The EU’s relationship with China over the past 40 years or so has been largely an effort in pretence. The consequence of China’s concerted and coordinated efforts to suck up all relevant technologies and to—as much as possible—supplant the previous engineering kings of the world, while using WTO to expand as much as possible exports to Europe and sophisticated divide-and-rule tactics to derail objections and opposition, has been a huge trade surplus for many years. European business has to a large extent forsaken long-term interests for short-term profits, and the compromising has not been restricted to business. It’s a sad story, and with just a modicum of foresight and unity, it could have been largely offset. But it started with the German auto manufacturers all agreeing to 49-51 minority stakes in their China businesses, with the System being the controlling partner, and the pattern has been mostly retained unchanged since then. 

There have been moments of reflection and doubt. Midea’s takeover of the German robotics company Kuka caused a storm of debate, but in the end, Merkel let it go through. And now China’s EV cars are storming the gates, and the German and French auto industries are shaking in their boots. There is an answer to the cars, which is the IoT factor—any Chinese cars sold must have semi-conductors and software which are produced in the EU or specifically approved for use, otherwise backdoors are to be assumed. Probably too late. But there are signs on the EU side of some regret and renewed consideration of the long-term.

Just this week, the EU fined Temu $232 MN for the sale of illegal products, and an investigation into JD.com’s $2.6 BN bid for Germany’s Ceconomy has been launched. We’ll see. It’s not the end of the story. Achieving unanimity amongst the fractious members of the EU is desperately difficult, and Europeans we have raised this with have without exception shaken their heads and said: “no chance.” But miracles do sometimes happen. There was a difficult meeting in Beijing two weeks ago in which EU officials became quite adamant, while Chinese officials responded by accusing Europe of being protectionist. Ah, reciprocity would be such a wonderful thing. Any concerted move in that direction would be invigorating. Europe is still a huge market and has significant advantages. There is still a chance it can avoid the fate of being little more than a cute tourist destination. 

Have a great weekend. 

China’s National Bureau of Statistics has come out with the GDP growth rate for Q1 and pegged it at 5%. This is a number that deserves some thought. First of all, the annual growth rate approved at the NPC last month was a range between 4.5 to 5%, which gave a sense of flexibility in terms of expectations, and perhaps an alignment somewhat closer to reality.

The IMF earlier this week published its latest estimate of China’s GDP growth rate for this year, putting it at 4.4%. But one of our Idols in terms of China economic research, Michael Pettis, disagreed with this estimate, pointing out—we would say accurately—that it is entirely up to the system to decide what number the GDP growth rate will hit, not because it is being faked, but because they have the power to boost various elements of the economy, such as infrastructure spending, in order to meet whatever number is required.

There is obviously to some extent a relationship between the GDP growth number and the real economy. Although we don’t know exactly how closely those two things match. We do know, though, that Beijing is very interested in maintaining a sense of calm amongst ordinary people and the business community—and amongst the 100 million or so party members who run this place. And that amongst other things involves providing a clear sense that they have everything under control and that everything is okay. The GDP growth number is a key factor in and reflection of that, one that is watched closely, both domestically and internationally. And internationally, too, they are also interested in conveying the perception that China is stable and well-run and developing steadily. There is an opportunity—which they are seizing—to boost China’s standing in the Global South and other parts of the world in contrast to the sense that the world is getting of Trumpian America. And the number 5 plays well into that.

Statistics are a tricky thing to rely upon too much in the China world, and anecdotal evidence is an important supplement. There are some conversations these days which suggest that there might be a turnaround, a slight sense of an upturn, but most conversations still seem to reflect no shift in either sentiment or prospects for the economy. Five percent growth, of course, is a stellar number for most economies in the world.

And there’s always been the question of what growth rate is required to keep China stable and below what number it might become somewhat less than stable. And it could be they have decided that five is the bottom line. Cue lots of extra tea leaf reading. But China is China. And that’s the fun of it.

Make sure your children are okay and have a great weekend.

