Economic growth in China is at a near-30-year low in the third quarter as tariffs start to negatively affect factory production, Reuters reported on Thursday (Oct. 17).
The slowdown was worse than anticipated — gross domestic product (GDP) growth was the slowest it’s been since 1992, with the GDP increasing only 6.0 percent year-on-year.
“Given exports are unlikely to stage a comeback and a possible slowdown in the property sector, the downward pressure on China’s economy is likely to continue, with fourth-quarter economic growth expected to slip to 5.9%,” Nie Wen, a Shanghai-based economist at Hwabao Trust, told Reuters. “Authorities will loosen policies, but in a more restrained way.”
In an attempt to encourage regional investment, Mao Shengyong, a spokesman for China’s statistics bureau, told Reuters that Beijing could decide to issue bonds this year instead of waiting until 2020.
He also said the monetary policy could be adjusted to stabilize food price fluctuations, a major cause of inflation.
The trade war could cause the global economy to stall to its lowest point since the 2008 financial crisis, according to the International Monetary Fund, which has warned the U.S.-China trade war will cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis, but said output would rebound if their dueling tariffs were removed.
Domestic and global demand has slowed down in freight shipments, factory power generation, employment and entertainment spending, Reuters said.
China’s second-quarter economic data showed a 6.2 percent growth; however, economists and investors believe the numbers are worse than what is being officially released.
China’s reported data came in close to Beijing’s target, a figure that has been published quarterly for the past 4.5 years. But a multinational index of Chinese production indicates a much smaller growth coupled with fewer workers returning to their jobs.
In a move intended to boost business as the trade war continues, China flooded banks with billions of dollars in September after The People’s Bank of China lowered how much was required to be kept in reserve.
Tesla has been given the green light to start manufacturing its cars in China.
The electric carmaker, which is run by billionaire Elon Musk, is building a $2bn (£1.5bn) factory in the eastern city of Shanghai.
Tesla plans to build at least 1,000 of its Model 3s each week in the Chinese factory, which could be up and running within weeks.
The new factory will give Tesla access to China, which is the world’s biggest car market.
It would also help the company avoid higher import tariffs that are imposed on cars made in the US.
The new factory, known as the Gigafactory 3, is the first fully-foreign owned car plant in China.
Permission to build the plant has been seen as a sign that Beijing is looking to open up its car market.
Authorities in Shanghai have offered Tesla some help to speed up construction of the plant. Meanwhile, China excluded Tesla vehicles from a 10% tax on cars.
Announcing that it had broken ground at the site of the factory in January, Mr Musk said the plant would build “affordable versions” of the Tesla Model 3 – the carmaker’s mass market vehicle – and its proposed Model Y for the Greater China region.
“Aiming to finish initial construction this summer, start Model 3 production end of year [and] reach high volume production next year” the entrepreneur tweeted at the time.
(ZH) For months, pundits have been looking at China’s official data – be it the PBOC’s reserve data or SAFE’s monthly flow report – for indication that capital flight is picking up again as it did in 2015 in the aftermath of the first yuan devaluation, and so far the data has refused to validate predictions that Chinese depositors are quietly pulling their money from China’s financial system.
Does this mean that Beijing has been successful in implementing draconian controls on outbound foreign investment and other capital movements to lock the front door through which money used to leave China.
That’s one possibility. However, as the WSJ notes, instead of using the front door, Chinese capital is increasingly “walking through the back door” following the recent sharp devaluation in the yuan, which has slumped 6% against the dollar since late April, and 10% since mid-2018; of course should the back door open any wider Beijing will find itself again forced to sell down big parts of its currency reserves to avoid a panic. Worries about cracks in currency fortress China are another reason Beijing is likely to remain wary of aggressive monetary stimulus.
We Are at the Bottom of Weakness in China, Says AMP Capital’s Mousina
It’s also why China – the country where economic data is anything but what is represented by the government – has no qualms about fabricating data to refute a worst case scenario that would unleash a self-fulfilling prophecy leading to more devaluation and more capital flight.
And yet, despite Beijing’s best efforts at misdirection – and outright data fabrication – there is a relatively simple way to keep track of what is really happening with China’s fund flows behind the scenes. As the WSJ notes, the relevant figure to track is China’s “errors and omissions” line in its balance of payments.
This number represents the residual of the main BOP accounts registering trade and investment flows—in other words, capital that has moved across China’s borders without being documented. An equation “plug.”
Whereas in most countries this line item is relatively small, in China, since 2014 when Beijing decided to stop appreciating the yuan against the dollar, it has become :persistently and mysteriously large and negative” with analysts at Rhodium Group and others long suspecting this item represents undocumented capital flight.
And while this shadow capital flight moderated in 2018, the trend recently became even more striking, as “errors and omissions” hit a record first-half high of $131 billion in 2019, the WSJ notes citing Gene Ma of the Institute of International Finance, much larger than the first-half average of $80 billion during the last period of big capital outflows in 2015 and 2016.
On the surface, this suggests that true capital flight is now twice as large as what was observed after the 2015 devaluation, and indicated that while measures instituted a few years ago to limit capital flight have appeared effective, China remains vulnerable to rising outflows through unofficial channels. Furthermore, the country has yet to report its third-quarter figures, following the big yuan depreciation in early August, when it dipped below 7.00 against the dollar for the first time in a decade.
So what to make of this? Two things, and neither is good.
First, as the WSJ notes, Beijing’s decision to allow its currency to offset the pressure from the trade war has been one of China’s key survival strategies so far, but “with increasing signs that the ocean of capital sloshing around behind China’s dike is finding new cracks—and out-of-control domestic food-price inflation adding to the stakes—that strategy is looking riskier.”
The second one is that with capital already fleeing China, any future attempts to boost China’s economy using monetary policy will be promptly punished, which also explains why the world is sinking into recession: as a reminder, in a world where China has been the primary growth dynamo thanks to its tremendous credit impulse after the financial crisis, this massive credit creation mechanism has now shut down…
… as Beijing runs the risk of an out-of-control capital flight should it push too hard to stimulate the local economy at the expense of another sharp devaluation in the yuan. In short, whereas the official data does not show it, reading between the lines suggests that the global economy may be on the verge of collapse.
