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A new new normal

It has been a relatively productive two weeks in Singapore.


Most of the conversations I have had ranged from my life in Hong Kong to opinions involving the current state of affairs in China. A few common themes consistently came up and I thought it might be a good idea to summarise them here.


China will open up... eventually.

There is no denying that supply chains, the over-leveraged property sector and the broader economy has been impacted. This has likely resulted in a slowdown of the economy (hard to verify if any of the public disclosed figures can be relied on).


There's a lot of noise involving the recent protests, possibility of further lockdowns, speculation over when travel will open up etc. No one really knows. The concern over handling foreign infections is understandable given that China has over a billion people. Just imagine the toll on healthcare infrastructure if a billion people went to the hospital at the same time. That being said, we can be sure that China will eventually open up. Its interest for doing business with the rest of the world remains intact. There is no way to prove this, it's just a matter of time. However, given the elevated cost of funds in today's environment, time unfortunately also means more money.



A changing demographics and mindset is shaping the new world economy.

Persistently high youth unemployment rates might pose a longer term problem for the economy. 躺平 has obviously been one of the catalysts, but the contraction of jobs supply is partly also due to the crackdown on big tech and edu-tech over the last year, the imploding of the property sector, and the more recent cost-cutting measures observed in various household tech giants such as JD.com and Sea. There is also less motivation (or greed depending on how you look at it) to excel in life.


Call it the successful result of pushing for common prosperity (共同富裕) or simply renouncing the lofty desires in life (看破红尘). Young people are increasingly comfortable with getting by doing the minimum. This is a generational paradigm shift that is taking place not only in China, but many parts of middle-class Asia as well.


The beliefs and values of those born before the 1980s have been mostly shaped by the need to have a good education in order to secure a well paying job. Having gone through the dot-com boom and bust, the Asian financial crisis, globalisation, etc, hard work has been taken to be the 'holy grail' for being successful - success in life being largely defined as having a high paying job, even at the expense of sacrificing personal time and working long hours. Hard work correlates to wealth, which buys a roof over the head and some financial stability.


And the results have been evident over the last 5-10 years as seen in higher income levels. Economists in Asia have previously also touted the emergence of Asia's middle class, in which the rising affluent population (especially the Chinese) were expected to spend more on lifestyle and luxury.


In a recent weekend coffee catch up with a friend, he mentioned an interesting observation: Setting aside the affordability of buying a home, it is actually a lot easier for young people today to get by. In Japan, Korea and China for example, there are tons of convenience stores for getting decent hot food and supplies. There are shops like Uniqlo and MUJI for clothes, and "dollar stores" such as Daiso and JHC for incredibly cheap household stuff. If you are willing to forgo the luxurious brands, you technically don't have to dig very deep into your wallet to live comfortably.


It is actually very easy for people to 躺平 and give up on the ”high life".


From a capitalism point of view, this is obviously bad for the country because growth has traditionally been associated with increased spending, and not about being contented with living the simple life. And while US and the rest of the world are hiking rates to fight inflation, China by contrast is doing the opposite. By cutting domestic rates, the Chinese government is probably adopting the age-old "inflation targeting" monetary policy to rejuvenate economic growth and avoid stagflation.



A new new normal.

The narrative on the outcome of China's recent party congress meeting is obviously extremely divided, you either love it or hate it. Some of the peers I spoke with see XJP's next 10-year rule as an iron-fisted style of governance. While it might appear as if too much power is in the hands of one person, this continuity also implies a certain stability in policies, which can be a good thing in today's volatile markets. The so-called 'strong fisted' ruling also means that privately owned enterprises who work more closely with state-owned-enterprises could be seen as a more 'friendly' party aligned with national policies under the current regime.

"I believe China is currently in the range of 3 to 5 percent growth, and headed rapidly to zero" - excerpt from Politico.com, January 2016

In 2016, when the term "new normal" was first introduced at China's 13th Five Year plan, there were several opinions hinting that one of the world's largest economic engine was rapidly grinding to a halt, including the possibility of a catastrophic outcome.


But an article published in Fortune put this into perspective: "The slower growth rate is a sign that China’s enormous economy has passed the startup stage and is beginning to mature. While this is certainly a new environment for investors to wrap their hands around, it doesn’t equate to economic Armageddon." China and most of the global economy continued to thrive in the three years that followed, right up to the pandemic in early 2020 which took the whole world down.


What doesn't kill you makes you stronger.


Maybe that could also be what the world needs right now: To be less pessimistic and gradually learn to embrace a second new normal of a controlled (or regulated) market economy rather than a free market economy that is jacked up on steroids.

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