January 6, 2025 • 11 mins
Taiwan suspects a Chinese-owned ship, the Shunxin-39, of damaging an international undersea telecom cable near its northern coast over the weekend, and we discuss China's economy.
China Update provides listeners with the most up to date political, economic, and geostrategic analysis on China - so that you are on top of the world's number 2 economy. These podcasts are based on hundreds of articles, think tank reports, government statements and other resources in English and Chinese every week. The views and analysis are all my own and I produce the podcasts.
My Patreon: https://www.patreon.com/chinaupdate
Disclaimer: China Update is not a financial advisory channel. While I take great care in researching everything discussed in these podcasts, nothing I say should be taken as investment advice. Please speak to a professional before making any investment decisions. #China
China Update provides listeners with the most up to date political, economic, and geostrategic analysis on China - so that you are on top of the world's number 2 economy. These podcasts are based on hundreds of articles, think tank reports, government statements and other resources in English and Chinese every week. The views and analysis are all my own and I produce the podcasts.
My Patreon: https://www.patreon.com/chinaupdate
Disclaimer: China Update is not a financial advisory channel. While I take great care in researching everything discussed in these podcasts, nothing I say should be taken as investment advice. Please speak to a professional before making any investment decisions. #China
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Hope you Monday. Everybody. Welcome to another episode of China Update,
where it provides you with the most up to date political, economic,
and geo strategic analysis on the world's number too economy.
My name is Tony. Let's jump in. I hope for
a little bit of quietness. At the beginning of twenty
twenty five a few weeks at least would have been nice. However,
and only the last few days much concerning news has appeared,
(00:21):
and today is no exception. Some days I wish I
could simply say there is no news to cover, but
alas we live in interesting times. Taiwan suspects a Chinese
owned ship, the Shrinchian thirty nine, of damaging an international
undersea telecom cable near its northern coast over the weekend,
and what type sees as part of a concerning global
(00:41):
trend of maritime sabotage targeting critical infrastructure. The cable is
part of the five hundred million US dollar Transpacific Express
system connecting East Asia to the US West Coast since
two thousand and eight. The Shrinchin thirty nine, registered in
Cameroon but owned by Hong Kong based Dear Young Trading Limited,
(01:02):
is directed by Gorwanzia, a PRC that is Chinese citizen.
The vessel was intercepted by Taiwan's coast guard thirteen kilometers
off the island's northeastern coast on Friday afternoon. Rough seas
prevented authorities from boarding the ship, allowing it to continue
toward its destination in South Korea. Taiwan has since sought
(01:23):
South Korea's assistance to investigate the vessel. Upon its arrival
in Busan. Juhua Telekom, the key operator in the Cables
International Consortium, confirmed the damage but assured uninterrupted service by
re routing data through other cables. However, Taiwan remains concerned
about the broader implications of such incidents. A Taiwanese national
(01:44):
security official speaking to UK based The Financial Times revealed
that satellite tracking data showed the Schunsen thirty nine dragging
its anchor in the area where the cable was severed,
suggesting deliberate action rather than an accidental occurrence. This This
incident echoes similar attacks in other regions, such as the
severing of power and telecom cables in the Baltic Sea,
(02:08):
which Finland attributed to Russian vessels. European investigators suspect that
the crew of a Chinese owned EPUNG three bulk carrier,
which was loaded with the Russian fertilizer, deliberately severed two
critical data cables in November of last year, as its
anchor was dragged along the Baltic Sea bed for almost
(02:28):
one hundred miles. Investigators have established at the ship dropped
anchor but remained under way in Swedish waters on the
seventeenth of November, the dragging anchor cut a cable between
Sweden and Lithuania. Shortly afterward, Investigators say that around three
am the following day, November eighteen, having traveled about one
hundred eleven miles, the EPUNG three cut the second cable
(02:50):
between Germany and Finland. Such gray zone operations below the
threshold of outright conflict have surged since Russia's invasion of Ukraine,
often involving poorly maintained vessels operating under dubious circumstances. Taiwanese
officials liken the Twins in thirty nine ships in Russia's
shadow fleet, typically used for covert activities. This, of course,
(03:12):
raises the question of whether China and Russia are engaging
in coordinated sabotage operations, and if so, to what end
Is this just to assert pressure on rivals, or more concerningly,
is it part of preparations for a wider kinetic conflict,
one in which Beijing around Taiwan and Moscow and Eastern
Europe officially or unofficially work together as regular viewers no.
