Category Archives: China

(Reuters) As defaults rise, China bond markets are pricing risks better

(Reuters) But analysts and market players say there might be a silver lining for investors, as the growing number of defaults and the regulatory seizure of a struggling regional bank may help foster a shift in how China’s onshore bond market prices risk.

“We are seeing more accurate risk pricing and I think it’s a long-term change,” said Yun Xiong, a portfolio manager at Green Harmony Capital in Hong Kong who focuses primarily on fixed income.

The default by Jinggong Group, rated AA+ by two domestic agencies, was part of a record stream of missed interest and principal payments against a backdrop of persistent funding challenges for corporate issuers and slowing growth. That is despite official assurances that China will “control” bond defaults through legal and market means.

This year, 35 Chinese onshore corporate issuers have defaulted on interest or principal payments on 58 bonds with a total principal value of 54.31 billion yuan ($7.90 billion), according to data compiled by Reuters.

That is 60% more than the value of defaulted bonds in the first seven months of 2018, and more than half of the total for all of 2018, the highest on record.


And ratings agency S&P Global says it expects the number of Chinese corporate defaults to rise in the second half as a slowing economy and the Sino-U.S. trade war contribute to a weaker credit outlook.

Coming along with defaults has been a sharp increase in the premium investors demand to hold riskier debt. The spread of 1-year AA rated corporate debt over its AAA rated equivalent has more than doubled since late May, from 23 to 59 basis points. AAIFRYS=CDC

The effect is even starker in some shorter tenors. AA rated 3-month commercial paper AACNCP3M=RR yielded 3.585% on July 19, according to Refinitiv data, a nearly 90 basis point premium over AAA rated paper. On May 21, the gap was 5 basis points.

Spurring the jump and putting extra pressure on weak issuers was the May 24 takeover of Inner Mongolia’s Baoshang Bank by Chinese regulators, prompted by what they called serious credit risks.

The seizure and revelations that larger Baoshang creditors would face haircuts jolted the interbank market, hitting funding for smaller players, especially those providing lower-quality collateral for loans.

Concerted efforts by the central bank to supply the banking system with ample funds have helped ease worries and keep interbank lending rates low. But investors continue to demand elevated premiums for lower-rated negotiable certificates of deposit, a popular short-term interbank debt instrument.


In a recent report, HSBC fixed income analyst Helen Huang said defaults are not just increasing, but are affecting larger companies in more sectors, including “new economy” ones such as pharmaceuticals and high tech.

Previous jumps in defaults have led to a temporary spike in corporate yield spreads, while “credit differentiation in primary market issuance has been deeper and more persistent since the second half of 2018,” Huang said.

She added that though AAA rated issuers are issuing bonds at historically high rates, gross issuance for AA rated issuers has risen little since 2017.

Zhou Hao, senior emerging markets economist at Commerzbank, said it is difficult to predict how long the widening of credit spreads will last, but he expects to see clearer “tiering” in onshore bonds, with stronger companies securing funding through bond issuance but weaker ones finding this increasingly difficult.

Xiong at Green Harmony says he believes the changes are here to stay.

“Maybe the spread can narrow a bit if the market condition improves, but investors understand the credit risk better now,” he said.

(SCMP) Hong Kong’s currency peg to the US dollar isn’t an Achilles’ heel – it’s an Achilles’ shield

(SCMP) Hong Kong’s currency peg to the US dollar isn’t an Achilles’ heel – it’s an Achilles’ shield

  • The peg, which prevented a complete economic wipeout in 1983, has been described as a ‘deadly weakness’
  • But in truth it is an automatically self-correcting mechanism that today’s Hongkongers can be thankful for, writes Tom Holland
The architects of the currency peg were aware that it would be impossible for Hong Kong to allow the free movement of capital while at the same time operating both a fixed exchange rate and an independent monetary policy. Photo: Roy Issa

The architects of the currency peg were aware that it would be impossible for Hong Kong to allow the free movement of capital while at the same time operating both a fixed exchange rate and an independent monetary policy. Photo: Roy IssaApparently, Hong Kong has an “Achilles’ heel”. According to one Zhou Luohua, vice-president at the Chongyang Finance Research Institute of Beijing’s Renmin University, the city’s deadly weakness is its currency peg to the US dollar.

