Tag: Economy

Railroads change cities’ fate

Read some interesting discussion on railroad build-outs in early 20th century in China, and its impact on cities.

Before railroads expanded, China’s economy relied a lot of waterways / canals.

Railroads changed the trajectory of cities. Traditional waterborne centers were sidelined and small towns can quickly become new centers, for example,

津浦铁路: Linqing fell; Dezhou rose

京汉铁路: Kaifeng fell; Zhengzhou rose

Additionally, if two railways are built with different standard, they shall create a city, for example,

Shijiazhuang: Zhengtai Railway (metre gauge) intersecting Jinghan line (standard gauge)

Changchun: Chinese Eastern Railway (broad gauge) intersecting South Manchuria Railway (standard gauge).

Beijing’s 1q25 consumption..

Overall retail sales dropped 3.3% yoy in the first quarter of 2025 in Beijing, with March dropping 10% yoy.

Auto contributed nearly 2% of the drop (-20% x 10%).

Meanwhile, average spending looks okay – it’s rising 2.3% yoy. It’s a very good number for Beijing actually.

It might be due to the parallel export (?) – people bought cars and export (e.g. Russia).

Core issue with USD

The unofficial “Mar-a-Lago Accord” raised this issue – that USD as a reserve currency bears additional burden.

Countries bought US Treasury to facilitate trade with another nation (not necessarily the US), thus creating an inelastic demand and causing USD to appreciate.

This appreciation shall weaken US export, especially in the manufacturing sector.

Such phenomena reflect what can be described as a “Triffin world,” after Belgian economist Robert Triffin..

However, when the reserve country is smaller relative to the rest of the world—say, because global growth exceeds the reserve country’s growth for a long period of time—tensions build and the distance between the Triffin equilibrium and the trade equilibrium can be quite large.

Source: A User’s Guide to Restructuring the Global Trading System

Another interesting point from the artcle.

..value-added taxes are a form of tariffs because they exempt exported goods but tax imported goods.

 

Oh bond market.. will real yield go higher?

Bond market is volatile these days – US 10-years treasury yield just swung from under 4% to near 4.5% in a few days.

The inflation protected 10-year TIPS yield also rose from under 1.8% to over 2.2% in a few days. (this is like a 20% move? even higher than the 10% move in 10-year treasury).

I shall discuss 10-year TIPS more below.

It was ~5% in early 2000s. Then, it went down a bit before GFC. Between GFC and 2021, it was sub-2%. Now it’s back to pre-GFC level.

✅ Summary

Period 10Y TIPS Real Yield Key Characteristics
Pre-2008 2%–3%+ Higher real rates, less Fed intervention
2009–2021 <2%, often negative QE, ZIRP, low inflation, high demand for safe assets
Post-2022 >2% again Inflation shock, Fed tightening, rate normalization

Source: ChatGPT

 

And in terms of why 10-year TIPS was low from 2009 to 2021, it seems that Fed QE is a big factor.

📆 Timeline of Fed TIPS Purchases

Period TIPS Purchase Status Notes
2010 (QE2) ✅ Began buying TIPS First inclusion of TIPS in QE
2010–2021 ✅ Continued buying in QE3, COVID QE Purchases scaled with overall Treasury buying
Nov 2021 🔻 Began tapering all Treasury purchases Including TIPS
Mar 2022 ❌ Fully stopped purchasing TIPS (and other Treasuries) QE ended completely
Jun 2022 onward 🔄 Began Quantitative Tightening (QT) Letting TIPS holdings roll off gradually

Source: ChatGPT

 

As to whether yield will go up from here? The equilibrium real interest rates (r*) depend on several things:

1/ real productivity growth. AI is helping? So can push r* higher.

2/ global saving. Can be lower in China, thus less supply of capital. So can push r* higher.

3/ risk appetite. Going down sharply. So should push r* lower.

4/ DOGE. Lower gov spending should push r* lower.

5/ Reshoring. Need to borrow more. So can push r* higher.

 

Unfortunately, these factors are all moving..

On the other hand, tariff threat can be good?

Cooling off the excessive confidence

If the economy is running too hot, you need to cool it off.

One way to cool it off is to add uncertainties.

Individuals and businesses will pause new investments and rethink how fast they shall run when uncertainty (not short-term, or can be overlooked) skyrockets.

Perfect excuse to change gears

Sometimes, business leaders also need a good external excuse to press the “pause” button. Why?

Normally, they want to be seen as the encouraging voice internally. That what business leaders do – to grow the companies. And they always want suppliers to increase their capacity. Thus, showing extra confidence in business can ensure suppliers are confident enough.

To be seen as credible in the long-term, business leaders can’t change the tone overnight. And it’s hard to change the tone if there is no external shock. Otherwise, it feels like you were trying to “trick” your suppliers or employees.

Suddenly, tariff becomes this perfect excuse – external, lingering, impactful.

It’s just the perfect time to take a step back and rethink business leaders. And it’s the perfect opportunity to change gears.

China’s fixed asset investments: smaller discrepancy and better numbers vs 2023

Found another closing discrepancy in reported numbers.

These were the reported numbers for fixed asset investments (excl. rural) between 2020 and 2024.

The 2023 number has the biggest difference. If you directly compare 503,036  and 572,138, that’s dropping -12% yoy. Yet, the reported yoy was +3%.

This resulted in a 15% gap in yoy percentage number for 2023.

That gap has been shrinking to less than 1% in 2024, with +3.2% reported for 2024 fixed investments, compared with +2.3% in calculated comparison.

In 2024, the investment in the water conservancy management industry increased by 41.7%, investment in the air transportation industry increased by 20.7%, and investment in the railway transportation industry increased by 13.5%.

Those are some big % numbers. If you compare some headline numbers, e.g. water conservancy, the growth should be 13%, rather than 42%.

  • 2023年全年完成水利建设投资11996亿元
  • 2024年完成水利建设投资13529亿元

Maybe 2023 was indeed a lower base than reported.

Anyways, the picture in 2024 indeed looks better.

Brail set to rise

One thing is certain – US is trying to fight its trade deficits.

Who would be relatively safe from Trump’s tariff threat?

Countries that US runs a trade surplus!

Any examples? Brazil.

If a company wants to relocate its production, Brazil would be a top destination due to the trade surplus US enjoys, which means tariff threat is lower.

Plus, Brail has a big population with a relatively lower labor costs vs other countries like Australia, UK, or Singapore (US runs a trade surplus to those countries as well).

So, investors think tariff is negotiation tool?

Tariff is not an unknown factor.

Trump talked a lot about tariff during campaign and after election.

However, stock market was buoyant until recently.

The most common excuse? Investors thought tariff is just an negotiation tool that won’t be implemented.

That sounds reasonable, but actually it doesn’t make any sense.

Let me explain.

If stock market reflects the common wisdom and it doesn’t go down, then it means everyone assumes tariff threat is not that real.

Then why should the negotiation be effective?

Governments are not fools. Like in poker, if they think Trump is just bluffing, they would call.

The stock market almost sells Trump out if it doesn’t fall.

So, if US wants to be considered serious on the negotiation table, stock market must fall.

Why?

Because you need to let everyone know tariff is real. Every company needs to talk about it. Investors need to be panicking about it. When investors are really worried, they sell, even with losses.

Stock market drop is a manifesto that everybody realizes the tariff can be as real as the losses in their retirement accounts.

That’s when the “negotiation tool” is effective.