China: Investable?

Investment Analysis Clubs Macro Economic Trends and Risks
21

I guess we are speaking with folks mostly in the US and with a US-centric view. These statements are made by some stock investors who are dubious about chinese stocks. They did under-performed these past few years. These investors have extrapolated (incorrectly in my opinion) ad infinitum the current economic and financial issues ailing China.

At the same time or because of that, the FDI (Foreign Direct Investment) into China has retreated. The geopolitical tensions do contribute to that. In addition, the US tech export restriction definitely indicate the change in US posture vis a vis China.

tj

22

Then perhaps they are right not to invest but for the wrong reasons, I would guess I would rank Geopolitical and the current financial and economic issues of china around 3 and 4

23

Then it should be easy to answer the question with specifics. Think about the major technical innovations over the last 50 or so years. Cell phones, laptop computers, tablet computers, the ipod, digital cameras, genetic modification, immunotherapy, RNA vaccines, etc. These are all American inventions that represented a quantum leap in technological progress. All I am asking is for you to name a couple of Chinese innovations that have had similar impact.

The only candidate so far is WeChat.

Those Chinese publication numbers come with one big asterisk.

Retracting a published scientific paper means demonstrating that it was either plagiarized or that the data was fraudulent. Thatā€™s hard to prove and typically rarely done. Yet over the past few years the frequency of retractions from scientific journals have skyrocketed, with Chinese institutions being the primary culprit. Why fake research is rampant in China

Since 2021, over 17,000 papers with Chinese authors have been retracted from journals. The London-based publisher Hindawi issued over 9600 retractions since last year, with over 8200 being papers from Chinese institutions. in 2023, of the 14,000 retractions, 75% involved a Chinese author. The problem is so bad that the Chinese government has ordered an investigation. China conducts first nationwide review of retractions and research misconduct.

This is in large part because of ā€œpaper millā€ companies in China that will write scientific papers using fraudulent data and get them published in some journal for a fee.

ā€œThe papers mills churning out masses of 100% fabricated, never performed science which only exists in Photoshop, are the secret of Chinese science output supremacyā€ The full-service paper mill and its Chinese customers ā€“ For Better Science

Papers retracted originating from paper mills are increasing in frequency, posing a problem for the research community. Retracted paper mill papers most commonly originated from China and were published in a small number of journals. Nevertheless, detected paper mill papers might be substantially different from those that are not detected. New mechanisms are needed to identify and avoid this relatively new type of misconduct. Retracted papers originating from paper mills: cross sectional study - PMC

In past threads I have tried to defend the integrity of published peer-review research. However, I admit there should have been a caveat. I cannot in good conscience defend the legitimacy of the science coming out of China. There are certainly good and honest researchers in China. But the level of fraudulent stuff is so high that it is hard to know what to trust.

This illustrates why investing in China is high risk. The data coming out of China, whether scientific or financial, is frequently unreliable.

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24

This is far more important than you might realize. We wonā€™t back off.

Xi is fatheaded. He is a coward. He would not be in office without cowardice. He is powersick. He is destroying China from the inside out. He is not getting my money as the overgrown weirdo he is.

There is nothing in China to trust because of Xi. There is no merit, no heart, no being. The people of the Han are being destroyed by Xi. If your life means anything stand up and begin to fight him.

I purely despise what a man like Xi is. There is no china there is that sicko Xi.

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25

A recent turn, after 20 years of ā€œJCsā€ falling over themselves trying to get in to China. I remember Cramer doing entire shows about how great it is to get into China. The turn started around the time #45 started telling ā€œJCsā€ to get their supply chains out of China, around August/September 2019.

Steve

26

Xi also became more and more hostile. Breaking agreements on how far China would go to take tech industries from the US.

There are global agreements in place for who uses what resources more effectively. China threw that into total disregard. Xi I should say. Goes to copyrights and patents as well.

The real issue China does not have the water to expand longer-term successfully. China is turning inward to take care of herself. That is not an investable moment.

Things are closing down and resources are shifting.

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27

curious that you cannot find any.
There has been numerous advances and 1st attributed to China in Quantum communications and sensing, and recently in quantum computing.
The Chineses are in the run for the faster supercomputer and have had the fastest though in the past years. Chinese AI is also up there. Something you can easily look at is the number of chinese patents. Certainly some of these and some you mentioned are not only innovations. They are definite scientific discoveries.

In business which is what I guess you emphasize there are numerous innovations in the digital payment and in social media realm. Wechat? is that the only thing you know? Have you heard of TikTok, Temu and Pinduoduo? Its not like chinese innovations are rare events.
Like some have said ā€˜innovation is a weedā€™. It doesnā€™t grow only in America.
Just try to question this belief of yours, and you will see. I am not in the business of convincing anyone. We just have to consider the question and really think about it.

tj

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sounds like you have an axe to grind against Xi? You know him?

