Even if we want to shift from an export-oriented market to a domestic one, we can't because this system incurs costs. It's a socialist country, and while there is public property, it is essentially unrelated to the people's wallets. No matter how well a company performs, the state takes 50% of the dividends. Therefore, they had no choice but to go all-in on real estate, which has ultimately tied China's entire macroeconomy down like a cement block, leading to a situation where it is sinking. There hasn't been anything that could change this situation. However, over the past four to five years, the think tanks have been working on understanding how the changes will bring about energy shifts and what investment opportunities that might provide us. It's important, right? Typically, central banks intervene in capital markets. While there might be some subtle interventions behind the scenes, there is rarely anything overt.

Look, everyone, it's a bit frustrating that the KOSPI isn't dropping. The governor came out and said, Wait a minute, why is the stock market dropping like this? We need to intervene. This is about 450 trillion won; it doesn't make any sense. Something unimaginable is happening in China, and we are not fully grasping the severity of the situation. So, the expression of anger I used earlier is just a simple way to say, Did you understand me exactly? It has that kind of feeling. However, this isn't about trying to raise stock prices; there was a background to it. Earlier, President Wu Qing also mentioned that this is happening in a prepared situation. And if this just rises briefly and then collapses like a bubble, then...

I understand that there are many aftereffects, and I also feel that raising stocks instead of real estate might actually help boost domestic demand. However, I have two points of doubt. First, even if the stock prices rise and there are mentioned to be 50 million accounts, can individuals actually make money from this that leads to consumption? That part is something I'm curious about. Secondly, while there may be a willingness to avoid a bubble, I think it might be unavoidable. If the prices rise too quickly, it could lead to a situation where no one makes money. Isn't it possible that we could end up in such a scenario? So, there are definitely things we need to look at in the background. However, the context of why China is doing this is something I've learned from the U.S. or Japan.

So, as you know, the central bank directly participated in this, just like how we have been accumulating Japan's ETFs for over ten years. Since October 2010, they have continuously bought ETFs. This is similar, but here they have provided a cushion. In other words, if the necessary parties bring it in, they will take it as collateral. What this means is that they are not issuing base currency. In other words, the central bank is not printing money by issuing the base currency we know. Also, if the central bank does not use instruments like bonds, what Japan bought was indeed purchased directly by the central bank. Ultimately, the cash that the central bank holds would be used. However, China is currently increasing its currency, which relates to inflation concerns.

There are free options available, and of course, we are worried about deflation at the moment. But anyway, bring what you have. Then we will give you this bond. Yes, so bring your stocks, and I will give you my government bonds. Then what will you do with those government bonds? You will sell them, right? If you sell them, what will happen to the bond price? It will drop, right? That's correct. Right now, interest rates are very low, so that's the situation. So, we are not touching the hands but rather just moving the nose. That's why I was surprised that there weren't many people interpreting this situation in that way. I thought that this was just about the central bank's monetary easing and so on, but that's not the case. It's not about money being released. However, as far as I know...

In China, the bond interest rates have been a concern because the 30-year government bond rate is around 2%, which doesn't make sense. They want to raise it, but it's like saying, I'll give you the bonds, so you sell them. Right? Now, there's also the law of the People's Bank of China, which makes it a bit complicated. According to this law, the People's Bank cannot purchase bonds directly from the issuance market. What this means is that they can only buy in the secondary market, but even then, they do it not directly but through state-owned banks. So, they end up saying, Buy them through the Agricultural Bank or similar institutions. It's a bit complex, so I'll just explain that much for now. Regardless, they are trying to adhere to their own laws while navigating this situation.

