ALL ABOUT THE PRC/OPAL

Set forth below are comments concerning the China gleaned from several different presentations.  Some may seem to be, indeed some may be, either or both of counter-intuitive and somewhat contradictory.  A few of these comments may be woven into other posts on the OPAL conference, but I thought it interesting to just do a mind dump about “all things China.”

There is initial skepticism concerning investments in China’s brand-new Star Market, described as the equivalent of the NASDAQ market in the U.S.  It consists mostly of tech companies and was designed to provide access to outside investors, but the market was described as lacking in “depth.” 

In so-called “A Shares” (voting and generally for company management) issued by Chinese companies, there is a 10% withholding to extract the money.

Clearly U.S.-China relationships have deteriorated.  The trade dispute should be ignored.  The U.S. will not sustain very high tariffs, and this is in any event unimportant.  The point is that the United States no longer looks to build China’s economy, which was a post-WW II goal.  It now views China as a competitor and will push U.S. supply chains to be disassociated from China.

There are general qualms, if there is a further deterioration in relationships with China, that a future dictatorship might negatively impact the flow of invested funds out of the country.

China is running out of workers.  They still have a 6% growth rate but it is over a much broader base.  Demographically China is suffering from increased divorces and decreased marriages.

In terms of long-term macro analysis, as between the United States, China, Europe, and “the rest” of the world, the United States is “least ugly.”  China will end up with a 5% growth rate and may create more aggregate economic value, but the United States is a better investment bet.

The United States can successfully compete with China, it is not an existential threat. 

China sends so many people to the United States to get trained in Western technology because its population is getting older and there are fewer workers to support the balance (is this a non-sequitur?).  China hopes to build giant companies to threaten the U.S. economy.  The United States defends against this in part through recently-improved CFIUS controls which require substantive review of inbound M&A transactions with particular focus on Chinese buyers; recently Chinese acquisitions have fallen substantially.

United States stock markets will continue to go up, or not, based on reasons extrinsic to the China relationship and tech war between the United States and China.

The current U.S. Administration is using national security issues broadly, particularly when it comes to China.  This has to do with enforcement of CFIUS as well as trade sanctions, Department of Justice indictments, export controls and tariffs.  Recent litigation has indicated that the U.S. will reach out to punish Chinese companies even when theft of IP is not involved.


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