“Life is good in impeccably sunny Rome. The eternal city is still something else, and the enviable dolce vita remains omnipresent. Tourists keep the Euro rolling, and the city’s domestic people seem to be on a perma-high, managing to live off this uniquely short and joyous attention span that keeps them insulated from worrying about the longer-term prospects of their country. Life is good, even though it reminds of a hologram.”
Reading a friend’s blog this week (http://www.expertise-asia.com) about him sitting in a cafe in Rome, is remarkably the same as my experience in Italy thus far. Things look pretty good in Venice. As I mentioned before I am on tour in Europe, which should be a) very pleasant but b) give me more perspectives about where we are heading next on our planetary journey. When you are living in a complex dynamic system, one seems to get much insight about the emerging whole when you visit clusters where there are many intersections. Many cities in Europe out certainly fulfil this criteria.
I always click on articles about anticipating the future. This last week I saw one by Vikram Mansharamani about how generalists are better at it. This is something that we believe at the Emerging Future Institute of course and something I point to in most of my talks.
“How can we get better at anticipating the future? I asked him when we met. The flood of political, economic, technological, social, and market forces that bombard us every day is overwhelming and distracting. It prevents us from paying attention to what really matters, he said. He noted the usual response to this noise is to focus narrowly or turn to specialists for help. But is that the right path? Have we been blinded by focus? Has the mantra of expertise and specialization misled us? Vikram thinks the pendulum has swung too far.
Vikram offers scores of compelling real-life examples that show how the narrow focus and specialization can lead us to miss the most important signals – the ones we’re least primed to see. The advice Vikram offers is counter-intuitive. He advocates opening up to get a broader view; to “zoom out” as he calls it, and then connect the dots. He calls the logic the generalist’s approach. Breadth, Vikram argues, is as important as depth. Generalists win by paying attention to more than their area of expertise. Vikram’s generalist framework for looking at the world differently and meeting disruption head-on.”
My friend Kenneth Mikkaelson writes about this topic in his book the Neo Generalist.
China and Hong Kong
Hong Kong has been very much in the headlines with the anniversary of the handover from the UK to China 20 years ago. To mark the anniversary President Xi visited from Beijing amidst very tight security. The Chinese have taken quite a slow and purposeful approach to this transfer of power. But since the “Umbrella Revolution” 2 years ago, they have tightened up on their grip.
Twenty years in, the fact that Hong Kong is in the midst of an identity crisis shouldn’t really surprise anyone. Going from British influence to Chinese, is an enormous change culturally, politically and in any dimension. In addition to the headwinds coming from a deflationary Chinese economy, clearly the leadership in Beijing is not going out of its way to help Hong Kong until it shows greater propensity to ‘behave’. Eventually this will probably happen as in the territory money really does speak (probably more than democracy and civil liberties).
A month or so ago local politician Regina Ip wrote another scathing article about Hong Kong and its current demise today in the South China Morning Post. She is a prominent legislator in Hong Kong.
“The budget debate in the Legislative Council provides pan-democratic legislators with an annual opportunity to indulge in their favourite pastime of bashing government officials for acts of negligence or malfeasance in the past year. Calls for senior government positions to be deleted or for salaries to be deducted rained down on waxwork-like officials like missiles on hapless targets. Yet amid the thunder of denunciations, the crucial question pertaining to Hong Kong’s economic future has been missed – why is Hong Kong’s economy listing and what are its future directions?
Despite the government’s ability to keep piling up record surpluses, there is a feeling in the community that Hong Kong’s economy peaked in 1997. Twenty years on, many people share the feeling that they are neither happier nor living better than before.
Property prices have skyrocketed, far outpacing increases in real wages. Hong Kong people are unable to buy homes, or have to content themselves with living in “nano-size” cubicles. Hong Kong people watch helplessly as wealthy mainlanders snap up properties and school places in elite school districts. While the government continues to tout Hong Kong as Asia’s premier business and financial hub, an increasing number of overseas-educated mainland graduates, with mother-tongue fluency in English, Putonghua and their native dialects, swell the senior ranks of banks, and consulting and law firms, professions which used to be the exclusive reserves of Hong Kong’s brightest and best.
