In this week’s issue an import surprise, Nio slims down and Hong Kong investors to feast on Sichuan-spicy hot-and-sour noodles. On a scale of 1 to 100, we give the week a 45 for offshore-listed China stocks.
Doug Young, Editor in Chief
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More Sagging Exports and Deflation, but an Import Surprise
The latest macro data are mostly more of the same, with exports down in October as the latest consumer price index (CPI) also showed China slipping back into deflation. Exports contracted 6.4% in the latest monthly reading, quickening from a 6.2% decline in September. Meantime, the CPI fell 0.2% in October, landing back in contraction territory after posting a slight rise in September.
The one surprise came from imports, which posted an unexpected 3% rise in October, marking their first year-on-year increase since February. Soybeans and oil powered the import rise. Perhaps we’re being slightly cynical, but the surprise increase was announced the same week as China’s big Import Expo was happening in Shanghai, which seems just slightly coincidental.
U.S. Makes Splash at Import Extravaganza
Speaking of that, the China International Import Expo was the toast of the town in Chinese media last week, as it came back to life after three years with very limited foreign participation during the pandemic. The U.S. got special attention this year after sending its largest-ever delegation, including more than 200 American exhibitors, many from the agricultural sector.
Leading the U.S. delegation was none other than Ambassador Nicholas Burns, who has become a very high-profile spokesman for the U.S. in China. Burns sought to assure China that the U.S. has no intention of decoupling, and that trade between the two countries is very important. All this comes as Presidents Xi Jinping and Joe Biden get set to meet next week in San Francisco.
China Stocks Return to Downward Track
After a couple of weekly gains fueled by strong Friday rallies, offshore-listed Chinese stocks returned to their falling ways as a Friday rally failed to materialize to save them last week. The Hang Seng China Enterprises Index fell 2.5% during the week, while the broader Hang Seng Index was down 2.6%. Over in the U.S., the iShares MSCI China ETF fell 1.7%.
More weak economic data probably weighed on market, and most foreigners probably dismissed the big Import Expo in Shanghai as little more than pageantry. The next big news could come from the Xi-Biden summit in San Francisco next week, which could help to lift stocks if the meeting is positive.
Beijing Summons Top Developers, Calls on Ping An to Rescue Country Garden
Ongoing concerns about China’s slumping property market led Beijing regulators to call a pow-wow last week with the financial chiefs of six leading developers to better understand their situations. Equally interesting was a separate Reuters report saying Ping An was being asked by the government to step in and rescue sinking developer Country Garden.
Not surprisingly, Ping An vehemently denied the Reuters story, which cited four unnamed people familiar with the matter. We wouldn’t be surprised if Ping An was being pressured to assist, as it’s one of China’s relatively healthier financial institutions. Such an assist would fit with the broader pattern of Beijing using healthy companies to rescue sick ones like Country Garden.
China Snaps Up U.S. Soybeans
We’ve already mentioned that soybeans were a major driver behind the unexpected rise in China’s imports last month, and a separate report shows the U.S. may be supplying a big portion of those soybeans. Another Reuters report says China recently booked its largest soybean purchases in at least three months, though the goods won’t be shipped until December or later.
China watchers may recall that Beijing committed to big purchases of U.S. agricultural products back when Donald Trump was president as part of a trade deal, but that many of those commitments were never completed. With the U.S. and China now trying to mend fences, it should come as little surprise that China is once again stepping up its U.S. soybean purchases.
Chinese Solar Panels Illuminate European Warehouses
They were designed to generate power, but it seems a growing volume of solar panels being shipped from China to Europe are sitting in warehouses instead. A new report shows the number of unsold solar panels sitting idle in European warehouses doubled to nearly 80 GW by the end of August from 40 GW in mid-July. An expert said the figure could climb even higher to 100 GW.
This building glut is leading to crashing solar panel prices. In our last newsletter we quoted a top official from leading producer Longi saying that prices were so low right now his company could barely cover its costs. Look for prices to dip even lower, which will probably send most of the Chinese manufacturers that dominate this industry into the red.
Apple Supplier Luxeshare Ups Vietnam Investment
Much has been written about growing investment in India by Foxconn, one of Apple’s key manufacturing partners. But another major Apple partner, China’s Luxeshare, is also diversifying away from its home market. Luxeshare was in the news last week after being licensed to invest an additional $330 million in its facility in Vietnam, raising the investment there to $504 million.
Luxeshare is interesting for its roots in Mainland China, unlike Foxconn, which is based in Taiwan. While many foreign companies have been diversifying their manufacturing from China, it’s unclear if Chinese companies are also doing this. This development shows big names like Luxeshare are indeed also diversifying geographically to hedge their risk.
Nio Tries to Run More Efficiently
While EV makers BYD and Tesla have navigated the tough road to profits, most of China’s other EV startups are still mired deeply in red ink – a situation that looks increasingly unsustainable. Recognizing that, Nio, one of the leading domestic startups, is cutting 10% of its staff this month and also considering spinning off its noncore businesses, according to local reports.
Nio is making the adjustments as it and other smaller Chinese EV makers see their sales growth slow sharply after a bumper year in 2022. The fierce competition resulted in a price war earlier this year, hitting smaller players like Nio that really couldn’t afford to cut prices. We have yet to see any major companies fail, though a few appear to be running on fumes.
Another Day, Another AI Unicorn
We’ve recently detailed quite a few Chinese AI startups on steroids, often reaching “unicorn” status by attaining $1 billion market valuations just a year or two after their founding. The latest in that club is 01.AI, which reached the $1 billion mark in a recent funding whose backers include Alibaba’s cloud unit. The company only began operating in June.
01.AI is drawing more attention than most because of its founder and CEO, AI guru Lee Kai-fu. Lee, who disclosed the $1 billion valuation in a recent interview, is legendary in AI circles, following his earlier stints as a top executive at Microsoft and Google before striking out on his own in his current company, Sinovation Ventures.
AND FROM THE PAGES OF BAMBOO WORKS
|Anta Ups Its Game with Southeast Asia Expansion
Watch out, Nike and Adidas. Last week we brought you the story of Chinese sportswear giant Anta, whose latest chapter is taking it to Southeast Asia as it expands abroad. Anta recently opened its first store in Thailand, and its Southeast Asian network will include around 100 stores in the Philippines, Malaysia, Singapore and Thailand by the end of the year.
Anta is China’s largest homegrown sportswear company, ahead in a competitive field that also includes such names as Li Ning and 361 Degrees. The company has some previous experience abroad through its participation in the 2019 purchase of Finland’s Amer Sports, whose brands include Arc’teryx, Salomon and Wilson.
|Maluji Eyes Sichuan-Spicy IPO
We also brought you another colorful story of Maluji, founded by a Chinese restaurant entrepreneur reportedly looking to serve up some of her shares to Hong Kong investors with an IPO. The tale revolves around Zhang Lan, who spent several years in Canada in the late 1980s and early ‘90s before returning to China to try her luck in the country’s then-nascent restaurant scene.
She struck gold with her Southern Beauty chain, but that went down the drain after several financial disputes. After a few false starts, she founded her current food baby Maluji, which has become known for its fiery brand of Sichuan-style hot-and-sour noodles. A successful IPO would make Maluji the latest in a recent parade of popular restaurant brands to list in Hong Kong.