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Po angielsku: Pandemic, power crunch and real estate market in China. Plus common prosperity.

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Pandemic, power crunch and real estate market in China. Plus common prosperity.



Pandemic and how China will tackle it during winter months. Is ‘zero tolerance’ policy to be upheld? Even though China seems to be internally managing situation very well, with quickly arranged mass testing and local travel restrictions, but it is taking toll on its economy. It was recently showed in newest data on consumer spend showing clearly that people are not as confident as they were prior to COVID-19 outbreak. What’s more, even those local restrictions have impact on people’s spend and travelling – there is always a risk, that you may end up in a restricted area, therefore many people decided not to travel (plus many schools are requesting kids to stay in the cities)


During Golden Week we saw some of those signs – there were fewer people travelling and those who decided to travel, spent less than not only pre-COVID in 2019, but even less than in 2020.



Power crunch – although China had problems with electricity before (especially during hot months, something I’ve been witnessing since my arrival to China in 2005), but situation seemed to improve over years. Why then this year have manufacturing sector been hit by electricity cuts?

This time it’s not because of demand exceeding potential output, but rather two other factors:

  • Raising prices of coal (for those who don’t know majority of China is being fueled by electricity from coal) causing producers to stop producing electricity as they are not allowed to increase prices while their costs were growing
  • Decarbonization targets and China ambitious plan to become carbon neutral by 2060. These are not new targets, but many people thought that National Development and Reform Commission (NDRC) will turn a blind eye as did last year (when China needed growth and it was – rather than other targets – most important to drive economy), but this year it was not a case and many provinces realizes too late, that they are far from meeting those targets (and NDRC reminded it them in August this year).


All of that created a bit of a chaos, adding to all other problems supply chain specialists have been witnessing this year. And so far, there is still no clarity how long and to what extent those limitations on electricity use in manufacturing will last. This is making planning difficult. Be prepared to see some of restrictions being in place at least till end of this year (worst case scenarios say even about end of Q1 of next year)


I cannot help myself, but to remind of what has happened in late 2017, when Beijing deployed independent auditors to go down to all provinces and start checking how provinces and manufacturing sector have been managing and implementing policies related to more environmentally friendly production. It was similar case – Beijing was losing patience until finally decided to take reins into their hands and push local governments directly. Result? Many factories closed for duration of those audits, but there were also many companies shutting down completely as they realized that they are not able to withstand new standards, or it would cost too much to meet those new requirements. Will same happen this time? I can imagine that some businesses will realize that it’s too difficult to proceed with what and how they are doing now. At the same time local authorities will start more seriously calculating what businesses they want to operate in their areas (and obviously choosing those, where they will be able to balance what they can earn in taxes versus how difficult it will make for them to hit targets on energy consumption). In other words – if you’re in power hungry business running at low profit (and therefore not paying much in taxes) – be prepared to have it more difficult to keep your business.



Real estate sector. As most of us at least heard about Evergrande Group and crisis it is facing there is obvious question whether this is just beginning of something bigger or whether it was just one company? Since my arrival to China in 2005 I’ve been listening to people foreseeing China real estate market collapsing, but so far, it’s been just talking, and prices has been climbing up year after year even though Chinese government was introducing various restrictions. In a country with limited options for investments real estate became investment vehicle for many. And seriously – you hardly ever hear about investments bringing so much profit (you ask your friends in China how much they have earned in their properties over years). Some claims, that Evergrande is too big to fall, some (officials in this case) claim that there is nothing big enough in China not able to fall down and no company nor person should think so. There are obviously some big questions here and although Chinese government is trying to react, but giving constantly increasing prices of residential properties I may say they have been not really effective in their measures. This is one of the problem to be addressed as it’s difficult to balance on one hand ‘common prosperity’ and high prices of apartments on the other.



Common prosperity. When Chinese president Xi announced in August this year that Chinese goal is ‘common prosperity’, many were asking what it means and whether this is something unexpected. Though we may discuss about timing for such announcement of president Xi, we shouldn’t be surprised to hear about such goal.

To understand that we must look back, roughly 30 years back. There was interesting interview with Deng Xiaoping, done by reporter Mike Wallace, better known for his news program ’60 minutes’. Let me point out to one of the questions Wallace raised in that interview:

“To get rich is glorious. That declaration by Chinese leaders to their people surprises many in the capitalist world. What does that have to do with communism?”

What Wallace was referring here, were allegedly Deng Xiaoping’s words, but actually what Deng said was: “Let some people get rich first” (让一部分人先富起来). There’s subtle difference between those two (that’s why I was underlining some of the words in both sentences) and that is yet another observation, that we must be really very careful when we quote somebody and that it is easy to create some misunderstandings!)

Anyway, interesting is answer to Wallace’s question:

“(…) There can be no communism with pauperism, or socialism with pauperism. So to get rich is no sin. However, what we mean by getting rich is different from what you mean. Wealth in a socialist society belongs to the people. To get rich in a socialist society means prosperity for the entire people. The principles of socialism are: first, development of production and second, common prosperity. We permit some people and some regions to become prosperous first, for the purpose of achieving common prosperity faster. That is why our policy will not lead to polarization, to a situation where the rich get richer while the poor get poorer (…). “


Now after reading those words, it seems more obvious what Xi Jinping said during his speech:


“We will develop whole-process people’s democracy, safeguard social fairness and justice, and resolve the imbalances and inadequacies in development and the most pressing difficulties and problems that are of great concern to the people. In doing so, we will make more notable and substantive progress toward achieving well-rounded human development and common prosperity for all.”


As mentioned my only question here would be whether this is right time to move to second stage, but giving all those challenges in front of China maybe it is the right time?  


Source: CAIXIN, https://www.caixinglobal.com/2021-08-21/weekend-long-read-emphasis-on-common-prosperity-encapsulates-major-shifts-in-chinas-development-philosophy-101758341.html


Giving discrepancy between rich and poor it seems it might have been right time for Chinese leaders to do something about this. With all those recent activities, aimed at tech giants, education sector (training centers which were huge business, estimated to be worth well over 100bln USD) it is obvious that Chinese leaders decided to move.


For those interested in some of my older texts (in English):

Labor shortage in China – understanding Gen Y and Gen Z



Plus most recent text (in Polish):

Tanie Chiny? To se ne vrati, czyli jak czkawka w Chinach odbije się na świecie



Od 2005 w Chinach, gdzie mieszkam, pracuję, obserwuję i piszę :-)

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