Financial repression isn't just about forcing institutions to buy government bonds. A key, subtle mechanism is making other asset classes less appealing. For example, implementing rent controls can remove the inflation-hedging quality of property, while high transaction taxes can deter equity investing, thus herding capital into government debt.

For D1 Capital, the primary risk in China isn't economic but political. The government's ability to arbitrarily influence resource allocation, punish successful companies, and eliminate entire sectors without due process creates an unacceptable level of uncertainty for capital allocators, regardless of how cheap valuations become.

China's narrative of national success is contradicted by a significant diaspora of its citizens—from millionaires and creatives to ordinary workers. This flight of human capital seeking stability and freedom abroad signals a fundamental precariousness within the authoritarian system that pure economic growth cannot solve.

China's policy to combat deflation focuses on cutting excess industrial capacity. However, this is deemed insufficient because the root cause is weak aggregate demand. A sustainable solution requires boosting consumption through social welfare, an approach policymakers seem hesitant to implement on a large scale.

China's economic structure, which funnels state-backed capital into sectors like EVs, inherently creates overinvestment and excess capacity. This distorted cost of capital leads to hyper-competitive industries, making it difficult for even successful companies to generate predictable, growing returns for shareholders.

China's campaign against "evolution" (excessive competition) is not a broad economic stimulus. It specifically benefits sectors like EV batteries, steel, and cement where state control or rapid market consolidation can restore pricing power and profitability.

With local government finances strained, there is talk of "deep sea fishing" campaigns where anti-corruption probes are used as a pretext. Officials target business people, sometimes from other jurisdictions, with the potential goal of finding wrongdoing that allows them to seize the company's assets and shore up their budgets.

The widely reported collapse of China's housing market is not an organic crisis but a state-directed reallocation of capital. By instructing banks to prioritize industrial capacity over mortgages, the government is deliberately shifting funds away from a speculative real estate bubble and into strategic sectors like microchips to counter US sanctions and build self-sufficiency.

While China's property collapse cratered its art market, a future recovery may be driven by tech billionaires becoming patrons. This shift from speculative property magnates to potentially more stable, genuine collectors could create a healthier, albeit different, market dynamic, breaking the previous link between art and real estate.