Peter Alexander

China Morning Missive (a bit of a long one) The China Starbuck’s saga has come to an end. After 25 years operating throughout the Mainland, with more than a decade of that a wholly owned business of the Seattle parent, the coffee chain is selling 60% of the entire local business to a Chinese PE group. This makes for a fantastic case study in (1) the speed of change in Chinese consumer preferences and (2) how failure is all but assured if corporate is unwilling or unable to delegate decision making to local management. Just as a bit of background, Starbucks entered China in 1999 via three sperate joint ventures. One in the north, one in the south and one in the Yangtze delta (aka Shanghai). The local partners bought to the table expertise in logistics and dealing will all sorts of uniquely domestic issues. Starbucks brought IP via training and how best to build a store layout for the greatest efficiency. It was a massively successful structure for all involved, but by 2011 the Starbuck leadership team decided to exercise its option to buy out the three JV partners for multiple billions of dollars. The China business was now wholly owned by the America parent. It was at around that time when China’s coffee culture not only witnessed rapid growth, but there also came a dramatic shift as well towards the boutique coffee experience. Chinese consumer preferences no longer wanted a large venue where you could sit for hours. Starbucks had also become blasé. Each location was the exact same as all others. Moreover, there was now competition in the convenience factor. Starbucks might have been everywhere, but so too was Manner or Luckin’ and these local rivals offered coffee at half the price of Starbucks. But what has proven to be the death kneel is Chinese consumers demands for a unique coffee experience. The number of small coffee shops has exploded throughout the major cities all offering different flavors of coffee and experiences. Starbucks either didn’t see the shift happening or – more likely – was too slow to react. As a wholly owned business, all decision making resided in the hands of layers upon layers of Seattle-based management teams. “We are here from corporate, and we are here to help”. By the time management recognized the shift in consumer preferences it was too late. The only solution was a return to the previous successful strategy of a local partnership. Selling 60% of the entire business though, no longer providing Starbucks with outright decision making, is a steep price to pay. My final point of this very long Note is that all of this is not an isolated case study. There have been numerous examples of (primarily) American corporations snatching defeat from the jaws of victory in China. The outcome has nothing to do with China and has everything to do with the speed of change in China and – for me most critically – limiting to authority of local management teams. Still, when these groups do end up “failing”, they will almost always place the blame on the China market. https://www.cnn.com/2025/11/03/business/starbucks-to-sell-control-of-china-business

China Morning Missive Late on Friday the news came out that the tax incentive for building gold would be removed. For years, I don’t even know how long, all gold purchases by households was not subject to a 6% value added tax. That is no longer the case. Then came all of the conspiracy theories. I grant you, the timing is odd. Still, for me its Occam’s Razor. Above all else, the north star for the Beijing leadership is stability. This is doubly so when it comes to financial markets. Unlike most major global markets, the Chinese retail investor is the tail that wags the market dog. Tens upon tens of trillions of RMB sitting in bank savings can tend to do that. Price action can get insane in any asset class once a degree of real momentum starts to build. Just look at last year when the PBoC came in on multiple occasions to warn investors of the growing risk in rapidly declining market rates. Risk off was only trade on the table for retail investors and with it fixed income exposure had exploded. Market rates cratered as a result and with it required the Central Bank to step in knowing the market move was unsustainable. They took action and made comments to calm investor’s enthusiasm. The same holds with gold today, in my opinion. There was the rapid rise and then the rapid reversal. Instability. Looking at what tools were available, removing the 6% VAT exclusion just made sense to temper investor’s “irrational” appetite. Might there be more behind the decision made? Of course, but I’m not seeing or hearing anything at the moment. We will see if that changes at all in the coming days or weeks. https://malaysia.news.yahoo.com/china-scraps-gold-tax-break-035229320.html

The entire TikTok “deal” will ultimately become a case study (the latest in a long list) for how the Chinese actually negotiate. It was a done deal last I heard. Seems not. Then again, nothing is ever done until the asset is firmly in the hands of the purchasing party. China says it’s willing to work with U.S. on TikTok — but offers few details https://www.cnbc.com/2025/10/30/china-says-its-willing-to-work-with-us-on-tiktok.html?__source=iosappshare%7Ccom.apple.UIKit.activity.CopyToPasteboard

