China retail sales growth slow, job markets shaky

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China’s post-Covid economic recovery is slower than expected at a time when many consumers reportedly are suffering from pay cuts and growing child-raising and elderly care costs. 

The year-on-year growth rate of total retail sales of consumer goods fell from 18.4% in April to 12.7% in May, the National Bureau of Statistics (NBS) said Thursday.

In the first five months of this year, China’s total retail sales of consumer goods grew 9.3% to 18.76 trillion yuan ($2.63 trillion) from a year ago. However, the increase was mainly due to a low base when many Chinese cities were locked down in March-May last year. The figure’s growth rate was actually 7.6% from 2021 to 2023, compared with 8% from 2019 to 2021.

While the official statistical updates don’t highlight the problem, the internet is buzzing with claims that workers already are suffering or soon will be suffering wholesale pay-slashing.

Commentators see pay-cuts trend

A Henan-based columnist surnamed Wu published an article entitled, “An era of salary deduction may be coming soon. Keep your jobs. Cash is king.”

Wu says in the article that many people are not willing to spend money as they are either having their pay cut or at risk of redundancy.

“As the unemployment rate among the young people continues to grow, many job seekers may ask for lower pay,” he says. “Most people who are already at work will face a salary cut this year.”

He says people tend to save more money these days as it is likely that China’s inflation will keep growing in the rest of this year.

A columnist at Lanjinger.com, a financial news website, writes in an article published Thursday that many employees of investment banks and brokerages have recently been told that they will receive reduced salaries and bonuses this year.

A Hunan-based writer says many medical staff have faced pay cuts this year as hospitals are receiving fewer patients but bearing higher operational costs. A Chinese vlogger says some IT workers are also experiencing 30-50% pay cuts.

Official statistics lack industry-by-industry breakdowns on pay and don’t quantify the pay cut situations described by netizens.

According to the NBS, per capita disposable income in urban areas rose 4% to 14,388 yuan in nominal terms in the first quarter of 2023 from a year ago, or up 2.7% in real terms. Disposable income in rural areas surged 6.1% to 6,131 yuan, or up 4.8% in real terms.

Media reports said last year that civil servants and teachers could not get their year-end bonuses. But still, the NBS said China’s per capita disposable income gained 5% year-on-year to 36,883 yuan in 2022 in nominal terms, or up 2.9% in real terms. 

A Chinese writer notes that people’s disposable income is squeezed by rising child-raising and elderly care expenses. Citing research published by the YuWa Population Research, he says in order to bring up a child in China, a family has to spend about 627,000 yuan, a very big amount. Besides, he says, due to China’s aging population, there’s one elderly person for every pair of other adults (2.3 people to be more precise) to support financially.

An elderly Chinese man in a file photo. Image: Agencies

How accurate are employment figures?

In its report Thursday the NBS said the jobless rate in urban areas remained unchanged at 5.2% in May from April. The unemployment rate of people aged between 16 and 24 was 20.8% while that of those aged between 25 and 59 was 4.1% last month.

Some commentators said the figures are seriously distorted as people are not considered as “jobless” if they work at least an hour per week, return to the rural areas or rely on financial support from parents.

They said some unemployed graduates have to pretend to have assured prospects in order to get their diplomas: Their schools require graduates to submit proof that they have job offers before school certificates are issued; some graduates ask friends and relatives to provide “offers” they can show to meet the requirement.

The NBS insisted that the official jobless figures have accurately reflected the job market situations.

“We have continuously improved and perfected our country’s labor force survey system since its establishment,” NBS spokesperson Fu Linghui said in a media briefing on Thursday. “The unemployment rates are scientific and standardized, in line with international standards, and can objectively reflect our country’s urban employment situation.”

Fu said anyone who works at least one hour per week, or who leaves a job temporarily due to holidays or suspension, is classified as “employed.” He said it is an international practice to exclude anyone who doesn’t have the intention to work from the labor force survey.

He said there are 96 million people aged between 16 and 24 in the country, but only 33 million of them have entered the labor market while the remaining are still studying. He said only about six million of these young people are still searching for jobs.

