Inevitable Chinese Slowdown "A Myth"

Whether China will slow down and by how much is the macro question of our time. It affects everything from global political order to how much our houses are worth in the States. Found this FT article that presents a counter-argument to the conventional wisdom that China must slow down drastically from here. Since I don’t have subscription to the FT I found this site that just pirated the whole article… :sweat:

Some excerpt:

…based on comparisons with its more developed neighbours, Mr Lueth argues it is “a myth that the growth of China’s Asian peers slowed when they were at China’s level of development, as measured by GDP [gross domestic product] per capita”.

Taiwan managed to sustain growth rates of around 7 per cent a year for a decade after reaching China’s current level of GDP per head at purchasing power parity, around $11,000, in 1992. South Korea even managed 8 per growth for a period, having reached China’s current level in 1989.

“Taiwan and Korea still had a lot of growth left [at China’s current] level of development,” Mr Lueth says.

Singapore, however, soon trended down to growth of around 5 per cent (from 1979 onwards), while Japan plunged precipitously to 3 per cent (from 1969).

This analysis, then, would seem to suggest that, while a continuation of robust Chinese growth is far from guaranteed, it is not inevitable that it has to slow from here.

An alternative way of looking at the same data would be to analyse Asian growth with respect to what Mr Lueth calls the “technological frontier”. For instance, while China has reached the level of GDP per capita enjoyed by South Korea in 1989 (in PPP terms), it is further behind the US (the embodiment of the technological frontier) than Korea was in 1989 because the US economy has continued to expand in the past 28 years.

On a PPP basis, China’s GDP per capita was only 21.2 per cent of that of the US in 2014, according to LGIM.

Using this as the reference point, China could expect to see robust growth for the next 15-20 years if it followed the trail blazed by its neighbours…

If China would just catch up to 60% of US GDP per capita, its economy would grow 3 times as big. Reminder to myself: need to buy myself some Alibaba.

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I’ve been debating buying some Alibaba, Baidu, and Tencent in my retirement account. They seem to each dominate different areas and have very little overlap. They are poised to dominate in China as the middle class grows.

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Forget Baidu. It’s not in the same league as Tencent and Alibaba. Tencent just had a big drop in the Hong Kong market because the official media criticized its game for being too popular among young people. Tencent responded immediately saying they will restrict play time to 1 hour for anyone below age 12.

That’s capitalism with a heavy dose of Chinese state control.

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There’s no doubt in my mind that China will eventually rise to the same level as Japan and the four Asian Tigers. Not only that, North Korea will eventually rise to the same level if they manage to end their isolation and focus on economic growth.

As always, the only 2 ingredients needed for a successful society are capitalism and an intelligent populace. All East Asian people are highly intelligent. They just need to adopt capitalism to succeed.

I think you should give Baidu a chance. This is not winner takes all. The Chinese internet space is so humongous that it can allow for multiple players.

Buy the horses not the pear.

How about buy the donkeys not the apple?

Searches are irrelevant on mobiles, and baidu still is mostly about searches. The only bright spot is baidu map. They are trying to make it into a platform. While I was in china every driver I saw used baidu map. But tencent also has a map. I am not sure just the map alone will amount to much.

Google is also mostly about searches. How irrelevant are they? Bidu is doing O2O, which drove down their bottom line, and stock took a toll because of that. However, I feel what they are doing is good as strategic investments. One of those efforts should bear fruit.

The west still has a lot of desktops so google still makes a ton of money on searches. Chinese internet is mobile first and increasingly mobile only. Therefore Baidu is irrelevant in china.

Alibaba and tencent are the dominant players in O2O. What does baidu have to offer?

You can also say BMW and Toyota are the dominant players in autos. What does Tesla have to offer? Also, why must mobile devices and search be incompatible?

Also, keep in mind that all the companies you are investing in already have a giant market cap. Big ones can obviously grow bigger but to be incredibly successful one has to take risks with the smaller ones. @hanera wouldn’t be here boasting every now and then if he had invested in MSFT rather than AAPL back in 1997.