Many brands exited the market, but total vehicles registered bounced back a bit to 1.1mn in 2023, up 58% yoy. Local brand LADA had over 30% market share in 2023.
Back in 2020, there were 1.6mn vehicles sold. And 1.76mn for 2019. So still 1/3 lower than 2019 level.
Mortgage rate 7% is too high.
If you didn’t purchase a home in 2020-21, you seem to have missed the boat.
Sure unemployment rate is low, but young people don’t have that feeling that job market is great. The confidence of easily getting another job, or getting a good raise is not high.
Sure crypto price may ease some pressure if you assume that’s young people’s assets, but that’s too speculative to put a lot of money, and may not be good for the hardworking people with low risk-appetite.
Student debt relief seems to be a limited approach.
Pro-Palestinian protests and the subsequent arrests could be troubling.
It’s either lowering rates soon or legalizing marijuana soon, to win young voters.
But marijuana is a risky approach and might have negative impact on other voters. Must be cautiously executed.
To me, that’s “not buying a home in Shenzhen”.
How much did I gain? almost as much as $1mn.
Well, if I bought a 10-20mn rmb home in 2021, with 30-50% down payment, which was the plan, I would have invested 3-10mn rmb.
Over the past 3 years, I could have lost 3-6mn rmb or 60-100% of the equity value, assuming home prices dropped by 30%. In fact, I have seen examples of home price dropped by 66% in 2024 compared with 2021.
This doesn’t include the interest expenses, brokerage fees, and opportunity costs which can be at 2.5% deposit rate times 3 years for rmb.
What surprised me in 2021?
The low rental yield surprised me at first – easily 1%.
The place I got in 2021 shall cost 10mn rmb to purchase, but renting costs 11k rmb / month, which was 1.3% rental yield.
Then I realized housing price in SZ is comparable to some of the most expensive cities in the world. (ASP in certain part of SZ can be easily 150k+ rmb per sqm, which is equivalent to $2.1k / sqft)
$2k / sqft is insane.
Even someone assumes (subtract) the savings on insurance, tax, etc., (say 2-3% a year) – the price is high ($1k / sqft).
The simplified math works like this – take a $1mn home as an example, assuming a 2.5% discount rate, and assuming the cost of owning is 2.5% per year, the savings on cost of owning is $1mn.
Therefore, you could cut the China’s listing price by half and compare. But still expensive. This also assumes that you don’t pay property tax in China – which is true is most cities and especially for your first home or smaller homes.
Note that if US raises interest rate, that value of this “saving” can be immediately cut – e.g. cut by 50% if discount rate increases to 5%. See below.
Home price to income level is also concerning. I am sure there are many rich business owners in SZ, but wages are not that high. High-paying jobs are not common, and SZ was not as resilient as other cities in earning wages.
Big companies like Tencent, Vanke shall face pressure in the coming years. [Gaming was called spiritual opium in 2021, and Vanke is a residential real estate developer] Cross-border e-commerce was hot, but competition quickly rose (especially from TEMU), plus global consumption dropped as Ukraine war broke out and Fed increased interest rate.
SZ also have strict requirement to purchase homes. You need to have 3 years of social insurance payment to purchase a “residential property”. You could purchase an “apartment”, which doesn’t need social insurance requirement but that can drop even more in prices due to oversupply.
[“residential property” and “apartment” are two different types of property that are treated differently in property rights, in taxes, in education resources, in electricity costs, etc.; rental price could be the similar, but “residential property” are more expensive to purchase]
This article is pretty good at summarizing the importance of microplastic to health (downside), including in cardiovascular disease etc..
Global companies are trying to address this issue for a long time. The most recent development is Starbucks’ announcement of redesigned single-use cups with 10-20% less plastic.
EU’s objective: aims to reduce microplastic releases by 30% by 2030.
See a previous article for fast-fashion and microplastic.
See previous Chinese companies share-based compensation (1)
Baidu ($BIDU)
2023
FCF: 25,424 mn rmb
SBC: 6,345 mn rmb, or 25% of FCF
Note: FCF improved over the last two years
iQiyi ($IQ), a subsidiary of Baidu
2023
FCF: 3,315 mn rmb
SBC: 637 mn rmb, or 19% of FCF
Note: 1) FCF turned positive in 2023. 2) Capex defined by mgmt is narrow – only “fixed assets”; note that acquisition of intangible assets is higher than acquisition of fixed assets.
iQiyi does say that “Capital expenditures are incurred primarily in connection with construction in process, computers and servers.”
It’s important to calculate FCF ex-SBC.
SBC is a real cost of business and equity holders should be aware of the dilution.
