China Macro Reporter
1. China’s slowing economy not caused by trade war

<tr><td class="bg-holder"><img width="100%" src="" alt="CHINADebate"></td></tr><tr><td class="nl-post"><p class="caption">James Kynge | FT</p><p class="excerpt">&lsquo;China's GDP slow down to 6.2% in the second quarter down from 6.6% in all of last year is not primarily the result of the trade war.&rsquo;</p><p><strong>&lsquo;China's economic growth</strong> slowed to its lowest level in nearly 30 years in the second quarter of this year,&rsquo; say the FT&rsquo;s&nbsp;China editor James Kynge in a great 2m video <a href="" target="_blank">&lsquo;Why China's own economy trumps the US trade war.&rsquo;</a></p><ul><li><strong>&lsquo;Donald Trump</strong> claims that this shows his trade war policies are hurting Beijing.&rsquo;</li></ul><blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">....with the U.S., and wishes it had not broken the original deal in the first place. In the meantime, we are receiving Billions of Dollars in Tariffs from China, with possibly much more to come. These Tariffs are paid for by China devaluing &amp; pumping, not by the U.S. taxpayer!</p>&mdash; Donald J. Trump (@realDonaldTrump) <a href="">July 15, 2019</a></blockquote><script async src="" charset="utf-8"></script><ul><li><strong>&lsquo;But in reality</strong> the situation is far more complicated.&rsquo;</li><li><strong>&lsquo;China's GDP</strong> slow down to 6.2% in the second quarter down from 6.6% in all of last year is not primarily the result of the trade war.&rsquo;</li></ul><p><strong>&lsquo;Of course,</strong> the tit for tat tariffs have hit trade.&rsquo;</p><ul><li><strong>&lsquo;China's exports</strong> to the U.S. fell 7.8% in June and US exports to China slumped 31%.&rsquo;</li></ul><p><strong>&lsquo;But such numbers,</strong> although stark have little impact on the broader Chinese economy.&rsquo;</p><ul><li><strong>&lsquo;In truth</strong> net exports contribute less than 1% of China's total GDP.</li></ul><p><strong>&lsquo;China&rsquo;s slowdown</strong> has been created overwhelmingly by domestic drivers that have little to do with US policy.&rsquo;</p><ul><li><strong>&lsquo;The main drags</strong> on Chinese dynamism come from weakening investment in infrastructure, slowing industrial output, and a decline in the construction of new houses.&rsquo;</li><li><strong>&lsquo;All of these weaknesses</strong> derive from domestic sources rather than from the trade war.&rsquo;</li></ul><p><strong>&lsquo;And in any case,</strong> China remains by far the world's most vibrant economy, even growing at its lowest level in 30 years.&rsquo;</p><ul><li><strong>&lsquo;It is still on track</strong> this year to add more than 1. 4 trillion US dollars in value.&rsquo;</li><li><strong>&lsquo;That for context</strong> is bigger than the entire Australian economy.&rsquo;</li></ul></td></tr>

2. China’s economy doing better than latest numbers

<tr><td class="embed-responsive embed-responsive-16by9"><iframe class="embed-responsive-item" src=""></iframe></td></tr><tr><td class="nl-post"><p class="caption">Leland Miller | CEO, China Beige Book.</p><p class="excerpt">&lsquo;When an official data catches up with our data that you may see some upside surprises later in the year.&rsquo;</p><p><a href=""><strong>Leland Miller</strong></a> is CEO of the <a href="" target="_blank"><strong>China Beige Book</strong></a>.</p><ul><li><strong>The China Beige Book</strong>&lsquo;provides independent data and in-depth analysis on&nbsp;every key component of China&rsquo;s diverse economy&mdash;from growth dynamics to labor market and inflation trends to the world&rsquo;s only tracker of the credit environment and shadow banking.&rsquo;</li><li><strong>Leland</strong> gave his comments in a <a href="" target="_blank">Bloomberg video interview</a>.</li></ul><p><span class="h5p" style="color:#c80000">Q: &lsquo;6.2% - do we believe it?&rsquo;</span></p><p><strong>Leland Miller: &lsquo;We absolutely</strong> do not believe it &ndash; the numbers are too low. We're seeing much better metrics in our China Beige Book data than China is reporting.