Deputy Chief Economist

Sharmila Whelan

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

Macroeconomics

While many emerging market economies faced with an external debt blowout are scrambling to re-schedule debt with international creditors, that is not a problem Asia faces. In most of Asia balance of payments positions are improving, international reserves are rising, and external debt positions are getting more sustainable.

While many emerging market economies faced with an external debt blowout are scrambling to re-schedule debt with international creditors, that is not a problem Asia faces. In most of Asia balance of payments positions are improving, international reserves are rising, and external debt positions are getting more sustainable.

Ping An Digital Economic Research Center

Zheng Zeng

Ping An Digital Economic Research Center (DERC)

Ping An - DERC

Ping An Digital Economic Research Center (DERC) utilizes more than 50 TB of high frequency data points, more than 30 years of historical data and more than 1.5 billion data points to drive research on the “AI + Macro Forecast” and provide insights and methods towards precise macroeconomic trends. 

Ping An DERC is a research center for Ping An Insurance (Group) Company of China, Ltd. (“Ping An”) is a world-leading technology-powered retail financial services group. With over 204 million retail customers and 534 million internet users, Ping An is one of the largest financial services companies in the world.

<blockquote>ESG Report Series Issue 4</blockquote>ESG investing has become a mainstream phenomenon for capital markets worldwide. Global flows to ESG-themed ETFs hit a record high in 2019, up to 3 times than that of 2018. During the pandemic in 2020, despite the outflow of traditional ETF funds, the market needs for ESG investing remains strong. The opening up of China's capital markets is also driving more international capital with ESG themes into China, promoting ESG and responsible investment philosophies to gain greater recognition in China. In addition, with stronger regulatory requirements for ESG disclosures and a broader guidance to build a "green financial system,” China has witnessed an increase in the quantity and quality of disclosures, as well as rapid growth of ESG investment in recent years. <ol>
<li>By conducting Natural Language Processing based analysis to detect themes discussed in 103 market wide third-party research reports, we find that there has been an increasing focus on ESG in the Chinese capital market, with a gradual transition from the initial conceptual descriptions to specific investment products and their performance.</li>
<li>The number of ESG indices has doubled in 2020 in China, with increased diversity in investment strategies and notable performance of quality factors.</li>
<li>The issuance of ESG fund products is undergoing a booming period, with “pure ESG” fund products that combine the entire dimension of ESG gaining momentum.</li>
<li>ESG fund products have performed well since the start of 2020, with returns above the market average for funds in China.</li>
<li>Recommendations and look ahead for ESG Investing in China:  • ESG ratings and data coverage in the domestic market need to be further enhanced to enhance alignment with the Chinese market to support the enrichment of ESG theme investment products.  • Alternative data and technology can help investors distinguish between companies that are truly ESG compliant and well performing vs. those who are not. • Establishment of ESG ratings and data for bonds and bond issuers is essential to accelerate integration of ESG in fixed income investment.  • Index providers and fund management companies should develop more diversified ESG products such as passive funds, quantitative funds, and investment products for the primary market, providing more investment options for investors.  • As China puts more emphasis on climate change, financial markets should proactively innovate and develop financial products to respond to the need of climate risk mitigation and transition into a low-carbon economy. </li>
</ol><div class="content-highlight">ESG investment trends in China in Charts</div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/172/658/original/image_19643538131605767175083.png?1605767176" class="editor-image img-responsive" data-smartkarma-image-id="172658"></figure>

ESG Report Series Issue 4ESG investing has become a mainstream phenomenon for capital markets worldwide. Global flows to ESG-themed ETFs hit a record high in 2019, up to 3 times than that of 2018. During the pandemic in 2020, despite the outflow of traditional ETF funds, the market needs for ESG investing remains strong. The opening up of China's capital markets is also driving more international capital with ESG themes into China, promoting ESG and responsible investment philosophies to gain greater recognition in China. In addition, with stronger regulatory requirements for ESG disclosures and a broader guidance to build a "green financial system,” China has witnessed an increase in the quantity and quality of disclosures, as well as rapid growth of ESG investment in recent years. 
By conducting Natural Language Processing based analysis to detect themes discussed in 103 market wide third-party research reports, we find that there has been an increasing focus on ESG in the Chinese capital market, with a gradual transition from the initial conceptual descriptions to specific investment products and their performance.
The number of ESG indices has doubled in 2020 in China, with increased diversity in investment strategies and notable performance of quality factors.
The issuance of ESG fund products is undergoing a booming period, with “pure ESG” fund products that combine the entire dimension of ESG gaining momentum.
ESG fund products have performed well since the start of 2020, with returns above the market average for funds in China.
Recommendations and look ahead for ESG Investing in China:  • ESG ratings and data coverage in the domestic market need to be further enhanced to enhance alignment with the Chinese market to support the enrichment of ESG theme investment products.  • Alternative data and technology can help investors distinguish between companies that are truly ESG compliant and well performing vs. those who are not. • Establishment of ESG ratings and data for bonds and bond issuers is essential to accelerate integration of ESG in fixed income investment.  • Index providers and fund management companies should develop more diversified ESG products such as passive funds, quantitative funds, and investment products for the primary market, providing more investment options for investors.  • As China puts more emphasis on climate change, financial markets should proactively innovate and develop financial products to respond to the need of climate risk mitigation and transition into a low-carbon economy. 
ESG investment trends in China in Charts

