As the U.S. mid-term elections approach and regardless of who wins them, it is widely expected that China is likely to face more restrictions from the U.S. Government. According to a Bloomberg report from late last month, citing Minority Leader Kevin McCarthy, Republicans have already indicated that if they win control, they would set up a committee to investigate the origin of COVID-19 from China and will focus on the economic and military threats posed by China.
The committee would also look at the allegations of theft of intellectual property from U.S. companies and the way China looks at dominating key industries in the U.S.
President Biden’s administration has already started cranking up the heat on China as last month, it unveiled a slew of export restrictions to restrict China from accessing advanced chips. Biden has also sought to end the U.S. chip shortage by incentivizing chipmakers to build facilities in the U.S. through the CHIPS Act.
The Biden administration also unveiled a new defense strategy last month citing China as the United States’ “most consequential strategic competitor for the coming decades” and added that the country was a significant threat to American national security.
China’s Troubles Continue to Mount
The recent trade data from China indicates that the country’s imports and exports both contracted in the month of October, its first slump since May 2020. China’s trade surplus stood at $85.2 billion in October, missing forecasts of $95.9 billion.
Exports dropped 0.3% year-over-year in October, the first fall since May 2020 while imports contracted 0.7% year-over-year, the first contraction since August 2020.
Indeed, Apple (AAPL) has already warned of lower-than-expected shipments of iPhone 14 as COVID curbs in China wreak havoc at its production facility in Zhengzhou, China.
A combination of COVID-19 curbs in China and the U.S. becoming increasingly hostile towards the country could deeply affect Chinese companies.
Steep Fall in Chinese Stocks
Let us take a look at some of the popular Chinese stocks listed on the U.S. markets that have significantly lost value in the past year.
- Alibaba (BABA): Shares of the Chinese e-commerce giant have lost more than 50% this past year. The extreme anti-COVID policies that China has implemented this past year have hurt Alibaba. However, the company reported a Q1 top line of $30.7 billion, beating the forecast by just over 1%. Nevertheless, as a reflection of the difficult operating environment, the revenue print was flat year-over-year for the first time in the company’s history.
- Shares of popular Chinese EV makers including NIO (NIO), Li Auto (LI), and XPeng (XPEV) have tanked by more than 70%, 40%, and 80%, respectively in the past year.
While NIO’s vehicle deliveries in October jumped 174.3% year-over-year, Li delivered 10,052 vehicles in October.
However, XPeng’s vehicle deliveries declined 50% year-over-year in October.
Bottom Line
It seems Chinese stocks could be volatile in the near future as the increasing animosity between the U.S. and China could result in the U.S. enforcing more restrictions on the country. Chinese companies could also be subjected to more scrutiny in the U.S. as the country is perceived as a threat to American security.
To add to China’s woes, the country seems to be intent on pursuing a zero-COVID policy at the risk of economic disruption.
