Feb 7 FT Weekend thoughts US/China same old, Stimulus ..cautions, Samsung, Vision Fund and Retail holds the baby,


07 Feb

Not a huge amount China this weekend but some good Asia related articles.

Antony Blinken blasts China in first phone call. Antony Blinken tells counterpart Washington will hold Beijing ‘accountable for its abuses’.
Looks at the first high level call between US and China which took place on Friday; between US Sec of State Blinkin and Yang Jiechi China’s top foreign policy official.
Blinkin said the US would stand up for democratic values and hold Beijing responsible for its. Especially with regard to Xinjiang and Tibet regions and Hong Kong. He also called on Beijing to condemn the coup in Myanmar. Along with its actions in the Taiwan Strait.
Beijing’s take on the call was reported as Yang urging the US to redress what it described as its recent mistakes, to “act constructively” in the Asia Pacific and not interfere in Xinjiang, Tibet and Hong Kong. Along with a statement 'No one can stop the great rejuvenation of the Chinese nation,’ according to the statement on the Foreign Ministry’s website.
Yang earlier in the week had blamed the poor state of relations on the Trump administration and whilst stating a desire for better relationship he warned Washington against crossing any ‘red lines’.
The tone of the call from both parties suggests along with previous comments from US officials suggest that the US hawkish policy towards China will continue. The one change may be the inclusion of allies and other interested parties in order to apply more pressure on China. Equally it appears that China has no intention of compromising on any of its actions.
The article mentions that the PLA’s Southern Theatre Command accused the US of disrupting the ‘positive atmosphere’ in the South China Sea because of the presence of the USS John McCain.

Democrats hit back at Summers after criticism of stimulus bill. Obama’s ex-economic adviser warns $1.9tn package risks worst inflation in generation.  Comes as the Democrats used their casting vote from VP Harris in the Senate to push forward their plan for a $1.9tn stimulus bill.  Summers warned that the plan might trigger “inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability”.
The subsequent backlash of comments reflects the sensitivity of the issue even amongst Democrats. Biden hopes to avoid the issues from 2008/09 when Obama’s Govt was thought to have been too limited.
Summers defending his comments said he was for stimulus and aware of the dangers of doing too little but he wants it to be more targeted. He is stressed the need to be aware of the inflation dangers. He said “I'm not aware of any historical instances in which there was a gradual increase in rates that brought inflation under control without causing a recession. Given the kind of forward guidance given by the Fed and the magnitude of the debt, engineering a soft landing is going to be more difficult than in the past.”
Other key figures agree with Summers; like Olivier Blanchard, the former chief economist of the IMF. But the article says 'Kristalina Georgieva, the managing director of the IMF, said the US needed to be “watchful” of the dangers Summers raised but added that the US had the “best possible” treasury secretary in Yellen to monitor challenges to financial stability.’
Summers was not just worried about inflation but also about whether the bill will use up too much political bandwidth as the new administration takes over, which could limit other policies that they want to introduce.
I think the inflation concerns may be being underestimated by many because they do not have the first hand experience, for many it is just an academic theory. It notes that Janet Yellen has experience as does Powell. That is going to be very important. But Summer’s is right to raise the issue.

Moment of weakness’: Amateur investors left counting GameStop losses. Some short-term traders left out of pocket as popular stocks fall after frenzy.  As is so often the case;  retail traders who came late to the party are left holding the baby when the main players left.  As time passes more information about the players and the trades becomes available but as with so many instances its the inexperienced that get hurt. More evidence is appearing that there were a number of large hedge funds and institutions active.
Questions will be asked and comments made but at the end of the day there is little that can really be done to stop inexperienced players entering the market. Although some platforms could be made to be more honest about how they actually pay for the commission free trading. But brokers are making it as easy as they can; mobile phone apps, commission free trading and available margin finance all sound so appealing. The one thing that is played down is risk. That is something that regulators cannot regulate for!

FT Big Read Samsung’s biggest challenge: ‘The Lee family has to reform’ Even in prison, Lee Jae-yong has the weight of a nation on his shoulders, with big questions for the flagship electronics business.
The current legal issues all stem from trying to keep the business in the control of the family. The company is seen by the older generations as a a national treasure whilst the younger generation see it as associated with cronyism. The reality is that both are true to some extent.
The article shows how being in jail will only be an inconvenience for the Lee Jae-yong; which does raise the question about whether the system should be changed. That is why the share price has not reacted to the news of his returning to jail.
Mr Lee has said he will not pass the company management to his children which is not surprising since most of the mechanisms for doing so have been barred.
The article also looks at the wider Samsun businesses and the significant challenges to faces.
On phones how Samsung has yet to make the in-roads into getting customers to pay for its services in the way that Apple does. It is trying to grow that side of the business and is also looking to try and boost its links with Microsoft and Google to make Samsung appliances more attractive. On chips with its competition with TSMC. Its telecoms unit in building 5G networks, where it is benefiting from Huawei being squeezed by the US. It also has its memory chip and electronic display businesses but they have less entry barriers for new comers.
The company has many issues to face and this episode have used up valuable time.
There is a chance he could received a pardon although President Moon already said he would end presidential pardons for chaebol leaders, but Lee could be released on parole.  
But there are other outstanding issues still be be resolved. A US$10bn in inheritance tax due from his father’s death. It is unlikely to be raised via dividends and so the sale of some business units is expected. He is also being investigated for his part in a #3.9b accounting fraud.
An interesting read. Samsung has a lot of potential but also problems; as does S Korea in reforming the Chaebol culture. It is similar to reorganising Japan Inc. In both cases there is tremendous potential but a lot of ingrained resistance.

Risky tech bets pay off for SoftBank’s $100bn Vision Fund. Pandemic shift in online buying revives Saudi-backed vehicle after record loss.  Looks at the fund and the fact that recently some of its investments have given handsome returns but notes that others have yet to come good.  Nice summary 'Citi analyst Mitsunobu Tsuruo said investors and SoftBank knew that stock price increases were driven by ultra-low rates and excess liquidity. Once the Fed started tapering, markets along with tech shares could go the other way. “People are aware of what needs to be done when the music stops. SoftBank knows it as well, so that’s why they are doing a massive sale of assets and reducing its debt.”'

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