20 May 2007

China – An Historian’s View

The China story is one of the most amazing tales of our time. From the incredible turmoil of civil war and war with Japan arose a Marxist State that bemused boomers like myself as we pondered the “Great Leap Forward” and the famine that followed, the happy smiles of contented workers on model farms and iconic images of millions of Chinese waiving the “little red book” on the television.
Real GDP per capita grew 17% in the Sixties, 70% in the Seventies, 63% in the turbulent Eighties and 175% in the Nineties. While this development has been concentrated in the coastal and southern provinces, efforts have been made in recent years to expand the prosperity to the inner provinces and the industrial North East.
Since the start of the “China story” we often hear how it will all end badly in civil disorder or economic collapse, whereas, Jim Rogers, the commodity guru has argued that the next big correction in China will be a massive buying opportunity, for both commodities and Chinese equities.
Well then, what’s the real deal on China?
Perhaps it might be useful to consult an historian and I found a strong opinion was held by a great one, a man who was awarded the Pulitzer Prize for literature and the highest award granted by the United States government to civilians, the Presidential Medal of Freedom. (President Ford in 1977).

William James Durant (November 5, 1885–November 7, 1981) was an American philosopher, historian, and writer. He is best known for his authorship (and co-authorship with his wife Ariel Durant in the later volumes) of “The Story of Civilization”.

Will Durant received his doctorate in 1917 and worked as an instructor at Columbia University.
The Story of Philosophy was published in 1926 by Simon & Schuster and became a bestseller, giving the Durant’s the means to travel the world several times and allowing Will Durant to spend four decades writing the eleven volume opus “The Story of Civilization.”

This is what Durant wrote sometime in the 1920’s as he concluded his history of China and reflected on its future. (the emphasis is mine).

This nation, after three thousand years of grandeur and decay, of repeated deaths and resurrections exhibits today all the physical and mental vitality that we find in its most creative periods.

There are no people in the world more vigorous or more intelligent. No other people so adaptable to circumstance, so resistant to disease, so resilient after disaster and suffering, so trained by history to calm endurance and patient recovery. Imagination cannot describe the possibilities of a civilization mingling the physical, labor and mental resources of such a people with the technological equipment of modern industry. Very probably such wealth will be produced in China as even America has never known and once again, as so often in the past, China will lead the world in luxury and the art of life.

No victory of arms or tyranny of alien finance can long suppress a nation so rich in resources and vitality…… Within a century China will have absorbed and civilised its conquerors and will have learnt all the techniques of … industry..

Roads and communications will give her unity, economy and thrift will give her funds and a strong government will give her order and peace. Every chaos is a transition. In the end disorder cures and balances itself with dictatorship. Old obstacles are roughly cleared away and fresh growth is freed. Revolution, like death and style, is the removal of rubbish, the surgery of the superfluous; it comes only when there are many things ready to die. China has died many times before and many times she has been reborn.

The History of Civilisation: Our Oriental Heritage Volume One Will Durant

I conclude, therefore, that only a fool would bet against China at this point and we can therefore surmise that Rogers is correct, driven by huge structural change in the global economy – in this case the strong growth and industrialisation of China, the current boom is part of a supercycle that will last for years to come.

I unconditionally recommend Will Durant’s work to readers and await the next major China correction to establish a position.

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