CHINAMacroReporter

'Rethinking 2020: What’s Overlooked and What’s Overhyped'

Rethinking 2020

‘If a single word were chosen to define US-China in 2020, “decoupling” would be a good candidate. What has been overlookedis just how little meaningful decoupling actually happened.’
by

Damien Ma & Houze Song | MacroPolo

|

MacroPolo

January 23, 2021
'Rethinking 2020: What’s Overlooked and What’s Overhyped'

‘If a single word were chosen to define US-China in 2020, “decoupling” would be a good candidate. What has been overlookedis just how little meaningful decoupling actually happened.’

‘Stepping back at the end of 2020, we want to highlight two overlooked and two overhyped trends that, in our judgment, will matter greatly to China’s political economy and for how it adjusts to a dramatically changed external environment.’

Overlooked

1. ‘Closing the Curtain on the GDP Obsession Era’

‘The signs have been there, but it wasn’t until 2020 that the writing clearly appeared on the wall: GDP growth will no longer hold sway over China’s development.’

  • ‘The number of provinces that have repeatedly failed to meet national growth targets has already surged, with no apparent political consequences.’
  • ‘Xi Jinping had also signaled in April 2020 that Beijing is willing to accept regional growth divergences.’
  • ‘That likely foreshadowed what was to come in the 14th Five-Year Plan in November 2020, which was accompanied by Xi’s unprecedented explanation of why it didn’t include a specific growth target.’

‘Although some observers have noted this shift on GDP, its significance may be underappreciated.’

  • ‘It is tantamount to simultaneously reshaping political incentives, changing the investment-driven model, and redirecting focus toward de-risking and reforming the economy.’
  • ‘In short, the Xi administration has been unexpectedly tolerant of austerity—a precondition for ramming through very difficult structural reforms that are essentially growth negative in the near term.’

2. ‘Decoupling Is Everywhere Except in Reality’

‘If a single word were chosen to define US-China in 2020, “decoupling” would be a good candidate.’

  • ‘Bandied about with abandon, the term has created the perception that these highly complex supplier networks were being severed in real time.’
  • ‘What has been overlooked is just how little meaningful decoupling actually happened.’

‘Foreign businesses are just one gauge of decoupling, but they are particularly important leading indicators of shifts in supply chain ecosystems.’

  • ‘In 2020, the respective portions of US (87%) and European (89%) businesses indicating no intention to leave China are as high or even higher than they’ve been in recent years.’
  • ‘And despite the Japanese government creating a fund to help re-shore its manufacturers, only 4% of Japanese businesses said they’re definitively leaving China.’

‘Pandemic disruptions certainly weighed heavily on firms’ decisions, likely delaying drastic changes or planned investment.’

  • ‘It is also true that many companies want to diversify beyond China—some already have—to hedge against risk.’
  • ‘Nonetheless, what has actually happened on the decoupling front appears disproportionately modest relative to the attention heaped on it.’

Overhyped

1. ‘China Slams Door on The World

‘Whether it is “Made in China 2025” or “social credit,” any official neologism emanating from Beijing now gets spotlighted, scrutinized, and sometimes hyped.’

  • ‘The latest offering of “dual circulation” is no exception, with many interpreting it as China’s pivot toward withdrawal from the world.’

‘Yet when it comes to capital markets, China has gone in precisely the opposite direction, further linking itself to global capital.’

  • ‘Although market openings began around 2018 and capital inflows rose steadily since, it wasn’t until 2020 that foreign capital inflows saw a notable spike.’

‘Moreover, the inking of the Regional Comprehensive Economic Partnership (RCEP) trade deal and the potential conclusion of an EU-China investment treaty hardly suggest a Beijing that is closing its doors on the world.’

‘To be sure, technology is an area in which China does want to reduce dependence on imports.’

  • ‘But even there it would be unrealistic to assume that China will achieve anything close to total indigenization.’  

2. ‘BRI Is Down but Not Out’

‘China’s overseas lending plummeted in 2019, leading some to prognosticate the death knell of the “Belt and Road Initiative” (BRI).’

