Brief China: China Economics:  China’s Strategy on Trade War Has Worked and more

In this briefing:

1. China Economics:  China’s Strategy on Trade War Has Worked
2. Best World (BEST SP): BT Article, Franchise and KOL
3. SHIBOR and Rates
4. StubWorld: Wharf Under Pressure As Cooling Measures Bite
5. The Economic and Financial Implications of Closing the Gilded Age for US Technology Companies

1. China Economics:  China’s Strategy on Trade War Has Worked

First, during the past couple of weeks, the most important event regarding the Chinese economy is the China US trade talk.  It is reported that both sides have made a preliminary agreement on trade war truce. It is an extraordinary development.   At the beginning of this China US trade war, most analysts had underestimated the seriousness of this trade conflict. Then after a series of escalations, analysts tend to overestimate this conflict by exploring the possibility of a full-scale conflict between China and US including national security, military and economic competition etc. we agree that China and US are in direct competition in almost every field. The issue is President Trump. He has to deal with the internal issues including the Muller investigation and the Democrats. So far, he has failed to make essential progress in dealing with internal opponents. He also just failed another Kim Trump summit. In our opinion, he is keen to make a deal with China. He is in a much weaker position than President Xi. Although at the beginning President Xi was under some criticism, currently, his authority is with no significant challenge. President Xi has also pretended to be humble when dealing with Trump. In our opinion, China’s strategy, such as buying time by deliberate delays or deceptions, has worked. 

2. Best World (BEST SP): BT Article, Franchise and KOL

Best World International (BEST SP) share price has been hammered due to the recent article in Business Times, although the company has addressed them one by one. The annual meeting that recently took place in their office in Singapore shed some light on the seemingly “new but not so new” franchise business model in China. The company also has started to engage Key Opinion Leaders (KOL) aka social media influencers as part of their social selling campaign. 

3. SHIBOR and Rates

There are two important points worth noting. First, China remains an overwhelmingly short term capital market from the money markets to structured deposits to bond duration which remain heavily tilted towards durations under five years. Second, what we are seeing in the money markets accords with the PBOC unofficial policy of trying to keep the headline rate unchanged but nudge down the unofficial rates.

4. StubWorld: Wharf Under Pressure As Cooling Measures Bite

This week in StubWorld …

• Wheelock & (20 HK) is coming up “expensive”, but it’s Wharf Holdings (4 HK) which is under-performing after PRC property sales targets are lowered amid Beijing’s cooling measures.

Preceding my comments on Wheelock and other stubs are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

5. The Economic and Financial Implications of Closing the Gilded Age for US Technology Companies

The technology sector’s influence on the US economy and financial markets over the past two decades has been significant, and largely considered to be beneficial, but these legacies may now be under threat from political and consumer backlashes.

Motivations for regulating large technology companies vary on a cross-border basis, ranging from customer data protection in the European Union (EU) to antitrust issues in the US.

Imposing utility-type regulations on technology companies that limit investment returns will hinder technological innovation, and, consequently, be detrimental to GDP growth for countries with ageing populations.

Digital technology innovation has produced permanent labour-saving investment opportunities in the US that have hollowed out job openings, thereby contributing to a flatter Phillips Curve and populism.

Meanwhile, populism and technological disputes are also evident on a cross-border basis, as testified by the current Sino-US trade standoff and leadership rivalry in 5G technology.

US political intervention after the 2020 Presidential Election could have a major bearing on market structures and capital destruction within the technology sector, particularly if antitrust measures gain bipartisan support.