China Morning Missive “China has no choice” ….. perhaps, but then again what does it mean to be a reliable partner. When the trade conflict went hot with China (and the entire world frankly) in early April, I felt confident that the Trump team didn’t have any idea of what it was they were heading into. China had spent four years preparing for exactly what Trump was preparing to do. Lessons were learned from the 2018 trade conflict and preventative steps were taken. Well, watching how event have played out over the past three months demonstrates that Team Trump was even far less prepared that I’d expected. There are no immediate points of pressure the US can apply on China, unlike virtually all other trading partners. The Europeans, Japan, S.Korea, you name it. All have, in some way, shape or form, dependencies on the US. Rare earth minerals are the pain trade and the export controls out of China are now starting to pinch American manufactures. The only question, at least for myself, is what concessions Trump/Bessent will make for China to resume exports. I suspect we will have a clearer idea in two weeks, or perhaps less. China isn’t the party left with no choice. It’s America that will need to move first. https://www.bloomberg.com/news/articles/2025-06-03/bessent-says-china-has-a-choice-on-being-a-reliable-partner?utm_source=website&utm_medium=share&utm_campaign=copy

Here’s another quick #China update. There was a sudden surge in gold buying here in Shanghai over the weekend. You can see here in the attached video. The catalyst was a round of household vouchers issued by the local government. Basically, a series of different vouchers were made available including Rmb150 on a Rmb500 purchase all the way up to Rmb1,000 for a Rmb10,000 purchase. In the very savvy Chinese fashion, rather than use the vouchers for the intended purpose, to incentivize consumer discretionary spending like washing machine or clothing or some other more typical consumer item, the vouchers were used to buy gold. No prohibitions were made on how the vouchers were to be used. The gold shops even got with the program promoting the opportunity. Most point-of-sales were between 1 and 5 grams.

Wanted to provide a bit of broader context to the ongoing tension between China and America. Agree of disagree with the approach taken, consider for a quick minute the following moves made by the Trump team over the past four months. 1. In February, the American First Investment Policy was announced. The document made it clear that Chinese investment was no longer welcome in the United States. We are talking a couple of trillion USD. 2. Last week, the State Department announced that Chinese student visas would come under review and many should expect to be revoked. So, first it was “we don’t want your money” now it became “we don’t want your people either”. Last I looked, capital and labor were two pretty important variables for economic growth. I also wonder how many Chinese remained in the US after studying and how many were - in some way - responsible for all of the technological advances made over the past 20 years. But I digress. 3. Finally we have SecDef Pete Hegseth speaking in Singapore over the weekend where he called out China, or rather “the imminent threat of China.” That was a speech that most have viewed as very poorly timed. Take all of these developments in total and ask yourself; if I was running Beijing, do I genuinely believe that my counterparty is acting in good faith? Make no mistake. China has taken full advantage of, even abused, the “rules based order”. There are no good guys here. I’m just raising the issues and looking to demonstrate how the boys in Beijing might be thinking. I would also end here with the following. Up to this point, China hasn’t even begun playing hardball. Recall the PPE export controls in 2020 and just go from there. America has countless pressure points. https://finance.yahoo.com/news/china-rare-earths-grip-gives-151513862.html

China Morning Missive You’d think there’s genuine drama going on here. That might be the case in Washington, but it’s just another Tuesday here in China. It was three months ago when the Trump team said that a call with Xi was coming any day. That never transpired and all that followed was bellicosity via social media. Trump was then bombarded by Walmart and Costco making it clear that the shelves would be empty in a matter of weeks. Voila! A meeting is then announced in Geneva. The parties both said that progress was made. Thing is, the Chinese decided to slow roll access to rare earth minerals. For me, it was a test to measure the level of desperation on the American side. Seems that desperation was rather intense. And thus began round two of the Trump rage machine. In case you had any doubts, there won’t be any call, at least there’ll be no call initiated by the Chinese side. American buyers continue to scramble to place orders with Chinese producers before tariffs are - inevitably - returned to the +100% level. It is a mad scramble based on the people I’ve been talking to over the holiday weekend. Perhaps all of this is to say, volatility is back in play. https://www.reuters.com/world/china/trump-chinas-xi-will-likely-speak-this-week-white-house-says-2025-06-02/

Three years ago to the day, the Shanghai lockdown was lifted.

