US-China "truce", AI diffusion, China-Latin America, new M&A rules - Baiguan Radio #31

In this episode of Baiguan Radio, I speak again with Mr. João Philippe de Orléans e Bragança, a Brazilian macro hedge fund manager with long experience living and working in China, about how China is actually perceived on the ground in Brazil and across South America. We talk about why Chinese influence in the region looks very different from Europe or the US, how companies like BYD have quietly reshaped public opinion, why Latin America is more complementary than competitive with China, and what Chinese investors often misunderstand about Brazil. This is a conversation about perception versus reality, geopolitics versus everyday economics, and why Latin America is becoming an increasingly important part of China’s global story. João is a macro investor and a portfolio manager at Absolute Investments, Brazil’s largest hedge fund with $11bln in AUM. João lives in São Paulo, but has lived for many years in Asia, mostly in Singapore, but also in Shanghai, which he claims to be his favourite city. (Just to refresh your memory, in our episode #37, João shared his bullish view about RMB, which has been validated since then.)We are thrilled for Baiguan Radio to become a forum for all of you to exchange and debate your insights. So please find us whenever you have something to say.Table of Contents03:40 | How Brazilians see China today07:45 | BYD and China’s “Best Ambassador”11:20 | Fear of economic invasion13:15 | Why Brazil is attracting Chinese capital16:10 | Chinese companies in Brazil: reality vs narrative20:00 | Latin America and US–China rivalry25:00 | Services, technology, and the next phase26:55 | The biggest misconception about Latin America28:30 | Branding China abroad29:50 | The appeal of China’s education sector This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

After we published the last Baiguan Radio episode on RMB appreciation, we were approached by Mr. João Philippe de Orléans e Bragança, a long-time reader and listener of Baiguan, who would love to share his take on this topic as well.João is a macro investor and a portfolio manager at Absolute Investments, Brazil’s largest hedge fund with $11bln in AUM. João lives in São Paulo, but has lived for many years in Asia, mostly in Singapore, but also in Shanghai, which is his favourite city.We are thrilled for Baiguan Radio to become a forum for all of you to exchange and debate your insights. So please find us whenever you have something to say.Table of contents00:00 – 07:14 | Why RMB is appreciating07:14 – 13:49 | Why now?14:11 – 18:20 | How far can RMB go?18:20 – 22:05 | Do small currency moves matter?22:06 – 28:59 | Will RMB appreciation boost domestic consumption?29:00 – 33:26 | What are the implications for investing?Written Summary1. Why is the RMB appreciating?Joao’s starting point is not capital flows or short-term speculation, but valuation in real terms.His core claim is simple: China is cheap.Over the past several years, China has experienced close to zero inflation, while most major trading partners have gone through sustained inflation of 2–5%. This inflation differential has accumulated. As a result, China’s relative price level today is meaningfully lower than it was five years ago.“China is very cheap.”This cheapness is not about wages or nominal exchange rates alone. It reflects a real price adjustment that has not yet been fully reflected in the currency.A second supporting factor is real interest rates. While nominal rates in China are not high, near-zero inflation means real rates are positive. This contrasts with Japan, where inflation exceeds nominal yields, resulting in negative real rates. He also addresses the apparent contradiction between a large trade surplus and a weak currency. A strong export balance does not automatically translate into RMB demand because exporters often keep proceeds offshore, earn higher USD yields, or fund overseas expansion. As a result, trade surpluses alone are insufficient to drive appreciation.The key shift comes from the PBOC fixing. Since around May, the fixing has consistently hinted at tolerance for RMB strength. While subtle, this signal matters because it changes expectations.Once exporters believe depreciation is no longer a one-way bet, they reassess their choices.“I can make 4–5% in dollars. But if my currency appreciates 3%, it’s basically the same.”At that point, holding USD offshore is no longer an obvious dominant strategy. Behavior starts to shift incrementally.2. Why now?Joao also lays out several reasons why Beijing may accept, or even welcome, modest appreciation at this moment:* RMB internationalization has regained importance after geopolitical shocks and a long, strong-dollar cycle.* Industrial upgrading: a weak currency functions as a hidden subsidy. Allowing appreciation forces firms to confront margins, move up the value chain, and invest in branding rather than relying on FX.* External signaling and diplomacy: even a small appreciation is noticed by trade partners and can help alleviate the external pressure around trade imbalances.* US-China detente: Joao interprets the post-Seoul environment as offering a window to experiment without destabilizing expectations.3. How far can RMB go?Joao is explicit that this is not a call for aggressive or sudden appreciation.He introduces a useful re-anchoring framework:“7 pre-COVID is roughly equivalent to 6 today.”This reflects the accumulated inflation differential between China and its trading partners. In real terms, today’s RMB is much weaker than the headline number suggests.However, Joao does not argue that RMB should or will quickly move to 6.0. Instead, he frames something like 6.5 over roughly a year or two as plausible under stable or weaker USD conditions, emphasizing gradualism and control.The precise endpoint matters less, in his view, than the shift away from a one-way depreciation narrative.4. Do small currency moves matter?A central theme of the conversation is that incremental moves can have outsized effects.At the corporate level, many Chinese exporters operate on thin margins. Even modest currency changes can materially affect profitability, forcing firms to rethink pricing, cost structures, and long-term strategy.At the psychological and narrative level, Joao argues that headline numbers matter disproportionately.“The headline number — 6, 7, or 8 — changes the dynamics.”These numbers shape confidence, expectations, and international perception well beyond their mechanical impact. A move from 7.2 to 6.8 may look small on paper, but it can significantly alter how businesses, investors, and policymakers think about risk and direction, and can also affect people’s perception of the size of China’s GDP compared with the US.5. Will RMB appreciation boost domestic consumption?There is an argument that RMB appreciation could meaningfully boost domestic consumption. Joao is skeptical that RMB appreciation addresses China’s consumption constraints.His diagnosis is that China’s consumption problem is not primarily about goods prices or FX. The binding constraints are:* high precautionary savings,* weak service consumption,* labor market insecurity.“Consumption is not something FX can really fix.”He also notes that current policy priorities place greater emphasis on technology and autonomy, with consumption playing a secondary role.6. What are the implications for investing?The final part of the conversation turns to markets.For equities, the key implication is the removal of a major tail risk scenario — namely, a disorderly move toward USD/CNY 8. Even without large appreciation, eliminating that downside changes risk perception and compresses risk premia.For bonds, low nominal yields look different when combined with near-zero inflation and potential FX gains, improving their attractiveness to global investors.For spillovers, Joao suggests that a stable or modestly stronger RMB could be supportive for other currencies, particularly in Asia, though the effects will not be uniform. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

