Posts Tagged ‘Communism’

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China’s Chip Industry Is Doomed

Monday, September 19th, 2022

This is a story that’s been bubbling on for a while, but it looks like the U.S. government is about to slam down export restrictions on chipmaking equipment.

The administration of US President Joe Biden next month is to broaden curbs on US exports to China of semiconductors used for artificial intelligence and chipmaking tools, several people familiar with the matter said.

The US Department of Commerce intends to publish new regulations based on restrictions communicated in letters earlier this year to three US companies — KLA Corp, Lam Research Corp and Applied Materials Inc, the people said, speaking on the condition of anonymity.

Every wafer fabrication plant in the world uses equipment from one of those three companies. Applied Materials and LAM Research (along with Tokyo Electron) have their fingers in almost all areas of chipmaking equipment (PVD, CVD, Etch, etc.), while KLA (formerly KLA-Tencor) dominates the wafer inspection equipment segment. Add ASML in the Netherlands, and those five absolutely dominate the semiconductor equipment market.

The letters, which the companies publicly acknowledged, forbade them from exporting chipmaking equipment to Chinese factories that produce advanced semiconductors with sub-14 nanometer processes unless the sellers obtain commerce department licenses.

This is where things get tricky. SMIC claims they can do 7nm, but everyone outside China doubts they can do it reliably, repeatably and profitably. SMIC announced they’re about to start manufacturing 14nm, and that they can probably do. Practically, they’re the only semiconductor manufacturer in China that can do sub-14nm, as just about everyone at the top of the next biggest semiconductor manufacturer, Tsinghua Unigroup, just got arrested in July.

There’s even talk that they’re actually zeroing in on FinFET technology specifically, though they may also ban sales of older chipmaking equipment as well.

Without a continued stream of machines, spare parts and technical know-how from those five semiconductor giants, China’s semiconductor industry is doomed. China’s domestic semiconductor equipment industry is essentially garbage, and they’re so far behind in so many areas that they can’t even steal their way to parity. The knowledge gulf is just too vast.

Min-Hua Chiang at the Heritage Foundation notes just how badly China’s domestic semiconductor industry is screwed.

According to World Trade Organization statistics, China’s trade deficit in integrated circuits and electronic components (including Hong Kong’s trade deficit) has almost doubled from the equivalent of $135 billion in 2010 to $240 billion in 2020.

The growing trade deficit in integrated circuits reveals one crucial fact: Achieving technological self-reliance is still a faraway Chinese dream. To keep its exports growing, China has no other way but to keep importing advanced chips to assemble into consumer goods with high-tech intensity (e.g., smartphones, tablets, and the like).

Although China (including Hong Kong) is also the largest exporter of semiconductor chips in the world, less than 7% of chips produced in China were made by Chinese semiconductor companies in 2021.

More than 90% of chips produced in China are made by foreign firms. In other words, China’s exports of semiconductor chips are overwhelmingly dominated by foreign companies.

Its inferior level of technology is the main reason for China’s chip reliance on foreign firms. While Chinese firms are stuck with advancing toward 7nm chips, the Taiwan Semiconductor Manufacturing Co. and Samsung are progressing towards mass production of 3nm chips this year. Intel plans to take over TSMC’s leading role in semiconductor technology by 2025.

The competition among a few tech giants in the U.S., Taiwan, and South Korea is clear, and the Chinese firms are not likely to jump into the global technology competition in the semiconductor industry anytime soon.

The U.S. restrictions on exporting chipmaking equipment to China’s largest semiconductor firm, Semiconductor Manufacturing International Corp., have not only deterred China’s technological advancement, but also exposed the fundamental mismanagement problems inside China’s semiconductor industry.

Xi might not have noticed his industry’s poor performance had China been able to continue to produce chips with foreign equipment.

Some parts about the Tsinghua scandal snipped.

Several Taiwanese executives leaving China’s semiconductor industry last year is another major setback in the development of China’s semiconductor industry.

China not only spent tremendously on building chip plants and purchasing expansive equipment, but also on recruiting talent from overseas. Over the past few years, China recruited more than 3,000 skilled workers from Taiwan to work in China’s semiconductor industry.

China amassed enormous capital, talent, and foreign equipment, but the problem is with governance. Xi’s absolute authority encouraged a rush into China’s semiconductor industry. Moreover, the extraordinary integration of the public and private sectors in China has twisted industrial development toward short-term profit-making, instead of long-term accumulation of manufacturing strength and technological improvement.

Xi’s “wolf warrior” diplomacy has further overshadowed the outlook of its semiconductor industry. China’s success relies on close partnerships with various suppliers and customers in different countries across the globe. Alienating them on the geopolitical front only undermines those relationships.

The U.S. ban on exporting chipmaking machines to China was the straw that broke the Chinese semiconductor industry’s back.

On top of that, the CHIPS and Science Act just signed into law bans semiconductor companies receiving U.S. government subsidies from investing in China for the next 10 years. There are major loopholes in that prohibition, but if Congress can manage to keep the administration’s feet to the fire—including by tightening the legal restrictions—it could have a major impact on China’s tech development.

In addition, the U.S. has extended the export restriction to 14 nm chipmaking machines to the Semiconductor Manufacturing International Corp. and other foreign chipmakers in China. A specific electronics design automation software for making advanced chips is also banned from exportation to China.

Without foreign investment and inputs, China is only likely to deepen its reliance on importing advanced chips from overseas.

Peter Zeihan notes (correctly) that China’s semiconductor industry has been singularly unable to fab advanced chips on their own.

Not to mention that fraud still abounds. Chinese CPU semiconductor startup Quillion Technology closed up shop three months after raising $89 million.

$89 million is probably enough to get you to tape-out for a fabless semiconductor house designing a smaller chip (or maybe even a low-power ARM-based CPUs for embedded markets), but it’s a woefully small sum for a real cutting-edge CPU company, and laughable if they intended to be an integrated design manufacturer fabbing their own chips, where building even a trailing edge fab starts in the billions.

More on that topic:

Takeaways:

  • “Money seems to have a strong corruptive power over CCP officials that they can’t resist. Like China’s real estate industry, China’s semiconductor industry is also plagued with corruption, over-construction, and highly leveraged capital maneuvers.”
  • She goes over the history of the Chinese “Big Fund” for semiconductors I covered here, and later talks about the indictments.
  • “The state-run Semiconductor Investment Fund was used more as an instrument to speculate in stocks than an institution for conducting basic R&D. The government-backed fund, aka the “Big Fund,” has investments in 2,793 entities within three layers of ownership.” Very few of them have the word “semiconductor” in their names. (Like I said before, shell games all the way down.)

  • From 1984 to 1990, the Ministry of Electronics Industry delegated the management of the vast majority of state-owned electronics enterprises to local provincial and municipal governments. While these state-owned enterprises (SOEs) obtained more autonomy, something strange happened. These companies imported outdated integrated circuit production lines that had no commercial value. The wasteful projects cost money, but people used the opportunities to take foreign trips, receive kickbacks, and send their children abroad. And this happened on a large scale.

    Pretty much classic ChiCom behavior.

  • China’s high-tech industry, like its financial industry, is dominated by powerful CCP families, and the Jiang Zemin family is one of them. In 1999, Jiang Zemin gave his oldest son, Jiang Mianheng, the reins of China’s “autonomous chip development.” As vice president of the Chinese Academy of Sciences (CAS) and president of the Shanghai branch for many years, the junior Jiang has long held the turf of China’s science and technology sector. He is also personally involved in the semiconductor business. His Shanghai Lianhe investment has holdings of Shanghai Zhaoxin Semiconductor Company.

