China

[tnp20]

The risk of balance sheet recession is real and their lack of serious action to date is puzzling given the rapid deceleration in economy. Not sure what they are waiting on....

 

They have acknowledge the issue and the remedy at the highest level....

 

 

Folks point out the high level of local government debt. Central government debt isnt too bad and its all denominated in their own currency with low inflation and $6T foreign currency reserve (mostly dollar), they have both the fiscal space (to print and spend) and monetary space (low inflation) to stimulate the economy.

 

The issue is timing....analysts have been screening immediate action needed but so far crickets.....other than small interest rate reduction earlier last week.

[zippy1]

Latest book list of bestsellers in China (for first half of June):
In the top 20 bestsellers:
1) there are 7 books written by XJP about XJP's thoughts. They are ranked at 1, 2, 5, 6, 8, 9, 13. These are selected articles by the great leader.
2) there are 5 books about CCP and its 20th party congress. They are ranked at 3, 4, 11, 12, 20 
3) there are 2 books for the preparaton of the political exams in graduate school entrance exam: they are ranked at 10 and 16.
If the bestseller list reflects what the party and populatoin care about, the focus appears not on the economy.

[backtothebeach]

2 hours ago, zippy1 said:

Latest book list of bestsellers in China (for first half of June):
In the top 20 bestsellers:
1) there are 7 books written by XJP about XJP's thoughts. They are ranked at 1, 2, 5, 6, 8, 9, 13. These are selected articles by the great leader.

 

What a genius author he must be! Somehow reminds me of Kim Jong-Il’s amazing golf skills:

 

Associated PressKim Jong-Il never needed a swing coach to master the sport of golf.

Kim shot 38 under, including 11 holes-in-one, at the 7,700-yard championship course at Pyongyang in the VERY FIRST golf round of his life, according to North Korean state media.

 

I would guess that buying XJP’s books is almost mandatory if you are in any kind of oficial position in China. Gives you social credit points.

[Luca]

https://www.bloomberg.com/news/articles/2023-06-29/chinese-chipmaker-asks-suppliers-to-buy-back-banned-gear

 

“Machine suppliers should buy back the equipment and components we have purchased legally if we can’t use them,” Yangtze Memory chairman and acting Chief Executive Officer Chen Nanxiang said in a defiant speech at an industry event in Shanghai on Thursday.

 

Tough times ahead!

 

 

 

Edited July 1, 2023 by Luca

[sleepydragon]

9 hours ago, zippy1 said:

Latest book list of bestsellers in China (for first half of June):
In the top 20 bestsellers:
1) there are 7 books written by XJP about XJP's thoughts. They are ranked at 1, 2, 5, 6, 8, 9, 13. These are selected articles by the great leader.
2) there are 5 books about CCP and its 20th party congress. They are ranked at 3, 4, 11, 12, 20 
3) there are 2 books for the preparaton of the political exams in graduate school entrance exam: they are ranked at 10 and 16.
If the bestseller list reflects what the party and populatoin care about, the focus appears not on the economy.

 

At least number 15 is a history novel, about how people got rid of the previous ruler who ruled Chinese people with iron fists

[sleepydragon]

6 hours ago, backtothebeach said:

What a genius author he must be! Somehow reminds me of Kim Jong-Il’s amazing golf skills:

 

Associated PressKim Jong-Il never needed a swing coach to master the sport of golf.

Kim shot 38 under, including 11 holes-in-one, at the 7,700-yard championship course at Pyongyang in the VERY FIRST golf round of his life, according to North Korean state media.

 

I would guess that buying XJP’s books is almost mandatory if you are in any kind of oficial position in China. Gives you social credit points.

the book rank appears to be genuine. Xi’s book sold a lot people all SOEs, govt, schools are requested to buy them.
one of the book ranked high (#15) is a history book — not a business book but a book of changing dynasty, reflecting people’s thoughts. Xi is in a very dangerous position

[Spekulatius]

7 hours ago, Luca said:

https://www.bloomberg.com/news/articles/2023-06-29/chinese-chipmaker-asks-suppliers-to-buy-back-banned-gear

 

“Machine suppliers should buy back the equipment and components we have purchased legally if we can’t use them,” Yangtze Memory chairman and acting Chief Executive Officer Chen Nanxiang said in a defiant speech at an industry event in Shanghai on Thursday.

