In this week’s issue GDP booms, WhatsApp gets the boot and a liquor bubble pops. On a scale of 1 to 100, we give the week a 50 for offshore-listed China stocks.

Doug Young, Editor in Chief

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China Economy Off to Strong Start in 2024

The big economic news last week was China’s latest GDP, whose 5.3% growth in the first quarter was well ahead of market expectations for a 4.6% gain in a Reuters poll. But many remained cautious nonetheless, pointing out that the nation’s property market that was once one of China’s key growth drivers remains extremely weak.

Similarly, weak retail sales and inflation data hint that China will need to show several more quarters of strong GDP gains before anyone is convinced the economy is on more stable footing. On a more positive note, the stronger-than-expected figure led many analysts to raise their growth forecasts for China this year, and the country looks on track to meet its target of about 5% annual growth.

Yuan Takes Growing Share of Global Payments

China has long pushed for more settlement of international trade in its home currency, the yuan, and that campaign appears to be having some success. The latest data from the authoritative SWIFT organization shows 4.7% of international payments were conducted using the yuan in March, marking a record since SWIFT created a new baseline for tracking the situation last July.

The yuan overtook Japan’s yen to become the world’s fourth most-used currency for such global transactions last November. It still trails far behind the dollar and euro, but could soon pass the British pound for the number-three spot. Much of China’s gains are coming as Beijing pressures big state-owned enterprises to push their suppliers to make payments in yuan.

Anemic China Stock Rally Ends

In a classic case of “buy on the rumor, sell on the news,” offshore-listed China stocks sagged last week after the nation reported strong first-quarter GDP growth, ending a relatively anemic rally over the previous weeks. The Hang Seng China Enterprises Index fell 2.3% for the week, while the broader Hang Seng Index lost 3%. The U.S.-traded iShares MSCI China ETF rose 0.3%.

China stock buyers have been waiting several years now for a sustained rally that has failed to materialize. Last year began with a strong rally that quickly fizzled, and this year has also seen a much weaker rally dating back to late January. All eyes will be watching the markets next week to see if investors can return to their earlier bullish ways, or if the latest rally continues to fizzle.


Home Prices Log Biggest Losses in Nearly a Decade

While some in Beijing were likely toasting the better-than-expected first-quarter GDP, the mood was far more somber for the embattled property sector. New home prices in March fell 2.2% year-on-year, accelerating from a 1.4% decline in February and representing the biggest decline since August 2015, according to calculations by Reuters using government data.

China’s property sector has been hurting for the last two years, with prices in many markets now down by 20% or more from earlier peaks. The government is trying to sort out the mess by pushing big state-run banks to provide funding to restart construction on some of the many projects that have stalled. But the banks are pushing back, worried about piling up more bad loans.

Intel Launches Made-for-China AI Chips

First it was Nvidia, now Intel is preparing to launch two new AI-optimized chips designed just for China to avoid bumping up against U.S. export restrictions. Intel was quite low-key about its plans, which were included in a white paper posted on its website. The paper said the two chips, HL-328 and HL-388, would launch in June and September, respectively.

China has imposed a wide range of restrictions on content-related products for years, resulting in the rise of many products and services that you’ll only find in China and nowhere else, mostly offered by Chinese companies. This time, it’s restrictions by the U.S. aimed at hobbling China’s high-tech development that’s led to this creation of yet another “made for China” product.

China’s Baijiu Liquor Bubble Pops

Stocks for makers of traditional Chinese liquors, known locally as baijiu, have often defied all reason in terms of their high valuations, including the rise of industry leader Moutai to become the nation’s most valuable company. But recent price cuts to one of Moutai’s signature products may be taking some of the air out of that bubble.

China’s CSI Liquor Index was down nearly 6% last week from a high in early April, as shares of many companies fell on continual Moutai price cuts since the start of the year. Of course, everything is relative, and the latest price of 2,615 yuan per bottle still equals a hefty $360. Most other brands are far cheaper, though Moutai hardly seems worthy of being China’s most valuable company.


Alibaba Tries, But Fails, to Sell

Alibaba watchers have noticed a slow-motion unraveling lately of the company’s plan to spin off and separately list some or all of its six main businesses. Now, a new report from financial media Caixin quotes insiders saying the e-commerce giant was in talks to sell its takeout delivery business to Bytedance earlier this year, but the two sides failed to reach an agreement. is one of Alibaba’s larger assets, though it’s not one of the six that was named for a separate spinoff in the company’s landmark breakup announcement last year. As the market for new Chinese IPOs remains weak, we can probably expect to see Alibaba try to negotiate more of this kind of sale of large but non-core major assets until market sentiment improves.

Chabaidao Set to Soak Up $330 Million with Hong Kong IPO

The consumer sector hasn’t been too active these days in terms of IPOs, as investors eschew the group over concerns about cautious Chinese consumer sentiment. But bubble tea chain Chabaidao seems confident that investors will lap up its listing plan, which kicked off last week with a $330 million fundraising target – the largest for Hong Kong this year.

We’ve written quite a bit about a sudden burst of bubble tea makers seeking to raise funds via Hong Kong IPOs, with at least five such applications filed since last October. We’ll need to wait and see what kind of reception this one gets but wouldn’t be surprised if Chabaidao ultimately has to scale back its fundraising target due to tepid investor reception.

Apple Pulls the Plug on WhatsApp, Threads

In a development involving some big names, but that’s also a slight head-scratcher, Meta’s popular Whatsapp instant messaging service, as well as its Threads app that’s part of Instagram, have both been removed from Apple’s China app store under government orders. We say this one is a head-scratcher because both apps are already blocked in China.

But that didn’t stop China’s cybersecurity authority from feeling the apps posed a potential national security threat, along with Telegram and Signal, which were also ordered removed. Just about all foreign social media and messaging apps have been blocked in China for years, so now their removal from app stores seems to reinforce the fact they aren’t welcome in China.


China’s Real Estate Meltdown Enters New Phase

Last week we shined our spotlight on Shimao, one of China’s many largely insolvent property developers that is racing to craft a debt restructuring plan to satisfy its huge number of creditors. In the latest wrinkle to China’s property meltdown story, the international unit of China Construction Bank (CCB) petitioned a Hong Kong court earlier this month to liquidate Shimao.

This isn’t the first time creditors have asked a Hong Kong court for such a liquidation, and Evergrande made headlines earlier this year when a judge ruled a similar request could move ahead. What’s significant here is the petitioner, since CCB is one of China “big four” state-owned lenders, meaning it almost certainly got Beijing’s approval before taking such a big step.
What Happens to Meme Stocks When the Party Is Over?

We also looked at a niche logistics company called Shengfeng, which was part of a group of U.S.-listed Chinese companies to embark on a meme stock roller coaster ride in 2022 and last year, similar to what happened in the higher-profile case of GameStop. In this case, Shengfeng’s shares doubled after their 2023 IPO, only to crash, only to soar even higher, and then crash again.

While we couldn’t find too many smoking guns to confirm that Shengfeng was truly a meme stock, the relatively stodgy company was mentioned in a Reddit room as a good short-sell target when it was at one of its highs. Interestingly, when all was said and done and the meme stock buyers went home, the shares actually settled at a valuation that looks quite reasonable.

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