(ZH) How China Colonized An Entire Continent Without Firing A Single Shot

How China Colonized An Entire Continent Without Firing A Single Shot

Back in 1885, to much fanfare, the General Act of the Berlin Conference launched the Scramble for Africa which saw the partition of the continent, formerly a loose aggregation of various tribes, into the countries that currently make up the southern continent, by the dominant superpowers (all of them European) of the day. Subsequently Africa was pillaged, plundered, and in most places, left for dead. The fact that a credit system reliant on petrodollars never managed to take hold only precipitated the "developed world" disappointment with Africa, no matter what various enlightened, humanitarian singer/writer/poet/visionaries claimed otherwise.
And so the continent languished.... until 2012 when what we then dubbed as the "Beijing Conference" quietly took place, and to which only Goldman Sachs, which too has been quietly but very aggressively expanding in Africa, was invited.
As the map below, which we first showed in 2012, in just two years after 2010 China had pledged over $100 billion to develop commercial projects in Africa, a period in which the continent had effectively become de facto Chinese province, unchallenged by any developed nation which in the aftermath of the financial crisis had enough chaos at home to bother with what China may be doing in Africa.
Since then China's financial colonization of Africa has only accelerated, and according to a study by the China-Africa Research Initiative at the Johns Hopkins School of Advanced International Studies, China had lent a total of $143 billion to 56 African nations facilitated principally by the Export-Import Bank of China and the China Development Bank. By sector, close to a third of loans were directed toward financing transport projects, a quarter toward power and 15% earmarked for resource mining including hydrocarbon extraction. Just 1.6% of Chinese loans were dedicated to the education, healthcare, environment, food and humanitarian sectors combined, confirming that all China interested in was building a giant commodity/trade/military hub.

Just seven countries – the strategically important Angola, Cameroon, Ethiopia, Kenya, Republic of the Congo, Sudan and Zambia – accounted for two thirds of total cumulative borrowing in 2017 from China, with oil-rich Angola alone representing a 30% share, or $43 billion (35% of Angolan 2017 GDP). Ultimately, Angola reached a loans-for-oil settlement, with Beijing tying the country's future oil production to shipments to China in order to service the country's burgeoning infrastructure debt. According to an April 2018 IMF study, as of the end of 2017, about 40% of low-income Sub-Saharan African countries are now in debt distress or assessed as being at high risk of debt distress including Ethiopia, the Republic of the Congo and Zambia.
Amusingly, in a September 2018 speech to the triennial Forum on China-Africa Cooperation in Beijing, President Xi Jinping said Chinese investment came “with no strings attached” and pledged a further $ 60 billion of loans for African infrastructure development over the next three years. As it turns out, Xi was only joking because as we reported last month, China was set to take over Kenya's lucrative Mombassa port if Kenya Railways Corporation defaults on its loan from the Exim Bank of China. The China-built, China-funded standard gauge railway, also known as the Madaraka Express, was plagued by cost overruns, and outside observers questioned its economic viability, but China was not worried: after all, if the 80%-China funded project failed, Beijing would have full recourse. Call it a "debt-for-sovereignty" exchange.
It's not just Kenya and Angola: other notable examples of China's debt-funded colonization endgame include Sri Lanka, where difficulties servicing $8 billion of infrastructure-related borrowing from China led to the handing over of a controlling equity stake and a 99-year operating lease for the country's second-largest port at Hambantota to a subsidiary of a Chinese state-owned
enterprise in December 2017. For Pakistan, more than 90% of revenues generated at the newly developed Gwadar Port at the mouth of the strategically significant Gulf of Oman are collected by the Chinese operator.
And so, as more developing, peripheral countries default on Chinese loans and are forced to hand over the keys to key sovereign projects to Beijing, China will slowly but surely "colonize" not just Africa but many of the Asian nations in the "Belt and Road Initiative" following a popular playbook developed by none other than the original "economic hitmen"...