“Our country’s urban surveyed unemployment rate will not underestimate the nation’s jobless situation,” he said. “ From a historical perspective, the figure had objectively reflected changes in urban employment. For example, due to the epidemic in early 2020, the urban employment pressure had increased at that time.”

It is rare that the NBS feels the need to elaborate the methodology of its survey during the monthly media briefing.

Consumption patterns

Last December, the Chinese government announced that it would end all its Covid rules from January this year.

A supermarket in Shenzhen. File photo

To avoid being confused by the low base in the January-May 2022 amid city lockdowns, one can compare the Jan-May figures in 2023 and 2021 to see the impact of the cancellation of Covid rules on the retail sales.

According to the NBS, catering revenue rose to 2 trillion yuan in the first five months of this year, up 22.6% from a year earlier but up only 12.2% from the same period of 2021.

In the first five months of this year, sales of jewelry were 13.2% above the 2021 level. Sales of cosmetics rose 4.2% while sales of telecommunication devices grew 2.4%. Sales of clothing, shoes, hats and textiles rose 1.4%.

Sales of automobiles were still down 2.8% while sales of electric appliances and audio and video equipment fell 5.9%. Sales of furniture dropped 15.4% while sales of building decoration materials slumped 18.4%.

In January, the China Banking and Insurance Regulatory Commission said in a meeting that supporting China’s economic recovery and boosting domestic consumption are its top-priority among all tasks in 2023. Banks are expected to provide more loans to consumers and cut rates to encourage people to spend more.

Read: More US firms looking elsewhere: AmCham China

Follow Jeff Pao on Twitter at @jeffpao3

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Sunway Group accelerates Net Zero ambitions through partnership with Deeptech Labs

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     * Partnership will commercialise and accelerate growth of net zero technologies     * Cambridge-based accelerator will facilitate entry of SEA startups into UK market
Sunway Group, one of Southeast Asia’s leading conglomerates, today announced a strategic partnership with Deeptech Labs, a venture capital fund and deeptech specific accelerator based in…Continue Reading

Private equity drives industrial efficiency

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Recent decades have witnessed extraordinary economic progress owing to enormous innovations in technologies. Well known is the important role of private venture capital in financing early-stage companies that grew into many of giant corporations that dominate many new industries.

Less well known is the role of the much larger private equity funds that finance the growth and modernization of established companies in many industries.   

From their beginning in the early 1980s, private equity (PE) funds now manage US$7.6 trillion in assets globally, of which US funds comprise two-thirds, according to a McKinsey and Company estimate.

They had $496 million available for investment in 1983. By 2021 that number rose to $242 billion. Private equity attracts investment because in most years during the past four decades, the mean return on investment in private equity funds exceeded that of money invested in publicly traded companies. 

What explains this success? 

The answer is that these funds have successfully provided growth capital to many established companies while actively working with management to use this capital effectively to increase the value of the business. The emergence of new technologies and markets creates demand for capital which cannot be funded out of operating profit cash flow. That’s where PE steps in.

For the management of many private companies, PE funding is a good alternative to raising capital through an initial public offering (IPO) on the stock markets, which requires public disclosure of corporate activities, and subjects the firm to fluctuations in publicly traded share prices. 

Major private equity funds that started in the 1980s were dubbed “buy-out funds” because an early strategy involved buying public companies and selling the component divisions to increase the firm’s value. Such transactions were financed by a combination of debt and private equity. But buy-out strategies now represent a minority of PE investments. 

Over time, PE funds have expanded to investments in private companies aimed at providing capital to finance acquisitions, technology roll-out, marketing expansion, or improved manufacturing. 

As their investment strategies broadened, PE funds expanded their staff to include experienced operating experts. In effect, the PE firms went from being a source of financing to a multi-tiered, transformational capital partner, with staffs of experts able to help portfolio companies.

In general, an acquired company will remain in a private equity portfolio for a few years during which it is expected to grow in value to allow a profitable sale to a corporate acquirer, or to the public through a stock-market listing. 

