The Economic Cycle and the Rise of China – Read Principle 2: Responding to a Changing World Order

principle-book.jpg

principle-book.jpg

1. Sequence

I recently read a book called “Principle 2: Dealing with a Changing World Order” by Dario, founder of Bridgewater.

After reading this book, my biggest impressions are:

  • Understand some fundamental differences between Chinese and Americans in cognition.
  • From Dario’s perspective, learn how to analyze the overall development of China and the United States.

Under Darui’s prediction, China’s overall strength will likely surpass that of the United States in the future, which will bring about a series of conflicts, possibly even wars.

The book discusses the Sino-US conflicts in this part one by one, which provides some references for us to assess the factors that affect our own vital interests in the future.

Here are some to share.

2. Differences between Chinese and American cultures

There is a huge cultural difference between China and the United States: Chinese believe that collective interests are greater than individual interests; Americans believe that individual interests are greater than collective interests.

Here are a few examples in the face of the new crown:

  • When the country asks everyone to be vaccinated. Most Chinese people will take the initiative to cooperate with vaccination; while Americans believe that vaccination is their own right, and the state cannot force it.
  • When the country makes everyone wear masks. Most of the Chinese people will take the initiative to wear masks; while Americans, from Trump to the public, are reluctant to comply.
  • In China, if you put a person in close isolation for 14 days, there is a high probability that he will cooperate; while Americans will raise this to human rights and freedom.

There are many similar examples, such as holding guns, making speeches, etc. Chinese people will be more pragmatic and make decisions from the perspective of maximizing collective interests; while Americans will use “human rights” to emphasize their own personal interests, even if it is harmful to the collective.

Why are there such huge cultural differences? I personally think it’s history.

China is a cultural power with thousands of years of history. In these thousands of years, the Chinese civilization has formed its own unique cultural style. These cultural styles have become some national characters of the Chinese nation with the inheritance of the times. For example: There is a famous story in ancient China called “Kong Rong Letting Pears”, this story makes everyone realize that thinking of others is a more noble behavior. There are many similar traditional cultures, and eventually the Chinese nation has formed a culture of industriousness, simplicity, humility and restraint.

In this culture, Chinese people like to talk less and do more, don’t like to cause trouble to others, and like to be humble when they encounter benefits. And these cultures do not exist in the United States.

  • In the United States, people advocate freedom more, and you can take the initiative to fight for what you want. If the interests of others are different from yours, you should try to convince others to achieve your goals.
  • In China, people like to do their own thing well in a restrained way and don’t like to point fingers at others.

Americans like to express their opinions fully, and then strive for their own interests and similar interests for others. So when Americans feel that their human rights have been violated, they will rise up to fight for these rights for the Chinese. But in fact Chinese people don’t necessarily care about these rights very much.

Chinese people like to do things well in silence. They believe that when things come naturally, the rewards that should come will come eventually. Therefore, they are not very willing to take the initiative to seek opportunities for promotion and performance for themselves, and they are not willing to fight fiercely with others in order to defend their own views. .

Which of the two cultures is better? I think both have good sides:

  • Free and open people are more innovative and proactive;
  • Introverted people think more about the group and can easily maximize the interests of the group.

But it is not good if two countries conflict because of different cultures. for example:

  • The United States should not care so much about the internal affairs of China and other countries. The Chinese people know how to deal with their own affairs, and the Chinese people know how to fight for their own rights.
  • China does need to express more in the face of the United States. Let Americans know where we stand, our attitudes, our cultural differences.

3. The Economic Cycle and China’s Strength

After studying the history of countries in the past 500 years, Darrio first proposed the concept of cycle: every country will experience repeated periodic fluctuations, and the cycle includes:

  • new order
  • rising stage
  • top stage
  • falling stage
  • form a new order

As follows:

principle-2-2.png

And in different cycles, countries will have different characteristics. For example: in the rising stage, the state attaches great importance to education. And in the down phase, the country will have huge debts.

In order to calculate the strength of countries and examine the cycles in which countries are in, Darrio proposed a model for assessing the strength of countries. This model includes the following dimensions: debt burden, education level, innovation and technology, cost competitiveness, military strength, trade, economic output, markets and financial centers, reserve currency status, infrastructure and investment, character/education/determination , national governance/regulations, wealth/opportunities/values.

Then, Dario believes that China is in a rising stage, and China’s current development has enabled China to confront the United States to a certain extent, which makes the United States feel threatened.

For example, Dario wrote in his book that, in terms of purchasing power parity, China’s GDP has surpassed that of the United States, reaching 23% of global GDP (as shown in the figure below).

principle-2-1.png

Another example: China’s overall debt level is relatively low, while the US government’s annual deficit is actually spending through borrowing. China’s exports have always been greater than its imports, which has allowed China to acquire foreign exchange reserves. And U.S. exports are smaller than imports, which makes the U.S. equivalent to borrowing for consumption.

4. Possible conflicts

Dario believes that the country’s previous wars are divided into five categories, which are:

  • Trade/Economic War. For example: imposing tariffs, cutting off the import of necessities of the other side. The “dual circulation” proposed by China is a measure taken to deal with such a crisis.
  • technical warfare. For example: cut off the supply of chips, cut off the supply of the latest various industrial software, such as Xcode, IntelliJ.
  • Geopolitical warfare. For example: Taiwan issue, Tibet issue, Xinjiang cotton issue.
  • capital war. For example: confiscation/freezing of foreign assets of conflicting countries. In the recent conflict between Ukraine and Russia, some countries have frozen the foreign assets of all Russian citizens.
  • military warfare. For example, the First and Second World Wars.

When discussing military warfare, the author has a point of view: when both sides of the conflict have the ability to “destroy everything”, wars are not easy to happen. This is somewhat similar to the Cold War between the United States and the Soviet Union in the last century.

5. Education and other

The book’s point of view that the country should pay attention to education further strengthens my feeling of “creating value”. For a country, it should strive to create value, which comes from two parts, one part is exports, and the other part is the internal economic cycle. How to increase the value of these two parts? There is a good way to improve productivity, enhance innovation capabilities, and use better products to meet the needs of people at home and abroad.

This reminds me that the first thing Deng Xiaoping did at the beginning of the reform and opening up was to resume the college entrance examination. Science and technology are the primary productive forces, and behind science and technology is the country’s reserve of educational talents. Doing this kind of return on investment is slow because it takes a very long time to develop a good tech talent. The state’s investment in this will help these talents to eventually generate technological innovation, improve productivity, and in turn create more valuable products for the people, enhance the overall GDP income and the country’s commercial competitiveness.

There are also a few scattered points in the book that struck me:

  • Although China holds US$1 trillion of US treasury bonds, this only accounts for a small proportion of the US$24 trillion US national debt, so even if China changes its national debts into other assets due to the conflict between China and the United States, the impact on the United States will be very great. small.
  • The book mentions the concentration of wealth in various countries. In some countries, the top 1% of the people own 10% of the wealth, while the top 10% of the people are close to owning about 40% of the wealth, and if they are less, they can own about 30% of the world’s wealth, and this indicator reflects the wealth of a country. The degree of disparity, and the degree of disparity between the rich and the poor is an important indicator of national chaos.

above.

This article is reprinted from:https://blog.devtang.com/2022/05/07/principles-for-dealing-with-the-changing-world-order/

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