From our country's perspective, easing consumption to some extent is the way for us to survive; otherwise, everything will just flow out. It may get hit a little harder for a while. From my viewpoint on stocks, the strong performance of bonds feels somewhat unstable. The Chinese government seems to be approaching a decisive moment; we are nearly at a critical point. How many companies are ranked first globally? It’s like asking which sports are winning gold medals in the Olympics. In our manufacturing sector, we should be able to say we are number one. However, from what I've seen recently, CATL is incorporating AI, and I’m shocked at how dramatically productivity is improving. The degree of improvement is quite significant. They are successfully transitioning their growth model and are excelling in manufacturing. China is no longer just the world's factory; that notion seems completely incorrect.

At this rate, it looks like China will become the world's factory. The ripple effect of this is likely to be significant, which is probably why it's being described as a daunting industry. It would be great if you could mention the current state of affairs. 

This refers to China's penetration into overseas markets by industry or product category. At the forefront, we see solar energy and LCDs, where China has completely taken control. Once supply issues are resolved, they will have a firm grip. There are also various industries and products that are trying to catch up from behind. 

From my perspective, the Chinese government prioritizes employment, but it's not just that. When considering employment, overseas export market share, self-sufficiency, and intermediate goods together, I think they will feel quite proud of the charts you see now, as they continue to expand and gain market share overseas.

When looking at the issue from a national perspective, the primary concern is that, for countries like South Korea, Taiwan, Germany, and Japan—export competitors—it seems nearly impossible to completely contain China through tariffs or other means. Given the openness of markets outside the United States and the strategies employed by these countries, the situation appears quite threatening. While we cannot discuss every industry, it is important to note that, currently in China, through subsidies and support, or in recent years via manufacturing loans, there has been significant investment in intermediate goods and capital goods. Notably, this includes semiconductors and semiconductor equipment, AI, and, of course, the electric vehicle battery sector, along with various industries related to new environmental technologies. Additionally, there are ongoing restructuring efforts in shipbuilding and materials industries, focusing on companies within those sectors.

As we are increasingly focusing on overseas expansion, it seems that at a national level, we are not becoming a consumer country like the United States. Instead, we continue to adopt a manufacturing strategy from the perspective of a follower. This has recently become evident. Individual companies are struggling; their margins and profits are facing pressure due to low-cost competition both domestically and internationally. In an attempt to compete on price, they are continuously lowering their unit prices, which inevitably harms their profits. Unfortunately, even companies that we recommended investing in, which are leading firms in manufacturing, have seen their stock prices decline significantly. However, when we look at their overall R&D efforts and the subsidies or loans they have received, the speed at which they are expanding is quite alarming. This situation is becoming a serious concern for our country.

I think we are in a situation where we are continuously being held back. However, China is now emerging in this way, meaning that while consumption is not increasing, productivity is improving, manufacturing competitiveness is strengthening, and supply overcapacity is deepening, leading to worsening deflation. It creates a situation where products cannot avoid being released into the market. 

From our country's perspective, it would be ideal for China to change its supply strategy at this second stage to effectively address the supply overcapacity, or to significantly stimulate demand. However, in my view, both consumption and investment will take some time to recover overall. In this stage, when we look at what we've purchased, it seems they have already moved beyond supply overcapacity and are entering an initial phase of restructuring or are considering subsidies.

It seems that we can only strategically look for industries where there can be a somewhat fair competition. Industries like shipbuilding, solar energy, and batteries are all determined by the pace of restructuring in the leading sectors. Therefore, it's difficult to assess demand. We seem to be in a situation where we can only find ideas from the stories of these industries failing or changing their strategies. In the past, it seems that the actions and strategies of China received a lot of applause worldwide. Since the 1990s, people have been saying, Wow, they can produce goods so cheaply. Well done! There was a sentiment that Japan had fallen behind, and China was the new focus. That was nearly 20 years ago. Now, it seems that the world no longer desires to produce things even cheaper, as we are all struggling.

It's too serious, so the fact that we're talking about a 100% tariff represents the situation we're in. Both Europe and the United States are in a similar position. As for China, I wish the reports would stop coming in. But if this continues, what will happen in the end? This is just a different topic, but I've asked everyone I've met about their thoughts on the U.S. presidential election. They all acknowledge that the relationship between the two countries has crossed the Rubicon, and it's difficult for the political systems or regimes to get close like they used to. Regardless of who wins, it seems everyone believes that the so-called anti-communism mode will not change. Interestingly, about 15 people I've met generally say that they would rather have Trump. The reason I bring this up is to ask why they think that.

I think that customs duties will be set high initially, and there will be significant fluctuations. However, based on past experiences, there seems to be some room for negotiation. Secondly, it appears that the area China is most cautious about is Europe. As for the United States, it seems that the situation there is already somewhat lost. The overall exposure of Europe and its stance are very important. If Trump is elected, he might shake things up a bit, potentially in a traditional ally format that could lead to stagnation. Biden and Harris's strategy, on the other hand, seems to have a tendency to take some risks, which could create some gaps in the relationship with Europe. It seems that the financial sector has some expectations regarding this. Regardless of the outcome, the risk indicators suggest that Trump will likely be somewhat aggressive in the first half of next year, and starting in the second half, there may be some room for negotiations on both sides.

