China Morning Missive The Chinese Ministry of Finance has been on a tear over the past two weeks issuing bonds and raising billions in the process from global investors. What has been the most interesting aspect of this exercise, however, has been the sheer demand for Chinese paper. There was the USD4.0billion issuance divided evenly between a 3 and 5-year tranche. Demand came in at USD118.0billion. Then this week there was a EUR4.0billion deal this time evening split between a 4 and 7-year tranche. Here, demand came in at EUR100billion. Demand for the Chinese bonds was so significant that the securities ended up being priced at just two basis points above US treasury bonds of a similar tenor. It would seem as though China is one again “investable” considering that sovereign issuance had been scant and, at times, nonexistent over the past four years. There is a greater game at play here beyond a government looking to tap investor demand. China is returning to the global sovereign debt market with the expressed purpose of resuming the campaign of deepening the offshore yield curve so as to provide pricing benchmarks for Chinese corporates. Expect to see a host of large Chinese enterprises test the global markets throughout 2026. Demand for sovereign risk is one thing. Demand for Chinese corporate risk remains a distinct unknown. https://finance.yahoo.com/news/china-smashes-bond-sale-records-093818568.html

China Morning Missive Once again, we have an event which takes place all with the intended purpose of containing China. And once again, we have a failed attempt. Honestly, I’m somewhat surprised at the speed of the outcome. It was just a month back when the Dutch government announced that it had taken effective control over the Chinese owned technology group Nexperia. Yesterday, that decision was fully overturned. The rationale for seizing the company was deemed “highly exceptional” and was done given “valid reasons to doubt sound management at Nexperia under the leadership of former CEO Zhang Xuezheng.” What does that even mean? Doesn’t matter. Everyone knew that the move was made in conjunction with the US government to apply pressure on China’s ambitions to build advanced chips. I’m sure that, on paper, the move would have made considerable sense. On paper. What clearly wasn’t taken into account though were the second and third order effects of making such a move. While Nexperia does have a sizable operational footprint within the EU, the actual end product (chips) is manufactured in Dongguan, China. In response, Chinese authorities placed a full export ban on all Nexperia chips. Almost immediately, the global auto industry, the largest end customer for these chips, reacted. From BMW to Honda, the industry warned that production would go offline without access to the Nexperia chips. Pressure then mounted and, in the end, the Dutch government was left with no other choice but to rescind its previous “highly exceptional” decision. This is but a single example of the unforced errors being constantly made by the Americans and Europeans. Decisions are made all with the aim of containing China, but at each and every turn there’s never any forethought into how China can respond. There just continues to be a belief that unilateral action can be taken without running the risk of repercussions. It has been years now that this way of thinking has permeated Western strategic thinking and, yet, there has been ample evidence that – when provoked – China doesn’t just retaliate, it does so in a way that is truly impactful. What this example also demonstrates is the depth and breadth of China’s institutional bandwidth. Over the past 18 months there have been a host of geopolitical flare-ups all requiring the attention of China’s leadership. At every turn, there’s not only been an immediate response, but a very well-crafted response as well. Each situation was then adroitly navigated with outcomes heavily favoring the Chinese. I’ll just once again make the following statement. It is well past time that the Americans and Europeans refrain from underestimating China’s capabilities. The leverage is now firmly in the hands of Beijing. There just isn’t anymore debate on this subject. https://www.reuters.com/business/retail-consumer/dutch-government-suspends-state-intervention-chipmaker-nexperia-statement-2025-11-19/

Everyday there is a new development in the Chinese AI space. Can’t hardly keep track. Now it’s a Chatbot from Alibaba and from just a bit of use it is impressive. Already up on the App Store.

China Morning Missive Nothing like coming into the office first thing on a Monday morning to find news of SecTres Bessent saying that the rare earth issue “should hopefully be completed by Thanksgiving.” Wasn’t the entire idea of the Trump-Xi meeting to finalize the issue? And on that note, what is going on with TikTok? There’s another item which hasn’t been fully finalized. Even though the current headlines a dominated by a growing conflict between China and Japan over comments made on Taiwan and there’s also the reporting of the Chinese economy under continued pressure, the main event remains the Battle of Two Titans, China v. America. Honestly, someone in Washington needs to hire me to teach a class in China Negotiations 101. All of what is transpiring is a known quantity if you understand how it is the Chinese operate. When they have leverage (and they very much do), they press their advantage up until the real point of conflict. I would also add that rare earths, while important, is a symptom of a far larger problem facing America. A problem known by the Beijing leadership and a problem which will continue to be leveraged. The real issue is an acute dependency throughout America on the supply of all sorts of intermediate goods. No one in the States is talking about it and it is the same dynamic at play as with rare earths but goes to just about every single corner of American industry. Intermediate goods are the critical inputs required across all industries to manufacture finished goods. So long as you are missing one or two small parts that go into a manufacturing process then you are unable to complete that process. This, again, is the primary issue with rare earths. They are a component, and intermediate good, required in a much larger manufacturing process. Without access then the process itself has zero value. Again, this very dynamic carries across just about every industry. American manufactures remain dependent on a host of inputs, intermediate goods, sourced from China. One perfect example of this would be drones. In fact, I would expect this to be one of the next major issues to arise between China and America. You’ll see all sorts of reporting on companies likes Anduril or Skydio. Both are tasked with building out America’s capacity to manufacture drones. Both, however, would have at least some degree of dependency on China for the sourcing of needed inputs. China, however, placed a global export control on critical parts for the entire drone industry. This move was made explicitly in response to the American government banning all domestic sale of DJI Technology products. I must stress; this is just one example. There are hundreds of other American companies still at critical risk to China’s supply chain. Mitigating the risk will take years and Beijing negotiators are fully aware of the issue. https://www.reuters.com/world/china/china-rare-earths-deal-will-hopefully-be-done-by-thanksgiving-bessent-says-2025-11-16/

China Morning Missive You know China is succeeding to some degree whenever Washington sends in its attack dogs. You only see a public statement such as this from the IMF when an action taken by a third party is an action deemed to counter to the USD/SWIFT “rules based international order.” It is also for this very reason why calls by China’s to reform the voting system of the IMF are ignored. The last time the system was amended was in 2010 and even then the change wasn’t ratified until 2015 once the American Congress voted to approve the ratification. Yes, if you didn’t know that already, any changes to the voting systems at the IMF require Congressional approval. It was for this very reason why China decided to move to build outside institutions beginning with the Asian Infrastructure Investment Bank (AIIB) followed by the New Development Bank. Even though China did attempt to work within the system, it became very clear that the so called “rules” wouldn’t be amended to align with China’s rise in economic stature. Zero sum game. Expect more moves such as these from other global institutions moving forward.

Bloomberg.com

IMF Flags Currency Risks as Nations Swap Dollar Loans Into Yuan

The International Monetary Fund has warned of currency risks arising for nations such as Kenya and Ethiopia that are swapping dollar loans from Chi...

For context, this is an example of how China talking points are positioned and then disseminated within the United States. Find individuals whose positions mirrors that of the Beltway consensus and also provides for a useful foil to those looking for an external party to blame. It need not matter if that individual has been completely wrong for two full decades. So long as his message remains intact - even if wrong - he/she will always have access to a mic. This exhibit below, Mr Gordon Chang is but one of many examples.

China Morning Missive Keeping with the AI theme, and the competitive landscape, the linked article from Bloomberg provides some fantastic context. I was aware that Chamath Palihapitiya noted on the All In podcast that he and his team had migrated to Kimi K2 given its better performance and cost. Well, it now seems as though an increasing number of Silicon Valley shops are building models via the aggressive usage of Chinese open sourced/open weight models That's kind of the entire point isn't it? Billions in valuations are being built on Chinese models and, of course, there's been no actual commentary by these very same groups as to just how critical these Chinese AI models are for development. Perhaps the one quote to include here from the article would be the following. "Data from Hugging Face’s platform compiled by the ATOM Project, a US coalition in support of open-source AI, confirmed that. Chinese models have overtaken the US in terms of cumulative downloads by developers." Once again, the Chinese models are open source and, once again, this is the entire point. The secret is now out and you should expect the rumblings of a blow back in very short order. The threat of these Chinese models reaching escape velocity is very real. There will be a "on the grounds of national secruity" campaign forthcoming without question. Regulatory capture will demand it!! Besides, the national security threat rationale is pretty much the only play in the American playbook these days. But here's the main point that I wish to make this morning. Consider how all the shifts in American AI developed occured in the post-Deepseek world. Now recall that Deepseek only hit the zeitgiet back in February, just nine months ago. No wonder why Sam Altman is showing signs of becoming unhinged.

Bloomberg.com

How Much of Silicon Valley Is Built on Chinese AI?

Nvidia Corp. Chief Executive Officer Jensen Huang recently declared to the Financial Times that: “China is going to win the AI race.” He later ...

