JD.com set up an Innovative Retail division that houses its grocery business 7Fresh.
Bloomberg | Bloomberg | Getty Images
Hong Kong-listed shares of Chinese online retailer JD.com climbed 1.2% on Wednesday, outperforming the decline on the Hang Seng index after the firm announced a $5 billion buyback late Tuesday.
U.S. listed shares of the firm rose 2.24% on Tuesday after the announcement. Both JD.com’s Hong Kong and U.S. shares have dropped about 20% year to date.
In comparison, Hong Kong’s benchmark Hang Seng index was down about 0.82% Wednesday, but is up about 4% for the year so far.
The announcement is JD.com’s second buyback this year, after announcing a $3 billion buyback in March.
In response to the move, Chelsey Tam, senior equity analyst at Morningstar, said that the decision to announce the share buyback is “not surprising.” She explained, “It is a common theme in China when share prices and growth are low.”
China’s e-commerce sector has been dogged by a slow domestic economy.
Earlier this month, Alibaba’s second-quarter results missed expectations on both the top and bottom lines. On Monday, Temu-owner Pinduoduo saw its worst ever session after its second-quarter results missed both revenue and earnings per share expectations.
(Bloomberg) — Walmart Inc. raised about $3.6 billion by selling its stake in Chinese e-commerce firm JD.com Inc., winding down an eight-year partnership that appears to be paying diminishing returns amid a challenging landscape for Chinese tech giants.
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The US retailer sold 144.5 million shares for $24.95 apiece, people familiar with the matter said, asking not to be identified because the information is private. That’s a discount of 11% to Tuesday’s close in the US, according to Bloomberg calculations, and near the lower end of an indicative $24.85 to $25.85 price range.
JD.com’s Hong Kong-listed shares fell as much as 12% on Wednesday, leading a broader selloff in Chinese e-commerce and tech stocks. Walmart is refining its strategy in the world’s second-largest economy, where its long-standing e-commerce partner is struggling along with traditional rivals Alibaba Group Holding Ltd. and Temu-owner PDD Holdings Inc.
The US firm has built a mature e-commerce and delivery system in China for both Sam’s Club and its hypermarkets business and is focusing on its own offerings, a person familiar with the matter said, speaking on condition of anonymity. The deal also comes as a property crisis, market volatility and uncertain job prospects take a toll on Chinese consumption.
“I expect Walmart will be disappointed with the horse they backed,” said Mark Tanner, managing director at marketing agency China Skinny. “It doesn’t feel like the original ambitions have quite panned out as planned at the time of acquisition.”
Morgan Stanley is the broker-dealer handling the offering, according to people familiar with the situation. JD.com also bought back $390 million of its shares today.
JD.com Leads Losses in China Tech Stocks on Walmart Stake Sale
The sale will enable Walmart to “better focus on the country’s strong development” including Sam’s Club and its hypermarket business, and “allocate funds to other priorities”, according to a statement from the company. The retailer said it will continue to cooperate with JD.com, describing the Chinese e-commerce firm as a “precious partner”. JD.com has confidence in future collaboration between the two companies, it said in a statement. Morgan Stanley didn’t immediately respond to requests for comment.
Walmart’s Sam’s Club franchise has been a bright light for the company, making it the only hypermarket chain to post sales growth last year among the top 5 players, according to China Chain Store & Franchise Association. In China, the unit offers premium goods with a membership model that’s now being copied by rivals, while the company’s other basic hypermarkets are struggling along with competitors. Walmart is likely to redeploy the capital from the sale to expand its own stores, according to a report from Citigroup Inc.
Meanwhile, China’s biggest online retailers are trying to reverse their slumping fortunes as economic uncertainty and consumers’ shifting shopping habits weigh on earnings. Last week, Alibaba — long a barometer for the industry — surprised investors when it revealed its main commerce business actually shrank in the June quarter.
JD.com’s June-quarter results beat expectations — even though revenue grew a mere 1.2%. That extended a string of single-digit quarters dating back to 2022, a period of malaise that’s halved its market value since the start of last year.
The Walmart-JD break also follows a pattern of online and offline retail businesses dissolving their partnerships, as earlier ambitions to seamlessly merge the physical and cyber consumer experiences failed to be realized. Earlier this year, Bloomberg reported that Alibaba is considering selling its InTime department store arm.
The share sale would mark the winding down of a partnership between the two companies that started when Walmart acquired a 5% stake in the Chinese company in 2016. That deal also involved JD.com taking over Walmart’s Yihaodian online marketplace, which focused on selling groceries to higher-end female shoppers in major Chinese cities, the companies said then.
–With assistance from Edwin Chan.
(Updates with Walmart statement in seventh paragraph)
Affordable housing is an important topic for many Americans and both Walz and Vance have addressed the issue.
In May 2023, Walz signed housing legislation that included $200 million in down payment assistance. The bill also had $200 million for housing infrastructure and $40 million for workforce housing.
“We expect Walz to be an advocate for demand-side approaches to housing,” Jaret Seiberg, analyst at TD Cowen wrote in a July statement. “These are the type of housing ideas we would expect in a Harris administration,” she wrote.
Demand-side approaches to housing aim to help individual households by improving housing quality or reducing monthly housing costs.
Meanwhile, Vance, who is also a proponent of affordable housing, highlighted the issue in his Republican National Convention acceptance speech and along the campaign trail.
“Prior to running for Senate, Vance argued that one key to tackling poverty is to address affordable housing,” and he has opposed institutional ownership of rental homes and Chinese buyers for U.S. real estate, Seiberg wrote.
Without action from Congress, trillions of tax breaks enacted by Trump are scheduled to expire after 2025, including the child tax credit, which will drop from $2,000 to $1,000 per child.
Minnesota’s new child tax credit is unusual in its narrowness, but it is the most generous in the nation for low-income households.
Jared Walczak
Vice president of state projects at the Tax Foundation
“Minnesota’s new child tax credit is unusual in its narrowness,” said Jared Walczak, vice president of state projects at the Tax Foundation. “But it is the most generous in the nation for low-income households.”
However, a permanent federal child tax credit expansion could be difficult, particularly amid a divided Congress and increasing concerns over the federal budget deficit.
Walz’s campaign did not respond to CNBC’s request for comment.
Senate Republicans blocked a federal child tax credit expansion last week, and Sen. Mike Crapo, R-Idaho, the ranking member of the Senate Finance Committee, described the vote as a “blatant attempt to score political points.”
Despite the failed procedural vote, Crapo voiced openness to negotiating a “child tax credit solution that a majority of Republicans can support.”
Democrats scheduled the vote partially in response to Vance, who has positioned himself as a pro-family candidate. Vance was not present for the Senate vote, but has expressed support for the child tax credit.
Vance’s campaign did not respond to CNBC’s request for comment.
Vance has spoken out against student loan forgiveness policies.
“Forgiving student debt is a massive windfall to the rich, to the college educated, and most of all to the corrupt university administrators of America,” Vance, a Yale Law School graduate wrote on X in April 2022. “Republicans must fight this with every ounce of our energy and power.”
Outstanding education debt in the U.S. stands at around $1.6 trillion. Nearly 43 million people — or 1 in 6 adult Americans — carry student loans. Women and people of color are most burdened by the debt.
Vance does seem to approve of loan forgiveness in extreme cases. In May, he helped introduce legislation that would excuse parents from student loans they took on for a child who became permanently disabled.
Jane Fox, chapter chair of the Legal Aid Society Attorneys union, UAW local 2325, said it was hypocritical and incorrect of Vance to frame debt relief as a benefit to those who are well off.
“Student debt forgiveness is a working-class issue,” Fox said. “Those in the 1% who went to elite institutions and then worked in private equity as Senator Vance did rarely need debt relief.”
Vance’s campaign did not respond to CNBC’s request for comment.
Meanwhile, Walz, a former school teacher, has supported programs to alleviate the burden of student debt on people, said higher education expert Mark Kantrowitz.
