Imports falling. IBM's research team shutting shop. China's most popular consumer companies like Temu seeing revenue misses. Nepal asking China to wipe out a $216 million loan. 

In 2004, it felt like China was doing everything right. It was rising fast as a manufacturing powerhouse, and seeing GDP growth rates of 10-12%. In 2024 however, it feels like everything is going wrong. China's growth has slowed down quite dramatically, and it is facing multiple global crises - chip sanctions from the US, new tariffs and taxes from the EU and other trading partners. 

China's real estate is struggling while unemployment is up. The country's two-decade long strategy of spending heavily on infrastructure and real estate to boost growth, has hit a wall. This kind of spending has a natural limit: what do you do when you have built all the revenue generating airports and flyovers you need? China's local governments have now started building highways and airports in small towns and villages - such as one in Zhangbei, a rural town of 65,000 people. This infrastructure spending, unlike in the past, is not generating growth.  

China's slowdown may feel like an opportunity for other countries like India to step in. In reality though, there is both promise and danger. China has been so closely tied into India's and the world's supply chains, that bad news for China is impacting countries worldwide. Especially in the short term. 

In this week's Analyticks:

A weaker China changes calculations: India and other countries are rethinking policies as China struggles

Screener: Stocks where FIIs are increasing their shareholding, with high future estimates for revenue growth  

As China's own market weakens, it has turned to exports. Not everyone is happy

Even as China overtook the US to become India's top trading partner in FY24, India has also passed the maximum number of anti-dumping orders against China, across sectors like steel, plastic and chemicals. India's anti-dumping orders have also become highly targeted - on items like include printed circuit boards, industrial machinery, and even niche products like telescopic drawer sliders. 

China's worsening domestic market has forced Chinese companies to shift their focus to exports. And thanks to heavy subsidies, Chinese companies are often able to manufacture below cost and export to international markets.

Consider steel. China is easily the world's biggest steel producer, producing more than 1 billion tons a year, over half the world’s output.The decline of China's massive real estate sector however, has resulted in a lot of steel inventory with no buyers.

Domestic demand in China has fallen over 10%, but exports are ballooning as China's producers look desperately for other markets. Chinese steel exports have jumped 20% YoY and are at the highest level since 2016. 

This problem of excess is not just in the steel sector. Consider the beleaguered European auto sector, where Volkswagen, Mercedes etc are facing imports of high numbers of low-cost, high quality Chinese electric vehicles. EU has responded with heavy tariffs on Chinese EVs - MG maker SAIC, and BYD face additional duties of 36.3% and 17% on their exports to the EU.

But for European auto manufacturers, that was not enough. So EU has also now imposed a 9% duty on Chinese-made Teslas. Turkey is also planning tariffs on Chinese EVs, while Indonesia is set to impose import duties of up to 200% on textile products, which are mainly from China.

Countries exporting China's domestic market struggle

Over the past decade, many countries started to export heavily to China's massive domestic market, which welcomed them with open arms. Chinese consumers wanted Audis, BMWs, Prada bags. Now Chinese purses, Prada or otherwise, are zipping shut, and trading partners are feeling the pain. China's imports are declining and are at a four month low. Germany's exports to China fell by nearly 10% last year, and its economy shrunk. 

American companies like Apple, Nike, and Starbucks are all similarly losing steam in China. India's gems and jewellery industry had dismal results in the most recent quarter - China accounts for a third of India's cut and polished diamond exports, and demand has weakened. 

Another factor with falling imports is cultural. Under Xi Jinping, China is increasingly, turning inward. Consider the movies that the Chinese are watching. China is typically a major market for US studios, but this summer, ticket sales fell by 50% year on year. More than 80% of box office revenues this year was instead, from local releases. Hollywood movie Deadpool & Wolverine opened at No. 1 in most countries, but in China it opened at No. 2, behind a Chinese comedy, Successor. 

Now, China wants its money back

The diminishing of China is visible in one other area - lending. China was the world's biggest bilateral lender in 2017. Now as its economy has slowed, it trying to get its money back.

Developing countries around the world owe China around $1.5 trillion. Thanks to projects like the $3.7 billion hydropower station that China funded in Angola, the country's debt to China is nearly 4% of the country's GDP.

One of the countries that is on the hook for billions of dollars in Chinese loans, is Pakistan. Pakistan has laid off an estimated seven million textile workers as it struggles with debt. The government says it cannot afford to keep the textile factories running as it tries to deal with soaring interest payments.  

Many of these economies who borrowed from China are now in financial distress: Chinese government loans have a 2% interest rate compared with the 1.54% norm from the World Bank. On top of this, Chinese lenders also have a penalty interest rate of 8.7% for late payments. The World Bank says that the total value of interest payments of the 75 poorest countries in the world has jumped 4X, and will exceed their combined annual spending on health, education and infrastructure.

From 2008-2021, China accounted for over 40% of global GDP growth. The way China now handles its trade and lending relationships as it slows down, is going to be key, so that it doesn't drag the world economy down with it.  

Screener: Stocks where FIIs are increasing their shareholding with high Trendlyne Forecaster estimates for YoY revenue growth

FIIs increase stake in the banking and software sectors

As Q1FY25 results season has ended, we take a look at the stocks that were the top picks for foreign institutional investors (FIIs), which also have strong YoY growth estimates for revenue in Q2FY25. This screener shows companies increasing FII holding QoQ in Q1FY25 and high Trendlyne Forecaster estimates for revenue YoY growth in Q2FY25.

The screener is dominated by stocks from the banking & finance, software & services, pharmaceuticals & biotechnology, consumer durables, and automobiles & auto components sectors. Major stocks that appear in the screener are Indus Towers, Coforge, KFIN Technologies, Yes Bank, MphasiS, RBL Bank, Gland Pharma, and Craftsman Automation.

Coforge shows up in the screener with its FII holding increasing by 6.4 percentage points QoQ in Q1FY25. Major funds which bought stake in the company are New World Fund (bought a 1.5% stake), and Smallcap World Fund (bought a 0.4% stake). The company also has a Forecaster estimated revenue growth of 24.9% YoY for Q2FY25. Dolat Capital believes that the IT company is well positioned for revenue growth owing to its multiple contract wins in the breadth-first search algorithm (BFS) and insurance segments, and increased contribution from its acquisitions of Cigniti and OptML.

KFIN Technologies’ FII holding grew by 6.1 percentage points QoQ in the past quarter. The most notable buyers of the company’s stock were Employees Provident Fund Board (bought 1.5% stake), The India Fund (bought 1.2% stake), and Aberdeen New India Investment Trust (bought 1.1% stake). Trendlyne’s Forecaster expects the company’s revenue to grow by 27% YoY in Q2FY25. ICICI Securities expects the company’s revenue to grow on the back of improving equity mix in mutual funds assets under management (AUM), market share expansion, a strong new listing pipeline in the issuer solutions business, and client wins in its international business. The issuer solutions business provides banking solutions to corporates like banks, mutual funds, and PSUs.

You can find some popular screeners here.