China

[Spekulatius]

@Luca I can imagine this or that but Xi is in power for life and he believes in communism. So I think that’s what we are going to get from China. Communism is not good for shareholder returns. I don’t think it’s much more complicated than that.

[Luca]

29 minutes ago, Spekulatius said:

@Luca I can imagine this or that but Xi is in power for life and he believes in communism. So I think that’s what we are going to get from China. Communism is not good for shareholder returns. I don’t think it’s much more complicated than that.

I disagree, he is not a straight out playbook communist. They are using all the advantages of markets with a top down approach to sometimes place ressources in underdeveloped segments. we never saw something like this system before. nobody knows how successful it will be. All of that combined with some sort of national/socialistic ideology elements, bit like north korea. The original ,,assignment,, of china being the center of the earth. 

 

The game is still playing out, pabrai also said it still might be okay for china investments. 

 

Its going to be an interesting decade. 

[sleepydragon]

2 hours ago, Spekulatius said:

@Luca I can imagine this or that but Xi is in power for life and he believes in communism. So I think that’s what we are going to get from China. Communism is not good for shareholder returns. I don’t think it’s much more complicated than that.

 

Xi is certainly not going to be power for life .

Nobody except 90 year old farmers believe in communism in China nowadays. Xi and other leaders get their beliefs from reading Chinese history - confusious to be read by the people, and Xi reads ZiZhiTongJian

 

[sleepydragon]

https://pcaobus.org/news-events/news-releases/news-release-detail/pcaob-secures-complete-access-to-inspect-investigate-chinese-firms-for-first-time-in-history
 

 

[UK]

https://www.bloomberg.com/news/articles/2022-12-15/us-blacklists-more-china-tech-companies-escalating-trade-fight?srnd=premium-europe

 

There were some positive developments recently, especially on geopolitical rethorics from ccp and then this 180 turn around on covid (not sure how it will end thougt), but it seems that US just escallates more and more. And Chinas RE situation and economy is not getting better at all. Also re shareholder returns, audit solution is great, but what is interesting, that there are no major positive changes on big tech: didi, tencents games, ant ipo anything? So far seems no change on attitude in big tech from ccp?

 

Found this / on big tech: https://www.wsj.com/articles/chinas-leaders-plot-pivot-back-toward-boosting-economy-11671103324?mod=hp_lead_pos7

 

Separately, government officials in recent weeks have begun re-examining policies for the technology and education sectors—two of the hardest-hit targets of recent regulatory campaigns—and are preparing to wrap up long-running investigations against internet companies. One such move would allow ride-hailing company Didi Global Inc.’s mobile apps to be restored to domestic app stores, according to people familiar with the issue.

 

Edited December 15, 2022 by UK

[james22]

13 hours ago, Luca said:

We see chinese imperialism happening every day. The US does the same in every way, maybe they are smarter in hiding it but i dont see big differences. Media biases and what not.

 

Boring.

[Gregmal]

Are they going to abandon their efforts to “flatten the curve”? Remember when we believed that shit? Lol

[UK]

9 hours ago, Gregmal said:

Are they going to abandon their efforts to “flatten the curve”? Remember when we believed that shit? Lol

 

Not sure how will play it but so far:

 

"Anecdotal real-time data point to sharp drops in the use of roads and public transport as fear of the virus constrains activity in much the same way as official lockdowns. The development is a fresh blow to an economy that needs consumer demand to mitigate the chilling effect of a chronic real-estate crisis. It suggests that consumer-facing indicators, such as retail sales, are likely to fall further before herd immunity can kick in."

[UK]

https://www.bloomberg.com/news/articles/2022-12-16/covid-unleashed-in-beijing-shows-rest-of-china-what-comes-next

 

Beijing’s rapidly spreading Covid outbreak has turned the Chinese capital of 22 million people into a virtual ghost town as stores close and restaurants empty, underscoring the cost of President Xi Jinping’s sudden pivot away from Covid Zero. Bucking expectations for a managed and gradual transition, Xi’s government is now allowing the virus to run rampant. While officials have abandoned efforts to track case numbers, anecdotal evidence suggests entire families and offices in Beijing have become infected in the span of just days — a potential harbinger of worse things to come in other parts of China with less-developed health care systems. 

