China is overtaking US slowly but surely

Koon Yew Yin 31 Oct 2020

In recent history, many European nations, the Japanese and the Americans had attacked China. From the invasion of China in 1937 to the end of World War II, the Japanese military regime murdered about 6 million Chinese. According to the American estimates, about 920,000 Chinese soldiers had been killed or wounded during the Korean War. 

The most ridiculous were the 2 opium wars in 1839-42 when China refused to buy opium from the British. The British warships attacked Shanghai and the Chinese lost. To compensate the British for its cost to attack Shanghai and the loss in the opium sale, Hong Kong and Kowloon were ceded to the British. This must be the height of humiliation. 

For a long time, people have said that China cannot succeed. Communism doesn’t work. Authoritarianism doesn’t work. The Chinese aren’t creative. They have a big problem with bad debts and property speculation. Yet every day we see China succeeding in exceptional ways.

Just based on the way the Chinese managed to control the spread of the coronavirus in Wuhan so quickly indicates that the Chinese Government must be doing all the right things to save lives and improve its economy. Currently the number of daily new Covid 19 cases can be counted with your fingers. It has the lowest rate of increase in the world. 

Currently US has a total of 9.316 million Covid 19 cases and 235,156 deaths. The chart above shows that the daily new cases is spiking. Yesterday alone there were 90,728 new cases, the largest number in a single day since the pandemic started. US has the most Covid 19 cases in the world. 

I hope President Trump will win his re-election so that China can overtake US quicker.  

China’s economy grew at an average rate of 6 percent per year in the last 10 or more years, without monetising debt, while all major economies contracted. China produces more than it consumes and runs a balance of payments surplus, unlike the US and many western nations. This year nearly half the world’s initial public offerings will be in China, including Ant Financial’s $30bn listing, the world’s biggest ever. Ant Financial and Alipay, is an affiliate company of the Chinese Alibaba Group. Ant Group is the world’s highest-valued FinTech company, and most valuable unicorn company. In October 2020, Ant Group raised US$34.5 billion in the world’s largest IPO at the time, valuing the company at US$313 billion. 

Even Tesla’s best-selling Model 3 car will soon be made entirely in China.

The world order is changing, yet many are missing this because of a persistent anti-China bias. Just over the past four decades its economic changes have been remarkable. 

Defence and Protection: 

4 year ago, as soon as Donald Trump became the US President, he declared a trade war with China to reduce its trade deficit. China is afraid the trade war may lead to military confrontation. China needs to complete reforms for national defence and the armed forces by 2020. Significant progress will also be made on mechanisation and automation in the armed forces and the use of information technology to build a modern Chinese military system.

Now China rivals the US in advanced technologies and will probably take the lead in five years. Since 1984, per capita incomes have risen more than 30 times, life expectancy has increased by a decade and poverty rates have fallen nearly to zero. 

Meanwhile, China’s economy is roughly the same size as the US’s and expanding at a faster pace — so time is on China’s side. It has a growing population of well-educated people, with around a third of the world’s science and technology university majors, three times the US share. It also produces and collects vastly more data to process with artificial intelligence. For many in the west, this has a dark side in terms of state surveillance. But for many Chinese it reinforces positive social norms while also promising vast efficiencies. One way to look at China’s relative power is that, with four times the US population, when its per capita income reaches half the US’s in about 25 years, its economy will be twice as large.

China’s fundamentals are strong, its assets relatively attractively priced, and the world is underweight Chinese stocks and bonds. These currently account for 3 per cent or less of foreign portfolio holdings; a neutral weighting would be closer to 15 per cent.

This discrepancy is at least in part due to anti-Chinese bias. I think it is about to change. Chinese markets are opening up to foreigners, who can now access at least 60 per cent of them compared with 1 per cent in 2015. Benchmark weights in major indices are rising. As a result, I expect China to enjoy favourable capital inflows that will support the currency, already at a two-year high, and financial markets too. All this argues for a China overweight in investors’ portfolio.

In the long run, timeless and universal truths determine why countries succeed or fail. In brief, empires rise when they are productive, financially sound, earn more than they spend, and increase assets faster than their liabilities. This tends to happen when their people are well educated, work hard and behave civilly. Objectively compare China with the US on these measures, the fundamentals clearly favour China. 

Prejudice and bias always blind people to opportunity. If you have been a China sceptic, you should read this article again.