The third most talked about topic in the
international press in 2018 after the Facebook scandal and Elon Musk’s
controversial idea of taking Tesla private, was the US trade war with China.
But what people know
little of was that the US & China came close to
launching a limited hot war due to a military misunderstanding in 2017 in
the South China Sea!
They say that the Dragon never sleeps. China has been growing as an economic
super power ready to take on the world! With 6.8% growth rate, a current
account surplus, one may say it is no great shakes as it contributes just
15% to the world GDP. But flip this data around, China
contributes 25% - 30% of global growth as
per Forbes 2017 data.
The worrying fact is that the super powers still use obsolete
technologies to communicate their military maneuvers. Fax machines
are the official line of communication between the White House and the
Zhongnanhai– The Central Headquarters of the Communist Party of China.
China has been seen to forge closer military ties with the Russians,
pushing for greater military superiority globally and flexing its muscles
with its so called Asian arch rivals – Japan and India. In doing so,
itrisks escalating tensions with the US at a time that the cold war
between
the two have reached levels that have had collateral damage to global
markets. It’s not surprising that the heat was turned up on the cold war
due to misplaced misunderstanding between two fax machines back in 2017.
The new year rings in a refreshing message from China. The Dragon finally
sees sense in de-escalation of tensions between the two countries. As China
scrambles to sustain its
tariff truce with the Americans, it realizes
that escalating tensions will hurt them more.
After an eye-for-eye policy with the US,
the Chinese are determined to bring the trade war to an end. In an
unprecedented move, Ma Jiantang Vice President of a think tank under
the Xi’s cabinet has said that America and China “are inseparable”.
China’s peace overtures are now coming together.
China has resumed the purchase of American soyabeans, announced tariff cuts
on auto imports and has stated it will modify its industrial policy to
prevent the setup of suspicious Boards. Is this sufficient to satisfy
the ever-erratic Donald Trump?
Early signs seem to show that the Americans like what they see. On
14th December 2018, post the announcement by the Chinese state
Council that it was cancelling the extra 25% import tariff on American
made cars, Trump stood up and said “China wants to make a big and very
comprehensive deal. It could happen
and rather soon!” But its too soon
to celebrate. First, the Chinese realize that Trump is an unpredictable irrational human being making it difficult
for them to propose the icing on the cake! Second, Trump is torn between
two China centric schools of thought in his own administration.
Steve Mnuchin the Treasury Secretary supports the view to allow China
to buy more American energy and agriculture. Robert Lighthizer the US
trade Representative has been demanding that China halts practices that
allows firms to steal technology from the US.
To complicate issues further, Canada has detained Meng Wanzhou the CFO
of Huawei on an extradition request from the US. Wanzhou is the daughter
of Huawei’s founder Ren Zhengfei a close confidant of
President Xi.
Whichever way the situation between the US & China will
turn will be anybody’s guess. But one thing is clear. China has a lot
to lose in this Game of Thrones. And they know this. First, it is walking
away from its “Make in China 2025” plan aggressively objected by foreign
businesses. Second, it wants to show that foreign companies play on a level
playing field. Tesla is on track to be first foreign carmaker to have a
wholly owned subsidiary in China, UBS, a Swiss bank, recently became the
first foreign firm to be allowed a majority stake in a Chinese brokerage
firm. Exxon Mobil will soon commence development on a wholly owned
petrochemical complex.
As news reports continue to articulate the Fire & Fury between the
Americans& Chinese, it’s important to replace Fiction with Fact. Ties
between the two countries is on the mend atleast for now.Phundo believes
there will always be more noise than even when it comes to the American
– Chinese relations. Don’t delay your decision to invest due to the
ever-increasing noise levels. SELECT INVEST RELAX the Phundoway.