In an article in the South China Morning Post last week, Zhou argued that the peg left Hong Kong’s economy extremely exposed to falls in local stock and property prices.Because of the constraints of the peg, the Hong Kong Monetary Authority (HKMA) is not free like other central banks to pump unlimited liquidity into the local financial system.

“If asset prices are plunging, it would trigger an exodus of funds at the same time, translating into a double hit for the Hong Kong economy,” Zhou warned.

Now, the Chongyang Finance Research Institute sounds at first like a reputable academic institution. However, a quick look at its website might cause you to question that assumption.

The real danger behind US currency manipulation charges against China

Last week, for example, one of Zhou’s senior colleagues dismissed Hong Kong’s protesters as “confused”. Saying he has visited Hong Kong “several times”, he declared that “the idea that this is all about democracy is nonsense”.SUBSCRIBE TO THIS WEEK IN ASIAGet updates direct to your inboxSUBMITBy registering, you agree to our T&C and Privacy Policy

“Most people are more interested in the back sports pages of newspapers than they are in the front political parts,” he claimed, adding that local discontent was motivated by Hongkongers’ material greed.

However, just because one of his colleagues spouts such idiocies is no reason to dismiss Zhou’s warning out of hand. So let’s unpack his argument that Hong Kong’s currency peg to the US dollar is a fatal flaw to see if it stands up to examination.

Zhou is correct to say that the HKMA cannot support local asset markets with unlimited quantities of liquidity.

For Hong Kong as an international banking centre, free capital flows were essential. Photo: Bloomberg

For Hong Kong as an international banking centre, free capital flows were essential. Photo: BloombergShare:

This is by design. The architects of the peg were perfectly aware that it would be impossible for Hong Kong to allow the free movement of capital while at the same time operating both a fixed exchange rate and an independent monetary policy.

For Hong Kong as an international banking centre, free capital flows were essential. Indeed, free movement of capital is why the city is today a major international financial centre, while Shanghai is not.

So, the choice was between a fixed exchange rate and an independent monetary policy.

Well, Hong Kong operated an independent monetary policy before 1983, and as a result it had to allow the Hong Kong dollar to float. It was an unhappy combination. When the Sino-British negotiations leading up to the handover looked as if they were running into trouble, confidence in the city’s future collapsed, and so did the currency’s exchange rate.

Why the extradition bill protests won’t burst Hong Kong’s property bubble

Between January and September 1983, the Hong Kong dollar lost a quarter of its value against the US dollar. It was only the October decision to reverse course, sacrifice monetary independence and fix the exchange rate that restored confidence and prevented a complete economic wipeout. It was a decision today’s Hongkongers can be thankful for. If the city still operated a floating exchange rate, it is likely that increasing fears of intervention by mainland security forces over recent weeks would have triggered a fresh slide in the Hong Kong dollar, inviting a maelstrom of speculation that would have led in turn to a full-blown currency crisis.

As it is, the city’s financial markets and economy have remained remarkably stable. The exchange rate remains fixed. The stock market is in positive territory year-to-date. Property prices are within 1.2 per cent of their all-time high. And the local jobless rate is at just 2.9 per cent – effectively full employment.

If capital flows out of Hong Kong, Hong Kong-dollar liquidity dries up, and local interest rates rise until they reach a level that attracts capital back again. Photo: Winson Wong

If capital flows out of Hong Kong, Hong Kong-dollar liquidity dries up, and local interest rates rise until they reach a level that attracts capital back again. Photo: Winson WongShare:

But what about Zhou’s warning that a steep sell-off in Hong Kong’s asset markets could lead to destabilising capital flight, and that because of the peg the local authorities would be powerless to prevent the outflows inflicting catastrophic damage on the city’s financial system and economy?

It is true that large-scale capital flight could push local interest rates to frightening levels. During the Asian crisis in 1997 and 1998, the one-month Hibor rate, to which most mortgages are now linked, twice rose to 20 per cent. But on each occasion, the spike lasted only a few days – not long enough to inflict serious pain on borrowers – and local interest rates soon subsided back into line with US rates.

That’s the point. The mechanism is automatically self-correcting. If capital flows out of Hong Kong, Hong Kong-dollar liquidity dries up, and local interest rates rise until they reach a level that attracts capital back again.

