Post-2020 Consumption Trends and How They Risk Affecting China


As an investor who is interested in gaining exposure to Chinese assets or already has a portfolio which contains Chinese assets, perhaps the number one mistake you need to avoid in 2020 and beyond revolves around under-estimating the magnitude of post-2020 consumption trends. The team cannot help but feel frustrated when coming across comments from various investors who believe that the COVID-19 pandemic was just an episode that comes and goes.

In other words, that the worldwide economic system can continue in a “business as usual” manner after the previously mentioned COVID-19 episode, with the average individual simply pressing the proverbial reset button and resuming the same consumerist pattern he has become (in)famous for. Furthermore, investors tend to strengthen this argument by also referencing the unprecedented levels of monetary as well as fiscal stimulus that have been embraced in China as well as pretty much everywhere else in the world.

Unfortunately, this perspective tends to be quite short-sighted.


Simply because unlike with the Great Recession, the 2020 situation has made it crystal-clear that no, money cannot fix absolutely everything. A textbook example to this effect was represented by the fact that some of the world’s richest nations on a per capita basis (the United States, Italy and especially the wealthy Northern Italian region, France and so on) found themselves in an unprecedented situation (in modern-day terms, at least) when tackling or better stated trying to tackle the COVID-19 threat: realizing that they have a lot of money to deploy but not nearly enough in the way of supply when it comes to much-needed medical equipment.

As such, the much poorer (on a per capita basis) China was able to implement containment measures far better than the previously mentioned wealthy nations for the simple reason that it is a major producer of medical equipment. In stark contrast, other countries found themselves realizing just how overly dependent on China they are and precisely when medical supplies were most needed, China was facing major bottleneck issues due to a combination between domestic demand and a prudent or even excessively prudent approach to exports (limiting them for a considerable amount of time in case a second infection .wave becomes a problematic threat).

The “Western abundance” mantra was essentially shattered and make no mistake, the implications of this paradigm shift are generation-defining. From the perspective of the average Western citizen, it was always assumed that as long as you have the monetary means to acquire products and services, finding them is anything but problematic, with supermarkets being always full, pharmacies always well-supplied and the list of stereotypes can go on and on. In 2020, it was revealed that the stereotypes in question are in “the emperor has no clothes” territory and that there are major supply chain fragility issues that need to be tackled in the West.

Therefore, both consumers and businesses find themselves more and more compelled to switch from the pre-2020 “ultra-optimization” consumption models which defined their way of seeing the (economic) world to more… let’s say resilient ones. In other words, it has become abundantly clear that there is indeed such a thing as over-optimization, that not everything has to be “on demand” and that yes, that it even makes sense to build a robust stockpile of at least essentials.

On a similar note, consumers have also understood to a significant enough degree that they can be just one exogenous shock away from losing their job, either temporarily or permanently. As such, it has been pretty much proven that the “optimized consumer” who was feeling good about himself due to the ability to juggle multiple loans (mortgages, credit card debt, student loans, auto loans and so on) is little more than an individual who is living paycheck to paycheck and therefore far closer to being insolvent than one would have thought prior to 2020.

Is consumerism under attack?

Most likely not, at least not consumerism as a whole.

Pre-2020 consumerism however is.

To make things sound less confusing, we firmly believe that no, the idea of consumerism will not be eliminated from the equation. Instead, less robust pre-2020 consumerism will be replaced with the post-2020 version, with the many consequences that derive from this. It remains to be seen if the worldwide economy will be able to adequately absorb such a colossal shock because make no mistake, some of the characteristics of post-2020 consumerism will be difficult to digest:

  1. Less of a willingness to take on additional debt
  2. An increased willingness to pay down debt
  3. A greater degree of attention paid to the let’s call them bare essentials
  4. Less attention paid to “expendable” products and/or services

At the end of the day, a valid case could be made that the post-2020 model revolves around a greater degree of common sense but as mentioned in other articles as well, this risks bringing society in “paradox of thrift” territory because our current model needs perpetual credit-driven growth to sustain itself and in the absence of just that, it remains to be seen whether or not some form of balance will ultimately be reached.

More so than other sovereigns, China has no choice but to adapt but truth be told, it has been transitioning to a different model well before the coronavirus became a threat. To put it differently, we are dealing with yet another (generation-defining) context which makes it clear that China has no choice but to continue with the transition from an “export powerhouse” model to one which involves a greater and greater role being played by domestic consumption and sustainability. Yet another argument in favor of the idea that the pre-2010 double-digit GDP growth days are long gone and that might not necessarily be the worst thing in the world (with China being criticized time and time again for its “growth at all costs” model which was hardly the epitome of sustainability)!

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