Pelosi to Taiwan; Mortgage mess; 4.8% 2022 GDP growth?; Food crisis fight; EU-PRC

Summary of today’s essential eight:

1. August Taiwan crisis? - The Financial Times reports that Speaker of the US House of Representatives is now planning to visit Taiwan in August. She was originally going to go in April but cancelled after catching COVID. We can expect lots of angry statements between now and her possible trip, but I would not underestimate the risk of seeing a response that goes beyond rhetoric from the PRC side, as Xi et al really do seem to be getting really angry about what they see as US “salami slicing” of its “one China policy”, something I think has been reflected in what to me sound like increasingly shill warnings about Taiwan over the last few months. The FT story suggests that there is some concern in the White House about the trip. But now that the story has leaked there is no way the Biden Administration could pressure Pelosi to cancel the trip, and for all the talk there may be about how the timing is bad because of the upcoming 20th Party Congress, the timing will never be Ok from the PRC perspective. I am not sure we fully appreciate what a 2022 version of a Taiwan straits crisis would like, or how markets, investors and business might react, but expect a strong PRC reaction to a Taiwan trip will add more pressure to increased hedging around if not decoupling from the PRC.

2. Outbreaks

3. 4.8% GDP growth for 2022? - 21CBH interviews Shanghai Finance and Economics University head Liu Yuanchun, Liu says the economy will rebound in Q3, that the growth rate for the second half of the year could hit 6%. Liu, who was the discussant a Politburo study session earlier this year, also said that the current stable growth policies could lead to full year 2022 GDP growth of 4.8%. 4.8% seems high, but below the official target of 5.5%, and Liu would not be floating that number in an interview if he though it would upset people, so perhaps 4.8% is now the internal, stretch target?

4. More on the mortgage mess - Caixin reports that now some suppliers to delayed real estate projects are now saying they will also refuse to repay bank loans. Some sort of broader real estate "bailout" is needed, one that will likely involve lots of pain for offshore debt holders, some pain for onshore ones, and the forcing of state owned developers to finally step up in a big way and start buying projects and in some cases other real estate firms.

5. EU-PRC - Chinese Vice Premier Liu He and European Commission Executive Vice President Valdis Dombrovskis held the long delayed ninth round of the trade and economic dialogue between the EU and China, though it does not sound like much was accomplished. Foreign Ministry spokesperson called the South China Morning Post report that the PRC was trying to arrange for a visit from German, French, Italian and Spanish leaders “fake news”. The SCMP doubled down on the story today.

6. PRC trying to kill UN Xinjiang report - Reuters reports that the PRC has circulated a letter at the UN requesting that Office of the High Commissioner for Human Rights not publish a long-delayed report on human rights in China. If the PRC succeeds in burying the report, it would be another victory in its diplomacy against Xinjiang pressure, after its tightly choreographed visit to Xinjiang by OHCHR head Bachelet's earlier this year. I am a bit surprised no one has leaked it.

7. Didi investigation finally ending? - First the Wall Street Journal and then Reuters both reported overnight that Didi will have to pay a fine of over $1 Billion and then they will be allowed to start registering new users and move forward with a Hong Kong listing. The spin will be that the worst of the regulatory storm is over for DiDi and other big tech companies.

8. Fighting over the world food crisis

Thanks for reading.

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The Essential Eight

1. August Taiwan crisis?

The Financial Times reports that Speaker of the US House of Representatives is now planning to visit Taiwan in August. She was originally going to go in April but cancelled after catching COVID. We can expect lots of angry statements between now and her possible trip, but I would not underestimate the risk of seeing a response that goes beyond rhetoric from the PRC side, as Xi et al really do seem to be getting really angry about what they see as US “salami slicing” of its “one China policy”, something I think has been reflected in what to me sound like increasingly shill warnings about Taiwan over the last few months.

The FT story suggests that there is some concern in the White House about the trip. But now that the story has leaked there is no way the Biden Administration could pressure Pelosi to cancel the trip, and for all the talk there may be about how the timing is bad because of the upcoming 20th Party Congress, the timing will never be Ok from the PRC perspective.

I am not sure we fully appreciate what a 2022 version of a Taiwan straits crisis would like, or how markets, investors and business might react, but expect a PRC overreaction to a Taiwan trip will add more pressure to increased hedging if not decoupling from PRC.

If Pelosi does go I hope she makes it a bipartisan delegation.

Nancy Pelosi to visit Taiwan next month amid China tensions | Financial Times $$

Six people familiar with the situation said Pelosi would take a delegation to Taiwan in August. The 82-year-old California lawmaker cancelled a visit in April after she caught Covid-19.

Pelosi would be the most senior US lawmaker to visit the island since one of her predecessors as Speaker, Republican Newt Gingrich, travelled there in 1997...

In April, China’s foreign minister Wang Yi said a Pelosi visit would be a “malicious provocation”. News of the trip comes as US president Joe Biden and his Chinese counterpart Xi Jinping prepare to hold an online meeting in the coming weeks.

Three people familiar with the situation said the White House had expressed concern about the trip. The timing is sensitive for China because it will come in the same month as the August 1 anniversary of the founding of the People’s Liberation Army...

Pelosi and her delegation will visit Japan, Singapore, Indonesia and Malaysia. The lawmakers will also spend time in Hawaii at the headquarters of the US Indo-Pacific command. A seventh person familiar with the situation said it was still possible the trip would fall through.

From today's Ministry of Foreign Affairs press conference on the US and Taiwan - 07/19/2022 China MFA Press Conference

Reuters: Financial Times reported that US House Speaker Nancy Pelosi plans to visit Taiwan next month. How do you comment about this? 

Zhao Lijian: The Chinese side has repeatedly stated its stern position on this. We firmly oppose any form of official interaction between the US and the Taiwan region. The US Congress is part of the US government and supposed to strictly adhere to the US’s one-China policy. If Speaker Pelosi visits Taiwan, it would seriously violate the one-China principle and the stipulations in the three China-US joint communiqués and harm China’s sovereignty and territorial integrity. It will have a severe negative impact on the political foundation of China-US relations, and send a gravely wrong signal to “Taiwan independence” separatist forces. China firmly opposes such a visit.

We urge the US side to adhere to the one-China principle and the stipulations in the three China-US joint communiqués. The US must not arrange for Speaker Pelosi to visit the Taiwan region and must stop official interactions with Taiwan, stop creating factors that could lead to tensions in the Taiwan Strait, and follow through on the US’s commitment of not supporting “Taiwan independence”. Should the US side insist on doing otherwise, China will take strong and resolute measures to safeguard its sovereignty and territorial integrity. The US must assume full responsibility for any ensuing consequences...