(03:37):
Beijing has ramped up pressure on Taiwan in recent years,
especially since the presidency of William Leisinger and Taipei vowing
to take the island in the coming years by any
means necessary. With walls in the Middle East and Europe,
Beijing appreciates that Washington's attention and resources are divided, and
as such there lies a critical window of opportunity. Taiwan
(03:58):
has experienced numerous instances of cable damage in recent years,
prompting calls for international assistance. The island's vulnerability to undersee
infrastructure sabotage is a growing concern, given signs that Beijing
may attempt annexation through blockading the island from the rest
of the world. These incidents underscore the risks of global
(04:19):
communications and energy networks. Taiwan has urged its unofficial allies
of course, most countries in the world do not recognize
Taiwan as an independent country, including the European Union, to
help bolster its defenses against hybrid aggression. As geopolitical tensions rise,
safeguarding critical infrastructure like undersea cables is increasingly vital for
maintaining security and connectivity, especially in the event of a
(04:43):
crisis in the region. Next up the Chinese economy. But first,
I just wanted to say a few words. Today the
channel hit ninety thousand subscribers. It feels like it was
just a few weeks ago. Indeed, I think it was
just a few weeks ago that the channel hit eighty thousand.
It took several months to go from seventy two, and
only a few weeks from eighty to ninety. There has
(05:03):
been a lot of attention on the channel in recent weeks,
and this week in particular, many new viewers have seen
the channel and have subscribed. To those new folks who
have joined the channel, welcome, and to those who have
been with the channel now for many months or many years,
thank you for the incredible ongoing support. I said a
thank you piece just a few weeks ago when we
(05:24):
had eighty k, so let me just quickly repeat again,
it is a tremendous honor and privilege to be able
to produce these episodes for you all every day. I
believe that China is an incredibly consequential nation in the world,
and we are entering an incredibly important period of history
as it relates to China and the world. My mission
with this channel has always been to try to understand
(05:44):
this incredibly complex and consequential nation, its role in the world,
and its relations and implications for the rest of the world.
China update this channel are basically the fruits of these
efforts and my attempt to allow you all to come
along for the ride. I'm tremendous grateful that I can
share these efforts with you all, and I think twenty
twenty five is going to be a tremendously interesting, important, consequential,
(06:09):
dangerous year. We have domestically the Chinese economy. We will
learn whether China is going through a cyclical turndown or
whether it is indeed, as I have argued, going through
a structural slowdown. If it is the former, then China
may come back more powerful by the end of the year,
But if it is the latter, China will continue a
painful slowdown that will have immense domestic, political, and social
(06:33):
consequences for the state. On the international stage, of course,
we have tensions in the region. As we just covered.
We have a growing trade conflict with the Europeans and
the Americans, and of course a new Cold war between
the US led West and China. China's relationship with Russia
and what that means for the world, is also going
to be critical to follow this year. Whatever happens, we
(06:54):
will be following it here every day on China Update.
My commitment is to remain grounded in sober with all analysis.
I know, as I've said before, that I have to
use more provocative titles and thumbnails because I'm on YouTube,
but once we get into the videos, my commitment is
that they will always remain grounded and sober. We will
try our best to understand this complex country and I
(07:16):
look forward to doing it with you all together. For
all the incredible support. Thank you. If you're enjoying today's
episode of China Update, don't forget to the like button.
If you have not yet subscribed, but you would like
to come along on this journey this year, maybe consider
subscribing at the Bell notification icon so you're on top
of the most up to date analysis. Patreon and buy
me Coffee links are also in the description. The channel
(07:36):
relies primarily on subscriber support to keep going. Let's continue.
We move now to the economy. Over the weekend, Chinese
financial media outlet eatai in an exclusive report that Chinese
regulators will now allow banks to lend up to ninety
percent of their funds for share buybacks and stake increases
by listed companies and their major shareholders through the forty
(07:57):
one billion youuist dollar Special Relending Facility, unveiled last September.
