I hope you are all doing well. Sorry for the delay, it’s been a busy week and I’m writing this during my ~short~ layover between DC and Chicago. This past week I have been at a conference put on by a law firm that consults for us. Safe to say this one is going to be on the shorter side, and not so much news, but summarizing an interesting conversation I had.
Just straight from the horse’s mouth.
China! Something nobody knows much about or that nobody likes to speak on.
My biggest source of information on China was from the book The Changing World Order by Ray Dalio. Dalio has proven to be one of the smartest investors of our time and someone who has deep knowledge about the world and its interwoven macroeconomics. And this book was very bullish on China and bearish on the United States. “China is the next manufacturing superpower, their economy is booming, the control the trades…. “yada, yada, yada.
Well, turns out that’s not all true.
I had a dinner with a partner of the law firm who was hosting this conference. He had lived in Shanghai, had also read the book, and had some pretty fascinating insights.
Here’s the stuff Dalio skipped over, that China doesn’t want you to know, but Matt does:
- Dalio has a conflict of interest. Dalio is one of the biggest Western investors in China, and it was in his best interest to “play nice” when speaking about the country that a lot of his money is in. Put plainly, if he trashed China, it’s not guaranteed they’ll respect his investments see that money again.
- Cost of labor. China may be a manufacturing superpower, but not for long. China’s labor is getting more expensive the more developed they become, this has led to a massive efflux of manufacturing from China to Thailand, Vietnam, Indonesia, etc. Put plainly, the manufacturing will go to the lowest bidder, and that won’t always be China.
- Social Security and Economy. You know how the US has more older people then younger people? And that it’s leading to a social security problem where the younger generation is going to have to pay more for the retiring boomers? Well China’s got it even worse. The whole “One Child Policy” has created a huge gap in their country’s demographic, and that bill is coming due sooner than you think which could cripple them economically.
- The real estate crisis. Now this one is crazy and y’all should check out this article. But essentially China’s entire real estate market is a Ponzi scheme. Remember Evergrande? Well, that’s happening everywhere. China is building apartments everywhere with nobody to live in them. And it’s not just real estate, its other industries too. It’s almost like they’re making stuff just to employ people. They’ve gone as far as sending labor over to Iran and Iraq to build housing there….but who knows if they’ll ever pay up. This is a huge can of worms penetrating several industries (transportation, etc.)
- The algorithm is different over there. All the mainstream media abides by a different algorithm over there. In China the kids see content around school, disciple, and becoming the next great engineer, doctor, lawyer, etc. They don’t see the dancing videos we have here. You may be thinking: “Well maybe that’s a good thing?”.
Yes and no. Sure discipline is a good thing, but that level of control limits creativity.If you ask a child from China to draw, they may ask “Draw what?”. If you ask that same question elsewhere the kids may draw Jesus with an iPhone.
This leaks into industry as well. I’m sure there is a fair share of innovation, but for now their strength lies in following what already been proven.
- ….. They’re communist? Most developed and thriving (whatever thriving means) are democracies. I think it’s as simple as that in the end.
So yes, China is a powerhouse country that’s developing rapidly. And yes, we are probably overdependent on their manufacturing and commodities. And yes, our relationship with them isn’t great. But…. I don’t think that’s too much cause for concern based on the above.
Let’s both focus on our own issues before worrying about each other.
Obviously, I don’t know too many of the details, but for these reasons the partner from the firm told me to rest easy. So, for now, I’m resting easy.
FYI: I’m gonna take next week off. Writing this on the road was tough this week, and the company happy hours will be callin’. So, for now I bid you ado.
Let’s have ourselves a weekend. Gotta jet.