China Economic News

(23-09-2024, 01:12 PM)gzbkel Wrote: It’s no longer glorious to get rich in China — it’s dangerous

Last month, Colin Huang, founder of ecommerce powerhouse PDD, attracted the usual headlines when he rose to become China’s richest man. But shortly after, PDD surprised investors with a downbeat profit forecast. Its stock plummeted. Huang lost $14bn overnight, and ceded the top spot to Zhong Shanshan, founder of beverage giant Nongfu Spring. Within 24 hours, Nongfu Spring issued its own unexpectedly depressing outlook, and Zhong, too, soon slipped from first place on the rich lists.
On Chinese social media, chatter broke out about whether corporate leaders might be competitively devaluing their own stock prices to avoid the widening crackdown on excessive wealth, which is a centrepiece of leader Xi Jinping’s “common prosperity” campaign. It is not implausible to conclude, wrote one Wall Street broker, that “nobody wants to be the richest man in China” at a time when its government is turning more assertively socialist.
[...]

https://archive.ph/DDU8t

This aligns with my long term view on China since 2021.

Peace.

(24-09-2024, 06:41 AM)weijian Wrote: I reckon it is hard not to get rich when you have the best of both worlds - some sort of state protection (against foreign giants) with a huge local economy, but yet able to get your stock listed elsewhere for "better valuations".

But I disagree it is dangerous for those "founders". These founders are VIP partners to the CCP. An extract from Howard Marks' latest memo "Shall We Repel the Laws of Economics" as below:

China’s private sector is often summed up with a combination of four numbers: 60/70/80/90. Private firms contribute 60% of China’s GDP, 70% of its innovative capacity, 80% of its urban employment and 90% of new jobs.

But nonetheless, it is still dangerous - pretty risky for the folks who invest together with these "founders", since the "structure" doesn't look aligned here.

Interesting. What are your views on the huge slowdown/drawdowns in their top companies (with huge private/foreign ownerships) in recent years, and the "retirement"/"disappearance" of renown founders from these companies (say Zhang Yiming from Bytedance, Jack Ma etc), seemingly all at the same time when the government is pushing for "common prosperity"?

Just a temporary setback or a sea change?

(24-09-2024, 09:11 PM)Wildreamz Wrote: Interesting. What are your views on the huge slowdown/drawdowns in their top companies (with huge private/foreign ownerships) in recent years, and the "retirement"/"disappearance" of renown founders from these companies (say Zhang Yiming from Bytedance, Jack Ma etc), seemingly all at the same time when the government is pushing for "common prosperity"?

Just a temporary setback or a sea change?

Hi Wildreamz,

The last I check, these guys are still immensely rich, may be not as rich as they were but probably still rich enough to appear on Spore top10 billionaires (like that FB founder) if they ever manage/decide to convert their citizenship. They will still do fine.

The Hurun Rich list shows ~800 Chinese billionaires. Are those renowned founders the exception or the norm? As a group, I suspect they will still do fine.

China has had pivotal points in its entire modern history - From Nationalist ending feudal rule, to the Great Purge after the Communists won the civil war, to the Great Leap Forward, Mao's death, Deng's "to get rich is glorious" and finally China entering WTO. So will Xi's corruption purge in 2013 and the current tech purge be the next pivotal points? To be honest, we will probably only know down the road.

The billionaires themselves may do well (no need billions, a couple million will do the trick). But if leading the pack will lead to their inevitable "demise" (disappearance, forced retirement etc.), wouldn't this arbitrarily limit the success of China if its largest and most innovative companies need to sandbag their success?

Is this also a warning sign to avoid the largest, most visible, most transformative companies in China that are most likely to become the target board of future regulations?

hi Wildreamz,

I am sure the billionaires will not do well with a few hundred millions. But a few billion less, is definitely still fine

The world should be more complicated than assuming that innovation, success and "leading the pack, in terms of wealth" are mutually exclusive. It is hard to believe someone who hasn't been successful yet, think about the problems that success will bring. Another way to look at it - do you want to be more worried about your competitor or your regulator? You probably worry about the former more as he will kill you before you succeed, while the latter may mess with you later. Let's also not forget that your competitor also has to play with the same rules.

I do agree with part of your statement below. If history is any guide, it is a huge red flag for OPMI whenever "Mr/Mrs XXX" is declared the top billionaire in China. But then again, things are evolving too. If Mr XXX knows to share his wealth (eg. via donating to employee stock option etc), then OPMIs may have a safer journey. When China first opened up, it needed capitalistic expertise and those HK billionaires were welcomed with open arms. When its needs evolved from capitalistic expertise to control/consolidation of power, then the old (and new) billionaires need to fall in line. So what will China need in the future?

(26-09-2024, 11:06 PM)Wildreamz Wrote: Is this also a warning sign to avoid the largest, most visible, most transformative companies in China that are most likely to become the target board of future regulations?

