Friday, 31 May 2019


The unravelling of the Han Chinese Rat economy - one made up of stealth, lies, cheating, fraud, dishonesty, threats, duress - is happening at a truly dizzying speed - at a pace that even we did not think likely only a short time ago. Evidence mounts every day, every hour, every minute. These stories just out:

BEIJING—Activity in Chinese factories slumped in May, according to a key measure, as new orders for goods fell in response to uncertainties created by the escalating trade dispute with the U.S.
The official manufacturing purchasing managers index fell to 49.4 in May from 50.1 in April, the National Bureau of Statistics said Friday.
The drop-off was expected, given that tensions have gotten worse between Washington and Beijing in recent weeks. But the fall was more precipitous than many economists forecast. Some economists said the bleaker reading is likely to exert more pressure on Beijing to boost pro-growth measures to stabilize the economy and invigorate domestic demand.
The need for stimulus puts Beijing in a bind, pitting short-term growth against the need for policy changes that it wants to enact to put the economy on sounder long-term footing. New growth measures are expected to add to a pile of local government and corporate debt that economists say threatens to weigh down growth in the years ahead.
“You have to make a strategic choice between stabilizing growth and preventing risks,” Li Yang, a senior researcher at a government-backed think tank, told a forum Thursday. “There’s an obvious trend now toward stabilizing growth.”
Chinese leaders have eased credit, reduced taxes and ramped up infrastructure spending in an effort to ease a slowdown that started last year, which has been aggravated by the trade fight that has seen Washington and Beijing apply punitive tariffs on hundreds of billions of dollars of goods.
Though Beijing’s stimulus measures appeared to be effective in March, the latest reading of factory activity adds to a picture of a resumed slowdown. Industrial production, fixed-asset investment and exports all registered lower-than-expected growth in April. Those weaker results came before trade talks between the U.S. and China, which seemed to be progressing toward an agreement, were suddenly derailed. Washington subsequently raised tariffs and Beijing retaliated with its own measures.
The U.S.-China Trade Struggle: How We Got Here
The U.S.-China Trade Struggle: How We Got Here
The U.S.-China Trade Struggle: How We Got Here
The U.S. and China have had a complicated trade relationship for the last half century. WSJ’s William Mauldin looks at the key moments that landed the two countries on the doorstep of a possible trade deal. Photo Illustration: Heather Seidel
Subindexes of the purchasing managers index measuring new export orders—an indicator of external demand for Chinese goods—plunged to 46.5 in May from 49.2 in April, the official data showed. A subindex for new orders fell to 49.8 from 51.4. All are below the 50 mark, signaling a contraction in activity.
“China’s trade and economic situations may further deteriorate if the U.S. and China make no progress in trade talks,” said Ding Shuang, an economist at Standard Chartered. He said China will have to roll out more stimulus measures to boost demand, like another reduction in the reserves that banks are required to maintain.
Beijing has unleashed billions of dollars in liquidity this year to encourage bank lending, while letting local governments raise more funds from markets to spend on infrastructure projects. It has also offered more tax cuts to individuals and companies to boost consumption and investment.
Businesses and economists, however, say domestic demand—from households to companies—remains lackluster due to concerns about rising costs and the nagging trade conflict.

A World Bank report released Friday said domestic demand is key if the Chinese economy is to sustain rapid growth. It estimates that the latest increase in U.S. tariffs on $200 billion of Chinese goods, which went into effect on May 10, would decrease China’s gross domestic product by about 0.2%. If the U.S. goes ahead with threats to impose tariffs on the remainder of its imports from China—more than $300 billion in goods—the World Bank report said that could reduce China’s GDP by an additional 0.5%.

