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China is no longer just any emerging market

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A worker disinfects the Sanlitun shopping complex in Beijing in June as stores in the area were closed for three days after a Covid outbreak. There’s greater caution on China this year, as stringent Covid controls drag on and as growth takes a backseat. Analysts note longer-term trends of China’s reduced dependency on foreign investment and intellectual property.

Kevin Frayer | Getty Images News | Getty Images

BEIJING — China is no longer just another emerging market play. Now, the country is becoming its own beast — with all the risks and rewards that come with being a world power.

There’s greater caution on China this year, as stringent Covid controls drag on and as growth takes a backseat. Analysts note longer-term trends of China’s reduced dependency on foreign investment and intellectual property.

That’s all on top of Beijing’s crackdown on the internet tech sector and real estate developers in the last two years.

Foreign investors are reacting. The share of Chinese stocks in the benchmark MSCI emerging markets index fell from a peak of 43.2% in October 2020 to 32% in July 2022, Morgan Stanley analysts pointed out.

In the meantime, exchange-traded funds tracking emerging markets — but not China — saw assets under management surge from $247 million at the end of 2020 to $2.85 billion as of July 2022, the report said.

WisdomTree last month became the latest firm to launch an emerging markets ex-China fund, following Goldman Sachs earlier in the year.

This mood has shifted from China being one of the most attractive places to invest in the world … to the fact that the rivalry [with the U.S.] has introduced an uncertainty element and quite a substantial risk element

Ketan Patel

co-founder and CEO of Greater Pacific Capital

“We definitely hear clients [saying], maybe given the current political environment, maybe dial[ing] down China could be a better strategy,” said Liqian Ren, leader of quantitative investment at WisdomTree.

So far, she said, the number of clients excluding China isn’t “overwhelming,” and by metrics such as per capita GDP the country remains an emerging market.

The category includes Brazil and South Korea and refers to economies with generally faster growth than developed economies such as the U.S. — and more risk.

Rivalry with the U.S.

But what Ren and others say is different for China now is that the U.S. has named it a strategic competitor. Most recently, the Biden administration further restricted China’s ability to use U.S. tech for developing advanced semiconductors.

“This mood has shifted from China being one of the most attractive places to invest in the world and how much certainty there was perceived to be in policy, to the fact that the rivalry [with the U.S.] has introduced an uncertainty element and quite a substantial risk element,” Ketan Patel, co-founder and CEO of Greater Pacific Capital, said last month.

People aren’t going to ignore China, “but the level of excitement has changed,” said Patel, former head of Goldman Sachs’ Strategic Group.

We've once again downgraded our forecast for China's growth, says IMF

And rather than seeing China as a developing country — which it is especially in rural areas — foreign investors would see it more “as a great power opportunity,” Patel said. He also chairs the Force for Good initiative, which promotes investment as a way to achieve sustainable development worldwide.

Beijing is also presenting itself as a great power.

Chinese President Xi Jinping has pushed the country not only to be self-sufficient in tech and energy, but lead other nations with alternative — if not competing — systems for finance, navigation and international relations. Those include a Global Development Initiative and Global Security Initiative.

Within China, the government under Xi has increased its role in the economy.

The share of state-owned enterprises in the top 10 Chinese companies rose by 3.6 percentage points between 2020 and 2021, despite an overall decline of 10 percentage points over the last decade, Rhodium Group said. In all, the report said those state businesses account for more than 40% of the top 10 — well above the open-economy average of 2%.

“We also cannot accurately measure informal barriers to market competition—for example, informal discrimination against foreign and private companies, industrial policies, or the presence of Communist Party committees,” the report said.

New party office rules

The growing role of the Chinese Communist Party under Xi is now a greater concern for finance — an industry in which China has recently allowed more foreign ownership.

Chinese law has long required internal party committees — for companies with at least three party members. However, enforcement began to pick up only after 2012, according to the Center for Strategic and International Studies.

