Deflation risk stalking China’s economic recovery

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China’s central bank is pushing back with growing regularity on market worries that Asia’s biggest economy may be sliding toward deflation.

In April, China’s consumer price index rose just 0.1% year on year, putting the economy on the edge of negative territory but not yet deep into the problem.

Indeed, China may currently be experiencing “disinflation” rather than a long-term trend toward deflation. Yet if Japan taught policymakers around the globe anything it’s that deflation concerns can quickly take on a life of their own. 

That’s a problem that China must not take lightly, economists say. And it’s high time People’s Bank of China Governor Yi Gang shut down – and firmly – a narrative that Beijing hardly needs as market worries mount about the health of China’s post-Covid economic recovery.

Strategist Vincent Chan at Aletheia Capital speaks for many when he warns that China is at the “borderline of deflation.”

That same goes for analyst Kelvin Wong at OANDA. “To address this ongoing growth slowdown in China that may lead to a deflationary spiral, which in turn can potentially trigger an adverse impact on countries that export goods and services to China such as Singapore, the Chinese central bank needs to switch away from its current conservative stance to loosen its liquidity tap further to stimulate growth,” Wong argues.

Long-time Japan observers may detect some troubling echoes as Fu Linghui, spokesperson for China’s National Bureau of Statistics, insists that there’s “no deflation” in the economy. And if there is, it’s “transitory.”

This last word might trigger PTSD from similar assurances emanating from Tokyo in the late 1990s. Or their mirror image — “don’t worry, inflation is transitory” — coming from Washington these last two years.

As Nikkei Asia points out in an investigative report this week, consumer prices in mainland provinces Jilin, Shanxi, Guizhou, Liaoning, Anhui, Henan and Shanghai turned negative in April. Data from Chinese research company Wind Show corroborate Nikkei’s findings.

The question, of course, is what to do. A key Xi priority has been to reduce leverage and debt — from local government balance sheets to property developers.

Yet if the focus is on debt reduction while nothing is done to fix the housing sector, then that could be a recipe for deflation.

For now, says economist Raymond Yeung at ANZ Research, the “core view is that China’s economy is deflationary.”

Others argue it’s too early to know where China’s price trends will be six months from now.

China’s price trends could break either way in the coming six months. Photo: Facebook

“While claims that China has entered a deflationary period are excessive, the data indicate that China’s economy continues to be hamstrung by low effective demand,” says economist Yu Yongding, who served on the PBOC’s Monetary Policy Committee from 2004 to 2006. “Official figures also support the claim that China’s GDP growth has been below potential for some time.”

Yu notes that Xi’s government seems reluctant to shoot for a higher growth target than this year’s 5%, in part out of fear that it might exacerbate China’s debt imbalances. At the same time, though, Yu says there’s a risk of a “self-fulfilling prophecy, by weakening confidence and failing to exploit growth potential fully.”

Some of Beijing’s policy options, including cash transfers, might give household consumption an immediate lift.

But “as China’s government well knows,” Yu notes, “consumption is a function of income, a sustained, broad-based increase in incomes depends on economic growth, and infrastructure investment is traditionally the state’s most effective instrument for boosting growth when effective demand is weak. Despite past investments, China still has a large infrastructure gap that urgently needs to be closed.”

Rescuing the property sector might pay the highest dividends. Since January, Xi’s government unleashed a barrage of measures to reduce restrictions on borrowing by developers, curb risks of “capital chain breaks” in the sector as property purchase contracts fall through suddenly, extend lower mortgage rates to incentivize demand for homes and limit commissions for real estate agents.

Economists point out that easing the so-called “three red lines” policy is becoming more urgent. It establishes caps on key metrics debt-to-cash, debt-to-assets and debt-to-equity ratios. Many see this policy as the trigger for many of the biggest real estate stumbles in recent years.

Since the directive already demands that developers disclose details on their debts, it seems feasible to allow property companies to leverage up a bit and delay deadlines for debt targets without fanning new bubbles.

Other solutions include extending lower mortgage rates to first-home buyers in environments where prices of new properties are slumping. There’s also scope for once again allowing private equity funds to play a bigger role in raising capital for residential property projects.

Whatever the strategy, more attention must go toward restoring investor confidence, as strategist Winnie Wu at Bank of America Corp sees it. Since the property sector is “a key concern” for global investors, she says, revitalizing it seems crucial to restoring confidence in Chinese asset markets.

That confidence seems in short supply this month. Chinese stocks are on the precipice of bear market territory amid worries about a slowing economy, geopolitical and trade tensions and deflation fears.

