Weekend Reading #32

This is the thirty-second weekly edition of our newsletter, Weekend Reading, sent out on Saturday 31st August 2019. To receive a copy each week directly into your inbox, sign up here.

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Journey to the centre of China.
Harry Spain is a close friend of Three Body Capital who's been with us since the beginning of our journey as a business. He’s just 19 years old, but wise beyond his years. 

In this blog post, Harry describes a journey of his own – to inland China. He's studying for a Bachelor's Degree in International Business & Chinese at Regent’s University London, and a key element of his course involves immersing himself in Chinese language, culture and the place itself.

Here at Three Body Capital, we believe that the days of fund managers sitting in plush offices in Mayfair, Greenwich etc and pontificating about emerging markets are over. It’s essential to visit local markets on a regular basis, forging meaningful relationships on the ground in order to build a nuanced picture of the transformation that’s occurring in emerging markets on an unprecedented scale.

So, without further ado, we leave you in the capable hands of Harry, to share what he learned from his recent journey to China. We haven't edited or amended Harry's account in any way, so this is a true and faithful testimony of his travels.

I have spent the past month exploring China, in particular the cities of Chengdu (成都) and Chongqing (重庆). 

China remains largely closed off to the world, which means that few people have explored beyond more international cities on the east coast such as Beijing (北京) or Shanghai (上海). 
Chongqing is a city that few people have heard of. But it’s home to over 30 million people, almost 4 times the population of Greater London. This is a modern and quintessentially Chinese city, which was briefly the capital of China in WW2 when Beijing was taken over as a result of the Japanese invasion. It is the home of Mala spice and should not be visited without trying the mouth-numbingly spicy Chongqing Hot Pot (重庆火锅).
When you go to your local Chinese takeaway here in the UK, you are often greeted by signs exclaiming, “CASH ONLY”. In China, it couldn’t be any more different. The country has leapfrogged typical western banking, and cash is a rarity. QR codes are absolutely everywhere and used for everything as a means to facilitate payments for WeChatAlipay, and any other use case you can imagine. What’s surprising is that this is also the case in more rural areas; be it local traders at the fresh food market, or even homeless people displaying codes to scan to pay. 

Chongqing is at the forefront of China’s economic development policy, being the latest city to pilot a free trade zone. This allows Chinese and international companies to operate without the usual administrative headache of bureaucracy and import/export restrictions. This move is designed to increase the ease of doing business in China, but concerns are growing that these zones will overlook environmental and safety standards of large companies as they compete for business. This is a ‘slippery slope’, one that could lead to violations of worker’s rights and hinder China’s commitment to uphold global environmental standards.
The range of food available is much you would expect. In other words, it’s very different from what we eat in the West. Due to limitations on apartment sizes, many people simply don’t have the facilities to cook proper meals at home, so they eat out every day. Some of the most run down and basic restaurants often had the best local food. Being in and around the Sichuan region, the local specialty is spice, and it was everywhere. 
Chengdu is a much calmer city, but by no-means small at almost 8 million inhabitants. The home of the Panda, this animal perfectly symbolises the city; there are plenty of parks and teahouses all around where the people live a peaceful life; often spending all day drinking tea, practicing Tai Chi and playing Mahjong. There is no heavy industry in Chengdu, so the air is cleaner, and it is a more relaxing place to be.

Despite this calm atmosphere, the city is also a massive hub for global companies and trade. Many of the world’s Fortune 500 companies have regional offices here and it’s a major hub for Air China, the country’s national carrier.
With the massive popularity of online shopping in China through the likes of local e-commerce giants such as Alibaba, it was surprising to see the sheer number and scale of some of the region’s luxury shopping centres. Almost every public space was filled with shops and in some places, even multiples of the same shop. For example, in Chongqing’s Shapingba district, I counted 5 Apple Stores and 6 Xiaomi Stores within the space of less than a square mile. Despite the huge volumes of people, I didn’t see many shopping bags, leading me to question whether these shops actually make a profit. 

