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United States and China Trading Update

Written by IntaCapital Swiss on May 21, 2025. Posted in News & Reports. Leave a Comment

Without a doubt, President Trump’s tariff war has severely disrupted trade between the two economic powerhouses, and nowhere else is this as dramatically highlighted as Apple’s iPhone and mobile devices, where shipments to the United States in April 2025 are down to levels not seen since 2011. Customs data revealed that Smartphone exports slid 72% or circa USD 700 Million in April, outpacing by a long way an overall drop in Chinese shipments to the U.S. of 21%.

Elsewhere in early May 2025, the busiest container hub in the United States, the Port of Los Angeles, saw a drop in shipments by circa 30% as the weight of Trump’s tariffs took their toll. Data released shows that retailers and importers were the most affected, especially those linked to China. Bilateral trade in 2024 between China and the U.S. was circa USD 690 Billion and investors feel that tariffs will significantly erode this figure.

Despite the temporary reprieve in tariffs between the two nations, data reveals that the trade war has left a deep unwelcome imprint on Chinese exporters with many looking to new markets away from the United States. Well known in the trade insurance arena, Allianz Trade having conducted a poll of Chinese exporters found 95% will or already are more determined than ever to double down on exporting their goods to non-U.S. markets.

China’s coastal city of Ningbo is host to China’s second largest port (Ningbo-Zhoushan Port) by cargo tonnage where local businesses, despite the de-escalation in tariffs still plan to reduce exports to the United States and “Go Global’. Senior experts and economists at the Economic Intelligence Unit confirmed this fact whilst also confirming Southeast Asia* remained the favoured destination among many businesses seeking to move production away from China.

*Southeast Asia – comprises eleven countries Brunei, Burma (Myanmar), Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Timor-Leste, and Vietnam. Note that many Chinese companies are somewhat wary of Vietnam with concerns over rising cost weighed against an attractive labour market. Indonesia appears to be the favoured destination.

Experts in the Sino – U.S. arena suggest that decoupling in the medium term seems to be the favoured outcome as Chinese exporters move away from the United States and American companies look to increase efforts to move production out of China with Apple already accelerating a shift in production to India. Apple was railed against by President Trump for not moving production back to the United States, experts close to the situation have said that scenario is unfeasible. The deal struck in Geneva between China and the United States brought tariff rates down to levels before the tit-for-tat tariff skirmish. But with time eating into the 90-day de-escalation agreement, the world will hold their breath whilst these two economic giants try and come to a sensible agreement.

United States and China Agree 90-Day Trade Deal

Written by IntaCapital Swiss on May 14, 2025. Posted in News & Reports. Leave a Comment

On Monday 11th May 2025, both China and the United States agreed to de-escalate their trade war with each other by announcing a 90-day pause on tariffs. The United States agreed to cut tariffs on Chinese goods from 145% to 30% and China agreed to cut tariffs on American goods from 125% to 10%. After the agreement was announced in Geneva, the U.S. Treasury Secretary said, “neither side wanted a decoupling and we do want trade, we want more balanced trade, and I think that both sides are committed to achieving that”. In a joint statement it was announced it had been agreed “to establish a mechanism to continue discussions about economic and trade relations. These discussions may be conducted alternately in China and the United States or a third country upon agreement of the Parties”.

A spokesperson for the Chinese Commerce Ministry said of the joint statement, “it is an important step by both sides to resolve differences through equal-footing dialogue and consultation, laying the groundwork and creating conditions for further bridging gaps and deepening cooperation”. This is a surprising outcome and took markets by surprise as before the Chinese had taken a hard-nosed stance demanding that the United States remove ALL tariffs on China before agreeing to come to the negotiating table. However, several analysts have pointed to the fact that this is just a 90-day ceasefire and pointed out this may not be a lasting peace between the two countries.

