Growth Dragons Weekly - Jun 2023 #2
China Stocks Have Bottomed
In Growth Dragons this week:
Bill Gates Meets President Xi
China’s Stimulus is Finally Here
China’s largest IPO in 13 years
Moutai Coffee
24 RMB counters to be launched on 19 Jun 2023 in Hong Kong
Bill Gates Meets President Xi
We thought Musk’s visit to China greeted by Foreign Minister Qin Gang was a big deal. Never did we expect Bill Gates was welcomed by President Xi himself! The Chinese government has been giving special treatments to prominent American business figures. This may signal the growing challenges in the dialogue between the US and Chinese governments. Nevertheless, China appears eager to engage in discussions and has chosen to utilize these influential businessmen as intermediaries.
Similarly, these US business leaders are also motivated to maintain their engagement with China and avoid becoming casualties of the geopolitical tensions. They understand the importance of sustaining their business relationships and seek to navigate the delicate landscape to ensure continued economic cooperation.
Preceding the visits of Musk and Gates, Jamie Dimon, the CEO of JPMorgan Chase, traveled to China in May, reiterating the bank's commitment to conducting business in China and serving as a bridge between global enterprises and Chinese regulators. Likewise, Laxman Narasimhan, the CEO of Starbucks, also visited China and unveiled plans to expand the coffee chain, with the goal of opening 2,500 new stores across the country within the next two years.
The majority of individuals desire peace and are urging both governments to collaborate. US Secretary of State, Antony Blinken, is scheduled to embark on his trip to China soon. It is encouraging that the dialogue persists, even though most analysts hold the belief that tangible outcomes from this visit might be limited.
Taking a more upbeat perspective, the renowned footballer Lionel Messi recently traveled to China for a friendly match between Argentina and Australia. The Chinese people warmly welcomed him, likely feeling compensated for missing out on the World Cup due to the strict lockdown enforced by their government. Messi even made an appearance on Taobao Live for an interview and extended his wishes to the audience in Chinese, saying "端午安康," which translates to "have a peaceful and healthy Dragon Boat Festival." The live show was watched by more than 2.5 million viewers - China represents a massive market that numerous prominent businesses are unwilling to relinquish, recognizing its immense potential for growth and opportunity. Thus, talk business, not war.
China’s stimulus moves are finally here
To borrow from the words of Lenin, there are periods where events unfold slowly, and then there are moments when rapid changes occur. Despite reopening its economy since the previous year, China has shown restraint in stimulating economic growth. Interest rates have remained steady for ten consecutive months. However, due to concerning economic indicators that posed a threat to China's targeted GDP growth of 5% in 2023, a series of interest rate cuts have been announced within the past week.
On the 13th of June, the People's Bank of China (PBOC) initiated a reverse repurchase operation worth 2 billion yuan using interest rate bidding, resulting in a decrease in the interest rate from 2.0% to 1.9%.
During the evening of June 13th, the central bank released the updated interest rate table for the Standing Lending Facility (SLF). Following the reduction in SLF interest rates, the overnight rate stood at 2.75%, the 7-day rate at 2.90%, and the 1-month rate at 3.25%.
On June 15th, the central bank announced a reduction of 10 basis points (bps) in the interest rate for one-year medium-term lending facility (MLF) loans worth 237 billion yuan ($33.09 billion) provided to select financial institutions. The rate was lowered from 2.75% to 2.65%.
These three interest rates play pivotal roles in China’s policy interest rate system. The reverse repurchase operating rate serves as a vital tool for short-term monetary policy adjustments, while the MLF functions as a mechanism to provide medium-term base currency within the monetary policy framework. On the other hand, the SLF serves as a well-established channel for the central bank to ensure regular liquidity supply.
Okay, you might still be confused but more importantly, you have to understand that managing interest rates in the economy is a complex process that involves more than just a single number. It encompasses various types of interest rates and their adjustments, each serving different purposes and having different impacts on the economy. Cutting rates in any particular type can be seen as a measure to stimulate economic activity.
Following the decrease in MLF interest rates, there is a high likelihood that the LPR (loan prime rate), which plays a significant role in interest rate transmission, will also be lowered this month. Analysts anticipate that the loan market quotation rate (LPR) will be adjusted when it is announced on the 20th. As a result, existing and new mortgages are expected to experience a decrease in interest rates. This reduction will alleviate the financial burden on housing consumers and contribute to an increase in residents' consumption and investment.