Next China: Uncertain Times
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It feels like everything is about the trade war now.
Take for example Nvidia's deal to buy Mellanox Technologies, an agreement between two American chipmakers that will need Beijing's blessing thanks to how much business they do in China. There's reason to worry that sign-off will be less than forthcoming.
It was also Chinese approval, or the lack thereof, that forced Qualcomm to scrap its takeover of NXP last July. And while China never linked the outcome to trade tensions, the issue did resurface when Donald Trump and Xi Jinping met to hash out a truce in December. China agreed as a result of that meeting to reconsider the Qualcomm-NXP deal if it was resubmitted, but by then it was too late.
It wasn't long though before other regions also grounded the jet. And while that was obviously a troubling development for Boeing, it did help alleviate concerns that Beijing was being more aggressive with Boeing because it's American and there's a trade war. That's not nothing for a company that depends on Chinese demand.
Meanwhile, efforts aimed at finding some sort of resolution to the trade war seem increasingly centered on whether Xi will meet Trump to seal a deal. The concern for China is domestic politics and the embarrassment it would cause Xi if Trump were to walk out on him as he did with North Korea's Kim Jong Un. Trump tried to address that worry this week by saying he was open to meeting Xi after all the terms were finalized, though Trump added his preference would be to hammer out the final details face-to-face. Both sides are claiming progress in talks, but a meeting won’t occur this month and is more likely to be in April at the earliest, sources say.
The other side of the equation for China is growth. Data released this week for the first two months of 2019 showed the economy continues to be soft. Industrial output, for example, had its weakest start to a year since 2009. That combined with worse than expected declines in February for exports and imports will add to the impetus for Chinese officials to do a deal with America.
What slowing growth hasn't compelled Beijing to do is abandon its push to rein in the country's shadow banking industry. It emerged this week that the latest iteration of this campaign is a crackdown on China's pawn shop industry. Mind you, these are not the pawnbrokers of middle America. The Chinese variety, for example, extended $43 billion of loans in 2017.
The perks of being a Chinese bureaucrat also appear to have greatly diminished under Xi. Relentless corruption probes have snuffed out opportunities for extra income and left many cadres so scared of missteps that a nice dinner out can become a pensive decision. A campaign to make sure every bureaucrat carries their weight at the office and the growing pay gap with the private sector jobs round out the reasons why more official are now choosing to leave their posts.
And finally, some proof that streaming video apps can do more than entertain. Apparently, they can help you trade corn futures. Videos of harvests posted by Chinese farmers to some of the country's most-popular apps are helping traders get a better sense of where prices may be heading. Setting the stage for this development were the lack of dependable data for Chinese agricultural production combined with a 2016 decision to end a state stockpiling program in the country's northeast and allow markets to dictate prices. Ever since then, traders have been looking for any advantage possible.
©2019 Bloomberg L.P.