China

[Luke]

Once the way of life and quality of life in China is so vastly superior to the internally struggling Western societies many will want to move closer to China than to G7/US. All that matters is technological advancement, strict execution of infrastructure and scientific progress, and delicate balancing of capitalistic forces to achieve maximum growth and development. They could probably solve their Taiwan problem that way too, if China is so wealthy, luxurious, and developed compared to the rest of the world, you will have people that will push for closer ties no matter what. 

[Luke]

But there are certainly pessimistic scenarios too where China cant achieve what it wants either by external or internal forces, problems with execution government-wise due to lacking feedback mechanism and "yes-men" that Xi installed. Lots of unforeseeable problems arising. Geopolitical scrutiny against China etc.

 

The good news is that nothing of the bull case is priced in, rather the opposite. And the bull case isn't egregious in its assumptions either which I am happy with. 

Edited June 26 by Luca

[formthirteen]

Machines will take over manufacturing at some point:

 

https://www.figure.ai

https://www.cnbc.com/2024/02/29/robot-startup-figure-valued-at-2point6-billion-by-bezos-amazon-nvidia.html

 

They will be operated from places like India and the Phillipines by English-speaking homo sapiens if support is needed, like Waymo:

https://waymo.com/blog/2024/06/waymo-one-is-now-open-to-everyone-in-san-francisco/

 

Welcome to the future, it's already here, just unevenly distributed.

[dealraker]

I have three tiny China investments and all are what I have decided are excellent business.  They are incredibly (seemingly) "cheap"  and all sell for far-far less than in the past.  Two are constantly under government supervisions and regulation change which at times repeatedly wipes out the ongoing thus past business model.

 

That said I do tend to laugh at myself, almost hysterically, in thinking that I as an American citizen actually "own" a part of something in China.  That concept is in my view a stretch even for Chinese citizens much less American.

 

One of the things we may consider is the ability we tend to share, that's the tendency or potential to speak and write publicly repeatedly thus ingraining illogical concepts.

[Luke]

1 hour ago, dealraker said:

I have three tiny China investments and all are what I have decided are excellent business.  They are incredibly (seemingly) "cheap"  and all sell for far-far less than in the past.  Two are constantly under government supervisions and regulation change which at times repeatedly wipes out the ongoing thus past business model.

 

That said I do tend to laugh at myself, almost hysterically, in thinking that I as an American citizen actually "own" a part of something in China.  That concept is in my view a stretch even for Chinese citizens much less American.

 

One of the things we may consider is the ability we tend to share, that's the tendency or potential to speak and write publicly repeatedly thus ingraining illogical concepts.

Curious what these investments are!

[Gamecock-YT]

4 hours ago, Luca said:

Once the way of life and quality of life in China is so vastly superior to the internally struggling Western societies many will want to move closer to China than to G7/US. 

 

That 21% youth unemployment is so vastly superior. Last time I was in Japan the convenience store workers at my local shop were speaking mandarin to one another.  Nevermind the videos of the Chinese nationals crossing the border to the US from Mexico. 

 

So sure, western society might have their problems but China isn't some utopian society, nor anywhere close to achieving it. 

 

It's been noticeable even in the past two-three years being in Asia that countries in Asia that previously would have been kowtowing toward Chinese tourists are now putting up Korean language menus and signs. They are learning there are other fish in the sea.

 

All this to say that other countries that aren't in the immediate orbit of either China or the G7 will continue to play them against one another to get the best deal for themselves. Same as it ever was. 

[crs223]

9 hours ago, formthirteen said:

Machines will take over manufacturing at some point:

They will be operated from places like India and the Phillipines

 

If machines take over, the work will probably be done in the places with the cheapest energy.

[RichardGibbons]

9 hours ago, Gamecock-YT said:

So sure, western society might have their problems but China isn't some utopian society, nor anywhere close to achieving it.

 

Well, that's just because China's strategy is awful. All evidence we have suggest free-market, liberal, rule-of-law economies are the most successful in raising the standard of living of a nation.

 

China isn't doing that, so the evidence we have--and even the evidence we have from China itself--suggests that their outcomes will be poor.

[formthirteen]

17 hours ago, crs223 said:

If machines take over, the work will probably be done in the places with the cheapest energy.

