Yesterday, Aron Sarin published an article at Quillette titled Beijing in Retreat. Also yesterday, Barrons published China’s Comeback is Getting Started. (“Stocks Soar as China Revs Up its Reopening” in the print version) You can read the Quillette piece for yourself, and should, but the Barrons article will require a subscription.
To summarize, the Quillette piece focuses on China’s birthrate deficit (likely to be exacerbated in the future by the memory of the bad treatment of pregnant women during the lockdowns, as well as by a pervasive feeling of gloom about the future)…China’s inability to manufacture high-end semiconductor chips…pervasive corruption…and the fact that in the modern world…the persistence of poverty….and declining trust in the CCP. “The Chinese people learned that they can enjoy no certainty about the future and that Xi’s obsession with order leads, paradoxically, to chaos.”
The tone of the Barrons piece is rather different:
The catalyst is clear. Policy makers in the world’s largest economy are pulling out the stops to revive the economy and get its 1.4 billion people spending more, after three hard years of stringent Covid restrictions and harsh crackdowns on technology and other industries. Beijing has totally reversed its zero-Covid policy and had begun loosening regulations on business. Up next: more stimulus to stabilize the residential property market. “Domestically, all the switches that can be switched on have been moved toward growth, and there’s a lot of momentum behind it,” said David Semple of the VanEck Emerging Markets fund.
(I’m reminded of Shakespeare’s passage in which Glendower says, “I can call spirits from the vasty deep,” to which Hotspur replies, “Why, so can I, or so can any man; But will they come when you do call for them?)
Various metrics are cited to suggest a recovery: Subway traffic across 23 cities has returned to prepandemic levels, hundreds of millions are traveling for the Lunar New Year, Citigroup analysts expect the domestic travel industry to recover to more than 85% of pre-Covid levels by the second half of this year.
The article notes that China is a formidable rival to the US in the ‘renewable energy’ sector, given its strengths in battery technology and rare-earth minerals. It also notes that Chinese policy makers wanting to address the birthrate decline “might offer incentives for couples to have children, such as cash payouts or even making workplace promotions conditional on having a child.” (Future conversation: “Mommy, why did you and daddy decide to have me?” “Well, son….)
Abhay Desphande of Centerstone seems less optimistic about China’s future than many of the other individuals quoted: “Xi is boxed in with multiple policy failures with his gambits with the US, his approach to the private sector and real estate, and people angry i the streets. One lever he can pursue very aggressively is the economic lever to get people working, get the economy going. And even though he may change his attitude toward private enterprises in a few years, for now, he needs that part of the economy to work.
My question would be whether Xi can really step back from his highly centralizing worldview enough to truly reignite sustainable economic growth, however much he wants to.
China remains, of course, a formidable economic power, and there are many, many important products required by the US and other countries whose supply requires Chinese participation, either for the complete products or for essential components and materials. Semiconductors are far from being the only items that are essential to the US economy and to the welfare of its people. And the US economy, especially in manufacturing but by no means limited to that industry, is being hampered by the worldview of the present administration, which is itself very centralizing in its orientation.