A Nanjing Road pedestrian street on October 1, 2022 in Shanghai, China.
Yan Daming | Visual China Group | Getty Images
Chinese stocks soared Tuesday as Beijing pledged to ramp up measures to bolster China’s sputtering economy.
Hong Kong’s Hang Seng Index surged more than 3%, China’s tech-heavy ChiNext rose 1.8% and the Shanghai Composite Index increased 1.81% on Tuesday morning in Asia.
A day earlier, Chinese real estate stocks tumbled on renewed debt fears. The Chinese government cracked down on the property sector’s debt levels in August 2020.
The stock rebound comes after China’s top leaders pledged on Monday to ramp up policy support to boost domestic consumption as the post Covid rebound has been slower than expected.
China’s top leaders met Monday for the much-anticipated Politburo meeting and hinted at moves to “adjust and optimize” property policy in what the leadership called a “torturous” economic recovery.
State news agency Xinhua quoted the 24-member Politburo as saying “the economy is facing new difficulties and challenges.” That’s mainly due to weak domestic demand, operational challenges for companies as well as “a grim and complex external environment,” it said.
“The meeting emphasized that it is necessary to actively expand domestic demand, give full play to the basic role of consumption in driving economic growth, expand consumption by increasing residents’ income,” according to Xinhua.
“It is necessary to boost the consumption of automobiles, electronic products, and home furnishing, and promote the consumption of services such as sports, leisure, and cultural tourism,” said the report.
Hong Kong-listed shares of internet giants rose on Tuesday. Alibaba shares soared 4.7%, while Tencent was up nearly 4%. Meituan and Baidu shares were higher by 5.7% and 6.8% respectively.
In the electric vehicle space, Xpeng soared 11%, Li Auto was up 4.15% and BYD rose 2%.
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“This is a reconfirmation that the [Chinese] policymakers have heard the market concern on more support needed for the domestic economy,” said Xiaolin Chen, head of international at KraneShares, on CNBC’s “Street Signs Asia” Tuesday.
“They want to achieve the 5% GDP target of this year. The first job they need to do is to create jobs for the labor force in China,” said Chen.
“I do certainly see some encouraging language released from the statement that removed a lot of the concerns of people having a high focus on real estate market, employment, private investment, and so on. So far, the language has been encouraging.”
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.
A restaurant in the Xintiandi shopping area in Shanghai on March 25, 2023. The overall number of new fine dining restaurants in China declined from 2021 to 2022, but the number of new venues doubled in 2021 from 2020, said Tang Yan, a Black Pearl representative.
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BEIJING — A new restaurant scene is growing more popular across China: fine dining.
Despite the Covid-19 pandemic, a brand called Lu Style opened four new restaurants in the last three years in Beijing and Shanghai.
At that store, Lu Style said, business brings in 4 million yuan ($579,710) a month. Meals cost about 735 yuan per person, according to reviews on China’s Yelp-like Dianping app. Judging from more than 1,500 comments, users were most enthusiastic about the service, taste of the food and “elegant” design.
That’s how restaurants are competing in a country whose culture emphasizes good food — and where the global trend of spending on experiences is taking hold.
Since Lu Style launched in 2016, more people no longer focus on just being able to eat, said Tian Junfeng, director of operations. Instead, he expects demand for social spaces will be greater.
The brand has seven restaurants — including a soft open this year in collaboration with a Shanghai art gallery. Lu Style’s cuisine comes from the province of Shandong, including many of the ingredients themselves. The restaurants offer seasonal menus and meticulous design — one outlet in Beijing claims the peony bush they transplanted to an outdoor seating area is 880 years old.
Tian said Lu Style will be focused on improving customer service in the coming months. To do so, it contracted an etiquette instructor to spend two days at each store every month, he added.
A similar focus on customer service set hotpot chain Haidilao apart when it opened its first Beijing outlet nearly 20 years ago.
But while its growth in China has slowed, other restaurants are coming in with a similar experience-centered strategy.
