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| Sara Hsu |
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| Sara Hsu |
However, there is fear that too many of the listed company shares have been pledged as collateral for loans. The total amount is equal to 10-12% of the A-share market cap, according to Sean Darby, chief global equity strategist at Jefferies. This is starting to create a downward spiral as margin calls (demands for additional securities to cover losses) and forced liquidations are carried out and threaten to bring contagion to the real economy, which is already under pressure from dampened demand.
At the moment, it appears that risk is under control, but just barely. If the stock market continues to melt down, government intervention may be required to stem sharp price declines and reduce the impact on the rest of the economy due to the knock-on effects of margin calls. All of this only serves to compound the lack of funding and bearish sentiment that are worsening the slowdown.
Government intervention is necessary but certainly not desirable, as it moves China’s economy even further away from the market-oriented system it has been striving for. At this point, the prospects of reform appear dim, as the nation attempts to curb assaults on its very economic viability. A lot must happen in order to improve the country’s prospects: calling off the trade war, removing bad debt, and stimulating consumption and investment will all have to occur before China gets back on its feet and the stock market appears healthy once again.More in the ChinaUSFocus.
China has changed its income tax for the first time in seven years, beneficial for the lower income groups, and less for the high earner. Financial analyst Sara Hsu discusses the purpose: more spending might be a motive, but as aging and health care costs loom, many might opt for saving, she says at CGTN. |
| Sara Hsu |
U.S. tariffs on imports from China will not only impact companies but also the consumers said an expert in an interview with China Global Television Network in Beijing on Tuesday.
Sara Hsu is an associate professor of economics at the State University of New York at New Paltz. She said it was not clear what percentage of the tariffs the companies would pass on to the consumers but it would definitely impact the consumers.
“It’s definitely going to impact the consumers in terms of higher cost as well as the companies. So there might be a split in terms of the company taking part of the hit and passing part of cost on to the consumers as well. And starting from January 1, the tariffs will go from 10 percent to 25 percent. So that’s a really significant increase,” said Sara.
China is the largest supplier of textiles and apparel to the U.S. market, accounting for about 40 percent of American imports in the sector, according to the statistics of the United States Fashion Industry Association (USFIA).
The industry relies on sourcing from China to provide American consumers with affordable and varied choices. But the tariffs will impact the multinational companies in the U.S. in the industry, said Sara.
“A lot of the American multinational firms are producing their goods overseas. So that’s why the tariffs on exports from China are going to impact the American multinational companies. And these multinational companies would like to move to a different place, especially given the tariffs that just kicked in. But it’s really hard for them to do,” said Sara.
She added that there would be a high cost for the companies to move and set up shops in other countries with a level of development and have low wages.
It can take up to five years to move from China to another country, Sara said. The situation hasn’t happened yet, but a lot of companies are not reassuring to the U.S. instead of relying on automation in order to produce their products because American labor costs so high.More at Reuters.
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| Sara Hsu |
Because of the banking sector’s close ties to the government, financial stability can and will be tightly controlled. Banks will likely be forced to lend to entities that would otherwise not receive extensive funding, such as local governments. Funds will be granted where the government desires at the expense of some of the riskier loans. We saw this happen time and again in the wake of the global financial crisis, as local governments followed orders to build infrastructure by creating bridges to nowhere and ghost cities.
This time around, waste may be less blatant but is unlikely to be eliminated. In the end, the central government will probably step in once again to convert the non-performing loans to municipal bonds or sweep them off banks’ balance sheets to asset management companies.
The trade war has exacerbated China’s dilemma of stimulating the economy to avoid slowing growth and tightening the economy to reduce financial risks. Although stability is likely to be maintained, the government walks an increasingly fine line to do so. If tensions worsen between the United States and China, it is possible that China may be forced to choose stability over growth — a choice that would shake the global economy by stunting global demand.More at the EastAsiaForum.