China Morning Missive (Part II) The meeting has concluded and the details are now beginning to trickle out. What follows is nothing more than a quick reaction Note. As with everything China related, better to let events marinate a bit before jumping to any firm conclusions. First off, the fact that Trump jumped into his limo and went straight to Airforce One for a return trip to Washington was a surprise. I expected some sort of photo op and a press conference albeit held by Trump alone. To the latter point, that now seems to be underway but taking place on the plane. In terms of the meeting itself, it would look as though the outcome met with the broad expectations. The two Presidents ended up just discussing various issues while agreeing on only those few items which had already been reported on. My overall take is that China is holding firm on its overall position. Remaining firm, but also willing to concede on issues so long as the Americans fully reciprocate. The definition of quid pro quo. Critically though, Trump did not get his deal. I suppose, overall, that would be the main takeaway. It would also demonstrate just how great the leverage held by China is at the moment. Specific “asks” had already been made by China during the various bilateral trade talks. “Aggressive asks” as Sec Bessent noted during the Madrid round of talks. It stands to reason that these “aggressive asks” laid at the center of the meeting between Trump and Xi and the two men left with neither willing to give ground. Taiwan would have been one of those issues and I would expect the lifting of certain export controls by the United States was another such ask. Less about the Blackwell chips and more about China seeking the purchase critical machinery (ASML) to continue its own path towards chip production. Finally, going into the meeting Trump posted on social media that he had instructed his team to being a nuclear weapons testing program. China was specifically identified in that post. Additionally, and at roughly the same time, the Indo-Pacific command issued an order for a “show of force” in the South China Sea with the aim of thwarting Chinese “aggression”. No question that these two moves would have complicated the overall meeting. What does all this mean? No firm answers at this time. What should be expected though is more of the same. More bilateral meetings and that then means more stresses and more volatility.

Trump and Xi meeting has concluded. Appears as though there won’t be any Trump press conference. Now it’s just a matter of waiting for the social media posts from the President to begin circulating.

China Morning Missive Well, we just witnessed the opening salvo between Trump and Xi and it very much looks like the parties are both trying to play nice. The fact remains that all details of whatever will be ultimately decided in the now closed-door talks were agreed to in advance of this meeting. The Chinese so far are the only party where it is known what will be delivered. A suspension of the rare earth export controls and a meaningful purchase of soybeans top that list. It is also expected that a final agreement, signed agreement, for TikTok will also occur later today. Where focus needs to be centered now is on what it is the American side provided as deliverables. There seems to be a great deal of attention being paid to Nvidia selling Blackwell chips to China. I just don’t see that as even remotely possible. Given the Beltway blowback on the approval of H20 chips several months ago would mean an even greater upheaval in Washington if Blackwell chips were, ultimately, traded for agriculture and a social media platform. Then again, I could be wrong. For myself, it is all about Taiwan. While there won’t be any substantive agreement reached on the issue, I an expecting Trump to come out after the meeting where he will raise the Taiwan issue and do so in a way that will be viewed positively by Beijing. Just not sure of the wording which will be used. Will need to wait another hour or so when, as is typical, Trump will meet with the media. No joint press conference though. https://www.straitstimes.com/asia/east-asia/trump-seeks-trade-war-truce-with-chinas-xi-in-south-korea-talks

What a shit show of a week. Having to field even more than my usual number of video calls with American groups all of whom are freaking out over China. Can’t wait for this Trump/Xi meeting to finally be over.

China Morning Missive Well, there is certainly a great deal of positivity (again) from the latest round of bilateral talks between China and the United States. From what is being made public, the two sides have reached a “framework” of a deal with Trump and Xi signing off when they meet on Thursday this week. As Brad Pitt said in the move Seven though, “What’s in the box? WHAT’S IN THE BOX?” What concessions did the American side make? Up to this point what we know is the following. The TikTok deal is set to “close” on Thursday. China is preparing a “substantial” purchase of soybeans. Rare earth controls are to be postponed by a year. These are just the three larger key issues that we know of and are said to have been concluded. If China had all the leverage (which it did) and China has agreed to basically all terms, what has the American side agreed to? Thus far, Bessent is playing the game that China made concessions and with that America won’t be moving forward on the additional 100% tariffs which Trump had threatened. Nonsense. That’s Bessent providing cover to the media so that the actual details of what real concessions were made don’t need to be raised publicly. The obvious candidate would be China’s access to key technology. While I suspect that technology will be part of the American deliverable, the focus needs to remain on Taiwan. It’s always been Taiwan. I’ll also be paying close attention to the Typhoon missile systems in the Phillipines and the second installation that was placed just last month in Japan. I’m also expecting the two parties to publicly make an agreement over the future of nuclear nonproliferation. Just keep in mind that the Chinese don’t trust any verbal agreement with an American President (ironic tough that may be). All of what’s been agreed to, and I mean the real issues and not TikTok, will have had the Chinese press for a Fourth Communique. That takes time. My ongoing thesis is for Trump to travel to China in early 2026 and for Xi to travel to the States in early 2027. It will be on that US trip when the parties would sign a new communique laying out an agreement over how best to divvy up the Asia-Pac region. https://www.tradingview.com/news/cointelegraph:9188b06b6094b:0-us-treasury-chief-bessent-says-substantial-trade-framework-with-china-reached/

Here’s a flashback. 1996. The Shanghai Bund. Pollution has improved immensely.

