Taps Coogan – April 7th, 2022

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Anne Stevenson-Yang, China expert and founder of J Capital Research, recently spoke with Real Vision about her outlook for the Chinese economy amid an ongoing Covid outbreak, how China will handle its relationship with Russia in light of the War in Ukraine, and her view that asset deflation is going to become a bigger risk for the global economy.

 

Some excerpts from Anne-Stevenson-Yang on Covid in China:

“(China) has both a demand shock and a supply shock coming and the demand shock is that Covid (in China) is a whole lot worse than you think it is. They’ve started to report Covid now but I started to look at city level statistics on transportation and gasoline use and things that show you people are moving around the country and there are certain cities… where the numbers just went through the floor and most of those places were places that later reported Covid. So, it’s very clear that they had a Covid problem that they were hiding. So, I think now it will have gotten out of control and that’s a real depressant to demand. They’ve reported two deaths now, this week, the first two in 14 months. That’s clearly not true… China has a very low vaccination rate among the elderly… They reported an additional 28,000 cases in March but it’s clearly ten times that… When you see taxi rides dropping like 50% in a locality, even compared to 2020, then you know something is really wrong… in cities that have not been reported as Covid centers”

On Russia-China relations and trade in light of the War in Ukraine:

“Right now China gets quite a small amount of its wheat, its pigs…, some minerals, oil – about 1.6 million barrels a day (from Russia)… Even if you were to increase those things by 50%, and you’re not going to because you don’t have the transportation capacity or the will… then it’s not going to make a huge dent…”

“I think the proper comparison is what China did in light of the 2012 sanctions on Iran. They did get a discount and they did import more Iranian oil, but it’s marginal. We’re talking about $5 dollars off a $120 barrel of oil, plus some discount to the transportation… You have to consider the transport constraints. You have a pipeline that’s coming from Russia and that only has capacity for so much. Then you have tankers that are running into all sorts of problems because of the sanctions. You really can’t increase those things by more than 10% or something like that… This is the fundamental problem with China. They don’t have the capacity to make strong strategic decisions for China. I know people have a different idea but the real fact is that when it comes to anything besides communist party stability they’re just a mess…”

“What you have to remember about Renminbi is that fundamentally, it’s barter… because can you take a Renminbi down the street to the deli and use it? No. Can you bring it to Bank of America and swap it for a dollar? No… If somebody is going to receive Renminbi for a shipment than they have to use it for something. For a state-to-state basis, yeah you can do that, but… for private companies, they are certainly not willing to…. The fundamentally issue about having a currency that works internationally, is it has to be available. You have to be able to go to the bank and buy it… If China is not willing to run a deficit and not willing to make its currency convertible… how are they going to make it a world currency?”

On the Chinese economic outlook:

“The government has a really strong political commitment, publicly to the banks, not to do (huge stimulus)… But I think the more important reason is that they really don’t understand the reason to which they would have to stimulate in order to bring (the economy) back to 2017 levels… The property market is in sharp decline. It’s 10% down in new starts and 12% down in competitions… It doesn’t sound like that much but it’s historic… Also you see a corresponding decline in appliances… none of these things are moving through the channels… You can stimulate. You can give them loans, but fundamentally you’ve got to sell the inventory that sitting on your balance sheet as an asset and if you don’t then you’re really in trouble and there just isn’t enough money in the channels to save those guys…”

There is much more to the wide ranging interview, so enjoy it above.

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