TWS: Aug. 16, 2021

Graph of the Week | Markets

Coal & Clean Energy Compete Over China’s Climate Goals

135 Chinese companies made the cut for this year’s Fortune Global 500 list, making China the heavy-weight champion after it surpassed the USA at 122. China’s contenders for the big 500 recorded an accumulative revenue of 8.92 trillion dollars, a 7.6% increase from the year before.

Yet, the data tells a tale of contradiction in Beijing’s initiative to go carbon neutral. While tech giants Alibaba and climbed into the top 100 for the first time, China’s biggest mover was Jinneng Holding Group. Weighing in at US$67.5B in revenue, Jinneng moved up 325 spots to settle at the respectable rank of 138.

As a state-owned leader in solar manufacturing, Jinneng is at the forefront of Xi’s goals for a greener China by 2030, which includes shifting upwards of 25% of energy consumption away from fossil fuels. Providing a stark contrast, however, is China’s second biggest mover – Shandong Energy, one of the nation’s largest coal producers.

Bottom line: Jinneng’s 145% revenue growth during the worst global pandemic since the turn of the 20th century indicates that China isn’t letting up on its push for clean energy by 2030. However, Shandong Energy’s ascent is a cautionary sign that weaning off of fossil fuels in the world’s largest coal consuming country will not come easily.

Industry | Policy

Beijing Goes Bonkers Over Bitcoin

Like an angry parent on the 1st of the month, China has turned off the lights on the Bitcoin miners racking up the country’s utilities bill. Henan, Gansu, and Anhui have become the latest provinces to crack down on crypto mining after officials from Xinjiang, Inner Mongolia, and many of China’s other most popular regions did so earlier this year.

More than half the world’s Bitcoin mining took place in China – and the country outmined the next runner up by a considerable margin. But crypto mining has faced backlash lately over its massive power consumption, something otherwise known by industry aficionados as “hashrate,” or the combined computing power of all those mining for the digital gold.

Color Beijing’s top policymakers unimpressed. Not only is BTC’s pseudonymous network viewed as a threat to China’s strict capital control regime, but the immense carbon footprint of crypto mining is also an obstacle to the country’s long-term clean energy goals. Given the government’s ability to access all current and historical power consumption data, areas with newer mining rigs stick out like a sore thumb, allowing local officials to pull the plug at a moment’s notice.

Bottom line: Chinese officials place a considerable emphasis on domestic stability and predictability. In their eyes, Bitcoin in China has a trifecta of factors going against it: undermined capital controls, inefficient energy consumption, and widespread price volatility keep policymakers awake at night. Yet, Chinese hodlers still account for over 50% of all crypto and the country is home to the largest crypto mining product manufacturers, so it’s unlikely that we will see a complete crackdown. Still, expect policymakers to take a stronger stranglehold over the industry before restrictions are eased.

Economics | Policy

Pudong Daydreams: Say ‘Bai-Bai’ to Capital Controls in the “Paris of the East”

Free the RMB! Pudong district, Shanghai, otherwise known as China’s proverbial “Paris of the East,” is watching its dreams of “liberté” come to fruitión – that is, for the Renminbi, at least.

Why Pudong?

Pudong has long been the financial capital of China. It plays home to China’s largest banks and a walk down the district’s central Century Avenue will take you past block upon block of dizzying dazzling skyscrapers that house the regional headquarters of foreign banks in China. This was no mistake – Pudong is a free trade zone and enjoys incredible amounts of regulatory autonomy and preferential financial policies that lower the burden of conducting business.

Now, Pudong is at the center of the overarching China 2035 plan to give the free trade zone a glam up and transition into the go-to financial and fintech hub – a spot once reserved for the now dimming Pearl of the Orient, Hong Kong.

New policy brings new opportunity

Pudong’s lofty dreams are once again becoming reality. The PBOC, China’s central bank, has designated the district to pioneer an “experimental” capital control-free zone that will circulate a freely exchangeable cross-border RMB in the district teeming with financial institutions, exchanges, and fintech companies.

Once implemented, foreign investors will be able to freely invest offshore yuan in Shanghai’s Nasdaq-like STAR Market, opening up new opportunities to gain exposure to RMB-denominated investment products while reducing the headaches created by China’s strict capital controls.

Bottom line: Just last week, we predicted that “China will look to reassure foreign investors that the domestic market is still on the table, so expect some big overhauls in market regulation.” Nothing could be larger than the idea of scrapped capital controls. While unlikely that China will fully open its capital account anytime soon, this is a win-win that will unlock unprecedented opportunities for foreign investors looking to the Chinese market while also boosting global circulation of the RMB and bridging the gap between onshore and offshore RMB exchange rates for the PBOC. Vive la révolution!

Economics | Trade

Trade Disputes With Da’ Land Down Under Reach New Heights

Sino-Australian trade relations are getting hotter than a blistering summer day in the center of the Aussie Outback. Representatives from both countries have kangaroo-kicked their grudges up a notch to the WTO, with Australia recently filing a complaint over China’s ongoing tariffs on Aussie goods.

Ever since Australia called for an investigation into the origins of COVID last year, China has given the economy Down Under the whooping of a lifetime. Australia was one of the few developed nations that exported more to China than it imported – a balance that gave Beijing a large retaliatory toolbox. Since, Beijing has largely banned Australia’s largest export sectors, and tariffs, quotas, and trade manipulation have continued to spill bad blood between the two.

Most recently, Chinese tariffs have Australia whining over wine. Last November, China imposed an anti-dumping duty of over 200% on Aussie wine, claiming that importers were selling in China at subsidized below-market prices to out-price domestic competitors. Ever since, Australian wine sales in China – its largest export market – have declined by more than 90%.

For the most part, Australia has been able to redirect many of its largest exports that were targeted amid Beijing’s bad-tempered bash. But, with few markets able to absorb the sheer volume of luxury wine that they exported to China, Australian wineries that solely depended on Chinese sales could soon face bankruptcy.

Bottom line: Resolving trade disputes is a core activity of the WTO, yet its dispute settlement process is long-winded and about half of the disputes raised are typically settled early via bilateral discussions. However, this filing now marks the third case between the two countries that still hasn’t spurred bilateral negotiations, signaling that the Sino-Australian trade gridlock may continue to worsen before it gets better.

Industry | Technology

The VR Market in China: Moving Toward the Metaverse

Virtual reality is quickly becoming the technology of the future. China has highlighted the VR industry as an important sector within its innovation strategy, and it is looking to position itself as a global leader in the technology’s innovation, adoption, and production.

Full Article

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