Illustration of slowing China GDP growth

In this week’s issue nostalgia with Henry Kissinger, an e-commerce dust-up and a Chinese “Ugly Duckling” tale. On a scale of 1 to 100, we give the week a 50 for offshore-listed China stocks.

Doug Young, Editor in Chief

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GDP Growth Comes Up Short

The big economic story last week was China’s second-quarter GDP, which grew 6.3% from a year ago in the second quarter. While that number may look good on the surface, well ahead of this year’s 5% growth target, it fell short of market consensus for 7% growth, and was also up just 0.8% from the previous quarter. On the whole, most outlets characterized the figure as disappointing.

In fact, the year-ago figure was quite depressed due to a factor that many of us living in Shanghai at that time would rather forget. Of course, we’re referring to the two-month lockdown last April and May that sharply curbed output in China’s commercial hub. Many are viewing this new GDP number as the latest evidence that China’s post-Covid rebound is rapidly losing steam.

U.S.-China Ties Advance with Kerry, Kissinger Visits

China-U.S. ties continued their recent pattern of advancing in a sort of “two steps forward, one step back” pattern. U.S. climate envoy John Kerry became the latest U.S. official to visit Beijing, where he met with Premier Li Qiang and top diplomat Wang Yi, two of China’s highest ranking government officials. But progress in their talks was relatively muted.

Meantime, Henry Kissinger got a much warmer reception during his personal visit to Beijing, meeting personally with President Xi Jinping, who praised the former U.S. secretary of state for his historic contribution” to advancing U.S.-China ties. The warmer reception for Kissinger seems to reflect a sort of nostalgia by China for earlier times when Sino-U.S. ties weren’t so contentious.

China Stocks Back in “Off” Mode

Offshore-listed China stocks continued their recent “on again, off again” pattern last week, this time switching into “off” mode following strong gains the previous week. The Hang Seng China Enterprises Index lost 2.2% during the week, retreating from a 5.8% gain the previous week. The iShares MSCI China ETF fell 2.7%, while the broader Hang Seng Index fell 1.7%.

This recent back-and-forth reflects a certain holding-pattern mentality among investors, as they wait for clearer signals on where the Chinese economy is heading. Such signals could start to emerge over the next month as second-quarter earnings season switches into high gear. Most eyes will be watching to see if and how Beijing responds with stronger support for industry.

China housing market


More Weakness for New, Pre-Owned Housing

A pair of headlines last week nicely summed up current weak demand in China’s housing market that is undermining sales for both new and pre-owned homes. One headline said prices for pre-owned homes in first-tier cities fell 0.7% in June from the previous month, accelerating from a 0.3% decline in May. The other said China’s steel output rose just 1.3% in the first half of the year.

The steel data reflects new home construction, and shows that steel output actually rose strongly in the first three months of the year, before contracting in April and May. Based on what we’ve seen so far, Beijing looks increasingly content to stand on the sidelines and let this much-needed correction take its course, assuming that prices don’t go into freefall.

E-Commerce Dust-Up

An entertaining brawl broke out in China’s e-commerce sector last week, as the upstart Temu service operated by Pinduoduo sued fast fashion giant Shein in the U.S. for anticompetitive behavior. This story nicely illustrates how two of China’s most successful internet companies overseas are also exporting their dubious business practices.

In its suit, Temu, which launched last year by offering bargain-basement prices to western consumers, said clothing makers were shunning it due to threats from Shein. The dust-up looks similar to accusations several years ago by, which said many online merchants were refusing to work with it due to threats from archrival Alibaba.

Financial Execs Probed for Corruption

The cleanup of corruption in China’s state-run sector marches on, and appears to be revving up lately in the financial services sector. Last week saw two major officials fall under the investigative microscope, including a former deputy general manger of insurance company Taiping, and an ex-chairman of financial services conglomerate Everbright Group.

China’s anti-corruption drive spent much of its early years targeting government officials accused of taking bribes and engaging in other morally questionable practices. More recently it’s moved into a 2.0 phase targeting similar forms of corruption in the country’s sprawling state-run sector, which, in many ways, is just an extension of the government.

Citic Bank


Citic Relocates Hong Kong Bankers to Mainland

Cost-cutting has been a big theme among Chinese companies over the past year, as many reined in spending during the difficult times of the pandemic. In a twist to that story, financial conglomerate Citic is now planning to move dozens of bankers from its Hong Kong-based CLSA unit from Hong Kong to the Chinese mainland to save money.

This story has several interesting angles, most notably that a major corporation like Citic, one of China’s leading financial groups, is feeling pressure to take this kind of step. The move could also presage a similar relocation of more financial jobs by Chinese companies from Hong Kong, where the cost of living and doing business is quite high compared to the mainland.

ANZ Closes Fully-Owned Chongqing Bank

In another financial story, New Zealand’s ANZ is calling it quits on a small rural lender that it fully owns in Southwest China’s Chongqing municipality. The bank said its decision to shut down its Chongqing Liangping ANZ Rural Bank is part of a broader shift in Asia away from such smaller operations to focus on large corporate and institutional clients.

The decision to operate this kind of rural lender looks like the exception rather than the rule among foreign banks in China, which have typically tended to target China’s wealthier larger cities. But most of those banks have also found the going tough due to many restrictions placed on them, not to mention stiff competition from better-connected state-owned rivals.

Geely Electric Truck Unit Raises Big Funds

China’s overcrowded electric vehicle (EV) sector may be financially challenged these days, but a startup backed by local giant Geely focused on truck manufacturing doesn’t seem affected. Geely announced the startup, Farizon, which makes both electric and hybrid trucks, has raised $600 million from backers including Boyu Capital and Singapore’s United Clean Energy.

China’s broader EV market is quite overbuilt, following years of strong government support including incentives for both manufacturers and EV buyers. But recent withdrawal of that support has left many companies struggling. Niche companies like Farizon may be less affected, and, of course, having a big name like Geely as your parent doesn’t hurt either.


Global Investors Shy Away from China AI

Last week we took a deep dive into a recent trend whereby global investors are avoiding Chinese artificial intelligence startups, especially ones developing the type of generative AI popularized by U.S. sensation ChatGPT. Many big global investors are concerned about political sensitivities surrounding Chinese AI companies, which could hurt their ability to exit such investments.

That doesn’t mean we should write off Chinese AI just yet. Beijing has said development of this sector is a major priority, meaning it’s willing to make plenty of money available from domestic sources. As that happens, a trio of former Chinese Microsoft executives, led by former Google China chief Lee Kai-Fu, are emerging as some of the industry’s most important backers.
A Chinese ‘Ugly Duckling’ Tale

We also brought you the tale of a Chinese “Ugly Duckling” called Meitu, a beauty services provider that is showing signs of shedding its ugly roots and morphing into something more attractive, at least from an investment standpoint. The company started out operating a popular app that let ordinary consumers doll up images of themselves to share with friends.

Like many Chinese companies at that time, Meitu quickly signed up millions of users. But it quickly discovered that getting those users to pay was another matter. The company finally realized it was easier to get businesses to fork over money, and has finally found its way into the black by offering services targeting establishments like makeup stores and beauty salons.

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