China 2021 Predictions

4 topics that will be discussed more widely this year in China and abroad.

Feb 10, 2021

Welcome to China Abridged!

A place for discussion and gathering of updates from China’s tech and society worlds. Most sources initially will be western based but I plan to expand to Chinese sources as soon as possible to provide a clear vision. Anyway, there is an endless stream of reputable information in English nowadays and I will do my best to double-check any information with the original sources in mandarin.

2020 has gone by but its repercussions are still felt now. The pandemic is here to stay for now and the world is split between an aura of optimism and a cloud of pessimism.

The fact is though that China was the only major world economy to have any growth in the past year. This shows its resilience and adaptability in this new Covid era.

Tomorrow, the 12th of February, will be the start of the year of the Metal Ox. A year heralded by feng shui masters as representing anything sparkly from jewelry to the needle of a syringe.

Taking advantage of this “new start”, I felt that it would be fitting to write a short article about my predictions for China’s 2021. I am taking great inspiration from McKinsey’s great article on their own expectations. Hope you enjoy it and also share with me your own thoughts in the comment section or by emailing me!

Increased Domestic Consumption

In September 2020 China’s President Xi Jinping 习近平 unveiled the 'Dual Circulation' model that will most probably be a key priority in the government’s next five-year plan (2021-2025) in early 2021.

One of the reasons that China was able to continue its growth, although strongly affected like any other country, was the increased consumption from its population while being stuck at home. Think about all of those home-workout tools that you bought to become fit during the quarantine and never used in the end and multiply it by 1.4billion for example.

The truth is that the Covid-19 pandemic simply brought once again to light the fact that China's focus in an export based economy is not sustainable.

How would the 'Dual Circulation' model change anything then?

Simply put, it's all about boosting the role of Chinese companies in their own market and abroad. Instead of having Chinese local governments investing in bringing foreign companies to establish themselves in the country, the policy aims to bring foreign investment to home-grown solutions.

We see this within the semiconductors industry —the thingies that make the thingies work in your cell phone— for example after it was strongly battered by US sanctions (which is years ahead in this type of technology for now)

By globalising these companies China expects to raise the rate of urbanization (already at 60%) and increase the domestic consumption power of its already huge middle class sector.

Reuters wrote a great article about it here.

Birth rate & Demographic Issues

According to Bloomberg 'The number of newborn babies in China registered with the police fell by double digits last year, a sign that the birthrate is continuing to decline and worsening demographic pressures in the rapidly aging nation.

Now if you don’t follow China regularly you will start to think: “How does China have a demographic crisis when their population is currently still the largest in the world?”

Well the issue here is the old conundrum of having an increasingly ageing population who relies on a smaller and smaller pool of young workers due to the One Child Policy enacted in 1979 and that was only reversed in 2015 when the central government opened slightly and started allowing 2 children per household (not counting minorities and rural areas that already had policies like this in mind or didn’t really respect them).

This means that currently, according to Chinese culture and customs, one young worker might be expected to provide not just for his/her family but also for his/her parents and in some cases even his/her grandparents.

Although some policies have been enacted in order to promote fertility like a one-month cooling off period for married couples who want to divorce, or Communist Party sponsored dating events. The cost of bringing up a child in China is growing at an unprecedented scale, fueled primarily by the competitiveness of the education world where kids need to start taking TOEFL exams when they are 6/7 in order to stand out from the crowd, or where parents spend thousands of euros annually to make sure that their children get into VIP kindergartens that are linked to good middle schools.

On top of all of that China still only allows 14 days of maternity leave by law whilst most companies will only allow less than a week or even disregard employees for promotions or salary raises if they are aware of pregnancy.

China will then have to enact fast and overarching policies in order to improve on this matter. 2021 will be a year of recovery where we can expect to get some news in these regards.

Vaccine Diplomacy

China is currently one of the biggest suppliers of Covid-19 vaccines of which SinoVac and SinoPharm are the most well known, and there are others in testing phase like CanSino Biologics and Anhui Zhifei Longcom but its still struggling to contain the reappearance of Covid-19 clusters in the country.

Although China already used around 40 million doses on people it is still lagging in terms of per-capita inoculation due to the sheer size of its populace. At the same time its suppliers are at the moment overstretched and it is expected that China will only be able to vaccinate its entire at-risk population by the end of 2022 at the current supply rate.

One of the reasons that the Chinese public will have to wait a bit more for their chance for a vaccine is due to the concept of “vaccine diplomacy” This “vaccine diplomacy” is a continuation of China’s efforts to frame itself as the solution to —rather than the cause of—the pandemic.

These efforts are focused in areas such as Eastern Europe , Africa and Southeast Asia. Some with more success than others, but that still take with "open arms" a cheaper alternative than the ones presented by Western laboratories like Pfizer and AstraZeneca.

China will try to leverage its logistic scales and quick action capabilities to bring to market more vaccination solutions and ensure that there is no further large-scale growth of the number of domestic cases. Even if that means that it would have to continue having its borders highly protected and enacting strict requirements to enter in the country.

Externally China will continue with its aid policies and consolidate its presence in the COVAX program that aims to help lower income countries with vaccinating their at risk populations.

Rise of Chinese companies in the Global Stock Markets

2020 showcased the extremely arbitrary way that stock markets think. The NASDAQ and the S&P500 have decided to completely ignore the bleak state of the world's economy and have reached multiple all-time highs during the past year.

This valuation was increased by extremely low-interest rates in savings accounts, the popularization of consumer geared investment apps like Robinhood, Etoro and Trading212 and the pumping of money from governments around the world in order to bootstrap their own ruining economies.

These movements in the market though have been primarily focused on big-tech companies like the GAFA — Google, Apple, Facebook, and Amazon— , future-oriented companies like Tesla, video-conference solutions like Zoom and mega IPOs (Initial Public Offering) like Airbnb's.

What started popping up in everyone's radar was the appearance of Chinese based companies in the US and European markets. These ADR or American Depository Receipts are company formations situated in off-shore islands and that are eligible to trade in the New York Stock Exchange for example as they represent companies based in China.

The brightest 'star' of the past year from these ADR was the premium car company NIO, with its sleek electric vehicle SUVs and world-class customer support and community engagement, who saw its stock price going from its lowest point around 1.92$ increase to a mind-boggling 62.84$ to date.

The rhythm of innovation and investment from Chinese companies abroad is reaching more and more international investor's minds as companies like Baidu, Tencent, Alibaba, Xiaomi - the so called BATX - and others like Meituan and Pinduoduo continue to rise to be tech powerhouses that already compete at the same level with ones present in the US's Silicon Valley.

Ant Group, a financial company founded by Jack Ma - the same founder of the Alibaba Group- was poised to achieve the biggest IPO ever at $313 billion but it was stopped abruptly by Chinese regulators stepping in after Ma publicly complained about the backwardness of his country's financial policies. New regulations were added and Ma had to stay in the shadows for a few months.

In 2021 we will see an increased investment in Chinese companies from international markets and some blockbusters IPOs in the Hong Kong stock market and Shanghai's tech focused STAR. One example is of the short-video app Kuaishou - China's rural brother to Tik Tok or Douyin in China - which tripled its initial estimates for IPO and reached a valuation of $160 billion in the beginning of 2021.

That's it for now! Thank you so much for having a read of the first article from China Abridged. I will be writing weekly about China's society and tech scene and go more in depth about certain Chinese companies that you will hear more about in the future.

Feel free to leave your feedback in the comments section, dropping me an email or reaching me on 🐦 Twitter @jorgegoncalo.

China Abridged