China’s economy is improving, but it’s not yet clear

The positive developments come after the world’s second largest economy was battered by widespread Covid lockdowns, a sweeping crackdown on tech companies and a housing crisis. Consumer spending and manufacturing output fell sharply in April, while unemployment has hit its highest level since the first coronavirus outbreak in early 2020.

As China takes steps to gradually reopen businesses and authorities introduce a range of measures to stimulate activity, there are signs that a recovery may be imminent.

Still, analysts say much more needs to be done to restore investor confidence in China, and some significant risks have not gone away.

“It will take time to restore business confidence, and Chinese asset sales could resume if Chinese data proves disappointing again,” said Ken Cheung, chief Asian currency strategist for Mizuho Bank.

technical rally

China’s economic slowdown has largely been a self-inflicted headache, spurred by President Xi Jinping’s crackdown on private businesses, a campaign to rein in excessive borrowing by property developers, and a relentless adherence to the zero-Covid policy.
But there are signs that the regulatory nightmare for tech companies is coming to an end. Earlier this week, the Wall Street Journal reported that Beijing’s cybersecurity review of Didi was nearing completion. The move would allow the ride-hailing giant to return to app stores in mainland China, nearly a year after Didi was removed for a data privacy breach.
Shares of Didi soared 24% Monday on Wall Street after the report.
Other media this week reported a loosening of the crackdown. On Thursday, Bloomberg said Chinese regulators had entered preliminary discussions about a possible relaunch of Ant Group’s IPO, citing people familiar with the matter. Reuters reported Thursday this ant owner of the hugely popular Alipay app aims to deposit a preliminary prospectus for the offering as early as next month.
Jack Ma was set to make history with a planned $37 billion IPO of Alibaba’s subsidiary in Shanghai and Hong Kong in November 2020. But China abruptly halted the Ant deal within days before the stock began trading, a move that marked the start of aggressive regulation that engulfed the internet industry in the year that followed.

Ant Group said on Thursday that it “currently has no plans to launch an IPO.” The China Securities Regulatory Commission added that it had not conducted any research work regarding a new Ant IPO.

Ali Baba (BABA) stocks were skewed by the news but are still up 18% this week on Wall Street.

In Hong Kong, meanwhile, the stock has risen for five consecutive sessions and is up 22% this week – the best weekly performance since Alibaba’s secondary listing in 2019.

The Chinese government has provided further relief to the tech sector in recent weeks. Regulators said they would support overseas listings of tech companies.

And on Tuesday, authorities released 60 new game licenses after a freeze of several months. Tencent (TCEHY)China’s largest gaming company, soared more than 6% after the news.

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

Trade is improving

China also released strong trade data for May, following a slump in April. The country’s exports jumped 16.9% in May from a year ago, compared to growth of just 3.9% in April.

Imports, meanwhile, rose for the first time in three months.

“The increase in exports and imports is mainly due to the reopening of Shanghai Port, China’s largest port, in the last week of May,” said Iris Pang, chief economist for Greater China at China. ING Group.

Shanghai had been under a strict lockdown since late March, forcing factories to close and causing major shipping delays.
Shanghai is finally in the process of

Congestion at the Port of Shanghai is almost “back to normal”, VesselsValue, a shipping data firm, said earlier this week. Average wait times have now shortened to 28 hours from 66 hours at the end of April.

On Wednesday, Premier Li Keqiang urged local government officials to ease transportation and logistics and protect supply chains. China will strive to achieve reasonable economic growth in the second quarter and reduce unemployment, he said, reiterating previous calls.

Last week, the State Council, the nation’s cabinet, unveiled a new package of 33 stimulus measures to support growth, including tens of billions of dollars in additional tax cuts and government spending. ‘infrastructure.

Is it enough?

But analysts remain cautious.

The May trade data does not change the “consensus view that China’s trade surplus will shrink” as demand for Chinese exports weakens due to a slowing global economy, said HSBC analysts on Thursday.

Earlier this week, the World Bank warned that the risks of stagflation were growing in the global economy. He now expects global growth to fall from 5.7% in 2021 to 2.9% in 2022, significantly lower than the 4.1% forecast in January. Global inflation, meanwhile, is expected to remain above target in many economies, the bank said.
HSBC analysts said Beijing’s surge in infrastructure and real estate investment is expected to increase China’s commodity imports, adding to its inflation problems.

“As commodity prices remain high, these imports will be costly for China,” they said.

Shanghai neighborhoods return to lockdown a day after restrictions eased

China adherence to a strict Covid restrictions policy also remains a significant risk.

President Xi Jinping said On Wednesday the country must stick “resolutely” to its zero-Covid strategy, while urging officials to support the economy, according to state news agency Xinhua.

A growing number of neighborhoods in Shanghai face another temporary lockdown this weekend as authorities launch mass testing days after Covid restrictions were eased for most of its 25million population.

Authorities in Beijing’s largest Chaoyang District also announced the closure of all entertainment venues on Thursday, just days after allowing them to reopen.

“Markets naively assumed that China was one with Beijing and Shanghai,” said Jeffrey Halley, senior market analyst for Oanda, on Thursday.

“Covid-zero isn’t going anywhere in China, and neither is the virus. So the odds of a return of prolonged restrictions, with the ensuing decline in China’s economic activity, remain as high as ever,” he added.

— CNN’s Beijing bureau contributed to this report.

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