Excellent content as always. I have an unrelated question - I noticed that your analysis generally leans quantitative which makes sense since it's simple to share and consume but I'd like to see how judge or research Chinese investments at a more qualitative level ie deep investment in growth areas, brand value, r&d investment, catalysts etc.
There’s many things you can do. I think Google searches, X searches etc are fine especially if the company is already global like for example Xiaomi is one company where this could apply. The second is looking at annual/interim reports, investor presentations, reading management commentary etc but you have to be careful here. The third and perhaps best thing to do is to talk to various people living in China, hear them out and then form an opinion.
FXI is an ETF not an ADR so it’s different. The fund managers will most likely divest all their ADRs and buy H and A shares. They currently do have H and A shares in their holdings so it wouldn’t be anything out of the ordinary
Thank you Dragon for your in-depth article and analysis; much appreciated…do you think it’s possible for China to replace the 30% export to the US with domestic consumption by 2030? Which is a 5.4% increase year on year; and also in the extreme case there is no more trade between China and US then is there any point for Chinese companies to be still listed in the US stock market? If they get delisted and return to HK, what would happen to their market valuation?
15% is the figure US makes up of China’s total exports. Bilateral trade going to zero is a given now. There will obviously be transshipments depending on how the deals US makes with nations are structured. There will be consumer vouchers and supply side stimulus in my opinion. Making China a consumer economy has been one of the goals of the government and the U.S. has just fast tracked it.
Secondly when it comes to delisting, ADRs are fully fungible with H shares so you can easily transfer your shares at a small cost or just sell and buy again (I don’t own any ADRs for context, I’ve been calling out ADR risk for a long time). Valuations for existing listingswill remain the same because the existing shares are fungible, the HK market is unforgiving when it comes to valuations so I think we’ll see more A share IPOs unless a Chinese company wants to expand abroad in which they’ll list in HK.
Canceling existing ADR's will only damage America. They may ban new Chinese ADR'S. There's a risk it becomes illegal to own shares in an 'enermy' country, as has happened many times in the past, although normally a hot war is being fought when the bans are imposed.
Now’s a good time to diversify away from American brokers if you’re a non American citizen. No idea what the pathway is for American citizens unfortunately. Hopefully US financial institutions won’t be forced to exit China, they have a lot of paper gains on their investments in China which would all go to zero so it’s unlikely but who knows
Not only 15%, my assumption is a lot of them has been exported to other countries and then export to US. The really number should be much higher than 15%.
This whole transshipment argument is classic American exceptionalism in my humble opinion. Transshipments are impossible to curtail and track. I’m personally familiar with companies all over SE Asia that import everything from China, assemble it, slap a made in “insert country” name and either use it domestically or export it wherever. Under any tariff regime this is impossible to stop, hence the minimal impact on overall Chinese GDP. Under the current tariff regime, both the Chinese and Americans will be subsiding global third world GDP growth.
Also a significant amount of China-U.S. exports is done by American companies who often export finished goods like iPhones and shoes or machinery to third countries to build their supply chains. 10% of China-US goods trade is literally just Apple ( which is why you see the exception for them being released yesterday).
I think the final goal for US is raise tariff for other countries and ask them to raise tariffs to all the imports from China to mitigate it. If they don’t do it, their tariff to export to US will be 20%-30%. The main goal is to raise Chinese export costs not only apply to US. The final average cost may be 15%.
This is exactly what I talk about in the article sir. There’s simply no leverage here. Where do the parts for manufacturing, clothes for wearing, toys for playing, and cars for driving come for these countries. There’s no leverage to be had for the U.S. here. It’s quite frankly naïve and exceptionalist to assume that they do. Even for the U.S. to “bring manufacturing back” it would require Chinese machinery and labor, this is evident from the experiences of other countries like Vietnam and India who’ve tried to “industrialise” and “capitalise” on this “tug of war”.
Not one relevant country in the world except maybe stooges like India have indicated any anti China sentiment or indication that they’ll impose tariffs why? Because it makes no sense to do so
Excellent content as always. I have an unrelated question - I noticed that your analysis generally leans quantitative which makes sense since it's simple to share and consume but I'd like to see how judge or research Chinese investments at a more qualitative level ie deep investment in growth areas, brand value, r&d investment, catalysts etc.