 

Tough times ahead!

 

 

 

Asking for your money and getting it are two different things. Why would the tool makers oblige to this request? They are done in China anyways.

Edited July 1, 2023 by Spekulatius

[Spekulatius]

Pretty good podcast on XJP and Putins motivation , similarities and differences:

https://www.foreignaffairs.com/podcasts/what-drives-putin-xi-mao-stalin-kotkin-schell
 

some of the recent podcasts also seem interesting (I only listed to the one above).

[SharperDingaan]

On 6/28/2023 at 7:29 AM, 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.

 

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.

 

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.

 

Those in their fertile years are too exhausted after their regular day, and the families cannot afford to not have both of them working at the same time. Ain't going to be no babies amongst the most educated without some kind of a major structural change; and without change, the future and smaller population rapidly gets progressively 'dumber'. 

 

The obvious solution is to pay for babies; via mortgage payment forgiveness, and a monthly stipend for the first X years of a kids life; have 3 kids with 3 year spacing, and this could go on for X+6 years; not practical in the western world, but well within the capabilities of the current China 'state'.

 

Japan also burned its population pyramid to achieve its miracle, and like China; there were no babies 'cause everyone was both exhausted and expenses were extreme. Today, robots take care of the aged as the young have moved elsewhere, and arguably the culture itself is in danger of extinction. Lesson for China.

 

SD

 

 

[Spekulatius]

On 6/30/2023 at 11:34 PM, zippy1 said:

Latest book list of bestsellers in China (for first half of June):
In the top 20 bestsellers:
1) there are 7 books written by XJP about XJP's thoughts. They are ranked at 1, 2, 5, 6, 8, 9, 13. These are selected articles by the great leader.
2) there are 5 books about CCP and its 20th party congress. They are ranked at 3, 4, 11, 12, 20 
3) there are 2 books for the preparaton of the political exams in graduate school entrance exam: they are ranked at 10 and 16.
If the bestseller list reflects what the party and populatoin care about, the focus appears not on the economy.

My guess is that everybody buys these books and nobody reads them. It’s just something you need to show on  your bookshelf at home or at work to show that you are a good party member.

 

 XJP is a neo Maoist which is a derivative of Leninism basically. Leninism means that the communist party should have the monopoly on power and their nightmare is a repeat of the student protests in the late 80‘s that culminated in the Tiananmen massacre. Note that Russia had similar issues at the same time where the Russian communist party lost their Monopol and power (eventually leading to the Putin autocracy). XJP will do everything to avoid a similar situation because once the CCP loses their grip, it’s likely irreversible.

[Luca]

https://www.bloomberg.com/news/articles/2023-07-03/china-to-restrict-exports-of-metals-critical-to-chip-production

 

China imposed restrictions on exporting two metals that are crucial to parts of the semiconductor, telecommunications and electric-vehicle industries in an escalation of the country’s tit-for-tat trade war on technology with the US and Europe.

[tnp20]

 

This is the correct policy prescription for balance sheet recession. Everyone knows about  risks of falling into a balance sheet recession. Every policy mandarin has read Richard Koo's book. Leadership listens to Liu Yuanchun - he is a highly trusted economist.

 

The disease is known. The medicine has been prescribed. Now only the drugs need to be taken and wait for the effects. If need be the dosage needs to be increased until the disease is in remission. 

 

[Spekulatius]

18 minutes ago, tnp20 said:

 

This is the correct policy prescription for balance sheet recession. Everyone knows about  risks of falling into a balance sheet recession. Every policy mandarin has read Richard Koo's book. Leadership listens to Liu Yuanchun - he is a highly trusted economist.

 

The disease is known. The medicine has been prescribed. Now only the drugs need to be taken and wait for the effects. If need be the dosage needs to be increased until the disease is in remission. 

 

They may have to let go of the Yuan to USD peg if they go down that route. The Yuan had been weak anyways.

[tnp20]

https://www.yahoo.com/news/taiwan-presidential-front-runner-says-010428749.html

 

I maintain my stance that there is no urgency on China's part to go after Taiwan...this issue will go from boil to simmer for the medium term.

 

 

 

[rogermunibond]

A good thread on China and possible hukou reform that would open up domestic consumption demand.

