2019-05-22

Residential Land Sales at New All-Time High

Residential land sales in the top 100 cities are at a new all-time high through May 19.
iFeng: 年内住宅用地成交近万亿元创新高 三线城市罕见下滑
Sougou: During the year, residential land transactions reached a record high of nearly 1 trillion yuan, with rare decline in third-tier cities.
In terms of transactions, the total number of residential buildings in 100 large and medium-sized cities reached 1,442, with an area of 76.369 million square meters, down 6.3% and 7.59% respectively from the same period last year. Despite the decline in the number and area of transactions, the cumulative transaction amount increased by 9.52% year on year to 961.737 billion yuan, a record high for the same period.

It is worth noting that although the accumulated transaction amount rose 9.52% against the trend, the increase was the lowest since 2016. Under the keynote of "no speculation in housing", "stable land price, stable house price and stable expectation", the policy effect of city policy is gradually showing.
Prime land is being exhausted in major cities, but land premiums are making up the difference:
At the same time, the soil auction premium rate also showed a bottom-up trend. In March, the average premium rate for residential land in 300 cities was 23.6%, up 2.6 percentage points year on year and 13 percentage points month on month. The premium rate rose further in April.

"The competition in the real estate industry is getting more and more fierce. Under the industry pattern of the strong becoming stronger and the weak becoming weaker, some large-scale housing enterprises are strongly willing to short-term replenish their positions. However, the relatively loose financing environment since the beginning of the year has eased the pressure on housing enterprises' funds to some extent, which has also created conditions for them to actively seize land." Yan Yuejin, research director of the think tank center of Yi Ju Research Institute, told the reporter of national business daily, "After the Spring Festival, the real estate market showed signs of partial recovery and led to better market expectations, which also led to the housing enterprises' concentrated land grabbing in some cities."
Prior land price surges have been a leading indicator for home prices.

2019-05-21

Huawei Isn't Run By Fools

Can't say the same for companies that are shocked and unprepared for a trade war, or the U.S. government which failed to secure alternative rare earth supplies even after China used them in a trade dispute with Japan.

Caixin: Blame U.S. Politicians, Not Companies, Huawei Founder Says, Dismissing Blind Nationalism
“It is wrong to say that purchasing Huawei’s products equals being patriotic … don’t link that with politics,” said Ren Zhengfei in a group interview in Shenzhen on Monday with multiple Chinese media, including Caixin. “At Huawei, we won’t resort to nationalism and populism, because that is harmful to our country,” he said.

Ren said the measure had “little meaning” to Huawei, and his company had anticipated future conflict with the U.S. and the company had been working on a backup plan to develop its own chips for many years. He said Huawei had long prepared for clashes with the U.S.

“We have sacrificed individuals and families only for the goal to stand at the top of the world,” Ren said, adding that with such a goal, conflict with the U.S. was “inevitable.”
The market is reacting to trade news now, but it hasn't accepted that the horse has left the barn. China will accelerate its homegrown technology now. Stock buybacks are coming to an end, capital investment and research is about to get a lot more expensive as labor costs soar and national security concerns start dominating decision making.

Trade War Makes New Winners and Losers

Caixin: Tariffs ‘Catastrophic,’ Footwear Giants Tell Trump
Nike Inc., Adidas AG and other footwear giants urged U.S. President Donald Trump to reconsider his tariffs on shoes made in China, saying the policy would be “catastrophic for our consumers, our companies and the American economy as a whole.”
If shoe prices go up and people are inelastic in their shoe demand, the higher price boosts retail sales in the U.S. If some shoe production moves back to the U.S., GDP gets a boost. If consumers don't buy as many shoes and consume other American made goods and services, the economy gets a boost. If instead they buy shoes from Vietnam, there's no major impact on the U.S. economy.

There are winners and losers in the trade war, as there were losers and winners from the expansion of trade. Globalization is in retreat, the future is trade blocs and/or increased local production. This letter from the shoe companies is akin to a strike by American steelworkers or autoworkers in the 1970s.

Interest Rate Reform Takes a Step Forward

Caixin: Central Bank Reveals First Step to Unifying Benchmark, Market Rates
China’s interest rate liberalization is now focused on unifying the “two tracks” of lending rates, the People’s Bank of China (PBOC) said Friday in its latest quarterly report.

The report’s release marks the first time that the central bank has signaled how it will unify the two tracks — one is benchmark rates set by the bank, while the other refers to the ones chiefly set by the market. The PBOC looks likely to first try to merge lending rates instead of deposit rates.

Although benchmark rates are reference rates that are no longer compulsory, they continue to loom large in the minds of bankers and borrowers. Combining benchmark and market-based lending interest rates allows commercial banks to price loans on their own, with lower rates for lower-risk companies and vice versa. This can help enhance market competition, the PBOC said in the report (link in Chinese).

The merging of interest rates sits at the core of China’s interest rate liberalization, which in turn is one of the key reforms to the country’s financial sector.
It's a good bet that banks won't set loan rates based on risk until after the next financial system reset.

Rare Earths Again

VanEck Rare Earth (REMX) has a chunk of China exposure, naturally. The companies best positioned to profit from an export ban or export quotas are Western companies that will sell into the global spot market. LYSCF is high risk here, the potential downside move equals the upside, risk is a move down to $1.00 or up to $2 resistance. If it were to climb back to $2.00, another breakout becomes possible.

You may also want to look into REMX's holdings if capital starts flowing into REMX. The fund is relatively concentrated because this is a small space. REMX is a big funnel for moving cash into relatively small stocks. REMX has $140 million under management, but top holdings around 5 percent of assets are in the range of $1 to $3 billion market caps. I don't think there's a lot of upside outside of a China trade war though, at least not in the short-term.

Lynas spiked on Monday because Australia's Lynas, Blue Line plan Texas rare earths facility
Rare earths producer Lynas Corp said on Monday it has signed a memorandum of understanding with Texas-based Blue Line Corp to set up a rare earths separation facility in the United States.

The move comes as the United States, which is highly reliant on the world's biggest producer China for rare earths, is prioritising the sourcing of its own strategic minerals used in everything from consumer electronics to military equipment.

The deal has been struck as Lynas faces regulatory issues at its processing plant in Malaysia, and fends off a $1.1 billion takeover offer from Australian retail-to-chemicals conglomerate Wesfarmers Ltd

Chief executive officer Amanda Lacaze told Reuters in a phone interview that the U.S. venture was a specific market opportunity and would complement its operations in Malaysia.

The venture would allow Lynas to close a "critical" supply chain gap for U.S. manufacturers.

2019-05-20

China and US Still Finger pointing on Trade Talks

iFeng: 特朗普指责中方破坏“协议”?外交部:美方又想混淆视听转嫁责任
Sogou: Trump Accuses China of Breaking the "Agreement"? Ministry of Foreign Affairs: U.S. Again Wants to Confuse and Pass on Responsibility
On May 20, Foreign Ministry Spokesperson Lu Kang held a regular press conference.

Q: It is reported that US President Trump said on the 17th that the US and China actually have an agreement, but China has broken it. What is China's comment on this?

A: I don't know what the United States means by "agreement". The U.S. side may have always had an "agreement" of its own wishful thinking, but it is certainly not an agreement that China has agreed to.

The 11 rounds of economic and trade negotiations between China and the United States failed to reach an agreement. The fundamental reason is that the United States is trying to realize unreasonable interests through extreme pressure. This did not work from the beginning. Under the circumstances that the blackmail failed and caused widespread doubts and market turmoil in the United States and abroad, the United States tried to confuse the public and shift the responsibility, which was also futile. The sincerity and constructive attitude shown by China in the past 11 rounds of negotiations are obvious to the international community.

I would like to reiterate once again that Sino-US economic and trade negotiations can only succeed if they follow the correct track of mutual respect, equality and mutual benefit.

The 2019 Pivot in Asia and Freegold Too

Last year I posted 2018: The Pivot Year and Dollar Breaks Again. I also did similar posts around 2015 or 2016. The posts were based mainly on technical analysis, with charts indicating a possible shift in market direction. Commodity charts and commodity producing countries had inverted head & shoulders patterns completing back in 2016. Last year and this year, there are false breakouts that reversed. Last year, I stuck with my macro position on dollar strength despite some dollar weakness and chart breakouts and it was the correct one.

