Shares of the China-based technology conglomerate Alibaba Group (BABA 4.50%) were gaining ground on Monday after the Chinese government said yesterday that it would implement a plan to boost consumer spending in the country.
A significant part of Alibaba’s business is focused on e-commerce, so the Chinese government’s move could help boost the company’s growth. Investors were optimistic about the opportunity and pushed Alibaba’s stock up 4.8% as of 11:56 a.m. ET today
A new plan for economic growth
China’s government released its Special Action Plan to Boost Consumption on Sunday, highlighting a few areas that could help fuel economic growth. Specifically, the government wants to boost consumer spending, increase domestic demand, and even stabilize its stock market.
The move comes on the heels of data showing China’s economy is slowing down. The country’s consumer price index fell last month by its sharpest decline in more than a year. Its economy could suffer additional shocks if a trade war escalates with the U.S.
Alibaba investors are hoping that the government working to improve consumer demand will help the company’s e-commerce businesses. Its financials are in good shape right now, with net income reaching $6.7 billion in the most recent quarter, ahead of Wall Street’s consensus estimates.
But with China being the world’s second-largest economy, a consumer spending slowdown has had investors on high alert, wondering how much people might cut back in the future.
Uncertainty still ahead
There’s a lot investors are trying to decipher right now. The Trump administration appears very focused on ratcheting up tariffs, even while temporarily pulling back on them at times. Any escalation of a trade war between China and the U.S. could put pressure on Alibaba’s stock.
And while the Chinese government’s announcement sparked optimism among some investors, there’s no guarantee its plans will indeed boost consumer demand. All of this means that Alibaba investors should keep a close eye on any new developments with China’s economy.
