BGI

I'm in a weird spot both recognizing Chinese stocks are cheap on fundamentals, but also a bear market or global recession isn't going to be good for them either. Much more interested in owning something like CGN with a 5 percent dividend yield, than Alibaba or Baidu that is responsible for the pop in FXI today.

The impetus for the move today is the government signaling it will inflate the currency and restart the housing bubble. Interest rates are already falling in China and the 10-year yield is below 3 percent.

Bloomberg: China’s Pledge to Lift Consumption Sparks Debate on Cash Handouts

iFeng: 利好来了！公积金贷款利率下调

China Finally Reopens

The economy might not rebound as much as expected, but some industries such as restaurants and travel should see a big positive change.

China Financials

China financials look cheap or with potential bullish patterns. The wildcard here is like with Japan: is there a nomainal breakout coming that will be fueled by currency depreciation?

Here is the U.S. China Financials ETF, CHIX, sucking wind. It could have a long way to rally if China's markets rise and the currency rises.

At this stage I'd prefer nominal exposure with a currency hedge. I think the current bear market rally around the world would have to transform into an actual bull market, complete with weaker USD and emerging market outperformance, for a pure long China trade to pay off with low risk. That said, looking at something like Shenwan (a stock I liked way back in the 2014 time frame), my sense is a nominal bull market will deliver enough gains to offset currency devaluation. Financials usually get destroyed in currency devaluation/high inflation scenarios, but maybe Chinese banks are so weak and priced cheap for their risk, that high inflation/currency deval would lift that risk.

Haidilao Finally Turns

A lot of volume down at these levels. Looks like a solid base.

Will China Bounce?

It already has. How far some stocks could run: Alibaba is about 35 percent below horizontal resistance and 50 percent below downtrend resistance.

Haidilao edged past resistance, but still hasn't competed a base:

Lockdown Damage

I thought stocks like Haidilao might bounce following the lockdowns, but with them being extended and spreading around the country, consumer companies are rolling over. I wonder to what extent the government is psychologically damaging the public. I'd wager about 20 to 30 percent of the American population is permanently scarred from the lockdowns and propaganda, or at least will take years to recover. At some point, repeated lockdowns alter behavior because the public assumes they are possible at any time.

Haidilao Rolling Over With China

So much for that idea if this keeps up. The weather will save China from the lockdowns, but then it all depends on if there is a recovery.

Snack Empire has a better setup if it can break higher. I have been holding this one for quite some time.

The big question for China is whether the government stimulus efforts will pay off.

Bloomberg: China Cabinet Vows Monetary Stimulus, Saying Risks Worsening

Officials will use multiple monetary policy tools at an “appropriate time” to support the real economy, according to a readout from a meeting of the State Council chaired by Premier Li Keqiang on Wednesday. The “complexity and uncertainty of domestic and foreign environments have intensified, and some have exceeded expectations,” the meeting said.

The State Council, China’s Cabinet, didn’t mention specific easing steps, like reducing the reserve requirement ratio. It previously gave signals for a RRR cut in July and December days before the People’s Bank of China cut the ratio.

Chinese authorities have made repeated vows to stabilize the economy in recent weeks as Covid restrictions curtail spending and business activity. A gauge of sentiment in the services sector fell in March to the lowest level in about two years, while the country’s financial hub Shanghai is in total lockdown. That’s putting the government’s ambitious growth target of about 5.5% for this year in doubt.

The State Council said that while the economy is still moving in a reasonable range, new downward pressures have intensified, with more frequent virus outbreaks, a slowing global economic recovery and fluctuating commodity prices. The government should promptly introduce measures that are conducive to stabilizing market expectations and bring forward some policies laid out in the government work report, it said.

Top financial leaders pledged last month to ease regulatory crackdowns, support property developers and stimulate the economy through monetary policy. However, few concrete steps have been taken so far.

Credit easing doesn't work because of debt problems and restriction on housing speculation. Credit grows if there is a housing bubble, otherwise not. The government has to force investment if it wants more growth. They are talking about front-loading spending, but not doing any major stimulus yet.

iFeng: 燕郊首付降至20%？被套的北漂买家：五年前赶着上车，如今房价跌了一半

However, Yanjiao is not Beijing after all, and it is difficult for the needs of "beijing drifters" to support the huge stock market. Recently, there has been news that Yanjiao is trying to relax the housing purchase policy to stimulate the property market, reducing the down payment ratio for the first house to a minimum of 20%, and the down payment ratio for the second house to a minimum of 30%. Prior to this, the down payment ratio for the purchase of a house in Yanjiao was 30% for the first set and 50% for the second set.

Times Finance learned from the local real estate agency in Yanjiao that the store has indeed received a notice that the down payment ratio has been reduced, and many real estate agencies have begun to use "low down payment" as a gimmick to persuade customers to "get on the bus" as soon as possible. However, on April 7, news came again from the Yanjiao market that some banks stopped the reduction of the down payment, and the real estate agency also told Times Finance that the "down payment reduction" may have to wait.