Germany is resisting US pressure to shut out Chinese tech giant Huawei from its 5G networks — saying it will not ban any supplier for the next-gen mobile networks on an up front basis, per Reuters.
“Essentially our approach is as follows: We are not taking a pre-emptive decision to ban any actor, or any company,” government spokesman, Steffen Seibert, told a news conference in Berlin yesterday.
The country’s Federal Network Agency is slated to be publishing detailed security guidance on the technical and governance criteria for 5G networks in the next few days.
The next-gen mobile technology delivers faster speeds and lower latency than current-gen cellular technologies, as well as supporting many more connections per cell site. So it’s being viewed as the enabling foundation for a raft of futuristic technologies — from connected and autonomous vehicles to real-time telesurgery.
But increased network capabilities that support many more critical functions means rising security risk. The complexity of 5G networks — marketed by operators as “intelligent connectivity” — also increases the surface area for attacks. So future network security is now a major geopolitical concern.
German business newspaper Handelsblatt, which says it has reviewed a draft of the incoming 5G security requirements, reports that chancellor Angela Merkel stepped in to intervene to exclude a clause which would have blocked Huawei’s market access — fearing a rift with China if the tech giant is shut out.
Earlier this year it says the federal government pledged the highest possible security standards for regulating next-gen mobile networks, saying also that systems should only be sourced from “trusted suppliers”. But those commitments have now been watered down by economic considerations at the top of the German government.
The decision not to block Huawei’s access has attracted criticism within Germany, and flies in the face of continued US pressure on allies to ban the Chinese tech giant over security and espionage risks.
The US imposed its own export controls on Huawei in May.
A key concern attached to Huawei is that back in 2017 China’s Communist Party passed a national intelligence law which gives the state swingeing powers to compel assistance from companies and individuals to gather foreign and domestic intelligence.
For network operators outside China the problem is Huawei has the lead as a global 5G supplier — meaning any ban on it as a supplier would translate into delays to network rollouts. Years of delay and billions of dollars of cost to 5G launches, according to warnings by German operators.
Another issue is that Huawei’s 5G technology has also been criticized on security grounds.
A report this spring by a UK oversight body set up to assess the company’s approach to security was damning — finding “serious and systematic defects” in its software engineering and cyber security competence.
Though a leak shortly afterwards from the UK government suggested it would allow Huawei partial access — to supply non-core elements of networks.
According to Handelsblatt’s report, Germany’s incoming guidance for 5G network operators will require carriers identify critical areas of network architecture and apply an increased level of security. (Although it’s worth pointing out there’s ongoing debate about how to define critical/core network areas in 5G networks.)
The Federal Office for Information Security (BSI) will be responsible for carrying out security inspections of networks.
Last week a pan-EU security threat assessment of 5G technology highlighted risks from “non-EU state or state-backed actors” — in a coded jab at Huawei.
The report also flagged increased security challenges attached to 5G vs current gen networks on account of the expanded role of software in the networks and apps running on 5G. And warned of too much dependence on individual 5G suppliers, and of operators relying overly on a single supplier.
Shortly afterwards the WSJ obtained a private risk assessment by EU governments — which appears to dial up regional concerns over Huawei, focusing on threats linked to 5G providers in countries with “no democratic and legal restrictions in place”.
Among the discussed risks in this non-public report are the insertion of concealed hardware, software or flaws into 5G networks; and the risk of uncontrolled software updates, backdoors or undocumented testing features left in the production version of networking products.
“These vulnerabilities are not ones which can be remedied by making small technical changes, but are strategic and lasting in nature,” a source familiar with the discussions told the WSJ — which implies that short term economic considerations risk translating into major strategic vulnerabilities down the line.
5G alternatives are in short supply, though.
US Senator Mark Warner recently floated the idea of creating a consortium of ‘Five Eyes’ allies — aka the U.S., Australia, Canada, New Zealand and the UK — to finance and build “a Western open-democracy type equivalent” to Huawei.
But any such move would clearly take time, even as Huawei continues selling services around the world and embedding its 5G kit into next-gen networks.
(Reuters) TAIPEI (Reuters) – Taiwan’s president rejected on Thursday a “one country, two systems” formula that Beijing has suggested could be used to unify the island and the mainland, saying such an arrangement had set Hong Kong “on the edge of disorder”.
President Tsai Ing-wen also vowed in a National Day speech to defend Taiwan’s sovereignty, saying her government would safeguard freedom and democracy as Beijing ramps up pressure on the self-ruled island it considers a wayward province.
Tsai, who is seeking re-election in January amid criticism of her policy towards China, referred to the arrangement for the return of the former British colony of Hong Kong to Chinese rule in 1997 as a failure.
Hong Kong has been hit by months of anti-government protests triggered by widespread resentment of what many city residents see as relentless efforts by Beijing to exert control of their city despite the promises of autonomy.
China has proposed that Taiwan be brought under Chinese rule under a similar arrangement, but Tsai said Beijing’s policies towards the island were a danger to regional stability.
“China is still threatening to impose its ‘one country, two systems’ model for Taiwan. Their diplomatic offensives and military coercion pose a serious challenge to regional stability and peace,” Tsai said.
“When freedom and democracy are challenged, and when the Republic of China’s existence and development are threatened, we must stand up and defend ourselves,” Tsai said, referring to Taiwan by its official name.
“The overwhelming consensus among Taiwan’s 23 million people is our rejection of ‘one country, two systems,’ regardless of party affiliation or political position.”
Taiwan’s National Day, marking the anniversary of the start of a 1911 uprising that led to the end of dynastic rule in China and the founding of a republic, was celebrated in Taipei with singing, dancing and parades.
Cold War hostility between the island and the mainland had eased over the past decade or so as both sides focused more on expanding business ties, but relations have cooled considerably since Tsai took office in 2016.
China suspects Tsai and her independence-leaning Democratic Progressive Party of pushing for the island’s formal independence, and this year threatened it with war if there was any such move.
Tsai denies seeking independence and reiterated that she would not unilaterally change the status quo with China.
Despite her assurances, Beijing has stepped up pressure on the island to seek “reunification” and backed up its warnings by flying regular bomber patrols around it.
