Complete Intelligence


The Age of Asian Infrastructure

Asia has a rich and well-documented history of early civilizations and seafarers. From China’s Great Wall to the vast complexes of the Khmer and Pagan kingdoms in Cambodia and Myanmar respectively and the roads of India’s Emperor Ashoka, these ancient cultures boasted sophisticated and diverse infrastructure that responded to the varying topographies, climates and natural resources of the region.

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WSJ: China Loses Steam Because Of Trade War

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The mainstream experts stuck in their globalist mindset believed that President Donald Trump couldn’t take China on in a trade war and possibly win. Those naysayers are beginning to look rather foolish as China’s economic growth is falling without US cooperation. The parasitic relationship between the nations is no more!

The Wall Street Journal noted the progress that Trump is making as he uses his leverage to put the screws to the communist government of China:


An intensifying trade brawl with the U.S. is starting to take a heavier toll on China’s economy, as weakening foreign demand and sluggish domestic consumption cause Chinese manufacturers to significantly scale back production.


The manufacturing slowdown, detailed in reports released Sunday, raises the prospect that China’s leaders will step up economic stimulus measures to prop up growth.


The new data showed that privately owned makers of cars, machinery and other products stopped expanding in September, as export orders dropped the most in more than two years. At the same time, output by large, state-owned manufacturers continued to weaken.


The data, among the first major gauges of China’s economic performance for the third quarter, indicate that the U.S.-China trade fight is beginning to take a bigger bite out of the growth of the world’s second-largest economy.


After renegotiating NAFTA under more favorable terms with Canada and Mexico, Trump is now freed up to blast China with a united front throughout the North American continent. The master deal-maker’s grand plan is coming to fruition before our very eyes!


“China is having a fair amount of difficulty in their domestic economy … so I continue to believe China will come to the table with some significant concessions (although they may be downplayed) this month,” said Tony Nash, CEO of Complete Intelligence, to CNBC reporters.


Trump’s brilliance is playing out on the global stage, and his detractors have more and more egg on their faces as a result. The days of China becoming rich and prosperous while bleeding the US dry are quickly coming to an end due to the incredible leadership of 45.

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Economists clash over impact of trade war (video)

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Everybody has finally agreed that we can call the trade dispute between China and the US a “trade war”. But there are still huge disagreements as to the cause and the potential effect.


The trade war was high on the agenda at GTR‘s Asia Trade and Treasury Week, which took place in Singapore in the first week of September. Many expressed concerns over the disruption in regional supply chains, while lots of bankers were worried about the hit to their deal flow.


Two American analysts speaking at the event occupy differing camps when it comes to the trade war. Deborah Elms, a lobbyist at the Asian Trade Centre, thinks that the disruption is unnecessary, while Tony Nash, CEO of Complete Intelligence sees it as an almost natural and inevitable result of a dysfunctional trading system.


GTR spoke to them after they finished their on-stage debate to find out why.


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The Outlook for Infrastructure

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The Metals Service Center Institute’s recent Economic Summit brought together analysts and experts from across industries to discuss the future of the North American economy and how it relates to metals producers, service centers, processors, and metals users.


Tony Nash, CEO and founder of Complete Intelligence, a data technology firm that uses artificial intelligence and machine learning to forecast commodities, currencies, equity markets, economics, and international trade addressed an issue that has plagued U.S. policymakers for several years: how to tackle the nation’s yawning infrastructure investment gap.


U.S. infrastructure spending has declined 20 percent over the last two decades and has not kept up with population or economic growth, Nash said. As a result, the gap now exceeds $2 trillion. (Funding for roads, bridges, and transit is alone responsible for half of that deficit.)


While political commentators worry little will get done in Washington, D.C. if Congress is divided after the November 2018 elections, Nash said the outlook for infrastructure spending is “positive.” Nash predicted that, even if Rep. Nancy Pelosi (D-Calif.) is sitting across the negotiating table from President Donald Trump next January, federal lawmakers and the White House can successfully negotiate an infrastructure package—but it might not be the full $1.5 trillion outline the Trump administration has proposed. “Democrats will want to save some part of the investment in case their party takes over the White House in 2021,” Nash said.


