China (long-ish) Morning Missive There’s a big meeting in Beijing next week and a meeting where expectations are being set for some sort of massive fiscal stimulus. There’ve even been some expecting a fiscal injection of 10% of GDP Allow me to state unequivocally that there is no “bazooka”. There never was one and there never will be. I will repeat once again, Keynes is Dead in China. It is true that the Beijing policy Mandarins will announce an expansion of the annual fiscal deficit. Last year the target was 3.0% then raised to 3.8% at mid-year. For 2025 the expectation is around 4%. A number of different categories of bond issuances will also be announced. A trillion or so Renminbi will be at the discretion of the central government. The bulk, however (+Rmb4.0tr), will address local government balance sheet and income statement issues. I will return to the latter of these two shortly. This all seems like a rather significant fiscal response. Again, it isn’t. Not on a net-net basis. To start, the focus and priority remains on addressing the bad debt throughout local governments. This is pure debt restructuring and will add zero fiscal stimulus to the economy. Then there is the one issue (income statement related) that I haven’t seen addressed anywhere in the analysis; the gaping hole in tax revenue. This is an issue for both the central and local governments. In fact, virtually all the funds which will be announced as allocations to local governments will either go to restructuring debt or as transfer payments for the direct purpose of meeting local budgetary obligations. The same holds for the elevated central government deficit spend. To clsoe the gap between expenditures and tax revenue. The figures may be large, even when combined together, but they are net-net zero stimulative to the economy. This does leave the trillion-plus in “Special Purpose Bonds”. I’m also confident that a proportion of the deficit spend will be at Beijing’s discretion. Here is where optionality comes into play. Beijing is still waiting patiently to assess the full extent of how it is the Trump administration intends to target China’s economy. A fiscal reserve of sorts, roughly a few trillion Renminbi, will be kept idle and applied as is deemed needed. Until that time, however, the focus will remain on the aggressive, systemwide deleveraging of the entire economy. Finally, not addressed is the likelihood of direct support to the Chinese household. That’s because, other than at the margins, there won’t be any. Direct to household stimulus would be completely ineffective. It would all just be recycled into bank savings. Maybe one day the credentialed class of economists will finally come to terms with their errors and adjusted their outlook on China accordingly. Unlikely at this point though.

CNBC

China likely to cut inflation outlook to two-decade low, lay out stimulus plans at 'Two Sessions' meeting

Beijing is expected to revise down its annual consumer price inflation target to around 2% — the lowest in more than two decades — from 3% or h...

China Morning Missive Again, I’ll state, #China is the next in line in the Trump world’s foreign policy agenda. Central to that will be Taiwan and it is a bit surprising to find that Trump, the man, is choosing to keep his cards close to his chest. Having said that, I am hearing increased chatter that “Taiwan is in play”. What I don’t yet know is what that exactly means. Will Trump go forth an renunciate the “One China Policy” throwing full American weight behind Taiwan OR will Trump just leave Taiwan to its own devices and view the issue as one that needs to be settled by Beijing and Taipei leaders. The odds, at least as I see it, would point to the latter. Force Taiwan to operate “independently” which would require a massive build up of arms. And where would they purchase that weaponry? Well, American of course. Events are playing out quickly on the China front. Expect more details in the weeks ahead. https://www.reuters.com/world/trump-declines-answer-question-about-china-taiwan-2025-02-26/

Well, this was a surprise. Jumped on Bloomberg this morning and ended up doing a long-ish #China interview. The editors actually decided to put the entire interview online. That never happens especially with me given the messages I focus on and the very direct nature in how I present those messages. https://www.bloomberg.com/news/videos/2025-02-26/z-ben-advisors-alexander-us-can-t-strong-arm-china-video

China Morning Missive It’s been an exercise of drinking from a firehose this past week on the issue of #China. At every turn, I need to remind myself that there is a unique difference between rhetoric and real action. What is clear is that then entire Trump team is no turning to the main event. China vs. America. All other priority foreign agenda items are now in process. China is next. But here’s the issue. America is “boxed-in” fiscally. The folks in Beijing know this and know this very well and are “lying in wait”. The only point that I can raise at this time with any real confidence is that volatility throughout global markets is about to spike and spike hard. https://www.reuters.com/markets/commodities/ustr-proposes-charging-chinese-ships-up-15-million-enter-us-ports-2025-02-24/

China Morning Missive The People’s Bank of China made the decision, once again, to hold firm on its benchmark lending rate. Not at all a surprise. Once again, I will reiterate that “Keynes is Dead in China”. Keep this in mind every time you see some commentator or some podcast discussion where they yammer on about some mythical “China money printer”. If you do ever hear that particular talking point, know that the people making the comments have no clue as to what, exactly, is taking place. Is China issuing gobs of debt? Yes, yes it is. The proceeds from nearly all of that issuance, however, is being deployed to retire opaque and costly local government/municipal debt. Debt swap, or debt restructuring. Call it what you will, but do not call it fiscal stimulus or money printing. China is simply working through the process of cleaning up its fiscal house. I would add, mind you, that China isn’t entirely refraining from attempts to stimulate the economy. Far from it. The focus though is on the central bank – monetary policy – playing around with various liquidity instruments. There’s been a concerted move towards credit market efficiency. Basically, China’s planners have been experimenting on improving the productivity of its various liquidity instruments. Attempts are being made to get more out of what liquidity is available rather than just flood the zone. Again, this has been the playbook for 2+ years and is expected to remain the playbook at least until there is greater clarity over what, if anything, Trump 2.0 aims to do in targeting China. China keeps benchmark lending rates steady amid rising tariff risks

CNBC

China is likely to cut its benchmark policy rate next month, economists say, after PBOC keeps LPR steady

The PBOC has in recent months sought to defend the yuan as it faces downward pressure amid threats of higher tariffs.

China Morning Missive Did anyone expect #China to take up the mantle for an open-source AI revolution? Great to see, no doubt, but there’s also the real potential that the recent AI moves in China will be catastrophic for all American AI platforms. To start, I do want to stress that the sudden arrival of China AI platforms wasn’t at all planned. What is playing out here on the ground is nothing more than a reaction (albeit very quick) to the DeepSeek model released the other week. Even the Beijing leadership is having to react in real time as was clearly evident with the hastily convened Tech CEO meeting yesterday. What has been noticed here is how the American competitors reacted. Concern bordering on fear. Open-sourced models are potentially an existential threat to the likes of OpenAI at least to the underlying business rationale of these platforms. What has been missed throughout all of noise is that the open-source option wouldn’t have been what China necessarily desired. I was just necessary. Unironically, open-source AI was the direct result of America export controls of high end chips into China. They very approach taken meant to halt, or at least delay, China’s advances in AI have actually led to the opposite outcome. And the entire China AI momentum is only set to gather steam. https://www.reuters.com/technology/artificial-intelligence/baidu-make-ernie-ai-model-open-source-end-june-2025-02-14/

China Morning Missive Trump is once again poking and prodding #China over the issue of Taiwan. For background, the entire tri-party relationship has operated for four decades under two core principles. First, “One China” which is defined as the governments in Beijing and Taipei agreeing that there is only one China. The point of disagreement is over which is the rightful government. Second is “strategic ambiguity”. This principal has historically centered on America’s diplomatic role in the tri-party relationship but is fully dependent on (1) all parties maintaining the status quo, (2) Beijing seeking peaceful means for reunification and (3) Taipei refraining from claiming independence. It is this principle that has been fully disavowed by American policy. For myself, this decision was actually made back in 2018 with the passage into law of the Taiwan Travel Act. This most recent policy shift by the State Department, along with that from 2018 have been rationalized as “protecting democracy”. It isn’t a stretch to conclude that America is attempting to goad Beijing. A somewhat similar strategy applied with Russia and Ukraine over the latter’s application into NATO. The goading has been going on for years as well. Thankfully, if the reporting is accurate, the Financial Times last summer reported that Xi Jinping made it clear to Ursula von der Leyen that he was well aware of what America was attempting to do. It was reported that Xi said he wouldn’t “take the bait” and told von der Leyen to pass that message along. https://amp.cnn.com/cnn/2025/02/17/china/china-rebuke-us-state-department-taiwan-intl-hnk

Just wanted to mention that when I post Notes they will be far lengthier than is probably deemed “socially acceptable” here on Nostr. The reason for the length is due to my core belief that when addressing any current event issue, it is the responsibility of the author to provide adequate context for the points being made. I suspect that this sort of thinking reflects my age as well. Thought I’d make mention given the feedback I’ve received.

Next open source project? What did I miss? Did OpenAI go “open source” already? I’m any event, if it weren’t for DeepSeek there is no way that Altman would be moving at speed in this new “open” direction. He is a man truly stuck between a rock and a hard place.

Second Nostr Anniversary. Where did all that time go? For all out there interested in following what’s happening in #China, I’ll keep plugging away. Much love to all.

