How Have China's Regulatory Policies and Stimulus Shaped Its Equities for 2022?

    While the US pursues regulatory rate hikes, China has entered a period of easing restrictions. So are Mainland equities prime for growth in 2022?
    While the US pursues regulatory rate hikes, China has entered a period of easing restrictions. So are mainland equities prime for growth in 2022? Photo: Shutterstock
    Megan Gummer at KraneSharesAuthor
      Published   in Macro

    While the US is pursuing regulatory rate hikes, China has entered a period of easing restrictions, with recent loan prime rate cuts and further reserve requirement ratio cuts on the horizon. Those should bode well for Chinese equities, which comprise a sizable part of the luxury index. Simultaneously, they could drive more consumption within China. Meanwhile, the global wave of new regulations on internet companies could soon hit US shores. In December of 2021, the US Senate questioned the CEO of Instagram on the negative impact app algorithms had on children and teenagers. They recognized that stricter government oversight of social media apps in the US was needed.

    Moreover, the extensive liberties US-internet companies like Meta have taken with user data were recently reigned in by Apple through its products, making it more challenging to track users and determine the effectiveness of ads on their platforms. These privacy changes dealt a significant hit to the company, reflected in a historic drop in its stock price that cut over 200 billion from the company's market value after less-than-stellar quarterly earnings.

    Currently, three states in the US have comprehensive consumer privacy laws: California (CCPA and its CPRA amendment), Virginia (VCDPA), and Colorado (ColoPA). Meanwhile, at least four other states — Massachusetts, New York, North Carolina, and Pennsylvania — have comprehensive consumer data privacy proposals in committee right now. If regulators fail to facilitate this restructuring, they could negatively impact the US stock market.

    Unlike in the US, for Chinese companies now operating within a more sustainable and equitable environment from the government's regulatory review, the Year of Tiger looks to be a good one. Much of 2021 was marked by China's comprehensive regulatory overhaul under the banner of "common prosperity," where the government proactively aligned corporate growth with social responsibility. And companies that have improved data privacy and prioritized their users' well-being could benefit from this new regulatory framework. Last September, Alibaba announced it will have invested 15.5 billion into a "common prosperity" fund by 2025.

    Likewise, Tencent pledged 7.7 billion toward this common prosperity pledge. This money will go toward increasing subsidies for small and medium-sized enterprises and improved wages, insurance, and protection for gig-economy workers, such as couriers and ride-hailing drivers. But the new regulations came at a cost to profits for China's internet companies, and now there is not much room for the sector to catch up and improve, ironically, due to a policy geared toward structural health. No longer confined to their so-called "walled gardens," retailers in China should benefit from these more open and competitive e-commerce opportunities. Although some macroeconomic headwinds may persist, China potentially has a leg up compared to US equities now that their regulations have established a stronger foundation following this regulations wave.

    Discover more
    Daily BriefAnalysis, news, and insights delivered to your inbox.