China: Investable?

There is a lot of talks about the invest-ability of chinese businesses. Most are discussing it in terms of capital allocations and how an autocratic regime might change a situation with the snap of the fingers, and they cannot understand why these actions are taken other than to say ‘they are just crazy’. I would be highly suspicious of such a superficial analysis.

I am NOT here to argue whether China is invest able or not. You will not understand what is going on there using simple capitalistic arguments. China knows how to use capitalistic means very well but it has to be consistent with its national interests. Not everything is about money. A broader view is required.

We should understand China’s actions as part of strategies to counter the US influence both on the international and its domestic scene. The internal actions are taken to support the external actions but also to course correct and to move away from any external influences that may lead to disunity or fragmentation within (see below).
Investments in China can only improve if US-China relations improve.

The US wants to contain China for two reasons:

  1. it cannot accept another hegemon (Monroe doctrine). It still wants to pass its boats off the coast of the PRC in the Taiwan Strait without contest.
  2. The US believes that all national states ought to be democratic in the western sense. It applies continual pressure and hopes for a collapse of strong autocratic states. A Fukiyama moment, finally?

China has stood up (to take Mao’s), and grown. It is still seeking its place in an international system. It wants to be part of a multi-polar world, and will be a significant pole if not in the world in Asia.
Internally, it will do what it needs to do to keep the country together and to develop it. It wants to shine on the outside and improve its inside.

‘Eat or drink bitterness’ that is not a Xi’s saying. It is a chinese saying. The Chinese people has had many hardships throughout its long history. They took it. They were resilient. They were self-sufficient. They survived, and they thrived, maybe like Jensen said during his recent Stanford talk because they experienced hardship, they were then able to so thrive. However the cycle in the case of China can be very long. To the long term thinkers: it is longer than you think.
Xi said it recently because the external environment has changed against China, and chinese people should prepare for it and batten down the hatches.
Of all the governments of China some have been better than others. All of those have been formed by Chinese or sinicized people in a continuum. One of the government’s main goal is to keep China together. That has been the case ever since Qin Shi Huang more than 2000 years ago. So when you say, the PRC is doing whatever for its own survival, it is because it is also about the survival of China. Currently the government of China is the PRC and the Chinese people wants to keep it together.
Imagine a place larger than Europe and as diverse but under a single government. That is China. It is not an easy task to govern and to hold it together. This what the Chineses have done for millennia, and it forged in time a culture much more homogeneous than in Europe. So, sure the current chinese government wants to continue naturally.

Btw, Jensen and his family did not flee anywhere. They immigrated to the US from the Republic of China. Like most immigrant families, the 1st and 2nd generation had to work very hard to improve their situation. That is a generic traits of most if not all immigrants. However Jensen is chinese, and chinese immigrants anywhere are mostly very hard working folks who put a premium towards education, and have a capacity to take a lot of hardship. They take it because they know that they will succeed.


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The potential extra yield is at the expense of political troubles. The world is transitioning from free trade (in word if not in fact) back to mercantilism (beggar thy neighbour).

I’ve had good and bad experiences investing in China but the US market is safer.

The Captain


China is not as diverse as Europe. Not even close.

??? You just claimed it was more diverse and now you admit it is much more homogeneous?

Which is it?

I guess I don’t understand the intent of this post. You ask a question but then don’t really comment on the question.

Like the Cpt, I think no. There good risky investments and bad risky investments. China is a bad risky investment - in particular the political risk both from China as well as the US.

China has unique emerging market political risk due to the politics of the US and any person (or company) heavily dependent on China must be aware of how much things could change based on a change in our internal politics.

We are a bigger risk to investing in China than any of the myriad of serious issues with China.


From afar China is homogeneous. It is in the sense that there is a common chinese culture that has been developed for millenia. Yet there are definite local differences.
Europe is ‘diverse’ because it never came under one rule. Charlemagne is sort of something like that but he did not hold it like the chinese emperors did. The history is very different, and we should try to understand the other side and their history. We, Americans rarely do because we don’t need to. To us, it is incumbent on the rest of the world to know us.

