CHINAMacroReporter

'Rethinking 2020: What’s Overlooked and What’s Overhyped'

Rethinking 2020

‘If a single word were chosen to define US-China in 2020, “decoupling” would be a good candidate. What has been overlookedis just how little meaningful decoupling actually happened.’
by

Damien Ma & Houze Song | MacroPolo

|

MacroPolo

January 23, 2021
'Rethinking 2020: What’s Overlooked and What’s Overhyped'

‘If a single word were chosen to define US-China in 2020, “decoupling” would be a good candidate. What has been overlookedis just how little meaningful decoupling actually happened.’

‘Stepping back at the end of 2020, we want to highlight two overlooked and two overhyped trends that, in our judgment, will matter greatly to China’s political economy and for how it adjusts to a dramatically changed external environment.’

Overlooked

1. ‘Closing the Curtain on the GDP Obsession Era’

‘The signs have been there, but it wasn’t until 2020 that the writing clearly appeared on the wall: GDP growth will no longer hold sway over China’s development.’

  • ‘The number of provinces that have repeatedly failed to meet national growth targets has already surged, with no apparent political consequences.’
  • ‘Xi Jinping had also signaled in April 2020 that Beijing is willing to accept regional growth divergences.’
  • ‘That likely foreshadowed what was to come in the 14th Five-Year Plan in November 2020, which was accompanied by Xi’s unprecedented explanation of why it didn’t include a specific growth target.’

‘Although some observers have noted this shift on GDP, its significance may be underappreciated.’

  • ‘It is tantamount to simultaneously reshaping political incentives, changing the investment-driven model, and redirecting focus toward de-risking and reforming the economy.’
  • ‘In short, the Xi administration has been unexpectedly tolerant of austerity—a precondition for ramming through very difficult structural reforms that are essentially growth negative in the near term.’

2. ‘Decoupling Is Everywhere Except in Reality’

‘If a single word were chosen to define US-China in 2020, “decoupling” would be a good candidate.’

  • ‘Bandied about with abandon, the term has created the perception that these highly complex supplier networks were being severed in real time.’
  • ‘What has been overlooked is just how little meaningful decoupling actually happened.’

‘Foreign businesses are just one gauge of decoupling, but they are particularly important leading indicators of shifts in supply chain ecosystems.’

  • ‘In 2020, the respective portions of US (87%) and European (89%) businesses indicating no intention to leave China are as high or even higher than they’ve been in recent years.’
  • ‘And despite the Japanese government creating a fund to help re-shore its manufacturers, only 4% of Japanese businesses said they’re definitively leaving China.’

‘Pandemic disruptions certainly weighed heavily on firms’ decisions, likely delaying drastic changes or planned investment.’

  • ‘It is also true that many companies want to diversify beyond China—some already have—to hedge against risk.’
  • ‘Nonetheless, what has actually happened on the decoupling front appears disproportionately modest relative to the attention heaped on it.’

Overhyped

1. ‘China Slams Door on The World

‘Whether it is “Made in China 2025” or “social credit,” any official neologism emanating from Beijing now gets spotlighted, scrutinized, and sometimes hyped.’

  • ‘The latest offering of “dual circulation” is no exception, with many interpreting it as China’s pivot toward withdrawal from the world.’

‘Yet when it comes to capital markets, China has gone in precisely the opposite direction, further linking itself to global capital.’

  • ‘Although market openings began around 2018 and capital inflows rose steadily since, it wasn’t until 2020 that foreign capital inflows saw a notable spike.’

‘Moreover, the inking of the Regional Comprehensive Economic Partnership (RCEP) trade deal and the potential conclusion of an EU-China investment treaty hardly suggest a Beijing that is closing its doors on the world.’

‘To be sure, technology is an area in which China does want to reduce dependence on imports.’

  • ‘But even there it would be unrealistic to assume that China will achieve anything close to total indigenization.’  

2. ‘BRI Is Down but Not Out’

‘China’s overseas lending plummeted in 2019, leading some to prognosticate the death knell of the “Belt and Road Initiative” (BRI).’

  • ‘Yet China’s overseas lending has risen in 2020, though it has not returned to the heights seen in 2017 and 2018.’
  • ‘This makes sense as fierce internal debate and external pressure likely pushed Beijing to make necessary adjustments and curtail some of its ambitions for the BRI project.’
  • ‘But gone it is not, since Beijing rarely throws out the baby with the bathwater, particularly for a signature initiative that has Xi’s imprimatur.’

‘The 2019 lending collapse can be partly explained by the political upheaval at the China Development Bank (CDB), a major financier of BRI projects, when its former president was arrested on corruption charges.’

  • ‘As a result, the CDB’s total assets only increased by 2% in 2019.’
  • ‘But the policy bank is actively lending again, having recently committed more than $80 billion to projects under RCEP, some of which can surely be rebranded as BRI projects.’

