The virus is waltzing ever more energetically around the country, and local officials are responding mostly with rigorous efforts to maintain the centrally stated policy of zero, resulting in ever greater disruptions and dislocations with inevitable consequences, both economic and social. Business across-the-board is suffering, and mental stress is very much on the rise. One question is whether this is actually what the Center wants. A committee was formed to oversee the transition through to an end to restrictions in March next year, and they have issued 20 instructions to facilitate the process, but it appears as if many local officials are reluctant to face the consequences of it, that being a spike in infected cases. Our expert on the topic tells us that the only way out in the end is herd immunity and it will be achieved sooner or later, so why not sooner.
One virus related situation that is definitely worth watching is the Foxconn plant in Zhengzhou, which produces 80% of the world’s iPhones. It has well-publicized problems with its workers, of whom there are 300,000, including clashes with big whites. For Apple CEO, Tim Cook, that has to be a wake-up call. The Steve Jobs plan to establish a highly efficient and sophisticated iPhone manufacturing ecosystem in Shenzhen was absolutely correct, but the mistake, with hindsight, was to not use that experience to re-create the ecosystem in some location other than in China. To re-create it in Zhengzhou in no way offset the strategic risks. What is interesting about Zhengzhou is that while the trigger appears to be virus-related restrictions on movement, there are other issues involved as well for the workers, including pay and conditions. The conclusion is that the young Chinese workers of 2022 are no longer willing to be obedient in the way their fathers and mothers were 20 years ago. This has huge implications for the system and for large scale manufacturing in this country.
Meanwhile, the overall economic situation is clearly not good, and as Michael Pettis and other economic experts keep saying, the answer is not supply side boosts but a restoration of consumer confidence (unlikely in the short term) and a shift in the balance of assets from the state to households (incredibly difficult to achieve given the nature of the system).
Next year is unlikely to see a shift from the policy line laid down at the 20th Party Congress, it’s not going to be fun economically and many people are now making decisions about the future on that basis. Oh dear, the pendulum is definitely in swing.
Have a good weekend.