In the event Democrats control the U.S. House of Representatives in 2019, Nash puts the odds at 60 percent that Congress will send an infrastructure bill to the president to sign. If Republicans manage to retain control of both houses of Congress, expect a robust package focused on private spending to pass, Nash said in an interview after the MSCI Economic Summit.


To set the stage for that outcome, Nash noted the Trump administration has been working to identify projects that truly are “shovel ready.” “That’s important,” Nash said. “Having projects ready to go is as necessary as the funding itself.”


Driving the desire to reach a deal is the understanding among policymakers that infrastructure investment is one of the safest economic choices they can make. According to a Congressional Budget Office analysis, every dollar invested in infrastructure generates $1.80 in economic activity, double the impact of a tax credit for new job creation and more than four times the bounce from a capital gains or dividend tax rate reduction.


A $1 trillion infrastructure package would result in an additional $330 billion in spending by the construction sector; $65 billion by the electric power generation, transmission, and distribution sector; and $40 billion by transportation equipment manufacturers. Under a $1.5 trillion federal package, spending by those sectors would rise to $495 billion, $98 billion, and $60 billion respectively.


Even if Washington can’t agree on an infrastructure reform package over the next two years—how to pay for the new investment and the environmental review processes will remain sticking points between the two parties—Nash is bullish on the infrastructure market. Several states, like Texas, are on strong fiscal ground and will look to make new investments absent a federal share. Private sector investors also are eager to get moving and will go directly to local and state officials if there’s a stalemate in Washington, Nash said.


In his presentation to MSCI members, Nash drew comparisons between U.S. infrastructure investment and China’s. After infrastructure investment lagged, China, through its Belt Road Initiative (BRI), is now using infrastructure as a means to build hard and soft power domestically and internationally. The Chinese government made attempts to get the private sector to pay for the $1 trillion investment in greenfield infrastructure but ended up stuck with the bill. (In our interview with him, Nash reiterated a government-only investment in the United States is not a viable approach.)


Nash also noted China’s BRI has been devoid of transparency and warned that U.S. lawmakers must learn from that mistake. Nash said federal lawmakers and the White House should develop a clear monitoring and evaluation of project milestone framework; a system for portfolio planning and program management; cross-agency cooperation capabilities; and a plan to reform regulations and streamline approval. (Nash said fewer steps in approval processes mean there is less opportunity for corruption.)


One option is to create a website where citizens can explore the bidding process for all projects, Nash said. This website should go much further than the site established by the Obama administration to provide transparency to its $1 trillion infrastructure package, passed by Congress in 2009.


Nash estimated that China’s lack of transparency efforts eventually could mean up to 30 percent of spending is lost to waste, fraud, and abuse. The country already has spent $1 billion on a port in Sri Lanka where no ships will dock. Other projects have been cancelled due to lack of oversight, or to regulatory hurdles. If the U.S. doesn’t enact the proper administrative infrastructure, the potential for corruption will be immense and could “rob” the American people of essential investment.


U.S. lawmakers will have plenty of details to negotiate regarding infrastructure investment in the 116thCongress, but, if Nash is right, the potential that the federal government will increase spending is strong.


Before launching Competitive Intelligence, Nash built and led the global research business for The Economist and the Asia consulting business for IHS (now IHS Markit). He has also been a social entrepreneur, media entrepreneur, writer, and consultant and currently is international advisory board member for Texas A&M University and a non-executive director with Kredit Microfinance Bank in Cambodia.

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Economists debate: Should we worry about the trade war?

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At the GTR Asia Trade and Treasury Week in Singapore, the US-China trade war – naturally – hogged the limelight. Kicking the event off was a debate between two economists noted for their contrasting views on international trade. Deborah Elms, executive director of lobby group the Asian Trade Centre, is decidedly opposed to tariffs in any way, shape or form, while Tony Nash, CEO and founder of Complete Intelligence, views the current situation as almost a natural evolution for a global trade system which has failed.


