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Canada’s extraordinary arrest one week ago of Huawei CFO Meng Wanzhou, the daughter of Huawei founder and billionaire executive Ren Zhengfei, and its decision to charge her with “multiple” counts of fraud – a preamble to her likely extradition to the US to face charges of knowingly violating US and EU sanctions on Iran – has elicited widespread anger in Beijing, which declared Meng’s detention a “violation of human rights” during a bail hearing for the jailed executive on Friday.

That anger has apparently only intensified after the hearing adjourned without a decision (it will resume on Monday, allowing Meng’s defense team to argue for why she should be released on bail, contrary to the wishes of government attorneys who are prosecuting the case).

And with Canada insisting that it will prosecute Meng to the full extent of the law over allegations that she mislead banks about the true relationship of a Huawei subsidiary called Skycom, angry Chinese officials have decided to issue an ultimatum directly to the Canadian ambassador, who was summoned to a meeting in Beijing on Saturday and told in no uncertain terms that Canada will face “severe consequences” if Meng isn’t released, according to the Wall Street Journal.

China’s foreign ministry publicized the warning in a statement (though Canadian officials have yet to comment):

Chinese Vice Foreign Minister Le Yucheng summoned Canada’s ambassador to Beijing, John McCallum, on Saturday to deliver the warning, according to a statement from the Chinese Foreign Ministry.

The statement doesn’t mention the name of Huawei’s chief financial officer, Meng Wanzhou, though it refers to a Huawei “principal” taken into custody at U.S. request while changing planes in Vancouver, as was Ms. Meng. The statement accuses Canada of “severely violating the legal, legitimate rights of a Chinese citizen” and demands the person’s release.

…click on the above link to read the rest of the article…

China Outraged At Arrest Of Huawei CFO, Warns It Will “Take All Measures”

December 6, 2018

China Outraged At Arrest Of Huawei CFO, Warns It Will “Take All Measures”

So much for a trade war truce between China and the US, or a stock market Christmas rally for that matter.

Shortly after the news hit that Huawei CFO Wanzhou Meng — also deputy chairwoman and the daughter of Huawei’s founder — was arrested on December 1, or right around the time Trump and Xi were having dinner in Buenos Aires last Saturday, and faces extradition to the U.S. as a result of a DOJ investigation into whether the Chinese telecom giant sold gear to Iran despite sanctions on exports to the region, China immediately lodged a formal protest publishing a statement at its embassy in Canada, and demanding the U.S. and its neighbor “rectify wrongdoings” and free Meng, warning it would “closely follow the development of the issue” and will “take all measures” to protect the legitimate rights and interests of Chinese citizens.

Full statement below:

Remarks of the Spokesperson of the Chinese Embassy in Canada on the issue of a Chinese citizen arrested by the Canadian side

At the request of the US side, the Canadian side arrested a Chinese citizen not violating any American or Canadian law. The Chinese side firmly opposes and strongly protests over such kind of actions which seriously harmed the human rights of the victim. The Chinese side has lodged stern representations with the US and Canadian side, and urged them to immediately correct the wrongdoing and restore the personal freedom of Ms. Meng Wanzhou.

We will closely follow the development of the issue and take all measures to resolutely protect the legitimate rights and interests of Chinese citizens.

Meng’s arrest will immediately heighten tensions between Washington and Beijing just days after the world’s two largest economies agreed on a truce in their growing trade conflict.

…click on the above link to read the rest of the article…

Five Academics Who Unleashed the “Demon” of Geopolitical Power

December 5, 2018

Five Academics Who Unleashed the “Demon” of Geopolitical Power

Photo Source pedrik | CC BY 2.0

As Washington’s leadership fades more quickly than anyone could have imagined and a new global order struggles to take shape, a generation of leaders has crowded onto the world stage with their own bold geopolitical visions for winning international influence. Xi Xinping has launched his trillion-dollar “Belt and Road Initiative” to dominate Eurasia and thereby the world beyond. To recover the Soviet Union’s lost influence, Vladimir Putin seeks to shatter the Western alliance with cyberwar, while threatening to dominate a nationalizing, fragmenting Eastern Europe through raw military power. The Trump White House, in turn, is wielding tariffs as weapons to try to beat recalcitrant allies back into line and cripple the planet’s rising power, China. However bizarrely different these approaches may seem, they all share one strikingly similar feature: a reliance on the concept of “geopolitics” to guide their bids for global power.

