China Evening Missive So there was, in the end, a Politburo meeting held in advance of the Central Economic Work Conference. Now we have everyone feverishly trying to dissect exactly what the wording of the official statement means. Here’s my take; increased optionality. What do I mean by this? Well, it should be no surprise that the Politburo centered on the applicability of both monetary and fiscal tools to support the economy. Commentary will latch on to words like “proactive” and “loose” as some sort of indication of what is intended. Honestly, it could mean just about anything. It’ll all depend on how overall economic activity trends in the coming months. The overall aim is to widen HOW monetary and fiscal tools could be applied with the operative word here being “could”. In true Chinese fashion the details are left to the imagination. I should add that the statement did, and for the first time I believe, specifically addresses stabilizing the property and stock markets. This would align with the growing consensus outlook of an indirect household stimulus via the “Wealth Effect”. Maybe, but there remains an over abundance of caution. This all looks great on paper as we say. From what I can gather, the policy priority remains unchanged. System-wide deleveraging. Expectations for nearly two years centered on some sort of large fiscal stimulus response. It’s not yet happened, and I remain doubtful that it will in 2025. Having said that, the Politburo – this time around – did give itself greater optionality.

If it’s Sunday, then there’s some new calamity taking place somewhere in the world. This week - Syria falls and Assad flees.

Can we all just agree on this one point. The coolest people in the entire world are on Nostr at this very moment. I say we close off all further applications to join. Full stop.

Has Vaguard opened to BTC ETFs yet?

For those interested, did an interview on The Covered Call Podcast. Had a very enjoyable chat.

How can anyone take this seriously. The Council on Foreign Relations lecturing the world that it needs protection from Chinese economic coercion? Cc: @gladstein for your amusement.

China Morning Missive China took decisive action to formally restrict exports to the US of key rare minerals. The move came in response to the latest American decision to further limit China’s ability to access semi-conductor related technology. What is notable is the speed to which China responded. It’s as though a contingency plan had been put in place in advance. I’d have to say that would be the most likely scenario. This then calls into question to what degree, exactly, there is any real ability for America to move on China unilaterally heading into Trump 2.0. China doesn’t just dominate the market for rare minerals. Do a deep dive, as just one example, into the Chinese global market share of active pharmaceutical ingredients. The rules of the game today are very different than what was played back in 2017/2018. It is always foolish to both overestimate and underestimate China. This holds true even more so today, and American policy makers need to consider China’s ability to respond to any trade actions taken.

China Evening Missive There is weakness throughout the Chinese economy. This is the outcome when a nation-state makes the cognizant choice to aggressively deleverage system wide. You’ll see headlines discussing deflation and imploding rates. This is nothing more than a system returning to its natural state. When Xi Jinping stated that people would need to “eat bitterness” he wasn’t making the statement callously. It was a necessary message and a reflection of a politician being honest with the citizens. Pain will remain so long as China continues down the deleveraging path. There is no certainty of success mind you, but if Xi and his team are able to thread the needle then China will have the economic foundation to rise to the next level. Again, success is by no means a certainty.

China Morning Missive This is a battle long lost. China has spent decades building relationships throughout Africa. President Biden is making his first trip. There is also the joke that when the Chinese come to Africa they come with investments for roads, schools, hospitals, etc. When the Americans come to Africa they come with a lecture…..

China Morning Missive This is the sort of internal issue facing America as it looks to find a way to reshore manufacturing. So many obstacles built up over the past 40 years will make competing with China all the more difficult. The litigious nature of America society is perhaps one of the more serious and also one that is hardly ever discussed.

Trump choosing violence such as this isn’t much of a surprise. What this sort of message does though is singular. It’ll drive more nations into the arms of China. The Global South doesn’t want to fight. As a group, they are looking for fairness and the American led “rules based order” isn’t fair by any stretch of the imagination. China will reap the rewards of this unnecessary blunder.

