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Alibaba beats earnings， shrugging off slowing Chinese economy
Shares of Alibaba rallied by more than 8% in early trading after the company posted quarterly earnings above expectations. Recently， the Chinese ecommerce company reported quarterly sales of $2.8 billion， a 45% increase from the previous year， beating the estimate for $2.6 billion according to Bloomberg.
The company posted adjusted earn- ings per share of$0.48， beating the estimate for$0.42.“Alibaba had a strong quarter with significant growth across our key operating metrics，” said Jonathan Lu， Chief Executive Officer of Alibaba Group in the release. “We grew revenue， gross merchandise volume and annual active buyers， and we expanded our unrivaled leadership position in mobile.”
The company also announced Daniel Zhang as its new CEO， replacing Jonathan Lu.In an earnings preview， Morgan Stanley analysts noted a recent speech by Alibaba Jack Ma in which he said said he expects a headcount freeze in 2015.That could be interpreted to mean the company expects its earnings to be strained， the analysts said.
The company has also been rattled by fraud allegations. The Chinese government said Alibaba wasn’t doing enough to crack down on merchants selling fake stuff on Taobao， its biggest online selling platform.
Another report said Alibaba vendors allegedly pay people to buy products and give positive feedback on the site – a practice known as “brushing.”
Latest China data offer more evidence of economic slowdown
A slew of readings on China’s economy in July came in slightly below expectations， offering further evidence of a slowdown in the mainland’s economy.
China’s industrial production grew 6.0 percent on-year in July， compared with expectations for 6.1 percent growth， according to a Reuters poll of 39 analysts， with forecasts ranging from 6.0-6.7 percent. In June， industrial production grew 6.2 percent， according to Reuters.
Retail sales and fixed asset investment also missed expectations slightly. July retail sales grew a respectable 10.2 percent on year， but that was slightly below expectations of a 10.5 percent increase in a Reuters poll.
Fixed asset investment （FAI） for the January-to-July period rose 8.1 percent， missing a Reuters forecast for 8.8 percent and marking the slowest growth since 1999， according to Reuters. Private sector FAI growth just 2.1 percent on-year in the January-to-July period， down from 2.8 percent growth in the first half of the year. After the data’s release， the Australian dollar dropped， falling from around$0.7697 to as low as $0.7667. Australia’s economy has long been dependent on China’s appetite to import its commodities.Julian Evans-Pritchard， China economist at Capital Economics， said the slowing investment growth was of more concern than industrial production. While he saw some signs of strength in industrial production when drilling down to hard data， such as electricity and steel output， the drop in investment growth could portend a sharper slowdown.
“In the long-run， it’s pretty concern- ing to us. The private [investors] are pretty downbeat on prospects，” EvansPritchard said， noting that state borrowers may be crowding private investors out of affordable credit.”Policy makers will have to do more if they want to reverse this trend，” he added， noting that he expects more fiscal easing as the impact of previous rounds of monetary easing appeared a “bit underwhelming.”
China has started bailing out its banks
The murky balance sheets of China’s banks have long spurred fears of an impending crisis， but the clean-up may already be proceeding apace.
“Contrary to prevailing market wis-dom， we believe considerable progress has been made in recognizing and dealing with the problems，” an analyst at Bank of China（BOC）， said after citing analysis of 765 banks on the mainland. “Recapitalization and bailouts have started and made unexpected （and under-appreciated） progress，” he added， research suggested 2015 was the first year since the early 2000s with sizable bank bailouts.
China’s banking sector has long spurred concerns that its non-performing loans were grossly underreported and that lending too often was politically directed into industries with too much capacity. During the global financial crisis， China’s government used the banks to inject stimulus into the broader economy. As a result， debt levels rose sharply among local governments and stateowned companies and the banks now hold high volumes of non-performing loans — a problem that is worsening as industrial profitability falls and debtors struggle to service interest payments.
Besides the debt accumulation is significant and still rising， the asymmetrical progress across the country with provinces with the weakest economic fundamentals （Inner Mongolia， Heilongjiang， Liaoning， etc.） recording the least progress in resolving issues at their local lenders can be a potential threat for the sustainable progressing in the future. Analyst told that if credit continued to expand at two to three times the pace of gross domestic product （GDP） growth， the size of the problem could expand faster than the solution.
China’s stuck between a rock and a hard place on reforms
China has a “significant problem”from its gigantic debt load， but its reform options could make it worse， Eswar Prasad， the former chief of the IMF’s China division， said. Prasad put it that“If they do slow down credit growth very substantially， that’s going to mean a slowdown in overall growth. That could mean even more problems in the banking system.”
Last year， China’s economic growth decelerated to a 25-year low， as improvements in consumption failed to offset a marked slowdown in traditional economic drivers. While China may be trying to tackle the problem by reforming the banking system and retrenching the economy simultaneously， “it’s going to be very difficult to fix the banks and fix the bad debt problem unless they begin at the root， which is the state-owned enterprises ，” he said， noting China has made little progress on reforming SOEs. It is said that China’s banking sector has long spurred concerns that its nonperforming loans （NPLs） were grossly underreported and that lending too often was politically directed into industries with too much capacity.
Even if Chinese government want to get the banks moving in the right direction， the legacy problem still be there： a stock of loans they made to the state enterprises， some of which are not going to be paid back. But if they stop financing those state enterprises， then those turn into much more non-performing loans on their books right away. Thus we can see that it is rather complicated matter and will by no means to be solved in the coming future.
