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US-China Market Watch: Tech Earnings, New Trade Deal

June 5, 2017
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Roundup of the latest U.S.-China business and industry news.

Chinese stocks – high offshore, low onshore

It’s a great time to be an investor in Chinese stocks—provided you are not located in China.

One key barometer of international investors in Chinese equities—the MSCI China Index—reached new highs during the month of May. At the same time, the Shanghai Composite Index, which is designed to follow onshore stock markets, has plummeted.

Market watchers attribute the weakness to China’s efforts to reduce leverage in a broad de-risking strategy by the government. China accumulated record levels of debt during the financial crisis, which poses systemic risks, and Chinese leaders are set on cutting back. The government plan has stoked fears that mainland-based Chinese companies could be allowed to default on their debt.

At the same time, U.S.-based investors are drawn to China’s relatively stable currency and the healthy earnings of Chinese corporations.

Alibaba earnings growth

One of the most closely watched Chinese companies, Alibaba Group, reported healthy earnings growth in the recent quarter. The news from the Chinese online retailer is seen as a good sign that China’s consumers are buying more goods online. Two of Alibaba’s top rivals—Tencent and—also posted profit growth in the recent quarter.

U.S. beef, poultry, gas imports and exports to China set to rise

A new trade agreement has raised hopes that U.S. companies may be able to export more of their products to China, in particular U.S.-based beef.

The new agreement, reached in May, would allow for increased trade covering a range of U.S. sectors, including agriculture, energy and financial services. Beef raised in the U.S., in particular, would benefit, as the agreement will end China’s ban, which has been in place since 2003. The Chinese beef market is estimated at $2.6 billion, according to the U.S. Meat Export Federation. In addition, China will now be allowed to export cooked poultry into the United States, as concerns over food safety and hygiene continue to be addressed.

The agreement is also slated to liberalize energy trading, as Chinese companies will be allowed to purchase contracts for liquefied natural gas from U.S. suppliers. American companies have applied for permits to construct facilities in China to process the liquefied gas.

New Chinese smartphone set to enter U.S.?

Tech watchers are eagerly awaiting an announcement from one of China’s top smartphone manufacturers of its plans to enter the U.S. market.

Xiaomi, based in Beijing, is expected to hit the U.S. market in the next couple of years with one of its mid-range models, such as Redmi, and to bring its more advanced models, like Mi Max, later. Xiaomi’s phones are considered some of the best-designed devices in the smartphone space, and many industry observers expect the phones will offer strong competition to Apple, Samsung and other top U.S. players.

Many experts had anticipated that Xiaomi would have entered the U.S. market by now, but the company’s forays into India and other markets were so successful, that Xiaomi had to tap the brakes on its expansion plans.

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