Speaking to the locals, they implied that Chinese people enjoy the experience of shopping and seeing the product but prefer to order it online, where they can take advantage of discounts and promotions. This poses a challenge for brands, as they must innovate to provide immersive web experiences to attract customers. Stores themselves have become simply a display to showcase new products. With multi-storey megamalls that put the likes of Westfield or Intu to shame, a trip to the shopping centre can provide ample entertainment with their cinemas, humongous food courts with different cuisines from all the different Chinese provinces, as well as activity areas enabling them to diversify away from dwindling physical retail. In fact, many brands in China have integrated technology into their stores to blur the lines of what is physical and digital. This enables them to create in-store campaigns that translate into digital sales and growing presence on social media platforms like WeChat and QQ.
One rather fascinating example was a company that’s created a digital mirror that allows women to try on the company’s lipsticks and other make-up products, applying it in the mirror onto their face using artificial intelligence to accurately map where their facial features are. They can then opt to buy the product via the display or share it with their friends. This interlinking of sales and social media means that this level of this technological integration allows for tonnes of data to be generated about each user, which can be used to target them with new products with astounding accuracy.
The pace and scale at which China is developing are unprecedented. The Chongqing metro system perfectly exemplifies this, with approximately 10 new underground lines under construction this year, compared with London, which has struggled to open just one new line in the last decade, and is already 3 years delayed and billions of pounds over budget. 

China is an eye-opening place to visit. If you haven’t already been to see the complete difference in culture and the way society operates there, you must go. And it’s worth travelling inland, beyond the usual tourist destinations, to see just how deeply change has penetrated.

What we're doing.

This week the Three Body Capital team got together for a braai, generously hosted by David and his family. 

It was great to spend time hanging out away from the office and to meet everyone’s families over delicious food (thank you Marisa) and of course, enjoy a drink or two. It was a baking hot day and we ran ourselves ragged playing cricket with the kids, listening to Taylor Swift, and discussing the shortcomings of supply-side economics in way too much depth. 

We love taking our work home with us, because we love what we do. And we’re fortunate to have families that support our obsessive tendencies!

We also took a trip up to Oxford, to visit our friend Jeffrey Ding (author of the ChinAI newsletters) at the Future Of Humanity Institute.

The FHI is a cross-disciplinary research centre that looks to the long-term questions relating to human existence, from Artificial Intelligence to nanotechnology (not as you think it is) to existential questions like whether nuking Mars to terraform it will allow humanity to cultivate cocoa beans there. 

We also met serendipitously with Jeffrey’s colleague Dr. Eric Drexler, whose suggestion for the next round of weekend reading is his work on 'Reframing Superintelligence' – all 210 pages of it. Challenge accepted!

Our day wasn’t complete without lunch in a pub, and at none other than the Turf Tavern, which is said to be the oldest pub in Oxford, with foundations in place since 1381. We were joined by our friend, Ebenezer Azamati, whom we knew from his time reading his first Masters degree at SOAS in London, and who is reading his second Masters in International Politics at Oxford. All the more amazing is the fact that Azamati was born blind, and despite humble beginnings in the village of Deve in Ghana*, has only just begun his illustrious career.

He is next flying to NYC to interview some senior diplomats as part of his research into the inner workings of the UN Security Council – we look forward to catching up with him after his return for some insights!

* Despite the fact Azamati has never seen a map in his entire life, he assured us that we’d never find his village on Google Maps. Turns out he was right.
What we're reading.

We’re long time fans of Wait But Why? The man behind it – Tim Urban – has been writing a mammoth blog post for the past three years. It’s called ‘The Story Of Us’, and this week he finally sent it live. Well, part of it. 

This was described by one Twitter user as ‘somehow combining The Selfish Gene and Thinking: Fast and Slow through the use of stick figures.’

It's enigmatic, obscure, and all the more wonderful because of it.

This is a really interesting read. China’s central bank is launching a state-backed cryptocurrency and issuing it to seven institutions in the coming months, according to Paul Schulte, who worked as global head of financial strategy for China Construction Bank until 2012. Participants include ICBC, BOC, ABC, Alibaba, Tencent and Union Pay.

Another sign of the maturation of the crypto landscape – and increasing efforts by state actors to bring decentralised finance under their purview.
What we're listening to.

Are you a history geek? We certainly are. 

Which is why we love the History Extra podcast. In this episode, Serhii Plokhy – author of an award-winning book on the 1986 Soviet nuclear disaster – explores the causes and consequences of the Chernobyl accident and offers his thoughts on the accuracy of the recent drama series. Which is also excellent, by the way.