Multinationals are still pouring cash into China


The rising spending power of 1.4b people proves too hard to resist
Newsfeed15 Nov 2019
Photo credit: AFP Photo


Market news selected by the DBS Chief Investment Office


MAINLAND CHINA & HONG KONG

Foreign companies continue to invest more in China even after US President Donald Trump called on US firms to look elsewhere, as the rising spending power of 1.4b people proves too hard to resist.

Companies from Tesla Inc to Walmart Inc are expanding operations in the world’s second-biggest economy, joined by counterparts from Korea, Japan, and Europe. That is helping offset the departure of goods manufacturers that have had to rethink supply chains after US tariffs made their products more expensive.

Foreign direct investment (FDI) into China rose nearly 3% in the first nine months of 2019 from a year earlier, according to the Ministry of Commerce, the same pace as 2018’s increase. While the US outstripped that increase last year, investment has dropped off since Trump became president.

Almost 75% of China’s inbound investment is now into services, utilities, and other sectors aimed at the domestic market, said David Dollar, a former US Treasury attaché in Beijing. If anything, the trade war is encouraging companies to ensure they have a China base, he said.

One complication in analysing the trend is the difficulty in determining how much of the spending represents real investment, and how much is Chinese companies moving money offshore and then bringing it back to the mainland. Some three quarters of China’s FDI in 2018 came from Hong Kong, the British Virgin Islands, or the Cayman Islands, which a recent International Monetary Fund report called sources of “phantom FDI”.

Yet, there is also plenty of news demonstrating the big bet on China’s consumer. Tesla is eyeing mass production out of its first factory outside the US in a plant near Shanghai for which the automaker has received as much as USD521m in loans from Chinese banks. Such spending generates a hive of activity right along the supply chain.

LG Chem Ltd, the world’s second-biggest manufacturer of lithium-ion battery cells and said to be one of Tesla’s initial suppliers for its made-in-China Model 3 cars, said in October it plans to invest about USD430m in its Chinese business. In June, it teamed up with Geely Automobile Holdings Ltd on a joint venture to produce electronic vehicle batteries.

“China is a focal point for our battery investment,” LG Chem spokesman Yoo Won-jae said in an interview this month. – Bloomberg News.

The Shanghai Composite Index gained 0.16% to 2,909.87 on Thursday (14 November) while the Hang Seng Index tumbled 0.93% to 26.323.69.

 

REST OF ASIA

India’s palm oil imports in October probably retreated from a one-year high as traders and refiners trimmed buying after overseas supplies became more expensive.

Shipments dropped about 12% from a month earlier to 775,000 tons, according to the median of five estimates in a Bloomberg survey of processors, brokers, and analysts. That was the lowest since June. Imports were 879,947 tons in September. The Solvent Extractors’ Association may release its data this week (ending 15 November).

The decline in purchases by India, the world’s biggest importer, may boost inventories in top producers Indonesia and Malaysia. It could also curb a rally in palm oil futures, which hit a two-year high this week. After tumbling to a four-year low in July, futures entered a bull market last month, supported by lower stockpiles, strong exports, and weaker production.

Futures in Malaysia fell during the morning session on Thursday (14 November), declining as much as 1.1% to MYR2,558 per ton before trading at MYR2,571 by the midday break in Kuala Lumpur.

“There is a disparity in prices and that will reduce imports by India this month as well,” according to an agricultural research company. Purchases may total 625,000 tons in November.

Soybean oil purchases, mostly from the US, Brazil, and Argentina, climbed 34% from a month earlier to 332,000 tons, while sunflower oil imports rose 34% to 170,000 tons, the survey showed. Total vegetable oil imports were little changed at 1.3m tons, according to the survey. – Bloomberg News.

Shares in Sydney advanced on Friday (15 November) morning with the S&P/ASX 200 Index up 0.37% to 6,759.90. The benchmark gained 0.55% to 6,735.05 on Thursday.

South Korea’s Kospi Index slipped 0.09% to 2,137.29 at the open on Friday morning. The benchmark finished 0.79% higher at 2,139.23 in the previous session.

The Taiwan Stock Exchange Weighted Index (Taiex) lost 0.15% to 11,450.42 on Thursday.


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