It has been an interesting week. The Donald labelled China, “a currency manipulator”. Leaving aside the fact that every single country ‘manipulates’ (sic) its currency to some degree, overtly and/or covertly, China has been adroitly and expensively (to it) manipulating its currency to maintain its level to NOT FALL. So they showed Donald and withdrew a degree of support…in 2 days, the RMB fell from roughly 6.84 to 7.11 to the US dollar….and then the Chinese Government stepped in and manipulated it back to 7.0239 as of the writing of this, this Sunday evening. Personally, I think that they showed huge restraint. In business, The Donald casts accusations with gay abandon and people are compelled, by the nature of the marketplace, to spend the time and money to respond and defend themselves. His strategy seems to be a one type applies to all with little understanding at his end that such tactics do not work in the sphere of diplomacy and that many of his opponents are not the small tradesmen that he is accustomed to stiffing.
While Trump busily defends Kim Jong Un of North Korea, the latter lobs missiles seemingly at will into international waters close enough to South Korea and Japan as to give those two countries concern. At the same time, on August 6th/19, Bloomberg came out with a report that North Korea has hacked ie. stolen US$2 billion from banks and crypto exchanges worldwide….comment from the President? Zilch, nada, zero. South Korea and Japan, from all reports, are unofficially concerned at the level of commitment they can count on from the Trump administration.
Agriculture is a huge base for many countries, including Brazil, Canada, China, Russia, and the United States As it happens, oil is another. For Donald, farmers are essentially his biggest base of support so he is understandably concerned that he is not delivering on his previous assurances that, “trade wars are easy to win”, any more than Boris Johnson is delivering on his solemn assurances that chances of a no-deal Brexit are, “one in a million”. As pre-election rhetoric is heating up, I have no doubt that, given Donald Trump’s well-documented character of never accepting blame for anything and looking for someone else to blame for everything, he is trying to manufacture a scapegoat. If he spent more time doing his job and less looking for a way of explaining why he didn’t do it, things would be a lot calmer these days.
Just as there is no one in Beijing who has ever had any experience with a recession (in fact, less than 5 years ago many Chinese government officials in charge of economics, finance, and statistics all solemnly averred publicly that not only would China not have a hard landing or a soft landing, but that China could never have any landing…such was the unmitigated arrogance. And now they have problems that they can no longer ’massage’ away any more than they can continue to ignore. In the first half of 2019, according to the SCMP on August 6th/19, 30 of 31 provinces lost money – only Shanghai was flush. With banks in China officially starting to fail, there is a limit to how many “systemic risks” the Government of China can afford to bail out/prop up. But, if they continue to support the official misdirection, just some of which is listed immediately below, they run the huge risk of a tsunami instead of a flood:
- Xinhua, the official news service of China, published on August 9th, 2019, the figures (sic) from the National Bureau of Statistics which stated that the CPI year-on-year to the end of July was up 2.8% and compared same with that of June which was 2.7%. Oh, yes, consumer prices were up 0.4% for the month. That’s fantastic news – the only problem is that it is as fake as Donald T’s promises. Just as an example, watermelon, which is a major fruit in China at this time of year, is up over 50% over last year. China is experiencing drought interspersed by torrential rains – crops are ruined and the price of everything is up into double and even triple digits. These official government statistics are not worth the toilet paper on which they were calculated.
- And then we get the pronouncement from Zhang Jun, the Dean of Economics at Fudan University, who proclaimed on August 7th/19 that, “China is using its long term planning and robust implementation policy not to entrench state capitalism, but rather to advance economic liberalisation and structural reform.” Good one, Zhang – and pray tell how you reconcile those highbrow phrases with ongoing state support for SOE zombie companies, the lack of any bank funding for non-government companies, the ongoing rolling over of bad debts at full value at most banks etc. & etc.. If that is “economic liberalisation”, the previous state of affairs must have been quite interesting.
- Again on August 7th, SCMP reported, “Surprise stability in China’s July trade data”. Presumably shipments were up at an amount that I refuse to even present here – there are limits. Seeing as EU purchases are down and US purchases are down (according to arrivals of containers at major ports), I am more than somewhat sceptical – let’s see what they come up with as time goes on.
What is even more important, though, is what China is doing, not what it is saying. And what it’s doing is buying Brazilian soybeans (BBG Aug. 8/19) even though those from the USA will be cheaper once all costs are calculated. It is maintaining the pressure on Donald and sending a message that its face will NOT be lost, cost be damned (and I have to agree that mianzi (face) is everything)…unfortunately, Donald doesn’t understand the message and isn’t listening anyway. The thing is, Brazil cannot supply all of China’s needs. In addition, China has curtailed the purchase of US oil even though that is for sure the cheapest band most dependable source of supply and is, instead, purchasing from both Iran and Venezuela, both of which are on the US embargo list. To rub DT’s face further in it. China is providing additional assistance to the antiquated oil infrastructure of Venezuela (and reputedly in Iran as well).
China also has increased its coal imports 21% this year and has issued a 500% increase in permits for new coal mines in the first half of 2019 (Reuters, Aug. 6/19). So much for its commitment to clean energy. And none of this measures increased domestic production. Just saying!
On yet another front, China (Hustle, August 8th/19) has been trying since at least 2009 to change the world’s reliance on the US currency for international transactions. That said, 90% of ALL foreign exchange trades are still denominated in US$ – 62% of all central bank foreign reserves consist of US currency (just FYI, in 2nd place is the Euro at 21%). Russia, too, has been engaging in the same efforts. And both countries have been buyi9ng any excess gold that they can get, something that I mentioned several months ago when gold was languishing around $1200/oz….last week it exceeded $1500. The Chinese Government would like nothing better than to have the RMB become a world currency and they have been talking it up with every tame journalist they can find. The thing is, no one is going to trust the currency of a country where they don’t even have a firm grip of how much they owe to whom. Just as an example, Russia, which needs the Chinese trade in oil, lumber etc., even more than China needs it (which is saying something) prefers to do barter.
Finally, the New York Times on August 7th/19 wrote an article outlining that there were US$200 billion of IOU’s circulating in China – considering that these represent a return to the days before China was ‘open’ and SOE’s issued them to each other, it is a sobering return to yesteryear, whether the amount is drastically understated or not. Such is the perilous state of China’s internal finances.
The world is a globe and it is trade interconnected – that is what globilization means, people. With that, there is a corollary that borders become more porous, that information is more easily transmitted – for, after all, if information was not available, how could people know what to trade where, and at what prices? So, whether leaders like it or not, their dictatorial instincts will be under increasing inspection externally and, most importantly, internally. Obfuscations, lies, and worse will see the light of day. The efforts of China to rally the nations of Europe to its side in the dispute with the citizens of Hong Kong (SCMP, Aug. 7/19) is as doomed to failure as is its effort to smear the US with appellations such as that of, “gangster logic” (SCMP August 9th/19). The rhetoric and actions of 40 years ago just won’t stand up in today’s world and the efforts to use them bring ridicule on the proponent thereof. China’s urging of the citizens of Hong Kong to stand up to the protesters (in Hong Kong), to “stand firm and guard our beautiful motherland” ignores the fact that it is the overwhelming majority of the citizens Hong Kong who are protesting the illegitimate usurpation of their rights. Attempting to portray their protestation (rioting notwithstanding) as illegitimate when it is their enshrined rights that are so clearly being trampled naturally brings into question the legitimacy of any government who makes such claims. The governments of the EU won’t touch the issue of China being right with a barge pole and the Chinese government’s efforts to persuade them rings them only discredit as well as showing how out of touch with reality they are. The people are singing but the government has not only refused to listen, it has covered its ears and buried its head. Let us hope that sanity and reason aren’t buried as well.
Thanks for reading.