No Doubt!

As we close off this decade, I have come to the conclusion that logic and common sense in today’s world are, far from being attributes, quite probably more in the nature of currently being liabilities than anything else.

We evidently live in an age where respected economists such as Mohamed El-Erian (Project Syndicate, December 16, 2019) warn that “(The) Global Economy’s Luck May Run Out”, and this not only doesn’t move the market, it sinks without the proverbial trace.

We live in an age where liars prosper and lies gain traction. People, saying that something is true doesn’t make it true, no matter how many times it is repeated. Sooner or later the truth will reassert itself and history has consistently demonstrated that, when the truth manifestly reappears, it will be angry for having been denied. Much noise has been bruited over all the progress (sic) that has been made in and with China in the last few weeks – tell that to the 2 Canadians who are languishing on spurious charges in a Beijing prison without access to books, exercise, family visits, or even darkness for sleep. It will be a great comfort to them, no doubt.

So let’s examine this ‘new’ (sic) China – as The Donald has touted to all who will willingly or otherwise listen, and as numerous news organisations have reported, China is going to ‘open access’ to multiple industries; oh, and also change the way State-Owned Enterprises (SOE’s) are managed blah blah blah. Hey, this song (like the North Korean one) has been played before, too many times. So let me give you some recent examples:

• Financial Unease in Shandong

There was news on December 16th that there was a lot of financial unease in Shandong Province (one of China’s richest) due to financial cross-guarantees among private corporations, as some of them were in trouble. This was followed a few days later by news that a bank (part-owned by Singaporean interests) was in trouble. This was followed by news that the companies almost in entirety were ‘stabilized’ by various guarantees and ‘assurances’ and that the bank itself would receive a hefty injection of funds from a provincial government source. “Neng zhe bu nan” – Mandarin for, “the more it changes, the more it stays the same” …no doubt at all.

• Huawei – a private enterprise?

On December 24th, The Wall Street Journal came out with a report that stated that Huawei, yes – that Huawei – you know the one that declared itself multiple times to be a “private enterprise” with “no government involvement” – was actually financed/subsidized/underwritten by various government agencies to the tune of US$ 75 billion and, just so we are clear, that does NOT count money that cannot be ‘found’ (eg: from any PLA sourcing), nor does it count rules that were bent and relationships that were forged. But private is as private says – no doubt!

• Forged Relationships

Speaking of forged relationships and how SOE firms will be presumably held to a stricter accountability, it is interesting to note that two SOE Chinese auto firms, SAIC and GAC, who are caught squarely in the crosshairs of massively declining Chinese auto sales, have now ‘independently’ decided to join their e-auto technology divisions. Serendipity, no doubt.

• Relaxed Environmental Standards

And, while the Chinese Government on December 26th (or thereabouts) maintained that they will not stop in their drive for ongoing and increasing environmental controls, I had reported in a previous Global Gab that environmental standards were being ‘relaxed’ (such an innocuous word covering such a number of sins) as the economy slumped. Air quality in a number of cities was getting worse. On December 2nd/19, Bloomberg made the same contention, saying that coal use was increasing as the economy was decreasing. Happenstance, no doubt.

Oh, wait, there’s more – let’s look behind Door #2! Let’s talk about forged – what do you call fraud by any other name, financial legerdemain? On December 8th/19, a firm named Maike Tube went public on the Hang Seng (Hong Kong) Stock Exchange – the same day, it was up by 84% and yet, by the end, closed at -5.7% – all in the same day! On yet another note, a public stock company (Shenzhen) called Tunghsu Optoelectronic showed RMB18 billion cash surplus in its accounts at the end of September – as of December 3rd, they were unable to pay out on 3 relatively minimal bonds that had become due; no word where that cash money went. Given that, that fraud of another public stock company, Kangde Xin (reported in Global Gab #19), of c.RMB 12 billion in overstated profits over 3 years seems like a mere bookkeeping bagatelle. Free market capitalism at its finest, no doubt!

According to Bloomberg on November 29th/19, overall China-based debt had climbed to 250 trillion yuan by the end of 2018, a 5-fold increase in 10 years. Just FYI, Fitch on December 16th/19 reported that bond defaults of officially non-SOE firms amounted to 4.5% through October for the first 10 months of 2019. But, hey, no harm, no foul, no doubt!

So, if it seems like a mess, it is – but there is something that I was saving for last. According to the Gatestone Institute, on January 1st, 2020, the Government of China will implement a new law with immediate effect – all companies, domestic or foreign, will be obligated to give the Chinese Government unfettered and complete access to their servers. Yes, your tech secrets will now be not only not secret so much but not secret at all. Before, they had to effectively one way or another buy it or steal it – now, in “open China”, it is going to be handed to them. No wonder they are opening industries up – all these companies rushing to establish subsidiaries (eg: J P Morgan, MasterCard) and invest countless millions – they are not just giving away their tech, they are financing their own competition ! But, as Donald said, “trade wars are easy to win” and, with Donald, we all know that facts only get in the way – of that, there is unfortunately no doubt at all.

Best of luck for 2020 – we are all going to need it.

Bennett Little

Comments – questions?

benlittle@facetedproducts.com