Even Hong Kong’s construction industry, which has won admiration across Asia for its ability to pull off mega infrastructure projects in record time, is finding its reputation shattered as Hong Kong lags woefully behind its mainland counterpart in completing the Hong Kong portion of the Hong Kong-Zhuhai-Macau bridge project. Engineering troubles, cost overruns, time delays and 10 workers killed thus far in avoidable industrial accidents have rendered the bridge a pathetic symbol of Hong Kong’s inability to regain its past glory.
One does not need to look at hard economic data to appreciate how pitifully Hong Kong is lagging behind its mainland neighbours in development and innovation. Two examples from daily life speak volumes about Hong Kong’s apparent loss of its ability to innovate. On the mainland, the mobile payment system by WeChat Pay has all but replaced cash transactions, while in Hong Kong, customers at food courts and beauty counters in shopping malls have to queue to pay before they can get their food or merchandise. The vast efficiency gains of the mainland system are self-evident.
There is too much obsession with the “50 years no change” mantra. The obsession with safeguarding its pre-1997 lifestyle and separate systems has blinded Hong Kong’s leaders to the profound and systemic technological change taking place in the rest of the world – the pervasive power of digitisation and information technology, the convergence of technologies across physical, biological and digital planes which is creating new, groundbreaking products and processes. The “fourth industrial revolution”, as dubbed by Klaus Schwab, founder of the World Economic Forum, is creating massive disruption to the “old” economy. Hong Kong can run but will not be spared.
Hong Kong’s leaders have also failed to alert Hong Kong people to the far-reaching implications of China’s economic ascendency. China’s continual development is dealing a body blow to Hong Kong’s traditional intermediary and catalytic roles. The rise of a new class of Western-educated Chinese professionals is presenting unprecedented challenges to Hong Kong’s elite. Hong Kong must think hard about what remains of its competitive advantage and core strengths, economically, culturally and system-wise, and sharpen its competitive edge. Otherwise, marginalisation will become an inevitable reality, and Hong Kong in 2017 will go down in the annals of world cities as a city in decline.”
This was a pretty loud call from Regina Ip. Along similar lines, I found this article in the WSJ written by Mr Hu the Chairman of Primavera Capital Group quite interesting, asking why Hong Kong isn’t further ahead in entrepreneurship. But he ends on a positive note.
“Hong Kong possesses many of the requisite factors for technological leadership, including world-class universities with top scientists in fields such as biotech and robotics. Yet it has failed to create a vibrant startup ecosystem [emphasis added]. Beijing and Shanghai are in the top 10 of global startup rankings, while Hong Kong isn’t even in the top 20. Hong Kong spends just 0.7% of its gross domestic product on research and development, compared to 2% in Singapore, 3.1% in Taiwan and more than 4% in Israel and South Korea. The city enjoys a large budget surplus, and its medium-term fiscal outlook appears positive. It has the resources to rapidly close the R&D gap if it chooses to. Hong Kong needs a strategic vision and strong action to transform the city into a 21st-century innovation leader. Building a startup ecosystem with rekindled entrepreneurial spirit holds the key to the city’s future. As new startups proliferate, more opportunities beyond traditional industries will become available to the younger generation, enhancing their prospects of finding jobs with avenues of advancement. Despite missed opportunities and significant challenges, Hong Kong has been an unqualified success since its handover 20 years ago. Provided politics doesn’t get in the way, the city is capable of reinventing itself and thriving.”
My view has been that Chinese policy makers are keeping up the pressure on Hong Kong to play ball. And there has been a lot of negative articles in the South China Morning Post recently from what I can see. This is now owned by the Chinese company Alibaba.
The possibility for Hong Kong to change quickly is immense. Don’t forget that is IS part of the Peoples’ Republic of China. Of course, Beijing probably doesn’t want one city to be the sole gateway of finance to China, as Hong Kong once was, but it also doesnt wish for Hong Kongs ultimate demise! Hong Kong will be able to tap into the immense resources and successes of the mainland once it starts to step in to line. So whilst I have been more optimistic on Singapore in recent years, the potential for Hong Kong remains very high. For example, note how Alibaba was suddenly able to deploy huge resources in Hong Kong when it announced a HKD1 billion fund for start ups in 2015. https://techcrunch.com/2015/11/19/alibaba-launches-130m-fund-to-support-entrepreneurs-in-hong-kong/
Singapore is doing well by attracting global capital. Hong Kong has an army of potential patrons lurking in the background and the government of the second largest economy in the world.
