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| Sara Hsu |
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| Sara Hsu |
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| Sara Hsu |
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| Sara Hsu |
The outlook for local government financials is not positive. So far, over one-third of China's provinces have not met growth targets this year. Many of the provinces experiencing slow growth are those poorer regions that have been left behind. This means that local governments will continue to have relatively low levels of revenue while under a massive debt overhang.
The trade war with the US hasn't helped. Local governments took responsibility for maintaining employment in the face of the trade war by boosting business tax cuts and ramping up infrastructure spending once again. This was funded by the sale of municipal bonds. The scale of municipal bond debt has risen massively from $34 billion in 2017 to $183 billion in 2019. Supply has mounted while demand for municipal debt has declined. It seems likely that state-related entities will be forced to hold municipal debt if market demand is insufficient, but this will only exacerbate the drag on growth.
Short-run challenges may create yet another stumbling block for local governments. Most ominous is the fact that local government municipal debt matures in 2020. This debt load amounts to $283 billion. Circumstances under which local governments took on the debt are not much different from the current situation, meaning that there are few to no sources of new growth. Although the central government has canceled a scheduled decrease in revenue sharing to local governments, the local government fiscal burden is high.
The local government debt burden is likely to persist due to the overall revenue shortfall and high debt loads faced by local governments. Something has to give, whether it is debt repayments, maintaining full employment, or buoying GDP. It may take more than a financial expert to get local governments on the track to fiscal sustainability once and for all.More in the China US Focus.
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| Sara Hsu |
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| Sara Hsu |
Moving to another country may make sense for companies whose new grounds of operation have sufficient infrastructure to provide a proper manufacturing environment.
Firms reshoring to Japan and Taiwan find themselves back home with well-constructed roads and telecommunications systems, although such factors may yield higher costs of production. Those shifting to Vietnam and Thailand are faced with poorer conditions and potential added costs of production.
Vietnam has a lack of transport infrastructure, power supply networks, and urban infrastructure. Ho Chi Minh City and Hanoi face severe traffic congestion. Government funding and planning fall short of providing sufficient resources to improve the infrastructure environment. It has been estimated that the country needs to invest $400 billion in infrastructure over the next decade. However, corruption and lack of skills prevent this from occurring.
Thailand has better infrastructure than Vietnam, but it has experienced bottlenecks in pushing infrastructure development further. This is because it takes the central government a long time to approve projects, and state governments lack the capacity to build the infrastructure projects that are slated for construction. Thailand’s political elite view infrastructure projects as long term, while their tenure may be short term.
As companies move to developing Asian nations to take advantage of Asian supply chains, they are facing challenges. In Vietnam, companies have a harder time locating factories, and ports are struggling to coordinate container ship traffic. Costs of labor in Thailand are higher than in China, even after wage increases in China. Firms attempting to move to Indonesia, Malaysia, and Cambodia are facing similar problems. In Cambodia, for example, almost of half of all goods inspected in the last quarter did not satisfy inspection standards.
More at the ChinaUSFocus.This means that the trade war is forcing some companies to shift production to less attractive locations prematurely. It’s one thing to move abroad in order to increase profitability, but quite another to move out from an established location due to complications resulting from an anti-free trade stance taken by the center country. So far, companies that make Crocs, Roomba vacuums, and Yeti beer coolers are moving out of China due to increased tariffs.
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| Sara Hsu |
Costco’s business model of offering discounted products in bulk could have enduring popularity in China, said Sara Hsu, CEO of the China Rising Capital Forecast research firm.
“People already got used to the idea from Pinduoduo, a Chinese app where people can get together in a group and buy in bulk and distribute the goods among friends. It’s really hot right now,” Hsu said.
In May, Costco executives had warned that costs for North American consumers could go up at its stores due to the ongoing trade war between the U.S. and China, with each side slapping down new tariffs.
“If Costco can make goods in China and sell them to domestic Chinese consumers, tariffs won’t apply, and that could offset loss of profit from tariffs on goods that have to be shipped out of China,” Hsu pointed out.
