Jun

17

It only takes 3 months (if that) to lurch from a bullish supermajority to a bearish supermajority as far as China is concerned. From a sentiment perspective it doesn’t get much more bearish than this. On our TMT buy side trip, there was 1 bullish contrarian. The most bearish person in our entire group was the analyst from CIC, the Chinese sovereign wealth fund.

The “policy cycle” promises to be much weaker now than before. The Chinese view the 2009-10 stimulus as a disaster and don’t want it repeated (or so they insist; after power has been transferred, incentives will change, and policy will no doubt follow.)

Chinese real estate transaction volumes have been recovering for two months. However, developers are not buying more land from city governments to replenish liquidated inventory.

The more connected a given investor happens to be with Chinese princelings and elites, the more bearish he seems. Nobody, and I mean nobody, knows how political power will be apportioned when the power transfer happens later this year. The Hu Jintao-Wen Jiabao “liberals” (to the extent that any Chinese faction has any accurate ideological label) seem to hold almost most, if not all of the cards, and the only question is how far they will press their advantage. The corrupt wealth accumulated by the underlings of Bo Xilai, Zhou Yongkang, Zeng Qinghong, and their many underlings, wants and needs to escape China ASAP, before the late-2012/early-2013 change of power.

The American EB-5 visa program, the fastest and most expensive route to a green card, is going nuts. (An EB-5 requires $500k of investment and 10 American jobs.) Canadian citizenship was considered highly preferable before, because it’s much easier to obtain, and Canada doesn’t tax non-Canadian income. But that door seems to have closed.

It seems like the “liberals” have compromised with the devil (the PLA) to determine the composure of the next Standing Committee. Over time the PLA, which has historically been underrepresented in political decision making bodies relative to the raw muscle at its disposal, took the side of the Bo Xilai-Zhou Yongkang nationalist-socialists in the factionalism within the Standing Committee. When Bo Xilai was in political limbo in late February, the PLA’s loyalty was judged extremely uncertain by Hu and Wen (resulting in an avalanche of headlines in People’s Daily and other organs, reminding PLA cadres of their allegiance to “the Central Military Commission *headed by Hu Jintao*”), giving way to a sense of imminent instability among Chinese elites.

The sense of imminent instability in early March is now gone, but the medium term power structure remains completely uncertain. Meanwhile, there is a growing sense amongst many Chinese elites that their the PRC’s system of governance is completely unsustainable. One of my friends, a Mainlander who went to the US for college, worked for a hedge fund, and now works for one of China’s largest internet VCs firms, bounced John Hempton’s “The Chinese Kleptocracy Is Like Nothing Seen in Human History” article around her Beijing office. Pretty much all of her Chinese friends – Mainlanders – agreed with it: the country is being looted; nobody has the power to stop it; anybody who tries to stop it is firstly a hypocrite, and secondly, on the cusp of political suicide.

Chinese people are also more skeptical than ever of everything, if that’s even possible. The Chinese wife of a Beijing-based American insisted that Bo Xilai is a hero and was an instinctive democrat, and all official accusations and “leaks” against Bo (11 murders; US$6bn laundered out of the country; wiretapping the entire Chinese Politburo) are fabrications. A very plugged-in American-born Chinese person was also sympathetic to Bo, believes Bo was no worse than average – and believes most of what has been reported about him.

Still others, also very politically attuned and connected, believe that although Bo’s liquidation was a very political power play, not only are the officially documented crimes real, but the true extent of his crimes has been significantly understated – the CCP has already lost a huge amount of credibility over the rumors which have leaked out and nobody has any interest in this spinning further out of control.

Most people shrug, say it’s none of their business, and go on with their lives.

Cheers,

Alex


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