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African Extractive Industries: PRC Neocolonialism

♠ Posted by Emmanuel in Africa,China,Development at 5/30/2024 01:12:00 PM

That the slow development of the African continent can be traced to Western colonialism is an archetype of this field of study: Mainly interested in extracting natural resources for manufacturing industries sited elsewhere (e.g., Europe), foreigners have come for valuable minerals... and not much more. It would be neat if this story was confined to the history books, but we keep being reminded that it is instead very much a story of the 21st century still.

Of note in this respect are the Chinese. The stereotype of Chinese industrialists enticing corrupt regimes all over the continent with easy money in exchange for mineral access is a story told over and over. Stung by this criticism, the PRC decided to change tack in characterizing their activities as developmental win-win situations: In exchange for being granted access to mineral resources, the Chinese would help improve the infrastructure of the countries they operated in to accommodate the influx of wealth brought by extractive industries. That is, improved ports, roads, power stations and so forth would better facilitate trade and development for all concerned. Well, that was supposed to be the story of the Belt and Road initiative:

China's engagement in Africa, a focus of the Belt and Road Initiative (BRI), grew rapidly in the two decades before the COVID-19 pandemic. Chinese companies built ports, hydropower plants and railways across the continent, financed mainly through sovereign loans. Annual lending commitments peaked at $28.4 billion in 2016, according to the Global China Initiative at Boston University.

But many projects proved unprofitable. As some governments struggled to repay loans, China cut lending. COVID-19 then pushed it to turn inward, and Chinese construction projects in Africa fell.

The chart above indicates what's happened to the much-touted Belt and Road Initiative. Of course lending without conducting substantive due diligence to regimes with questionable governance records was not conducive to being paid back on time! Post-COVID and all these post-non-performing loans, the Chinese are back in Africa. However, the pretense of mutual benefit is largely gone, replaced by a massive focus on extracting more than Westerners can. Yes, it's neocolonialism at its crudest, but it is what it is:

Worse still, lots of Chinese goods are flooding these African countries at low prices, creating substantive trade deficits with China all over the continent. In trade terms, it's likely a case of "dumping":

With one of Africa's largest trade deficits to China, Kenya has been pushing to increase access to the world's second-largest consumer market, recently gaining it for avocados and seafood. But cumbersome health and hygiene regulations mean Chinese consumers remain out of reach for many producers...
But Chinese manufactured goods kept coming. That's not sustainable, said Francis Mangeni, an advisor at the Secretariat of the African Continental Free Trade Area. Unless African nations can add value to their exports through increased processing and manufacturing, he said, "we are just exporting raw minerals to fuel their economy."

The story never changes of foreigners exploiting natural resources and then profiting by selling higher value-added goods in these African nations, thereby stifling indigenous development that would occur by garnering capabilities to produce more sophisticated products. The Chinese can keep repeating holier-than-thou rhetoric about not being like those Western imperialists exploiting Africa with naked greed, but it's what they do and not what they say that ultimately counts.

“Adios to the Chinese Dream” (Xi’s Theme Song)

♠ Posted by Emmanuel in China at 4/07/2024 03:17:00 PM

With apologies to Rodney Crowell... Excuse me mister but what did you say? / My hard-earned money’s all gone away / Xi ain’t into capitalism you see / The stock market is just no place to be. Voila, An American Dream is a catchy ditty that I've turned into a lament for the loss of the so-called "Pacific Century" that academics so love[d] to talk about. Supposedly, China's economic ascent would power the entire Asia-Pacific into a period of global dominance.

Let's just say that hasn't been how things have turned out. In the interests of "national security," the "national interest," or whatever the Communist Party claims is best in a patriarchal sense, it's gone after industry after industry--digital payments, after-school tutoring, residential real estate... the list goes on and on. Given the level of state intervention in economic matters, it's ironic that the PRC keeps wanting to shed its designation as a "non-market economy" by the United States and others. It's derogatory--Vietnam wants to shed the label ASAP--but accurate so far the PRC goes insofar as winners and losers are not determined by the market but rather by government fiat.

Given limited space to air discontent over state policies, disgruntled Chinese investors have taken to using the US embassy social media account to bash the Communist Party, of all channels. Presumably, the Yanks are less likely to censor criticism of the authoritarians:

Many Chinese are venting their frustration at the slowing economy and the weak stock market in an unconventional place: the social media account of the U.S. Embassy in Beijing. A post on Friday on protecting wild giraffes by the U.S. embassy on Weibo, a Chinese platform similar to X, has attracted 130,000 comments and 15,000 reposts as of Sunday, many of them unrelated to wildlife conservation. "Could you spare us some missiles to bomb away the Shanghai Stock Exchange?" one user wrote in an repost of the article...
The Weibo account of the U.S. embassy in China "has become the Wailing Wall of Chinese retail equity investors", another user wrote.The U.S. embassy did not immediately respond to a Reuters request for comment.

The Pacific Century has been crushed underfoot by Chinese authorities who are obviously more interested in maintaining their grip on power than the (financial) well-being of their citizens. I've even penned a song about it. Sort of.

Fleeing China II: Foreign Divestment Edition

♠ Posted by Emmanuel in China,FDI at 11/06/2023 02:04:00 PM

Bing prompt: "Draw a businessman leaving China".

Hot on the heels of the previous post about how Chinese are showing at the United States' southern border seeking asylum from increasingly dire economic conditions in the PRC, we get more news of this sort. Just as people are leaving China, so is capital: For the first time its records, the PRC has seen a net outflow of Foreign Direct Investment (FDI). On balance, more FDI is leaving than entering China, once the world's most notable destination for investment. From the Nikkei Asia Review:

Outflows of foreign direct investment in China have exceeded inflows for the first time as tensions with the U.S. over semiconductor technology and concerns about increased anti-spying activity heighten risks. The shift was reflected in balance-of-payments data for the July-September quarter released Friday by the State Administration of Foreign Exchange.
FDI came to minus $11.8 billion, with more withdrawals and downsizing than new investments for factory construction and other purposes. This marked the first negative figure in data going back to 1998.

To be sure, there are overseas precursors for this shift. The US is keen on banning cutting-edge knowledge on semiconductors and artificial intelligence from leaking to China:

Escalating tensions with the U.S. are one reason for the decline in foreign investment. In a survey taken last fall by the American Chamber of Commerce in the People's Republic of China, 66% of member respondents cited rising bilateral tensions as a business challenge in China.
In August, the U.S. announced tighter restrictions on chip and artificial intelligence investment in China. Washington is coordinating with Beijing ahead of a summit meeting between Presidents Joe Biden and Xi Jinping in November, but the U.S. remains committed to technology restrictions in the name of economic security.
Looking at foreign investment in the semiconductor field by destination, China's share has already shrunk from 48% in 2018 to 1% in 2022, according to U.S. research firm Rhodium Group. In contrast, the U.S. share rose from zero to 37%. The combined share of India, Singapore and Malaysia grew from 10% to 38%.

