Perspective | Chinese Economy: Beijing Needs to Brace for a Phase of Lower Expansion

It's projected that China will achieve a 5 per cent economic growth this year; however, this figure no longer holds significance for numerous investors and consumers.

Numerous Chinese individuals will likely recall 2024 as the year they had to reconcile with the potential for an extended phase of sluggish economic expansion.

The anticipated release of data from China's statistical bureau, suggesting approximately 5 per cent economic growth for the year, has seemingly lost its significance for numerous investors and consumers.

The enduring systemic limitations impacting China's economic expansion, such as a declining population and an excess of housing, have become more apparent this year. This has led numerous private companies to either reduce their investments or abandon their businesses altogether.

Over the years, the Chinese government has enforced numerous limitations on real estate developers and aspiring homeowners to control speculative buying. Despite these attempts, the nation's property market downturn continued, even when the government eased these constraints or changed particular policies. Consequently, many families have stopped viewing real estate as the perfect place to invest their money.

Analysts predict China will encourage consolidations in the $1.6 trillion brokerage industry following the colossal Guotai-Haitong merger. It is expected that more state-directed transactions will surface in 2025 as a result of the massive merger between Guotai Junan Securities and Haitong Securities.

The unification process within China's brokerage industry, worth 12 trillion yuan ($1.6 trillion), is predicted to quicken in the forthcoming year. This comes as more businesses heed the Beijing government's call to build top-tier investment banks capable of competing with international powerhouses such as Goldman Sachs and Morgan Stanley.

Shanghai, which hosts China's biggest stock market, has indicated that it plans to support the development of two to three globally competitive investment banks by 2035. The city recently revealed a three-year strategy aimed at bolstering the restructuring of its publicly traded firms. Within this plan, Shanghai underscored the urgency of speeding up consolidations among brokerages to build premier investment banks.

"The merger trend in the brokerage sector is speeding up," stated Xu Yingying, a researcher at Caitong Securities. "It's quite clear that the policy focus is to enhance competitiveness through consolidations and purchases, in addition to refining the distribution of public financial properties."

The concept to foster domestically-produced, top-notch investment banks was initially proposed by Wu Qing, the chairman of China Securities Regulatory Commission, as a solution to halt the downward trend in the stock market. This goal was later supported in a comprehensive guideline document released by the State Council this year, which advocated for an industry overhaul to enhance competitiveness.

As the new year begins, Chinese developers continue to grapple with longstanding issues due to a debt crisis that keeps bond investors on edge. There's scant relief for these struggling developers with housing sales still sluggish and persistent funding restrictions.

The upcoming year might not bring much relief for distressed Chinese real estate developers due to ongoing worries related to debt maturity. Key players in the market such as China Vanke and Country Garden Holdings are up against deadlines for repayment and restructuring.

Property bonds worth over 700 billion yuan (about US$5.1 billion) are set to be repaid in 2025, a slight decrease compared to the 770 billion yuan that was due in 2024, as reported by the China Academy Index.

Everbright Securities estimates suggest that there will be an initial strain with 160 billion yuan in the first and second quarters, which will then increase to 190 billion yuan in the quarter of September. The last quarter of 2024 saw 126 billion yuan come to maturity, encompassing both onshore and offshore liabilities.

"Real estate developers continue to face significant pressure to pay off debts in 2025, as many are still undergoing bond extensions or reorganization," stated Wang Xingping, a top analyst at the rating firm Fitch Bohua. "The income from home sales and external funding are still restricted."

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Upsurge, collapse, and debt: Is China's real estate market in decline?

The real estate industry in China, which was a key economic contributor, faced a significant downturn following the implementation of the "three red lines" policy by the Beijing government in August 2020. This policy aimed to curb the extreme borrowing among struggling property developers. Rather than resolving the issue, it inadvertently led to a severe shortage of available cash, causing an unprecedented amount of bond defaults worth $160 billion.

According to official figures, residential property sales experienced a 20% decrease, dropping to 7.49 trillion yuan between January and November, compared to the same period the previous year. Real estate investment also saw a decline of 10.4%, amounting to 9.36 trillion yuan.

China's updated foreign exchange regulations are mandating stricter oversight from banks on cryptocurrency transactions. The State Administration of Foreign Exchange is pressing banks to keep a watchful eye and report any risky operations, including those that involve cryptocurrencies.

The regulations, which apply to domestic banks throughout mainland China, also mandate them to monitor these activities, taking into account the involved institutions and individuals' identities, the origin of the money, and the rate of trading, among other elements.

Moreover, the regulator stated that banks must establish risk-management protocols for these entities and limit the delivery of certain services to them.

