Two of China’s largest fund management firms have recently been reported to be filing applications for spot bitcoin exchange-traded funds (ETFs), according to regional sources on Monday. Harvest Global Investments and Southern Fund are seeking approval from Hong Kong’s Securities and Futures Commission (SFC), aiming to obtain authorization to introduce spot bitcoin ETFs. China’s Investment […]
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China needs a new economic plan that focuses on domestic services and private consumption.
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By David Lawder
GUANGZHOU, China (Reuters) – U.S. Treasury Secretary Janet Yellen arrived in China’s southern factory hub of Guangzhou on Thursday with a tough message to Chinese officials: you’re producing too much of everything, especially clean energy goods, and the world can’t absorb it.
China is unleashing a flood of electric vehicles (EVs), batteries, solar panels, semiconductors and other manufactured goods into global markets, the result of years of massive government subsidies and weak demand at home. Global prices for many goods are tanking, pressuring producers in other countries.
“We see a growing threat of money-losing firms that are going to have to sell off their production somewhere,” a senior U.S. Treasury official said of overproduction in key Chinese sectors.
In a series of meetings with top Chinese economic officials from Friday through Monday, Yellen will seek to convey her view that the excess production is unhealthy for China and that there is a growing drumbeat of concern about it in the U.S., Europe, Japan, Mexico and other major economies.
The official, who spoke on condition of anonymity, also said Yellen would explain: “If there are trade actions around the world, it’s not an anti-China thing, it’s a response to their policies.”
But Beijing appears to be doubling down on investing in more manufacturing capacity in favored high-technology sectors, a stance that is also increasingly at odds with Europe.
“I do think the stage is set for renewed tensions with China,” said Brad Setser, a former U.S. trade and Treasury official.
Setser added that Yellen’s warnings about Chinese overproduction may be an initial step by the Biden administration towards new tariffs or other trade barriers on Chinese EVs, batteries and other goods.
En route to Guangzhou, Yellen declined to say whether she would raise the threat of new tariffs in her meetings in Guangzhou and Beijing with Chinese Vice Premier He Lifeng and Guangdong Province Governor Wang Weizhong, who has also presided over hundreds of billions of dollars worth of recent new projects.
But she said the Biden administration was determined to develop American supply chains in EVs, solar power and other clean energy goods with investment tax credits and would not “rule out other possible ways in which we would protect them”.
In March, China’s leadership pledged to follow through on President Xi Jinping’s new mantra of unleashing “new productive forces” in China by investing in developing technology industries including EVs, new materials, commercial spaceflight and life sciences – areas where many U.S. firms hold advantages.
Yellen will also argue that China would be better off focusing spending on supporting households and boosting chronically weak consumer spending.
FACTORY FIRST
The results of China’s prior investment binges are staggering.
Including EVs and combustion-engine cars, China by the end of 2022 had the capacity to produce 43 million vehicles annually, but its plant utilisation rate – a measure closely linked to profitability – was just under 55%, according to data from the China Passenger Car Association.
Bill Russo, the Shanghai-based founder and CEO of advisory firm Automobility, estimated that this translates to excess auto production capacity of about 10 million vehicles a year, or roughly two-thirds of North American auto output in 2022.
And new entrants are still coming into an increasingly cut-throat Chinese EV market. Mobile phone maker Xiaomi on Tuesday launched sales of its sporty Speed Ultra 7 EV, drawing an estimate from Citi analysts that each unit sold would lose $10,000.
SOLAR DOMINANCE
The situation in China’s solar panel sector may be worse, where overproduction pushed prices down 42% last year to levels 60% below the cost of comparable U.S.-made products. Major Chinese producers are continuing to build factories, backed by provincial and local subsidies.
At the end of 2023, China had the capacity to build 861 gigawatts of solar modules per year, more than double the global total installed capacity of 390 million gigawatts. Another 500-600 gigawatts of annual capacity is forecast to come online this year — enough to supply all global demand through 2032, according to energy research firm Wood Mackenzie.
Chinese officials are expected to push back and argue that the excess capacity results from an unexpected downturn in demand following a property crisis and a rocky exit from COVID-19, said Scott Kennedy, a China economics expert at the Center for Strategic and International Studies in Washington.
“I can foresee a conversation that goes around in circles,” he added.