&rsquo;</p><ul><li><strong>&lsquo;China Beige</strong><strong>Book </strong>collects from over 3,300 Chinese firms, so it's a very big database nationally.&rsquo;</li></ul><p><strong>&lsquo;China's GDP data</strong> is, is never accurate. There's a lot of reasons, but it's not always political manipulation.&rsquo;</p><ul><li><strong>&lsquo;A lot of is simply lag</strong> - it takes a long time to collect the data.&rsquo;</li></ul><p><strong>&lsquo;But when the Chinese</strong> see a particularly problem period in the economy like the Q4 2018 they don't want to show that the growth indicators have fallen off a cliff.&rsquo;</p><ul><li><strong>&lsquo;So they smooth it out,</strong> they spread the weakness to later.&rsquo;</li><li><strong>&lsquo;A lot of what</strong> you're seeing reported right now is weakness that we saw Q4 2018.&rsquo;</li></ul><p><strong>&lsquo;So the major sectors</strong> are actually doing better than is being reported right now.</p><ul><li><strong>&lsquo;Or, in other words,</strong> the latest reports are reflecting what's happening better than the ones of a few weeks ago.</li></ul><p><span class="h5p" style="color:#c80000">Q: &lsquo;What other data indicators</span> can you look to give you a better idea of what's going on?&rsquo;</p><p><strong>Miller: &lsquo;Separately</strong> you need to look at credit.&rsquo;</p><ul><li><strong>&lsquo;For some</strong> of the official credit indicators, it takes a long time for certain developments to filter in to the government data.&rsquo;</li><li><strong>&lsquo;China Beige Book</strong> has showed an extremely active credit environment for all of 2019 - there's a lot more credit going out.&rsquo;</li><li><strong>&lsquo;The Chinese</strong> are a much more aggressive right now than people think.&rsquo;</li><li><strong>&lsquo;So it shouldn't</strong> surprise people that more growth is going to come from it.</li></ul><p><strong>&lsquo;But here's</strong> the problem.&rsquo;</p><ul><li><strong>&lsquo;Every time</strong> the Chinese do what they're doing right now, they're kicking the can down the road.&rsquo;</li><li><strong>&lsquo;It means</strong> they're putting a lot of their credit into riskier and riskier borrowers.&rsquo;</li><li><strong>&lsquo;They're getting</strong> a worse return on investment.&rsquo;</li><li><strong>&lsquo;That means</strong> growth is going to slow more in the future.&rsquo;</li><li><strong>&lsquo;So they're creating</strong> major obstacles to be able to fix this next year and the year after.&rsquo;</li></ul><p><strong>&lsquo;There's a lot</strong> of corporate credit provision in the economy that people don't understand, so we're not looking for this falloff in growth.&rsquo;</p><ul><li><strong>&lsquo;When we're looking at 2019,</strong> I think people have bought into too much this China is falling off a cliff narrative.&rsquo;</li><li><strong>&lsquo;If you read</strong> the average investor note in Wall Street though any signs of good news causes a blip, I don't think that's right.&rsquo;</li><li><strong>&lsquo;We&rsquo;re seeing</strong> a lot more strength in our China Beige Book data than you are an official data right now. And that's because it hasn't flown through.&rsquo;</li><li><strong>&lsquo;When an official data</strong> catches up with our data that you may see some upside surprises later in the year.&rsquo;</li></ul></td></tr>

3. ‘China’s global business footprint shrinks’: China Global Investment Tracker (CGIT)

