It’s getting personal. China this week placed sanctions on certain US individuals, in retaliation for the US placing restrictions on certain China individuals. The Chinese leadership wrapped up a series of meetings at the seaside, but there is no indication yet of what policy shifts could result. What is expected is a doubling-down on the previous positions — the party is paramount and China’s economy can withstand decoupling and sanctions by stressing “dual circulation” — that is, the domestic economy.
Beyond the froth, there are three issues we are watching particularly closely – the island, the bank and the economy.
Taiwan received a visit from US Health Secretary Alex Azar, the most senior US official to visit the island in four decades, and former Australian prime minster and China pundit Kevin Rudd described the status of US-China relations as being the most dangerous since the Taiwan Straits crises of the 1950s. The atmospherics around the situation are potentially fraught, and there is the possibility (remote or not, who knows) of some movement from either the US and China sides as we move through the US election and what appears likely to be a power transition in Washington. Roll on January 20 with the status quo intact, we say.
HSBC we have referred to in previous weekly missives, and conversations this week have cemented the view that it is likely to jump in the direction of China, even if that means ditching its “international bank” status. Would it sell off its assets in other markets? Would it be granted a solid and sustained role as a little brother in the China banking world? This is the most high-profile element right now of a potential finance decoupling, which has big implications for the global financial system, and for China. What is clear, what has always been clear and has not changed, is that the top requirements for Those in Command, are control and loyalty. Efficiency is a secondary consideration.
And so to the economy. The numbers are looking more solid for China’s economic recovery, with the domestic “dual consumption” model leading the way. Property and the stock market are both up, which suggests the stimulus funds are making the usual rounds. How much debt is being built up in order to achieve the sense of up-ness is not known. On the Shanghai stock market, stocks related to domestic tech and military-usage products have been outperforming the general market.
In other news, it looks increasingly likely that TikTok will get sold to Microsoft, although Twitter is also a potential buyer, and all Confucius Institutes in the US will be required to register as foreign missions.
Enjoy the sunshine.
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