FT Weekend. Chinese US listing surge. India, China, US relations. Chips and Gold

28 Jul

FT Weekend. Chinese US listing surge. India, China, US relations. Chips and Gold

No Hong Kong specific stories but a couple of China ones.
Locally investors are concerned by the number of new covid-19 cases which hit 113 on Saturday.
Local press also reports that thousands gathered to see the closure of the US consulate in Chengdu, it's interesting that crowds also gathered to see the closure of the Chinese consulate in Houston.
Tensions remain elevated as China reports that the US flew a record 50 sorties over the South China Sea in the first three weeks of July.

Talk of the US showing its true colours in trying to isolate and overthrow the Communist Party instead of finding ways to coexist as its previous policy had intended are I think interesting.
Comments from Pompeo and others certainly suggest that is th new policy. The fact that the Chinese have highlighted it too raises some interesting points.
Firstly for me is the fact that the previous policy not only did not work, it was used by China to advance China's goals with no thought of co-existence with its neighbours. The example of the South China Sea occupation, the intention to retake Taiwan, by force if necessary, infringement into Japanese airspace and contesting ownership of islands outside its normal waters and more recently the push to confront India.
The reality is that things are becoming increasingly tense and therefore the chance of an ‘accident’ leading to a bigger incident are increasing.

On line
Chinese listings surge on Wall Street despite tensions. IPOs more than double this year even as Beijing’s relations with Washington plummet. The rush to list in American seems at odds with the current threat that some Chinese firms will be forced to delist due to auditing standards. To my mind it highlights how China knows it needs the US capital for its companies to grow and that the way currently relations are that source of funds is under threat of being cut off. The US is the biggest source of liquidity and they want to tap it while they can. For investors I think they should be seeking a higher risk premium to reflect the political risk that should be added to the mix. Trump has ‘advised’ government funds not to invest in Chinese companies; ‘advising’ private money to do the same is only a small step further down that line and can be done without time consuming legislation, under the banner of saving US jobs.

Researcher from China arrested at US consulate. 
Looks at the case of Juan Tang is allegedly a member of the Chinese military who was working as a researcher at the University of California. Who is alleged to have made fraudulent statements on her visa application. She was reported to have sought refuge at the Chinese consulate in San Francisco before being arrested on Thursday evening. She is one of four Chinese military operatives recently arrested for visa fraud.
Somewhat embarrassing for the Chinese who last week asked the US to supply evidence of spying, the reason given for closing the Chinese Houston Consulate.
Additionally on Friday, a Singaporean national admitted to spying for China in the US; his task was to recruit military and government employees with high-level security clearances. Which he did by setting a fake consulting company and placing fictions adverts in order to harvest CV’s and then passing the ‘interesting’ ones on to the Chinese Authorities. He would also recruit people with specialist knowledge to provide reports of specific topics.

India to curb Chinese bids for state contracts. It is citing ‘national security’ concerns following what is considers to be China’s recent aggressive behaviour. The exception being procurement of medical supplies to help battle covid-19.
The border clash which was widely seen as being part of an effort by China’s to put India down but it has triggered nationalistic feelings within India, of a far greater level that I suspect China was expecting.
It is similar to the nationalistic feeling often incited in China. I would imagine that China is a little surprised that another country’s citizens would react in the same way that China has managed to get its citizens to do.
Going forward the loss of another market to China whilst not huge in itself is nonetheless going to hurt China. It needs access to as many markets as possible if it s going to engineer and strong recovery. China exports to India were $68bn reports suggest in 2019. That is going be difficult to replace in the current environment.