Following recent policy changes, the outlet explains, citing unnamed sources,
that eligible firms and their main investors only need to
use up to ten percent of their own money on
stock repurchases and equity holdings increases, compared with thirty percent previously,
adding that they can also pledge other stocks as collateral,
(08:20):
making it easier and cheaper to secure the loans. Furthermore,
banks can now set their own loan terms and collateral requirements,
the sources told the outlet. The policy also explicitly encourages
issuing stock repurchase and buy back loans based on credit
worthiness without the need for collateral or guarantees. Of course,
this all comes in the wake of East looing economy generally,
(08:40):
but a poor equity market specifically, With the exception of
a jump in September of last year after news that
China was going to go ahead with strong stimulus stimulus
plans and excitement that quickly faded out. Chinese equities at
the end of last year are at a three year low.
Combined with the housing crisis, this has resulted in businesses
and house holds having lost about twenty trillion US dollars
(09:03):
since their peak in twenty twenty one, hit much more
painful and larger in both nominal and inflation adjuster terms
from what American households lost during the two thousand and
eighth nine financial crisis, even though American households earn about
four to five times more than their Chinese counterparts. In
October twenty one, financial institutions were selected to issue special
(09:24):
loans through the through the Relending Facility at an annual
interest rate of not more than one point seventy five percent.
The total amount set aside for the relending was set
at three hundred billion forty one billion US dollars. An
excess of seven hundred firms and their shareholders have applied
for the loans. As of last month, more than two
hundred them sought more than fifty billion yen six point
(09:47):
eight billion US dollars, over sixty percent of that intended
for share buybacks. The loans are based on preferential interest
rates averaging about two percent now. Speaking on these developments,
PKU Peaking University Professer of finance Michael Pettis, who we
often quote on this channel, observed yesterday quote Many hoped
in recent years that with household savings rising as a
(10:09):
result of declining confidence in the economy, an increasing portion
of savings would be diverted from bank deposits into stock purchases.
This would lift the market and presumably help revive confidence.
But that did not happen, and because households remained very
reluctant to shift out of bank deposits and into stocks,
last September's special relending facility for sheer buybanks could be
(10:33):
seen as an alternative way. But while the net effect
on demand for stocks may be the same, the distribution
of profits and losses won't. Among other things, banks will
now have increasing exposure to the performance of the stock market.
This makes things better in good times, but worse in
(10:53):
bad times end quotes, and of course, as we know
all too well at this point, China is currently not
in good times. Okay, that is to day's episode of
China Update. Thank you so much everybody for watching, Have
a good Monday, have a productive week, and I will
see you all to morrow.
Hope you Monday. Everybody. Welcome to another episode of China Update,
where it provides you with the most up to date political, economic,
and geo strategic analysis on the world's number too economy.
My name is Tony. Let's jump in. I hope for
a little bit of quietness. At the beginning of twenty
twenty five a few weeks at least would have been nice. However,
and only the last few days much concerning news has appeared,
(00:21):
and today is no exception. Some days I wish I
could simply say there is no news to cover, but
alas we live in interesting times. Taiwan suspects a Chinese
owned ship, the Shrinchian thirty nine, of damaging an international
undersea telecom cable near its northern coast over the weekend,
and what type sees as part of a concerning global
(00:41):
trend of maritime sabotage targeting critical infrastructure. The cable is
part of the five hundred million US dollar Transpacific Express
system connecting East Asia to the US West Coast since
two thousand and eight. The Shrinchin thirty nine, registered in
Cameroon but owned by Hong Kong based Dear Young Trading Limited,
(01:02):
is directed by Gorwanzia, a PRC that is Chinese citizen.