For the first time this year, investors are starting to get a clear look at where China’s economy really stands—and the picture isn’t pretty.
Data for January to April was as distorted as a funhouse mirror, due to changing Lunar New Year holiday dates, and a big value-added tax cut, which pulled activity forward into March from April. That allowed optimists to argue things weren’t as bad as they appeared. May is the first month since December that offers investors a clear look at where things really stand.
That makes an ugly May purchasing managers index for manufacturing, released Friday, worrying. This survey is usually a good indicator of where less-timely economic data is headed. The headline index fell back into contraction—returning to the same level as December. And a decline in new export orders deepened.
Most concerning of all from Beijing’s perspective, the employment subindex hit its lowest level since 2009. The picture from domestic demand wasn’t great either: Both output and new orders weakened, but orders weakened far more. That suggests factories are still running too hot, and could mean more downward pressure on prices and activity ahead.
Data distortions aside, the broader backdrop is also tougher than it was. Trade tensions have worsened. And regulators’ unexpected takeover of a small northern Chinese bank last week has spooked money markets and tightened funding conditions. That adds to the strains created by already-rising borrowing costs. Bond yields have been creeping up since March, after declining sharply earlier in the year thanks to monetary easing and a concerted campaign to force banks to lend more to small companies.
Beijing is likely to respond with more fiscal and monetary support. Stagnant prices in the heavy industrial sector could trip up indebted metal, cement and chemical companies if inflation keeps slowing further. Despite a property sector in reasonably good shape, weakening new orders and the faltering rally in steel prices suggests more help is needed.
The results are likely to be a bubblier property market and more pressure on the yuan—which could in turn add further heat to the trade conflict with the U.S. Investors and traders looking forward to quiet summer vacations might want to revise their plans.

Fund services group Intertrust says the number of China-linked private equity and venture capital fund launches it has handled over the past six months has fallen sharply with the worsening of the trade war between Washington and Beijing. The warning from the Netherlands-based company, which was previously controlled by Blackstone, comes as Asian investors increasingly fear the next frontier in the trade war will be the financial sector. Intertrust Funds started to see the impact of the trade war on China-focused funds and China-based funds investing abroad in December. The number of private equity and venture capital fund launches handled by the group has fallen from an average of about 10 per month last year to about two or three now, said James Donnan, managing director of Intertrust’s Hong Kong office. “For those that do launch and close successfully, we are seeing delays in investments as they sit and watch what is happening,” Mr Donnan said at the annual China Private Equity Summit in Hong Kong.

Earlier this month, US president Donald Trump sharply increased tariffs on Chinese goods, a move that drew retaliation from Beijing. Mr Trump followed up by blacklisting Huawei, the Chinese telecoms equipment maker, sparking concerns he could take similar action against a wider range of companies. The gap between the world’s two largest economies on the trade war was now so wide that a deal was looking less likely, said Mr Donnan. “I don’t think a deal will be done in June or November. This is the new normal,” Mr Donnan said. “We are not facing barriers or bumps navigating the China trade tensions. That was eight to nine months ago. We are [now] on a totally different road.” His comment came as JD Digits, the financial spin-off of, China’s largest publicly listed retailer by revenue, warned that the trade war risked extending into the financial industry. News this week that Alibaba, which is already listed in New York, was considering a $20bn dual-listing in Hong Kong to diversify its market exposure away from the US, has added to expectations that the US might target mainland companies on Wall Street.

Such fears gained traction after Steve Bannon, Donald Trump’s former chief strategist, said last week that Washington should rethink China’s role in US stock markets due to issues with transparency. “We are at a critical time to prevent the trade war turning into a finance war,” said Shen Jianguang, vice-president and chief economist at JD Digits. “It’s quite important to prevent this from happening.” Dr Shen said he expected Alibaba to start a trend for Chinese companies to return to Hong Kong to list. One prominent Chinese venture capital group, which invests in healthcare companies around the world, said on condition of anonymity that it was now looking at alternative regions such as south-east Asia thanks to an increasingly hostile environment in the US. This was partly due to increasing scrutiny of China-US deals by the Committee on Foreign Investment in the United States, or Cfius. “A lot of American entities are pushing back or refusing to have relationships with us. New regulations by Cfius have made investing in US companies very hard as well,” the investor said. Investors in funds are also being hit by falling valuations, particularly in China’s tech sector.

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