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| Sara Hsu |
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| Sara Hsu |
As the U.S. tech sector regained some of its footing Tuesday, last week's tech sell-off continues to undermine some of China's tech bellwethers Tencent and Alibaba.
Sara Hsu, economist and associate professor at SUNY New Paltz, said that unlike Facebook and Twitter, hamstrung by slower-than-expected user growth, Chinese tech stocks have more serious investment hurdles ahead.
"There are concerns of a trade war, that it could possibly dampen investment from the United States," Hsu said in an interview Tuesday with Cheddar. "Particularly for Tencent and Alibaba which have a lot of interest in the United States, in terms of trade and investment." The trade spat between Washington and Beijing has not only quelled investors’ appetites, it has also discouraged Chinese tech giants from expanding internationally.
Alibaba's Founder, Jack Ma, had pledged to create 1 million jobs in the U.S. and increase the amount of goods that ship from America to China.
Hsu said that China's tech stocks are also faced with tightening liquidity and currency depreciation.
"There are depreciation pressures on the Chinese currency which is going to affect the earnings report for companies that are listed on the New York Stock Exchange," she said. The Chinese Renminbi has slipped in the past two months and hit its lowest level in more than a year, despite measures by central bankers in Beijing to support China’s currency.More in Cheddar.
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| Sara Hsu |
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| Sara Hsu |
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| Sara Hsu |
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While investing directly in poorly screened OBOR projects directly may not make sense, Marc Merlino, to his credit, noted that ventures surrounding major OBOR projects provide huge potential for returns. Merino states, "it's the opportunities for micro infrastructure beyond the core projects. All the knock-on effects ...." Certainly, after OBOR plans are carries out and the success of the construction can be more easily understood, investing in micro infrastructure could be quite profitable.
Past evidence of profitability of backward linkages between major invested projects and the rest of the economy can be witnessed in China's special economic zones (SEZs). The clearest example of this is the city of Shenzhen, which was established as an SEZ in 1980, when it was a sleepy fishing village of 30,000 residents. Today, Shenzhen has become a megacity with a population of 12.53 million, and one of the most economically important cities in China. The city grew not only because of the influx of foreign direct investment, but also because of the growth of supporting industries. Many people who invested in the city early on have enjoyed significant profits as the city grew.
Prudent analysis would require that investors financing micro projects surrounding an OBOR project should perform the due diligence that China's policy banks might have failed to undertake. This may require more resources to carry out than individual investors have, but is feasible for large institutional investors or lenders like Citi. In sum, investors need to proceed prudently with regard to OBOR projects and recognize that many of the projects have been insufficiently vetted. Plans surrounding visibly successful OBOR projects may bear fruit as long as investors focus on assessing and hedging against risks. After this work is done, one can be cautiously optimistic about such plans.
More at Capital Watch.
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| Sara Hsu |
China’s choice to fund Syrian reconstruction also appears to be economically motivated, in large part because Syria provides an important pathway along China’s Silk Road. On the ancient Silk Road, the city of Aleppo acted as a key market for buying and selling international goods, and the west coast of the country continues to provide access to the Mediterranean Sea. At present, Syria has the potential to be an important logistics hub. Not only that, but the construction of infrastructure itself will generate income for Chinese firms that have shown interest in taking part. This will aid Chinese firms, especially since the Asian nation is going through a period of slowing economic growth that has led to lower rates of infrastructure investment.
In addition, serious security will help ensure that Chinese investments in the region will remain intact. Some of these are located in Egypt, Iran, Turkey, and Saudi Arabia. The region is essential to Chinese investment in energy and infrastructure, and is viewed as an important crossroads between Asia and Europe. The security of this region can help to stabilize Xinjiang, home to Uighur separatists that China views as a threat to security and an important node on China’s new belt and road.