However, American chip and AI concerns obviously do not make up all potential sources of FDI to China. It is here where a decidedly unfriendly foreign investment policy climate factors in. You name it: from corporate espionage to various forms of harassment of overseas businesses under dubious pretenses... today's PRC leadership does not think much of how others perceive these actions meant to promote domestic industry at the expense of foreign concerns.

Europeans, for instance, cite only cosmetic efforts to improve prospects for FDI:

Beijing has been seeking to reverse capital outflows in the face of mounting economic challenges. But such efforts appear to have failed to assure investors. The China International Import Expo (CIIE), an annual event launched by President Xi Jinping in 2018 to portray China as an open market and improve its trade ties, kicked off on Sunday. But the European Union Chamber of Commerce in China criticized the event last week as a “showcase.”

“European businesses are becoming disillusioned as symbolic gestures take the place of tangible results needed to restore business confidence,” the chamber said in a Friday statement. “The CIIE was originally intended as a showcase of China’s opening up and reform agenda, but it has proven to be largely smoke and mirrors so far,” Carlo D’Andrea, vice president of the chamber, said in the statement.

Having done nearly everything possible to discourage FDI, is it any wonder it's leaving China?

Chinese Migrants at US Border: PRC's Dire Straits

♠ Posted by Emmanuel in China,Migration at 10/30/2023 02:00:00 PM

The blog's first AI image c/o Bing: "Draw a Chinese person walking through a Panamanian jungle."

A usually good indicator of an underwhelming economy is of a country's citizens departing it for greener pastures. The year is 2023, not 1882 when the US passed the Chinese Exclusion Act to stop a massive influx of Chinese immigrants. Moreover, isn't the 21st century supposed to have been the Asian Century according to some prognosticators? My belief is that policy missteps by Xi Jinping have greatly dented the forward momentum of China in recent decades, recently exacerbated by endless lockdowns during the COVID-19 pandemic. At any rate, you may be surprised that the PRC--not some Latin American country--now ranks fourth in sending folks across the Darién Gap linking South and Central America with hopes of entering the United States. From the Associated Press:

Chinese people were the fourth-highest nationality, after Venezuelans, Ecuadorians, and Haitians, crossing the Darién Gap during the first nine months of this year, according to Panamanian immigration authorities. Chinese asylum-seekers who spoke to The Associated Press, as well as observers, say they are seeking to escape an increasingly repressive political climate and bleak economic prospects.
They also reflect a broader presence of migrants at the U.S.-Mexico border — Asians, South Americans, and Africans — who made September the second-highest month of illegal crossings and the U.S. government’s 2023 budget year the second-highest on record.

As bad as things may be Stateside, let's say they are decidedly worse in China (where you certainly aren't free in a conventional sense).

The pandemic and China’s COVID-19 policies, which included tight border controls, temporarily stemmed the exodus that rose dramatically in 2018 when President Xi Jinping amended the constitution to scrap the presidential term limit. Now emigration has resumed, with China’s economy struggling to rebound and youth unemployment high. The United Nations has projected China will lose 310,000 people through emigration this year, compared with 120,000 in 2012...
“This wave of emigration reflects despair toward China,” Cai Xia, editor-in-chief of the online commentary site of Yibao and a former professor at the Central Party School of the Chinese Communist Party in Beijing.
“They’ve lost hope for the future of the country,” said Cai, who now lives in the U.S. “You see among them the educated and the uneducated, white-collar workers, as well as small business owners, and those from well-off families.”
Those who can’t get a visa are finding other ways to flee the world’s most populous nation. Many are showing up at the U.S.-Mexico border to seek asylum. The Border Patrol made 22,187 arrests of Chinese for crossing the border illegally from Mexico from January through September, nearly 13 times the same period in 2022. Arrests peaked at 4,010 in September, up 70% from August. The vast majority were single adults.

A common route involves landing in Ecuador and then continuing northward to reach the border:

The popular route to the U.S. is through Ecuador, which has no visa requirements for Chinese nationals. Migrants from China join Latin Americans there to trek north through the once-impenetrable Darién and across several Central American countries before reaching the U.S. border. The journey is well-known enough it has its own name in Chinese: walk the line, or “zouxian.”
The monthly number of Chinese migrants crossing the Darién has been rising gradually, from 913 in January to 2,588 in September. For the first nine months of this year, Panamanian immigration authorities registered 15,567 Chinese citizens crossing the Darién. By comparison, 2,005 Chinese people trekked through the rainforest in 2022, and just 376 in total from 2010 to 2021.

If there is something that will shame the PRC into adopting sensible economic policies that benefit its general population, then its citizens fleeing China for distant America en masse during its supposed renaissance should be it. In the final analysis, the folks who've made China uninvestable are the PRC's leaders and not some malign foreign influence these leaders like to blame.

The fruits of Xi Jinpingism are plain to see at the US-Mexico border.

Shein and Faster Fashion's Emergence

♠ Posted by Emmanuel in China,Marketing,Supply Chain at 12/21/2021 01:19:00 PM

Much has already been written about the emergence of "fast fashion": clothing retailers that are able to translate trends seen on the world's fashion runways... to a store near you in a matter of weeks. The success stories of Sweden's H&M and Spain's Mango have become the stuff of business legend in upending the fashion industry in recent decades. It was probably only a matter of time that onetime suppliers in China would become the firms at the cutting edge of evolving to customer's whims and desires that move so quickly.

Younger women should be familiar with China-based online retailer Shein. Reflecting the democratization of fashion brought by the online world, it's not the big fashion houses that set today's trends but rather posts on the likes of Instagram and Pinterest. In keeping with the times, Shein is almost entirely an Internet selling pure play instead of having bricks-and-mortar stores still like H&M or Zara. Rest of the World writes more about this emerging business success story:

Shein eventually expanded to offer apparel for women, men, and children, as well as everything from home goods to pet supplies, but its core business remains selling clothes targeted at women in their teens and 20s — a generation who grew up exploring their personal style on platforms like Instagram and Pinterest.

Its clothes aren’t intended for Chinese customers, but are destined for export. In May, the company became the most popular shopping app in the U.S. on both Android and iOS, and, the same month, topped the iOS rankings in over 50 other countries. It’s the second most popular fashion website worldwide.
By 2020, Shein’s sales had risen to $10 billion, a 250% jump from the year before, according to Bloomberg. In June, the company accounted for 28% of all fast fashion sales in the U.S. — almost as much as both H&M and Zara combined. The same month, a report circulated that Shein was worth over $47 billion, making it one of the tech industry’s most valuable private startups.

Think of Shein more as an Amazon-a-like instead of comparing it to the established fast fashion names in terms of its business model:

At the heart of these issues is Shein’s aggressive business model. Comparisons to fast-fashion giants like H&M miss the point: it’s more like Amazon, operating a sprawling online marketplace that brings together around 6,000 Chinese clothing factories. It unites them with proprietary internal management software that collects near-instant feedback about which items are hits or misses, allowing Shein to order new inventory virtually on demand. Designs are commissioned through the software; some original, others picked from the factories’ existing products. A polished advertising operation is layered over the top, run from Shein’s head offices in Guangzhou.