Global stock markets rallied on news of the China/United States trade agreement, with the S&P 500 and Nasdaq futures rising 2.7% and 3.7% respectively, plus the US Dollar rose 1% against a basket of currencies. Elsewhere, gold retreated by 2.8% as investors negatively impacted safe haven assets and Brent crude oil futures gained 2.8% rising to $65.71pb. In Europe, both France’s CAC 40 and Germany’s DAX both up just under 1%, Europe’s STOXX 60 and STOXX 600 rose 1.9% and 1% respectively and London’s FTSE 100 only rose by circa 0.50%. In Asia, both China and Hong Kong’s benchmark indices rose, with China’s CSI 300 rising 0.6% and Hong Kong’s Hang Seng index rising 0.8%.

Sadly, there are no guarantees that come 90 days, talks will have progressed further with further positive steps being announced between the two countries. Experts advise that many investors remain wary of the United States due to the flip flop policies of the Trump2 administration, plus President Donald Trump’s continued attacks on the Chairman of the Federal Reserve, Jerome Powell. Analysts advise that some institutions are acting like the risks have disappeared. If this is true, they must have been asleep since inauguration day, as many of their peers seem to be adopting a wait and see attitude. Analysts advise that in the past four weeks investors pulled $24.8 billion from U.S. stocks and with huge U.S. conglomerates such as Mattel Inc, United Parcel Service Inc and the Ford Motor Co recently withdrawing earnings guidance due to supply chain and tariff uncertainty being now extremely hard to navigate, there may be more unwanted surprises around the corner.

China Retaliate with the Imposition of 125% Tariffs on all U.S. Imports

Written by IntaCapital Swiss on April 16, 2025. Posted in News & Reports. Leave a Comment

So the all-out trade war escalates between the United States and China as Beijing announces retaliatory tariffs of 125% (up from 84%) as Donald Trump confirmed that tariffs on China are now effectively 145%. Officials in China confirmed that the 125% tariff will remain no matter if the White House decides to increase tariffs as the levies are now so high there is no longer a market for goods in China imported from the United States.

Chinese experts in this arena have advised that there is no sign from officials from either the United States or China that their respective governments would start negotiations which would avoid a negative impact on global supply chains. However, one official from China’s Commerce Ministry was quoted as saying, “Beijing is open to negotiate with the United States on an equal footing”.

Once again Treasury Secretary Scott Bessent was on the offensive saying, “It’s unfortunate that the Chinese actually don’t want to come and negotiate, because they are the worst offenders in the international trading system”. He went on to say, “They have the most imbalanced economy in the history of the modern world, and I can tell you this escalation is a loser for them”.

Analysts suggest that due to the drag from U.S. trade tensions and slower global growth, China’s GDP (Gross Domestic Product) for this year will be 4%. They further advised that exports from China to the United States only accounted for circa 3% of GDP, however there is a possible negative impact on employment with circa 10–20 million Chinese workers involved with exports to America.

Elsewhere the previous U.S. Treasury Secretary under President Biden has unleashed nothing less than a massive broadside against President Trump and his economic policies, saying, “President Trump has taken a wrecking ball to the U.S. economy”. She commented that Trump and his officials have declared that they had inherited an economy in a “state of calamity and catastrophe”. However, Yellen noted the Economist back in October 2024 said the U.S. economy was the envy of the world.

As already advised previously on this website, U.S. tariffs may well drive other countries including those in the western world further into the arms of China. China is already Europe’s largest trading partner and at a meeting today between Chinese President Xi Jinping and Spanish Prime Minister Pedro Sanchez, Xi said that China and the EU (European Union) must join together in defending globalisation and oppose unilateral acts of bullying. Already the Spanish Agricultural Minister has said, “Spain will pursue closer trade ties with China in the interest of its citizens”.

As Democrats and some Republicans, along with leaders and officials of trading partners with the U.S,. a timely reminder is that the U.S. trading deficit with other countries amounted to USD 130.7 Billion in January 2025 and USD 122.7 Billion in February 2025, and many economists have voiced their wonder about how previous administrations and congress were so happy with this situation.

Obviously Donald Trump is not and has the bit between his teeth but perhaps there was a better way of rebalancing the deficit away from using tariffs. Only time will tell, but the U-turn on tariffs (10% across the board apart from China) giving a 90-day pause, is perhaps part of his intended policy (as confirmed by U.S. Commerce Secretary Howard Lutnick) bringing trading counties to the negotiating table.