The U.S., Europe, and Gulf Arab allies are steering clear of funding reconstruction in Syria, as they believe that the wrong side won the Civil War. These nations have called for Assad’s departure as a precondition for receiving reconstruction aid, as they believe Assad is responsible for myriad atrocities carried out on his own people. The U.S. took the side of moderate Syrian rebels. For his part, Assad has stated he will reject aid from nations that supported the opposition during the war. Syria has received aid from Iran, Russia, and China, and will likely continue to do so.
Despite the opposition of the West against Assad, China’s decision to support the current Syrian government does not appear to be motivated by anti-Western sentiment or the desire to compete for influence with the United States. There are those who rally around the Chinese flag due to opposition to the United States, for sure, but these include less powerful nations, like Syria or Iran, that are politically and/or ideologically opposed to U.S. hegemony in the region and in the world.
In conclusion, China’s position of support for Assad’s Syria underscores its security and economic interests in the region. While any measure of support for a particular regime may be viewed as political, China is attempting to refrain from engaging in directly political activities in the country and in the Middle Eastern region. China’s aim is to make economic gains through One Belt One Road, employing its own firms in the construction of much-needed infrastructure, and attempting to ensure security in order to do so. While the West may dislike China’s support of the Assad regime, China’s involvement in the reconstruction process is likely to bolster its role in the Middle East and strengthen its global soft power going forward.More at Triple Crisis.
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| Sara Hsu |
The aggressive Trump stance hasn't worked because Chinese diplomacy is nuanced and officials do not use threats as a negotiation tactic. The Chinese generally negotiate through reciprocity, which is why we saw Xi Jinping making concessions on automobile tariffs. Within the philosophy of Confucianism, Chinese negotiators attempt to avoid conflict and save face, or show mutual respect. Relationship building is essential, and the bonds of the relationship are not meant to be broken.
If pushed, however, the Chinese often use silence or long negotiation processes as a response tactic. Chinese negotiators may also attempt to use a response that targets the weakness of the counterparty, especially if the counterparty is not viewed as civilized or friendly. The Chinese Thirty-Six Strategems calls for using specific tactics to deal with a hostile party, which including "wait at leisure while the enemy labors" and "watch the fires burning across the river." Chinese officials indeed waited to respond to Trump's bluster and hoped that he would wear himself down by griping and tweeting about his issues with the Asian nation.
China's strategy appears to be working in the sense that the nation has, to some extent, benefited from Trump's aggressive mentality. Its diplomatic response has been calculated and staid. As Trump rants and raves about China, Chinese officials have emphasized the need for cooperation. It couldn't be clearer who is speaking the voice of reason. If Trump had a better knowledge of economics, he would realize that history has shown that trade showdowns don't work. From the Boston tea party to the Smoot Hawley tariffs imposed during the Great Depression, protectionist measures have always imposed far higher costs than benefits.More in Forbes.
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| Sara Hsu |
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| Sara Hsu |
The question, though, is if it will succeed. There appears to be insufficient due diligence in some cases, which carries political and financial risks. For example, work on the Colombo port project in Sri Lanka and a high-speed rail plan in Indonesia stalled due to local opposition. In other areas, like Gwadar in Pakistan, security is a major concern.
Projects funded by the Asian Infrastructure Investment Bank are more likely to be carefully weighed in terms of risk. By contrast, projects financed by the China Development Bank or the Export and Import Bank of China may undergo standard examination but, as part of an array of projects on the table, may be short-changed in full analysis and oversight. AIIB has provided $1.73 billion for nine Belt and Road projects. The overall figure for projects in the planning or implementation stages is $900 billion.
The vast majority of funding for Belt and Road projects comes from the Export and Import Bank of China, China Development Bank and China’s commercial banks. China’s policy banks are overbooked: in 2015 alone, the China Development Bank said it had reserved $890 billion for over 900 projects. What is more, the Export-Import Bank of China stated at the beginning of 2016 that it had funded over 1,000 projects. How can these large development banks plan and oversee that many projects?
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| Sara Hsu |
