Growth Dragons Weekly: China Export Woes, Temu Supplier Uproar, KeeTa's 7-Eleven Ambitions, and WeRide IPO
What happened in China this week:
China’s Small Exporters PMI Finally Succumbs to Lower Consumption and Exports
Suppliers Protest Against Temu’s High Fines While Alibaba Switches to Percentage Fees For Higher Upside
Meituan’s KeeTa Seeks to Add 7-Eleven to Its Delivery Services
New Oriental Results: Revenue Grew 32% But Profits Declined 42%
WeRide IPO: Largest U.S. Listing Since DiDi
#1 China’s Small Exporters PMI Finally Succumbs to Lower Consumption and Exports
Keen followers of China’s economic growth are unsurprised by yet another lackluster economic report from China. However, there's a new development this time. The Caixin/S&P Global manufacturing purchasing managers’ index (PMI), which tracks smaller companies and had remained in expansion mode even when larger companies reported contractions, is no longer so.
In July, the Caixin PMI dropped to 49.8 from 51.8 in June, marking the lowest reading since October and falling short of analysts’ expectations of 51.5. This alignment with the contraction trend signals a broader economic downturn. This may negatively impact companies like PDD, as Temu, its platform, relies heavily on shipping small goods overseas.
Overall demand was particularly weak, with total new orders decreasing for the first time since July 2023. Surveyed businesses attributed this slump to clients tightening their budgets. In an effort to boost consumption, China recently announced that 150 billion yuan from a 1 trillion yuan special treasury bond issuance would be allocated to subsidize the replacement of old appliances, cars, e-bikes, and other goods.
Despite having more policy maneuvering space domestically, whether the Chinese will increase their spending remains uncertain. The wealth effect is lower due to the continued slump in property prices, and confidence in the economic outlook is low. Resolving property issues seems crucial, but improvement does not appear imminent.
In July, new home sales from the top 100 real estate companies fell by 19.7% year-on-year, totaling about 279 billion yuan. This decline was faster than the 17% drop in June, with transactions plummeting by 36.4% from June levels.
Despite a relending program by China’s central bank, valued at US$42 billion, Bloomberg Economics estimates that this can only help local governments purchase a mere 0.8% of the country’s 60 million unsold homes. Additionally, the time required to clear housing inventory is increasing. As of the end of May, the average period to destock homes in a sample of 50 cities rose by 3.9 months to 21.3 months, according to data from the China Index Academy.
Externally, Chinese exports face headwinds as the West continues to impose trade tariffs on Chinese goods. The geopolitical tension is unlikely to ease and may even worsen if Donald Trump wins the election in the US. His previous term initiated the trade war with China, and a second term could see its continuation.
China will have a tougher time meeting its GDP growth target of 5% for 2024, and China stocks may require a longer time to recover too.