"China as a sleeping lion whose roar would one day shake the world." - Napoleon.
Yes, China is roaring in this decade and the roar is getting louder and louder.
The most successful
story in the last two decades
When the USA
played the China card against Russia, it took away the embargo. Deng Xiaoping started
an economic zone to build infrastructure (electricity, road, etc.) in an
undeveloped city in South China and the rest is history. It is my Coconut Theory that when hard working folks have a chance to sell
their 'coconuts', they will prosper. Lifting millions from starving to death is
no small task. To me, Deng and Nixon should receive a Nobel Prize. However,
since China has dominated the world, except the last three centuries, it is no
surprise to me.
The Myths on China
Sam Walton was a
patriot. He preferred to make less money by not selling Chinese goods. He
estimated wrongly the profits from the Chinese products. When he died, the
company turned into stores for Chinese products making his heirs the richest
family and many of his investors millionaires.
Investors should
not follow these myths that have been spread by TV networks and even
professors.
·
A TV network advocates "Made in USA"
in a series.
·
A professor from a prestigious university
believed India will replace China as their population is younger.
·
A professor from one of our top universities
believed colonization is good using Hong Kong as an example.
·
China is evil and they are communists.
·
They're stealing our jobs, technologies and
movies.
·
All Chinese products are inferior products.
All the above are
wrong or not totally correct and I will dispute them one by one.
Globalization
China is one
country in the chain of the global economy which promotes free trade. Buy the
best product from the country that produces the best product at the least cost.
Globalization debunks the myths.
·
China is moving up the product-value ladder.
Some manufactured products, such as garments, will be moved to countries such
as Vietnam and Burma with wages lower than China. This TV series makes you feel
good and hence makes it easy for them to sell their advertising. In reality,
manufacturing in many products will not come back to the USA due to our high
wages, regulations and taxes. In a sentence, we're hurt by our own success. We
need to give up these industries that we cannot possibly compete in and
concentrate our efforts on high-value industries and industries we can compete
in.
·
Product quality is controlled by outsourcers. Do
you find product quality problems in Apple's
products?
·
When you have a new technical product, you may
want to assemble in South China, where most other OEMers such as cable and battery
are available.
·
In many cases we are copying China’s mobile
technology where China depends on.
·
From 2013 to September, 2016, China has only one
failed rocket launch. It is the cheapest and most reliable launch platform. We
cannot use it due to security argument. However, it provides a good source for
the space station that China is building one themselves.
·
China has never wanted to be number one. From
Opium Wars to 30 years or so ago, China had been bullied by foreigners helping
Brits pushing opium to China. China built the Great Wall to keep the invaders
away. They could have colonized many countries in the 1400s, but they did not.
·
China is not stealing our jobs, but
globalization does. Most companies can outsource all functions of the company
to other countries where they can find the best workers at the least costs.
·
China is polluting the world. Aside from the
pollution from factories producing products for export, energy consumption per
capita is far less than ours. China is #1 or #2 in most green energy
technologies. Unfortunately, China is blessed with coal, but not blessed with
the less-polluting gas and oil.
·
China is stealing our movies and intellectual
properties. It is the same for most developing countries. China will enforce
intellectual properties before it can move up to the next phase to a developed
country. Our companies have to protect our secrets as the best defense is a
good offense. Even the US had been in that stage briefly. Charles Dickens was
so angry that he did not want to visit the US. Did we pay royalty to Hitler for
using German rocket technology and other similar technologies?
We can shut
ourselves out from all foreign trades, but it will harm us more than help us.
We have to enjoy a $50 toaster to start. All the chicken feet, a delicacy for
the Chinese, will be dumped into the ocean. Our high-tech companies, farmers,
movie industry will suffer.
Communism and China
China is only
communist in the second "C" of CCP, China Communist Party. Chinese
are more capitalist than us. If you do not work, you do not eat. This simple
rule motivates its citizens to work hard. The safety net is improving, but it
is a long way from our social security system; our system may be too generous
as it has encouraged too many free loaders and cheaters (also in the
corporation level too). It explains why they have a high savings rate. Most
companies in China do not have unions, inconveniences of labor laws and
sometimes even help from corrupt officials. After a taste of capitalism, China
will never return to communism, which encourages folks to be lazy.
Human rights and
Tibet
When you compare
present day China to the China 30 years, 20 years or even 10 years ago, human
rights have grown by leaps and bounds. To me, food and shelter come first
before human freedom. Human freedom should be allowed gradually and it requires
educated citizens that China has, except in the rural areas. Allowing freedom
too fast would cause chaos (my thought and is debatable).
Before the
'liberation' of Tibet, only
monks could get an education. One-child policy does not apply to Tibetans and
other minorities. Their culture is maintained throughout from the experiences
in my two visits in the last 10 years.
Hong Kong
Present and past, Hong Kong's wealth depends on its proximity to China, contrary to the colonialism theory a professor had stated. I had bet on the iShares MSCI Hong Kong ETF (NYSEARCA:EWH) (an ETF for Hong Kong) at the start of the Umbrella Protest. My order had not been executed due to my low price. The reason that the stock market did not drop further could be the plan allowing citizens in China and Hong Kong to buy stocks from the opposite exchanges. It will materialize soon after they finalize the tax and regulation details. Hence, the Chinese have more investment choices instead of investing in ghost cities.
