China’s ‘Record’ Rate Cut And Xi’s Mission Impossible

China’s ‘Record’ Rate Cut And Xi’s Mission Impossible

"China cuts a mortgage reference rate by most on record." Sounds dramatic, no? Unfortunately, the reality doesn't quite live up to the headline. Banks did indeed lower the five-year loan prime rate, a reference for home mortgages, on Friday. You can see it in the figure (below) if you squint. The 15bps move was, technically, the largest reduction ever. But nuance is important. First, China is attempting to offset the drag from a property crackdown that very nearly torpedoed the world's sec
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7 thoughts on “China’s ‘Record’ Rate Cut And Xi’s Mission Impossible

  1. Prof. H: do you mean “It’s possible the China economy will outperform US’s for the first time in nearly 50 years, according to a Bloomberg Economics assessment.”? Thanks for this article.

  2. In April, zero cars were sold in Shanghai. So how many iPhones were sold? And how is AAPL’s 2Q report going to look? AAPL is still 6-7% of SP500, plus its supply chain.

  3. The Chinese lack of an effective Covid vaccine. To compensate, they impose lockdowns in major cities, resulting in supply chain interruptions for US goods made in China. Why do so many unoccupied properties (called ghost cities) exist in China – mere empty spaces that lack water or heat? Why was Jack Ma kidnapped by the Chinese government for a period of time and silenced? Was this most successful Chinese business leader somehow a threat to the government? Perhaps he was overly gregarious? Then, of course, the Chinese maintain an ongoing, close relationship with the murderers that govern Russia.

    These matters of fact reflect questionable management and counter-productive practices in the Chinese economy by the CCP. I’m sure there are other matters of fact that can be named to further highlight mishandling by the CCP. But the Chinese government seems to feel they have enough of a grasp of capitalism so they can still exercise top-down control of their people and their economy. The examples cited above imply missteps, at best, if not misunderstanding.

    In 2012, Xi Jinping came to power, taking the reins of a new, fully realized capitalist economy in a large communist country – a first in the history of the world. Since the time of Mao, China had striven for this moment. No Chinese leader before held this level of power and acceptance in the world – not Chiang Kai-shek, not Mao Zedong, nor Deng Xiaoping, nor Jiang Xiang, nor Hu Jintao. It was a massive accomplishment, completed with many years of effort and cooperation with western countries.

    Today the leadership of Xi Jinping and the Chinese Communist Party (CCP) seems to be slowly but surely withdrawing and enabling failures. They put their success at risk by trying to go their own way, as with their Covid vaccine. Western countries cannot withdraw suddenly from their trading relationships with the Chinese. But Chinese actions and inactions in managing their economy can impact western trading partners and erode confidence. And in capitalism, the absence of confidence does not cut the mustard.

    1. very well said, Chicago…here’s hoping the regressive emperor for life transitions to emperor emeritus with newer more progressive blood moving in and taking over…perhaps Putin’s massive debacle may move the needle between now and then … one can hope…

      1. Thanks for the note, John. Please call me Dave.

        Your comments point to a real possibility. I was not thinking about that, as I assumed Xi had the party in the palm of his hand. But you raise a good point. I recall there have been occasions when the CCP voted against the wishes of the leader. Though it’s possible, I doubt that will happen in this case (But I secretly hope they will toss out Xi and shake things up).

        After Deng Xiaoping, who pushed to promote a more open China, the CCP voted under Jiang Zemin, and (even more so) under Hu Jintao to assert its control. Once they got into the WTO 2001, Hu took office in 2002 and the CCP mood for reform changed. It was as if they perceived there was breathing room, and they could decide to tighten the CCP grip, so to speak. Hu had to abide with it.

        Here’s a link to a brief, related read:

        The thing is, we’re trying to do business with these people. If they continue down this path, US businesses should at least note the character of their partners and how the partnership may compromise success.

        Another note: We’re overdue for joining the TPP. I’m surprised Biden has not put that forward yet.

        1. thanks for the additional color and history, Dave … 1) definitely agree about rejoining TPP if possible, as well as
          2) the new Cold War that we’ve entered into … which I believe would have been avoided had America chosen a different path in response to 9/11, but that obviously can’t be undone now…so here we are…

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