China opportunities and challenges 2020-2021

joepareti54@gmail.com https://www.joepareti54-ai.com/

updated on March 15, 2021

Where China excels: economy growth, discipline, and ability to tame the coronavirus

• China Is the Only Major Economy to Report Economic Growth for 2020
• China’s ability to expand, even as the world struggled to control a deadly virus that has killed more than two million people, underscores the country’s success in largely taming the coronavirus within its borders

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• Unlike governments in Western countries like the U.S. that focused their stimulus efforts on lowering borrowing rates and handing out money to consumers, Beijing focused on restarting factories while keeping interest rates relatively higher.

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Where China leads: Economy growth and financial strength

• Die jüngsten Zahlen zu Chinas Wirtschaftswachstum haben zwar nicht alle Erwartungen erfüllt, aber alles andere als enttäuscht. „China ist die einzige große Volkswirtschaft auf der Welt, die einigermaßen unbeschadet aus der Corona-Krise herauskommt“, FAZ October 2020
• China lockt mit Anleihen: Allein wegen seiner Größe müssen sich westliche Investoren in Zukunft verstärkt am chinesischen Markt engagieren. Sorgen zum Handelskonflikt mit den Vereinigten Staaten bremsen die Aktiennachfrage keineswegs. [FAZ October 2020]

Where China leads: Alibaba and Tencent

• Alibaba’s strategy is to link its popular Tmall e-commerce platform with a new physical chain of Tmall-branded garages to create a maintenance service that starts on a smartphone and ends in a bricks-and-mortar store [wsj September 2020]

Export

• Chinese Exports to the U.S. Get a Lifeline From Coronavirus-Related Demand [WSJ, October 2020]

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• The trade pact the U.S. and China signed in January left in place U.S. tariffs on about $370 billion in Chinese goods, roughly three-quarters of the country’s exports to the U.S. Nonetheless, China’s exports to the U.S. have increased in recent months, a resilience that has surprised economists.

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China top 3 challenges (mid 2020)

• “the Chinese economy is crumbling. They are not the powerhouse of 20 years ago” – Larry Cudlow White House economic advisor. Also, the Clean Network program
• The $52 Trillion Bubble, China Grapples with Epic Property Boom
• Semiconductors: Semiconductor Manufacturing International lags FIVE YEARS behind TSMC
• Der in Taiwan beheimatete und führende Auftragsfertiger TSMC fährt mittlerweile das Engagement mit seinem Großkunden Huawei zurück und hat unter anderem angekündigt, moderne Fertigung (staatlich unterstützt) in den Vereinigten Staaten aufzubauen. FAZ
• U.S. Commerce Department will in theory prevent Huawei from buying any equipment or software containing any U.S.-originated inputs, without a case-by-case license. Barron's’

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Huawei: the predicament

• The U.S. move is designed to cut Huawei off from non-U.S. companies that manufacture chips used in Huawei’s cellular base stations and servers as well as its own smartphones [WSJ, May 2020] … but some loopholes remain
• Without the [google] search-and-software giant’s apps, smartphone fixtures around the world, the once-relentless march of Huawei’s phones is faltering
• [US gov is] stopping sales of any chips to Huawei made using U.S. technology, starving it of basic components to make phones and other equipment. Huawei has enough chip inventories to last until early 2021
• Huawei Revenue Growth Slows as US Restrictions Start to Bite.. The slowdown in revenue growth indicates that an increasingly tough set of US restrictions on Huawei’s ability to source parts is starting to bite [WSJ October 2020]
• BUT …
• Huawei Technologies Co. achieved its goal of becoming the world’s top seller of smartphones, fueled by the rapid economic recovery in its home market of China.
• Huawei Technologies Co. will begin selling smartphones capable of running its self-designed operating system next year
• [a complete ban] on U.S. chip exports to Cina may lead to $80B revenue loss and less R&D

Huawei: the survival kit

• Harmony
• Q: Il lancio del vostro sistema operativo, Harmony 2, come piattaforma per gli smartphone costituisce un passo importante, ma anche una sfida impegnativa
• A: [Huawei Country manager]: Harmony non deve essere visto come alternativa ad Android visti gli ostacoli che ci sono stati posti, ma come il cuore di un ecosistema che Huawei sta costruendo per offrire vantaggi concreti ai consumatori [Milano Finanza, September 2020]

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Semiconductor Manufacturing International Corp.

• U.S. Blacklists China’s Top Chip Maker, Escalating Tech Fight [WSJ Decemebr 2020]
• The designation restricts companies from exporting U.S.-origin technology to the listed firms without a license, with a provision that effectively prohibits SMIC from acquiring technology to build chips with 10-nanometer circuits and smaller, the industry’s top class of chips.

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Financial discipline: the Ant case, and more

• Chinese President Xi Jinping personally made the decision to halt the initial public offering of Ant Group. The rebuke was the culmination of years of tense relations between China’s most celebrated entrepreneur and a government uneasy about his influence and the rapid growth of the digital-payments behemoth he controlled.
• A growing regulatory assault on Ant and co-founder Jack Ma is forcing a reassessment of how much the financial-technology giant is worth.
• Expected to raise some $34.4 billion, the Hong Kong and Shanghai co-listing was set to be the biggest IPO ever—exceeding the $25 billion record long held by Alibaba itself.
• <related>: China has released new draft anti-monopoly rules for its online platforms, signaling an increased appetite by Beijing authorities to rein in its dominant technology companies.
• The conclusion of the Chinese leadership [since the 2015 turmoil] has been that the up-and-down cycles of the markets, something they can’t control, make outcomes too uncertain.

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Financial discipline: dealing with the real estate bubble

China’s policy makers have expressed concern about an overheating housing market and want to prevent bigger imbalances. They are also eager to resume a multiyear campaign to curb debt that started building during the previous global recession. [WSJ March 2021]

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The chairman of the China Banking and Insurance Regulatory Commission was concerned about a “bubble” in Chinese real-estate prices, which he said could threaten the country’s financial sector and its broader economy. “Many people buy homes not to live in, but to invest or speculate. This is very dangerous. [WSJ March 2021]

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China Overtakes U.S. as World’s Leading Destination for Foreign Direct Investment

• In China, investments by multinational companies continued despite the upheavals of the pandemic, with companies from U.S. and Germany expanding their operations there.

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• The resilience of foreign investment in China is contrary to expectations that foreign businesses would seek to reduce their heavy reliance on the country as a key part of their supply chains

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• [Companies] need to reduce over-reliance on supply chains in one single market, but the bigger risk they identified is losing the China market.

China has a Friend in the U.S. : Wall Street

• Since the signing of the trade deal, JPMorgan will get full control of a futures venture in which they had a minority stake. Goldman Sachs and Morgan Stanley became controlling owners of their Chinese securities ventures. Citigroup Inc., meanwhile, won a custodian license to act as a safe keeper of securities held by funds operating in the country.
• EVs: the rise of three Chinese EV companies— Nio, XPeng, and Li Auto. XPeng’s ADRs (ticker: XPEV) have tripled, to a recent $44.52, since the company’s Aug. 27 initial public offering – [Barron’s December 2020]