The private equity industry has its share of critics. A recent example is Brendan Ballou’s book Plunder: Private Equity’s Plan to Pillage America. But Ballou’s tirades miss the point. Private equity on the whole has done so well because it has made businesses more efficient and better able to meet the needs of their customers.

A common complaint is that the transformation of portfolio companies under PE investment is sometimes unsuccessful, leaving a damaged company with substantial job losses. This sometimes happens. But transforming businesses is never easy or predictable. Poorly managed businesses fail sooner or later, and it is unlikely that the laggards would have succeeded without PE involvement.

Evidence of benefits

With many years of experience in the industry, I believe that the PE industry enhances industrial productivity through the beneficial transformation of companies that need to evolve to meet new technological or competitive situations that threaten their future. Some examples from my experience may be helpful.  

Zilog was a unit of Exxon Enterprises that designed and manufactured semiconductor chips but proved unable to grow, as it competed with large companies with obsolete products and production plant. We bought the company and, with fresh capital, its capable chief executive officer transformed the company into the world’s leading supplier of low-cost controller chips for consumer products such as appliances and TV remote controllers.

Production was modernized and marketing expanded globally. Employment grew, as did revenues and profitability. The company had an IPO on Nasdaq. 

A second example of transformation is a spun-out unit of AT&T, Telcordia, that had developed much of the software used to operate American telephony. We acquired the company in partnership with another private equity firm.

The business had to be transformed from its roots in the old AT&T monopoly into a free-standing, competitive, and profitable business. This transformation took some years and involved some acquisitions, staff reductions in unproductive areas, and management changes. The company was eventually acquired by Ericsson, one of the three leading suppliers of telecommunications technology in the world. 

A third example involves the leading information-technology service company in Israel. Working with a local investment banker, Raviv Zoller, we became aware that while Israel was emerging as a leading venue for IT development, it lacked a company scaled up to exploit that capability globally. We funded the acquisition of several small but excellent Israeli software companies that became the foundation of Ness Technologies.

Under the leadership of Zoller, the firm acquired several companies in Europe and India and grew to the point that Ness became the largest IT service company in Israel along with IBM. The company had an IPO on Nasdaq and was profitable. 

These examples from three industries were chosen from many that illustrate what can be accomplished with focused private equity operating in open markets. In all cases, a combination of factors explained the success of the investments, but the selection of exceptional management was uppermost. All success stories start there. 

Henry Kressel is a technologist, inventor, author, and long-term private equity investor at Warburg Pincus. 

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North Korea: Residents tell BBC of neighbours starving to death

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Illustration of a person holding an empty bowl
By Jean Mackenzie
Seoul correspondent

People in North Korea have told the BBC food is so scarce their neighbours have starved to death.

Exclusive interviews gathered inside the world’s most isolated state suggest the situation is the worst it has been since the 1990s, experts say.

The government sealed its borders in 2020, cutting off vital supplies. It has also tightened control over people’s lives, our interviewees say.

Pyongyang told the BBC it has always prioritised its citizens’ interests.

The BBC has secretly interviewed three ordinary people in North Korea, with the help of the organisation Daily NK which operates a network of sources in the country. They told us that since the border closure, they are afraid they will either starve to death or be executed for flouting the rules. It is extremely rare to hear from people living in North Korea.

The interviews reveal a “devastating tragedy is unfolding” in the country, said Sokeel Park from Liberty in North Korea (LiNK), which supports North Korean escapees.

One woman living in the capital Pyongyang told us she knew a family of three who had starved to death at home. “We knocked on their door to give them water, but nobody answered,” Ji Yeon said. When the authorities went inside, they found them dead, she said. Ji Yeon’s name has been changed to protect her, along with those of the others we interviewed.

A construction worker who lives near the Chinese border, whom we have called Chan Ho, told us food supplies were so low that five people in his village had already died from starvation.

“At first, I was afraid of dying from Covid, but then I began to worry about starving to death,” he said.

North Korea has never been able to produce enough food for its 26 million people. When it shut its border in January 2020, authorities stopped importing grain from China, as well as the fertilisers and machinery needed to grow food.

