The ballooning debt crisis could delay the prospect of a recovery of both the property market and the broader Chinese economy, in which real estate is a core pillar.

Country Garden, once considered to be financially sound and stable, failed to pay the interest on two of its bonds due in August and narrowly avoided default by making the interest payment hours before a 30-day grace period ended on September 5.

It also failed to pay an interest of $15 million on a bond that was due in September but was granted a 30-day grace period.

Country Garden’s liabilities of 1.54 trillion yuan were the highest among the top-25 real-estate companies in China, and it was among seven to have reported a loss.

China Evergrande finally stopped trading today. That’s more than two years since the initial signs of trouble arose. Meanwhile Country Garden is trending lower with no real evidence a viable rescue package is about to be provided. That’s not good news for foreign investors in the company’s bonds.

China Evergrande Group is running out of time to get what would be one of the nation’s biggest-ever restructurings back on track, after setbacks in recent days that raise the risk of liquidation.

The string of surprise developments include scrapping key creditor meetings at the last minute, saying it must revisit its restructuring plan, detention of money management unit staff and an inability to meet regulator qualifications to issue new bonds.

That last item is a major setback to its planned restructuring of at least $30 billion of offshore debt that would have creditors swap defaulted notes for new securities. Evergrande’s shares plunged as much as 25% Monday.

At the epicenter of China’s property crisis, Evergrande is under pressure to finalize a blueprint for its offshore debt restructuring as it grapples with an even bigger pile of total liabilities that amount to 2.39 trillion yuan ($327 billion)—among the biggest of any property firm in the world. The clock is ticking. The company faces an Oct. 30 hearing at a Hong Kong court on a winding-up petition, which could potentially force it into liquidation.  

The distressed real estate giant said late Sunday it couldn’t satisfy requirements of the China Securities Regulatory Commission and the National Development and Reform Commission to issue new notes. It cited an investigation of subsidiary Hengda Real Estate Group Co., without elaborating. The unit said in August that CSRC had built a case against it relating to suspected information disclosure violations.

The challenge in observing trouble in property markets is how long it takes for the unwind. China Evergrande first collapsed two years ago. It may yet be restructured but the bigger emerging issue is Evergrande’s problems are probably the thin end of the wedge when it comes to China’s property sector.

Instead, his government looks like it’s in disarray. Xi’s mysterious purge of his foreign minister in July, followed by the reported ouster of his defense chief less than two months later, is making China appear unstable to the outside world. The Chinese leader also overhauled the generals overseeing China’s Rocket Force, which manages the nation’s nuclear arsenal, without giving an explanation.

And those are just the firings that have been made public. 

While most analysts don’t see any threat to Xi, who has amassed more power than any leader since Mao Zedong, questions are being raised about his management style. Morale within the Foreign Ministry in particular is very low, with anxiety running high among a group of bureaucrats that see themselves as professional diplomats who don’t want to get caught up in political power plays, according to Chinese officials who asked not to be identified discussing sensitive information. 

Occasional purges of high profile cadres is a de rigueur for authoritarian regimes. If one’s position is improved by official dictate it can just as easily be erased by official dictate. It’s easy to gloss over what a controlled economy really means when the direct of control is one’s interests. The challenge for global investors today is there are significant doubts about whether the Chinese administration is aligned with their best interests.

It is impossible to say how far the Chinese would prepare for a full-scale war with the US in the scenario of a blockade. It’s estimated by Western experts that that it would need a minimum of four months to be ready for prime time. The dilemma for Chinese strategists is that, if there is to be a war with the US, they would be better off striking the first blow, probably by attacking American naval assets in the Indo-Pacific, exploiting the classic vulnerability of ships in port.

Taiwan’s younger generation have no personal memory of the flood of refugees fleeing Communist rule. There has been a generational change and the continued success of the Democratic Party is a clear sign the population has no intention of ever recombining with China voluntarily. Therefore the are only two ways Taiwan can be encouraged to come back to the mainland fold.

The first is economic. Right now, Taiwan is a geopolitical jewel because of the strength of the semiconductor sector and the local ecosystem that supports it. However, the semiconductor sector has always been cyclical, capital intensive and low margin. That’s why companies were willing to stop competing for the prize of being the most efficient.

“We are foreseeing that the peak steel demand in China is about to be reached,” he said during an interview at Bloomberg headquarters in New York. “Not because the Chinese economy is not growing, but just because of the maturity it has reached.”

The notion that China’s steel market is poised to contract this decade — after many years of breakneck growth — is widely held across the industry. Rio’s rival BHP Group reckons annual output has reached a plateau just above a billion tons each year that will stretch into 2024. Analysts at Capital Economics Ltd.
said demand and supply probably peaked in 2020.

China is currently restocking iron-ore inventories as demand increased following the end of lockdowns. However, the medium-term risk is that uncompetitive steel mills will shut down as the property sector goes through a downshift in new construction.

China has more steel production capacity than the rest of the world combined. Maybe they will repurpose that into production of military equipment which would support iron-ore demand.

China’s economy picked up steam in August as a summer travel boom and a heftier stimulus push boosted consumer spending and factory output, adding to nascent signs of stabilization.

Industrial production and retail sales growth jumped last month from a year earlier, blowing past expectations, while the urban jobless rate eased slightly. That improvement came as the government has in recent weeks beefed up pro-growth measures, including plans to spur more spending on home goods and ease curbs on some housing purchases. 

“Perhaps the peak pessimism is behind us,” said Ding Shuang, chief economist for greater China and North Asia at Standard Chartered Plc. “August’s data indicates that the economy is unlikely to suffer from a persisting, deeper downturn going forward even though there might still be some volatility ahead — especially if we take into account the policy factor.”

The times when China’s market does best are when the government says it should. We are not yet at that point, but it is looking more likely than not as the number of property developers in trouble increases.

Banks are liquidity providers. When they are doing poorly, their inability to increase loan issuance has a knock-on effect for the wider economy. When they do well, loan issuance increases and liquidity flows into the wider economy. That helps to support asset prices. Therefore banking sectors tend to be lead, or at least coincident, indicators for their respective economies.

An inverted yield curve is a particular challenge because the sector’s basic business model is to borrow short-term to lend long term. When that happens, they need alternative business models to supplement income and thriving is more difficult. That’s why the performance of banks around the world at present is such an interesting development.
The Nasdaq Global Bank Index has held a sequence of higher reaction lows since late last year and is now firming from the region of the 200-day MA. Long-term it has been forming a base for the last 15-years.  A sustained move above 1000 will be required to confirm a return to demand dominance beyond 18-month bouts of enthusiasm that do not translate into long-term uptrends.

“Unity Plus is being retired for new subscribers effective today, September 12, 2023, to simplify the number of plans we offer,” Unity wrote. “Existing subscribers do not need to take immediate action and will receive an email mid-October with an offer to upgrade to Unity Pro, for one year, at the current Unity Plus price.”

A Unity Plus subscription was about $400 per year. After that one year, however, it stands to reason that those former Plus users will have to pay the new Pro rate, which is currently over $2,000 per year.

Developers are also concerned these new fees could impact digital preservation efforts as now game makers are seemingly incentivized to delist older games so they aren’t charged for them. There’s also the question of how Unity plans on tracking installs and whether or not such tools run afoul of government privacy laws. Here’s a tweet from the official Unity account explaining how it intends to monitor a game’s installs.

The basic business model for software companies is to give it away for free so they can build an installed base. Then make the product good enough that it is indispensable to the end user. Then start charging for it in the hope enough users will accept the change to sustain the business. The companies that have succeeded in implementing a charging model like Google and Meta Platforms have multiplied in value. Those which have failed like Twitter have not.

The Pro+ similarly emerged without the typical marketing and fanfare surrounding a major product launch. A brief teaser video posted to Huawei’s Weibo account showcased a device very similar to its lesser cousin, with the same outsized back-camera array.

The new devices have spurred an outpouring of nationalist sentiment on Chinese social media and were picked up by domestic news outlets that touted Huawei’s advances as a victory against sanctions.

The big question many media outlets are pondering is why Xi Jinping stayed home from the G-20. Perhaps he has bigger concerns. The currency is at a new low, government bond yields are rebounding from their lows and the stock market is straining under the threat of a property sector mishap.

“With inventories relatively low, the prospects of further stimulus measures triggered restocking across commodities, which should keep demand strong in the short term,” ANZ Group Holdings Ltd. said in a note after Chinese customs released its latest trade figures on Thursday.

Still, the country’s recovery from the pandemic has fallen well short of expectations and confidence among households and businesses is fragile. Deflationary pressures in the economy and a weaker currency have added to the headwinds faced by importers, although fears that the yuan will slide further may have motivated some to front-load purchases.

A jump in Chinese demand for industrial commodities would normally be cause for celebration among miners. China’s demand growth has been one of the primary reasons investors have been willing to give credence to the view that a new secular bull market in commodities is unfolding. The problem is the narrative does not match up with the price action.

China also was one of the highlights of Apple’s results last quarter, helping offset a generally sluggish period. The company is preparing to unveil its latest iPhones next week, setting the stage for a holiday quarter that is invariably its biggest sales period of the year. 

It’s highly unlikely Chinese chipmakers can squeeze more out of old tools to get them beyond 5nm, which means they’ll be stuck while foreign rivals continue to advance. And if they do make further breakthroughs, the US and its allies have plenty of ways to tighten up their curbs, including broadening the scope of the equipment ban and adding materials to the list. 

Predictability in the semiconductor sector ended in 2017 when the International Technology Roadmap for Semiconductors was last published. Instead of 18 months it now takes around 30 months to deliver the next generation of chips. That’s what the end of Moore’s Law amounts to.

As the physical limits of silicon are approached, the difficulty of cooling a chip becomes exponentially more difficult. A silicon atom has a diameter of around 0.2nm, so transistors with a diameter of 3nm are already very close to the physical limits of the atom. This has created a bottleneck in chip innovation because totally new technology will be required to deliver fresh innovation.

The reason new computers come with both a CPU (central processing unit) and GPU (graphics processing unit) reflects that bottleneck. Nvidia’s success is based on providing chips designed specifically for a dedicated task. That limits potential but maxes out utility for that single use case. The model works well because most chips are only used for a small number of similar functions.

PDD in recent years has used promotions to grab market share from more established Chinese rivals including Alibaba Group Holding Ltd. and JD.com Inc. In an attempt to replicate that success abroad, it created Temu, which was introduced with much fanfare during this year’s Super Bowl.

Since it launched last year, Temu has exploded into one of the top US apps, targeting cash-strapped Americans with cheap unbranded products shipped directly from Guangzhou, China. In just seven months, the app has been downloaded 50 million times.

The roll-out hasn’t been without hiccups. Temu is burning through money and squeezing its suppliers in a bid to take on Amazon.com Inc. It’s also involved in lawsuits with rival Shein over antitrust matters.

The question Temu is exploring is where the interchange between price and convenience resides. Amazon delivers convenience better than anyone else and charges a premium. Target, Wal-Mart, or Costco supply cheaper products, but nowhere near the same level of convenience. Temu supplies bargain basement prices that appear too good to be true. It does not have in-country fulfilment centres, so convenience is not measurable, and returns will inevitably be problematic.

“The measures over the past weekend are not enough to stem the downward spiral” and their impact will be short lived if not followed by measures for supporting the real economy, Ting Lu, chief China economist at Nomura Holdings Inc., wrote in a note. “Without additional and more aggressive policy stimulus, these stock-markets-focused policies alone have little sustainable positive impact.”

Earlier this year, it looked like there could be a run on a large number of regional banks. The Federal Reserve waded into the market and backstopped every deposit. That was a strong clear signal that no one should worry about the security of their bank accounts. The sector rebounded emphatically over the next several months despite the Fed continuing to raise rates. Did the Fed’s action contribute to moral hazard? Yes. Was it the right decision at the time. Also yes.

But where Biden has opted to run his economy hot, spending trillions of dollars on household stimulus and infrastructure to goose the economy, Xi is running his cold in a bid to finally break China’s addiction to fueling growth with speculative apartment construction and low-return projects funded by opaque local borrowing. If China is a “ticking time bomb,” Xi’s aim is to defuse it.

The clash of economic philosophies between the world’s two largest economies is already shifting investment flows and may delay the date at which China overtakes the US, or perhaps mean that moment will never arrive. The risk for Xi and his team, led by Premier Li Qiang and Vice Premier He Lifeng, is that the determination to avoid excessive stimulus undermines confidence across the nation’s 1.4 billion people. 

China’s banks are organs of the state so they will have to make loans if so directed. Today’s data suggests they are not going to do so until directed. When credit is withheld from the property sector it has a self-reinforcing effect. If consumers can’t get loans, they can’t buy homes and developers are unable to finance construction. China is looking at a very dangerous environment because property development and infrastructure represent a massive chunk of the economy. That has potential repercussions in every commodity exporting country.

The move is the latest example of how President Xi Jinping’s government is limiting access to information in order to more closely guard data it deems sensitive and manage the narrative about the weakening economy.

