If a stock market is a mirror of a society’s state of mind, then the US is feeling exuberant right now. But in China, it is all about trepidation. Investors there are worried the government is going to mess things up.
Both economies face the same set of problems: Supply chain disruptions, inflation pressures, the threat of rising interest rates. But the market dynamics couldn’t be more different. A new electric vehicle initiative from car rental firm Hertz Global Holdings Inc., which exited bankruptcy only a few months ago, added about $300 billion of market cap to Tesla Inc. That’s more than the entire worth of China’s biggest commercial bank, Industrial & Commercial Bank of China Ltd.
As Americans enthusiastically gobble up the new EV unicorns, the Chinese are busy confronting something they left behind four decades earlier: Rationing. An official statement urging local authorities to ensure there was enough food this winter prompted a social media frenzy, with people linking it to a possible war with Taiwan. In the last month, tensions between China and the US increased over the island.
While it’s fairly routine for the government to stockpile ahead of the winter holidays, markets are not taking anything at face value. Investors sold down big tech names, including smartphone maker Xiaomi Corp, fearing that rising geopolitical tension will play havoc with the way they do business. We’ve seen the damage US sanctions have done to Huawei Technologies Co.’s handset sales. Traders are instead putting their money into staples, such as soy sauce maker Foshan Haitan Flavoring & Food Co., whose $78 billion market cap is now higher than Xiaomi’s. There’s no war yet, but markets are already defensive, playing like there is one. These days, Chinese investors talk obsessively about stagflation, economic sanctions — and wartime survival skills.
State media is now rushing to quiet online speculation of a possible imminent conflict with Taiwan, but they are simply not powerful enough to alter the bearish tone in the marketplace.
Unlike the US, China’s stagflation problem is partly self-inflicted by the government’s own policies. Single-mindedly pursuing a zero-Covid strategy, the authorities arbitrarily seal off entertainment parks, quarantine thousands of tourists and lock down cities for months at a time. And yet the latest Covid outbreak in China is the most widespread since the deadly virus first emerged in Wuhan. Instead of importing what has worked elsewhere, China is busy developing its own homegrown mRNA vaccines, which may or may not work.
To move around China, each citizen needs to show a green health code on their smartphones, which the government uses to track Covid outbreaks in neighborhoods and communities. And that code can easily flip into yellow — which means they can’t enter public places like restaurants — or red — which means they are from a locale in quarantine. Each time the color changes, a would-be traveler needs to be tested and self-isolate till the health code turns green again.
That’s a prescription for more economic disruption. The temperamental health codes are going to keep many consumers at home, even if they. have money to spend. In September, the latest data available, restaurant sales rose only 3.1% from a year ago. It’s not a surprise that vegetable prices are soaring. Greens rot easily. Once harvested, they demand swift logistics — and if restaurants aren’t buying, they literally go to waste.
During the Cultural Revolution, one of my uncles, a Fudan University-educated mathematician, was sent to Wuhan University to teach. When he came back to Shanghai in the late 1970s, he brought back a new eating habit. To this day, at each meal, he gobbles down bowls of rice flavored with soy sauce. It’s the insurance against famine he picked up during those hard times. And he’s hung on to the frugality even as he grew more affluent.
If the rest of China starts to hunker down like my uncle, the country is in big trouble. When investors trade away smartphones for soy sauce, this marketplace will be permanently damaged.
Bloomberg
