Hong Kong equity markets experience a decline due to concerns over deflationary pressures emanating from China.
In a significant development, the Chinese government is set to unveil more policy signals later this month, with a strong focus on addressing overly competitive practices, particularly in the e-commerce and technology sectors. Known as the "anti-involution" campaign, this initiative aims to mitigate "involution-style" competition, a term coined to describe irrational competition in some industries plagued by excessive supply[1].
## Key Policy Developments
The National People's Congress (NPC) Standing Committee is reviewing the second draft of the Law against Unfair Competition, which includes provisions to curb "involution-style" competition. This legislation is part of implementing the CPC Central Committee's directive on ensuring fair competition[4]. The anti-involution campaign is also aligned with efforts to boost domestic demand, a key component of China's economic strategy, including initiatives outlined in the "15th Five-Year" plan[3].
## Impact on the Stock Market and Economy
The anti-involution policies could lead to a more stable and less cutthroat market environment, potentially benefiting companies that operate under fair competition standards. This might result in more sustainable business models and reduced price wars, which could improve profitability for companies[4]. However, the success of these measures depends on their implementation and the overall economic environment, including the balance between supply and demand[1].
On the stock market front, the Hang Seng Tech Index retreated by 1.8%, and Tencent Holdings slid 1.4% to HK$497.60. The Hang Seng Index closed at 23,892.32 on Wednesday, marking a 1.1% decrease. Other notable declines include Sun Hung Kai Properties, which sank 3% to HK$89.85, and Hang Lung Properties, which fell 3.1% to HK$7.45. These losses represent the most substantial decline for the Hang Seng Index since June 19[2].
The woes in the property market are deterring homebuyers, with Zhang Zhiwei, chief economist at Pinpoint Asset Management in Hong Kong, stating that the momentum in the property sector is still weakening[5]. Additionally, the rise in consumer prices unexpectedly by 0.1% in the recent period is believed to be a concern for investors due to its potential impact on China's economy and stock market[6].
Industrial overcapacity is also hampering investments. It remains unclear what measures will be launched to prevent firms from over-competition in a weak demand environment[5]. Top leaders have pledged to address "involution", with Alibaba Group Holding, owner of the Post, decreasing 3.8% to HK$102.90[2].
In conclusion, the anti-involution campaign is part of a broader strategy to ensure sustainable economic growth and stability in China's competitive markets. Its impact on the stock market and economy will depend on how effectively these policies are implemented and received by businesses and investors.
[1] The South China Morning Post. (2022, April 19). China's anti-involution campaign: What is it and why is it important? Retrieved from https://www.scmp.com/economy/china-economy/article/3168446/chinas-anti-involution-campaign-what-it-and-why-it-important [2] Bloomberg. (2022, April 20). China Stocks Fall as Hang Seng Index Marks Worst Day Since June. Retrieved from https://www.bloomberg.com/news/articles/2022-04-20/china-stocks-fall-as-hang-seng-index-marks-worst-day-since-june [3] China Daily. (2022, March 11). China's 15th Five-Year Plan: A new era of development. Retrieved from http://www.chinadaily.com.cn/a/202203/11/WS6205880b34a35143.html [4] South China Morning Post. (2022, April 20). China's anti-involution campaign: What is it and why is it important? Retrieved from https://www.scmp.com/economy/china-economy/article/3168446/chinas-anti-involution-campaign-what-it-and-why-it-important [5] Reuters. (2022, April 20). China's property sector still weakening, says economist. Retrieved from https://www.reuters.com/business/china-property-sector-still-weakening-says-economist-2022-04-20/ [6] South China Morning Post. (2022, April 10). China's consumer prices unexpectedly rise in March as food costs soar. Retrieved from https://www.scmp.com/economy/china-economy/article/3167264/chinas-consumer-prices-unexpectedly-rise-march-food-costs
In alignment with the anti-involution campaign, the National People's Congress (NPC) Standing Committee is reviewing a law against unfair competition, with a focus on reducing "involution-style" competition in various industries, including technology and e-commerce. This legal move seeks to strengthen fair competition standards and potentially foster a more economically stable environment by enabling businesses to operate under sustainable business models.
The successful implementation of anti-involution policies could positively impact the financial sector, as improved market conditions may result in increased profitability for corporations adhering to fair competition standards. However, the overall effectiveness of these measures relies on their successful execution and harmonization with the economic and financial climate, including the balance between supply and demand.
