Category Archives: Economics

Miscellaneous economy stuff

Investing in the PRC

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Some pundits are suggesting that the way in which the People’s Republic of China handles real estate company Evergrande’s default will say a lot about the utility of investing inside the PRC. The Wall Street Journal even is asking whether foreign investors are second class citizens “now.”

Last things first: foreign investors always have been second class citizens in the PRC. They’ve only recently been “allowed” to become equal partners or majority holders in established PRC companies being newly invested in or in enterprises being newly formed. It’s still the case, too, that as a condition of doing business inside the PRC, foreign companies must “share” intellectual and technology properties with their partners, and they must permit the PRC government to install back doors into those foreign partners’ primary software.

It’s also the relatively new case that, under the 2017 National Intelligence Law, companies must divulge any and all information that the PRC’s intelligence community requests.

Still, the Evergrande outcome will be informative.

Who is still standing when the dust clears will say a lot about the future of China as a place to invest more generally.

In particular, resolving this misconception will be informative:

Oaktree Capital has moved to seize a large chunk of Evergrande’s Hong Kong property, worth an estimated $1 billion, against a secured loan now in default—a property which could have potentially served an important role in Evergrande’s general offshore debt restructuring.

With the Xi Jinping government having, over the last couple of years, phagocyticly absorbed Hong Kong into the mainland body politic, that city no longer is offshore. Whether Oaktree will be permitted to seize that Hong Kong property is an open question, and a question subsequent to a permitted seizure will be the limits the PRC imposes on Oaktree’s disposition of that property.

I’m not sanguine.

Out of Touch?

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Or openly lying?

Small businesses are booming, according to the Biden-Harris administration.

President Biden’s efforts have not only helped millions of Main Street businesses keep their lights on and employees on payroll, they have enabled a remarkable rebound in small business activity, with small business demand for labor and inventories near record highs.

And

According to a leading survey of small business owners, the share of small businesses planning to create new jobs in the next three months is higher than it ever was at any point during the previous Administration. Another recent survey of small business owners found that 71 percent are optimistic about their own performance in 2022, up from 63 percent one year ago.

Carefully unidentified surveys. An openly identified survey, a Goldman Sachs survey, says otherwise.

86% of small business owners say that broader economic trends, such as supply chain issues, inflation, and workforce challenges, are having a negative impact on their small businesses

And

66% of impacted businesses say it is a problem for their business that suppliers are favoring large businesses over small businesses….

And

84% of small business owners say inflationary pressures have increased since September of 2021

And

Two-thirds of small business owners do not think the Federal government has done enough to address the economic trends

And

29% [of small business owners] think things in the US are moving in the right direction, reflecting a 38% decline since June of 2021.

That should be an embarrassing disconnect for the Biden-Harris administration, which makes me repeat my question: are the personages in this administration, from Biden-Harris on down, that far out of touch, or are they openly lying to us?

Either way, this is an incompetent administration, and it’s going to be a dangerous three years, domestically as well as globally.

The Utility of Sanctions on Russia

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The Biden-Harris administration is prepared—or so it says—to impose additional, broad-reaching, and heavy sanctions on Russia, if the latter follows through on its impending invasion of Ukraine. Russian President Vladimir Putin has made efforts to sanction-proof his nation’s economy:

padding the country’s foreign reserves, buying gold, and pivoting some exports to China.

On the other hand, Biden-Harris threatens those additional sanctions:

Senior administration officials said the US could ban the export to Russia of various products that use microelectronics based on US equipment, software or technology, similar to the US pressure campaign on Chinese telecom giant Huawei Technologies Co. US officials have previously said that measures under consideration also include cutting off Russian banks’ access to the dollar and possible sanctions on Russian energy exports.

Leave aside the question of whether Putin’s moves would work against these new sanctions. Leave aside, also, the delayed effects that even unopposed economic sanctions have before they start to bite and that Putin already will have conquered and occupied Ukraine before those effects begin.

