The “bull market of everything” has disappeared. Inventories are low, the real estate sector is stuck on a fragile bridge between slower demand and higher borrowing rates. Stagflation is in the air. “RIP Good Times” – a terrifying 2008 column by Silicon Valley venture capital firm Sequoia Capital – has resurfaced.
Earlier this year, I asked if the 2020s would rival the noisy 1920s. A hundred years ago, life was changed forever by the technological miracles of the day: radio, affordable cars, skyscrapers, electrification, motorized farm equipment.
Like the 2020s, the 1920s got off to a bad start. The aftermath of World War I created deflation for the winners, inflation for the losers. The global trade consensus, strong before World War I, began to crumble. Fascism and communism took hold. The Spanish flu of 1918 killed 50 million worldwide. The US stock market crashed in 1920-21, leading to what historians now call a “mini-depression”. And yet, from 1922 to 1929—seven fat years—parts of the world grew like never before.
Could this happen again? Earlier this year, I said I would. Midway through 2022, my guess looks awful. We’ve seen trillions lost in the stock markets. Russia’s invasion of Ukraine and China’s self-destructive zero Covid policy are incredibly damaging. The reins of pessimism. The bad mood in the US and Silicon Valley, where I write, rivals the mood of late 2008, when the global financial system was on the brink of collapse.
But yeah, I’m still optimistic about the 2020s. Call me crazy. My reasoning boils down to one word: China. China has been a major drag on global growth expectations. But by the end of the year that will change. I share the opinion of Chief Strategist Marko Papic of the Clocktower Group of California. Papic says, “We continue to assert that the Chinese Communist Party’s main directive is to deliver the ‘China Dream’ to its citizens.” China’s main directive is not, says Papic, to hand over Taiwan. (Not in this decade.)
It is not undoing capitalism and destroying its entrepreneurs. (Control them, yes.) It’s not using Covid zero as an excuse to reapply the extreme social control of the Mao era. (Not even close.) China knows it won’t continue its 40-year run of prosperity by doing any of these things. It cannot deliver China’s Dream to its citizens. No dream, no social stability, which China holds dear.
China must become better to become richer. You must become a better neighbor and citizen. This, of course, is my Westerner’s perspective, but it is a view I hear from my friends in Southeast Asia. Analyst Papic says that if Beijing overemphasized the geopolitical goal of reuniting with Taiwan, it would invariably jeopardize its core guideline of providing an increasingly better quality of life for average Chinese. If the Russian invasion of Ukraine does any good, it will be Beijing’s conclusion of how long and hard an invaded territory reacts, and how expensive the whole business is for the invader.
To resume growth to fuel the China Dream for its citizens, China needs energy. Lots of it. China can loudly assert its dotted-line territorial rights in the South China Sea, but it cannot afford to overstep and provoke a naval blockade by the US and allies. The same logic applies to the Straits of Malacca, between Malaysia, Singapore and Indonesia, and to the Strait of Hormuz, close to the Middle East oil fields. To fulfill the dream of prosperity, China needs open seas and trade routes more than it needs to control a few small islands or waterways.
So I believe the world’s most important geopolitical event in 2022 – and perhaps the one that determines whether the 2020s will roar – is yet to come. It will be the 20th National Congress of China’s ruling party in November. Then China will weigh its options and actions, costs and benefits. I bet China moves more in the direction of continued prosperity than the opposite. That would be good for China’s citizens, good for the world, and good for a busy 2020s.