The point is that there are a lot of excellent chinese businesses but because of geopolitical reasons, it is difficult to invest in them. Howard Marx suggested recently that like anything else in investing there shall be a bottom before general outlooks are changed for the better. Surely, most of us can’t know when. It does not mean that the likes of Marx and others looking outside the US cannot find attractive deals in China despite or because ‘everyone’ is scared away.
It is hard to say. But most investors I read say ‘I don’t invest in China because of geopolitics risks’ but they do not understand the geopolitics, or can only see things from the US point of view.



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Where do you get your information, news, etc that helps you better understand what’s actually going on in China?

I read Reuters for World news. I often click on China, India, and other ‘regional’ sections. West biased.

I watch YouTubes by:
Peter Zeihan, geopolitics with Zeihan’s biases
Joe Blogs macroeconomics of the topic country/region
Palki Sharma - FirstPost, Vantage. An India centric bias.
Al Jazeera - infrequently.

China focused YouTube channels… but I don’t know if there is bias or not:
China Update
China Observer
China Insights
South China Morning Post

Any article that mentions South China Sea, Chinese EVs/NEV, China economy, etc, by Bloomberg, The Guardian, a few other publishers.

Occasionally I’ll watch a YouTube by an obviously pro China guy.
Cyrus Janssen. this guy is HEAVILY BIASED AGAINST the West.
Trip Bitten. Biased, but not ‘terrible’.
Living in China. I don’t have an opinion on this channel.



Lack of understanding a risk is the VERY reason to avoid it.

To do otherwise is little more than speculation/gambling


Personally, it is not due to geopolitical risks, regardless of how well I understand them. While business can do well and thrive but if they do become head to head to the political agenda then “capitalism” loses. You can see company CEOs disappear for long stretches with little explanation. You can see a whole industry’s capital valuation wiped out due to the gov’t deciding that they should be non-profit one day.

It is not the fraud or any potential conflict that keeps me away, it is the rule of law can determine the fate with little due process of any company or industry.


For news, I get it from multiple sources including some you listed. Western and Asian sources. I don’t want to give anyone more emphasis than necessary.
I am looking for facts and not necessarily interpretations of facts or opinions. Those you want to form them by yourself and arrive at a real understanding, and a truth that is not just an opinion.

Zeihan is making sweeping conclusions(some rather preposterous) based narrowly on geography and demography. I think he learned some methods and tricks from working for George Friedman who founded Stratfor, a platform for geopolitical predictions as it purports to be. Zeihan left several years ago to run his own show. I don’t take Zeihan too seriously and I don’t like the smirking tone he has when presenting but Friedman is interesting.

On geopolitics, I also listen to John Mersheimer (U of Chicago).
I listen to the GoodFellows at the Hoover Institute at Stanford. I have read several books by Niall Ferguson which I liked. However I do not agree about most of his opinions on China.
I listen to Kevin Rudd when he was the ex australian prime minister. He became recently the Australian ambassador to Washington which might give him more restrictions on what he can say. He was the student of the famous sinologist Ryckmans (pen named Simon Leys) who my father knew. Kevin Rudd work on how Xi Jiping has turned to Marxist-Leninist ideology and guided away from the line his predecessors(Deng…) have taken is interesting but it is a highly technical and in my mind does not really address the fundamental reasons why Xi thinks China needs to take this direction.

You should also listen to what Singaporean and S-E leaders (Asean) talk about China-US relations. They are clear that they do not take sides and are generally friendly to both sides.

However, before going to the news per se, I want to understand the background, the context and the history. I need the correct framework to understand a news. Certainly one may think what happens 1000 years ago would not be relevant today but that is not the point. The point is to understand how people with a common history see themselves, and what they think they learned from it. You have to know yourself goes the saying but you also have to know the other.
I also learn about economics and about science & tech. Those things can and do affect the course and I am interested to know how. On the economy of China, Michael Pettis has a good overview of the mechanics of the Chinese economy that I find interesting.