<tr><tr><td class="pdf-container"><iframe src=";embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr><tr><td class="nl-post"><p class="caption"></p><p class="excerpt">‘The People’s Republic of China’s (PRC) globalization efforts are being exaggerated in terms of the amount of money involved and Beijing’s ability to allocate more resources.’</p><p><strong>&lsquo;The China Global Investment Tracker (CGIT)</strong> from the American Enterprise Institute is the only fully public record of outbound investment and construction worldwide. All 3,500 transactions are profiled in a public data set.&rsquo;</p><ul><li><strong>Read</strong> the full report <a href="" target="_blank">here</a>.</li></ul><p><strong>&lsquo;In the first half of 2019,</strong> investment fell just over 50 percent compared to the first half of 2018,&rsquo; writes AEI&rsquo;s <strong>Derek Scissors</strong>, the creator of the CGIT.</p><ul><li><strong>&lsquo;The 2019 results</strong> to date are similar to 2011, when Chinese investment was far from a global issue and considerably more welcome .&rsquo;</li></ul><p><strong>&lsquo;China&rsquo;s global investment</strong> and construction have shown a clear change over the past nine months&rsquo;:</p><ul><li><strong>&lsquo;The country&rsquo;s state-controlled giants</strong> are engaging in fewer transactions, especially large transactions.&rsquo;</li><li><strong>&lsquo;They are still slowly moving</strong> auto and steel capacity outside China, but the eye-catching sums spent by the likes of Ping An in acquiring a stake in HSBC have disappeared.&rsquo;</li><li><strong>&lsquo;They are still building</strong> new expressways and cement plants in developing economies, but less frequently and on a smaller scale.&rsquo;</li></ul><p><strong>&lsquo;One explanation</strong> is greater foreign hostility toward Chinese investment, starting with but not limited to the US.&rsquo;</p><ul><li><strong>&lsquo;However,</strong> this does not account for the recent absence of large construction projects in the much-hyped Belt and Road Initiative, which is utterly dominated by state-owned enterprises (SOEs).&rsquo;</li></ul><p><strong>&lsquo;Instead,</strong> the principal explanation is that fear of balance of payments and exchange rate weakness has caused rationing of the hard currency used to make investments and finance construction.&rsquo;</p><ul><li><strong>&lsquo;Until this situation changes&mdash;</strong>and there is no sign it will&mdash;China&rsquo;s global business footprint cannot again approach its 2016 peak.&rsquo;</li></ul><p><strong>&lsquo;Declining Chinese investment</strong> globally reinforces&nbsp;a continuous drop in the US since 2016 and the need for American policymakers to shift attention.&rsquo;</p><ul><li><strong>&lsquo;The People&rsquo;s Republic of China&rsquo;s (PRC)</strong> globalization efforts are being exaggerated in terms of the amount of money involved and Beijing&rsquo;s ability to allocate more resources.&rsquo;</li><li><strong>&lsquo;What has not declined</strong> are the threat to the rule of law, especially regarding intellectual property (IP); the extent of Chinese&nbsp;subsidies; and the Communist Party&rsquo;s human rights&nbsp;violations.&rsquo;</li><li><strong>&lsquo;Changing policies</strong> to address these problems will better safeguard America&rsquo;s security, prosperity, and leadership role.&rsquo;</li></ul></td></tr>

4. China: ‘The Art of Wait and See’

<tr><td class="bg-holder"><img width="100%" src="" alt="CHINADebate"></td></tr><tr><td class="nl-post"><p class="caption">Jin Keyu | Associate Professor (with tenure) of Economics at the London school of Economics <em>and</em> Carol Li Rafferty | Managing Director for Yale Center Beijing</p><p class="excerpt">‘The Chinese have concluded that Trump’s flailing truculence will continue to wreak havoc on the US economy, potentially forcing him to back off in the run-up to the 2020 US presidential election.’</p><p><strong>Jin Keyu</strong> is becoming an increasingly prominent and influential voice in discussions of China&rsquo;s economy and the trade war.</p><ul><li><strong>Here </strong>is her background, as reported in <a href="" target="_blank"><em>The Independent</em></a>:</li></ul><p><strong>&lsquo;Jin Keyu</strong> is an Associate Professor (with tenure) of Economics at the London school of Economics (LSE).&rsquo;</p><ul><li><strong>&lsquo;Born in 1983,</strong> she hails from Beijing, China, and obtained her B.A., M.A. &lsquo;and Ph.D. from&nbsp;Harvard University.&rsquo;</li><li><strong>&lsquo;Her research</strong> focuses on international macroeconomics and the Chinese economy.