China

[rogermunibond]

Crackdown and tough talk prior to the Party Congress.  Now that a third term has been secured, ease up and let the good times roll again.

 

We'll see a repeat of this in five years prior to the next Party Congress.

[rogermunibond]

Adam Tooze has a very good post on the problems with young adult unemployment in China.  Definitely bears watching.

 

https://adamtooze.substack.com/p/chartbook-228-polarization-the-bigger?utm_source=post-email-title&publication_id=192845&post_id=135351585&isFreemail=true&utm_medium=email

[rogermunibond]

https://www.ft.com/content/f7922fdb-01bf-4ffd-9c5c-79f15468aa71

 

PLA strategy of winning without fighting.

[tnp20]

https://archive.ph/rtLxo

 

Good piece

[tnp20]

Is it a coincidence that China gets a property bubble top coincident with a stock market bottom ?

 

Makes the money flow from one to another perfect for a multi-decade boom in the stock market.

 

If we just look at the money flow aspect of the Chinese market, there are several tail winds:-

 

(i) CHina has created IRA like accounts for pension savings - annual tail wind long term

(ii) More non-IRA pension funds also being invested in stocks - annual tail wind long term

(iii) EM index managers are underweight china - they will have to get correctly weighted - one off

(iv) Sovereign wealth funds are diversifying some of their holding to CHina as it a number 1 or 2 economy some 20-30 years out. A balance between US, Europe, China, India (and possibly Indonesia and Brazil) makes most sense. - continuous tail wind

(v) Now that property market is not where the money goes, the suitable alternatives are stocks, gold, commodities, antiques. - long term flows

(vi) Chinese animal spirits are at rock bottom and once those get ignited with stock prices moving up, it will have a mo-mo/confidence effect. Chinese by nature are big gamblers judging by the Casinos I have seen. - medium term flows in and out

(vi) Short covering - short term flows

(vii) Yuan appreciation and lower dollar drives wealth creation and margin buying power. HKD stability and strength will drive further foreign inflows. - medium/long term flows

(viii) Chinese Insurance companies will allocate more to chinese stocks. - long term flows

(xi) Revenue expansion, margin expansion, profit expansion, multiple expansion  - long term flows

 

Xi is the risk. Xi can also light a fire to move the market in the right direction. Apparently national team is buying right now.

 

You can either take the approach that this will result in Sugar Rush or that this is a long term decades long bull market. Both cases results in favorable outcome from here.

 

10-15% of Chinese own stocks. Figure in Europe/US is 35-55%.

 

 

 

 

Edited July 28, 2023 by tnp20

[sleepydragon]

1 hour ago, tnp20 said:

Is it a coincidence that China gets a property bubble top coincident with a stock market bottom ?

 

Makes the money flow from one to another perfect for a multi-decade boom in the stock market.

 

If we just look at the money flow aspect of the Chinese market, there are several tail winds:-

 

(i) CHina has created IRA like accounts for pension savings - annual tail wind long term

(ii) More non-IRA pension funds also being invested in stocks - annual tail wind long term

(iii) EM index managers are underweight china - they will have to get correctly weighted - one off

(iv) Sovereign wealth funds are diversifying some of their holding to CHina as it a number 1 or 2 economy some 20-30 years out. A balance between US, Europe, China, India (and possibly Indonesia and Brazil) makes most sense. - continuous tail wind

(v) Now that property market is not where the money goes, the suitable alternatives are stocks, gold, commodities, antiques. - long term flows

(vi) Chinese animal spirits are at rock bottom and once those get ignited with stock prices moving up, it will have a mo-mo/confidence effect. Chinese by nature are big gamblers judging by the Casinos I have seen. - medium term flows in and out

(vi) Short covering - short term flows

(vii) Yuan appreciation and lower dollar drives wealth creation and margin buying power. HKD stability and strength will drive further foreign inflows. - medium/long term flows

(viii) Chinese Insurance companies will allocate more to chinese stocks. - long term flows

(xi) Revenue expansion, margin expansion, profit expansion, multiple expansion  - long term flows

 

Xi is the risk. Xi can also light a fire to move the market in the right direction. Apparently national team is buying right now.

 

You can either take the approach that this will result in Sugar Rush or that this is a long term decades long bull market. Both cases results in favorable outcome from here.

 

10-15% of Chinese own stocks. Figure in Europe/US is 35-55%.

