Tag: China Observation

Notable decline in Baijiu stocks

See my previous posts on Baijiu here (Jun 2024) and here (Sep 2024) – concerns on volume growth and the ability to further increase profitability.

While premium Baijiu company like Moutai can still do ok, as key product’s market price is still higher than its ex-factory price, the price gap is narrowing, which means Moutai’s distributors are having a bad time.

The end demand is additionally weak after Chinese gov’s recent liquor ban.

Moutai’s stock price has declined by ~15% since mid-May (1645 -> 1401). Currently, Jun 16 is one of the lowest closing price in 2025, worse than Apr 7 when tariff hit.

However, this represent a buying opportunity I believe.

Besides Moutai, other Baijiu brands stock also declined. Wuliangye has declined about 15% from its peak this year. In fact, it’s more than 10% lower than end of 2019 level (~rmb 133 per share)!

Luzhou Laojiao has declined about 25% from its peak this year.

They are trading at 20x (5% earnings yield, Moutai) and 14x (7% earnings yield, Wuliangye), and 12x (8% earnings yield, Laojiao) LTM earnings, compared with ~1.6% China’s gov bond yield.

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.

 

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

Existing home price index near flattish in Feb 2025 across tier-1 cities

In Feb 2025, the price index of existing home across BJ/SH/SZ averaged is only -1.4% yoy, about flattish.

As of Mar 2025 data, price index of existing home across BJ/SH/SZ averaged has improved for 6 consecutive month (Oct 2024 – Mar 2025), by about 0.44% every month.

The five month from Oct to Feb month has helped the yoy comparison improve 8.6% (from -10% to -1.4%).

 

Railroads change cities’ fate

Read some interesting discussion on railroad build-outs in early 20th century in China, and its impact on cities.

Before railroads expanded, China’s economy relied a lot of waterways / canals.

Railroads changed the trajectory of cities. Traditional waterborne centers were sidelined and small towns can quickly become new centers, for example,

津浦铁路: Linqing fell; Dezhou rose

京汉铁路: Kaifeng fell; Zhengzhou rose

Additionally, if two railways are built with different standard, they shall create a city, for example,

Shijiazhuang: Zhengtai Railway (metre gauge) intersecting Jinghan line (standard gauge)

Changchun: Chinese Eastern Railway (broad gauge) intersecting South Manchuria Railway (standard gauge).

China’s export and import trend is more even in 2024

If you look at 2023 vs 2022 export data, you will find China’s export to Russia surged by almost 50% in USD terms.

Meanwhile, EU and US bought less from China in 2023 vs 2022 – China’s export to EU and US dropped by double digit.

In 2024, that trend is gone.

In USD terms, China’s export to Russia, US, and EU all rose by 3-5% in 2024 vs 2023.

DeepSeek is the poster child of Chinese special situation

DeepSeek provides unparalleled cost-efficiency – cheap and good.

DS is a typical “China” thing, propelled by limited resources – in this case, limited advanced chips.

This is just not the way that US companies usually pursue – US shall go for the best performance, with unlimited resources ideally.

How wonderful the world balances itself.

Little differentiation != real competition

Sometimes, it does seem that even SOEs in China doesn’t have monopoly. For example, there are 3 telecom companies, and multiple banks.

However, there are also no real market competitions. E.g. you don’t see China telecom operators competing for customers by offering differentiating product offerings.

Consumers didn’t get a wider range of choices via these seemingly “competing” businesses. 

How these businesses “split” profits looks more like a “political” question, rather than a economical one.

Chinese businesses give more weight to culture

As the go-go period ended in China, it’s no longer the era of the fastest runner.

Surprisingly, good culture now matters in China.

1/ Culture matters to employees.

Trip.com founder & CEO James Liang advocates for “hybrid” work mode – employees can choose to have two days WFH during a week.

2/ Culture matters to customers.

PDL (Pangdonglai) is very popular and has a growing influence in China as a retailer – an industry that most people ignore nowadays. PDL is famous for its “customer service, quality and integrity“; the at PDL work 7-hour days, have weekends off, get a string of perks and are entitled to 30-40 days of annual leave.

Investing in China: common fallacy

A common fallacy, especially in the past, is to find a US asset in the similar industry and use it as a reference for valuation.

Why this is less useful, especially in rmb assets?

To put it simply,

asset value = earnings power (e.g. EPS) x multiple (e.g. P/E)

Then we look at these two components:

1/ Industry dynamics can be vastly different.

Demand side can be very different – e.g. work from home has never been a thing in China vs. only ~24% of workers don’t WFH in 2022 in the US.

Supply sides can also be very different in terms of entry barriers, the level of competition etc.

There are just too many different things, thus the projection based on a US company’s past is usually not a good reference.

2/ valuation can be vastly different.

 

Partially, difference in multiple is reflecting terminal growth,  etc., therefore it’s similar to the first point, which is about fundamentals.

Additionally, If you think about bond prices – US treasury yield vs. China gov bond yield, they are on two diverging roads.

What’s good though? Assets in China can produce less correlated return vs. US assets, therefore providing additional benefits to a portfolio.

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See others posts

Investing in China: regulation and justice