China

[Luca]

53 minutes ago, Spekulatius said:

Fixing the birth rates problem in China is very hard and with the economy in the doldrums and youth unemployment exceeding 20% is not going to happen in the near future either.

It wont be solved in the next year but if we look back at our discussion here in a decade, i am quite sure it will look much better. 

53 minutes ago, Spekulatius said:

 

The young generation is screwed by XI Jinping policies (suppressing and controlling tech industry, high housing costs, public school system requiring expensive tutoring to get a good education etc). Not all of it can be blamed on Ci Jinping, but his policies certainly have not been helping.

1. People complain about low wages, expensive tutoring, high living costs.

 

2. People complain about policies that regulate expensive tutoring companies, low wages by JD (forced increase by government), increase in competitive market to prevent monopolies destroying growth.

 

China never does it right according to the west. 

 

Also look at the US, the social isolation, the mental health epidemic, huge student debts and what not. Its just not the full picture and macro orientated. If you believe the government will ruin the country then yeah, sell all china stocks. I dont think their track record shows that though.  

 

Regarding US control of employees (https://www.truthdig.com/articles/noam-chomsky-america-has-built-a-global-dystopia/

 

All of this goes, is moving on to controlling people at work. So by now, there’s the beginning–actually it began in Sweden, but it’s now expanded here–of placing chips in working people with an inducement. If you agree to have a chip inserted then you get, you know, free access to the coffee machine, and you can do all these interesting things, so people do it. But it also controls your actions. Like if you’re in an Amazon warehouse, they already have systems–which is backbreaking work–they’ve worked out the quickest routes between this spot and that spot.

 

And if you’re one of these people racing to try to keep up with a schedule, and you deviate from the route, you get a discredit immediately. You get an instant warning if you take off a little time to say hello to a friend, you get a warning. UPS is using it to control truck drivers. So if you back up when you shouldn’t have, you get a warning. If you stop for a cup of coffee when that wasn’t on your schedule, you get a warning. They’ve, in fact, they claim they’ve increased efficiency; these people internalize all this, and you race to keep to the commands, and they can claim they can now have more deliveries with fewer drivers, and so on.

 

Lots of these things are also happening in China, they are not innocent. The bias against them though is so massive.

 

 

53 minutes ago, Spekulatius said:

 

Japan has a better chance at fixing their demographics than China, because they can boost emigration (which is slowly happening already). China is too large and not many want to move there anyways and more people are going to move out of China than emigrate.

USA has really good PR, its crumbling though if you actually visit New York. Not looking as good as the pictures. They did a really good job making China look like the devil so i give them that. All these articles with Xi Jinping looking like Hitler in Financial Times, New York Post, any other western big newspaper. 

 

U.S. multinationals dominate the world. If they had moved to independent development, we’d see exactly what we’re seeing with China today. It’s moving toward independent development; U.S. is trying to prevent it. The policies, shared bipartisan policies, are to try to prevent Chinese [independent] development. So if China, for example–you know, the mantra is “China’s stealing our jobs.” Is China stealing our jobs? They don’t have a gun to the head of Tim Cook, saying invest here. The U.S. multinationals are losing our jobs. But we don’t want China to develop as an economy.

 

That’s why the bipartisan programs are to prevent China from doing the things that make the economy successful–like industrial policy, to have a state industrial policy. We see that that’s successful; we want them to stop it. Kind of interesting, because that’s–economists and others, if they believe a word they’re saying, ought to be cheering. According to their theories, if the state intervenes in the economy, it’s going to harm the economy. But everyone knows the opposite is true. In fact, we ourselves have a massive state industrial policy. That’s why you have things like computers and the internet and so on, it’s mainly public funding. But we don’t want China to have that, because they’ll be successful, they’ll be out of our control; that we don’t want. That’s what the kind of concern was in the fifties. So I think the imperial model has been very successful. It’s led to a situation in which it’s primarily designed for the benefit of U.S. capital, which has succeeded beyond belief.

