The Beijing Winter Olympics conclude on February 20. For those who managed to get past the (Western) narratives of Xinjiang Uighurs, Peng Shuai, Taiwan, fake snow, Covid restrictions, bad food, or simply the spectre of communism, what has been established is the fact that Beijing has become the first city to host both the summer and winter Olympic Games, and with much aplomb in a Covid world.
Just look at the opening ceremony, with its use of digital (almost Metaverse) effects — that is a very visible display of China’s willingness to flex its technology prowess while managing control (inside the Games’ bubble).
In contrast, Tokyo admirably went ahead with the much larger Summer Olympics last July, albeit following a delay of a year. Even so, the nervous, spectator-free mood is a contrast to Beijing’s.
Today’s China is 50 years from the one Richard Nixon visited in the midst of the Cultural Revolution; 33 years from the events of Tiananmen Square; and 25 years since Hong Kong was reclaimed. In the past decade under President Xi Jinping, the domestic excesses of the gogo years of the 2010s have been reined in under his “common prosperity” umbrella.
Meanwhile, Xi’s much touted grand pan-Asia and Africa infrastructure and economical grand plan, Belt and Road, continues its rollout, although since then, vaccine diplomacy and asset acquisitions are the newly-welcomed additions to countries wooed nearer to China’s orbit.
Beyond building new container ports or highspeed rail systems, China is keenly felt by the blue chips of US, Europe and Japan as both a supplier, and a buyer.
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Supply chain bottlenecks that manifested in the world’s largest outsourced manufacturing base affected toys for Thanksgiving and Christmas as well as carmakers forced to cut production due to chip shortages.
On the other hand, since March 2020, there has been a reduction in Chinese “excessive” consumption and travel. A long winter is chilling the bones of the hallowed-out tourism industries of the US, Phuket, Bali and Japan; both discount outlet malls and fancy European fashion houses are somewhat emptier than before.
The trade war ignited by Donald Trump continued (some say worsened) under Joe Biden. Huawei Technologies remain a key proxy battleground, and trade tensions remain high. The fight for global hegemony has put Chinese companies that raised funds in the world’s largest capital market in a no man’s land.
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Since 2020, they have started to return home, due to the combination of a chillier US political environment becoming more unbearable, coupled with Beijing’s requirement for tighter control over data, content and social impact — and, ironically for those who have long accused counterfeiting by China, protection from the west on its IP.
Hibernation
As the Covid blaze raged around the world in the last two years, China imposed a strict self-isolation. That was not the biggest news, as China pulled one surprise on the market after another. It clamped down on its booming edutech industry, and it imposed limits on gaming time to curb addiction among the young. Such active market interventions precipitated an almost 50% fall of the Hang Seng Tech index from February 2020. In the name of “common prosperity”, China reined in its tech barons and imposed what was akin to death by 1,000 cuts to associated industry sectors and companies.
Morally positive such political measures may be, but commercially wise, are they not? In contrast, US tech moguls enjoyed extraordinary wealth creation, as investors shower capital to finance innovation (in many cases) future tech, meme stocks and special purpose acquisition company fluff all through to May 2021.
When China pulled the listing of Ant Group at the 11th hour back in July 2020, that compares with the debut of Coinbase in the US markets in April 2021, which also peaked in 4Q of that year amidst a hostile policy regime. As such, a hitherto dominant army of its crypto miners were sent to Kazakhstan and Texas, and platforms from Binance to Huobi started looking for homes away from home.
Pure capitalists are railing against the Chinese Communist Party, which, apart from inserting a party secretary onto the boards of large Chinese private companies (some of whom listed in the US) since 2018, stands accused of accessing and using data from private companies for all sorts of nefarious reasons.
It is true that exercise of regulatory oversight and control without the recourse in the West to democratic institutions and elections is unimaginable for many. Then again, in the free world, we just give it away to Meta Platforms’ Facebook, Uber, Google and Tesla for commercial exploitation so that the innovations in AI will influence our choices to consume while governments are shy to regulate.
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But there is something deeply ironic about China being the flag bearer of globalisation, trade and the environment, as the rest of the world tries to contain it.
As China asserts and deploys more of its people on multilateral organisations, the negative narrative does not call out the appointments which have been at the pleasure of the US. The terms of trade, as economists like to call it, are changing and will change as the economic weights change.
Of course, entering 2022, the Year of the Black Water Tiger, the correction in the Nasdaq, S&P and crypto has started, and is gathering pace. Western asset markets, having enjoyed extraordinary asset inflation on the back of future promises, are now experiencing a rotation back to reality and fundamentals.
Conversely, having already been levelled down the last two years, as overvalued Western assets catch down with Chinese tech and market valuations, Asian markets, like Singapore’s since January, have been resilient to overnight drops in US markets as well. It is not entirely Chinese state funds giving support, as a Bloomberg report claimed on Feb 9. Practically speaking, there is more upside than downside potential from where the relative markets are placed.
The East is red
Conventionally, when we see a sea of red in stock prices in markets, it is a down day. Now, red is deemed auspicious in China (or by the Chinese in general). When observing stock and index prices of China, if it is red, it is up!
Since January, there have been more red days in Shanghai than green. Down days on the main Shanghai Composite, CSI 300 and FTSE A50 as well as the Hang Seng Tech Index have been shallower of late than its normally volatile history. Rebounds have been quick. Even the Hang Seng Index’s (–37% underperformance versus STI since March 2020) is stabilising, taking out a painful 24,400-point index resistance level on Feb 11 and looking set to meander up.
Is this pointing to a roaring Year of the Tiger for Chinese market participants to look forward to? Politically, there are still the Two Sessions in early March and the 20th Party Congress in October to cross. No surprises are probably allowed, and on all fronts.
Hence, it will likely be as Goldilocks said — “not too hot, not too cold”. Just that from where we are, it looks like more red will be in store for Chinese relative to the US markets which they have clearly decoupled from.
Perhaps investors will gradually take a leaf from Eileen Gu, (better known as Gu Ailing to Chinese media readers) — the “Snow Princess” who won the Olympics freestyle skiing gold. At the age of 18, after the Olympics, she will go to Stanford for her tertiary education. Born and raised in San Francisco as an American, she has been a Chinese citizen since 2019.
If investors too vote with their feet, in time, there will be convergence of valuations, in which case it might be red for both the East and West, except that the prices will be moving in opposite directions.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s lifetime achievement award in 2021.