China’s sinister plan to buy Eastern Europe is exaggerated

Right now, that level wouldn’t have to be very high at all. With US$16 trillion of global bonds currently offering negative yields, the 10-year US Treasury bond paying just 1.6 per cent, and investors around the world desperate for yield, it is highly likely that even in a major asset market sell-off, local interest rates would have to rise to no more than 4 per cent or 5 per cent to attract net inflows of funds once again. The HKMA’s stress tests indicate that the local financial system would take such an increase in its stride, with minimal knock-on effects.

Of course, if the People’s Liberation Army were to roll into Hong Kong guns blazing, all bets would be off. Confidence in the city would crash, and so would the local financial system in the unlikely event it remained open.

But that would be the least of anyone’s problems. A Tiananmen-style suppression of the city’s protests would force the world’s other major economies to cast China out of the global trading system. China’s economy would crash, and the rest of the world would enter a deep depression as globalisation unravelled.

That’s the doomsday scenario, and Beijing’s instinct for self-preservation will ensure it doesn’t happen. Barring that, Zhou is wrong: Hong Kong’s currency peg to the US dollar is not a weakness, it’s a strength. ■

(Verge) YouTube disabled 210 accounts for spreading disinformation about Hong Kong protests


Google just published a blog post revealing that it has disabled 210 YouTube channels that the company says “behaved in a coordinated manner while uploading videos related to the ongoing protests in Hong Kong.” Google cites the behavior as being “consistent with recent observations and actions related to China announced by Facebook and Twitter.” The accounts were disabled earlier this week.

Both Facebook and Twitter recently uncovered and suspended accounts that the social media companies believe were operated by the Chinese government and designed to seed doubt about and undermine the ongoing protests in Hong Kong. Twitter suspended nearly 1,000 accounts tied to China, and Facebook removed various pages, groups, and accounts linked to the effort to spread information opposing the protests.

“We found use of VPNs and other methods to disguise the origin of these accounts and other activity commonly associated with coordinated influence operations,” Shane Huntley, from Google’s Threat Analysis Group, wrote in the blog post. “These actions are part of our continuing efforts to protect the integrity of our platforms and the security and privacy of our users.”

Google also used the opportunity to address moves it recently took to counter the government of Kazakhstan, which recently forced citizens to install a security certificate that gave the government broad power to spy on internet activity and “decrypt and read anything a user types or posts, including intercepting their account information and passwords.”

“These actions are part of our continuing efforts to protect the integrity of our platforms and the security and privacy of our users,” said Huntley, adding that Google’s teams “will continue to identify bad actors, terminate their accounts, and share relevant information with law enforcement and others in the industry.”

(ZH) Chart Of The Day: China’s Economy Slows To 4.6% In June

(ZH) According to Fathom Consulting, a global independent macro research consultancy, it’s proprietary China Momentum Indicator 2.0 has slowed to 4.6% in June, the lowest reading since Aug. 2016.

There is also a growing gap between the China Momentum Indicator 2.0 at 4.6% and official GDP data at 6.2%. Might suggest China’s economy hasn’t yet bottomed, could continue to decline through 2H19 into 1H20.

Gary Cohn, the former chief economic advisor to Donald Trump, has said the slowdown predates the trade war and reflects a strategic decision by China to rebalance the economy.

Fathom notes that China’s economy was even slowing before the rebalancing.

The global macro research firm said, “with the consumer share of total import demand on a downward trend since 2016, we also find little evidence to suggest that China is successfully rebalancing.”

To combat dangerous crosscurrents of the trade war disrupting global supply chains in and out of China, Chinese policymakers resorted to the same playbook as before, pump the economy with record amounts of the stimulus earlier in the year.

Currency depreciation came into the picture when President Trump escalated the trade war by raising tariffs to 25% from 10% on $200 billion of Chinese goods in May. Then a massive devaluation of the renminbi followed in early August, when the president slapped 10% tariffs on $300 billion worth of Chinese goods, effective Sept. 1.

“Trade talks are continuing, and during the talks the U.S. will start, on Sept. 1, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country…We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!” Trump said in a tweet last month.

Since the trade war began last March, the renminbi has weakened 13% against the U.S. dollar, neutralizing some of the tariffs imposed by the U.S. on imports from China.

Currency devaluation undermines hopes for a soft landing, while further infuriating the Trump administration who has recently branded China as a currency manipulator.

