Chinese Economics Thread
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Trump is a godsend blessing to Chynaaa.
from onebyone (PAKISTAN DEFENSE FORUM)
Shuli Ren
July 6, 2020, 4:02 PM GMT+7
(Bloomberg Opinion) -- As a diplomatic tit-for-tat escalates between Washington and Beijing, millions of Chinese investors — defiant and patriotic — are once again engineering a fast and furious bull market on their home turf. The theme? Self-reliance.
Two years ago, when the trade war first hit, China’s $8.5 trillion stock market sank into one of its deepest bear episodes, as worries about the economic damage of decoupling took root. This time, tension with the U.S. hasn't even made a dent. Rather, mainland shares are on fire. The benchmark CSI 300 Index has rallied 14% this year, to trade at a five-year high. The S&P 500 Index, by comparison, is still in the red. Daily trading volume has exceeded 1 trillion yuan ($142 billion) for three consecutive trading days.
The latest frenzy began right after Beijing imposed its national security law on Hong Kong, despite U.S. opposition. Now, investors have renewed their faith that China is finally recognizing the importance of self-sufficiency. Bullish sell-side analysts are tossing around buzz words like national champions, import substitutes and capital market reforms; ultimately, these boil down the idea that turning inward is good for stocks.
There are many examples. Consider Shanghai-based Semiconductor Manufacturing International Corp., a chip foundry that counts Huawei Technologies Co. as its largest client. Rather than languishing as Huawei gets boxed out of U.S. technology, SMIC’s Hong Kong-listed shares are up over 200% this year.
On the financing front, SMIC is behaving every bit like a national champion already. On May 15, the day Huawei got slapped with further sanctions, the state-owned China Integrated Circuit Industry Investment Fund, which held close to 20% of SMIC as of December 2019, said it would co-invest about $2.5 billion into one of its wafer plants. Meanwhile, securities regulators have fast-tracked the company’s plans to raise as much as $7.5 billion in Shanghai, the largest mainland initial public offering in a decade. Beijing is well aware that chip manufacturing is a capital-intensive business, and it must provide financial support as SMIC races to catch up on technology.
In the industrial space, global supply-chain disruption is already benefiting Chinese players. For instance, Sany Heavy Industry Co., China’s largest excavator maker, has seen its domestic market share jump to 27% from 8% in 2010, at the expense of foreign brands, data provided by HSBC Holdings Plc show. No surprise, Sany’s stock is up 24% this year, while Caterpillar Inc., whose mainland market share shrank to 11% from 14% in 2016, is down 13.5%. Jiangsu Hengli Hydraulic Co., a large manufacturer, tells a similar story. It’s up 55% this year.
Washington’s attempt to block mainland businesses’ access to U.S. money — from the delisting of Chinese American depositary receipts in New York, to forbidding federal pension funds from investing in mainland companies — is only forcing Beijing to speed up its capital markets reform. Regulators are already rewriting equity financing rules, including the launch of new registration-based IPOs, and opening new funding venues for young startups. As a result, we can expect China’s stock market to grow to 100% of its gross domestic product in the next five to 10 years, from 60% now, estimates CICC Research.
When it comes to stock investing, China and the U.S. face the same set of problems. A slowing economy inevitably eats into corporate earnings growth, narrowing any justification for a further bull run.But President Donald Trump is giving China’s stock market a second wind. Huawei may prefer chips made by Taiwan Semiconductor Manufacturing Co. — after the U.S. sanctions, though, it may have no choice but hold its nose and buy domestic. Meanwhile, industry consolidation, which benefits domestic firms, is only accelerating now that Beijing is openly supporting its national champions. Trump is always looking at the stock market for validation. This time, he’s looking at the wrong one.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.
For more articles like this, please visit us at
to stay ahead with the most trusted business news source.