Shares of Alibaba rallied by more than 8% in early trading after the company posted quarterly earnings above expectations. Recently， the Chinese ecommerce company reported quarterly sales of $2.8 billion， a 45% increase from the previous year， beating the estimate for $2.6 billion according to Bloomberg.
The company posted adjusted earn- ings per share of$0.48， beating the estimate for$0.42.“Alibaba had a strong quarter with significant growth across our key operating metrics，” said Jonathan Lu， Chief Executive Officer of Alibaba Group in the release. “We grew revenue， gross merchandise volume and annual active buyers， and we expanded our unrivaled leadership position in mobile.”
The company also announced Daniel Zhang as its new CEO， replacing Jonathan Lu.In an earnings preview， Morgan Stanley analysts noted a recent speech by Alibaba Jack Ma in which he said said he expects a headcount freeze in 2015.That could be interpreted to mean the company expects its earnings to be strained， the analysts said.
The company has also been rattled by fraud allegations. The Chinese government said Alibaba wasn’t doing enough to crack down on merchants selling fake stuff on Taobao， its biggest online selling platform.
Another report said Alibaba vendors allegedly pay people to buy products and give positive feedback on the site – a practice known as “brushing.”
Latest China data offer more evidence of economic slowdown
A slew of readings on China’s economy in July came in slightly below expectations， offering further evidence of a slowdown in the mainland’s economy.
China’s industrial production grew 6.0 percent on-year in July， compared with expectations for 6.1 percent growth， according to a Reuters poll of 39 analysts， with forecasts ranging from 6.0-6.7 percent. In June， industrial production grew 6.2 percent， according to Reuters.
Retail sales and fixed asset investment also missed expectations slightly. July retail sales grew a respectable 10.2 percent on year， but that was slightly below expectations of a 10.5 percent increase in a Reuters poll.
Fixed asset investment （FAI） for the January-to-July period rose 8.1 percent， missing a Reuters forecast for 8.8 percent and marking the slowest growth since 1999， according to Reuters. Private sector FAI growth just 2.1 percent on-year in the January-to-July period， down from 2.8 percent growth in the first half of the year. After the data’s release， the Australian dollar dropped， falling from around$0.7697 to as low as $0.7667. Australia’s economy has long been dependent on China’s appetite to import its commodities.Julian Evans-Pritchard， China economist at Capital Economics， said the slowing investment growth was of more concern than industrial production. While he saw some signs of strength in industrial production when drilling down to hard data， such as electricity and steel output， the drop in investment growth could portend a sharper slowdown.
“In the long-run， it’s pretty concern- ing to us. The private [investors] are pretty downbeat on prospects，” EvansPritchard said， noting that state borrowers may be crowding private investors out of affordable credit.”Policy makers will have to do more if they want to reverse this trend，” he added， noting that he expects more fiscal easing as the impact of previous rounds of monetary easing appeared a “bit underwhelming.”
China has started bailing out its banks
The murky balance sheets of China’s banks have long spurred fears of an impending crisis， but the clean-up may already be proceeding apace.
“Contrary to prevailing market wis-dom， we believe considerable progress has been made in recognizing and dealing with the problems，” an analyst at Bank of China（BOC）， said after citing analysis of 765 banks on the mainland. “Recapitalization and bailouts have started and made unexpected （and under-appreciated） progress，” he added， research suggested 2015 was the first year since the early 2000s with sizable bank bailouts.
China’s banking sector has long spurred concerns that its non-performing loans were grossly underreported and that lending too often was politically directed into industries with too much capacity. During the global financial crisis， China’s government used the banks to inject stimulus into the broader economy. As a result， debt levels rose sharply among local governments and stateowned companies and the banks now hold high volumes of non-performing loans — a problem that is worsening as industrial profitability falls and debtors struggle to service interest payments.
Besides the debt accumulation is significant and still rising， the asymmetrical progress across the country with provinces with the weakest economic fundamentals （Inner Mongolia， Heilongjiang， Liaoning， etc.） recording the least progress in resolving issues at their local lenders can be a potential threat for the sustainable progressing in the future. Analyst told that if credit continued to expand at two to three times the pace of gross domestic product （GDP） growth， the size of the problem could expand faster than the solution.
China’s stuck between a rock and a hard place on reforms
China has a “significant problem”from its gigantic debt load， but its reform options could make it worse， Eswar Prasad， the former chief of the IMF’s China division， said. Prasad put it that“If they do slow down credit growth very substantially， that’s going to mean a slowdown in overall growth. That could mean even more problems in the banking system.”
Last year， China’s economic growth decelerated to a 25-year low， as improvements in consumption failed to offset a marked slowdown in traditional economic drivers. While China may be trying to tackle the problem by reforming the banking system and retrenching the economy simultaneously， “it’s going to be very difficult to fix the banks and fix the bad debt problem unless they begin at the root， which is the state-owned enterprises ，” he said， noting China has made little progress on reforming SOEs. It is said that China’s banking sector has long spurred concerns that its nonperforming loans （NPLs） were grossly underreported and that lending too often was politically directed into industries with too much capacity.
Even if Chinese government want to get the banks moving in the right direction， the legacy problem still be there： a stock of loans they made to the state enterprises， some of which are not going to be paid back. But if they stop financing those state enterprises， then those turn into much more non-performing loans on their books right away. Thus we can see that it is rather complicated matter and will by no means to be solved in the coming future.