India
Indians compare themselves with the Chinese, but the Chinese usually compare themselves with the USA. India will not catch up with China in this decade. It is more corrupt than China, more protective than China, and has more social inequality than China. The Tier I cities in India cannot compete with the Tier II cities in China when you compare the infrastructure, high rises, subway, airport, etc.
The growing
population of India eats up all the limited resources of the country. As a
Chinese saying goes, you get rich by making fewer babies and building more
roads.
China's advantages
·
Huge internal market. The scale of economies is
quite obvious.
·
An educated and hard-working work force.
·
Relatively low wages for qualified engineers and
researchers. The wage of one US engineer is about the same as four Chinese
engineers from my rough estimate. It is giving some technology companies
problems, such as Cisco.
·
Government incentives and subsidies.
·
Most big projects and major purchases to foreign
countries have a clause of technology transfer. If we do not oblige, they buy
them from your competitor. The trick is to use the money for research (not
bonuses to the management) and hold out the top technology.
· One-party political system is not a bad thing. By the time China connects most, if not all, the Tier I cities with high speed trains, we're still arguing about who is on top for the first one.
The success of China
is good to the world
After the last
earthquake struck China, Chinese and the overseas Chinese helped to rebuild the
disaster region without asking other nations for help. If China is as poor as
before, you may have 20% of the world population begging for money.
When you need a
drug to cure a terminal disease, do you care whether it is from the USA or from
China?
It has rescued
many US companies such as GM from bankruptcy. So is Volvo. China will buy many
bankrupted US companies if we allow them. Some bankrupted US companies do not
have much salvage values, but we argue not to sell on national security reason.
Most do not make sense.
Vietnam is copying
China's model and it is at least 15 years behind. Eventually, many factory jobs
will be replaced by robots and countries such as Vietnam with labor cost even
far lower than China. Our politicians have to WAKE up and try to solve our
problems instead of blaming our problems on China. It already has attracted
many industries such as textile that cannot afford the rising wages in China.
The latest riot against foreign factories (mostly from Taiwan) is more political
and not against the Chinese. The Chinese have been more integrated with the
Vietnamese than most other SE Asian countries.
Resource-rich
countries such as Brazil and Australia benefit from the demand in China. They
will return to the normal trade levels when the global economy improves. Macau
and Hong Kong have been benefiting from Chinese tourists. With the suppression
of corruption, the gambling industry in Macau will suffer. Due to the recent
Umbrella Protest, Hong Kong will suffer from fewer Chinese tourists.
China has become
number one in tourist spending in France. It is similar to many other
countries. Most companies producing luxury products benefit. The myth of an
average Chinese citizen making less than $5,000 is debunked by these tourists. Firstly,
the median salary is not $5,000 and secondly the size of the middle class is
huge. Most countries benefit with the rise of China today, except Japan, which
has an islet dispute with China. Philippines, backed up by the USA, has similar
problems with China. Hope they will resolve the problem by sharing resources.
Not too long we
will compete with China on higher-value products as we’re competing with
Western Europe now. There are many recent examples that worry me more. A
Chinese company
captures 70% market of the consumer drone that was invented by our military. Chinese
military drones cost about one quarter of ours and they have little
restrictions to whom they sell to. Chinese has a monster machine to build bridges. They have more than the high-speed
rail than all other countries combined. These are a few of many examples. If we
ignore Chinese products due to poor quality, then we may have lived in a cave
for the last year. When the average Chinese student spends at least two more
hours in studying than ours, they will achieve more in life and catch up fast.
Afterthoughts
Being born in Hong
Kong, I am naturally biased. I try to present this article with facts. China
has a lot of problems that
most developing countries have.
The following data are obtained from Barron’s article
dated on Nov. 17. 2014.
Vietnam
|
Cambodia
|
Laos
|
Thailand
|
Myanmar
|
|
GDP Growth
|
5%
|
7%
|
8%
|
3%
|
8%
|
Export Growth
|
12%
|
13%
|
17%
|
0%
|
16%
|
Population
|
93
M
|
16
M
|
7
M
|
68
M
|
56
M
|
Monthly MFG
Wage
|
$250
|
$130
|
$140
|
$370
|
$110
|
ETF
|
VNM
|
THD
|
Thailand is
the most developed with a thriving tourist industry. However, political unrest
would take it several steps back. This article is dedicated to our beloved
Boston mayor Thomas Menino 1942-2014. This article
was published in Seeking Alpha on 11-2014, a site for investors.
Learn more on China
History (about
250 BC on & simplified)
D20 Showtime
-----------------------------
This
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Investing". If it helps you, envision how 835 pages (Kindle version) would help you. It could be the best $10 you ever spend.The above is an abstract from my book "Complete the Art of Investing" which is available from Amazon.
I challenged to have the best-performed article in Seeking Alpha history, an investing site, for recommending 5 or more stocks in one year after the publish date. The concepts for that article are discussed in this book.
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