China Morning Missive A quick one today. To the point, what China did for the EV it is going to do with humanoid robots. Critical for the development is addressing the often raised issue of “the demographic time bomb”. Videos are all over Chinese social media of the advancements made. https://www.bloomberg.com/features/2025-china-ai-robots-boom/?ai=eyJpc1N1YnNjcmliZWQiOnRydWUsImFydGljbGVSZWFkIjpmYWxzZSwiYXJ0aWNsZUNvdW50IjowLCJ3YWxsSGVpZ2h0IjoxfQ==

The China deflation story is one that you all should expect to see more of in the media over the coming months. Allow me to quickly explain why prices throughout China remain depressed. For those who’ve not heard me say this before, allow me to repeat. “Keynes is Dead in China”. Contrary to whatever you might have seen or read, there’s been no massive fiscal response out of Beijing. Yes, there’s been a firehose of debt issuance, but very little of it has been for the purpose of fiscal support. A few points to make. There has been zero fiscal support provided to Chinese households. Beijing did just that, indirectly mind you, during the 08/09 financial crisis and it not only blew a hole in China’s overall fiscal position, so too was it the case that malinvestment surged. That mistake wasn’t going to be repeated again. Beijing leadership is also well aware of just how precarious the fiscal position is among the G7 nations. This has been a known quantity for at least a decade. The thinking here is that if China were to “eat bitterness” today, then the country would be in a (relatively) stronger position at the very time the G7 nations succumb to their own debt crisis. But what of all the stories that China has unleashed its own printing press. There are two points to be made on the count. First, the majority of the proceeds from the bonds issued are being deployed to regional governments with the sole purpose of cleaning up local government financing vehicles (LGFV). There’s been a truck ton of “off balance sheet” debt built up over the past 20 years and Beijing has been aggressively working to restructure the debt. Second, given that the ongoing restructuring of the entire Chinese economic model has resulted in slowing activity has meant lower tax receipts. The fiscal hole is being plugged through the debt issuance you’ll see written about in the media. Here, again, this isn’t stimulative. The proceeds from the bonds issued are just being used to pay the governments ongoing bills. It is completely unclear if the steps being taken by Beijing will lead to a more stable and stronger economy. While I can state that we, here, in China are past peak pessimism there does remain a giant question of this plan will ultimately work. For myself, it is clear that Beijing recognized that they had a problem and have taken steps to arrest that problem. Now we just wait to see if it all works. https://www.bloomberg.com/news/articles/2025-05-28/china-deflation-worry-deepens-among-economists-after-trade-truce?utm_source=website&utm_medium=share&utm_campaign=copy

China Morning Missive Have to say, the announcement by State that Chinese student visas are set to be revoked has elicited a level of giddiness throughout the American traditional and social mediums which I do find worrisome. First the Trump team announced that Chinese capital would no longer be welcomed in the US via the “America First Investment Policy” and now we have this latest move to, essentially, kick out a few hundred thousand Chinese students. The one question which has been rattling around my head the past day is how many Chinese students in the past decade ended up remaining in the US and working for all the big tech companies? The contributions made by this workforce wouldn’t have been inconsequential. And yet, all I’ve seen are comments like, “we can’t educate the very people looking to destroy us” or “those students are spies!!” This is not the same America where I grew up. We didn’t make the Japanese into some boogieman back in the 80s just because they were aggressively out competing their American counterparts. This, I find, is a very, very slippery slope. https://www.reuters.com/world/us/us-will-not-tolerate-chinese-exploitation-universities-theft-research-says-state-2025-05-29/

While EV charging is, of course, an option here in #China you can also just go and have your entire battery changed out on roughly 6 minutes.

For me, the best offense is offense. The act of being defensive, again for me, is nothing more than a demonstration that a company - or country in this instance - is simply unable to compete. In the past several hours we’ve had (1) Trump announcing that all chip software suppliers are to no longer export to China and (2) the US State Department is moving forward with revoking Chinese student visas. There’s no question that China has taken full advantage of the American open system. That should be a net positive as it forces both government and business to remain innovative and compete, compete and compete. On the student visa issue, this will result in a massive brain drain from America. How many Chinese students ended up remaining in the US working (and building) all of the highly successful tech companies? https://www.reuters.com/world/us/rubio-says-us-will-start-revoking-visas-chinese-students-2025-05-28/

DeepSeek is back, only this time the decision was made to be very quiet about the release. Suppose that is the better way to go about things otherwise the ire of the American government will come out guns blazing once again. Now we just need to see how the AI community reacts in the next couple of days. First impressions though seem to suggest that the updated model is even more powerful than the original from just a few months ago. https://www.bloomberg.com/news/articles/2025-05-28/deepseek-unveils-update-to-r1-model-as-ai-race-heats-up?utm_source=website&utm_medium=share&utm_campaign=copy

Prepare for a sharp leg down on “risk on” prices people. Unconfirmed reports that the Chinese have already left the negotiating table in Geneva. That’s was quick.

Give it another month and it’ll be down to 10% (if that)

And people hound me about #China being a dystopian hellscape. Perhaps, but what only seems obvious is that America is heading in the same direction. Sam Altman's eye-scanning ID project launches in U.S. with six locations

CNBC

Sam Altman's eye-scanning ID project launches in U.S. with six locations

Altman co-founded "World" in 2019 — known as Worldcoin until last year — to create a global identity verification system.

