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Glenn Profile picture
Glenn
@GlennLuk
Co-founder @HealthCareInc | Previously @Catalyte_io | VC/PE @Investcorp Technology Partners — Tech | Economic Development | Investing | Greater China
13 subscribers
Nov 5 • 17 tweets • 4 min read
Subsidies have long been cited as a key reason for the success of Chinese EVs, often with the implicit or explicit modifier “unfair”.

But when compared to other markets, they don’t hold up to scrutiny. Here subsidized credit, tax and R&D subsidies are analyzed. The largest subsidies are demand-side subsidies like buyer’s rebate or sales tax exemptions.

China provides the most subsidies but only b/c it is by far the largest market.

It phased out direct purchase subsidies in 2022 and now just relies on sales tax exemptions.
Nov 4 • 25 tweets • 7 min read
The automation solutions company featured in this video is Confirmware, a Hangzhou-based company founded in 2005.

These “Industry 4.0” automation solutions companies are enabling the rise of “software defined” advanced manufacturing factories. Shenzhen Inovance is the leader in this industry. I discussed its rise here.

It was started by a group of former Huawei engineers.
Nov 1 • 34 tweets • 8 min read
Many are still stuck with this mindset that China is non-transparent and opaque. But I think it's often simply b/c they do not know where (or are too comfortable with their default worldviews) to look.

Increasingly there are higher-frequency data series in China vs. outside. I've noticed this with the auto sector. Chinese car cos report at higher frequency / punctuality than their counterparts.

Month-end delivery numbers on the 1st or 2nd. Weekly dealership readouts, etc.

But you don't get it from the foreign carmarkers.

Oct 31 • 45 tweets • 15 min read
I had originally accepted @Brad_Setser reasonable-sounding explanation that China's official current account surplus has been significantly understated these past two years.

But now that I have really dug into this arcane topic, my conclusion is that not only are the post-adjustment current account figures broadly accurate, retroactive adjustments can be made on the pre-2022 data that lower China's trade and current account surplus enough (~1% of GDP) that it should meaningfully change priors, including mine.

Customs data is useful for examining broad import/export but it is increasingly inaccurate for BOP purposes due to the "factoryless manufacturing" phenomenon.

This 🧵 wraps up this ongoing series by directly critiquing the ~$500B adjustments through the proposed "Customs vs. funds flow" and "income-based" adjustment.

As always I welcome commentary and critique, especially if it addresses specific points I have made in the vast amount of information/analysis-dense slides I have shared in recent weeks.

@IMFNews To start I try to summarize Brad's hypothesis by breaking it up into the two key proposed adjustments, which add $500-600B to the official CA surplus.

(i) The Customs vs. BoP Gap Adjustment

(ii) "Mark-to-Model" Income Based Adjustment Image
Oct 26 • 21 tweets • 6 min read
Where are all the breathless reports on the youth unemployment rate?

The September figures were reported last week and … 🦗🦗.

(an irony is there are ways to spin this negatively if you really take the time to understand the numbers) Just like the LKQ index only mattered when electricity was lower than GDP growth 👇, apparently, the youth unemployment rate apparently only gets reported when it is ↗️.
Oct 23 • 15 tweets • 5 min read
Noticeable shift in the locus of credit-driven financial transmission from local ➡️ national:

1. National banks dominated through the late-2000s, capped by high-profile international capital injections + IPOs.

2. Post-GFC credit (property & “traditional” infra) was driven at the rise of local/regional banks.

3. Since 3RL in Aug. ‘20, the spotlight is back on national banks (industrial & “new” infra) National banks, not having participated as much in the local-centric property development, are healthy & have relatively clean B/S.

This corresponds to relative health of national SOEs vs. local ones and LGFVs, as noted last year in my LGFV series:

readwriteinvest.com/p/lgfvs-part2
Oct 23 • 14 tweets • 4 min read
A joint circular was issued today to allow local governments to address the growing payments arrears problem that has slowed down local economies.

We can use the "circulation" model to visualize the problem & proposed solution (reforms + liquidity).

scmp.com/economy/policy… This is what circulation in a healthy local "mayor" economy looked.

In most cities this model worked well for a decade following the GFC as a way to rapidly urbanize through capital-intensive asset formation (property and infrastructure). Image
Oct 20 • 23 tweets • 6 min read
It's helpful to visualize an economy as a dynamic, inter-connected flow of transactions between different economic actors.

e.g. these illustrative flow diagrams for greenfield residential housing development and NEVs

🧵 Image
Image This is a follow-up to this recent thread where I started delving into this important concept of "circulation".

It is essential framing to understand Beijing's policy direction.

Oct 17 • 38 tweets • 10 min read
I was excited to listen to to this Odd Lots podcast this morning with Richard Koo and @ZichenWanghere covering the topic of recent Chinese stimulus.

I'll share my thoughts and reactions to it after the transcript comes out later today. Ok transcript is out and per below, here are some quick thoughts and reactions, "live tweet" style and with plenty of my own injected commentary.

Oct 16 • 23 tweets • 4 min read
This is very much in line with @MoatlessCapital hypothesis.

Given the steep drop, it clearly was a key factor, although it could also be the "straw that broke the camel's back" on the back of a 2+ year pandemic itself and shift to long tightening phase (including crackdowns). With the benefit of hindsight, it is now clear China entered a multi-year tightening phase in 2020, with "Three Red Lines" being the pivotal moment given the prominence of both the property sector and local government role in related infrastructure like highways and bridges.
Oct 13 • 11 tweets • 3 min read
We are now getting line-of-sight into the full-year 2024 numbers for NEVs in China and they indicate higher growth than even my more optimistic forecasts from around six months ago. I had forecast full-year NEV adoption rates of 48% and 11.4M (domestic passenger only, excludes commercial) back in June in these forecasts.