Ethical concerns with work conditions in Chinese garment factories aside, Shein's advantage is being able to call on PRC suppliers to shift even more quickly than European fast fashion firms:

For years, European brands like Zara and H&M have embodied fast fashion, shortening the route from runway to storefront from months to weeks. But Shein isn’t chasing runway trends — rather, it often knocks off items seen on TikTok and Instagram, where hype cycles move significantly faster. Whereas Zara typically asks manufacturers to turn around minimum orders of 2,000 items in 30 days, Shein asks for as few as 100 products in as little as 10 days. “They want factories to be much more nimble,” said Lu.

If speed is Shein's competitive advantage, it must adapt to even quicker cycles going forward. Or, will someone even speedier supplant Shein just as it has H&M and Zara (which outran department stores before them)? Something else I thought the article could have shed more light on is how Shein is working around supply chain snags like the US-China trade war, intermittent COVID-19 lockdowns in the PRC, and rising shipping costs.

2021's Miseries: The Great Creatine Shortage

♠ Posted by Emmanuel in China,Supply Chain at 11/20/2021 08:56:00 AM

By now, it should be obvious to just about everyone that goods whose availability we once took for granted are in short supply. Blame COVID-19 lockdowns affecting countries where these goods are being produced, a breakdown in air/sea/land transport logistics, and so on. The pre-COVID-19 world was built on distributing manufacturing facilities where things could be made most efficiently, assuming fairly inexpensive shipping even across vast distances. Is that world now gone? We'll have to wait and see if and when the pandemic subsides.

In the meantime, here's another not-quite-amusing example for those encountering these shortages: A few days ago, I noticed that my supplies for the exercise supplement creatine monohydrate were running low. I experienced sticker shock while scanning current selling prices. Briefly, what creatine does is replenish the body's supply of adenosine triphosphate (ATP), which fuels muscle contractions such as while performing resistance training. It turns out that most of creatine's precursors come from (surprise!) China. As many of you are probably aware, China has taken a zero tolerance approach to confronting COVID-19 outbreaks. With production centers and major port cities not immune to these recurrent lockdowns, creatine supplies have taken a hit. Here is a detailed and enlightening discussion of the ongoing creatine shortage from the Natural Products Insider:

Strict export regulations and regional COVID-related limitations are slowing China-originating supply chains for two top sports nutrition energy ingredients, caffeine and creatine. Outside of China, suppliers and manufacturers are clamoring to beef up inventories of these increasingly hard-to-find materials but face steeply rising prices for whatever supply they can secure [...] Similarly, the price of creatine has risen from its consistent $4 per kilo to between $10 and $14/kg.

There is more good detail:

More unique to the sports nutrition industry is creatine, which factors into energy production in the body and is popular with core market users, namely bodybuilders and athletes looking to boost muscle, performance and recovery. “There is a worldwide creatine shortage,” confirmed Jeff Golini, Ph.D., executive scientist for All American Pharmaceutical, who confirmed all the raw material to manufacture creatine comes out of China, meaning this shortage impacts all forms of creatine, from monohydrate to hydrochloride (HCl).
Thus, while suppliers such as AlzChem Trostberg GmBh (Creapure) and All American Pharmaceutical (Kre-Alkalyn) make their ingredients in Germany and Montana, respectively, their starter materials come out of China, placing even these suppliers in the impact zone. What’s behind the shortage is not quite clear and asking different “insiders” results in varying answers, including lots of guesswork and perspectives.
Vitajoy sells both caffeine and creatine, and Crane said as far as he can tell the shortage is related to the pandemic. His sources suggested COVID-related issues in the northern area of China, where most creatine factories reside, caused production facility closures. “I believe that is what might have started the ball rolling,” he reasoned. “From there it was reported that there were some starting material issues and, before you knew it, any availability in creatine was gone.”

Worse yet, the US-China trade conflict seems to be worsening availability:

Golini attributed the shortage to changing world politics, including the recent U.S. presidential administration transition, and the ongoing global power struggle involving trade. “China now is saying we have a shortage of everything in order to re-control the world market, create demand and raise pricing,” he said. “From creatine to resins to make plastics to pipe to erythritol to you name it.”

“Creatine is $14/kg if you can find it,” Kneller lamented. Crane noted pricing went from around $4 to more than $8/kg in a matter of months. “We feel like we might be seeing some daylight regarding supply in the coming months, but it’s hard to pinpoint exactly when,” he reasoned. Golini sees a longer struggle. “This shortage for creatine—as a matter of fact, there is none [available]—will continue this entire year, and you will see pricing go through the roof,” he warned.

Then there are the aforementioned regional shutdowns for COVID-19 containment--including areas crucial for creatine supply chains. These include Wuhan itself:

Creatine producers appear concentrated in the northeastern province of Hebei, near the Yellow Sea separating China from both Koreas and Japan [...] In January 2021, Chinese officials locked down the city of Shijiazhuang, the capital Hebei, and other areas of the province due to a COVID outbreak. Hebei Hangwang Import and Export Trading Co. Ltd., Sure Chemical Co. Ltd. Shijiazhuang and other creatine producers are located in this city. However, this restriction was lifted March 25, leaving only the city of Wuhan, Hebei, still under a lockdown that was lifted April 7. According to Made in China, several creatine suppliers are located in Wuhan, where COVID was first detected in China.
The bottom line is supply chain disruptions have become more common and rolling over the past several years due, among several reasons, to trade wars and the pandemic. Many supplement companies have grown to accept this fact, take steps to be better prepared and hope situations improve. “We expect global supply chain disruptions to follow COVID,” Titlow summarized. “The better COVID is managed (e.g. vaccines), the better the supply chain.”

There's even an amusing video online about bodybuilders regarding the creatine shortage as a harrowing event of enormous proportions. These are not quite the best of times for global supply chains; that much is clear.

Next in the PRC Firing Line: Hermes, Gucci?

♠ Posted by Emmanuel in China,Marketing at 8/30/2021 04:36:00 PM

Unless you've been hiding under a rock these past few months, headlines about how the PRC is cracking down on its most lucrative companies--Internet-based services, video games, online education, and the rest--have dominated business news. This crackdown is ostensibly in the name of maintaining social order--not letting inequality get out of hand, not getting young people hooked on mindless games, and so forth. This social engineering is most evident in new rules aiming to restrict hours spent by those under 18 on video games to no more than three.

So far, the largest victims of this erstwhile Xi Jinping-organized socialist putsch have been local firms. However, those feared to be next in the firing line are foreign purveyors of luxury goods. Are they next in line in being styled as "enemies of the people"?

