“You May Not Be Interested In Politics, But Politics Is Interested In You”

By Michael Every of Rabobank

Sixth, Sixth, Sixth

It may be far away geographically and politically to some readers, but China’s sixth plenum has passed an historic doctrine on CCP history, only its third ever, and the first for 40 years: this matters to markets. The text wasn’t released, just a communique, and Bloomberg’s take is ‘Continuity’, as China will “unite around the party with Xi at the core” to reach its 2049 goals, with “common prosperity,” “self-reliance,” and “quality” growth. But what does this mean for “regulatory shifts,” as Wall Street calls the ideological turn underway? (Which the communique trumpeted.)

Reading the runes, Mao was covered far more than Deng, Jiang and Hu’s reforms, and sinologist Bill Bishop sees implied criticism of the pre-Xi status quo in that the Party has now “solved many long-term problems that have been wanted to be solved but have not been solved, and many big things that have been wanted to be done but have not been done in the past have been done,” and “the situation in China’s ideological field has undergone overall and fundamental changes”. The text also stresses Xi Jinping Thought is the lodestar for development ahead: this is not a campaign-style aberration, but the opening shot in a larger struggle (to use the communique’s terminology).

This is of particular relevance to property. Chinese developers and metals have rallied hard on suggestions the PBOC’s tough stance will be reversed. Yet the People’s Daily just carried a long article stating Xi’s “firm conviction” that “when the real estate industry, which is a matter of people’s livelihoods, shows signs of relaxation in regulation, it is firmly established that the house is used for living, not for speculation,” adding “the hardest iron must be the one who strikes the iron.” Indeed, Shenyang municipal government –perhaps a bellwether?– has denied reports it is easing housing restrictions, asking citizens “not to believe or spread rumours.” Today, “industry insiders” tell the press any national mortgage-lending relaxation is only for “stable and orderly, reasonable” demand, around 15% of recent buyers by some estimates, while speculation, the other 85%, is still being firmly curbed by local governments.

Of course, China was never going to let the property nexus collapse in an Austrian sense. Neither is it going to allow BAU in a Greenspan-Bernanke-Yellen-Powell sense. There is no ideological inconsistency with helping developers refinance CNY loans at lower rates to ensure jobs aren’t lost and projects are completed; to assume this means a U-turn back to asset speculation seems a great leap forward.

Shuli Ren also wades in, arguing “All companies risk failure, and China’s property sector badly overreached. But that isn’t a reason for Beijing to pressure companies out of existence, leaving investors holding the bag.” It might be if one wants to filter productive, unproductive, and fictitious capital; views capitalism as inherently destabilising; views capitalists as always likely to turn up regardless of policy actions – which Wall Street seems to be doing so far; and wants the sector to have a more social role ahead, e.g., public housing. All of which is Marxist precept (and accurate to boot). Note the sixth plenum stressed: “We must use Marxist positions, viewpoints, and methods to observe, understand, and steer the trends of the times, and constantly deepen our understanding of the laws underlying governance by a communist party, the building of socialism, and the development of human society.”

Elsewhere, the vaunted COP26 deal struck with the US yesterday already looks like most of the other promises: empty – which David Fickling is reduced to championing as ‘progress’ if made jointly: “Let them eat rhetoric,” and/or strength in imaginary numbers? In short, China is sticking to “clean coal” as it focuses on energy security, and Bloomberg notes: “The latest position shows that China hasn’t really budged despite a surprise agreement with the US on Wednesday.” I presume an overlap between those who got excited about the climate deal and the property-market rumor. Expect the same crowd to jump at China allowing foreign non-financial issuers to sell ESG bonds onshore in the interbank market to finance such projects there.

Meanwhile, CNBC is suggesting Xi, now at the pinnacle of his power, will invite Biden, slumping in opinion polls, to the Beijing Winter Olympics when the two meet virtually next week. If Biden accepts, he looks weak given earlier rumors the US was contemplating a (partial) boycott. If Biden rejects, it may be an insult when the US is bending over backwards to build up ‘guard rails‘ of détente with China in parallel to Indo-Pacific military alliances against it. In that regard, Secretary of State Blinken has stated the US and allies would “take action” if Taiwan were attacked, which would be a “very, very, very unfortunate” scenario; and Reuters reports China is looking to build an airfield on Kiribati. It notes, “The Australian Strategic Policy Institute (ASPI) said in a paper last year that Chinese facilities on Kiribati would be positioned across major sea lanes between North America, and Australia and New Zealand. Beijing has labelled the think tank as “anti-China”.”

Europe, with the exception of France, need not feel left out, however, as “The US is raising the alarm with EU allies that Russia may be weighing a potential invasion of Ukraine as tensions flare between Moscow and the bloc over migrants and energy supplies.” We covered that risk earlier in the year, and concluded it would have a potentially enormous impact on food and energy prices: arguably far more so now. If this is a real threat, it’s a huge story. If it isn’t, what are the US doing spreading this news? Belarus is also threatening to turn off gas flows to the EU anyway.

Iran-backed militants have also stormed the US compound in Yemen and seized local hostages. That, as Tehran makes clear it will only re-join the nuclear deal, and agree to go green, if the US removes all sanctions on it and promises it will never renege – which is constitutionally impossible in the States, and leaves no good options on the table.

In short, there is politics all over for markets at the moment. Indeed, in keeping with the spirit, let me adapt a Trotsky quote I have leaned on before: “You may not be interested in politics, but politics is interested in you.” [Of course, Trotsky’s quote was about war]

This applies even in mundane matters like YouTube removing the ‘dislike’ option, so that now we can either be presumed to like a video, or actively like it, but open disapproval is not allowed. Who says we can’t find a new global consensus?

Happy Friday.