So rather than supporting a trade war, Chinese shoppers could end up keeping prices low in the United States — at least at one retailer. It’s a reminder that people in China are no different from consumers the world over in that their first loyalty is not to the state but the almighty yuan.More in the Vancouver Star.
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| Sara Hsu |
Economist Sara Hsu said that while China could be described as an emerging superpower, it has also recently slowed the pace of its many reforms that have been fuelling its growth.
Dr Hsu said the changes being made were also insufficient to transform China into a real market-based economy to compete with the US and other developed economies, while adding that China's success with its Belt and Road Initiative is also yet to unfold.
"If China is successful in spreading its soft power to other countries by helping them build viable infrastructure, this can boost China's status, but it will take time and hard evidence that China has what it takes to foster development partnerships in the global south," she said.
But to be recognised as a true superpower, Dr Hsu said China needed to first reach developed-country status to earn the respect of other developed nations.More at ABC.
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| Sara Hsu |
In the short run, the restrictions on rare earths will ratchet up tensions in the trade war and create a headache for US producers who rely on rare earths inputs into production. While the dollar amount imported isn't huge--the US imported $160 million of the materials last year in total--the elements play a critical role in production of high-tech goods and substitutes are not readily available. If the US is successful in shifting mining and processing of the elements domestically or to other countries, this will in the long run reduce demand of the goods from China and eliminate this category as an economic weapon against other nations.
In fact, this could apply to any relatively scarce resource that either side is willing to withhold from export or ban from import. For the US, tariffs on about half of goods imported from China -- about $100 billion worth of goods—have been especially harmful, since for these categories shipments from China represent over 50% of imports. This makes it extremely difficult to reorganize the sourcing of many products, but as the trade war deepens, entrenched supply chains are increasingly likely to shift.
In addition, the US has banned Huawei from receiving components and software from American firms, but experts say this will harm American companies economically without making the US more secure. There is a concern that Huawei and other Chinese technology firms will move away from sourcing from the US to other countries. This shift has precedent; before China re-committed to purchasing soybeans from the US, its tariffs on the agricultural goods induced retail and wholesale outlets to purchase soybeans from other countries, such as Russia and Brazil. This move shows that China will do its best to fulfill demand from countries other than the United States.
The game could go on for some time, with either side pelting the other with new restrictions. Anything the other side exempted from tariffs likely represents a particular vulnerability. However, the longer the trade war goes on, the more likely it is that both the US and China will turn away from one another as trade partners and look for other sources of imports, or attempt to produce affected goods domestically. This will erase the strides made in negotiating free trade.
Ultimately, this is a losing game. Any weapon that will be used will ultimately be turned on the user. The US and China may be locked into confrontation, but these tit-for-tat maneuvers are looking less rational with every retaliation.More in China US Focus.
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| Sara Hsu |
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| Sara Hsu |
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| Sara Hsu |
Of the major shadow banking sectors, the trust industry appears to be the most suited for endorsement, and the other sectors do not. Asset management products, entrusted loans, and internet finance are still pretty risky. While they do provide funds to businesses that would otherwise not be able to obtain them, and returns to investors who have few viable alternatives, these areas are prone to risks solely due to their nature. For example, in the case of entrusted loans, in which businesses lend to other businesses, the ease of investing in risky ventures remains problematic. In the case of P2P lending companies, the lure of setting up a platform without providing sufficient credit checks is pretty strong. Finally, in the case of asset management, especially wealth management, products, major precedent has been set in the past eight years or so to create attractive returns based on opaque and super risky underlying assets.
While the trust industry is not perfect by any means, it does serve the real economy to some extent. This sector also has regulatory support behind it. The China Banking and Insurance Regulatory Commission stated in 2018 that, “trust companies to transform from high-speed growth to high-quality development and to vigorously support the development of the real economy." The CBIRC has stepped up monitoring and policy guidance of the sector.
So, while shadow banking on the whole remains too risky to fully legitimize as a reliable form of finance for China’s economy, there is one aspect that, under strong supervision, may provide a pressure valve for financing needs that banks cannot fully satisfy. Trust companies may prove to be worthy of regulators’ efforts to improve their practices. As we have seen, however, this not guaranteed.More in China Focus.
