Bain is a US-based management consulting company, well known in the world of finance, and its Shanghai office received a visit this last week from members of the constabulary who talked to staff and took away several computers. This follows an incident a month ago when members of the constabulary also visited the Beijing office of the Mintz Group, a due diligence outfit, which also included a request for several members of staff to accompany the constabulary off the premises. These and apparently other such events appear to be coordinated and aimed at sending a message, presumably related to security of data and “telling a good China story.” But the impact on foreign investor sentiment has to be not small. It also creates for the first time in a while the appearance of a factional split up top. On one side officials are pushing hard to give the impression of everything is back to normal, come on in the water is fine, and then these visits. Along with some references this week to the need to watch out for foreign spies. It’s mixed messaging.
The highest profile event of the week was Mr Xi’s phonecall with the Ukrainian president Mr Zelinskyy, which was definitely useful in terms of boosting the perception of China as an effective peace broker. As to what practical impact it could have, that is hard to say. Is there a plan the Chinese side is proposing to end the war? it’s not clear.
Meanwhile, talk of de-dollarization has been ramping up recently, and Argentina announced that it would from now on settle imports from China with renminbi rather than dollars. Another report suggested that Argentina currently has a shortage of dollars, which might account for the move. Anyway, our view remains that it is highly unlikely for the US dollar to lose its dominant position to a heavily controlled currency such as the Chinese yuan. The US debt ceiling issue is out there and if the MAGA guys are determined to push it to the point where the US defaults on its debt, then things could change. But barring that, the US dollar has the huge advantages of being super liquid and transparent, and of being based on the rule of law and the largest economy in the world with a value that is decided totally by the market. Never say never, but it’s hard to see any country being willing to build up a substantial stash of renminbi as a way of storing their national wealth. Risk is everywhere, but China risk is a special thing.
Have a great weekend as we head into the first post-COVID May holiday when consumer spending is probably going to bounce.
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