And whilst I am expecting rocky times ahead for the Chinese Dragon, it certainly isn’t going away!
China and USA
Whilst President Xi was trying to catch the news headlines with the pomp and ceremony in Hong Kong, the US has announced a series of measures which the Chiense ambassador has criticised as counter to the summit of the Mar-a-Lago Summit. The Trump administration has confirmed a $1.4bn sales of weapons to Taiwan and sanctioned a Chinese bank – Dandong Bank – over ties to North Korea.
Kyle Bass who has been negative on China for some time, called this a tectonic shift in China-US relations in a CNBC interview. Here is the short clip worth watching.
Has the brief Trump-Xi ‘Honeymoon’ ended?
Its been another week of a lot of news in this space. This article in Forbes by Nathan Lewis was worth a read, suggesting the Bitcon and gold might have a complementary relationship.
“I find that gold and Bitcoin are actually somewhat complementary – that one’s strengths are the other’s weaknesses, and vice versa. This suggests that gold and Bitcoin together might have some role in our future. Gold’s strengths include its millennia-long history of serving as a stable store of value. The gold coins that wealthy Roman families buried under their homes, during the collapse of the Roman Empire, are still valuable today, and arguably, still worth about as much now as they were then. This stability also allows gold to be used as a standard of value for pricing and long-term contracts, such as loans or employment agreements. Also, there is a lot of it: about $7 trillion worth of gold in the world, compared to $33 billion of Bitcoin. Bitcoin is still digital vapor, even if it is independent of banks’ own digital vapor systems (when was the last time you held a paper share certificate?). A world in which banking systems go down is certainly one in which cellphone and internet systems can go down. Gold is indestructible. Gold is also anonymous, in a way that no digital currency could ever be, even if it tries. Gold is relatively easy to transport and trade. A gold kilobar easily fits in the pocket, and is worth about $40,000.
However, we want something easier to transact in than that. One popular use of Bitcoin has been for long-distance transactions, such as remittances from immigrant workers back to their families at home in other countries. In the past, this required services like Western Union, which charged big fees. Also, Bitcoin can be subdivided almost indefinitely, and works well for small transactions. The smallest tenth-ounce – about 3.1 gram – gold coin is still worth about $120. Bitcoin might soar multiples higher in value – who knows? – but we know that it is not a reliable store or standard of value. It has no history of stability at all. Because of this, we can’t use it effectively as a basis for pricing, or for long-term contracts.
Thus, I can see a situation where gold can be used somewhat like a “savings account,” and Bitcoin as a “checking account.” You would keep a Bitcoin balance for transactions, but maybe not a large amount. Bitcoin could be sold for gold, or gold for Bitcoin, as the need arose, to replenish your transaction account or transfer value to long-term assets. Prices and contracts might be denominated in gold, but payment made in Bitcoin at the daily market rate. This is already common for goods and services denominated in dollars, but where Bitcoin is accepted in payment.”
Its interesting to see a whole bunch of international institutions and bodies writing reports on crypto-currencies now. It really does feel that we are on the edge of these things becoming mainstream. Governments will adopt digital currencies, but they might not be what the original crypto anarchists intended – that is currencies that are beyond the reach of governments to tinker with.
This is from the Word economic Forum’s Report:
“The internet is entering a second era that’s based on blockchain. The last few decades brought us the internet of information. We are now witnessing the rise of the internet of value. Where the last era was sparked by a convergence of computing and communications technologies, this second era will be powered by a clever combination of cryptography, mathematics, software engineering and behavioural economics. It is blockchain technology, also called distributed ledger technology. Like the internet before it, the blockchain promises to upend business models and disrupt industries. It is pushing us to challenge how we have structured society, defined value and rewarded participation.”