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| Sara Hsu |
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| Sara Hsu |
In 2018, the growth of China’s peer-to-peer (P2P) lending sector dramatically reversed: 1,407 internet platforms that offered P2P lending services shut down due to increased regulation between July 2017 and June 2018. This year, the government has continued to lead a reorganization of the industry:
More companies will die: As of February 17, only 60 percent of online lending institutions had disclosed their operational information for January 2019, including five problematic platforms.
However, the current asset quality of the online lending industry has improved significantly according the data from firms that did report.
As of the end of January 2019, the accumulated amount of the online P2P online loan industry was about 7.78 trillion yuan ($1.16 trillion). The total loan amount in January was 91.4 billion yuan ($13.61 billion), down 55.1 percent year-on-year and down 1.3 percent from the previous month.
Further consolidation of industry players is certain. Some experts quoted in media reports predict that the scale of future online loans will continue to shrink because of regulation.
Some listed companies, such as Aoma Electric and Panda Financial Companies, have abandoned their P2P businesses.
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| Sara Hsu |
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| Sara Hsu |
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| Sara Hsu |
The problem is that the world is so globalized at present that hurting Chinese interests also harms US interests. Trump’s imposition of tariffs on American consumers and producers, including multinationals producing in China, has resulted in rising costs and economic losses. At present, the world is waiting to find out whether the trade war will escalate or whether tensions will die down. If the Trump administration doubles down on Chinese tariffs, unemployment in the US will rise and economic woes for both nations will set in.
Trump’s nationalist ideology might have felt like a necessary antidote to fighting the unseen adversaries of globalization. For a man who sees the world in black and white, and for Americans tired of losing jobs to their cheaper Chinese counterparts, making China the primary enemy of the US is a winning strategy. However, this approach is already backfiring, creating costs in the US and abroad.
What Trump has gotten wrong is that while China is most definitely a rival of the US, it is not a foe. It’s dangerous to position other nations as antagonists, because this opens the door for hostilities to grow. While Obama’s approach to China was far more subtle, it did less harm to the global economy and preserved a key partnership between the two nations.
Going forward, it will be challenging to restore this critical connection while also maintaining a healthy rivalry. In all likelihood, even after the political tides have changed, nothing the US will do to check China’s global ambition will be looked upon benignly. The most important bilateral relationship in the world has become a game of brinksmanship, under reactionary strongman politics. So much for globalization.
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| Sara Hsu |
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| Sara Hsu |
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| Sara Hsu |
In August 2018, a special jury in Colorado pressed charges against 16 narcotraffickers who moved cocaine from Mexico to the United States and laundered money through Chinese banks. The process isn’t new: In 2017, the U.S. Drug Enforcement Administration (DEA) warned about criminal groups in Mexico, Colombia, and Venezuela that used their contacts with Chinese mafias to launder money through banking entities in the Asian nation.
Sara Hsu, an associate professor of Economics at the State University of New York and specialist in the Chinese financial system, explains that the Asian nation is an attractive destination to launder money coming from Latin American criminal activities. One of the reasons is the strengthened link between groups such as Mexican drug cartels and Chinese mafias.
“It’s true that Chinese regulations on money laundering were less rigorous in the past,” Hsu told Diálogo. “But the incentive comes from some Chinese gangs’ willingness to cooperate with Latin American criminals to launder money and participate in other illegal activities. As such, they become important facilitators for Latin American [criminal] organizations.”
Hsu’s description fit what the DEA indicated in its 2017 National Drug Threat Assessment on the role of Chinese criminal organizations—particularly those operating in the United States—as money laundering facilitators for Latin American criminals. According to the report, Asian transnational criminal organizations (TCOs) “play a key role in the laundering of illicit drug proceeds. Asian TCOs involved in money laundering contract their services and in some cases work jointly with other criminal groups, such as Mexican, Colombian, and Dominican TCOs.”
According to Hsu, some of the most common money laundering techniques are the purchase of Chinese products and fake commercial exchanges through casinos in Macau and Chinese money exchange houses.More in Dialogo.
