Dear Readers,
It’s Thinking time! This week we cover how immigration affects the US job market, hidden debt affecting growth in China, rich Chinese picking Hong Kong over Singapore, and Zimbabweans’ preference for US dollars over local currency ZiG.
TBL Thinks is our way to summarize the most important paywalled, longer reads relevant to global macroeconomics, helping you cut through the noise. With that in mind, please enjoy.
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Migrant Influx to Keep Cooling US Job Market, SF Fed Study Says (BBG) According to a study by the Federal Reserve Bank of San Fransisco, a labor market slowdown that started last year can be attributed to the continuing influx of undocumented immigration.
San Francisco Fed economist Evgeniya Duzhak estimates that “around one-fifth of the easing of labor market tightness in 2023 can be attributed to the spike in immigration”.
The category of undocumented immigrants includes people using legal channels at official points of entry, people apprehended while trying to cross the border, undetected migrants, and those who overstay their visas.
According to the findings of the Congressional Budget Office, growth in population numbers from all immigration would boost US GDP by approximately $7 trillion by 2033, and lift government revenue by about $1 trillion.
We’ll watch to see if policies change with a new administration, and the feed-through to inflation. This is a topic we’ve covered for months: the number of jobs added for domestic workers relative to foreign-born workers reflects the findings of this study.
Trillions in Hidden Debt Drove China’s Growth. Now It Threatens Its Future (WSJ) A future that once shined bright for Liuzhou—home to a prospering economy, new industrial district, and light-rail system buildout—now looks decidedly lackluster. Liuzhou and several other cities in China have amassed trillions of dollars in off-the-books debt for economic development projects.
Complex state-owned funding vehicles borrowed money on behalf of local governments, in many cases to pursue development projects that yielded few economic returns. That’s communism for you!
China’s real estate market, which has seen deterioration over the last three years, could also no longer prove to be a source of revenue for local governments relying on land sales to real-estate developers.
“Economists estimate the size of such off-the-books debt is somewhere between $7 trillion and $11 trillion, about twice the size of China’s central government debt”—with as much as $800 billion at a high risk of default which could lead to Beijing paying for bailouts. This has the potential to encourage further unsound borrowing, or it could allow insolvent funding vehicles to go belly up which would expose Chinese banks to serious losses. Again, more bailouts.
Chinese cities were able to borrow from state-owned entities, known as local government financing vehicles or LVGFs, to fund sewers and streets. These debts don’t appear on government ledgers and allowed cities to sidestep borrowing limits set by Beijing.
China’s debt situation always sounds like a crisis is around the corner, but we’ll rely on stories like this from the WSJ to guide our on-the-ground knowledge.
Rich Chinese Return to Hong Kong as Singapore Steps Up Scrutiny (BBG) Hong Kong is welcoming back wealthy Chinese with open arms as Singapore intensifies scrutiny on foreign money. Hong Kong is offering initiatives, including family office tax concessions and visa and residency programs, all of which are proving enticing to wealthy Chinese—200 high-net-worth individuals are expected to move to Hong Kong this year.
After a series of scandals rocked Singapore and highlighted its financial oversight, the city-state is putting family offices and hedge funds under the microscope even as it steps up the closure of dormant firms. Some banks are re-doing their know-your-customer process, and the increased scrutiny is proving bothersome and frustrating to wealthy individuals who are appreciating the more welcoming nature of Hong Kong’s initiatives.
The move to Hong Kong is in sharp contrast to the emigration to Singapore after the strict quarantine during the pandemic and political upheaval. Hong Kong’s assets under management grew 2.1% to $4 trillion in 2023. Net fund inflows also grew more than 3 times, driven by the strong performance of private banking and wealth management, after slumping about 80% in 2022.
Fintechs Flying Planes of Cash into Zimbabwe to Meet Demand for Dollars (BBG) The arrival of private planes carrying millions of US dollars is a common sight at the Robert Gabriel Mugabe International Airport on the outskirts of the Zimbabwean capital, Harare. Run by Zimbabwean mobile money app, Mukuru, this legal operation accommodates customers looking to avoid the local currency in one of the world’s most dysfunctional economies. Mukuru serves customers across all its markets, but only flies cash into Zimbabwe, which provides almost half of all its business.
A failed land reform policy set off hyperinflation in the in country, wiping out Zimbabweans’ savings and leading to the local currency being scrapped in 2009. During one such hyperinflation episode, demand for physical US dollars skyrocketed and the dollar became king. An old tale in emerging markets.
The government has made six attempts to reinstate a national currency since then, with the latest being a gold-backed unit known as the ZiG—even though the new currency has so far proved stable, it has been a challenge to get locals to adopt it. However, the cash bias is not only a reflection of concerns over ZiG’s stability, but also attributed to the government’s history of converting foreign dollars held in banks to local currency without warning, while also imposing strict limits on withdrawals.
Until next time,
TBL Thinks
Unchained empowers you to fully control your Bitcoin with a collaborative multisig vault, where you hold two of three keys and benefit from a dedicated Bitcoin security partner. Purchase bitcoin directly into your cold storage vault and eliminate exchange risks with Unchained's Trading Desk.
Unchained also offers the best IRA product in the industry, allowing you to easily roll over old 401(k)s or IRAs into Bitcoin while keeping control of your keys.
Don’t pay more taxes than you need to. Use code TBL for $100 off when you create an account.
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