China

[james22]

Xi Jinping failed to show up for a planned speech. Did anything extraordinary happen yesterday that might have unavoidably pulled Xi away from his duties? Maybe?

 

https://hotair.com/john-s-2/2023/08/23/what-happened-to-xi-jinping-at-the-brics-summit-n573100

[zippy1]

1 hour ago, hillfronter83 said:

"Too young, too simple. Sometime naive!" 

The famous quote of Jiang Zemin!

[UK]

https://www.bloomberg.com/news/articles/2023-08-24/china-local-government-debt-has-investors-worried-about-bond-defaults?srnd=premium-europe

 

But these fixes were not Beijing’s first choice. It set in motion a plan before the pandemic to inject state-owned assets into the companies and permit them to enter new business areas to generate enough cash to service debt on their own. This was known as the “market-oriented transformation” model.

...

For example, Guizhou province is home to some of the country’s most financially strained LGFVs, yet owns the country’s second-largest company by market value: liquor producer Kweichow Moutai Co., worth about 2.23 trillion yuan. The company was pressured into buying a stake in a local road-building LGFV when it ran into financial trouble in 2020. Moutai shareholders, which include investment funds and retail investors, were not happy, and have resisted further cash injections.

[UK]

https://www.bloomberg.com/news/articles/2023-08-23/china-real-estate-market-crisis-is-another-mess-for-xi-jinping?srnd=premium-europe

 

Three years ago, China cracked down on a booming real estate sector to reduce risk and make homes more affordable—part of President Xi Jinping’s “common prosperity” drive.

 

Beijing may have gone too far, it now seems. Country Garden Holdings Co., a developer that was once a pillar of the industry, is on the verge of default, suggesting no company is too big to fail. There are signs the situation is spiraling, too. More developers are on the brink, home prices are collapsing in smaller cities, and fears of contagion have spread to the nation’s $60 trillion financial system. When shadow bank Zhongrong International Trust Co. missed payments on dozens of high-yield investment products this month, investors protested outside its headquarters in the Chinese capital.

 

“Property booms and busts are typically extreme but especially in China’s case,” says George Magnus, author of Red Flags: Why Xi’s China Is in Jeopardy. “The sector is so big in relation to the economy and so significant in terms of household savings and confidence.”

...

While the property woes have spread to China’s giant commercial banks—the amount of soured real estate loans at the 10 biggest lenders will likely soar to $120 billion next year assuming the rate of nonperforming loans triples from 2022, according to Bloomberg Intelligence—the bigger concern is falling home prices. Official statistics show a steady drip of monthly declines of less than 1%; reports on the ground from agents show drops of 15% or more in some areas over the last two years. Even though it helps Beijing’s affordability push, the dropping home values have shattered consumer confidence. After years of price gains, Chinese consumers had come to see real estate as a can’t-miss investment, prompting some to buy multiple apartments to profit from the rally. For those who borrowed to do so, paying their expensive mortgages will make less and less sense the lower property values go.

...

“With luck, and robust policymaking, China might transition to a less real-estate-dependent economy in the coming decade,” says Red Flags author Magnus. “But it could also be a very messy process and entail financial instability and economic and social disruption.”

 

 

Edited August 24, 2023 by UK

[Luke]

[Luke]

https://www.theguardian.com/business/2023/aug/24/five-brics-nations-announce-admission-of-six-new-countries-to-bloc

 

 

Brics to admit six new countries to bloc including Iran and Saudi Arabia

 

Edited August 24, 2023 by Luca

[Luke]

And focus on the hypocrisy and onesided view of the media again, in Russia you get shot down by an Airplane. In the US you will get the Snowden and Assange treatment. But russia gets the news flow and the big headlines while assanges treatment did get critiques but its different. 

 

"He faces a real risk of serious human rights violations including possible detention conditions that would amount to torture and other ill-treatment (such as prolonged solitary confinement). The fact that he was the target of a negative public campaign by US officials at the highest levels undermines his right to be presumed innocent and puts him at risk of an unfair trial."

