The Dual Economic Structure: China's Core Competitive Advantage

2008/7/2 15:35:56

I don't know why some people have been conflating this ID's views with those of that "Lang-something-or-other." This ID once wrote a post exposing Mr. Lang. People shouldn't be so naive—the deeper the disguise, the bigger the ulterior motive. Just as this ID exposed before, that old man from Hong Kong talked this way and that, but ultimately his sole aim was to lure China into abandoning foreign exchange controls. Now this middle-aged man from Hong Kong talks this way and that, but his only purpose is to lure China into abandoning its real weapon: the dual economic system.

Remember: even if two people are cursing the same thing at the same time, their motives and starting points may be completely opposite. Don't assume that because someone once criticized the liquidity glut fallacy like this ID did, they're on the same side. In the economics circle, this ID has apparently never yet found anyone on the same path.

Just as this ID was the earliest to oppose the Hong Kong Stock Connect and was ultimately proven right that the policy was indeed unfeasible at the time, this ID was also the earliest to explicitly and unequivocally—in black and white—oppose the absurd notion that China's economy suffered from so-called "liquidity glut" and the corresponding excessive macroeconomic tightening measures. Subsequent economic developments once again mercilessly proved that all economic measures have theoretical and practical prerequisites for their validity. The so-called liquidity glut diagnosis—copied straight out of a Western Economics 101 textbook—along with the corresponding excessive macroeconomic tightening measures, simply lacked the practical and theoretical prerequisites in China's existing economic structure. They were thus doomed to be ineffective, and instead generated numerous complications.

Like a cancer patient, what ultimately kills them is often not the cancer itself but the many complications. These complications are mostly caused by incorrect treatment methods, ultimately leading to death not from the disease but from the treatment. The logic of economic regulation is the same—many examples of economic failure are ultimately caused by aimless, cookie-cutter misregulation that triggers complications leading to loss of control.

Anyone with the most basic understanding of China's economy knows one fundamental fact: China's economy currently has a typical dual economic structure, not some pure, unadulterated Western-style mature market economy. This means that the economic regulatory methods we adopt must differ significantly from Western approaches. Pure Western medicine won't work well here. Rather, an integrated Chinese-Western approach has the greatest chance of achieving optimal regulatory results.

Under this dual economic structure, we must guard against any purely ideological extremist approaches. Chinese medicine and Western medicine are both medicine—both are means, both are rafts for crossing the river. Clinging dogmatically to either side is merely a display of the practitioner's inferior skill and limited vision. Everything in the world is medicine—the key lies in how the practitioner uses it. The ideal, of course, is to act before illness manifests. But if, for various reasons, the patient already exists in a pre-illness or active illness state, then how to apply all the medicines of this world without discrimination, practically based on actual conditions, is the ultimate test of the practitioner's, the regulator's, wisdom. Without such wisdom, if one can only blindly follow formulas, that is a disaster worse than the illness itself—truly a great misfortune for the nation.

However, there is something even more critical than the above: we must be vigilant against attempts to use every available procedure and every form of packaging to gradually alter China's dual economic structure. The dual economic structure is precisely China's core competitive advantage—one of the greatest secrets behind China's rapid economic development over these past decades. Claims that the dual economy hinders China's development are merely voiced from the perspective of the so-called pure, unadulterated Western market economy. In reality, this theoretically pure market economy has never stably existed in Western history or present. And for an economically backward giant like China, the only feasible and realistic approach to catching up with the West is the dual economic model. China's tremendous economic achievements over thirty years and its successful resolution of multiple major crises were all accomplished under the practical premise of the dual economic model. The attempt to mechanically transplant a pure Western market economy model onto China is even more insidious and harmful than the misregulation described above.

Now, our most urgent task is actually to continue upholding and perfecting this distinctly Chinese dual economic model. The principle of perfection boils down to just one thing: both elements of the duality must be made strong—not just one element growing strong while the other is suppressed. Otherwise, it would completely violate the essence of the dual economy. The success of a dual economy necessarily requires both elements to be simultaneously strong—that is the true dual economy. The greatest risk to China's economy actually lies in the dual economy being replaced by a pseudo-dual economy. What is a pseudo-dual economy? It's when one element develops in a distorted fashion while the other is effectively suppressed—a superficial duality that actually operates as a single-core system.

A true dual economy necessarily operates as a dual-core system. Among the complications triggered by reckless regulation, the most pernicious kind is the complete destruction of the mechanism for effective dual-core operation. Currently, China's economy faces precisely this risk of becoming single-core, and the ultimate outcome of single-core operation is inevitably becoming no-core. An economy without a core is destined for systemic collapse. If that happens, even if the system can be reinstalled, it will be too late.

Expanding on this topic would waste too much time—better to go have fun. As for today's market, there's nothing much to say. If you have some interest in technical analysis, this ID can say a bit more: today closed with a classic new-low inverted-T candlestick after a consecutive decline. The last time such a candlestick appeared was December 18, 2007, after which the first rebound rally from the 6124 high continued. Generally speaking, when this kind of candlestick appears, the probability of it being the ultimate rebound bottom is 70%. The only difference between this time and last is that last time it occurred during a second bottom test. If you're interested, you can collect historical instances where this kind of candlestick appeared in the index and study the subsequent movements—it will deepen your understanding of this technical pattern.

Note: the candlestick methods described above are all empirical observations and have nothing to do with this ID's theory, but they can be used as supplementary tools. Generally, such applications work like solving a system of equations that yields very few solutions, then using these supplementary tools to determine the highest-probability solution. But in actual operations, the key is still to judge based on the current real-time trend, rather than letting preconceptions blind your eyes.

As for proactive buy-the-dip operations: for example, today when the intraday rally showed a small-level consolidation divergence, you could use a portion of your shares to go short, then when it comes back with a price differential, buy back everything. This way, your share count keeps increasing. Of course, if you already have enough shares, you can keep the count constant and only replenish a fixed portion. The principle of this operation is to use oscillation to drive down cost. To master this operation, you must carefully study the chapter in this ID's course about how 8 thirty-minute bars in a day form different trend patterns—it's explained very clearly there, so I won't elaborate.

Today's task is complete, the post is done, and this ID is liberated—off to play!