I recently came across an insightful article on China by Louis-Vincent Gave. Based in Hong Kong, Louis is one of the strategic thinkers I follow closely. My clients are well aware of my long-term view on China and I found Louis’s perspectives particularly relevant to the broader narrative I have been sharing with them over the years.
Here is a section:
At an investment conference in Kuala Lumpur recently, I caught up with an old friend and Gavekal client. Over coffee between sessions, we talked about one of the most visible changes of the last few years in Asia: the Chinese cars that have so quickly appeared on roads across the continent. This led us to the comments made in September by Ford chief executive officer Jim Farley.
Freshly returned from a visit to China, Farley told The Wall Street Journal that the growth of the Chinese auto sector poses an existential threat to his company, and that “executing to a Chinese standard is now going to be the most important priority.” By any measure, this is an earth-shattering statement.
Making cars is complicated. Not as complicated as making airliners or nuclear power plants. But making cars is still the hallmark of an advanced industrial economy. So, the idea that China is suddenly setting the standards that others must now strive to meet is a sea-change compared with the world we lived in just five years ago.
This led my friend to question how Farley and other auto industry CEOs could have fallen quite so deeply asleep at the wheel. How could China so rapidly leapfrog established industries around the world without all those very well paid Western CEOs realizing what was happening until two minutes ago?
There are many possible answers to this question. They range from the obvious through the historical and cultural to the tin-foil hat variety. And they are well worth reviewing in an attempt both to understand where China is today, and to highlight the blind spots some investors still suffer from when looking at the world’s second largest economy and their implications for markets.