China’s e-commerce Goes Global:
According to a McKinsey report Russia’s government recently announced that it was considering imposing a 30% tax on imports from foreign retailers. This could be due in part to a report that 40% of small packages coming into Russia originated from Chinese e-commerce companies.
McKinsey believes the root cause of the extraordinary growth is the massive inefficiencies in distribution and retail in the customer’s home market, especially outside the largest cities. By cutting through all of this to the ultra-competitive prices available on Chinese e-commerce sites, consumers are the likely beneficiaries whereas local companies could suffer due to the loss of business.
This is could also be a precursor of what we might see in many countries, especially those with fragmented physical distribution and retail, a decently developed online infrastructure, and a postal service. Chinese e-commerce giants, have the advantage of their staggering size and market capitalization. They grew to be winners in China through supremely aggressive price competition and are expected to bring that to foreign markets.
China’s Services Sector Has Become the Largest Segment of its Economy:
China’s fourth quarter gross domestic product (GDP) figure recently came in at 7.7 percent year on year, slightly above expectations of 7.6 percent.
As research firms The Rhodium Group and REORIENT have highlighted, the uptick in GDP was due to a rise in consumption from 45 percent in the first three quarters of the year to 50 percent in Q4 to bring the full year to 46%. This increase has led to the services sector becoming the largest portion of China’s economy.
Local Broker Insight:
Galaxy — Securities Industry: The securities industry as a whole recorded positive earnings growth in 2013 for the first time since 2009, according to data from the Securities Association of China. The sector began a transformation in the second half of 2013, shifting away from a “pure channel” business to investment consulting and wealth management services.
In 2014, we believe there is vast potential for capital intermediary business, with the new OTC market and individual share options trading, while there is also large potential to increase leverage in the industry.
SWS — Real Estate: December sales were slightly weak, mainly due to:
1) Increased regulations in first and second-tier cities following the Third Plenum, fueling a wait-and-see attitude among potential buyers.
2)The tight capital environment suppressed real and speculative demand, while pre-allocated housing was gradually sold, which also impacted new home markets. We think that sales will gradually recover in 2014, but y/y data will be weak in 1Q and will gradually recover in 2Q.
Galaxy — Macro:China’s economic reform is becoming clear with short-term economic growth restrained, while depreciation pressure on the Yuan against the USD will increase. Therefore, funds outstanding for foreign exchange will not increase greatly in 2014, and may even slightly decrease. This could also mean capital injections through funds outstanding for foreign exchange channels will largely decrease.
If the Central Bank maintains its stable and moderate monetary policy, it may have to lower deposit-reserve ratio requirements to guarantee liquidity stability.
*KraneShares is not affiliated with any of the brokers listed, and neither KraneShares nor SEI Investments Distribution Co. sponsor the opinions or information offered by these brokers, nor do they assume liability for any loss that may result from relying on these opinions or information. The material is not intended as an offer or solicitation for purchase or sale of any security, nor is it individual or personalized investment advice.
For more information about investing into China, KraneShares or KraneShares’ ETFs please contact Brendan Ahern at [email protected] or +1.646.218.9852