Dedicated to Sushil Aaron


(2) “Chinese property developer Sunac agreed to invest 15 billion yuan ($2.21 billion), including 9 billion yuan into LeEco’s non-listed entities. …. Leshi had income receivables of 9.5 billion yuan as of the first quarter, representing 28.4 percent of its total assets of 33.6 billion yuan, according to its financial report. Chief Financial Officer Zhang Wei said the company aims to lower that ratio to below 20 percent and reduce the receivable account by around 3 billion yuan.”


(3) “S&P puts Sunac China on credit watch with negative implications”


(4) “… consider Dalian Wanda Group Co., which has also come under official scrutiny of late. It recently sold a $9 billion piece of its empire to Sunac China Holdings Ltd. to pay down debt after an ambitious acquisition spree. But the deal had an unusual twist: It was funded with a loan from Wanda-the-seller to Wanda-the-buyer. Wanda is actually securing a loan to Sunac to buy the assets from Wanda.”


(5) “Let’s begin with some grade A gibberish on Xi the free market zealot economic reformer …” – a tweet by Chris Balding and he was referring to this article Arthur Kroeber, published in 2013:



(6) Even this observation by Arthur Kroeber in the link above has been belied in reality:

“In short, the vision seems to be to move China much further toward an economy where the government plays a regulatory, rather than a directly interventionist role.”

For example, see this header and sub-header in an article from FT:

“China’s overseas acquisitions recover from doldrums – State-owned companies stage comeback while private peers remain in the cold.”


(7) “The new Chinese owner of Darwin Port is heavily indebted and has struggled to make interest payments on money borrowed to buy the lease, raising doubts over promises to upgrade the port and fund a new $200 million hotel on a nearby site.”


(8) “OTTAWA — The Trudeau government should spend less time bowing down to Canadian journalists preoccupied with human rights and get on with negotiating an important free trade agreement with China, says the country’s ambassador.

Chinese ambassador Lu Shaye blamed the Canadian media for disseminating a negative portrait of his country that depicts it as an abuser of human rights and lacking democracy.”


(9) “China claims territories of 23 countries, even though it only has borders with 14. The total area of China’s claims on other countries exceeds the size of modern China itself, but Beijing refuses to budge on its claims.”


(10) “Chinese conglomerate HNA Group Co. is copying the financing strategies of hedge funds and private-equity firms as it pursues its quest to become one of the world’s largest companies. HNA, a sprawling group that operates in everything from airlines to hotels, has been on an overseas acquisition spree. Increasingly, it is financing those deals with loans backed by company stakes it has purchased. The conglomerate has also entered into complex derivatives with U.S. and European banks that are helping fund its investments outside China.”


(11) A story in NYT on the web of family ties behind HNA:

(12) Bank of America Corp. has told investment bankers to stop working on transactions with HNA Group Co. for now amid growing concerns about the acquisitive Chinese conglomerate’s debt levels and ownership structure, according to people familiar with the matter.

The U.S. investment bank joins other Wall Street firms, including Citigroup Inc. and Morgan Stanley, that are largely steering clear of advising and financing the group on deals because they are unable to get internal approvals from “know your customer” committees, the people said, asking not to be identified because the information is private.

(13) “a Financial Times investigation has found that China’s high-speed rail ambitions are running off the tracks. Far from blazing a trail for One Belt, One Road, several of the projects have been abandoned or postponed. Such failed schemes, and some that are under way, have stoked suspicion, public animosity and mountains of debt in countries that Beijing had hoped to woo.”


(14) “Chinese banks have been warned by regulators against lending to Dalian Wanda as the serial acquirer comes under official scrutiny following a half-decade overseas dealmaking binge. Regulators instructed banks to restrict exposure to the property-to-movies conglomerate in a meeting on June 20, according to notes of the meeting that were seen by the Financial Times. A Wanda spokesperson declined to comment. ….Wanda also has come under investor scrutiny following the unexpected sale last week of $9.3bn of hotel and tourism assets to rival developer Sunac.”


