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Seven Days in China
Taking the pulse of the world’s most exciting economy
February 18, 2019
CER's cheeky recap of the weekly news
China this week launched off into the murk of the pig year with quite a few uncertainties hanging over it. The economy is slowing, and while it is unclear by how much and with what consequences, the situation seems atmospherically less fraught than it did in January. The caveat, as always, is the opaqueness that hangs over everything. The latest analyst guesses put this year’s GDP rate in the 6% range, the indications are that the lunar new year break saw quite weak consumer spending and the impact of the slowdown on jobs and unemployment could be bigger than we thought. Exports in January did better than many expected, but it could be mostly a last-minute front-loaded rush to beat any hike in US tariffs. The US-China trade talks continue, and it’s easy to speculate and impossible to know how they are really going. The general sense of the US side is that the forces for holding out for something solid from China are holding firm, while Those in Command of course don’t want to give up anything fundamental. We saw one report indicating the US trade talks is the single most-censored online topic, so it must be tricky situation. On the other hand, there was talk this week of the deadline being pushed back, which gives us the opportunity of being both optimistic and pessimistic. Internationally, things got more fraught during and after the break. The EU is moving towards more stringent controls on inward investment, Huawei is under growing pressure all around the world, Ms Meng remains in suspended animation in Vancouver, and even little New Zealand is being forced to make the big choice - China economic ties or Western security ties. It’s a tough call. Stay warm over the weekend.
The pig is almost upon us and China is going into shutdown mode - the magic first day is Tuesday, and the coastal cities of China are now emptying. But the China-US trade talks rumble on with a month to go before the deadline leading to a ratcheting up of US tariffs. Those in Command don’t want that, but there is a limit on how much they will concede in terms of convergence with the international system in which the US is the big dog. Trump and Xi, it appears, are likely to meet during Trump’s upcoming trip to Vietnam to commune with his good mate, that guy in North Korea, and presumably Xi will be making a personal plea or two. They would love to see the Huawei CFO out of entanglement for sure. Trump went against his own government’s advice and did it last year for ZTE, so who knows. But the international view on Huawei is solidifying, regardless of what happens to Ms Meng. A torrent of announcements and news stories over the past week can be summarized with the words: Huawei? Not Huawei. The rolling thunder of announcements from the Czech Republic to New Zealand suggests to us that there is a concern that using Huawei equipment might result in connectivity problems with other systems in Huawei-free zones. Also, the company’s latest laptop is getting only so-so reviews. But Ms Meng is probably still the biggest story. The US confirmed that they intended to file formal extradition papers with the Canadians before the January 31 deadline. That begins what is expected to be a long legal process before she is actually moved to the United States to stand trial. And the Canadian judge might still rule that the US has insufficient grounds for the extradition request. The Canadian ambassador to Beijing intimated as much and was fired for doing so. It’s been quite a week on the Huawei front. To end this lunar year, there appeared this week, suddenly, to be serious movement in terms of reform to the stock market system and foreign investor access to it. Precisely how it plays out is not yet clear, but making some real changes to that market would be both encouraging for investors and would also introduce an extra level of uncertainty into things. Lack of diversity and transparency ironically provides a comfort level. With that thought, we turn to the future. We consulted a fortune teller as to China’s fortune for the coming lunar year, but he said there is a united front refusal on the part of Chinese fortune tellers to predict the fate of the nation. Our own tea leaves are murky, but we wish all our readers a pleasant and prosperous lunar year ahead, full achievement and absent as much negativity as is possible.
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