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Sydnee Gatewood
Sydnee Gatewood
Articles (2814) 

Ray Dalio Commentary- The Changing World Order Ch. 6: The Big Cycles of China and Its Currency

From the Bridgewater Associates founder's LinkedIn

September 16, 2020 | About:

Preface: Several people told me that it is risky for me to write this chapter because the US is in a type of war with China and emotions are running high, so many Americans will be angry at me when I say complimentary things about China, many Chinese will be angry at me when I say critical things about China, many people on both sides who disagree with something I say will be angry at me for saying it, and many in the media will distort what I say. However I can't not speak openly out of fear of reprisals because the US-China relationship is too important and too controversial to be left untouched by people who know both of these countries well, and for me not to speak honestly about this situation would cost me my self-respect.

On Thursday September 24th, I'll be releasing the follow-up chapter to this one, which is about US-China relations and wars. Unlike the prior chapters that have been on the past, that chapter is about the most important things that are going on between these two countries now. If you find this chapter on China's history interesting, you'll find the next one even more so.

What I am passing along here is just the latest iteration of my learning process. My process is to learn through my direct experiences and through my research, to write up what I have learned, to show it to smart people to have them attack it in order to stress test it, to explore our differences, to evolve it some more, and do that over and over again until I die. So this study is the product of my having done that for the past 36 years up until now. It is incomplete, it is right and wrong in ways yet to be discovered, and it is provided to you to use or to criticize in the spirit of helping us together find out what's true.

This chapter is about China and Chinese history brought right up to this moment. It is meant to convey where the Chinese are coming from. The next chapters are about US-China relations and wars that are extensions of the backgrounds covered in the last two chapters and this chapter.

My Background

Though I'm no expert on Chinese culture and the Chinese way of operating, I have had numerous direct experiences with China over nearly four decades, I have done extensive historical and economic research about China, and I have a US and global perspective that has been gained because of my need to make practical macroeconomic bets. That has given me an uncommon perspective of where China has been and what's going on with it now that might be helpful to those who haven't had such an extensive exposure.

More specifically, the perspective I am passing along to you here has been gained from 36 years of interfacing with Chinese people about Chinese and world issues (mostly economics and markets in China and the world) and from doing a lot of research. Through my experiences and by getting to know some of China's top leaders, in addition to learning about Chinese economics and markets, I learned a lot about Chinese culture, how it operates today, and how it has evolved over thousands of years: from notions of how family members and others should behave with each other to Confucian thinking and neo-Confucian thinking, and through various dynasties and modern leaders to the lessons these events provide about how leaders should lead and how followers should follow. These typical Chinese values and ways of operating are what I'm referring to when I say "Chinese culture," which I have seen manifested over and over in my experiences and my research. For example, from my personal experiences I could see how Lee Kuan Yew, the Prime Minister of Singapore, and Deng Xiaoping, the leader who initiated China's reform and opening up, were connected by Confucian values coexisting with capitalist practices so that they together could explore how China could have a "socialist market economy with Chinese characteristics."

Over the last couple of years I have also undertaken the study of Chinese history as part of my study of the rises and declines of empires and their currencies in order to learn the timeless and universal principles about how empires rise and decline and to help me understand how the Chinese, especially their leaders, who are greatly influenced by history, think. I did this study by researching deeply with the help of my research team and triangulating with the some of the most knowledgeable Chinese, American, and non-American scholars and practitioners on the planet. While I can be pretty sure about my impressions of the people and things that I had direct contact with (which makes me a lot more certain about the assertions I am making about the Chinese than about the Dutch and British empires I described earlier in this book), I of course can't be as certain about the people and circumstances that I haven't had direct contact with. So my thoughts about them (e.g., especially historical figures such as Mao Zedong) are more conjecture based on the extensive research I have tapped into.