Beijing also says Taiwan does not have the right to state-to-state relations and is keen to isolate it diplomatically.
Seven countries have severed diplomatic ties with the Taiwan and switched allegiance to Beijing since Tsai coming to power. It now has formal diplomatic ties with just 15 nations.
But Tsai said Taiwan was undaunted.
“The determination of the Taiwanese people to embrace the world has never wavered,” she said, adding that Taiwan must work with “like-minded countries” to ensure peace and stability across the Taiwan Strait.
Tsai said under her watch Taiwan has boosted its combat capabilities with the purchase of advanced weapons and development of home-made aircraft.Slideshow (7 Images)
Taiwan unveiled its largest defense spending increase in more than a decade in August, aiming to purchase more advanced weapons from overseas.
The island has long been a flashpoint in the U.S.-China relationship.
In July, the United States approved the sale of an $2.2 billion worth of weapons to Taiwan, angering Beijing.
The United States has no formal ties with Taiwan but is bound by law to help provide it with the means to defend itself.
(Reuters) BRUSSELS (Reuters) – The European Union warned on Wednesday of the risk of increased cyber attacks by state-backed entities but refrained from singling out China and its telecoms equipment market leader Huawei Technologies as threats.
The comments came in a report prepared by EU member states on cybersecurity risks to next-generation 5G mobile networks seen as crucial to the bloc’s competitiveness in an increasingly networked world.
The authors chose to ignore calls by the United States to ban Huawei’s equipment, drawing a welcome from the Shenzen-based company after it faced U.S. accusations that its gear could be used by China for spying.
“Among the various potential actors, non-EU states or state-backed are considered as the most serious ones and the most likely to target 5G networks,” the European Commission and Finland, which currently holds the rotating EU presidency, said in a joint statement.
“In this context of increased exposure to attacks facilitated by suppliers, the risk profile of individual suppliers will become particularly important, including the likelihood of the supplier being subject to interference from a non-EU country,” they said.
Huawei, which competes with Finland’s Nokia and Sweden’s Ericsson, said it stood ready to work with its European partners on 5G network security. It has always denied its equipment can be used for spying.
“This exercise is an important step toward developing a common approach to cybersecurity and delivering safe networks for the 5G era,” a Huawei spokesman said.
“We are pleased to note that the EU delivered on its commitment to take an evidence-based approach, thoroughly analyzing risks rather than targeting specific countries or actors.”
Tom Ridge, a former U.S. secretary of homeland security, took a different view of the report. He said Huawei’s close ties to the Chinese government meant it would have to comply with legislation requiring it to assist with intelligence gathering.
“If countries needed more reason to implement stricter security measures to protect 5G networks, this comprehensive risk assessment is it,” said Ridge, a member of the advisory board of Global Cyber Policy Watch.
Fifth-generation networks will hook up billions of devices, sensors and cameras in ‘smart’ cities, homes and offices. With that ubiquity, security becomes an even more pressing need than in existing networks.
“5G security requires that networks are built leveraging the most advanced security features, selecting vendors that are trustworthy and transparent,” a Nokia spokesperson said, adding that the company was the only global vendor capable of providing all the building blocks for secure 5G networks.
EU members have differed on how to treat Huawei, with Britain, a close U.S. ally, leaning toward excluding it from critical parts of networks. Germany is meanwhile creating a level playing field in which all 5G vendors should prove they are trustworthy.
The report warned against over-dependence on one telecoms equipment supplier.
“A major dependency on a single supplier increases the exposure to a potential supply interruption, resulting for instance from a commercial failure, and its consequences,” it said.
European network operators, including Germany’s Deutsche Telekom typically have multi-vendor strategies that they say reduce the security risks that might arise from relying too heavily on a single provider.
“The Commission’s 5G assessment recognizes security isn’t just a supplier issue,” said Alex Sinclair, chief technology officer of the GSMA, a global mobile-industry trade group.
“We all have a role to play – from manufacturers to operators to consumers – and we are taking responsibility for our part in the security chain seriously.”FILE PHOTO: A logo of the upcoming mobile standard 5G is pictured at the Hanover trade fair, in Hanover, Germany March 31, 2019. REUTERS/Fabian Bimmer/File Photo
The EU will now seek to come up with a so-called toolbox of measures by the end of the year to address cyber security risks at national and bloc-wide level.
The European Agency for Cybersecurity is also finalizing a map of specific threats related to 5G networks.
Chief executive Carrie Lam’s introduction of an emergency law banning face masks takes the city closer to martial law. The FT’s Asia Editor Jamil Anderlini explains why the police and the governments in Hong Kong and Beijing have little room to compromise – and why protests are now likely to escalate.
Beijing marked the 70th anniversary of the founding of the People’s Republic of China with a military parade that included the unveiling of the Dongfeng-41, an intercontinental ballistic missile capable of reaching the US mainland within 30 minutes.
China’s extraordinary rise was a defining story of the 20th Century, but as it prepares to mark its 70th anniversary, the BBC’s John Sudworth in Beijing asks who has really won under the Communist Party’s rule.
Sitting at his desk in the Chinese city of Tianjin, Zhao Jingjia’s knife is tracing the contours of a face.
Cut by delicate cut, the form emerges – the unmistakable image of Mao Zedong, founder of modern China.
The retired oil engineer discovered his skill with a blade only in later life and now spends his days using the ancient art of paper cutting to glorify leaders and events from China’s communist history.
“I’m the same age as the People’s Republic of China (PRC),” he says. “I have deep feelings for my motherland, my people and my party.”
Born a few days before 1 October 1949 – the day the PRC was declared by Mao – Mr Zhao’s life has followed the dramatic contours of China’s development, through poverty, repression and the rise to prosperity.
Now, in his modest but comfortable apartment, his art is helping him make sense of one of the most tumultuous periods of human history.
“Wasn’t Mao a monster,” I ask, “responsible for the deaths of tens of millions of his countrymen?”
“I lived through it,” he replies. “I can tell you that Chairman Mao did make some mistakes but they weren’t his alone.
“I respect him from my heart. He achieved our nation’s liberation. Ordinary people cannot do such things.”