China Morning Missive You’ve all probably seen at least a bit of the “Alex Carp” show over the past week. The Palantir CEO has been doing the rounds hyping up his company. This article linked below is a decent read as it provides a rather solid overview of just how detached Carp is on a host of issues. The reason for making mention of this is how Carp’s comments dovetails with the ongoing AI competition between American and China. It is this quote, below, that had me howling with laughter, albeit not for the reasons you might think. “We are going to be the dominant player, or China is going to be the dominant player, and there will just be very different rules depending on who wins,” he said. “So when people are worried about surveillance, of course, there are huge dangers there, but you know, you will have far fewer rights if America’s not in the lead.” Once again, we find an example of the duality that defines what seems to be all American thought. Good versus Evil. With us or against us. If China wins, then American looses. What Carp is doing here is clear. He is projecting. I’ve seen this on more China related issues than I can recall. Projecting has been one of the more critical factors in why it is so many just don’t understanding China. That’s a topic for another day. Addressing Carp’s quote directly, China has already put in place a vast surveillance system. The advent of AI will certainly provide the Beijing authorities new tools, but that isn’t the motivational force behind China’s AI ambitions. There was a great quote I read recently. Something along the lines of “America’s AI ambitions are to create God in a box. China’s AI ambitions are meant to be deployed commercially.” Basically, China is looking to us AI to support its manufacturing ecosystem. Become an even more efficient builder of all things. Carp is showing his hand along with the entire premise behind the American drive for AI. By making it all an issue of surveillance, Carp is letting the American people know – very openly – the actual goals he and his ilk are working towards.

Gizmodo

Palantir CEO Says a Surveillance State Is Preferable to China Winning the AI Race

He also had strong opinions about people's "god-given" rights to eat a hotdog and flirt with someone who isn't their spouse.

China Morning Missive The enunciation of truth. That is the best possible way to describe Jensen Huang twisting himself into a knot over comments made on China’s AI competitiveness. What this single event has demonstrated is that no matter the objective realties given facts on the ground, never – at any time – even suggest that China is prevailing over America. I would argue that this sort of commentary is critically important, even desperately needed. Moreover, Jensen Huang should even be commended for the statements made irrespective of the various thinly veiled ulterior motives. When it comes to the ongoing China v. American rivalry, those having real insight and relevant industry knowledge of the competitive landscape should be encouraged to speak publicly. Their perspectives should be taken with the weightiness they deserve. The far more dangerous path is the one where a very obvious problem isn’t just ignored, it is shamed and ridiculed. Pity those poor souls that understand the threat facing America’s leading industries and seek to make the issues known to a broader audience. From my own experience I can personally attest that publicly highlighting the errors in American policy is received with disproportionate levels of antagonism. It is here that the Law of Holes applies. Stop digging. The American Beltway consensus needs to wholly recognize the harsh realities of the theater in which they are operating. Those at the levers of power need to remove themselves from the bubble in which they inhabit. Time, I’m afraid, is no longer a luxury they can afford.

CNBC

Nvidia's Jensen Huang softens his ‘China will win the AI race’ remark to FT

Nvidia CEO Jensen Huang reportedly told the Financial Times that "China is going to win the AI race," before releasing a notably softer statement s...

Ok, this isn’t normal especially coming from Bob Diamond. @ODELL @Marty Bent “With the support of the Treasury and the SEC in terms of approvals of these — and the OCC — we think that there’s going to be consolidation that takes that number of 4,500 to something closer to 1,000 or 1,500 literally over the next two to three years,” said Diamond, who ran Barclays Plc until 2012 before founding his investment firm.

Bloomberg.com

Bob Diamond Sees M&A Taking Out 3,000 US Banks in Trump Era

Bob Diamond sees the number of US lenders dwindling by 3,000 in the next two to three years as regulators embrace consolidation of the industry —...

