China Dilemma

Posted By Darren Winters on Jul 31, 2021


China Dilemma

The China dilemma of investing was brought to light with the recent technology sell-off.

All major Chinese technology shares such as Tencent, Alibaba, and Meituan had fallen sharply early in the week on news of regulatory crackdowns.

China’s antitrust regulator announced Monday a set of guidelines for food delivery platforms that included paying delivery personnel at least the local minimum wage — a move that could hurt the profits of firms such as Meituan and Alibaba’s Ele.me

I believe the recent sales of Chinese technology stocks represent buying opportunities. As I write this piece, all the Chinese stocks, which sold off sharply a few days ago, are up as global investors bought the dip.

The China dilemma of investing, the lack of transparency of some companies, the thorn in US China relations, and domestic political risks still linger

China Dilemma

Chinese companies which don’t allow external audits of their accounts and that don’t file under the US Generally Accepted Accounting Principles (US GAAP), a collection of commonly-followed accounting rules and standards for financial reporting, which is the accepted accounting standard adopted by the U.S. Securities and Exchange Commission, have been threatened with delisting on US exchanges.

If investors do their due diligence and research whether the company complies, they can avoid falling into the delisting pitfall.

Concerning the geopolitical risks which could raise China’s dilemma of investing I would focus on the capital flows into treasuries, US paper

What we sometimes see on the stage political leaders and diplomats engaged in a spat can sometimes be overblown and doesn’t represent the reality of the situation.

So, if mainstream reports of worsening US-China relations but the Treasury International Capital (TIC) Report indicates an increase in China’s purchase of US treasuries that is an indication that the US-China rift isn’t serious.

If you want to get a handle on the reality of a situation, your best clue is to follow the money

When I read reports about deteriorating US-China relations, and I see China maintaining, or even increasing its holdings of US paper, I know it’s BS.

If you want a heads up on US foreign relations just read the TIC report. Words coming out of politicians and diplomat’s month are cheap, money talks, big money reads the truth. 

China remains the second-largest holder of US treasuries in the world, holding 1.09 trillion USD treasuries, slightly down from last month, which could indicate business as usual.

The China dilemma of investing could come from homegrown social unrest, which could be the black swan lurking amongst Chinese investments

The widening wealth gap is not just a G7 phenomenon. China is also experiencing a widening wealth gap and regulatory crackdowns, forcing minimum wages is evidence that the People’s Republic of China, 

Chinese Communist Party will do whatever it takes to keep in power. 

If it means throwing investors under the bus to suppress an uprising, they will do it. But that is the risk of investing, industries in democratic economies can be nationalized, leaving stock investors with nothing. 

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