&rsquo;</li><li><strong>&lsquo;She completed her Ph.D.</strong> when she was 25 and became the youngest ever tenured professor at LSE when she was 29.&rsquo;</li></ul><p><strong>&lsquo;Jin has had</strong> prior experience at the International Monetary Fund (IMF), the World Bank, the New York Federal Reserve, Goldman Sachs, as well as other financial institutions.&rsquo;</p><ul><li><strong>&lsquo;She was named</strong> Young Global Leader by the WEF in 2014.&rsquo;</li></ul><p><strong>&lsquo;Jin is the daughter</strong> of Jin Liqun, President of the Asian Infrastructure Investment Bank (AIIB).&rsquo;</p><ul><li><strong>&lsquo;The elder Jin</strong> is recognised as a top economist in China.&rsquo;</li><li><strong>&lsquo;He was formerly</strong> the Vice Minister of Finance in China and Vice President of the Asian Development Bank.&rsquo;</li></ul><p><strong>Here are excerpts</strong> from one her latest essays, <a href="" target="_blank">&lsquo;The Art of Wait and See&rsquo;</a>.</p><p><strong>&lsquo;Those now hoping</strong> for an eventual trade deal between China and the United States should not hold their breath,&rsquo; writes <strong>Jin Keyu</strong>.&rsquo;</p><ul><li><strong>&lsquo;Contrary </strong>to what US President Donald Trump seems to think, the Chinese have not reached their wits&rsquo; end, and will not suddenly accede to his demands.&rsquo;</li></ul><p><strong>&lsquo;Trump&rsquo;s supporters</strong> insist that he should be taken seriously, not literally. Chinese leaders seem to agree.&rsquo;</p><ul><li><strong>&lsquo;They have shrugged off</strong> the Trump administration&rsquo;s excessive and unreasonable demands, but harbor little doubts about its intent: to keep China down.&rsquo;</li><li><strong>&lsquo;That objective</strong> has little to do with specific business concerns, and may even&nbsp;<a href="" target="_blank">derive</a> from &ldquo;civilizational&rdquo; &ndash; if not racist &ndash; hostility.&rsquo;</li><li><strong>&lsquo;The Chinese</strong> thus have had to adjust their strategic calculus, both in the short and long run.&rsquo;</li></ul><p><strong>&lsquo;The Chinese</strong> have realized with hindsight that appearing too eager for a deal made them look weak and vulnerable during the earlier stages of the conflict. China&rsquo;s current wait-and-see strategy is premised on two judgments.&rsquo;</p><ul><li><strong>&lsquo;First,</strong> the Chinese have concluded that Trump&rsquo;s flailing truculence will continue to wreak havoc on the US economy, potentially forcing him to back off in the run-up to the 2020 US presidential election.&rsquo;</li><li><strong>&lsquo;Second,</strong> the Chinese know that Trump&rsquo;s recent&nbsp;<a href="" target="_blank">declaration of victory</a> over Mexico was an act of theater in response to growing market jitters.&rsquo;<ul><li><strong>&lsquo;The latest US-Mexico deal</strong> was based almost entirely on previously concluded agreements and fictitious Mexican concessions that exist only in Trump&rsquo;s Twitter account.&rsquo;</li><li><strong>&lsquo;So, China</strong> is not going to rush to make concessions when market unease could force a change in the US position at any moment.&rsquo;</li></ul></li></ul><p><strong>&lsquo;Chinese leaders&rsquo; doubt</strong> that the Trump administration&rsquo;s real interest is in making a deal, rather than in undercutting China&rsquo;s economy - they will have prepared for another breakdown in the negotiations.&rsquo;</p><ul><li><strong>&lsquo;To manage</strong> the economic costs of the trade war, China has already activated a number of compensatory levers, many of which are not available to the US.&rsquo;<ul><li><strong>&lsquo;These include</strong> fiscal and monetary stimulus, measures to encourage more lending, and a strengthening of the Chinese financial system.&rsquo;</li><li><strong>&lsquo;And this,</strong> in turn, has allowed for a weakening of the renminbi to offset the competitive disadvantage stemming from tariffs.