W52 - 2021 Retrospective

Over New Year I read Xiang Shuai’s Wealth Report 2021, part of a planned 20-year series; this is the third volume. I had high expectations for this year’s book and was eager to read it as soon as I got it. I mainly wanted answers to two questions: why was 2021 the way it was? And what should we do in 2022?

My strongest impression of 2021 is that people’s lives felt hard and morale was low, yet the economic indicators looked pretty good. Mid-January will bring the macroeconomic data for 2021, and the market generally expects China to be the fastest-growing large economy globally again. By contrast, among my relatives, friends, and people across various industries that I interact with, there were those unemployed or waiting for work and those lamenting how small businesses have gotten tough. Most people were affected by last year’s sweeping policy changes across sectors like education, internet, healthcare, and real estate.

Why was 2021 like this?

The answer is actually simple: we’re at a different stage of development.

We’re in a historical torrent, focused on many boats racing each other while neglecting to notice our own position.

Looking back, 2012 was a significant watershed. In last year’s July 1st speech, 2012 was described as transitioning from the “new period of reform, opening up, and socialist modernization” into the “new era of socialism.” By 2012 China had basically completed industrialization and the economy began to enter a “mature” phase. It had accumulated substantial wealth and experience, but its intrinsic growth momentum was no longer what it once was. After 2012 China became “easy to cool, hard to heat”: the low-hanging fruit in traditional heavy-asset, energy-intensive industries had largely been picked. In 2021, China’s median age reached 38.8—an age at which outsiders see poise while insiders feel anxious.

Flags flutter and everyone can see the flags move, but it’s hard to see the wind itself.

Many people may still remember the phrase “the new four great inventions,” but mainstream media haven’t mentioned it for a long time—not because it’s unfashionable, but because the dominant value system has shifted. By mid-2020 public discourse began to move from praising the “new four great inventions” to discussing issues like food-delivery couriers being penalized by platform systems. In early 2021, the People’s Daily ran a commentary that reframed “internet business model innovation” in a sharply negative light, urging us “not to keep chasing those bundles of traffic like cabbage.” This explicit official critique of “internet business model innovation” is the first of its kind in the 21st century.

What should we do in 2022?

Market economies are cyclical, and in China those cycles often align roughly with policy cycles. So in areas like new consumption and hard tech, anything that’s specialized, refined, unique, and innovative should have good opportunities.

What I sense is a trend toward deeper and more refined services. Some people I know who work in fragrance and aromatherapy, or in fortune-telling, suddenly saw demand this year; niche needs I once thought marginal are gradually being released. Going forward, whoever centers their business more on people—who puts humans at the center and prioritizes human needs—will have a better chance to capture new gains.

Borrowing a lesson from evolutionary theory: new species often emerge in marginal places like deserts or the Arctic, not in the vibrant tropical rainforest. The intense competition and tightly intertwined ecosystems of the rainforest stifle opportunities for new species to arise.