TWS: Aug. 23, 2021

Graph of the Week | Economics

Producers Pop a Pill for Rising Prices

Amid historic flooding in Henan and regulatory crackdowns, inflation figures have been markedly unimproved over the last couple months. China’s National Bureau of Statistics’ July economic recap showed as much:

  • China’s producer price index (PPI) rose 9% y/y last month, climbing to a 13-year high last seen in May.
  • The consumer price index (CPI) rose 1% y/y.
  • 32 of 40 industries surveyed reported price increases, especially among coal and natural deposits miners.

Sweltering summer heats and stalled OPEC talks continue to place inflationary pressure on fossil fuel-based commodities, pushing up production prices. CPI has also begun to creep upwards as spillover from high PPI leads to higher sticker prices, though this has been largely balanced by falling food prices – the price of pork, a staple found on most Chinese dinner tables, fell 43.5% y/y.

Bottom line: Even for China, the road to pandemic recovery isn’t without its fair share of potholes. Beijing is eager to resist inflation pressures yet is shying away from monetary policy intervention. In the end, most of the burden to protect consumers from rising prices will have to be shouldered by firms facing higher price tags on production commodities – let’s see if they can shake the headache.

Business | Technology

Driving Down China’s Private Highway 101

“Private traffic” is going public in China, and before you ask – no, it has nothing to do with cars. If you’re a shopper in China, you’re probably already a part of it. If you’re a merchant in China, then you definitely need to know about it.

But first, for all you rising business moguls out there, answer us this – which is more cost effective: signing a new customer or retaining an existing one? You probably don’t need to watch The Office to know that acquiring a new customer can be up to five times more costly.

Now, you may be asking yourself, ‘Why are The China Guys taking me through MBA 101?’

Patience, grasshopper. We’ll get there.

The idea behind private traffic is simple – if you’re on the virtual streets of Taobao, why pay for billboards when you could directly knock on your customer’s door? Big Chinese e-commerce platforms and small digital storefronts alike are now turning to the Chinese mega-app WeChat to engage with “private traffic” – or users that have already made purchases – on their preferred platform. By creating dedicated brand groups and incentivizing buyers to join, sellers are able to connect with their customers more easily and at significantly lower cost.

Bottom line: Public advertising in China is only getting more expensive as the competition over users grows fiercer. Still, the advantage to the Chinese market is the ability to scale muy rapido, and to do so a company needs to be able to cast a wide net to bring in more sales. Private traffic will likely become a primary business strategy for smaller storefronts, while a natural extension of the customer re-engagement process for those larger companies that can afford to pay for all those billboards on the side of the highway.

Business | Policy

The Apple Doesn’t Fall Far From the Tree in Hong Kong

Hong Kong’s head honcho Carrie Lam made headlines when she let slip that Beijing’s Anti-Foreign Sanction Law may soon make a second debut, announcing her support to add the amendment into the city’s governing mini-constitution.

To (loosely) quote one of TCG’s fave movie picks, “We’re shocked, shocked to find that Hong Kong will adopt the ASL!” First launched in June, the ASL provides Beijing a legal mechanism for Beijing to levy tit-for-tat sanctions on entities that enforce outside sanctions on Chinese firms and individuals.

The law comes amid a spike in US sanctions on Chinese companies and individuals accused of having ties with the Chinese military, Xinjiang forced labor, and human rights abuses in Hong Kong. It has also left MNCs scrambling to navigate an increasingly treacherous US-China geopolitical landscape.

The expected arrival of the ASL in HK follows the draft release of the world’s most strict anti-doxxing legislation – a campaign that has contributed to mounting worries by MNCs and led to a formal business advisory in July on the growing risk of conducting business in the city from the US Department of State.

Bottom line: It’s still unclear whether the law will be tailored to the city’s unique business environment, but given Hong Kong’s reliance on foreign banks, it’s been speculated that financial institutions may enjoy a degree of immunity from persecution. We expect these ‘exceptions’ to extend to most MNCs, while the law is instead kept as an ace up the sleeves for both Beijing as well as the HK government.

Economics | Finance

Riding the Rails to Roaring Debt

All Aboard! China has unveiled the world’s fastest land vehicle, but can the speed of its new high-speed transport keep pace with its chugging costs?

China recently finished construction on a new bullet train that tops out at 373 mph, or 600kph for our non-US readers, making it the “fastest land vehicle in the world.” The train will be able to traverse the 819 miles (1,318 km) between Beijing and Shanghai in just two-and-a-half hours; that’s 30 minutes faster than planes.

While the US has the longest railway system, most of this is dedicated for rail freight. China has instead focused on passenger transport and operates the world’s most extensive high speed rail network. High speed railroads (“HSR”), or gaotie, have been a key point for domestic infrastructure over the past decade, and the country has built just over 15,500 miles, or 25,000 kilometers, of HSR line since 2008.

Connecting the dots for economic activity

These new HSR connections between China’s coastal east and far western provinces have brought an estimated 8% yield on investment through shortened travel times, increased labor mobility, and higher tourism. The railways have been crucial to bringing more economic opportunity to China’s poorer inland provinces and reaching Beijing’s goals of eradicating domestic poverty (or China’s definition of it) by the end of 2020. Now, tracks are getting a major upgrade as Beijing sets an ambitious plan for “three-hour transport circles” between China’s major cities.

Bottom line: China Railway Corp’s debt throughout the initial HSR construction boom rode the rails from US$70.70 billion in 2005 to US$4.72 trillion in 2016. Yet, this new technology will not be operable on current railways and companies will need to dig deep to shell out the cash for a nation’s worth of new line. While the estimated ROI on China’s HSR far outpace other domestic infrastructure projects, these companies will be stoking the fires as they borrow trillions amid a risky period of rising bad debt and crackdowns on state-owned distressed debt managers.

Business | Technology

5 Trends To Watch in Chinese E-Commerce Livestreaming in 2021

China’s e-commerce livestreaming industry reached a value of over US$165 million in 2020. As more firms turn to livestreamers, the market has become overcrowded and ROI has been slipping. To remain competitive, brands must be alert of the latest developments. This article points out the top five trends that market players should know if they want to maximize their investment in China’s e-commerce livestreaming in 2021 and beyond.

Full Article

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