China has landed a spacecraft containing a rover on Mars, according to state media, in a further sign of its bold ambitions in the sphere.
The rover was part of the Tianwen-1 unmanned mission launched in July last year. Tianwen means “questions to heaven” and was named after a poem by Chinese poet Qu Yuan.
The mission, which was described by Chinese media as a “new major milestone” and the “first step in China’s planetary exploration of the solar system”, was intended to match the US by successfully landing on the red planet.
The Global Times reported that the lander and the rover from the Tianwen-1 probe reached a plain on Mars called Utopia Planitia on early Saturday morning local time, citing information from the China National Space Administration.
The Tianwen-1 probe’s lander and rover separated with the orbiter at about 4am, after which it had a three hour flight before entering Mars’ atmosphere, according to the newspaper.
The spacecraft then “spent around nine minutes decelerating, hovering for obstacle avoidance and cushioning, before its soft landing”. The rover is named Zhurong after a Chinese god of fire, and is 1.85m and weighs 240kg. It is expected to transverse the planet for about 92 days.
The probe was launched into space on July 23 by the Long March 5 rocket from the Wenchang launch pad in Hainan province, in the south of the country.
The achievement of the Mars landing is part of a wider expansion of China’s space programme. The country’s engineers launched the first part of its permanent space station into the Earth’s orbit late last month.
In 2018, China for the first time launched more vessels into orbit than any other nation.
The US views China’s efforts in space in strategic terms. “Beijing is working to match or exceed US capabilities in space to gain the military, economic and prestige benefits that Washington has accrued from space leadership,” according to the annual threat assessment published by the office of the US director of national intelligence.
Johnson and Biden set to focus on China in new UK-US accord
Boris Johnson and Joe Biden will on Thursday attempt to bury their differences by signing a 21st century “Atlantic charter”, committing Britain and the US to working together to tackle global challenges including the rise of an authoritarian China.
At their first face-to-face meeting, the UK prime minister and US president are expected to announce a task force charged with reopening transatlantic travel and agree in principle a deal to jointly develop technology, including artificial intelligence.
But the meeting in Cornwall ahead of the G7 summit is set to also involve tensions: Biden will urge Johnson to work with the EU to end the stand-off over post-Brexit trading arrangements for Northern Ireland.
Biden has been a critic of Johnson in the past, labelling him a “physical and emotional clone of Donald Trump” in 2019, and viewed Brexit as a mistake. He fears that it could destabilise the peace process in Northern Ireland.
Both sides have tried to reset the UK-US relationship ahead of Biden’s first presidential trip abroad and have decided to sign an Atlantic charter, 80 years after Winston Churchill and Franklin D Roosevelt mapped out a postwar global order.
Although Johnson is an admirer of Churchill, the new document is unlikely to have the same historical significance as the 1941 Atlantic charter, which led to the creation of the United Nations and Nato.
The 2021 document will outline eight broad areas of co-operation, including defending democracy, reaffirming the importance of collective security, building a fair trading system and dealing with cyber attacks.
China is not mentioned by name but the clear subtext is that the two leaders intend to co-operate in handling the strategic rivalry with Beijing. One British official said: “It’s not unreasonable to see a read-across to China.”
In an attempt to reinforce a sense of shared history, Johnson has asked his adviser John Bew, a history professor, to talk through with Biden some historical documents relating to the 1941 charter.
Johnson said: “While Churchill and Roosevelt faced the question of how to help the world recover following a devastating war, today we have to reckon with a very different but no less intimidating challenge — how to build back better from the coronavirus pandemic.
“Cooperation between the UK and US, the closest of partners and the greatest of allies, will be crucial for the future of the world’s stability and prosperity.”
Downing Street has confirmed that Johnson does not like Churchill’s phrase “special relationship” to describe the UK-US partnership — he is said to view it as “needy” — but in most other respects he is a big admirer of the wartime prime minister.
UK diplomats expect Biden, who was due to arrive in Britain on Wednesday evening, to put pressure on G7 countries to join the US in taking a tougher line with China.
Ahead of the G7 meeting at Carbis Bay, Cornwall, Johnson and Biden will set up a task force to explore restoring UK-US travel. The Biden administration has already begun to look at reopening international travel to Britain, the EU, Canada and Mexico.
