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China’s Large-Scale Industrial Companies Saw Two Percent Drop in Profit in August

Well-known Chinese news site Sina recently reported that, according to the latest National Bureau of Statistics data, China’s large-scale (officially classified as “Above Designated Size”) industrial companies’ total profit from January to August suffered a year-over-year decline of 1.7 percent. For just the month of August, large-scale industrial companies had a two percent drop in profit, compared to last August. Among these companies, year-over-year, state-held (with controlling stake) companies saw an 8.6 percent profit decline, joint-stock companies had no profit decline or increase, foreign investment based companies suffered a 5.8 percent decline, and privately-owned companies enjoyed a 6.5 percent profit increase. Key industrial segments that saw most of the profit loss are oil, coal, and other fuel processing (-53.1 percent), ferrous metal smelting and rolling processing (-31.3 percent), automobile manufacturing (-19.0 percent), chemical materials and chemical products (-13.1 percent), and textile (-3.4 percent). {Editor’s note: It is very unusual that the National Bureau of Statistics did not release the August profit numbers for state-owned companies this time. Analysts expressed their concerns about a possible unexpected level of profit loss.}

Source: Sina, September 27, 2019

Xinhua: Chinese Domestic Clothing Market Saw Sharp Decline

Xinhua recently reported that, according to the National Bureau of Statistics, China’s 2018 total clothing sales saw a 24.8 percent year-over-year decline, which represents 17.85 billion fewer pieces of clothing. Fabric for the clothing market suffered a similar decline at the same time. Also, based on data that the China Business Federation as well as the China National Business Information Center released, the national average of the proportion of income going toward clothing expenditures in consumer spending went from 6.8 percent in 2017 to 6.5 percent in 2018. Even nationwide, large retailers suffered a 4.2 percent decline in clothing sales. All clothing categories had a decline in sales except sports clothing. In the meantime, clothing prices increased by 1.4 percent in 2018 and the clothing rental business enjoyed some growth as well. Analysts expressed their belief that the cause of the market change was that companies are seeing widespread cost increases in terms raw materials. Fashion trends are also adjusting at a much more rapid pace.

Source: Xinhua, September 12, 2019

China’s State Media Took on Li Ka-shing

After the Hong Kong Real Estate Tycoon Li Ka-shing asked that the administration be lenient toward “the future owners of Hong Kong,” China’s state media blamed him for creating the housing crisis in Hong Kong. One observer thought this might indicate that Beijing is aiming at the wallets of the Hong Kong business elites to help it get through the current economic crisis.

In the past, Li Ka-shing remained low-key on the Hong Kong issue. His son Richard Li Tzar Kai presented a position statement. After pro-CCP gangsters severely cut a news reporter from the Hong Kong Economic Journal, Richard Li, who owns the newspaper, stated that he would cover all of the medical expenses and rehabilitation treatment for the staff and called for the police to bring the gangsters to justice.

Recently Beijing demanded that the Hong Kong business community express their support for Beijing and the Hong Kong government. Li Ka-shing put ads in newspaper, but people felt the ads could be interpreted as either pro Beijing or pro Hong Kong protesters.

On September 8, Li Ka-shing said at a prayer meeting that he wishes the young people be considerate about the big picture and the administration be lenient toward the future owners of Hong Kong. “Though there can be conflicts between the Law and the human feelings, on political issues, if (people) can think about the other party, many big issues can turn into smaller ones.”

On September 12, China’s state media fired at Li.  The Chang’an Sword, the pen name of the Chinese Communist Party’s (CCP’s) Political and Legal Affairs Committee (PLAC), published an article titled “Li Ka-shing Spoke – Who Should Be Lenient toward the Hong Kong People?” The article stated that “a few future owners of Hong Kong illegally gathered on the street, beat the passengers, attacked the police, lit fires, … (They) created much violence.” “(Being lenient to these people) is nothing more than conniving in their crime. This is not thinking for Hong Kong, but it is watching Hong Kong slip into an abyss.”

It then said that people questioned Li Ka-shing on Internet postings. During the Asian financial crisis in 1997, Li Ka-shing continued to request the small businesses to pay back their debts. “Why didn’t we see you be lenient toward Hong Kong citizen then?”

It further blamed Li Ka-shing and other real estate businesses for hoarding land in Hong Kong and thus created the extremely-high housing prices in Hong Kong. It suggested that the government should develop more affordable housing to improve people’s living standards. “Don’t know if those real estate businessmen, like the richest man Li, will be ‘lenient’ toward the Hong Kong people this time? Will be ‘lenient’ toward the future owners of Hong Kong?”

