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Chinese Stocks Facing Decline: Alibaba, JD.com, and PDD Holdings Woes of Chinese Stocks: Alibaba, JD.com, and PDD Holdings

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By Ronald Tech

Amidst the backdrop of a long slide in Chinese stocks on Hong Kong and Chinese exchanges, investor confidence seemed to be slipping further. The Chinese stocks with U.S. listings, including Alibaba, JD.com, and PDD Holdings, were dragged down by the overall negative trend in the market. At its lowest point, Alibaba stock was down 4% while JD.com was down 6.6% earlier in the session. Similarly, PDD had given up 3.5%, delivering a disappointing performance despite major U.S. indexes trading higher on the day.

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Volatile Chinese Stock Market

The ongoing slide in Chinese stocks is a result of a combination of factors, including downbeat economic data, concerns about weak consumer demand, a real estate crisis, and underperformance. Notably, China’s reported 5.2% GDP growth in 2023, though strong comparatively, registered as the slowest growth rate in about 30 years. Further exacerbating concerns is the declination of China’s population for the second consecutive year, fueling doubts about the country’s economic growth prowess.

Alibaba and JD.com have been grappling with slow growth since the pandemic, which has led to a substantial drop in their valuations. Despite initially favorable expectations following Alibaba’s plan to spin off noncore businesses like Alibaba Cloud, a setback arose due to the impact of new U.S. chip export rules. Similarly, JD.com struggled with losing market share to competitors like Pinduoduo and Bytedance, while its top-line growth drastically reduced to 1.7% in the third quarter.

On the other hand, PDD Holdings has seen relatively rich success compared to its e-commerce counterparts, JD and Alibaba. The company’s revenue soared by 94% to $9.4 billion in the third quarter, demonstrating robust profit margins and a 52% increase in its stock value over the last year.

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Are the wealthy getting away with not paying their fair share of taxes, or are they carrying an unfair burden? The debate over the top tax bracket rages on as concerns about income inequality and the concentration of wealth at the top of the economic ladder continue to make headlines. Senators Bernie Sanders and Elizabeth Warren have both proposed a wealth tax on the ultra-rich, while even multi-billionaire Warren Buffett has vocally expressed support for the idea, suggesting that it is fair for wealthy Americans to be taxed at a higher rate.

Currently, the top federal income tax rate stands at 37%, applicable to incomes of $539,000 and higher for single taxpayers and $647,850 and higher for couples filing jointly. However, historical data reveals that the top marginal tax rate has been significantly higher in previous eras. In 1944 and 1945, it peaked at a staggering 94%, and in the late 1980s, it hit a low of 28% under former President Ronald Reagan.

Historical Context and Present Day

The taxation of the wealthy has fluctuated significantly throughout U.S. history, demonstrating both higher and lower levels of taxation than the current status. This historical perspective adds complexity to the ongoing debate regarding whether the rich are paying their fair share of taxes. Despite the disputes, recent data from the IRS sheds light on the current tax scenario.

Top 1% Tax Contributions

In 2020, the top 1% of taxpayers—those earning $561,351 or more—contributed a significant 42.3% of the total tax revenue collected. This translates to the top 1% paying more income taxes than the bottom 90% combined. Astonishingly, the top 1% paid a staggering $723 billion in income taxes, while the bottom 90% collectively contributed $450 billion.

State-Level Analysis

Examining the tax burden on the wealthiest individuals at the state level yields interesting findings:

Alabama Minimum income to be considered 1%: $404,560 Average income of the 1%: $1,107,769 Average income tax paid by the 1%: $263,845 Average tax rate of the 1%: 23.82% Alaska Minimum income to be considered 1%: $466,905 Average income of the 1%: $999,772 Average income tax paid by the 1%: $253,754 Average tax rate of the 1%: 25.38% Arizona Minimum income to be considered 1%: $485,146 Average income of the 1%: $1,464,848 Average income tax paid by the 1%: $369,426 Average tax rate of the 1%: 25.22% Arkansas Minimum income to be considered 1%: $387,666 Average income of the 1%: $1,483,925 Average income tax paid by the 1%: $313,266 Average tax rate of the 1%: 21.11% California Minimum income to be considered 1%: $726,188 Average income of the 1%: $2,430,790 Average income tax paid by the 1%: $655,180 Average tax rate of the 1%: 26.95% Colorado Minimum income to be considered 1%: $609,919 Average income of the 1%: $1,799,148 Average income tax paid by the 1%: $465,284 Average tax rate of the 1%: 25.86% Analysis of Minimum Income of the Wealthiest 1% and Average Tax Rates by State Analysis of Minimum Income of the Wealthiest 1% and Average Tax Rates by State

Future Outlook for Chinese Stocks

Foreign investors’ distrust of Chinese stocks does not seem likely to reverse in the immediate future, especially with the ongoing disappointing economic news from the country. Some of these investors have shifted their investments to Japan, indicating a diversion of financial resources. The momentum is evidently against Chinese stocks, posing a challenge for their recovery. The reduced valuations of Alibaba and JD stocks might make them appear cheap to potential investors; however, it would be imprudent to predict a bottom in Chinese stocks, given the persisting uncertainties and headwinds facing these stocks.

Despite the challenges, Pinduoduo seems to be the most promising investment choice among the trio, given its sturdy growth and exposure to international markets through Temu. The company’s ability to withstand the broader market’s pressures thus far reflects its resilience and potential for the future. However, the overarching question remains: will Chinese stocks stage a turnaround, paving the way for renewed investor confidence?

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