Given ample stocks with low valuations / high dividends, the swap facility looks attractive to investors. I think there are green dragon, let's go still legs on the recent market rally.

Was pretty surprised to see the run up even for locally listed YZJFH / CapitaLand China Trust.

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PBOC to set up US$71 billion swap facility to prop up stock market
https://finance.yahoo.com/news/pboc-set-...00332.html
""I have discussed with [China Securities Regulatory Commission] chairman Wu Qing that we could consider unleashing a second round of 500 billion yuan, or the third batch of 500 billion yuan if the plan were enforced well enough," he said. "We are taking an open attitude towards the new policy."

Pan said top financial policymakers are also looking at creating a stabilisation fund to buoy the stock market. Analysts believe this could mean additional funding support amounting to more than 1 trillion yuan."

David Tepper Buys ‘Everything’ China-Related on Beijing Easing
https://finance.yahoo.com/news/david-tep...01708.html
"He was cheered by the swap facility unveiled by PBOC governor Pan Gongsheng allowing securities, funds and insurance companies to tap the central bank to buy stocks. “That’s a great deal for me. I want to be over there to borrow some of this stuff,” he said."

China’s biggest stock buying frenzy in years overwhelms exchange
https://www.businesstimes.com.sg/compani...s-exchange

One of the interesting measures that was introduced is the lending facility to do share buybacks or for founder's to increase rates.

PBOC said commercial banks would lend at 2.25% to companies to do buyback or raise rates. (PBOC will lend to commercial banks at 1.75%)

It is an arbitage moment. For example, Petrochina is at 7% yield, I can borrow at 2.25% and earn the difference. In a way, PBOC is encouraging companies who really think their company is undervalued to engage in buyback to bridge the disparity in value. This is very significant because we could be seeing yield compressions of China companies and tech companies now have an avenue of raising loans to do buybacks like what Alibaba did in the US market a few months ago.

Personally, I do see 50-60% upside in share prices due to such a measure. I hope Alibaba will tap such a facility too to do aggressive sharebuybacks of up to US$10 billion per quarter.

Politics condemned HK/Chinese equities, so it is no surprise that the same factor will uplift it.

Related equities have shown the kind of rebound reminiscent of post 2009, and then in March2020 (post Fed's bazooka announcement) and subsequently in Oct2020 when Pfizer announced the efficacy of the Covid19 vaccine.

After a couple of false starts, the most recent in 1Q/2Q of this year, it is again no surprise that there as much sceptics as there are bulls. And that is what makes a market. It is my personal opinion that the presence of sufficient sceptics is good anecdotal evidence to indicate that the "bull" probably has legs to run....Of course, I don't have any numbers to back me up.

Has anything structurally changed in China? Nothing. But maybe just maybe, that the minds of the top decision makers have (changed).

Sudden shift in China metals sentiment drives LME Week optimism

In both private conversations and public forums, many market insiders who have spent their careers observing the Chinese economy said they believe the latest stimulus plan unveiled last week is of great political significance – representing a shift by Xi Jinping to once again place economic development among the government’s top priorities.

https://www.businesstimes.com.sg/compani...k-optimism

It is about lifting the weights away the economy that has been severely handicapped by policies. No one knows exactly how much room it has to run but it should at the very least, lift the current state from extremely depressed to more normal levels. Also the risk of negative policy changes is extremely low for the foreseeable future. The "intent" from the central govt is much more important than the policy changes itself. The intent is about them getting serious about reviving the economy and the willingness to go further ever than before to make that happen.

Between a generally overpriced US mkt with a falling currency and a depressed China mkt with shackles recently removed. You decide which market has more opportunities.

(05-10-2024, 12:38 PM)Big Toe Wrote: Between a generally overpriced US mkt with a falling currency and a depressed China mkt with shackles recently removed. You decide which market has more opportunities.

Hi Big Toe,

I don't think it is that clear cut. In the first place, why should an OPMI need to decide "which market has more opportunities"?

Is a richly valued US market really overpriced? Is a depressed China market really underpriced? Are the reason/s for their over/under valuations not justified in the first place?

Is it more probable for a richly (and justifiably so) priced company to get even more expensive, compared to a cheaply (and justifiably so) priced company to get cheaper? In a era of aplenty liquidity and extremely informational efficiency, I suspect the former is more probable, while the odds for the later is really poor. Of course, the payoffs are better for the latter as you have described. So what are the expected returns? As usual, each of our mileage varies.

Is timing the market more important OR time in the market? I chuckle when everyone parrots "time in the market". If time in the market is important, just ask those who didn't time the HSI/Chinese market in the last few years. If time in the market is not important, just ask those who didn't time the S&P500 market in the last few years (eg. 1M65's young daughter).

Having asked so many questions....My only clear path is - There is a time for everything under the sun! Get out our big basket - We can wait for the Gods to rain. We can also ask the Gods to rain! The most important thing is that we must have our basket!