Krane Funds Advisors is the advisor to the KraneShares CSI Five Year Plan ETF and the KraneShares CSI China Internet ETF. Enclosed is a weekly update of China’s economic and capital markets activity that was assembled by KraneShares and its Shanghai based partner, CapitalVue. Please contact us if you have any questions or comments.
Major News and Events
Mark Mobius Sees China Opportunity in 2014:
According to Mobius, in November, China announced a new blueprint for its future, known as “The Decision.” There were some 60 proposals across a gamut of issues which could have dramatic consequences in areas including:
• Healthcare
• Social Security
• Justice and the Rule of Law
• Intellectual and Physical Property Rights
• Banking and Monetary Policy
• Environmental Protection
The proposed changes, intended to facilitate sustainable economic growth in China, could also create substantial opportunities for investors.
Reforms to state-owned enterprises aimed at improving their professionalism and efficiency in resource usage could benefit their listed subsidiaries.
Measures aimed at encouraging enterprise and innovation, as well as blocking unfair competition, could speed up the process of rebalancing the economy away from investment-led growth and toward a more entrepreneurial, consumer-focused and service-oriented model.
The project has a decade-long time frame, but we nevertheless expect to see some progress in 2014, perhaps through initiatives in free trade zones such as the one announced for Shanghai in late 2013 and others hinted at in the proposals. Of course, there are likely to be market casualties as a result of these reforms. Companies facing intense competition and now deprived of the level of government support obtained in the past could be negatively impacted.
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China Wages Expected to Increase in 2014:
China’s wages are set to increase by 10 percent or more in 2014, boosting consumption, according to a Bloomberg report citing analysts at firms including Bank of America Corp.
Lu Ting, a Hong Kong-based economist for Bank of America, said in an e-mail that he sees wage growth of 11 percent this year after an estimated 10.7 percent gain in 2013. JPMorgan Chase & Co. and Mizuho Securities Asia Ltd. analysts said in interviews that they predict 10 percent to 15 percent increases.
China’s ruling Communist Party is pushing for pay increases to accelerate the nation’s shift away from polluting and capital-intensive manufacturing to a more services-driven economy.
“The trend of shifting low-end manufacturing bases to southeast Asian countries will only accelerate,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong, who formerly worked at the European Central Bank and International Monetary Fund. Shen sees a strengthening currency and tougher controls on pollution contributing to factories exiting for nations such as Bangladesh, Vietnam and Cambodia.