Over the past century, countless scholars, columnists, and commentators have employed the term “geopolitics” (or the study of global control) to lend gravitas to their arguments. Few, though, have grasped the true significance of this elusive concept. However else the term might be used, geopolitics is essentially a methodology for the management (or mismanagement) of empire. Unlike conventional nations whose peoples are, in normal times, readily and efficiently mobilized for self-defense, empires, thanks to their global reach, are a surprisingly fragile form of government. They seem to yearn for strategic visionaries who can merge land, peoples, and resources into a sustainable global system.

The practice of geopolitics, even if once conducted from horseback, is as old as empire itself, dating back some 4,000 years. Until the dawn of the twentieth century, it was the conquerors themselves — from Alexander the Great to Julius Caesar to Napoleon Bonaparte — whose geopolitical visions guided the relentless expansion of their imperial domains.

…click on the above link to read the rest of the article…

G20 Summit, Top Agenda Item: Bye-Bye American Empire

November 30, 2018

G20 Summit, Top Agenda Item: Bye-Bye American Empire

The G20 summits are nominally about how the world’s biggest national economies can cooperate to boost global growth. This year’s gathering – more than ever – shows, however, that rivalry between the US and China is center stage.

Zeroing in further still, the rivalry is an expression of a washed-up American empire desperately trying to reclaim its former power. There is much sound, fury and pretense from the outgoing hegemon – the US – but the ineluctable reality is an empire whose halcyon days are a bygone era.

Ahead of the summit taking place this weekend in Argentina, the Trump administration has been issuing furious ultimatums to China to “change its behavior”. Washington is threatening an escalating trade war if Beijing does not conform to American demands over economic policies.

President Trump has taken long-simmering US complaints about China to boiling point, castigating Beijing for unfair trade, currency manipulation, and theft of intellectual property rights. China rejects this pejorative American characterization of its economic practices.

Nevertheless, if Beijing does not comply with US diktats then the Trump administration says it will slap increasing tariffs on Chinese exports.

The gravity of the situation was highlighted by the comments this week of China’s ambassador to the US, Cui Tiankai, who warned that the “lessons of history” show trade wars can lead to catastrophic shooting wars. He urged the Trump administration to be reasonable and to seek a negotiated settlement of disputes.

The problem is that Washington is demanding the impossible. It’s like as if the US wants China to turn the clock back to some imagined former era of robust American capitalism. But it is not in China’s power to do that. The global economy has shifted structurally away from US dominance. The wheels of production and growth are in China’s domain of Eurasia.

…click on the above link to read the rest of the article…

“A Daisy Chain Of Defaults”: How Debt Cross-Guarantees Could Spark China’s Next Crisis

November 20, 2018

“A Daisy Chain Of Defaults”: How Debt Cross-Guarantees Could Spark China’s Next Crisis

On November 8, China shocked markets with its latest targeted stimulus in the form of an “unprecedented” lending directive ordering large banks to issue loans to private companies to at least one-third of new corporate lending. The announcement sparked a new round of investor concerns about what is being unsaid about China’s opaque, private enterprises, raising prospects of a fresh spike in bad assets.

A few days later, Beijing unveiled another unpleasant surprise, when the PBOC announced that Total Social Financing – China’s broadest credit aggregate – has collapsed from 2.2 trillion yuan in September to a tiny 729 billion in October, missing expectations of a the smallest monthly increase since October 2014.

Some speculated that the reason for the precipitous drop in new credit issuance has been growing concern among Chinese lenders over what is set to be a year of record corporate defaults within China’s private firms. As we reported at the end of September, a record number of non-state firms had defaulted on 67.4 billion yuan ($9.7 billion) of local bonds this year, 4.2 times that of 2017, while the overall Chinese market was headed for a year of record defaults in 2018. Since then, the amount of debt default has risen to 83 billion yuan, a new all time high (more below).