Johnson and Biden will also set out plans for a technology agreement, to be signed next year, reducing the barriers that UK companies face when trying to work with their US counterparts in areas including AI.
India unseats China as home to Asia’s wealthiest tycoons
One thing to start: US tax authorities have launched an investigation into a leak of private records of billionaires including Warren Buffett, Jeff Bezos, Mike Bloomberg and Elon Musk that showed many of them have paid little tax even as their wealth ballooned.
Missed yesterday’s Greensill Capital event? Watch the discussion on-demand here as the FT team, including DD’s own Rob Smith and Arash Massoudi, take you inside the rise and fall of the controversial supply chain finance group.
Asia’s new reigning billionaires ascend the throne
Chinese entrepreneurs have long dominated the ranks of Asia’s richest people. Not any more.
India’s Mukesh Ambani and Gautam Adani sit in first and second place in a list of Asia’s wealthiest business people, according to Bloomberg data, with fortunes of $84bn and $78bn respectively.
The pair’s ascent underscores the shift taking place in India’s corporate and economic landscape, as the rapid development of recent years allowed a handful of powerful and politically savvy industrialists to dominate an ever-growing number of sectors from infrastructure to energy.
Their wealth has only accelerated during the pandemic, as the FT’s Hudson Lockett, Benjamin Parkin and Stephanie Findlay report.
A severe blow to India’s economy left smaller companies struggling to keep up with larger competitors, leaving investors with few options for betting on the country’s economic rebound.
As a devastating second wave of Covid-19 pandemic tore through the country, Ambani and Adani enjoyed the fruits of the record-breaking stock market rally that followed. The Nifty 50 index, which tracks India’s 50 largest companies, has risen about 10 per cent from its low in April as investors anticipate a recovery in domestic demand.
It’s a global trend, but one that analysts say has been particularly sharp in India, fuelling the polarisation of wealth and the country’s already striking inequality.
Ambani, chair of the oil-to-telecoms conglomerate Reliance Industries, has long ranked among the continent’s richest men and counts the likes of Google and Saudi Arabia’s Public Investment Fund among his many foreign investors. He’s been at work negotiating several high-profile deals in the past year, including an attempt to purchase the retailer Future Group, a move that has been challenged by Amazon as the two companies compete for control of India’s ecommerce market.
Adani’s rise, on the other hand, has been particularly swift and striking.
He enjoyed a 130 per cent boost to his fortune this year thanks to a soaring rally in listed Adani Group companies, which operate across ports, power and renewable energy. That has added about $44bn to his net worth.
But the prominent place of Indians atop Asia’s rich list also underscores the tough year for China’s once-mighty technology moguls.
Indeed, the third-richest man in Asia is Zhong Shanshan, founder of the bottled water business Nongfu Spring, with a net worth of about $71bn. Tencent founder Pony Ma and Ma follow him in fourth and fifth position, respectively.
As for the two Indian industrial moguls, perhaps they can celebrate their achievements with a few rounds on Ambani’s new UK golf course.
Cevian, your friendly neighbourhood activist
What’s the difference between “constructive activism” and a buy-and-hold strategy?
Cevian, Europe’s biggest activist investor and one which prides itself on a friendlier approach than some rivals, has built up a stake in the FTSE 100 insurer Aviva.
Its message to Aviva chief executive Amanda Blanc, who joined last year, is clear: go further and deeper.
The Swedish activist, which has taken aim at companies from Ericsson to Danske Bank and Thyssenkrupp to ABB, wants Aviva to return £5bn in excess capital next year after a recently announced flurry of disposals. The figure surpasses estimates by most analysts. It also wants cost cuts of £500m rather than the £300m targeted by management.
Some may conclude that backing a management team to be a bit better than the market currently expects constitutes a simple “long” position, rather than an activist attack. But the share-price gain on the news suggests a shift in the dynamic.
It could be that having a bogeyman high up on the shareholder roll helps Blanc force through change at Aviva.
But it also increases pressure to change the core business. Previous attempts to improve Aviva’s operational performance, and win back investor favour, have foundered.
Cevian’s demands on the cost line, including pushing for leaner management, could be trickier to navigate than non-core disposals. So far, discussions with the company have been positive, say people familiar with the matter.
