Weekend Reads from India: China, Capital Shifts, and Thucydides Traps

Led by China and the East, the world economy has changed at an unprecedented pace and scale. Shifts in the global pecking order could be even more significant by 2050. The 6th CFA China Investment Conference was an excellent opportunity to learn about some of the change drivers influencing investment opinion. Here are some observations and lessons from my two days in Beijing.

CFA China Investment Conference Takeaways 

Macro outlook, geopolitics, green financing, and fintech were among the core themes of the conference. In her discourse on the macro, economist Mo Ji asked the audience to revisit flawed assumptions and misjudgments. Past macro calls on US Federal Reserve tightening and a decelerating China, she explained, were wrong. Through 2018, expect a stabilizing China, financed through taxes instead of debt, Ji said.

Philippa Malmgren provided a refreshing viewpoint for understanding the evolving US-China relationship and China’s approach to the “one belt, one road” initiative, in her keynote address on geopolitics. According to Malmgren, China’s investments in such places as the Suez Canal and Rotterdam, The Netherlands, will reinforce “one belt, one road.” Collectively, these investments will help China gain commercial and diplomatic influence across a wider geographical area.

The green financing discussion focused on the growing severity of pollution, an overview of the green financing market, inter-country regulator collaboration, and the significant opportunities green investing offered.

Fintech presentations provided an insightful overview of diverse topics, including the A (artificial intelligence), B (blockchain), C (cloud computing), and D (Big Data) of fintech.

History and Now

China’s turbo-charged economy and the enormity of what the country has accomplished are amazing.

Less understood is what’s behind the nation’s deep motivation to grow. Perhaps China’s numerous epic monuments help tell the story. To me, these achievements embody the collective aspirations of the people. From the Great Wall of China, conceived in the third century BC, to the Forbidden City, completed in 1420, to China’s gigantic modern buildings and institutions, I sense an underlying drive to excel and expand and a hunger to supplement that desire with discipline and organized hard work.

Alibaba, China’s biggest e-commerce group, is a recent example of corporate success in organizational size and speed. While its revenues are smaller than Amazon’s, Alibaba has a much higher growth rate and handles more transactions every year than both Amazon and eBay combined.

China and India

The contrast between China and India is even more interesting.

There are many dimensions to consider: India’s socio-economic culture has leaned toward self-sufficiency and contentment rather than economic growth. For over 2,000 years, mainly because of invasions from the northwest, India came into intimate contact with the Persians, Egyptians, Greeks, Central Asians, Arabs, and Europeans. The country has adapted and assimilated cultures into her own. Jawaharlal Nehru’s The Discovery of India is a good reference for this history.

Many Chinese inventions have a practical utility — the mechanical clock, gun powder, and movable type. One of the better-known (arguably) Indian inventions, however, is abstract: the concept of zero. This is not to suggest that Indians are averse to economic growth. They are great innovators. But the inherent culture has been to assimilate, not expand.

In Closing

The economic future for the East and China, in particular, presents many more opportunities than challenges. But there is a risk that tectonic movements in economic power and corresponding capital shifts may lead to significant geopolitical strife. The biggest challenge perhaps is avoiding a Thucydides Trap and getting locked into destructive armed conflict.

Here are some links I found interesting over the last few weeks. Happy weekend.

Behavioral Economics

• Mental biases and The Ostrich Paradox. (Financial Times)
• “Why We Should Be More Ignorant” (Livemint)
• “Experiment 1: The Price of a Bribe” (Dan Ariely)
• “Governments Are Trying to Nudge Us into Better Behavior. Is It Working?” (Washington Post)
• “Power of Emotions in Organizational Culture” (Livemint)

China and the East

• “30 Charts and Maps That Explain China Today” (Washington Post)
• “Contingent Failures, False Analysis and the ‘Thucydides Trap’” (Financial Times)
• “Southeastern Shift: The New Leaders of Global Economic Growth” (Financial Times)
• “China’s Internet Giants Go Global” (The Economist)
• “Use Jugaad to Innovate Faster, Cheaper, Better” (Harvard Business Review)

Fintech

• “Should Blockchains Replace CEOs?” (Livemint)
• “Preparing for the AI Apocalypse” (Livemint)
• “Artificial Intelligence and IT Services” (Business Standard)
• “Fintech Startups Bank on Accelerators” (Economic Times)
• “Retail Banking May Lose 55% of Business to Fintech: Report” (Livemint)

Investing

• “Active vs. Passive Investing” (Bloomberg)
• “Star Research Analysts to Be Hawked for $5,000 an Hour” (Financial Times)
• “A Pay-Per-Publication System to Spur Research” (Livemint)
• “In Fund Management, Churn Is Not Necessarily Burn” (Financial Times)
• “70 Years of Saving and Investing in India” (Livemint)

Markets

• There are now more ETFs than stocks. (Economic Times)
• “Central Banks Need to Win Back Their Independence from Markets” (Financial Times)
• “Bad Loans Crisis: How to Rescue Public Sector Banks” (Financial Express)
• “IPO Shortage Keeps US Cash in a Few Wealthy Hands” (Financial Times)
• “Short Sellers Vindicated by Carillions’s Share Price Slump” (Financial Times)

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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