6/17/2021 Financial News: Weak Chinese Consumption In May, Blackstone Offers $3.05 Billion To Buy Out SOHO China

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1.Moderate Economic Growth with Weak Consumption in May

The National Bureau of Statistics released May macroeconomic data on the 16th. The year-on-year growth rate of major economic indicators such as industry, consumption, and investment declined. In May, the purchasing managers’ index (PMI) for the manufacturing sector came in at 51.0%, 0.1% lower than last month. The industrial production rose 8.8% from a year earlier in May, slowing down from April’s 9.8% growth rate. The consumption recovery fell short of expectations. Retail sales rose 12.4% from the same month last year. The month-to-month growth rate in April was 17.7%.

Industry experts expect investment in manufacturing, service consumption, and exports will promote economic stability and improvement. However, the lack of demand exists. It is necessary to stimulate demand and encourage consumption in order to build a strong domestic market.

2.Blackstone Offers $3.05 Billion to Buy Out SOHO China

NEC SOHO China announced on the evening of the 16th that Goldman Sachs, on behalf of Two Cities Master Holdings II Limited, a subsidiary of the Blackstone Group, offered to acquire all the issued shares of SOHO China at the price of HK$5 per share. The offer was approximately HK$23.658 billion (US$3.05 billion). In 2020, SOHO China’s revenue was 2.192 billion yuan, and its net profit was 543 million yuan. The total assets are 70.704 billion yuan, and the total liabilities are 33.157 billion yuan.

As one of the world’s leading real estate investment management companies, Blackstone has confidence in the country’s economic future and seeks opportunities to expand its investments. The husband-and-wife team, chairman Pan Shiyi and chief executive officer Zhang Xin, will exit from SOHO China by giving up 2.86 billion shares, or 54.93% of the company, for HK$14.3 billion. They will retain a 9% stake post-offer, according to the exchange filing.

SOHO China suspended trading on June 15 and announced it will temporarily stop trading in Hong Kong from 9 a.m. on June 15, pending the publication of relevant information and announcement compliant with the Hong Kong regulation on mergers and acquisitions.

3.Employment Situation Improved in May but Still Under Pressure

Based on data from the National Bureau of Statistics released on Wednesday, an official from the bureau indicated the overall domestic employment situation has improved. In the first five months of this year, 5.74 million new jobs were created. In May, the surveyed urban unemployment rate was 5.0%, a decrease of 0.1 percentage point from April. The unemployment rate of the prime working-age (25-59) group was 4.4%, a decrease of 0.2% from the previous month. However, the official also pointed out the employment situation is still under pressure this year given that 14 million people will enter the urban labor force and 9.09 million of them are college graduates. Moreover, it has been difficult for college graduates to get employed while businesses struggle to find workers. In addition, the recovery of some high-touch service sectors is relatively slow, which may also have adverse effects on employment.

Some analysts don’t think employment and income have improved fundamentally, leading to little improvement in spending power and willingness to consume. The unemployment rate for 16-24 years old increased to 13.8%, together with many small and medium-sized enterprises have been slow in reopening under the pressure of rising commodity costs, can reduce the income growth and the recovery of consumption. Further, the repeated CCP virus surges have caused the number of migrant workers to decline. It will take time for rural migrant workers to improve their wage income.

4.CCP Releasing State Metal Reserves to Curb Prices

On June 15th, a screenshot of WeChat caught the attention of reporters. It showed an announcement that the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) will begin investigating the overseas futures positions of state-owned enterprises. State-owned enterprises are ordered to control risks associated with overseas commodities markets. All trading companies involved in futures transactions will be re-audited, and the external positions of state-owned enterprises will be reviewed.

The following day, the State Reserve Bureau announced that in accordance with the State Council’s executive meeting on ensuring the supply and price stability of bulk commodities, it plans to release industrial metals such as copper, aluminum, and zinc from its national reserves to nonferrous processing and manufacturing firms in the near future. Such a move aims to curb the surging commodity especially metal prices. Upon this news, Shanghai Nickel once fell as much as 4% and closed 3.78% lower. Shanghai copper and international copper also fell by more than 2%.

