Shanghai / Singapore: According to sources, China’s efforts to prevent the yuan from falling caused the chaos in the money markets last week. This pressure comes from Beijing, which is attempting to control its markets and economy during a significant slowdown. On October 31, routine month-end cash requirement in China’sContinue Reading
In the home stretch of a rocky 2023, China and Warren Buffett are warning the global economy that the year ahead could be even more precarious.
Not directly or in tandem, of course. But the financial decisions being made in Omaha, Nebraska and Beijing don’t seem very promising for the 12-14 months ahead.
Buffett’s Berkshire Hathaway conglomerate, for example, is raising its cash position in headline-generating ways. Its cash pile is now a record-breaking US$157.2 billion amid rising global interest rates and a lack of solid investment options.
Xi Jinping’s China is also going as liquid as it can — and rapidly — without panicking investors everywhere. As of the end of August, China’s stockpile of US Treasury securities dropped to the lowest level in at least 14 years.
What’s more, Beijing’s exposure to US government debt has fallen about 40% in just the last decade. Xi’s Communist Party has long since passed the dubious honor of Washington’s top banker to Japan. But at No 2, with $805.4 billion of US Treasuries, China’s selling activity is raising eyebrows in government offices and trading pits around the globe.
Though some might claim foul geopolitical play, there could be perfectly rational economic reasons for Xi’s government to offload US debt. As economist Torsten Slok at Apollo Global Management sees it, “growth in China is slowing for cyclical and structural reasons, and Chinese exports to the US are lower. As a result, China has fewer dollars to recycle into Treasuries.”
Brad Setser, a former US Treasury Department economist, says the suspicion that Xi is exacting revenge on the US “sort of makes sense. China does worry about the weaponization of the dollar and the reach of US financial sanctions. And why would a rising power like China want to fund the Treasury of a country that China views as standing in the way of the realization of the China dream – at least in the Pacific?”
Yet, Setser says, “that is not what I believe is actually happening.” The bulk of China’s post-2012 efforts to diversify its reserves “have come not from shifting reserves out of the dollar, but rather by using what could have been reserves to support the Belt and Road and the outward expansion of Chinese firms.
Those non-reserve foreign assets, strangely enough, seem to be mostly in dollars; almost all the documented Belt and Road project loans, for example, have been in dollars.”
Whatever the motivation, though, the global financial system is right to worry about the wider fallout from China selling dollars, including surging US yields. US bond rates recently hit a 17-year high and further spikes are sure to hit asset markets around the globe.
Slok notes that rising US yields are “inconsistent” with the view that stock markets are undervalued. “In short, something has to give,” Slok notes. “Either stocks have to go down to be consistent with the current level of interest rates. Or long-term interest rates have to go down to be consistent with the current level of stock prices.”
Strategist Lauren Sanfilippo at Bank of America sees China’s selling of Treasuries, circa 2023, as a bookmark of sorts. The other was in 2013, when senior People’s Bank of China officials declared it was “no longer in China’s favor to accumulate foreign exchange reserves.” That, she argues, marks “the beginning of a downtrend in China’s holdings of US Treasuries.”
In late 2013, Sanfilippo says, China owned more than $1.3 trillion in Treasuries, in excess of 23% of all foreign holdings. More recently, and over the last 18 months, China has sold more than $200 billion in Treasuries.
This isn’t the full picture, though. All in all, Sanfilippo says, “the landscape of buyers of US Treasuries has shifted. While foreigners own 30%, that share has been declining. The Federal Reserve owns 18%, or another $4.7 trillion, down from a peak of $6 trillion via the monthly run off of $60 billion of Treasuries through their ongoing quantitative tightening program. Importantly, and increasingly coming to the table, are hedge funds, pensions, retail investors, mutual funds and insurers as marginal buyers.”
In Sanfilippo’s view, the “bottom line” is that “foreigners are still a major source of demand for our paper. An important fact, particularly when accounting for a growing US deficit. A list of concerns such as a shifting geopolitical landscape, polarizing US politics, hits to the US credit rating, or a worrying pile of debt, could all chip away at the allure for US assets over the long term.”
But, she notes, “good reasons remain for our preference of US dollar-denominated assets relative to non-US dollar assets. The US economy remains the largest, wealthiest and most competitive economy backstopped by the US corporate sector. Globally speaking, that’s a rare combination that continues to drive flows into US assets, both foreign and domestic.”
Even so, Washington’s bankers in Asia losing faith en masse could be the game-changer officials in Beijing have long feared. The nine Asia-Pacific economies holding the most US debt are sitting on more than $3 trillion of it.
That, at a moment when the US national debt tops $33 trillion and the Fed might soon extend its most aggressive tightening cycle since the late 1990s. Add in extreme political dysfunction in Washington putting the last of its AAA credit ratings at risk.
The risk is that all that red ink prompts more of Washington’s bankers to buy fewer Treasuries or, worse, call some loans.
In March 2018, Cui Tiankai, China’s then-ambassador to the US, hinted that Beijing might scale back on debt holdings amid concerns about losses. “We are looking at all options,” he said.
That same year, Fan Gang, a top PBOC adviser, said the time to diversify had come. “We are a low-income country, but we are a high-wealth country,” Fan said. “We should make better use of capital. Rather than investing in US government debt, it’s better to invest in some real assets.”
Those concerns in 2018 were being expressed seven years after the US lost the first of its AAA ratings – from S&P Global Ratings. They also came nearly a decade after then-Chinese premier Wen Jiabao in 2009 urged Washinton to safeguard its creditworthiness.
“We have made a huge amount of loans to the United States,” Wen said at the time. “Of course, we are concerned about the safety of our assets. To be honest, I am a little bit worried.” Washington, Wen stressed, must “honor its words, stay a credible nation and ensure the safety of Chinese assets.”