삼합이라고 하면, 우리가 일반적으로 아는 삼합이 아닙니다. 네, 합법, 그다음에 합리, 합정서 리칭이라는 말이 있습니다. 이건 뭐냐면 법도 지키면서 이치나 어떤 선도 지키면서 상황에 필요한 것을 말하는 겁니다. 이번에 사마의 땅에 맞는 정책이었다고 저는 말씀드리고 있는 거예요. 예, 그래서 중앙은행은 중앙은행대로의 역할을 하지만, 이 자본이 파이프라인을 통해 자본 시장으로 가는데, 그걸 CSRC에서 받았습니다. 중국 증권감독위원회가 받아서, 그럼 어떻게 쓸 거냐 하면, 대주주나 주요 주주들이 회사의 자사주를 관리하라는 것입니다. 그런데 이 자사주 관리도 지금 여기서 해석이 잘 안 되는 것 같아요. 자사주 맞습니다. 자사주를 다 사고, 모든 사람들이 다 하라는 얘기가 아닙니다. 자사주에 들어가 있는 것에 대해서도 최근에 CSRC에서 발표가 있었습니다. 그 해석하는 데도 시간이 걸릴 것 같습니다.

I think it will take too much time to explain everything, so anyway, the target for share buybacks is about 10% in terms of stocks. However, the reason for designating that level of share buyback for stock price management is related to the political stance of the central government. Money is going to flow into companies and industries aligned with that direction. So, it's not just a general instruction to buy back shares; I mentioned last week in our video that I was referring to state-owned enterprises. The reason for this is that their KPI includes share buyback and stock price management, starting from last year. Therefore, chairpersons or CEOs need to take action. This time, they are saying they will provide funds to do it. However, I need to look into it further because I have to continuously monitor the situation, review the original Chinese texts, and communicate with people on the ground.

It seems that there are certain things set in place. The market is currently experiencing a continuous rise. Yes, yes. So, the path is already established, but because there are many who do not follow, they may not see it. However, the market is moving forward, and while I don't think everyone is aware of it, there are still about 10 to 20 percent of people who are taking advantage of it in some way. It seems that those people are driving the market. 

Alright, so first of all, the stock prices have risen significantly. They have risen a lot compared to the previous lows. Although it's difficult to predict, if the Chinese government has prepared to this extent, what will happen? In simple terms, I believe you should view this as a beta. The entire market, as you saw today and last week, only showed significant movement on the first day. Only on that first day did the capital...

If you look at the market growth, it seems that it would be most advantageous for securities firms and the financial sector. Consumer spending appears to be decent as well. So, these two areas have rebounded the most recently. On Tuesday, things looked promising, but it turned out differently starting Wednesday. On Tuesday, those who had been in the market for a long time could interpret the situation, but even so, there were concerns about finances. It felt like they were just trading among themselves without any clear direction. However, now everyone is talking about fiscal policy because nothing has been finalized yet. Recently, there was a discussion about a 500 million RMB consumption coupon in the area where I live. It seems that Shanghai has the funds for such initiatives, but I’m not sure about other regions. But here, let’s pause for a moment.

Returning to government bonds, we are now discussing special bonds. These local government special bonds are currently being issued. The issuance of 1 trillion RMB in government bonds has been confirmed, but the process has been very slow until June, which has caused concern in the market. Bond managers are saying that while there are discussions about government bonds, actual execution is not happening, and project approvals are not coming through, leading to a backlog of funds. However, I believe that bond managers, starting from the day before yesterday, have been actively tracking the prices of 30-year bonds. I haven't looked today, but it seems that the price has dropped by more than 10% in a single day. The prices of those bonds have risen, right? Looking at the 10-year bonds, compared to last Tuesday, the 30-year government futures have moved from 110.

I think the market is currently down about 100 points. Bonds are changing now, and the stock market has also reacted in this way. From my perspective, the overall market isn't really following a beta trend; after all, the entire market is moving in this manner, which has created a very confusing situation. Last week, I was puzzled, wondering what this all meant, but now, in the short term, hedge funds that used leverage of two to three times, with a 50-50 strategy, have probably gained about 450% in just a few days. It’s been around four or five days. That level of gain is possible due to the leverage they employed. However, in the case of major markets without leverage, the gains have still been substantial. In short, to put it simply...

As of last weekend, from what I've checked, hedge funds and the third fund have been active, and it seems that large funds didn't move much after Tuesday. By the way, do you know how large the mutual fund market size is in China? No, I don't know. I understand that you watch the U.S. market a lot, but let me briefly mention the size of the Chinese mutual fund market: it's about 31 trillion RMB, which is over 4 trillion dollars, right? Yes, a little over 4 trillion. Out of that, equity funds only make up about 20%, so that's around 6 trillion RMB, right? Just under 7 trillion RMB. Until now, their proportion has been almost entirely flat. So, what I'm saying is that during last week's rally, this is what...

