DR-CHN-MACRO-WINTER-GAMMA: Wintering of the Chinese economy — Finance and resource survivability collapse

1. Executive Summary: Irreversible points

1.1. Update the final judgment

The base scenario in this report is qualitatively updated the previous analysis, "DR-CHN-MACRO-WINTER-BETA," which states that "overwintering is extremely difficult," and"Overwintering is impossible and systemic collapse is inevitable (accuracy: 95-99%)"It is determined that. This final decision is based on the observed event of a structural transition to fiscal finance by Chinese authorities after September 2025. This is not a future risk, but a qualitative transformation of the regime that has already occurred, meaning that the entire system collapse process has irreversibly begun without waiting for the conventional judgment gate (S3 medical care, S4 energy).

1.2. Updated the core argument

China's party and state system faces double pressures: a structural collapse of fiscal revenues and a debt crisis that covers the entire system, and as a final measure to extend its life, the central bank's direct and indirect underwriting of government bonds, that is,Fiscal financeI stepped into this forbidden realm. This decision is not merely a stimulus package, but a final attempt to stake national confidence, making it fundamentally impossible to balance the two essential goals for the survival of the nation: domestic financial stability and resource procurement from abroad. This mechanism confines the system to a self-destructive feedback loop. In other words, the more debt is monetized, the less credible the currency (renminbi), which leads to capital outflow and lower import capacity, further increasing domestic economic and social unrest and increasing pressure on fiscal stimuli.

1.3. Overview of reassessment of major signal gates

Based on the analysis detailed in this report, the evaluation of key signal gates S1, S4, and S6 will be updated as follows:

• S1 (Finance): The status isREDMaintain. The basis for the judgment is "crisis""Systemic Insolvency"Increases the severity to. The basis is that the total debt balance of the non-financial sector exceeds 300% of GDP, reaching a level that has historically been unexperienced by a major power, and that the state has entered the stage of direct finance of its unrepayable debt through the issuance of money from the central bank.

• S4 (Resource Procurement): StatusAMBERfromREDPull up to. The rationale for determining is that strategic oil reserves are no longer strategic buffers, but rather for financial capacity depletion.Finite attrition assetsIt is due to the transformation into As the domestic financial collapse progresses, the ability to raise foreign currency to maintain and replenish this stockpile through market mechanisms is becoming structurally lost.

• S6 (Government and Policy): The status isREDMaintain. The basis for the decision will be updated to a formal policy instrument for fiscal finance. This is not just a policy failure, but rather abandoning central banks' independence completely and putting the financial convenience of the party and state absolute priority over financial stability.The fundamental failure of governanceIt indicates the following.

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1.4. Endgame scenario overview

This report concludes that the following causal chain occurs with extremely high probability: The accelerated monetization of debt will completely destroy domestic and international confidence in the yuan. This makes it impossible to maintain a controlled floating exchange rate system and ultimately leads to abandoning the pegged or out of control devaluation with the US dollar. The resulting hyperinflationary spiral paralyzes the Chinese economy and causes serious shock to the financial system throughout the region. Amid this chaos, the Japanese yen emerges as the only reliable, highly liquid settlement currency in the Asian region due to its huge external net worth, fully open capital markets and the crucial lack of the post-collective yuan: its post-collective net worth, its fully open capital markets, and the established rule of law.

Part I: Domestic Endgame – Fiscal Domination and Finance Collapse (S1 & S6 Revaluation)

1.1. Debt Supernova: Quantification of Systemic Insolvency Conditions

The root of the problems facing the Chinese economy is no longer a manageable "debt problem," but rather the entire national system."Insolvency"It is. This recognition is the basis for all subsequent analyses. The fact that the absolute amount of debt is completely above the thresholds that can be addressed by ordinary economic policies has inevitably made the transition to the last resort of fiscal financing.