Chinese President Xi Jinping has stepped up his call for "common prosperity," sending shudders through luxury goods vendors, which worry that China's rich will not be able to splurge on $3,000 bags.
The fear was palpable on the stock market last week. Shares of Paris-listed Kering, owner of the Gucci brand, slumped 17%. Switzerland's Richemont, the company behind such names as Cartier and Piaget, sank 14%. LVMH Moet Hennessy Louis Vuitton and Hermes slid 13% and 8%. Makers of high-end cars were hit as well, with Porsche down 10% and Ferrari 6%.
The catalyst was Xi's call for "common prosperity" as part of "high-quality economic development" last week at a meeting of the Chinese Communist Party's Central Committee for Financial and Economic Affairs. The committee called for adjusting "excessive incomes" and redistributing wealth that has become overly concentrated in the hands of a small number of people.

Veteran China commentator George Magnus (ex-UBS) I believe has it right when he says the current crackdown has more to do with the Communist Party maintaining control than any sort of re-commitment to socialist principles. Insofar as the likes of Alibaba and Tencent were gaining more and more of the "mindshare" of the Chinese people, they posed a threat to Communist Party fealty. Hence, they had to be knocked down to size to ensure that no other gods would be placed before the Party.

My belief is that Western luxury brands are not as vulnerable for this reason: while they may symbolize the wrong things like conspicuous consumption, they do not really pose a threat to the control that the Party has on various aspects of Chinese life--political, economic, social or technological. Ironically, it's the domestic tech giants who pose more of those kinds of threats, hence the recent actions.

China-Oz Trade War: Higher Ed Next?

♠ Posted by Emmanuel in China,Education at 5/12/2021 06:00:00 PM

Will PRC students soon be an increasingly rare sight on Aussie campuses?

Just when you thought China-Australia relations could get no worse, it seems they find something new to quarrel about. Perhaps the last golden goose Australia has left is its higher education sector, which still (rather amazingly) attracts scores of PRC students. That said, there appears movement afoot in China for recruiters to not promote Australia as a higher education. Anticipating matters may get worse (which is likely given how things are going between these two), Aussie universities are setting their sights on diversifying their international student base.

Researchers from the Australia National University in Canberra are urging the government to get moving in making their country's universities less reliant on Chinese students:

Dr Dirk van der Kley and Dr Benjamin Herscovitch argue education is Australia’s only remaining export valued over $10 billion annually which is “both reliant on China and which Beijing can target without significant self-harm”. The industry employs thousands of Australians, and is closely linked to the country’s technological competitiveness, the pair say.
Coercion against the sector would significantly impact Australia’s prosperity. “If there was a significant drop in students from China, the revenue and research loss would be impossible to fully replace through other international markets because China is the largest source of globally mobile students,” the authors write. The government would not be able to step in and fill that gap, they say.

Speaking of which, the Chinese government holds more cards in being able to harm Australia's economy given the economic importance of higher education service exports to the PRC and other nations:

The pair point out that media reports already indicate education agents in some Chinese cities were discouraged from promoting Australia as an education destination. Beijing could go further, by fostering negative views of Australia and its universities via the state-controlled media or even ceasing to recognise some or all Australian qualifications.
By recruiting more students from other locations, Australia could safeguard itself from Chinese coercion to a degree.

With both countries apparently not keen on talking with each other to resolve economic and other differences, it will probably happen all of a sudden and without much warning if the PRC starts discouraging its students from going to Australia.

Hong Kong Booted From 'Economic Freedom' Rankings

♠ Posted by Emmanuel in China at 3/09/2021 04:19:00 PM

Is Hong Kong circa 2021 ideologically closer to Mao Zedong than Milton Friedman?

Hong Kong used to be regarded as the world's shining example of the merits of free markets. No less than Milton Friedman--the most prominent libertarian thinker of his generation--lauded Hong Kong for its economic success due to following laissez-faire policies. Once upon a time, and for quite a long time, Hong Kong led the world in the ease of setting up and closing a business, allowing entrepreneurs manifold opportunities to come up with a formula to make it big. Government rarely made its presence felt back in the day.

Like all good things, however, this success story had to come to an end. It used to be that Hong Kong routinely topped or ranked near the top of the arch-conservative Heritage Foundation's annual Index of Economic Freedom. To be sure, Hong Kong remains a gateway to Asia due to its proximity to mainland China. But, with respect to economic freedom, recent encroachments by the PRC into its running have given us this strange result: Hong Kong isn't even being considered here anymore thanks to seemingly endless PRC meddling in its political economy. Hong Kong is now regarded as a PRC satellite instead of an independent entity worthy of separate consideration:

Hong Kong has been removed from an annual index of the world's freest economies because the think-tank that compiles the league table said the city was now directly controlled by Beijing. The announcement is a reputational blow for Hong Kong and comes as Beijing ramps up its bid to quash dissent after huge and sometimes violent pro-democracy demonstrations in 2019.

The Heritage Foundation, a conservative US think-tank, publishes an annual Index of Economic Freedom ranking countries and territories for how business-friendly their regulations and laws are. Over the last 26 years Hong Kong topped the table for all but one year - a source of pride to the city's government which often used the accolade in its official press releases and investment brochures.

But when the 2021 ranking is released later on Thursday, Hong Kong will not appear because the report's authors believe the city is no longer independent enough of Beijing to justify separate inclusion. "The loss of political freedom and autonomy suffered by Hong Kong over the past two years has made that city almost indistinguishable in many respects from other major Chinese commercial centres like Shanghai and Beijing," Edwin J Feulner, the founder of the Heritage Foundation, wrote in the Wall Street Journal on Wednesday.

And that's all she wrote.

Biden's War on Coal @ World Bank

♠ Posted by Emmanuel in Bretton Woods Twins,China,Environment at 2/14/2021 11:00:00 AM

There's an interesting article on Politico about how the Biden administration's pledge to limit emissions from fossil fuels will be implemented on the global stage. Sure, reducing subsidies for fossil fuel extraction and consumption at home to set an example for the rest of the world is one thing. However, there are also things the United States can do internationally to help ensure fossil fuels are kept in the ground.

In an executive order issued last month, Biden tasked the United States' agencies involved in foreign assistance and development financing--the International Development Finance Corporation (formed in 2019 by combining the Overseas Private Investment Corporation and the Development Credit Authority), Treasury, USAID, and the Millennium Challenge Corporation among others--with devising emissions-reducing financing.

This executive order also extends to the multilateral organizations the US is a member of, including the World Bank. It states:

[The Treasury Secretary shall] develop a strategy for how the voice and vote of the United States can be used in international financial institutions, including the World Bank Group and the International Monetary Fund, to promote financing programs, economic stimulus packages, and debt relief initiatives that are aligned with and support the goals of the Paris Agreement.

