Of Blind Men & Elephants – Notes from China

East Asian Creature Shaping Up... 300x187 Of Blind Men & Elephants   Notes from China

As a strategist, one can no longer assemble a coherent world view without taking a view on China – not just the world’s second largest economy, but the world’s first-largest source of economic growth and commodity demand.

The secular rise of China has radically changed the rules of the game. Had it not been for China, the American crisis of 2008 would most likely have eventuated in a global economic depression; if the current, European, phase of the credit crisis does not lead to global economic collapse, the worst shall again be avoided largely thanks to rapid Chinese growth.

Were tales of the impending Chinese implosion to have any validity, investors would be well-advised to look at interplanetary opportunities – virtually no market on earth would be spared. Fortunately, like the reiterated warnings of a collapse in post-crisis Russia, these can be safely discounted.

For one used to the lies of the sleazy British financial press as regards Russia, the sheer volume of misconceptions regarding China seems oddly familiar.

After almost a month in China, we are frankly awed, cognizant of the fact that we have barely begun to scratch the surface. Basically, our observations were very much in keeping with the previous views expressed herein – confirming our scorn for the doomsayers, we found a country of almost inconceivable dynamism, in the midst of a transformation from quasi-medieval peasant economy to the predominant power of the 21st century; yet the impact of actually seeing China in motion surpassed anything we had been prepared for. Long discussions with local players regarding of the strengths and frailties of the banking sector, regional financial montages, the capital and real-estate markets, as well as the upcoming renewal of the Politburo, with the succession of Wen and Hu, were fundamentally reassuring. There are substantial problems (where are there not?) but, also, China has both the means and the drive to resolve them.

Thus, rather than yet another discussion of the Chinese banking system, local finance entities, the appropriateness of capital allocation, and the sustainability of the current manufacturing model, all of which have been handled far more competently by some of our peers – notably Jonathan Anderson of UBS – we have thought long and hard about what China tells us about our own models – Russian and “Western” and the implications for the West.

As the New Chinese Century gets underway, we have sought to meet and understand the dragon in its own environment – fully cognizant of the enormity of the task before us – while seeking to avoid the caricatured misconceptions encountered in the media, where each of the proverbial blind men reports the nature of the elephant he believes he has encountered.


For the latest newsletter – in FULL (the above was just the entrée) – click on the link below:

T&B – Of Blind Men & Elephants

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2 Responses to Of Blind Men & Elephants – Notes from China

  1. Patrick says:

    This small retail investor appreciates these letters. Thank you!

  2. Mark says:

    Great article… though I am of the school that believes that the RMB is moving pretty close to true value already. Actual appreciation hasn’t bridged the gap alone the last few years, but inflation has made a big impact on the currency’s value that seems to go largely ignored by grand standing politicians. Prices in the middle kingdom are tend to straddle both sides of the line, with some goods more expensive than elsewhere and others much cheaper. The fact that wages are still very low means that real retail costs are actually lower and and prices must be more competitive when selling to the masses. You should also consider that a product that is made in China should be cheaper than that same Made in China product in the USA due to lower logistics / taxation expenses.

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