CHINA BULLETIN: No Fun for European Firms in China

In this week’s issue European businesses get glum on China, consumers write off June 18 shopping fest and a three-week stock rally crashes. On a scale of 1 to 100, we give the week a 40 for offshore-listed China stocks.

Doug Young, Editor in Chief

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MACRO

No Fun for European Firms in China

In the absence of major economic indicators, a new EU Chamber of Commerce survey is providing the latest signals of gloom from China’s economy. Among other things, this year’s annual survey uncovered a big rise in the number of companies whose revenue fell last year, and found the number of companies seeing China as a top investment destination fell to a record low.

The EU Chamber was one of the most outspoken critics of China’s draconian Covid control measures last year, and was also highly critical of the country’s general approach of putting virus control above all else in general. This survey shows why it was so vocal, and underscores how much damage was done to foreign business sentiment.

Corruption Thrives at Major Policy Bank

While Europeans were howling about their difficulties in China, Beijing was voicing its own dismay with one of its major policy banks, the China Development Bank (CDB). The Central Commission for Discipline Inspection, China’s main anti-corruption watchdog, published an article last week slamming the bank for the rampant graft within its walls.

China’s biggest lenders are divided into two main groups, commercial and policy lenders, the latter of which include CDB. The policy lenders have been especially active in Belt and Road Initiative projects financing new infrastructure in developing markets. That gives them far more leeway to engage in this kind of corrupt activities than their more profit-focused commercial peers.

China Stock Rally Runs Out of Gas

Offshore-listed Chinese stocks finally ended their brief rally last week, as there was little or no positive news for investors to cling to anymore. The Hang Seng China Enterprises Index tumbled 6.4% during the week, while the iShares MSCI China ETF fell 7.3%, wiping out much of the gains from the previous three-week rally. The broader Hang Seng Index fell 5.7%.

Anyone following China these last few months wouldn’t be surprised by last week’s selloff, and more surprising was the three-week rally that preceded it. That rally was probably fueled by signs of more government stimulus, and a nascent thaw in frigid U.S.-China ties. But at the end of the day, investors finally acknowledged China’s economy isn’t going anywhere fast.

Industry

Nobody Feels Like Shopping on June 18 Festival

It was billed as China’s latest shopping extravaganza. But consumers weren’t feeling too festive for this year’s edition of the June 18 spending spree. One report on the festival noted that leading e-commerce sites Alibaba and JD.com were tight-lipped about sales this year, while another said PC, smartphone and smartwatch sales all fell from last year’s levels.

The slumping electronic sales aren’t all that surprising, since we’ve previously observed that consumers are growing especially cautious in their spending on more discretionary, expensive items amid all the recent economic uncertainty. We should also note that many e-commerce companies were similarly tight-lipped during the even larger “Double 11” shopping festival last November.

Consumers Discover Homes Are for Living, Not Wealth Building

An interesting report last week shows how China is making the difficult but necessary transition away from viewing property ownership as a form of wealth-building to a more western-style investment in the place where you live. That shift is playing out in the form of falling prices for real estate in even markets like Shanghai that were once thought to be immune from such corrections.

This property slump has been a long time coming, as the previous boom pushed prices to levels well above those seen in most major western markets, even though Chinese earn far less than their western peers. The painful correction now taking place is probably just getting started, but will put this key sector of China’s economy on more sustainable footing once it’s finished.

U.S., China Agree to Boost Flights

The breakthrough trip to China by U.S. Secretary of State Antony Blinken a week ago produced lots of positive talk, but not much in the way of real actions. But at least one concrete positive result of his meetings was an agreement to boost the number of flights between the U.S. and China, which has been frozen at ridiculously low levels despite China’s reopening.

Even so, the two sides have only agreed to actively explore increasing the number of flights between the world’s two largest economies. A recent Nomura report showed flights between the U.S. and China were at 6% of pre-pandemic levels, pushing prices to extremely high levels and making business and cultural exchanges difficult.

Company

Syngenta IPO Forges Ahead with $9.1 Billion Price Tag

What’s almost certain to become this year’s largest IPO took a major step forward last week with the Shanghai Stock Exchange’s approval for agricultural giant Syngenta’s 65 billion yuan ($9.1 billion) listing. This particular IPO has been a long time coming, with the company making its first steps towards the listing as early as 2019.

The company was formed by the $43 billion purchase of Switzerland’s Syngenta by China’s SinoChem in 2017, leaving the latter with huge debt to finance the transaction. The IPO will help to repay some of that debt. The regulator has dragged its feet on the deal, worried it might drain too much money from the bourse. But perhaps such worries have eased in the current anemic market.

Daniel Zhang Bows from Alibaba Group

The shakeup continues at e-commerce giant Alibaba, which announced a new series of top management changes as part of its ongoing breakup into six major pieces. Daniel Zhang will leave his positions as chairman and CEO of Alibaba Group, which is set to become the holding company for the six units being created as standalone companies after the breakup.

But Zhang is hardly leaving the company, and will transition to his new role as chief of Alibaba Cloud Intelligence Group, which is one of the six units that will soon become standalone companies after the breakup. Meantime, two of Alibaba’s founders, Joe Tsai and Eddie Wu, will succeed Zhang in his former positions as chairman and CEO, respectively, of the holding company.

AstraZeneca Weighs China Business Spinoff

British drug giant AstraZeneca is reportedly planning to spin off its China business as a separate unit, and could possibly list it in Hong Kong or Shanghai. This looks like a growing theme that is part of the world’s ongoing decoupling from the world’s second largest economy, in a nod to the many unique qualities of the China market.

AstraZeneca’s China president previously said his company would seek to be a patriotic one that “loves the Communist Party,” which speaks to one of China’s most unique qualities that often sees business mixed with politics. Such a separation would presumably give the China unit leeway to do some things that AstraZeneca might not necessarily do in other parts of the world.

AND FROM THE PAGES OF BAMBOO WORKS