 

Venezuela and Iran? I hope it will be done in the places with the highest energy prices and labor costs (Europe and US). However, I expect Europe to regulate robots heavily. China will buy most of the European robot manufacturers that it has not already bought. Kuka, Dürr Ecoclean Group, and KraussMaffei have been acquired by the Chinese state Chinese companies in recent years. The US will produce the most innovative robot companies, maybe Tesla, Amazon, or figure.ai. China will continue to be the leading manufacturer of killer robots drones, but will be too scared to use them on anything but the weakest of neighbors. The people of the world will finally be free to argue 24/7 about gender and social injustice. At least until the robots become our masters. McDonald's already employs our robot overlords:

 

[Luke]

 

1. China has a better banking system that invests in productive assets

2. China has a better and more educated labor force that enabled the manufacturing boom and business boom

3. Better ability to attract FDI and use the knowledge gained from FDI

4. Better Meritocratic political system where party members keep their jobs with better KPIs of their local economies

5. A lot better bureaucratic system for business owners and getting rid of legal barriers due to control of economy

6. Understaffed indian government. Open positions despite high unemployment-> Caste system/hierarchy of social categories creates problems

7. Intentional underfunding of local governments in India because bureaucrats want to keep control/caste system

8. Democracy problematic if country is underdeveloped, Authoritarian system in growth mode better (giving gifts to voters, having taxes low to get reelected while its harmful to the economy) 

 

 

 

Edited June 28 by Luca

[Luke]

“We will build a business environment that is more solidly based on the market and rule of law and is up to international standards,” Xi pledged.

 

https://www.scmp.com/news/china/diplomacy/article/3268512/chinas-xi-jinping-vows-major-steps-deepen-reform-urges-end-iron-curtains?module=top_story&pgtype=homepage

[Hektor]

https://www.wsj.com/us-news/u-s-sends-a-plane-of-chinese-migrants-to-china-dbaa211c

 

The Department of Homeland Security said Tuesday that 116 Chinese nationals were deported back to China, a move that came after a surge of Chinese migrants entering at the U.S. southern border in recent years.

 

The Chinese migrants crossing the border are generally people from underprivileged groups, with low incomes, education levels and skills and with little or no chance of securing a U.S. visa. Their departures have often been driven by economic hardship or traumatic encounters with Chinese authorities. 

 

Between January and May, some 10,171 Chinese migrants crossed the Darién Gap, the 60 miles or so of treacherous terrain connecting South and Central America. That compares with 25,565 for the full year in 2023, and a total of 2,381 in the years from 2010 to 2022, according to Panama migration data. Chinese nationals were the fourth-largest group making the Darién crossing from Colombia in 2024, the data showed. Many pay smugglers to help them en route.

[juno323]

On 6/28/2024 at 8:49 PM, Luca said:

“We will build a business environment that is more solidly based on the market and rule of law and is up to international standards,” Xi pledged.

 

https://www.scmp.com/news/china/diplomacy/article/3268512/chinas-xi-jinping-vows-major-steps-deepen-reform-urges-end-iron-curtains?module=top_story&pgtype=homepage

Definitely haven't heard this before 

[thowed]

I have just sold my last tranche of a China Mid-Cap Growth fund, so the market's probably ready to rip now!

[Ulti]

https://edition.cnn.com/2024/07/03/business/china-bond-market-bank-crisis-svb-intl-hnk/index.html

[nsx5200]

On 6/28/2024 at 8:49 AM, Luke said:

“We will build a business environment that is more solidly based on the market and rule of law and is up to international standards,” Xi pledged.

https://www.scmp.com/news/china/diplomacy/article/3268512/chinas-xi-jinping-vows-major-steps-deepen-reform-urges-end-iron-curtains?module=top_story&pgtype=homepage

I'd be a bit wary with SCMP, as any independence Hong Kong had is essentially no longer, and SCMP is more or less a mouth piece for the CCP now.

 

On 6/26/2024 at 9:09 AM, Luke said:

Once the way of life and quality of life in China is so vastly superior to the internally struggling Western societies many will want to move closer to China than to G7/US.

The way to properly evaluate that statement is to ask yourself if you would personally move to China yourself, and see where the the people are generally moving; people do not willingly move towards a worse system.  To me, US immigration problem is actually a good problem to have.

 

https://www.wsj.com/world/china/china-economy-debt-borrowing-33f08b5e?mod=hp_lead_pos7

 

The issue with an opaque system is that you need to double-check the official figures to get a more realistic figure, whereas a more transparent system can be trusted more.  The disadvantages of a top-down government are fairly well known, and with Xi in power, I suspect there's not a huge desire to push that power towards the people.  Not saying the democratic/capitalistic system is perfect, but looking at the trend, China's moving further towards a top-down system, and we know how that turned out in the case of USSR.  I would claim that China's huge growth in the past decades was a result from Deng's effort to push a lot of that power towards the people, which is currently being rolled back.  The opaque plenum top-down meeting is where the feedback and course correction happens, so I'm looking forward to see the outcome of that.

 

The good thing about a democratic system is that it's a system created by the people to solve the issues for the people as it's primary mission.  Whereas an authoritarian system's primary mission is to keep the authority in power.  Solving issues for the people works only to further its primary mission.  Maybe I drank the kool-aid and am seeing through tainted lens.

