China

[Haryana]

32 minutes ago, zippy1 said:

My understanding is the unemployment rate reported by Chinese Authorities has a different criterion than those reported by say US or France. France requires a person works 20 hours a week to be counted as employed. I think US uses 15 hours a week as the criterion. China uses one hour per week, yes, 1 hour per week.
For this reason, I am told that it is best to compare Chinese reported numbers across time instead of using them to compare against numbers reported by other countries. 
In addition, this unemployment rate is for Cities and towns only. The rural part of China is not included. There are 700 millions people, roughly half of the population, living in the rural part of China. 
the link to how Chinese calculates this is here:

http://big5.www.gov.cn/gate/big5/www.gov.cn/zhengce/2018-04/18/content_5283601.htm

cheers!

 

Curious to know whether the Chinese also exclude the large % of discouraged workers like it is done in US and Canada? 

 

[zippy1]

1 hour ago, Haryana said:

 

Curious to know whether the Chinese also exclude the large % of discouraged workers like it is done in US and Canada? 

 

Good question… from the link that I posted, they apparently do make the adjustments also.
Anyway, for all these reasons, I was told that it is ok to compare the Chinese unemployment rates between years. However, I should avoid compare these numbers to other countries’ numbers unless I know how to “normalize” these numbers. 
In other words, the trend or the change are probably more meaningful than the absolute numbers.

[Spekulatius]

Just a reminder that China GDP growth data needs to be taken with a large grain of salt. In Martinez study, they seemed one of the biggest offender in juicing their results together with Myanamar

 https://pubdocs.worldbank.org/en/350051528721174623/Nightlights.pdf

 

Their real GDP growth is probably about 1/3 less of what they show in their data, if you believe the nightlight correlation:

 

[Spekulatius]

17 hours ago, Haryana said:

 

Curious to know whether the Chinese also exclude the large % of discouraged workers like it is done in US and Canada? 

 

I don’t know about discouraged workers, but I know for fact that China has issues like

a homeless population. The problem is all related to illegal migrants that just decide to move into cities, even though they are not allowed too (you can’t necessarily move where you want in China).

 

Not sure how large that is and how this has changed, but I was surprised to find a large homeless population of people living in cardboard “houses” under Highway overpasses and bridges when walking in  Suzhou one day because I couldn’t get a taxi. Quite an eye opening experience actually.

 

These are the fallout from illegal migrants who decide to move into larger cities, even though they are not allowed to. Most live illegally with relatives, friends end what not, but some end up being homeless nd make do in cardboard boxes. They are still likely registered in their home cities where they come from.

 

There are all sort of caveat emptors you need to be aware of when you look at Chinese data. This is probably true everywhere, but in China even more so.

Edited June 17, 2023 by Spekulatius

[maplevalue]

Interesting article: https://www.wsj.com/articles/chinas-ev-juggernaut-is-a-warning-for-the-west-1389f718?mod=Searchresults_pos6&page=1

 

"How is China in contention to lead the world’s most lucrative and prestigious consumer goods market, one long dominated by American, European, Japanese and South Korean nameplates? The answer is a unique combination of industrial policy, protectionism and homegrown competitive dynamism. Western policy makers and business leaders are better prepared for the first two than the third. "

 

"When Western auto executives flew in for April’s Shanghai auto show, “they saw a sea of green plates, a sea of Chinese brands,” said Le, referring to the green license plates assigned to clean-energy vehicles in China. “They hear the sounds of the door closing, sit inside and look at the quality of the materials, the fabric or the plastic on the console, that’s the other holy s— moment—they’ve caught up to us.”

"Still, the threat to Western auto market share posed by Chinese EVs is one for which Western policy makers have no obvious answer. “You can shut off your own market and to a certain extent that will shield production for your domestic needs,” said Sebastian. “The question really is, what are you going to do for the global south, countries that are still very happily trading with China?” 

 

[rohitc99]

17 hours ago, Haryana said:

 

That sounds unfair, a simlar argument could easily be made about India as well using just a few India specific stereotypes.

Sure you can say that, unless you are based in India or have invested and understand the country dynamics. Then you can separate the signal from the noise

 

However for me china does not fall in that category. I have no clue how to handicap the geopolitical risks and hence my comment. If one has an intimate knowledge of the country and its dynamics then they have an edge. 

