In the Financial/Economic News

[Randy W]

Video: The U.S. is taking aim at big tech—but China is moving faster. In less than six months, the flagship IPO of Jack Ma’s Ant was scuttled, and his companies brought in line by regulators.

Ant, Alibaba Show How China Reins in Big Tech Faster Than Other Countries

In less than six months, Chinese entrepreneur Jack Ma’s Ant IPO, which could have been the world’s largest, was scuttled and his companies brought in line by regulators. The U.S. is also taking aim at big tech, but here’s how China moves faster. Photo illustration: Sharon Shi

from the WSJ on Facebook 
https://www.facebook.com/8304333127/posts/10161034292273128/

[Randy W]

China’s Cyber Watchdog to Police Chinese Overseas Listings
The agency that prodded ride-hailing giant Didi to delay its IPO will take a lead role in regulating Chinese companies’ overseas listings

Before ride-hailing giant Didi went public in the U.S., China’s cybersecurity watchdog suggested it delay its IPO despite the main economic and financial regulators being largely supportive of the listing plan.

PHOTO: MARK SCHIEFELBEIN/ASSOCIATED PRESS

from the WSJ

Quote

 

A powerful agency that China’s President Xi Jinping set up during his first term to police the internet is taking on a new role: regulating U.S.-listed Chinese companies.

The Cyberspace Administration of China, which reports to a central leadership group chaired by Mr. Xi, is taking a lead role in Beijing’s just-announced push to strengthen interagency oversight of companies listed overseas, especially those traded in the U.S., and to tighten rules for future foreign listings, according to people with knowledge of the matter.

Behind the agency’s rising clout is a desire to fix a lack of coordination between regulators, which has enabled the kind of mixed messages that preceded the blockbuster initial public offering of ride-hailing giant Didi Global Inc. DIDI -4.64% last month.

While the cybersecurity regulator sounded alarms to Didi about its network security, the people say, the main economic and financial regulators were largely supportive of Didi’s listing plan. In the absence of being told explicitly to stop its planned stock sale, Didi pressed ahead.

For future overseas stock sales, the cyber watchdog could conceivably block a plan that is seen as threatening Chinese security.

It also highlights Mr. Xi’s escalating effort to control the private corporate sector—especially technology firms with reams of valuable data.

The increased involvement in corporate oversight by the cyberspace regulator, which has been entrusted with strengthening the state’s sway over digital information, could risk accelerating a decoupling between the financial markets in China and the U.S.

On one end are China’s regulators, led by the cyberspace authority, which are moving to make it harder for Chinese companies to sell shares overseas. On the other are American lawmakers, such as Sen. Marco Rubio (R., Fla.), who are stepping up calls to block Chinese firms from going public in the U.S. unless they submit to U.S.-style audit requirements.

In China, “the cyber regulator has become the new securities regulator,” says Victor Shih, a University of California, San Diego, professor of political economy who focuses on Chinese policies. “Investors and companies will find it much harder to manage the listing process.”

 

 

[Randy W]

from Time Magazine

Here's What the Crackdown on China's Big Tech Firms Is Really About

Quote

 

How times have changed. Today, Ma is no longer in public view and China is in the middle of a multi-pronged, regulatory crackdown on its previously untouchable tech giants. The battle took a dramatic twist this month, after the world’s largest ride-hailing firm Didi—boasting 493 million annual users and 15 million drivers across 15 countries—was probed by regulators for alleged data privacy and national security breaches. This took place just two days after Didi’s $4.4 billion IPO in New York.

 . . .

“This is a show of force from the Chinese government, saying, ‘We’re going to reel in these tech giants and their unruly behavior,’” says Prof. Michael Sung, founding co-director of the Fudan Fanhai Fintech Research Center at Shanghai’s Fudan University. “Because now they’re big enough to have systemic risk.”

 . . .

The new importance attached to data reflects the fact that the digital economy made up 38% of China’s GDP in 2020. By 2025, the proportion is expected to be 55%. As the traditional drivers of China’s overall growth slow down, the digital economy will become even more vital. Because the digital economy is fueled by data, it is important to have clear rules on how companies can gather, store and sell it.

Increasingly, the Chinese government has been coaxing its big tech companies to share data with state and other parties for the greater good. “That effort would usually start with sweet coaxing and if that doesn’t work then out comes the stick,” says Mark Natkin, founder of Beijing-based IT research firm Marbridge Consulting. “Now we’ve passed the sweet coaxing period and the stick cupboard has been unlocked.”

