China: Happy Year Of The Ox!

 (Drivebycuriosity) - The Chinese are celebrating New Year, the start of the lunar Year of the Ox. This year the celebrations are subdued thanks to Covid-19. Even though Beijing had responded fast and had suppressed the numbers of infections the pandemic is still smoldering and there are some pockets of outbreaks leading to local quarantines. 

 

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The Chinese population is still behaving very cautious. The chart above shows that the growth rate of the retail sales did not fully recover yet (+ 4.6% Y-oY in December). There are no government checks and huge stimulus programs. Many people are staying at home, skipping the usual Spring Festival travels. But the ongoing roll out of vaccines should support China`s recovery.

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I think China`s exceptional success story will restart in the beginning  "Year of the Dog" and continue in the years beyond. History shows that consumer and businesses are more willing to change behavior during setbacks. Innovations typically gain traction during tumultuous times: they get cheaper, faster, more convenient, more productive, more creative.  Companies are streamlining operations and are getting more efficient & productive as they always do when they are challenged.   

Therefore I believe that the Covid-19 pandemic accelerates a long term trend. For decades China`s economy has been growing much faster than the US. China`s growth story is still driven by the secular catching-up process which is fueled by extreme income & wealth differences to the US and other Western nation standards. 

The country has a huge natural resource which is fueling the perpetual growth: A gigantic amount of human capital: There live about 1.4 billion people who are intelligent, work hard and save money to achieve a better life and to reach the living standards in the US and Europe. The Chinese save more than 40% of their income, the American just around 20% (worldbank ). High savings (capital accumulation) and a good education are the base for China`s sustainable economic growth. 

The Chinese economy benefits from an education system which is more rigorous, competitive and success focused than the American and the British (americanaffairs ). Fast expanding knowledge is driving science & innovation and fostering economic growth (washingtonpost). Chinese corporations, think tanks & administrations can employ a huge number of highly dedicated & educated people - a strong driver of economic growth (scottsumner).

China is transforming from being the work bank of the world (focused on manufacturing & exports) into a modern economy based on domestic consume & services like the US. The country is also getting more capitalistic and huge publicly noted technology companies like Alibaba, Tencent & Baidu are becoming the engines of China`s economic growth and technological progress (scmp.com). Rainier Zitelmann, a German historian and author, quotes a leader of a private Chinese think tank who is bemused that socialist ideas are experiencing a renaissance in Europe and the United States: “Here in China, hardly anyone still believes in Karl Marx’s ideas.”( fee.org). Elon Musk recently criticized the “entitled” and “complacent” character of people in the United States, and lauded the “smart” and “hard working people” of China ( cnbc ). China´s transformation  is fueled by the technological progress: Rapid advances in software & Internet (including cloud computing), AIs, robotics, 3D printing, nanotechnology, genetic engineering and other technologies are all lifting the productivity of the economy (byronwien).  

China has the big advantage that it has four times as many people as the United States. The country has the potential for about 4-times as many entrepreneurs, scientists and geniuses like Elon Musk. The high growth rates in the recent decade and the success on the Covid-19 front show that Beijing - communist or not - is doing a good job in raising the standard of living for more than a billion of people, far better than the governments in the US & Europe. China´s government has a very long-range plan for infrastructure investments, whereas western countries can't see beyond the next election. 

 

Happy New Year China!