What happened
Shares of Chinese stocks rallied this week as the Chinese government took steps that showed it is adopting a more lenient regulatory approach and trying to boost economic growth after what was a difficult year in 2022.
For the week, shares of the large Chinese search engine and artificial intelligence company Baidu (BIDU 0.98%) traded more than 15% higher as of 12:47 p.m. ET Thursday, according to data from S&P Global Market Intelligence.
Meanwhile, shares of the Chinese electric carmaker XPeng (XPEV -1.39%) are trading roughly 20% higher, and shares of the Chinese vaping company RLX Technology (RLX 2.19%) were up 17%.
Image source: Getty Images.
So what
Earlier this week, the China Banking and Insurance Regulatory Commission (CBIRC) approved a new capital plan for the consumer finance subsidiary of the massive Chinese conglomerate Ant Group. The approval will enable Ant to raise $1.5 billion for the unit, and Ant will still hold a 50% stake in the company.
In 2020, Ant had sought to do a massive $34.5 billion dual initial public offering, but Chinese regulators stopped it. The People's Bank of China (PBOC) asked Ant Group to restructure its company, which included creating the consumer finance unit and putting more separation between some of its business lines.
"This is a positive start of the steps that Ant Financial needs to go through [with] its restructuring process under the supervision of the CBIRC and PBOC," said Winston Ma, an adjunct professor of law at New York University, according to CNBC.
Typically, approval for expansion signals that a company is in good standing with regulators. Given the size of Ant, investors see this as a positive overall direction for regulators.
Investors also turned bullish this week on rumors that the Chinese government is preparing to provide assistance to developers that have managed to stay healthy despite all the problems in the Chinese real estate sector due to excessive leverage, which has really hurt this important asset class.
The assistance to qualified developers could help improve these companies' balance sheets and favorable treatment on equity financing and lending. According to Bloomberg, the Chinese government is also once again allowing private-equity firms to finance residential properties in an effort to boost home sales and values, which have slumped significantly.
Now what
Chinese stocks as a group are benefiting this week from a somewhat brighter economic outlook and hopes that the Chinese government will continue to take a softer regulatory approach.
A healthier economy where consumers have more money to spend will certainly help the likes of XPeng. For a large tech company like Baidu, which many refer to as the "Google of China," a less-harsh regulatory regime will make it easier for the company to conduct its daily business, while also making large fines less likely.
RLX has already been the target of some tough regulation, with China recently imposing a 36% tax on the production and import of e-cigarettes, so the company doesn't need any more challenges on the regulatory front.
Ultimately, I think Baidu and XPeng are interesting plays here but don't have any interest in RLX as it works through some of its existing regulatory challenges.
