Pinduoduo

[weijian]

I guess a lot of times, it is about betting on the horse rider, then the horse itself.

Pinduoduo and Vertically Integrated Social Commerce

In 2015, Colin Huang founded his third company, Pinduoduo (PDD). By June of 2020, it had become China’s second largest ecommerce company and was valued at over $100 billion in the public markets. How did a company that helped farmers sell fruit on the internet rise so fast in a market dominated by Alibaba and JD?


https://turner.substack.com/p/pinduoduo-...integrated

[dreamybear]

I do think reducing the wealth/income inequality benefits the society. We are probably going to see more of such moves based on the theme of "common prosperity". Out of curiosity I do wonder what is an appropriate amt - do they go by percentage or something ?

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China tech giant pledges all of its quarterly profit to help farmers
https://www.straitstimes.com/business/co...ech-giants

China confirms more than 40 per cent of population survived on just US$141 per month in 2019
https://www.scmp.com/economy/china-econo...just-us141

[Wildreamz]

Assuming PDD (and other similar Chinese platform company) is going to offer a fixed % of their earnings for charity moving forward, is probably too simplistic.

Juggling CCP's national priorities (promote economic growth, while achieving "common prosperity") and shareholder's interest moving forward, is probably going to be an ongoing challenge for "platform companies" like PDD (though not as bad as their largest peers, Alibaba and Tencent).

(not vested)

[dreamybear]

Moving fwd then perhaps there cld be a day where the mkt revalue the China tech stks ....

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https://www.cnbc.com/2021/08/25/ray-dali...-says.html
“....What we generally regard as growth stocks and growth companies ... they won’t and they shouldn’t trade as growth stocks because they have been politicized,” Magnus said. “Capital is being politicized in China.”

“The valuation lurch that we’ve seen since February in many of the stocks in China is pretty permanent,” he added. “I don’t think that the valuations in China, a lot of the tech stocks, actually should be where they used to be....”

[CY09]

That's very true unlike US tech that can expand all they want and capitalize on operating leverage. Chinese Tech firms cant anymore.

This is why many of the large reputable names are at 20x PE despite revenue growing at double digits annually. Paradigm has changed

[Wildreamz]

Thanks Dreamybear, that's a great link.

Basically summarizes the two schools of thought right now.

I think the truth, as usual, is probably somewhere in between. I think the State do want to maintain control, and at the same time, they will also promote capitalist-like free market competition for the most part, in order to spur economic growth.

But the days where "Big Tech" platforms are free to growth unfettered and unmonitored ("exploiting" human psychology, market power, user data etc.), especially the largest ones, is probably over. Curbing their ability to accumulate capital and wealth, not only is politically easy (billionaires are easy targets), strengthens CCP control, as well as achieve the goals of "wealth redistribution" ("三次分配") and "common prosperity" ("共同富裕"). 

The tricky part, is balancing this while competing with the largest, most resourceful and influential tech "platform" companies in the West. I personally believe it's the best interest of the CCP to allow it's largest companies to continue to flourish, accumulate resources, and reap rewards of their innovation/execution etc.; especially if they did it through non-exploitative means, and extract less value from society than they provide (I believe PDD and Alibaba fall under these categories).

Second guessing the CCP, is too hard for me personally. But probably ok if you are well diversified in the right companies; or an expert on the ground, living and breathing Chinese politics (IMHO).

The safer play is probably to invest in smaller, more under the radar companies, preferably in areas supported by the CCP (New Energy, Semiconductor, digitalization etc.)

[CY09]

Hi Wildreamz,

That is my worry as well. As an alibaba investor, I am worried CCP does not give them enough resources to compete on the global stage. The result is that they lose ground in the cloud computing segment against Amazon or in South East Asis e commerce/payment space against SEA group .

PDD may face such challenges. They are now turning net profitable and are doing way on home soil. But if European and US start ups start appearing with the same business model and PDD is to branch out overseas to fight them, they may lose the superiority as the Western countries have more resources to fight the china firms.

China is only a 1.3 billion strong population and is 20% of the world. It may end up that their chinese companies are unable to grow beyond 20% of market share

[Wildreamz]

Hi C09,

I am current not vested in China (H/A shares, ADRs etc.), precisely to avoid this headache (a sentiment also echoed by David Webb).

Within the country, Party priorities comes first. Outside the country, they are facing increasing scrutiny as well (AliCloud recently lost a customer, due to data security concerns). 

内忧外患.

Silver linings:
* there is a case to be argued that, given current valuation, downside is limited anyway, even if they grow at half the past rate (high teens), there is substantial upside to be made.
* strictly speaking, fundamentals have not been materially impacted, yet (most of the worst case scenarios are just speculation on the market's part). If prices go up, and headline slows, that most likely, all is forgotten again (until if and when the next headline emerge).
* Xi is more pragmatic and rational than the media give him credit for. But he is also probably more socialist than people realize (read about his childhood and his speeches, he absolutely hates poverty).

Peace.

[CY09]

Thanks. Do you have excrept to which speech that he talks about poverty and his childhood. It will be interesting to know as it is likely his viewpoints stemmed from vicarious experiences

[Wildreamz]

https://www.thecipherbrief.com/column_ar...xi-jinping
Path Not Preordained: A Profile of China’s Xi Jinping

In 1990, Xi wrote about his childhood experiences in Shaanxi: “I grew up in the seven years I was in Shaanxi. I learned two important things. First, I had the opportunity to understand what real life looks like, what is right and wrong, and who ordinary people are. These were experiences for life. Second, I had my self-confidence built up. As they say: the knife is sharpened on a stone, people are strengthened in adversity. Seven years of hard life in the countryside developed me a lot. When later in life I have encountered challenges, I have thought about the village, and that then I could do something in spite of hardships. When later I have come across problems, I have never experienced them as big as then. Every man is to find his own strength.”

Xi Jinping is determined to end all poverty in China by 2020. Can he do it?
https://edition.cnn.com/2019/04/19/asia/...index.html

China's Xi Jinping declares 'complete victory' in campaign to stamp out rural poverty
https://www.straitstimes.com/asia/east-a...n-campaign