Tag: China Observation

The end of a cycle of liquidity for Chinese ADR and overseas listed companies

Investors rediscovered China mostly after the policy shift in Sep 2024.

However the ADRs and overseas listed companies still sold off in the subsequent month and the “924” effect nearly reversed.

The second wave of enthusiasm came with the famous “DeepSeek moment” in Feb 2025.

However, the entire world including Chinese ADR and overseas listed companies sold off with Trump’s liberation day in Apr 2025.

The current cycle is the third one and it plays out longer.

While the previous two cycles are fundament driven (policy and tech), the third cycle is a liquidity one I believe.

The most obvious sign is the near zero HIBOR (HK over night interest rate), starting in May 2026.

Meanwhile, there are various short-form videos, social media posts and anecdotes about mainland Chinese people go to HK to open bank accounts and brokerage accounts.

The troubling sign emerged probably when IBKR rejected mainland Chinese to open accounts in Oct 2025.

The Chinese ADRs and overseas listed companies peaked about that time with subsequent AI bubble worries etc.

As the stocks had risen for quite a few months and are at quite elevated levels, it also took time for it to come down.

Iran war accelerated this.

And the Futu/Tiger/LongBridge news in May 2026 marks the end of the cycle.

While it can take some time for remaining selldown to happen, it seems still manageable and valuation is not demanding.

Chinese AI may be good at agentic tasks, but…

In 2024, OpenAI talked about five levels of AI.

  1. Chatbot/Conversational AI
  2. Reasoners
  3. Agents
  4. Innovators
  5. Organizations

We are at level 3.

Chinese AI could be good or superb in the second and third level.

Chinese people are good at solving problems (think about exams) and doing tasks (think about how efficient Chinese workers can be at repetitive work ).

However, if Chinese AI needs to at level 4 and 5, and if it’s truly “Chinese”, then Chinese people need to evolve.

True innovation is scarce in China. Chinese society currently doesn’t reward true innovation. It’s like “solving news problems with new ways”. That is not the natural motivation. Chinese AI may stuck at level 3 if we don’t do innovation right.

It’s another problem at level 5. Most Chinese people don’t know how to organize themselves.

So it’s hard for me to see how Chinese AI can do this right either.

They may struggle for a while.

Or they might become a different animal.

The 5-year cycle in China investing

Every five years, China will have a new Politburo Standing Committee.

There are 7 members now, which are considered the most politically powerful people in China.

Not all members are new, some can stay for 2-3 term.

But the fight for becoming a new standing committee member can be quite intense.

There can be ripple effects across other areas in China.

Stock market can be quite sensitive to unknowns and turbulence.

To avoid uncertainties, it’s wise to stay away from it.

To compensate for staying on the sideline for about one year, the previous year can be quite a good year.

That seems to the case for the last 2 terms – 2017 and 2022 were the year of new committee selection. The “fight” could start in 2016 and 2021. Thus the “good” years were 2015 and 2020.

The next term is 2027. The “fight” could start in 2026 and 2025 was the good year. That seems to be the case so far.

 

How high can ads ARPU go?

Bilibili, a younger Chinese user focused video website generates advertising revenue at about 7.5 rmb per DAU per month, slightly above $1 ARPU per month.

That is less than half of Kuaishou, which is above 16.5 rmb per DAU per month, or about $2.4 ARPU per month.

Kuaishou’s DAU size is near 4x Bilibili, so ads revenue is nearly 8x larger.

But these are nothing compare with Meta, which commands about $30-$40 ARPU per month in North America.

So Kuaishou is only like 1/10.

Douyin is the highest in China.

Using $50bn pure ads in China and 800mn DAU gives about $5 ARPU per month.

On top of that there are e-commerce, local services, payments, live-streaming etc. so overall Douyin app ARPU is a lot higher than pure ads.

Just comparing ads revenue: Douyin DAU 3-3.5x Meta NA but ads ARPU is 15% of Meta, which will give you about 50% of Meta NA ads rev of ~$100bn.

