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More than two months into the Biden administration, some important contours of the post-Trump approach to US-China relations have begun to crystallize.

The president’s foreign policy team is coming together (including key positions for US-China policy), US military strategy is becoming clearer, and supply-chain management is a growing area of concern. Meanwhile, government reports released earlier this month — on artificial intelligence, trade policy, and national security priorities — have helped to better define the administration’s thinking on…

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Thomas Mucha
Thomas Mucha
Geopolitical Strategist
Boston

Several of my 2020 blog posts have explored China’s thriving innovation ecosystem and rapid transition to a digital economy — a hugely important investment theme for sure, but I’d like to shift gears this time to the subject of Chinese debt and domestic consumption.

Our internal investor dialogue around China has raised a number of provocative questions. One of the best ones asked recently was: Will rising debt ultimately derail Chinese consumption? The short answer, in my view, is no.

On the topic of debt, some of my colleagues have studied China’s consumer debt and concluded that the pace at which it is growing looks unsustainable in the long term. I tend to…

MACRO
THEMES
Santiago Millan headshot
Santiago Millán
CFA
Macro Strategist
Hong Kong

I won’t spill much ink here trying to convince you that China is indeed “doubling down” on digitization and on its commitment to becoming a digital economy. You probably already know that, as do many other investors. And I’ve discussed it at length elsewhere, including in a few of my blog posts earlier this year:

We know also that many Chinese logistics companies, automation firms, software-as-a-service (SaaS) providers, and others are likely to benefit from China’s “enthusiastic plunge into a digital economy,” as I’ve described it. Whether or not some of these investment opportunities are already priced in is…

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Santiago Millan headshot
Santiago Millán
CFA
Macro Strategist
Hong Kong
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Over the years, we have done extensive on-the-ground research to understand consumer behavior across China and other emerging markets (EMs), with an emphasis on the two age demographics — millennials and Generation Z — that drive much of these countries’ total consumption.

In keeping with this tradition, we recently conducted our first post-COVID-19 survey of Chinese consumers. As everyday life begins to return to normal in China, we wanted to get a pulse on consumption and lifestyle trends in the aftermath of the pandemic. We focused on respondents in higher-tier Chinese cities, between 20 and 40 years old, with “middle” incomes of 50K – 70K renminbi per year. Here’s some of what we learned.

Spending vs savings

Unlike their predecessors, post-1980 generations in China are generally prosperous and tend to spend much of what they earn, with an eye toward enjoying life as much as possible. However, with COVID-19 affecting their lives in ways they have not experienced before, we wondered if…

CORONAVIRUS
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Liliana Dearth
Liliana Castillo Dearth
Equity Portfolio Manager
Singapore

China recently reported that its gross domestic product (GDP) shrank 6.8% year over year in the first quarter of 2020 – the first time in modern history that the nation’s economy has contracted. The contraction was sharper than our tracker had suggested, with the implication being that services (for which robust monthly data are not available) likely fared worse than other parts of China’s economy.

Headline: Bad, but expected

This outcome was largely intuitive and did not come as a surprise to markets in the wake of recent events. Indeed, it’s pretty clear that the COVID-19 outbreak delivered an unprecedented shock to China’s economy – one that hit the services sector harder than it did manufacturing.

On its own, I would have thought that such a poor headline GDP number would have been neutral for Chinese fiscal policy, in the sense that whatever the government did for the remainder of the year, it probably wouldn’t be able to…

CORONAVIRUS
MACRO

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Paul Cavey
Paul Cavey
Macro Strategist
Hong Kong
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