1.     In the first half of 2023, profits of industrial companies above 20mn revenue fell by 16.8%

In the first half of 2023, large-scale industrial companies (above CNY 20mn revenue) achieved business revenue of CNY 62.62 trillion (approximately $8.76 trillion), down 0.4% year-on-year. Operating costs reached CNY 53.37 trillion (approximately $7.46 trillion), up 0.5%.

In the first half of 2023, profits of industrial companies above a designated size across China fell by 16.8%, although the decline continued to narrow. These companies achieved total profits of CNY 33.8846 trillion (approximately $4.74 trillion), a year-on-year decrease of 16.8%, 2.0 percentage points less than the decline from January to May.

During this period, state-owned industrial enterprises saw a total profit of CNY 12.002 trillion, down 21.0% year-on-year. Joint-stock companies registered a total profit of CNY 24.872 trillion, down 18.1%. Foreign, Hong Kong, Macao, and Taiwan investment enterprises recorded CNY 7.9668 trillion in profits, a decrease of 12.8%. Private companies achieved a total profit of CNY 8.6892 trillion, a decrease of 13.5%.

Among 41 major industrial sectors, 12 saw an increase in total profit year-on-year, while 29 saw a decline. For instance, the electricity and heat production and supply industry saw profits increase by 46.5%. The electrical machinery and equipment manufacturing industry increased by 29.1%. automobile manufacturing industry increased by 10.1%. In contrast, industries such as non-metallic mineral products manufacturing saw a decline of 26.6%. The processing of agricultural and sideline food products decreased by 33.2%. Chemical raw materials and chemical product manufacturing industry declined by 52.2%.

Original source to see the result of all 41 industries: http://www.stats.gov.cn/sj/zxfb/202307/t20230726_1941552.html

2.     China’s PMI stabilizing in June at 49.3% but in contraction for the fourth straight month

In July, China’s Manufacturing Purchasing Managers’ Index (PMI) was 49.3%, an increase of 0.3 percentage points from the previous month, indicating a continued improvement in the manufacturing sector’s prosperity.

When viewed by company size, the PMI for large enterprises was 50.3%, unchanged from the previous month. The PMI for medium-sized enterprises was 49.0%, up 0.1 percentage points from the previous month. The PMI for small enterprises was 47.4%, up 1.0 percentage points from the previous month.

Looking at the sub-indices that comprise the manufacturing PMI, the production index (50.2%) and supplier delivery time index (50.5%) were above the threshold, while the new orders index (49.5%), raw material inventory index (48,2%), and employment index (48.1%) were below the threshold.

In July, the non-manufacturing business activity index was 51.5%, a decrease of 1.7 percentage points from the previous month.

In July, the Composite PMI output index, which reflects the changes in the output in current period of the entire industry (manufacturing and non-manufacturing industries) was 51.1%, a decrease of 1.2 percentage points from the previous month.

3.      BYD drops $1 billion EV investment plan in India

On July 28, BYD, the Chinese auto manufacturer, announced that it would halt plans for a new $1-billion investment to construct electric vehicles in India. The decision comes as the firm’s investment proposal came under intense scrutiny from the Indian government.

Earlier in April, BYD and its local partner, Megha Engineering and Infrastructures, had submitted a proposal to collaborate on the production of electric cars in India. However, during the initial review, officials from three key Indian ministries – Finance, External Affairs, and Home Ministry – cited security concerns related to the investment from the Chinese company and indicated their opposition, as stated by two Indian officials.

India tightened its regulatory oversight on Chinese investments in 2020 following a series of border disputes between the two countries, leading to increased scrutiny.

In a similar vein, another Chinese car manufacturer, Great Wall Motor, in 2022 had to abandon its plans for a $1-billion investment due to lack of clearance from the Indian government.

Moreover, the recent $676 million fine imposed by India’s federal financial crime agency on Xiaomi, a Chinese mobile phone manufacturer, has further exacerbated the caution of Chinese firms regarding investments in India. Xiaomi’s claims that these funds were royalties paid for licensed technologies, with 84% directed to Qualcomm.

4.     Days after Audi partners with SAIC, VW partners with XPeng

In our last week’s newsletter, we just mentioned that Audi and SAIC formulate strategic partnership to fast-track Electrification amid rapid market shift in China. On 26th July the VW brand has concluded a technological framework agreement with XPENG.

The initial stage of the cooperation shall provide for the joint development of two VW brand electric models for the mid-size segment in the Chinese market. The China-specific vehicles will supplement the MEB product portfolio and are to be rolled out in 2026 in China. This is subject to the conclusion of final agreements.

As part of the close and long-term strategic cooperation, the Volkswagen Group is to invest approximately 700 million in the Chinese manufacturer of intelligent electric cars. Volkswagen is thus acquiring 4.99 percent stake in XPENG at US$15 per ADS by way of a capital increase, and will hold a seat as an observer on the XPENG board of directors.

The recently founded Volkswagen Group China Technology Company (VCTC) is the development partner for XPENG. The new development, innovation and procurement center is the Group’s largest development location outside Wolfsburg. Going forward, this is where over 2,000 development and procurement experts will work on new intelligent, fully connected electric vehicles.

Following the announcement, stock prices of Chinese EV companies like NIO, Li Auto and Xpeng all soared during last week.

5.     Northbound funds increased by nearly 35 billion CNY in a single week, marking a new high for the past six months

Northbound funds have seen a significant net inflow, with substantial net inflows of 18.983 billion RMB and 16.403 billion RMB on the 25th and 28th respectively. The total net inflow for the week amounted to 34.506 billion RMB, representing the highest influx since February of this year. This includes a net inflow of 20.164 billion RMB into the Shanghai Stock Connect and a net inflow of 14.342 billion RMB into the Shenzhen Stock Connect. Since July, Northbound funds have seen a net inflow of 37.665 billion RMB, indicative of foreign investors aggressively bottom fishing in the domestic stock market.

So, what are Northbound funds? Northbound funds refer to overseas capital invested in Chinese domestic stock market through the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect. This type of capital typically originates from Hong Kong and other overseas markets and flows into the domestic stock market through these Connect programs to purchase mainland stocks and securities.

The impact of Northbound funds on the domestic stock market is significant. As this type of capital usually represents the investment intentions of overseas investors, its influx or outflow can have a certain impact on the trend of the domestic stock market. Hence it is also referred to as “smart money” by Chinese investors. An influx of Northbound funds is generally viewed as a bullish factor, as it indicates that overseas investors hold an optimistic attitude towards the investment prospects of the domestic stock market, which may promote its rise.