Author: admin

When we are saying China needs to boost household consumption

First of all, how large is the gap?

China’s household consumption is 39% of GDP, which is lower than EU average of 52%, 70% in the US, and below world’s average.

That’s about $2.3 trillion (13% x $17.8 trillion 2023 GDP).

Secondly, where are the areas to increase?

If look at GDP composition, China needs to increase in real estate services, healthcare, education, professional & technical services, information & communication, recreation & art, etc.

For real estate services, rent & management fees need to increase…

Healthcare and education is partially public spending. So need more gov budget allocation.

Services is essentially a problem of oversupply right now. Either needs to export or needs to increase demand.

Information & communication.. need to raise software prices.

Recreation & art needs more leisure time.

 

Complications in GDP and consumption calculation

In China, owners’ imputed rent at market rate was only adopted as of 2023 GDP figure – 2023 GDP upward, among which CNY 1.343 trillion (~1% of GDP) is due to market rent approach vs cost approach.

Some public/government sponsored consumption are not counted as household consumption, such as public schools, healthcare etc. Therefore the split will make household % lower, but this won’t change total GDP figure. These are both valued on cost basis in China and EU.

Investing in China: news are not news

If you hear a piece of “news” from China’s mainstream media, that’s not the news anymore. Normally, this “news” can be seen from multiple official outlets in China in similar or even the same words.

Therefore, you can trade on the news anyway; you should assume market has already priced this information.

The reason is that nowadays information transmits super efficiently in China, so little people would be left behind without the exposure to those mainstream “news”. Thus, there is no one you can have information edge over, especially in the market.

Then where/how to get information edge?

1/ by double checking the news with resourceful people. Context will matter a lot and they can help you understand for example whether a change is big / serious or superficial / repetitive.

2/ read the full documents; gather any information that is shortened or simplified in the news

3/ focus on news that is not repeated in other mainstream medias

4/ compare with previously similar events – look for anything that is more or less than before; in other words, result is not important, the difference matters.

 

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See others posts

Investing in China: regulation and justice

Investing in China: common fallacy

Bizarre Numbers (4)

New home sales is ~60% of China’s home transaction, according to sqft from official stat. (Source: 全年新建商品房销售面积97385万平方米。二手房交易网签面积71812万平方米)

In the US, in 2024, ~700k new home sales vs. 4mn existing home sales. New home sales is ~15% of US home transactions.

60% vs 15%

Weakening home buying in the US

US existing home inventory is going up to a higher level and month to clear is expected to reach 4.4 month, a slightly higher number.

US new home price is down yoy, but volume was strong. Some explains that “less expensive homes are driving sales activity“.

Homebuilder’s sentiment is running at low levels, while builders reported the average price reduction unchanged from the previous month.

 

 

FAANG to MAG 7

Netflix was out, Microsoft, Nvidia and Tesla are in.

 

When FAANG was first coined, it was 2013. Netflix provided significant return in that mobile Internet and cloud era.

ChatGPT was out in Nov 2022 and swept the world in 2023.

 

Netflix doesn’t touch hardware and AI.

Nvidia was neglected as it’s not close to consumers except for the gaming PC. Later people may know it as a crypto mining machine, but not the backbone of an entire era.

Tesla was neglected as people can easily live without an electric vehicle. Now it seems that autonomous driving will eventually serve many people and be deployed in more use cases in the form of robots.

Microsoft was neglected because it was mature and old? Not sexy.

 

Cheap not enough, change in management style is key

Reading Buffet’s early investments in Union Street Railway in the 1950s.

Company’s business is not going well, and its stock is cheap – $30–$35 per share despite roughly $60 per share in cash and bonds.

Simply by distributing dividends, the company can give $50 per share to shareholders.

While the company being cheap is important, the management’s willingness to give shareholder return is even more crucial.

A distant $50 is different from a near-term $50; not to mention other ways to destroy equity value.

Oh btw, Union Street Railway also needed local regulator’s approval to distribute it seems – so ultimately it’s also up to the change of thoughts from regulators.