Trump 90-Day Suspension U-Turn on Tariffs Except China Sees Equities Rebound

Written by IntaCapital Swiss on April 10, 2025. Posted in News & Reports. Leave a Comment

In line with his election promises, President Trump has marched forward imposing global tariffs on all America’s trading partners, with some countries seeing a 10% tariff, others such as the EU (European Union) being hit with 25% tariffs, and Cambodia topping the list with a whopping 49%. Tariffs have now been returned to 10% across the board apart from China, where tariffs have been increased to 125%, as the announcement of the U-turn came 13 hours after the new tariffs came into effect. However, due to the unpredictability of the Trump2 administration, what happens in 90 days is anybody’s guess.

President Trump has suggested that the pause on tariffs is to give America’s trading partners (except China) time to reassess by making trade deals (or other deals) in order to avoid punitive tariffs. The White House has announced that they want their trading partners to reduce their own tariffs and remove barriers to trade* as such barriers have resulted in the U.S. deficit and should be eliminated. Both Canada and Mexico were not subject to these reciprocal tariffs as they were subject to a 25% tariff regarding illegal immigrants and drugs. However, imports covered by NAFTA (North American Free Trade Agreement) are exempt.

*Barriers to Trade – These barriers are non-tariff and include:

Regulation – Any rules which dictate how a product can be manufactured, handled, or advertised.

Rules of origin – Rules which require proof of which country goods were produced in.

Quotas – Rules that limit the amount of a certain product that can be sold in a market.

Equities

Global markets saw an upward swing not seen for many decades thanks to the 90-day tariff pause, with stocks climbing across the globe. From an equities standpoint the market saw its best rally since 2008 with the tech-heavy Nasdaq 100 rebounding 12%, the S&P 500 Index gaining 9.5%, and the Dow Jones jumping nearly 2,500 points. Europe saw Germany’s DAX rise 7%, Spain’s IBEX 35 up 7.2%, France’s CAC 40 up 6.4%, the pan continental STOXX 600 up 5.3% and the UK’s FTSE 100 up by 6.2%.

Elsewhere in the Far East and Asia, and in response to the 90-day moratorium on tariffs, Japan’s benchmark NIKKEY 225 led the way soaring upwards by 8.8% (gaining over 2,000 points), Hong Kong’s was up 2.69%, Thailand’s SET index surged 4.5% and the Shanghai Composite Index gained 1.29% despite the increase in tariffs on China.

Interestingly, on President Trump’s social media, he announced a buy tip BEFORE announcing the pause on tariffs, making money for all those investors who took his advice. This has caused outrage and concern among ethics experts and opposition politicians who feel that such an announcement is tantamount to giving inside information and is a violation of securities laws.

However, a spokesperson from the White House fired back that the President has every right to reassure the markets, no doubt political opponents will not let this one go, especially as U.S. Senator Elizabeth Warren said, “I am calling for an investigation into whether President Trump manipulated the market to benefit his wall street donors – all while working people and businesses paid the price”.

The US Government bond market (treasuries) has recently seen massive sell offs despite the fact that this market has always been seen as a safe haven in times of volatility and globally there have been massive falls in stock exchanges and bourses throughout the world. This suggests that after the announcement of the fresh wave of tariffs, the U.S. usually viewed as a cornerstone of the global economy has lost the confidence of many investors.

As the price of US government bonds fall, the yield or interest rate rises, which also means that the cost of financing the United States’ debt also rises, and on Wednesday, 10th April, the benchmark 10-year treasury moved to 4.516% and at one stage the 30-year bond hit 5%, being the highest since late 2023. The moves in the treasury markets had, apparently according to experts, caught the President’s eye and may have been one of the reasons he chose to pause tariffs.

China

Whilst the rest of the trading world with the United States enjoyed a 90-day pause on tariffs, President Trump hiked tariffs on China by a massive 125%, saying on a social media post, “based on the lack of respect that China has shown to the world’s markets, I am hereby raising the tariff charged to China”. The decision by President Trump to escalate the tariff war on China came after Beijing announced retaliatory tariffs of 84% on imports of all American goods, but Trump expects China to come to the negotiating table despite their hard line approach to tariffs.