Mainland shares traded in Hong Kong – as measured by the Hang Seng China Enterprises Index – are near the 20% loss threshold for the year.

The drop in profits among Chinese industrial firms, which had a rough first four months of 2023, is weighing on the broader indices. This downshift told skittish investors all they need to know about China’s slowing demand and deepening factory-gate deflation.

Data due out Wednesday – especially China’s Purchasing Managers Index for the manufacturing sector – are widely expected to signal further contraction in April.

A Chinese worker at a spinning factory in Xingtai City, Hebei province. Photo: Xinhua

Analyst Karl Shen at Fitch Ratings notes that China’s secondary-home market “has been cooling since April, with a fall in the number of listed-for-sale homes, lower asking prices and fewer transactions.”

This slowdown, Shen says, follows a “strong rebound” in the first quarter, “suggesting homebuyer confidence remains fragile amid an uncertain economic outlook and weak employment prospect.”

Shen says the drop in average asking prices is likely driven by homebuyers’ hesitation to make purchases and home-upgraders’ selling of their existing homes at lower prices to facilitate faster transactions.

The number of homes listed for sale has also decreased, indicating that many homeowners are delaying the sale amid pricing pressure, and may continue to weigh on transaction volume.

Even so, economist Wei He at Gavekal Research can’t help but wonder if the negativity is overdone.

“Markets have executed a complete volte-face on China’s growth prospects, from exuberance on an expected world-shaking boom to pricing in deep pessimism — is this reversal justified?” he asks.

“For commodity prices, the answer is probably yes. Even a strong cyclical rebound led by spending on consumer services was never going to be as good for commodities as the investment-driven cycles of the past. And the bounce in construction once expected by commodity producers has clearly not materialized, with property developers scarred by the past and uncertain about the future.”

Yet, He adds, “for Chinese government bonds and the renminbi, the recession trade has probably overshot. Recent market prices imply a growth outlook for 2023 as bad as that during the depths of 2022’s lockdowns — a fairly unlikely outcome. Despite all the bad headlines, the labor market is still recovering and companies are planning to expand. This could be a good moment to sell Chinese bonds and buy the renminbi.”

It’s also a good moment, though, for Xi’s new premier, Li Qiang, to buttress his reformist bona fides. Since rising to the No 2 job, Li has managed to lower the temperature surrounding Beijing’s crackdown on Big Tech. Now, it’s time to recalibrate economic dynamics in China – starting with a property market in dire need of restructuring.

The lessons from Japan are to act early and boldly to stop deflationary forces in their tracks. By the time they become ingrained, it might already be too late.

Follow William Pesek on Twitter at @WilliamPesek

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Russia struggling to keep its SE Asia arms markets

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Russia continues to pitch arms sales to Southeast Asia, pinning its hopes on the economically vibrant and strategically challenged region to save its embattled weaponry industry amid the ongoing Ukraine war and punitive Western sanctions.

This month, Asian Military Review reported that Russia is looking at new opportunities for “military-technical cooperation” – Russian parlance for arms sales – with Association of Southeast Asian Nations (ASEAN) members.

In an interview with Russian Aviation & Military Guide (RAMG), Dmitry Shugaev, director of Russia’s Federal Service for Military-Technical Cooperation (FSMTC), said that Russia enjoys good diplomatic relations with ASEAN states, with all parties reputedly maintaining active dialogue on “military-technical cooperation” issues.

In the same interview, Shugaev noted that Russia has been an ASEAN Dialogue Partner since 1996 and that a legal and regulatory framework for such cooperation has long been established.

Shugaev criticized Western diplomatic pressure and sanctions for undermining Russia’s arms exports to the region while claiming that alternative payment mechanisms in national and other currencies have recently been formed. He also said that Russia is open to new joint production schemes with the bloc’s members.

Russia’s arms exports have slowed since the Ukraine war, including to Southeast Asia’s growing markets. David Brennan and Yevgeny Kuklychev note in a March 2023 Newsweek article citing data published this year by the Stockholm International Peace Research Institute (SIPRI) that Russia’s total military exports have fallen by 31% over the past five years compared with the previous five years.

Western sanctions on Russia over its 2014 annexation of Crimea have slowly chipped away at Russia’s defense industry, undermining its position as the world’s second-largest arms exporter, the authors said.

Brennan and Kuklychev note that Russia’s global arms exports fell from 22% to 16% of the world market between 2013 and 2017 and from 2018 to 2022, leaving it in the dust of the US, which accounts for 40% of global exports, and only slightly ahead of France, which accounted for 11% over the last five years.