So we have a pause of some sort in the war in Iran as Trump faces the prospect that the fundamental goal of the attacks in the last few weeks have been a failure, in that they have not achieved his stated goal of effecting a fundamental change in the political makeup of Iran. There is a deal in place—a ceasefire deal—but we have no idea how long it will last. But it certainly looks as if the agreement with Iran is basically the same as that achieved by Obama all of those years ago, but at no cost whatsoever. Compared to the current deal that is tentatively in place, achieved after the expenditure of billions and billions of dollars on munitions and an enormous expenditure in terms of the credibility for the United States.

From the perspective of China, the cessation of the hostilities is a good thing in that China desperately needs the free flow of oil and solid supply chains and logistical links for its economy to moving. The war has raised awareness for everybody as to the degree to which we are all still dependent upon fossil fuels including China, even though, for reasons that are related, the country has been working harder than anyone over the past decade to build up its green power capabilities so that it is not so reliant on fossil fuel imports. For sure they will be trying even harder in the days ahead to reduce even further the extent to which they are dependent on external oil.

Meanwhile, it is worth watching the extent to which the renminbi is being used as part of Iran related oil payments, raising again the (still distant) possibility of the US dollar being challenged in terms of international finance. But the fact that the Iranian government, which has been so close to China in recent years, is still in place. is the fundamentally most important fact in terms of global geopolitics to edge this week.

And so we wait. This story is not yet at an end. And in the meantime… have a good weekend!

The world is heading into ever more treacherous waters and the view that the Trumpian chaos and Iran war are overall of the benefit to Beijing is a strong theme out there at the moment. We would say, however, that it is too early to say. There are some truly horrendous potential outcomes to what we are seeing here, both in terms of the US domestic situation, and in terms of the world. The most dangerous period, as we have said before, is probably between now and the US mid-term elections in November. Is he going to pull the US out of NATO? What’s going to happen with Cuba? Will Greenland come back onto the agenda? Will we see boots on the ground in Iran? What will be the result of the Mr T and Mr X meeting scheduled for next month in Beijing? What will happen if the trumpists decide they are going to lose the midterms? There is no doubt that all these distractions are at least theoretically to the benefit of Those in Command, but on the other hand, China depends on stable supply lines and stable export markets to keep its economy on an even keel.

The choke points are becoming clearer, and the Strait of Hormuz is just one of them. And then there is the AI steamroller which is going to have a huge impact on employment across a huge number of industries and professions real soon. Probably within months.

We wish to be optimistic but it’s getting harder. Have a great weekend anyway.

The war in Iran continues and its impact is growing. It has the potential to push the world, as well as individual regions and countries into troubled waters, and that was indicated most clearly in terms of China by the unusual move on Wednesday of announcing that Foreign Minister Wang Yi had urged Iran to find a solution. Logistics routes are screwed up, oil flows are fundamental to the running of economies… and this needs to end, is the message. China’s economy is in no shape to withstand a long period of global trouble.

Meanwhile the unreality of Trump world also continued to grow, with uncertainty over what the goals of the war are, and how far the Trumpists are willing to go. What does seem increasingly apparent is that the US actions seem to be in response to Israel and Saudi suggestions, which is weird. Another interesting angle to watch is China’s relationship with Iran, its role in the technology and hardware that Iran has for both domestic control and defence purposes, and the extent to which China will support or stand back as this situation develops. Nothing is certain, but it now looks ever more likely that there will be no regime change in Iran any time soon. The issue to be resolved now is the Strait of Hormuz rather than the Iranian government.

This all seems to be having an impact on Trump’s standing in terms of US public opinion, which could impact on the mid-term elections in November. If the blue wave is high enough, it could create a crisis in the US system that dwarfs even the Iran war in significance, because the Trumpists are surely not going to be willing to concede easily. Meanwhile, Beijing has an opportunity to reach out to various other parties, of whom the Philippines is one.

The dice have been rolled but haven’t yet settled, so we can’t see the numbers yet.

Have a good weekend.