Meanwhile, they have fortified the border with fences, while reportedly ordering guards to shoot anyone trying to cross. This has made it nearly impossible for people to smuggle in food to sell at the unofficial markets, where most North Koreans shop.

A market trader from the north of the country, whom we have named Myong Suk, told us that almost three quarters of the products in her local market used to come from China, but that it was “empty now”.

She, like others who make their living selling goods smuggled across the border, has seen most of her income disappear. She told us her family has never had so little to eat, and that recently people had been knocking on her door asking for food because they were so hungry.

From Pyongyang, Ji Yeon told us she had heard of people who had killed themselves at home or disappeared into the mountains to die, because they could no longer make a living.

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She was struggling to feed her children, she said. Once, she went two days without eating and thought she was going to die in her sleep.

In the late 1990s, North Korea experienced a devastating famine which killed as many as three million people. Recent rumours of starvation, which these interviews corroborate, have prompted fears the country could be on the brink of another catastrophe.

“That normal, middle-class people are seeing starvation in their neighbourhoods, is very concerning,” said the North Korea economist Peter Ward. “We are not talking about full-scale societal collapse and mass starvation yet, but this does not look good.”

Hanna Song, the director of NKDB, which documents human rights violations in North Korea, agreed. “For the past 10-15 years we have rarely heard of cases of starvation. This takes us back to the most difficult time in North Korean history.”

Even the North Korean leader Kim Jong Un has hinted at the seriousness of the situation – at one point referring openly to a “food crisis”, while making various attempts to boost agricultural production. Despite this, he has prioritised funding his nuclear weapons programme, testing a record 63 ballistic missiles in 2022. One estimate puts the total cost of these tests at more than $500m (£398m) – more than the amount needed to make up for North Korea’s annual grain shortfall.

Masked citizens wait for a train to pass at a crossing in Phyongysong, North Korea

NK News

Our interviewees also revealed how the government has used the past three years to increase its control over people’s lives, by strengthening punishments and passing new laws.

Before the pandemic, more than 1,000 people would flee the country each year, crossing the Yalu River into China, according to numbers released by the South Korean government. The market trader Myong Suk told us it had become impossible to escape. “If you even approach the river now you will be given a harsh punishment, so almost nobody is crossing,” she said.

The construction worker Chan Ho said his friend’s son had recently witnessed several closed-door executions. In each one, three to four people had been killed for attempting to escape. “Every day it gets harder to live,” he told us. “One wrong move and you are facing execution.”

“We are stuck here waiting to die.”

BBC iPlayer

North Korea: The Insiders

For more than three years, North Korea has sealed its borders. People are banned from leaving or entering the country. Almost every foreigner who was inside has packed up and left. The world’s most secretive and tyrannical state is now an information black hole. For months, three people inside North Korea have risked their lives to tell the BBC what is happening.

Watch now on BBC iPlayer (UK only) or at 19:00 BST on BBC Two in the UK

BBC iPlayer

We put our findings to the North Korean government, which told us it “has always prioritised the interests of the people, even at difficult times”.

“The people’s well-being is our foremost priority, even in the face of trials and challenges,” said a representative from the North Korean embassy in London.

They also said the information was “not entirely factual”, claiming it had been “derived from fabricated testimonies from anti-DPRK [Democratic People’s Republic of Korea] forces”.

But Sokeel Park, from LiNK, said these interviews reveal a “triple whammy” of hardship. “The food situation has become more difficult, people have less freedom to fend for themselves, and it has become pretty much impossible to escape.” They support the theory, he said, that “North Korea is now more repressive than it has ever been before.”

In Pyongyang, Ji Yeon said the surveillance and crackdowns were now so ruthless that people did not trust each other. She was taken in for questioning under a new law, passed in December 2020, which bans people from sharing and consuming foreign films, TV shows and songs. Under this Reactionary Ideology and Culture Rejection Act, aimed at rooting out foreign information, those caught distributing South Korean content can be executed.

