China Digest From the Web
Micron’s shipments to Huawei show that in the globalised world, American technology products are not necessarily American (South China Morning Post/Bloomberg, 3 min read). US tech companies like Micron and Intel have found that a number of their products could be classified as non-American and so have resumed selling to Huawei despite Trump’s ban on the company. This shows how globalised companies have become and how interconnected the US and China currently are. It also shows that like most regulation, companies will find loopholes to circumvent restrictions. This suggests that a full US tech blockade on China is highly unlikely.
Why America Is Worried About DJI And Chinese Drones (SupChina, 2 min read) and DJI Sets The Record Straight On Incorrect Speculation Presented During U.S. Senate Hearing (DJI, 8 min read). In case you missed the headlines, another Chinese tech company is being attacked by the US administration. This time it’s DJI, the world’s leading manufacturer of consumer drones. The administration is concerned that the geo-data of US consumers will be accessible to the Chinese government. DJI has responded by saying that all data is held locally on the device and not shared, plus they will assemble in the US (I guess to appear more American). I’m sure we’ll hear an increasing number of these stories in the coming months.
China’s Risky Move To Boost Domestic Oil Production(Oilprice.com, 3 min read). The article argues that Chinese energy companies such as PetroChina, Cnooc, and Sinopec are being directed at a state level to increase investment in domestic oil production. The trouble is that many of the sites are low yield but yet expensive to maintain. Nevertheless, national security concerns, especially around how shipping lanes for oil are controlled by the US Navy will probably override economic concerns. There is a good chance that this means continued underperformance of the Chinese energy sector in equities.
Chinese companies need to prepare for a shrinking talent pool (World Economic Forum, 5 min read). China’s population is shrinking faster than expected. The long anticipated population decline will start in 2027, according to the Chinese Academy of Social Sciences. That’s three years earlier than most predictions. Moreover, by then an estimated 324 million people in China will be over the age of 60. That’s 22% of the population, whereas today the figure sits at around 17%. Already, Chinese companies are automating processes, but this negatively impacts the employment prospects of low- to medium-skilled workers, which will further add to instability. Demand for highly skilled workers will increase, but China is struggling to educate and re-skill workers. I think this touches on a larger megatrend: depopulation, something that many investors appear to be underappreciating.
China central bank says lending small firms jumps 21 percent in January-May (Reuters, 1 min read). The number of outstanding loans to small and micro enterprises rose to 10.3 trillion yuan ($1.50 trillion) at the end of May, up by 21% year on year. This is important as the major criticism for China’s credit policy was that it only benefited larger Chinese companies. One could read this as positive for Chinese growth.