An anonymous source cited by the writers said that Russia’s export contracts have been relegated to “last priority” as Moscow doubles down on trying to replace its battle losses in Ukraine.

The same unnamed source mentioned that Russia would face considerable difficulties in fulfilling export contracts as foreign-made parts become harder to source due to sanctions and with its domestic arms industry struggling to produce substitute components. The anonymous source said that the poor performance of Russian weapons in Ukraine is a “demonstration” of their inferior quality.

The source estimated Russia could fall from among the world’s top arms exporters, with its future market confined to selling relatively low-tech weapons to impoverished, sanctioned and pariah states via barter mechanisms while losing its market share of high-end weapons to competitors like the US.

Before the Ukraine war, Russia was the leading arms supplier to Southeast Asia. In a May 2022 article for The Diplomat, Sebastian Strangio notes that between 2001 and 2021 Russia shipped US$10.9 billion worth of arms to the region, leading other major arms exporters including the US ($8.4 billion), France ($4.3 billion), Germany ($2.94 billion), and China ($2.9 billion).

Strangio notes that Russia’s main comparative advantage over other arms exporters in Southeast Asia is price and its willingness to sell weapons to rights-abusing states such as Myanmar and Cambodia, which are under various Western sanctions and embargoes.

Southeast Asian countries continue to buy Russian weapons amid intensifying US-China strategic competition. David Hutt mentions in a May 2022 article for DW that Southeast Asian nations are hedging between the US and China regarding their arms purchases, as big arms purchases from either would potentially peeve the other.

Hutt notes that buying weapons from Russia is viewed, within certain limits, as acceptable by both superpowers. He notes that the US is reluctant to sanction Southeast Asian states like Vietnam and Indonesia for buying Russian arms when its top diplomatic priority is to rally regional states against China.

Mike Ives writes in a November 2022 article in the New York Times that, from 2017 to 2021, South Korea eclipsed Russia as Southeast Asia’s top arms supplier, accounting for 18% of the region’s arms purchases over the period. No other global exporter accounted for more than 14% of the region’s arms exports, according to the report.

Ives also claims that the US is increasingly seen as an attractive arms supplier, even as the US increasingly ties its arms exports to diplomatic and military support against China. He also says European arms suppliers have been willing to sell arms to Southeast Asian states to grow their defense industries, with some cases involving significant technology transfer.

Despite Russia’s challenges in maintaining its grip on Southeast Asian arms markets, Vietnam may remain Russia’s reliable customer.  

Le Hong Hiep notes in an April 2022 Fulcrum article that Vietnam is Russia’s 5th largest arms customer, with Russia accounting for 90% of Vietnam’s arms imports from 1995-2014 and 68% from 2015-2021. Hiep notes that Vietnam’s limited defense budget means it could not afford more expensive Western arms.

He also says compatibility between Russian and newer non-Russian weapons will be problematic. The writer notes that many senior Vietnamese military officers who trained in the Soviet Union or Russia are accustomed to doing business with their Russian counterparts and may find it challenging to deal with more transparent and demanding Western business cultures.    

Indeed, Richard Bitzinger and Kenneth Boutin state in an August 2022 East Asia Forum article that Russia’s complementarity to the US and its “no strings attached” approach to arms sales means it is likely to remain a long-term arms supplier to Southeast Asian states, despite the bloc’s attempts to diversify its sources.  

Bitzinger and Boutin note that Southeast Asian arms markets such as Myanmar, Cambodia and Vietnam will likely continue to provide much-needed funding for Russia’s struggling defense industry, alleviating a problem predating the Ukraine war.

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Commentary: Warren Buffett’s intriguing bet on Japan

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THE CURRENCY FACTOR

The foreign currency earnings of the sogo shosha, backed by hard commodities from sources around the world, set the trading groups apart from companies with revenues and costs that depend more heavily on prices in domestic markets. They create multiple ways for Buffett to profit from his investment, even if the trading companies’ vaunted plans to reinvent themselves for a world without fossil fuels do not proceed as planned.

Among the most tantalising is the fact that Buffett has bought shares in companies that earn a portion of their profits in dollars, while funding his purchase with long-term debt denominated in yen.

If the Japanese currency were to depreciate, the dollar value of Berkshire’s outstanding yen-denominated debt would fall. At the same time, the value of the sogo shosha stakes in dollar terms may not decline so much because of their foreign currency earnings. If the value of the debt falls more than the shareholdings, then Buffett could reap a profit even without much change in underlying business performance.

