China Morning Missive Once again, there’s been a great deal of chatter over the past 24 hours that #China continues to face harsh deflationary pressures. Yes, there are pressures but, no, it’s not as serious as you might imagine. Just another example of the China macro-tourists not fully appreciating local market dynamics and it is for this reach why I’ve included the graphic below. That is the Chinese government bond 10-year yield. Notice anything? That’s right, yields have been rising throughout the year, albeit with some volatility. How to you square that circle then? Yields are supposed to fall when deflation is present. The answer is simple. Investors are now betting that the various Chinese policies meant to alter economic drivers is working. The market is now fully “risk on”. That then means Chinese investors are selling out of fixed income, sending yields higher, and piling into equities. Is this sustainable? That’s not yet clear. What I’d ask those in the macro world to do, however, is take off the lens of Western markets. It is highly counterproductive. Cc: @James Lavish might want to bring this up when McGlone keeps bringing up the Chinese bond market.

Have a great story to share on IMF voting rights. Just swamped with work today. Let’s just say, the Beltway dragged its feet on the issue way back in 2010 and China just said “fine, I’ll do it myself”. Voila. In comes the AIIB, New Development Bank and more recently the SCO Interbank Consortium.

For those interested in more long form China commentary, I also did this interview a couple weeks ago. I’m probably my own harshest critic. New to the podcasting guest world. This interview though is decent and as direct. Pretty succinct too.

What the fuck am I waking up to???

China Morning Missive Today’s topic …. Panda Bonds. The market for non-Chinese entities to raise RMB and the next G7 v. Global South competitive theater. For all the focus on China’s insatiable demand for gold, the underlying strategy has been to build optionality in trade settlement. China created a platform for nation-states to derisk from American treasuries as the global reserve asset. America, however, remains the dominate player in both capital raising and formation. Hoarding gold isn’t about to alter that dynamic especially from a country such as China which has, effectively, a closed capital account. This is where the Panda Bond market comes into play. A venue to raise capital while, potentially, having the added benefit of gaining geopolitical ground. Panda Bonds have been around for two decades, but there was never any material interest or demand. Creating the new fixed income instrument was, at launch, more about expanding overall cross border optionality in capital flows and, with that, viewed by policy makers as a “strategic financial tool”. Strategic indeed! It would now appear as though Panda Bonds have received a new lease on life and could very well be one of the more consequential outcomes from last week’s SCO meeting. During the multi-day confab, Russia and China reached an agreement to move forward with the construction of the Power of Siberia 2 pipeline. There are clear, and rather significant, geopolitical ramifications from this agreement. Those concerns, however, have been downplayed by the Beltway Consensus. With great skepticism, the American Think Tank world isn’t expecting that an actual, final, final, deal will be reached by the parties. Why would there be any doubt? In short, the exorbitant cost to construct. Like the PoS 1, China will only fund the construction of domestic section of the pipeline. There will be no prepayments on future deliveries to Gazprom, the commercial party in the project. The Russian energy giant will need to source its own financing. No easy task in today’s, “Russia is a pariah” environment Well, that financing problem has been solved. A day after the pipeline deal was reached, China announced that Russian energy companies were eligible to raise capital through the issuance of Panda Bonds. This is no coincidence and the development needs to be taken to the next natural extension. China has, in essence, announced the ability to capital raise in RMB by corporations throughout the Global South. This is a marginal move, but the same holds for when China first began leveraging of gold. It’s the China go-to low time preference strategy. Do expect an explosion of new Panda Bonds in the months and years ahead. https://www.reuters.com/business/energy/rosatom-gazprom-explore-sales-chinese-panda-bonds-2025-09-08/

Once again, this is the only “number go up” technology that matters. Love to see it and watch the relentless power of tick tock next block.

China Evening Missive One of many points raised and discussed with Marty last night. The Chinese understand how the American political calendar works and they fully use it to their advantage. Basically, the calculus follows along these lines. When Thanksgiving arrives everyone’s attention in the US turns completely to the holidays. Nothing gets accomplished out of Washington. There are 81 days until Thanksgiving. Next thing you know it’s Jan 4th and people are - begrudgingly - back to normal life. But it is a day that will also mark the start of the mid-term political cycle. All energies will be spent by those working to maintain power or the other side will be working to tirelessly to regain power. There will be little, if any, bandwidth to address foreign policy issues. This dynamic is actually behind why the Trump team has been so quick out of the gate since inauguration. The entire team knows the clock is ticking. And the Chinese know this as well. They are also aware, as keen students of American history, that the current party in power almost always loses one or both chambers of Congress. Conclusion? For China there is zero need to pursue any deal. Just play nice and bide for time. Then see how 2026 plays out and adjust accordingly. https://www.wsj.com/world/china/china-new-trade-talk-strategy-49fb1f1a?st=mSzwUf&reflink=article_copyURL_share

Fantastic rip with @Marty Bent. My deepest appreciation. Aim was to be as balanced as possible and let me know your take @ODELL once you have the time to listen. Peace, namaste and have a great weekend Nostr fam.