 

https://en.rattibha.com/thread/1676658899892445203

[Spekulatius]

On 7/3/2023 at 1:23 PM, Luca said:

https://www.bloomberg.com/news/articles/2023-07-03/china-to-restrict-exports-of-metals-critical-to-chip-production

 

China imposed restrictions on exporting two metals that are crucial to parts of the semiconductor, telecommunications and electric-vehicle industries in an escalation of the country’s tit-for-tat trade war on technology with the US and Europe.

These elements are commodities that are relatively easy to produce. it just wasn't worth it because the market is fairly small and the Chinese supply was cheap and plentiful.

The West controls many materials and consumables critical for semiconductor manufacturing - think high purity etching, polishing agents and photolithography polymers/ agents. The Chinese produce some of those but for leading edge special materials and sometime high purities are needed that they have to source from the west.

 

I do think it's likely that a retaliatory move along the lines of putting some of the material on an export control list as well, which means that the Chinese can't source them. Other than just the elements that China restricts, the material I am thinking about are high tech materials that are not easy to reverse engineer and it will take the Chinese a long time to get equivalent sources produced domestically.

 

This is not a game that the Chinese can win, imo.

[Parsad]

https://finance.yahoo.com/news/chinese-developer-1-8-billion-024446847.html

 

20% below appraisal value!  Appraisal value is worth less than the paper it's written on in China!  

 

Cheers!

[tnp20]

There is just no demand for land right now...these are usually areas in lower tier cities. Good locations would be snapped up right away. Also depends on what the land was designated for...commercial , industrial or residential.

 

With glut of built and in-progress housing with lack lustre new sales no one is going to bid on land except prime real estate they can sit on. This is to be expected and confirms the realities on the ground.....Housing is stuck and values for full constructed units continue to erode somewhat (but not crash).

 

There is talk of government potentially buying some of this and converting it into low income housing ...especially for lower tier cities. Stabilizing housing is one of their top policy goals in the "fixing the balance sheet recession" plan but its all talk right now, no meaningful action has been taken other than tweaking the 3 red lines and loosening some of the restrictions around first and second homes.

Edited July 6, 2023 by tnp20

[zippy1]

Maybe because Shenzhen has more Tech industries?

https://www.caixinglobal.com/2023-07-06/more-shenzhen-office-space-goes-begging-for-tenants-102072773.html

[Luca]

@cubsfan Why would China unleash a Virus into their own country, killing 100k chinese people, seriously harming their economy, risking huge protests against the government. It doesnt make any sense it all, yeah maybe it was a lab error but that this was a Intelligence Operation to harm the "world" is unsubstantiated and a crazy claim. Although the US likes to throw these words around to make other people afraid of china, worked pretty well in their favour. 

[Spekulatius]

1 minute ago, Luca said:

@cubsfan Why would China unleash a Virus into their own country, killing 100k chinese people, seriously harming their economy, risking huge protests against the government. It doesnt make any sense it all, yeah maybe it was a lab error but that this was a Intelligence Operation to harm the "world" is unsubstantiated and a crazy claim. Although the US likes to throw these words around to make other people afraid of china, worked pretty well in their favour. 

The lab leak hypothesis does not imply the release was deliberate. If COVID-19 indeed was from a lab, it was most likely an accidental release as a consequence of lack of safety measures and perhaps reckless research to begin with.

 

China is not weak either, they have strengths and weaknesses. China is an industrial powerhouse for once. On the other hand, they have a personality cult around a neo Maoist leader who tries to run the country by himself now., which I don’t think goes into the strength bucket.

 

My simple view, like it or not, is that we are in a Cold War with China, first economically, now politically and in the future perhaps militarily which will be ongoing for decades. If you invest in China and this war gets hot, you will lose all your money, at least as an US or Western European person.

[Luca]

22 minutes ago, Spekulatius said:

The lab leak hypothesis does not imply the release was deliberate. If COVID-19 indeed was from a lab, it was most likely an accidental release as a consequence of lack of safety measures and perhaps reckless research to begin with.

+1

22 minutes ago, Spekulatius said:

China is not weak either, they have strengths and weaknesses. China is an industrial powerhouse for once. On the other hand, they have a personality cult around a neo Maoist leader who tries to run the country by himself now., which I don’t think goes into the strength bucket.

