DOES THE CHINESE DIGITAL INDUSTRY SEE A LIGHT AT THE END OF THE TUNNEL

 

By revenue, Tencent is the world's largest video game company: in 2020 it reported US$22 billion from mobile games and US$7 billion from PC titles.

After months of hard lines against its own tech sector, Chinese authorities appear to be relaxing their stance against an industry that has produced world-class giants. What does the future hold?

The pressure from the Chinese government against its own technology industry seems to be beginning to ease, at least a little.

After months of harsh measures in all areas of the sector, from video games to telecommunications, the Chinese authorities seem to be loosening the accelerator a little in the pressure on this sector, which has produced world-class firms such as Tencent, for example.

The good news is that the main economic indicators appear to have bottomed out, in line with the cyclical upturn in activity that has emerged over the summer. Meanwhile, the cut applied today to the interest rate adds to the stimulus implemented by the authorities. That, ultimately, should be good for the markets.

The performance of the Chinese economy in the 4th quarter of 2021

According to official data, GDP growth slowed to 4% year-on-year in the fourth quarter of last year, from 4.9% in the third quarter. The figure is better than expected: the consensus forecast was for a 3.6% increase, while we expected growth to slow to below 3%

Monthly activity data shows that much of the positive surprise in the fourth quarter came from industry, with growth rising to 4.3% year-on-year in December, sustained by the strong rise in exports. The result shows that the Chinese economy expanded by 8.1% in 2021 as a whole, after powerful base effects boosted the annual growth rate in the first half of last year.

Is there light at the end of the tunnel?

Not everything is pessimism, and the good news is that there is light at the end of the tunnel. Credit impulse, which measures loan growth as a percentage of GDP, and real M1, which represents the value of the most liquid components of the money supply, such as currency in circulation and overnight deposits, increased by december. Historically, these indicators have led activity for close to nine months, suggesting that we will start to see a cyclical upturn in economic activity in the Northern Hemisphere summer.