In this week’s issue provincial economic realism, a new reserve rate cut and vanishing game regulations. 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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Provinces Get Set for Slower Growth
In an acknowledgement that China’s economy is slowing, many provinces are lowering their growth targets for 2024. Of the 27 provinces, regions and municipalities that had given out forecasts as of last Friday, only five set their economic growth targets higher this year than for 2023. Many have become more conservative since missing recent goals.
This widespread lowering of expectations looks quite significant, as it may indicate someone at the top is telling the provinces “It’s ok not to grow so quickly all the time.” In the past, provinces were always under huge pressure to set and meet big growth targets each year, doing their part to help Beijing reach its often-ambitious GDP growth goals for the entire country.
Another Reserve Rate Cut
China has announced yet another cut to its reserve requirement ratio for banks, with the latest 50 basis-point cut set to take effect on Feb. 5. Central bank Governor Pan Gongsheng heralded the cut as the latest move to unleash a flood of new funds into China’s sputtering economy, saying it would release an additional 1 trillion yuan, or about $140 billion.
Reserve requirement ratio cuts are relatively unique to China, as most countries see these rates as non-negotiable benchmarks for banks to maintain their financial health. Thus, the steady lowering of rates these days seems to show that Beijing is currently more concerned about the economy than keeping its banking system in tip-top shape.
Markets Do a Dead-Cat Dance
There really wasn’t much reason for the rally by offshore China stocks last week, which is what’s leading us to call the brief uptick a “dead cat China dance.” The Hang Seng China Enterprises Index rose 4.5% for the week, while the iShares MSCI China ETF rose 3.1% and the broader Hang Seng Index gained 4%, finally halting an otherwise miserable start to the year.
In a development with big symbolic overtones, India overtook Hong Kong last week to become the world’s fourth largest stock market. Of course, this isn’t really an apples-to-apples comparison, as Hong Kong has a huge foreign investor element that India lacks. But nonetheless, it shows how India is rapidly taking China’s place as the latest investor flavor-of-the-day.
Beijing Eases Up on Developers
Sometimes we feel a bit redundant recounting all the latest steps that Beijing is taking to try to prop up the sagging property market. None seems to have much effect, but perhaps things will be different for the latest step that has banks being told to slightly ease up their lending to developers.
Under the latest policy, developers can now use their commercial properties as collateral to take out new loans, according to a new announcement from the central bank and financial regulator. This move looks a little different from previous ones, since many developers have plenty of properties to pledge as collateral for new loans. Now the banks just need to play ball.
Now You See It, Now You Don’t
In a development that seems “Oh so Chinese,” a set of draft gaming regulations, which rocked the sector several weeks ago by sparking worries about a new crackdown, has magically vanished. Someone at Hollywood should really make a film about this kind of thing, as it would make great fodder for a tale of behind-the-scenes intrigue.
There’s not really much else to say about this, since the only news is the disappearance of proposed rules from the regulator’s website that were aimed at curbing spending and rewards to encourage gaming. Gaming stocks nosedived after the document was discovered, and a top official at the ministry also reportedly lost his job not long afterwards.
Huawei Eats Apple’s Lunch
The latest signs of a resurgence by hobbled smartphone maker Huawei were on display in new data last week, which showed its shipments in China soared by 36.2% in last year’s fourth quarter, lifting its share of the market by more than 3 percentage points to 13.9%. At the same time, Apple’s smartphone shipments in China fell by 2.1%.
While Huawei clearly outperformed the overall market, which grew 1.2% in the final quarter of last year, Apple did just the opposite. Huawei has gotten a sort of “high-five” from supportive consumers in its home market for finding ways to skirt U.S. sanctions that cut off its access to 5G chips, though it’s not really clear if Huawei’s latest phones are actually profitable.
All eyes these days are on fast fashion sensation Shein, whose plans for a U.S. IPO hit a recent speed bump when China’s cyber regulator opened a probe into the company’s data handling practices. Now, media are reporting that shares of Shein were selling for 30% less than the company’s valuation just a month ago in recent private market transactions.
The sales may not reflect true market value, since this kind of private market transaction is almost certainly coming from one or two parties looking to quickly raise some cash through a share sale. Still, it does seem to reflect the kinds of pressure Shein’s stock will come under as China, and possibly the U.S., throw obstacles into the path of its planned New York listing.
Kaisa Calls It Quits in Soccer
Kaisa Group, one of China’s many struggling real estate developers, has decided to call “game over” in its role as soccer club owner. The company’s Shenzhen Football Club was officially forced out of the Chinese Football Association and has been disbanded after its cash-strapped owner said the team’s debts had become unsustainable.
Kaisa is just one of a growing number of Chinese soccer club owners who are calling it quits after running into their own financial difficulties. Such club ownership has been highly lucrative in the West, but it’s been most a money-losing vanity play in China due to lack of popularity for most of the country’s domestic sports leagues that are often seen as rife with corruption.
Nokia Sells China JV Stake, Settles with Oppo
You don’t see Nokia’s name in too many headlines these days, even though the company remains a top global seller of telecoms equipment. But the former cellphone giant’s name popped up not just in one, but in two, China headlines last week, led by its settlement of a long-running patent lawsuit with China’s own Oppo.
In the other headline, Nokia finally managed to find a buyer for its stake in a joint venture with Huawei. It’s not too surprising Nokia wanted out, since the two partners are fierce rivals on the global stage since Nokia abandoned its cellphone aspirations and went on a buying spree that transformed it into one of the world’s top telecoms equipment sellers.
AND FROM THE PAGES OF BAMBOO WORKS
|Transsion Moves Out of Africa
Last week we brought you the latest on Transsion, the smartphone maker that no one has ever heard of, even as it has quietly become one of the world’s top manufacturers. Transsion was working its magic again at the end of last year, notching nearly 70% growth in the fourth quarter to become the world’s fourth largest vendor.
While few have heard of Transsion, some may be more familiar with its Tecno, Itel, and Infinix brands, which are especially popular in its original base in Africa, where it controls half of the market. Transsion has also recently begun expanding into other developing markets, where it is increasingly running into hometown rivals like Xiaomi and Oppo.
|Junshi Hopes New Scientist CEO Can Cure Its Ailments
We also brought you the story of Junshi Biosciences, which nicely illustrates how quickly fortunes can change for young biotech startups. The company was riding high as recently as three years ago as developer of China’s first homegrown PD-1 drug. But more recently it fell on hard times amid growing competition from other PD-1 makers and a collapsed collaboration.
The company has also suffered from turbulence in its upper ranks, leading to the recent naming of a new CEO, who comes from a scientific background. This all shows why Western drug startups tend to sell themselves if and when their products succeed, as it’s tough for such small companies to survive long-term in the highly competitive space.