As we have forecast, the 20th century was the American century – the 21st century will be the Chinese century. The business of China is business; the business of America is war.
While America spent countless trillions waging and losing endless wars and enriching its military-industrial complex, China has spent its trillions advancing the nation’s businesses and building its 21st-century infrastructure. And while America and Europe have outsourced their manufacturing to China and developing nations to increase profit margins, China’s dual circulation/self-sustaining economic model is directed toward keeping jobs and trade and profits within the nation, thus relying less on global trade.
While Western nations lock, unlock, and re-lock down their economies, China, where the virus first broke out, has been completely reopened since shortly after the virus left its homeland last year.
The following overview of the current economic trends further paints the ups and downs of China’s economic future.
CHINA REPLACES U.S. AS EUROPE’S TOP TRADE PARTNER. The European Union (E.U.) imported 5.6 percent more goods from China in 2020 than in 2019 and boosted exports to China by 2.2 percent, Eurostat, the E.U.’s statistics agency, reported.
The increase promoted China to Europe’s top trading partner for the year, supplanting the U.S.
The expanded trade ties between Europe and China came during a year when global trade crumpled by 9 percent, according to U.N. Conference on Trade and Development’s latest quarterly report.
China’s GDP grew 2.3 percent last year, while the global economy contracted 3.5 percent, according to the International Monetary Fund.
China’s second-quarter recovery sparked demand there for Europe’s automotive and luxury products, while Europe’s long lockdown raised the continent’s spending on Chinese electronics, entertainment, and health care products, Jost Wuebbeke, director at consulting firm Sinolytics, commented to the Xinhua news service.
Also last year, China and the E.U. reached a major agreement on investment and trade, culminating in seven years of negotiation.
“It’s in the interest of both parties to improve, further exchange, to negotiate new common grounds for the benefit of…the world,” Bernard Dewit, chair of the Belgian-Chinese Chamber of Commerce, said to Xinhua.
TREND FORECAST: As we have long noted, the United States lost the Trade War to China. And as the data shows, the nation is moving to overtake the U.S. before the end of the decade as the world’s largest economy.
U.S. PENSION FUNDS STILL BETTING ON CHINA. U.S. pension funds and asset managers have not lost faith in their investments in China, despite being startled when the Chinese government abruptly canceled a public offering by Ant Group, a major financial services and digital payment firm, after CEO Jack Ma publicly criticized China’s financial regulation scheme.
Pension fund managers Silver Lake and Carlyle Group are among the investors who collectively put $10 billion into Ant in 2018, agreeing to terms limiting their ability to cash out if the company did not go public.
However, pension funds contacted by the Wall Street Journal reported not being disturbed by the Ant flap because their exposures were small.
“You almost have no choice but to think seriously about going to parts of the world where there is a lot more growth” than in Europe and the U.S., Carlyle CEO Kewsong Lee said in comments last month to the board of the California State Teachers Retirement System that was quoted by the Journal.
Many pension funds find themselves underfunded as long-lived Baby Boomers continue to retire and place demands on funds’ reserves; as a result, the funds often are willing to place riskier bets to cover impending shortfalls.
In recent years, growing U.S. investments in Chinese businesses have opened the door to an estimated $13 billion in private equity deals in China by U.S.-based firms from 2010 through 2019, including $3.78 billion in 2018 alone, the Journal reported.
TREND FORECAST: The business of business is business. Yesterday, it was reported that Beijing is planning to clamp down harder on Hong Kong’s pro-democracy groups by taking seats away from politicians that represent the city’s district council.
This did not make a ripple on Wall Street.
Regardless of what the communist nation does, how they do it, and to whomever they do it to, all that matters with the “investors” is the bottom line.
CHINA MAY CURB RARE EARTH MINERAL EXPORTS TO U.S. China, which holds the world’s largest deposits of rare earth minerals and controls about 80 percent of their current supply, is mulling limits on mining and exporting 17 of the minerals, which are essential to components in everything from DVD players to smart bombs and MRI machines.
The limits would “protect national interest and ensure the security of strategic resources” and would be administered by the country’s security and military agencies, China’s Ministry of Industry and Information Technology said.
Before deciding on the controls, the ministry is consulting advisors to determine how strongly Europe and the U.S. would be impacted by limits and how quickly they could arrange alternative supplies in a trade dispute, one such advisor told the Financial Times.
“The government wants to know if the U.S. might have trouble making F-35 fighter jets if China imposes an export ban,” the advisor said.
Building one U.S. F-35 fighter jet requires more than 900 pounds of rare earths, according to the Congressional Research Service.
Last year, China’s foreign ministry said it might impose sanctions on Lockheed Martin, the F-35’s maker, and other defense contractors after they sold weapons to Taiwan.