Moderated by Alex Capri, senior fellow at the National University of Singapore Business School, the highlights of this stimulating conversation are below.


Note: this conversation took place on September 4, 2018.


Capri: We’re at US$50bn of US tariffs, with talk of another US$200bn possibly this week. China is talking about retaliating with US$60bn. What is the actual collateral damage right now and in the future to global supply chains, particularly in Asia?


Elms: I think we should look beyond saying: ‘If the trade war happens,’ or: ‘Is this a trade dispute?’ This is a trade war. We are now at US$100bn in tariff levels between just the US and China. The US now has lined up an additional US$200bn in additional products – expect those in the next two weeks, my guess is they will land at US$180bn. The Chinese will retaliate again, US$60bn, but then they’re out of room to do dollar-for-dollar matching of tariffs. The Chinese don’t import as much in goods from the US, so they’ll have to retaliate on the rest in some other non-goods fashion. It’ll have to come in services against US companies based in China, but it won’t be on goods.


The implications for Asia and supply chains are starting to bite. It took a while for this to trickle down, as much of it is slow moving. The last bit of the US$50bn from the US and Chinese didn’t hit until August 23. Supply chains, which are slow to shift, haven’t been moving particularly fast up until now. But as people begin to realise this isn’t an ‘if’ but a ‘now’, and that it’s not short-term, but long-term, those supply chains will shift. Many will relocate to the rest of Asia, especially the Southeast, from China.


Singapore is a classic example. Many of the semiconductors produced in Singapore are exported to China to be re-exported to the US. That’s going to hit hard in many places in the region. Those supply chains will shift over time: 25% tariffs are hard to absorb. It’s going to be a difficult transition and it will take time. The short-term implications will be painful for an awful lot of Asia – there is much more of a connection between US-China supply chains than people expect.


Nash: We have to define the question first. We’re dealing with institutions in the global trade environment formed immediately after the Cold War: the WTO, Nafta (North American Free Trade Agreement), the EU. It represented a trade arbitrage: Nafta in North America, the EU in the eurozone – taking advantage of low cost sites within those trade blocs.


When China came into the WTO it created a global trade arbitrage. Since then, Chinese wages are now loosely equivalent to Malaysian wages. China finds it hard to compete without heavy subsidies and restrictions. All of this talk about tariffs and trade war, it’s really about the generational change from those institutions established post-Cold War until now.


We’re in a cycle of world history where people are evaluating those institutions. The average tariff under the General Agreement on Tariffs and Trade (GATT) was 35%. Under the WTO it’s 2%. Tariffs really aren’t a big deal in world trade anymore. The bigger issue is subsidies, non-tariff barriers (NTBs) and regulatory issues. Since the 1980s, there has been a lot of talk about the regionalisation of supply chains. What we have with these different arbitrage opportunities, especially with China coming into play, is an impediment to the regionalisation of supply chains. Now with green movements, carbon taxes, because we have these regional blocs, we’re starting to have a realisation that the regionalisation of supply chains is better for everyone – better in terms of the environment, jobs and wages.


In these trade disputes, Trump is the catalyst – there’s no way to dress that up. You have to look at his campaign, every single statement he made had to do with jobs and wages. Everything. He’s trying to establish the landed cost of goods exported from China or Mexico or elsewhere and understand how US or regional manufacturing could be competitive. That’s really all it is, dressed up in belligerent tweets and statements.


But this is all about understanding the true landing cost, if you strip out subsidies and trade barriers, and how competitive those markets are.


Capri: We’re seeing the Regional Comprehensive Economic Partnership (RCEP) being negotiated and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) being embraced minus the US. Those are rules-based multilateral trading frameworks. Is that the solution? And what’s China’s role in all this?


