China Biz Talk - Baiguan Radio

This is a free preview of a paid episode. To hear more, visit www.baiguan.newsHighlights* The Binance case is significant (although the hefty penalty is only estimated to be ~1 year of profit of the crypto exchange). This case shows that US regulators are tough on crypto, but also do not want to crush it.* China has an interesting dual-system crypto regulatory regime, with total ban on anything crypto in mainland China, but very encouraging policies in Hong Kong, effectively protecting mainland citizens against scams but also keeping a foot at the forefront of innovation. "One country, two systems" in real action.* Despite China's ban, Chinese and ethnic Chinese account for a disproportionate share of the crypto community. One big reason is that many crypto businesses, especially the crypto exchanges require a high level of "operational excellence", something Chinese entrepreneurs are very good at.* Crypto does not equal scam. At the fundamental level, it's not much different from venture capital. So it is possible to look for high-risk, but high-quality teams in this field.Transcript[00:00:00]Robert Wu: Welcome to China Biz Talk by Baiguan. This is Robert Wu. The past week is very dramatic for the whole world. The roller-coaster events at OpenAI are simply jaw-dropping. In this part of the world, Taiwan elections have also seen an supposedly unprecedented alliance between leading opposition groups, shattered only within 48 hours after announcement (I had a discussion about that in my personal newsletter). In the meantime a ground-breaking event also occured in the crypto world. World's largest crypto exchange, Binance and its CEO CZ Zhao pleads guilty to US Department of Justice for violating anti-money laundering laws, and pay a whopping $ 4 billion penalty. What does this event mean for crypto?Today we are having Raymond Huang, a Hong Kong-based serial entrepreneur. Raymond's career spanned from investment banking, management roles at internet companies and starting his own cross-border ecommerce company. Now Raymond runs a Hong Kong-based crypto fund named Mars Capital, which specializes in liquid token investment.Let's welcome Raymond!The full transcript is reserved for the paid subscribers of Baiguan. You can also earn complimentary access with our referral rewards program.

Highlights New positive development of China’s data market* China's recent approval for cross-border data transmission, notably with players like Qichacha in the landscape, signifies China’s commitment to nurturing a resilient data market.* Dispelling misconceptions, our outlook on this development remains one of optimism. Far from a data conspiracy, this move serves as tangible proof of China's attempts to refining its data regulatory framework for the build up of a market and economy on data.* There’s a need to distinguish bureaucratic processes from deliberate secrecy, fostering a nuanced understanding. Navigating this dynamic regulatory landscape requires patience as the system matures. A new consensus being formed amongst China * Voices from China investment giants like PAG(Shan Weijian), KKR(Henry McVey), Hong Shan/Sequoia China (Neil Shen), Primavera (Fred Hu) and Ping An Insurance(Ben Deng) are sharing a new narrative on China's economic prospects. * The return of foreign limited partners to China signifies a growing interest in understanding and navigating the complexities of the Chinese investment landscape. * Shan, in particular, confronted the problems heads on. In his recent report, Shan acknowledges the severity of the real estate downturn, a historic growth driver. However, he argues that it won't be a lethal blow to the Chinese system. Shan conducts a systematic review of Chinese government debts, emphasizing control over assets, and mitigating the risk of a Western-style financial crisis. * We expanded this point in the podcast. Potential pillars of China's future growth, such as China's new economy, green economy and high-tech industries, will lay a new foundation for China's economic growth. However, the transformation is a gradual process and we still need to be patient for the results* Navigating the investment landscape in China presents undeniable challenges, reminiscent of the early stages of tech investment in the 2010s. Acknowledging these hurdles is crucial, and we emphasize the shared theme of overcoming initial challenges, underscoring the importance of perseverance and adaptability for investors. Delving deeper, we recognize the significance of identifying potential new economic pillars, particularly in the realms of the new energy sector and the Belt and Road initiative. Extra materials: * Board of Changemakers" panel featuring H.E. Yasir Al-Rumayyan, Ray Dalio, Jamie Dimon, Laurence D. Fink and Jane Fraser, Dr. Patrice Motsepe, Noel Quinn, David Rubenstein, Stephen A. Schwarzman, Neil Shen, David Solomon, and Shemara Wikramanayake* Re-Evaluating the Chinese Economy. Benjamin Deng, Chief Investment Officer, Ping An Group, Fred Hu, Founder and CEO, Primavera Capital, Gary Rieschel, Founding Managing Partner, Qiming Venture Partners, Jennifer Welch, Chief Geo-Economics Analyst, Bloomberg Economics discuss with Tom Orlik, Chief Economist, Bloomberg Economics at the 2023 Bloomberg New Economy Forum in Singapore.Full transcript[00:00:00] Mu: Recently one of the company registration data vendors in China, Qichacha, has announced that They got approval to transmit data across border. This is in line with our expectation. Half a year ago China has set up this process for a company to apply to transmit their data across border. While that episode was interpreted by many foreign media as China creating a new information black box, we think that it was just a new process to build an economy and market around data as a production factor.Time and time again, we keep mentioning that the core principle for China's policy is to build a market and economy around data as a production factor. That's an initiative started in 2019. It takes time for all these policies to mature. It's a big system, there's a lot of stakeholder within the system. There might be glitches during the processes, but it shouldn't be understood as a hidden agenda for China to hide data from global user or from the world. So it has always been our view and Qichacha's news that's a proof of our view.[00:01:22] Robert: To review our basic logics when we explained this a few months ago. It just doesn't make sense for China to so called lock the information into some kind of black box. We're living a information age. There's no such thing that you can really lock so much information from outside view while you are also engaged in international trade and investment. It simply doesn't make sense, although it fits some people's stereotypes about China, being a closed a system where there's just big control on everything.So at the time, there was a very strong narrative in Western media portraying China into this type of place. That's one thing. Another thing is, we should not confuse bureaucratic inefficiency and inertia with any conspiracy or any well -concerted effort to crack down on data or information.China's data regulatory regime is very young. It just started from almost nothing about three or four years ago. Ranging from personal data to you know, what they call important data. And all these laws and regulations are very young. I still remember, five or six years ago, people like to joke that there was no privacy in ChinaAll of the data is sold out and that created a lot of problems. But only in a matter of a few years, people now, today, are very sensitive about data. A lot of companies won't work on data related stuff, even though there is better rules. But people are actually over sensitive now about data regulation.So that takes a just a matter of few years for, for China to develop from zero regulation to there is regulation. WHen a new entirely piece of a new regulation framework comes online, it will take time to figure out all the details, all the implementations. So that takes a process. We wish the process can take place instantly.We always wish this can be faster, but, bureaucracy has their own pace. We would just take this example as a classic case study that when you look at China, maybe try a little bit harder to be more patient and don't easily jump onto some kind of Ideological explanation for everything you see.To me, this is a very illuminating case.[00:04:17] Mu: To add on that just now I mentioned about the many forces in play, trying to have a say in the data production factor markets. I'd like to give our audience a more vivid example, if someone is applying for a data permission or transmission about, you know banking data, the department that are involved to make the decision would be the local government, the CAC, but not just that, there will be also ministry of technology, as well as, the central bank and the new data bureau. lIke Robert said, it's more about bureaucracies coordinating, making sure who is in charge of which part of the approval rather than bureaucracy or the apparatus not wanting to implement the process. Central Bank want to have a say, CAC want to have a say, Data Bureau have a say, so as an applicant they have to go to all these Ministries and go to all this window to apply to submit their application. It's Actually not unique to China. If you do that in the US, in, different country, UK, in Europe, you also have to go through different departments approval process. So there's a difference between a hidden agenda and or ideological agenda and the bureaucracy process.Anyhow this is good news. It's a positive indication for China's data market, and for folks that want to get more data on China we can see that there's a step forward. On this aspect, on this issue.And in terms of the expectation, we know that many companies or many data owners are also looking into transmitting the data overseas. At the national level, China itself is also looking into frameworks of cross border data transmission. During the Belt and Road Initiative, we saw that many framework agreements have been signed, and within those framework agreements data has been mentioned.For example, cross border e commerce collaboration for Belt and Road Initiative, right? Within that framework, you know, data is a must. And we saw that, the updated rules for oversee data transmissions also exempted, part of the data transmission that's in e commerce industry.So they don't have to go through the application process. We're expecting the regulation to mature, but it's not going to be a linear maturation process. You'll be two step forward, one step backward.So that's on the data. And in terms of changing gear, we are seeing that there are more and more update rhetorics about investing in China. My feeling is that a new consensus is being formed on1) if China is investible, that's turning from a negative answer to a positive answer.2) if China is investible. How to invest in China?" what kind of assets are investable in China?3) is it secure to invest in China?So more and more we're seeing different cases across board, about understanding the current situation in China, including the real estate situation, the macroeconomic situation and the new rhetoric also are more respective of the actual economic structure in China. Our fellow writers Jiang Jiang from Ginger River Review , recently published the article from Shan Weijian 单伟建, the founder of PAG. Robert, you have dived deep into the report. Can you talk more about that?[00:08:04] Robert: Yeah, it's a very interesting report. It's, as you said, a kind of a new rhetoric is being formed. And in this sense, a lot of the big shots are coming onto the stage and be quite vocal about their opinions. So Mr. Shanwei Jian of PAG is a very good casing point. A little bit background about PAG is, I would say it's one of the largest private equity funds in greater China region and and Mr. Shan himself has been, over the last couple of decades have been involved in some of the most landmark deals in China that included you know, when he was at TPG, the merger and acquisition of Shenzhen Development Bank. And at PAG, he did a lot of Very big deals, including some of the largest ever private equity buyout deals in the history of China.When he's starting to publicly voice his opinions people should listen. So I did read his report and I find it quite informative. He actually took on this question. Whether China is investable, is Chinese economy doomed what are the new opportunities?You know, all these very big questions head on. So he is pretty explicit and frank about China's current problems. And I think to him, a big problem is this real estate malaise, right? Basically, over the last two decades or so, a strong, the biggest pillar of China's growth is real estate industry.And that industry is kind of falling off the cliff right now. And so he takes that as an assumption and look at, you know, what exactly kind of impact will it have on China? And and his conclusion is: although this is bad, it's not lethal for the Chinese system. There are several interesting angles he takes.One big kind of consequence of this real estate thing going down is the drag on local government finances. So, a lot of people are concerned about the public debt situation in China. So he did a very concise but also systematic review of both the the Chinese government's debts and also the banking system.For example, he look at the total debt in China, for the central government, it's actually a pretty low debt ratio. The main problem is in the local government but even if, even if you take all those debt together compared with, you know, Western countries like U. S. and Japan, it's actually not such a big it's even lower than some of those countries. And also, you know, an interesting point he makes is you know, Chinese government is also different from other government in the way that they control a lot of assets. So the asset quality, you know, including the, the state owned enterprises, the land resources, all of these asset qualities maKe the net assets of the country, of the government to be of pretty high quality. So that ensures that the current I would say crisis is not going to balloon into a Western sense of, you know, financial crisis. He draws that line pretty eloquently that there's a limited systematic risk.And then he goes on to explore what exactly will be the pillar? He is very detailed and also and, and very optimistic about the technological growth in China. In this case, he quoted the KKR Asia Report, which we also shared last time at podcast, which also quoted data from us. Mr. Shan, he quoted KKR's report specifically about the sections about the new economy, the green economy, the high tech economy in China and the growth of the, manufacturing value added. All that was going to be a new pillar for China.I think he's very explicit about that.We also agree with him. We also want to point out that technological progress, this climbing up the value chain, is not going to be successful instantly. It takes time to build. It's actually harder than building out buildings and towns. Technology takes time, takes the, the talents, takes accumulation of both know how and capital and also the good market for the technology. So it's going to be a process. And that process will bear fruit. It's again, come back to the, the patience, right?Be patient for the economy. And, I think it just will take some time, but, it will you know, we will see the fruits one day.[00:13:29] Mu: Yeah. We can expand more on that. To do some comparative study. Right. You mentioned about, the first part is, he's mentioned about China's real estate bubble being bursted. We want to remind our audience that unlike how real estate bubble burst in other countries, China actually proactively tried to cool down the real estate market initially a couple years ago.So, and the rhetoric about it. it at the government level, is that we want to cool down the real estate industry. From this perspective, they are very transparent about it. That's the difference.Meanwhile, if we look at the balance sheet like , Shan mentioned in his report, and like Robert mentioned the balance sheet overall, national balance sheet of China is healthy. Every time there's talk about big debt crisis or China's debt level, I always compare it against The total savings of the Chinese economy there's over 200 trillion RMB savings in the Chinese economy. That's aggregation of private individual savings plus company saving.Retail consumers saving there's over a hundred trillion RMB. So we need to put different debt issues and different, you know numbers in perspective by looking at this broader number. And that's what Shan did. And that would be helpful for many of our audience who are looking into macro of China and And so the key here is actually more sentimental, right?People are saving more That they are not spending as much. So the government's job is really to strategically mobilize this capital, this wealth, to address different problems. And that's why we are seeing this special sovereign bond we mentioned in the last episode as a tool for the government to hopefully borrow from the savers.And then transfer those savings into, directing this state saving into, you know spending or investment that would revitalize the economy. So, having that big background would actually put things in perspective. I think it's easier for analysts to draw metaphor or draw comparison between China's current situation and a similar situation happened previously in other countries. So initially there's talk about real estate bubble. Turn it into a Lehman like episodes, right? A few weeks ago, there's talk about Lehman moments, right, for China.[00:16:11] Robert: I don't think there's a Lehman moment the system just just wire totally differently the US system the Chinese system.