Recently China officially overtook Japan to be the second largest economy behind the USA.
CHINA has become the world’s second biggest economy according to data released on Monday August 16th. Japan’s economy fell behind China’s at market exchange rates in the second quarter. Japan’s data have been seasonally adjusted while those for China have not. Quibbles aside, Japan will surely be eclipsed soon, if it has not been already.
In History, China and India have been the biggest economies most of the Time.
Data compiled by Angus Maddison, an economist who died earlier this year, suggest that China and India were the biggest economies in the world for almost all of the past 2000 years. Why they fell so far behind may be more of a mystery than why they are currently flourishing.
The Japanese Were Taking Over America
Remember the Flood of Japanese Investors in North America?
Remember how a few years ago, everywhere you looked in North America it seemed that Japanese were buying up the assets. They had the best TV’s, the most advanced electronics, the most modern manufacturing facilities, the best cars. It seemed that most modern products in most stores came from Japan. They used those dollars that they made from exporting to North America, to come to North America and buy up assets. They were everywhere buying movie studios, manufacturing cars, buying landmarks in New York City and elsewhere.
What Happened to Japan
There was great fear that Japan was buying the biggest and best of the Western world. Now, a couple of decades later, Japan has been eclipsed by China. How ironic. Japan has an age problem and restrictive immigration policies. The population is aging as a whole. Older people buy less, they do less, and the social network must look after the elders of a society. So Japan has more or less treaded water for two decades, and now they are slipping further and considering what stimulus to apply to get the country moving. Unfortunately, they are facing nothing other than falling birth rates.
China – The New Powerhouse
Now we have a country with a billion workers, an exploding economy, creating more middle class people every year than the existing number of middle class people in North America. The numbers in North America are slipping while the numbers in China are exploding.
Everyone is fearful of the massive currency reserves in China. China is on a mission to buy resources. They have concentrated in Africa, building highways, buying mineral deposits, financing mine developments, etc. They have tried to buy in the USA but have been somewhat rebuffed, They have bought into the oil sands in Canada and have bought or financed many mineral resource operations.
China is buying what the Cymorfund believes is the key to the future, Buy resources.
A Longer Term Perspective
Investment Advisors generally say that China is the place to invest. We believe that China is not the place to invest. There remains a lack of law regarding ownership and title. Government still dictates to a large extend certain aspects of the economy. Many economic decisions are influenced by political decisions. The rules of business are different to those in North America.
There is a basic rule – “Invest in what you know.” We believe that people with insight into the Chinese economy can do very well, but it takes being local and knowing how the system works.
One must also take a longer term view and a historical perspective. China will have many bumps along the path. Remember Japan. Remember the USA a few years ago. China will falter and stumble as all growing economies do, and as historically China has had great movements of political thought that overran economies. We can’t predict what specifically what will happen, but we can say with surety that something will happen.
This brings us back to our basic investing philosophy. Political risk is something we try to avoid. Relying on third party information solely is something we try to avoid. We want to be able to meet management, to touch and feel. We invest in what we know and we stay in places that we know. There are great rewards to be had from investing in what you know.
