Why the 21st Century Belongs to China

China.

Arguably one of the oldest civilizations that exists, China is a mystery to many. Its history, culture and outlook on the world are widely debated topics today - and for a good reason.

In my introductory article, I talked about how China was going to become the country of the 21st century - its centre, and engine for growth. 

Few can deny the way China has grown to become what it is today.

Over the last 30 years, an economic miracle has happened in China. With the liberalization of the Chinese economy set in motion by Deng Xiaoping in the 70s, China's economy grew at an average of 10% per year, lifting hundreds of millions out of poverty in the process.

Since those days, China has undergone the largest economic expansion in the history of the world. And despite China's 'communist' fa?ade, just like Vietnam, it has adopted a capitalist approach to communism - one that has served it well. 

For all the talk about China slowing down, China is far from slowing down, at least in nominal terms. Yes, economic growth might go from 7 to 6%, but it’s still 6%. That’s still twice the rate of most developed economies.

And that isn’t about to go away.

At the 2017 World Economic Forum in Davos, President Xi re-iterated China’s commitment to free trade. And this is a man who means what he says.

In 2013, China unveiled the Belt and Road initiative, arguably the largest infrastructure project in history, spanning 68 countries, 65% of the world’s population and 40% of global GDP. Its goal: to construct a global trading market, the centre of which, of course, is China.

All of the countries affected will become serious trading partners with China. And that has huge implications for the future.

Chinese Entrepreneurialism 

I first came to China in 1998, and have returned many times since. I lived there for a year during the Global Financial Crisis - to learn Mandarin, the language of the 21st century. Like many people who’ve spent any significant time in China, I have seen the country and its people do incredible things.

They’ve defied all expectations, and have become the second largest economy in the world. And there's a reason for that.

Robert Kuok, the billionaire Malaysian businessman who owns the Shangri-La Hotel among many other businesses, argues in his fantastic memoir that the greatest entrepreneurs in the world come from South China. That applies to the most successful in Hong Kong too - they all come from the same area in China.

None of them went to university. None of them have degrees. But they have this amazing talent for entrepreneurialism. They work hard, and they’re smart. 

I've seen this first hand in China. The Chinese have entrepreneurialism in their blood.

They save. They produce. They think long-term.

Now, I am aware that this talent may not apply necessarily to all 1.3 billion Chinese people. But anyone who’s been there knows there’s an incredible dynamism to the place. 

The Chinese have been suppressed economically for a thousand years or so - and now that they’re open to innovate, it’s an incredible tsunami of excitement and energy. 

In Shanghai alone, there’s 145,000 companies registered to do business. 

Why? Because they see the potential, the energy.

The Bay Area

China has an incredible advantage, unparalleled by any other region in the world. While Silicon Valley has risen to fame these last thirty years for being the entrepreneurial hub of the world, the next thirty years will see the other Bay Area shine - the Chinese region spanning from Hong Kong and Shenzhen all the way to Guangzhou - a place with innumerable advantages no other place can match.

It spans 11 cities, an area of 55,000 sq km and a population of 68 million. It sports start-ups, manufacturers and shipping logistics.

An investor I know recently visited the region, looking at venture capital deals, and came back astonished. When the innovators upstairs in the offices came up with a new design or product, they just went downstairs, bought or produced it on site, and came back upstairs to test it.

He saw the integration of industry and manufacturing, innovation and logistics as a total game-changer.

And I agree.

Soon, this will become the manufacturing and innovation capital of the world. There is no doubt about it. 

Silicon Valley has innovation, but it doesn’t have logistics or manufacturing. It doesn’t stand a chance.

On top of that, the government welcomes innovative entrepreneurs with open arms. 

China's Future

Sure, China has its fair share of drawbacks. It isn’t exactly a bastion of human rights, of sound banking or of sustainable debt. But those will be short-term issues, and China will power ahead.

On that note, a lot of investors are worried about Chinese debt; but I would argue a lot of it has been productive debt. It’s gone into airports, cities and railways.

For all the debt that’s out there, it’s not Chinese debt I would be worried about. (The US went more than $1 trillion into debt this year…a great year, of solid economic growth. I wonder what that will mean when the next recession hits).

And regardless, investors should take the long view.

When I first went to Pudong in 1998 - one of Shanghai’s most trendy areas, there was not a single building. Today there are more than 4000.

In the last 10 years, China spent $11 trillion on infrastructure. American wants to spend $1 trillion over the next 10 years (if Trump can get the money). Think about that for a second.

This is the greatest explosion of wealth creation ever seen. 

All these people become contributors of the economy. And in the long-run, domestic consumption in the country is a huge opportunity for investors. 

It is no surprise that PwC estimates that China’s economic might will dominate the next 35 years, at least. 

There is no arguing that China will be the most important country of the 21st century. 

And if the US keeps crawling inwards, rather than outwards like it historically has, China will get become the de-facto leader of the world even faster.

And China is strategic. Whereas most western democracies think in terms of 4 to 7 years - as long as a given political party can stay in power - China thinks in decades. Even centuries.

It is already visible everywhere. A few years ago, I was in Tanzania to climb the Mt. Kilimanjaro. Driving around, there was construction everywhere. But every single site was manned by locals, and supervised by a Chinese. 

The same was true where I worked in Papua New Guinea, where the Chinese owned the few stores and pieces of real estate that existed.

The Chinese have understood that their need for resources over the next decade forces them to be strategic in their alliances - and that helping to strengthen countries who possess these resources is in their interest.

They have been loaning money to select countries, and building infrastructure abroad that will serve them in the long run.

Just recently, the Chinese loaned $5 billion to the state-owned Venezuelan oil producer, PDVSA - because China is a net oil importer, that relies heavily on the black gold. This trend is prevalent everywhere, by the way. The Chinese have cozied up on the Russians for a reason. 

China and its strategic game for trade and resources is a trend no one should overlook.

In will bring gigantic opportunities for anyone willing to do even a decent amount of work digging out opportunities in either China directly, or through beneficiaries of Chinese investment - whether in Latin America, the rest of Asia or Africa. 

I will talking a lot more about these opportunities in more detail in coming articles. 

I’ll also be traveling to China to look at opportunities for venture capital there. If you’re interested in learning more, feel free to get in touch.

More to come.