As counter-intuitive as it may seem, let us start with a straightforward answer and then spend the rest of the article elaborating and nuancing. And that answer is a definite… “probably” (apologies in the advance for the corny humor).
Right off the bat, it is worth pointing out that when the productive potential of over 1.4 billion people is unleashed, let’s just say it is difficult to put that genie back in the bottle. Even at this point, with a GDP per capita which barely surpasses $10,000 and places it light years below that of the United States (with a roughly 6.5 times higher GDP per capita) and pretty much all developed nations, China occupies position #2 worldwide in terms of nominal GDP.
Should things get even “kind of, sort of” in the league of parity, China would not only become the world’s number one economic superpower, it would be the world’s dominant superpower by a wide margin (wider than the current China – US one, for example).
In light of the record-breaking sustained GDP growth China has been experiencing for decades, many analysts are convinced that surpassing the United States is merely a formality. Despite the fact that the ChinaFund.com team firmly believes there is generational wealth building potential in China, we want to make one aspect perfectly clear: overly optimistic analysts couldn’t be more wrong.
To be more precise and avoid confusions, scenarios which involve a hassle-free “final stretch” for China frequently fail to account for:
- Economic history, plain and simple. Whether we are referring to the United States or any other past economic superpower, things don’t exactly tend to develop in a linear and boringly predictable manner, as any half-decent economic history book can confirm. Of course, if we take several steps back and blindly limit ourselves to seeing the big(gest) picture, everything seems fairly straightforward but on a more granular level, one cannot help but observe that the path to economic prosperity of a nation is frequently paved with brutal ups and downs. “This time, it will be different” is an extremely dangerous assumption to make (one which doesn’t have a stellar track record of panning out), so why do it when it comes to China?
- There being more to life (history) than economics. In fact, any economist worth his salt should be more than willing to acknowledge that without factoring in (potential) socio-political developments, an economic analysis is incomplete at best and ignorant at worst. Will a more prosperous Chinese population accept the current political status quo without blinking? Will the situation in jurisdictions such as Taiwan and Hong Kong remain contained indefinitely? The list of socio-political questions worth asking could go on and on
- The economic growth model of a nation sometimes becoming its number one enemy. Not exogenous economic factors, nor socio-political considerations. In the case of China, it has become increasingly obvious that internal consumption needs to become a more and more significant component of its overall economic growth strategy for its economic growth paradigm to remain sustainable. Reasons for this abound, from the sustainability of the current modus operandi from an endogenous perspective to exogenous considerations such as the growing concern among trading partners when it comes to the trade deficit they keep having to deal with when it comes to China
- Black swan events such as an unexpected economic calamity (whether or not China is at the epicenter) being remarkably effective at turning plans upside down. Please note that economic calamities only represent one possible example. Black swan events can be geopolitical in nature, pertain to natural disasters and the list could go on and on
At the end of the day, a responsible China-oriented strategy needs to account for the fact that while China becoming the world’s number one economic superpower is not just possible but actually downright probable, it might take considerably longer than most analysts anticipate for that to happen.
It is crucial to understand that “getting it right” is anything but enough for an analyst, timing is also key. In other words, today’s overly optimistic analysts are most likely “right” when it comes to the long-term dimension but what good does that do if the trading/investment strategies they recommend right now end up backfiring? As it frequently happens when it comes to less than flexible analysts, those who listen to them oftentimes find themselves wiped out by the time the market eventually catches up to them and proves them right.
In other words, it is not just possible but downright common for investors to be bankrupt and right at the same time. This is precisely the kind of scenario the ChinaFund.com team wants to avoid. Despite being quite optimistic on the long-term potential of “all things China” and putting our money where our mouth is, we also firmly believe in being anchored to the present, with the many challenges as well as opportunities this presents. Should you be interested in embracing our modus operandi as a client, we would happily assist with just that, simply reach out by accessing the Contact section of our website and let us know what we can be of assistance with.