Amid tensions with China last year, Japan bought $23 billion worth of F-35s.
The U.S. has a “real vulnerability” in its supply of rare earths, Ellen Lord, former assistant defense secretary for acquisitions, told Congress last October.
Whenever a competitor nation would plan to begin mining or producing rare earths, China would flood the market, driving down prices and making new ventures uneconomical, she said.
China holds more than a third of the world’s estimated rare earth reserves; the U.S. has slightly more than a tenth of one percent, according to data from Statista.
When the U.S. does produce rare earths, they currently are sent to China for processing and refining. The U.S. lacks refining capacity because of the pollution created in processing.
TREND FORECAST: Should geopolitical and/or trade issues ignite between China and the U.S., it is clear that the communist nation will play its rare-earth card, depriving the U.S. and its allies of these essential commodities. Moreover, China, with its Belt and Road Initiative, will continue to make inroads to exploit nations in Africa and South America that are rich in rare-earth minerals.
CHINESE SPEND LAVISHLY DURING NEW YEAR HOLIDAY. Chinese consumers spent generously during this month’s lunar new year holiday week, giving needed energy to the country’s economic sector still struggling to emerge from the world’s economic shutdown.
From 11 through 17 February, consumers doled out the equivalent of $127 billion in stores and restaurants, a 29-percent hike from last year’s celebration that was muted by the COVID virus’s presence.
Foot traffic in stores across China’s ten largest cities was three times greater than during 2020’s holiday week, although still below 2019 levels, the Wall Street Journal reported.
China’s retail sales are likely to show double-digit growth during January and February this year, Betty Wang, an economist at the ANZ investment bank, said in comments quoted by the Journal.
Theater-goers dropped $1.1 billion on box-office tickets, a record for the holiday week. So far this year, box office receipts have reached almost half of 2020’s total, China’s commerce ministry reported.
China’s government had called on consumers to stay home during what is traditionally the year’s busiest spending season. Those who obeyed still spent lavishing on food, gifts, and entertainment, sectors that were hard-hit last year as the virus stalked the land.
Caterers did 135 percent more business during the period than a year earlier, figures showed.
TRENDPOST: As we reported, of all the major nations, China was the only one to report a positive GDP growth in 2020... and will mostly outshine the rest of the world in 2021.
CHINA’S STOCK MARKETS REACH RECORDS IN POST-HOLIDAY SPREE. China’s CSI 300 index of large-company stocks jumped 2 percent to an intraday trading record on 18 February as investors returned from the country’s week-long new-year holiday.
Prices rose on export goods in January for the first time in a year and consumer spending also showed returning strength during the holiday week (see related story), buoying investors’ confidence in the economy’s future.
The markets then lost their gusto, dropping back 0.7 percent on news that China’s central bank had drawn $40 billion of liquidity from the nation’s interbank system.
Investors are drawn to China’s stock markets by the country’s strong rebound from its economic shutdown last spring, Alex Wolf, chief Asia strategist for JPMorgan Private Bank, told the Financial Times.
Also, Chinese markets are less overvalued than those in the U.S.; the CSI index is trading at 22 times the previous 12 months’ earnings, while the S&P 500 is booking 32 times earnings, Wolf noted.
“You’re looking at growth at a reasonable price,” he said. “You don’t see valuations as stretched in China.”
TRENDPOST: Yesterday, China’s stocks benchmark retreated from its record high with the CSI 300 index falling 3.1 percent... the sharpest drop in six months.
The assessment from The Street is that the Chinese government will begin to tighten monetary policy.
CHINESE SHOPPERS GO FOR THE GOLD. The growing ranks of China’s wealthy flocked back to luxury goods stores last summer while the rest of the world was bunkered against the virus.
People queued in 30-foot lines to enter Beijing’s Luis Vuitton shop over this month’s New Year’s holiday week, the Global Times reported.
Now those well-heeled consumers are buying gold.
Sales of gold items during the holiday week were 80 percent greater than the same time last year, the China Gold Association said.
China’s government discouraged holiday travel this year to curb the spread of the COVID virus, so many people splurged on pricey gifts.
A Shanghai resident told the Times he spent the equivalent of $5,576 on a handbag for his wife and a gold necklace for his mother.
“Currently, the growth rate and scale of commodity consumption have exceeded the level before the epidemic,” Zhao Ping, a vice president of the China Council for the Promotion of International Trade, told the Times.
Consumer spending in China will grow 5 to 7 percent this year, he predicted.
TREND FORECAST: We note this article as well to illustrate that gold still shines as the dominant safe-haven asset of the Chinese. Thus, while cryptocurrencies will maintain their role in the 21st-century digital world, hard assets such as precious metals will remain in high demand.