China Market Update: Baidu Releases New AI Model, Week In Review
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Asian equities mostly followed Wall Street higher overnight as Japan and Taiwan outperformed, while India and Singapore underperformed.
The Politburo issued a press release reiterating that it is willing to step in and support the market through its various mechanisms. These include the 'National Team', which refers to investment firms associated with sovereign wealth. It also mentioned supporting consumption, cutting rates at opportune times, and lowering some regulatory barriers. We are likely to see a cut to the reserve requirement ratio (RRR), though we may have to wait for more clarity on tariffs or for the People's Bank of China (PBOC), China's central bank, to gain the confidence necessary to make the cut.
Baidu unveiled a new AI model, ERNIE 4.5 Turbo, overnight. The new large language model (LLM) is being offered at an even lower price point than previous versions. Combined with upgrades, it could offer Baidu a new edge in the ongoing price war between China's LLM and cloud providers, chiefly Tencent, Alibaba, and Baidu. Baidu shares were up in Hong Kong overnight and are trading slightly higher in the US this morning.
Electric vehicle names struggled overnight after Tesla's disappointing earnings, though the China-based players are in a very different situation. Xpeng led declines and is down -3% this morning in US trading.
Mainland media reported that certain semiconductor and technology imports from the US were to be exempted from retaliatory tariffs. Bloomberg reported that China is also mulling exemptions for medical equipment and chemicals, including methane. This makes sense and mirrors the US' move to exempt electronics, as no one wants to pay $2,000 or more for an iPhone. This is more evidence that tariffs will not be sustainable and are likely still opening gambits for negotiations, albeit very strong ones. Alternatively, tariffs could be in place long-term, but with so many exemptions as to make their overall impact. Any long-term tariffs are likely to target specific industries.
After Xi's recent visit to Kenya, China will finance the country's construction of roads and railways. China's Belt & Road Initiative has expanded China's trade with African nations. Trade tensions could give China a new zeal to make deals and increase trade with Africa, which could benefit the infrastructure industry.
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