[00:16:18] Mu: So there's, they talk about Lehman moment, but if you look at the deeper, like you said, the system, the fundamental of these episodes, it's going to be different. The government itself is managing, whether good or bad, the unfold of this moment or this episode about real estate bubble burst.And then there's talk about balance sheet crisis. Another metaphor people trying to draw between China and Japan in the 90s. But then if you look at the overall balance sheet, it's actually also different. There's no external force that's forcing China to up their currency valuations and restraining, China's monetary policy and room for maneuvers unlike what Japan experienced in the 90s. So that's the context.One key point that we need to bear in mind is that China has all this historical lesson to draw from, you know. They saw how 08 09 unfolded, right? They saw how Japan dealt with the balance sheet crisis, dealt with the population crisis, right? So as a followers, they actually have the lesson to draw from and they are trying to do things that differently right from those lessons.There are scholars that study all these episodes that unfolded in other countries previously, and they are, trying to get the lesson learned. So keep in mind all these episodes that China is experiencing has happened in other countries, and from our point of view, given that Chinese government has this pragmaticphilosophy, when setting their policies, they will take into consideration of the historical lesson.Besides Shan, we also saw similar rhetorics among other investors. In an under reported event that I recently saw at Middle East Neil Shen, right, the head of Hongshan Sequoia China, was in a roundtable with the head of Other big global financial institutions like Blackstone, BlackRock, Goldman Sachs, and Morgan Stanley, talking about China. His narrative is that you've got to take a long term view about China. There's cycles and this is the first down cycle that's experienced in China and in the long run China will work out all these downturn cycles problem. Around the same time, at Bloomberg's new economy forums in Singapore, the head of Ping An Insurance as well as the head of a large private equity, primavera in China, also, talk about China at the forums. Robert told me that, actually, the report about Fred Hu sharing is actually more negative. What was that rhetoric in some of the media's reporting?[00:19:10] Robert: I think a lot of people just seize on his line that he thinks the entrepreneur's confidence has been the lowest he saw since 1978, which is like the beginning of reform and opening and the end of cultural revolution. So, so that line is quite startling. But I think he actually put that into a bigger context, which he is advocating for more you know, deeper and structural economic reforms to make businesses to be more confident. He, I think overall what he's arguing for is a reform agenda .Not really just trying to sound a pessimistic view.When he share in that conference it's similar with how Mr. Shan Wei Jian came out to, to voice their opinions. It just seems now the big titans of finance feel it's the time now for them to have their say as well, to make their voice heard.And I think they will not do it unless they feel that, you know, right now the general atmosphere is also shifting towards more reforms, more growth, more confidence. You know, for our, from our perspective, we like to put that into that kind of context, instead of just taking a line and say, Oh, China is going to, you know, going all downhill.I think that's a very different angle.[00:20:39] Mu: Yeah. I think this is a good signal, right? Not that all these investors are planning to put out the same rhetoric at the same time. There's no such, you know, circle or community that they're exchanging views together. But if we look at that, Shan Wei Jian publish an article. Neil shen recently went to Saudi Arabia to talk about that. There's this head of ping Insurance, one of the largest insurers as well as asset locators in China, which is a state-owned company and Primavera another leading PEs in China. And us, right? I went to China projects seminar recently with Liao Ming which is the head of PAC, another growth capital investors. China, who is very vocal. They all sharing this view about, investing in China. There's a saying in China called 春江水暖鸭先知, when spring comes, the water gets warm, but the ducks will feel it first.In our view, the capitalist or the investor, we shouldn't use the capitalist term, the investors are the ones that are seeking profits, seeking new opportunities.The fact that, there's a group of them going there to speak out about investing in China. It's a signal that we can chew on, and another anecdotal note I'd like to mention is that, recently in Shanghai also saw that during the annual general meeting of a couple of leading venture capital in China, we saw a foreign LP, foreign limited partner. Conventional big allocators in Europe, in the U. S., now are coming back to China first time in three years and four years to meet with their general partner which are the VCs and PEs in China, right? But my, when I talk to them, they are still... refreshing and updating their views on China. So I think there'll be a process for that. There are the early adopters like KKR, like Shan Weijian, who spend more time and resources on the ground, who have an early updates of their investment framework on China, and then slowly we are seeing that the mainstream investors are also adopting and appreciating the new framework.But one reality that's also part of consensus is that it's not easy to invest in China. It wasn't easy before, it wasn't easy now, because it's different culture, it's different system. If we think about the tech investment and the consumer investment, the beginning of the tech investment in China in the 2010s, in the early 2000s, it was hard for VC to invest or find investable targets in China. Just for context, Tencent's founder Pony Ma almost sold his company earlier in his venture because he couldn't find funding. So if we put that context into now, for the new industries, the new economies, new manufacturers, upgrades, new energy sectors in China, we are going to, we should expect similar cycles happening, where global investors trying to find their way, trying to find their footholds. And find a position in China. The founders trying to connect with the investors and build up a market.So this should be expected for the new industries that's one point.The other thing is that, because I was in the U. S. during the 0908 and 2010, Great Recessions, we also had that feelings in the U. S. right back then, if real estate falls down, what would be the next pillar of the economy? There's a tendency for people to find a simple answer for their framework because it's easier to have a simplistic framework for their decision making. But in the U. S. after the financial crisis, there wasn't clear pillar for the US economy, right? There's no one single answer for that. But US also come out from that crisis after a couple of years. Because it has a resilient economy, and China too has a resilient economy. There's all these basic economics activity that's being conducted.The foundations are still there, that will continue to grow. Meanwhile, different from the U. S. back then, China has a few potential new pillars that within our visibility, which is the new energy sector, the Belt and Roll initiative, where China can have their manufacturer capability exported right to other countries.So in comparison, the context and situation China is sitting in now is as not as bad as oh 8, 0 9 in the US.[00:25:54] Robert: Great. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

This is a free preview of a paid episode. To hear more, visit www.baiguan.newsHighlights* Global capital is skeptical of China now. But that China's growth story has not ended. There is actually a way to invest in China without investing in China.* The world ex-China is experiencing inflation, while China is going through deflation. This setup gives unique opportunities.* Chinese entrepreneurs are expanding globally and they would like to know their customers directly and jump over the traders and also the buyers, so that the whole supply chain is more efficient.* Shein and Temu are good examples of this big trend, but there are more opportunities.* Despite the fact that we are living in the age of decoupling, ironically, Chinese entrepreneurs are fundamentally reshaping infrastructure in the US, in Europe and in emerging markets. And there will be ample investment opportunities there as well.* Many "Chinese teams" now start as global players, with development and operations teams in China, while product and marketing teams based abroad, from the very start. It's called a "Glocal" model.Full script[00:00:00]Robert Wu: Welcome to China Biz Talk by Baiguan. This is Robert. Among the close to 3000 subscribers of Baiguan, around 40% of you are investors or work in an investment firm. One big investment question about China in the recent years is whether China is still investable. At Baiguan, we always argue that China still is. But we know there are many skeptics out there. For them China is too risky. So is there a way to enjoy China's future growth, without the China risk? Our guest today, Bob Chen, thinks there is such a way.Bob Chen陈博, is an investor working for Mangrove Capital 沣源资本, a China-based venture capital fund specializing in software and globalization-themed investments.Bob has a very interesting career path. As one of the few Chinese undergraduates in the class of 2012 at University of Chicago, he studied Economics and Political Science, and first became a macro-economist working for China's top policy think tank. He later quit the public service job and joined the venture capital industry. Over the past years, Bob has developed a speciality in investing in the so-called "Go Global出海" companies. One of his investments, Sailvan Times赛维时代, a large Amazon-based merchant, successfully IPOed unto China A Share market this year.I have known Bob for more than a decade, and he always strikes me as one of the deepest thinkers I personally know. His interests are also inter-disciplanary, covering venture capital, macro-economics and China domestic markets. In fact, in July we translated an article from his WeChat blog (嬉笑创客) reviewing the recent history of A-share market. So you are already familiar with him.I am really glad to have Bob joining us today. Hi Bob, can you introduce a little bit about yourself as well? How have you developed into who you are today?[Rest of the full transcript is exclusive for paid subscribers of Baiguan][If you enjoy Baiguan, we encourage you to share it with friends, colleagues, or anyone who may find value in our content. Our most supportive friend can earn up to 1 year free subscription ($150!) through our referral program. If you are already subscribed to the paid version of my newsletter, your subscription will be extended]

Highlights* KKR Asia visit and our key observation on the ground* KKR visited Asia third time this year, Robert Wu andMu Chen had a chance to meet and share with the delegation. KKR’s Head of Global Macro Henry H. McVey, and Head of APAC Macro, Frances B. Lim, wrote a report after the trip, stating that they have came out of China with a refreshed, and more upbeat view. Robert and Mu talked about some of what they shared in the meeting. * The Chinese central government announced a ¥1 trillion special sovereign bond program * Robert, in his personal stack(Lost in Translation 迷失南京) , stated that this is a “nuclear control rod”. We expanded this point in the podcast. This bond program, while small in size relative to the overall economy, would create multiplier effect, symbolizing the change of stance from the central government from releasing rhetorical measures to substantive measures to support the growth of the economy. * This is in line with what we discuss in the previous podcast that we shall expect more time taken for stimulus measures to be formulated as new cabinet needs to be onboarded and be more meticulous in designing given the more complex Chinese economy. * Foreign company investigations* Reaction is disproportionally large on cases on foreign companies but there are also cases on domestic companies. Bribery and corruption cases existed amongst both foreign companies and domestic companies. Without overall analysis, conclusion can’t be drawn that there’s an intention to mistreat foreign companies. * Foreign companies and investors should internalize the fact that as China grows, super national treatment in the early years of reform would be normalize, and enforcement of laws would be more matured. It would be a norm for foreign companies to be treated as equal to domestic companies. * Thoughts on Mu’s response on Evan Osnos’s “China’s Age of Malaise” on New Yorker* Mu talked about why he wrote his twitter post, pointing out China is larger and more diverse than what Osnos wrote. * Most of the foreign media and China watchers are necessarily elites, who may be fall into their own information cocoon when it comes to analyzing China. Peter Hessler who through his book, River Town, detailed his experience in a small town call Fuling涪陵, is an example of getting out of the cacoon and discussed the broader Chinese society. Full transcript[00:00:00] Mu: KKR recently published a report. They have a trip in Asia. Specifically, they visited Japan, China, Singapore, and it's their third trips in Asia this year, and there's a lot of new views that's not common within the broader investor community. It's publicly available. Our readers can go on and read it. For those that haven't read it, the main takeaway is that there's a transformation happening across Asia. Within China specifically, their view is that there's an old China and new China in terms of investment & economy. We are seeing the sunset of old China's economic model, but there's much new China going on the ground that haven't been fully covered, which is what we are doing. And we are honored to be mentioned by the report. We had a chance to sit down with the delegations led by Henry and Francis, to spend 90 minutes sharing with them our insights and what we see on the ground. So to the extent we can, Robert, you want to share what we talked about with the KKR team?[00:01:09] Robert: So we've actually been working with KKR as well as many other private equity funds for the last few years. And this time we are also honored to present our insights.We share mainly two key observations. The first one is about what we understand about the so called unemployment or the employment situation in China, because the official data has become more spotty now. What we are observing through BigOne Lab's data is we see a strong, what we call frictional unemployment problem, especially for the young graduates, for the young junior jobs.Although you do see many industries, for example, real estate, education, that are traditionally a big source of youth jobs that are crashing over the last couple years. But at the same time, you are also seeing industries like manufacturing, especially high end manufacturing, like semiconductor, biotech, they're actually increasing.Their demand for talents, especially young talents. So, it's not a one way street view of unemployment. It's a mismatch of the talents, the skill sets, and the actual needs. And it's actually reflective of the overall industry transformations that China is ongoing right now. Because it's a frictional unemployment situation it's not going to be resolved like today.It's going to take some time. It will take maybe years for the talents to readjust their skill sets, their majors, their trainings. But we don't think it's going to last forever. Frictional unemployment will adjust and will be resolved. As the industry transformations take root. So that's our first observation. Directly from the data we're seeing.[00:03:21] The second key observation surrounds the consumer market which is going through what we call a consumption downgrade, just by looking at the average value spent. Per item, per purchase. That's one part, but also we remind the KKR team that it is not the only point of the market right now. Another key observation that is also happening is actually there are two. First is because the economic growth has changed gear, people are actually having more time and also they want to devote more time into those consumer behaviors that are generally better for their both physical and mental health.This kind of consumption is actually growing double digits, even high double digits over the last two years. And this includes not only health products like health supplements, but also includes a lot of outdoor activities related consumption. It even includes pet products. We see pet as a kind of substitute for having children. People actually want companionship to satisfy their psychological needs. We see that along the line of these new forms of consumption.The second thing is even though people are spending less it doesn't mean that their need to express themselves, their spiritual need, is decreasing. For the younger generations of consumers, even though they have less money to spend, they still want to spend in a way that they can express themselves. Meaning that in this round of consumption downgrade, there's also ample opportunities for brands to capture. In fact, a lot of the more successful brands recently say, Luckin Coffee, MINISO , many other brands, they are not only just cheap. People don't go to Luckin or go to MINISO just because it's cheap.Cheap is important. But what's more important is that all these brands, they're really good at brand building. They're really good at making people identify with brands. We talk about the campaign between Luckin and Moutai, which is a super premium liquor brand.We talk about how MINISO is developing all these different intellectual property into those really cute and lovely product lines. This cannot simply be explained by a consumption downgrade. It's consumption downgrade coupled with higher demand for expressing of personal ideas and brand identity. These are what we share with the KKR team.[00:06:16] Mu: I think we clarify it by giving nuance to the idea of "Consumption Downgrade", It's more about slowing down in terms of consumer growth, and the consumer become more aware for the value they want to get for the same amount of money they spend. They are not spending as frantically as they did in previous economic growth stage. It's still growing. The top line is still growing at a slower rate. So that will translate to a structural change in terms of the consumer behavior and there'll be opportunities.[00:06:53] Robert: Even when we look at the luxury markets. I remember 10 years ago or like 15 years ago. When people purchase high-end luxury, there will be a lot of debates about what we call conspicuous consumption, right? Mm-Hmm, the you know, the fancy new sports car, the million dollar piece of watch.It creates constant discussions in China. Nowadays, there's less of that. But people are still spending a lot on luxury. You look at these luxury groups, LVMH, Hermes, they are still expanding at pretty fast speed.Why there's less of those kinds of conspicuous consumption or even like debates about that? I think that's also reflective of the maturing of the Chinese consumers, especially in this high end segment. People still have luxury needs, but it will be more internalized and less noisy, less, as you said, frantic.I think that's just overall trend right now.