Well, this was quite unexpected. Doing my weekly watch of Rabbit Hole Recap and lo and behold @Marty Bent and @ODELL start talking about yours truly. Marty, very much looking forward to our conversation later today. As mentioned, there’s not a single topic that is off the table. Matt, my thanks for the points made. To their conversation, it is very understandable for many/most to view my Notes here as some sort of universal acceptance or approval of the China model. My actual aim is to provide insight into how China is operating on the global stage with the aim of destabilizing the American-led “rules-based international order”. There’s been a brilliance in the approach. That’s not meant as admiration, rather a stark warning. I’ve found that there is just too much Beltway Consensus cope with zero focus on addressing the issue head on. I am a red-blooded American who, through a series of life events, just so happens to have lived in China for 30 years. In that time, I’ve watched the emboldened optimism of the American way of life, my lived experience growing up in New England, become a shell of what I once knew. Wars, corruption, power never held to account ….. I watched on as the America I once knew descended into “rules for thee and not for me”. A vacuum was created, and power abhors a vacuum. China saw the opportunity. My objective is to present the Strum und Drang landscape as it is. China isn’t winning, America is losing. All energy must be directed towards a return of an America of true freedom and individual agency and self-determination. An unshackling from the chains of fear. Present to the world the option of two starkly different governance models, and there’d be no competition. America wins!

China Morning Missive There’s a rather famous quote which I expect will begin making the zeitgeist rounds in the not-to-distant future. Fantastic to see it here in this article. "Who rules the Heartland commands the World-Island." Attributed to historian Halford Mackinder in 1904, the concept stated that whichever power controlled the landmass from Russia to China, and all part in-between, would rule the world. The reason for bringing this up is to highlight the recently launched China-to-Iran rail line. Not only does this allow for faster transit, but the rail line also removes the all potential threats of maritime chock points. Strongly recommend reading through this article below. It hits on so many pertinent points.

The Daily Star

How a train to Tehran is rewriting the world’s map

The China-Iran corridor, bypassing western sea lanes, had become a steel reality.

China Morning Missive. This will be a quick one. Just wanted to post a Note to provide a perfect comparison of where fiscal spending is allocated in China versus the United States. There’s been a plethora of commentary over the past several weeks regarding China building yet another massive dam. What will be the world’s largest hydropower facility. Three times the size of the Three Gorges Dam. The estimated cost for the mega-project is USD167bn. The final cost, once completed, will probably be closer to USD200bn based on overrun estimates for the Three Gorges construction. The expected time to complete construction is 10 years. Now let’s compare this to the American program for nextgen SSN(X) submarines. The Navy just announced higher cost estimates for a single unit, the USS District of Columbia, to USD16.1bn. The program is projected to build 12 nextgen subs for a grand total of USD192bn. Roughly the same total costs as the Chinese mega-dam. I need to add that none of these submarines are included in the current AUKUS program. These are all submarines slotted for the American Navy and will be purchased by the American government. This is but a single example of what has transpired over the past two decades. China has invested in infrastructure writ large. American has “invested” in weapon systems. Both countries have debt loads which are unwieldly. One of these, however, is getting a return on that debt load. This dynamic needs to change and needs to change sooner rather than later.

Bloomberg.com

Next-Gen US Missile Submarine Sees A $1.7 Billion Cost Hike

The Navy raised the estimated price tag for the first of its next-generation nuclear-missile submarines by $1.7 billion, another black eye for a pr...

This is making the rounds on Chinese social media. There is a pretty strong meme culture here in China and across a host of issues.

China Morning Missive The military parade is currently in progress and here is how Xi Jinping decided to enter the event. Again, pictures such as these will achieve, in my opinion, a singular outcome from the Washington. Unadulterated aggression. I’d also add that we’ve not even arrived at the point in the event where all of China’s latest technology is put on display. But what is it, exactly, that the American – or even European – leadership can do at this point other than lash out. Long duration bond yields are blowing out across the entire G7 and gold is smashing through one all-time-high after another. Not only is the West completely and totally boxed in fiscally, but investors now look to have called it a day and are voting with their asset allocation decisions. Personally, I am an aggressive optimist. There is so much that can be achieved through collaborative efforts. Nevertheless, if you go after the King you best not miss. That is sort of the point in history we all now find ourselves. No great

Fantastic and random Tuesday lunch with the wife. #perfection

China Morning Missive True to form, here we have Trump doubling down on India. It is beginning to look as though the decision to place 50% tariffs on India was a gross miscalculation. Not just as it pertains to bilateral ties, but in how the move has reverberated throughout the Global South. There’s genuine resolve coming out of the two day SCO meeting here in China. It is now expected that a virtual meeting of all BRICS members is to be convened on the coming week. Who needs whom more? That looks to be the question now being asked. Is access to the American market worth the demands made? Is it possible for the Global South nations to build its own unified market? Don’t get me wrong. There remains a host of issues yet to be addressed among the largest of the Global South partners. China, India and Russia are - at this juncture - aligned solely under the premise of “the enemy of my enemy”. By itself, that isn’t enough to hold over time. The whole “you’re either with us or against us” mentality must be ripped up from the roots. What is needed is a return to an American way that was truly open and individualistic. Complete on these core principals and you win. It isn’t overly complicated. Trump calls India-U.S. trade relationship 'a totally one sided disaster' after Modi visits China

CNBC

Trump calls India-U.S. trade relationship 'a totally one sided disaster' after Modi visits China

This comes against the backdrop of the U.S. imposing 50% tariffs on the country, including secondary duties of 25% last month for purchasing Russia...

I need to vlog more from Shanghai. Great engagement. What do you all want to see first hand?

Vlogging from Shanghai. @HODL Is this still a “thing” here on Nostr?