  • Classic story:

    Chen Jin, a former junior test engineer at Motorola, joined Shanghai Jiaotong University in 2001 after returning to China.
    He was given the responsibility to develop the “Hanxin” chip, an important part of the state-run high-tech development program known as the “863 Program.” In just three years, Chen obtained 100 million in R&D funding and applied for 12 national patents. On Feb. 26, 2003, Chen’s team officially released the “Hanxin 1” chip. The Shanghai Municipal Government, the Ministry of Information Industry, and the Chinese Academy of Sciences all backed his work. The expert panel declared the “Hanxin 1” and its related design and application development platform as being the first of its kind in China and achieving an important milestone in the history of China’s chip development. Subsequently, Hanxin 2, 3, 4 and 5 chips were launched, all of which were claimed to have reached an advanced level globally. The Hanxin series of chips even entered the General Equipment Procurement Department of the Chinese military. However, 3 years later, on Jan. 17, 2006, “Hanxin 1” was revealed to be completely fake. Chen downloaded a Motorola chip source code through a former Motorola colleague. Then he secretly bought a batch of Motorola dsp56800 series chips, paid a peasant to scrape the original Motorola logo with sandpaper, and asked a local Shanghai print shop to print the “Hanxin” logo on it.

    • China correctly identified semiconductors and semiconductor equipment as key technologies for truly becoming the world’s preeminent technological manufacturing giant. Unfortunately for them (and fortunately for us), the CCP’s endemic culture of corruption and their top-down command economy are antithetical to the onrush of capitalist technological innovation that powers Moore’s Law.

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    Posted in Communism, Foreign Policy, video | 9 Comments »

    This Is Your City On Chinese Construction Standards

    Sunday, September 18th, 2022

    I talked about buildings made of Chinesium and rotten tail buildings, upon which construction stops but upon which mortgage owners are still expected to make payments.

    Shoddy Chinese construction practices don’t stop there. This week an entire Chinese residential skyscraper went up in flames:

    Fires are hardly unknown among American skyscrapers, but usually they occur in older buildings, not ones built this century, as modern construction practices like firewalls and sprinkler systems generally prevent fires from spreading from floor to floor. The Lotus Garden China Telecom building in Changsha was finished in 2000.

    Buildings made from subpar constriction materials in China are know as “Tofu Dregs” buildings, as though they were built out of tofu:

    About 6:19 in you can see a concrete crossbeam mostly filled with sand.

    Shoddy construction practices extend to buildings, roads, bridges, flood walls and other infrastructure. It’s hard to do quality work when cutting corners seems to be your national ethos…

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    Posted in Communism, Foreign Policy, video | 13 Comments »

    LinkSwarm for September 9, 2022

    Friday, September 9th, 2022

    Ukraine is carving out big gains in Kharkiv, Texas is in the money, Biden taps Clinton’s bagman to divy up the graft manage climate change funds, more groomers unmasked, and some big changes in the UK. Plus a bit about tanks. It’s the Friday LinkSwarm!
    

  • Ukraine’s counteroffensive in Kharkiv has been extremely successful.
    • Ukrainian successes on the Kharkiv City-Izyum line are creating fissures within the Russian information space and eroding confidence in Russian command to a degree not seen since a failed Russian river crossing in mid-May.
    • Ukrainian forces in the Kharkiv Oblast counteroffensives advanced to within 20 kilometers of Russia’s key logistical node in Kupyansk on September 8.
    • Ukrainian forces will likely capture Kupyansk in the next 72 hours, severely degrading but not completely severing Russian ground lines of communication (GLOCs) to Izyum.
    • Ukrainian forces are continuing to target Russian GLOCs, command-and-control points, and ammunition depots in Kherson Oblast.

    

  • “Texas Tax Haul Soars By Record 26% in 2022 Fiscal Year.”

    On Thursday, the state comptroller reported that the Lone Star State’s tax revenue rocketed by 25.6% to a total of $75.21 billion.

    It’s only the fifth time since 1988 that revenue grew by a double-digit percentage — and it’s double the next largest increase over that 34-year span.

    “Revenues continue to outpace even our most recent forecast as All Funds tax collections closed the fiscal year $841 million above the projection in our Certification Revenue Estimate,” said state Comptroller Glenn Hegar in an official release.

    That’s a stark contrast to California, which saw July revenue come in 12% below forecast.

    Texas has been a major beneficiary of migration from California: Over the last census cycle, 34% of new Texans arrived from California alone. Meanwhile, New York saw personal income tax collection fall 3.2% from April 1 through July.

  • “Biden Brings in Professional Bagman John Podesta to Divvy Up the $316 Billion in Climate Change Money to DNC Donors Ahead of Midterm Election.”

    Joe Biden has hired John Podesta to be the new Clean Energy Czar, citing his experience in progressive causes….

    Bottom line, John Podesta is being now being hired to divvy up the $316 billion in Green New Deal money recently authorized by congress. That is what Podesta specializes in, the distribution of taxpayer money to DNC allied groups and networks in advance of the 2022 midterms. Podesta, Hillary’s fixer, is a bagman, nothing more.

  • Worse, one of the many bag clients he’s adept at channeling money into Democratic pockets for is China.

    President Joe Biden on Friday tapped John Podesta to oversee $370 billion in climate spending, a move that has China hawks on Capitol Hill concerned over Podesta’s encouragement of Chinese investment in American infrastructure and praise for the top U.S. adversary on climate change.

    Podesta has called for Chinese investment in American infrastructure, arguing in 2013 that there are “great opportunities for Chinese firms to directly invest in this nation, to build American infrastructure, to create American jobs, and generate steady and handsome returns.” He added, “There’s also the ability for Chinese firms to invest here and learn best practices, and take those home to the tremendous and growing middle class market in China.”

    Instead, in the intervening decade, the Chinese government has committed widespread economic espionage—one 2017 estimate found that China steals up to $600 billion in trade secrets a year. Engineers in China, meanwhile, use popular social media platform TikTok to access nonpublic data from U.S. users.

    Podesta has also praised China’s efforts to combat climate change, arguing in 2015 that the Chinese “are beginning to do a fair amount.” China, which is the world’s top carbon emitter, went on to dramatically accelerate its coal consumption, which reached a record high in 2020.

    That record has China hawks on the Hill concerned that America’s top adversary has a new—and powerful—ally in the White House. Podesta’s role will see the liberal consultant implement $370 billion in spending toward alternative energy, a sector that China dominates when it comes to raw materials. As such, alternative energy companies receiving the Podesta-steered funding could turn to China to secure supplies. The new Biden aide will likely take no issue with that dynamic, given that he has argued the United States and China should “align” on a green economy. Sens. Marsha Blackburn (R., Tenn.) and Ted Cruz (R., Texas) argued that the move reflects the White House’s soft-on-China stance.

    (Hat tip: Mark Tapscott at Instapundit.)

  • Russia halts natural gas to EU, saying it won’t resume until sanctions are lifted.
  • Related: “European energy trading risks collapse over $1.5 trillion in margin calls.” Seems like there’s a lot of news about margin calls this week…
  • More European fun: Greece and Turkey are slouching toward war with each other.
  • “Teachers’ Union Boss Admits Teachers Have Become ‘Social Justice Warriors.'” Randi Weingarten is the gift that keeps giving. (Hat tip: Stephen Green at Instapundit.)
  • “California Gov. Newsom Reaped $10.6 Million In Campaign Cash From 979 State Vendors Who Pocketed $6.2 Billion.”
  • Democratic County Administrator Robert Telles charged in the death of journalist Jeff German, “an investigative reporter with the Las Vegas Review-Journal who had spent the last few months exposing misdeeds and turmoil in the official’s office.” For all Sundown Joe’s dark mutterings about “UltraMAGA,” it seems like Democrats are the ones doing all the killing…
  • “Special Master Order Reveals Biden’s Direct Involvement In Trump Raid.”
  • “More North Texas Teachers Charged with Sexual Assault of Students.”

