China In Focus : The Force Awakens

We finally have a title: Star Wars: The Force Awakens.

If anyone has read the Timothy Zahn sequels we know that Leia married Han Solo and had twins and Leia discovered her own superior Jedi powers too.

To continue from last week where I highlighted the risks of China imploding from within, we had the Chinese president speaking today.

“Xi said an economic slowdown is part of China’s “new normal” where the economy will be fueled more by services, consumption and innovation instead of infrastructure investment.”

And he is saying 7% GDP makes China a top performer, like I suggested last week that, “For the world’s 2nd largest economy, 6.3% is good is it not ? I think China is trying to say, Take it or Leave it.”

Errr, China just approved $113 bio worth of infrastructure projects yesterday. “The projects included 16 railways and five airports, with the aim of propping up a decline in real estate investment, Xinhua said.

Well, 113 bio is not a lot of money considering the amount that China invests about 50% of its $ 10 trillion GDP each year (using 2013 numbers), accounting for 25.8% of the world’s investments.

For the markets, nothing matters more than the fact that China will be slowing and they rather have their money deliver quicker returns which looks like the US will be the answer because simple minds use simple facts.

The simple fact is this : History has shown that the average annual S&P 500 return for a Republican Congress and Democratic President is 15.1% !

So CNY/CNH continues on an extended period of bearishness (when CNH is weaker than CNY) and both weakened against the USD on the week.


If President Xi hints not to expect fireworks from the Chinese economy, I think we can continue to hold on to those bonds.

China is on another mission, buying friends with their latest $ 40 bio set aside for a Silk Road Fund that will benefit Bangladesh, Cambodia, Laos, Mongolia, Myanmar, Pakistan and Tajikistan.

And they are winning nicely in the global popularity contest as US finds their former allies more reluctant to challenge China.

That ultimately means that Xi’s free trade agreement will go ahead as China continues to gain confidence, now looking to start a publicly traded REITS market.

Yet it also means that congenial relations could threatened, although I am not sure how the US mid terms will affect China ties.

I like China in transition. But like I said last week, “The main gripe with China now would be the unpredictable risks. Nobody knows what the government will do next, take down another high ranking official or prominent businessman, cut or hike rates, introduce some new property rules or invade another island.”

The unpredictability does not appeal to me and I have expectations of further capitulation in the commodity markets which I am sure will filter to China at some time. (except for Noble Group whose profits have risen 7 fold)

Next week will be pretty much occupied with the headlines of the APEC meetings. We are hearing some talk of the Shanghai-HK stock connect coming live soon which should bode well for short term support in the stocks.

Leaving you with the prices.

CNH Bond Prices (indicative)