Expanding China swallows money
March 28, 2021 (Sunday) Clear
• Expanding China swallows money; U.S.-China reversal draws near; dealing with the red market
“China is now the world leader in consumption and innovation.” KaiSun Li, CEO of Carlyle Group, a U.S. investment fund, in January,
stated before the California Teachers’ Retirement System (CalSTRS) board, which manages about $280 billion (about 30 trillion yen).
She argued that for the fund to achieve a long-term 7% return, it has no choice but to expand into a world with higher growth and invest more in China.
・ Expanding China swallows money; U.S.-China reversal draws near; dealing with the red market
The International Monetary Fund (IMF) expects China’s 2021 economic growth to reach 8.1%, well above the United States (5.1%) and Japan (3.1%).
The “magnet” of enormous growth attracts global investment money.
・ Expanding China swallows money; U.S.-China reversal draws near; dealing with the red market
China is projected to surpass the United States in gross domestic product (GDP) by 2028.
The British think tank Centre for Economic Business Research (CEBR) moved up the U.S.-China reversal timeframe by five years.
If China becomes “the world’s largest economy,” inflows of investment money could be sustained rather than temporary.
・ Expanding China swallows money; U.S.-China reversal draws near; dealing with the red market
There are moves to anticipate the “U.S.-China reversal.” New factory investments by foreign firms and corporate M&A (mergers and acquisitions).
When totaling these inflows as foreign direct investment, China reached $163 billion in 2020, up 4% year on year and overtaking the United States’ $134 billion, which halved, to become the top economy.
U.S. companies, in particular, are eager to seize China’s “fruits of growth.”
・ Expanding China swallows money; U.S.-China reversal draws near; dealing with the red market
“The tolerance of Japanese and Western institutional investors for China investments is increasing,” is the observation.
China’s expansion continues, but risks cannot be denied.
Last November, Ant Group, Alibaba’s financial arm, faced a last-minute postponement of its Hong Kong listing under the national security law.
Major IT companies like Alibaba, Tencent, etc., continue to be pressured by authorities for monopolistic practices and other issues.
How should investors confront the “ascending dragon” sweeping global markets?
・ Expanding China swallows money; Democracy recedes; Markets approach
Reviews of Hong Kong’s election system and stricter regulation of major IT firms...
Domestically, anti-democratic pressures are intensifying in China.
Meanwhile, China’s economy is growing so rapidly that it could surpass the United States in nominal GDP by 2028.
Investment money is flooding into China, but is there a hidden risk?
President Xi Jinping will not hesitate to apply pressure against adversaries. Alibaba’s Ma is being purged, and Tencent is subject to regulatory actions.
Victory declarations on poverty eradication, with double-digit growth hoped for this year.
・ Expanding China swallows money; Democracy recedes; Markets approach
There is a clear stance to curb risks.
Guided by lessons from the yuan shock of 2015, mid- to long-term interest rates are kept high to attract overseas capital inflows.
A yuan exchange rate well above 1 USD = 7 yuan would be a risk for Xi’s leadership.
Xi has carefully prepared a roadmap up to 2035, but appearances suggest he is avoiding firm statements about what comes after.
・ Expanding China swallows money; Financial markets attract overseas funds; Stock investment reaches 20 trillion yen; awareness of “risk of having nothing”
Ahead of the United States and Europe, China’s financial markets normalize and see accelerating foreign money inflows.
Many foreign investors invest in mainland Chinese stocks through the Stock Connect program linking Hong Kong and China.
In 2020, China recorded net purchases of 208.9 billion yuan (about 3.5 trillion yen).
“With gradual relaxation of investment restrictions, global investors are keenly aware of the ‘risk of holding nothing’ in growth-expected Chinese stocks.”
China hosts multiple stock markets, each with its own characteristics.
The Shanghai Composite Index, a representative stock index, has a large proportion of traditional state-owned banks and financials, comprising about one-third.
The “STAR Market” on the Shanghai Stock Exchange and the Shenzhen Stock Exchange’s “ChiNext” list young IT and healthcare firms.
Investors’ attention surges, and the Shenzhen ChiNext Index rose more than 6,000% in 2020.
・ Expanding China swallows money; Growth expectations in renewables, alcohol, and AI
Ranking of Chinese stock price gains
1) Shenzhen-listed Anhui Aier Medical Technology — healthcare rubber gloves manufacturing; stock price up 1,563.6%
2) Wuxi Huatong Machinery — Shanghai; solar power equipment and parts; up 587.2%
3) Sungrow Power Supply — Shenzhen; solar power equipment and parts; up 584.6%
4) Jinlong Technology — Shenzhen; solar power equipment and parts; up 471.1%
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