TWS: July 5, 2021

Graph of the Week | Markets

Poor Marks for Chinese Tutoring Stocks

Think American college prep is tough? Chinese students might disagree, and their parents even more so. With an endless population and limited name brand universities, China has one of the most competitive post-secondary education markets in the world.

Competition and Chinese parents’ determination to see their children succeed has created a highly lucrative tutoring industry. With significant demand and ample venture capital funding, online tutoring companies have cropped up everywhere.

But now, as the heavy hand of regulation has battered the stocks of China’s tech giants, so too has a crackdown on online tutors sent equities reeling. China’s regulators have recently fined 15 after-school tutoring schools US$5.7 million for false advertising and price gauging, and a new upcoming policy is set to lay strict restrictions on marketing, operation, and price setting in the tutoring industry.

Bottom line: The timing of the crackdown isn’t coincidental; in fact, it coincides perfectly with the new ‘Three Child Policy.’ Chinese parents have long complained that childcare costs are too burdensome to continue having more children. As the average Chinese family spends 50% of their total budget on education costs, this new move may be Beijing’s way of nudging parents to have more kids.

Business | Trade

Santa’s Gifts Go For A Premium

Christmas usually comes early if you work in supply chain management, and this year it looks like COVID-19 outbreaks in Guangdong Province are causing Santa’s goodies to trade at significant premiums.

After more than 100 new COVID cases were confirmed in Guangdong since May, the government has stepped in with strict countermeasures, leading to early pandemic-esque disruptions in supply. Shenzhen’s Yantian port terminal is now returning to normal operations, but the damage has been done:

  • China has seven of the world’s ten busiest ports with Shenzhen holding Prancer’s place at third.
  • Shipping costs have skyrocketed, hitting an all-time high of US$11,000 to send a 40 ft. container from Asia to Europe, up from US$2,000 in October.

This spells trouble for cost-conscious retailers as they gear up for the holiday season. Many manufacturers reported that they will likely be unable to fulfill orders in time due to shipping container backlogs.

Bottom line: Despite China’s stringent COVID lockdowns which allowed exports to boom during the depths of the pandemic, these sporadic outbreaks are a cause of concern for manufacturers. Coupled with the return of manufacturing across Asia, this could soften China’s relative exports as retailers enter the key back to school and holiday shopping seasons.

Industry | Technology

A Phone Call a Day Keeps the Doctor Away

What’s the next frontier for big tech in China? We’ll give you a hint. It’s an industry that gained steam during the pandemic, is now worth about US$48.6 billion, and will save many a trip to the doctor. Bingo, telemedicine!

The digital healthcare market is projected to hit US$650 billion within the next decade, and the industry is ripe with competition as Alibaba, JD, and Tencent all face off for a slice of the pie:

  • The industry already has millions of users. Alibaba Health reported 520 million users and counting as of March this year.
  • Rates for virtual sessions are not cheap. A higher-end appointment can reach rates comparable to that of a visit to public medical facilities.

Doctor recruitment has also taken the industry by storm:

  • Over the past year, JD didn’t just double its diagnostic division; it duodecupled (that’s twelve times) the number of doctors on its platform from last year.

Bottom line: Telemedicine is a big business in China, and it’s just in its infancy. Many companies have yet to turn a profit as providers continue to work out the kinks of their business models, which can be tricky in an industry that prioritizes the health of patients before wealth and is swimming with hungry regulators.

Business | Industry

In Musk We Trust?

A small bug is giving Tesla a big headache. Due to a glitch in the auto-pilot system of Model 3s and Model Ys, China’s regulators have issued a mandatory recall of nearly 300,000 cars. While the fix can be handled by a remote software update, it applies to over 93% of all Shanghai-made Teslas.

For the most part, China expansion has been smooth sailing for Tesla:

  • In 2018, China scrapped joint venture requirements for foreign auto manufacturers, paving the way for Tesla’s wholly owned US$1.3 billion Shanghai gigafactory.
  • The Model 3 and Model Y have become two of the top selling EV models in China.

Nonetheless, this isn’t the company’s first challenge in China. Tesla’s woes started earlier this year when the company received a scolding by Chinese state media after consumers filed complaints over the company’s handling of quality control issues.

Bottom line: After the Shanghai government initially rolled out the red carpet for the company, Tesla sales and production in China have been riding shotgun in a quick ride to easyville. But lately, the company has been facing headwinds as Chinese EV producers expand their market share and hit the NOS on R&D. As consumers are increasingly disillusioned by Tesla, Elon & Co. will be facing a steep uphill drive in the world’s largest EV market.

Economics | Policy

Can the Three-Child Policy Fix China’s Future Labor Shortage?

Key industries such as construction and manufacturing have been pinpointed as weak links in the future Chinese economy. With an imminent aging population crisis on the horizon, Beijing has unveiled a new three-child policy that supersedes the current two-child policy. The question remains, ‘can the three-child policy really fix this issue or are policymakers too little too late?’

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