Post-Pandemic Predictions for China
Date: May 24, 2020 | Author: Raymond Yang, Jeremy Chiu | Editor: Evelyn Tu
China has experienced exponential growth over the past few decades. Once a closed economy and evolving into one of the World’s leading manufacturing and exporting hubs. China now has the largest GDP PPP (Purchasing Power Parity) globally according to the IMF with an estimated $27.8 trillion expected in 2020. As global estimates continue to change and vary, our Firm’s investment thesis built around China’s growing economy and the proliferation of a culture built around technology has only gotten stronger. In this blog, we will address three fundamental questions we often get asked a lot:
1. After re-opening China, how has the recovery looked? What has changed?
2. How has the pandemic changed VC investments and business landscape in China?
3. What are our 2H 2020 and 2021 predictions for China?
Question: A month after re-opening the China economy, how has the recovery in China looked?
Answer: WestSummit has always had a unique perspective with its footprint in both Beijing and Silicon Valley and as a Firm have now lived through nearly six months of lockdown. The first four months in China, where many of our Beijing colleagues uprooted their city lives and hunkered down with parents and loved ones in their hometowns. And the last two months, where the pandemic has sent shockwaves through the US economy and has Silicon Valley in the midst of great uncertainty.
We are in daily dialogue with our colleagues and portfolio companies in China, leaning on them for best practices on working remotely and forecasting the weeks ahead. As we know, China is a couple months ahead of the rest of the world in its recovery from the virus and its reopening process.
“W-Shape” Pattern of Economic Recovery: Two months into the re-opening in China, we have seen a “W-Shaped” pattern of economic activity. This behavior can simply be explained as, workers are “back” and producing products, but consumer confidence lags (buyers are staying home from fear of the virus or fear of spending money). Although each country will have different social behaviors and buying patterns, this type of economic activity will likely be consistent with many households globally. For the past three months, families across the world have lived on “essentials.” As a society, we have redefined the meaning of “essentials.”
China Stimulus: As this New York Times article highlights: “Supply is significantly outpacing demand,” said Larry Hu, the chief China economist at the Macquarie Group. “It requires stimulus to get China out of the second part of the ‘W.’” As US and Europe has injected nearly $3 trillion dollars in rescue and stimulus packages, economists are eager to see how China’s ‘bailout’ response gets its own economy going.
Photo by Mingjie Guan