Updated: Nov 26, 2021
The following is the video transcript for 'China Update' published 23 November 2021. It contains material quoted from other sources.
Did the Central Bank Hint that Easing is Coming?
Over the weekend the People’s Bank of China, China’s central bank published its latest quarterly monetary policy. Sharp-eyed analysts have pointed out that the carefully worded policy outlook has removed a few key phrases often employed in previous reports, including critically, sticking with “normal monetary policy” and to not “flood the economy with stimulus,”
Based on these wording changes, several major banks, including Citigroup, Nomura, and Goldman Sachs Group, have also told investors that the central bank is likely hinting that it will adopt more supportive measures and increase credit supply in the near future.
For example, Nomura, expressed that the language in the report “represents an official change to the central bank’s policy stance and set the stage for more decisive monetary and credit easing.”
It’s not just international banks that are taking the hint. Chinese financial media outlet, Caixin media, reported that any central bank easing would, “likely be targeted toward small businesses and green finance” and that “the central bank is also likely to guide credit growth to accelerate next year.”
The real question is, will regulators further ease the restrictions on property developers or continue to force deleveraging.
3rd BRI Symposium Held in Beijing
Beijing recently held its third BRI Symposium. Previously known as one belt one road, though the symposium was presided over by Vice-Premier Han Zheng, GS Xi Jinping presented a speech at the event, demonstrating that the initiative continues to have the strong backing from China’s top leader.
In his speech Xi expressed that, “the BRI should aim for high-standard, sustainable and people-centered progress.” And called for “stronger political mutual trust, more cooperative mechanisms and a better connectivity network linking land, sea, air and cyberspace.”
Despite lower investment levels in recent years, the BRI looks to be here to stay. In fact, you guys may remember from last week when we discussed the historical resolution from the 6th plenum, that the document incorporated Xi’s flagship BRI initiative, expressing “China has promoted high-quality development of the Belt and Road Initiative (BRI)”, calling it a “widely welcomed public good and platform for international cooperation.”
We have been following Lithuania’s recent decision to set up a Taiwanese Representative Office in Lithuania, and Beijing’s reaction.
Foreign Ministry Spokesperson Zhao Lijian called Lithuania’s action an “egregious precedent”.
State media was less diplomatic, with the Global Times in a piece calling Lithuania a “running dog for the US” and a “loyal puppet” of the US, and that “the European country will eventually pay a heavy political and economic price.”
Well, on Monday the PRC decided to officially downgrade diplomatic ties with Lithuania over its warming relationship with Taipei.
The Foreign Ministry announced at a press conference, “the Chinese government, out of the need to safeguard national sovereignty and basic norms governing international relations, has no choice but to downgrade its diplomatic relations with Lithuania to the chargé d'affaires level. The Lithuanian government must bear all the ensuing consequences...”
State media claims that the downgrade is “believed to be a deterrent to some other European countries, warning them not to try to provoke China on key issues.” We will see whether the threat has the desired effect or any unintended consequences.
While we are on Taiwan, in an interview with CNN on Sunday, former US national security adviser and secretary of state Henry Kissinger told the interviewer that he doesn’t expect an attack on Taiwan in the next 10-years, expressing “I think it is perfectly possible that if the confrontation keeps growing, the Chinese will take measures that will weaken the Taiwanese ability to appear substantially autonomous.”
This view is more optimistic that the national security establishment consensus in Washington.
Sea China Sea: ASEAN Meeting
On Monday China hosted a special summit with the Association of Southeast Asian Nations (ASEAN) in a bid to manage regional geopolitical risks.
During the submit GS Xi Jinping announced that China has elevated its relations with ASEAN members to a “comprehensive strategic partnership.” Previously, the relationship had been only a “strategic partnership” in Beijing’s diplomatic nomenclature. State media in China reports that the elevation a “comprehensive” level, signals that the PRC seeks broader cooperation.
Xi Jinping also expressed that China “firmly opposes hegemony and power politics in the South China Sea”, that China will “never seek hegemony or to bully the small”, and that the South China issue will be “handled peacefully”
On the economic side, Xi also announced several major initiatives to boost economic cooperation, including “striving to import $150 billion worth of agricultural products from ASEAN members over the next five years”, doubling the current levels.
While this is a great headline, it’s unclear whether the target will be reached.
Not everything went smoothly however, while addressing the summit, Philippine President Duterte criticised Beijing for its coast guard firing water cannons on Filipino supply boats in the South China Sea the previous week.
Is China the Wealthiest Nation on Earth?
There has been a lot of media attention, both in the anglophone world, and in China, about a recent report from management consultancy firm McKinsey & Company claiming that China is now the wealthiest nation on Earth.
This is, of course, is in absolute terms, not on a per-capita basis.
The report argues that since 2000, Chinese wealth growth has represented 50% of all global wealth gains, the US has represented 22% of wealth gains, and Japan 11%.
Now here is the critical finding, according to the report, in 2020 China’s total wealth was measured at $120 trillion USD, whereas US wealth was $90 Trillion dollars.
The report found that 68% of the world’s net worth lies in real estate.
So that is what the McKinsey report says, are there any counter-arguments?
One of the best critical responses to the report has come from China finance expert Michael Pettis. This is what he observed yesterday:
“Much of the world's "wealth", as McKinsey measures it, consists of the value of real estate, and given China's real estate bubble, which has driven its value to more than twice that of the US and more than three times that of Europe, it perhaps isn't surprising that Chinese "wealth" now exceeds that of any other country. Perhaps it will come as no surprise that the last time a country's total wealth exceeded that of the US was in Japan around 1990. It's share of global GDP at the time was roughly the same as China's today, and it was experiencing an even greater real estate bubble. Japan then and China today are the only two countries, according to the McKinsey report, whose wealth as they measure it ever exceeded 8 times their respective GDPs.”
- Michael Pettis
- Professor of Finance, Peking University School of Management
Now whether you side with the sentiment of the report or that of its critics, I wanted to read you this, just to remind ourselves that we must exercise caution when making forecasts and coming to conclusion. These are excerpts from the Harvard Business Review in March of 1989
"Japan today sits on the largest cache of wealth ever assembled. It has the power to move markets anywhere in the world…The market value of Japan, as measured by an extrapolation of real estate prices, exceeds that of the United States…Clearly, Japan has replaced the United States as the world financial leader.”
- “The Crisis of Japan’s Global Financial Dominance” Harvard Business Review (March 1989)