If you were in the Rockefeller Center watching the fall of the silver ball of 2022, you would get the usual excitement of sending away the old weary year and welcoming the brand-new year. From NY Times to Wall Street Journal you would catch the headlines welcoming the 2023. Below these headlines and days to follow, you would hear quite uncertain messages about the New Year. There is great uncertainty about the economy next year with concerns of inflation and recession. In addition, the Russian-Ukraine war does not seem to have an end in sight and the competition with China on trade and technology spells more than troubles. In this column, we have been tracking U.S. - China relations for eight years, but we don’t have a crystal ball that would allow us to see a clear picture of U.S.-China relations in the future. We can only track the events and speculate what might happen, but in no way we could predict the future. At the end of 2022, China had its 20th National Congress of the Chinese Communist party reviewing its past and laying out its future. The U.S. also had firmed up its strategy of targeting China as its key competitor driving the two countries into a competing bipolar world. China on the other hand is preparing to meet the U.S. challenges with no intention to yield. Based on this background, we could sketch a few trend lines to discuss what might happen in 2023. We do not believe that Taiwan Strait will break out in war, nor the U.S. and China will have a military conflict in 2023. However, we do see some mega trends in the making, hence the title of this column - Megatrends in the New Year of 2023.
We see six megatrends that are significant to the U.S. - China relations as follows:
I. International Politics - Clear Trend of Bipolar World
The U.S.-led unipolar world is clearly heading to an end with a diminishing G7 and rising G20. This trend will be exhibited by an Imbalanced bipolar world with the South Hemisphere rising in prosperity contributing to the bipolar world.
The end of a major war - the Russian-Ukraine War will likely end or at least scale down as the EU very much desires to end the war and the US and Russia are seemingly wearing out.
The European countries are struggling to reunite and recover from the devastating impact of the energy shortage caused by the Russian-Ukraine war. The people are at their wits' end.
The U.S. and North America are struggling to create a bipolar world cutting off supply chains from China, but the cutoff is not possible because of the tight trade relations between China and Southeast Asia and the rest of the world.
The trend of South America moving more towards Socialism is accelerating the formation of a bipolar world with China leading a socialism-leaning world. Similarly, Africa is emerging rapidly as a growing economy with China's BRI initiative.
II. Struggling World Economy and Tapering of Pandemic
The Pandemic will naturally fade away as its new strands are losing power and the world population is gaining immunity.
Pumping up the Economy will be the top focus of all major economies from America, Asia and Europe to Africa. This trend is somewhat countering the bipolar movement. Ultimately, world tourism will buck the trend of a bipolar world.
China will most likely lead the recovery by 3rd Quarter and continue to be the world economic engine as its people had pent-up energy of savings ready to consume.
The U.S. will likely remain struggling with inflation and stimulation with infrastructure investment. The U.S. trade policy will hamper its economic recovery though.
The recovery of the EU economy will hinge on the Russian-Ukraine war which cannot afford to be prolonged indefinitely. When the stock of ammunition is all spent, the economy will force the war to stop or end.
In the meantime, the Southeast Asia and China will be the engine of the world economy bringing the world to recover.
III. Technology Competition Will Be A Part of Economic Competition
The U.S.-driven technology competition with China will be clarified with international conglomerates settling on strategies on whether to pick a side of a bipolar competition or find a means to compromise or avoid bipolar competition.
The semiconductor industry will yield to the reality that a bipolar world cannot function well with the separation of technology and markets into two separate worlds. The economy does not support ‘the Cold War’s bipolar economy. China is not like Russia in the last Cold War.
Intellectual property-driven technologies and solutions will emerge forcing semiconductor industries to cooperate and share growth. China will make huge investments forcing the world to join her.
China will lead in space technology especially in the space station and lunar colony project. China will lead in technologies in making water, atmosphere and fusion energy out of H3 on the moon.
Military technology competition will continue with hyper-sonic terrestrial missiles and nuclear- powered vessels at the forefront. China's military industry has become a formidable world supplier if the world continues in military competition.
IV. Currency Competition and Rise of RMB
China's Central Bank Digital Currency will gain momentum along with trading with the established national currency. The trend of trading with national currency will enhance among developed countries.
Dollar-based energy trade will diminish reducing the need for having the U.S. dollar as the reserve currency. This trend may be slow in forming but is never the less significant.
Long-term trend of devaluation of the U.S. dollar will be a concern that will impact the value of U.S. dollar-based assets.
RMB will increase its usage in world trade and currency trade will rise in stock market trade.
V. Finance and International Investment
China’s economy will have a surge in the 4th Quarter to release the pent up energy due to COVID.
China’s savings will be released through consumption, investment, and tourism.
The tight control policy of Zero-COVID over the economy will end with COVID opening. China’s small and medium businesses will be encouraged to expand, hence pumping its economy.
China’s International Trade will expand with new ties with the Middle East (Saudi Arabia etc.) , Central Asia (Inland nations), Africa and South America, and a major trade expansion with South Asia.
Investments in 3rd and 4th-tier cities in China will continue to contribute significantly to China's economy.
VI. Social Trends in China and the World
Social media will continue to shift from the West to the East driven by technology and the market. Technology-driven trends such as Tik Tok and AI language translators (social media tools) will prevail in social media and diminish the language barriers.
Online shopping and instant delivery (drone technology mobile delivery, ex. coffee to your car) will be a new trend and huge business where both technology and population are the key drivers.
Virtual and real-world entertainment will blend into business. (Metaverse products and experiences) The shopping experience in the metaverse world will be a megatrend.
5G-7G technology may arrive faster than expected. Huawei and the like companies will be in everyone’s lives from cell phones, electric cars, home appliances and entertainment.
The above megatrends are the obvious observables. Technologies tend to bring surprises. China has turned from a technology adapter to innovator and trendsetter. In 2023, we look forward to seeing many surprises as we ponder over these megatrends.