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Prejudice and China
By Louis-Vincent Gave
[extract]
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On September 9, the US House of Representatives approved a bill entitled “Countering the PRC Malign Influence Fund Authorization Act” by 351 votes to 36.
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If passed by the Senate, this bill will authorize the US government to spend US$325mn a year every year for the next five years to “support... independent media to raise awareness of and increase transparency regarding the negative impact of activities related to the Belt and Road Initiative, associated initiatives, other economic initiatives with strategic or political purposes, and coercive economic practices.”
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'INDEPENDENT' MEDIA
So yes, at a time of record debt and swelling budget deficits, the US government proposes to spend US$325mn a year paying “independent” media (the irony!) to push stories about the negative impact that China may be having around the world.
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As Charlie Munger liked to say “show me the incentives, and I will tell you the outcome.”
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If the US government is openly declaring that it will pay for negative stories on China in “independent” media, and allocating millions of US dollars to this purpose, should we be surprised if negative stories about China are precisely what the media delivers?
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So, now more than ever before, when assessing stories in the media it is helpful to ask the question: just who here is the client, and who is the product?
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THREE CHINAS
Putting all this together, there seem to be at least three separate visions of China.
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1.) NIGHTMARE SURVEILLANCE STATE
The first is the China you read about in much of the Western media: a place of despond and despair. It is permanently on the cusp of social disorder and revolution, or it would be, were it not an Orwellian nightmare of state surveillance, supervision and repression that strangles creativity and stifles progress.
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This is the place that Westerners who have never visited China typically imagine, because it is the place portrayed by the media.
And not just by the media. This is also the China portrayed by large parts of the financial industry. Every 10 days or so, I get forwarded another report forecasting the imminent collapse of the Chinese economy.
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More often than not these are written by Western portfolio managers who typically don’t speak Chinese, know very few people who live in China, and in some cases have never even visited what is very clearly the most productive economy in the world today. This has happened so often, I have made a meme about it.
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"Would you let a Chinese guy who spoke no English, had never visited America and knew no Americans, explain the US to you?"
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This is the vision of China that allowed CEOs of Western industrial companies to spend their time worrying about DEI initiatives while Chinese companies were racing ahead of them.
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2.) GROWTH OVER
The second is the vision of China you get from talking to Chinese millennials in tier-one cities. This version of China recalls the “lost decades” of Japanese deflationary depression.
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Clearly, for investors there are important differences between China today and Japan of the 1990s and 2000s. First, in 1990, Japan was 45% of the MSCI World index even though Japan accounted for only around 17% of global GDP. Today, Chinese equities make up less than 3% of the MSCI World, even as China is around 18% of world GDP.
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So, it seems unlikely that foreign investors will spend the coming years running down their exposure to China; few have much exposure to China in their portfolios to begin with.
Second, China’s dominance in a number of important industrial segments is growing by leaps and bounds. This is a reflection of the rapidly changing geopolitical landscape. In 2018, Donald Trump’s decision to ban the sale of high-end semiconductors to China acted as a galvanic shock on the Chinese leadership. If semiconductors could be banned today, tomorrow it might be chemical products or special steels.
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Protecting China’s supply chains from possible Western sanctions became a priority to which almost everything else (aside from the currency and the bond markets) was a distant second.
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3) ABOUT TO OVERTAKE
This brings me to the third vision of China: that it is only just beginning to leapfrog the West in a whole range of industries. This vision is starting to show up itself in the perception of Western brands in China, and their sales.
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For example, Apple’s iPhones no longer figure in the five best-selling smartphone models in China.
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And Audi’s new electric cars made and sold in China will no longer carry the company’s iconic four-circle logo; the branding is now perceived to be more of a hindrance than a benefit.
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To put it another way, following years of investment in transport infrastructure, education, industrial robots, the electricity grid and other areas, the Chinese economy today is a coiled spring. So far, the productivity gains engendered by these investments have manifested themselves in record trade surpluses and capital flight—into Sydney and Vancouver real estate, and Singapore and Hong Kong private banking.
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This has mostly been because money earners’ confidence in their government has been low. From bursting the real estate bubble, through cracking down on big tech and private education, to the long Covid lockdowns, in recent years the Chinese government has done little to foster trust among China’s wealthy.
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It’s small surprise, then, that many rich Chinese have lost faith in their government’s ability to deliver a stable and predictable business environment.
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U.S. MUST REPAIR DAMAGE
This brings me to the recent stimulus announcements and the all-important question whether the measures rolled out will prove sufficient to revitalize domestic confidence in a meaningful way.
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Will it even be possible to lift confidence as long as the Damocles’ sword of a wider trade conflict with the US and yet more sanctions looms over the head of Chinese businesses?
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From this perspective, perhaps the most bullish development for China would be for the new US administration (regardless who sits behind the Resolute desk) to come in and look to repair the damage done to relations by the 2018 semiconductor sanctions and the 2021 Anchorage meeting.
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At the risk of mixing metaphors, this could be the match that lights the fuse that ignites a real fireworks show.
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INVESTMENT CONCLUSION
The narrative around China is shifting—regardless of the US$325mn that the US Congress is looking to spend each year to fund negative stories about China in the “independent” media.
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Just a few weeks ago, China was still said to be uninvestible. This view had led many people, including prominent Western CEOs, to conclude that China no longer mattered.
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This was a logical leap encouraged by Western media organizations, whose coverage of China has been relentlessly negative.
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It was a leap that turned out to be a massive mistake.
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[This is an extract from a lengthy financial paper written by top economist Louis Gave of Gavekal Research which has gone viral in the international finance sector in recent days. Link to full paper is provided.] |
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雷达卡
楼主
显身卡
发表于 2024-10-29 19:13:31
