Evelyn from Shanghai provides an update from CNBC’s ‘The China Connection’ newsletter, highlighting China’s ongoing struggle with resource misallocation as noted by the IMF. Despite this, local businesses are innovating and seeking international investment, navigating a complex landscape of technological development and geopolitical challenges. Meanwhile, major financial players like Visa and Mastercard are gaining market access, reflecting nuanced U.S.-China relations.
Hi, this is Evelyn, writing to you from Shanghai. Welcome to the latest edition of The China Connection – a snapshot of what I'm seeing and hearing from local businesses.
While economists and former central bankers discuss tech and monetary policy at the Bund Summit, companies are moving faster to capture new revenue. What risks bear watching?
Amid discussions on technology and monetary policy, businesses in China are actively pursuing new revenue streams. However, significant challenges persist, particularly concerning the allocation of resources and the country's economic transition.
The Big Story: Addressing Resource Misallocation and Fostering Innovation
China is experiencing a growing "misallocation" of resources, according to Krishna Srinivasan, Director of the International Monetary Fund's Asia and Pacific Department. Speaking on the sidelines of the Bund Summit, Srinivasan emphasized the need for correction, advocating for market forces to guide capital rather than policymakers "picking and choosing sectors" for support. This is a complex challenge as China pushes technological development while struggling to reduce its reliance on real estate, which historically comprised over a fifth of the economy.
Despite these macro challenges, local businesses are actively trying to fill economic gaps. In Shenzhen, INNO100, a local partner for Kickstarter, generates approximately 5 million yuan ($750,000) monthly from retail sales, 3D printing services, and events. Baron Wang, founder of parent entity Longham Group, plans to expand with ten new stores in China and five overseas, eyeing U.S. customers. Wang believes technology, especially consumer electronics, should transcend political divides, stating, "I think the technology should not be too politic[al]."
International investment remains a viable avenue. Yuan Minglun, co-founder and CTO of Kunwei Technology, which supplies sensors to major Chinese humanoid robot companies, plans to establish a factory in the U.S. This strategic move aims to facilitate sales to American humanoid startups, highlighting a persistent disparity between U.S. and Chinese supply chains. Cyril Nader, founder and CEO of outer space startup Phenix, noted that sourcing non-China-made parts, such as gearboxes, can entail lead times of up to 56 weeks, posing significant operational challenges for rapid development.
Need to Know: Key Developments in U.S.-China Economic Relations
- Visa Secures Green Light in China: After 40 years, Visa has received Beijing's approval to launch its bank card business, a significant development amid improving U.S.-China diplomatic ties. Visa CEO Ryan McInerney, who chairs the U.S.-China Business Council, commented on Visa's long-standing contribution to China's payments landscape.
- U.S. Presses for Market Access: U.S. officials advocated for Mastercard and Citigroup's market access in China during recent bilateral talks in Bangkok, as confirmed by a U.S. Treasury official.
- China's GDP Rebounds: China's economy saw a robust 4.5% growth in Q3, fueled by surging exports. Retail sales also grew faster than expected, increasing by 1.1% in September year-over-year, while producer prices recorded their fastest rise since June 2022.
Coming Up: Key Dates and Events
- Oct. 19 - 22: Financial Street Forum in Beijing; Bund Summit in Shanghai
- Oct. 20: Loan prime rate announcement; Alibaba's Singles Day shopping event officially commences
- Oct. 20 - 22: Chinese Premier Li Qiang to visit Russia
- Oct. 23: Apple releases iPhone Duo
- Oct. 26 - 29: China's Communist Party holds fifth plenary meeting
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