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Xi Jinping is Left Over an Economic Barrel



If the United States plays the right cards, Xi and China’s Communist Party will face some tough choices. While it took the Pentagon 20 years to call China an ‘adversary,’ there has been a sea change in the economic relationship with the United States. Indeed, President Donald Trump has China’s head of state Xi Jinping over an economic barrel.

And if Trump plays his cards right, Xi and the Communist Party of China will soon face some tough choices.

This is quite a turn of events. Not long ago, we were being told the future was China. American Thomas Friedman and others reckoned Chinese leaders were brilliant and infallible – the wisdom of the Orient, you know – while Americans were idiots. Tinker a bit, play the ‘long game,’ and 6.5% growth, or whatever number desired, was guaranteed.

Now, however, the US economy is thriving while the PRC continues to slump. Chinese manufacturing is stumbling, debt and stock markets are a mess, as is unemployment.  Millions of people are being forced back to their villages to become ‘entrepreneurs.’ More likely, there is no work and the authorities want them out of major cities.

The Chinese population seems spooked, and Xi appears rattled after calling a meeting of senior officials a couple weeks ago before saying they should get ready for a crisis.

There is a reason China’s domestic security budget is bigger than its defense budget.

But Xi doesn’t seem to have any brilliant ideas – beyond cutting taxes, pouring money into the economy and telling banks to lend to private companies. And his doubling down on inefficient SOEs, or state-owned enterprises, is the ‘Road to Perdition,’ but easier to control than China’s private sector.

Meanwhile, Xi reassures the private sector they are loved although they have heard that before.

Make no mistake, the PRC will not collapse but the hubris is gone.

This was bound to happen as the problems in China’s economy were obvious. Trump has simply been a catalyst. His advisors – at least the ones who aren’t Goldman Sachs alumni – understand the PRC’s economic vulnerabilities and are applying effective pressure.

One key weakness is that the yuan is not convertible, so, the PRC must earn foreign currency (FX). The CCP can, of course, print all the yuan it wants but nobody outside China really wants it. Rather, it’s dollars, euros, or yen, please.

Just like the Confederate States of America, when buying Enfield rifles from Britain, Jefferson Davis had to pay in Yankee ‘greenbacks.’ The same goes for Xi.

How does the PRC earn FX? Mainly from exports or foreigners investing in China. Chinese companies buying assets and operating businesses overseas are other ways. And with the Belt and Road Initiative, it is getting foreign governments and organizations to pay for it.

Developing country

China also passes itself off as a developing country to squeeze money out of the World Bank. Things were going well before Trump came along.

As trade tensions increased, Washington imposed tariffs, launched intellectual property theft prosecutions and pressured major companies, such as ZTE and Huawei. It also tightened CFIUS restrictions on Chinese investment in the United States to reduce access to a convertible currency.

Indirectly, many Europeans and even the Japanese have quietly cheered Trump on. Even the developing world has increasingly seen the PRC as rapacious and corrupting.

China’s capital controls reveal plenty about the CCP leadership. Individuals can only take US$50,000 out of China each year while companies must request foreign exchange.

Yet, the country’s business elite, as well as the CCP leadership and its families, have long spirited their wealth out of China. Remove exchange controls for even a month and the yuan would plummet with money gushing out of the world’s second-largest economy.

According to one PRC estimate, Chinese citizens have $21 trillion stashed overseas and the CCP wants it back. Good luck with that one.

US President Donald Trump shakes hands with China's President Xi Jinping in Beijing's Great Hall of the People last year. Photo: AFP / Fred Dufour
US President Donald Trump shakes hands with China’s President Xi Jinping in Beijing’s Great Hall of the People last year. Photo: AFP / Fred Dufour

In fact, CCP behavior suggests they have got a ‘case of the shorts’. Going after billionaires and tax-evading actresses to grab their money is the equivalent of looking under couch cushions for loose change.

Imagine the US Government kidnapping Bill Gates and taking over Microsoft because it needed his money.

Facing this dilemma, how does China placate Trump?

Beijing hopes he will accept an offer to buy more American products – particularly agricultural commodities – thereby reducing the trade deficit, which stood at a record $323.3 billion last year.

