China’s fintech company, Ant Group’s highly anticipated Initial Public Offering (IPO) was stalled a few days ago on regulatory hiccups. The company, which started as an offshoot of e-commerce giant Alibaba, was due for the biggest IPO ever with dual listing at the Shanghai and Hong Kong stock exchanges. This would be bad news at any time, but particularly now.
2020 has been a car crash of a year for the world. The global economy is in doldrums and lockdowns are not exactly history even now. For China, it has been a double whammy with the ‘new cold war’ as it has come to be called, taking its own toll on the business and economy. As an example, consider Ant Group’s planned IPO in Asia. Conspicuous from its absence is any talk of a US listing, where Alibaba was listed.
In fact, Ali Baba got a dual listing one year ago as well, in Hong Kong, it is speculated because of growing tensions with the US. Two Chinese tech companies - Sina and Sogou - are delisting from US exchanges as the regulatory environment tightens. According to a Forbes report from August, as many as 200 Chinese companies could delist from the US.
The tussle between the two countries has also shown up in other ways, notably increased tariffs. According to a Brookings Institution report, between July 2018 and August 2019, the US imposed tariffs of $550bn on China, and China returned the favour with $185bn worth of tariffs on US products.
The two countries finally signed a deal early this year, which is said to have addressed issues like intellectual property rights, technology transfers and even China’s use of currency devaluation for trade.Yet, so far it appears that the deal hasn’t been a success in terms of meeting trade targets. Whether this is because of a washout 2020 or not, however, remains to be seen.
China has other problems too. Hong Kong, for instance, which has garnered much international reaction, including sanctions from the US. It is a thorny human rights issue, but it has its economic consequences too. Big banks like HSBC, for instance, have been caught up in this strife. Luxury brands too, have been hurt by the slowing footfall of Chinese tourists in Hong Kong in recent years.
Yet, the China story is anything but a writeoff. Its economy is getting back on its feet as it puts the coronavirus episode behind it. A couple of months ago, the Financial Times ran an article with the headline ‘China parties like it’s 2019…’, alluding to its economic bounceback. According to the IMF, China is the only economy in 2020 to show growth. It is expected to end the year with 1.9% growth. Growth will get robust in 2021, slated to be a high 8.2%. Indeed, on the ground evidence of the Chinese recovery is apparent. Consider metals’ demand. The Chinese government’s fiscal stimulus aimed at giving a fillip to infrastructure and perhaps even more importantly get the economy off the ground is having salutary linkage effects.
Australian multi-commodity miner, Rio Tinto, noted in its latest production update that Chinese demand so far had given it a boost across metals like iron ore and copper. Even with an expected moderation in demand going forward, a strong 2021 for the Chinese economy is likely to bode well for metals. Metal prices have been on the rise in line with increased demand.
Luxury demand is also coming back because of China’s growth. LVMH, the largest global luxury brand, has seen an expected come off in revenue. But it has maintained in its last two updates that Chinese recovery is helping its business. In fact, in its half-year update released in July, the owner of Bvlgari and Dior mentions the China impact across all its product lines including alcohol, fashion and leather goods as well as watches and jewellery.
China may be in for potentially better times with Biden now the President Elect. At the very least, the tone will most certainly change, considering his moderate approach. He has repeatedly denounced politics that divides, which could be a positive for both bilateral negotiations and even multilateralism. That said, it is a wait and watch to see how the two countries work out their differences. Reports and analyses from multiple sources indicate that the issues between the two countries may not be easy to resolve.
In the long-run though, according to one of the world’s most successful macro-investors and founder of investment management firm, Bridgewater Associates, Ray Dalio, the odds are stacked in China’s favour. In a recent opinion piece in the Financial Times, Dalio says ‘In brief, empires rise when they are productive, financially sound, earn more than they spend, and increase assets faster than their liabilities. This tends to happen when their people are well educated, work hard and behave civilly.’ to support this. What happens in the long-run remains to be seen, but for now, China sure seems to be back.
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