TWS: Apr. 19, 2021

Graph of the Week | Trade

A Lil’ Demand Spike Makes Everything Nice

Following the release of China’s impressive Q1 2021 GDP data, the country continues to show a strong recovery trajectory. At the helm of the rebound was exports, which had been a key driver of China’s success in 2020 as demand for pandemic-related and work-from-home-related goods surged.

According to China’s Customs General Administration’s data, exports saw commanding 30% y/y growth in March, though this was significantly slowed from the 150+% boom the month prior. Meanwhile, the country’s imports ended with another record hike of 38.1% y/y.

Despite the increase, investors are pointing to the small trade surplus in the month of March as a foretelling sign of an export slowdown. Indeed, the record highs cannot last forever; as other nations roll out their vaccine programs and foreign manufacturers pick up steam, China’s market dominance may taper.

Bottom line: In reality, 30% y/y growth is nothing to write home about – particularly given that it’s in comparison to numbers from the height of the pandemic in March 2020. Nonetheless, China’s economy has something else to be excited about in the stead of exports: consumer demand. Retail sales and import figures continue to point north, offering a sign of normalcy that can – and should – replace exports.

Economics | Industry

Deep Demand for Shipping Takes SMEs to the Depths

Thar she blows! Sea freight and container demand is rearing its ugly head as Chinese exports drive shipping prices to new highs.

After breaking a historical record for exports in 2020, China has clung onto its role as the world’s producer. With it has come a golden age for shipping – or what would have been if there were enough containers to go around. As companies scramble for cargo space, the price of shipping is making waves. Look no further than the world’s largest shipping company, China Cosco Shipping Corp., which is paying US$38,000 per day to lease a ship that would have cost US$12,000 last June.

For container ship operators, this is a white whale moment to cash in on free-flowing demand. Yet, it’s not all smooth sailing ahead. Widespread port backups have forced costly shipping delays or expensive reroutes, while massive trade imbalances between China and the rest of the world see ships – once packed to the brink – returning to port empty.

Bottom line: The pandemic’s rippling tides are far reaching, and the shipping industry is its latest captive. While larger companies can absorb the exorbitant freight prices, SMEs are being sent to the crushing depths of the Mariana Trench.

Business | Economics

Getting Gucci With the Digital Yuan in HK

It’s time for the Mainland and Hong Kong to get ‘Gucci’ with the digital yuan. The PBOC rolled out its first cross-border payment test as HKers spent those sweet digital Maos in Shenzhen at the end of March.

As stories about the digital yuan pop up every few weeks, it may be tough to keep up with the deluge. This trial was particularly important though given HK’s status as the largest offshore market for the yuan places it near and ‘Dior’ to the heart of China’s cross-border strategy. In 2019, HK:

  • ‘Chanel’ed CN¥8.83 trillion (US$1.3 trillion) worth of transactions
  • Accounted for 44.9% of total cross-border yuan payments and receipts
  • Far outpaced the next runner up, which was Singapore at 10.3%

Bottom line: As it stands, the system is more tailored to handle retail transactions rather than large payments. It has a daily limit of CN¥50,000 digital yuan (~US$7,630) – a cap that will need to be lifted before becoming a viable option in the city infamous for enough luxury goods sales to make even Hermes’ head spin. Nonetheless, in China’s grand plan to expand the RMB’s reach, the trial of cross-border payments marks a key milestone in the digital yuan’s growth trajectory. Now that’s something to be ‘Prada’ of.

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Economics | Policy

PPI, CPI, ATH, PBOC, and All That Econ Jazz

Is there such a thing as too much of a good thing? Ask Chinese industrial firms, who are seeing profits surge in light of the highest factory prices in two years.

Factory prices are typically measured using PPI, a measure that tracks the change in price for producer goods (hint: think CPI but from the producers’ perspective).

Now, let’s rewind to February when China reported a 1.7% y/y increase in PPI. Fast forward, and March saw an explosive 4.4% rise. Some economists even project growth of more than 7% over the next few months.

Rampant commodities prices are forcing factories to charge more for their goods, but with exports near ATHs and the bump in production costs transferred to consumers across the globe, it’s a good time to be a producer in China.

Bottom line: Consumer demand typically plays an influential role in PPI swings, but Chinese consumption is still relatively stable – if not muted. Because producers are firing on all cylinders, but consumers aren’t quite back on their feet, don’t expect the PBOC to break up the party with monetary tightening just yet. And, for our US readers, with consumers raring to spend those sweet stimmy checks regardless of rising export prices, whispers of inflation in the States are making rounds again.


Domestic Companies Get a Head Start With Political Marketing

Make room for Li-Ning, the first Chinese sportswear manufacturer to run laps around its international competition!

Li-Ning was founded in 1990 by Chinese Olympic gymnast, Li Ning, and has taken the gold for its exclusive merchandise that pushes the boundaries, drawing inspiration from pop culture artists to e-sports competitions, and everything in between.

While the company specializes in sportswear, its marketing game isn’t too shabby either. Its glamorous fashion shows, KOL influencer campaigns, and new line of international retail stores have gained it entrance into the race for global customers.

Yet it’s on its home turf where it really shines. The company has found a new chance to sprint past foreign competitors in the domestic market, cashing in on Chinese nationalism as it garnered praise from local consumers for supporting Xinjiang cotton on social media.

Bottom line: Growing Chinese brands are finding their stride as politically charged marketing campaigns offer opportunities unavailable to foreign competitors. Yet, as companies get caught in the geopolitical minefield between China and the West, it remains to be seen if untested Chinese companies like Li-Ning will be able to sway global consumers while toeing the Party line.

Business | Policy

Time’s A-tickin’ for the TikTok Deal

As he undertakes a thorough review of Trump’s China policies, President Biden is expected to formulate a China strategy that puts American interests first and strengthens US competitiveness in the global market. While he maintains that his administration will take a different path than his predecessor, there is no doubt that heated competition is on the horizon – and TikTok may find itself at the forefront of the battle.

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