China is also moving up the technological curve in sophisticated areas like mobile processor chips, where it used to be absent. U.S. competitors like Qualcomm Inc and Nvidia Corp are still far ahead, but Chinese companies are increasing their presence in the fast-growing market for chips used in low-end smartphones and tablets. Last month, the Chinese government announced plans to spend almost $5 billion to create a fund to make investments in the country’s microchip industry.
Tencent’s WeChat was ahead of competitors in offering an easy-to-use feature for sending recorded voice messages and it is challenging the dominance of Silicon Valley’s WhatsApp, which has more than 300 million monthly active users globally.
“In handsets or laptops, Chinese tech companies’ global expansion has been much more of a hardware story so far, and I think what’s fascinating about Tencent is that it’s becoming a software and services story,” said Michael Reynal, a portfolio manager at San Francisco-based RS Investments, which has about $27 billion in total assets under management.
Local Broker Insight:
Bank of China – Monetary Policy: We expect the People’s Bank of China (PBOC) will stick with prudent monetary policy, and monetary policy management will become more market-driven. For 2014, the Bank Of China projects M2 growth of about 13.5%, while credit growth will continue to slow, resulting in new loan growth of 9-10 trillion yuan in 2014. Regarding the exchange rate, BOC forecasts the CNY/USD will break 6 at some point in 2014, but not likely to see continued strong appreciation.
CICC – Interest Rates: Rising interest rates have not yet inhibited total demand, and in the short-term, the impact will not be significant. The rising interest rates partly reflect the expansion of demand in the second half of 2014. Rising real estate prices and local government financing platforms are insensitive to interest rates. Thus, the impact on real estate and infrastructure investment will be limited. Rising interest rates are positive for the flow of income from the government and enterprises to residents, supporting private sector consumption.