About the author:
The Macro Environment
In 2019, Wang Xing, Founder of Meituan, stated, "This year is the worst in the past ten years, but the best in the next ten."1 It was a sensationalizing statement doubted by many at the time. Most also assumed this did not apply to stakeholders of export businesses. In hindsight, the impact of the past few years, combined with the COVID pandemic, indicated this comment may have some merit.
When the US Federal Reserve stated there was a strong possibility of interest rate cuts in 2024, bankers and investors from Wall Street demonstrated bullish confidence evidenced by the increased S&P 500 index at the end of 2023. In addition, many Chinese consumer electronics vendors, including small business owners on Amazon Seller Central, joined the celebration as their fiscal performance received support from major partners like Walmart, Costco, Best Buy, and other US retail giants. These events could indicate that demand is recovering or at least not set for further decline. Analysis from some consulting firms and associations including the Conference Board indicates that the 2024 US growth rate will likely max at about two percent, similar to that of 2022. 2
While US business owners are gearing up for the expected easing measures from the Federal Reserve, their counterparts in China maintain a sense of trepidation despite the ongoing economic recovery. This uncertainty arises from challenges related to three well-known pillars that have contributed to prosperity over the past twenty years: exports, consumption, and investment. As supply chains are forced to relocate outside China, neither publics nor business entities are interested in utilizing real estate as a mechanism for boosting or maintaining asset value. Losing this investment vehicle may cause individuals who would otherwise have benefited from potential government infrastructure investments to be reluctant to reinvest their wealth. When economic circulation stagnates, it is irrational to assume that economic activity can be restored to its prior state.
Trends in Recovery
The contemporary world has historically shown a cycle when recovering from financial crises. The United States historically resorts to quantitative easing policies to stimulate investment and consumption, leading to an increase in demand for Chinese products. This stimulates Chinese exporters, who in turn trigger economic and financial boosts for the US. Humans are emotional beings, and as they perceived this cycle, confidence would blossom across the market and within consumer mindsets. This occurred not only in the US and China, but also across the rest of the world. However, the current iteration may develop in another direction.
Since the post-Obama era and Donald Trump's presidency, there has been no indication that the historical economic recovery script would repeat itself. The last time Republicans and Democrats had aligned attitudes toward China was during the Cold War. Such a trend entirely disables the usual recovery cycle, resulting in doubt and anxiety about whether the world can "return to normalcy." The commitment of US policymakers and lawmakers to relocate the semiconductor supply chain out of China further underscores this shift. Additionally, multiple well-known American retailers are endeavoring to transfer their white label supplies (a large portion of their regular purchases) to Mexico, Southeast Asia, India, and others, replacing Chinese vendors. Bear in mind that these white labels do not necessarily represent high-tech related products.
Though some may argue the historical cycle could emerge again if the supply chain transfers are completed, it is probably not judicious to conclude that new vendor countries will be able to support the demanded supply capacity quickly or efficiently. A reliable supply chain relies heavily on the preparation of infrastructure in proximity, such as highways to upstream supplies and raw materials. The complexity of this project is such that time frame predictions for both transfer completion and achievement of comparable efficiency, scale, and quality are impossible. At the very least, this is not achievable in 2024.
Conclusion and Analysis
An unprecedented and ever-changing situation has been presented, making it clear that the current issues confronting the world cannot be resolved in the traditional manner. However, though there is often light at the end of the tunnel, exact solutions to these issues may exist beyond our immediate ability to intuit and predict.
Recall what happened in the late 2000s in the high-tech sector, as the world prepared to celebrate and embrace 3G technology. Telecom carriers suddenly realized that very few existing users were willing to pay for the video call service they had developed. In other words, the payback period on their multi-billion dollar investment in 3G infrastructure was unknown. This uncertainty was compounded by events like Occupy Wall Street and the 2008 financial crisis. Many initially thought 3G innovation would end up just being limited mobile broadband service until Apple convinced consumers to embrace iPhones and iPads, leading the world into the new era of "mobile internet." This innovation ended the reign of Nokia, Motorola, and other then-mobile giants, but it also brought 20 years of prosperity to multiple sectors. In 2010, few would have believed livestreaming on social media could be a means of making a living. However, livestreaming is now a fully saturated industry that created several generations of billionaires in China, not to mention millions of professionals surrounding them.
If we zoom out and shift our focus to the present, there are many factors and issues that resemble those in the late 2000s and early 2010s. For example, as the macro environment was recovering from the fallout of the dotcom crash in the early 2000s, the world is now trying to figure out a method to overcome the economic aftershocks of the pandemic. Additionally, for a decade, China and the US have been endeavoring to reform geopolitical balance, resulting in severe inflation and price fluctuations of raw materials like oil. However, neither then nor now lacks innovation or the potential growth engine derived from it. It is fair to compare AI technologies with mobile internet since both innovations are disruptive enough to lift the productivity and communications to another level. What the world needs to do at this moment is to double down on innovation to develop and explore new technological opportunities from every possible perspective.
The tricky part of this resolution, if you would like to call it that, is that the US and China no longer collaborate to address challenges. Unfortunately, the international environment is no longer the same. The cooperative economic globalization of the 2000s and 2010s, which greatly shortened lead times needed to reverse economic road bumps, no longer exists. Increasingly competitive China-US relations have led to a breakdown of previously effective fail-safe mechanisms. The new competitive mentality might eventually create enough traction to bring the global economy back on track, though an enormous amount of waste would be generated as a side effect of this pivot.
In both the long and short term, entrepreneurs and financial players should not lose confidence in the face of unprecedented challenges. In uncertain times, it is incumbent to remain calm and learn from the past, and discover new, cooperative routes to recovery.
1. "Meituan's Founder Wang Xing Discusses the 'Better Decade': The Next Two Years Will Lay the Foundation for the Situation in the Decade Ahead," Sina, November 15, 2019, https://tech.sina.com.cn/i/2019-11-05/doc-iicezzrr7357401.shtml.
2. Erik Lundh, "Economic Forecast for the US Economy," The Conference Board, February 7, 2024. https://www.conference-board.org/research/us-forecast.
Please note: The above contents only represent the views of the author, and do not necessarily represent the views or positions of Taihe Institute.
This article is from the February issue of TI Observer (TIO), which examines the contextual nuance of Chinese economics and its subsequent impacts. If you are interested in knowing more about the February issue, please click here:
http://www.taiheinstitute.org/Content/2024/02-29/1107328303.html
——————————————
ON TIMES WE FOCUS.
Should you have any questions, please contact us at public@taiheglobal.org
© 2013-2021 Taihe Institute (TI) . All rights reserved. Taihe Institute (TI) .京ICP备16023694号-1
Privacy Policy丨Terms of Service
Contact Us: public@taiheglobal.org
