Times they are a-changin'

Bob Dylan's monumental hit song "The Times They are a-changin' " was written in 1963 and released in 1964 at a time of considerable social and political upheaval in the United States and elsewhere in the world. Lyndon Johnson assumed the presidency following the assassination of John Fitzgerald Kennedy in November 1963 and a year later he defeated in a landslide Barry Goldwater, a fiercely anti-communist conservative politician who was in favour of using preventive nuclear strikes against the Soviet Union and its allies. Before the 1964 election, Fact magazine, published by Ralph Ginzburg, ran a special issue titled "The Unconscious of a Conservative: A Special Issue on the Mind of Barry Goldwater". The two main articles contended that Goldwater was mentally unfit to be president... 

The times, they are a-changin' once again. But as the "chansonnier" and Literature Nobel Prize winner Robert Allen Zimmerman, aka. Bob Dylan reminds us "the wheel's still in spin and there's no tellin' who that it's namin' for the loser now will be later to win".  Joseph Biden the 46th president-elect of the United States - who will be sworn into office on January 20, 2021 - is said to be more fond of the Irish Poets Yeats and Heaney, a literary passion he shares with Barack Obama. Biden will have to cope with a divided Congress which in a way is both a curse and blessing as he can put the blame on lawmakers if he fails short on some of his campaign promises. Undeniably, one key issue over which the new President will be expected to deliver is Climate change. As we have discussed in a previous issue of The Multipolarity Letter (You can read the related article) Biden's Climate Plan is a watered-down but still ambitious version of the New Green Deal, that has been championed among others by Representative Alexandria Ocasio-Cortez and former Presidential candidate Bernie Sanders.

The recent release by the International Energy Agency of its Renewables 2020 report could give food for thought to the Biden Administration. As the OECD's energy watchdog states in the Executive Summary of this report "From January to October 2020, auctioned renewable capacity was 15% higher than for the same period last year, a new record". However, the Agency signals that Renewables are resilient to the Covid-19 crisis but not to policy uncertainties: "In China, onshore wind and solar PV subsidies expire this year, while offshore wind support ends in 2021. The policy framework for 2021-25 will be announced at the end of next year, leaving uncertainty over the pace of renewables expansion in China in 2022 and beyond. Renewable additions are also set to be held back in 2022 by the expiry of production tax credits for onshore wind in the United States, the ongoing financial struggles of distribution companies in India, and delayed auctions in Latin America.". Beyond his commitment to rejoin the Paris Agreement, President Biden will have to ramp up aggressively his stated support for renewable energies and electric vehicles in order to act as a catalyst for key developments that are already happening on the ground.

Another sign of changing times is the Chinese authorities drive to increase the oversight of the country's large Internet platforms as they gained dominant positions in the second largest consumer market in the world after the European Union. Indeed, according to Emarketer, China will surpass the US this year for the first time—with $5.072 trillion (RMB35.043 trillion) in retail sales. The publication of the Draft Measures for the regulation of online trading (网络交易监督管理办法 - 征求意见稿) by China's State Administration for Market Regulation have led many investors to drop their holdings of Ali Baba and other Chinese Internet stocks, resulting in a $260 billion drop in market value over two-days closely following the flash market rotation from Tech to Cyclicals that was observed in US markets on Monday (cf. our analysis below in the Chart of the Week section).

We will elaborate further on these regulatory developments but one thing is sure: there is a complete lack of understanding from most western investors of the complex political and market dynamics in China. Indeed, if anything the aforementioned Draft regulations are China's version of a global regulatory effort to prevent and to sanction some abusive practices which stem from the Platforms market power and dominant positions (cf. the latest investigation launched by the European Commission against Amazon, read in the Business&Geopolitics section below). China's Antimonopoly law came onto effect only in August 1st 2008 and its first Ecommerce law took effect only on January 1st 2019. The latest regulations put their focus on multihoming and other principles which are key for ensuring a fair competition in the digital age. For the time being there are no signs that the Chinese authorities want to break their national Internet champions, they wants to control them better and to rein their market power. The new market regulations are only one instrument and far from the other "nuclear options" that Beijing holds in its legal arsenal. Investors have overreacted and sold positions in companies that offer a golden opportunity to get an exposure to the Chinese consumer boom. In China too, the times are changing but at their own pace.

Alexandre Kateb

A translation in English of the new draft regulations can be found on our website