WWRR Vol.2.015

Christopher Wood christopher.wood@clsa.com +852 2600 8516
also want modernisation of the North Korean economy while Trump is not insisting on regime
change or unification.
Any kind of deal or even truce will be positive for markets, particularly Asian stock markets, since it
will raise the hope that life can return to normal. It will also not be expected by many market
participants even though the above-mentioned Trump tweet on his telephone call with Xi has made
investors less negative. Still in a reflection of mainland thinking Citic Securities in a research report
published on Sunday gave a 60% probability to no material progress resulting from the G20 Summit
leading to the imposition of the tariff increase from 10% to 25% (see Citic Securities research A
Share Market Strategy Weekly: Scenarios of the A share market after the G20 summit, 25 November
2018).
GREED & fear is not so negative. Apart from the long observed nature of the Donald where he likes
to turn on a dime and do a deal, in this case taking a profit on his “beating up China” strategy, there
are some signals that more progress may have been made on agreeing a common ground than has so
far been admitted to. One such signal was a speech made by White House trade adviser Peter
Navarro in Washington on 9 November when he criticised famous Wall Street firms for getting
involved in the trade dispute (see Financial Times article “Wall St told to stay out of China spat”, 10
November 2018). This clearly reflected Navarro’s concerns that he, and fellow hardliners, were
losing the argument as a result of discussions held in Beijing in September between leading Wall
Street figures and Chinese Vice President Wang Qishan, the second most powerful man in China.
The second positive signal is that it was reported last week that Navarro will not be attending the
G20 Summit (see South China Morning Post article “White House trade adviser Peter Navarro ‘excluded
from Xi Jinping-Donald Trump dinner’”, 21 November 2018).
None of the above means that there will not be continuing friction between China and America on a
whole host of issues. But it does raise the hope that the January tariff increases will not be imposed.
Still if GREED & fear is wrong and Citic Securities’ base case occurs it will then become much harder
for “face reasons” for Beijing to make concessions without looking like it is succumbing to
Washington bullying. By then the pressure will also be on Beijing to adopt more aggressive stimulus
to counter the negative impact from the trade war. On this point, an estimated 103m Chinese
people are employed in the country’s manufacturing sector (see Figure 2).
Figure 2
China manufacturing sector employment
120
(m)
China manufacturing sector employment
100
80
60
40
20
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: National Bureau of Statistics
Thursday, 29 November 2018 Page 2