From Tim: If this keeps up, I won’t have to write any posts at all – – I can just reprint emails from Slopers! Anyway, a gentleman wrote me in response to last night’s China Deal post, and he has granted me permission to share his email here (which I’ve slightly edited for clarity and brevity).
Tim: I read your post titled “The China Deal” and am forced to disagree with a number of key contentions in the article. I realize you didn’t write the article and I’m not sure to what degree you agree with all the assertions, I thought I’d offer a slightly different opinion on a few (definitely not all) of the points.
I’ll preface this all with the fact that I am not based, nor do I live in China. I also have no “expertise” in China. My background is foreign exchange markets (FX in Wall Street speak or “Forex” to retail investors) and I’m what professionals would call a “macro tourist” (ie I look at the macros more in passing than professionally). Having said that, I’m confident of the following points:
- The following is not a likely outcome (despite it being mentioned as one of three likely outcomes in the article):
“Trump concedes defeat and the status quo continues.”
In fact, this is so far from a likely outcome that I feel it is the LEAST likely of all outcomes (including a great number that were not listed among the three). I’d go so far as to argue the odds of Trump coming out and saying, “I lost the Trade War, I’m a loser” are right there next to 0. His ego just won’t allow it.
I do agree that China giving Trump a token COULD be the final outcome but I think the size of the potential “token” could be far larger than the equivalent of “seashells” in the Caliugla example.
Next, I think it’s a great leap to assume that the “totalitarian nature of China’s Stalinist roots” will prevent entrepreneurship, creativity and invention. And that to assume that “the economic system that can create advanced integrated circuits require western constitutional democracy” implies some sort of western bias.
Just because Silicon Valley has been the center of innovation for the last 30 or 40 years doesn’t mean it’s the only place innovation can thrive. I would also point out that there are a number of Chinese companies that have managed to “out innovate” Silicon Valley, New York and London for years (but only in very specific areas). Facebook and Whatsapp have been trying to catch up to Tencent’s WeChat for years (if not more than a decade). The same can be said regarding, Alibaba’s small business lending arm and Alipay, Tencent has a similar payment platform (and lending arm) that transact more seamlessly than both Mastercard or Visa at nearly 0 cost to the merchant.
Some quick stats I pulled off Google include:
Alipay Q3 2018 transaction volume: 8.3 Trillion USD (yup with a T)
Alipay active users: 1.1 billion
Apple Pay active users: 150 million
Lastly, the comment that the Shanghai market being down 50% has not bothered the “Red Dynasty” is just untrue. While the Communist party is less concerned with the ascent of their stock market than Trump is, they clearly understand the fact that a decline in the stock market can have provide a negative signal to investors (in capital goods and production) and to lenders. That negative signal in turn can induce a slowing of both lending, capital investment and thus growth. And growth is obviously of the utmost importance to the government as it’s essential for social stability.
Anyways, I don’t want to beat a dead horse but I think at least two points made in the article are factually inaccurate and one is an assumption that uses correlation to imply causation.