 

Beijing residents are hunkering down at home, either because they’re scared of catching the virus or because they already have it. While many grocery stores are still open to provide essentials, delivery services for food and other goods are facing delays with workers out sick. The retrenchment suggests China’s economy is likely to get worse before the benefits of exiting Covid Zero start to kick in next year. “My whole office is positive and down,” said one Beijing resident, a project manager named Emile, who asked not to identified by his full name. “It seems everyone in the city has a fever or headache. Beijing looks like a ghost town.”

 

Infected or not, the abrupt change of policies has caught the country by surprise and many are frustrated after years of being told by China’s state media that Covid had to be stamped out by whatever means necessary. With the pathogen running rampant, the Communist Party is still insisting that Xi’s strategy will “stand the test of history” even as the president himself remains silent on the dramatic shift. 

[UK]

https://www.bloomberg.com/news/articles/2022-12-16/china-s-care-homes-rush-to-protect-elderly-from-covid-surge

 

The same hunkering down is taking place across China, as its under-vaccinated elderly suddenly find themselves surrounded by infection after three years of little threat. In cities including Beijing, Shanghai and Nanjing, local governments are enforcing on care homes the same closed-loop system that factories adopted during earlier outbreaks. No one comes, and no one goes. Time is running out. Evidence from around the world shows that facilities for seniors often see the biggest waves of deaths, which is why countries prioritized vaccinating care home occupants first. That’s not been the case in China, where 38,000 homes provide beds for 8.2 million seniors according to 2020 data. Only 42% of those aged over 80 have had booster shots. That’s well below the levels seen in other countries that reopened after abandoning strict approaches toward the virus.  “It’s just the start of a real tough time,” read a statement from Pudong Shinan Nursing Home in Shanghai explaining its new rules this week. “When the experts say 80-90% of the population will eventually get infected, we are scared!”

National Health Commission officials last week gave rudimentary advice to care homes facing potential outbreaks of Covid. Minimize the risk of infection by improving ventilation, practicing hand hygiene, wearing masks and avoiding gatherings. They also urged the elderly to get vaccinated, without making shots mandatory. Persuading the elderly has proven to be a tough task. Many older Chinese are reluctant to get vaccinated, said Feng Wang, a sociology professor at the University of California, Irvine. Forcing them to get vaccinated risks creating a backlash in a society that traditionally has emphasized respecting seniors, he said. “It’s a tremendous gamble,” said Wang. “If an elderly person resists, I’m pretty sure there will be a lot of reluctance among the nurses, the local neighborhood committees and officials to force elderly people to take the vaccine.”

[ValueArb]

On 12/15/2022 at 5:12 AM, Spekulatius said:

@Luca I can imagine this or that but Xi is in power for life and he believes in communism. So I think that’s what we are going to get from China. Communism is not good for shareholder returns. I don’t think it’s much more complicated than that.

 

Would it be fairer to say Xi believes in one party rule and one man ruling that party?

 

Because it clearly seems that he believes in capitalism, as long as it's under strict party controls. 

[Blugolds11]

1 hour ago, ValueArb said:

 

Would it be fairer to say Xi believes in one party rule and one man ruling that party?

 

Because it clearly seems that he believes in capitalism, as long as it's under strict party controls. 

 

Is Capitalism "under strict party controls" really Capitalism? 

 

I see it as black and white, either it is capitalism for better or worse...or its not, because sooner or later that will be tested..and in the CCP, there is never any question as to who is gonna win that battle...

 

If kids have freedom to play outside, that is much different than "yard time" in a prison. One might have general guidelines from parents, stay out of the street, let me know where you are gonna be etc from parents, the other is in constant fear of yard brawls, has to stay with their race, gaurds watching them with rifles etc. Both are outside getting exercise, but totally different experience. That makes a huge difference IMO.

