China on The Lombard Review

Is oil being priced in yuan now?

Tue, 16 Jun 2026 12:50:00 -0400

The global energy landscape crossed a historic currencyRubicon on 16 June: for the first time since the 1974 petrodollar agreement between Washington and Riyadh, significant volumes of international crude oil are being officially priced, invoiced, and settled exclusively in Chinese yuan.

The Codification of the Petroyuan

Tehran’s rigid enforcement of renminbi transit tolls, combined with direct bilateral supply contracts between Persian Gulf producers and Chinese state refiners, has created a thriving, fully operational non-dollar petroleum clearing ecosystem. Independent Chinese teacup refiners and Southeast Asian commodity traders are clearing millions of barrels of crude daily through the Shanghai International Energy Exchange, settling transactions directly via the Cross-Border Interbank Payment System (CIPS).

Iran charges ships a toll, in yuan

Tue, 19 May 2026 13:46:00 -0400

In a geopolitical maneuver that directly attacks the foundations of international maritime law and American financial hegemony, Tehran announced a novel transit protocol for the Persian Gulf: commercial vessels wishing to traverse the Strait of Hormuz must pay a 'maritime security passage toll' of up to $2 million per transit—payable exclusively in Chinese yuan.

The Non-Dollar Tollbooth

By demanding transit tolls payable solely in renminbi through designated accounts at Chinese state banks, Tehran has effectively monetized the world's most critical maritime chokepoint while establishing an un-sanctionable, non-dollar trade corridor. Tanker operators wishing to transport Iraqi, Kuwaiti, or Emirati crude face a stark choice: pay millions in renminbi to Iranian accounts or remain stranded behind the blockade.

Lunar New Year: China keeps the yuan steady

Tue, 17 Feb 2026 14:59:00 -0500

As the Lunar New Year holiday emptied financial centers across mainland China, the People’s Bank of China maintained an iron grip on the onshore currency, anchoring daily yuan fixings with remarkable discipline despite the acute legal and trade uncertainty paralyzing Washington.

Fixing Discipline in Legal Limbo

With the US Supreme Court deliberating the legality of the entire tariff architecture, Beijing’s currency strategists recognized that altering foreign exchange policy during judicial deliberations would be a tactical blunder. Devaluing the yuan would provide fuel for emergency legislative tariff alternatives in Congress. Conversely, allowing the currency to appreciate aggressively would inflict unnecessary pain on domestic exporters struggling with soft global demand.

Singles' Day: A truce, but will China shop?

Tue, 11 Nov 2025 12:02:00 -0500

China’s annual Singles’ Day shopping festival concluded with an unprecedented subdued atmosphere, revealing the deep structural malaise gripping the world's second-largest consumer economy. Despite the recent Busan bilateral trade truce with the United States on 30 October, domestic Chinese consumers refused to unleash their wallets.

The Domestic Demand Paralysis

The de-escalation of external trade frictions failed to cure the structural disease afflicting Chinese household balance sheets. With real estate values continuing their multi-year decline and youth unemployment elevated, Chinese households are actively practicing defensive balance-sheet repair. Total gross merchandise value (GMV) across Alibaba and JD.com registered flat to low single-digit growth, driven almost entirely by steep merchant discounting.

America and China call a truce, again

Tue, 04 Nov 2025 13:20:00 -0500

Washington and Beijing stunned international financial markets once again by announcing a comprehensive bilateral trade de-escalation on 4 November, rolling back punitive tariffs and suspending retaliatory export controls. Under the agreement, the controversial US 'fentanyl-linked' border tariffs were slashed to 10 per cent, in exchange for China pausing its aggressive rare earth export bans.

The Tactical Trade Armistice

The agreement was born of mutual economic exhaustion. The White House was facing mounting domestic inflation and acute shortages of critical permanent magnets for defense and automotive manufacturing. Beijing was confronting severe export contraction and record capital outflows. The de-escalation provides immediate operational relief for container shipping lines and cross-border manufacturing supply chains.

China's rare earth counterpunch

Tue, 14 Oct 2025 15:41:00 -0400

Ahead of a scheduled bilateral diplomatic summit, Beijing delivered an uncompromising demonstration of supply-chain power on 9 October: enacting sweeping, immediate export restrictions on specialized heavy rare earth refining equipment, sintered neodymium magnets, and advanced metallurgy software.

Strategic Pre-Summit Escalation

Unlike previous tariff skirmishes that relied on pricing adjustments, China’s latest export controls strike directly at the physical capabilities of Western industrial production. By blocking the export of the specialized equipment and intellectual property required to refine rare earth oxides, Beijing is systematically preventing Western nations from developing independent processing supply chains.

Nvidia's China problem

Fri, 29 Aug 2025 11:24:00 -0400

Nvidia delivered another blockbuster quarterly earnings print for the second quarter of fiscal 2026, generating $46.7 billion in revenue. However, beneath the headline triumph sat an escalating geopolitical headache: the semiconductor giant was forced to issue forward financial guidance that entirely excluded projected revenue from the Chinese market.

The De-Risking of China Cash Flows

Confronted with shifting export restrictions, licensing delays, and statutory revenue-sharing mandates, Nvidia’s management chose to strip Chinese data center demand out of baseline forward models. For equity analysts, this marks an extraordinary corporate de-risking step. China historically represented over twenty per cent of Nvidia's global data center revenue. Writing off that market from forward multiples acknowledges that geopolitical fragmentation has permanently curtailed the company's addressable global monopoly.

Nvidia pays Washington to sell to China

Fri, 15 Aug 2025 13:02:00 -0400

In an extraordinary regulatory compromise that blurs the boundary between sovereign taxation and corporate extortion, Washington finalized an agreement permitting Nvidia to resume sales of customized H20 artificial intelligence chips to China—provided the chipmaker remits a 15 per cent revenue royalty directly to the US Treasury.

The Sovereign Rent-Extraction Model

The agreement marks the birth of a novel trade policy mechanism: the direct monetization of national security export controls. Rather than enforcing a binary embargo on advanced semiconductor technology, the federal government has established a statutory revenue-sharing toll on corporate overseas transactions. For Nvidia, surrendering 15 per cent of gross H20 revenue preserves critical Chinese market access and prevents domestic Chinese chipmakers like Huawei from monopolizing enterprise AI infrastructure.

China's rare earths are its best weapon

Tue, 10 Jun 2025 09:56:00 -0400

As bilateral trade negotiations reconvened in London on 9–10 June, Beijing deployed its ultimate strategic countermeasure: aggressive export controls and licensing quotas on heavy rare earth elements, gallium, germanium, and permanent magnet assemblies. The message to Western trade negotiators was unmistakable: tariffs are a game of taxes, but export controls are a game of industrial survival.

Asymmetric Supply-Chain Leverage

While the United States can unilaterally impose tariffs on consumer goods, China commands an effective monopoly over the refining and processing of critical minerals essential for defense guidance systems, wind turbines, and electric vehicle traction motors. By restricting export licenses, Beijing bypassed price mechanisms entirely, directly choking physical component supply to Western defense contractors and automotive OEMs.

America and China call a truce

Tue, 13 May 2025 15:43:00 -0400

Washington and Beijing stunned international financial markets by announcing a comprehensive 90-day trade truce, agreeing to roll back prohibitive three-digit tariffs to an interim operational compromise: a 30 per cent US tariff on Chinese goods, met with a reciprocal 10 per cent levy on American exports. The de-escalation triggered an immediate relief rally across global equity and sovereign debt markets.

The Economic Brinksmanship Reality

The truce reflects the sheer economic impossibility of maintaining prohibitive 145 per cent embargo tariffs. Both sovereign administrations recognized that complete bilateral trade cessation was inflicting catastrophic damage: American importers were facing acute component shortages, while Chinese export manufacturing hubs were experiencing severe factory idling. The 90-day pause provides vital breathing room for supply chains to clear stranded customs backlogs and re-establish baseline logistical predictability.

China holds the yuan steady

Tue, 06 May 2025 14:17:00 -0400

Amid sweeping American tariff escalation and widespread expectations that Beijing would resort to competitive currency devaluation to offset border duties, the People’s Bank of China delivered an unambiguous message: the onshore yuan will be held firmly anchored near 7.20 per dollar. The central bank utilized aggressive daily fixings and state bank dollar selling to erect a rigid valuation floor.

