2017-08-17

More Logic of Strategy

American Prospect: Steve Bannon, Unrepentant
Far from dressing me down for comparing Trump to Kim, he began, “It’s a great honor to finally track you down. I’ve followed your writing for years and I think you and I are in the same boat when it comes to China. You absolutely nailed it.”

“We’re at economic war with China,” he added. “It’s in all their literature. They’re not shy about saying what they’re doing. One of us is going to be a hegemon in 25 or 30 years and it’s gonna be them if we go down this path. On Korea, they’re just tapping us along. It’s just a sideshow.”

Bannon said he might consider a deal in which China got North Korea to freeze its nuclear buildup with verifiable inspections and the United States removed its troops from the peninsula, but such a deal seemed remote. Given that China is not likely to do much more on North Korea, and that the logic of mutually assured destruction was its own source of restraint, Bannon saw no reason not to proceed with tough trade sanctions against China.

Contrary to Trump’s threat of fire and fury, Bannon said: “There’s no military solution [to North Korea’s nuclear threats], forget it. Until somebody solves the part of the equation that shows me that ten million people in Seoul don’t die in the first 30 minutes from conventional weapons, I don’t know what you’re talking about, there’s no military solution here, they got us.” Bannon went on to describe his battle inside the administration to take a harder line on China trade, and not to fall into a trap of wishful thinking in which complaints against China’s trade practices now had to take a backseat to the hope that China, as honest broker, would help restrain Kim.

“To me,” Bannon said, “the economic war with China is everything. And we have to be maniacally focused on that. If we continue to lose it, we're five years away, I think, ten years at the most, of hitting an inflection point from which we'll never be able to recover.”

Bannon’s plan of attack includes: a complaint under Section 301 of the 1974 Trade Act against Chinese coercion of technology transfers from American corporations doing business there, and follow-up complaints against steel and aluminum dumping. “We’re going to run the tables on these guys. We’ve come to the conclusion that they’re in an economic war and they’re crushing us.”

But what about his internal adversaries, at the departments of State and Defense, who think the United States can enlist Beijing’s aid on the North Korean standoff, and at Treasury and the National Economic Council who don’t want to mess with the trading system?

“Oh, they’re wetting themselves,” he said, explaining that the Section 301 complaint, which was put on hold when the war of threats with North Korea broke out, was shelved only temporarily, and will be revived in three weeks. As for other cabinet departments, Bannon has big plans to marginalize their influence.

“I’m changing out people at East Asian Defense; I’m getting hawks in. I’m getting Susan Thornton [acting head of East Asian and Pacific Affairs] out at State.”

But can Bannon really win that fight internally?

“That’s a fight I fight every day here,” he said. “We’re still fighting. There’s Treasury and [National Economic Council chair] Gary Cohn and Goldman Sachs lobbying.”

“We gotta do this. The president’s default position is to do it, but the apparatus is going crazy. Don’t get me wrong. It’s like, every day.”
More than three years ago I wrote The Logic of Strategy: Yuan Devaluation and the Road to Trade War
The protectionists are ever so slowly gaining the upper hand thanks in part to negative social mood. 2008-2009 will probably mark the peak moment for Wall Street and the Treasury Department, even though there is as yet no sign of it in Washington. Changes can be seen in the form of issues such as immigration, which has turned the grassroots of the conservative movement against the Chamber of Commerce and large corporations (due to an attack initiated by the latter against the former). This has pushed the Overton window of acceptable debate among conservatives who can now take shots at big business. There is also the growing libertarian faction pulled together by Ron Paul that supports his son, Rand Paul, that consistently attacks the Federal Reserve and Wall Street. Put it together and it is not hard to envision an anti-Wall Street, pro-manufacturing political consensus emerging. This will cut across party lines, with manufacturing unions pulling in Democratic support if there are specific bills to vote on.
I also wrote:
Whichever path is chosen, the economic and geostrategic paths will line up. An economic crisis in China will add the economic component to the emerging geostrategic China policy. A geostrategic decision to confront China economically would set in motion an economic crisis that would propel the strategy forward since China would respond in kind.
Escalating tensions over North Korea is one way to increase support for Chinese sanctions.

2017-08-15

M2 Falls in July

M2 fell 0.14 percent in July, reducing the 12-month growth rate to 9.2 percent.

The 3-month annualized rate of M2 growth rose to 8.4 percent. The downtrend is clear.

Reuters: China's July new loans fall to 8-month low as curbs bite
"This shows that banks are giving more support to the real economy as loans go back to the normal channel - in line with the direction of financial regulations", said Wen Bin, senior analyst at Minsheng Bank in Beijing.

July lending is traditionally weak but last month's level was still 49 billion yuan higher than the average of July figures between 2014 and 2016, according to Reuters calculations based on central bank data.

Broad M2 money supply (M2) in July grew 9.2 percent from a year earlier - the slowest since records began in 1996, central bank data showed, missing forecasts for an expansion of 9.4 percent and compared with June's 9.4 percent.

China's central bank has said that the slowing M2 growth could be a "new normal" due to the stepped-up crackdown on risky shadow lending activities.

Household loans, mostly mortgages, fell to 561.6 billion yuan in July from 738.4 billion yuan in June, according to Reuters calculations based on the central bank's data.

Household loans accounted for 68 percent of total new loans last month, up from 48 percent in June.
An improvement from last year's more than 100 percent.

2017-08-14

Want a Mortgage? Prepare to Wait

iFeng: 房贷额度紧张排队放款蔓延至全国 利率未集中调整
21st century economic reporter Reporters also found that the recent tight line lending has been gradually spread from the purchase of the city to the country, and waiting time is also getting longer.

...In addition to interest rates go up, the number of banks loan account managers for the 21st century Business Herald reporter said that the loan queuing time the basic needs of more than three months. China Merchants Bank, a branch account manager, told reporters that the current situation to see if the formalities are now ready to start by the end do not necessarily get loans.
The loan process can take up to four months at some banks. It will go a little quicker if the borrower accepts a higher interest rate.
"I have paid a deposit of 1 million, can not get a loan if before the end, which one million will be spoiled. In order to be able to get loans on time, I intend to take the initiative to floating interest rates, as soon as possible to get a loan." A home buyers Wei Ms. told reporters in the 21st century Business Herald.

FAI Breakdown

SOEs still propping up fixed asset investment. Private investment growth in the industrial sector slowed sharply to 1.9 percent in July.

Private Fixed Asset Investment Slows to 5.2pc in July

Private FAI growth was 6.9 percent YTD in July, down from 7.2 percent in June. July growth was 5.2 percent.

Fixed Asset Investment Slows to 6.7pc in July

Fixed asset investment up 8.3 percent YTD down from 8.6 percent in June. FAI increased 6.7 percent in July.

Real Estate Investment Slows to 4.8pc Growth in July

Real estate investment growth 7.9 percent YTD in July, down from 8.5 percent in June. One month growth was 4.8 percent.