Graph of the Week | Trade
Keynes & Hayek Got Nothin’ on Xi
Dual circulation is Beijing’s latest diet plan under President Xi’s new economic model.
In the wake of the US-China trade war that saw a record number of trade barriers placed on Chinese exports, Beijing has since sought to insulate the economy by transitioning away from foreign-based growth and replace exports with domestic consumption. It’s safe to say, though, that the economy has taken its fair share of cheat days.
Since the onset of the pandemic, a massive spike in global demand amid limited supply has driven exports to new heights.
- Chinese manufacturers saw a particular boost in orders to mass produce PPE and WFH equipment for Western countries affected by outbreaks at later stages in the pandemic.
The resulting surge in exports commanded an outsized portion of GDP when compared to consumption and investment:
- In 4Q 2019, export contributions sat at -0.2%.
- By 2Q 2020, exports had jumped to 18.7% while consumption plummeted to a -73% drag on the economy.
Bottom line: Strong exports and a spritz of investment have formed a crutch for China’s recovery. Not everything is according to plan, though. Despite the economic rebound, exports continue to contribute a hearty share to GDP growth – the latest 3Q 2021 results saw exports’ contribution settle at 21.7%, a level starkly higher than the historical average. With tepid consumption overshadowed by steaming factory activity going into the new year, Beijing is likely to push off the diet for its New Year’s resolution next year.
Industry | Policy
996 + 1075 = ?
Here’s some fun math for you – in China, 1075 < 996.
Despite a whole extra digit, the math checks out. ‘1075’ represents a new, shortened model for work hours. Bytedance, the creator of the popular app Douyin, announced this week that it would shorten its work hours with this new schedule, much to the relief of its employees.
The new work policy encourages employees to work from 10 a.m. to no later than 7 p.m. for five days a week. In recent years, many tech companies in China have pushed for what has become known as the grueling ‘996,’ a shorthand for a grueling expectation that demands employees work from 9 a.m. until 9 p.m. for 6 days a week.
Despite the good news, many complain that the wording of this new policy is vague. For example, words like “encourage” aren’t promising if a company continues to give out performance reviews that rate someone higher if they stay longer. Many online commenters worry this new approach may cause more workers to do voluntary overtime without payment.
Bottom line: Implementation aside, the act itself is symbolic and other tech titans are likely to follow. In China, companies across a basket of industries frequently expect the lights to be running for 7 days a week. Beijing has been actively advocating against this and even declared the 996 schedule illegal in August. Expect policymakers to toss a nod of approval towards Bytedance and double down on companies that hold out, particularly as work-life balance plays into the success of more pressing policy initiatives such as the three-child policy.
Economics | Trade
Getting Caught in the Crossfire
For a second straight month, China’s Manufacturing Purchasing Managers Index (PMI) slid back to a reading of 49.2 in October.
The PMI tracks manufacturers’ outlooks of business conditions, and any reading below 50 indicates economic contraction — suggesting manufacturers aren’t feeling as stoked as their inventory prices.
By contrast, China’s output price index rose to its highest level since 2016. Shortages of materials and environmentally motivated power cuts have raised costs for manufacturers, and to help bridge the gap, the policymakers have announced that coal mines would ramp up production and pledged to take measures to bring down prices of raw materials and commodities.
Bottom line: Stamping out climate change while shielding industries from the burn is turning out to be harder than it looks for the world’s largest emitter. Meanwhile, China’s growing geopolitical woes aren’t helping – China cut off Australian coal imports in late 2020 amid a persisting trade spat, which used to be the nation’s single largest source of coal. Until China can find a reliable replacement to satisfy its massive domestic appetite for coal, expect global supply chains to continue getting caught in the crossfire.
Industry | Technology
Why Online Auction Marketplaces Could Become Key to Chinese E-Commerce
Art and nonperforming loans, the two interesting – if not unrepresented – pillars of China’s online auction sales, have taken off. Nonperforming loans in particular are drawing attention.
China’s online auction market does not yet generate the same level of sales as the broader e-commerce market. Nevertheless, it’s picked up steam due to the pandemic.
With significant debt levels on the horizon but few avenues through which to absorb it, there exists an opportunity for online auction platforms to grow. This unique opportunity, when paired with noisy growth in the overall e-commerce market, may present online auctions with the runway to develop into one of the more exciting e-commerce segments in years to come.
Learn more in our China insights article: