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.
________________________________________
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.
Chinese Approves Private Banking Pilot Plan:
China has approved a pilot scheme allowing the setting up of three to five private banks, the China Banking Regulatory Commission (CBRC) said on Monday, in a step to boost financial support for cash-starved smaller firms.
The CBRC would maintain “prudential regulatory standards” in approving private banks, it said in a statement following a meeting on banking supervision.
Chinese leaders have pledged to open up the banking sector, now dominated by big state-owned lenders, to private investors to help boost competition and increase lending to small firms, who are often neglected by the big banks.
Retailer Suning Commerce Group and the Internet giant Tencent Holdings are among firms keen to establish private banks.
The banking regulator also said it would take steps to rein in banking risks in 2014, and reiterated that it would take measures to resolve risks linked to local government financing vehicles and tighten rules on wealth management products.
________________________________________
Chinese Mobile Travel Bookings on the Rise:
Beijing based travel website Qunar reported on Jan. 3 that its mobile application accounted for 50 percent of its total hotel bookings, while air-ticket bookings reached a record over the New Year holiday. Competitor Ctrip had said in November that 30 percent of its hotel bookings came from mobile devices.
“The market certainly reacted to Qunar’s data, which show the company’s mobile users have risen,” Tian X. Hou, the founder of T.H. Capital LLC, said by phone in New York Dec. 3. “China’s travel market has just started to boom and both companies will ride the tide.”
China’s Lunar New Year holiday begins January 31and should be the next key indicator for the two companies of travel demand.
________________________________________
Due to the Holidays, Local Broker Insight will return next week.
For more information about investing into China, KraneShares or KraneShares’ ETFs please contact Brendan Ahern at brendan.ahern@kraneshares.com or +1.650.866.9975.
Brendan Ahern | www.kraneshares.com | Managing Director
ATTENTION: This is not an investment recommendation or a solicitation to become a client of Krane Funds Advisors, LLC (“Adviser”). Unless indicated, these views are the author’s and may differ from those of Adviser or others in the firm. We do not represent this as accurate or complete and we may not update this. Past performance is not indicative of future returns. For additional information and important disclosures, please contact Brendan Ahern at (646) 218-9852 or brendan.ahern@kraneshares.com. This communication is solely for the addressee(s) and may contain confidential information. We do not waive confidentiality by mis-transmission. Contact me if you do not wish to receive these communications.