Japan before Meiji vs Qing Dynasty

Japan before Meiji vs Qing Dynasty have many similarities:

1/ both are agrarian based economy that is not industrialized as western peers at the time

2/ both faced challenges and threats from the west. Qing has the Opium Wars from the 1840s; Japan encountered Perry’s Black Ships in 1853–1854.

3/ both had a structured military class – Qing with 八旗 and Japan with samurai. Both had become partly hereditary status groups living on state stipends. Many were no longer effective soldiers.

The Meiji Restoration 明治维新 and 百日维新 Wuxu Reform / The Hundred Days Reform are similar and usually compared together.

The results are vastly different though.

Why?

Shogunate is politically easy to target. Reformers can support the Emperor Meji. Meji and Tokugawa are separate.

However, Guangxu, the Qing Emperor had “invisible enemies” inside – Cixi or other Manchu noble.

The political situation difference had another profound impact – the support of armies.

Meji had key army support from Satsuma 萨摩, Chōshū 长洲 which are clearly anti-shogunate.

Guangxu didn’t have army. Guangxu had Kang Youwei who had ideas but no real power.

Military forces at that time were still loyal to the Qing court on the surface. Whether it’s 袁世凯 or 湘军/曾国藩 or 八旗, no one is clearly anti-Cixi. People could be dissatisfied but Cixi was still the powerful core of Qing court.

Yuan was likely the most possible choice for Guangxu back then, but Yuan chose not the take the risk / help a coup etc.

Yuan Shikai 袁世凯 did not have a clean, rightful banner to be openly anti-Cixi.

Excerpt from 万古江河

明祚二百余年，其实不能与汉唐泱泱大国之风相提并论。其中缘故，可能由于开国之初，太祖立“皇明祖训”，严嘱子孙不得轻易改变他订立的典章制度。固然后世皇帝破坏“祖训”之处不少，这一保守的基调是一锤定音，以致明代政治，难有改革。

…

明太祖废宰相，皇权定于⼀尊，于是⽂官与皇帝之间，无复汉代与宋代可见的制衡。绝对的皇权，保护了保守主义，以致质疑当时制度的思想，都难逃政治权力的压制。皇帝自己不能行使权力时，绝对的权力落在近侍、宦官手中。于是有明一代，自仁宣以后，宦寺鱼肉文官与儒生的事迹，不绝于史书。明代宦官专权，擅作威福，其灾害不在贪污败坏，更在于斫丧了文化与思想的元气。

明代中叶以后，知识分子及社会大众都对上述令人窒息的压抑之气，兴起各方面的反弹。那些史事，将有专节论述，此处不赘。反弹的力量与压制的绝对权力之间，有各种冲突。中国的人才，以及社会的文化活力，都在这一长达百年的斗争中，消耗殆尽！后果是明末的中国，不再有余力面对正在开展的世界新局。能察觉这一变局的人已经太少，更论思考如何适应这一即将叩关的世界形势！

闭关锁国 and 落后 backwardness is a result of A) first emperor’s 皇明祖训 which forbids revolution, B) a lack of a balancing of power, C) pushbacks and crackdowns destroy resources and productivity to move forward.

 

First quarter China household net additional mortgage lowest in 10 years

For the first quarter of 2026, the net increase in mid-to-long-term household rmb debt is lower than 2015 by ~33%. This is an approx of net new mortgages.

2015 was the year of 棚改货币化 / 去库存

2016 was the year of 房住不炒 (near end of the year)

1q26 – 2026年一季度金融统计数据报告

3月末，本外币贷款余额284.51万亿元，同比增长5.7%。月末人民币贷款余额280.51万亿元，同比增长5.7%。一季度人民币贷款增加8.6万亿元。分部门看，住户贷款增加2967亿元，其中，短期贷款减少1640亿元，中长期贷款增加4607亿元；企（事）业单位贷款增加8.6万亿元，其中，短期贷款增加4.13万亿元，中长期贷款增加5.42万亿元，票据融资减少1.1万亿元；非银行业金融机构贷款减少3680亿元。

