What happened
Wednesday dawned bright for Chinese tech stocks, with shares of e-commerce company Pinduoduo (PDD -0.08%) rising 7% through 10:15 a.m. ET. Online streamers and mobile gaming providers iQIYI (IQ 1.71%) and Bilibili (BILI 0.36%), meanwhile, gained 6.6% and 8%, respectively.
And you can thank Chinese president Xi Jinping for all of that.
Image source: Getty Images.
So what
China's economy grew 4.8% in the first quarter of 2022, which sounds pretty good, but is quite a slowdown from the 8.1% growth shown over the course of 2021, causing some consternation within the Chinese government. Although it didn't expect to repeat last year's feat in 2022, you see, China had been hoping to grow its gross domestic product (GDP) at least 5.5% this year. But instead, the International Monetary Fund predicted China was on course to just maintain 4.8% growth all year long -- and the IMF just cut that prediction as well, to 4.4%.
In an attempt to goose growth rates, therefore, the Chinese president announced on Tuesday a program of "all out" investment in infrastructure to pump money into the economy and force it to grow.
Now what
Well and good, you say, but what does "infrastructure" spending have to do with e-commerce, mobile gaming, and watching videos on the internet? Why -- not to put too fine a point on it -- are Pinduoduo, iQIYI, and Bilibili stocks in particular going up on this news?
Well, it appears Xi has a rather wide interpretation of what constitutes infrastructure spending. In addition to such expected targets for investment as the transportation and utilities sectors, reports CNN, China's president also aims to earmark funds for building "new facilities for supercomputing, cloud computing and artificial intelligence."
In e-commerce and video streaming, algorithms (supercomputing and artificial intelligence) are key to recommending new offerings to customers. And of course, cloud computing is the basis for most of what happens on the web today. Thus, there's at least the potential for each of Pinduoduo, iQIYI, and Bilibili to benefit from some of this envisioned spending. Plus, simply the fact that the government will inject more money into the economy means that there should be more money for Chinese consumers to spend on these companies' products.
All that being said, today's surge in Chinese share prices still seems an overreaction to me -- and I predict these gains will evaporate rather quickly. Investment bank Citigroup thinks government spending will surge 8% under this program, this year. And yet, according to CNN, spending already jumped 8.5% in the first quarter of 2022.
If 8.5% government spending growth wasn't enough to goose GDP higher, I honestly don't see how 8% growth will do any better.
