TWS: Dec. 28, 2020

Graph of the Week | Economics

A Few Strokes Short of Perfect: da Vin-Xi’s Recovery

As China approaches the end of a historic year marked by a dramatic fall and subsequent rebound, some metrics continue to play catch-up. In November, retail sales grew by 5% year-over-year, cashing in on their best monthly performance year-to-date. Hand in hand was industrial production, which plowed ahead at 7% y/y growth in the same month. The convergence of these two indicators points to a sustained rebound in demand and supply in the Chinese market.

Despite the pretty picture painted by these metrics, they are still a few brushstrokes shy of a masterpiece. Aggregate consumer sales from January to November trail those from 2019 by 4.8%; on the other hand, fixed-asset investment grew 2.6% y/y in the first 11 months of 2020, outpacing consumption and pointing to lopsided development.

Bottom line: While China has turned the tide, it has not yet won the war for economic recovery. Investment, largely spurred by government-backed stimulus, remains the strongest contributor to Chinese growth in 2020. Though Beijing’s checks have helped the domestic economy bounce back to life, stable organic growth is unlikely until Chinese consumers can support the domestic economy in the absence of government support.

Business | Policy

A Party for the Ages

A list of 2 million CCP members and their professions has recently been unearthed, illuminating an extensive network of Partygoers employed at various organizations around the globe in top management roles and lower. It has taken the media by storm, who question the motivations behind CCP members abroad at a time of peak awareness towards China’s state-sponsored espionage and political meddling.

Cathay Pacific’s most unwelcomed surprise party guest

There have been recent instances where divisions between Chinese state interests and corporate stances have crashed the party for the companies at odds with Beijing. Cathay Pacific, Hong Kong’s flagship airline, found itself front and center of the demonstrations that rocked its home city in 2019.

A good number of the company’s 32,000 staff supported the grassroots political movement against the Party’s growing influence in the semi-autonomous region, and the company got into a high-stake dance-off with Chinese officials when it publicly backed its employees’ right to expression. Soon after, the airline was slammed by Beijing, resulting in top management removals, widespread resignations, and an ultimate reversal in the company’s stance.

The firestorm that swept across Cathay Pacific left onlookers wondering who was really pulling the strings. The answer surprised most: Chinese travelers. Cathay had become overexposed to the Mainland and Hong Kong markets, which had stealthily crept up to 50% of the airline’s total revenue.

1.4 billion reasons to say “yes”

As China clashes with more and more countries around the globe, it’s important to distinguish between “the Party” and its members. While there are certainly hardliners, many subscribe just for the VIP perks. Members find better educational and employment options at a wider selection of organizations than those not on the Party’s guest list, which pressures many into signing on the dotted line to avoid hitting a “red ceiling” and missing out on coveted opportunities down the road.

Bottom line: Conflicts of interest between Beijing and corporations happen, but the risk is rarely with Chinese employees carrying out State priorities. With 1.4 billion increasingly globalized Chinese citizens—tens of millions of whom are contributing to the global community from abroad—the responsibility now falls on leadership to safeguard against the threat of media hype to company culture.

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Markets | Policy

US Policy Ups Ante for US-Listed Chinese Companies

Accounting fraud at two highly visible Chinese companies have shaken the confidence of global investors while prompting US policymakers and exchanges to push for stronger accounting requirements for overseas companies listed in the United States. Whether or not Chinese regulators will comply remains to be seen.

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