China

[dealraker]

I have a tiny bit of China stuff, I think just to see how silly it all is.  My history with investing there began somewhat recently - ten years ago or so - when I bought an insurance broker called Fanhua (the name changed to Fanhua).  The stock market cap was the same as cash and the company earned 15% on equity with no debt.

 

Instant 3 bagger and then...

 

The Chinese gov literally shut down the property and casualty broker business lines Fanhua engaged in.  So Fanhua completely changed its operations to go into life insurance lines...which also - of course - shortly got the boot.

 

In the end the business is simply - as they say - uninvestible in my view.   While I still have a tad in China stuff it is just a distraction and I'm considering selling.  

Edited April 27, 2023 by dealraker

[Spekulatius]

2 hours ago, sleepydragon said:

 

I don't think things are that bad.

Ray Dalio has personal friendship with some of the highest level officials in China. I feel what he wrote above is largely on behalf of these high ranking Chinese official whom he talked with while he was in China. This is the message that China want to get across.  Now, if you imagine these are not the words from Ray Dalio, but from people like Liu He, it's seems to me China is trying to de-escalate through un-official channel.

 

 

Possibly correct that this is a message conveyed by Chinese leaders.

China can quickly de-escalate, they just need to stop the wargames around Taiwan. It is ridiculous that China (according to Dahlio) will go to war with the US if the US acknowledges Taiwan as sovereign country. I don't think this would actually happen either, but maybe China want's us to believe that way.

[Luca]

28 minutes ago, dealraker said:

I have a tiny bit of China stuff, I think just to see how silly it all is.  My history with investing there began somewhat recently - ten years ago or so - when I bought an insurance broker called Fanhua (the name changed to Fanhua).  The stock market cap was the same as cash and the company earned 15% on equity with no debt.

 

Instant 3 bagger and then...

 

The Chinese gov literally shut down the property and casualty broker business lines Fanhua engaged in.  So Fanhua completely changed its operations to go into life insurance lines...which also - of course - shortly got the boot.

 

In the end the business is simply - as they say - uninvestible in my view.   While I still have a tad in China stuff it is just a distraction and I'm considering selling.  

Do you remember why they were shut down?

[sleepydragon]

23 minutes ago, Spekulatius said:

Possibly correct that this is a message conveyed by Chinese leaders.

China can quickly de-escalate, they just need to stop the wargames around Taiwan. It is ridiculous that China (according to Dahlio) will go to war with the US if the US acknowledges Taiwan as sovereign country. I don't think this would actually happen either, but maybe China want's us to believe that way.

when Russia invaded Ukraine, they just did it suddenly.

I think the fact China is making all these noises such as war games in fact demonstrates they don’t want the war. They hope the scare tactic would work.  Invading Taiwan will extremely costly and even if China occupies Taiwan they just get more unrest population to manage, which might seriously leads to the more troubles for CCP leadership.

 

 

[Castanza]

15 minutes ago, sleepydragon said:

I think the fact China is making all these noises such as war games in fact demonstrates they don’t want the war.

 

That's literally what every "expert" said prior to the invasion of Ukraine. Nobody thought it would happen because it was absurd and didn't make sense to do. Yet here we are. I mean, China took over Hong Kong just a few year ago. 

 

I think it's a fools errand to try to take a stance on what will or won't happen. The world is absurd and to quote Bill Burr "It's run by guiltless psychopaths." 

 

At this point it could be either 

Edited April 27, 2023 by Castanza

[dealraker]

17 minutes ago, Luca said:

Do you remember why they were shut down?

Luca, management mentions that Chinese government officials deem the businesses unfair, that they take advantage of the customer.  There is or has been also somewhat of a mention of competitor complaints?  Fanhua went to pretty much an online model and initially it seemed very successful.  

Edited April 27, 2023 by dealraker

[kimoser22]

On 4/27/2023 at 12:24 PM, Luca said:

230109_Cancian_FirstBattle_NextWar (1).pdf 3.11 MB · 0 downloads

 

From Center of strategic and international studies: 

 

https://www.csis.org/analysis/first-battle-next-war-wargaming-chinese-invasion-taiwan

 

They ran an interesting simulation and looked at different outcomes of invasion in Taiwan. 80 Pager research. I think its quite accurate, i will also post what Chris Miller, the Professor who wrote the Book Chip War said about a Taiwan Invasion. 