China’s tech juggernaut steams ahead Looks at how the DJI, Chinese made drones were used to assist French fire fighters tackle the blaze at Notre-Dame Cathedral last year. But before they could the French had to lift restrictions to allow them to fly.
Some Chinese tech is world class but Chinese companies are largely on the periphery of world markets. Currently as they seek to build their global market share they are facing the same barriers that Western companies have for years in trying to build their businesses within China.
A bipolar world. Countries that allow Chinese tech and those that don’t; who tend to be aligned with the US.
The relationship between whom hit new lows this week with ’tit for tat’ closures of Consulates.
The current situation is a result of the Great Chinese Firewall, which China started building back in late 2002. It primarily prevented foreign competition to its domestic internet and allowed Chinese players to build world class systems. Baidu its equivalent to Google but with heavy censorship and restrictions. Alipay vs PayPal but Alipay runs the worlds largest money market fund, does credit ratings and owns an online bank. (In fact it probably knows more about people than the government does which caused some friction earlier this year). Other giants include WeChat which offers more functions vs the west's WhatsApp but again with surveillance traits.
It notes how some Chinese firms have branched out like Alibaba and Tencent and have had some success although in some areas have struggled to adapt to life outside the Great Chinese Firewall they have had success. Also Huawei who grew unnoticed by most of us into the worlds leading 4G and 5G supplier. After China had learnt the lessons from trying to build its own 3G system in the hope it would be globally adopted. This time Huawei became the standard specifier for 5G.
But now having secured a dominating position Chinese companies are under attack from western politicians and regulators. Just was western ones have been for years in China. The difference being that the Chinese have not been asked to share their technology or hand it over but are facing market access restrictions just like the ones western companies in China have for years.
The article says its playing havoc with China’s ambitions but if we stand back, we can see how China's attitude has played havoc with the growth of many western firms for years.
In many cases the opposition has been on security reasons and the handling of personal data. Inside the Great Chinese Firewall citizens have very little control over what happens to their personal data with the state taking the view that it has a right to see everything. Which most recently has come to a head over TikTok and to an extent the new security law in Hong Kong. The key being that in 2017 China introduced the National Intelligence Law. That requires “any organisation or citizen shall support, assist and co-operate with state intelligence work in accordance with the law”. The law makes it impossible for companies such as TikTok, which denies it has handed over user data to the Chinese government, to prove it hasn’t. Just like with the Hong Kong national security law which makes it illegal to say in some cases that you have handed over information to the authorities.
So recently things have peaked with black lists and bans. But will that stop the Chinese development? The straightforward answer is No. China’s tech companies have deep pockets. BUT as we saw last year with ZTE and to an extent Huawei the US does have some levers that could bring it to a holt. The article mentions Ant Group which is to list in Hong Kong and Shanghai soon and has a $200bn valuation. The key to me is that is Trump decides to ban US pension and investment money then the company will struggle.
It quotes Michael Power at Ninety-One AM who says that in many technologies China is winning and its quite a long list 5G, high-speed rail, high-voltage transmission lines, renewables energy, new energy vehicles, digital payments, areas of artificial intelligence to mention a few.
Not covered but key is what is the west going to do?
It is clear that China is a leader in many areas but it still relies on western tech for some of the key elements that goes into these technologies and that at present is one advantage the west has. For example catching up on chips will not be easy or cheap plus as TSMC always says, they are not waiting for the competition to catch up. Which to me is another reason why the west should be more supportive of Taiwan.
The west has been given a wake up call how it reacts now will be key to the balance going forward.

Launch of Intel next-gen chips pushed back by six months This announcement prompted a sell-off for the stock and sector on Friday in the US and Europe and confirmed TSMC’s leadership. With reference to the China’s tech juggernaut steams ahead article above it also illustrated that problems that China will face too as it seeks to advance in this area. It also undermines the commercial significant of Taiwan to the west and China!

US-China tension and virus outbreaks spur gold to longest winning streak since 2011 looks at the recent rally in the commodity to surpass its 2011 high with people now talking about US$2,000 now possible. Key is that it may indicate people are less convinced by the v shaped recovery and also that more speculative or momentum money was involved, the availability of Gold ETF’s probably also helping the moves. Silver has also seen a recent run and I think Palladium is probably due for a run too.

Brighter numbers for US earnings but investors still wary. Looks at the first two weeks of US earnings. It notes that
1. Analysts were very bearish. They lacked company guidance which may or may not have helped. But the fact that company results consistently beat their forecasts should prompt the regulator to examine the basis on which analysts are forecasting.
2. Companies that are seen to be doing well under covid, who’s numbers then miss got flogged.
3. With no end or solution to covid at hand company guidance has been light.
It was a low bar and many beat, its unclear why; it could have been the stimulus ot the Fed action but as of Thursday 80% had beaten on EPS with earnings about 13% above estimates. Better than the five year average.
It's an interesting read with no real answers. It notes that many economists have raised their number whilst analysts remain bearish.

FT Magazine
For sale: useless gadgets bought during lockdown. Looks at how many ‘gadgets’ purchased during the boredom of lockdown will turn out to be be money wasted. It mentions a new electric air pump and a hair trimming device. Things that looked good on-line but actually turn out to be money wasted. Some people will always buy them. The barrage of advertising these days, especially online makes it almost inevitable. Many of the items seem to have been made in China, so that will help China. No doubt middle men have had a slice of too but for many it will be money wasted. It also notes that some people have spent their time and money on buying things that add value to their property or garden, which will probably turn out to be a better investment.
It's not a new issue, slick advertising and skillful camera work can make a lot of 'ropey' products look good. It's usually not illegal as long as the products don’t make exaggerated claims. But one wonders if it ought to be better controlled to prevent people making impulse decisions that they then regret.

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