Weekend Wars: China vs. The Chinese

For a number of years now I have been getting strange looks and my views on global economics have come into question. There is a plain and simple reason, I don't buy China. All the Chinese growth notwithstanding I am not impressed and never have been. There is a great big difference between a location, a product or a business being a great investment vehicle and an actual force.

Since there have been a lot more murmurs here on WSO and throughout the financial media about China's aura of invincibility waning, I decided to bring up a point that is seemingly ever ignored. You see, my fellow monkeys it is not the GDP numbers, the stock markets or the PPP which tell us the real economic strength of a nation. It is the people. The people who live there, the people who work there and in modern day China's case, [/embed] the people who cannot wait to get out.

Though I don't really consider myself an old timer I definitely agree with a few dinosaurs that I have spoken to. These men who came up in the "by the bootstraps" era of Wall Street, claim today's financier to be a one trick pony. A spreadsheet and algorithm devouring automaton who is a master of numbers but completely and totally incompetent when it comes to looking at the simple truth in front of him.

When a society lacks basic free market principles such as, but not limited to: freedom of expression, property and inheritance rights, a non-criminal taxation system, a non-manipulated currency and intellectual property, then that society's best and brightest will seek their fortune elsewhere.

This is precisely what we are seeing the early blips of in China. We are seeing the highest achievers seeking greener pastures due to the economically centralized, leftist, morally and ideologically bankrupt backbone of China. One that will sooner devour its populace than accept inevitability.

The recent thread [/embed] about the bamboo ceiling in finance really made me laugh. Funny how nobody thought to mention that the worst example of a "bamboo ceiling" exists in China, of all places.

Sitting at the bar last night, watching James Shields implode against the Texas Rangers high powered offense I was once again reminded of the ways we value companies, investments and economies. James Shields completed more games and had more shutouts this year than any American League pitcher in 20 years. He would have easily won 20 games had he received decent run support. Given a 3-0 lead on Texas and with Tampa Bay having already won the first game, statistics would have predicted an easy victory for the Rays. Statistics would have been wrong.

James Shields may have the nickname Big Game James, but he surely is not. China may be the darling of many economics fans, but she doesn't have what it takes to compete in the post season. She doesn't have her best and brightest, because they are all dreaming about free agency.

Comments (22)

Oct 2, 2011

I agree.

Although it's hard to pinpoint where politics ends and culture begins, I would say Chinese culture is probably the most rigid and unfit for young bright minds. I see this in my parents, who are doing very well over there, but have seemed to regress into this almost medieval way of thinking. For them it's all about prestige, appearances and most importantly China. I'm afraid it's a simple consequence of forgetting that there is an entire world out there, which is what China seemingly wants its people to do.

Oct 2, 2011

When a society lacks basic free market principles such as, but not limited to: freedom of expression, property and inheritance rights, a non-criminal taxation system, a non-manipulated currency and intellectual property, then that society's best and brightest will seek their fortune elsewhere

totally agreed, but you have realized that China didn't those shit 1o years ago, now they improved a lot, what about next 10 years?

Oct 2, 2011

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Oct 2, 2011

Firstly, you should define what you would consider "success" for Chine before discussing whether she'll be a success story. Secondly, you might be overestimating importance of democracy in attracting people. One could make this case by looking at a country like Singapore - it is not politically free, but it is highly prosperous and economic success attracts people. Thirdly, China may eventually evolve to democracy, transformation from autocracy to democracy happened in other asian countries (South Korea and Taiwan, I believe?). Fourthly, population emigrating is not something extraordinary considering what China's development level - it has happened in democratic countries in the past as they were less developed. Fifthly, to say that China's growth has not been impressive is just simply being blind. I have to check facts, but there probably have never been so much people lifted out of the poverty in such a short period of time in the human history. There are only a handful of countries (13, if I recall correctly) that have sustained high growth for a really low time and China is one of them.

Oct 2, 2011
IHAVEABIGHEART:

Fifthly, to say that China's growth has not been impressive is just simply being blind. I have to check facts, but there probably have never been so much people lifted out of the poverty in such a short period of time in the human history.

I'm pretty sure they lifted themselves out of poverty, when the restrictions against freedom/free trade were eased slightly to allow for more economic freedom (and no small amount of government subsidized industries that would exist otherwise if not for their own meddling in the first place).

Also, I wonder what the chances are that Chinese monitors threw shit at MMM and the first poster.

"...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."

  • Schopenhauer
Oct 2, 2011

3 M, you might be right on some of the points. But the immigration factor is a weak argument. There is also a reverse effect going on, when bright scientist and entrepreneurs are moving back to China due to tremendous growth. What do you mean there is no property and inheritance right? One reason China's real estate is/was going gang busters is because that was one area that actually had fairly legitimate protection laws.