One big worry for China and the rest of Asia: that bickering in Washington between President Joe Biden’s Democrats and the Republicans loyal to predecessor Donald Trump might brawl in ways that prompt Moody’s Investors Service to downgrade the US as Fitch Ratings did in August.
With approval ratings in the low 40s, at best, Biden’s path to defeating Trump in November 2024 is narrowing. Trump has suggested in the past that he might default on US debt to retaliate against China.
Also on Trump’s watch, from 2017 to 2021, America’s standing in Transparency International’s annual corruption perceptions index nosedived 11 places since from 2017 to 2021 – to a 27nd ranking from 16th place.
These aren’t comforting data points for China and other Asian governments effectively holding Washington’s mortgage. As 2024 approaches, Xi, the strongest Chinese leader since Mao Zedong, may also be trying to avoid terrible headlines about hundreds of billions of state wealth lost to US yield volatility. It’s complicated, of course.
The resulting surge in US yields if China accelerated Treasuries selling would boomerang back on China’s economy, just as it’s growing the slowest in three decades. As rates rise, American consumers will buy fewer Chinese goods. The US, of course, is already slowing. In October, the US added just 150,000 nonfarm payroll jobs, a marked slowdown.
“Some of [October’s] weakness will reverse next month with the United Auto Worker (UAW) strike ending, but there is more weakness beyond that,” says economist Thomas Simons at Jefferies, a US investment bank. “This data fits in line with the trend that had been in place before the surprisingly strong September print.”
Yet as Buffett’s Berkshire noted in a recent report: “The effects of significant increases in home mortgage interest rates in the US over the past year has slowed demand for our home building businesses and our other building products businesses. We continue to anticipate certain of our businesses will experience weakening demand and declines in revenues and earnings into 2024.”
As such, economist Mark Williams at Capital Economics doubts that Beijing is letting political objectives dictate foreign exchange reserve management.
“Falls in the value of China’s recorded holdings of US Treasuries tell us little about whether China is divesting from the dollar,” Williams notes. “A broader look at the data suggests that it isn’t, despite geopolitical pressure to decouple. The analysis of the US Fed suggests that China has been a net buyer overall,” of dollar assets.
Setser, who’s now with the Council on Foreign Relations, thinks worries about China dumping US debt are overdone. In his view, there “aren’t realistic channels for financial contagion” from the second-biggest economy to the US. Bottom line, he sees “no real scenario” in which China “disrupts” American markets in ways the Fed can’t handle.
But can the PBOC handle things? Some of the US Treasuries sales of late seem to reflect a desire to have funds available to keep the yuan from extending its 5.5% drop this year.
On the one hand, it’s increasing the odds China will import inflation amid elevated global commodities prices. On the other, it raises the risks of additional defaults among property developers as offshore debt payments become more expensive.
Still, as recent actions by Xi’s government and Buffett suggest, there may be an even bigger economic storm brewing in 2024. As such, some battening down of the hatches may be in order.
Follow William Pesek on X at @WilliamPesek
The US guests invited Western leaders to an National basketball game just before the next conference between the US and the Pacific Islands Forum took place in September at the White House. One, however, stood out as being excluded: Prime Minister of the Solomon Islands Manasseh Sogavare.
Some people began to wonder if Sogavare’s absence was proof that Beijing had won a different kind of competition— the US and China were vying for influence in Oceania.
Sogavare has made no secret of his growing friendliness toward China. For instance, his government made the decision to” switch” diplomatic ties from Taiwan to China in 2019. Three years later, it also signed a contentious security agreement with Beijing.
But the US hasn’t just stood by. Following the first US-Pacific conference last year, Washington unveiled a new Pacific Partnership Strategy that shares objectives and goals for post-pandemic economic recovery, nuclear disarmament, maritime security, and climate change mitigation.
Additionally, the US promised the Pacific$ 810 million, or$ 1.275 billion. A portion of this, totaling about$ 600 million, was set aside for the Pacific Fisheries Agency to house fish that was outlawed, unreported, and unregulated.
Additionally, the US has enlisted friends. In order to coordinate their engagement to the area, Australia, Japan, New Zealand, and the United Kingdom teamed up with the US last year to shape a group known as Partners in the Blue Pacific.
With this commitment, the US has come to represent the region really and, more importantly, China’s expanding footprint as a danger to its interests. Oceania now seems to be important.
This year marks the Pacific Islands Forum’s annual conference in the Cook Islands, making it a good time to consider the increased interest from foreign powers like the US, China, and Australia as well as what it all means, particularly to the local populace.
For the US, China and fish appear to be the main sources of involvement in the Pacific Islands. However, these interests by themselves do not elevate the area above others in terms of tactical significance.
The Biden government’s February 2022 Indo-Pacific Strategy serves as a helpful manual for China. China’s” force and anger span the world, but it is most acute in the Indo-Pacific,” according to the statement.
Yet, despite rumors about Chinese basis, airstrips, and dock in the Pacific, there hasn’t been much of a Taiwanese military presence there.
In fact, the US dominates the Pacific in terms of military might. It has:
As a result of US dominance in the North Pacific, these nations are more likely to follow Washington’s policies on international affairs, making Sogavares position on China more of an aberration.
Additionally, it’s important to consider the numbers and enthusiasm regarding US assistance for the fish company. The$ 600 million commitment is only three-quarters of the total funding promised in 2022, and it spans ten years.
Since China’s very subsidized fleets are the ones that are primarily accused of illegal hunting, this vow also serves as yet another type of local deterrence against Beijing.
In contrast, the US doesn’t appear to be as interested in developing industry, investment, construction, or scholarships in the Pacific, all of which are industries where China is thriving.
Nevertheless, it appears that the ring is turning in Australia. For example, the Pacific Engagement Visa was finally approved by parliament in October. As a result, up to 3, 000 Western islands will be able to live forever in Australia each year.
The importance of the card lies in its potential to change Australia into a country that resembles the Pacific more.