By 2018, Dianping owner Meituan started to track and rank the best performers with its Black Pearl “restaurant guide” awards. Anonymous judges annually screen restaurants for food quality, dining experience and creativity in catering to traditional and modern tastes.
The 2023 rankings selected 304 restaurants — most of which were in China, including Lu Style. Several of the venues were in smaller cities. Restaurants in Jinan, Changsha and Wuxi made the list for the first time.
The overall number of new fine dining restaurants in China declined from 2021 to 2022, but the number of new venues doubled in 2021 from 2020, said Tang Yan, a Black Pearl representative.
“The pandemic also affected consumers, and now they’re more likely to want to treat themselves,” Tang said in Mandarin translated by CNBC.
She said spending for business gatherings at the restaurants has declined slightly, but spending by individuals or families has risen by a greater scale.
One of the worries about moving back to China after spending 27 years overseas in Canada, the UK, and Singapore (and married to an Australian), was I would be missing out on the restaurant and bar scene like in other metropolis[es]
A meal out at a Black Pearl restaurant can cost as little as 164 yuan per person at Yangzhou city’s Quyuan — which plans to open three new outlets in China this year. On the other end of the spectrum is Ultraviolet by Paul Pairet in Shanghai, a French restaurant where dinner can cost over 6,000 yuan per person.
Higher-end dining options in Beijing, such as the King’s Joy vegetarian restaurant, impressed Cici Lu, a consultant in the digital assets industry who recently moved back to Beijing from Singapore.
“It was a full house,” she said, despite the $500 per person price. Lu noted the ingredients came from different parts of China, while the courses had “some very intriguing textures and flavors.”
King’s Joy has three Michelin stars, and is also on Black Pearl’s list for Beijing. Two Lu Style locations have one Michelin star each, and the France-based guide includes more than 400 restaurants in mainland China. Michelin declined a CNBC interview request for this story.
“One of the worries about moving back to China after spending 27 years overseas in Canada, the UK, and Singapore (and married to an Australian), was I would be missing out on the restaurant and bar scene like in other metropolis[es],” Lu said.
But “I found the dining scene has become more contemporary,” she said. “Younger consumers prefer dining experiences with high-quality produce, interesting concepts, and stylish venues.”
Overall, eating out remained one of the top three categories in which consumers in China planned to spend in — similar to prior months, according to a regular Morgan Stanley survey in late March.
For the week ended April 9, in-person dining revenue in China was up by about 50% from a year ago, according to analysis from Beijing-based BigOne Lab, an alternative data company whose backers include S&P Global.
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However, it’s not clear whether consumers in China are making a habit of eating at nicer restaurants or simply visiting them a few times more than they might have in the past.
Christine Peng, head of Greater China consumer sector coverage at UBS, said she didn’t think there was a “broad-based upgrade trend” in restaurant spending.
“Even for the restaurant companies, what they said is during the weekends the traffic is in tremendous recovery, but during weekdays the traffic may not recover that much,” she said.
Catering sales climbed by nearly 14% year on year in the first quarter. That’s a jump from the 0.5% increase in the first three months of 2022. China ended its Covid-19 controls in December.
An increasing number of catering-related businesses dissolved or suspended operations each year from 2019 to 2021 — to more than 900,000 in 2021, according to the Qichacha business database. That figure dropped to 530,000 last year.
The number of new catering-related business registrations has risen each year, from 2.3 million in 2019 to 3.28 million in 2022, the data showed.
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.
Vcg | Visual China Group | Getty Images
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.
BEIJING — Debt-heavy local governments in China need new ways to raise money under a central regime that’s made clear its priority is to reduce financial risks.
Local governments’ direct debt exceeded 120% of revenue in 2022, S&P Global Ratings analysts said, noting that’s more than what Beijing has unofficially said was an acceptable debt level.
“The country’s provinces and municipalities have relied heavily on expanded bond issuance to carry them through a COVID-triggered economic slowdown and collapsed land-sale revenues,” the S&P analysts said in a report last month.
International Monetary Fund data show China’s explicit local government debt nearly doubled over five years to the equivalent of $5.14 trillion — or 35.34 trillion yuan — last year. That doesn’t include several other categories of related, rapidly growing debt such as that of “local government financing vehicles” (LGFV) — which allowed regional authorities to tap bank loans for infrastructure projects.