Now, in a new development that links these seemingly unrelated developments, Bloomberg reports that debt cross-guarantees by Chinese firms have left the world’s third-largest bond market prone to contagion risks, which has made it “all the tougher for officials to follow through on initiatives to sustain credit flows”, i.e., the growing threat of unexpected cross- defaults is what is keeping China’s credit pipeline clogged up and has resulted in the collapse in new credit creation.

…click on the above link to read the rest of the article…

Sino-Russian interdependence will be based on oil

November 18, 2018

Sino-Russian interdependence will be based on oil

Although Beijing is Moscow’s largest trading partner, while Russia only ranks in the second ten among China’s importers, the Kremlin is strategically the most important contractor because it supplies the most desirable product – oil – and Chinese demand for this raw material is growing. It appears that an increase in Russian oil exports to China will be at the expense of European consumers.

Chinese oil production has been falling since 2015, and yet enormous infrastructure investments and huge strategic petroleum reserves (SPR) boost the demand for it. No wonder then that in 2017, Beijing became the largest importer of crude oil, overtaking the United States. Currently, China’s consumption of product is approaching 13 million barrels per day. In the March Gefira we predicted that the PRC will have become the largest consumer of this raw material by 2025, accounting for 18-20% of the global consumption.¹⁾And Russia has an important role to play because already in 2016 it became China’s most important oil supplier, replacing Saudi Arabia.

China has been buying more and more Russian oil in the last decade, even though the Kremlin does not increase its export volume, which is around 5 million barrels per day. In 2009, countries such as Poland and the Netherlands imported more Russian crude oil than Beijing, but in 2015 they were overtaken by China, which in 2017 had an over 20% share in the Russian exports of this raw material.

In recent years, an increase in the Sino-Russian trade balance has been noticeable. While a decade ago, the total turnover was less than 45 billion USD, in the last year this result was almost twice as high: 84 billion USD. During the November meeting of the prime ministers of both countries, it was announced that the target would be to reach the level of 200 billion USD, with the energy industry, mainly oil and gas, being the main factor in the balance sheet growth.²⁾

…click on the above link to read the rest of the article…

Natural Gas Skyrockets As China Pledges Huge Supply Boost

November 15, 2018

Natural Gas Skyrockets As China Pledges Huge Supply Boost

With an eye on last winter’s natural gas supply debacle, Chinese state-owned energy giant CNOOC has pledged a 20 percent rise in gas supply, the company said on Tuesday. The company, one of three state-run oil majors, said that it will supply 24.6 billion cubic meters (bcm) of natural gas during the heating season that kicks off this week, up 20 percent year-on-year, to meet rising natural gas demand in the country.

China is in the process of replacing over reliance on coal usage for both industrial and residential end users to offset rampant air pollution, particularly in its larger urban centers. By government mandate, at least 10 percent of the country’s energy mix needed for power generation by 2020 must be natural gas, with further earmarks set for 2030.

CNOOC, the country’s largest oil and gas producer, said 6.1 bcm of natural gas will be supplied to seven northern provinces and municipalities, up 63.5 percent from last year. The company added that most of the natural gas it’s supplying this year is from offshore fields, coal bed gas and imported liquefied natural gas (LNG). According to reports, CNOOC has also been negotiating with LNG suppliers to ensure gas supply, including dealers from Australia, Indonesia, Malaysia, Qatar, Nigeria and Russia. However, due to the ongoing trade war between the US and China, CNOOC spot purchases of LNG is coming to a halt amid Beijing’s retaliatory tariff on US-LNG imports.

LNG tariffs will also come full circle, since other LNG producers will likely increase their spot prices in the mid-term to a point just under US LNG prices including a tariff, with Chinese firms being forced to pay the extra price.

…click on the above link to read the rest of the article…

The “Nightmare Scenario” For Beijing: 50 Million Chinese Apartments Are Empty

November 11, 2018

The “Nightmare Scenario” For Beijing: 50 Million Chinese Apartments Are Empty

Back in 2017, we explained why the “fate of the world economy is in the hands of China’s housing bubble.” The answer was simple: for the Chinese population, and growing middle class, to keep spending vibrant and borrowing elevated, it had to feel comfortable and confident that its wealth would keep rising. However, unlike the US where the stock market is the ultimate barometer of the confidence boosting “wealth effect”, in China it has always been about housing as three quarters of Chinese household assets are parked in real estate, compared to only 28% in the US, with the remainder invested financial assets.

