Tag Archives: China

US Asset Bubbles Crack as Frantic China “Restricts” Outbound Investments, by Wolf Richter

Chinese investors, and the Chinese government, have realized they don’t want to be the greatest of the greater fools. From Wolf Richter at wolfstreet.com:

What happens to prices when the biggest, reckless buyer walks away?

China’s State Council has issued guidelines on what Chinese companies can and cannot acquire overseas. The purpose is to “promote healthy growth of overseas investment and prevent risks.” These risks would be that the $18 trillion of Chinese corporate debt will balloon further, though much of this debt is already going bad, and that it will blow up, triggering a spectacular financial crisis. This is to be avoided.

So Chinese companies have been given priorities, and their efforts to invest in overseas commercial real estate – such as office towers and apartment buildings – in hotels, and in Hollywood will be axed.

What’s on:

The guideline intends to drive the output of China’s products, technology and services, and deepen cooperation with countries involved in the Belt and Road Initiative.

The government will support “eligible” Chinese companies “to make overseas investment and join in the construction of projects in the Belt and Road Initiative.”

These enterprises should take the lead to export China’s superior technology and equipment, upgrade the nation’s research and manufacturing ability, and make up the shortage of energy and resources through prudent cooperation in oil, gas and other resources.

What’s off:

Other investments will be “restricted,” particularly those “against the peaceful development, win-win cooperation, and China’s macro control policies.” These policies are now being implemented to dodge this spectacular financial crisis.

Among those outbound investments and acquisitions that will be “restricted” and that directly impact US markets and valuations are:

  • “Real estate”
  • “Hotels”
  • “Entertainment”

To continue reading: US Asset Bubbles Crack as Frantic China “Restricts” Outbound Investments

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Gavekal On The Coming Clash Of Empires: Russia’s Role As A Global Game-Changer, by Charles and Louis-Vincent Gave

This is an excellent survey of the world’s geopolitical landscape SLL has seen; long but worth the read. From Charles and Louis-Vincent Gave at Gavekal via zerohedge.com:

Carthago Est Delenda

Carthage must be destroyed”. Cato the elder would conclude his speeches in the Roman Senate with the admonition that salt should be spread on the ruins of Rome’s rival. Listening to the US media over these summer holidays from Grand Lake, Oklahoma, it is hard to escape the conclusion that most of the American media, and US congress, feels the same way about Russia. Which is odd given that the Cold War supposedly ended almost 30 years ago.

But then again, a quick study of history shows that clashes between land and sea-based empires have been a fairly steady constant of Western civilization. Think of Athens versus Sparta, Greece versus Persia, Rome versus Carthage, England versus Napoleon, and more recently the US versus Germany and Japan (when World War II saw the US transform itself from a land-based empire to a sea-based empire in order to defeat Germany and Japan), and of course the more recent contest between the US and the Soviet Union.

The maritime advantage

Such fights have been staples of history books, from Plutarch to Toynbee. Victory has mostly belonged to the maritime empires as they tend to depend more on trade and typically promote more de-centralized structures; land-based empires by contrast usually repress individual freedoms and centralize power. Of course the maritime power does not always win; Cato the elder did after all get his wish posthumously.

With this in mind, consider a mental map of the productive land masses in the world today. Very roughly put, the world currently has three important zones of production, with each accounting for about a third of world GDP.

  1. North and South America: This is a sort of island and is not reachable by land from the rest of the world. It constitutes the heart of what could be called the current “maritime” empire.
  2. Europe ex-Russia: This is an economic and technological power as large as the US but a military minnow. Its last two wars have been fought between the then dominant maritime power (the US), first against Germany, then the Soviet Union to gain the control of the so called “old continent”.
  3. A resurgent Asia: Here China is playing the role of the “land-based challenger” to the “maritime hegemon.”

To continue reading: Gavekal On The Coming Clash Of Empires: Russia’s Role As A Global Game-Changer

Is North Korea Showing the Emperor is Naked? By Pepe Escobar

North Korea may be in the perfect position to show the limits of US power. From Pepe Escobar at lewrockwell.com:

Amid the thick fog of (rhetorical) war between Washington and Pyongyang, it’s still possible to detect some fascinating writing on the (unbuilt) wall.

A case can be made that President Trump is using North Korea to kick the 24/7 Russia-gate narrative out of the US news cycle. It’s certainly working. After all, in Exceptionalistan weltanschauung, the prospect of war and its possible rewards certainly trumps hazy accusations of Russian hacking and election interference.

