The Poon Report - Today's top stories focus on China
News Summary
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Major Evergrande creditor group to seek liquidation if no new debt plan soon: Sources
Taken from Channel News Asia Wednesday, 27 September 2023
A major group of offshore creditors of China Evergrande Group is planning to join a court petition to liquidate the cash-strapped developer if it doesn't submit a new debt revamp plan by next month, two sources familiar with the matter said.
The creditor group holds a large portion of Evergrande offshore bonds and, if it decides to join, would add more weight to the petition filed against the developer by an investor in a Hong Kong court.
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A group of Evergrande bondholders were surprised by the firm's weekend announcement which said it was unable to issue new notes, and have been seeking meetings with the developer to seek more information, said the two sources.
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If Evergrande fails to submit a new debt restructuring plan by Oc 30, that bondholders' group will support a winding-up petition - or petition to liquidate - already filed against the developer, said the sources, declining to be identified due to the sensitivity of the matter.
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Property Brokerage Lianjia Slashes Beijing Commissions to Boost Sales
Taken from Caixin Wednesday, 27 September 2023
China’s leading real estate brokerage, slashed its sales commission and started charging both sellers and buyers rather than just buyers in response to surging listings of existing homes following Beijing’s easing of housing policies.
Starting Tuesday, Lianjia cut its commission fee on property sales in Beijing from 2.7% to 2%, several agents from the brokerage confirmed with Caixin. Buyers and sellers will split the fee equally.
The move is to adapt to changes in market supply and demand and respond to regulators’ calls for real estate brokerages to charge more reasonably to help boost the property market, a person at Lianjia told Caixin.
As the largest real estate brokerage in Beijing, Lianjia usually charges higher commission fees than its rivals. Maitian Real Estate Agency and 5i5j Holding Group Co. Ltd charge 2%.
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Chengdu Scraps Homebuying Limits in Certain Districts
Taken from Caixin Wednesday, 27 September 2023
Chengdu, the capital of southwestern China’s Sichuan province, joined a raft of second-tier cities in scrapping home purchase limits in certain areas to help bolster the ailing property market.
The city of nearly 10 million people dropped purchase limits in five districts and relaxed restrictions in seven others, according to a notice issued Tuesday by the city’s housing and urban-rural development bureau.
The city also no longer sets reference prices for pre-owned housing, a policy introduced two years ago to curb speculation after prices skyrocketed in in 2020.
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US autoworkers strike: when will dealerships run out of cars to sell?
Taken from FT Wednesday, 27 September 2023
Inventories of popular models like Ford Bronco are running low amid UAW action
There are plenty of new Jeeps and Ford Broncos for sale at Jay Darling’s dealerships. At
least for now.
But the assembly lines that make these models, as well as the Chevrolet Colorado truck, have been idle for almost a fortnight following a strike by the United Auto Workers.
It is the first time that the UAW has simultaneously targeted all three of the carmakers that dominate Detroit — Ford, General Motors and Stellantis — as the union seeks higher pay for workers at a time of record profits for the industry.
As the work stoppage continues, one question looms over dealerships operating in the US: when will they run out of vehicles to sell?
Darling, who manages 15 locations across Maine, expects inventories of affected vehicles to shrink over the next four to six weeks.
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Australian vineyards struggle to stay afloat amid wine glut
Taken from FT Wednesday, 27 September 2023
With 2bn litres in storage the industry hopes tariff resolution with China will boost trade
The equivalent of 859 Olympic-sized swimming pools of wine sloshing around Australia is
testimony to a brutal period for the country’s wine growers.
Two billion litres of Shiraz, Cabernet Sauvignon and other varieties have accumulated since China, the world’s biggest buyer of Australian wines, imposed punitive import tariffs in 2020 as relations soured during the Covid-19 pandemic, according to one investment bank report.
Now, with a different government in Canberra, relations with Beijing are on the mend and a string of sanctions on other key Australian exports — including coal and barley — have been lifted by China.
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“The market has effectively collapsed, which means there is a lot of bulk red wine floating around without a home. [The tariffs] have taken out the biggest market by the proverbial country mile,” said Alister Purbrick, chief executive of the family-owned Tahbilk winemaker in Nagambie in northern Victoria who has been in the industry since 1976.
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According to the Australian Grape and Wine trade body, China was worth A$1.2bn to the industry, more than double the UK or the US, the next biggest export markets for Australian wine. In the year to date, that has dropped to about A$8mn, according to the trade body.
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Ambrose Evans-Pritchard: OPEC is going into a death spiral – because of China
Taken from The Telegraph Wednesday, 27 September 2023
The breath-taking pace of global electrification will hasten the decline of oil in car and bus transport
All told, the OPEC-Russia cartel has had to take 2m b/d of production off the table at a high point in the economic cycle, after China’s post-Covid reopening and at a time when the US economy has been running hot with a fiscal expansion roughly equal to Roosevelt’s world war budget.
That 2m b/d figure happens to be more or less the amount of crude currently being displaced by EV sales worldwide, according to Bloomberg New Energy Finance.
