Breaking: China’s Chang’e 6 blasts off to fetch samples from far side of the moon
FOMO finally returns to Chinese equities; Hong Kong stocks charge ahead in rally led by technology, banking sectors
Welcome to this issue of The China Brief. Today is May 3, 2024. Here at The China Brief, we bring you the latest news on China's politics, economy, and society from global media sources, along with exclusive expert analysis. If you find our content helpful, please subscribe to our newsletter.
China's Emerging Bull Market: Policy Shifts and Reform Prospects
Li Weijun
2024-05-03
In this column, we previously anticipated a rebound in the Chinese stock market by the end of February, suggesting that the low point then marked a political bottom unlikely to be revisited, though still requiring a period of fluctuation. In mid-March, while discussing remarks made during a press conference by Wu Qing, the newly appointed chairman of the China Securities Regulatory Commission, we forecasted fundamental changes in the Chinese stock market's ecosystem. Despite foreseeing a bull market, we noted that market stability was still necessary. By mid-April, when analyzing the new "Nine Principles of the Country," we highlighted the Chinese government's intentions to initiate actions, though we emphasized the need for continued market fluctuation. We speculated that the long-anticipated bull market might quietly emerge in the near future, driven by factors such as improving macroeconomic data, significant meetings, unexpected reform plans, or the implementation of stimulative policies.
Following nearly three months of market fluctuations since the bottom, I once again cautiously predict the arrival of the bull market in China, citing two key reasons:
Firstly, the communique released after the Central Political Bureau meeting in late April declared the conclusion of the tightening policy cycle of recent years and indicated a shift towards expansionary policies. Given China's mixed economy with substantial government intervention, economic cycles are inherently tied to policy shifts. Beginning in the summer of 2017, China pursued a tightening economic policy aimed at deleveraging various sectors, including real estate and shadow banking. The COVID-19 pandemic exacerbated the effects of these contractionary policies, severely impacting economic growth and expectations. The communique prioritizes economic growth over mitigating economic and financial risks, signaling the imminent onset of a new loose policy cycle.
Secondly, the mentioned Central Committee of the Communist Party of China is set to convene its Third Plenary Session in July, with a focus on further deepening reform and promoting Chinese-style modernization. The external criticism and skepticism surrounding reform efforts often fail to grasp the complexities involved, particularly in redistributing interests. However, recent political consolidations under Xi Jinping have mitigated resistance to reform, facilitating more ambitious and decisive actions to address systemic challenges and promote sustainable development.
This anticipated shift towards a more accommodating policy environment, combined with expectations of forthcoming reforms, suggests a breakthrough in the market's three-month oscillation, paving the way for a sustained bull market trend characterized by upward momentum and increased investor activity.
How to Watch China’s Launch to the Far Side of the Moon
NY Times
China is set to launch its second lunar lander, Chang’e-6, on 23 July. The mission, which will collect samples from the far side of the moon, will be the first in history to bring back samples from the side of the moon that is never visible from Earth. Scientists hope this will provide new information about the Earth-moon system and its evolution. If successful, the lander will collect soil from the moon’s surface and a subsurface sample from as deep as 6.5 ft using a drill. The samples will then be sent back to Earth using an orbiter.
As China’s Xi Jinping visits Europe, Ukraine, trade and investment are likely to top the agenda
Associated Press
Chinese President Xi Jinping is set to visit France, Hungary, and Serbia, his first trip to Europe in five years. Xi's visit to France is expected to focus on broader EU-China relations, while his visits to Hungary and Serbia aim to strengthen ties with both countries, which are seen as China-friendly and close to Russian President Vladimir Putin. Hungary, the first EU member to participate in China's Belt and Road Initiative, has deepened its economic ties with China, particularly in the electric vehicle battery industry. China has also invested heavily in infrastructure to link Hungary with Serbia as part of the Belt and Road plan. Serbia and China have a long history of friendship, and China has provided military assistance to Serbia, including an arms delivery shortly after the Russian invasion of Ukraine in 2022. Xi's visit to Europe will be closely watched in Washington for signs of diminishing support for US foreign policy goals.
Taiwan says Chinese planes crossed median line, China carries out landing drills
The Globe and Mail
The Taiwanese defence ministry has reported a further incursion by Chinese military aircraft into the sensitive Taiwan Strait. The ministry said that 14 Chinese aircraft crossed the median line of the strait, coming as close as 41 nautical miles to the northern Taiwanese port city of Keelung. China's navy, meanwhile, reported holding combat drills with landing craft. China's military activities in the area have increased significantly in recent years, with Beijing viewing the island as its own territory and Taipei rejecting this. The defence ministry said that China had carried out a "joint combat readiness patrol" near Taiwan for the second time in a week.
FOMO finally returns to Chinese equities
Reuters BreakingViews
The recent bull market in Hong Kong and surging inflows to mainland Chinese bourses are prompting some investors to increase their allocations to Chinese stocks. Offshore investors poured $3.11 billion into onshore stocks in a single day last Friday, with global long-only investors returning to the market at a meaningful scale for the first time since early 2023. The falls in US equities and the weak Japanese yen have also made cheap Chinese stocks an attractive hedge. China's securities regulator has prioritised shareholder returns and announced plans to expand access for mainland buyers to Hong Kong's market, further boosting investor confidence.
