Stereotypes in China and How They (Might) Affect Portfolios


Before getting started, it is vital to remind investors not to (over-)judge themselves for falling victim to the human nature-induced tendency of stereotyping. As toxic as that behavior frequently proves to be in today’s society, it is excusable to a certain degree due to being an integral part of who we are for obvious evolutionary reasons.

When it comes to the lives of our ancestors, stereotypes very a key to survival. Through simple stereotypes such as “tigers = dangerous” or “nuts = good”, our species (homo sapiens) has been able to not only survive but thrive for over 200,000 years, let’s not even talk about the 2,000,000-year track record of homo as a whole. Without genetically-programmed stereotypes, we might think petting tigers is a good idea or fall prey to paralysis by analysis when deciding what to eat.

To this day, we essentially rely on stereotypes for most day-to-day tasks that we conduct in an automated manner (instinctively, if you will, or without critical thinking being required) and there’s absolutely nothing wrong with that. In their absence, most of the mundane decisions we need to make quickly to go about our day would end up taking so long that human activity would without a doubt be paralyzed.

Unfortunately (or fortunately), stereotyping shows its limits in our complex society. In other words, the (financial and otherwise) world we live in today is far too sophisticated for simple stereotyping to make sense.

Who was the strongest man in the world for 8 years, the mild-mannered and anything but rugged Barack Obama or the world’s #1 heavyweight boxer?

Should we improve our communication potential by becoming better-skilled speakers (fine-tuning the “tools” we have had at our disposal since time immemorial) or inventing fancy small metal boxes through which we can communicate by touching a screen?

As can be seen, in many respects, it becomes multiple orders of magnitude more difficult to determine if what we perceive as “obvious” is indeed… well, obvious.

The same principle applies to the world of finance in general and investing in China in particular.

Since China decided to open up to the West and become a potential business partner of anyone who shows interest, or let’s say after the Deng Xiaoping reform days, it has become a highly-debated topic on all economic fronts in the West.

“China is great for cheap labor but not much else” and “What do you mean Chinese consumers? Sell to the Chinese rather than buy from them, you say?” for example have become so widely-spread as thought currents that the average Westerner ended up accepting them as the status quo framework with respect to China.

Was this a lie right from the beginning?


Of course China was not exactly attractive as a destination for complex and high value-added industries in the early days of socialism with Chinese characteristics, how could it have been? With a sub-optimally educated population, improper infrastructure and extreme “Wild West” feel, of course the let’s call them pioneers of Western investing in China ended up taking advantage of opportunities for the most part aligned with wage cost arbitrage for simple tasks. The same way, of course there wasn’t all that much potential associated with bringing most Western products to China back then due to the population still struggling with basic survival, common sense 101 and there is absolutely nothing wrong with admitting that the early days of investing in China were let’s say anything but glamorous.

The real mistake, however, is remaining stuck in the past.

Of assuming China is still only a worthwhile destination for low value-added products and being downright shocked to find out that China has been dominating a wide range of high-tech industries, anything from being the number one producer of both solar and wind energy to being a major player in the electric vehicle markets.

Chinese hipsters, you say? Why, yes!

One hipster at a time, if you will, China started actually having a middle class and as explained through previous articles, it’s growing stronger and stronger. Not only is the “only subsistence-related products sell in China” narrative outdated, the opposite is true in some cases, with for example China representing the world’s #1 market for luxury goods at this point in time.

By the time investors who chose to passively remain stuck in the past understood the error of their ways, key markets had already been cornered and the low hanging fruit associated with various new industries was long-gone. Many of the same investors ended up therefore becoming bitter and walking away from China altogether instead of simply changing their strategies so as to become better at spotting generational mega-trends in the future.

The team is here to help you do just that. As an entity which has been getting its hands dirty in China in the best possible way for over a decade, is more than adequately connected to the realities of China. As our loyal readers have realized by now, we aren’t here to sugarcoat the problems of China but on the other hand, we are not willing to be stuck in the stereotypes of the past either. Instead, we embrace brutal honesty when it comes to all things China and choose to be upfront with our clients with respect to the good, bad and yes, even downright ugly associated with this jurisdiction.

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