Beijing knows this, of course, which is why China periodically and consistently reflates its housing bubble, hoping that the popping of the bubble, which happened in late 2011 and again in 2014, will be a controlled, “smooth landing” process. For now, Beijing has been successful in maintaining price stability at least according to official data, allowing the air out of the “Tier 1” home price bubble which peaked in early 2016, while preserving modest home price appreciation in secondary markets.

How long China will be able to avoid a sharp price decline remains to be seen, but in the meantime another problem faces China’s housing market: in addition to being the primary source of household net worth – and therefore stable and growing consumption – it has also been a key driver behind China’s economic growth, with infrastructure spending and capital investment long among the biggest components of the country’s goalseeked GDP. One result has been China’s infamous ghost cities, built only for the sake of Keynesian spending to hit a predetermined GDP number that would make Beijing happy.

…click on the above link to read the rest of the article…

“The Real Economic Shock Is Yet To Come” – Trade War Deepens Across Asia

November 3, 2018

“The Real Economic Shock Is Yet To Come” – Trade War Deepens Across Asia

The last chance to avoid a full-blown 2019 trade war may come later this month when President Trump is scheduled to meet with Chinese President Xi Jinping at the G-20 Buenos Aires summit in the city of Buenos Aires, Argentina. It will be the first-ever G-20 summit to be hosted in South America and could be one of the most significant meetings in quite some time — as both leaders will try to resolve trade disputes.

Right now, the economic impact of the escalating trade war between Washington and Beijing seemed to deepen last month as factory activity and export orders dove across Asia, with some analyst warning Reuters that the worst has yet to come.

New data earlier this week showed exporters and factories came under severe pressure, as manufacturing surveys showed some growth in China, but a rapid slowdown in South Korea and Indonesia and a straight out contraction in activity in Malaysia and Taiwan.

Those data points followed weak industrial production numbers from Japan and South Korea on Wednesday.

Much anxiety was seen by computer and human traders on Thursday, as U.S. Treasury bonds fell after data suggested a slowdown has now washed ashore into U.S. manufacturing, construction, and productivity.

The Institute for Supply Management (ISM) said its index of national factory activity declined to a six-month low of 57.7 points last month from 59.8 in September. A reading above 50 indicates growth in manufacturing, which accounts for about 12% of the U.S. economy.

“You have a tightening of monetary conditions around the world, a slowdown in Chinese demand, and financial market turmoil that affects sentiment and investment decisions,” said Aidan Yao, senior Asia EM economist at AXA Investment Managers.

…click on the above link to read the rest of the article…

The New Global Tinderbox: It’s Not Your Mother’s Cold War

November 2, 2018

The New Global Tinderbox: It’s Not Your Mother’s Cold War

When it comes to relations between Donald Trump’s America, Vladimir Putin’s Russia, and Xi Jinping’s China, observers everywhere are starting to talk about a return to an all-too-familiar past. “Now we have a new Cold War,” commented Russia expert Peter Felgenhauer in Moscow after President Trump recently announced plans to withdraw from the Intermediate-Range Nuclear Forces (INF) Treaty. The Trump administration is “launching a new Cold War,” said historian Walter Russell Mead in the Wall Street Journal, following a series of anti-Chinese measures approved by the president in October. And many others are already chiming in.

Recent steps by leaders in Washington, Moscow, and Beijing may seem to lend credence to such a “new Cold War” narrative, but in this case history is no guide. Almost two decades into the twenty-first century, what we face is not some mildly updated replica of last century’s Cold War, but a new and potentially even more dangerous global predicament.

The original Cold War, which lasted from the late 1940s until the collapse of the Soviet Union in 1991, posed a colossal risk of thermonuclear annihilation. At least after the Cuban Missile Crisis of 1962, however, it also proved a remarkably stable situation in which, despite local conflicts of many sorts, the United States and the Soviet Union both sought to avoid the kinds of direct confrontations that might have triggered a mutual catastrophe. In fact, after confronting the abyss in 1962, the leaders of both superpowers engaged in a complex series of negotiations leading to substantial reductions in their nuclear arsenals and agreements intended to reduce the risk of a future Armageddon.

