China's Economy Got Stuck in Mud

choi

Daisuke Wakabayashi and Claire Fu, 中国重振经济为何这么难. 纽约时报中文网, Sept 3, 2024
https://cn.nytimes.com/business/ ... y-consumption/dual/

, which is translated from

Daisuke Wakabayashi and Claire Fu, Usual Tools Can't Help China to Fix Its Economy. New York Times, Sept 5, 2024, at page B1.

Excerpt in the window of print: Millions of college graduates face poor prospects for jobs.

Quote:

"Sherry Yang opened her business in 2006 making store signs, billboards and posters in Sichuan Province * * * the business has never fully recovered after Covid, she said. This summer, already sluggish demand worsened; sales in July fell 70 percent from a year earlier. Ms. Yang said it felt like every industry was struggling and no one was spending.

"China's summer movie box office sales have dropped by almost half over last year, according to Maoyan, an entertainment data provider. The U.S. Department of Agriculture forecast in August that Chinese consumers would cut back on buying pork and shift to cheaper beef, because of economic pressures.

"Foreign funds have turned into net sellers of Chinese equities in 2024, which would be the first annual outflow since the data became available a decade earlier. Shares of around 180 Chinese companies have been removed from a critical stock market index since the start of the year, reducing the presence of Chinese firms in global benchmarks.

"A record-setting surge in exports, flooding the world with electric vehicles, batteries and household appliances, is fueling China's economic growth. But the resulting glut of supply is also undermining the profitability of the high-tech manufacturing industries that China had hoped would soften the blow of its painful shift from real-estate-led growth, while drawing a backlash from a growing number of major trading partners.

Note:
(a) This is a survey of China's economy, providing bird's-eye view. However, only the quotations above are new information.
(b) "Shares of around 180 Chinese companies have been removed from a critical stock market index since the start of the year, reducing the presence of Chinese firms in global benchmarks."
(i) Lauren Gibbons, MSCI Cuts China Stocks Again in Global Indexes. ETF Stream, Aug 27, 2024
https://finance.yahoo.com/news/m ... gain-120000332.html
("MSCI has removed dozens of China stocks from its global indexes [that August day] * * * The changes, which come into effect Aug 30, will see 60 Chinese securities removed from MSCI's global indices * * * The latest move comes after MSCI said it was adding five Indian stocks and removing 66 Chinese companies in the MSCI Emerging Markets index at the end of February. MSCI also removed a further 56 Chinese stocks in May" from the same Emerging Markets index)

MSCI Emerging Markets index is in fact Emerging Markets ex-China index -- that is, Emerging Markets except or outside China. This is because MSCI has its own (but separate) China index. As you can tell, there is also MSCI Global index.
(ii)
(A) MSCI
https://en.wikipedia.org/wiki/MSCI
("MSCI Inc is an American finance company headquartered in New York City. * * * MSCI are the acronym of Morgan Stanley Capital International. * * * In 1968, Capital International published indices covering the global stock market for non-US markets. * * * parent company Morgan Stanley decided to divest MSCI," which was completed in 2009; afterwards MSCI Inc is a public company whose stocks are traded in NYSE)

"When Morgan Stanley bought the licensing rights to Capital's data in 1986, it began using the acronym MSCI.": Investopedia.
(B) MSCI Global index is officially MSCI ACWI. See MSCI World
https://en.wikipedia.org/wiki/MSCI_World
(from "23 developed countries * * * A related index, the MSCI All Country World Index (ACWI), incorporated both developed [ie, MSCI World; in other words, MSCI World is a component of MSCI ACWI] and emerging countries [ie, MSCI Emerging Markets index]")

