It’s been nearly two months since Chinese cryptocurrency exchanges were abruptly shuttered by local regulators, part of President Xi Jinping’s ongoing crackdown on capital outflows and potentially embarrassing or destabilizing market forces in the weeks ahead of last month’s National Party Congress. But now that China’s new president emperor has cemented his grip on power by installing political allies on the Politburo and successfully lobbying to have his name enshrined in China’s Constitution, the exchanges are taking tenative steps to figure out if it’s safe to do business in China again, and what constraints would apply to their operations going forward. And while providing an online exchange for fiat-to-digital currency transactions is still expressly prohibited, a couple of the country’s biggest exchanges are rolling out an OTC model that resembles the popular peer-to-peer bitcoin trading website Local Bitcoins, and which will “also support fiat currency transactions.” Here’s CoinDesk: Some of China’s top bitcoin exchanges are now shifting to the over-the-counter (OTC) market in the wake of a crackdown by regulators in the country. In announcements made on Oct. 31, both OKEx and Huobi Pro said they will introduce peer-to-peer trading platforms that support fiat currency transactions, including the Chinese yuan, as an alternative for the country’s domestic cryptocurrency investors. Based in Hong Kong, the two exchanges had previously provided solely crypto-to-crypto trading since being founded by their respective parent exchanges, Beijing-headquartered OKCoin and Huobi. They will now pivot toward a combination of the existing structure and the direct, peer-to-peer model.
This post was published at Zero Hedge on Nov 4, 2017.
Shortly after Steve Bannon visited Hong Kong last week to give a closed-door speech at a big investor conference hosted by CLSA, a Chinese state-owned brokerage and investment group, Trump’s former strategist flew to Beijing for a “secret meeting with the second most powerful Chinese Communist party official”, less than a month after the former chief White House strategist declared that America was at ‘economic war with China’, the FT has reported. The meeting occurred at Zhongnanhai, the Chinese leadership compound, where Bannon meet with Wang Qishan, the head of the Chinese Communist party’s anti-corruption campaign. “The Chinese reached out to Bannon before his Hong Kong speech because they wanted to ask him about economic nationalism and populist movements which was the subject of his speech,” the FT quoted a “person familiar” with the situation. Mr Wang, who is seen as the second most powerful person in China after President Xi Jinping, arranged through an intermediary for a 90-minute meeting after learning that Mr Bannon was speaking on the topic, according to the second person, who stressed there was no connection to President Donald Trump’s upcoming visit to China. As the FT adds, the (not so) secret meeting between Bannon and Wang will “stoke speculation that the Chinese anti-graft tsar, who has purged hundreds of senior government officials and military officers for corruption in recent years, may continue to work closely with Mr Xi during his second term in office.” Under recent precedent, Mr Wang, who turned 69 in July, would be expected to step down from the Politburo Standing Committee, the Communist party’s most powerful body. But his many admirers argue that as China’s most knowledgeable and experienced financial technocrat, he should stay on to help Mr Xi force through a series of stalled financial and economic reforms.
This post was published at Zero Hedge on Sep 22, 2017.
Xiao Jianhua, the Chinese billionaire whose abrupt disappearance from Hong Kong in January made waves internationally, had engaged in a week-and-half long negotiation with Chinese anti-corruption agents before he agreed to return to Beijing with them, according to a source with knowledge of the matter. The source, who is close to high-level discussions in the Chinese leadership headquarters at Zhongnanhai, also told The Epoch Times that the anti-corruption team is still in Hong Kong investigating other corrupt Chinese businessmen and officials residing in the semiautonomous city. Xiao, a 45-year-old China-born Canadian citizen, suddenly went missing from his serviced apartment in Hong Kong’s Four Seasons Hotel on Jan. 27. Accounts in Hong Kong and Western press suggested that Xiao, who controls the holding company Tomorrow Group, was effectively abducted by the Chinese authorities and spirited back to mainland China. But Xiao had consented to be brought in by the authorities, according to the source in Zhongnanhai. The source said that Xiao and anti-corruption teams based in the Four Seasons discussed the conditions of the engagement for over a week before Xiao finally agreed to leave with them. While details of what transpired are scarce, it is likely that some level of coercion was involved, given mainland authorities presumably continue to enjoy leverage over Xiao, his wealth, and his family members.