I need to skim through the report. But I did notice that this is another report that is glowing of Ethereal. I am sure I will come back with more observations in due course. But I just wanted readers to see it was published.”
The IMF has also endorsed crypto as well this last week:
A big report by PWC on AI was recently published. I think its good to flag these things to readers as many of them contain good amounts of data which we don’t intend to replicate here. What we prefer to do is offer insight now that information has gone in to oversupply and is virtually free nowadays.
“Machines capable of carrying out tasks normally reserved for humans will boost global GDP by as much as 14 percent by 2030, according to PwC.
In a report, the global auditing and consulting firm argued that the widespread adoption of artificial intelligence (AI) can contribute $15.7 million to the world economy over the next decade, the equivalent of the current combined output of China and India, as it would vastly increase productivity and spur shoppers to spend more. (See also: Artificial Intelligence.)
According to the firm’s calculations, the bulk of these gains, $9.1 trillion, will be generated by consumption-side effects. Shoppers, driven to work by autonomous cars, are expected to use their extra time and resources to buy personalized and higher-quality goods. The U.S. is forecast to be a major beneficiary of this trend — PwC reckons that consumption patterns triggered by AI will add $3.7 trillion to the North American economy. (See also: Self-Driving Vehicles Will Create ‘Passenger Economy’ Worth $7 Trillion: Study.)
China is predicted to be an even bigger beneficiary, particularly as it’s heavily dependent on manufacturing, an industry that is expected to receive a huge economic boost from the introduction of automated robotic workforces.”
But the full report is here:
I had coffee with the chief economist of one major financial institution in London and he was remarkably upbeat about where Europe was in the cycle. I recollect what Draghi said at the time of the last ECB meeting:
“Mario Draghi has said he is “confident” that the European Central Bank’s policies would restore inflationary pressures in the eurozone and that the scars inflicted by the crisis will fully heal. The bullish assessment of the eurozone recovery will fuel speculation that monetary policymakers could soon begin discussing a withdrawal of stimulus. “All the signs now point to a strengthening and broadening recovery in the euro area,” the ECB president told the bank’s annual conference in Sintra, Portugal, on Tuesday. “Deflationary forces have been replaced by reflationary ones.” As Mr Draghi spoke, the euro climbed 0.7 per cent against the dollar to $1.1258, its highest since June 14, although the rally coincided with a wider trend for a weaker US currency. In late London trading, it broke through the $1.13 mark for the first time since September. The ECB president said all the evidence suggested the central bank was managing to raise demand. He also indicated he was not overly concerned about the recent weakness in inflation, which he said was down to global factors and changes in the labour market that meant there was less pressure on companies to raise wages. He described the weakness in inflation as “temporary” and predicted that the ECB could achieve its target of just under 2 per cent in the medium term. He said the risk of so-called “hysteresis effects” — where damage inflicted by crises becomes permanent — had diminished too.”
My friend pointed to a whole spate of recent data that is quite robust. This is the German IFO data.
Carsten Brzeski, ING’s chief economist for Germany and Austria, highlighted particularly strong reports from industrial producers, noting:
“Some more relief and eu(ro)phoria after the French parliamentary elections but also a brightening outlook for the German industry are the main drivers of yet another stronger Ifo reading. The industrial revival could be the surprise story of the year in the Germany economy. Almost unnoticed, the industry has returned from sluggish to buoyant. Looking ahead, there is increasing evidence that investment could also pick up in the course of the year. The combination of strong orders at hand and low inventories is currently as good as in mid-2006 and late-2010.” Financial Times.
Much of my deeper inspiration comes from ancient wisdom texts – or from life itself – some sometimes I find self help or motivational writing useful. Here is a great list about things one should give up to be successful. It reminds me of the phrase in the Tao Te Ching about the path to knowledge being to add something each day but the path to enlightenment is to take away something each day. At first this might seem slightly ‘negative’ in the Western sense. But it is actually based on the premise that we are all innately perfect, both wise and highly creative. We just need to remove the obstacles to access that inner resource.
I love “You will never reach your destination if you stop and throw stones at every dog that barks.” ― Winston S. Churchill
Have a great week.
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