1) Now you may thjnk this is nerdy but it’s remarkable, so hear me out. Chinese companies vanish from world's top 10 by market cap asia.nikkei.com/Business/Marke…
2) Market cap may seem like a finance nerd’s league table, and it doesn’t tell us much about the economy, certainly not short term, but it conveys imp information nonetheless.
3) it’s an unbiased market-based assessment of earnings and business prospects, based on the crowd’s view of the firm’s business, products, management, reg environment and so on. Multiplied many times, and even if prone to exaggeration, it tells us something about the economy
4) given the weight of US and other liberal economy firms in market cap worldwide, the funk in Chinese companies just when ppl were thinking that the foothold was about to get a lot bigger is worth noting,
5) so, not tablets of stone or anything, but the markets’ reassessment of Chinese firms, measured by market cap, relatively if not absolutely, is as I say, remarkable. Especially considering the reasons why. Ends.
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Another brick in the wall when this becomes law next week. How significant is this? /1 US House passes final version of China bill that bans all Xinjiang imports over forced labour scmp.com/news/china/art…
US imports from Xinjiang are tuning at roughly $250m a year which is a drop in the ocean set against total imports from China. So in value terms, US firms could easily source elsewhere, and it’s a rounding error for China’s trade. But political significance goes way further /2
Expect China to be pretty angry with invective galore and possibly threats of actions poss or actions against US firms either wrt trade or more importantly doing business in China. /3
Conventional narrative keeps telling us it’s only a q of time until China is the worlds largest economy, maybe 5 or 10 years. But there’s nothing inevitable about that at all. In fact it’s being stressed right now. Read on /1
US and China nominal GDP are about 23 and 14.7 trillion usd. Over the last couple of decades and to now, US gdp growth has trended at 5%, but now running at close to 10%. China’s the opposite, trend 10%, now closer to 5%. Get the picture? /2
Let’s say for the next decade, US is 6.5% - higher inflation but lower than now, and China is 5.5 % lower real gdp trend and little inflation. In a decade, the tyranny of compounding has China falling further behind not overtaking. This isn’t just a numbers game /3
This is of course correct by Martin Wolf, and conclusion that the ‘model has to be replaced’ echoes a refrain that’s been v familiar for some time. But here’s the problem /1. The economic threats from China’s real estate bubble via @FT on.ft.com/3oOuKav
What to do? Dual circulation strategy is abt self reliance and investment. Regulatory crackdown is about bringing private sector to heel and aligning with party goals. Common prosperity is ostensibly abt inequality but isn’t a levelling up strategy. /2
What’s still missing is a comprehensive strategy to redistribute income/wealth from state to household sector, reform of tax structure to make much more progressive, local/central govt fiscal governance reboot, and welfare deepening. /3
China’s Evergrande debt crisis is the focus of the moment but property on China’s economy is the story. For the first time since the housing welfare system became a proper market, China’s property is facing up to a decade or more of stagnation. 1/7
First up demography. China’s cohort of first time prime age homebuyers, aged 25-39 is going fall by 25% by 2040, from 327m to 247m. So properly firms already overbuilding are in deep doodoo 2/7
Next sales. These are now falling year on year by a lot. August/Sept together maybe down 30% year over year. And it could get worse as developers retrench, are forced to discount, manage too much inventory 3/7
I remember at UBS we used to write in 2000s how and why China’s property market was the most important in the world. Fast fwd to 2021, it still is. At over 16% GDP, its more than 2 x US real estate in 2008. Evergrande et al are key to real estate, & metaphor for the economy /1
It surely cannot be allowed to end up in a messy default with collapsing property prices a) anyway b) so close to nov 22 Party Congress, but govt restructuring plan can’t wait too long as fin distress mounts /2
That said, extend and pretend, and other restructuring solutions will only defer a denouement for real estate, which is cyclically and structurally weak and having regulatory headwinds, incl from Common Prosperity. /3
China’s crackdown on tech, finance & data isn’t over, and while each firm/sector has its own tale,the big pic is more ominous/political and not just about regulation. My take on why CCP is providing latest in why ‘inevitable rise’ isn’t a slam dunk at all newstatesman.com/world/asia/202…
Aside from fact that CCP is not comprised of economic magicians, China’s development path, which many extrapolate on spreadies to mid century +, isn’t a mechanical concept. Too many need reminding of both. /2
I’m addition to Red Flag structural headwinds, China now faces the most hostile external environment in over 4 decades. What some see as it’s Sputnik moment may also be game changer in more troubling, negative ways. /3