(15) “The Senate Armed Services Committee approved a major change in U.S. policy toward Taiwan as part of an annual defense-policy measure, voting to allow regular stops by U.S. naval vessels in a move that is likely to anger China. In a bipartisan 21-6 vote, the panel approved re-establishing “regular ports of call by the U.S. Navy at Kaohsiung or any other suitable ports in Taiwan and permits U.S. Pacific Command to receive ports of call by Taiwan.” If ratified by Congress, the new policy would roll back nearly 40 years of U.S. deference to China under the “One China” policy, in which Washington grants diplomatic recognition to China, but not to Taiwan.”


(16) “China said on Monday it had lodged a stern complaint with the United States after the U.S. House of Representatives passed its version of a big annual defense bill that would expand exchanges with self-ruled Taiwan.”


(17) “US-China economic dialogue ends in a tiff.  Press conferences cancelled; no joint statement issued”


(18)  “A flood of credit to the household sector in June shows the limits of the government’s campaign to rein in credit, as well as the grip that rising house prices have on Chinese consumers. We expect mortgage lending to cool in the second half as the authorities try to control financial risk. However, this policy stance will be tempered by the importance of the housing market to China’s economic growth.”

…………… Official rhetoric indicates the authorities are not willing to loosen up on the housing market. The recently concluded National Financial Work Conference identified real estate bubbles as one of seven financial system risks to be prevented.

On the other hand, the PBoC has noted low levels of debt on household balance sheets and identified the importance of mortgage loans in supporting industrial activity. The authorities will be wary of going too far with tightening given the political imperative to maintain stability and deliver on growth. For this, they need a robust housing market.”


(19) “China is creating roadblocks for U.S. auto makers and tech companies to bringing self-driving cars to the world’s largest auto market. Citing national security concerns, China is limiting the amount of mapping that can be done by foreign companies, as General Motors Co. , Ford Motor Co., Alphabet Inc. and Apple Inc. rush to develop self-driving cars or the software behind them. High-definition maps are crucial for autonomous cars to help them discern their exact location, navigate tricky intersections and avoid fixed objects such as buildings.”


(20) “According to Deutsche Bank , VIP gambling revenue in Macau and third-tier city property prices have a correlation of 0.74, where a correlation of one indicates they move in lockstep. … Banks have to report cross-border transfers above 200,000 yuan ($30,000) and ATMs with facial recognition are popping up in the city. The city’s biggest junket operator, Suncity, which brings big-stakes gamblers to Macau and lends them money, sent messages to its customers last week warning about the risks of moving money across the border. The more the high rollers keep coming, the more likely Macau is to become the next part of the economy to be squeezed.”


(21) This blog post by Chris Balding is worth a careful read: ‘Is the PBOC Fudging FX Reserve Numbers?’


(22) “A hastily arranged meeting of party officials on Saturday in the inland city of Chongqing announced that Sun Zhengcai, the city’s top official, was being replaced and was being investigated, a person familiar with the matter said. A second person corroborated the investigation. No further details of the investigation were given, the people said. State media announced Mr. Sun’s removal Saturday but didn’t provide a reason or mention an investigation. Replacing Mr. Sun as Chongqing’s party secretary is Chen Min’er, who was party chief for the southern province of Guizhou, state media reported….

According to a state-media report, Mr. Chen told attendees that “firmly protecting General Secretary Xi Jinping’s core status” should be their top political priority…..

Mr. Sun, named Chongqing party chief in late 2012, was tasked with cleaning up Mr. Bo’s legacy. His efforts were recently deemed inadequate by the party’s disciplinary agency, which in February criticized Chongqing authorities for failing to eradicate Mr. Bo’s “lingering pernicious influence” and curb corruption in local bureaucracy and business……

….. Some party insiders have said Mr. Xi may also be trying to block promotion of anyone who could be seen as a potential successor—a move that would enhance his authority and boost his chances of remaining in office after his second term expires in 2022.”


