"China's Economy Is Held Together By Capital Controls. If Those Fail, The Whole System Fails"

Submitted by Eric Peters, CIO of One River Asset Management

Timelines:

  • (2006) China’s State Nuclear Power Technology Corp signs $8bln JV with Westinghouse then takes 75,000 technical docs on its latest AP1000 reactor.
  • (2006) Westinghouse’s PA servers are repeatedly penetrated by the Chinese, technical and R&D docs are stolen.
  • (2015) China breaks ground on the CAP1400 nuclear reactor, a Westinghouse AP1000 clone.
  • (2018) Brookfield buys bankrupt Westinghouse for $4.6bln.
  • (Today) China is building reactors in Pakistan and Romania, with scheduled projects in Argentina, Britain and Iran. They’re bidding on Saudi, South African and Turkish projects.

Perspectives:

“Russia at its very worst is a moderate threat to the US,” said the investor. “They have modest regional ambitions. They’re mischievous. But plenty of countries don’t do what we want.” If they wanted to nuke us, they would’ve during the Cold War. “China is the real strategic threat. They’ve coopted much of the US political and financial system,” he said. “Wall Street makes a ton of money from China.” No one that matters makes money from Russia. “It’s so telling that everyone is in hysterics over Russia. It’s a distraction that makes you wonder if the Chinese aren’t enabling or pushing the narrative.”

“The best way to bring Beijing to its knees is by running a tight monetary policy in the US,” continued the same investor. “China has the world’s most overleveraged, fragile financial system.” In 2008, China’s total debt-to-GDP was 140%. It is now roughly 300%, while GDP is slowing. “The economy is held together by capital controls. If those fail, the whole system fails.” The capital flight in 2015/16 cost the government $1trln in reserves, and that was with ultra-dove Yellen in charge. Imagine what would have happened with Volcker at the helm. “The Chinese are dying to get their money out.”

“Engineering a decade of rolling Chinese financial crises would be the most effective foreign policy the US could run,” continued the same investor. Forget about the South China Sea, don’t bother with more aircraft carriers, just let Beijing try to cope with their financial system. “And we’re 80% of the way there – we instigated a trade war, implemented a massive fiscal stimulus, which created the room to raise interest rates,” he said. “The combined policy mix makes capital want to leave at the same time it makes the dollar more attractive and effectively shuts down new investment inflows to China.

The Consigliere:

“Made in China 2025 is a policy that came out with great fanfare,” said Peter Navarro, White House Trade Advisor, referring to Beijing’s overarching strategic industrial plan, unveiled in 2015 by Premier Li to move China up the value chain. “The Chinese are now suppressing it from being referenced in public because they don’t want people to know the intent of the plan, which is to capture 70% of global production in the emerging industries of the future within the next 7yrs. Think about that. And as President Trump has said, ‘If we lose the industries of the future, we won’t have a future.’”

Comments

Buckaroo Banzai pitz Sun, 07/29/2018 - 20:50 Permalink

Not just "brand new assets", but some of the world's most productive assets-- the entire consumer goods manufacturing base of the US economy is now in China.

US debt, on the other hand, is "backed" by 70 million niggers and illegal beaners, who represent an annual $5 Trillion dollar drain on whatever productive assets the US has left.

No, the Chinese debt "problem" isn't exactly a problem for them. More of a problem for us, tbqh.

In reply to by pitz

Bunga Bunga pitz Sun, 07/29/2018 - 22:38 Permalink

"Brand new assets" means nothing, because assets have to be productive in order to make sense economically, otherwise they are more or less worthless. Examples:ghost towns which do not generate income, roads and bridges that no one is using, power plants that have no customers aso. There is a giant excess of production in China funded by the printing press and ordered by central planning bureaucrats, not driven by real market demand. 

In reply to by pitz

techpriest Truther Sun, 07/29/2018 - 20:36 Permalink

It holds together because 1) bank divisions made entirely of guanxi hires are ordered to sign off on whatever loans are put in front of them, and 2) if you sell too much stock or try too hard to get money out of the country, you go to jail.

If they can't seize enough territory for a yuan reserve currency, then this could be a truly epic implosion. Definitely one for the history books.

In reply to by Truther

shortonoil Truther Mon, 07/30/2018 - 07:31 Permalink

If you feed your dog Chinese made dog food it will make your dog sick! Chinese industrial capacity is a myth based on a massive construct of non productive assets, low quality products, and debt. Debt that will never be repaid. Capital outflows will destroy China just like it is now destroying the rest of the EM. The FX markets don't lie, neither do the energy equations.