Still, the US is after more than that, such as structural reforms, which would end discrimination and bullying of foreign companies.

The PRC will promise further ‘opening up’ as it always does. Unfortunately for Xi, few people on the US side believe it.

‘Opening up’

One American businessman remarked:

“The US weekend-only edition of China Daily [the state-owned English-language newspaper] is distributed in my hotel. I picked up a copy yesterday. The bold print headline: ‘Xi Pledges Greater Opening-up.’

“I can tell you … this same headline has been blasted out at least once a quarter ever since I started in China. I have been doing business with China for a total of 133 quarters. This means China has made 133 pledges to ‘greater opening-up.’”

Chinese negotiators will also promise to stop stealing technology which they constantly deny. But this is part of Beijing’s economic strategy and a moral imperative.

The US is still skeptical about enforcing any agreement. The required changes might even threaten CCP control – and China will refuse to take orders from foreigners.

In fact, if you take Washington’s demands to their logical extreme, you have ‘regime change.’  The CCP will drive the Chinese economy over a cliff before letting that happen.

So, the US and China will not be solving their problems anytime soon – unless one side surrenders.

But by leveraging trade, or pulling the plug on companies such as ZTE or Huawei, and retaliating for decades of intellectual property piracy, the US can take the steam out of the Chinese economic juggernaut.

And Washington can force CCP leaders to make some hard choices elsewhere as they run low on cash and their economy sputters. They might, for example, ease off on Taiwan, back off in the South China Sea and refrain from bullying the Japanese in exchange for US restraint.

More worrisome, they might also lash out violently against Taiwan or Japan to distract public attention. Dictatorships do that.

While the Chinese brim with chutzpah and are skilled ‘bluffers,’ that only works when the guy across the table has no idea what cards they are holding. And Trump’s team knows the Chinese only have a ‘pair of two’s’ – a very weak hand.

Indeed, bringing formal charges against Huawei just as a PRC trade delegation arrived in Washington last week suggests Trump might not fold like his predecessors. This will get interesting. ATIMES<


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Automaker Daimler AG to pay $1.5 billion to settle emissions cheating probes



Daimler AG Chief Executive Officer Dieter Zetsche (C) speaks to the media after he unveiled the Mercedes-Benz Concept Style Coupe at Auto China 2012 in Beijing April 23, 2012. China's premium car market should grow 15-20 percent this year, Zetsche said on Monday, adding that Daimler's sales should at least match that rate. Zetsche also said he expects the company's Mercedes-Benz luxury brand to post a sales increase in Europe this year. REUTERS/Jason Lee

Automaker Daimler AG and subsidiary Mercedes-Benz USA have agreed to pay $1.5 billion to the U.S. government and California state regulators to resolve emissions cheating allegations, officials said Monday.

The U.S. Department of Justice, Environmental Protection Agency and the California attorney general’s office say Daimler violated environmental laws by using so-called “defeat device software” to circumvent emissions testing and sold about 250,000 cars and vans in the U.S. with diesel engines that didn’t comply with state and federal laws.

The settlement, which includes civil penalties, will also require Daimler to fix the vehicles, officials said. In addition, the company will pay $700 million to settle U.S. consumer lawsuits.

The Stuttgart, Germany-based automaker said on Aug. 13 that it had agreements with the Justice Department, Environmental Protection Agency, Customs and Border Protection, the California Air Resources Board and others over civil and environmental claims involving about 250,000 diesel cars and vans.

Environmental Protection Agency Administrator Andrew Wheeler said Daimler did not disclose all of its software, which included “devices designed to defeat emissions controls.”

In a statement, Daimler said it denies the allegations that it cheated and does not admit to any liability in the U.S. The settlements resolve civil proceedings without any determination that Mercedes and Daimler vehicles used defeat devices, the company said. Plus, Daimler said it did not receive a notice of violation of the Clean Air Act from the EPA or California regulators, which is common when defeat devices are used.

