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Glenn Profile picture
Glenn
@GlennLuk
Co-founder/Director @HealthCareInc | Previously @Catalyte_io | VC/PE @Investcorp Technology Partners — Tech | Economic Development | Investing | Greater China
13 subscribers
Dec 26 • 25 tweets • 7 min read
If these numbers are true** the economics could work.

Project estimated to generate close to ~300 TWh (~3% of current total power demand) + cost ¥1T ($137B) to build.

** & notably incl. long-distance transmission to get power to population centers

scmp.com/news/china/sci… At current residential electricity tariffs (~8 cents/kWh), the project would generate ~$22B of revenue per year on $137B upfront project cost, for a ~16% (revenue) return on assets.

For comparison, China Railway (px + freight) runs at ~13% on this metric.
Dec 24 • 26 tweets • 6 min read
Re: “failure to build a consumption engine”

Periodic reminder that “consumption” defined for GDP purposes is not consumption that regular people are familiar with.

This is the problem with conflating “consumption” used for GDP accounting purposes with real world consumption. First, macro folks should know better that all GDP is eventually “consumed”.

The only diff. b/n “consumption” (aka “household expenditures”) and “investment” (aka “gross fixed capital formation”) is that “consumption” is consumed in the present and “investment” is consumed over time.
Dec 20 • 10 tweets • 3 min read
I actually don’t have an issue with those who claim China’s official data can’t be trusted as long as they are logically consistent. It usually makes for a short conversation though.

The problem is with logical consistency and confirmation bias: when someone relies on official data when it suits a narrative but then claim it can’t be trusted when it doesn’t. That said, the best approach is to corroborate official data with independently collected/verified data from trustworthy sources.

And there is increasingly high-frequency data available in China, often issued in a more timely manner than what we are used to in the West.

What is telling is those who embrace these new sources of data and those who don’t.
Dec 17 • 12 tweets • 3 min read
Some seem to think that trade-surplus countries are more vulnerable than trade-deficit countries in a trade war.

There are a few issues with this notion in the U.S.-China context.

1️⃣ Increased protectionism and trade barriers would merely realign trade flows and corresponding economic activity (i.e. GDP). It doesn’t eliminate production factors like labor.

2️⃣ China’s surplus is not as big as some think (nor is the U.S. deficit as large, although still large). What hurts is the friction costs of adjustment — in either direction. 1️⃣ Production factors aren’t eliminated, only realigned.

Let’s think through what happens when iPhone production is shifted from Zhengzhou to Jakarta.

China loses mostly labor-intensive export processing. Thousand of workers need to find new jobs.
Dec 14 • 7 tweets • 2 min read
Since 2009, China's HSR network has served ~22 billion passengers traveling an aggregate ~7.6 trillion kilometers (~348 km/trip).

This is equivalent to ~26k round trips to the sun, or ~0.80 light years. Image If the HSR network were frozen today at current run-rate of ~3.4B px/year for the next 30 years, this would aggregate to 124B passengers traveling ~43T kilometers, or ~7.1 light years.

This gets you to Luhman 16, the third-closest known star. Image
Dec 13 • 43 tweets • 9 min read
Very awkward explanation of comparative vs. competitive advantage that fits a consistent pattern of confusing key concepts from macroeconomics and finance.

▪️ Comparative advantage is defined at the national level.
▪️ Competitive advantage is defined at the company level. Comparative advantage determines the relative competitiveness of related groups of companies (industries, sub-sectors) in an economic zone that are related by value chain links.

e.g.

Broad (industries): Export processing vs. Property

Specific (sub-sector): ICE vs. EVs
Dec 10 • 4 tweets • 2 min read
I was assured by those in the know that Chinese batterymaker success was merely a function of free land, evergreen loans, subsidies, cheap labor and weak FX and had nothing to do with scale, first-mover advantage, accumulated tech/IP and know-how.

bloomberg.com/news/articles/…Image I was also assured that Taiwanese chip success was solely a function of subsidies, tariffs, mercantilism, cheap labor and also had nothing to do with pioneering the foundry model, large EE labor pool, supply chain development, clustering and intense focus on customer service.
Dec 10 • 31 tweets • 8 min read
Let’s be clear:

The issue with Michael’s predictions 13-15 years ago is not whether China *eventually had to move to a less capital-intensive economic model, but being upwards of three decades off on *timing.

🧵 Michael was predicting that “by the 2000s” (or earlier even 👇) China had to urgently rebalance from excessive rates of investment over 40% of GDP …

e.g. from 2012
Dec 8 • 20 tweets • 5 min read
Brad tends to just focus on cross-border imports & exports that are tracked by customs.

But in the context of the broader trade war & Trump 2.0, the auto trade isn’t just imports and exports.

It is also FDI investment balance — where China still runs a large deficit. This FDI deficit is not reflected in the trade balance shown here in this key chart.

Approximately 2/5ths of cars sold this year are foreign brands, mostly manufactured onshore through the JVs.

Meanwhile Chinese carmakers have only just recently begun to open overseas plants. Image
Dec 4 • 17 tweets • 4 min read
We need to be more precise here about “capital” vs. “dollar assets”. They are not interchangeable terms; there are distinctions:

▪️ Real “dollar assets”
▪️ 🇺🇸 securities backed by faith 🇺🇸 gov’t will repay at real value
▪️ 🇺🇸 dollar as a transactional unit of account for trade Real assets are largely geographic distinctions (whether physical or legal domicile):

Land in Oklahoma is a “dollar asset” even if you buy it with Bitcoin. Land in Cambodia is not a “dollar asset” even if you bought it with dollars.