“As my daughter prepares to head off to college next year, affordability and student loan debt are at the front of our minds,” Walz wrote on Facebook in 2018. “Every Minnesotan deserves a shot at a great education without being held back by soaring costs and student loan debt.”
The Foot Locker logo is displayed in a store on May 19, 2023 in San Francisco, California.
Justin Sullivan | Getty Images
Shares of Foot Locker fell in premarket trading Wednesday after the sneaker retailer reported a holiday-quarter loss and issued weak guidance for the current year.
Here’s how the company did in its fourth fiscal quarter, compared with estimates from analysts surveyed by LSEG, formerly known as Refinitiv:
Earnings per share: 38 cents adjusted vs. 32 cents expected
Revenue: $2.38 billion vs. $2.28 billion expected
The company swung to a loss in the three-month period that ended Feb. 3. Foot Locker lost $389 million, or $4.13 per share, compared with an income of $19 million, or 20 cents per share, a year earlier.
Sales rose slightly to $2.38 billion, up about 2% from $2.34 billion a year earlier.
For fiscal 2024, Foot Locker is expecting sales to be between down 1% and up 1%, compared to estimates of down half a percent, according to LSEG.
It expects adjusted earnings per share to be between $1.50 and $1.70, compared with estimates of $1.40 to $2.30, according to LSEG.
It’s been a little over a year since CEO Mary Dillon took the helm of Foot Locker. During her tenure, sales have consistently fallen as the retailer grappled with a changing mix of sneaker brands and a target consumer that has felt the brunt of inflation more acutely than those in higher income brackets.
Foot Locker has also been repositioning its Champs Sports brand and has grappled with high inventory levels that, unlike its peers, it has struggled to curb.
In her past life as Ulta Beauty’s chief executive, Dillon skillfully won over buzzy beauty brands and turned the company into a powerhouse cosmetics retailer. When she took over as Foot Locker’s top boss in Sept. 2022, she was seen as the savior the legacy retailer sorely needed.
While Dillon inherited a slew of problems that existed long before she took over, and is still highly regarded across the retail industry, her turnaround of Foot Locker has come more slowly than some analysts had expected.
During its fiscal third quarter, Foot Locker eked out surprise beats on the top and bottom lines. Dillon told investors the company was making progress with its turnaround initiatives. The company inked a new marketing deal with the NBA, made plans to enter India and said the holiday quarter was off to a strong start.
Last March, Dillon touted a renewed and revitalized relationship with Nike, which has long been the largest driver of Foot Locker’s sales. She has also sought to reduce the company’s reliance on the sneaker giant as it has focused on driving direct sales and squeezing out wholesalers.
The relationship between the two brands still appears to be in a state of flux. On earnings calls, Nike routinely points to Dick’s Sporting Goods and JD Finish Line as its treasured wholesale partners.
But in mid-February, Foot Locker announced a new partnership with its longtime supplier. The partnership, dubbed The Clinic, brings together Foot Locker, Nike and Jordan Brand, and will feature “interactive activations, high reach media, real life basketball clinics, social media content, community events and more.”
The partnership officially launched during the 2024 NBA All-Star Game in Indianapolis, In.
Wall Street analysts are betting big on one Chinese e-commerce giant: PDD Holdings . Investment firms Morgan Stanley, JPMorgan and Morningstar have all raised their price target for the parent company of discount e-retailers Pinduoduo and Temu. Just last week, PDD Holdings overtook Alibaba to become the most highly valued e-commerce company in China. PDD’s current market capitalization is nearly $190 billion, compared to Alibaba’s market capitalization of $185.8 billion, LSEG data showed. PDD posted 94% growth in third-quarter revenue from a year earlier, far outpacing Alibaba’s 9% growth during the same period. PDD’s revenue from transactions surged by 315% in the quarter ended September to nearly $4 billion. Analysts say that consumers increasingly looking for bargains in the face of economic uncertainties have helped boost PDD’s growth domestically and internationally. Morgan Stanley Morgan Stanley named PDD Holdings its top China e-commerce pick following last week’s strong earnings report. The investment bank raised its price target for PDD’s Nasdaq-listed shares from $140 to $170, according to a Nov. 28 report after PDD’s earnings report — representing a 19% upside from Monday’s close. Analysts Eddy Wang, Kathy Zhu and Gary Yu cited the performance of cross-border discount shopping app Temu as one reason for their optimism. “PDD’s strong 3Q23 results imply both sustainable market share expansion of its domestic e-commerce business and strong growth momentum of … Temu,” they told clients. “These advantages will sustain into 4Q23 and 2024.” PDD’s shares have surged about 75% since the start of 2023. JPMorgan JPMorgan called Temu “the second growth curve that few major China Internet peers have secured.” The U.S. investment firm has an overweight rating on PDD and raised its price target from $120 to $180 — representing a 26% upside from Monday’s close. “Temu’s fully managed model will capture more value in the supply chain against existing models, allowing Temu to sell products at a deep discount (30-70% now) to incumbent ecommerce players’ in most countries,” said analysts Andre Chang, Alex Yao and Nancy Liu in a report on Thursday. Temu’s contribution to PDD’s operating profit will swing from a 22 billion Chinese yuan ($3.1 billion) loss in 2023 to 25 billion yuan profit by 2027, the JPMorgan analysts estimated. Temu was PDD’s first international expansion outside of China and it rose rapidly on app rankings within a few weeks after its U.S. launch in September last year. It subsequently expanded across the world including to the U.K., Europe, Australia and New Zealand. Morningstar Morningstar Asia on Nov. 29 also raised its price target for PDD to $213 from $117, implying a nearly 50% upside from Monday’s close and attributing the upgrade to the “incorporation of … Temu in our valuation.” “We find PDD’s shares undervalued,” said Chelsey Tam, senior equity analyst at Morningstar Asia. “In our opinion, PDD is the best positioned amid value-for-money consumption trends in China and will benefit from strong long-term growth at Temu.” “Our order of preference is PDD, JD.com , and Alibaba,” she added. China’s budget-conscious shopper In a sign that consumers in China are increasingly more cost-conscious, PDD’s growing China business Pinduoduo contrasts with far slower growth for Alibaba and JD.com, which tend to sell higher-priced items and remain industry heavyweights. “[This demonstrates] Chinese consumers’ wallet share shift towards value-for money platforms — a trend that we expect to continue into 2024,” said JPMorgan analysts. PDD “remains a standout growth stock” amid a broader base economic slowdown in China, wrote The Benchmark Company in a Nov. 29 report. The research firm increased its price target for PDD to $190 from $140, representing a 33% upside from Monday’s close. Analysts Fawne Jiang and Long Lin attributed PDD’s strong performance to its unique value proposition as a value for money platform that could capture rising consumer demand even in a cautious spending environment.
Chinese tech players like Baidu , Alibaba and Tencent have largely been viewed favorably by investors, even as the Asian powerhouse has been experiencing slower growth. One tech giant, however, stands out to portfolio manager Brian Arcese: e-commerce player JD.com . The company is in the business of selling electronic products, logistics businesses and offers marketing services as well as an online retail marketplace. JD.com “is on a 10% free cash flow yield [and is] continuing to grow earnings,” Arcese, a portfolio manager at Foord Asset Management, told CNBC Pro Talks on Nov. 21. “If you take cash out, let alone investments, then you’re sort of sitting at a 15% to 20% free cash flow to five times for a business that is dominant in its niche and does continue to grow,” he added. Around 10% of Foord Asset Management’s multi-asset portfolio is currently invested in China. Some 25% of its global equity portfolio is invested in China for 2024, which Arcese notes is “massive relative to the benchmark” — which only has a 2.5% exposure to China. “We do think that China is a market where you’re really being properly paid to take more risks. And …the U.S. is quite expensive,” he said. Arcese said that though the firm also owns Alibaba, Baidu and Tencent, he has “the most conviction” in JD.com. Year-to-date, shares JD.com are down some 50% in both the Hong Kong exchange and the Nasdaq. JD 9618-HK YTD mountain Year-to-date share price movement of JD.com Of 23 analysts covering JD.com, 20 give it a buy or overweight rating, with an average price target of $166.90 Hong Kong dollars ($21.41), according to FactSet. That gives the stock a potential upside of about 48% from its Nov. 22 close. Meanwhile, 47 analysts have coverage of the JD.com Nasdaq-listed stock, according to FactSet. Of these, 37 have a buy or overweight rating on the stock at an average price target of $43.70 — giving it an upside potential of 54.4%.