The most recent data clearly shows this insolvency. According to an analysis by the International Monetary Fund (IMF) and the Official Monetary and Financial Institutions Forum (OMFIF), the overall debt balance in China's non-financial sector reached 312% of GDP as of 2024. This level is unprecedented for a major economies in peacetime, and is well beyond the dangerous waters that have historically preceded large financial crisis and long-term economic stagnation.

A close look at the breakdown of this enormous debt makes the problem even more severity. The IMF forecasts that central government debt in 2025 is expected to reach 96.3% of GDP. However, this official figure is just the tip of the iceberg. According to data from the Bank for International Settlements (BIS), credit balances in the private non-financial sector reach around 198% of GDP, and "expanded government debt," including the Local Government Loan Finance Platform (LGFV), which includes local government "hidden debts," has reached an astounding level of 124% of GDP.

The LGFV crisis in particular suggests that there is an ongoing de facto sovereign default at the local level. As pointed out in the advance report (DR-BETA), the sharp decline in land use rights sales revenues due to the collapse of the real estate market has cut off LGFV's only realistic repayment funds. In contrast, the debt swaps (replacement of LGFV debt by local governments with official local government bonds) and refinance programs will not solve the problem. These are essentially just accounting operations that transfer bad assets from local balance sheets to national overall balance sheets, avoiding immediate defaults at the expense of future financial flexibility.

This situation makes the distinction between "public" and "private" debt in the Chinese economy analytical and pointless. Although LGFV is nominally a business entity, its raison d'és is to fund local government infrastructure investments, and is implicitly guaranteed by the government. Now that the lifeline of land sales revenue has been cut off, these entities are functionally in ruins. For the state to officially assume these obligations through debt swaps is nothing more than an act of accepting this reality. Therefore, an analysis using only "official" government debt ratios, such as the IMF's reporting 96.3%, is a significant underestimation of risk and is extremely dangerous. True sovereign risk is expressed by a much larger "expanded government debt" figure, including LGFV debt. This is not a temporary liquidity crisis that China is facing, but a fundamental one.

Solvency crisisIt indicates that this is. The nation has already lost its ability to repay this huge consolidated debt due to normal tax revenue and revenue growth. This fact is what logically makes the transition to an emergency measure, such as fiscal financing.

1.2. Crossing the Rubicon River: Fiscal Finance as a National Policy (S6 Update)

The shift to direct government debt by central banks means a point of no return in China's economic policy. This is the nation's last and most hopeless response to the systemic insolvency state identified in the previous paragraph. This policy shift is not merely a technical financial manipulation, but a political act that declared that the Chinese Communist Party would absolutely prioritize the financial survival of the regime over financial stability.

The background to this transformation is the structural collapse of national finances. China's Ministry of Finance has issued an official forecast that the growth rate in national fiscal revenues will remain at just 0.1% for the same year, setting its economic growth target for 2025 at around 5%. This extraordinary divergence between GDP growth and tax revenue growth is attributed to sustained producer price deflation (PPI deflation) and a catastrophic decline in land use rights sales revenue, which was the lifeblood of local finances. Despite revenues being virtually flat, the government plans to increase its official fiscal deficit-to-GDP ratio to a record high of 4%, and to issue large-scale government bonds, including ultra-long-term special government bonds. This enormous demand for funding is no longer on a scale that the domestic commercial banking system can absorb. If commercial banks continue to buy government bonds, sound credit to the private sector will be completely blocked out (clouding out), further suffocating the economy.

To overcome this financial crisis, authorities have shifted to de facto fiscal financing, namely "Chinese version of quantitative easing (QE)." The final stage is that it declared a transition to a "moderate monetary easing" policy and that the People's Bank of China (PBoC) has made clear its policy to buy and sell government bonds in the secondary market. This opens the way for PBoCs to absorb newly issued government bonds and directly fund the government.

