China is about to unleash the same policy that blew up the stock market earlier in the year – David Scutt, November 10, 2015

hot air balloon inflating inflationMike Segar/Reuters

Yesterday, as has been the case for much of the past few months, Chinese stocks staged another amazing rally.

Led by brokerage firms, the benchmark Shanghai Composite put close to 2%, extending the indice’s recovery from this year’s low to 28%.

The catalyst for the rally was news over the weekend that China’s stock market regulator, the CRSC, will allow the resumption of IPO listings following a ban put in place amidst the stock market rout in mid-June.

According to analysts at Credit Suisse, the resumption of IPO listings is likely to lead to further gains in Chinese stocks in the period ahead. They suggest it will introduce additional investor funds into the market, particularly as as the returns from an IPO subscription are, on balance, significantly higher than those in the money market and for wealth management products (WMPs).

“Individual investors believe the upcoming IPOs will bring them ‘risk-free’ returns as usual—they will move their money from the money market and WMPs to the equity market to chase better opportunities,” Credit Suisse note.

Risk-free returns, from a market that rose 150% in the year to June before crashing nearly 50% over the next three months?

Credit Suisse explain how the government essentially guarantees substantial investor returns, ensuring herd-like behaviour before and after a new company is listed.

“In 1H 2015, the new stocks were priced at 20-23x P/E, while the ChiNext market was traded above 70x P/E. Therefore, the new stocks generally increased 2.5x in the first 20 trading days,” they note.

“The new stock prices were controlled by regulators at ‘reasonable valuation’ to protect the interests of small retail investors. Therefore, the investors believe the return of buying new stocks is risk-free return, which is sort of guaranteed by the regulator.”

Article continues:


Leaders of Taiwan and China hold historic meeting – The Economist Nov 7th 2015

IT WAS a brief encounter—an hour of discussions followed by a low-key dinner—but one of great historical resonance. Not since Mao Zedong’s takeover of China in 1949 had there been any meeting between the leaders of China and the island of Taiwan, to which the defeated government of Generalissimo Chiang Kai-shek fled. At a hotel in Singapore, Xi Jinping, China’s president, and his Taiwanese counterpart, Ma Ying-jeou, clearly revelled in the symbolism, grinning and waving as they shook hands before a mass of cameras gathered in a ballroom. But China’s dream of eventual unification with Taiwan is no closer to fulfilment, and its suspicion of the island’s increasingly separate identity is undiminished.

Officials had given only a few days’ notice of the unexpected meeting, which took place on the sidelines of Mr Xi’s long-planned state visit to Singapore. Careful choreography aimed to ensure that both statesmen would be seen as equals. The two emerged into the flash bulbs together, but from opposite sides of the room. They had agreed to refer to each other using only the honorific “Mr”, forgoing titles such as “president”, which would risk conveying legitimacy. And both delegations have reportedly agreed to split the bill for dinner, and for the use of the hotel’s conference rooms.

The seeds of the meeting were some very immediate concerns. Ties between the two countries have warmed immensely during Mr Ma’s premiership. But term limits require him to step down at elections in January, when polls suggest the presidency (and perhaps the legislature) will fall to the opposition Democratic Progressive Party (DPP), whose members lean towards independence and are suspicious of China’s overtures. Mr Ma is presumably not foolish enough to think that kudos from the landmark meeting will give his party, the Kuomintang (KMT), a better chance of holding power. He may instead be thinking of his own political legacy, given that growing domestic opposition to recent cross-strait trade deals has left his and his party’s popularity in tatters. For the KMT, the resonance of the meeting goes back to 1945 when it ruled all of China. In August that year Chiang met Mao for the last time before full-scale civil war erupted. The discussions between Mr Ma and Mr Xi were the first between the two parties’ leaders since then.

Article continues:


The Trans-Pacific Partnership is finally public. Here’s what you need to know. – Updated by Timothy B. Lee on November 5, 2015, 6:40 p.m. ET

The Obama administration has finally released the full text of the Trans-Pacific Partnership, a controversial deal that would knit together the economies of a dozen Pacific Rim nations. Now Obama just needs to win one more vote in Congress for the US to accept the agreement.