Tencent sign is seen at the World Artificial Intelligence Conference (WAIC) in Shanghai, China July 6, 2023.
Aly Song | Reuters
BEIJING — Corporate earnings releases are picking up on a few bright spots for China’s consumer in a competitive market where people are less willing to open their wallets.
JD.com, Tencent and Alibaba this month reported results for the three months ended June that pointed to a steady pick-up in consumer spending that quarter, but with less clarity on whether that growth has continued.
Here’s where companies said they saw consumer-related growth, according to public disclosures and FactSet transcripts of earnings calls:
Livestreaming e-commerce saw 150% year-on-year growth in gross merchandise value in the second quarter to an unspecified number. GMV measures total sales value over a certain period of time.
On an annualized basis, that livestreaming GMV “is in the tens of billions” yuan.
WeChat Mini program e-commerce has GMV “in the trillions” of yuan on an annualized basis. GMV for physical products has exceeded 1 trillion yuan on an annualized basis.
Advertising revenue across all categories — except automotive — is up double-digits from a year ago in recent weeks. Ad sales rose by 34% to 25 billion yuan in the quarter ended June.
Overall, Tencent reported earnings for the quarter that missed expectations, but showed a third-straight quarter of revenue growth.
Direct China commerce sales, primarily from Tmall Supermarket and Tmall Global, grew by 21% year-on-year to 30.17 billion yuan.
The overall Taobao and Tmall Group saw revenue grow by 12% to 114.95 billion yuan.
A recovery in offline shows and the movie theater box office boosted Alibaba’s ticketing and movie studio units. Video platform Youku also saw subscription revenue rise. In all, digital media and entertainment revenue surged by 36% year-on-year to 5.38 billion yuan — and its first profitable quarter.
Local services revenue rose by 30% to 14.5 billion yuan. That was driven by orders on food delivery app Ele.me and growth in Alibaba’s map app Amap, which sells services such as ride-hailing and hotel booking.
Alibaba management did not provide much detail on the state of the consumer since the end of June.
Data for July have pointed to a slowdown in China’s economy, including a modest 2.5% year-on-year increase in retail sales.
Theme parks, however, have done well as tourism has picked up domestically.
Shanghai Disney saw record high revenue, operating income and margin during the latest quarter, the company said.
Read more about China from CNBC Pro
Universal Studios Beijing “enjoyed its most profitable quarter,” Comcast said. The park opened in September 2021, during the pandemic.
Listed companies don’t capture all major channels for online spending in China. ByteDance, which is not publicly listed, has become another e-commerce platform through its Douyin app, the local version of TikTok.
Consumers in China spent 1.41 trillion yuan in purchases from merchants on Douyin, up 76% from the previous year, according to The Information. ByteDance did not immediately respond to a request for comment.
ByteDance’s smaller rival Kuaishou is set to release earnings Tuesday, as are Chinese tech giant Baidu and video content platform iQiyi. E-commerce giant Pinduoduo has yet to announce when it’s scheduled to release earnings.
Other companies in China, or those with exposure to China, have showed some pockets of growth, albeit compared to a low base in 2022 when the metropolis of Shanghai was locked down for two of the three months in the second quarter.
The Chinese sportswear company said its Anta brand retail sales value rose by high single digits in the second quarter from a year ago. Its Fila brand saw high teens growth year-over-year. The company’s Descente, Kolon Sport and other brands saw growth of 70% to 75% year-on-year.
Apple CEO Tim Cook said the iPhone maker saw “an acceleration‘’ in China, with 8% year-on-year quarterly sales growth to $15.76 billion. That’s a reversal of a 3% year-on-year drop in the prior quarter.
The company said it saw “a June quarter record in Greater China” in the wearables, home and accessories category, as overall product group saw sales increase by 2% year-on-year to $8.3 billion.
A Solarpro employee installs a SolarEdge Technologies Inc. inverter at a residential property in Sydney, May 17, 2021.
Brendon Thorne | Bloomberg | Getty Images
Check out the companies making the biggest moves midday:
SolarEdge Technologies — The solar stock tumbled about 19% after the company reported $991 million in revenue, missing analysts’ estimates of $992 million, according to Refinitiv. SolarEdge also issued disappointing third-quarter revenue guidance.
CVS Health — The retail pharmacy stock gained 4% during midday trading Wednesday after the company posted strong earnings and revenue for the second quarter. CVS reported earnings of $2.21 per share on revenue of $88.9 billion, while Wall Street analysts expected $2.11 per share on earnings of $86.5 billion, according to Refinitiv.
Norwegian Cruise Line — The cruise stock sank 3.2%, a day after reporting weaker-than-expected guidance for the third quarter. Its second-quarter earnings, however, topped analysts’ estimates. Shares were also downgraded by Susquehanna to neutral from positive. The Wall Street firm said Norwegian’s return to pre-pandemic EBITDA margin will take some time.
Emerson Electric — Shares rallied 4% following Emerson Electric’s earnings and revenue beat for its fiscal third quarter. The company reported adjusted earnings per share of $1.29, topping the $1.10 expected from analysts polled by StreetAccount. Revenue was $3.95 billion, compared to the $3.88 billion expected by Wall Street.
Pinterest — The social media platform slid 4.9% despite beating expectations on revenue for the second quarter. Pinterest posted $708 million against FactSet’s $696.4 consensus estimate. Pintrest’s third-quarter revenue growth forecast, however, missed expectations.
Starbucks — Shares added 2.6% following the coffee giant’s earnings report was released. Starbucks adjusted earnings per share for the fiscal third quarter was $1, versus the 95 cents expected by analysts, per Refinitiv. However, revenue fell short at $9.17 billion compared to the $9.39 billion expected.
Advanced Micro Devices — The chipmaker’s shares declined 7.4% in reaction to its second-quarter earnings release on Tuesday after the bell. While the company posted better-than-expected earnings in the prior quarter, its forecast for the third quarter was weaker than analyst estimates amid a weak PC market. Several Wall Street firms, including Bank of America and JPMorgan, said that the company may be nearing the peak of its rally.
Humana — Shares popped 6% after the health insurer reported second-quarter adjusted earnings per share of $8.94, topping the $8.76 per share anticipated by analysts, per StreetAccount. Humana forecasted its Medicare Advantage business will grow by about 825,000 members in 2023.
Generac — Shares dropped nearly 24% after the company posted a second-quarter earnings miss. Adjusted earnings per share came in at $1.08, versus StreetAccount’s estimate of $1.16. The company also lowered its forecast for residential product sales in the second half, citing a softer-than-expected consumer environment.
Scotts Miracle-Gro — The stock sank 18% after the maker of consumer lawn, garden and pest control products reported an earnings and revenue miss for its third quarter. Scotts also forecast a bigger-than-expected revenue decline for the fiscal 2023 year.
Freshworks — Shares popped nearly 19% after the software-as-a-service company beat expectations for both earnings and revenue. Canaccord Genuity upgraded the stock to buy from hold and hiked its price target to$25 from $15, suggesting 37% upside from Tuesday’s close.
Robinhood — The retail brokerage’s stock shed more than 4% ahead of the company’s quarterly results, due after the bell. Analysts are expecting a quarterly loss of 1 cent, according to StreetAccount.