And for more bad news, China has said its rebalancing will continue through 2020 and offered a pessimistic view of how Beijing won’t sign a trade deal until after the November 2020 election. This would almost guarantee China is allowing its export economy to weaken while stimulating its domestic economy, all in the attempt to trigger a recession in the U.S. to diminish President Trump’s probabilities of getting reelected.

(Economist) America angers China with a sale of fighter jets to Taiwan


China’s fury is certain; its retaliation unpredictable

FOR TAIWAN, there is nothing like an American president who is not squeamish about outraging China. Even before he took office, Donald Trump stirred indignation in Beijing by taking a congratulatory phone call just after his election from Tsai Ing-wen, the president of Taiwan. (China saw this as a breach of the “one-China principle”, under which it demands that countries that maintain formal diplomatic ties with it do not also have them with Taiwan, which it views as part of China.) America recently allowed Ms Tsai to visit New York for one of the longest stays ever granted to a Taiwanese president, and sold Taiwan tanks and anti-aircraft missiles worth $2.2bn. But this week Mr Trump thrilled Taiwan with a step that China will see as an even bigger affront.

On August 18th Mr Trump decided to sell Taiwan 66 new F-16 fighter jets. The sale, worth $8bn, still needs congressional approval. But leading Republicans and Democrats alike have championed it, seeing Taiwan as a bulwark against Beijing’s expansion in the Asia-Pacific.

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The new fleet of F-16s will boost Taiwan’s ageing air force, but hardly tip the military balance against China’s increasingly powerful armed forces. The real power they embody is that of a psychological shock for the one-party state across the strait. The last time America sold fighter jets to Taiwan was in 1992.

Taiwan first asked America for more F-16s in 2006, under the previous president from Ms Tsai’s Democratic Progressive Party, which typically has especially testy relations with China. His successor, Ma Ying-jeou, of the more China-friendly party, the Kuomintang (KMT), reiterated the request. But China persuaded the administrations of both George W. Bush and Barack Obama to refuse. During Mr Obama’s presidency in particular, China portrayed a potential sale of F-16 planes as crossing a red line. It never tires of reminding America that in 1982 it promised to reduce arms sales to Taiwan.

Ms Tsai, who is campaigning for re-election in early 2020, was delighted with the news. Her campaign presents her as a foil to an ever more repressive, assertive China. Her KMT challenger, Han Kuo-yu, whom critics accuse of being too cosy with China, also applauded Mr Trump’s decision and pledged to deepen military ties with America if elected. Arthur Ding, of National Chengchi University, thinks the deal, despite its hefty price tag, will fly swiftly through the sometimes combative legislature.

China was not so happy. A spokeswoman for the foreign ministry said on August 16th that American arms sales “severely violate the one-China principle”. But it is not clear if it plans anything more than a rhetorical response, such as suspending military exchanges with America. The impact on other disputes between the two countries—over trade, for example—is also uncertain.

(BBC) Hong Kong: China confirms detention of UK consulate worker


Simon Cheng

A worker at the UK’s Hong Kong consulate has been detained at the border for allegedly violating the law, China has confirmed.

Media reports on Tuesday said Simon Cheng, who is thought to be from Hong Kong, went missing on 8 August during a business trip.

China’s foreign ministry said Mr Cheng was detained at Shenzhen for 15 days.

The UK said it was “extremely concerned” and the embassy in Beijing was providing support to his family.

China said Mr Cheng, 28, had been detained for violating public security laws, although the foreign ministry gave no details of the alleged offence.

Following large-scale protests in Hong Kong, travellers have reported heightened security measures on the mainland side, with people passing through being subjected to police checks of their mobile phones.

The protests, now entering their third month, were sparked by a now-suspended extradition bill that would have allowed Hong Kong to send criminal suspects to China for trial.

A small group of protesters gathered outside the British consulate in support of Mr Cheng. Max Chung, a spokesman for the protesters, told Reuters the case had serious consequences for everybody in Hong Kong.

Protesters outside the British consulate in Hong Kong
Image captionProtesters held posters of Mr Cheng and signs saying “England expects that every man will do his duty”

“We want to urge the UK government to step up and act now. Save Simon now,” he said, adding that Mr Cheng had not taken part in anti-government demonstrations.

“Simon is a very good guy, and he’s a smart guy – he finished his Masters at LSE (London School of Economics) – so I don’t think he would do anything stupid.”