Elms: Most countries right now are grappling with these very difficult questions. Governments around the region are asking us about this at the top level. What are we going to do when the world’s largest player figures out that the system doesn’t work to benefit the world’s largest player anymore?


In Asia we have these regional agreements which can help stabilise things. Last week in Singapore we had senior ministers discussing RCEP, 16 countries here in Asia, all 10 members of Asean, plus China, Australia, Japan, Korea, India, New Zealand, meeting in intensive conversations about how Asia can link itself together as a bulwark against disruption elsewhere. The plan to have a substantial agreement this year will be difficult. They’re close, and are in great urgency because of the disruption.


But the problem with regional trade agreements is they don’t cover everyone. If you happen to be sitting in an uncovered country there’s a challenge. It would be better for firms to have global agreements, but it is very difficult when the two largest players in the system are throwing arrows at each other. How quickly can we create rules in the global system that will benefit both parties and get them both back to the negotiating table?


Nash: We have to understand what we mean by free trade. What is free trade? In my mind, it is removing protections that domestic companies have so foreign firms can compete on an equal basis. It’s not about tariffs or regulations. If you think in that way, the current tariff war is just one early element of that. Talking about abiding by the rules, in January 2017 the National Development and Reform Commission called me to Beijing to give a briefing on Trump’s policies: what would a Trump presidency look like? This was a closed door meeting and it also had the biggest think tank in China in the room, the China Centre for International Economic Exchanges.


I told them Trump’s policies were clearly outlined on his website and speeches. When we got to talking about his trade policies, I said: ‘This will be difficult, we will have a trade dispute and it will come down to subsidies and NTBs. You’re going to have to give on these.’ What was their response? The central planning agency of the Chinese government said: ‘The Japanese and the Germans do it too!’ Their response wasn’t: ’We don’t do that!’


At that moment it became painfully evident to me that there’s a mass circumvention of the rules of global trade. The Chinese, you can see in their negotiations, they’re embarrassed that they’ve been found out. It’s not that they don’t recognise the problem, they’re embarrassed that Trump is taking them to task very publicly.


Elms: One of the problems that the Trump administration has been facing is producing the evidence. Many people ask: ‘has China played fairly’? That’s a difficult question to answer. But the Chinese response would be: ‘show us where we’ve violated WTO rules’. One of the things that’s been lacking thus far has been clear evidence by the US side of specific rules that have been violated.


The spirit may have been a bit of an issue, but the letter of the law appears to largely have been followed. The US produced a 200-page report on IP and tech transfer in which it mostly says that China over a long period of time has violated the following of these kinds of things. But is very thin on specific evidence. If the Trump administration wants to ram the evidence home, it needs to say: ‘Here are specific cases of specific incidents of IP theft and tech transfer today, not 10 or 12 years ago, but today.’ That would go a long way towards solidifying the case. That’s why this entire argument has been hard for other countries to get around.


Capri: Everyone is familiar with the situation with ZTE and Huawei, which have just been blocked from Australia’s 5G network development. How should companies in the tech sector, with global supply chains, start planning their future value chains, in light of this?


Elms: Part of what the Trump administration is hoping to achieve with the tariff regime is that firms will start to reshore production back to the US. For some products that’s likely to happen.


But I also think it is missing something: there are 4 billion consumers here in Asia, versus 380 million in the US. For many products, firms will decide their futures are in Asia rather than the US. They will probably outsource their production to China or Asia generally. You’ll probably see a split in supply chains. Rather than having one supply chain hub in China, producing materials and sending some to the US and some to Asia, you may see firms splitting to have some in the US and some in Asia. Companies don’t often realise where their supply chain footprint lies. You may know where your first tier suppliers are, but don’t have a clue where your third and fourth tier suppliers sit, until they get cut off. So now firms have a chance to look at their sourcing locations, warehousing distribution networks, and say: ‘Does this still make sense, at a time of 25% tariffs into the US?’