    A now-former elementary school teacher previously charged with sexual abuse of a 7-year-old student was arrested again and charged with sexually assaulting a second victim.

    Victor Moreno, 28, was charged in July with continuous sexual abuse of a child, a first-degree felony, and an improper relationship between a student and educator, a second-degree felony.

    The accused pedophile’s victim was a second-grade girl in Irving Independent School District, where Moreno was a teacher at the time of the alleged assaults during the 2020-2021 school year.

    Snip.

    Meanwhile, a teacher’s aide in Mesquite Independent School District was arrested Tuesday after being accused of engaging in inappropriate relationships with students.

    Bryan Garcia, 22, was charged with two counts of sexual assault of a child and one count of indecency with a child.

  • “American Library Association Removes Webpage Promoting ‘Secret’ LGBT Messaging In Libraries.”
  • Chechen leader Ramzan Kadyrov says he might call it quits.
  • Chilean voters reject Social Justice constitution. Good.
  • “Germany: Green Politician Resigns After Inventing Nazi Death-Threats Against Himself.”
  • Queen Elizabeth II dead at age 96. As an American, I hold no truck with royalty, but she always struck me as a classy broad. (Hat tip: Stephen Green at Instapundit.)
  • “Stacey Abrams Announces That With A Heavy Heart She Will Succeed Elizabeth II As Queen.”
  • “Clinton nonprofit funneled $75,000 to ‘defund the police’ group.” This is my shocked face. (Hat tip: Ace of Spades HQ.)
  • “Higher Ed’s New Woke Loyalty Oaths: A ballooning number of hiring and tenure decisions require candidates to express written fealty to political doctrines.” And you can bet those doctrines have nothing to do with constitutionally limited government based on universal rights…
  • Russia seems a lot more interested in selling T-14 Armata tanks abroad than in sending them to Ukraine.

  • Indeed, they’re talking about restarting old production lines to start manufacturing older BMP-2s. “The costs and challenges of bringing more modern designs into production are now surely aggravated by Western sanctions cutting access to many basic electrical components, requiring pricey and time-consuming workarounds.”
  • This is like a scene from a porn movie, only a lot creepier. “Las Vegas landlord requires tenant to sign sex contract in order to lease home.”
  • “Libs of TikTok returns to Twitter, threatens lawsuit if removed permanently.
  • The Supreme Court is going to bitchslap Eric Adams halfway to Albany: “Mayor Adams vows door-to-door checks on gun permits.”
  • Fat Leonard is on the lam.
  • “Employees Shocked as Lesbian Vegan Doughnut Shop Goes Out of Business.” The landlord hadn’t been paid for months, and the owners bounced paychecks to employees.
  • Take this, low prices! (Hat tip: Dwight.)
  • “No turkey, however bloated and stupid, could ever be big enough to convey the mesmerising awfulness of Amazon’s billion dollar Tolkien epic.” (Hat tip: Ed Driscoll at Instapundit.)
  • Amazon is so confident that actual viewers will hate it that they put a three day waiting period on reviews. In any case, here the one-star reviews they allowed to slip through. Makes you wonder what other reviews they’re manipulating… (Hat tip: Stephen Green at Instapundit.
  • “Kim Kardashian Is Starting Her Own Private Equity Company.” Why not? But I’m betting being a genius at self-promotion doesn’t equate to being a genius at investing, especially since she’s starting in the middle of a fierce, widespread downturn…
  • Easiest way to win Dad of the Year? Pick your son up from school in a tank. Looks like a Scorpion light tank, most likely the FV107 Scimitar reconnaissance variant.
  • “FBI Drops Investigation After Discovering Trump’s Top Secret Nuclear Documents Were Just Print-Outs Of Hillary Clinton Emails.”

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    Posted in Austin, Budget, Communism, Crime, Democrats, Economics, Foreign Policy, Guns, Media Watch, Republicans, Social Justice Warriors, Texas, unions, Waste and Fraud | 5 Comments »

    Movie Review: The Beast

    Sunday, September 4th, 2022

    As I did with Fury, here’s a review of another movie that follows a tank crew driving deep into enemy territory. But instead of an American Sherman driving deep into Germany in 1945, it’s a Soviet T-55 taking a wrong turn in Afghanistan in 1982.

    Title: The Beast (AKA The Beast of War)
    Director: Kevin Reynolds
    Writer: William Mastrosimone
    Starring: George Dzundza, Jason Patric, Steven Bauer, Stephen Baldwin, Don Harvey, Kabir Bedi, Erick Avari
    IMDB entry

    The movie starts with three Soviet tanks blowing the shit out of an Afghan village, taking down a minaret, slaughtering unarmed civilians and even poisoning a well. One mujaheddin who manages to score a Molotov cocktail kill against one of the tanks is then positioned and crushed to death under the tread of the tank commanded by the hard-ass/borderline insane Daskal. (The genocidal brutality of the Soviet occupation of Afghanistan is well documented.)

    Inside the tank, Jason Patric’s Konstantin play Mr. Christian to Daskal’s Bligh. He’s not a fan of the war, and doesn’t understand the contempt Daskal has for Afghan subordinate Samad (Erick Avari). “He’s doing his best he can, sir.” “That’s what worries me.”

    Outside the tank, a posse of Afghans, carrying a lone RPG launcher and intent on Badal (revenge), pursues the tank, which has taken a fatal wrong turn into a long dead-end valley. The tank’s crew has to struggle not only against mechanical breakdowns (a busted radio, low fuel, overheating) and pursuing enemies who know the terrain better than them, but a brutal commander who seems willing to kill any of them to keep his tank moving. Eventually Daskal executes one and leaves another for dead, which turns out to be his undoing…

    This is an excellent, taut war drama that delivers on the promise of its setup. Daskal may be insane, but he’s not stupid, and he knows how to use his tank against his enemies. Performances are universally good. Unlike Fury, The Beast eschews cliches and never drags, because it never stops for pithy speeches on how War Is Just No Damn Good, because it’s already shown you. It’s a very solid, small-cast film that runs a sprightly hour and forty seven minutes long, and is well worth tracking down on DVD or streaming.

    Here’s the trailer, which is much lower quality than the movie:

    Russian brutality is in the news again, with numerous reports of indiscriminate killing of civilians and wanton destruction of civilian infrastructure. But while the Russians have been demothballing old Soviet tanks to send to Ukraine, they haven’t become desperate enough to send T-55s to the front lines, assuming they still have any that are able to run…

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    Posted in Communism, Military | 3 Comments »

    Mikhail Gorbachev, RIP

    Wednesday, August 31st, 2022

    There are some people whose staggering failures are so awesome that they put ordinary successes in the shade. Like Christopher Columbus trying to find a quicker route to India and discovering the New World instead.

    Such is the case with Mikhail Gorbachev, who died yesterday at age 91.

    Gorbachev never meant to destroy Soviet Communism, he merely meant to reform it so that it could run more efficiently, allowing the Soviet Union to compete more effectively with capitalist nations that were stomping their communist counterparts both economically and technologically. Moore’s Law was creating a tech boom racing so far ahead that the Soviets couldn’t even copy technology fast enough to keep up. Reagan’s obvious resolve and the threat posed by SDI scared them even more. To compete with the west, Gorbachev had to reform his stagnant nation.