I recently read Kissinger’s ‘On China’ and ‘World Order’. I also read his book about AI he wrote with the Google’s Schmidt and that MIT guy when it came out 2 years ago.
In On China, his exposition of China’s relations with the West over the last 2 centuries is very illuminating, and it was interesting to read him recount his negotiations and discussions with Zhou and Mao during the Nixon Opening to China.

In my idea, the current US-China tension is a realization on both sides that an overarching common interest is lacking. When Nixon went to China, China was fighting Soviet designs on its territory. The US-China rapprochement was about tipping the scale against the common enemy that was the Soviets. After the demise of the URSS, this common goal disappeared. The so called ‘unipolar moment’ took hold for less than 2 decades until the containment&decoupling era we are now in. Earlier during those 2 decades, the US pushed ‘democracy and human rights’. Then corporations saw China’s booming economy as an opportunity while some in the US thought ‘when they get rich, democracy will ensue’.
The US aside playing the geopolitical game champions Western democracy and universality. The US always had this missionary elan. However, Western democracy was not in the cards for China. China is China. It cannot accept American dictum even less by constraint and pressure. So there we go. The two are back at it.



I don’t think this is true. There are three main reasons why China is a long-term investment risk.

  1. China is growing old quickly. It is where Japan was before its “Lost Decade” and is in far worse (IMO) economic shape than Japan was. Cheap labor that allowed cheap manufacturing has long driven the Chinese economy. India now has cheaper and just as educated labor as China.

  2. China lacks the financial and judicial infrastructure for a stable and mature economy. Its banking system makes loans based on government objectives rather than for economic reasons. Not surprising that China has a domestic debt crisis. Its judicial system acts arbitrarily and is unpredictable. Xi decides to crack down on corruption and suddenly entrepreneurs disappear. That’s not a favorable environment for business.

  3. Chinese culture is not conducive to innovation. The Chinese can innovate, they are quite good at it when in the West. But Chinese society stifles innovation. It has traditionally favored stability over change, and this tendency has if anything been exacerbated by the Communist revolution. China is rigged to favor state-owned companies and those favored by the Party. There is little respect for intellectual property and therefore no incentive for individuals to innovate.

China has demonstrated that when it had favorable demographics, it could manufacture stuff cheaper than others. The demographics are no longer favorable for that. With the notable exception of batteries it has yet to demonstrate that it can consistently make things better than its competitors or create new technologies that change the market.

This was written way back in 2014, but I think it is even more relevant now than 10 years ago with the concentration of power by Xi:

“The problem, we think, is not the innovative or intellectual capacity of the Chinese people, which is boundless, but the political world in which their schools, universities, and businesses need to operate, which is very much bounded.” Why China Can’t Innovate

Over the medium-term India seems like a much better investment bet than China.


Investible? As in putting money at reasonably known and quantifiable risk for a return commensurate with that risk over the longer term?


Gamble-able? As in tossing some money on the table in hopes for a quick, high return, but with significant potential for loss?

Sure. Why not. As long as your not betting the farm.

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Seems the “JCs” don’t think of any of that. All they see are Billions of customers there, and cheap labor to build stuff for export to the US. They can’t wait to sign on to the partnership/technology sharing agreements the Chinese government requires. Then they cry a river about the Chinese “stealing” the technology the western companies gave them, and demand the USian government they hate, “do something” to protect them from the monster they helped create.


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Yes but Japan and Korea and most of the world is. Recently that has not been a reason not to invest in Japan for example.
No. The growth of China is going to continue despite its problems and challenges. Suggesting otherwise is simply to be blind to the significance of China.

China has a different system and it does not mean there are no recognizable rules of the game. In these times, knowing and understanding this system are more needed than before, and that not only for the consideration of investing there. Not many Americans do today but that is going to change.
I agree for little retail investors, it may be difficult to invest in China, especially in these times.

