China: Farewell

My time in Beijing highlighted the great dichotomy that is China.  Beijing is a sea of humanity.  It is truly one of the great, historic cities of the world.  Traffic is as bad as advertised, but the subway system was excellent.  Its sheer size and history make it easy to see the “dream” of China, but the restrictions that surround life in China are unsettling from the moment that my plane landed. This is China’s dichotomy—future potential and impressive growth contrasted with an authoritarian government model.   For me, this is the long-term, unanswered question of China—how far can China’s economic opportunities progress without political opportunities? 

I heard from several that business is fine in China if politics are avoided.  I was told that the “Asian way” of thinking is quite different from the Western model, and China’s authoritarian approach has been effective and welcome.  There is so much to admire in China, in its people and culture.  However, I strongly believe that economic and investment opportunity will ultimately be stunted without reforms.

I strongly believe that economic and investment opportunity will ultimately be stunted without reforms.
— John Lunt

The customs form at arrival set the tone, warning me to avoid bringing anything into or out of the country that would be against the interests of the People’s Republic of China.  The hotel warned me that many of the typical internet sites are blocked, including Google, Facebook, Twitter, and YouTube.  My ability to upload information to the cloud was completely blocked.  Security screening, police, and military presence were everywhere.  Some suggested that the 25th anniversary of the Tiananmen Square massacre had heightened the government’s political sensitivities.  I was assured throughout my visit that my concerns were unfounded, but restriction and repression seemed to linger just below the surface of so much in China.

China’s economic growth has been remarkable, but its economy is unquestionably slowing.   Some slowdown is expected—the law of large numbers is catching up with China.  Double-digit growth for an economy the size of China is unsustainable.  Policy-makers are attempting to restructure the economy—to bring more balance rather than a reliance on the property/construction/industrial sectors.  State controlled banks and enterprises are drowning in debt and chocking off credit.  Restructuring China is a monumental task.  The success of this undertaking is of great interest not only to those that directly invest in Chinese financial markets, but also for any global investor.  There is no question about it—China matters.

As you can see in my previous posts, the role of financial markets in China’s development is changing.  This change coincides with accommodative monetary policy.  Sluggish economic growth may continue along with a continuation of the recent equity market rally.  Only time will tell.  The dichotomy of China—heightened risks and heightened opportunities.

I met so many interesting people in China.  There is a clear sense among professionals in China that China is at a pivotal moment as is restructures its economic model.  My time in East Asia has been pivotal in understanding some of the key issues surrounding global investing.

 
 

Special thanks to Brennan Staheli, Devin Lindley, and the Lunt Capital team for their contributions to this report.