Over my 36 years of experience with China, I have come to know many Chinese people from the lowest to some of the highest in rank in an up-close and intimate way, and I have experienced China's recent history just as I have experienced America's. As a result, I believe that I see both the American and Chinese perspectives pretty well. I will do my best to convey them here. I urge those of you who haven't spent considerable time in China to get rid of any stereotypes you might have of the old "communist China" and to look past the pictures that are often painted for you by biased parties who also haven't spent much time there, because they're wrong. I urge you to triangulate whatever you are hearing or reading with people who have spent lots of time in China working with the Chinese people. As an aside, I think that the blind and near-violent loyalties and media distortions that stand in the way of thoughtfully exploring different perspectives are a frightening sign of our times.

To be clear, I'm not ideological and I don't choose sides ideologically. For example, I don't choose an American side or a Chinese side based on whether it aligns with American, Chinese, or my own ideological beliefs. I'm practical like a doctor who approaches things through logic and believes in what works well through time. My study of history and my thinking about cause/effect relationships are what have led me to my beliefs about what works well. What I believe is most important in making a country work well was laid out in 17 different measures of strength at the beginning of this book and more narrowly in the eight measures I have been referring to regularly. So, when I look at China, it is through the lens of these factors that I am judging it. I also try to see their circumstances through their eyes. The only thing I can do is beg for your patience and open-mindedness as I share what I've learned with you.

This chapter is a continuation of our look at the leading empires over the last 500 years, starting with the Dutch and British empires in Chapter 3, and the US Empire in Chapter 4. In this chapter, we will touch on China's long history and the thinking that it has produced, we will briefly review its decline from pre-eminence in the early 1800s to insignificance early in the 20th century, and we will more carefully look at its recent emergence from insignificance to its near comparability to the world's leading empire today—and its likelihood of becoming the most powerful empire in the world not many years in the future.

In earlier chapters we saw how the Dutch and then the British each became the richest and most powerful reserve currency empire and then declined into relative insignificance in cycles that were driven by timeless and universal archetypical cause/effect relationships. Then we saw how the United States replaced them as the dominant world empire broadly following the same archetypical cyclical patterns driven by the same archetypical cause/effect relationships. We saw how some of its eight key powers rose and declined (i.e., education, economic competitiveness, shares of world trade and output), while others continued to excel (innovation and technology, reserve currency status, financial market center), and we looked at how a number of the other key drivers (e.g., money and debt cycles, wealth/values/political cycles, etc.) are transpiring in the US. In this chapter we will study China's way of looking at its past and bring us up to this moment with the aid of objective statistical measures that help paint the picture objectively. As in the US chapter we will cover the older history superficially; the 220 years up until 1949 in a bit greater detail; and the last 40 years, when China evolved from relative insignificance to become a great rival power to the United States, in the most detail. That will complete our examination of the rises and declines of the leading empires over the last 500 years. Then, in the next chapter, we will look at US-China relations and wars as they now exist, and in the concluding chapter of this book, "The Future," we will try to squint into the future.

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China's Giant History in Brief

Anyone who wants to have a fundamental understanding of China needs to know the basics of China's roughly 4,000-year history, the many patterns that have repeated in it, and the timeless and universal principles that the leaders of China have gained from studying these patterns—even though getting that basic understanding is quite an undertaking. China's history is so complicated and there are so many opinions about it that I am confident that there is no single source of truth, and I am especially sure that I'm not it. Still there is a lot that knowledgeable people agree on, and I have found many scholars and practitioners, both Chinese and non-Chinese, who have valuable bits that make the exercise of trying to piece them together—along with other bits of history like statistics and written histories—very valuable as well as damned fascinating. While I can't guarantee that my perspectives about China are the best ones to believe, I can guarantee that they have been well-triangulated with some of the most informed people in the world and are presented here in an exceptionally forthright way. Here it is in brief.

