At a recent closed-door forum hosted by the Peking University School of Economics Alumni Association in Shanghai, Li Bei, the founding partner and portfolio manager of Banxia Fund, delivered a speech titled “From Historical Comparisons to Current China: A Perspective of Optimism.” In her address, Li Bei shared her insights on the current socio-economic landscape of China, critiqued popular yet flawed historical analogies, and proposed more relevant historical cases that offer a more optimistic outlook for China’s future. The following is a summary of her remarks.
From Historical Comparisons to Current China: A Perspective of Optimism
Introduction: The Great Transformation
China is experiencing a pivotal period marked by overlapping economic cycles and intensifying global competition. In this climate, the future configuration of assets and potential for profitability over the next decade becomes less significant compared to the broader considerations of career and life choices. As individuals ponder whether to venture overseas or change nationalities, historical comparisons have become a popular tool for framing China’s current situation.
The Three Schools of Thought
Three main schools of thought have emerged in comparing China’s current state with historical periods:
- International School: This school compares China to Japan in the 1990s, focusing on similarities such as asset price adjustments, household deleveraging, and demographic shifts.
- Party History School: This perspective draws parallels with 1952, when socialist transformation accelerated, with a focus on the growing role of the state sector at the expense of private enterprise.
- Ancient Chinese History School: Here, comparisons are made with the era of Emperor Wu of Han, known for its economic prosperity and military campaigns, and the reign of Jiajing during the Ming Dynasty, characterized by fiscal challenges.
Breaking Down the Biases
However, these comparisons are flawed and overly simplistic. To counter these narratives, two more relevant historical analogies are presented that offer a more optimistic outlook:
Case Study: Early 1980s Japan
Contrary to common belief, modern China resembles Japan in the early 1980s rather than the 1990s. Key indicators such as GDP per capita, urbanization rates, industrial structure, and economic growth trajectories align more closely with Japan’s earlier phase. Japan also experienced a similar downturn in asset prices, investment, and consumer leverage in the 1970s, followed by a recovery in the 1980s, demonstrating the potential for China to experience a similar rebound.
Case Study: Early 1950s United States
Another case study involves the United States in the early 1950s. Despite facing economic challenges and international setbacks, including a bear market and geopolitical defeats, the U.S. was able to recover and achieve significant economic growth and enhanced international standing. This period shares many similarities with China’s current situation, offering a hopeful precedent.
Beyond Surface Phenomena
These historical comparisons are merely surface phenomena or “phases” (相) – they are not definitive representations of reality. Individuals tend to project their emotions onto their interpretations of events, leading to biases. Understanding the concept of “no-phase” (无相) from Buddhism, which advocates breaking free from such biases, is crucial for gaining a deeper insight into the essence of situations.
Finding the Path Forward
To navigate through these uncertainties, one must seek the underlying principles or “the way” (道). Ray Dalio’s framework for analyzing great power competition offers a roadmap by quantifying key indicators across eight dimensions: education, competitiveness, economic output, trade share, financial strength, innovation and technology, currency reserve status, and military power. These indicators suggest that China’s overall strength continues to rise, despite some challenges.
Conclusion: A Journey Toward Enlightenment
In conclusion, while there are no guarantees, the historical parallels and analytical frameworks presented offer a glimmer of hope. They suggest that China may indeed experience a revaluation of assets and an ascension in its global standing. The journey will be fraught with challenges, but the possibility of reaching a brighter future remains within reach.
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