One anecdote from the market:

Cai Zhiqiang works in Wangjing, Beijing. During the morning and evening rush hours, the commute time from Yanjiao to Wangjing is at least an hour and a half. When there is a serious traffic jam, the time is even more unpredictable. In the evening, in order to avoid the rush hour, Cai Zhiqiang always worked overtime on his own. He waited until the road conditions improved after 9 pm before leaving home, which was often late at night.

The fatigue of commuting is not the main reason why Cai Zhiqiang regrets buying a house in Yanjiao. What he did not expect was that the Yanjiao property market was in full swing in 2017. After just three or four years, the hot situation was completely reversed, and house prices fell all the way. Last year, Cai Zhiqiang's neighbor listed a second-hand house with the same size of 73 square meters, and the price had fallen to 1.5 million yuan.

"Watching the housing prices in Yanjiao keep dropping in recent years, I feel like I've been deceived. The listing price of 1.5 million yuan can be said to be a blood loss. As far as I am concerned, the unpaid loan plus interest is still there. 1.2 million yuan. Moreover, few people came to see the house after it was listed. It has been listed for almost a year, and it has not been sold yet.”

Assuming he made a 30 percent down payment, his loan-to-value ratio has fallen over the past 5 years. He has 300,000 yuan in equity, down from the roughly 900,000 yuan down payment he would have dropped in 2017 if the 30-percent down payment as in effect.

The marketing director of a real estate company in Beijing told Times Finance that the property market in the north has not been ideal in recent years. Even in Beijing, it is in a stable state, with few sharp rises and falls. The investment logic of the property market around Beijing is attached to the Beijing market. After the market stabilized, the premium space of the Beijing-based property market was curbed, which caused a large market shock.

"Whether it is a home buyer or a real estate company, as long as they rushed into the Beijing-based property market at a high level a few years ago, most of them can't escape the fate of being 'set'. Now real estate companies will still selectively deploy the Beijing-based property market, with sufficient funds. In contrast, many private housing companies are significantly reducing the frequency of taking projects around Beijing.”

Elsewhere, banks are offering six months of mortgage relief because of the lockdowns.

iFeng: 银行纾困房贷还款：最长延期半年

Liao Xing, who has been working in Shanghai all the year round, did not expect that the spring of 2022 would be spent in Shangrao, his hometown.

"The mortgage is about to be repaid, but I still don't know when I will go back to work. The bank can give me some time to slow down." Since buying a commercial house in his hometown last year, Liao Xing has taken on a mortgage of about 3,000 yuan per month. . When the epidemic hit, Liao Xing's income dropped sharply, and the pressure on loan repayment increased sharply.

This may be the epitome of some people who have bought houses at present. Recently, information about asking for help due to the impact of the epidemic on income has been frequently seen on the Internet, and discussions on "deferred mortgage repayment" have also rushed to the hot search.

"It's so necessary, it's time to embody the bank's sense of social responsibility!" On social platforms, the voices that banks should give support are getting louder.

Industry insiders pointed out that the current epidemic has an impact on personal cash flow, and a reasonable extension is better credit protection for individuals, reduces the impact on future financial activities, and is conducive to better support for people's livelihood development.

According to the reporter of Caijing, many banks, including large state-owned banks, joint-stock banks, and urban and rural commercial banks, have responded to this. Some banks have introduced targeted measures, including grace period and credit protection protection, for areas severely affected by the epidemic. However, in general, there is no unified policy issued by each bank at present. Industry insiders believe that due to the large number of details involved, it is unlikely that banks will fully implement loan deferrals.

Emphasis in the original.

China Lockdown Victims Rebound

It looks like the lesiure and hospitality sector has bottomed out.

Haidilao Expansion Worries

Haidilao is a great restaurant that IPO'd in Hong Kong on Wednesday. The company is popular in China and rapidly expanding, and the latter is the main source of concern. Can it expand this quickly? Hotpot involves serving raw food tossed into boiling water. Recently, rival chain Xiabu Xiabu saw its stock plummet after a rat was found in one of its hotpots.

Inquirer: Chinese restaurant shut down after pregnant woman finds rat in hotpot soup

One man, surnamed Ma, said it was his pregnant wife who discovered the rodent in their meal, as reported by Kankan News via South China Morning Post last Sept. 10. They were apparently eating in a branch of the restaurant chain Xiabu Xiabu in Weifang, Shandong province last Sept. 6, and had only taken a few bites when Ma’s wife made the discovery.

Authorities have since suspended the restaurant following the incident, the report said. Meanwhile, Ma’s wife is set to undergo a hospital check-up, with Ma sharing that the restaurant staff offered them money for an abortion if they were concerned about the baby.

“If you are worried about the baby, then we’ll give you 20,000 yuan (nearly $3,000) to abort it,” Ma said in the report, recounting what the restaurant staff told him.