(ZH) World's Largest Hedge Fund Manager Sees Dollar Losing Reserve Currency Stat

World's Largest Hedge Fund Manager Sees Dollar Losing Reserve Currency Status

With the end of 2018 marking the 40th anniversary of China opening up & reforming (and with an increasingly loud group of market participants questioning the foundations of China’s economic miracle - and more importantly, it's future), Bridgewater founder Ray Dalio believes now is a good time to reflect on China’s last 40 years.
"Since I have been fortunate to have experienced 34 years of this 40 years in an up close and intimate way, and since I study what makes countries succeed and fail, I have some experiences and thoughts to share..."
The table below shows just a few representative statistics.

These results speak for themselves, but Dalio adds:
"To have such rates of improvements in so many areas and for so many people has made it the greatest economic miracle ever."
And from what Dalio has seen, he believes that the very impressive results that the Chinese leadership and the Chinese people produced came about primarily because of the powerful combination of
a) China’s opening up and reforming following an extended period of isolation that led to a fast catching up (especially in the coastal regions of China) with the advanced developed world, and
b) the power of the Chinese culture and it’ related ways of operating.
Crucially, the billionaire hedge fund manager points out that, if you haven’t spent time in China, you need to get any stereotypes you might have out of your mind because it’s not how it was. This is not your father’s communism. It is “socialism with Chinese characteristics” that has been significantly and very effectively reformed, which has made it much more vital, creative, and economically free.

Dalio's 'romantic' view of a paternal China is definitely not the mainstream narrative:
"From my experiences and from what I am told by Chinese who should know, I believe Chinese leadership seeks to run the country the way they believe a good family should be run, from the top down, maintaining high standards of behavior, putting the collective interest ahead of any individual interest, with each member knowing their place and having filial respect for those in the hierarchy so the system works in an orderly way. One of China’s leaders who explained this concept to me told that the word “country” consists of two characters, state and family, which influences how they view their role in looking after their state/family.
One might say that the Chinese government is paternal. For example, it regulates what types of video games are watched by children and how many hours a day they play them. As a broad generalization, when the interest of the country (like the family) is at odds with the interest of the individual, the interest of the country (like the interest of the family) should be favored over the interest of the individual. Individuals are parts of a greater machine. As a result of this perspective, the system seeks to develop, promote and reward good character and good citizenship. For example it gives people a social credit score that rates the quality of their citizenship. And each person is expected to view themselves as parts of the greater whole.
This management from the top down includes visualizing what China 5, 10 and 20 years in the future should be like and then making and managing detailed multiyear plans to build out that vision, with the goal being to make China as great as it can be. China is run more like a giant company with many subsidiaries, some within the government’s direct control and some within its indirect control. "
But, as the fund manager notes, while Chinese culture has been evolving, it has at its most fundamental level been operating in similar ways for many hundreds or even thousands of years and the results of operating that way are knowable in an approximate way.
"I have recently been researching the rise and fall of reserve currencies, which led me to study the rises and declines of the world’s most powerful countries. That led my research team and me to put together the following indices of the relative powers of leading countries since 1500. These indices are a combination of six sub-indices that measure six different types of power:
1) innovation & competitiveness,
2) domestic output,
3) share of world trade,
4) financial-center size and power,
5) military strength, and
6) reserve-currency status.
...and they show when different countries reached their peaks relative to the rest of the world."
As shown in the chart below, China was either the number one or number two most powerful country from 1500 to around 1800 when it went into relative decline...