It is surely not Buffett’s intent to bet against the yen. And using borrowed money to buy stock in companies with significant foreign earnings is not, of course, the most practical way to do this. Set that misgiving aside, if only for a thought experiment, and you can see how a trade like Buffett’s might in theory look attractive to a very different kind of investor.

Speculators of an atavistic bent are eyeing the monetary institutions of the developed world with increasing suspicion. Gold is trading near all-time highs, and while a rupture in the systems of economic exchange may not be anyone’s base case, it lies uncomfortably close to the universe of historical possibility.

Ray Dalio, the Bridgewater founder whose investments are informed by a close reading of economic history, notices a striking pattern in the rise and fall of the “reserve currency empires” of the past 500 years.

Throughout that time, he writes, “seismic shifts always took the form of too-large debts that couldn’t be paid with real money so there was a lot of printing of money”. That, in turn, “led to big debt restructurings via writing down and monetising debt”.

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Govt marks twin Thai export feats

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The United States will begin importing Thai pomelos next month while Australia has given the green light to import cooked duck from the kingdom after years of negotiation, according to the Ministry of Agriculture and Cooperatives.

Rapeepat Chantarasriwong, director-general of the Department of Agriculture, said the US has for the first time approved the import of irradiated fresh pomelos from Thailand without any restriction on strains. The flavour and colour of Thai pomelos would impress American consumers, he said.

Pomelo is the eighth Thai fruit to win import approval from the US. The country previously endorsed the import of Thai mango, mangosteen, rambutan, longan, lychee, pineapple and dragon fruit.

Currently, Thailand can export fresh pomelos to 30 countries, with China and Malaysia as primary markets. Last year, Thailand exported about 1 million tonnes of pomelos worth about 45 million baht. The first lot of Thai pomelos to the US is expected to be delivered by air next month. The US requires Thai pomelos to meet Good Agricultural Practice and Good Manufacturing Practices standards.

Meanwhile, Prayoon Insakul, permanent secretary for agriculture and cooperatives, said Australia also agreed to import cooked duck from Thailand after seven years of negotiation. The approval from Australia’s Department of Agriculture, Fisheries and Forestry took effect on May 16. Mr Prayoon expects Thailand to start exporting cooked duck to Australia next month. The exports would initially be about 1,200tn worth about 400 million baht, he said.

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Volatility expected as debt ceiling negotiations intensify

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Meet the GPM team

Investment strategy: How to trade the 14th Amendment?

David Woo writes that markets have largely disregarded the debt ceiling negotiation as a major risk due to the growth of passive investing and a lack of urgency from negotiators. However, concerns are rising over whether the positive talk is a mere show, and there is speculation that President Biden may invoke the 14th amendment if a deal cannot be reached.

Global Uncertainty Index Remains at Zero Line

David Goldman assesses how declining foreign deposits at US banks, signalling a global squeeze on dollar credit, could potentially lead to increased volatility and a shift towards alternative currencies in international trade, further impacting America’s economic position.

Russians strategize offensive options after the fall of Bakhmut

James Davis details how the war in Ukraine has entered a phase of increased uncertainty as neither side has a defined strategy. Both sides are regrouping after the Wagner group’s capture of Bakhmut, where Ukrainian troops suffered significant losses in morale and resources, with Russia now considering various offensive options.

China declares Micron a cyber threat while the long-term outlook favors Korean chipmakers

Scott Foster delves into China’s move to ban the use of Micron’s memory chips due to concerns over national security, which is seen as retaliation against US sanctions and is expected to lead to tougher sanctions on the Chinese semiconductor industry, favoring Korean competitors like Samsung and SK Hynix.

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China seizing US arms markets in the Middle East

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China is poised to break into the Middle Eastern arms market through big deals with Saudi Arabia and Egypt, both of which have traditionally relied on the US for their big-ticket purchases.

South China Morning Post (SCMP) reported this month that Saudi Arabia Military Industries (SAMI) is in talks with China North Industries Group Corporation (Norinco) about acquiring China-made Sky Saker FX80 and CR500 vertical take-off and landing (VTOL) drones, Cruise Dragon 5 and 10 loitering munitions and the HQ-17AE short-range air defense (SHORAD) system.

The Egyptian Air Force is also reportedly poised to acquire China’s Chengdu Aircraft Industry Group (CAIG) J-10C multirole fighter, with the two sides set to meet during this year’s Langkawi International Maritime and Aerospace Exhibition in Malaysia.

SCMP says Egypt plans to acquire 12 J-10Cs, which feature advanced electronic warfare systems and active electronically scanned array (AESA) radar.

The 2022 Stockholm International Peace Research Institute (SIPRI) Trends in International Arms Transfers Report notes that, from 2018-2022, Saudi Arabia was the world’s second-largest arms importer, accounting for 9.8% of global arms imports over that period, with the US supplying 78% of Saudi Arabia purchases.

The same report notes that Egypt was the world’s sixth-largest arms buyer during the period, accounting for 4.5% of global arms imports, with 34% of its imports coming from Russia.

In a 2018 SIPRI article, Pieter Wezeman notes that Saudi Arabia aims to diversify its arms suppliers to widen and deepen its international political network to minimize the effects of Western arms sales restrictions.

Such restrictions have stemmed from Saudi Arabia’s widely-criticized military intervention in Yemen, the 2018 brutal murder of political dissident and journalist Jamal Khashoggi, and last year’s OPEC+ oil price dispute with the US.

Asia Times noted in February 2022 that Saudi Arabia’s push to find arms suppliers apart from the US might have been driven by the latter’s disastrous withdrawal from Afghanistan, foreign policy mistakes in Iraq and Syria, a fickle-minded approach to Ira, and shift of strategic attention from the Middle East to the Pacific.

Saudi Crown Prince Mohammed bin Salman greets Chinese President Xi Jinping during the China-GCC Summit in Riyadh on December 9, 2022. Image: Saudi Press Agency

Saudi Arabia’s arms purchases from the US have also been criticized for being politically motivated, overpriced and out of step with the kingdom’s underlying strategic needs.

According to the 2022 SIPRI report, Egypt is the world’s sixth-largest arms importer, accounting for 4.5% of global arms imports from 2018-2022, with Russia supplying 34% of its purchases.

Russia has not always been Egypt’s preferred arms provider. Bradley Bowman and other writers note in a May 2021 Defense News article that before the 2013 Egypt coup, wherein then-defense minister Abdel-Fattah el-Sissi deposed the then-incumbent president Mohammed Morsi, the US accounted for 47% of Egyptian arms imports.

However, after the 2013 coup, the Obama administration froze aircraft, tank, and missile sales to Cairo for two years until relations improved.

Due to that freeze, Bowman and the other writers note that Egypt tried to diversify its arms import providers by purchasing large quantities of weapons from Russia and France, both of which were willing to look the other way on its human rights violations.

However, the threat of US sanctions stemming from Russia’s 2022 invasion of Ukraine has forced Egypt to drop its planned purchase of 24 Su-35 fighter jets. The poor performance of Russian weapons in the ongoing Ukraine war may have tainted their appeal to established buyers like Egypt, causing Cairo to look for alternatives from China.

Sebastien Robin notes in a November 2020 Forbes article that China’s top jets, such as the J-10C, may already have surpassed the best Russia can offer. Robin notes that China has started to build a technical lead over Russia in fighter aircraft development, with Russia’s aerospace sector at a disadvantage due to structural and budgetary constraints.

Robin notes that Russia’s Su-35s have a passive electronically scanned array (PESA) radar, which is inferior to the AESA radar on the J-10C and other modern Chinese fighters. He also says that China has improved its indigenous jet engine technology and has superior missiles, more mature stealth technology and better integration of precision-guided weapons than Russia.

Mihir Kaulgud notes in a May 2022 article for Usanas Foundation that China wants to become a major power in the Middle East, but more pragmatic and restrained than the US.

Kaulgud says that China’s arms exports to the Middle East show its push to establish a “soft presence” in the region, as shown by its willingness to sell affordable advanced weapons to friendly countries without political strings attached.

Arms sales obviously involve decisions at the highest level of government and thus establish professional linkages via training and education with the selling country, making them ideal focal points of strategic cooperation for China.

Saudi Arabia flies US-made F-16s. Photo: US Air Force Staff Sgt Joseph Pick

Kaulgud states that China is expanding its relationships and networks in the region while not provoking the US. He notes a pragmatic aspect to these ties, as China may want to secure reliable oil and gas providers via its arms sales.

Those sales, Kaulgud notes, can cause Arab states previously aligned with the US to look at China as an alternative security partner, with China likely to create new regional security arrangements and even play a stronger role in Middle Eastern domestic politics.

He says that while present arms exports are the basis of China’s security engagement in the Middle East, they can also serve as stepping stones to a broader security and military presence in the region.

