Presentation delivered by Chris Leung, Chief China Economist, Executive Director, DBS Bank at the marcus evans Private Wealth Management Summit APAC fall 2019 in Macao.
3. Global hegemony contentions will persist
1945-1953
1953-1961
1961-1963
1963-1969
1969-1974
1974-1977
1977-1981
1981-1989
Harry S. Truman
Dwight D. Eisenhower
John F. Kennedy
Lyndon B. Johnson
Richard Nixon
Gerald Ford
Jimmy Carter
Ronald Reagan
Democrat
Republican
Democrat
Democrat
Republican
Republican
Democrat
Republican
Cold War spanned from 1947-1989 ; 8 US presidents during the period
VS
4. America and China, clash of cultures
Self-perception
Core Value
View of government
Form of government
Exemplar
Foreigners
Time horizon
Change
Foreign policy
Source: Destined for War: Can America and China Escape Thucydides's Trap? By Graham Allison
"Number One"
Freedom
Necessary evil
Democratic republic
Missionary
Inclusive
Now
Invention
International order
"Centre of universe"
Order
Necessary good
Responsive authoritarianism
Inimitable
Exclusive
Eternity
Restoration and evolution
Harmonious hierarchy
5. China Hawks are everywhere
Robert Lighthizer
United States Trade Representative
Nazak Nikakhtar
Acting Head of Bureau of Industry and Security
Commerce Department
Mike Pompeo
Secretary of State
Donald Trump
US President
Peter Navarro
Assistant to the President and
Director of the Office of Trade and Manufacturing Policy
Mike Pence
US Vice President
6. Even Democrats agree
Joe Biden
Candidate of 2020 US Presidential election
Vice President of US under Obama
Elizabeth Warren
Candidate of 2020 US Presidential election
Current Vice Chair of the Senate Democratic Caucus
Special Advisor for the Consumer Financial Protection Bureau under Obama
Cory Booker
Candidate of 2020 US Presidential election
38th Mayor of Newark
Pete Buttigieg
Candidate of 2020 US Presidential election
32nd Mayor of South Bend
Kamala Harris
Candidate of 2020 US Presidential election
32nd Attorney General of California
8. Impact on export should not be underestimated
China's export as % of GDP
2001 2003 2005 2007 2009 2011 2013 2015 2017
10
15
20
25
30
35
40
18% has been declining since 2009. Damage
done by tariff is minimal.
Export as a % of GDP
Yet, this also means the buffer for China to
manage the economy during economic downturn
is weakened.
Current account as % of GDP
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
0
5
10
9. Costal regions will take the hardest hit
Export as % of GDP in 2018
Top 5 export provinces
Shenzhen
Guangdong
Zhejiang
Shanghai
Jiangsu
Fujian
China national
average
10 20 30 40 50 60 70 80
10. Tariff arithmatics favour to the US
7.3%
92.7%
China imports from the US in 2018
In value terms (USD bn)
US 155 Other 1,981
17.1%
82.9%
The US imports from China in 2018
In value terms (USD bn)
China 540 Other 2,614
11. Achieving food security
Soybeans import
In tons th
01 04 07 10 13 16
0
2,000
4,000
6,000
8,000
10,000
China will have to use
of the territory or
5.2%
requires 8 mu of land
Total territory:
9.7mn km square
producing 1 ton of
requires 8 mu of land
of total arable land
in order to produce all imported
soybeans domestically
37.7%
Rising incomes and consumption as well as urbanization are major
reasons why China is now an importer of agricultural products. Urban
policy bias has also contributed to rural-to-urban migration.
More agriculture and land reform are needed to drive rural
revitalization strategy and achieve food security.
12. Heavy dependency on core technology
Top 10 global semiconductor suppliers by revenue
(US companies: red)
Samsung
Electronics
Intel
SK
Hynix
Micron
Technology
Qualcomm
Broadcom
Texas
Instruments
Toshiba
Western
Digital
NXP
Semiconductorsuppliers
0 10,000 20,000 30,000 40,000 50,000 60,000
Revenue USD (mn)
Hardware So ware
semi-conductor industrial programme
13. Overall stimulus amounted to 1.5% of GDP
Stimulus
Fiscal Policy Monetary Policy
Tax cuts and tariff Investment
Import tariff cuts on consumption
goods (Jul 18)
Increase in personal tax
threshold(Oct 18 and Jan 19)
Import tariff cuts on industrial
goods(Sep 18)
Corporate tax cuts
(Apr and May 19)
Export rebates
(Sep 19)
Infrastructure project approvals increased
(Dec 18)
New guideline of special bonds unveiled and
special bond issuance quota increased
(Aug 18, Jan 19)
Broad-based Targeted Others
Relending and rediscounting quota
increased (Jun, Oct, Dec 18)
Credit support for corporate bond
issuance with CRM
(announced: Oct 18)
TMLF established (Dec 18)
Scope of collateral of MLFs
broadened (Jun 18)
MPA factors adjusted to encourage
lending to SMEs (Jun 18)
New AMP introduced to allow
more flexibility in unwinding
shadow financing (Jul 18)
Perpetual bonds introduced to
boost Banks’ Tier 1 capital (Jan 19)
Central bank bills swap launched
(Jan 19)
4 RRR cuts, amounting to 350 bps
in total (Jan, Apr, Jul and Oct 18)
100 bps RRR cut (Jan 19)
14. Deleveraging progress of the two powers
The US has been deleveraging since 2009. The household
liabilities/assets ratio went down from 20.2 to 12.9.
US
M2/GDP: 0.9x
China
China has only started deleveraging in 2017.
Household liabilities / assets
2007 2010 2013 2016
12
14
16
18
20
22
Ratio
M2/GDP: 2.1x
China debt level
2007
2009
2011
2013
2015
2017
0 50,000 100,000 150,000 200,000
Total government debt Household debt
Corporate debt
15. FDI to Vietnam from China outstripped others
FDI to Vietnam
USD bn
China Hong Kong Korea Singapore Japan Thailand
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Jan-Apr 18
Jan-Apr 19
16. CNY exchange rate is fundamentally under pressure
USD/CNY
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Apr-19 May-19 Jun-19 Jul-196.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
7.0
7.1
7.2
Tariff on steel
Jan
2018
Sanction on
ZTE
Apr
2018
1st round of
tariff imposed
Jul
2018
2nd round of
tariff imposed
Sep
2018
G20
Summit
Nov
2018
Huawei
Incident
Dec
2018
Potential trade
deal
Q1
2019
25% tariff on
$200bn goods
May
2019
G20
Summit
June
2019
30% tariff on
$200bn goods
Aug
2019
17. China self-sufficiency 2.0
- Belt and Road Initatives in Southeast Asia
- Greater Bay Area - reduce tech reliance on the West
18. Xi mode of self-sufficiency vastly different from Mao
Mao Zedong promoted economic self-reliance after the Sino-Soviet split
in 1960s.
Doors closed to outer world
‘Poverty and blankness’ (一穷二白 )
GDP per capita: USD90 in 1960
Source: nytimes.com
Xi Jinping seeks technological self-reliance in face of US export control
fears.
S
World's 2nd largest source of ODI; largest FDI recipient
Close ties with the EU, SE Asia, Africa, and Middle East
World’s 2nd largest economy | GDP per capita: USD9,650 in 2018
19. BRI: Firmer grip nearfield in South East Asia
Debt trap mercantilist diplomacy
-Maldives, Malaysia, and Vietnam
Containment from the US
-South China Sea and North Korea
Cooperation with Japan
-Thailand
20. GBA - the Silicon Valley of the East
Hong Kong:
International financial centre
Shenzhen:
Innovation hub
Guangzhou:
International business and trade center
Macau:
Portugese speaking business center
Peral River Delta:
Advanced manufacturing
Synergy of the Greater Bay Area
Most affuluent export-oriented region in China
49%
GDP per capita
GBA: USD21,750
China national average: USD8,827
GDP per capita
GBA: USD21,750
China national average: USD8,827
The Greater Bay Area - one hour living circle
Hong Kong
Macau
Shenzhen
Peral River Delta
Guangzhou
21. Importance of Hong Kong to GBA
The economic value of Hong Kong to China is still high despite declining HK's
contribution to China GDP
1. HK is the biggest offshore RMB settlement centre
2. Over 40% of the HKD loans are for mainland corporations
3. HK's contribution to total FDI utlized in China rose from 30% in 2006 to 70% of late
73 60 26 64 65 50
27
40
74
36 35
50
Contribution of Hong Kong to China 2010-2018(%)
Equity Bonds Syndicated
Loans
Inward FDI Outward FDI RMB
Settlement
0
50
100
Hong Kong Others
GDP contribution of HK to China (%)
1960 1967 1974 1981 1988 1995 2002 2009 2016
0
5
10
15
20
25
30
22. Ends
DBS Group Research:
Chris Leung - Chief China Economist
Samuel Tse - Economist
Sources: Bloomberg, CEIC, Winds, Visme, and DBS Group Research
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