Beijing will tremble to the thunder of tanks, missile launchers and 15,000 marching soldiers, a projection of national power, wealth and status watched over by the current Communist Party leader, President Xi Jinping, in Tiananmen Square.
An incomplete narrative of progress
Like Mr Zhao’s paper-cut portraits, we’re not meant to focus on the many individual scars made in the course of China’s modern history.
It is the end result that matters.
And, on face value, the transformation has been extraordinary.
On 1 October 1949, Chairman Mao stood in Tiananmen Square urging a war-ravaged, semi-feudal state into a new era with a founding speech and a somewhat plodding parade that could muster only 17 planes for the flyby.
This week’s parade, in contrast, will reportedly feature the world’s longest range intercontinental nuclear missile and a supersonic spy-drone – the trophies of a prosperous, rising authoritarian superpower with a 400 million strong middle class.
It is a narrative of political and economic success that – while in large part true – is incomplete.
New visitors to China are often, rightly, awe-struck by the skyscraper-festooned, hi-tech megacities connected by brand new highways and the world’s largest high-speed rail network.
They see a rampant consumer society with the inhabitants enjoying the freedom and free time to shop for designer goods, to dine out and to surf the internet.
“How bad can it really be?” the onlookers ask, reflecting on the negative headlines they’ve read about China back home.
The answer, as in all societies, is that it depends very much on who you are.
Many of those in China’s major cities, for example, who have benefited from this explosion of material wealth and opportunity, are genuinely grateful and loyal.
In exchange for stability and growth, they may well accept – or at least tolerate – the lack of political freedom and the censorship that feature so often in the foreign media.
For them the parade could be viewed as a fitting tribute to a national success story that mirrors their own.
But in the carving out of a new China, the knife has cut long and deep.
The dead, the jailed and the marginalised
Mao’s man-made famine – a result of radical changes to agricultural systems – claimed tens of millions of lives and his Cultural Revolution killed hundreds of thousands more in a decade-long frenzy of violence and persecution, truths that are notably absent from Chinese textbooks.
After his death, the demographically calamitous One Child Policy brutalised millions over a 40-year period.
Still today, with its new Two Child Policy, the Party insists on violating that most intimate of rights – an individual’s choice over her fertility.
The list is long, with each category adding many thousands, at least, to the toll of those damaged or destroyed by one-party rule.
There are the victims of religious repression, of local government land-grabs and of corruption.
There are the tens of millions of migrant workers, the backbone of China’s industrial success, who have long been shut out of the benefits of citizenship.
A strict residential permit system continues to deny them and their families the right to education or healthcare where they work.
And in recent years, there are the estimated one and a half million Muslims in China’s western region of Xinjiang – Uighurs, Kazakhs and others – who have been placed in mass incarceration camps on the basis of their faith and ethnicity.
China continues to insist they are vocational schools, and that it is pioneering a new way of preventing domestic terrorism.
2010China becomes the world’s second-largest economy
2018Xi Jinping is cleared to be president for life
It is something that makes the silence of their suffering all the more difficult to penetrate.
It is the job of foreign journalists, of course, to try.
‘Falsified, faked and glorified’
But while censorship can shut people up, it cannot stop them remembering.
Prof Guo Yuhua, a sociologist at Beijing’s Tsinghua University, is one of the few scholars left trying to record, via oral histories, some of the huge changes that have affected Chinese society over the past seven decades.
Her books are banned, her communications monitored and her social media accounts are regularly deleted.
“For several generations people have received a history that has been falsified, faked, glorified and whitewashed,” she tells me, despite having been warned not to talk to the foreign media ahead of the parade.
“I think it requires the entire nation to re-study and to reflect on history. Only if we do that can we ensure that these tragedies won’t be repeated.”
A parade, she believes, that puts the Communist Party at the front and centre of the story, misses the real lesson, that China’s progress only began after Mao, when the party loosened its grip a bit.
“People are born to strive for a better, happier and more respectful life, aren’t they?” she asks me.
“If they are provided with a tiny little space, they’ll try to make a fortune and solve their survival problems. This shouldn’t be attributed to the leadership.”
‘Our happiness comes from hard work’
As if to prove the point about how the unsettled, censored pasts of authoritarian states continue to impact the present, the parade is for invited guests only.
Another anniversary, of which Tiananmen Square is the centrepiece, is also being measured in multiples of 10 – it is 30 years since the bloody suppression of the pro-democracy protests that shook the foundations of Communist Party rule.
The troops will be marching – as they always do on these occasions – down the same avenue on which the students were gunned down.
The risk of even a lone protester using the parade to mark a piece of history that has largely been wiped from the record is just too great.
With central Beijing sealed off, ordinary people in whose honour it is supposedly being held, can only watch it on TV.
Back in his Tianjin apartment, Zhao Jingjia shows me the intricate detail of a series of scenes, each cut from a single piece of paper, depicting the “Long March”, a time of hardship and setback for the Communist Party long before it eventually swept to power.
“Our happiness nowadays comes from hard work,” he tells me.
It is a view that echoes that of the Chinese government which, like him, has at least acknowledged that Mao made mistakes while insisting they shouldn’t be dwelt on.
“As for the 70 years of China, it’s extraordinary,” he says. “It can be seen by all. Yesterday we sent two navigation satellites into space – all citizens can enjoy the convenience that these things bring us.”
Protesters in gas masks may be the ones facing off against riot police, but away from the front line many professionals are working hard to support them. The FT talks to a lawyer, a doctor and a social worker.
Scepticism has always surrounded Chinese growth data, especially its GDP statistics. The data is released extremely quickly after the end of a quarter and is hardly ever revised, making one wonder if it’s simply invented. Indeed, local and provincial officials are pressured to meet growth quotas handed down by the government, so there’s pressure to bias national GDP data upwards from those providing it. Here, we break down a recent Fed paper, ‘Is China Fudging Its GDP Figures? Evidence from Trading Partner Data’, to reveal a new take on assessing China’s economic activity.
What Alternative Measures have People Used?
Famously, in 2007 the current Premier, Li Keqiang, said he focused on ‘alternative indicators’ including electricity consumption, the volume of rail cargo, and the amount of loans disbursed. He added that ‘all other figures, especially GDP statistics are for reference only’.
