China, Data and Market Analysis: An interview with Mu Chen

Mu Chen (陈沐) is the co-founder and Chairman of BigOne Lab, an alternative data company in China founded in 2016. He is also the co-editor of Baiguan.news, a data driven news service providing insights and on-the-ground analysis on a variety of current affairs and business topics. Mu Chen is a lecturer at Tsinghua University and an alumnus of the University of Virginia.

Q1. Please introduce yourself and tell us about your current interests.

I was born in China and spent my school years in Singapore and Virginia. After college, I started my career on Wall Street and at a data startup firm in NYC. In 2016, I returned to China to found BigOne Lab, an alternative data firm that serve institutional investors and corporations. In the early years of BigOne Lab, we focused on global investment funds and multinational corporations. Since 2021, we have strategically expanded our business development efforts to work with more domestic brands and investment firms. In 2023, we found that the information gap between China and the world had grown due to various reasons, so we decided to launch an information platform, baiguan.news, that shares more fact-based, native stories, insights, and reports on China. Growing up in multiple cultures, I am always humbled by the differences between cultures and how much can be done to bridge the gap. As we go through the questions, you may see that I would talk about the lack of understanding being the main reason for many challenges faced by those who want to understand China.

Q2. For someone operating within the Chinese market, what are the types of data and analysis that you find particularly valuable when trying to understand market movements and business activity?

China has become a highly digitized economy since the 2010s, and many of its activities have been digitized and captured by data. In 2019, the government also categorized data as a new production factor and launched initiatives to nurture a market system around data. We have seen business and investment firms using conventional datasets, including data from the National Bureau of Statistics of China, which are fundamental data. I think these would suffice. For specific industries, there is industrial data available. While a typical data due diligence process is needed to ensure the accuracy, reliability, and validity of the data, my firsthand experience is that there is so much more useful data available compared to what was available in 2010 when I was doing economic research projects on China.

Q3. There is concern from those outside China that getting access to data on China is getting more and more difficult. Do you see this happening and how would you advise parties trying to better understand China from a data perspective?

Given the increased amount of data available, I would dare to say that the amount of data available to global users is more than it was 10 years ago. My personal experience also supports this observation. However, I am also aware of recent reports about access to certain datasets being cut off. My partner and I have written about this. Our take is that this phenomenon mostly happens with data that were provided via questionable means. Simply put, the level of regulation in China is growing and catching up to other more developed countries, so data that was previously accessible may not be “that compliant” according to China’s compliance framework or the data compliance framework in advanced countries.

I can also empathize with the difficulty of accessing China’s data. One of the barriers is the lack of globalization. Many data providers do not build sites in English or other languages, making it hard to find data when one cannot read Chinese. Additionally, most of these providers require a Chinese phone number for verification. Chinese users do not feel the pain of these requirements, so they do not raise the need to providers. However, for non-Chinese users, this is definitely a barrier.

Q4. From your experience, how do Chinese onshore investors conduct research and what are the tools and resources they rely on to assess company/economic performance and risk? Is it fair to say that in the past there was an overreliance on looking for material non-public information (MNPI) as opposed to conducting fundamental research?

In the early years of China’s capital market, some onshore investors conducted their research and trading based on insider information. Some may have even collaborated with management to manipulate the market. In recent years, such practices have been reduced for various reasons. Firstly, compliance standards have tightened and higher penalties have been imposed by regulators. While it may still lag behind the most advanced capital markets in the world, China’s regulators have improved their regulations on unfair trading practices, including insider trading and MNPI leaks. Secondly, the pool of stocks has grown much larger, and institutional investors have grown much larger in their AUM. As a result, investment firms need to adopt a more sustainable and scalable research framework instead of ad hoc trading based on MNPI. It is simply not realistic to run a RMB 100bn fund relying on MNPI. Thirdly, the newer generation of portfolio managers and researchers at investors’ firms have been educated with modern research frameworks, so they would take that localized modern research method to their work.

Nowadays, large institutional investors rely on multiple sources of information, including company official reports, company visits, expert calls, and large datasets. The tools they use have grown in numbers and complexity. Some of my data firm’s largest local clients spend hundreds of millions on data.