<div class="content-highlight">China SME Financing Report Series Report III by Fudan-Ping An Research Institute for Macroeconomy</div>The sudden outbreak of COVID-19 has brought unprecedented challenges to small and medium-sized enterprises (hereinafter SMEs), but it has also provided them with excellent opportunities to go digital. Digital transformation can eliminate information barriers between SMEs and financial institutions, improve information asymmetry and alleviate financing difficulties. In March this year, the Ministry of Industry and Information Technology of China (MIIT) issued a special action plan on digital empowerment of SMEs. Our research results confirm the necessity of this action plan: At present, the digital maturity of SMEs in China is low; high cost and tight budget are the main reasons that hinder their digital transformation. Accordingly, we suggest that Chinese governments at all levels increase their support to large technology companies that are developing standardized digital services which meet the needs of SMEs, and provide tax cuts and financing facilities for SMEs' digital transformation projects.In July this year, through on-site interviews and questionnaires, we surveyed nearly 100 enterprises (86% of them have fewer than 50 employees in 2019) in a national economic development zone in Shanghai, and found that:<ul><li>The digital maturity of the surveyed enterprises is low:</li></ul><ul>
<li>Low penetration of artificial intelligence and big data: more than two-thirds of the surveyed enterprises have not yet used artificial intelligence or big data in their production and business;</li>
<li>The proportion of online procurement and online sales is low: only 17% of the surveyed enterprises has more than 50% of their procurement done online, while only 14% of the surveyed enterprises sell more than 50% online.</li>
<li>The penetration rate of smart manufacturing is low: less than 18% of the surveyed manufacturing enterprises are building smart production lines, smart workshops and smart factories.</li>
<li>Low use of internet finance: over 64% of the surveyed enterprises have never used internet finance to obtain financing; among the 35 surveyed companies that have used internet finance, only 1 company get more than 50% financing through this channel.</li>
</ul><ul><li>Companies surveyed cited high cost and tight budget as major obstacles to digital transformation. 35% of the companies surveyed said the biggest obstacle to digital transformation was the high fees charged by service providers, while 30% said the biggest obstacle was lack of funds. At the same time, 97% of the companies surveyed realized that digitalization can help improve their operating efficiency and development. Therefore, reducing service providers' fees and filling the shortage of funds can effectively promote digital transformation among SMEs.</li></ul>Policy Suggestions: support the development of standardized digital services and provide tax cuts and financing facilities for SMEs’ digital transformation.<ol>
<li>By taking advantage of the large number of SMEs in China, the size disadvantage of a single enterprise is transformed into the quantity advantage of the whole economy. Thus, governments should support large technology companies that are developing standardized digital services which meet the needs of SMEs. In March this year, the Ministry of Industry and Information Technology of China proposed to cultivate and promote a number of digital platforms which meet the needs of SMEs. This survey confirms the necessity of this special action plan.</li>
<li>Provide SMEs with tax cuts for digital transformation.</li>
<li>Guide financial institutions to provide cheap loans to SMEs for digital transformation projects. Digital transformation can eliminate information barriers between enterprises and financial institutions, improve information asymmetry, help SMEs obtain more accurate credit assessment, and alleviate financing difficulties.</li>
</ol>

