The letter K

Various pieces of news over the past week have emphasized the importance of the letter K, which is shorthand for the state of the economy, indicating one section is doing well—hi-tech, robots, AI, EVs etc—and another section ain’t doing well at all—that is the “real economy”. The property market remains in the doldrums, consumer spending remains low, stocks are not doing well with some Top-K spike exceptions and the reported youth unemployment rate was up again… and the anecdotal evidence is not encouraging either.

We have discussed this all before, but it comes down to basic issues such as the rebalancing of the economic cake between state and households and between state and private enterprise, the advantages of diversity vs those of control, and the importance of reviving the sense of blues skies both amongst the populace and private entrepreneurs and investors.

Each of these would involve systemic policy decisions that look unlikely, and it would seem that longer term, the system is of the view that the status quo can be maintained, and systemic weaknesses offset—in broad terms—with hi-tech and AI. The passing of former economic policy czar Zhu Rongji last week reminds us of the choices that exist, and for long-term stability and prosperity, it would seem wise for China to be harmoniously a part of the world with the middle class and those with assets embraced and incentivized. Hi-tech will enhance production, but not necessarily consumption. And as jobs get eaten up by AI, how will household incomes be maintained? Some form of Universal Basic Income? That seems unlikely in the context of China. One thing is for sure and that is that the gig economy will continue to expand.

Have a good weekend, and consider buying a motorcycle, and of course a helmet.