Capitol Hill would never even consider an attempt to impeach a president — on top if it surrounded by generals — while American geopolitical primacy is in danger. Besides, Congress has already made it explicit Trump does not even need permission to bomb North Korea.

So, according to this working hypothesis, if Robert Mueller finds anything seriously damaging to the Trump brand, the president might actually consider a bomb North Korea/wag the dog operation.

Meanwhile, anybody paying attention to what Edward Snowden has disclosed in detail knows hackers of all persuasions are fine tuned to all Mueller-related IT systems and cell phone communications. They will know what Team Mueller has managed to find on Trump in real time — and plan their contingencies accordingly.

As for the rhetorical war itself, a US intel source used to thinking outside the Beltway box points to the crucial variable, South Korea; “South Korea will not maintain its alliance with the US the day they believe that the US will attack North Korea to protect itself at the expense of the death of thirty million people in South Korea. South Korea is in secret talks with China for a major security treaty because of the US position that they will bomb North Korea in their own defense irrespective of the destruction of South Korea which the US would regard as most unfortunate.”

To continue reading: Is North Korea Showing the Emperor is Naked?

Avoiding Nuclear War: Why Kim Jong-Un’s Strategy Makes Sense, by Federico Pieraccini

Everything both North Korea and the US do with regards to the Korean peninsula is with an eye on China. From Federico Pieraccini at strategicculture.org with an unconventional but plausible analysis of North Korean strategic, diplomatic, and military thinking:

Looking at the recent North Korean testing of two intercontinental missiles, it may seem that Pyongyang wishes to increase tensions in the region. A more careful analysis, however, shows how the DPRK is implementing a strategy that will likely succeed in averting a disastrous war on the peninsula.

In the last four weeks, North Korea seems to have implemented the second phase of its strategy against South Korea, China and the United States. The North Korean nuclear program seems to have reached an important juncture, with two tests carried out at the beginning and end of July. Both missiles seem capable of hitting the American mainland, although doubts still remain over Pyongyang’s ability to miniaturize a nuclear warhead to mount it on an intercontinental ballistic missile (ICBM). However, the direction in which North Korea’s nuclear program is headed ensures an important regional deterrent against Japan and South Korea, and in some respects against the United States, which is the main reason for North Korea’s development of ICBMs. Recent history has repeatedly demonstrated the folly of trusting the West (the fate of Gaddafi remains fresh in our minds) and suggests instead the building up of an arsenal that poses a serious deterrence to US bellicosity.

It is not a mystery that from 2009 to date, North Korea’s nuclear capacity has increased in direct proportion to the level of distrust visited on Pyongyang by the West. Since 2009, the six-party talks concluded, Kim Jong-un has come to realize that the continuing threats, practices, and arms sales of the United States to Japan and South Korea needed to be thwarted in some way in the interests of defending the sovereignty of the DPRK. Faced with infinitely lower spending capacity than the three nations mentioned, Pyongyang chose a twofold strategy: to pursue nuclear weapons as an explicit deterrence measure; and to strengthen its conventional forces, keeping in mind that Seoul is only a stone’s throw away from North Korean artillery.

To continue reading: Avoiding Nuclear War: Why Kim Jong-Un’s Strategy Makes Sense

 

This Hits the Wheezing Commercial Real Estate Bubble at Worst Possible Time, by Wolf Richter

Are the Chinese withdrawing from the US commercial real estate market. If so, that’s not bullish for real estate prices. From Wolf Richter at wolfstreet.com:

The last big enthusiastic buyer, China, is leaving the party.

Commercial real estate, such as office and apartment towers, in trophy cities in the US and Europe has been among the favorite items on the long and eclectic shopping lists of Chinese companies. At the forefront are the vast, immensely indebted, opaquely structured conglomerates HNA, Dalian Wanda, Anbang Insurance, and Fosun International. In terms of commercial real estate, the party kicked off seriously in 2013. Over the two years in the US alone, according to Morgan Stanley, cited by Bloomberg, Chinese firms have acquired $17 billion worth of commercial properties.

In the second quarter in Manhattan, Chinese entities accounted for half of the commercial real estate purchases. This includes the $2.2 billion purchase in May of the 45-story office tower at 245 Park Avenue, the sixth largest transaction ever in Manhattan. At $1,282 per square foot, the price was also among the highest ever paid for this type of property.

Most of HNA’s funding for this deal — one of its 30 major acquisitions since the beginning of 2016 — was borrowed from China’s state-owned banks. But HNA also borrowed $508 million from JPMorgan Chase, Natixis, Deutsche Bank, Barclays, and Societe Generale. This has been the hallmark for all Chinese acquirers: a lot of borrowing from China and some funding from offshore sources.

