China Macro Reporter
1. 'We're going from an unregulated trade war with China to a regulated one.’

<table class="nl_card" id="19apr0601"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="embed-responsive embed-responsive-16by9"><iframe class="embed-responsive-item" src="" allowscriptaccess="always" frameborder="0"></iframe></td></tr></tbody></table><p class="caption">Bloomberg</p><p class="excerpt">'We're going from an unregulated trade war with China<br>to a regulated one.’</p></td></tr><tr><td class="nl-post"><p><strong>‘There's an expression in Chinese,</strong> 上有政策,下有对策: “above we have policies; below we have counter policies,’ says Kevin Rudd, president of the Asia Society Policy Institute and former Prime Minister of Australia in a <a href="" target="_blank">Bloomberg interview.</a></p><ul><li><strong>‘In other words,</strong> you guys can agree to what you like, and we'll do some swift work down below to make sure it doesn't quite have the full effect.’</li><li><strong>‘American trade negotiators</strong> are familiar with the ancient Chinese stagecraft and statecraft – they know that China has done this in the past – promised and not delivered.’</li><li><strong>‘USTR Lighthizer</strong> and the rest of the crew they're trying to make this deal as watertight as possible.’</li></ul><p><strong>That’s why</strong> ‘the American negotiating position is: just to keep you Chinese guys honest. we want to keep a range of our tariffs in place once the agreement is signed.’</p><ul><li><strong>‘Secondly,</strong> if you're subsequently very bad, very naughty, then we're going to impose bigger tariffs.’</li><li><strong>‘But we want you to agree</strong> in advance that if we do that, you won't impose retaliatory tariffs on us.’</li><li><strong>‘Well,</strong> we have an expression in Australia: "pigs might fly."’</li></ul><p><strong>‘The Chinese</strong> will see that latter provision in particular as almost a revisiting of China's “unequal treaties” imposed by the more powerful the West in the 19th and 20th centuries.’</p><ul><li><strong>Those treaties held</strong> that ‘there was one rule for foreigners and a different rule for the Chinese.’</li><li><strong>‘But they</strong> will have to agree to an enforcement mechanism.’</li></ul><p><strong>'Now they're talking</strong> about weekly exchanges with officials, monthly exchanges of official data, transparency.’</p><ul><li><strong>'There’s going to be</strong> a lot of pushing and shoving: disagreement on data and then disagreement on measures.’</li><li><strong>‘But it's better</strong> there's a joint mechanism for doing that rather than a whole of system explosion in the bilateral relationship if it goes off the rails at a point in the future.’</li></ul><p><strong>‘We tend to think</strong> we'll get a deal done, then we can put that to one side and move on to something else.’</p><ul><li><strong>‘But this is going</strong> to be an ongoing process.’</li><li><strong>‘Lighthizer’s</strong> will be still be working on this.’</li><li><strong>‘And, after him</strong>, we’ll have another Lighthizer to carry on the work - a week, a month, a year, ten years from now.’</li><li><strong>‘We should be</strong> preparing ourselves for an ongoing set of negotiations with the Chinese.’</li></ul><p><strong>‘Someone had a good phrase:</strong> we're going from an unregulated trade war with China to a regulated one.’</p></td></tr></tbody></table>

2. Why China's market reform isn't working

<table class="nl_card" id="19apr0602"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><img src="" alt="CHINADebate"></td></tr></tbody></table><p class="caption">The Diplomat</p><p class="excerpt">China has a policy-induced - not a market-based - business cycle.</p></td></tr><tr><td class="nl-post"><p><strong>'Market reform</strong> has been China’s flagship economic initiative for over 40 years,’ write Zhizhen Lu and Meiying Xu in <a href="" target="_blank">The Diplomat</a>.</p><ul><li><strong>'Yet each new round</strong> of reform often ends up with more heavy-handed state control.’</li></ul><p><strong>‘At the macro level</strong> 'growth has been created by massive state-led investments, leaving an indebted, risk-filled economy, but contractionary side effects from deleveraging motivate a return to economic expansion.’</p><ul><li><strong>So, ‘Keynesian-style government investment</strong> became the most effective “painkiller” for economic slowdown since 2008, and this time is no different.’</li></ul><p><strong>A ‘Seesaw Economy.’</strong> ‘The policy shift in mid-2018 from market reform to growth stabilization belies a recurrent pattern of a policy-induced business cycle.’</p><ul><li><strong>‘The leading liberal economist</strong> Wu Jinglian described this as the “seesaw economy.”’</li></ul><p><strong>Dual track.</strong> ‘As China took a gradualist approach in the transition from planned to market economy, it set up a new track for marketization in parallel with the planned track, hoping that the two will eventually merge together.’ Only it hasn't.</p><ul><li><strong>That's because</strong> 'in promoting market reform, the state often faces a dilemma — should it choose stability or reform?' Here's the seesaw in action.</li><li><strong>‘After a market is established and operational,</strong> the state pulls out of the market only to find a surge of malpractices that destabilize market orders.’</li><li><strong>‘When the state</strong> weighs back in, market actors lose their vitality and start speculating on policy loopholes or acquiring subsidies.’</li></ul><p><strong>In other words</strong>, ‘State control and protection distort resource allocation and prevent the market from establishing independent operational rules; efforts to redress these problems destabilize existing economic order, and government intervention is restored to smooth out the turbulence.’</p><ul><li><strong>'With the state playing</strong> a central role in coordinating economic activities, the Chinese government builds and sustains the market, but falls short on empowering it.'</li><li><strong>While building functional markets</strong> requires state facilitation, China’s state-led market reform hinders the establishment of healthy market selection and adjustment mechanisms.'</li></ul><p><strong>The result:</strong> 'Business performance** is dependent more on “riding the policy wave” than prudent management or innovative business models.'</p><ul><li><strong>And a policy induced</strong> - not a market-based - business cycle.</li></ul></td></tr></tbody></table>