(Reporting by David Lawder; Editing by Stephen Coates and Devika Syamnath)
U.S. Treasury Secretary Janet Yellen testifies during a hearing before the Financial Services and General Government Subcommittee of the House Appropriations Committee at Rayburn House Office Building on Capitol Hill on March 21, 2024 in Washington, DC.
Alex Wong | Getty Images
Treasury Secretary Janet Yellen on Wednesday warned that China is treating the global economy as a dumping ground for its cheaper clean energy products, depressing market prices and squeezing green manufacturing in the U.S.
“I am concerned about global spillovers from the excess capacity that we are seeing in China,” Yellen said during a speech at a Georgia solar company called Suniva. “China’s overcapacity distorts global prices and production patterns and hurts American firms and workers, as well as firms and workers around the world.”
China has a surplus of solar power, electric vehicles and lithium-ion batteries that it can ship out to other countries at cheaper prices. That makes it difficult for the more adolescent green manufacturing industries of the U.S. and elsewhere to compete.
Yellen said she intends to put pressure on Chinese officials about these trade practices during her upcoming visit to China.
“I plan to make it a key issue in discussions during my next trip there,” she said. “I will press my Chinese counterparts to take necessary steps to address this issue.”
The secretary’s concerns come as the White House tries to build a burgeoning clean energy industry domestically with investments from the 2022 Inflation Reduction Act, along with other legislation like the CHIPS and Science Act.
Yellen has regularly touted the gains from these investments, including at another recent speech where she doubled down on the electric vehicle “boom” spurred by the IRA.
But those investments are playing catch-up with China’s government.
“The Biden Administration also recognizes that these investments are new,” Yellen said Wednesday.
Meanwhile, China has been pouring billions into clean energy for years, outpacing the rest of the world in the energy transition.
Yellen added that the more China’s clean energy glut interferes with global market prices, the worse off supply chains for these energy sectors will be.
“President Biden is committed to doing what we can to protect our industries from unfair competition,” Yellen said.
The Chinese Embassy in Washington did not immediately respond to a request for comment.
Yellen’s comments highlight ongoing U.S.-China trade tension even as the two countries try to steady relations.
President Joe Biden met with Chinese President Xi Jinping in November as an olive-branch effort to break the ice after years of tension, marked in part by a tariff war launched by former President Donald Trump.
Trump has floated reinstating significant tariff levels on Chinese products if he wins a second presidential term.
In the time since the Biden-Xi meeting, strengthening U.S.-China relations has proven a precarious effort due to ongoing cybersecurity and trade concerns.
In February, Biden launched an investigation into Chinese smart cars, which he said pose a national security risk because they connect to U.S. infrastructure when they drive on American roads.
“China is determined to dominate the future of the auto market, including by using unfair practices,” Biden said in a February statement. “China’s policies could flood our market with its vehicles, posing risks to our national security. I’m not going to let that happen on my watch.”
China’s crashing stock market could be the breaking point for foreign investors, Atlantic Council’s Jeremy Mark said.
The market will become more volatile as remaining investors focus on fast profits.
The country needs to respond to its property crisis to trigger a stable market recovery.
The decline of China’s stock market may have scarred it for the long-term, as foreign investors likely aren’t coming back, the Atlantic Council wrote on Friday.
On domestic and US indexes, Chinese firms have collectively suffered a $7 trillion hit since early 2021. The fallout could be the final breaking point for offshore traders, who are already hastening to exit amid souring outlooks on the country’s economy, Senior Fellow Jeremy Mark said.
With few reasons to jump back in, China will become the focus of investors betting on fast profits instead of stable growth.
“Investing in China likely will become the domain of foreign bargain hunters and hedge funds, some of whom already are actively trading in the market,” Mark wrote, later adding: “The fund managers who remain could end up contributing to the volatile swings in fortune that are everyday life in China’s markets.”
Beijing has responded to the financial stress in recent weeks, issuing a slew of measures meant to dampen the sharp decline. These include state-backed purchases, as well as restricted access to offshore markets and curbs on short-selling.
Although this flurry of efforts has triggered a rally this week in Chinese indexes, a more forceful recovery will depend on Beijing’s handling of broader crises, Mark noted.
China’s property market is the leading concern, considering the sector accounts for around a quarter of the nation’s GDP. Once a rapidly growing industry, its dependence on high leverage has resulted in a massive default wave, with real estate giants forced to liquidate.