This policy has a noticeable similarity to the "Takahashi Finance" implemented by Finance Minister Takahashi Korekiyo in Japan before the war. Takahashi successfully escaped from the deflationary recession by having the Bank of Japan take government bonds directly undertaken. However, there are critical differences in this historical similarity. Takahashi's finances collapse, and Takahashi Korekiyo's own assassination, was caused when he tried to curb the military spending that had been inflated through this direct finance. This is a historical lesson that shows how difficult it is to close a once-initiated fiscal finance faucet under strong political spending pressure. In modern China, spending such as maintaining social stability, increasing military power, and pursuing technological hegemony are sanctuaries related to party legitimacy and is impossible to reduce. Therefore, unlike Takahashi's finances, China's fiscal finances are a one-way road with no exits.

This policy shift marks the complete end of PBoC's independence. The purge of technocrats in the financial sector (particularly the Zhejiang Bank School faction) and the replacement of party loyalists, as mentioned in the previous report, was a political step forward. The PBoC is no longer an independent institution that can oppose financial liberty. Its main responsibility has shifted from price stability to ensuring that the state can raise the necessary funds. This fundamentally changes the risk calculation of assets denominated in renminbi. The value of the yuan will no longer be determined by the productivity of the Chinese economy, but by the speed of the printing press to meet the unconstrained fiscal needs of the nation. This fundamental failure of governance is the main trigger for future trust collapse and is the core basis for elevating the evaluation of Signal Gate S6 (Government and Policy) from "hollowing out practical capabilities" to "formulature of fiscal finance."

1.3. Deflationary vise: Acceleration of debt spiral

The sustained deflation that is eroding China's economy serves as a powerful catalyst to accelerate the debt crisis. This deflationary environment serves as a "vice" that turns the last resort of fiscal finance into something even more dangerous.

Price trends observed throughout 2025 speak to the seriousness of this deflation. The Consumer Price Index (CPI) fell into a negative zone compared to the same month last year (-0.1%) in May), and the Producer Price Index (PPI) is even more serious, reaching -3.3% in May, marking the 30th consecutive month of negative. This price decline is attributed to chronic sluggish domestic demand, the collapse of the real estate sector and the enormous overproduction capacity brought about by government industrial policies.

The most destructive effect of deflation on the debt crisis is debt.Real valueIt is to increase the number of Even if nominal interest rates are close to zero, real interest rates remain high in situations where prices are falling. For example, let's say that the price of a product at the time a company borrowed 100 yuan is 100 yuan. If product prices drop to 50 yuan due to deflation, the company must sell twice the previous product to pay off the same nominal obligation of 100 yuan. This will effectively double the burden on debtors, increasing the risk of the entire economy falling into a "debt deflationary spiral."

This deflationary environment has pushed China's policy decisions to a dead end. As prices fall and the pessimistic view of the future of consumers and businesses dominates, traditional monetary easing measures like rate cuts lose their effect. Even if we lower interest rates, no one will try to increase borrowing or investment. This "liquidity trap" is the direct cause of the nation becoming the only option: fiscal stimulus with funding from the PBoC.

Ironically, however, the very deflationary environment that requires fiscal finance amplifies the disruptive side effects of its policy. Under deflation, nominal GDP growth will stagnate or shrink. In this situation, if a central bank reprints new money, the proportion of the reprinted unit of money in the entire economy (nominal GDP) will be much larger than if the economy were growing. This dramatically increases the dilution of currency values ​​and dramatically increases the risk of sudden changes to uncontrollable inflation once market confidence breaks down.

In conclusion, deflation poses a policy dilemma on China. Fiscal finance appears to be essential to avoid a debt deflationary spiral, but when fiscal finance is carried out in a deflationary environment, it becomes a time bomb that reduces the time to collapse of the currency. This vise-like situation completely eliminates the possibility of soft landing in the Chinese economy.

1.4. S1 Gate Reevaluation: From Crisis to System Dysfunction

The above analysis is integrated and the basis for determining signal gate S1 (finance) will be officially updated.

