2024 Calendar Week 5

1.Shanghai Stock Exchange (SSE) dropped to 2800 points again, and only 200 A-share stocks rose

On January 22nd, The Shanghai Stock Exchange (SSE) index dropped by 1.4% to 2792.62 points, while the Shenzhen Stock Exchange (SZSE) index fell by 1.8%, and the Growth Enterprise Market (GEM) index experienced a 1.16% decrease. Among the 5318 stocks traded, 5070 stocks declined, with only 248 showing gains. Caixin news reported at 14:43:50 that fewer than 100 stocks rose in Shanghai and Shenzhen, while over 300 shares fell by more than 9%

Shenwan Hongyuan Securities outlined the current market challenges as follows:

  1. Insufficient medium-term demand elasticity of supply.
  2. Apparent pressure from supply release.
  3. Weak marginal improvement in the power of capital pricing.

CITIC Securities highlighted the negative-positive cycle in the market, driven by panic, which can lead to overshooting. Historical data from A-shares suggests that rapid adjustments due to fund movements and emotional factors often precede the market’s final decline.With a favorable catalyst, the market could rebound unexpectedly.

Guotai Junan expressed the view that the A-share market is nearing its bottom, yet the lack of anticipated upward momentum is currently restraining it. The index is expected to fluctuate and consolidate near the bottom. Short-term opportunities in blue-chip stocks are found in their low-risk attributes, including low valuation, high dividends, and stable cash flows. Opportunities in small-cap stocks are better found in the Beijing Stock Exchange, where reform expectations are higher, and trading advantages are more pronounced.

2.Musk: Chinese auto companies could outcompete most global rivals if trade barriers were removed

During Tesla’s earnings call on January 24th, CEO Elon Musk was queried about potential collaborations with Chinese automakers. Musk commented Chinese auto companies as some of the most formidable competitors globally, stating, “I believe they will be successful globally, depending on any potential tariffs or trade barriers.” He added, “In fact, if there are no trade barriers, they will likely dominate the global car market.”

Tesla is encountering increasing competition from Chinese automakers like BYD, prompting the company to slash prices several times over the past year, thereby exerting pressure on its profits. Musk, during the earnings call, mentioned that while he doesn’t currently see clear opportunities for Tesla to collaborate with Chinese auto manufacturers, he underscored the significance of battery makers like Contemporary Amperex Technology Co., Ltd. as suppliers to Tesla. He also acknowledged rival BYD as a pivotal battery supplier.

According to analysis from U.S. media, Chinese automakers are eyeing expansion of their business footprint in Europe and other global regions. However, the United States has largely imposed tariffs to curb Chinese imports, while the European Union initiated countervailing investigations on China’s electric cars in September of the preceding year, despite dissent from Germany and other member states. China has criticized the EU’s move as protectionism.

Some Western media outlets emphasize that Tesla maintains its lead over BYD in the realm of pure electric vehicles. Nevertheless, the Wall Street Journal has recognized BYD, an emerging Chinese competitor in the global market, as applying new pressure on Tesla, underscoring China’s burgeoning dominance in the global electric vehicle market. Business Insider, a U.S. publication, recently lamented Tesla’s loss to China in the electric car arena. AFP contends that BYD is poised to retain its dominance, buoyed by the Chinese government’s initiatives to bolster the local market.

Looking forward to 2024, Reuters and the Wall Street Journal both forecast heightened competition in the global auto market, predicting that China’s upcoming wave of auto exports may feature a greater emphasis on electric and hybrid vehicles.

3.Boeing delivers the 737 MAX8 to China for the first time in almost five years

On January 24th, Boeing Co made a significant stride by delivering its first 737 MAX passenger jet to China Southern Airlines, marking the end of an almost five-year trade freeze on the company’s flagship aircraft. This milestone serves to alleviate the strained trade relationship between the world’s two largest economies

According to FlightRadar24, a flight data platform, a 737 MAX 8 operated by China Southern Airlines departed from Boeing Field in Seattle, Washington at 2:56 p.m. EST on the 24th (3:56 p.m. BST on the 25th), en route to Honolulu with its final destination in China. Reuters highlighted that the trajectory of future deliveries remains uncertain, leaving ambiguity regarding whether this signifies a genuine restart of Boeing’s relationship with China. Boeing refrained from providing any comment on the delivery.

Boeing’s aircraft, particularly the 737 MAX series, have faced heightened scrutiny in recent years following several safety incidents. Consequently, Airbus has not only continued to expand its market share but has also witnessed a 25% surge in its share price, juxtaposed with Boeing’s shares plummeting by over 40%.

Safety concerns surrounding the 737 MAX model prompted China, a pivotal market for Boeing, to suspend operations involving the aircraft. In July 2023, China’s three major airline groups, comprising China Southern Airlines, Air China, and China Eastern Airlines, collectively ordered 292 Airbus airplanes, a move expected to significantly impact Boeing.