The most recent regulations demonstrate how Beijing persists in implementing strict controls to eliminate commercial activities related to cryptocurrencies like bitcoin trading and mining. This is because digital assets are viewed as a risk to the nation's financial stability.

Musk's Starlink will deliver satellite-driven mobile service in Ukraine. Users of Ukraine's top mobile provider will have the option to utilize connectivity from space when ground network service is not accessible.

The agreement will enable clients of Kyivstar to utilize satellite-linked connections when the ground network cannot cover a specific area, as per the Monday announcement from the Ukrainian firm.

Kyivstar anticipates rolling out text messaging capabilities via their technology in the last quarter of 2025, with plans to incorporate voice and data functionalities in the subsequent phases.

Since their invasion in February 2022, Russian troops have consistently targeted Ukrainian infrastructure, including telecommunication systems.

Starlink mobile terminals are essential for Ukraine's battle strategy, offering fast broadband internet for both military communications and the general public.

Hong Kong's stock market concludes 2024 positively, breaking a four-year downfall. The Hang Seng Index experienced an 18 per cent increase this year, while in mainland China, the CSI 300 Index saw a 15 per cent rise.

The Hang Seng Index saw a slight increase of 0.1 per cent, reaching 20,059.95 during a reduced trading session this Tuesday. Conversely, the Hang Seng Tech Index experienced a 0.7 per cent drop. In mainland China, both the CSI 300 Index and the Shanghai Composite Index faced a 1.6 per cent decrease. The markets will not be open this Wednesday due to the New Year's Day holiday.

Throughout the year, the standard index saw an increase of 18 per cent, breaking a four-year record of continuous annual losses. This turnaround happened after China introduced a recovery plan to stimulate growth. The plan includes the provision of new funding avenues for buying stocks and the removal of restrictions on home purchases.

Investors are closely monitoring the execution of stimulus initiatives, following senior leaders' promises for more assertive policy relaxation in the coming year. The CSI 300 Index experienced a 15 per cent increase in 2024.

Shen Fanchao, an analyst at Zheshang International, commented that the Chinese economy is experiencing a sluggish rebound and the momentum is fairly frail. He noted significant stress on the downgrade of profit predictions. However, he mentioned that more favorable policies are anticipated to be implemented in 2025. At the moment, he suggests that investors should tread carefully with the market in the short run.

IPO bankers are set to have a more lucrative year as Hong Kong fights its way back into the top 10 markets. Among the dominant players in the mainland industry looking to list in Hong Kong in 2025 are EV battery producer CATL and sauce manufacturer Foshan Haitian.

Businesses and shareholders garnered $11 billion through 64 initial public offerings (IPOs) on the primary platform, as per data gathered by the London Stock Exchange Group. This achievement places it as the fifth most active IPO location. The leading spots were held by India's two primary exchanges and the American stock markets, Nasdaq and New York Stock Exchange (NYSE).

The top 10 locations were rounded out by Tokyo, the Saudi Exchange, Abu Dhabi, Madrid, and the ChiNext board in Shenzhen.

The income from Initial Public Offerings (IPOs) in Hong Kong saw a significant increase of 87% compared to the previous year. This growth was largely driven by Midea Group's deal in September, which raised HK$35.6 billion (US$4.6 billion) and ranked as the second biggest IPO worldwide in 2024. The list of top three offerings was completed by US real estate company Lineage's US$5.1 billion IPO on Nasdaq and Hyundai Motor India's US$3.3 billion IPO.

Louis Wong, the Executive Director of Phillip Capital Management, described the past year as "satisfactory." He predicted that the Initial Public Offering (IPO) market would maintain its strength into the following year, thanks to supportive policies by mainland Chinese regulators and a more accommodating interest-rate environment.

Bankers involved in Initial Public Offerings (IPOs) will certainly breathe a sigh of relief when reminiscing about 2024, as they had to persist with minor deals, leading to a ranking of 13th – the lowest in 20 years. As of today though, the domestic stock market would have wrapped up its first profitable year since 2019, based on the capital generated.

WeDoctor, an online healthcare platform supported by Tencent, has renewed its intention to go public in Hong Kong. Previously this month, insiders indicated that the company was projected to secure funding between US$400 million and US$500 million.

The digital health firm based in Hangzhou has submitted its IPO application to the Hong Kong stock exchange on Tuesday, while keeping the details about its fundraising goals and schedule undisclosed. Earlier in the month, insiders indicated that the company anticipates raising funds in the range of US$400 million to US$500 million, with a target to conclude the listing by June. This marks their second venture to become a public entity since 2021.

WeDoctor is capitalizing on a surge in the healthcare sector that, according to deal brokers, will bolster the city's IPO market in the coming year. Data compiled by Deloitte reveals that healthcare and pharmaceutical firms made up 27% of the 90 listing applications currently active that the exchange received this year.