The vessel was intercepted by Taiwan's coast guard thirteen kilometers
off the island's northeastern coast on Friday afternoon. Rough seas
prevented authorities from boarding the ship, allowing it to continue
toward its destination in South Korea. Taiwan has since sought
(01:23):
South Korea's assistance to investigate the vessel. Upon its arrival
in Busan. Juhua Telekom, the key operator in the Cables
International Consortium, confirmed the damage but assured uninterrupted service by
re routing data through other cables. However, Taiwan remains concerned
about the broader implications of such incidents. A Taiwanese national
(01:44):
security official speaking to UK based The Financial Times revealed
that satellite tracking data showed the Schunsen thirty nine dragging
its anchor in the area where the cable was severed,
suggesting deliberate action rather than an accidental occurrence. This This
incident echoes similar attacks in other regions, such as the
severing of power and telecom cables in the Baltic Sea,
(02:08):
which Finland attributed to Russian vessels. European investigators suspect that
the crew of a Chinese owned EPUNG three bulk carrier,
which was loaded with the Russian fertilizer, deliberately severed two
critical data cables in November of last year, as its
anchor was dragged along the Baltic Sea bed for almost
(02:28):
one hundred miles. Investigators have established at the ship dropped
anchor but remained under way in Swedish waters on the
seventeenth of November, the dragging anchor cut a cable between
Sweden and Lithuania. Shortly afterward, Investigators say that around three
am the following day, November eighteen, having traveled about one
hundred eleven miles, the EPUNG three cut the second cable
(02:50):
between Germany and Finland. Such gray zone operations below the
threshold of outright conflict have surged since Russia's invasion of Ukraine,
often involving poorly maintained vessels operating under dubious circumstances. Taiwanese
officials liken the Twins in thirty nine ships in Russia's
shadow fleet, typically used for covert activities. This, of course,
(03:12):
raises the question of whether China and Russia are engaging
in coordinated sabotage operations, and if so, to what end
Is this just to assert pressure on rivals, or more concerningly,
is it part of preparations for a wider kinetic conflict,
one in which Beijing around Taiwan and Moscow and Eastern
Europe officially or unofficially work together as regular viewers no.
(03:37):
Beijing has ramped up pressure on Taiwan in recent years,
especially since the presidency of William Leisinger and Taipei vowing
to take the island in the coming years by any
means necessary. With walls in the Middle East and Europe,
Beijing appreciates that Washington's attention and resources are divided, and
as such there lies a critical window of opportunity. Taiwan
(03:58):
has experienced numerous instances of cable damage in recent years,
prompting calls for international assistance. The island's vulnerability to undersee
infrastructure sabotage is a growing concern, given signs that Beijing
may attempt annexation through blockading the island from the rest
of the world. These incidents underscore the risks of global
(04:19):
communications and energy networks. Taiwan has urged its unofficial allies
of course, most countries in the world do not recognize
Taiwan as an independent country, including the European Union, to
help bolster its defenses against hybrid aggression. As geopolitical tensions rise,
safeguarding critical infrastructure like undersea cables is increasingly vital for
maintaining security and connectivity, especially in the event of a
(04:43):
crisis in the region. Next up the Chinese economy. But first,
I just wanted to say a few words. Today the
channel hit ninety thousand subscribers. It feels like it was
just a few weeks ago. Indeed, I think it was
just a few weeks ago that the channel hit eighty thousand.
It took several months to go from seventy two, and
only a few weeks from eighty to ninety. There has
(05:03):
been a lot of attention on the channel in recent weeks,
and this week in particular, many new viewers have seen
the channel and have subscribed. To those new folks who
have joined the channel, welcome, and to those who have
been with the channel now for many months or many years,
thank you for the incredible ongoing support. I said a
thank you piece just a few weeks ago when we
(05:24):
had eighty k, so let me just quickly repeat again,
it is a tremendous honor and privilege to be able
to produce these episodes for you all every day. I
believe that China is an incredibly consequential nation in the world,
and we are entering an incredibly important period of history
as it relates to China and the world. My mission
with this channel has always been to try to understand
(05:44):
this incredibly complex and consequential nation, its role in the world,
and its relations and implications for the rest of the world.
China update this channel are basically the fruits of these
efforts and my attempt to allow you all to come
along for the ride. I'm tremendous grateful that I can
share these efforts with you all, and I think twenty
twenty five is going to be a tremendously interesting, important, consequential,
(06:09):
dangerous year. We have domestically the Chinese economy. We will
learn whether China is going through a cyclical turndown or
whether it is indeed, as I have argued, going through
a structural slowdown. If it is the former, then China
may come back more powerful by the end of the year,
But if it is the latter, China will continue a
painful slowdown that will have immense domestic, political, and social
(06:33):
consequences for the state. On the international stage, of course,
we have tensions in the region. As we just covered.