Chinese Trade Delegation Calls Off U.S. Farm Tour
Some have used even more innovative approaches, such as light emissions as measured by satellites. But lately these have been criticised as the data suffers from massive measurement inconsistencies. For instance, changes in the sensitivity of satellites over time.
Are There Other Non-Chinese Measures of Chinese Growth?
Import data has been shown to move closely with GDP across most countries. Whilst getting hold of Chinese import data is tricky, we can use other countries’ measures of their exports to China, which would of course correlate. This data is accurately measured since the number of importers is modest and countries have an incentive to measure trade data well for tariff purposes. Importantly, externally measured Chinese imports could then be used to test which Chinese indicators, such as the ones mentioned by Premier Li, most closely follow growth.
So What Chinese Indicators Most Closely Follow Growth?
The Fed paper looks at a suite of 14 domestic indicators that track the external measure of Chinese imports and find that 8 work best (see table below for full list, extracted from the paper).
Figure 1: Data Sources
These are: electricity, exports, industrial production, an index of consumer expectations, fixed asset investment, floor space construction, retail sales, and rail freight. You’ll note that this list doesn’t include lending data, which was often found to be a countercyclical indicator. Importantly, it also doesn’t include GDP.
The weakest indicators of the 8 are retail sales and fixed asset investment. In the end, the Fed uses all 8 indicators to construct an overall activity called the ‘China cyclical activity tracker (C-CAT)’.
What Does the C-CAT Measure Tell Us About Recent Chinese Growth?
The main conclusion is that since 2013, GDP figures look suspiciously smooth. Notably, the C-CAT measure showed much slower cyclical growth in 2015 than official GDP. But the trend growth of China appears to be accurately measured by official GDP data. As for the 2019 data, official GDP data and the C-CAT measure appear to be giving similar measures for Chinese growth (see chart).
Additionally, as The IIF’s Robin Brooks recent noted: Our China activity tracker, which diverges from official GDP, remains broadly stable at around 5% y/y.
At the behest of the Communist Party leadership, Chinese conglomerates and investor groups have this year transformed from sometimes overeager spree buyers of foreign companies, real estate, and art, into net sellers of global assets for the first time since Chinese companies became big-time players on the global stage about a decade ago, the FT reports.
The shift comes as the Communist Party tries to tamp down on capital outflows as China’s economy weakens with reports suggesting that Beijing could report economic growth below 6% for 2019 and 2020.
Chinese companies have agreed to sell about $40 billion in overseas assets so far this year, up from $32 billion for the whole of last year, according to data from Dealogic. At the same time, Chinese groups have bought just $35 billion of overseas assets this year, making the country a global net seller.
Divestments in the US, where Chinese corporate buyers are now viewed with increased scrutiny, have soared to over $26 billion this year, up from just $8 billion for all of 2018.
The data from Dealogic goes back to 2015, when Chinese companies bought about $100 billion in overseas assets while selling only $10 billion to foreign buyers. However, an FT analysis of Dealogic’s data indicates that China has been a net buyer of overseas assets since at least 2009.
Many of the Chinese-owned assets hitting the market this year were purchased in 2016, the peak of Chinese firms’ off-shore shopping spree. That year, Chinese companies struck more than $200 billion in overseas deals, while taking on extremely high levels of debt.
“There was a crescendo of outbound Chinese deals – a few that lacked industrial logic,” said Raghu Narain, Asia Pacific head of investment banking at Natixis. “The deals that were either funded by too much debt, lacking logic or subsequent actual synergies are unwinding now.”
Two of the most high-profile Chinese acquirers during the boom have become the biggest sellers at the behest of their overlords in Beijing.
Airlines-to-finance group HNA, for example, which bought multibillion-dollar stakes in Hilton and Deutsche Bank in 2016 and 2017, has offloaded at least $20 billion in assets since late 2017 after facing a liquidity crunch in China. HNA sold Swiss air services company Gategroup to RRJ Capital for $1.4 billion earlier this year.
Serial acquirer Anbang Insurance, which was taken over by the government in 2017, has sold off much of its global portfolio, including a group of hotels sold last week to Korea’s Mirae Asset for $5.8 billion.
The decision to divest foreign assets was handed down from the party leadership a few years back as the PBOC and China’s other economic authorities scrambled to shore up their dollar reserves and lower corporate debt. Now is a particularly precarious time for Beijing, which recently recorded the first default of a local government financing company, adding to concerns that the Chinese economy could crumble like a house of cards as it pumps credit back into the economy.
Gas-powered device passed for mass production after two years of research
A Los Angeles police officer stands by a sound cannon at a demonstration in Anaheim – Chinese scientists say they have taken the technology to a new level. Photo: AFPChina has developed the world’s first portable sonic gun for riot control, the Chinese Academy of Sciences said.
The rifle-shaped instrument, which was jointly developed with military and law enforcement, is designed to disperse crowds using focused waves of low frequency sound, the academy’s Technical Institute of Physics and Chemistry website said on Wednesday.
The device’s “biological effect” would cause extreme discomfort, with vibrations in the eardrums, eyeballs, stomach, liver, and brain, scientists said.
Studies dating to the 1940s found that low frequency sound energy could, depending upon intensity and exposure, cause dizziness, headaches, vomiting, bowel spasms, involuntary defecation, organ damage and heart attacks.
Professor Xie Xiujuan discusses the portable sonic rifle (circled) with the government science panel sent to evaluate it. Photo: CASShare:
Sonic weapons are typically large and have to be mounted on vehicles. Until the Chinese development, which has no moving parts, they were powered by electricity to drive a magnetic coil to generate energy. This meant they needed a large and stable source of power.
Professor Xie Xiujuan, lead scientist on the project, said the device was powered by a tube-shape vessel containing an inert gas. When heated, the gas particles vibrate and a deep, monotonous sound is emitted.
The prototype had passed field and third-party tests and the project team has completed its assessment of the device’s effects on the body, the academy said.