China Morning Missive (a bit of a long one) The China Starbuck’s saga has come to an end. After 25 years operating throughout the Mainland, with more than a decade of that a wholly owned business of the Seattle parent, the coffee chain is selling 60% of the entire local business to a Chinese PE group. This makes for a fantastic case study in (1) the speed of change in Chinese consumer preferences and (2) how failure is all but assured if corporate is unwilling or unable to delegate decision making to local management. Just as a bit of background, Starbucks entered China in 1999 via three sperate joint ventures. One in the north, one in the south and one in the Yangtze delta (aka Shanghai). The local partners bought to the table expertise in logistics and dealing will all sorts of uniquely domestic issues. Starbucks brought IP via training and how best to build a store layout for the greatest efficiency. It was a massively successful structure for all involved, but by 2011 the Starbuck leadership team decided to exercise its option to buy out the three JV partners for multiple billions of dollars. The China business was now wholly owned by the America parent. It was at around that time when China’s coffee culture not only witnessed rapid growth, but there also came a dramatic shift as well towards the boutique coffee experience. Chinese consumer preferences no longer wanted a large venue where you could sit for hours. Starbucks had also become blasé. Each location was the exact same as all others. Moreover, there was now competition in the convenience factor. Starbucks might have been everywhere, but so too was Manner or Luckin’ and these local rivals offered coffee at half the price of Starbucks. But what has proven to be the death kneel is Chinese consumers demands for a unique coffee experience. The number of small coffee shops has exploded throughout the major cities all offering different flavors of coffee and experiences. Starbucks either didn’t see the shift happening or – more likely – was too slow to react. As a wholly owned business, all decision making resided in the hands of layers upon layers of Seattle-based management teams. “We are here from corporate, and we are here to help”. By the time management recognized the shift in consumer preferences it was too late. The only solution was a return to the previous successful strategy of a local partnership. Selling 60% of the entire business though, no longer providing Starbucks with outright decision making, is a steep price to pay. My final point of this very long Note is that all of this is not an isolated case study. There have been numerous examples of (primarily) American corporations snatching defeat from the jaws of victory in China. The outcome has nothing to do with China and has everything to do with the speed of change in China and – for me most critically – limiting to authority of local management teams. Still, when these groups do end up “failing”, they will almost always place the blame on the China market. https://www.cnn.com/2025/11/03/business/starbucks-to-sell-control-of-china-business

China Morning Missive Late on Friday the news came out that the tax incentive for building gold would be removed. For years, I don’t even know how long, all gold purchases by households was not subject to a 6% value added tax. That is no longer the case. Then came all of the conspiracy theories. I grant you, the timing is odd. Still, for me its Occam’s Razor. Above all else, the north star for the Beijing leadership is stability. This is doubly so when it comes to financial markets. Unlike most major global markets, the Chinese retail investor is the tail that wags the market dog. Tens upon tens of trillions of RMB sitting in bank savings can tend to do that. Price action can get insane in any asset class once a degree of real momentum starts to build. Just look at last year when the PBoC came in on multiple occasions to warn investors of the growing risk in rapidly declining market rates. Risk off was only trade on the table for retail investors and with it fixed income exposure had exploded. Market rates cratered as a result and with it required the Central Bank to step in knowing the market move was unsustainable. They took action and made comments to calm investor’s enthusiasm. The same holds with gold today, in my opinion. There was the rapid rise and then the rapid reversal. Instability. Looking at what tools were available, removing the 6% VAT exclusion just made sense to temper investor’s “irrational” appetite. Might there be more behind the decision made? Of course, but I’m not seeing or hearing anything at the moment. We will see if that changes at all in the coming days or weeks.

Yahoo News

China scraps gold tax break, sending shockwaves through global bullion market

BEIJING, Nov 1 — China has abolished a long-standing tax incentive on gold sales in a move that could raise costs...

The entire TikTok “deal” will ultimately become a case study (the latest in a long list) for how the Chinese actually negotiate. It was a done deal last I heard. Seems not. Then again, nothing is ever done until the asset is firmly in the hands of the purchasing party. China says it’s willing to work with U.S. on TikTok — but offers few details

CNBC

China says it’s willing to work with U.S. on TikTok — but offers few details

Beijing indicated it would work with the U.S. on addressing the future of TikTok in the country.

China Morning Missive (Part II) The meeting has concluded and the details are now beginning to trickle out. What follows is nothing more than a quick reaction Note. As with everything China related, better to let events marinate a bit before jumping to any firm conclusions. First off, the fact that Trump jumped into his limo and went straight to Airforce One for a return trip to Washington was a surprise. I expected some sort of photo op and a press conference albeit held by Trump alone. To the latter point, that now seems to be underway but taking place on the plane. In terms of the meeting itself, it would look as though the outcome met with the broad expectations. The two Presidents ended up just discussing various issues while agreeing on only those few items which had already been reported on. My overall take is that China is holding firm on its overall position. Remaining firm, but also willing to concede on issues so long as the Americans fully reciprocate. The definition of quid pro quo. Critically though, Trump did not get his deal. I suppose, overall, that would be the main takeaway. It would also demonstrate just how great the leverage held by China is at the moment. Specific “asks” had already been made by China during the various bilateral trade talks. “Aggressive asks” as Sec Bessent noted during the Madrid round of talks. It stands to reason that these “aggressive asks” laid at the center of the meeting between Trump and Xi and the two men left with neither willing to give ground. Taiwan would have been one of those issues and I would expect the lifting of certain export controls by the United States was another such ask. Less about the Blackwell chips and more about China seeking the purchase critical machinery (ASML) to continue its own path towards chip production. Finally, going into the meeting Trump posted on social media that he had instructed his team to being a nuclear weapons testing program. China was specifically identified in that post. Additionally, and at roughly the same time, the Indo-Pacific command issued an order for a “show of force” in the South China Sea with the aim of thwarting Chinese “aggression”. No question that these two moves would have complicated the overall meeting. What does all this mean? No firm answers at this time. What should be expected though is more of the same. More bilateral meetings and that then means more stresses and more volatility.