 

 

[Randy W]

 . . . and the SCMP on Facebook 

Why China is tightening control over cybersecurity

As part of China’s attempt to rein in the Wild West of the internet, Beijing has been tightening its grip on cybersecurity.

https://www.facebook.com/scmp/videos/246971563621760/

[Randy W]

In Depth: Why Hong Kong Could Gain From China’s Foreign Share-Sale Crackdown

China’s tightening scrutiny of U.S.-traded data-heavy companies is raising the prospect of more share sales in Hong Kong, even though the city’s stock exchange is known for having stricter requirements than U.S. bourses.
Under a newly revised regulation, Chinese companies holding the personal information of 1 million or more users have to seek a government cybersecurity review before a foreign share flotation. “Foreign” under the rule doesn’t include Hong Kong, suggesting an opportunity for the exchange.

from Caixin

[Randy W]

China Crackdown Makes Hong Kong Index World’s Biggest Tech Loser

from Bloomberg

Quote

 

An index launched a year ago to give investors greater exposure to China’s internet giants is now the world’s worst-performing major technology gauge.

The Hang Seng Tech Index has been on a roller-coaster ride in the last 12 months. The gauge, which marks its one-year anniversary on Tuesday, was up 59% at its February peak but has since seen more than $551 billion in market value wiped out amid Beijing’s clampdown on the sector.

That has reduced the gain to nearly 6% as of last Friday, compared to more than 40% for the MSCI World Information Technology Index and the NASDAQ-100 Index. The measure also lags onshore peers: the ChiNext Index is up 35% in the period.

The underperformance highlights regulatory risks for one of the fastest-growing sectors of China’s economy. Beijing’s bold moves to rein in the nation’s powerful tech firms such as Jack Ma’s Ant Group Co. and Didi Global Inc. have sent global investors fleeing on concerns over China’s tighter grips on data while relations with Washington remain difficult.

 . . .

The index plunged as much as 5.4% on Monday as a selloff in Chinese private education companies deepened after Beijing announced a sweeping overhaul that threatens to up-end the $100 billion sector and jeopardize billions of dollars in foreign investment. New Oriental Education & Technology Group Inc. plunged as much as 40%, extending Friday’s record 41% fall.

Buyer Beware

Launched last year, the gauge tracks the 30 biggest Hong Kong-listed tech firms including giants like Tencent Holdings Ltd., Alibaba Group Holding Ltd. and Meituan. It was set in motion at a time when Chinese tech companies were looking to list closer to home as growing tensions between Washington and Beijing threatened to curtail access to U.S. capital markets.

 

 

[Randy W]

A regulatory crackdown by Beijing wiped some $400 billion off the value of U.S.-listed Chinese companies in July. Now, some investors are asking whether China Inc. is worth the risk. https://on.wsj.com/3feYWG1

from the Wall Street Journal on Facebook
https://www.facebook.com/WSJ/posts/10161268831088128

Investors Lost Hundreds of Billions on China in July
China moves to reassure global investors who have been drawn to country’s strong growth, booming tech industry

Quote

 

American investors are asking whether China Inc. is still worth the risk following a widening series of regulatory crackdowns that have wiped some $400 billion off the value of U.S.-listed Chinese companies.

Investors ranging from pension fund Orange County Employees Retirement System in California to money manager William Blair & Co. are rethinking their portfolios following Beijing’s decision last week to curtail the operations of China’s for-profit tutoring industry along with its ongoing campaign to rein in tech companies. The moves fueled large declines across sectors of China’s stock markets and hammered Asia-focused funds stateside.

 

 

Edited August 2, 2021 by Randy W (see edit history)

[Randy W]

Jack Ma stood with Jeff Bezos and Elon Musk as a global tech giant. But he failed to please China’s leader Xi Jinping and has largely disappeared from view.

Technological disruption, once seen as a useful prod for China to catch up with the West, has been recast as a threat to the ruling Communist Party. As a result, Xi Jinping, China’s most powerful leader in decades, is rewriting the rules of business for the world’s second-largest economy.

from the Wall Street Journal on Facebook
https://www.facebook.com/WSJ/posts/10161311159718128

Jack Ma’s Costliest Business Lesson: China Has Only One Leader
The billionaire entrepreneur matched the heights of America’s tech legends but failed to heed warnings that Chinese leader Xi Jinping still called the shots

Quote

 

Jack Ma stood with Jeff Bezos and Elon Musk as a global tech giant. But he failed to please China’s leader Xi Jinping and has largely disappeared from view.

Technological disruption, once seen as a useful prod for China to catch up with the West, has been recast as a threat to the ruling Communist Party. As a result, Xi Jinping, China’s most powerful leader in decades, is rewriting the rules of business for the world’s second-largest economy.