Foreign investors have been disenchanted by Beijing’s slow response, while the government’s 2020 crackdown on the tech sector provided another incentive to move out of Chinese markets, Marks noted.
The stock exodus has largely been led by passive funds, as well as investors focused on long-term growth. Net foreign inflows last year reached only $6.1 billion, the lowest level since 2017.
It’s had a direct impact on China’s startup scene, with the country’s IPO market drying up as new companies search for cash.
“Even if the economy and property market bottom out in 2024, there are worrying signals about the government’s intentions for stock investors. Over the past few months, there have been various pronouncements directed at financial markets that suggest less tolerance for business as usual,” Marks said.
Read the original article on Business Insider
Apple CEO Tim Cook holds up a new iPhone 15 Pro during an Apple event on Sept. 12, 2023, in Cupertino, California.
Justin Sullivan | Getty Images News | Getty Images
Apple for the first time became the largest smartphone vendor in China by shipments, new data for 2023 released on Thursday showed.
The iPhone maker’s market share in China stood at 17.3% in 2023, according to the International Data Corporation (IDC), a record-high for the firm in the world’s second-largest economy.
Apple’s overall smartphone shipments fell 2.2% year-on-year in 2023, while the overall market fell 5%, IDC said. Shipments are the devices that Apple sends to its third-party sellers and does not equal direct sales. However, they are an indication of demand.
“Apple’s climb to the top spot in 2023, especially in light of renewed competition from Huawei and the soft spending sentiment, marks a tremendous success for Apple,” Arthur Guo, senior research analyst at IDC China, said in a press release.
“Apple achieved this thanks to timely price promotions in its third-party channels, which stimulated demand.”
Indeed, many of the online sales platforms in China offered discounts on the flagship iPhone 15 in the fourth quarter. Even this month, Apple made a rare move to offer discounts across the iPhone 15 range on its own website in China to keep up momentum.
China’s smartphone market has been hit because of an uncertain economic environment in the country and weak consumer spending.
In 2023, Honor, a spin-off from Chinese company Huawei, held the second spot with 16.8% market share, followed by Vivo, Huawei and then Oppo.
Another market research firm called Counterpoint Research also came out with China numbers on Thursday. Counterpoint said it expects the China market to record low single-digit year-on-year growth in 2024, the first year of growth since 2018.
One of the biggest changes in 2023 was Huawei’s return to the top five ranking in China during the fourth quarter, after more than two years outside of the leading group.
However, last year, Huawei debuted a phone that contained quite a cutting-edge semiconductor, manufactured by China’s biggest chipmaker SMIC. This was a big surprise considering U.S. sanctions had been designed to stop this happening.
That new phone, the Mate 60, has helped Huawei make big gains in China. Huawei shipments grew 36% year-on-year in the December quarter and it commanded a 13.9% market share, IDC said.
Huawei knocked Chinese electronics maker Xiaomi out of the top five.
“This will only intensify the competition as no vendors will want to lose a top 5 position in the world’s largest smartphone market,” Will Wong, senior research manager at IDC, said in a statement.
Another tough day for Wall Street is in the making, after China growth numbers disappointed, hitting oil and a bunch of U.S.-listed Chinese stocks.
That brings us to our call of the day, where market observers say China-related trouble continues to build for Tesla
TSLA
and Apple
AAPL
and their investors.
In a note to clients, Mike O’Rourke, chief technical strategist at JonesTrading, observes how Magnificent Seven stocks have been under pressure to shore up the S&P 500
in a bumpy 2024.
“Key leaders Apple and Tesla continue to be bombarded by daily negative headlines regarding their fundamental businesses. While it barely draws much attention, it does not help that they are also the two most China exposed companies,” says the strategist.
Apple and Tesla have lost 4% and 11% respectively this year, the worst performers of the seven.
So is China the common denominator for the pair’s woes?
Apple recently cut handset prices in the China where it battles competitors like Huawei. Tesla also reduced EV prices in the country where Berkshire Hathaway-owned BYD
CN:002594
rules. Wednesday brought news of Tesla price cuts in Germany, where it faces production disruptions due to Red Sea ship attacks.
China represented a 19% chunk of Apple’s revenue in 2023, and roughly 22% for Tesla in the first nine months of last year.
Jenny Hardy, portfolio manager on the GP Bullhound Global Technology Fund, tells MarketWatch that for Apple and Tesla, “it’s much more about the competitive environment that could hurt them rather than their underlying markets.” She notes that in a gloomy China market, EVs and smartphones were strong into end 2023.