 

We extend that argument to a sector too. If you dont understand the risk, why would you underwrite it?

 

My comment was tongue in cheek and not a reflection on the country or its risk. Its just that if you have to guess and learn based on other people's opinion, then why take that risk?

 

Just my opinion, but same has occurred with fairfax and their investments in africa v/s china. My guess is Prem watsa grew up in India. That definitely gives him a far deeper insight into the country compared to say africa or china ? 

[Spekulatius]

The EV industry in China is hugely competitive and it’s likely they are going to be major players in second / third world countries. They could take away a lot of market shares from Toyota,  VW and the likes. I doubt that they will be allowed to gain much market share in the US. Europe is probably more likely, but any self driving Chinese car is a no no for obvious espionage reasons.

[Haryana]

3 hours ago, rohitc99 said:

My guess is Prem watsa grew up in India. That definitely gives him a far deeper insight into the country compared to say africa or china ? 

Not have to guess, for sure, Prem Watsa grew up in India and passed out of the IIT system, the same brand of engineering

and technology universities in India that Ajit Jain of Berkshire and Sundar Pichai (CEO of Google/Alphabet) came out from. 

 

[Haryana]

3 hours ago, Spekulatius said:

The EV industry in China is hugely competitive and it’s likely they are going to be major players in second / third world countries.

 

Use of the term "third world countries" is quite objectionable.

This term could appear derogatory* to anyone from those places.

 

*https://www.investopedia.com/terms/t/third-world.asp

 

[Spekulatius]

12 hours ago, Haryana said:

 

Use of the term "third world countries" is quite objectionable.

This term could appear derogatory* to anyone from those places.

 

*https://www.investopedia.com/terms/t/third-world.asp

 

Sorry, I had no idea about the derogatory meaning. I literally learned this terminology at school, which was in the 70’s, but this was used way longer. Will use developing nations term henceforth.

 

Sorry if I offended anyone.

[Guest]

On 6/16/2023 at 11:56 PM, Haryana said:

 

Considering that US markets are currently nearing the highs and the Chinese markets are currently nearing the lows, those long term % results can easily flip to other side when compared during near highs of Chinese market and lows of US market.

 

That's fair but if China hasn't outperformed for the last nearly 30 years, why think it will outperform in the future? I mean it's typically easier for a place to have crazy growth when it's small than when it's super large. 

[no_free_lunch]

It is hard to decipher the true growth.  I think sentiment towards China for investors has changed and perhaps the PE multiples too?  I don't have access to the data but if you standardize the PE ratio, I wonder if the returns in China look any different. 

 

Just casually observing, it seems China is not so different from say most European equity baskets over the past 30 years.  Keep in mind the European economy is roughly the size of the US so should be a reasonable comparison.  China equities certainly lags the US over any time span but the US is quite exceptional and doesn't correlate to Europe, China, Canada, etc.  There was a time back in 2010, where the US was market was hideous and almost any other country (China included) had 10-15 year returns that exceeded it.   Basically, this is complicated and while I am personally very cautious on China, I wouldn't write the returns off just yet.

Edited June 18, 2023 by no_free_lunch

[tnp20]

Lot of our views are US/Western centric.

 

Lets assume geopolitics go from boil to simmer back and forth and never normalize as a basic conservative assumption. Yes, it will loose western investors. US investors will be probably more averse than Europeans. But you still have Middle-east soverign funds and much of Asian that is still growing. Granted you wont get investors from India, Japan and Korea as excited but still there will be some flows. About 10-15% of Chinese own stocks. The European and US figures are 30-55%. SO if domestic investors get more excited about their own markets and economy, Chinese markets can propel themselves for decades to come and each 1% adds roughly a $1T in buying power. China is both making it easier for foreign and domestic investor to invest with various schemes (IRA, Yuan counter, etc) already implemented. Long term Chinese need foreign capital and they know it. Domestic investors are also being cajoled into directing their savings from house buying or CDs into stocks and this is likely to be slowly at first but will pick up pace.