An internal party committee, or office, gathers together a company’s employees who are members of the Communist Party of China. They may then hold events such as studying “Xi thought.”

New rules from the China Securities Regulatory Commission that took effect in June say securities investment funds in China need to set up an internal party office.

When asked about the new rules, the securities regulator said they are in line with corporate governance principles and Chinese law, and there’s “no need to worry at all” about data security, according to a CNBC translation of the Chinese.

Read more about China from CNBC Pro

It’s unclear what role such party offices play in business operations, said Daniel Celeghin earlier this year, when he was managing partner at consulting firm Indefi.

But before the pandemic, he said, at least one large Western asset manager decided not to set up a subsidiary in China because once they learned establishing a party cell would be required, “that overcame all of the potential commercial gains.”

China’s appeal

Funds such as a few from WisdomTree offer ways to invest in emerging markets without putting investors’ money into state-owned enterprises.

In China, the market capitalization of non-state-owned companies has grown to about 47%, up from 35% a decade ago, according to Louis Luo, investment director of multi-asset at Abrdn.

The upcoming Chinese Communist Party congress will be more of a “confirmation of what’s been in place,” Luo said, adding that he expects a return of some policies that are more market-friendly. Sectors he’s betting on for the long term include consumption, green tech and wealth management.

Even with slower growth, China’s future attractiveness may lie in just offering an alternative to investing in other countries.

Global markets have been roiled this year by the U.S. Federal Reserve and other central banks’ attempts to curb inflation by aggressively hiking interest rates. But the People’s Bank of China has been going in the opposite direction.

A fundamental difference between emerging markets and developed ones is how independently they can make their monetary policy from the United States, Luo said. “From that point of view, I think China stands up.”



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Ford CEO says 65% of U.S. dealers agree to sell EVs

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Ford F-150 Lightning trucks manufactured at the Rouge Electric Vehicle Center in Dearborn Michigan.

Courtesy: Ford Motor Co.

DETROIT – About 65% of Ford Motor’s dealers have agreed to sell electric vehicles as the company invests billions to expand production and sales of the battery-powered cars and trucks, CEO Jim Farley said Monday.

About 1,920 of Ford’s nearly 3,000 dealers in the U.S. agreed to sell EVs, according to Farley. He said roughly 80% of those dealers opted for the higher level of investment for EVs.

Ford offered its dealers the option to become “EV-certified” under one of two programs — with expected investments of $500,000 or $1.2 million. Dealers in the higher tier, which carries upfront costs of $900,000, receive “elite” certification and be allocated more EVs.

Ford, unlike crosstown rival General Motors, is allowing dealers to opt out of selling EVs and continue to sell the company’s cars. GM has offered buyouts to Buick and Cadillac dealers that don’t want to invest to sell EVs.

Dealers who decided not to invest in EVs may do so when Ford reopens the certification process in 2027.

“We think that the EV adoption in the U.S. will take time, so we wanted to give dealers a chance to come back,” Farley said during an Automotive News conference.

Ford’s plans to sell EVs have been a point of contention since the company split off its all-electric vehicle business earlier this year into a separate division known as Model e. Farley said the automaker and its dealers needed to lower costs, increase profits and deliver better, more consistent customer sales experiences.

Farley on Monday also reiterated that a direct-sales model is estimated to be thousands of dollars cheaper for the automaker than the auto industry’s traditional franchised system.

Wall Street analysts have largely viewed direct-to-consumer sales as a benefit to optimize profit. However, there have been growing pains for Tesla, which uses the sales model, when it comes to servicing its vehicles.

Ford’s current lineup of all-electric vehicles includes the Ford F-150 Lightning pickup, Mustang Mach-E crossover and e-Transit van. The automaker is expected to release a litany of other EVs globally under a plan to invest tens of billion of dollars in the technologies by 2026.



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Tim Draper predicts bitcoin will reach $250,000 despite FTX collapse

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Tim Draper, founder of Draper Associates, onstage at the Web Summit 2022 tech conference.