Paycom Software — Shares tumbled 18.6% despite the payroll provider’s earnings and revenue beat after the bell Tuesday. However, the company’s revenue guidance for the third quarter was $410 million to $412 million, compared to the $412 million expected from analysts polled by StreetAccount.
JD.com has become the latest Chinese tech giant to announced plans for a ChatGPT-style product, joining the hype around the chatbot technology.
Qilai Shen | Bloomberg | Getty Images
Chinese consumers snapped up billions worth of items in China’s first major online shopping festival after emerging from the pandemic as merchants slashed prices, but analysts say that consumer confidence still remains weak.
Chinese merchants offered customers steep discounts during the 618 shopping festival, which ran on China’s major shopping platforms from the end of May until June 18, in the hopes of shoring up sales amid a weaker-than-expected recovery in consumption.
Major shopping festivals, like e-commerce retailer JD.com’s 618 and Alibaba’s Singles’ Day, are typically barometers of consumption in China, and Chinese e-commerce platforms often participate by offering discounts and incentives to consumers.
Analysts say that consumption remains soft this year as China emerges from the pandemic, even as platforms including JD.com, Tmall, Taobao and Pinduoduo offered billions in subsidies.
“Chinese consumer confidence remains weak due to a mix of geopolitics, continued weakness from Covid-19 and domestic Chinese politics,” said Shaun Rein, founder and managing director of the China Market Research Group in Shanghai.
Rein said that consumers were less likely to spend more during 618 as merchants had already been discounting heavily for years because of the pandemic, and deals were not that much better compared to previous months.
In March, JD.com launched a “10 billion yuan subsidies” program to compete with rival Pinduoduo, which is known for its low-priced goods. The CEO of Alibaba’s e-commerce business unit, Trudy Dai, also previously pledged to make “huge, historic” investments to attract users to its platforms.
“For months, Chinese consumers have been price-conscious, looking for deals and trading down across most product categories,” Rein said.
This year, for the first time, JD.com did not reveal its total sales numbers for the 618 event, despite saying in a blog post that the 2023 shopping extravaganza had “exceeded expectations, setting a new record.”
Last year, neither Alibaba nor JD.com unveiled final numbers for Singles’ Day in November, amid muted festivities during Covid-19 and an expected slowdown in growth.
JD.com said in a blog post that during the 618 shopping festival, consumers snapped up 10 times the number of products that were eligible under its “10 billion yuan subsidies” program, compared to March.
Despite overall soft consumption, categories like cosmetics and luxury goods saw a bigger uptick in sales compared to the previous quarter, according to Jacob Cooke, CEO of e-commerce consultancy WPIC.
For this year’s 618 event, more luxury brands took part as they sought to boost sales in China after the sector in 2022 declined for the first time in five years amid China’s strict “zero-Covid” policies and lockdowns that hammered retail spending.
Brands like Moncler and Lemaire took part in 618 on Tmall for the first time.
Many luxury brands also took the opportunity to launch new products online, with some offering rare discounts and other incentives such as interest-free payments in installments over 12 months.
Brands like Burberry, Chloe and Miu Miu’s sales in the first 30 minutes of the 618 festival at the end of May had exceeded its total sales during the shopping festival a year ago, according to Tmall data.
“Luxury coming back online is a big trend, because that’s the category that’s been hit really hard over Covid-19,” said Cooke. “Some brands may see up to a 10-fold increase in sales over last year.”
People wearing face masks crossing a street at Hong Kong’s Wan Chai district on Feb. 16, 2021.
Zhang Wei | China News Service | Getty Images
Hong Kong’s benchmark index entered bear market territory Wednesday on an intraday basis, erasing the rebound gains from China’s reopening.
The Hang Seng index hit a session low of 18,105.78. That’s 20.2% below its 52-week closing high of 22,688.9 reached on Jan. 27. A technical bear market is defined as when prices fall 20% below recent highs.
Hong Kong technology stocks were among the leading decliners for the overall index, including internet company NetEase and e-commerce platforms Meituan and JD.com. Alibaba shed nearly 3%, Baidu fell more than 4%, and Bilibili plunged by 6%.
The Hang Seng Tech index has already fallen by more than 25% from its January peak. That’s a stark contrast to the reopening optimism that had once driven Asia-Pacific’s benchmark MSCI Asia Pacific index to a bull market.
The Hang Seng China Enterprises index, which measures the performance of the 50 largest and most liquid mainland Chinese companies listed in Hong Kong, has also retreated by more than 21% from its January peak.
The latest factory activity reading for China came in at 48.8, below the 50-mark that separates growth from contraction — and missing the 49.4 estimate from a Reuters poll.
Morgan Stanley analysts said in a May 17 report that a weak reading in that manufacturing measure “has been a solid precursor to policy easing.” Economists told CNBC that a disappointing rebound could lead to more government stimulus ahead.
“If growth does not accelerate sufficiently to narrow the output gap, social stability risk may rise and eventually trigger more meaningful stimulus,” Morgan Stanley analysts wrote in the note.
The National Bureau of Statistics noted the purchasing managers’ index for large manufacturers came in at 50, while that of smaller manufacturers was lower. The index for services activity remained in expansionary territory at 54.5, but marked a second-straight month of decline.
Citi economists wrote in a Wednesday note that the latest economic data missing expectations by a large margin is seen as “signs of fatigue with the initial reopening impulse peaking.”
“Insufficient demand could be the major concern now, and there are both cyclical and structural causes for it,” they wrote, adding the “initial boost to the services sector from reopening could be fading.”
Citi economists also expect the People’s Bank of China to cut its medium-term lending facility rates by 20 basis points and its reserve requirement ratio by 50 basis points by the end of the year.
“We reckon that the Chinese economy could be on the verge of a self-fulfilling confidence trap and believe decisive policy actions are needed,” they wrote.
“There could be limited room for fiscal easing from the budget and we expect structural easing efforts with more efforts from the central government and quasi-fiscal tools via policy banks,” they wrote.
Alibaba Cloud, the cloud computing subsidiary of Alibaba, unveiled its ChatGPT-style product Tongyi Qianwen during the 2023 Alibaba Cloud Summit on Tuesday morning.
Bloomberg | Bloomberg | Getty Images
Alibaba announced plans to spin off its cloud division as a separate, publicly traded company, while the Chinese e-commerce titan’s quarterly revenue missed expectations.
“We are taking concrete steps towards unlocking value from our businesses and are pleased to announce that our board has approved a full spin-off of the Cloud Intelligence Group via a stock dividend distribution to shareholders, with intention for it to become an independent publicly listed company,” company CEO Daniel Zhang said.
related investing news
Alibaba shares were down 2.4% in early U.S. trading, following an initial drop of around 1% shortly after the earnings report was issued, as investors reacted to the company’s results and spinoff plans.
Here’s how Alibaba did in the quarter, which ended March 31, 2022, compared with Refinitiv consensus estimates:
Revenue: 208.2 billion Chinese yuan ($29.6 billion) vs. 210.2 billion yuan expected, up 2% year on year
Non-GAAP diluted earnings per share: 1.34 yuan vs. 2.08 yuan expected, up 35% year on year
The report is Alibaba’s first since splitting into six units and is also the first whose numbers reflect China’s reopening. The country in December abruptly ended its strict Covid controls, such as lockdowns and travel restrictions.
In its report for the fiscal fourth quarter, Alibaba said it plans to spin off its cloud division as a newly listed company, subject to restructuring certain assets, liabilities and contracts, and regulatory approvals.
Alibaba is a major player in cloud computing in its home country and increasingly seeks to compete with established U.S. giants, such as Amazon and Microsoft.
Dan Ives, an analyst at Wedbush Securities, said Alibaba’s cloud spinoff plan was a “no brainer strategic move that we believe adds to the sum of the parts valuation on BABA.”
