For personal reasons, Ireland is one of my touchstones in trying to understand the ways in which the world is changing, and more generally it is an interesting laboratory for observing the effects of the rise and fall of the world. globalization in a small open economy.

Globalization has profoundly changed Ireland, so that Ireland from the 20e century is gradually moving away from the collective memory of the Irish. In the middle of the 20e century, the country had few active trade and diplomatic relations, which led the writer Seán Ó’Faoláin to note that “Ireland… the proof of life”.

It’s a remark about a country that was waiting to reconnect with the world, but which recently occurred to me when I thought of China.

Goodbye Didi

Last week, under heavy pressure from Chinese authorities, Didi Chuxing, the ridesharing company announced that it would cancel its listing on the NYSE market and that it would instead be listed in China / Hong Kong. Additionally, this week, the Women’s Tennis Association (WTA) suspended its tennis tournaments in China in response to the disappearance of player Peng Shuai.

She had been “recalled” to China after accusing Zhang Gaoli, a former senior Chinese Communist Party official, of sexual assault, and is believed to have since been held under duress. While the Epstein trial shows powerful men can behave appallingly wherever they are, the treatment of Peng is grim, deaf to international public opinion, and has been repeated in the case of other public figures. .

As a backdrop, I just started reading the fascinating “Red Roulette”, Desmond Shum’s tale of what happens to rich Chinese who rise too high and too quickly (to spoil the surprise, Shum details the murder, the ” suicides ”and the disappearance of many Chinese billionaires).

Rod

Add to that China’s antagonism against nearly all of its neighbors (some of whom also threaten it), other snippets such as a collapse in Chinese government passport issuance (COVID notwithstanding), policy demands China’s COVID and a growing range of movements to establish self-sufficiency and in some cases international monopoly in areas like data (LinkedIn has been cut in China) and rare earths, and the image is growing from a China, which strengthens its strategic autonomy, but also cuts itself off from the rest of the world and adopts the terminology of ‘Faoláin, wrapping itself in a “red curtain”.

This “red curtain” process, if my point of view is correct, will be gradual but nonetheless significant. David Skilling points out that trade ties between the EU and China are still strong and that US banks are keen to get more involved in the Chinese financial system (JPM’s Jamie Dimon is notable here, but less for his diplomacy). However, Germany’s new government is significantly less favorable to China than Merkel’s, and various surveillance processes at EU level will hamper foreign (Chinese) investment in Europe.

Overall, the “Red Curtain” is consistent with the hijacking of other countries or leaders (Brexit / Johnson, Trump, Bolsonaro) from internationalism and confirms the trend towards multipolarity.

Red curtain

The size of China, the advanced stage of its very long economic cycle (with a slowing housing market) mean that the prospect of a “red curtain” must be taken seriously.

Diplomatically, this raises the problem that a more closed China is harder to read from the outside and a bit more difficult to manage (ask Lithuania). At the national level, there is a risk that this more ‘closed’ approach creates a sense of risk aversion among entrepreneurs, a lack of debate on political issues (especially at the local level) and, therefore, a political error. . A structural policy error could be that productivity slows down.

From an investor perspective, what’s interesting is that the muscular approach of Chinese regulators and politicians has turned Chinese stocks (especially those listed overseas like Alibaba) into “value” investments. On the other hand, if American companies that export to China (think Apple

AAPL
and Tesla

TSLA
) were to be cut off by the “Red Curtain”, their ratings would crash. By the way, I wonder if the “Red Curtain” will divide the MetaVerse in the sense that it offers a distinct experience for those who use Chinese technology, those who use Western technologies and platforms.

Notably on the other side, more fund managers have told me that the Chinese government bond market is starting to look attractive compared to those in the West. In this context, Chinese assets – long considered a structural player in emerging market growth – are becoming attractive to value investors.

Proof of thought?

Ultimately, realizing this value depends on one factor – Xi Jinping’s mind and ambition – by establishing himself as head of China for the foreseeable future, he has linked his country’s fate. to a man’s wishes, what history tells us is a risky strategy, especially if it leaves China “to the test of thought, to the test of the world, to the test of life.”


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