4 min read

Asia Tea Time - Cup 5 ☕

This week, we cover news on Chinese Premier Li Qiang, Alibaba, and HBO's Succession.

Macro in Asia

Premier Li says China contributes to world peace

At the Boao Forum in Hainan, China, incoming Chinese Premier Li Qiang gave his first public speech in which he said that China was an “anchor for world peace”.

Why it’s happening

  • Replacing old Premier Li Keqiang, this new Li is apparently BFFs with President Xi Jinping – they have a working relationship that goes back decades.
  • The Boao Forum is China’s answer to the Davos gathering in Switzerland. So, it’s basically a bunch of boomers bigging themselves up about how they’re going to “change the world”. 🙄
  • The theme of this year’s Boao Forum started with “An Uncertain World” – timely given the implosions of SVB and Credit Suisse in the West!

Why it matters

  • Paraphrasing Seinfeld’s legendary character Frank Costanza, the Boao Forum was the stage for the country to declare that “China’s back, baby!”
  • Earlier in the week, Apple CEO Timmy Cook hung out with the new Li and was probably stoked to hear all the pro-business rhetoric coming from Chinese officials.
  • All this came hot on the heels of authoritarian besties Xi Jinping and Vladimir Putin meeting up in Moscow. Topics discussed included China buying up more Russian oil and gas and just how naughty the US and its democratic allies are.

What’s next?

  • Tensions between China and the US are still heating up – we should be monitoring Taiwan President Tsai Ing-Wen’s visit to the US in the upcoming week.

Tim’s Take

  • Talk of being “open for business” is what investors want to hear from China but is it really what’s going to happen?
  • As investors, we’ve got to take what the Chinese government says with a massive bucket of salt. That’s because there’s an element of déjà vu to this whole song and dance.
  • We’ve been through similar talk of “market-oriented reforms” in years past – most notably in 2013 and 2018 – but with little in terms of tangible results to show for it.
  • Meanwhile, the gulf in business environments between US/global companies and Chinese companies continues to widen.
What I found more interesting over the past few weeks was news that giant index provider and asset manager Vanguard was pulling completely out of China.

That’s in line with where the trend is headed. For example, Airbnb closed down its domestic China business in the middle of last year.

Company spotlight

Alibaba decides to break into six businesses

Alibaba (NYSE: BABA) (SEHK: 9988) saw its shares soar nearly 20% during the week as it announced a huge restructuring plan that will see the company split into six separate business units – each with their own CEO and board of directors.

They’ll be able to pursue fundraising with outside capital and could eventually list on stock exchanges via IPOs.

Why it’s happening

  • Investors might recall that Alibaba’s share price has been absolutely obliterated in recent years – down over 60% from its all-time high – as the Chinese government decided it’s time to show tech moguls who’s really boss.
  • Alibaba investors would like to see their money grow – that is sort of the point of investing, right?
  • And this offers the company a way to “unlock shareholder value”, management speak for “we get it, we’ve been crap and we want to try to make it up to you”.

Why it matters

  • It’s Alibaba. It used to be the Chinese tech stock to own in the 2010s along with Tencent. So, any good news for Alibaba is good news for China tech broadly, and we all know that sector is in desperate need of positive vibes.
  • Alibaba founder Jack Ma reallyyyyyyy didn’t do himself – or shareholders – a favour by throwing shade at Chinese state-owned banks just before Ant Financial’s planned blockbuster IPO in 2020. Is the company now turning a corner?

What’s next?

  • On Friday (31 March), news broke that Alibaba’s logistics unit – Cainiao – could be the first to list as it reportedly plans an IPO by the end of this year.
  • There was also news that Alibaba’s e-commerce rival JD.com (NASDAQ: JD) (SEHK: 9618) would spin off two of its own business units.

Tim’s Take

  • It was no coincidence that Jack Ma was spotted in China publicly for the first time in over a year, just a day before Alibaba announced its big news.
  • Ironically, this restructuring looks like something that activist investors have been pushing for in the US with regards to its own tech giants.
  • Think of AWS – Amazon’s cloud computing business – which is the company’s cash cow but which many investors feel is weighed down by its capital-intensive, and vastly less profitable, retail arm.
  • It might also be the Chinese government’s way of trying to position its tech ecosystem as starkly different from the oligopolistic one that dominates in the US.
  • More importantly, has the Chinese government decided to give Alibaba the green light for this to go ahead? It’s hard to imagine they didn’t know of the plans beforehand.
Any move that helps improve the competitive environment, while at the same time unlocking shareholder value, is going to be viewed favourably by both regulators and investors.

Story of the week

Succession is back on our screens

The aptly-titled Succession is back on our screens, courtesy of HBO and the brilliant creative writing team lead by Jesse Armstrong.

As always, the dialogue is witty and shines a light on the potential power dynamics in the corporate boardroom.

However, it’s not hard to see the parallels between Logan Roy, the all-powerful tycoon, and some of the tycoons in Asia…or perhaps a future 90-year-old President Xi Jinping and his children (party allies).