SinoInsight 1
On March 19, China Tonghai Securities gave shares of Meituan Dianping a “sell” rating in a note. China Tonghai Securities gave a price target for Meituan at 34.33 Hong Kong dollars per share, or 37 percent lower than the stock’s closing price on March 18 (HKD 55.35). The closing price of Meituan shares was HKD 48.95 on March 20, down 11.65 percent since the “sell” rating was issued.
On March 11, Meituan announced that its revenue for 2018 was 65.227 billion yuan ($9.748 billion), up 92.25 percent from the previous year. However, the company’s losses totaled 115.493 billion yuan, or six times its losses in 2017 (18.988 billion yuan).
OUR TAKE
1. The so-called “internet model” (which Li Keqiang refers to as “Internet Plus”) employed by Meituan and other Chinese tech companies is dependant on a healthy or optimistic economy. Meituan’s losses and the recent “sell” rating for its shares confirm our assessment of downward macroeconomic trends in China.
2. In an earlier article, we wrote: “The “Internet Plus” economy promoted by the Chinese Communist Party is turning out to be more illusory than a workable model of innovation for the economy. In fact, the “Internet Plus” economy hides the serious worsening of China’s real economy. We believe that the “Internet Plus” bubble will inevitably be squeezed by pressure from the Sino-U.S. trade war.”
In our China 2019 outlook, we noted that: “There is a possibility that big Chinese tech companies (not including Baidu, Alibaba, and Tencent) could collapse in 2019.”
3. Meituan has among its major shareholders companies like Tencent and Sequoia Capital. Meituan also has abundant funding as compared to other “Internet Plus” firms. Hence, we believe that Meituan’s ability to cope with risks is relatively strong.
If the Chinese economy continues spiraling downwards, however, Meituan’s “internet model” and cash-burning strategy will be hard to maintain.
4. We believe that stability in the CCP regime will be hugely impacted should Meituan lose funding channels in the future and is forced to close.
SinoInsight 2
On March 19, Heilongjiang Party secretary Zhang Qingwei held a press conference on the issue of alleged illegal villa construction in Mudanjiang City, according to local official media.
Wang Yongkang, a member of the provincial Party Standing Committee and a member of the provincial government Party group, was introduced at the press conference as chief of the investigation team that will “rectify” and “clean up” the illegal villa construction issue in Heilongjiang.
OUR TAKE
1. Wang Yongkang’s career progression suggests that he is part of the Xi camp.
Wang was Xi Jinping’s subordinate during the latter’s time as Party secretary of Zhejiang. When Xi was Zhejiang boss, Wang served as deputy secretary-general of the Ningbo Municipal government, as well as mayor and Party secretary of Yuyao City.
After Xi took office in 2012, Wang was promoted from mayor of Zhejiang’s Lishui municipality to its Party secretary, and held the position from March 2013 to January 2016. Wang was then promoted to chief of Zhejiang’s United Front Work Department, a vice ministerial-level appointment and a rapid promotion seeing that he was only Lishui boss for less than three years. Within the year, Wang was transferred to Xi’an, the capital of Shaanxi Province, to serve as the city’s Party secretary. He spent less than two years and three months at the Xi’an job (December 2016 to February 2019) before being posted to his current positions in Heilongjiang. All in all, Wang Yongkang held four posts in six years and was promoted from the bureau-level up to the vice ministerial-level.
2. According to various news reports, Hu Haifeng, the son of Hu Jintao, is tipped to take up the Xi’an Party secretary post which Wang Yongkang vacated in February. The younger Hu is currently Party secretary of Lishui City in Zhejiang, a position which Wang formerly held.
Xi Jinping and Hu Jintao are political allies. If the reports of Hu Haifeng’s imminent appointment prove accurate, then Xi has clearly granted him a promotion opportunity. We believe that there is a very good chance that Hu will be assigned to the Xi’an post.
3. Based on our research into CCP factional politics, Xi Jinping did not establish a faction before coming becoming Party General Secretary. Thus, he had a need to promote and groom cadres while in office to build up his own power networks and eventually push out the senior officials who climbed the ranks during Jiang Zemin’s era of dominance (1997-2012). Over the past six years, we have observed a pattern of Xi promoting younger civilian and military officials, particularly those at the deputy bureau-level and up (or colonels and junior generals in the military), while replacing older cadres in the senior ranks. To staff senior positions, Xi has turned to former colleagues, allies, or friends from his youth.
The career trajectory of Wang Yongkang and Hu Haifeng fits the pattern we identified.