As the FT’s Lex column puts it: “Aviva is a tempting target. Large, lethargic and underperforming, it has been a graveyard for managerial ambitions for at least a decade.” Whether or not such ambitions can be resurrected will depend on the numbers.
Private equity’s promised land
Back in 2019, the founders of KKR declared Japan their “highest priority” in the world. The excitement proved contagious, as other global private equity groups from Bain Capital and Blackstone to Apollo quickly followed.
Driving that optimism in recent years has been the corporate governance-driven rise in deals by the likes of Hitachi, Panasonic and Toshiba selling non-core assets and a succession crisis at many of the smaller-sized Japanese companies that have forced them to consider sales to private equity.
Now, Kazuhiro Yamada, the head of Carlyle’s Japan business, tells the FT that a new post-Covid business environment and carbon neutrality targets are further expected to accelerate that trend in 2021.
“Consumer behaviour and [the] business model changed drastically as a result of Covid-19, so companies that were hit have no choice but to carry out structural reforms,” Yamada says.
Combined with tougher business conditions created by the pandemic, companies are also buying new technologies and withdrawing from traditional areas that are not environmentally friendly to meet pressures for lower carbon emissions.
So while CVC’s recent $20bn buyout offer for Toshiba appears to have evaporated for now, the prediction from the US fund with the longest history in this country probably means that we’ll be seeing more private equity drama in corporate Japan.
Further reading: As private equity firms book the next flight to Tokyo, public markets have struggled to find investor appeal, the FT’s Leo Lewis writes.
Saudi Arabia’s Public Investment Fund has named head of international investments Turqi Alnowaiser and head of Mena (Middle East and north Africa) investments Yazeed Alhumied as deputy governors, newly created roles they will assume in addition to their existing responsibilities.
Linklaters has hired Ieuan Jolly as partner in New York, where he will focus on growing the firm’s technology, media and telecoms practice as well as co-chair of its US data solutions, cyber and privacy practice. He joins from Loeb & Loeb.
Ties that bind Jeffrey Epstein built a sprawling sex trafficking ring with money gleaned from his best billionaire client, the Ohio retail mogul Les Wexner. Their friendship, which Wexner says faded long ago, continues to haunt him to this day. (Vanity Fair)
Duty free The ultra-rich have found (perfectly legal) loopholes to avoid paying taxes. Their methods reveal a US financial system that enables dynastic wealth to thrive, while the middle class foots the bill. (ProPublica)
Start your engines The pick-up truck is an American icon. Electric vehicle start-ups are hoping to woo truck enthusiasts with their own models, while traditional players such as Ford and GMC churn out their own models to get in the race. (FT)
What does China’s coal shortage mean for trade?
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Hello from Hong Kong, where quarantine restrictions have been eased for senior directors of big listed companies. But rather than flows of people, our main piece today is about flows of energy in an age of environmental transformation. Few would predict a future where the role of coal has not declined dramatically. But for now, the outlook is, to put it mildly, blurred.
The link between trade and the price of coal
Tackling record commodity prices is on the minds of the Chinese Communist party’s top brass. And that raises questions over the production and trade of the country’s prime energy source: coal.
At a state meeting chaired by Chinese premier Li Keqiang last month, one line in particular will have jumped out to environmentally minded observers: the idea of tapping the country’s “rich coal resources”.
In September last year, China declared its commitment to reach net zero carbon emissions by 2060. But it still relies on coal for its electricity generation and, for now, it needs more of it.
“Almost all energy prices including coal, oil and gas have been rising rapidly in the past few months, prompting the Chinese government to prioritise energy security over decarbonisation concerns and reduction of fossil fuels like coal and gas,” said Cindy Liang, an analyst at S&P Global Platts, in late May.
Like many other commodities, prices for coal have recently soared. The wider raw material price rally has fuelled fears over inflation in China, with the same state council meeting emphasising the need to avoid them feeding through into consumer prices.
One of the main reasons why coal prices have shot up is a shortage in China, which is the world’s largest consumer of it. Analysts at Morgan Stanley point to a surge in power consumption, which in April rose 14 per cent year on year on the back of the country’s rapid recovery.