    His means for doing so were glasnost (openness) and perestroika (reform, or restructuring). Those two methods, meant to rejuvenate Soviet communism, actually ended it. Glasnost made it clear that a majority of Soviet citizens across the various republics hated the oppressive nature of communism. Perestroika was a hard sell to stagnant and ossified state agencies and enterprises. While some well-connected oligarch’s got rich on the first green shoots of capitalist reform, western companies proved unenthusiastic about investing in Soviet co-ventures.

    Politically, Gorbachev’s reforms eventually resulted in the draft New Union Treaty, which would have devolved more power to the constituent Republics. This was deemed so threatening to the status quo that an abortive coup was launched against Gorbachev by communist hardliners the day before it was supposed to be signed. The coup, opposed by Russian President Boris Yeltsin and a large swath of Soviet citizens, collapsed in a matter of days, sealing the fate of the Soviet Union, which would dissolve on December 25, 1991.

    In the process trying to reform the Soviet system, Gorbachev would stop funding communist movements around the world and withdraw troops from eastern Europe. These were great, liberating decisions, but they were committed in support of reforming Soviet communism, not ending it. By that grand mistake, Mikhail Gorbachev did more to make the world a better place than all previous Soviet Premiers combined.

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    Posted in Communism, Foreign Policy, video | 3 Comments »

    Is China Buying Texas Land?

    Wednesday, August 10th, 2022

    The issue of Chinese interests buying up Texas land is one of those stories that has been flitting around the edges of my peripheral awareness for a while. Now Robert Montoya, Jessie Conner and Emily Wilkerson of Texas Scorecard has done a handy deep-dive on the subject.

    Many Americans assume incorrectly that American soil is reserved for our citizens and businesses.

    The sobering fact, however, is that foreign nationals—both individuals and corporations—own a lot of land in America.

    Particularly troubling are incursions by the Chinese Communist Party (CCP) absorbing Texas soil for its strategic geopolitical ends.

    Texas Scorecard recently launched a four-part investigative series exposing CCP infiltration of our state’s education apparatus. During our months-long investigation on the CCP’s activities, it became clear that education was merely one part of a multi-prong incursion into the United States of America.

    The second prong we will explore here is their infiltration of our agricultural land.

    There are some who wave a hand at concerns about foreign entities and individuals owning land stateside, dismissing them as conspiratorial or xenophobic. However, a review of adversarial countries’ actions suggests land holdings are strategic and could undermine national and resource security.

    Furthermore, concern over CCP ownership of U.S. land isn’t a partisan issue. During our investigation, we found multiple instances of Republicans and Democrats making public statements, authoring legislation, and warning of the national security implications of such ownership of U.S.-based assets.

    Snip.

    For the past decade, the number of purchases of agricultural resources by foreign actors has dramatically increased across the nation, with Texas being No. 1 according to a review of USDA documents. Currently, at least 4.7 million acres of Texas’ agricultural land is owned by a foreign entity or individual.

    What is even more troubling is the intended uses of the land and the actors involved in development.

    In theory, the U.S. federal government should be keeping track of foreign agricultural land ownership. But time and again, it’s not until the last moment that disclosures are made and concerns are publicly raised. Texas Scorecard’s research on these holdings shows that on more than one occasion, foreign acquisitions that should have been stopped immediately were allowed to progress and only ultimately stymied with great effort.

    Overview of the widely ignored Agricultural Foreign Investment Disclosure Act (AFIDA) snipped.

    For instance, take China’s land holdings overall. 2020 figures from the USDA put total foreign-owned agricultural land holdings for China at 352,140 acres, up from 191,652 acres in the prior years report. Because of high-profile purchases starting in 2015, a single company owned up to 140,000 acres in South Texas alone.

    Instead of comprehensive reporting from the USDA or state agricultural departments, Americans are left with what amounts to—at best—a (self-reported) guess and a steady stream of stories about foreign entanglements that spring up from time to time.

    Also, it’s a poorly guarded secret that foreign land ownership is hidden.

    One way some foreign farmland owners circumvent disclosure or state-level laws barring foreign ownership of farmland is shifting property into majority U.S.-owned subsidiaries—not to mention that land holdings by foreign owners are often a moving target. For instance, a particular parcel’s inclusion as foreign-owned land can fluctuate annually if it’s owned by a publicly traded corporation. The threshold of stock ownership is relatively low at 10 percent.

    This is the national component of foreign land ownership and the limits of what we can know at that level.

    When it comes to Texas, the state does not prohibit the ownership of agricultural land by foreign individuals or entities. There are multiple states that have total bans, while others at least have limits.

    While this complacency has been the status quo for the better part of the past two decades, lawmakers appear to be more proactive about keeping tabs on foreign actors.

    Global supply chain disruptions in 2020 due to the Chinese coronavirus, followed quickly by the war in Ukraine and growing tensions between the U.S. and China over Taiwan, have lawmakers critically examining foreign infiltrations at home.

    A recently concluded comment period on AFIDA disclosed that foreign interest required to make disclosures increased by 2,250, as more foreign persons acquired or transferred an interest in U.S. agricultural land than in prior years and must comply with AFIDA reporting requirements.

    According to the latest AFIDA annual report, foreign holdings of U.S. agricultural land increased modestly from 2009 through 2015, increasing by an average of 0.8 million per year. Since 2015, foreign holdings have increased by an average of nearly 2.2 million acres, ranging from 0.8 million acres to 3.3 million acres per year.

    Of this increase, most of the purchases are of forest, crop, and pasture lands. Changes in crop and pasture land are “due to foreign-owned wind companies signing, as well as terminating, long-term leases on a large number of acres.”

    Indeed, the largest wind farm in the state of Texas, the Roscoe Wind Farm outside of Abilene, is owned by RWE, a German multinational corporation. The project spans multiple counties and sits atop leased farmland.

    While the American public’s attention has been seemingly fixated on Russia since 2016, the CCP’s activities in the U.S. are just as troubling, if not more. Their ruthless oppression of Chinese citizens, hostile stance towards America, and methodical plan for domination all touch the issue of agricultural land ownership in the U.S. and Texas.

    The latest available data from the USDA reported China holding just 352,140 acres of agricultural land, which is slightly less than 1 percent of foreign-held acres. But, as is the case with foreign funds flowing to higher education, the tracking of these transactions is imperfect.

    It’s likely that China’s ownership of land in the U.S. is understated in USDA’s annual reports.

    They describe the “Blue Hill Fiasco”:

    Beginning in 2015, Sun Guangxin, a Chinese billionaire, began acquiring land to develop a wind turbine farm in South Texas. Eventually, Guangxin snatched up around 140,000 acres in Val Verde, roughly 7 percent of all land in the county.

    In 2019, five years after acquisitions began, the proposed development of a wind farm on the land led to an uproar in Texas and at the national level.

    A member of the People’s Liberation Army, Guangxin reportedly built his fortune by establishing close ties to Communist party officials, and leveraged these connections to cheaply acquire and redevelop government property to become a real estate tycoon.

    Wang Lequan, who was re-elected as secretary of the Xinjiang Party Committee of the Communist Party of China for three consecutive terms since 1995, is the backer behind Guangxin; the forces behind Wang Lequan are Zhou Yongkang and former President of China Jiang Zemin. Supported by Wang Lequan, Sun Guangxin, chairman of the board of directors of Guanghui Group, is one of the few private oil field owners in China.