  • ‘Yet China’s overseas lending has risen in 2020, though it has not returned to the heights seen in 2017 and 2018.’
  • ‘This makes sense as fierce internal debate and external pressure likely pushed Beijing to make necessary adjustments and curtail some of its ambitions for the BRI project.’
  • ‘But gone it is not, since Beijing rarely throws out the baby with the bathwater, particularly for a signature initiative that has Xi’s imprimatur.’

‘The 2019 lending collapse can be partly explained by the political upheaval at the China Development Bank (CDB), a major financier of BRI projects, when its former president was arrested on corruption charges.’

  • ‘As a result, the CDB’s total assets only increased by 2% in 2019.’
  • ‘But the policy bank is actively lending again, having recently committed more than $80 billion to projects under RCEP, some of which can surely be rebranded as BRI projects.’

More

CHINAMacroReporter

February 20, 2021
‘UNDERSTANDING DECOUPLING: Macro Trends and Industry Impacts’
‘Comprehensive decoupling is no longer viewed as impossible: if the current trajectory of U.S. decoupling policies continues, a complete rupture would in fact be the most likely outcome. This prospect remains entirely plausible under the Biden administration.’
keep reading
February 20, 2021
‘Europe can’t stay neutral in US-China standoff’
‘China aims to create a world that is not safe for Europe — strategically, economically or ideologically. Xi is actively striving to undermine the stature of democracies in the global order. The more power China amasses, the less tolerant it will become with any government that won’t toe its line. China also represents a long-term economic threat to Europe — not merely because it is an advancing competitor in a global market economy, but because Beijing’s policies are designed to use and abuse that open world economy to eventually dominate it.
keep reading
February 20, 2021
‘Beat China: Targeted Decoupling and the Economic Long War'
‘The economy is the primary theater of our conflict with China. It is now clear that the U.S. and Chinese economies are too entangled, particularly in critical sectors such as medicine, defense, and technology.'
keep reading
March 6, 2018
'E-commerce' is rapidly evolving into 'New Retail.' Jack Ma, Alibaba
Ed Tse, founder of the Gao Feng consultancy and the leading expert on Chinese innovation, introduced me to New Retail in a recent conversation. You will find his explanation of New Retail below, along with a couple of videos showing New Retail in action - as amazing today as Minority Report seemed years ago. Perhaps even more amazing is the China business strategy, the 'Third Way,' that made things like New Retail possible. Ed explains the Third Way in Part Two of our discussion that I will be posting soon. Chinese do do things their own way, as the Third Way again demonstrates. For now, have a look at the future today. And, stay tuned for Part Two for Ed's explanation of the Third Way that made New Retail possible.
keep reading
March 1, 2018
'Trump's tariffs just first shot—the big China action is Section 301'
Leland points out that President Trump's really big trade move against China yet to come, that is, Section 301 penalties. If you aren't up to speed on 301, you will be after you read and watch Leland's comments. As Leland says, with Section 301, 'regardless of how Section 232 steel and aluminum tariffs end up in the next few days - you're seeing the beginning, not the end, of Trump's aggressiveness on trade.' 'And, I don't think people have prepared themselves yet for the fact that 301 is coming.'
keep reading
February 22, 2018
A world of debt mortgages our economic future
Irresponsible borrowing by the US, China and India imperils global growth: What is not natural is China’s bad track record on debt: according to the Bank of International Settlements, every measure of debt — consumer, government and corporate — has risen as a share of GDP for the past decade. China went from a low-leverage country in 2007 to having a worse debt position than the US in 2017, despite the fact that the US itself has borrowed heavily.
keep reading
February 16, 2018
China's Crisis of Success
Here are five key points, each corresponding to a section below. "The Rise of China: How Economic Reform Is Creating a New Superpower" by Bill Overholt, published in 1993, was called 'nonsense' and 'too optimistic.' How did that work out for the reviewers? Now, almost three decades after "The Rise of China", Bill believes that China's future has become 'much more uncertain.'
keep reading
February 12, 2018
2017 China Property Report
One of the highlights in our recent 'In Pursuit of Patterns' series of client notes, showed that the land sales growth had tended to lead the price growth and a significant increase in land sales would lead, with a lag, to the subsequent correction in prices.