©2020 Bloomberg L.P.
from onebyone (PAKISTAN DEFENSE FORUM)
Shuli Ren
July 6, 2020, 4:02 PM GMT+7
(Bloomberg Opinion) -- As a diplomatic tit-for-tat escalates between Washington and Beijing, millions of Chinese investors — defiant and patriotic — are once again engineering a fast and furious bull market on their home turf. The theme? Self-reliance.
Two years ago, when the trade war first hit, China’s $8.5 trillion stock market sank into one of its deepest bear episodes, as worries about the economic damage of decoupling took root. This time, tension with the U.S. hasn't even made a dent. Rather, mainland shares are on fire. The benchmark CSI 300 Index has rallied 14% this year, to trade at a five-year high. The S&P 500 Index, by comparison, is still in the red. Daily trading volume has exceeded 1 trillion yuan ($142 billion) for three consecutive trading days.
The latest frenzy began right after Beijing imposed its national security law on Hong Kong, despite U.S. opposition. Now, investors have renewed their faith that China is finally recognizing the importance of self-sufficiency. Bullish sell-side analysts are tossing around buzz words like national champions, import substitutes and capital market reforms; ultimately, these boil down the idea that turning inward is good for stocks.
There are many examples. Consider Shanghai-based Semiconductor Manufacturing International Corp., a chip foundry that counts Huawei Technologies Co. as its largest client. Rather than languishing as Huawei gets boxed out of U.S. technology, SMIC’s Hong Kong-listed shares are up over 200% this year.
On the financing front, SMIC is behaving every bit like a national champion already. On May 15, the day Huawei got slapped with further sanctions, the state-owned China Integrated Circuit Industry Investment Fund, which held close to 20% of SMIC as of December 2019, said it would co-invest about $2.5 billion into one of its wafer plants. Meanwhile, securities regulators have fast-tracked the company’s plans to raise as much as $7.5 billion in Shanghai, the largest mainland initial public offering in a decade. Beijing is well aware that chip manufacturing is a capital-intensive business, and it must provide financial support as SMIC races to catch up on technology.
In the industrial space, global supply-chain disruption is already benefiting Chinese players. For instance, Sany Heavy Industry Co., China’s largest excavator maker, has seen its domestic market share jump to 27% from 8% in 2010, at the expense of foreign brands, data provided by HSBC Holdings Plc show. No surprise, Sany’s stock is up 24% this year, while Caterpillar Inc., whose mainland market share shrank to 11% from 14% in 2016, is down 13.5%. Jiangsu Hengli Hydraulic Co., a large manufacturer, tells a similar story. It’s up 55% this year.
Washington’s attempt to block mainland businesses’ access to U.S. money — from the delisting of Chinese American depositary receipts in New York, to forbidding federal pension funds from investing in mainland companies — is only forcing Beijing to speed up its capital markets reform. Regulators are already rewriting equity financing rules, including the launch of new registration-based IPOs, and opening new funding venues for young startups. As a result, we can expect China’s stock market to grow to 100% of its gross domestic product in the next five to 10 years, from 60% now, estimates CICC Research.
When it comes to stock investing, China and the U.S. face the same set of problems. A slowing economy inevitably eats into corporate earnings growth, narrowing any justification for a further bull run.But President Donald Trump is giving China’s stock market a second wind. Huawei may prefer chips made by Taiwan Semiconductor Manufacturing Co. — after the U.S. sanctions, though, it may have no choice but hold its nose and buy domestic. Meanwhile, industry consolidation, which benefits domestic firms, is only accelerating now that Beijing is openly supporting its national champions. Trump is always looking at the stock market for validation. This time, he’s looking at the wrong one.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.
For more articles like this, please visit us at
to stay ahead with the most trusted business news source.
©2020 Bloomberg L.P.
highly dangerous as most Chinese investors are uneducated about the market.
Scientists are now paid more than finance professionals in China
- Compensation levels in China’s finance sector continue to lose ground to the tech industry, with the latest example being scientists and researchers who are now better paid than financial professionals.
