China 2022 - InvestingChannel

China 2022

Proprietary Data Insights

Financial Pros Top Chinese Stock Searches December

#3Storage Computer Corp.264

Best Foreign Markets 2022

As we note in our main story below, we aren’t particularly bullish on China.

However, we are bullish on its neighbors including Vietnam (VNAM) and Taiwan (EWT).

Vietnam has become the go-to manufacturing alternative for companies looking to diversify away from China.

With a massive manufacturing base and extensive port capacity, it’s an ideal location for many manufacturers.

Similarly, Taiwan is a major technology hub, especially for semiconductors including Taiwan Semiconductor (TSM).

The supply shortages in processors and high-end electronics puts Taiwan in a great spot for years to come.

However, investing in Taiwan comes with the risks of geographic conflict with China. China doesn’t recognize Taiwan’s independence, believing the nation is still a part of China. They exert significant political and economic influence around the globe to push this view.

 So far that has yet to materialize into anything, but that can always change.


China 2022

Key Takeaways

  • Tariffs remain in place between the US and China manufacturers to increase domestic capacity.
  • China is pushing more companies to delist in the US and move their stocks to Hong Kong and other Chinese exchanges.
  • Real estate is the biggest problem China faces this year as it struggles to transform its economy.

China’s central government changed the playing field last year.

Here’s what we expect in 2022.

Trade Wars Unchanged

Anyone who thought President Biden would soften Chinese tariffs imposed by President Trump is sorely mistaken.

Recently, the administration imposed new restrictions on products coming from the Xinjiang region of China. Exporters need to prove their products were produced without forced labor.

China fell woefully short of its purchase commitments under the 2-year trade agreement that ended last year, partly driven by pandemic-related issues.

Yet, the administration has yet to decide whether to let that slide or use it as leverage.

US manufacturers are building more domestic capacity to reduce our reliance on China for the supply of raw materials and intermediate goods.

Stocks Move On-Shore

More recently, China cracked down on Variable Interest Entities (VIE), vehicles used by Chinese firms to list on American exchanges.

Ideally, China wants those companies to list back in China on Hong Kong’s stock exchange.

Many state-owned enterprises have already delisted from American exchanges. Congress and the SEC demanded Chinese firms begin to comply with audit requirements or face delisting within the next few years.

Already, we’ve seen China ask ride-sharing company Didi (DIDI) to delist from American exchanges.

Property Problems

By far the biggest challenge China faces is its faltering real estate sector.

Evergrande, a real estate behemoth, already defaulted on payments. Several others including Kasia and Sinic Holdings struggle to repay their debt.

The problems in the real estate sector have weighed down economic growth forecasts for the country where analysts predict one of the slowest periods in recent history.

The Bottom Line:

China has a myriad of issues to solve. Right now, it’s taking a heavy-handed approach to its problems.

That makes investing in individual Chinese equities difficult.

Instead, we prefer using broad ETFs like the FXI or KWEB.

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