Bertie traveled to Shanghai for the first time since the Covid pandemic. He attended a major investor conference there. Many other investors also made this trip after a long break. Their presence convinced Bertie that China had clearly moved past its 'uninvestable' reputation.
Cashless Surprise in Shanghai
During his previous visit, Bertie noticed something remarkable. China's economy had gone completely cashless, well before India and other countries adopted this trend. He experienced this firsthand when he tried to pay for coffee with a fifty-yuan note.
The barista gave him a puzzled look. She asked if he expected change back. Bertie felt annoyed and replied, "Obviously!" The disappointed barista then left her counter to search for change at other shops. That moment made Bertie realize cash had virtually disappeared from daily transactions in China.
Technological Frontiers and Competitive Markets
This time, Bertie observed China pushing boundaries in new technologies. Drones and robotics stood out as key areas of innovation. One speaker at the conference claimed Chinese companies would soon lead globally in several emerging sectors. Bertie felt this statement did not sound exaggerated.
After the conference, Bertie met with fellow fund managers. Some had extensive experience with China markets. Their conversation naturally turned to comparing investments in India versus China.
Slow and Steady vs Fast and Furious
Bertie repeated his familiar analogy. He described India's investment returns as slow and steady. He contrasted this with China's fast and furious bursts of growth. His old friend Bob listened carefully and responded with a thought-provoking question.
"From an authoritarian regime, you might expect rigid industry structures," Bob said. "You would think cronies benefit from state support. Shouldn't investing be easier then?"
Bertie did not fully understand this argument at first. Bob explained further. "Figure out who the cronies are," he suggested. "That saves you from writing long reports about competitive advantages and market moats."
Bob summarized his point bluntly. "I am crony. That's my moat," he declared. "Shouldn't that mean slow and steady returns from crony stocks?"
Creative Destruction in China
Bob then answered his own question. "But reality differs completely," he continued. "If creative destruction defines capitalism, China exemplifies it perfectly. Competition across sectors remains incredibly intense. Few companies maintain supernormal profits for extended periods."
He provided the electric vehicle industry as an example. "BYD enjoyed a head start of maybe one or two years," Bob noted. "Now competitors are breathing down its neck. The economic system actively encourages this competition."
Bertie nodded, acknowledging this truth. Bob continued his analysis. "In India, successful companies tend to stay successful," he observed. "They learn to navigate complex bureaucracy and regulations. Newcomers often struggle to overcome these hurdles. That becomes their real moat. For investors, this creates 'Buy and Hold' opportunities with slow, steady returns."
Generalizations and Reluctant Agreement
Bertie thought for a moment before responding. "You generalize, Bob!" he exclaimed. Bob expected this reaction. "Of course I generalize," he admitted. "But you cannot completely disagree with my points." Bertie reluctantly nodded in agreement.
"Enough investment talk," Bob said finally. He put an arm around Bertie. "Let's walk by the Bund and enjoy the low air quality index." Bertie suspected their walk would turn into another India-versus-China discussion.
Bertie works as a Mumbai-based fund manager. His compliance department prefers he thinks twice before speaking publicly. They would rather he remains silent than risk saying something inappropriate.
