孫武 & Chapitalism™

孫武 & Chapitalism™“Let her sleep, for when she wakes, she will shake the world.” Many times in the past 70 years this quote has been used as describing the USA. However, it was Napoleon Bonaparte in 1803 who first spoke these words. He was referring to China. Ironically, after accounting for roughly 25% of world economic output for most of recorded economic history, China slipped into a deep slumber about the same time that these words were spoken.

The past regional, and then global, dominance of this culture was the result of a tremendous military-industrial complex. But times have changed. It was the supreme Chinese military mind and philosopher Sun Tzu (孫武) who said “The supreme art of war is to subdue the enemy without fighting.” He also said “Rouse him, and learn the principle of his activity or inactivity. Force him to reveal himself, so as to find out his vulnerable spots.” It is amongst words like these that I conclude that the 2400 year old writings from this strategist are very much in use today. For in just the first week here it has become evident to me that the Chinese have switched from a military-industrial complex footing to one of a financial-industrial complex footing. This is their strength – and at the same time the USA’s weakness.

Chapitalism™ can be defined as Chinese Capitalism. Profits, be they from an individual or corporate structure, can either be consumed through the purchase of goods and services or alternatively set aside as savings. When profit is saved something magical happens – it begins to multiply through a compounding of the repetitive savings and investment process. Consumption is a onetime dead end to profit. Apparently the Chinese understand this, but with a few twists.

Through the privatization (selling) of vast industrial and military businesses that were built up under governmental control over the past 60+ years, the Chinese have been able to acquire massive amounts of additional capital through the global financial markets. This capital is part of a strategy to centrally finance an onslaught of peasant farmers that need to be integrated into society without the massive dislocation that can be seen in other societies such as Delhi or Rio where the slums are endemic – and escape is unlikely. It is a stable middle class that allows long lasting peace and prosperity. However, the record should show that the value ‘saved up’ in the businesses that are now being privatized were earned on the backs of laborers paid just 1/2 Yuan a day during the cultural revolution – about enough to purchase a day’s worth of coal to keep from freezing during the winter months.

By creating a funnel in which the peasants may become directed to the middle class, the country is also guaranteeing something equally important as the capital raised from the privatizations – more savings. The average employee in this country consumes less than 60% of wages. Put another way they save more than 40% of wages! This additional savings from the middle class is what is enabling the lubricant of capitalism – liquidity for a financial system. Thus we are witnessing the near completion of a shift from the military-industrial past to a form of financial-industrial future.

This shift is what is attracting us to many consumer orientated names here. From pigs to internet services, China is experiencing the growth of legends – last seen 1100 years ago during the Tang Dynasty. It is estimated that another 1/2 billion souls will need to be integrated from the hinterlands into the cities. This movement has another benefit; while the governmental establishment is risking internal political competition from the newly wealthy they are collectively and calculatingly cementing their position of power and leadership in the global economy. Welcome to Chapitalism™.