Order

I view this transcript of a speech delivered at the Lee Kuan Yew School of Public Policy in Singapore on Tuesday as required reading for anyone interested in China. Here is a section:

It is deeply significant that at the 2018 Work Conference, Xi Jinping states boldly that a core component of his new ideology of a “diplomacy of socialism with Chinese characteristics” would be for China to: “lead the reform of the global governance system with the concepts of fairness and justice.” This is by far the most direct, unqualified and expansive statement on China’s intentions on this important question we have seen.

China, like the rest of the international community, is acutely conscious of the dysfunctionality of much of the current multilateral system. It also sees the US walking away from much of the system as well: from the JCPOA which was agreed to by the UN Security Council; from the UN’s Paris Agreement on Climate Change; its withdrawal from the UN Human Rights Commission; its open defiance of the Refugees Convention; and its challenging of the underlying fabric of the WTO.

Nature, as we know, abhors a vacuum. International relations even more so. And we all saw Xi Jinping’s riposte to President Trump on climate change and trade at Davos 18 months ago just after President Trump’s election. If China is indeed serious about leading the reform of global governance, its attitude to various of these multilateral institutions will be radically different to the historical posture of the US. Take for example the Human Rights Council in Geneva, which China would like to see emasculated. Mind you, so too now, apparently, does the current US administration!

Eoin Treacy's view -

I think it is fair to say that the rise of populism and the inability of the status quo to come up with anything other than a policy of appeasement is a reflection of an identity crisis evident in many Western economies. China’s Communist Party does not suffer from that kind of identity crisis. In fact, it is on the front foot and is responding to internal challenges by attempting to expand abroad not least to boost the profile the Party at home.



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June 28 2018

Commentary by Eoin Treacy

China's Baidu Approves a Share Buyback of Up To $1 Billion

This note by Edwin Chan may be of interest.

Chinese search giant Baidu Inc. has approved a plan to buy back as much as $1 billion of its own shares over the next 12 months, a move that may help prop up its stock as global market volatility grows.

Its board has green-lit a program to use existing cash to buy shares in the open market at prevailing prices, the Beijing- based company said in a statement Wednesday. It will review that program periodically and may adjust its terms and size.

Baidu’s shares are up more than 7 percent this year, just underperforming the Nasdaq Composite’s gain but outstripping larger rival Tencent Holdings Ltd., which is down 7 percent in 2018.

Eoin Treacy's view -

Baidu has a market cap of almost $84 billion with free cash flow last year of $28 billion. A $1 billion buy back program might be a new departure for the company but it is unlikely to be large enough to influence investor interest beyond the sensational headline.



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June 25 2018

Commentary by Eoin Treacy

China, Europe Warn Trade War Could Trigger Global Recession

This article from Bloomberg may be of interest to subscribers. Here is a section:

Later this week, the U.S. Treasury Department is expected to release fresh rules on Chinese investment in technology companies, Bloomberg reported on Monday, putting additional pressure on China -- which hit back against the plans. Chinese investment has provided jobs and tax income for the U.S., and it should view commercial activities “objectively,” Foreign Ministry spokesman Geng Shuang told reporters in Beijing on Monday.

The U.S. is due to impose tariffs on $34 billion of Chinese imports from July 6, and Trump has threatened to impose levies on another $200 billion of Chinese goods. If that threat is realized, it could cut as much as half a percentage point off China’s economic growth, and also hit the American economy, economists have said.

Anxiety over the economic fallout is cutting deep in financial markets, with China’s yuan sliding to a six-month low Monday. The S&P 500 Index fell to the lowest since May and the Dow Jones Industrial Average sank for the ninth time in 10 sessions.

As if to reinforce concerns about the economic outlook, the Dutch Bureau for Economic Policy Analysis on Monday published its latest trade monitor, showing world trade momentum dropped in April to the lowest since 2015. The measure has fallen sharply since hitting a seven-year high at the start of 2018.

Eoin Treacy's view -

The EU’s export-oriented economies along with China have been some of the greatest beneficiaries of globalisation and therefore are also likely to be the primary defenders of the “multilateral trading” regime. Nevertheless, the rise of populism which I describe as a revolt against the status quo represents a challenge to that system which is currently being led by the Trump administration but represents a significant theme in an increasingly large number of countries.



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