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China Roundup: In 2014 the China GDP figure hit a 24-year low

by Major

January 22, 2015

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This week, all eyes were on the 2014 China GDP figure, which at 7.4% was lower than the target of 7.5%; Tencent created a mini ad frenzy on WeChat; and LeTV’s electric car plans inched a step closer to fruition.

China’s GDP and the debate over easing

The guessing game is finally over: China’s official gross domestic product (GDP) grew 7.4% in 2014—the lowest rate since 1990, according to the official statistics released on Tuesday. It’s also the first time in more than two decades that China missed its growth target, which was set at 7.5% last year.

Yet Beijing is trying to tell the world not to panic—during a speech at the 2015 meeting of the World Economic Forum in Davos, Switzerland, Chinese Premier Li Keqiang said that the China is not going towards a hard landing, citing robust job creation as evidence that the economic reforms are showing effects.

China’s 2015 growth target will remain a myth until the annual meetings of the National People’s Congress and the Chinese People’s Political Consultative Conference (also known as Lianghui) in March, when first quarter results will give authorities better ideas about the economy. But according to the International Monetary Fund (IMF), growth is expected to slow to 6.8% and 6.3% in 2015 and 2016, quite a conspicuous drop from the 7.1% and 6.8% forecast made just three months ago.

The slowing economy is also exerting pressure on the government’s budget. The official estimate is that the Chinese government’s fiscal revenue increased about 8.8% in 2014, the first single-digit growth rate in 23 years. A research note by Deutsche Bank is even more pessimistic—fiscal revenue only grew 4% in 2014, and the number will drop to 1% this year, due to the tumbling property market that cut back land auction revenue for local governments.

The fiscal challenge may give Beijing less leeway to support small businesses by cutting taxes. And as the Chinese central bank’s interest rate cuts in November haven’t brought down financing costs for companies, many analysts estimate that more monetary stimulus is inevitable to boost the economy.

The irony is that the more the market begs for easing, the more prudent the central bank seems to remain. Analysts seem to agree that more monetary easing will come sooner or later, but no one knows when.

On Thursday, People’s Bank of China (PBOC) confirmed that it rolled over about RMB 270 billion of mid-term lending facility (MLF) and injected another RMB 50 billion through the same method. Meanwhile, it also injected RMB 50 billion into the banking system using reverse-repurchase agreements, which were priced to yield 3.85%, lower than the 4.10% yield of the reverse-repo agreements auctioned about a year ago—the last time PBOC conducted such an open market operation.

It’s a matter of interpretation whether PBOC’s moves are signals for greater easing like cutting the required reserve ratio (RRR) or the central bank is not done with targeted measures yet. The bank’s governor Zhou Xiaochuan told the public in Davos that PBOC hopes to maintain a stable monetary policy and has no intention to inject excessive liquidity into the economy.

Tencent knows your favorite ads

It’s actually not common for internet giant Tencent to trigger a social media meme, but it did yesterday. The tech firm, which owns the popular messaging app WeChat, is considering adding ads in users’ news feed. On Wednesday some WeChat users discovered a promoted post in their feeds from Tencent, which contains six text slides with poetic words. The key message?

“You can’t hide from ads; you hate them because they don’t actually know what you want. But we’re trying to make a change.”

The format soon went viral and a dozen companies including Soho, Coca-Cola and Durex adopted it for their own promotions on social media.

Can Tencent bring a revolution to the way ads work on social media? No matter what the answer is, it seems that the company is set to benefit greatly if the ad move succeeds. Currently ad revenue only accounts for about 12% of Tencent’s total income, according to TMTPost. The news site reported that Tencent’s internal analysis showed that introducing ads to WeChat’s 650 million users will bring the company RMB 10 billion each year—about four times the current revenue.

LeTV is serious about its super car

Remember the dazzling SEE (Super Electric Ecosystem) project by China’s online entertainment portal LeTV that claims it will eclipse Tesla? Apparently they are very serious about the effort, as the company formally announced it has hired a seasoned executive and unveiled the beta version of the future car’s on-board system this week.

During an uber-upbeat press conference on Tuesday, the company introduced former Infiniti China head Lv Zhengyu as its new director of the electric car project, leading a team of 260 specialists and engineers. It also announced that a “lite” version of the operating system—LeUI Auto—is set to be released early next month. The system, which features voice and gesture control, is supposed to be integrated with LeTV’s media resources (such as music, TV shows and movies) and smart voice control.

LeTV has shown how proud it is of its concept of “ecosystem building” throughout its marketing campaigns. While it makes sense for the company to make smart TV sets (which it currently does), or even a smartphone (which it will also do), manufacturing electric vehicles is still a long stretch for an internet portal.

But so far the market is buying its words, as prices of the companies’ shares have surged 56% in January. It looks like on the way of replicating Tesla’s success as a carmaker, LeTV is learning marketing first.

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