Experts suggest that this is just not simple retaliation by President Trump but more like unfinished business from the Trump1 administration and he was quoted as saying with regards to China, “We didn’t have time to do the right thing”. Furthermore, when Trump was campaigning as an outsider for his first successful stint in the White House, one of his oft repeated themes was that China is responsible for hollowing out the American economy, driven rustbelt decline, and cost blue collar workers their livelihood and dignity.

Unless these two economic powerhouses back down, the the whole scenario will devolve into a full scale trade war hurting a bilateral trade worth circa USD 585 Billion, and this is the crux of the matter, of that USD 585 Billion America’s imports from China accounted for USD 440 Billion. Figures released by the IMF (International Monetary Fund) show the U.S.A. and China account for circa 43% of the global economy and if an all-out trade war ensued this would slow down growth in both countries, (experts suggest perhaps recession) and harm growth in other countries and slowing down global investment.

Conclusion

Sadly, there is at this time no real conclusion as there is so much uncertainty surrounding White House decision making, there is only a rolling commentary on on-going proceedings. President Trump announced a reason for the U-turn on tariffs is that people were getting yippy and nervous, but experts suggest it goes a lot deep than that with Scott Bessent (U.S. Treasury Secretary) asserting that the U-turn had been the plan all along to get the countries to the bargaining table. Now that the 90-day moratorium on tariffs has been announced, the world will hold their collective breath and wait to see how the United States v China tariff war plays out.

No one wins from an outright trade war between these two giants of the global economy, but Donald Trump has, according to experts, had it in for China since he first took over the oval office. It has also been reported that the EU and China are working together against Trump’s tariffs with Chinese Premier Quang (2nd in command in China) receiving a call from EU President Ursula von der Leyen. The White House is treading a fine line with tariffs, and they may yet push the EU and China even closer together (China is the EU’s largest trading partner) and this would totally upset the world order.

Trump Takes Aim at Chinese Ships with Docking Levies at U.S. Ports

Written by IntaCapital Swiss on March 26, 2025. Posted in News & Reports. Leave a Comment

The new U.S. administration has suggested imposing multi-million U.S. Dollar levies on Chinese ships wishing to dock in ports in the United States. Experts in this arena say that this will disrupt global trade and suggest the fall-out could be more disruptive to global trade than tariffs. An immediate example of this fall-out can be located in Germany where port workers should be loading a first round 16,000 MT of steel piping, bound for a huge Louisiana energy project. However due to the proposed levies, the cargo is now sitting gathering dust in a German warehouse.

This is a nightmare scenario for exporters, importers, and ship owners alike – especially as on this particular Atlantic shipping route, 80% of these ships were all built in China. The owners of the ships are not necessarily Chinese, it is just the ships that were built in China, which are being targeted. In this instance, the shipment of 16,000 MT of steel pipes are looking at a potential levy/surcharge of USD 1–3 Million which means the overall transportation cost could increase by 200%–300%.

Current data from the USTR (Office of the US Trade Representative), reveals that China now produces in excess of 50% of the world’s cargo ships by tonnage, (5% in 1999), with Korea and Japan accounting for most of the remaining cargo ship building. In 2024, shipyards in this arena accounted for 0.01% of cargo ships built, thus experts have surmised that this levy madness on Chinese-built ships can only help the long-held aim of the USTR in reviving the US merchant shipbuilding industry, a sleeping giant if there ever was one.

On Monday, 24th March 2025, a hearing begins in Washington D.C. into the ramifications of this trade levy, with representatives from industries from all corners of the world. They will explain to the hearing that these proposals are more damaging than Trump tariffs because of the severe threat to supply chains and, as a result, would severely disrupt global trade, dwarfing the results of any trade tariffs. Furthermore, some carriers have announced that not only will the increase in costs be passed on, but will pull out of docking at smaller ports which, of course, will suffer from the downturn in business.

