Why China is Winning: Part 1 - The Zero Sum Impact of Covid

Covid-19: The Great Catalyst

For the past decades China has been heavily slept on by both Western media and the wider public in Western countries. The coalescence of several disparate forces particularly Trumpism, China’s impact on the global economy, Chinese FDI and international expansionism (e.g. belt and road), the continued opening of China’s markets, the emergence of China’s tech giants onto the international stage (Bytedance, Alibaba, Tencent, Huawei, DJI, etc.), the accelerated digitalization of our lives and most recently the Covid-19 pandemic has thrust China into front and center stage globally and has been a very rude awakening and unwelcome first lessons on China for most.

While China’s economy has been fully open for a whole year, our economies and societies in Western Europe, and The United States have been devastated by cyclical lockdowns and seemingly indefinite and oppressive societal restrictions. This huge disparity in outcomes will ultimately translate to China once again realizing unprecedented economic growth and once again driving the global economic recovery. China’s State Council is predicting GDP growth of over 6% in 2021, with Q1 2021 GDP growth recorded at a whopping +18% smashing even the most optimistic forecasts, giving further credence to the more objective forecasts made by the IMF of over 8% GDP growth in China in 2021 (+8.4%)

While China’s economic success might be old news at this stage, its resounding success in effectively eliminating COVID-19 within its borders has come as a massive shock to a West raised on a diet of predominantly anti-China dialog and the omission or suppression of any positive reporting on the massive success of China’s social engineering projects and China’s progress in areas like science, medicine, tech, digital infrastructure, public health etc. 

Opportunity in Crisis: Weiji (危机)

One might have reasonably predicted that China, the country with the world's largest population and the current working hypothesis for the origin of the pandemic should have experienced the greatest public health and economic damage from Covid-19. However, as we look at Ireland and wider Europe when compared to China, the huge disparity in outcomes is stark (both economic and public health). Ultimately China’s achievements in controlling COVID can be quantified in the most macabre of metrics, with the significance of China’s low death toll relative to its overall population further magnified when viewed through the lens of a comparison to the dismal track record of its global counterparts in the West. Why has China succeeded and why do Ireland and Europe continue to be devastated by the impact of Covid-19 ?

The Chinese word for crisis comprises two characters, 危 wei, meaning danger and 机 ji meaning opportunity. China’s ability to achieve elimination/high level suppression of the Covid-19 crisis has presented huge opportunities for China at the most crucial of junctures. Over the last decade the country has undergone a huge metamorphosis as it battles major challenges on multiple fronts. Pulling the largest number people out of abject poverty in human history (some 600 million) and creating the worlds largest middle class (over 300 million) has presented unique problems for China. The debt accrued from its hugely successful one child policy is due for collection and China is now struggling to find solutions to a looming demographic deficit and the burden of an increasingly senescent population is weighing heavy on the minds of China’s social engineers and stretching capacities in many key industries.

Made in China Transitioning to Made for China

Pre-covid, China’s grip on the mantle of “workshop of the world” (the key driver of its early economic success) was becoming increasingly tenuous with emerging economies biting at China’s heels and presenting an increasingly viable alternative for large multinationals looking to increase margins by offshoring manufacturing. Inflationary pressures and China’s new rich are driving huge economic and social change (middle income trap) and forcing China to develop a new growth model.

Ecological issues, and the regulatory constraints inherent in meeting environmental targets continue to exert major selective pressures on the original backbone of China's economy, its primary and secondary heavy industries, which are being forced to evolve at break neck speeds. Technical capacity constraints in key areas (e.g. semiconductors) continue to undermine China's development plans as too does its reliance on key import markets (food security is still a major issue - we know access to quality protein for a population is a key constraint on a society/civilizations growth)

Increased domestic consumption, increased self sufficiency (food security/semi conductors) and technical capacity development across a host of key industries (fintech, e-commerce, FDI, biotech, circular economy, green energy and sustainable technologies, supply chain digitization, overseas expansion and market development etc.) was pitched as the solution to China’s problems. Covid-19 has delivered on multiple key battlegrounds. Retail sales in 2021 are up 34% YOY fast tracking China’s shift towards an economy driven by domestic consumption and providing a much needed stimulus of +14% growth to industrial production and helping offset some of the transitionary pains as China shifts the gears of its economic engine.

The New New Normal

When the dizzying double digit economic growth of China's economy in the noughties gave way to still attractive "six point o's" of the 2010 onwards it was called "the new normal" for China, which was a term used to encapsulate China's acceptance of more stable and more sustainable growth. Post covid we are likely looking at the "new new normal" with strong growth expected to be delivered by China over the next several years.

The upward trajectory of domestic consumption has been joined by a resurgence in manufacturing and exports. China’s definitive control of the pandemic has seen it buffer the most deleterious effects (logistics, manufacturing etc.) on global supply chains. China is now running a half a trillion dollar trade surplus (trade is around 3.4% of its GDP) while its major global competitors are in the aggregate firmly operating in the red at a deficit of close to 1%.

Digitalization of China’s supply chains has accelerated at an unprecedented pace, further facilitating Chinas plans to minimize the pain as economic emphasis segues from manufacturing and exports to domestic consumption. Unsurprisingly, lockdown paralysis has also occasioned a concomitant decline in China’s main global competitors while increasing dependence on China and firmly benching any dreams of the West decoupling from China. Indeed despite all the rhetoric and sanctions being thrown around between China and the US or China and Australia, trade between the countries continues to move in a resoundingly auspicious direction for the big stakeholders.

Why China is Winning Part 2: Ideological Protectionism