The basis for S1 in the previous report focused on the real estate and LGFV debt crisis and the deterioration of crisis management capabilities due to purges in the financial sector. However, subsequent developments indicate that the problem has moved to a new, more serious stage.

The reassessment of this report does not mean that China's financial system is no longer in a "crisis" state;Administrative but apocalyptic "system dysfunction"We conclude that we have fallen into This judgment is a complex result of the following three factors:

1. System insolvency state (1.1): The entire system lost its solvency as the total non-financial sector debt reached an unrepayment level of 312% of GDP and the state effectively assumes the debt.

2. Determined fiscal control (1.2): The state has irreversibly committed to the last resort of central bank monetizing debts to resolve this insolvency. This made the very concept of financial system stability subordinate to the supreme order of the financial survival of the state.

3. Acceleration of deflationary spiral (1.3): Continuing deflation has increased the substantial burden of debt, forcing it to rely on fiscal finance, and at the same time, it amplifies the disruptive potential of its policies.

Under this trinity situation, the key functions of China's financial system have now been transformed into supporting the nation's financial survival, not efficient capital allocation or risk management. This is a life-prolonging measure that is taken in exchange for the system's own health, and the ultimate outcome can only be achieved by a complete collapse of the system.

Therefore, the status of S1 (financial) isREDand maintain the rationale for the decision"Systemic Insolvency and Fiscal Dominance"qualitatively raises it to.

Part II: External Constraints – End of Resource Buffer (S4 Reevaluation)

2.1. The lifeline of energy threatened: Funding vs. stockpile (S4 update)

A domestic financial collapse poses a direct threat to China's strategic resources, particularly its energy capabilities. The huge strategic oil reserves that have been previously considered the last security bastion are no longer strategic buffers, but are now a time-buying solution.Finite attrition assetsHe changed his personality to

International Energy Agency (IEA) data shows that China built up its crude oil reserves at an astounding pace of 900,000 barrels per day in the second quarter of 2025. This action is a sign that the Beijing leadership is deeply aware of its country's geopolitical vulnerabilities and is trying to prepare for the risk of physical disruption. However, this stockpile activity is not a solution to the crisis, but rather indicates the seriousness of the crisis.

SymptomsNothing but.

The core issue is not physical stockpile,Financial ability to continue imports in the futureIt is. The ongoing financial crisis across the country is fundamentally eroding this capacity. China recorded a huge current account surplus of $300.6 billion in the first half of 2025, which is the source of payment for imports for the time being. However, this surplus itself is the flip side of the weakness of the economy, as a result of the sluggish domestic demand caused by the real estate recession, which has resulted in suppressing imports. The surplus is extremely vulnerable to external shocks such as additional US tariffs and a global economic recession.

Furthermore, the world's largest foreign currency reserves, reaching $3.322 trillion as of August 2025, are not as solid as they appear. The reserve plays many roles, including controlling the yuan exchange rate, covering huge external debts, and providing funds for external loans related to the Belt and Road Initiative. If this reserve is rapidly withdrawn to pay for imports of commodities such as energy and food, it could be a fatal blow to the yuan's confidence and trigger a currency crisis.

This situation means that China's energy security is facing a "scissors crisis." One blade is the physical demand for ever-growing imported resources, essential to sustaining the economy and society. The other blade is the financial ability to purchase those resources in hard currency (mainly US dollars) that continues to be structurally degraded by the domestic financial collapse. Strategic stockpile is nothing more than a buffer that is consumed every moment, buying time before these two blades intersect and breaking China's lifeline.

The Beijing leadership is forced to compete in time-drawn competition to secure as many physical resources as possible within the country before the domestic monetary system collapses. Therefore, the sustainability of strategic petroleum reserves has become a purely financial issue, not a geological or logistical issue. The risk is not a future supply network cutoff;The current accelerating depletion of payment instrumentsIt is. Based on this recognition, the status of Signal Gate S4 (Resource Procurement) indicates future risksAMBERThis indicates a current loss of abilityREDIt is reasonable to raise it to.