 

 

 

 

agree. I think westerners underestimated the influence of the Chinese leadership has on the stock markets. The leadership is like the emperor. When they want to give some breathing rooms to the people, just a little bit of air the ball can bounce up very aggressive. People are eager to make money. And now is the time that they are releasing some fresh airs to the market. 

 

 

[UK]

https://www.economist.com/united-states/2023/07/28/joe-biden-donates-weapons-to-taiwan-as-he-does-to-ukraine

 

On July 28th it took that reasoning a leap forward by announcing it would for the first time start to arm Taiwan from America’s own military stocks, as it has done repeatedly for Ukraine. The main difference is that it has not invoked an “emergency” to justify the move. Instead, it believes the arms supplies will help forestall a war across the Taiwan Strait. The military move may instead provoke a new crisis. China will not accept American claims that it is nothing out of the ordinary, and represents “no change” in America’s Taiwan policy. After all, America is shifting from selling weapons to Taiwan to subsidising its armed forces. 

[cubsfan]

^^ well , that move is in response to the continued intimidation and aggression by China. We seem to forget that a sovereign nation has a right to defend themselves from invasion by China. China tests Taiwan- and the US shows solidarity by shipping defensive weapons.

Better to do it know before it blows up in a full blown “crisis”.

 

Edited July 31, 2023 by cubsfan

[tnp20]

 

https://archive.ph/4PZfS

 

 

This is related but an older piece...

https://archive.ph/2bRkI

 

This article implies more boom bust type style - so called sugar rush of government intervention and stimulus...

[UK]

https://www.wsj.com/articles/while-everyone-else-fights-inflation-chinas-deflation-fears-deepen-4045cabf

 

[Ulti]

https://www.foreignaffairs.com/china/end-china-economic-miracle-beijing-washington

[Luke]

 

 

 

Great Watch, highly recommended!

 

Brutal and with good commentary. 

[Luke]

*Posted into the Taiwan thread

Edited August 8, 2023 by Luca

[UK]

https://www.reuters.com/world/china/china-require-all-apps-share-business-details-new-oversight-push-2023-08-09/

 

A lot of "regulations are over" promises recently, yet almost every week there is some kind of new announcement.

[Luke]

The new rule is primarily aimed at combating online fraud but it will impact on all apps in China, he said.

 

I don't think regulations will ever be over, will just continue to be monitored and interfered with. China is now tight on track with their regulation of tech etc.

[Parsad]

https://finance.yahoo.com/news/chinas-consumer-prices-swing-decline-014520524.html

 

https://www.barrons.com/articles/china-deflation-beijing-private-sector-ba37b49b?siteid=yhoof2

 

We're starting to see what was supposed to happen years ago.  Governments can't manipulate fiscal/monetary policy limitlessly and debt accumulation will have some consequence.  And not just for China!  Cheers!

[maplevalue]

1 hour ago, Parsad said:

https://finance.yahoo.com/news/chinas-consumer-prices-swing-decline-014520524.html

 

https://www.barrons.com/articles/china-deflation-beijing-private-sector-ba37b49b?siteid=yhoof2

 

We're starting to see what was supposed to happen years ago.  Governments can't manipulate fiscal/monetary policy limitlessly and debt accumulation will have some consequence.  And not just for China!  Cheers!

I think the more recent lesson is that deflation is a very solvable problem (see what the experience of the US was printing money and giving it directly to people). 
 

China knows the playbook of deflation gets entrenched. I think it’s reasonable to expect they do helicopter money soon. 

[Parsad]

1 hour ago, maplevalue said:

I think the more recent lesson is that deflation is a very solvable problem (see what the experience of the US was printing money and giving it directly to people). 
 

China knows the playbook of deflation gets entrenched. I think it’s reasonable to expect they do helicopter money soon. 

 

Is it solvable or is it a delay tactic? 

 

Look at Japan...250%+ debt to GDP.  In an environment were rates are rising and the Bank of Japan owns 43% of that debt!  It's a ponzi!  A very long-play ponzi.

 

When the dam busts, it ain't going to be pretty!  

 

Cheers!

[Cigarbutt]

21 hours ago, Parsad said:

 

Is it solvable or is it a delay tactic? 

Look at Japan...250%+ debt to GDP.  In an environment were rates are rising and the Bank of Japan owns 43% of that debt!  It's a ponzi!  A very long-play ponzi.

When the dam busts, it ain't going to be pretty!  

