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Country Insights

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How important are Hong Kong bank loans for China?
CHINA ADVISORY - Report 13 Sep 2019
One of the arguments for China’s hands-off approach to Hong Kong has been the importance of Hong Kong as a source of capital. Today we look at the HK banks and ask two questions: 1) Are they significant for China? 2) What is their risk in case of a significant downturn in China?

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PRC influence on HK Corporates: The case of HSBC
CHINA ADVISORY - Report 06 Sep 2019
The statement Thursday September 4 that Carrie Lam will withdraw the Extradition Bill may soften but is unlikely to end the opposition protests among students. Meanwhile, with or without the end to the protests, we see increasing signs of intrusion into Hong Kong business by the PRC. As a result ...

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Notes from Beijing
CHINA ADVISORY - Report 30 Aug 2019
After several days attending meetings in Beijing among senior officials, along with Chinese and western journalists, the top areas of concern are the Hong Kong protests, the slowing economy, and in last place, the Trade War. De-risking the financial system remains a top priority, despite pressure...

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What can China lose in Hong Kong?
CHINA ADVISORY - Report 23 Aug 2019
How important is Hong Kong to China? What will happen -- if and when the protests end -- to the “special” relationship in the financial sector between Hong Kong and the mainland? The argument is often made that China cannot afford to disrupt Hong Kong due to the important role it plays in providi...

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Hong Kong protests and the economy
CHINA ADVISORY - Report 15 Aug 2019
Some analysts are treating the Hong Kong protests as an exercise in democracy. Others say the demonstrators are restricting themselves to five more limited goals, the main one being the formal withdrawal of the extradition treaty. I tend to be an economic determinist and believe that the rising i...

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China’s shadow banking flashpoint: wealth management products
CHINA ADVISORY - Report 09 Aug 2019
The weakest link in China’s financial system is the size and growth of the financial system’s wealth management products (WMPs). The property market may be the shakiest aspect of the real economy, but on the financing side, WMPs are a high-risk funding source. The CNY29 trillion outstanding WMPs ...

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Yuan falls below 7
CHINA ADVISORY - Report 05 Aug 2019
China’s decision to let the yuan drop below the symbolic 7 level was a striking departure from the PBOC’s stance over the past decade. Although never formally stated, the 7.0 level has been the defacto limit on the value of the currency. We can see several possible causes for this breaking of the...

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Hong Kong protests and China’s economic policy
CHINA ADVISORY - Report 02 Aug 2019
The continuing protests in Hong Kong have put Beijing in an awkward position. Xi Jinping does not wish to appear weak by losing control of Hong Kong. Nor does he want to intervene directly and make the situation more volatile. Xi is refraining from intervening in order to avoid: Solidifyin...

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The Hong Kong capital channel
CHINA ADVISORY - Report 11 Jul 2019
Hong Kong is an important center for China’s financial expansion, globalization of the RMB, and trade relations. It is also a center for illegal capital flows and management of the strength of the currency through state proxies. Here we look at Hong Kong’s banking to understand its global lending...

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Offshore foreign exchange and the yuan
CHINA ADVISORY - Report 01 Jul 2019
The value of the Chinese currency depends to a great extent on Beijing’s ability to control capital flows. Over the past decade there have been numerous channels devised to bypass regulations, including false invoicing of manufactured goods, inflated service fees (expensive consultants abroad), t...

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Hong Kong protests, the trade war and the Chinese leadership
CHINA ADVISORY - Report 21 Jun 2019
The protests in Hong Kong and the failure thus far in the trade war may have a positive impact on China’s domestic economy and decision making. The Communist Party, and Xi Jinping, are more flexible than many observers give it credit, and small-scale economic reform and global integration may be ...

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The trade war – the Chinese response
CHINA ADVISORY - Report 07 Jun 2019
We analyze the response of China to the trade war in four buckets: politics, macro-economy, global supply chains, and technology. Of the four, China’s technological development and global supply chains are likely to suffer the most. Xi’s political power is weakened The political realm is t...

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China’s “shadow” shadow banking
CHINA ADVISORY - Report 03 Jun 2019
We have just completed a two-day visit to Fuzhou, in Fujian Province, to examine local banks, investors, pawnshops and other non-bank institutions in the capital chain. We drew three conclusions: 1) The significant increase in non-bank lending has continued to grow since the original explosion...

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Capital flows and China’s RMB policy
CHINA ADVISORY - Report 22 May 2019
The RMB is supported by Chinese capital “round-tripping” Inward capital flows have been encouraged by Beijing through a variety of policies. These inward flows have helped to support the strength of the RMB. However, our studies suggest the majority of this capital is, in fact, institutional C...

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Defaults in China - how the state handles financial failure
CHINA ADVISORY - Report 10 May 2019
As liquidity tightens in China there is a likelihood of increasing pressure on corporates that could lead to a rise in defaults. We look at a number of measures to understand what those pressures currently are and what methods Beijing is using to resolve them. Our conclusion is that China increas...