Getting Priorities Straight
How do you make investment or business decisions in the face of the uncertainties created by Xi Jinping's reshaping China's economy?
- In this issue, I'll give you a few different ideas on how you might deal with that uncertainty.
The gravity of this challenge popped up again a few days ago when China’s ride-sharing company, DiDi, announced that it intends to delist from the New York Stock Exchange and seek and relist in Hong Kong.
- Few were surprised. As far back as July, after Beijing ruined DiDi’s NYSE IPO, many predicted that data-heavy Chinese companies especially would be strong-armed into delisting.
- (For my part I explained my reasoning about why this was coming last July in ‘Didi: Xi Surprises Us Again,’.)
While the delisting itself isn’t that big a deal on its own, the significance is summed up in the Bloomberg headline: ‘Didi Sends Warning to China Investors Who Bet Worst Was Over.’
- ‘By day’s end on Friday, Didi had plunged 22%, catalyzing losses in U.S.-traded Chinese stocks that now amount to more than $1 trillion since February.’
- ‘Friday’s gut-wrenching ride - triggered by Didi’s announcement of plans to switch its listing to Hong Kong from New York just five months after going public - shows how perilous betting on Chinese equities remains more than a year into Xi Jinping’s campaign to remake the country’s tech sector along with much else in Asia’s largest economy.’
- ‘While the broad contours of Xi’s vision are clearer than they were last November, the world is still in the dark on policy details that could prove crucial to the future of China’s biggest listed companies.’
Having to make decisions - whether investment or business - when you're ‘still in the dark on policy details,’ that’s the kicker.
- Whether you’re an institutional investor or a CEO, prepare for a long opaque stretch as Mr. Xi continues to ‘remake...much else in Asia’s largest economy.’
- And be stout of heart, because (as you already realize) the risks are enormous, and you may not know if your decisions under this great uncertainty are right or wrong for a long time.
But this isn't a new problem. How to navigate in China’s economy is really a perennial question – one I’ve gotten since I started my China-focused investment bank, RiddellTseng, in 1988.
- And whether it’s about stock investment or corporate entry and strategy, the answer has been pretty much the same.
Here are the general guidelines I doled out back in the days when I was more dogmatic:
- If you align yourself with Beijing’s priorities, you might make money.
- If you don’t align yourself with Beijing’s priorities, you will lose money.
- And if you can’t align yourself with Beijing’s priorities, you shouldn’t be in China in the first place.
I've softened a good bit since then.
- But the part where you have to understand Beijing's priorities and align with them hasn't changed.
- This question of course remains: What are Beijing’s priorities?
Today, the starting point in answering that is to follow what Xi Jinping and his colleagues are saying.
- The good news is that Mr. Xi and his cohort are not shy about signaling.
- My mantra: Take Xi Jinping at his word.
My favorite lines from The Wall Street Journal, which I quoted last August in ‘China Tech Crackdown: 'Nobody Saw It Coming.' - Huh?’ (the ‘Huh’ sums up my view) are:
- ‘The big surprise from the slump in Chinese company stocks is that people are claiming to be surprised.’
- ‘President Xi Jinping has made plain for years that he intends to bring ever greater swathes of China’s private economy under the state’s control.
- ‘Guess what, Wall Street: He meant it.’
And he means it still. Mr. Xi has been clear about his priorities; the details not so much.
- After tackling step-by-step the Party, his enemies, the military, and society (he's still working on society), he’s now focused on the economy.
- In his speeches and the commentaries by officials explaining his intentions, you can see the direction he is taking the economy.
The question is just how far and just how fast is going to go.
- The wild card of course is how do you figure out the ways these priorities will play out - and how do know when you can't?
In the posts below, I suggest three - among many - ways to try to answer that question:
- Watch What Beijing Says – and Does (follow the money)
- Look Through the Right Lenses (unpack the policies and regulations)
- Sometimes You Just Have to Roll the Dice ('I know I’m right – until I’m not' - it's good to know when you're just guessing)
Let me know what you think.
- And tell me how you analyze China in the face of uncertainty.