China macro

[rogermunibond]

Pretty interesting China macro observations from Li Daokui.  The tariff stuff is at the end and not nearly as interesting as the local bond debt burden issues that Beijing is tackling.

 

Going to have to pay attention to what comes from the NPC.

 

https://www.bloomberg.com/news/videos/2025-03-03/china-fully-prepared-for-us-tariffs-ex-pboc-adviser-video

[treasurehunt]

7 hours ago, rogermunibond said:

Pretty interesting China macro observations from Li Daokui.  The tariff stuff is at the end and not nearly as interesting as the local bond debt burden issues that Beijing is tackling.

 

Going to have to pay attention to what comes from the NPC.

 

https://www.bloomberg.com/news/videos/2025-03-03/china-fully-prepared-for-us-tariffs-ex-pboc-adviser-video

 

Very interesting interview; thanks for posting. So according to Li Daokui, policymakers' goals are clear even if specific policies might be issued only over a period of a year or two - swap out local government debt for central government debt and increase domestic consumption mostly by incentivizing local governments properly. Good to keep this in mind.

[Ulti]

https://cdn.prod.website-files.com/5ef3c7300432b40ed865991a/67a4f75703627bd3a927077e_Global Value Investing in Our Era (2024-12-07).pdf
 

Global Value Investing in Our Era

Li Lu

Speech at the 10th Anniversary Celebration of the Value Investing Course, Guanghua School

of Management, Peking University, December 7, 2024

Thank you, Professor Jiang Guohua, Mr. Jing Chang, and all the teachers, colleagues, and students

who made this course possible! This year, during Professor Jiang's visit to the U.S., we discussed

how this course has had a meaningful impact in both academia and industry over the past ten

years. The number of online course applicants this year exceeded 1,000, which is a testament to

its success.

Ten years ago, when we decided to collaborate with Peking University to support the

establishment of this course, it was inspired by my personal experience. Thirty-five years ago,

when I first arrived in the U.S., Columbia University offered a similar course, which gave me the

opportunity to meet value investing guru Warren Buffett. This encounter profoundly changed the

trajectory of my life over the next three decades. So, we hoped to bring such opportunities and

ideas to young Chinese students as well.

Today, many friends and students are participating both in person (in Seattle) and virtually from

Beijing. Thank you for being here!

Without further ado, let me dive into the topics at hand. In my first talk in 2015, I discussed "The

Prospects of Value Investing in China." Five years later, in 2019, the topic was "The Theory and

Practice of Value Investing." Earlier this year, Professor Jiang visited Seattle to discuss ideas for

the 10th anniversary and invited me to speak again. Today, I would like to discuss "Global Value

Investing in Our Era."

Over the past five years, both China and the world have experienced many changes, causing

significant confusion for investors. Value investing, no matter where it is practiced, must be closely

tied to the era we live in. While value investing emphasizes bottom-up fundamental analysis, the

companies we invest in exist in a specific era and are inevitably influenced by various macro

factors. Thus, we cannot escape the times we live in. With that in mind, I would like to share some thoughts 

 

[nsx5200]

After diving in on the CCP political system a bit, I think there's a reasonable chance that the controlling political faction will change in the upcoming plenum meeting, with the control going back to the faction that promotes a more market-based China as opposed to the more closed-system that is under Xi.

 

Instead of stepping into potential conspiracy theories, what companies do you envision would benefit from such a move?  Also, for those that likes to role-play as an oracle or soothsayer for Halloween, do you have a prediction for the immediate to short-term market reaction to such an event, and why?

[Spekulatius]

13 hours ago, nsx5200 said:

After diving in on the CCP political system a bit, I think there's a reasonable chance that the controlling political faction will change in the upcoming plenum meeting, with the control going back to the faction that promotes a more market-based China as opposed to the more closed-system that is under Xi.

 

Instead of stepping into potential conspiracy theories, what companies do you envision would benefit from such a move?  Also, for those that likes to role-play as an oracle or soothsayer for Halloween, do you have a prediction for the immediate to short-term market reaction to such an event, and why?

I think most observers think that Xi Jinping has eliminated competing factions and he is at core a socialist. I am not sure what info you have. It is possible though that Xi Jinping softens more toward a market economy as he has done already the last 12 month or so. I think it’s fine with him as long as thru don’t challenge the CCP. He may be socialist but he is also a pragmatist as well.

