Letter From Shanghai No 1029 - China is Too Big a Subject

Statements from the Shanghai municipal authorities yesterday indicate that traffic flow on both the Metro and bus services significantly increased on Tuesday indicating that the impact of the pandemic has eased. This would correspond with the timeline I proposed being that the peak infection was on or around Christmas Day. Similar statements from companies such as Foxconn on the normalisation of iPhone production etc only underline the recovery. In a short trip across the city yesterday I saw none of the covid testing booths that previously seemed to be at every intersection.

As the Chinese economy takes off the straight jacket of covid intervention there must be some economic expansion, and business expectations at the moment are running high. But after that, China will be living in a post-globalisation world, its exports fighting for market share in an international market that will be heading into recession, while at the same time trying to lift a domestic market that has been deeply shocked, and inevitably fire-fighting various climate-driven disruptions.

Some of you may know my wife and I will be leaving Shanghai in about 10 days. I will continue to write this letter but obviously, I will have to change the name. Being in Shanghai for the last four years has informed my outlook, especially during covid. Being in Shanghai during the 75-day lockdown was an education. Although I don’t consider myself a tree-hugging environmentalist, that period, in particular, convinced me that any city is a fragile thing. Living on the 38Th floor no matter how great the view, is neither a resilient nor robust way to live.

In China capital is subservient to policy, whereas in the US the reverse is true. Which makes the western financial media all the more entertaining as in many ways it is creating policy to which western politicians respond. In China, policy changes happen first, and the businessman has to catch up. In writing the note I always had in my mind the idea of explaining China to those who are unfamiliar with the key drivers. Nothing happens in China without a reason and those reasons can be found in the statements of the leading figures. For long-term Beijing observers, it is the exit from zero covid that is all the more shocking as it seems to have happened without the usual guidance.

So why leave Shanghai now? Being in Shanghai did give me insight into the Chinese experience and many times in the last 3 years I referred to traffic flow or the number of shoppers in the malls etc. So, therefore, the letter did become a commentary on the impact of zero covid on Shanghai, and there is no role for that anymore. Being inside China I have had a ringside seat on the state of the domestic market but being inside China makes it impossible to see China in context to its counterparts.

In a post-globalisation world, China will have to thread its own direction in relation to its competitors and that is where we must concentrate. The most important thing about China right now is not the state of its domestic markets; it’s the choices it makes going forward in relation to its international counterparts. Observing the international direction of China is not necessarily done best from inside China.

So the letter will not be from Shanghai, but it will be about Chinese policy, and even if you don’t have a position in the Chinese markets, China is too big a subject not to be informed.

Have a good day

John