Another Trump nominee for a critical government role has decided to withdraw. After two prior Trump nominees, Army Secretary choice Vincent Viola and Labor nominee Andy Puzder, both removed themselves from consideration for their appointed role in recent weeks citing insurmountable opposition or conflicts, moments ago financier Philip Bilden, a senior advisor at HarbourVest Asia and President Trump’s pick to lead the Navy, was said to become the third Trump appointee to withdraw his nomination. “Philip Bilden has informed me that he has come to the difficult decision to withdraw from consideration to be secretary of the Navy,” Defense Secretary Jim Mattis said in a statement Sunday evening. He added that “this was a personal decision driven by privacy concerns and significant challenges he faced in separating himself from his business interests.” Bilden’s vast financial holdings, many of which he earned in Hong Kong, would have made it difficult for him to survive the scrutiny of the Office of Government Ethics, USNI News reported. Bilden, who built his career in Hong Kong with the investment firm HarbourVest, was a surprise pick for the Navy post but had been Mattis’ preferred candidate. Yet like billionaire investment banker Vincent Viola, who withdrew his nomination to be secretary of the Army earlier this month, Bilden ran into too many challenges during a review by the Office of Government Ethics to avoid potential conflicts of interest, the sources said.
This post was published at Zero Hedge on Feb 26, 2017.
When former Chinese Politburo member Zhou Yongkang was arrested in 2014 on corruption charges, the scale of his ill-gotten gains was astounding, totalling some $16 billion. When sums that large are involved, most of the assets have to be invested in financial instruments and real estate. But the list of physical currency found in his homes is revealing: 152.7 million Chinese yuan (valued at the time at $24.5 million), 662,000…10,000…55,000 Swiss francs — and US$275 million. The former head of China’s internal security services and one of the 10 most powerful men in China apparently preferred to keep his “petty cash” mainly in U.S. dollars. He’s not alone. China lost around $1 trillion to capital flight in 2015, before clamping down hard at the beginning of 2016. Much of this money leaves China via fake invoicing in Hong Kong, where the local currency is pegged to the U.S. dollar. Illicit outflows are also facilitated by casinos in the Philippines, South Korea, and on remote Pacific islands, all of which operate primarily in dollars. Predictions of the dollar’s demise and eventual replacement by the Chinese yuan, are a staple of global economic punditry, but they have little basis in reality. Of course China has become an important component of the global economy, accounting for more than 15 percent of global gross domestic product. But when Chinese people themselves prefer to hold dollars, there is little chance that the Chinese yuan will ever replace the U.S. dollar as the world’s key currency.
Goldman Sachs Group Inc. plans to cut about a quarter of its investment-banking jobs in Asia, excluding Japan, because of a slump in deal-making in the region, according to a person with knowledge of the matter. The New York-based bank plans to make the cutback of about 75 jobs in the region later this year, the person said, asking not to be identified because the matter is confidential. The job reduction comes as the bank faces its worst Asia ranking in equity issuance since 2008, according to data compiled by Bloomberg data. A Goldman Sachs spokesman said he was unable to comment. Asia ex-Japan equity offerings have declined 29 percent this year, and Goldman’s ranking plummeted to 11th from second in 2015, its worst showing in about eight years, the data show. The company also has come under scrutiny by authorities for its role in underwriting $6 billion of bond sales for 1MDB, the Malaysian government fund at the center of several international investigations into suspected corruption and money laundering. Chinese securities firms are mounting a challenge to western banks like Goldman Sachs and Morgan Stanley in Asia, with mainland companies occupying seven of the top 10 positions in advising on Hong Kong initial public offerings this year, data compiled by Bloomberg show. Postal Savings Bank of China Co. raised $7.4 billion in a Hong Kong initial public offering this week, the world’s biggest first-time share sale this year.
China’s attempts to slow runaway home-price growth in major cities are showing little sign of success, stoking the threat of a housing bubble that could destabilize the economy. New home prices rose the most in six years in August, jumping 1.2 percent from July, according to Bloomberg calculations based on government data. Home prices rose in 64 of 70 cities tracked by the government, up from 51 the previous month. Shanghai prices surged a record 4.4 percent for a year-on-year gain of 31 percent, while Beijing’s climbed 24 percent from a year earlier. The gains suggest moves by city governments to cool surging home prices over the past six months are doing little to damp demand from investors looking for alternatives to stocks and overseas property. That may prove to be a challenge for central government policy makers on how to respond without choking off growth in the world’s second-largest economy by squeezing credit. ‘The more immediate risk of a sudden and steep downturn in the economy comes from the threatened bursting of the property market bubble,’ Pauline Loong, managing director at research firm Asia-analytica in Hong Kong, wrote in a Sept. 14 report. ‘And bubble it is. The real question for investors is when and what will pop the bubble?’
