November goes whooshing by: FTX, China, stuff.
So November whooshed by and we're already into early December (and the last month of 2022!). I have not been writing over the last week partly because I was following (too closely!) the protests and movements in China over the period of 24 Nov to 28 Nov and partly my weird hours doing late shifts for the World Cup at my 2nd gig and finally just slacking off spending time on YouTube/Netflix.
November 2022 was an eventful month: earthquakes, volcano eruptions, Russia withdraws from Kherson, FTX collapse, FIFA World Cup, MANU goes on sale, China Covid Protests, markets go up, markets go down. But though some of the events occurred in November, they were really a long time coming and the culmination of months of activity/cooking/fermentation. I'll put down what I noted along the way on FTX and China Covid protests since I followed that abit more closely.
FTX Collapse:
We have the FTX crash for which bankruptcy proceedings are still ongoing and SBF is still trying to do a media/PR spin on things. But really, it's still fallout from the Luna collapse in April 2022 and the subsequent market fallout and what looks at best to be negligence and at worst to be fraud - it remains to be seen as the Chap 11 Bankruptcy unfolds. A lot of others have done reporting on this both on Twitter and also in some of the MSM (some well, some more poorly) so I'm not really going to go into that in detail.
A good place to start would be any random article on Bloomberg, FT, WSJ or any MSM if you don't have a subscription - but only for the background if you don't know what is FTX or crypto. Then, this is important: go read the Chap 11 filing which is only 20 pages with generous line spacing and inclusive of schedules. Skip right to this step and don't just read twitter summaries - the filing deserves to be read as is. It's a damning indictment (not in the legal sense) of SBF and his team, the famous quote being para 5 of the filing: "5. Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.". This is the guy who did Enron, Nortel, was involved in Madoff on claimants side and has been working on bankruptcy/restructuring for over 40 years.
Major red flags mentioned in the filing
1. No corp governance. No board meetings.
2. No internal accountants.
3. No cash management system. No list of bank accounts or signatories.
4. No internet security. Unsecured root access.
5. No list of employees.
6. No separation between diff entities. Backdoor to related parties especially Alameda.
7. Use of corp funds to purchase real estate (and others) in personal names of founder and employees.
8. Loans to founders of at least US$1.5b or more.
9. Decisions made on chats with auto-delete functions.
10. Crypto deposits of customers were not recorded on balance sheet at all (whether as asset/cash or liability/debt owed to depositors).
Meanwhile visitors at the zoo are also pointing at these elephants and 900 pound gorillas:
(1) How did so many big name VC/Institutional investors (Sequoia, Softbank, Tiger, Temasek etc) miss these red flags? What due diligence was done on FTX and is this symptomatic of DDs done on other start-ups at large valuations?
(2) What are the dynamics of investing in "hot" companies with heavy competition? Does this lead to lesser DD being done as founder plays the investors off one another? Is there some group think/positive feedback loop going on as everyone thinks this must be a great/safe deal since everyone else is getting in on it?
(3) How much DD and protection can one get in a hot company with a stratospheric valuation? Some investors point out that even with a substantial check size of say, US$200m, it is only a super minority investor with 1% or sub 5% shareholding. This means they are hardly in any position to demand for changes or in-depth due diligence (hot company or no).
(4) Re-investments by investee founders into the same investor. For example, a PE/VC invests in a company with some of the money distributed back to the founders; the founder then reinvests the money he/she obtains into the PE/VC (not necessarily the exact same fund but maybe a parallel or successor fund). This is not uncommon but does raises questions of conflicts of interest. Even more so when the amounts the founder invests are not a small % of what the founder's company received but an amount equal or close to that. Purportedly Sequoia invests ~$210m into FTX only for Alameda/SBF to invest $200m into a Sequoia fund per this FT article.
The China Covid protests:
The culmination of months and months of strict China covid policies that blew up after an apartment fire in Wulumuqi (aka Urumqi - I will be using Wulumuqi throughout for consistency). Again, a lot has been said about it online and I'm not really prepared to comment about it at this time or publicly. I've put below a simple timeline I constructed as I was trying to make sense of what was going on:
Timeline of key events between 24 Nov to 27/28 Nov
Pre 23 Nov
18 Sep A bus transferring residents from Guiyang to QT camp crashed and killed 27
13 Oct A man put up large protest banners on Sitong Bridge in Beijing. He was taken away and no update of whereabouts since.
24 Oct An mainland Chinese engineer working in HK was arrested for putting up posters supporting the Sitong Bridge man’s cause. He was released on police bail.
7 Nov A 55yo woman jumped from her home in a residential building in Hohhot, Inner Mongolia. Her daughter watched her dying while no one opened the iron door set up for lockdown.
