Investing in the China markets has typically been considered a high risk investment. It is risky in that it is unpredictable whether China will go in the direction of more freedom or less freedom in the future. A piece of my diversified investment strategy includes finding markets that are moving in the direction of more economic freedom. As the U.S. Markets keep going in the direction of less economic freedom and other countries like China, Brazil, India, Australia and Singapore and others move in the direction of more economic freedom; I will have less faith in the U.S. stock market.
China was ruled under the communist Marxist tyranny of Mao Zedong up until 1976 when he died. After his death they were so conditioned to live under tyranny they wouldn’t have even been able to handle a large dose of freedom, they didn’t know how to be self-reliant. In 1982 Margaret Thatcher and Ronald Reagan made a treaty with the formerly British and Portuguese territories of Hong Kong and Macau to make them a sanctuary for economic and personal freedom, and private property rights. This is called the Special Administrative Region of China. Much of China’s mainland has seen a dramatic increase in Special Economic Zones focusing on free market activity. Even though most of China is still under totalitarian communism, these other areas of freedom have resulted in dramatic economic activity bringing the population up out of poverty. China as a whole still has a long way to go, especially with social policies, but as long as they keep momentum in the direction of more personal and economic freedom, and minimal economic State regulation, they will prosper. As America keeps gaining momentum in the direction of less personal and economic freedom, and more economic State regulation, we will not prosper.
The healthcare system under Mao was of course a disaster. Since the government of China controlled the price of healthcare, the cost was very high (controlling the price doesn’t lower the cost). The quality was low and black market activity was everywhere. When the government uses taxation in order to get the resources for medical care there is no net reduction in the cost of providing healthcare. When a government provides medical care, whether it’s under a system of communism under Mao or Stalin, or a socialist or parliamentary republic like European countries or Canada, price controls are always necessary since the free market isn’t allowed to set the price based on the actual scarcity of that product or service being provided. When prices are controlled on medical care (or anything for that matter), it always results in more black market activity, lower quality, higher demand and lower supply.
When medical care was provided by the Chinese government under Mao with price controls, most doctors would accept gifts or “money under the table” from the more wealthy or desperate in order to get better or more immediate care. Since patients didn’t have to pay for medical care, the doctors’ offices were always overcrowded. People will always use more of anything at a lower artificial price. Since there was an artificial increase in demand it resulted in shortages of medical care and then rationing by whatever Mao decided was more important. Since all the doctors had a surplus of patients, there was no incentive for a doctor to provide higher quality medical care or to provide newer technology for customer convenience or to lower costs in order to compete with other doctors.
China has moved away from government provided medical care since Mao Zedong died. In the free economic zones of China they have gone more in the direction of free market healthcare (It’s not quite like what we have in America. We don’t have free market healthcare here.). It will probably take a couple generations for them to get used to a free market system but the quality has been increasing, the black market activity has subsided, and the prices are reflecting the actual cost and scarcity of medical care.
China has 14 nuclear power plants now, and more under construction that will double the amount in the near future. Given the amount of power output; Nuclear energy is one of the safest and clean forms of energy production our technology has, even after the Fukushima incident. Many anti-nuclear power groups say nuclear power is unsafe. I could agree with them by looking at it in a categorical sense, but everything in life could be labeled unsafe categorically. You could say owning a gun is categorically unsafe, and not owning a gun is categorically unsafe. If you measure the incremental safety of owning a gun, you realize it is more often safer to own a gun than not to, in most cases. If you measure the safety of power plants, meaning safe or unsafe compared to what other kinds of power generation, and adjusting for variables like how many deaths per terawatt hour, or how much pollution per TWH, how much newer technology has made it more safe and clean, you then realize nuclear power is very safe and clean compared to other sources of energy especially with today’s technology. China is using thorium molten salt reactor technology and other newer innovations to make these nuclear power plants even cleaner and safer than most current running plants. Almost a quarter of china’s energy also comes from hydro-power With the direction china is going with power production, in about 20 years they will get the majority of power from nuclear, hydro-power and retro fitted clean filter coal power plants.