China has over the past year limited access to corporate data, court documents, academic journals and raided expert networks serving businesses, hampering investors’ ability to assess the economy. Officials have also been downplaying economic risks like deflation, with some Chinese-based analysts saying they were instructed by regulators and their companies not to discuss the matter publicly.

When everything is going well the opacity of data is ignored. There have been doubts about the accuracy of China’s data for decades, so it is hardly surprising they have given up on printing data which does not gel with the official position. It is being viewed as a negative today because the problems are deep and the response is not what investors have come to expect. Cutting interest rates has only confirmed the depth of the issues facing the Chinese property/infrastructure sectors.

Missed payments on multiple high-yield investment products by a major Chinese shadow lender may trigger a “vicious cycle” for property developers’ financing and more delinquencies for trust products, JPMorgan Chase & Co. warns.

Liquidity stress is intensifying for indebted developers and their non-bank creditors after a unit of Zhongzhi Enterprise Group Co., one of China’s largest private wealth managers, failed to deliver on-time payments for multiple products, the US bank’s analysts including Katherine Lei wrote in a report Monday.  

About 2.8 trillion yuan ($386 billion), or 13% of China’s total trust assets, may see rising default risks, given their exposure to the property industry and local government debt, the report says. Up to 80% of local government financing vehicles may not be able to repay their debt principals, JPMorgan estimated.

“The trust defaults may set off a vicious cycle on POE (privately-owned enterprise) developers’ onshore debt,” the analysts wrote. “This follows that rising concern of developer defaults weakens investment sentiment and, as a result, trust companies may not be able or willing to roll over existing real estate-related products.”

When Chinese investors talk about trusts, they are a totally different product to what most global investors are accustomed to in their home markets. Trusts in China ballooned in popularity about a decade ago. They were set up as a way for wealthy private individuals to get guaranteed and outsized returns from investing in property. The sales pitch highlighted how the government never allowed defaults, so investment was risk free. Just how inaccurate that statement is has been highlighted on several occasions over the last several years.

A 5.5-magnitude earthquake that hit the Eastern Chinese province of Shandong in the early hours of Sunday caused the collapse of 126 buildings and injured at least 21 people, according to early reports from state media.

The quake struck the county of Pingyuan in the Dezhou city at 2:33am Sunday, Xinhua News Agency reported. No leaks were found in oil and gas pipelines and power supply was normal, the report said. 

State-run CCTV later said the quake may have had a maximum magnitude of 7 at a depth of 10 kilometers and warned that there may be more casualties, citing data from the China Earthquake Administration. 

The slew of natural disasters in China over the last week, from record floods to earthquakes, offers ample scope for the government to change course and provide the fiscal stimulus the economy needs. How China decides to deal with the slowdown in the property sector will have global repercussions.

They’re betting a more forceful pro-growth tone from the top will be enough to fuel a tradeable rally — and may auger more success in tackling China’s wide array of challenges from mountains of local government debt to a slumping housing market.

“Clearly, markets have been disappointed as they anticipated more rapid improvements, but they are now beginning to rationalize their growth expectations,” said Andrew McCaffery, global chief investment officer at Fidelity International. “Our view is that this somewhat unexciting period will eventually give way to a more positive market tone.”

The big question is whether the follow-through from authorities will sustain the rebound. Brief bursts of optimism as China emerged from strict Covid restrictions have repeatedly turned into losses, making Chinese markets among the region’s worst performers amid a stream of grim economic data.

The Chinese stock market depends on the patronage of the government to instill enough confidence to propel bull runs. So far, the market has been long government platitudes but short on action. That has resulted in several rebounds from deep oversold conditions, only for the rallies to fail as the absence of a big-bang action weighs on confidence.

Investors have also been shielded slightly by Europe’s approach to real-estate valuations, which doesn’t take market sentiment into account. With sales largely frozen, there have been few deals to measure the true decline in values. Inflation-linked rent increases have helped as well.

Nonetheless, opportunists are circling, ready to offer expensive new debt to refinance buildings whose owners can’t inject capital. Oaktree and other alternative-finance providers have held talks with Korean asset managers about large loan facilities to let landlords restructure investments, according to a person familiar with the discussions. Oaktree declined to comment.

Funds under pressure to extend the maturity of their borrowings are looking to inject more capital or inviting mezzanine investment rather than dumping assets on the cheap, says Yoon at Savills, who adds that a few have pulled sales. Increasingly, however, owners are following No. 1 Poultry’s path and having another crack at selling after several failed attempts last year — as seen with the rush for the exit in London.

In Seoul, meanwhile, there’s deepening unease about how the endgame will play out for domestic investors. “With overseas commercial real-estate assets declining, there are significant concerns about distress,” says Oh.

In London, a friend signed a seven-year lease for a suite of offices in early 2020 to accommodate 50 people. The rent was £33500 a month. Today half the workforce is gone and the remaining people spend most of their time working from home. Finding a sublet has proven difficult and rents have contracted substantially. Healthy companies can take the hit but those without financial resources will be closer to failure. That’s not good news for the commercial real estate market.

Richemont led luxury-goods stocks lower amid concerns that demand in the US and China, two of the biggest markets for the industry, is starting to sputter.

The Swiss owner of Cartier reported a surprise drop in revenue from the Americas in the three months through June.

While Richemont’s sales from Asia rose sharply, China reported slower-than-expected economic growth Monday, signaling signs of a possible pullback in consumer spending.

Richemont fell as much as 8.2%, the steepest intraday decline in more than year. LVMH dropped as much as 3.7% and Hermes fell as much as 4.2%.

The luxury-goods industry has been counting on a rebound in China after that country’s reopening would make up for weakness in the US market. Now Richemont and its peers are contending with the prospect that its two main growth motors are weakening.

Last week, Burberry Group Plc said the low end of the luxury market in the US softened.

Aspirational spending is heavily dependent on disposable income and availability of credit. The luxury goods sector thrived during the pandemic because consumers were flush with cash and had fewer options to spend it since travel and sports events were shut down. The sector leaped higher again when China’s lockdowns ended because investors were betting the post pandemic celebratory spending would be repeated. That has not been the case.

At stake was a report published by Goldman analysts including Shuo Yang last Tuesday, which highlighted margin risks and potential credit losses from banks’ exposure to local government debt. Yang, a former official at the China banking regulator, estimated that the “implied loss ratio of credit portfolio in debt investment book” could reach 25% for Merchants Bank, compared with 6% on average for lenders under its coverage.

A representative for Goldman declined to comment.

Shares of Merchants Bank have lost 12% in Hong Kong since Goldman cut its target price for the second time in three months with a neutral rating. The US bank now has one of the lowest target prices for the Chinese lender, according to data compiled by Bloomberg.

Merchants Bank argued that Goldman’s report is “illogical” in the way it calculates the potential losses, “lacks basic common sense,” and also overestimates its exposure to the local government financing vehicles. 

The Chinese banking sector is independent in name only. The government has no qualms about using the sector’s resources to further its long-term development goals. When that means supporting infrastructure development to industrialise the economy, banks were forthcoming with loans and earned strong margins. Now that government priorities have changed, bank liquidity is constrained and asset quality is deteriorating. 

If the government continues to sit on its hands, things could get worse. In a scenario where property construction crumbles, reduced land sales hit government spending, a US recession weakens global demand and China's markets shift to risk-off mode, Bloomberg's SHOK model shows another 1.2 percentage points shaved off growth.

“We’re caught in a kind of vicious circle in the sense that you need a massive stimulus to create a little moderate impact," said Keyu Jin, an economics professor at the London School of Economics and Political Science who wrote The New China Playbook: Beyond Socialism and Capitalism.

“We have to be prepared for slower growth in the future because China is really in transition right now from industrialization to innovation-based growth," she said. "Innovation-based growth is just not that fast.”

To be sure, China's policymakers have defied the doomsayers before and could do so again. A bigger-than-expected stimulus, proactive moves to resolve bad debts, a commitment to support entrepreneurs and extending an olive branch to the US could dispel some of the pessimism.

This is not the first time that the Chinese government has been faced with debt issues and a domestic slowdown. The massive devaluation of the Yuan over the New Year holiday in 1994 and subsequent fixed exchange rate was aimed at getting inflation under control. In the early 2000s most of the state owned banks had to be recapitalized and bad banks were set up to manage the debts. 

China’s consumer-driven recovery is showing more signs of losing momentum as spending slows on everything from holiday travel to cars and homes, adding to expectations for more stimulus to support the economy. 

Domestic travel spending during the recent holiday for the dragon-boat festival was lower than pre-pandemic levels, according to official data released this weekend. Home sales figures are below the level in previous years, while estimates for June car sales showed a drop from a year ago.

The rebound in consumption after China shed its Covid controls has propelled growth so far this year, but confidence is weak and evidence is mounting that the economy may need more help. After the central bank cut policy rates earlier this month, economists raised their expectations for more monetary and fiscal stimulus, and state-run media outlets have also published a series of articles in recent days highlighting possible avenues of support.

Consumer spending in China is falling but the other side of that equation is savings are approaching record highs. If Chinese consumers are refusing to buy properties, durable goods, and trinkets that points towards a deflationary outcome. The knock-on impact would be lower demand for commodities and the goods many emerging markets export.

“China is more likely to be a headwind than a tailwind for demand over the next decade,” they said. The China super cycle, driven by urbanization and industrialization, is over, and the energy transition and decarbonization cycle has just begun, the analysts said.

Asia’s largest economy has been a crucial support for metals markets over the last two to three decades as the country went on an infrastructure-building binge. However, China’s plodding post-virus recovery shows it may lack the horsepower required to buoy global demand as it transitions to a more service-oriented economy.

That dynamic has been reflected in markets this year, with most metals falling even after Beijing abandoned its Covid Zero policy at the end of last year.

Iron ore declined 0.7% at 12:46 p.m. Singapore time to $110.85 on Friday and was down 2.3% for the week. The steel-making staple has now wiped out all of its gains from earlier in the year as optimism about China’s recovery faded.

I have been to more than a few talks over the last couple of years where the speakers predict supply of copper, nickel, cobalt and iron-ore will need to at least double over the next decade to meet demand from the energy transition. The point I have laboured to make in the videos is demand is less volatile than supply, but it is not a constant. 

Chinese President Xi Jinping told Secretary of State Antony Blinken it was “very good” the two sides had made progress in steadying ties between the world’s two largest economies during his trip to China.

“I hope that through this visit, Mr. Secretary, you will make more positive contributions to stabilizing China-US relations,” Xi told the US diplomat in Beijing on Monday, according to a Chinese Foreign Ministry statement. 

“The two sides have also made progress and reached agreements on some specific issues. This is very good,” he said in a video clip of the meeting posted by state broadcaster China Central Television, without elaborating.

The exchange of views between US and Chinese diplomats has been described in several outlets as candid. This interview of Rahm Emanuel, former White House chief of staff and current ambassador to Japan, is a good example of just what candid means. 

“The focus will be if the Chinese authorities deliver, and whether what is delivered surpass expectations or not,” said Redmond Wong of Saxo Capital Markets HK Ltd. “Investors have become impatient with incremental measures and want a more expansive and aggressive package in one go.”

The government is finally starting to act — there are the rate cuts, and Beijing is said to be preparing a host of measures to boost the economy and the struggling property sector. The key, though, is that investors and companies want a comprehensive package rather than piecemeal measures.

Strategists and investors are already guessing as to the nature of the measures. Bets are mounting that loan prime rates will be cut next Tuesday. Macquarie Group Ltd. expects a 10-basis-point reduction in the one-year rate and a 15-basis point decline in the five-year. 

China is one of the major levers of global liquidity. The extent to which they are willing to support their economy will play a significant role in speculative interest globally.

“Over the last 30 years, while China specialized in becoming the world’s factory, India specialized in becoming the world’s back office,” said Duvvuri Subbarao, a former governor of the Reserve Bank of India. “Over the years, India moved up the value chain,” he said. But it can’t “take its comparative advantage for granted.”

India has roughly 1,600 of the centers, more than 40% of the number worldwide, according to Nasscom, a trade body for the country’s technology industry. Dotted around Bengaluru, formerly known as Bangalore, are the offices of luxury retailer Saks Fifth Avenue Inc., aircraft-engine maker Rolls-Royce Holdings Plc, US bank Wells Fargo & Co. and Japanese e-commerce firm Rakuten Group Inc. Some 66 global companies set up their first GCC in India in 2022. Even the lingerie brand Victoria’s Secret & Co. has a Bengaluru GCC.

The Siemens Healthineers GCC in Bengaluru. India has roughly 1,600 of GCCs, more than 40% of the number worldwide, according to Nasscom.

The offices generated about $46 billion in combined revenue in the fiscal year ended March, more than the output of Nepal. 

The qualities that turned India into the world’s back office starting decades ago are propelling GCCs’ metamorphosis: a vast pool of young people, an education system that emphasizes science and technology, and the lower staffing costs that made India attractive in the first place. Add an unforeseen catalyst: the pandemic, which convinced decision-makers jobs can be done anywhere, including far-flung shores.