Right now, the number one chart is still the U.S. Dollar Index, but for now the most important "subchart" is the offshore yuan, USDCNH. The PBoC chief drew another redline at 7.00. 人民币会“破7”吗?刚刚,央行副行长给了颗定心丸! For myself, a move through 7 to 7.25 or 7.50 is fine if it is driven by the U.S. dollar. If DXY is above 100 or at 105, USDCNY 7.25 signals nothing more than dollar fluctuation. Yet the PBoC has boxed itself in with a narrative here. The risk isn't that CNY goes through 7 as much as the "ominpotent PBoC" "they have reserves and can force the market whichever way they want" narrative dies.
iShares MSCI Emerging Markets (EEM). The red horizontal is from the 2011 top, the blue from 2007. Prices are $40.01 currently and $39.72. A break below these levels could invalidate the 2017 breakout. Support is down near $34 if it breaks. EEM is trading at $40.11 in pre-market on Monday.
Trade is the big story and South Korea is an economy that lives and dies by global trade. ROK's trade surplus was 8 percent of GDP in 2017, exports and imports combined for 70 percent of GDP. The target for USDKRW, if that's a completed H&S pattern, is 1250. If USDKRW makes it there though, it's likely there's breakdowns elsewhere, such as USDCNH. As for the iShares MSCI South Korea ETF (EWY), it has a failed breakout, major support around $45. EWY is below its 2018 low.
Below are several Southeast Asian ETFs. Indonesia (EIDO) is close to have a major test of support.
For "corroboration" here's the S&P 500 Index. The blue line is the trendline from the 2009 Satanic low of 666. It must recapture 2895.
Finally, here's the ratio of GLD to SLV, and GDX to SIL.
I won't rehash the topic here, but in quick and simple terms, freegold is the "freeing" of gold away from a medium of exchange and into more of a monetary asset, mainly a reserve asset that might be likened to Bitcoin's role in the cryptocurrency ecosystem (if transaction speeds never pick up). Gold is money as they say, whereas even silver has substantial industrial demand. The exchange rate for money/currency can be set an any amount. The dollar can equal 100 yen or 1,000,000 yen, and the economies adjust around that exchange rate. Obviously a transition from 100 to 1 million between dollar and yen would wreck the Japanese economy, but the initial exchange rate doesn't matter. Had they set it in the millions, we'd all be saying USDJPY 1 million. The same is almost true of gold (it does have some industrial users that will be upset by a soaring gold price) because it is money. Moreover, if all fiat currencies crash versus gold, the economy suffers a less disruptive adjustment because relative prices and exchange rates won't be as directly impacted they way they would if a similar collapse took place against oil or agriculture. USDJPY is 100 and gold is $1300 an ounce and USDJPY might be 120 if gold is $5000 an ounce. Finally, soaring gold valuations life central bank reserves, shrinking their debt levels and allowing them to restart the credit system.

In practice, freegold will be visible in the price of gold breaking away from silver, other precious metals and all commodities. The gold/silver ratio
Since this chart is about pivots, this might also be a great time to be buying silver. It might be a great time to buy emerging markets if you think the dollar is peaking. Both the silver and EM trade should be powered by global inflationary forces. Or maybe the larger trend is still in place, but it's time for a short-term trend reversal. If instead there's a breakdown in emerging markets and gold takes on greater monetary status, it is likely deflation is out of control again. Currency volatility will take off. For myself, I'm still leaning towards a higher U.S. dollar and trouble ahead.

2019-05-18

Another Election Shock in Australia, Brexit Party Surges in Westminster Poll

Labor was expected to win, but instead the Liberals have hung on to a divided government.

AFR: The ultimate election guide
There is no overriding national mood for change but nor is there a strong appetite for the status quo, leaving it a seat-by-seat race with local issues, sentiment and candidates playing a critical role. Labor has long been ahead in opinion polls but the race has tightened.
The division is clearest in the Senate.

AFR: Election 2019: Coalition vote surges, Labor cannot form government
The new Senate

Political Editor Phil Coorey says the Senate count, while not final, looks like:

34 LNP Senators,
27 Labor,
nine Greens,
two One Nation,
two Centre Alliance
Jacqui Lambie and Cory Bernardi.

The government needs five extra votes to secure the 39 votes needed to secure its tax cuts and other legislation.
Note that if Labor shifted on immigration, it might have enough votes to take the Senate. Something to think about moving forward given Denmark's shift. In many countries there is dividend government because the two main parties/coalitions refuse to budge on issues that have rising support with the public, which leads to not only surprise elections, but surprise governments.

AFR: The biggest losers in a shock election result
This year's election has produced plenty of big losers: Bill Shorten, Tony Abbott, Clive Palmer, SportsBet.

But one of the biggest will be opinion pollsters. All the major media polls including The Australian Financial Review's Ipsos, Newspoll and Nine's election day exit poll all put Labor's two-party preferred lead at 51-52 per cent.

...However, there is one aspect where the polling was accurate, and that was Shorten's personal unpopularity.

Many in Labor will be asking the "what if" question that if they had a more popular leader - namely Anthony Albanese - as the front man would they find themselves in power?
Meanwhile over in the UK, no surprise that the Brexit Party is expected to win big in the European elections.

Metro UK: Brexit Party favourite to win votes in European elections, says poll
Nigel Farage’s party has doubled its support in the last fortnight – now in first place – and is now on track to get 34 per cent of the votes in this month’s elections. The latest Opinium poll shows Labour come in second place with 21 per cent of votes, falling seven points in the last two weeks, while the Tories lag behind in fourth place with 11 per cent. The Lib Dems are in third position with 12 per cent, having risen five points.
This is no surprise as UKIP pulled off surprise wins in European and local elections previously. What is surprising is the Brexit Party's polling for the next British national election (Westminster voting intentions).

BMG Research: BMG’s European Parliament and Westminster Voting Intention Results: May 2019
The poll shows that the Labour Party are in the lead for the first time since 2018, with a vote share of 30%. This a drop of 4% from April, and has then 3 percentage points above the Conservatives. The Conservative party have a predicted vote share of 27%, recording a reduction of 7% from last month.

Following on from a positive performance in the local elections, the Liberal Democrats predicted vote share is up 7 percentage points from last month on 18%. The Brexit Party enter BMG’s Westminster tracker with a vote share of 10%. Change UK and UKIP find themselves with just 3% of the vote share each.
Brexit Party polled at 6 percent in the April poll.

Britain Elects: How are the polls looking?
I suspect Brexit Party support is closer to 10 percent than 20 percent. Upstart and outsider parties have often under performed their polling, and there's no reason to think Brexit Party won't also follow that pattern, until it doesn't. Additionally, if the UK ever gets around to leaving the EU, support for the Brexit Party could vanish if it doesn't disband itself, as seems likely. Still, in the near term, a big Brexit Party win in European elections will give their leadership a platform and a loud voice in ongoing Brexit negotiations and debates.The potential for a surge into competition with Labor and Tories is not out of the question. If you remember your recent history and not the media narrative, UKIP started on the issue of an EU membership referendum and shifted to immigration after talking with voters. If the Brexit Party takes an entrepreneurial approach to the next national election, it might find one or two other ignored topics that will attract enough support to push it into the next government or make it the main opposition to another Tory-Labour coalition.