[00:07:55] Mu: The content we share with KKR have also been discussed in the paid content of our SubStack. So you're not missing out much if you had a chance to read through all the articles. During the talk we can share more nuance but overall what we're trying to convey is that nuance is required for understanding the new China. KKR also echoed that in the report mentioning that the investment for a local team is required. The requirement is higher nowadays to help them get China. What's interesting is that those who have visited China all left with a refreshed perspective and more upbeat view than the mainstream media or than what's been discussed within the mainstream investment community.Talking about more upbeat view, for the past few months we also have been paying attention to the state stimulus. One major announcement from the government is the trillion RMB bond, which is being discussed on Robert's Substack. By the way, Robert just started a personal Substack sharing his personal view. Some of them may be reflected in our Baiguan.news Substack, but he also wants an outlet for his personal thoughts . So we'll share the link to his personal Substack in the show notes. Going back to the Trillion Yuan bond, You discussed that it's a nuclear control rod Effect, right? What do you mean by that?[00:09:25] Robert: So let's maybe talk about the bigger picture first. So as you said over the last couple months both the central government, the state council, and all the ministries keep rolling out different kind of stimulus policies. But for all those policies, there is a complaint in general that it's all talk but no real action. Many policies are more of those kind of encouraging certain thing kind of policy. Some policies are aimed at tax reduction but not to a big deal. What people are waiting for is really the moment when the central government says, okay, I have to step in now with the real money to help different local governments, to some extent, developers to weather this debt crisis and to stimulate the growth. That signal was not sent until last week, when the government suddenly announced this trillion RMB sovereign bond, which is outside of the original budget, and increased the government deficit from a 3 percent to 3. 8%. It only happened two times in history that the government increased deficit in the middle of the year. You're also seeing entities backed by the central government, for example, Central Huijin, aggressively using real money to invest in index ETFs to boost the market.And what I mean by the nuclear control rod analogy is that 1 trillion yuan itself is actually not so significant. By some estimate, all the local government debt in China is at least 87 trillion yuan. So 1 trillion yuan is just small compared with all the debt existed and also the government is not really saying this one trillion new debt is going to be used to repay the local debt. They actually say this one trillion debt is used as a so called disaster relief kind of purpose, so much of the fund will go into those infrastructure projects, some hydraulic projects, for example. So if we look at this economy as a nuclear power plant, one trillion yen is not like a nuclear fuel that the government is trying to push into the market. The fuel is not increased significantly. But what it achieved is that by taking this kind of abrupt change from previous standpoints, they are actually channeling a strong sense of confidence that is being used to kind of fundamentally change people's expectations of what the government will be doing. In a nuclear plant, you use those control rods to adjust whether the nuclear plant is working or not. And this is really similar to the point where in a nuclear plant, they're releasing the rod. The energy burst into each other and create more activities. It's not really the value of that trillion dollar debt that's significant, but the fact that it is there and it, it breaks previous precedents. This kind of stance and the confidence it entails will trickle down and have systematic effects. That's, as I said in my personal Substack, the most profound event of last week.[00:13:01] Mu: This bond program will have a multiplier effect that triggers more positive changes in the economy.The other thing I'd like to add is that many have not, internalize the fact that there's a new changing cabinet. Since end of last year, after the party congress and then all the government official are put in place in March this year. So if you are running a company, we also have an onboarding period, say six months, right? So they are also onboarding the cabinet, different officials. Meanwhile, they will have to design this program. Bearing in mind that, China is bigger now than 08 so the design of this program has to be more meticulous, which takes more time to design and simulate the effect. It takes more time. They announced it a couple of weeks ago, so that's about half year from March, the People's Congress. They are all onboarded announcing new measures. So the expectation would be as they are more and more on track in performing on their positions, we shall see if there's any more positive measures being announced. The message is clear from the Central government that they want to boost the economy. But we're also hearing from outside of China, there's still concerns that's confusing people about the message.One is the foreign companies investigation. Recently, there are two headline news about foreign company investigation. One is on WPP, the other one is on Foxconn. How shall we understand this?[00:14:47] Robert: We have more knowledge about the WPP case compared with the Foxconn case. But I will maybe just go through them first, and also share our overall observation about this whole narrative. So the WPP case I think is pretty simple. It is a classic commercial corruption case involving huge sum of money. As any advertising industry, they operate in huge advertising budgets. It is entirely possible, that some of the crooked senior managers, they might be using their power to enrich themselves. I think in this case the government authorities, especially the Shanghai Police Department, are actually quite proactive in terms of explaining the motives.I think this is totally normal. What is not normal is how now it seems like every time a foreign business in China involves some law enforcement action, will create the kind of reflex and reactions that we're seeing in foreign media. Right, and also for the I think for the the Foxcoon Investigation. It's different in that for China, it's not really a foreign business. It's Taiwanese business. Anything that's related to Taiwan is more delicate and more complicated at the moment. We are not in that field and we not, we cannot really comment that much about it. What I can say is, I don't think this story also fits into the, you know, quote unquote, So China is against foreign business, scaring away foreign investors kind of narrative. Overall what we want to say is what we are seeing right now in terms of all these different law enforcement case, supposedly against foreign businesses, are just a kind of going back to normal. Normal in the sense that for some years foreign businesses actually enjoyed, it's not official, but it does enjoy some kind of super national status. Because in the very beginning during the opening up and reforming period, government goes Out of their ways to attract foreign capital.[00:17:03] Mu: I agree with that. Coming up from Shenzhen, we know there are lower tax rates for foreign companies running business in Shenzhen in the early years of the reform era. So there are some supranational treatments.[00:17:16] Robert: In the previous years, you have to be treating foreign capital differently in order to attract them. Otherwise "why should we invest in", quote unquote socialist China? For that time, that kind of policy totally makes sense as well. But nowadays, I don't think it's a discrimination against foreign business, it's just treating every business the same way.Any businesses run compliance risk, they have compliance risk, and any business have the risk of Incurring non compliant, even illegal activities. And so it's just perfectly natural for any business, foreign and non- foreign, to be part of any investigation. Provided those investigations are really about setting those non compliance straight.On the other hand, like for example, if we talk about WPP case, instead of focusing on this single case, why don't the media talk about all the non- foreign advertising companies that got themselves into investigations, right? There are actually way more than that. Unless you can tell me that foreign businesses in China, they suffer a disproportional amount of these law enforcement cases. Otherwise, it's really not convincing to me that foreign businesses are treated differently. I think it's high time, now we get back to a normal standard that everyone is treated the same way.[00:18:42] Mu: There are two layers, right? One is the sun setting of supranational treatment for foreign business. The other one is the maturing of China's law enforcement. They are becoming more professional. In both way, in punishing illegal activity and in encouraging business to grow. So the two layer is taking into effect. But the reports by many of the news are only focusing on the single cases. Like you say, if we put in statistics, then we can investigate or talk more on that level.[00:19:15] Robert: I think there is just a lot of these maturing of Understanding about China that are taking place. So for example last week there is this big article by New Yorker, by Mr. Evan Osnes, which is actually one of my favorite writers, by the way. He wrote this article, China's Age of Malaise, and I know that it created quite some discussions. Mu, you wrote a post discussing about this article. Why did you respond to that?[00:19:45] Mu: So I wasn't trying to argue the fact that he described. The reason that drove me to respond was the frustration by how they construct a framework on China.I was so frustrated, not by its stance but the perspective of the article. I think regardless of what different social system or political system each society adopt, people live their life, and there's diversity in the society.So the article focused more on the elite view of the society. But China has evolved, in last few months, we keep mentioning that China has grown to a sizable society, to a sizable economy. So, to have a meaningful report about the entire China, you have to look into not just the 0. 01 percent of the people in the most advanced city in China, but there's the remaining 1. 4 billion people living outside of Beijing, Shanghai, Shenzhen. So that's what we need to talk about. That's what we need in terms of sharing insights, sharing news to helping people understand China better. We need to also cover the perspective and the life of the majority of the Chinese people that's living outside of the Tier 1 cities. Also the economy that's being developed outside of the Tier 1 cities. So that's what's lacking. They are still reminiscing the China in the early years, where modernizing the top tier city is the priority for the society. But now there was also a mention about triggering down effect, right? Get some people rich and then they will help the rest to get richer. So now it's a second step where the rest of China are getting richer, and I would appreciate more if the article can also cover more about the 99. 9 percent of the China.Robert: I want to add to that in that there's one thing that every person who claim to be a China watcher has to be careful about, which is if you are a foreigner and you care about China, you are necessarily a elite. Otherwise you wouldn't care. Yeah. Right. And you are at least intellectual elite. You are well read and you express yourself really well. Being an elite, the drawback and the peril is: you always have what we call information cocoon or bubble, this elite bubble around you, because you tend to surround yourself with people who are also able to perceive and describe things as eloquently as you do.And if we're not careful enough, we'll surround ourself and kind of swim just within this bubble and, it will take extra, really extra effort for you to break through and to be able to talk to the wider public, what we call the masses in Chinese.I think another good example is Mr. Peter Hassler, which is also a famous New Yorker. One of my favorite books is his Rivertown. That was a classic example of a kind of foreign elite breaking through his own bubble ,install himself into a town that nobody have heard of for years and try to get really human level observations and you know, writings about this wider world. And I'm really curious and I really want to see more of these works. And at Baiguan, we're also writing an article about this topic recently. We wrote about some other cities like Gaoyou and Leshan. We did a podcast on Leshan before.Now we are going to also write about our tour into this small little manufacturing town in eastern China. It's called Shengze盛泽, and it's going to be quite another interesting story about this part of China. So, definitely stay tuned to us as well.[00:23:58] Mu: On the other hand, I also want to share another view about this lack of understanding about China. It takes years for the world to appreciate that in America, there's difference between California and New York, and Virginia, and Carolina or Maine. We should expect more time needed to help foreigner to understand the nuance of China.There's difference between the Eastern, Western, Northern China. And we also want to be patient about this process because it's also a language barrier. That's why KKR say they need to invest more. I think that's the time. This is a time where China is not a simplistic society, but it's a mix of a diverse economy and society within itself. So this is going to take years and we are part of the effort to help bridge this gap. We look forward to actually spending more time and energy to help on that.And for those that are looking into understanding China better, one suggestion we have is to focus on one locality, one province, one city, or one industry. Barely one city or one province is large enough. For you to spend a lot of time on. So that's how China has become and that's the reality.You need to put in the energy and effort to help benefit your business and your investment. Alright, so that's it for today.Thank you for listening to China Biz Talk - China Insights, Data, Context. This post is public so feel free to share it. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

Highlights* The CAC has recently released a “public comment seeking draft directive 征求意见稿” on “the implementation of the cross-border data transmission approval process 规范和促进数据跨境流动规定". This is a step towards reducing the administrative burden for companies that wish to engage in such activities. (Chinese Original Version, English Translation Version)* The previous law was not easy to implement and resulted in unintended consequences, which were interpreted by the mainstream media as blocking foreign access to China's data.* The missing piece: China is not blocking data. It aims to transform it into an asset. In 2019, data was categorized as a production factor. There have been significant developments on the ground, including innovative types of data, a growth-focused approach by the new Bureau of Data Management, government-led data exchanges, government subsidies for data trade, and the government's experimentation with monetizing personal data.* These developments have primarily focused on the domestic market and have not prioritized being foreign user-friendly. This is a problem. However, there is intense competition among domestic companies and local governments to take the lead, and that is their focus.* This is the first global effort to develop a nationwide data market from a top-down approach. The government is expected to continue developing this market, but we caution against expecting linear growth. It will be an iterative process of "crossing the river by feeling the stone."Full transcript[00:00:00] Mu Chen: The CAC just released a new draft regulations on cross border data transmission. We think this is a very important development. It confirms that China is not purposely creating an information black box. Why do we think so? Robert and I will talk through this in the episodes.[00:00:17] First of all, our perspective is that China is constructing its data sovereignty and a data market framework.[00:00:24] But The process is not pretty, so it creates many questions. That actually echoes to what you said in previous episode, right, on transparency versus pragmatism.[00:00:34] So the document is called "Directives on Standardizing and Promoting the Cross Border Transmission of Data". It's a public comment seeking draft, which means that it's quite mature in the deliberating processes. Typically in this draft, they have already reflected the comments from key stakeholders, like experts, scholars, corporate leaders in the data industry.[00:00:56] What's interesting also is this is , from our perspective, a corrective document to the "evaluation method on cross border data transmission securities". Which is the law that led to many confusing and chaotic phenomenon we observed earlier this year. As some of you may recall earlier this year, we published an article refuting Wall Street Journal's report about China creating a black box on information.[00:01:23] Robert, can you remind our readers, what was the impact of the law?[00:01:27] Robert Wu: Yes, as you said, China is in the process of... Building up a whole data regulation framework from almost zero. So since the last few years, there have been data security law, personal information law, and a bunch of measures that are designed to implement these laws. And in the process, there are many white spaces where there are undefined territories, and there are confusing parts.[00:01:58] Earlier this year, there has been introductions of certain measures that make many companies, especially, Multinational companies to be really concerned about which part of the data transmission in their normal business could be seen as required to apply for data transmission. So it creates many questions. A lot of the data transmissions are happening within a conglomerate in a normal course of business. And if they have to apply for these kind of application, it will create a lot of headaches.