2.2. Mirage of the RMB Internationalization: A Failed Escape

There is a rebuttal that China could avoid this crisis by bypassing the US dollar payment system and importing resources in renminbi denominated. However, this argument is merely a wishful thinking that ignores reality. The internationalization of the yuan is an unrealized mirage that has been removed from its ladder due to the domestic financial crisis.

Data provided by the International Association for Interbank Communications (SWIFT) coldly illustrates the reality of the yuan's international status. As of June 2025, the yuan's share of global payment currencies is only 2.88%, remaining sixth in the yuan. This has been a significant receding from the peak of December 2023 (4.74%), suggesting that internationalization attempts are in reverse rather than stagnation.

The so-called "Peter Renminbi" concept is not driven by market forces, but is a project based on geopolitical intent. It is true that some countries under Western financial sanctions, such as Russia and Iran, have introduced yuan settlement in their oil transactions with China. However, these trading volumes are not sufficient to meet China's vast energy needs at all. Major Gulf oil producers, led by Saudi Arabia, are still overwhelmingly deeply embedded in the Petrodar system and have no incentives or ability to change their structure.

The fundamental obstacle to the internationalization of the yuan renminbi is China's own domestic policy. That is, the lack of complete exchangeability of the yuan and strict capital regulations. Even if Saudi oil companies receive billions of yuan, the options to freely exchange the funds for other currencies, manage them in global financial markets, or remit them to their home countries are extremely limited. This contrasts with the US dollar payment guaranteeing full access to New York's deep, liquid financial markets.

This contradiction delves into the heart of the dilemma facing the Chinese Communist Party. In order to protect the domestic financial system from collapse, strict capital regulations to prevent capital outflows and exchange rate controls to stabilize import prices are essential. However, these policies fundamentally destroy the "trust" and "convenience" that are essential for international reserve and settlement currencies. Reliable international currencies require institutional foundations such as free exchangeability, open capital accounts and predictable rule of law, all of which are currently being abandoned in order to maintain domestic stability.

In conclusion, the internationalization of the yuan has halted before the reality of a domestic financial crisis. Whenever the party leadership realizes that the two goals of maintaining domestic stability and internationalizing currency are incompatible, it always chooses the former. Therefore, the Peter's yuan is a strategic dead end and cannot be an effective means of solving China's resource procurement problems. China cannot escape the structure of relying on the US dollar to fund resource imports, and is completely stuck in the trap of the "scissors crisis" mentioned in the previous section.

Part III: The Inevitable Ending – Currency Collapse and Regional Reorganization

3.1. Unsolved equation: printing of the yuan vs. purchasing oil

Previous analysis shows that the Chinese government is facing an irresolvable policy trilemma. A nation can only achieve two of the following three policy goals at the same time, and it is impossible to achieve all three.

1. Fund the State: To prevent the chain of bankruptcy between local governments and state-owned enterprises, we will continue to monetize large-scale domestic debt (fiscal financing).

2. Maintain the Peg: Stabilize the yuan versus the dollar exchange rate to maintain the purchasing power of essential foreign resources (oil, food, medicines) and prevent the outrageous import inflation.

3. Prevent Capital Flight: Avoid the introduction of draconian capital regulations that would completely isolate China from the global economy.

Based on the current situation analysis, Goal 1 (state funding) is an absolute priority that is unnegotiable as it relates to the survival of the Chinese Communist Party itself. Therefore, the actual choice is either at the expense of goal 2 (maintaining the exchange rate) or at the expense of goal 3 (preventing capital flight). To completely sacrifice Goal 3, namely, to introduce complete North Korean capital controls, means completely depriving the Chinese economy of the remaining vitality and separating itself from the international supply chain, leading to a collapse of the regime in the long term. Therefore, the option that appears to be the least resistant and prohibitive short-term pain is Goal 2, i.e.Sacrificing the maintenance of exchange ratesIt is.

