Tag: China Observation

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.

—

See others posts

Investing in China: regulation and justice

Random thought on China’s role in US debt

Historically, China was a big buyer and still a big holder of US gov debt, which to some extent led to the ultra-low interest rate environment.

Nowadays, China is still helping keep the US interest rate low, indirectly. I think by not providing good return opportunities, China is forcing money to go to other places, indirectly providing more money (with low return alternative) in the global market for the US gov.

It’s not just impacting foreign capital interested in China, but Chinese money as well.

Alternatively, if China has attractive opportunities all over the place, it will compete for global money one way or another.

China is back with good policies. What’s next?

China’s stock market is back. Everyone knows.

China rolled out policies to help its stock market & economy. This makes sense.

What are the missing parts?

Some might say geopolitical tension is still an unsolved issue.

I won’t disagree. But I feel it’s not as extreme as before.

Some may say a deeper structural reform.

Fair; but in short term this might not change.

What I think is missing (and China can start to think in short term) is how China can better participate & even organize global affairs & how the world economy can grow better with a stronger China.

Historically, China didn’t excel on this. During times when its economy was leading the world, it didn’t take much care of the world. It could give stuff to nearby countries; it could invent and other can learn; however, it didn’t actively “organize the world”.

A strong economy that can’t lead is a loss to the world, I think.

How to lead? How to make other countries live better as China is a bigger part of global GDP? Not by giving free money but in a healthy, organic way.

That’s the question I haven’t seen much discussion.

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.