 

The hinderance of course is Xi himself.  He hasn't quite figured out how free markets operate. His covid strategy, his attack on tech companies/entrepreneurs his poor strategy on geopolitics and optics of it are all feeding into one big CRISIS OF CONFIDENCE.  Domestic investors and entrepreneurs are shell shocked. They would rather save then spend or invest.  You have a perfect crisis of sorts in China stocks. Many Chinese companies have monopoly like positions with excellent balance sheet and cheap valuation metrics by any measure. You have to pick companies in CHina carefully but this is where the  proverbial "fish" are. Munger may say turds and raisins but he is buying this turd with both hands via Li Lu and Daily Journal.  Few other reputable fund managers are too.

 

There are three classes of China investors:-

 

(i) Wont touch China stocks because they dont like the system no matter what the valuation is - fair enough, your points are likely very valid but I suspect it will play out over longer term not short-medium term.

 

(ii) Hate Xi and geopolitics but like the valuation which is incredibly cheap for select Chinese companies - add 2-5% China stocks to your portfolio . Its either a zero or multi-bagger.

 

(iii) Go with greater conviction on China - but realize that there are gating functions that must be watched and if it fails at any of the gating function, start reducing position. What are the gating functions ?

                              - Confidence collapse is more sustained even with pending stimulus - we have a Japan like situation after their property bubble and weak markets could last 20+ years.

                              - Geopolitics gets worse and it looks like we are willing to suffer very painful decoupling (so far its been de-risking but not true decoupling else Apple , Nike, Starbucks etc would be down big)

                             - Xi's style of "Capitalism with Chinese characteristics" is increasingly too Maoist for foreign and domestic investors

                             - Republicans come to power and ban all investments in Chinese stocks...so watch the language of emerging candidates and their posture towards China - ofcourse there is rhetoric and reality but still...

 

 

Notice I didn't bring Taiwan into this. Invasion of Taiwan will not happen for at least 10 years. Why ?

        -  US and allies hold all the main choke points for oil into China so any war will not last long.

        - China needs time to digest the Ukrainian lesson and reformulate and retool. Chinese navy just isn't experienced enough to take on the US navy at this juncture. As long as they are making threatening noises - no war will actually happen but the minute they stop making noises - something serious has happened - some change in strategy that might include war.

 

 

 

            

                                             - 

 

 

 

 

Edited June 18, 2023 by tnp20

[Spekulatius]

@tnp20 I agree on most everything but I think XI Jinping timeline to gain control of Taiwan is shorter than 10 years. The increased aggression towards the US military presence around Taiwan is new and a strong indication of this and that is what led to to sell TSM. Even if 10 years is correct and China continues to escalate, the market will start to discount this more and more and multiples will suffer.

 

There is no stock in China or Taiwan like PBR-A that pays me out 20% + annually so I get my money back quickly. If there was, I would consider it.

Edited June 19, 2023 by Spekulatius

[tnp20]

These pieces are very good:-

 

https://www.clocktowergroup.com/research-insights/chinasthreetrapsmacrotrilemma

 

https://andrewbatson.com/2023/05/10/xis-new-growth-synthesis/

 

https://www.prcleader.org/

 

 

Edited June 19, 2023 by tnp20

[tnp20]

If your China thesis is correct, Apple is also a sell as ~20% of sales come from China and a very large part of production.

Buffett owns a lot of Apple. Apple's chips are made by TSMC.

 

 

As to war...

China's most recent and significant land wars have been:-

(i) Korean - easier to buttress North Korea - resulted in stalemate

(ii) Tibet - an easy land grab.

(iii) Defense against Japan - was loosing until allies helped

 

They have no history of naval battles or invasion by naval force - which is much harder than land war especially when waters are crawling with allied subs and surface vessels are sitting ducks to barrage of missiles from Taiwan. Think Normandy losses x 100 and there is no surprise factor with satellites and alternative landing zones.

 

As long as we don't box them in, like we did with Japan oil embargo, we leave them with rational but less than optimal options. We left Japan with no options and they acted irrationally with respect to Pearl Harbor so the chances of an irrational act on part of China are much lower but never zero.  CCP wont act until it sees chances of success as 95%. Failure means a neutered China and possible end of the communist party - a risk Xi in particular will not be willing to take. Taiwan is not attacking China so what is the immediacy ? If there is no immediacy, why not aim for absolute certainty when you know time is on your side ?