Real U.S. assets like land are already taxed (capital gains, property, estate, corporate taxes, etc.)
Dec 3 • 24 tweets • 6 min read
Economist Gao Shanwei is highlighting pre- vs. post-pandemic changes in the relationship between:

(i) b/n growth rate of urban employment and GDP

(ii) consumption growth and overall economic/GDP growth

And then using it to question official data series. Not surprisingly, many jump straight to the bottom-line conclusion:

That China's growth was overestimated by 3% p.a. or ~10% cumulatively and this corresponds to a loss of 47 million urban employed.

Which doesn't show up in the official data.

Nov 29 • 34 tweets • 7 min read
I’ve long held the notion that the RMB is artificially weak but recent analysis on the Balance of Payments has changed my view on the *mechanism by which it has been kept weak.

Also structural changes are underway that suggest RMB will gradually strengthen in the coming decades. Previously my mental model was that persistent trade and current account surpluses were “washed away” via a combination of formal and informal capital outflows.

Formal mechanisms included “washing” current account surpluses into the buildup of foreign reserves, mainly USTs and agencies.

Informal mechanisms included large “hidden” capital outflows by companies and individuals recycled into foreign asset markets, often real estate.
Nov 26 • 12 tweets • 4 min read
Just so many inaccuracies here:

▪️ Sector-wide EV gross margins are up
▪️ Subsidies are down on a per-vehicle basis
▪️ No basis for speculating “most firms expected to bankrupt”
▪️ Private sector equity funding is the dominant form of EV sector funding, not credit ▪️ Sector-wide EV gross margins are up

+2% from ~21% in ‘23 to ~23% in ‘24E, mainly driven by higher volumes.

If we strip subsidies out, they are up from ~14% to ~16%
Nov 26 • 30 tweets • 5 min read
We’ve really lost the plot when the solution to “re-industrializing the economy for national security purposes” is reframed around the goal of trying to “rebalance China”. Instead of focusing on trying to fix the domestic issues that lay at the heart of a decaying industrial base, policymakers seem to find it easier to point fingers at external targets as if the world’s greatest superpower has zero agency here.
Nov 21 • 12 tweets • 4 min read
This @WSJ article was a good reason to update a bunch of #HSR charts.

"giant money pit"? 😒

In 2024, China's HSR ridership surpassed all-time highs and China Railway is going to generate ¥1.3 trillion of revenue and ¥400 billion of EBITDA.

🧵

wsj.com/world/china/xi… Since 2013, China's HSR network has expanded >4x from ~10k km to over 46k.

And traffic — measured both by number of trips and distance traveled — has more than kept pace, except during the pandemic period, rather understandably. Image
Nov 18 • 21 tweets • 6 min read
There are two main data points that support the China “weak domestic demand” claim:

1️⃣ The trade surplus it runs, measured by Customs

2️⃣ Consumption as a % of GDP

These “kernels” of objective truth are then conflated with Bigger Ideas to support an ultimately flawed narrative. Image 1️⃣ Customs trade data doesn’t capture all holistic trade

The most commonly cited data showing persistent Chinese surpluses is customs data reported by GACC, China’s customs department.

Some live examples/references: Image
Image
Image
Nov 14 • 17 tweets • 4 min read
IMO conflating mfg goods with holistic global trade here.

China runs a mfg. goods surplus of ~$1,763B.

But it runs a structural deficit in *every other key trade category.

(moreover, the mfg. goods figure itself is likely overstated relative to underlying fund flows) This is what’s excluded from the above number:

1️⃣ $909B of primary goods imports (food, natural resources)
2️⃣ $241B services (mainly travel/tourism)
3️⃣ $386B profits of foreign firms operating in China

As well as a 4️⃣ $258B “factoryless manufacturing” adjustment. Image
Nov 13 • 9 tweets • 2 min read
This resonated with me.

The concentration of gains from technology advances suggests that it needs to be packaged with well-thought-out distributional policy … … lest the disruptive effects of tech gains lead even more disruptive and less optimal societal-level outcomes that can paradoxically torpedo ability to capture future tech progress.
Nov 12 • 19 tweets • 4 min read
There’s a shocking level of naivete embedded here (Rubio interview) when you walk through the practical & operational implications of trying to move this type of manufacturing.

Who is going to be responsible for setting up the factories in these locales? Image First, remember these aren’t Gigafactories — the U.S. wants more of those, not less.

These are labor-intensive export processing factories: The ones that were offshored from this country over the last half-century, pre-dating China’s rise as a manufacturer.
Nov 10 • 23 tweets • 7 min read
Billy moneyballs Chinese structural reform

Guys, you’re still trying to fight demographics and replace 350 million retiring workers.

I told you, we can’t do it, and we can’t do it.

Now, what we might be able to do is recreate them.

Re-create it in the aggregate.Image How much GDP did these workers generate last year? Image
Nov 10 • 59 tweets • 13 min read
China’s non-college-educated working-age population (maroon line below), a proxy for “blue-collar” work (farming, manufacturing, construction, services) shrinking at ~19M per year through 2040 …

… while the “attended college” population increases at ~10.6M per year. So China needs to shed blue-collar work like labor-intensive export-processing jobs while creating new “white-collar” jobs that are a better fit for college graduates.