    His base of operations in China deserves special attention too.

    The Xinjiang province is where the widely reported oppression of the Uyghur population is taking place. In part, the Uyghur population is used as forced labor. According to Irina Bukharin, two of the goods produced in this region, in disproportionately high figures, include polysilicon (used in solar panels) and wind turbines.

    Sun’s plans for the wind farm in South Texas were covered by state and national media outlets. A billionaire, Guangxin is the chairman of Xinjiang Guanghui Industry Investment, which is the parent company of GH America, the company spearheading the wind farm project.

    But there’s more to this story.

    “The acquisition by General Sun out near Del Rio was done by them forming a Delaware Corp called GH America,” J. Kyle Bass, chief investment officer of Hayman Capital and founding member of the Committee on the Present Danger: China, told Texas Scorecard. “They funded the Delaware Corp with dollars from a CCP-owned institution in America. You basically had a U.S. corporation, funded with U.S. dollars, buying U.S. property. It was really difficult to understand who the actual owner was and what kind of sovereignty was represented there.”

    GH America also positioned itself to influence the legislative process. According to Texas Ethics Commission records, Stephen Lindsey is registered to lobby for the company. He’s widely reported as the vice president of government and regulatory affairs for GH America. According to Transparency USA, from January to September 2021, during the regular and special state legislative sessions that year, Lindsey’s contract was anywhere from $93,150 to more than $186,000.

    There’s also a national security risk. Sun’s planned wind farm at Blue Hill was not far (70 miles) from Laughlin Air Force Base. This proximity alarmed many. There are also liquified natural gas deposits in the area.

    Bass says the CCP’s aim here is surveillance.

    “Basically, they call it ‘over the horizon’ mapping. If you get the point higher and higher, you can map more and more, i.e. you can increase the linear distance that you can map,” he explained. “With their new ability … they can map things within one inch of specificity and clarity of things that are 50 miles away from 700 feet. What’s interesting about that is Laughlin Air Force Base is 30 miles away, and the restricted airspace is 10 miles away from the main ranch.”

    Texas Agriculture Commissioner Sid Miller told Texas Scorecard the CCP bought farm land near another Air Force base in North Dakota. “We don’t need to give them listening capabilities to our aircraft coming in out of those [military installations] and other communications coming out,” he said. “It’s crazy enough just to allow our biggest enemy to be purchasing our own soil.”

    Bass discussed how the South Texas purchase was allowed to take place. “Steve Mnuchin at [U.S.] Treasury gave a quick Friday-night special OFAC [Office of Foreign Assets] approval without [U.S. Dept. of Defense] being in the room, which is pretty crazy,” he said. “If Treasury is the nexus of [the Committee on Foreign Investment in the United States], and all of the other departments chime in when they can, there should not be an ability for a unilateral approval or approval by the U.S. Treasury secretary, who might be corrupted by the Chinese government.”

    When asked, Bass said we don’t know how much land the CCP or its connected entities have in Texas. He explained the Lone Star Infrastructure Protection Act (Texas Senate Bill 2116 passed in 2021), “encouraged” the U.S. Dept. of Defense to assign task forces to examine CCP land holdings near DOD installations. “I know they found some more in Texas, but I don’t know how much more.”

    Sen. Ted Cruz (R–TX) was a vocal opponent of the Blue Hills wind farm development, issuing a letter in 2020 to then-Treasury Secretary Mnuchin seeking a private briefing on the project. The junior senator from Texas also proposed legislation that would trigger the review of wind projects within a certain distance of a military installation.

    This isn’t the first time a Chinese company has tried to install a wind farm near a U.S. military installation.

    In 2012, Ralls, an American company owned by two Chinese nationals, purchased multiple American-owned wind farm companies with several project sites. Four of these sites were within restricted U.S. Navy airspace in the Pacific Northwest.

    This part of the purchase raised national security concerns, and Ralls was told to divest and destroy the cement pads they’d poured for construction of its mills near the base. The company sued the government and, troublingly, was successful at first.

    Eventually, the company was defeated in its efforts and had to divest. The fact that this episode did not dissuade future attempts speaks to the persistence of the CCP to take part in the production of energy stateside.

    There is also a connection between Ralls and Texas. The blades spinning at many wind farm sites in Texas are produced by SANY, the parent company of Ralls, which is owned by the richest man in mainland China, Liang Wengen.

    According to a Forbes profile, Wengen worked as a top manager at a state arms plant before getting into heavy construction equipment. He joined the ruling elite in 2011, becoming a member of the CCP.

    At the very least, Chinese nationals and the corporations owned by them should have to abide by the same limits China itself places on foreign ownership of land in China. Fundamentally, foreigners cannot own land in China without actually living there, and are further limited to one property per location. Plus there are a wide number of complex rules on foreign ownership of Chinese businesses.

    It seems, at the very least, that a survey of land within 10 miles of military bases in Texas to determine if any have hostile foreign ownership may be in order…

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    Posted in Communism, Foreign Policy, Military, Texas | 1 Comment »

    Scenes From China’s Slow-Motion Collapse

    Tuesday, July 26th, 2022

    Remember the bank runs in China story after all those bank accounts in Hunan were frozen? I’ve been looking for signs of wider contagion amidst the Chinese banking sector, and mostly haven’t seen it. But I have seen a lot of other cracks appear in China’s overall economic system, so here’s a roundup.

  • One reaction to the frozen accounts: “Chinese Bank Run Turns Violent After Angry Crowd Storms Bank of China Branch Over Frozen Deposits.”

    A large crowd of angry Chinese bank depositors faced off with police Sunday in the city of Zhengzhou, and many were injured as they were taken away, amid the freezing of their deposits by some rural-based banks.

    The banks froze millions of dollars worth of deposits in April, telling customers they were upgrading their internal systems. The banks have not issued any communication on the matter since, depositors said.

    According to Chinese media the frozen deposits across the various local banks could be worth up to $1.5 billion and authorities are investigating the three banks.

    On Sunday, about 1,000 people gathered outside the Zhengzhou branch of China’s central bank on Sunday to demand action; they held up banners and chanted slogans on the wide steps of the entrance to a branch of China’s central bank in the city of Zhengzhou in Henan province, about 620 kilometers (380 miles) southwest of Beijing.

  • China’s communist government reacted to the protests with their usual tact and understanding:

  • Also, it looks like the province suddenly had an outbreak of Flu Manchu, forcing protestors to stay at home. What are the odds?
  • But it looks like some of them will finally get some money back:

    (Plus more on the property slump.)

  • The official line on the Hunan account freeze: “Henan police said in a statement on July 10 that further investigations showed that, since 2011, a criminal group led by a suspect named Lu Yi had gradually taken control of several rural banks, through companies including the Henan New Wealth Group, to illegally transfer out funds. The police said they had arrested more suspects and seized more assets involved in the case.” I have no doubt the aforementioned were probably guilty, but I bet a whole lot more bank officials, regulators, and CCP officials (to the extent that those are separate groups and not mostly-overlapping Venn circles) were in on the scheme, plus a whole bunch more in dozens of other schemes that siphoned off depositor money into various pockets and a host of entirely different schemes. As I’ve said before, it’s smoke and mirrors all the way down.
  • Another thing driving unrest: “Rotten tail buildings,” that is residential buildings on which all construction is stopped, but for which those with mortgages for individual units are still expected to pay for:
    

  • The Result? Disgruntled homebuyers are refusing to pay their mortgages.

    A rapidly increasing number of “disgruntled Chinese homebuyers” are refusing to pay mortgages for unfinished construction projects, exacerbating the country’s real estate woes and stoking fears that the crisis will spread to the wider financial system as countless mortgages default.

