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SOVEREIGN MAN

Four obvious signs of Asia’s rise over the West

April 3, 2012
Hong Kong

Six centuries ago, when London and Paris were irrelevant, plague-infested backwaters, and New York City wasn’t even on the map, the greatest city in the world was Nanjing– the capital of the Great Ming.

At the time, Nanjing was not only the most populous city on the planet, it was also the pinnacle of civilization. Art, science, technology, and commerce flourished in the Ming Dynasty’s liberalized economy, which constituted a full 31% of global GDP at the time.

(By comparison, the US economy is roughly 25% of global GDP today…)

Taxes were low, the currency was strong, and overseas trade thrived. For a time, Nanjing truly was the center of the world.

Over the next several hundred years, the tide shifted. The Ming Dynasty fell, and power was transferred further west to the Ottoman Empire, and eventually to Europe which had finally emerged from the Dark Ages as the most advanced civilization on Earth.

Pointless crusades and inquisitions gave way to a surge in medical, technological, and scientific breakthroughs. By the late 17th century, western civilization had asserted its primacy in the global pecking order.

This phenomenon has lasted for several hundred years now… but as history has shown repeatedly, power centers frequently shift. The world is now witnessing yet another transition of power, this time from west to east, as the US-led western hierarchy suffocates within its own debt-laden Keynesian fiat bubble.

Most westerners refuse to believe it. They can’t envision an era in which the west doesn’t lead the world… in everything. And yet, that time is already upon us. Perhaps nowhere is this more pronounced than in finance:

1) Hong Kong, from whence I write this missive, has been home to the most public offerings in the world ever since overtaking New York in 2009. In 2010, more than $57 billion was raised in Hong Kong IPOs, roughly twice as much as New York.

From Italian luxury house Prada to the luggage maker Samsonite to Swiss metals house Glencore to the US handbag maker Coach, big names have been attracted to Hong Kong. Rovio, the creator of the popular Angry Birds game, is expected to list in Hong Kong as well.

Whereas it was once the obvious choice to list in the US (or London), Hong Kong has now become the best option for most businesses seeking public capital.

2) According to the Financial Times’ Banker intelligence unit, Singapore leads every other major financial center in the world in financial sector foreign investment.

The top three, in fact, are Singapore, Dubai, and Hong Kong. Singapore receives more financial sector foreign investment than New York, London, Frankfurt, and Switzerland combined.

Money goes where it is treated best… and the market is telling us that Singapore is the right destination.

3) According to a new study from the Inter-American Dialogue, China is now dominating emerging market development finance, especially in Latin America.

In the past, countries like Brazil, Ecuador, and Venezuela went to the World Bank and IMF when they needed money. But now these vestigial organizations of the old western hierarchy are becoming a sideshow to Chinese financial muscle.

The study shows that, since 2005, Chinese banks have loaned more money and made more loan commitments to Latin America than the World Bank and International Development Bank combined… and they’re doing it at higher interest rates.

Why? Because developing nations have figured out that when you take the World Bank’s money, you have to put up with them telling you how to run your government. Chinese bank loans don’t come with political strings attached.

It’s extraordinary that this is happening in the US’s backyard.

4) The most obvious sign of Asia’s rise is the perhaps now forgone conclusion of China’s currency becoming a new global reserve option to compete with the dollar and euro.

Every month it seems, there is a new move to loosen China’s once-strict currency controls and open up– new central bank currency swaps, renminbi (RMB)-denominated futures contracts in Chinese exchanges, the introduction of RMB accounts at non-Chinese banks, non-Chinese companies issuing bonds in RMB, etc.

In fact, if you want to mark your calendar on the day the West concedes to Asia, it will be when the US government begins issuing Treasury securities denominated in renminbi.

None of this means that North America and Europe are falling off the edge of the earth. What it does mean is that the old system is being reset, and the rules being rewritten.

