The rise and fall of empires and what we can learn from them

Apr 29, 2020 | Tony Byrne's View

Anybody with at least a passing interest in history will be aware of some of the rises and falls of empires in the past such as the British Empire and the Roman Empire to name just two.

Over the last 30 years we have seen a remarkable turnaround in the Chinese economy which has transformed it from an economic backwater into the second largest economy in the world and it is forecast to become the largest global economy at some stage in the future. When that will be is subject to divided opinion but it only seems to be a matter of time.

Judging by how well the Chinese have handled the coronavirus pandemic compared to the US it may be as soon as this year that China turns the tables on America because their economy is set to recover far sooner than the US economy.

A study of the previous empires in history shows that the US is displaying all of the tell-tale signs of a declining empire whereas China is showing the classic symptoms of an empire ready to claim top spot.

Throughout history the following 3 factors are always at play when an existing pre-eminent empire declines and another empire replaces it.

1) High levels of indebtedness and extremely low interest rates, which limits central banks’ powers to stimulate the economy

2) Large wealth gaps and political divisions within countries, which leads to increased social and political conflicts

3) A rising world power (China) challenging the overextended existing world power (the US) which causes external conflict.

Interestingly China has historically always been one of the most powerful and successful trading nations ever since the days of the Silk Road which lasted between 200 BCE and the eighteenth century. China’s economy went into decline in the nineteenth and twentieth century especially during the last century due to the communist era.

China will shortly return to the top of the tree and probably continue to dominate world trade for a long time to come.

So what can we learn from this?

Well what it shows is that you cannot ignore the economic miracle that is China. Their leaders have always planned long term. Their government has 50 year plans that they review annually. It is hard to imagine any Western developed nation with a plan that is more than 5 years ahead and in practice much less than that in reality. In some ways having a one party dictatorship does have its advantages.

Some recent examples of China’s actions in respect of COVID-19 show that it is a country that can truly get things done at a rapid pace. The way it handled the outbreak of coronavirus in Wuhan with very early lockdown was amazing. At the time of writing in early April the coronavirus in China has virtually been contained. The Chinese built two large hospitals in Wuhan in weeks. That is truly remarkable by any standards. By contrast it is currently taking Milton Keynes Council a year to build an underpass on one of the roundabouts on Watling Street. The two countries are literally poles apart. It’s little wonder China is an unstoppable economic force.

So what can we learn from this? Well it is clear to me that investing in Chinese shares long term and reducing investment in US shares is a no brainer.* You know it makes sense.

*The value of investments can fall as well as rise. You may not get back what you invest.This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action.


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