    According to researcher China Real Estate Information, homebuyers have stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, up from 58 projects on Tuesday and only 28 on Monday, according to Jefferies Financial Group Inc. analysts including Shujin Chen.

    And that was over a week ago.

    According to Citi analysts, average selling prices of properties in nearby projects in 2022 were on average 15% lower than purchase costs in the past three years. Meanwhile, it’s only getting worse as China’s home prices fell for a ninth month in May, with June figures set for release Friday.

    The crisis engulfing Chinese developers is reaching a new phase, with a debt selloff expanding to firms once deemed safe from the cash crunch, including investment-grade names such as Country Garden Holdings, the largest builder by sales.

    The payment refusals, which come at a time when China’s economy is set to post what may be a negative GDP print due to the latest economic shutdown over Xi’s catastrophic zero covid policies, underscore how the storm engulfing China’s property sector is now affecting hundreds of thousands of average citizens, posing a threat to social stability ahead of a Communist Party Congress later this year. Chinese banks already grappling with challenges from liquidity stress among developers now also have to brace for homebuyer defaults.

    As a result of the unprecedented push for a debt jubilee, shares of China’s banks extended their recent decline Thursday, with the CSI 300 Banks Index falling as much as 3.3% before closing down 2.2%. A Bloomberg Intelligence index of Chinese developer stocks slid as much as 2.7%, even though Chinese lenders were quick to try and dispel fears that the movement could crash the economy: according to Bank of Communications, its outstanding balance of overdue mortgage loans linked to housing projects with risks of delayed delivery is 99.8 million yuan, accounting for 0.0067% of its domestic housing mortgage balance. The bank added that its housing mortgage loan quality is stable and risks are controllable, the Shanghai-based lender says in an exchange filing. At the same time, Postal Savings Bank of China says its overdue mortgage loans linked to halted housing projects is 127m yuan, and risks are controllable. Of course, it’s not like Chinese banks would ever lie, now is it?

  • There are some signs that the cracks are spreading.

    The Great Debt Jubilee is picking up speed: China’s homebuyer mortgage boycott, which prompted Beijing to scramble to avoid a potentially devastating crash in what is the world’s biggest asset is spreading, and according to Bloomberg, some suppliers to Chinese real estate developers are now also refusing to repay bank loans because of unpaid bills owed to them, a sign that the loan boycott that started with homebuyers is starting to spread.

    In a jarring case study of what happens when a ponzi scheme goes into reverse, hundreds of contractors to the property industry complained that they can no longer afford to pay their own bills because developers including China Evergrande Group still owe them money, Caixin reported, citing a statement it received from a supplier Tuesday.

    Similar to homebuyers who have taken a stand and refuse to pay for properties that remain uncompleted, one group of small businesses and suppliers circulated a letter online saying they will stop repaying debts after Evergrande’s cash crisis left them out of pocket.

    “We decided to stop paying all loans and arrears, and advise our peers to decline any requests to be paid on credit or commercial bill,” the group said in the letter dated July 15, which was sent to the developer’s Hubei office. “Evergrande should be held responsible for any consequence that follows because of the chain reaction of the supply-chain crisis.”

    As Bloomberg oh so perceptively puts it, “the payments protest is the latest sign of how a movement by homebuyers to boycott mortgages on unfinished homes in China is spreading to affect other sectors in the economy.”

    Yes it is, and it’s also why Beijing should be freaking out (if it isn’t), because what is taking place in China is far worse than what took place in March 2020 when the global credit machinery ground to a halt, only back then it’s because there was no other option, now it’s a voluntary development and not even fears of reprisals from China’s ruthless, authoritarian, Lebron-beloved dictatorship is stopping millions of people from calling for a systemic boycott, one which can topple China’s entire $60 trillion financial system in moments.

    Probably an overstatement, just because it takes a whole lot to overcome the inertia of the average Chinese citizen just wanting to keep their head down and not be the nail that sticks up.

  • Speaking of Evergrande, the rats there continue to flee the sinking ship.

    Embattled Chinese real estate giant Evergrande is expected to deliver a preliminary restructuring plan this week, following the exit of two bosses.

    The firm says its chief executive and finance head have resigned, after an internal probe found that they misused around $2bn (£1.7bn) in loans.

    Chinese businessmen misusing funds? Try to contain your shock.

    Evergrande has more than $300bn in liabilities and defaulted on its debts late last year.

    The crisis has spooked traders who fear contagion in China’s property sector.

    On Friday, Evergrande said it found that chief executive Xia Haijun and chief financial officer Pan Darong were involved in diverting 13.4bn yuan ($2bn; £1.7bn) in loans secured by its property services unit to the wider group.

    The firm said in a filing to the Hong Kong Stock Exchange that Mr Xia and Mr Pan had resigned because of their “involvement in the arrangement of the pledges”.

    Getting caught trying to cook the books even after it’s hit the fan. Classic Chinese management.

  • “Some big-name Chinese stocks including Alibaba Group Holding Ltd. and Baidu Inc. face the prospect of getting kicked off the New York Stock Exchange and Nasdaq if they refuse to let U.S. regulators see their financial audits.”

    The U.S. Securities and Exchange Commission has started the process, compelled by a 2020 law, and investors have started to pay attention. So has China, which moved to potentially clear a big hurdle that stymied U.S. regulators for years.

    1. Why does the U.S. want access to audits?

    The 2002 Sarbanes-Oxley Act, enacted in the wake of the Enron Corp. accounting scandal, required that all public companies have their audits inspected by the U.S. Public Company Accounting Oversight Board. According to the SEC, more than 50 jurisdictions work with the board to allow the required inspections, while two historically have not: China and Hong Kong. The long-simmering issue morphed into a political one as tensions between Washington and Beijing ratcheted up during the administration of President Donald Trump. The Chinese chain Luckin Coffee Inc., which was listed on Nasdaq, was found to have intentionally fabricated a chunk of its 2019 revenue. The following year, in a rare bipartisan move, Congress moved to force action.

    2. Where does it stand?

    As required by the law, known as the Holding Foreign Companies Accountable Act or HFCAA, the SEC in March started publishing its “provisional list” of companies identified as running afoul of the requirements. While the move had long been telegraphed, the first batch of names fueled a sharp decline in U.S. shares of companies based in China and Hong Kong as it dashed hopes for some kind of compromise. In all, the PCAOB has said it’s blocked from reviewing the audits of more than 200 of those businesses. The companies say Chinese national security law prohibits them from turning over audit papers to U.S. regulators. SEC Chair Gary Gensler said in late March that the Chinese authorities faced “a hard set of choices.” Days later, China announced it would modify a 2009 rule that restricted the sharing of financial data by offshore-listed firms, potentially clearing one obstacle.

    3. What is China changing?

    The China Securities Regulatory Commission said the requirement that on-site inspections should be mainly conducted by Chinese regulatory agencies or rely on their inspection results would be removed. It said it would provide assistance for cooperation with foreign regulators. The CSRC said it’s rare in practice that companies need to provide documents containing confidential and sensitive information. However, if required during the auditing process, they must obtain approvals in accordance with related laws and regulations.

    4. What’s the broader issue?

    Critics say Chinese companies enjoy the trading privileges of a market economy — including access to U.S. stock exchanges — while receiving government support and operating in an opaque system. In addition to inspecting audits, the HFCAA requires foreign companies to disclose if they’re controlled by a government. The SEC is also demanding that investors receive more information about the structure and risks associated with shell companies — known as variable interest entities, or VIEs — that Chinese companies use to list shares in New York. Since July 2021, the SEC has refused to greenlight new listings. Gensler has said more than 250 companies already trading will face similar requirements.