That decline continued until around 40 years ago, when, as Dalio explains rather ominously for the American hegemon:
"...the opening up and reforming led to the previously described strong ascent to being the second-most powerful country in the world and on the path to being the most powerful one. I believe that excellent performance was largely the result of China’s powerful culture and its reforms."
Given that impressive track record and how deeply imbued the culture behind it is, we shouldn’t expect China’s most fundamental ways of operating to change much. As a result, Dalio warns:
"while trade deals can be made, attempts to change “Chinese characteristics”, - most importantly to change the top-down government management of most/all aspects of the system pursuit of making China as great as it can be - won’t work."
So, in summary, "it's not the economy, it's the culture stupid!"
And judging by Dalio's take on American culture, it is clear where he thinks this is going...
"Most fundamentally, the US is a country in which individuals, individualism, and individual property rights are perceived to be of paramount importance it is directed from the bottom up (e.g., through “one man, one vote” democracies that empower people to choose their leaders), being revolutionary is considered a good thing, and conflict is valued more than harmony.
Rather than respecting top down control most American have a strong preference to keep government from interfering with their most individual choices. Character development is a personal or family issue, not a government issue (which leaves it largely neglected in areas with broken families, especially if they’re poor).
Rather than there being a long-term top down vision for the country and a plan to achieve that vision, in the capitalist and democratic system such directions are more bottom up determined based on commercial and popularity considerations."
Of course, the world's largest hedge fund manager avoids directly slamming America's 'dream' or supporting China's central planners:
"I’m not saying which system is better. Each culture/system has its pros and cons that I’m not going to get into now.
I believe that the important thing to know are that while there will be trade wars and trade truces they aren’t the most important things. "
However, Dalio signals the following seven things as the most important to follow:
1) China has a culture and system that has worked well for it for a long time so it shouldn’t be expected to change much,
2) the U.S. has the same,
3) these systems (and those of other countries) will be both competing and cooperating, and how well they do that will be an important influence on global conditions,
4) how well each system works in practice will have a far greater influence on where each country stands in the future than the terms of the deals that they strike with each other,so each would do well to examine its own weaknesses and come up with reforms to rectify them, and
5) there is a lot to respect about the Chinese culture and approach that led to its remarkable accomplishments,
6) we would do well to learn from each other, cooperate and compete to bring each other up rather than to tear each other down, and
7) China is a place we need to continue to evolve with and invest in.
And while Dalio took 2,500 words to summarize why America's 'end of empire' is looming, we managed it in just three words... in 2014:
"Nothing lasts forever!"

FT : Brazil deploys 300 troops to fight surge in criminal violence

Brazil deploys 300 troops to fight surge in criminal violence
Recent wave of attacks marks first security challenge for Jair Bolsonaro

Brazil on Sunday deployed 300 security forces to the northeastern state of Ceará in response to a recent surge in criminal violence, marking the first security challenge for Jair Bolsonaro, the country’s new far-right president.

Outrage over rising violence was a decisive factor for many voters in the election of the former army captain, who pledged to crack down on crime and loosen gun control laws. 

Sérgio Moro, the justice and public security minister, ordered the deployment of elite troops after a string of attacks last week, which targeted banks, shops and buses. “The decision was made after the recorded violence and the difficulty [faced by] local forces fighting organised crime alone”, the ministry said in a note. 

“Moro was very skilled, very quick and effective to attend [to] even a state whose re-elected governor has a radical position [against] us,” Mr Bolsonaro said on Friday, referring to governor Camilo Santana, who belongs to the leftist Workers’ party.

Security experts say Mr Bolsonaro intends to authorise greater involvement of Brazil’s national forces in domestic security operations, especially when it comes to drug-trafficking gangs.

Brazil has faced a sharp deterioration in public security in recent years, due, in part, to recession-induced budget crises across regional governments.

According to the Brazilian Public Security Yearbook, a record 63,880 people were murdered in Brazil in 2017 — and Mr Bolsonaro himself suffered a near-fatal stabbing at a campaign rally ahead of the election last year.

The Ceará attacks are allegedly retaliation for tougher measures in local prisons, which are generally controlled by criminal gangs that operate across the country. Last year, Ceará saw more violent deaths — 59 per 100,000 people — than any other state, according to the Brazilian Forum on Public Security.

Mr Bolsonaro said on Sunday, referring to the killing of a military police officer in Rio the day before, that the three branches of government must work together “to provide guarantees for good to overcome evil”. He said that his government wants to provide extra legal cover for police officers so that they are not punished for killings committed during patrols.

In a country already awash with guns, Mr Bolsonaro said that he wants to guarantee possession of firearms for the “good people” to defend themselves against threats.

Observers say that loosening gun laws, as Mr Bolsonaro has proposed, will not effectively address Brazil’s violent crime problem.

“There is no empirical evidence that these policies can reduce crime,” said Nara Pavão, a professor of political science at the Federal University of Pernambuco.