In reply to by Truther

Jackprong Sun, 07/29/2018 - 20:13 Permalink

I work for a Chinese owned American company.  The penetration of Chinese enterprises into American company ownership is staggering.  Trump started putting the brakes on Chinese ownership as POTUS.

https://www.ft.com/content/0da0c392-0042-11e5-a908-00144feabdc0

Surge in US workers employed by Chinese companies

Fivefold increase in 5 years to 80,000 jobs, US study finds

Jamil Anderlini in Beijing

May 22, 2015 Print this page

Chinese investments now support about 80,000 full-time jobs in the US, a fivefold increase in the past five years and an apparent reversal following decades of American complaints over manufacturing jobs being outsourced to China.

Chinese companies have invested $46bn in the US since 2000, most of it in the past five years, according to a study this week by US research company Rhodium Group, sponsored by the National Committee on US-China Relations.

The study predicts Chinese investment in the US could increase to between $100bn and $200bn by 2020, creating 200,000-400,000 jobs.

Chinese investment has been controversial in some sectors, including those with potential military applications, and many US politicians have warned that Chinese investors would take advantage of far cheaper labour in China and transfer jobs back there.

But the report found many investments saved target companies from bankruptcy, most acquisitions led to expansion and examples of downsizing were rare.

It also found a significant acceleration in Chinese investments in US manufacturing and service sector projects in the past 18 months.

“While [80,000 jobs] is still modest compared with the total number of jobs provided by foreign firms, it is significant growth from less than 15,000 jobs five years ago,” the report said. “Fears that Chinese acquirers could systematically move acquired assets and related jobs back to China have not materialised.”

The study provided a detailed analysis of Chinese investment by congressional district and found Chinese investors had established nearly 1,600 businesses across the country by the end of last year.

By state, the biggest recipients of Chinese investment were California, Texas, Illinois, New York and North Carolina, where Chinese investment accounted for 15,000 jobs.

North Carolina is home to Smithfield Foods, which was bought in 2013 by Chinese meat producer Shuanghui Group, and the state also serves as a US base for Beijing-headquartered computer group Lenovo, which bought IBM’s personal computer business in 2005.

The current level of Chinese direct investment in the US is roughly on a par with that of Japanese companies in the 1980s, the report says.

When Japan faced rising opposition to its imports and investment it ordered its giant car companies to localise production in the US in order to create jobs and neutralise political opposition to soaring Japanese imports.

Some influential voices are calling for greater Chinese investment in the US economy.

In an article in the June edition of The Atlantic magazine, former US Treasury Secretaries Henry Paulson and Robert Rubin argue that Chinese investment in America’s creaking infrastructure should be welcomed and facilitated.

Copyright The Financial Times Limited 2018. All rights reserved.

Son of Loki Sun, 07/29/2018 - 20:16 Permalink

Dick Morris has an entire yootoob describing how China has one of the biggest lobbies now in DC pushing this Russia thingy to distract from itself. What's more, Morris says they are behind much of the MSM pushing this also.

whowuldathought?

MuffDiver69 Sun, 07/29/2018 - 20:17 Permalink

The Soviet Union could have only dreamed of the Orwellian state China has become. It’s just not discussed outside these places...no matter how much poison they send us or cheap crap at high prices...damndest thing..

Zepper Sun, 07/29/2018 - 20:18 Permalink

Been saying it forever. China is pushing the Russian narrative, in fact they fucking invented it. I keep telling that idiot Putin... don't fucking worry about your western front... its your fucking eastern borders you have to worry about you smug stupid cunt.

 

China knows that if Russia and the U.S. start to collaborate that China is going to have great difficulties. GREAT!

 

McConnell will have to work overtime for the Chinese government to keep that from happening... just like Ryan works for the Koch bros. McConnell is a mole for the Chinese government.

lew1024 Zepper Mon, 07/30/2018 - 13:39 Permalink

It cannot be China that is coordinating the "Russia did it" storyline. That is definitely the CIA-Deep Black Swamp.

China doesn't have that much power over the US legacy media, while every CIA director has bragged about their total control in the US and major influence on media around the world.

"China is pushing it" is disinfo from the DBS.

In reply to by Zepper

fulliautomatix Sun, 07/29/2018 - 20:22 Permalink

You present evidence of gross incompetence throughout US military, government and corporate organisations and blame China for taking advantage of it? Brilliant plan.

About the possibility of its success - should the fact that you continue to protect the gross incompetence of these organisations lend anyone the confidence that the plan will work?