 

 

In some way all of those agendas are good for the big western multinationals but if this continues there will be more decoupling as far as it is possible. The US is already doing it themselves, banning Nvidia GPUs soon. Will only take time when there will be problems with Apple. Will be interesting to see who sides with whom, Chinas economy is strong but not as strong as the US yet. 

Edited June 28, 2023 by Luca

[Luca]

Just hoping this will balance out eventually:

 

[Luca]

Huang also worried that Chinese companies, unable to access US products, would start to build their own chips to rival Nvidia's market-leading chips. "If we are deprived of the Chinese market, we don't have a contingency for that," the Nvidia CEO told FT. Most important of all, according to Huang, blocking the US tech industry's access to China would undermine the Chips Act. If losing the Chinese market, the US tech industry would require one-third less capacity, Huang pointed out. "No one is going to need American fabs, we will be swimming in fabs."

 

https://www.digitimes.com/news/a20230628VL203/us-china-chip-ban-ai-chips-nvidia.html

 

This is getting very tense and interesting. 

[tnp20]

This is rather long but is an excellent and balanced piece on China opportunities but also glaring issues.

 

This guy spent 30 years in the National Planning Commission coming up with the goals and execution for nation nth 5 year plan.

 

https://www.pekingnology.com/p/ex-ndrc-officials-comprehensive-review

 

The last paragraph says it all...

 

In summary, to address the structural economic slowdown in China, it is not necessary to solely rely on expanding domestic demand. Stimulating government investment through fiscal stimulus is not sustainable, considering the increasing debt burden of local governments and the limited room for further borrowing. Instead, focusing on supply-side structural reforms, such as addressing regulations in the real estate sector and promoting long-term public rental housing, while encouraging innovation and entrepreneurship, can lead to more efficient and sustainable economic growth. These reforms can also foster the development of new industries, technologies, products, and services. Emphasizing market-oriented reforms, rule-of-law governance, property rights protection, inclusivity, openness, and innovation and entrepreneurship will contribute to overcoming the current economic challenges, aligning with the original intent of China's reform and opening-up policy initiated in 1978. We must unswervingly stick to that route.

 

 

I think author is saying Xi has veered off course and thats not going to be good...we need to get back on the old track....

 

Three-legged stool of capitalism Chinese style is unlikely to work well because:-

(i) rule-of-law governance - no CCP value destroying matras on tech/education, etc

(ii) Openness - Foreigners were blocked access to CHinese equivalent from Bloomberg recently for financial/market data

                        - Access to global uncensored internet so people can make informed decisions and foreigners can easily stay in touch with their famiies

                        - Xi has made china more of a jail - who wants to live in a jail ?

(iii) inclusivity  - Xi prosecution of Uihguyr and tibetan culture , Pushing Han/Mandarin culture as the primary

(iv) Entrepreneurship - stop attacking entrepreneurs , innovation comes from private enterprises, not SOE ...Xi has reversed trend favors SOEs.

 

My point is China has potential, but they also have a lot of structural issues and the ideological Xi is not helping the situation with bad ideas.

 

 

 

Edited June 28, 2023 by tnp20

[sleepydragon]

15 minutes ago, tnp20 said:

This is rather long but is an excellent and balanced piece on China opportunities but also glaring issues.

 

This guy spent 30 years in the National Planning Commission coming up with the goals and execution for nation nth 5 year plan.

 

https://www.pekingnology.com/p/ex-ndrc-officials-comprehensive-review

 

The last paragraph says it all...

 

In summary, to address the structural economic slowdown in China, it is not necessary to solely rely on expanding domestic demand. Stimulating government investment through fiscal stimulus is not sustainable, considering the increasing debt burden of local governments and the limited room for further borrowing. Instead, focusing on supply-side structural reforms, such as addressing regulations in the real estate sector and promoting long-term public rental housing, while encouraging innovation and entrepreneurship, can lead to more efficient and sustainable economic growth. These reforms can also foster the development of new industries, technologies, products, and services. Emphasizing market-oriented reforms, rule-of-law governance, property rights protection, inclusivity, openness, and innovation and entrepreneurship will contribute to overcoming the current economic challenges, aligning with the original intent of China's reform and opening-up policy initiated in 1978. We must unswervingly stick to that route.