Coal production is up too, by 16 per cent in the first quarter compared with the same period last year, though mines were closed in early 2020 owing to the pandemic. But despite rising production, there are still pressures on supply to keep up with higher demand.
At the same time, domestic producers must comply with a tighter environmental backdrop, even if long-term targets are many decades away. Morgan Stanley notes that “domestic coal supply is under continued pressure from safety and environmental inspections”. Analysts at Argus, who anticipate higher coal consumption in the future, make a similar point.
“Market participants do not expect the government to allow significant production increases until after the celebration of the 100th anniversary of the Chinese Communist party on 1 July,” they wrote last Friday. “In fact, strict environmental and safety curbs are likely to stay in place as longer-term rules, even after the celebration.” The state council meeting emphasised not only coal production, but also wind, solar, hydro and nuclear capacity.
How does trade fit into this dynamic? Despite shortages, Chinese imports of thermal coal, which operate under a quota system and are only a fraction of total consumption, have plummeted by almost a quarter so far this year. That’s in part due to constraints on Australian coal amid worsening geopolitical relations between the two countries.
While prices are on the up the world over, foreign coal is far cheaper. In Australia, the active futures contract for thermal coal cut in Newcastle is $115.6 a tonne. In May, thermal coal futures on the Zhengzhou exchange surpassed the Rmb900 ($141) mark for the first time. As the chart below shows, this price discrepancy has gone on for years.
Against that backdrop, it might seem tempting for China to import more coal or at least avoid cutting imports further. The quota restricts imports to just 300m metric tonnes a year, compared with production of 3.81bn tonnes last year, according to S&P Global Platts. But another related dynamic is its push to reduce its reliance on other countries, which may explain the emphasis on its own resources.
Matthew Boyle, head of coal and Asia power at S&P Global Platts Analytics, expects coal production in China to peak in 2023. He says that China has continued to source coal from other countries, such as South Africa, but that the country is transitioning towards greater energy independence.
That ambition, which is also playing a role in gas, could point to a clearer trajectory for the trade of coal long before its consumption in China is significantly cut back. “As China moves towards self-sufficiency for its coal requirements,” he says, “its need for seaborne coal will become less.”
Tensions between Washington and Beijing rose another notch this morning, after the Biden administration said it was considering whether to launch a probe into imports of rare earth neodymium magnets from China. The probe would investigate whether tariffs could be introduced on security concerns. As those of you who read Ed White’s brief from Seoul last week will recall, China dominates the processing of minerals and rare earths vital for the production of goods such as mobile phones and electric vehicle batteries.
Relations between the EU and the UK over the Northern Ireland Protocol also look decidedly shaky, with Brussels now threatening to intensify action.
There are a couple of interesting reads on semiconductor chips. A big issue post-pandemic is going to be whether the automakers reduce reliance on just-in-time production, which left them with little to no chip inventory when the shortage hit. Bosch, Europe’s largest auto supplier, thinks the industry has to change tack and has warned carmakers must put “money on the table” and make a “rock solid” commitment to orders if they are to avoid a repeat of the events of the past year. There may be more trouble ahead for the likes of Europe’s automakers too, following an outbreak of Covid-19 in Taiwan, home to many of the chipmaking industry’s biggest participants. As Kathrin Hille writes, it is unlikely that this will affect the likes of larger manufacturers such as TSMC directly, but it may impact the smaller groups responsible for packaging their products. Nikkei also has an interesting take ($, requires subscription) on the vaccination crisis that has resulted from the latest surge in cases.
Industry groups from Japan and Finland, meanwhile, will conduct joint research and development of sixth-generation communications technology, looking to lead the creation of 6G standards in a field increasingly influenced by Chinese companies. (Nikkei, $)
Chad Bown of the Peterson Institute and Chris Rogers of S&P Global Market Intelligence have a new blog out, which posits that there was no US export ban on vaccines to India. However, they argue that the kerfuffle highlights exactly why a well-thought out global vaccine supply chain is so important. The post is summarised in a Twitter thread here too. Claire Jones
Will hot US inflation data unsettle markets?
Will hot US inflation data unsettle markets?
US government bonds rallied on Friday following a weaker-than-expected reading on American job growth for the month of May. But a key report on consumer price inflation will provide a fresh test for investors.