It’s not the first time in history that such a shift has occurred, and it won’t be the last. This change is nothing to fear… merely something to accept, embrace, and prepare for.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • Benjamin Dunphy

    It should be noted that the rise of the west was aided by the demise of the Ming’s paper currency, and the government’s decision to move to a silver-backed currency. The entire enterprise of American colonization was financed by the cycles of silver that the Spanish first started (Mexico, Peru, Argentina) that they traded for goods like silk, pottery, gunpowder, and gold. This actually led to the first system of a truly globalized trading system that included the Americas, with the establishment of the Spanish entrepot at Manila. See: 
    http://www.learner.org/courses/worldhistory/support/reading_15_3.pdf

  • John Lloyd

     People have been talking about Asia’s rise(particularly China) for centuries. It’s about bloody time its actually happening. It has 60% of the world’s population so there was never a question that it was going to play an important role in the future. That said, its been a notorious under performer. I wouldn’t bet money on China becoming a superpower. For all the grandiose historical claims of China’s greatness, it has never been more than a regional power. The only people who have ever shown a capacity to rule and do it well have been those from Europe. I know that sounds terribly ethnocentric but its true. In my oppinion, China is yesterday’s news. It was a source of cheap labor that is no longer so cheap and so businesses are starting to go elsewhere. China’s road to a developed economy is a murky one and many in China are scared.

    By the way, Simon, I question your history about Europe and the Dark Ages. The notion that Europe was backward and regressed during this period is a myth. This is the period that universities were founded. Art and Architecture flourished immensely. There was great technological progress during this period. Inventions uncluded: the horse collar, harness, iron horse shoe, compass(far superiod to the Chinese one at the time). Europeans took Chinese gunpowder(which was only used for fireworks) and invented guns and cannons. These backward Europeans, under Charles Martel,  also defeated the Muslim hordes(who were supposedly greatly learned and cultured.

  • Robert Cons

    The countries that embrace Lassiez-faire Capitalism will be in the fore-front of tomorrow’s world and those countries that are most consistently Lassiez-Faire will be the strongest.

  • E. VonWegan

    This may not quite fit into the flow of Simon’s narrative…  but 600 years ago Nanjing couldn’t hold a candle to Córdoba, the moorish capital of El Andaluz (Spain).  A confluence of Greek, Arabic, Persian, Egyptian & European learning, Córdoba had become the orient/occident’s leading centre in sciences (mathematics, chemistry, medicine, etc.) and culture.  This is where the European Renaissance originated. Sure, China had its own civilization, but it was stagnating.  Here are just a couple of examples:1) In the 1640s a couple of German monks were commissioned by the emperor to correct the backward Chinese calendar.2) China has nothing comparable to European architectural achievements, such as the Hagia Sophia in Constantinople (Istanbul) which was built 1475 years ago!!!  Yes, there’s the Great Wall – but it’s no scientific breakthrough in architecture but a simple brick wall, doggedly extended over generations.3) The Chinese language is simplistic & imprecise, devoid of articles, gender, tenses, conjugations and plural.4) The West invented phonetics.  Chinese are using cumbersome pictograms to this day.

  • Sefton Hanley

    “Chinese bank loans don’t come with political strings attached”

    I find that a bit of a dubious premise / assumption ?!?!

    • $10039200

      The Chinese vehemently object to outside interference in other countries’ affairs, it has been the guiding principle of their foreign policy for decades (for fear of establishing precedents that may be used by the bullying U.S. against them). They have been aggressive in the South China Sea only because they consider that historical Chinese territory (like Tibet).

  • Jule Robbe

    My wife and I lived in HK  for 5 years on Magazine Gap Road about half way up to the Peak above Central. I worked as a manager of a Fortune 500 Co. at our Far East headquarters. That elderly lady you assisted is probably poor. However I am remembering many people living like her who actually own hotels in Central and Kowloon. Enjoy one of our favorite cities in the world.

  • Ozawa

    The last time a challenger threatened the NY-London financier system, we had world wars. It is optimistic to think that those at the top in the West will peacefully allow China to call the shots in the world.

  • http://www.facebook.com/profile.php?id=620326040 Bjørn-Endre Andersen

    good article, very interesting times ahead, 

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