[00:02:33] Also at the same time, there is a very vague description of what they call the so called "important data". So for "important data", when you transmit to overseas, you have to go through some lengthy procedures. But the regulator has left open the definition of important data. Making a lot of companies also unsure about how to do with it, whether the data they have and are transmitting overseas are "important". So I think that whole environment creates a situation where different companies choose to essentially self- regulate based on their own understanding of the risk and reward within this undefined, uncertain regulatory framework. And that contributes to a lot of phenomenon that Western media may think that actually there is an intention behind the government to intentionally control data transmission.[00:03:32] Definitely within that environment, it's easy for the outsiders to believe in that way, but I think this introduction of this new piece of regulation will answer the question that, in fact, we are really at an early stage of this formation of regulation and the government is listening to all type of voices to make this system work.[00:03:57] Mu Chen: Yeah, I remember that, like, earlier this year, hundreds of companies are filing for their permissions, right? So, they created a lot of buzz, and when you mentioned cross border transmission, many of the cross border multinational consumer brands have to file their cross border data transmission permission because they have to collect data and run the analysis in the headquarter, on a day to day basis. And then this actually is exempted to in this new directive draft. But then the collateral damage like you said was interpreting it as China purposely controlling it but that's not the right logic, this document definitely, bring us back towards the main logic. It's definitely a move towards the opening up of the market. Right. Previously, it's broad and tight. A guideline that promoted not just data company, but all the cross border company to self regulate. But this directive seems to create a lot of exemptions. Can you walk through [what] the directive is about?[00:05:01] Robert Wu: The general direction of this is loosening up and creating explicit stipulations where you do not have to file the approval for data transmission. So for example, when it comes to this controversial idea of "important data". They explicitly said if only this data is explicitly decided and announced by the regulator as important data, it's only in that case you have to apply for important data transmission. Otherwise, it's not, you don't have to. So that gives a lot of ease for the companies. Because now they don't have to guess whether their data is "important data" or not. And also, when it comes to personal data, there are many clauses that are exempting certain part of personal data from the application or approval process.[00:05:53] If you are a, for example, a kind of travel agency, that in the process of, executing the agreement between you and the individuals, you have to use their personal data. Then that's not part of the data security framework. So I think the great thing about this new piece is that it creates a lot of what we call white lists. So actions that are explicitly green lighted, that can be allowed, as opposed to, previously, it only, you know, give some situations where you have to apply, but that in many white space of actions, you have to guess. Now it becomes much clearer.[00:06:34] Mu Chen: I don't dive into detail because we will share a link to the documents but I would love to also point out two things about the white list.[00:06:42] Recently I got interviewed by the China project talking about partly , "data lockdown of Beijing", right? One of the questions they were asked they were asking was about academia cooperation, right? CNKI, one of the biggest research paper database being made unavailable earlier this year to global users.[00:07:00] I was trying to separate the issue on the quality of data management by CNKI, and the permission to allow CNKI to provide their information and data to global users. My point was that it's mainly because CNKI wasn't managing their personal identifiable data properly, not because they don't want to provide the data globally and cross border, and actually one of the exemption in these new directive specifically say that data transmissions across borders during academia cooperation, do not have to file for approval.[00:07:41] That actually points to my point and that also covers cross border manufacturing cross border shopping, cross border wiring. It's also exempted from filing for permission. So, again they are trying to build the data sovereignty, but they are not trying to block data from going overseas.[00:08:00] Robert Wu: Yes, one thing that the outside world has to be mindful is when it comes to data, there's really not just the security aspect, there's also the economic development aspect in China, the Chinese government, when they think of data, they are both regulating it, but also promoting it.[00:08:17] So there's another interesting clause in this new regulation, which explicitly said that if this personal data, but collected overseas while only processed in China, then its re-transmission overseas will not need to apply for approval, right? So this is also quite interesting because by allowing this type of "import and export of data" is actually promoting certain businesses, industries, where such kind of you know, import and export of data is necessary. It's written in one line, but also creates a lot of opportunities for cross border data innovation. Right.[00:08:59] So I think that's something that we have to be careful or be mindful about there are always these two aspects within the China data regulation framework,[00:09:08] Mu Chen: We will talk more later about the creation of data markets and commercialization of data. So, another interesting thing is that actually Free Trade Zone can set their own rules. That's very open minded, I would say. So echoing you, I think the main problem is the lack of context on China's intention to create its data markets. We, because of our data company, have witnessed this whole process of creating the data market.[00:09:38] Starting from 2018, 19, the government categorized data as a production factor. After that, there's a lot of fascinating developments. So first of all really recently we saw that there's a agent created to regulate data specifically, the National Bureau of Data, and that Bureau is assigned or established under National Development and Reform Commission, which is a development and growth focus agency within the government. That signifies that the government wants to develop data market, not just to regulate it. It's a green light direction. In China, we have this green light, red light approach. Right? So we saw the red lights from CAC and simultaneously we also saw the green lights from NDRC.[00:10:32] So that's on government level. At the practitioner level, we also see a lot of new data sources emerging. I remember we saw Satellite data, credit card data,[00:10:44] Robert Wu: I think there, there has been a lot of collaborations between the data owners and the data vendors or companies.[00:10:52] There are many innovations, for example the Southern Grid the second largest electricity company in China. They're partnering with some data vendors to develop company credit data. For example, if a company goes to the bank to apply for a loan in order for the bank to understand the credit worthiness of the company, they can ask Southern Grid to call for data through API and to see exactly how much electricity a company or factory are consuming, and base their credit or loan decisions on those kind of data. And all these actors, both state owned enterprises and private companies and governments, and now more increasingly, the Internet platforms are all, coming to this market and, and, and, and try to figure out a way for data to be used both compliantly, but also to get the maximum value extracted.[00:11:44] Mu Chen: Yeah, it's fascinating when we look at what types of data can be used nowadays versus 10 years ago in China. So, We put it into a longer time frame, then we have the full picture, which is that the amount of data that can be used in China has grown significantly since 10 years ago.[00:12:06] Let's talk more about the construction of data market, right? There's more and more data types becoming available, and the government also are pushing the developments on two aspects.[00:12:17] One, we saw that many local government are creating not just data regulating body, but also state owned company at a local level that's surrounding data. So a lot of local data company created by local government. I remember in Nanjing, Suzhou different cities, Guangzhou, right? Their mandate was to collect data from government's day to day operations and productize it, make available to public, either for a fee or for free. That's one initiative. Another initiative is data exchanges. Oh my god, there's a lot of data exchanges. How many do we get invited? I think it's like 5, 10?[00:13:01] Robert Wu: Yeah. Something like that.[00:13:03] Mu Chen: So our data firm got invited to be in the data exchanges across multiple locations.[00:13:09] All these local government are trying to be the largest data exchanges in China. One example I can recall is that when I talked to the Shenzhen Data Exchanges Management, they said their goal is to promote 5 billion RMB worth of data trading for this year. And the government is planning to subsidize 500 million RMB for the trading. So like 10 percent subsidies for data exchanges. That's really, really generous, we think about it, in stock exchange, you actually have to pay fee to the government, but that's the other way around.[00:13:44] Robert Wu: I mean, it could run the danger of oversupply of the data exchanges, but that's, I think, how the things work in China.[00:13:52] When there is something new, different local governments, they rush to work on it. There could be oversupply of these, but in general, it helps to promote the industry and that people realize this is really something valuable and something that needs to be developed.[00:14:06] There's always both the regulator side as far as the economy promoter side of the Chinese government. Now since data has been already defined as a production factor, it's just a matter of time before they develop more sophisticated, both legal framework, as well as the market for this production factor.[00:14:26] Ultimately, what all of us understand is. Data is valuable and it cannot be locked to extract the value. It has to be changed and it has to invite different parts of the industry value chain to cooperate and develop it. That's really behind a lot of what we are seeing now, you know, both the introduction of different pieces of regulation, as well as this new data exchanges and and a new measures aimed at developing the market.[00:14:53] Mu Chen: Adding to what you said, fundamentally, the logic is that if the government can successfully create a asset class based on data, that will ,over a few years, create a huge amount of wealth. That's the upside. But the upside of regulating data and blocking data of transmitting to overseas is very limited.[00:15:17] You always mentioned that Chinese government philosophy is pragmatic. So if we apply that mindset, they definitely will choose commercializing a market and creating a market around data rather than blocking it.[00:15:28] Robert Wu: Provided that some red lines are not crossed, right? So there is no leak of state secrets or like really important data that could be detrimental to the operation of societies, provided that kind of data is clearly defined and also provided personal data is not infringed upon illegally, right?[00:15:49] Yeah. Then everything else is up for development. That's a global[00:15:52] Mu Chen: standard, right? They're trying to step by step. Managing those red lines. We talk about the narrative and then one thing that caused the misunderstanding again, is the lack of transparency. Emphasizing is we cannot emphasize it as enough that, you know, even for this data market creation, it's not easy to understand from outside of China.[00:16:17] Think that's why what's happening is feeding to these conventional narrative that China is blocking the information outflow[00:16:30] Robert Wu: I think they definitely should do a better job of explaining these. The, the, the still as we emphasize again and again, there's a lack of right PR talents in these agencies, especially to the foreign[00:16:43] Mu Chen: market.[00:16:43] Because their specialty should be on understanding data, prioritizing data. monetizing data, regulating data securities. None of them is pr.[00:16:52] Robert Wu: Right? Yeah.[00:16:54] Mu Chen: When I was interviewed by the China project, I also mentioned that there's no English website for many of the data sources we work with. Very few of them that have English website for data exchanges, local data companies, and then when we have to use them, you need a Chinese cell phone to register. That's always the blocking point.[00:17:17] On one hand, I'm like, come on, build website, build English translation already, accept global cell phone already. But on the other hand, it's a prioritization issue. I have this broad market that I need to work on? As a local data exchanges, I have to compete with the, fellow exchangers in other cities, in other provinces, that's my priority.[00:17:43] They all want to be the number one data exchanges in China. I can't spend enough energy on that. Why do I need to spend energy on creating a data website for foreign users that represent a smaller market compared to the domestic market? At least in the short term. It's hard. But that's reality.[00:18:05] Robert Wu: Yeah, I think that's something that we have to bear in mind always, is that the whole data market, the whole data industry, regulation, they are really young. They're just barely a few years, all of this. So I would just say let's be patient. Let's don't, you know, look at some change today and extrapolate 10 years of future.[00:18:29] Let's just be patient and hold the belief that the market is going to get mature and and all participants of this industry will get more sophisticated.[00:18:37] Mu Chen: Yeah. So in terms of going forward, the other thing that we want to note is, as we're patient, we should expect there are going to be new regulation that's promoting the growth and development of the data market.[00:18:53] And it might not be mature at the time of publishment. There might be some collateral damages in those regulations. And then we will see a correction in the direction. Actually, it's pretty fast. Six months from the implementation of the previous law, now they have a new regulation that's a step on the other directions.[00:19:14] So I think you'll be not a linear growth in either way, but definitely, it will be a direction towards growing the data market. We want to emphasize is it's the upside. I think the government knows the upside. It can contribute huge amount of wealth. It can contribute to creating wealth even for the individuals, because every individuals has data assets that is waiting to be commercialized and monetized. So think about it, there was this initiative on creating common prosperities, right? What better than assigning a new types of asset class to every individual that can create it.[00:20:04] Robert Wu: Yeah, add to that, I heard that a kind of operational guideline for exactly the type of use case that you mentioned, individuals capitalizing their own data. So a lot of our data on the individual level in the hands of big Internet platforms.[00:20:21] And according to the law, every individual has the right to get those data downloaded from these platforms. They are have the right to transfer those data. But however, in actual implementation it's often very hard for individuals to realize, to do that. So there has to be a standard operational guideline for how to deal with this kind of situation.[00:20:47] And what I heard is that guideline is also being formulated, and we really are very excited about this new prospect. Just think about in the future for any individual, you can have a single button that, you click yes or approve and you can get your data out of the platform and you can commercialize your own data with all kinds of third parties that you approve. That's also one of the exciting aspects of this industry going forward.[00:21:15] Mu Chen: That's fascinating. Yeah, we are all very excited and we should expect to talk more about it in the future episode about the development of China's data market.[00:21:25] Bear in mind, it's the first top down approach to create a data market globally. So we definitely will keep an eye on this.[00:21:35] Great.Related Reads This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

About Today’s EpisodeIn today's episode, we have a very special guest, my friend Yipeng, a seasoned entrepreneur from China. He has built an impressive global business. His incredible 15 years of journey, perfectly reflect the evolution of China's business community in the past decades. * Yipeng started his entrepreneurial journey in Beijing, right when Premier Li Keqiang's Massive Entrepreneurial and Massive Innovation initiative was gaining momentum. * From there, he ventured into the bustling city of New York, along with countless other investors. finding Investment opportunities during the peak of Sino-US relationship. * But Yipeng's story didn't end there, he made a strategic return to China. And led a remarkable buyout of a publicly listed company. * And in the past couple of years, he has set his site on new horizons, south east Asia, Africa and central Asia. Today we're going to dive deep into Yipeng's mindset and explore the reason behind his strategic shift. Why did he choose these regions over advanced economies?Yipeng's journey is not just his own. It represents the stories of countless Chinese entrepreneurs who have embarked on global adventurous. Today, we have the privilege of unveiling the remarkable thinking behind these entrepreneurs.Full transcript[00:01:27] Yipeng: My experience expanding from investor, venture investor, startup owner, and we call it entrepreneur, but it's more like a businessman in different area, I have been in social network, early stage venture capital, consumer product, and right now I am in automotive business.[00:01:50] So it's kind of very disconnected. In my different stage of business experience, it's actually my philosophy, we just need to find the right product market fit and apply your knowledge and know how to organize a bunch of people to deliver something.[00:02:08] I have been in China, being in US now, being in Singapore and been in Africa. The market is so different. That actually give me a very full span of understanding of different markets and different business sectors.[00:02:23] Mu: I met you 10 years ago in New York, that's when you finish your first ventures. I think you time it very, pretty perfectly. It's a chronicle of how China's business in general move. You're riding on, from my point of view, you're riding on the macro trend? First of all, there was this massive startup culture that was promoted by previous premier, Li Keqiang, Wang Zhongchuanye, that's where you got into the social media startups.[00:02:53] And then there was wave of Chinese investor going to the States at the peak of Sino U. S. relationship, to find investment opportunities that's actually prior to CFIUS. After that, you come back to China, that's when the Chinese company becoming mature and some of the public company wanted to do something different.[00:03:16] Recently because of various reasons, you know many of the Chinese company entrepreneurs are going overseas and seeking new opportunities across different countries. That point you started to base in Singapore. Let's jump to the recent years first, because I think that's where most of our readers care more about.[00:03:37] There's saying about Chinese going overseas reactively, but it could be a proactive initiative, maybe driven by new opportunities overseas, maybe driven by the Belt and Road initiatives. So Southeast Asia, can you share about what you're seeing on the Chinese entrepreneurs doing business there especially the recent generation of Chinese entrepreneur.[00:03:59] Yipeng: So before I answer this question, I do echo about your summaries about my experience, like so in the rear view, it's like I'm riding a macro train, but there are three major shift of my, from China to us, from us to China. Then, I go from China to Singapore. In among those like three major shifts, I think only one is actually macro-driven. I do some proactive analysis. I do some prediction. Then I follow through. I go to U. S., go back from U. S. to China, it's all personally-driven. That's just like a coincidence or lucky. I fit in that kind of like good old days of China U. S. relationship. It's equipped me with the international background, international thinking of those stuff.[00:04:45] But the last one, the Southeast Asia, the last one is actually quite macro driven. I decide I need to, given the current situation of the international macro environment, I want to put most of my attention in outside of China market and luckily I have a Singapore base before that.[00:05:07] Mu: You have done some macro research and then you decide to move to Singapore. How have you been doing? I remember you have moved there during COVID.[00:05:15] During COVID, yes. So that's two to three years already.[00:05:18] Yipeng: Yeah almost one year, one year, one, one half.[00:05:21] Mu: You have successfully established a very robust entrepreneurial network in Singapore and surrounding countries. And you have seen a lot because you also were a partner of a leading investment funds. You've got access to a lot of startups and companies. So can you share some of the insight you see there?[00:05:40] Yipeng: If we focus on the Chinese entrepreneur in Southeast Asia, it's a very comfortable first stop for those Chinese entrepreneurs. Because like Southeast Asia is really like a backyard of China, backyard of Ethnic Chinese.[00:05:56] We have a bunch of already very successful Chinese entrepreneurs, even Chinese state owned enterprises, Chinese other companies they already have their footprints all over the Southeast Asia. So for the newest wave of Chinese entrepreneurs going outside of China, Southeast Asia can be a greyscale of moving out of China.[00:06:21] It's more like they're moving to a 0. 5 outside of China. It's not a totally outside of China. They can still doing business with a very large and extensive Chinese dominated business community. When I say Chinese, it's more like ethnically Chinese. They can rely on a Chinese dominated sales channels. All those big tycoon, their family are kind of like ethnic Chinese. They understand China. Yeah. They can speak Chinese. It's like doing something with a bunch of other Chinese group. Right. This can be a very useful and efficient 0 to 1 strategy for those newest wave of Chinese entrepreneurs.[00:07:03] So that's my observation. For example, in Singapore, I think I don't need to describe how Singapore is Chinese friendly. You can see it like, it's kind of a Chinese city, very easy to live even for like Chinese only speaking communities, and it's very robust and very convenient like any Chinese city.[00:07:26] When you don't have a full understanding of how outside of China works, you go to Southeast Asia. That's much easier. That's globalization. That's a step stone for a real globalization, and other than this, the local market, their living condition, their economic stage their culture, is very similar to China for you to apply some of your Chinese know how to local market. Whether it's Thailand, Vietnam, Indonesia, many Chinese business model can work and even you are traveling, it's really like a time machine. You can see in Vietnam, it's really like 15 years ago of China.[00:08:14] In Indonesia, it's like 20 years ago of China. And many knowhow you can just copy from China. That's a, That's an easier way to apply your Chinese business model. And to get a sense of how to manage your multinational business.[00:08:35] Basically, that's two takeaways. One is local Chinese can help you. The second is the local market is much similar to Chinese market. Much more similar than... Even Japan, South Korea, then, of course, even more similar than Europe and U. S. market, let alone those, like Latin American, African, Middle East market.[00:09:00] Mu: Did you see a increase of Chinese entrepreneurs going to Southeast Asia in recent years? Two to three years.[00:09:08] Yipeng: Of course, for sure.[00:09:10] Mu: So you have explained how new Chinese entrepreneurial find out footings in Southeast Asia. We also know that once they settle down, They started to evolve into an ecosystem similar to PayPal mafia. One of the typical case was Oppo Vivo Group. The head of Indonesia for the group spun off to create J&T Logistics which is in the pipeline for iPO and then some of the members of J&T logistics spun off to do something else. It's quite different from last generation of Chinese entrepreneur who came to Southeast Asia and run things on their own.[00:09:49] Yipeng: I think For what you mentioned specifically for those like JITU, or we call it Oppo/Vivo Gang. They reapply their knowhow in Oppo/Vivo. What's the real know how of Oppo/Vivo is how do you manage a local franchise network? How do you manage lots of like distributors? In the local market and in different actually in a different international market. How do you manage those extensive network of distributors, sales and after service?[00:10:19] When those entrepreneurs finish their kind of learning from Oppo/Vivo and J&T, they start to do new business. It's still in that arena. You can see like many consumer products startups. What they are doing is still trying to establish a quite massive distributed network, and because they have the management experience, they have trained labor force or management managers to manage like very large franchise network across the whole country.[00:10:50] Mu: That's a breakthrough of cross country integrations in terms of logistics. Previously Shopee have broken through on the front end. Establish a network to target different countries. And there's Grab, there's Tokopedia. There's gojek to integrate across different countries. Now, the integration of underlying logistics has been broken through by J&T that's actually in line with what the ASEAN government is trying to do which is the integration of the ASEAN countries.[00:11:15] So Concurrently, you also have business in Africa, in Nigeria.[00:11:21] Yipeng: That's a much more interesting topic for me.[00:11:23] Mu: Okay, so, can you tell us more about that one? As well as the Chinese community in Nigeria and Africa.[00:11:31] Yipeng: Although I'm living in Southeast Asia, I'm more confident to... Talk about Africa, than Southeast Asia, because in Southeast Asia, like I don't have real business going on in Southeast Asia, other than living there. I think like and comparing to Africa, Southeast Asia is much more crowded for Chinese already. We don't call it an emerging market, it's kind of already mature in some sense.[00:11:55] Yeah. But, for Africa, it's still a frontier market for most of the Chinese and for like even those like already doing cross border business, already doing overseas business of Chinese entrepreneurs, it's still a frontier market, emerging market for them. So when we talk about Africa, we need to know Africa is a very large geographical concept.[00:12:19] Usually when we talk about Africa, it's actually about the Sub Saharan Africa. It's not including the North Africa, which including countries like Egypt, Libya. Morocco recently had a very terrible earthquake. Those countries are North Africa area. They are more economically connected. They are all around the Mediterranean sea. When we talk about Africa, it's it's actually Sub Saharan Africa, within Sub Saharan Africa, there are East Africa, West Africa, and Southern Africa, including South Africa and other Southern Africa countries. And there are middle Africa, people talk less because, economically, it's less developed.[00:13:07] My business is more on West Africa and the largest country is Nigeria. At the same time, Nigeria is the largest African country in terms of population and in terms of economic size. Nigeria alone has 220 million population. It's one of the youngest countries in the world. The median age is around 18 something. It's 10 years younger than Vietnam. The GDP per capita is around like 2000 USD. It's at a middle 90s level of China. If you are like a post 80s, you can still remember your childrenhood, economic, social situation of China, you can kind of echo what it looks now .What's difference is... it's not a socialist country for sure. So the let's say the wealth distribution is much unequal. Much more unequal than what you remember about China. So what we do there, we actually serve, we call like a high income people of local market.[00:14:10] We sell cars to the local market, but with the relatively higher price, it's over 30,000 USD. It's not cheaper, even in China, but we are enjoying a very high purchase power from that group in that market. I give you a general understanding of the west African market. Its income level is very diverse. And you can choose what income level you want to go in, you want to serve. And there's no real Chinese community there. It's far away from China. Even in the big city, Lagos, they have 21 million people living there. I think the Chinese community is less than 100k, including many Chinese state owned infrastructure companies. All those big Chinese construction companies. They are more in infrastructure part. It's not usually integrated local market. It's in government projects. So for the real market oriented sector, it's even less. The biggest outside business community is actually from India, from the Middle East. They're much more active than Chinese entrepreneurs, Chinese businesses there.[00:15:24] Mu: So you have established a car dealership there, actually it's been very successful, right? I remember at some point you tell me there's 40 to 50 distribution points across the country of Nigeria, right? You're growing 100 percent per year. When you go there how did you set up the business and what were the challenges?[00:15:45] Yipeng: Let Me talk about less about the micro thing, what we do. I'll give you some, like, understanding of the macro thing, why we can do that.[00:15:53] Basically the market is kind of like our sell side market. Mm-hmm. , it's not only about cars. Many basic consumer product. It's a sell side market. product. It's a sell side market. It's shortage of goods. Mm-hmm. , if you can provide something cheaper, and distributed more efficiently, you can easily gain customers. You can easily sell your product. For many investor or entrepreneur from China or from U.S., you are more used to think about the demand side. You need to think more about "how we streamline our operations to reach the customer?" "How do we use some high tech to increase my distribution efficiency or to reach the customer more efficiently? "That's [how] past 10 years, 20 years, the Chinese environment trained you because the Chinese market We have at least abundance of goods, abundance of capacity.[00:16:49] We have overcapacity in major industrial outputs, in major consumer products. But in Nigeria, in most African countries, it's a shortage of goods. We need to mainly consider the supply side. How do we find something affordable, affordable enough to distribute it to the market or to organize local labor force to manufacture it locally.[00:17:17] Our major attention right now is still within the supply side. So you asked me, how do we set up? Basically, you have the guts to go there. You have the basic know how. To sourcing what you want to sell in that market. You have the basic resource to deliver it to the local market. Then you can do it. So there's really no barrier for you to enter into the market.[00:17:45] If there is some kind of like a barrier, it's more like operation level. Like how do I set up a company? How do I find the right guy to help me getting through the kind of like obscure legal system, obscure business environment. But it's more in a tactical level. If you want to sell like, let's say, instant food, you go there, set up a company. Trying to source it from China or even like India, you can do it. You want to sell, like, clothing, garments, you want to sell, like, electronics, go there, sell it. Have the guts to set up a company there, to live there at least like six months a year.[00:18:21] You can do it. There's no real barrier.[00:18:24] Mu: When you say that there's no real barrier, the biggest barrier is the determination, right, to move kind of, kind of so far away. So what's the composition of the startup team or your team or other Chinese companies team in terms of local talent versus Chinese talent?[00:18:41] It sounds like it's very hard to recruit chinese talents, but meanwhile, you also need some of the know how from these Chinese talents that they have acquired in China. What was that the team and talents composition and how do you think around it?[00:18:58] Yipeng: We have been there like for three years at the first stage is Really like bringing enough Chinese managers Chinese talents here But right now we are shifting our strategy trying to train more local Not only those like blue collar workers, we're trying to look to train more local managers.[00:19:21] The key is whether it's from a local empowerment perspective, or it's from our own profit driven perspective. You go to those low income countries. If you can arrange to organize those like local workers, local managers, it gives you a cost saving effect. Honestly, it's much cheaper to use local people.[00:19:47] If we have to bring Chinese talent, Chinese managers, or US talents to the local market, the cost is much higher. So our mentality is like, if we do it again, at day one, we want to focus on training more local managers, local talent teams. That's our mentality.[00:20:07] Mu: Did you see a cultural difference?[00:20:10] Yipeng: Definitely, yes.[00:20:11] Mu: What was that? What would be some of the cases?[00:20:14] Yipeng: What I can see is definitely not the stereotype many Chinese people have. There's some stereotype. Chinese think about, oh, African people, they, maybe they don't work hard enough.[00:20:25] They are more enjoying their life. For sure, yes. But I think it's more economic reasons. than kind of like cultural reasons. If you give like enough incentive, at least in our team, they're working very hard. They can still like work six days a week. They follow the deadline you give them.[00:20:48] So, the major cultural gap is as a Chinese, you have to overcome your stereotype to understand the subtle difference between their culture and your culture, but, you can implement some like modern management theory on them.[00:21:09] You need to overcome your own kind of cultural bias to the local people.[00:21:15] Mu: I can echo with you. Within China, there's the stereotype sometime can go to[00:21:19] extreme and we can consider it as racist thinking. That's also a lack of information exchange and, and, because it's somewhat Africa community used to be.[00:21:32] Under the influence of, you know, Europe and Western world, and there's less information flowing to China and now you have established a foothold in Nigeria.[00:21:43] Recently, you told me that you're thinking about, you know, expanding or doing some business is in Central Asia. A few months ago, you went to Central Asia. Mm hmm.[00:21:52] Where did you go?[00:21:54] Yipeng: Kazakhstan.[00:21:55] Mu: So, what was the thinking around that?[00:21:57] Yipeng: What we do is related to used cars. We like to look around for all those use the car dominant market. I mean, dominant means used car is much bigger than new cars.[00:22:08] So Central Asia is in that category. So we go there. That's my reason. And some macro reason is from my friend's cycle, and from my readings, and all the news feeding to me the Central Asia is in a major shifting from a more closed economy to a more open up economy and from a more monopoly dominant local market to a more market driven market. There are some like political reasons. But the major reason is Central Asia. Let's say the whole middle, middle Euro Asia area, Central Asia and the Middle East, are getting more and more important in current international relationships.[00:22:59] Yeah. Later along those a Ukraine war create a kind of like disruption to the sub supply chain. The opportunity Yeah. For Central Asia countries to have a more weight. The international supply chain logistics. So that's my reason to go to Central Asia.