TWS: Nov. 2, 2020

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Graph of the Week | Industry

Don’t count out China’s electric vehicle industry in 2020 just yet. While sales flatlined during the early stages of the pandemic, they’ve since surged in Q2 and Q3 as China tallied 474,738 EV sales YTD as of September.

When the pandemic hit and the government pulled back on consumer subsidies, many were expecting EV makers to tap out. During quarantine, only 10 out of China’s 400+ EV producers managed to deliver cars; however, with an electrifying market turnaround in Q2, more producers can expect growth going forward.

Amongst the rebound, three domestic players have had particularly strong performance: NIO, Xpeng, and Li Auto. What’s the common spark between the three? They’ve all completed large IPOs on the NASDAQ and are set to square off with Tesla as China’s premium EV brands. Investors have been diligently taking notes: NIO recorded a 2,137% 1-year accumulative return from October 2019 through 2020.

Bottom line: Growth is likely to continue to explode. Since Tesla’s Gigafactory was completed in Shanghai last year, domestic producers have been looking to upgrade in response. NIO is preparing for its first European expansion in 2021, Li Auto is looking to double its production capacity, and Xpeng has just launched its first sedan.


Policy | Technology

China’s Internet Watchdogs Learn a New Trick

What if we told you that Beijing had pressed “SUSPEND” on the Great Firewall and instead let its citizens join the global community in scrolling through swaths of Among Us playthroughs, TikTok compilations, and pics of pumpkin spice everything that we so lovingly adore on social media? With the app, Tuber, 5 million Chinese citizens did just that in a carefully monitored cyber environment in early October.

The game that never ends

For as long as the internet has been around, web users in China and Beijing’s internet watchdogs have been caught in an endless game of cat and mouse, with users employing VPNs to “jump the wall” and surf the unfiltered web in anonymity while the government has tried to crackdown on the pesky services and unmask their users.

Tuber marks a new chapter in the narrative. While the app grants wider web freedoms to users, Qihoo – the government-linked app developer, still has a tight grip on what users can access. Not only are websites highly scrubbed for sensitive content (which hopefully included the barrage of 2020 election ads, but we digress), but user accounts were also registered with a phone number, and the app can also suspend your account depending on what you watch and share.

No day like today

With growing overseas criticism of Beijing, why would officials begin granting greater web freedoms to its citizens? The answer lies within the Chinese chengyu, 以退为进 — or ‘to retreat in order to advance.’

Individual users

Beijing’s internet watchdogs have tried for years with mixed success to crackdown on VPN services. By offering a state-sanctioned window to the internet, casual VPN users will no longer feel compelled to connect to the anonymous platforms – providing Beijing with greater insights into former VPN users’ identities and their online behavior.

Businesses, academics, researchers

One of the biggest challenges to censorship is the impact it has on productivity. Firms in China are cut off from the global information network, while academics have impaired access to research that could prove critical to scientific breakthroughs. With lofty goals to maintain global leadership in technological innovation, Beijing stands to gain from building a controlled zone in which online activity could be tracked and content screened, while still allowing select players in the private and public sectors to exchange information.

Bottom line: Beijing’s experiment with Tuber shows its grander vision for opening access to a partially unlocked internet. While to the everyday citizen this may mean sharing a tweet, it could make a huge difference in corporate and scientific gains, alike.


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Economics | Trade

FTA + Investment = Sovereign PAC

As Cambodia’s largest trading partner, China provides the wind that lofts Phnom Penh’s economy to higher skies. The dynamic duo recently leveled up their relationship after entering into a freshly-signed free trade agreement (FTA) that is likely to be implemented in early 2021.

The FTA helps strengthen an already healthy relationship. China has promised to hike up trade between the two countries to US$10 billion by 2023, while the FTA lowers duties in key areas like trade, tourism, and agriculture. Although Beijing is already currently involved in a regional FTA with Cambodia through ASEAN, the new exclusive FTA grants the highest level of liberalization of goods and services among all of China’s agreements, with ~98% of Cambodia’s export tariffs to be fully eliminated which will provide nearly unhampered access to each other’s markets.

Bottom line: With a 2019 GDP just a hair over US$27 billion, Cambodia is among one of Asia’s poorest countries. The trade commitment and exclusive FTA are cheap investment opportunities for Beijing to warm its cozy ties with a country that is already wrapped up in OBOR and frequently represents China’s interests in ASEAN’s regional votes.


Markets | Policy

The PBOC’s New Motto: ‘Addition by Subtraction

The PBOC is making it cheaper for financial institutions to bet against the RMB by cutting the foreign exchange risk reserve ratio of forward contracts to zero.

Originally, when two institutions entered into a forward contract – an agreement to lock-in a specific exchange rate between two currencies to trade at a later date – the PBOC required that both parties keep 20% of the total trade amount on hand as foreign exchange risk reserve. The policy has now been axed, lowering the cost for traders to exchange RMB.

The move departs from China’s conservative approach to financial markets and comes as the RMB hits 17-month highs against the USD. In other words, China is now more worried about the impact to global trade as the RMB continues to strengthen and is encouraging traders to bet against the RMB and curb its growth.

Bottom line: The PBOC sees several potential trigger events in the remainder of 2020 that could continue to drive the RMB’s upwards momentum – US presidential elections, recovering trade with China, and the expansion of foreign banks’ operations in China could all propel demand. To get ahead, Beijing is taking proactive measures to stabilize the exchange rate in the face of uncertainty.


Business | Industry

Looking at Luxury in a Post-Pandemic China

Navigating the Chinese market had been challenging for international luxury fashion brands even before the pandemic, but shifting consumer trends in the world’s largest luxury goods market now threatens the bottom line for major brands worldwide. To remain competitive, luxury brands must identify the challenges within the market and restructure their China strategies around the culturally-charged consumer market.

Full Article

Further Reading

The Weekly Steep

TWS: Nov. 23, 2020

The Weekly Steep

TWS: Nov. 16, 2020

The Weekly Steep

TWS: Nov. 9, 2020

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