In doing so, the Biden administration wants to contrast clean, green American with dirty energy China. However, there is a danger that developing countries not as green-minded as Biden may instead be pushed to deal more with China:

President Joe Biden’s plan to halt U.S. funding for overseas fossil fuel projects will turn the global spotlight on China for bankrolling coal projects around the globe. But it could also push poor countries closer to Beijing — and risk ceding the United States’ position as a leading financier for developing economies...
Biden's directive last month to move toward withholding money from international institutions like the World Bank that help poor nations build fossil fuel power plants stands in stark contrast to Beijing's flow of cash under its Belt and Road Initiative, which supplies 70 percent of the financing for the world's new coal-fired plants. The White House is betting its move will paint China as hypocritical as that country — the world's top greenhouse gas emitter — aims to take a leading role in international climate change efforts.

To be sure, there will need to be a (sorry for the public administration jargon) whole-of-government approach for the US to get its message across in a way that resonates with developing countries deciding between clean energy and fossil fuels:

But the plan will require the Biden team to closely coordinate its foreign policy, trade and clean energy initiatives, because the absence of U.S. money for coal projects won't on its own sway other nations’ energy plans. And the U.S. cannot unilaterally offer sweet enough financial terms for clean energy to lure countries away from China's coal finance.

It's fair to say the US has its work cut out for it in a world which has not forsworn fossil fuels. It is worth pointing out that the Obama administration which Biden was a part of already started encouraging similar measures at the World Bank that have impacted the amount of fossil fuel-based energy projects it funded:

But the U.S. could immediately start shifting billions of dollars away from fossil energy if [Treasury Secretary] Yellen directs U.S. representatives at the World Bank and other multilateral funders to vote against coal, said Joe Thwaites, an associate with the World Resources Institute’s Sustainable Finance Center.
The number of coal projects funded by those institutions has already dwindled, due in part to efforts under the Obama administration, though multilateral development banks in which the U.S. is a shareholder accounted for $69.5 billion of fossil fuel finance between 2008 and 2019, according to environmental group Oil Change International.

PRC Cities Go Dark Without Aussie Coal

♠ Posted by Emmanuel in China,Energy,Trade at 1/05/2021 04:42:00 AM

While the US-China trade war occupies most of the headlines for obvious reasons--it's the geopolitical rivalry that matters--don't assume there are any number of others going on. Arguably the most notable among these is the deterioration in almost all respects of Australia-China trade relations, which have been accelerated by the Morrison government wanting to investigate China's role in the spread of COVID-19 worldwide seemingly at the outgoing Trump administration's behest.

This not-so-genius move is precisely biting the hand that feeds in terms of Australia losing significant access to its largest export market:

Australia’s economy has been badly hit by escalating trade tensions with China — and it’s possible growth might “never return” to its pre-virus levels even when the pandemic is over, according to research firm Capital Economics.
China is by far Australia’s largest trading partner, accounting for 39.4% of goods exports and 17.6% of services exports between 2019 and 2020, the firm said. But Beijing has for months been targeting a growing list of imported products from Down Under — putting tariffs on wine and barley, and suspending beef imports.
Gross domestic product (GDP) in Australia could contract even more if Beijing continues to pile tariffs on more Australian imports, said its senior economist Marcel Thieliant in a note last week. Goods and services that are already “in the firing line” are worth almost a quarter of Australia’s exports to China — forming 1.8% of its economic output, the research firm said.

The list of affected traded goods grows longer all the time. Exemplifying the current fashion for lose-lose, though, the Chinese are not exactly finding what they need from other countries so easily. Consider coal. Absent affordable and plentiful supplies from Oz, many PRC cities are now reportedly having power outages:

Several major Chinese cities have reportedly gone dark as authorities limit power usage, citing a shortage of coal. Analysts said prices of the commodity in the country have shot up due to the reported crunch. The reports also follow rising trade tensions between Beijing and Canberra, leading some analysts to tie the coal shortages and blackouts to the unofficial ban on Australian coal.
Relations between the two nations soured last year after Australia supported an international inquiry into China’s handling of the coronavirus pandemic. Coal is just one in a growing list of Australian goods that China is targeting, as a result of their escalating row.
Last year, China told its power plants to limit the amount of coal imports from other countries to keep a lid on prices. Beijing reportedly lifted those restrictions later, but didn’t remove curbs on coal imports from Australia. China also reportedly gave state-owned utilities and steel mills verbal notice to stop importing Australian coal.

The case for trade was nevermore evident than it is here. Both governments have done their people a welfare-reducing disservice by engaging in a pointless spat over COVID-19 that neither has an obvious benefit from engaging in.

Trump's Expanding PRC Blacklist: CNOOC, SMIC

♠ Posted by Emmanuel in China,Security at 12/01/2020 06:59:00 PM

If you think Trump's 2020 electoral defeat at the hands of Joe Biden have slowed his anti-China instincts, then you are sadly mistaken. Given that Biden has historically been sanguine about free trade, his policies towards China are expected to be more moderate than the orange China-basher. To preempt Biden, therefore, the Trump administration is speeding up plans to blacklist even more state-owned companies over their Communist Party links.

Reuters reports that China's largest energy company, CNOOC, and its largest chipmaker, SMIC. In reaction, their share prices declined significantly:

The Department of Defense (DOD) is poised to designate four more Chinese companies as owned or controlled by the Chinese military, bringing the total number to 35. A recent executive order issued by President Donald Trump would prevent U.S. investors from buying securities of the blacklisted firms starting late next year.
It was not immediately clear when the new additions to the blacklist would be published in the Federal Register, making the move official. But the list includes China Construction Technology Co Ltd and China International Engineering Consulting Corp, as well as Semiconductor Manufacturing International Corp (SMIC) and China National Offshore Oil Corp (CNOOC), according to the document seen by Reuters and four sources.
SMIC said it continued “to engage constructively and openly with the U.S. government” and that its products and services were solely for civilian and commercial use. “The Company has no relationship with the Chinese military and does not manufacture for any military end-users or end-uses,” it said in a statement. Shares in SMIC closed 2.7% lower on Monday.
CNOOC’s listed unit CNOOC Ltd, whose shares fell by almost 14% on Monday, said in a statement that it had checked with its parent and no formal notice from relevant U.S. authorities had been received.

What is the practical implication of this move, though? As mentioned, Biden will probably roll things back to try and bring the temperature down in Sino-US relations. What's more, some US fund managers may have to divest their holdings in these large PRC SOEs:

This month, the White House published an executive order, first reported by Reuters, that sought to give teeth to the list by prohibiting U.S. investors from buying securities of the blacklisted companies from November 2021.
The directive is unlikely to deal the firms a serious blow, experts said, due to its limited scope, uncertainty about the stance of the Biden administration and already-scant holdings by U.S. funds.
Still, top U.S. asset managers Vanguard Group and BlackRock Inc each own about 1% of shares of CNOOC’s listed unit CNOOC Ltd, and together own roughly 4% of outstanding shares of SMIC, disclosures show.

Like Trump's other scorched earth measures, the intent is not only meant to irreparably harm relations such that Biden's team can't fix them but to also show action on anti-China rhetoric. Unfortunately, Trump remains a political force Stateside, and he will be able to point to actions like this in the future should he choose to run again or endorse allies or relatives running for office.

