2021 JULY
MARKET REPORT PART 5
Short Read
By : Andrew Sia
Contents:
Chinese Consumers Are Frequenting Shopping Mall
The Dark Side of the Cryptocurrency
China is Opening Its Financial Market to Foreign Asset Management Company
Arctic Ocean is the Last Geopolitical Battleground for Russia
When the Situation Arise, Chinese Debtors Will Be Liquidated by Foreign Investors
Investment Ban on Investment in Shares of Chinese Tech Firms
The Case of Montenegro
Rivalry Between the US and China
Shein is Accused for IP Infringement
China Further Gathers Its Clout Through Delivery of Vaccine
Xinjiang Cotton
China in Afghanistan
Wrap Up of the Latest G7 Summit in Cornwall UK
China’s Footprint in Atlantic
UK’s Most Reported Cases Within One Day
Chinese Consumers Are Frequenting Shopping Mall – WSJ, May 26, 2021
In 2019, Chinese consumers spent around €64 billion or equivalent to $77.3 billion on luxury goods when traveling abroad, and this amount was more than twice they spent at home in mainland China according to Bain-Altagamma 2020 Worldwide Luxury Market Monitor.
In 2020, they spent €47 billions of luxury goods in mainland China. All international travel stopped and almost all sales now transact inside China.
When the Wuhan virus started in January 2020, all stores in China were closed. But many of them reopened two months later. Already in the second half of the year, the mall sales had a V-shape recovery.
This time, retail sales in China grew 34% in the first quarter over the year-on-year’s comparison. But we have to notice that this was compared with January to March of 2020 when the stores were all closed.
One can say that the foot traffic has recovered in the malls in the China cities, and it is not declining like in the Western world.
The Dark Side of the Cryptocurrency – WSJ, May 26, 2021
The general impression for the cryptocurrency has not been that great. Its mystery created an image for those who are doing the money laundry and the illegal blackmailing deeds. And besides, its value can fluctuate from an hour to the next into something that can wipe out the investment completely.
Cryptocurrency works hand in hand with ransomware to make it more damaging.
Ransomware is a software for extortion of money and it is used by hackers and illegal syndicates. It is a form of malware that encrypts computer files and holds them for ransom.
The latest case is the Colonial Pipeline hack that tried to bring the East Coast of the United States onto its knees.
Last year there were 2,500 cases of ransomware, an annual increase of 66%. In 2020, ransomware victims paid hackers $350 million in cryptocurrency, and many victims paid without reporting the incident, the damage was understated.
There is no way to stop ransomware except to ban the cryptocurrency as ransomware cannot succeed without it. Before cryptocurrency, the blackmailers have to set up shell companies to receive credit card payments, or receive ransom payment in prepaid cash cards, both cases would not leave a trail.
These days there is even a new business model that the developers sell or lease ransomware to crooks who are not technical savvy themselves to receive ransom quickly and safely.
We already know that computer ‘mining” and transfer of bitcoin requires a great deal of energy which comes from burning fossil fuels. Now it is encouraging the development of sustainable energy for the “mining”.
On Capitol Hill, there is the Congressional Blockchain Caucus with around 30 members who decided not to interfere by putting the regulatory control, but allows it to evolve the same way like the internet did. This gives the crypto industry more time to organize for lobbying going forward and I think that it is a mistake not to interfere, especially after the Colonial Pipeline incident.
The cryptocurrency firms who are serving the US customers are supposed to be subject to the same anti-money-laundry requirements just like the rest of the financial institutions. It was only until late last year the Treasury Department’s Financial Crimes Enforcement Network proposed a rule for reporting, verification and ask for record-keeping requirements for the cryptocurrency transaction.
To mention that cryptocurrency can endanger the global warming is a very weak statement, but to expose its crime and the activities that it can cause is the main focusing point. Being innovative does not always mean good for the civilization. Cryptocurrency is a typical example that when it ends in the hand of the outlaws, it can turn against the civilized world.
China is Opening Its Financial Market to Foreign Asset Management Company – FT, May 26, 2021
First of all, Goldman Sachs’ global investment research arm estimated that the investible assets by Chinese households will exceed $70 trillion by 2030 and more than half are products allocated as mutual funds and wealth management. This wealth management has been built on the increasing household wealth and continuous financial market reform in China.
This has drawn the interest of the foreign asset managers to rush over to China and to try to capitalize China’s vast pool of savings and in the meantime its government is trying to liberalize its tightly controlled financial system.
Already the French asset management company, Amundi, became the first foreign company to set up a foreign-owned wealth management business last year when it joined with Bank of China and obtained the majority share control.
JPMorgan Asset Management unveiled plans to buy out its mutual fund joint venture partners last year and became the first foreign company to own mutual fund businesses.
Meanwhile, Chinese regulatory authorities have allowed Goldman Sachs to set up a wealth management joint venture with ICBC, one of China’s largest banks, and it will hold 51% stake in its venture, and ICBC’s wealth management will own the rest.
