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.

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.

448 million social media comments and other STCMA – 24 June 2017

The retreat of the Renminbi. Quite. The image of the Global Payment Currency rankings is telling. Danish Krone has a bigger share than Renminbi. Strategically sound advice from Shyam Saran not to assume that Renminbi’s onward international march is dead but factually incorrect. Article behind paywall.

Anjana Trivedi of WSJ calls it a ‘The Onion’ Headline. I have to agree.

A very good tweet:

Until China willing allow failures and losses, deleveraging campaign should be taken as seriously as any Democratic congressional campaign [Link]

James Mackintosh tweeted this:

Lovely Deutsche Bank chart of over-optimistic economists’ predictions for 10-year bond yield. Average 12-month forecast error: 60 basis points too high. [Link]

Two great tweets by James Kynge of FT

MSCI’s China A-share choice was between relevance and governance. Like many seduced by China dream, they chose former…. [Link]

…. And will come to regret the lack of the latter [Link]

His articles on the MSCI including China A shares in its index on the China Banking Regulatory Commission asking Chinese banks to reduce their exposure to China’s corporate cowboys (ambitious overseas acquirers) are worth reading. Could be behind paywalls, though.

Chris Balding’s blog post on the both these topics is worth a read too.

It is all about free cashflows in these Chinese corporate cowboys or, more precisely, the lack of it.

Chris Balding tweeted, while commenting on this blog post at PIIE.

“How brutally misleading and worthless a blog post by @PIIE. Look at all the products that aren’t even allowed in so don’t have a tariff rate​” [Link]

I guess we all know where PIIE stands with respect to China.

From the abstract of the forthcoming paper by Gary King of the Harvard University and co-authors:

We estimate that the (Chinese) government fabricates and posts about 448 million social media comments a year. [Link]

After Moody’s, now S&P also threatens a downgrade of China’s sovereign credit rating. Currently, it stands at AA- with a negative outlook.

China’s capital controls put real estate developments in Johor at risk, as most of them bet on the Chinese buyer.

A great article in ‘Australian Financial Review’ on Malcolm Turnbull becoming a China hawk from being a Panda hugger. You must be lucky to catch it. A question that came up in the head is why these leaders have to learn this all by themselves, all over again, when there is so much history and evidence?

The answer, my dear mind, is “They are not stupid. Their incentives are differently aligned and the cost benefit calculus of pursuing those incentives keeps shifting all the time.”

Chinese loans may put Bangladesh in a debt trap.

The economists who wrongly predicted a decline in healthcare costs for American families under Affordable Health Care are still at it, with dire predictions and interpretations of the Republican new Senate Bill. Here is an article from 2013 on how their predictions of declining health care costs turned out.

Avik Roy explains here how the Senate version improves up on the House version of the Health Care bill while keeping health care afforable.

Greg Ip gives the thumbs up to the Trump team banking proposals.

According to Zerohedge,  Israel deployed fighter jets to help prevent a coup in Saudi Arabia on the announcement of succession that replaced the present crown prince with the King’s son. Strange world.

Interesting article on how Jokowi in Indonesia is rebooting his Presidency before the 2019 elections after his ally and ex-Jakarta Governor had been sent to jail for blasphemy against the Koran.

Technology, jobs and societies are my favourite and anxious topics. These two links make me wonder whether we can ever become sensitised to the dangers of what we consider progress and development.

This is a review of Dan Drezner’s book, ‘The Ideas Factory’ by Edward Luce in FT.  These lines explain the problem of jobs and technology linked above:

The optimal talk, particularly for Ted, which serves as an advertising platform for paid speaking, is to focus on what Evgeny Morozov, a critic of Silicon Valley, describes as the “cyber-whig” view of history: the belief that technology is carrying us upwards.

“Find some peculiar global trend — the more arcane, the better,” Drezner quotes Morozov saying. “Draw a straight line connecting it to the world of apps, electric cars and Bay area venture capital . . . Mention robots, Japan and cyber war. Stir well. Serve on multiple platforms.”

STCMA – 20th June 2017

Consistent with this blog’s tagline, Niall Ferguson raises an important question but does not provide an answer – he cannot – on whether political polarisation can induce more violence in America.

Public protests force HK Government to drop the arrest of a 75-year old woman who was hawking cardboard boxes without a hawker’s license.

