This Week in China: Stock Market Starts to Believe in Recovery

China’s businesses have had little but stick for almost three years. The Communist Party is finally using the carrot, loosening the screws on the private sector as authorities seek to strengthen the nation’s technological might, attract inflows and drive economic growth.

(Bloomberg) — China’s businesses have had little but stick for almost three years. The Communist Party is finally using the carrot, loosening the screws on the private sector as authorities seek to strengthen the nation’s technological might, attract inflows and drive economic growth. 

The message from President Xi Jinping’s newly-appointed team couldn’t be clearer. Officials this week held promotional events for the government’s Invest in China Year campaign and hosted about 70 foreign executives at a forum in Beijing. Jack Ma, the country’s most famous entrepreneur, re-emerged in the mainland after a lengthy absence from public view that was seen a symbol of regulatory chill.

Another key development was companies like Alibaba Group Holding Ltd. and Inc. gearing up to tap investors for funds. This marks the end of Beijing’s punishing crackdown, translating into optimism in Chinese markets and an unwind of short bets made earlier in March against the country’s tech sector. The widely-followed MSCI China Index enjoyed its first back-to-back quarterly gain since 2020.

A more bullish narrative may pick up as China’s central bank keeps financial conditions loose and the economic recovery gathers momentum. Global funds are still under-invested in the country’s assets and skeptical of its recovery, even though data keep smashing estimates. Even if China’s economy and markets can’t fire on all cylinders just yet, they’re certainly ready to go. For more, read my Macro View.

Here’s my roundup of the week’s key developments for China markets. 

Six Alibabas

Alibaba plans to split into six separate units, all with their own operational autonomy. Investors welcomed the news, which also will address Beijing’s concerns over monopolies in the tech sector. The announcement coincided with co-founder Jack Ma’s reappearance after more than a year abroad.

  • Alibaba’s $32 Billion Day Signals Breakups for China Tech
  • Alibaba’s $20 Billion Logistics Arm Said to Gear Up for IPO

Opening up

Dozens of foreign executives were spotted at a forum in Beijing — including Apple Inc.’s Tim Cook and Bridgewater Associates’ Ray Dalio. China’s new premier, Li Qiang, said international businesses will have plenty of room to grow and urged people to take a long-term view on their investments in the country.

  • China’s Premier Courts Foreign CEOs With Vow to Open Economy
  • Li Calls China ‘Anchor for World Peace,’ Upbeat on Economy

Uphill battle

Wooing foreign firms will be a hard sell. Inquiries from small and medium-sized companies wanting to enter China fell about 18% last year, according to the EU SME Centre, while most American firms in China no longer see the country among their top three investment priorities. Shanghai’s brutal lockdown last year prompted many of its expats to leave. 

  • Shanghai Expat Exodus Shows Covid Zero’s Enduring Scars
  • Foreign Startups Fearful of Returning to Post-Covid Zero China

Services boom

Data showed Li was correct in saying economic growth strengthened in March. A non-manufacturing gauge of activity rose the highest level since May 2011, far outstripping estimates. The construction sub-index reached the highest level since records began in 2012.

  • China’s Recovery Gains Traction as Spending, Construction Surges

Hong Kong crypto

Cryptocurrencies may not be so forbidden in China after all, as long as business is conducted via Hong Kong. Chinese banks have been directly reaching out to local firms in the city even though crypto trading has been banned onshore for well over a year. One fund plans to raise $100 million to invest in digital assets this year.

  • Hong Kong Fund Aims to Bet $100 Million on City’s Crypto Push
  • Chinese Banks Court Crypto Firms in Hong Kong After Mainland Ban

Taiwan flashpoints

Taiwan President Tsai Ing-wen visited New York before heading to Guatemala and Belize, two of the few nations that still recognize the economy as an independent state. Not on that list is of course the US — a factor complicating a push from Taiwanese officials for the Biden administration to eliminate the burden of double taxation for valued firms like the Taiwan Semiconductor Manufacturing Co.

  • Biden Risks New China Flashpoint With Tax Deal for Taiwan Firms
  • Taiwan Leader Calls Island’s Future a Test for World on US Trip

… and three things to watch for next week

  • It will be much quieter on the earnings front. Corporate events to watch include Inc. ADRs trading ex-dividend on April 5. Those trading through the northbound stock-connect can do so Monday and Tuesday before the links close because of holidays.
  • Xi is expected to host French President Emmanuel Macron and European Commission President Ursula von der Leyen in Beijing.
  • US traders are either more optimistic on Chinese shares or no longer interested in making a bet on the market. Short interest in the iShares MSCI China ETF, which is the largest China stock ETF trading in the US with $8.6 billion in assets, is nearing zero.

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