We can only see what happens, I think he will run the country just fine, long term. 

22 minutes ago, Spekulatius said:

 

My simple view, like it or not, is that we are in a Cold War with China, first economically, now politically and in the future perhaps militarily which will be ongoing for decades. If you invest in China and this war gets hot, you will lose all your money, at least as an US or Western European person.

How likely do you think is this scenario, a full-blown military war between the West and China? That would be another World War but with economic consequences of epic proportions. Which stock won't go down if the rockets start flying into the cities, It's also not like Ukraine Russia, they have nuclear weapons...it doesnt make any sense for either the US or China to fight with the military. 

 

China is a huge threat because their economy is and will be much more competitive than any other, they are hard working people, they are at the forefront of science: https://www.science.org/content/article/china-rises-first-place-most-cited-papers, they have their manufacturing in the country and didn't outsource it to some foreign country like the US. Its obvious why they get so much hate, they are a threat for all the business owners in the west who benefitted from cheap asian labor while resting on little competition. That changed and will change harder.

Edited July 7, 2023 by Luca

[Luca]

Disadvantage:

 

It’s not just scale that places the United States at a comparative disadvantage in infrastructure construction. China is better at building, not just domestically but across the globe. Chinese firms dominate the competitive procurement of leading infrastructure lenders such as the World Bank. They won $2.3 billion worth of World Bank–financed infrastructure contracts outside China in 2020, compared to the United States’ $27 million worth of contracts. Of the 20 largest construction contractors, 14 are in China, six are in Europe, and none are in the United States. China owes its dominance partly to government subsidies, but on balance, that’s a good deal for developing countries who are effectively receiving handouts from Chinese taxpayers. U.S. policymakers may claim that Chinese subsidies are unfair, but those complaints will fall on deaf ears in the countries that benefit from China’s largess.

 

Anxiety:

 

But the gravest flaw of B3W is that it appears to be based on the very model of self-dealing capitalism for which the U.S. government has condemned China. The main components of the Biden administration’s strategy for competing economically with China involve subsidies to American companies. USAID spends most of its resources buying goods and services from U.S. firms. The Bipartisan Innovation Act would also provide billions in industry subsidies to ramp up U.S. semiconductor production. Worse, the U.S. response is being copied by its ally the United Kingdom. British Prime Minister Boris Johnson is redirecting aid spending toward programs that use “world-class British expertise,” as the British Foreign Office generously described the approach as part of its aid strategy this past May. Perhaps other G-7 members will follow in their wake: certainly the European Union is looking for ways to disburse billions in subsidies to European firms planning to invest in developing countries.

 

https://www.foreignaffairs.com/articles/united-states/2022-06-22/america-shouldnt-copy-chinas-belt-and-road-initiative?check_logged_in=1&utm_medium=promo_email&utm_source=lo_flows&utm_campaign=registered_user_welcome&utm_term=email_1&utm_content=20230707

[Spekulatius]

The cold war turning hot may not mean direct confrontation between China and the US, it could be by means of a proxy war. Most likely the cause would be around Taiwan, I think, but there could be other point of contact.

In any case, i think if you are western investor in China, and the cold war turns hot for whatever reason, you are looking at a zero here. If you invested in Apple, I think you are looking at a 2/3 loss here unless they diversified their supply chain when that unhappy day should come (likely takes a decade from here).

 

As investors, we can have an opinion on how things should be, but it doesn't matter. It is more important to observe. XJP has hardened his stance in foreign politics. Both Republicans and Democrats now regard China as an adversary. XJP has a stated goal to bring Taiwan back into the fold by 2027. US stated that they would defend Taiwan. This is what matters, not what you and I think.

 

China for me is "uninvestible" but that does not mean you can't speculate with Chinese stocks. I would personally keep the timeframe short and be aware of the wipeout risk. Others may have a different view.

[cubsfan]

You can apologize for China all you like. I’m simply saying China has proven their danger to the world. They are not at all apologetic about the disastrous lab leak. They said it originated from wet markets, and stymied all efforts to identify the true origin. China is definitely a world power and a dangerous one at that. Uncontrollable biological weapons tells you what you need to know.

 

Make all the excuses you like for them.