These monthly circulars are for educational purposes only and should not be taken as advice. All views shared within them are Australian Standfirst views and do not represent any other organisation or individual (unless cited accordingly).
**This publication respects all mandarin traditions and the boundaries of Sinocentric commentary**
A recent reputable US poll found that fifty-two percent of US Nationals who identify as Republican supported postponing the 2020 Presidential election, if such was proposed by President Trump, under the thinly veiled fiction that doing so ensured that only eligible citizens would be able to vote.
Contrariwise to the central premises of Representative Democracy, American civics and evidence-based objectivity, such domestic dissent matters to global investors, whom all now have little to no choice but to accept that “American Exceptionalism”, or Pax Americana, is by all counts under siege.
A ‘Vex’ Americana destabilises confidence in latent forms, as author Ronald Dworkin accurately articulated, “A stifling of productive energy now touches every phrase of the American worker’s lifecycle. Many Americans start out with neither money nor connections.”
Dworkin adds, “To get a job they must pay the high fees of the higher-education college guild after having passed through the hands of the lower-education preparatory guild, which has its own numerous protections and provides generally poor service.”
Such continued cronyism and rifting appears to only further enable and embolden President Trump as a candidate and victor of a second term in 2020, despite the hoopla surrounding the specter of Impeachment, which no US Federal Executive (i.e. President) has ever successfully been convicted of.
Furthermore, the undisputable black letter law of Article Two, Section Four of the United States Constitution makes clear that only the House of Representatives retains this sole power, wherein the Senate tries those charged post hoc.
With the usually fracas G.O.P. unified around the upcoming 435 congressional district, House of Representatives elections on 6 November 2018, the likelihood that any US lower chamber brings Impeachment charges against Trump remains remote.
So where to here for global investors and a global real economy craving hegemony, rules and structure?
During a nearly four-hour speech on Wednesday 18 October, opening the Nineteenth CCP Plenary, Chinese President Xi made the usual Chinese prevarication that they were not seeking Superpower ascension but did so while still acknowledging changes in the geopolitical order, China’s willingness to serve global leadership roles across Climate and Trade and repeated no less than 36 times that China’s development had entered a “New Era”.
Subsequently dubbed “Xinomics”, this third era in post-Revolutionary Sino history sees President Xi’s individual ideology inscribed into the Party’s Constitution, as an addendum guiding ideology, now known as, “Xi Jinping Thought (sic) on Socialism with Chinese Characteristics for a New Era”.
Even though Dèng Xiǎopíng’s guiding principles were also honoured in this way, President Xi is the only Premier since Mao to have them inscribed while still in office and alive – that observation is not insignificant.
“Chinese people will enjoy greater happiness and well-being, and the Chinese nation will stand taller and firmer in the world,” Xi said of his vision for 2050.
Xi affirmed the Communist Party’s supremacy and said that China should not copy the political systems of foreign nations, repeatedly emphasising that the country had entered a “new era of Socialism with Chinese characteristics.”
He called for the rejection of the “Cold War mentality” in addressing global challenges, and said China would never seek global hegemony, while at the same time, acclaiming the ninetieth anniversary of the founding of the People’s Liberation Army (PLA) and while emphasising the need to modernise its combat capability, saying, “A military is built to fight”.
Feigning the concept of collective leadership, in his speech to the Party Congress Xi offered a longer-term vision for the future: achieving what he called “socialist modernisation” by 2035, and a vaguer goal of making China a “great modern socialist country” and “global leader” by 2049, in time for the centenary of the People’s Republic.
In so doing Xi and the CCP reinforced their top-down process whereby the Communist Party leadership manages down the chain, rather than a bottom-up process driven by local exploration.
This is a significant reaffirmation for global investors who have noted that Chinese equities are currently enjoying a paced bull market.
Unlike the bull markets of 2007 and spectacular furore of 2015, which saw volatility ratchet only ever upwards and at velocity, the current ascent is more gradual and presents more sustainably, with Hong Kong’s H-share index up twenty five percent year-to-date, and PRC’s composite CSI300 benchmark up an impressive thirty percent in US Dollar terms.
We prosecuted and subsequently defended the case since 2015 that President Xi has grander plans for China’s listed bourses leading up to 2020 and took reassurance when receiving the recent news that the Party will progressively relax over the next three years and then altogether retract prohibitions currently imposed on foreign ownership of Chinese financial institutions.
In the near term, which likely means in the next three or four months, Běijīng is proposing to scrap the twenty percent ceiling on individual foreign shareholders in Chinese banks, placing foreign investors on a level playing field with their domestic counterparts.
Meanwhile, regulators will raise the foreign ownership limit on broking and fund management joint ventures from forty-nine to fifty-one percent, scrapping all limits after three years.
Ownership restrictions on life insurers will be scrapped after five years and as a result, foreign investors will be able to hold majority stakes in a wide range of Chinese financial companies for the first time.
At prima facie a positive step, it remains unclear whether this is an attempt for the Chinese to inject fresh foreign capital into over-levered and troubled domestic entities or whether it presents a timely entry point for global investors
It must be remembered that China’s ownership limits date from a time when local financial institutions were small by global standards and deemed by Běijīng to be in need of protection.
Today, after years of rapid growth, China has the world’s biggest banking system by assets and large and fast-growing non-bank financial companies.
Ultimately, if political and then financial hegemony is being challenged and then sort by China, it is clear which domain this affray will be had and that is in the cyber frontier.
As a pithy example, as we recently published, circa eighty-six percent of Bitcoin Cash (as opposed to Bitcoin) is currently being mined within the People’s Republic and given its digital footprint, this naturally places it behind the Great Firewall.
According to RAND Corporation, who do little to mask the fact they represent the interests of those in Langley, Virginia, within their very sober and thoughtful 2016 piece titled, “War With China; Thinking Through The Unthinkable”, they say and we quote, “ We assume that China would not attack the U.S. homeland, except via cyberspace, given its minimal capability to do so with conventional weapons.”
The 2016 DNC infractions, the significant Equifax Hack and the plethora of akin seen here in Australia in recent years offers admissibility to the claim that cyber assets are being employed and deployed all across the Pacific basin.
Geopolitically, financially and culturally, 2016 became a year influenced by decibels, with 2017 cementing its place in the annals as one rooted in the review of objective evidence; with the analysis of such still underway, as global investors, the imperative heading into 2018 remains clear – weathered rules and established hegemony mean less than observable realities and the tradecraft every successful long term global investor shares is an acceptance that no matter your own reasoning, the world and the markets that represent them always change.