🔔 China's Problems Continue To Multiply

"Pelosi is in Singapore and will fly to South Korea, en route Taiwan, after visiting Malaysia. The PLA has clearly been well prepared.

If she dares to stop in Taiwan, it will be the moment to ignite the powder keg of the situation in the Taiwan Straits."

A senior official in Beijing said the atmosphere of last week’s Biden-Xi telephone conversation was the worst among the five talks between the leaders and President Xi was said to have showed the toughest attitude he has ever shown to any world leader, while the most important topic in the conversation was China-US relations especially the 'Taiwan Question'.

Furthermore, the official believes the probability of US House Speaker Pelosi's visit to Taiwan is low, as President Xi’s tough position on Taiwan will push President Biden to put more pressure on Pelosi to bypass Taiwan on this trip and the official warned that an accidental military conflict around the island of Taiwan cannot be ruled out if Pelosi insists on visiting Taiwan.

In a worst-case scenario, S&P Global Ratings estimated that 2.4 trillion yuan ($356 billion), or 6.4% of mortgages, are at risk while Deutsche Bank AG is warning that at least 7% of home loans are in danger.

So far, listed banks have reported just 2.1 billion yuan in delinquent mortgages as directly affected by the boycotts.

“The biggest bottlenecks for growth right now are the property market and Covid policies, and the Politburo meeting did not offer any signals of a breakthrough on these fronts,” said Wei He, an analyst with research firm Gavekal Dragonomics.

“The consequence of sticking to the policy status quo is likely to be a weak recovery in the second half.”

“Interbank liquidity condition is ample but money flow fails to reach corporate and support real economic activities,” Ken Cheung, chief Asian foreign-exchange strategist at Mizuho Bank Ltd., wrote in a note on Wednesday.

“Considering the pretty low real interest rates in China, perhaps China’s economy is falling in a liquidity trap and more fiscal policy and property market easing will be needed to support growth.”

Up to one-third of Chinese local governments could have to take measures such as reducing spending by the end of this year, according to S&P Global.

Some have already slashed income for civil servants. In July, a district in Shenzhen said it plans to cut 650 million yuan ($96 million) in spending on bonuses and subsidies for employees at government entities and state-owned organizations, while it redirects more than 600 million yuan to Covid testing and other Covid-related expenditures.

“The chance of a vicious cycle—declining housing sales and prices, mounting developers’ distress, and deteriorating local government finances—developing is concerning from growth and financial stability perspectives,” wrote Oxford Economics in a recent note to clients.

“Employment remained weak. The recovery in supply and demand failed to spill over into the labor market for manufacturing, which continued to shrink.

The gauge for employment, which has been in contractionary territory for 11 of the past 12 months, came in at the lowest reading since April 2020.

Companies, strongly inclined to lower costs in the face of sluggish market demand, were cautious about expanding their staff."

“Lower than anticipated sales, reflected in accelerating rates of decline of new orders and exports, have led to the largest rise in unsold stocks of finished goods ever recorded by the survey.

Increasing numbers of producers are consequently cutting production in line with the deteriorating demand environment, as well as scaling back both their purchases of inputs and hiring of staff.