IP is a major problem and somewhat worrisome, but all less developed countries imported this model to a degree in the past. U.S. "adopted" UK technology, while inventories cried foul in the early 1900's. But as China or any developing countries improve and start moving up the value chain and actually creating intellectual capital, this starts to change. The IP laws are being strengthened dramatically as we speak. This is mostly driven because domestic firms are starting to create their own IP. Let's be frank. Why would any country (let's assume Realism International Relation theory) concerned with national interest and security, care to protect IP from foreign companies? Only now that Chinese firms are starting to generate they own or purchasing companies with valuable IP, will the laws be strengthened. S. Korea did this, Taiwan did this, etc.

China is not doing anything revolutionary. China's leaders looked at Singapore, Taiwan, Hong Kong, and S. Korean growth model (original "Asian Tigers") and taking a page of their playbook. Except China is doing it on a much, much larger scale. Now China has one thing, Gravitas. China has enough gravitas, that it doesn't take much to sustain its growth to a reasonable level of development, barring any real major, major (I'm say world shaking) disaster. The highest achievers are leaving China, but many come back and invest after a certain point. Besides China has enough population that it can afford to export 10-15% of its top people and still have a pretty strong and impressive set of players.

Oct 2, 2011
Ari_Gold:

3 M, you might be right on some of the points. But the immigration factor is a weak argument. There is also a reverse effect going on, when bright scientist and entrepreneurs are moving back to China due to tremendous growth. What do you mean there is no property and inheritance right? One reason China's real estate is/was going gang busters is because that was one area that actually had fairly legitimate protection laws.

IP is a major problem and somewhat worrisome, but all less developed countries imported this model to a degree in the past. U.S. "adopted" UK technology, while inventories cried foul in the early 1900's. But as China or any developing countries improve and start moving up the value chain and actually creating intellectual capital, this starts to change. The IP laws are being strengthened dramatically as we speak. This is mostly driven because domestic firms are starting to create their own IP. Let's be frank. Why would any country (let's assume Realism International Relation theory) concerned with national interest and security, care to protect IP from foreign companies? Only now that Chinese firms are starting to generate they own or purchasing companies with valuable IP, will the laws be strengthened. S. Korea did this, Taiwan did this, etc.

China is not doing anything revolutionary. China's leaders looked at Singapore, Taiwan, Hong Kong, and S. Korean growth model (original "Asian Tigers") and taking a page of their playbook. Except China is doing it on a much, much larger scale. Now China has one thing, Gravitas. China has enough gravitas, that it doesn't take much to sustain its growth to a reasonable level of development, barring any real major, major (I'm say world shaking) disaster. The highest achievers are leaving China, but many come back and invest after a certain point. Besides China has enough population that it can afford to export 10-15% of its top people and still have a pretty strong and impressive set of players.

I can confirm everything in this post..

Oct 2, 2011

China will never obtain the greatness that the USA has and will continue to see until Democracy and tolerance become prevalent.

Oct 2, 2011
ANT:

China will never obtain the greatness that the USA has and will continue to see until Democracy and tolerance become prevalent.

Dude, China doesn't have to obtain greatness. It only needs to achieve semi-level of good. But the population, location, and gravitas factor will pull it along to a powerful position.

I don't know about the Democracy part. ANT, you deride lazy, uninformed hippies in another post. The masses are unfortunately more concerned with football and 1 minute sound bites. Yet, each and everyone has one vote. Whomever can "sell" the best ideas gets elected. This works great for short-term bandages. But, the constant voting cycle, and Joe misinformed means no politician will put his/her neck out to address long term solutions that require tough decisions and bitter pills for the voters. So, all we see is politicians of all strips (I believe knowingly) promise unrealistic fruits.

Justice and a fair legal system is important. But nowadays not so sure about U.S. style Federal Republic system. I actually lean more parliamentary systems. With the winning party having greater ability to make more sweeping changes and get things done.

Oct 2, 2011

Democracy is a pressure relief. People protesting Wall Street ARE retarded, but it allows them to feel like they are changing something or having their voice heard. When this is not possible the issue simmers and then becomes revolution.

China has a billion plus people. Being OK or semi good is not enough.

Oct 2, 2011

The big problem is China's location. They're too close to India, Russia, and Indonesia to sustain their current path. They've undercut their neighbors for too long. We shall see in the next 10-20 years. My guess is relations will break down in that entire region.

Oct 2, 2011

This is such an old argument.

Maybe instead of looking at China in a snapshot of a moment, you should look more at the trend in the past 10 years. I may not be qualified enough in terms of experience in the industry, but I've pretty much spent my life in China while having been educated in the US in early year of my life.

Midas Mulligan Magoo:

When a society lacks basic free market principles such as, but not limited to: freedom of expression, property and inheritance rights, a non-criminal taxation system, a non-manipulated currency and intellectual property, then that society's best and brightest will seek their fortune elsewhere.