“India’s story starts with its demographics and its talent,” said Gunjan Samtani, the country head of Goldman Sachs Services Pvt, the entity that operates the bank’s GCCs in India. A software engineer by trade, he still codes from time to time. “What brought us here even two decades back was our ability to get access to technology and talent.”

The Chindia theme between 2003 and 2010 was aimed at highlighting the fact that two countries account for more than a third of the global population and are among its strongest growth engines.

China had what India did not and vice versa. China excelled at infrastructure development, commodity refining and manufacturing. India had a large domestic consumer market and highly developed value-added services businesses to cater to demand for offshoring. 

The new stimulus package under consideration has been drafted by multiple government agencies and includes at least a dozen measures designed to support areas such as real estate and domestic demand, according to people familiar with the matter. 

A key component is support for the real estate market. Regulators are seeking to lower costs on outstanding residential mortgages and boosting relending through the nation’s policy banks to ensure homes are delivered, one of the people said.

The State Council may discuss the policies as soon as this Friday but it’s unclear when they will be announced or implemented, the people said.

“The aim of stimulus this time is to keep growth ticking over, consistent with the relatively conservative ‘about 5%’ gross domestic product growth goal, rather than to spur a round of robust growth,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics. “Policymakers are still wary of repeating the kind of debt hangover that the Global Financial Crisis stimulus produced and they spent the decade up to the pandemic trying to sort out.”

Property Woes
The weak property market remains a major drag on China’s economy, although policymakers appear reluctant to use its old playbook of driving up investment in real estate as a way to boost growth. Goldman analysts said in a recent report they don’t expect a repeat of the 2015-2018 shantytown renovation program that pumped central bank money into the property sector and sent home price surging.

Beijing is seeking to reduce the economic and fiscal reliance on the housing market, Goldman said, which suggests an L-shaped recovery in coming years.

The old playbook is whenever a problem arises, governments and central banks will open the sluice gates of liquidity to make it go away. In the 15 years since the global financial crisis that has been the mantra every investor has learned to live by. The belief nothing has really changed is the primary reason for bullishness on Wall Street today. 

A mountain of developer debt — equal to about 12% of China’s GDP — is at risk of default and poses a threat to financial stability, according to Bloomberg Economics. That’s despite a slew of existing support measures for the industry, which include: 

Lower mortgage rates for first-home buyers if newly constructed house prices drop for three consecutive months
A nationwide cap on real estate commissions to boost demand
Allowing private equity funds to raise money for residential property developments
Pledging 200 billion yuan ($28 billion) in special loans to ensure stalled housing projects are delivered
A 16-point plan unveiled in November that ranged from addressing the liquidity crisis to loosening down-payment requirements for homebuyers

Speculation about further policy support helped propel a gauge of Chinese property developers to a more than 6% gain on Friday before the Bloomberg report, the most since December. In the coastal city of Qingdao, the government this week lowered the down payment ratio for first- and second-time home buyers in areas not subject to purchase restrictions, local media reported earlier on Friday.

Everyone can agree that moral hazard is a problem for economists. Create an incentive and resisting regulation ensure it will be exploited to the greatest extent possible by any and all means possible. Unbridled debt issuance is a hallmark of speculative activity in China. That’s been a clear feature of the housing/infrastructure boom. It was equally evident in the pace with which loans were made to foreign governments and projects as part of the Belt and Road Initiative. 

These topics are becoming more mainstream. When I talk to the most sophisticated macro hedge funds and investors, the common refrain that comes back is they’ve never seen an environment as complicated as this. There is consensus around gold; it’s a safe bet, and everything else is very uncertain. This is a very unique environment. I think we need to take a very, very broad perspective to actively reimagine and rethink our understanding of the world, because things are changing fast. The dollar and the renminbi and gold and money and commodities. I think they are all going to get caught up.

There are a lot of moving parts in the global macro environment. The introduction of AI and the race for dominance is a wholly new development for example. The challenge with making big long-term predictions is that other events can happen before the prediction comes to fruition. 

Chinese company Longi Green Energy Technology Co. cut wafer prices by as much as 31% on Monday. Wafers are silicon squares that are wired up and pieced together to form solar panels. 

The reduction comes after solar silicon prices have plunged by almost half since early February. A slew of new factories have ramped up production, ending a shortage of the material that disrupted the industry’s supply chain last year. 

Longi President Li Zhenguo warned last week that aggressive expansion in the solar supply chain could lead to excess capacity that forces more than half the companies in the industry out of business in the next few years. 

China is the global heavyweight in solar panel manufacturing and not least because several provinces have the same ambition of dominating the sector. If they have decided to embark on a price war to drive the weakest domestic manufacturers out of business, that is near-term positive for consumers but is a significant challenge for global competitors who will not be spared from dumping of excess supply. 

"First, we believe the current growth rate is depressed by the overall softness in consumer discretionary spend," Mahaney wrote of Amazon's retail business, which he expected will grow revenue by 10% this year, compared with 13% last year. An improvement in macroeconomic trends "should enable an acceleration in North American Retail revenue growth."

Further, Amazon could see big revenue benefits as it continues making its shipping times ever speedier. As Mahaney wrote, "the faster the shipping, the greater the demand."

On the cloud-computing side of the business, Mahaney saw the potential for an even more dramatic slowdown in the near term. Revenue there could increase by only 10% or 11% in the second quarter and 16% for the whole of 2023, by his estimates, versus 29% in 2022.

But he also saw room for Amazon to drive a growth inflection after the second quarter of this year, driven by easier comparisons, traction for artificial-intelligence workloads and a relaxation of "optimization" efforts like discounts and bundled renewals.

The reason Amazon is rebounding is because investors are betting its AWS data centres will be used for AI computing resources. There is logic to that assumption since AI requires a multiple of the computing power devoted to cloud or search. 

BYD’s Qin Plus DM-i and Song Plus DM-i models use normal-pressure fuel tanks and therefore purportedly fail to meet the country’s vehicle emissions standards, Great Wall Motors said today, citing the filing it made to the Ministry of Ecology and Environment, State Administration for Market Regulation and the Ministry of Industry and Information Technology on April 11.

Great Wall Motors is paying close attention to the case to see if legal action will be taken, the Beijing-based carmaker said. Environmental protection authorities need to conduct a probe and legal proceedings must be started should the results show any irregularities, it added.

BYD retorted that it reserves the right to carry out legal action of its own and is firmly against any form of unfair competition. All of the Shenzhen-based company’s autos conform with national standards and they have all passed verification by the country’s authorities.

Great Wall Motor bought the two cars and sent them to the China Automotive Technology & Research Center for testing, BYD said. They were not tested according to national-level standards, it said.

In normal times this kind of backbiting might be considered part of normal competition. However, the share prices of Chinese automotive companies suggest a scramble is one for market share amid slowing demand. 

“Many cities will become like Hegang in a few years’ time,” said Houze Song, an economist at US think tank MacroPolo, noting that China’s aging and shrinking population means many cities don’t have the workforce to sustain faster economic growth and tax revenue.
 
“The central government may be able to keep things stable in the short term by asking banks to roll over local governments’ debt,” Song said. Without loan extensions, he added, “the reality is that over two thirds of the localities won’t be able to repay their debt on time.” 

In Heilongjiang province, where Hegang is located, bond investors are already wary of the risks. The province’s outstanding seven-year bond had an average yield of 3.53%, 18.8 basis points higher than the average nationwide, ranking it among the top four most expensive.

The big question for everyone is just how much pain is the Chinese government willing to tolerate? The modest official debt to gdp ratio posted by the government does not include the debt owed by states, counties, or cities; all of which have a quasi-guarantee from the central government. When those debts are included China has one of the highest debt burdens of any major economy. 

Codelco’s production is down by about a fifth from only six years ago. After a double-digit-percentage drop in 2022, it’s expected to fall as much as 7% this year, to 1.35 million metric tons.

Ore quality is deteriorating around the world as existing deposits are depleted and new ones are more difficult and costly to develop. “There’s no easy mining left—not in Chile nor the rest of the world,” said Sougarret at a shareholders meeting on May 2.

Because Codelco is the world’s biggest copper supplier, its production wobbles have greater impact on a market where warehouse inventories are near their lowest levels in 18 years. The company’s travails also have tremendous impact on Chile’s economy: Copper accounts for more than half of the country’s exports and a significant share of the government’s income. President Gabriel Boric’s administration is budgeting a 40% drop in tax revenue from Codelco in 2023 at a time when it’s trying to boost social spending.

When the world is having difficulty sustaining production of a key commodity, it is reasonable to expect prices to rise. That’s generally the best way to attract the risk capital required to bring new supply online. It will not have escaped the notice of traders that copper prices are falling. That suggests one should be more concerned with demand than supply. 

Separately, data from the People’s Bank of China showed credit and new loans were much worse than expected in April as consumers and businesses curbed their borrowing.

“China’s credit data came in well below estimates, reinforcing the concerns over the sustainability of post-Covid recovery,” said Zhou Hao, chief economist at Guotai Junan International Holdings Ltd. Overall growth momentum “has been slowing significantly,” he said. 

Expectations of policy easing has been growing, and a “policy rate cut looks imminent in the second quarter,” he added.

China’s economic growth accelerated to a one-year high in the first quarter after pandemic restrictions were dropped, led by stronger consumers spending on travel and shopping. Recent data has been more mixed though, with manufacturing activity contracting in April and imports plunging.

China did not engage in the same pandemic spending as many western governments. That ensures inflation was kept under control. Instead they decided to use the pandemic as a means to curtail speculation in the housing sector which was the exact opposite of what happened in other countries. That has helped to keep government bond yields contained and the trend is still lower. 

With China’s reopening trade stalled, Chinese investors are betting on a pledge by Beijing to let state-owned firms have access to more capital and play a bigger role. New guidelines on bond sales by SOEs is seen as another step in the reform as President Xi Jinping reshapes the economy. The frenzied trading has also been attributed to moves by three nationwide lenders to cut deposit rates to boost profit margins. 

It’s a “valuation system with Chinese characteristics” story, said Willer Chen, a senior analyst at Forsyth Barr Asia Ltd. Some investors are also “seeing value in bank stocks because their valuation is cheap and dividend yields are attractive, despite the shrinking net interest margins and weak
Q1 results.”

For now, much of the gains may be driven by sentiment, rather than fundamentals. Chinese lenders posted a tepid set of first-quarter earnings as they faced deeper margin woes despite being sheltered from the recent global banking jitters. Analysts say the pressure may persist through the year as lending rates are lowered to revive the economy.

 

This is very defensive action from Chinese investors. The primary rationale for overweighting banks is the assumption that the government, through the state-owned enterprises (SOEs), is going to take a much more dominant position in the economy. That’s positive short-term but raises important questions about the welcome private enterprise will receive in China over coming years. 

Take not just Chile, with its revisions to fiscal policies for miners, but Peru, a country long considered crucial to the next wave of copper production, where the mining sector has been battered during lengthy social unrest. Rio in late March agreed to sell a controlling stake in its Peruvian mine La Granja to First Quantum.

“What the market never predicted was how difficult South America would become,” said Radclyffe. “The uncertainty out of both Chile and now ongoing in Peru, that’s just added an extra level of complexity that the market never expected, and that hasn’t really been resolved.”

The classic basis for a big bull market in commodities is supply inelasticity meets rising demand.

The promise of a big bull market in copper is heavy on the supply inelasticity argument. I think everyone understands, there is limited supply and sufficient increases to meet the expected demand from renewables is not feasible. 

As a HK subscriber to your excellent service, I like to give a few on the grounds observations. In my view, the reason why LVMH is making the shift is 1) China opened Hainan tax free shopping and Shenzhen also exploring the same makes shopping high end products less unfavorable in the mainland. 2) Chinese tourist since reopening find HK less attractive relatively for tourism than before.

On HK becoming just another Chinese city, on recent trip to UK, found some general public perception of HK over the last few years seriously incorrect, I suppose due to the sensational and misleading journalism on HK from the press in the west. While there are changes in HK in last few years, that it is becoming another Chinese city I think is very much misplaced.

On the HKD peg, from what I heard from current and prior HK central bank chiefs and top officials from PRC, there is no desire or rationale to change the peg for the foreseeable future. Also that HKD in circulation is back by about 5X USD reserve and that the peg is setup unilaterally by HK, risk of interference by US due to geopolitical concern is low.

Thank you for this generous and insightful email and your kind words. The efforts underway to boost the international credentials of Shenzhen, Guangzhou, Macau and Hong Kong to create a “Bay Area” innovation hub to rival Silicon Valley were the stated government policy ahead of the pandemic 

LVMH is shifting resources out of Hong Kong, reflecting waning interest in what used to be Asia’s premium shopping hub as mainland Chinese consumers switch to shopping at home.

The top global luxury conglomerate wants to focus more of its investment in burgeoning metropolises such as Shanghai, Chengdu, Guangzhou and Shenzhen as Hong Kong loses its relevance in the Greater China region, according to people familiar with the matter, who asked not to be identified discussing private deliberations. 

