Dec 8 FT Thoughts On China's:- Wolf pack leader, Cuts to BRI, Exports, Vaccines and updates


08 Dec

MARKETs @ 12:30pm HK time
Asian markets, with the exception of Taiwan are consolidating having been trading at highs and without an event (like the announcement of a new US stimulus plan) to drive them higher.
JAPAN pre market data was better than expected but the current rise in covid cases and the onset of winter is worrying investors
Nikkei opened lower at 26,380 but worked higher after the good data but resistance around 26,500 which was tested as couple of times before easing slightly into lunch. PM opened lower but working higher. Currently -70pts (-0.3%) @ 26,474
Topix Similar trading pattern but briefly broke into the green mid morning but eased back into the red at lunch. PM opened lower and currently -1pt (-0.05%) @ 1,760
DATA Tankan Index Dec -9 vs -13 Nov (F/cast was -10)
Household Spending Oct +2.1% MoM vs +3.8% Sept (F/cast was +1.2%)
Household Spending Oct +1.9% YoY vs -10.2% Sept (F/cast was +2.7%)
Average Cash Earnings Oct -0.8% YoY vs -1.3% Sept revised (F/cast was -0.6%)
Current Account Oct Yen 2,144.7b vs 1,660.2b Sept (F/cast was 1940b)
Bank Lending Nov +6.3% YoY vs 6.2% Oct (F/cast was 5.9%)
GDP Growth Rate Final Q3 +5.3% QoQ vs -8.3% Q2 revised (F/cast was 5%)
GDP Growth Annualised Final Q3 22.9% vs -29.2% Q2 revised (F/cast was 21.4%)
GDP Price Index Q3 +1.2% vs +1.4% Q2 (F/cast was +1.1%)
GDP Private Consumption Q3 +5.1% vs -8.3% Q2 revised (F/cast was +4.7%)
GDP Capital Expenditure Q3 -2.4% vs -4.5% Q2 (F/cast was -3.4%)
GDP External Demand Q3 +2.7% vs -3.3% Q2 (F/cast was +2.9%)
Due later
EcoWatchers Current and Outlook.
S KOREA  
Kospi opened flat but trended lower through the morning to 2,705 before finding support. Now trending higher currently -24pts (-0.9%) @ 2,721
Kosdaq opened higher and intially toked higher to 933 but then reversed and sold down to 915 before finding support. Currently -7pt (-0.8%) @ 920
TAIWAN 
Opened flat initial dipped to 14,200 but then worked back to flat trade-in sideways until 11:45am; since then has worked higher buoyed by the good trade data after market Monday. Currently +77pts (+0.5%) @ 14,335
CHINA 
CSI 300 opened higher at 5,029 ticked higher to 5,043 but then reversed and trended lower into lunch. Currently at lunch -16pts (-0.3%) @ 5,006Weak sentiment after 14 NPC member sanctioned by the US and lingering concerns on Financials.
HONG KONG 
Pre opened at 26,460 -47pt vs -5pts ADR’s. Initial margin call selling and then saw a relief bounce but then the market reversed and trended lower in choppy trading. At lunch -162pts (-0.6%) @ 26,345. During the morning financials remained weak but Ecommerce names saw interest
EUROPE 
Expect a weak open with investors concerned about Brexit, Covid cases and the lack of news on a new US stimulus deal.
Data due
EUROZONE Employment Change, GDP Growth Rate, ZEW Economic Sentiment Index
GERMANY ZEW Economic Sentiment Index and Current Conditions.

US Futures opened lower and have fallen further in Asian trading Dow -100pts, S&P and NDX -0.3%.  Concerns over covid and the lack of a stimulus package.
Data due NFIB Business Optimism, Non Farm Productivity, Unit Labour Costs, Redbook, API Crude Oil Stock Change

On Line
The provocateur driving China’s ‘wolf warrior’ pack. Looks at Zhao Lijian who is at the forefront of Beijing’s combative campaign against criticism from foreign governments.Key is that Beijing can use the foreign media to spread its opinions internationally through the various social media outlets but foreign governments are denied access to the Chinese media network.  The fact that his tactics are accepted and approved of by Beijing is a reflection of President Xi’s policies. China is obviously hoping to win international support by this course of action but in many western democracies it is having the reverse reaction; certainly amongst the government leaders.  But within China many are supportive.  Rather similar to Trump’s tweets over the past few years.  
Like it or hate it,  the fact is that everyone is going to try and use social media to their own ends.  China’s advantage is that it can control what its own citizens get to see and hear.

