Small businesses, big challenges: The reality of China’s post-US Fed cut economy

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Additionally, analysts told CNA that the effect on small businesses would probably be generally direct and minimum. According to Mr. Bell,” I do n’t think Fed cuts will have much impact on Chinese consumers,” adding that” small businesses with a domestic focus are less impacted,” while citing low domestic confidence as a limiting factor. &nbsp,

” Frequently, small businesses and individuals are shielded from immediate effect by broader plan adjustments”, said American economic columnist Mr Daryl Guppy, even the CEO and founder of Guppytraders.com.

He noted that US economic policy may have a far greater impact on Chinese usage habits than US tariffs and punishment. &nbsp,

The main effect may be price changes for imported American items.

Next THE FED?

China’s central bank has implemented a number of smaller cuts, including a policy interest rate reduction of 0.2 % and a reduction of banks ‘ reserve requirements by half a percentage point, despite the Fed’s aggressive stance in cutting rates. &nbsp,

However, Mr. Guppy made it clear that the PBOC’s actions did not directly affect the US’s subsequent actions. &nbsp,

According to Mr. Guppy,” PBOC policy decisions are not made in a knee-jerk effect to US policy.” Lower rates often lead to a higher consumer and business confidence because they lower the cost of loans and paying off debt.

Experts believe Beijing’s factual response to the US Fed price cuts could also provide some much-needed information into its possible future actions.

According to Mr Bell, China generally “has had a very distinct economic policy platform than the Fed’s interest-rate focused strategy”.

” For much of the early 2000s, China pursued a dollar nail, and after that, a much more quantity-driven model focused on the quantity of credit rather than their cost”, Mr Bell told CNA. &nbsp,

He also explained that China was “more insulated”, because of its relatively” closed” investment account, at least until 2015, which helped it experience fewer spillovers from international financial situations. Companies and individuals are prohibited from moving money into and out of the country under strict regulations in a sealed capital account.

China focused on a lot of fiscal and credit stimulus when extreme crises struck and threatened to spread through the trade channel.

Some believe that Chinese politicians should concentrate on resolving these internal problems, such as revitalizing the faltering business, which may call for a more subtle approach this time around.

” China’s emotions are tempered by the demands of the local economy and policy information”, he said. ” US Fed rates movements are a factor that may make it easier, or more difficult, ( for China ) to continue with an appropriate domestic policy”, said Mr Guppy.

Although Mr. Bell believes that China” should not be in a location where Fed moves matter little,” he also acknowledges that “any global circumstances,” including Fed rate policy, had have” a more important impact on the Foreign economy.”

” But that is not a given, many more a representation of lacking plan activities in Beijing”, Mr Bell added. &nbsp,

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Starbucks, Tetley, Jaguar Land Rover: Remembering Ratan Tata’s global ambitions

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Getty Images Ratan Tata, chairman emeritus of Tata Sons, speaks during a session advising Singapore startups in Singapore, on Tuesday, March 29, 2016. Tata stepped down as the chairman of the $100 billion Tata Group in 2012.Getty Images

Ratan Tata, the billionaire and former chairman of Tata Group, who passed away at the age of 86, played a significant role in the modernization and globalization of one of India’s oldest company buildings.

His ability to take strong, daring business risks served as the foundation of the salt-to-steel conglomerate, which his forefathers founded 155 years previously, despite India’s liberalization of its economy in the 1990s.

At the turn of the millennium, Tata executed the biggest cross-border merger in American business record- getting Tetley Tea, the country’s second largest maker of teabags. The little Tata party firm that had purchased the classic British brand was three times the size of it.

His party swallowed up big American business giants like the shipbuilder Corus and the luxury car manufacturer Jaguar Land Rover as his ambitions grew just bigger in the years that followed.

Although the acquisitions were n’t always successful, Corus was purchased just before the 2007 global financial crisis, which hampered Tata Steel’s performance for years.

They also had a great symbolic impact, says Mircea Raianu, writer and creator of Tata: The Global Corporation That Built Indian Capitalism. He goes on to say that they “represented the kingdom striking up” when a company from a former colony seized the motherland’s prized possessions, reversing the sneering approach American businessmen had toward the Tata Group a decade before.

Getty Images The blast furnaces, that are scheduled to be closed, at the Port Talbot Steelworks, operated by Tata Steel Ltd., beyond the River Afan in Port Talbot, UK, on Tuesday, June 25, 2024. Getty Images

International interests

The Tata Group’s view had been “outward-oriented” from the very end, according to Andrea Goldstein, an analyst who published a study in 2008 on the internationalisation of American companies, with a special emphasis on Tata.

As early as in the 1950s, Tata companies operated with foreign partners.

But Ratan Tata was keen to “internationalise in giant strides, not in token, incremental steps”, Ms Goldstein pointed out.

According to Mr. Raianu, his unconventional education in architecture and a ringside view of his family group companies may have contributed to how he considered expanding. But it was the” structural transformation of the group” he steered, that allowed him to execute his vision for a global footprint.

Tata had to fight an extraordinary corporate feud when he assumed the position of chairman of Tata Sons in 1991, which happened to coincide with India’s decision to open up its economy.

By opening the door to a number of” satraps” ( a Persian term for an imperial governor ) at Tata Steel, Tata Motors, and the Taj Group of Hotels, which operated with little corporate oversight from the holding company, he began centralizing increasingly decentralized, domestic-focused operations.

