China Late Night Missive Iwo Jima?! Haven’t heard that island name in a very long time and yet here we are. China heading deeper into the pacific for the first time. Outside the so called “first island chain”. The physiological batter over the Asian theater is very real and this move is all the more unique. American forces are based from Japan to the north all the way to Australia in the south and various spots along the way. China was supposed to be hemmed in, at least to the east. Genuinely interesting move. https://www.reuters.com/world/china/japan-confirms-chinas-aircraft-carrier-sailed-east-iwo-jima-first-time-2025-06-09/

Here’s a data point to explain why the Trump team scrambled to arrange the meeting with the Chinese in Geneva the other week. Exports to the US from #China cratered!!! Down 34% for the month of May. Just-in-time inventory zealots faced empty shelves and, with it, corporate America understood that they’d all be eviscerated on social media. If you thought the shortage of eggs proved problematic for the Biden administration, what would happen to Trump if hundreds of staple consumer goods all but vanished from the shelves at Walmart or CostCo. I can share the here locally, in China, the manufacturing engine is running at max speed. Both buyers and their local agents are working 24/7 with the concern being that the 145% tariffs will suddenly reappear. And ironically, the Chinese suppliers are charging a premium. They are making money hand over fist.

CNBC

China's exports to the U.S. clock their sharpest drop in more than 5 years — down over 34% in May

U.S. and China struck a preliminary deal in Geneva, Switzerland, last month that led both sides to drop a majority of tariffs.

China is providing a case study for what happens to an economy when it is starved of fiscal stimulus. Prices fall and with it the delicate balancing act continues. While there has been a monetary impulse from the Central Bank, that approach is more about driving greater efficiencies in how money is meant to circulate throughout the system. There has yet to be any material directly positive fiscal stimulus contrary to what you might have read elsewhere. The overall aim by the Beijing decision makers is to address, as best as possible, the over-indebtedness which has built up throughout the system. Again, the outcome of doing so is falling prices. Short term pain, but with the potential for long term strength. I would add that such an outcome is not, by any means, a certainty. At least, however, there is a recognition that there is a problem and steps are being taken to try and address that problem. Can’t say the same for the G7 nations. https://www.reuters.com/markets/asia/chinas-consumer-prices-extend-decline-fourth-month-may-2025-06-09/

China Morning Missive The trade is simple. Chips for Rare Earths. From the stream of headlines over the past week it’s more than clear that America has an obvious dependency on rare earth minerals sourced from China. This China knows and knows well. China, on the other hand, has been all but cut off from high performance chips. This has been the doing not just of Trump, but of Biden before him. The logic behind the export ban is clear. Thing is, you just can’t make a unilateral move if doing so puts your own economy at risk. That penny has now finally dropped for the folks in Washington. Now we have another round of talks between America and China this time in London. It doesn’t matter what messages are conveyed by Bessent and his team. China wants access to chips and will continue to slow roll access to rare earths until said access is granted. I’m sure that there will be much more to share in the coming days. https://www.reuters.com/world/china/key-us-china-trade-talks-set-monday-london-2025-06-09/

China Afternoon Missive Seems as though reality is beginning to sink in for the American President. Moreover, the fact that Trump decided to post the following comments publicly indicates that pressure is building. The scalpel approach taken by China is proving to be far more effective than the American sledgehammer. “I like President XI of China, always have, and always will, but he is VERY TOUGH, AND EXTREMELY HARD TO MAKE A DEAL WITH!!!,” The conditions are exactly the same as they were several months ago. Trump wants Xi to pick up the phone. That just won’t happen. Regardless of all the headlines of some impending call, it’s all just bluster. “Fake it till you make it” shouldn’t be the basis of America’s foreign policy and doubly so when it comes to China. And for all of those out there giddy over the TACO label, putting out a post such as the one above won’t be doing Trump – the man – and favors. The Chinese, and the entire Xi Jinping team, are more than happy to sit back and watch the circus from the cheap seats. The export machine here is humming on all cylinders and will continue to do so until the time when Trump rage tweets that tariffs on China are back at 145%. Trump says 'extremely hard' to make a deal with China's President Xi Jinping

CNBC

Trump says ‘extremely hard’ to make a deal with China’s Xi as trade stalemate fuels calls for leaders to talk

The two countries have blamed each other for violating a trade agreement reached in Switzerland on May 12.

Wife actually picked up the Pura X last month. The now-fully-Chinese OS clearly “borrowed” liberally from the folks in Cupertino.

For all the chip and tech controls the U.S. has put on China, Huawei has been killing it of late. New small foldable phone (Pura X) and more recently the Matebook Fold laptop.

