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China prioritizing economic growth

The central government is increasingly focusing on the economy as it strives to rebuild the severe damage inflicted by the recently lifted Covid-19 restrictions.

At an economic conference last week, senior figures stated their commitment to further reform, calming the markets, and soothing the economy. In addition, the central bank and the State Council announced that they would focus on economic growth and real estate this year.

It's evident that the Chinese leadership has been increasingly focused on the economy over the past twelve months. This was recently highlighted when a poll was released last month showing the lowest level of business confidence in China since 2013.

Not long after the poll was taken, the World Bank reduced its China forecast from 4.5% to 4.3% growth for the year. This is unusually low for China, which has seen growth of over 5% for the past two decades.

Last week investors mainly stayed on the sidelines and did not make any big moves. The Hang Seng China Enterprises Index rose by a mere 0.12%, while the iShares MSCI China ETF fell by 1.21%. By comparison, the broader Hang Seng Index increased by 0.8%.

After a rise in values for US and Hong Kong listed Chinese stocks late in the year, the market has calmed, so for any rally to persist, companies must start to show healthy growth. Unfortunately, this is not something the government can dictate, and it is far from certain to happen.

For 2023 to be an economic success, China's property sector and the government's attempts to bolster it must remain a key focus. There are regular reports of the Chinese government taking steps to support this critical area of their economy, and leading developers, Vanke, said last week that the amount of aid had exceeded their expectations.

Two less established property developers, CIFI Holdings and Agile Group, recently declared their intention to bring in money by issuing fresh stock. Beijing had been preventing this kind of sale, which had been the primary source of financing for these debt-ridden companies. However, the government changed its mind at the start of this month, though it is still questionable if anyone is interested in buying.

Even though China's economy is not doing well, IPOs for 2022 reflect a different story. This year, China has overtaken the West as the leading provider of new offerings. Citic Securities takes the lead from Goldman Sachs as the top underwriter, while CICC comes in second.

Despite IPOs slowing down globally, the situation was very different in China. Shanghai and Shenzhen were the two top places for capital raising this year due to the different fiscal atmospheres in China. Moreover, while the rest of the world adopted an uncompromising attitude, China took a more accommodating stance with monetary policies to stimulate its faltering economy.

A few weeks ago, Taiwan-owned Foxconn made headlines when turmoil occurred at its massive Chinese complex that produces iPhones. The Taiwanese government has now penalized the firm and forced it to dispose of its stake in a Chinese semiconductor manufacturer.

The United States wants to keep China from creating its own advanced microchip sector for security reasons, and Taiwan has its own reasons for preventing this too. Apart from security concerns, chipmaking is one of the top sectors in Taiwan, and they do not want to start having to compete against a new batch of Chinese government-backed competitors.

The appeal by China Telecom, one of China's largest telecommunications providers, to continue providing service in the United States has been declined. This decision was made by a federal appeals court last week and upheld the US government's order from early last year that prohibited the company from operating in the country.

Chinese telecom companies have had a tough time in the United States recently. Besides being restricted from offering services, their stocks were also removed from Wall Street this year after they were included in a blacklist that prohibited American investors from buying those stocks. However, neither the service nor the listing bans have much effect since none of the Chinese telcos had any significant operations in the US.