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Is China Finally Serious About Stimulus?
Stop me if you've heard this before: China has big stimulus plans.
"Fool me once," I know. But Beijing's serious about things this time. CNY3 trillion worth of serious, according to sources who spoke to Reuters about a plan to issue a record amount of special bonds in 2025, with the proceeds earmarked for four programs, two "major" and two "new."
One of the "new" programs aims to boost household durable goods purchases through incentives. The other's a subsidy scheme designed to encourage busi
Who will buy these bonds?
Chinese govt bonds are yielding 1%, there is big demand.
I think China tactically should do the minimum now and reserve shock/awe for Trump dealings.
I also think Chinese consumerism is well down on Xi’s priority list. He is, my view, an old school command economy guy, on a mission to build China into the world’s technological, economic, military, political dominatrix – basically, to be the US circa 1960. Consumer stimulus that doesn’t go to semiconductors, biotech, missiles, nuclear and renewable energy, etc is something he’ll do very reluctantly. Stimulate purchases of durables and EVs, well ok. Fast fashion, clubbing, luxury goods, forget it.
Xi will be firmly in power when Trump leaves office, his debt sells for 1% vs 10Y UST nearing 5%, he can repress dissent far better, and Taiwan is his “Trump card”. Extend China’s customs and trade zone a mere 150 miles from its shores, shut down or tariff imports/exports to the island – think Houthi-on-steroids – and Trump will be on his knees for a deal, with his tech-bros screaming along.
https://www.wsj.com/world/china/china-xi-debt-economic-plan-13aaeec1
By moving the production of ALL of their essential logic chip production to a foreign company in Taiwan, Apple followed by AMD, QCOM, NVDA etc presented the PRC with a priceless negotiating chip to use against the US. For some reason, Trump and a few purists seem anxious to water down the Chips Act which is a belated effort effort to reshore the production of a percentage of these essential chips. Why?
Nor is Taiwan itself very helpful on this. Many in their government cling to the notion that by limiting efforts by TSMC to produce cutting edge chips in the US and EU they are preserving their “Silicon Shield” which guarantees that the US, EU and Japan will protect them from any PRC aggression. You might think that they’d wake up to the new reality, but recently TSMC announced that the next generation 2nm chips will be start to be made on the island in late 2025. The technology will not be available from the new Arizona fabs until 2029.
As JL alludes to, the PRC does NOT have to invade Taiwan to get their way. A naval and air blockade is an “easier” option as is destroying the two LNG terminals on the island which supply the natgas which powers around half of the electricity production on the island.
We can thank the US private sector for this. But then again, capitalism is not patriotic when maximizing shareholder returns are the only legitimate goal in our current system. I wonder if DJT’s new tilt towards a populist/fascist model will change the landscape? An early tell may be how he Elon and Peter handle the Chips Act.
Thank you and may Santa remember to pay you all a visit. Don’t forget to open your chimney flues tonight!