China’s foreign ministry spokesman Geng Shuang said they had made “stern representations” to the UK over comments made since the protests began in Hong Kong.

“We request they stop making these irresponsible statements, stop meddling in Hong Kong’s affairs and stop interfering in China’s internal affairs,” he said.

He said Mr Cheng was a Chinese citizen and his detention was an internal affair.

Media captionAerial footage shows extent of Hong Kong protest

BBC China correspondent Robin Brant said the detention was short compared to many sentences in China and that Mr Cheng should be due for release in the next 48 hours.

He said China insisted the detention was not a diplomatic incident, but he said the Foreign Office had likely been working out of the public spotlight over the last 13 days to find out what had happened to Mr Cheng and secure his release.

Earlier this month, Foreign Secretary Dominic Raab raised concerns about the treatment of protesters in Hong Kong, prompting China to accuse the UK of “colonial” attitudes.

According to local outlet HKFP, Mr Cheng is a trade and investment officer at the Scottish Development International section of the consulate.

It said on 8 August he travelled to a business event in Shenzhen in south-east China, which links Hong Kong to the mainland.

His girlfriend told HKFP that he planned to travel home the same day, but did not return. In online messages, he wrote that he was passing through the border, adding “pray for me”.

Hong Kong police said they had inquired about Mr Cheng’s whereabouts with the mainland authorities but “results are still pending”.

Earlier this year, China also arrested two Canadians, accusing them of espionage after detaining them for several months. It followed the arrest in Canada of Huawei executive Meng Wanzhou on behalf of the US.

(ZH) “I See No Future Here”: Migration To Taiwan Surges 28% As Hong Kong Residents Flee

(ZH) Hong Kong was already one of the world’s most unaffordable cities before the unrest over the extradition bill started 11 weeks ago. But now, it’s both unaffordable and not particularly safe, more residents are looking to maybe find somewhere less expensive, that’s not quite such a political powder keg.

Given that most people in the region would probably like to live somewhere local where they speak the language, the top beneficiary of HK’s recent wave of emigration has been Taiwan.

According to the Taipei Times and Bloomberg, the number of people moving to Taiwan from Hong Kong has risen rapidly – it’s up 28% over the first seven months of this year compared with the same period a year earlier – driven in part by the anti-government protests that have rocked the city-state over the past three months.

Those who have been making the move, typically wealthier entrepreneurs, salespeople and managers, have cited a better quality of life in the democratically run Taiwan, cheaper property, business opportunities and a safer living environment as incentives to make the move.

Many in Hong Kong are worried that Beijing will send a military incursion to restore order, fears that haven’t been allayed by the arrest of a worker at the British consulate in Hong Kong.

Meanwhile, protesters have clashed with police in an extremely violent manner. Taiwanese President Tsai Ing-wen, who leads a pro-independence party in Taiwan, has verbally supported the Taiwan protests. But many residents are beginning to worry that the clashes might never end.

And who wants to pay all that money in rent if you can’t even catch a flight on time without worrying about mobs of protesters.

Just take a look at this quote:

“I want to move to Taiwan because Hong Kong is in a period of white terror and ruled by the police, which scares me,” said 37-year-old retail salesperson Steven Chen, a Hong Konger who said he was working to move to Taiwan. “I saw no future for the city when it returned to China some 20 years ago, but now it’s dangerous to live in, as the police are not protecting people.”

Not only is there ‘no future,’ but many now worry that it’s ‘dangerous’ to live in Hong Kong.

(SCMP) Was China’s Arctic push behind Donald Trump’s wish to ‘buy’ Greenland?


  • Greenland is gaining attention from global super powers including China due to its strategic location and its mineral resources
Icebergs float behind the town of Kulusuk in Greenland. Photo: AFP

Icebergs float behind the town of Kulusuk in Greenland. Photo: AFPUS President Donald Trump’s reported wish to buy Greenland may have been rejected by Denmark, but it underscores the rapidly rising value of the massive, ice-covered island due to global warming and to China’s drive for an Arctic presence.

The accelerating polar ice melt has left sparsely populated Greenland, a self-governing part of Denmark, astride what are potentially major shipping routes and in the crosshairs of intensifying geopolitical competition between superpowers.