Analysts suggest that, in theory, these levies could generate between USD 40–52 Billion for the United States. However many U.S. companies are worried as there are escalating tariffs on Chinese goods, aluminium, and steel, plus there are reciprocal tariffs due on 2nd April 2025. However, analysts point to the obvious downside, where U.S. businesses (especially the farming industry) and ultimately the U.S. consumer will come under pressure, raising prices throughout the United States, and threatening jobs across the board.

However, the revival of the U.S. shipping industry is definitely in the sights of President Donald Trump and has now been cast as part of National Security as per the issue of the draft document “Make Shipbuilding Great Again”. Once again, it is felt that President Trump will put pressure on allies to do the same or they will face penalties as well. It is feared the allies are currently not happy being treated like second-rate citizens, so this outcome will be interesting to see. Everyone involved in the United States appears to agree that U.S. shipbuilders cannot compete on an even playing field due to unfair production and market practices by the Chinese.

However some major U.S. carriers have advised if the full implementation of this draft document is achieved, it could put them out of business. There is hope that some of the proposals will be watered down, but if not one veteran in the maritime transportation industry advised that these proposals will be like an “Apocalypse for the trade”. Furthermore, due to lack of domestic production, the “Louisiana Energy Gateway” project (slated to deliver the next generation of LNG – Liquid Natural Gas a Trump favourite), still needs 16,000 MT of steel piping.

Is China’s Property Crisis Getting Worse?

Written by Joesph Patterson on March 5, 2025. Posted in News & Reports. Leave a Comment

Over the last four years a number of China’s biggest property developers have gone into default and today the Chinese economy is hobbled by the world’s largest distressed debt of circa USD 160 Billion. The financial markets were shocked when the China Evergrande Group, at the time China’s biggest property developer, received on the 26th of January 2024 a liquidation order from a Hong Kong court. The group had amassed in excess of USD 300 Billion in liabilities during the debt-fuelled years of the China property boom, and on that fateful day in Hong Kong when their shares stopped trading, their value was down 99% from the peak at USD 275 Million.

Today, four years later, the last remaining titan in the Chinese property developing arena, China Vanke Co., warned that they were facing losses of circa USD 6.2 Billion. In the last weeks of January 2025, Chinese officials finally decided that China Vanke Co. was “too big to fail” (a term that has been used over the years for banks where their executives have failed to do their jobs) and faced with a collapse in the company’s bond price, and officials from Shenzhen (Vanke’s hometown) have taken over operational control. The company is also facing USD 4.9 Billion of maturing bonds and redemption options this year whilst the rating agency Moody’s has downgraded the company to Caa1 (Non-Investment Grade– Substantial Risk) which is seven points below investment grade.

Chinese authorities are working on a bail-out package that will help fill the funding gap of USD 6.2 Billion, which has been welcomed by the financial markets. However, despite the authorities stepping in at China Vanke, plus many stimuli packages from the government, analysts confirm that real estate projects in the hinterland (outside major cities) are not receiving any lending from banks. Furthermore, experts advise that circa 12 developers are currently facing liquidation petitions, restructuring deals are falling apart and on the international front, creditors are losing patience.

Another tale of woe is Country Garden whose name used to be in lights along with China Evergrande, now suffering from weak domestic demand and a declining job market. The company has suffered from a year on year 51% decline with contract sales dropping 59% from the previous year to USD 309 Million (Yuan 226 Billion). According to analysts, one major stumbling block (and this, despite government support) is that a substantial number of buyers prefer to purchase second-hand homes as they have a lack of faith in developers’ abilities to finish projects. The markets are holding their breath to see if Country Garden can reach an agreement with creditors on a revised debt plan. Meanwhile, a liquidation hearing in Hong Kong has been delayed by the court.

Sadly market conditions have worsened, and experts point to Sunac China Holdings, when in 2023 they enjoyed a successful debt restructuring (and was hailed by creditors as a blueprint and role model), have recently advised that they may have to do a second restructuring. Analysts also advise that in Hong Kong’s court, liquidation petitions are piling up – with one of China’s biggest builders Shimao Group Holdings Ltd in the firing line. Elsewhere, and in an unfamiliar approach, China Fortune Land Development Co. (In Default) has scrapped a debt plan already approved by creditors and is going for a court-led decision.