[00:23:15] I want to know what happening there.[00:23:17] Mu: What's your plan for establishing business in Central Asia?[00:23:20] Yipeng: We actually already I go with another startup they already started, start operation there. Yeah. So my goal is, of course, trying to do something there and especially the auto market is quite booming.[00:23:32] Mu: Got it. You went to Southeast Asia, Africa, central Asia, but you didn't mention advanced countries.[00:23:41] Yipeng: Yeah, that's not my interest anymore. Why? Let alone the political and the international relationships. We cannot think long term, really long term. Let's see in US market, even TikTok, don't know what's next day will happen. We are smaller business, how can we think really long term? It's not that stable anymore. Maybe there's some bias in it, but that's my kind of like prediction.[00:24:07] We cannot think really long term in those markets. That's one reason.[00:24:10] The second reason is we need to find a somewhere really lead us like as a Chinese, we have a strongest industrial supply chain in the world. China has kind of a redundancy already. For European, for US, all the... International supply chain used to rotate around those markets. They don't have like the lack of goods, really the industrial outputs. Even it's from China, from Mexico, from South Asia. They have a very established channel going to European and the US market.[00:24:49] They have very strong local player. I mean demand side player, like distributors trading firms, very strong local, local business community. They are doing it very well. They have like the best company in the world. It's not an underserved market. It's over served market, like China, in different ways. So what I'm trying to identify is really underserved market. From a business perspective, it's much easier to do business, much easier to start a business at least.[00:25:21] From a social perspective, it's created more value. Like you sell someone already have iPhone. You try to promote a new iPhone accessory or try to give her or him another choice of iPhone. It creates some value. But if you're trying to sell someone never have a phone, you provide a phone for them affordably, that's quite a much more value to their life. So, basically that's a, that's my, what I'm really interested in right now.[00:25:56] Mu: That's the thinking of a Chinese entrepreneur. And the biggest takeaway is that you are now riding on the redundancy of supply in China domestically. And trying to find areas where core demand are not met and can be met by Chinese supplies, right? And you identify those regions. That's a big takeaway I have.[00:26:20] Thank you, Yipeng for sharing today. Good luck for your business. I will talk to you soon. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

* Stimulus Policies * Economic and Societal Trend in Another Representative Lower Tier City - LeshanHighlightsPart 1:Stimulus Policies * Which part of the CSRC’s(China Securities Regulatory Commission) Aug 28 2023 policies really matters* “On the surface, it's the stamp duty tax that most people pay attention to because it's the simplest one and carries a lot of historical connotations.”* “The most important thing is this specific restriction on controlling shareholder sell-down. This is the first time that, in China, for a controlling shareholder to sell down shares, you have to first be able to not only be profitable but also distribute part of your profit to your shareholders by way of dividends.”* Why is the government not doing a “quick and impactful” policy like what they did in 08-09* A switch from “high-speed growth” to “high-quality growth”* The size of the Chinese economy has 4x since 08* The Chinese economy has become more complex, so requires more sophisticated policies, and it takes longer time to be effective * There are ways to get more visibility into China’s policy-making process. * Look into the scholars, think tanks, and researchers that serve as advisors to the government, and read their recent work to understand what the government cares about. Their name is sometimes publicized. For instance, this is the latest economic scholar reporting session at the State Council: http://politics.people.com.cn/n1/2023/0706/c1024-40029765.htmlPart 2: Economic and Societal Trend in Another Representative Lower Tier City - Leshan* Unlike Gaoyou which we wrote about, Leshan does not have an industrial complex but has built a tourism and cultural industry that drove its GDP to reach RMB 230bn in 2022.* The growth of its tourism industry is driven not just by Leshan’s natural resources but also by meticulously designed government policies. * Government officials in China operate under KPIs and are incentivized to deliver results as they want to climb the government ladder. * People were leaving lower-tier cities because its software (services and culture) did not catch up with modernized infrastructure * Though they left their hometown, entrepreneurs from lower tier benefited from their heritage as they can understand the larger mass consumer market in China. In turn, they would use their success to contribute to the growth of their hometown. * Reverse urbanization is underway in China, not just from the supply side (more modernized hometown) but also from the demand side (higher costs to stay in tier-1 cities), and we expect to see new changes. Full transcriptMu: August 28th, the CSRC rolled out a stream of policies that seem to be significant, including cuts on trading stamp tax. It was rolled out once 16 years ago, and there was a restriction on sell-down by controlling shareholders. Also, a restriction on new IPO offerings. These are actually treated as material policy, but when we look at how the market reacted on Monday, the share price of A-share stock market jumped 5%, but then quickly declined to 1%.It seems like the investors and the market are not completely buying into the power of the policy. But just looking at the sub-markets. So Robert, what's the significance of these policies? Which part do you think is the most significant part?Robert: It's a whole bundle of policies, and the different pieces of that policy bundle carry different significance.On the surface, it's the stamp duty tax that most people pay attention to because it's the simplest one and carries a lot of historical connotations. Last time they cut this down was around the 07-08 period. And it did give quite a boost to the market prices at the time. So, with that memory in mind, a lot of people pay attention to this part, and a lot of people are asking over and over again, when will the government reset and decrease the stamp duty tax.But with that said, stamp duty tax in China is already very, very low. It was only 0.08% of the trade, both ways included before they slashed it down again this time. So for example, if you're just trading 100,000 Yuan doing that trade, you only pay 80 Yuan for tax, which is almost nothing.So by cutting down on that, it carries way more symbolic value than actual value. Unless if you are more of a quantitative, high-frequency trading fund. Apart from those guys, if you're just a retail investor, if you are typical fundamental investors or a corporate, this won't affect much of your decisions anyway.So I do not think that's the most significant piece. Although it's the instant and also the headline-grabbing piece of those policy bundles. Among the several policies they introduced last weekend, there are actually very significant and impactful policy changes.I think the most important thing is this specific restriction on controlling shareholder or largest shareholder sell-down. This is the first time ever that, in China, for a controlling shareholder to sell down shares, you have to first be able to not only be profitable but also distribute part of your profit to your shareholders by way of dividends.So, if you don't do that, if you don't make money for your shareholders, then you have no rights to sell down shares. So this is the first time they tie shareholder returns to the controlling shareholders' interests. And why is that significant? That's because the Chinese stock market was and is a very young capital market.They only started this whole thing in the beginning of the last decade of last century. So it's barely over thirty years old. Imagine you put the whole economy of a country onto a capital market. That market will serve mostly one purpose, which is to do fundraising for the corporates, for the companies, the listed companies, to do fundraising for these companies and fundraising for their shareholders. So essentially for the last few decades, the capital markets are a fundraising machine for the fundraisers and usually at the expense of investors.So someone did a statistics before just to look at each year, how much of the cash that is being distributed to the shareholders, through dividend, through share repurchases, and how much of the cash is kind of sucked by the markets, from IPOs, from sell-downs, and etc.Mu: I remember that statistic. I think that the outflow to the corporate executives or the founders is actually larger than the money that's being raised by the capital market or by the A-share market.Robert: Yes. It has been like that consistently for many years. And that is one of the big problems for the investors in China's onshore capital markets.They're just an endless supply of more and more shares. There is a limited supply of cash, new cash inflow to the market. This piece of the regulation is served to address this problem, finally. Is it a good policy? From a free market perspective, it's a little bit too much intervention.In a mature capital market, you cannot imagine the government creating this kind of restriction on shareholder sell-down. But again, the Chinese capital market is not mature. It is within this immature context. They have to find ways to address problems of the time.So they introduced this piece. And why doesn't the market respond more cheerfully to these kinds of reforms? Well, as I said, the stamp duty tax is insignificant. So you do see this short term excitement in the, at least in the first few minutes when the market opened this week. But the more significant part, for example, the shareholder sell-down part, this is more long term, more structural, and it does take long term forces, long term developments for the consequence of this kind of policy to really materialize. People have to be patient to see how this kind of policy can create for the markets. It's sort of creative that you can implement a policy to require the Company management or the major shareholder, founding shareholder to make a profit for the rest of the shareholders before they can cash out. That definitely sounds unique in some sense right that you're implementing some sort of requirement. And I can understand you will take time for implementing it.Mu: Actually, the majority shareholder can have other ways to cash out their share, still, even given the new policies. There will be many creative ways to bypass that. Yeah, the way I can think of it is one is to pledge their shares, to have a loan about it.Mu: The other thing that we talk about is that we see the government rolling out stimulus slowly. But when we compare that to 08-09, it was more direct. Yeah. 08-09, the government said they're going to roll out a 4 trillion RMB stimulus. There's a specific number. There's a material policy that people can refer to, so it's easier to understand. Why is the government not doing it this time?Robert: Back then, we were really at another level of development for China, right? 2008, that's even pre-high-speed railway networks. Yeah. There is a lot of potential for urbanization. There's a lot of potential for big infrastructure projects. So the reason that they were able to respond in such a big way at the time was really there was enough demand to soak up all these stimuli.We are now in a different period. The real estate problem, they were self-induced problems, but also the government realized, especially central government realized, it's just time is over for the kind of high-speed growth we have been used to, a few decades or a few years ago, so there's definitely limits for what the government can do.Mu: I think another reason is that China's economy has grown so much since 08-09. Back then in 08, GDP of China was about 31 trillion RMB. 4 trillion out of 31 trillion is like 12 percent, 13 percent of GDP but for 2022, China's GDP has grown to over 120 trillion RMB. So if the government put in a few trillion RMB as stimulus, it may not work.And secondly, is that the mechanism for direct stimulus takes longer to be effective, given the size of the economy, the complexity of the economy. So that's another reason that a more sophisticated, seamless policy and plan and framework need to be structured compared to 08-09. The other thing I got asked a lot by our readers is invisibility into the policy stimulus.It echoes what you talked about in the last episode on government's transparency. So, from our readers' point of view as investors, as business people that are doing business planning, they always want to see some predictability in the economy or in how policy works. I think our readers actually might have a hard time understanding or getting visibility into how would the policy stimulus be rolled out for the next few months or for the next couple of years? Do you think there's a way to get some understanding on it?Robert: Yeah, I definitely do. So, although the Chinese political system is quite different from the western ones, there are some essentially similar structures underneath.For example, officially we do not have people like lobbyists. But that doesn't mean people who act as lobbyists don't exist. What I mean is, there are decision-makers and there are the general public, but in between, there are also areas or people who are constantly making advice to the government, mostly academics, think tank people, and also some of the professional political consultants, advisors, from a consultative conference.There are these non-state actors, but who are also talking at the same time with the general public, at the same time talking with the government decision-makers, government agencies. I just advise people to pay more attention to many of these academics. Usually when they talk about some things, they will share some of their findings and their views. And there will be some public discussion of a certain topic and certain debates, and it could be reflective of the debates within the government system. And also especially pay attention to the advisors or academics that the highest layer of government or party have been talking with recently. Actually, a lot of these are public there are always study sessions, Politburo meetings involving some of the academics.So, pay attention to this kind of activities of high-ranking officials and also to the people who are interacting with them will be quite beneficial for understanding these policy changes.Mu: Yeah, that's one of the ways I learned to see visibility into the central government's policy-making processes or their thinking around it. We can post it on the show notes some of the names that we saw, publicly, that have been announced, to be an advisor or to be the invitees to the state council's economic studying sessions.When you look at that, you can see that some of them are talking about industrial policies, some of them are talking about internal migration policies, the Hu Kou policies, some of them are talking about global international finance. When we look at, you know, their viewpoints, when we look at their research paper, some of them are publicly available, we can see what they would provide to the central government.And when we look at the area they're studying, we can also see what the central government is focusing on, in the recent months or recent years.Part 2: Further Discussion on Understanding China by Looking at its Lower Tier CitiesMu: We have talked about the stimulus policies, which focus on the macroeconomics. Let's switch gear to look at what's going on on the ground at the micro level. We have published a very interesting article on a small town called Gaoyou in Jiangsu province in China, with 700,000 populations. I would like to talk more about this type of society and economy in China, which is rarely seen by the outside world.After I read the article, I just learned about Gaoyou, but Gaoyou is actually quite representative of China. This kind of lower-tier city will be the focus of China's economic development for the next few years. At least that's our expectation. Amber, what do you think are the other lower-tier cities that are representative of China, with a very low profile?Amber: I guess the first city that came to my mind is Leshan. Which is a low-tier, third or fourth-tier city, located about an hour away from Chengdu, Sichuan province.Mu: One of the most famous things I know of Leshan is the big Buddha, Leshan.Amber: Dafo. Yeah, the giant Buddha. The giant Buddha is quite spectacular because it's literally carved out the stones from the mountains, so it's entirely naturally made. It's amazing craftsmanship.Mu: Yeah, that's my impression of Leshan. I'm guessing that's many people's impression of Leshan as well. But when we look at a city in China, we always fall into this generic imagination. And that's why we're going to talk more about it. Because when I look into the GDP and economy of Leshan, I was amazed.They had a GDP of 230 billion last year. They had a faster growth rate than the nation. So, what's special about this city?Amber: The unique feature is that the city has a lot of cultural heritage. In addition to the natural assets such as the mountains and the rivers, the long rivers.It actually has a deep cultural heritage. For instance, if you've heard about Guo Moruo, which is a famous Chinese poet. It was born and raised in Leshan, so a lot of people in Leshan, they actually have this appreciation for the history, for the culture that made it very unique to develop the tourism industry, because people wanted to come down to see unique type of culture that they cannot see in the big cities.My grandparents live in Leshan, so I pretty much visit them, every year, multiple times. Several years ago, when I went to Leshan, it's pretty much like a day trip, so you went there. Bought a ticket, went to see the Buddha, and you're pretty much done. But over the years, you actually see a variety of tourism, point of interest evolved over the years.The catering, the restaurant scene is booming. You pretty much have hundreds of different