Is China's TikTok Turning American to Avoid a US Ban?

♠ Posted by Emmanuel in China,Security,Technology at 7/22/2020 05:15:00 PM

So much international controversy over such a mindless diversion. That is TiktTok's current predicament.

This is just a follow-up on a previous post I made about how India banned TikTok's app there. During these difficult times, countries are understandably adapting protectionist stances. After all, it's the easiest strategy to pursue when confronted with hardship: blame foreigners for whatever ails your country. In the telling of US Secretary of State Mike Pompeo, TikTok is a Trojan horse for Chinese Communist encroachment into American life. For kicks, I am linking to a Fox News story for the first time ever (I think)--fitting since we're dealing with the realm of xenophobic post-truth here:

Secretary of State Mike Pompeo said Monday the Trump administration is considering restricting United States' users' access to the Chinese social media application TikTok over concerns it is potentially being used by the Beijing government as a means to surveil and propagandize people.

"With respect to Chinese apps on people's cell phones, I can assure you the United States will get this one right too," he said, adding that he did not want to dive into specifics and potentially "get ahead" of any presidential announcement.

"But, it is something we are looking at," he said, going on to warn Americans that they should be cautious in using TikTok, lest they want their private information "in the hands of the Chinese Communist Party.

Nevermind that Pompeo presents no evidence for this claim--eek, it's from China! is the extent of his exceedingly juvenile argument--but when has that deterred anyone from the Trump administration from bashing the PRC for whatever reason? To appease Trump, TikTok's parent company is proposing to hire 10,000 US workers:

TikTok said Tuesday that it plans to create 10,000 jobs in the United States over the next three years, a substantial increase from the roughly 1,400 employees it currently has in the country. The announcement comes as the company faces mounting criticism over its handling of user data and its ties to China through its parent company, ByteDance.

Which is all well and good, but is there any guarantee this appeasement strategy will work? Since it keeps highlighting that its CEO is American, why not go whole hog and become a majority American-owned company? Indeed, some investors are thinking of doing just that to get rid of this folly once and for all:

Beleaguered video app Tiktok could be split from its Chinese parent company Bytedance and sold off to US investors in a bid to curtail a mooted ban on the app in America, as questions over the company’s data protection policies face mounting criticism on both sides of the Atlantic. Tiktok’s $110bn (£86bn) parent firm Bytedance is in talks with a small group of US investors to sell off a majority stake in the viral video platform, according to Silicon Valley news site The Information [...]

ByteDance’s sale discussions have reportedly included the company’s founder and chief executive Zhang Yiming, and Neil Shen, a board member and a partner at Sequoia Capital’s Chinese branch. The sale plan would require investors such as Sequoia, General Atlantic and New Enterprise Associates to form a consortium, with Bytedance potentially retaining a minority stake in the video platform.

It is thought a formal split from China would allay spreading fears that the video platform’s parent company is beholden to Beijing authorities and could be used as a tool of Chinese state surveillance.

i myself am flummoxed by how something so lowbrow and inane can not only find so many devotees but also attract the attention of ardent protectionists. Would Bytedance be willing to offload its golden goose to assuage the concerns of an American madman and his minions? November nears, you know, and Joe Biden may not be as silly. Maybe Bytedance just has to wait Trump out.

Can Trump Destroy Hong Kong's Dollar Peg?

♠ Posted by Emmanuel in China,Currencies at 7/08/2020 07:20:00 PM

Asian financial crisis, SARS, global financial crisis, COVID-19 outbreak...HK$ remains pegged. Whither Trump?

There are several ironies in the Trump administration's ongoing efforts to strike back at China for eroding Hing Kong's political freedoms through passing a national security law via the mainland's rubber-stamp legislature. For a wannabe authoritarian, Trump taking action against China for eroding its territory's independence is kind of rich. For another thing, Hong Kong is one of the few places on earth that imports far more the United States than it exports. Trump regularly bashes those the US runs large bilateral trade deficits with, so what is Hong Kong doing here? Take it from the horse's mouth--the US Trade Representative notes:

U.S. goods and services trade with Hong Kong totaled an estimated $66.9 billion in 2018. Exports were $50.1 billion; imports were $16.8 billion. The U.S. goods and services trade surplus with Hong Kong was $33.4 billion in 2018.

As such, the US cannot punish Hong Kong with the same tariff it hits the rest of the PRC with since it mostly trades in services, not goods. So, how about restricting services trade with Hong Kong, then? One way the Trump administration has thought of doing this is by targeting the Hong Kong dollar's peg to the US dollar at about 7.8 HKD per USD:

The proposal to strike against the Hong Kong dollar peg, possibly by limiting the ability of Hong Kong banks to buy U.S. dollars, was raised as part of broader discussions among advisers to Secretary of State Mike Pompeo, Bloomberg’s report on Tuesday said. Undermining the peg was seen by some advisers as one way to hit back at China for its moves to whittle away at Hong Kong’s political freedoms, the report said.

Other administration members pushed back against the proposal, worrying that such a move would only hurt Hong Kong banks and the United States, not China, sources told Bloomberg. The idea also was not elevated to White House senior levels, the report said.

The ways it would work are by restricting access to US dollars:

Market watchers are pondering what measures could be implemented to undermine the peg and what the fallout would be. Analysts at broker Hamilton Court FX predicted this could be done by reducing or rescinding swap lines, curbing Hong Kong authorities’ ability to buy and sell dollars in order to keep the currency within its defined trading range. Commerzbank analyst Hao Zhou called it a “low-possibility” event but with risk of huge market impact.

Sure, the Trump administration's China-bashing appears boundless, from pulling out of the World Health Organization over allegations of unwarranted PRC influence to denying entry to foreign students who will only be taking online courses at US universities (since Chinese account for the largest number of foreign students). Remember, though, that the Hong Kong Monetary Authority--its central bank--has $445 billion worth of reserves to combat a US assault on the peg with. If things get tough, Hong Kong authorities have said they can further draw on the PRC's dollar stockpile. Most market commentators also describe this proposed action as futile since it would boomerang mightily on its perpetrator. So the Trump administration can try, but it will most likely fail--after plunging the world economy into heaven-knows-what that would make the global financial crisis look like a rom-com romp by comparison.
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Patrick Bennett, head of macro strategy for Asia at Canadian Imperial Bank of Commerce

It’s a fairly wacky idea that they would be able to force Hong Kong off the peg by some means. I’ve been against the idea that Kyle Bass and others trying to break the peg -- that has been a spectacularly unsuccessful idea so far, and I expect it to be the same.

Stephen Innes, chief global market strategist at AxiCorp

Why this is bad not to mention an unlikely move: First, direct U.S. action against the peg could trigger China’s response by putting U.S. assets, including USTs or equities. Second, such a move could destabilize USD pegs elsewhere, including U.S. allies around the world, especially those in the Middle East. Third, the unthinkable instability that it would trigger in the USD-based global financial ecosystem could drive a selloff in US equity markets – an outcome abhorrent to the White House ahead of the November presidential election.