My comment: I suppose any resemblance to the recent Wall Street Journal story on how Prince Nayef was deposed in Saudi Arabia is purely coincidental)

(23)  “The humour has been lost on China’s government, which is wary of any discussion of its leadership in the run-up to this autumn’s 19th National Congress of the Communist party. The once-in-five-years event will bring a potentially tricky handover of power at the top of the party.”


Liu Xiabo

(24)  “To understand the ruthless authoritarian logic behind Beijing’s treatment of Liu is not to excuse or condone it. But it is important for people outside China to understand it, especially as China becomes more prominent and active on the world stage.

This is how Liu himself put it in 2006: “Although the regime of the post-Mao era is still a dictatorship, it is no longer fanatical but rather a rational dictatorship that has become increasingly adept at calculating its interests.”

In calculating those interests, the regime has decided that it was safer to turn Liu into a martyr than to allow his ideas to spread unchallenged. This conclusion is probably correct in the short term.”

(Source: – Jamil Anderlini on the death of Liu Xiabo)

(25) Bilingual tribute from the Taiwanese President:


(26) Carrie Grace in BBC: ‘Liu Xiaobo: The man China couldn’t erase’

“To make it hard for family and friends to visit, he was jailed nearly 400 miles from home. His wife Liu Xia was shrouded in surveillance so suffocating that she gradually fell victim to mental and physical ill health.”


(27) An excellent tweet from a Hong Kong resident Ilaria Maria Sala. She was born in Italy, grew up in Bologna and Florence, and now lives in Hong Kong, where she writes about China. She studied at the School of Oriental and African Studies, Beijing Normal University, and Beijing University. She is a winner of the Bruce Chatwin Award for travel literature for Il Dio dell’Asia: Religione e Politica in Oriente: Un Reportage, a book of travel features about religion.)

“I’m no fan of Trump. But we’ve been so busy looking at ways to shame him that we even wrote China was now the “grown up” “responsible” one.”


(28) Her tribute to Liu Xiabo:

“Far from being the personal sorrow of a friend taken so gravely ill after years of hardship, this is China’s sorrow, too. It has an obsession with control so strong that it is rendered incapable of celebrating its most inspiring people, and of cherishing the wealth that sparks from free minds, free thinking, and diversity.”


(29) A searing tweet by Chris Balding:

One Nobel Peace winner who died for his win hasn’t even received words from a man who didn’t deserve his @BarackObama


Who is Sushil Aaron and why is this post dedicated to him? See here for clues.

[postscript: The Indian Censor Board is embarrassing itself and the Indian government. See here.]

Shame offensive

Neville Maxwell makes no attempt to hide his distaste for India. But, what is amusing is that he does not take into account contextual evidence of China’s behaviour towards other countries in the region, in the last several years.

See this brief from Singapore-based Institute of Southeast Asian Studies on the exclusion of the Thailand Prime Minister from the Belt and Road summit.

This story suggests that the standoff between India and China near the tri-border with Bhutan is more a pressure on India to accept changing realities. That is realistic, compared to the Maxwell story above. But, are the realities really changing?

Frankly, China’s economy is far from healthy. It is brittle and vulnerable. Big time. It is overestimating its strength and underestimating American resilience, in my view.

STCMA – 19 July 2017

(1) Shock rise in China’s shadow banking enrages Xi Jinping. Quite why it should be shocking is unclear to this blogger. The interesting tidbit in the story is this:

… the shadow banking nexus is bigger than all other regular activities of the lenders put together. Regulators had thought it was equivalent to 42% of on-balance sheet business at the end of 2015. They have revised this drastically, admitting that it reached 110% by the end of last year.

(2)  Have the Economic Constraints on China’s Geostrategic Ambitions diminished? That is an interesting question to ask. But, as Brad Setser note,s there is room to disagree with the author’s recommendations.

