The top event for the week, and perhaps the most important event in China’s foreign policy for the past two or three years, was the face-to-face meeting between Mr. Xi and Joe Biden on the edge of the G20 meeting in Bali. The overall feeling of the meeting was of an effort by both sides to reduce the sense of confrontation. Mr. Xi said that he did not intend to challenge the international supremacy of the United States, and Mr. Biden said he did not support Taiwan independence. Nothing has changed, of course, but the vibe has been recalibrated slightly to indicate a sense of reasonable consideration of the issues on both sides. And that is a positive development. As to whether or not the single biggest geo-political issue out there, that is whether or not China will ever make a move on the island, remains an unknown. But the impression from the meeting, in Joe’s words, is that there is no sense of any imminent action from the Chinese side. Further proof of this, and perhaps an indicator that longer-term things will remain basically as they are, is a large investment just made by that superstar of the investment community, Warren Buffett, in TSMC, the semiconductor giant in Taiwan. He invested $5 billion in the company’s traded shares, and that investment can only have been made after serious consideration of the potential risks. That’s a good little signal right there.
The Bali meeting also provided us with a little vignette, a video showing Canadian Prime Minister Justin Trudeau, having an interaction with Mr. Xi. This video is going to be parsed and analyzed for years to come as an indicator of psychology, but to us it is simply a reflection of the systemic differences and the incompatibility of the underlying philosophies. Bridging that gulf remains the key challenge of the 21st century.
Closer to home, the virus continues to waltz its way around the country despite the strenuous efforts at maintaining dynamic zero. But there is a sense that the strategy is changing at the central level at least, allowing for an acceptance of the bug’s presence. That is, accepting that the economic consequences of pursuing dynamic zero are more than the system can bear. Our guess, based upon what we have heard, is that things will return to something close to normal in terms of quarantines and lockdowns by March next year. Accepting the existence of the bug will inevitably result in a rise in the number of cases, and the number of deaths. But that is a temporary phenomenon, as we have seen in transparent societies elsewhere in the world, and China, because of its system, has the ability to deal with that spike without the consequences being fully apparent. Our assumption is that that is how it will be handled.
In other news, the central government issued a 16-point plan to “rescue” the property market, but it seems to be simply aimed at pushing it back in to the bubble state. Which is exactly what must not happen for the long-term stability of the Chinese economy, say the experts. Ah well.
Do have a fantastic weekend.