&rsquo;</li></ul></li><li><strong>&lsquo;It is also making efforts</strong> to bypass or otherwise mitigate the effects of the exclusionary military alliances that underpin the Western-led order - China is making new friends and appeasing former foes.&rsquo;<ul><li><strong>&lsquo;It is mending fences</strong> with Japan and &ndash; thanks to Trump &ndash; Russia.&rsquo;</li><li><strong>&lsquo;Xi&rsquo;s Belt and Road Initiative (BRI) of</strong> investment and infrastructure projects across Eurasia would not be possible without the Kremlin&rsquo;s implicit consent.&rsquo;</li></ul></li><li><strong>&lsquo;And, in the emerging Chinese view,</strong> any leverage or advantage the US has over China in trade is far exceeded by the Chinese people&rsquo;s willingness to withstand the pressure.&rsquo;</li></ul><p><strong>&lsquo;At the same time,</strong> China is taking advantage of doubts about Western liberalism by pushing a new worldview of its own.&rsquo;</p><ul><li><strong>&lsquo;The West&rsquo;s vulnerability</strong> has been exposed by its slow economic recovery since the 2008 financial crisis, declining life expectancy among some cohorts, stagnant standards of living, and the breakdown of traditional alliances.&rsquo;</li><li><strong>&lsquo;In exporting an alternative agenda,</strong> China is unapologetically advocating increased state intervention to improve livelihoods, as well as a&nbsp;<a href="" target="_blank">value system</a> that ranks collective welfare above individual desires.&rsquo;</li></ul><p><strong>&lsquo;China cannot simply</strong> write off economic and trade relations with the US.&rsquo;</p><ul><li><strong>&lsquo;But in the near term,</strong> it is unrealistic to expect China to change its laws or abandon its development model, as the Trump administration is demanding.&rsquo;</li></ul><p><strong>&lsquo;The US,</strong> for its part, should consider the Chinese perspective.&rsquo;</p><ul><li><strong>&lsquo;China,</strong> a 5,000-year-old civilization, knows that those desperate for a deal will end up losing in the end, while those who remain patient and aloof will come out on top.&rsquo;</li><li><strong>&lsquo;That stance</strong> will guide China&rsquo;s strategy, both in the near term and in the years to come.&rsquo;</li></ul></td></tr>

5. Why China Still Needs Hong Kong

<tr><td class="pdf-container"><iframe src=";embedded=true" style="width:100%; height:500px;border:none;"></iframe></td></tr><tr><td class="nl-post"><p class="caption"></p><p class="excerpt">‘The Chinese leadership realizes that for the sake of its own prosperity, China still needs a capitalist Hong Kong.’</p><p><strong>&lsquo;Some&nbsp;</strong><a href="" target="_blank"><strong>argue</strong></a><strong>&nbsp;[</strong>&lsquo;<a href="" target="_blank"><strong>Why China No Longer Needs Hong Kong</strong></a><strong>&rsquo; by Eswar Prasad] </strong>that China&rsquo;s rapid economic development has diminished Hong Kong&rsquo;s relevance to the mainland over time, thus giving Beijing greater leeway in treating Hong Kong with a heavy hand,&rsquo; <strong>Tianlei Huang</strong> of the Peterson Institute of International Economics in &lsquo;<a href="" target="_blank"><strong>Why China Still Needs Hong Kong</strong></a>.&rsquo;</p><ul><li><strong>&lsquo;There may be</strong> some truth to this argument, but the way I see it is different.&rsquo;</li></ul><p><strong>&lsquo;Though Hong Kong&rsquo;s economy</strong> has shrunk relative to the mainland&rsquo;s, it remains vital to China as a whole.&rsquo;</p><ul><li><strong>&lsquo;Hong Kong&rsquo;s importance to</strong> the Chinese economy is disproportionate to its size.&rsquo;</li><li><strong>&lsquo;Since Hong Kong&rsquo;s handover in 1997,</strong> China has developed massive economic and business interests in the territory.&rsquo;</li><li><strong>&lsquo;The Chinese leadership</strong> realizes that for the sake of its own prosperity, China still needs a capitalist Hong Kong.&rsquo;</li><li><strong>&lsquo;However,</strong> Beijing must know that preserving Hong Kong&rsquo;s unique economy means more than allowing free enterprise.