Late October Workers fled Foxconn iPhone factory in Zhengzhou and walked miles to escape lockdown. [Note: Zhengzhou multiple incidents and later on probably deserve a full note/article in itself.]
11 Nov State Council issued the “20 Articles” to improve covid control measures.
24 Nov Thurs Thanksgiving
Wulumuqi: At least 10 people died in a fire in a residential building in Wulumuqi, Xinjiang. 乌鲁木齐吉祥苑小区发生重大火灾，官方通报事件造成10人死亡。但是目前外界普遍认为死亡人数在20人以上。 https://twitter.com/i/status/1596055879907958786
As the fire happened, livestreams and videos of the fire and the group chats of the people in the building start spreading on the Chinese internet. Horrific voice chats of a resident (mother/grandmother) begging for help as she and the children with her are running out of oxygen. Horrific screaming in the background of a female resident screaming "Open the door ! Open the door!" "开门！开门!". [Unverified Video and Unverified Video 2 ] Fire fighters unable to properly rescue as the roads were blocked by (1) covid lockdown barriers and (2) resident cars left parked on the apartment access road. Much time was spent taking down the barriers and then removing the cars - car owners away on quarantine or cars could not start as left unused and in the open for too long.
Chongqing: A man, known as “super bro” 超人哥 (because his backpack had a superman logo), openly defied and criticised the covid lockdown in Chongqing. Police sought to arrest him - however the local onlookers/audience successfully pulled him away and led him away to safety.
25 Nov Fri
Around China/Weibo:
People discover trending posts on Covid eg "恨错对象了" "为难我们的不是病毒" has disappeared from the top 10 and replaced by articles on the conviction of Kris Wu (吴亦凡) for rape.
Satirical posts referencing Kris Wu's 吴亦凡's case appear: "13 years for rape, I've done nothing yet I've already served 3 years (强奸判13年，我啥事没干已经做完一个零头）".
Posts on 铁链大巴 start to appear: "We are all on the bus, all in chains, all in fire ( 我们都在大巴上， 在铁链下，在烈火中。) Note: the bus here refers to the earlier incident in Sept. The chains refer to the chains used to enforce the lockdown e.g. chaining up the main gates or doors in apartment blocks.The fire refers to the Urumqi fire.
Posts on Urumqi fire start trending. Certain phrases start trending eg "他们喊的不是快跑，而是开门". Moments of silence images start trending. The usual cat and mouse censorship game starts.
Meanwhile, more fights/unrest breaks out between the ex-workers from Zhengzhou Foxconn at the quarantine area.
In Wulumuqi: Wulumuqi public security arrests a local woman for spreading rumours about the fire and sentences her to 10 days detention. Local gov PR puts part of the blame on “weak self rescue capability” of the residents in a presser rounding up “lessons” from the deadly fire. They assert that the doors were not barred or locked and that the roadway was not blocked.
More and more videos and posts on the fire spread. Posts on Wulumuqi are put up only to be taken down. Similar posts are then uploaded in new and varied forms to avoid the censors. An article named "The road is clear but they did not run" ( "路是通的，他们不跑") starts to spread only to be taken down again and again. The title references the Wulumuqi gov PR release on how the residents did not escape in time..
Elsewhere in Wulumuqi: more conflicts break out over other lockdown related incidents including one at the "新疆104兵团连兴社区" (昨晚新疆104兵团连兴社区发生了一起包户打人事件，导致今天白天的连兴社区居民聚集在派出所要求打人者出面，之后愤怒的居民来到社区要说法。连兴社区的视频在本地社群内迅速传播，很快，104兵团范围内的各个小区纷纷声援。晚上开始，警车进入社区，逐个小区要求市民回家。然而此时的连兴社区事件正在愈演愈烈 人群聚集在国旗下唱国歌。)
Wulumuqi residents take to streets for mourning and protests. Protests break out all over the city requesting for an end to the lockdown (解封). People head to the city centre/one of the special military units hq (十二师的师部所在地 / Division HQ of the 12th Division of the Xinjiang Production and Construction Corps) singing the national anthem and the Internationale and asking for the end of lockdown 解封。Note: On the 12th Division/十二帅 see here. On the 生产建设兵团 see here. See also lso Wikipedia entry and The History and Development of the Xinjiang Production and Construction Corps (XJPCC) [Note the XJPCC deserves some further DD and perhaps a TIL of its own.]
Copycat protests start to break out sporadically in apartment complexes in other parts of China including Beijing.
Censorship online continues with some discovering that they can't see others posts. I could not see my wife's posts for example. A great leap forward for Chinese technology as we realize the real life version of The Three Body Problem (三体) with parallel universes online.