It also has untapped natural resources like oil, minerals and valuable rare earth elements that China, the United States and other major tech economies covet.

A Chinese government-backed group’s offer last year to build three new international airports on Greenland sparked alarms in Copenhagen and Washington.

The Chinese plan was finally nixed in exchange for Danish funding and a pledge of support from the Pentagon.

US defence report flags China’s expanding military reach in the Arctic

Trump’s idea to buy Greenland, reported by The Wall Street Journal on Friday, “is not a serious proposal,” said Heather Conley, a specialist at the Centre for Strategic and International Studies in Washington.SUBSCRIBE TO SCMP TODAY: INTL EDITIONGet updates direct to your inboxSUBMITBy registering, you agree to our T&C and Privacy Policy

But, “The administration has awoken to the Arctic as a geostrategic issue,” she said.

Trump is not the first US president to consider such an offer – the Truman administration reportedly offered Denmark US$100 million for Greenland’s purchase after World War II.

In 1917 Denmark sold off the then Danish West Indies islands for US$25 million to the United States, which renamed them the United States Virgin Islands.

Greenland has been essential to US defence since that war when it was a base for monitoring Nazi ships and submarines passing through the “Arctic Avenue”, the sea gateway to the north Atlantic.

In 1943 the US Air Force built its farthest-north airbase at Thule, Greenland.

Thule Airbase in Pituffik, Greenland. File photo: AFP

Thule Airbase in Pituffik, Greenland. File photo: AFPShare:

Thule was crucial in the cold war, a first line of monitoring against a potential Russian attack.

With a population of 600, the base today is part of the Nato mission, operating satellite monitoring and strategic missile detection systems and handling thousands of flights a year.

“The early warning radar system in northern Greenland helps protect North America and is a key part of our missile defence apparatus,” said Luke Coffey of The Heritage Foundation.

The Arctic is the next geopolitical hotspot that the US wants to freeze China out of

“Luckily the US is able to ensure and meet its security interests by maintaining this airbase in northern Greenland. There’s no requirement to buy Greenland to keep America safe.”

Conley said that after the cold war ebbed in the 1990s, Washington stopped thinking about the Arctic.

Yet as the polar ice sheet began to shrink, the Russians became more active and China has moved to establish itself in the region.

US Secretary of State Mike Pompeo underscored the revived US interest in a speech in May in Finland, where he slammed China and Russia for “aggressive behaviour” in the Arctic.

“The region has become an arena of global power and competition” owing to vast reserves of oil, gas, minerals and fish stocks, he warned.

“Just because the Arctic is a place of wilderness does not mean it should become a place of lawlessness,” he said.

But Washington has not taken many concrete actions, Conley said. Pompeo only offered that the State Department would position a diplomat in Greenland’s capital Nuuk for six months of the year.

“The rhetoric and the reaction – there is a very big gap,” she said.

Russia seeks Chinese support in developing Arctic shipping routes, promising long-term gas supplies in return

With no geographical claim to the region, but whose massive commercial shipping industry would benefit from new polar routes as the ice melts, China is the newcomer whose presence could shift the balance.

It began sending scientific missions in 2004. In the past several years, a Chinese company has gained mining rights for rare earths, partnering with an Australian company in the Kvanefjeld project.

In January 2018 Beijing unveiled its “Polar Silk Road” strategy to extend its economic footprint through the Arctic.

To gain favour in Nuuk, Chinese have wined and dined government officials, said Coffey.

“China’s role in the Arctic has been more about expanding its economic influence, soft power,” said Coffey.

“Ice melting is part of the interest, it is opening up new economic opportunities, but it’s also opening up challenges. The US is aware of that,” he said.

The end of the Arctic as we know it

In a sign of Washington’s rekindled interest, US President Donald Trump will go to Denmark in September, and Vice-President Mike Pence will visit Iceland.

But Conley says more assertive moves are needed.

“I think we have a remarkably strong position now in Greenland. Denmark is an incredibly strong military partner to the US,” she said.

“But if we are interested in potentially being an alternative to Greenland looking towards China for investment, are we going to put US investment there? I’ve not seen any of that.”