BEIJING (Reuters) – The slowdown in China’s economy deepened in August, with growth in industrial production at its weakest 17-1/2 years amid spreading pain from a trade war with the United States and softening domestic demand.FILE PHOTO: A worker looks on in front of a blast furnace at the Chongqing Iron and Steel plant in Changshou, Chongqing, China August 6, 2018. REUTERS/Damir Sagolj/File Photo
Retail sales and investment gauges worsened too, data released on Monday showed, reinforcing views that China is likely to cut some key interest rates this week for the first time in over three years to prevent a sharper slump in activity.
Despite a slew of growth-boosting measures since last year, the world’s second-largest economy has yet to stabilize, and analysts say Beijing needs to roll out more stimulus to ward off a sharper slowdown.
Industrial output growth unexpectedly weakened to 4.4% in August from the same period a year earlier, the slowest pace since February 2002 and receding from 4.8% in July. Analysts polled by Reuters had forecast a pick-up to 5.2%.
In particular, the value of delivered industrial exports fell 4.3% on-year, the first monthly decline since at least two years, Reuters records showed, reflecting the toll that the escalating Sino-U.S. trade war is taking on Chinese manufacturers.
The protracted trade war escalated dramatically last month, with President Donald Trump announcing new tariffs on Chinese goods from Sept. 1, and China letting its yuan currency sharply weaken days later.
After Beijing hit back with retaliatory tariffs, Trump said existing levies would also be raised in coming months, in October and December.
While the two sides are set to resume face-to-face negotiations in early October, most analysts do not expect a durable trade deal, or even a significant de-escalation, any time soon.
Premier Li Keqiang said in an interview published ahead of the data on Monday that it was “very difficult” for the economy to grow at 6% or more and that it faced “downward pressure”.
Traders expect a cut in the central bank’s medium-term loan facility rate (MLF) as early as Tuesday, which would open the way for a reduction in the new loan prime benchmark rate (LPR) later in the week.
Several analysts said in recent weeks that China’s economic growth was already testing the lower end of Beijing’s full-year target of around 6-6.5%, which is likely to spur more policy easing. Second-quarter growth cooled to 6.2%, the weakest in nearly 30 years.
“The key downside risk is the authorities not stepping up policy support sufficiently,” said Louis Kuijs, Head of Asia Economics at Oxford Economics.
Room for stimulus is believed to be limited by worries about rising debt risks, with policy easing by the People’s Bank of China (PBOC) expected to be more restrained than the U.S. Federal Reserve or European Central Bank.
Ting Lu, Chief China Economist at Nomura wrote in a note after the data release that a cut in the MLF rate by around 10 basis points on Tuesday had become more likely.
OTHER DATA ALSO MISSES EXPECTATIONS
Nomura’s Lu expected September’s industrial output to be further hampered by an anti-pollution campaign ahead of and during a key anniversary of the founding of the People’s Republic of China on Oct. 1.
The gloomy August activity data added to signs of broad-based economic weakness, following soft trade and credit reports last week.
Retail sales missed expectations, with growth easing to 7.5%, from 7.6% in July. Analysts had forecast a slight rebound to 7.9%.A worker welds a bicycle steel rim at a factory manufacturing sports equipment in Hangzhou, Zhejiang province, China September 2, 2019. Picture taken September 2, 2019. China Daily via REUTERS ATTENTION EDITORS – THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT. TPX IMAGES OF THE DAY
Auto sales have slumped all year, prompting the statistics bureau to recently start reporting a new reading on consumption. Stripping out vehicles, retail sales rose 9.3% on-year.
Fixed-asset investment also disappointed. It rose 5.5% for the first eight months of the year from the same period in 2018, down from Jan-July’s 5.7%. Analysts had expected 5.6%.
Industrial investment appeared to be the main drag as investment growth in the mining and the manufacturing sectors eased off in the first eight months. But infrastructure investment – a key driver of growth – picked up to 4.2% in the first eight months this year, from 3.8% in January-July period.
The real estate sector also held up in August to remain one of the few bright spots, with property investment growing at its fastest pace in four months as sales accelerated to the highest in over a year.
Analysts have been puzzled by slow construction growth earlier in the year, with some citing deteriorating local government finances. China’s state planner last month announced it will ease capital requirements for infrastructure projects in the second half this year.
Data out last week showed producer prices falling at their fastest pace in three years.
That followed a factory survey that showed activity shrank for the fourth straight month as the trade war wore on.
Earlier this month, the PBOC cut the amount of cash banks are required to hold in reserve for the seventh time since early last year in order to increase funds available for lending.
“The PBOC’s RRR cuts alone are insufficient to secure growth above 6.0% this year,” said analysts at ANZ. “In order to guide financing costs lower, the People’s Bank of China will need to cut the open market operation (OMO) rate or medium term lending facility (MLF) rate in the fourth quarter, in our view.”
(Atlantic) Protests there have demonstrated the enduring appeal of American values and power. But can Washington live up to that promise?
Hong Kong’s pro-democracy protest movement, the David to China’s Goliath, is calling out to the land of the free for help—and help may be on the way. The question is whether it will be substantial enough and fast enough, and have the support of the president of the United States.
For months now, a small but zealous contingent of American flag-waving protesters has been a fixture of the huge demonstrations in Hong Kong, including today, when dozens of people again carried the U.S. flag during a rally held in defiance of a police ban. As the struggle to resist China’s tightening grip on the semiautonomous region has intensified, protesters have appealed to the United States in larger numbers and with greater urgency. Last weekend, tens of thousands of protesters marched near the U.S. consulate in the territory, singing “The Star-Spangled Banner” and carrying signs that urged President Donald Trump to “liberate Hong Kong.” Perhaps more realistically, they also issued a practical plea: for Congress to pass the Hong Kong Human Rights and Democracy Act, which would grant the United States further means to defend the territory’s freedoms and autonomy.
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Faced with Trump’s scattershot approach to the ferment in Hong Kong, which doesn’t rank as a high-priority issue for his administration, activists are placing their faith in legislation that ultimately will only be as effective as the executive branch’s willingness to implement it.
