TWS: July 23, 2020

Graph of the Week | Economics | Trade

After saying 3 Hail Marys, China’s foreign trade officially bounced back into expansionary territory as June exports and imports grew by 0.5% and 2.5% year-on-year, respectively. Though exports rebounded more quickly than imports during the pandemic, imports made huge gains after a 16.7% contraction in May.

Amid frosty trade relations with the West, China has found salvation through its neighbors. While US and EU are immediately associated as China’s largest trade partners, most imports actually come from South Korea, Japan, and Taiwan — three places which nipped the coronavirus in the bud rather early.

ASEAN member nations also contributed to China’s economic recovery, taking the top spot as China’s largest trade partner earlier in the year as trade between the two increased by 5.6% year-on-year.

Bottom line: With its largest import partners operating at a higher capacity than Western counterparts, China has finally found a foothold in the fractured global economy. We’ll see if China can remain in the Promised Land.


Houston, We Have a Problem

In what may be the most serious advance in spiraling US-China relations since the nations established diplomatic relations in 1979, on Tuesday evening, the US State Department ordered the Chinese consulate in Houston to close shop and vacate the premise within 72 hours.

The State Department has indicated that the decision was made to protect American IP and Americans’ private information, while Secretary of State Mike Pompeo cited China’s continued infringement on IP theft. Unsurprisingly, the Chinese Ministry of Foreign Affairs has rejected the claims and denounced the decision as an unprecedented escalation in the US-China spat.

Well, here at TCG, we typically find that the truth lies somewhere in the middle and prefer to focus on real-world implications – and that takes us to…

Bottom line: China has seen its influence with much of the Western world plummet in the wake of the coronavirus, and after such a deep dive, the government needs a breather. But, given that the news is spreading faster than wildfire throughout China, Beijing has no choice but to respond in step. We see a tit-for-tat closure of a US consulate in China, a minor escalation with little real-world consequence, and a step up in wolf warrior diplomacy.

Further Reading

Stay in the Know

‘What Is, China’s EV Industry?’

Well folks, we may not be winning those beers at trivia night anytime soon, but that’s no excuse to get rusty! Did you know that China drives 45% of global EVs on the road, or for all you TSLA fanboys and fangirls out there, that the Model 3 was the best-selling EV in China during the first half of 2020?

Keep your mental prowess on point for those virtual water cooler Zoom calls, and stay in the know with our latest TCG Cheat Series industry brief on China’s Electric Vehicle industry!

Cheat Sheet

Economics | Trade

China and Iran Go A-Courtin’

Iran appears to be the latest belle of the OBOR ball, and China is waltzing towards a US$400b economic and security deal with Tehran. After assessing the fragile relationship with the US and other Western nations, China has turned towards its trusty OBOR partners to strengthen trade at the midnight hour.

The agreement with Iran would span 25 years and increase China’s investment in Iran’s banking, infrastructure, tourism, health care, and telecommunications sectors. Security-wise, the deal also covers intelligence sharing and cooperation on defense projects. Apart from economic assistance, China could shield the country from US pressures at the UN while bringing the nation into a non-Western trade network.

Bottom line: Not only does this deal strengthen the reputation of OBOR, but it also gives China a foothold to establish a stronger presence in the Middle East. The trade deal also confirms that amid a diminishing global US presence, the doors to China’s ballroom are always open and ready for suitors.

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Economics | Policy

Extra! Extra! Read All About It!

It’s just in that Chinese policymakers have unveiled a new guideline to encourage new business models for entrepreneurs and small businesses within the digital economy – think bloggers, live-streamers, e-commerce shops, and gamers.

If these sound familiar, it’s because we told you last week of Beijing’s announcement to officially classify people in these roles as “employed,” a quick trick to pad employment numbers. The new guidelines work in tangent with the prior announcement: by lowering the cost of business establishment, Beijing hopes to inspire entrepreneurial aspirants into “employment.”

The guidelines were released in anticipation of the June unemployment figures released on the 15th, which clocked in at 5.7% – a modest gain from 5.9% a month earlier. With recent unofficial surveys showing that only a quarter of the recent 8.7 million college graduates – yeah, you read that right – had received a job offer by the end of May, Beijing is desperate to boost employment figures.

Bottom line: All we’ll say is: hold a grain of salt to these figures…or maybe a whole shaker’s worth.

Further Reading

Finance | Markets

China’s Spring Cleaning Comes Late

Beijing is rolling up its sleeves for a deep cleaning of its banking sector. Regulators are actively pursuing shareholders who have used banking relationships as their personal piggy banks, and in a classic name-and-shame fashion, the China Banking and Insurance Regulatory Commission recently aired out the names of 38 “illegal” shareholders.

While China has sought to lean on policy adjustments to drive its economic recovery, the PBOC has still given the greenlight for massive stimulus intended for distribution among businesses and consumers via banking pipelines. But, to ensure that central funds will not be drained for personal use, the CBIRC is scrubbing out players that have left previous stains on the fabric of China’s financial system.

Bottom line: Beijing’s actions are twofold. With rumors floating around that certain banks are short on cash, heightened market supervision is likely an assuaging ploy to prevent a potential bank run. At the same time, this demonstration reiterates the message that these funds are off-limits to even the most sticky-fingered individuals.

Further Reading

Finance | Markets

No Hill Too Small for This Ant?

In a decision riddled with question marks, Alibaba’s Ant Financial is planning to dual IPO in Shanghai and Hong Kong, with the combined offering likely to make the books as one of the largest in history. The decision comes amid turbulent US-China relations and a hostile market for US-listed Chinese companies.

While common for Chinese firms with global reach to dual list on US and Hong Kong exchanges, it’s questionable that a company as large as Ant Financial would select the untested-year-old Shanghai STAR Exchange for its domestic issuance. To date, the largest listing on STAR was Semiconductor Manufacturing Intl. Corp. at US6.5 billion, which brought the total funds raised across all exchange listings to just over US$17 billion – mere drops in the ocean compared to Ant’s goal for a post-IPO US$200 billion valuation.

Bottom line: Ant’s (questionable) listing decision coincidentally allows Beijing to kill two birds with one stone. Officials have been desperately trying to attract foreign capital into domestic markets over recent months, and Ant’s IPO will not only validate the experimental STAR Exchange, but also add oil onto Chinese equity markets’ (even more questionable) blazing market run.

Further Reading

Business | Industry

Closing In on ‘Cloud Nine’: China’s Cloud Computing Market Jets Forward

China’s cloud computing market, while the second largest in the world, remains a fraction of the size of its US competitor. As Beijing continues to prioritize investment in this sector, China’s tech giants will continue to propel the quickly growing domestic industry outwards into the global stratosphere.

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