 

 

I think author is saying Xi has veered off course and thats not going to be good...we need to get back on the old track....

 

Three-legged stool of capitalism Chinese style is unlikely to work well because:-

(i) rule-of-law governance - no CCP value destroying matras on tech/education, etc

(ii) Openness - Foreigners were blocked access to CHinese equivalent from Bloomberg recently for financial/market data

                        - Access to global uncensored internet so people can make informed decisions and foreigners can easily stay in touch with their famiies

                        - Xi has made china more of a jail - who wants to live in a jail ?

(iii) inclusivity  - Xi prosecution of Uihguyrs , Pushing Han/Mandarin culture as the primary

(iv) Entrepreneurship - stop attacking entrepreneurs , innovation comes from private enterprises, not SOE ...Xi has reversed trend favors SOEs.

 

My point is China has potential, but they also have a lot of structural issues and the ideological Xi is not helping the situation with bad ideas.

 

 

 

I suspect at least some of the bad execution of Xi’s policies is due to his lack of support from people working for him. I suspect sometimes people intentionally make things look bad when carrying out his policies.

 

today there are news that Tencent and Ant will link foreign credit card to their payment systems. Currently a foreigner who travel to China can’t use wechat pay unless he has a Chinese resident ID. My hope is Chinese companies and people keep finding ways to cope with the bad policies.

[crs223]

4 hours ago, Spekulatius said:

young generation is screwed by XI Jinping policies (suppressing and controlling tech industry

 

Can you explain more about this?

 

My understanding is that Xi has 1) restricted video game playing 2) kidnapped Alibaba CEO and held him for ransom to discourage monopolies 3) slapped down Didi ride sharing app (not sure what that was about) 4) suppress speech by using “great firewall” and social scoring system (I think this started before Xi)

 

How did Xi policies screw the younger generation?

 

If he did the opposite of each of those tech policies (or just not implement), would that have helped the younger generation?

 

 

 

Edited June 28, 2023 by crs223

[Spekulatius]

1 hour ago, crs223 said:

 

Can you explain more about this?

 

My understanding is that Xi has 1) restricted video game playing 2) kidnapped Alibaba CEO and held him for ransom to discourage monopolies 3) slapped down Didi ride sharing app (not sure what that was about) 4) suppress speech by using “great firewall” and social scoring system (I think this started before Xi)

 

How did Xi policies screw the younger generation?

 

If he did the opposite of each of those tech policies (or just not implement), would that have helped the younger generation?

 

 

 

He is screwing the younger people by scaring away foreign investments from China (the preferred employer for many younger people) and holding back growth in the tech sector in favor of a more government controlled economy. This makes it harder for younger people to get well paying jobs.

[sleepydragon]

37 minutes ago, Spekulatius said:

He is screwing the younger people by scaring away foreign investments from China (the preferred employer for many younger people) and holding back growth in the tech sector in favor of a more government controlled economy. This makes it harder for younger people to get well paying jobs.

I know someone who lives in China. She was a big fan of CCP, posting CCP flags on her wechat whenever there’s some international news about China. She also worked for baba and her income was very high compared to average Chinese and certainly compare to her parents’ peak earnings.  Then when CCP cracked down on tech firms, she lost her job. Then she found a new job in Shanghai for a company doing HR back office for other companies. Lost her jobs again after a year. Then she found a new job with an IT company but hasn’t been paid for the last 3 months because the IT company’s only customer is the local government who ran out of money to pay the company’s bill . So yeah, she now is very pissed off with the govt and is asking how to buy a VPN account so she can visit oversea internet and play with ChatGPT.

 

 

 

 

[gfp]

So... she lives in China, worked for BABA and an IT company and needs to ask you how to get a VPN???

[tnp20]

2 hours ago, sleepydragon said:

I suspect at least some of the bad execution of Xi’s policies is due to his lack of support from people working for him. I suspect sometimes people intentionally make things look bad when carrying out his policies.