The fall of South Korea’s biggest container line Hanjin Shipping Co. is similar to the 2008 collapse of Lehman Brothers Holdings Inc. and has materially impacted the shipping industry, Seaspan Corp. Chief Executive Officer Gerry Wang said. Seaspan, the Hong Kong-based container-ship leasing company that has three vessels chartered to the distressed line, is evaluating all options and examining systemic risks resulting from Hanjin’s bankruptcy filing, Wang said in an interview with Bloomberg Television. In June, Wang had rejected Hanjin’s requests for charter-rate cuts before the shipping line filed for court receivership last month. ‘The fallout of Hanjin Shipping is like Lehman Brothers to the financial markets,’ Wang said. ‘It’s a huge, huge nuclear bomb. It shakes up the supply chain, the cornerstone of globalization.’
Victory for Donald Trump in the U. S. presidential election could be a game changer for China’s economy. The candidate’s promise to slap punitive tariffs on Chinese imports would be highly contractionary, deflationary and wipe hundreds of billions off the value of the world’s second-biggest economy, according to new research by Kevin Lai, the Hong Kong-based chief economist for Asia (excluding Japan) at Daiwa Capital Markets. Lai estimates that Trump’s suggestion for a 45 percent tariff on Chinese goods to narrow the trade deficit with America would spark an 87 percent decline in China’s exports to the U. S. – a decline of $420 billion. That would, over time and factoring in multiplier effects, mean a 4.82 percent blow to China’s gross domestic product, or about a half trillion dollars’ worth. It doesn’t even take into account an estimated $426 billion in foreign direct investment repatriation if companies started to withdraw. ‘A loss of GDP or a slowdown in GDP growth of this scale would be staggering,’ Lai wrote in a note entitled ‘What would a Trump presidency mean for China.’ ‘Eventually, Trump and his administration may actually compromise with a watered-down version of tariffs.’
Hanjin’s Ghost Ships Seek Haven Suppliers to companies such as Nike Inc. and Hugo Boss AG are scrambling to ensure their T-shirts and sneakers reach buyers in time for the year-end holiday season after the collapse of Hanjin Shipping Co. left an estimated $14 billion worth of goods adrift. Esquel Group, a Hong Kong-based manufacturer for fashion brands including Nike, Hugo Boss and Ralph Lauren, is hiring truckers to move four stranded containers of raw materials to its factories near Ho Chi Minh City as soon as they can be retrieved from ports in China. Liaoning Shidai Wanheng Co., a Chinese fabrics importer and a supplier to Marks & Spencer Group Plc, has made alternative arrangements for shipments that were scheduled with Hanjin. ‘Our production lines are waiting,’ said Kent Teh, who runs Esquel’s Vietnam business. ‘We potentially have to take airfreight to deliver the garment items to clients in the U. S. and U. K.’ Apparel, handbags, televisions and microwave ovens are among goods stranded at sea after Korea’s largest shipping company filed for bankruptcy protection last week, setting off a series of events that roiled the global supply chain. A U. S. Court on Tuesday provided a temporary reprieve, which may help vessels call on ports such as Los Angeles without the fear of getting impounded. Any major bottlenecks ahead of Thanksgiving and Christmas could put a dent in the two-month shopping season, which netted some $626 billion of sales last year in the U. S.
This post was published at David Stockmans Contra Corner By Nguyen Dieu Tu Uyen, Kyunghee Park and Mai Ngoc Chau, Bloomberg Business ‘ September 8, 2016.
Chinese companies’ borrowing costs have never been so low. That’s little consolation to firms cutting debt rather than investing amid a slowing economy. The amount of local yuan bond sales minus maturities fell 39 percent in August from a year earlier for non-financial firms to 124 billion yuan ($18.6 billion), data compiled by Bloomberg show. Net issuance since March 31 has slowed to 496 billion yuan after a record 810 billion yuan in the first quarter of 2016. Yields on AA and AA rated five-year securities dropped to record lows this month. The decline in bond financing and the lowest fixed-asset investment growth since 1999 suggest central bank monetary easing will have trouble reviving growth that’s forecast to slow through next year. China must balance cutting corporate debt, which more than doubled in five years to 111.7 trillion yuan at the end of 2015, with steps to revive the world’s second-biggest economy. ‘Firms are adjusting their balance sheets by slowing further investments and hoarding cash because they see more uncertainty with economic growth,’ said Xia Le, chief Asia economist in Hong Kong at Banco Bilbao Vizcaya Argentaria SA. ‘For the aggregate economy, it means slower growth because fewer companies are expanding.’
