China Update

I'm thrilled to say that today I started on a new project which I think China Update viewers will really enjoy once it's released - I'm very excited about it. More information coming soon...

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China Update

What do China's terrible May numbers today signal for the economy?

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China Update

Infographic on this week's Trump-Xi Summit, China's external posturing vs internal reality, from our coverage over at China Update

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China Update

Just got back from a wonderful China Update subscriber meetup in Taipei, Taiwan this evening. Always a pleasure to sit down and chat with folks from the community.

8 months ago | [YT] | 330

China Update

📬 China Update — End of Week Newsletter
Date: October 19, 2025
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments

Let’s Jump In!

HEADLINE: Trade War Implications — Truce Frays, Markets Jolt, Leverage Tested

The uneasy pause in U.S.–China tensions snapped over the last week. After Beijing unveiled sweeping export controls over rare-earths and magnets, the White House threatened a 100% blanket tariff on all Chinese imports from Nov 1, prompting a $2T risk-off sell-off. On The next day, USTR Jamieson Greer said Beijing “deferred” a requested call—fueling concern that channels are closing just as both sides reach for maximum leverage.

Beijing insists its measures are “licensing,” not a ban, and claims partners were informed. Washington says it was blindsided and views the rules as a de-facto choke on inputs that sit inside everything from EVs and wind turbines to missiles and smartphones—where China controls ~90% of global processing. Trump tried to calm nerves—“Don’t worry about China, it will all be fine!”—but mixed signals (threats + reassurance) leave allies and investors guessing.

Why this matters now

Leverage math: China’s rare-earth dominance is real, but the U.S. still holds cards (aviation, upstream software/IP, capital markets). If both move from tariffs to component-level vetoes, expect production stoppages, not just price spikes.

China’s macro backdrop: Domestic demand remains soft; youth unemployment elevated; property fragile. Sept exports to the U.S. fell >15% YTD even as overall exports rose ~6%, highlighting reliance on global demand and transshipment to third markets.

Property’s false dawn: Top-100 developer sales ticked up in Sept (+22% m/m) but Golden Week new-home subscriptions fell 33% y/y across 22 cities. Looser buy rules in big cities juiced a few weeks of activity; the national picture remains weak after a multi-trillion wealth hit.

Factory floor sentiment: Exporters report razor-thin or negative margins to clear inventory; more are scoping moves to Vietnam/Indonesia/Malaysia. If 100% U.S. tariffs land, some coastal clusters could see mass closures by year-end.

What to watch next

Frankfurt prep talks for the next truce window (Nov 10) and whether Xi–Trump still meet at APEC.

Any EU/G7 alignment on counter-measures (rare-earths, ports, shipbuilding).

Signals that Beijing might suspend (not scrap) parts of the regime to keep leverage while easing panic.

North Korea: Li Qiang’s Pyongyang Trip

China’s premier made the highest-level PRC visit since 2019, tying it to the Workers’ Party 80th anniversary and a military parade. Messaging: tighter “strategic coordination” and a shared front as U.S.–China frictions deepen. Read as Beijing buttressing its periphery while great-power competition widens.

South China Sea: Another Collision Near Thitu

Vessels from China and the Philippines collided near Sandy Cay/Thitu after water-cannoning and close-quarters maneuvering. Beijing says Manila intruded; Manila calls it deliberate ramming. The U.S. condemned “aggressive actions.” With China now layering “nature reserve” claims over control tactics, expect more frequent, riskier encounters.

China Exports: Strong Topline, Weak Profits

September exports +8.3% y/y to a 2025 high, despite –27% to the U.S. Gains came via EU/ASEAN/Africa/LatAm and suspected transshipping (e.g., via Vietnam). But industrial profits remain under pressure—price competition + dumping accusations are rising in Europe and Japan. Resilience may be misread as strength: volumes up, margins down.

Europe Moves: Netherlands Seizes Nexperia

The Dutch government invoked the Goods Availability Act to take control of Nexperia (Chinese-owned via Wingtech), citing “serious governance shortcomings.” Production continues under oversight. Wingtech vows to sue. Signal: Europe is ready to intervene in strategic nodes—especially with rare-earths weaponized and shipbuilding/ports under probe.

London’s Biggest Phone Theft Ring Busted

UK police dismantled a network that moved ~40,000 stolen iPhones to China in a year—~40% of London’s reported thefts. Devices were foil-wrapped to defeat tracking and shipped via Heathrow. Expect tighter export checks and more cooperation with Hong Kong/Shenzhen resellers.

Taiwan: “T-Dome” Integrated Air Defense

President Lai Ching-te unveiled T-Dome, a multi-layered, integrated air-defense architecture knitting Tien-Kung, Patriot, sensors, and C2—explicitly aimed at drones/cruise/ballistic threats. Concept mirrors Iron Dome–style integration and reportedly includes deeper U.S. linkages. Beijing warns it raises tensions; Taipei frames it as peace through strength.

China Prices: Deflation Eases, Zombification Spreads

PPI –2.3% y/y (36th month of factory-gate deflation); CPI –0.3%, but core CPI 1.0% (19-month high).

Relief looks administrative, not demand-led. The share of loss-making industrial firms is at a two-decade high, pointing to overcapacity, price wars, weak cash flow despite stable input costs.

Policy choice ahead: shift investment to infrastructure (temporary lift to nominal growth) or to new manufacturing, which risks re-importing deflation next year.

Transnational Crime: Cambodia’s “Pig-Butchering” Empire Hit

The U.S. and U.K. designated Chen Zhi’s Prince Group a transnational criminal organization, alleging vast romance-investment scams, trafficking, and money laundering run from Cambodian compounds. Sanctions span 100+ entities; DOJ seized $15B in bitcoin. The case highlights an ugly nexus of forced labor + online fraud and raises awkward questions for regional governments (and Beijing’s quiet tolerance as Chinese nationals are victimized/ensnared abroad).

UK–China: Spy Case Fallout, Engagement Continues

A headline espionage case collapsed over whether China legally counted as an “enemy” under the Official Secrets Act at the time. MI5 says PRC activity is a daily threat; Parliament wants answers from prosecutors. Yet London proceeds with ministerial visits and delays a decision on China’s Royal Mint Court embassy, reflecting security concerns and economic pragmatism.

China’s Debt: TSF Surges Faster Than GDP

Total social financing +8.7% y/y to RMB 437T (~312% of expected 2025 GDP), while nominal GDP ~4%. Bank lending growth hit a record-low 6.6%, but the baton passed to bond-financed government borrowing. Implied: ~17% of GDP in new debt to add ~4% nominal GDP—a worsening efficiency picture and shrinking runway for painless rebalancing.

China’s Industrial Play: EVs Go Global as Margins Crack

EV exports doubled y/y in Sept to 222k units; China is on track for ~7M vehicle exports in 2025 (1M in 2020). Capacity > 50M/yr vs U.S. ~10M.

Europe bears the brunt: BYD’s UK sales +880%; Chinese brands hit ~13% share and could reach 30% in two years (ex-Ford China CEO projection).

Strategy arc: Scale Up → Flood In → Starve Out (control of magnets, battery inputs). Western OEMs downshift; EU/US/Canada roll out tariffs and probes.

At home, price wars crush dealers; inventories high; even leaders (e.g., BYD) wobble month-to-month. Beijing urges industry “self-discipline” and faster payments to suppliers, but overcapacity remains the core problem.

See you next time!

Tony

8 months ago | [YT] | 73

China Update

Hi team – today’s newsletter is free for all. These are usually exclusive for financial supporters of the channel. I hope you enjoy!
📬 China Update — End of Week Newsletter
Date: September 21, 2025
Your essential wrap-up on Chinese Political, Economic & Geostrategic developments
Let’s Jump In!

🔶 Top Story: China’s Local Fiscal Crunch — Banks as Shock Absorbers
Beijing is moving on two fronts to stop unpaid local-government bills from strangling the private economy — and it’s asking the state banking system to take the hit.
What’s coming (national plan):
• Policymakers are weighing a ≥¥1T (~$140B) package channeled via state lenders and policy banks (e.g., CDB) to let local authorities clear arrears to firms, with a first phase targeted by 2027.
• The objective: honor overdue invoices that have crippled contractors’ cash flow, delayed wages, and dented confidence. Xi flagged unpaid bills as a threat to “public trust.”
What’s already started (operational push):
• The PBoC has instructed the Big Six SOE banks + 12 joint-stock banks to lend directly to SOEs, LGFVs and fee-funded public institutions so they can pay creditors. Crucially, funds must bypass local governments and be paid straight to vendors to prevent diversion.
• Scope: roughly ¥1.8T in arrears identified across these entities; same 2027 finish line.
Why this matters:
• Think of it as paying the “dinner bill,” not the mortgage: these are payables for work already done, not the stock of debt. Clearing them is a quasi-stimulus to private cash flows without booking central government debt.
• But risk migrates: banks’ loss allowances are already rising (big-five provisioning climbed in 1H25). Unless Beijing gives explicit guarantees or hard collateral, lenders could be left holding the bag if weak LGFVs can’t service the new loans.
Macro tension in the background:
• Fiscal firepower is fatiguing: August spending growth slowed, revenues barely budged, the broad deficit widened, and bond issuance decelerated. With land sales soft and tax intake flat, Beijing prefers targeted fixes over a bazooka — hence “rob Peter (banks) to pay Paul (private firms).”
• Upshot: relief for SMEs and payrolls now, at the price of thicker contingent risk inside the banking system later. Calculated triage — or creeping desperation as clean balance sheets run out.

🔍 Great Firewall, For Export: The Geedge Networks Leak
A 100k-doc leak shows Geedge Networks selling deep packet inspection/censorship suites inspired by China’s Great Firewall to Kazakhstan, Ethiopia, Pakistan, Myanmar (and one unnamed state).
• Capabilities: real-time blocking, throttling, blackouts, user-level tracking, VPN neutralization; deployments revealed inside China (incl. Xinjiang).
• Takeaway: information control is now a turnkey industry, with Chinese labs, investors and vendors commercializing state-grade repression overseas.

📉 Macro Check: Investment Swoon, Broad Slowdown
August prints deteriorated again: IP +5.2% y/y (weakest since Aug-2024), retail +3.4%, FAI +0.5% (Jan–Aug).
• Housing: resale prices –0.58% m/m; new-home –0.3%; four-year slide leaves averages ~–11% from 2021 (deeper in lower tiers).
• Policy watch: weak July–August ups odds of mini-stimulus, but with fiscal limits, expect targeted housing tweaks + arrears clearing rather than a big push.
• As PBoF MP notes: dialing down “involution” in favored industries risks shifting overinvestment elsewhere if growth targets stay high.

🪖 Purges Continue: Four More Generals Out
NPC Standing Committee ousted Gen. Wang Chunning (ex-PAP commander, Central Committee) plus three lieutenant generals (logistics and political commissar billets).
• Since March 2023: 20 generals removed from the NPC roster. The net: elite churn continues across PAP, Rocket Force, logistics — the bones of coercive capacity.

🌊 South China Sea: Water Cannons at Scarborough
Days after Beijing declared Scarborough Shoal a national nature reserve, Chinese Coast Guard water-cannoned a Philippine government vessel on a fishery support mission, injuring a sailor and damaging the bridge.
• A PLA Navy frigate broadcast live-fire warnings; Manila calls Beijing’s “ramming” claim disinformation.
• Expect tightening US–PH coordination, more gray-zone incidents, and rising miscalculation risk.

🚗 Autos: Supplier Cash Relief Meets BYD’s Rough Patch
17 automakers (BYD, Changan, Chery, GAC, Great Wall, Li, Nio, Xpeng, Seres, Xiaomi, etc.) pledged ≤60-day supplier payments — modest progress against the cash-crunch that long cycles created.
• BYD: stock –30% from May peak; Q2 profit –30%; 2025 sales target cut to 4.6M (from 5.5M), requiring a heavy Q4 push amid delayed model refreshes. Overseas keeps growing, but tariffs and brand hurdles mount.
• Policy through-line: curb price-war “involution”, stabilize the chain — and let market exits begin.

🧱 Did China Just Ban Nvidia?
Reports say the CAC told firms to stop testing/cancel orders for Nvidia’s export-compliant RTX Pro 6000D, after gatherings comparing domestic chips with Nvidia’s allowed SKUs.
• Strategic message: no appetite for “hobbled” imports; build an indigenous, controllable AI stack.
• The hedge: Beijing could still green-light less-crippled Blackwell-class sales in a broader deal — or slam the door and hand a $100B+ TAM to domestic vendors over time. Nvidia’s CFO guidance: don’t count on China.
• Meanwhile, SAMR accuses Nvidia of violating merger conditions tied to Mellanox (2019) — fines could be hefty if deemed “particularly serious.” Timing overlaps with Madrid talks: signal sent.
• Meanwhile, an AP investigation details decades of US tech sold into China’s security stack (from servers to mapping to storage), marketed for “stability maintenance” programs — a sobering look at co-produced surveillance.

☎️ US–China: Leaders’ Call, APEC Meet, and Taiwan Aid Rumor
On Friday Trump and Xi held a “very productive” call; an APEC sideline meet is on deck. TikTok progress helps; Boeing orders, fentanyl, and Russia leverage are on the menu.
• A WaPo report says Trump withheld >$400M in Taiwan military aid this summer — unconfirmed but notable if true; would signal trade-first bargaining to Beijing and unnerve Taipei.

🇪🇺 EU Chamber: Rebalance or Repeat the Cycle
The EU Chamber’s annual paper urges the 15th FYP (2026–30) to rebalance: consumption lags because manufacturing capacity outran demand, breeding involution and export blowback.
• Rare-earths: despite July pledges, EU firms still see bottlenecks; shutdown risks linger.
• Brussels weighs new Russia-related sanctions (crypto/banks/energy focus); including Chinese entities would be a serious escalation — and a test of EU consensus.

📈 Market Sidebar (5 bullets)
• A-shares/HK tech: AI optimism + policy put fuel a rally; Hang Seng Tech still ~70% below 2021 peak — long runway, fragile footing.
• Rates/FX: Fiscal fatigue vs targeted bank-backstops; CNY steadied by fix discipline; gold share of reserves edging up.
• Credit: LGFV refinancing windows tighten into Q4; watch bank NPL masking as “special mention.”
• Property: Price declines broadening; any housing mini-stimulus likely targeted and city-specific.
• Geopolitics: South China Sea incidents and sanctions talk are headline-risk overhangs for beta.

One-liner to leave you with
China is trying to fix a fiscal cash-flow problem with a banking balance sheet — a bridge that might hold long enough to pay the bills, unless the river keeps rising.

Until next time!
Tony

9 months ago (edited) | [YT] | 81