Edited October 18, 2025 by Spekulatius

[WayWardCloud]

That's the thing with investing in Chinese stocks, it's the biggest insider trade ever if you happen to have any true insights into the Party. I'm sure many politicians and their families make a lot of money front running some of the decisions. I don't know anything about your background NSX but I'm a white foreigner who doesn't speak any Chinese so I'm very aware that I will always be at an informational disadvantage compared to a home buyer who has political connections and I don't like feeling like the patsy. Do you want to share your reasons for thinking a regime change could be imminent with us? If true this is massive news.

Edited October 18, 2025 by WayWardCloud

[Fly]

https://www.newsmax.com/newsmax-tv/chang-xi-liberation/2025/10/18/id/1230948/

 

Quote

Speculation about Chinese President Xi Jinping’s health has intensified in recent weeks, with some observers suggesting he may be confronting a significant political challenge. Recent developments and analyses indicate possible power struggles may be emerging within the Chinese Communist Party.

Author Gordon Chang told Newsmax on Saturday that there are indications he has lost the “People’s Liberation Army."

“It’s not entirely clear that there will be a meeting between President [Donald] Trump and Xi Jinping at the end of this month, because Xi Jinping is under a lot of political trouble at home. And yesterday his loyalists in the military were sacked. And that's a real indication that he has lost the People's Liberation Army,” Chang said during an appearance on “The Count."

"And that is the most important faction in the Communist Party. We'll have a lot more clarity by Thursday, which is the end of the Communist Party's fourth plenum.”

“But, you know, at this point, Xi Jinping very well may decide that he does not want to leave China because he may not be able to get back in or he may not be allowed to leave China. So there's a lot going on here,” he added.  

 

Edited October 19, 2025 by Fly

[WayWardCloud]

Wikipedia on the guy being interviewed :

 

Chang has made numerous predictions of the imminent collapse of the Chinese government and fall of the Communist Party since 2001 including the specific years.[10][11][12] In the 2001 book The Coming Collapse of China, Chang insisted that the government would collapse in 2011. When 2011 was almost over, he admitted that his prediction was wrong but said that he was off by only a year and wrote in the Foreign Policy magazine, that "Instead of 2011, the mighty Communist Party of China will fall in 2012. Bet on it." Consequently he made Foreign Policy's "10 worst predictions of the year" twice in a row when his predictions were proven wrong again.[13]

 

He's a fake expert who is only being brought onto the show because he says what they want to hear.

Edited October 19, 2025 by WayWardCloud

[Fly]

3 hours ago, WayWardCloud said:

Wikipedia on the guy being interviewed :

 

Chang has made numerous predictions of the imminent collapse of the Chinese government and fall of the Communist Party since 2001 including the specific years.[10][11][12] In the 2001 book The Coming Collapse of China, Chang insisted that the government would collapse in 2011. When 2011 was almost over, he admitted that his prediction was wrong but said that he was off by only a year and wrote in the Foreign Policy magazine, that "Instead of 2011, the mighty Communist Party of China will fall in 2012. Bet on it." Consequently he made Foreign Policy's "10 worst predictions of the year" twice in a row when his predictions were proven wrong again.[13]

 

He's a fake expert who is only being brought onto the show because he says what they want to hear.

 

Yes I think you're correct this might just be framing his narrative. Another article here shows a more Xi-driven narrative of control and changing out those high ranking officials:

 

https://www.abc.net.au/news/2025-10-18/xi-inner-circle-major-shakeup-ccp-meeting-beijing/105885472

[Spekulatius]

China almost exactly copies the US playbook now to fight a trade war:

https://www.wwnytv.com/2025/10/20/hit-back-united-states-their-trade-war-china-borrows-us-playbook/
 

1) The export controls on rare earth minerals and components made from them mimicks the US export controls on semiconductors, which in less secondary controls of third party trade partners.

2) The Unreliable entire list mimics the US entity list. (The company I work for is on the Unreliable entity list as well)

https://www.wwnytv.com/2025/10/20/hit-back-united-states-their-trade-war-china-borrows-us-playbook/

 

This means that China is digging in for an extend trade war, imo.

[nsx5200]

On 10/18/2025 at 3:00 PM, Spekulatius said:

I think most observers think that Xi Jinping has eliminated competing factions and he is at core a socialist. I am not sure what info you have. It is possible though that Xi Jinping softens more toward a market economy as he has done already the last 12 month or so. I think it’s fine with him as long as thru don’t challenge the CCP. He may be socialist but he is also a pragmatist as well.

The CCP and it's internal politics are as opaque as they come, with announced and unannounced actions that can be interpreted both positively and negatively for Xi.  That's why I'm hesitant to go down a discussion trying to evaluate the odds of such a change, but would rather focus on the economic ramifications of such change, and leave the evaluation of odds for a political change to individual investors.