Bloomberg.com

Huawei’s Pura X Is An Intriguing New Foldable — If You’re Outside the US

Review: The clamshell device is the company’s first flagship phone to launch with its new operating system to challenge iOS and Android.

China Morning Missive “China has no choice” ….. perhaps, but then again what does it mean to be a reliable partner. When the trade conflict went hot with China (and the entire world frankly) in early April, I felt confident that the Trump team didn’t have any idea of what it was they were heading into. China had spent four years preparing for exactly what Trump was preparing to do. Lessons were learned from the 2018 trade conflict and preventative steps were taken. Well, watching how event have played out over the past three months demonstrates that Team Trump was even far less prepared that I’d expected. There are no immediate points of pressure the US can apply on China, unlike virtually all other trading partners. The Europeans, Japan, S.Korea, you name it. All have, in some way, shape or form, dependencies on the US. Rare earth minerals are the pain trade and the export controls out of China are now starting to pinch American manufactures. The only question, at least for myself, is what concessions Trump/Bessent will make for China to resume exports. I suspect we will have a clearer idea in two weeks, or perhaps less. China isn’t the party left with no choice. It’s America that will need to move first.

Bloomberg.com

Bessent Says China Has a ‘Choice’ on Whether or Not to Be a Reliable Partner

Treasury Secretary Scott Bessent said Beijing has a choice on whether or not to be a dependable partner with the rest of the world, reiterating tha...

Here’s another quick #China update. There was a sudden surge in gold buying here in Shanghai over the weekend. You can see here in the attached video. The catalyst was a round of household vouchers issued by the local government. Basically, a series of different vouchers were made available including Rmb150 on a Rmb500 purchase all the way up to Rmb1,000 for a Rmb10,000 purchase. In the very savvy Chinese fashion, rather than use the vouchers for the intended purpose, to incentivize consumer discretionary spending like washing machine or clothing or some other more typical consumer item, the vouchers were used to buy gold. No prohibitions were made on how the vouchers were to be used. The gold shops even got with the program promoting the opportunity. Most point-of-sales were between 1 and 5 grams.

Wanted to provide a bit of broader context to the ongoing tension between China and America. Agree of disagree with the approach taken, consider for a quick minute the following moves made by the Trump team over the past four months. 1. In February, the American First Investment Policy was announced. The document made it clear that Chinese investment was no longer welcome in the United States. We are talking a couple of trillion USD. 2. Last week, the State Department announced that Chinese student visas would come under review and many should expect to be revoked. So, first it was “we don’t want your money” now it became “we don’t want your people either”. Last I looked, capital and labor were two pretty important variables for economic growth. I also wonder how many Chinese remained in the US after studying and how many were - in some way - responsible for all of the technological advances made over the past 20 years. But I digress. 3. Finally we have SecDef Pete Hegseth speaking in Singapore over the weekend where he called out China, or rather “the imminent threat of China.” That was a speech that most have viewed as very poorly timed. Take all of these developments in total and ask yourself; if I was running Beijing, do I genuinely believe that my counterparty is acting in good faith? Make no mistake. China has taken full advantage of, even abused, the “rules based order”. There are no good guys here. I’m just raising the issues and looking to demonstrate how the boys in Beijing might be thinking. I would also end here with the following. Up to this point, China hasn’t even begun playing hardball. Recall the PPE export controls in 2020 and just go from there. America has countless pressure points. https://finance.yahoo.com/news/china-rare-earths-grip-gives-151513862.html

China Morning Missive You’d think there’s genuine drama going on here. That might be the case in Washington, but it’s just another Tuesday here in China. It was three months ago when the Trump team said that a call with Xi was coming any day. That never transpired and all that followed was bellicosity via social media. Trump was then bombarded by Walmart and Costco making it clear that the shelves would be empty in a matter of weeks. Voila! A meeting is then announced in Geneva. The parties both said that progress was made. Thing is, the Chinese decided to slow roll access to rare earth minerals. For me, it was a test to measure the level of desperation on the American side. Seems that desperation was rather intense. And thus began round two of the Trump rage machine. In case you had any doubts, there won’t be any call, at least there’ll be no call initiated by the Chinese side. American buyers continue to scramble to place orders with Chinese producers before tariffs are - inevitably - returned to the +100% level. It is a mad scramble based on the people I’ve been talking to over the holiday weekend. Perhaps all of this is to say, volatility is back in play. https://www.reuters.com/world/china/trump-chinas-xi-will-likely-speak-this-week-white-house-says-2025-06-02/

Three years ago to the day, the Shanghai lockdown was lifted.

China Morning Missive A quick one today. To the point, what China did for the EV it is going to do with humanoid robots. Critical for the development is addressing the often raised issue of “the demographic time bomb”. Videos are all over Chinese social media of the advancements made.