Nevertheless, Republican Senator Marco Rubio, one of the sponsors of the bill in the Senate, is optimistic that the U.S. government will deliver on its promise. That scene near the consulate a week ago was a vivid reminder that America is still a potent “symbol of democracy and freedom” around the world, he told The Atlantic. The protesters “see a country where people vehemently disagree on public policy and say horrible things about each other, but no one goes to jail for it,” he noted.
By contrast, this past week, Hong Kong police announced that they’ve arrested nearly 1,400 people between the ages of 12 and 76 since the protests erupted this spring over proposed legislation that would have enabled suspected criminals to be extradited to the lawless judicial jungle of mainland China. Carrie Lam, the Beijing-appointed chief executive of Hong Kong, has since pledged to withdraw the law—an astounding victory for leaderless protesters going up against a powerful authoritarian state, but one that has yet to placate activists.
Rubio said he expects the Hong Kong Human Rights and Democracy Act to easily pass in Congress and be signed into law by the president. The legislation, which hasbipartisansupport in the Senate and the House of Representatives, has emerged as the primary vehicle through which the U.S. government is hoping to deter China from carrying out a Tiananmen Square–like crackdown against peaceful protesters and pressure it into upholding the city’s special status within China. (So far Senate Majority Leader Mitch McConnell, whose wife’s family has extensive business dealings in China, hasn’t specifically endorsed the legislation, even as he’s advocated for legislative measures to preserve Hong Kong’s autonomy. A spokesperson for Rubio, speaking on the condition of anonymity to discuss deliberations in the Senate, said the senator’s office did not view McConnell’s failure to reference the act in a recent op-ed on Hong Kong as a slight.)
Among other things, the bill would require the secretary of state to annually certify to Congress that Hong Kong, which operates its own immigration system, judiciary, and currency, is sufficiently autonomous to maintain the favorable treatment on trade and commerce that it receives from the United States. (Hong Kong, for example, isn’t subject to Trump’s tariffs on the rest of China.) It would also empower the U.S. government to impose sanctions on Chinese or Hong Kong officials deemed to be undermining that autonomy or committing human-rights abuses.
In theory, this would equip the United States with plenty of economic and diplomatic leverage to influence Chinese behavior, but in practice it would be difficult to execute. For one thing, America’s legislative machinery moves at a slower pace than the Hong Kong protests, which threaten to come to a head in a few weeks when China marks the 70th anniversary of its founding. Rubio said he could envision the Senate passing the act, perhaps by unanimous consent, in mid-October when it returns from a break, and the House passing its version in short order as well. That’s fast by congressional standards, but the Chinese and Hong Kong authorities could in the meantime take any number of actions—including measures short of a large-scale military clampdown, such as declaring a state of emergency. It’s unclear how the U.S. would respond if that were to happen.
There’s also the distinct chance that the campaign in Washington could go the way of other recent issues, such as punitive measures against Russia and Saudi Arabia, that also had strong bipartisan backing in Congress only to be hollowedout when they reached the executive branch.
Rubio said he has personally spoken with Trump about the bill and has not encountered resistance. “The White House has indicated that they would sign it,” he noted.
Yet as Trump’s former consul general to Hong Kong and Macau has observed, Hong Kong is a “second-tier” matter in the administration relative to, say, trade with China and addressing the nuclear threats from North Korea and Iran. Trump has mostly been silent on Hong Kong. When he has mentioned it, he has explicitly linked the issues of trade and Hong Kong (even as his advisers dismiss any connection), warning the Chinese government that violent suppression of the protests would jeopardize trade talks and arguing that this threat is precisely what has restrained Beijing so far. At times Trump has appeared to take China’s side, such as when he described the demonstrations as “riots.” Occasionally he has said he’s in favor of Hong Kong’s freedom. More often he’s suggested that the Chinese leader, Xi Jinping, meet with protesters, an idea Xi hasn’t shown the faintest indication of entertaining.
Rubio said he didn’t believe Trump would veto the legislation to placate the Chinese as trade talks resume, noting that he thinks the bill will pass with a veto-proof majority. (The Trump administration has made such moves in the past, such as when it reportedly postponed a tough speech on China by Vice President Mike Pence ahead of trade talks between Trump and Xi at the G20 summit in June.)
“I think the bigger concern is in its implementation,” Rubio said. “You can pass the bill, but it still requires the administration to implement it. It still requires them to conduct the annual review and it still requires them to impose sanctions on individuals, for example, police officials responsible for repression. They could theoretically sign the bill—them or a future administration —and yet not implement it.”
Rubio added that he has made the argument to Trump “that if the Chinese are prepared to break the commitments they made on Hong Kong [as part of a 1984 agreement with Britain on transferring control of the territory to China], how could we trust them to keep any commitments they make on trade or any other matter?”
In Hong Kong, meanwhile, the bill is being championed by pro-democracy lawmakers and activists who have recently made trips to Washington to lobby for its passage, angering both pro-establishment figures in the territory and officials in Beijing.
China’s oversight of Hong Kong has taken a “serious deviation from the original intent of ‘one country, two systems,’” Dennis Kwok, a member of the city’s Legislative Council, told The Atlantic, referring to the framework under which Hong Kong has operated since 1997, when the territory was handed back to China. In August, Kwok and other Hong Kong lawmakers traveled to meet with U.S. counterparts in Montana, where the nonprofit that organized the delegation has an office.
The Chinese government, Kwok charged, wants to have it “both ways,” exerting ever-increasing control over Hong Kong while still benefiting economically from the unique status afforded to the city by the United States under a 1992 law known as the Hong Kong Policy Act. While Hong Kongers don’t want the act to be scrapped at the moment, if “suppression of human rights and democracy is a persistent factor, then why should people treat Hong Kong differently?” he asked.
Kwok said he understood that the American legislative process is “far from simple,” but was heartened by what he heard during his U.S. tour, which included meetings with officials from Senate Minority Leader Chuck Schumer’s office in New York and an address to the Oregon Republican Party convention in the small city of Pendleton. Across this eclectic set of interactions, Kwok said, there was a uniform message that people want to see Hong Kong “continue to be an open, successful, prosperous, international city, but they are worried about the stuff that is going on here.”
