China's economy is looking brighter but it's not in the clear yet
Chinese officials urge government action to revive Covid-battered economyReplayMore Videos ...
Chinese officials urge government action to revive Covid-battered economy 02:57Hong Kong (CNN Business)From big gains in tech stocks to robust trade data, China has had plenty of good news on the economic front this week.
The positive developments come after the world's second largest economy was battered by widespread Covid lockdowns, a sweeping crackdown on tech companies and a real estate slump. Consumer spending and factory output both shrank sharply in April, while unemployment has surged to the highest level since the initial coronavirus outbreak in early 2020. As China takes steps to gradually reopen businesses, and authorities introduce a slew of measures to stimulate activity, there are signs that a revival may be around the corner.Still, analysts say more needs to be done to repair investor confidence in China, and some big risks haven't gone away."It will take time to repair the business confidence, and sell-offs in Chinese assets might resume if China data proved to be disappointing again," said Ken Cheung, chief Asian foreign exchange strategist for Mizuho Bank.World Bank says recession will be 'hard to avoid' for many countriesRead MoreTech rallyChina's economic slowdown has largely been a self-inflicted headache, spurred by President Xi Jinping's clampdown on private enterprises, a campaign to contain excessive borrowing by real estate developers, and a relentless adherence to zero-Covid policy. But there are some signs that the regulatory nightmare for tech firms may be coming to an end. Earlier this week, The Wall Street Journal reported that Beijing's cybersecurity review of Didi was about to wrap up. The move would allow the ride-hailing giant to return to app stores in mainland China, almost a year after Didi was removed over data privacy violations. Didi's shares climbed 24% Monday on Wall Street after the report.Other media reports this week have signaled an easing of the crackdown. On Thursday, Bloomberg said Chinese regulators have started early stage discussions on a potential revival of Ant Group's IPO, citing people familiar with the matter. Reuters reported on Thursday that Ant — owner of the hugely popular Alipay app — aims to file a preliminary prospectus for the offering as soon as next month.Jack Ma was about to make history with a planned $37 billion IPO of the Alibaba affiliate in Shanghai and Hong Kong in November 2020. But China abruptly halted the Ant deal days before the stock was due to start trading, a move that marked the start of a regulatory offensive that engulfed the internet industry in the year that followed.'Uninvestable' China could make a comebackAnt Group said Thursday that it "currently doesn't have any plan to initiate an IPO." The China Securities Regulatory Commission added that it has not conducted any research work regarding a new Ant IPO.Alibaba (BABA) shares have been whipsawed by the news but are still up 18% this week on Wall Street. In Hong Kong, meanwhile, the stock has risen for five straight sessions and is up 22% this week — the best weekly performance since Alibaba's secondary listing there in 2019.The Chinese government has brought further relief to the tech sector in recent weeks. Regulators have said that they would support overseas listings of tech companies.And on Tuesday, authorities issued 60 new game licenses following a months-long freeze. Tencent (TCEHY), China's largest gaming firm, soared more than 6% after the news.The Hang Seng Tech Index, which tracks the 30 largest Chinese tech stocks in Hong Kong, is up 10% this week.Trade improvesChina also released strong trade data for the month of May, after a slump in April. The country's exports jumped 16.9% in May from a year ago, compared with only 3.9% growth in April. Imports, meanwhile, rose for the first time in three months."The increase in both exports and imports was mainly due to the reopening of the port of Shanghai, China's largest port, in the last week of May," said Iris Pang, chief economist for Greater China at ING Group.Shanghai had been under a strict lockdown since late March, forcing factories to close and causing significant shipping delays.Shanghai is finally 'reopening,' but the trauma of lockdown lives onCongestion at the Shanghai port is almost "back to normal," VesselsValue, a shipping data firm, said earlier this week. Average waiting times have now shortened to 28 hours, compared to 66 hours in late April. On Wednesday, Premier Li Keqiang urged local government officials to help smooth transportation and logistics and protect supply chains. China would strive to achieve reasonable economic growth in the second quarter and reduce unemployment, he said, reiterating previous calls.Last week, the State Council, the country's cabinet, unveiled a new package of 33 stimulus measures to shore up growth, including tens of billions of dollars of additional tax cuts and infrastructure spending.Is this enough?But analysts remain cautious.The May trade data does not change "the consensus view that China's trade surplus is going to narrow," as demand for Chinese exports weakens because of a slowing global economy, HSBC analysts said Thursday. Earlier this week, the World Bank warned that stagflation risks are rising in the global economy. It now expects global growth to slump from 5.7% in 2021 to 2.9% in 2022, significantly lower than 4.1% that was anticipated in January. Global inflation, meanwhile, is likely remain above target in many economies, the bank said.HSBC analysts said that Beijing's investment push in infrastructure and property is set to increase China's commodity imports, adding to its inflation problems."As commodity prices remain elevated, these imports will be costly for China," they said.Shanghai neighborhoods return to lockdown a day after restrictions easedChina's adherence to a policy of tough Covid restrictions also remains a significant risk.President Xi Jinping said Wednesday that the country must stick "unswervingly" to its zero-Covid strategy, while urging officials to bolster the economy, according to state-owned Xinhua News Agency.A growing number of neighborhoods in Shanghai face another temporary lockdown this weekend, as authorities launch mass testing days after Covid restrictions were eased for most of its 25 million residents.Authorities in Beijing's largest Chaoyang district also announced Thursday the closure of all entertainment venues, just days after allowing their reopening."Markets have naively assumed that China was one and done with Beijing and Shanghai," said Jeffrey Halley, senior market analyst for Oanda, on Thursday."Covid-zero is going nowhere in China, and nor is the virus. Thus, the chances of extended restrictions returning, with the ensuing drop in China's economic activity, remain as high as ever," he added.— CNN's Beijing bureau contributed to this report.Click Here To Get Funded!