That is blatantly false. China has developed many technologies and sciences. As an example read Josehph Needham History of Science and Technology in China. More recently, China has been at the top in the production of scientific papers, patents and technological breakthroughs. Often Chineses have been quite innovative by necessity of survival, and they did survive.
There are many successful and highly innovative businesses in China. Chinese businesses large and small in different places and environments have been quite successful for their operators and their owners.
Manufacturing exports &investments have been a stage that the 4 Asian Tigers and Japan have passed through in their development. China is taking a similar route. The difference is that the PRC is much larger than any one of them.

Right now China is moving up the value chain and the lower-end is moving out to Vietnam and elsewhere.

It seems like a lot of people are saying that. India is another beast. No doubt it will do well for itself but India has its own internal problems and issues, and its very own preferences. Not sure from afar, you can see or do any better. But good luck if you do.



And much of the aging world is showing slowing GDP growth. Successful companies in mature economies are different than those in rapidly growing ones. Chinese companies have yet to show they can be successful in a mature economy.

No one is saying China isn’t significant. It is. That doesn’t mean it is a good place to bet your retirement.

What I suggested was that many of the “rules of the game” for Chinese banks is for the benefit of the Communist Party rather than to maximize profits for the bank. That to me compromises the attractiveness of Chinese businesses that depend on the solvency of these banks. This is even more relevant for the many large Chinese companies where the Chinese government has controlling interests. How accurately are such companies audited? There is no way to know.

It is more like blatantly obvious.

The Magnificent Seven dominate the market because they create new products and services that the public didn’t even realize they wanted. Apple is famous for this. Merck and the other big western pharmaceuticals are putting out new drugs all the time. Can you name a Chinese product of similar impact? Chinese companies can certainly modify and incrementally improve western products. They can make their equivalents of iphones and solar panels and nuclear reactors that are very good. But where are the major innovations like the Google search engine or the Facebook social network or Netflix movie streaming or Tesla gigacasting or Apple ipod, etc that changes the way industries do business? What new drug or medical procedure has China given us in the last decade equivalent to statins, immunotherapy, gene modification, etc?

This provides a description of the barriers that limit scientific and technological innovation in China.


They gave us the COVID-19 virus which enabled the whole MRNA revolution to begin! :smiling_imp:


and you proceed on telling me about the mag7 and Merck? What does that prove? How does that make obvious Chinese are not innovative? I am baffled.
To your question, there are plenty of innovations in the market place and in the technological realm from China in the modern times and in history.
The question addressed in the article you linked about who is leading is another question. But to counter:

Those hardly suggest that China is not innovative as you claim.


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:smile: that is what started it all.

Also, according to some the COVID virus was made in a Chinese lab. Talk about innovation! :wink:

Yes, some rules are recognisable but that doesn’t mean all rules are recognisable. If you own shares in a public traded, profitable company and wake up one morning to find the gov’t has declared all after school education centres have to be non-profit, there is no rule to account for that. It isn’t a regulation that is debated among legislators that would allow potential investors to have some informed information.

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The difference is that Japan and Korea industrialized first–which is to say, got wealthy–then got old. Powerful Japanese and Korean companies can simply offshore their labor. China is still industrializing. The question is if they can complete the process before the population bomb hits. And it will hit. There is nothing they can do about it at this point.

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As as App, WeChat is quite innovative and not a copy of other apps. In the Fintech space, it is more advance than what I have seen most other places. There are a few examples but probably not many, still more improving on outside technologies.

I’ve never actually heard anybody say they don’t invest in China for Geopolitical reasons but than I live in Asia. I’ve some friends that have lived there are very pro china company investing and others that won’t touch it at all but not for Geopolitical reasons. Usually they have seen some of the inside workings of companies


No so. Net foreign investment in China has dropped biggly and then turned negative.
From November:


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