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This trilemma shows that China has reached a stage where it is no longer able to overcome the crisis through soft landings and gradual adjustments. No matter which path you choose, all that's ahead is the collapse of the system, and the only problem is its form and timing.

3.2. Mechanism of collapse: Weimar Echo in the Digital Age

The process leading up to the collapse of the yuan can find its prototype in historical precedents, particularly in hyperinflation in the Weimar Republic.

The tragedy of the Weimar Republic began when it attempted to cover the debt of World War I, which was far beyond the state's ability to pay through a central bank's monetary reprint. This is structurally perfectly in line with the situation in which modern China is trying to monetize the "internal compensation" of unrepayable domestic debt left by its failed investment-driven growth model. In both cases, the central banks were forced to abandon their independence for government financial convenience and provide endless funding, resulting in a total loss of public confidence in the currency, and their value fell both inside and outside. This historical lesson shows that hyperinflation is not a purely financial phenomenon, but a political phenomenon rooted in the financial reality of the state's insolvency.

Based on this historical model, the sequence of the yuan collapse is predicted as follows:

1. Acceleration of monetization (late 2025 to early 2026): To fill the ever-growing fiscal deficit, PBoCs' purchase of government bonds has become a norm, and the scale of the bonds will rapidly expand. Initially, it appears to be indirect through the secondary market, but in reality it becomes a direct financing to the government.

2. Confidence Collapse: Highly-funded financial market participants both in Japan and abroad (wealthy, companies, and international investors) recognize that the yuan has been systematically devalued and begin escaping their assets.

3. Capital Flight: Capital flight is escalating through the loosely regulated Hong Kong's offshore yuan (CNH) market and other informal channels. The divergence (spread) between onshore (CNY) and offshore (CNH) exchange rates is explosively widening well beyond the 400bp level that was wary in advance reports.

4. Reserve Burn: To defend the official rate, the PBoC is forced to sell its highly liquid US dollar assets (such as US bonds) on the market and buy back the yuan. However, due to the huge scale of capital outflows, this intervention becomes a drop in a firestorm, and foreign currency reserves decrease at a dangerous rate.

5. De-Peg/Devaluation: The PBoC will either approach its limits or, at political discretion, announce that it will either abandon its managed floating exchange rate system or devalue the yuan against the dollar rate by tens of percent (shock-like devaluation).

6. Hyperinflation: The yuan, which lost its final anchor called the currency exchange, begins to fall free. The domestic general public faces the reality that the value of their deposits and cash is being lost every day, and panics try to exchange the yuan for goods and foreign currency. This causes an explosive increase in the rate of currency circulation, resulting in a hyperinflation spiral in which prices rise astronomically.

Once this process begins, it accelerates self-proliferatingly, completely exceeding the authority's control capacity. In modern China, where digital payments are popular, bank deposits are not a physical line, but can be instantly generated by just a smartphone tap, and the propagation speed is incomparable to the Weimar era.

3.3. Last anchor: Japanese yen in Asia after the yuan

Amidst the regional financial chaos brought about by the collapse of the yuan, the Japanese yen, due to its structural resilience, will establish itself as the only stable currency in Asia (safe haven).

This conclusion is derived by comparative analysis of the qualitative differences between the renminbi and the Japanese yen after the collapse.

• The collapsed yuan: After the currency collapse, the yuan will lose its value as a means of international trading completely. It lacks all the institutional foundations essential to reliable currencies: exchangeability, rule of law, and independent monetary policy.

• JPY: It is true that Japan itself has huge government debt, which is more than 234% of its GDP. However, this risk is fundamentally the risk that China faces.

