TWS: Oct. 19, 2020

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Graph of the Week | Economics

Compared to past Golden Weeks, this year’s national holiday was more like a silver or bronze week. While 637 million tourists swarmed the ritzy view on the Bund and glided across the cultural cobblestone paths of Xi’an, they only amounted to 79% of last year’s crowds.

Among the rough, there were still two diamonds to be found. While daily average travelers taking to the highway clocked in at 22.2 million less than last year, airline and railway travel were nearly on par with 2019, seeing daily passengers of 2.2 million and 12.3 million, respectively.

Despite less total travelers, retail sales still raked in CN¥1.6 trillion during the holiday, a 4.9% year-over-year increase. Hainan, the duty-free island in Southern China, hit a particularly large jackpot as sales soared 150% over the week. Those not out sightseeing also reached for their wallets, as Alibaba’s main e-commerce platform sales surged 79% year-over-year.

Bottom line: While many would-be travelers stayed home this year, the steady tourism figures among airline and railway transportation indicate that these industries may be recovering quickly. Additionally, as far as the middle class is concerned – which fared much better than the lower-class among the pandemic – consumer behavior is holding strong.


Economics | Policy

China’s Migratory Workforce Hits the Road Again

China’s poorest citizens have found themselves neglected by Beijing’s recovery efforts, as recent data shows that 60% of the country’s poorest have received less support than the top 40% of earners.

China’s stimulus widens wealth gap

China’s K-shaped post-pandemic recovery has contributed to a widening wealth gap, with higher-earning households bringing in CN¥300,000 (~US$45,000) or more a year seeing incomes rise over 2020 while those earning less than CN¥100,000 (~US$15,000) saw net declines over the year.

While Beijing’s focus on supporting businesses over individuals through stimulus has helped prop up the underbelly of its services economy, it has left a major portion of its workforce in free fall. China’s 442 million documented migratory workers have found themselves in dire straits, without a safety net from the government.

What’s more, it’s also believed that there could be upward of 174 million undocumented migratory workers that have fallen through the cracks of China’s antiquated 𝘩𝘶𝘬𝘰𝘶 residency system – boosting the total number of workers facing challenging headwinds to nearly double the population of the US.

Lack of support sends migrant workers packing

China has one of the largest wealth gaps on Earth. Though it has made significant progress in lifting its rural population out of extreme poverty over the past decade, inequality between the country’s top and bottom earners continues to divide society – particularly across the more affluent Eastern coastal cities and poorer inland rural villages.

While Beijing has put forth economic initiatives to bridge this division, these plans have largely been placed on hold as the impact of the trade war and the outbreak have rearranged domestic priorities.

Much of China’s migratory workforce now faces the difficult decision to return home to rural villages that offer few economic opportunities or remain in the unaffordable big cities in hopes of lucking into employment before their dwindling savings run dry.

Bottom line: The consequences of Beijing’s oversight of its migrant population has the potential to cost the country CN¥1.35 trillion (US$201 billion) in economic loss. With a significant group of the population in economic free fall, the country is likely to see a widening wealth gap that could threaten short-term recovery in consumption and long-term GDP growth.


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Industry

It’s Beginning to Look a Lot Like Christmas

Real estate developers have been looking for a sales boost this year, and it looks like a Christmas gift has arrived early on Alibaba’s sleigh. The world’s largest e-commerce company has unwrapped a shiny new online real estate sales platform called “Tmall Haofang.”

It’s a classic Michael Scott ‘win-win-win’ solution. Seeing the writing in the snow, Tmall Haofang hopes to cash in on the real estate market recovery by offering a one-stop online homebuying experience. Meanwhile, buyers can use the platform to complete entire transactions online without ever stepping foot into a showroom. The biggest winner? The developers that regularly face complicated transaction processes and often struggle to adhere to strict liquidity requirements. Tmall Haofang automates away these issues and even subsidizes developers’ discounts to attract more homebuyers.

Bottom line: With an online-savvy consumer base chomping at the bit to invest in their favorite asset class, Tmall Haofang provides a peek into the future of the real estate industry. The real Christmas miracle will be if the industry – put out by recent slowed growth and bans on showroom exhibitions – can recover sales over the rest of the year.


Economics | Trade

On Wednesdays We Wear Red, White, and Blue

The US, Australia, India, and Japan, or the “Quad,” rendezvoused in Tokyo to discuss the big topics of 2020: economic recovery, supply chain, national security, and disinformation as what Beijing affectionately called “an exclusive clique.”

The Quad’s roots date back to 2007, when it originally discussed Indo-Pacific strategy. The landscape has since changed, and while each of the countries in the Quad have developed a unique relationship with China, the pandemic brought to light a host of concerns that brought the clique back together. Though each nation in the Quad has its own approach to China, the economic influence that an increasingly aggressive Beijing wields over the global economy and the dangers of over-reliance on its supply chains has incentivized the group to draft a unified plan.

Bottom line: With skirmishes on the China-India border, warming Chinese-North Korean relations, military drills in the Taiwan Strait, and emboldened claims in the South China Sea, the Quad will likely be around for a while. The US, India, and Australia have already seen geopolitical skirmishes spill over into trade, but it remains to be seen if Beijing is willing to shoulder the blow of losing Japan as a key trade partner over its participation in the group.


Industry

Driving to the Future: Beijing’s Bet on Autonomous Vehicles

Over the last decade, Beijing has spent billions of dollars developing AI technologies to become a global leader in autonomous vehicles. If domestic tech giants can lower the marginal cost of AVs, offer a safe and secure form of autonomous transportation, and secure full-scale adoption within the world’s largest consumer market, China will revolutionize the automotive industry and earn trillions in revenues.

Full Article

Further Reading

The Weekly Steep

TWS: Nov. 23, 2020

The Weekly Steep

TWS: Nov. 16, 2020

The Weekly Steep

TWS: Nov. 9, 2020

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