But Mr Bolsonaro’s gun-loving son and congressman, Eduardo, declared on Twitter at the weekend that he does not “see with much concern” in giving ordinary Brazilians “access to firearms, since people who want to murder, steal and commit gun crimes already have access to them”.

Posting pictures of Adolf Hitler, Fidel Castro and Mao Zedong, among other dictators, he added that “only dictators disarmed their people”.

FT : Airbus under spotlight with race to hit delivery target

Airbus under spotlight with race to hit delivery target
European aircraft maker struggling to close orders gap with US rival Boeing

Airbus faces a test of its credibility this week when it reveals whether it met its target to deliver around 800 aircraft last year, as the plane maker races to narrow an orders gap with arch-rival Boeing.

The European group’s factories worked overtime during the Christmas holidays to make up for delays because of supplier issues.

Guillaume Faury, head of Airbus’s commercial arm, had made sorting out the company’s supply chain a key focus.

Mr Faury, who takes the helm from chief executive Tom Enders in April, is understood to have launched a review looking at Airbus’s ways of working, industry executives with knowledge of the move confirmed.

The group said in October that it would deliver about 20 fewer aircraft but still hoped to meet its target by including 18 A220 jets, the model acquired through its purchase of the Bombardier C series. Deliveries are watched by investors as a key indicator for cash flow.

Airbus had delivered 673 aircraft to the end of November, leaving it 127 jets short of its target.

Analysts at Vertical Research Partners are forecasting 797 deliveries for 2018. Industry sources pointed out that Airbus was in a similar position in 2017 but still managed to close that year with a record 718 deliveries.

A spokesman declined to comment on the final tally, which will be announced on Friday, but said “the Airbus team worked flat out until the very last hours of December 31”.

Boeing, which will unveil its numbers on Tuesday, had been targeting between 810 and 815 deliveries in 2018, up from 763 in 2017. It had delivered 704 planes by the end of November.

In terms of the annual orders race, Boeing was far ahead of its European rival by the end of November with 690 net firm orders, fuelling speculation that it would break Airbus’s five-year winning streak.

Airbus had reported 380 net firm orders in the same period but last week said it had firmed up two more deals for another 120 aircraft. In 2017, Airbus secured 1,109 net orders while Boeing netted 912.

“Boeing will end up ahead in 2018 in terms of deliveries and orders, on the back of their wide-body strength, and that’s confirming a trend we saw in 2017,” forecasts Chris Higgins, aerospace analyst at Morningstar Securities.

He estimates that Boeing secured around 200 wide-body orders in 2018, nearly four times as many as Airbus.

“It’s a structural issue, it’s not a one-year issue, and that has potential implications for Airbus, they may have to refresh their wide-body line-up much sooner than they expected.”

Richard Aboulafia, analyst at the Teal Group, said what mattered most was the “book-to-bill ratio”. Based on the end of November figures, Boeing could achieve a ratio of 1.0 — meaning new orders would match the number of aircraft deliveries.

Mr Higgins forecasts that the current year could be challenging for both aircraft manufacturers. “Given the economic backdrop, which is to say cautiously pessimistic, there are going to be a lot of airlines sitting on their hands in terms of orders this year. I’d not be surprised if 2019 comes in flat or maybe even down a bit in terms of orders”.

FT : World unprepared for slowdown, says IMF’s Lipton

World unprepared for slowdown, says IMF’s Lipton
Fund official warns on trade tensions, policy flaws and weakness in China

The leaders of the world’s largest countries are dangerously unprepared for the consequences of a serious global slowdown, a senior executive at the International Monetary Fund has warned.

In particular, governments will find it hard to use fiscal or monetary measures to offset the next recession, while the system of cross-border support mechanisms — such as central bank swap lines — has been undermined, warns David Lipton, the first deputy managing director of the IMF.

“The next recession is somewhere over the horizon, and we are less prepared to deal with that than we should be . . . [and] less prepared than in the last [crisis in 2008],” Mr Lipton told the Financial Times on the sidelines of the American Economic Association annual meeting in Atlanta. “Given this, countries should be paying attention to keeping their economy on a level trajectory, building buffers and not fighting with each other.”