The Cost of Competitive Devaluation

While depreciating the yuan would theoretically cushion Chinese exporters against US border levies, Beijing's economic leadership recognizes that currency devaluation carries fatal systemic costs. A sharp slide in the yuan would trigger immediate domestic capital flight, destabilize an already fragile domestic real estate and equity market, and provoke secondary tariff retaliation from European and Southeast Asian trade partners whom Beijing is actively courting.

Lunar New Year: DeepSeek and China's tech comeback

Wed, 29 Jan 2025 16:14:00 -0500

The Lunar New Year opened with an unexpected reversal in global technological leadership. DeepSeek’s breakthrough demonstrated that resource-constrained engineering, forced into extreme algorithmic efficiency by US export controls on advanced semiconductors, could circumvent raw hardware deficits. For Chinese technology equities, long depressed by regulatory crackdowns and geopolitical containment, the development triggered a dramatic institutional re-rating.

Hardware Efficiency vs. Brute-Force Capital

The Western AI complex spent two years executing a brute-force capital expenditure strategy, assuming that access to leading-edge foundry capacity was an insurmountable barrier to entry. DeepSeek’s mixture-of-experts architecture demonstrated that mathematical innovation in memory bandwidth utilization could substitute for top-tier silicon. By open-sourcing the weights, Chinese developers established an alternative open ecosystem that directly challenges Silicon Valley’s closed-garden monetization models.

China finally promises to loosen up

Tue, 10 Dec 2024 13:43:00 -0500

Following a pivotal Politburo meeting on 9 December, Beijing delivered its most decisive policy language upgrade in a decade, officially shifting its macroeconomic stance from 'prudent' to 'moderately loose'. The rhetoric was accompanied by pledges to deploy 'extraordinary counter-cyclical measures' to reflate the domestic economy and stabilize the distressed property market in 2025.

The Rhetorical Escalation

The linguistic upgrade signaled that Chinese leadership has finally recognized the existential threat posed by compounding debt deflation. Yet financial markets have grown skeptical of verbal commitments. Monetary easing has lost its transmission efficacy, and until the central government commits to deploying trillions in direct fiscal transfers to households and clearing distressed developer liabilities, rhetoric will fail to restore confidence.

A 60% tariff is a tax on Americans

Tue, 12 Nov 2024 12:19:00 -0500

Donald Trump’s formal reaffirmation of plans to impose an aggressive sixty per cent tariff on all imports from China represents an unprecedented economic shock. While political rhetoric frames the levy as a punitive fine on Beijing, economic modeling from the Peterson Institute for International Economics (PIIE) demonstrates that the tax will land squarely on American households.

The Household Tariff Tax

PIIE estimates that a sixty per cent tariff on China, paired with a universal baseline duty on other imports, will cost the average American family roughly $2,600 per year in diminished purchasing power. Supply chains for consumer electronics, apparel, and toys cannot be repatriated overnight. American consumers will pay for protectionism through higher shelf prices, acting as an unhedged regressive consumption tax.

Singles' Day: China fixes its local debt, not its shoppers

Mon, 11 Nov 2024 11:32:00 -0500

Beijing chose the eve of Singles’ Day to unveil its long-awaited fiscal stimulus package, but the announcement delivered a profound disappointment to retail market bulls. Standing before reporters, Chinese officials unveiled a RMB 10 trillion ($1.4 trillion) debt-swap programme designed to help local governments refinance hidden off-balance-sheet debt over five years.

Local Balance-Sheet Repair vs Household Cash

While the debt swap is essential to stabilize distressed municipal finances, it contained zero direct cash handouts, consumption vouchers, or welfare subsidies for ordinary Chinese consumers. Singles’ Day spending remains constrained by falling property values and fragile job prospects. Beijing is determined to use its fiscal firepower to de-risk municipal ledgers rather than ignite consumer animal spirits.

How Chinese goods reach America through Mexico

Tue, 15 Oct 2024 13:52:00 -0400

On paper, Washington’s protectionist trade policy appears to have succeeded in dramatically reducing reliance on Chinese manufacturing: China’s share of US merchandise imports has dropped from twenty-one per cent in 2017 to under fourteen per cent today. Yet inspecting global supply chains reveals that the decoupling is an elaborate commercial illusion.

The Transshipment Bypass

Chinese manufacturers have adapted with formidable commercial agility, routing intermediate components through Mexico and Southeast Asia for final assembly before exporting finished goods tariff-free into the United States. Mexico has overtaken China as America’s top trading partner, but Mexican exports are deeply embedded with Chinese value-added components. Protectionist tariffs have not decoupled supply chains; they have simply lengthened them and added transactional friction.

China finally fires its stimulus bazooka

Tue, 24 Sep 2024 09:38:00 -0400

Confronted with an intractable property slump, deepening deflation, and failing economic targets, Beijing finally abandoned its piecemeal stimulus approach. In a synchronized press conference on 24 September, the People's Bank of China unveiled a sweeping package of monetary easing: slashing reserve requirements by 50 basis points, cutting benchmark lending rates, lowering existing mortgage rates, and providing RMB 800 billion in direct liquidity to backstop the equity market.

The Monetary Liquidity Injection

Domestic Chinese equities experienced their most explosive single-week rally in sixteen years as trading desks scrambled to cover shorts. Yet seasoned macro observers recognise that monetary easing alone cannot cure a balance-sheet recession. Lowering borrowing costs does not manufacture consumer confidence when households are traumatised by falling home values. Without massive, direct fiscal transfers to households, the stimulus bazooka will misfire.

China's cheap EVs meet Europe's tariffs

Tue, 25 Jun 2024 12:40:00 -0400

The European Commission has officially drawn its trade battle lines, imposing provisional countervailing duties of up to 38.1 per cent on imports of Chinese battery electric vehicles (EVs). Brussels concluded that massive, state-directed subsidies across China’s supply chain allow its automakers to dump vehicles in Europe at artificially depressed prices, threatening domestic manufacturing.

The Subsidised Capacity Collision

For European automakers, the tariff wall provides a temporary shield, but it invites immediate retaliation against German luxury exports to China. Furthermore, Chinese manufacturers have established such commanding cost advantages in battery chemistry and automated assembly that even a forty-per-cent tariff may fail to eliminate their retail price advantage. Protectionism can delay structural disruption, but it cannot cure industrial inefficiency.

Lunar New Year: China's stock market can't escape falling prices

Sat, 10 Feb 2024 11:48:00 -0500

As China enters the Year of the Dragon, domestic equity markets are finding little reason for celebratory animal spirits. With January consumer price inflation contracting at 0.8 per cent year-on-year—the steepest drop in fifteen years—the economy is locked in an entrenched deflationary trap. State-directed interventions and regulatory bans on short selling cannot engineer corporate earnings out of thin air.

The Deflationary Multiplier

When factory-gate and consumer prices are falling simultaneously, nominal corporate revenues shrink while the real, inflation-adjusted cost of debt expands. For China's heavily leveraged corporate sector, this dynamic compresses operating margins and forces defensive price wars. Equity multiples cannot re-rate when the domestic corporate ledger is starved of top-line nominal pricing power.

Singles' Day: China's shoppers have lost their nerve

Sat, 11 Nov 2023 14:15:00 -0500

China’s annual Singles’ Day shopping extravaganza has long served as a glittering showcase of consumer animal spirits and domestic consumption growth. This year, however, the atmosphere was defined by deafening silence. E-commerce titans Alibaba and JD.com declined to release gross merchandise volume figures for the second consecutive year, offering only vague claims of transaction growth. The Chinese consumer has entered a defensive retrenchment.

The Balance-Sheet Hangover

With October consumer prices slipping back into negative territory at minus 0.2 per cent year-on-year and the residential property crisis vaporizing household wealth, consumers are hoarding savings and hunting aggressively for deep discounts. Value-focused platforms like Pinduoduo are capturing market share from legacy platforms, forcing retailers into brutal margin-crushing price wars. Deflationary expectations are taking root in the domestic economy.

China's hidden local debt problem

Tue, 17 Oct 2023 14:02:00 -0400

Beijing’s attempts to defuse its municipal debt crisis have entered an intricate phase of balance-sheet alchemy. Confronting an estimated $9 trillion in hidden debt accumulated by Local Government Financing Vehicles (LGFVs), the central government has authorized provinces to issue over RMB 1 trillion in special refinancing bonds. The strategy is straightforward: roll high-cost off-balance-sheet loans into lower-yielding formal sovereign paper.

Sovereignising the Shadow Debt

This debt-swap programme prevents immediate, destabilizing defaults among distressed municipal borrowers, but it does nothing to address the structural solvency of the local entities. LGFVs invested trillions in non-productive infrastructure and vanity property developments that generate negligible cash flows. Converting commercial liabilities into public debt merely shifts the fiscal burden onto the national balance sheet, dragging down China's medium-term growth potential.