    5. How soon could Chinese companies be delisted?

    Nothing is going to happen this year or even in 2023, which explains why markets initially took the possibility in their stride. Under the HFCAA, a company would be delisted only after three consecutive years of non-compliance with audit inspections. It could return by certifying that it had retained a registered public accounting firm approved by the SEC.

    6. How many companies will be affected?

    There’s not much discretion. If a company from China or Hong Kong trades in the U.S. and files an annual report, it will soon find itself on the SEC’s list simply because those have been identified as non-compliant jurisdictions. In the March interview, Gensler pointed out that the law focuses on non-compliant countries, rather than specific companies.

  • Up to 10,000+ rich Chinese are looking for a way to flee the country.
  • For that and other reasons, Beijing is looking to impose more controls to prevent capital flight.
  • What would a “China is screwed” roundup be like without a Peter Zeihan video?

    “Demographically they’re in collapse…China’s not even going to survive this decade. They don’t even have the numbers to try…China doesn’t have the naval capacity to secure markets and resources….Xi Jinping has enacted a cult of personality that is tighter than anything that has existed through Chinese history. It’s gotten so tight that no one wants to bring him information about anything…This is how countries die.” Plus: China doesn’t know how to store grain.

  • Some more Zeihanian deglobalization thoughts from Stephen S. Roach.

    The widely acclaimed globalization of the post-Cold War era is now running in reverse. A protracted slowdown in global trade has been reinforced by persistent pandemic-related supply-chain disruptions, ongoing pressures of the US-China trade war, and efforts to align cross-border economic ties with geostrategic alliances (“friend-shoring”). These developments tighten the noose on China, arguably the country that has been the greatest beneficiary of modern globalization.

    Of the many metrics of globalization, including financial, information, and labor flows, the cross-border exchange of goods and services is most closely tied to economic growth. Largely for that reason, the slowdown in global trade, which commenced in the aftermath of the 2008-09 global financial crisis and intensified in the COVID-19 era, points to a sea change in globalization. While global exports went from 19% of world GDP in 1990 to a peak of 31% in 2008, in the thirteen years that followed (2009-21), global exports have averaged just 28.7% of world GDP. Had world exports expanded on a 6.4% trajectory – halfway between the blistering 9.4% pace of 1990-2008 and the subdued post-2008 rate of 3.3% – the export share of global GDP would have soared to 46% by 2021, far above the actual share of 29%.

    China’s gains from the globalization of trade have been extraordinary. In the decade prior to China’s 2001 accession to the World Trade Organization, Chinese exports averaged just 2% of total world exports. By 2008, that share had risen nearly fourfold, to 7.5%. China had timed its WTO membership bid perfectly, just when the global trade cycle was on a major upswing. While the financial crisis took a brief toll on Chinese export momentum, the interruption was short-lived. By 2021, Chinese exports had surged to 12.7% of world exports, well above the pre-2008 peak.

    China is unlikely to maintain this performance. Overall growth of global trade is slowing, and China’s slice of the trade pie is under mounting pressure.

    The ongoing trade war with the United States is especially problematic. During the first phase of China’s export-led growth surge in the aftermath of WTO accession, the US was consistently China’s largest source of external demand. Largely due to former US President Donald Trump’s tariffs, that is no longer the case. By 2020, US imports of Chinese goods and services had fallen 19% below the peak levels of 2018. Despite rebounding sharply on the heels of the US economy’s post-pandemic snapback, in 2021, US imports from China remained 5% below the 2018 peak. Partial tariff rollbacks for selected consumer products, which President Joe Biden’s administration is apparently considering as an anti-inflation gambit, are unlikely to jump-start bilateral trade.

    At the same time, enduring pandemic-related supply-chain disruptions are likely to take a sharp toll on China and the rest of the world.Over the six months ending in April, a “global supply chain pressures index” constructed by researchers at the Federal Reserve Bank of New York averaged 3.6, well above the 2.3 reading in the first 21 months following the February 2020 onset of pandemic-related lockdowns, and sharply higher than the “zero” reading associated with the absence of supply-chain disruptions.

    This is a big deal for a world connected by supply chains. Global value chains accounted for more than 70% of the cumulative growth in overall global trade from 1993 to 2013, and China has enjoyed an outsize share of this GVC-enabled expansion. As supply-chain disruptions persist, exacerbated by China’s zero-COVID policies, pressures on Chinese and global economic activity are likely to remain intense.

    Mounting geostrategic tensions are the wild card in deglobalization, especially their implications for China. “Friend-shoring” in effect turns Ricardo’s efficiency calculus of cross-border trade into an assessment of the security benefits that come from strategic alliances with like-minded countries. China’s new unlimited partnership with Russia looms especially relevant in this regard. With China edging closer to crossing the line by providing support to Russian military efforts in Ukraine, the US has recently moved to impose sanctions on five more Chinese companies through its so-called Entity List.

  • You’ve heard about the ghost cities. Did you hear about the failed ghost developments that were built as weird, cheap imitations of western structures?

  • Is Xi Jinping in danger from a coup?

    • No doubt I’ve missed many other examples of cracks in China’s economic edifice. Feel free to share them in the comments below.

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    Posted in Communism, Economics, Foreign Policy, Military, video | 6 Comments »

    Banks Runs In China?

    Tuesday, June 14th, 2022

    Reader Kirk suggested Chinese bank runs might be the next story to cover. I think I covered bank runs at smaller rural Chinese banks in a previous “China is screwed” post. Is a wider run in progress? Maybe.

    Multiple sources contacted by Asia Markets, have confirmed deposits at the following six banks have been frozen since mid-April.

  • Yuzhou Xinminsheng Village Bank (located in Xuchang City, Henan Province)
  • Zhecheng Huanghuai Bank (City of Shangqui, Henan Province)
  • Shangcai Huimin Rural Bank (Zhumadian City, Henan Province)
  • New Oriental Village Bank (City of Kaifeng, Henan Province)
  • Huaihe River Village Bank (Bengbu City, Anhui Province)
  • Yixian County Village Bank (Huangshan City, Anhui Province)

    • It’s understood the banks with branches across the Henan and Anhui Provinces successively issued announcements in April, stating they would suspend online banking and mobile banking services due to a system upgrade.

    At the same time, clients reported their electronic deposits in online accounts, mobile apps and third-party platforms could not be withdrawn.

    This led to depositors rushing to local bank branches, only to be told they were unable to withdraw funds.

    By late May, images emerged on Chinese social media of demonstrations at the front of numerous bank branches. Asia Markets has verified these images with local contacts.

    Snip.

    Regardless of the cause, the developments raise serious questions about the health of China’s and its regulatory oversight. The more immediate concern, however, is the prospect of contagion, which could see the (so-far) rural-only bank run spread to bigger cities.

    There’s evidence this is already happening.

    In one of the only mainstream international media articles to report on the unfolding situation, local residents highlighted the seriousness of the situation and the likelihood of contagion.

    From the Financial Times on June 9:

    “Some depositors such as Xu have already lost trust in the system. The 39-year-old said he had withdrawn all of his deposits from 10 other small banks that had promised him an annualised yield of more than 4 per cent.

    “Another depositor, a 30-year-old father, said he had placed more than Rmb900,000 in his village’s banks since 2020 at a return of 4.1 per cent. “I felt like being slaughtered,” he said, declining to give his name. He drove overnight to negotiate with the banking regulator in Zhengzhou, capital of Henan, in mid-May. “This is the money my wife and I have saved together since we got married. I had to lie to her that I was away for work.”

