Sunday , 3 December 2023

Ground Level Insights Into the "China Condition" (+2K Views)

I have a personal friend who spends months every year developing business opportunities in China and I find his ground level perspective unlike anything written elsewhere. If you really want to know what is transpiring there go no further than to read this insightful email on the “China condition” particularly as it compares with that of the U.S. and Europe. Words: 1320

Lorimer Wilson is editor of (Your Key to Making Money!). The views and conclusions of the email below are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Below is Paul Gibson’s ( email:
Good morning Lorimer,
Thank you for bringing Frank Holmes’ article “Heart of China Bull Beats Strong” to my attention. I totally agree with Mr. Holmes position but let me take this opportunity to add my on-the-ground observations, assessment and comments on the China condition and certain major differences between China and the U.S and Europe.
While there are challenges in China – you don’t see a transition from absolute socialism to probably the most capitalist country in the world in 20 years with sustained growth of 10% for well over a decade without going through some very drastic growing pains – the government in China is aware of many of the risks and is trying to address them. I think they will be successful, not because they are smarter than the rest of us but because, as Mr. Holmes points out, they have the resources to succeed.

 Real Estate Reality

The real estate market is a perfect example of the difference between China and the U.S. or Europe.

The U.S. housing market was a bubble: To me when a bubble breaks it has catastrophic effects, destroying a market for years to come. That happened in the U.S. While there are some signs of a recovering housing market there, I have seen predictions that parts of the country will be substantially under water for 20 years or more. That was a bubble.

The Chinese housing market is only undergoing a correction: There may be 100,000s of apartments unoccupied but this is a country of 1.3 billion people, with 1 million people moving to the cities every month. That excess capacity can disappear very quickly. The numbers here are always astronomical and you have to keep that in mind when someone uses them to make a point, whether good or bad.

A bubble or a correction may be semantics, but it is important to investor sentiment. Dire predictions tend to be self fulfilling. Take Europe, I do not think the situation in Europe is unfixable but if we keep telling ourselves it is unfixable it will be unfixable. Investment is about trusting people to do good things with your money. If too many people talk like Gordon Chang then trust is lost and the whole system falls on its ass.

Shadow Banking System

There are always stories in China like the shadow banking system, and it is absolutely true that it wiped out much of the wealth of the “Chinese Jews” (investors from Wenzhou) but again there is a story behind it. They started out selling paper shoes to the Russians, they did not do well in the rain! They were basically crooks who made so much money they went legit, but they were still crooks at heart and the export squeeze in China caused liquidity issues for them, then the government tightened the credit rules and they turned to the shadow banking system (I love that term, it is so genteel). They were about as sophisticated investors as Tony Soprano would be. They got over extended, went to loan sharks and paid the price, sometimes dramatically.

Benefits of State Capitalism

You simply cannot compare China to the U.S. and Europe today. If you want to make those comparison then you must compare them when they go through their supercycles and even then the comparison breaks down.

There has never been a time in history when 1.3 billion people were on the verge of becoming significant consumers. When the U.S. went through that process the population was around 150 million or less (12% of China’s) and then there is India with another billion people about 20 years behind China and during those 20 years that population will surpass China’s. While the Gordon Chang’s of the world would no doubt predict that that will turn the world into a festering ball of slag, I believe it will foster a new age of innovation. It is already happening.

China is the world largest green house gas producer (while its energy consumption per person is 25% of the U.S.) but it is also the world largest consumer of U.S. developed, clean coal technology and generates more power from renewable energy sources than any other country in the world. I predict China will be the first country to embrace widespread electric vehicle use for one simple reason – private enterprise cannot build infrastructure! The ROI is just too long and too diverse. Private enterprise could never produce the U.S. interstate highway system or the railway system in Europe. The Chinese government will make the investment or more likely create the incentive for private investment in the infrastructure to support widespread use of electric vehicles. Meanwhile the U.S. will stay tied to gasoline, because no oil company is going to invest in charging stations that compete with selling gasoline and power companies have shown little interest in building them. Furthermore,  most of them can barely keep up with peak demand from their current customers. I do not believe in state capitalism but there are times when it has its uses.

Americans Need to Take Risks Again

It blows me away that the U.S. is a nation of immigrants yet they are so myopic. I still find it hard to believe that the average American really thinks if they stop importing stuff from China that all their problems will go away. U.S. investors need to stop looking at computer trading models and go visit places like China and find out for themselves. Ok, that’s not practical, but they have to stop listening to Gordon Chang’s and grow a pair – or maybe it’s re-grow a pair. They need to start taking some risks again. Like the risks that created industrial giants like GE and GM or more recently companies like IBM and Cisco. I have deliberately not included companies like Facebook because I am too much the engineer to consider a company that is nothing more than a web site to be worth the billions that some people think it is. Corporations think of the world as a global marketplace and investors need to realize there is a world out there to invest in that will give them far greater returns than U.S. government bonds.

China has Great Investment Opportunities

I am not trying to whitewash over the issues in China. There are many risks and pot holes in the investment road in China and the unguided investor is far too likely to find the wrong investment and lose their shirt or more likely leave a lot of money on the table. The Chinese love foreign investors because they can give them 15% or 20% and they leave smiling, meanwhile the Chinese partner has doubled their investment on the side deals that invariably get done and the foreign investor didn’t not even know it was going on, much less get a piece of it.

Only time will tell who calls it right, but I don’t believe China is steaming towards an iceberg. I think the greatest opportunities are in the developing economies and I think China is by far the safest of those countries to put your money in.

Another too long email,


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