Number 2

The big news this week was that the WHO, the World Health Organization, announced that India’s population will this year top that of China, making it the most populous nation on the planet. China falling off that particular pedestal has some interesting psychological implications and also raises other questions like the United Nations Security Council, and whether or not this is a persuasive extra argument for India being given a seat at the table. It is part of the fundamental long-term problem at the heart of the whole China story, the slow-moving demographic crisis which is going to have a huge impact on employment, consumer spending, property, market activity and many many other issues over the decades ahead. The 2023 shift from number one to number two in terms of population is a fundamental milestone in this process.

Amidst the China-US relationship’s continued difficulties, the US Treasury Secretary, Ms Yellen, made an important speech on China, following on from Secretary of State Blinken‘s foundation speech a couple of months ago. Her point was to state that while the US will assert itself “where our vital interests are at stake, we do not seek to decouple our economy from China‘s. A full separation of our economies would be disastrous for both countries. It would be destabilizing for the rest of the world.“ The statement has a somewhat conciliatory feel, and it will be interesting to see if Beijing picks up on that. The US has recently, on a number of occasions, reached out to Beijing to try to create a dialogue, and the Chinese leadership have rebuffed all advances. Not a good sign. The Chinese side has been particularly active in the past few weeks with the visits by Mr Xi to various places, most importantly Moscow, and visits to Beijing by Brazilian president Lula and the French president, Mr Macron. There is a clear effort underway by the Chinese leadership to create an alternative to the sense of US domination of the globe, and at the heart of that is the role of the US dollar. There has been more and more talk of “de-dollarization.” Now, just how real that can ever be is the question of the hour. The current vibe seems to be that the US dollar is “under attack” in terms of its dominance and is doomed to lose its unique role. But the reality from our perspective remains that it’s difficult to see countries abandoning the many advantages of holding US dollars in favor of bulk holdings of the renminbi.

Meanwhile, China numbers for Q1 show a solid improvement over Q1 for last year, and many commentators are saying that this is “consumers roaring back,” and the property market “showing a turnaround.” But the numbers are comparisons with Q1 of 2022, just as the big lockdown was looming over the country, so the numbers don’t mean much. Will it be sustained, do the numbers indicate that consumers have set aside their concerns, and are willing to spend spend spend again? That is an open question and we do not yet have a categorical view.

Have a great weekend.