If you are similar to most people living in North America or Europe, you will hear news about China but not really know the details, because wherever you live that is the area of the world where you will be focused on. First it is where you sleep, then where you work, then the local community, the regional community and wherever your friends and relatives live. In order to have a connection to another part of the world, you need some sort of personal connection. This is why books are valuable, you can develop an understanding and then go back to your regular world.

One of the summer readings was a book called Asian Waters by Humprhrey Hawksley published by The Overlook Press, NY, 2018. Although the book is a few years old, the issues it covers have not changed much for the book is about the struggle over the South China Sea and the strategy of Chinese expansion.

If you go back to the spice trade from Asia to Europe, for generations it was done by land routes or camel caravans and boats from the Mediterranean Sea. If you ever read Shakespeare the Merchant of Venice, the merchants lived in Venice, Italy and controlled the spice trade on the Mediterranean. It was not till people looked beyond the Mediterranean and a ship went exploring and brought back spices to Europe. The trip would take a year or two, but it turned out if the ship came back the profits were very healthy. First the Portuguese dominated the trade but soon the Netherlands or the Dutch, the Spanish and English were sending ships to the spice islands and taking a country for their own or colonization. When profits are healthy as long as the major partners are making money, there is relative peace. When someone wants a bigger share, then conflicts happen.

If you jump to 1842, England had the most powerful navy in the world which allowed the British Commonwealth to be the biggest group in the world. When the price of spices went down, alternatives needed to be found. It turned out that India grew opium and it was the drug of choice for Chinese. The East India Company whose shareholders included royalty, shifted from spices to drugs and profits flowed to London. If you think about the war on drugs between the US and Columbia (cocaine), you have an idea of the tensions between China and Britian.

England had a more powerful navy and weapons of mass destruction; wars were fought and a couple were called the Opium Wars which England won. One of the many concessions was the drug trade continued. At the same time, the government in China was on the downhill, relative to before 1492 when China was the leading country in the world, however the emperor turned inwards and let someone rule the world.

China’s leaders want to get back to the period of dominance and at the moment it is the world’s second largest economy. There are multiple ways they are doing this including what is now as the Belt and Road linkages. Similar to all countries, they like to have options, if the primary route is under threat, there are many secondary routes to link into the country. China has the money to do that and they have gone to many countries offered them infrastructure, as well as a military presence for their navy.

Back to the book, the east coast of China is on the South China Sea and to protect itself and ensure its dominance, China has been taking over islands, adding to their land and installing military installations on the land. Some of the islands are outside the 200-mile limit, but China is the elephant in the room, who can stand up to them?

Linking to dividend paying stocks, the companies are often the biggest players in terms of market share and profitability which allows the companies to raise prices as costs go up and to maintain margins. From an economic standpoint, as investors you like that, which is why often times evaluating the world from an economic viewpoint means it is slightly easier to understand.

There are more questions than answers, till the next time – to raising questions.