If you’ve heard me present over the years, you know I’ve been a little bit of a China permabull. I’ve tended to always look at the brighter side of things in China. The reason for that is I fundamentally believe in Charlie Monger’s saying that, “Show me the incentives and I’ll tell you the outcome.” For the past 20 years or so, the incentive structure in China was a very, very simple one to understand. What you had is a technocratic class that was in charge of most of the important decisions. This technocratic class was told, if you were a young, bright technic party member of this technocratic class and you were sent to be mayor of Wuhan or party secretary in Chandon or governor of Anhui or wherever else, you were given a very simple brief. The brief was “deliver strong growth and you can aspire to the next job. At some point, some day, you can leave the sticks and come back to Beijing.”
With that incentive structure in place … deliver strong growth, you get the next job … you could bet your bottom dollar that growth in China would always be fairly decent, number one. Number two, that China would always add over capacity pretty much regardless of where you were in the cycle. Because again, if you were the mayor of Wuhan and you’re thinking about your next job, and you’ve got a permit application for a new real estate development, you take your big stamp and you say, “Approved.” Next, you get a big permit application for a new factory and you say, “Approved.”
That was the incentive structure. Show me the incentives, and I’ll tell you the outcome. Shifts - CMG
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