Trump and Xi meeting has concluded. Appears as though there won’t be any Trump press conference. Now it’s just a matter of waiting for the social media posts from the President to begin circulating.

China Morning Missive Well, we just witnessed the opening salvo between Trump and Xi and it very much looks like the parties are both trying to play nice. The fact remains that all details of whatever will be ultimately decided in the now closed-door talks were agreed to in advance of this meeting. The Chinese so far are the only party where it is known what will be delivered. A suspension of the rare earth export controls and a meaningful purchase of soybeans top that list. It is also expected that a final agreement, signed agreement, for TikTok will also occur later today. Where focus needs to be centered now is on what it is the American side provided as deliverables. There seems to be a great deal of attention being paid to Nvidia selling Blackwell chips to China. I just don’t see that as even remotely possible. Given the Beltway blowback on the approval of H20 chips several months ago would mean an even greater upheaval in Washington if Blackwell chips were, ultimately, traded for agriculture and a social media platform. Then again, I could be wrong. For myself, it is all about Taiwan. While there won’t be any substantive agreement reached on the issue, I an expecting Trump to come out after the meeting where he will raise the Taiwan issue and do so in a way that will be viewed positively by Beijing. Just not sure of the wording which will be used. Will need to wait another hour or so when, as is typical, Trump will meet with the media. No joint press conference though.

The Straits Times

Xi says US, China ‘should be partners and friends’ as he meets Trump in South Korea

Mr Trump has repeatedly expressed optimism about reaching agreement with Mr Xi during the talks. Read more at straitstimes.com. Read more at strait...

What a shit show of a week. Having to field even more than my usual number of video calls with American groups all of whom are freaking out over China. Can’t wait for this Trump/Xi meeting to finally be over.

China Morning Missive Well, there is certainly a great deal of positivity (again) from the latest round of bilateral talks between China and the United States. From what is being made public, the two sides have reached a “framework” of a deal with Trump and Xi signing off when they meet on Thursday this week. As Brad Pitt said in the move Seven though, “What’s in the box? WHAT’S IN THE BOX?” What concessions did the American side make? Up to this point what we know is the following. The TikTok deal is set to “close” on Thursday. China is preparing a “substantial” purchase of soybeans. Rare earth controls are to be postponed by a year. These are just the three larger key issues that we know of and are said to have been concluded. If China had all the leverage (which it did) and China has agreed to basically all terms, what has the American side agreed to? Thus far, Bessent is playing the game that China made concessions and with that America won’t be moving forward on the additional 100% tariffs which Trump had threatened. Nonsense. That’s Bessent providing cover to the media so that the actual details of what real concessions were made don’t need to be raised publicly. The obvious candidate would be China’s access to key technology. While I suspect that technology will be part of the American deliverable, the focus needs to remain on Taiwan. It’s always been Taiwan. I’ll also be paying close attention to the Typhoon missile systems in the Phillipines and the second installation that was placed just last month in Japan. I’m also expecting the two parties to publicly make an agreement over the future of nuclear nonproliferation. Just keep in mind that the Chinese don’t trust any verbal agreement with an American President (ironic tough that may be). All of what’s been agreed to, and I mean the real issues and not TikTok, will have had the Chinese press for a Fourth Communique. That takes time. My ongoing thesis is for Trump to travel to China in early 2026 and for Xi to travel to the States in early 2027. It will be on that US trip when the parties would sign a new communique laying out an agreement over how best to divvy up the Asia-Pac region.

US Treasury chief Bessent says ‘substantial’ trade framework with China reached — TradingView News

Here’s a flashback. 1996. The Shanghai Bund. Pollution has improved immensely.

The architectural contrasts of this city never ceases to amaze me.