We have a growing trade conflict with the Europeans and
the Americans, and of course a new Cold war between
the US led West and China. China's relationship with Russia
and what that means for the world, is also going
to be critical to follow this year. Whatever happens, we
(06:54):
will be following it here every day on China Update.
My commitment is to remain grounded in sober with all analysis.
I know, as I've said before, that I have to
use more provocative titles and thumbnails because I'm on YouTube,
but once we get into the videos, my commitment is
that they will always remain grounded and sober. We will
try our best to understand this complex country and I
(07:16):
look forward to doing it with you all together. For
all the incredible support. Thank you. If you're enjoying today's
episode of China Update, don't forget to the like button.
If you have not yet subscribed, but you would like
to come along on this journey this year, maybe consider
subscribing at the Bell notification icon so you're on top
of the most up to date analysis. Patreon and buy
me Coffee links are also in the description. The channel
(07:36):
relies primarily on subscriber support to keep going. Let's continue.
We move now to the economy. Over the weekend, Chinese
financial media outlet eatai in an exclusive report that Chinese
regulators will now allow banks to lend up to ninety
percent of their funds for share buybacks and stake increases
by listed companies and their major shareholders through the forty
(07:57):
one billion youuist dollar Special Relending Facility, unveiled last September.
Following recent policy changes, the outlet explains, citing unnamed sources,
that eligible firms and their main investors only need to
use up to ten percent of their own money on
stock repurchases and equity holdings increases, compared with thirty percent previously,
adding that they can also pledge other stocks as collateral,
(08:20):
making it easier and cheaper to secure the loans. Furthermore,
banks can now set their own loan terms and collateral requirements,
the sources told the outlet. The policy also explicitly encourages
issuing stock repurchase and buy back loans based on credit
worthiness without the need for collateral or guarantees. Of course,
this all comes in the wake of East looing economy generally,
(08:40):
but a poor equity market specifically, With the exception of
a jump in September of last year after news that
China was going to go ahead with strong stimulus stimulus
plans and excitement that quickly faded out. Chinese equities at
the end of last year are at a three year low.
Combined with the housing crisis, this has resulted in businesses
and house holds having lost about twenty trillion US dollars
(09:03):
since their peak in twenty twenty one, hit much more
painful and larger in both nominal and inflation adjuster terms
from what American households lost during the two thousand and
eighth nine financial crisis, even though American households earn about
four to five times more than their Chinese counterparts. In
October twenty one, financial institutions were selected to issue special
(09:24):
loans through the through the Relending Facility at an annual
interest rate of not more than one point seventy five percent.
The total amount set aside for the relending was set
at three hundred billion forty one billion US dollars. An
excess of seven hundred firms and their shareholders have applied
for the loans. As of last month, more than two
hundred them sought more than fifty billion yen six point
(09:47):
eight billion US dollars, over sixty percent of that intended
for share buybacks. The loans are based on preferential interest
rates averaging about two percent now. Speaking on these developments,
PKU Peaking University Professer of finance Michael Pettis, who we
often quote on this channel, observed yesterday quote Many hoped
in recent years that with household savings rising as a
(10:09):
result of declining confidence in the economy, an increasing portion
of savings would be diverted from bank deposits into stock purchases.
This would lift the market and presumably help revive confidence.
But that did not happen, and because households remained very
reluctant to shift out of bank deposits and into stocks,
last September's special relending facility for sheer buybanks could be
(10:33):
seen as an alternative way. But while the net effect
on demand for stocks may be the same, the distribution
of profits and losses won't. Among other things, banks will
now have increasing exposure to the performance of the stock market.
This makes things better in good times, but worse in
(10:53):
bad times end quotes, and of course, as we know
all too well at this point, China is currently not
in good times. Okay, that is to day's episode of
China Update. Thank you so much everybody for watching, Have
a good Monday, have a productive week, and I will
see you all to morrow.
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