What happened
Many Chinese stocks fell today, as investors digested new economic data in China. There was also a renewed focus on potential incoming trade restrictions that are being considered by the Biden administration.
Shares of the large Chinese tech conglomerate Alibaba (BABA 0.59%) traded roughly 2.6% lower as of 12:30 p.m. ET today. Meanwhile, shares of another large Chinese tech conglomerate JD.Com (JD 6.12%) traded more than 5% lower, while shares of the large Chinese multimedia company Tencent Holdings (TCEHY 2.19%) were down roughly 3.7%.
So what
New data released yesterday confirmed fears among analysts and economists that China's economic growth this year has slowed and the rebound from last year has lost momentum.
Image source: Getty Images.
Gross domestic product (GDP) in the country grew 0.8% in the second quarter of the year from the first quarter and was up 6.3% year over year. The year-over-year growth is actually a nice improvement from the first quarter, which grew 4.5% year over year but came up short of the 7.3% consensus estimate.
China's economy has struggled in many areas including youth unemployment, factory activity, and the country's ailing property market, which is a big contributor to growth. The Chinese government has started to cut interest rates and introduce stimulus measures, but many are worried it won't be enough.
"We expect more stimulus in the weeks ahead to boost infrastructure, stabilize property sales, and support big-ticket goods consumption," said Kathy Li of UBS Global Wealth Management, according to Barrons. "But the policy support is likely to be just enough to get GDP growth on track to achieve the 'around 5%' annual target, instead of jump-starting growth."
China's economy is a big part of the global economy, and many are concerned that weakness in the country could spill over into other economies, as well, particularly in Europe and the critical German economy.
In other news, the Biden Administration's potential new rules that would restrict the sale of certain chips to Chinese companies were also thrust back into the limelight today. Major chipmakers and stakeholders asked the Biden Administration to "refrain from further restrictions" on concerns that it could sap up a key revenue source from major U.S. chipmakers.
However, it seems like the Biden administration is somewhat committed to the changes, which are intended to prevent China from using U.S. technology in a way that would compromise U.S. national security.
"We have been deliberate about getting this right, including through extensive public comment on regulations, and through intensive coordination with allies and partners, the Hill, industry, and other stakeholders," a U.S. National Security Council spokesperson said in a statement.
Now what
The bulk of the move today can be attributed to diminished optimism regarding China's economy, which is an important driver of Chinese stocks. Investors have been concerned for months now that the economic rebound from last year may not be as solid as they initially thought, although perhaps recent stimulus measures will help the cause.
Despite uncertainty regarding the economy, I still think these large Chinese companies like Alibaba, JD.Com, and Tencent have solid long-term potential. All three have established very strong footholds in the country and their perspective industries and should be able to benefit by leveraging artificial intelligence.