China’s central government is paying attention.
In China’s annual government work report released this month, an entire section was dedicated to preventing and defusing major risks — primarily in real estate and local government debt. “We should … prevent a build-up of new debts while working to reduce existing ones,” the report said regarding local governments’situation.
The topic didn’t get such prominence in last year’s report, pointed out Ting Lu, chief China economist at Nomura.
“Coupled with the conservative growth target [of around 5%], this may signal a potential shift in focus to tackling financial risks and hidden debt from local governments at some point this year, particularly in H2, after the economic recovery has largely stabilised,” Lu said.
Recent key speeches from Chinese President Xi Jinping have used similar language in calling on officials to address systemic risks. New Premier Li Qiang this month also named policies for “preventing and defusing risks” as one of the government’s near-term priorities.
Over the last three years, Covid and the real estate slump have cut into local government revenue, although it’s unclear exactly to what extent.
Official data provide some insight. The Ministry of Finance said the country’s spending on health climbed by nearly 18% last year to 2.25 trillion yuan, after barely growing in 2021.
A budget category called local government funds saw revenue from land sales drop by 23.3% to 6.69 trillion yuan — a loss of about $288 billion. S&P and other analysts estimate land sales account for about a quarter of local governments’ total revenue.
In China, land is owned by the government and sold to companies for development — usage agreements last for 70 years if the project is residential.
Property-related revenue will likely remain under stress as homebuyer sentiment has yet to fully recover, said Sherry Zhao, director of international public finance, Fitch Ratings.
She said local governments will likely turn to three other channels to boost revenue:
Taxes — reduce the level of tax cuts announced during the pandemic
Asset sales — generate mostly one-off income from the sale or rent of state-owned assets
Transfers — draw more on central government funds
China’s central government increased its transfers to local governments by a whopping 17.1% in 2022, and plans to boost support by another 3.6% this year with 10.06 trillion yuan in transfers, according to the Ministry of Finance.
“Transfers to local governments accounted for about 60% of the increase in the central government deficit,” S&P analysts said in a separate report last week.
The long-term trend is clear: Beijing wants to ease the country off a reliance on investment-driven growth.
They don’t expect local governments to fall back on off-balance sheet debt. “Even in fiscally weak regions, it is unlikely that governments will resume the use of hidden debt financing, e.g. through local government financing vehicles (LGFVs),” S&P said.
“The long-term trend is clear: Beijing wants to ease the country off a reliance on investment-driven growth.”
But local governments still have bills and public services to pay for.
Historically, local governments were responsible for more than 85% of expenditure but only received about 60% of tax revenue, Rhodium Group said in 2021.
A few local governments are trying other ways to generate extra income — at the cost of fair market access for bike-sharing companies.
That’s according to lists of market access violations published in two reports in the last half year from China’s National Development and Reform Commission, which oversees economic planning.
The bike-sharing industry exploded in China several years ago, attracting a flood of companies from tiny players to giants such as Alibaba-backed Hello Bike and Mobike, acquired by Chinese food delivery giant Meituan.
Limited regulation often meant swaths of bikes crowded sidewalks.
Now, some local authorities are trying to restrict industry players to a handful of bike share quotas, sold for a multi-year period.
Among the cases the central government addressed, China’s NDRC economic planner said Zhangjiajie city sold a few five-year quotas for more than 45 million yuan ($6.6 million) — more than 10 times the starting price.
Most of the other cases mentioned did not list the total transaction amount.
Another bike-sharing quota auction in May last year reportedly raised 189 million yuan in Shijiazhuang, capital of Hebei province near Beijing. The city only disclosed the starting bids for what it called “public resources,” which totaled 17.3 million yuan.
Reports from the economic planner didn’t include the Shijiazhuang case, and the city did not respond to a request for comment.
While Alibaba-backed Hello Bike and local players won a bid, Meituan’s Mobike did not, according to a city release. The two companies did not respond to requests for comment.