(SCMP) Japan overtakes China as the biggest creditor to the US, as Japan’s June Treasuries holdings jump to a 30-month high


  • Japan increased its holdings of US bonds, bills and notes by US$21.9 billion to US$1.12 trillion, the highest level in more than two and half years
  • China’s ownership rose for the first time in four months to US$1.11 trillion, up by US$2.3 billion
A yen note is seen in this illustration photo taken June 1, 2017. Photo: REUTERS

A yen note is seen in this illustration photo taken June 1, 2017. Photo: REUTERS

Japan surpassed China in June as the top holder of US Treasuries as the trade war between the world’s two largest economies intensified.

Japan increased its holdings of US bonds, bills and notes by US$21.9 billion to US$1.12 trillion, the highest level in more than two and half years, according to data released by the Treasury Department on Thursday. Meanwhile, China’s ownership rose for the first time in four months to US$1.11 trillion, up by US$2.3 billion.

The last time Japan held the position as America’s largest foreign creditor was May 2017. The nation has added more than US$100 billion worth of Treasuries at a fairly steady pace since October 2018. Treasuries have become more attractive as the globe’s pool of negative yielding debt grows, according to BMO Capital Markets.

While benchmark 10-year US yields have plunged to the lowest level since 2016 in recent months, the rate on 10-year Japanese government bonds is currently negative 0.23 per cent.

“The buying we have seen from Japanese investors is really a reflection of the globally low and negative yield environment,” said BMO strategist Ben Jeffery.

A cautious months-long calm in the US-China trade war was interrupted in May when talks between the two sides broke down. In June the US raised tariffs on US$200 billion of Chinese goods to 25 per cent from 10 per cent.

While Trump and Chinese leader Xi Jinping agreed to a ceasefire in late June, that only lasted about a month before the US president announced that on September 1 he’ll impose a 10 per cent levy on virtually every import from China not yet subject to duties.

This week, Trump partially backed down by delaying the 10 per cent charge on certain items, including mobile phones and laptops, until December 15 to stem the impact on holiday shopping. Beijing says it still plans to retaliate.China’s US debt hoard has come under increased scrutiny in the trade dispute amid speculation that the Asian nation could sell Treasuries in response. Earlier this month, the US formally labelled China a currency manipulator after the yuan weakened past 7 yuan per dollar.

(Reuters) Chinese intervention in Hong Kong would be a ‘catastrophe’, Patten says

(Reuters) LONDON (Reuters) – Hong Kong’s last British governor Chris Patten on Tuesday cautioned that if China intervened in Hong Kong it would be a catastrophe and that Chinese President Xi Jinping should see the wisdom of trying to bring people together.

Patten said it was counter productive of the Chinese to warn of “other methods” if the protests did not stop.

“That would be a catastrophe for China and of course for Hong Kong,” Patten told BBC radio. “Since President Xi has been in office, there’s been a crackdown on dissent and dissidents everywhere, the party has been in control of everything.”

Hong Kong returned to Chinese rule in 1997 with a guarantee that under a ‘one country, two systems’ mode of governance, the city would retain a high degree of autonomy, an independent judiciary and freedoms not allowed in mainland China.

Demonstrations have plunged the Chinese-ruled territory into its most serious crisis in decades, presenting Chinese leader Xi with one of his biggest challenges since he came to power in 2012.

Demonstrators say they are fighting the erosion of the “one country, two systems” arrangement.

Patten said British Prime Minister Boris Johnson should ask U.S. National Security Advisor John Bolton who is in London this week to get Washington to agree that it would be a “catastrophe” if China was to intervene in Hong Kong.

“I very much hope that even after 10 weeks of this going on, the government and President Xi will see the sense in establishing a way of actually bringing people together,” Patten said.

Hong Kong leader Carrie Lam said on Tuesday the city’s recovery from protests that have swept the Asian financial hub could take a long time and that she would be responsible for rebuilding its economy “after the violence eases”.

Her comments followed serious developments in the growing crisis over the past week. Beijing said on Monday the protests had begun to show “sprouts of terrorism” and the city’s airport was closed.

“There is a degree of frustration and anger at the government refusing to give any sensible ground at all which probably provokes more violence,” Patten said.

“I can’t believe that any rational person in Carrie Lam’s position would actually argue the case against a commission of inquiry,” he said.

“What’s clearly needed is a process of reconciliation. It’s the only way I think you’ll put a cap on this and get back to peace and stability in Hong Kong.”