keep reading
February 9, 2018
The extraordinary power of China's corporate 'mega ecosystems'
Besides Alibaba and Tencent, companies like Ping An Insurance Group, Baidu and JD.com are building out mega ecosystems with incredible speed and intensity. Even some traditional manufacturers are moving in this direction. Zhejiang Geely Holding Group has gone from producing entry-level cars to selling premium models with the help of foreign acquisitions and has been the first Chinese carmaker to move into on-demand mobility services. It has also been experimenting with connected intelligent vehicles, shared ownership programs and flying cars, together assembling a sprawling transportation services ecosystem.
keep reading
February 8, 2018
China's trade surplus up, RMB weaker
[China markets update with TRACK's Bob Savage ] 'The RMB did not like the trade data at all, and it weakened immediately - over 1% today.' 'Overnight, the world has moved a little bit away from its U.S.-centric obsession about equity volatility in the United States and around the world to what's going on in China,' says Bob Savage, CEO of TRACK and member of the soon-to-be-launched China Analyst Network.
keep reading
February 7, 2018
What we import from China
But he can’t keep saying China is ripping us off and he’s going to stop it unless the US targets the biggest imports. The trade deficit with China is bigger than with the next eight countries combined. NAFTA? The trade deficit in cell phones and computers alone with China is bigger than the trade deficits for all goods with Mexico and Canada combined.
keep reading
February 3, 2018
China's RMB oil futures exchange—the 'story of the year'!
‍The Shanghai International Energy Exchange:blowing up more than oil : There's a lot to follow in China. And, I had missed reports about the opening of the Shanghai International Energy Exchange or INE, likely this quarter. But, during my interview with Bob Savage, the well-respected analyst of global markets and CEO of TRACK, he told me the INE could be the 'story of the year.' That's a big - and interesting - claim about something that seems like one more ho-hum Chinese entity. Bob explained that the INE will create the an RMB-denominated oil futures contract. The first such contract in a petrodollar world, where China is largest crude oil importer. If RMB oil contracts - even just for trade with China - catch on, then the whole global oil trading regime will change. And, given the massive size of the global oil trade, a shift from dollars to RMBs will both erode the dollar as a reserve currency, and push the RMB closer its goal of becoming a full reserve currency.
keep reading
January 10, 2018
'China goes private'—from financial reform to the Belt Road Initiative
[Malcolm Riddell's conversation with Harvard's Tony Saich] The State & Party's technical prowess is somewhat limited.
keep reading
January 10, 2018
What Hiring Activity Says About Firm Valuations in China
How does an obscure factor like hiring practices impact firm valuation? That was the question posed by Deutsche Bank’s quant strategy group in a 2015 whitepaper titled, “Macro and Micro Jobenomics.” The report concluded that online job postings could be used to predict U.S. macroeconomic statistics and equity market returns. This piqued my interest – I wondered whether a similar process could be used for valuing A-share companies in China.
keep reading
December 31, 2017
December 2017: Is China Actually Deleveraging? Yes and No.
China Deleveraging Insider tracks the status of China’s financial de-risking initiatives and the state of deleveraging.The most recent data from the PBoC and the CBRC show that bank asset growth hit a fresh all-time low in October. That means China is actually deleveraging – a little. It’s slow and slight, and done with a bit of trickery, but the debt load has shrunk in comparison to the size of the economy.
keep reading
December 18, 2017
What are the policy implications for China's economy from the 19th Party Congress?'
Pieter Bottelier—top China economist, former World Bank head in China, and stalwart CHINADebate expert—set the theme today: the crucial albeit unsung importance of elite technocrats in guiding China's Economic Miracle.
keep reading
November 27, 2017
Is China's Economic Power a Paper Tiger?