In its most recent forecasts, in October, the IMF projected 3.7 per cent growth in the global economy this year. However, with the IMF set to release updated forecasts later this month, Mr Lipton admitted that the growth outlook is being undermined by trade tensions, policy flaws and weakness in Asia.

“China is clearly slowing down — we think China’s growth has to slow, but keeping it from slowing in a dangerous way is an important objective,” he said, noting that a downshift would be “material very broadly, not just in Asia.”

Concern about the faltering growth outlook, coupled with rising interest rates, has prompted sharp falls in equity markets in recent weeks. Jay Powell, chairman of the Federal Reserve, tried to offset this on Friday at the Atlanta conference by saying that “US data seem to be on track to sustain good momentum into the new year”. He pledged that the Fed would take a “patient” approach to monetary policy tightening.

Separately Larry Kudlow, White House economic adviser, told the conference — which brings together around 13,000 economists — that “there’s no recession in sight.” He urged economists to ignore the swings on Wall Street.

However, some leading economists pointed out that the new gloomy investor “narrative” could become self-reinforcing. “Suddenly, the markets are reacting as if there’s a crisis of interest rate increases,” argued Robert Shiller, the Yale professor and Nobel laureate. He pointed out that, although the Fed had been raising rates for several years, investors were only reacting to this now.

“This doesn’t look rational,” he says, drawing parallels with the 1920s in terms of the sudden shift in psychology. “[Then] the earnings were high, the economy was moving well, but suddenly it crashed — and again it was talk, I think. There was a new narrative that developed in 1929, just as there is a new narrative developing today.”

The debates in Atlanta revealed widespread pessimism among economists about the chance of any rapid resolution to the current trade wars. “It is always possible that President Trump can wake up one day, reach out to his friend President Xi and decide to take yes for an answer”, said Adam Posen, president of the Peterson Institute for International Economics.

“But, given the host of issues that the US government is raising, some of which are legitimate, some of which are exaggerated, and some of which are crazy, it’s very hard to get to yes,” Mr Posen said. He added that the Trump administration has hinged reconciliation of the trade war on issues which “may require a wholesale change in the Chinese system.”

Mr Lipton argued that rising protectionism showed that governments urgently needed to develop better policies to help their populations adapt to global competition. However, the magnitude of this challenge was illustrated by a range of economic research presented in Atlanta which showed that global trade competition is having a very uneven impact on the American work force, stoking inequality.

David Autor, a labour economist from the Massachusetts Institute of Technology, for example, gave a speech in which he showed that rural workers in the US who fail to move to cities to find work may be making a rational decision because, without a college degree, higher-wage jobs in cities have become scarce. Instead, the main growth in lower-wage jobs is coming from what Mr Autor calls “wealth work” — jobs such as baristas and animal therapists that serve the wealthy.

“It’s a good time to be young and educated,” he concluded, but there are few good choices for low-skilled older workers. Separately, economists from Stanford, Colorado and Michigan universities presented research which showed that trade competition with China is mostly hitting “low human-capital zones” in the south and west of America, in a manner which “exacerbates the potential inequality caused by the China shock.”

>>> Alitalia bidder FS likely to be given further month to prepare final offer,

Alitalia bidder FS likely to be given further month to prepare final offer, industrial plan

Ferrovie dello Stato (FS), the state-owned Italian railway network, is likely to be given until the end of February to present a final offer and industrial plan for troubled airline Alitalia, Italian-language daily Il Messaggero reported. The unsourced report said that the Ministry of Economic Development is likely to delay at FS' request the present deadline of the end of January
The item added that FS has also been in intense negotiations with US airline Delta [NYSE: DAL] over the latter becoming an industrial partner in Alitalia.
The article also noted that Alitalia and FS have also been sounding out other potential partners in order to raise the EUR 2bn to relaunch Alitalia. The item claimed that FS has been looking to raise EUR 100m from Poste Italiane, the Italian post office, while Alitalia advisor Rothschild has been sounding out various funds. The report said that Cerberus is seen as a likely investor.