Weekly Business News Analysis: 25/11/2024 (China’s Long Term Bond Yield and Banana Art sold for US$6.2M)
Updated: Mar 12, 2025
Weekly Business News Analysis: 25/11/2024 (China’s Long Term Bond Yield and Banana Art sold for US$6.2M)
Writer: Klinsmann Lee
China’s 30-year government bond yields below Japan’s for the first time. [1] [2]
Background:
China’s 30 years government bonds have dropped from 4% in 2020 to 2.1% in 2024 due to the following factors:
Weak inflation growth
Investor moving to risk-free assets.
Deflationary pressures
On the other hand, Japan’s long-term bond yields have risen above China for the first time as Japan normalises monetary policy after years of deflation.
To counter long-term economic growth, China has made massive investments in high-tech, green and electric vehicle sectors.
Klinsmann’s Analysis:
Contrasting to inflation, deflation represents the general decline in the overall price level of goods and services.
China’s consumer price index (an indicator of inflation) rose by 0.3% year on year in October, with CPI growth near around 0% since March last year.
There are many problems associated with deflation including:
Increased payment obligation – During deflation, the “real” value of debt rises with the cost of borrowing remaining at the old level while overall consumer prices decrease.
Contrasting to inflation, deflation makes the value of each dollar go up.
We can see this from a mathematical equation.
Fisher equation: Real interest rate = Nominal interest rate – Inflation rate.
When inflation rate goes down, real interest rate must go up for the whole equation to maintain the same.
Likewise, the value of real debt must increase when the inflation rate goes down for the nominal (face value) of debt to not change.
Decrease in consumer spending – People tend to delay purchases when the price falls with the hope of buying it cheaper in the future. This decreases consumer spending and economic activity
Decrease in company profit – Firms are unlikely to increase prices as smaller demand which can lead to decreased profits and investments.
Limitation in monetary policy –
When inflation rises, this signals that the economy is heating (consumer spending is increasing) and the Central bank raises interest rates to cool the economy (making investment and saving a better alternative to spending).
When deflation occurs, the Central Bank decreases interest rates to increase consumer spending and stimulate the economy. However, interest rates usually cannot fall below zero. As a result, there is a limitation for the Central Bank.
Deflation is a serious problem for China as deflation expectations may set in among consumers and businesses which can be hard to overturn. Japan is an example after the bubble burst in real estate that led to decades of stagnation.
Banana Art was purchased by a cryptocurrency entrepreneur and then…eaten by him. [3] [4]
Background:
Cryptocurrency entrepreneur, Justin Sun, purchased the artwork “Comedian” for US$6.4 million.
The artwork featured a banana ducted taped to a wall.
This purchase also included a certificate of authenticity that gives him the authority to duct-tape a banana to a wall.
The conceptual work was created by Italian artist, Maurizio Cattelan, as a “cheeky commentary on questionable standards among art collectors”.
Sun, then subsequently ate the fruit in a press conference.
The banana was reportedly bought for less than a dollar from a fruit stall on Manhattan’s Upper East Side.
Klinsmann’s Analysis:
This is one expensive banana artwork.
To give some perspective, the median weekly income in the U.S. is $1,139. [5] We are talking US$6.4 million for the artwork (banana + duck tape).
From my perspective, there are a few advantages of purchasing this artwork by the cryptocurrency entrepreneur:
Publicity: The purchase and subsequent press conference created much publicity for both Justin and his cryptocurrency, Tron.
Publicity is very important for a cryptocurrency to succeed as it raises awareness, demand and perception of trust.
Rights: By purchasing this artwork, he also purchased the authority to the conceptual artwork. Art always has a price.
If I had that kind of money, would I purchase the artwork? No and never.
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