Chinese economy in 2022 is not that good

 China indicated an easing in its crackdown against the once-freewheeling tech industry on Friday. President Xi Jinping wants to boost the economy in the face growth-sitting COVID-19 lockdowns. This sent shares in online heavyweights soaring.

China's powerful Politburo met with Xi to announce that it will increase policy support for the second-largest economy in the world, including its platform economy. This boosts investor hope that the worst is over after a multi-pronged crackdown that started in late 2020.

According to two sources familiar with the matter, optimism was also fueled by reports that China’s top leaders will host a symposium with a variety of internet companies in early January. The event is expected to be presided over by Xi. One source claimed that Meituan, a food delivery company (3690.HK), was one of those invited.

Due to confidentiality restrictions, the sources were not able to be identified.

South China Morning Post first reported that the meeting was being attended by tech giants Alibaba Group Holdings (9988.HK), Tencent Holdings (0700.HK), and TikTok owner ByteDance.

One source said that authorities are trying to reassure corporate executives about the regulatory environment, and encourage them to grow their businesses.

The Hang Seng Tech Index rose 10% to its highest level since Vice Premier Liu He made six weeks-long promises of policy support. Alibaba and JD.com (9618.HK), e-commerce giants, rose 16%, Meituan rose 11%, and Tencent rose 11%

source Reuters

On Friday afternoon, the depository receipts for JD.com and Alibaba trading in U.S. market were up 7.8% and 7.5% respectively.

The Chinese government policy

"The Chinese government has tried to catch up with the U.S. in regulating a tech sector that has grown at an unbelievable rate over the past ten years," stated Kevin Carter, the CIO of EMQQ Global. This fund, made up roughly 50% of China's equity tech securities, was created by EMQQ.P.

A member of the Chinese Business club in a event said, "This meeting might signal that the government believes they are caught up."

According to Jason Pride, Glenmede's chief investment officer for private wealth, the market's reaction indicated that Beijing was easing off on its excessive profits at China’s largest internet companies.

Anti-monopoly regulations in China

Beijing sought to control a variety of industries in an effort to crack down on anti-monopoly regulations, data privacy rules, and bridge a growing wealth gap that threatened to undermine the legitimacy of Communist Party rule.

However, the economic consequences of crackdowns on ecommerce, private education, and the property sector have been severe. China has since relaxed some of its measures to aid an economy that is still under strict COVID-19 lockdowns.

Sources said that U.S. and Chinese regulators discussed operational details of an audit agreement Beijing plans to sign this year. This latest attempt to prevent Chinese companies being removed from U.S. exchanges.

U.S. securities regulators have identified Chinese firms that could be delisted from New York because they do not meet auditing requirements. This has caused more fund managers to sell their holdings and dimmed prospects for new listings.

The Politburo, China's top decision-making body, pledged to complete the "special rectification" of the platform economy, without indicating a time frame or laying out support measures for its development.

Beijing has set a growth goal of 5.5% for this year. Private economists say it will be hard to achieve without substantial support. COVID-19 lockdowns, and other severe curbs to combat the pandemic, create havoc in supply chains and businesses. Continue reading

Gaming licenses

China lifted a nine month ban on gaming licenses earlier in the month to reduce the economic impact of the ban. Continue reading

China announced in January that it would reduce subsidies for electric cars and plug hybrids by 30% in 2022, and then scrap them completely at the end.

 lockdowns in China 

However, sales of cars fell in April due to lockdowns. China's state planner stated this week that it was meeting with the industry to discuss government support for these vehicles. This signaled a more supportive stance.

According to state-run Xinhua news agency, Politburo stated that it would support COVID-hit companies and small businesses, accelerate infrastructure construction and stabilize transport logistics and supply chains during Friday's meeting.

Gary Ng, senior economist for Natixis Hong Kong, stated that the Politburo meeting was "a positive sign" that the government wants to prioritise growth over a lot other goals like deleveraging or regulatory changes in the short-term.