Consumer prices rose at its fastest pace in more a decade in the 12 months to April, but analysts project that it has picked up even more since then, raising fears that the economy is overheating.
Economists surveyed by Bloomberg expect the year on year inflation rate to have jumped to 4.7 per cent in May in figures to be released by the Department of Labor on Thursday, compared with 4.2 per cent in April.
The “core” inflation rate, which excludes the more volatile prices for food and energy, is expected to have risen from 3 per cent in April to 3.4 per cent in May, economists polled by Bloomberg project. That would be the highest level since the mid-1990s.
Jay Powell, the Federal Reserve chair, has been adamant that higher consumer prices are transitory, and that the central bank should maintain its $120bn a month bond-buying programme. Wall Street, on the other hand, is debating whether rising inflation might prove more persistent than expected, while investors say May’s result, even if higher than April’s, is likely to be too early to provide a definitive signal.
Rising inflation expectations have been a key factor in a sharp sell-off this year in US Treasuries, which has sent borrowing costs rising and caused several bouts of volatility in other markets.
“It’s probably going to be another 4 per cent number [for non-core inflation], which temporarily will reinforce the fear side of the equation,” said Jason Pride, chief investment officer in Glenmede’s private wealth practice. In July and August, he added, “we’ll probably start seeing more consistent moderation in the CPI figures. And that will finally start reinforcing the thesis that it’s transitory.” Aziza Kasumov
How will a brightening eurozone outlook affect the ECB’s policy plans?
The prospects for the eurozone economy have brightened considerably since the European Central Bank’s last monetary policy meeting in April.
But a string of ECB council members have said they still see little reason to change policy at this Thursday’s meeting, and its president Christine Lagarde even said late last month that it was “far too early” to discuss plans for reining in its €80bn monthly bond purchase programme.
Inflation in the 19-country eurozone bloc shot up to 2 per cent in May from 1.6 per cent the previous month, exceeding the central bank’s target for the first time in more than two years. However, ECB officials have said this is a temporary rise that will fade next year, meaning the central bank needs to maintain its supportive policy stance for longer.
Most economists agree. Holger Schmieding, chief economist at Berenberg, said: “As the current spike in headline inflation so far reflects only temporary factors, the ECB can afford to keep the pedal on the metal for another three months.”
The problem is that some countries, such as Germany, are set to recover faster than others like Italy and Spain, which credit rating agency Moody’s said in a report last week “will pose challenges for the ECB in terms of calibrating a common monetary policy”.
But Moody’s added: “We believe the ECB will maintain its highly accommodative monetary policy for the next several years, well after relatively stronger economies such as Germany have exhausted their spare capacity.” Martin Arnold
Will the renminbi resume its sharp ascent?
The renminbi will be closely watched by traders after the Chinese government took steps last week to slow a sharp rally.
The measures, announced by the People’s Bank of China, will force lenders to hold more foreign currency — a method of tempering the currency not deployed since the financial crisis.
The renminbi has gained 11 per cent against the dollar over the past year, notwithstanding a wobble last week. The rally has come against a backdrop of China’s rapid recovery from the pandemic. Investors last year rushed to invest in Chinese stocks and bonds, helping to further support the currency.
Its strength now poses yet another challenge for policymakers already grappling with high commodity prices and concerns over leverage across an unbalanced economy.
The country’s recovery has been fuelled by industrial growth and, despite the strength of the renminbi, booming exports. But central bank members have expressed mounting concerns over the impact of a global commodity rally on factory gate prices in China.
Last month, an editorial from a PBoC official suggested the renminbi should be allowed to appreciate to offset higher commodity prices, but the article was subsequently deleted. A stronger renminbi against the dollar makes Chinese imports cheaper.
This week, data on both trade and inflation, out on Monday and Wednesday respectively, will shed further light on the economy’s progress, and stand to inform future central bank policy interventions on the renminbi. Thomas Hale
Mario Draghi sets tone in cooling EU-China relations
It was this year’s aborted takeover of an obscure Italian company with little more than 50 employees that illustrated just how far one of China’s biggest diplomatic successes in Europe had unravelled.