Edited December 22, 2022 by Blugolds11

[Viking]

China is a communist country. ALL THE MATTERS IS THAT THE COMMUNIST PARTY STAYS IN POWER. There is no rule of law. There are no property rights. There are no individual rights/freedoms. There is no freedom of the press. There is no capitalism. Everything that exists in China is a mirage.  Everything (and everyone) exists to serve the Chinese Communist Party. It is not that complicated to understand.
 

The economic model will change to whatever the CCP feels serves its needs the best. Parts of it might look like a capitalist model today. But that means little. It is built on a foundation of sand. And a storm has been raging for a few years… and as the sands shift it is getting hard to make the old model out…

Edited December 22, 2022 by Viking

[Viking]

Michael Pettis is one of my favourite China watchers. He has a great perspective of how China has developed the past 40 years and where it is at today. Bottom line, they might be where Japan was in the late 1980’s - in a heap of trouble. 
 

China’s fundamental problem is the institutions that drove its growth the past 40 years need to change. And doing so is exceptionally hard to pull off. Local government and a property bubble bigger than the one Japan experienced. This is not to say China will not muddle their way through it. Pettis’ comments are pretty wonky… so you have been warned.

—————
Lead-Lag Live: the China shock is coming with Micheal Pettis

https://www.youtube.com/live/mX8vyRXHCP8?feature=share

 

[Xerxes]

From CNBC
 

“China to scrap quarantine for international travelers in an essential end of zero-Covid”

 

this must be either a massive inflationary tailwind with the opening up of the economy… or a massive deflationary tailwind … if their Covid numbers explodes.  
 

 

[UK]

https://www.bloomberg.com/news/articles/2022-12-28/-1-3-trillion-china-housing-crackdown-hasn-t-fixed-unaffordable-property-market?srnd=premium-europe

 

China’s challenge is particularly daunting, even for an authoritarian regime with plenty of levers to pull. Home prices in Beijing and Shanghai have jumped tenfold and twelvefold, respectively, this century, according to government statistics, after the economic opening prompted more people to park their life savings in real estate rather than in stocks or other investments. The ratio of median home prices to income surged to more than 25 at the end of 2021 in Beijing, compared with about 20 in Hong Kong and just seven in the US, according to research from Nordea Bank Abp. Nationally, the ratio in China improved slightly last year to 9.1 from 9.2 in 2020, accord to E-House (China) Enterprise Holdings Ltd., a real estate firm. In most Chinese cities, income is nowhere close to keeping pace with the cost of housing—a problem that’s felt in many countries but is particularly acute in the world’s second-largest economy. In Qian’s home of Shenzhen, an apartment typically costs 40 times the average annual salary. That’s quadruple the relative price in cities such as Los Angeles and San Francisco, according to separate data from E-House and Harvard University’s Joint Center for Housing Studies. In Shanghai, China’s business and finance hub, a 950-square-foot, two-bedroom condo sells for almost $725,000. For about that price, a buyer could snap up a one-bedroom unit in Manhattan, where the average disposable income is more than six times higher.

 

More than two years later, China’s efforts to reduce prices—or at least halt the increases—have had limited success. New-home prices fell for the 15th-straight month in November. Yet most of those dips have been too small to make much of a difference. November’s drop of 0.25% in 70 cities was typical: None of the pullbacks has been greater than 0.40%. That steady drip of declines—more than 3% over 15 months—compares with much sharper plunges in other markets as global interest rates surge. Prices in Toronto are off 18% from their peak, while Sydney is down 11%. Sweden’s market is forecast to drop by a fifth from a March peak, according to Nordea estimates. There are signs of steeper declines in some parts of China. An existing-home price index tracked by KE Holdings Inc. shows that values in the less regulated market dropped 7.5% in August from a year earlier. In Hangzhou, near tech giant Alibaba Group Holding Ltd.’s headquarters, existing-home prices are off more than 15% from a peak last year, agents say. The meager national declines, even as sales collapse, partly reflect the quirks of China’s housing market that keep a floor on prices. Some 90% of city dwellers own their homes, according to Goldman Sachs Group Inc. research, compared with about 65% in the US. Ownership is so ingrained, a single man or woman has a much better chance of finding a match if they own a condo. 