“We believe this was a step in the right direction for the Alibaba story,” Ives told CNBC in emailed comments Thursday.
The company also announced plans to raise money from outside investors for its international digital commerce group, which includes the Lazada and AliExpress online shopping platforms.
Alibaba also said it intends to launch an initial public offering for its Cainiao Smart Logistics unit, in which it currently holds a 67% stake. The IPO is slated to complete in the next 12 to 18 months.
Alibaba’s board approved the start of an exploration of listing its Freshippo retail business in the next six to 12 months, the company said.
The year got off to a tepid start, with overall sales of online physical goods staying weak, bosses of major e-commerce platforms suggested in February.
Retail sales in China rose by 18.4% in April, according to recent economic data. China’s economy grew 4.5% in the first quarter, achieving the fastest pace in a year. The performance was expected to boost Alibaba’s sales.
The company operates two of the largest online shopping sites in China: Taobao and Tmall. Despite ann increase in competition, Alibaba’s results remain an important indicator of the world’s second-largest economy.
China generates almost 50% of the world’s online shopping transactions.
Alibaba said it saw positive domestic growth momentum in March, after a slow start to the year.
Overall for the quarter, the company’s Taobao and Tmall platforms saw mid-single-digit declines for their online physical goods orders, but by May, they “turned positive, driven by strong growth of fashion & accessories and healthcare categories,” the company said.
The Thursday earnings figures are the first since Alibaba announced a substantial overhaul of its organization, splitting the business into several distinct units in a development that several analysts interpreted as signaling an easing in Beijing’s crackdown on tech companies.
The new company structure is broken down into six divisions: Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics, Global Digital Commerce Group, and Digital Media and Entertainment Group.
Meanwhile, China’s regulatory tightening of the past two years on tech has begun to ease, as Beijing’s enforcement of the rules becomes more predictable.
Some investors are betting on a strong recovery for China’s tech giants. On Tuesday, Michael Burry of “The Big Short” fame boosted his bets on Chinese e-commerce companies Alibaba and JD.com, doubling his stake in Alibaba to $10.2 billion and his JD.com holding to $11 million.
Alibaba, which developed its own ChatGPT-style generative artificial intelligence tool Tongyi Qianwen earlier this year, said that the system could help expand customer adoption of its cloud computing service.
So far, Alibaba has seen ample demand for the product, with 2,000 enterprise customers applying for trial access, company management said on the firm’s earnings call.
The firm is starting work to develop “vertical” models developed by third-party partners and developers but based on the firm’s own Tongyi Qianwen system.
On Wednesday, Tencent’s president, Martin Lau, said the company has been “making good progress” in building foundation models, the systems which underpin AI chatbots like ChatGPT, after the company reported a solid bounce in revenue.
Michael Burry, known for calling the subprime mortgage crisis, bought a number of regional banks last quarter, betting the industry could weather the crisis, according to a new regulatory filing. Burry’s hedge fund Scion Asset Management picked up New York Community Bancorp , Capital One Financial , Western Alliance , PacWest Bancorp and Huntington Bancshares during the first quarter. The famed investor said in mid-March, after the collapse of Silicon Valley Bank, that he expected the banking crisis to be over soon without severe damage. “This crisis could resolve very quickly. I am not seeing true danger here,” Burry said in a now-deleted tweet in March. However, on May 1, First Republic was seized by regulators to become the biggest bank collapse since the 2008 financial crisis. The bank suffered a deposit flight as its long-term assets fell in market value after a series of rate hikes, triggering worries about unrealized losses on the balance sheet. Burry bought $2 million worth of First Republic Bank shares last quarter, the filing, which reflects Scion’s holdings as of March 31, showed. The stock has lost nearly all of its value after its collapse. To be sure, Burry could have sold his stake before the bank met its demise. JPMorgan this month acquired all of First Republic’s deposits and a “substantial majority of assets.” Money managers with more than $100 million in assets under management are required to disclose long positions with the Securities and Exchange Commission 45 days after a quarter ends. It’s possible that Burry, an active trader, has already adjusted his other bets between the filing date and now. It’s also likely that he was covering his short positions in banks. Burry shot to fame by betting against mortgage-backed securities before the 2008 crisis. Burry was depicted in Michael Lewis’ book “The Big Short” and the subsequent Oscar-winning movie of the same name. The famed investor also drastically increased his bets on Chinese e-commerce leaders JD.com and Alibaba , making them his two-biggest holdings at the end of March. He also built new stakes in Signet Jewelers , Zoom Video , Sibanye Stillwater as well as Cigna .
Pictured here is a shopping street in Shenzhen, China, on Thursday, March 30, 2023.
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BEIJING — China’s economic recovery is taking longer than expected, prompting Citi analysts to push back their forecasts for a stock market rebound by three months.
Instead of June, Citi now expects it will now take until the end of September for the Hang Seng Index to reach 24,000, analysts said in a report Thursday. That’s about 18% above current levels.
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The Hang Seng Index closed at 20,331.20 on Thursday, up about 2.8% for the year so far.
“We expect [first-quarter 2023 corporate] results to be on the weaker side as post COVID recovery seems slower than expected,” the Citi report said. It said analysis of 2022 results of 316 Chinese companies found more misses than beats.
China has reported a modest recovery in economic growth for the first two months of the year. The country ended its stringent Covid controls in December.
The analysts also delayed by three months — to the end of September — their expectations for a rebound in two other Chinese stock indexes.
For the CSI 300, Citi has a target of 4,500, or about 9% above Friday’s level of near 4,125.
For the MSCI China index, Citi has a forecast of 78. That’s about 18% above current levels near 66.
Falling exports from slower growth in the U.S. and Europe is weighing on China’s economy, along with a slump in the massive real estate sector.
Goldman Sachs credit strategy analysts said in a report Thursday they expect Chinese property developers’ high-yield default rate will be 19% this year.
That’s better than the 46.4% last year, but “still at an elevated level, reflecting the uncertain pace of recovery for the physical property market,” the report said.
However, a quarterly People’s Bank of China survey released this week indicated more people in China want to buy houses again, along with greater expectations that home prices will rise.
China’s movie box office has also started to show some signs of recovery.
Animated film “Suzume” this month became the highest-grossing Japanese film in China with a box office of more than 650 million yuan ($94.49 million), surpassing that of prior first-place title “Your Name,” according to movie ticketing site Maoyan. Both films were made by the same director.
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The data showed “The Super Mario Bros. Movie” grossed 32.3 million yuan on its opening day in China on Wednesday, a local holiday. That marked the biggest opening for a Hollywood animation since the pandemic began in 2020, Deadline pointed out.
More foreign movies are now being allowed in China after authorities only allowed a handful of overseas titles to screen during the pandemic.
China is set to release first-quarter GDP and other economic data on April 18.
For 2023, Citi expects consumer discretionary and utilities companies to post the greatest growth in earnings per share among Hang Seng Index sectors, while energy and industrials will likely see declines.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal is the distributor of “The Super Mario Bros. Movie.”
Chinese technology stocks led gains in Asia-Pacific on Wednesday’s as Hong Kong listed shares of Alibaba jumped, one day after the company announced a major revamp to split the tech giant into six entities.
The Hang Seng Tech index gained nearly 3% in the afternoon, its highest in more than a month — as shares of Alibaba and its peers such as Meituan, JD.com and Tencent pushed up the index.
Alibaba owns 33% of Ant, which operates AliPay, one of China’s two dominant mobile pay apps.
“I truly believe [Alibaba is] aiming for a bigger target,” said Kingston Securities Executive Director Dickie Wong. “In terms of the bigger picture, obviously would be Ant Group [being] re-introduced into the equity market,” he told CNBC’s “Street Signs Asia” on Wednesday.
“This is probably the biggest goal for Alibaba Group itself,” Wong said of Alibaba’s revamp plans, adding that the expected listing in Hong Kong will not happen anytime soon “but there’s big hope” for a sooner-than-later deal.
