Depending on who you speak with, 2023 will either be a year of global boom or of a chaotic slide toward recession.
The problem, of course, is that both camps can make a solid argument to support each view. Yet there’s a common thread to these schizophrenic takes: China.
If you think global growth is about to roar higher, odds are you buy into the post-zero-Covid reopening boom narrative. If downturn fears color your view, you probably worry that a Covid-infection disaster looms to crater Asia’s biggest economy and global markets.
Somewhere in between? Then you may be among those worried explosive mainland demand will send global inflation skyrocketing and asset values racing downward, a negative feedback loop no one wants.
It would help if communication were Communist Party leader Xi Jinping’s thing. It most certainly isn’t. China’s impossibly low Covid death figures are a reminder that even the best-connected investors and geopolitical wags don’t know what they don’t know about the most populous nation.
Hard to recall the last time the trajectory of the global economy’s entire year to come was so concentrated in the hands of one man. Though Federal Reserve Chairman Jerome Powell cut a ginormous figure in 2022, neither he nor U.S. President Joe Biden nor Russia’s Vladimir Putin arguably had the power over global affairs that Xi wields over the 12 months to come.
All markets can do, really, is hope Xi and his advisors are as smart and omnipotent as they want their citizens to believe. For Iif they really are that smart, they will appreciate and internalize the extent to which the world is watching. They will use this moment to buttress China’s reputation as a stable, trustworthy world power. They also will use it to position China as a true stakeholder in world affairs, not just a shareholder.
The best way to start: talk to us. Xi and his top surrogates should hit the interview circuit to detail plans to balance rapid reopening with limiting dangers to public health. They should talk about how China plans to ensure that today’s stimulus efforts won’t lead to fresh asset bubbles, more reckless behavior among property developers or send global inflation soaring.
Xi should be telegraphing what he plans to do international-trade-wise at a moment when Biden is tightening the screws on mainland tech companies. That goes for Biden, too. Recent steps to cut off Chinese firms’ ability to manufacture advanced computer chips surely has Xi missing Donald Trump’s White House.
Trump’s trade war was no fun for Beijing. But it’s scattered and chaotic nature made it easy for Xi’s team to soften the blow. As such, Trump’s tariffs arguably hurt U.S. allies Japan and South Korea more than Xi’s economy.
Biden’s trade policies are more scalpel than wrecking ball. And he’s angling to do far more damage in exactly the industries of the future Xi hopes to dominate: semiconductors, supercomputing, artificial intelligence, electric vehicles, self-driving technology, guided-weapons systems, you name it.
There have indeed been signs that Xi and Biden might find some common ground in this next five-year term. Case in point: a key concession in December on giving accounting watchdogs access to the books of Chinese companies trading in the U.S., reducing the risk of delistings.
But the Republicans now controlling the House of Representatives are planning any number of investigations of China Inc. Xi’s government is bracing for Congressional hearings on everything from mainland companies stealing intellectual property to financial transparency to Chinese social media platforms to the origins of Covid-19.
In fact, just about the only thing on which Republicans and Democrats agree in 2023 it’s that it’s high time China faced the political spotlight in Washington.
Xi also would be smart to talk more to Asian neighbors. It’s good to see Xi’s inner circle reining in the combative “wolf warrior” diplomats. But Beijing’s decision this week to retaliate against Japan and Korea for limiting flights demanding Covid tests on arrival is a reminder Xi’s China isn’t ready for global primetime.
Even the World Health Organization is calling out China over a lack of infection data as Xi opens his borders with bewildering speed. Team Xi would be better off internalizing why China has a trust problem with Covid-inflection risks and clean up its act.
The same cold be said of Xi’s economic plans for the year ahead. In the meantime, all investors can do is try to navigate the schizophrenic year ahead.