The July wobble in China’s economy – like its multi-year slowdown – has much to do with the waning ‘animal spirits’ of Chinese businesses caused by an historic shift in housing. That’s according to Chi Lo, greater China senior economist at BNP Paribas Investment Partners in Hong Kong. A property-led pick up in the first half lost momentum in July, suggesting the market is struggling to digest an overhang in supply of apartments. ‘In the past, the economic players expanded supply first and created jobs so as to create demand, but that is gone now,’ Lo said in a telephone interview after Friday’s disappointing data. ‘It has to clean out the excess capacity, which means the supply-expansion model has to change.’ Another way of putting it: China’s build-it-and-they-will-come strategy needs to shift to one where demand, not supply, is in the drivers’ seat. It’s a change companies are struggling to come to terms with, leaving private investment in the doldrums.
China’s yuan traded near the weakest level in almost six years as a plunge in imports signaled declining demand in an economy growing at the slowest quarterly pace since 2009. The nation’s inbound shipments shrank more than estimated in June and exports dropped for a third month, according to data released Wednesday, while figures due Friday are projected to show a 6.6 percent expansion in April-June gross domestic product. Any disappointments could prompt analysts to bring forward forecasts for interest-rate cuts, Tim Condon, head of Asian research at ING Groep NV, wrote in a note Thursday. The yuan was little changed at 6.6878 a dollar as of 4:48 p.m. in Shanghai, according to prices from the China Foreign Exchange Trade System. That’s about 0.2 percent away from a level it reached in November 2010. The currency traded in Hong Kong dropped 0.09 percent to 6.6962. A Bloomberg replica of the CFETS RMB Index tracked by the People’s Bank of China fell for the first time in three days to 94.4.
Exports of goods and services declined in the first quarter, a continuation of the territory’s downbeat trade outlook, and private consumption growth plummeted to less than half of its 2015 rate. And according to a new note from BMI Research, things are only going to get worse. Hong Kong’s performance earlier this year wasn’t an anomaly – it was an indicator of a long decline to come. Accordingly, BMI downgraded its 2016 real-gross-domestic-product growth forecast for Hong Kong to 1.2% from 1.7% and cut its 2017 forecast to 1.7% from 2.2%. One of the reasons behind Hong Kong’s decline in momentum has been the territory’s economic links to mainland China, which has also been facing a growth slowdown. Earlier this year, Moody’s downgraded its outlook for Hong Kong to ‘negative’ from ‘stable’ in part because of the political riskiness of the connection.
A Convocation Of Gamblers The Wall Street Journal and BloombergView have just run articles on the shadow banking system in China. This has put me in a nostalgic mood. About 35 years ago when I was living in Japan, I made a side trip to Hong Kong. I took the hydrofoil to Macau one afternoon and the same service back early the next morning. On the morning trip, I am sure that I saw many of the same faces that I saw the day before. They had been gambling all night and were now heading back, blurry eyed and hungover, to their desks in Hong Kong’s financial district. My fellow travelers now sit atop the world’s second biggest economy and a steaming pile of debt. What could possibly go wrong? Lord, Make Me Financially Prudent… But Not Yet! The WSJ article is the more detailed one. It describes the market for wealth management products (‘WMP,’ which is ominously and accurately close to the acronym for weapons of mass destruction). These are products sold to Chinese ‘investors’ – remember the boat back from Macao – by Chinese banks. The former are looking to circumvent the interest rate caps on deposits and other restrictions on investment. The latter are looking to circumvent the limitations on lending and balance sheet growth. Meanwhile, in the background, the Chinese government, which is supposedly trying to wean the Chinese economy off its debt-driven GDP manipulations, is paraphrasing St. Augustine: ‘Lord, make me financially prudent…but not yet!’
This post was published at Acting-Man on June 10, 2016.