HANGZHOU, CHINA – OCTOBER 27: A logo of Ant Group is seen at the company’s headquarters on October 27, 2020 in Hangzhou, Zhejiang Province of China.
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Ant received approval from the China Banking and Insurance Regulatory Commission earlier this year to expand its consumer finance business, a sign the company could be moving one step closer to resolving regulators’ concerns.
To be clear, there was no mention of Ant in Alibaba’s announcement for its overhaul overnight.
KraneShares’ CIO Brendan Ahern said investors it’s likely investors will be focusing Ant’s IPO.
“The one part about the press release that I think the investors will be asking for is the lack of talk about Ant Group,” Ahern said.
“But certainty the renewed relationship or the good graces of Alibaba along with the government and its regulators is really driven by China’s necessity for domestic consumption in 2023,” he added.
— CNBC’s Evelyn Cheng, Arjun Kharpal contributed to this report.
Signage at the Alibaba Group Holding Ltd. offices in Beijing, China, on Tuesday, Jan. 17, 2023.
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Hong Kong-listed shares of Alibaba surged 15% at the open on Wednesday after the company announced a significant overhaul to split the tech giant into six business groups.
On Wall Street overnight, Alibaba stocks soared to close 14.26% higher. They were 0.71% higher in after-hours trading.
The decision to split into different units means each will be managed by its own leadership and executive board, and can pursue independent fundraising and IPOs when they’re ready.
The company said the move aims to “unlock shareholder value.”
The six business groups are:
Cloud Intelligence Group: includes company’s cloud and artificial intelligence activities;
Taobao Tmall Commerce Group: online shopping platforms including Taobao and Tmall;
Local Services Group: covers Alibaba’s food delivery service Ele.me as well as its mapping;
Global Digital Commerce Group: includes Alibaba’s international e-commerce businesses including AliExpress and Lazada;
Digital Media and Entertainment Group: includes Alibaba’s streaming and movie business.
The overhaul of the Chinese technology giant comes at the back of the company facing continued struggles with growth over the past few quarters – the company erased roughly $600 billion from its peak seen in October 2020 as it continued to grapple with the Chinese government’s crackdown on technology companies.
The stock moves are more reflective of a sense of relief, rather than investors’ hopes in the business, value investor and Warren Buffett disciple Guy Spier told CNBC’s Tanvir Gill.
“The rally in the shares is not so much because the market expects greater profitability, rather than relief that tensions with the regulator seem to have been resolved,” Spier said, adding that the company will face less pressure going forward.
He added that Chinese consumers – not investors – would be the beneficiary of Alibaba’s overhaul.
“This sets the stage for a more innovative Chinese tech sector and far more competition – so very good for Chinese consumers,” he said, adding that it “reduces concentration and the power of one business within China – which was making Chinese regulators uncomfortable.”
Tech stocks in Hong Kong climbed in morning trade: Shares of Tencent rose 3%, JD.com gained nearly 5%, and Baidu rose more than 3%. The Hang Seng Tech index soared 3.3% in its first hour of trade, leading gains in the Asia-Pacific region.
The moves seen in the stock prices of Alibaba’s peers on Wall Street indicated that other Chinese technology companies could turn to similar measures for their business.
“I think investors are saying what we saw in Alibaba, really the leader in China tech, that their plans might be utilized by others,” said Brendan Ahern, CIO of KraneShares, pointing to the ADR moves seen in Tencent, JD.com, and Baidu.
He noted the company’s announcement showed that Alibaba founder Jack Ma, who was recently spotted in China after spending months abroad, was involved in the process.
“It’s very clear he played a role in this new structure that is really around what the company said in the press release, it’s about unleashing the shareholder value,” said Ahern.
– CNBC’s Arjun Kharpal contributed to this report.
Correction: This story has been updated to reflect that Alibaba shares in Hong Kong surged on Wednesday.
A display at the World Artificial Intelligence Conference (WAIC) in Shanghai, China, on Friday, Sept. 2, 2022.
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BEIJING — The business story of ChatGPT right now is more about what isn’t known.
Big tech companies in the U.S. and China rushed this month to announce they are working on similar AI tools. Their announcements often referenced Microsoft-backed ChatGPT, while disclosing few details on what they themselves were working on.
The artificial intelligence-powered chatbot ChatGPT has taken the tech world by storm in the last few months with its ability to generate everything from poems to business strategies in a human-like conversation.
Still, analysts say the tech is transformative, something that’s also been said about blockchain and the metaverse.
Here’s what companies — including those in China — are doing in this specialized area of AI:
U.S. startup OpenAI raced to beat rivals by launching ChatGPT in November, according to The New York Times, citing sources. The public interface skyrocketed in popularity for everything from homework help to strategy development.
Database software startup PingCap already has a ChatGPT-based product on the market. The company has offices in Beijing and San Mateo, California.
PingCap launched “Chat2Query” for customers outside China in January that uses a publicly available application programming interface from OpenAI.
The product lets clients analyze in seconds their companies’ operating data — such as best-selling car models — without needing to know a computer programming language, said Liu Song, vice president of PingCap. He said Chat2Query is free for clients processing up to 5 gigabytes of data.
“We think the revolution may not be in AI search but in every business,” he said in Mandarin, translated by CNBC. However, he noted that those data need to be organized in a standardized way.
We think the revolution may not be in AI search but in every business
Liu Song
PingCap, vice president
Baidu, the Chinese search engine and tech giant, said Wednesday its AI chatbot project will be embedded into search first, and opened to the public in March.
The product is named “Ernie bot” in English or “Wenxin Yiyan” in Chinese, the company said previously.
Chinese e-commerce rival JD.com did not have a launch date either, but said its “ChatJD” will focus on retail and finance. It will assist with tasks such as generating product summaries on shopping sites and financial analysis, the company said.
Tencent, which operates the ubiquitous Chinese messaging app WeChat, said in a statement it continues to research natural language processing. That’s the field within artificial intelligence on which ChatGPT is based.
While ChatGPT this month became a trendy topic in China, even for state media, analysts note the country’s censorship and data regulations may affect how similar tech develops in the country. Beijing has emphasized building up its own technological abilities.
Nikkei Asia on Wednesday reported, citing sources, that regulators told Tencent and Alibaba-affiliate Ant Group not to offer access to ChatGPT services on their platforms, either directly or via third parties.
The report did not specify which regulators. China’s cybersecurity regulator, Tencent and Ant did not immediately respond to requests for comment.
In terms of technical ability, however, the U.S. is only months — not years — ahead of China in that AI research, a Microsoft executive told journalists this month. ChatGPT isn’t available in China, although Microsoft operates in the country.
The executive said that state-backed Beijing Academy of Artificial Intelligence is one of three global leaders in artificial intelligence research, along with Google’s DeepMind and Microsoft’s partnership with OpenAI.
Kunlun Tech expects to release an open source Chinese version of ChatGPT, as early as the middle of this year, its president Han Fang told CNBC last week. Open source software is available to the public and allows anyone to see, change or distribute the code.
The company, which generates most of its revenue outside China, previously said its niche web browser Opera is planning to incorporate ChatGPT into its products, although it’s unclear when or with what functions.
Kunlun Tech is already working in the field of AI-generated content, such as music.
Fang said his commercialization plan is to first develop those AI tools. Creators can then use the tools to make their own work and publish them on designated platforms for public viewing, following which the company can then sell ads, he said. He expects to launch the platforms later this year.
Fang said he was directly inspired by OpenAI’s early version of ChatGPT tech in 2020.
“We all talk about the metaverse, but who is in it?” he said in Mandarin, translated by CNBC. “It only changed our news. It didn’t change our lives.”
In contrast, he said generative AI tech can immediately provide value since it operates where users are already producing and consuming content. Generative AI can also lower production costs, allowing animators and speakers of minority languages to easily create their own content, Fang said.
The implications for jobs and industries remain significant.