More

CHINAMacroReporter

May 22, 2022
The Next U.S.-China Crisis: CEOs & Boards Are Not Ready
‘The bad news is that very few corporations engaged in China have contingency plans or long-term strategies to hedge against the downside risks of growing geopolitical competition.’
keep reading
May 14, 2022
China GDP: 'A very long period of Japan-style low growth.’
Here are some of the insights from ‘The Only Five Paths China’s Economy Can Follow’ by Peking University’s Michael Pettis. This excellent analysis of China’s economy is worth a careful reading.
keep reading
May 1, 2022
'Zero Covid' & the Shanghai lockdown
Joerg Wuttke is the president of the EU Chamber of Commerce in China - the 'official voice of European business in China.'
keep reading
August 24, 2023
Xi Jinping: 'The East is Rising' | Yes. Rising against China
All our careful analyses of PLA capabilities, the parsing of Mr. Xi’s and Mr. Biden’s statements, the predictions as to the year of the invasion, everything – all out the window. This is one you won’t see coming – but one you have to have prepared for.
keep reading
July 23, 2023
‘The U.S. Has Tactics, But No China Strategy’ | Bill Zarit
‘The U.S. needs national review of outward investment to China, but it has to be narrow and targeted and done in conjunction with our allies and partners.’
keep reading
July 10, 2023
‘Is Xi Coup-proof?’ (after the march on Moscow, I have to ask)
What about the guys without guns? So if Mr. Xi doesn’t face a rogue army or a military coup… How about a coup by Party elites?
keep reading
April 2, 2023
Xi Jinping: 'Change unseen for a 100 years is coming.'
Time went of joint in the mid-1800s when China began its ‘Century of Humiliation.’ And Mr. Xi, with a sense of destiny, seems to feel he was born to set it right. (I very much doubt that Mr. Xi would add: ‘O cursed spite’ – he seems to relish his role and the shot it gives him to go down in history as China’s greatest ruler.)
keep reading
January 2, 2023
Xi Jinping: Bad Emperor?
Some have asked me what will be the greatest risk to China in the next five years. My answer: That Xi Jinping will overstep and enact policies that Chinese people won’t accept, especially those that have a direct impact on their lives and livelihoods.
keep reading
November 22, 2022
'Strangling with an intent to kill.’
I began to have some hope of getting our act together with Mr. Biden. He worked to rebuild relations with allies who could join the U.S. in the competition. And he understood the need for America to strengthen itself for competition. Hence, the infrastructure, CHIPS, and other acts. But whether Mr. Trump or Mr. Biden, one thing nagged me beyond all the rest. Why is America strengthening our competitor? — In the instant case: Why is America giving our competitor advanced semiconductor resources to strengthen itself to compete against us?
keep reading
October 31, 2022
Xi's China: 'less reliable, less predictable, and less efficient'
‘China’s predictability is being eroded by the frequent, erratic policy shifts that have taken place in recent months, such as the unexpected disruptions to power supplies that took place in 2021, and the sudden mass lockdowns that were imposed in an attempt to contain COVID.'
keep reading
October 18, 2022
Xi Jinping: ‘Crossing a threshold to outright dictatorship?’'
The view from inside China appears to be quite different. Yes, the Chinese people may grumble about the Zero-COVID lockdowns, and just a few days a banner critical of Mr. Xi and his regime was unveiled over an overpass in Beijing.
keep reading
October 10, 2022
The 20th Party Congress with All Eyes are on Xi Jinping
The attention to Mr. Xi is in large part because he will exit the Party Congress with even greater power, no discernible opposition, and a new five-year term (with more likely to follow). And many of the constraints that may have been in place not to jeopardize his reappointment will be gone.
keep reading
September 26, 2022
China Coup: How Worried Should Xi Be?
‘Xi and the phrase #ChinaCoup trended on social media after tens of thousands of users spread unconfirmed rumors that the president was detained and overthrown by the China's People's Liberation Army.’
keep reading
September 18, 2022
'How do you spy on China?'
Many of you have asked about my own take on the issues I analyze in these pages and about my background. Today is some of both.I am honored to have been interviewed by the terrific Jeremy Goldkorn, editor-in-chief of The China Project. Below is part of that interview.
keep reading
September 5, 2022
Xi’s Dangerous Radical Secrecy
In a world of political hardball, investigative reporting, and tabloids, we know a lot (if not always accurate or unspun) about world leaders, especially those in functioning democracies. Not so with Xi Jinping.
keep reading
July 10, 2022
Building Biden's 'Great Wall' Around China
Whether you view it as an aggressive adversary or a nation asserting itself in ways commensurate with its rising status, China is creating risks – some subtle, some obvious - that, along with reactions of the U.S. and its allies, have to be factored, into every related business, investment, and policy strategy.
keep reading
July 1, 2022
A Debt Crisis of its Own Making
Ever since Xi Jinping announced ‘One Belt, One Road’ in 2013, I watched it expand China’s economic and geopolitical influence and lay the foundation for projecting its military power – and become by many accounts an exploiter of the developing world itself.
keep reading
June 22, 2022
No. Ukraine Won't Change Xi's Plans - or Timetable - for Taiwan