I have increased the numbers to ~51% and 11.8M based on the latest growth figures through the end of September.

Oct 13 • 28 tweets • 6 min read
Per the recent WSJ profile by @greg_ip Michael Pettis is "not a trained economist" but came from the world of finance, mainly as an emerging markets trader.

Not surprisingly, many of his ideas & hypotheses sit at the crossroads of economics and finance.

wsj.com/economy/trade/… As one being considered by some on both sides of the aisle for a significant role in the next administration, Pettis' theories ought to be critically examined by those with training in either economics or finance — and preferably both ...
Oct 11 • 42 tweets • 11 min read
Implicit assumption of homogeneity in capital stock in traditional calculations of TFP is a significant issue that was quite specific to China in the post-GFC period b/c of its rapid shift to housing & infrastructure that feature long useful lives and low initial RoI %s.

🧵 From Lowy's 2022 report:

"The conventional neoclassical approach contains only one type of capital.

This is problematic for analysing China's future trajectory, since housing and infrastructure investment have played such an outsize role in Chines capital accumulation."https://www.lowyinstitute.org/publications/revising-down-rise-china
Oct 9 • 16 tweets • 5 min read
National Week transportation stats
(vs. 2023)

▪️ Rail 🚝 ↗️ 6.3%
▪️ Waterways 🛥️ ↗️ 10.0%
▪️ Air ✈️ ↗️ 11.1%
▪️ Road transport 🚗 ↗️ 3.7%

(Some early data on effects, if any from recent “wealth effect” stimulus) http://www.news.cn/20241008/72687eb1a07d4f19ab808999f16ae4ce/c.html
Image Rail trips are in line with the summer travel season, which was also up around 6% YoY.
Oct 7 • 9 tweets • 3 min read
Most people talking about Chinese EV “overcapacity” and “losses” clearly have never bothered to crack open the financials of these companies — almost all listed — and do proper trend and comparables analysis to other global EV firms.

forbes.com/sites/miltonez… Domestic Chinese NEV demand is up over 30% YoY. This is higher in percentage terms than 2023. IOW demand growth is accelerating.

It’s production constrained, not demand constrained: EV makers are adding roughly the equivalent of Korea’s entire automaking capacity each year. Image
Oct 6 • 12 tweets • 3 min read
@mitchpresnick @arkroeber @Gavekal I thought it was a great rundown but do quibble re: the pace of tech proliferation.

NEVs sit at the epicenter of tech diffusion right now with so all much innovation packed within, and adoption rates are among the fastest rising in the world. Image @mitchpresnick @arkroeber @Gavekal There are always multiple aspects to risk taking and entrepreneurialism at play.

Some policy elements may lower the propensity to take risks, but others (like clear guidance) also serve to increase it, but lowering uncertainty and commensurate cost of capital.
Oct 4 • 15 tweets • 4 min read
I looked at the financials of the rest of the non-CATL Chinese battery mfgs.

They represent ~2/3rds of global EV battery supply.

I was actually taken aback that ALL of them are profitable ... even the smaller ones.Image This was a follow-up to a recent thread about the profitability dynamics of the EV battery sector.

Going into it, I knew CATL was very profitable. What I did not know was how profitable even the smaller players were.

Sep 27 • 15 tweets • 4 min read
Highlighting this slide outlining long-term trends in the capital intensity of the Chinese economy.

It was buried within a longer thread discussing the recent fiscal stimulus but deserves further exploration and its own 🧵.


https://x.com/GlennLuk/status/1839676627992650146 While not all structural reforms are necessarily related to the capital intensity of China's economy, it is one of the dominant themes.

There have been two major "slope changes" in capital intensity, and each one of these periods has been marked by turbulence and volatility.
Sep 27 • 25 tweets • 6 min read
Some thoughts on how to read and frame China's recent stimulus announcements.

There are two main elements, fiscal & monetary, which I'll use to describe these thoughts. 1⃣ Fiscal

First, to put some perspective on this, the fiscal element is smaller than the pandemic stimulus and much, much smaller than the '08 stimulus announcement.Image
http://www.nytimes.com/2008/11/10/world/asia/10china.html
https://www.scmp.com/economy/china-economy/article/3085654/coronavirus-china-unveils-us500-billion-fiscal-stimulus
https://www.reuters.com/markets/asia/china-issue-284-bln-sovereign-debt-this-year-help-revive-economy-sources-say-2024-09-26/
Sep 24 • 16 tweets • 4 min read
I now want to turn my attention away from the exclusive ultra-high-net-worth "Three Comma Club" constituent ...

... and discuss the "common people" or 老百姓 (lǎo bǎi xìng)

Understanding 老百姓 and the "Good Life" are keys to understanding this current "Common Prosperity" era. David refers to the 老百姓 here in this excellent follow-up thread:

Sep 22 • 29 tweets • 9 min read
Understanding socioeconomic inequality in 🇨🇳 is key to understanding the political economy of the "Common Prosperity" era.

Past studies focus on income. In this 🧵 I look at both income & wealth.

Results were illuminating + contextualize/frame its economic prospects, both ST & LT. We start with some basic measures of socioeconomic inequality, namely the Gini Coefficient.

By standard measures of Gini Coefficient, China's socioeconomic inequality peaked in 2008.

It has come down since, but still remains quite high. Image