The arrival of AI such as ChatGPT means many “cognitive tasks” look easier to automate than manual work such as in factories — a surprise to many economists, said Anton Korinek, professor at the Department of Economics and Darden School of Business, University of Virginia.
“The impressive but also little bit scary part is that the power of these systems has been progressing steadily over the past couple of years,” he said, adding that he expects more powerful AI tech this year alone.
“That will really imply that these models will have a revolutionary impact on our economy, on productivity, on labor markets and ultimately on society in general.”
— CNBC’s Arjun Kharpal and Lauren Feiner contributed to this report.
Retailers in China including JD.com and Suning have cut the price of Apple’s iPhone 14 Pro and Pro Max. It comes after China’s smartphone market had its worst year in a decade.
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Major retailers in China slashed the price of Apple’s high-end iPhone 14 models amid a slump in smartphone demand in the world’s second-largest economy.
E-commerce site JD.com, an authorized Apple distributor, is selling the basic version of the iPhone 14 Pro for 7,199 Chinese yuan ($1,062) after an 800 yuan promotion. The basic iPhone 14 Pro Max is listed for 8,199 yuan after an 800 yuan reduction.
Suning, another major retailer, is selling the basic model of the iPhone 14 Pro for 7,199 after discounts and the iPhone 14 Pro Ma for 8,199.
Apple’s official China website has not changed prices. The iPhone 14 Pro starts at 7,999 yuan and the Pro Max starts at 8,999.
Apple tightly controls the price of its products in China and very rarely lets third-party retailers offer such steep discounts. Apple previously allowed retailers to slash prices in June 2020, after China was re-opening its economy following tough lockdowns across the country to battle the initial Covid outbreak.
But the price cuts come after a major slump in China’s smartphone market last year. Smartphone shipments hit 285.8 million in 2022, down 13.2% year-on-year to below the 300 million mark for the first time in ten years, according to IDC. Apple iPhone shipments fell more than 4% year-on-year in China in 2022, IDC said.
Apple also reported overall sales for the December quarter were about 5% lower than last year’s, the first year-over-year sales decline since 2019.
The company faced major disruptions at its plant in Zhengzhou, China, the world’s biggest iPhone factory which is run by Foxconn. The factory was hit by a Covid outbreak and workers protested over a delay in bonus payments.
Chinese telecommunications giant Huawei saw revenue decline in 2021 for the first time on record.
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BEIJING — Chinese telecommunications giant Huawei is turning to patents for a lifeline as the company seeks to forge a path forward in advanced chip technology — the prized tech which the U.S. is trying to cut off from China.
In 2022, Huawei announced it signed more than 20 new or extended licensing agreements for its patents. Most were with automakers, for 4G and LTE wireless technology, the company said.
Mercedes Benz, Audi, BMW and at least one U.S. automaker were among the licensees, said Huawei’s global intellectual property head Alan Fan. He said he wasn’t able to say which American company.
Huawei has more on the way — and filed a record number of more than 11,000 patent applications with the U.S. in 2022, according to IFI Claims Patent Services. Their analysis showed just under half typically get approved each year.
But the sheer number of patents filed meant Huawei ranked fourth last year by the number of patent grants in the U.S., IFI said. Samsung was first, followed by IBM and TSMC.
“The U.S. is still a substantial market that everybody wants to have a part of,” said IFI Chief Executive Mike Baycroft. “They want to make sure when they’re developing those technologies that they’re protecting those IP [intellectual property] rights for the U.S. market for the European market.”
Over the last two years, Huawei’s U.S. patents have increased the most in areas related to image compression, digital information transmission and wireless communication networks, according to IFI.
The U.S. government put Huawei on a blacklist in 2018 that restricted its ability to buy from American suppliers. By October 2022, the U.S. made it clear that no Americans should work with Chinese businesses on high-end semiconductor tech.
Huawei’s revenue dropped for the first time on record in 2021, and the consumer division that includes smartphones reported sales plunged nearly 50% to 243.4 billion yuan ($36.08 billion).
For Huawei, licensing its patents to other companies has the potential to claw back a bit of that revenue.
Alex Liang, partner at Anjie & Broad in Beijing, pointed out that having ceased operations in certain business areas allows the company to realize patent revenue that previously existed primarily on paper.
“Huawei’s situation is similar to Nokia’s when the first generation iPhone came out,” Liang said. “Nokia was quickly losing market share to Apple and lots of their patents no longer [had] to be licensed in exchange for other licenses to protect their phone business.”
Companies that share technical areas with Huawei … should all beware that a giant patent monetization player is jumping into their respective pool and will make a splash.
Alex Liang
partner, Anjie & Broad
Nokia generated 1.59 billion euros ($1.73 billion) in sales last year from patent licensing — about 6% of its total revenue. The company said in 2022 it signed “over 50 new patent license agreements across our smartphone, automotive, consumer electronics, and IoT [Internet of Things] licensing programs.”
Nokia and Huawei extended their patent licensing agreement in December. Huawei also announced licensing deals with South Korea’s Samsung and China’s Oppo.
“As far as I know, Huawei is aggressively pushing for the monetization of its patents,” Liang said.
“It is one of the most important [key performance indicators] of their IP department, if not yet the single most important,” he said.
“So any other companies that share technical areas with Huawei — such as telecommunication, phones, IoT, automobiles, PC, cloud service, and so on — should all beware that a giant patent monetization player is jumping into their respective pool and will make a splash.”
Huawei pushed back at the idea it was building a business in patent monetization.
The company’s IP head Fan said his department is “a corporate function, not a business unit,” and that it redirects royalties to the research departments that filed the patents to fund further research.
“We actively support patent pools and similar platforms, which license patent not just for us, but also for other innovators at the same time,” Fan said in a statement.
The company previously said it expected $1.2 billion to $1.3 billion in revenue from licensing its intellectual property between 2019 and 2021. Huawei did not break down specific figures, and only said it met its intellectual property revenue expectations for 2021.
A business of that size would still be a tiny fraction of the company’s overall revenue. Huawei said in December it expects 2022 revenue of 636.9 billion yuan, little changed from a year ago. Cloud and connected cars are other business areas the company has sought to develop.
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Huawei has “been floundering around since the demise of their handset business,” said Paul Triolo, Senior Vice President for China and Technology Policy Lead at Albright Stonebridge Group. “I don’t think they had a choice in terms of sort of boosting their licensing revenue.”
“The question is what do they do for 6G [in] five years?” he said. “Are they still going to play a patent game? They can’t really manufacture the equipment. They’re sort of stuck if they can’t figure out the semiconductor piece in terms of going forward.”
Still, Huawei said it spent 22.4% of 2021 revenue on research and development, bringing total category spending to more than $120 billion over the last decade.
Some of the research is in semiconductor manufacturing. Huawei has filed for a patent in the highly specialized area of lithography technology used for making advanced chips, according to a disclosure late last year on the China Intellectual Property Administration website.
“It’s significant in the sense that each individual piece of a complicated technology like EUV [extreme ultraviolet] is not that difficult to sort of make progress on,” Triolo said. “Turning that into a commercial system at scale that can boost commercially is a huge, huge task.”
Right now, Netherlands-based ASML is the only company in the world that can make the extreme ultraviolet lithography machines needed to make advanced chips.
Not only did it take ASML about 30 years to develop EUV on its own, but the company had the benefit of unrestricted access to thousands of suppliers and international industry groups, Triolo said. “What China really lacks is these international consortia.”
But he didn’t rule out the possibility that China’s national champion could help Beijing build up its semiconductor industry.
“Huawei has a very capable group of engineers,” Triolo said. It’s “probably a five-to-seven year process to build something commercially viable — only if everything goes well, if there’s substantial funding. The Chinese government is going to have to step up here.”
Other Chinese companies are also pouring resources into intellectual property.
