China has a tough time ahead in 2022 – Jim Rogers

 

Jim Rogers

Even if China does all right when all its customers have a problem, it still has a problem and has a tough 2022 ahead, says super investor Jim Rogers in an analysis of Xi Jinping’s speech at the World Economic Forum, for state broadcaster CGTN.

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China is not yet embracing economic liberalism - Victor Shih

Victor Shih

President Xi Jinping´s speech at the World Economic Forum in Davos has been greeted with enthusiasm by global corporate leaders, confronted with opposite movements from Donald Trump and the Brexit. But political analyst Victor Shih warns it does not mean China is heartily embracing economic liberalism, he tells the LA Times.

LA Times:

“China certainly seems to be taking advantage of the U.S.’ increasingly shaky commitment to global free trade to portray itself as a potential new leader,” said Victor Shih of UC San Diego’s School of Global Policy and Strategy. 

The country last year launched an international lending organization, which pours millions into ramshackle roads and water pumps. China continues to expand its “One Belt, One Road” initiative, an effort to revive the ancient Silk Road trade routes and spread its influence west. 

Chinese leaders have increased the nation’s aggressiveness in the South China Sea’s disputed waters through artificial islands and the installation of military infrastructure. And they recently offered an alternative to a U.S.-backed Pacific trade pact that withered last year, handing the country an even greater voice in Asian economic affairs. 

But Shih cautioned against assuming the communist nation had fully embraced economic liberalism. He noted that China has pursued “aggressive mercantilist” policies and advocated replacing foreign imports with “made in China” products for more than a decade. Such a policy is far harder to impose in the U.S., he said, despite Trump’s rhetoric. 

“Other industrial economies will find China a troublesome trading partner for some time to come,” he said.

More in the LA Times.

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At Davos, Xi Jinping emerged as a global player - Arthur Kroeber

Arthur Kroeber

While the jury is still out on what China´s role will be at the post-Brexit Trump era of global trade, president Xi Jinping did emerge as a global player at the World Economic Forum, tells leading economist Arthur Kroeber at Bloomberg.

Bloomberg:

The Chinese leader has sought to leverage his country’s economic strength into diplomatic clout with multinational initiatives such as the Asian Infrastructure Investment Bank and his signature plan to expand infrastructure along ancient trading routes to Europe. At Davos, Xi announced a global summit on the strategy for May, saying Chinese investment in more than 100 countries had surpassed $50 billion over the past three years. 

Arthur Kroeber, Beijing-based founding partner and managing director at Gavekal Dragonomics, said that provided Xi a platform to demonstrate his overseas clout back home, where the Chinese leader is preparing for a mid-term reshuffle of the party’s leadership ranks. 

“It’s in Xi’s interests to take every opportunity he can and present himself as this leader who is powerful, strong and visionary, to give himself some international prestige,” said Kroeber, author of “China’s Economy: What Everyone Needs to Know.” Xi’s appearance at Davos, which has previous been attended by China’s premiers, is “consistent with the notion that Xi is now the only major authorized spokesman for the whole country.” 

Xi urged other countries to also keep their doors open to Chinese investors, drawing another contrast with Trump, and said he had no plans to devalue the yuan in order to boost competitiveness.

More in Bloomberg.

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Growing pains of China´s shadow banking – Michael Justin Lee

Michael Justin Lee

At the recent World Economic Forum in Davos, Switzerland, shadow banking loomed as a threat over China´s economic future. Financial analyst Michael Justin Lee does not agree, he writes in the ChinaUSFocus. Yes, the country has growing pains, but is not on the way to collapse.

Michael Justin Lee:

My agreement does not extend to the (Davos) conclusion. The majority conclusion seems to be that China will implode from the weight of the shadow banking system’s problems, taking down first Asia with it, and then the rest of the world. Even after making full allowance for probable hyperbole at such a media event, I think the Davos grandees went too far. The worst of the possible outcomes can be ameliorated with simple openness and transparency and I think the Chinese know this. 

Market practitioners know that opacity and evasiveness about an economic problem makes it far worse. That’s a big no-no. Without open resources, the market has no chance to evaluate and discount the problem and therefore must assume the worst. 

China’s shadow banking problem has a bit of parallel with another topic discussed in Davos, Bitcoin. Bitcoin is a private market currency. It is not backed by the good faith and credit of the U.S. Treasury or of any other central bank. It is backed only by the trust that the market accords it. 

Actually, Bitcoin’s business model is not entirely new. Credit cards are also private market currencies. They are accepted for purchase because buying and selling parties trust their efficacy. The eventual success or failure of Bitcoin ultimately comes down to whether enough parties trust it, that is, accept it as a medium of exchange. The major credit card companies have earned that trust and therefore they are commonly accepted as currency despite not having been created by any sovereign authority. 

The same goes for China’s shadow banking system. Its success or failure also substantially depends on whether the market trusts it. There are other factors as well, but without the trust of the market, all of those other factors could not sustain it. Consider a run on a bank. If I distrust a bank, I would withdraw my money immediately. If everyone else does similarly, a bank run results even if the distrust is unfounded. 

China needs to earn trust that is clearly absent right now and the first step would be a simple transparent admission of the troubling situation. Sweeping problems under the rug accomplishes nothing. Hoping that overall economic growth accelerates to such extent as to trivialize the problem also accomplishes nothing. Less than twenty years ago, some other countries right in China’s backyard experienced very great pain from trying that. China must surely have been watching.

More in the ChinaUSFocus.

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