. . .

Now he has disappeared almost entirely from public view, in part because of the same go-for-broke drive he shared with the other 21st century tech titans.

Technological disruption, once seen as a useful prod for China to catch up with the West, has been recast as a threat to the ruling Communist Party. As a result, Xi Jinping, China’s most powerful leader in decades, is rewriting the rules of business for the world’s second-largest economy.

Mr. Ma failed to keep pace with Beijing’s shifting views and lost an appreciation for the risks of falling out of step, according to people who know him. He tuned out warnings for years, they said. He behaved too much like an American entrepreneur.

Mr. Ma, 56 years old, has exchanged a wall-to-wall schedule of business travel and meetings with world leaders for golf and the reading of Taoist texts, people familiar with his activities said. He hired a teacher to learn oil painting, starting out with images of birds and flowers and then shifting to an abstract style, according to these people and photos of his artwork viewed by The Wall Street Journal.

He also has traveled to Beijing to try to smooth things over, the people familiar with his activities said. It was too little, too late, officials said. Mr. Ma strayed too far out of his lane. His ambition and outspoken nature, traits that drew a strong following among many in China, would no longer be tolerated in the tightened grip of Mr. Xi and the ruling party.

. . .

This account of Mr. Ma’s souring relationship with China’s leadership is based on interviews with government officials and policy advisers in Beijing, current and former business associates of Mr. Ma’s, and investors and employees in his companies.

 

 

Edited January 9, 2023 by Randy W (see edit history)

[Randy W]

Chinese President Xi Jinping announced Thursday that #China will set up a #StockExchange in Beijing and build it into a major base for innovative small and medium-sized firms.
China will continue to support the innovation and development of small and medium-sized firms and deepen reforms of the "new third board," Xi said while addressing the Global Trade in Services Summit of the 2021 China International Fair for Trade in Services via video. 
#CIFTIS2021

Beijing stock exchange

from China Pictorial on Facebook
https://www.facebook.com/ChinaPic/posts/4095988167193208

 

Edited January 9, 2023 by Randy W (see edit history)

[Randy W]

The main goal of creating the Beijing Stock Exchange is to alleviate a longstanding issue in the Chinese economy: the difficulty faced by many small and medium-sized enterprises in accessing financing.

from the Sixth Tone on Facebook 
https://www.facebook.com/sixthtone/posts/3036360213349485

Why Is China Setting Up a Third Major Stock Exchange in Beijing?
Beijing’s new bourse is designed to provide smaller Chinese companies with easier access to funding at home, as economic tensions with the U.S. continue to rise.

Quote

 

“We will continue to support the innovative development of small and medium-sized enterprises, deepen the transformation of the ‘New Third Board,’ build the Beijing stock exchange, and strengthen the position of these entrepreneurs,” Xi said during a speech at the International Fair for Trade in Services in the Chinese capital.

The new bourse will be the Chinese mainland’s third major stock exchange — and the first to open since the 1990s, when China set up its first exchanges in Shanghai and Shenzhen.

But why does China need a new stock market in Beijing, and why now? Sixth Tone answers some of the key questions about the freshly minted stock exchange.

 

 

Edited January 9, 2023 by Randy W (see edit history)

[Randy W]

China Is Breaking Up Alipay: Time to Sell Alibaba?
Alibaba is down 50% from all-time highs amid China's relentless crackdown.

"It will involve a breakup, bringing in the government as an investor, and turning over proprietary data."

from the Motley Fool

Quote

 

On Monday, Sep. 13, Chinese officials unveiled yet another in a series of crackdowns on e-commerce, fintech, and cloud leader Alibaba (NYSE:BABA). One year ago, Alibaba was the starting point for the regulatory crackdown on Chinese tech giants, when regulators canceled the IPO of Alibaba financial subsidiary Alipay following inflammatory comments by founder Jack Ma.

Nearly one year later, Beijing returned to the subject of Alipay, with a new plan for the fintech giant. It will involve a breakup, bringing in the government as an investor, and turning over proprietary data.

 . . .

What authorities are doing

Chinese regulators have grown increasingly worried about a runaway boom in spending and leverage throughout the country's economy. Large real estate developer Evergrande (OTC:EGRNF) is in serious trouble, which could pose contagion risk for the rest of China. Therefore, China is looking to clamp down on runaway consumer lending as well. That includes Alipay's products, which are underwritten outside the purview of the central banks and other government-controlled financial institutions.

What are the consequences of this?

