Today, I want to talk about the value of counting, applied to your own life and China. While the two topics might seem unrelated, they aren’t. In both, the simple act of counting anchors perception.
Availing Yourself to Measurement
We strive yet struggle to be better. That’s the human condition. And many of life’s most important vectors—like family, relationships, integrity and understanding—are impossible to measure. Are we doing them well or poorly? Are we improving? I think that’s why it’s helpful to seek out activities that do measure whether we are operating at a high level or not.
I’ll share a rowing anecdote to make the point. In 2016, I was upside down, underwater, my feet tied into a scull when it occurred to me that rowing is harder than it looks. Eying thin sculls skimming along a Connecticut river and after gobbling up Boys in the Boat, I had decided to take lessons in the most tippy of row boats, the single. That first year, not only did I flip, but, going backwards down waterways managed to hit buoys, a sailboat and an island, slice after fat slice of humble pie.
I gradually increased my meters and added in weights and yoga. I joined a group with a coach who offered pointers with such frequency they became the mantra of “don’t.” “Don’t rush the slide,” “don’t slump,” “don’t dig,” “don’t grip on the oars.” To be sure, rowing is recreation, not work. Some mornings I glided past a blue heron and once saw a bald eagle nab a fish.
In the US, the Super Bowl of rowing is the Head of the Charles, a serpentine rowing race that takes place next week in Boston. Less talented rowers get in by lottery and in 2019, my number came up. Rowing is a small and quirky enough sport that at an event like the Charles newbies bump shoulders with current and former Olympians. Going into the race, I felt pretty good. I’d been at it for three years, after all. Result: almost every rower in my event beat me. It was a wonderful comeuppance.
We don’t have many objective metrics on our personal lives but the ones that exist all help ground us. Weight, wealth, number and duration of close relationships all offer some guidance to our failings. We tend to deform reality in our favor. Our ability to self-deceive before being confronted with these metrics, like my rowing result, are a reminder we should do the exact opposite, assume that we are worse than the competition at the important things and need to improve.
This year, the lottery spun in my favor and I am in the race again, exactly a week from today. I will next publish 28 October, though we will share a fantastic podcast next week.
Measuring China
China can seem deeply unfamiliar to outsiders. The language is, to the Western eye, hieroglyphics. The culture is more Confucian, less Judeo-Christian. Leaders publicly appear in highly scripted, theatrical settings. Yet if I look at the products on my desk right now, a lot of them say Made in China. A place that is unfamiliar is also intrinsic to our lives.
To make sense of China, a template, objective facts and personal anecdote all help. In my case, anecdotes have become harder to come by of late. The last time I traveled to China regularly was 2019. Shortly afterward, China went on a lockdown from which it has yet to fully emerge. I miss seeing things on the ground and chatting in person with my Chinese contacts, many of whom are smart, worldly people.
Over thousands of years, China has had waves of opening up and turning inward. Under President Xi, China’s is once again turning inward in a way that repels its own entrepreneurs and foreign investment, lowers global productivity, increases the costs of what you buy and boosts the risk of global conflict.
The template for China is similar to Russia—a pre-modern (emperor as opposed to czar) administration with a more or less modern economy. Person #1 (as Xi is referred to inside China) has a degree of power that is unfathomable in the West. The big swings in China’s last 100 years came from a) civil war b) Mao c) Deng and now Xi. In such a system, who is in charge means everything. Xi firmly believes in “Marxism-Leninism,” the idea that Western countries are fundamentally unstable due to the nature of capitalism, which creates intolerable wealth differentials, while China is on the right side of history and will, long-term, prevail in a competition with the West. His behavior flows from that belief. How to assesses if Xi’s belief is grounded in reality? My answer: by measuring the simplest things, like if people are attracted or repelled by such a system.
Abolishing term limits is consistent with pre-modern administration. “China is ten-years behind Russia,” said one friend, a sharp Chinese woman who knows the US and China well. Next week, Xi is expected to abandon term limits, just as Putin did in 2012. For those less familiar with China’s history, it is hard to understate the significance of this move. China’s struggle with modernity is even more acute than Russia’s. A 5,000 year-old civilization doesn't adjust quickly to rapid economic change and abolishing an informal system of terms limits is away from modernization. Western leaders are often mediocre, but the political system limits the damage they can do. Pre-modern systems lack that safety feature.
Ukraine Doesn’t Appear To Shift the Trend. One might think that watching Putin’s debacle in Ukraine would force Xi to recalibrate his stance toward Taiwan and, more broadly, the West. Yet every step I am aware of where Xi has had a choice to escalate or de-escalate, he escalates, in terms of action in the South China Sea or state-propaganda, like his recent 15-part military paean “The Pursuit of Light.” Reading the Chinese papers, Ukraine is described as a tool of the West, particularly the US, which is asserted to be recklessly militaristic. I have not seen reporting in Chinese state media that identifies Russia as the belligerent.
Attraction versus Repulsion. There is a ton of data on China, including GDP growth, inflation, credit, etc. But the big question is—is the system going in a good direction? The simplest measure I know of is if people want to go or stay.1 Pulling up stakes is a tough decision. World Bank data on China net immigration shows consistent outflows. Anecdotally, I know a number of Chinese who continue to work with China but maintain foreign passports and others who are relocating to Singapore. Global companies including Apple, Google, Microsoft, Hasbro and Volvo have begun to reduce their exposure to China and move production to Vietnam, India and Eastern Europe. To me, the measures say that when given the option, many opt-out.
Less cooperation equals lowering living standards for all. China’s shift under Xi will impact outsiders in the form of lower productivity and higher costs and insiders in terms of less liberty. That’s the context to view the scramble to limit China’s access to chips. Key chips come from Taiwan (TSMC), Korea (Samsung) and to a lesser degree the US (Intel, Nvidea and Micron). The Biden Administration is seeking to limit China’s access to this technology, fearing military conflict. Challenges like global warming, medical research, pandemics, etc. are easier to fix via cooperation. But that’s not the direction we are going in. The world opened up from 1860 to 1914 and from 1980 to the early 2000s. Now we are all turning inward, which is self-reinforcingly negative in terms of wealth.
Investment Implications
More short-term, the key question for asset holders is how to negotiate through the highest inflation and fastest reduction in monetary stimulus we have had in decades.
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