There’s many things you can do. I think Google searches, X searches etc are fine especially if the company is already global like for example Xiaomi is one company where this could apply. The second is looking at annual/interim reports, investor presentations, reading management commentary etc but you have to be careful here. The third and perhaps best thing to do is to talk to various people living in China, hear them out and then form an opinion.
What will happen to the shares of those who invested in FXI if the US delists ADRs?
FXI is an ETF not an ADR so it’s different. The fund managers will most likely divest all their ADRs and buy H and A shares. They currently do have H and A shares in their holdings so it wouldn’t be anything out of the ordinary
Thank you for your explanations and reply, hope we all can ride out this storm and come out the other side stronger:)
Thank you Dragon for your in-depth article and analysis; much appreciated…do you think it’s possible for China to replace the 30% export to the US with domestic consumption by 2030? Which is a 5.4% increase year on year; and also in the extreme case there is no more trade between China and US then is there any point for Chinese companies to be still listed in the US stock market? If they get delisted and return to HK, what would happen to their market valuation?
15% is the figure US makes up of China’s total exports. Bilateral trade going to zero is a given now. There will obviously be transshipments depending on how the deals US makes with nations are structured. There will be consumer vouchers and supply side stimulus in my opinion. Making China a consumer economy has been one of the goals of the government and the U.S. has just fast tracked it.
Secondly when it comes to delisting, ADRs are fully fungible with H shares so you can easily transfer your shares at a small cost or just sell and buy again (I don’t own any ADRs for context, I’ve been calling out ADR risk for a long time). Valuations for existing listingswill remain the same because the existing shares are fungible, the HK market is unforgiving when it comes to valuations so I think we’ll see more A share IPOs unless a Chinese company wants to expand abroad in which they’ll list in HK.
Canceling existing ADR's will only damage America. They may ban new Chinese ADR'S. There's a risk it becomes illegal to own shares in an 'enermy' country, as has happened many times in the past, although normally a hot war is being fought when the bans are imposed.
Now’s a good time to diversify away from American brokers if you’re a non American citizen. No idea what the pathway is for American citizens unfortunately. Hopefully US financial institutions won’t be forced to exit China, they have a lot of paper gains on their investments in China which would all go to zero so it’s unlikely but who knows
Not only 15%, my assumption is a lot of them has been exported to other countries and then export to US. The really number should be much higher than 15%.
This whole transshipment argument is classic American exceptionalism in my humble opinion. Transshipments are impossible to curtail and track. I’m personally familiar with companies all over SE Asia that import everything from China, assemble it, slap a made in “insert country” name and either use it domestically or export it wherever. Under any tariff regime this is impossible to stop, hence the minimal impact on overall Chinese GDP. Under the current tariff regime, both the Chinese and Americans will be subsiding global third world GDP growth.
Also a significant amount of China-U.S. exports is done by American companies who often export finished goods like iPhones and shoes or machinery to third countries to build their supply chains. 10% of China-US goods trade is literally just Apple ( which is why you see the exception for them being released yesterday).
I think the final goal for US is raise tariff for other countries and ask them to raise tariffs to all the imports from China to mitigate it. If they don’t do it, their tariff to export to US will be 20%-30%. The main goal is to raise Chinese export costs not only apply to US. The final average cost may be 15%.
This is exactly what I talk about in the article sir. There’s simply no leverage here. Where do the parts for manufacturing, clothes for wearing, toys for playing, and cars for driving come for these countries. There’s no leverage to be had for the U.S. here. It’s quite frankly naïve and exceptionalist to assume that they do. Even for the U.S. to “bring manufacturing back” it would require Chinese machinery and labor, this is evident from the experiences of other countries like Vietnam and India who’ve tried to “industrialise” and “capitalise” on this “tug of war”.
Not one relevant country in the world except maybe stooges like India have indicated any anti China sentiment or indication that they’ll impose tariffs why? Because it makes no sense to do so