Chinese Hoarding Dollars Again

21st Century: 境内外人民币汇率双双创年内新低 跨境汇差套利交易再度活跃
Sogou: Both domestic and overseas RMB exchange rates hit a new low in the year, and cross-border arbitrage trading resumed
While the Sino-US trade friction has not yet been eliminated, the sudden rise of the US dollar has once again put new downward pressure on the RMB exchange rate.
In my opinion, there is very little evidence of trade friction in the markets right now. Maybe I'm wrong and the S&P 500 should be near 3200, with talk of Dow 30,000 picking up, and current prices are the result of trade friction. My sense is many people still believe a deal is coming, they believe Trump will not risk economic pain or stock market declines. On the other side of the ledger, I continue to expect this cycle will end with currency devaluation across the world, including or set off by the Chinese yuan, ending with DXY at a two- or three-decade high. Going back to the Logic of Strategy post, I expected an economic crisis in China would trigger trade friction, not vice versa.
In his view, this does not mean that the RMB exchange rate will quickly approach the "7" integer mark. The reason for this is that unlike last September's escalation of Sino-US trade friction, when the offshore one-year RMB exchange rate was expected to fall by more than 1,000 basis points, the current offshore one-year RMB exchange rate is expected to fall by only 500 basis points, which indicates that most overseas investment institutions believe that the pressure of the Central Bank of China to intervene in the foreign exchange market will make it difficult for the RMB exchange rate to effectively fall below the "7" integer mark in the future.

"This is very helpful to solve the problem of clearing the foreign exchange market. As long as the RMB can hold the 7-integer mark, the arbitrage of hoarding USD by many enterprises will gradually ebb, indirectly supporting the momentum of stabilizing the RMB exchange rate. " A head of the financial market department of a joint-stock bank admitted frankly to the reporter.

..."More importantly, good economic data in the United States has led hedge funds to sharply lower the Fed's expectation of cutting interest rates this year, thus strengthening the US dollar short covering." A U.S. hedge fund manager told reporters, "hedge fund's move is definitely not good for stabilizing the RMB exchange rate-the RMB exchange rate both at home and abroad showed a rapid decline on the 17th due to the impact of the jump in the U.S. dollar index."
This type of thinking is exactly why I worry about USDCNH going through 7.00. Many believe it won't despite understanding that the U.S. Dollar is driving the market. You can be near certain a break of 7 will not happen if you are certain the U.S. Dollar has no more than 2 percent upside left. Otherwise, uncertainty is high.

Additionally, it's important to keep in mind how CNY and CNH work with each other. In simple terms, the PBoC can set CNY where it wants and force the domestic market to buy and sell at this price. There are limits of course, they can't go too far above or below without risking major distortions or black markets, but if there was no CNH they would have far more power to set the exchange rate.

CNH introduces a new variable. When CNH is above CNY (the offshore yuan is stronger than onshore), it indicates capital flowing into China and into the yuan. If you're in Mainland China, you bring your foreign currency into China because you can buy yuan cheaper than in Hong Kong. Arbitrageurs will bring FX into China, buy CNY, and sell CNH in Hong Kong.

When CNH falls below CNY, it creates a bigger headache for the PBoC. First there is the reverse arbitrage, buy USD with CNY in China, then buy CNH in Hong Kong. Instead of having unlimited CNY to stop appreciation, there is limited reseves with which to defend the currency. Additionally, exporters can divert their capital from Mainland China. Instead of bringing capital home, they exchange it for CNH overseas or they leave foreign exchange in foreign banks hoping for even better prices in the future. Since capital controls are tight on the Mainland, falling CNH and rising depreciation expectations will divert capital away from China. Capital controls can also be avoided with cryptocurrency or through more expensive methods such as real and fake exports.
At present, foreign trade enterprises and overseas investment institutions are mainly involved in domestic foreign exchange arbitrage. They mainly use the name of cross-border trade settlement to purchase foreign exchange according to the domestic exchange rate to pay cross-border trade payments to affiliated enterprises, which will then take the US dollar position to the overseas offshore market for foreign exchange settlement for more RMB. After deducting relevant transaction costs, the risk-free foreign exchange earnings generated by the cross-border foreign exchange arbitrage exchange since last week exceed 1 percentage point.

At the same time, the cross-border arbitrage of foreign exchange difference has led to a sudden increase in domestic demand for foreign exchange, which has virtually put more downward pressure on the RMB exchange rate in the onshore market.

At present, he is most worried about the reactivation of cross-border arbitrage, which will lead to the offshore exchange rate "dominating" the current RMB exchange rate trend. If overseas speculative capital seizes this opportunity to "artificially" expand the range of domestic foreign exchange differentials by significantly depressing the offshore RMB exchange rate and stimulate the continuous fermentation of domestic foreign exchange differential arbitrage transactions, it may drag the RMB exchange rate close to the "7" integer mark in the short term.

"To reverse this situation, the relevant departments should not only take targeted intervention measures to reduce the foreign exchange gap in China at the necessary moment, but also choose the right time to intimidate speculative capital and prevent speculative short selling from continuing to ferment." This Hong Kong bank foreign exchange trader believes that.
The PBoC will wait for the right moment to burn the shorts, to get the biggest bang for their bucks.
Enterprises hoard U.S. dollars
With the RMB exchange rate falling below the 6.9 integer mark, more and more companies are hoarding USD positions for arbitrage.

The chief financial officer of a large domestic foreign trade enterprise disclosed to reporters that compared with the same period last year, the enterprise has retained more than 6 million US dollars in position, because the head of the enterprise thinks that the Sino-US trade friction may cause the RMB exchange rate to break "7" in the short term, and then the enterprise can exchange foreign exchange and exchange more RMB.

"Since this week, quite a few foreign trade enterprises have taken similar actions." The head of the financial market department of the above-mentioned joint-stock bank pointed out to the reporter. The reason why foreign trade enterprises hoard dollar positions is not necessarily to bet on the decline of the RMB exchange rate to take more RMB, but also to consider "preparing for a rainy day" for future foreign payment of USD-if the RMB exchange rate continues to fall, these enterprises have to reserve dollar positions in advance to reduce exchange risks, and also have to take into account the tightening of cross-border capital flow supervision measures, resulting in enterprises unable to pay USD on time.

In his view, this has led to a resurgence of the problem of clearing the foreign exchange market. In particular, when the demand for foreign exchange settlement in the market continues to fall below the demand for foreign exchange purchase due to the recent hoarding of US dollars by enterprises, the RMB exchange rate has again shown an inertial downward trend due to its inability to digest the "foreign exchange purchase order".

Andy Wester revealed that as long as the RMB exchange rate fell below the 6.9 integer mark in the past three years, the problem of clearing the foreign exchange market would follow one after another, causing the RMB exchange rate to drop rapidly to around 6.97-6.98 in the short term. This time, some speculative capital did not rule out taking this as a warning and took the short selling method of betting on the rapid decline of RMB to "draw chestnut from fire".

"The most effective way to solve the current problem of clearing the foreign exchange market is for the Central Bank of China to directly intervene in the foreign exchange market, breaking the expectation that enterprises and speculative capital are betting on the RMB to break 7. As a result, if companies fail to hoard U.S. dollars for arbitrage, they will turn to quickly settle and stop losses when the RMB exchange rate rebounds, and the relationship between supply and demand in the foreign exchange market will also tend to be balanced and stable, thus laying a firmer foundation for the stabilization of the RMB exchange rate. " The head of the financial market department of the above-mentioned joint-stock bank believes that.
The PBoC has two problems in defending the yuan. One is that it cannot control EURUSD, USDJPY, USDAUD, etc. Thanks to dedollarization efforts, a dollar bull market can chip away at those reserves indirectly. Second, USDCNY 7.00 has become a thing and it is less than 1 percent away. If the dollar is rising and speculators want to press their bets, the PBoC will have to spend.

Maybe concerns are overblown again. Maybe the U.S. dollar is peaking or has peaked. Maybe a trade deal is coming. If not, could be a lot of surprised people saying:




2019-05-17

Chinese Demand Fruit Freedom as Prices Soar

Caixin: Fruit Prices Spike in China on ‘Extreme Weather’
“I spent two-thirds of the money I made today on these,” an internet user wrote online while posting a photo of a handful of strawberries and cherries that she had bought. “When can I have fruit freedom?”

The phrase “fruit freedom” — or the ability to buy as much fruit as one wants — became a buzzword in China’s online lexicon following a surge in fruit prices over the last month or so.

