January 20, 2019
The baseline when reviewing economic data from China is to remember the entire economy is controlled by the communist central government. If they say the economy is “less strong” than previously expected, generally we can anticipate the truth is much worse.
The second aspect to remember is that many U.S. manufacturers made anticipatory advanced purchases, building up inventory ahead of possible tariffs, in the 3rd and 4th quarters of 2018. Those advance purchases can amplify any manufacturing slow down.
BEIJING (Reuters) – China is expected to report on Monday that economic growth cooled to its slowest in 28 years in 2018 amid weakening domestic demand and bruising U.S. tariffs, adding pressure on Beijing to roll out more support measures to avert a sharper slowdown.
Growing signs of weakness in China — which has generated nearly a third of global growth in the past decade — are stoking worries about risks to the world economy and are weighing on profits for firms ranging from Apple to big carmakers.
Chinese policymakers have pledged more support for the economy this year to reduce the risk of massive job losses, but they have ruled out a “flood” of stimulus like that which Beijing has unleashed in the past, which quickly juiced growth rates but left a mountain of debt. (read more)
China’s economy is deep (manufacturing), but it is also very narrow. There is not enough internal domestic consumer activity to sustain their production. As a direct result any manufacturing slowdown has a much more severe impact on their economy; as compared to a more balanced economy.
If other nations slow down their purchases of Chinese products, the Chinese export driven economy starts to contract. If multiple nations simultaneously begin purchasing less from China, the current status, the Bejing economy shrinks much faster than all others. A manufacturing dependency is the Chinese weakness. Millions of Chinese workers can be put out of work very quickly.
Some factories in Guangdong – China’s export hub – have shut earlier than usual ahead of the long Lunar New Year holiday as the tariff war with the United States curtails orders. Others are suspending production lines and cutting back on workers’ hours.
If the trade war drags on, some migrant workers may not have jobs to return to.
Trade negotiators are facing an early March deadline and Washington has threatened to sharply hike tariffs if there are no substantial signs of progress. (more)
March 1st is the deadline imposed by President Trump, Secretary Ross and Ambassador Robert Lighthizer. If the U.S. and China are not close to concrete terms for a deal, the U.S. will execute a comprehensive round of tariffs on $250 billion in Chinese imports.
U.S. Trade Representative Robert Lighthizer wants actionable written trade contracts, with structured and detailed immediate Chinese purchase agreements. At the direction of President Trump, Lighthizer will not settle for promises or outlines to further delay tariff execution.
NOTE: This timeline is likely why President Trump agreed to the meeting with North Korea Chairman Kim Jong-un at the end of February. The media are oblivious to this aspect of the negotiations.
By agreeing to another meeting between President Trump and Chairman Kim (DPRK), the U.S. team has frozen the hidden and cunning Chinese/N.Korea leverage tactic in place for a month-and-a-half….. Meanwhile the U.S. and Chinese negotiators continue to discuss open trade terms unimpeded by the geopolitics.
I would not necessarily commit to thinking a Trump-Kim Summit 2.0 will take place. However, the potential for the summit gives Team USA expanded elbow room. The timing of the summit, when contrast with the March 1st Beijing deadline, means we could see a postponement of the Trump/Kim summit happening immediately before President Trump lets the massive tariff hammer drop.
Keep an eye on the pre-talk surrounding the summit; we may discover indicators as to how Trump is playing this out. However, remember, the Red Dragon will also be looking for those signals… so it is likely POTUS Trump will closely guard his intent.
Chairman Xi is using Chairman Kim… and President Trump knows Xi is using Kim…. and Xi knows, Trump knows, Xi is using Kim…. and Trump knows that Xi knows that Kim knows he is being used.
And so the dance continues…
Centinel2012 