Q5. One of the drawbacks from international coverage is that the sheer size of China makes analysis subject to generalizations. We see top-level unemployment or GDP numbers but do those data make any sense when trying to assess performance in specific industries or provinces?

You are correct that generalization is no longer sufficient for understanding China. Top-level numbers such as unemployment rates and GDP give us a sense of the overall trends, which serve as the background context for one’s investment and business decisions. However, when it comes to specific sectors and localities, things have become more complicated as China’s economy has grown from $1.2 trillion in 2000 to $17 trillion in 2021. To put things into perspective, an economy of this size is comparable to the aggregate of 3-4 developed countries, a dozen advanced developing countries, and a dozen developing countries. It is difficult to generalize; researchers need to identify the sub-market they want to investigate before conducting their research.

Q6. For many foreigners and urban elites in China, there is little understanding of the country outside Beijing, Shenzhen or Shanghai. What is happening in tier 2 and 3 cities and the less developed provinces? How would you characterize life and business activity in these less well-known places?

New tier 1, tier 2, and tier 3 cities are the sub-markets I referred to. The metaphor I have in mind is NYC vs Virginia vs Alabama, all of these places are in the US, but their consumers and economies behave differently. Adding to this complexity is the diversity of cultures in China. While we speak the same language and use the same apps such as WeChat, Alipay, Meituan, Pinduoduo and Taobao, Chinese people in different regions face different conditions. I won’t categorize them just by the level of development, but by the pockets of culture they are situated in, such as the Yangtze River Delta, Greater Bay Area, Greater Beijing Region, Northeastern Area, Middle Area, Western Area, etc. Within each pocket, there are premier cities and lower-tier cities, and the dynamics of each pocket are different too, depending on the roles each premier city plays. I have written a bit about this here. Having travelled to over 10 different cities in different pockets this year, I learned to adjust my presumptions about China. For example, Changsha’s residents have a high quality of life since housing prices are much lower than in other major cities, with an average price of RMB 10,000-12,000 per square meter. A young engineer can easily earn RMB 10,000-20,000 per month in Changsha, which means they can afford to buy a house in 2-4 years after working. This income-to-housing-price ratio is much higher in some other cities in China.

Q7. What are the economic or policy issues/reforms that are most important for generating the future growth of the Chinese economy?

We do not have the full picture of the economy. Having been back in China for 7 years, I am aware that my perspective is limited to what I see and read, and it is more limited compared to the top leadership who supposedly have the most information. Therefore, what we feel are important issues may not be as important when put into the big picture.

The central government publicizes what they consider to be the most important factors for the future growth of the Chinese economy in their key documents, such as the party congress reports, the five-year plans, the annual government work reports, statements from the Central Financial and Economic Affairs Commission, and statements from politburo meetings with scholars and industry experts. Local governments also publish their statements in response to these reports to indicate their strategies for economic growth. While these documents may be lengthy, once you learn how to read them, they are good sources of information for understanding what the government considers to be important growth drivers for cities, provinces, and the nation.

Q8. Please talk a bit about the youth of China. Growing unemployment in this group is a concern and while recent reforms like eliminating the Employment and Registration Certificate (就业报到证) are welcome, what do you think is key to helping young people find employment?

China is going through structural changes in its economy, so it is not surprising to see structural problems like youth unemployment. In the short run, the government has some reforms to help resolve the problems, including those you mentioned, as well as Hukou reform, re-training programs, public recruiting programs, and subsidies for hiring jobless candidates. According to our observations and data, we see that it is a consensus that a high youth unemployment rate is a problem for China’s economy. I am optimistic that it will be resolved since it is a publicized challenge. In the long run, however, I expect the high youth unemployment situation to subside as total newborn rates have peaked. It is valuable to combine a long-term perspective and short-term perspective when looking into China’s challenges.

Q9. As in many countries, politics plays an important role in the economy. For foreign parties trying to navigate China, there is often a lack of understanding of how politics works at different levels and confusion about which authorities are responsible for what. How do you decode or unravel these issues?