In 2019, Rome stunned its US and European allies when Italy’s then populist coalition government became the first G7 member to sign up to China’s Belt and Road Initiative. Signed during a state visit by Chinese president Xi Jinping, the agreement propelled Italy to the frontline of Beijing’s battle for global power and influence.
But then, two years later, Italy’s newly appointed prime minister Mario Draghi quietly signed a decree that symbolically ended China’s Italian courtship and contained Beijing’s beachhead in western Europe.
Italy’s last government had already begun to cool on Chinese investment amid significant US pressure. Even so, Draghi’s move marked a decisive Italian shift towards a foreign policy he has described as “strongly pro-European and Atlanticist, in line with Italy’s historical anchors”.
It also presaged a broader EU rethink of Chinese relations that, most recently, has led to the European parliament freezing its pending trade deal with Beijing.
“To make it look like Italy is aligned with the US, sometimes you need to do little things to prove it,” said Michele Geraci, a China expert who, as undersecretary for economic development, was one of the architects of Italy’s Belt and Road agreement with Beijing.
It was “a political statement to show we are worried about predatory acquisitions, and that we are aligned with our American friends”, Geraci added. Italy’s participation in China’s BRI remains technically in force but has been rendered essentially meaningless and no major deals have taken place.
The Sino-Italian unravelling began in December, two months before Draghi was appointed prime minister. Shenzhen Investment Holdings, a partially state-owned Chinese company, struck a deal to buy a 70 per cent stake in LPE, a privately held Milan-based company that makes semiconductor equipment.
But in March, with the Draghi government now in place, the decision to grant permission for the takeover landed, as a matter of routine, on the desk of Italy’s new minister for economic development, Giancarlo Giorgetti.
A veteran lawmaker from the rightwing League party, Giorgetti proposed invoking Italy’s so-called Golden Power laws to block foreign takeovers. Draghi signed the decree blocking LPE’s sale at a cabinet meeting on March 31, citing a shortage of semiconductors, which made LPE part of a “strategic sector”.
LPE, which produces components for power electronics applications that are also used “in [the] military field”, as the decree described it, declined to comment. Shenzhen Invenland Holdings has said it will continue to co-operate with LPE in certain areas.
Draghi’s decision was a watershed for Italy and, Italian diplomats say, perhaps also for the EU.
Only a few years ago, Italian politicians had enthused about how Chinese money would help the struggling economy. Italy was Europe’s third-biggest beneficiary of Chinese investment between 2000 and 2019, according to Rhodium Group, receiving a total of €15.9bn versus €50bn in the UK, €22.7bn in Germany and €14.4bn in France.
As of 2020, more than 400 Chinese groups also held stakes in 760 Italian companies across “highly profitable or strategic sectors”, according to Italy’s parliamentary committee on national security, Copasir.
But today, partly because the pandemic has left many Italian businesses vulnerable, Draghi’s government is taking a less lenient approach towards strategic foreign investments than previous administrations and is not holding back from exercising its golden rules to curtail them.
Last month, buttressed by €205bn of EU recovery funds, Italy co-ordinated with France to undercut the sale of Italian truckmaker Iveco to China’s FAW group. This week, although Rome conditionally authorised a 5G infrastructure supply contract between Vodafone Italy and China’s Huawei, it came with strict security conditions.
“The shift towards China belongs to the past,” said Edoardo Rixi, a League MP. “That political current today barely exists.”
Not everyone believes cooler relations with Beijing are in Italy’s or Europe’s best interests.
Speaking this week, former prime minister Romano Prodi said: “Up until a few months ago . . . the situation [between China and the EU] was more relaxed, but now the accord has been frozen.” Prodi added that, given the mutually strained relations, “both sides must change their attitude . . . right now it’s formally impossible to do anything”.
Geraci also fears the shift by the Draghi government towards China will have economic repercussions for Italian companies in Beijing.
“Officially the market for Italian goods in China is €13bn a year, but in fact it is three times that size when you count products made in Italy that then are bought by China via third countries. It is a hugely important market for us.”
How relations might be recalibrated, though, remains an open question.
Lia Quartapelle, a member of the Italian parliamentary foreign affairs committee for the centre-left Democratic party, said that the previous pivot towards China was an aberration of Italian foreign policy that opened a “geostrategic gash” in the heart of Europe.