The architectural contrasts of this city never ceases to amaze me.

I’m more obsessed with checking the hashrate than the price. For me it’s the only data point that matters.

It’s Friday and I thought the video below would provide some much needed levity. Have a great weekend people!! https://blossom.primal.net/27ab95e3bc2763d3e937c81f814e40bf902d1325fc77b16b8cf4ef09285f7404.mp4

China Evening Missive So the Chinese 4th Plenum has officially concluded and with it comes a somewhat lengthy and still quite vague summary of the next five year plan. First impression is that there’ll be a doubling down on technology. There are a host of other high level points made. For now though, expect everyone to be rushing out with hot takes. Treat any definitive conclusions made with a high degree of suspicion. Need to let it all marinate at least for a day. Will return at some point with my take on what it all might mean. https://amp.scmp.com/economy/china-economy/article/3330062/china-pledges-notable-progress-fourth-plenum-concludes-5-year-road-map

China Morning Missive Interesting to see that the latest iteration of the Deepseek AI model isn’t getting much attention in the business media. Thankfully there’s always Tom’s Hardware. There is trend becoming increasingly apparent. Given the ongoing restrictions placed on China by the American government, AI developers are having to create unique solutions to solve the issue of compute. Here we have just one example taken from the linked article. “Chinese developers of Deepseek AI have released a new model that leverages its multi-modal capabilities to improve the efficiency of its handling of complex documents and large blocks of text, by converting them into images first. Vision encoders were able to take large quantities of text and convert them into images, which, when accessed later, required between seven and 20 times fewer tokens, while maintaining an impressive level of accuracy.” Again, this is just one example and provides the sort of roadmap being used by all AI developers in China. Keep in mind as well that the Chinese models are all open sourced and, in nearly all cases, open weight as well. Iteration among the larger players, such as QWEN and Kimi K2, explains why these groups have been so aggressively quick with the release of enhanced models. The same, too, holds for the application of these of models. In the Deepseek example, Chinese companies ranging from automotive to logistics are finding ways to use the AI models to enhance overall performance in production and/or servicing. The primary objective here is to build for scale and in doing so provide actual usability and with deep cost effectiveness. A stark difference when compared to all the financial shenanigans taking place among the various American AI groups. https://www.tomshardware.com/tech-industry/artificial-intelligence/new-deepseek-model-drastically-reduces-resource-usage-by-converting-text-and-documents-into-images-vision-text-compression-uses-up-to-20-times-fewer-tokens

China Morning Missive When you miss the actual point, entirely. Not sure if you’ve heard the story of an individual among the Chinese trade team “going rouge” recently. Or as Sec Bessent said “had acted unhinged”. Well, it was reported that this individual was removed from his post. Have included a CNBC article for reference below. Technically that would be correct, but as I noted above, that also misses the actual point. Have personally seen this tactic a million times before. When negotiating with a Chinese party you can expect one individual to “go rouge” and that will typically take place at a point of heightened tension. The aim is to put the other side further off balance. We, in the west, would call this person the “bad cop”. This is purposefully done, and I would also add that the actions and approach taken will be what is consider “unhinged” by western standards. But here’s the point that I find to be hysterical. This individual was, yes, formally and technically removed from his post as Ambassador to the WTO and a member of the trade team. He was, also, promoted, returning to Beijing for a higher up roll in the Ministry of Commerce. He did his job. Did it well and effectively to advance China’s interests. The entire circus, and this event in particular, just shows how poorly Sec Bessent and his team understand the opposing side. https://www.cnbc.com/amp/2025/10/20/china-removes-top-trade-negotiator-from-former-wto-post.html

