The past two months of sweeping Chinese regulatory tumult has been very disorienting, but take heart. The deluge — at least for now — seems to have abated and a few new rules of the road have emerged. The clearest lesson companies appear to have come away with so far is that charity is good business. Pinduoduo, the Chinese e-commerce platform, was the latest to put that wisdom into practice when it pledged this week to donate $1.5 billion for the revitalization of rural areas. Others have ponied up even larger amounts. Tencent set aside more than $7 billion for social-responsibility programs back in April, which the tech giant then doubled last week to $15 billion. Meituan’s Wang Xing, ByteDance’s Zhang Yiming and Xiaomi’s Lei Jun are among other prominent Chinese tycoons who have recently made generous philanthropic donations. With “common prosperity” now clearly President Xi Jinping’s economic objective for China, a corporate strategy centered around generating fat shareholder profits looks to be a thing of the past.  Another lesson companies have learned is the importance of protecting data. Doing so is no longer just a privacy concern but a matter of national security. And as the fallout for Didi illustrates, failing to properly secure data can have tremendous business implications. To that end, the Tim Hortons chain of coffee shops in China came up with a novel solution this week. The company proposed creating an independent entity to oversee the protection of its customer data, in which it will have no equity stake. It submitted this proposal to Beijing regulators to pave the way for its listing in the U.S. through a blank-check company. If approved, it’s a model others could also adopt. Companies aren’t the only ones adapting. Investors are as well. Ark Investment’s Cathie Wood perhaps best summed up the overarching takeaway from these past few weeks when explaining how her China strategy has changed. Figure out which companies are doing what Beijing likes, she said, and reconcile your positions with them. China’s leaders have a plethora of long-term economic goals they are aiming to hit, from creating “common prosperity” to reaching carbon neutrality. The problem is that these objectives keep running headlong into present-day realities. The after-school tutoring industry is a good example. Told last month they needed to become non-profits, many smaller firms have instead closed, some without paying their workers. That’s led to at least eight protests involving education workers this month, according to the labor-rights group China Labour Bulletin. Beijing’s push to create a more equitable society has, at least in the short term, created unemployment. China’s pledge to become carbon neutral by 2060 has similarly produced some negative outcomes. A zealous push at the local level to reduce capacity in the steel industry, one of China’s top emitters, has seen production plunge to a 15-month low. Coal output has also seen a sharp drop. With supplies of these raw materials falling so quickly, the danger is that prices will shoot up in response, creating headwinds for the economy.  The report by U.S. intelligence agencies on the origins of Covid, ordered by President Joe Biden in May, has been delivered, and the results are inconclusive. That’s according to an official familiar with the findings, which do not point squarely to one source as being the likely genesis. By neither knocking down nor backing up the theory of a lab leak, the Biden report will do little to resolve the political maelstrom around the origins of Covid. While some in the West insist that any new World Health Organization investigation must look more closely at the possibility of a lab leak, Beijing has made it known it will not cooperate if the lab leak theory is taken seriously. Caught in the middle is the WHO team who did the first investigation. That group of scientists warned this week that the window for conducting critical research in China is closing fast, and any delays will result in some studies becoming biologically impossible.  | Sustainability Starts at the Source Access to clean water is a potentially dire global challenge. Fortunately, a shift to a more sustainable model is possible. Learn more about the forces key to this transition, and why we believe it represents a compelling sustainably-themed investment opportunity. |
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At the end of July, the U.S. Securities and Exchange Commission put a halt to all IPOs by Chinese companies. That was in part a response to the deluge of regulatory changes coming from Beijing, many of which spurred dramatic price moves for stocks listed on American exchanges. It was also a reflection of growing U.S. frustration over how Chinese companies traded in America are regulated. SEC Chair Gary Gensler signaled in an interview with Bloomberg News this week that the U.S. will continue being tough on this issue. Gensler pledged to strictly enforce a three-year deadline requiring Chinese firms to allow American inspections of their financial audits. If they don’t, their shares could be delisted as soon as 2024.  Gary Gensler Photographer: Andrew Harrer/Bloomberg For its part, Beijing has indicated that it’s ready to talk. The State Council issued guidelines for the accounting industry on Monday, in which it said China was ready to increase cross-border cooperation. But even talks will be hard given the tense state of ties between the two powers, which is why news this week that a group of Wall Street veterans traveled to China to meet with senior officials was notable. If Washington and Beijing are going to solve this dispute, they’ll need help. And finally, a few other things that caught our attention: | 
