In this week’s issue mixed manufacturing messages, China stocks in bull territory, and travelers stay closer to home. On a scale of 1 to 100, we give the week a 75 for offshore-listed China stocks.

Doug Young, Editor in Chief

You can sign up to get China Bulletin weekly in your inbox.


Factories Send Mixed Signals

China’s core manufacturing sector was sending mixed signals last week, pointing to a rebound for exports even as demand remained weak at home. The official purchasing managers index (PMI) clocked in at 50.4 for April, still in expansion mode but down from 50.8 in March. Meantime, the Caixin PMI for April reached a 15-month high of 51.4, up 0.3 percentage points from March.

Most observers believe the official PMI, compiled by the National Bureau of Statistics, is a stronger reflector of manufacturing at big state-owned enterprises, while the Caixin PMI better captures the pulse of small, private manufacturers that often tend to be more export oriented. That’s leading many to observe that exports may be recovering, but consumers remain cautious at home.

U.S. Sanctions Chinese Companies Over Russian Support for Ukraine War

While the signals on the economy were mixed, they were much clearer on the diplomatic front as the U.S. levied fresh sanctions against a group of Chinese companies. Whereas Washington has previously targeted companies that could assist China’s military, this time it sanctioned 20 that it says are helping the Russian military in its war against Ukraine.

U.S. Secretary of State Antony Blinken and Treasury Secretary Janet Yellen both warned Beijing about the potential for sanctions during recent trips to Beijing, but apparently nobody listened. This isn’t the first time Chinese companies have thumbed their noses at Washington. Huawei was one of the first to feel the pinch for selling goods to Iran in violation of such U.S. sanctions.

Hang Seng Charges Into Bull Territory

Offshore-listed Chinese stocks entered unfamiliar territory last week when they officially charged into a bull market. The Hang Seng China Enterprises Index rose 4.4%, while the iShares MSCI China ETF rose 5.7% and the Hang Seng Index was up 4.7%. The China Enterprises Index is now up about 31% from a January low, while the Hang Seng is up 23%, putting both into bull territory.

In a related development, investment has surged so far this year among foreigners buying China-listed A-shares using a program linking Hong Kong’s stock exchange with exchanges in Shenzhen and Shanghai. The enthusiasm seems to be largely driven by investors looking for new deals as people increasingly believe the Fed won’t lower interest rates anytime soon.


May Day Travel Surges, But People Stay Closer to Home

We’ve written quite a bit about how China’s tourism industry seems surprisingly immune to growing consumer caution, but it seems like even that bright spot is finally fading. The latest data from last week’s five-day May 1 holiday shows tourists were getting out in big numbers to enjoy the first big vacation of spring. But other signals showed they were spending cautiously.

Among other things, people were staying closer to home by making more trips by car and train, rather than flying to more distant places. That was reflected in airline ticket prices, which were down by an average of 3.78% from the same period last year. It seems that even post-pandemic “revenge travel” has its limits, and the industry is destined to follow others into slower growth.

Steel Profits Slump

We’ve written plenty about China’s property market woes, but many suppliers to that sector are also feeling similar pain these days. New data from China’s main steel association shows the sector’s profits fell by nearly half in the first quarter year-on-year, with an average profit margin of just 0.58%.

While demand from the property sector has been weak for a while, steelmakers also received a new curve ball as local governments cut back their spending on infrastructure to reduce debt. China has typically turned to such infrastructure spending to stimulate the economy in slow times, but apparently government debt reduction is now a higher priority.

Solar Giants May Need to Open U.S. Factories, Says One Industry Giant

Chinese solar panel makers already dominate the global market, which has been a growing source of trade friction as the West accuses China of providing unfair government support. Now, the top dog at global leader Longi is admitting the only way to avoid potential anti-dumping tariffs is to build new factories in the U.S., as well as Europe – two of the world’s top markets.

Companies like Longi have been building factories outside China for a while now, mostly in Southeast Asia. But many Westerners believe those factories do mostly finishing work for products still largely produced in China. Longi’s sentiment reflects a growing realization that Chinese firms may need to produce more in the U.S. and Europe if they want to keep selling to those markets.


Cautious Chinese Consumers Take the Foam Out of Starbucks

Chinese fondness for pricey lattes has its limits, or so it seems. That’s the latest assessment coming from coffee giant Starbucks, which has slashed its 2024 growth forecast due in part to weak demand from China. Starbucks said it now expects its revenue growth to be low single digits to possibly flat this year, compared with a previous forecast for 4-6% growth.

The growing weakness in China was inevitable for a number of reasons. The biggest is growing caution, which is making consumers think twice about splashing out for expensive coffee. At the same time, a price war has been brewing for the last year at the bottom end of the market, which is probably drawing away many coffee drinkers from Starbucks’ pricier drinks.

U.S. Law Firm Splits from Hong Kong Partnership

The U.S. law firm of Mayer Brown has become the latest major Western services provider to divorce itself from its China partner amid broader concerns about data security. The Chicago-based firm, which has 1,800 lawyers worldwide, said it will continue to operate in Hong Kong through a local partnership that it purchased in 2008, but will now be spun off to operate separately.

The company, which has 170 lawyers in Hong Kong, Beijing and Shanghai, said the spinoff will allow it “to continue its presence in Hong Kong with a practice that aligns with our strategic priorities.” Many Western firms in China previously worried about Chinese restrictions on cross-border data transfers, though those concerns have eased somewhat this year with a recent clarification.

Huawei Profit Surges

Huawei’s ongoing comeback continued last week with a new regulatory filing showing the company’s profit leapt more than sixfold in the first quarter to 19.65 billion yuan, or about $2.7 billion. The same filing to China’s National Interbank Funding Center also showed the company’s revenue grew by a healthy 37% for the period to 178.5 billion yuan.

The report didn’t break down revenue or profits for the company’s various business units, which include everything from telecoms equipment to smartphones and smart car technology. One major contributor was probably the smartphone business, which has bounced back strongly after the company found ways to skirt U.S. sanctions to restart mass producing its popular models.


Domino’s China Partner Serves Up First Profits

Last week we brought you the story of DPC Dash, operator of the Domino’s pizza chain in China, which delivered its first-ever annual profit in 2023. The company has been growing at a breakneck pace in China, and has found particular success in the nation’s smaller cities where pizza is considered more glamourous and exotic than in major centers like Beijing and Shanghai.

The company’s revenue grew more than 50% last year, and its same-store sales have consistently grown at double-digit rates, though the figure slipped to high single digits last year. Pizza has found a strong following in China thanks to similar products in the market, with the Pizza Hut chain also boasting more 3,000 stores in the country, compared with DPC’s 768.
Asia Cement Slips Into the Red

On a less upbeat note, we also brought you the story of Asia Cement, which slipped into the red during the first quarter as it suffered from ongoing weakness in China’s property market. We’ve already discussed how the steel industry’s profits are sagging under the weight of a weak property market, and cement is suffering from similar fallout.

Asia Cement said it would report a loss of nearly 130 million yuan for the three months to March, down sharply from headier times like 2019 when it poured up 3.2 billion yuan in profits. Companies throughout the construction materials supply chain are all suffering similar woes, and many are expected to follow Asia Cement into the loss column until the market turns around.

Recent Articles