 

Well its several things....

 

(i) Xi is still primarily to blame, not his people.Xi is an ideologue going in the wrong/different direction from the original 1978 opening up intentions. The old direction's destination was what we are more used to in the west. The new Xi direction is trying to take USSR/Maoist style control and bolting it on to capitalism. He still sees value in the old system (if you gut out the failed economic model that didnt work) because he thinks (Waning Huning is his strategic advisor) the West is failing with too much freedom and too much openess, and also threats that poses to the CCP. This is like threading a needle....there arent any successful examples of what he is trying to do and he is dumb because he doesn't realize the openess/inclusivity/freedom/property rights is an integral part of capitalism that you can't pick and choose.

 

(ii) His people are scared shitless. That top down command structure where if you fail to meet Xi's metric (what ever crazy idea he has) your career suffers. They are doing this half-hearted not to piss of Xi. They are not sure what many of his directives actually mean so they err on side of safety and caution resulting in half baked implementation. e.g. Despite crack down on the education sector, black market tuition is back with full force. XI's intention was to lower the financial pressure on average Chinese to get their kids in top schools ...so now instead of the formal education sector now its underground and there is an information black market education sector.

 

(iii) The smart ones are probably actively sabotaging his policies to make him look bad - but I dont have examples of that and it would take a lot of damage and time to remove Xi ...coup is China has a very low probability...best one can hope for is some physical or mental incapacitation.

 

 

[sleepydragon]

37 minutes ago, gfp said:

So... she lives in China, worked for BABA and an IT company and needs to ask you how to get a VPN???

The vpns has be bought online. Apparently she didnt know how to (and never try to) cross the China internet wall before. But now like other out of job young people, everyone is doing it.
 

I don’t know how to buy vpns too, and I have more tech experience than her. 

[Spekulatius]

43 minutes ago, gfp said:

So... she lives in China, worked for BABA and an IT company and needs to ask you how to get a VPN???

Ouch.

[rogermunibond]

I think this discussion is omitting some of the recent events globally and in China that may have influenced the direction of Xi's development.  None of this is original on my part.  I've pulled this from reading various China analysts across the spectrum over the last dozen years.

 

1) GFC - we are all being highly ahistorical in not recognizing how profoundly this event shook the Chinese leadership's idea of what was the right development model for China.  Under Jiang and Hu (1989-2012), China CPC had largely taken it for granted that the US economic model was the right path for them to follow.  After the GFC, and the huge China stimulus in 2012 (?) that helped pull the global economy out of the doldrums of GFC crisis, they went back and re-evaluated this thinking.

 

2) 2012 Succession Turmoil - Bo Xilai and his downfall and the exposure of vast corruption and crime networks was the harbinger of Xi's 2013 anti-corruption campaigns.  However, the bigger issue that was also espoused by Hu was that corruption was a huge threat to CPC legitimacy and rule.  Xi's anti-corruption campaign took out Zhou Yongkang from Jiang's Shanghai clique, it took out General Xu who was basically running various divisions of the PLA as his own money making enterprise.  I think Xi took a page from Bo Xilai who had used a "Red guard" movement to fire up in a populist way Maoist orthodoxy as a way to control CPC politicos in Chongqing, and so he rolled out Xi Jinping thought - basically as a prop to be able to control party members.  What we've seen from Putin is a testament to unchecked corruption in an authoritarian regime.  It leads to chaos and eventual loss of control.

[james22]

6 hours ago, Luca said:

China never does it right according to History. 

 

Corrected for you.

[Spekulatius]

21 hours ago, rogermunibond said:

I think this discussion is omitting some of the recent events globally and in China that may have influenced the direction of Xi's development.  None of this is original on my part.  I've pulled this from reading various China analysts across the spectrum over the last dozen years.