China to US: You Didn't Build This

This article is both true and completely misses the point. American workers were sold out by the American establishment, which is why although he doesn't say it as much these days, President Trump frequently calls the previous American leadership stupid. Saying the USA built China is a nationalist statement, it is a condemnation of America's political, financial and corporate establishment. China needs better America hands and fast. The corrupt and selfish establishment is quickly dumping Russia as enemy number one and pivoting to China as America converges on an anti-China narrative after Russiagate laid the groundwork for unrestrained jingoism.

iFeng: 从来就没有什么救世主(钟声) ——“美国重建中国论”可以休矣
Sogou: There has never been a savior (bell)-the "American theory of rebuilding China" can be stopped.
CGTN: Some Americans should get rid of savior complex
China's rapid development has been hailed by the international community as a “miracle of China.” However, some senior American officials have claimed that it was the U.S. that “rebuilt” China over the past 25 years. The claims make no sense at all.

According to some Americans, China's success derived from the state manipulation of the country's exchange rate and the consequent trade imbalance between China and the U.S. They claimed that “the U.S. has run a huge deficit with China over the past two decades and gifted China an immense amount of wealth” and thus came to the conclusion that China's success was largely built on the investment of the U.S. in China and they totally ignored the hard work of the Chinese people over the decades.

The idea of “rebuilding China” reveals the deep-rooted “savior complex” of some Americans.

The trade deficit between the U.S. and China emerged because of the comparative strengths of the two countries and the international division of labor. China has been conducting its foreign trade in compliance with market rules and in a fair manner. Stephen Roach, former chairman of Morgan Stanley Asia and senior fellow at Yale University's Jackson Institute for Global Affairs, pointed out that the U.S. runs trade deficits with 102 countries in the world. So has the U.S. "rebuilt" these 102 countries as well?

The China-U.S. bilateral trade is by no means a so-called “one-way street” where wealth only goes from the U.S. to China. According to reports issued by third parties such as the Deutsche Bank, from the perspective of commercial interests, the U.S. has in fact gained more commercial net benefits than China from their two-way trade. The China-U.S. trade and economic cooperation is mutually beneficial in essence. No one is happy to do a loss-making deal, let alone those Americans who are champions of “America First.”

Since 1987, China has accumulatively utilized foreign capital of more than 2 trillion U.S. dollars. Investment from the U.S. was 81.36 billion U.S. dollars, accounting for 4.06 percent.

In fact, since the “rebuilding China” claims were brought up, the U.S. fact-checking website PolitiFact said that it is an “overly simplistic casting” of the economic relationship between China and the U.S. Scott Lincicome, a scholar at the libertarian Cato Institute who specializes in international trade politics, said that trade with all countries, including the U.S., has been part of a major market reform that has lifted millions out of poverty in China. Reforms to property and taxation have been much more fundamental.

One country has to rely on itself for development. A country with a population of 1.4 billion cannot be expected to grow strong on others' almsgiving and charity. Moreover, no country has what it takes to “rebuild” China. China has made remarkable achievements because it has the right leadership of the Communist Party of China and the path of socialism with Chinese characteristics, because it is committed to deepening comprehensive reform and opening-up, and because the Chinese people are hardworking and full of wisdom.

China does not pursue development with its doors closed. Instead, what it has been doing is seeking mutually beneficial and win-win cooperation with others with its doors wide open. While developing itself, China continues to open its market and increase its outbound investment, which also creates more opportunities for other countries in the world, the U.S. included. A Yale University economist believes that without China's part in the U.S. sovereign debt and corporate investment, the U.S. would not be able to sustain years of growth in the areas of real estate, defense and business. In this highly interconnected world, it is hard to say who is rebuilding or being rebuilt.

There is no such thing as "Savior U.S." Instead of embarrassing themselves by making groundless claims, some Americans should acknowledge the facts, stop making accusations against China, and do something to contribute to positive trade relations between China and the U.S.

China Auto Emissions Standards Rise in July

Chinese auto sales have been slumping and one reason may be the rollout of stricter emissions standards.

Caixin: Stricter Vehicle Emission Standards May Spell Further Bad News for Hobbled Industry
The country will soon adopt the sixth phase of its vehicle emission standards, which China claims is even stricter than the European Union’s. Once it goes into effect, dealers will no longer be able to sell vehicles with that don’t meet the rigid requirements.

As China grew increasingly aware of pollution, the government decided in mid-2018 to move up the implementation date for the new standards in certain prominent areas including Beijing, Chengdu and south China’s Pearl River Delta. The new rules will go into effect in July 2019 – one year earlier than their previously scheduled date.
World Platinum Investment Council: China clean air, PGMs and platinum
China has some way to catch up with PGM loadings in more mature markets. The right-hand graph above shows PGM loadings per vehicle in North America, Japan and China. Several factors explain the differences including average engine size, fuel mix differences (thus excluding Europe), and, most importantly, emissions standards. Nonetheless, as emissions standards and wealth improve in China, PGM loadings should continue to approach those of more developed regions, thus providing a demand push for PGMs, including platinum, by potentially as much as a gram per vehicle.

As palladium goes further into deficit, it should tighten the platinum market. The Chinese demand trend is significant as it represents 26% of global PGM demand. Should Chinese automakers see supply risk and/or cost disadvantage in palladium, the platinum market offers ample capacity to satisfy increased PGM demand.

Maotai Bubble is Back, But Competitors Are Striking

21st Century: 一线调查:53度飞天茅台价高缺货 五粮液、泸州老窖补位进攻
Sogou: First-line investigation: 53-degree Feitian Maotai with high price out of stock Wuliangye and Luzhou Laojiao's replacement attack
For two consecutive months, according to the on-the-spot investigation conducted by 21st century business herald reporters from Beijing and Chongqing, not only are there no 53-degree Feitian Maotai sold in the self-run Maotai shops in the two places, but they are out of stock for more than one month, and even many Maotai dealers say they have no goods to sell. Many tobacco hotels and Maotai dealers in Yubei District of Chongqing reported that the 53-degree Feitian Maotai liquor was priced at around 1900 yuan, and department stores such as Beijing Cuiwei Department Store Peony Garden even priced at over 2400 yuan.

At a time when the price of Feitian Maotai liquor is high and out of stock, the market space vacated by Feitian Maotai liquor is being replaced by other famous liquors, the most prominent of which are Wuliangye and Luzhou Laojiao, which are closely followed by Feitian Maotai liquor.
While speaking, a phone call for wine came in. The shopkeeper answered, "Maotai liquor is expensive. if you drink it yourself, I recommend you to buy Wuliangye, a collection limit for the high-end department of Wuliangye. The original price is more than 2,000, and we have received gifts from large manufacturers, so we will give you 1100 yuan. The quality of the wine is much better than that of ordinary Wuliangye, and it is 1.5 kg and has high cost performance. "

After taking Wuliangye discounted high-end collection liquor PK Feitian Maotai, the other party was moved. The shopkeeper went on to lobby: "You think Feitian Maotai is expensive, take Maotai series? Maotai series wine is also of high cost performance, but are you good enough to entertain guests at a price of over 200 yuan and 300 yuan or 400 yuan? "

The words sound just fell and the other party immediately said at the other end of the phone that they would send a "Guoyun Chang" to us sometime. After finishing this large order, the shopkeeper turned to persuade the reporter who hesitated between Maotai and Wuliangye to buy the wine. Seeing that the reporter was not in a hurry to place the order, he quickly sent the picture of Wuliangye wine to the reporter's mobile phone and turned out the Wuliangye picture album, pointing out that the wine and the yudingjingsheng series that Wuliangye sugar will appear this spring are both ultra-high-end products, allowing the reporter to find him at any time.
Compared with the "shortage" of ordinary Maotai liquor, the ultra-high-end products developed by Guizhou Maotai are not out of stock.

"30-year maotai liquor is 9,700 yuan, and kg maotai is 3,800 yuan. these are all sold today." At Chongqing Ran Jia Ba Yu Song Zhi Lu Dian Wu Liang Ye Ming Hotel, the owner took stock of the May 7 delivery note and told reporters in 21st century business herald.