26 Nov Sat
Early hours of the morning:
Protest in Wulumuqi continues. Apartment complex level protests continues.
Online, postings continue as the censorship keeps getting dialled up. Chinese netizens start getting really creative in their posts to avoid censorship such as:
(1) videos with music e.g. the national anthem;
(2) MV of Michael Jackson's "They don't care about us";
(3) posts with no texts but just black boxes in place of Chinese characters;
(4) posts covered with the character "好"(good) or ”坏" (bad);
(5) the Weibo (China's Twitter) home page for Wulumuqi.
These eventually all get taken down or 404ed. There are other examples on Douyin, Little Red Book and others but I don't personally access those. [Note: all this is important as it was the inspiration for the white paper movement that started later in the day]
Posts alleging that there are RMB1000 rewards going out to "whistleblowers" who provide valuable information. It's unclear what is valuable information start spreading As with many things in China, both positive and negative, it's all implied/read between the lines 尽在不言中.
Daytime
Wulumuqi city gov suddenly declares that the city has basically achieved Covid-zero and that it will gradually undo the lockdown over the coming week.
Posts continue to go up and come down. A popular post is 《疫情期间的吵架指南》 (Guide on how to quarrel during the covid period" - referring to debating with residence committees and gov officials). The guide focuses on referring to the government laws and rules especially the State Council "20 Articles" in challenging overzealous Covid zero enforcement by certain residence committees or local government.
More and more protests break out across the country. In Beijing, apartment residents gather and protest at the apartment complex level against the lockdown. Some actually succeed.
At the Communication University of China, Nanjing (南京传媒学院) , a lone female student stands holding a piece of white paper. [Note: this is the start of the white paper movement (白纸运动).]
Marked increase in graffti, hardcopy posters/posts in various universities with various slogans and images in support of Wulumuqi, anti-404, anti-covid zero/lockdown.
Meanwhile at Communication University of China, Nanjing (南京传媒学院):
A large group of students slowly start to gather in. The students start singing the national anthem and the Internationale, declaring slogans and statements e.g. "Long live the people! To the deceased, rest in peace!"( "人民万岁！逝者安息！"). " We will speak for out countryland, we will speak for those who lost their relatives and family in the fire, we will speak for all our compatriots who have suffered."( "我为我自己的家乡发声 我为火灾里失去亲人的家人的人发声 我为全国所有的遇难同胞们发声" )etc. This culminates with the school authorities stepping in seeking to disperse the crowd.
A guidance counsellor tries to persuade them: "You (people) are really interesting, you don't understand alot about this country." ( "你们很有意思，你们根本不理解国家的很多...” ). The students retort: "You understand alot! Are you one of the 27 people on the Guizhou bus?") “你太理解了，你是贵州车上的27个人吗？” . A student leads the teacher away quietly.
The principal shows up and speaks including even threatening them to leave or "someday you will pay the price for all of your actions today" ("你们总有一天要为你们今天所做的一切付出代价！”)".
Students in other universities also start gathering in protests. Unclear if in sympathy/solidarity or grassroots movement. In some universities/colleges, teachers and staff try to prevent their students from starting protests. A list complied later on shows students from the following universities participated lists 51 universities including several big-name universities in major cities.
Multiple protests spring up in Lanzhou. Purportedly the trigger for this was that an apartment complex forced or discovered that one of the quarantine workers ( called "大白" or "Big White" due to their white full body protective gear) was Covid positive and this set off everyone.
27 Nov Sun
Wuhan protests with the crowd walking down a main street and taking down barriers along the way (武汉汉正街)
Chengdu: a crowd gathers in protest and mourning at the same time.
Guangzhou: protest at 海珠广场
In Beijing, Tsinghua students gather for a protest against Covid Zero. Some other universities continue their protests. Tsinghua students also seen using the Friedmann Equations in protests: Friedmann Protests. These equations are a set of equations in physical cosmology that govern the expansion of space in homogeneous and isotropic models of the universe within the context of general relativity. Or in layman speak: open up.
Shanghai protest part 2 continues at Wulumuqi/Anfu Road again.Culminates in closure of several streets and the removal of the Wulumuqi Middle Road road signs.
Into the night: while Shanghai is done, protests have now broken out in Beijing at Liangma Bridge (亮马桥)。
28 Nov Mon
The protest in Beijing continues until late in the night.
5am: Barriers up along Wulumuqi road.
A company posts that it will stop selling white paper. This turns out to be satire. What is ironical is that it was completely believable.
Individual actions continue. Too many to list.
Posts online in Shanghai and other cities organising protests in the evening. Ultimately, no protests occurred as the Chinese public security flooded all major city areas or potential protests areas.
I stopped keeping track around here.