 

Yeah and in the war game the US/ Taiwan side wins but loses lives and materials. Unless the US doesn’t come in fighting and tries to supply Taiwan Ukraine style, then Taiwan loses easily which,IMO, is why they let’s not kill each other just provide material support is a CCP talking point in the Dailo article. 

[Spekulatius]

3 hours ago, kimoser22 said:

Yeah and in the war game the US/ Taiwan side wins but loses lives and materials. Unless the US doesn’t come in fighting and tries to supply Taiwan Ukraine style, then Taiwan loses easily which,IMO, is why they let’s not kill each other just provide material support is a CCP talking point in the Dailo article. 

The part that's missing is where the US blockades trades flow towards China in the Indian ocean. China has no counter - their navy can't project power there. China without oil, raw material and food imports won't last long. Checkmate.

[WayWardCloud]

I have a hunch that we might be taking one element for granted when we draw analogies between Russia/Ukraine and China/Taiwan. Not every society has the fighting spirit of the Ukrainians (or the Vietnamese to give another example) and if the Taiwanese don't fight back tooth and nail no amount of US help will be enough to keep China away. Taiwan is a country that has been under constant threat for decades, has just watched Hong-Kong be taken over and yet keeps spending much too little on defense as a percent of its GDP. It's an island and they have the capital and the engineers to  quickly turn it into a porcupine if they made it a true national priority. Something just doesn't add up. Look at how Japan is re-arming for example and the difference is stark - but those people have a long history of being warriors (and of having beefs with China). Not to throw shade at anyone by the way, I think being a pacifist people is a very honorable thing, just some thoughts. I really like the concept of Howard Marks to try to find the one thing "everyone knows" that just isn't. Everyone seems to assume Taiwan doesn't cave in quickly and instead would rather walk their youth straight into a giant meat grinder to safeguard their cherished independence. I mean can you imagine what this Island will go through if a proxy war between two superpowers rages on it? Look at what's left of Ukraine. If they are not successful at pushing back the first wave of Chinese landings there is a good argument to be made to avoid escalation and negotiate some half-ass special status within China just a few days after the start of hostilities.

Edited April 28, 2023 by WayWardCloud

[Blugolds11]

I think China would be the one in the meat grinder if Taiwan puts up even a mediocre defense. Beach landings are archaic, and honestly I think China is smarter than that. IMO China is probably discussing how they can get Taiwan to WANT to re-unite. How to they make it in Taiwan's best interest to WANT to come back under Chinese umbrella. Brute force wont work here IMO, just like Russia would never be successful in holding Ukraine, just like the US in the middle east, you can come in and turn the place into a pile a rubble, sure, beat them into submission, but then spend the next several decades occupying with military and dealing with uprisings, guerilla tactics etc, just not a reasonable or desirable long term plan if the people dont WANT to be occupied. 

 

Also, if you're the smallest kid on the playground and getting picked on by the bully, you dont have to start lifting weights and taking karate classes, you just have to be friends with a kid that is as big or bigger/tougher than the bully. This is more Taiwans strategy I think. They would have support of the US and other neighboring countries. China knows this also and thats why I say the brute force tactic seems unlikely, sure threaten it to keep them on their toes and test defenses but the reality is China would get closer to their goal using sugar rather than salt. If there is any possibility at all. 

 

I thought Ray Dalio article was interesting and probably accurate on many points. Both sides dont want war and not in best interests, but both sides unwilling to back down, being spurred on by comments it almost becomes a self=fulfilling prophecy and can itself lead to war. both sides should be spending more effort on avoiding conflict and working together rather than posturing and preparing for what the other could do. the best offense is defense they say, pray for peace, prepare for war and all that, but I also worry that once the snowball takes off down the hill, building along the way (and arguably the snowball is already rolling) it can be very very hard to stop. 

 

You make a goo point though as to elements that may be there that havent been taken into consideration, in addition to the Taiwanese resolve to fight, the inverse of that is the Chinese will to fight and suffer tremendous casualties as well as those not fighting, dealing with sanctions etc. Xi wants common prosperity and a strong Chinese economy is how he gets that, is the juice worth the squeeze, is the cost of getting Taiwan back worth setting the avg mainlanders life back a decade, upsetting everything else. Dunno, tough to say. How important is Taiwan. 

 

Maybe there is a different way to approach it. China plays the long game, chipping away at the US, positioning themselves to control resources around the world until its in the best interests of Taiwan to WANT to join China, and they remove the teeth from the Lion (US) so that Taiwan doesn't have the big/tough friend on the playground. China is much better playing the long game and has the "advantage" of long term leadership that can implement a plan and spend a decade working it without a los in continuity from changing leadership. 

[Luca]

11 hours ago, Blugolds11 said:

I think China would be the one in the meat grinder if Taiwan puts up even a mediocre defense. Beach landings are archaic, and honestly I think China is smarter than that. IMO China is probably discussing how they can get Taiwan to WANT to re-unite. How to they make it in Taiwan's best interest to WANT to come back under Chinese umbrella. Brute force wont work here IMO, just like Russia would never be successful in holding Ukraine, just like the US in the middle east, you can come in and turn the place into a pile a rubble, sure, beat them into submission, but then spend the next several decades occupying with military and dealing with uprisings, guerilla tactics etc, just not a reasonable or desirable long term plan if the people dont WANT to be occupied. 

 

Also, if you're the smallest kid on the playground and getting picked on by the bully, you dont have to start lifting weights and taking karate classes, you just have to be friends with a kid that is as big or bigger/tougher than the bully. This is more Taiwans strategy I think. They would have support of the US and other neighboring countries. China knows this also and thats why I say the brute force tactic seems unlikely, sure threaten it to keep them on their toes and test defenses but the reality is China would get closer to their goal using sugar rather than salt. If there is any possibility at all. 

 

I thought Ray Dalio article was interesting and probably accurate on many points. Both sides dont want war and not in best interests, but both sides unwilling to back down, being spurred on by comments it almost becomes a self=fulfilling prophecy and can itself lead to war. both sides should be spending more effort on avoiding conflict and working together rather than posturing and preparing for what the other could do. the best offense is defense they say, pray for peace, prepare for war and all that, but I also worry that once the snowball takes off down the hill, building along the way (and arguably the snowball is already rolling) it can be very very hard to stop. 

 

You make a goo point though as to elements that may be there that havent been taken into consideration, in addition to the Taiwanese resolve to fight, the inverse of that is the Chinese will to fight and suffer tremendous casualties as well as those not fighting, dealing with sanctions etc. Xi wants common prosperity and a strong Chinese economy is how he gets that, is the juice worth the squeeze, is the cost of getting Taiwan back worth setting the avg mainlanders life back a decade, upsetting everything else. Dunno, tough to say. How important is Taiwan. 

 

Maybe there is a different way to approach it. China plays the long game, chipping away at the US, positioning themselves to control resources around the world until its in the best interests of Taiwan to WANT to join China, and they remove the teeth from the Lion (US) so that Taiwan doesn't have the big/tough friend on the playground. China is much better playing the long game and has the "advantage" of long term leadership that can implement a plan and spend a decade working it without a los in continuity from changing leadership. 

Thanks for sharing! 

[Xerxes]

And what about Kinmenese 

[mcliu]

On 4/28/2023 at 7:31 PM, Blugolds11 said:

China plays the long game, chipping away at the US, positioning themselves to control resources around the world until its in the best interests of Taiwan to WANT to join China, and they remove the teeth from the Lion (US) so that Taiwan doesn't have the big/tough friend on the playground. China is much better playing the long game and has the "advantage" of long term leadership that can implement a plan and spend a decade working it without a los in continuity from changing leadership. 

This is the likely the outcome and has been China's strategy for many decades.

The whole Taiwan declares independence and China declares war is some Western fantasy for folks that have little understanding of Chinese history and culture.

On 4/28/2023 at 6:51 PM, WayWardCloud said:

I have a hunch that we might be taking one element for granted when we draw analogies between Russia/Ukraine and China/Taiwan. Not every society has the fighting spirit of the Ukrainians (or the Vietnamese to give another example) and if the Taiwanese don't fight back tooth and nail no amount of US help will be enough to keep China away.

There's no parallel here. Taiwan is recognized as a part of China by most of the world.

Logistically, it's far easier to resupply Ukraine through Poland than to resupply Taiwan.

And Taiwan has only 1/2 the population of Ukraine while China has 10x the population of Russia.

The Taiwanese are very pragmatic. In 20 years, faced with the choices of destruction or 1 country 2 systems, the latter is an obvious choice.

 

Edited April 30, 2023 by mcliu

[tnp20]

Lots of great points on China.

 

The first rule of war is you need over whelming forces for a decisive win. Even then, if the enemy is tenacious (and well supplied), the situation becomes long drawn out quagmire....which means not good risk/reward. Crossing an ocean adds another complication added to the mix and raising the bar to act.

 

Dalio's article was right to point out the very poor state of relations between the two countries...and they could get even worse. But that does not mean war automatically. No one's (new) territory has been effected by the relationship going down the drain so the immediacy of war makes no sense. China's red lines are Taiwan declaring independence ... but that  is highly doubtful from a Taiwanese perspective both because why poke a dragon in the eye when you don't need to and because the Taiwanese themselves are fine with the status quo limbo situation. Even if they foolishly declare independence, it does not again automatically mean war , there are many other powerful levers that can be pulled against it (like naval blockade etc) before declaring war or invading...all points at which the situation can be potentially diffused.

 

There is also no surprise factor (there wasn't one for Ukraine). Any invasion plans by China will be long detected by Satellites and on ground assets to give Taiwan some serious "teeth" just in time before it happens. Chinese War games will have a certain "indicators" which determine if they will turn real or not. For Russian/Ukraine situation the "indicator" was Russians building up supplies of fresh "blood" - at which point CIA knew it was for real. For China, its likely to be building up unusually large arms and fuel reserves on the coast facing Taiwan.

 

There is also the timing factor. Chinese Navy is getting powerful but they are just now getting operational experience with their carriers and carrier aircraft - they likely need another 10-20 years for the Navy to be ready to attack and counter USA/Japan/Korean forces.

 

Then there is the economic factor. What if China kills two birds with one stone. If they dominate the semiconductor space and are cheaper and better than Taiwan in 10-20 years - Taiwan will no longer be economic powerhouse and may be the Taiwanese will be more amenable to some accommodation that is unification "like".

 

Then there is the nuclear factor.  Taiwan has 3 nuclear power plants that have been operating for decades. They have the technical capability to produce several nuclear devices (untested) from re-processed nuclear fuel. Any hint of an invasion and they could "test"  an underground device for "peaceful purposes" and China would get the hint.

 

Interestingly enough China can't actually engage in any other war in the meantime ... for if they came out with a bloody nose - their military capability and their emerging super power status immediately comes into question...so its best to remain untested unless you are absolutely sure of a win or you have no choice.

 

This is all rhetoric and show of force while they bide their time. They will be very very patient. Xi is no lunatic. They will act when the odds favor their decisive victory either economically or militarily. 

 

 

Edited April 30, 2023 by tnp20

[ICUMD]

China's aspiration is to dominate economically and technologically.  Going to war over Taiwan would compromise both goals and it has in Russia.  Literally, it would set them back decades.

 

I highly doubt they would risk such a setback.

Rhetoric, posturing and political chess games will continue. 

 

 

[Ulti]

https://podcasts.apple.com/us/podcast/michael-pettis-chinas-economic-growth-model-is-dying/id1592743188?i=1000612158620

interesting take on the current Chinese economic model\economy and where it is heading

[Parsad]

China total debt to GDP hits nearly 280%!  Cheers!

 

https://finance.yahoo.com/news/china-debt-gdp-ratio-rises-042544479.html

[Parsad]

Chinese comedian fined $2M by culture police for innocuous joke about China's military.  Cheers!

 

https://www.cnn.com/videos/world/2023/05/17/exp-china-comedian-fine-comedy-asia-jiang-lok-051712pseg3-cnni-world.cnn

[Luca]

 

1: Why cant Ukraine join Nato?

 

,,What would happen if mexico would join a chinese run international military alliance where heavy weapons are send to mexico with interoperability of chinese and mexican military systems, what would happen to mexico? They would be blown away´´

 

2: Do you see an equivalance between nato and russia and china?