There are problems for Biden-Harris and for Putin regarding the new and improved sanctions.

For Biden-Harris, the problems will center on the porous nature of the sanctions’ imposition. People’s Republic of China President Xi Jinping will enthusiastically move to bypass the sanctions and increase PRC trade with Russia.

Worse will be Europe’s…imperfect…compliance with the sanctions. Germany, in particular, will ignore the sanctions, however secretive it tries to be about it. Germany has moved itself into far too great energy dependency on Russia and will trade for Russian oil and gas quite freely. Additionally, French President Emmanuel Macron has shown himself entirely willing to compromise with Putin on the matter of Ukrainian relationship with Russia and with western Europe and on Russia’s relationship with the European Union. Also, France’s own need for Russian energy, while not as great as Germany’s, is quite significant. Together, these two economies are strong enough to create large holes in the sanctions.

The problem for Putin centers on that PRC move to ignore the sanctions. Putin already has made a critical resource exploitation deal with Xi that allows the PRC to move citizens into central and western Siberia to develop the oil, gas, timber, and metals resources there. That’s a move that tacitly allows the PRC to colonize Siberia, which mainland Chinese governments for centuries have considered Russia to have stolen.

Beyond that, Russia and the PRC have the combined (if heavily weighted to one side) economic power and overall resource self-sufficiency to be independent of the West’s economic regime. However, whether or not they combine efforts that closely, the closer economic ties that Putin will need—and get—from the PRC, pushed by those added Biden-Harris sanctions, will emphasize the relative economic sizes of Russia and the PRC: a GDP of $4.3 trillion in purchasing power parity vs $29.4 trillion. Putin will be running the very serious risk of reducing Russia to the equivalent of satrap of the PRC.

Germany as Mediator?

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A Deutche Welle article cites German luminaries as thinking Germany can mediate the “dispute” between Russia and Ukraine.

For instance, here’s Christoph Heusgen, Under-Secretary for Foreign and Security Policy in the German Chancellery from 2005 to 2017 and upcoming Munich Security Conference Chairman:

Germany overall has assumed a more active role in world politics, and people are asking for this. There are lots of expectations that we play an important role, and we do this. You know, I mentioned the Ukraine crisis. We do this when you look at the Balkans where we are very active.

Reiner Schwalb, ex-military attaché for Germany in Moscow, though, gave the game away (as did Heusgen in the above).

Berlin is a point of contact between Europe and America from the American perspective. Despite our history, the German-Russian relationship has a certain stability. There is a great economic exchange, with cultural exchange and scientific exchange, and repeated attempts by Germany to cooperate more intensively with Russia.

“From the American perspective” is a cynically offered irrelevancy. What’s central are two aspects of the German-Russian relationship. One is this “great economic exchange.” That’s an exchange that’s based on and strengthened by Germany’s dependence—voluntarily entered into by the German government—on Russia for its energy.

The other aspect is that “repeated attempts by Germany to cooperate more intensively with Russia” business. Cooperate with Russia, especially with Russia holding—and having already demonstrated that it does—the whip hand on German energy.

Regarding Heusgen, his “look at the Balkans where we are very active” brag. Germany also has been very active in the Baltics vis-à-vis Ukraine—barring Estonia from transferring badly needed arms to Ukraine if those arms originated in Germany.

Germany as mediator—a risible concept.

“It Depends on Uncle Sam”

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Without more help from Washington, electric-vehicle sales will struggle to live up to the stock-market hype.

That Wall Street Journal lede pretty much tells the tale.

And this:

If the new technology is to live up to high investor expectations, the global record suggests that the US will need to embrace subsidies.

It depends on Uncle Sam. As long as electric vehicles get subsidies of any sort—either on the manufacturing end or to buyers of them on the other end—these battery cars can never be mainstream. As long as they’re getting any sort of subsidy, battery cars are tautologically unready for market.