To that end, it’s already moved the regional headquarters of some brands, including the group’s local head office, to Shanghai, and relocated some senior executives to the mainland, the people said.

The question Hong Kong has to answer is why? The gateway to China rationale is wearing thin as the mainland deals easily with most of its counterparties and expertise is migrating to other cities. The fear of Hong Kong becoming “just” another Chinese city was at the centre of concern about the security law a couple of years ago and the reality is now coming to fruition. Greater geopolitical tension between China and the developed world is not good news for Hong Kong exceptionalism. 

China’s Contemporary Amperex Technology Co. Ltd., known as CATL, unveiled its strongest battery to date Wednesday, saying that it could one day be used to power electric aircraft.  

The battery, which loads more power into a smaller package, has an energy density of 500 watt-hours per kilogram, CATL’s Chief Scientist Wu Kai said during a presentation at the Shanghai auto show. CATL’s most recent battery, called Qilin, has an energy density of 255 Wh/kg and can power an electric vehicle for 1,000 kilometers (620 miles) on one charge. 

The technology, which CATL calls a condensed state battery, is potentially a breakthrough that will help electrify sectors wed to fossil fuels because existing batteries are either too heavy or unsafe. Still, questions remain about the materials it will use, its cost and ultimate market impact.
 

CATL has a strong record of leading the way in both scale of manufacturing batteries and innovating on design. The Qilin battery sounded too good to be true when it was announced eighteen months ago but it is going into mass production this year. If China successfully puts a battery in the market with the promised characteristics of a solid state battery it would be a significant technological coup akin to the impact of the iPhone on legacy mobile phone manufacturers. 

Warren Buffett called electric-car maker BYD Company Ltd. “extraordinary” and said chip manufacturer Taiwan Semiconductor Manufacturing Co. is a “fabulous enterprise.” That hasn’t stopped him from selling shares of both firms.

“We’ll find things to do with the money that I’ll feel better about,” the Berkshire Hathaway Inc. chairman and chief executive officer said of BYD in an interview with CNBC in Tokyo Wednesday. He said Berkshire wasn’t in a hurry to reduce that stake after recently trimming its holdings of BYD H shares to 10.9% from 11.13%, according to a filing this week.

The billionaire investor took credit for Berkshire’s investment in TSMC amid speculation that one of his investing deputies picked the stock. He said the decision to reduce its stake in the business by 86% in the fourth quarter — which could have fetched $3.7 billion assuming the shares were sold at the average price over the period — resulted from concerns over geopolitical tensions between China and Taiwan, conditions he described as being outside of the company’s control.

“I re-evaluated that part of it,” Buffett said. “I didn’t re-evaluate the business, the management, or anything of the sort.”

Warren Buffett has tended to be an investor in the USA and a trader internationally. There are two obvious reasons for choosing to sell out of both BYD and TSMC. The first is valuation. The second is politics. 

The PDI-P, which secured 22 per cent of parliamentary seats in 2019, is the only party that can nominate candidates without having to ally with other parties. Both Mr Widodo and Mr Ganjar are members of PDI-P.

For Mr Ganjar, the main obstacle to being named PDI-P’s presidential candidate is his own party, said Padjadjaran University political communication expert Kunto Adi Wibowo.

“If Ganjar wants the nomination, PDI-P should be the one to nominate him. He doesn’t want to quit his own party. But will Megawati (Sukarnoputri) give the ticket to Ganjar while she is grooming Puan (Maharani)?,” he said.

Ms Megawati is PDI-P’s chief, while Ms Puan, her daughter, is the House of Representatives Speaker and ranks low in electability rating polls.

Prof Firman noted that both PDI-P and Gerindra may finally have to strike a “tough deal” if they cannot come up with their nominees amid the constant rise in popularity of Dr Anies, given the solidity of his support. 

“If they are forced by pressing circumstances, they will make a deal and resort to the most popular candidates,” he said.  

President Widodo has been a stabilizing force for Indonesia throughout his tenure. The biggest test of sound governance is in the transfer of power. If the sound base he has built can be sustained, the long-term outlook for Indonesia’s potential will be upgraded by investors. 

Increasingly in China, a suddenly absent boss has come to signal a crackdown or investigation by authorities. In many cases, the person is said to be “assisting” graft probes.

Publicly listed companies typically report they have lost contact with the executive and need to make their own inquiries into what happened within the country’s opaque legal system.

A suave and outspoken dealmaker, Bao built China’s pre- eminent tech-focused investment bank. He convinced a Jack Ma-backed company to become a cornerstone investor when his firm went public in 2018 and has been the go-to banker for the biggest tech stars. 

Bao is among China’s “western-educated individuals with lots of connections with the global financial elite,” said Victor Shih, an associate professor at University of California San Diego who specializes in China’s banking policies. “We don’t see those types suddenly running into such serious trouble that
often.”

Bao studied English literature at China’s prestigious Fudan University and received a master’s degree in business and economics from the BI Norwegian School of Management in 1995. He once said it was his mission to “participate in the value creation of the greatest entrepreneurs” in China. 

A former banker at Morgan Stanley and Credit Suisse Group AG, Bao founded China Renaissance in 2005, making a name for the firm by brokering tough mergers that led to the formation of ride-hailing service Didi Global Inc. and food-delivery giant Meituan. 

When China accompanied the abandonment of Covid-zero with dovish rhetoric towards the markets, the USA, and signaled additional assistance to the domestic economy, investors breathed a sigh of relief. 

PDD Holdings Inc.’s service, which like Shein has gained a reputation for cut-rate pricing and fast delivery, ran two 30-second spots featuring a trendy shopper twirling and dancing to phrases like “Cha-ching! I feel so rich, oh yeah.” PDD, formerly known as Pinduoduo, said it’s also giving away a total of $10 million to users via online sweepstakes.

Temu launched in September and rapidly scaled Apple’s US app store. It’s now considered a serious competitor to Shein, the fast-fashion phenomenon that’s also fired up American shoppers. But PDD, which plans to launch Temu in Canada as soon as this month, offers a broader range of goods from pet supplies to groceries. 

A decade ago I was impressed by the speed with which China’s fast fashion domestic brands could get new inventory into stores every day. Inditex is coming close to approximating that pace today but it is heavily reliant on the integrity of the global supply chain. 

Leaders go to war because they believe they can win, as did Putin in Ukraine. It is entirely feasible to reinforce both Taiwanese and US capabilities in the region, to a point at which Beijing must doubt its ability to prevail in the necessary amphibious assault, a perilous and difficult undertaking.

The Ukraine experience has rewritten in lights a towering lesson of history: To deter aggression, there is no substitute for credible armed forces. We in the UK and the rest of the West are supremely fortunate that America still possesses these, despite the caveats about the Navy’s vulnerabilities in the Pacific.

Yet more important even than weapons is will. Many people, sometimes including myself, have doubted and continue to doubt whether, if China does invade Taiwan, the US and its allies will undertake military action in response. This is a reprise of the 1950 Korean uncertainty, with one important difference: 73 years ago, there was nothing in South Korea of material value to the West; its armies fought instead to defend a principle. In modern Taiwan, by contrast, advanced semiconductors represent an industry of towering importance both to China and ourselves.

The USA downed a Chinese balloon over the weekend after allowing it to traverse the entire continent. That speaks to a great deal of indecision about the right way to deal with an airspace incursion and not least because it is so unexpected. 

“To fight the Chinese, we will have to have comparable cost structures,” Stellantis NV CEO Carlos Tavares said on Dec. 19, speaking to reporters at a powertrain plant in Tremery in northern France. “Alternatively, Europe will have to decide to close its borders at least partially to Chinese rivals. If Europe doesn’t want to put itself in this position, we need to work harder on the competitiveness of what we do.”

And

The growth in the supply chain in China has also kept pace with car manufacturing. Domestic companies now make almost all parts, including those they used to import until about a decade ago, such as high-strength steel and reinforced fiberglass. As a result, China ran a trade surplus in vehicles and vehicle parts for the first time in 2021. The assembly lines still depend on advanced machines from Japan and Germany, though.

“There seems to have been a step change,” Dyer says. “The long-term trend is for increasing sales of Chinese brands around the world.”

A decade ago it was obvious China was moving up the value chain in manufacturing. It might have not have reached heights of 3nm chip production but planes and automobile parity is now a reality. That’s as much of challenge for Airbus and Boeing as it is for Toyota, Hyundai, Volkswagen and GM. 

“Every decade, there is a new leader in the market. In the 2010s, it was US stocks and mega-cap tech,” Kandhari said in a phone interview. “Leaders of this decade can clearly be emerging-market and international stocks.” Morgan Stanley IM has $1.3 trillion in assets under management.

The asset class has had a strong start to the year, with the MSCI emerging-markets index soaring 8.6% compared with a 4.7% advance for the US benchmark. The gains come as China’s pullback from its strict Covid Zero policy brightens the economic outlook, while investors position for the end of aggressive central bank interest-rate hikes. Many also still see US stocks as expensive, with those in emerging-markets trading at a nearly 30% discount.

There’s a growing disconnect between US’s shrinking share of the global economy and the size of its stock market capitalization, Kandhari said. Along with fund allocations to emerging-markets that are well below historical averages and inexpensive currencies, that gives them a lot of room to outperform, she said.

“What really drives this asset class is the growth differential, and that growth differential of the EM is improving relative to the US,” she said.

The risk of a US recession is increasingly being priced into equity markets. At the same time, China has just exited its three-year quarantine. US money supply is now negative on a year over year basis for the time. China is boosting monetary and fiscal support for its markets. Even with arguments about trade wars and competing systems, it will still be easier to make money in China this year. 

First, no country can avoid engaging with both the US and China. Dealing with both simultaneously is a necessary condition for dealing effectively with either. Without the US there can be no balance to China anywhere; without engagement with China, the US may well take us for granted. The latter possibility may be less in the case of a big country like India, but it is not non-existent.

Second, I know of no country that is without concerns about some aspect or another of both American and Chinese behaviour. The concerns are not the same, nor are they held with equal intensity, and they are not always articulated – indeed, they are often publicly denied -- but they exist even in the closest of American allies and in states deeply dependent on China.

This perspective gels very well with the reality on the ground I observed in Saudi Arabia on my last two visits. The simple reality is China is the country’s biggest customer and the USA the country’s greatest geopolitical ally. There is no way to play favourites the greatest risk for any country is to be taken for granted because that greatly enhances the scope for one’s interests to be trampled. 

China is likely experiencing 1 million Covid infections and 5,000 virus deaths every day as it grapples with what is expected to be the biggest outbreak the world has ever seen, according to a new analysis.

The situation could get even worse for the country of 1.4 billion people. This current wave may see the daily case rate rise to 3.7 million in January, according to Airfinity Ltd., a London-based research firm that focuses on predictive health analytics and has been tracking the pandemic since it first emerged. There’ll likely then be another surge of infections that will push the daily peak to 4.2 million in March, the group estimated.

Another story this morning quoted a Chinese health official as saying 37 million people are being infected every day. That’s a variation of exactly 10X in the above estimates. 

China will roll out supportive measures for the property market in order to correct past “mistaken” policies aimed at curbing the sector’s growth, according to the head of a top economic think tank in the country.

“It seems like the government is going to put forward more concrete measures,” said Yao Yang, the dean of the National School of Development at Peking University, in an interview. “The government has to at least stop the decline of the housing market. There are encouraging signs of it.”

Top officials including President Xi Jinping pledged in a policy meeting last week to support housing demand in 2023. “That is a code word for promoting the housing sector again,” Yao said.

CNY $1 trillion was allocated to support the property market in August. In November ICBC made the equivalent of $179 billion available to builders. This is concrete evidence the Chinese government is turning back to supporting the property sector.

“The November data were way below consensus, pointing to a worsening slowdown” which will continue this month, Lu Ting, chief China economist at Nomura Holdings Inc. wrote in a note. “Surging Covid infections will offset some of the positive impact of the easing in the near term,” he wrote, adding that “the road to a full reopening may still be painful and bumpy.” 

The scrapping of many of the Covid rules will allow residents to move about freely and for shops, factories and restaurants to remain open without fear of snap lockdowns. However, with the virus likely to sweep through a country largely unprepared for the mass illness and deaths that could occur, fear of infection will probably keep people confined to their homes and weigh on economic activity.

China successfully delayed the spread of COVID for more than two years. By abandoning the testing and quarantine policy they have not chosen to frontload the infection rate. The worst of the economic and healthcare fallout will be in the first quarter of 2023. That’s going to have a knock on effect for demand for all manner of goods globally.

China’s pivot away from Covid Zero is poised to boost natural gas demand in the world’s biggest importer, potentially curbing supply to Europe and other Asian nations.

China National Offshore Oil Corp. is now looking to secure more shipments of the super-chilled fuel for next year. The return to the market of one of the nation’s largest liquefied natural gas buyers follows a period of subdued demand, due to virus curbs suppressing economic activity, and may herald a rebound in imports. 