  Different types。

  • Qualitative strengths: The Japanese yen is supported by characteristics that the Chinese yuan under the current Chinese Communist Party regime would never have. That is, 1) an open capital account that ensures completely free exchangeability, 2) a deep, highly liquid financial market, including one of the world's largest government bond markets, 3) a central bank that is independent of the government, in principle, 4) a strong protection of private property rights and the rule of law.

  • External Net Asset: The crucial thing is the fact that Japan is the world's largest foreign net worth country. The vast assets held overseas by the Japanese government, businesses and individuals will serve as the ultimate collateral to support the value of the yen in the event of an emergency. This is a critical strength that China, which also has a lot of external debt, does not have.

  • Market perception: Global financial markets have coexisted with Japan's high levels of debt for decades. It is woven into prices as a known, slow progression risk. In contrast, the collapse of the yuan becomes a sudden and chaotic crisis event. In times of financial panic, capital escapes from unknown risks to assets that are perceived as familiar and institutionally stable.

After the yuan loses its function as a settlement currency, there is no currency other than the Japanese yen that is sufficiently large and liquid, when trade within Asia or capital that escapes from China seeks settlement and investment destinations other than the US dollar. The Hong Kong and Singapore Dollars are too small in the market, while the Korean won has high geopolitical risks. Therefore, Japanese yen will be eliminated as the "least dirty shirt" and will absorb the enormous capital and trade settlement flows that are leaking from China.

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4. Conclusion: Strategic Implications for the Ark-R Framework

4.1. Final judgment confirmed

The analysis in this report confirms the final determination of the Chinese economy that "overwintering is not possible" with the highest degree of reliability. The critical trigger was not a disruption to supply energy and medical care that could occur in the future, but rather a Chinese leadership has already been given.Structural transition to fiscal financeThis is an irreversible decision. Crossing this line has led the Chinese economy to irreversibly take the path to currency credibility collapse and hyperinflation.

4.2. Implementing the Ark-R framework

Based on this final judgment, the following actions are recommended regarding the Ark-R framework:

• E-MAD (Economic and Market Anomaly Detection) Level 3 Immediate activation: Analysis in this report indicates that the conditions for Level 3 (initializing full measures) have already been met. The basis for its activation is no longer a future observation indicator, "if the S3 or S4 gate ignites for more than three weeks." It is said that China's governing system adopted fiscal finance as an official policy tool.Structural changes completed in the pastIt is itself. This change has shifted system collapse from stochastic risk to a timeline problem.

• Counterparty risk reassessment: Exposures to Chinese financial institutions, local governments, and all entities associated with them must be immediately revalued as assets with extremely high default probability. Insurance premium rates and allowance levels should not be incrementally raised, but should be raised all at once to a level that assumes maximum losses based on the currency collapse scenario.

• Building a currency hedging strategy: The core position will be a large-scale, long-term currency hedging strategy based on the collapse of the yuan and the subsequent relative value of the Japanese yen. in particular,Selling of the Chinese yuan (particularly the highly liquid offshore CNH) and buying of Japanese yenWe recommend that a combined position be placed at the core of strategic asset allocation.

• Final Restructuring of the Supply Chain: The plan to completely separate the supply chain of important supplies (pharmaceuticals, semiconductors, important minerals, etc.) from China, which has been in the study stage up until now, will be moved to the implementation stage immediately. When selecting a reorganization destination, the region or country where payments can be made in the yen or other stable currencies will be the number one priority.

• Preparation for the humanitarian corridor: Preparations for the opening of the Humanitarian Corridor will redefine its trigger as being prepared for the secondary impact of the currency collapse, as predicted by this report. Specifically, the sudden depreciation of the yuan has resulted in a sudden rise in import prices in Japan.Wide shortage of pharmaceuticals, food and fuel and social unrest (riots, massive looting)Once observation information has been obtained that the trigger has caused the trigger, the preparation phase moves to the immediate activation phase.