3. All is well in China's intelligence service

<table class="nl_card" id="19apr0603"><tbody><tr><td><table class="multi-block"><tbody><tr><td><blockquote class="twitter-tweet" data-lang="en"><p lang="en" dir="ltr">Whew. Everyone back to work. 👀 <a href=""></a></p>&mdash; The Relevant Organs (@relevantorgans) <a href="">April 4, 2019</a></blockquote><script async src="" charset="utf-8"></script></td></tr></tbody></table></td></tr></tbody></table>

4. 'China's GDP could start to grow again in 5-10 years': Prof Xu Bin, CEIBS

<table class="nl_card" id="19apr0604"><tbody><tr><td><table class="multi-block"><tbody><tr><td class="bg-holder"><a href="" target="_blank"><img src="" alt="CHINADebate"></a></td></tr></tbody></table><p class="caption">CEIBS</p><p class="excerpt">'Although China’s GDP growth is going down now,<br>in five to ten years it may be going up again.'</p></td></tr><tr><td class="nl-post"><p><strong>'Significant slowdown</strong> of the Chinese economy began in 2012,' <a href="" target="_blank">says Xu Bin</a>, a professor at CEIBS in Shanghai. (In the <a href="" target="_blank">2019 Financial Times rankings</a>. CEIBS's MBA program ranked #5 in the world and #1 Asia.)</p><ul><li><strong>'It is true</strong> that because it has been seven years this does not look like a normal cyclical slowdown.'</li><li><strong>'But</strong> I think it is.'</li></ul><p><strong>‘I have two views</strong> about the slowdown of the Chinese economy.'</p><p><strong>‘One is that there is clearly</strong> a fundamental decline in the supply side, the driving force of the economy.’</p><ul><li><strong>‘Government advisors</strong> seemed to have thought that the slowdown wasn’t a demand side issue, but a problem on the supply side.’</li><li><strong>‘So China engaged</strong> in supply side policies to deal with the short-term fluctuation.’</li><li><strong>‘Their goal</strong> was to reduce some capacity to balance the supply and demand.’</li><li><strong>‘The measures</strong> implemented actually strangled both supply and demand.’</li><li><strong>‘That made</strong> the recession even more serious.’</li><li><strong>‘So sometimes</strong> downturns are policy-induced.’</li></ul><p><strong>'I don't put much weight</strong> on the so-called aging population theories, I do not think that this is a major factor in the slowdown'.</p><ul><li><strong>'My view</strong> is that China is becoming more and more advanced, so the room for imitation and catching-up is getting smaller and smaller, so potential GDP growth rate is going down.'</li><li><strong>'Another factor</strong> is that you require a different quality of labour. In the past, unskilled labour was enough, now you need skilled labour.'</li></ul><p><strong>‘My second view</strong> is that although China’s GDP growth is going down, five to ten years later it may be going up.’</p><ul><li><strong>‘The reasoning</strong> behind this that I do not believe that, as a country becomes more and more high-income, its potential GDP will be destined to grow less and less.’</li><li><strong>'Potential GDP</strong> depends on the production function.’</li><li><strong>‘If entrepreneurs</strong> are given more freedom to create, if more Chinese talents return from overseas, imagine how much potential GDP China can achieve.’</li></ul><p><strong>Also,</strong> ‘the current slowdown has something to do with the overuse of a tightening policy, especially in terms of the allocation of credit.’</p><ul><li><strong>‘If you're tightening</strong> it in the name of deleveraging, you are hurting private companies the most.’</li><li><strong>‘If your policies</strong> are in favour of China's private sector, China will develop.</li><li><strong>‘It's driven by potential GDP</strong>, which depends on efficiency and the quality of inputs.’</li><li><strong>‘And I think</strong> that both in terms of efficiency and quality of inputs, down the road, China will have a beautiful run.’</li></ul></td></tr></tbody></table>

5. Starbucks opens a new store in China every 15 hours

<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">Bloomberg</p><p class="excerpt">'Starbucks opens a new store in China every 15 hours.'</p><p><strong>Starbucks opens</strong> a new store in China every 15 hours.</p><ul><li><strong>‘We build</strong> a net new six hundred stores a year in China,’ says, Starbucks CEO Kevin Johnson in a <a href="" target="_blank">Bloomberg interview</a>.</li><li><strong>‘That’s off</strong> of a base thirty five hundred plus stores today.’</li><li><strong>‘Over this next three years</strong> we're going to build Starbucks in 100 new cities in China that we are not currently in.’</li><li><strong>‘And every one</strong> of those cities is larger than the population of Los Angeles.’</li></ul><p><strong>How long</strong> can Starbucks keep doing this?</p><ul><li><strong>‘Beyond my lifetime’</strong>, says Kevin Johnson.</li><li><strong>‘And, we could go on</strong> at that at that rate after that.’</li><li><strong>‘We will be building</strong> new stores in China for decades to come.’</li></ul><p><strong>Did I mention</strong> that Starbucks opens a new store in China every 15 hours?</p></td></tr>