Strong tech company results are obscuring China’s gross domestic product ( GDP ) data, which some analysts believe will indicate better days for Xi Jinping’s largely underperforming economy.
China’s standard data readouts these weeks can make for disturbing reading. Deflationary pressures are making headlines, but there are n’t any indications of a clear and sustained acceleration.
Case in point: news on Friday ( May 17 ) that China’s consumer spending lost steam in April, rising just 2.3 % year on year versus 3.1 % in March.
Industrial output accelerated, while, expanding 6.7 % over the same time. The discrepancy demonstrates how the Chinese market is still reliant on global demand and the uneven nature of growth.
According to Lynn Song, chief economist for Greater China at ING Bank,” the history of this week’s statistics is that of prevailing prudence by households and the private sector, as financial sales and fixed property purchase came in weaker than expected.”
Alibaba Group, Tencent Holdings, and another Chinese tech behemoths are, however, presenting a pleasant counternarrative of financial green stems that suggest Beijing’s signal initiatives are gaining some sway.
Alibaba, the e-commerce giant, reported its biggest annual growth increase in the first quarter, with net income rising 10 %. Gaming giant Tencent, meanwhile, reported a 62 % surge in net profit.
Example abound among other island computer systems, suggesting Beijing’s efforts to achieve this year’s 5 % GDP growth target are fairly working.
They even mention Team Xi’s renewed assurance that the country’s government is finally committed to resolving the housing crisis that is the source of the country’s sagging consumer prices and uncertain economic prospects.
According to UBS’s planner Meng Lei, current property sales and fresh starts have yet to reach bottom, while total earnings have remained pressured despite subdued demand in the first quarter.
However, Meng predicted that as house exercise stabilizes and inflation recovers, earnings will increase as inflation and household income rise.
Venu Krishna, a planner at Barclays, continues,” The club for the party to offer has been set very high, but the Big Tech basics still look good below and we think there’s room to run over the next pair of rooms.” Post-quarter income from the largest companies in the S&, P 500, and now the big tech adjustments have increased even more.
This year, Xi’s group unveiled plans to address real land troubles some economists compare to Japan’s 1990s awful- product debacle. According to reports, Beijing is reportedly coercing local governments and state-owned corporations to purchase thousands of properties that have not been sold.
Strong efforts to clear China’s extensive undisclosed housing stock may significantly increase consumer and business confidence.
Reversing the turmoil narrative had likewise stifle Xi and Premier Li Qiang’s ability to boost capital markets, rebalance growth engines toward new products and services, and create more potent social safety nets. The former effort is essential for influencing customers to invest more and keep less.
In a fresh document, JPMorgan asserts that” we believe this could be a game change in the sense that home sales may at least maintain rather than worsen.”
Franklin Templeton also cited positive indicators that the real estate nightmare is coming to an end in a note to clients. The signs that” Chinese authorities have been easing home purchase restrictions – these restrict buyers to purchases in their home province and/or limit the purchase of a second property” and that” they have been lowering mortgage interest rate floor limits” encourage this.
As Beijing addresses economic headwinds more forcefully, count Michael Burry among the China tech optimists. The investor made famous by the book ,” The Big Short”  , upped his bets on Alibaba and JD.com in the first quarter of this year.
According to recent filings, JD is the top holding by Burry’s Scion Asset Management, with its stake in the e- commerce giant increasing by 80 % in the first quarter, representing an additional 50, 000 shares.
Burry, who saw the 2008 US subprime crisis coming better than peers, has seen a zigzag in China tech investments recently.
Burry’s most recent bets demonstrate the cautious yet discernible return by global investors as China’s stock market shifts from a US$ 7 trillion rout from a 2021 peak to January 2024.
Among Burry’s new holdings is in search engine giant Baidu, sometimes likened to China’s Google. Those on which he’s scaling back include Amazon, Google parent Alphabet and Warner Bros Discovery.
Of course, the decisions of one investor do n’t make or break global investment trends. It’s interesting that a well-known value investor known for his grave warnings and cataclysmic predictions is bullish on a sector that many Western peers have left for dead in recent years.
According to Brendan Ahern, chief investment officer at KraneShares, a provider of exchange-traded funds in China,” we believe many Asia-focused investors who have been overweight India and Japan are becoming concerned about India’s high valuations and Japan’s continued currency weakness.”
According to Ahern,” China’s equity market could benefit from investors shifting profits from high-value markets to low-value markets.”
It also highlights the dangers of Xi and Li failing to take bold financial decisions at the moment. Since 2015, a well-established cycle of boom-bust cycles has plagued Chinese markets. In the summer of that year, Shanghai shares plunged 30 % in just a few weeks.
Many top fund managers have found that success in bolstering capital markets, increasing transparency, and reducing the dominance of state-owned enterprises has been too inconsistent since then. Xi’s headline- grabbing clampdown on tech platforms, including Alibaba and Tencent, beginning in late 2020 and arguably still ongoing, also torpedoed confidence in the sector’s future profitability.
And so John Woods, chief investment officer for Asia at Lombard Odier, speaks for many when he worries China’s equity rally is at odds with fundamentals.