Yet the mood was all defiance and plucky insouciance at the 24th World Petroleum Congress in Calgary this month.
Talk of peak oil demand is “withering under scrutiny”, said Saudi Aramco chief, Amin Nasser.
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The cartel is being hit from two sides. Petrol and diesel cars are becoming more efficient, gradually displacing 1.4bn vintage models disappearing into the scrap yard. BP says that alone will cut up to a tenth global oil demand by 2040.
With a lag, EVs are now starting to take a material bite, with an S-curve trajectory likely to go parabolic this decade.
China’s EVs sales hit 38pc this summer, even though subsidies have mostly been scrapped. This is far ahead of schedule under Beijing’s New Energy Vehicle Industry Development Plan.
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The Biden FCC’s Plan to Brake 5G
Taken from WSJ Wednesday, 27 September 2023
Rosenworcel wants to reimpose net-neutrality rules that are illegal and unnecessary.
Remember predictions that Trump Federal Communications Commission Chair Ajit Pai would break the internet by rescinding the Obama “net neutrality” rules? The internet somehow still works and is now even faster. Yet Biden regulators plan to “fix” it by re-imposing political control.
Democratic FCC Commissioner Anna Gomez was sworn in Monday, and Chair Jessica Rosenworcel is off and running with a new 3-2 majority. On Tuesday she announced plans to reinstate the Obama regulatory regime that reclassified broadband providers as common carriers under Title II of the 1934 Communications Act.
Net neutrality has long been a rallying cry on the left. Progressives claimed during the Obama years that broadband providers had to be regulated as utilities so they wouldn’t slow or block websites. Yet providers weren’t doing so then and haven’t since the Trump FCC scrapped the Title II regime in 2018.
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Senators Unveil Bipartisan Funding Deal to Avert Government Shutdown
Taken from WSJ Wednesday, 27 September 2023
Agreement adds pressure on Speaker Kevin McCarthy to advance House proposals despite opposition from conservative lawmakers
Senate Democratic and Republican leaders unveiled their plan to avoid a government shutdown, releasing legislation to extend funding through Nov. 17 while also providing about $6 billion apiece for Ukraine and for disaster relief.
The proposal—the only bipartisan approach currently being pursued by congressional leaders—marks a contrast with House Speaker Kevin McCarthy’s plan to extend government funding on the condition that Congress also enact strict border-security measures. The Senate plan was released as the chamber prepared a vote to open debate on the measure, while the House was preparing to vote to advance four full-year funding bills.
The government will shut down this Sunday unless Congress acts, and the conflicting approaches highlight the high-wire act facing political leaders. The most intense pressure is currently on McCarthy, who said earlier Tuesday that he would keep working through tensions within the Republican conference in order to avoid the shuttering of government departments in less than five days.
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U.S. Warns Professional Services Firms of China Risks
Taken from WSJ Wednesday, 27 September 2023
The warning on due-diligence efforts came in an advisory highlighting a gulf between the U.S. and China on forced-labor questions
Due-diligence companies and professional-services firms should weigh the risks of operating in China, the Biden administration said in an advisory that highlighted the continuing rift between the two countries as the U.S. cracks down on goods from China’s Xinjiang region that it says are linked to forced labor.
Firms in China have faced heightened scrutiny and have been subject to raids, actions that contradict the country’s message that it remains “open for business,” the State Department said Tuesday in an advisory statement on supply chains linked to Xinjiang.
The Treasury Department, Commerce Department, Labor Department, Department of Homeland Security, and Office of the U.S. Trade Representative joined the State Department in publishing the advisory.
The statement Tuesday, an update to an earlier advisory, emphasized the sustained gulf between U.S. and Chinese officials on Xinjiang, home to the country’s Uyghur people and other minority groups as well as a major source of cotton, solar panel components and other exports.
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Bullrich Adviser Says Dollar, Peso Will Coexist in Argentina
Taken from Yahoo Finance (Bloomberg) Wednesday, 27 September 2023
Argentina’s Patricia Bullrich would pursue a currency regime where the peso and dollar exist together as legal tender if she wins the presidency, according to her chief economic adviser Carlos Melconian.
“The peso and the dollar will coexist” if Bullrich is elected, Melconian said Tuesday at the Bloomberg Economic Summit in Buenos Aires. “There will be a complementary exchange rate regime that will be step by step, and will take inflation into account.”
Bullrich, who’s running for the pro-business opposition coalition, floated Melconian, a celebrity economist in Argentina who leads a local think tank, as her potential Economy Minister last month. It’s an attempt to focus her campaign on topics that are top of mind for voters as inflation surges past 120%. The incoming government will need to reign in spending, slash the fiscal deficit and rebuild dwindling central bank reserves.
“There is going to be very severe and prudent macroeconomic policy in Argentina,” Melconian said, adding that Bullrich’s government would aim to cut government spending by 4% of gross domestic product.
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India will look into any 'specific' info on Sikh separatist killing in Canada
Taken from Nikkei Asia Wednesday, 27 September 2023
Foreign minister says New Delhi is open to probing Hardeep Singh Nijjar's death
Indian Foreign Minister Subrahmanyam Jaishankar said on Tuesday that India has told Canada it was open to looking into any "specific" or "relevant" information it provides on the killing of Sikh separatist Hardeep Singh Nijjar.