Cheers!

1-Factual aspect for Japan (Japan's course of monetary events is fascinating)

From Flow of Funds data released by BOJ, end Q4 2022):

Not that it terribly matters (43% vs 52%) and an interim report (end Q1 2023) mentions north of 53% but then it's become hard to guess when non-linear changes will occur (recent trend in exchange rates?)

2-Link to China?

The debt intensity concept (more and more debt necessary to 'produce' a unit of GDP) has been developing in developed and developing nations for some time, including in China, in a big way, and, more recently, some sources suggest that progressively higher levels of capital are necessary to 'produce' a unit of GDP:

 

 

[Parsad]

https://finance.yahoo.com/news/asias-once-richest-woman-lost-115702519.html

 

And I thought Elon lost a bundle with the Twitter purchase!  Cheers!

[Parsad]

All these Chinese hedge funds are going to have to liquidate their portfolios where possible as they shutter!  Cheers!

 

https://finance.yahoo.com/news/thousands-tiny-hedge-funds-face-000000949.html

[tnp20]

 

BofA does not think its not a balance sheet recession ...its a growth recession. Their case is compelling.

 

Different disease requires different (policy) prescription.

 

china5.pdf

[tnp20]

1 hour ago, Parsad said:

All these Chinese hedge funds are going to have to liquidate their portfolios where possible as they shutter!  Cheers!

 

My bess guess is the impact of this is less than $100B...and if its hedged... it may be a muted impact as longs and shorts are closed.

 

There have been lot of market structure changes in the last few years - nearly all have been positive with a view that they are setting this up for the stock market to be the new (safer) vehicle where Chinese money goes ....instead of housing. As with housing, the runway for stock could be both long and epic (bubble culmination). Realistically, china's long term GDP growth potential is closer to 4% with shorter burst rates of up to 5-6% but with low deposit and bond rates and housing not a good option, stock market seems like a good alternative. 3-4% sustained is still a pretty good rate for the market to do well.

 

 

 

Edited August 11, 2023 by tnp20

[Haryana]

On 7/11/2023 at 7:42 AM, Luca said:

US capital definitely behind the slandering of China, pushing the media both domestic but also in europe to publish more and more "china danger" articles. 

 

https://youtu.be/DjjND_ky6t4

 

Apparently most Western media houses have always been weapons of colonialism and expansionism to world domination.

 

[Luke]

2 hours ago, Haryana said:

Apparently most Western media houses have always been weapons of colonialism and expansionism to world domination.

 

Worth to think about: 

 

https://link.springer.com/chapter/10.1057/9781137028303_3

 

Ha-Joon Chang enlists economic history to mount a provocative critique of the “Washington Consensus” — the standard set of policy recommendations that aim to promote economic development in poor countries. According to the consensus, developing countries should adopt a set of “good policies” and “good institutions” to improve their economic performance. The good policies include stable macroeconomic policies, a liberal trade and investment regime, and privatization and deregulation. The good institutions include democratic government, protection of property rights (including intellectual property), an independent central bank, and transparent corporate governance institutions and financial establishments. These policies have been embraced by the World Bank, the International Monetary Fund, and many mainstream economists, hence the term Washington Consensus.

 

Chang highlights the paradox that many of today’s high income countries did not pursue such policies when they were climbing the economic ladder of success in the nineteenth century. Rather, these countries implemented high tariffs and sectoral industrial policies, lagged in the introduction of democratic reforms, stole industrial technologies from one another, did not have independent central banks, and so forth. Therefore, in Chang’s view, developed countries are hypocritical when they seek to deny developing countries access to these same policy tools and when they urge them to adopt democratic reforms and protect intellectual property.

 

Chang, who is Assistant Director of Development Studies at the University of Cambridge (UK), divides his slim book into four chapters. Each chapter focuses on the policies pursued a century ago by the leading rich countries of today (Britain, United States, Germany, Japan, and other European countries) and compares those policies to the ones that developing countries are urged to adopt the Washington Consensus. Chapter One introduces the book and asks “How Did the Rich Countries Really Become Rich?” Chapter Two looks at trade and industrial policies designed to allow developing countries to “catch up” with industrial countries. Chapter Three focuses on institutions and good governance. Chapter Four concludes with lessons from the past.

 

https://en.wikipedia.org/wiki/Ha-Joon_Chang

Edited August 12, 2023 by Luca