China | Fausta's Blog

November 4, 2017 By Fausta

Venezuela: Default brings upside for Maduro?

Venezuela faces epic default as China and Russia pull the plug

“Maduro can’t restructure the debt because nobody in the world trusts his government,” said Julio Borges, the head of the National Assembly.

However (emphasis added),

“Russia and China have incentives to provide financing just for oil investment, so that they are able to get the oil repayments,” Monaldi said in an email. “If Venezuela was able to successfully restructure the debt with bond holders that would make it more attractive for Russia and China to help, but giving them more money just to pay bond holders is unlikely to happen.”

The WSJ on the benefits of being a deadbeat:
Venezuela Debt Crisis May Offer Political Upside for Maduro. Stopping payments on debt threatens economy but could increase funds earmarked for needed imports (emphasis added)

Mr. Maduro announced plans on Friday to convene bondholders in Caracas on Nov. 13 to negotiate a debt restructuring on the country’s foreign debt, estimated at between $100 billion and $150 billion. However, investors said that U.S. sanctions that restrict financial institutions from investing in new debt instruments issued by Venezuela’s authoritarian government make a deal unlikely, triggering a messy and prolonged default.

By stopping payments on the debt, Mr. Maduro could double the funds he has earmarked for imports next year by holding back on some $1.7 billion in bond interest payments due in the remainder of 2017 and about $9 billion in 2018, according to Eurasia Group, offering relief—albeit brief—for a fast collapsing economy plagued by galloping inflation and chronic food shortages.

Why next year? Because of presidential elections. Even with rampant vote rigging, there’s still a facade to be kept.

May 4, 2017 By Fausta

Must-read: China’s Great Leap Into Latin America

Op-ed by José Cárdenas, China’s Great Leap Into Latin America, following China’s 20-year presence in our hemisphere,

The numbers are staggering. China joined the World Trade Organization in 2001, and its bilateral trade with Latin America and the Caribbean has since skyrocketed, from $15 billion in 2001 to $288.9 billion in 2013 — an increase of almost 2000 percent. That number now represents 6 percent of China’s total foreign trade, an increase from 2.7 percent in 2000. (Some 13 percent of Latin America’s trade is now done with China, up from negligible levels in 2000.)

In the past decade, China’s two biggest development banks have provided $125 billion to Latin America — more than the combined total lending of the World Bank and the Inter-American Development Bank.

This is only the beginning, folks, since China wants to “double bilateral trade and to increase investment stock value by 150 percent over the next decade.”

How China is adapting to the region’s new governments as the CELAC falters makes for fascinating reading.

Background post from 2011:
CELAC: Chavez’s latest “alternative”

January 3, 2017 By Fausta

China, the WTO, and Latin America

Mac Margolis: China is the dragon at Latin America’s door

In 2001, China joined the WTO on the understanding that over the ensuing 15 years it would strive to abide by the rules of free commerce by lowering trade barriers, freeing up its currency and pricing its exports according to supply and demand. In return, member states would implicitly agree to recognize China as a grown-up market economy, a crucial upgrade for the world’s second-richest nation.
. . .
As of Dec. 11, each member state must decide for itself whether China is behaving as a market economy. Those who do but also claim that China is breaking the WTO rules now must unpack China’s manufacturing costs, a vexing task in a land where the state also doubles as corporate CEO.

Relations with China range from the individual countries (Chile, Costa Rica, Peru) who signed bilateral free-trade agreements, to those who didn’t. Margolis mentions Argentina which in 2016 petitioned the WTO 11 times against alleged Chinese dumping.

Add to the mix President-elect Trump’s calls for protectionism.

2017 is going to be interesting.

January 3, 2017 By Fausta

Venezuela: And now, for a bond buyback?

LAHT reports that, in the first bond deal for any Chinese bank in Venezuela, Mysteriously, Venezuela Sells $5 Billion in Bonds to Itself

The embattled government of Nicolas Maduro sold $5 billion in new debt bonds to itself via a Chinese bank without the mandatory approval of the Venezuelan National Assembly, according to an opposition lawmaker and a financial website Monday.