Similarly, at the self-run store of Chongqing Guojiu Maotai Sales Co., Ltd. located in Longshan Street, Yubei District, Chongqing, the clerk told the 21st century business herald reporter who bought the liquor as a consumer that although both Feitian Maotai of 53 degrees and 500 milliliters worth 1499 yuan and Wuxing Maotai of 53 degrees and 500 milliliters worth 1699 yuan were out of stock, the fine Maotai liquor was temporarily available at 3199 yuan.

The first quarter of this year showed that the net profit of Guizhou Maotai (600519.SH) increased by nearly 10 points over the increase in revenue. From January to March, the company realized operating income of 21.6 billion yuan, up 24% year-on-year, and net profit of 11.2 billion yuan, up 32% year-on-year. Pacific Securities believes that Guizhou Maotai's first-quarter results exceeded expectations, with product upgrades being the main reason. During the reporting period, the actual quantity of Maotai liquor shipped was close to 7,000 tons, the product structure and the price per ton of liquor increased, and the fine Maotai liquor was released at the end of last year. Judging from Guizhou Maotai's 2018 annual report, gross profit margin is as high as 91.25%, up 1.4% year on year.

Fine Maotai is becoming the new profit growth engine of Guizhou Maotai. At the national spring sugar cocktail party in March, no matter the first low-alcohol maotai dealer symposium or the maotai spring dealer symposium, many dealers took the initiative to talk about the market share of the fine maotai at the price of 3,000 yuan being expanded. Maotai ultra-high-end products, represented by premium Maotai, personalized Maotai and aged Maotai, are changing the strong market pattern dominated by 53-degree Feitian Maotai.

Returning to the shortage of ordinary maotai liquor, is it natural or artificial?

Under the marketing system in which the sales income of distributors and wholesale agents accounts for 95% of the overall sales income of Guizhou Maotai, the market price of 53 degrees and 500 milliliters Feitian Maotai has reached about 2,000 yuan. Self-owned or direct-selling stores supply a small amount of Feitian Maotai at 1499 prices. Will they not wait for customers to come to their homes and immediately become another drive-up by neighboring cigarette hotels or dealers?

Parity Maotai disappeared, leaving most Maotai dealers unscathed. However, for the consumers who are getting closer to Guizhou Maotai in the past two years, it has become a worry that they can't buy a bottle of Maotai in their own stores or run straight stores. "I am the manufacturer who issued the Maofen passport. As a result, I can't even drink the Maotai liquor with the manufacturer's guiding price of 1499, which will affect our loyalty to the product for a long time!" An anonymous Maofen in Chongqing called a reporter from 21st century business herald and said.

2019-05-16

Chinese Editorial Asks: What Is There to Discuss?

An editorial in China highlights how far the U.S. and China may be from a deal as it claims the U.S. side is insincere about a deal, would rather bully China with tariffs and is only saying a deal is possible to prop up the stock market.

iFeng: 没诚意,来也白来,谈也白谈 Sougou translation
After the 11th round of Sino-US consultations, the situation became very fast.

On China's side, after the talks, it reiterated its principled position, refuted the so-called "retrogression" accusations of the United States and made the three core concerns public for the first time.

In addition to this, China has recently been making a lot of noise and firepower. For example, the "international critical review" in the "news broadcast" which was completely screened online, such as the article "no challenge can stop China's progress" signed by "Guo Ji ping" in the "people's daily".

The position expressed here is very clear and firm-

If some people continue to ignore the principle of equality and mutual benefit and take chances that extreme pressure will work, then China has no other option but to reverse this path.

On the U.S. side, on the one hand, the stick of imposing tariffs is still waving. On the other hand, various U.S. industries and capital markets have reacted very strongly to the U.S. extreme pressure measures.
On this side, the U.S. side kept sounding out, saying "yes." China's economy is not very good. China is very eager to reach an economic and trade agreement with the United States.” After so many rounds of negotiations and contests, it is quite boring to say who is more eager to reach an agreement.

On the other side, Finance Minister Menuchin, one of the core members of the US negotiating team, said yes. "U.S.-China economic and trade talks are still in progress, and he is considering when to go to Beijing to continue the talks.”

According to a report by Reuters on the 14th, U.S. Treasury Department spokesman said U.S. Treasury Secretary Manuchin plans to travel to China for economic and trade talks in the near future.

However, China's Ministry of Commerce responded on the 16th that, "China does not know of any US plan to come to China.", this response is to extrapolate.

What do you think of the situation? Just a few words.
The editorial goes on to say the U.S. is talking about a deal to prop up its stock market, but that it intends to use tariffs to pressure China.
First of all, the U.S. side has now reiterated that it is better to continue discussions and emphasize that China's economy is not good. From the perspective of boosting confidence in the capital market in the United States, more consideration should be given to protecting the market.

So far, the US side has said that it wants to talk, but at the same time it has been playing tricks, undermining the atmosphere of negotiations.

U.S. local time signed an emergency administrative order on the 15th, banning U.S. enterprises from using telecommunications equipment produced by enterprises that pose risks to national security. The move is believed to be in preparation for banning U.S. companies from doing business with Chinese company Huawei.

It is not clear that the United States has any sincerity in substantive negotiations, but rather that the extreme pressure means are still extending.

In fact, when it comes to this time, China and the United States not only know what their attitudes are, but also the whole world can see it clearly.

Before the 11th round of negotiations, under the extreme pressure atmosphere created by the United States, China still went to the meeting under pressure to attend the "hongmen banquet".

The sincerity of negotiations released by this move cannot be increased any more.

However, China's sincerity has not received a positive response. I am afraid some people still feel that China is weak and can be bullied.

Since rational communication cannot dispel greed, there is only another way to reason.
Secondly, if the United States ignores China's public opinion, I'm afraid it won't get any effective response from China.

The U.S. side also said it would come to the talks and was also speculating on the topic of the G20 summit in Osaka.

Let me see, if the United States does not have any new substantive actions, then it will come in vain and talk in vain.

After the 11th round of negotiations, China raised three major concerns for the first time. In fact, it is also drawing its own "red line" to the United States and the world.

This is the bottom line, the position of the Chinese government and the public opinion of China.

If the customs duties are not abolished and the purchases are made in full accordance with the requirements of the United States, the text does not consider balance. Even if such an agreement is signed, can the Chinese people agree?

In the early days, our negotiation team worked day and night to promote the negotiation with great sincerity.

After so long hard work, the sincerity and goodwill shown by some people are regarded as weakness.

In this case, it is better to stop the negotiation completely and return to the normal working track.
While resisting the system, focus on doing your own thing.

Negotiations should be flexible, but compromise without principles cannot achieve win-win cooperation.

The United States is a good teacher and likes to educate us with facts.

After going through such a cognitive process, more and more people also see it more clearly:

"If you use the land to serve the Qin Dynasty, you can use the analogy of carrying faggots to put out a fire. The salary is not enough and the fire will not go out" —— Records of the Historian, Wei Aristocratic Family》

In addition, if anyone thinks that China is bluffing, it will only be another major miscalculation after the war to resist U.S. aggression and aid Korea.

When we said that if anyone crossed the 38th parallel, we would send troops.

Some people did not believe it, resulting in a miscarriage of justice. They were then educated by facts and returned to the 38th parallel.

Now we say that if anyone uses tariffs to bully others, we will definitely counter them.

Believe it or not?

This is like a precision instrument, triggering conditions will inevitably have consequences.

I read the "instructions" and believe it or not.

Some people say that the U.S. is stronger than us, and we suffer more than the U.S. in a trade war.

If we only calculate the economic accounts, this argument can be established. However, when a trade war starts in full swing, it is not only the economy that plays a role.

The shock brought by the sudden U.S. hostility to the public opinion in the United States can only be described as shock.

As for China's public opinion, or the thoughts of ordinary Chinese, it is easier to understand.

The Chinese love peace. In recent years, the business has done a little more. More and more people think that they hope to make money with kindness and hope that rich people can earn it together.

However, if anyone must have a hard time with us, I hope we can give in completely. Then these moderate Chinese will certainly try their best to turn themselves into the most respectable and difficult opponents they have met since 1776.

Now that the fight has started, let some people clearly realize that, the real cost of extreme pressure will far exceed the expected benefits.