"Our goal is to cater to the increasing need for AI-driven healthcare services in China, while maintaining our steady growth and profit through multiple strategic plans," stated WeDoctor in its application.

Market research company Frost & Sullivan projects that China's market for AI-based healthcare solutions will expand at a CAGR of 46.2%, reaching a value of 138.7 billion yuan (approximately US$19 billion) by 2030, up from 9.7 billion yuan in 2023.

The predicament of Chinese biotechnology company, New Horizon, intensifies as the chairman and CEO resign. Previously this year, the company's chief financial officer and its auditor, Deloitte, both stepped down.

At the start of the year, both the CFO of New Horizon and its auditing firm, Deloitte, resigned following allegations made by a short seller that the company had exaggerated its 2022 sales numbers by almost nine times. The company's shares have been suspended from trading since March 27 due to Deloitte raising doubts about the veracity of New Horizon's reported sales.

New Horizon's statement expressed that the board believes Zhu's management approach and principles significantly differ from the rest of the board members. They also stated that it wouldn't benefit the company or its shareholders to let Zhu continue participating in the company's management.

Shares of New Horizon have plummeted over 80 percent from their peak value in 2021. The last recorded closing price was at HK$14.14 on March 27, marking a 20 percent decrease from the prior trading day.

The recent developments regarding Zhu may potentially encourage fund managers who hold shares in New Horizon to further decrease their stock price predictions to accurately represent the value in their investment portfolios. This action would be consistent with the rules set by China's securities regulatory authority.

Chery enlists JPMorgan to coordinate a US$1 billion IPO in Hong Kong

The firm might aim for a valuation exceeding 100 billion yuan (US$14 billion), according to those in the know.

Chery Holding Group has enlisted the assistance of JPMorgan Chase & Co. to manage a possible initial public offering (IPO) of its automotive division in Hong Kong next year, as per sources close to the issue.

The Chinese consortium has chosen JPMorgan to advance with the initial public offering (IPO) of Chery Automobile Co. This move could potentially enable them to generate as much as US$1 billion, according to sources who requested anonymity due to the confidential nature of the discussions. The sources also indicated that the stock sale could occur in the second or third quarter.

Chery has selected China International Capital Corp., GF Securities, and Huatai International to manage a possible listing next year, as Bloomberg News stated in October. The firm could aim for a valuation exceeding 100 billion yuan (US$14 billion), according to individuals who are privy to the situation.

Deliberations continue and aspects such as schedule, magnitude, and worth may vary, according to sources. They also mentioned that additional financial institutions might become part of the consortium managing the stock offering.

A spokesperson for Chery remained silent when approached for a remark, and JPMorgan chose not to comment.

Chery Auto ranks among China's largest automobile exporters and is one of the few that isn't publicly traded. It is a significant component of the Chery Group, which also engages in financial services and real estate sectors.

Freshippo, the supermarket owned by Alibaba, has seen consistent profits for nine consecutive months, according to the CEO. Yan Xiaolei, who became CEO in March, states that the grocery store chain has reached a significant point of profitability this year.

Over the past year, the grocery chain has launched 72 new outlets throughout China, equating to a new store approximately every five days. This is the highest rate of expansion in half a decade, as reported by Yan, who took over as CEO in March.

The new inclusions have increased the total count of Freshippo stores to 400, spread across 50 cities, as stated in the letter by Yan that was viewed by the Post and verified by staff members. According to a report by the Chinese media outlet Jiemian, a third of these newly opened stores can be found in cities that are not classified as first-tier.

Established in 2015, Freshippo had earlier announced its quarterly earnings for the last quarter of 2022 and the initial quarter of 2023.

Even though the listing process has hit a roadblock, Freshhippo continues to be a crucial component of Alibaba's extensive empire, as the online retail behemoth is in the process of separating its non-essential business ventures.

Wingtech, a supplier for Apple who has faced US sanctions, is changing its business direction towards semiconductors, driven by geopolitical factors. The company, which is listed on the Shanghai stock exchange, has announced plans to offload its consumer electronics contract manufacturing division in order to concentrate on the semiconductor industry.

Wingtech stated that the decision was "grounded on shifts in the geopolitical landscape and the company's requirements for business growth."

In 2023, Wingtech was ranked as the third biggest original design manufacturer for smartphones globally, contributing to 20.6% of the overall outsourced handset production, as per data from Counterpoint Research.

The smartphone deliveries of the Chinese company increased by 7% that year, due to new purchases from Xiaomi, Samsung Electronics, and Huawei Technologies' subsidiary Honor, according to Counterpoint.

Following the divestiture, Wingtech will concentrate more on the chip industry, striving to become a leading figure in the global power-semiconductor sector, according to the company.