Bloomberg.com

The Rise of China’s Robots

The country’s startups are harnessing AI to prepare robots for increasingly complex roles.

The China deflation story is one that you all should expect to see more of in the media over the coming months. Allow me to quickly explain why prices throughout China remain depressed. For those who’ve not heard me say this before, allow me to repeat. “Keynes is Dead in China”. Contrary to whatever you might have seen or read, there’s been no massive fiscal response out of Beijing. Yes, there’s been a firehose of debt issuance, but very little of it has been for the purpose of fiscal support. A few points to make. There has been zero fiscal support provided to Chinese households. Beijing did just that, indirectly mind you, during the 08/09 financial crisis and it not only blew a hole in China’s overall fiscal position, so too was it the case that malinvestment surged. That mistake wasn’t going to be repeated again. Beijing leadership is also well aware of just how precarious the fiscal position is among the G7 nations. This has been a known quantity for at least a decade. The thinking here is that if China were to “eat bitterness” today, then the country would be in a (relatively) stronger position at the very time the G7 nations succumb to their own debt crisis. But what of all the stories that China has unleashed its own printing press. There are two points to be made on the count. First, the majority of the proceeds from the bonds issued are being deployed to regional governments with the sole purpose of cleaning up local government financing vehicles (LGFV). There’s been a truck ton of “off balance sheet” debt built up over the past 20 years and Beijing has been aggressively working to restructure the debt. Second, given that the ongoing restructuring of the entire Chinese economic model has resulted in slowing activity has meant lower tax receipts. The fiscal hole is being plugged through the debt issuance you’ll see written about in the media. Here, again, this isn’t stimulative. The proceeds from the bonds issued are just being used to pay the governments ongoing bills. It is completely unclear if the steps being taken by Beijing will lead to a more stable and stronger economy. While I can state that we, here, in China are past peak pessimism there does remain a giant question of this plan will ultimately work. For myself, it is clear that Beijing recognized that they had a problem and have taken steps to arrest that problem. Now we just wait to see if it all works.

Bloomberg.com

China Deflation Worry Deepens Among Economists After Trade Truce

Economists expect deflationary pressure to get worse in China, even as they improve forecasts for growth and exports this year after a truce in the...

China Morning Missive Have to say, the announcement by State that Chinese student visas are set to be revoked has elicited a level of giddiness throughout the American traditional and social mediums which I do find worrisome. First the Trump team announced that Chinese capital would no longer be welcomed in the US via the “America First Investment Policy” and now we have this latest move to, essentially, kick out a few hundred thousand Chinese students. The one question which has been rattling around my head the past day is how many Chinese students in the past decade ended up remaining in the US and working for all the big tech companies? The contributions made by this workforce wouldn’t have been inconsequential. And yet, all I’ve seen are comments like, “we can’t educate the very people looking to destroy us” or “those students are spies!!” This is not the same America where I grew up. We didn’t make the Japanese into some boogieman back in the 80s just because they were aggressively out competing their American counterparts. This, I find, is a very, very slippery slope. https://www.reuters.com/world/us/us-will-not-tolerate-chinese-exploitation-universities-theft-research-says-state-2025-05-29/

While EV charging is, of course, an option here in #China you can also just go and have your entire battery changed out on roughly 6 minutes.

For me, the best offense is offense. The act of being defensive, again for me, is nothing more than a demonstration that a company - or country in this instance - is simply unable to compete. In the past several hours we’ve had (1) Trump announcing that all chip software suppliers are to no longer export to China and (2) the US State Department is moving forward with revoking Chinese student visas. There’s no question that China has taken full advantage of the American open system. That should be a net positive as it forces both government and business to remain innovative and compete, compete and compete. On the student visa issue, this will result in a massive brain drain from America. How many Chinese students ended up remaining in the US working (and building) all of the highly successful tech companies? https://www.reuters.com/world/us/rubio-says-us-will-start-revoking-visas-chinese-students-2025-05-28/

DeepSeek is back, only this time the decision was made to be very quiet about the release. Suppose that is the better way to go about things otherwise the ire of the American government will come out guns blazing once again. Now we just need to see how the AI community reacts in the next couple of days. First impressions though seem to suggest that the updated model is even more powerful than the original from just a few months ago.

Bloomberg.com

DeepSeek Unveils Update to R1 Model

DeepSeek said it has upgraded the R1 artificial intelligence model that helped propel the Chinese startup to global prominence at the start of this...

Prepare for a sharp leg down on “risk on” prices people. Unconfirmed reports that the Chinese have already left the negotiating table in Geneva. That’s was quick.

Give it another month and it’ll be down to 10% (if that)