TWS: Jan. 11, 2021

Graph of the Week | Industry

Hungry Bellies and Empty Pockets for SOEs

Hit hard by the pandemic, industrial producers have begun to see business activity roar back to life. In October 2020, the Caixin/Markit PMI—the primary gauge for industry sentiment—reached its highest peak since 2010, though profits are just now beginning to catch up.

After a long-fought battle for survival, aggregate profits for industrial producers leaped higher into positive territory at 2.4% in November. Profits surged by 15.5% year-over-year in the month alone, albeit down from October’s blazing growth of 28.2%.

Not everyone is sharing in the feast. Primary industries like mining, gas, and power—areas typically dominated by state-owned enterprises—have trailed behind. Due to lagging demand and lower market pricing, these SOE giants have yet to find a seat at the table with profits 5% lower than last year’s figures.

Bottom line: While many producers are finishing the year with full bellies and sagging pockets, those working in China’s commodity markets in primary industries have found themselves out of the fire and into the frying pan. With 2021 anticipated to bring stronger growth than recent years, China’s SOEs are looking hungrily at the opportunities that the new year will bring.

Markets | Policy

Mastering the Art of Chinese Growth, vol. 2021

China’s foremost economic policy chefs were cooking up a storm in December at the annual Central Economic Work Conference, a platform for economic policymakers to discuss the strategy for the new year.

It was determined that the recipe for China’s economic policy will need a reworking in 2021, with a couple updates to the ingredients list:

  1. Substitute a dash of stimulus for the healthy pour seen in 2020, which is no longer necessary to maintaining stable growth;
  2. Add a heartier dose of financial market reform to attract heavier foreign direct investment inflows

Top policy chefs will also light a flame under demand side-reform to whet the appetite for domestic consumption, though officials will remove growth targets from the table for the year.

Dotting i’s and crossing t’s? Ain’t nobody got time for that…

Meanwhile, as top economic chefs finalize 2021’s secret recipe, Beijing has already begun prepping the meal. Policymakers are slicing and dicing the nation’s negative list, cutting the number of areas off-limit to foreign investors down from 131 to 123.

The negative list was originally dished out in 2016 across a few of China’s free trade zones to regulate foreign investment in sensitive industries. In 2018, it was extended nation-wide, but has since been steadily peeled back in line with Beijing’s campaign for foreign investment.

Doing all the right things for that green

China’s financial markets have seen most of the chopping block, with restrictions on securities boasting the most removals of any sector on the list. Between axing foreign ownership restrictions, allowing access to a greater spread of securities, bridging financial markets across different markets, and more, Beijing is mixing the pot with all the right reforms to lure foreign investment with the aroma of unprecedented opportunity.

Bottom line: Beijing is placing a greater emphasis on quality over quantity as top policymakers focus on cooking up a healthy, well-balanced economy in the new year. 2021 should offer mouthwatering bite-sized insights into President Xi’s much speculated Plat du Jour, the dual-circulation strategy, while officials pull out every policy-based tool in the kitchen to clear the plate of threats à la mounting debt burdens, stark currency fluctuations, and bubbling speculative markets.

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Industry | Policy

Striking at the Core of the Digital Gold Rush

What do Google, Facebook, Alibaba, and Tencent all have in common? As it turns out, a lot. More specifically, a LOT of user data and, lately, a LOT of scrutiny.

Despite mooning Bitcoin prices, we still see data as the 21st century’s digital gold (sorry to all you Hodlers out there). And, apparently, we’re not alone in thinking so, as a Bureau Chief at the China Securities Regulatory Commission recently likened tech giants’ vast amounts of user data to “precious mineral mines.” Comforting.

User data has become the next hot button issue around the globe, and like other countries, China is turning up the heat on Big Tech and their data protection policies. Beijing’s gaze has settled on domestic giants like Alibaba and Tencent, with regulators drawing up plans to tax these behemoths and their data to not only protect users, but also redistribute profits from data up and down industries.

Bottom line: With growing concern over Big Tech’s monetization of user data and increasingly monopolistic behavior at home, Beijing is sending a clear warning shot past the very giants it once cultivated. Not to mention, this also offers regulators yet another tasty opportunity to strike out at Jack Ma and his Alibaba empire.

Economics | Policy

Not All’s Gucci Gucci Prada Prada for Luxury Brands

GG and add oil, wallets. Online shoppers in China will soon be able to link up with the Gucci Gang online as Gucci and other luxury brands begin to launch their products on e-commerce platforms.

High-end luxury brands have always been hesitant to sell their product online. But, with tech-savvy Chinese consumers estimated to account for 50% of all luxury purchases by 2025, it’s time to face the music.

Offering an exclusive shopping experience is just as important as procuring top-quality materials to maintain an exquisite air of luxury in the industry. E-commerce platforms are all too happy to help, as they begin to release luxury flagship stores and special areas for brands to set up shop. Tmall’s “Luxury Pavilion” boasts customized services and brand-specific loyalty programs, while JD’s “JD Luxury” offers its partners perks like WeChat mini stores and livestream fashion shows.

Bottom line: Luxury brands have been holding out on Chinese online retailers for years now, but with the pandemic rocking bottom lines and shifting market trends, companies are giving ground. As e-commerce platforms begin offering more tailored solutions to retail partners with each passing day, more conservative industry players like the Gucci Gang may finally join the digital revolution.

Business | Policy

Michael Jordan, Bruce Lee and the Future of Trademarks in China

Michael Jordan and Bruce Lee have been making news in China’s trademark scene over recent years with cases aimed at protecting the legitimate IP rights of foreign persons and entities in China. Amendments to China’s trademark laws should provide broader protections to companies across the board; however, questions concerning whether owners of less well-known brands can find as effective enforcement as celebrities sporting household names remain.

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