By doing this, he prevented the Tata Group, which had been shielded from foreign competition, from fading into irrelevance as India opened up, as well as enabling him to surround himself with people who could assist him in carrying out his global vision.

He appointed foreigners, non-resident Indians, and executives with connections and networks throughout the management team at both Tata Sons, the holding company, and individual groups within it.

He established the Group Corporate Center ( GCC ) to provide group companies with strategic direction. It provided” M&amp, A]mergers and acquisitions ] advisory support, helped the group companies to mobilise capital and assessed whether the target company would fit into the Tata’s values”, researchers at the Indian Institute of Management in Bangalore wrote in a 2016 paper.

The GCC also provided funding for Tata Motors ‘ well-known acquisitions, including Jaguar Land Rover, which had a significant impact on how the world saw a business that was essentially a tractor manufacturer.

The JLR takeover was widely regarded as “revengeance” on Ford, which mocked Tata Motors in the early 1990s and then received a beating on the deal by Tata Motors. Together, these acquisitions suggested that Indian corporations were “arrived” on the global stage as economic growth rates increased and liberalization reforms were taking off, according to Mr. Raianu.

The$ 12 billion group currently has operations in 100 different nations, with non-Indians making a sizable portion of its total revenues.

Getty Images Tata Sons Chairman - Ratan Tata poses alongside the Tata Nano at its launch in Mumbai on Monday.Getty Images

The misses

While the Tata Group made significant strides overseas in the early 2000s, domestically the failure of the Tata Nano – launched and marketed as the world’s cheapest car – was a setback for Tata.

This was his most ambitious project, but he had clearly misread India’s consumer market this time.

Brand experts claim that an aspirational India did n’t want to associate with the affordable car tag. And Tata himself eventually admitted that the “poor man’s car” tag was a” stigma” that needed to be undone.

He thought that his company might be able to revive its product, but the Tata Nano was eventually discontinued after sales dropped year over year.

The Tata Group’s succession became a contentious topic as well.

Mr Tata remained far too involved in running the conglomerate after his retirement in 2012, through the “backdoor” of the Tata Trust which owns two-thirds of the stock holding of Tata Sons, the holding company, say experts.

Ratan Tata’s involvement in the succession dispute with [Cyrus ] Mistry undoubtedly tarnished the reputation of the group, according to Mr. Rainu, without blaming him for it.

Following a boardroom coup that sparked a long-running legal battle that the Tatas eventually won, Mistry, who died in a car crash in 2022, was ousted as chairman of Tata in 2016.

Getty Images Ratan Tata, Chairman Tata Group, at Jaguar Pavilion during 11th Auto Expo held at Pragati Maidan on January 5, 2012 in New Delhi, India. Tata Motors-owned Jaguar showcased two new models, C-X16 and C-X75 here at Auto Expo 2012.Getty Images

A lasting legacy

Tata left his vast empire in a much stronger position both domestically and internationally in spite of the numerous missteps he took in 2012, leaving it much more financially stable.

Along with making significant acquisitions, his effort to modernize the company with a sharp focus on IT has been successful over the years.

When many of his big bets went sour, one high-performing firm, Tata Consultancy Services (TCS), along with JLR carried the “dead weight of other ailing companies”, Mr Raianu says.

TCS is today India’s largest IT services company and the cash cow of the Tata Group, contributing to three-quarters of its revenue.

Around 69 years after the government took control of the airline, the Tata Group also brought back India’s flagship carrier Air India in 2022. Given how expensive it is to operate an airline, Ratan Tata, a trained pilot himself, was a dream come true.

However, the Tatas appear to be more in a position to place significant bets on everything from semiconductor manufacturing to airlines.

Under Prime Minister Narendra Modi, it appears that India has clearly adopted a “national champions” policy, which requires a few large conglomerates to be built up and promoted in order to achieve rapid economic growth that spans priority sectors.

The odds are clearly stacked in favor of the Tata Group from this, along with younger industrial groups like Adani.

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Vietnam imitating China’s island-making in South China Sea – Asia Times

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Vietnam has slowly increased its military presence in the South China Sea, putting its territorial claims in line with China’s island-building strategies in the hotly contested sea area.

The disputed Spratly Islands have recently experienced high-resolution satellite imagery that shows a tenfold increase in artificial land in the area over the past three years, according to the&nbsp, Wall Street Journal ( WSJ).

The WSJ report mentions the potential growth of Vietnam through the development of planes, protective tunnels, and holds for martial use. It points out that Vietnam’s actions are in line with China’s, which has recently constructed artificial islands with runways, study towers, and other military installations to assert its position of dominance in the area.

WSJ notes that while China has violently enforced its statements against the Philippines, it has not yet responded to Vietnam’s actions.

The&nbsp, Asia Maritime Transparency Initiative ( AMTI ) noted in June 2024 that since November 2023, Vietnam has added 692 new acres across ten features, bringing its total dredging and landfill in the South China Sea to approximately 2, 360 acres – about half of China’s 4, 650 acres. This sudden expansion, according to AMTI, is a major improvement over the previous three years when Vietnam’s full was only 329 acres.

In a statement from September 2024, John Pollock and Damien Symon claim that Vietnam’s actions are motivated by a needed to strengthen its proper place in the wake of continuous territorial disputes with China and other plaintiff states.

Pollock and Damien stage out that Vietnam’s expanded troops could number long-range martial aircraft, indicating a distinct military purpose. They mention that China has remained somewhat silent on Vietnam’s present reclamation activities, perhaps due to intellectual alignments with the latter’s fresh leadership.

They even say that China’s proper solitude over Vietnam’s restoration activities may reveal Beijing’s focus on its conflict with the Philippines over the&nbsp, Next Thomas Shoal.

In a December 2023 report for the Center for Strategic and International Studies ( CSIS), Monica Sato and other authors mention that cutter suction dredging involves slicing into coral reefs and pumping sediment to create landfills.

Sato and others point out that the technique, used extensively by China since 2013 to create synthetic islands, devastates the bottom, creating material clouds that strangle marine life and inhibit coral regeneration. They mention that unlike conventional polycarbonate dredgers, which cause less collateral damage, cutting pressure dredgers inflict widespread death, removing vital coral structures&nbsp, and&nbsp, altering the marine ecosystem.

Vietnam’s defense buildup significantly raises the stakes in its territorial disputes with China in addition to its accelerated area restoration in the South China Sea.

In a January 2018 essay in the peer-reviewed Asia Policy book, Derek Grossman said Vietnam has focused on modernizing its defense, especially its naval and air troops, to deter China from more intruding on its territory.

He says that Vietnam’s defense acquisitions, such as Russian Kilo-class submarines and Su-30MK2 fighter jets, alongside a system of anti-ship and surface-to-air missiles, improve Vietnam’s defensive capabilities, especially in anti-access/area neglect operations, making it costly for China to participate in any military conflict.

While China’s muted response to Vietnam’s actions may owe to Beijing’s focus on the US in the Philippines, Vietnam’s military limitations may also have contributed to Beijing’s stance.

In military terms, Grossman points out that Vietnam’s military still faces limitations regarding joint training, doctrine development and maritime domain awareness.

In a July 2021 report for the Singapore-based ISEAS-Yusof Ishak Institute, Nguyen Phuong points out that Vietnam’s military modernization has slowed significantly since 2016.

Nguyen points out that having limited resources is a significant challenge because they are used for other national priorities like infrastructure and healthcare. He also makes note of the Vietnam People’s Army’s (VPA ) emphasis on political and propaganda over military action, which also impedes modernization efforts.

Nguyen also points out that the anti-corruption campaign spearheaded by former and recently deceased Communist Party General Secretary Nguyen Phu Trong has harmed military procurement by dismantling corrupt networks within the VPA, potentially affecting Vietnam’s ability to counterbalance China’s growing military influence.

In contrast to China’s aggressive behavior toward the Philippines, Vietnam’s approach to handling its territorial claims in the South China Sea may play a role.

Nguyen claims in a May 2024 article for the National Bureau of Asian Research ( NBR ) that Vietnam’s strategy for resolving tensions with China has been tactful and pragmatic, a balancing act between assertiveness and compromise.

Nguyen claims that Vietnam has historically preferred to treat China with submissiveness because of internal conservative influences, but it has increasingly sought support from the Association of Southeast Asian Nations ( ASEAN ) and the US to back down against China’s assertiveness when necessary.

Despite those moves, he says that Vietnam’s strategy remains cautious, avoiding escalatory legal actions or overt alignments with major powers.

Nguyen contends that China views Vietnam as a pragmatic adversary, putting territorial interests before socialist solidarity, recognizing the need for a cooperative relationship.

He points out that China has employed a mix of coercive tactics, including gray-zone actions, to test Vietnam’s resolve while recalibrating its approach when Vietnam shows signs of defiance, fearing Vietnam’s potential pivot to the West and US.

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PM urges Asean to unite for peace

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Paetongtarn advises users not to become intermediaries for any energy, proposes Myanmar speech

Prime Minister Paetongtarn Shinwatra attends the Asean Summit in Vientiane on Wednesday. (Photo: Royal Thai Government)
Prime Minister Paetongtarn Shinwatra attends the Asean Summit in Vientiane on Wednesday. ( Photo: Royal Thai Government )

Prime Minister Paetongtarn Shinawatra has urged the Association of Southeast Asian Nations ( Asean ) not to allow the region to become embroiled in geopolitical issues threatening its security.

“Asean can maintain peace and stability only through constructive cooperation, ” she said during her address to the 44th Asean Summit on Wednesday in Vientiane.

“Towards that conclusion, Thailand did play its part as an active promoter of peace and frequent growth to reach a conducive environment for growth. ”

Ms Paetongtarn said additional factors are extremely shaping Asean protection. Competition among key capabilities and rising tensions international have led to believe shortfalls and weakened internationalism and regionalism, she said.

Member says, she said, must be steadfast in strengthening the Asian community and prevent becoming a surrogate for any energy.

She said shared management in advancing provincial interests is vital in reinforcing Asean importance and making Asean-led frameworks related for meaningful engagement with outside partners

This needs to be done, she said, by fostering inclusive speech and teamwork under the Asean Outlook on the Indo-Pacific.

She pledged that Thailand may work closely with all Asean part states to support regional peace and stability and increase the region’s standing as a dependable world player.

“ While Asean does not take sides, member states must take a principled stand on issues affecting the region and people, ” she said.

Regarding conflicts in the South China Sea, she said Thailand urges all parties to practice self-restraint, avoid controversial steps, and participate positively to resolve problems calmly.

Thailand is committed to the early conclusion of an effective and substantive Code of Conduct in the South China Sea per international law. Ms Paetongtarn said that freedom of navigation and flights in and above the South China Sea must be ensured.

Thailand also shares global concerns about the situation in the Middle East, including the humanitarian crisis in Gaza. She said the kingdom supports all efforts towards a ceasefire, securing the unconditional release of all civilians, including Asean citizens, and unrestricted humanitarian access. The country remains firmly in support of a two-state solution, she added.

Ms Paetongtarn also expressed deep concern about the situation in Myanmar, which is a high priority for Thailand.

As a neighbour with a common border of 2,400 kilometres, Thailand has been affected by the conflict in Myanmar, which has resulted in an increase in displaced persons, illegal migration and disruption of trade and livelihoods of people. Other concerns include public health and transnational crime, especially narcotic drugs and online scams.

In this context, she said Thailand will work with all its friends in Asean and beyond to achieve a peaceful, stable, and unified Myanmar.

“Asean should send a unified message to all parties in Myanmar that there is no military solution. It is time to start talking. Thailand is ready to help, ” she said.

She also said it is vital for parties to find a political solution. Opening up more political space and dialogue between parties is vital as Myanmar moves forward with planned elections next year.

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The World Bank isn’t buying China’s stimulus talk – Asia Times

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To anyone who hopes 2025 will be a less terrible season for China’s economy, the World Bank has some bad news for you.

The international lender anticipates that Asia’s largest economy’s growth will decline also further next year, creating new headwinds for the region. This is in spite of Beijing’s current moves to boost economic growth in response to negative pressures and an initial global investor response that was at least initially passionate.

” Just signaled fiscal support may raise short-term progress, but longer-term development will depend on deeper structural measures”, the World Bank said on October 8. For three years, it said,” China’s expansion has spilled over advantageously to its companions, but the size of that motivation is today diminishing”.

The World Bank might be misinterpreting China’s efforts to resurrect its financial situation. It&nbsp, cut borrowing costs, slashed businesses ‘ supply need numbers, reduced loan rates and unveiled market-support resources to put a floor under share costs. In Beijing, stronger macroeconomic stimulus measures are also being considered.

If the world’s house crisis is allowed to enhance, furthering negative forces, some economists worry about a lighter course. The uncertainty issue is demonstrated by the extreme volatility in Chinese shares over the past ten days.

When the World Bank mentions the need for “deeper architectural changes,” plunging house prices are at the top of their record. Yet&nbsp, Chinese leader Xi Jinping appears to think period is on Beijing’s part in repairing the critical business. It might not be, as Japan has demonstrated over the years, &nbsp, some economists say.

China’s existing real estate troubles and Japan’s negative loan problems of the 1990s are n’t essentially analogous. The important resemblance is a critical driver of economic growth stalling out indefinitely, triggering bad knock-on implications in different industries.

In China’s situation, this likewise means municipal governments around the country. Provincial leaders have relied on area sales and tax revenues from sizable construction projects for many years.

” China’s boom-and-bust housing market is largely driven by local governments ‘ heavy reliance on expanding the real estate business to provide a major source of income”, said Tianlei Huang, an analyst at the Peterson Institute for International Economics, a Washington-based think tank.

Since 2022, Huang added,” the decline in the housing market has hurt native state funds and exposed a&nbsp, prone system&nbsp, in need of reform”.

It’s a portrait of what ails China. And still, Xi’s Communist Party continues to treat the signs of financial issues, not the underlying problems themselves. The longer they fester, the stronger the resulting headwinds.

Rather than the 4.8 % the World Bank sees China’s economy growing this year, it sees the nation expanding at just 4.3 % in 2025. Both readings are below Beijing’s current 5 % target.

Of course, for an economy at China’s level of development, 4.3 % is effectively recession territory. And if Xi’s team does n’t act boldly and expeditiously to revive growth, that figure could prove too optimistic.

One wildcard is the&nbsp, November 5&nbsp, US election. The upcoming trade wars would disproportionately hit China if Donald Trump were to win.

During his first presidency from 2027 to 2021, Trump imposed harsh tariffs on China. Xi’s government has n’t seen anything yet if Trump comes back to power. Trump has already predicted a generalized global levy on all imports into the US and a 60 % tax on all Chinese goods.

” With higher US tariffs, a number of highly open economies in the Asia-Pacific are at risk of GDP falling below their baselines”, said Deborah Tan, an analyst at Moody’s Ratings. Along with China, they include Malaysia, Singapore, South Korea, Taiwan and Thailand.

According to Tan,” these are primarily economies with high participation in global value chains and high exposure to US and Chinese intermediate goods supply and final goods demand.”

Vietnam, for example, has a high export share of gross domestic product ( GDP ) with strong linkages with&nbsp, Chinese manufacturing&nbsp, supply chains. ” Our simulation shows that within Vietnam, the high-tech goods sector will take the largest hit to output”, Tan said. ” China, similarly, the high-tech goods sector takes the largest hit to output followed by the low-tech goods sector”.

As this threat percolates, Xi’s team in Beijing risks losing even more trust among global investors.

One thing is to discredit them on the stimulus front. The slower pace of fixing the housing sector, strengthening local government balance sheets, and establishing social safety nets so that households save less and spend more are the bigger issues.

However, these measures “do not replace the more thorough structural reforms that are required to promote longer-term growth,” according to World Bank economist Aaditya Mattoo. The majority of the measures and bond proceeds will carry over into the following fiscal year given the lead time for implementation of the policy.

Mattoo notes that “even then, consumers may be reluctant to splurge because a one-time transfer would not boost longer-term incomes or address concerns about aging, illness and unemployment”.

In the interim, billionaire Ray Dalio sees this as Xi’s party’s “do what it takes” to change the gloomy narrative that may be evoking global investor sentiment. Draghi’s 2012 declaration as head of the European Central Bank is referenced here.

Last week “was a big week” ,&nbsp, said Dalio, founder of Bridgewater Associates. ” In fact, I think that it was such a big week that&nbsp, it could go down in the market-economic history books as comparable to the week Draghi said that he and the ECB would ‘ do whatever it takes,’ if China’s policymakers, in fact, do what it takes, which will require a lot more than what was announced”.

A long-time China bull, Dalio is increasingly vocal about his worries Beijing is sleepwalking into a&nbsp, Japan-like funk&nbsp, that history shows is challenging to exit. It’s taken Tokyo 25 years to begin exiting quantitative easing and its zero-interest-rate policies, and even that is proving challenging for the Bank of Japan.

To avoid it, one must devise a “beautiful deleveraging” strategy that balances printing enough yuan to support growth without causing inflation to rise too quickly while restructuring the entire economy. ” Doing these things starts to rekindle’ bottom fishing ‘ ]in stocks ] and ‘ animal spirits,'” he said. ” That is clearly happening right now,” he says.

Any new deleveraging efforts by Xi and Premier Li Qiang, Dalio said, will undoubtedly disorient and likely lead to more wealth destruction. That, it follows, will require considerable political courage, with Xi and Li having to decide where the costs and fallout of debt losses will be concentrated.

To Dalio, it all depends on “how well China’s domestic debt-money-economy challenges will be handled”.

At the same time, demographics are complicating the deleveraging process. The numerous moving parts that Xi and Li are struggling to manage are given a unique dimension by China’s aging population and shrinking working-age population. &nbsp,

” While last week saw some amazing actions and words that I’m certain will be followed by highly stimulative policies that will greatly boost asset prices,” Dalio said.” I think there are several important other things to keep an eye on to see how well China’s domestic debt-money issues will be handled,”

That’s not to say there are n’t some reform wins that Xi and Li can tout. As Sherry Zhao, analyst at&nbsp, Fitch Ratings, pointed out, refinancing risks for China’s local-government financing vehicles ( LGFVs ) have “reduced in the short term following government debt-relief measures and policy support, which will limit systemic risk”.

Provincial governments, Zhao said, continue to issue special refinancing bonds to swap “hidden debt”. The central government, meanwhile, has increased transfers to shoulder more infrastructure spending.

However, Zhao stressed,” we believe those support measures focus on the prevention of short-term&nbsp, systemic risk rather than a full-scale bailout. There continue to be longer-term risks associated with&nbsp, LGFVs ‘ debt burdens, and their resolution will hinge on China’s overall economic and fiscal strength”.

The Third Plenum meeting in July made it clear that local and regional governments may have more revenue flexibility to better accommodate their expenditure demands. ” The credit effects”, Zhao said,” will depend on how the changes are implemented, and on local governments ‘ willingness to use any additional revenue-raising powers given to them”.

The official Fitch view is that overall&nbsp, LGFV&nbsp, debt growth will be curbed as local governments tighten control of new debt, especially in regions that Beijing views as a priority for debt resolution.

The danger, however, is that these regions ‘ long-term debt default risk “remains and may even rise because of imbalances in economic and debt growth, as well as the potential inability of local governments to generate sustainable revenue for debt service.”

There are encouraging indications that China is currently developing a plan to stabilize the financial system and lessen risks.

Zheng Shanjie, the head of the National Development and Reform Commission, told reporters on October 8 that Beijing is developing” comprehensive policy measures to help stop the decline in the real estate market.” Shanjie said this in response to the National Development and Reform Commission’s announcement to stop housing sales and prices.

Zheng added that” we will take a number of potent and effective measures to try to boost the capital market in response to volatility and declines in the stock market.”

Even so, many economists and investors were disappointed that more short-term stimulus is n’t being deployed. ” Tuesday’s press briefing from China’s top economic planner … was supposed to be the big moment, the one where Beijing unleashed a&nbsp, stimulus bazooka“, said economist Stephen Innes at SPI Asset Management. ” Instead, it was more of a pop gun”.

Innes added that” Beijing’s reluctance to roll out a bigger package is seriously questioned about the viability of this rally” in stocks.

James Sullivan, head of Asia-Pacific equity research at JPMorgan, told CNBC that” the million-dollar question in China right now is, does the stimulus only flow into the supply side of the equation, or does it ultimately flow through into consumer demand? That’s not our expectation right now”.

Follow William Pesek on X at @WilliamPesek

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Debt forces Maldives to pivot back to India from China – Asia Times

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The Maldives, known for breathtaking resorts and serene beaches, is battling an escalating debt crisis and attempting a delicate balancing act between its two largest creditors: India and China. As the island nation braced for an impending debt default, President Mohamed Muizzu’s leadership will be tested by how he steers his country through this turbulent economic and geopolitical landscape.

As of August 2024, the Maldives’ foreign currency reserves totaled $437 million, which could cover only about a month and a half of import bills. The country is projected to arrange $600-$700 million of debt service expenses in 2025 and more than $1 billion in 2026. The island nation owes China about $1.3 billion and India about $130 million.

Against this backdrop, the Maldives president met Indian Prime Minister Narendra Modi in New Delhi on October 7, in a bid to secure much-needed financial assistance, amid fears that the island nation may default on a crucial $25 million bond payment. Reuters reported that India approved a $400 million currency swap agreement, a much needed lifeline for the debt strapped country of half a million people in terms of accessing short-term liquidity.

Maldives debt troubles are related to Sukuk bonds. Sukok is a special type of financial instrument that is often referred to as an Islamic bond, which operates quite differently from conventional bonds in order to comply with Islamic principles, particularly the prohibition of interest.

Unlike traditional bonds, which are debt instruments setting out that investors have lent money in exchange for interest payments, Sukuk represents ownership in a tangible asset or a pool of assets. Investors receive returns not from interest but from the revenue generated by the asset. If Maldives default on its Sukuk debt, that will be the first such event of sovereign default for Sukuk.

Absent much needed financial rescue from the likes of India, the ramifications of Maldives missing its Sukuk payment would be devastating: it could block access to international capital markets, shake investor confidence, and tip the Maldives into deeper economic turmoil.

While the Maldives with the latest assurances of help from India may have avoided an immediate default on its Sukuk debt, the country’s broader economic troubles remain unresolved, with significant debt payments looming in the coming years.

Geopolitical rivalries, structural weaknesses

The Maldives’ economic distress is deeply intertwined with the geopolitical rivalry between two major players in the region, India and China. Over the past decade, the country has borrowed extensively from both nations, but the two offer assistance with different goals in mind.

China’s loans have largely funded infrastructure projects tied to its Belt and Road Initiative, helping Beijing expand its strategic footprint in the Indian Ocean. India, on the other hand, sees the Maldives as a critical part of its regional security and has provided financial aid to counter China’s growing influence.

President Muizzu in his ‘India Out’ T-shirt. Photo: X

Muizzu’s rise to power in 2023 was underpinned by an “India Out” campaign, aimed at reducing the Maldives’ reliance on New Delhi and drawing the country closer to Beijing.

On his way to electoral victory, Muizzu promised that, once elected, he would expel Indian soldiers who were deployed in the Maldives on humanitarian assistance engagements.

Bowing down to such political pressure, India replaced dozens of its soldiers – exchanging them with civilian experts. However, as Maldives continued its plunge towards a debt crisis, shortly after coming to power, President Muizzu’s government caved in to pragmatism and softened its stance toward India, recognizing that Maldives’ immediate survival hinges on securing financial support from both China and India.

Maldives’ real challenges lie in its unsustainable debt burden and the structural vulnerabilities that underpin its economy. The country is overwhelmingly dependent on tourism, an industry highly susceptible to global economic shocks, as evidenced by the downturn following the Covid-19 pandemic. Furthermore, Maldives imports most of its essential goods – and rising global commodity prices have compounded its financial woes, draining foreign reserves and making it even harder to service debt.

This situation places the Maldives in a precarious position between the two competing powers. India and China both have significant economic and strategic interests in the Maldives, and their financial aid comes with expectations.

For China, the Maldives is an important link in its maritime strategy, while for India, the Maldives represents a key part of its efforts to counterbalance Chinese influence in the region. As President Muizzu navigates these tricky diplomatic waters, he must find a way to secure financial support without compromising the country’s sovereignty.

As for India, there are strong incentives to take President Muizzu into its fold, given that India sustained a series of diplomatic setbacks as several pro-India governments lost power in South Asia recently.

In Sri Lanka, a marxist politician, Anura Kumara Dissanayake, became president. In Bangladesh, Prime Minister Sheikh Hasina, arguably the most Pro-Indian Prime Minister in Bangladesh’s history, fled to India after being forced to resign by student-led protests. In Nepal, K.P. Sharma Oli, a pro-China politician, was elected as prime minister.

Reversing any of the recent diplomatic failures in India’s backyard will be viewed as a political victory for Indian Prime Minister Modi.

The goal: long-term solutions that leave sovereignty intact

The Maldives’ economic problems are structural, and addressing them will require more than temporary currency swaps and loans. The country needs a comprehensive strategy to diversify its economy away from tourism and reduce its dependency on imports, but such changes will take time – and political will.

The Maldives’ government has proposed several measures to address the crisis, including tax reforms, budget cuts and the restructuring of state-owned enterprises. These proposals aim to improve fiscal discipline and reduce the reliance on external borrowing. Yet, implementing these reforms will be a daunting task. Austerity measures such as tax increases and public service cuts have historically triggered protests in the Maldives, and Muizzu’s government may face significant resistance to these changes.

The question of whether the Maldives will turn to the International Monetary Fund (IMF) for a bailout also looms large. Although the government has thus far resisted this option, citing the temporary nature of its financial difficulties, many experts believe that an IMF intervention may be inevitable if the debt crisis worsens. However, an IMF bailout would come with stringent conditions including further austerity measures that could exacerbate social unrest and hurt the economy in the short term.

Unlikely to have a long term solution ready at hand, the Maldives will continue to depend heavily on India and China for financial support. But this dependence will come at a cost as both these regional powers are likely to use their financial leverage to push for greater political influence in the country.

India may seek to use its financial assistance as a way to reassert its strategic interests in the region, while China could leverage its economic investments to secure long-term control over key infrastructure projects.

The danger of this approach is that it could undermine the Maldives’ sovereignty. While financial support from India and China may help the Maldives avoid an immediate default, it risks entangling the country in the broader geopolitical rivalry between the two powers – thus endangering its own security. The delicate balancing act necessary to handle this geopolitical quicksand will require President Muizzu to be both a shrewd diplomat and a careful economic planner, as the stakes could not be higher.

A template for other small nations to follow?

The Maldives’ debt crisis is a cautionary tale for small nations that rely heavily on foreign loans and single industries such as tourism. Without a long-term plan for economic diversification and debt restructuring, the country will remain vulnerable to financial instability and external shocks.

President Muizzu’s recent mending of ties with India in exchange for accessing capital reliefs offers only a temporary solution, as it is not a substitute for the broader reforms that are needed to stabilize the economy.

The political cost of these reforms could be significant, but the alternative – continued dependence on foreign loans and increasing debt – is far more dangerous. To prevent a deeper crisis, the Maldives will need to enact tough but necessary reforms, build its foreign reserves and explore new sectors for economic growth.

President Muizzu must know that bold actions are needed at this critical juncture of his country’s national history. It is his time to take decisive actions to secure its financial future or risk being drawn deeper into the geopolitical currents that threaten to pull it under.

In a region marked by rising competition between India and China, the Maldives’ next moves could set a precedent for how small, debt-ridden nations handle the delicate balance between economic necessity and political independence.

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China hits back at EU with brandy tax

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In a move that France has claimed is retaliation for new high tariffs the Union announced on Foreign electric vehicles, China has imposed duties on imports of European brandy.

The European Commission said it would challenge China’s tax at the World Trade Organization ( WTO ), calling it an “abuse” of trade defence measures.

French cognac producers said the tasks would be” fatal” for the business.

Hennessy and Remy Martin will be among the major companies affected by the Chinese walk.

Shares in vodka firms dropped after the announcement.

China announced new restrictions on European brandy just days after EU countries approved steep tariffs on Chinese-made electric vehicles.

China’s business ministry said the cognac imports threaten” large harm” to its own producers.

It also said it was considering a climb in tariffs on exports of large-engine cars, which had struck European manufacturers hardest, and meat and cheese products.

Following the European Union’s decision to raise tariffs on Chinese energy cars, French Trade Minister Sophie Primas described the brandy move as” seeming to be a punitive measure.”

She said that kind of retaliation would become “unacceptable”, and a” full contradiction” of international business laws, adding that France may work with the European Union to take action at the WTO.

France accounts for 99 % of brandy exported to China, and French cognac lobby group BNIC said the move would be” catastrophic” for the industry.

According to BNIC,” the European authorities never reject us and keep us alone to deal with Taiwanese retribution that has nothing to do with us.” The taxes “must be suspended before it’s too late.”

After the Taiwanese news, shares in companies that sell spirits suffered a blow.

Luxury firm LVMH, which produces Hennessy, fell more than 3 %, while Remy Cointreau, which makes Remy Martin, fell more than 8 %.

According to analysts at Jefferies, the tariffs could cause consumers to pay 20 % more, which would likely cause levels and supplier selling to decline by a fifth.

Stocks in German carmakers, which could also be hit by hostile moves from China, even slid.

Ford, Porsche, Mercedes-Benz and BMW were all over after the news.

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Xi knows what it takes to sustain China’s rally – Asia Times

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Last year, as Chinese shares produced their biggest obtain since 2015, Lu Ting, general China analyst at Nomura Holdings, was warning investors not to forget another, more tragic memory from that same time.

The risk of repeating the amazing boom and bust of 2015 was fall quickly in the coming months, Lu information.

Lu adds that in a worst-case situation,” a stock market madness had been followed by a fall, similar to what happened in 2015″. He continues,” We wish Beijing could be more calm, while investors might still be Sure to partake in the growth for the time being.”

But alcoholism does appear to be returning, and more quickly. Though perhaps not Lu’s” accident” situation, family names like JPMorgan Asset Management, HSBC Global Private Banking and Invesco Ltd. are also advising precaution. Invesco, for one, worries coast stocks are “really overvalued”.

This is very questionable, of course. Consider the financial giants Fidelity International, an investment company, among those who also see a lot of value in mainland shares after years of losses totaling many trillions of US dollars.

Goldman Sachs Group, to. If the government fulfills its promise regarding stimulus measures, the Wall Street giant now has an overweight view of mainland shares with a 15-20 % potential for growth.

Current policy decisions by Beijing, according to Goldman strategist Tim Moe, “have led the marketplace to think that policy makers have become more concerned about taking enough action to reduce left-tail growth risk,” the market believes.

BlackRock has not reaffirmed its bearish position on Chinese stocks in the past. In light of how attractive prices had become in relation to peers in the developed-market, as its managers wrote on October 1:” We see room to turn quietly big Chinese shares in the near term.”

Despite this, Xi Jinping’s state had continue to pay attention to the fact that foreign investors have debated how much China has actually advanced since 2015. Shanghai stock lost a second of their value in just three months in that year. Beijing’s response last week to plunging shares was n’t nearly as overwhelming as after the July 2015 stumble.