[UK]

https://www.bloomberg.com/news/articles/2024-07-16/trump-s-vp-pick-vance-says-china-is-the-biggest-threat-to-us?embedded-checkout=true

[james22]

SEEING REPORTS LIKE THIS IN VARIOUS PLACES, NONE THAT I’D CALL AUTHORITATIVE:

 

Stay tuned. Even if false, these reports probably mean something, if only an effort by rivals to underscore his age.

 

https://instapundit.com/661142/

[Spekulatius]

Jennifer Zhang is not exactly a trustworthy or unbiased source on all matters concerning China. She has carved out a niche for her self as an extreme China doomsdayer.

 

If this rumor is true, I expect shares of Alibaba and others to mysteriously rise long before the official news is announced, because people will know the truth through underground news networks and trade on them.

Edited July 18 by Spekulatius

[Paarslaars]

Was thinking of expanding my China exposure by building a larger basket, already own Prosus and Baba. Looking to add PDD and JD, I'm bullish on China but with Trump as president it might get worse before it gets better... Thinking I should hold off until next year.

[Hektor]

https://www.wsj.com/us-news/chinese-migrants-tap-extensive-networks-to-join-the-u-s-economy-4deeb436

[Spekulatius]

Maybe the industrial policies work in the long term , but they suck for investors:

https://www.wsj.com/world/china/feared-in-the-west-chinas-manufacturers-struggle-at-home-8a64f2c3?mod=lead_feature_below_a_pos1
 

Check returns on capital for Chinese companies. Thats part of the reasons why the valuations are lower. 
 

I do think we are seeing some changes where companies like BABA are trying to improve their capital allocation and capital returns.

[Hektor]

This is posted in the BABA thread as well. Posting it here, since I feel it touches upon the murkiness of the Chinese system and the associated risks.

 

https://www.nytimes.com/2024/07/21/world/asia/jack-ma-xiao-jianhua.html

[formthirteen]

Mark understands China: https://about.fb.com/news/2024/07/open-source-ai-is-the-path-forward/

 

Quote

The next question is how the US and democratic nations should handle the threat of states with massive resources like China. The United States’ advantage is decentralized and open innovation. Some people argue that we must close our models to prevent China from gaining access to them, but my view is that this will not work and will only disadvantage the US and its allies. Our adversaries are great at espionage, stealing models that fit on a thumb drive is relatively easy, and most tech companies are far from operating in a way that would make this more difficult. It seems most likely that a world of only closed models results in a small number of big companies plus our geopolitical adversaries having access to leading models, while startups, universities, and small businesses miss out on opportunities. Plus, constraining American innovation to closed development increases the chance that we don’t lead at all. Instead, I think our best strategy is to build a robust open ecosystem and have our leading companies work closely with our government and allies to ensure they can best take advantage of the latest advances and achieve a sustainable first-mover advantage over the long term.

 

Denmark too:
 

Quote

The investigation had been over for months, but the sense of unease lingered. “So, where are the drones?” Kirkby asked, jokingly, as she entered. Minutes later, someone looked out through the floor-to-ceiling windows and noticed one making its way toward the restaurant. The drone hovered in the air for a few minutes, and a team member took a picture of Kirkby pointing at it.
Everyone got up and watched the drone descend to the street, where it was picked up by men in a white van, who then drove away.

 

Great article and espionage story by Bloomberg: When a Huawei Bid Turned Into a Hunt for a Corporate Mole

https://archive.is/1zlDh

 

This article was also interesting: China’s Richest Man Risks Losing Crown After $13 Billion Wipeout

https://finance.yahoo.com/news/china-richest-man-risks-losing-000128252.html

 

Quote

 

The potential changing of the guard reflects a consumer sector that’s increasingly complex for businesses to navigate, as the economy slows and competition from upstart brands intensifies.

 

Besieged by a price war in its core bottled water space, Hong-Kong listed Nongfu has also found itself on the wrong side of growingly nationalistic and health-conscious Chinese in recent months. This has led to an almost 20% plunge in its share price since Feb. 1, compared to a roughly 6% rise for PDD, with its dirt-cheap products and aggressive deals.

 

 

Edited July 23 by formthirteen

[Hektor]

https://www.politico.com/news/2024/07/26/states-china-pensions-00171437

 

 

‘Circle the wagons’ — state pension funds are dumping Chinese investments

Some state lawmakers say they want to protect pension fund investments in China from becoming collateral damage in a possible Indo-Pacific conflict.

 

A growing number of states are forcing public employee pension funds to divest from China, pulling out of the world’s second-largest economy because of hostility toward Beijing and fear that U.S. assets could be frozen if conflict breaks out in the Indo-Pacific.

 

Five states — Indiana, Florida, Missouri, Oklahoma and Kansas — have directed state fund administrators to begin the divestment process over the past year. And more are considering doing so — the latest sign of deteriorating relations between the U.S. and China.