Similarly, Chinese acquirers accounted for about one-quarter of commercial property transactions in central London in 2016, according to the Morgan Stanley report. In Australia, over the past few years, Chinese firms accounted for 12% to 25% of all office transactions by value.

But now these conglomerates and other Chinese firms engaging in outbound acquisitions have run into a veritable buzz saw of regulatory efforts by Chinese authorities designed to accomplish two things: slow down these capital outflows; and keep the Chinese banks from getting perforated by their exposure to the overleveraged conglomerates.

The authorities put the banks under intense pressure to deleverage. And the banks put the conglomerates under pressure to deleverage. A number of deals have already gotten scuttled.

To continue reading: This Hits the Wheezing Commercial Real Estate Bubble at Worst Possible Time

 

The Madhouse, by Jeff Thomas

The present course of world affairs looks pathologically close to routines Jeff Thomas observed in an asylum when he was young. From Thomas at internationalman.com:

In the late 17th century, we British decided that, as a humanitarian effort and public service, we’d collect up all the people from the towns and countryside who were bonkers and confine them in institutions, so that society could be protected from them.

As so often proves the case, the idea of a collective solution to an individual problem is doomed to failure from the start.

There are many problems with madhouses. First, they need funding and, of course, the entity that receives the funding is likely to prefer skimming off whatever they can, rather than spending it on the inmates. Second, the sort of people who apply to become staff are often not the most desirable, and in fact are often dangerous. Third, one madman might be a social problem, but what happens when you throw them all in together? Are conditions likely to make them less mad or more mad? (I would suggest the latter.)

When I was a teenager, I had the dubious pleasure of visiting a state-run madhouse—the maximum-security ward, where all the most violent inmates were kept.

I’d been asked to visit a short-term inmate named Billy, who’d been committed to the mental institution for a month as punishment for a petty crime. My purpose was to hopefully raise his spirits, but my one visit there provided me with insight that I couldn’t have gained otherwise and has stayed with me for life.

I was taken through several layers of security before being led through a series of heavy steel doors into a large room. There were tables and chairs in the middle and beds along the walls. About fifteen men were talking congenially in small groupings.

To continue reading: The Madhouse

Unexpected North Korea Breakthrough Delays Trump Trade War With China (For Now), by Tyler Durden

SLL is prepared to cheer any progress on the North Korea front short of war. From Tyler Durden at zerohedge.com:

A global punitive campaign on North Korea propelled by sharp new U.N. sanctions – amounting to a $1 billion ban on North Korea exports – received a welcome, and unexpected, boost on Sunday from China, the North’s economic lifeline, when Beijing slammed its neighbor for its ongoing missile and nuclear tests.

The Saturday sanctions agreed to unanimously in a 15-0 Security Council vote are aimed at cutting North Korean exports by about $1 billion a year, a move that would hit laborers and fishermen. Existing joint ventures would be prevented from expanding their operations. The new sanctions could cut off roughly one-third of North Korea’s estimated $3 billion in annual exports, ostensibly denying the nation of funds for its weapons programs. All countries are now banned from importing North Korean coal, iron, lead and seafood products, and from letting in more North Korean laborers whose remittances help fund Kim Jong Un’s regime.


U.N. Security Council members vote on toughening sanctions on
North Korea in New York, on Aug. 5.

 However, what was most remarkable about the vote is that both China and Russia backed it, siding – for the first time in a long while – with the US on matters of foreign policy.
And, as Bloomberg summarizes, just days after geopolitical events looked bleak at the start of last week when leaders of the world’s biggest economies appeared set on collision course after North Korea’s second ICBM text in a matter of weeks prompted Trump to lash out at China on Twitter, followed by reports that his administration was getting ready to take steps that could lead to a trade war, all that changed with the “breakthrough” vote at the United Nations on Saturday.

President Trump was delighted, tweeting on Saturday afternoon that “The United Nations Security Council just voted 15-0 to sanction North Korea. China and Russia voted with us. Very big financial impact!”

Even, one of Trump’s most vocal critics, former US ambassador to Russia, Michael McFaul congratulated Trump on his “genuine foreign policy achievement”:

Congratulations @realDonaldTrump . This vote is a genuine foreign policy achievement. https://twitter.com/realdonaldtrump/status/893965986566733824 

To continue reading: Unexpected North Korea Breakthrough Delays Trump Trade War With China (For Now)