Style shift switching is possible, but mutual funds probably wouldn't have had extra money to buy more. So what I'm trying to say is that if the mutual fund is worth 7 trillion RMB out of the total 31 trillion RMB mentioned earlier, then looking at the market capitalization, the entire Chinese market was around 80 trillion RMB, and today it might be 90 trillion RMB. Out of that, about 7 trillion RMB is in stocks, which is not 40%—it's a little less than 10%. Now, who holds the rest? It's divided among state institutions, insurance companies, and individuals. The foreign ownership ratio was at its peak of 4.3%. As everyone knows, it has dropped to 3.1% due to various reasons. However, in the last few days, there might have been some inflow; I haven't checked the data, but it should be a little over 3%. So that's the composition we're looking at.

What you see is that foreigners are rallying in the Hong Kong market, and I think it was around the end of last week, probably on Thursday, when I thought I should take a look. Today, they might have entered again, and it's also a holiday. So, I'm mentioning that starting tomorrow, China will have a seven-day break. They will be contemplating what to do. The concerns we should have are more about how to approach the policies rather than any specific worries. The most important thing is that during these seven days, a rally has started. Those who have entered are likely feeling good, but those who haven't might be feeling anxious. In Chinese, there's a saying that refers to being on shaky ground, meaning that one can fall at any moment. So, in just a few days...

The biggest keyword is probably Taekong. Now, they are walking, but what kind of reactions do people in that Taekong situation have? Earlier, I asked the kids in the Chinese region, but they didn't respond. Oh, they must be too busy. The reason they aren't responding, in my opinion, is that they're all a bit out of it right now. Since they are the ones with shoulders to bear, I don't know if they are aware of what's going on. But the clear answer is that over a few days, there has been some kind of rebound. From the back end, we need to make a judgment, but as I mentioned earlier, if we are going to play this as a beta, then we need to do it that way. However, if we are trying to look at the alpha, the situation is currently all up in the air. As I mentioned, one market index is all around 20, 15, or 13. The Shanghai Composite Index's trading volume today is 500 trillion.

Our country's KOSPI is about 10 trillion. Yes, at a 50 times multiple, the daily trading volume is significant. However, it seems that Korea has dropped today. I believe that China's influence has been considerable. This is because we need to focus on increasing our stake in Chinese stocks and reducing our exposure to Korea. At this point, I want to emphasize that if you are considering this short-term, you need to be prepared to take risks. This is not easy. So far, as I mentioned earlier, if we look at the bigger picture, there are a few key points to note. China has prioritized production until now, focusing on manufacturing. Therefore, manufacturing has been thriving while the service sector has been weak. So, which has been more significant: exports or domestic consumption?

Exports, right? There are foreign sales, yes. So, if you look closely, the reason we can't shift from a market focused on foreign sales to domestic sales due to the United States is that it incurs systemic costs. The system is socialist, and while there is property belonging to the people, it is essentially property that has no connection to the people's wallets. Do you understand? Yes, I have a wallet, and I clearly see that, for example, PetroChina or companies like China National Tobacco Corporation or China Grid are all companies that seem like they belong to me, but I don't own any of them. Ah, yes, that's the kind of psychological emptiness that the people feel. That's right. And that reflects the nature of a socialist country. We use a legal term for this, which is piercing the corporate veil. So, this corporation is merely a kind of veil.

It's just a matter of the surface, but behind the surface, there are major shareholders, right? Whether it's the major shareholder or a key shareholder, clearly, according to their constitution, this belongs to the people; it's a state matter. So, the state has been receiving dividends all along. This means that no matter how well a company performs, the state takes 50% of the dividends, and the founder retains 38%. In China, among the 5,500 private companies, 1,000 are state-owned enterprises, and 4,000 are privately-owned enterprises. The private shareholders in these 4,000 private companies hold nearly 40% of the shares, which is extremely high. In the U.S., the highest share held by an individual is Elon Musk with 12%. This is because in the U.S., the distribution is more varied; it feels like the pension fund is mine, and what I own also feels like mine. However, that kind of distribution didn't exist in China, which is why there was no choice but to go all-in on real estate.