 

At the risk of going down the wrong rabbit hole, this is all I'll comment:

Xi's position may look stable from outside, but when their de facto top military command leadership changes, many of whom were promoted by Xi.  It's most likely there are major political moves involved.  From ramping up on CCP politics, 'corruption' charges are just bogus charges to rid of people, and not actually use to tamper down corruption, as the whole system is built on bribes funneling to the top.  This exercise has many similarities to reading tea leave, and I hate to propagate more speculations so I'm going to leave it at that.

[rogermunibond]

Sinocism had a good guest post recently on Xi's succession dilemma, PLA purges, the Fourth Plenum, and other CCP topics.

 

https://sinocism.com/p/forever-xi-jinping-perhaps-not

[rogermunibond]

https://www.foreignaffairs.com/china/china-models-fatal-flaw-lizzi-lee#

 

Good essay on China's taxation and state/provincial incentive system that drives overcapacity.

[Dalal.Holdings]

https://www.wsj.com/world/china/chinas-xi-calls-trump-in-unusual-move-to-discuss-ukraine-taiwan-add503b3

 

Quote

 

In an unusual diplomatic move, Chinese leader Xi Jinping initiated a phone call with President Trump on Monday to discuss Taiwan, a flashpoint that has surged to the forefront in recent days as Japan takes a more assertive stance on the island’s autonomy.

 

It seems like Xi's patience on Taiwan is wearing thin... that or Takaichi really got under his skin

[DegenerateGambler]

3 hours ago, Dalal.Holdings said:

https://www.wsj.com/world/china/chinas-xi-calls-trump-in-unusual-move-to-discuss-ukraine-taiwan-add503b3

 

 

It seems like Xi's patience on Taiwan is wearing thin... that or Takaichi really got under his skin

I hope he does not make a move on Taiwan.  I don't think China really benefits that much from getting Taiwan anyways, it's just a historical thing for them.  The new generation of Chinese youth prolly just wants jobs etc. tho they are somewhat brainwashed.   China should really just learn from Charlie Munger's wisdom and copy Singapore in every way and then get their GDP per capita the same as Singapore's (144k adjusted for purchasing power), and then they'd be like - what use is Taiwan?  Xi is not a very good leader - he cracked down on Chinese tech companies a while back and I am sure he wished he didn't so they could have more money to devote to AI development now.  It's unfortunate that Deng started China's internal change by copying Singapore and Xi left that all in the dust.  Why wouldn't they just keep copying Singapore until it becomes a giant Singapore?

[Spekulatius]

1 hour ago, DegenerateGambler said:

I hope he does not make a move on Taiwan.  I don't think China really benefits that much from getting Taiwan anyways, it's just a historical thing for them.  The new generation of Chinese youth prolly just wants jobs etc. tho they are somewhat brainwashed.   China should really just learn from Charlie Munger's wisdom and copy Singapore in every way and then get their GDP per capita the same as Singapore's (144k adjusted for purchasing power), and then they'd be like - what use is Taiwan?  Xi is not a very good leader - he cracked down on Chinese tech companies a while back and I am sure he wished he didn't so they could have more money to devote to AI development now.  It's unfortunate that Deng started China's internal change by copying Singapore and Xi left that all in the dust.  Why wouldn't they just keep copying Singapore until it becomes a giant Singapore?

They didn’t copy Singapore because having control and power is more important to the CCP than wealth or growth. I bet Xi does not regret the tech crackdown at all.

 

Taiwan is an ideological issue for them and since Xi as a  neo Maoist is invested in his ideology (it’s the foundation of the CCP’s  power after all) the issue is not going away away as long as he or other hardliners are in power.. 

[Spekulatius]

Looks like  Alibaba, BYD etc could get blacklisted. then you can’t buy these stocks any more in US accounts:

https://seekingalpha.com/news/4526331-pentagon-said-to-have-named-alibaba-baidu-and-byd-for-inclusion-in-us-cmc-list

[nsx5200]

Wasn't sure if this belonged in the Politics or this thread.  It's a bit long, so I highlighted the relevant mechanism and tried not to touch the politics as much as possible.

 

I came across this video w/ Victor Shih that explains a lot of the mechanisms that drive the decisions that steers the Chinese economy.