China SME Financing Report Series Report III by Fudan-Ping An Research Institute for MacroeconomyThe sudden outbreak of COVID-19 has brought unprecedented challenges to small and medium-sized enterprises (hereinafter SMEs), but it has also provided them with excellent opportunities to go digital. Digital transformation can eliminate information barriers between SMEs and financial institutions, improve information asymmetry and alleviate financing difficulties. In March this year, the Ministry of Industry and Information Technology of China (MIIT) issued a special action plan on digital empowerment of SMEs. Our research results confirm the necessity of this action plan: At present, the digital maturity of SMEs in China is low; high cost and tight budget are the main reasons that hinder their digital transformation. Accordingly, we suggest that Chinese governments at all levels increase their support to large technology companies that are developing standardized digital services which meet the needs of SMEs, and provide tax cuts and financing facilities for SMEs' digital transformation projects.In July this year, through on-site interviews and questionnaires, we surveyed nearly 100 enterprises (86% of them have fewer than 50 employees in 2019) in a national economic development zone in Shanghai, and found that:The digital maturity of the surveyed enterprises is low:
Low penetration of artificial intelligence and big data: more than two-thirds of the surveyed enterprises have not yet used artificial intelligence or big data in their production and business;
The proportion of online procurement and online sales is low: only 17% of the surveyed enterprises has more than 50% of their procurement done online, while only 14% of the surveyed enterprises sell more than 50% online.
The penetration rate of smart manufacturing is low: less than 18% of the surveyed manufacturing enterprises are building smart production lines, smart workshops and smart factories.
Low use of internet finance: over 64% of the surveyed enterprises have never used internet finance to obtain financing; among the 35 surveyed companies that have used internet finance, only 1 company get more than 50% financing through this channel.
Companies surveyed cited high cost and tight budget as major obstacles to digital transformation. 35% of the companies surveyed said the biggest obstacle to digital transformation was the high fees charged by service providers, while 30% said the biggest obstacle was lack of funds. At the same time, 97% of the companies surveyed realized that digitalization can help improve their operating efficiency and development. Therefore, reducing service providers' fees and filling the shortage of funds can effectively promote digital transformation among SMEs.Policy Suggestions: support the development of standardized digital services and provide tax cuts and financing facilities for SMEs’ digital transformation.
By taking advantage of the large number of SMEs in China, the size disadvantage of a single enterprise is transformed into the quantity advantage of the whole economy. Thus, governments should support large technology companies that are developing standardized digital services which meet the needs of SMEs. In March this year, the Ministry of Industry and Information Technology of China proposed to cultivate and promote a number of digital platforms which meet the needs of SMEs. This survey confirms the necessity of this special action plan.
Provide SMEs with tax cuts for digital transformation.
Guide financial institutions to provide cheap loans to SMEs for digital transformation projects. Digital transformation can eliminate information barriers between enterprises and financial institutions, improve information asymmetry, help SMEs obtain more accurate credit assessment, and alleviate financing difficulties.
  

Digital Transformation: A Game-Changing Strategy to Alleviate the Plight of SMEs in China

Our money is on Taiwan. The pandemic is behind, the economy is rebounding faster than anticipated. Underlying fundamentals of the 2019 business cycle upswing resuming. The damage to corporate profitability has been limited compared with regional peers Korean and Japanese companies and the investment upcycle has not be derailed. We expect Taiwan to among this year’s regional growth outperformers. The only downside risk is rising Taiwan-China tensions. But we suspect change is afoot.

Our money is on Taiwan. The pandemic is behind, the economy is rebounding faster than anticipated. Underlying fundamentals of the 2019 business cycle upswing resuming. The damage to corporate profitability has been limited compared with regional peers Korean and Japanese companies and the investment upcycle has not be derailed. We expect Taiwan to among this year’s regional growth outperformers. The only downside risk is rising Taiwan-China tensions. But we suspect change is afoot.  

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

<a href="https://www.smartkarma.com/entities/china-treasury" target="_blank" data-smartkarma-citation="entities:22879:1" rel="noopener">China Treasury (CHINA GOVT)</a> ’s Q3 GDP data on 19 October show that the China economy is still in process of a weak recovery. EXHIBIT 1 shows that the Chinese economy grew at 4.9% in Q3, 2020, almost reaching its pre-COVID-19 level. In our view, China may be the only major economy in the world that will experience positive growth in 2020. The Chinese consumers in September for the first time spent on (real) consumption more than last year.

China Treasury (CHINA GOVT) ’s Q3 GDP data on 19 October show that the China economy is still in process of a weak recovery. EXHIBIT 1 shows that the Chinese economy grew at 4.9% in Q3, 2020, almost reaching its pre-COVID-19 level. In our view, China may be the only major economy in the world that will experience positive growth in 2020. The Chinese consumers in September for the first time spent on (real) consumption more than last year.

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China Treasury (CHINA GOVT)

Asia External Fundamentals Improve

In the midst what can be described as a trying year, one unexpected outcome is the improvement in Asian external fundamentals.

Sharmila Whelan

ESG Investment in China

This report discussed the development and current state of ESG investment in China from the perspectives of ESG rating system, ESG index, ESG fund...

Ping An - DERC

Digital Transformation: A Game-Changing Strategy to Alleviate the Plight of SMEs in China

How digitally mature are SMEs in China? What difficulties do SMEs encounter in digital transformation? Find answers in this report by Fudan-Ping An...

Ping An - DERC

Taiwan- Destined To Outperform

Our money is on Taiwan. The pandemic is behind, the economy is rebounding faster than anticipated. Underlying fundamentals are supportive of the...

Sharmila Whelan

CHINA: Recovery Vs. Rising Systemic Risk

China's Q3 update has a recovery story that comes with inflating bubble yet again. This is the first of a series on China macro and rising default...

Bondcritic

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