Take Heed: Chinese Factories Relocate to Avoid Tariffs, But Face Increased Costs and Govt Scrutiny

A warning to businesses, investors and really everyone about what is coming down the road for the global economy, mass migration and government policy. Companies that prepared (knowingly or not) for trade frictions by diversifying their supply lines have mitigated some of the cost from tariffs, while those who waited until the end have to pay higher costs to relocate in foreign markets, if they can get past their own government clamping down on offshoring.

SCMP: Chinese companies moving to Vietnam keep quiet on trade war to avoid wrath of authorities and staff
Interviews reveal that many factory owners and operators feel that they are caught in the middle of forceful rhetoric from both sides in the trade war. And rather than face direct retaliation from officials, workers and suppliers in their home market, they are deciding to keep their counsel.

Those companies that plan to move production out of China to avoid US tariffs and preserve their US business face a particularly delicate balancing act.

“Manufacturing exporters that are thinking of relocating face more difficulties and higher costs than those that already moved out over the past two years, so many of them are not willing to speak out,” said Liu Kaiming, head of the Shenzhen-based Institute of Contemporary Observation, which monitors working conditions for hundreds of Chinese contract manufacturers.
Every business located overseas and every foreigner living abroad needs to assess the potential risks as nationalism increases. The U.S. tariffs are not surprising, they were highly likely based on history, the growing imbalances in global trade and the shifting political winds. Mass expulsions of non-natives are also likely down the road as nations shift from diveristy to unity, from multiculturalism to forced assimilation. This is not a blip in history, this is the start of a massive wave that will last at least a generation, if not two. Nations such as France exist because non-French people were either defeated or assimilated, including during wartime. Diversity is not a normal condition of human history. Hope, as they say, is not a strategy.
“To relocate, they have to handle very carefully the plans for lay-offs and compensation for workers, the reaction of suppliers, the problem of stock price fluctuations in large enterprises, and so on. They have to keep all this low profile,” he said.

“Once the news of a relocation is released, various rumours may crop up that are not favourable to the company,” Liu added. “Now that the trade war has escalated, the risks are even greater. Even though more and more manufacturing industries are affected, most of them are afraid to express their views in public.”
Driving home the point that you want to have exit strategies in place ahead of time. This also goes for your finances. If you're an investor with a public profile, will you be able to dump U.S. Treasuries in the midst of a dollar collapse with mobs in the street and the President calling short-sellers traitors, or will selling USTs already be outlawed?
“Now we face a rapid escalation of trade war uncertainty. It is a sensitive period for the trade talks, so we need to remain silent and low-key. Our customers are internationally renowned brands, and they definitely do not want to be caught up in the US-China dispute, or stand up for either side,” the senior executive said.

“In particular, since last week, there has been growing criticism of the US government among Chinese internet users, both on online forums and social media. They believe the US is pressing too hard and bullying the Chinese people. Enterprises like ours have all experienced anti-Chinese sentiment in Vietnam and anti-American brand protests in mainland China, and so our risk awareness is very high. Keeping silent is the best and safest protection for our operations in both China and Vietnam,” she added.
Local governments are turning from supportive to hostile too:
“I invested 3 million yuan (US$436,140) with a partner in 2017 to rent a 2,400-square-metre factory in Thu Dau Mot City, in the Binh Duong province of Vietnam, transferring four production queues and recruiting 80 workers there. The rent was already 22 yuan (US$3.20) per square metre and has now gone up to 28 yuan,” Zhou said.

“At that time, the economic atmosphere in China was still very good, and everyone was eager to expand investment. The local government in Dongguan was relatively relaxed and supportive of us relocating production to Vietnam. Now, several friends of mine are planning to move. Their costs will be definitely much higher than they were in 2017. Moreover, the local [Dongguan] government is not as nice as it used to be.

“Procedures are now strictly enforced by the local government in Dongguan,” Zhou added. “If you do not pay a large compensation package to make up for workers’ social security fees and other taxes, they will not let you move the machinery and equipment.”
Wonder why capital control evading cryptocurrencies keep finding a bid? People are looking for exits and prices soar when the doors start closing.

Related: Map: Every Single Year in the History of Civilization in Asia

Chinese Housing Recovery Spreads in April


New home prices increased 0.6 percent nationally, with only two cities reporting falling prices. Existing homes increased 0.5 percent.

Reuters: China's solid home price growth faces bubble, trade war risks
Beijing has repeatedly called on local governments to take more responsibility in keeping the frothy market under control. But pent-up demand for housing, easier credit conditions and some local governments relaxing purchase restrictions may be further fanning price gains in a market where fear of missing out is strong.
There's no stimulus coming because China has already reignited the housing market. Credit creation was 5 percent of GDP in January and that credit is flowing into real estate. Central government officials have been banging the table about "houses are for living in, not for speculation," and now local governments are ratcheting up buying restrictions. As has always been the case, however, buying restrictions have little impact on the market. Credit growth drives home prices. If China ends up launching another major stimulus amid a domestic slowdown and intensifying trade war, the housing market is primed for lift-off. With USDCNY already near the key 7.00 level, a "hyperinflationary" blow off in nominal home prices could be right around the corner. Houses are already an inflation-protection savings vehicle for average Chinese savers and investors. With strict capital controls, capital flight out of the yuan is most likely to flow into major currencies (USD,EUR), housing, gold, cryptocurrency, and over the longer-term, A-shares.

2019-05-15

They Don't Have Enough Reserves: PBoC Intervenes to Defend Yuan

Bloomberg: PBOC’s Presence Seen to Prevent Yuan From Deeper Plunge
China is unlikely to let the plunge in the yuan get out of control, according to Macquarie Securities Ltd.

The People’s Bank of China will want to keep the currency stronger than 7 per dollar -- a level not reached since the financial crisis -- as a break past that may lead to a "vicious cycle" of capital outflows and sharper depreciation, said Larry Hu, head of Chinese economics at Macquarie.

The central bank can stabilize the exchange rate by setting strong fixings and selling the dollar directly in the spot market, he said. "Also, China doesn’t want the currency to be too weak as that will make negotiations with the U.S. tougher."
I suspect an attack on the yuan won't begin until after reserves suffer a meaningful decline. At this point, that might be $30 to $50 billion yuan, enough to signal the capital controls have failed or that defending the yuan is getting expensive. A collapse in the yuan isn't inevitable, but it's getting a heck of a lot more likely if this cyclical downturn doesn't stop soon. USDCNY is very close to 7.0, DXY is within striking distance of 100 and an escalating trade war will start curbing dollar flows into China this summer. The risk of a "multi-sigma" event is increasing, with the possibility for follow on events such as Hong Kong abandoning the dollar peg.

iFeng: 央行离岸出手稳汇率!又在香港布局大动作,吊打空头
Central bank moves offshore to stabilize exchange rate! In Hong Kong, they also made big moves to play short positions
The central bank is stabilizing the exchange rate offshore again!

On May 15, the central bank issued a message that it successfully issued two issues of RMB central bank bills in Hong Kong on the same day, of which three-month and one-year central bank bills each amounted to 10 billion yuan, with bid-winning interest rates of 3.00% and 3.10% respectively. The total bidding volume for this issue exceeded 100 billion yuan, with the main subscribers including commercial banks, funds, investment banks, central banks, international financial organizations and other offshore market investors.

The news seems bland, but considering the special timing of the central bank's issuance of central votes in Hong Kong, its policy intention is well established. Since issuing central bills in Hong Kong can recover the liquidity of offshore RMB, raise the interest rate in the offshore market and raise the cost of shorting RMB, thus achieving the goal of stabilizing the exchange rate. Combined with the rapidly rising market changes in the expectation of RMB devaluation in recent days, it can be seen that the central bank has obviously intended to stabilize the exchange rate by issuing central bank votes at this time.

In fact, except that the offshore RMB exchange rate suffered a heavy blow on Monday, with a drop of 600 basis points during the day, the RMB exchange rate both yesterday and today has a trend of correction. Some analysis points out that there is no lack of central bank stabilizing the exchange rate behind this. As of 13:15 on May 15, the onshore RMB exchange rate was 6.8761, with a devaluation of only 93 basis points. The offshore RMB exchange rate was 6.9053, up 9 basis points from yesterday.