…click on the above link to read the rest of the article…

China’s President Orders Military To “Prepare For War”

October 29, 2018

China’s President Orders Military To “Prepare For War”

China’s President Xi Jinping ordered the military region responsible for monitoring the South China Sea and Taiwan to “assess the situation it is facing and boost its capabilities so it can handle any emergency” as tensions continue to mount over the future of the South China Sea and Taiwan, while diplomatic relations between Washington and Beijing hit rock bottom.

The Southern Theatre Command has had to bear a “heavy military responsibility” in recent years, state broadcaster CCTV quoted Xi as saying during an inspection tour made on Thursday as part of his visit to Guangdong province.

“It’s necessary to strengthen the mission … and concentrate preparations for fighting a war,” Xi said. “We need to take all complex situations into consideration and make emergency plans accordingly. “We have to step up combat readiness exercises, joint exercises and confrontational exercises to enhance servicemen’s capabilities and preparation for war” the president-for-life added.

According to the South China Morning Post, Xi’s visit to the military command was one of several he made during a four-day trip to the south China province aimed at bolstering confidence amid an economic slowdown, and growing trade and strategic disputes with the United States.

Xinhua reports President Xi “stressed the need to focus on combat research and commanding, to advance work in all areas and accelerate developing strong and efficient joint-operation commanding institutions for theatre commands to comprehensively boost the military’s battle-winning ability.”

The president instructed the military to ramp-up opposition to ‘freedom of navigation’ exercises being undertaken by the US, Australia, France, the UK, Japan and others through the waterway through which arterial shipping lanes have grown since the end of World War II.

…click on the above link to read the rest of the article…

“The Central Bank Will Intervene”: PBOC Said To Sell Reserves If Yuan Drops Below 7.00

October 26, 2018

“The Central Bank Will Intervene”: PBOC Said To Sell Reserves If Yuan Drops Below 7.00

According to the latest data from China’s SAFE, net FX outflows from China picked up to US$21BN in September (vs. US$11BN in August) and the highest since mid-2017 with Goldman noting that “outflow might have increased moderately further in October, but has unlikely reached the level seen in late 2015/early 2016 in our view.”

It may not have reached the furious outflows from the peak of the post-depreciation period, but as Goldman concedes, this risk will rise over time if the authorities continue to resist interest rate differential-driven depreciation pressure.

And, to counter the risk of a return to China’s dramatic outflow phase, Reuters writes this morning that China is likely to resume selling some of its vast $3 trillion currency reserves to stop any precipitous fall through the psychologically important level of 7 yuan per dollar “as it could risk triggering speculation and heavy capital outflows.”

Indeed, as noted in our morning wrap, on Friday the yuan hit a fresh 22-month low of 6.9641 against the dollar. Additionally, earlier in the session the offshore Yuan tumbled as low as 6.9769 after the PBOC fixed the onshore Yuan north of 6.95 and weaker than consensus expected, at which point however Beijing intervened, when at least one big China bank sold the US dollar in the afternoon, prompting the yuan to reverse loss, and triggering stop-loss orders by short-sellers of the yuan.

And with the Yuan just inches away from the key level of 7.00 vs the dollar, dropping 6% against the dollar so far this year, reflecting its slowing economy as well as pressure on exports due to an ongoing tariff war with the United States, Beijing is starting to sweat.

…click on the above link to read the rest of the article…

Top Communist Party Official Threatens Military Intervention Over Pence’s Support For Taiwan

October 26, 2018

Top Communist Party Official Threatens Military Intervention Over Pence’s Support For Taiwan

With the on-again-off-again trade war detente back in “off again” mode as China is once again refusing to bow to the US’s demands for concessions, and with military tensions simmering in the background as the US seriously considers withdrawing from the INF, the Communist Party’s top defense official demanded that the US end its aggressive policy toward China during a speech at the Xiangshan security forum in Beijing in front of a crowd of 500 foreign delegates from 74 countries (including the US).

According to the South China Morning Post, Wei Fenghe, the Chinese defense minister, criticized Washington for “seriously damaging the Sino-US relationship and mutual trust” by accusing China of interfering in the midterm elections and by characterizing China’s “debt diplomacy” as a neo-colonialist tool for acquiring foreign resources for its “One Belt, One Road” initiative.

