Notes

China's Economy is Looking Brighter but it's not in the Clear Yet

Tech rally



The slowdown in China's economy has largely been a self-inflicted snag, spurred by President Xi Jinping's repression on private enterprises and a campaign to curb the excessive borrowing by real estate developers, and a relentless adhering to the zero-Covid rule.



But there are some signs that the nightmare of regulatory compliance for tech companies may be getting better. The Wall Street Journal reported earlier this week that Beijing was closing down its cybersecurity review of Didi. This will allow Didi to return to China's app stores, almost one year after being fired for data privacy violations.



Wall Street saw Didi's shares increase by 24% on Monday following the report.



Other reports in the media this week suggested a slowdown in the crackdown. On Thursday, Bloomberg said Chinese regulators have started early stage discussions on a potential revival of Ant Group's IPO according to people who are who are well-versed in the subject. Reuters reported on Thursday that Ant - the owner of the wildly popular Alipay app - is planning to make a preliminary prospectus available for the IPO as early as next month.



Jack Ma was about to record a milestone with a $37 billion initial public offering of the Alibaba affiliate in Shanghai and Hong Kong in November 2020. China blocked the Ant deal just days before it was scheduled to trade. This was the start of a regulatory campaign that dominated the internet industry for the next year.



'Uninvestable' China could make an appearance



Ant Group said Thursday that it "currently does not have a plan to initiate an IPO." China Securities Regulatory Commission stated that it hasn't done any studies on Ant IPOs.



Alibaba (BABA) Shares of Alibaba (BABA) have been whipsawed in the news, but are still up 18% on Wall Street this week.



In Hong Kong, meanwhile, the stock has risen for five consecutive sessions and is currently up 22% this week - the highest week-to-week performance since Alibaba's second listing there in 2019.



In recent weeks in recent weeks, the Chinese government has also provided assistance to the tech industry. Regulators have stated that they would help foreign listings of tech companies.



And on Tuesday, authorities issued 60 new gaming licenses following an extended freeze of. Tencent (TCEHY) the biggest Chinese gaming company, increased its share by more than 6% in the wake of the announcement.



The Hang Seng Tech Index, which tracks the 30 biggest Chinese tech stocks in Hong Kong, is up 10% this week.



Trade improves



China also released positive trade figures for May, following a decline in April. Exports increased 16.9% in May compared to April's 3.9% growth.



Imports, however, increased for the first time in three months.



"The rise in both exports and imports was mostly due to the reopening of the port of Shanghai the largest port in China, in the last week of May," said Iris Pang the chief economist for Greater China at ING Group.



Shanghai had been under a strict lockdown since late March which forced factories to shut and causing significant shipping delays.



Shanghai is finally "reopening", but the trauma of lockdown lives on



The congestion at the Shanghai port is "back to normal,"" VesselsValue, a shipping data firm, said earlier this week. The average wait time has shortened to 28 hours, compared to 66 hours in the latter part of April.



Premier Li Keqiang called on local officials of the government Wednesday to improve logistics and transportation and ensure supply chains are protected. China will strive to achieve an acceptable economic growth in the second quarter, and also reduce unemployment, he said, reiterating earlier calls.



This week the State Council, the country's cabinet, unveiled a new stimulus package that includes 33 measures to boost growth and boost productivity. It includes tens of billions of dollars in infrastructure and tax cuts.



Is this enough?



But analysts remain cautious.



The May trade data doesn't change "the consensus view that China's trade surplus is likely to shrink," as demand for Chinese exports declines due to a slowing global economy, HSBC analysts said Thursday.
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Earlier this week, the World Bank warned that stagflation risks are increasing in the global economy. It now expects global growth to fall from 5.7 percent in 2021 to 2.9% in 2022, a lot less than the 4.1 percent that was forecast in January. The bank stated that the global inflation rate is likely to remain above target in many countries.



HSBC analysts said that Beijing's investment push in infrastructure and property is set to increase China's commodity imports, adding to its inflation problems.



"As the prices of commodities remain high the imports will be costly for China," they said.



After restrictions were lifted Shanghai neighborhoods go back to lockdown



China's adherence to a set of of strict Covid restrictions is also a major risk.



According to the state-owned Xinhua News Agency, President Xi Jinping stated Wednesday that the country must be acquiescing "unwaveringly" to its zero Covid strategy. He also urged officials to help boost the economy.



A growing number of neighborhoods in Shanghai are facing another lockdown this weekend, as authorities launch massive testing days following Covid restrictions were eased for the majority of the city's 25 million residents.



Authorities in Beijing's largest Chaoyang district also announced Thursday the closing of all entertainment venues just days after allowing them to reopen.



"Markets have naively assumed that China was one and finished with Beijing and Shanghai," said Jeffrey Halley the senior market analyst for Oanda on Thursday.



"Covid-zero isn't going anywhere in China, nor is the virus. Thus, the chances of a return to restrictions that are extended, with the ensuing drop in the economy of China, remain as high as ever," he added.



- CNN's Beijing bureau was a contributor to this report.


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