Here’s why the U.S. will keep out-innovating China and the rest of the world in terms of economic engine! [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
Hi, everyone!
Welcome to “The Independent Investor!”
We’re excited to share with you another useful investing insight today. Every Wednesday, we publish articles about various investing tips and advice to help you strategically think about your financial choices and achieve true wealth in the long run.
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Miles Everson
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute
The Independent Investor
Are you familiar with who Jack Ma is?
For those of you who aren’t, Ma is the Chinese business magnate who co-founded the Alibaba Group and a few other companies in China.
Like many of his contemporaries who built successful, multibillion-dollar businesses, his story has an appealing never-say-die quality.
Photo from DW
Ma’s Story Shows Why The U.S. Will Keep Out-innovating China and The Rest of The World
As the co-founder of the Chinese e-commerce giant Alibaba, Ma deserves to have a place on the Mount Rushmore of modern tech barons alongside Amazon’s Jeff Bezos and TESLA’s Elon Musk.
Sadly, Ma hasn’t enjoyed that privilege… and here’s why.
As a young man, Ma wasn’t the luckiest of people who grew up in China. He was one of five people who applied for a job at a police station. The other four got in; he didn’t.
He was one of 24 people who applied to work at a KFC branch in China. The other 23 were hired; he wasn’t.
He applied 10 times at Harvard University; he never got accepted.
Despite that, Ma had the inspiration to create Alibaba, which eventually became one of China’s most successful and innovative companies ever. By 2021, Ma’s net worth peaked at almost USD 50 billion.
Aside from that, Ma had dreams of innovating the Chinese banking system. He thought the financial services industry in the country was antiquated and needed a big change. So, he founded Ant Financial in 2014 to do just that.
Ant dominated various financial products, including mobile payments in China. In 2020, the company looked like it was set to have the largest public stock offering in the world.
Ant’s initial public offering (IPO) would have set world records. It was set to raise USD 34.5 billion at a USD 313 billion valuation. Had the IPO succeeded, Ma would’ve been as rich as Bezos and Musk.
Unfortunately, that wasn’t what happened. The Chinese government had other plans…
At the peak of his success, Ma seemed to anger Chinese President Xi Jinping’s administration. The business magnate spoke out too much and too often about the problems with Chinese government regulators, state-owned banks, and how regulations in the country were stifling innovation.
The Chinese government wasn’t happy about that, so it set out to dismantle Ma’s reign. Just a few days before Ant’s IPO, the government hindered it.
After that, Ma disappeared for months. He even missed the finale of his own TV show and other speaking engagements. Various sources said he was sequestered in a hotel room and not allowed to leave.
Simultaneously, Ant broke apart. Its pieces were sold off for pennies on the dollar to many of the banks Ma had spoken out against.
What else?
Ma was forced to step down from his leadership at Alibaba. Since then, the company has been subject to all kinds of fines and investigations.
Rumors also spread that Ma was killed. Thankfully, he reappeared in person to squash such gossip. Despite that, there were still conspiracy theories that the resurfaced Ma is a body double.
Ma no longer gives any interviews today. Once hungry and ambitious with startups and new innovations, he now seems to just enjoy traveling on his yacht, popping up in various countries from time to time.
This is Where The Difference Between the U.S. and Chinese Governments Lie
Ma’s downfall was inevitable, especially in a place like China. This is because entrepreneurship and innovation require free thinking, and free thinking goes hand in hand with free speech, which means openness to criticisms and debates.
Given China’s Communist rule, these aspects simply aren’t feasible or attainable… at least not yet.
On the contrary, one of the reasons why the U.S. has been an innovation juggernaut stems from the freedom and protection included in the U.S. Bill of Rights.
The First Amendment of the bill guarantees the right to free speech and thought for Americans. This helps explain the often-disruptive nature of American innovation, and why U.S. regulators don’t have the power to step in and sequester assets of companies the way the Chinese government charged after Alibaba and broke up Ant.
Ma’s silence today speaks volumes about the Chinese government’s openness to such innovation: IT ISN’T.
Additionally, the Fourth Amendment of the U.S. Bill of Rights prevents unreasonable searches and seizures, which means if Alibaba were a U.S. company, it wouldn’t have been forced to sell pieces of Ant for huge discounts.
Lastly, the Fifth Amendment of the bill helps protect due process. This means the U.S. government couldn’t hold Ma out of the public eye for months.
The absence of these regulations in China is what stunts and will continue to stunt the country’s growth for decades to come… and when you think about it, Ma’s experience is truly a cautionary tale.
Most likely, any entrepreneur who hears his story will think twice before doing anything disruptive in a country like China.
So, what does this anecdote tell investors about investing in companies in different markets?
Governments can sway the outcome of your investments.
When you’re planning to invest in companies from other markets, make sure you know the government’s track record on business and innovation. Check if laws are in place to protect free speech and provide due process for businesses and individuals alike. Also, make sure the government stands by its laws.
This is EXTREMELY IMPORTANT! Why?
If you fail to take this matter seriously as an investor, you open yourself up to risk outside of just picking a bad company in a bad market.
The Chinese government has been preventing and even punishing innovation for years. The U.S. government has been encouraging it… and because of that, U.S. stocks continue to flourish.
That’s why at Altimetry Financial Research, Professor Joel Litman and his team don’t have faith in the long-term outlook for Chinese stocks—at least not relative to the U.S. economic engine’s strength.
With a healthy venture ecosystem, they believe the U.S. stocks will continue to prosper in the next few decades. So, as an investor, that’s where the bulk of your money should be invested.
We hope you find today’s topic insightful and helpful!
Happy mid-week, everyone!
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
LITERALLY.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
Our goal?
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
Cheers,
Kyle Yu
Head of Marketing
Valens Dynamic Marketing Capabilities
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