China Morning Missive So, it would appear as though I’m kicking off my work week with yet another “Xi Jinping coup” rumor. It never seems to end. Just last week the rumor mill was convinced that the man had suffered a stroke. The latest culling or a purge, or whatever it might be called, among higher ups in the Chinese military over the weekend has certainly fanned the flames. There’s also the timing of all this chatter to consider. There’s a rather big conclave happening at the end of this week, the so-called 4th Plenum and then, of course, there’s the APEC meeting the following week and an expected bilateral meeting with President Trump. A recipe with a handful of simple ingredients allowing for the imagination to run wild. Let me start here by making the following important statement. No one knows shit about fuck and that includes me. With that point out of the way, the question of Xi being removed by others in the Party has been asked of me for years. What follows is how I answer that question. Is it possible that Xi could be removed from power? Absolutely. No question and even more probable than some might think. In fact, there’s even a rationale for his removal, but it has almost nothing to do with power or politics. It’s all about money. A sharp fissure within the party occurred back in 2017 when Xi Jinping threw down the gauntlet stating that the Chinese economy would “shift from growth at all costs to quality growth.” This decision would reverberate far and wide threatening the “alternative sources of income” for millions of Party members, aka soft corruption. That decision resulted in genuine tension throughout the Party remaining very much present even after reaching a crescendo in 2022. Many won’t recall, but at that time there were also widespread rumors of a coup attempt. So, yes, it is certainly well within the realm of possibility that a change in Party leadership could occur. Do I, personally, believe that such an outcome will take place? The short answer is no. No matter what conflict might exist within the Party, nor how intense that conflict might be, there are two critical variables that need to be taken into account. First, the Communist Party of China abhors instability. There’s been no positive outcome over 5,000 years when there’s strife. Above all else, consistency must prevail. Removing Xi from power, even if meaningfully done with a degree of subterfuge, will knowingly run the risk of system instability. Second, real or imagined internal difference aside, the entire Party is operating under the premise of “changes unseen in 100 years.” The Party sees clearly that the post-WWII world order is breaking and in China’s favor. Beijing can gain real credibility just by standing still, doing nothing. Ousting Xi would be the opposite of that tactic and would be viewed as highly counterproductive. Who knows in the end though. For now, I’ll just leave this here and let you all arrive at your own conclusions. Do, however, hit me up with any questions or feel free (its encouraged actually) to press me on any of the points raised above.

Epiphany of the day. Those who can, can. Those who can’t, teach. Those who can’t teach, become Senior Fellows at some partisan Think Tank. I mean, seriously, what is with the explosion in the number of “Senior Fellows”? To sell one’s integrity for a paycheck is just beyond what my mind can comprehend. “It is difficult to get a man to understand something when his salary depends upon his not understanding it” - Upton Sinclair

Happy Friday from Shanghai

China Morning Missive Thought some of you might enjoy a peak behind the curtain when it comes to how certain key geopolitical decisions are made in Beijing. The example, here, centers on the Korean chaebol Hanwha. Earlier this week you may have seen the headlines of China sanctioning five US subsidiaries of Hanwha Ocean, the shipbuilding subsidiary of the conglomerate. Quickly the US State Department came out stating that the move was for the sole purpose of intimidating the newly elected South Korean President. The Chinese Ministry of Commerce, for its part, stated that the action was taken in response to Hanwha Ocean providing direct assistance to the US government’s 301 investigation into Chinese shipbuilding practices. Most, including myself, viewed the move as nothing more than a further jockeying for position ahead of the upcoming APEC meeting. Come to find out, there were other forces at play that resulted in sanctions being placed on Hanwha Ocean, namely the not so invisible hand of Elbridge Colby in the East China Sea. Not but a day prior to the sanctioning of Hanwha Ocean came reports that another subsidiary, Hanwha Aerospace, was preparing to sell a package of anti-ship missiles to the Philippine government “for maritime deterrence …. against Chinese aggression in the South China Sea.” How Mr. Colby comes into the story is rather straight forward, although I will readily admit this is more an exercise of connecting what I find to be some very obvious dots. In the role of Under Secretary of War for Policy, Mr. Colby has made a name for himself when it comes to the topic of “China is set to invade Taiwan by 2027.” Mr. Colby has been an extremely strong advocate for eliminating, or greatly reducing, the delivery of American weaponry to both Ukraine and Israel moving, instead, to the full-throated deterrence of China and defense of Taiwan. There’s been push back on Mr. Colby including a report from a few months ago that he had refused to sign off on the delivery of a new package of arms to Ukraine. Uproar ensued and within 24 hours his decision was overturned by Sec. Hegseth with Trump’s direct involvement. Basically, America’s (very limited) supply of weapons won’t be going to support Asian allies anytime in the near future. This is where Hanwha Aerospace comes into the picture. If the sourcing of weapons can’t originate in the United States, then the Department of War will act as a broker between allied parties. Pick up the phone, tell the Philippine President to expect a call from Hanwha and when the call comes in just say “send us the contract”. The Chinese response, as always, is mercurial. Never, and I mean never, will the Chinese state publicly any direct connection between one adverse external event and whatever decision is made in response. The motives, which are both clear and understood by all parties, will be raised via backchannels. If global media outlets wish to manufacture a storyline, well, that is of no consequence to the Chinese. This is just the way the Chinese play the geopolitical game. Subterfuge and misdirection in public with – when deemed of value – brutal candidness via informal networks. Quite different compared to the American straight between the eyes approach. This differing approach to diplomacy does go a great distance to explaining why Sec Bessent is losing his calm and cool demeanor. And to think, the Great Game 2.0 is only just beginning. https://www.navalnews.com/naval-news/2025/10/hanwha-eyes-philippines-for-anti-ship-ballistic-missile-sales/

My new mantra “Fuck You! Make me!”