Edited August 24, 2023 by Luca

[Luke]

But despite differences, Brics leaders expressed a common belief that the international system was dominated by western states and institutions and was not serving the interests of developing nations.

 

Nearly two dozen countries had formally applied to join the club from across the “global south”, a broad term referring to non-western nations.

About 50 other heads of state and government attended the summit, underscoring what Brics leaders say is the attractiveness of its message.

 

“This membership expansion is historic,” said the Chinese president, Xi Jinping, whose country is the most powerful in the group of non-western states that represents a quarter of the world’s economy. “The expansion is also a new starting point for Brics cooperation. It will bring new vigour to the Brics cooperation mechanism and further strengthen the force for world peace and development.”

 

 

The Brazilian president, Luiz Inácio Lula da Silva, said with the admission of six new members, the bloc would represent 46% of the world’s population and an even greater share of its economic output.

Edited August 24, 2023 by Luca

[Luke]

Its only a matter of time that BRICS turns the world upside down. Cheap energy, cheap labour. They have the potential to turn their economies into strong powerhouses. Africa has nothing to lose too and chinese etc are perfectly willing to work with corrupt or non corrupt leaders and built out their own economic system. Meanwhile the west produces many products and ressources there and resells at high mark up, if things get mixed up here...

 

And tell me about decoupling. Seems like the west gets decoupled by many things too!

Edited August 24, 2023 by Luca

[james22]

Many of the countries now proposing the bric have common interests, not least a dislike of U.S. hegemony. But while the enemy of my enemy may be my friend, a successful BRICS needs more than that. It needs genuine aims, rules and commitment. No amount of backslapping and fist-pumping will change that.

 

India sees China as a strategic rival. It is aggressively positioning itself as a palatable alternative to China for manufacturing. Meanwhile, the skirmishes between India and China on the Tibetan plateau have turned more deadly. If China is promoting a BRICS concept as cover for Chinese hegemony, India is determined to use that same organization to block Chinese influence. Saudi Arabia and Iran feel the same way about each other.

 

South Africa is rapidly becoming a failed state. Its power crisis threatens value-added exports. How can the country possibly lead any alliance? Mexico? Every Mexican company I talk to tells me how it is expanding in the United States.

 

Brazil’s President, Luiz Inacio Lula da Silva, recently lamented, “Every night, I ask myself why all countries have to base their trade on the dollar.”

 

Simple answer: Brazilian mining giant Vale SA can sell iron ore to China in Chinese yuan, or renminbi (RMB), all it wants, but what would it do with those RMB afterwards? Vale’s debts are all in U.S. dollars. The heavy construction equipment the company uses is often built by Caterpillar Inc. or Japan’s Komatsu Ltd., so Vale needs dollars and yen to buy it. RMB is valueless for Vale’s operations in Sudbury or Sulawesi (part of Indonesia).

 

Meanwhile, China has bought considerable influence outside of BRICS via its “One Belt, One Road” initiative, which invests in more than 150 countries. Why would China give that influence away to others via BRICS?

 

https://www.theglobeandmail.com/business/commentary/article-russia-china-brics-west/

[Luke]

15 minutes ago, james22 said:

Many of the countries now proposing the bric have common interests, not least a dislike of U.S. hegemony. But while the enemy of my enemy may be my friend, a successful BRICS needs more than that. It needs genuine aims, rules and commitment. No amount of backslapping and fist-pumping will change that.

 

India sees China as a strategic rival. It is aggressively positioning itself as a palatable alternative to China for manufacturing. Meanwhile, the skirmishes between India and China on the Tibetan plateau have turned more deadly. If China is promoting a BRICS concept as cover for Chinese hegemony, India is determined to use that same organization to block Chinese influence. Saudi Arabia and Iran feel the same way about each other.