Xia Le, chief Asia economist at BBVA Hong Kong

It’s technically difficult to impose, and it’ll hurt U.S. a lot. The peg is maintained by Hong Kong, which doesn’t need approval from the U.S. and not something the U.S. could easily manipulate. Technically, it’s very hard for them to prevent any businesses from investing in the city or limiting the ability of Hong Kong banks to buy U.S. dollars.

Carie Li, an economist at OCBC Wing Hang Bank

At the moment, the Trump administration isn’t seriously considering this as it’s very risky for them. It’s more about specific restrictions for financial institutions under the sanctions. Hong Kong is the world’s third-largest U.S. dollar trading center, which would mean if the HKD can’t be pegged to the USD it would be unfavorable to the U.S. by curbing the number of transactions in U.S. dollars and would lower investor confidence in the greenback.

Becky Liu, head of China macro strategy at Standard Chartered Bank

At this stage I personally assign a relativity low possibility for this to happen. Having said that, in the recent days U.S. has taken some totally unexpected actions by withdrawing from the WHO. So the likelihood of the U.S. doing something is still very likely, it’s just likely to be less drastic in terms of impacting the convertibility between the HKD and the USD, like setting a limit on how much exposure banks are able to have on the Hong Kong dollar or setting limits on the amount of exposure U.S. companies can have towards the Hong Kong dollar.

Techno-Nationalism: India Bans PRC's TikTok

♠ Posted by Emmanuel in China,India,Security,Technology at 7/02/2020 12:44:00 AM

Slap Xi's image with sandals...and ban Tiktok too!

Well, well, well: In a previous post concerning whether India could boycott China after the recent, fatal border skirmish, I said "They can burn as many Xi pictures as they like, but their compatriots won't stop buying PRC-made goods anytime soon." As it turns out, techno-nationalism is alive and well but not in the way I had envisioned. (I am still correct on technical points since [1] what's transpired concerns services not goods and [2] it's a government ban instead of a consumer boycott). The jingoistic Modi government apparently couldn't help itself from taking a swipe at China.

Nationalism aside, Modi & co. are hitting China in a way that inflicts less damage on India. True, India still cannot restrict the purchase of PRC-sourced electronic equipment since they have limited domestic manufacturing capabilities for smartphones, 5G infrastructure, and so on. But, India has no lack whatsoever of software writing talent. So, India has banned Bytedance of China's TikTok app, nearly a third of whose users are in India:

For thousands of Indian content creators [...] TikTok was a window into fame and fortune. But on Tuesday, the app, owned by China's ByteDance, went blank on phones across India after the government banned it along with 58 other Chinese-origin apps which it considered a threat to national sovereignty. The move came weeks after a deadly skirmish between Indian and Chinese soldiers along the disputed Himalayan border.

So the first key difference is that the government banned TikTok instead of there being a user backlash against the app (though some users support the Indian government's move):

TikTok was a sensation in India. With more than 600 million downloads, India accounted for 30 percent of its two billion downloads worldwide. ByteDance planned to invest $1bn in India, its top growth market where it employs 2,000 people [...]

Unlike Instagram, Facebook and Twitter, TikTok found resonance in India's hinterland as well as its cities, thanks to its less elaborate user interface, background music options and various special effects. Users - who ranged from top Bollywood stars to people in remote villages who became mini-celebrities - posted a wide variety of content, though jokes, dance clips and videos related to India's thriving movie industry dominated the platform.

And second--this is probably the key to the Modi government's thinking--there aren't many difficulties in cooking up homegrown TikTok alternatives. India is exceedingly good at software development, so why rely on China's?

Indian video-creation apps like Roposo, described on Google's app store as "India's own video app", and another named Chingari are likely to see a popularity surge after the TikTok ban.

Like Huawei, ZTE, and other Chinese telecoms firms, ByteDance's fate in overseas markets is inevitably tied to the PRC's image abroad. It's too bad since ByteDance has actually done more than you would expect to customize its offerings in overseas markets. It's the "reward" it gets from being a Chinese concern circa 2020.

Border Conflict: Can India Boycott China?

♠ Posted by Emmanuel in China,India,Security at 6/20/2020 07:11:00 PM

They can burn as many Xi pictures as they like, but their compatriots won't stop buying PRC-made goods anytime soon.

I have always been fascinated by territorial conflicts over uninhabitable lands. Due to its altitude, the area where Chinese and Indian forces had a border skirmish cannot sustain an appreciably-sized population of any sort. Moreover, the details of the encounter remain sketchy: Who initiated the conflict? If both sides were unarmed, why do casualties on both sides number in the double digits? There is still a lot we don't know.

Importantly from an IPE perspective, will there be economic consequences for this particular encounter? In particular, the Indians have been avid buyers of PRC tech goods--and count on Chinese sources of investment also. So despite Indian officials allowing for some public letting off of steam directed at China, there will likely not be a break in their commercial ties. Simply put, India does not have the production capabilities or an alternative supplier (ideally nearby) to China at the current time:

India imports more goods from China than any other country. And over the past decade, India and China have enabled each other's rise as emerging technology powerhouses. Chinese tech giants have invested billions of dollars into India's biggest startups, while its smartphone makers dominate the country's market and Indians have flocked to apps like TikTok.

Now, the dispute threatens those ties. Growing anti-China sentiment in India has already led to calls for a boycott of Chinese products and services, while new rules on foreign investment could constrain China's ability to cash in on India's internet boom.

What are the chances of a realistic Indian boycott of PRC tech? Slim to none:

China has created a significant place for itself in India's technology sector over the last five years, according to a report published by Indian foreign policy think tank Gateway House. Unable to convince India to sign on to its global infrastructure project known as the Belt and Road Initiative, China entered India's tech scene by flooding the market with cheap smartphones from brands such as Xiaomi and Oppo and plowing money into Indian startups.

Gateway House estimates that Chinese investors have poured some $4 billion into Indian tech startups since 2015. Alibaba (BABA), for example, has invested in Indian e-commerce company Snapdeal, digital wallet Paytm and food delivery platform Zomato. Tencent (TCEHY), meanwhile, has backed Indian messaging company Hike and ride hailing app Ola. Gateway House found that more than half of India's 30 unicorns — private firms worth more than $1 billion -— have Chinese investors.

Despite some new rules to curb PRC investments disguised as additional scrutiny of those emanating from countries India shares borders with--Pakistan isn't investing in Indian tech anytime soon--India can only hope to channel some PRC investment in areas which may generate some jobs there. It's a structural dependence India has on China:

"I don't think there's a widespread understanding of how difficult it would be to completely reduce India's reliance on China," said Ananth Krishnan, former Brookings India fellow and author of the report.

