Incompetence in China: Causes, Context and Coping Mechanisms

Whether you are interested in setting up shop in China or in simply gaining exposure to Chinese assets in a (relatively) passive manner, the ChinaFund.com team believes in being upfront and making it clear right off the bat that yes, incompetence will represent one of the major issues you will undoubtedly come across and to help you wrap your head around this state of affairs as a Westerner (especially), it makes sense to see things from the perspective of what we tend to call the three C’s:

1. Causes
2. Context
3. Coping mechanisms

With respect to causes, Western investors especially need to come to terms with the fact that… well, they’re not exactly in Kansas anymore and this time, it goes the other way around compared to the iconic movie we’ve borrowed the expression from. A lot of the privileges Westerners take for granted represent nothing more than a dream in certain parts of China and one of the consequences revolves around the fact that yes, competence tends to be harder to come by than in a more established jurisdiction.

Just a few examples of causes include:

1. A sub-optimal education system, with even basic literacy being anything but a given in certain situations, for example rural regions. While a lot can be said about Western education system and not necessarily 100% positive aspects, the fact remains that while the West has its share of problems, catering to the basics (illiteracy, for example) isn’t one of them. For more information on China’s education system, we would strongly recommend reading the article we have dedicated to this topic by clicking HERE
2. Let’s call them cultural issues such as corruption (covered through a dedicated article HERE), nepotism (covered through another dedicated article HERE) or, generally speaking, the fact that meritocracy isn’t put on a pedestal to enough of a degree (with us, yet again, covering meritocracy as well HERE)… all of this inevitably leads to jobs oftentimes being handed out based on criteria more in the realm of more or less petty interests than competence, a state of affairs that reverberates throughout China
3. The political dimension, one we cannot possibly hide from, with even key positions very frequently awarded in a non-meritocratic manner but this time, not as a result of corruption and/or nepotism but rather due to the sometimes excessive politicization of the administrative apparatus and other key sectors
4. Insufficient experience, with it being important to understand that China didn’t exactly flourish overnight after Deng Xiaoping’s famous Four Modernizations. It took not just years upon years but downright decades upon decades of efforts for China to end up where it is today, the world’s #2 nation by nominal GDP. Some things just take time and despite many shortcomings, one can analyze sector after sector in China (we do just that) and safely conclude that pretty much always, remarkable progress has been made compared to how things used to stand. It is equally safe to conclude that just like China is light years away from the West in terms of GDP per capita despite its impressive nominal GDP, it is also light years away in terms of competence in many respects but again, these things take time

To be a bit colloquial: know your turf.

Those who start businesses in China expecting sunshine and rainbows, with administrative processes at Western standards and high returns at Chinese standards, will be disappointed upon facing the realization that there is no such thing as a free lunch in the world of business and the same principle is valid for investors.

The West has had a decade and even century-long tradition of specialization and meritocracy. Therefore, even if not perfect, the various system and the people they consist of tend to seem… let’s say fine-tuned compared to their Chinese counterparts.

If you as an entrepreneur or investor end up bitterly disappointed by the fact that China tends to sometimes be rough around the edges when it comes to competence, a valid case could be made that you are more so to blame than China itself.

Why?

Simply because for decades, China has been chugging along nicely, what more could you ask of a country than decades upon decades where double-digit GDP growth was considered normal? Investors without a relatively firm grasp on economic history oftentimes fail to realize just how weak China actually was prior to the materialization of Deng Xiaoping’s reforms and just how much catching up was necessary.

To put it differently, it is anything but reasonable to judge a country that has experienced multiple streaks of double-digit GDP growth for not catching up to the West fast enough and therein lies the key to understanding the main message we are trying to get across when it comes to incompetence: yes, it can be aggravating and yes, it would have been ideal if China would have already been at parity with the West from this perspective.

However, this perspective is anything but realistic.

And in the spirit of just that, there is a reason why the ChinaFund.com team mentions time and time again how important it is to approach this jurisdiction with realistic expectations rather than projecting your ideal image of a country you’d like to invest in onto China and then being disappointed that in the real world, countries fail at living up to such exaggerated expectations.

We firmly believe that in the long run, investors who have the wisdom it takes to set realistic expectations and the patience required to see things through properly will be more than generously rewarded. Those who fail to do that will likely give up and blame a jurisdiction for their own shortcomings, which is anything but a healthy scenario. Needless to say, ChinaFund.com is at the disposal of those who want to pick our brains so as to embrace a realistic perspective on… all things China.