In China, Elon Musk may be in town -- never before has "factory owner visits factory" received more coverage -- but there's little else going right at the moment for China's economy, and as a result for Chinese stocks.
Both the mainland and Hong Kong markets are flirting with bear territory, as I'll explain later. Today's stats show that manufacturing activity shrank yet again and missed estimates.
Under such circumstance, it's a visit from a compliant bigwig executive that is exactly what Beijing likes to see. Tesla (TSLA) CEO Musk touched down in the Chinese capital on Tuesday for his first visit to China in three years. He follows in the footsteps of Apple (AAPL) CEO Tim Cook in coming calling, making conciliatory noises about production here.
Their motives are obvious -- keep China sweet as both a market and place to make their products, even if in many cases they're keen to de-risk and diversify away from Chinese production. And their motives contrast with the equally obvious forces driving U.S. politicians in particular to get tough on China or risk losing votes.
China certainly is rolling out the red carpet for Musk, who is meeting in quick order with the top ranks of officialdom. The visit helps the Chinese Communist Party champion its industry and economy at a time political pressure is chipping away at its ability to access high-end semiconductors and when the post-Covid recovery is at best patchy if not ephemeral.
Musk already has met with Foreign Minister Qin Gang, Commerce Minister Wang Wentao and Minister of Industry and Information Jin Zhuanglong, as well as dining last night with Zeng Yuqun, the chairman of China's top battery maker, Contemporary Amperex Technology Co. Ltd., which typically is simply called CATL (SZ:300750).
CATL supplies batteries used in the Tesla vehicles made at the company's factory in Shanghai. After doing the rounds in Beijing, Musk is heading south to the production site, where the company is looking to revamp its Model 3 to better compete in a fierce price war among China's legion of electric car manufacturers. The new Model 3 edition will be slightly longer, with an updated and improved interior.
Tesla has been surprisingly tight-lipped about the objectives or even the content of Musk's trip, with Reuters reporters in particular doing sterling work to track Musk's movements, including the arrival of his Gulfstream in Beijing. Chinese state media and the Chinese ministries are also issuing brief stories and statements as Musk does the rounds. State news service Xinhua reports that Qin told Musk the United States must avoid "dangerous driving" in its relationship with China, while both parties should "step on the gas" of mutually beneficial cooperation.
Musk said the United States and China share "intertwined and inseparable interests," according to Xinhua. Tesla will be the executive's full focus in China, where Twitter is banned and the government is planning to launch a massive network of satellites to counteract and rival the Starlink Internet service from SpaceX.
It's likely but not confirmed that Musk will meet with new Chinese Premier Li Qiang. Shanghai is the site of Tesla's first international factory, although it followed up by opening a facility in Berlin last year. The Shanghai factory has the capacity to produce as many as 1.1 million vehicles per year but made 700,000 Model Y and Model 3 models in 2022, when Covid restrictions affected many factories in China.
Production is suffering nationwide, according to new figures from the National Bureau of Statistics. It's the second straight month of contraction for the Purchasing Managers' Index, which fell to 48.8 for May from 49.2 the month before, dented both by weak domestic and global demand.
The services sector, by contrast, posted at a 54.5 expansion. The cutoff is 50.0 as to whether a sector is expanding or contracting, so a fifth straight month of service-sector expansion indicates some industries are still in expansion mode after the lifting of Covid-19 restrictions almost overnight in December. However, the indication is that infections are picking up again in China, which could disrupt manufacturing in particular, although a return to widespread restrictions is unlikely.
In Hong Kong, the Hang Seng is down 19.6% from its peak close on Jan. 27. The CSI 300 index of the largest mainland listings, in Shanghai and Shenzhen, is down 9.6% from the end of January, but off 15.5% from its recent high set in July 2022 and 34.6% from its all-time peak in February 2021.
The poor PMI numbers today caused the Hang Seng to drop 1.9%. Mainland shares remain insulated because investors inside China have few options as to where to place their money, but the CSI 300 fell 1.0%. International investors have been switching their focus to the economic expansion in Japan, while domestic investors say they're losing faith with the stop-start stock market performance produced by the patchy recovery.