street foods available if you visit Leshan. A lot of people actually went to Leshan to see the museum, which presents the history and connections of Leshan to Buddhism. So it's not just a giant Buddha. The city itself actually has a deeper connection to BuddhismI've seen a lot of people, including foreigners. I've seen foreigners, even during the COVID period in 2021, they went to Leshan and they took longer trips. It's no longer a one day round trip from Chengdu anymore. Many people actually wanted to take a few more days in Leshan and just enjoy the relaxed, slow lifestyle, play mahjong, have tea. So it's actually a quite lively scene that's being developed over the years.Mu: But how does it represent other towns or cities in China?Amber: So this is very representative of a lot of the cities in China, where you don't see manufacturing. You don't see the heavy industrial factories.That's not the main driver of, the economy. The city itself is driven by the tourism industry, you actually rarely see other industries such as manufacturing as what you would see in Gaoyou. The city is actually purely built on its cultural and natural heritage. It actually turned into a pretty international tourism city.They've built museums, they've built homes the famous people, and they've designed merchandise that's representative of the local culture. Basically you see a lot of people who take, the asset, the cultural heritage of their hometown and turn it into million dollar business.Mu: I think what outside world miss sometimes is that in China, not only do we have the tier one cities that are globally known, we also have smaller city that are managed by a team of government officials. They actually is a microcosm. They have their own KPIs. The mayors have the KPI of growing the GDP, have to grow the average income per person, also have to stabilize the society.So they have their own... task locally, and surrounding that, local governments will focus on that, those KPIs, and they have to figure out a way to construct an industry, one keyword that you mentioned is industry.It's not just a tourism spot or a city that's grown organically from bottom up, it's been meticulously designed by the local government. I'm sure if you go back and look at the city reports or the government reports by the city leaderships. They would publicize policies that drive the industrialization or the growth of the tourism industry in Leshan.Amber: Yeah, it's always been one of the most important strategies by the local government to develop the tourism industry. It's not just building several points of interest, it's a strategy to develop the entire tourism industry and all the surrounding services around that.Mu: Yeah, because we know that it's a promotion system.Unlike some of the system in other countries, there's clear ladder within the government system. If you do well as a town leader, you might get promoted to be a city leader, and if you do well as a city leader, you might get promoted to a provincial leader.So leaders at each level would focus on getting promoted if they are ambitious and driven. But that's the leadership part. When we look at a city such as Leshan, the people also matter from what you say. But many larger cities like Leshan, a few years ago are seeing a hollowing of their population.Many of the young people are out, only the older people and the kids are in the hometown. How are they tackling that challenge? How can they attract young people back to their hometown? I'm actually seeing some trends that there's a reverse migration, but I'm not sure if that's a overall trend or just like anecdotal cases.Amber: Well, I think that is a problem, and let's just take Leshan as an example. I do see young people flowing out of the city, even up until this point, I still see a net outflow of the young people that prefer to go to cities like Chengdu, being one of the most popular destinations for the young from Leshan and the suburban area around Leshan.There are two very important reasons that contribute to this phenomenon. One being that, even though the infrastructure Has been devolved. The city is literally brand new. However, you see a lot of the local residents, they still have a quote unquote outdated mindset. I have a very personal story on that.So my grandpa actually passed away after COVID early this year. He actually refused to go to the hospital. That's not uncommon among the local residents. We're mainly the elderly folks. They're scared of the hospitals and the thing.They just overcharge you. However, their kids, their kids actually have very different thoughts being filial to your parents is such an important thing in Chinese culture, right? So usually kids would put their parents to the hospital before they pass away. Because otherwise their neighbors and relatives are just going to judge you saying things like, oh, you're not making everything you can to save your parents.You should be putting your parents into the ICU. However, that ignore the fact that elderly people, they may just want to pass away peacefully with a family at home. So that is a sharp contract suggesting that a lot of the local residents still have this quote unquote "outdated kind of mindset".They have a very traditional way of looking at the relationship to their relative to the society to the life and death. And that's just one of the example. You have many other examples that pretty much explain the same concept here. Such mindset may not fit the ideas of what would be a nice place to live for many young people.So that's definitely one of the reasons. They want to live in a city that is modern. Not just with the modern infrastructure, but also with the modern ideas. They want to have a broader vision of the world. They want to receive the new way of living their life.Secondly, I think another problem is the health care and the quality of the public services. I think it's natural for young people to want to go to a metropolitan area to seek, you know, better job opportunities and education. That's super normal. Not just in China. But again, when they make enough money and they want to return to their hometown, one of the reasons that always kind of push them away from their hometown is things like health care or the quality of the services.My grandma still lives in Leshan. We actually checked out a few nursery homes. For her, but I would say, even though the nursery homes are like brand new, and it's all nicely done, it's clean, but the quality of the service is nothing compared to what you get in the first year or the new first year cities.It's pretty much like you pay the money and the social workers will cook you the meals and they give you a shelter and please enjoy the rest of your life sort of vibe. So, nobody wants to live in that kind of environment, right? You don't feel homey. It's not the same quality of the service you would receive in your first year cities.So I definitely see that as another reason why a lot of the young people are flowing out of the city. Even if they've made enough money, they don't want to come back simply because they need better options of the healthcare or other public services.Mu: actually that's contrary to what we are seeing in other countries. In the U. S, we both went to UVA. UVA is a rural area. It's such a nice town. It's a small town. But you have one of the top hospitals in the town for a population of tens of thousands of people. And you have one of the best college in the town, some of the best high school in the states in a small town.That's not imaginable in China. I think that also is because of how modernization is being conducted in China in the beginning, it would be more efficient to have a few core city and concentrate all the resources in it, because of efficiency reasons. But then because of that strategy, all the resources have been concentrated in those cities.The rural areas have less high quality services, which is different from how the U. S. was developed or how the U. S. was modernized. So that's hugely different. But that's not the end of the story, because the immigration happens a decade or two decades ago. After that, the hometown and the people that left the hometown, have their own developments in parallel.The hometown has been catching up with higher tier city, and the people that left are also growing a career in business. Meanwhile, their connections has not been cut, so these connections evolve into something that help grow the hometown itself. So did you see that in Leshan?Amber: It's natural that people want to migrate to different cities or even different countries.Who doesn't want to see a bigger world? But the most fascinating thing is that a lot of the people who were born and raised In low tier cities like Leshan, for instance, they take their heritage. All the influences they've received as they grow up, they take the cultural heritage, and they turn that into a million, billion dollar business.So for instance in Leshan you actually see a lot of successful entrepreneurs and businessmen who were born and raised in Leshan. Let me just give you a quick example. There is A very famous nationwide chain store is called Ziyan. Their signature dish is this spicy braised chicken.Oh, wow. I can't eat spicy food. It's actually a gourmet dish if you like spicy food. By the way, it's also a very signature dish in the province. It's pretty much chicken in spicy oil, and they're putting different ingredients and fragrances. It's a very yummy dish.Ziyan is actually a public traded company. It's traded on Shanghai Exchange. And I looked at their financials in 2022. I believe they sold over billion of revenue just by selling the spiced spicy chicken dishes. It's quite amazing. The founder, they came from Leshan and they took their hometown recipe and pretty much just standardized the making process and they opened the stores nationwide. The interesting thing is I have not seen Any single store in Lushan where it's originated, because I've heard local people complaining about the taste being inauthentic. Nevertheless, that dish is very well received in China nationwide.So you actually see a lot of examples like that. A lot of the successful founders and CEOs and business executives, are born and raised in those low tier cities, and they took the cultural heritage they've learned in their hometown as they grow up, and they successfully developed a business out of that.And more importantly these founders and business executives, they genuinely know what people want in those low tier cities. They know what's the actual demands. They understand the reality. So they make products that is tailored to you know, the billion of people living in the low tier cities.For instance, JD. com is one of the largest e commerce platform in China. The founder Liu Changdong was born and raised in a low tier city, Suqian in Jiangsu province. So my point is even though people may migrate to different cities they may find different dreams that I want to pursue, but many people, they carry the cultural heritage that they've learned as they grow up in their hometown.Mu: Yeah the other thing you mentioned, they not only are carrying the heritage from a hometown, Ziyan, it's branded around a chicken in Leshan, right? I'm sure they are connected in terms of business to Leshan. When you mentioned JD, I can remember is that Liu Xiangdong actually set up call centers in his hometown. What's interesting is that the local officials, are leveraging these cultural heritage connections with the business men that migrated out of from the lower tier city and they actually co built some of the local businesses together. So that actually set up a connection between the business leader that have become successful but not in the hometown and the hometown itself. I want to point out that the attachment to hometown emotionally is actually all of weight for many Chinese people. Yeah, I think that's a very deep part of our culture. So the lower tier city can use that to grow their local business. The other thing you point out is that. Because these businessmen grew up in the lower tier cities, they actually know what the majority of the Chinese people like.One thing that I find lacking myself when I'm thinking of running mass consumer market or mass consumer business in China is that even though I came from Chaozhou, which is like a fourth tier city. Oh, that's also a fourth tier city? Yeah. I have been spent, I've spent so many years outside of China, I am not as connected to the lower tier city people.So I'm not that confident in terms of launching some mass consumer products that's targeting the 80 or 90% of Chinese outside of the tier one cities.Amber: I think that's an interesting point. A lot of the investors actually miss the early opportunity of investing in companies like Pinduoduo or Kuaishou, whose customer base is mainly people living in the low tier cities. Because there's a sharp contrast in the sense that a lot of the investors, they're super intellectual, they live in the first tier cities, and they work in this glamorous office building, so they may not actually get a chance to see the actual demands and what people want.As you said, 90% of the Chinese people, they may not have visibility to their true demands. So when they looked at companies like Kuaishou, they saw content that is super grassroots. It may not be what those investors find interesting, but it truly echoes with the 90%- 80% of the people living in low tier cities.Mu: But again, with the recent change in the bigger economic environment, the question is, on one hand, you're seeing cities like Leshan growing rapidly, modernizing rapidly. On the other hand, you're seeing that the software, quote unquote software, of the city have yet to catch up with the hardware.You're seeing the servers and the healthcare and other infrastructures, soft infrastructure, lagging from the higher tier cities. When we combine these two together, what should we think of these lower tier cities? Because I think they are the focus of economic development for China in the next couple of years or in the midterm.Amber: First of all, it's a process. It's not going to be a one stop solution for all of the problems we've mentioned. But after all, I think low tier cities still have huge potentials as the reverse urbanization trends develop. Actually, in recent years, you already see many Chinese people living in the big cities saying things like, "oh, I just want to settle down in a rural area or maybe by the seashores", after all the hassles they've experienced in the metropolitan area.I do see that trend. Like, my mom wanted to go back to Sichuan where she was born. But when people talk about relocating to a rural or suburban area, I believe they're looking for places that is peaceful and better come with unique cultures and decent public facilities, especially the health care.And also the convenience and transportations. So I think the low tier cities already has the edge in the sense that they have the unique cultures. They have the peaceful environments. They have, no traffic jams. That's already an edge. And especially for people living in the big cities, they've seen so many similar things across all the first tier and new first tier cities.Now they actually prefer, want to see something different, maybe a different landscape, maybe a different culture, maybe a different traditions, maybe a different, ethnic groups, they want to experience different things. So, on that end, I think the cultural heritage is already on a huge edge to those low tier cities.However, I think over the next 10 years, decades, I think the quality of the service... We'll still become the key difference between those low tier cities versus the metropolitan areas because nobody want to live in a brand new house with terrible management. I see that as a process. You already see a lot of especially affluent people wanting to not just take a vacation. They actually want to settle down in the suburban areas. Goods and services are going to flow to those peoples eventually. So I do see huge opportunities here but it will just be a process.Mu: Yeah, I think it's a common theme that we are going through a unprecedented changes, right? Not just the geopolitics, but also China's economic structure. And, like you said, the equalizing of quality of services in lower tier city is spinning up because of the growth of digital economy.One thing that I can recall is the new hotel chain from Hua Zhu. Even for those hotels in lower tier city, they have robots. Meanwhile telemedicine and remote teaching, all these technology have matured. So they will be able to provide high quality healthcare services via telemedicine and training can be conducted online remotely to the lower tier city. Singularity points that have been reached that, on the supply side, quality of service is growing rapidly.On the other hand, now we have one more factor, which is the demand sides. The people in the modern cities are having pressure surviving or building roots in the higher tier city. So they have to realistically consider relocating back to their hometown.With that, would be seeing some sort of reverse urbanization or some sort of revival of the lower tier city in China's own characteristics. I am not expecting a Charlottesville types of township, but definitely there will be some sort of unique modernized township in China.Amber: I think that will be really cool. Each city should have its personality and local people should feel proud of their culture. Not just for the economy, but also for the local residents themselves too.Mu: And definitely we should share more to our readers about it, if we get a chance to visit Leshan.If you enjoy Baiguan, we encourage you to share it with friends, colleagues, or anyone who may find value in our content. Our most supportive friend can earn up to 1 year free subscription ($150!) through our referral program. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