Many analysts pointed out that the probability of RMB exchange rate falling below 7 in the short term is not very high until there is no further negative news about Sino-US trade friction. More importantly, the current trend of RMB exchange rate is event-driven and multi-empty. For enterprises and individuals, instead of blindly betting on unilateral appreciation or devaluation, it is better to stick to the concept of financial neutrality and manage exchange rate risks through hedging tools, otherwise they will be easily beaten.
China can intervene in Hong Kong to prop up CNH, but it costs money:
"CNH usually better reflects the market's expectation of RMB exchange rate than CNY, but the central bank has strong control over the offshore market. In the past, people usually observed some operations (such as forward foreign exchange purchase, foreign exchange swap, etc.) of the branches of major Chinese banks in Hong Kong in the offshore market to fathom the policy intentions of the monetary authorities behind them. " A Hong Kong foreign exchange trader told a Chinese reporter from a securities firm, but if the central bank issues central bank tickets in Hong Kong, it is equivalent to directly facing the participants in the offshore market and openly communicating its own policy stance. In fact, it increases policy transparency, strengthens communication with the market and is conducive to stabilizing market expectations.
CNH is the real exchange rate and everyone in China and outside of China knows it. If the PBoC tries to set a high fixing, speculators can force them to spend mightily to defend it.
Undeniably, the trigger factor for this round of sharp decline of RMB is the Sino-US trade dispute, but the real trigger for the sharp devaluation of the exchange rate for many consecutive days is short selling by overseas institutions.

Senior foreign exchange expert Han Renyu told Chinese reporters at the securities firm that the driving factor for the recent rapid devaluation of the exchange rate is not the market supply and demand (i.e. the customers dominated by enterprises and residents), but speculation (mainly the transactions of financial institutions). The dollar soared ahead in the offshore market and followed closely in the onshore market, which usually means that institutional speculation is likely to be the main factor in the devaluation.
Speculative attacks can go on for months. Flashback to 2012: PBOC can't buy a buck; talk of depleted reserves is not alarmist
[Tan Yaling] says there was a recent article stating that if the only way China can stimulate the economy is through investment, then China's $3 trillion in foreign exchange reserves will be exhausted within 5 years.

She says speculation is the greatest threat to China's development and this speculation could exhaust China's reserves. Although China has $3.2 trillion in reserves, it isn't enough to protect it from hot money, not when the global forex market trades $5-6 trillion each day. If there is no long-term strategy to defend the reserves, they could be rapidly exhausted.
Below I will post the Sogou translation of the full article. Back to the iFeng article, it paints an air of calm in the foreign exchange market:
"The direct consequence of the soaring offshore dollar is to widen the foreign exchange gap between China and overseas. There is no doubt that a space of several hundred basis points will excite cross-border arbitrageurs, and the result of arbitrage is that the onshore dollar will definitely soar rapidly. This is not the first time that such a situation has occurred. Generally, there is room for cross-border arbitrage if the domestic foreign exchange difference is more than 100 basis points. " Han Hui said.

However, since this Tuesday, the exchange rate has started to recover, which may include the central bank stabilizing the exchange rate and "beating" bears. There are two interesting phenomena that are meaningful: on the one hand, the central parity rate of RMB against the U.S. dollar was 6.8365 on Tuesday, down 411 points, significantly lower than the closing price of 6.8721 on Monday, which indicates that the counter-cyclical factors in the central parity pricing mechanism may have played a role; On the other hand, on Tuesday, the offshore RMB exchange rate against the U.S. dollar had a strong short-term rise of 150 points, once recovering the 6.90 mark.

The special timing of the central bank's issuance of central bank votes in Hong Kong on Wednesday is a manifestation of the policy intention of stabilizing the exchange rate.

So, does the central bank's move to stabilize the exchange rate at this time mean that the RMB will be protected at "7"? Some analysts pointed out that the central bank's choice of when to stabilize the exchange rate has nothing to do with the specific position of the exchange rate. The key is to observe the settlement and sale of foreign exchange in the market.

"The exchange rate is never the most important point. The monetary authority first considers the pressure of capital flow. If the macro-prudential management of cross-border capital flow is effective and the deficit in foreign exchange settlement and sale is not large, it does not matter whether it breaks 7." South Korea stationed said that if there is another serious imbalance in the foreign exchange settlement and sale market, the invisible hand will act. Even if the RMB reaches around 7 against the US dollar, if the foreign exchange settlement and sale market is calm, then the 7 break will be broken, which is not a big deal. However, if the exchange rate has just reached 6.95 and there is a tide of buying foreign exchange, then basically don't expect to break 7.
Defending the yuan from USDCNY 7.00 is a really loud signal that says otherwise.
Therefore, from the perspective of stabilizing the expectation of RMB exchange rate, many analysts pointed out that there is no possibility of a sharp devaluation of RMB. UBS China Adjusts Exchange Rate Forecast of RMB to USD to 7 at End 2019. Wang Tao, chief economist of UBS China, said that this was mainly because the government might allow the RMB to depreciate slightly in view of the worsening current account balance and the greater downward market pressure on the exchange rate. If the United States imposes a 25% tariff on all Chinese exports, the pressure of RMB devaluation will increase dramatically.

"Nevertheless, the central bank may still try its best to avoid a sharp devaluation of the exchange rate, so it is expected that the RMB exchange rate against the US dollar will only moderate to 7.2 in 2019. If the tariff increases continue to take effect, the RMB exchange rate may further depreciate in 2020. " Wang Tao said.

Yu Yongding, a member of the Faculty of Social Sciences, also told the Chinese reporter of the securities firm that as Yi Gang, governor of the Central Bank, said earlier, we will never use the exchange rate for the purpose of competition, nor will we use the exchange rate to increase China's exports, or to consider trade friction tools. We can promise that we will never do this. As for how the exchange rate will change, it is determined by the relationship between market supply and demand. The exchange rate must be flexible.
I agree 100 percent with Yu Yongding. China will not devalue for competitive reasons. It will devalue because it will exhaust its reserves, because it will be unable to contain capital flight or stop an unfolding deflationary credit crisis without massively increasing domestic credit supply, which in turn necessitates inflating the yuan far beyond the constraints of the current exchange rate. As is often said about gold, China has more than enough dollars to fund its economy. The problem is the price of those dollars is set too low.

Sogou translation of Tan Yaling 2012 article: It is not alarmist talk to say that foreign exchange will run out
High-level viewpoint

Tan Yaling, President of China Foreign Exchange Investment Research Institute

Not long ago, an article pointed out that China's foreign exchange reserves of over 3 trillion US dollars could not provide shelter for China's economy. In the future, if China can only continue to promote investment and has no other way to maintain economic growth, China's foreign exchange reserves will be exhausted within five years. This advice deserves attention.

First of all, this "alarmist talk" has sounded the alarm bell for the current stability of China's economy. At present, speculative arbitrage is very serious in our country's market. This speculative state is not only not conducive to development, but will consume the accumulation in the past, waste reserve resources, and make it possible for China's foreign exchange reserves to shrink and run out. Because the market is highly concentrated in speculative arbitrage rather than in the development of entities and industries, coupled with regulatory deficiencies, hot money has provided a space for speculation and a platform for building momentum. As a result, this kind of speculative arbitrage is used by hot money, making hard-won foreign exchange reserves consumed by their own blind obedience.

Therefore, although our foreign exchange reserves are strong, they are not large enough to withstand international hedging risks. At present, we have 3.2 trillion US dollars in foreign exchange reserves, while the international foreign exchange market trades 5-6 trillion US dollars a day. Our scale cannot stop speculative speculation of hot money. Without its own development strategy, risk discrimination and comprehensive and long-term strategic planning, foreign exchange reserves will soon be spent, destroyed and eventually exhausted.

Secondly, the strategy of collecting money from the people is still struggling. The topic of foreign exchange reserves in China has been going on for more than 10 years, but so far the focus is still at the origin: there are too many foreign exchange reserves and the efficiency is insufficient. Although China has the largest foreign exchange reserves in the world, it is a smaller foreign exchange market in the world, and even the foreign exchange market has not been fully opened.

