Major Tian Authors

China Roundup: Dumped! Shanghai’s GDP Growth Target

January 29, 2015

This week, Shanghai brought the annual practice of fixing GDP growth targets into sharp focus by simply abandoning it; Alibaba and SAIC washed their dirty linen in public; and Apple posted record profits bolstered by Chinese fans of the iPhone 6.

A pioneer in China’s economic reforms, this week Shanghai became the first major Chinese city to abandon the GDP growth target for 2015. During the municipal legislature’s annual gathering over the weekend, the mayor, for the first time in more than a decade, did not mention the new-year growth target in his work report. Instead, the report focused on other indicators such as R&D spending, patent numbers, unemployment rate and environmental investment.

While many applauded Shanghai for seeking more balanced development, few other cities or provinces in China have followed suit. Most local governments only chose to lower their GDP targets rather than abandon them, according to China Securities News; most targets appear to be in the 7%-9% range. GDP growth is still the key parameter in most local governments’ performance evaluation systems, which makes it a decisive factor for officials’ careers.

And at the national level, China is expected to set the target at around 7% during the National Congress meetings in March, sources told Reuters on Thursday. Despite acknowledging that the Chinese economy has entered a “new norm” stage, Chinese President Xi Jinping and Premier Li Keqiang have repeatedly stressed in public that China will maintain “medium-to-high growth”, which means that the country is not letting go the important gauge anytime soon.

No matter what they said six months ago, very few analysts today are still publicly bearish on China’s stock market. But it doesn’t guarantee against short-term fluctuations, including the 8% dive of the Shanghai Composite Index (SHCOMP) on January 19 when security regulators cracked down heavily on margin trading.

Unfortunately the risk is not gone yet. After hammering a dozen major brokers for violating market rules two weeks ago, the market watchdog—China Securities Regulatory Commission (CSRC) is now putting smaller brokers in the cross hairs. The inspection, set to start next Monday, will cover 46 brokers in two weeks, according to the Chinese media.

A CSRC spokesperson said that there’s no need to over-interpret the inspection, which is just a routine check. But what might worry the regulator is that the previous crackdown didn’t bring down the market’s leverage level—margin debt shot up to another high on Monday to RMB 771.4 billion.

It seems that the market is already reacting to the probe—the SHCOMP retreated 2.54% till Thursday this week.

The shouting match between China’s e-commerce giant Alibaba and the State Administration of Industry and Commerce (SAIC) is still on-going: in the latest round, a local SAIC bureau in Zhejiang province (where Alibaba is headquartered) re-posted a letter written by an employee on Weibo (China’s Twitter-equivalent), telling Alibaba Chairman Jack Ma that instead of pointing fingers at each other, the two sides should work together to combat fakes.

The drama started about a week ago when SAIC released an inspection report saying that more than 60% of products sold on Taobao, Alibaba’s main platform, are either fake or unauthorized. Taobao responded by posting an open letter questioning SAIC’s sampling method and inspection procedures. On Wednesday SAIC released a white paper (which has now been taken down from its website) listing five major problems of Alibaba’s platforms, including tolerance for fakes and being too lax on internal management. On the same day, Taobao announced that it would launch a formal complaint against the supervisor of internet trade at SAIC. It also announced that it had put together a team of 300 people to combat fakes, inviting SAIC and other organizations to join hands.

What we don’t know is whether fakes will be significantly reduced on Taobao because of the incident; but overseas investors have reacted in their own way: Alibaba’s share prices dropped more than 4% on Wednesday, right before the company’s third fiscal quarter earnings release.

Bigger cellphone screens mean bigger profit, and the corporate world saw a new record on Tuesday—Apple, the consumer electronics maker based in Cupertino, CA, said that the company made $18 billion between October and December—the biggest quarterly profit ever.

But there’s more behind Apple’s record profits —the company reported $16.1 billion in revenue from the Greater China area, a 70% year-on-year jump. However, in the quarter before the iPhone 6’s release in China, Apple’s Greater China revenue ($5.78 billion) only edged up 1% from the same period a year earlier. This comparison took many analysts by surprise, although some had pointed out that there’s still plenty of room for Apple to grow in a market dominated by cheap handsets.

On the other hand, Apple’s major global competitor Samsung is still battling through its worst days. The South Korean company just saw a 27% drop in quarterly profits and lost 8% of market share in China. According to data tracker Counterpoint, Samsung has fallen to the fifth place on the smartphone shipments rank in China.

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