Everybody knows that China’s GDP has run circles around U.S. growth for the past 20 years. But here’s a trivial question to ask a friend. Knowing what you know now, if you went back twenty years in a time machine with $10,000 to invest, would you buy a Chinese or U.S. stock market index?
Most people would choose China. But inflation would have crushed them for it. According to a July 15th article in Bloomberg, since the Chinese market opened up (in 1993) “Foreigners earned less than 1 percent a year investing in Chinese stocks, a sixth of what they would have made owning U.S. Treasury bills.”
I’ve written about China before, and I recognize its economic power. But it’s important to give China’s growth and impact a balanced perspective. Living in Singapore, I view the Middle Kingdom through a different lens. Most of my expatriate friends in China do the same. They chuckle at what they call “western fears” perpetuated by the developed world’s media.
In November 2010, the Economist’s cover story was “Buying up the world: The coming wave of Chinese takeovers.” One of Fortune’s 2009 cover stories read, “China Buys The World: The Chinese Have $2 trillion and are going shopping. Is your company—and your country—on their list?”
During my last trip through the Hong Kong airport, I picked up Peter Nolan’s book Is China Buying the World?The professor of Chinese Development at the University of Cambridge certainly doesn’t think so. And his book aligned with my personal experience.
A few years ago, I was taking a close look at Anheuser Busch for my personal portfolio. The iconic brewer looked like a great buy. I liked its growth strategy, especially after it purchased four of China’s biggest brewers. The Chinese, in case you didn’t know, love beer. They consume more of the stuff than anyone on Earth.
After I bought shares, InBev purchased Anheuser Busch. It’s a Belgian company run by a bunch of Brazilians. I profited nicely from the buyout, but I was left scratching my head. Why did a western company guzzle the Budweiser brand, and not a Chinese firm?
Think about this for a moment. Do you know of a Chinese company that has bought one of your favorite brands? I don’t. Instead, western firms are sweeping across China like Genghis Kan.
Wanting to profit from China’s economic growth, I had also bought shares in Wal-Mart. For years, they had been feasting on Chinese companies. Most recently, they received approval to take limited control of Yihaodian, China’s largest online supermarket.
Last year, Coca Cola opened its 42nd bottling plant in China. American brands are thirsty, have deep pockets, and are putting fear into many Chinese. In 2009, China’s ministry blocked Coca Cola’s $2.4 billion takeover of Huiyuan, China’s biggest drink company. Already owning 16.6% of China’s drink market, and growing rapidly, the Chinese fear Coca Cola is using unfair tactics to fuel its growth.
Between 2011 and 2013 research company Millward Brown surveyed nearly 60,000 Chinese consumers in ten Chinese cities, asking for their favorite brands. Consumers said 13 of their favorites were American, two were German and French, one was Italian, one Anglo-Dutch (Unilever) and the other was South Korean (Samsung). Even the Chinese have troubles naming their own companies.
As Cambridge professor Peter Nolan has suggested, we’re climbing into China, but China isn’t climbing into us.
There’s no doubt that China’s foreign cash reserves are huge, but as Nolan points out, “China’s foreign reserves must be managed conservatively.” Their primary function, he says, “is to protect the country from the risk of global financial disaster.” Even if China wished to use these funds to buy foreign firms, Nolan says, the combined market capitalization of foreign firms is far too large for China to make an overwhelming global impact.
Meanwhile, our firms keep buying China. If you want to profit from Asian growth, perhaps you should buy American firms.
Andrew Hallam is a Digital Nomad. He’s the author of the bestseller Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas