Doublewood: Global Slowdown and China’s Second Child Policy

With the release of 3rd quarter GDP figures throughout the major economies of the world, we can now confirm a global slow-down. Estimates for 4th quarter and next year have also been downwardly adjusted everywhere. In China, those involved with high-level policy-making are only too aware of the severity of the situation. The world is tied together in a chain-gang with balls weighing on China because it has the largest “real” economy. They have anticipated the curent scenario for quite some time. In their minds, the aftermaths of the 2008 global financial tsunami are still not over.

At the 5th Plenary Session of the 18th Party Congress that just ended, China made official its 13th five-year plan (the “Plan”). The one decision which caught the most global attention is the ending of the country’s 40-year-old one-child policy, and henceforth a second-child will be allowed without penalty (there are a lot more in the policy and I will explain their multiple practical implications to the extent discernible later). It overshadowed a smorgasbord of other measures in the Plan that targets a boosting of domestic consumption and services sectors, an allocation of numerous benefits to the people, and the accompanying financial and monetary reforms that need to be introduced. The blueprint is clear. Its success or failure will remain a prize for future juries.

Notably, the CEO of the Walt Disney Company, which has already done phenomenally well in China, immediately sent a note of congratulation and “thanks” to those responsible.

It is a chicken-and-egg question as to whether China’s economic slowdown drags the rest of the world down with it, or vice versa. But it is certain that they form a cause-effect spiral. The Federal Reserve decided to postpone the interest rate hike for obvious reasons, particularly if you imagine the active hot-line communication that has been on-going between the Fed and its Chinese counterparts recently. The cooperation is necessitated by the reality of global linkage, or what I call “chain-gangness”. And thankfully, US-China relationship is sufficiently well to permit this constructive approach, for the moment.

My experience in observing the Chinese leadership and the workings of the State mechanisms leads me to two impressions: (1) They are very observant of details, pick up information and track everything meticulously, do very solid analyses, and design policies and administrative measures with a comprehensive “systems approach” (which can often be frustrating to those who wonder why certain steps are not taken yet); and (2) They are generally proactive and, while very cautious, do act with sweeping strokes once the timing and preparation are ready. As they proceed with a plan, they tend to be flexible and nimble, which can make things frustratingly unpredictable. We have learned to leave the Chinese alone when they go about their job, because they somehow get it done, even if not exactly as originally imagined. There is a Chinese saying: “when the ship arrives at the dock, it will straighten out”. Right … China is certainly not for the faint-hearted.

So, if China does have a master plan, what might that be?

-doublewood

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