Some experts point the finger at leading communist officials who, when the slump took place, blamed them for turning the economy towards economic growth driven by the technology sector, thereby reducing the role of the property sector. The government then cracked down on the massive leverage being used by developers whilst tackling a housing bubble. The property market then crashed with home prices according to experts falling 30% from their peak in 2021, with the housing sector’s financial contribution to the economy falling from circa 24% to circa 19%.

Initially, China’s answer to the property crisis was not to bail out companies but to rather focus on actually delivering homes to buyers. In this respect, they requested (which means told) state-backed companies and local governments to purchase those homes that remained unsold, whilst providing finance on a limited scale to finish uncompleted property projects. The government then sought to improve demand by cutting mortgage rates and lifting restrictions on buying with an end result of not reflating the market but to manage the slowdown.

However, that strategy appears to be in pieces considering the number of developers queuing up in Hong Kong waiting on the courts’ liquidation decisions. Economists are fearful that the property crisis will continue on a downward track, hampering the government’s goal of kick-starting and reviving domestic consumption. Economists are crying out for more stimuli packages when Chinese lawmakers have their annual meet in March. It is hoped this time that the authorities will offer packages that will be big enough and effective enough to stimulate confidence and consumption, thereby boosting a seriously flagging property sector.

Major US Investment Banks are Recalibrating and Pulling Back from China

Written by IntaCapital Swiss on February 27, 2025. Posted in Industry, News & Reports. Leave a Comment

Once upon a time China was regarded as one of the major centres for the expansion of investment banking, with many of these banks viewing China as one of the crown jewels within their portfolios. Today, with the United States applying more tariffs and restrictions on the country, the China economy is reeling from huge losses in the property sector; the economy which conservatively speaking has been sluggish, has put the brakes on deal flows. As a result, many global investment banks are rethinking their “China Strategy” and pulling back from the USD67 Trillion financial services market.

A number of analysts confirm that back in December 2024 a number of US Investment Banks conferred with the US Treasury regarding the rules and regulations as to how their clients may comply with investing in China. It is understood that many of these executives left the meeting with less understanding of the situation and many with more questions than answers. Experts suggest the bankers needed to understand the rules and guidelines concerning investing in those Chinese companies by their clients, which pose potential national security risks. Furthermore, which reporting requirements were needed and which deals would now qualify under the new rules.

So as these institutions pull back from China, the recipients of their largesse seem to be according to experts, Japan and India who are not filling the large investment hole that leaving China has produced. Indeed, many of these international investment houses and banks have reduced staff or as some analysts put it “pared to the bone” to levels that just meet the minimum staffing requirements by the Chinese financial regulators allowing these companies to operate in their jurisdiction. Despite numerous financial stimuli, many bank bosses are sceptical that there will be any decent improvement in China’s economic prospects.

Some experts point to November 2020 as the point where global confidence in China began to decrease. In that month, the Ant Group controlled by Jack Ma were just about to issue their IPO (Initial Public Offering), which at the time would have been the world’s largest, in the amount of USD35 Billion in Shanghai and Hong Kong. However, instead of marking what would have been a high point in China’s booming business sector, the Chinese authorities pulled the IPO at the last minute. Experts confirmed this action by the Chinese authorities marked the start of China’s war on private companies/enterprise, and the beginning of declining global confidence in China which also sabotaged Hong Kong’s standing as a major funding centre for Chinese companies.

Interestingly, analysts advise that some Wall Street banks consider China a long-term bet with one senior banker suggesting that there could be double digit growth in 2025, but experts suggest that his peers disagree, and China may take years to achieve this figure. However, let’s not forget Hong Kong where many US banks have successfully made significant profits from Greater China, which has historically accounted for a significant share of any earnings. Last week February 10^th – 14^th 2025 bankers were encouraged by a rebound in Chinese Stocks in Hong Kong (they hit a three year high), this on the back of China participating and maybe becoming a major player in the AI artificial intelligence sector.