The Financial Times also reported that China's central bank wants banking and fintech lending decisions to be made only from approved credit scoring entities, and not proprietary data out of the reach of the central government. That could mean Alipay's competitive advantage in making lending decisions could go away, as all lenders will have to obey the same rules for scoring potential borrowers.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

 

[Randy W]

China is likely to roll out its much-discussed property tax to more cities before the end of this year, which analysts say will help close the wealth gap amid growing calls to achieve “common prosperity” by the central government.

from the Sixth Tone on Facebook 
https://www.facebook.com/sixthtone/posts/3042173106101529

Growing Signs Suggest China May Launch Countrywide Property Tax
Experts say the levies could provide revenue for local governments to invest in public infrastructure and services.

Quote

Huang Zhonghua, a professor specializing in real estate studies at East China Normal University in Shanghai, said that the central authority’s efforts to promote so-called common prosperity and a new land transfer policy this year would speed up the wider rollout of property tax. Under the goal of common prosperity, the country plans to “adjust” the excessive incomes of the wealthy to combat inequality.

 

Edited January 9, 2023 by Randy W (see edit history)

[Randy W]

Why China’s Economy Is Threatened by a Property Giant’s Debt Problems
The real estate developer Evergrande once binged on debt. Now the music has stopped, investors are panicking and experts are warning of an imminent failure.

from the NY Times

The Evergrande headquarters in Shenzhen. The company rapidly expanded in an economy that relied on the property market for supercharged economic growth.Credit...Shen Longquan/Visual China Group, via Getty Images
 

Quote

 

Evergrande has the distinction of being the world’s most debt-saddled property developer and has been on life support for months. A steady drumbeat of bad news in recent weeks has accelerated what many experts warn is inevitable: failure.

The ratings firms like Fitch, Moody’s and S&P have said that Evergrande is running out of cash and time. Evergrande is faced with more than $300 billion in debt, hundreds of unfinished residential buildings and angry suppliers who have shut down construction sites. The company has started to pay overdue bills by handing over unfinished properties, and it has even asked employees to lend it money.

How did Evergrande become such a problem?

In its glory days a decade ago, Evergrande sold bottled water, owned China’s best professional soccer team and even briefly dabbled in pig farming. It became so big and sprawling that it has a unit that makes electric cars, though it has delayed mass production.

Now Evergrande is seen as a rickety threat to China’s biggest banks.

The company, founded in 1996, rode China’s epic property boom that urbanized large swathes of the country and resulted in nearly three quarters of household wealth being tied up in housing. This put Evergrande at the center of power in an economy that came to lean on the property market for supercharged economic growth.

The company’s billionaire founder, Xu Jiayin, is a member of the Chinese People’s Political Consultative Conference, an elite group of politically well-connected advisers. Mr. Xu’s connections likely gave creditors more confidence to keep lending money to Evergrande as it grew and expanded into new businesses. Eventually, though, Evergrande ended up with more debt than it could pay off.

 . . .

For years many investors gave money to companies like Evergrande because they believed Beijing would always step in with a rescue if things got too shaky. And for decades, the investors were right. But more recently, the authorities have shown greater willingness to let companies fail in order to rein in China’s unsustainable debt problem.

The authorities hauled Evergrande executives into a meeting in August and told them to get its debt in order. They have also continued to tell its banks to scale back their lending to the developer. Evergrande said on Sept. 14 that it had hired restructuring experts to help “explore all feasible solutions” for its future.

 

How would Evergrande’s failure affect China’s economy?

A campaign by the central bank to tame property debt and reduce the banking sector’s exposure to troubled developers should mean that an Evergrande failure would have less of an impact on China’s financial system.

The reality may be more complicated.

Panic from investors and home buyers could spill over into the property market and hit prices, affecting household wealth and confidence. It could also shake global financial markets and make it harder for other Chinese companies to continue to finance their businesses with foreign investment.

 . . .

Foreign investors worry that if Evergrande fails, all the money they are owed will vanish into thin air. The authorities in Beijing have indicated that they are no longer willing to bail out foreign and domestic bondholders. In any bankruptcy proceeding, they would be low on the list of creditors to get any of the Chinese company’s assets.

 

 

Edited September 29, 2021 by Randy W (see edit history)

[Randy W]

From WSJ Opinion: Watch out for America’s “Evergrande moment”—the point at which a generations-long property boom no longer looks quite so sustainable, writes Joseph C. Sternberg.

Opinion | America Risks an ‘Evergrande Moment’
Like China, most of the developed nations have relied too much on property to fuel growth.

from the WSJ on Facebook 
https://www.facebook.com/WSJ/posts/10161378590518128

Quote

 

The question is not whether an exploding debt bomb at a Chinese company will spread financial shrapnel abroad. It won’t. The explosion would detonate within the concrete bunker of China’s closed financial system, which will dampen if not entirely mute any shock waves. The better question is whether similar explosives lie ticking in other developed economies. The answer is that there’s probably some version of Evergrande in most of them. China’s dysfunctions are not as unique as outsiders want to believe.

