Thread by @lillianmli

1) Given the amount of panic I've seen on Twitter over Chinese stocks. I'm once again, asking you to consider some fundamental framings of the rules and objectives of Chinese governance.

It might be interesting. But it is better than being mired in FUD.

$TAL $TCHY $BABA

2) It makes great sense to pay attention to the rules of the game that the players are playing in.

The implicit rules of China are that the government sets goals for the country and invert back to to key objectives that the country should be attaining.

They don't hide this

3) It's literally called the Five Year Plan, it's the blueprint for the next five years and beyond for the Chinese economy.

There is a bit of reading the tea leaves but it's not impenetrable.
Literally. Every. Investor. I know in China pores over this.

lillianli.substack.com/p/the-short-no…

4) In terms of China's biggest woes in the future - it's aging demographic and lack of children
It's in the targets for 5YP, China didn't list a GDP growth figure but said they needed to increase population. This is basically them laying down the law

https://twitter.com/lillianmli/status/1409901092452769792

6) You know the kind of stress Chinese kids and parents are under these days?
Primary kids here in China are literally carrying rolling baggages of books to school, they are so heavy they can't even carry them. Their days are packed with going to school, then cram schools.

7) Advertisement selling status anxieties to get kids into after schools are rife. Whenever I chat to parents they all tell me they can't afford kids given the cost of schooling and and tutoring.
This is also just the tier one cities

8) This kind of resources isn't even available to tier 3 and lower cities. If continued this will increase inequality in education attainment and therefore income in China going forward.
Lowering inequality - another key OKR for China

9) An eagle eye journalist told me that out of all the sessions Xi decided to chair the one on education for Lianghui and chaired another high-level political discussion on education on May 21.

That kind of attention matters and shows priority of the top leaders.

10) Also given the lagging regulatory environment in China, education is a public good and shouldn't be overtly privitised. That's also coming into play here as well.
This is overdue catch-up

lillianli.substack.com/p/let-the-bull…

11) As for $BABA, $TCHY and $DIDI - look man, the focus on technology in the 5YP is on hard tech and not e-commerce or taxis. These players have moved into value extraction and are taking up valuable innovation air from more worthy causes in the party's eyes.

12) I'm not asking people to pass their value judgement here on whether that's a right way or wrong way to govern. That's beside the point.

As an investor, first and foremost our job is to understand the game that is being played and the rules of the game.

13) China plays with its own set of rules and it's understandable. People in China don't get rich purely on dumb luck. They understand the rules of the game very well.
Ask Hillhouse or Himalaya.
If an investor wants to invest in China. Learn the rules.

14) To make this a bit concrete - yes the education players are in trouble for the foreseeable future. Once the first regulations came out about limiting hours, it was just a matter of when it could get harsher. (Chinese investors already sold during that time)

15) The next thing on this list to make having children more affordable - housing.

I would be very wary of players in that space which props up high housing prices. Pricey houses is a hurdle to having kids. Why is a longer cultural discussion, but it is true.

16) This is not a blanket kill all order for all Chinese tech. But everyone worth their salt during this year is going lay low. Why attract adding attention, unless you're $Didi.
I'm very comfortable in seeing a great future for Chinese tech players.

Should make clear this is just one pseudo-intellectual’s personal opinion and not definitive by any means.