Banananomics: Havana Bananas

Many in the West consider Singapore the financial capital of Asia, but Hong Kong still has many advantages regardless of CCP control.

Critical inputs: In March 2024, Hong Kong lawmakers passed Article 23, additional security legislation that further cements China's rule over the city's rights and freedoms.

• The Council on Foreign Relations (CFR) reports that China is focused on bolstering trade and economic development.

• China began scaling back its lending in 2020 but remains the most critical creditor in international negotiations to stabilize the overly indebted nations of Pakistan, Sri Lanka, Ghana, and Zambia.

Impact: The South China Morning Post reports, "The base probability of sustainable high-quality growth at companies is falling and a valuation premium will not be justifiable, unless a company is riding an industry boom and holds an overwhelming edge over rivals, Zhang Kun, a Guangzhou-based fund manager at E Fund Management, said in an annual report."

• Reuters reports that Chinese electric-vehicle battery maker CATL is in talks with Tesla to license its battery technology instead of building its plant there.

• Chinese electric vehicle maker BYD stepped into the global spotlight late last year when it became the world's biggest EV seller, overtaking Tesla (TSLA.O).

Anomalies: Unlike any Western government, the CCP is socially restricting while being supportive of economic development. For example:

• The Hong Kong tax rate is 15% for earning over $640,000.

• Singapore's tax rate is 15% for income of $89,000 and 22% for anything over $236,000.

According to the Congressional Budget Office, U.S. federal debt totaled $26.2 trillion at the end of 2023, about 97% of GDP, a level where many countries required bailouts from the International Monetary Fund (IMF).

Critical inputs: Phillip Swagel, director of the Congressional Budget Office, warns that the U.S. faces a similar risk faced by the U.K. in 2022 if the government continues to ignore mounting debt concerns.

• Bloomberg Economics has run a million simulations to assess the fragility of the debt outlook. In 88% of the simulations, the results show that the debt-to-GDP ratio is unsustainable, defined as increasing over the next decade.

Impact: The concern is how markets would fare if Congress made the necessary adjustments to address the debt issue.

• In 2022, former U.K. Prime Minister Liz Truss announced radical economic measures that included deep tax cuts.

• The result was market chaos, with the British pound (GBP) crashing to record lows against the U.S. dollar (USD) and the collapse of Truss' government, the shortest in the country's history.

Anomalies: Public debt in Egypt was 88.5% of GDP in 2022 and 97% in 2023, a dire situation that required an IMF bailout.

Recent news has focused on the Havana Syndrome and its link to Russian Intelligence, but that is not the whole story.

Critical inputs: Reuters details that the name Havana Syndrome resulted from the "first reported by U.S. embassy officials in the Cuban capital Havana in 2016."

• A year-long investigation by 60 Minutes and Germany's Der Spiegel detailed that senior members of Unit 29155 received awards and promotions for work related to developing "non-lethal acoustic weapons."

Impact: The Council on Foreign Relations (CFR) describes China's Xi and Russia's Putin as having a close friendship at a time when Russian and U.S. relations are at a Cold War low.

• The U.S. government's executive orders restricting outward investment in Chinese advanced technology and economic sanctions are redirecting U.S. capital from China into Japan.

• The Treasury Department confirms that attacks by China's state-sponsored hacking group, APT31, have involved a Texas energy company, a California-managed service provider, and several aerospace contractors with the U.S. military in Alabama and Tennessee.

Anomalies: Japan's Nippon Steel Corp. plans to go ahead with the acquisition of United States Steel Corp (X).

• Reuters reports, "Nippon is paying the equivalent of 7.3 times U.S. Steel's 12-month earnings before interest, taxes, depreciation and amortization (EBITDA)."

China competes with the United States through its Belt and Road Initiative that aims to solidify the Asian giant as an economic superpower.

• China remains the most critical creditor in international negotiations to stabilize the over-indebted nations of Pakistan, Sri Lanka, Ghana, and Zambia.

• Similar programs are provided through the International Monetary Fund (IMF).

Critical inputs: U.S. ally India has been forced to respond to China's military provocations along the Line of Actual Control and, more generally, to an array of Chinese political, economic and military intrusions into India's traditional sphere of influence in South Asia and the Indian Ocean.

• Although India and the United States both see China as a strategic problem, they view it through different lenses of national interest and ideology.

Impact: Regardless of U.S. sanctions, Chinese electric-vehicle battery maker CATL has co-invested with Ford on a battery plant and will do the same with GM shortly.

• Tesla’s new manufacturing process is only made possible with CATL technology.

• As 2030 climate goals draw near, Chinese electric-vehicle maker BYD has overtaken Tesla in sales.

Anomalies: While the U.S. has been hesitant to join UNCLOS, the UN program for joint economic development of the world's oceans, China is using their membership to gather critical offshore mining rights.

• China has five exploration sites, 90,000 square miles –the most of any country. 

• The U.S. has none.