Sometimes, buyback is smaller of SBC so shouldn’t be touted too much. Net buyback is more important.
This is a series of posts. Starting with Kuaishou and Bilibili.
Side note: FCF/Capex is defined by companies if they present, which could be subject.
Kuaishou (HK.1024)
2023
FCF: 15,881 mn rmb
SBC: 3,570 mn rmb, or 22% of FCF
Note: SBC has down as stock prices are down. FCF improved; was negative in 2022
Bilibili ($BILI)
2023
FCF: -1,033 mn rmb (negative FCF)
SBC: 1,133mn rmb (as FCF is negative, SBC is making it more negative)
Note: SBC is flattish over past 3 years. FCF improved over 2022 (-6,611 mn rmb), but still negative in 2023.
It has been 4 years since Covid-19.
From q2 2020 to q1 2022, China attracted export orders as many parts of the world was shut down. US lowered the interested rate and asset prices surged.
Then a few things happened: the war in Ukraine, the interest rate hikes, and the Shanghai lockdown among rolling lockdown in different parts of China.
From q2 2022 to q1 2024, US has attracted capital with high rates and developments in AI. US started to introduce more targeted policies in maintaining tech leadership (namely AI), from foundry subsidiaries and chip restrictions. China would get rid of lockdowns but started an even more difficult fight with property sector problems.
As of now, after the eventful four years, many things have rebalanced to a point that I think many have achieved their agenda.
US regained global leadership, via global defense partnerships in Ukraine and middle-east, and via LLMs, monopoly in the most advanced chips, and computing power. US has diversified supply chains and TSMC has plans to build 3nm or below to the US.
China recalibrated its growth model and has de-risked this property bubble. China has built out its own chip capabilities although very limited and maybe only up to 7nm (Huawei restarted smartphone business again in China). China now views itself with fewer chock points than before.
Policymakers should be happy? They seem to have gained tremendous power. In first 2 years, they seem to be reacting / pushed to do things, while in the second 2 years, they were definitely more active in setting the tone.
Regular people lost some confidence/freedom in the last two years, after the first two years of gaining lots of bargain power
Note from this interesting BG2 podcast: AI Demand / Supply – Models, Agents, the $2T Compute Build Out, Need for More Nuclear & More
Very good discussion. And some notes.
Some would argue that while LLMs are indeed good in coding, chatting etc., that “amazingness” was extrapolated too much. In other words, the gap between pre-ChatGPT and ChatGPT-3 is not gonna continue/replicate. The expectation is too high that the room to beat is diminishing.
Some would question the “moat” of most LLMs. The most advanced ones, the “leading edge” is good, but the rest could be commoditized. Then all those R&D dollars is more of less duplicated and return is low.
GTP-5 is undoubtfully powerful and could be more powerful than people think, but what’s next? What cards haven’t been played or thought about after GPT-5?
Besides technology advancement, there seems to be a problem in regulatory environment in nuclear power in the US, which put a lot of restrictions.
France and China have lowered the nuclear power costs over the years.
1/ the $1.8bn lawsuit became the catalyst to lower commission revenues for each home transaction.
Some real estate agents may exit the industry as the pie is smaller; and spending on Zillow per transaction will likely decrease.
Therefore, Zillow’s revenue from home sales shall decrease under the current model.
2/ competition from CoStar is very real while Zillow is not growing
CoStar combined traffic from 23q4 earnings presentation
Home.com (owned by CoStar) had 149 million unique visitors in Feb 2024, with 567% yoy growth.
Zillow’s 2023q4 reported average monthly unique users was 194 million, down 2% year over year. Visits during Q4 were 2.2 billion, up 1% year over year.
Zillow’s DAU trend from Investor Deck February 2024 – not looking amazing.
Their business models are different. CoStar is more SaaS like. And Zillow is more e-commerce.
(above from ChatGPT 4)
3/ of course the current interest environment is not helping.
While it’s not new and Fed may cut this year, marginal benefits of lowering from 6.5% to 6% won’t move the needle.
March CPI is 3.5% for the past year and increased 0.4% MoM in March.
Higher than expected, but again, like the post last month, Truflation indicates <2% inflation.
Here is another discussion of “lagging” in shelter CPI, which was 0.4% in March
This lag occurs for a few reasons. First, the market indices capture rents of units currently on the market, not rents for units occupied by continuing renters, like the CPI does. Rents change when leases expire, which typically happens annually. In addition, landlords may be less likely to raise rents to market prices for continuing tenants, and so it might take even longer for rents on all units to catch up with rents charged to new tenants.
A new index was introduced to more closely track market prices of renting.