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Singapore pulling all stops to avert a housing collapse

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Singapore’s housing market is going through some big changes. It has a dual market structure consisting of a public and a private market. The public housing market is divided into a primary and a secondary (resale) market.

The Housing & Development Board is responsible for building and selling public housing flats at concessionary prices in the primary market to Singaporeans.

The primary public housing market is regulated and only open to Singaporean families, subject to a monthly household income cap of 14,000 Singapore dollars (US$10,400). After meeting the minimum occupation period of five years, owners can sell their flats in the secondary public housing market to Singaporean citizens and permanent residents who do not own private houses.

The private housing market is a laissez-faire market that supplies non-landed houses, such as apartments and condominiums, as well as landed houses, such as terrace, semi-detached and detached houses. Foreigners are prohibited from owning public housing flats. While they can buy and sell non-landed apartments and condominiums, they can only buy landed houses on Sentosa Island.

Despite Covid-19-related disruptions to supply chains and economic activities, the benchmark private residential property price index experienced 12 consecutive quarters of growth of 25% total after exiting the “circuit breaker” in June 2020. The resale public housing price grew by 28% over the same period.

The government introduced three rounds of cooling measures to pre-empt housing prices from diverging from economic fundamentals. On December 16, 2021, the government raised the Additional Buyer’s Stamp Duty (ABSD) — a form of transaction tax when buying private residential Singaporean properties — for foreigners from 20-30%.

The ABSD was also raised to 17% and 25% for Singaporean citizens and permanent residents respectively when buying second properties and 25% and 30% respectively when buying third and subsequent properties. Property developers also pay the ABSD of 40% — but 35% is remittable if developed units are sold within five years of the land acquisition date.

Another intervention occurred on September 29, 2022, when government agencies raised the medium-term interest rate floor — which is used to calculate the loan quantum granted by private financial institutions for property purchases — from 3.5-4%. The government also imposed a 15-month wait-out period for private owners to insulate first-time home buyers against intense competition in the public resale market.

The government is concerned about high housing prices weakening its social compact. Although foreign investments only constituted 7% of private property sales in 2023, they significantly drove up private housing prices, especially in the luxury housing segment. The latest ABSD rate hikes were intended to check the flows of oversea “hot money”, which have inflationary effects on the private housing markets.

On April 26, 2023, the government increased the ABSD from 30-60% for foreigners when buying private residential properties in Singapore. Singaporean citizens and permanent residents will now have to pay ABSD of 20% and 30% respectively — an increase of 3% and 5% — when purchasing second private properties for investment purposes.

Private residential property prices are already at historically high levels, with average launch prices ranging from S$2,000-S$2,900 (US$1,485–$2,153) per square foot. The current median housing price is 14 times that of medium-income — such high prices will make the private housing market unaffordable and inaccessible for medium-income families.

Using a recent project launched after the new ABSD rule, Blossoms by the Park, a local buyer purchasing a 3-room unit at S$2.28 million (US$1.7 million) will make a down payment of S$570,000 (US$423,000), based on a loan-to-value ratio of 75%.

Because of the 4% interest rate floor, their monthly mortgage payment will be S$10,360 (US$7,693). Based on the total debt servicing ratio of 55%, their monthly income must be at least S$18,840 (US$13,990) to obtain a mortgage loan from a local bank. This means that only the top 10% of Singaporean households by income could afford the unit in the Blossoms by the Park.

Interest rate hikes and geopolitical tension add significant risks to investing in private real estate markets. If macro-risks trigger negative economic outcomes — such as recession and unemployment — private housing market prices could spiral, leading to more socioeconomic consequences.

While the potential effects of the new ABSD of 60% are unclear, the costs of inaction could be more detrimental regardless of the direction private housing prices go.

A market failure could have a widespread impact on every stakeholder In the market. Developers may not recover the costs of investments and local buyers will face a negative equity situation when their housing value drops. Foreigners will lose money by selling their properties below the original costs. 

The housing market crash would destabilize Singapore’s financial system when borrowers default on their mortgage loans. But the economic costs of inaction would be higher than an intervention that curbs short-term foreign investment flows into the property market.

Tien Foo Sing is the Provost’s Chair Professor at the Department of Real Estate, Business School, National University of Singapore. The views expressed here are the author’s and do not represent the views of their companies and affiliates.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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US-China: competitive peace or road to war?

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China is at a perilous crossroads between war and peace in a world led by the United States. But perhaps there are still elements the two countries could look at to try to defuse the situation. One is a crucial understanding of competition and war.