At present, China's financial reform and development are at an important juncture. On the one hand, we have huge foreign exchange reserves, and the symbol of national wealth has attracted the attention of the world and the pursuit of speculators. On the other hand, China's central bank's hedging costs have increased, and the fear of shrinking the price and value of foreign exchange assets is increasing. Refusal or reduction of US dollar assets has become a trend and trend. Such too short-term and simple cognition and demand from the private sector and society will directly affect the implementation and process of China's strategy of collecting foreign exchange from the people. Under the background of the unprecedented financial crisis, this way of thinking is the greatest resistance to the loss of our strategy of hiding money from the people.

It can be seen that this kind of "alarmist talk" actually warns us that the problem of China's foreign exchange reserves is manifested in three aspects: first, it pays more attention to quantity than efficiency; Second, there are too many short-term prices and not enough long-term systems. Third, there are too many short-term countermeasures and the actual effect is not good. As a result, the huge foreign exchange reserves have become a simple burden and burden for our country and have not fully played their role in promoting our reform, construction and development. Therefore, we should refer to the countermeasures we have already taken to reduce market investment and prevent hot money intrusion in response to our reform and development needs through capital injection, investment and special financial policy tools. At the same time, we can consider the convergence mechanism between foreign exchange and RMB, break the passive situation of being restrained by dogmatism of foreign exchange reserves, and solve our own economic and financial problems flexibly and effectively.

Americans Still in the Dark on Mass Immigration

There are two main reasons why I've predicted a major anti-immigration swing in Western politics. First is the social mood. Negative mood correlates with immigration bans and even expulsions, and given how low I expect this wave to go, mass deportations are well within the range of possibility. Immigration bans and extremely restrictive policies are highly likely.

The second reason was extremist establishment policies completely out of tune with social mood, along with widespread public ignorance given establishment narrative control. Right now, Denmark's move to restrict immigration and deport migrants is most in tune with social mood. In the U.S. and Germany, as two examples, the establishment is still pushing an extremist policy that would have been extreme in 2000. The current policies on mass migration are akin to supporting Hitler in 1947, and believing that 70% of the public supports Hitler because the major media reports it every day and runs polls such as "Who is worse, Satan or Hitler?"

Breitbart: Survey: Only 2-in-15 Americans Aware of Soaring Illegal Immigration to U.S.
The latest Harvard/Harris Poll reveals that when Americans are asked how many illegal aliens are arriving at the U.S.-Mexico border, only about 13 percent answer correctly. Meanwhile, about 76 percent of Americans believe illegal immigration levels are vastly lower than they actually are.

For example, there were nearly 100,000 border apprehensions in April, alone. This puts illegal immigration at the southern border on track to outpace every year of illegal immigration under former President Obama and take the U.S. back to Bush era levels. At current rates, experts project there to be 863,000 border apprehensions this Fiscal Year, though this only counts illegal aliens who are caught at the border and does not include those who successfully cross.

Since Fiscal Year 2010, the number of border crossers and illegal aliens apprehended trying to enter the U.S. has been anywhere between 300,000 to 500,000.
Mass migration is a very sticky issue because the migrants stay in the country until they are deported or voluntarily repatriate. When the public starts seeing the impact in their communities, they become angry and their anger will not subside until the migrants are removed. Now consider most Americans are way off on their estimates of the numbers of illegal aliens and this might be the peak of a economic expansion within a multi-decade depression. When they realize what has happened, they are going to be extremely angry with politicians who misled them, politicians who promoted open borders, and media that lied to them. And note that Denmark's immigration policies include identity politics, a cap on non-Western immigrants. America's establishment on the left and the right have sown the nation with identity politics landmines and they are going to explode simultaneously in the next negative wave.

One important sign of social mood is birth rates. WSJ: U.S. Births Fall to Lowest Rates Since 1980s
About 3.79 million babies were born in the U.S. in 2018, according to provisional data from the Centers for Disease Control and Prevention’s National Center for Health Statistics. That was a 2% decline from the previous year and marked the fourth year in a row that the number fell. The general fertility rate—the number of births per 1,000 women ages 15 to 44—fell to 59.0, the lowest since the start of federal record-keeping.
Now consider that immigrants, legal an illegal, are well over 1 million per year and that a significant portion of U.S. births are to legal and illegal aliens. What percentage of U.S. population growth is foreign born? Democracy isn't simply "everyone votes." Sometimes people vote to exclude others from voting, such as when Czechs and Slovakians voted to split their nation.

The fault lines are already evident, but there's no existential battle yet because America is still a prosperous nation. When progressives realize things like Medicare for All are impossible because of mass migration, they will turn nationalist just like the Danes.

April Data Says China Increasingly Reliant on Real Estate

A few days ago, I warned: No Stimulus is Coming! Second-Tier Land Boom Triggers Govt Warning. One component of the land boom has been capital flowing through trust products into real estate development companies. The latest NBS report on the real estate sector confirms a tsunami of capital pouring into real estate:
There's no sign of the capital in land purchases nationally, those are off by 33 percent year-on-year. Completed projects are down, sales are flat. Growth is concentrated in new construction starts and projects under construction. This is the relevant section from the NBS report, translated through Sogou.

Industrial production slumped back to trend.
There are some bright spots in the industrial production report, but far more dark clouds. Auto industry production fell 1.1 percent yoy in April and 0.3 percent yoy through April indicating an accelerating slowdown. Autos down 15.8 percent in April and 11.8 percent YTD. The decline in industrial robots slowed to 7.3 percent in April, 10.2 percent YTD. EV car production rose 17.1 percent in April, much slower than the 41.1 percent YTD growth.

Fixed asset investment was steady, but real estate investment is subcomponent. State directed investment grew 7.8 percent YTD, private investment 5.5 percent. Growth was concentrated in healthcare, railway and education.

The rebalancing to a consumption economy isn't happening. Retail sales plummeted.
The slowdown was evident in several areas including smartphones (communications) and autos, but more concerning is the dip in petroleum sales:

Update: The retail slump was blamed on fewer holidays. Caixin: Lackluster Economic Data Suggest Weak Recovery
The slower growth in retail sales was mainly caused by the fact that this April had fewer national holidays and weekends than last year, the NBS said in a statement (link in Chinese). Excluding this factor, retail sales would have grown 8.7% year-on-year last month, unchanged from the increase in March.

2019-05-14

Mass Deportations Coming Soon: Danish Center-Left Ready to Expel Migrants

Almost a year ago, I posted Danish Left Splits Nationalist, Ends 25 Year-Old Agreement. An election is rolling around and the nationalist center-left party looks set to win big and it's willing to cooperate with "far right" parties. In fact, it's immigration policies are further right that many "far right" parties in Europe.

The Guardian: Mette Frederiksen: the anti-immigration left leader set to win power in Denmark
But the 41-year-old has all the momentum, with her left-of-centre bloc starting with an eight percentage point lead, and few doubting that she will become Denmark’s youngest-ever prime minister after the election on 5 June.
She's the one who broke with leftists in Denmark and dumped globalism for nationalism.
Denmark’s current right-wing coalition government last year enacted the most anti-immigration legislation in Danish history and, rather than position her party in stark opposition, Frederikson has embraced much of it.
Instead of trying to counter the right, however, it sounds like she's outflanked them by offering an even more nationalist agenda:
But it is the government policies her party has supported or failed to oppose which have been most alarming for her allies in the left-of-centre red bloc. The Social Democrats voted in favour of a law allowing jewellery to be stripped from refugees, and a burqa and niqab ban, and abstained rather than voted against a law on mandatory handshakes irrespective of religious sentiment at citizenship ceremonies, and a plan to house criminal asylum seekers on an island used for researching contagious animal diseases. In February, she backed what the DPP has branded a “paradigm shift” – a push to make repatriation, rather than integration, the goal of asylum policy.
While I expected repatriations, I didn't expect them this soon. This is only the beginning for Europe. After repatriation of migrants gets going, the infrastructure for repatriating Muslims and other unassimilated foreigners will be in place.