Beijing’s move to reopen its economy and live with Covid-19 has seen most internal restrictions being dismantled over the last few weeks. Provided that’s not rolled back as cases surge, that will increase the challenge for Europe next year as it prepares for the winter of 2023/24 with little or no natural gas from Russia. 

Chinese gas imports are likely to be 7% higher in 2023 than this year, according to Wang Zhen, president of Cnooc’s Energy Economics Institute.

The forecast belies still-weak industrial demand. Many factories will send workers home earlier-than-usual for the Lunar New Year holidays, while local production and Russian pipeline flows are rising.

There are already signs China will need to increase LNG purchases to prepare for next year, however. Inventories at northern ports are depleting faster than normal amid cold weather and have dropped to the mid-to-low level, according to ENN Energy’s research group, while domestic LNG prices are trending higher.

The Chinese economy is going to experience significant issues as COVID cases ramp higher. The sheer volume of ill people will mean lower productivity over the first quarter. However, peak infections will likely be reached within 10 weeks. After that, there is clear scope for the fiscal measures already introduced to support the property market will become evident.

The Politburo on Wednesday signaled more stimulus could be on the cards next year, saying fiscal policy will be kept active with a focus on improving its efficiency, while monetary steps will be “targeted and forceful.” China will “push for overall improvement of the economy,” the official Xinhua News Agency said in a readout of the meeting. 

Larry Hu, head of China economics at Macquarie Group Ltd., said the message from the Politburo meeting was “loud and clear: Zero-Covid is behind us, and growth would be the top priority for next year.” The signals suggest policymakers want to bring next year’s growth rate back to its potential of above 5%, he said.

The growth outlook for next year remains highly uncertain, given a likely surge in coronavirus infections and further disruption expected to the economy. The global economy is also at risk of falling into recession, and a recovery in China’s property market remains elusive.

China has built permanent plague hospitals in several of the largest cities. That is in preparation for a significant rise in the number of COVID infections. Now that the restrictions on movement and the draconian testing regime are being relaxed, the number of cases is likely to surge. 

According to Central Election Commission, KMT won 13 out of 21 cities and counties, while DPP only managed to secure five cities in the southern part of Taiwan, the least since its founding in 1986. KMT candidates took 50% of votes in the contests, versus 41.6% for the DPP, 11.39 million votes counted as of 11:53 pm in Taipei, according to the official election website.

That prompted President Tsai Ing-wen to step down as party leader, saying in televised remarks: “In the face of these results, there are many areas where we need to engage in self-reflection.”

The elections represented the last major test of Tsai’s DPP before her second and final term draws to a close and Taiwan picks a successor in early 2024. The KMT, or Nationalist Party, hopes the gains in local races will help it mount a comeback after defeats in presidential elections in 2016 and 2020.

The results will be closely watched in Washington and Beijing, since the DPP’s rise to power has prompted China to cut off communications with Taiwan and ramp up diplomatic and military pressure on the island. The KMT, which favors eventual unification with China, had previously overseen a historic expansion of ties with Beijing, easing travel, trade and investment across the Taiwan Strait. 

The Tsai administration has actively escalated tensions with China and the electorate does not want to be in a war with China. That does not mean they want to be part of China but not do they wish to do anything to antagonise China. Taiwan’s citizens are very much aware of the fine balance that needs to be maintained when squeezed between two great powers.

Gold fell to the lowest in over a week as the dollar advanced amid concern China may reverse its lighter-touch approach to the coronavirus. Copper also fell.

Worsening Covid-19 outbreaks across China and the first deaths in Beijing for six months are stoking concerns that authorities may again resort to harsh restrictions. That would be bearish for the copper market, where a squeeze in global supplies just appears to be easing. US equities declined, while the dollar rose on haven buying, pressuring gold and copper as they’re priced in the greenback. 

Commodities have been pressured in recent months by the Federal Reserve’s aggressive monetary tightening to fight inflation, with a gauge of the raw materials recording two consecutive quarterly losses by the end of the third quarter. 

Traders are now waiting for fresh clues about the Fed’s interest-rate hiking path from the central bank’s minutes due on Wednesday. 

San Francisco Fed President Mary Daly said that officials will need to be mindful of the lags with which monetary policy work, while repeating that she sees interest rates rising to at least 5%. Her counterpart at the Cleveland Fed, Loretta Mester, said she has no problem with slowing down the central bank’s rapid rate increases when officials meet next month.

Spot gold slipped 0.7% to $1,739.10 an ounce as of 4:06 p.m. in New York. Copper for three-month delivery on the London Metal Exchange fell 2.4% to settle at $7,880.50 a metric ton. All other main LME metals declined. The Bloomberg Dollar Spot Index gained 0.7%. Silver and palladium spot prices dropped, while platinum gained.

The big question circling about China is how willing they are to tolerate deaths from COVID. The government has successfully instilled a deep sense of caution in the population about the threat represented by COVID and easing up on quarantine rules may not result in a large increase in mobility. As cases and deaths rise, the potential for a significantly slower return to economic activity is a base case scenario.

Bank of China said it would contain losses and actively pursue relatively secure investments. Industrial Bank Co. and China Zheshang Bank Co. also sent similar posts on their official WeChat accounts, encouraging investors to “buy at lows” and position for longer-term return after the sharp losses in bond market.

The PBOC injected a net 123 billion yuan ($17.3 billion) of seven-day liquidity via its open-market operations on Wednesday. The central bank said in a statement earlier this week that injections topped 1 trillion yuan this month, through a combination of short-, medium- and long-term policy tools. 

The yield on China’s one-year government bond was little changed at 2.17% on Thursday, ending a seven-day climb that took it to highest since January. The yield on the 10-year note fell 3 basis point to 2.80%, after jumping 10 basis points earlier this week in its worst drop since 2016. The CSI 300 Index of stocks fell 0.4%.

Banks’ wealth management products have drawn increased scrutiny from regulators in past few years, amid concern about a host of risks from implicit guarantees and leverage, to duration mismatches and a lack of transparency around where the money is invested.

There is nothing quite like the government telling investors to buy the dip to initiate a wave of buying. The fact that the bond market is seeing outflows because retail investors are so eager to buy stocks suggests the message has been received. It’s OK to speculate in the markets again.

Thanks a lot for another very informative Friday video. Could you please kindly comment on the Chinese Construction Companies’ default situation. How serious and general are the defaults of their international bonds. Thanks in advance.

Thank you for this topical question which may be of interest to the Collective. This Reuters article, dated September 2nd, included a table of the biggest bond defaults up to that point in 2022.
 

The latest moves have dragged even more junk dollar notes from Chinese property companies into distress, with 94% now trading below 70 cents on the dollar. That market was until just years ago one of the most lucrative bond trades globally. But it all began to unravel after a nationwide clampdown started in 2020 on leverage and real estate speculation, and has snowballed into record defaults by developers including China Evergrande Group. 

The contagion is even reaching property giants that still have investment-grade ratings including China Vanke Co., the nation’s second biggest developer by sales. Its note due 2027, which was trading above 80 cents just a month ago, fell 4 cents Tuesday in the worst two-day drop ever to an all time-low of 40.3 cents.

“Now with some presumably better-off developers getting into trouble, people start to worry about a contagion to non-state developers,” said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities. “It’s not just a confidence issue, and developers’ liquidity conditions are only getting tighter in the future given sales have been slower than expected.”

And

As refinancing costs surge in global debt markets, China’s property sector has at least $292 billion of onshore and offshore borrowings coming due through the end of 2023, raising the specter of even worse payment pressure to come. There’s $53.7 billion borrowings still due the rest of 2022, followed by $72.3 billion of maturities in the first quarter of next year. 

“We have seen no improvement in terms of the funding for private-sector developers,” Bank of America Corp. economist Helen Qiao said on Bloomberg Television Tuesday. “The stimulus was not strong enough to get them out of the current liquidity trap, and therefore how exactly they can really survive raises many questions.”

It is reasonable to expect that most of the property debt issued through Hong Kong in US Dollars will be defaulted on. Any stimulative measures designed to prop up the property market and local developers will be aimed exclusively at domestic investors. Foreign investors are way down the line in terms of priorities for China. 

In some ways this represents an important generational change in the way China will interact with the rest of the world. As far as we know, the term “international circulation” originated in 1988 when a government researcher, Wang Jian, made the case that China should adopt an export-led growth strategy, making use of its huge surplus labor to plug the economy into the international manufacturing process. In that sense, the de-emphasis of international circulation is an important historical shift. In a People’s Daily article in November 2020, Vice Premier Liu He set out a number of objectives relating to the DCS including: (1) the priority of upgrading of China’s technological capacity, including an enhancement of China’s supply chain resilience (though referred to in this article as “optimizing the structure of supply”); (2) the need for finance to serve the needs of the real economy; and (3) the promotion of further urbanization. Any mention of external demand comes last

A link to the full report is posted in the Subscriber's Area.

China’s stock markets are accelerating lower so that is a trend ending signal. The big question for all investors is at what point will the risk premium be fully priced in? The USA’s more aggressive attitude towards China is about the only bipartisan topic in the current administration. In fact the two parties seem to be competing for the mantle of biggest China hawk. China’s response to more activist counterparty risk is to look inwards and many people fear a repeat of the Cultural Revolution is already in play.

Dear Eoin, I am one of your long term subscribers from Singapore from back when David started the service. I have been shared this hypothesis regarding the reason why China is keeping to the zero covid measures and it is less to do with the disease but something else. Firstly with the reason for covid, they have managed to track the movement of all individuals in China with the Green Code, which coupled with their country wide camera surveillance, allow the state to monitor constantly all citizens. This is especially important in the fight against corruption. Secondly and more importantly, China is still trying to deflate their large property bubble which is 30-40% of the countries economy. Besides Evergrande, there are systemic risk to the over investment in real estate which is a huge Ponzi scheme. Fortunately most of the debt are on-shore, and China needs to keep its borders closed. This is because if re-opened, the increased spending from in-bound and outbound tourism will cause inflation, and this will force The Central bank to raise interest rates. China Central Bank wants inflation to still be low so that the economy can be stimulated and the growth in local jobs help keep the confidence for the population to invest in the property market. If inflation rises, then interest rates have to increase and it will delay the clean up of the property market which has so far been very well controlled. China is doing far more in the real estate cleanup then the US did with Sub-Prime Crisis in 2007-2008. Due to the trade offs, the real estate recovery is more important that the risk to public health although China could simply mandate all citizens especially the elderly to be vaccinated which they have not. It cannot be due to the lack of vaccines or preparation for the hospital and ICU beds capacity as China could have allowed Moderna and Pfizer to be registered locally without asking for the IP to be disclosed. Hope to hear from you. Thanks 

Thank you for this informative email and your long-term patronage of the Service. At a time when many consumers are taking a hard look at expenses, I want to give special thanks to every one of our subscribers.

I have discussed this exact issue in the big picture long-term videos on several occasions, most recently last Friday. Let’s address it from first principals. China’s is a single party state, so they have the luxury of equating the Party with the country. Whatever is good for the Party is therefore considered good for the country.

Chinese stocks tumbled by the most since 2008 in Hong Kong and the yuan hit a 14-year-low after Sunday’s confirmation that Xi’s policies of stronger state control over the economy and markets will continue unchallenged for years.

Unlike in places like the US or UK -- where dramatic market reactions can force policy pivots or even overthrow entire governments -- it’s becoming apparent that investors are only an afterthought for Xi. That narrative was reinforced by Beijing’s move to delay the release of a raft of economic data without explanation, and risks further alienating money managers who are already leery of Chinese assets.

Investors have to decide if Xi’s policy objectives -- such as common prosperity and dual circulation -- are palatable, according to Hao Hong, chief economist at Grow Investment Group. “One has to examine whether these new sets of values align with your own” investment goals in the years ahead, he told Bloomberg TV on Monday.

Monday’s market reaction -- especially offshore -- suggests international investors are becoming increasingly leery of Xi, who has implemented tough curbs on one-time market favorites from Alibaba Group Holding Ltd. to education firms. With a new leadership team packed with his allies, analysts also expect little dissent against Xi’s Covid Zero strategy.

The ejection of Hu Jintao from the Party Congress over the weekend has been much discussed. The headline is that he was experiencing health issues. That’s reasonable from an octogenarian. However, there is an eerie historical comparison.

Chinese regulators are ramping up efforts to support the stock market, which saw little reprieve from President Xi Jinping’s speech amid continued pressure from geopolitical tensions and the Covid Zero policy. 

A series of market-supporting measures are in the pipeline, including proposals to encourage companies to buy back shares and to ease curbs on short-term transactions by overseas mutual funds. In a sign that private firms are heeding the government’s efforts, at least eight mutual funds announced plans on Monday to invest in their own equity products.  

The benchmark CSI 300 Index ended up 0.1%, reversing earlier losses as investors weighed Xi’s speech against the prospect of measures. The Hang Seng Index climbed 0.2%, while a gauge of Chinese stocks trading in Hong Kong also eked out gains. 