 

They will not do anything until:-

(i) Technology self-reliance

(ii) EV reduce reliance on oil

 

 

 

Edited June 19, 2023 by tnp20

[Spekulatius]

1 hour ago, tnp20 said:

If your China thesis is correct, Apple is also a sell as ~20% of sales come from China and a very large part of production.

Buffett owns a lot of Apple. Apple's chips are made by TSMC.

 

 

As to war...

China's most recent and significant land wars have been:-

(i) Korean - easier to buttress North Korea - resulted in stalemate

(ii) Tibet - an easy land grab.

(iii) Defense against Japan - was loosing until allies helped

 

They have no history of naval battles or invasion by naval force - which is much harder than land war especially when waters are crawling with allied subs and surface vessels are sitting ducks to barrage of missiles from Taiwan. Think Normandy losses x 100 and there is no surprise factor with satellites and alternative landing zones.

 

As long as we don't box them in, like we did with Japan oil embargo, we leave them with rational but less than optimal options. We left Japan with no options and they acted irrationally with respect to Pearl Harbor so the chances of an irrational act on part of China are much lower but never zero.  CCP wont act until it sees chances of success as 95%. Failure means a neutered China and possible end of the communist party - a risk Xi in particular will not be willing to take. Taiwan is not attacking China so what is the immediacy ? If there is no immediacy, why not aim for absolute certainty when you know time is on your side ?

 

They will not do anything until:-

(i) Technology self-reliance

(ii) EV reduce reliance on oil

 

 

 

I actually agree that Apple is a sell, and so is NVDA etc. Apple has the biggest problems because their entire supply chain is housed in China, it’s not just the chips from TSM in Taiwan. It will take them a decade to move it out of China to the extend that being cut of from China still allows them to supply the rest of the world with their products 

 

I am not so optimistic on Chinas economy and think they are close to peaking and who knows what self imposed factors are at play here when an autocrat can call the shots. Xi Jinping could be sick and feel he needs to do something while he can. Or one of their military maneuvers go wrong and rockets end up on Taiwan i stead of lying over or worse on an U.S. warship or an airplane gets shot down and things escalate from there. It is just a matter of time when you play it that close.

 

Maybe nothing will happen for the next 10 years - I sincerely hope so. Even without direct exposure, the fallout from having to totally decouple from China would be severe. 

Edited June 19, 2023 by Spekulatius

[crs223]

4 hours ago, tnp20 said:

Xi himself.  He hasn't quite figured out how free markets operate.

 

 

I don't see why Xi has to figure out how the US does things in order to lead his country.

 

Even so, I doubt Xi is dumb or otherwise incapable of understanding any complex topic, including "how the free markets operate".

[crs223]

2 hours ago, Spekulatius said:

Xi Jinping could be sick

 

Sick too?  And dumb.  Country in secular decline.

 

US military, government, and intelligence agencies are wasting a lot of time with all these chip bans, spy plane incursions, and Taiwan antagonism.

[crs223]

I find these arguments hard to take seriously:

• Chinese leadership is dumb/sick and will destroy the country
• Chinese is in secular decline (US wouldn't be worried ifs this were true)
• Chinese leadership doesn't change (they turn on a dime -- Jack Ma's kidnapping, one-child-policy, COVID lockdown/reopen)

 

I believe these arguments:

• China demographics will be a problem
• Nobody wants to move to China (how can they prosper if they cannot attract talent?)

 

Edited June 19, 2023 by crs223

[Castanza]

On 6/17/2023 at 11:13 AM, Spekulatius said:

I don’t know about discouraged workers, but I know for fact that China has issues like

a homeless population. The problem is all related to illegal migrants that just decide to move into cities, even though they are not allowed too (you can’t necessarily move where you want in China).

 

Not sure how large that is and how this has changed, but I was surprised to find a large homeless population of people living in cardboard “houses” under Highway overpasses and bridges when walking in  Suzhou one day because I couldn’t get a taxi. Quite an eye opening experience actually.

 

These are the fallout from illegal migrants who decide to move into larger cities, even though they are not allowed to. Most live illegally with relatives, friends end what not, but some end up being homeless nd make do in cardboard boxes. They are still likely registered in their home cities where they come from.

 

There are all sort of caveat emptors you need to be aware of when you look at Chinese data. This is probably true everywhere, but in China even more so.

Sounds like the US tbh. A lot of areas in the US are worse than third world countries. 

