Skip to main content

TRIVIUM CHINA: The Tip sheet, know China Better



"Any attempt to hinder China from achieving modernization will not prevail."

- Wang Yi, State Councilor and Foreign Minister

Some context: Wang said that to Canadian Foreign Minister Chrystia Freeland on Wednesday. China wants to move ahead on free trade talks with Canada, but Wang’s defensive, aggressive tone doesn’t sound too inviting to our ears. More in the Tip Sheet below.

Don't be a hindrance to Tip Sheet modernization! Forward it to friends and colleagues who can click here to subscribe.

If you have any comments or feedback, please send them along. And have a great weekend!



1. Xi and Trump to meet at end of November

With the trade war spiraling out of control, Xi Jinping will meet with US President Trump next month (WSJ):

“The White House has in recent days informed Beijing that it would proceed with the summit meeting, an encounter China has been hoping could provide an opportunity for both sides to ease the escalating trade tensions.”“The meeting is scheduled to take place at the Group of 20 leaders’ summit in Buenos Aires at the end of November.”The Chinese still want to make a deal:“Beijing is leaving open the possibility of engaging in fresh negotiations with Washington.” “'President Xi believes there are many reasons to have a stable relationship with the U.S.,’ a Chinese official said.”

What to watch: Trump has threatened to put tariffs on a further USD 267 billion of Chinese imports. The upcoming meeting could put a hold on those plans.

BUT…with Trump there is no guarantee. Trade hawks will be pushing hard to impose the sanctions before the meeting for fear that Xi will charm Trump again. And Trump may want to impose the sanctions for maximum leverage.

Get smart: A new Cold War has been looking increasingly likely. This meeting could be one of the last chances for the two sides to pull back.

WSJ: Trump and Xi Plan to Meet Amid Trade Tension


2. Data dump – trade

China released monthly trade data for September on Friday morning.

Exports grew by 14.5% y/y – up from 9.8% in August and beating market expectations of 8.9%Imports grew by 14.3% y/y – down from 19.9% in August and missing market expectations of 15%.China's monthly trade surplus with the US hit USD 34.13 billion – that’s a new record and up from last months’ USD 31.69 billion.

Ummm…record trade SURPLUSES for China weren’t supposed to be the outcome of the US-China trade war, but so far the Trump administration's policies are leading to a strong dollar and surging Chinese exports.

Get smart: We all expect that dynamic to eventually reverse, but with the constant threat of ever more tariffs, plenty of US importers have an incentive to increase orders for Chinese goods now to get ahead of the next round of tariff imposition.

But those dynamics don’t seem to be working the same way for Chinese importers. The tariffs on US soybeans, for example, have led to substantially reduced imports.
What to watch: China should finally start to see more negative effects from the US tariffs in Q4.

CNBC: China posts record trade surplus with the US in September, Beijing says
WSJ: China’s Exports Accelerate Despite U.S. Trade Tensions


3. A decent end to a terrible week for Chinese equities

Like almost everywhere else, China’s stock market has gotten caught up in the global equity rout over the past week.

On Thursday, the benchmark Shanghai Composite Index closed down over 5% – the largest single-day drop since 2016.

That prompted calls from state media for the “National Team” to step in (Reuters):

"The official Securities Times said in a front-page editorial that…authorities ‘should roll out positive measures so that investors know the government cares about the stock market.’”"In a front-page editorial on Friday, Securities Daily, another state-backed newspaper, urged the government to “inject liquidity” into the stock markets to help stabilize share prices."Listed companies also called for support:"A slew of listed companies… said late on Thursday major shareholders plan to increase their holdings.""Separately, at least six companies unveiled plans on Thursday for share buybacks."

The call was apparently heeded.After dropping by 1.8% in early trading on Friday, the Shanghai Composite closed up 0.91% on the day.

Get smart: The National Team can stem the bleeding in Chinese equities here or there. But we still see no upside for the market through the rest of 2018.

