President Erdogan of Turkey – oh, hell, let’s call him Emperor…I mean the guy just moved into a new 1000 room (no, I am not making it up) ‘office’ so shouldn’t he have a title commensurate with the building? All right, then, if you insist, we’ll call him King….anyway, he’s gone through with the purchase of the Russian missiles and professes amazement at why NATO and the USA are upset. But Europe being Europe where they may not like Americans all that much at any time but have almost always been able to differentiate between them and their dollars (and have never met a dollar that they didn’t like) are not upset as much about that as they are about Turkey doing unauthorized drilling in multiple locations for oil off the island of Cyprus. Oh, wait, there was an agreement for Turkey to never do that. Oh, wait – there was an Agreement for China to keep their hands out of Hong Kong affairs for 50 years. Oh, wait – there was a NAFTA Agreement between the US and Canada and Mexico ……gee, I hope all those politicians washed their hands after they flushed (if they flushed ) So now, Erd the Turd as I call him, has taken over the Central Bank of Turkey – he has done such a good job with the economy so far that the lira, which was in freefall in 2018, is now again (according to Bloomberg) the possessor of the highest premium for betting against in the world. And Erd is a pal of Mad (Maduro) of Venezuela, a country with an inflation rate that beggars description – maybe they should stop drinking the water or something.
In Global Gab #19, I mentioned that Bloomberg stated that the ratio of debt to China’s GDP had gone up in 10 years to 271% (from 164%)…..they now estimate that it is 303%. I also pointed out that Bloomberg mentioned that the rate of debt default was going to pick up again – now, only a few days later, Nikkei reported on July 15th/19 that rate of the bond defaults were already 3 times higher than last year (unfortunately, they do not appear to have been specific as to whether it was 3 times the amount of money or 3 times the amount of companies in arrears – they often seem to leave out qualifiers like this). But there is no question that there is a huge “debt hangover” that is not only not being resolved but is being exacerbated by unproductive infrastructure, unnecessary building projects, and the perpetuation of zombie state-owned companies.
Yet, with all the layoffs, with all the factory full or partial closures, Reuters reported on July 15th/19 that retail sales in China were up 9.8% in June, and industrial output was up 6.3%. I won’t comment on the amazing coincidence of all those lucky numbers 3,6,8 & 9, nor will I comment on the recorded decreases in preceding months of the import of raw and semi-finished materials into China and the ongoing diminishing demand for shipping containers exiting China – I will simply point out that independent analysts had, as a group average, expected retail sales of 8.3% and industrial output of 5.2% ie. they were 20% off! And that 6.3% dovetails exactly with the prediction (sic) I mentioned in the first paragraph of Global Gab #18 from The Institute for China’s Economic Practice and Thinking – amazing! They are so accurate! When it comes to official anything in China, fact, rule, and true are 4-letter words.
In Global Gab #19, I drew the reader’s attention to the statement of the Ministry of Commerce which posited that, “there was no massive withdrawal of foreign investment in China” – Xinhua, the Government of China’s official news service, on July 17th/19, quoted the National Development and Reform Commission as stating that, “China has not seen a large-scale exit in its manufacturing sector and is confident in attracting more foreign firms”….so maybe we should help them get a VPN so that they can find out what the world is really saying and doing and not bring everything into total discredit. Forbes, on the exact same day, reported that the percentage of supply-chain businesses leaving China as reported by supply chain auditor QIMA was 80% for US-based businesses and 67% for Europe-based businesses. If China hasn’t “seen” it, it’s because it is deliberately not looking!
On July 13/19, Michael Schuman wrote an article for Bloomberg wherein he opined that the current Chinese administration would use China’s wealth to buy off their enemies until they were in a position to strike back and he points to this being the documented and successful strategy of the Chinese emperors going back all the way to the Han Dynasty. I do not profess to be as well read or as well connected or as well educated as Mr. Schuman but I think that there are a few current issues that he is ignoring in the effort to make his point – the singular most important are that, in every single such recorded case in history, China’s emperors were absolute, the people were uneducated and not mobile, and the country was exceedingly wealthy and could afford the payout in its various forms without undue strain…..today, China gives the appearance of great wealth but is buckling under the crushing economic weight of its pervasive and solitary focus on a long obsolete economic system. The people are increasingly mobile and increasingly educated and able to access ‘foreign’ visions and thoughts – whether it is access to foreigners, or Hong Kong TV, or VPN internet, the people are now the most cosmopolitan in Chinese history. Just as an example, the refusal of its citizens to blindly accept the ongoing pollution of its air, water, and land by state-owned enterprises, among others, is unprecedented – even more unprecedented was the realisation, after much obfuscation by its leaders that the people would not be denied and that real action (not the vague promises of action) had to be undertaken.
The people are demanding access to better food – if Chinese corn, wheat, and rice crops are lost due to drought and pestilence and the availability of Chinese-grown pork is scarce due to African swine flu, then they want access to imports and are more than skeptical when the Government puts off lowest-cost purchases from the USA and Canada due to political reasons. The people went without for a generation or more – they starved (literally) and the Party fat cats were fed. So now they expect and, if necessary, demand that they, and especially their children, have a better life – milk without melamine, vaccines that are both real, current, and pure, sufficient food. Yet the Chinese Government, in order to give this outward image of prosperity, has spent itself into a deep financial hole – couple that with the losses due to corruption and the illicit flows of funds outside the country, and they are in the unenviable Catch-22 position where they cannot support the stock market, the property market, the financial market, the currency market, and still buy the unpredicted and unprecedented amounts of foreign foodstuffs increasingly required. It is stalling because it doesn’t have the money and it doesn’t have the infrastructure – that’s one of the problems with a state owned and bureaucrat controlled economy with officials who never got their hands dirty working – they cannot see the opportunities and, even less, foresee them. So now there are not enough refrigerated warehouses in China to bring in the vast amounts needed and store it for distribution -all that currently exist are full. If Trump and Trudeau had not provided (sic) a reason, the Chinese Government would have had to manufacture one.
Where/how it ends????Anyone got a comment? You can answer below or you can email me directly (not for publication or attribution without prior approval) at [email protected]