Arctic Ocean is the Last Geopolitical Battleground for Russia – WSJ, May 26, 2021
Russia holds the advantage against the US and China as both have shown desire to expand their power there.
To the US, it is easily accessible from Alaska. For China, it is keen to use it as an alternative shipping lane and it has called it as their Arctic Belt & Road to reach Europe.
It was in 2020, Russia has completed its northern-most air bases and have built a runway to handle modern jet fighters and strategic bombers. It has becoming one of the Russia’s most advanced military outposts. Together with its Northern Fleet, Russia’s foremost Arctic naval force, it means to protect Kremlin’s ambitions in the resource-rich Arctic.
As the polar ice recedes, oil and gas reserves have become more accessible. It is relying it for its economic future. Russia is expanding its boundary to replace its Siberian oil field which is declining its output and to look for a source of new hydrocarbons is the right approach.
The US would have to recalculate its own Arctic strategy and China is also desperate to have a passage for them to arrive in Europe. This is going to be another political theatre where cold war between the three powers can take place.
When the Situation Arise, Chinese Debtors Will Be Liquidated by Foreign Investors – FT, May 26, 2021
In the past, the insolvency orders filed by company creditors in Hong Kong cannot be enforced in China. Now Beijing has allowed the foreigners to pursue Chinese debtors in China to recover their debts. For the time being it is only for courts, although they are all controlled by the ruling Communist party, and they have picked three cities—Shanghai, Shenzhen and Xiamen. It will extend to other cities eventually. It is yet to see how this will work.
Investment Ban on Investment in Shares of Chinese Tech Firms – The Week, June 18, 2021
Following the Trump-era ban on investing in shares of Chinese tech firms, Biden expanded the order and named 59 companies who are engaged in deploying surveillance technology used against Muslim minorities like the Uighurs and dissidents in Hong Kong. This applied to funds that have investments in those 59 companies to have a year to unwind their positions.
JPMorgan and Goldman Sachs would need to be careful as the hottest market for them to invest can be caught in between the political conflicts.
The Case of Montenegro – The Week, June 18, 2021
As part of the Belt & Road Initiative, Montenegro has mortgaged the country to China for a loan of $1 billion over a construction of a 26-mile stretch of highway from its capital, Podgorica, to the town of Kolasin. If Montenegro went default of the loan, China can decide the compensation without going through an arbiter and can take over the resources of the state. The contract was signed in 2014 and seven years passed, the highway is still incomplete. But it has proved that the project is absolutely unprofitable.
Montenegro is a member of the NATO and this debt is putting its sovereignty at risk as Beijing can have control over the weakest link in the Atlantic alliance.
Rivalry Between the US and China – FT, May 11, 2021
The resurgence of geopolitical has been developed over the distrust between the US and China, whatever was the free market and globalization in the 1990s has becoming vulnerable to vital commodity like the semiconductors and rare-earth minerals.
US has banned the exports of key technologies to China and began to repatriate supply chains and get involve with direct state-funding of semiconductor manufacturing. This was incited by Beijing’s announcement in 2015 about their “Made in China 2025” industrial strategy.
All of a sudden, to become self-reliant has been not only the desire of the US and China, but also to the European Union, the UK and India.
During this pandemic, the domestic production of vaccines is seen as a vital national interest. This has also been expanded to energy and food supplies.
The use of national security can be also seen as protectionism and globalization has to be revisited and to wick out its vulnerability.
With China’s state-owned enterprises and everything is subsidized by the country, allows it to snatch the key technologies—solar panel, 5G, and the like. The free world will have to look again whether to rely solely on private sector’s research and development. The reality is that the rival is so strong and it is operated by the authoritarian government and there is almost nothing that it cannot accomplish.
The next to watch for is the China Standard 2035 and China is already stating that: Third-tier companies make products, second-tier companies make technology, and top-tier companies set standards. China has a insatiable appetite.
Shein is Accused for IP Infringement – FT, June 14, 2021
This popular e-commerce is facing complains from apparel brands that claimed for its infringement of their intellectual property. Shein is popular among global Gen Z, selling cheap, on-trend clothing online. It has topped both Apple’s and Google’s app download charts for shopping.
Its success is its data analytics to quickly turn emerging fashion trends into extremely cheap products. It draws concern over labor standard although Shein insisted that it keeps a close watch over its suppliers. It is using a large network of China-based vendors and sells to more than 200 countries.
In 2018, Shein was sued by Levi Strauss over allegations for copying a stitching pattern seen on the back pockets of its trademarked Levi’s jeans for an undisclosed settlement.
China Further Gathers Its Clout Through Delivery of Vaccine – WSJ, June 17. 2021
Covax, a program backed by the World Health Organization, is set to immunize the world but it is falling behind its goal. Instead, the advanced economies, who have bought up large quantities of vaccines, are pledged to help those developing and under-developing countries and in the last G7 meeting, said that they would share 870 million doses over the next year.
We are now looking into what China has been doing in the past six months.
