TWS: Sept. 27, 2021

Graph of the Week | Industry

China calls for NEV industry consolidation

Too Many Pieces in the NEV Pie

The Chinese government is looking to gobble down a few pieces of the electric vehicles pie. Regulators recently hosted Minister Xiao Yaqing of the Ministry of Industry and Information Technology (MIIT) for a talk, during which Xiao called for consolidation of China’s fragmented NEV industry.

The “small and scattered” nature of China’s blossoming EV industry has led to severe overcapacity. Some of China’s NEV producers produced over 100,000 cars in 2020 and yet posted no sales. Despite the more than 300+ EV producers in China, the top 15 accounted for more than 1/3 of total sales in August 2021.

Xiao’s remarks sparked a moment of investor anxiety; though, the announcement comes nine months after a 20% cut to consumer subsidies for NEVs. Moreover, the government tried to further cut back on subsidies at the start of the pandemic, though this was reversed amid muted domestic consumption.

Bottom line: While the call for consolidation may send some of China’s 300+ NEV companies into a scramble, the big honchos are likely licking their chops in anticipation of the M&As to come. One thing is for certain – though there are too many pieces in this NEV pie, the companies that are able to secure their piece are in for dollops of gains.

Business | Industry

Turbulent Times for Chinese Airlines

Airlines across the globe have taken a beating since the onset of the pandemic, and despite China’s early recovery, it’s been anything but blue skies for Chinese airlines. China’s zero-tolerance policy for COVID-19 once again shuttered airlines this summer as the delta variant spread from Nanjing into 17 provinces.

In late summer, the total capacity of Chinese airlines were cut by nearly a third while airports at three cities suspended all flights over fears of the spreading variant. Despite having reopened, the economic losses since the beginning of the year have been staggering:

  • Three of China’s largest airlines – Air China, China Southern, and China Eastern – saw combined losses of ~US5.7 billion.
  • Beijing Capital Airport alone lost out on ~US$130 million of potential income.

While international travel is still muted, China’s domestic flights boomed in the wake of its early recovery. Many domestic flights have at least partially resumed, though turbulent travel restrictions have shown the vulnerability of airlines to outbreaks. 

Bottom line: China has administered a staggering amount of vaccines to its population; however, the lower efficacy of Chinese produced vaccines, SinoPharm and SinoVac, have placed the country in a vulnerable position to outbreaks of COVID variants. As long as China maintains its zero-tolerance COVID policy, it’s unlikely that the nation will be able to fully open borders to travel and trade over the next several years – leaving the domestic airline industry falling from the skies with no parachute.

Economics | Policy

The PBOC Pulls a Punxsutawney for SMEs

“OK, campers, rise and shine, and don’t forget your booties cause it’s cold out there.” It’s starting to feel like “Groundhog Day” at the People’s Bank of China, and SMEs couldn’t be happier. The PBOC is providing ~US$50 billion to SMEs in a repeat of last year’s strategy when it dished out US$280 billion of loan support.

Since the beginning of the pandemic, China has kept tight pockets with its stimulus. To this day, the country still struggles to shake the shadow of debt that it absorbed in the aftermath of the ’08 recession. When 2020 rolled around, the PBOC had already learned its lesson and was much more targeted with its stimulus.

It may be a new year, but the PBOC’s plan remains the same as the early days of the pandemic: support SMEs. After all, it’s hard to find an area of the Chinese economy that has a better bang for its buck:

  • SMEs employ 80% of China’s workforce.

In addition to extending loans, other central stimulus measures towards SMEs include:

  • Reducing reloan interest rates.
  • Offering subsidies on interest payments.

The PBOC also cut the reserve requirement ratio – or the amount of cash that banks are required to deposit to the central bank – and will give the freed-up cash to Chinese commercial banks as reimbursement for any loans given to SMEs.

Bottom line: China’s recovery from the pandemic has been nothing short of impressive. Still, pockets of Delta outbreaks and a series of regulatory crackdowns have taken their toll on economic growth forecasts. Regardless, policymakers are now more than ever cautious to be both targeted and conservative with central stimulus – particularly in the wake of a major debt meltdown like the world’s seeing with Evergrande.


China’s 80 Million Podcast Listeners and the Competitors Vying for Their Attention

The future for China’s podcast market looks promising. Revenues in China reached US$193 million in 2019, and the industry remains the fastest growing podcast market around the globe.

On the back of a growing audience, would-be competitors have taken note. Side-hustling hosts are getting pinched by tech giants looking to make a quick buck and regulators looking to spread governmental propaganda.

Learn more about how podcasters, tech giants, and government agencies alike are vying for attention in the “ear economy” in our latest China Insights article:

Full Article

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