Prime Minister Justin Trudeau said last week that Ottawa had credible intelligence linking Indian agents to the murder, prompting an angry initial reaction from New Delhi, which denies the allegation.
Asked about the allegations at a Council on Foreign Relations event in New York, Jaishankar detailed India's response in diplomatic engagements.
"One, we told the Canadians that this is not the government of India's policy," he said. "Two, we told the Canadians saying that look, if you have something specific, if you have something relevant, you know, let us know -- we are open to looking at it."
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Kishida's 'tax cut' talk sparks guessing game over snap election
Taken from Nikkei Asia Wednesday, 27 September 2023
Lawmakers grow suspicious Japanese PM will make the move before year-end
Japanese Prime Minister Fumio Kishida mentioned "tax breaks" in outlining his stimulus package on Tuesday, triggering speculation that he is laying the groundwork for calling a snap election before the end of the year.
Kishida directed his cabinet to draw up a package of economy-boosting measures next month, stressing the need to "return to the public the increased tax revenues, which are the result of growth."
He cited tax breaks for companies that raise workers' pay, without giving details about the size or scope of the breaks. Some in the ruling coalition suspect Kishida is considering income tax cuts, along with corporate tax breaks.
"We were left with the inkling that he's going to dissolve the lower house" for a snap election, a senior official in Kishida's ruling Liberal Democratic Party told reporters Tuesday, a view echoed by a high-level economic official who called it a "steppingstone" in that direction.
Kishida has repeatedly dismissed such a possibility, insisting that he is not "thinking about it now." In a meeting Tuesday with LDP leadership, he emphasized making economic stimulus the "top priority" and addressing "issues that cannot be put off."
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SFC puts small Hong Kong crypto exchanges under glare of public scrutiny as they pursue virtual asset licences
Taken from SCMP Wednesday, 27 September 2023
Four little-known Hong Kong-based cryptocurrency exchanges find themselves under the spotlight after the Securities and Futures Commission (SFC) named the applicants pursuing virtual asset licences in the city, at a time when authorities are dealing with multiple allegations of fraud tied to the exchange JPEX.
The named entities are Hong Kong Virtual Asset Exchange (HKVAX), Hong Kong Digital Asset Exchange (HKbitEX), Hong Kong BGE and Victory Fintech, all of which say on their websites that they are committed to operating in accordance with crypto regulations. The SFC has cautioned that applying for a licence does not mean a company is already in compliance.
The JPEX debacle – with the exchange the subject of more than 2,000 complaints in relation to claims of more than HK$1.4 billion (US$183 million) in lost assets – has shaken public trust in crypto platforms.
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Why fearful equity markets face a critical three months
Taken from AFR Wednesday, 27 September 2023
With Jamie Dimon warning the world is unprepared for the worst-case interest rate scenario – and the “fear index” leaping – Shroders’ Simon Doyle says equity markets are looking vulnerable.
Simon Doyle, the chief executive and chief investment officer for Schroders in Australia, is careful to say that doesn’t want to over-egg the pre-global financial crisis memories that are being stirred up just now.
But there’s something about the resilience of equity markets in the face of surging bond yields that reminds Doyle of the period in late 2006 and early 2007.
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Tuesday night on Wall Street suggested there are cracks appearing now, too. The VIX volatility index, known colloquially as “the fear index”, climbed 12 per cent on Tuesday night, and is up 47 per cent since mid-September, albeit off a very low base.
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Doyle says markets are starting to wake up to the idea that the playbook that had been in place since the GFC – that is, central banks quickly lower rates at the first sign of market weakness – isn’t going to play out this time.
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The question of whether yields have further to rise is now dominating markets. JPMorgan chief executive Jamie Dimon, who has long argued interest rates would need to raise further than expected to contain inflation, added fuel to the fire on Tuesday night by suggesting the world is unprepared for a worst-case scenario that would see the Federal Reserve take rates from their current level of 5.5 per cent to as high as 7 per cent.
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After a smooth take-off, big business and Albanese have hit turbulence
Taken from AFR Wednesday, 27 September 2023
It’s not just Qantas customers and shareholders who will be left counting the cost of the airline’s descent into scandal. The disenchantment with the company across Canberra and the community is yet another hit to the corporate sector’s political and social capital, threatening to derail the business lobby’s calls for economic reform at exactly the wrong time.
Just three years on from the start of the pandemic, the Team Australia partnership between business and government has fallen apart under the pressure of a cost-of-living crisis, stalled productivity growth and Labor governments Australia-wide intent on tapping business to pay down ballooning debt piles. But it is misconduct that has put some of Australia’s biggest companies on the front page – and on the lips of politicians.
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There is some irony in all this, given there is real admiration among many business leaders for the Albanese government’s willingness to listen and work with the corporate sector. On foreign affairs, for example, efforts to reset Australia’s vexed relationship with China have been greatly appreciated, as has Foreign Minister Penny Wong’s work across the Pacific.