[Luca]

https://www.ft.com/content/d0b94966-d6fa-4042-a918-37e71eb7282e

Western manufacturers will be able to de-risk their operations in China but will find it impossible to cut ties completely with the country, according to the head of one of the US’s largest aerospace and defence companies.

 

Greg Hayes, chief executive of Raytheon, said the company had “several thousand suppliers in China and decoupling . . . is impossible”.

 

“We can de-risk but not decouple,” Hayes told the Financial Times in an interview, adding that he believed this to be the case “for everybody”.

“Think about the $500bn of trade that goes from China to the US every year. More than 95 per cent of rare earth materials or metals come from, or are processed in, China. There is no alternative,” said Hayes.

 

 

Edited June 21, 2023 by Luca

[Luca]

 

Interesting Graph from Bridgewater associates.

[Castanza]

16 hours ago, Luca said:

https://www.ft.com/content/d0b94966-d6fa-4042-a918-37e71eb7282e

Western manufacturers will be able to de-risk their operations in China but will find it impossible to cut ties completely with the country, according to the head of one of the US’s largest aerospace and defence companies.

 

Greg Hayes, chief executive of Raytheon, said the company had “several thousand suppliers in China and decoupling . . . is impossible”.

 

“We can de-risk but not decouple,” Hayes told the Financial Times in an interview, adding that he believed this to be the case “for everybody”.

“Think about the $500bn of trade that goes from China to the US every year. More than 95 per cent of rare earth materials or metals come from, or are processed in, China. There is no alternative,” said Hayes.

 

 

 

China likes to control the resources and the shovels needed to extract the resources. Both literally and figuratively. Take a look at the Congo and who owns the majority of those mines. Who moved into Afghanistan right after the US pulled out (likely for the lithium). Who's buying up shipping ports in distressed countries? It's a real problem for the Western world. The leadership of 80% of the Western World has been straight dogshit US, UK, Germany, France, Australia, NZ, Canada, EU countries. Utter garage. There is not a single leader I can look at and be like "Yeah, that's a person who instills confidence and is inspiring or making moves that will benefit the US down the line." 

 

When I look at Xi I see a guy who is laser focused on getting his country on the same page. A guy who has initiative and direction. Both in scope of high level and granular level stuff. I might not agree with the approach or methods used; but nobody can deny it. He might not be successful there are certainly a lot of negatives to deal with in China. But I can tell you this......He isn't spending his press conferences discussing his favorite ice cream flavor, inviting smooth brain celebrities to the Zhonghai, or discussing his childhood adventures or taking credit for job creation coming out of a global lockdown.....

 

There are a few niche areas the West still has the advantage in. Fortunately they are key areas, but they are under constant onslaught. 

 

________________________

 

Discussing investing in China is one thing. I don't do it personally. 

 

Discussing the changing world order is another. On this front, China is playing 4-D chess while the West is on their heels. 

[Luca]

Just now, Castanza said:

 

China likes to control the resources and the shovels needed to extract the resources. Both literally and figuratively. Take a look at the Congo and who owns the majority of those mines. Who moved into Afghanistan right after the US pulled out (likely for the lithium). Who's buying up shipping ports in distressed countries? It's a real problem for the Western world. The leadership of 80% of the Western World has been straight dogshit US, UK, Germany, France, Australia, NZ, Canada, EU countries. Utter garage. There is not a single leader I can look at and be like "Yeah, that's a person who instills confidence and is inspiring or making moves that will benefit the US down the line." 

 

When I look at Xi I see a guy who is laser focused on getting his country on the same page. A guy who has initiative and direction. Both in scope of high level and granular level stuff. I might not agree with the approach or methods used; but nobody can deny it. He might not be successful there are certainly a lot of negatives to deal with in China. But I can tell you this......He isn't spending his press conferences discussing his favorite ice cream flavor, inviting smooth brain celebrities to the Zhonghai, or discussing his childhood adventures or taking credit for job creation coming out of a global lockdown.....

 

There are a few niche areas the West still has the advantage in. Fortunately they are key areas, but they are under constant onslaught. 

 

________________________

 

Discussing investing in China is one thing. I don't do it personally. 

 

Discussing the changing world order is another. On this front, China is playing 4-D chess while the West is on their heels. 

Couldnt agree more.