TWS: July 12, 2021

Graph of the Week | Markets

EV Shares Hit the NOS

As they say, April showers bring May (and June) deliveries. With the return of China’s economic growth and consumption, Chinese EV producers have seen their share prices zoom alongside accelerating vehicle deliveries.

China’s NEV startup stars had a spectacular showing in the second quarter:

  • Xpeng delivered 6,565 electric vehicles in June, up 15% from 5,686 in May. In Q2, XPeng delivered 17,400 vehicles in total, a considerable leap from Q1’s 13,300.
  • Nio delivered an even higher 21,986 vehicles in Q2. The firm delivered 8,083 vehicles in June alone, which clocked in at 116.16% y/y growth.

Shareholders are going into the summer with some serious optimism. XPeng (XPEV) and Nio (NIO) have seen their share prices grow by 50% and 28% respectively since the beginning of May.

Bottom line: Overall, analysts are seeing turbocharged EV production in China, which is likely to continue despite the slowing momentum of China’s economic recovery. While auto titans like BYD and Tesla continue to dominate sales, the market still has room left for the new kids on the block to join along for the ride. With EV subsidies still in place, and a lag in discrete manufacturing consumption, the industry should be driving towards sunny blue skies for the rest of the year.

Business | Trade

Xinjiang Ban Calls All Hands On Deck

“We’re gonna need a bigger boat,” describes well the current situation at US customs, as the number of cargo shipments detained by the US Customs and Border Protection (CBP) from China has more than doubled this year.

At just the halfway point of 2021:

  • The total value of detained goods under bans has reached almost US$275 million.
  • More than 1,200 shipments have been targeted.

The 2020 ban on goods made with forced labor has called all hands on deck at CBP. While the impact of the ban was significant in its own right, the mandate has only increased with bans on cotton and tomatoes produced in Xinjiang, as well as recent bans on polysilicon which is used in solar panel production.

Bottom line: Due to the head-on collision between the US and China on Xinjiang and supply chain affairs, there are likely to be more geopolitical implications for businesses before this spat is over. Given the challenges around satisfying regulatory requirements and ensuring supply chain transparency, manufacturers are likely to look elsewhere for cotton and other inputs to avoid import delays at US ports – though China’s rising “guochao” (nationalistic consumerism) movement may lead to a messy break up.

Markets | Policy

Da’ Big Tech Slamdown

The US and the EU aren’t the only two global economic behemoths cracking down on big tech these days. There may be trouble in the cards for Didi Chuxing’s planned US IPO in July, thanks to China’s wheelin’ and dealin’ State Administration of Market Regulation (SAMR).

The ride hailing giant Didi was expected to be valued at ~US$70 billion after raising up to US$7 billion in its upcoming IPO. Yet, the Chinese Uber rival is considering postponing its listing plans while regulators investigate whether it participated in anti-competitive practices to crush smaller rivals like The Rock at WrestleMania.

Didi’s would be the biggest Chinese IPO on a New York exchange since Alibaba’s massive US$25 billion offering in 2014. In true déjà vu-inducing fashion, BABA has seen its shares plummet by around 33% since October after it came under regulatory scrutiny and shouldered a smackdown fine of US$2.75 billion for “monopolistic practices.”

Bottom line: Regulators are on the prowl. China has challenged its largest tech giants to a cage match over conflicts between profitability interests of firms and policymakers’ control over the economy. Given the impact that similar cases have levied on other tech giants, international investors would be best to watch this match play out from the ringside.

Markets | Policy

SAMR Tags CAC Into the Ring

…and in more regulatory news…

Did you think it would end with Didi? It just wouldn’t be China if it had.

Following SAMR’s probe into Didi over potential anti-competitive practices, the China Administration of Cybersecurity (CAC) has begun eyeing more companies with recent and upcoming US listings.

China is itching to keep tabs on data flowing in and out of the country. Just last month, CAC announced a new data security law, only days after sharing a naughty-list of 129 domestic firms that had fallen short of safeguarding national interests through proper protection of Chinese user data. The new law, coming September 1st, heavily regulates the flow of data overseas.

In a classically short n’ sweet statement, the CAC noted that new downloads of Boss Zhipin, Yunmanman and Huochebang would be suspended while Bytedance – the parent company of TikTok – has just announced that it will delay its IPO plans during an ongoing cybersecurity investigation.

Bottom line: The CAC has been stingy with details, but the real-world consequences of the probes are clear for investors. Current US-listed Chinese companies have now been assigned significantly higher risk premiums while it’s anticipated that data-heavy Chinese firms may begin looking closer to home for future IPO listings to avoid costly regulatory complexities.

Business | Industry

China’s Mobile Gaming Industry: An Interview with Todd Kuhns

China’s mobile gaming industry is one of the world’s most influential with a massive market of 682 million mobile gamers. As more companies seek to cash in on Chinese netizens, the gaming industry is becoming more competitive to enter.

In this article, we explore the background of the Chinese mobile gaming market and have invited Todd Kuhns of AppInChina to discuss everything that prospective foreign developers need to know when launching an app in the Chinese market.

Full Article

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