Plus: Short but mighty
IN TODAY’S EDITION
1️⃣ China’s plan to revive its economy |
2️⃣ Elon claims a win Down Under |
3️⃣ National anthems of the day |
Hi Intriguer. I’ve recently become someone who starts conversations with “back in my day”, and I don’t feel great about that. This has happened in conversations with (younger and hipper) colleagues about the latest house-party banger (‘Million Dollar Baby’, allegedly, and not ‘Low’), but also on the health of China’s economy.
You see, back in my day studying in Beijing in early 2008, China’s economy was going gangbusters. Despite China’s attempts to cool things, it still grew 11% in 2007, the fastest in almost 13 years. The vibes were optimistic, with both China and the West pumped about the Beijing 2008 Olympics.
China’s economy is now in a very different state, and the vibes are much less exuberant. We’ll dig into that in today’s top story.
Blinken arrives in Kyiv as Russia advances on Kharkiv.
US Secretary of State Antony Blinken arrived in Ukraine earlier today (Tuesday) on a surprise visit to reassure the country of continued US support. Blinken’s visit is the first by a senior US official since Congress approved a long-delayed package of security assistance for Ukraine. Russian forces are currently making gains in northeastern Ukraine, exploiting delays in Western support.
UN says 460,000 Palestinians flee Rafah and northern Gaza.
The UN says 360,000 Palestinians have been driven out of Rafah amid this week’s “heavy fighting”, while Israeli evacuation orders for northern Gaza have displaced another 100,000. Meanwhile, the White House has described reports of Israeli protesters attacking Gaza-bound aid trucks as a “total outrage”. Protestors have claimed the aid benefits Hamas and want it blocked until all Israeli hostages are freed.
US evicts China-linked crypto miner near nuclear missile base.
The US has ordered MineOne, a British Virgin Islands firm majority-owned by citizens of China, to relocate within 120 days – it claims the firm’s current location (within a mile of a nuclear missile base) poses a national security threat.
Ango American announces break-up.
UK-based miner Anglo American has revealed plans to sell or demerge its diamond, platinum, and coal mining branches following a takeover bid from rival BHP. Anglo is hoping the restructure will appease investors worried about the company’s financials, and halt calls to accept BHP’s bid (which it’s now rejected twice).
Violent protests in Pakistani Kashmir.
At least four people have died in violent protests in Pakistan-administered Kashmir linked to rising flour and electricity prices. Organisers have called off further protests for today after the government agreed to disburse millions in subsidies to help manage costs.
TOP STORY
China looks to ultralong bonds and beyond to revive its economy
Printing money.
China’s Ministry of Finance confirmed yesterday (Monday) China’s latest move to boost the world’s second-largest economy: the sale of $140B in ultra-long bonds. It delivers on a commitment Premier Li Qiang made in March.
And the news comes after another batch of disappointing economic numbers:
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China’s credit has shrunk for the first time since 2005
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Producer inflation has declined for the 19th straight month
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Foreign investment into China dropped 56% on the year in Q1, and
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There are doubts around the strength of recent import and export figures
So how will bonds help?
Selling government bonds can only mean one thing: Beijing is planning on making it rain again – ie, it’s raising debt to fund more government spending in an attempt to jumpstart the economy.
But why ultra-long bonds?
China has only ever issued these kinds of bonds three times before: to recapitalise its big state banks after the 1998 Asian Financial Crisis; to finance a new sovereign wealth fund in 2007; and to fund its Covid response in 2020.
This time around, there’s no single ‘shock’ – it’s more about boosting central stimulus in a way that a) takes pressure off indebted local governments, b) keeps the spending ‘off budget’, and c) aligns its longer-term debt repayments with the kinds of longer-term spending Beijing has in mind (“landmark projects”).
But why now?
In addition to the tough economic numbers we flagged above, there are a few other numbers weighing on Beijing’s mind:
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5%: That’s the 2024 growth target China’s leaders set back in March, and reaching it might now be tougher because…
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100%: That’s the new tariff rate President Biden is expected to slap on China-made EVs and other products today (Tuesday), which is on top of…
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Three: That’s how many big waves of restrictions the US has already placed on chip exports to China since late 2022 in an effort to curb its access to advanced tech, all while Beijing’s own clock is ticking because…
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Nine: That’s how many months Xi Jinping will be late when he finally convenes the Communist Party’s third plenum in Beijing this July, with a promised focus on addressing China’s various economic challenges.
So all this to say the pressure is rising for China, both externally and internally.
And in that context, it’s been interesting to see China’s proposed solutions emerging. Some (like February’s rate cut or even the above bond sale) are fairly standard.
