China China China

China Updates: investors are put on a red light, green light game

宏观精选 阅读时间8分钟
Redmond Wong

Market Strategist, Greater China

摘要:  Summary: The press release statement from China’s Politburo generated much excitement among investors and analysts about ending of crackdown on Chinese internet companies and stepping up of fiscal and monetary stimulus. Much of the hype, however, is prone to fade.


The Politburo meeting on April 29 generated much hype about Chinese internet companies.  The Chinese Communist Party’s (CCP) Politburo held a meeting chaired by President Xi Jinping on April 29 to review the talent and human capital development in the country’s 14th Five-year Plan.  The news release from the meeting came in noon time, earlier than the more typical time at the 7p.m. national news broadcast.  The earlier than usual timing gave the market time to react to it before the three-day labour day holiday.  The news release sent the Hang Seng TECH Index (HSTECH.I), which consists of mega-cap Chinese internet companies, surging 10%.  E-commerce giants Alibaba (09988), JD.COM (09618) and Meituan (03690) climbed over 15%. 

Investors rushed to buy Chinese internet stocks as they found in the release that the CCP spoke about intending “to facilitate platform economy (i.e. e-commerce and other internet platform) to develop healthily, to complete the targeted reconfiguration of platform economy, to implement regular supervision, and to launch practice guidelines in support of the regulated and healthy development of the platform economy”. Some analysts cheered “green light” from the Chinese authorities and claimed that buying Chinese internet stocks representing asymmetric upside potentials.

China started tightening regulations over internet companies in second half of 2020, aiming at cracking down on anti-competition and monopolistic behaviors, data security risks and predatory online lending. Moreover, the move was  probably rooted in the CCP’s desire to regulate private capital in a political regime and governing ideology of collective ownership of the factors of production remaining the foundation of the economy.  After over a year of crackdown which had sent shares of Chinese internet stocks much lower, President Xi remarked in the CCP’s Central Economic Working Conference in December 2021 that private capital was to shrink or grow in according to the red light green light spelled out by the CCP.  Private capital’s positive functions are to be recognized while negative impacts are to be minimized.  Did the CCP just say green light last Friday?

On April 27, 2022, the Standing Committee of the State Council convened.  In its news release, the State Council mentioned facilitating the healthy development of the platform economy so as to create more employment.  It did not create much hype back then in the stock market.  The Politburo news on April 29 had a much larger market impact probably because investors gave much weight to the remark that targeted reconfiguration was to become regular supervision.  However, on Saturday, April 30, 2022, a news release was announced that on the very afternoon of April 29, President Xi led a study session of the CCP’s Politburo and proclaimed the importance of regulating and guiding the healthy development and positive function of capital as a factor of production.  President Xi said that the CCP had strengthened anti-trust and prevented private capital from disorderly expanded. He reiterated the need to set up red light and green light and to further strengthen the supervision against monopolistic and anti-competition behaviors.   The Chinese companies, and their investors likewise, are basically put on the game of red light, green light.  The regulatory environment of Chinese internet companies has not become as certain and risks have not turned as asymmetric as some analysts suggested last Friday.  The hype may not last.

Greenlight to local governments to boost the property market if they can. While the April 29 Politburo meeting reiterated the principle of “housing is for living, not for speculating”, it gave greenlight to local governments to devise customized local based policies to support basic as well as upgrading demand for housing.  The Politburo’s statement also mentioned optimizing the regulation of presale deposits, making it easier for developers to get access to such deposits which could account for as much as 50% of those developers’ funding need for projects. The endorsement for local governments’ efforts to support the struggling property sector is a positive development, which will embolden more local governments to roll out all kinds of piecemeal support measures to home buying and boost home sales. 

However, the Politburo was silent on the three-red-lines policy (debt to asset ratio after excluding advance payments >70%, net debt ratio >100%, Cash to short-term debt ratio <1x) that keep weaker developers from getting financing and the two-red-line policy (limits of real estate loans and individual housing loans) that cap banks’ lending to developers and home buyers.  Given the Chinese authorities’ determination not to blow up a real estate bubble again and their goals of restructuring the economy and maintaining stability, it is unlikely for them to relax those red lines. 

Despite the effort of the local governments to boost home sales, home sales in yuan fell 22.7% in Q1, 2022.  Home sales area fell almost 50% in the 30 largest cities in April 2022.  With household income suffering and people’s mobility being restricted in the midst of Covid-related lockdown, local governments’ initiatives are having limited effects on stabilizing the property market until the pandemic fades somewhat.

Comprehensively stepping up infrastructure construction.  On April 26, 2022, President Xi Jinping chaired a meeting of the Central Committee for Financial and Economic Affairs, in which, he told officials from a number ministries to comprehensively strengthen and increase infrastructure construction, especially for transportation, energy, and water management. He also called for broadening of long-term financing channels for infrastructure projects.  The April 29 Politburo meeting reiterated this strategy of rolling out infrastructure to support the faltering economy.

We have no doubt that China attempts to step up infrastructure construction.  Nonetheless, with depressed land sales revenues and Covid outbreaks, local governments are having difficulties in securing the necessary financing to spend on infrastructure construction. The central government is encouraging local governments to front load their borrowing but the room for the latter to maneuver is limited given the stretched fiscal conditions of many of them. To bring about meaningful increase in infrastructure construction, China may need to adjust its fiscal budget and issue long-term special infrastructure bonds to finance infrastructure projects as it did between 1998 and 2000 and in 2008. Moreover, in areas that are affected by lockdown, infrastructure construction are simply impossible to carry out.  When we see China making adjustments to the 2022 budget and issuing more bonds, and fading of the Covid-19 outbreaks, we will be more constructive to investing in companies that are going to benefit from the infrastructure boom in China.