Against this backdrop, the delivery of the 737 MAX to China Southern Airlines emerges as a rare piece of positive news for Boeing. It signifies a crucial opening of the door to China amid recent developments. Boeing anticipates that by 2042, the Chinese market, currently one of the aerospace industry’s fastest-growing segments, will represent 20% of the global demand for airplanes.

4.China-Singapore and China-Thailand Visa Waivers Signed to Boost Travel

On January 25th, representatives from the Governments of the People’s Republic of China and the Republic of Singapore convened in Beijing to sign an Agreement on Mutual Exemption of Visas for Holders of Ordinary Passports. The agreement, set to take effect on February 9, 2024, coinciding with the Chinese New Year, will enable holders of ordinary passports from both nations to enter each other’s countries visa-free for private purposes such as tourism, family visits, or business, with a maximum stay of 30 days. Additionally, Thailand announced that starting from March of the current year, China and Thailand will permanently waive visa requirements for each other’s citizens

As countries increasingly pivot towards the Asian market, particularly China, to rejuvenate their tourism sectors by 2024, such agreements aim to facilitate travel and foster stronger bilateral ties.

However, there is a growing concern regarding the waning interest of Chinese citizens in international travel compared to previous years. The volume of individuals entering and leaving the country has witnessed substantial fluctuations. According to data released by the National Immigration Administration, in 2023, the number of inbound and outbound travelers only recovered to 63.3% of the 2019 level. Mainland residents accounted for 58.9% of the 2019 figure, while residents from Hong Kong, Macao, and Taiwan reached 81% of the 2019 level. Notably, South Korean tourist arrivals in Japan surpassed those from China last year, and in 2019, less than a third of Chinese tourists visited Thailand. Moreover, the dynamics of the U.S.-China relationship have impacted Chinese tourism to New York.

These trends underscore the evolving landscape of Chinese outbound tourism and its implications for global travel destinations.

5.Evergrande Faces Liquidation Hearing as Negotiations with Largest Creditor Collapse

A consortium of major overseas bondholders, holding over $2 billion in Evergrande and its affiliated offshore bonds, is planning to introduce a liquidation petition during a hearing, Reuters reported on January 24th. Legal experts suggest that this move significantly raises the likelihood of an immediate issuance of a winding-up order by the court

According to information from the Hong Kong judiciary’s official website, the Hong Kong court is set to hold a hearing on a potential regulatory order on the afternoon of January 29th.

Analyses from Central News Agency, Reuters, and Deutsche Welle indicate that if Evergrande enters bankruptcy liquidation, it could deal a severe blow to China’s economic recovery and further destabilize its financial system.

Reports underscore that for the past two decades, China’s real estate sector has been a primary engine driving the nation’s economic growth, contributing to double-digit GDP expansion. However, with the deepening real estate crisis, several property developers have gone bankrupt, and construction spending has declined by 10% annually for the past two years. In December last year, new home sales among China’s top 100 developers plummeted by 34.6% year-on-year, with a total scale of approximately CNY 451.3 billion. On the other hand, land sales have been a crucial revenue source for local governments, but with the deteriorating real estate market conditions, this revenue for local governments has significantly dwindled.

In 2023, China’s economy grew by only 5.2%, with weak exports, sluggish domestic demand, high youth unemployment, and the worsening real estate crisis being major contributing factors.

6.China faces demographic shift as birth rate declines

The number of births in China has declined by over half—while 18.83 million births were recorded in 2016, only 9.02 million were registered in 2023. Official statistics reveal a steady decrease in China’s birth rate, attributed to various factors including an aging population, economic pressures, and changing societal norms regarding family size. Despite the relaxation of the one-child policy, birth rates continue to dwindle. According to the National Bureau of Statistics of China, the country’s population at the end of 2023 stood at 1.40967 billion, representing a decrease of 2.08 million from the previous year. The population experienced a year-on-year decline of 850,000 in 2022, marking the first negative growth since the Great Famine of the 1960s. The United Nations, in its “World Population Prospects 2022” report, predicts that China’s fertility rate will rise from 1.19 in 2023 to 1.39 in 2050 and 1.48 in 2100 (below the replacement level of 2.1). The total population is projected to decline to 767 million by 2100. According to the UN’s forecast, from 2023 to 2100, China will experience the largest population decline globally, with its share of the global population dropping from 17% to 6.1%, making it the only major population country to experience a significant decrease.

In the wake of recent data, China is confronting a significant demographic shift marked by a notable decline in its birth rate over the past two years. The declining birth rate exacerbates existing challenges associated with an aging population, placing strains on social welfare systems and pension funds. Furthermore, it contributes to a shrinking labor force, potentially hampering economic productivity and growth.

In response to the demographic shift, the Chinese government has introduced measures to incentivize childbirth, including extended maternity leave and financial incentives for families. However, addressing the root causes of the declining birth rate requires a comprehensive approach encompassing social, economic, and cultural factors.

As China grapples with a declining birth rate, policymakers face the challenge of ensuring sustainable demographic growth and mitigating the socio-economic impacts of an aging population. The implementation of effective policies and strategies will be essential in navigating this demographic transition and fostering long-term prosperity.

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