&rsquo;</li><li><strong>&lsquo;It entails</strong> a strong and unwavering commitment to its rule of law, the key to Hong Kong&rsquo;s economic success.&rsquo;</li></ul><p><strong>&lsquo;Though entrep&ocirc;t trade</strong> via Hong Kong has diminished with China joining the World Trade Organization, Chinese outbound investment into Hong Kong is significant in both flow and stock.&rsquo;</p><ul><li><strong>&lsquo;According to&nbsp;</strong><a href="" target="_blank"><strong>the Ministry of Commerce of China</strong></a><strong>,</strong> over 58 percent (around US$70 billion) of China&rsquo;s nonfinancial outbound direct investment (ODI) flow went to Hong Kong in 2018.&rsquo;</li><li><strong>&lsquo;By the end of 2018,</strong> stock volume of China&rsquo;s nonfinancial ODI in Hong Kong reached US$622 billion.<a name="_ftnref1"></a>[<a href="" target="_blank">1</a>] That amount was roughly 170 percent of Hong Kong&rsquo;s GDP in the same year.&rsquo;</li><li><strong>&lsquo;A great amount</strong> of Chinese investment does not remain in Hong Kong.&rsquo;</li><li><strong>&lsquo;It is either repatriated </strong>to China as profits and funds or sent elsewhere in the rest of the world.&rsquo;</li><li><strong>&lsquo;Mainland companies</strong> take such a detour with their investments via Hong Kong to take advantage of the territory&rsquo;s favorable regulatory environment and available professional services.&rsquo;</li></ul><p><strong>&lsquo;The mainland companies</strong> detouring through Hong Kong include a growing presence of China&rsquo;s state-owned enterprises (SOEs).&rsquo;</p><ul><li><strong>&lsquo;Currently,</strong> of the 96&nbsp;central SOEs managed by the State-Owned Assets Supervision and Administration Commission (SASAC) of the State Council, three are headquartered in Hong Kong (namely, China Merchants, China Resources, and China Travel Service) and 50 have at least one subsidiary listed on the Stock Exchange of Hong Kong (SEHK).&rsquo;</li><li><strong>&lsquo;Plus,</strong> of the ten largest initial public offering (IPO) funds raised by newly Hong Kong&ndash;listed companies since 1986,&nbsp;<a href="" target="_blank">nine</a> are Chinese&mdash;including eight Chinese state-owned financial institutions and enterprises.&rsquo;</li></ul><p><strong>&lsquo;The SEHK</strong> is now home to 250 H-share Chinese companies and another 171 red chip firms that are controlled by the Chinese state.<a name="_ftnref2"></a>&rsquo;[<a href="" target="_blank">2</a>]&nbsp;</p><ul><li><strong>&lsquo;The combined</strong> 421 China-related companies have a&nbsp;<a href=";select=%7b3A4BB661-6EB1-469E-AFBA-1E5664DDCE8D%7d" target="_blank">total market capitalization</a> of nearly HK$12 trillion (US$1.54 trillion), more than one-third of SEHK&rsquo;s total market capitalization of HK$32.73 trillion (US$4.2 trillion) at the end of June 2019, compared with only 16 percent at the time of the 1997 handover.<a name="_ftnref3"></a>&rsquo;[<a href="" target="_blank">3</a>]&nbsp;</li><li><strong>&lsquo;Most recently,</strong> the Chinese internet conglomerate Alibaba has&nbsp;<a href="" target="_blank">filed</a> a listing that could potentially raise nearly US$20 billion for the company as soon as the third quarter of 2019.&rsquo;</li></ul><p><strong>&lsquo;Why do mainland companies,</strong> many of which are state-owned, opt for listings in Hong Kong?&rsquo;</p><ul><li><strong>&lsquo;Hong Kong</strong> has multiple advantages that are missing in China itself.&rsquo;</li></ul><ol><li><strong>&lsquo;First,</strong> a registration-based IPO system, which enables listing to be relatively faster and easier than in the mainland.<a name="_ftnref4"></a>&rsquo;[<a href="" target="_blank">4</a>]</li><li><strong>&lsquo;Second,</strong> absence of capital controls and greater international exposure, which allows Hong Kong to serve as an anchor point for global expansion.&rsquo;</li><li><strong>&lsquo;Third,</strong> a sound financial infrastructure, which mitigates operational costs.&rsquo;</li><li><strong>&lsquo;Fourth,</strong> an effective regulatory framework, which focuses on transparency and prudent minimum standards.