 

In fact, Beijing may prefer a steady price decline to a sudden crash that could wreak havoc on the financial sector and spark an even deeper crisis, says Orlik, author of China: The Bubble That Never Pops. China is trying to manage down the oversupply of homes as well as prices to bring the market in balance, he says. In other words, a “controlled deflation” of the bubble rather than a dramatic burst. “If you want to improve affordability without having a systemic crisis, you don’t actually want house prices to fall. You want them to stabilize and incomes to rise,” Orlik says. “If prices fall 25% and everyone sells their houses, then you have a systemic crisis.” China is even trying to limit price declines in some areas. Since the second half of last year, at least 20 small cities have blocked developers from slashing prices by more than 15%. That prompted an industry group in the province of Guangdong to petition authorities to loosen restrictions to boost sales, people familiar with the matter say.

 

It’s hard to overstate the importance of real estate to China’s economy, making the crackdown so painful for so many. With estimates ranging from $2.4 trillion for the new-home market to $52 trillion for existing homes and inventory, the size of the sector was twice that of the US’s in 2019. Real estate accounts for about a quarter of domestic output and almost 80% of household assets. Some 100,000 companies operate in the sector, providing 27 million jobs as the nation’s second-biggest employer. Headcount shrank by 15% in the first half of 2022 alone among the 28 publicly listed developers that disclose staff levels, according to data compiled by Bloomberg. Those still employed face steep pay cuts, usually 30% to 50%, says Andy, a 36-year-old who works for a developer in Guangdong and asked that his full name not be used. His monthly mortgage obligations, at about 40,000 yuan, take up nearly 70% of his income. He’s now trying to unload one of his three homes. “I’m willing to sell it as long as I can break even,” he says. “But it’s been a tough sell.” Suppliers are also paying the price, with many fighting to get repaid by Evergrande and others. From construction material suppliers to lunch box providers, thousands of small companies are feeling the pinch from the record housing slump. “Putting on the brakes is one thing, but slamming the brakes on and making the car engine dead is another,” says Qin, a project contractor who’s spent 13 months trying to get paid. He also declined to give his full name. “Evergrande has a huge problem, but it should’ve been a ‘soft landing’ rather than what’s happening right now.” The modest price declines have done little to boost demand, which will be key to reviving the economy into 2023. CMB International Capital Corp. foresees a 30% slump in apartment and house sales this year, topping the 22% drop during the 2008 financial crisis. Morgan Stanley doesn’t expect a sales recovery until the second half of next year.

 

Edited December 28, 2022 by UK

[Dinar]

45 minutes ago, UK said:

https://www.bloomberg.com/news/articles/2022-12-28/-1-3-trillion-china-housing-crackdown-hasn-t-fixed-unaffordable-property-market?srnd=premium-europe

 

China’s challenge is particularly daunting, even for an authoritarian regime with plenty of levers to pull. Home prices in Beijing and Shanghai have jumped tenfold and twelvefold, respectively, this century, according to government statistics, after the economic opening prompted more people to park their life savings in real estate rather than in stocks or other investments. The ratio of median home prices to income surged to more than 25 at the end of 2021 in Beijing, compared with about 20 in Hong Kong and just seven in the US, according to research from Nordea Bank Abp. Nationally, the ratio in China improved slightly last year to 9.1 from 9.2 in 2020, accord to E-House (China) Enterprise Holdings Ltd., a real estate firm. In most Chinese cities, income is nowhere close to keeping pace with the cost of housing—a problem that’s felt in many countries but is particularly acute in the world’s second-largest economy. In Qian’s home of Shenzhen, an apartment typically costs 40 times the average annual salary. That’s quadruple the relative price in cities such as Los Angeles and San Francisco, according to separate data from E-House and Harvard University’s Joint Center for Housing Studies. In Shanghai, China’s business and finance hub, a 950-square-foot, two-bedroom condo sells for almost $725,000. For about that price, a buyer could snap up a one-bedroom unit in Manhattan, where the average disposable income is more than six times higher.