There was nothing, and the result of that all-in investment eventually led to the emergence of real estate after 1998. After going through 2015 and rising again in 2021, now the real estate in Beijing, China, is extremely expensive. This has ultimately tied the entire macroeconomy of China down, and now it is sinking into the water. Honestly, there is nothing that can change this situation. No, there hasn't been. However, some of the work done by their think tanks over the past four to five years is likely part of what I am discussing today. Whether this will come to fruition or not is not for us to judge. It is their judgment to make and their effort to undertake. But what is important for us is how the energy change brought about by this transformation will provide us with investment opportunities. So, at times like this, we should set aside our emotions regarding them.

Let's set aside any preconceived notions about what kind of energy this person will bring. If the energy changes, the profits will likely increase accordingly. This was part of my introductory remarks on YouTube, and for about a month now, I've had a feeling that it was time for change, which is why I mentioned it. However, it has come faster than I expected. 

As for the follow-up, the question is how we will back up our finances. I am the Minister of Finance, and the department that handles finances includes the heads of the financial supervisory authority we talked about earlier, right? There are the central bank governor, the head of the People's Bank, and the director of the Financial Supervision Bureau, as well as the president of the municipal government. These three people have been excluded; they've said all they need to say. If things go well, one of them might even become the Prime Minister. This is just my personal thought.

Now, we have a finance minister, and then there are the heads of the housing construction department and the commerce department. There are four departments that are primarily related to finance. Depending on the follow-up actions they take, we need to stabilize the housing market and resolve the issues with unsold properties. The commerce department is currently dealing with problems in the U.S. market, but there is also the issue of transitioning to Europe, for example, with electric vehicles and battery testing. Each sector has its own responsibilities, but in the past, there was a survival of the fittest mentality. It wasn't a systematic approach, so policies were somewhat disconnected. Now, it's unclear who is managing this situation since the Prime Minister is currently not visible. There is likely a think tank involved, probably led by the National Development Committee.

It seems that the Reform Committee is currently coordinating matters. This is because the Budget Committee has the final decision-making authority over all projects. Therefore, the projects we mentioned regarding local governments, as well as those that require approval for special government bonds that are submitted individually, fall under the approval authority of the Budget Committee. However, while the Budget Committee grants approval, the actual funding comes from the Ministry of Finance. So, unless these two work together, it won't be effective. Even if the Prime Minister has limited power, they are likely working hard on this. Additionally, each minister is preoccupied with their own issues and various responsibilities, which I can see since I am on-site. So, I was thinking about how to organize and explain this. This is what I wanted to convey today. If you want to hear more about this, you can check out the YouTube channel Shinhyung Kwan Shanghai Class.

Now, it’s continuously being updated, right? I think you will provide detailed updates on this. However, this is something we've been contemplating, so I’d like to ask a question. This year, and starting from last year, the U.S. has been in turmoil due to AI and has received a lot of attention, but what is China doing? The real estate market is still not good, so what are they doing? I've been pondering these issues quite a bit. As I observe, it seems they are strengthening their manufacturing sector. In fact, I was quite surprised by the automotive production numbers. The production capacity is 40 million vehicles, but if they can only consume just over 30 million, around 25 million, then what will happen to the rest? It’s a situation of excess supply, isn’t it?

It seems that there is excessive aggression, and productivity is improving, which makes me wonder how this is all happening. I believe that this actually helps China significantly with the stimulus package it is introducing this time. The discussion up until last week was about how China's push for overproduction would lead to deflation being exported, which would make things difficult for Germany and everyone else, causing companies to struggle. Given this situation, it seems plausible that they might say, Stop this, and you all need to consume a bit and not just keep everything to yourselves. Therefore, I think the background of China's recent policy is influenced by the global situation, including the United States, which doesn't seem to have any reason to reject this. This is the kind of thought I have.

I'll divide my remarks into two parts. This is a sudden question. Ah...

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소름이 아직도 가라앉지를 않습니다...중국 생활 20년만에 처음입니다⎮신형관 중국자본시장연구소 대표

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