Power production in a society is not dependent on a free market necessarily but a free market with low taxes results in more tax revenue than a highly regulated market with high taxes. More tax revenue as a percentage of economic growth in China results in the ability to build better and more efficient infrastructure. The power generating infrastructure in China is being built with minimal regulation in order for projects to be focused on long term quality results. The U.S. has so much state and federal regulation that everything costs more to build and long term quality is sacrificed in order to cover the cost of complying with unnecessary rules and regulation. China is known for being the biggest polluter on the planet but in 20-30 years we won’t be able to say that any more. I can’t imagine the situation America will be in then.
The auto industry is thriving in the free market zones of China. GM, Ford, BMW, and other car companies are not only building manufacturing facilities, they are also expanding dealerships. China is set to be the biggest producer and consumer of GM and Ford. China doesn’t recognize copyright laws, so they are producing “generic” versions of vehicles. The other car companies are probably thinking; If you can’t beat them, join them.
Most electronics with new technology like smartphones, computers, tablets, and even wind turbines use an ingredient that increases magnetic performance. This element is called Neodymium. It’s one of the “rare earth” elements on the periodic table of elements (although it’s not rare, just difficult to separate from other minerals). China dominates the world market supply of this element that will be in demand for a long time. Since Brazil, Russia, and India are on board with china to dominate the energy and resources market I can’t imagine how incompetent America will be in 30 years.
Another intriguing transformation happening in the free regions of China has been the education system. The schooling system that Communist China has had in the past is based on teaching dependence upon arbitrary authority rather than self-reliance, conformity rather than autonomy, and incoherency rather than inventive creativity. That schooling system is akin to what we have had in in America since the Progressive era in the early 1900’s, which originated in Prussia and modeled from Fabian Socialism. The Chinese version had involved much more discipline and structure than the U.S. version, neither one providing good results for the population. It only benefits the elite political ruling class so that they can mold and control the population in their anointed vision. So in the regions of China with freedom and liberty emerging, the school systems are focusing more on an open sourced type of learning based upon dialectic reasoning rather than testing blind memorization, individual creativity rather than uniform communal conditioning, and self-governance rather than blind obedience to rulers. This emerging school system is intended to result in more inventive creativity that results in more efficient entrepreneurism in order to detach the population from dependency upon the government which leads to a stronger economy and less poverty. They still have a long way to go to complete this transformation, but it’s refreshing to see the momentum going in the right direction.
China’s debt to GDP ratio is 7% and decreasing. USA debt to GDP ratio is over 100%. By the way the China’s energy partners, Brazil, Russia, and India all have lower debt to GDP ratios than America. USA is in debt to china over a trillion dollars. That’s half of the US federal tax revenue! With Every dollar you send to the IRS china basically owns half of that. As the Federal Reserve dilutes our currency by printing and digitizing money and selling treasury securities, our currency becomes worth less in comparison to the Chinese Yuan. It would take 6 trillion dollars to match 1 trillion Yuan. If you want to have your day ruined even more, you can check out my article; “Vote for yourself“.
When the credit and mortgage “bubble” popped a few years ago, I knew there would be no long term financial crisis or depression as long as the fed stayed out of our business and left the market alone. When George Bush started saying things like “troubled asset relief” and “Bailout” and “stimulus”, and as Obama is doing more of the same thing; I have been increasing my foreign investments, and that has made all the difference. The only fund that has outperformed my diversified China market fund in the past few years is the gold commodities market. As long as China gains more economic freedom and the U.S. loses economic freedom and the dollar decreases in value; The China markets will remain an attractive investment. When any government gets more involved in an economy it becomes suffocated and unpredictable. You don’t know who will be favored or penalized in the name of “fairness” or what the government considers a priority. If the free market keeps expanding in China, and Communism and collectivism fades away; China will be an example of prosperity and they will be set to be the world’s economic superpower. I hope a commitment to equal property rights follows the economic trend there too.
My long term prediction for China is that the momentum toward more free market activity will keep increasing, an understanding of equal property rights and individual sovereignty will not keep up with the pace of more freedom, so the big international corporations (remember my previous articles have shown that corporations are a product of government, so corporations wouldn’t exist in a true free market.) and big governments will influence China’s government to increase regulation and increase government welfare programs. Then the Chinese will be enslaved by high taxes and dependency upon the government. I guess that’s a small step up from being enslaved by Communism under Mao. It would be nice to find a place that has increasing personal and economic freedom, along with a commitment to the ethics that come from our nature (“Nature’s Ethics“).
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