 

More than two years later, China’s efforts to reduce prices—or at least halt the increases—have had limited success. New-home prices fell for the 15th-straight month in November. Yet most of those dips have been too small to make much of a difference. November’s drop of 0.25% in 70 cities was typical: None of the pullbacks has been greater than 0.40%. That steady drip of declines—more than 3% over 15 months—compares with much sharper plunges in other markets as global interest rates surge. Prices in Toronto are off 18% from their peak, while Sydney is down 11%. Sweden’s market is forecast to drop by a fifth from a March peak, according to Nordea estimates. There are signs of steeper declines in some parts of China. An existing-home price index tracked by KE Holdings Inc. shows that values in the less regulated market dropped 7.5% in August from a year earlier. In Hangzhou, near tech giant Alibaba Group Holding Ltd.’s headquarters, existing-home prices are off more than 15% from a peak last year, agents say. The meager national declines, even as sales collapse, partly reflect the quirks of China’s housing market that keep a floor on prices. Some 90% of city dwellers own their homes, according to Goldman Sachs Group Inc. research, compared with about 65% in the US. Ownership is so ingrained, a single man or woman has a much better chance of finding a match if they own a condo. 

 

In fact, Beijing may prefer a steady price decline to a sudden crash that could wreak havoc on the financial sector and spark an even deeper crisis, says Orlik, author of China: The Bubble That Never Pops. China is trying to manage down the oversupply of homes as well as prices to bring the market in balance, he says. In other words, a “controlled deflation” of the bubble rather than a dramatic burst. “If you want to improve affordability without having a systemic crisis, you don’t actually want house prices to fall. You want them to stabilize and incomes to rise,” Orlik says. “If prices fall 25% and everyone sells their houses, then you have a systemic crisis.” China is even trying to limit price declines in some areas. Since the second half of last year, at least 20 small cities have blocked developers from slashing prices by more than 15%. That prompted an industry group in the province of Guangdong to petition authorities to loosen restrictions to boost sales, people familiar with the matter say.

 

It’s hard to overstate the importance of real estate to China’s economy, making the crackdown so painful for so many. With estimates ranging from $2.4 trillion for the new-home market to $52 trillion for existing homes and inventory, the size of the sector was twice that of the US’s in 2019. Real estate accounts for about a quarter of domestic output and almost 80% of household assets. Some 100,000 companies operate in the sector, providing 27 million jobs as the nation’s second-biggest employer. Headcount shrank by 15% in the first half of 2022 alone among the 28 publicly listed developers that disclose staff levels, according to data compiled by Bloomberg. Those still employed face steep pay cuts, usually 30% to 50%, says Andy, a 36-year-old who works for a developer in Guangdong and asked that his full name not be used. His monthly mortgage obligations, at about 40,000 yuan, take up nearly 70% of his income. He’s now trying to unload one of his three homes. “I’m willing to sell it as long as I can break even,” he says. “But it’s been a tough sell.” Suppliers are also paying the price, with many fighting to get repaid by Evergrande and others. From construction material suppliers to lunch box providers, thousands of small companies are feeling the pinch from the record housing slump. “Putting on the brakes is one thing, but slamming the brakes on and making the car engine dead is another,” says Qin, a project contractor who’s spent 13 months trying to get paid. He also declined to give his full name. “Evergrande has a huge problem, but it should’ve been a ‘soft landing’ rather than what’s happening right now.” The modest price declines have done little to boost demand, which will be key to reviving the economy into 2023. CMB International Capital Corp. foresees a 30% slump in apartment and house sales this year, topping the 22% drop during the 2008 financial crisis. Morgan Stanley doesn’t expect a sales recovery until the second half of next year.

 

A 950 sq foot condo in Manhattan would cost anywhere from $1MM to $5MM depending on location, condition and views.   Why is the writer comparing cost of a two bedroom to a cost of a one-bedroom?   Seems like sloppy/dishonest reporting.  

Also, how big are property taxes in China?  In Manhattan, they can easily = 2% of the value of the condo per year.   So if say property taxes in China = 0%, while in Manhattan they = 2% of the value per annum, that alone should justify 50%-60% higher prices in China vs Manhattan relative to income. 

