Homin Lee

I think for many borrowing constrained and/or highly indebted households, the cuts will definitely help given the unique high gearing in the sector. Without a doubt, households are net lenders to the rest of the economy.

An error. Fifth highest household credit to GDP ratio. Highest among emerging markets.

I note here that, as of Q1 2024, South Korea had the highest household credit to GDP ratio among all countries tracked by BIS (at 92% of GDP). In 2023, household debt was 186.5% of net disposable income, according to OECD.

* More hints about Beijing's fiscal strategy could be provided in the upcoming National Financial Work Conference (30-31 Oct). 3rd plenum would be another great window to provide some clarity on key structural issues, but we don't even know if it will take place this year.

* If Reuters report is correct, then Beijing is basically saying no to household transfers and subsidies and sticking to its supply side approach.

* We don't what the weather will be like during winter, but deploying the bond issuance proceeds into the flood affected areas in northern provinces will not be easy in frigid conditions. It is reasonable to expect slower disbursement if flood reconstruction is indeed the focus.

* To ensure that the ramp-up in bond issuance is absorbed by the onshore market, it is actually urgent that the PBOC inject more liquidity. RRR cut is necessary and thus likely in the coming weeks. Note DR007 rates have already been higher than PBOC repo benchmark by ~20+ bps.

* If Beijing maintains its practice of capping the frontloading of the next year's debt issuance quota at 60% of the current year's, then we could get up to RMB ~2.3 trillion of additional local government special bond before the March NPC.

Now a few thoughts. * Without these measures, China would've been looking a substantial drop-off in spending in the remaining months of the year. The new announcements address that risk head-on.

5) The latter happened to receive Xi's first visit since he became China's leader. I don't think it is useful to try to read the tea leaves too much here. It is a show of confidence in the new governor and his balancing act between supporting the economy and keeping RMB stable.

4) The NPC SC voted to appoint Lan Fo'an as the country's new finance minister to replace Liu Kun who has been in the post since 2018. Now we have the new finance minister and the PBOC governor overseeing macroeconomic policy.

3) The NPC SC has also given local governments a green light to issue portions of 2024 local government bonds quotas before they are formally approved by the NPC itself in March next year.

2) In the process of approving this new issuance, the NPC SC is allowing the central government's budget deficit to be above 3% of GDP, a redline that is not often breached (except 2020 and 2021).

Reuters reports that the proceeds will go to infrastructure investment like post flood reconstruction, flood prevention projects, and water conservancy. Farmland construction was also mentioned. These are from the report and could be different from actual outcomes.

As China watchers are aware, central government's mid-year budget revisions are very rare. The other cases were 1998 (Asia financial crisis), 2008 (Sichuan earthquake), and 2016 (tax reform). This year's revision was ostensibly justified for the reasons of disaster relief.

1) NPC Standing Committee approved an additional RMB 1 trillion central government bonds (CGB) issuance in Q4 2023. Of the proceeds from this issuance, RMB 500 billion will be deployed before 2023 end and the other half will be transferred to 2024.

China observers are basically catchers working with knuckleball pitchers in economic research world. Weekends and Tuesday evening wine and dine with friends are always in the crosshairs of unexpected announcements. Quite a few developments today in Beijing. A quick summary:

The revived plantations in the mountainous Đắk Lắk province became the seedling for Vietnam's remarkable rise as a coffee powerhouse in the following decades. - End

After some teething issues between 1980 and 1986, Vietnam's coffee industry began to take off with the initial focus on robusta segment. Ironically, the GDR, after doing so much to secure alternative coffee supplies from Vietnam, collapsed at the end of the decade.

The GDR pledged money (USD 20 mil), equipment, and training to revive the old coffee (previously French run) plantations in Đắk Lắk province, and Vietnam in return pledged to share 50% of the province's coffee production with the GDR for 20 years.

So the GDR came up with a long-term solution: boosting coffee production in another communist country, Vietnam, that had a perfect climate for it. The French cultivated coffee in the 1920s, but many plantations had been abandoned by the 1970s.

Initially, the GDR tried to enter into a barter arrangement with Ethiopia, exchanging its weapons and machinery for the latter's coffee beans. But it was not sustainable. Ethiopia hoped to sell coffee to the global market for convertible currencies.
www.jstor.org/stable/10.14...

Coffee became so integral to the GDR's social fabric in the 1970s that its unavailability became a serious concern for the country's leadership. As the situation became acute in 1977-78, the GDR leadership began to scramble for alternative supplies.

A "decaffeination crisis" was inevitable in the GDR, a major importer. Coffee was unique in the GDR's culture. It was a symbol of comfort and affordable luxury for the East German households and also a way to boost productivity from the SED's perspective. americangerman.institute/2022/08/the-...

It was a global story. In 1975, Brazil had an unexpected frost in its coffee producing regions that destroyed roughly half of its coffee trees. This led to significant shortages for the following two years that sent coffee bean prices soaring. An old report from NYT (4 Aug 1975).

So what did the GDR have to do with this story? The GDR poured its money into Vietnam's coffee plantations and related logistics in the 1980s to respond to its own "decaffeination crisis" in the late 70s. The GDR had its own "friend-shoring" or rather "comrade-shoring" back then.

Same data of Vietnam's output as share of Brazil's or the world's. An incredible success story.

Coffee production histories of the five largest green coffee producers in 2020 (BR, VN, ID, CO, ET), from Our World in Data.

Vietnam is the world's #2 coffee producer, and its gains in market share has been astonishing. In 1980, Vietnam's green (unroasted) coffee production was just 0.8% of Brazil's and 0.2% of the world's. In 2021, the figures were 62% and 19% respectively.

I personally find GDR's (East Germany) history quite interesting, especially its desperate semiconductor initiatives before it began to collapse in the late 1980s. Another episode that is rather amusing in hindsight: its role in Vietnam's rise as a global coffee powerhouse.