(BBC) Hong Kong protests disrupt airport for second day


Hong Kong pro-democracy protesters (bottom) block access to the departure gates
Image captionLarge crowds are continuing to gather at the airport on Tuesday

Flight check-in has been suspended at Hong Kong International Airport for a second consecutive day because of anti-government protests.

The airport, which is one of the world’s busiest, has been the site of protests for five consecutive days.

Videos on social media show passengers struggling to get through demonstrators, who have been sitting inside blocking departures.

The city’s leader, Carrie Lam, earlier issued a fresh warning to protesters.

Ms Lam said Hong Kong had “reached [a] dangerous situation” and that violence during protests would push it “down a path of no return”.

As crowds continued to gather, Hong Kong airport officials announced that all check-ins were suspended from 16:30 local time (10:30 GMT) on Tuesday.

Some images from inside the airport appeared to show protesters using luggage trolleys to build barriers and some passengers becoming distressed.

A tourist (C) gives her luggage to security guards as she tries to enter the departures gate
Image captionSome struggled to get through crowds before flights were suspended

“Terminal operations at Hong Kong International Airport have been seriously disrupted as a result of the public assembly at the airport today,” the Airport Authority (AA) said in a statement.

Monday’s disruption had already led to hundreds of flight cancellations at the airport – one of the busiest international transport hubs.

Mass unrest has rocked Hong Kong for 10 weeks and shows no signs of abating.

Large protests started in response to a proposed extradition bill, which has now been suspended, but have evolved into a more demanding pro-democracy movement.

Protests are fuelled by fear that the freedoms Hong Kong enjoys as a special administrative region of China are being eroded.

On Tuesday the UN High Commissioner for Human Rights, Michelle Bachelet, urged authorities to exercise restraint in their response to protests.

(BBG) Huawei’s Founder Wants an ‘Invincible Iron Army’ to Fight U.S.


Ren Zhengfei
Ren Zhengfei Photographer: Qilai Shen/Bloomberg

Huawei Technologies Co.’s billionaire founder intends to kick off a three- to five-year overhaul of the networking giant, creating an “iron army” that can help it survive an American onslaught while protecting its lead in next-generation wireless.

Major structural shifts are around the corner as U.S. sanctions threaten the survival of its cash-cow smartphone business, Ren Zhengfei warned in an internal memo seen by Bloomberg News and verified by a Huawei spokeswoman. The consumer business faces a “painful long march,” Ren wrote, a possible reference to the Communist Party’s historic cross-country trek.

China’s biggest technology company is grappling with an existential threat after Washington blocked Huawei from buying American technology, cutting off vital components from Qualcomm Inc. chipsets to Google’s Android operating software. Ren, 74, said an internal revamp was now needed to meet war-time needs, meaning organizations deemed unnecessary or redundant will be removed. He didn’t provide details about how such a restructuring might unfold.

“We have to complete an overhaul in harsh and difficult conditions, creating an invincible iron army that can help us achieve victory,” Ren wrote in the letter dated Aug. 2. “We absolutely have to complete this re-organization within three to five years.”

Ren, a former engineer with the People’s Liberation Army, has a penchant for militaristic language. The entrepreneur has spoken previously about a “strategic withdrawal” from certain markets in response to escalating U.S. scrutiny. Huawei itself hasn’t been clear about how Trump administration curbs would impact its 190,000-some employees worldwide but the company has begun to lay off U.S.-based staff, the Wall Street Journal has reported.

Read more: Huawei Takes a Step Toward Replacing Google’s Phone Software

Huawei reported slower sales growth in the second quarter compared to the first as the ban started to bite, especially into a consumer business encompassing smartphones and laptops. The company unveiled its in-house HarmonyOS last Friday, saying it can replace Android if Google’s software was barred from its future smartphones. But Ren said the company needed a lot more time to build an apps ecosystem, a major requirement for any operating software to thrive in the long run.

“Two bullets fired at our consumer business group unfortunately hit the oil tanks,” Ren said in his letter, without elaborating.

Still, Ren talked about Huawei’s edge against the U.S. in fifth-generation telecommunication technologies. The Chinese company’s dominance in 5G has been cited as motivation for a U.S. campaign to contain its ascendancy, because the technology is expected to propel future modern economies.

“The U.S. doesn’t use the most advanced 5G technology,” he wrote. “That may leave it lagging behind in the artificial intelligence sector.”