[UK]

55 minutes ago, Dinar said:

A 950 sq foot condo in Manhattan would cost anywhere from $1MM to $5MM depending on location, condition and views.   Why is the writer comparing cost of a two bedroom to a cost of a one-bedroom?   Seems like sloppy/dishonest reporting.  

Also, how big are property taxes in China?  In Manhattan, they can easily = 2% of the value of the condo per year.   So if say property taxes in China = 0%, while in Manhattan they = 2% of the value per annum, that alone should justify 50%-60% higher prices in China vs Manhattan relative to income. 

 

I agree with your critique, but at the same time it is quite probable that China only at the start of all its real estate situation adjustment. Info also resonates with interview of Petis above, i.e. that sector and prices are still way above norm, their aproach is to do this slowly vs quickly, and demographics was not even mentioned in both cases. I think all this is important not only for China itself, but because of the size, for global economy also. Maybe that is the reason (optimistic) why Xi wanted to grab so much power in his hands in the first place:). Will be interesting to see how everything unfolds.

 

Edited December 28, 2022 by UK

[Spekulatius]

6 hours ago, UK said:

 

I agree with your critique, but at the same time it is quite probable that China only at the start of all its real estate situation adjustment. Info also resonates with interview of Petis above, i.e. that sector and prices are still way above norm, their aproach is to do this slowly vs quickly, and demographics was not even mentioned in both cases. I think all this is important not only for China itself, but because of the size, for global economy also. Maybe that is the reason (optimistic) why Xi wanted to grab so much power in his hands in the first place:). Will be interesting to see how everything unfolds.

 

I don't even think you can "own" property in China. Everything is  a long term lease and at the end of the lease, the property reverts back to the government, unless the government extends the lease. Owning property in China is more like a ground lease. I could be wrong, but if I am not, the property prices in China are even more nuts.

In any case, with a bubble like this, there really isn't a good way out without crashing the economy. They can do it quickly (unlikely) or slowly like the Japanese did in 1990.

Edited December 28, 2022 by Spekulatius

[sleepydragon]

9 hours ago, Spekulatius said:

I don't even think you can "own" property in China. Everything is  a long term lease and at the end of the lease, the property reverts back to the government, unless the government extends the lease. Owning property in China is more like a ground lease. I could be wrong, but if I am not, the property prices in China are even more nuts.

In any case, with a bubble like this, there really isn't a good way out without crashing the economy. They can do it quickly (unlikely) or slowly like the Japanese did in 1990.

except in US, you own the property as long as you pay property taxes. In china there’s no or little property tax. So if the house price remains the same, the Chinese deal is much better.

[UK]

https://www.bloomberg.com/news/articles/2023-01-03/bodies-pile-up-in-china-as-covid-surge-overwhelms-crematoriums

 

“Bodies are overflowing everywhere,” said the employee, who asked not be named. “You’ll have to wait a month if not.” While funeral homes warn against trusting brokerage services, some middlemen are using creative ways to reach anguished families. On Douyin, China’s version of TikTok, videos featuring colorful visuals and stirring music advertise Mercedes-Benz hearses, elaborate burial clothes and Babaoshan cremation slots. “We couldn’t afford to live under lockdown,” wrote a person on Weibo, sharing a view commonly expressed on the social-media platform over the past few weeks. “And now we can’t afford to die.”

[Luca]

 

Quite the refreshing and positive speach, not so hostile, enjoyed the watch. 

[zippy1]

6 hours ago, Luca said:

 

Quite the refreshing and positive speach, not so hostile, enjoyed the watch. 

Speech itself may be refreshing.    We will need to see their deeds to know whether these are empty words. 

[Luca]

30 minutes ago, zippy1 said:

Speech itself may be refreshing.    We will need to see their deeds to know whether these are empty words. 

Its definitely refreshing. We will see :))

[Luca]

35 minutes ago, zippy1 said:

Speech itself may be refreshing.    We will need to see their deeds to know whether these are empty words. 

Also notice the pictures in the video, pictures of hu jintao and also the previous head of ccp. Seems like he respects them still and the old policies grew the country well. Good to see. There has been a good twitter thread about it.

Edited January 3, 2023 by Luca