Societal differences in China

Most Americans are provincial. If they travel anywhere, it's likely to be to Western Europe; the Orient (forget about Africa and South America) is pretty much Terra Incognita. The distinctions between the different countries and cultures in the Orient -which are as least as great as those in Europe - escape most of them. It's dangerous making broad generalizations about millions of people, including Americans, but the reason ethnic jokes are so funny is that while they generalize and exaggerate, they also crystallize the essence of various cultures.

The two dominant countries in the Orient are China and Japan, and their cultural differences are as distinct as those of the Swedes and the Sicilians. In a nutshell, Chinese culture is notably more lenient, more tolerant, more anarchistic, rebellious, creative, and individualistic; the Japanese are stricter, by-the book, group-oriented, organized, and obedient. The differences are illustrated crisply in martial arts, something I have personal familiarity with, but they extend across into everything. 

Look at some eclectic areas

Martial arts-  I've taken Japanese Karate and Judo, Chinese Kung Fu, and (mostly) Korean Tae Kwon Do over the years. The Koreans, having been dominated and generally brutalized by the Japanese, don't like them; but they're more Japanese than the Japanese themselves. Karate classes are tightly organized, starting with everyone at attention, lined up strictly according to rank and seniority. Next is a round of bowing to the national flags and the master, followed by a period of organized calisthenics. Then everyone practices various punches, kicks, blocks, and sparring techniques together. The class ends with another ceremonial. All very by-the-book, like a factory for self defense.

At Kung Fu classes, on the other hand, students wander in gradually to warm up on their own. Class coalesces unceremoniously, there's no display of rank, there's much more individual practice, and the class ends informally. Karate lends itself to group instruction, with its simple, direct moves; Kung Fu forms are much more sophisticated and complex and demand individual instruction. Like any mass-produced product, karate is easy to use and useful for everyone up to a certain level, whereas Kung-fu is really only effective when used by a master. But then there's nothing better. 

Cuisine- Two elements stand out: the way food is prepared, and how it's served. Japanese food is often served raw and is always served in an artistic manner. 

Chinese is almost always cooked and served in simple plates.

It's anomalous to other cultural differences that the Japanese usually serve food in individual portions, whereas the Chinese use communal bowls. Still, the essential difference is in the structured ceremony of Japan, versus informality of China. That distinction is underlined with the way tea is served. The Japanese have a highly rehearsed tea ceremony; if you've ever been to a traditional Chinese restaurant, you'll know the waiter is likely to slop half the tea on the tablecloth. 

Status of women- Japanese women are traditionally very subservient and still have little role outside the home; they're expected to know their place and keep it. Chinese women are actively involved in business and all areas of life, a huge plus for the Chinese. There are no Japanese equivalents to Madame Chiang Kai-shek or Madame Mao;  the Dragon Lady is Chinese, not Japanese. 

Japan is a fairly sexually liberated society, but China is quite conservative, even Puritanical. That may just be an artifact of communism-all communist countries were highly puritanical, or a natural consequence of a rural, traditional society; in any event, I expect it will change.

Corporate culture- The Japanese are famous for their zaibatsu (and the Koreans their chaebols), giant conglomerates with close relations to the government, populated by salary men. The Chinese have no equivalent, and are far more entreprenurial as a culture. In an industry where the Japanese would have two or three giants, centrally directed, the Chinese would have dozens of small ones, each doing its own thing. Use a mainframe and scores of small PC's for an analogy. Japanese companies tend to run on debt; that will make it tough on them if the economy slows down. Chinese companies run on equity. 

Government- The Japanese see their government as being almost synonymous with the country. They follow orders, and not paying one's taxes is considered a shameful thing. 

They look to the government to organize society.

The Chinese view their government as a parasite that's relevant only insofar as it can extract money from them-and they feel a moral obligation to deny the State revenue wherever possible. After all, it's money that's leaving their extended family and going into the coffers of someone else's. 

Investing- The Japanese have a buy-and-hold mentality; one evidence of that, perhaps, is their custom of cross-ownership of the shares of companies that do business with each other. That would be out of the question for the Chinese, who would deploy the capital in their own businesses rather than bet on strangers. The Chinese are probably the greatest gamblers in the world and that's how they tend to view the stock market; they're a nation of day-traders. 

Some of these distinctions are much more applicable to making investment decisions than others, but it's important because, as Sun-Tsu observed, knowing the mindset of your opponent is critical to winning the battle. 

Japan was well equipped to deal with the 20th century-a structured,  mechanistic, industrial, clockwork kind of world. I don't think it will mesh well with the 21st. Chinese attitudes suit them ideally for the 21st century-a freeform, opportunistic, digital kind of world. I again refer you to Diamond Age by Neal Stephenson, about nanotechnic society 50 years from now; it's no accident he set the scene in Shanghai. 

The 50's and the 60's were America's decades; the 70's (anomalously) belonged to the Arabs and others who had the good luck to be born on a pool of oil; in the 80's it looked like the Japanese would take over the world; the 90's were again America's. From here on China will dominate. And it will have nothing to do with choo-choo train economy factors like location, geography, or resources. 

Why the future is better than just good 

What are the big dangers in China? Most people seem to think the potential problems are political, that the Chinese will start a war, revert to communism, or have an internal upheaval. Anything is possible, of course, but these things are unlikely. Most Americans, never having traveled, only know what they've learned from movies, the TV, newspapers - basically sensationalized hearsay. The chances of China going back to anything even remotely resembling The Great Leap Forward or the Cultural Revolution are Slim and None, and Slim's out of town. If a war erupts with the United States in the next decade, a less remote possibility for the reasons I discussed in a past issue on the Fourth Turning, it's most likely going to be provoked by the United States. 

The real danger is financial. There are five very large State-owned banks where the workers and peasants keep almost all of their considerable savings. The problem is that these banks have been acting like para-statals anywhere: they lend money in ways that seem politically smart, but may make no economic sense. That spells hundreds of billions of dollars of bad loans. The government is not about to risk the upheaval that would result from people not getting their money from the banks, so the alternative is inevitable: print enough up so that everybody gets theirs. That's bad for all kinds of reasons I won't repeat here. But the good news is that 900 million of the Chinese are still peasants, and most of their assets are tangible, despite their high savings rate. They're relatively insulated from inflation. 

Even the worst case is unlikely to be very bad, however, simply because of China's stage of evolution, and the character of its society. Three things stand out in those regards: 

        1) A person can cover his or her basic living expenses for 50 yuan a month-or about US20 cents a day. That's sharing poor quarters with a bunch of other people, eating very little, and buying nothing else. But in a country where, only 20 years ago, everybody lived exactly at that level, people are still willing and able to cut back. 

        2) The typical Chinese saves about 50% of his income-even if he only earns US$50-100 a month, about the average wage range. If subsistence is US$4 a month, you can live acceptably for $50, while still saving $50. That means the average Chinese has assets that can tide him over many months if the going gets tough. One thing making that possible is the absence of any taxes until a relatively high level of income. 

        3) An extended family acts as real social security. The family is a very big deal in China, unlike modern America, where it's mostly a theoretical icon at political rallies. The family exerts moral opprobrium to keep its members on a righteous path, but also to help them along if things go sideways. There is no permanent underclass cemented to the bottom by institutionalized State welfare. 

These factors fairly well cover the downside in case The Greater Depression materializes. But, good times or bad, there's a huge community, perhaps 50 million, of Overseas Chinese around the world; as a group they're among the wealthiest people on the planet; they represent an immense pool of capital that's increasingly available as China becomes more open. Capital, economic freedom, a Confucian work ethic, a respect for education, and a culture that seems attuned to the likely environment of the future: What more is needed for success? 

Bottom line 

There's every reason to believe that China is doing, on a grand scale, what Hong Kong, Taiwan, and Singapore (which is essentially a Chinese city) have each done over the past few decades: rise from abject poverty to immense wealth. 

Here's what it adds up to: You can speculate on the future in Europe or America. But China is where the future is already here, and it's going to continue advancing, at warp speed. It doesn't matter whether the financial markets boom, or whether the Greater Depression materializes. 

China has grown at near double-digit rates for well over a decade now, while the United States stumbles along at less than 3% during a boom, despite having vastly more capital of every type. Your serious venture capital should look to China for big returns. It's a market where $492 of seed capital raised in 1992 for the Fortune Pharmaceutical group lead to the company showing $60 million in sales and $7 million in profits this year, and where the Broad Air Conditioning company built a $200 million company from a $4000 grubstake in 1988. These are real companies, with profits, not .com promotions that fritter away millions to gain fickle "eyes." There will be many more in the years to come. This month's featured company, I think, will be one of them.  

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