A former North Korean diplomat, who defected in 2019, said he was shocked by how extreme the crackdown on foreign influence had become. “Kim Jong Un is afraid that if people understand the situation they are in, and how wealthy South Korea is, they will start hating him and rise up,” explained Ryu Hyun Woo.

Our interviews suggest that some people’s loyalty has waned over the past three years.

“Before Covid, people viewed Kim Jong Un positively,” Myong Suk said. “Now almost everyone is full of discontent.”

More findings from the BBC’s investigation into daily life in North Korea will be published on Thursday 15 June

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CNA is Singapore’s most trusted news brand for 5th year running: Reuters Institute report

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On the other hand, findings also showed that trust in news across global markets fell to 40 per cent from 42 per cent, reversing the gains made in many countries at the height of the COVID-19 pandemic.

Finland remains the country with the highest levels of overall trust with 69 per cent, while Greece has the lowest at 19 per cent following arguments about press freedom and the independence of the media, the report showed.

MOST USED ONLINE NEWS SOURCE

Alternative news site Mothership became the most used online news source for the first time, although the Reuters report noted that it “still lags” in brand trust with a score of 52 per cent.

CNA’s website came in second in terms of weekly use, followed by The Straits Times online.

Online and social media continue to be the most common ways of accessing news in Singapore, while both TV and print have declined significantly over the last few years.

On social media apps, the report said: “Facebook continues to face a decline (36 per cent), while YouTube (30 per cent), Instagram (19 per cent) and TikTok (12 per cent) were able to grow as platforms for news. WhatsApp remains the most used social app for news (38 per cent).”

Associate Professor Edson Tandoc Jr and Matthew Chew from the Wee Kim Wee School of Communication and Information at Nanyang Technological University, who wrote Singapore’s portion of the digital news report, noted TikTok’s growing popularity in the country and elsewhere.

“It reaches 49 per cent of 18 to 24 (year olds) every week, and 22 per cent for news according to our survey,” they said, adding though that this is not without controversy.

“Public officials have been reminded they are not permitted to install the app on official devices, and it has been added to the list of social media companies that are required to have formal processes and systems for dealing with misinformation, under the country’s Protection from Online Falsehoods and Manipulation Act (POFMA).

“This includes transparency over political advertising.”

The Singapore government announced in March that public officers are allowed to use TikTok on government-issued devices only on a “need-to basis” under existing policy, such as for communication officers.

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Sasana Symposium 2023: Malaysia’s real-time payment system ‘robust and reliable’ and ‘second to none’, but not hitting max capacity

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E-payment use in M’sia has surged to 291 transactions per capita, targeting 400 by 2026
Bank-fintech collaboration crucial, combining trust and security with fintech’s innovation

“What Malaysia has is the benefit of having a real-time payment system that is second to none.” Farhan Ahmad, Group CEO of PayNet who was speaking at the Sasana Symposium 2023 (SS2023)…Continue Reading

China’s surprise rate cut may be just the beginning

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Tuesday’s surprise People’s Bank of China (PBOC) interest rate cut signaled the depths of Beijing’s concerns about the slowdown in Asia’s biggest economy.

Governor Yi Gang’s team lowered its seven-day reverse repurchase rate by 10 basis points to 1.9%, the first such move since August 2022. The swift reaction in global markets is a reminder that the global spotlight is on the PBOC as rarely before as three data points converge.

One is a slowing economy with factory-gate inflation trends falling even faster. Two, a cratering property sector crying out for monetary support. Three, news in the last five days that six state-owned banks cut their deposit rates under policymakers’ guidance. Put it all together and traders can begin to understand why the PBOC cut rates so unexpectedly.

Already, the debate is shifting to when might the PBOC ease again. It could be a while.

There are two different arguments here. One is that, sure, China’s financial system could possibly do with another official rate cut. The other is that, no, Governor Yi doesn’t want to go there if he can avoid opening the monetary floodgates anew.

It’s true that demand for credit is low and unevenly distributed. It’s true, too, that there are concerns as disinflationary trends might morph into full-blown deflation.

