The Quick and Easy Way to Understand Asia
How can I profit from Asia's booming economy?
The race of the century is happening right now - investors everywhere are fighting to be the first to “crack” the Asian investment code. In order to win big in the world’s most dynamic market, you need the right tools of analysis.
We call these 'models' - they're how we perceive and understand the world. They help make economics and finance simple. We use models in our approach because the systems so commonly used in the West are basically meaningless when applied to the East.
Let us quickly break down the reason why a model works and how they can be applied in Asia. The dramatic economic turnaround for some Asian countries can be explained easily. Therefore, once you see the ingredients, preparing the recipe will be a piece of cake … or a pork bun.
Pork Buns for Everyone!
Models are like recipes – the truly special ones are remembered and passed down from generation to generation, while those less popular are forgotten and lost in time.
Let’s use a family’s ‘famous’ steamed pork bun recipe. It appears to be a good ‘model’, but why? The recipe probably uses a specific ratio of ingredients that are well-balanced, creating a ‘perfect’ dish. Furthermore, this particular pork bun recipe may have lots of evidence that it is good enough for the family to remember (four generations have used it).
It can also be tested (a neighbor borrowed the recipe and had the same great result). It also simplifies reality (it would be difficult to make steamed buns without knowing the ingredients, ratios and cooking instructions).
On the flip side, a poor model, one that certainly does not work, would say that you could substitute bamboo leaves for ground pork and get the same result. Clearly not, unless you happen to be a panda.
A good model is like a good steamed pork bun recipe; the same input produces the same output every time. Photo: Shuttertock
In cooking, a model is pretty simple. When we speak of world politics and shifts in global power, there are numerous models and factors that play a part in obtaining a certain result.
The last article showed how important geographical features like mountains and rivers determine the rise of great civilizations. Unsurprisingly, this is an actual model used today. It is referred to as the ‘River Valley Civilization Model.’
The River Valley Civilization Model works because throughout history, civilizations tend to emerge near river valleys. Historians and anthropologists have made this observation time and again, thus this model was born.
The mightier the river, the larger the population. The denser the population, the bigger the economy. The correlation between population size and economy is extremely important, as it is an essential building block for an advanced civilization that can last thousands of years.
From the rivers, a population got both drinking water and irrigation, and therefore fertile, productive soil. Crops grew faster and more bountiful, sustaining larger agricultural villages. A surplus of food meant that some members of the community were able to engage in non-agricultural activities, like construction, metalworking, trade and social organization.
The ‘input’ in this model is a large sediment-heavy river and the ‘output’ is an advanced civilization. The model has everything – evidence, has been tested and shows, simply, the reality of what traditionally occurs.
Let’s go deeper into the statistical figures we discussed in the previous piece, when Western countries overtook Asia as global leaders. Although China was a dominant force, when the industrial revolution occurred, it brought with it a brand new, world-defining model. Regardless of natural resources or total population, once machines and technology were introduced to society, it removed the need for mass scale human labor. Indeed, the role of the laborer went on to steadily decline.
The breaking point is clearly shown in the following graph. Unprecedented was the fall from grace that China experienced.
Conceptual models are often abstractions of things in the real world, be they physical or social.
Yet when technology started to be shared across the globe, we became interconnected more than ever before. The world is reverting to its original model, in which population size dictates a country’s economic prowess. The power is shifting back to Asia, which is where we stand today.
In addition to the first model we looked at (population size and economic power), another model is important in understanding the shift of power back to the East.
Capital Development (or ACD – Asian Capital Development) applies to Asian countries and the ways by which they implemented land, banking, agricultural, manufacturing and service sector reforms. As you will see in our next article, the accumulation of these reforms led to a progressive and potent economic recipe.
Remember, understanding how a model works within a particular context allows you to cease speculating and instead intelligently invest your money with purpose and precision. It is also important to know which model to use – does it translate to the Asian way? If not, you will surely be at a loss. Western ideologies are not one size fits all.
At One Road Research, we are here to highlight things as they are, filter the noise and show Asia’s potential as never before.