 

The part that is most relevant to China macro, IMHO, is the flawed incentive system that encourages the government to overinvest, sometimes absurdly, in various projects (real estate, rail building, etc).  At around 1:04, Victor describes that mechanism:

NotebookLM snippet

"Here is a breakdown of the incentives:
1. Rent-Seeking and Kickbacks: The most realistic mechanism linking investment and promotion is the corruption and kickbacks associated with large-scale projects.
    ◦ When a large infrastructure project is initiated (e.g., building light rail), a significant amount of money changes hands through contracts for materials like cement and various contractors.
    ◦ A local official or governor can receive a large cash payout (kickback) from the contractors.
    ◦ This illicit money can then be used to pay off superiors, which "increase[s] your chance of getting promoted". This is described as a rent-seeking mechanism

"

[Spekulatius]

8 hours ago, nsx5200 said:

Wasn't sure if this belonged in the Politics or this thread.  It's a bit long, so I highlighted the relevant mechanism and tried not to touch the politics as much as possible.

 

I came across this video w/ Victor Shih that explains a lot of the mechanisms that drive the decisions that steers the Chinese economy.

 

The part that is most relevant to China macro, IMHO, is the flawed incentive system that encourages the government to overinvest, sometimes absurdly, in various projects (real estate, rail building, etc).  At around 1:04, Victor describes that mechanism:

NotebookLM snippet

"Here is a breakdown of the incentives:
1. Rent-Seeking and Kickbacks: The most realistic mechanism linking investment and promotion is the corruption and kickbacks associated with large-scale projects.
    ◦ When a large infrastructure project is initiated (e.g., building light rail), a significant amount of money changes hands through contracts for materials like cement and various contractors.
    ◦ A local official or governor can receive a large cash payout (kickback) from the contractors.
    ◦ This illicit money can then be used to pay off superiors, which "increase[s] your chance of getting promoted". This is described as a rent-seeking mechanism

"

The counter point to this is that many infrastructure projects in China has been done at very low cost. I think the high speed rail is an example of this actually (compare how this goes in the USA). Now you may argue that these rail lines are not necessary (partly true) but they still were build cheaply.

 

The podcast does not seam to acknowledge that the CCP system while prone to corruption to some extend, it is also hyper competitive as the regional leaders compete with each other based on results which include region GDP growth as well as other objectives set by the CCP. So corruption would get you only so far and there is a risk that if the cover is blown, you end up in a re- education camp.

[nsx5200]

Those are excellent counter-points.

6 hours ago, Spekulatius said:

Now you may argue that these rail lines are not necessary (partly true) but they still were build cheaply.

The real long-term issue for them now is the maintenance cost associated with these projects.  In an effort to reduce cost & speed up development, proper feasibility study is not done, causing these projects to be non-self sustaining.  A CCP version of the bridge to nowhere.  All systems will have some slop, and I guess in their system, the slop shows up in this form.

 

6 hours ago, Spekulatius said:

The podcast does not seam to acknowledge that the CCP system while prone to corruption to some extend, it is also hyper competitive as the regional leaders compete with each other based on results which include region GDP growth as well as other objectives set by the CCP.

Hyper competitive has the second-order effect of involution.  So it's one more issue that the CCP have to contend with.

 

The primary incentive system is based on the mechanism described, so the corruption becomes embedded in their system.  I do, however, like how the Politburo acts like a corporate BOD, and brings in experts to educate them on different matters.  It is definitely a different system than the "west", with its own pros and cons.

[John Hjorth]

Even Mario Draghis 'Whatever it takes', by 'Super Mario', is now getting stolen, highjacked by Xi : 

 

AP News - World News [December 12^th 2025] : China’s new ‘condom tax’ draws skepticism and worries over health risks

 

- - - o 0 o - - -

 

[It's Friday, right? ]

[UK]

China’s property woes could last until 2030
Despite the best efforts of its social-media censors

 

https://archive.is/D8gdl

[Spekulatius]

On 12/12/2025 at 11:27 AM, John Hjorth said:

Even Mario Draghis 'Whatever it takes', by 'Super Mario', is now getting stolen, highjacked by Xi : 

 

AP News - World News [December 12^th 2025] : China’s new ‘condom tax’ draws skepticism and worries over health risks

 

- - - o 0 o - - -

 

[It's Friday, right? ]

There is always the refurbish and reuse option.

[Dalal.Holdings]

The worth of having an alliance with China is revealed:

 

 

Similar to an alliance with Russia...

 

https://www.bloomberg.com/news/articles/2026-03-03/china-gas-buyers-say-beijing-pushing-iran-to-keep-hormuz-open

 

Quote

China has called on all sides of the Iran war to ensure the safe passage of ships through the Strait of Hormuz, the most direct call to date from the Islamic Republic’s top economic partner for continued trade through the waterway.

 

China is clearly concerned about the Strait...it is their uncle point. They will not allow Tehran to terrorize the region with indiscriminate missile launches in the Gulf...

[Spekulatius]

Is the US better? I guess it depends on who is asking.