Asia Tea Time - Cup 26 ☕

September 08, 2023 • Estimated Reading Time: 6 minutes

This week, I cover news on China's currency, Apple, and Hong Kong.

Macro in Asia

China’s currency hits 16-year low against the US dollar

China’s currency, the renminbi, hit a low point against the US dollar that it hasn’t reached since back in 2007.

Poor data and a rumbling property crisis in the world’s second-largest economy are contributing to the malaise.

Why it’s happening

  • China’s currency is controlled, according to levels that the government wants it to be at, and that’s typically been something that other countries have been salty about.

  • However, the recent weakness has been more of a result of strength in the US dollar, with its higher interest rates, and the fact that China’s economy isn’t as strong as everyone hoped

Why it matters

  • China’s economy matters – its GDP was worth around US$19 trillion in 2022. As a result, what happens with China’s currency (and economy) impacts the rest of the world.

  • With a brewing property crisis, there have been louder and louder calls for the Chinese government to take decisive action and bring out a huge “bazooka” of fiscal spending measures that should help support growth.

  • Yet the Chinese government remains reluctant to assuage the market’s fears.

What’s next?

  • Where the property crisis goes from here is on everyone’s minds, as are all data points related to the Chinese economy – particularly the impact on the consumer.

Tim’s Take

China’s economy has been disappointing investors as the rebound from Covid-19 proved to be short-lived.

Weak export data has highlighted that consumers worldwide are pulling back on spending, affecting China’s manufacturing heft.

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Indeed, if China doesn’t take decisive action and the current situation is allowed to fester, then many commentators believe the country could suffer a “lost decade” – much like Japan did after its stock market and property bubble burst in the late 1980s.

With pressure on the geopolitical and technology fronts – particularly in the space of hi-tech – China’s economy is being buffeted by headwinds that could eventually force the hand of the government.

Company spotlights

Apple iPhone ban in China impacts tech giant and its supply chain

Apple Inc (NASDAQ: AAPL), the world’s most biggest company, saw around US$200 billion of value evaporate after its iPhones were apparently banned by China’s government.

It was reported that central government official are not permitted to bring iPhones into the office or use them for work.

Why’s it news?

  • In case you haven’t noticed, geopolitical tensions are ramping up and China’s government is starting to study what’s an IT “security risk” and what isn’t.

  • Apple iPhones, as well as other foreign-branded devices, are having restrictions placed on them.

  • It’s not only impacting Apple but also its supply chain, with parts makers and chip firms in Taiwan seeing their share prices get hit this week.

Why it matters?

  • China’s consumer makes up a big part of the business for Apple, with the country accounting for nearly 20% of the firm’s 2022 revenue.

  • Beyond that, the multiple component firms that are part of Apple’s intricate supply chain (many of them based in Asia) are getting hit by the news.

What’s next?

  • Investors should be watching for any official government statement surrounding the ban and potentially what it means for foreign tech firms in China.

Tim’s Take

It’s not really a surprise to see the Chinese government “strike back” at US-based tech firms with a ban on devices from the world’s pre-eminent consumer brand.

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Perhaps what’s more interesting is that the ban came in the same week that news came out that Huawei – remember them? – have released a phone that comes equipped with an advanced semiconductor that was made by China’s chip giant SMIC.

With techno-fear heating up on both sides, it seems likely that both countries are going to try to score “easy wins” where possible.

Tim’s money tip of the week [applicable for Singapore only]

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Story of the week

In Hong Kong, it’s been a rainy few weeks. First there was Typhoon Saola, where the T10 signal was raised, and then this week a black rainstorm signal was hoisted.

Indeed, it was the worst rainfall that the Chinese city has seen since 1884.

Frequent flooding, with reports of sunken roads, were a common sight for Hongkongers Friday morning.

A slew of landslides also hit Hong Kong island with many videos circulating on social media of the water damage that the rain inflicted.

For many, this freak event is just more evidence that extreme weather around the world is here to stay.