Welcome to a new episode of Baiguan Radio. Today, we welcome Johnny Zou of East8’s Newsletter again to talk about the very important question of the RMB exchange rate.The Argument for RMB Appreciation (00:00:16)The prevailing view is that the RMB is undervalued. This argument is primarily based on the trade and goods sector. Evidence includes the decline in China’s price levels relative to its trading partners since 2019, despite productivity growth. Appreciation is seen as a tool to boost domestic consumption and reduce international trade disputes. (For instance, as championed by Mr. Shan Weijian here)The Counter-Argument: Why Appreciation is RiskyJohnny presents two primary reasons for his skepticism that the RMB should appreciate right now:1. The Financial Flows Test (00:03:47)If the RMB were allowed to free float and the capital account were opened, the currency would likely depreciate. This is because a large amount of Chinese onshore money is currently “trapped” and would flow out to invest in foreign assets. This underlying psychological reality of Chinese households—selling houses and moving money overseas—is the reason a true free float will likely never happen.2. The Financial Assets Angle (00:04:46)The argument for undervaluation is incomplete because it ignores the financial assets side of the economy.* Real Estate Dominance: Chinese household wealth is overwhelmingly tied up in real estate, which accounts for up to 59.1% of residents’ assets.* Overvaluation: Compared to the income of Chinese residents, real estate is still hugely overvalued.* The PBOC’s Balance: The current stable exchange rate set by the People’s Bank of China (PBOC) is likely an equilibrium position that balances the undervalued trading sector with the overvalued, correcting real estate sector.Conclusion on Valuation (00:17:10): The RMB is undervalued for goods/trade, but potentially overvalued for financial assets/real estate.Additional Headwinds & Policy AlternativesYield Differential (00:14:47)The substantial gap in sovereign bond yields—where US Treasury yields are much higher than Chinese bonds —makes a strong short-term case against RMB appreciation, as the US Dollar remains the major reserve and trading currency.Trade Imbalances (00:20:49)If the RMB is unlikely to appreciate significantly, trade imbalances (which are driving much of the appreciation call) may need to be addressed by industrial policy. The core issue preventing Chinese exporters (like EV companies) from raising prices is intense regional competition among Chinese provinces, which discourages any single region from making the first move. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

Welcome to Episode 35 of Baiguan Radio. Today, Robert had another chat with Johnny of East8’s Newsletter again to talk about several important issues including:[01:00] Anti-involution campaign: a new policy paradigm[14:00] Childbirth subsidies[19:25] The new mega project in TibetCurate Transcript: Key Viewpoints and InsightsThe Anti-"Neijuan" (Anti-Involution) Campaign: A New Policy Paradigm[00:01 - 00:03]China is experiencing an unprecedented shift in economic policy with the emergence of "anti-neijuan" (anti-involution) as a major government focus. The term "neijuan," originally internet slang describing excessive competition that leads to squeezed margins and deflationary spirals, has now made its way into top-level policy documents and become a key governmental priority.This campaign is visible across multiple industries. In the solar and steel sectors, authorities are actively addressing overcapacity issues. The food delivery market provides a particularly striking example: major e-commerce platforms like Alibaba and JD.com recently engaged in an intense subsidy war to compete with the dominant player Meituan. Just days before the podcast recording, these platforms issued what the hosts describe as almost a "truce," agreeing to pause their subsidy war. As Robert notes, "it's as if there's an invisible hand behind all of these, just pushing the spirit of anti-neijuan from all corners," which he calls "pretty unprecedented."Central vs. Local Government Dynamics Drive the Problem[00:04 - 00:06]Johnny provides crucial context explaining that the over-competition problem stems from misaligned incentives between central and local governments. He points to President Xi's rare direct criticism, noting that "whenever local governments started to invest right now, it's always AI, electric vehicles, or data centers." This represents unusual transparency from top leadership about policy coordination failures.The root cause lies in local officials' promotion incentives. Johnny explains that "in the past, different local governments, their officials trying to get promoted or considered the KPI to be related to these industries that are hot such as AI, EV, and et cetera. And so it's very natural for them to expand the capacity locally to develop these industries." Meanwhile, "the central government has very little oversight or industrial policymaking to actually persuade some of the provinces not to get into these industries."Johnny emphasizes that individual companies aren't the villains here: "The companies are just doing what they could to compete in the market... these individual actors are acting very rationally. It's only because the government is not doing the right policymaking in the past, and now they're trying to make up for it."Implementation Challenges: The Prisoner's Dilemma Problem[00:07 - 00:10]The transition from a production-focused to a balanced economic model faces significant structural challenges. Robert observes this represents a fundamental shift for China, coming "from an era of scarcity, so everything is scarce, so it's better just to produce more. But then there's danger in that."Johnny identifies the core implementation challenge using game theory: local governments face a prisoner's dilemma where "if you are the only actor that cuts in this game and the other provinces continues to produce, then you are the one to lose." This creates a coordination problem requiring "a centrally coordinated effort trying to limit the amount of production for all the provinces in order to make this work."The EV industry exemplifies these difficulties, with Johnny noting "the damage is already done. There's just been too many EV manufacturers in China, and the over-capacity issue is just gonna stay on for quite a while. Once the market competition started, you cannot turn it off." Different industries present varying levels of complexity - while food delivery involves only "three to four actors," making coordination more feasible, the EV sector is "much, much more complicated in terms of trying to slow down the production or limit the overall capacity."Market Response and Investment Outlook[00:11 - 00:14]The anti-competition campaign has generated positive market sentiment, with capital markets experiencing what Robert describes as a "mini bull market" because "anti-neijuan, anti neijuan is great for capital holders." However, Johnny provides a measured perspective on market prospects.While acknowledging that "the overall index has been up 30%" in Hong Kong markets this year, Johnny notes this comes "from a very low base." He expresses cautious optimism: "I wouldn't call it like it's gonna go down right now. I just also don't think so. I think it's gonna stay at the current level, maybe up a little bit, maybe down a little bit to the end of this year."For sustained market growth, Johnny believes "you do need to have some more policymaking," pointing to recent birth subsidies as an example of the type of demand-stimulating policies needed.Birth Subsidies: A Demand-Side Policy Shift[00:14 - 00:19]The government has introduced a new birth subsidy program providing 3,600 RMB annually per child, which Johnny considers "quite significant" because it represents "a blanket subsidy" rather than previous policies that only covered second or third children. This universal coverage means "a lot of families getting subsidized" including those who "just have one kid and initially they're not getting covered in this scheme."While the amount may seem modest - Robert notes that "for people in the bigger cities, it actually doesn't mean anything, but maybe in the smaller places it actually means a lot" - Johnny sees it as "just a start" with potential for local government competition to enhance benefits. He anticipates "some local measures taken out just to promote their individual localities further" and suggests "longer maternity leave or even paternity leave for families" as more impactful future measures.The Tibet Hydropower Project: Technological and Geopolitical Significance[00:19 - 00:26]The announcement of a 1.2 trillion RMB hydropower project in southern Tibet represents both technological achievement and strategic positioning. The project, designed to produce three times the energy of the Three Gorges Dam and equivalent to "almost about 20% of the power production in China," will create a new state-owned enterprise specifically for its management.Johnny explains the project serves dual purposes in "the race for productivity" including "data centers and AI" which are "heavily conditioned upon if you have enough electricity to power these," while also addressing "geopolitical reasons" in a region with "territorial dispute between China and India." By placing major economic projects there, China demonstrates it's "very determined to at least be involved in this matter."Robert highlights the technological breakthrough this represents, explaining that unlike traditional dams, the project will involve "boring into the mountains" with "several gigantic tunnels" to create underground waterfalls for power generation. He notes that China only recently achieved technological independence in tunnel boring machines, which are expensive, single-use equipment that "have to be scrapped" after each project. This represents "one of the many technologies that China have obtained and perfected over the last few years, which make this kind of project possible." This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