There are tensions around China. As Henry Kissinger commented in a recent interview, China is not set on Hitlerian world domination. It is not revamping old European colonialism in Africa. But something is happening there; it is not nothing.

As Kissinger remarked, one should try to look at and clarify it pitilessly to address and possibly solve the issue.

From an American point of view, China’s “hegemony” is to put China at the center of the world; the rest of the world will be at China’s service in hierarchical positioning, where China is at the top, America and Europe are ideally on a second rung, and then there is everybody else.

This perception is reinforced by China’s mercantilist policies, wanting open markets abroad while keeping a closed domestic market. Then who wants to be in this pyramid of power where your needs come second to the needs of the top? Some may. The wobbly elites of “lesser states” were lured in by promises of money and stabilization coming from the aspirational top of the pyramid. But most countries and people would rather have a different order.

But from China’s point of view, its position is similar to US “hegemony.” The world is at America’s service, only less transparently.

However, even if one admits this American position, the US doesn’t have an openly hierarchical system and mercantilist trade approach. The US may tilt the playing field in its favor but uses a rhetoric of equal positive competition. Moreover, the American system is in place; therefore, replacing it won’t be simple because everybody is used to it.

There are problems with the present US “hegemony.” There is mistrust among the allies about the US’s long-term intentions and lack of long-term global architecture.

The attempt to reestablish a world order around the World Trade Organization (WTO) failed; the US scuttled a free trade agreement with Asia; it is unclear what “decoupling” will mean for countries heavily invested in China; and there is always the hazard of sudden changes in US policies dominated by domestic concerns.

Conversely, like it or not, China has an architecture, a plan and a tradition of keeping its long-term commitments.

There are more disconcerting elements in the US. America views its problems in terms of race or gender. But you cannot change race, and gender issues decouple sex from reproduction and the actual body from intentions. Until a few years ago, there was only one way to have children, copulation. One could love people of the same sex but could not change one’s body. Now it is possible.

One could see a not-so-distant future when people change sex with a mix of pills and surgery, just like dyeing their hair. It is appalling to most people and creates a cultural schism between them and US domestic cultural dialogue. Desires and whims of a moment will shape one’s body, something unimaginable in human history when the body confined one’s desires. Now desires are boundless.

Actually, in America, the divide is about class, i e, income and opportunities. It should be addressed by admitting the elephant in the room: poor people (whatever their skin color) in America need options and the first opportunity is access to better education; people need to read and write well, learn sound mathematics and speak a second language.

Quotas for races are upending competition and performance. Improving opportunities for people with poorer incomes enhances everything. Tampering with bodies and natural reproduction is following in Frankenstein’s footsteps. Modern science is about pushing the boundaries of nature. Still, one can’t be careless with the monsters it creates, especially since the rest of the world is reluctant to follow this vision of the human body and its desires.

This new cultural sentiment is coupled with a different sense of international order. The West proposes one of constant competition, where each side may have a niche, and the provisional winner can bend the existing rules in its favor a little, but even he can’t totally subvert them. Competition, if not well channeled and controlled, trips into war almost as a continuation of competition.

Wars in different contexts

In fact, according to one of the founders of Western thought, Heraclitus (end of 6th century BC), war (Polemos) is “both the king and father of all,” with the capacity to bring all into existence and to destroy. 

Polemos resembles another Indo European god Shiva, the protector of destruction and creation, death and birth, one of the sacred trimurti of the Indian continent, a place also without much unity for most of its history. And Polemos returns with Shumpeter’s market’s creative destruction, a cornerstone of the modern approach to capitalism.

The concept seems inspired by Marx’s understanding of revolution. War is considered somehow a permanent state of affairs in the West. Yet it doesn’t entail the total destruction or annihilation of the enemy. It can be a positive competition that keeps you on your toes and helps you be better than others and yourself.

The ancient destruction of Carthage was the exception. It was razed to the ground, and salt was poured over it to make its return impossible. Still, the memory of the city and its formidable general Hannibal haunted the Roman Empire and the Western world forever.

Therefore, after that, we see that Roman expansion took a different turn. Representatives of the Gauls, who Caesar beat, were invited to join the Roman Senate; the Hellenistic empires of the east were won over, but the Romans converted themselves to Greek culture, so much so that the Roman empire became bilingual. Even the Byzantines, fighting for centuries with the daunting Persian Sassanid empire, never crushed it.