Our second podcast is a discussion between Mu Chen and Robert Wu. We talked about three of the most asked topics amongst our followers. As a supplement to the facts and analysis in our posts on these topics, our chats focused on providing contexts and our personal experience from the ground on these topics. We also shared our thoughts on picking this week’s posts. Below are the highlights: Part 1: China’s Bureau of Statistics to stop publishing youth unemployment dataWhy are they doing this?[00:01:28] Robert: Well, at the fundamental level, I would argue that transparency is really not at the core of Chinese value system. Transparency is good, everyone knows that. Transparency is good for governance. But I think within the Chinese value system, there are higher tiers of priorities. And in this particular case, I would argue it's pragmatism. The economy is not really doing well right now and the government is very anxious to reignite the growth. And right now, what government understand is people's confidence is the most important driving force. A Lot of business people are not confident. A lot of investors are not confident. So they try to create more confidence by resetting expectations. And I think it's all part of that. Even though certain things are sacrificed, things like transparency, right? Things like showing enough data to help you understand what's going on in the economy. I wouldn't say I agree with this approach, but I think underlying this act is still the anxiety of the government that they want the economy to do better. They are they are working on it. They are taking actions. And although some of the actions we don't necessarily agree with.What was off with the way this issue is handled? [00:03:29] Robert: I think setting expectations is right. But how you do it is is actually very important. And I have to say, by just shutting this down, it's not really very responsible and it's not really professional.In the best form of the world, we would want these government officials to give a clear explanation for the statistics they had. People in the industry always want the government to explain a little bit more about how they arrive at their statistics. It's not just [a problem about] employment. It's about the GDP, the CPI. There's minimal details. There are no information about the sample size, the biases. When they rebalance the statistics, there's no explanation at all. Nobody knows what they mean when they publish their data anyway. [00:04:25] Robert: No one can confirm whether the readings of the data is right or wrong. So I think I would say they could do better by being more transparent, by being more professional. It's if a data is not supported by the underlying assumptions and details and what we call the data metrics, the data dictionaries, right? That's not good data anyway. It's just some numbers on the wall. And I don't think that's something they have realized. [00:04:55] Robert: that come back to the question, how the decision was made. I think it's just because there just a lack of real talents at those levels, a team of professionals and talents that have to be very good at what they're doing, doing statistics while at the same time, very good at facing the public, explaining the their data to the public in the same way, say, we at BigOne lab explain our products to our clients. At the same time, those people also have to survive in the gigantic bureaucracy. Right? So basically what we are asking for is someone who is both good at dealing with the subject matter, who is good at dealing with the general public and who is good at dealing with their colleagues, their peers and their bosses. This is hard to ask [for] and it's just I think a lot of problems in China come back to really, you know, the quality of the personnel. And it may not be more complicated than that. [00:06:06] Mu: it might be a systematic characteristic, because of China’s education system, in the first place. We had to chose a major in our first year [of university if you’re in China]. While when you are in HK and when I was in the US, actually we can study inter-discipline classes first. So we kind of get trained in a liberal basis, and got some hints or taste of some skills sets from different subjects. [00:06:36] Robert: but that’s what most people have access to. [00:06:43]  Mu: So they may be they are like people that are in the Bureau of Statistics. They are really good at statistics, as well as maneuvering through the, you know like you said the promotion system or the political system. To get promoted all the way to the top. But PR is not, at least for now, the biggest training that they need the requirement for them to get to the top. [00:08:09]How can this be done better?[00:07:10] Robert: Certainly I would just recommend them to treat the public as one of their clients. If you explain the biases, the sample size and all these details well, data can be good and can be really helpful. So when there are like, say data aberrations, data inflection points, people understand whether it's for real or, whether it's just because of some data irregularities. For example, youth unemployment. Is that really bad right now? I mean, just looking at the data, it is telling a bad story. But the fact is, if we have access to exactly how many people they have surveyed in their statistics, what kind of people are responding. Are they not looking for jobs or are they looking for jobs or don't get any offers? You know, all these details, if are there could be way more beneficial than just telling a number. Part 2: Contextualizing current sentiment on China’s economyHow do we contextualize the youth unemployment situation?[00:09:19]  Robert: I think one thing that people have to understand is that when we talk about youth unemployment in China, it has specific Chinese characteristics in that if we're talking about youth today, like if you talk about people from 16 or 18 to 23, 24, right? Those people were born at the turn of century. Most of their parents, they were working in the beginning of the reform and opening up. And their parents are the first generation that have accumulated some wealth. They have apartments. They have some assets. So it's not like as if like in some countries, when you talk about youth unemployment, you're talking about young people on the streets doing drugs. Right? That's the imagery, the Western societies have. in China, it's different. It's not as if they don't have jobs. They actually do have some job opportunities. It's just there is a discrepancy. There's a gap between I think for many people there's a gap between the jobs that are offer and the jobs they are willing to take. There is a lot of manual jobs, for example, factory jobs that are paid well. But a lot of college graduates won't go down that path. And what's what's the alternative? Well, they can still stay at home. The parents will still provide. They will think, well, maybe it's not easy to find a job now, I can find a job later or something. So it's a totally different type of unemployment we're talking about here. This is the type of unemployment that may be not so much of a shock to the society at the moment. And the impact could be quite different from, say, youth unemployment in, say, North Africa or in the Middle East. And I think that's something that we have to understand. [00:11:30] Mu: the negative social impact of youth unemployment in China actually is sort of contained by this social structure. I think there's another interesting thing about structural. So what you say is a structural unemployment issue, right? Going to college in university do not want to take the blue collar jobs. I actually seeing I'm seeing more and more youths taking part time gigs on Xiaohongshu and Douyin (Chinese version of TikTok) doing live streaming. They are performing, selling products, writing their stories and posts online about eating, shopping, traveling. And they're making some money. Yeah. So with that as well as parent support, there is stress for them them. But I guess they're still working. [00:12:25] Robert: youth unemployment on the surface it's an economic question, right? How many people are employed or not? But the reason we pay so much attention to it is because it's a social and possibly political matter. Young people without jobs, what can they do? So when we look at this, we have to be able to understand the social and political aspects to it. And with that, you have to take, you know, family values, social norms into account. So it's not a purely economic matter. But again, if the statistics, the bureaus, they can be more transparent with their methodologies, showing more details of their data, the underlying reasonings, the underlying data from, you know, to explain, wow, explain better the rationale between changes in data. It would be so much better than us here sitting here guessing about, you know, what's the real situation out there.  Negative Narrative about China’s overall Economy struggle is back again, how should we understand it? [00:15:20] Robert: I think, definitely for the for the friends around me especially, you know, we live in the first tier cities. We talk with a lot of business people. We talk with investors. There is a general feeling of pessimism. A lack of confidence is really palpable, compared with, many, many years before. This is what I would say the most, most pessimistic time that I have ever witnessed, just by looking at the people around me and looking at the news headlines from the West. But that's one part of it. There's also more layers to it, when you open up, Financial Times, Wall Street Journal, you have this feeling that China is really collapsing, right? All the hell is breaking loose. Society is on the brink of disasters. That's the imagery that they try to convey. But I think I do have a problem with that part [00:16:15]  Robert: But here we walk on the streets. We live our life. And actually, there are things that you cannot really explain if the society (economy) is really breaking down. For example, just look at the (high) hotel prices, flights, the length that we're going through buy the train tickets. You know, everyone is on the move. If you go to a train station, it's a mixture of holiday going as well as, going to work. It's really hard to reconcile that with an economy that is like just going down. I would say people are less happier than before. I would say some people, substantial amount of people are poorer. I would say expectations are less confident than before. But but you do still feel the the drive, the urge to work. People are still hardworking. And that's something we want to stress, over and over again. People are not like just lying down and wait for your government to hand out some subsidies or wait for some miracles to happen. People are going around places. Why is there disappointing sentiments on China’s recent economic performance?[00:17:22] Mu:  I think the sentiment comes from, you know, there are two major sentiments. One is the disappointment about [the missing V-shaped recovery]. Many, many people walking out of Covid lockdown is expecting a rapid V-shaped recovery. So that's not happened. I didn't expect that given we look at what happened in the other countries when they open up, there was no such thing called V-shaped recovery. So why would that happen in China? I think second sentiment, I actually just realized is that this is a first downturn experienced by people growing up in our generation. Then we finally open up generation. Sure, because I was under the impression that there was, you know, experience in the Asian financial crisis. I was too young then. Then there's the 08-09 Collapse Financial, the Great Recession. But I had that experience when I went to the US in college. Right? I saw that, you know, high unemployment rate, hard to find jobs and things like that. But actually when I asked my friends around my age in China who grew up in China during those years, that was the peak years. Remember, this is like 08 Olympics. [00:20:14] Robert: even if people some of the people are getting, you know, less rich, they haven't been rich for a long time anyway. For many of them and for many of their parents, they came from the countryside. They rose rapidly in the last 20 or 30 years. The experience of poverty, the experience of underdevelopment is still very fresh. The work ethics, the spirit doing hard work, making a better life is still much pretty much over there. So I think it's also not bad to have some downturn to witness and experience some downturn in your life because that's part of life, right? It's all cycles up and downs. And and I think for really a lot of people that we know, including ourselves, it's also a moment for growth. It's a moment for us to understand. Also cash flow is quite important, Doing making profit is important not just like, top line growth, and there will be an end. I mean, capital raising is not endless. You know, all these actually pretty important lessons. [00:21:28]  Mu: It’s like maturing up, from a teenager. Robert: It is, it is like growing from a teenager to an adult life. Part 3: Understanding China’s healthcare system via the corruption campaignIs this is another industry crackdown, like what happened to education and internet industry? [00:23:20] Robert:  Well I think to talk about health care, we have to first of all, we have to put the things in the right context. So China's health care is far from being perfect, but it also has its many strengths. For many people who have not been to a Chinese hospital, we have to first give this overview of what China's health care system is like. I think in all countries health care system, there are different problems. You know, there's a lot of debate about the US health care system. There's debates everywhere about. Different countries health care system. Overall, I would summarize [as such]: For any country, their health care system they are facing, I would say an impossible trinity or impossible triangle of three things: Affordability. That's for one thing, whether you can afford the health care. Accessibility, Whether you can have access to health care. And then the quality, both the service quality as well as the access to good adequate equipment and medicines. [00:24:38] Robert: so if you put things into this kind of perspective, you can understand where China is coming from. You know, where China's health care system is situated in this. Basically, of the three things, China's health care system only sacrifices the last one, the quality, the service quality especially. I would say the biggest question, the biggest problem with  hospitals in China is that really it's such a crowded place. There are so many patients. The doctors are very impatient. And and it's like, you know, if you go to the hospitals, if you go to the surgeries. Every time I go to hospital, I feel like I'm just a pig going through the kind of the cutting line, The I'm just a product and just go through this procedure and that, not really being treated as a human right. But I will say that's the only big weakness or big issue I find about China's health care system. And actually they sacrificed that in order to achieve the two other goal, you know, which is to make it both affordable and accessible. What is the benefit of China prioritizing affordability and accessibility for its healthcare system?[00:27:23] Robert: one thing people don't realize is: because Chinese hospitals are so accessible, the doctors are so busy, they're seeing so many cases, I would say Chinese doctors are way more experienced [compared with] similar doctors or similar age. [00:29:26][00:27:37] Mu:  It's more training data.[00:27:38] Robert:  Yeah. Usually ten times more patients, more cases [than other countries]. So although, Chinese doctors, they are very impatient with you.  They're really like they're not nice, but they get things done. So I think that's the setup we're facing with. But you have to realize this is also a distorted system. They distort one thing for the benefit of 2 others. One big distortion is the whole, you know, the compensation system for the doctors. The doctors in many countries are among the highest paying jobs. In China, it's more complicated for young doctors. Most of the doctors, it will be shocking to you how how lowly paid they are. Their wages are similar with, say, a factory worker. Yeah. It's sometimes even lower than that. And why? Because they are you know, the system is created for the benefit of making it affordable and accessible. Right. So but then why should doctors do this? Why should doctors do this kind of job? It's busy. It has a lot of pressure. You're facing life and death situations and you're not getting well paid. What is the cost of China prioritizing affordability and accessibility for its healthcare system?[00:29:57] Robert: So doctors do enjoy a lot of power. And so in a totally low paying environment. What should doctors do? All the doctors, they keep grinding and working in that environment with the hope that one day they can rise to the top. And it's basically delayed gratification for a lot of doctors. So so one distortion in the system leads to more distortions. And for a while it works. But again, it is corruption. It is corruption. Yeah. This type of corruption, once it persists, will grow into a monster of his own. And for example, overprescription. A lot of doctors will, you know, because, because they need to have some decent income. They just overprescribe for readers. [00:32:28] Robert: I just want to let our listeners, our audience understand it's it's a it's not a one sided problem. It's a result of what the system like this is like. So and I think once, you know, every once in a while they need to reset the system. They need to, you know, try to limit the effects of their systematic distortions. If you enjoy Baiguan, we encourage you to share it with friends, colleagues, or anyone who may find value in our content. Our most supportive friend can earn up to 1 year free subscription ($150!) through our referral program. If you are already subscribed to the paid version of my newsletter, your subscription will be extended.Related Reads This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

Welcome to debut episode of Baiguan Radio. In today's rapidly changing global landscape, questions abound. How is the business environment in China adapting amidst geopolitical tensions such as evolving China-US dynamic? As Hong Kong undergoes significant shifts, what is its impact on the broader investment and business sectors? And, beyond the conventional narratives, what is the real experience within China's state-owned enterprises? Are they as bureaucratically entrenched as perceived, or is there a more complex reality?Today, we're joined by Jay, a seasoned investment banker and native Hong Konger with 15 years of firsthand experience. He offers a rare perspective that blends deep professional insight with on-the-ground experience. We'll explore the intricacies of doing business in China, demystify the operations of state enterprises, and gain an understanding of the aspirations and challenges faced by today's entrepreneurs, especially those in the private sector. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe