2022-08-26

 
Research published by Blue Lotus Research on August 22, 2022





 
(13 Pages, 15 graphs and tables)
Listen to analyst’s audio summary
  • Investors must realize the old paradigm of US technology + USD capital + Chinese consumer has perished for good. In its place emerged two new paradigms: (1) US technology + USD capital + non-Chinese consumers; (2) Chinese technology + RMB capital + global consumers;
  • While we remain closely observant on the first, we believe investors must pay due attention to the second paradigm. Our top picks are NetEase, Tencent, ACMR, Nio and RemeGen.
 
In a global rivalry each will eventually play its part
The decoupling of US and China is about decoupling of US technology and US dollar capital from China’s consumer market and labour force. Each party will eventually play its trump card, which means China’s denial of US technology and US dollar capital will eventually occur, as the reverse is already occurring. For investors it is of no use to cry over spilt milk, but to embrace the new opportunities.
 
The first steps are very difficult
Our coverage of SE Asia and Japan Internet revealed a painful fact, which is, a gigantic market of middle-class consumers like China is a once-in-a-life-time phenomenon. Similarly, our coverage of semiconductor and innovative drug industries also revealed a painful fact, which is, the difficulty of reinventing the wheel in global technology, financial and cultural states of the art is breath taking.
 
But there are silver linings as we see even today
For the past decade Chinese Internet companies tried low-income emerging markets as their “preferred terrains” where they believe they can take on the US juggernauts and win.  Such theory and practice are broken. The successes of TikTok, SHEIN, miHoYo and J&T Express showed alternative ways. Leveraging the hard target of Europe to achieve carbon neutrality, Chinese electronic vehicle (EV) makers are going for the European market. We also see China’s size and sovereign control offering a consistent base for stable advancement in fields like innovative drugs and semiconductor.
 
Chinese Internet will catch up with the US in globalization
Chinese Internet companies have severely lagged their US counterparts in globalizing their business in the past decade. (TBC)

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