However, the strategy that China is currently adopting for the next three years will still focus more on production and advanced manufacturing rather than consumption. This will involve continuous cost reduction and value-for-money strategies to offset tariffs. Therefore, the notion that China will inevitably lose seems to increase the likelihood that countries like South Korea, Taiwan, Japan, and Germany, which are pursuing similar strategies, will face significant challenges in restructuring their value chains.

Next year, I believe it will be important to closely observe how China sets its growth targets and formulates its five-year plan. It will be interesting to see whether China will retreat and continue to strengthen its capabilities while engaging in a strong competition, or if it will truly embrace a confrontational approach. These two possibilities will likely become clearer next year, and one surprising aspect is that many people in China...

The economic growth target is not just a simple number. China has set its growth target for this year at 5%, and there is a lot of discussion about whether this will be adjusted downward next year. What this means is that the market is not reacting to short-term stimulus measures; rather, this year, China's growth seems to be around 4.7% to 4.8%, making the 5% target quite difficult to achieve. If the growth target is missed, realistically, I believe that based on current leading indicators in the real estate sector, a target of 4.5% might be more realistic. If that is the case, what does it imply? China has a long-term goal of doubling its GDP by 2030, which is a significant and ambitious target. The years 2030 and 2049 are critical points for China.

Then, the CAGR needs to consistently reach around 4.6 to 4.7 in the future. Lowering it to 4.5 next year essentially means we are pulling down our long-term goals. We are showing that even if we struggle for three to four years, we will pursue a strategy focused on the sophistication of manufacturing and aiming for first place in the Olympics. This is represented by the 4.5% target. However, if we aim for the same 5% next year, it suggests that the Chinese government may be looking more towards fundamental policy directions or stimulus measures. Therefore, it is important to closely observe the realistic difference between the proposed 4.5% and 5% until the National People's Congress in March next year. This applies both to domestic companies and in our perspective on China. We already understand that the situation is not good, and if it continues to decline, it could mean that President Xi Jinping is advocating for a downward leveling.

I will continue to pursue my own manufacturing industry, even if it is difficult for now, while developing my skills. My support base mainly consists of middle-class and lower-income individuals, and I intend to show that I can progress steadily in a modest manner. This could be a representation of 4.5%. On the other hand, in the case of 5%, realistically, the central government still has some funds, which could provide an opportunity to push harder. Therefore, it is important to closely observe the growth targets for next year. Additionally, starting next year, China will set its new five-year plan. As you know, China has been focusing on increasing self-sufficiency in intermediate and capital goods, emphasizing that they will produce everything themselves. They also aim to strengthen their capabilities in sectors like semiconductors despite the pressures they face.

In the five-year plan, we might unexpectedly need to adjust our strategies a bit. For example, since we are taking some time, realistically, we might need to develop other industries as well. In other words, we may have to undergo structural adjustments in industries like batteries or solar energy, which are currently facing oversupply. Given that we are in a situation where there is no money, particularly in local government funding and subsidies, it might be practical to reconsider the industrial plans in the five-year strategy. When looking at the competing industries domestically, this could serve as a meaningful opportunity for reflection. The reason I am sharing this somewhat seriously is that if you look at the recent bond rates in China, they have dropped to 2.04%. It's hard to believe, considering that China's growth rate is around 5%. This refers to the long-term government bond rate for 10-year bonds in China.

The long-term U.S. bonds are not as active as in the past, and now the international 10-year bond rates have recently nearly matched those of Japan. Japan and China's interest rates are converging, creating a sense of generational difference. China has announced a growth rate of about 4.5%, but this assumes a deflation rate of over 2%. Given the current situation, where the deflator is negative, the bond market seems to be in a bubble. When I visited recently, I met with people managing Chinese bonds. The bond market had been in a bullish phase, which is good, but there are challenges here as well. The money is all stuck in the banking sector, and it’s not easy to find safe margins or additional methods for managing this money. Currently, all the money is flowing into bonds, which are defensive and consist mainly of bond-type assets.

The problem is that there is some overheating, but what is certain is that the reason interest rates have dropped this much is that the strategy presented by the Chinese government itself may lead to a further decline in domestic demand, and prices are expected to be lower. There is no confidence in the long-term strategy, which is why interest rates continue to fall. The fact that long-term interest rates are decreasing indicates that there may still be some aftereffects. Therefore, I am currently watching for long-term bond rates to stabilize or rise to some extent. Given this situation, it seems that the Chinese government is approaching a point where a decision needs to be made. If they continue to stimulate manufacturing with a chasing mindset, the characteristics of the Chinese people may lead them to tighten their belts even more, saving money as they did in the past.