The yuan drew close to eclipsing the lows reached during January’s turmoil as factory data failed to damp concern about the economic outlook and speculation mounted that the Federal Reserve is preparing to raise interest rates. The Chinese currency fell 0.05 percent to 6.5815 a dollar as of 5:11 p.m. in Shanghai, about 0.2 percent away from its five-year low in January. The exchange rate dropped as much as 0.25 percent on Wednesday, but pulled back amid talk of state support as well as a surge in the euro. Manufacturing gauges released Wednesday showed activity remained subdued in May, after April economic data trailed estimates. Investors are now predicting a 53 percent chance the Fed will raise interest rates at its July meeting, up from 26 percent a month ago. The U. S. and China will hold their annual economic meeting next week. ‘Today’s PMI reports and the recent dollar strength both point to further weakening pressure on the yuan,’ said Kenix Lai, a Hong Kong-based foreign-exchange analyst at Bank of East Asia Ltd. ‘The People’s Bank of China may also want to let the currency follow market forces to weaken ahead of the U. S.-China economic dialogue later this month.’
An investor who used Chinese stock-index futures for hedging triggered a flash crash Tuesday, the China Financial Futures Exchange said. Contracts on the CSI 300 Index due in June dropped by the 10 percent daily limit at 10:42 a.m. local time before recovering almost all of their losses in the same minute. The sudden drop was triggered by the unidentified trader’s order for 398 contracts at current market prices. They were filled consecutively, which prompted the broader selloff, the futures exchange said in a statement. The slump follows a similar drop in Hang Seng China Enterprises Index futures on May 16 in Hong Kong, a move that heightened anxiety among investors facing slower Chinese economic growth and a weakening yuan. Volume in China’s stock-index futures market, which was the world’s most active as recently as July, has all but dried up after authorities clamped down on speculative trading during the nation’s $5 trillion equity crash last summer. Tuesday’s volatility had little impact on the underlying CSI 300, which rose 3.4 percent. ‘Liquidity in the market is really thin at the moment,’ Fang Shisheng, Shanghai-based vice general manager at Orient Securities Futures Co., said by phone. ‘So the market will very likely see big swings if a big order comes in.’
Never before has the Bank of Japan done so much to achieve so little. Even after arranging a record stimulus program and reducing a key interest rate to less than zero, the central bank has failed to boost inflation to its goal of 2 percent. Stocks are little changed from where they were in October 2014 when Governor Haruhiko Kuroda expanded his package of asset purchases. Exports are declining. One measure of bank lending is at a 14-year high, though loan growth is slowing compared with a year ago. While most sovereign bond yields have turned negative, corporate borrowing costs are lagging behind. A central bank using up its policy tools doesn’t bode well for a nation with the world’s largest debt burden, according to Fitch Ratings Ltd., which reduced Japan’s credit rank in 2015. The BOJ’s decision to hold off on adding stimulus last month, as it evaluates the impact of negative rates, sent the yen surging and stocks slumping. ‘Japan might be starting to run out of road a bit on the monetary policy front,’ said Andrew Colquhoun, the head of sovereign rankings for the region at Fitch in Hong Kong. That ‘would tend to undercut one of the sources of support that the sovereign ratings have had.’ Kuroda reiterated on Friday that the BOJ will ‘take additional easing measures without hesitation in terms of three dimensions – quantity, quality, and the interest rate – if it is judged necessary for achieving the price stability target.’
Kyle Bass, the hedge-fund manager who’s wagering on a slowdown in China’s economy, said Hong Kong’s property market is in ‘free fall’ and the credit expansion in Southeast Asian emerging markets will unravel. ‘Hong Kong’s in a worse position than it was in prior to the ’97 crisis today,’ Bass said at the SkyBridge Alternatives Conference in Las Vegas on Wednesday. He said credit in Asian emerging markets has grown ‘recklessly,’ citing Malaysia and Thailand. Hong Kong property prices have declined and sales are hovering near a 25-year low as the city grapples with the repercussions of a slowing Chinese economy. Home prices have dropped about 13 percent from a peak in September, according to data compiled by Centaline Property Agency Ltd.
China’s leading Communist Party mouthpiece acknowledged the risks of a build-up of debt that is worrying the world and said the nation needed to face up to its nonperforming loans. High leverage is the ‘original sin’ that leads to risks in the foreign-exchange market, stocks, bonds, real estate and bank credit, the People’s Daily said in a full-page interview with an unnamed ‘authoritative person’ starting on page one and filling thesecond page on Monday. China should put deleveraging ahead of short-term growth and drop the ‘fantasy’ of stimulating the economy through monetary easing, the person was cited as saying. The nation needs to be proactive in dealing with rising bad loans, rather than delaying or hiding them, the report said. ‘Overall, the report suggests to us that future policy easing may be more cautious and that the government may try to hasten the pace of reform,’ said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong. Similar commentaries have had a ‘large impact’ in the past, the analyst said in a note.