5.Second Auction of Imported Corn in a Month by Sinograin

SinoGrain will hold an auction of imported corn on June 18. The imported corn was harvested in 2020, the quantity is 37,126 tons, and the place of origin is Ukraine. This is the second auction of imported corn. The first auction, which was for non-genetically modified Ukrainian corn, took place on June 11. The auction quantity was 11,058 tons with a starting price of 2,750 yuan/ton and and the transaction price was 2,820-2,830 yuan/ton. In June, domestic corn stocks will continue to drop, and the quantity of imported corn will remain high. Currently the domestic corn market is still under great pressure. Feed companies are planning to purchase new wheat stocks that will last 2 to 3 months.

6.Communist China’s FX Assets Reached 21.19 Trillion Yuan

Communist China’s outstanding yuan funds for foreign exchange increased for the second consecutive month in May based on central bank data released on June 16. The funds stood at 21.19 trillion yuan (about 3.3 trillion U.S. dollars) at the end of May, reaching a 14-month high. Foreign exchange account refers to the RMB currency that the central bank makes foreign investments and correspondingly adds to the money market. Whether the outstanding yuan funds for foreign exchange increase or not depends on whether the central bank intervenes in the foreign exchange market. When the market expectation is stable, the central bank may not need to intervene, and the balance of foreign exchange assets will not change significantly.

Communist China’s foreign currency reserves stood at about 3.2218 trillion U.S. dollars at the end of May, up from 3.1981 trillion dollars registered at the end of April, as shown by the central bank data. Wang Chunying, deputy director and spokesperson of the State Administration of Foreign Exchange, said that in May 2021, the foreign exchange market will continue to operate stably, and market transactions will in general remain rational and orderly.

7.Chinese Electric Companies Face Bankruptcy and Delisting

An electric company in Guangdong Province recently issued a letter to its customers urging them to help support the company in crisis. The letter said: “Electric companies are unsustainable given their financial losses. Currently many electric companies have filed for bankruptcy and delisting, causing their customers to face the risk of being delisted as well.”

As the letter said, the predicament of electric companies is largely due to the large-scale losses in Guangdong’s electricity sector this year. Data from the Guangdong Power Exchange Center indicated that a total of 156 companies participated in the transactions in January 2021. After deducting the assessed electricity fees, 50 electric companies, which accounted for more than 32% of the companies, suffered losses.

Last month, Guangdong carried out spot settlement pilot operation in the midst of high temperature, rising fuel costs, reduced power supply from western regions, and increased power line maintenance during peak summertime. The imbalance between power supply and demand and the high price of electricity have further exacerbated the loss of electric companies. A few days ago, the Guangdong Power Exchange Center issued a notice on this pilot. 25 companies made a profit totaling 7 million yuan. In contrast, 136 companies incurred losses, with a total loss of 516 million yuan.

8.Domestic Mobile Phone Shipments in May Down 32% YOY

China Academy of Information and Communications Technology (CAICT) issued a report on cell phone sales in Communist China on Wednesday. According to the report, in May 2021, mobile phone shipments in the domestic market were 22.968 million units, a year-on-year decrease of 32.0%. They included 16.739 million units of 5G mobile phones, a year-on-year increase of 7.0%. This is the second consecutive month that domestic mobile phone shipments fell sharply. The year-on-year drop in domestic shipments in April was 34%. Such a decline was mainly caused by the earlier growth in domestic mobile phone shipments in the first quarter, chip shortage for mobile phones, and a sharp plummet in Huawei phones.

In May 2021, 27 new models of domestic mobile phones were launched, 18.2% reduction from a year ago. Among them, 25 were domestic brand models with a year-on-year decrease of 16.7%. In terms of smartphones, total shipments in May were 22.604 million units, a year-on-year decrease of 30.8%, which accounted for 98.4% of mobile phone shipments during the same period. In addition, 21 new models were launched in May, a year-on-year decrease of 19.2%, accounting for 77.8% of the number of new mobile phone models launched in the same period.

By【G Translators- Financial Team】
Author: Kate

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