In this week’s issue data relief for foreigners, Holland in the hot seat and a cloak-and-dagger poisoning case draws to a close. 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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China Eases Up on Cross-Border Data Requirements

Most foreign businesses in China were breathing a big sigh of relief last week after the nation’s cybersecurity regulator posted a key update on rules they must follow for their cross-border data transfers. The update basically exempted the big majority of foreign firms from any restrictions, and said they won’t need to report on most data generated from their activities like international trade.

The original cross-border data transfer requirements were quite vague, and left many smaller foreign businesses worried they could be violating the law by simple things like sending customer information to their home offices. This clarification continues a recent trend of Beijing taking extra steps to try to convince foreigners it still welcomes their investment.

Industrial Profits Back on Growth Track

On the economic front, new data from Beijing showed that profits from industrial firms rose 10.2% for the months of January and February combined. Within that figure, profits at state-owned firms rose by the smallest 0.5% for the two-month period, while profits at foreign and China’s private sector firms rose by 31.2% and 12.7%, respectively.

The strong rise was a notable reversal from last year when industrial profits fell by 2.3%. The indicator is the latest providing some upside surprise for China’s industrial sector since the start of the year. The results were all the more impressive because they came off a relatively strong base at the start of 2023 when businesses posted strong gains as China ended its pandemic restrictions.

Markets in Easter Holding Pattern

Offshore-traded China stocks were in a holding pattern last week due to a shortened trading week for the Easter Holiday. The Hang Seng China Enterprises Index was the biggest mover of the three main gages we follow, gaining 0.9% for the week. The iShares MSCI China ETF was up by a smaller 0.5%, while the broader Hang Seng Index inched up 0.3%.

Despite the small moves, there was plenty of the news in the market as a flood of Hong Kong-listed companies released their 2023 full-year results before a March 31 deadline. But investors were probably looking forward to the long holiday weekend, and perhaps were also mildly upbeat on the latest signals from Beijing that China still welcomes foreign investment.

ASML booth in 2023 Shanghai International Semi-conductor Show


Chips in the Hot Seat on Dutch PM Visit

Dutch Prime Minister Mark Rutte’s visit to China last week normally wouldn’t be big news, but it took on far more importance this time due to the Netherlands’ status as home of the world’s most advanced microchip machinery maker. We’re talking about ASML, which has been banned by its government from selling its most advanced products to China.

Rutte probably got an earful from President Xi Jinping, which was reflected in remarks by China’s commerce minister saying he hoped the Netherlands would ensure “normal” trade in lithography machines. Rutte later sought to downplay the conflict, saying the Netherlands never targets specific countries with its trade restrictions and always tries to limit the impact.

China on EV Offensive in U.S., Defensive in Europe

China spent last week trying to protect its fledgling wave of electric vehicle exports (EV) from hitting the brakes in the West. On one front, Beijing officially complained to the WTO that U.S. government subsidies discriminate against Chinese EVs. Meantime, China’s commerce minister is set to travel to Europe to try to convince the EU that China doesn’t unfairly subsidize its EV industry.

The case against the U.S. could have some merit, since big subsidies announced by Washington last year do favor U.S. companies by going only to cars made in America. The EU case could be more problematic, since nothing China can say will halt the bloc’s probe into whether Chinese EVs now flooding into Europe are produced with unfair government support.

Comac Designing New Widebody Plane

Watch out, Boeing and Airbus. After launching its first large commercial jet last year, the narrowbody C919, state-run Comac is now working on another model to take on widebody planes like Boeing’s 787 and Airbus’ A330. The new model, the C929, is currently in the “detailed design stage” a Comac executive revealed at an event with local media in Shanghai last week.

Official confirmation of the new model comes after another company, Huarui Aero, which is building the fuselage of the new plane, said in February that it will be able to deliver the “middle section of the fuselage” in 2027. The new plane would be able to seat up to 400 people and have a range of about 12,000 kilometers.

ByteDance headquarter in Beijing, China


ByteDance Firmly Opposes TikTok Sale

Despite growing pressure to sell its TikTok operations in the U.S., the popular app’s owner, ByteDance, has no interest in selling. Several sources told financial media Caixin that ByteDance founder and major shareholder Zhang Yiming “steadfastly opposes” such a sale, implying he might prefer to be banned in the U.S. rather than sell the operation.

Zhang is in quite a difficult position and really may have no other choice but to see TikTok banned in the U.S. if legislation now in Congress is ultimately passed. That’s because there are very few companies that could afford to buy the U.S. operation. And even if ByteDance could find a buyer, Beijing would be almost certain to veto such a deal.

Alibaba Scraps Cainiao Listing Plan

First it was its cloud unit, and now e-commerce giant Alibaba has announced it is scrapping previously announced plans for a potential separate IPO for its Cainiao logistics unit. Instead, Alibaba will dip into its large cash pile and pay up to $3.75 billion to buy out other Cainiao investors who currently hold about 36% of the company.

The change of plans for Cainiao seems to represent the rapid unraveling of Alibaba’s landmark plan announced last year to break itself up into six separate companies, each responsible for its own profits and fundraising. Last fall, media also reported that plans to separately list Alibaba’s Freshippo supermarket chain were being put on hold due to weak market sentiment.

Cloak-and-Daggar Poisoning Case Ends with Death Sentence

Very few people have probably heard of game developer Yoozoo, but that could change if and when someone in Hollywood buys the rights to the bizarre story of the poisoning of its chairman by one of his employees. That case reached a conclusion last week with a death sentence for the poisoner, a 43-year-old man named Xu Yao.

This case dates back to 2020, and really does have all the elements of a Hollywood blockbuster. The story revolves around the Chinese sci-fi thriller “The Three-Body Problem,” which Yoozoo was developing into filmed products. Xu was involved in those projects, and poisoned Yoozoo Chairman Lin Qi after the two conflicted over the matter.


Guofu Jumps on Hydrogen-Power IPO Bandwagon

Last week we cast our spotlight on a company called Guofu, which is leading a new wave of companies preparing to list from China’s hydrogen energy sector. While hydrogen has been hailed as a clean fuel with huge potential, it has been slow to take off in the rest of the world due to high costs of production and various technical issues involving transport, storage and refueling.

But that hasn’t stopped China from pumping its usual generous subsidies into the space. Guofu is a relatively low-tech player, focused on equipment for transporting and refueling of hydrogen-powered vehicles. Its IPO filing came just a week after another hydrogen company called Shanghai Refire filed for a similar listing.
Investors Unimpressed by Massive Dividend from Shrinking Lufax

We also took a deep dive into the latest earnings from Lufax, a former highflier from a field of fintech lenders that don’t get much investor respect these days. Lufax announced a massive special dividend of $2.42 per ADS, equal to about 72% of its share price at the time of the announcement. But investors weren’t that impressed, bidding up the stock by just $1.11 over the next two days.

Part of the skepticism owes to Lufax’s incredible shrinking size, as its loan portfolio rapidly shriveled by 45% last year and looks set to contract another 32% this year. The company says it’s taking the radical haircut to focus on high-quality borrowers in China’s uncertain economy. But investors don’t seem too impressed with that kind of shrinking story.

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