The restaurant also offered them compensation in the amount of 5,000 yuan (around $700), though Ma has shared that he is ready to negotiate the amount.

Xiabu Xiabu meanwhile released a statement last Sept. 8, saying they’ve always “placed great emphasis on food security.” They vowed that they would make the required changes to improve their service.

The Economic Observer has an in-depth article on Haidilao, below is the relevant section on expansion.
EO: 海底捞上市的底气与隐忧

Expansion worry

“The more stores are added, the greater the management span.” Zhu Danpeng believes that there are serious problems in the operation mode and profit model of the Chinese catering industry, that is, to pursue profit maximization through low-cost labor, rather than putting food safety first. From a regulatory perspective, the country's laws and regulations and penalties need to be improved.

Haidilao's risk factors listed in the prospectus are 31 pages long. It believes that the risks mainly exist in three aspects: food safety and quality consistency, restaurant store manager talent pool and supply chain management.

In terms of supply chain management, the founders of Haidilao have successively set up specialized companies in various links of the hot pot supply chain, such as Bohai Group, Bohai Group, Yuyun Oriental, Weihai Consulting, etc., responsible for the production of bottom materials and processing of food materials in Haidilao. , warehousing logistics, store construction and manpower consulting. In addition to the above four, the main related parties of Haidilao include Zhalutqi Haidilao. In the past three years, the purchase amount of Haidilao to the above five companies has increased year by year, respectively 1.879 billion yuan, 2.553 billion yuan, 4.904 billion yuan, accounting for 61.7%, 68.8% and 81.3% of the total purchase of sea fishing. Bohai Group also provides food processing and distribution services for other catering companies.

The division of the Haidilao headquarters and the restaurant manager is clear: the restaurant manager has a high degree of autonomy in the day-to-day operations of the restaurants it manages, and the headquarters is responsible for food safety, procurement, growth strategies and other aspects of the restaurant. In this case, whether there are enough managers in the store has a significant significance for the success of Haidilao's expansion. "At present, the reserve of Haidilao is about 100 people per month." Li Jianfeng told the Economic Observer Online.

In addition, the method of cultivating the manager of Haidilao adopts the “apprenticeship system” to increase the enthusiasm of the store manager to bring out new people through rewards. The store manager can not only enjoy the performance of the store, but also obtain a higher percentage of performance in the stores managed by his apprentices and apprentices.

"For Haidilao, the biggest risk lies in food safety." Zhu Danpeng told the Economic Observer Online.

In terms of food quality and safety, Haidilao currently invests more than 500 full-time staff directly responsible for food quality and safety. Each restaurant has one or two employees dedicated to food safety. According to the Haidilao official website, more than 300 employees of the Haidilao suppliers such as Bohai Group, Bohai Group and Zalute Banner are responsible for food safety and quality control.

When the Economic Observer Online asked “How Haidilao ensured that the rules and regulations were in place”, Haidilao said, “In terms of safety, Haidilao is committed to providing consumers with a comprehensive and strict quality control management system through the development and implementation of a comprehensive and strict quality control management system. Healthy, safer and more assured products, including detailed and standardized quality control measures, frequent and extensive inspections, clear accountability, upgraded restaurant design and technology, and large-scale investment by food safety personnel, as much as possible Make sure the food is safe."

But obviously, Haidilao can't guarantee 100% without any problems.

In the Haidilao official website management announcement page, basically every month there are behaviors that do not strictly abide by the rules and regulations. Last year, after the Haidilao Beijing Jinsong store was exposed, there was a mouse in the kitchen. At the Sun Palace store, the staff used the colander used by the customer to eat the hot pot to clean up the clogged garbage.

Every exposure will have a major impact on sea fishing. Especially after the listing, if there is a problem in food safety, the damage to Haidilao is obviously not a level compared with before, and the more stores, the greater the lethality.

In early September, a shop in Weifang, Shandong Province, was blown out of a hot pot soup to remove a dead mouse. After the incident, the stock price fell on both the 10th and 11th of September. More than 6%.

The existence of food safety issues is a common problem faced by catering companies. At the end of May 2018, the famous hot pot brand Xiaolongkan was exposed to the media by recycling the use of saliva oil and the unhealthy hygiene of the kitchen. Soon, another chain of restaurants - Yang Guofu Mala Tang was exposed to a store staff in Guangzhou to put their feet on the cutting board to cut vegetables.

From the sea bottom to the Xiaolongkan, then to Yang Guofu Mala Tang, squatting and feeding, many chain catering companies have been planted, food safety is a risk that the catering industry cannot avoid. How to ensure the quality and safety of food while expanding rapidly is the key to the continued rapid growth of Haidilao.

"Haidilao can have two ways to die: one is to manage problems. If it happens, the death process may last for months or even the last year; the second is food safety problems. Once it happens, Haidilao may close tomorrow. Life and death are at stake. We understand that although the road to good food safety is tortuous and difficult, it will not go away." Haidilao wrote on his official website.