The People’s Republic of China has surely seen faster GDP growth than the United States for most of the past forty years. It's the value of that growth that's questionable. : The Chinese economy is strange in many ways. Not only is it a hybrid between private capital and state control, but very few people directly invest in the mainland — and yet everybody is interested in how the second largest economy in the world is going to develop. That’s because Chinese demand determines the prices of world commodities, and the operations of multinational companies in China impact earnings. When the yuan falls, markets across the world get jittery. China watchers accept the fact that official Chinese data is severely flawed, and often simply fabricated, yet they still use it to analyze the Chinese economy and markets because there are few alternatives. One alternative, however, is the China Beige Book International (CBB), a research service that interviews thousands of companies and hundreds of bankers on the ground in China each quarter. They collect data and perform in-depth interviews with Chinese executives.
keep reading
November 22, 2017
Will Chinese Commodities Derail The Global Reflation Trade?
[Leland Miller and Derek Scissors on why investor excitement over Chinese capacity cuts this winter is oversold, and the serious implications for the global reflation trade.] For over a year, commodities bulls have feasted on China. In the aftermath of the recent Communist Party Congress, many investors are now drooling over the prospect the boom will continue, based on Beijing’s promises to supercharge its campaigns against overcapacity and pollution this winter. If such pledges are fulfilled, the thinking goes, substantial chunks of steel, aluminum, and other refining capacity will be taken offline, rebalancing markets and providing rocket fuel to already frothy prices. 2018 could prove to be an even more amped-up version of 2017.
keep reading
November 8, 2017
Novel Data on China's Auto Loans - An Inefficient Market
The continued growth of China’s auto sales has relied increasingly on consumer credit, according to the WSJ; but, granular data is hard to come by. So, we created a process to collect, clean, and structure data from online auto loan offerings. Our findings imply that the auto loan market, like many credit markets in China, runs on two parallel tracks, and is woefully inefficient.
keep reading
October 19, 2017
'Inside China’s quest to become the global leader in AI'
'The RMB did not like the trade data at all, and it weakened immediately - over 1% today.' 'Overnight, the world has moved a little bit away from its U.S.-centric obsession about equity volatility in the United States and around the world to what's going on in China,' says Bob Savage, CEO of TRACK and member of the soon-to-be-launched China Analyst Network.
keep reading
October 11, 2017
Novel Data on China's Mortgage Loans
China’s banks are directed by the state, without irony, to “vigorously promote reasonable home ownership.” Their most recent annual reports repeatedly bury in the notes this line, or some variant of it, as an explanation for the explosion of mortgage lending over the previous 12 months. Granular mortgage data however, is hard to come by – so we created a process to collect, clean, and interpret that information.
keep reading
September 12, 2017
China’s property market risks are rising, says data expert
Price trends in China’s housing market are unsustainable, according to Real Estate Foresight chief executive Robert Ciemniak who worries that excessive leverage among homeowners could lead to a crisis. Real Estate Foresight founder and chief executive Robert Ciemniak has made it his business to gather and interpret real time data on China’s residential property market. He gives his thoughts on what’s to come in China’s housing market.
keep reading
September 1, 2017
The father of business consulting in China knows why eBay failed there
In the early 1990s, when China was still struggling to shrug off the straightjacket of its planned economy, the man appointed to lead the first business consulting firm allowed in the nation was immediately confronted with the scope of the challenge ahead.
keep reading
August 30, 2017
Is china prematurely declaring victory in its reforms?
At the heart of China's economic take-off during the last four decades is a fragile equilibrium between economic reforms and one­ party rule. The communist party has demonstrated pragmatism and adaptability - but just at a time when China seeks to fully enter the knowledge economy and participate in global markets, it has put the brake on further reforms.
keep reading
August 29, 2017
China's unsolved liquidity risk
The question we should ask ourselves is, how many of China’s corporate borrowers are paying off existing debt with new debt?
keep reading
August 22, 2017
Predicting Chinese stock returns
[The Largest Single—Factor Study of China’s Stock Markets] Outside observers paint China’s stock markets as a casino, where picking stocks requires as much skill as roulette, and investors avoid the country in their portfolio allocations. Patterns exist, however, if you know where to look.
keep reading
August 2, 2017
Leland Miller on Pressing China Issues
Leland Miller, the founder of China Beige Book, spoke with The Epoch Times about which investors and companies are interested in China, the latest developments in the currency, U.S.-China relations, overcapacity problems, and the One Belt One Road Initiative. : The Chinese economy is strange in many ways. Not only is it a hybrid between private capital and state control, but very few people directly invest in the mainland — and yet everybody is interested in how the second largest economy in the world is going to develop. That’s because Chinese demand determines the prices of world commodities, and the operations of multinational companies in China impact earnings. When the yuan falls, markets across the world get jittery. China watchers accept the fact that official Chinese data is severely flawed, and often simply fabricated, yet they still use it to analyze the Chinese economy and markets because there are few alternatives. One alternative, however, is the China Beige Book International (CBB), a research service that interviews thousands of companies and hundreds of bankers on the ground in China each quarter. They collect data and perform in-depth interviews with Chinese executives.
keep reading
July 19, 2017
China Cause America's Trade Problems?
[Malcolm Riddell's conversation with Yukon Huang] 'America's trade problems are not the consequence of China's policies.'
keep reading
July 19, 2017
Siri: 'Can The iPhone Prove President Trump's Wrong About U.S.-China Trade?'
[Malcolm Riddell's conversation with Yukon Huang] 'America's trade problems are not the consequence of China's policies.' 'How much of that $650 iPhone - which adds to China's trade surplus with the U.S. - actually originates and stays in China? — Only $25.'
keep reading
July 2, 2017
China Doesn’t Have A Real Estate Bubble.
Prices spike in a city. The government puts the screws on the market, and prices go down. Investment then switches to a city with lax policies. Housing prices spike; regulations tighten; prices go down. Investors move on. And so on, and so on.
keep reading
June 28, 2017
Will 'One Belt, One Road' Tank China's Economy?
'My fear is that Xi will see this initiative as an alternative to economic reform.'— Pieter Bottelier : But, the biggest threat in the near term is that Xi Jinping will see OBOR as an alternative to completing the economic reforms promised - but not delivered - in 2013's Third Plenum.
keep reading
June 21, 2017
China's stock markets—are there any patterns?
'I find evidence for dramatic size and momentum effects; that is, small stocks and recent winners are the top performers in China’s stock market. Additionally, I find that high-beta stocks modestly underperform low-beta stocks.'
keep reading
June 7, 2017
China's higher rates don't matter, yet
In fact, high yields still haven’t filtered down to borrowers. Using industrial enterprise economic indicators data, I estimated the actual interest rate paid by Chinese borrowers. Over the past six months – as corporate bond yields, SHIBOR, and WMP yields all rose dramatically – the actual interest paid by China’s industrial enterprises fell to an all-time low.
keep reading
May 29, 2017
Why A Trump–Kim Jeong Eun Summit Could Work
[Malcolm Riddell's conversation with Bill Overholt] 'If it would be appropriate for me to meet with him [Kim Jong-un], I would absolutely. I would be honored to do it.' — President Trump — May 2017:'What President Trump has done is to signal we are willing to move away from this formula that the North Koreans have to give up everything in their nuclear program before negotiations - only then we'll talk with them. I admire our U.S. negotiators, but that formula is simply absurd.'
keep reading
May 17, 2017
A new framework for china's debt problem
In fact, high yields still haven’t filtered down to borrowers. Using industrial enterprise economic indicators data, I estimated the actual interest rate paid by Chinese borrowers. Over the past six months – as corporate bond yields, SHIBOR, and WMP yields all rose dramatically – the actual interest paid by China’s industrial enterprises fell to an all-time low.
keep reading
May 3, 2017
An inflection point in china's systemic risk
Additionally, given the incentives of regulated institutions everywhere, it is likely that risks have simply begun to migrate to new and more opaque parts of the balance sheet. As China watchers, we should prepare for yet another game of financial risk whack-a-mole.
keep reading
April 26, 2017
Clearing up a few misconceptions on China's capital flight
Last year, I debunked a popular measure of trade misinvoicing as the culprit for China’s capital outflows. Today, let’s scrutinize two other misconceptions bouncing around the China commentator echo chamber.
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.