Apeon Sun, 07/29/2018 - 20:25 Permalink

'Balance of Power' the basis of foreign relations of ALL countries.

 

Russia, America become arms length allies

US and Japan, and So. Korea already allies

US and India potentially good allies

US Space Capablilites--[recently initiated by Pr. Trump]

China is totally surrounded on land and sea, and from Space.

Does not look good to China.

 

WTFUD Sun, 07/29/2018 - 20:28 Permalink

After sinking Japan (into fucking synthetic dolls, soulmates ), China's next-up.

With 1.4 Billion mouths to feed, houses to build, other infrastructure, peeps to clothe, China must be gearing up for Domestic Consumption.

Read yesterday that Blackrock's Euro Emerging Fund had sunk over 50% of its Cash into Russia, stating its current & future growth potential is 2nd to none and that Russia's inflation rate is down to 2.2% from 16.4% not so long ago.

Truth is the same CABAL benefits at the expense of the plebs no matter the country.

pitz Sun, 07/29/2018 - 20:29 Permalink

Russia isn't a threat.  They're basically a dying country which is at high risk of Indian and Chinese expansionism.   Alliance with the United States is really the only option for defending Russia from Indian and Chinese land and resource grabs.

 

Appealing to the Russiaphobia held by some older Americans due to the cold war is disgusting.  Sure, it might get a few votes from those who remember Russia's ugly period under communism and the cold war, but it is illogical.  If Putin was really as rich as some of the liars claim he is, would he really bother being President?  

squid pacrim888 Mon, 07/30/2018 - 00:54 Permalink

I was in Moscow and St. Petersburgh in 2014....

Went to the Moscow uni, an old staunch commie hangout. There is a lovely Russian Orthodox church right in front of the driveway now. Was there on a Saturday , kids coming out of Sunday school, mommies and daddies to fetch them with Otets (father) and PaniDabrodinka (madam goodness, the priest's wife) talking to all the parents, most of the mummies had another bun in the oven. Wonderful.

 

Putin is ex-KGB, he is doing everything OPPOSITE that the KGB did to the west to destroy it:

1. Discourages all types of sexual deviancy (KGB doctrine was to encourage the normalisation of the homosexual life style to weaken the family structure in the west),

2. Encourages heterosexual nuclear family units with massive state bonuses to women who have children, more money for each successive child,

3. Encourage participation in the Orthodox church. Church going families have lots of kids. No kids, no future, Putin wants a future for Russia,

4. Discourage Vices like alchohol and drugs. When is the last time you've seen Putin with any booze? Since the 2008 georgian victory, he hasn't touched a drop, nor anyone around him. He believes you are giving way to being conquered if you're drunk,

5. The family unit is paramount, family, God, country. Simple stuff.

 

Read Willarn Cleon Skousand's book "The Naked Communist", he lists the KGB 49 objectives in the west to destroy us, Putin was taught this stuff and HE KNOWS how to destroy a society so he's doing everything opposite in Russia.

 

There is method to the madness.

 

Squid

 

In reply to by pacrim888

yvhmer BitchesBetterR… Mon, 07/30/2018 - 08:14 Permalink

This is a classic myth. Just because it was fancy to call the Allied landing in Normandy : the second front, does not make it so. One look at the map will show you there were more than two fronts.

And, did not the US fight on more than one front? What is the difference then between success and failure?

The problem lies in the numbers of economic output, not the $ value, but what.

The insufficient production of fuel leads to decline in agricultural production, resupply of armies. Meaning, the decrease of fighting power.

China indeed is a stealthily encroaching antagonist. They did it in Manchuria, in Tibet, and now in the South China sea,  Africa and Eastern Siberia north of the Amur River.

1. China has insufficient means to feed it's own people.

2. China has insufficient means to fuel it's own economy.

3. they must, by any means necessary, control both the logistical object as well as the subject of logistics.

In reply to by BitchesBetterR…

lew1024 Spinkbottle Mon, 07/30/2018 - 13:54 Permalink

Unless Jews ARE the CIA and control all of the Deep Black Swamp that sort-of-controls the CIA, all of which you can present no evidence for, your "Jews did it" is just as stupid as "The Russians Did It' narrative.

Stop this shit. The world is not simple enough for any one group, person, power to control everything. No one group, person, power is unified enough to do so, either. No group of people has only one kind of person, all have every kind of person, every characteristic, every set of motives.

Nobody with 2 brain cells to do the evaluation can believe such a simple view of how it all works.

 

In reply to by Spinkbottle