China Afternoon Missive Here we have RAND as the latest to weigh in on rationalizing why it is China is working aggressively to modernize its military. Most who weight in on this subject focus on claims that Beijing is seeking to move militarily on Taiwan in 2027. If you can actually recognize how it was that Hong Kong was ultimately brought to heel by the Chinese leadership, then you know that all the talk of “2027” is pure American war mongering. Now we have RAND stating that the build up is for the expressed purpose of ensuring the Communist Party’s internal control through pure might. I’d say that this goal has already been achieved thanks to technology. Allow me to provide a third option for why Beijing has decided to rapidly accelerate the modernization of its military. To fortify its national defensive position. If you simply look at a map of the East China Sea, you’ll quickly find that China is surrounded by a multitude of American assets. Deployed in South Korea and Japan to the north all the way down to the Philippines with specific attention on Luzon Island. Then we need to take into account the continued unilateral moves by Washington DC to “move the goal posts” on the issue of Taiwan. Over the past 25 years American hegemonic state craft has forced to bended knee more allies and adversaries than I can count. This China knows and Beijing is certainly not willing to wait idly by. https://amp.cnn.com/cnn/2025/02/16/china/china-military-readiness-rand-report-intl-hnk-ml

China Morning Missive This week, much of the #China focus will be on a meeting between the country’s tech leaders and the Beijing political class including Xi Jinping. It would be very accurate to say that this meeting looks to have been hastily thrown together. Yet another outcome of the entire DeepSeek development. Even China’s prodigal son Jack Ma will be attending. There’s a great story there I’ll need to share at some point. Suffice it to say that the western media coverage of the Ant Financial IPO being derailed by Beijing, and Jack Ma’s fall from grace was selective in what was and was not included. This meeting, however, could prove to be a much needed catalyst to reinvigorate household sentiment. While economic activity in China isn’t anywhere as bad as you may be reading elsewhere, it most certainly isn’t great. Then again, such should have been expected given a five year campaign to aggressively recentralize control throughout the country. https://www.reuters.com/world/china/xi-chair-symposium-attended-by-jack-ma-other-chinese-business-leaders-sources-2025-02-14/

China Weekend Missive Been a number cultural developments out of #China over the past month. It all kicked off with the whole “TikTok refugee” migration over to RedNote. That was then quickly followed by DeepSeek bursting into the scene and BYD introducing “God Eye” self driving. Now we have the cinema and Ne Zha 2. So far the movie has pulled in over $1.5bn on ticket sales, granted primarily in China. Not at all what I had expected and who knows what might come next. https://m.imdb.com/news/ni65130354/?ref_=tt_nwr_1

Shanghai. Cold. Rain. Perfect night for hotpot with friends.

China Evening Missive In what can assuredly be described as “of course this would be the American policy play” I present Exhibit A If you can’t actually compete, well then just shut down the “threat”. This is not the America where I grew up. JD Vance says U.S. will defend American AI and block efforts to weaponize the tech

CNBC

JD Vance says U.S. will defend American AI and block efforts to weaponize the tech

Vice President JD Vance said the U.S. will safeguard American artificial intelligence and chips and block efforts to "weaponize" the critical tech...

China Morning Missive The greatest benefit from the throngs of Americans jumping on RedNote is how quickly errant tropes of #China have been blown apart. The perfect example is the “social credit score”. I can’t even begin to tell you all how many times I’ve had to explain to clients and others that this simply doesn’t exist. And yet, how many times have you seen headlines and social media commentary on Twitter or elsewhere making the claim that a Chinese social credit score runs the lives of all everyday Chinese. Between RedNote and DeepSeek, there’s been a genuine awareness that most of what the American media covers in regards of China is just articulated fabrications.

Might the public tides be turning? Surprised to find that CNBC posted my #China interview clip on YouTube. Doesn’t always happen. Came in this morning and noticed there were a fair number of comments.  This is just a small sample. Message might be getting through and off just a 90 sec clip.

China Evening Missive Well, Xi Jinping didn’t accept Trump’s invitation to the inaugural, but he has accepted Putin’s May 9th invitation to the 80th anniversary of the “Victory in the Great Patriotic War” AKA the defeat of the Nazis. Perhaps not an apples-to apples comparison, but it is also rare for a Chinese President to publicly accept any invitation months in advance of an event. No question that there’s a host of pieces on the board of the Great Game being played here at the same time. If, and it is a big IF, this gets picked up by the American press you can be assured that there’ll be a message. Rather than see this as it is, leaders of the very broad coalition against the Rules Based International Order meeting, the dangerous meeting of America’s enemies. For me, this is just a very smart geopolitical move by Moscow and Beijing. https://www.reuters.com/world/chinas-xi-accepts-invitation-attend-moscows-victory-day-may-tass-reports-2025-02-10/

The Economist never fails nor disappoints. Cover here is from 2015. The road to calling the collapse of #China is littered with more dead bodies than I can count. View quoted note →

Saying the quiet part out loud. Not that anyone in Trump World is listening.

CNBC

China has 'the upper hand' against U.S. tariffs, says consultancy

Peter Alexander, founder and managing director at Z-Ben Advisors, says "the Chinese are just extremely, extremely well prepared for what the Trump ...