Ukraine won't speed up or delay Mr. Xi's timetable. (But it may cause him to work harder to strengthen China's military and insulate its economy from external pressure.)
keep reading
June 12, 2022
'The competitiveness of China is eroding.'
Understanding the drivers of China’s rise to supply chain prominence gives (me anyway) insights to help analyze the changes – or not – of ‘decoupling.’
keep reading
June 5, 2022
U.S.-China Relations: A Chinese Perspective
Wang Jisi notes that the views are his own, and certainly we don’t know how closely, if at all, they reflect the thinking of anyone in the leadership. But given his straightforward and thorough analysis, free of canned arguments and slogans, I hope they do. I also hope the Biden administration pays heed.
keep reading
May 30, 2022
Is Xi Jinping China's Biggest Problem?
And while the impact of Zero Covid may be relatively short-lived, the impact of Mr. Xi’s return to the socialist path will be felt for a very long time, both in China and the world. So the impact will no doubt be felt as long as Mr. Xi leads China.
keep reading
May 22, 2022
The Next U.S.-China Crisis: CEOs & Boards Are Not Ready
‘The bad news is that very few corporations engaged in China have contingency plans or long-term strategies to hedge against the downside risks of growing geopolitical competition.’
keep reading
May 14, 2022
China GDP: 'A very long period of Japan-style low growth.’
Here are some of the insights from ‘The Only Five Paths China’s Economy Can Follow’ by Peking University’s Michael Pettis. This excellent analysis of China’s economy is worth a careful reading.
keep reading
May 1, 2022
'Zero Covid' & the Shanghai lockdown
Joerg Wuttke is the president of the EU Chamber of Commerce in China - the 'official voice of European business in China.'
keep reading
April 17, 2022
Is China's Tech 'Crackdown' Really Over?
Today, I’m sharing with you a bit of Ms. Schaefer’s analysis of the tech ‘crackdown’ (but not of the AI and algorithm law). She explains why...
keep reading
April 17, 2022
China: 'Sleep Walking into Sanctions?'
A looming risk is Russia-like sanctions on China. The sanctions on Russia are causing plenty of disruptions. But those disruptions would be nothing compared to the catastrophe of Russia-like sanctions on China. The good news is that if China does violate the sanctions, the violations would likely be narrow and specific - even unintentional. So secondary sanctions - if they come at all - likely won't hit China’s economy and financial system deeply – or (fingers crossed) U.S.-China relations.
keep reading
April 5, 2022
Russian Sanctions' Impact on China
In the meantime, some contend, China has a payment system, the Cross-Border Interbank Payment System or CIPS, that could make it independent of SWIFT.
keep reading
March 21, 2022
Faint Cracks
For some time now we’ve taken it for granted that Xi Jinping has so consolidated his power that his will is China policy.
keep reading
March 13, 2022
Is China in a Bind?
It wants to support Russia, but also wants to support the international order from which benefits and doesn’t want to alienate the major economies its own economy is intertwined with.
keep reading
February 19, 2022
Under Construction: Two (Opposing) World Orders
Years ago, before the so-called ‘New Cold War,’ when asked what China issue interested me most, I said, ‘China and the liberal world order.’
keep reading
February 17, 2022
'A Fateful Error'
As the 1904 cartoon from Puck magazine shows, this isn’t the first time in the past 100 or so years that Russia has shattered the peace. [Or has been defeated, as it was in 1905 by the Japanese in the Russo-Japanese War.]
keep reading
February 2, 2022
Ukraine, Taiwan, & the 'Nightmare Scenario'
This in no way diminishes the calamity of a war with China. But the ability of the U.S. to wage that war would not be diminished by having to fight Russia at the same time.
keep reading
January 18, 2022
This is Mr. Xi's Big Year - and Nothing Better Spoil It
Every politician going into an election wants a strong economy. Xi Jinping is aiming to be reelected (and all indications are he will be) to a third five-year term at the National Party Congress this autumn. So Mr. Xi will ease (and stimulate ) as much as he can without creating major headaches to deal with after his reelection - all in the name of 'stability.'
keep reading
January 5, 2022
Bachelors, Mother-in-Laws, & China's Economy
‘In the long-term, demographics is one of the most important forces that will shape the growth momentum of China for the next decades. Two demographic features that are especially worth paying attention:’
keep reading
December 30, 2021
Q&A 6 | China Reverse Its Declining Birthrate?
‘A lot of people feel like the ideal, the optimum number of children is a maximum of two children. So it's not a surprise to me that the three-child policy hasn’t had a high response in the short term. But I think in the long term it will be much better.’
keep reading
December 30, 2021
Shang-jin Wei Presentation-1 | Drivers of Growth Momentum
‘In the last year and a half we saw a spate of government actions all contributed to not just falling stock prices for companies in certain sectors but a deterioration in investor sentiment more broadly. These include:...’
keep reading
December 30, 2021
Q&A 1 | How Much Does the Gender Imbalance Contribute to China’s Rising Housing Prices?
‘Gender imbalance accounts for about one-third of the increase in China’s housing prices in the last two decades or so.’
keep reading

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.