 

South Africa is rapidly becoming a failed state. Its power crisis threatens value-added exports. How can the country possibly lead any alliance? Mexico? Every Mexican company I talk to tells me how it is expanding in the United States.

 

Brazil’s President, Luiz Inacio Lula da Silva, recently lamented, “Every night, I ask myself why all countries have to base their trade on the dollar.”

 

Simple answer: Brazilian mining giant Vale SA can sell iron ore to China in Chinese yuan, or renminbi (RMB), all it wants, but what would it do with those RMB afterwards? Vale’s debts are all in U.S. dollars. The heavy construction equipment the company uses is often built by Caterpillar Inc. or Japan’s Komatsu Ltd., so Vale needs dollars and yen to buy it. RMB is valueless for Vale’s operations in Sudbury or Sulawesi (part of Indonesia).

 

Meanwhile, China has bought considerable influence outside of BRICS via its “One Belt, One Road” initiative, which invests in more than 150 countries. Why would China give that influence away to others via BRICS?

 

https://www.theglobeandmail.com/business/commentary/article-russia-china-brics-west/

It wont be an immediate game changer and those countries have their own problems as does the US, France etc. But its one hell of a signal to build this alliance in the first place and to say this will "fail" without the alliance having even started is more than funny! 

[backtothebeach]

It's like bunch of thugs banding together to rob a bank, and secretly each of them is planning to kill all the others and keep the booty for themselves.
 

Edited August 24, 2023 by backtothebeach

[Haryana]

 

 

 

[UK]

4 hours ago, Haryana said:

 

 

 

 

https://www.bloomberg.com/news/articles/2023-08-24/modi-xi-speak-ask-officials-to-resolve-border-dispute-quickly

 

India has discouraged its companies from trading with — and investing in — China, banned some mobile phone applications developed by its neighbor and cut back on the issuing of visas to Chinese nationals. The border dispute has eroded India’s trust in China and undermined public and political will to maintain relations, India’s National Security Adviser Ajit Doval told his Chinese counterpart and Foreign Minister Wang Yi on the sidelines of a BRICS meeting in July, according to a Ministry of External Affairs statement.

[Haryana]

7 minutes ago, UK said:

 

https://www.bloomberg.com/news/articles/2023-08-24/modi-xi-speak-ask-officials-to-resolve-border-dispute-quickly

 

India has discouraged its companies from trading with — and investing in — China, banned some mobile phone applications developed by its neighbor and cut back on the issuing of visas to Chinese nationals. The border dispute has eroded India’s trust in China and undermined public and political will to maintain relations, India’s National Security Adviser Ajit Doval told his Chinese counterpart and Foreign Minister Wang Yi on the sidelines of a BRICS meeting in July, according to a Ministry of External Affairs statement.

 

Conflicts and cooperation will continue in cycles. Even the most cuddly neighbours of the world, Canada and USA have had recent moments of intensity during the lumber dispute and the rewrite of NAFTA by Trump. Not to mention the glorification of the War of 1812 by the Harper government when the great Canadian warriors burnt down the White House to black soot.

https://ncph.org/history-at-work/remanufacturing-1812/

[UK]

5 minutes ago, Haryana said:

 

Conflicts and cooperation will continue in cycles. Even the most cuddly neighbours of the world, Canada and USA have had recent moments of intensity during the lumber dispute and the rewrite of NAFTA by Trump. Not to mention the glorification of the War of 1812 by the Harper government when the great Canadian warriors burnt down the White House to black soot.

https://ncph.org/history-at-work/remanufacturing-1812/

 

Sure, but this happened more than 200 years ago, I agree, that things could change with India and China too, but I do not have such a long horizon:). 

[Haryana]

4 minutes ago, UK said:

 

Sure, but this happened more than 200 years ago, I agree, that things could change with India and China too, but I do not have such a long horizon:). 

 

The glorification of the War of 1812 happened just 10 years ago and a resurgent Trump could retrample NAFTA and NATO.