 

,,No, Nato is a much more agressive military alliance, nato has invaded Yugoslavia, libya, Ukraine, backed up the invasion in afghanistan, everybody outside of the west can see it but in the west you are not allowed to think it,,

,,Global south collapsing in ridicule, india, indonesia, south africa,,

 

 

 

 

[Luca]

I also want to stress again that in china, contrary to what some may hear on the media, the competition in many sectors is incredibly brutal. China and the US have state capitalistic systems with one important more and more shifting difference: China is PRO market and the US and most of europe PRO Business. In a recent interview of the economist of the book i linked, she talked about how much competition by business there is just for simple daily use products and also how hard the economic existence for many people working in factories is. Common Prosperity should be understood as a pro market move because thats where consumers will win. No common prosperity and huge monopolies with concentrated rich owners, business with high pricing power, is the other side of the coin, pro business policies and an unregulated market. 

 

Taking the severe cuts into freedom of speech etc out of the picture, the CCPs goal is not to harm and milk out their citizens (as it is more the case in russia) but that china will become a flourishing modern developed socialist country: 

 

"prosperous, strong, democratic, culturally advanced, harmonious and beautiful" as said. 

 

What role will shareholders and business play here? Shareholders wont be treated as they are in the US. Regulation will be tougher and more unpredictable, possible tax and redistributions could happen. But that wont mean a return to a completely planned economy and starving for many. The chinese dont care which economist said what, they dont care what exact form of capitalism is the best according to the west, the system has to produce the above said results. 

They will never achieve that without markets, without investments, without shareholder returns. 

 

As long as one buys very strong and well managed businesses there will be returns made, possibly great returns. 

 

China is also trying desperatly to get around western patent rights IMO because they see it as ANTI Market. The more competition, the more innovation and the better their developments and GDP growth will become. It will also mean a much higher competitive environment than in the current western market.

 

 

Edited May 19, 2023 by Luca

[Spooky]

1 hour ago, Luca said:

They will never achieve that without markets, without investments, without shareholder returns. 

 

Doesn't what you have written above conflict with the idea of shareholder returns? Brutal competition in every aspect is a nightmare for returns. Unless there is a barrier to entry / moat then firms can't expect to earn more than their cost of capital and growth produces no value. Layer on top of that no shareholder protections... doesn't seem like a good investing environment for shareholders.

[Luca]

3 minutes ago, Spooky said:

 

Doesn't what you have written above conflict with the idea of shareholder returns? Brutal competition in every aspect is a nightmare for returns. Unless there is a barrier to entry / moat then firms can't expect to earn more than their cost of capital and growth produces no value. Layer on top of that no shareholder protections... doesn't seem like a good investing environment for shareholders.

Well, i think there is a pendulum to be found between monopolies and competition and the pendulum in china is shifting and they will plan to shift it even more. I think it will be much harder for many businesses than it is the case in the US. One could argue that is the reason why the SP 500 has higher margins, higher returns etc. On the other side i think one can make the case that general growth and inventiveness will lead to a more prosperous economy in total. I think strong and well managed businesses like Tencent or Alibaba, even regulated, will be good plays although they wont have it as easy. But combine it with the possible growth of the chinese economy and i think the picture looks much better. Its a bit in the too hard pile since we cant know how the CCP thinks about specific businesses but they also wont get rid of capitalism. I mean US has their own anti trust but its far weaker than in china, as we see in the markets reaction. 

[Luca]

If i would bet on a society and economy that will be world leading in a decade id bet on china, as problematic some things are. Owning a strong business that is playing both in china and globally is still a really good position. 

[Luca]

That said, we never had the size of some businesses today ever in our history (outside of the dutch east india company perhaps) and they were a brutal monopoly that crushed countries, workers and made profits for a nieche aristocracy. Arguably good for the shareholders back then (until it crumbled due to corruption, adminstrative issues). Remains to be seen what the regulative side in the US will do to some mega caps. 

[Dinar]

24 minutes ago, Luca said:

If i would bet on a society and economy that will be world leading in a decade id bet on china, as problematic some things are. Owning a strong business that is playing both in china and globally is still a really good position. 

This has to be a joke right?  Everybody who can is fleeing China, it has insane demographic and water problems, capital is fleeing!  What a recipe for a success?