Two offerings from new ETF issuer KraneShares offer fitting exposure to where the country’s growth is headed.
Jared Dillian is the editor and publisher of The Daily Dirtnap, a market newsletter for investment professionals, and the author of “Street Freak: Money and Madness at Lehman Brothers.”
I have been stumped by China for years. OK, let’s start from the beginning.
We are Americans. Well, maybe not all of us, but most of us. Most, but not all of us, are Westerners. So, as Westerners, what is our impression of China? Well, that it steals everything. And that everything is fake, including its economic data.
In fact, you only have a vague idea of what’s going on, in a relative sense, of whether the fake data is going up or down. And it has ghost cities. It has massive infrastructure overcapacity. And it’s in the midst of this depression brought about by overinvestment, which might take it years to work out of. And most of all, it’s still Communist! And it has five-year plans, and it is a central planner, and we all learned in junior high that the planners fail at their planning, and free market economies do it best, right?
Right. But paraphrasing David Goldman in a piece from PJMedia.com, sometimes a well-run dictatorship can outperform a bad democracy. And the reality is that our democracy is so screwed up, and the regulatory environment is so clownishly bad, that even a giant state-run economy can grow faster, and possibly even innovate more.
We like to sit around and be smug about our freedoms and being free and E pluribus unum, but we’ve been doing just a colossally bad job at managing our affairs. And it seems that it will only get worse. So yes, we’re going to get lapped by China, in every way imaginable—economically and militarily.
So what brought about my sudden change of heart? When I read that David Goldman piece, it occurred to me that—once again—the conventional wisdom is always irretrievably wrong, especially when the conventional wisdom is so plagued with biases.
I have not been to China, and I’m sure that many of the people who write about ghost cities haven’t, either. For the record, China continues to move huge numbers of people from rural areas to cities, in what might be the largest mass migration ever. Since we are talking about things that are the biggest ever, there are usually trades to put on around things that are the biggest ever.
But first of all, let’s consider that when China got around to doing its last five-year plan, back in 2011, it was well aware of the ghost cities and the overcapacity, and they resolved to do something about it: cut back on investment and increase consumption.
So it is minimizing the influence of the smokestack economy and attempting to develop a technology-based economy. And of course, since it’s centrally planned, there is waste, but not all of it. There will be big, important technology firms going public in China in the next few years, funded by equity, not state-owned bank debt. Many of them will fail. Some of them will succeed.