Front Page 
Sharp cut in Beijing’s overseas lending fits with rethink of Xi’s Belt and Road. Looks at how China has drastically cut the overseas lending programme of its two largest policy banks after trying to compete with the World Bank for nearly a decade.  The article says that 'it comes as Beijing rethinks its Belt and Road Initiative (BRI), the signature scheme of China’s leader Xi Jinping’.   The BRI has faced growing criticism both at home and abroad for its lending policies.  The Boston University Global Development Policy Center, which compiled the data also noted that the trade war may also have influenced the shift in policy with Beijing deciding to keep dollar assets at home. The article cites a recent Overseas Development Institute think-tank report which said 'Beijing has realised its approach to lending is unsustainable. “The old . . . model, whereby the interests of Chinese companies and local elites take precedence over the good of the borrowing country, which bears a disproportionate amount of the project failure risk, will become even more unsustainable amid countries’ reduced capacity to take on debt and risk,” the ODI said.’
I would not be surprised if Beijing is also worried about the increased risks within China as seen in the recent bond defaults, problems within the domestic credit markets and rumours of issues with the banks. Not to mention re-positioning of supply chains due to the trade war and covid.  China may be being seen as the county most likely to come out of the pandemic first but there is no guarantee that it will be in good shape when it does.

InsideChina’s export boom fuelled by PPE demand. Looks at Monday’s good trade data which showed exports continuing to rise, it was the fastest since Feb 2018. It notes that much of it was driven by the current demand for personal protection equipment, which is likely to subside as mass vaccinations take place.
The other driver was electronic products; again many of them linked to the pandemic and lockdowns and likely to see a slowdown in due course. Imports were down but much a that would be due to the drop in energy prices and to an extent by the lack of electronic parts for Huawei due to US sanctions.The strength of the trade figures it notes should also ease some of the concerns of the PBoC over the recent renminbi’s strength.

US curbs Beijing officials over Hong Kong.  Sanctions imposed for introducing security law that has led to crackdown.  Those involved are high ranking members of the National People’s Congress Standing Committee; they are therefore largely symbolic rather than having a dramatic impact but they do underline that Trump’s administration still has the ability to act over China.
Investors will remain cautious as Biden has also promised a tough line on China.
Worth noting that China has already promised retaliation, which is likely again to be largely symbolic.


Vaccine maker receives $515m cash boost
Chinese pharmaceutical company Sinovac secured a $515m cash injection from Sino Biopharmaceutical (1177 HK) a Hong Kong-listed generic drugs group; the stock rallied on news of the investment.Sinovac is one of the China’s leading vaccine hopefuls and is looking to increase production and distribution of its Covid-19 vaccine once final-stage testing is concluded. It is currently testing in a number of countries. The article notes that 'Wang Junzhi, a top adviser to a vaccine task force under China’s State Council, on Friday said the country would make “a big announcement” on vaccines in the coming weeks, adding that 600m doses of inactivated vaccine would be “ready” by the end of the year.’
See also LEX China vaccine: impetuous immunisations. Notes SinoBiopharm’s base business of generic drugs is under pressure; lacking demand and pricing power as China’s 'new centralised drug-bidding system halved average prices in the third quarter.'.  But CoronaVac is in demand and relatively expensive.  It notes 'For now, Sino Biopharm is the only way to buy exposure to upside from CoronaVac sales. Shares gained 5 per cent yesterday. Mainland Chinese investors, who could buy Hong Kong-listed biotech companies for the first time last month, should add support. Approval and mass immunisations would bolster the price further.’

Demand heats up for ultra-cold freezers. Orders for specialist medical equipment surge ahead of global distribution effort.   Companies mentioned include B Medical Solutions, Stirling Ultra-cold, Haier Biomedical UK, PHC Holdings. Of those China’s Haier is noted as a large scale producer.

Huawei invests in China chip groups.  Strategic move aims to replace suppliers cut off by US export ban.  Looks at how a fund set up by Huawei last year has 'acquired minority stakes in three Chinese semiconductor equipment companies during the past three months.’  The article notes this as significant as previously it had invested in companies that would be direct suppliers to Huawei.  These investments look to be part of China’s desire to build its own semiconductor sector that is not reliant on US tech or equipment.
But it notes that 'Industry experts caution that the investments highlight the extreme challenge Huawei faces in trying to create a dedicated domestic chip supply chain.“The equipment makers the fund invested in recently are small players. They are much smaller than the leading Chinese companies in this space, who in turn are far smaller than international rivals,” Mr Li said. ‘

Dentsu to cut 6,000 jobs following Covid hit.  Cutting jobs, restructuring and warning of a second year of losses.  The article notes that it had started streamlining its work force prior to the pandemic but it would appear that covid has forced it to make further and larger cuts.  I wonder how many other companies will take the opportunity afforded by the covid pandemic to make radical changes to their workforce.

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