However, all eyes are on the US administration and whether or not they will increase tariffs on imports from China having already levied a 10% charge and what will be China’s reaction and the overspill into their already problematic economy. Elsewhere on the tariff front, the recent bombshell of more tariffs announced on Tuesday 18^th February 2025 by Donald Trump where he intends to impose levies of 25% on the importation of auto parts, semiconductors, and pharmaceuticals as early as 2^nd April 2025. President Trump did not specify what countries he had in mind, but currently Germany seems to be on the cards.

The big question is will the president hold true to his pre-election promises or will he, like Canada and Mexico, use tariffs as a club to beat countries into agreeing to other demands. However, he has promised tariffs to put “America First” so whatever happens, 2025 may see an all-out trade war with the world and especially consumers are in for a fairly bumpy ride.

China to Issue Yuan 1 Trillion (USD 138 Billion) Long-Term Special Treasury Bonds

Written by IntaCapital Swiss on June 18, 2024. Posted in Blog Article, News & Reports. Leave a Comment

China’s finance ministry has confirmed that starting Friday 17^th May 2024 Long-Term Treasury Bonds with a tenor of 30 years and a value of Yuan 40 Billion will be issued. Bonds with a tenor of 20 years and 50 years will be issued on 24^th May 2024 and 4^th June 2024 respectively, with the balance of the bonds with a tenor of 30 years being issued in November 2024. This confirms China’s bond announcement in March of this year, with the issuance being the first of its kind for 26 years.

The breakdown of the bonds are as follows,

20 Years – Yuan 300 Billion

30 Years – Yuan 600 Billion

50 Years – Yuan 100 Billion

Experts suggest that the Chinese government, which is facing pressure from weak consumer confidence and the on-going housing crisis, is increasing fiscal support to help the economy. The government may well use some of the funds to spend on infrastructure which will be key to hitting their annual growth target of 5%, with some experts suggesting that the boost to Gross Domestic Product could be as much as 1%. Analysts suggest the timing of the bond issue coincides with protectionist tariffs against Chinese goods by the United States, (the latest of which announced 14th May 2024)*, and is intended to offset any impact incurred by such tariffs.

US Protectionist Tariffs – The new measures affect $18 billion in imported Chinese goods including steel and aluminium, semiconductors, electric vehicles, critical minerals, solar cells and cranes, the White House said. The EV figure, while headline-grabbing, may have more political than practical impact in the U.S., which imports very few Chinese EVs.

Experts expect that the Chinese government will use the funds to move the economy away from the investment in infrastructure and property growth model which has caused the increases in debt held by local governments. Interestingly, if compared to a global standard, the Chinese economy has enough room to potentially issue over the next five to ten years bonds to the value in excess of three trillion yuan. Indeed, analysts advise that more long-dated bonds will be issued in the future to strengthen energy and food security sectors, as well as the manufacturing supply chain.

Recent data released showed that aggregate financing (a broad credit measure) shrank for the first time in April by circa Yuan 200 Billion (USD27.7 Billion), down from March, being the first decline since comparable data began in 2017, which reflects a contraction in financing activity. Data shows that in April financial institutions offered Yuan 731 Billion in new loans lower than the project figure 0f Yuan 916 Billion. Experts advise that the issuance of the Long-Term treasury bonds will increase credit expansion in both May and June whilst officials from China’s top commercial banks were recently summoned to the Ministry of Finance to arrange underwriting of the long-term bonds.

Bad Debts and Chinese Banks

Written by Barclay Butler on May 9, 2024. Posted in Blog Article, News & Reports. Leave a Comment

Chinese banks have for years been reluctant to disclose any information on poorly performing loans or outright bad debts. They go to extraordinary lengths to hide these problems usually teaming up with an AMC (Asset Management Company)* where a transaction takes place that removes these loans from their books. So it came as a surprise when the Bank of Jiujiang on the 19^{th of} March 2024 announced that profits for the previous year will probably fall by Circa 30% due to loans performing poorly.

*AMC’s – Chinese Asset Management Companies came into existence in 1998 and were established by the Ministry of Finance with the purpose of professionally managing third-party assets and was considered at that time to be a major landmark in the development of China’s financial system. It marked the transition from an unregulated environment to one where these specialist companies would operate with a defined set of financial parameters, regulations, and standards.