 

1) GFC - we are all being highly ahistorical in not recognizing how profoundly this event shook the Chinese leadership's idea of what was the right development model for China.  Under Jiang and Hu (1989-2012), China CPC had largely taken it for granted that the US economic model was the right path for them to follow.  After the GFC, and the huge China stimulus in 2012 (?) that helped pull the global economy out of the doldrums of GFC crisis, they went back and re-evaluated this thinking.

 

2) 2012 Succession Turmoil - Bo Xilai and his downfall and the exposure of vast corruption and crime networks was the harbinger of Xi's 2013 anti-corruption campaigns.  However, the bigger issue that was also espoused by Hu was that corruption was a huge threat to CPC legitimacy and rule.  Xi's anti-corruption campaign took out Zhou Yongkang from Jiang's Shanghai clique, it took out General Xu who was basically running various divisions of the PLA as his own money making enterprise.  I think Xi took a page from Bo Xilai who had used a "Red guard" movement to fire up in a populist way Maoist orthodoxy as a way to control CPC politicos in Chongqing, and so he rolled out Xi Jinping thought - basically as a prop to be able to control party members.  What we've seen from Putin is a testament to unchecked corruption in an authoritarian regime.  It leads to chaos and eventual loss of control.

That's a good background.

 

Since Putin came up - there is a parallel that his original agenda was about fighting corruption as well. This quickly seems to morph into eliminating political adversaries for both Xi Jinping and Putin.

 

I remember  a significant bear market for luxury business around 2015 when Xi Jinpings first go around with his corruption fighting agenda, which took down the market for ultra luxury cognacs and expensive watches and similar goods in China. I guess this market is back - does it mean corruption came back? I have honestly no idea but it's interesting to see how these things go in cycles.

Edited June 29, 2023 by Spekulatius

[maplevalue]

https://www.bridgewater.com/research-and-insights/most-global-economies-remain-in-disequilibrium-requiring-policy-action

Interesting article from Bridgewater; reiterating that China stands out as having capacity to ease policy (i.e. increase asset prices).

[Spekulatius]

4 minutes ago, maplevalue said:

https://www.bridgewater.com/research-and-insights/most-global-economies-remain-in-disequilibrium-requiring-policy-action

Interesting article from Bridgewater; reiterating that China stands out as having capacity to ease policy (i.e. increase asset prices).

Japan is super interesting right now and not just based on this article.

Cheap stocks, weak currency and mildly inflationary  environment after decades of deflation is an interesting potential infliction point for equities.

 

Much more interesting than China, imo.

[sleepydragon]

42 minutes ago, Spekulatius said:

Japan is super interesting right now and not just based on this article.

Cheap stocks, weak currency and mildly inflationary  environment after decades of deflation is an interesting potential infliction point for equities.

 

Much more interesting than China, imo.

except in Japan people “work” late. They actually stopped working at 4pm, and then just stared at the computer screen till 10pm, then the whole team go to drinks till midnight.

in China, people actually do work past 11 and weekends too. The work ethics of Chinese are unbelievable 

[Spekulatius]

1 hour ago, sleepydragon said:

except in Japan people “work” late. They actually stopped working at 4pm, and then just stared at the computer screen till 10pm, then the whole team go to drinks till midnight.

in China, people actually do work past 11 and weekends too. The work ethics of Chinese are unbelievable 

Even if true, how does it matter for investing purposes. If true such a productivity would be priced in. Mostly the rate of change would matter.

 

I don’t even think it’s generally true. I worked in China at a US company manufacturing sub and the engineer and workers would all work 8-5pm to the point, because that’s when the company bus brought them in and out.

Prior to that (pre GFC) I visited a Chinese company the company I worked for had bought and the strange thing there is that they had a junior looking person looking over the shoulder of the person doing the work for pretty much any job. We jokingly called them “shoulder lookers”. Even the manufacturing workers had these shoulder looking a as well as engineering. We asked about them and they were “in training”. I never seen anything like this.

 

Then you read in articles  that the younger generation in China does not like these 9h work days 6 days a week any more. I am pretty sure what you describe does exist, especially in tech , but I don’t think this is the norm. Even Japan is changing with their late note office culture.

