Special Edition-China: HK, STAR Market, U.S.-China Controversy, MSCI, Guizhou-Cloud, how to sound like China expert

"Notes for tech generalists"

# Based on many requests, this week’s newsletter is China-focused.
# 本周摘要:香港、跨境投资、MSCI、云上贵州、人口、债务
# If you want to read this edition in Chinese, click here; 中文阅读本期,请点击此处。
# Please let me know if you would like to receive Chinese version of the newsletter. 如果希望未来用中文接收新闻信,请回复此邮件
# Comments marked with ☕ are from CONTRAST commentators who prefer to remain anonymous.Enjoy!

[Hong Kong]

The post child is also a bread earner

In an opinion piece, New York Times believes China no longer needs Hong Kong

because in 1997, Hong Kong’s economy was one-fifth the size of China’s. By 2018, it was barely one-thirtieth the size of China’s.

It can’t be further from the truth. Economic analysis Alicia GarciaHerrero calls it shortsighted of Hong Kong.

It is China’s most important offshore platform for bond issuance as well as IPOs for Chinese companies. Furthermore, a very large share of Chinese outward FDI goes through Hong Kong. GDP size is not all!

☕A CONTRAST commentator also believes

As long as RMB is not freely traded, Hong Kong is irreplaceable to Beijing.

As of 2018, Hong Kongs GDP per capital is $57405.50, while mainland China’s remains slightly above $10,000.


Ups and downs…

#Down 50% +

  • Chinese investment in the U.S. drops 90%, according to New York Times.

  • Chinese venture capital investment in U.S. biotech companies fell by 56% in the first half of 2019, according to NCUSCR.

  • Venture capital investments inside China in the second quarter of 2019 was down nearly 77%, according to CNBC.

#Up 15%

MSCI, the world’s largest index provider, will increase China’s A shares from 5% to 20%, reportedly “after it came under heavy pressure by the Chinese government.” 

Market responded with concerns. Washington Post believes

(it) will send about $80 billion of U.S. cash into the struggling Chinese economy right away. Millions of Americans, without doing anything, will soon be betting on Chinese companies with their pension funds, mutual funds and exchange-traded funds.


You’ve got mail (U.S.)

  • “China is not an enemy”

Over 100 China experts in the U.S. wrote an open letter to President Trump to criticize Washington’s current stance towards Beijing.

The letter was published by the Washington Post  and it reasons:

Beijing is seeking to weaken the role of Western democratic norms within the global order. But it is not seeking to overturn vital economic and other components of that order from which China itself has benefited for decades.

  • “Stay the Course on China”

In response to the letter above, retired Navy Captain James E. Fanell, joined by 130 signatories including many military officials, also wrote to President Trump.

The letter states

We note the PRC does not recognize the principles and rules of the existing international order, which under a Pax Americana has enabled the greatest period of peace and global prosperity in mankind’s history. The PRC rejects this order both ideologically and in practice.

More join calls (China)

Some Chinese elites and academics recently went public with their prescriptions for China’s survival in an era of open foreign hostility, according to SCMP.

Cai Fang, vice-president of one of China’s top think tanks, suggests

further loosening of land and household registration regulations to encourage mobility in China’s labour force. Meanwhile, letting the market play a decisive role in resource allocation.

Wang Yizhou, an international relations professor in Peking University, went further.

China should…apply openness and transparency in a number of areas (including) internet censorship, the “vocational training centres” in Xinjiang, and the suppression of NGOs. 

Yu Yongding, a former adviser to the Chinese central bank’s monetary policy committee, said

China should seriously consider joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – now spearheaded by Japan – and allowing the binding force of the free trade agreement to force Beijing to reform.

The CPTPP, encompassing 40 per cent of the world’s economy and more than 800 million consumers, offers an ambitious and wide-ranging rule book for modern economic relationships. By adopting this rule book, China would in effect commit to aligning its policies with global norms, such as promoting a level playing field between SOEs and their private competitors.


China’s NASDAQ: Why Now?

STAR Market, China’s NASDAQ-style stock market opened on July 22nd. All the first 25 listed companies had a frenzied debut. Some rose more than 200%. One rose 550%.

☕Below is a chat with a CONTRAST commentator.

#Are investors buying out from FOMO?

The first 25 STAR-listed companies were carefully chosen, and many show strong tech competence or earning. As for their real price, give it half year to tell because STAR is the first exchange in China doesn’t set a price limit (for the first five days).

#Will China allow foreign currencies to enter the STAR Market?

Not in a foreseeable future because one of China’s top priority right now is to stabilize its USD reserve while it experiences the slowest economic growth in years. Allowing foreign currency to trade on STAR directly might indirectly cause massive USD withdrawals.

#Why now?

In a way, to stimulate tech innovation and encourage economic reform but more likely as a way to decouple from the U.S.A.


China’s answer to AWS: Why Guizhou?

Earlier last year, Apple handed over Chinese iCloud to Guizhou-Cloud and Big Data (云上贵州), a then fairly unknown and state-backed company, but poised to become China’s answer to AWS.

#Why Guizhou?

Guizhou province is known as one of the most backward regions in China in terms of GDP. But there are sound reasons to choose Guizhou as “China’s data center.”

☕According to a CONTRAST commentator,

although relatively poor, Guizhou province is rich in natural resources, particularly in energy and mining. Therefore, it is cost-efficient to run server farms. But more importantly, it is a landlocked province located Southwest China, farther away from water. Because big data is part of China’s defense strategy, it only makes senses to host such servers in such remote area.


Going unnoticed…

#Who is the world’s largest creditor?

Twitter user Heiko Borchert points out

China has become the world's largest official creditor, easily surpassing the IMF or the WorldBank, according to a Kiel Institute report.

#Who is the world’s most populated nation?

In an opinion piece, SCMP believes China’s population numbers are almost certainly inflated to hide the harmful legacy of its family planning policy and

The real size of China’s population could be 115 million fewer than the official number (1.4 billion ), putting China behind India in terms of population.


Things to avoid to say if you want to sound like a China expert

James Palmer, a senior editor at Foreign Policy, warned China experts or wannabes that the following China-rhetorics are out:

1. Sun Tzu

2. Confucianism

3. Face (or saving face)

4. 'Think in centuries.'

5. 'China's meritocratic system'

6. 5000 years of history

7. 'Communism is just for show.'

8. Robotic/efficient people

9. 'Chinese value relationships'

10. Leaders-are-engineers

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Until next time!

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