MSCI competes with indices of FTSE Group.
https://en.wikipedia.org/wiki/FTSE_Group
(iii)
(A) "ETF Stream is the leading media brand for everything ETF-related in Europe.": company website.
(B) Exchange-traded fund (ETF). Securities and Exchange Commission, undated
https://www.investor.gov/introdu ... nge-traded-fund-etf
("Exchange-traded funds (ETFs) are SEC-registered investment companies that offer investors a way to pool their money in a fund that invests in [and is a basket of (thus 'offering investors diversified exposure to' (underlying) assets": Investopedia for 'Are ETFs Considered Derivatives?'] stocks, bonds, or other assets [eg, 'currencies, debts, futures contracts, and/or commodities such as gold bars': en.wikipedia.org for ETF; mutual fund has the same portfolio or holds the same components]. In return, investors receive an interest [interest here means not money, but shares/stocks] in the fund.  Most ETFs are professionally managed by SEC-registered investment advisers. * * * ETFs are not mutual funds.  But, they combine features of a mutual fund, which can only be purchased or redeemed at the end of each trading day at its NAV per share, with the ability to trade throughout the day on a national securities exchange at market prices")
(C) Christina Majaski, ETF vs Mutual Fund: What's the Difference? Investopedia, updated May 3, 2024
https://www.investopedia.com/art ... nd-mutual-funds.asp

"KEY TAKEAWAYS
• Both can track indexes, but ETFs tend to be more cost-effective and liquid since they trade on exchanges like shares of stock.
• Mutual funds can [can, but not necessarily so (thus being passive or tracking index)] offer active management and greater regulatory oversight at a higher cost and only allow transactions once daily.

"Exchange-traded funds trade on exchanges just like common stocks. Most ETFs are index-tracking and aim to match the returns and price movements of an index, such as the S&P 500, by assembling a portfolio that matches the index constituents.

"The purchase [and sale] of a mutual fund is executed [by the company that issues the mutual fund; unlike ETF [also issued by a company] whose shares change hands directly at a stock exchange (not at the issuing company)] at the net asset value of the fund based on its price at the market close.
(D) derivative (finance)
https://en.wikipedia.org/wiki/Derivative_(finance)
("a derivative is a contract [emphasis on contract] that derives its value from the performance of an underlying entity. * * * Some of the more common derivatives include forwards, futures, options, swaps [of, say, stocks, bonds, commodities or currencies] * * * Most derivatives are traded over-the-counter (off-exchange) or on an exchange such as the Chicago Mercantile Exchange")

ETF, too, has its value (of a share) dependent on the value of the {underlying] assets it holds, but ETF is not a derivative.
````````````````ETF Stream
MSCI has removed dozens of China stocks from its global indexes while continuing to add Indian securities following a rebalancing of the index.

The changes, which come into effect Aug. 30, will see 60 Chinese securities removed from MSCI’s global indices, alongside seven Indian securities added.

The latest move comes after MSCI said it was adding five Indian stocks and removing 66 Chinese companies in the MSCI Emerging Markets index at the end of February. MSCI also removed a further 56 Chinese stocks in May.

Japan, Malaysia and Korea will also see stock additions to MSCI’s global indices.

In addition, the MSCI China index will have 69 Chinese securities removed from the index, with two additions including hydro power company Huaneng Lancang and electric product manufacturer Victory Giant.

After the February rebalance of the MSCI Emerging Markets index the weight gap fell to its lowest point, with India’s weighting expected to grow from 17.9% to 18.5%, and China’s falling to 25.4%.

India Tops Emerging Markets Growth
Investor sentiment surrounding India and China continues to diverge, with the former showing rapid economic growth, political stability and favorable geopolitical positioning, particularly with the U.S. Last year, India reported GDP of 8.15%, surpassing estimates, according to a report by Deloitte. The country has averaged 8.3% annual growth over the past three years, the report noted.

Meanwhile, China has been hindered by issues in its property sector, deflation and regulatory pressures on tech companies.

Elsewhere, DWS switched the index of its $56 million emerging markets ETF to exclude China in a bid to meet investor demand for more “regionally differentiated investments.”

The IShares MSCI India ETF (INDA), which tracks an index of the top 85% of Indian firms, is up more than 17% year-to-date.

The $4.4 billion KraneShares CSI China Internet ETF (KWEB), which focuses on Chinese internet stocks, has dipped about 2% year-to-date, while the $4.3 billion IShares MSCI China ETF (MCHI), which tracks an index of Chinese equities, is up about 5% in 2024.