China Deserves To Win
Episode 7. At China’s ‘Two Sessions’ meeting, Li Keqiang talks about math, science and taxes. Meanwhile, our colleges offer PhDs in Victimology. Smartypants says 2+2=4. Gets fired.
I’m going to sound like I’m in the tank for the CCP. But don’t worry, Double Plussers, I haven’t flipped sides. USA! USA! USA!
This week marks the final days of China’s Two Sessions. If you don’t know what that is, let me make it simple: it’s when the equivalent of the American Congress meets with the equivalent of an Executive Branch of policymakers to come up with the Five Year Plan on how China is going to eat your lunch. Or as they say in Atlanta: how China’s gonna beat all y’all.
Welcome to the Double Plus. That’s a Chinese saying for something that is really good. I hope this is really good. It’s still in beta mode so I thank you for staying with me. We are a group of American China investors jawboning over the big picture that’s driving national conversations and investing. I let you know what some of my Street friends are saying about the market, often as it relates to the main macro theme presented here double plus style.
In this issue, China’s Premier Li Keqiang has delivered his 2021 Government Work Paper in which he tells the Chinese 2+2=4, ya dummies.
Yes, China almost deserves to win.
Here’s why they do, and how we can win, too.
Li Keqiang gave his 2021 Government Work Report to the National People’s Congress on Friday and there are so many things that stand out I don’t know where to start. One of the main takeaways, for China amateurs, is that Chinese leaders – from afar, of course – look completely serious about the task before them. They have a country to grow, and a people to employ.
Yes, I know the Uyghurs live in an open-air prison in Xinjiang. I also want to remind you that this is where Disney filmed its live-action Mulan. Disney, therefore, gave that its American-sized stamp of approval. If you don’t think so, Xi and the Chinese sure do and that’s all that matters.
China is serious about the future, while our leaders are serious about the evening news cycle and what the mob is saying about them on social media.
China is serious about science and math, while our “trust the science” screechers here think there are dozens of genders and 2+2=5. You would be laughed out of the room if you said that nonsense in Beijing.
From the 2021 Work Report
· China is focusing on future tech. This includes green tech as it relates to remedying climate change. They are making nuclear a key part of their energy matrix now. One day soon, they will start to shut down more coal powered plants as nuclear comes on line, and more solar and more wind, and the argument of China being a dirty player that needs to be carbon taxed is over. If there is one country setting itself up to lead the Green OPEC, it is China.
· China is going to continue pushing its nascent semiconductor industry that goes from design to foundries. Foundries are the ones who make the chips designed by someone else. Foundries, generally, are the chip maker sweatshops without the IP. China wants it all.
· China said it will open its Greater Bay Area to foreign talent. Once the Taiwanese, Japanese, South Koreans, Indians, and the Canadians and Americans of Chinese descent start coming they will bring even more of Silicon Valley’s venture capital firms with them. If you think that’s not the plan, you’re spending way too much time on Netflix.
· China is cutting taxes and growing. We just elected a government that wants to raise taxes (though the President has not spoken about this yet). If the US raised the C-Corp, it’s a double plus win for China. (Buy anything China when that happens.)
· China is focusing on STEM and R&D in 2021, and will increase R&D spending by 7% and allow for a 100% tax write off for manufacturers that invested in R&D. Meanwhile, we promote Victim Studies programs and there is now an actual debate in this country about whether or not math is racist.
After reading that, watch one night of the American evening news and tell me where you should put more of your money for the next five years.
The Wall Street Watercooler:
Don’t Really Like China? Try This Instead.
The iShares ASIA 50 (AIA) is my new favorite Asia ETF. I’m just watching it. I don’t own it. China’s in it, but not loaded with it. You get the China growth story, but you also get the Taiwanese and South Korean growth story too.
Over the last six months of tech’s rise, AIA has outperformed the Nasdaq and the X-Trackers China A-Shares ETF. It’s approaching oversold territory now and has lost some of its mojo.
Here are its top 10 holdings. Mainland China is 40%. Hong Kong has two in there.
Wall Street knows that China is too big to ignore.
Over the past 20 years, China’s economy has grown fivefold, thanks in part to the fact that America doesn’t make anything and China controls almost all of our supply chains. Their economies of scale make it nearly impossible for them to compete with. And our political class can’t think beyond a news cycle to devise ways to protect our own supply chains so we aren’t just getting beat because Asia has over 3 billion people and China has a workforce that is about 100 million greater than our entire population, babies included.
China's GDP will grow over 6% in 2021, according to their government.
“Incorporating China into a global portfolio provides you with meaningful diversification benefits at this point. Especially tech.”
Every investor is watching China for a temperature check on the global economy.
China's exports have grown by over 60% in 2021 so far, versus an expected 40%, in a good sign for the global economy.
Asian equity markets started Monday higher but reversed course later in the day as growth stocks continued last week's sell-off.
KraneShares China Healthcare (KURE) fell today, so I bought more.
The “Two Sessions” policy meetings continue until Thursday when China signs off on its 14th Five Year Plan, which will be all about biotech, cleantech, and semiconductors.
Wait, no gender studies research? Someone needs to cancel China.
On China’s Five Year Plan and Beyond, by Smartpants
I think for the US, the focus has to be on how to possibly compete with a country that has that kind of massive economy of scale capabilities, is command and control from the top with state-owned companies that are not worried about profit so long as they're an integral part of a strategic supply chain (think mining) and just cuts taxes like it’s ripping off a band-aid. I think it is very hard to compete against that. It’s like you're playing football, but you have a 53 man roster and they have a 300 man roster and their side of the field is shorter and has fewer refs. Our biggest corporations, whether it’s Goldman Sachs or Apple all want to play on that field. They’re not interested in Washington making things uncomfortable for them with the CCP. I wouldn't doubt that Shanghai Disney becomes the biggest Disney Resort investment outside of Orlando within 10 years. You are right, we might see an American company list in Shanghai. In academia, if we are going to focus our attention on grievance studies and politicizing science, then, yes, I would also agree that they deserve to win the future.
Closing Credits:
Bad Moon Risin’
I hear hurricanes a-blowing/I know the end is coming soon/I fear rivers overflowing/I hear the voice of rage and ruin.
Thanks for checking in again! I appreciate your time as I figure out how to make the Double Plus worth 15 minutes of your day. Don’t forget to workout today! Sitting is the new smoking.