The Year of the Tiger - China in 2022, and our Dividend Data Coverage

February 1, 2022

The Chinese New Year 2022 begins today, February 1. This is the Year of the Tiger, a Chinese zodiac sign associated with strength, braveness, competitiveness ... and unpredictability. It remains to be seen whether these traits prove symbolic for the Chinese economy in 2022. Unpredictability has certainly hounded China, both in the economic and political spheres, driven by an unusually volatile, pandemic-driven growth trajectory.

The economy expanded 8.1% in 2021, its fastest expansion since 2011, helped by robust exports. But there are signs of slowing in the growth momentum. In Q4 2021, the economy grew 4% YoY, its slowest since Q2 2020, due to several headwinds, including supply chain issues, a real-estate downturn, and sporadic Covid-19 outbreaks. Consumption expenditure accounted for 65.4% of the GDP growth in 2021, compared to 54.3% in 2020. Although this was good in terms of the levels seen between 2013 and 2019, it was lower than that of the developed economies.

China’s Increased State Intervention May Do More Harm Than Good

China needs policy support to get back on its growth trajectory. However, this can’t be achieved through increased state intervention in the corporate landscape. State intervention has actually been reducing China’s competitiveness in the global markets. The country has been on an extensive regulatory crackdown, aimed at its technology giants, introducing a series of laws and regulations from data security to anti-monopoly. This has had investors scrambling, wiping out billions of dollars for the internet giants in the nation.

In November 2021, Yahoo exited China, citing an “increasingly challenging” legal and business environment. It wasn’t the only one. Microsoft-owned LinkedIn pulled out of China in mid-October, and Epic Games, which owns Fortnite, said that it will pull the game out of China by mid-November.

This was related not just to the landmark data privacy law. In recent years, President Xi Jinping and his party have reasserted the role of the state in the economy. Fears regarding the loss of “core socialist values” in the general population and increased “objectionable” representations of people online have led to the government coming down heavily on western companies. China’s great firewall and draconian censorship are also not conducive to foreign companies.

"The country seems conflicted, backtracking in key areas, while slowly opening its economy in others."

In fact, China’s so-called economic liberalisation could have just been a façade for the United States. The country seems conflicted, backtracking in key areas, while slowly opening its economy in others. This kind of policy-making might have been enough in the 2010s, but not in the 2020s, given that the economy has weakened. The country can’t afford to have growth based on credit-fuelled spending like it did in the last decade. Unless the policymakers bring in liberalising reforms, the country might face a huge economic downturn. This will hurt the interests of the Chinese Communist Party and its goals of achieving “common prosperity.”

China’s Zero-Covid Policy Could Impact Trade and Growth

The 2022 Beijing Olympics, the start of the Chinese holidays, and the emergence of the Omicron variant are putting China’s zero-Covid policy to test. The policy is seen by some westerners as a ploy of the Chinese Communist Party (CCP) to gain excessive control.

The country cites the policy as the only way to protect its huge population; a significant percentage of which are senior citizens. Healthcare in the country is strained, with insufficient ICU beds. As per data by the Chinese Society of Critical Care Medicine, there are only 3.43 ICU beds per 100,000 people in the country. Despite a high vaccination rate, China-made inoculations have a lower efficacy rate. Under almost no circumstances would the country import foreign vaccines, which means this zero-Covid policy is here to stay for the long term.

While this may save countless lives, it could be bad for the economy. Experts in the country have called upon Beijing to strike a balance between Covid-19 prevention and economic growth. They have ascertained that harsh border restrictions could hamper its efforts to foster ties with its major trading partners. For instance, in early January 2022, Vietnam’s trade ministry raised concerns that the excessive controls were disrupting bilateral trade, causing great losses to businesses on both sides.

A completely shut-off China means that Beijing won’t be able to project its influence worldwide, a key feature of Xi Jinping’s Belt and Road Initiative, offering aid and investments worldwide.

The 2022 Outlook

China’s common prosperity goal is aimed at economic rebalancing. Policymakers in the country want to steer it towards consumption-driven growth and reduce reliance on exports and investments. This is driving everything right now, right from China’s tax evasion policies and the crackdown on tech to the outright limiting of time spent by minors playing online games.

In the long run, this could impact growth driven by the private sector. With diminished support from exports and the government’s continued deleveraging efforts, the World Bank expects an economic slowdown in 2022. GDP growth is forecasted at 5.1% this year.

Predicting the Unpredictable – Our China Dividend Forecast Data

It is very challenging to understand China’s economy and the role of dividends within this - such is China's size. Is it slowly inching towards an open market or not? Western analysts have gotten it wrong over the years, mainly because they deal with obsolete data, while China keeps relevant data under wraps, even manipulates it. For instance, contrary to the popular notion in the US, the Chinese Renminbi has not attained a global status, to be able to give competition to the US dollar. It is used in less than 3% of all cross-border transactions.

Woodseer's algorithm+analyst approach is equipped for accurate dividend forecasting in this highly complex region, at scale. We currently have dividend forecast data for over 850 China listed securities with room to expand to over 4000 names subject to client demand.

Woodseer's dividend estimate data extends to 23 China / Hong Kong indices including the HSCEI and Hang Seng - again with room to provide more on demand.

Contact us to learn more more about our China, Hong Kong and wider Asia Pacific dividend expertise.