A week ago, the People’s Bank of China cut borrowing costs, slashed businesses ‘ supply need numbers, reduced loan rates and unveiled new market-support resources to put a floor under share prices. Additionally, proposals for strong fiscal stimulus measures are being considered.

In the days that followed, Chinese stocks skyrocketed. Some sobriety had returned by the week’s end and into Monday, though, as traders began to wonder how many things Xi’s team had learned from 2015.

More troubling, is perhaps what they did n’t. In other words, addressing the symptoms of China’s challenges with waves of liquidity is no substitute for supply-side reforms that address the underlying issues.

In China, circa 2024, the biggest ailment is a property crisis that Xi’s reform team has yet to end. Some economists believe that the fallout has hampered Asia’s largest economy, which has since been deflating this year, and that it is at risk of repeating Japan’s mistakes from the 1990s.

The most obvious lesson is not to focus more on short-term stimulus than structural improvements that improve competition, boost competition, and lower the risk of boom-bust cycles.

The 2015 episode saw something of a whole-of-government response to plunging shares. China Inc. at the time launched waves of state funds into the market, halted trading in thousands of businesses, discontinued all initial public offerings, and made it possible for mainlanders to pledge homes as collateral on margin loans. It even rushed out buzzy marketing campaigns to encourage stock-buying as a form of&nbsp, patriotism.

Although the response did work for some time, it was in opposition to Xi’s pledge to allow market forces to influence economic and financial policy decisions.

Since then, this treating-symptoms-over-reforms pattern has played out too many times for comfort. All of which explains why investors are concerned that using state-friendly funds to buy stocks and save money could actually go wrong.

In consequence, it is possible to make valid arguments that too frequently initiatives to promote the private sector, improve transparency, or improve corporate governance have failed to achieve the same results.

Only time will tell if Xi’s most recent actions in support of falling stock prices could also thaw out the reform process. However, Xi’s Communist Party ca n’t afford to fail in this most recent bull run for Chinese shares.

Lu’s case at Nomura is that nearly four years of turmoil in the property sector, made worse by Covid-19 lockdowns, has exacerbated troubles with rising local government debt. These pre-existing issues led to trade disputes between the US and Europe, and a flaming Middle East.

” While investors might still be OK to indulge in the boom for now, a more sober assessment is required”, Lu says.

What’s needed, say economists like Michael Pettis, senior fellow at Carnegie China, is “rebalancing” efforts that mark a decisive” shift in the economic model” to “reverse decades of explicit and implicit transfers in which households have subsidized investment and production”. And as Pettis views it, Xi’s latest fiscal effort “is n’t really part of a real structural rebalancing”.

The problem, Pettis adds, is that if China does n’t upend its growth model, “imbalances will continue to build”, meaning the nation “risks facing the same problem in the future as it does now, only without a clean central-government balance sheet to help it manage potential disruptions”.

It’s possible to end this cycle decisively. Particularly in view of the party’s most recent policy conclaves, including July’s closely watched” Third Plenum”. Xi and Premier Li Qiang showed once more that they fully comprehend what must be done to boost China’s economy, increase competition, and boost productivity.

Among the signals that were music to investors ‘ ears were pledges to: “unswervingly encourage” the private sector, pivot to “high-quality development“, accelerate” Chinese-style modernization”, champion “innovative vitality”, and “actively expand domestic demand”.

It’s no small thing that the Plenum communique” for the first time mentions carbon reduction,” says Belinda Schäpe, China policy analyst at the Center for Research on Energy and Clean Air. This elevates China’s commitment to reducing emissions and tackling climate change&nbsp, to a new level”.

Missing, though, has been urgent implementation since. That includes rebalancing the growth engines, reducing the influence of ineffective state-owned enterprises that still control the economy and financial imbalances caused by falling real estate values to struggling municipalities struggling with mounting debts.

To grease the skids for these and other disruptive reforms, says economist Brad&nbsp, Setser, senior fellow at the Council on Foreign Relations, Beijing must overcome its aversion to fiscal pump-priming.

” The needed reforms to China’s central government center around freeing itself from the set of largely self-imposed constraints”, Setser says. ” Such constraints have limited its ability to use its considerable fiscal space to help China sort out its current bind: a shrinking property sector and falling household confidence.”

According to Setser,” the central government has ample room to ensure that the property developers deliver on pre-sales– or provide a refund… and to expand the provision of social insurance while lowering regressive taxes.” Even if that results in a larger central government deficit, the central government still has the ability to change the revenue-sharing formulas to support the troubled provincial governments.

Setser goes on to say that if China’s central government had fiscal space and used it to give households more freedom to spend money, it might be able to recover from the country’s property slump on its own, without relying even more on exports.

A significant policy push also needs to include efforts to create bigger, more dynamic social safety nets to encourage households to spend less and save more.

Xi has repeatedly demonstrated that he is aware of how to create a more creative, productive, and market-friendly China. His team simply needs to act or risk paying the price for yet another deceitful global investor.

Follow William Pesek on X at @WilliamPesek

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China likely to launch military drills around Taiwan after president’s national speech, sources say

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According to Chinese officials, China is likely to conduct military exercises this month near Taiwan, using Taiwan President Lai Ching-te’s approaching National Day conversation as a pretext to stress the island into accepting its claims for sovereignty. China conducted “punishment” drills in Taiwan immediately after Lai’s inauguration, which Beijing describedContinue Reading