Reuters: China state media calls for policy support after stock market sell-off


4. Global turmoil feeds into CNY weakness

Volatility in global equities and continued uncertainty around the US-China trade war continued to have a negative effect on China’s currency Friday:

The PBoC set the morning fixing at 6.9120 – weakening the fixing for the ninth consecutive trading day.

Mood music: Despite the fast-weakening currency in recent days, the US Treasury Department indicated on Thursday that it won’t label China a currency manipulator in its upcoming FX report (see Caixin link).

But those consistently weaker fixings are taking place as the PBoC continues to roll out tools to intervene in offshore currency markets when needed (see yesterday’s Tip Sheet).

Our take: The PBoC is fine with depreciation that is driven by the trade war, economic fundamentals, and broader volatility in global markets. But what the central bank doesn’t want is depreciation driven by speculation and short-selling.

The PBoC’s goal is to manage expectations and combat what it sees as “herd behavior” – not to stop depreciation outright.

What to watch: Expect some stronger fixings next week – authorities will want to keep the market guessing.

Bloomberg: The Yuan Is Asia’s Weakest Currency
Caixin: U.S. Treasury Staff Said to Find China Isn’t Manipulating Yuan


5. China’s one shining asset in a dismal week

While most Chinese assets have taken a drubbing this week, one saw excellent performance on Thursday.

That was a USD 3 billion offshore sovereign bond offering that took place in Hong Kong.

Some details:

USD 1.5 billion of 5-year bonds fetched a 3.33% yield.USD 1 billion of 10-year bonds fetched a 3.63% yield.USD 500 million of 30-year bonds fetched a 4.055% yield.

The issuance saw very strong demand – with USD 17 billion worth of bids coming in for the USD 3 billion offering.

Some context: This is the second offshore sovereign USD bond offering in as many years, after a long hiatus. Before that, the last issuance was in 2004. That relative scarcity is one element driving the strong demand.

Get smart: The strong demand among investors, despite the uncertainties of the trade war and China’s slowing domestic economy, fundamentally shows that they still have a high level of confidence in China’s willingness and ability to service its debts.

What to watch: We expect these types of issuance to increase in frequency because they help to anchor the offshore yield curve for Chinese companies to borrow abroad – helping to finance the Belt and Road.

Bloomberg: China Shows Its Pull Selling Dollar Bonds in Weak Market


6. State Council aims to improve consumption

Chinese policymakers know that sustainable long-term growth will depend on boosting household consumption.

And with the trade outlook ever more uncertain, the need to boost household demand is becoming even more pressing.

That’s why on Thursday, the State Council released a three-year action plan to improve household consumption.

It’s basically a laundry listconsisting of 26 articles for various ministries to address.

Besides continued emphasis on big-ticket consumer areas like e-commerce, the housing rental market, and new energy vehicles, the government also wants to focus on promoting greater market access and competition in some new areas, including:

TourismFilm and cinemaInternational sports broadcastingElderly care centersBut even if those measures are successful, to truly open their wallets, consumers need to feel confident in their economic and financial situations – and in consumer products.

To address the confidence issue,the plan looks to do two things – reform the tax system and promote consumer protection. Specifically, regulators will:Examine global best practices to retool the consumer tax systemAllow more tax deductions for householdsPromote consumer finance servicesIncrease penalties for companies that violate consumer rights

Our take: Consumer protection is becoming an increasingly steady mantra of central regulators. Consumer-facing companies better take note.

READ MORE 国务院办公厅关于印发完善促进消费体制机制实施方案(2018—2020年)的通知


7. China wants to jumpstart free trade talks with Canada

State Councilor and Foreign Minister Wang Yi spoke with Canadian Foreign Minister Chrystia Freeland over the phone on Wednesday.

Wang’s message: Don’t let Trump frighten you out of trading with us.

Some context (SCMP):

“Beijing’s move came days after the conclusion of talks for the new US-Mexico-Canada Agreement (USMCA) which effectively gives the United States a veto if Canada or Mexico enters into a free trade agreement with a ‘non-market economy’ – language widely seen as referring to China.”“Last week, the Chinese embassy in Ottawa condemned the veto clause…as an ‘excuse made by some countries to shirk their obligations and refuse to meet their international commitments’.”More context: The Chinese and a Canadians have been trying to start formal discussions on a free trade agreement (FTA) for more than two years.

