Trade War

Newsletter 181 - September 17, 2023

Welcome to the 181st edition of Trade War.

Let’s start this week with what might appear an odd question: Are China’s richest couples getting divorced as a backdoor to sell stocks? Probably.. Read more below in Trade War.

• China’s economy inches upward in August but don’t break out the champagne yet. Falling urban wages, weak household consumption and above all the still struggling real estate sector remain huge obstacles to a sustained recovery.

• Mexico surpasses China as the United States’ biggest trading parter. Still, supply chain diversification doesn’t always equal derisking, as Chinese firms open shop overseas. And missing defense minister is the latest senior official to be investigated.

  Notable/in depth:

• European businessman Joerg Wuttke says it is “sad to see that the promise of China opening up was never fulfilled,” as he departs the country after nearly four decades working there.

• Former Chinese editor-in-chief of the South China Morning Post calls for “radical thinking” and “bold steps” to break China’s economic malaise

• And a look at how patriotic netizens turned what traditionally has been warm and fuzzy panda diplomacy into a wolf warrior-style attack on the U.S.

Quote of the week:

"It's like we are in some witness protection program and we have to shuttle them around" - Representative Mike Gallagher, on meeting with American business executives who don't want Beijing to know they are talking to the Select Committee on the Chinese Communist Party.

China’s ultra rich get divorced - is it a stock sale dodge?

Remember a decade ago when divorces by Chinese couples surged to reach 10,000 breakups a day, in part to get around restrictions on buying multiple apartments? That was the good old days when China still had a red hot real estate market.

Now China’s richest couples may be splitting up in order to get around stock-selling restrictions and cash out. This time it’s in response to China’s very-much-not red hot economy.

“At least eight major holders of the country’s listed companies split shares worth $3.9 billion so far this year after ending their marriages,” reports Bloomberg News.

“While the specific reasons for the divorces are unclear, repeated warnings from the China Securities Regulatory Commission hint at concerns that tycoons are using divorces to bypass rules on selling stock that have helped to prop up the market as the economy sags,” the financial news service writes.

In three of the eight high profile break ups, at least one of the divorcees resided outside China, as was true for Hu Huan, now a Singaporean permanent resident, who got $1.3 billion earlier this year from her ex-husband billionaire Zhou Hongyi, founder of internet security company 360 Security Technology.

China is leading the world this year in numbers of millionaires leaving, with a net outflow of 13,500, expected to decamp to more business-friendly environs, according to research by Henley & Partners. (You read about this trend here first.)

Economy inches upwards

China has reported stronger economic numbers for August with some predicting that signals the worst of the downturn is now over.

Industrial output grew by 4.5 percent over the same month a year ago, and retail sales were up by 4.6 percent, both beating expectations. The urban unemployment rate reached 5.2 percent, slightly lower than July, reported Bloomberg News on Friday.

The better data followed recent stimulus measures rolled out by Beijing, including a big interest rate cut, lower stamp duty on stock transactions, and a reduction in the down payments on mortgages to boost the flagging property market.

And on Thursday, one day before the data release, the People’s Bank of China cut reserve requirements to encourage banks to lend more, the second such reduction this year.

“Perhaps the peak pessimism is behind us,” said Standard Chartered economist Ding Shuang. “August’s data indicates that the economy is unlikely to suffer from a persisting, deeper downturn going forward even though there might still be some volatility ahead.”

“Upside surprises in China’s August activity suggest the economy’s slump may be starting to bottom out,” noted Bloomberg economists Chang Shu and David Qu.

My take: one month of somewhat good news does not a trend make. And China won’t see a sustained economic recovery as long as the property sector remains weak and the job situation bleak—housing prices fell at a faster rate in August and hiring wages in China’s wealthiest cities are also dropping (more on that below).

While cautioning that challenges remain, including “insufficient” domestic demand and “many unstable and uncertain factors in the external environment,” the National Bureau of Statistics had an interesting (but unsurprising given the times) policy suggestion for the economy: “At the next stage, we must follow the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era,” the official release said.