Topcools Editor Comment:
Soros said this week: “I’m not expecting” a hard landing, Soros said, “I’m observing it.” –Barrons article below:
Topcools think Soros might be very likely right in that: with 100~150 billions dollar of wealth exit from China each month and foreign reserve shrink from 4 trillion to 3.2 trillion that we will see this weekend(likely Feb 7, 2016), despite continuing of large trade surplus, a hard-landing seem natural and consist with our past analysis of Mr.zhou and currency war.
Further more, Japan’s decision to push deposit rate to negative 0.1%, will push down Japanese currency, put more pressure on export from China and increase over-valuation of CNY, thus further accelerate the bleeding of wealth from China. With a lot of sages in China are talking about let CNY float, more expectation and outflow will accelerate, soon we will see Chinese central bank can’t afford to continue to support CNY. Printing to invest will not likely end up well. We will be watching tomorrow’s data as what happen when Chinese get new quote to exchange 50000 USD on new year.
Jan 30, 2016, Topcools Editor.
Disclaimer: we are not interested in politics other than profiting from political events.
Why China Is Failing the George Soros Test
Blaming “radical speculators” is a smokescreen for Beijing’s missteps. Reforms, not tantrums, are needed.
By WILLIAM PESEK
January 29, 2016
Billionaire George Soros speaking at the World Economic Forum (WEF)in Davos, Switzerland. Photographer: Matthew Lloyd/Bloomberg
George Soros is famous for attacking. In 1992, the world’s most notorious shortseller went after the British pound. In 1997, he had Malaysia running scared. Now it’s Soros’s turn to take fire. China is warning the 85 year-old to bug off, and it’s so hard to keep a straight face.
Look, billionaire speculators can defend themselves. But governments with authoritarian tendencies often look weak when playing the tough-guy card. Malaysia’s Mahathir Mohamad calling Soros a “moron” 18 years ago comes to mind, as do Lee Kuan Yew’s numerous brawls with journalists critical of Singapore in years past and Shinzo Abe’s clumsy efforts today to bully the media. In trying to look strong, leaders come off as petty and draw attention to the very problems they’re trying to deny.
In China’s case, it’s an unraveling economy. Beijing is livid that Soros said aloud what everyone is thinking about its boom ending badly. “I’m not expecting” a hard landing, Soros said, “I’m observing it.” So is most everyone else, which is why Beijing’s response via state media asking “why are so many Western pundits and media outlets so intent on talking China down?” is so clueless. It’s not a conspiracy theory that $3.3 trillion of currency reserves aren’t enough to insure against turmoil in a $10 trillion economy that’s inflated a $28 trillion-plus credit bubble. It’s basic math.
Putting a face on China pessimism — Soros’s — and denouncing “radical speculators” is a smokescreen and it misses the point. Investors no longer trust Beijing’s claim epochal restructuring is afoot. Rather than blame the messenger, President Xi Jinping’s team must internalize the growing negativity toward the No. 2 economy and respond with policy actions, not tantrums and recriminations.
Markets get that China is determined to grow 6.5% this year, but lack faith in 2017 and beyond. It’s time Xi’s men got something, too: investors seek transparency and plausible reform strategies, not hollow PR campaigns that insult their intelligence. So why not grant an interview to a news organization not on the Communist Party’s payroll to address concerns about China? Or deliver a big policy speech offering detailed plans to accelerate reforms. Attacking the messenger is beneath a great power on which companies and, yes, hedge fund managers the world over are relying.
CHINA IS FALLING INTO THE BLAME-GAME TRAP. By lashing out at speculative attacks, real or imagined, governments highlight vulnerabilities, drawing others to the frenzy and exacerbating the problem. Best as I can tell, Soros hasn’t said he’s shorting the yuan or going after Hong Kong’s dollar peg. And yet Beijing, through state media, asserts Soros is “unlikely to succeed, there is no doubt about that.” Well, there is now thanks to Beijing’s paranoia.
The prominent placement and uniformity of this don’t-test-us campaign shows it comes from the very top. The frequency with which the Xi government slaps foreign critics, too, smacks more of desperation than confidence — something investors are good at sniffing out. But the personal nature of these warnings makes you wonder what Xi’s team knows that the rest of us don’t. Where there’s smoke, goes the old adage, there’s fire. The smoke signals Beijing is sending markets are the opposite of those intended.
One option, of course, is taking speculators out of the equation by floating the yuan. Yu Yongding, a former adviser to the People’s Bank of China, makes a very persuasive case in a new Project Syndicate op-ed. “China is still running a large current-account surplus and a long-term capital-account surplus, and it has not fully liberalized its capital account,” Yu writes. “So the chances are good that the yuan would not fall too far or for too long.”
Xi lacks the confidence to do it, and currency punters smell the fear. Not Soros — hundreds of millions of mainlanders. The PBOC is scrambling to limit ways China’s middle class can spirit yuan out of the country. First, households closed stock trading accounts (Shanghai shares are down 25% since Jan. 1). Now, the trade of choice is owning anything but yuan. As my Barron’s Asia colleague Shuli Ren points out, mainlanders can send up to the equivalent of $50,000 overseas. If 12 million out of 1.4 billion Chinese did so, Beijing’s $600 billion trade surplus would vanish. Suddenly, $3.3 trillion of reserves aren’t what they used to be.
Soros “declaring war” on the yuan, as state media claim, is just a symptom of the problem. If Xi’s own people lose faith in his ability to right a listing economy, they will spend even less money and spend more time in cyberspace challenging his party’s legitimacy. Soros is right that the strongest leader since Deng Xiaoping “left it too long” to change growth engines and rein in credit excesses. Given China’s top-down system, Soros argues, Xi had “greater latitude” than officials in Washington, Tokyo or Brussels to exact change — only he hasn’t used it.
Speculative attacks, just for Beijing’s information, tend to be provocations. Traders watch how governments react to see if they give up their playbook. Well, Beijing is failing the Soros test spectacularly and inviting even greater skepticism about China’s economy.