Australian housing mess is about a decade later (or longer) than that of US housing. But, it is big or bigger? Two important articles from Bloomberg with useful charts. Here is the press release from Moody’s downgrading Australian banks. Key sentence:

The household sector’s resilience to weaker employment levels and/or rising interest rates has materially reduced.

MINT has some good charts on India’s declining computer services exports. Of course, that is not the same as IT Enabled Services.

A ‘European Central Bank’ working paper gives the ‘thumbs up’ to its Asset Purchase Programme. While one thought sclerosis was a European problem, in recent months, it has given way to hubris.

In an article purportedly about the effect of demonetisation on inequality, the author makes the breathtaking claim that unconventional monetary policies of advanced nations have reduced inequality. He cites no evidence. He cannot, because there isn’t any. Bank of England discussion paper, Andrew Haldane’s speeches, John Kay’s articles argue the opposite case and present evidence.

Sundeep Khanna offers a bizarre logic to resume cricket matches in Pakistan:

Terrorism looks constantly for the next soft target and if we keep on declaring every new target as out of bounds for normal life, very soon, we will be left with only the playing fields of Siberia. [Link]

Did ICC stop awarding cricket matches for Pakistan to host because it was a target of terrorism or because it was a hotbed of terrorism? In any case, what connection does it have with Pakistan’s victory in the Champion’s Trophy? Read my take on the Pakistan’s victory here.

Former HSBC Economist Stephen King has a new book out called, ‘Grave new world’. Interesting title. His conversation with BBC’s ‘Hard Talk’ is here. This book title has been used, it seems, before. I do not know if anyone would sue him for the title.

STCMA – 17th June 2017

A good piece on why the State cannot be dispensed with even as one clings to the Constitution. My friend Niranjan had tweeted that the point needed to be made. TCA Srinvasa Raghavan had retweeted it. That is how I located the article. The point below has been my favourite too:

But our urban elite and liberal class, whose entire existence is made possible only because of the relative stability and security provided by the existence of the Indian state, somehow manages to delude itself in believing that it can do away with it! [Link]

Thanks to the twitter handle of Ravi Velloor, I saw this article. It makes a point that needs to be made, as in the above case. The West has acquiesced in the rise of China and its current geopolitical ambitions. Even now, American elites are chasing the wrong target: Russia – and in the process driving it into the embrace of China, making the latter stronger, leaving countries like India, Singapore, Japan and Australia in a quandary. Trump has not turned out to be the ‘swamp drainer’ that he claimed he was.

The three-part series of articles from ‘The Age’ on the rising political influence of China in Australia are a MUST READ. See here, here and here.

James Dorsey’s piece for RSIS in NTU Singapore on the conflict in the Persian Gulf is a good and quick read.

Mohamed El-Erian is bang on target on the well-timed remarks by Bullard of the Federal Reserve Bank of St. Louis that assuaged the stock market. He is right. The Federal Reserve has been BFF for the stock market.

The woes of the once high-flying Anbang Insurance are multiplying or deepening or both and it is interconnected. Possible that someone somewhere has bitten off more than the country could chew.

This Chinafile conversation on how America respond to the ‘world’ deserting Taiwan is an important read. All the panelists call for supporting Taiwan, but in different ways. Will America be up to it? With President Trump, one is never sure.

In case, we had forgotten, the famous Document 9 of the China Communist Party – a communiqué circulated within the Party by its General Office in April, and, because they constituted the ninth such paper issued this year, have come to be known as “Document 9. The preface claims that whether Document 9 was the expression of one faction or that of the central Chinese leadership itself was uncertain. I wonder why. The document says the following:

This notice “A Communiqué on the Current State of the Ideological Sphere” has been approved by the central leadership, and is herewith distributed to you. Please thoroughly implement its suggestions. [Link]

The last paragraph is important:

Conscientiously implement the “Decision of the Standing Committee of the National People’s Congress on Strengthening Information Protection on Networks,” strengthen guidance of public opinion on the Internet, purify the environment of public opinion on the Internet. Improve and innovate our management strategies and methods to achieve our goals in a legal, scientific, and effective way. [Link]

The highlighted portions are gems. The link to ‘Document 9’ came out of the Chinafile conversation on Australia’s debates on China’s influence.

India’s May trade figures are concerning. Gold imports are again surging. Merchandise trade deficit has an annual run rate of close to 7.5% of GDP.

