China’s economic data continues to show solid progress—the 3rd quarter GDP growth was reported at 4.9%, while the US, Europe and Japan of course are all going to see negative growth for the period. Plus exports are doing very well because the rest of the world is still crippled by the virus and China has moved beyond it. The factory of the world is benefiting from the incompetence of governments elsewhere. There will be some longer-term advantages that accrue from this, but there are also clouds on the horizon.
First up is the US election, which is now just 10 days away. The final debate was held this morning China time, and it was probably a tie, and therefore makes no difference. Almost all voters have surely decided by now, and the likelihood is for the Dems to win the White House and the Senate by margins that will make protests by Trump irrelevant. This is extremely important in terms of the China angle because an all-blue Washington is going to be more focused and less prone to policy gridlock. China featured quite prominently in the debate, in terms of the virus—Trump repeated his China virus line to deflect responsibility— and in trade Biden said he would require China to abide by international conventions.
So with the election over, there will be the interregnum which of course will be messy. But it will then be possible to start looking longer term again.
Some broad-brush thoughts—China is going to remain the factory of the world. Nowhere can match it in terms of quality and volume and efficiency. But it could lose the high-tech stand-off and national security issues are likely to get more tense. The dual circulation policy is all about import substitution and boosting domestic consumption, but both could be difficult to achieve given the other trends in place. Private enterprise is going to shrink further in importance, and the property market is an iron bubble. Slower growth rates, once the virus spikes are out of the way, is a for-sure. Add it all up and where is China in a decade’s time? If it’s a plateaued scenario, how does that work for the middle class?
More on all this when the election result is known.
Have a good weekend.