The deal with AMC’s to hide these bad debts or poorly performing loans is as follows. First, the bank lends to the AMC who in return purchases the toxic loan(s) from the bank. Within the contract between the two parties it stipulates that the AMC will avoid any and all credit risks in regard to the toxic loans they are purchasing. Furthermore, the contract is also riddled with confidentiality clauses that keep either party from disclosing the arrangement, indeed sometimes even to courts. The result is that when the bank comes to declare their profits for the year to their investors they can produce a relatively clean balance sheet.

For a long time the financial regulators were hoodwinked into believing that many of the banks were actually solving their bad debt problem, when in fact things were just getting worse and a number of experts suggest for literally hundreds of banks across China these toxic loans now represent a ticking time bomb. However, NAFR (The National Administration of Financial Regulation established 10th March 2023) the new financial regulatory body has caught on to these subterfuges and have been handing out fines left right and centre some in the region of Yuan200 Million (USD30 Million). Indeed, NAFR, with new heightened enforcement capabilities, are taking debt concealment much more seriously.

Sadly for the banking institutions many AMC’s have themselves become distressed and are now reluctant to take more bad debt on board. Some decades ago China actually created four centrally controlled AMC’s to take on bad debt and are now currently struggling with one needing a bail out in 2021 to the tune of USD6.6 Billion. This is becoming a runaway freight train of bad debt, and with Bank of Jiujiang’s bad loan book increasing 700% between 2015 and the end of 2023, the whole banking system may soon become imperilled.

China Snowball Derivatives and their Potential Losses

Written by IntaCapital Swiss on January 29, 2024. Posted in Blog Article, News & Reports. Leave a Comment

USD13 Billion worth of China Snowball Derivatives are approaching loss levels as the ongoing route of China’s stock market is pressurising these structured products, threatening to raise market volatility. Indeed, over the years snowballs have attracted China’s wealthy and institutional investors, but a rapid decline in the Chinese stock market is now exposing risks to these derivatives hitting loss-triggering levels. But what exactly are “Snowball” derivatives?

A Snowball product is a structured hybrid derivative which pays a bond-like coupon and consists of additional options on basic financial assets, which include underlying assets such as stocks or stock indexes. The word snowball derives from the fact that coupons can be rolled over and coupon pay-outs rely on the underlying asset trading within a certain range.

Currently, experts are advising that circa USD4.2 Billion (Yuan30 Billion) of snowballs that are tied to the CSI 1000 Index* are approaching levels that trigger losses at maturity, whilst another circa USD8.4 Billion (Yuan 60 Billion) are between 5 and 10% away from their knock-in** thresholds. This week on Wednesday 15th January, the CSI 1000 index closed at its lowest level since April 2022.

*The CSI 1000 Stock Index – This index is composed of 1,000 small and liquid stocks of all A-shares, excluding the CSI 800 constituents (follows the 800 largest stocks by free-float market cap and represents large and mid-cap A-share stocks). It reflects the stock price performance of a group of small-cap companies in the Chinese A-share market.

**Knock Ins – There are two types of knock-in options: down-and-in and up-and-in. The former (currently China’s problem) is triggered if the underlying asset price falls below a certain level and the latter is triggered if the underlying asset price rises to a certain level.

During the Covid-19 Pandemic, snowballs gained in popularity among the wealthy Chinese and asset managers, with brokers typically offering such grand returns or coupon rates of between 12 and 20%.

Between February and April 2023, many of the outstanding snowball derivatives were issued, and since then the CSI 1000 has fallen by circa 22%, and for those who bought a one year contract with an 80% knock in last February, if there is no rebound in the market, next month they may be holding some serious losses.

Despite government efforts to kick-start the stock markets by halving stamp duty on stock trades (August 2023), or their own exchanges launching new blue chip benchmarks where sectors such as chip manufacturing or renewables are granted greater weightings, sadly for snowball holders such small measures have failed to work with many investors now looking elsewhere. Unless the government engages in the type of quantitative easing as seen in the past in Europe, the United Kingdom and the United States, there is little else the government can do to stop the pessimism that is sweeping through the stock markets, signalling losses for many snowball holders.

Tag: China