Apr
This is a topic we believe needs to be addressed thoroughly because as an investor in Chinese assets or someone who is thinking about gaining exposure to Chinese assets, you are literally bombarded with more or less reasonable scenarios pertaining to China, many of which venture well into conspiracy theory territory.
Right from the beginning, we would like to stress that this isn’t one of those articles on the opposite end of that spectrum, an article which revolves around us (the ChinaFund.com team) adopting a cheerleading position with respect to China and claiming that anyone who propagates negative information about this jurisdiction is incompetent or has some kind of a hidden agenda. Those of you who have been following our work for at least a somewhat meaningful amount of time know that while we offer consulting services that pertain to “all things China” and have the credentials necessary to do so convincingly, we are not here to cheerlead, not do we intend to spread doom and gloom.
The number one quality of an expert worth his salt, in our opinion at least, needs to be brutal honesty. We would love nothing more than for things to be 100% rosy when it comes to China because, of course, it would be good for business, with swarms of investors rushing toward this El Dorado and bombarding us with business requests.
But they are not and we owe it to our clients to be just as upfront when analyzing the cons as we are when it comes to the pros. Time and time again, we have written articles through which various dimensions of the Chinese story have been criticized: the glaringly obvious human rights issues, the oftentimes reckless government spending, the less than predictable legislative landscape, the discrepancy one can frequently notice between public discourse and meaningful action… the list could go on and on.
What we want to warn against through this article isn’t the idea of criticizing one aspect or another that has to do with the let’s call it Chinese status quo. On the contrary, we frequently do just that ourselves on this very website so as to offer our readers an unbiased perspective on this jurisdiction.
Instead, we want to issue a (dire) warning against those who take information which contains one degree or another of truth but then let things snowball into conspiracy theories so wild and baseless that the underlying idea (which might have been correct) has been lost along the way.
In essence, this is how conspiracy theories work.
It is difficult to identify a conspiracy theory which doesn’t have at least a trace of truth at its core. Not because those propagating these theories are unbelievably ethical (hint: they are oftentimes not) but rather because it is multiple orders of magnitude easier to build a narrative by starting from something verifiably true. What does tend to be dangerous, however, is the tendency of the people in question to add mountains of lies upon that initial grain of truth.
For example, it is a more than acknowledged fact that China represents the number one economic adversary of the United States at this point in time. While the Donald Trump administration has been more vocal than past ones when it comes to propagating this information, past ones have been just as aware of this reality. Again, it is fairly safe to consider this information true.
What tends to happen with conspiracy theories is that people start with this fact and let their imagination run wild, envisioning let’s say some kind of a hidden Chinese plan to collapse the US economy overnight, in one fell swoop. To put it differently, they start by painting China as an adversary of the United States (which is factually correct) but then move on to assuming China wants something it cannot possibly consider realistic: for the US to collapse overnight.
When it comes to this specific narrative, all we need to do is take a few steps back and realize that:
- China is the world’s largest holder of US dollar-denominated reserves and would essentially be shooting itself in the foot by facilitating an overnight collapse which would make this form of Chinese wealth evaporate
- The global economy has never been so interconnected as it is today, with China still to this day being on the receiving end economically speaking when it comes to its relationship with the US, a state of affairs made clear by the trade surplus it is experiencing year after year. Once again, it would be shooting itself in the foot by orchestrating some kind of a grand conspiracy that risks jeopardizing this status quo
- China knows all too well that should something like an overnight collapse of the United States occur, simple game theory tells us the US authorities would be quick to point their finger at the most convenient “bad guy” so as to channel social frustration in that direction. We can all guess fairly easily who that proverbial bad guy would be at that point in time
- It is impossible for the US economy to collapse and not take everyone else down with it, including… of course, China. Not only that, but as financial calamities such as the 2007-2008 global financial crisis make clear, China would (at this point in time, at least) suffer more so than the United States even in the event of an economic calamity that originated in the US. As counter-intuitive as it may seem, it’s what happened in ’07-’08 and a compelling case can be made that it is likely to continue happening until China is finally granted a safe haven status by financial markets… we are not exactly there yet
As can be seen, the key to combating conspiracy theories surrounding China revolves around not letting fear take over (with many conspiracy theory peddlers being remarkably charismatic and perfectly capable of bringing out and leveraging fear) and instead, taking a step back and going over actual economic facts pertaining to China in a rational manner, something the ChinaFund.com team is more than happy to be of assistance with.