The company said it is not obligated to buy back the vehicles, as Volkswagen was, nor will it have an independent monitor to track its progress on the settlement. “By resolving these proceedings, Daimler avoids lengthy court actions with respective legal and financial risks,” the company said.

Daimler also said the emissions control system in the U.S. vehicles is different than models sold in Europe because of different regulatory and legal requirements.

Daimler AG said the settlement would bring costs of about $1.5 billion, while the civil settlement will bring a one-off charge of $875 million. It estimated that “further expenses of a mid three-digit-million” euros would be required to fulfill conditions of the settlements.

Daimler said it owners of model year 2009 through 2016 Mercedes cars and 2010 through 2016 Sprinter vans with “BlueTEC II” diesel engines will be notified of recalls to fix excessive vehicle emissions. Customers will be notified by mail starting late this year, and the company will set up a customer website, Daimler said in a statement.

Owners also will get mailed notices and a website with details of the civil lawsuit settlement including a claim form, Daimler said. The company also will pay attorneys fees of around $83 million.

Steve Berman, a lawyer involved in the class-action lawsuits against Daimler, said in a statement that current owners can get $3,290 or more, while former owners can get $822.50.

“Owners of Mercedes’ dirty diesel cars will finally be able to receive the compensation they deserve and repairs to ensure their vehicles are not emitting illegal levels of harmful pollutants,” Berman said.

Deputy Attorney General Jeffrey Rosen said the cost of the Daimler settlement is likely to send a message to deter other companies from engaging in similar conduct.

“We expect that this relief will also serve to deter any others who may be tempted to violate our nation’s pollution laws in the future,” Rosen said.

As part of the U.S. government settlement, Daimler will pay an $875 million civil penalty — about $3,500 for each vehicle that was sold in the U.S. The company will also be required to fix the vehicles and will need to replace some old locomotive engines with newer, low nitrogen oxide-emitting engines that should offset the illegal emissions from its vehicles, Rosen said. A Justice Department official said the company did not have to admit guilt as part of the settlement.

In addition, officials in California will receive $17.5 million for future environmental enforcement, as well as to support environmentally-beneficial projects in the state, officials said.

“Long term, cheating isn’t the smartest way to market your product. Daimler is finding that out today. But they’re not the first — nor likely the last — to try,” said California Attorney General Xavier Becerra.

Daimler’s pollution practices also are under investigation in Germany.

In April 2016, the Justice Department asked Daimler to conduct an internal probe into its exhaust emissions certification process. The request came as the EPA began checking all diesel engines after the Volkswagen cheating was revealed.

Volkswagen, ended up paying $2.8 billion to settle a criminal case due to emissions cheating. Fiat Chrysler also is being investigated for allegedly cheating on emissions.

VW admitted that it turned on pollution controls when vehicles were being tested in EPA labs, and turning them off when the diesel vehicles were on real roads. The company duped the EPA for years before being discovered by a nonprofit climate group and researchers at West Virginia University. In September 2019, federal prosecutors charged a Fiat Chrysler engineer with rigging pollution tests on more than 100,000 diesel pickup trucks and SUVs sold in the U.S., the first indictment since a wave of similar cases against Volkswagen and its managers.

The alleged scheme isn’t as large as the Volkswagen emissions scandal, which involved nearly 600,000 vehicles. But the charges showed that investigators are still on the case, even after Fiat Chrysler agreed to a $650 mil

lion civil settlement.

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Bitcoin’s ascent will be slow & steady: Bloomberg



Megabulls such as PlanB are predicting parabolic short- to medium-term price moves for bitcoin, but Bloomberg analyst Mike McGlone believes the leading digital asset’s ascent to $100,000 will be a slow, steady and almost inexorable grind.

The senior commodity strategist at the financial news service believes bitcoin will steadily appreciate because of its fixed supply combined with a growing demand.

“I don’t see what [could] make it stop doing what [it’s] been doing for the last 10 years. And that’s going up,” he told Cointelegraph in a video interview.

McGlone thinks bitcoin could become a better store of value than gold, the traditional safe haven, because its supply is capped. Unlike gold, the total potential supply of which is unknown, bitcoin is inherently scarce; there will never be more than 21 million , and many of the ones already mined have been lost forever, thus increasing the potential value of those that remain accessible.

As demand for the digital asset grows, the price will inevitably go up, explained McGlone. He pointed out that the number of active bitcoin addresses is increasing rapidly and that more and more bitcoin is flowing into regulated exchanges, both of which are strong indications of increasing demand.

But he said investors shouldn’t expect bitcoin to soar to gobsmacking new highs on the short term as it has historically following its reward halvings – it climbed from around $1,000 to nearly $20,000 in the last bull run, before crashing hard in early 2018. Now that it is a mature asset, he said its price behaviour will be less dramatic.

When asked about Pantera Capital’s prediction that bitcoin will soar to $115,000 in just a year, McGlone said, “Bitcoin 10x? Maybe over 10 years, that makes a lot of sense.”

Read: Bitcoin is set to become digital gold: Bloomberg

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world’s first benchmark cross sector Chinese Bond Indices. Read ATF now. 


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Investors offload risk after Fed gets real



A man with a protective mask walks in the rain past an electronic stock board showing Japan's Nikkei. AP Photo/Eugene Hoshiko

Hong Kong: Financial markets in Asia retreated on Thursday over disappointment that the US central bank did not expand its asset purchase programme, although it did reiterate its ‘lower for longer’ message.

The Bank of Japan’s decision to keep rates unchanged was expected by the market but investors sold off stocks as a dovish Fed weakened the dollar against the yen, whose strength in turn hammered exporters’ prospects.

The Japanese yen strengthened 0.2% to 104.7 to the dollar.

“The yen currently sits at around ¥105 against the dollar – that’s a little stronger than in the summer but far weaker than what the current spread between JGBs and US Treasuries would usually point to,” Capital Economics analysts Tom Learmouth and Marcel Thieliant said, referring to the narrowing of the spread. “While we expect the yen to remain close to ¥105 the risks are tilted slightly towards a stronger yen.”

The drag from exporters pulled down Japan’s Nikkei 225 index which fell 0.67%, while Australia’s S&P ASX 200 slipped 1.22% as investors worried about a rollback of stimulus after data released showed a drop in the unemployment rate.

Hong Kong’s Hang Seng index also retreated 1.56% as investors prepared for a slew of IPOs including the world’s biggest – the Ant Financial $30-billion bonanza expected next month. At least three share offerings are expected next week as well, as issuers avoid a clash with Ant Financial’s mammoth offering. Delivery company ZTO Express, biotech company Zai Lab and online retailer Baozun are in a race for cash.

China’s CSI300 eased 0.53% as the region remained under pressure following disappointment over the US central bank’s unchanged asset purchase programme.

‘Congress must step up’

“And while risk assets might love the intravenous drip of monetary stimulus, it is time to focus on policies that the real economy needs, and for that, Powell is dead right, it’s time for Congress to step up to the plate,” Robert Carnell, ING Bank’s Regional Head of Research in the Asia-Pacific, said.

“Perhaps the market reaction here is more a realisation of this and the fact that any resolution to the current impasse is unlikely until the Presidential election outcome is determined.”

US Treasuries picked on the Fed’s ‘dot plot’, extending its gains with the 10-year yield declining 2 basis points to 0.68%.

The Federal Reserve’s dot plot, which the US central bank uses to signal its outlook for the path of interest rates, projects no change in policy this year and borrowing costs near zero through till 2023, based on median estimates. It said they must achieve maximum employment and inflation at a rate of 2% over the longer run.

“The Committee decided to keep the target range for the federal funds rate at 0 to 1/4% and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.”

Asia Stocks

· Japan’s Nikkei 225 index dropped 0.67%

· Australia’s S&P ASX 200 slipped 1.22%

· Hong Kong’s Hang Seng index retreated 1.56%

· China’s CSI300 eased 0.53%

· The MSCI Asia Pacific index fell 0.70%.

Stock of the day

Times China bonds rose and shares fell after it announced a plan to buy back its bonds due in 2021.

This report appeared initially on Asia Times Financial.

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world’s first benchmark cross sector Chinese Bond Indices. Read ATF now. 

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