- A million doses of Chinese vaccines have just arrived in Cambodia’s capital, Phnom Penh.
- Indonesia is heavily relying on Sinovac which accounts for 89% of the 98 million doses it has received so far.
- The Philippines started very slow with the vaccination, and about 10 million doses arrived this month, more than half of it would be from China.
- Nepal has received 1.8 million doses developed by the state-owned Sinopharm which is only used for those over the age of over 60.
- Sri Lanka has agreed to purchase 14 million doses of Sinopharm.
- Bangladesh is in the negotiation of buying 15 million doses from Sinopharm.
The efficacy of Chinese vaccines have been the subject of debate in some countries. For instance, Sinovac’s shot is found to be 50.38% effective, just enough to meet the WTO’s 50% standard. A clinical trial in Indonesia showed the vaccine to be 65.3% effective.
Sinopharm said that its vaccine is 79% effective.
Both Singapore and Vietnam have not approved the Chinese vaccines, but the WHO has approved both Chinese vaccines for emergency use.
Xinjiang Cotton – Chinese Global Press, June 17, 2021
Bloomberg reported that the Fast Retailing, trading as Uniqlo, has a shipment being held at the Port Authority of Los Angeles for the cotton shirts which have been found using the cotton from Xinjiang. The customs refused to release the shipment on the basis that it was using the cotton from the forced labor.
This has forced the Japanese sports brand, Mizuno, and the cotton socks from Gunze to switch to use cotton from the other origins for their export to the US market.
China in Afghanistan – FT, June 17, 2021
Afghanistan is known for its notoriety because it has brought all the powers to its knees in its history. It started with Alexander the Great, then the British Empire. In the last century it was the Soviet Union and now the United States who is supposed to close its war on September 11, 2021 after twenty years.
Now China is itchy to fill in the vacuum, but its genocide of Chinese Muslim Uyghur, could backfire the Uyghur fighters returning from Syria to make their revenge. We have to know that Afghanistan and China are sharing a very small border.
Already foreign ministers from China, Afghanistan and Pakistan are talking about the security arrangements following the US pullout. China has also extended the offer to the Taliban the infrastructure and rebuilding projects as part of the Belt & Road Initiative. With countries that China has taken part with the infrastructure, it provides the loans for paying Chinese workers to build roads, railways, ports and bridges. But the Chinese workers have been targeted in Pakistan for their treatment of the Uyghurs in Xinjiang, and Afghanistan is a more dangerous country for China to deal with.
The Chinese Communist Party would have to think very carefully.
Wrap Up of the Latest G7 Summit in Cornwall UK – FT, June 14, 2021
The three days meeting declined to mention China by name during the closing press conference. With the US mentioned that it was the contest between the free world with the autocratic governments around the world.
Several leaders, including Mario Draghi, Italy, prime minister said the west would need to work with China, particularly in the area of climate change.
Emmanuel Macron, France’s president, mentioned that the summit was not hostile to China but to show what G7 was all about.
Angela Merkel, Germany’s chancellor, backed the task force to find the way for the G7 government to work with private sector on infrastructure in the developing world. This came to the suggestion for a more ambitious plan for an alternative to China’s Belt & Road Initiative by offering a broader package of infrastructure funding to poor countries.
On the final day of the three-day summit, G7 leaders launched a new initiative known as “Build Back Better for the World”, or the B3W but failed to agree on the details and how it should be funded and what it would entail.
As usual, China criticized the G7 members that the global decisions were dictated by a small group of countries and the genuine multilateralism should be discussed in the UN.
China’s Footprint in Atlantic – FT, June 14, 2021
Ever since Russia brought the China’s navy in 2015 in the joint military drills, China has built the largest naval fleet in the world and invested in key European infrastructure in ports and telecoms networks. In their annual military exercises, they have added joint missile defense drills and training for internal security forces.
China has also expanded its military presence in Atlantic by adding Africa to become a truly global armed forces and their naval facilities on Africa’s west coast—a base in Djibouti. It has been used to train thousands of military personnel in the international anti-piracy.
Chinese state-owned shipping line, Cosco, also owns a controlling stake in Piraeus, which is the largest Greece seaport, and is also in talks to invest in Hamburg port terminal.
Not to forget the involvement of Chinese companies in telecommunication infrastructure through Huawei for its 5G.
It is concluded that China is perceived already as a threat to Europe and this is the consensus among the member states of NATO.
UK’s Most Reported Cases Within One Day – Bloomberg, June 17, 2021
In one day it reported more than 11,000 new cases and a more resistant delta variant takes shape. This infection rates increased across all age groups. The variant was first identified in hard-hit India are more than twice as likely to send victims to the hospital than with the alpha variant. The delta variant may also present more of a threat to people who have had only one shot and the uneven global vaccination may lead to a disastrous situation.
The Americans should be alert that only about 50% have received a single dose, and to ease all precautions is going to be very dangerous for a country who has the most Covid-19 cases.