The People’s Daily also published an article on the Tencent QQ site, titled “Hong Kong Can No Longer Wait to Solve Its Housing Problem!” It said that a large reason that many young people who were not interested in politics got involved in the past three months was because they felt that they cannot control their future. Unaffordable housing prices in Hong Kong are a key reason.

It suggested that the government can follow the Land Resumption Regulation, to use its administrative power to take the land back from private owners. “According to the Basic Law, the compensation for the acquisition of land ‘is equivalent to the actual value of the property at the time.’ The private owner will be paid.”

“For the sake of the people, for the sake of their living, it is time for the real estate developers to show their maximum good will. They should not just think for themselves and grab the last penny they can get. What is it to be responsible to the future of Hong Kong? What is it to be ‘lenient’ to the young people of Hong Kong? This is.”

Reuters quoted a source on September 13 that said Beijing has recently gathering the top executives of nearly 100 State-Owned Enterprises (SOEs) and asked them to increase their investment in the real estate, retail, and tourism industries in Hong Kong and gain control over Hong Kong companies.

One SOE representative told Reuters, “Hong Kong business elites have done way too little (this time). Most of them don’t belong to (our side).”

A China issues expert commented that the CCP’s taking on Li Ka-shing has a deeper meaning. Beijing’s foreign reserves will be depleted soon. How to quickly gather foreign money has become an urgent issue for the CCP to extend its life. Hong Kong companies might become the CCP’s target for their money pool.

1. Epoch Times, September 13, 2019
2. SINA, September 12, 2019
3. QQ, September 12, 2019

CNA: State Council Urges Local Governments to Complete Issuance of Special Bonds by September

The Central News Agency in Taiwan reported that, to avoid a big economic downfall, the State Council of mainland China has urged local governments to expedite the issuance of special bonds, which the governments use to raise money for special projects.

Prime Minister Li Keqiang held an executive meeting on September 4. He announced that, in order to further increase investments, local governments must complete the issuance of special bonds by the end of September and allocate funds to those projects by the end of October.

These bonds are for projects on transportation, infrastructure development, and medical care areas, and are not allowed to be used for real estate projects or repayment of matured bonds.

Depending on the needs of major projects, local government can use the special bond quota planned for the year 2020 in this year.

Source: CNA, September 8, 2019

IHS Markit: Hong Kong Economy Sees Its Biggest Decline in Ten Years

According to IHS Markit, a London based leading research and consulting firm, its recently released Hong Kong Purchasing Managers Index (PMI) shows that, in the month of August, Hong Kong’s business activity experienced its biggest decline since 2008.

The report pointed to the fact that Hong Kong’s business confidence has dropped to a record low. Pessimism continues to spread in major companies. The IHS Markit’s Hong Kong PMI, adjusted for seasonal fluctuations, fell from 43.8 in July to 40.8 in August, the worst month since February 2009. In general, an index above 50 represents an increase in activity in the private economy, while below 50 represents a decline. The calculation of the index includes statistics on new orders, outputs, employment, suppliers’ delivery time, and inventory purchases.

According to IHS Markit’s PMI index, Hong Kong’s economy has been declining for 17 consecutive months. The number of orders that mainland China placed in Hong Kong has fallen sharply. Almost half of the companies surveyed said that orders from mainland China had decreased. They believe that the Sino-US trade war, the sharp depreciation of the renminbi, and the large-scale demonstrations in Hong Kong are the reasons for the decline in orders from the mainland.

Bernard Aw, an economist at IHS Markit, said the latest survey shows that the Hong Kong economy is shrinking at a rate of 4 percent to 4.5 percent. In August of this year, the output, new orders, and the export volume of Hong Kong companies fell sharply. In the history of the company’s compilation of the PMI index, which is more than 20 years, only the 2003 SARS epidemic and the 2008-09 financial crisis were worse than today.

Even worse, more and more companies surveyed believe that the situation will deteriorate even further in the next 12 months. According to IHS Markit, about one-quarter of companies in July were pessimistic about the coming year; in August one-third of respondents held a gloomy outlook.

Source: Deutsche Welle, Chinese channel, September 4, 2019

China’s Manufacturing PMI Continued Showing Decline in August

Well-known Chinese news site NetEase recently reported that China’s National Bureau of Statistics just released its August Manufacturing PMI (Purchasing Managers Index) number. The PMI index for the Chinese manufacturing sector was 49.5 percent. This is the fourth consecutive month in which PMI has remained below 50 percent. The key sub-indicators that dragged down the overall PMI number were New Orders (49.7 percent), Raw Materials Inventory (47.5 percent) and Employment Level (46.9 percent). Data also showed medium and small companies suffered the most. Large corporations are in a better shape. PMI is an indicator of financial activity reflecting purchasing managers’ acquisition of goods and services. A PMI number below 50 typically reflects a decline.

Source: NetEase, August 31, 2019