 

In any case, I don’t think these anecdotes are of much values as an investment thesis. In my former job I travelled a lot as I was involved in tool run ins / qualifications and the differences from company to company matter much more than the country or location.

Edited June 28, 2023 by Spekulatius

[crs223]

7 hours ago, Spekulatius said:

He is screwing the younger people by scaring away foreign investments from China (the preferred employer for many younger people) and holding back growth in the tech sector in favor of a more government controlled economy. This makes it harder for younger people to get well paying jobs.

 

I can understand how neutering tech would cost people their jobs (and upset investors).  are you saying it’s a young people problem because the tech Industry mostly hires young people?

[Spekulatius]

15 hours ago, crs223 said:

 

I can understand how neutering tech would cost people their jobs (and upset investors).  are you saying it’s a young people problem because the tech Industry mostly hires young people?

I believe there is a bias for tech to employ younger people and new grads, For employment with foreign companies it’s mostly about language (English mostly ) skills which also favors younger people. In any case, a tough labor market always hits new entrants the hardest and those will be younger people and/or new graduates.

 

Just to give you an idea about the reality in some case. My friends from town here working for an US company which used to operate in China but closed shop there and moved to the Philippines told me a sad story about an female employee there who was pregnant and felt she had to get an abortion due to her loss of job.

 

that’s not the saddest part though - she was afraid she would lose her health insurance (through her job) before she even could get her abortion done. I am not exactly sure about there circumstances there but the public health care in China isn’t exactly great unless you have supplemental insurance ((through employers) or you pay extra.

 

Sad story, but you can see how the birth rates won’t recover unless they fix the youth unemployment, because it’s the younger people who have kids and with 20% unemployment and a bleak outlook that’s not likely to happen.

 

These are all anecdotes, but may give me an idea what’s happening at the micro level and how one things (youth unemployment) ties into another. ( birth rate). FWIW, the birth rate in China has dropped like a stone since COVID-19 and the longer this situation persists, the harder it’s going to reverse, since birth rate trends are very persistent.

.

Edited June 29, 2023 by Spekulatius

[james22]

 

[tnp20]

They have some levers to fight the demographic collapse in the short term - but not long term - its part of the broader structural reforms needed.

 

(i) Remove registration system for big cities - so people can move freely anywhere - this will attract many from the rural farming area to where the jobs are.

 

(ii) Enable older people past retirement age to be able to come back , no forced retirement as is the current system, especially if they are mentally and physically capable to do the job still

        - people can still be productive past 65, move the retirement age up

 

(iii) Automation through AI - many of the factory and even some service jobs can be automated by AI driven robots - China is pushing big into both AI and robotics

 

(iv) Control Social safety net for the elderly so the burden of young supporting old is not too large - China already his pretty miserly pension/social benefits but as the averge middle class income rises, they can control how much of that extra income is transferred to supporting the elderly. - for a while but not long term.

 

My investment case is not China - my investment cases is specific monopoly companies with tremendous moat and great balance sheet with large international exposure - they should so well despite the perhaps long term deteriorating macro/demographic picture long term. I think geopolitics will quite down short term so a 2-5 year horizon is reasonable. Beyond that it remains to be seen but would re-evaluate every year what steps they are taking...I think there will be a sugar rush...and valuation will normalize but the long term gravitational effects will impact valuations longer term and it remains to be seen how they cope with these multiple factors...if Xi continues to make stupid policy decisions ...its game over for China.

 

 

Edited June 29, 2023 by tnp20

[Luca]

 

 

 

Who can blame the chinese government for trying to regulate this space. In many ways similar regulations will come in europe for multinationals and its only a good thing. Blaming the CCP for regulating this sector and that that is the reason young people do not have jobs is too simple. 

[UK]

https://www.bloomberg.com/news/features/2023-06-29/china-economic-rebound-falters-weighed-by-debt-property-slump-little-stimulus?srnd=premium-europe#xj4y7vzkg

https://www.bloomberg.com/news/articles/2023-06-29/inventor-of-balance-sheet-recession-says-china-is-now-in-one