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You still havenā€™t found any. All your examples represent incremental improvements of technology invented elsewhere. The Chinese didnā€™t invent quantum computing, digital payments, or social media. They copied existing technology and modified it. Thatā€™s fine as far as it goes, but it is different than creating a new technology, like American companies did when tasked to fast-track a COVID vaccine. They took basic research on RNA expression vectors created in American universities and invented an RNA vaccine technology that will change the way vaccines are developed in the future. That is innovation with a capitol ā€œIā€.

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30

found what?

Smith and Wesson did not invent the gun or gunpowder. The Chinese did. The chinese were running a sophisticated and prosperous society when in Europe, a bunch of barbarians were running around killing each other. Which environment was more conducive to innovation then? Maybe it is difficult from your perspective to see things in such a long timeframe but China has been weak these past 2 centuries but it is rising again and catching up.What have they done lately? They did not invent quantum communications but they contributed to a lot of advances in the field. There are so many that it is pointless to list them here. Sure China did not invent mRNA or the GPU. So what? you want to imply that they didnā€™t invent anything? They didnā€™t have any innovation? Does that make any sense? It would make even less sense when you lengthen your view in time.

tj

31

Iā€™m pretty sure they were also running around and killing each other.

If there are so many, perhaps you could just list three?

JimA

32

yes for sure. Some Emperors did kill many. But comparatively speaking that place was more peaceful longer than any place in Europe for a long time.

I did more than 3, didnā€™t I? TikTok, Temu and Pinduoduo, BYD, advanced face recognition technologies, digital payments as it is used in China, innovations in manufacturing and supply chainsā€¦
For ancient ones you can see examples in Needhamā€™s Science and Tehnology in China.

tj

33

Not really; I donā€™t consider any of those things to be particulary interesting or innovative. Although I will have to look up Pinduoduo; whatever the heck that is. Isnā€™t BYD a car?

Actually, now that I think about it; the Great Wall might be the most innovative thing they have done in years! (no, not that Great Wall!)

JimA

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34

Gunpowder? We arenā€™t talking about 9th century China. We are talking about a 21st century China with a centralized economy controlled by a single Communist Party that has historically been suspicious, if not antagonistic, toward capitalism. More recently, we are talking about a leader, Xi, who has concentrated political power and seems to have a philosophy more akin to the socialist ideology of Mao than the economic reformist policies of Deng Xiaoping. If you remember, Maoā€™s economy basically sucked.

The question is whether entrepreneurial and technological innovation is compatible in a society that increasingly favors conformity and social stability over individual expression and change. Innovation typically means risk taking, which in turn typically means a high rate of failure. Current Chinese society appears to me to be largely risk-adverse. State-owned enterprises of the type common in China canā€™t afford to fail when doing so negatively impacts the image of the supreme leader. It is difficult to have consistent innovation without failure.

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35

no BYD makes cars but originally it is a battery business, and brought numerous innovations in the manufacturing of batteries and integration of car power train. But we only hear of Tesla around here.
Musk did acknowledge how hard it was to manufacture at scale. Some think that there is no innovation necessary in such activity but they are very wrong.
Also, you should look at what innovation means in the first place. It is not only about company high profile marketing events.

tj

36

You are right, I should; because Iā€™m an idiot and my mother did not have me tested!

And your reference to Pinduoduo as ā€˜innovativeā€™ is very creative. But I think there have been plenty of criminal organizations like this in the past. Even the Chinese govt had issues - and the team responsible for the malware were moved over to TEMU. That is reassuring. Are you on their payroll?

JimA

37

The world has more than an axe to grind against him. He is a coward. Hiding behind spying on his own people. Small man.

Do you bow to him? Is that all our life is worth? It is offensive to Americans.

38

Listen to this. It is shocking.

Larger numbers of Chinese American citizens should be prosecuted for money laundering and other crimes.

The innocent American Chinese families should be protected from hell out of China. Spying on them and silencing them for Xi. China is a very sick country.

Those dealing in fentanyl should be charged with attempted murder or worse.

Those dealing illegally in pot should be investigated by the IRS.

Those money laundering should be sentenced to 20 years in prison.

Those spying on any American citizen particularly spying on Chinese Americans should be sent permanently to prison for espionage.

RICO should be used liberally.

Those coming in the country illegally should not have due process. Just ship them back to China. Let them rot.

39

you got me here. I am a PDD investor therefore I insist it is a highly innovative business. Do I need to be an investor or working for it to say that? No I am not an investor in any of those highly innovative businesses I cited. You are going to ask me why not if they are so innovative? First innovative businesses do not necessarily make good investment. Second, to go back to the initial topic of this thread, I donā€™t invest because of the geopolitical risks. I cannot see through the cloud unlike the likes of Howard Marx or Ray Dalio.

If there is no other illuminating comments on that topic then we should close this thread.

Ciao!

tj

40

Chris Bloomstran wrote an excellent summary of economic conditions in China and where they are headed. Starts on page 66, ā€œThe China Syndromeā€.