“On December 29th the government of Maduro contracted in an illegal manner a loan with a Chinese bank for $5 billion,” lawmaker Jose Guerra tweeted Monday. Guerra also provided a link to Cbonds, a website that offers financial information. The post in Cbonds reads: “New bond issue: Venezuela has issued international bonds for USD 5 billion maturing in 2036 with a 6.5% coupon.”

The new bond also appeared in the Bloomberg bond trading system but a check of Euroclear, the most important bond clearing agent, came up with the response that the International Security Identification Number (ISIN) for the bond – USP97475AQ39 — was “either confidential or has not been found. It is therefore not available for inquiry.”

While CBonds says that the Issue manager is Haitong International Securities, Bloomberg lists Haitong Bank, S.A.

Haitong is the second largest firm in the Chinese securities industry by total and net assets. Haitong Bank, S.A. is the investment banking subsidiary based in Lisbon, Portugal, and has offices in Mexico City and Sao Paulo.

And the bonds apparently are “physical delivery,” i.e., you actually have to show up with your clipped coupon in hand – which reminds you of the bearer bonds Hans Gruber was trying to steal in 1988’s Die Hard.

But I digress.

Russ Dallen of the Venezuela Opportunity Fund explains that Haitong bought Portugal’s Banco Espirito after it went broke in 2014 (emphasis added),

“Venezuela and PDVSA were important clients of Espirito Santo — so important that Espirito Santo actually set up a local bolivar bank in Venezuela. So it is not a surprise that Venezuela turned to those same bankers for this deal,”

and, as for those old-fashioned bearer bonds,

“Most developed nations have done away with them,” says Dallen. “But they are a favorite of drug dealers, money launderers and others who seek anonymity as well as a way to move large amounts of cash internationally in just a briefcase.”

Peru: PPK on TPP

The WaPo’s Lally Weymouth interviews Peru’s president Pedro Pablo Kuczynski, a.k.a. PPK. They talked about Trump, but more importantly, about China and the Trans Pacific Partnership,

Q. Your first foreign trip as president was to China. Are you looking to Asia for growth because Trump is threatening trade barriers?

A. China is our biggest market. It is about 22 percent of Peruvian exports — mostly metals but also some sophisticated agricultural products. We have no issues with China the way others may have with [its claims in the South China Sea].

Q. You are trying to get the Chinese to invest here?

A. The Chinese have two huge copper mines here. They are looking at several other projects.

Q. If the U.S. opts out of the Trans-Pacific Partnership , will China move in and ask TPP countries to join its own Regional Comprehensive Economic Partnership?

A. Right. This is a group that will include India, which is important for us because India is the one country we don’t have a trade treaty with. The idea we floated during the recent meeting of the Asia-Pacific Economic Cooperation (APEC) is that the Pacific Alliance countries — that is Mexico, Colombia, Peru, Chile — join the Free Trade Agreement of Asia and the Pacific (FTAAP). Basically, the FTAAP is the APEC countries without the U.S.

TPP was more ambitious, but it also had its detractors. It didn’t include China, which is the bigger player in the Pacific. Also on pharmaceuticals, the period of tests would have gone from five to 10 years, which might have raised the cost of pharmaceuticals in countries like Peru. So there was some opposition to it. A lot of the business people here love TPP.

Q. How about yourself?

A. I don’t love TPP so much. China is our biggest customer. So how can we support something that excludes them?

Read the whole thing.

November 22, 2016 By Fausta

Mexico: Trump wants NAFTA changed

Changes, not withdrawal?

The WSJ:
Donald Trump Poised to Pressure Mexico on Trade. While an abrupt withdrawal from Nafta trade deal is unlikely, the president-elect and his advisers are gunning for big changes

Rather than kill Nafta, Donald Trump and his advisers appear set to push for substantial changes to the treaty governing U.S. trade with Mexico and Canada, an effort that could prove difficult to negotiate and perilous to the regional economy.

Emphasis added,

Mr. Trump hasn’t released a blueprint for his new vision of Nafta, but his comments and those of his advisers suggest they want big changes. Among the likeliest would be special tariffs or other barriers to reduce the U.S. trade deficit with Mexico and new taxes that would hit U.S. firms that moved production there, according to Trump advisers. His team says it may also seek to remove a Nafta provision that allows Mexican and Canadian companies to challenge U.S. regulations outside the court system.

