In this week’s issue exports rebound, deflation rolls on and car exports zoom. 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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MACRO

China-U.S. Ties in Focus Ahead of Taiwan Election

China-U.S. ties were front and center in a number of headlines last week, ahead of Taiwan’s presidential election that took place over the weekend and always puts strains on China’s ties with the West. One headline saw the U.S. and China wrap up two days of military talks that have only recently resumed, while another saw senior security officials from both sides meet virtually.

One of the most striking headlines came from the very top, with President Xi Jinping sending a somewhat nostalgic letter to an old friend in Iowa saying “the future and destiny of this planet require Sino-U.S. relations to be more stable, to be better.” The flurry of activity seems to continue a recent thaw in U.S.-China ties as the two sides look for ways to peacefully co-exist.

Exports Rebound, But Deflation Continues

The latest economic data were quite the mixed bag, headlined by a continuing rebound in exports but continued deflation. China’s exports rose 2.3% in December, marking a second consecutive month of growth after a slight gain in November. Imports also rose by a small 0.2%. Both figures spent much of last year in contraction territory, so the increases were a welcome end to the year.

But signals weren’t nearly as positive for the consumer price index, which fell for a third straight months with a 0.3% drop. The producer price index, which reflects prices for manufacturers, fell by a larger 2.7%, and has now been contracting for more than a year. The overall picture still looks quite bleak, reflecting weak sentiment among Chinese consumers worried about the future.

China Stocks Retreat from Santa Claus Rally

Offshore Chinese stocks continued to sag last week, wiping out nearly all their gains from a surprising – and largely groundless – Santa Claus rally in the final week of 2023. The Hang Seng China Enterprises Index lost 2.2% for the week, and now trades roughly where it was before the brief rally. The iShares MSCI China ETF lost 1.6%, while the broader Hang Seng Index fell 1.8%.

The year certainly hasn’t gotten off to a good start for offshore-listed Chinese stocks, with the Hang Seng China Enterprises Index now down about 5% in the first two weeks of the year. But that hasn’t stopped companies from lining up to list in Hong Kong, with three of the four big global accounting firms expecting IPO activity to double this year from last year’s anemic level.

New energy vehicles waiting for shipping in Taicang, China

Industry

Car Sales End 2023 on High Note as Exports Zoom

China’s car sales ended 2023 with a bang, rising 8.5% in December to boost the sector to 12% growth for the year. That’s quite a strong showing considering the tough times carmakers experienced for much of the 2023, with most of the growth concentrated at the start of the year during China’s brief post-pandemic rebound, and also at the end of the year.

The big story of the year was a surge in exports that saw China take the crown for the world’s biggest car exporter from Japan, based on a forecast from one of China’s main car associations. That surge came on the back of China’s recent strength in new energy vehicles that are taking the world by storm.

China Energy Storage Soars

China is already leading the world in the installation of green energy like wind and solar, and now it’s zipping ahead in the related sector for energy storage. The country’s renewable energy storage capacity soared by 150% last year to 34.5 GW, and the figure is expected to double again this year, according to an official from the China Energy Storage Alliance.

Energy storage is a crucial piece for wind and solar power, as it allows for excess energy to be stored when the sun is bright and wind is strong for use when generating conditions are less ideal, such as at night time. As usual, Chinese companies are rushing to answer Beijing’s call to develop the sector, with the result that the country could end up with big excess capacity.

Hong Kong Enters Crypto ETF Race

Move over, New York. Hong Kong wants a piece of the cryptocurrency ETF action, with eight fund companies now in advanced talks to launch spot ETFs backed by virtual currencies on the city’s stock exchange. Word of the talks comes from an executive at cryptocurrency exchange operator HashKey Group, though the Hong Kong Stock Exchange hasn’t commented.

The Hong Kong securities regulator and monetary authority announced last month they would accept applications for funds backed by cryptocurrencies, making the city the first in Asia to allow such products. The move looks aimed at helping Hong Kong try to stay at the cutting edge of financial markets, following a bruising for the city’s reputation over the last few years.

Jensen Huang of Nvidia in Computex 2023

Company

Nvidia Prepares ‘Made-for-China’ AI Chip

If Uncle Sam gives you lemons, you make lemonade. That’s the lesson U.S. chip makers are quickly learning, after Washington banned them from selling their most advanced chips to China over concerns they could be used by the Chinese military to develop advanced weapons.

In response, Nvidia is reportedly getting ready to roll out several “made for China” chips that could satisfy the market’s demand for advanced chips needed to run AI applications without violating U.S. sanctions, according to a Reuters report. We can probably expect other chip majors like Intel to follow suit and develop similar “made for China” chips to cater to the huge market.

Evergrande EV Executive Detained

As if struggling property developer Evergrande didn’t have enough problems, now the company’s dubious electric vehicle unit has just suffered its own major blow with the sudden detention of its vice chairman. The company disclosed the development in a stock exchange filing, saying Liu Yongzhuo had been detained on suspicion of “illegal crimes.”

Not surprisingly, shares of China Evergrande New Energy Vehicle Group tanked as much as 23% after the announcement, though they later clawed back much of that and closed down 6%. The relatively mild selloff shows that anyone investing in this stock probably has a huge appetite for risk already, since Evergrande itself is in such trouble and it’s also quite late to the EV game.

Meituan Delivers in Hong Kong

Just eight months after arriving in Hong Kong, takeout delivery giant Meituan is quickly finding a place in the city, its first market outside Mainland China. The company’s “KeeTa” app accounted for 37% of the Hong Kong takeout dining market in December, behind only market leader Food Panda’s 42% and ahead of Deliveroo’s 20%.

Such a rapid takeoff isn’t surprising for Meituan, which is already China’s market leader and is known for its aggressive tactics that often include heavy subsidies for new businesses to gain market share. With the Hong Kong success, all eyes will likely be looking to see if Meituan joins others like ByteDance, Shein and PDD in venturing beyond China.

AND FROM THE PAGES OF BAMBOO WORKS

Tea Party at Hong Kong Stock Exchange

Last week we spotlighted two major new IPO applications to start the year from China’s frothy bubble tea sector. One saw industry leader Mixue, which boasts a whopping 36,000 stores, apply for an offering that could raise up to $1 billion. The other came from Guming, which is also quite large with around 9,000 shops.

Both companies have grown quickly by using a franchising model to sell their sweet teas targeted at the masses of Chinese youth looking for the latest, greatest drinks. The industry looks quite saturated at this point, which is leading many companies to seek new growth abroad, and also makes the sector look ripe for consolidation.
IVF Hospital Files for IPO, Drawing on China Fertility Drive

We also brought you the story of what looks like an IPO with strong growth potential as Beijing tries to boost the country’s plunging fertility rates. This listing application comes from IVF Hospital Management Group, which is hoping to entice investors with its position in a sweet spot playing to Beijing’s worries about China’s low birth rates.

Grappling with such falling rates, China has started to subsidize fertility treatments for couples desperate to have a baby. That plays nicely to this particular company, which provides in vitro fertilization (IVF) services. It performed 6,706 IVF cycles in 2022, making it China’s fourth-biggest private provider of infertility treatments.

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