In this week’s issue banks get creative, a doctor gets probed, and Apple’s Tim Cook can’t get enough of China. 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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MACRO

China Further Extends Its Welcome Mat for Foreign Investors

China just can’t seem to get enough of foreigners, or at least their investment dollars. Last week saw two major headlines underscoring this ongoing theme, led by news of a new action plan with 24  measures to attract foreign investment to China. Later in the week, another report emerged saying President Xi Jinping would meet with foreign CEOs this week as well.

All of this is coming amid a rapid decline in foreign direct investment in the last few years, including a first-ever decline last year. Xi Jinping’s personal meeting with top U.S. business leaders like Apple CEO Tim Cook and Exxon Mobil’s Darren Woods shows just how worried top officials are, as Xi rarely holds such meetings with non-heads of state.

Yuan Sinks to Four-Month Low

After falling to multi-year lows last year, only to rebound somewhat later, China’s currency, the yuan, has headed into another weakening cycle that saw it sink to a four-month low last week, at around 7.2 to the dollar. Even before the current declines, the currency was still far weaker than the psychologically important 7-to-the-dollar level where it has settled lately.

This particular story is somewhat technical, though it’s noteworthy that Chinese banks reportedly stepped in by selling dollars to ease pressure on the currency. Current levels would have been unthinkable just a couple of years ago when China’s economy was still looking relatively strong. But as the economy weakens, the yuan looks increasingly unlikely to strengthen beyond 7 anytime soon.

China Stocks Take a Breather

After a relatively strong rally to start the Lunar New Year, offshore-listed China stocks took a breather last week. In fact, the indexes we follow were ahead for most of the week through Thursday. But a big drop on Friday left the Hang Seng China Enterprises Index down 1.1% for the week. The Hang Seng Index fell by 1.3%, while the U.S.-traded iShares MSCI China ETF lost 1.3%.

China is taking a growing number of steps to try to support its main stock markets in Shanghai and Shenzhen, including newly announced rules to tighten controls over new listings. New data on loans to non-bank institutions released last week also suggests that lending for stock purchases was surging as borrowers used money to invest in the market.

Industry

Chinese Banks Get Creative

You have to hand it to Chinese banks for being creative. After often being criticized for their inability to accept anything other than property or other physical assets as loan collateral, some state lenders are experimenting with the use of data assets as collateral. A branch of China Construction Bank is leading the charge by making one such loan for 3.5 million yuan to an online auto platform.

The backstory is that new economy companies, many in the services sector, often have difficulty getting the money they need to operate and grow because state-run banks don’t know how to manage such risk. Beijing has repeatedly called on banks to lend more to such smaller startups that are major employers and innovators, but such calls often go unheeded.

Renowned Doctor Probed for Corruption

A well-known Beijing doctor and academic has been detained on suspicion of corruption, in what one state media called a “landmark case” in a relatively recent crackdown in the healthcare sector. This latest corruption probe is centered on Tian Wei, a former member of the Chinese Academy of Engineering and also former president of Beijing Jishuitan Hospital.

China’s graft-busters have been relatively systematic in their approach, targeting officials in government agencies and at big state-owned enterprises in more traditional sectors. Most recently, their focus is turning to the healthcare sector, where corruption is rampant as doctors supplement their income by taking bribes from drug and medical device makers.

Mainlanders Surge Into Hong Kong Property Market

Hong Kong is trying to perk up its ailing property market by eliminating additional stamp duties it previously imposed on foreign buyers when the market was overheated. That’s led to a rush of Mainlanders into the market, with Mainland Chinese buyers now accounting for 20% to 30% of all Hong Kong property purchases in the weeks since the policy change.

Mainlanders are probably flocking to Hong Kong as they face greater uncertainty on the Chinese Mainland, where property prices have been falling for most of the past year and don’t look set to bottom out anytime soon. Hong Kong is obviously much smaller, so perhaps this kind of policy tweak can prop up its equally ailing real estate market more easily.

Company

Ant Makes International Business More Independent

In what’s become a growing theme among Chinese companies with global operations, financial services giant Ant Group is reportedly getting set to grant more independence to its international business as part of a broader restructuring. Under the rejig, Ant International will become one of three of the company’s main business units that will be run independently with its own board.

Ant’s former parent, Alibaba, is in the process of conducting a similar breakup, which also includes the separation of its Alibaba International unit into a separate company with its own board and management. Ant’s own restructuring has been ongoing for much of the last three years after it scrapped its highly anticipated planned mega-IPO at the 11th hour in 2020.

Apple’s Tim Cook Back in China

Tim Cook can’t seem to get enough of China. The Apple CEO was a regular visitor to China pre-pandemic and has resumed that tradition since the country lifted its Covid restrictions at the end of 2022. He got a celebrity welcome during his latest trip to the country last week where he attended the opening of the world’s second largest Apple store in Shanghai.

Cook’s trip was a bit longer than usual this time, as he was reportedly planning to stay on for a potential meeting of U.S. business executives with President Xi Jinping that could happen this week. Cook is no doubt concerned about Apple’s sinking position in the market, as it faces new competition from a resurging Huawei.

Tesla Boosts Model Y Prices

Rarely does a simple price increase for a single product attract too much attention. But Tesla’s decision to hike the price of its Model Y in China did just that last week, as people interpreted the move as showing a bloody price war that has gripped the nation’s auto sector for most of last year could finally be easing.

Tesla’s adjustment wasn’t all that big, with the price hike of 5,000 yuan, or around $700, set to take effect on April 1. At the same time, some extras like an insurance subsidy that Tesla was offering in China will also expire at the end of this month. Tesla is a leader in the market, so it’s quite possible that its smaller, money-losing rivals will welcome this move and make their own price hikes.

AND FROM THE PAGES OF BAMBOO WORKS

Why JL Mag Came Unstuck, But Is Getting Back on Track

Last week we brought you the story of JL Mag, which admittedly comes from the somewhat unglamourous sector making rare earth permanent magnets. The company’s latest results show it took a beating last year as prices tumbled for the rare earths that are a key component of its products. But analysts expect the company to rebound this year as prices stabilize.

Rare earths may not sound too sexy, but they are big business due to their use in many electronics and new energy technology. Our story showed why the big price drop is due in no small part to China’s attempts to keep its dominance of the rare earth market by sharply boosting output, despite U.S.-led attempts to develop more sources in other countries.
Carote Cooks Up Big Growth with Own-Brand Strategy

We also brought you the story of Carote, a family owned company that has cooked up some strong growth lately by turning to a younger generation of leaders. Carote is hoping to sell its growth story to investors through a Hong Kong IPO that would raise fresh funds to fuel its growth.

A son and daughter of Carote’s two founders have taken over at the helm of the company in recent years and introduced a number of more modern concepts to make it more efficient and profitable. Those include doing more selling via e-commerce, outsourcing more manufacturing and developing the company’s own brand that is more profitable than its older ODM business.

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