URSABLOG: Strengthening Policy

I looked, and there before me was a pale horse!?Its rider was named Death, and Hades?was following close behind him. They were given power over a fourth of the earth to kill by sword, famine and plague, and by the wild beasts of the earth.

Revelations 6, 8

All we’re missing are the wild beasts, otherwise we appear to be at the end of times. I’m sure I’m not alone in feeling that things appear a bit biblical at the moment, but not being one to necessarily pay attention to prophecies, or even well-meant good advice, there is always, even in the bible, alternative sources of hope. In my world of shipping, at least, hope seems to be coming from, of all places, the 11th meeting of the Central Financial and Economic Commission of the People’s Republic of China.

Nonetheless, COVID and the conflict in Ukraine are not necessarily making us feel very comfortable about the future. I wrote at the start of the pandemic that it would be the effects of the restrictions put in place to control COVID that would determine how things work out economically, rather than the effects of illness itself, but rereading it again now, it all seems a little blaze and, well, ignorant. Having seen family and friends suffer at the hands of the more vicious variants of COVID, the human cost, and the psychological cost, cannot be understated. The effects of lockdowns however have had important political and economic effects, and now, in the last days – at least I hope they are – of COVID, it is in China, back to the beginning of the story, where trouble is brewing. In the meantime – like an uncomfortable and uncontrollable tide rising – inflation creeps up, at the same time as growth seems to ebb away.

And just as a Chinese zero-COVID policy is shutting down large parts of the more important Chinese cities and areas of economic significance, China has two important things to do this year:

?-?????????Confirm Xi Jinping as President for an unprecedented third time at some point in November and December

-?????????Get as close to 5.5% growth in GDP as possible

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These two goals were looking more or less done and dusted at the beginning of the year, but, even in officially atheist China, God seems to be laughing at their plans.

People, important and influential people were becoming increasingly alarmed about the policies being put in place to support the zero-COVID strategy. Weijian Shan, head of Hong Kong based private equity group PAG, and normally supportive of the Chinese government made the following comments to a small group of brokers on the launch of a US$ 2 bill:

“I think that to a very large extent the crisis is man-made…..We have a leadership who thinks they know what is best for the economy and what is best for the livelihood of the people. Unfortunately I think their knowledge and their rationality are both limited.”

Needless to say he did not expect his comments to become public – and you can only imagine his alarm on finding out they had – but it has been acknowledged that such views are common in business circles in Hong Kong and in mainland China. And Shan himself has defended the “war on terror” in Xinjiang and its “territorial claims” over Taiwan in columns in the South China Morning Post. Speaking to the the Harvard Business Review last April, he said: “Despite initial blunders, China has handled the coronavirus pandemic well through strict lockdowns and mass testing.” If he said it, despite his official record, then people would pay attention.

This means that something has to be done. As I always say, if you want to understand what the Chinese are going to do, you just have to read what they saying. This week news started trickling out of China that something must be done. First, on Tuesday, the state website published a long and involved report of the 11th meeting of the Central Financial and Economic Commission, presided over by no less a person as “Xi Jinping, General Secretary of the CPC Central Committee, President of the State, Chairman of the Central Military Commission, and Director of the Central Financial and Economic Commission”, as the report helpfully reminded us in case we had forgotten. Don’t worry, you don’t have to worry about reading the report, I have read it so you don’t have to.

On the back of this, other statements were made. "We need to step up policy support for the economy to offset the impact from the COVID, but the effectiveness of macro policies has been diluted by the COVID control policy as supply chains are broken," said Xu Hongcai, deputy director of the economic policy commission at the state-backed China Association of Policy Science.

Today’s Politburo meeting, again chaired by Xi, said according to Reuters issued a press release. The state will

…take steps to support its economy, including embattled internet platforms, as risks grow from its COVID-19 outbreaks and conflict in Ukraine.… support[ing] COVID-hit industries and small firms, speed work on infrastructure, and stabilise transport, logistics, and supply chains, according to a statement on the central government's website.

This calmed markets. Of course it is the magic word “infrastructure” that gets us a bit more excited than considering the support of small firms. Tuesday’s meeting, as ?reported by the Chinese government website, said this means ‘strengthening’ the construction of roads, railways, water conservancy and distribution, energy, coastal and inland river ports and waterways, a number of regional airports, general airports and cargo airports, urban infrastructure, underground comprehensive pipe corridors, flood controls and drainage, sewage and waste collection and treatment systems, and a whole lot of other stuff.

This passage from the same report is also worth noting:

The meeting emphasized that at present and in the future, we must adhere to the people-centered development philosophy, adhere to the problem-oriented, goal-oriented, overall development and security, systematic planning, overall coordination, accurately fill shortcomings, strengths and weaknesses, and optimize the layout of infrastructure.

There is a lot more of this stuff – I have read it so you don’t have to – basically says that any stimulus that is coming has to be controlled by the state, not left to the markets. In wrapping up the message in language promoting common prosperity, the current major ‘Xi Jinping thought’, ‘strengthening’ – a phrase that appears over 30 times in various forms in a densely written report of over 1,600 words – provides political cover for a change of policy coming elsewhere.

For shipping, dry bulk shipping in particular, this means iron ore, coal and all the usual goodies needed in larger amounts. For tankers too, if not immediately but further down the line, this means a larger demand for fuel and other petrochemical products. For container shipping, a steady, functioning and productive manufacturing industry with functioning supply chains will be helpful too.

I may be accused – maybe justifiably – of isolating the good news at the expense of the bad, of ignoring the four horsemen even as they lay waste to various parts of the world, and threaten to trample all over us. However shipping, at least dry bulk carriers and containers, has had a good pandemic. The recovery from the pandemic was shaping up well too until other geopolitical demons started stalking eastern Europe; there may be more to come.

Even when we are beset by the worst of times, indeed apocalyptic times, there is still stuff to be moved around and money to be made. This is not bad thing, and shipping should not be made to feel guilty because the demand for cargo over time and space grows. There is a time for everything under the sun, says another part of the bible:

…and a season for every activity under the heavens:

????a time to be born and a time to die,

????a time to plant and a time to uproot,

????a time to kill?and a time to heal,

????a time to tear down and a time to build,

????a time to weep and a time to laugh,

????a time to mourn and a time to dance,

????a time to scatter stones and a time to gather them,

????a time to embrace and a time to refrain from embracing,

????a time to search and a time to give up,

????a time to keep and a time to throw away,

????a time to tear and a time to mend,

????a time to be silent?and a time to speak,

????a time to love and a time to hate,

????a time for war and a time for peace.

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And even a time for the strengthening of infrastructure.?

Simon Ward

www.ursashipbrokers.gr