2023 China has 9.02 mn new born, a record low. Birth rate is 6.39‰ (per 1000 people).
In Japan, it is estimated to have 726,416 new borns in 2023, also a record low.
Strict covid control had negative impact on birth rate. And the remote working culture seems very different in Asia vs. say the US. There is almost no remote working in China. And I don’t think remote working in Japan is mainstream. Remote working seems to be very good to raise kids.
Employee counts at the end of 2020, 2021, 2022:
Their R&D expenses combined is likely to be similar as Tesla’s R&D expenses in 2023, or ~$4bn.
CapEx (rmb, mn) in 1H 2022, 2H 2022, 1H 2023:
Despite a macro downturn, Nio is spending more in capex.
Nio’s capex is now 26% of its revenue in 23H1; XPEV capex has come down a bit to 16% of revenue; Li Auto had the best ratio at 5.4% of revenue in 23H1.
The trio has spent 18bn rmb in capex from H2 2022 to H1 2023, or ~$2.5bn in usd.
To compare, Tesla has spent $7.8bn in capex during the same period; Rivian spent $1.1bn and Lucid spent $1bn.
While Tesla and Li Auto’s gross profits are higher than their capex number, the other 4 companies were burning their own cash.
Middle-east (CYVN, Abu Dhabi based) is backing Nio in 2023, providing ~$3bn net new funding to Nio.
EU (Volkswagen) is backing Xpev in 2023, providing ~$700mn financing to Xpev.
MSCI China EPS in CNY terms from 2023 Q1-Q3 is 1.08, 1.23, 1.25, growing 3.85%, 1.65%, 2.46% yoy.
While reversing the downtrend in 2022, the growth is less than expected. Even with 23q4 current expectation of 9% growth yoy, MSCI China EPS growth is ~4.3% for the full-year 2023.
What was the expectation at the end of 2022 / early 2023?
Let’s take a look:
UBS (Nov/Dec 2022) – “We expect significant easing in COVID-19 restrictions in the second quarter. We forecast earnings growth of 15%-20% for MSCI China, which would be underpinned by lower commodity prices, improved economic growth and lower asset write-downs,”
Morgan Stanley (EPS growth in 2023: 12% -> 13% -> 16%) – for 2023 YE MSCI China Index target, in Nov 2022 report it was 59; raised to 70 in Dec 2022; raised again to 80 in Jan 2023
Goldman Sachs (Dec 2022) – “revise up our earnings forecasts to 13% from 8%” (the link is a report in Jan 2023 but revision is made in Dec 2022.
Citi (Jan 2023) – “expects earnings per share for the MSCI China index to grow 15% year-over-year in 2023. ”
The outcome is the big miss in earnings. We are like to see ~2% 2023 EPS growth in reality vs. expectation of ~15% at the beginning of the year
Based on official data. Mutual funds can be several types: equity, debt, money market, QDII (foreign), mixed etc.
Therefore, “equity + mixed” types should represent the domestic rmb equity market mutual fund sizes.
The mutual fund size peaked in 2021 and kept dipping in 2023.
Recovery Tracker
after China reopened in 2023, flights were set to increase from 16 per week to 24 per week, announced in March 2023.
In Aug 2023, two sides agreed to double capacity of 48 per week, ramping up to 36 per week on Sep 1, and 48 per week on Oct 29.
Flights would further increase to 70 per week starting Nov. 9.
Technical difficulties
US need to avoid Russian airspace, which requires longer distance and thus refueling.
Impact on tourism
e.g. SF: visitors from Mainland would be only ~20% of 2019 level.
“In 2019, 518,000 of San Francisco’s 4.3 million international visitors were from China, according to data provided by SF Travel. Though visitors from Mexico outnumbered them by about 100,000, visitors from China spent the most of any group, accounting for $1.2 billion of the $7.7 billion international tourists spent in the city that year.
This year, visitors from China are expected to number only one-fifth of their 2019 total, and expected to spend just under $450 million. That brings the city’s total international visitor spending down from 2019’s $7.7 billion to an expected $5.9 billion in 2023.”
— SF Chronicle (https://www.sfchronicle.com/sf/article/international-tourism-china-recovery-18188305.php)
Other sources:
https://www.regulations.gov/document/DOT-OST-2020-0052-0165
Yes.
In 2023 summer (July and Aug), China’s mobile gaming market grew 57% yoy (!). China’s overall gaming market grew 46.1% yoy in August.
That’s an amazing number, considering it’s quite mature and developed already.
The base effect is obvious though. China’s most recent crackdown on video gaming back to Aug 2021 lasted around a year (or15-month if consider Tencent’ new commercial license as an end).
New game license issuance resumed in Apr 2022, stopped once again in May 2022, and resumed in June 2022. However, big companies like NetEase didn’t get new commercial game licenses until September 2022, and Tencent waited until November 2022 (no new game license issued in Oct 2022).
The crackdown led to yoy decline of ~24% in summer 2022 (July and Aug) for mobile gaming, which is ~70% of the market.
However China mobile gaming is reaching a new high now. It’s 20% higher than 2021 summer.
Comparing with 2020 summer, 3-yr CAGR would be 8.9% for mobile gaming.
It’s difficult to understand each regulation. But I think there is a better, more fundamental and actually easier way – through the lens of justice.
However, there seems to be a difference between what China focuses on vs. the West when it comes to justice. In short, I feel that China weighs a fair outcome over procedural justice.
This difference could partially be explained by the fact that China doesn’t always operate based on exact rules. It could be hard to develop a robust law system in a short period of time and in an evolving society. In fact, rules can be modified to suit the needs, which is the opposite of mainstream western belief.
When big global companies may get away with perfectly executed deals, Chinese companies may face the consequences afterwards (even before regulation is in place). After all, trouble may come in various forms.
That being said, justice is important. A company may build goodwill to offset any negative consequences it may create, especially formalized in the future. For example, Tencent’ gaming business is lucrative and from time to time is seen to have negative impacts on teenagers. Although Tencent could be procedurally perfect and compliant, it may not be enough. I believe it’s the WeChat etc. that brings a good amount of positive progresses that provide a cushion. Therefore, as those balanced out, it’s not injustice for Tencent to make such a large sum of money.