As a weaker-than-expected Covid-19 reopening trade weighs on manufacturing, China’s factory gate prices plunged 4.6% in May, the most precipitous decline in seven years.

Yet strategist Alvin Tan at RBC Capital Markets speaks for many when he warns that rate cuts alone won’t solve the biggest headwind — a “troubled property sector” that’s keeping households “under pressure.”

Goldman Sachs economist Wang Lisheng says a stumbling real estate sector is an increasing drag on China’s 2023, not least its ability to reach the government’s 5% gross domestic product (GDP) growth target.

The trouble, Wang says, is “falling demographic demand, a shift in policy focus to support strategically important sectors, and weaker housing affordability.”

The problem, in other words, is of a long-term structural nature, not something that adding yuan to the system can fix. This puts the onus less on Yi’s PBOC than Premier Li Qiang’s reform team, which is reportedly gearing up to recalibrate growth engines.

China’s Premier Li Qiang takes an oath after being elected during the fourth plenary session of the National People’s Congress (NPC) at the Great Hall of the People in Beijing, China on March 11, 2023. Image: Pool / Twitter / Screengrab

One important pivot that Li set in motion since March is stepping away from Beijing’s draconian tech crackdown. The fallout from President Xi Jinping’s maneuver, one that started with sidelining Alibaba Group founder Jack Ma, continues to cast a cloud over China’s appeal as an investment destination.

Look no further than the yuan trading well past 7 to the US dollar. It’s a sign, in part, that global investors are taking a trust-but-verify approach to Li’s insistence that China is once again open for business.

As Li said in late March: “We will align with international economic and trade rules that are of very high standards, expand our opening-up in a steady and systematic way, and strive to create a first-class business environment that is market-oriented, rule-of-law-based and internationalized. No matter how the international situation changes, China will unswervingly keep expanding our opening up.”

One example of that opening: the new “Swap Connect” program between China and Hong Kong. On top of earlier stock and bond connect arrangements, this new framework opens the way for overseas funds to access derivatives vital to hedging bets in China’s bond market. The dearth of hedging tools has long turned off the biggest of the big money.

That scheme also enables traders to deal in key money-market rates tied closely to PBOC policies. It deepens institutional investors’ involvement in China markets. And it’s a notable step toward fulfilling a pledge to open mainland capital markets to international funds.

Rose Zhu, chief China country officer at Deutsche Bank, calls it “a huge leap forward in developing the domestic derivatives and bond markets.”

If executed well, the capital pulled in via such connect dynamics could help to turn the page, to some extent, from the regulatory crackdowns of 2020 and 2021. It reminds top investment banks that the geopolitical turbulence and dueling sanctions between Beijing and Washington isn’t completely derailing market reforms.

However, that doesn’t mean the PBOC won’t be adding liquidity in the short-to-medium term. After all, as economists at Maybank warned last week, “there’s immense concern for the country’s economy especially given there appears to be limited sources of growth.”

As strategist Kelvin Wong at OANDA points out, the recent move by six state-owned banks to cut deposit rates proved the point. “These measures,” Wong says, “are made to stimulate consumer confidence and increased credit supply so that there will be lesser funds inflow into the banks’ fixed deposit products and lower the cost of funding for banks, which in turn can incentivize a reduction in lending rates.”

Economist Carlos Casanova at Union Bancaire Privée is in the camp that has been expecting stronger PBOC actions. “Weak May inflation reinforces the case for stronger policy support,” he says, adding that “although subdued inflation is good news for consumption, excessive deflation is also problematic, as it entails smaller profits for companies and slower job creation.”

Casanova says “we think the PBOC could also consider additional reserve requirement ratio cuts as well as continued support via liquidity operations and faster credit growth.” Monetary support, he adds, “will have to be accompanied by bottom-up policies” to boost demand for, say, electric vehicles and other big-ticket items like household appliances.

“Macroprudential support for the housing sector,” Casanova says, “is already underway on a province-by-province basis and could be expanded. We also expect measures to address youth unemployment over the summer months.”

Residential buildings in Beijing. The average price last year for second-hand housing in China's capital was 60,925 yuan per square meter, down 3.3% from a year earlier. Photo: iStock
Residential buildings in Beijing. Photo: iStock

Casanova views large state-owned domestic banks trimming deposit rates as a step in the right direction. “This should help to improve profit margins,” he says, “allowing more room to extend credit to key sectors” such as small-and-medium-sized enterprises.

Economist Li Chao at Zheshang Securities also sees good odds that the PBOC will be more active in the second half of the year — both through rate cuts and RRR reductions.

Add analyst Ming Ming at Citic Securities Co to the China-needs-a-rate-cut camp. “June is a key window of policy to stabilize economic growth,” Ming notes. “That, combined with some recent activity and financial indicators as well as market sentiment, has led to a clear increase in the necessity for an interest rate cut.”

Economist Zhiwei Zhang at Pinpoint Asset Management worries that the “risk of deflation is still weighing on the economy. Recent economic indicators send consistent signals that the economy is cooling.”

Yet things on the ground in China are rather complicated. Case in point: don’t rule out a rebound in consumer prices.

“We still think a tightening labor market will put some upward pressure on inflation later this year,” says economist Julian Evans-Pritchard at Capital Economics. Odds are, he says, mainland inflation “will remain well within policymakers’ comfort zone.”

Evans-Pritchard adds that the “government’s ceiling of around 3% for the headline rate is unlikely to be tested and we doubt inflation will become a barrier to increased policy support.”

Yet easier PBOC policies won’t easily resurrect China’s property sector. Though a cornerstone generator of mainland GDP didn’t collapse amid three years of Covid pain, it’s displaying telltale signs of stress. In May, for example, its post-pandemic resurgence slowed to just 6.7% from a 29%-plus pace in the previous two months.

Goldman’s Wang notes that Beijing policymakers are likely to loosen the availability of credit to new homebuyers. That could take the form of targeted lowering of mortgage rates and down-payment ratios and easing up on curbs on home purchases.

Yet Wang doesn’t expect to see Beijing moving to “engineer an up-cycle” that kicks off a “repeat of the 2015-2018 cash-backed shantytown renovation program.”

Rather, Wang sees Premier Li’s team favoring a non-PBOC “endgame for the property sector policy” that lowers the sector’s pivotal role in driving growth.

Along with fixing cracks in the property sector, Li’s team also must accelerate efforts to build wider and deeper social safety nets. Economists agree this is the key to prodding mainland households to save less and spend more over time to increase the role of domestic demand-led growth.

The “prioritization of spending on households over investment would also deliver larger stabilization benefits,” notes International Monetary Fund economist Thomas Helbling.

“For example, means-tested transfers to households would boost aggregate demand 50% more than an equivalent amount of public investment. To ensure consistency across policies, fiscal policy should be undertaken within a medium-term fiscal framework.”

China needs more domestic spending and less savings to stimulate growth. Photo: Facebook

Helbling argues for “an ambitious but feasible set of reforms [that] can improve these prospects, importantly in a way that is inclusive by raising the role of household consumption in demand.”

“Reforms such as gradually lifting the retirement age to increase labor supply, strengthening unemployment and health insurance benefits, and reforming state-owned enterprises to close their productivity gap with private firms would significantly boost growth in coming years,” he says.

Even so, the PPOC has limited ability to counter headwinds bearing down on China’s economy. Tuesday’s surprise rate move could be a confidence booster for global investors. But it also seems the central bank’s way of signaling that it’s time for the government to take the lead in safeguarding and stimulating growth.

Follow William Pesek on Twitter at @WilliamPesek

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“Hong Kong to emerge as stock exchange of choice” – Dealmaking experts | FinanceAsia

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Former Securities and Futures Commission (SFC) senior director, Roger Cheng, is set to join UK-headquartered law firm, Linklaters, at its Hong Kong base from August.

The move follows his nearly five years of experience at the special administrative region’s (SAR) financial regulator, where Cheng oversaw the operations of the Takeovers Team. The law firm’s announcement pointed to the instrumental role that he played during this time, developing Hong Kong’s takeovers and mergers policy, as well as driving forward other listing-related progress.