<a name="_ftnref5"></a>&rsquo;[<a href="" target="_blank">5</a>]</li></ol><ul><li><strong>&lsquo;Neither Shanghai nor Shenzhen</strong> is likely to win this competition with Hong Kong, at least over the short term.&rsquo;</li></ul><p><strong>&lsquo;Moreover, Hong Kong </strong>is also at the forefront of renminbi internationalization.&rsquo;</p><ul><li><strong>&lsquo;It is now</strong> the &ldquo;global hub for offshore renminbi business,&rdquo;&nbsp;<a href="" target="_blank">said</a> the Hong Kong Monetary Authority (HKMA), the territory&rsquo;s&nbsp;<em>de facto</em>&nbsp;central bank.&rsquo;</li><li><strong>&lsquo;Hong Kong&rsquo;s renminbi liquidity</strong> pool (a combination of renminbi deposits and renminbi certificates of deposit), the largest outside mainland China,&nbsp;<a href="" target="_blank">reached</a> RMB634 billion (US$92 billion) at the end of June 2018.<a name="_ftnref6"></a>&rsquo;[<a href="" target="_blank">6</a>]&nbsp;</li><li><strong>&lsquo;The People&rsquo;s Bank of China</strong> has&nbsp;<a href="" target="_blank">issued</a> renminbi-denominated central bank bills in Hong Kong through HKMA&rsquo;s Central Moneymarkets Unit (CMU) four times&mdash;totaling RMB90 billion (US$13 billion)&mdash;since November 2018 to adjust liquidity and stabilize exchange rates in the offshore renminbi market.&rsquo;</li></ul><p><strong>&lsquo;Underlying all the advantages</strong> Hong Kong possesses over the mainland is the territory&rsquo;s core strength of rule of law&mdash;the very cause that over a million Hong Kongers have taken to the streets to defend since June 2019.&rsquo;</p><ul><li><strong>&lsquo;Beijing needs</strong> to understand that preserving Hong Kong&rsquo;s capitalist system distinct from the rest of China is in its own best interests.&rsquo;</li><li><strong>&lsquo;It entails adherence</strong> to free-market capitalism and, more importantly, an unwavering commitment to the rule of law, which no one should take for granted.&rsquo;</li></ul><h5>NOTES</h5><p><a href="" target="_blank">1</a>. &lsquo;<strong>It is interesting to note</strong> that at the same time, Hong Kong&rsquo;s investment in the mainland is also significant. By the end of 2018, in the mainland, the actually utilized foreign direct investment (FDI) from Hong Kong was US$1.1 trillion in stock, accounting for 54 percent of all FDI China has received from all over the world, according to&nbsp;<a href="" target="_blank">the Ministry of Commerce of China</a>.&rsquo;</p><p><a href="" target="_blank">2</a>. &lsquo;<strong>According to&nbsp;</strong><a href="" target="_blank">the Hong Kong Exchanges and Clearing Market</a>, H-share companies are enterprises that are incorporated in the mainland and are controlled by either mainland government entities or individuals; red chip companies refer to enterprises that are incorporated outside the mainland but are controlled by mainland government entities.&rsquo;</p><p><a href="" target="_blank">3</a>. &lsquo;<strong>The Hong Kong dollar is</strong> pegged to the US dollar in a narrow band&nbsp;of 7.75 to 7.85 per US dollar. The exchange rate used to convert Hong Kong dollars to US dollars in this post is as of July 9, 2019.&rsquo;</p><p><a href="" target="_blank">4</a>. &lsquo;<strong>China has been discussing</strong> replacing IPO approval with registration for many years, but little has been done. Most recently, the newly launched Nasdaq-like STAR market in Shanghai has begun to&nbsp;<a href="" target="_blank">test</a> IPO registration, but it still remains unknown when all listings on the Shanghai and Shenzhen stock exchanges will become registration-based.&rsquo;</p><p><a href="" target="_blank">5</a>. &lsquo;<strong>The Heritage Foundation</strong> has&nbsp;<a href="" target="_blank">ranked</a> Hong Kong as the world&rsquo;s freest economy for 25 consecutive years since 1995.&rsquo;</p><p><a href="" target="_blank">6</a>. &lsquo;<strong>The exchange rate</strong> used to convert renminbi to US dollars in this post is as of July 9, 2019.&rsquo;</p></td></tr>