China Morning Missive Any American company having, to this very day, a China supply chain acute dependency is - bluntly - a company having no other options. Or better put, has no other options which won’t either (1) detrimentally impact adequate access to finished goods/required inputs or (2) severely impairs profitability. It’s been seven years since Trade War 1.0 and the point at which the risk posed by an over-reliance on China for any given company’s supply chain became overtly evident. Then that risk went from theoretical to very, very real. China at the onset of Covid implemented export controls on locally manufactured PPE. Today it’s rare earths. What might be next? All else equal, the combination of these two known events should have resulted in all American companies exiting completely from their China based production. But all else is not equal and for far too many the Gordian Knot has proven impossible to cut. All that was left were excuses. Again, it has been seven years and I’ll repeat my point. If a company hasn’t shifted its production out of China it’s because they can’t. What has been learned is that China is all but impossible to quit for so many and so many critical industries in America. All that Mr. Ackman has done here is put his ignorance on full display. https://www.bloomberg.com/news/articles/2025-04-26/ackman-says-time-is-friend-of-us-enemy-of-china-in-trade-war?utm_source=website&utm_medium=share&utm_campaign=copy

China Sunday Morning Missive Sitting back with a coffee on a Sunday morning and this is what comes across the “feed”. DeepSeek is back. Then again, it was just a matter of time. Assuming the speculation is true it could be yet another chaotic week ahead. Then again, what else is new? It would appear that the proverbial genie is now well and truly out of the bottle. Lest we forget China also had its Thorium moment last week as well. The evidence is building. A policy of containing China has failed. Like it or not, the only path forward is cooperation. Granted, that is - sort of - what TresSec Bessent openly said last week. The Trump team does want to engage and negotiate. There is a desire for a “really big deal”. The issue, however, are the terms of those negotiations and right now the parties are well and truly divided. China has made it abundantly clear what is required to begin talks. Trump is increasingly boxed in and as that realization continues to become impossible to deny expect a further walking back. As more and more time passes, and as China continues to demonstrate tenacity in the face of tariffs, whatever American leverage may exist rapidly fades.

Wccftech

DeepSeek R2 AI Model Rumors Begin to Swirl Online; Reported to Feature 97% Lower Costs Compared to GPT-4 & Fully Trained on Huawei

DeepSeek is set to drop another model pretty soon, as details about their next

Hope is not a strategy. Treasury Sec. Bessent says China, U.S. have 'opportunity for a big deal' on trade

CNBC

Treasury Sec. Bessent says China, U.S. have 'opportunity for a big deal' on trade

Bessent named-checked Bridgewater founder Ray Dalio, who recently expressed fears of a sharp fallout from President Donald Trump's tariff policies.

China Morning Missive II What can only be described as a complete turnaround on China in a single day could be very telling. What I’ve not yet added is how there’s been zero commentary within #China about how it is the Beijing power players are thinking about the issue of US trade. The point remains though. The entire Trump team, including the President himself, is out there publicly in what can only be described as pulling back from the abyss. Might this all be some sort of 4D chess play? Maybe. Then again, I am far more inclined to go with Occam’s Razor here. The answer to the about-face on trade with China is simply the understanding that China is the producer for nearly everything the US consumes. Cutting the supply off, almost entirely I might add, is set to (1) lead to higher prices for all manner of goods and/or (2) a vast reduction in the overall supply of goods on the shelves of American retailers. If you thought American’s lost their mind when eggs prices surged earlier this year, think what the reaction would be if they walked into Walmart and found that the shelves were barren. https://www.bloomberg.com/news/articles/2025-04-23/trump-says-he-ll-be-very-nice-to-china-in-trade-talks?utm_source=website&utm_medium=share&utm_campaign=copy

China Morning Missive Color me skeptical in regards to the news just out that Trump and Xi are now set to met in person in early May. Then again, the triple digit tariffs on all Chinese imports to America may already be having a material (negative) impact on the American economy. What is known is that Sec Bessent held a private meeting with JP Morgan clients and stated that a deal with #China was in the making. See news story linked below. I am not a believer in coincidence. This commentary from Bessent comes a single day after a White House meeting with the CEOs of Walmart, Costco and Target. Each of the companies has made the pilgrimage to China over the past month in an attempt to have their suppliers “eat” the Trump tariffs. In each case, the Chinese suppliers simply said “no”. Inventories are being drawn down and the risk isn’t just higher prices, but stores that have vastly less on offer. The shelves are at risk to being bare. Like I said on CNBC yesterday. Trump has already flinched. He appears to be doing so once again. https://www.reuters.com/world/bessent-sees-de-escalation-us-china-trade-tensions-talks-be-a-slog-2025-04-22/

So this just flashed out in the news. Call me skeptical.

News & Analysis for Stocks, Crypto & Forex | investingLive

Trump and Xi to meet in early May | investingLive

Finally!