China

Given the intellectual carnage of the Mao era and the chronic inability of central planning bureaucrats to make economically sound decisions, Deng turned to “socialism with Chinese characteristics,” that is, American-style capitalism, in the late 1970s. What followed was a half-century of explosive economic growth, with huge fortunes created by the bold, the economically savvy and the politically connected. Western consumer firms, from McDonalds to Hermes, soon realized that they had an addressable market of, say, the wealthiest 10% of the population. Given that the overall population is so large, this translates into an almost totally untapped market of 150 million potential customers. Even at prices 40% above those prevailing in their home markets, luxury goods companies found their wares flying off the shelves. A massive market for imported building materials developed as well.

These salad days are long since over, however. When Xi Jinping took charge in 2012, he faced two related issues that were undermining the authority of the Communist Party: widespread, very visible, corruption among public officials who arranged permission and financing for entrepreneurs; and the raw economic clout of the non-Party entrepreneurs themselves (think: Jack Ma boasting that he would use Ant Financial to destroy the state-owned banking system).

So he set about bolstering the position of the Party. One direct result has been slower growth overall. Two current pressing issues: what appears to be wild overbuilding of residential housing, financed by state-owned banks; and the decision to use locally-developed anti-covid vaccines that don’t appear to work very well. Both imply that the near-term economy is much more likely to surprise on the downside than the upside.

more tomorrow