Graph of the Week | Economics
High-Flying Chinese Exports Start Their Descent
As the old adage goes, “The early bird gets the worm.” Well, in the case of post-pandemic China, its economic recovery was so early that it cleared the buffet. By the time most Western countries began shutting down, China’s factories had begun opening up.
As families huddled together in lockdown and the workplace went remote, a new global hunger for WFH electronics, pandemic-related medical supplies, and general consumer goods was born. China, more than ever, assumed the role of global factory as businesses around the world shuttered.
While the pandemic has already celebrated its first birthday and then some, China’s early bird advantage continued to pay handsomely into early 2021:
- China saw a shocking 18.3% GDP growth in Q1 2021.
- Export growth reached a shattering y/y high of 154.8% in February.
Bottom line: Every high-flying bird knows, ‘whatever goes up must come back down.’ The most recent customs data for May shows more realistic y/y growth of 27.9%, down from 32.3% in April. As Chinese exports begin sliding to pre-pandemic levels, JPMorgan’s Global PMI Index, which reported its 13th consecutive increase to the level of 56, show that global manufacturers are picking up the difference.
Industry | Policy
Tech Goes Lean, Green, and Squeaky Clean
Tech giants are putting their digital green thumbs on display. Tencent and Ant Group have matched China’s commitment to go carbon neutral by 2060 and have released action plans to reduce their emissions footprint.
The biggest hurdle? Data centers. These “electricity tigers” are at the top of the list, consuming approximately 161 billion kilowatt hours of electricity, or more than 2% of China’s total power consumption, in 2018.
The answer – at least according to Tencent – is to work smarter. To reduce the carbon footprint of their data centers, the tech giant plans to:
- Prioritize data center construction in renewable energy hot spots like Hebei and Guangdong.
- Launch AI-enabled systems to track and optimize energy usage in data centers.
Next on the list is to optimize operations at home:
- Tencent is introducing “sponge city” techniques on its campuses, or more sustainable methods of reusing water.
- Ant Group is seeking out more eco-friendly suppliers and low-carbon technologies to power its facilities.
Bottom line: Borrowing from Casablanca – ‘We’re shocked! Shocked to find businesses following the lead of the Chinese government!’ What is impressive, though, is the size of the commitment that these firms are undertaking…although it certainly doesn’t hurt that there’s considerable money following these initiatives. Beijing is throwing an eye-watering amount of funding for firms to go greener and cleaner, while institutions like Envision Group and Sequoia Capital have launched a US$1.5 billion joint carbon neutrality fund to support green technology.
Economics | Policy
Short Supply of Youths in the World’s Factory
Chinese policymakers have clearly binged reruns of “Three’s Company, Too” as officials raised the cap of two children per Chinese couple to three earlier this month.
It’s no secret that China has had its share of population struggles over the years. Its notorious one-child policy shocked the world in 1980, and nearly 35 years later, Beijing loosened the restriction to two children per family.
After decades of harsh population control, the eased two-child policy didn’t bring the relief that policymakers had hoped. From public school enrollment to healthcare benefits, Chinese society had shifted, and with it so too did the desire to have a large nuclear family.
China has now begun to see signs common to aging populations like those in the US and Japan. A workforce in decline, strained public infrastructure, unbalanced pension fund, and rising national healthcare costs are driving a renewed vigor to set the mood for parents to carry out their civic duty.
Bottom line: Many see the heightened cap as too little too late. As policymakers learn that new cultural shifts take time to birth, expect labor-intensive industries like production and manufacturing to turn to tech sooner rather than later to compensate for a declining workforce. Oh, and our money’s on further relaxations on the policy to come…
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Policy | Technology
Power to the People! Except for Data, Ofc.
DSL is making headlines in China this week…and, no, we’re not talking about your internet connection. The DSL, or Data Security Law, will launch on June 10th to create a slew of data security requirements for businesses, as well as threaten penalties for those out of compliance.
Enforcement authorities are preparing their own compliance systems for the September 1st, 2021 effective date. For China’s cyber watchdog, the Cyberspace Administration of China (CAC), and the National Security Commission, this will begin with the following:
- Creating nationally recognized categories for data
- Highlighting data categories related to national security
- Assessing risk of relevant organizations and individuals
For businesses, the law threatens heavy fines for failure to comply with “national core data” rules, including exporting data to foreign authorities, failing to comply with data requests, or failing to fulfill data security obligations. Also, in an all-too-familiar move, the DSL makes specific mention to anti-competitive or illegal uses or collections of data, echoing sentiments from China’s Anti-Monopoly Law.
Bottom line: Many of the articles defined within the Data Security Law have been mentioned before in laws like China’s Export Control Law or Cybersecurity Law; however, a dedicated law to data security emphasizes China’s commitment to upholding national security and data sovereignty. It also hikes compliance costs for companies in sensitive industries and creates quite a few headaches for firms with operations across the globe that now face conflicting data security requirements.
Industry | Technology
Riding on the AV Bandwagon
Hate awkward small talk with your Uber driver? Pandemic left you unable to socialize? If so, here’s some good news! Robotaxis are taking off in China.
It’s been over a year since the first fleet of fully autonomous vehicles took to the streets of Shenzhen. Ever since, countless startups and tech giants alike have been cruising forward with pilot tests for their driverless cars.
Then, earlier this year in January, everything changed. Test turned to practice, and Alibaba-backed AutoX became the first in the country to offer completely driverless rides to Shenzheners. While AutoX may have been the first to break this milestone, others are hot on the startup’s tail:
- Apollo, Baidu’s autonomous vehicle arm, has rolled out driverless pilot tests in three other Chinese cities.
- Ride-hailing giant Didi Chuxing partnered with Volvo to expand its semi-autonomous fleet, using its upcoming US$70 billion US IPO to fund the expansion.
- Alibaba’s autonomous vehicle subsidiary, Cainiao, has partnered with Hainan’s local government to expedite fulfillment and delivery services.
Bottom line: Giants and startups alike have thrown their hat in the AV ring, and the list of firms mentioned above barely scrapes the surface. While most recognize that China still trails the US in autonomous vehicle tech for now, economies of scale, widespread competition, and supportive policy bodes well for the future of the Chinese industry.
Business | Policy
Should I Stay or Should I Go? The Business Implications of Hong Kong’s NSL
As mainland companies begin their global march out, Beijing’s priorities are shifting in step. Hong Kong has always been a stepping stone for foreign companies to enter the mainland market; however, top policymakers are now molding the city into a stable environment for their national darlings to take their first steps abroad.
The assurances contained within Hong Kong’s national security law may just provide the safeguards that mainland companies were seeking following the anti-Beijing demonstrations that swept through the city in 2019 and 2020.
Find out what the NSL means to foreign companies in Hong Kong in our latest China insights article.