The miraculous rise of China may have a surprise chapter for the world
Our recent trip to China after a 3yr lapse revealed a worrisome picture.
There are visibly less people, the population is just dwindling in large cities. Empty office buildings are evident, traffic in malls is none and on a 6pm wed #10 train in Shanghai, there was 20% space during the stop at the financial center. Our visit to local Li Auto and Nio showrooms saw none other stoppers in 1hr. Officially last yr China reported its first population decline since 1950s.
China’s 30-fold economic output rise from 2000-2020 was 1/3 driven by exports, which brought in $. With add’ foreign investment China had the largest pool of capital creation in human history, fueling an infrastructure boom, which gave rise to the second 1/3. Consumer spending gave rise the last 1/3, driven by rising wages and improving living standards.
With exports and housing sputtering, this credit/debt driven expansion is now hitting a wall... Budget deficits at the municipal level have been reported. Wages are down sharply; layoffs are rampant. Drug reimbursement for the elderly was cut 30% throughout the country. Industry profits were down 20% in Jan/Feb (National Statistics Bureau Data). The most worrisome? China has an official unemployment rate of about 20% for 18-25yrs but its graduating 12million college kids each year…
TSLA or APPL will be in big trouble in 23 if China doesn’t turn its economy around. As for EVs in China, they appear to be on a pricing war that leaves no winners, so we turn much less bullish on XPEV/LI/NIO. There are two places full of people, restaurants, and hospitals. So yes, food chains may do well (YUM Brands, Starbucks), so will select pharma/biotech names. Remain bullish on BGEN/IMAB.
Comments