For a curated, reader-friendly transcript, read here.Highlights[00:56] US-China "truce" and the aftermath[09:31] Roll-back of Biden's AI Diffusion with warning letters against China[19:28] China and Latin America are getting closer[24:59] The new rules encouraging M&A activities This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

[01:16] US-China trade talks[08:06] US-UK trade deal and rewiring of global trade systems[09:39] India-Pakistan air combat and the role of Chinese weapons[16:45] Victory Day parade in Moscow[19:38] New stimulus policies in China[25:40] CIA’s promotion video[29:36] April’s surprisingly good trade data This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

[01:23] China’s openness to talk about tariffs[12:18] Top leadership on AI[19:24] “Five-Year Plan” as China’s industry policy and the upcoming 15th FYP[27:01] China lifted sanctions on the EU’s MEPs, paving the way for a bigger China-EU deal?[31:05] Labor Day holiday crowds This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

Welcome to a new collaboration episode between Baiguan, Zichen Wang of Pekingnology and Johnny Zou of East8’s Newsletter. It has been several weeks now since we shared our thoughts on the important events of the past week. In this episode, we cover: [00:41] Robert’s experience of publishing an opinion piece on the New York Times discussing China’s resolve in the trade war.[06:32] Significance of China halting Boeing deliveries[8:08] Jensen Huang’s China visit: Is it a slap on Trump’s face, or is Jensen actually the “go-between”?[17:13] Bloomberg’s story about China’s willingness to talk, with certain preconditions. How true is that?[19:14] Reshuffling of top China’s trade negotiator: what does it mean?[21:00] The end of “high-sea fishing”?[29:05] Xi’s Southeast Asia visit This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

Welcome to another collaboration episode between Baiguan, Pekingnology’s Zichen Wang and East8’s Johnny Zou. Highlights[3:30] Did Trump plan for all of this?[12:42] Optimism about China-EU relationship[21:06] Pessimism about China-EU relationship[23:10] Will China see Trump’s “electronic exemption” as a chance to soften its stance?[27:13] Who in the Trump team can actually call the Chinese side now?[30:31] The hope for China’s domestic demand policies[35:11] What’s the right policy to boost domestic demand?[39:58] Where does the money to boost domestic demand come from?[47:01] Are Chinese assets in the US in danger of confiscation? This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe

This week, Zichen Wang of Pekingnology and I are joined by Johnny Zou, a leading Hong Kong-based venture capitalist who also writes at East8’s Newsletter (#97 rising business Substack right now, previously known as MJ Finance). We discussed last week's most important news item: Trump’s tariff war and its implications for China.Highlights[00:46] Tariff, first impressions[09:46] Is the US underestimating China?[15:00] How would middle-powers from Japan to Vietnam respond?[22:44] Will China have closer integration with the rest of the world or more trade friction?[29:27] Investment strategy post-Liberation day[35:48] How will this affect China’s domestic demand[40:02] SCMP’s science reporting[40:54] Johnny: We shouldn’t ignore RCEP, which could be important for this tariff war This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.baiguan.news/subscribe