For their part,

Mexican officials say they are willing to update the 22-year-old treaty, including adding new chapters on e-commerce and other aspects that didn’t exist in the mid-1990s.

But Mexican officials are wary of revisiting tariffs and export quotas.

Rather than panic, it appears to me that there is room for negotiation, even when both parties are coming from apparently opposite ends, especially if both countries focus on keeping jobs in our hemisphere rather than outsourced to China, as has been the case.

In other headlines,
What’s the difference between TTIP and TPP and why does Donald Trump want them scrapped?

As I write this post, the Dow Industrials Top 19000 in Early Trading, a Day After Hitting Record Alongside S&P, Nasdaq

September 12, 2016 By Fausta

Venezuela: China’s bet not paying off; Will China topple Maduro?

Long-term readers of this blog are familiar with the many times China has loaned money to Venezuela. Back in 2012, I posted that El Nuevo Herald reported

Venezuela’s increasingly dependent on China’s financing and direct investments to the tune of US$80 billion. In exchange, China is playing a greater part on Venezuela’s strategic decision making regarding especially the oil-producing Orinoco area.

Clearly by now Venezuela (which by now can’t even pay its oil drillers) won’t pay the billions of dollars back:

China Rethinks Its Alliance With Reeling Venezuela. Concerns about debt repayment and safety of expatriates prompt emergency meetings between Chinese envoy and state companies

These days, confronted with a pile of unpaid bills and increasing security headaches for its citizens and companies in Venezuela, China appears to be recalculating its alliance with the nation where it has made about $60 billion in loans.

As a result, Venezuela may not get meaningful fresh loans or investment from China, raising the possibility of deeper cutbacks and shortages in the oil-rich nation or a default on more than $110 billion in government and state-oil-company bonds.

There are also security concerns, as more Chinese Venezuelans and expats are being kidnapped and extorted by local gangs (likely including the government-armed colectivos).

It’s not clear how many expats are living in Venezuela at the moment. Eight years ago, Daniel Duquenal reported on the large number of Chinese passengers traveling on his flight from Paris who were rushed through customs upon arrival in Caracas.

21st Century Socialist Bolivarian Revolutions need money, and China is aware that the Venezuela regime can not survive without it (emphasis added),

Since February, at least three Venezuelan opposition lawmakers as well as economists and oil-industry consultants have gone to Beijing at the invitation of China’s Communist Party to discuss a transitional government and recovery plan to turn around the world’s worst-performing economy, according to several Chinese and Venezuelan people familiar with the talks.

While the WSJ article reports that the Chinese may be agreeable to negotiating with the opposition,China’s foreign ministry denied it in writing.

If China gets serious on this, it will not only have repercussions for Venezuela, but also for the hemisphere. As it is, China is “reassessing political and nonpayment risk” on its businesses in Latin America and Africa.

Cross-posted at WoW! Magazine.
Trending at BadBlue.

March 17, 2016 By Fausta

Argentina: Chinese ship down

Chinese fishing vessels have ventured into Argentine waters in the past; this time Argentina sank one,

Shots fired: Argentina sinks Chinese vessel fishing illegally

In a high-seas chase, a coast guard vessel on Monday pursued the fishing vessel Lu Yan Yuan Yu 010 toward international waters, firing warning shots across the Chinese boat’s bow as it attempted to raise the crew by radio.
. . .
Four crewmen were rescued by the coast guard while others were picked up by another Chinese vessel shadowing the pursuit.

Emphasis added,
China demands investigation into sinking of fishing boat by Argentina’s coastguard.Argentina says trawler was operating without permission and was chased, with warning shots fired, before it tried to ram coastguard vessel

“On several occasions the offending ship performed manoeuvres designed to force a collision with the coastguard vessel, putting at risk not only its own crew but coastguard personnel, who were then ordered to shoot parts of the vessel,” Argentina’s coastguard said in a statement.

This is not an isolated incident.