Stock investors have been looking for fresh market impetus after suffering losses that have been among the worst in the world. Xi’s renewed pledge for tech self-reliance trigged a rally in the sector’s stocks, but the overall market reaction was muted as he defended the Covid Zero policy and fell short of promising further support for the property sector.   

The Chinese authorities will be eager to ensure the market and society at large are deeply supportive of President Xi’s third term in office as well as the economic agenda laid out over the weekend. That suggests at least a near-term low for the CSI 300 has been reached.

The Hong Kong Monetary Authority buys HK$11.697 billion ($1.5 billion) to manage the city’s currency peg for Oct. 14 settlement, according to the de facto central bank’s page on Bloomberg.

Aggregate balance will decrease to about HK$106.6 billion on Oct. 14

The strength of the Dollar and the Fed’s policy of raising rates has put a lot of pressure on the Hong Kong Monetary Authority to sustain the Hong Kong Dollar’s peg. The rate has been bumping up against the HK7.85 level for much of the last year in a repeat of the 2018/19 weakness.

China’s central government offered a rare tax incentive for residential purchases, ramping up support for the country’s embattled real estate sector. 

Residents who buy new homes within one year after selling old homes will enjoy refunds for personal-income tax on the sale, according to a statement on the finance ministry website. The tax refunds will take effect from October till the end of 2023. 

The novel tax policy comes after a yearlong slump in the housing market. To spark a turnaround, the central government is allowing nearly two dozen cities to lower mortgage rates for purchases of primary residences, while the central bank vowed to speed up delayed homes with more special loans. 

“The measure may help restore some confidence,” said Xu Xiaole, a property analyst at Beike Research Institute. “It’s another demand-side policy targeting homebuyers after mortgage rate cuts.” 

The tax break suggests the central government is ramping up support for people seeking to upgrade their homes. Previously, most incentives focused on first-time buyers, echoing President Xi Jinping’s mantra that “houses are for living in, not for speculation.”

Unless the person has held on to the home for at least five years, most big cities charge personal tax income on property sales when there’s a gain in value, usually 1% of the full amount or 20% of the gain. 
Under the new policy, people who buy more expensive apartments will enjoy a full refund in this area. The tax break only applies to home upgrades in the same city.  

The range of measures China is putting in place to support the housing market continue to increase. That’s good news for the domestic property sector and commodity demand in general. By limiting the tax cut to those also selling a property, the government is attempting to avoid stimulating property speculation but more money for the sector is certainly a positive.

I have been thinking a lot about the aspects of the market we all tend to take for granted. The types of conclusions we have been conditioned to draw, because that is always how markets work. It strikes me as a big question because we should be asking if these market norms are the result of the decades-long process of disinflation or are they rules that transfer between big secular themes.

The basic working hypothesis of the markets is the Fed will rescue its stock market. The EU will rescue its bond market and China will rescue its property market. The rationale for all three is the same. That’s what they have always done because those are the biggest asset classes owned by consumers in all three jurisdictions.

Much as He’s rise was a microcosm of China’s economic boom, his current woes may mark a turning point for commodity markets: the end of an era in which Chinese demand could only go up.

“In some ways Maike’s story is the story of modern China,” said David Lilley, who started dealing with Maike in the 1990s, first as a trader at MG Plc and later as co-founder of trading house and hedge fund Red Kite. “He has skillfully ridden the dynamics of the Chinese economy, but no one was prepared for the Covid lockdowns.”

This account of He’s rise to the pinnacle of China’s commodities industry is based on interviews with business associates, rivals and bankers, many of whom asked not to be named because of the sensitivity of the situation. 

“Never mistake a bull market for brains” is one of the most useful adages in the markets. The challenge is that to make truly life changing money in a bull market one has to act as if it will never end. That implies loading up on leverage, making big bullish bets and never giving into doubt. In bull markets that last for a decade or more, the biggest gamblers look like prophets and are treated as such by the market. When liquidity conditions eventually change, that business model experiences significant duress.

China’s economy showed signs of recovery in August as Beijing rolled out stimulus measures to counter a slowdown, although a property market slump and Covid outbreaks continue to weigh on the outlook.

Industrial production, retail sales and fixed-asset investment all grew faster than economists expected last month. The urban jobless rate slid to 5.3%, while the youth unemployment rate fell from a record high.

The boost to retail sales was partly due to a lower base of comparison from a year earlier and a surge in car sales after Beijing gave buyers subsidies on electric vehicles. Industrial output was also supported by a big spike in electricity production during August’s heatwave, a rebound that’s unlikely to be sustained. 

Despite signs of improvement, the recovery remains fragile as Covid outbreaks spread to more parts of the country and the government tightens curbs to contain infections in the run-up to the Communist Party’s twice-in-a-decade leadership congress next month. A property market slump also shows no sign of easing, with separate data on Friday showing home prices have now declined every month in the past year, with the contraction in August bigger than in July. 

“While today’s data are better than expected, it’s unlikely to change the prevailing pessimism toward China, given the multiple headwinds underway including zero-Covid, property rout and the lack of decisive policy moves before the Party Congress,” said Larry Hu, chief China economist at Macquarie Group Inc. 

China’s administration knows better than anyone that a property crash would represent an existential crisis for social cohesion. At the same time, they don’t want to allow a bubble to expand any further and have been trying to stamp out speculation. The conflict arises in the fact you can’t have a bull market without people willing to take risks. Building in the hopes of selling at a profit is speculative by nature.

Notably, neither scenario assumes that the growth in new capacity—expansions and new mines—speeds up. Absent a major policy shift, however, regulatory, permitting, and legal challenges, combined with long timelines for new mines to come onstream, will continue to dampen the pace of supply increases. This supply-demand gap for copper will pose a significant challenge to the energy transition timeline targeting Net-Zero Emissions by 2050. The challenge will be compounded by increasingly complex geopolitical and country-level operating environments. These include

The strategic rivalry between the United States and China—over a projected period in which China will remain the dominant global supplier of refined copper, while the United States depends on imports for well over half its copper.

Russia’s invasion of Ukraine and its cascading effects on the commodities markets and energy security, which have highlighted the vulnerability of supply chains. “Supply chain resilience” policies aiming to secure reliable supplies of the materials needed for energy transition—and economies in general—are likely to be a central feature of the emerging geopolitics.

A growing tension between energy transition, social license, and ESG objectives that dramatically increase the need for minerals like copper on one hand, while raising the compliance, legal, and operational costs of mining those minerals on the other.

The risk of a significant, structural increase in copper prices as the supply-demand gap increases, with a potentially destabilizing impact on global markets and industry. While structurally higher prices incentivize international investment in new capacity, governments in sourcing countries are likely to seek to capture domestically a rising share of revenues.

The fragmenting of globalization and a resurgence of resource nationalism. The resulting challenge for all actors involved with the energy transition will be to manage often competing and seemingly contradictory priorities. It is clear that technology and policy innovation will both be critical to reducing the supply-demand gap for copper in order to help enable the net-zero goals

Every major bull market which climaxes in a mania exhibits contradictory arguments. We are fully aware of the earnings don’t matter claims from the 1990s or house prices only go up ahead of the GFC. The difficulties with fulfilment of the renewable energy idealistic dream are a fresh contradiction. It is impossible to double copper production within 13 years. Therefore, there is no possible way the zero carbon ambitions of the green lobby can be realized. 

“With the yuan set to weaken further, other emerging markets will face downward pressure on their currencies,” said Per Hammarlund, the chief emerging markets strategist at Skandinaviska Enskilda Banken AB. “The impact will be felt the most by nations which compete directly with China on exports.”

The yuan declined for a sixth consecutive month in August, capping the longest losing streak since the height of the US-led trade war in October 2018. It will fall even more and cross the psychological mark of 7 per dollar this year, banks including Societe Generale SA, Nomura Holdings Inc. and Bank of America Corp. say.

It’s a stunning reversal for a currency that stood out for its resilience at the outbreak of Russia’s war in Ukraine. In the days following the Feb. 24 invasion, the yuan was the only emerging-market exchange rate to avoid a decline, trading at an almost four-year high against MSCI Inc.’s benchmark index. Global demand for it deepened -- from countries like Russia and Saudi Arabia looking to reduce their reliance on the dollar to US bond investors seeking new havens.

China is the destination for most industrial commodity exports, so a weaker currency boosts domestic inflation. At the same time many countries in China’s hinterland compete with it for exports. A cheaper Renminbi forces them to also depress their currencies.

As much as 5% of new residential developments in China’s major cities — or 71.5 million square meters of apartments — are in limbo as a result, the Shanghai Yiju Real Estate Research Institute found in a survey conducted during the first half of 2022.

The crisis is leaving buyers in a dire situation. Many are paying mortgages on properties that are still empty shells. Others have poured their life savings into a down payment on a home that may never be completed.

Jinling Apartment is an example of how desperate things can become — and how difficult it can be for homeowners to protect their rights. 

Wang, Zhou, and the other homeowners have been waiting for the developers to deliver their homes for over five years. They have tried pleading with the companies to complete the construction, asking the authorities to intervene, and taking the firms to court. None of it has worked.

Tens of thousands of people losing their life savings by paying for properties before they are even built is not exactly good optics. It’s a problem, the central government will have to tackle. So far, the response has been very measured and unsuccessful. Property developers are still going bust. More robust action risks reinflating the property market.

My theory is that the breaking of these superbubbles takes multiple stages. First, the bubble forms; second, a setback occurs, as it just did in the first half of this year, when some wrinkle in the economic or political environment causes investors to realize that perfection will, after all, not last forever, and valuations take a half-step back. Then there is what we have just seen – the bear market rally. Fourth and finally, fundamentals deteriorate and the market declines to a low.

Let’s return to where we are in this process today. Bear market rallies in superbubbles are easier and faster than any other rallies. Investors surmise, this stock sold for $100 6 months ago, so now at $50, or $60, or $70, it must be cheap. Outside of the late stage of a superbubble, new highs are slow and nervous as investors realize that no one has ever bought this stock at this price before: so it is four steps forward, three steps back, gingerly exploring terra incognita. Bear market rallies are the opposite: it sold at $100 before, maybe it could sell at $100 again.

The proof of the pudding is the speed and scale of these bear market rallies.
1. From the November low in 1929 to the April 1930 high, the market rallied 46% – a 55% recovery of the loss from the peak.
2. In 1973, the summer rally after the initial decline recovered 59% of the S&P 500's total loss from the high.
3. In 2000, the NASDAQ (which had been the main event of the tech bubble) recovered 60% of its initial losses in just 2 months.
4. In 2022, at the intraday peak on August 16th, the S&P had made back 58% of its losses since its June low. Thus we could say the current event, so far, is looking eerily similar to these other historic superbubbles.

Have we seen the secular peak in this market? That’s the only real question investors need to concern themselves with. The above statistics are certainly compelling, but the size of the rebounds should also be considered relative to the size of the initial declines from the peaks. Let’s round out that data.

1. The Dow Jones Industrials Average accelerated to the peak on September 3rd 1929. It fell 47.87% to the initial low on November 13th
2. The peak in 1973 was a failed upside break from a range that had been forming since 1966; with the Dow failing at the psychological 1000 on several occasions. That failed upside break resulted in a deeper pullback than any (25% & 36%) posted during the ranging phase. The failed downside break in 1974 resulted in a 75% rebound. It was another six years before a breakout to new highs was sustained.
3. Between March 10th and May 26th 2000 the Nasdaq Composite fell 40.72%.
4. Between January 7th and the low on June 17th the S&P500 declined 24.52%.

Copper and aluminium futures tumbled along with other industrial commodities on concerns that virus lockdowns in China will hurt demand and as supply constraints in the Asian powerhouse eased.

Beijing’s ongoing battle to contain virus outbreaks is damaging confidence in the nation’s economy, with the Covid Zero policy causing many US companies to delay or cancel investments. That’s on top of a property crisis that’s taken a hefty toll on metals demand in the top consumer. 

Prices of copper, seen as a bellwether for economic growth, have wavered in recent weeks after recovering from a 20-month low in July as traders weigh supply constraints against a darkening outlook for demand. Outside China, Europe’s energy crisis is set to undercut consumption, while higher US Federal Reserve interest rates are pressuring non-yielding assets like metals.

Predictably, China is having just as much difficulty containing the new more transmissible strains of COVID-19 as everywhere else. There are lockdowns in place in every Chinese province at present. Meanwhile the Communist Party Congress is now slated for mid-October. Between now and then we can expect much tighter controls on movement which will have a knock-on effect on the wider economy.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell said Friday in remarks at the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming. “The historical record cautions strongly against prematurely loosening policy.”

He said restoring inflation to the 2% target is the central bank’s “overarching focus right now” even though consumers and businesses will feel economic pain. He reiterated that another “unusually large” increase in the benchmark lending rate could be appropriate when officials gather next month, though he stopped short of committing to one.

“Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook,” he said.

In very simple terms, the Fed has two mandates, price stability and full employment. Right now, they have full employment and robust business capital investments. They don’t have price stability or anything approaching it. That’s a recipe for tighter monetary conditions and higher rates until downward pressure on employment becomes problematic. 

