Growth Dragons Weekly: China's Low Inflation, ByteDance Named Most Valuable Unicorn, Alibaba Slashes Cloud Prices
What happened in China this week:
China's Inflation Stays Low Despite Record Qing Ming Travel, Goldman Sachs Upgrade, and Fitch Downgrade
ByteDance, the World's Most Valuable Unicorn, Surpasses Tencent with Higher Revenue and Profits
Blizzard Returns to China through Revived Cooperation with NetEase
EHang Receives Approval to Mass Produce eVTOL Aircraft, Aiming to Dominate the Low-Altitude Economy
Alibaba Slashes Cloud Pricing by 59% in a Bid to Win Market Share
#1 China's Inflation Stays Low Despite Record Qing Ming Travel, Goldman Sachs Upgrade, and Fitch Downgrade
China Consumer Price Index (CPI) grew by only 0.1% in March but was 0.3% lower than estimates. This came after a 0.7% increment in February. Core Inflation which excludes food and energy prices grew by 0.6% in march as compared to 1.2% in February. And the Producer Price Index (PPI) fell by 2.8% in March as compared to a decrease of 2.7% in February. Overall, inflation is still very weak in China, we expect inflation to continue to be weak for months to come.
Nevertheless, the stimulus that the Chinese government is providing for the economy will result in economic growth. Goldman Sachs has raised its forecast for China’s year-on-year economic growth for the Q1 and the full year of 2024 due to the recent growth in manufacturing PMI to 5% for both. However, they also mentioned that it is expected that Q2 will likely result in slower growth from capital accumulation in Q1 and reduced spending by policymakers.
On the contrary, the stimulus has resulted in Fitch downgrading China’s outlook from stable to negative. This was due to the belief that the Chinese government’s fiscal deficit would increase. While it does not lower the creditworthiness, it increases the chance of it happening. The Chinese government mentioned that Fitch’s methodology “fails to effectively and prospectively reflect the positive role of fiscal policy in promoting economic growth.” Nevertheless, such downgrades affect the image of China and may reduce the willingness of investors to take on government debt and may face difficulty in financing its debt.
On the ground, during the 3 day Qingming Festival holiday, more than 119 million domestic travelers traveled across the nation which accounted for 11.5% more than 2019 levels. The total expenditure was nearly 54 billion yuan which was 12.7% higher than 2019 levels. From the PMI results last week, service PMI rose the highest. The data from the Qingming festival seems to support that the service sector will continue to drive China’s economic growth.
China continues to recover, but it won’t be an even recovery. The government support will boost manufacturing capacity, the Chinese are more inclined towards domestic travels. The Chinese lean towards value-for-money expenditures so it is likely domestic traveling will grow much stronger than overseas travels. The CPI results suggest that there may be oversupply in the economy leading to smaller growth in CPI despite signs of increased spending from the travels. Furthermore, property takes up a huge proportion in the CPI weightage, if the prices of houses does not increase, it will continue to weigh on inflation.
#2 ByteDance, the World's Most Valuable Unicorn, Surpasses Tencent with Higher Revenue and Profits
ByteDance’s profit jumps by 60% to US$40 billion. This growth has outpaced Tencent and Alibaba. This is the first time ByteDance has overtaken Tencent in both revenue and profit. The popularity in its short-video platforms has been paramount to its success. Its influence is further validated as Hurun’s Global Unicorn Index 2024 named ByteDance as the world’s most valuable unicorn.