Ben McShane | Sportsfile via Getty Images

Venture capitalist Tim Draper thinks bitcoin will hit $250,000 a coin by the middle of 2023, even after a bruising year for the cryptocurrency marked by industry failures and sinking prices.

Draper previously predicted that bitcoin would top $250,000 by the end of 2022, but in early November, at the Web Summit tech conference in Lisbon, he said it would take until June 2023 for this to materialize.

He reaffirmed this position Saturday when asked how he felt about his price call following the collapse of FTX.

“I have extended my prediction by six months. $250k is still my number,” Draper told CNBC via email.

Bitcoin would need to rally nearly 1,400% from its current price of around $17,000 for Draper’s prediction to come true. The cryptocurrency has plunged over 60% since the start of the year.

Digital currencies are in the doldrums as tighter monetary policy from the Fed and a chain reaction of bankruptcies at major industry firms including Terra, Celsius and FTX have put intense pressure on prices.

FTX’s demise has also worsened an already severe liquidity crisis in the industry. Crypto exchange Gemini and lender Genesis are among the firms said to be impacted by the fallout from FTX’s insolvency.

Last week, veteran investor Mark Mobius told CNBC that bitcoin could crash to $10,000 next year, a more than 40% plunge from current prices. The co-founder of Mobius Capital Partners correctly called the drop to $20,000 this year.

Nevertheless, Draper is convinced that bitcoin, the world’s largest cryptocurrency, is set to rise in the new year.

“I expect a flight to quality and decentralized crypto like bitcoin, and for some of the weaker coins to become relics,” he told CNBC.

What is DeFi, and could it upend finance as we know it?

Draper, the founder of Draper Associates, is one of Silicon Valley’s best-known investors. He made successful bets on tech companies including Tesla, Skype and Baidu.

In 2014, Draper purchased 29,656 bitcoins confiscated by U.S. Marshals from the Silk Road dark web marketplace for $18.7 million. That year, he predicted the price of bitcoin would go to $10,000 in three years. Bitcoin went on to climb close to $20,000 in 2017.

Some of Draper’s other bets have soured, however. He invested in Theranos, a health startup that falsely claimed it was able to detect diseases with a few drops of blood. Elizabeth Holmes, Theranos’ founder, has been sentenced to 11 years in prison for fraud.

‘The dam is about to break’

Draper’s rationale for bitcoin’s breakout next year is that there remains a massive untapped demographic for bitcoin: women.

“My assumption is that, since women control 80% of retail spending and only 1 in 7 bitcoin wallets are currently held by women, the dam is about to break,” Draper said.

Crypto has long had a gender disparity problem. According to a survey conducted for CNBC and Acorns by Momentive, twice as many men as women invest in digital assets (16% of men vs. 7% of women).

“Retailers will save roughly 2% on every purchase made in bitcoin vs dollars,” Draper added. “Once retailers realize that that 2% can double their profits, bitcoin will be ubiquitous.”

Payment middlemen such as Visa and Mastercard currently charge fees as high as 2% each time credit cardholders use their card to pay for something. Bitcoin offers a way for people to bypass the middlemen.

However, using the digital coin for everyday spending is tough, since its price is very volatile and the coin is not widely accepted as currency.

“When people can buy their food, clothing and shelter all in bitcoin, they will have no use for centralized banking fiat dollars,” Draper said.

“Management of fiat is centralized and erratic. When a politician decides to spend $10 trillion, your dollars become worth about 82 cents. Then the Fed needs to raise rates to make up for the spend, and those arbitrary centralized decisions create an inconsistent economy,” he added. Fiat currencies derive their worth from their issuing government, unlike cryptocurrencies.

Meanwhile, the next so-called bitcoin halving — which cuts the bitcoin rewards to bitcoin miners — in 2024 will also boost the cryptocurrency, according to Draper, as it chokes the supply over time. The total number of bitcoins that will ever be mined is capped at 21 million.



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