April comes as the ‘Monday morning' for China. After the hangover of spring festivals and plant shutdowns, it is down to business. After all, what the government does now, will set the course for the rest of the year and the message it wants to send out is clear: Prepare for a disappointment, but get pleasantly surprised.
Unusually sensitive to policy statements, Chinese investors are keeping their fingers crossed after a lacklustre first quarter. The perpetually depressed stock markets have triggered an outpouring of anger and impatience on local blogs. The Shanghai and Shenzhen bourses are being branded as ‘meat chopper' markets with indices destined to fall, irrespective of the economic climate or profit lines of companies.
The Shanghai Composite had one of the world's poorest performances in the first quarter of 2012, rising a meagre 2.88 per cent against Nasdaq's gain of 18.67 per cent and Tokyo's 19.26 per cent. Last year it ended up as Asia's worst performer, declining nearly 22 per cent, despite China clocking one of the world's fastest GDP growths at 9.2 per cent.
The contradiction extends into the IPO (initial product offering) market as well. Even as global initial public offers remained weak in the first quarter, stock exchanges in Hong Kong, Shenzhen and Shanghai were among the top five fund raisers. Of the top 20 global IPOs this quarter, eight were listed on Asian stock exchanges. The largest Asian IPO was the $794 million (Dh2.91 billion) listing of China Communications Construction in Shanghai.
So is there any indication that the country's relatively sound GDP numbers will translate into strong stock market performance in the months to come? Beijing will cut its 2012 growth target to an eight-year low of 7.5 per cent next week and hold the core inflation target at around 4 per cent.
Major indicators are still at encouraging levels. The services sector expanded strongly in March and business confidence hit an 11-month high. But to maintain this momentum, the government needs to artificially stoke consumption. Throughout the country, retail outlets have suffered a slowdown as old stimulus policies expired without being replaced with new ones. Consumer spending has not moved fast enough in the first quarter. The value of retail sales of consumer goods increased by 10.8 per cent in Jan-Feb, lower than the 13.3 per cent growth of the last two months of 2011.
Now, in a fresh ‘Big Brother' attempt to shepherd its army of consumers, the Ministry of Commerce dubbed April as the ‘first month to promote consumption'. More than 80,000 commercial enterprises, including malls and restaurants, throughout the country are set to join a programme to promote spending, but the nature of subsidies or incentives to be provided by the state is still unclear, or whether it is commercially viable at all.
Efforts are also on to persuade banks to extend credit lines more generously. China's state-owned banks have come in for a fair amount of criticism due to their monopolistic and ‘stingy' behaviour. Profit announcements last week only added fuel to frustration. The profit of 12 listed banks, amounting to almost 842 billion yuan (Dh488.75 billion), accounted for about half of the combined earnings of all public companies in China.
Taming the banks
The five biggest — Industrial and Commercial Bank of China, Bank of China, China Construction Bank Corp, Agricultural Bank of China and Bank of Communications — made about 1.3 trillion yuan in interest income alone last year. But this did not go far to benefit investors in bank shares. An A-share index that tracks listed banks rose by just 2.35 per cent in the first quarter of 2012.
Complaints of low deposits rates, excessively high bank fees and reluctance to give credit to small companies have triggered unprecedented public anger. How China beefs up consumer spending and curbs bank power will be keenly watched by investors.