(3) Headlines that tell the story together. No need for lengthy analysis

China’s Xi orders debt crackdown for state-owned groups [Link]

Chinese purchases of overseas ports top USD20bn in past year [Link]

(4) Barry Eichengreen on the 20th anniversary of the Asian crisis:

… if the emergence of China signifies how much has changed, it is also a reminder of how much remains the same. China is still wedded to a model that prioritizes a target rate of growth, and it still relies on high investment to hit that target. The government maintains liquidity provision at whatever levels are needed to keep the economic engine humming, in a manner dangerously reminiscent of what Thailand was doing before its crisis.

Because China’s government relaxed restrictions on offshore borrowing faster than was prudent, Chinese enterprises with links to the government have high levels of foreign debt. And there is still a reluctance to let the currency float, something that would discourage Chinese firms from accumulating such large foreign-currency-denominated obligations.

China is now at the same point as its Southeast Asian neighbors 20 years ago: like them, it has outgrown its inherited growth model. We have to hope that Chinese leaders have studied the Asian crisis. Otherwise they are doomed to repeat it.

(5) The real Takeaways from the weekend meeting in China:

(i) Support the real economy
(ii) reduce lending costs for the real economy
(iii) relegating financial opening up and currency reforms to the backburner – no more liberalisation. Concern over capital flows dominates.

The rest is all smoke and mirrors.

(6) Singapore blinks. [Link]

(7) Bill Gates cautions Europe on its open door immigration policy. Good stuff from the man. Speaking the truth.

(8) China’s Growth masks Unresolved Debt and Real-Estate Problems. Who knew?

(9) California confronts solar power glut with novel marketplace

(10) Conviction of former President of Brazil. I think Brazil is doing a far better job of cleaning up its politics than many other countries, including the so-called developed countries.

Same old, same old

From Gavyn Davies’ blog on July 9:

The main impetus for the sudden rise in the growth rate in the AEs [Advanced Economies] in the past 18 months has probably come from the demand side of the global economy. Both fiscal and monetary policy have been accommodative in 2016-17, and financial conditions have been very supportive of demand, even in the US where the Federal Reserve has been raising short term interest rates. [Link]

After six years of pulling on a string, some reaction from the demand side coming from financial conditions turning looser. This does not presage a sustained supply-side response.  It is unsustainable and unbalanced.  Needless to add, unhealthy, too. Policymakers do not appear to have absorbed the lessons of the pre-2008 boom. What about analysts and economists?

Not much to show, I am afraid. The inability of Martin Sandbu to learn from history – recent or distant – and his extraordinarily consistent record of ignoring empirical evidence, marks him out as a quintessential modern economist.

Apparently, Claudio Borio of BIS and the latest BIS annual report (released on June 25, 2017) talk of an extended financial cycle that central banks must respond to. I am yet to read the BIS Annual Report. But, not surprising, coming from BIS. This blogger is aligned with that. But, the Federal Reserve and the European Central Bank are ignoring that warning. As before. Yellen’s testimony on July 12 was inexplicable, to this blogger. My column in MINT tomorrow has a slightly more detailed take on that.

Same old, same old stuff from central banks but the next crisis may not be same old, same old.


At the BRICS Forum in Shanghai

Eighteen days – 5 in Chennai, one in Bangalore, one in Delhi, 3 in Madurai, 2 in Munnar, 2 in Coimbatore and 4 in Shanghai. Back in Singapore on 14th July. Difficult to start somewhere. LIFO.