 

[UK]

33 minutes ago, Haryana said:

 

The glorification of the War of 1812 happened just 10 years ago and a resurgent Trump could retrample NAFTA and NATO.

 

 

I agree, the thing with NATO could be really scary, especially for me:). But how it would improve relations between India and China? Really I do not have any idea how to foresee such things and more importantly how to profit from them, even if forecast is right. All I see is really attractive opportunity on a micro level with Tencent via Prosus, but just think (or am afraid) at this time it is to difficult to make such investment, especially in larger size, due too all this geopolitical/political issues, which are still not going to the right direction, to say the least. I hope this will change. 

 

Edited August 25, 2023 by UK

[Viking]

On 8/23/2023 at 11:23 AM, Spekulatius said:

Why do think birth rates will accelerate? Making this happen is not small feat and the youth unemployment suggests it will get worse near term.

 

Anyways, here is a good podcast on that matter:

https://www.bloomberg.com/news/articles/2023-08-21/the-deep-problems-underlying-china-s-economy?srnd=oddlots#xj4y7vzkg

 

The follow mentions 4 d's that impact the Chinese economy - demand, debt, demographics and decoupling.

Another interesting quote - The Chinese party thinks they are in charge of capital allocation for the Chinese economy.

 

So, no stimy checks, we build more infrastructure because they serve as monuments for the CCP as well.

@Spekulatius that is a great podcast on the current state of China. It was a very sober discussion - the CCP certainly looks like it has its hands full. I love the historical perspective the guest offers (so important when trying to understand China). i also found this comment at the end quite illuminating:

 

“The fundamental tension… for years the CCP justified its control (of society) by promising economic growth so you have that social contract. But I think the difficulty is what if that control is coming now at the expense of economic growth. If a lot of the currently difficulties are in fact, a political economy problem then I think it raises that question and becomes extremely tricky for the CCP to actually navigate.”

 

The discussion around the massive sovereign wealth funds (China, Saudi Arabia etc) was also very interesting. They limit the autocratic regimes from doing anything crazy… because the significant assets they own in the West will simply get seized by Western governments. This would be another check on China potentially invading Taiwan.

Edited August 25, 2023 by Viking

[UK]

https://www.bloomberg.com/news/articles/2023-08-25/china-regulator-to-meet-global-investors-in-bid-to-halt-outflows#xj4y7vzkg

 

A top Chinese hedge fund has blamed foreign investors for sinking the stock market. Li Bei, founder of Shanghai Banxia Investment Management Center, said in an article posted on social media platform WeChat that overseas investors have stirred up market volatility and, “taken together, they are a bunch of aimless flies.”

 

[Spekulatius]

@UK Investors are supposed to act like aimless flies and not like a beehive where a queen controls everything. I guess Li Bei does not believe in Adam Smith.

 

 

On another note, do people here look at other stocks than Big tech (Tencent, Alibaba, Bilibili)? The only other stock discussed seems to be Postal Bank.

I have a hard time believing that these super large tech and/or regulated business are the most attractive opportunities in the Chinese stock market, if you think the Chinese stock market represents a secular opportunity? Anything else out there that is smaller and under the radar , pays massive dividends and is cheap and underfollowed? Those would be more interesting for me.

[UK]

8 minutes ago, Spekulatius said:

@UK Investors are supposed to act like aimless flies and not like a beehive where a queen controls everything. I guess Li Bei does not believe in Adam Smith.

 

I agree and I took no offence after reading this:)

[Luke]

39 minutes ago, Spekulatius said:

@UK Investors are supposed to act like aimless flies and not like a beehive where a queen controls everything. I guess Li Bei does not believe in Adam Smith.

 

 

On another note, do people here look at other stocks than Big tech (Tencent, Alibaba, Bilibili)? The only other stock discussed seems to be Postal Bank.

I have a hard time believing that these super large tech and/or regulated business are the most attractive opportunities in the Chinese stock market, if you think the Chinese stock market represents a secular opportunity? Anything else out there that is smaller and under the radar , pays massive dividends and is cheap and underfollowed? Those would be more interesting for me.

