In light of how often the adversarial relationships between either China and the United States or China and the proverbial West are discussed, one might assume that China always stands to gain after negative developments in the United States and/or in the West.
Antifragility is a term popularized by Nassim Nicholas Taleb (and which constitutes the title of one of his Incerto series books) and refers to things (anything from assets, to… well, nations, why not?) that gain from disorder. Think of let’s say an antifragile asset as an asset that would perform remarkably well if the worldwide economy were to implode. As such, investors sometimes resort to antifragile assets for hedging purposes. For example, you might not necessarily be a doom and gloomer as an investor but still decide to allocate x% of your portfolio toward assets you consider antifragile. Not necessarily as out of conviction but rather as a hedge of, if you will, an insurance policy.
Is China antifragile?
In other words, should investors allocate capital toward Chinese assets as a hedge against economic uncertainty in the West?
The answer to the first question is, plain and simple, no.
As far as the second one is concerned, the ChinaFund.com team believes you should have gaining exposure to Chinese assets as a goal for a wide range of reasons (many of which have already been covered on our website)… but antifragility is not one of them.
Simply because at this point in time, China represents nothing more than yet another piece (albeit a large one) of the puzzle that is our deeply interconnected global economy. Since Deng Xiaoping embarked on just that, a journey toward properly connecting China to the worldwide economy and making it a beneficiary of globalization (arguably the number one net beneficiary of globalization, to the frustration of many in the West), China has benefited tremendously not be isolating itself from the status quo but by embracing it.
As such, even from a strictly theoretical perspective, it would make little sense to assume that the number one beneficiary of the globalization-facilitated status quo would end up flourishing if the very status quo that enabled it to experience double-digit GDP growth up until 2010 and robust (albeit less impressive) single-digit growth afterward would go belly-up.
Even empirically speaking, it has been proven time and time again that no, China is not yet considered a safe haven jurisdiction by the market. We have actually dedicated an entire article to just that, an article which can be accessed by clicking HERE. As a bit of a summary, we have provided evidence on more than one occasion here on ChinaFund.com which makes it clear that nations such as China oftentimes end up suffering more so than the proverbial West, even after financial calamities which had their origins precisely in a top Western country/sector.
Does this mean China can never become antifragile?
Of course not, it simply means many other pieces have to fall into place for that to happen. For example, if multi-year developments in China end up leading to a status quo at one point in the future which revolves around China representing a let’s call it alternative to the West rather than an economy deeply dependent on it, then of course, this discussion can be led based on an entirely different framework.
Right now, that is most definitely not the case.
Will scenarios which ultimately facilitate that unfold?
While human beings tend to be quite terrible at predicting the future and are better off hedging than trying to do that, our team can definitely think of several scenarios where China would essentially end up becoming a stand-alone puzzle or part of a different puzzle rather than a piece in the large Western status quo one:
- Scenarios which revolve around China itself deciding that it is time to rip the proverbial umbilical cord which connects it to the West, perhaps because it considers that the current status quo was the ideal choice while it was playing catch-up in terms of nominal GDP and that for the current phase of its development, distancing itself is a proper approach
- Scenarios which revolve around China essentially being forced to distance itself from the West rather than this occurring by choice. The current trade tensions with the US might end up representing something along the lines of the beginning stages, with many economic as well as geopolitical developments potentially leading to scenarios in which certain nations such as China end up ostracized
- Scenarios which revolve around China distancing itself from the West by choice but not so that it can act as a stand-alone entity but rather because other (more attractive, perhaps) allies have emerged which are able to put a better perspective for China on the table
Regardless of which scenario (if any, of course) ultimately unfolds, this much is certain: should China end up meaningfully distancing itself from the West for one reason or another, discussions can start as to whether or not it will or should be perceived as antifragile.
Also, do keep in mind that the mere idea of distancing itself from the West cannot be enough, it needs to be accompanied by robustness on fronts which range from economic to military one. Let’s just say that otherwise, North Korea would be considered antifragile, something that is obviously anything but true.
Therefore, as a final conclusion: no, China is most definitely not antifragile at this point in time and for that to change, a multi-year series of events would need to unfold.
Can it eventually become antifragile?
Yes, if the right set of circumstances present themselves, as explained previously.
Is it likely?
Short-term speaking, no, with the important caveat that in the world of geopolitics, “never say never” are wise words to live by.