Survival instincts are present, right? Yes, yes. If you meet individual Chinese people, you will find that they are all diligent and save money. In a way, the citizens are living like that, and it seems to be a very important time to strategize. From our country's perspective, loosening consumer spending is a way for us to survive; otherwise, everything will spill out. Yes, yes, it’s just being hit a little harder. Next year is going to be very important; we are almost at a critical point. I really believe that. From my perspective as someone who looks at stocks, the strong performance of bonds seems a bit unsettling. If the yield on Chinese 10-year bonds is in the low 2% range, would you believe it? When you hear something like that, you might think, Is it really that low?

If you think about this from the perspective of the Chinese government, they might be wondering why they aren't borrowing even with rates in the low 2% range. It could lead to pressure on them to borrow and do something, given the current situation. The shocking thing is that the decline in China's ROIC and ROE investment returns has been faster than the drop in interest rates. In the last three years, actual interest rates have continued to rise, with inflation dropping being a prime example. The investment returns for the companies I invest in, looking at ROIC and ROE over the past four years, have decreased at a very rapid pace. Since the speed of the decline in interest rates has been slower than that, it's only natural that they can't find anything to invest in, leading to a situation where they are just standing still. But if you wonder why they don't realize this...

I don't know, but I guess they are currently in the process of making it. In the past, considering the low birth rates in Northeast Asia and how Korea has been copied and followed in various ways, Northeast Asia has spent a lot on real estate, healthcare, and housing, leading to significant polarization. We've studied these issues extensively. From China's long-term perspective, in order to prevent this, they need to control real estate. If they manage real estate, local governments and many enterprises in China that have been flexing their financial muscles will inevitably have to reduce their debt in a process of deleveraging. Finding investment opportunities in this process is not easy. So, it's a different topic, but as I'm filming here today, the Hong Kong stock market is rising. When I went to China recently, I mentioned that Hong Kong stocks seemed to be something worth investing in, which is quite ironic.

You mentioned Hong Kong stocks because big tech platform companies in China have faced significant pressure over the past three to four years, especially Alibaba and Tencent, which have been regulated in terms of gaming and platform businesses. I believe that this regulation has essentially come to an end, and instead, there is a shift towards easing restrictions on these industries. The perspective of foreign investors may differ, but locally, there have been discussions about focusing on blue-chip Hong Kong stocks. The government seems to be creating an environment conducive to investment in these sectors, and entrepreneurs also need to find ways to adapt. The venture capital industry, for instance, has been struggling, so to foster growth, the government may have to loosen restrictions primarily on platform companies. However, if they continue to restrict these platform companies significantly, their profitability will also be impacted.

It doesn't feel like the past, and there aren't many businesses that can be pursued, but currently, there are opportunities in the local market, especially looking at big tech platforms. I recently saw a game that was incredibly successful; it was just unbelievable. Many people around us were saying how well it was made. It seems that there are opportunities in the gaming sector in China, especially for those listed in Hong Kong. The stress seems to have shifted a bit. Yes, the Hong Kong stock market mainly has consumer stocks, big tech platforms, and gaming stocks. In contrast, the mainland is more focused on manufacturing, with companies like CAT and BYD making up 70%. So, while the mainland is centered on manufacturing, Hong Kong focuses more on services and the internet. Of course, we also feel embarrassed and sorry about the regulatory backlash that has occurred in that area.

For years now, looking at Alibaba's stock price really makes me sigh. From a local perspective, it's disappointing that companies in the private sector are pushing firms like Tencent while the smaller companies are feeling quite suppressed. It seems like they're once again favoring platform companies. Just a few years ago, the gaming industry was thriving, but recently, it's been quite the opposite. They made a big splash, especially with console games, and the results have been concentrated there. Now, it feels like a win-win situation, almost like a medal-winning moment. This time, the regions that opened up were tourist spots in China during the recent Chuseok holiday. So, this naturally boosts travel consumption, which is to be expected, especially for the struggling industries.

완전히 거꾸로 돌아가고 있는 상황이죠. 우리나라 입장에서 보면 부러운 부분도 있고요. 현재 이 주제가 오랜만에 다시 주목받고 있는 것 같습니다. 무서운 산업이라는 주제를 가지고 한 가지 더 질문드리고 싶은데요. 이 영상을 보시는 분들은 투자의 관점에서도 보시겠지만, 국내 제조업에 종사하시는 분들이라면 더욱 관심을 가질 수밖에 없는 주제입니다. 중국이 이대로 간다면, 우리는 지금 사업을 어떻게 해야 할지 고민하고 계실 것 같아요. 이 상황을 어떻게 바라보면 좋을까요?

중국이 계속 이런식으로 나오면 한국 기업 다죽습니다⎮김경환 하나증권 파트장

효친님들을 위한 바이사이드 애널리스트 이효석 매니지스트입니다. 
운용 경험을 살려서 변화된 세상에서 생존을 위한 투자전략을 리서치하고 있습니다.
비즈니스/광고/협업 문의 : contact@hs-academy.kr


중국이 계속 이런식으로 나오면 한국 기업 다죽습니다⎮김경환 하나증권 파트장

Scripts