Most folks already seem to be forgetting that from Beijing’s perspective, Evergrande’s potential implosion is as much a solution as a problem. There’s a reason the Chinese government was willing to set in motion such a predictable series of events by cracking down on property-related debt. The problem Beijing needs to solve, stated in its simplest form, is this: An aging and potentially shrinking population finds itself fantastically overreliant on property-linked borrowing to fuel current economic growth, and on the underlying property as a store of savings from which to finance the middle class’s needs in its impending retirement. 

Endless complications arise from that basic dynamic. The most interesting is that chronic redirection of the economy’s savings into property “investment” saps productivity growth over time because real estate is a less productive asset than a factory or an research-and-development lab.

 . . .

But since the middle class especially relies on this asset to provide for its future financial needs, policy makers feel compelled to make up somehow for the low productivity that otherwise might restrain appreciation of the capital investment. The traditional response is some combination of credit subsidies for home buyers to goose demand (in China and elsewhere) and artificial constraints on new supply (in many parts of the world, although not so much in China).

 . . .

This unbounded price appreciation eventually blossoms into a social problem as new buyers are priced out of the market—not least because their parents wasted their savings investing in housing stock rather than on economic activities that otherwise would have boosted productivity and wages. Meanwhile, because of the mismatch between property’s relatively muted productivity and the rising property prices on which middle-class savers have come to rely, governments face constant pressure to find new mechanisms to sustain high prices. This often means encouragement of ballooning debt levels.

 

 

Edited January 9, 2023 by Randy W (see edit history)

[Randy W]

How China Plans to Avert an Evergrande Financial Crisis
Control of the banking system gives Beijing the tools to stop a broader collapse, officials believe, while censorship and police powers can stifle protests.

from the NY Times

Police and security personnel outside China Evergrande Group headquarters in Shenzhen, China, on Friday.Credit...Ng Han Guan/Associated Press

Quote

 

In any other country, the sudden collapse of a corporate titan with more than $300 billion in debt would send shock waves across the economy. Headlines would blare. Banks would shudder. Investors would panic.

A corporate collapse of that scale may happen soon. But it would be in China, where the Communist Party keeps a firm grip on money, corporate boardrooms, the media and the broader society. Those controls may be facing one of their toughest tests yet, but Beijing is signaling that it feels up to the challenge — even if it will first try to teach big investors and companies a bitter lesson about lending recklessly.

The financial world is watching the struggles of China Evergrande Group, one of the largest property developers on earth and certainly the most indebted. Last week, a deadline to make an $83 million payment to foreign investors came and went with no indication that Evergrande had met its obligations, raising questions about what would happen if its huge debt load went sour.

The Chinese government doesn’t want to move in yet because it hopes Evergrande’s struggles will show other Chinese companies that they need to be disciplined in their finances, say people with knowledge of its deliberations who insisted on anonymity. But it has an array of financial tools that it believes are strong enough to stem a financial panic if matters worsen.

The government is “still going to provide a guarantee” for much of Evergrande’s activities, said Zhu Ning, deputy dean of the Shanghai Advanced Institute of Finance, “but the investors are going to have to sweat.”

The authorities have other ways to quell public unease about Evergrande. For months, local governments have been issuing directives urging Communist Party officials and companies to look out for budding protests related to China’s troubled property developers. Some notices warn officials to monitor aggrieved home buyers, unpaid contractors and even laid-off real estate salespeople.

 . . .

China has a lot riding on its ability to contain the fallout from an Evergrande collapse. After Xi Jinping, China’s most powerful leader in generations, began his second term in 2017, he identified reining in financial risk as one of the “great battles” for his administration. As he approaches a likely third term in power that would start next year, it could be politically damaging if his government were to mismanage Evergrande.

But China’s problem may be that it controls financial panics too well. Economists inside and outside the country argue that its safeguards have coddled Chinese investors, leaving them too willing to lend money to large companies with weak prospects for repaying it. Over the longer term, though, China’s bigger risk may be that it follows in the footsteps of Japan, which saw years of economic stagnation under the weight of huge debt and slow, unproductive companies.

By not forcefully signaling an Evergrande bailout, the Chinese government is essentially trying to force both investors and Chinese companies to stop channeling money to risky, heavily indebted companies. Yet that approach carries risks, especially if a disorderly collapse upsets China’s legions of home buyers or unnerves potential investors in the property market.