Yes this is all true, but the country has come so far. Changes are very, very apparent even from a year ago. The simplest example is how quickly the regulatory body, SAFE, has increased QFII over the years, allowing more foreign capital to flow into the market.

I think it's important to keep in mind that changes are not going to happen overnight, but China is certainly working on it.

Midas Mulligan Magoo:

This is precisely what we are seeing the early blips of in China. We are seeing the highest achievers seeking greener pastures due to the economically centralized, leftist, morally and ideologically bankrupt backbone of China. One that will sooner devour its populace than accept inevitability.

Again, I think you're taking things out of context. It's true that some of the best talents are going overseas, but so many are going back to mainland now that there's now an excess of those educated overseas. If you had ACTUALLY talked to any young talents, you would've noticed a significant difference in their plans for their futures. I'd say the shift to going back to China is very, very drastic.

My point is, I'm not the most optimistic person on China's growth story either - there's a lot of issues to be resolved, many of them simply stemming from the massive population base. This is no reason, however, to be overly pessimistic/skeptical of it either.

In my opinion, China will likely face a long period of slower growth because of the fundamental issues MMM mentioned, but will slowly make improvements that will allow it to take even larger steps in economic and political development.

I don't accept sacrifices and I don't make them. ... If ever the pleasure of one has to be bought by the pain of the other, there better be no trade at all. A trade by which one gains and the other loses is a fraud.

Oct 2, 2011

btw, I personally think it's naive to believe that China will stay with its current political system. For all we know, it could be a democracy in 30 years.

Everyone talks about the massive population - has anybody thought of a somewhat crude argument that maybe China can't handle democracy right now? The country has a long history, but most of it has been under a single ruler. If you gave everyone the same freedom we enjoy in the US right now, i think the country might fall into chaos.......

I don't accept sacrifices and I don't make them. ... If ever the pleasure of one has to be bought by the pain of the other, there better be no trade at all. A trade by which one gains and the other loses is a fraud.

Oct 2, 2011

I do think that China is facing the problems pointed out by OP. Yet these problems happened to every developed nations when they were less developed. There isn't really much new here except that China is going through all these with a much bigger scale.

And I don't think democracy helps much when it comes to economics growth, especially for developing countries.I didn't see many developing countries make the move to be developed just through democracy. No offence here, India is more democratic than China at least and it's not doing any better than China in term of growth. Same stories happened for Singapore and Philippine.

Democracy is nothing more than a way to balance and check. It's more suitable for developed countries when they have got everything established and they need a rule to play the game steadily. When a country even has a problem feeding its people, what they need to do it to build up things quickly and gives its people a decent level of living standard.

Oct 3, 2011

not really swayed, i guess the verdict is still out on this one

Oct 3, 2011

Two things:
1. Few Chinese want to leave China. It appears big because a small % of a big number seems big. In fact those of my friends from China who studied abroad and are working there now all want to head back, in part because they are bored of the food, in part because they believe in the bubble.

  1. Couple 4-5tn USD NPLs vs. 3.2tn reserves (if you don't know where these numbers come from you need to work harder at the alternative case to your permanently bullish analysis) with a banking sector which has completely been taken over by the State (since 2009) and is woefully undercapitalized to deal with aforementioned, and you have the recipe for a blow up of epic proportions.

I also disagree that democracy, freedom of expression, etc. are necessary ingredients for a successful country. Two successful non democratic countries that curtailed most "rights" yet thrived due to liberalizing markets, reducing government intervention in the daily life of people (beyond enforcing the law and keeping the regime in place) and enforcing property rights were Singapore and Chile under Pinochet (from third world to Western Europe quality of life in a decade).

Oct 3, 2011

I'm waiting for the gov't to collapse. Whatever survives will skyrocket. I give it a decade tops, and we'll be looking at a buying opportunity better than banks in 2009.

Oct 3, 2011
UFOinsider:

I'm waiting for the gov't to collapse. Whatever survives will skyrocket. I give it a decade tops, and we'll be looking at a buying opportunity better than banks in 2009.

15 at LEAST. In an alternate sense, we could get lucky and the rest of the world could go in to a massive decline, and we could live the high life off of exploiting their ill situations to get cheap consumer products again LOL.

Srsly though, nothing is certain, I think theres a good chance we could start to go back to good conservative free market principles.

"...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."

  • Schopenhauer
Oct 3, 2011
seabird:

15 at LEAST. In an alternate sense, we could get lucky and the rest of the world could go in to a massive decline, and we could live the high life off of exploiting their ill situations to get cheap consumer products again LOL.

This + my launching of missile cocks at those shit flinging monitors. Fucking Acers.

Oct 4, 2011

Americans who read the NYTimes too much have an overly exaggerated view of China's stance on human rights, political freedom etc. The truth is, 99% of people in China are perfectly happy with the current system.

In fact, most Chinese people think America's democratic system is a complete joke--and based on what's been going on lately, I tend to agree.

Oct 4, 2011
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