What are inside the monetary toolbox. In its statement of the April 29 meeting, the Politburo pledged to use well all kinds of monetary policy tools.  It emphasized the use of quantitative measures to create credits and increase liquidity. The People’s Bank of China (PBoC) currently still have RMB 500billion retained earnings that it has planned to transfer to the Government which can in turn spend on infrastructure construction.  Relending is another tool that the PBoC will use increasingly to provide structured credits to designated segments of the economy.  Last week, the PBoC rolled out a RMB 200 billion relending programme to refinance banks’ lending to innovative small and medium-size technology companies.  It is also going to provide a RMB 40 billion in a relending programme for old-age care.  It is also launching factoring programmes to support the transportation and logistic industries.  Having revealed in its action of withholding from cutting policy rates in April and shedding the reserve requirement ratio (RRR) by a uncharacteristically small amount of 25 bps, the PBoC seems adopting a highly measured approach in more broadly based monetary tools as the U.S. Federal Reserve is taking to high gear in tightening monetary policy. 

China’s PMIs signal accelerating contraction of the economy.  China’s April manufacturing PMI fell to 47.3 from March’s 49.5.  Non-manufacturing PMI dropped to 41.9 from 48.1.  The service sector was hit the hardest by the pandemic. The services sub-index fell to 40.0 from 46.7. Shippers’ delivery time sub-index fell to 37.2 from 46.5, signaling serious worsening in the disruption to supply chains.  New export orders sub-index declined to 41.6 from 47.2, showing increasing likelihood of plummeting exports in the coming months.  April Caixin Manufacturing PMI, which has a sample covering more small and medium private enterprises in the coastal areas came at 46.0, versus 48.1 last month. 

Dynamic Zero-Covid policy unwavering.  China’s politburo reiterated its dynamic zero-Covid policy while pledged to minimize the pandemic’s impact on the economy and society.  Currently there are more than 40 cities accounting for approximately 35% of China’s GDP are under lockdowns or some restriction on people mobility.  The damage to the economy is enormous and the secondary goal of minimizing the pandemic’s impact on the economy is difficult to meaningfully achieve. After the number of local cases has been falling, Shanghai has relaxed its restriction on people mobility somewhat.  Of its 25 million residents, now 15 million of them are allowed to leave their homes and move within their restricted local communities.  The Covid breakouts and China's reaction function to such breakouts remain the key driver for the direction of the Chinese economy.  

 

最新市场见解


Mind Over Money in practise

吃掉棉花糖,或者增加您的财富


Mind Over Money in practise

七条值得铭记的金钱箴言(解释)


Mind Over Money in practise

用“赌场资金”投资



免责声明

盛宝银行集团下每个成员个体均提供纯粹的交易服务和分析,让投资者查看和/或使用网站上的内容。此内容并非为了改变或扩展纯粹的交易服务。此类访问和使用始终受以下条款的约束:(1)使用条款;(2)完整免责声明;(3)风险警告;(4)参与规则;(5)(如相关)在盛宝银行集团成员网站上使用超链接访问盛宝资讯及研究的条款,以及盛宝资讯及研究和/或其内容的通知。因此,所提供的内容仅以资讯为限。特别是,盛宝银行集团实体无意提供任何建议,或让他人依赖或向他人授权其资讯;这些资讯既不构成业务招揽,或提供奖励促使他人认购、销售或购入任何金融工具。您所进行的所有交易或投资必须是依据您的自发性及自主性作出的决定。为此,对于因依赖盛宝资讯及研究提供的资讯,或因使用盛宝资讯及研究而作出的任何投资决定所蒙受的任何损失,盛宝银行集团实体概不承担责任。所提交的订单和生效的交易在盛宝银行集团实体开立的账户中提交或生效。该盛宝银行集团实体在客户所在的司法管辖区经营,且客户在该实体开立及保留其交易账户。盛宝资讯及研究不包含(且不应被解读为)金融、投资、税务或交易的意见,由盛宝银行集团提供、建议或授权任何类型的建议,不应被解读为对我们交易价格的记录,或提供、鼓励或招揽客户认购、销售或购买任何金融工具的记录。就任何内容被解读为投资研究而言,您必须注意和接受,这些内容并非专为推动投资研究独立化的法律要求而准备,并且在相关法律下不会被视为营销传播。

请阅读我们的免责声明:
关于非独立投资研究的通知 (https://cn.saxobank.com/legal/niird/notification)
完整免责声明 (https://cn.saxobank.com/legal/disclaimer/saxo-disclaimer)
完整免责声明 (https://cn.saxobank.com/legal/saxoselect-disclaimer/disclaimer)

请选择地区

中文
中文

交易责任
所有交易都存在风险。阅读更多。为了帮助您了解所涉及的风险,我们整理了一系列关键信息文件 (KID),重点介绍了与每种产品有关的风险和回报。阅读更多

本网站可在全球各地访问,但是本网站的信息与盛宝银行A/S有关,并非特定于盛宝集团的任何实体。所有客户将直接与盛宝银行接洽,并且所有客户协议将与盛宝银行A/S签订,因此受丹麦法律管辖。

Apple 和 Apple 徽标是 Apple Inc. 在美国和其他国家和地区注册的商标。App Store 是 Apple Inc. 的服务标志。Google Play 和 Google Play 是 Google LLC 的商标。

沪ICP备13028953号-1