Yes, I started research into Lufax (a thread exists) and Ping An Insurance, the first is more interesting. I'll open a starter into Lufax when HK stock market opens in around 12 hours. And i fully agree with your statement, Big Tech is cheap but there are even better bargains. 

[james22]

 

Executive Summary: 

 

G7 nations are fully developed nations with greater cumulative GDP. All G7 nations have representative governments. BRICS span the range from outright autocracy to flawed republics. Only India has decades of stable representative governance. G7 citizens have a much better standard of living. Their nations are attracting people and talent. They are less corrupt and have more equitable income distribution.

 

BRIC nations are significantly poorer, but their economies have upside potential more than the already fully developed G7 nations. They have over five times the population of the G7, but in addition to being poorer, they live in a less stable civil societies more likely to be prone to internal disruption.

 

The BRIC nations are not really the largest threat to the G7 nations. All G7 nations need to do is improve and have good stewardship of their positions generations worked to build, not import problems or sabotage the economic systems that produced a standard of living and civil society of such grandeur as never seen in human history.

 

https://cdrsalamander.substack.com/p/whos-afraid-of-the-big-bad-brics?

[tnp20]

10 hours ago, Viking said:

“The fundamental tension… for years the CCP justified its control (of society) by promising economic growth so you have that social contract. But I think the difficulty is what if that control is coming now at the expense of economic growth. If a lot of the currently difficulties are in fact, a political economy problem then I think it raises that question and becomes extremely tricky for the CCP to actually navigate.”

 

This is a brilliant comment indeed. Many long time China commentators such as Michael Pettis, Eswar Prasad, George Magnus, Stephen Roach are saying the same thing...China has some really tough decisions on the economy and these are political decisions. They have already started back tracking on a lot of Xi nonsense....but it remains to be seen if they can go the whole hog. XI above all craves stability and control so they can not afford sustained poor economy as that would lead to delegitimizing CCP and riots in the streets.

 

Examples of back tracking...

 

(i) Houses are for living versus now loosening policy to stabilize housing

(ii) Punishing Private business/Entreprenuers that drive most of the innovation and jobs growth and favouring SOE versus now saying Private enterprises are equal to SOE and are vital to China's future.

(iii) Common prosperity crap versus now saying getting rich by being entrepreneur is to be encouraged as that drives growth and employment which benefits society.

(iv) Punishing capital markets versus now encouraging capital markets

 

SO far they are holding firm on major fiscal boost to kick start the consumption part of the economy but that may be coming and they may even mix old unproductive infrastructure spend just to meet the GDP target and a restless population.

 

To me questions and answers are obvious:-

 

(i) What do they need to do and why ?   Avoid instability via economic crisis and malaise (unemployment) to keep CCP in power.

 

(ii) How can they do it ? Various new methods (new tech innovation & Consumption), new methods may take time and be slow but old methods (infrastrcuture ) are effective at boosting GDP and are fast acting but extremely wasteful  - who cares about debt at this point, there is sufficient fiscal space for them to take on more debt (according to all the China followers )- forget local government debt, LGFV debt - central government has space - so just a left pocket, right pocket  thing)

 

(iii) What if economy goes off rails ? Debt is not a problem - its all internal - they can keep pumping money in different areas until it turns ...

 

(iv) What is the right way to do it ?  slow growth, transition, coordination, flexibility and vision

 

(v) What is the best way to play slow growth ?  Be in fast growing sectors within the slow growth economy

 

(vi) Why invest in China at all when you can grow in fast growing sectors in US/West ? Yes by all means its not an either or, its an "and" story....China fast growers are at incredible valuation if you can get past geopolitics.

 

(v) What do I expect out of this ? At a minimum sugar high in about 12-24 months....and may be some long term wins because they are in the right space at the right time....

Edited August 25, 2023 by tnp20