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Why Xi Jinping isn't enjoying work lately.

China was a roll for the past decade. Not anymore! They're looking at some massive headwinds:

  • A botched COVID response because they wouldn't import effective vaccines. This creates massive instability in their supply chain and is pushing folks to look elsewhere for manufacturing. China is much more dependent on exports to fuel its economy than the US. Ouch.

  • A demographic disaster. Soon almost 1/3rd of their population will be over 65. A very low birth rate has left the nation with a big worker shortage coming up, while the elderly will demand services sucking labor, GDP and exports out of the economy.

  • Bubble. The nation's GDP results have been bolstered by massive overbuilding of apartments which will abruptly come to a stop since there aren't sufficient customers to occupy these new dwelling units. Bubble burst time.

Apple’s Warning About China Business

Shareholders are going to want to know how companies are diversifying risk from the People’s Republic.

By The Editorial Board, WSJ

Dec. 4, 2022 5:56 pm ET

The news over the weekend that Apple plans to move much of its iPhone supply chain out of China is the most important signal to date that Western CEOs are wising up about business risks in the People’s Republic. Any corporate board that isn’t doing the same is doing a disservice to shareholders.

Apple hasn’t announced its investment plans. But the Journal reports that the company is telling suppliers that it will move more assembly of Apple products elsewhere in Asia, especially India and Vietnam. This will no doubt be costly given that other countries lack China’s workforce of engineers and network of suppliers.

But the recent protests at an Apple supplier in Zhengzhou have highlighted the business risks of draconian Chinese Covid policies. News reports say Apple’s iPhone production could fall six million units short this year. Apple is also under growing pressure in the U.S. and elsewhere to speak up against Chinese human-rights and other abuses, though doing so would risk Communist retribution. Moving to be less dependent on China makes sense.

Western companies piled into China because of its huge market, low labor costs, and promise of market reform. But those days are over as President Xi Jinping has put the state back in charge of the economy and used regulation and theft to punish foreign investors. Political risks are rising fast, as the protests against zero-Covid and threats against Taiwan show. This is a shame because a China that played by global rules would be a boon to humanity, but that isn’t Mr. Xi’s Middle Kingdom.

The dilemma of zero-Covid highlights the growing business risks. There are some signs that local jurisdictions are easing lockdowns after the protests. But Mr. Xi can’t admit a mistake, and easing up risks further spread of Covid through a population that has less natural immunity and too little hospital space for severe illness.

Either way the economy will suffer. China’s growth has been sluggish this year and won’t come close to the Communist Party’s 5.5% goal. Purchasing managers’ survey data for November released last week point to contractions in manufacturing and services.

The political uncertainty is hurting more than Apple. Nikkei reported last week that Japanese auto makers are struggling to keep their Chinese factories operating. Disney’s Shanghai resort was ordered to close again on Tuesday owing to zero-Covid rules, only days after it had been allowed to reopen following a month-long shutdown. That’s only a small sample of the business disruption.

The greatest risk is Mr. Xi’s determination to swallow Taiwan on his watch—by force if necessary. In that event, the political pressure on Western companies to abandon China would be overwhelming. U.S. firms had to abandon multi-billion-dollar investments in Russia after the invasion of Ukraine, and the example should concentrate minds in corporate boards about China risks.

A buzzword in parts of Europe these days is “China for China,” meaning to locate production for the Chinese market within China but otherwise cordon China off from the rest of the global supply chain to minimize risk. This is a big change for Europe, but it still entails significant financial risk if companies are forced to divest in a hurry.

The fiasco of zero-Covid, growing Communist oppression at home and rising aggression abroad make clear that China isn’t the economic opportunity it was. This marks a significant loss for China and the world, but it’s a reality that Western companies have to confront.

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