A war of words over Taiwan. Chinese President Xi Jinping delivered a speech yesterday to mark the 40th anniversary of Beijing’s call to end military confrontation with Taiwan, known as the “message to compatriots in Taiwan.” Xi’s new message to Taiwanese compatriots was not only that unification with the mainland is inevitable and in the interests of both sides, but also that China and Taiwan should begin “democratic consultation” on relations and on the future of the Chinese nation. Xi also said that China “make[s] no promise to renounce the use of force.” He was referring to external forces and to a small contingent of Taiwanese separatists, but it’s clear that his comment targeted one country in particular: the United States. Just a few days ago, U.S. President Donald Trump signed the Asia Reassurance Initiative Act, which promises to encourage high-ranking U.S. officials to visit Taiwan, much to China’s chagrin. Taiwan’s president strongly criticized Xi’s comments and said Taiwan would continue seeking a “Taiwan-centric” future. There’s more smoke here than fire, but if there is a spark, it’s in Xi tying Taiwan’s future to his vision for China’s “national rejuvenation.” That’s not the kind of comment that can easily be forgotten.

China’s liquidity problem. China’s central bank announced Wednesday that, effective immediately, it would lower the reserve requirement ratio for qualifying financial institutions, enabling banks to lend more money to Chinese businesses. According to news agency Xinhua, the central bank’s statement also indicated that financial institutions’ enjoyment of the lower reserve requirement ratio would depend on their extending a “certain share of their loans” to small businesses – and on expanding the definition of a small business. The term previously applied to companies borrowing 5 million yuan ($727,000) or less. That threshold has now been doubled. In effect, China is attempting to increase both the liquidity in the system and the number of companies that can take advantage of it. Bloomberg and Citic Securities Co. reported that the move was part of a broader push to fill a $625 billion liquidity hole in advance of the upcoming Lunar New Year holiday. None of this is unusual – China cut the reserve requirement ratio four times last year, and a liquidity crunch around the Lunar New Year is par for the course. Still, it remains to be seen how well China manages the changes given its other worrying economic indicators.

Brazil sets its sights high. U.S. Secretary of State Mike Pompeo visited Colombia and Brazil yesterday. At a press conference with Brazilian Foreign Minister Ernesto Araujo, Pompeo said the two had discussed the situation in Venezuela and Washington’s “deep desire to return democracy to the Venezuelan people.” The comment has garnered a lot of attention, but the U.S. has been making similar remarks since October. More notable was Araujo’s response to Pompeo’s statement that the U.S. was looking for partners in the region that “shared American values.” Araujo said Brazil was realigning to “work in favor of its values and ideals of the people,” adding that his was a “big country” and needed to start acting like one. The visit was cordial, and the U.S. and Brazil have several interests in common, but it’s clear that Brazil won’t simply do the United States’ bidding. How the new Brazilian government defines its interests going forward will be important to watch.

Honorable Mentions

  • A Chinese lunar rover became the first spacecraft to land on the far side of the moon.
  • Local media report additional Turkish troop deployments on the border with Syria.
  • A U.S. delegation is on a two-day visit to Turkey to discuss the possible extradition of Turkish cleric Fethullah Gulen, who has been living in self-imposed exile in the United States.
  • The next round of U.S.-Taliban talks will be held by the end of the month.
  • On the first day of trading this year, the Russian ruble fell to an almost three-year low on the dollar.