Hardy notes a number of new launches in China have been competing with Tesla at the higher end, such as Huawei’s luxury Aito M9 model, rumored to have hit weekly sales of more than 20,000. “At the very least for Tesla it means the aggressive price war it is facing in China continues,” she says.
And Huawai has also been taking “significant share” where Apple is concerned. That company had a 16% smartphone share in China that fell to around 2% by 2022 after the U.S. blacklist, she notes.
“For us in the portfolio, we continue to be exposed to China EV through the semiconductor component companies who supply into the Chinese market (Infineon
XE:IFX
and NXP
NXPI
) – who are less vulnerable to pricing pressure than the OEMs. We remain cautious around broader consumer electronics exposure, where the Chinese demand recovery remains uncertain,” she says.
More food for thought comes from Peter Navarro, former White House trade adviser under President Donald Trump, whose recent op/ed — “The eve of Apple and Tesla’s destruction in China” — has been making the rounds. Navarro, it should be noted, is due to be sentenced later this month after being found guilty of contempt of Congress for not cooperating with a probe into the U.S. Capitol attack two year ago.
“Like GE before it, Apple and Tesla now have this grim mercantilist reality. Because Mr. Cook and Mr. Musk each directed the offshoring of the vast bulk of Apple’s and Tesla’s production to China , the companies are at the mercy of a merciless dictator in Xi Jinping,” he writes.
“Arrogance and hubris are common threads that run from Mr. Immelt [Jeffrey, former CEO] in the 2000s through Mr. Cook and Mr. Musk today,” said Navarro, adding that the companies’ products face a “xenophobic ban” in the country.
The food-for-thought kicker from Navarro? “Whether you are a big hedge-fund manager or a small retail investor, you have to wonder whether Apple or Tesla are still safe investments — at least on the long side, if you get my drift.”
Read: Is AI hype starting to fade? Companies are poised to turn the talk into action in 2024, says Deutsche Bank.
U.S. stock futures
ES00
NQ00
extended losses after the retail sales data. The action was in bonds: the yield on the 2-year Treasury
shot 14 basis points higher.
| Key asset performance | Last | 5d | 1m | YTD | 1y |
| S&P 500 | 4,765.98 | 0.05% | 0.54% | -0.08% | 19.18% |
| Nasdaq Composite | 14,944.35 | 0.68% | 0.26% | -0.45% | 34.89% |
| 10 year Treasury | 4.076 | 4.21 | 22.78 | 19.52 | 70.27 |
| Gold | 2,024.10 | -0.49% | -0.84% | -2.30% | 5.26% |
| Oil | 71.74 | 1.16% | -1.58% | 0.57% | -10.39% |
| Data: MarketWatch. Treasury yields change expressed in basis points | |||||
Retail sales came in surprisingly strong — up 0.6% at the headline level, or up by 0.4% excluding autos. Separately, import prices were steady in December.
Industrial production hits at 9:15 a.m. and a home builders confidence index at 10 a.m. Data showed weekly mortgage demand surging as rates fell across the board.
Fed Vice Chair for Supervision Michael Barr and Fed Gov. Michelle Bowman will both speak at 9 a.m. The Fed’s Beige Book of economic conditions is due at 2 p.m.
Spirit Airlines shares
SAVE
remain under pressure after a federal judge blocked JetBlue’s proposed $3.8 billion acquisition of the airline.
China’s economy grew 5.2% in 2023, but data showed an uneven recovery and some analysts were looking for growth of 5.3%.
Read: Government shutdown: Congress has four days to act. Here’s what’s at risk.
Japan’s market roars back to life—with old-timers leading the way
The downside of a longer life: More time spent sick
Former Australian prime minister dismisses peak China narrative
The rocky start to 2024 is a sign the “easy money” has been made and to expect a challenging year, says Tom Lee, head of Fundstrat.
“But the reason we see the ‘easy money’ made is we are now overbought. So, even with new highs likely at the end of January, this is not a full ‘risk-on’ market,” says Lee, who adds the bulk of gains will be seen in the second half.
These were the top-searched tickers on MarketWatch as of 6 a.m.:
U.K. space minister mocked after confusing the Sun and Mars,
A 524.7 pound bluefin tuna sold for $789,000 in Tokyo.