Nash: If you remember before the financial crisis, almost every manufacturing company was looking at a China plus one, two or three strategy. In China in 2012, we saw real retribution towards Japanese companies over the Senkaku Islands dispute. Two years ago, we saw retribution in China against Korean companies around these defensive missiles put on Korean territory.


Two weeks ago, there was an announcement in Japan that a number of Japanese companies were rotating large portions of their manufacturing out of China. We’ve also seen the same with Korean companies, they were some of the first production line experts in China, 30 years ago. For them to rotate out of China, it’s a big statement.


I would say the earlier analogy would be from 2007, when there was a minimum wage imposed in the Pearl River Delta and a bunch of Korean, Japanese and Taiwanese companies backed up their trucks to the factory, shipped everything out to Vietnam and started operations there . There’s something similar underway, but it’s a much broader trend. The China-plus strategy from pre-financial crisis is underway again now.


Not just because of the cost of production, but also things like industrial espionage. One example would be Operation Shady Rat, and all of these subsequent industrial espionage efforts that have taken place out of a building in Tianjin, where the Chinese government is looking into foreign companies’ IP.


We are seeing a regional rotation out of China for a number of reasons, including cost and IP. We’re seeing regionalisation in North America, and that has quite a lot to do with environmental considerations as well as cost and job considerations. There’s a number of things moving towards an inevitable regionalisation.

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Trump is likely to ask Putin for help with his North Korea problem

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Russian President Vladimir Putin and U.S. President Donald Trump are sure to discuss North Korea at their bilateral summit as the American leader looks to tap Moscow’s strategic leverage over the isolated state.


The controversial heads of state are due to meet in Helsinki on Monday, with arms control, Ukraine, Syria and Iran likely to dominate talks. Pyongyang’s pledge to denuclearize may not top the agenda, but it’s likely to get considerable attention.

The U.S. president will “absolutely” seek Putin’s help on the matter, according to Benjamin Katzeff Silberstein, associate scholar at the Philadelphia-based Foreign Policy Research Institute. For one, Trump may ask the Russian leader to maintain sanctions on ruler Kim Jong Un’s regime, he said.


Putin imposed restrictions on North Korea to comply with a U.N. Security Council resolution last October, but his administration has generally rejected most U.S.-led efforts to isolate Pyongyang.


For its diplomacy to succeed, it’s crucial for Washington to maintain pressure on the pariah nation, but Beijing and Moscow are reluctant to do so following April’s inter-Korean summit and last month’s Trump-Kim meeting, explained Silberstein.


“Both China and Russia see the cooling of ties as significant enough progress to argue that sanctions should be lessened in the near future, while Trump argues that they should stay on with full pressure until North Korea has abolished its nuclear weapons,” the scholar said.


Russia’s economic influence over North Korea is nowhere as great as China’s, but it still wields considerable sway thanks to deep-rooted trade, cultural and commercial relations. The Eurasian country is a major destination for North Korean laborers and in 2014, it wrote off 90 percent of Pyongyang’s $11 billion debt from the Soviet-era. In May, Kim said he “highly” valued Putin for opposing the U.S., according to Russian media.

“Trump will mention North Korea [to Putin] to ensure that all parties are aware of his intended outcome and to listen to any pushback or suggestions that Putin may have,” said Tony Nash, founder and chief economist at analytics firm Complete Intelligence: “Every little bit of influence and information helps with North Korea.”


But Putin won’t be doing Trump any favors — the world’s largest nation by size stands to benefit from a denuclearized North Korea.


“Russia is hoping that a potential cooling of tensions in the area will give it economic and geopolitical advantages,” explained Silberstein.


A peace process could potentially bring about infrastructure dividends such as railways that connect Seoul with Moscow via Pyongyang or greater benefits from North Korea’s port in Rajin, he continued. The facility, located near the Russian border, offers opportunities for Russian exports because water there doesn’t freeze during winter — it’s also the site of a weekly ferry service to Vladivostok.


Depending on how much progress Pyongyang makes on surrendering nuclear weapons, sanctions may be finally eased. That, in turn, opens a wealth of trade and economic windows for North Korea’s allies, namely Beijing and Moscow.

“Putin is well-positioned to exploit these possibilities,” said a report published by 38 North, a research group under Washington-based think tank The Stimson Center. From South Korean President Moon Jae-in’s June visit to Moscow to a planned Putin-Kim summit set for September, “Russia has a valuable role to play in helping resolve the North Korean nuclear crisis, and Trump and his national security team surely know this,” the report stated.


The Kremlin has long sought to be a leader on the Korean Peninsula as part of its ambitions to be a great power in North Asia. If Russia gets more involved in the peace process, experts said, its growing presence could ultimately weaken American influence in the region while simultaneously balancing China’s rising clout.


“As Trump spoke of North Korea as a potential destination for foreign investment, so Putin will recall plans for a railway route that would bring South Korean cargoes to the Trans-Siberian Railway and a gas pipeline and electrical power lines that could pass from South Korea to Russia via North Korea,” Alexander Gabuev, senior fellow at foreign policy-focused think tank Carnegie Moscow Center, wrote in a June note.


“That would give Pyongyang not just transit revenues but also reasons to be more pacific,” Gabuev added.

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China Official June Manufacturing PMI Declines Slightly from May

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Manufacturing momentum in the world’s number two economy skidded to a four-month low in June, according to twin surveys released on Friday.


The government’s manufacturing Purchasing Managers’ Index (PMI), a survey that tracks the health of large and state-owned companies, came in at 50.0 last month, versus 50.1 logged in May and April. The report was bang in line with Reuters’ estimates and marked the weakest result since February’s 49.0 figure.


From March-May, the survey logged results above the key 50 level, which separates expansion from contraction. In the seven months before March, the survey remained stuck below 50.


Caixin’s China June manufacturing PMI, which tracks smaller-scale private firms compared to the official gauge, also recorded the fastest rate of deterioration in four months. The index reported a 48.6 reading for June, compared with 49.2 in May.


Markets showed little reaction to both surveys, with the Australian dollar flat and mainland equities half a percent higher.


“Overall, economic conditions in the second quarter were considerably weaker than in the first quarter, which means there has been no easing of the downward pressure on growth. Against the backdrop of a turbulent external environment, and in order to avert a sharp economic decline, the government must strengthen its proactive fiscal policy while continuing to follow prudent monetary policy,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.


The latest numbers are likely to trigger a debate on whether more monetary support can be expected from the People’s Bank of China (PBOC), especially given tepid expectations for second quarter growth.

Strategists widely anticipate gross domestic product (GDP) growth in the April-June quarter, due on July 15, to come in unchanged. GDP expanded 6.7 percent on-year in the first three months of the year, the slowest pace since the global financial crisis but still in line with Beijing’s official 2016 target range of between 6.5-7 percent.

“China has largely been ignored during the Brexit crisis, but it has managed to weaken its currency substantially throughout the period. Focus will turn again to how its stimulus efforts are faring today with the release of its May PMIs,” commented Angus Nicholson, IG market strategist, ahead of the release.


While Friday’s results were concerning, they may not produce urgent monetary action, according to Tony Nash, founder of analytics firm Complete Intelligence. He doesn’t believe cutting interest rates will immediately bolster the economy on the back of overall weak loan demand, but added that he does expect improved economic activity going into August.


Outside of manufacturing, Friday’s data flood wasn’t entirely bad.


A third survey painted a slightly more uplifting outlook for the country’s service sector, which now accounts for the bulk of GDP. The official services PMI rose to 53.7 in June, better than May’s 53.1 figure.


Fraser Howie, an independent analyst, cautioned reading too much into one month’s reading.


“The trend is more your friend. What it’s telling us is the economy is bumbling along at best…there’s clearly no signs of any strong recovery,” he told CNBC’s Squawk Box.


He doesn’t anticipate this pattern to change anytime soon, predicting little change in the economy by year-end.