Close your eyes to Chinese signage in Shanghai and walk, it is a European city. Well-manicured lawns, tree-lined streets, cleaned regularly, high rises and international brands. Impressive. Forgot that they drive on the right side of the road and use American English! Last visit was in 2010 . So much for America’s declining power. Pudong airport itself was not particularly impressive for me. Changi is better. Pu-dong and Pu-shi simply refer to the western and eastern shores of the river Huangpu. My Indian friend who has been living there for seven years told me. He said that the local governments in big cities were mostly efficient and that one did not have to enter police stations with trepidation. The city was a sauna. My friend said it was so only in July and otherwise much pleasant. Daybreak occurred early enough but not as in European cities in summer. It was daylight at 5 AM.

On the road, Shanghai drivers stop for red light even during late evenings and in early mornings. But, they do not wait for pedestrians to finish crossing. Shanghai airport has provided enough counters to check passports and also security points to get passengers moving. It has already become a bottleneck in Mumbai airport. The passport control and security checks have long lines and waiting times there. I traveled from Coimbatore to Shanghai via Mumbai and Hong Kong. I had to beg every one in the line to let me move to the front of the queue as, otherwise, I would have missed my Cathay Pacific flight in Mumbai to Hong Kong.

I had gone there to attend the BRICS related round-table organised by the Shanghai Institute of International Studies and a public event organised by the local government of Shanghai with support from the Ministry of Foreign Affairs in Beijing. Two speeches and one panel discussion. Pushed my hosts to think of why America mattered and why China and Asia have committed the same mistakes that are making them predict the decline of the West. Some nodded in private. A newspaper report on my speech omitted those details. Some foreigners – consular officials of South American nations stationed in Shanghai – lauded the speech. May be, they were polite. My hosts were courteous and polite. I was representing the Gateway House in Mumbai. I am a Senior Adjunct Fellow for Geo-economic studies with them.

That I was a Singapore national of Indian origin gave me cover to drive home some unpleasant facts. They did not raise the Doklam standoff with me, except for one. In general, the feeling one got was that they were a bit overconfident now of their standing. No doubts were raised on ‘One Belt-One Road’ (OBOR) by anyone. Brazil was well represented at the round-table. They were feisty. That is all I can say. Good for them.

Did not realise that Google Mail and google could not be accessed. I am not on Twitter or Facebook. So, that did not bother me. But, in some places, Gmail mails downloaded. Don’t know how. Foreigners use their own Virtual Private Network (VPN) to overcome the official firewalls. But, apparently, it is a cat-and-mouse game with the authorities. The WiFi at the hotel was weak, however. Foreigners can own satellite dishes and watch foreign channels. Locals get to watch CCTV.

I did not get the impression that China was cooling off on BRICS. On the contrary, I think, they find uses for it. It provides them a platform to pursue bilateral power agendas under a multilateral cover. Then, they can always intimidate (or seduce) their relatively smaller powers within the BRICS group.

Samir Saran had said this about Russian attitude towards China:

Still, never in their wildest dreams would China’s leaders have imagined the servility Russia is now demonstrating.

A Russia that once killed the opportunity to integrate with Western Europe because Moscow was unwilling to play anything less than ‘big brother’ now seems willing to play second fiddle to the Chinese dragon. Such was the level of kowtowing to China’s ambitions and agenda that many at the track II meetings over the past couple of months remarked that Russia had officially replaced South Africa as China’s ‘B Team’ within BRICS.

One Russian proposition went so far as to suggest that the New Development Bank (NDB; a joint BRICS development bank but one which is strongly influenced by Beijing) must support and lend to the Chinese One Belt One Road initiative. This was reminiscent of the concentration of all financial flows in the past century serving to reinforce US power.

There is room for disagreement with the equivalence he draws between the financial flows to the USA and Russia’s proposal to have the NDB fund OBOR. But, this is not the occasion to debate that.

On the Doklam standoff between India and China involving Bhutan, Jeff Smith in ‘War on the Rocks’ has a very comprehensive piece. Worth reading. For Indian perspectives, I recommend Shyam Saran, Brahma Chellaney, Siddharth Singh and Nitin Pai. For Chinese perspective, you always have the ‘Global Times’.

Will write on the other fourteen days of this sojourn separately.