W52 - 2021 Retrospective

For New Year’s Day I read Xiang Shuai’s 2021 Wealth Report. It’s a series planned to run for 20 years; this is the third volume. I had high expectations for this edition and was eager to read it as soon as I got it. Fundamentally I wanted answers to two questions: why was 2021 like this? and what should we do in 2022?

My strongest impression of 2021 is that life felt hard for many people and subjective well-being was low, yet the economic data looked quite decent. With the release of 2021 macroeconomic figures due mid-January, the market generally expected China to again be the fastest-growing major economy. By contrast, among my relatives, friends, and contacts across industries there were people unemployed or waiting for work and those lamenting that small businesses were struggling. Most people were affected by last year’s sweeping policy changes across sectors such as education, internet, healthcare, and real estate.

Why was 2021 like this?

The answer is actually simple: our stage of development has changed.

We are in a turbulent moment of history, focused on the competition around us while neglecting to examine our own position.

Looking back, 2012 was an important watershed. In last year’s July 1 speech, 2012 was described as transitioning from the “new period of reform, opening-up, and socialist modernization” to the “new era of socialism.” By 2012 China had basically completed industrialization and the economy began to gradually enter a “mature” phase. It had accumulated significant wealth and experience, but its internal growth momentum was no longer what it once was. Post-2012 China is “easy to cool and hard to heat”; the low-hanging fruit in traditional heavy-asset, energy-intensive industries has largely been picked. In 2021 China’s median age reached 38.8—an age when outsiders see charm, but people themselves feel anxious.

You can see the banner flapping when the wind blows, but it’s hard to see the wind itself.

Many people still recall the phrase “the new four great inventions,” but mainstream media haven’t mentioned it in a long time—not because it’s unfashionable, but because the mainstream value system has shifted. By mid-2020 public discourse had moved from praising the “new four great inventions” to discussing issues like delivery workers being penalized by algorithms. In early 2021 the People’s Daily published commentary that reframed “internet business model innovation” with a critical metaphor and urged us “not to keep chasing those bundles of cabbage traffic.” State media expressing such an explicit negative view of “internet business model innovation” marked a first for the 21st century.

What should we do in 2022?

Market economies are cyclical, and in China that cycle is roughly equivalent to a policy cycle. Therefore new consumption and hard technology, and businesses that are specialized, refined, differentiated, and innovative should all have good opportunities.

I sense a trend toward deeper and more refined services. Some acquaintances working in fragrance therapy and fortune-telling suddenly saw demand this year; niche needs I once considered marginal are slowly being released. In the future, businesses that focus more on people, center around human needs, and put people first will have greater chances to capture new dividends.

Borrowing a lesson from evolution: new species often originate in marginal places like deserts or the Arctic, not in the lush tropical rainforest. The intense competition and tightly interlinked ecosystem of a rainforest choke off opportunities for new species to emerge.