China's civilization with its highly civilized behavior has a long and continuous history that began about 4,000 years ago. I can't possibly recount the extensiveness of it because there are far too many dynasties from the Xia Dynasty around 2000 BC (which lasted about 400 years and was highly civilized and known for creating the Bronze Age) through over 1,000 years of various dynasties to Confucius around 500 BC (whose philosophy greatly influenced how the Chinese behave with each other to this day), to the Qin Dynasty (which united most of the area we now call China for the first time in 221 BC), then through the highly developed Han Dynasty (which developed governance systems that are still in use today) that lasted from around 200 BC to around 200 AD, and then a number of other dynasties until the Tang Dynasty in 618. While I scanned China's history from the Xia Dynasty[1] through the year 600 AD (i.e., just before the remarkable Tang Dynasty), I looked at most of the dynasties since then more carefully to see the patterns. I wrote up my study of them that I will share later. I will now focus very briefly on the post-600 AD period.

In the chart below I plotted the same overall power gauge that I showed you in the first chart but applied only to China from 600 AD until now. It conveys how powerful China was relative to other empires in the world over that time frame. While there were many more dynasties that existed in various parts of the country and various other slivers in time, I didn't show them in this chart because that would have produced too much detail for the really big picture to come through. As you can see, for most of that time China was one of the world's most powerful empires, with the notable exception from around 1840 until around 1950 when it went into a steep decline. As shown, around 1950 it started to rise again, at first slowly and then very rapidly, to regain its position as one of the two most powerful empires in the world.

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Over most of last 1,400+ years most dynasties were very powerful, civilized, and cultured. Under the Tang Dynasty, China expanded its borders extensively and experienced a cultural flourishing; in the Northern and Southern Song Dynasties (from the 900s to the 1200s), China was the most innovative and dynamic economy in the world; in the Ming Dynasty (1300s to 1600s), China was a great power that enjoyed an extended wonderful period that was both very prosperous and very peaceful; and in the early Qing Dynasty (1600s to 1700s), China had its maximum territorial expansion, governing over a third of the world's population while having an extremely strong economy. Then in the early 1800s and through the first half of the 1900s, China lost its power while European countries, and especially the British Empire, gained theirs. The shift of relative wealth and power from Asia to Europe from around 1800 until recently, which created one of the biggest wealth and power shifts in world history in which China was uniquely weak, should be considered an anomaly rather than a norm. This evolution and the lessons this history provides are very much in the minds of Chinese leaders and are especially interesting to me.

In the chart above, note the cyclical ups and downs. The reasons for them are mostly the reasons I explained in my description of the archetypal Big Cycle—because of the gaining and losing of the most important strengths and weaknesses in cyclical and mutually reinforcing ways. (My more detailed descriptions of the rises and falls of these dynasties will be given to you in Part 2 of this book, which covers the major cycles of the major empires and dynasties covered in this book in greater depth.) Notice that these dynasties' Big Cycles typically lasted about 300 years. Within each of these were the different stages of development and the things done by emperors to bring the dynasties from one stage to the next, and the reasons for setbacks and declines. In other words, there are many lessons embedded in these histories. That is why Chinese leaders study history to learn lessons that help them plan for the future and deal with the cases at hand. Believe me, the lessons learned from these histories are now guiding Chinese leaders' decision making. What was especially interesting to me was to see the patterns of the archetypal Big Cycle go back much further in history and be described in such detail because China's continuous history is so ancient and so well-documented. It has also been interesting to see what happened when the Eastern and Western worlds met each other and interacted from the 17th through the 19th centuries and how, as the world has become much smaller and more interconnected since then, the Chinese and Western Big Cycles affected each other so that they are now one of the biggest influences on both these two regions and the entire world.

Probably the most important thing I learned from studying hundreds of years of history carefully and thousands of years of history more superficially in a number of countries is to see things very differently than I did before I did this study. I found shifting my perspective in this way to be similar to going to a much higher level in Google Maps because I could see contours of history that I never saw before. I also could see that the same stories played out over and over again for basically the same reasons, and I learned timeless truths about how the really big movements take place and how to deal with them better. Besides affecting how I view things, I see how studying so much history up to the present has greatly affected how the Chinese think relative to how Americans think. From living in the United States, which is a country that has about 300 years of history (because Americans think their history began when settlers from Europe arrived) and from living in a country that isn't as much interested in looking at history and the lessons it provides, I can see that the perspectives of Americans and the Chinese are very different.

