In this week’s issue positive trade signals, a major EV IPO and more sagging home sales. On a scale of 1 to 100, we give the week a 65 for offshore-listed China stocks.

Doug Young, Editor in Chief

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Services, Trade Send Positive Signals

After months of mostly gloomy data, the latest economic indicators from the trade and services sectors were relatively positive for once. The country’s exports rose 1.5% in April, rebounding from a 7.5% decline the previous month, while imports rose 8.4%. Meantime, the Caixin/S&P Global services purchasing managers’ index (PMI) came in at 52.5, solidly in expansion territory.

Services has always been relatively solid, even as China’s economy slows, and the latest PMI reading is the 16th consecutive month in expansion territory, defined as anything above 50. Trade has been more problematic, with figures mostly contracting recently due to weakness from overseas buyers. The big jump in imports this time is encouraging as it could indicate improving domestic demand.

U.S. Overtakes China as Germany’s Top Trading Partner

Also on the subject of trade, Germany crossed a significant milestone in the first quarter when the U.S. became its top trading partner, overtaking China for that position. Germany’s combined U.S. imports and exports for the three-month period totaled 63 billion euros, compared to 60 billion euros for China. Before that, China was Germany’s top trading partner for eight consecutive years.

One analyst attributed the shift to solid demand from the U.S. thanks to its strong economy, whereas demand has softened from China due to its own economic slowdown. At a higher level, the shift also seems to reflect German’s recent moves to lessen its reliance on Russia and China to avoid potential economic shocks if relations sour with either of those countries.

Offshore China Stocks Continue Their Winning Streak

Offshore China stocks marched further into bull territory last week, though the weekly increases have been slowing. The Hang Seng China Enterprises Index rose 2.6% for the week, mostly due to a strong rally on Friday, while the iShares MSCI China ETF rose 0.9% and the Hang Seng Index gained 2.6%. The China Enterprise Index is now up 34% from its low in late January.

The rally could prompt more Chinese companies to strike while the iron is hot and make new IPOs in New York and Hong Kong, ending a prolonged drought in major new listings. One such listing came at the end of last week from Geely-owned EV startup Zeekr, which raised $441 million, making it the biggest U.S. IPO by a Chinese company since 2021.


New Home Sales at Five-Year Low

Last week we saw some signals that China’s commercial property market may be near a bottom, but the same wasn’t true for the far larger residential market. The latest data showed a paltry 2,100 homes were sold in 12 major Chinese cities over the recent five-day May Day holiday, down 52% from the same period a year earlier and at a five-year low.

That performance continues a trend from April, when the value of new home sales from China’s 100 largest developers fell 45% from a year earlier, extending a similar 46% decline in March. The big declines don’t look likely to end anytime soon, since Chinese consumers are already quite wary about big-ticket spending and worry that home prices will keep falling.

China Takes Some Juice Out of Battery Boom

A growing recent theme has been Western complaints about Chinese overcapacity in key emerging sectors like EVs and solar panels, even though China consistently denies creating such overcapacity. But in a subtle admission that perhaps it is indeed creating too much supply, the country is proposing new rules that could rein in the oversupplied sector producing lithium batteries.

The draft new rules were issued last week by the Ministry of Industry and Information Technology, which oversees the electric vehicle industry that is one of the main consumers of lithium batteries. The rules would raise standards for a range of battery specifications, presumably forcing out makers of lower-quality products and discouraging new entrants.

Chinese EVs Face U.S. Tariffs, Eye More European Production

Speaking of EVs, China’s new energy vehicle sector was in a couple of major headlines, including a Reuters report saying the Biden administration was set to announce new tariffs on a number of strategic sectors this week, including EVs. Another headline noted a growing number of Chinese EV makers are studying producing in Europe to avoid potential future import tariffs from the EU.

The U.S. move looks mostly pre-emptive, as the country has yet to import many Chinese EVs. Instead, this signal is probably aimed at discouraging any local U.S. companies that might want to consider such imports. Meantime, the movement by Chinese companies to Europe is likely to be relatively small, since most producers lack the cash to make such major new investments.


Zeekr Breaks Through U.S. IPO Logjam

As we noted earlier, Geely-backed EV maker Zeekr made a major breakthrough at the end of last week when it completed the largest U.S. IPO by a Chinese company in nearly three years, raising $441 million through its share sale. Demand was surprisingly strong, prompting the company to upsize the listing after the shares priced at the top of their range.

We’ve previously written that Zeekr is a bit late to the China EV game, but could still have a good chance of success thanks to its strong ties to Geely, one of China’s leading private automakers and also one of its few global success stories. The deal valued Zeekr at about $5 billion, which is lower than the $21 billion for rival Li Auto and about half the $11 billion for Nio.

ByteDance Sues to Block U.S. TikTok Ban

In a highly anticipated move, internet sensation ByteDance filed a lawsuit in the U.S. last week aiming to nullify a controversial new law that would ban its TikTok from the market unless it sells the U.S. operations of its wildly popular short video service. ByteDance argued the law is unconstitutional for a number of reasons, including its violation of the right to free speech.

It pointed out that the law signed by President Biden late last month is the first time a specific company has been singled out for this kind of ban. The U.S. worries that TikTok’s Chinese ownership could make it vulnerable to becoming a propaganda tool from Beijing, though election-year politics are probably also playing a big role in this ongoing drama.

Citibank Shutters China Consumer Insurance Business

Citibank’s exit from China’s consumer banking business took another step forward last week as the company officially stopped selling insurance products from other companies to its retail banking customers. Citi’s Chinese bank also stopped issuing local credit cards last week, following through on a move it previously disclosed in January.

It’s no huge surprise that Citi is leaving China’s consumer banking business, as it has very little to distinguish itself from the thousands of local and national state-owned banks that cater to ordinary Chinese. Foreign banks in general have made very little progress in China over the last two decades, mostly due to strict regulation and stiff competition from entrenched local players.


ZhongAn Buys $200 Million Worth of Shanghai Office Properties

Last week we zoomed in on online insurance company ZhongAn, which made a relatively contrarian move by buying two Shanghai office properties for a combined $200 million. ZhongAn purchased the properties in its hometown to house its headquarters, so the move had a practical goal and wasn’t 100% for investment purposes.

Still, the company probably believed the buildings would maintain their value and not drop too much more in price. That follows other recent signals that appear to show that China’s overbuilt commercial property sector may be close to a bottom and could soon start to rebound – even as the residential property sector looks set to stagnate for some time to come.
Geely-backed CaoCao Files for Hong Kong IPO

We also brought you the story of CaoCao, which is attempting to become the first of China’s three major ride-hailing apps to list. The company, which is controlled by auto giant Geely, filed its preliminary prospectus last month in Hong Kong, showing its revenue has risen steadily over the last three years, even though it’s still well behind sector leader DiDi Global.

DiDi became China’s first ride hailing app to list in 2021. But it was forced to privatize just months later after getting a regulatory rap on the knuckles for failing to get a necessary data security review. DiDi is reportedly also considering its own attempt to relist in Hong Kong, while the similarly named Dida has also applied to list in Hong Kong but has yet to actually make it to market.

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