TWS: Apr. 12, 2021

Graph of the Week | Industry

Buckle Up and Enjoy the Ride to EVs

Alongside the success of Tesla and swaths of domestic competitors, China is increasingly regarded as the world’s most attractive EV market. Producers and investors alike are geeked at the potential for China to develop the first national, comprehensive EV production economy in terms of vehicles, batteries, charge piles, and auto-drive systems. Yet, the question looms: How far is China from the era of electric vehicles?

The pandemic left its mark on the industry. Sales of both combustion engine vehicles and EVs were heavily impacted; however, while most auto manufacturers struck out at the height of the pandemic, EVs have come back swinging. Wuling, China’s largest EV maker, tripled its sales between December 2019 and February 2021, while Tesla, producer of China’s top-selling model – the Tesla Model 3 – saw its sales significantly outpace those of traditional competitors Volkswagen and Toyota during the same period.

Bottom line: These growth stats are impressive, yet in a sales-to-sales stack up, EVs still fall far short of their traditional combustible engine cousins. Nonetheless, with analysts giving the greenlight on high-paced growth and investors flooding the market, it may be time to buckle up and enjoy the ride towards the incoming era of the EV.

Economics | Industry

Taking A Slice of Rural Pie for China’s Tech Giants

Any longtime TCG reader already knows that China has the world’s largest market of digital consumers. For proof, look no further than last year’s Singles’ Day that raked in an eye-watering US$115 billion.

It’s natural then to overlook the untapped potential of the millions of offline Chinese netizens. Yet, according to a recent UN global e-commerce ranking, China’s “online shopping readiness” only ranked 55th in the world.

So, with such a strong digital sales market, what’s behind the low ranking?

  • China’s internet penetration rate is a lowly 64.5%
  • Over 1/3 of the country remains off the grid

Not to mention, internet adoption is similar to economics (because really, what ISN’T like good ol’ fashioned econ?) – China’s urban internet penetration rate is starkly higher than in rural areas. The remaining 35.5% is roughly 490 million potential users, or a population larger than:

  • ~1.5 US
  • ~13 Canadas
  • ~115 Panamas

Bottom line: Due to China’s high wealth inequality and urban-rural internet access disparity, those extra users may not bring as much cash to the table as you might think. But, with trends like Taobao Villages and community group buying bringing extra buying power to rural communities, there still may be a slice of pie for China’s e-commerce giants to fight over.

Industry | Policy

New Antitrust Laws? That’s So [Not] Fetch!

Have you heard the new fetch sayings, “pulling an Alibaba” or “that’s so”

Okay, we may have made those up – but you should help spread them around while we still can.

China’s e-commerce giants have gotten some bad press lately over practices to strong-arm sellers into using their platforms exclusively. Up ‘til now, they had been muscling merchants into leaving competitors by suppressing listings, blocking stores, and raising platform fees for those who resisted.

Then, China’s market regulators entered the ring last month, banning e-commerce giants from pressuring sellers into “anti-competitive” exclusivity contracts. While Alibaba has argued that merchants sign these agreements voluntarily, regulators just aren’t buying it.

Bottom line: If this game of antitrust whack-a-mole sounds familiar, it’s likely because regulators across the globe are finally sounding the alarms on tech giants’ anti-competitive behavior. Yet, this ban is just the latest campaign in Beijing’s longstanding siege to reign in the influence of China’s private companies in the domestic economy. Expect regulators to continue using market reform to consolidate their control over the emerging industries that had largely been left untouched during infancy.

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Economics | Trade

Down in the Dumps With a Nasty Case of the RMBs

Having a rough Spring? Sick of being compared to others? Sounds like you may be suffering from a case of the Renminbis, AKA the Yuans!

The RMB is on course for its worst month against the USD since the trade war:

  • Over the past year, it gained 6.9%, yet:
  • Over the past month, it fell by 1.4%

The drop has Beijing furiously reevaluating its priorities. For those that need a refresher in Econ 101, a weaker RMB:

  • Helps boost exports
  • Encourages domestic consumption of Chinese brands
  • Leads to inflation
  • Slows manufacturing innovation

The RMB was nearing multi-year highs, so a healthy correction was always in the cards. Not one to sit back and watch, the PBOC has already taken the reins and plans to “make currency exchange more flexible,” AKA ‘reign in depreciation.’

Bottom line: From the trade war to the pandemic, the past few years have been anything but ordinary for the Chinese economy. Policymakers have read the writing on the wall and only committed to a vague GDP growth target this year – a good decision given a fluctuating RMB adds in yet another variable to the mix. It’s now on Beijing to shake the Renminbis by balancing short-term economic gains with long-term development priorities to piecemeal their way back to economic normalcy.

Industry | Technology

The King Is Dead, Long Live the King!

All hail Oppo! The consumer electronics firm snatched the title of ‘Smartphone King’ from Huawei after outselling its rival in China for the first time in history.

The two rivals have been locked in a rivalry as old as time, but Huawei had always reigned king. Yet, as wide-reaching US sanctions take their toll on the telecoms giant, Oppo found its chance to snatch the throne for the smartphone market.

The Dongguan-based company saw its sales explode 26% y/y in January, while a new focus on their 5G-compatible affordable devices helped it inch past China’s other top royals – Huawei, Vivo, Xiaomi, and Apple – to a commanding 21% share of the world’s largest smartphone market. Its time on the red carpet may be fleeting though, as it lords over just 1% more of the market than many of its competitors currently eyeing the crown.

Bottom line: The smartphone market is seen as a zero-sum game in China; when one firm wins, another loses. Yet, the opposite remains true as well. While Oppo’s rise to the top has been impressive, Huawei’s dethronement speaks more to its struggle to obtain critical industry materials in the face of slow burning US sanctions on China’s telecoms monarch.

Economics | Policy

The Risk of China’s Stimulus Rollbacks to the Global Economy

China’s economy has made an impressive recovery since the onset of the pandemic, and the stringent health measures and targeted economic stimulus enacted by Beijing’s top leaders have been remarkably successful. However, with policymakers now beginning to phase out centrally-backed economic support, some are voicing concerns that a premature rollback could threaten an already reeling global economy.

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