Prior to his tenure with the SFC, Cheng spent 13 years at Slaughter and May.

Offering some thoughts around trends affecting dealmaking in Hong Kong and China, Betty Yap, Linklaters partner and global co-head of the firm’s Financial Sponsor Group shared that there had been a noticeable rebound of M&A activity in the region post-pandemic, though activity has not yet returned to pre-pandemic levels.

“Inbound investment into mainland China is still somewhat marred by geo-politics and recent regulatory changes,” she told FinanceAsia, adding that her team is optimistic around sectors less affected by national security concerns, such as the consumer segment.

“Interest from Middle Eastern investors in M&A opportunities in China has increased as relations between [both] continue to strengthen.  We are also seeing a number of sales by private equity (PE) sponsors in the market, as investments made in prior years mature,” she continued.

Her colleague, Hong Kong-based partner, Xiaoxi Lin, noted that recent financial stress in the Chinese real estate market has presented interesting M&A opportunity in Hong Kong, through the sale of prime commercial and residential properties to generate cashflow and service restructuring debts.

“A cocktail of factors including the distress in the PRC real estate sector, rising interest rates, and regulatory restrictions have meant that commercial banks are reducing their exposure to the real estate sector, including loans secured by residential and commercial properties,” Yap said.

“Credit funds – who are not subject to the same regulatory restrictions – are stepping into this funding gap,” she added, highlighting that while the current elevated interest rate environment means that borrowing costs are higher, credit funds are able to provide financing on the back of higher loan-to-value (LTV) ratios and can offer swift deal execution.

IPO dynamics

In terms of the IPO landscape ahead, Lin told FA, “Market participants are cautiously expecting a stronger HK IPO market this year with more companies listed than in 2022”.

Corporate partner, Donnelly Chan, added that Hong Kong’s recent introduction of the Chapter 18C regime – which reduces the listing requirements threshold for firms operating in new economy industries – together with recent China Securities Regulatory Commission (CSRC) reforms, is likely to support the market’s advancement.

“The track record and proven success of the pre-revenue Biotech listing regime and the weighted voting rights (WVR) listing regime since their introduction in 2018, coupled with the concession route for Greater China companies to secondary list on the main board has demonstrated the Hong Kong market’s flexible approach and readiness to evolve and explore opportunities,” he told FA.

Chan added that, as a result, it is hoped Hong Kong’s bourse will become “the stock exchange of choice” compared to other regional fundraising hubs.

Opportunity elsewhere

However, Yap is bullish on opportunity across the full breadth of Asian markets.

“For the remainder of 2023, we believe there will be continued interest in M&A opportunities in Asia,” she told FA.

“As inbound investment interest in China remains mixed given geo-politics, other single jurisdiction markets in Asia that can provide scale will be of interest to financial sponsor investors looking for efficiency in the deployment of capital.”

She pointed to markets such as India and Japan as benefitting from investor appetite – with the latter offering attractive costs “because of the lower yen”.

Yap added that Southeast Asia will continue to draw capital: “in particular Indonesia, with its relatively young demographics and the consumption power of its growing middle class.”

In terms of sectors, she noted that energy transition will remain of utmost importance “with interest in targets from renewables to electric vehicles to batteries to de-carbonising assets,” while digital infrastructure and data centre investment will continue to support the rise of e-commerce.

In the Linklaters release, head of Corporate, Sophie Mathur shared, “We are delighted to welcome Roger to our corporate practice. We are confident that his insights into takeovers and mergers regulations and policy matters will be of immense value-add to our clients when navigating take-privates and other public market transactions.”

Unlike the typical structure of a corporation, Linklaters employs a limited liability partnership which enables the firm’s partner leadership-base to make long-term strategic decisions for the business together.

Cheng’s appointment follows other key hires in Asia in recent months, including the appointment of Yoshiyuki Asaoka as corporate partner in Japan. In June 2021, William Liu was appointed as regional managing partner for Asia Pacific.

 

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