The relationship between the United States and China is worsening over the years. Yet, doing business in China attracts American multinational corporations because of their huge population and is currently developing rapidly.
Unlike the United States, which usually rotates back and forth amongst its leadership positions, China is predictable with a sole authoritarian, Xi Jinping. Moreover, Xi Jinping thinks ahead in the long term as he consolidates power within the Communist Party. The Communist Party controls and allows stable double-digit growth over the years within a margin of 10% each year on their ‘A’ stocks traded using the Yuan currency. The party manipulates the value of the yuan and controls most businesses. The ‘B’ market is also heavily controlled and deals with stocks purchased and sold in other currencies. However, things will change soon, and China will transition into a new stage of its economic policies.
It’s my opinion that we will see a critical shift within China in the following decades. Soon, China will no longer see its double-digit growth because it reaches towards the end of a rapid development curve and is experiencing substantial demographic change with fewer working-age people. This shift makes corruption and high internal debt load an unignorable problem as economic growth slows.
We’ve observed that Beijing has become more hostile to American and European-based companies such as Tesla, Nike, and others. Initially, China needed a lot of Foreign Direct Investments to spur economic growth by creating jobs for people to work in the manufacturing line, working in the mining industry by sourcing materials needed to produce items, and construction jobs to accelerate urbanization. Now China sees growth from their domestic companies to compete with foreign companies based in China. To ensure the expansion of its domestic industries, the Communist Party systemically works against many foreign companies. Methods include making it tougher to do business, requiring collaboration with local companies, stealing their intellectual properties directly and indirectly, and routinely launching smear campaigns on targeted companies, which would plummet their China-based sales.
Today, we are at the inflection point where soon it’ll make no more prolonged sense to expand businesses and invest in China. Instead, it’s time to invest elsewhere where we can build prosperous relationships. It includes:
These nations listed above generally have friendlier policies in regards to Foreign Direct Investment and are not aggressive. These nations also have a lot of room to grow in a developmental sense. Much of the equity gains come from a rapid development stage where population and infrastructure expand fast. It’s safe to say that it’s time to shift focus to these nations.
Update (07/07/2021)
"Banning an IPO that just went public in the US — with US investor money — on our Independence Day was basically a big F-U to the United States." - Kyle Bass