The Chinese Connection

Asia is complicated. You might have noticed. China is in the headlines a lot lately, for good reason. But anyone who views the current set of issues as short-term and requiring the usual “kick the can” treatment is missing a lot. We have been “kicking the can down the road” for decades now in a number of places in Asia (e.g., North Korea), but none matter more than China.

The “Middle Kingdom” (a term for China that dates back nearly 7,000 years) has been around a long time.¹ For much of recorded history, it considered itself the center of the known world and the most advanced civilization on earth, not without reason. In the last few centuries, China suffered at the hands of Imperial Europe, followed in the 20th century by the unspeakable horrors first of the Japanese conquest and then the Mao regime.

Now it seems China sees itself as moving back into its rightful place of leadership in the world. Perhaps many of us in the West underestimate the extent to which China sees itself as moving on a long historical arc, remembering well the glory and pain of its long history and the many injustices it suffered during what might be seen as a temporary downturn in their fortunes.

OK, Roger, what’s with this history lesson? Did you see the market this past week? What the heck was that all about?

Well. Where to begin?

First of all, let’s take a brief moment to start with the big picture. This is all really complicated, I mean, REALLY COMPLICATED. As we enter our next presidential election season (there tends to be a lot of hyperbole and emotion during election years) a lot of people will be offering simplistic analyses and even more simplistic and impractical “solutions” at the top of their lungs, with lots of hand waving and passion.

You might remember the tale of Ulysses and the Sirens from Homer’s epic poem “The Odyssey.” The word was, the sirens’ song was such that no man could resist, and death awaited. So, Ulysses had himself tied to the mast, while his crew had wax in their ears, so he could hear the song but not be lured to his death. I suggest you find a way to make sure all this election talk does not lure you to your death, or the death of your financial future. Action based on the emotion generated by all of this is unlikely to work to your benefit.

Get to the point, for goodness sake

OK. We have a situation where 7,000+ years of history meets the 24/7 news cycle, and every new wrinkle in the story causes the markets to fluctuate. Talking heads with personal agendas and no greater insight than anybody else try to tell us what is about to happen!

Simple summary: this is going to take a long time. China has emerged from dire poverty to become a large economic and military power. They intend to become dominant, and for a variety of reasons feel justified in viewing all of this as a contest in which there are no rules; winning is all that matters. And they take the long view.

Get used to this conflict. From the theft of intellectual property to seeking military dominance of the South China Sea, China is making strategic moves. There have been, for a number of years now, plans for the development of dominant positions in critical technologies like Artificial Intelligence and Wireless 5G.² And then there is Hong Kong.

Do we understand how serious the Hong Kong Situation is?

30 years ago, the Chinese government ordered the massacre of protestors in Tiananmen Square. This was when China’s economy was still very small, and the location was very much “internal.” As awful as that was, the situation in Hong Kong today presents a much bigger challenge. Hong Kong is an international city and China’s gateway to capital and the world media. And they signed a treaty making various promises, which China has already indicated they will not honor.³

The most important part

In 1972 in Hong Kong, Lo Wei directed Bruce Lee’s second major film, called “The Chinese Connection.” In its US release, they called it “Fists of Fury.”⁴ A core theme of the movie was China defending its honor in the face of foreign aggression, a theme that has to resonate today.

I might add that in this movie the primary foreign aggressor was Japan. If you look at the South China Sea issue today, you see China taking aggressive action against all its Southeast Asian neighbors, from Japan and Vietnam to the Philippines. Who is the aggressor now?

Bruce Lee was an amazing actor, martial artist, and philosopher. He was also a man of peace, and very spiritual. I wonder what insights he would offer us today about all this. Perhaps “be like water, my friend.”

Where does this leave us?

This will take a long time. Don’t expect quick solutions or an end to uncertainty. On the other hand, one can always hope these actors are rational and calculating, that they may take us to the brink and back again a few times, on the way to some positive change over time.

Meanwhile, we can’t predict the next move of the markets-hang in there!

Best,

Roger Hewins

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¹ “Why Did the Chinese Call Their Land the Middle Kingdom?” Reference, IAC Publishing, https://www.reference.com/history/did-chinese-call-land-middle-kingdom-fea727af46ae6f6d .

² Campbell, Charlie. “5G Is the Internet’s Future. But the U.S. Is Falling Behind.” Time, Time, 23 May 2019, http://time.com/5594366/5g-internet-race-huawei .

³ Salama, Vivian, and Alex Leary. “Trump Ties Trade Deal to China Action in Hong Kong, Suggests Meeting with Xi.” The Wall Street Journal, Dow Jones & Company, 15 Aug. 2019, https://www.wsj.com/articles/washington-offers-conflicting-messages-on-hong-kong-unrest-amid-u-s-china-trade-talks-11565802045 .

⁴ “Fist of Fury.” IMDB, https://www.imdb.com/title/tt0068767/.

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