The economic numbers are getting more and more dire and in a rather extraordinary move, the man in charge of the economy, Premier Li Keqiang, held a meeting attended by 100,000 officials from across the country. He passed on the very clear message that the economy is not in great shape, and everybody must pull up their socks and use every method possible to stimulate economic activity and counteract the sudden rise in the unemployment rate, now above 18% for young people. There’s a devilish confluence of factors in play that makes it now surely certain that the annual GDP growth target of 5.5% is not achievable. There was a suggestion from one security house that the GDP growth rate in Q2 will be zero due particularly to the impact of the lockdown in Shanghai and the increasingly dicey situation with regard to virus controls in Beijing and other places. The numbers of infected people are still almost inconsequential compared to other parts of the world, but the economic consequences given the strict dynamic zero target that is being held to, is heading towards devastating. This is one of a number of factors that are causing people in many parts of the country and at many levels to pause and consider the direction for the future. The division in someways feels like it’s north China on one side and south China on the other. North China with its interest in stability and central control, and southern China with its greater entrepreneurial spirit. It’s inappropriate to make too much of this kind of analysis, but much of Chinese recent history can be divided into when the country was controlled by Beijing and when it was in effect controlled by Shanghai, including the 1920s and 1930s and the 1990s and 2000s. It’s pretty clear which does better in terms of economic dynamism. The firm ideological line is appreciated in terms of reducing the pressure on medical facilities across the country which may not be up to par, and strong central control has in many ways proved its value over recent decades. But there are significant interest groups and a lot of money that is interested in the short, medium and long term of China’s economy being more vibrant rather than less, and more integrated rather than less integrated into the world. It is that dichotomy which is in various ways presumably being addressed in conversations all over the country in the leadup to the big 20 later this year. It is always unwise to be too apocalyptic in trying to foretell the future, but this really is going to be a difficult year. And almost certainly we are going to see a few other events that are likely to make things trickier. There is the possibility of a snowball effect in terms of sentiment that presumably Those in Command would like to avoid. But on the other hand, the wisest comment we heard during the week was from a commentator who said that economic growth is no longer the priority, social control is. There are implications to that.
Have a great weekend.
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