Another pro-democracy lawmaker, James To, went to Washington in May. His schedule freed up unexpectedly, he joked, because he was ousted by a pro-Beijing faction from his position overseeing the Legislative Council’s bill committee. He met with House Speaker Nancy Pelosi and Secretary of State Mike Pompeo, and returned to the United States last month with Kwok. The message he hoped to convey to U.S. officials is blunt: The “Hong Kong people are in a very dangerous situation,” he told The Atlantic. (Rubio said his office speaks with Hong Kong activists “all the time” to hear “what they think we can do to be most impactful and effective at supporting them.” He might meet with the prominent activist Joshua Wong during Wong’s upcoming trip to the United States.)
The stream of visitors to Washington and the way they’ve been received has irked Hong Kong’s pro-Beijing camp. Regina Ip, a pro-Beijing lawmaker and a member of Lam’s cabinet who also made the recent trip to Montana, was frustrated with what she saw as a new tactic by government critics to draw on overseas support. “This time there is really high-profile involvement of U.S. officials,” she said in an interview before Lam withdrew the extradition bill. “I won’t use the word interference because I don’t have hard evidence, but definitely the pressure on us is much greater.”
The domestic and international push for passage of the Human Rights and Democracy Act has only deepened this sentiment. Lam has said that the U.S. Congress should not be allowed to become “a stakeholder” in Hong Kong’s affairs and warned people not to lobby for the legislation. Officials in Beijing have spoken with even more force and a conspiratorial tone about covert U.S. meddling, demanding that the United States withdraw its “black hands” from Hong Kong while blaming U.S. politicians for pushing protesters to be “reckless” and “beautifying the violent criminal offenses as [a] fight for human rights and freedom.”
Kwok, the pro-democracy lawmaker, dismissed Lam’s comments as “standard communist rhetoric.” Lam must understand that “Hong Kong works because it is an international city … That means everyone, especially Western nations, have a stake in Hong Kong,” he said.
As Rubio sees it, the stakes are towering. The Chinese Communist Party considers Hong Kong “the front line of its battle against Western liberal democracies,” he said, and the United States needs to confront the authoritarian model China is promoting if it wishes to avoid becoming “an island surrounded by nations that have left the democratic order.” He acknowledged that the Chinese government may so value Hong Kong that it is prepared to assert authority over it at great expense, but argued that it’s still incumbent upon the United States to clarify what those costs will be. “The fact that we can’t ultimately control the outcome [in Hong Kong] entirely should not prevent us from doing something,” he maintained.
Rubio said that a red line for Congress would be a violent crackdown by Chinese forces on the protests or a loss of Hong Kong’s autonomy, which he described as already “tenuous.”
Asked whether he has a sense of the White House’s red line on Hong Kong, he responded, “No, I don’t.”
The London Stock Exchange Group (LSE.L) has unanimously rejected a takeover bid from Hong Kong Exchanges and Clearing (HKEX) (0388.HK).
LSE said in a statement on Friday lunchtime that the board had “considered the unsolicited, preliminary, and highly conditional proposal” and concluded it has “fundamental flaws.”
“The Board has fundamental concerns about the key aspects of the Conditional Proposal: strategy, deliverability, form of consideration, and value,” the company said in a statement.
LSE said it would not engage further with HKEX and would instead focus on its acquisition of data business Refinitiv.
HKEX surprised the market on Wednesday with a £32bn bid for LSE. It said a merger of the two businesses would “connect East and West” and “offer customers greater innovation, risk management, and trading opportunities.”
Analysts said the deal looked unlikely from the start.
“There are only few instances of cross-continental exchange mergers that have been completed successfully, as nationalistic concerns often arise,” UBS analysts Michael Werner and Federico Braga said in a note to clients on Friday.
“Given the recent business disruptions in Hong Kong, we would argue that this adds to the potential perceived risk of a proposed LSE/HKEX merger.”
Analyst Benjamin Goy at Deutsche Bank said the deal would be “strategically and politically challenging.”
Shares in HKEX fell sharply on Thursday in Hong Kong as investors guessed the deal would be rejected. The stock price fall wiped about $1bn off the company’s value.
Thousands of peaceful demonstrators have gathered across the city to sing ‘Glory to Hong Kong’ as they continue to protest against the governments in Hong Kong and Beijing and demand democratic reform.
(MIT) The tech giant gave a rare statement that bristled at Google’s analysis of the novel hacking operation.
In the wake of one of the worst attacks ever against iPhone and iPad security, Apple issued a rare statement on Friday rebutting claims about the attack made by Google in a blog post last week.
The Google post said that hacked websites were used to “indiscriminately” attack individuals who visited them, through numerous critical vulnerabilities in iOS, the operating system that powers iPhones and iPads. These exploits were used to attack as many as thousands of victims per week, according to Google. However, according to Apple’s new statement, Google’s report left out or misrepresented key details.
Scale of attack: Apple disputed some key facts in Google’s report, which said that potentially thousands of iPhone users could have been hit every week in a two-year-long hacking campaign.
“First, the sophisticated attack was narrowly focused, not a broad-based exploit of iPhones ‘en masse’ as described. The attack affected fewer than a dozen websites that focus on content related to the Uighur community,” Apple wrote. “Google’s post, issued six months after iOS patches were released, creates the false impression of ‘mass exploitation’ to ‘monitor the private activities of entire populations in real time,’ stoking fear among all iPhone users that their devices had been compromised. This was never the case.”
In a statement replying to Apple’s statement, a Google spokesperson said, “We stand by our in-depth research which was written to focus on the technical aspects of these vulnerabilities.”
Length of attack: Apple asserted that the campaign lasted “roughly two months” and “not ‘two years’ as Google implies.”
Apple says it fixed the problem shortly after it became aware of it. iPhone users who have updated their phones’ operating systems are protected.
Impact of attack: The overall thrust of Google’s report is not in question. The attack is one of the most serious, and successful, attacks ever perpetrated against iPhones. Not only is the number of people who were affected unclear, but so too is the impact on those individuals.
Amnesty International has detailed what it describe as “an effort by the Chinese government to wipe out religious beliefs and aspects of cultural identity in order to enforce political loyalty for the State and the Communist Party of China.”
Apple, which does a large amount of business in China, never names the country, or the Chinese government, in its statement. Google likewise avoided any such characterizations.