- After average salaries in China’s information technology industry exceeded those in the financial sector for the first time in 2016, scientific researchers have now achieved the same milestone when it comes to paychecks issued last year, according to a report released by the data research institute of 21st Century Business Herald on Tuesday.
- The average annual income for workers employed by companies in the telecoms, software and information technology fields reached 161,352 yuan (S$32,000) per person, followed by an average annual income of 133,459 yuan in the scientific research and technical services industry and 131,405 yuan in finance, according to the report.
- “It shows that income is not only correlated with education but also to the economic benefits of the industry,” said the report.
- The average annual wage in information technology was 1.78 times higher than the annual average for all industries, while the scientific research sector was 1.47 times higher, a sign that the country is now heavily investing in technology and scientific development.
plawolf
Lieutenant General
As it should be! One of the key reasons for the decline of the west is the twisted incentives and compensation at work in their jobs market.
The ridiculously inflated salaries in financial services, and stock market jobs especially, have meant that the overwhelming majority of the west’s best and brightest minds have gone into that industry.
The stock market creates wealth on paper, but increasingly that paper wealth isn’t backed up by anything remotely tangible or even useful.
The only role stock markets should play in a healthy economy is to help determine the most efficient allocation of capital to good, productive and profitable firms to grow the economy and minimise waste through bankruptcies of bad firms.
But the oversized financial sector of western modern economies have seen that role massively expanded in scope and number of people employed to the point that allocation of capital itself is all screwed up because of all the speculation and market manipulation that takes place from clever people being a little too ‘creative’ when developing new complex financial instruments.
On top of that, traditional tangible R&D fields have suffered from a massive brain drain with so many of the nation’s brightest going into finance instead of research. This is a big reason as to why western technology advancement seemed to have stalled, with new innovation increasingly being dominated by East Asia.
This has been a growing problem for decades, but is really coming into its own in recent years due to the rise of China.
Before, western nations were able to offset their homegrown brain drain into finances by sucking in the best engineering and scientific talent from Asia and the rest of the world to help prop up their system.
With the rise of China, increasing Chinese companies are able to offer competitive salaries to the best talent, plus many intangible benefits (patriotism, social status, better quality of living etc) and is able to out compete western companies and nations in terms of attracting the best talent. That and the growing xenophobia and persecution non-whites are feeling in the west are all contributing to a massive reversal in the flow of brainpower back out of western nations.
The point is that while there are many things China could and should still learn from the west, how to run financial services is most certainly NOT one of them.
The ridiculously inflated salaries in financial services, and stock market jobs especially, have meant that the overwhelming majority of the west’s best and brightest minds have gone into that industry.
The stock market creates wealth on paper, but increasingly that paper wealth isn’t backed up by anything remotely tangible or even useful.
The only role stock markets should play in a healthy economy is to help determine the most efficient allocation of capital to good, productive and profitable firms to grow the economy and minimise waste through bankruptcies of bad firms.
But the oversized financial sector of western modern economies have seen that role massively expanded in scope and number of people employed to the point that allocation of capital itself is all screwed up because of all the speculation and market manipulation that takes place from clever people being a little too ‘creative’ when developing new complex financial instruments.
On top of that, traditional tangible R&D fields have suffered from a massive brain drain with so many of the nation’s brightest going into finance instead of research. This is a big reason as to why western technology advancement seemed to have stalled, with new innovation increasingly being dominated by East Asia.
This has been a growing problem for decades, but is really coming into its own in recent years due to the rise of China.
Before, western nations were able to offset their homegrown brain drain into finances by sucking in the best engineering and scientific talent from Asia and the rest of the world to help prop up their system.
With the rise of China, increasing Chinese companies are able to offer competitive salaries to the best talent, plus many intangible benefits (patriotism, social status, better quality of living etc) and is able to out compete western companies and nations in terms of attracting the best talent. That and the growing xenophobia and persecution non-whites are feeling in the west are all contributing to a massive reversal in the flow of brainpower back out of western nations.
The point is that while there are many things China could and should still learn from the west, how to run financial services is most certainly NOT one of them.