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Chinese electric vehicle company Xpeng told CNBC on Friday that its newly launched X9 model could be a “game changer” for the industry.
Xpeng launched the X9 large 7-seater EV on Jan. 1, a car built on its SEPA2.0 architecture for the Chinese market. The X9 series are priced between 359,800 yuan to 419,800 yuan (about $50,360 to $58,760) with immediate deliveries.
“For X9, we actually anticipate this to be a game changer for the battery electric vehicles segment for MPVs (multi-purpose vehicles),” Brian Gu, vice chairman and co-president of Xpeng, told CNBC’s Emily Tan in an exclusive interview.
“We believe this could be the top seller in its category … because I think it has some very innovative technology and design as well as superior handling, industry leading smart driving technology – packed into a very beautifully designed product,” said Gu.
Xpeng’s new launch comes as several domestic EV players such as Nio, Huawei and Zeekr recently revealed new electric vehicles. Even Chinese consumer electronics company Xiaomi is launching its first EV to compete in the market.
We anticipate in 2024, we will be growing much faster than the industry growth which means that we can expand our market share.
Brian Gu
Vice Chairman and Co-President, Xpeng
Xpeng has laid out ambitious plans to roll out driver-assist technology in China by end of last year and in Europe by the end of 2024.
The Chinese EV maker also entered into a cooperation framework agreement with Guangdong Huitian on Jan. 2 to manufacture, develop and sell flying vehicles, where Xpeng will provide research and development, technology consulting services and sales agent services to Guangdong Huitian.
“We anticipate in 2024, we will be growing much faster than the industry growth which means that we can expand our market share,” said Gu, adding that the firm will be looking to increase profit margins with greater scale and better product mix.
“The X9 will be a very high margin product for us,” said Gu.
Competition is intensifying in the Chinese EV market, with BYD, Li Auto and Geely among the small number of players that have hit their annual sales targets.
Xpeng and Nio were among those that missed their targets.
Xpeng delivered a total of 141,601 units in 2023, a 17% increase from a year ago. This fell short of the firm’s target of delivering 200,000 vehicles for the year as reported by local media.
“The focus of investors [for 2024] is whether the company can maintain decent delivery momentum with new launches and improve profitability in a challenging pricing environment, in our view,” said Morningstar analyst Vincent Sun in a Nov. 16 note on Xpeng.
2024 will be a very competitive year with obviously a number of new models as well as new brands launching in the segment.
Brian Gu
Vice Chairman and Co-President, Xpeng
Nio delivered 160,038 vehicles in 2023, representing an increase of 30.7% compared to a year ago — but it still was well below its target of about 245,000 cars based on management’s target to “double the volume” of 2022 during their fourth quarter earnings call.
Li Auto delivered 376,030 vehicles in 2023 – meeting its annual delivery milestone of 300,000 vehicles.
In terms of sales, BYD met its 3 million target in 2023 and surpassed Tesla as the world’s top-selling EV brand in the fourth quarter, selling more battery-powered vehicles than its U.S. rival.
BYD produced 3.05 million vehicles in 2023 while Tesla said it made 1.84 million vehicles that same year.
Gu is optimistic on China’s EV market in 2024 despite challenges, saying that “2024 will be a very competitive year” with new model and brand launches.
“I think that the EV sector in China ended on a very high note in the fourth quarter, if you look at the penetration rates approaching 40% towards the end of this 2023, which is the high point that we have seen in the industry,” said Gu. “So all that points to a strong momentum.”
According to TrendForce, China’s new energy vehicle penetration rate exceeded 40% for the first time in November and “optimistic growth” is anticipated by 2024.
“I think we will continue to see a number of the catalysts that’s propelling the growth of the new energy vehicle market, obviously the technology, the product launches, as well as the continued conversion from internal combustion engines to new energy vehicles,” said Gu.
The new energy category includes electric and plug-in hybrid power sources.
“But in order to be competitive, I think we still need to focus on differentiating innovative technology as well as maintaining a very strong cost-competent competitive advantage with scale as well as technological innovations,” he added.
Updated Dec. 31, 2023 12:20 am ET
HONG KONG—Investors in China’s biggest internet companies have suffered through a tumultuous 2021, a lackluster 2022 and a disappointing 2023.
After a lousy three years for the once-hot sector, many investors are asking—where do things go from here?
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China’s Factory Floor Is Moving—But Not to India or Mexico
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