When I first returned to China, like other foreigners, I used to think of the government’s operations as a big black box. However, as I communicated more with government officials, I came to realize that they too are managed by performance metrics, such as unemployment rate, GDP growth, sustainability of the economy, and social stability (see my book recommendation for writings depicting the works of the government).

Researchers can identify the key performance metrics for different levels of government by reading their annual work reports and speeches by the heads of localities. Once we construct the KPI framework, we then add in the dynamics, which result from both top-down and bottom-up mechanisms. Local governments have their own focuses and incentives, and the central government has national goals. It is not a one-way street. For instance, when governments at different levels set their GDP goals, we see local governments announcing their goals before the central government. We do not know for sure, but it is likely that local government’s GDP goals were used as some sort of input. Another dominant dynamic is the “Line-Block” system, in which a government official is managed by both the head of the locality and the head of the ministry. Kenneth Lieberthal’s “Governing China”, though written in 3 decades ago, still explains this system well.

These dynamics will continuously be at work in the system. After we learn how to understand these dynamics, we will be able to understand how the system works better.

Q10. A challenge for China watchers is the constant flow of misinformation and poorly researched news stories that end up being circulated. China has not done itself any favors by restricting information access and kicking out journalists, but it has certainly become harder to separate rumors from truth. As someone in the data and media world, how do you navigate all this?

My short answer is this: do not take shortcuts.

The era where blind bets can work out is long gone. China is no longer growing in double digits, and its economy has become more sophisticated. Therefore, you cannot rely on traditional third-party news to “get a sense” to support your research. More effort is required to get the truth you need. On the other hand, much more information has become available in the Chinese media world. We have seen growth not only in the amount of information but also in the form of information, including data, video, images, social media, audio, and so on. If you can break the language barrier, the information world becomes much bigger. I believe that the launch of GPT or LLM tools can definitely help overcome such barriers. Once you have passed the language barrier, you will face a second challenge, which is the reliability of sources. To tackle this challenge, I recommend going back to the old way of cross-checking and finding 2-3 sources to calibrate the information.

I have built a list of WeChat public accounts, podcast shows, official websites, and Douyin video channels as my go-to sources of information. I am lucky to have access to engineering resources to optimize my digestion of this information.

Lastly, nothing beats first-hand field research. I have learned a lot by talking to business owners, professionals, officials, and residents from different cities.

Q11. Being labeled a “balanced” commentator is increasingly used as a criticism by extreme voices in both China and the West. The idea that thoughtful discourse attempting to see positions from both sides is unacceptable is clearly worrying. We see this in the West in the dismissive label “Panda Hugger”, but is there a similar trend in China for those seen as too “balanced” in their coverage of the West? How do you counter this?

We do not dwell on a particular perspective. Our focus is to provide valuable information as a bridge between China and the rest of the world. This is a conscious decision made by our team. Since we do not have an ad-based business model, we do not prioritize attracting as many viewers as possible or pleasing everyone. Instead, we prioritize providing value through information. We believe that carefully curated, fact-based information is valuable, especially in today’s world filled with sensational news. This approach is more sustainable for our business in the long run.

Q12. Apart from BigOne Lab and Baiguan, please share any favorite books, blogs, podcasts or other resources that readers could use to improve their understanding of the Chinese economy, current affairs, financial markets, etc.

I recommend a Chinese book by Xiaohuan Lan, an alumnus of UVA, called “Embedded Power: Chinese Government and Economic Development”. Xiaohuan is an economics professor at Fudan University. In this book, he applies systematic frameworks to depict the inner workings of local governments in China. He combines economic principles with the practice of China’s economic development, with a focus on local government investment and financing. The book provides an in-depth yet easy-to-understand discussion of China’s economic development, explaining the micro mechanisms of local government and their connection to macro phenomena. Xiaohuan also discusses China’s political and economic system, and how the government has promoted the establishment and improvement of market mechanisms, achieving economic miracles in a way that differs from the experiences of developed countries. My biggest takeaway from the book is that there are performance metrics driving the government, and once you understand these metrics, you can find ways to work with them.

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