What the heck is going on in China? Well, something that we could all learn a lot from. Deep down, there is nothing more than a power grab. The Chinese communist party doesn’t want to relinquish power. Who can blame them, it is not a democracy after all. Where the shocker comes from is that by embracing capitalism, investors all forgot that it was not meant to be exactly after the US model.
That’s where it becomes interesting. China has 3 challenges deep at heart in establishing itself as a super power: 1/ affirming a valuable alternative to the West, 2/ bringing up the prosperity of a nation, while bridging the wealth gap, and 3/ maintaining control. In this endeavour, it takes for granted that the West is a declining power, and China is the next in line.
In a great departure to the West, China decided to heavily clamp down on oligopolistic internet services, not only to decrease their growing power, but also to refocus its economy towards industrial productive assets. Industrial services represent a higher share of GDP (~25%) compared to developed nations, and China wants to maintain it this way to (i) reinforce industrial independence (the microchip shortage is a hurting example), and (ii) even out the playing field for a population that is lacking the skills to upgrade into a fair service-driven society.
In this upheaval, China wants to play down entertainment, social media, shift ecommerce (toward a more locally-based suppliers’ approach) and favour increased productivity in wind & solar power, AI, quantum computing, satellites, 5G, drones, and Government-controlled fintech. In a nutshell, less fun, more work for a nation that wants to be strong at home, before being great abroad. Regional priorities ever more clearly come first, as we head toward a regionalization of trade and a decoupling of global supply chain.
It is strangely echoing the “America First” doctrine of the Trump days, in a world that is compartmenting, and folding back from globalisation. It is also not dissimilar to Biden’s attempt to reduce inequality. But it is definitely unique in the speed and stiffness of changing course away from mind-numbing entertainment toward strengthening industrial excellence. China can do so, as it is not asking for consent to curb social freedom. No doubt there is some treacherous beauty in totalitarism, whether it can be adopted wilfully by free-thinking societies globally is another question.
360 Advisory – Markets