I’m trying to find more time to read through and analyze the challenges presented by China. Some of it is about the upside but sadly too much is about the increasingly obvious risks. I think that balance is out of whack and it’s too easy to slip into Westerners’ gloom when facing the ascendant Asian superpower. But unfortunately, the facts have a way of barging into any analysis, and top of the list – after invading Taiwan – has to be what I view as China’s epic Covid policy mistake.

Precisely because we’ve now realized that the Covid emergency is constantly evolving, I think every nation (bar one or two) has come to the conclusion that the only way to dig ourselves out of the Covid hole is a combination of 1) vaccines and boosters, 2) better drug treatments and c) limited public health measures that stop well short of lockdowns.

The key point here is that Zero Covid as an explicit policy option is not on the table anymore. Except in China. The CCP has staked a huge amount of its legitimacy on trumpeting its zero covid policy. And it shows no signs of changing course. But my core concern is that it is precisely what it will have to do at some stage – change course and admit that complete suppression cannot work. And when that happens the economic hit will be HUGE because the domestic population has been lulled into a false sense of security. And the one lesson we have all learned is that when citizens realize the full nature of the challenge they stop spending and hunker down. At which point the domestic consumer market craters. Which in turn impacts the rest of us in the global economy.

So it’s with this analysis in mind that I always like reading an excellent blog called Pekingology by a Chinese journalist called Zichen Wang. It’s an excellent way of understanding what official China is thinking without any of that rampant nationalist guff that normally accompanies any commentary.

Last week Wang cited a paper by the Chinese Center for Disease Control and Prevention Weekly by Peking University researchers to” evaluate the corresponding potential consequences if pandemic response strategies in the aforementioned countries (the United States, the United Kingdom, Israel, Spain, and France) were to be adopted in China.”

Here’s Wang’s pithy summary :

“If you copy and paste the United States to China, there will be 637,155 cases and 22,364 severe cases a day here.

If you copy and paste Britain to China, there will be 275,793 cases and 9,680 severe cases a day here.

The chart below maps out these scary numbers.

My point here is that these are precisely the numbers we can expect at some point when China is forced to ditch that zero covid policy.


Next up we turn to India, where the excellent US economist Tyler Cowen has unearthed a fantastic news story from the Washington Post about India’s rapidly changing demographic transition.

“ India’s most recent National Family Health Survey, which is conducted every five years by the Health Ministry, was released Wednesday and showed the total fertility rate (TFR) across India dropping to 2.0 in 2019-2021, compared with 2.2 in 2015-2016. A country with a TFR of 2.1, known as the replacement rate, would maintain a stable population over time; a lower TFR means the population would decrease in the absence of other factors, such as immigration…In cities across India — as in other countries — women are opting for fewer children: The urban fertility rate is 1.6.”

If these numbers stand up, then it has huge implications. India may not have as big a demographic bonus as we all first thought. It also means that India will have to speed up its economic reform before that stalling population growth starts to eat into productivity gains and economic growth.


Staying with Japan, SocGen’s Frank Benzimra last week released an excellent macro note which made the very reasonable assertion that most incoming new Japanese governments tended to announce big spending initiatives and that this new government may be tempted to announce a really big push!

According to Benzimra, “Fiscal stimulus, infrastructure plans, and supplementary budgets have been a fixture of the Japan economy and policymakers -from Miyazawa during the property bust (1992) to Kishida [the new PM] facing another negative quarter of growth today- have all resorted to the fiscal tool to boost growth.”

Since the Abe Administration stocks have tended to rise (the median return is shown) 1, 3, and 6 months after the announcement. Curiously the 21 plans before the second Abe Administration, had limited impact post-launch. This was largely because they didn’t spend enough !

This time could be different though. The recently announced plans have “the potential to lift markets in the next couple of quarters: it is large, nearly JPY 80tr in total, and it happens at time of US equities in a bull market despite upward pressure on 10y UST. The resumption of the Go To campaign, effective during the Suga Administration to boost domestic consumption, supports domestic tourism stocks.”

WFH in Europe

Last by no means least how’s the WFH (work from home) ‘transition’ going? Morgan Stanley analysts have just released their latest WFH survey since the start of Covid – their 16th !

Except in Germany, where Covid cases are increasing, average time in the office continues to increase, with office workers in the office 3.6 days a week, and half of office workers back 5 days a week. 44% of those working from home at least some of the time say they are doing so because a hybrid working policy was introduced since Covid started, with a further 16% saying they already had a flexible policy  “

And hot desking?

“On average,26% of office workers said their employers had introduced hotdesking pre-Covid, with the UK at c.40%. Most (57%) office workers without a hot-desking policy pre-pandemic would not mind (Exhibit 14),although there are more responses actively against (43%) than in actively in favour (27%). Broadly though, hybrid workers that want to spend more days at home seem more willing to share desks at work in return”.

The Morgan Stanley bottom line for investors in European listed property companies?

They admit that most REITs are still range-bound and interest rate sensitive. But…

That said, capital values so far look resilient, and after a recent derating, many office-exposed names trade on wide NAV discounts (Exhibit 19). Our preferred office pureplay remains Derwent…”