China Morning Missive This is all about capital flows. It should also be noted that the proposed tax exemption goes beyond just “crypto”. Hong Kong has struggled for a very long time to carve out a new business model. Acting as a “gateway to China” ended with the turnover in 1997 and ever since the city has stumbled along looking for a path forward. There is the district possibility of China using Hong Kong to play the role of interloper. I continue to be of the mind that China has remained strategically involved in the entire Bitcoin ecosystem even with the 2021 mining “ban”. Finally, I would propose that Game Theory has been playing out ever since that ban only the larger G7 nations had no idea that it was taking place. BRICS, Global South, etc ….. it all just fits very nicely alongside a national Bitcoin stratagem. https://www.reuters.com/markets/asia/hong-kong-offer-crypto-tax-exemption-hedge-funds-family-offices-2024-11-28/

China Morning Missive Found this to be interesting, although I’m not entirely certain just how “concerned” China is with Bluesky. After all, I’m here in Shanghai posting notes on Nostr. What I can share with all of you is the fact that Chinese aren’t fully blocked off from accessing information which is supposedly blocked by the “Great Fire Wall”. Contrary to most reports, VPNs are available and readily used. Not necessarily advertised, but much of life in China resided in the messy gray area.

Bluesky boom worries Chinese media

State outlets, which put considerable resources into amassing millions of followers on Elon Musk’s social media platform, have recently seen thei...

Well this isn’t great. Especially when the issue is between the head of state and the head of the military. Also, this is the second Minister of Defense removed for “corruption” in the last 18 months.

China Morning Missive Attention is now quickly shifting to the Chinese currency. Will Beijing decide to allow the Renminbi to radically depreciate? The answer is an emphatic no. I’ve seen this debate ever since the Asian Financial Crisis back in 1997. The approach has been to moderate currency moves. More central though is that a rapidly depreciating currency can quickly lead to inflation. The Chinese hate inflation. It’s been at the center of so many historic popular revolts. It is also another reason why policy is hell bent on keeping fiscal stimulus at bay. Inflation was seen in other markets off aggressive stimulus. That won’t happen here. Nevertheless, you can expect to see a flood of headlines centered on how China will react to a Trump 2.0 regime of tariffs. Virtually all of those headlines will be grossly wide of the market.

China Evening Missive Clearly the topic needs to be tariffs. Trump posting that a flat rate of 10% will be levied on all Chinese imports into the US. There’s been a focus on how tariffs will be paid by the end consumer. I’m sure it isn’t that straightforward. I also view this as missing a far larger point. China doesn’t just manufacture pretty much everything the world consumes, it does so at a scale you can’ t possibly fathom. The cost per unit is measured in cents and not dollars. So, in this great game of economic chicken China has by far more room to maneuver than that of America and specifically the American consumer.

Can someone, anyone, tell me who is actually running the United States? You have Biden approving weapons and an escalation of war on two fronts. Now you have Trump coming out stating that tariffs are set to be levied on Canada, Mexico and China. ?????

China Morning Missive Tim Cook is back in China, and this should be taken as a clear indication that Apple’s manufacturing ecosystem remains heavily dependent on China. For all the talk of diversifying production through an aggressive investment program into India, it is clear that doing so in any meaningful way is proving problematic. China’s competitive edge isn’t low-cost labor. Where China has excelled and has built a commanding moat is through its distribution architecture. Road. Rails. Ports. No other geography or region, be that India or elsewhere, has the necessary infrastructure in place to efficiently support, at scale, the likes of Apple. Apple and its relationship with China is also just one example. There are countless other global companies facing the very same issue (and fate).

China Evening Missive A key benchmark interest rate, the medium-term loan rate, was held steady earlier today in #China. While in line with expectations, there were some who thought a cut was possible given building pressure both domestically and now from the incoming Trump administration. What looks to be the game plan is for China policy makers to hold firm on both monetary and fiscal policy until a time when it is clearer what actions Trump and his team intend to take on China. For now, the focus of China policy is on doing all that is possible to preemptively guard against whatever might come. This includes keeping all power dry. Wait until it is truly needed. All of this said, policy is allowing for the slow and steady weakening of the currency (CNY).

China Morning Missive This headline is spot on perfect. A major misstep by Trump 1.0 was to loudly and publicly point out all attack vectors on China. The folks in Beijing took notice and have spent the past four years to do all that was possible to address those issues. This is whey I continue to state that “Keynes is Dead in China”. The hard choice to deleverage on a systemic basis is just one of the larger issues. China is ready. What is clear, however, is that America is very much NOT ready. That needs to change.