U.S. Vs. China and C.Y.A. Society
United States vs. China, The Innovation Battle
Does it seem like the United States is no longer excelling like it once did? Mike Green and Louis Vincent Gave, CEO of Gavekal Research, discussed why C.Y.A. attitudes in government and corporations have become an anchor to western society. That anchor is allowing China to gain a foothold on the world stage – especially in the financial space.
Education is paramount to training your labor force to meet the needs of an economy. Gave and Green recognize that China is doing a far better job with their education curriculum – particularly at university. Those students are prepared for finance, science and technology. Comparatively, in the United States those fields are encouraged but too many leave with ‘French Medieval Literature’ degrees, as Gave puts it. This puts the U.S. at a disadvantage because students leave school only to enter a workforce that cannot pay them wages that match their education. Both Green and Gave attest there is not enough emphasis on skills education like electricians, plumbers, contractors or computer science & engineering degrees.
Comparatively, China has moved full steam ahead in the FinTech space. AntFinancial could be off to a huge head start as China is one of the first movers in the Central Bank Digital Currency arena. By building digital currency apps for smart phones, they can provide an alternative to U.S. dollar conversion among international business. Transactions will be quicker and secure.
Ant Financial is set to raise $34 billion through its IPO. It will start trading on Nov. 5 on the Hong Kong stock exchange at $10.32 and Shanghai stock exchanges at $10.27 on an undisclosed date.
Xi, The First Imperial President
Xi Jinping is the first outward looking president of China to start building bridges with other countries, Green and Gave feel. China has begun building trade routes to Africa, the Middle East and Europe. Hong Kong has become the financial capital of this new empire. Capital is flowing to their bonds as investors seek positive interest rates.
Green and Gave have noted this situation is analogous to the personal computer wars of the new millennium. Microsoft owned the market share of home computers. Apple, knowing they could not take on that behemoth, began targeting niche markets – schools, journalists, etc. They gained as much ground as they could, until they came up with a revolutionary technology: the smart phone. This parallel might explain what is going on in the U.S. vs. China rivalry. The Chinese knew they could only make so many inroads in the current market, but as the world moves to digital currency, they will be well positioned to grab market share when the shift occurs.
“China is creating a parallel system so that you no longer need to use the US dollar if you don’t want to, Gave stated. “And just like the smartphone was easier to use than a PC, these payment systems are going to be easier to use than the Swiss system. And that’s a massive game changer.”
The CoronaVirus Accelerant
The COVID 19 pandemic didn’t change the nature of our society – it accelerated the changes that were already underway. Technology was already in place to allow remote, work-from-home capabilities. The United States adapted very quickly to this new normal. It has also exposed many of the flaws in the educational sector and other areas that have been a drag on society.
“If we move to the world that you’re describing, where effectively the tradable sector collapses in terms of its global reach, and suddenly we actually are forced to reallocate resources into the non-tradable sector to make it more efficient, we’re looking at potential revolutions that are the equivalent of Webster’s introducing his schoolbooks and standardizing the educational process across the United States,” Green opined.
Gave agreed and believes that many of these seismic shifts in the economy could put a renewed focus on education for productive careers in manual labor and science. This could lead to an improved global growth rate, something they are both very concerned about if a C.Y.A. society has been gaining ground.
This is a grave area of concern for Green and Gave. The C.Y.A. attitude has permeated into many areas of society in their view. From the handling of the COVID pandemic to the investment world, they both feel that risk aversion has become the norm.
Some people have griped that the shutdowns as a result of the virus were a power grab by the government. Gave thinks that is incorrect and feels this was a policy decision by lawmakers who are afraid of backlash, if they made a mistake. Both he and Green think that same mentality has permeated into the investment world.
Money has increasingly shifted towards passive investing. Many funds have shifted towards index weighting and there are fewer managers with innovative ideas to outperform the market. Major funds are afraid to pick the wrong manager for fear of the backlash and are risk averse. This has greater problems as capital flows towards the biggest stocks like Apple and Microsoft – who don’t need the money and simply use the excess to buy back shares.
Both believe this behavior has been a contributor of a society of haves and have nots. While they are concerned, they are optimistic that recognizing these issues, in addition to the shifts we are currently confronted to face, will lead to positive outcomes.
For more on U.S. vs China Relations, check out one of Mike Green’s prior interviews with Marco Papic. (Watch for Free) To understand more about how digital currency is upending traditional finance, watch Raoul Pal’s interview with Simon Dixon. (Watch for Free)
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