IFI’s rankings of companies’ and their subsidiaries’ global patent holdings showed a number of Chinese giants among the top 15, including the state research organization Chinese Academy of Sciences.
Appliance companies Midea and Gree also ranked high globally, among South Korean and Japanese heavyweights, the data showed.
“The rise in Chinese innovation has been in plain sight for a long time,” said IFI CEO Baycroft. “Why shouldn’t we expect that China is innovating today like everybody else? Like Japan, like Germany, everybody’s in this game. It’s not just the U.S.”
— CNBC’s Arjun Kharpal contributed to this report.
Shoppers walk through a street market in Hong Kong, China, on Sunday, Jan. 30, 2022. Photographer: Chan Long Hei/Bloomberg via Getty Images
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Hong Kong stocks kicked off 2023 with the most gains they’ve seen in the first trading session of a year since 2018.
The Hang Seng index on Tuesday gained 1.84%, or 363.88 points — its biggest first-day gain since January 2018, when the index rose nearly 2%.
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That signaled an improved outlook as China continues to reopen despite a nationwide surge in Covid infections.
“While it is inevitable to see further surges and more widespread in inflection at the initial stage of opening, the outlook for the Chinese economy has brightened for 2023,” Redmond Wong, Saxo Capital Markets greater China market strategist, said in a note.
“In addition to the reopening, China has intensified its effort to support the distressed property sector and given property developers access to credits and equity financing which had been denied to them for the most part of 2022,” Wong wrote.
Property and technology stocks continued to lift the Hang Seng index, which rose more than 3% in Wednesday’s session. The index exceeded 20,600, the highest level it’s seen since July 29, according to Refinitiv data.
The moves followed reports of Chinese officials planning to provide further policy support for ailing real estate developers.
Technology stocks also rallied, with shares of Alibaba rising 8% after Chinese regulators approved Ant Group‘s plan to more than double its registered capital, a sign of progress in resolving regulators’ concerns.
Electric vehicle maker Baidu rose more than 8%; Chinese video and gaming app Bilibili gained nearly 9%; Netease rose more than 5%; JD.com climbed 7%; and Tencent also rose around 4%.
The Hang Seng rally came after Chinese Finance Minister Liu Kun told Xinhua in an interview that there will be more fiscal policy support.
Shoppers purchase festive sweets ahead of Lunar New Year at a street stall in Hong Kong, China, on Sunday, Jan. 30, 2022. Photographer: Chan Long Hei/Bloomberg via Getty Images
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The government will work on expanding and improving the “effectiveness of the proactive fiscal policy to cope with multiple challenges ahead,” the minister was quoted as saying.
Chinese investment bank Guotai Junan Securities said the performance of Hong Kong stocks will affect the wider global market.
“The Hang Seng Index may lead other major global stock indices in 2023, with around 30% expected return,” analysts at the firm said in a Wednesday note.
“The index valuation may see further rerates, and we expect the HSI to recover to its previous level before Jun. 2022,” they said in the note.
China’s reopening is a positive sign for Asian stocks and global economic growth in 2023, but it carries also inflationary risks, thanks to China’s role in driving demand for the global commodities market, analysts at Raymond James said in a note.
Weaker growth in the Chinese economy will likely increase the chances of a more dovish Federal Reserve, while stronger growth will raise the possibility of a “stubbornly hawkish Fed,” equity strategist Tavis McCourt wrote.
“Volatility seems certain with equities finishing either modestly higher or modestly lower depending on the rate path,” McCourt said in the note.
The central China city of Taiyuan saw its GDP grow by 10.9% year-on-year in the first three quarters of 2022. Pictured here is a screen displaying details of a new factory in the city.
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BEIJING — The Chinese economy of 2023 almost definitely won’t look like the Chinese economy of 2019.
In the last month, Beijing suddenly ceased many of the lockdown measures and Covid testing requirements that had weighed on economic growth over the last 18 months. Analysts warn of a bumpy road to full reopening, but they now expect China’s economy to bounce back sooner than previously forecast.
The elements underpinning that growth will almost certainly look different than they did three years ago, according to economists.
China’s growth model is moving from one highly dependent on real estate and infrastructure to one in which the so-called digital and green economy play greater roles, analysts at leading Chinese investment bank CICC said in their 2023 outlook released last month. They cited the ruling Chinese Communist Party’s 20th National Congress emphasis on innovation.
The digital economy category includes communication equipment, information transmission and software. Green economy refers to industries that need to invest in order to reduce their carbon emissions — electric power, steel and chemicals, among others.
Over the next five years, cumulative investment into the digital economy is expected to grow more than sevenfold to reach 77.9 trillion yuan ($11.13 trillion), according to CICC estimates.
That surpasses anticipated cumulative investment into real estate, traditional infrastructure or the green economy — making digital the largest of the four categories, the report said.
In 2021 and 2022, real estate was the largest category by investment, the report said. But the CICC analysts said that this year, investment into real estate fell by about 22% from last year, while that into the digital and green sectors grew by about 24% and 14%, respectively.
Beijing cracked down on developers’ high reliance on debt in 2020, contributing to defaults and a plunge in housing sales and investment. Authorities this year have eased many of those financing restrictions.
While much of the world struggled to contain Covid-19 in 2020 and 2021, China’s swift control of the virus helped local factories meet surging global demand for health products and electronics.
Now, demand is dropping. China’s exports started to fall year-on-year in October — for the first time since May 2020, according to Wind Information.
Next year, a reduction in net exports is expected to cut growth by 0.5 percentage points, Goldman Sachs Chief China Economist Hui Shan and a team said in a Dec. 16 note. Net exports had supported China’s GDP growth over the last several years, contributing as much as 1.7 percentage points in 2021, the analysts said.
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But China’s exports to the Association of Southeast Asian Nations have picked up, surpassing those to the U.S. and EU on a monthly basis in November, according to customs data.
“Exports to ASEAN countries may serve as a mild buffer to the pressures in EU and US markets,” Citi’s China economist Xiaowen Jin and a team said in a note Wednesday. They expect ASEAN’s GDP growth to rebound in 2023, while the U.S. and EU spend part of next year in recession.
Jin pointed out that China’s car exports, especially of electric cars and related parts, helped support overall exports this year.
Beijing has pushed hard to increase the development of the national electric car industry. Many brands from Nio to BYD have started to sell passenger cars to Europe and other countries.
“The rapid deceleration in exports also means China needs to tap into domestic markets for growth over the foreseeable future,” said Hao Zhou, chief economist at Guotai Junan Securities in a Dec. 15 note. “With the easing of Covid restrictions, consumption is likely to see meaningful and sustainable recovery from next year.”
He expects retail sales to rise by 6.8% next year, and national GDP to grow by 4.8%.
Central government policy announcements this month have prioritized boosting domestic consumption. Retail sales have lagged overall growth since the pandemic, while a record share of people have preferred to save.
Goldman Sachs analysts raised their 2023 GDP forecast from 4.5% to 5.2% on the economy reopening sooner than expected, with consumption as the main driver.
However, they cautioned that income and consumer confidence will take time to heal, meaning any release next year of “pent-up demand” may be limited outside of a few categories such as international travel.
Spending among poorer Chinese isn’t keeping pace with how much wealthy Chinese are spending — a contrast to greater uniformity between the groups prior to the pandemic, according to a McKinsey survey this year.
That trend has showed up in companies’ financial results.
In the quarter ended Sept. 30, budget-focused Pinduoduo said revenue from merchandise sales plunged by 31% from a year ago to 56.4 million yuan.
Alibaba‘s China commerce revenue, which include apparel sales, declined by 1% year-on-year to 135.43 billion yuan during that time.
Sales of more expensive items favored by the middle class, including electronics and home appliances, rose at JD.com, which said revenue from such products increased by about 6% to 197.03 billion yuan in the three months ended Sept. 30.
Longer term, McKinsey expects millions of urban households to become more affluent, while the number in the lower income category declines.
