CHINAMacroReporter

'Are you tired of losing yet, America?'

As I write this, Taliban forces have entered Kabul and are reportedly occupying the Presidential Palace.
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CHINADebate

August 15, 2021
'Are you tired of losing yet, America?'

1 | ‘Are you tired of losing yet, America?’

As I write this, Taliban forces have entered Kabul and are reportedly occupying the Presidential Palace.

  • Should the U.S. have withdrawn from Afghanistan? Probably.
  • Should it have done so with such poor planning and faulty intel? Not at all - this is one more humiliation of America and a disservice to the people of Afghanistan.

In Chinese media, there are headlines that read:

And these are no doubt accurate.

  • Taiwan isn’t Afghanistan. But Taipei nonetheless should begin wondering anew just how the U.S. would react to an unprovoked Chinese invasion or, more likely, ‘salami-slicing’ tactics such asa grabbing an outlying island, a blockage, cyberwarfare, and the like, to force Taiwan to capitulate. I am.

A friend of mine called a few minutes ago and said, ‘Mr. Xi hoped to reunite Taiwan within ten years. Now it’s ten days.’

  • An exaggeration that holds a truth we should all be concerned about. I am.

In the Financial Times, Gideon Rachman writes:

  • ‘So how does America’s defeat in Afghanistan — in reality, a defeat for the entire western alliance — play into the growing rivalry between Washington and Beijing?’
  • ‘The US failure makes it much harder for Biden to push his core message that “America is back”.

‘By contrast, it fits perfectly with two key messages pushed by the Chinese (and Russian) governments.’

  • ‘First, that US power is in decline.’
  • ‘Second, that American security guarantees cannot be relied upon. If the US will not commit to a fight against the Taliban, there will be a question mark over whether America would really be willing to go to war with China or Russia. Yet America’s global network of alliances is based on the idea that, in the last resort, US troops would indeed be deployed to defend their allies in Asia, Europe and elsewhere.’

The FT’s Editorial Board writes:

  • ‘A desire in the White House to wrap up nagging foreign policy problems so it can focus on China is understandable.’
  • ‘But the abandonment of Afghanistan raises doubts over the depth of US commitment to supposed allies, and its determination to see military entanglements through to the bitter end.’
  • ‘As one of the north Atlantic alliance’s biggest and most costly foreign policy priorities of this century implodes, those lessons will not be lost on Beijing.’

And of course this show of weakness makes it that much harder for Mr. Biden to deal with China.

  • Xi, when he says, ‘The West is declining, and the East is rising,’ is slowly beginning to persuade even me.

Deeper discussion of the issues surrounding the fallout of the U.S. defeat in Afghanistan are, for me, on hold now.

  • Today I can’t get beyond notions of America’s incompetence and of the impact of that incompetence on the lives of the Afghans who got a notion of freedom only to have it ripped from them, especially on the lives of the women of Afghanistan.

Candidate Trump asked if Americans are tired of losing yet.

  • As much as I disdain Mr. Trump and the damage he inflicted and is inflicting on our democracy, I can say to him, yes, I am tired of America losing.

2 | 'Xi’s Dictatorship Threatens the Chinese State'

George Soros, in 'Xi’s Dictatorship Threatens the Chinese State' The Wall Street Journal [excerpts below], sums up the impact of Xi Jinping’s personal experience and ambitions on China.

  • Two points struck me as especially insightful:

The first explains what seems to be Mr. Xi’s fraught relationship with Deng Xiaoping’s legacy.

  • Xi came to power in 2013, but he was the beneficiary of the bold reform agenda of his predecessor Deng Xiaoping’
  • ‘Mr. Xi failed to understand how Deng achieved his success.’
  • ‘He took it as a given and exploited it, but he harbored an intense personal resentment against Deng.’
  • ‘He held Deng Xiaoping responsible for not honoring his father, Xi Zhongxun, and for removing the elder Xi from the Politburo in 1962.’
  • ‘Xi Jinping devoted his life to undoing Deng’s influence on the development of China.’

