President Xi Jinping’s efforts to regain the trust of international investors are falling flat, showing the urgency for China to do more to reverse capital outflows.
(Bloomberg) — President Xi Jinping’s efforts to regain the trust of international investors are falling flat, showing the urgency for China to do more to reverse capital outflows.
It’s only March and pundits are already calling time on the China reopening trade that had added almost $4 trillion to the value of onshore and Hong Kong-listed stocks since October. Disappointment at a consensus-lagging growth target and a lack of fresh stimulus to boost consumption has left the MSCI China Index down for the year, after being up as much as 18% in January. The yuan weakened so rapidly that the central bank acted at least once this week to slow the pace of depreciation.
Tensions between the world’s two superpowers are also weighing on sentiment. As China’s parliament kicked off its annual session, the Biden administration forged ahead with plans to limit investments by US companies in certain Chinese industries. China, which is trying to galvanize its own chip industry, said the US risks catastrophe in its push to contain it.
It’s clear that wariness toward Chinese assets remains acute. A Bank of America Corp. poll of investors found that most had little conviction in the country’s economic recovery, according to a March 6 note. Those based outside China are reducing their exposure to its markets because “no news is bad news,” wrote the strategists.
Money managers already invested in China are diversifying into onshore stocks at the expense of those listed in Hong Kong or New York, says Morgan Stanley’s quant team. That’s because A-shares “could be more resilient” to rising geopolitical tensions, they said.
Here’s my roundup of the week’s key developments for China markets.
Only 5%
China’s government is targeting growth of around 5% this year – not as ambitious as many investors had hoped. Beijing can no longer rely on exports to prop up the economy, so it needs to find ways to boost consumer spending and business investment instead. The good news for policymakers? Consumer and producer prices remain subdued, giving them more leeway.
- China’s Cautious Growth Target Limits Help to World Economy
- China’s Exports Extend Declines, Adding Pressure to Economy
- China’s Weak Inflation Eases Pressure on Global Prices
A reckless gamble
In a stern warning to Washington, China’s new foreign minister said the US risks catastrophe in its push to contain Beijing. Qin Gang accused the US of creating a crisis over Taiwan, criticized the use of sanctions against Russia and blamed Federal Reserve policy for worsening debt problems in some countries.
- China Warns US Risks Catastrophe in Push to Contain Beijing
- Five Key Takeaways From China Foreign Minister Briefing: TOPLive
Big ambitions
Beijing will inject almost $2 billion into Yangtze Memory Technologies Co., the country’s biggest maker of memory chips. The company is China’s closest rival to global industry leaders like Samsung Electronics Co. China also pledged to pool together resources to achieve self-reliance in technology. Separately, defense spending is set to rise this year at the fastest pace since 2019.
- China Plans to Inject $1.9 Billion Into Top Memory Chipmaker
- China Defense Spending to Rise 7.2%, Fastest Pace in 4 Years
- China Emphasizes ‘Whole Nation’ Stance on Tech as US Curbs Bite
TikTok’s troubles
The White House endorsed a bipartisan bill that could give the president authority to ban or force a sale of TikTok. This is the first time the Biden administration has weighed in on legislation to deal with the popular Chinese-owned app, which the White House says poses national security risks. The Czech cybersecurity agency recommended against using TikTok.
- White House Endorses TikTok Bill, Calls for Swift Passage
- Czech Cybersecurity Agency Recommends Not Using TikTok
Mobius’s money
Veteran emerging markets investor Mark Mobius discovered it’s more difficult to move money out of China. Mobius had trouble transferring cash from his personal account in Shanghai, an incident he said has since been resolved.
- Mobius’s Bank Headache Highlights Scrutiny on China Outflows
- Mobius Turns More Optimistic on China as Confidence Recovers
Cathay’s revival
Hong Kong’s main airline is finally operating at a profit again. But Cathay Pacific Airways Ltd. is still far from recovering fully from the pandemic, with a deficit from Air China Ltd. weighing on its shares.
- Cathay Pacific Reports First Operating Profit Since 2019
Consolidating
China is setting up an enlarged national watchdog to oversee its $60 trillion financial system. A lack of coordination between different regulators had allowed companies like China Huarong Asset Management Co. and China Evergrande Group to dabble in risky businesses and meant others, like Ant Group Co., grew far too influential.
- What China’s Powerful Financial Regulator Means for PBOC
- China’s Financial Regulators Face Deep Pay Cuts After Revamp
- China to Create New Top Regulator for Data Governance, WSJ Says
… and three things to watch for next week
- February data on industrial production, retail sales and property investment are due March 15. The People’s Bank of China will likely hold interest rates that day at its monthly liquidity operation.
- Earnings are up for Ping An Insurance Group Co. and sportswear national champion Li Ning Co. It’s also crunch time for distressed developers which are negotiating with creditors on their restructuring plans.
- A gauge of so-called Chinese red chips has climbed to the highest level since October relative to the Hang Seng China Enterprises index. State companies are in favor again after an official at the Shanghai Stock Exchange suggested their market valuations were too low.
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