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Circle of Competence Issue #46

Quote of the week: "As the post-World War II international order continued to erode, the markets ignored the longer-term implications of a more isolated America, a world increasingly adrift and global leadership up for grabs." Seth Klarman, 2018 Investor Letter


On China

This week, I wanted to put together a small taste of what is happening in the world's second largest economy - China. If an industry leading CEO is cognizant of what his industry peers are doing, then it makes sense to take note of what is happening in one of the fastest growing (and second largest) economic states in the world. China is on the fast track to becoming the world's largest economy and a world power on the same order of magnitude as the United States.

What is at stake here? Given the recent flexing of US economic muscle against China in the trade war based on intellectual property law abuses and trade imbalances, I see highlighted the clash of two drastically different set of governance principles. Western civilizations are to one degree or another predicated on individual liberties that coalesce into a market for talent, tastes, and treasure. Chinese ideology is predicated on individuals submitting to what appears to be an ever growing, ever intrusive state.

Now, before I hear from anyone that I am coming from a nationalistic stance against another sovereign state, I want to clarify that I harbor no animosity against Chinese governance principles, the Chinese people, or the Chinese economic machine. Rather, I embrace the principles of free trade, free enterprise, and free speech. What is occurring in China does not exactly fit these principles that most westerners largely take for granted. Will the second largest economy come to replace these principles with Maoist-Stalinist ideologies? Or will they embrace the tenets of basic freedom as more and more of their citizens come into new middle class wealth? There are some that believe that China will eventually liberalize their economy (and their state?) because they will have no choice with the rise of the nouveau riche, and there are others that believe that China will continue to increase its control over the citizen. The answer seems to be somewhere in the middle, but it is important to observe the trends.

So, I'd like to bring a few articles to light about the Chinese state and economy that paint a somewhat dark and dystopian picture with regards to the above questions. I deeply desire that one day, Chinese citizens will have as great of freedoms as I do - the freedoms of life, liberty (which I would argue they do, but only to a very limited degree), and the pursuit of happiness.

Censorship, Social Engineering, and Economic Influence