For example, to Americans 300 years is a very long time. For the Chinese it is very recent. While having a revolution or a war that will overturn our systems is unimaginable to an American, it is inevitable to a Chinese person (because the Chinese have seen that they have always happened and the Chinese have studied the patterns of why they have happened). While most Americans focus on particular events, especially those that are now happening, most Chinese, especially their leaders, see evolutions over time and put what is happening in the context of them. While Americans fight for what they want in the present, most Chinese strategize how to get what they want in the future. As a result of these different perspectives the Chinese are typically more thoughtful and strategic than Americans, who are more impulsive and tactical. I also found Chinese leaders to be much more philosophical (literally readers of philosophy) than Americans leaders. If you read their writings and their speeches, you will find this to be true. Philosophies of how reality works and how to deal with it well are woven into their thinking, which is expressed in their writings.

For example, in a meeting with Liu He soon after he had his first negotiation session with President Trump, he conveyed his concerns about the possibility of US-China conflict. Liu He is Vice Premier of China responsible for economic policy and also a member of the Politburo. We have known each other for many years, during which we have had informal conversations about the Chinese and world economies and markets. Over those years we came to develop a friendship. He is a very skilled, wise, humble, and likable man. He explained that going into his meeting with Trump, he was concerned about how it would go, not because of the trade negotiations, which he was confident didn't have any issues that couldn't be worked out, but because he was concerned about the worst-case scenario where tit-for-tat escalations could get out of control and lead to more serious consequences. He referred to history and gave a personal story of his father to convey his perspective that wars were so harmful and the damage could be worse if we had another war today. He focused on the World War I example. We exchanged views on long-term cycles in history and his belief in the concept of a community with a shared future for humankind. He talked about reading the Tao Te Ching by Lao Tzu and Critique of Pure Reason by Immanuel Kant, and how he realized that he should do his best, and then the outcomes would take their course. From there he gained his calmness. I told him that I shared that perspective. I told him about the "Serenity Prayer" and suggested meditation to him as a way of helping to obtain that perspective.

I tell this one story to share with you one Chinese leader's perspective on the risk of wars and to also give one example of the many interactions I've had with this leader and of the many interactions I've had with many Chinese leaders and Chinese people in order to help you see them through my eyes and also to help you see the issues through their eyes.

To understand how Chinese people, especially Chinese leaders, think and what they value, it is as important to understand their history and the values and philosophies that have resulted from generations experiencing that history and reflecting on it. Their history and the philosophies that have come from them, most importantly their Confucian-Taoist-Legalist-Marxist philosophies, have a much bigger effect on how Chinese people, and especially Chinese leaders, think than America's history and its Judeo-Christian-European philosophical roots have on Americans' thinking. That is because the Chinese, especially their leaders, pay so much attention to history to learn from it. For example, Mao, like most other Chinese leaders, was a voracious reader of history and philosophy, wrote poetry, and practiced calligraphy—e.g., I was told by an esteemed Chinese historian that Mao read Comprehensive Mirror in Aid of Governance, the mammoth 294-volume-long chronicle of China's history that covers around 16 dynasties and 1,400 years of Chinese history, from around 400 BC to 960 AD, and the even more mammoth Twenty-Four Histories several times as well as numerous other volumes about Chinese history and writings of non-Chinese philosophers, most importantly Marx. I'm told that his favorite book was Zuo Tradition, which focuses on political, diplomatic, and military affairs in a "relentlessly realistic style"[2] in the period from 722 BC to 468 BC, because the lessons it offered were so relevant to what he was encountering. He also wrote and spoke philosophically. If you haven't read anything he wrote and are interested in how he thought, I suggest you read "On Practice," "On Contradiction," and of course The Little Red Book, which is a compendium of his quotations on a number of subjects, which I only had time to skim but was impressed by. It is interesting and informative in ways that are relevant today.[3]

Continue reading here.

About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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Praising mao huh how much does ole ray have invested in china

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