India relies on China for everything "from heavy machinery and all kinds of telecom and power equipment, to active pharmaceutical ingredients," said Krishnan, who is now a reporter with The Hindu newspaper. In his Brookings report, Krishnan estimated that the total current and planned investment from China into India is at least $26 billion. Trade between the two countries reached more than $87 billion in the 2018-2019 fiscal year, according to India's Department of Commerce. China was India's second largest trading partner that year, just behind the United States.

Also note that PRC smartphone makers have set up shop in India already, making them fairly entrenched in India's commercial scene:

Last year, four of the top five best-selling smartphone makers in India were Chinese: Xiaomi, Vivo, Oppo and Realme, according to market research firm IDC [...]

And all of them have manufacturing facilities in India. Doing so allowed the Chinese firms to both embrace Prime Minister Narendra Modi's "Make in India" program and avoid stiff import tariffs. Xiaomi manufactures 95% of the phones it sells in India locally. "So if you're talking about cutting down the sales or shipment for these guys, it also impacts the factories that they have in India," which will "absolutely" affect Indian jobs, said Kiranjeet Kaur, an analyst with IDC.

Both sides may allow or even foment some jingoistic posturing since they have nationalist-leaning leaders. But ultimately, India cannot wean itself of China at this point in time--much as it would like to. With China equally keen on securing export markets, this drama can only play out so far.

Can the UK Poach Up to 3 Million Hongkongers?

♠ Posted by Emmanuel in China,Europe,Labor at 6/13/2020 06:17:00 PM

British students are not even on par with Yankee ones. No wonder the UK needs people from fourth-ranked Hong Kong.

Everybody is an opportunist: When the PRC passed security [sic] legislation by force in Hong Kong following the latter's supposed inability to do so, the British saw an opportunity. Now, the United Kingdom is still fully engaged in that exercise of unmitigated self-harm called Brexit. However, it seems that even the grossly inept government of Boris Johnson (my spell-checker suggests "Boorish Johnson"; who am I to disagree?) recognizes something. Without brainy Estonians, Irish, Polish, etc. coming from elsewhere in the European Union to work in the UK, they need to import "human capital," i.e., smarts, from elsewhere.

The chart above shows test results of the PISA 2018 standardized examination conducted annually by the Organization for Economic Cooperation and Development (OECD). The EU countries I mentioned above stomp the UK. Pretty soon, their citizens can't come to the UK to work anymore--at least nowhere near as easily as when they all belonged to a single labor market. So, with discontent mounting in Hong Kong over months and months of anti-PRC protests and now this anti-terrorist legislation, why not offer 3 million Hongkongers documentation to come to the UK? Like the other greyed-out Asian regions and countries (they participate in the test but are not actually OECD members), Hong Kong smashes the UK in academic performance.

That said, there is a catch since it's not simply a case of being able to buy a UK passport:

In his op-ed published by the Post on June 3, British Prime Minister Boris Johnson made a heroic pledge that Britain would not walk away from its obligations to Hong Kong (“Britain to offer alternative for Hongkongers fearing for their way of life”).

Improving on the offer made by Foreign Secretary Dominic Raab on May 28 to extend the visa-free stay of BN(O) passport holders to 12 months, Johnson said that, if China imposes its national security law on Hong Kong, Britain would change its immigration rules to allow BN(O) passport holders to go to Britain for work, which would provide a pathway to citizenship.

Johnson’s offer is far less generous than it sounds. Under Britain’s immigration rules, a BN(O) passport holder admitted for work will need to satisfy the continuous ordinary residence requirement for five years (without being absent for more than six months in any year) to acquire “settled” status. A person who has acquired “settled” status will have to wait another 12 months before qualifying for British citizenship. During that time, that person needs to have the means to support himself or herself in Britain, and pay British tax.

Is a diminished post-Brexit Britain more attractive than a Hong Kong ravaged by years of civil unrest and now the loss of political freedoms? It seems to me that folks both places would want to have might want to go elsewhere instead given the chance. New Zealand, for instance, isn't a dumpster fire of a nation.

Brainless Markets, US vs. Asia COVID-19 Edition

♠ Posted by Emmanuel in Americana,Casino Capitalism,China,South Korea,Southeast Asia at 6/09/2020 11:34:00 PM

Are US stock markets missing something, or is Trumpland going to be socked more by COVID-19 than Asian economies?

The legendary economist John Maynard Keynes is attributed for saying "the market can stay irrational longer than you can stay solvent." Well, if we are to evaluate countries by how hard hit they are by the coronavirus pandemic, the performance of American stock markets should be all the evidence you need that Keynes was right as it leads the rest of the world in rebounding from their March lows. The tech-heavy NASDAQ is somehow at record highs three months or so after stock markets worldwide imploded. Is it because the United States is doing so much better in coping with COVID-19 than anyone else? Heck no!

1. The Organization for Economic Cooperation and Development (OECD) predicts the US economy will shrink far more than Pacific Rim countries like Japan, India, Indonesia, China and Korea, and the disparity will be starker if there is no "second wave" of infections. (See the chart above.) For, the American economy is expected to suffer much the same GDP declines in either case than the aforementioned Asian economies. Yet, those Asian economies' stock markets are not doing anywhere near as well.

2. As China's stock market remains comparatively moribund, we are reminded that PRC fatalities are by now less than one-twentieth of the United States' despite being the country from which the virus originated. In fact, the US death rate is by now over 100 times greater than China's:

COVID-19 remains an ongoing threat and the U.S. has just reached a tragic milestone in the pandemic that may not get much attention. The COVID-19 death rate in the U.S. has now passed 340 per million residents, just over 100 times the rate in China. Let that sink in: The death rate from COVID-19 in the U.S. is 100 times greater than it is in China, where the virus first emerged in humans and where the Trump Administration claims the blame should lie for letting the pandemic get out of hand.

3. With 112,000 deaths and still rising, the United States has in no way slowed COVID-19 down unlike most European and East Asian countries. So, the Yanks' lead in this dubious statistic--coronavirus deaths--should become even more insurmountable in the coming weeks as they continue to climb without appreciable arrest. Its states have removed most restrictions on movement despite not having any noticeable improvements on a nationwide basis, so it's almost a given that things will get even worse Stateside.
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In my humble opinion, those betting on US outperformance--whether in dealing with COVID-19 or its economic fallout--are as delusional as that country's leader. It's the financial equivalent of wishful thinking that the country that is so far ahead of any other country in COVID-19 cases and deaths will also be the one to do the best economically. It's the financial equivalent of ingesting hydroxychloroquine, Clorox, or whatever chemical Trump is fancying at the moment so that the virus will magically go away.

I've put my money where my mouth is at: I am long Asian stocks and short American ones. If equity valuations are still reality-based--on fundamentals--the relatively lesser economic consequences of the virus on Asian economies should ultimately result in their stocks outperforming American ones going forward.

6/11 UPDATE: US stock markets have been hammered right after this posting, with the Dow Jones Industrial Average down 1,800+ points. To paraphrase Forrest Gump, brainless is as brainless does.