For a China skeptic, reading this book is like listening to a sermon. For a China bull, it will start ringing the alarm bells. For anyone interested in how the world’s second-largest economy works, this book provides a great overview, neatly packaged within the life story of a remarkable and interesting woman.
“My father’s quintessential tiger parenting ultimately resulted in an American success story built with Chinese strengths,” Junheng Li tells us about her upbringing in the suburbs of Shanghai in the 1980s, her American college experience in Vermont in the 1990s, and her successful Wall Street career in the 2000s.
Having lived in both cultures and having experienced both education systems, Li offers her insights on the differences between China and America. She builds a compelling case for why the mainstream perception that “China will rule the world” won’t come to fruition in the near future, and why America, despite its problems, is better equipped for a long-term contest.
“Until the software—the quality of its citizenry and society—matches the government-led hardware of infrastructure buildup, China is far from constituting a credible threat to America,” she writes.
Drawing on her experience as a Chinese citizen and an American businesswoman—Li now runs a boutique investment research firm specializing in Chinese companies—she sheds light on deep issues such as declining moral values in a communist state, and more practical matters like the risks hidden in the Chinese banking system.
Although the subtitle, “Winning Business Strategies from Shanghai to New York and Back,” over-promises a little, specific investment and real-life examples, as well as many Wall Street anecdotes, illustrate her main points.
As a result, the narrative never gets too dull or technical, so the book remains accessible to the average reader. In addition, most investors, whether professional or not, can learn a few things from Li’s contrarian methods.
Drilled for Success
For Li, education is the determining factor in her personal life, and in how China and America compete. In what she refers to as “tiger parenting,” Li’s father drilled her to be successful from a very young age.
She had to complete arithmetic exercises while kneeling on a rugged washboard with sharp edges. Her dad threw her in a swimming pool as a toddler with a small flotation device so she would learn how to swim.
“It was the only way his daughter would gain an edge in China’s highly competitive education system,” Li writes, adding she knew he was doing it for her, so she could be successful later in life.
She writes that the basic rigor of learning mathematics and grammar as a child is an asset she would use for the rest of her life. However, the Chinese system is based mostly on memorization, whether it is mathematics or Communist Party propaganda. Independent thinking and innovation are not taught.
“The [regime], represented by the Ministry of Education, still holds onto Marxist and Maoist teachings because it is afraid to part with the bygone era—parting with it would mean reform, and the party inherently fears reform,” Li writes.
This is a major flaw, which constrains the full potential of the country’s citizenry, according to Li. Rampant cheating in high schools and universities explains why Chinese companies have been successful mostly by working hard and copying others, fielding few innovations of their own.
Thanks to her father, who never believed communist propaganda and was an avid Voice of America listener, Li got inspired by the American classic movie “Gone With the Wind,” and set her sights to move to the United States.
After another round of hard work and memorization, Li aced her Chinese university and the TOEFL English exams, and got a scholarship for Middlebury College in Vermont.
In America, it wasn’t the academics of her economics course material, but rather the way education was approached in the United States that baffled Li.
“The hardest changes lay in the social and ethical rules that governed the campus.” She writes about the relaxed supervision, yet strict code of ethics at her college. Students were expected to complete their work independently and honestly, something she had never heard of in China.
According to Li, this approach of accountability, as well as risk taking and independent thinking in class and group work is a cornerstone of American innovation—a big advantage it has over China.
“China’s education system has failed to produce either an honorable or an innovative society,” is Li’s shattering verdict.
An Honor Code
Ultimately, the differences in the two countries’ education systems reflect a different moral code, which also translates into business practices.
“It [seems] counterintuitive. China had delivered impressive economic growth since I was a child. One would think that as a country gets richer, its people would no longer need to fight for their livelihoods. Shouldn’t they therefore hold themselves to higher moral standards, like the honor code we had at Middlebury?” Li asks.
Apparently not. Li then astutely analyzes this moral dilemma: Having robbed the Chinese nation of its spiritual beliefs by persecuting religious believers and indoctrinating the masses with atheist communist ideology, the Chinese Communist Party replaced a noble code of ethics with money worship and belief in the Party itself, which cares for nothing but power.
According to Li, solely caring about profit and outdoing others are the direct reasons for China’s creativity-stifling education system, slew of corporate scandals, widespread official corruption, and destruction of the environment, all of which Li documents with numerous examples.
“Social values remain weak because the system does not encourage citizens to believe in a power higher than the state—and given the personal tragedies and inequalities that many Chinese have witnessed in the last 30 years, the state is hard to believe in,” she writes.
Poised for a Crash
All of these factors have played a role in creating a lopsided behemoth economy that is ripe for a huge adjustment.
“Many people living in China, from the top leadership in Beijing to corporate executives to average citizens, believe the country is nearing an inflection point that will force it to reflect and reform.”
For Li, the command nature of the economy, the lack of morality, and the problems in the education system have left the Chinese economy with a one-size-fits-all solution of exploiting cheap labor and massive debt expansion, mostly for infrastructure investment and real estate.
She argues that while the export model of manufacturing cheap goods was successful in lifting 500 million people out of poverty during the past 30 years, it has now hit its limits as wage growth has surpassed the level of productivity growth.
Advancements in productivity are limited by an education system that fails to promote innovation, and therefore prohibits the progression toward more value-added products and services.
According to Li, the second wooden leg of the Chinese growth miracle is its massive debt expansion and investment in unproductive projects. Because the Chinese regime is obsessed with growth, when growth threatened to slow as part of a normal economic adjustment, it always forced banks to expand lending.
This prevented the occurrence of smaller cleansing cycles and created one massive debt super cycle, which has to come to an end sooner or later. More money funneled into unproductive investments by state decree will not result in more value creation. Instead, it looks like the whole economic system is poised for a crash—sooner, rather than later.
“The country’s trajectory seems similar to that of an athlete on steroids. As with most athletes on steroids whose temporary outperformance is inevitably followed by a long period of underperformance, the truth will eventually find its way out,” she writes.
The astute analysis found in “Tiger Woman on Wall Street” goes far deeper than the hyped-up numbers of Chinese GDP growth, currency reserves, or self-made millionaires. Li’s accurate and vivid description of China’s cultural fabric and its economy makes this a must read for anyone interested in the country’s economy and its people.
“Tiger Woman on Wall Street” is available from the McGraw-Hill Companies in print and in Amazon Kindle format.