Research has shown that for Pacific Islanders, having access to continuous movement is more beneficial than receiving development aid. Additionally, the benefits to Western people are practically immediate.
There is the side benefit that welcoming Western migrants is things China will not do, which is of regional interest. ” This is part of a broader strategy to integrate the region in the long term ,” according to Fiji’s deputy prime minister.
However, the American state is bound in a similar way to the US. Compared to economic or evolutionary needs, defense concerns can be addressed much more quickly.
And whether or not Australia’s military deployment in the Pacific is in response to a blatant Chinese danger, it only serves to reinforce the long-held belief that Canberra is more concerned with protecting the place of the area than its citizens’ well-being.
Despite the fact that Western leaders are eager for this, unlike China, Australia’s government cannot order businesses to invest in the area. ( The lone exception is Telstra’s acquisition of Digicel Pacific. )
China’s debt trap politics has received a lot of attention, but its real influence over Pacific rulers lies in the promise of future projects and the line of investments.
Qian Bo, China’s special envoy to the Pacific, is renowned for regaling his Pacific counterparts with mocking observations about the Australian economy and its incapacity to satisfy their needs, whether as a place for Pacific exports or an investment source.
Despite the fact that public opinion has been changing in recent years, significantly increasing Australia’s Western support spending is also politically difficult.
Significantly, Australia’s minister for international development recently aimed at” transactional” development projects intended to assist mission heads in resolving” short-term” issues. Australia’s assistance is least effective in the Pacific, where this pattern is especially noticeable.
There is little risk of regional push-back on fellowships for the children of social leaders, enormous venues and swanky government buildings, even though China’s Western aid has plateaued since 2016. Additionally, China’s infrastructure spending has forced Australia to switch from grant-based support to self-financing development infrastructure.
What matters in the area is the material effects of all of this international interest.
Despite President Joe Biden’s assurances that things will be different this time, the US has long been accused of losing interest in the Pacific immediately.
Nevertheless, if” strategic rejection” of China is the only place in which the US is willing to commit to on-the-ground change, this does not elevate the Pacific islands to the top of the list of American interests worldwide. And it hardly scratches the worries about financial growth and climate change that have been voiced throughout the area.
Biden reportedly responded,” because we’re a Pacific region ,” when Chinese President Xi Jinping questioned him about why America was working so closely with Australia. However, if former President Donald Trump is re-elected, the Pacific area may have to deal with a government that downplays climate change and shows little interest in the area outside of China and fish.
Australia, in contrast, has made a significant step toward becoming an exact Pacific region with the Pacific Engagement Visa. And despite the fact that the opposition is led by a person who once made fun of rising sea levels, Pacific issues are held by both parties.
All Australians should ponder the issue of why it matters. Because the why component is very important to the Pacific.
Graeme Smith teaches as an associate professor at Australian National University, and Henryk Szadziewski is an online at the University of Hawaii’s Center for Pacific Islands Studies.
Under a Creative Commons license, this post has been republished from The Conversation. Read the original publication.
The average coach ownership of Whoosh is estimated to be around 90 %, or about 7, 000 travellers per day as of the end of October, according to PT Kereta Cepat Indonesia China( PT KCIC ), a consortium of Indian and Chinese state businesses building the railroad. In November, it will make 28 regular trips, which is twice as many as next month. & nbsp,
In the long run, KCIC hopes to possess 30, 000 passengers per day as more regular trips are added to the schedule. & nbsp,
Given that Whoosh did pass more towns and Surabaya is a significant town surrounded by business areas, the government anticipates that there will be more passengers if it is expanded from Bandung to that city. & nbsp,
Therefore, we will consider this HSR( option ) because, if it only goes to Bandung, it is insufficient, according to Airlangga Hartarto, Coordinating Minister for Economic Affairs, on October 11.
The government believes that as more people board the train, there will be more revenue, which will result in less time needed to repay the debt. However, Center of Economic and Law Studies( CELIOS ) economist Bhima Yudhistira is skeptical.
He disagrees that the return on investment may be quicker and easier to achieve by widening the path to Surabaya.
According to Mr. Bhima,” it is not a promise because of course, the fees may be higher and the return on investment may get longer.”
Darmaningtyas, a travel analyst based in Jakarta who goes by the same name, also thinks that expanding the route to Surabaya may require spending more money, which would be problematic.
” The authorities should really evaluate the necessity, considering that the design of the Bandung – Surabaya HSR requires a large budget, certainly more than 150 trillion ringgit ,” he said.
Mr. Darmaningtyas does not think the private sector will be able and ready to finance the construction of another longer way because it might take too long to break even, based on Indonesia’s practice building Whoosh, which is expected to do so in at least 40 times.
” The private business may make investments in successful circumstances.” Additionally, they require government offers so they won’t be concerned about costs.
Analysts predict that the new lines’ financing model may be comparable to that of the Jakarta-Bandung line if it turns out to be a collaboration with China once more.
The latter was financed by China with a 75 % product from the China Development Bank, with the remaining funds being divided equally between the Indian and Chinese sides in the PT KCIC consortium.
The state resources was also used to cover the budget overrun, amounting to about 7.3 trillion rupiah. & nbsp,
On October 31, Syrian Prime Minister Najib Mikati laid out a three-step peace plan for the fight in Gaza. He said something that might appear commonplace to American audiences:” We will acquire the right of Israel and the rights of the Palestinians.”
But in a nation that has yet to understand Israel, let only entertain the idea of peace talks, his words had the potential to incite anger.
Mikati described his plan in a conversation with The Economist. His strategy calls for a five-day peace followed by an end to warfare for all time. Therefore, a global conference may be called to finally address the problem by putting the ever-elusive two-state solution into practice.
Without a doubt, Mikati’s strategy reflects the more reasonable preferences of the Middle Eastern populace. The majority of those who are not directly involved in the conflict want to see an instant end to what is commonly regarded as Gaza’s significant and collective punishment. To address the underlying problems, they also call for an expansion of international political work.