The Byzantines famously intervened in Persian court disputes with the Persian pretender, Chosroes II, in the early 7th century AD. When Chosroes II was overthrown by his son, Kavadh II, he sought refuge with the Byzantines and received support from Emperor Maurice. The balance of power with the neighbor secured the Byzantine eastern border until the Arabs toppled the Sassanid.

Moreover, in ancient Rome, each conquered people was ruled according to its law and kept its religion. Rome was a cultural sponge that boasted of preserving other cultures. It admired Egypt and imported cults from Persia, like Mitra, or Judaea, like Christianity.

In China, it was a very different situation. Well before the unified empire, sometime during the Spring and Autumn period, in the first half of the first millennium BC, powerful new states emerged by annihilating other states (mie guo 灭国).

The process of annihilation was systematic. All males of fighting age were killed, women and children were given to men of the winning state and temples and records were destroyed. The annihilation process grew in size and organization, so the Qin state, which unified the all under heaven in the 3rd century BC, annihilated all previous local cultures and people.

The Han-era Shiji recorded that the first emperor (Qin) accomplished the unification of standards, words and a writing system. It was a clear testimony that there was more than one standard, language or writing system before that. We now find archeological evidence in the newly unearthed documents written with some characters that have long been erased from the language.

This unification process apparently aimed to erase the idea of a constant state of war in the central plains, surrounded by sparsely populated deserts or mountainous forests.

Therefore, it was believed for centuries if power and wealth were maintained in the inner plain, the threats from neighboring peoples could be bought for little money.

Then war disrupted something very concrete, the well-being, stability, and peace, or an 安, home, as it represents a woman under a roof. The disruption of peace is the destruction of one’s home; it is the threat of being annihilated. A home/peace cannot be constantly threatened by permanent competition.

As for war, we don’t have an all-encompassing mythological term as in Greek. We have bing, 兵 coming from a pictograph of two hands holding a short ax; it indicates a weapon. It actually is military affairs, affairs of bearing arms. Then there are words meaning war zhan 战, indicating a formation of spears and some form of double-headed lances; we have wu 武 showing people standing firm holding halberds.

They are connected with the action of fighting a battle, not to the large concept of warring. Peace, conversely, is a much broader and more meaningful concept. Conversely, in Greece, the idea of Eirene was some king of distant, almost unattainable, against the dire reality of permanent wars.

Then in China, wars were practical, temporary and historically of two kinds. One is staving off border enemies or internal bandits. These are roughly police actions. The second kind is existential, for the survival of the dynasty. If the dynasty succumbs, it is erased from history like a mie guo. From this, we have the idea of harmony, he 和, which is etymologically mouths eating grain, i.e., having enough to eat is being content.

Then we have that peace is stability; it entails total control, nipping every possible threat to stability in the bud. If the danger to stability can’t be bought off, it must be eradicated. From this, peace and stability is the supreme value to be pursued by buying off or eliminating the threat.

Peace far supersedes justice; victory proves righteousness, and peace is practiced even despite justice. Survival becomes paramount for people, fearing the victor will exterminate the vanquished. The succession of dynasties proves that the ones who yield to the winning side will survive and keep their peace, stability, and home/an.

It implies that when victory/peace can’t be attained, the Chinese are prone to surrender to survive.

In the European tradition, with the constant state of war reinforced by dogged religious beliefs that drove the Mediterranean apart for over a millennium, it is harder to set apart justice and peace. People are not prone to surrender; many would rather be dead than wrong.

Is competition good or bad?

The differences between China and the rest of the Westernized world that convened in mid-May in Hiroshima around the G7 are not religious, but almost, they are profound. In a nutshell, it is about competition. Is it positive or not? And if competition is accepted, how can it be relatively fair without tripping into a war?

America knows this book well; China doesn’t. It is unfair, says China. Unlike any other country, we gave China 50 years to learn competition, but it didn’t; it cheated on the exams and didn’t learn, says the US.

But why should we learn your rules in the first place? Why shouldn’t you learn ours? Retorts China. You led us to believe you would learn, and now you say you didn’t mean to learn in the first place? Lying is cheating in a competition that should result in stopping authentic communication and attempts to understand, concludes the US on its own.

The competition has tripped into war, and it doesn’t matter what China’s “real” intentions were, and whoever tries to understand China becomes a collaborationist and traitor. The room for dialogue becomes extremely thin, but the Kissingerian defense of China’s intentions possibly fuels the fire; it doesn’t help a peaceful solution.

China should recognize that and seek a different path if it wants peace.

This essay first appeared on Settimana News and is republished with permission. The original article can be read here.

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