The second, although often commented on, is shown here in the context of Mr. Xi’s bid for a third term.

  • ‘Mr. Xi intends to overstep the term limits established by Deng, which governed the succession of Mr. Xi’s two predecessors, Hu Jintao and Jiang Zemin.’
  • ‘Because many of the political class and business elite are liable to oppose Mr. Xi, he must prevent them from uniting against him.’
  • ‘Thus, his first task is to bring to heel anyone who is rich enough to exercise independent power.’
  • ‘Mr. Xi is engaged in a systematic campaign to remove or neutralize people who have amassed a fortune.’

As for the impact on financial markets, a prominent hedge fund manager just wrote me with these comments on Mr. Soros' piece:

  • ‘Starting with last fall’s attacks on Jack Ma and Ant, Beijing has clamped down on Chinese companies more than 50 times and has just released a sweeping economy-wide 5-year regulation blueprint [more on that below].

‘Here are the 4 big implications from Soros’ op-ed:

  1. Chinese domestics and foreign multinationals in China will see their profits squeezed.
  2. China’s long-run growth potential will shift down.
  3. The increasingly hostile Chinese business environment gives U.S. manufacturing renaissance theme a booster shot.
  4. Emerging markets too tied to China are vulnerable.

3 | ‘Implementation Outline for the Construction of a Government under the Rule of Law (2021-2025)’

‘China released a five-year blueprint calling for greater regulation of vast parts of the economy, providing a sweeping framework for the broader crackdown on key industries that has left investors reeling,’ reports Bloomberg [excerpts below].

‘Investors have been dumping shares of sectors that receive criticism in state media, from digital gaming and e-cigarettes to property and baby formula.’

  • ‘They have been seeking to make sense of a regulatory onslaught in recent weeks that has roiled markets.’
  • ‘ Some analysts welcomed the blueprint as an attempt by Chinese authorities to help investors understand the motives behind the regulatory push.’

‘ “A five-year term to the crackdown at least gives definition to the time extent of the regulatory reset,” Gary Dugan, chief executive officer at the Global CIO Office.’

  • ‘ “However, it will be a long time for investors to fret about pending changes.” ’

‘ “We can’t draw too much insight about enforcement and the potential shape of crackdowns from one document or another,” said Graham Webster, who leads the DigiChina project at the Stanford University Cyber Policy Center.’

  • ‘ “Much depends on what bureaucrats and their higher-ups land on in terms of priorities month after month.” ’

Um, so just how much is this going to help investors and business execs figure out which sectors Chinese regulators are going to target and how?

  • Sound like not as much as they would like or need to invest comfortably or reliably.

4 | China Economy Update

In its latest Global Cycle Note [excerpts below], CreditSuisse reports that:

  • China’s industrial production troughed -10% in June. That’s the lowest growth rate since 1998.
  • ‘Despite this, underlying demand should remain resilient and growth-friendly policies will likely be enacted, which would lead to a momentum upswing in Q3.’

But China is not alone: ‘Global industrial production hit two sharp supply shocks in the early summer.’

  • ‘The first was a renewed COVID surge in several countries with low vaccination rate.’
  • ‘The second was a further disruption to the automobile industry’s supply chains cause by semiconductor shortages.’
  • These supply shocks have driven Creditsuisse’s global estimate to -2.1%, near the lows of the 2019 trade war and the 2012 euro crisis.

One sector to watch (one that you should always watch): ‘Demand for housing appears to have slowed.’

  • ‘The risk of substantial weakness that poses a major risk to overall economic growth has risen.’
  • ‘Net new mortgage borrowing declined to the lowest level since last spring, and building sales have plateaued.’
  • ‘New purchase restrictions and the expectation of future property taxes have limited home purchases for investment purposes.’
  • ‘Leverage restrictions for home builders have reduced construction and caused credit standards to tighten for the sector.’

More

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