Country Garden and the end of China's property model

Fri, 18 Aug 2023 14:59:00 -0400

When Country Garden, once China’s largest and most reputable private property developer, failed to meet $22.5 million in international bond coupon payments, the final pillar of China’s private real estate model cracked. Country Garden was not an aggressive, speculative outlier like Evergrande; it was a conservative, sprawling developer focused on lower-tier cities. Its liquidity failure marks the structural death of the presales business model.

The Presales Death Spiral

For two decades, Chinese developers operated as synthetic shadow banks, financing operations via upfront cash collected from prospective homebuyers before bricks were laid. That model requires unshakeable consumer faith that homes will be delivered. Once that faith evaporates, contracted sales collapse, eliminating the cash flows needed to complete projects and service debt. No amount of regulatory forbearance can revive a business model whose funding mechanism has vanished.

China's prices are falling. Its currency could be next

Tue, 15 Aug 2023 13:38:00 -0400

Deflation is officially stalking the Chinese economy, and the People’s Bank of China faces an acute monetary trilemma. With July consumer prices slipping into negative territory at minus 0.3 per cent year-on-year, domestic price pressures have collapsed under the weight of real estate distress and fragile consumer sentiment. Standard economic textbooks prescribe aggressive monetary loosening, but Beijing is constrained by its currency.

The Defense of the Redback

Aggressive policy rate cuts to combat deflation would violently widen the interest rate differential between the yuan and the dollar, triggering aggressive capital flight and intense downward pressure on the currency. To prevent a destabilizing rout, the PBoC has deployed aggressive strong-side daily fixings and ordered state banks to absorb dollar liquidity. Defending the yuan limits the central bank’s ability to reflate the domestic economy.

China's lending engine sputters

Tue, 27 Jun 2023 10:46:00 -0400

Beijing’s traditional macroeconomic playbook is failing to produce its customary magic. When the People’s Bank of China delivered a modest ten-basis-point reduction to its one-year loan prime rate, taking it to 3.55 per cent, the domestic financial response was utterly muted. In past cycles, marginal monetary easing ignited an immediate wave of municipal infrastructure borrowing and property development. Today, the credit transmission mechanism is jammed by debt saturation and profound balance-sheet reticence.

China is spending again. Its property market isn't

Tue, 18 Apr 2023 09:16:00 -0400

The release of China’s first-quarter gross domestic product revealed an economy expanding at a respectable 4.5 per cent annual pace, driven by a sharp rebound in retail consumption, catering, and domestic travel following the abandonment of zero-Covid restrictions. Economists hailed the numbers as proof that Beijing’s recovery was firmly on track. But inspecting the engine of Chinese growth reveals a glaring structural divergence: while consumers are enthusiastically dining out and buying domestic air tickets, the vast domestic property market—the traditional locomotive of the Chinese economy—remains frozen in a structural depression.

Lunar New Year: China's reopening lifts the yuan

Sun, 22 Jan 2023 12:34:00 -0500

The Lunar New Year celebration coincided with a dramatic financial renaissance for the Chinese currency. Having flirted with 7.35 against the US dollar in late October, the onshore and offshore yuan staged a relentless rally back toward 6.78, recording one of the fastest percentage recoveries on record. The catalyst was Beijing’s abrupt dismantling of zero-Covid protocols, which unleashed a torrent of foreign capital chasing beaten-down Chinese equities and sovereign assets. Yet treating the yuan’s resurgence as an unhedged bet on Chinese economic supremacy ignores the structural capital-account dynamics that will accompany the reopening of China's borders.

China reopens, and the world gets a new inflation problem

Tue, 29 Nov 2022 13:57:00 -0500

The western narrative that China's eventual retreat from zero-Covid would deliver an unalloyed disinflationary impulse to the global economy is about to collide with industrial reality. While financial markets celebrate the prospective elimination of factory bottlenecks and port congestion, they have systematically underpriced the reciprocal demand shock. When a $17-trillion economy reignites domestic mobility and industrial throughput, it does not simply export cheaper manufactured goods; it aggressively consumes marginal global energy, industrial metals, and agricultural foodstuffs.