Dealmakers look to India as China growth wanes, Senate votes to remove PRC as "developing country" & Beijing tells JP Morgan, Goldman not to publish "political" material -- China Boss News 10.03.22
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Dealmakers look past China to India as World Bank downgrades growth forecasts
”China’s economic output will lag behind the rest of Asia for the first time since 1990, according to new World Bank forecasts,” Financial Times reported. The World Bank downgraded its China forecast for the year to 2.8 per cent from its previous April outlook which was “between 4 and 5 per cent,” news staff said.
The news comes as analysts also recorded a significant drop in the share price of Chinese firms on Hong Kong’s Hang Seng index and a nosedive in the number of new Mainland mergers and acquisitions.
Bloomberg staff noted that the Hang Seng China Enterprises Index had shrunk by 14% “to rank as the worst performer among major equity benchmarks globally this month,” and that price of Chinese companies were “around the lowest since the global financial crisis . . . now trading at 0.6 times book value, the cheapest ever.”
Analysts chalked the firms’ lackluster performance up to “part of a global rout as central banks around the world step up rate hikes to tame inflation.” But they also said that “Chinese stocks have been hit particularly hard as the Covid-Zero policy took a toll on the nation’s economy and as Sino-American tensions worsened over Taiwan and Russia.”
Reuters staff pointed to similar “macroeconomic headwinds” to explain why new China M&A deals “plunged by 35% year-on-year to $266 billion in the first nine months of the year, to the lowest level since 2013.”
Reuters:
"A major uncertainty affecting the 2023 outlook for China-involved M&A activity is where China's zero-COVID policy is heading, which currently lacks a clear signal," said Jeffrey Wang, partner and co-head of the Shanghai office of investment banking adviser BDA Partners.
Alan Wang, a Shanghai-based partner at law firm Freshfields Bruckhaus Deringer, said the level of market activity in China would likely remain subdued until after the first quarter next year given the uncertain domestic and global economic outlook.
"Right now, people don't know if we hit the bottom yet," he said. "If you were the seller, you probably wouldn't be willing to sell because you think that there should be prospects for an improved valuation in the not-too-distant future."
As a result of China’s languishing economy and geopolitical risks, private equity now seems to be looking “beyond China” to India and South East Asian markets, Reuters said in separate report also released last week. “India M&A shot up 55% by end-September to reach $145 billion,” while “Southeast Asian startups are also enjoying a boom in fundraising exercises by venture capital and buyout funds that are chasing bigger returns outside China,” Reuters’ staff said.
For the rest of FT’s report, China growth to fall behind rest of Asia for first time since 1990, click here. For Bloomberg’s update, China Shares Plunge to Lowest Valuation on Record in Hong Kong, click here. For Reuters’, Dealmakers eye China divestments, rise of India and SE Asia as M&A pipeline shrinks, click here.
Law and International Xi
U.S. Senate votes to condition ratification of Montreal Protocol updates on removal of China’s “developing country” status
“The U.S. Senate today voted unanimously in favor of an amendment offered by Sen. Dan Sullivan (R-Alaska) conditioning the Senate’s ratification of updates to the Montreal Protocol (known as the Kigali Amendment) on the U.S. taking action to remove China’s designation as a ‘developing nation,’” according to a press statement retrieved from Sen. Sullivan’s official website.
In his remarks on the Senate floor prior to the amendment vote, Sen. Sullivan argued that China, by any fair measure, is not a “developing nation,” and should no longer be able to exploit UN concessions and aid–often funded by U.S. taxpayers—to comply with international agreements, like the Montreal Protocol. Sullivan said the larger, unfair, non-reciprocal relationship between the United States and China must change.
“There is an element of this treaty that raises a principle that is at stake right now that is so important with regard to China, the United States, and the rest of the world,” said Sen. Sullivan. “This treaty continues to classify China as a ‘developing country.’ Why does that matter? It’s a facade. China is not a developing country. China is the second largest economy in the world. China is one of the most industrialized countries in the world. China has one of the biggest militaries in the world. The World Bank now even considers China to be an ‘upper middle income’ country. But what China keeps trying to do in international organizations and in international treaties is continue to get the same benefits afforded to truly developing countries.
Although the Montreal Protocol amendment is seen as “largely symbolic,” China Boss thinks its overwhelming support in the Senate could set the stage for a similar effort at the World Trade Organization which would deeply impact China business. But changing China’s “developing country” status at the WTO would require politically controversial reforms to the rules by which the 164-member body operates - not least of which would include adding a standard definition to classify member countries, rather than permitting self-declared status - as the organization does now - for “special and differential treatment” in global trade.
That said, in light of China’s diplomatic support for Putin’s attack on Ukraine and its escalating threat against Taiwan, U.S. trade envoys might have an easier time petitioning other WTO members, like India and the EU, for instance, who have long complained that China’s preferential treatment disadvantages their own development.
Federal.com, January 2022:
Countries such as India, the US, Australia and the EU are citing World Bank data to point out that China’s per capita income has risen enough for it to be termed an upper middle-income country. Per World Bank classification, an upper middle-income country is one with a per capita income of $4,096 to $12,695. China’s per capita income in 2020 was estimated at $10,435, vis-à-vis $63,413 for the US and $1,928 for India, which falls under the low middle-income category.
The other nations are also charging China with indulging in unfair trade practices — these range from preferential treatment for state-run firms to poor enforcement of intellectual property (IP) rights. They say China should either reclassify itself as a developed nation or refrain from using the benefits offered to such economies.
For the rest of Sen. Sullivan’s press release, click here. For more on the debate over China and its ‘developing’ nation status at WTO, check out this Federal.com explainer or this one from the Global Observatory.org.
Geopolitics
US pressures Israel to curb research ties with Chinese universities
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