But others aren’t – whether it’s the reports of indebted local governments exploring ways to record data as assets; or the plans to turn Hainan, a tropical island the size of Belgium, into the world’s biggest duty-free zone.
However, most controversial (at least for the West) is still China’s plan to double down on, well, old plans: boosting exports. That’s controversial because the West is becoming more reluctant to accept all those exports, particularly where they’re under-priced (subsidies), over-produced, and risk wiping out local jobs.
So after years of uncertainty, yes, we’re getting a picture of Beijing’s plan: but it’s not all that new, not all that welcome (for some), and it may not all work.
INTRIGUE’S TAKE
Raising debt to boost stimulus is a fine idea, but it depends a lot on how you spend the money. And Premier Li Qiang seemed to acknowledge that fact when he chaired a virtual meeting yesterday, urging officials to put this new cash to good use.
But after decades of ploughing a massive 40% of its GDP into investment, China’s returns are now diminishing, and its options are now shrinking.
Also worth noting:
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China’s ailing property sector accounts for up to 20% of its GDP.
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It’s not entirely clear how big China’s local government debt burden is, though estimates are as high as $10T – that’s equivalent to the GDP of Germany and Japan (combined).
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MEANWHILE, ELSEWHERE…
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🇰🇿 Kazakhstan: In a case that’s rocked the country, a Kazakh court has jailed a former minister of national economy for 24 years for murdering his wife. The case has ignited a national movement, pushing parliament to criminalise domestic violence in line with OECD standards.
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🇩🇪 Germany: German intelligence authorities are, according to a federal court, justified in classifying the Alternative for Germany party (AfD) as a “suspected extremist organisation” due to the AfD’s statements against migrants and “the principles of democracy”. The AfD is polling second nationally for next month’s European elections.
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🇦🇺 Australia: A court has denied a request by Australia’s eSafety Commissioner to extend an injunction against Twitter/X footage of an attack against a bishop last month. Owner Elon Musk had agreed to geo-block the content so it wouldn’t appear for Australians, but he refused to comply with the actual injunction which would’ve had a global effect.
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🇦🇷 Argentina: The IMF has agreed to release the latest $792M tranche of bailout funds after endorsing Argentina’s austerity measures. While the country continues to endure a tough economic crisis, the IMF has commended President Milei’s libertarian government for some wins, including a fiscal surplus, falling inflation, and surging bond prices.
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🇮🇷 Iran: India has signed a 10-year deal to jointly operate Iran’s strategic Chabahar port, including a possible $250M loan to develop a terminal there. India’s ports minister says the agreement is part of Prime Minister Modi’s “vision of enhancing global trade”, including from India to Central Asia.
EXTRA INTRIGUE
Here’s what people around the world have been googling
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🇿🇦 South African sports fans googled ‘Novak Djokovic’ after the Serbian tennis legend took a shock loss at the Italian Open to Chile’s Alejandro Tabilo, days after accidentally being hit in the head by a bottle.
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🇪🇸 Folks in Spain searched for ‘elecciones europeas 2024’ (European elections 2024) as local authorities prepare to notify which citizens have been randomly selected to help out on voting day (6-9 June).
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And 🇦🇺 Australians looked up ‘aurora australis’ as geomagnetic storms produced more remarkable lights in the sky over the weekend (our thanks to Brett for sharing this stunning pic in the Intrigue WhatsApp group, which is open to anyone who’s shared Intrigue with five friends).
NATIONAL ANTHEMS OF THE DAY
The national anthems of Japan, Jordan, and San Marino.
We’ll be hearing quite a few national anthems when the 2024 Summer Olympics kick off in July. But here are some anthems we’ll be hearing less of… not because these countries suck at sports, but because the national anthems of Japan, Jordan, and San Marino are only four lines long. 🤏
DAILY POLL
What do you think is China's best option to revive its economy? |
Yesterday’s poll: Do you think art and politics can ever be separated?
🟨🟨🟨⬜️⬜️⬜️ 🎶 Yes, true art transcends politics (33%)
🟩🟩🟩🟩🟩🟩 🤔 No, art is often born out of the political (64%)
⬜️⬜️⬜️⬜️⬜️⬜️ ✍️ Other (write in!) (3%)
Your two cents:
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🤔 I.F: “Even when art tries to be completely neutral and separate itself from any politics it ends up sending a message.”
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🤔 J.M: “It's possible to have nonpolitical art, but that doesn't make it better or ‘true’.”
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🎶 E.B: “If we could not see beyond the politics, how could we enjoy art from outside our time or culture? Yet we marvel at great works like the pyramids, the Sistine Chapel, and the Great Wave of Hokusai — often with very little understanding of the context of their creation. We can explore the politics surrounding the making of these artworks for a different perspective, but it is not necessary in order to appreciate their beauty.”
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