Without referencing Pence by name (the Vice President delivered one of the most sweeping condemnations of China’s foreign and economic policies during a speech earlier this month), Wei articulated China’s “anger and resolute opposition” and demanded that the Trump Administration drop its aggressive posture toward China. “We strongly call on the US to remedy the mistakes, stop damaging China’s interests and the Sino-US relationship.”

The remarks followed similarly hostile remarks directed at Secretary of State Mike Pompeo, who became embroiled in a dramatic confrontation with China’s foreign minister during a recent trip to Beijing.

In the latest sign that the Trump Administration’s friendly stance toward Taiwan has rattled China, Wei, reiterating a threat made by numerous senior Chinese officials, warned that the mainland wouldn’t hesitate to bring the full brunt of is military to bear against Taiwan – and any country aiding the Taiwanese – if its rogue province tries to formally break away from the mainland.

…click on the above link to read the rest of the article…

The Taiwan Strait Getting Hot, Hot, Hot…

October 23, 2018

The Taiwan Strait Getting Hot, Hot, Hot…

We posted the following in July after President Trump threw Montenegro under the bus.

Taiwan may be about to get hot, hot, hot in the next year after last night’s Commander in Chief’s ambiguous message on defense treaties. – GMM

One of GMM‘s most excellent followers, who we very much like and respect, responded with this:

This whole article is a science-fiction of oh, this could happen, and oh that could happen…. And we could be hit with an asteroid tomorrow. Just sit back and watch the hands that are dealt and how they are played. This article is either Sci-fi or false news. Your choice!

We still like and respect the reader, by the way.

U.S. To Send Warships Through The Strait, Again

Yesterday, Zero Hedge posted a great piece, In Latest Provocation To Beijing, US Plans New Warship Passage Through Taiwan Strait, bringing to our attention the following Reuters article,

The United States is considering a new operation to send warships through the Taiwan Strait, U.S. officials tell Reuters, a mission aimed at ensuring free passage through the strategic waterway but which risks heightening tensions with China.

The United States is considering a new operation to send warships through the Taiwan Strait, U.S. officials tell Reuters, a mission aimed at ensuring free passage through the strategic waterway but which risks heightening tensions with China. – Reuters

John Bolton’s Fingerprints

The show of force by the U.S. in the Taiwan Strait appears to be a hardening line against and challenge to President Xi’s One China Policy and has National Security Adviser, John Bolton’s fingerprints all over it.

…click on the above link to read the rest of the article…

Pence v. China: Cold War 2.0 May Have Just Begun

October 22, 2018

Pence v. China: Cold War 2.0 May Have Just Begun

U.S. Vice President Mike Pence announced what could already be described as the beginning of World Cold War II, with Washington and Beijing as the first belligerents but soon the stage will be global.

Pence spoke at the Hudson Institute, a think tank specializing in interdisciplinary issues related to international relations, culture, defense, economics, technology, and other strategic issues. Like most NGOs in the U.S., the Hudson Institute is funded by tax-deductible contributions from large taxpayers.

There Pence formulated what many observers compared to Winston Churchill’s 1946 “Iron Curtain” speech. The U.S. Vice President, recognizing, in fact, Washington’s defeat in the current trade confrontation with China, proclaimed what amounts to a declaration of cold war:

“China now spends as much on its military as the rest of Asia combined and has prioritized capabilities that erode U.S. military advantages on land, sea, air, and space. China wants to drive the United States out of the Western Pacific and prevent us from coming to the aid of our allies. We hoped that economic liberalization would lead China to greater partnership with us and the world. But it opted for economic aggression, which in turn encourages its growing army. (…) Beijing is conducting a comprehensive and coordinated campaign to undermine support for the President, his agenda, and our nation’s most cherished ideals. (…) China is also applying this power more proactively than ever before to influence and interfere in this country’s domestic politics and politics. Worst of all, China has embarked on an unprecedented effort to influence American public opinion, the 2018 elections, and the environment leading up to the 2020 presidential election. To put it bluntly, President Trump’s leadership is working and China wants a different American president. (…) There can be no doubt: China is meddling in America’s democracy.”

…click on the above link to read the rest of the article…

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