Any opinion of BABA US delisting or Chinese Tech Stocks delisting and impact to their stock performance in HKEX

Thank you for this question which raises an important consideration. This article from Reuters on August 1st may also be of interest. Here is a section: 

The Holding Foreign Companies Accountable Act (HFCAA) is intended to address a long-running dispute over the auditing compliance of U.S.-listed Chinese firms.

It aims to remove foreign companies from U.S. exchanges if they fail to comply with American auditing standards for three consecutive years.

Alibaba on Monday said being added to the list meant it was now considered to be in its first 'non inspection' year.

Three things we learned last week: 

1. Shockingly weak Chinese credit growth shows that monetary policy is pushing on a string. Friday’s data showed aggregate financing, a broad measure of credit, was almost half of what economists expected. Bank loan growth slowed to 11%, near the historical low. That’s occurring at a time when the financial markets are flush with cash and interbank interest rates are falling well below the central bank’s benchmark.

In other words, money is aplenty, but no one wants it. It reflects weak confidence among businesses and households amid the housing slump and the Covid restrictions. It’s “a classic sign of a liquidity trap,” Craig Botham at Pantheon Macroeconomics remarked.

What’s more, Beijing is facing a fiscal cliff as the local governments have pretty much used up their special bond-issuance quota for the year. Unless Beijing makes more funding available, the fiscal support may be waning.

China’s exporters are feeling the pain from slowing demand in Europe and North America. That’s adding to the downward pressure on the economy from the emerging real estate crisis. The PBoC signaled last week they are keen to avoid the inflationary problems other major economies are dealing with. Over the weekend, political priorities led to the Medium-Term Lending rate being shaved by 10 basis points while the central bank withdrew liquidity to sanitise it.

These investors have joined homebuyers and bond fund managers in feeling the pain of a liquidity crisis that’s driven dozens of developer defaults and frozen construction of hundreds of projects across the country.

China’s trust industry, after at least six rounds of restructuring since its inception in 1979, combines characteristics of commercial and investment banking, private equity and wealth management. Firms in the sector pool household savings to offer loans and invest in real estate, stocks, bonds, commodities, and even bottles of sorghum liquor. No other firms in the financial industry operate across all these asset classes.

Trusts were once a popular avenue of funding for the property sector. Until recently, trust products were seen by wealthy Chinese individuals and institutions as a safe place to park their money.

The trust sector in China is dominated by wealthy families which benefitted enormously from the growth of the economy over the last forty years. In many cases that was achieved through relationships with government officials that ensured preferential access to markets or property ventures. The fact many trust clients are members of the establishment themselves can be taken for granted. Therefore it is particularly noteworthy that it is not the subject of investigation.

The Bank of England is reminding the world what a politically independent central bank can and should do: act as a “trusted adviser,” willing to share analytically honest views that other more politically sensitive institutions are either unable or unwilling to do.

Of course, this is not a risk-free approach. Such honesty — rather than catalyzing appropriate responses from policy-making agencies that lead to better economic and social outcomes — can provoke household and corporate behaviors that accelerate the bad outcomes. Yet the risks involved are worth taking, especially when the alternative is a central bank that loses institutional credibility, sees the effectiveness of its forward policy guidance erode and becomes even more vulnerable to political interference.

It should also be noted that the UK’s situation differs in some important way from those of other countries. The country’s economic challenges are complicated not only by the energy price catch-up but also by the political transition and the changing nature of the country’s relations with its trading partners.

In the last six weeks gilt yields have pulled back aggressively from 2.75% to test the region of the trend mean around 1.75%. This is the first area of potential resistance and is the point at which traders will begin to question how likely a long-term low interest rate environment is.  

Instead of traveling northeast from Kuala Lumpur directly across the South China Sea -- a journey that might have brought her jet close to Chinese military facilities built on reclaimed land on islets and reefs including in the Spratly Islands -- Pelosi’s plane flew southeast over the Indonesia part of Kalimantan, or Borneo, before turning north and then to the east of the Philippines, according to imagery provided by Flightradar24. 

Accidents happen when an abundance of care is abandoned. As great power politics unfolds and gels with domestic priorities in both China and the USA, there is potential for a crisis inducing accident. The heavily choreographed travel plans of politicians are less likely to provide a catalyst because of the size of the potential repercussions.  

“The golden period of 30 years between 2020-50 where our working age population will bulge can be an important horizontal enabler to bolster growth, even as the developed world including China ages,” the report notes.

The report adds that over the years, India has experienced rising literacy rates, but level of vocational training/skilling is low, which gets reflected in the high unemployment rate among the educated. “Closing the skill gaps of its qualified workforce will be critical, as India depends more on human capital than its peer countries that have a similar level of economic development,” it said, adding that skilling and reskilling require a coordinated response from the government, industry, academia even as COVID continues to cause structural changes to the workplace.

“The reversal in India’s structural transformation back toward agriculture is a sign of fall back to subsistence employment. Enhanced safety nets through PM-KISAN and the MGNREGA will be critical investments needed to ensure that incomes of small and marginal farmers are protected and their basic needs are met… But manufacturing and services will still have to be the two key growth engines going forward,” it said.

Given the trajectory of emerging market development over the decades, it is stating the obvious that India needs to do whatever is necessary to improve employment opportunities for its millions of young people. The fact the conversation is taking place is at least a good starting point.

The proposal, which is still under discussion and could change, would take advantage of Chinese laws allowing local governments to wrest back control of land sold to real estate companies if it remains undeveloped after two years, without compensation. That would give authorities more leeway to direct funds toward uncompleted homes, potentially to the detriment of creditors who would lose claims on some of developers’ most valuable assets.

While officials would have bandwidth to adjust the process to suit local conditions, a typical scenario would involve seizing land from a distressed developer and giving it to a healthier rival, which would in turn provide funding to complete the distressed developer’s stalled projects, the people said. The government could also rezone the seized land in some cases to increase its value, the people added, asking not to be named discussing private information. 

The proposal is one of several measures under consideration as Xi Jinping’s government tries to prevent turmoil in the housing market from fueling social unrest and derailing the broader economy. The focus on completing projects is the latest sign that policy makers are prioritizing homeowners over bondholders, who have been burned by a record number of defaults by real estate giants including China Evergrande Group.

Placating the people who have paid deposits and have not taken delivery of their apartments is a national priority as protests spread. Funding property development has been a challenge of the last decade as the government has closed off routes to speculation. Worries about overvaluation have been present for years but the government has not found a way to deflate the bubble with toppling the economy.

The publication of the June bond figures by China Central Depository & Clearing Co. took place about a week later than in previous months. Interbank-bond-market figures released by the central bank’s Shanghai head office on Friday were also delayed, as they are typically sent out in the first half of each month. In May, China’s bond-trading platform for foreign investors quietly stopped providing data on its transactions.

Foreign investors still held 2.32 trillion yuan of Chinese debt at the end of June, well above the 221 billion yuan they owned in 2014. The opening up of China’s capital markets and the inclusion of the nation’s debt in more global bond indexes has attracted central banks and global investors eager to tap its higher yields.

“The bulk of the remaining foreign holdings of Chinese fixed-income assets reflects reserve manager, sovereign wealth fund and index tracking demand,” said Lemon Zhang, a strategist at Barclays Plc in Singapore. Looking ahead, large inflows are unlikely as investors aren’t optimistic on duration or China’s currency, while higher global yields provide alternatives, she said.

Demand for Chinese bonds has waned in recent months as US 10-year yields surged above 3%, while similar-maturity yields in China remained stuck in a range of 2.7% to 2.85% due to the People’s Bank of China’s accommodative monetary policy.

There has been a popular belief among institutional investors that China was for bonds and the US was for equities. The logic is that China is a creditor nation with vast reserves, strong growth and low debt/GDP ratios while the US is encumbered with massive debts and seems incapable of correcting the gaping deficit.

On Tuesday, European Parliament Vice President Nicola Beer began a three-day visit to Taipei -- leading the most senior EU legislative delegation to visit Taiwan. Beer told reporters after her arrival that the “family of democracies” need to support Taiwan after China’s crackdown on Hong Kong’s opposition and Russia’s invasion of Ukraine. 

No ‘Blind Eye’
“We won’t have a blind eye on China’s threat to Taiwan,” Beer said. “Europe was late for Hong Kong. We won’t be late for Taiwan. There is no room for Chinese aggression in democratic Taiwan. For the moment, we witness war in Europe. We do not want to witness war in Asia. And so now it’s the moment to stand firm on the side of Taiwan.” 

China’s refusal to condemn Russia’s invasion of Ukraine has complicated its efforts to shore up relations with the Europe Union. Top European leaders haven’t responded to an invitation from Xi to meet him later this year in Beijing, the South China Morning Post reported, citing a person familiar with the matter. 

This is a major escalation of rhetoric from Europe and the USA. China will bristle at what they consider direct interference in a domestic matter. The One China policy is the biggest red line the Communist Party has.

However, there’s a chance that despite the fiscal largess, overall infrastructure investment growth could still disappoint. First, while Beijing is letting local governments issue more bonds, it’s still telling them to reduce so-called “hidden” debt -- off-balance sheet borrowing from banks by state-owned companies, which has financed a large chunk of China’s infrastructure over the last decade.

Second, fiscal funds need to be supplemented by lending from commercial banks and private investors -- both of which may be reluctant to lend in a risky environment. Finally, local governments in recent years struggled to find infrastructure projects that could generate returns large enough to repay the special bonds. Some economists estimate local governments left 2 trillion yuan of funds unspent last year. 

While Beijing is telling local authorities to speed up spending, it remains to be seen if attitudes will shift.

“Funds are less of a constraint for infrastructure investment this year, while the bottlenecks lie mainly with project pipelines and government incentives,” Goldman Sachs Group Inc. economists including Xinquan Chen wrote in a note last week. In a sign that the fiscal push is yet to rev up construction, sales of excavators in China have been sinking since April last year. In January-June, the sales plunged 53%.

Arguing China needs more high-speed railways is a bit difficult when the national railway already has almost $1 trillion in outstanding debt and no passengers. That begs the question whether the new debt being issued will be used to retire/bring off balance sheet on balance sheet or on new projects.

The payment refusals underscore how the storm engulfing China’s property sector is now affecting the country’s middle class, posing a threat to social stability. Chinese banks already grappling with challenges from liquidity stress among developers now also have to brace for homebuyer defaults.  

Now is “a critical time for social stability,” said Chan, adding that “the forgoing of down payments may bring social instability.”

A drop in home values hasn’t helped. Average selling prices of properties in nearby projects in 2022 were on average 15% lower than purchase costs in the past three years, according to Citigroup’s research. 

How much do prices have to fall before consumers give up hope they will ever recoup their down payment through a sale? I guess we have the answer in China where many of the home purchases are speculative to begin with and tens of millions of apartments stand vacant at the best of times.
 

Chinese stocks had their worst day in about a month as a Covid resurgence, combined with fresh fines for the country’s tech giants, sent investors running for the door.

The Hang Seng China Enterprises Index, a gauge tracking mainland firms listed in Hong Kong, slumped 3.1%, its biggest loss since mid-June. Tech heavyweights, property developers and electric-vehicle makers were among the biggest drags. 

A slew of bad news hit the Chinese market over the weekend and Monday morning, including regulatory fines on past transactions done by Alibaba Group Holding Ltd. and Tencent Holdings Ltd., a rejection by China Evergrande Group’s bondholders on a proposal to extend debt payment, and a warning by a prominent investor’s wife that a key lithium maker’s stock is overvalued. 

The selloff is a reminder that the nation’s Covid Zero policy and lingering uncertainty toward tech crackdowns remain key risks for investors betting on a sustained rebound in Chinese shares. The Hang Seng China gauge has recorded just one positive session in the last eight after rallying nearly 30% from a March low.  

The pandemic continues to be a major factor in the daily life of China, even as the rest of the world moves on. The reality of a large population with little immunity and the threat of rapidly evolving strains are growing more infectious suggests the quarantine system will slow the advance but can never overcome it.

The Foreign Ministry struck a softer tone on Friday. China was “shocked” by the attack, spokesman Zhao Lijian said at a regular press briefing in Beijing just before news that Abe had died, saying the nation hoped he would recover soon.

“This unexpected incident should not be linked with China-Japan relations,” Zhao added. When asked about some nationalist voices in China cheering the shooting, Zhao declined to “comment on the remarks of net users.”

The Chinese administration has been fostering a domestic nationalistic movement for years. That helps fuel domestic support for extraterritorial ambitions amid the government’s significant militarization efforts.

Mr. Biden himself has said in recent weeks that he is considering a tariff cut, noting that the levies were introduced by the previous administration.

The U.S. and China signed a trade deal in 2020, but the U.S. kept most levies on Chinese imports as a means to ensure compliance with the accord's provisions, including promises to increase purchases of U.S. goods.

Beijing has fallen far short of that purchase commitment.

Ms. Tai, who was appointed by Mr. Biden, has repeatedly defended the tariffs as a useful tool in confronting China over its trade practices.