Now, however, “Draghi’s calibre not only enables us to reinforce western values, but to be the engine of recovery in the post-pandemic era”, she added.
Furthermore, with Germany absorbed by elections this year and France next year, Draghi is an important European player whose staunch Atlanticism could influence broader EU policy towards China.
“Italy’s role in keeping the rudder straight will soon become even more crucial,” said Emma Bonino, a former Italian minister of foreign affairs.
“Certainly dealing with China’s policy remains complicated; we cannot pretend that the country does not exist,” she added. “We can trade with China as with the rest of the world, but we must be clear about the differences and divergences between us and them.”
Additional reporting by Qianer Liu in Shenzhen
ChinaAMC completes takeover of BMO’s Hong Kong ETF range
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ChinaAMC (HK) has completed its takeover of BMO Global Asset Management’s seven Hong Kong exchange traded funds and plans to use the acquisition to expand its market share in the territory’s HK$1tn ($128.8bn) Mandatory Pension Fund.
Katie He, Hong Kong-based head of product and strategy at ChinaAMC, said the Chinese manager had negotiated a “bargain deal” to take over the BMO’s product offerings in Hong Kong.
“It’s really worth the price for the [business] prospects [they bring],” He said, but declined to reveal the exact terms of the deal.
One person familiar with the matter said that ChinaAMC paid HK$1m to take over the seven Hong Kong-listed ETFs, an amount which mainly covered the transaction costs of the deal.
The $560m in assets held in the seven ETFs will add to ChinaAMC’s total $2.89bn in ETF assets under management across its existing 18 Hong Kong-listed ETF and mutual fund strategies, according to data from Morningstar Direct as of end-April.
ChinaAMC is currently the fifth-largest ETF provider in Hong Kong, with a 6.67 per cent market share in terms of AUM as of end-April. BMO ranked ninth, with 1.3 per cent of the ETF market.
As well as trying to grow assets in the BMO ETFs, ChinaAMC is also planning to diversify its existing ETF product range beyond greater China, citing more demand for less-mainstream ETFs.
Ignites Asia reported in September that BMO GAM planned to withdraw from the Hong Kong ETF market after years of struggling to achieve growth, despite a huge rise in wealth in the territory.
BMO’s product range had a mainly non-China focus.
While in theory the acquisition could help boost assets for ChinaAMC in Hong Kong, some BMO funds might be too small to attract institutional investors, said Jackie Choy, Hong Kong-based head of ETF research for Asia at Morningstar.
One of the ETFs has only $7m in assets under management while another has an even smaller $1m. “These would be pretty small and pretty hard to get into the institutional space as well because of the small fund size,” Choy said.
But ChinaAMC, however, said there were good prospects for business growth given that the BMO ETFs are among the 138 approved index-tracking collective investment schemes (Itcis) that are used by the MPF, the territory’s default pooled pension scheme.
“We have a lot of comfort about it, they made a very good strategic decision,” said He.
The fact that the investment exposures of these seven ETFs are not the most widely used or popular in the MPF could limit their usage.
“The purchase does give them exposure into MPF through the fact that the funds are approved Itcis, but they are also exposures into non-core areas of [the] MPF,” said Francis Chung, Hong Kong-based founder of MPF Ratings.
Other Itcis also cover some of the same markets as BMO GAM’s ETFs. BlackRock, for instance, has at least a dozen iShares ETFs dedicated to investing in single countries across the globe, some of which have the same exposure as the ones ChinaAMC has now acquired.
ChinaAMC declined to reveal which MPF trustees are currently using the ETFs that it and BMO GAM manage.
Daniel Mak, Hong Kong-based vice-president of business development for ChinaAMC, said the BMO Nasdaq 100 ETF had seen “substantial growth” over the past month, which could suggest some MPF inflows have been directed into it.
ChinaAMC said it would not change the investment scope or operation of the seven BMO ETFs, which was a “premise” of the deal.
It was “less complicated” to make this acquisition of new ETFs compared with developing a similar range of products, according to ChinaAMC’s Mak.
Striking the deal means ChinaAMC had immediate access to BMO GAM’s ETF clients so the manager can also conduct “cross-sales” among different client bases, he added.
*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.
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