Geoeconomics Bi-Weekly: Ransomware, deflation, and panda bears, oh my!

This week’s meeting between President Biden and Xi Jinping dominated the conversation. But buried in the headlines are a few stories worth examining, including a ransomware attack in China, a slow-moving merger review, and an upcoming election in Argentina.

1. President Biden and Xi Jinping meet for first time since November 2022 to sooth tensions: The United States hosted the annual Asia-Pacific Economic Cooperation (APEC) summit in San Francisco this week, which focused on fostering economic growth and resiliency. The main event though may have been a meeting between the leaders of the United States and China. The two sides reportedly agreed to restart military communications, while Xi pledged to make efforts to curb the supply of precursor chemicals used in the production of fentanyl (and maybe even send more pandas to the U.S.). However, export controls, conflicts in the Middle East, and upcoming elections in Taiwan remain sticking points. Xi made the most of his time in the United States, also dining with U.S. business leaders on Wednesday evening amid increasing hesitancy in the private sector to invest in China for a variety of reasons, including the previous zero COVID policies, opaque regulation, and recent corporate raids. Foreign direct investment (FDI) into China has plummeted, with Q3 2023 marking China’s first quarterly deficit in FDI since it began recording data in 1998.  

2. Inflation edges lower in major economies sparking optimism about the end of interest rate increases: Inflation continues its downward trend as the U.K., U.S., and Euro area all registered two-year lows in CPI in October. Some commentators believe this means that interest rate increases may be over. Still, inflation remains above the 2% target, prompting speculation of continued high interest rates into next year. China, for its part, saw inflation decrease a bit too much as the country experienced deflation for the second time in four months. Prices in China decreased 0.2% YoY in October, exacerbating the concerns over the state of the Chinese economy.

October inflation data for UK, US, Euro zone, and China

3. Ransomware attack in China reverberates through U.S. treasury market highlighting vulnerabilities in global financial system: ICBC, the world's largest bank by assets, suffered an intrusion that prevented the bank from settling transactions in the $25 trillion U.S. Treasury market. The attack forced traders across the world to route trades through other means, hindering market liquidity. Over the last decade hedge funds and other traders have outsourced transaction settlements to brokers like ICBC to reduce costs. The recent attack underscores not only the importance of cybersecurity in the banking industry, but also the vulnerabilities inherent in an interconnected global financial system. 

4. Electric vehicle (EV) production outpaces demand in the U.S. as sales in China boom: Despite 2023 Q3 EV sales jumping 50% in the United States, automakers are not necessarily celebrating. Ford and General Motors have announced cuts to future spending on new EV models and factories due to lower-than-expected demand, citing the high prices of EVs as limiting consumer interest. In the United States, EVs cost about $5,000 more on average than traditional gas-powered vehicles. Meanwhile, Chinese EV makers continue to boast record sales despite government subsidies ending. Chinese start-up Li Auto tripled its EV sales YoY in September, while Chinese EV maker XPeng’s YoY EV sales increased 72% in Q3. Both the United States and China view EV’s as a critical technology of the future, essential for economic security and technology leadership. 

5. Russia continues to skirt price cap on oil exports, boosting tax revenues amid war in Ukraine: Russia’s tax revenues on oil and gas exports in October were up over 25% YoY according to data released by the Russian Finance Ministry, providing additional funding for its ongoing war in Ukraine. The G7 introduced a $60 price cap on Russian oil last December, which initially showed promise but has slowly decreased in effectiveness. The price cap works by prohibiting Western companies from insuring Russian oil tankers carrying crude oil priced above the cap. Over the last several months, Russia has developed a “shadow fleet” of oil tankers which sail without Western insurance and sell to countries not observing the cap. According to Western officials, “almost none” of Russia’s seaborne oil sales in October were below the $60 price cap. 


What We’re Watching 

  • November 19 – Argentinians head to the polls for a run-off presidential election between Peronist candidate Sergio Massa and populist outsider Javier Milei. The two candidates present starkly different solutions for the much-maligned Argentinian economy currently experiencing annual inflation over 140%. Massa, the current economic minister, promises to normalize the economy while maintaining social safety nets, while Milei, a self-described libertarian, pledges to abolish the central bank which he claims is the “origin of inflation.” 

  • November 26 - A pending merger between American companies Broadcom and VMWare is set to expire while the firms await approval from SAMR, China’s anti-trust authority. The deal has received legal clearance from all other necessary jurisdictions. This attempted merger follows U.S. firm Intel’s failed $5.4 billion acquisition of Israeli semiconductor maker Tower Semiconductor, which collapsed after not receiving approval from SAMR before the deal expired. 

  • November 30 - Nicolás Maduro’s government in Venezuela has until the end of this month to restore opposition leader María Corina Machado’s candidacy in next year’s election, or the United States will roll back the recently announced sanctions relief on the Venezuelan energy and mining sectors. 

Kirti Gupta
Senior Adviser (Non-resident), Renewing American Innovation Project
Chris Borges
Program Manager and Associate Fellow, Geoeconomics Center