SinoInsight 1
On Aug. 12, the ship Peak Pegasus finally docked into the port of Dalian to offload the 70,000 tons ($20 million worth) of U.S. soybeans it had on board. China’s Sinograin Oils Corporation bought the soybeans. The cargo ship had been circulating the waters for over a month.
Peak Pegasus had arrived in Chinese waters on July 6, just after Beijing imposed 25 percent tariffs on U.S. soybeans and other exports. As such, Sinograin faced an additional $6 million in tariff fees.
OUR TAKE
1. Cargo ship rental is about $12,500 per day. Having Peak Pegasus drift about aimlessly at sea for the time it has cost $450,000, or far less than the $6 million that Sinograin has to pay in tariffs. Sinograin could have been waiting to see if Beijing settles the trade dispute with America before allowing Peak Pegasus to dock earlier and incur tariff penalties.
2. Two reasons why Sinograin took Peak Pegasus’s delivery: a) A senior Chinese agriculture official said on Aug. 10 that China’s state reserves require an additional 90,000 tons of soybeans; b) If Peak Pegasus’s 70,000 tons of soybeans are marked for the reserves, Sinograin need not pay tariffs as per policy
3) The Chinese Communist Party (CCP) believes that hitting U.S. soybeans would affect Trump supporters and Republican voters before the midterm elections and force Trump to abandon the trade war. But the soybean tariffs would have limited impact if Chinese demand for U.S. soybeans stays constant. Moreover, Beijing’s tariffs could see food prices go up in China and threaten the country’s food supply.
SinoInsight 2
An unusual notice from Shandong’s Qingzhou City Government Huanglou Subdistrict Office started making the rounds on the Chinese internet from Aug. 9.
According to the notice, the subdistrict office was looking to borrow funds from local civil servants to allow the government to finish up key projects that are being delayed because of cash flow problems at the city and town level. To “relieve pressure” from the local government, the subdistrict office would accept loans of 50,000 yuan and above from civil servants at an interest rate of 12.5 percent (10 percent after tax); and creditors can withdraw their principal 6 months after making the loan at any time. Would-be creditors have 10 working days (Aug. 13 to Aug. 24) to make loans.
In response to a query from The Paper, a semi-official Shanghai news outlet, the Huanglou Subdistrict office said that the notice was a “tentative plan” that had not been implemented.
OUR TAKE
1. Tentative or not, the fact that a local government has a plan for selling “bonds” and promising high returns is a sign that the Chinese economy is in bad shape. We previously reported cases where local governments delayed paying salaries to civil servants or postponed pension payments (see 7/30 SinoWeekly Plus). Indeed, the situation on the ground contrasts sharply with official government statements (and several Western media reports).
2. According to Shandong Province official economic data for H1 2018, the province’s GDP was 3.9 trillion yuan, an increase of 6.6 percent from a year before and the third-highest in the country. The provincial public budget revenue was 57.1 percent, an increase of 8 percent year-on-year. And tax revenue was 74.3 percent of the general public budget revenue, the highest in four years.
If the above figures are accurate, then the fiscal problems in the subdistrict of Huanglou are no trifling matter. And if a local government in Shandong is seeking loans from civil servants, then the economic situation in the central and western provinces of China could be much worse than in Shandong.
3. We’ve said on many occasions that the Sino-U.S. trade war could usher tremendous change in China. The Huanglou Subdistrict notice suggests that change is inevitable.