” The equity rally may be driven by a combination of fear of missing out, hopes of a Chinese economic recovery, Beijing’s pro- growth policy stance, foreign investor rotation from US and Japan stocks, as well as attractive valuations, particularly in technology- related names”.
Furthermore, Woods notes,” the stability and consistency of Hong Kong’s dollar peg to the US dollar also offers foreign investors some confidence. Meanwhile, Chinese authorities would like to sustain the rally with policy proposals. The most recent proposal would exempt individual mainland investors from a 20 % tax on Hong Kong-listed dividends.
Yet the rally” seems to be expectation- based and liquidity- driven”, Woods says. ” Whether it can continue largely depends on China’s corporate revenue outlook”.
And the broader economy’s ability to turn the corner. The good news is that the first-quarter earnings for China’s major tech companies are encouraging signs of green growth.
According to Allianz Global Investors, “tighter control of costs has fed through into improved bottom-line profitability. While top- line growth has generally been as muted as expected.” A notable increase in dividend payouts has been witnessed in addition to the improved earnings picture. The dividend hikes have, to an extent, been spurred by a recent regulatory push, but from a fundamental perspective, there certainly appears to be room to increase dividends”.
The bad news is that Xi’s reform team has a lot to prove in light of the market’s frequently wild gyrations since 2015.
Analysts at Morgan Stanley, for example, counsel caution about the upside for mainland shares. ” We see near- term technical overbought signals, which could deter further buying by global quant funds”, they write. Consumption and the housing market” could continue to be under pressure” due to” continuing pressure on deflation and corporate earnings.”
The same goes for financial reforms. Along with China’s ever-present regulatory risks and concerns about growth, tech shares are subject to headwinds as a result of worries about the property crisis and the yuan asset exodus.
This latter dynamic is being complicated by the US Federal Reserve’s reluctance to ease interest rates, extending the “higher for longer” era for yields.
The success of Huawei Technologies  and other companies in avoiding US sanctions designed to stifle the sector has contributed to the bull case surrounding China technology.
How China Inc. has been catalyzed by US presidents Donald Trump and Joe Biden to innovate and advance up the value-added scale is one of the potential unintended consequences of attempts to undermine the semiconductor industry.
US sanctions were characterized as “double-edged sword,” according to Bernstein analyst Qingyuan Lin. It “may stifle China’s progress in cutting-edge regions, and they also compel it to expand its supply chain, pursue self-sufficientness, and prosper in sectors that benefit from increased domestic substitution.”
However, Xi’s success in promoting private sector innovation over outdated state-owned enterprises depends on whether Chinese tech shares gain a wider audience. In theory, Beijing must do so more quickly and credibly to establish equal playing fields, strengthen capital markets, promote transparency, and strengthen corporate governance.
And, of course, to end a property crisis that has China in global headlines for all the wrong reasons. Beijing is now asking SOEs to purchase unsold property, which would introduce non-commercial distortions in a market already fraught with them. This is significant because it is already rife with them.  ,
In February, Premier Li called for “pragmatic and forceful” steps aimed at “boosting confidence”. He urged policymakers to” concentrate on addressing real-world problems that concern both consumers and businesses.”
Li’s comments came around the time Beijing statisticians were confirming the lowest annual , foreign direct investment , since 1993— just$ 33 billion in 2023. The figure, which records monetary flows involving foreign- owned entities in China, was 82 % lower than the 2022 tally.
Xi’s efforts to rebuild confidence have been hampered by MSCI’s earlier this year decision to remove dozens of Chinese companies from multiple indexes. The action highlighted the need for reform as investors look for less risky places to invest, including Japan, which is nearby.
The trick is to take the lessons learned in 2015 and subsequent years.
At the time, Xi’s Communist Party loosened rules on leverage, reduced reserve requirements, delayed all initial public offerings, suspended trading in thousands of listed companies and allowed mainlanders , to use apartments as collateral to buy shares. Then, Xi’s government rolled out advertising campaigns to buy stocks out of , patriotism.
Given the severity of the property crisis and deflationary pressures of the present, it seems as though merely providing stimulus will be less effective this time.
Another issue is the US’s continued efforts to slow China’s growth as a tech superpower. Biden unveiled a new round of tariffs on Chinese electric vehicles earlier this week, totaling 100 % of Trump’s.
Biden also slapped new taxes on mainland solar cells, batteries, construction cranes and medical equipment as well as steel and aluminum.
Team Xi has already stated that it will “take resolute measures to defend its rights and interests.” That could, in turn, see Biden up the sanctions ante ahead of the November 5 election, putting China’s tech industry on edge.
The next wave of restrictions, it seems likely, will attempt to stymie China’s ambitions in the field of artificial intelligence. Already, the specter of heavy- handed regulation – and Xi’s party putting its own priorities ahead of tech development – are clouding China’s AI future.  ,
Even before Biden’s latest tariffs, analysts at Barclays were doubtful about China’s ambitious goal of reaching 70 % self- sufficiency in semiconductors by 2025. The endeavor is still “at the start of a very long journey”, Barclays says.
China is indeed moving quickly toward a faster transition of its economy, moving away from property to technology and services. Tech profits are telling the story, and they are piqued by optimism in some circles that the economy is moving on a more dynamic, value-added path.
Follow William Pesek on X at @WilliamPesek