It is obvious that many people in the Muslim world do not view the October 7 problems as isolated occurrences. And that Israel and the West, who they believe failed to significantly pursue the two-state option at the expense of Arab dignity and social appearance, should bear some of the blame.
However, Mikati’s strategy itself is barely novel. It is a reiteration of the Egyptian peace program that the much more powerful Saudi Arabia demanded in 2002.
So why, when his nation has yet to resolve its own issues with Israel, is a caretaker prime secretary( only the president, which Lebanon hasn’t had in two years, you presides over an apparent hopeless peace plan ) leading the way?
The growing concern in Lebanon that the nation will be forced into a battle it just cannot afford to take part in is the first and most pressing reason for Mikati’s action.
Since 2019, the Palestinian state has been essentially bankrupt, and the nation has experienced one issue after another ever since. According to World Bank estimates, its economy has shrunk by 39.9 % of GDP since 2018, while the Lebanese Pound has lost more than 98 % of its value.
The government’s debt-to-GDP ratio was listed at 283.2 % in 2022, while average inflation reached 171 %.
Due to this financial crisis, which was made worse by the incredible explosion at Beirut’s slot in August 2020 and later energy and grains crises, Lebanon is currently experiencing one of the worst economic conditions in its history. Therefore, it should come as no surprise that there isn’t a particularly strong desire for battle.
Social motivation is the second driving force behind Mikati. Lebanon has usually held a unique place in the Israeli-Arab issue. While some of the nation view it as an existential concern due to concerns about Jewish anger, others have taken on a more indifferent stance.
The Syrian government has avoided taking any military action against Israel since a quick involvement in the Egyptian war against it in 1948.
Some people have come to associate the Iran-sponsored” Party of God” with opposition against Israel as a result of Hezbollah’s success in driving Israel out of the north of Lebanon in 2000 and its small campaign against it in 2006. The government hasn’t done much to stop Jewish encroachments and assaults on Syrian infrastructure, despite the best efforts made by many of the country’s leaders to distance themselves from Hezbollah.
Hezbollah continues to gain a lot of authenticity in Lebanon for its opposition movements, frequently citing Israel’s continued activity of the Shebaa Farms as an official justification.
There are a few communities in this 16-square-mile region that Lebanon claims. It is located on the Syrian-Lebanese border, which even passes through the Israeli-occupied Golan Heights.
17 % of respondents in Lebanon said they” strongly favor” or” favor” normalization between Arab states and Israel, according to a survey by the Arab Barometer from 2022.
Lebanon was ranked second among the nations surveyed as a result. Additionally, the two countries above it, Sudan( 39 %) and Morocco( 31 %), are both parties to the contentious Abraham Accords, which Israel and various Arab states signed in 2020 and 2021. Just 5 % of Egyptians and Jordanians responded in the same way, in contrast.
Even among the more overtly hostile Lebanese toward Israel, it appears that a number of engagement rules established over time between Hezbollah and the Israeli military — including the prohibition of attacking civilians and military outposts— have contributed to the current state of affairs.
In fact, a different survey this week by the Lebanese newspaper Al Akhbar, which is frequently regarded as being in favor of Hezbollah, revealed that 68 % of respondents opposed direct engagement, while only 52 % supported limited” operations” to maintain pressure on Israeli forces.
However, one shouldn’t conflate a lack of desire for battle with acceptance or even tolerance of Jewish domestic and regional activity, not least in the most recent conflict with Hamas.
Over the past few weeks, protests have been occurring throughout Lebanon and the rest of the place, expressing unity with Palestinians and denouncing the West’s ostensibly unequivocal support of Israel.
Additionally, 73 % of respondents to Al Akhbar’s survey opposed a neutral Lebanese position in the conflict while 80 % supported Hamas’ operations. This is consistent with the opinions of many others in the Muslim world and various developing nations, who believe that Israel is either at fault or that its revenge in Gaza has gone too far.
With his fresh peace program, Mikati is attempting to maintain such delicate balances. The rest of Lebanon did remain anxiously awaiting the outcome of his plan as it possibly fails, as the fate of the nation( and the region ) will determine the next few weeks and months.
Tarek Abou Jaoude teaches as a teaching fellow at the University of Portsmouth in politics and international relations.
Under a Creative Commons license, this post has been republished from The Conversation. Read the original publication.
The recent launch of the Huawei Mate60 Pro sent a seismic shiver across the global semiconductor realm. Several years of the most drastic sanctions, culminating last year in the US CHIPS and Science Act, had failed to stop China’s technological juggernaut.
On the contrary! A cryptic Chinese poem expresses the struggle: 两岸猿声啼不住, 轻舟已过万重山 – the boat has sailed past the looming mountains with their screeching baboons.
The Huawei Mate60 Pro is a masterful move in an unfolding global chess game. But there is much more coming.
Let’s look at the big picture.
Think back to the 2008 Beijing Olympics Opening Ceremony. China spared no expense in staging a magnificent show combining artistry and technology that narrated the trajectory of Chinese culture and civilization, from its ancient origins to the boundless potential of its high-tech future. Synchronicity and power on a breathtaking scale.
Many were ecstatic. But while the Beijing show impressed most of the world, it sent shivers down the spines of some Western elites, who were more and more terrified about China’s growing power and self-confidence.
Wheels were set in motion to slow down the Chinese juggernaut’s advance at all costs, even if it meant damaging the synergistic partnership between the West and China, which had brought enormous growth and profitability for both.
This is where I think each side made a fatal misjudgment, by projecting their own ideology on the other side.
Instinctively the West thought: “Surely when China attains the means, it will act like we would do, seeking hegemony and aiming to deal a death blow to its waning rival.” Seeing China as an existential threat, the West launched a ferocious, full-spectrum attack.
