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China reported numbers’ discrepancy seems lower

China’s reported number can be very different from reality.

What numbers can you really rely on?

I would assume the number reported today but happened a year ago is more accurate than the number reported last year.

For example, for 2024 Jan to Aug, fixed asset investment rose by 3.4% to 32.94 trillion rmb.

While you need to believe in the current number, it’s more acceptable to me to assume the number for 2023 Jan to Aug is 31.86 trillion rmb [32.94 / (1+ 3.4%)].

Then you can compare with last year’s reported number, and see the discrepancy is -3% – last year’s reported number is 3% higher than current year implied number.

If you do the same for all month since December 2021, you can see the discrepancy grew from 0% for Dec 2021 to -15% for Dec 2022 and now back to only -3% for Aug 2023.

Indeed, the discrepancy has been low for May 2023 to Aug 2023: -4%, -3%, -3%, -3%, which seems to be a good thing.

Japan’s politics

People noticed the market’s volatility on Aug 5 with the yen carry trade, but few discussed the notable changes among the next Japan PM candidates & the pressure on current PM Fumio Kishida.

In early Aug, Kishida seemed failed to secure his party’s support. The meetings on Aug 2 (Friday) between party “leaders” seemed to be a really important time. Other news pointed to the same direction around those days.

The LDP’s internal election dynamics, especially factional operations, determine the outcome. And Taro Aso seems to be a very powerful figure. He is the “King Maker“.

Currently, there are 9 candidates within LDP. We shall know the vote by end of Sep. If no one gets over half of the vote, which is almost certain, then the two with the most votes will enter the runoff. In this runoff, the LDP lawmakers will have a much greater voice so they are determining in the end.

The winner shall be the next Japan PM.

 

100% tariff on China-made electric vehicles.. so what

Nio’s sub brand Onvo just announced its price today.

Without battery, price is 150k rmb, or ~$20k.

If doubling the price due to tariff to $40k, that is still competitive in the US.

Model 3, ID.4 is around that price range in the US (excl. credit).

If counting US gov subsidy, that’s $7.5k price advantage for US-made EV. But this subsidy won’t be here forever.

The point is, even with 100% tariff, it’s not entirely unaffordable for Chinese EV brands.

China’s over-consumption

Over-consumption is ingrained in Chinese culture.

When Chinese people invite other to dinner, they usually over-order to show hospitality. This is over-consumption.

When Chinese people drink liquor on the dinner table, they can push beyond their bodies’ alcohol limit – drinking beyond the limit is usually seen as sincerity and deep friendship. This is over-consumption.

When Chinese people send gifts to each other during holidays, they often send things that are higher end then they consume. This is over-consumption.

The concept of “over-consumption” doesn’t mean it’s not necessary; indeed, those can be seen as “normal” rather than “over-consumption” for most Chinese. It’s only when you compare those consumption levels to countries like US, you can say it’s above the needed/common level.

If Chinese people are going to normalize their consumptions, there can be an oversupply in those categories.

Every Chinese companies’ overseas story needs a regulatory check if involves the US

Every company needs to go through this process.

Ask this question – has the overseas business been challenged?

Quality companies should welcome the challenge and prove themselves to overseas regulators.

Only if the company passes the test, the international story is fair and square.

PDD/Temu is going through this process; the challenge just came up around de minimis exemption.

CALT’s licensing agreements in the US is also being questioned to some extent.

Wuxi Bio is going through this process (US Biosecure Act) and hasn’t proved itself yet.

Beigene is being challenged over IP by Abbvie.

No need to mention ByteDance/TikTok.

etc.

Chinese companies need be prepared to fight uphill battles in overseas if they want the US market. Behaving better then a local company seems to be a minimum; be careful about anything that may seem “unfair” for overseas regulators.

New era for Chinese liquor

1/ Post pandemic, the growth rate of various food consumption products did not meet the expected rapid increase. Additionally, government consumption is strictly limited, reducing the scenarios that support alcohol consumption, leading to insufficient effective market demand.

2/ Under the guidance of leading brands like Moutai directly increasing sales volumes and strictly controlling retail price hikes, the price increase room for high-end to sub-high-end products has been compressed, and the main business revenue and profitability of well-known products have declined.

3/ Key enterprises and traditional key production areas continue to expand brewing facility construction, and the production capacity of solid-state raw liquor is gradually being released. Inventories of raw liquor and finished liquor continue to increase.

4/ Well-known brands are accelerating their expansion to broader sales regions and nationwide layouts, penetrating into third- and fourth-tier markets and through omni-channel, both online and offline. The regional brands’ baijiu market has visibly shrunk.

5/ After the revised standards for beverage alcohol classification and baijiu industrial terminology were issued, they affected the raw materials of liquid baijiu. The labeling of food tags has increased the cost of some low-end baijiu.

6/ The adjustment of the national industrial structure catalog lifted restrictions on baijiu production lines. Various regions, especially traditional baijiu-producing areas, have successively approved the establishment of a number of new baijiu enterprises, leading to a slight increase in the total number of baijiu enterprises. However, due to the current macroeconomic environment, the number of large-scale baijiu enterprises has not increased but decreased. We have now entered an era where there is neither a shortage of alcohol nor a shortage of good alcohol.

see the other post for Chinese Baijiu consumption – already quite high volume, hard to grow, likely decline IMO.

Nvidia revenue problem

While investors mostly focus on below whispered q3 guidance, or that revenue beat is smaller than recent quarters, a less discussed problem seems to be declining contribution from the US.

Singapore revenue contribution to Nvidia is rising qoq to 19%, while the US declined to 43% from 52%.

In absolute number, US revenue declined from $13.5bn to $13bn and Singapore rose from $4bn to $5.6bn.

Sure Nvidia says it’s not an indication for the end location. But Malaysia/Indonesia is likely, where end users include ByteDance or US CSP services (whose end user is ByteDance).

See the other post for ByteDance capex – it’s probably $10bn+ per year on data centers, or 1GW of IT load assuming $1mn per MW.

Tencent’s 3A games problem

Black Myth: Wukong is hot. Tencent is a shareholder in Game Science (developer of Wukong), a distributor for Wukong in China, and a significant shareholder in Epic Games (Wukong uses Epic Games’ Unreal Engine).

However, Tencent might have more problems with the rise of 3A games.

1/ For game development, mobile game are too profitable for Tencent. 3A games incurs more costs and is hard to monetize over the long run if can’t develop a long lasting IP.

2/ For game investment, Tencent can’t leverage its powerful Wechat/QQ as much in distribution, which can help increase portfolio value by a lot. In addition, 3A games take much longer to develop and can fail – Tencent is hard to wait that long with unknown result. So overall, the investments become more unpredictable for Tencent in 3A studios.