1q15 – 2015年一季度金融统计数据报告

3月末，本外币贷款余额91.52万亿元，同比增长13.3%。月末人民币贷款余额85.91万亿元，同比增长14.0%，增速比上月末低0.3个百分点，比去年末高0.3个百分点。一季度人民币贷款增加3.68万亿元，同比多增6018亿元。分部门看，住户贷款增加8892亿元，其中，短期贷款增加2064亿元，中长期贷款增加6828亿元；非金融企业及其他部门贷款增加2.71万亿元，其中，短期贷款增加9543亿元，中长期贷款增加1.48万亿元，票据融资增加1643亿元；非银行业金融机构贷款增加632亿元。3月份人民币贷款增加1.18万亿元,同比少增661亿元。月末外币贷款余额9146亿美元，同比增长4.0%，一季度外币贷款增加341亿美元。

In fact, you need to go back to 2012 to find a lower number.

1q12 – 2012年一季度金融统计数据报告

3月末，本外币贷款余额60.77万亿元，同比增长15.5%。人民币贷款余额57.25万亿元，同比增长15.7%，比上月末高0.5个百分点，比上年末低0.1个百分点。一季度人民币贷款增加2.46万亿元，同比多增2170亿元。分部门看，住户贷款增加4995亿元，其中，短期贷款增加2581亿元，中长期贷款增加2414亿元；非金融企业及其他部门贷款增加1.95万亿元，其中，短期贷款增加1.05万亿元，中长期贷款增加5906亿元，票据融资增加2575亿元。月末外币贷款余额5595亿美元，同比增长17.2%，一季度外币贷款增加211亿美元。

M1 vs M2 gap in China

Back in 2016 and 2017, M1 growth was meaningfully faster than M2 growth in China, which typically indicates a high willingness to spend or invest in the economy.

That is a bullish sign.

On the contrary, if M1 growth is below M2 growth by a wide margin, it usually indicates people would rather save more than spend or invest.

That negative gap was deepening throughout 2024 till the famous 924 stimulus.

Using revised M1 growth rate, the negative gap was about -5% at the beginning of 2024 and about -10% in Sep 2024.

That negative gap shrunk to about -1% in Sep 2025 and about -3% in Feb 2026.

Actually, looking at M2 growth alone might give you a glimpse of China’s economy pulse and sentiment.

 

Labubu adjusted P/E

In a previous post, I said unpredictability is what Pop Mart investors must shoulder, but is there any number that can make investors slightly more comfortable?

Let’s try Labubu adjusted P/E and we need Labubu adjusted earnings.

Labubu (The Monsters IP from Pop Mart) revenue was over 14 billion rmb in 2025.

The other “good” IPs were about 3 billion rmb revenue.

We can assume there is 10 billion “extra” revenue that Labubu is earnings.

We can also assume Pop Mart’s marginal operating profit margin is 50%. Then the “extra” operating profit is ~5 billion rmb.

Subtract that from 2025 operating income will give you about 12bn rmb in Labubu adjusted operating profit.

With 25% tax rate, Labubu adjusted earnings is about 9bn rmb.

At 150 HKD per share, Pop Mart is at ~20x Labubu adjusted P/E.

Unpredictability is what Pop Mart investors must shoulder

Pop Mart stock plunged after earnings – down 23% on Wednesday and down 10% on Thursday.

Pop Mart’s forecast of 20% or so rev growth in 2026 is lower than what is expected and is a sharp decline after 185% growth in revenue in 2025.

Labubu is still one of the hottest fashion toy IP worldwide with no competitors I think.

However, investors can’t reliably forecast future rev and thus cash flows of Pop Mart as nobody knows whether Labubu can sustain its mojo / for how long and how far.

Unpredictability is usually a negative thing, but people disregarded it as a risk when Labubu was in rapid growth mode. The “upside” unpredictability blinds investors – they liked it actually.

Now if you really want to be an investor in Pop Mart, you need to be comfortable with this inherent unpredictability.

One way to think about this is that Pop Mart is ultimately a very good channel like Tencent. Whatever it incubates and sells, its stores will sell them well. Pop Mart stores are the product of Pop Mart, alongside the IPs like Labubu.

However, to say Pop Mart stores is like WeChat is too much a compliment for Pop Mart so far. Network effect that is so strong and unique that WeChat really doesn’t have a competitor.