Ten key takeaways from China trip

I just returned from a week-long trip to Beijing and Shanghai talking to a wide range of China experts, companies and institutions. It was really good to be back after a four years break due to the pandemic and a reminder of how important it is to put the feet on the ground once in a while to stay connected to what is going on – and also get access to the best experts when it comes to Chinese developments, not least Chinese economists who often see things from a different perspective on top of typically knowing the economic system in more depth. Any experience is of course subjective and depends on the eyes that see and the questions you ask. Bearing this in mind below are my personal 10 key takeaways from the trip. As will be clear, China is facing a lot of challenges currently and caught in a state of low confidence that will require more stimulus in the coming years until the wounds have healed. But there was also still a cautious optimism among most that the Chinese economy would eventually come back and that the country’s leaders are still pragmatic and flexible, the hallmark of Chinese leadership during the reform- and openingup phase starting 40 years ago, despite recent years’ rising focus on security and control.

Key takeaways

1. Confidence is weak. This was not a major surprise but still interesting to hear everyone talk about it. Households seems to suffer from a bit of ‘post-traumatic stress’ from the tough lockdowns in 2022. Chinese households generally save a lot for a rainy day and 2022 felt more like a thunder storm than a rainy day so savings are prioritised even higher now. In addition, some households lost part of their savings during the pandemic because they either lost their job or their small business had to close. And social security is very limited. These households now focus on rebuilding their buffers. Once buffers are rebuilt, the savings rate will likely come down and spending picks up. But it will take time and patience will likely be needed and continued stimulus. Many, not least in Shanghai, lost confidence in the central government due to the harsh lockdowns and the long time it took to leave the zerocovid policy. The last six months of economic pain in hindsight felt like a waste to many as the economy could have been opened up long before with the same health impact. The depressed housing market is also affecting sentiment negatively (see below) as well as the uncertain geopolitical picture, sanctions by the US and more focus on a falling population.

Business confidence is also weak. A challenging growth environment has hurt profits and confidence and the recent years of new regulations and crackdowns on selected areas of the private sector created a broader uncertainty about the policy direction. However, an asset manager I spoke to pointed out that while China’s entrepreneurs have taken some hits, their entrepreneurial spirit is still very much intact. But currently their investments are dampened by the weak economy.

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