Hong Kong stocks charge ahead in rally led by technology, banking sectors
South China Morning Post
Hong Kong stocks have continued to rise, with the Hang Seng Index entering bull-market territory after rising 20% from a January low. The Hang Seng Tech Index rose 2% after Apple's board approved an additional $110bn in share repurchases, while Tencent and Alibaba topped the turnover list. Other major Asian markets were also higher, with Australia's S&P/ASX 200 up 0.6%, South Korea's Kospi up 0.1% and Japan's Nikkei 225 dipping 0.1%.
Corporate China suffers first profit decline in 5 years
Nikkei Asia
China's publicly traded companies experienced a net profit decline for the first time in five years in 2023, as the property sector slump spilled over into other industries. Non-finance companies listed in mainland China saw a combined net profit of CNY2.85tn ($394bn) last year, which is a 3% decrease compared to the previous year. The decline in net profit continued into the first quarter of 2023, with earnings slow to recover in a Chinese economy facing deflationary pressure. The property sector slump is impacting other industries, with steel, nonferrous metal, oil, chemical, and machinery companies also experiencing decreased net profit.
With eye on China, defense chiefs agree to bolster interoperability
Japan Times
Defense chiefs from Japan, Australia, the Philippines, and the U.S. have agreed to expand military cooperation in response to China's growing regional assertiveness. The four officials met in Hawaii for a series of engagements and emphasized the need for deepening ties and building interoperability. They also discussed conducting more joint maritime military exercises and providing increased security assistance to the Philippines amid its territorial dispute with China.
Public inquiry into foreign meddling in Canada's elections drops its first report today
CBC
The public inquiry on foreign interference in Canadian elections has released its first report, shedding light on the extent of interference by China and other countries in the 2019 and 2021 federal elections. The inquiry was triggered by media reports last year that accused China of meddling in the elections and suggested that members of the Liberal government were aware of the attempts and did not act. The inquiry heard testimony about foreign interference by countries such as China, Russia, and India, and whether information was shared appropriately. The Canadian Security Intelligence Service (CSIS) believes that the Chinese government secretly interfered in both elections and that India and Pakistan also attempted to interfere. Former Conservative leader Erin O'Toole testified that his party lost seats due to a foreign misinformation campaign. The inquiry also examined the alleged irregularities in the 2019 Don Valley North nomination contest, where a Liberal candidate was accused of being part of a Chinese foreign interference network. Prime Minister Justin Trudeau said the evidence was not sufficient to remove the candidate. The inquiry's final report is due at the end of the year.
South China Morning Post
Apple reported a 10% drop in revenue from iPhone sales in the three months to March, the largest fall since late 2020. The decline in sales is being seen as a sign of weakening demand for Apple products in the Chinese market, where competition from domestic brands such as Huawei is fierce. Apple's CEO, Tim Cook, said China was "the most competitive market in the world" but added the company had a "great view of China in the long term". Huawei sales jumped by almost 70% in China in Q1, giving it 15.5% of the market, just behind Apple.
As hip-hop grows in China, its performers seek a voice that reflects their lived experiences
Bloomberg
Hip-hop in China experienced a boom in popularity in 2018 but was then hit with censorship from the government. Despite this setback, the genre has continued to grow and develop in the country, carving out a space for itself while staying within the government's boundaries. Chengdu, in the Sichuan region, has become a hub for Chinese rap, with many of the biggest acts in the country coming from there. The softness and rhymes of the Sichuan dialect make it well-suited to rap music. Chengdu has embraced rap, with artists going from performing in small venues to stadiums. However, the underground rap battles have disappeared due to censorship, and the scene has gone digital, with artists uploading short clips of their music to platforms like Douyin (Chinese TikTok). The rap competition show "The Rap of China" has also played a significant role in building the Chinese rap industry. The show brought rap and hip-hop culture into mainstream Chinese households and has been a platform for emerging talent. The first season of the show drew 2.5 billion views. Hip-hop's growth in China has come with some compromises. Artists must avoid mentioning drugs and sex in their lyrics, and many have embraced patriotism and nationalism in their music. However, artists are finding ways to be creative and express themselves within these boundaries. The development of a genuine Chinese brand of rap is still a work in progress, as artists navigate what fits in the context of Chinese culture.
Fatal car crash mars Huawei's efforts to break into EV market
Nikkei Asia
A fatal car accident involving a Huawei co-branded electric vehicle has raised concerns about the Chinese tech giant's push into the auto market. The accident involved an Aito M7 Plus, a vehicle developed through a partnership between Huawei and Seres Group. The family of the victims blamed a malfunction of the autonomous emergency braking system, a technology that Huawei had highlighted when promoting the vehicle. Huawei stated that the car was fitted with a smart driving system developed by Robert Bosch, but Bosch denied this claim. The accident is still under investigation.
China is sending a probe to get samples from the less-explored far side of the moon
Yahoo US
China is preparing to launch a lunar probe on Friday that will land on the far side of the moon, with the aim of returning samples that could provide insights into geological and other differences between the less-explored region and the better-known near side. The mission is part of China's increasingly sophisticated and ambitious space exploration program, which aims to put astronauts on the moon by 2030. China's space program also includes plans to bring back samples from Mars and launch three lunar probe missions over the next four years.
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