    On Twitter, a video of a large line at an ICBC Bank in China (one of China’s largest state-owned banks) posted on Tuesday, June 9, suggest contagion is in progress.

    Translated to English, the tweet reads “The bank card system is locked, and these people are here to unlock it. Massive runs are coming.”

    Blogger, Jennifer Zeng, has reported major issues with withdrawing cash from banks in Shanghai in recent days. The uncertainty no doubt exacerbated by the prospect of more lockdowns as COVID cases again spike.

    “All banks in Shanghai have restricted depositors from withdrawing money… A bank run is about to sweep China,” she said.

    Maybe. This, from five days ago, suggests Shanghai banks are limiting total transactions to 300 a day.

    While I’m always willing to believe the worst about China’s smoke-and-mirrors economy, it’s possible that Shanghai’s problems are just temporary post-lockdown issues that will subside, assuming China doesn’t lock that city down again. (Don’t count on it.)

    All the reports of bank runs I’m seeing either link to that Asia Markets piece, or the Hal Turner radio show piece that largely reprints it.

    Right now I’m going to go with “Not Yet Proven” for current bank runs in China.

    Though Lord knows if I were stuck in China (and had somehow managed not to get imprisoned or executed), I’d be pretty intent on getting my money out of Yuan entirely and into something more stable like gold, silver, or even U.S. dollars…

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    Posted in Communism, Economics, video | 5 Comments »

    China’s High Speed Rail Network Is A Trillion Dollar Debt Sinkhole

    Monday, June 13th, 2022

    Lefty sorts are always whining that other countries have high speed rail networks and we don’t. Many point to China’s extensive network of high speed rail as what we should be doing.

    Tiny problem: China’s high speed rail network is a giant, unprofitable sinkhole of $1.8 TRILLION worth of debt.

    Some take-aways:

  • The average operating loss for the system is $24 million per day.
  • The official amount for China National Railway debt for high speed rail is $900 billion, but since roughly half of the debt comes from local governments, the total is probably closer to $1.8 trillion.
  • For comparison sake, $1.8 trillion is about South Korea’s entire yearly GDP.
  • “Shanghai, the richest city in China, has a total GDP of $600 billion in 2020, which means that even the whole year of Shanghai’s GDP won’t be able to cover the debt of China National Railway.”
  • It’s extensive: 37,900km, nearly double the length from 2015.
  • Return on high speed rail investment is only about 2%, and the bulk of bond payments for loans are coming due over the next few years. “Cash flow from railway transportation revenue isn’t enough to cover the operating costs, let alone the ability to pay the debt and interest.”
  • Local government debt levels are around 100%.
  • “More than 85% of the funds raised through urban investment bonds are earmarked for repaying old debts with new ones.”
  • Even the most profitable high speed rail stretch, Beijing to Shanghai, only earns a return on investment of 5%.
  • Japan’s successful high speed rail network serves three metropolitan areas (Tokyo, Nagoya and Osaka) that have 55% of that nation’s population.
  • “A professor at the School of Economics and Management of Beijing Jiaotong University concluded that the operating costs are only just covered when the transport density of a high-speed rail line reaches 36 million passenger kilometers per kilometer. In China the average transport density is only about 17 million passenger kilometers per kilometer.”
  • High speed rail can’t transport heavy freight.
  • “The Lanzhou Uramuchi HSR in western China can run more than 160 trains per day. In reality, this route only runs four trains per day.”
  • High speed rail occupancy rate is only 30%, and is still too expensive for most Chinese to use.
  • High speed rail construction has squeezed out much-needed construction of regular rail. “China’s rail freight capacity can’t meet market demand. China’s market share of road freight turnover has risen rapidly to 49% market share in 2016.” China rail has jacked up freight costs to make up for losses on high speed rail.
  • China’s freight trucks get overloaded all the time.
  • China’s containerized shipping accounts for 40% of global trade, but “the proportion of China’s sea rail intermodal transport volume in 2017 was only about 2.5 percent.” 84% of port containers go out by road.
  • So why all the money poured into high speed rail? Opportunities for corruption.

    Officials see the high-speed rail project in which China is involved as a lucrative opportunity. China’s former minister of railways, known as the father of high-speed rail, was sentenced to death for corruption. Emerging industries such as high-speed rail, which offer both substantial commercial value and political achievements for local officials, have enormous room for corruption. In a systemically corrupt environment white elephant projects, that is a large project that falls significantly short of its goals, and the costs of upkeep outweigh its usefulness, are favored by many officials and businessmen looking to make a fortune. The vast majority of high-speed railways around the world can’t make ends meet on passenger revenues alone to cover their construction and operating costs. Most operate at a loss.

    In light of all that, why do American leftists keep complaining about America’s lack of high speed rail? Simple: It’s the corruption, stupid. High speed rail construction offers boundless opportunities for graft and corruption, and refusing to build any keeps them from getting their snouts into another giant trough of taxpayer money…

    (I didn’t expect this past week to become a string of “China’s economy is smoke and mirrors all the way down” posts, but I keep running into more examples.)

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    Posted in Communism, Economics, Foreign Policy, video, Waste and Fraud | 17 Comments »

    Chinese Corporate Scam + Green Subsidy Scam = Mountains of Abandoned New Cars

    Sunday, June 12th, 2022

    Here’s another entry for the “China’s economy is smoke and mirrors all the way down” file. Remember the previous story on the mountains of unused bikes for failed Chinese bike-sharing startups? Well, evidently the exact same thing happened with “green” cars:

    The mechanics of the scam:

    1. First they put together a down payment, order a batch of vehicles, and license them at a vehicle administration office.
    2. Then they contact government officials, present the vehicles in their hands and apply for permission on the grounds that they are operating an online car sharing business.
    3. The third step is to get the government’s permission, then go to the bank to get a loan.
    4. The fourth step is to find a financer and present the vehicles and the government papers to secure some venture capital from the financer.
    5. Last mortgage the vehicles to some smaller financial institutions to squeeze out their final value.

    After all these steps are completed, the scammers disappear. The bank, the financer and the small financial institution are left with triangular disputes while the vehicles rot somewhere in the wilderness.

    More takeaways:

  • China offers subsidies for new “green” cars.
  • Lots of these subsidized cars are bought by ride-sharing startups…
  • …that just happen to be subsidiaries of the the Chinese car companies manufacturing the cars being subsidized. (Presumably these are different companies than the pure scammers, but who the hell knows?)
  • Despite not being used, many have new license plates and up-to-date inspections.
  • Though there are minimum mileage requirements to get the subsidies, the businesses (in best Chinese fashion) just falsify the data.
  • “Especially the electric cars produced in previous years, the battery has a short range and the performance declines quickly. It’s worthless. At present it costs more to replace a new battery than the value of the old car.”
  • Most insane of all: China’s communist government required scrapping vehicles after 10 years or 100,000 kilometers. How’s that for “green”?
  • They later revised this to 15 years with annual inspections, then revised it again to a maximum of 600,000 kilometers.
  • And, of course, you can bribe inspectors to pass the inspection.

    • Green subsidy scams and failed startup detritus is hardly unknown in the U.S. (witness all those electric scooter sharing startups that are just now starting to go bankrupt), but China’s corner-cutting, get-rich-quick mentality combined with green government subsidies, interlocking corporate ownership, the usual Chinese scam artists and loose, bribe-able enforcement at various levels of Chinese government all combined for an especially appalling mountain of waste.

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