Hi Pan --
Thanks for reading, and also for sharing your thoughts!
A few points:
- I strenuously disagree that betting or thinking negatively about the Chinese economy necessarily implies a view that the government will lose power. It is possible to observe slowing trade and growth and simply incorporate that into the range of estimates one uses for other things, for instance. An analyst doing work on a Chinese company would be foolish to ignore signs that the economy is slowing.
- The government appears competent and may well remain in power forever, but there are many ways to stay in power. I believe that the government will do all it can to support its domestic economy, but there are limits to government stimulus and the effectiveness of government interaction. I also question any investment thesis that relies on that degree of stability. History does not work that way. I suggest you read this [https://blogs.cfainstitute.org/investor/2014/07/09/elephant-vs-dragon-t…] from Harvard Business School professor Rawi Abedlal for some more color there.
- I agree with you that there isn't broad agreement about how large the Chinese financial system is. Where possible, all of my charts use official statistics provided by the Chinese government, which came straight from Bloomberg. Here [https://go.snl.com/rs/080-PQS-123/images/China%20banking%20report.pdf] is a 31 march 2015 SNL financial report which is undoubtedly derived from the same time series.
- Whether Gordon's estimate is on the high end or the low end for NPLs, the official statistics show an NPL ratio of .5%, which is somewhat on the low end :)
I'm not sure I follow your conclusion, but I want to stress that I didn't conduct this interview to exhort people to bet against China. The country is immensely significant to global investors and economic trends there are, on the surface, not good. Consider for a moment that an NPL ratio of 5% would be 10x the currently reported number, while still being a quarter of the aggressively negative estimate that you've found.
The country is immensely dynamic and there are doubtless many great businesses that are being built there today.
But in aggregate, its growth is slowing -- there is no credible disagreement on that point.
Cheers, all best, and thanks for reading --
Will