China bet erroneously that the West would act pragmatically, as China would do, and not try to kill the proverbial goose that lays golden eggs. After all, China is the biggest buyer of Western debt ($4 trillion in US Treasuries since the 2008 financial crisis), a huge market for high-value-added goods and services from the West, a manufacturing partner that enabled brands like Apple and Tesla to become global behemoths.
China was fully integrated into the supply chain of Western companies; hardly anything could be produced without inputs from China.
China was therefore caught completely off guard by the series of exclusionary measures launched under the Barack Obama administration – including the Trans-Pacific Partnership (TPP) – and culminating in outright trade and technology sanctions, siege and wars orchestrated by Donald Trump, and expanded and intensified under the Joe Biden administration.
It became a zero-sum game on The Grand Chessboard, as Zbigniew Brzezinski called it in his famous book.
Based on game theory and a ruthless “winner takes all” approach, think-tanks across the West devised ever stronger decoupling measures and punitive sanctions on a rapidly expanding “Entity List.”
It was supposed to be a checkmate move. In a July 12, 2023, article in New York Times Magazine titled “’An Act of War’: Inside America’s Silicon Blockade Against China,” Alex W Palmer declared: “If the controls are successful, they could handicap China for a generation; if they fail, they may backfire spectacularly, hastening the very future the United States is trying desperately to avoid.”
How do the Chinese fight a zero-sum game? With Chinese math!
In the Chinese martial art xingyiquan, one keeps a reserve strength of at least 70% on the back foot, displaying only 30% of one’s true strength in punching the opponent. The remaining 70% are reserves to be drawn on as the attacks intensify. The depth of this reservoir often catches the opponent by surprise.
The Chinese cannot understand why the West fights with what they call a “Fist of Seven Injuries” (七伤拳), inflicting as much self-harm as it does to the opponent. The sanctions have hurt Western and Eastern Asian high-tech companies hard, as they lose not only their biggest market, but also important partners in their supply chain.
Profits plunged by double digits among tech titans from Samsung to Qualcomm. From mid-2022 to July 2023, Samsung’s operating profit fell by a whopping 95% to US$527.2 million (670 billion won). TSMC (Taiwan Semiconductor Manufacturing Co) reported a 23.3% year-over-year decline in net income – the first profit drop in four years.
Seeing how the game was playing out on the Grand Chessboard after 2008, China imperceptibly began to switch the game from chess to weiqi (围棋) – the Game of Encirclement, otherwise known as Go.
In their book A Thousand Plateaus (1980), Gilles Deleuze and Félix Guattari offered a succinct explication of the difference between the two games. They note that in chess the conflict is “institutionalized and regulated” with a front and a rear battle line, whereas in weiqi there are no battle lines. “It is a question of arraying oneself in an open space,” they note, “of holding space, of maintaining the possibility of springing up at any point.”
Chess is played in a “structured” space, with each piece assigned a specific role in the hierarchy with a clear differentiation between the pawns and the “elite” pieces such as knights, bishops, kings and queens, each moving in its designated way.
In contrast, weiqi is played in a “fluid” space where the pieces are identical, and their roles are ambiguous. It is the strategic context that matters. The strategic orchestration of the whole is greater than the sum of its parts.
There are as many moves in weiqi as atoms in the observable universe, offering infinite flexibility and maneuvering room to an astute player. The ambiguousness and fluidity of their roles augment the potential importance of every piece on the board, bewildering those who do not understand the weiqi game.
China plays weiqi by radically expanding its playing field and its global political-economic space.
China’s mobilization began in earnest, across the whole board.
It is a fatal mistake to view China as a sea of identical faces. Every Chinese person is in fact a monad, an individual microcosm, a bundle of energy, deeply interconnected with the macrocosm.
With their constant harping on China’s “authoritarianism,” the Western media erroneously ascribed a fossilized top-down model to this elastic, evolving system.
Today’s China thinks in multidimensional feedback loops, meritocracy, distributed control, complexity, emergence, networks, manufacturing chain reactions, AI, Big Data, quantum technologies, synergy, Hive Intelligence.
There is a Chinese expression, 举国之力, literally “the strength of a nation.” But its full meaning is hard to translate.
In terms of infrastructure, security, from health care to education, Chinese people place high demands on their government to deliver. But when the call comes to mobilize in the face of an outside threat, the role is reversed. “The country needs you,” was the message. Under the mortal threat of the Tech War, a billion monads sprang into action.
It wasn’t just a directive from Beijing and planning by top players like Huawei. Students voluntarily switched their graduate studies from other sciences to information and communications technology (ICT). Rival companies set aside differences to cooperate.
A turbo chain reaction propagated across the monadic space, from R&D to a complete ICT supply chain, not only in Shenzhen, Shanghai and Beijing, but Anhui, Hefei, Harbin, Xian, Wuxi, Changsha, China’s microcosms coalescing into mission-driven cells and divisions, each taking on specific challenges within the macrocosm.
Huawei, SMIC, SMEE, YMTC, ZTE etc are just the most visible tip of the iceberg. A plethora of lesser-known brands such as Origin Quantum, JCET, AMEC, Changchun Institute of Optics, CHEER Tech, etc, many of which had nearly gone out of existence, suddenly reappeared on the scene.
Would it have happened without an all-out tech war against China?
No.
China had always viewed chips as ordinary electronic products and as long as it could rely on a steady supply, there would be little interest in reinventing the wheel. Huawei had a huge reserve of strength and could have punched sooner – 10+ years sooner for a number of technologies.
Nevertheless, under the leadership of chief executive officer Ren Zhengfei, Huawei remained a steadfast customer for its partners such as Qualcomm, TSMC, SK Hynix, ARM, etc, emphasizing the need to preserve the global ecology of this sector.
The High Tech War has changed all this.
This difference is key to understanding the outcome of this High Tech War. The issue is not merely Huawei’s Mate60 Pro smartphone, but rather that China is creating an entire perfectly networked universe, of which only the tip is visible.
The chessboard has morphed into today’s weiqi game, with 70% of the world on joining China, in the form of BRICS and the angiogenic growth of BRI investments, both physical and virtual.
Huawei chief financial officer Meng Wanzhou (Sabrina Meng) strongly hinted at this during September 20-22 Huawei Connect 2023 Conference. Protocols are being negotiated and a global nexus of next-wave technology – with customized security and decentralized control – is being stitched together.
This sets the stage for a full spectrum of AI-aided products and services for consumers (2C), but more importantly for businesses (2B), industries, agriculture and infrastructure, all plugged into the same backbone.
The very formation of a complete Chinese semiconductor supply chain nearly from scratch demonstrates how the backbone described by Huawei is already working.
Who else would be able to mobilize so swiftly, to create a competitive global 6G nexus?
And China hasn’t even begun to fight back.
What does this paradigm shift mean for of Brzezinski’s Game Theory? It means that the West must get out of its boxed-in zero-sum thinking and join the new, expanding multipolar world.
With its multiplicities, this multipolar world realizes the great principle 海纳百川 – the Greatness of the Ocean lies in its embracing hundreds of diverse rivers and streams into its generous, unfathomable, perpetual vastness.
An evolving financial obstacle has started to overshadow China’s” magic” of economic growth. Foreign households’ financial stability and confidence have been negatively impacted by the declining credit ability of local governments, which has also crowded out the rising need for social protection spending.
The sustainability of China’s regional authorities credit is an urgent concern for long-term economic growth and social balance at a crucial point in fundamental economic transformation.
In 1994, Zhu Rongji, the country’s then-premier, organized the & nbsp, a tax revenue sharing reform, which restructured its financial system to strengthen central control over taxes, significantly reducing local governments’ share of taxes revenues and weakening their financial strength.
Local governments consequently relied more and more on non-budgetary revenue, mainly land use correct transactions.
The inherent risks of regional government funds were always going to surface in more challenging economic times, even though the extreme imbalance in the fiscal revenue structure was hidden during times of & nbsp economic growth.
The advertising requirements for Chinese local authorities and the federal aim of maintaining a moderate to high GDP growth rate have both increased the financial burden. The rapid industrialization of China and the GDP performance-linked advancement mechanism have led to an increase in local demand for financial expenditure.
China’s 4 trillion RMB( US$ 547 billion ) fiscal stimulus deal was introduced in response to the 2008 global financial crisis, and local governments were required to raise andnbsp, 70 % of the money. Local governments were able to use off-balance sheet financing and even shadow banks as a result of the creation of local government financing vehicles ( LGFVs ).
In 2014, the subsequent increase in local government debts led to an examination of record conservation and transparency. While a new budget law gave provincial governments the authority to issue public debts, efforts to reduce implicit debt — those incurred outside of statutory bounds or through unauthorized guarantees— were less successful. & nbsp,
The market estimated implicit debt exceeded 60 trillion RMB( US$ 8.2 trillion ) by the end of 2022, while the official explicit local government debt reached & nbsp,$ 35.06 trillion($ 4.8 trillion ), with Goldman Sachs projecting a total debt balance greater than$ 13 trillion.
Due to the direct benefits of debt-funded projects and their long-term positive externalities, China’s soaring native debt remained workable during its economic boom.
Property values can increase and real estate investment can be attracted by infrastructure projects like the building of new highways or metro lines, which directly increases local tax and land transfer incomes.
The prolonged discovery of political cash inflow, however, poses a risk to debt sustainability during periods of economic stagnation. As the anticipated long-term benefits fade and debts become expected too soon, the immediate returns exclusively are unable to cover the debt.
In terms of subnational investing, China is the most distributed country in the world. According to research from the International Monetary Fund, 85 % of China’s general budgetary spending comes from local governments, who also bear considerable financial obligations in areas like pensions, healthcare, and unemployment insurance.
This arrangement presents difficulties, particularly as these regions experience quick spending growth brought on by aging and urbanization. Due to residents’ lower expectations of future protection, the current stockpile of native debts jeopardizes local governments’ ability to provide these public goods, which leads to a negative feedback loop that reduces personal consumption and investment.
In the Guangxi Zhuang Autonomous Region, declining regional public goods supply has been observed. Guangxi’s financial pressure, which has one of the highest debt-to-revenue ratios in the country, became clear during the first half of 2023. Spending on social security and employment decreased by 8.7 %, while spending on health care and wellness increased by 0.4 %.
Over & nbsp, or 21 % year over year, saw a decline in the region’s fixed asset investment, which has historically accounted for more than half of this investment. The feedback loop has negatively impacted the secret industry’s purchase leads, highlighting the negative effects of packed social protection spending.
The main financiers of China’s regional government bills are commercial lenders, especially the larger ones. The property stability and profitability of these lenders may eventually be impacted by debt exposures. & nbsp,
A notable illustration is the loan restructuring approach used by the Guizhou province-based LGFV Zunyi Road and Bridge Construction Group. The business unexpectedly negotiated a 20-year improvement on its 15.59 billion RMB($ 2.13 billion ) bank loans, dramatically lowering interest rates and delaying principal payments for the first 10 years.
Banks may experience severe operating strain if this exercise spreads. Lenders, specifically Chinese households andnbsp, may be in danger, which may harm customer confidence and long-term growth prospects.
It is a delicate process to address local authorities credit sustainability, particularly with tax reforms appearing doubtful. The introduction of special-purpose bonds backed by express credit for social security expenditures may offer some momentary relief given the flexibility of the main government’s leverage.
However, long-term solutions, such as structural changes to increase investor confidence and support local tax sources, especially those that support a market-oriented economy and ease tensions in andnbsp, international trade, call for patience and proper resolve. & nbsp,
Serious and decisive action is required in light of China’s regional fiscal problems and their possible effects on the economy as a whole.
Di Lu is a plan advisor at the Chinese company Olympus Hedge Fund Investments.
This andnbsp, post, and was initially published by East Asia Forum and are being reprinted with permission from Creative Commons.
PUBLISHED: 3 November 2023 at 4:00 p.m.
According to Prime Minister and Finance Minister Srettha Thavisin, Thailand is open to foreign investment and is prepared to collaborate with the secret business to guide the nation toward a sustainable and equitable future.
At the Foreign Industrial Club Gala Dinner hosted by the Federation of Thai Industries on Wednesday, the PM gave a keynote speech on” Reformation of the Thai Economy Amidst Polycrisis.” The main points of the speech were summarized by Chai Wacharonke, a federal spokesman.
According to the PM, Thailand’s GDP has only increased by 1.8 % annually on average over the past ten years, and household debt has increased from 76 % in 2012 to 91.6 % this year.
According to him, the country’s exports have decreased over the past three quarters as a result of high inflation, high interest rates, expensive raw materials and energy, and intense foreign competition, particularly for agricultural and commodity products.
In the midst of world conflicts and a climate crisis, Thailand must be future-proofed in order to prosper in an economy that is becoming more and more economical.
By lowering the cost of living, promoting private spending, and boosting investment and business growth, the government’s top priority, according to him, is to restore the economy to health and get the country ready for future success.
The PM reaffirmed the government’s commitment to work hard to achieve this through” quick wins” by lowering the cost of energy and implementing the digital wallet policy, as well as medium – and long-term measures, such as using diplomacy to open doors to new markets for Thai goods and services, he said.
According to him, the state also wants to turn Thailand, a country that produces low-profit goods and agricultural products, into one that is high-value and innovation-driven.
He added that the government is preparing for the S-curve market to support this move and that it must connect technology to increase overall productivity for high-value products and services. The government intends to set up a complete EV supply string for electric cars, scooters, cars, and all of their parts and components in the electric car sector, he said.
Thailand is presently willing to work with all parties and is open to opportunities, he declared.
The issue with interest rates is not how great they’ll go, but rather how much they will stay at the current high levels before declining.
Following 11 consecutive increases, the Fed maintained its benchmark interest rate at its most recent conference, which ended on November 1, at a constant level of 5.25 to 5.5 %. ( Average borrowers’ rates increase with the Fed’s benchmark; the 30-year fixed rate for mortgages recently reached 8 %.)
Some analysts believe that any additional increase may be modest, despite Fed Chair Jerome Powell’s open invitation to do so at a later meeting. Some believe that the Fed has raised its money. There is growing agreement that prices have reached or are very close to reaching their peak.
Because experts are divided on the perspective for the market, there is less agreement on how much before prices start to decline. The answer, according to many bond traders, is” longer than we originally expected.” Customers are being informed by Goldman Sachs that the Fed won’t start cutting interest rates until the end of the following month.
Bond traders have been demanding higher provides to make up for what they perceive to be an increase in the risk of holding long-term bill because they anticipate that short term rates will stay high for a longer period of time. The yield on the 10-year Treasury note recently reached 5 %, though it has since decreased slightly.
Of course, owners might be mistaken or may be compelled to reevaluate due to shifting economic and financial circumstances. Therefore, it’s worthwhile to look at what Federal Reserve policymakers themselves predict.
Reviewing the so-called” circle story” that the Fed releases every third will help us achieve this. It expresses the opinions of the 19 Federal Open Market Committee people, who frequently refer to the FOMC as” the Fed.” These are the people who determine interest costs and economic policy.
Seven of the 19 have been confirmed as Federal Reserve Board rulers by the Senate. The other leaders are the leaders of the 12 local Federal Reserve banks that are separate. Only 12 of the 19 votes, or the seven administrators and five president, are cast at any given time. The New York president often votes, and four of the five rotate each year. The circle story displays the interest-rate forecasts for the upcoming three years and the longer term for all 19 participants in the sessions.
The Fed’s benchmark rate is above 5 % at the end of 2024, according to the most recent dot plot, which was published in September, and above 4.5 % for 17 of the 19. They forecast that prices did stay close to their present levels for at least another year.
12 of the 19 projects had a standard level of between 3 and 4 by the end of 2025. We won’t receive bulk support for the 2s until the end of 2026.
For the next three decades, just one FOMC part will see the Fed’s benchmark rate rise above 5.5 %, which is great news for farmers, farmers, and other business loans.
The projections are still close to new highs due to uncertainty regarding prices. Fed Chair Jerome Powell stated following its most recent meeting that the FOMC didn’t low rates until it is certain that 2 % is a manageable level of inflation. He said,” We’re a long way from 2 % inflation.”
With all, the FOMC people might also be mistaken. These lines are basically predictions. They shift from one appointment to the next. No one has an unfailing crystal ball, despite the fact that the persons making them more knowledgeable about these topics than the regular citizen.
Is there anything that may occur to change the discussion and lower rates earlier, you may wonder?
Crisis does occur. Although it appears that the Fed has so far planned for the business to experience a” soft landing,” some analysts also predict that there will be another recession. If those economists were to be proven correct, there would be a lot of pressure on the Fed to reduce rates. A Fed decision to cut may be fairly simple if the crisis brought inflation down. ( For the Fed, a recession coupled with obstinate inflation would be nightmare. )
The compromise may be mistaken in another way, and this would be worse for company borrowers: inflation could spike once more.
Charges may soar if the Middle East and Ukraine are still at war. If many other labor unions match the sizable wage increases that Teamsters and United Auto Workers and Air Line Pilots ( CQ ) recently won, inflation may also return. ( Overall, though, recent wage increases have been declining. )
The Fed would almost surely raise rates if inflation returned to the northeast and all bets were off. Although it is conceivable, a sharp increase in inflation is not the most possible result. The real question right now, and perhaps for a few months to come, is not how large, but how much.
Urban Lehner & nbsp, a longtime editor and correspondent for the Wall Street Journal Asia, is the editor emeritus of DTN / The Progressive Farmer. & nbsp,
Copyright 2023 DTN / The Progressive Farmer is the title of this article, which was first released on November 2 by the latter news organization and is now being republished with authority by Asia Times. All right are reserved. Urban Lehner andnbsp on Twitter: @ urbanize
MANILA – Philippine President Ferdinand Marcos Jr was among the 23 national leaders who attended last month’s Belt and Road Initiative (BRI) summit in Beijing, marking the 10th anniversary of the US$1 trillion globe-spanning infrastructure-building program.
At the event, Chinese President Xi Jinping announced close to $100 billion in new state policy bank financing for the initiative. In a white paper published last month, China maintained “the ultimate goal of the BRI is to help build a global community of shared future.”
But the Philippines won’t be among the recipients of China’s largesse or shared future as Marcos Jr’s administration swerves decidedly away from China’s monied but troubled program for paving its global influence.
In a major development with geopolitical implications, the Philippine Department of Transportation has announced the full termination of a series of big-ticket infrastructure projects with China in favor of Japanese and Western rivals.
According to the Philippine Senate, nearly all of China’s key investment initiatives in the Philippines are now in doubt due to both economic and political factors. The upshot is a new nadir in Philippine-China relations, a dramatic about-turn from the six years of warm engagement under the pro-Beijing Rodrigo Duterte presidency.
For the Philippines, China has largely engaged in “pledge trap” diplomacy during the Duterte administration, a cynical ploy that entailed forward-deployed concessions in the South China Sea in exchange for largely illusory investment pledges. China pledged as much as $24 billion in infrastructure projects under Duterte, nearly none of which have been delivered.
Marcos Jr’s apparent departure from the BRI is rooted in deep bilateral grievances over contested territories in the South China Sea. Most recently, the Marcos Jr administration expressed vocal outrage over China’s harassment of Philippine resupply and patrol missions on and around the Second Thomas Shoal, where Manila maintains troops on a grounded ship.
Following a recent collision between Chinese and Philippine sea vessels, US President Joe Biden made it clear that America will respond to any attack on Philippine ships, aircraft or soldiers stationed in the South China Sea as outlined under the Philippine-US Mutual Defense Treaty (MDT).
From Beijing’s perspective, however, the Marcos administration has walked back its earlier commitment to pursue a “new golden era” of bilateral relations by actively courting a stronger US military presence on its soil.
Under an expanded Enhanced Defense Cooperation Agreement (EDCA), the Pentagon is set to gain access to a whole host of military facilities close to both the South China Sea as well as Taiwan’s southern shores.
Upon closer examination, however, it’s becoming clear to many observers that the BRI is under strain amid China’s economic slowdown, property crisis and various investment debacles overseas.
From its peak in 2018, China’s overall BRI-related activities are down by some 40%, according to recent reports. This is partly due to declining financing from Beijing as well as regulatory hurdles and financial fragility in various recipient countries.
A recent research report published by Boston University found that while China’s development finance institutions provided partner nations with about $331 billion between 2013 and 2021, “many of the recipients of Chinese finance are subject to significant debt distress.”
By some accounts, China spent as much as $240 billion to bail out BRI recipient nations on the verge of bankruptcy, most dramatically in the case of Sri Lanka and increasingly in Pakistan and Laos.
Heightened China-Philippine sea tensions have coincided with a virtual collapse in bilateral investment deals. Though two-way trade between the two neighbors remains robust, although largely in Beijing’s favor, nearly all of Beijing’s infrastructure investment pledges made during the Duterte era are now in jeopardy.
Just days after a Chinese vessel collided with a Philippine resupply mission in the South China Sea, Philippine Transportation Secretary Jaime Batista announced that the Philippines is scrapping $4.9 billion worth of Chinese big-ticket infrastructure projects, involving two railway projects on the northern island of Luzon and another on Duterte’s home southern island of Mindanao.
“We have three projects that won’t be funded by the Chinese government anymore. We can’t wait forever and it seems like China isn’t that interested anymore,” Bautista told a forum organized by European investors in Manila. Instead, the Philippines is now seeking alternative “better” deals from traditional investment partners like Japan, South Korea, the US and the European Union.
The Filipino official complained about the lack of financial commitment and perceived as relatively onerous terms of Chinese-funded projects in comparison to Japan’s concessional loan programs. Japan is currently developing a multi-billion subway project in Manila and several major “connectivity” initiatives in industrialized regions of the country.
In fact, the Marcos Jr administration warned as early as last year of the potential cancellation of Chinese-backed projects due to the lack of any meaningful progress on the ground. The issue was also raised during the Philippine president’s state visit to Beijing in January, to no avail of a renewed Chinese commitment.
According to Philippine Senator Sherwin Gatchalian, as many as six big-ticket Chinese projects are now being “reconsidered” due to Chinese delays, concerns over lending terms and broader geopolitical frictions.
Chinese projects likely to face Manila’s axe include the Samal Island-Davao City Connector project; the Chico River Pump Irrigation Project; the New Centennial Water Source — Kaliwa Dam Project; the Philippine National Railways South Long Haul Project or the PNR Bicol; the Mindanao Railway Project Tagum-Davao-Digos segment; and a closed-circuit television project in several cities in Metro-Manila.
“We [in the senate] convened an oversight on [China’s] ODA [Official Development Assistance], so I know that many of the ODA-funded projects are delayed due to the implementation of the right of way and bidding,” Gatchalian said in an interview.
“China’s grace period is shorter with only five to seven years compared to Japan with five to almost 10 years, which means (with China) we would need to immediately pay and it would be more expensive. Let’s compare the economics: it is cheaper in Japan,” he said.
But as the Philippines effectively pulls out of China’s BRI, the risk of a more volatile downward spiral in bilateral ties is rising. And it remains to be seen whether Japan, the US, South Korea and Europe will actually fill the infrastructure gap China had earlier pledged to address.
Follow Richard Javad Heydarian on X at @Richeydarian