On Wednesday, Wang said that China is ready to get FTA discussions moving (Xinhua):“He called on Canada to join China in safeguarding the global free trade system and promote the creation of a free trade area between China and Canada.”

That marks a concerted shift from last December, when China balked at talks after Canada demanded they include issues like labor rights.

Get smart: China is desperate for Western countries to side with it – and oppose Trump – on trade.

SCMP: Canada should choose free trade with China, not US protectionism – Beijing
Xinhua: Chinese, Canadian FMs discuss trade, partnership over phone


If the Tip Sheet isn't the best thing in your inbox every day,
we'd like to know why.


Popular posts from this blog

SSG Commando Muddassir Iqbal of Pakistan Army

“ Commando Muddassir Iqbal was part of the team who conducted Army Public School operation on 16 December 2014. In this video he reveals that he along with other commandos was ordered to kill the innocent children inside school, when asked why should they kill children after killing all the terrorist he was told that it would be a chance to defame Taliban and get nation on the side. He and all other commandos killed children and later Taliban was blamed.
Muddassir Iqbal has deserted the military and now he is  with mujahedeen somewhere in AF PAK border area”
For authenticity of  this tape journalists can easy reach to his home town to interview his family members or   ISPR as he reveals his army service number”
Asalam o Alaikum: My name is Muddassir Iqbal. My father’s name is Naimat Ali. I belong to Sialkot divison (Punjab province), my village is Shamsher Poor and district, tehsil and post office  Narowal. Unfortunately I was working in Pakistan army. I feel embarrassed to tell you …

CPEC Jobs in Pakistan, salary details

JOBS...نوکریاں چائنہ کمپنی میںPlease help the deserving persons...Salary:Salary package in China–Pakistan Economic Corridor (CPEC) in these 300,000 jobs shall be on daily wages. The details of the daily wages are as follows;Welder: Rs. 1,700 dailyHeavy Duty Driver: Rs. 1,700 dailyMason: Rs. 1,500 dailyHelper: Rs. 850 dailyElectrician: Rs. 1,700 dailySurveyor: Rs. 2,500 dailySecurity Guard: Rs. 1,600 dailyBulldozer operator: Rs. 2,200 dailyConcrete mixer machine operator: Rs. 2,000 dailyRoller operator: Rs. 2,000 dailySteel fixer: Rs. 2,200 dailyIron Shuttering fixer: Rs. 1,800 dailyAccount clerk: Rs. 2,200 dailyCarpenter: Rs. 1,700 dailyLight duty driver: Rs. 1,700 dailyLabour: Rs. 900 dailyPara Engine mechanic: Rs. 1,700 dailyPipe fitter: Rs. 1,700 dailyStorekeeper: Rs. 1,700 dailyOffice boy: Rs. 1,200 dailyExcavator operator: Rs. 2,200 dailyShovel operator: Rs. 2,200 dailyComputer operator: Rs. 2,200 dailySecurity Supervisor: Rs. 2,200 dailyCook for Chinese food: Rs. 2,000 dailyCook…

The Rise of China-Europe Railways

The Rise of China-Europe RailwaysMarch 6, 2018The Dawn of a New Commercial Era?For over two millennia, technology and politics have shaped trade across the Eurasian supercontinent. The compass and domesticated camels helped the “silk routes” emerge between 200 and 400 CE, and peaceful interactions between the Han and Hellenic empires allowed overland trade to flourish. A major shift occurred in the late fifteenth century, when the invention of large ocean-going vessels and new navigation methods made maritime trade more competitive. Mercantilism and competition among Europe’s colonial powers helped pull commerce to the coastlines. Since then, commerce between Asia and Europe has traveled primarily by sea.1Against this historical backdrop, new railway services between China and Europe have emerged rapidly. Just 10 years ago, regular direct freight services from China to Europe did not exist.2 Today, they connect roughly 35 Chinese…