"The China tariffs are, in my view, a significant piece of leverage, and a trade negotiator never walks away from leverage," Ms. Tai told a Senate subcommittee meeting on June 22.

China has long pressed the U.S. to ease the tariffs, contending they hurt both countries.

"With inflation rates running high across the globe, the U.S. needs to lift all the additional tariffs imposed on China, as this will serve the interests of businesses and consumers and benefit both countries and the world at large," Chinese Foreign Ministry spokesman Wang Wenbin said at a June 15 press conference.

The Biden administration is panicking about inflation if they are truly considering removing sanctions on China. The one hallmark of this government has been the continuity of policy with regard to China so a change would likely be viewed by markets as positive and particularly so for China since they would be under much less pressure to comply with trade agreements.

Adding to a growing number of market participants turning more positive on Chinese shares, abrdn plc’s regional chairman Hugh Young said they look to be the best home for fresh money in Asia amid a tough investment environment.

“We are inclined to put more money into China again, depends on the portfolio,” Young said in an interview on Monday, adding that the firm underweights the country’s shares in portfolios. “It’s very hard to be super bullish about anything at the moment” but valuations in China are reasonable and the investing landscape could improve.

Deutsche Bank AG’s private bank global chief investment officer Christian Nolting said last week he was considering turning overweight on Chinese stocks and Morgan Stanley, Bank of America and Jefferies Financial Group all ramped up bullish commentary this month.

Xi Jinping’s statement that China will hit its growth target has been greeted with enthusiasm by investors. While COVID zero represents a challenge for growth, it increases the potential more liquidity will be made available. At present concerns about further inflating asset bubbles are on being downplayed.

Contemporary Amperex Technology Co. Ltd. unveiled an electric-car battery it said has a range of over 1,000 kilometers (620 miles) on a single charge and is 13% more powerful than one planned by Tesla Inc., a major customer. 

CATL, as the world’s biggest maker of electric-car batteries is known, will start manufacturing the next-generation “Qilin” next year, according to a video the Chinese company streamed online Thursday. The battery charges faster than existing cells, and is safer and more durable, CATL said. 

The Qilin battery, named after a mythical Chinese creature, has an energy density of up to 255 watt-hour per kilogram, Ningde, Fujian-based CATL said. 

“It’s an important advancement for CATL as it keeps them at the forefront on the innovation side,” said Tu Le, managing director of Beijing-based consultancy Sino Auto Insights. “Being the lowest cost provider isn’t enough to command loyalty, there needs to be more to it -- and that seems to be the Qilin battery for CATL.”

CATL’s shares climbed 5.9% in Shenzhen, closing at the highest since Feb. 9. 

The company said Wednesday it raised 45 billion yuan ($6.7 billion) in a private placement of shares, with the proceeds intended for production and upgrade of lithium-ion battery manufacturing in four Chinese cities, as well as research and development.

CATL has experienced a wave of volatility this year, grappling soaring prices of raw materials as well as rumors of trading losses. Its first-quarter net income slid 24% from a year earlier to 1.49 billion yuan. The company hasn’t explained a 1.79 billion yuan derivatives liability, the first such charge since it listed.

The massive run-up in battery metal prices has put significant pressure on companies dependent on buying them to support their businesses. Lithium, copper, cobalt and nickel prices have surged this year as projections for future demand and low available supply created an inelastic trading environment. That created problems for nickel traders which resulted in a short covering price spike and lithium prices also surged to previously unimaginable levels.

As China’s property slump persists, one developer is trying to entice farmers to buy homes by accepting their crops as payment. 

Central China Real Estate Ltd. is offering to pay farmers as much as 160,000 yuan ($24,000) for their wheat to offset down payments for homes in its River Mansion residential project in Shangqiu, a city in Henan province, according to a Monday marketing post. Weeks ago, it offered to accept garlic from growers looking to buy homes in another project in Kaifeng city.

The move reflects how far some developers are willing to go to attract wary homebuyers as the economy slows and the industry endures a crippling cash crunch. Central China, the country’s 37th-largest builder, recently sought state support when its parent company agreed to sell a stake to the provincial government. 

Its perk to farmers appears aggressive. Central China was offering to buy wheat at 4 yuan a kilogram, higher than the record 3-3.1 yuan that China’s state stockpiling company was purchasing the grain for earlier this month. 

Landlocked Henan is China’s largest wheat-producing area. The country just had another bumper harvest of winter-sown wheat. 

Similarly for garlic, Central China offered to pay 10 yuan a kilogram last month. That’s higher than the 6.92 yuan wholesale price as of June 10, according to weekly data released by the commerce ministry. 

Property manias tend to start in prime areas and move progressively further into the hinterland. During a crash it is usually the third tier cities and far flung suburbs that see the most aggressive selling pressure. Eventually, even the prime areas take a hit. China’s tier 3 cities have seen an epic bull market in housing as capital fled the exorbitant prices in the tier 1 cities. It is a measure of how desperate the company is to make sales that it is now willing to accept volatile commodities rather than insist on cash.

As inflation has continued to surprise on the upside, countries all over the world are accelerating their efforts to raise rates. Brazil’s Selic Target rate is now 12.7% and the EU is beginning to talk about moving deposit rates out of negative territory.

We tend to think of interest rates as barometers of efforts by central banks to control domestic factors. However, there is also the additional point that if interest rates are rising everywhere, the availability of cheap cash is declining and competition for what is available becomes more fervent.  

China’s top economic official gave an unusual public show of support for digital platform companies Tuesday, suggesting Beijing may be ready to let up on a year-long clampdown on technology giants as it battles a slowing economy.

The government will support the development of digital economy companies and their public listings, Vice Premier Liu He, who is President Xi Jinping’s most senior economic aide, said after a symposium with the heads of some of the nation’s largest private firms. Baidu Inc. founder Robin Li, Qihoo 360 Technology Co.’s Zhou Hongyu and NetEase Inc. chief William Ding were among the tech luminaries spotted at the forum, according to a video posted online.

Liu’s remarks reported by state media were short on detail but signal further easing of the regulatory risk for China’s technology behemoths including Baiduand Tencent Holdings Ltd., as investors await clues on whether a rout in their shares is near an end. The Hang Seng Tech Index rallied as much as 6% Tuesday on optimism the meeting would affirm Beijing’s intention to dial back some of its restrictions.

China’s 7-day repo rate continues to trend lower. That’s supports the view the government is supporting the economy in a tacit manner. Liu He turning up to the symposium was already good news for the tech sector. Receiving overt verbal support was a bonus. Together with the supports for first time home buyers announced yesterday, this suggests China is aware of the risks from tightening too much and is ready to be more generous.

A link to the full report is posted in the Subscriber's Area.

COVID cases are finally coming down in Shanghai which is positive news for the domestic economy. China remains exposed to the risk of further outbreaks because of the size and age of the population and the reluctance to be vaccinated. That holds out the prospect of continued lockdown phases for the foreseeable future. That’s a recipe for volatility. 

“The meeting addressed most of the pressing issues in the economy and is intended to boost confidence and turn around negative sentiment,” said Xiong Yuan, chief economist at Guosheng Securities. “It’s a rare exception that the Politburo publishes the statement during the trading day. Clearly it’s meant to incentivize investors to hold on to positions ahead of the holiday.

China’s top leaders responded to calls from investors and analysts alike to revive an economy hurt by Covid lockdowns that this week spread to Beijing and Yiwu, disrupting business operations and roiling global supply chains. The Politburo’s readout -- which was released at the earliest time of day of any since at least January 2017 -- came ahead of a five-day break for onshore markets.

While headwinds for China’s economy and markets still remain, in particular the government’s adherence to Covid Zero, traders are now asking whether this can be the long-awaited market bottom. 

The CSI 300 Index jumped 2.4% Friday, trimming this year’s loss to 19%. That still makes it one of the world’s worst performing national benchmarks, far outpacing the 13% decline in MSCI Inc.’s Asia Pacific gauge.

Mainland Chinese stock markets are closed until Thursday for the May holiday, but Hong Kong reopened today. Faced with the political impossibility of altering the COVID-zero program, the central government have little choice but to cede some ground on its recalibration of the economy. That should represent further progress in supporting the trend of the credit impulse.

Weijian Shan, whose group PAG manages more than $50bn, said his fund had diversified away from China and was being “extremely careful” about its portfolio in the country.

“We think the Chinese economy at this moment is in the worst shape in the past 30 years,” he said in a video of a meeting viewed by the Financial Times.

“The market sentiment towards Chinese stocks is also at the lowest point in the past 30 years. I also think popular discontent in China is at the highest point in the past 30 years.”

In the video, Shan said that large parts of the Chinese economy, including its financial centre Shanghai, had been “semi-paralysed” by “draconian” zero-Covid policies and that the impact on the economy would be “profound”.

“China feels to us like the US and Europe in 2008,” Shan added. “While we remain long-term confident in China’s growth and market potentials, we are very cautious towards China markets.”

It seems like every central bank is chasing a soft landing. China used the pandemic induced boom in demand for exports to initiate a cleansing of the Augean stables. By clamping down on property development and private equity investment in technology, they hoped to reorient the economy to sectors that would further the dream of becoming a self-reliant global superpower.

Our role was to make sure that low-level content moderators could find "harmful and dangerous content" as soon as possible, just like fishing out needles from an ocean. And we were tasked with improving censorship efficiency. That is, use as few people as possible to detect as much content as possible that violated ByteDance's community guidelines. I do not recall any major political blowback from the Chinese government during my time at ByteDance, meaning we did our jobs.

It was certainly not a job I'd tell my friends and family about with pride. When they asked what I did at ByteDance, I usually told them I deleted posts (删帖). Some of my friends would say, "Now I know who gutted my account." The tools I helped create can also help fight dangers like fake news. But in China, one primary function of these technologies is to censor speech and erase collective memories of major events, however infrequently this function gets used.

Dr. Li warned his colleagues and friends about an unknown virus that was encroaching on hospitals in Wuhan. He was punished for that. And for weeks, we had no idea what was really happening because of authorities' cover-up of the severity of the crisis. Around this time last year, many Chinese tech companies were actively deleting posts, videos, diaries and pictures that were not part of the "correct collective memory" that China's governments would later approve. Just imagine: Had any social media platform been able to reject the government's censorship directives and retain Dr. Li and other whistleblowers' warnings, perhaps millions of lives would have been saved today.

The thing I find most interesting is how these kinds of stories are proliferating. It’s not like Chinese censorship of ideas is new. It is a measure of how much the West’s relationship with China has soured that the appetite for this kind of critical content is sustaining large numbers of articles.

China’s worst equity selloff since early 2020 reflects a growing concern about President Xi Jinping: He
can’t afford the political costs of shifting from a Covid Zero strategy that is pummeling the economy. 
In Shanghai, a weekslong Covid-19 lockdown got even worse, with workers in hazmat suits fanning out over the weekend to install steel fences around buildings with positive cases. In Beijing, the process is just getting started, as authorities on Monday began shutting down a bustling district in the capital to
quash fresh outbreaks. 

The threat of paralyzing China’s two largest and wealthiest cities with a strategy abandoned by most countries helped push the CSI 300 down 4.9%, the gauge’s steepest one-day drop since the first such lockdown in Wuhan two years ago. The spreading lockdowns have investors worried that Xi is sacrificing the Communist Party’s reputation for pragmatic economic management to defend a political narrative that portrays him as the world’s most successful virus-fighter.

“This Covid situation is really putting China into a very dark moment, perhaps the darkest moment in economic terms for the last couple of decades,” Junheng Li, JL Warren Capital founder and chief executive officer, said of the Shanghai lockdown during an interview on Bloomberg TV. “It’s a confidence
crisis in a sense that you’ve got the most affluent city in China with this consensus disappointment and resentfulness towards a very non-sensible policy.”

“People really don’t know, what’s a clear path to get China out of this Covid situation,” Li said.

Democratic capitalist systems focus on the health of the corporate/financial system to achieve social cohesion and rising living standards. Communist systems focus on sustaining political stability to achieve the same ends. That difference doesn’t become obvious until a crisis challenges it.

In a sign that authorities are keen for the slide to end, the China Securities Regulatory Commission said that on Thursday it met with institutional investors such as the National Social Security Fund, banks and insurers to ask them to boost their equity investments.

Lockdowns in major cities across the country, coupled with capital outflow risks as the Federal Reserve hikes rates, have dampened sentiment toward local Chinese shares. Investors who had expected authorities to ramp up stimulus have since been underwhelmed, with Wednesday’s decision by banks to keep lending rates unchanged serving as another setback.

“The market is flooded with pessimism,” said Wu Wei, fund manager at Beijing Win Integrity Investment Management Co. “While there have been some policies since Liu He, the greater weight on people’s minds now is the virus. No one can accurately guess the bottom. Judging from the virus situation, we could still see a further slide.”

 

As predicted early this year, China’s covid problem was the wildcard no one was properly prepared for. Politics is the primary concern of every Communist administration. The leadership question will be settled at the Party Congress in November. There is no chance of the Covid-zero policy being abandoned before then.