Animal spirits
Jan 27, 2017 (WiC 353)

China’s baijiu sector seems to be more than recovering from President Xi Jinping’s clampdown on graft and extravagance. We reported in May last year that Kweichow Moutai’s share price had hit an all-time high of Rmb260 per share. As of this week it is trading at Rmb345 with a market value of Rmb434 billion ($63 billion).

The strong performance could be partly explained by the Shanghai-Hong Kong Stock Connect. The trading platform allows foreign investors to buy into Shanghai-listed large caps such as Moutai. Since the stock link commenced in late 2014, Moutai’s shares have more than doubled. Shanghai’s key index climbed less than 20% during the same period. Indeed, China Daily noted last week that consumer staples was the only sector on the main stock exchanges with positive returns last year. And according to the Bernstein Global Spirits Guide, high-end baijiu is so profitable that the top four brands are estimated to account for 27% of pre-tax earnings for the global spirits industry.

Sales were previously seen as a proxy for corruption (see WiC172). But since Xi took office baijiu makers have been forced to restructure their businesses. The turnaround, China Daily says, is also buoyed by rising middle class incomes. It reports that surging demand for the spirit to toast in this year’s Lunar New Year has seen classic Moutai increase almost 40% in price to Rmb2,000 per bottle this week.

Costa how much…?
Jan 20, 2017 (WiC 352)

The Chinese Super League continues to make headlines in the UK press, with the tabloids particularly excited in the past week about news that Chelsea’s star striker might join a Chinese club.

The reports have rumoured that Diego Costa’s agent has been negotiating a deal with a Tianjin team that could earn him £30 million a year in salary.

Chelsea have denied that a deal has been discussed – although earlier this month it sold Oscar to Shanghai SIPG for £60 million – and the London club’s angry manager dropped the Spanish international from the team last weekend. Some of the tabloids believe Costa will stay at Chelsea for the remainder of the season, but will then follow Carlos Tevez to China for a record transfer in the summer.

However, the Financial Times notes that China’s sports administration is trying to clamp down on the transfer spending, mandating that Super League clubs can only field three foreign players in games versus the previous limit of four. The rule change was made on Sunday. To foster more domestic talent a provision was also included that at least one Chinese player under 23 must be on the pitch throughout matches, in a move designed to “elevate the level of the national team”.

It’s an interesting plan and while WiC sees merit in the idea, we do sympathise: it could make substitutions more complex for coaches, and what would happen if all a team’s under 23 year-old players were injured?

Next stop: Barking
Jan 13, 2017 (WiC 351)

Barking was recently named the worst place to live in the UK, according to property news portal Rightmove. The London borough derives its name from the Anglo-Saxon ‘Berecingas’, meaning a settlement of birch trees, but it is also speculated the name morphed to Barking owing to a lunatic asylum being added to a medieval abbey, and hence the phrase ‘barking mad’.

The reason for this lengthy preamble is that Barking is the latest destination for a Chinese train – specifically a new freight service from Yiwu, a city famed for its wholesale market. WiC has reported before on the Chinese trains heading for Europe, which have journey times roughly half those of ships and are suitable for moving higher-value goods (such as computer parts). The first UK-bound train left Yiwu on January 2, tugging 200 containers of clothes and household goods. The 12,000km journey will take 12 days and according to Forbes this latest leg of the new Silk Road will “symbolically usher in a new stage in China-UK relations”.

On the contrary, the Financial Times last weekend stated that the “golden age” of Sino-British relations was coming to an end after its brief flowering during the Cameron-Obsorne years. It cited frostier relations with Theresa May’s government – with a Chinese financier telling the FT there were no plans for a second Chinese government bond issuance in London to cement its status as a global renminbi centre.

As to the economics of the new Barking-Yiwu train, WiC wonders what goods from the UK could fill the return route to China? Whisky, Burberry raincoats and fading Premiership footballers could be candidates…