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WESTERN INVESTORS FLOCK BACK TO CHINA
After China ended its widespread anti-COVID lockdown in early June, foreign investors poured money back into the country’s equity markets in Shanghai and Shenzhen.
Exchange-traded funds (ETFs) listed in the U.S. that concentrate on Chinese stocks netted $4 billion of new capital last month, according to Blackrock; Chinese ETFs listed in Europe took in a net $1.8 billion.
The total of $5.8 billion far surpasses the previous monthly record of $4.3 billion set in January this year, according to the Financial Times.
Investors also were cheered by Beijing’s signals that it would ease last year’s crackdown on the country’s tech sector.
Chinese ETFs benefited at the expense of U.S. equity funds, which bid goodbye to a net $900 million in June. Europe’s ETFs ended the month down $800 million.
As a result, China’s CSI Composite Index returned 9.6 percent last month as many other nations’ markets were weighed down by fears of recession, the impact of rising interest rates, and evidence of Dragflation, our Top 2022 Trend in which prices keep rising while economic output declines.
The switch from U.S. and European equities to Chinese shares is “a marked change in global flows,” Blackrock strategist Natasha Sarkaria told the Financial Times.
The reason, in part, is that U.S. stock markets seem “terrible” because the U.S. Federal Reserve “looks pretty locked-in to a series of [interest] rate hikes,” Phillip Wood, investment director at Rayliant, said to the FT.
Although Chinese officials could impose more anti-COVID shutdowns without warning, China’s surging stock market could continue “for most of this year and maybe beyond,” he said, noting that investors are looking for diversification and growth as well as safety.
TREND FORECAST: Growth investors will continue to be focused on China.
They will jump out and jump back into their investments there as short-term conditions warrant.
However, China will remain one of the world’s two most powerful economies, with market control of key metals, an unparalleled manufacturing infrastructure, and more than 1.4 billion consumers.
China’s key advantage: to date, it has not allowed itself to become a global military force or presence.
As we have long said, the business of China is business, while much of the business of the U.S. is geopolitical gamesmanship and the deployment of military force around the world.
HYBRIDS AND EVs POWER RECOVERY IN CHINA’S AUTO SALES
China’s auto sales leaped 23 percent in June, year on year, following the end of massive anti-COVID lockdowns that extended from late March through May across 46 of the country’s metro areas, particularly in Shanghai, a vehicle-building hub.
Sales shot up from 1.35 million vehicles in May to 1.94 in June, spurred partly by government cash incentives, the China Passenger Car Association reported.
Production was up 46 percent, year on year, to 2.2 million vehicles last month.
The sales increase was propelled primarily by consumers’ purchases of electric vehicles and hybrids, which doubled last month from a year earlier.
Tesla was a big winner, reversing a three-month sales slump.
Its 78,000 cars sold in June more than doubled its May tally. In April, at the height of the lockdowns, it sold only 1,512 units.
BYD, the Chinese car company of which Warren Buffet owns part, saw sales of EVs and hybrids soar 177 percent, year over year.
Volkswagen’s joint venture with Chinese maker SAIC Motor Corp. sold 51 percent more cars last month, compared to a year earlier.
General Motors’ sales were down 21 percent in June, following a 47-percent plunge in May.
To reignite the car market after the spring’s lockdowns, the Chinese government cut vehicle-purchase taxes in May at a cost of about $9 billion to the national treasury.
Share prices for car makers BYD, LI Auto, NIO, and XPeng rose on 8 June after the government announced it might extend its tax holiday for the purchase of “new energy” vehicles.
The tax exemption was set to expire at the end of this year.
Beijing has asked local governments to add more EV parking spots and charging stations to their urban renewal plans.
TREND FORECAST: China’s centralized economic control has enabled it to redirect the car market toward EVs.
China will use its growing EV industry to dominate EV technology and production for the rest of the decade. A key to its strategy: ongoing control over the world’s supply of processed lithium and continuing efforts to tie up supplies in Africa and Asia of cobalt and other key materials needed to make EV batteries.
IEA WARNS OF CHINA’S DOMINANCE IN SOLAR PANELS
China’s domination of the solar panel industry supply chain could slow the world’s transition to clean energy, the International Energy Agency (IEA) warned in a report last week.
China now accounts for 80 percent of the solar panel industry, from processing silicon to assembling the panels, the IEA said, as it warned that China could own 95 percent of the industry within three years.
“The world will almost completely rely on China for the supply of key building blocks for solar panel production through 2025,” the report said.
“This level of concentration in any global supply chain would represent a considerable vulnerability,” it added.
Supply chain kinks and high commodity prices already have led to a 20-percent jump in panel prices in the past year and slowed delivery, the IEA noted.
China’s concentration of the industry “is not only a geopolitical issue,” Fatih Birol, IEA’s executive director, said in a Financial Times interview.
“It can be a fire in a major facility. It can be floods. Disruption of the supply chain has huge implications for our clean energy transition,” he emphasized.
Solar power is projected to account for a third of electricity generated worldwide by 2050 as part of a “zero-emission” future.
The transition to green energy is even more urgent in Europe, which is working to end Russian oil imports by the end of this year and Russia gas before 2030.
The European Union needs “tailor-made investment policies” to reach its goal of adding 320 gigawatts (GW) of new solar power by 2025 and 600 GW by 2030, Birol pointed out.
“Tax incentives for manufacturers, build manufacturing facilities in industry clusters to reduce land costs could be concrete, quick, implementable policies that could be introduced to provide a competitive edge” against China’s cheap manufacturing costs, he said.
TREND FORECAST: As we have long noted, the business of America is War and the business of China is Business. Moreover, before China was brought into the World Trade Organization in 2001, their gross domestic product for decades was a slow moving flat line up.
Seeking cheap labor, the world’s top manufacturers went to China where the deal was: give us your manufacturing skill and money and we’ll make what you need. But you have to partner with us and the most you can own is 49 percent of the business.
The rest is history and that’s why China dominates in numerous business sectors and are key suppliers of finished products and raw materials… especially the much needed rare earth minerals.