But while the Obama administration says that the deal will boost the US economy and boost America’s influence in Asia, critics have portrayed it as a package of giveaways to corporate interests. They’re mobilizing the deny Obama the congressional majority vote he needs to get the deal over the finish line. The fight over the TPP has pushed Obama and Republican leaders into an unusual alliance against congressional Democrats who vehemently oppose the deal.

As soon as the agreement was released, interest groups began flooding my inbox with press releases praising or attacking the deal. But Simon Lester, a trade policy expert at the Cato Institute, predicts that it could take a month for a full picture of the deal’s implications to emerge. “If you want to get an overall sense, you have to compare every product and every service.” And there are hundreds of provisions spread over 30 chapters, so that’s going to take a long time.

The TPP is a lot more than just a trade deal

The TPP is usually described as a trade deal, and it certainly will have important provisions related to trade. Negotiators have been considering liberalizing trade in cars and trucks, rice, dairy products, textiles, and a lot more.

But the agreement is also a lot more than a trade deal. It has more than two dozen chapters that cover everything from tariffs to the handling of international investment disputes. The reason these deals have gotten so complex is that people realized that they were a good vehicle for creating binding international agreements.

Article continues:


As China’s Economy Slows, Consumers Pick Up Some of the Slack – By LAURIE BURKITT Nov. 3, 2015 3:12 p.m. ET

Apple, Nike, Starbucks and others gain by tapping country’s growing upper middle class


BEIJING—China’s economic slowdown has pummeled global suppliers of raw materials and industrial equipment, but business has remained surprisingly brisk for companies that cater to the country’s growing upper-middle class.

Indeed, Chinese consumers appear to be weathering the slowdown better than the economy’s traditional growth engines like manufacturing and construction, which are sputtering. At least for now, they have redrawn the line between winners and losers.

Among the winners are sportswear maker Nike Inc., coffee-store chain StarbucksCorp. , clothing retailer Hennes & Mauritz AB and gadget giant Apple Inc. Behind their success are people like 24-year-old Jiang Yang, a technology officer at a state-run factory in the northern Chinese city of Shenyang, who recently bought a new rose-gold Apple iPhone. Not only have Mr. Jiang and his affluent young peers been a bright spot in China’s economy, but many economist think they hold the key to its long-term growth.

Article continues:


White House, Congressional Leaders Reach Tentative Budget Deal – By Kristina Peterson,  Nick Timiraos and  Siobhan Hughes Oct. 27, 2015 1:55 a.m. ET

Agreement would suspend debt limit through mid-March 2017, boost spending by $80 billion through September 2017

Speaker of the House John Boehner heads to the floor for votes following a GOP conference meeting on Oct. 26

Speaker of the House John Boehner heads to the floor for votes following a GOP conference meeting on Oct. 26 Photo: Chip Somodevilla/Getty Images

WASHINGTON—The White House and congressional leaders reached a tentative deal Monday on a two-year budget plan that also would raise the federal debt limit.

If approved by Congress, the broad pact would allow House Speaker John Boehner(R., Ohio) to resolve two of the thorniest fiscal hurdles before he resigns later this week. If it fails, it could leave the U.S. government a week away from potentially being unable to pay all its bills.

The plan is designed to remove the risk that the government might default and diminish the prospect of a partial government shutdown in December. It would suspend the debt limit through mid-March 2017 and boost spending by $80 billion through September 2017. Lawmakers still would need to pass detailed spending bills by December, likely in one combined measure.

For it to pass the House, the pact will need to quickly win backing from most Democrats and at least a few dozen Republicans who have frequently balked at spending and debt-ceiling bills they say don’t do enough to shrink the budget deficit.

At the same time, the White House and GOP leaders will have to make sure the provisions used to pay for the deal don’t alienate liberal Democrats, who could oppose changes to safety-net programs.

On Nov. 3, the Treasury will exhaust emergency cash-management measures that it has employed since March if the debt limit isn’t increased. Congress, meantime,faces a Dec. 11 deadline when funding for the government runs out.

Congressional Republicans have been torn apart by intraparty feuds, resulting in Mr. Boehner’s surprise decision last month to resign. Still, he has stitched together a few bipartisan accomplishments this year, including a payment-funding fix to Medicare this spring and trade-negotiation authority this summer.

Resolving both major fiscal issues would ease the burden for Rep. Paul Ryan (R., Wis.), who is expected to become House speaker when elections take place Thursday.


Article continues: