It is to some extent subjective, and we might be reading some things somewhat incorrectly due to the usual lack of transparency but there does seem to be a growing number of reality gaps in the Middle Kingdom, and those that exist seem to be expanding. At the heart of China’s situation right now are three tricky situations: COVID, Ukraine and the economy, and all of them impact on what we view long-term as the key dynamic—the status and position of the middle class vis-a-vis the system. China’s middle class has its spiritual home in Shanghai, and the city is still experiencing steady high numbers of reported infections, unprecedented difficulties in terms of lockdowns and food shortages, and other social issues, which inevitably call into question the zero policy. There are indications that many people in the city are less than convinced about the correctness of the current policy, and the overall situation feels more political than it is medical. Regardless of the social and economic impact of this infection wave and the way it is being addressed, all the signs are now that the tough approach will be held to, well into May and possibly beyond. This is a defining moment internally, clearly. And Ukraine ditto externally. China’s position on the war is consistent and was well summarized this week in an article by Chris Buckley in the NYT. As with COVID, the Ukraine narrative is clear, and the root of the problem is America. The bottom line is that decoupling moves inexorably forward. The middle class are ambivalent on this, it would seem, as it is undoubtedly true that they like the idea of China being part of the world.
And then there is the economy, which has to be doing badly right now. We will see what the numbers look like for Q1 next week, but April is surely going to be awful. Many businesses are facing times that are far tougher than 2020, manufacturing and logistics are severely impacted. The real economy, as it is always so quaintly called, is today far less capable of withstanding body blows than it was two years ago. A sea of troubles is in prospect and officials have to be super focused on the big 20 congress coming towards the end of the year. How to offset the problems or how to characterize them positively in the key speeches to be delivered at that event – it’s going to be a tough speech-writing challenge.
Enjoy the weekend.
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