TWS: Dec. 13, 2021

Graph of the Week | Economics

Anything but Sweet Stimmy for GDP

Beijing’s pulling out all the stops as growing concerns over a spiraling housing market and a slowing economy lead the way into 2022. The People’s Bank of China recently announced that the reserve requirement ratio for banks would be cut by 0.5% to 8.4% as of Dec. 15. The move is the second of its kind this year, and it is set to pump a fresh US$188.3 billion into China’s financial system.

The announcement came just days before an official Evergrande default, but, more importantly, it’s the latest government measure that suggests a shift toward monetary easing ahead. Following an economic slowdown in the latter half of 2021 and property market instability, Beijing is shifting gears from financial de-risking to financial stabilization.

In light of this, the PBOC is looking to increase credit lines, encourage spending, and therefore promote investment in the real estate industry and other beleaguered sectors of the economy. Still, despite these recent changes, the country’s central bank was careful to note that it would not engage in “large-scale, flood-like stimulus” moving forward.

Bottom line: While the change to the reserve requirement ratio may bring short-term relief, it alone won’t provide the cure to China’s unbalanced recovery. As China’s export driven growth begins to fade and the Omicron variant induces new pandemic restrictions around the world, Beijing will have to look down new avenues to support long-term growth.

Business | Policy

China’s Just Not Feeling the Connection

China’s Cyberspace Administration is taking aim at VPNs again—only this time, CAC regulators mean it. Really.

VPNs have long been the go-to tool used to jump over China’s ‘Great Firewall’ of censored web content from within the country. Despite potential fines, server seizures, and arrests for bypassing censored content, an estimated 30% or more of Chinese internet users still turn to the dodgy software to get their fill of everything Facebook, Twitter, and more.

Chinese regulators have always taken a strong stance against personal use of VPNs, but largely stopped short of a full crackdown given their importance in business and academia. Yet, it now seems that regulators in Beijing have begun pressing on with the assault, releasing their strictest round of new draft regulations that would broadly punish individuals and entities that assist others “on how to bypass cross-border data security gateways.” Punishments could range from fines to revoking business licenses for offending operations—putting companies, research institutions, and individuals at stake.

Bottom line: While Beijing has made it increasingly difficult – and expensive – to use VPNs, policymakers have always stopped short of officially banning the global connectors as a compromise for the economic and research benefits that they provide. But, as regulators crack down on data practices and policymakers strengthen restrictions on the outflow of domestic information to the outside world, the proposed changes signal the shifting winds that now say ‘it’s my way on the digital highway.’


Tesla and Ganfeng: A Seasoned Friendship

A friend in need is a friend indeed. China’s Ganfeng Lithium Co. is officially cozying up with Tesla to supply the American carmaker with vital battery-grade lithium products. The newly announced partnership will begin in 2022 and last for three years.

A seasoned friendship, Tesla’s recent contract with Ganfeng Lithium Co is a renewal from an earlier agreement. So, while the deal doesn’t necessarily mark a change in the status quo, Tesla’s renewal with Ganfeng marks the company’s emphasis on being “in China for China” while continuing to seek outward expansion.

With an average monthly output of over 50,000 cars in China, Tesla is on track to produce over 600,000 cars from its Shanghai gigafactory. Though many of these cars are made in China for export, impressively, about 60% of these cars are sold domestically, amounting to about 10% of the firm’s annual revenues.

Bottom line: China’s share in Tesla’s overall sales is on the rise as the company approaches its two-year anniversary of delivering its first China-made cars. Though, in light of rising competition from domestic competitors like Nio, Xpeng, and Li Auto, purchasing decisions are coming down to the smallest differences of cost, features, delivery timeframes, and everything in-between. For Tesla, as the firm looks to begin new factory projects next year and expand production capacity, optimizing in-country supply chains through deals with suppliers like Ganfeng will be crucial to the firm’s long-term success.

Business | Industry

More Than 11/11: A Look Into China’s Thriving Singles’ Economy

China’s singles wield enormous spending power. While industries like dating apps and health and wellness are direct beneficiaries from this demographic, other industries can also cash in on this growing market. As the number of singles in China continues to rise from a multitude of societal and socioeconomic factors, retailers in China would be wise to keep this group in mind.

Learn how China’s post-pandemic recovery will rely on young single consumers in our latest China Insights article:

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