Push and pull

Stocks fell sharply on Monday

Monday was another disappointing day for Chinese firms in the stock markets with the Shanghai and Shenzhen benchmarks both losing about 2% of their value. But it was much worse in Hong Kong, where the bourse fell more than 6% in its worst day of trading since the global financial crisis. Mainland Chinese companies bore the brunt of the selling, with the Hang Seng China Enterprises Index – a benchmark for Chinese firms listed in the city – plunging 7.3%.

None of this merited much mention in the mainland media the following day, Bloomberg noted, apart from a brief story on page four of Shanghai Securities News, which didn’t offer reasons for the declines.

The Hong Kong media was less inhibited, linking the situation to the reaction to the Party Congress, where government bosses had shown no sign of bringing an end to ‘zero-Covid’ measures. Foreign investors fuelled the slump by selling down mainland firms on concerns that the latest selections for the Politburo signal a move away from the pro-market stance of previous leaderships, including an acceleration of policy themes like Common Prosperity, which some investors regard as a drag on the economy (see Talking Point for more on events at the Party Congress).

Getting the biggest bruising in Hong Kong were some of China’s largest internet and tech firms, whose prospects have darkened because of a less friendly reception from regulators. Suspicions that the mood isn’t going to change saw shares in giants such as Alibaba, Tencent and Meituan fall more than 10% in Monday’s trading.

The situation was similar for Chinese tech companies listed in the United States, with counters like Baidu, JD.com and Pinduoduo all dropping by double-digit percentages.

Most of the tech counters made partial recoveries in the following two days but a longer-term rout in internet and technology shares had seen the Nasdaq Golden Dragon China Index, which tracks Chinese companies listed in the US, fall 42% this year. The Wall Street Journal also reported that small-cap firms from China wanting to IPO on American bourses are stuck in a holding pattern as regulators conduct additional reviews of their applications. At least a dozen small-caps have seen their debuts frozen on Nasdaq, the Journal said, as officials demand more information about their shareholding registers.

This follows vertiginous trading in a few of the newly listed firms from China this year, some of which rose by hundreds of percent and then collapsed to fractions of their peak values. But the firms caught up in the freeze will be frustrated – perhaps seeing it as another sign of how the American capital markets are becoming less hospitable to Chinese companies.

Seemingly bucking that frostier front in cross-border trends is CATL, China’s leading producer of batteries for electric vehicles, which has just announced a partnership with California-headquartered Primergy for a solar system that stores daytime energy to power night-time electricity networks in Nevada.

Ningde-based CATL is going to provide a storage system for the $1.2 billion project outside Las Vegas, it said on its WeChat account.

At a time when trade and investment ties between the two countries are showing signs of splintering, the deal is a reminder that firms like CATL are still trying to get footholds in both markets.

Yet also this week there was news that another potentially significant investment from the battery giant is heading for the buffers after it suspended plans to build an assembly plant on American soil.

CATL executives have stopped vetting sites for a plant since Washington imposed new restrictions on the sourcing of materials for EV batteries from outside the country, according to comments from two unidentified insiders to Reuters. “The rules would hike the costs of manufacturing batteries in the United States to a level higher than shipping them from China, even if the US government offers subsidies for CATL to build the plants,” a source explained of the restrictions, which are designed to incentivise the mining and processing of materials for batteries in North America, rather than relying on supply from China.

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