For students (and teachers) of economics, this blog post by Brad Setser on why exchange rates matter will be both interesting and useful.

China’s foreign exchange reserves swelled by USD24.0bn in May, according to official data. But, Goldman Sachs economists wrote that foreign exchange outflows were USD21.0bn in May on top of USD13.0bn in April. See here. I verified it by checking the Goldman research.

Lee Camp’s take-down of New York Times and its shameful attempt to portray him as a lackey of Russia is a MUST READ. He is the creator, host, and head writer of the comedy news show “Redacted Tonight with Lee Camp” that airs every Friday on RT America and at He’s a former comedy writer for the Onion and the Huffington Post and has been a touring stand-up comedian for 18 years. The implications are scary.

Quite a few friends have sent me the link to the YouTube video of Jim Rogers. He warns of a coming crash that could be ‘the worst in life time’. If you are interested in this sort of stuff, you must read what I published in

Peggy Noonan’s piece on rage being the rage in America is a MUST READ. Could be behind a paywall, though. Frankly, the place is a live fuse.

Read Scott Greer on the shootings at the Congressional Baseball practice session.

China, the global leader (?) and other links

From Professor David Shambaugh in Bloomberg:

It is far from certain that the country possesses the moral leadership, based on universal values, to become a truly global leader….Its human-rights record and political system only inspire other autocrats. At its root, China’s problem is that it is sui generis — a unique country whose domestic attributes do not travel well beyond its borders. [Link]

This may be from 2015 but David Shambaugh had linked to this in his article. How the public in Asia-Pacific view other countries in Asia-Pacific. Funny that India views China far more favourably than Chinese do of India!

Malaysia, Pakistan and Indonesia have a more favourable rating of China than of India. Oh, well! Money talks and what else? India can do a better job with Indonesia and it might be worth the effort.

Elizabeth Economy on the good, bad and the ugly in China as the global leader in climate change. Important to note that coal based power plants might be shut down but coal fired chemical plants are on the rise and, second, China is building coal based power plants in other countries.

Billionaires, academics – everyone is assisting the Chinese government in its investigations:

Anbang Insurance Group Co. said Tuesday that Wu Xiaohui — its chairman, and one of China’s most aggressive overseas dealmakers — was unable to perform his duties for personal reasons. Caijing Magazine, a reputable finance and business publication, said he was taken away for questioning. [Link]

This is amusing: China allegedly has found that two more provinces are faking economic data. Who will blow the whistle at the national level?

Michael Power of Investec has an article in FT on a familiar theme of the decline of the West and more. He says that democracy played political host to capitalism in the 20th century but the financial demands placed on capitalism by democracy might be proving too much to bear. That is an interesting point but his allied conclusion that the East would therefore dominate the West is still premature for the following reasons:

He may be right about the diminishing salience of democracy for Western capitalism and of the decline of the primacy of the United States. On the latter, there is always the risk that observers give an excessive weightage to short-term as opposed to long-term trends. But, we can, for now, give the benefit of doubt to them on that aspect. But, it does not mean that the centre of gravity is shifting to the East. Almost all the problems of the West are there in the East and more – debt, demographics, climate change. On top of that, Asia faces a looming water crisis that other continents do not. Second, Asia has a big wounded (perceived or real) civilisation in its midst – China – and it is keen to recapture its ‘deserved’ position at the top of the pecking order. Conflicts are more likely than not in Asia, on account of that.

Culture of technology and innovation are yet to take roots in Asia for it still has more respect for order, hierarchy than for iconoclasts, even in science and technology. ‘Face’ is still more important than solving problems.

Asia lost its pre-eminence when labour saving technologies began to dominate the economic landscape from the eighteenth century onwards. It has not regained its mojo and it is unlikely that it would, in our life times.

Barely has the ink dried on the commentary that the People’s Bank of China is tightening liquidity and that the yield curve in China has inverted, comes the news that Beijing

is encouraging more potentially reckless borrowing. This week, the regulator put pressure on the country’s big banks to lend more to small companies and farmers, while the government announced tax breaks for financial institutions that lend to rural households. That follows recent guidance that banks should set up “inclusive finance” units. [Link]

Barry Ritholtz says here that the American President has never encountered a situation that he could not make it worse. A hard-hitting article.