Dear Members and Friends
We are in the final stretch of 2021 – the first ten months have already left their marks on another special year in history. Let me highlight a few of these marks.
While travel is returning to some degree of normalcy in Europe, the Western Hemisphere, and some selected ASEAN countries, borders with China remain closed.
Overall, vaccination rates have increased, but there is still room for improvement in many regions. For example, many developing countries have not had access to meaningful quantities of vaccines, leaving their citizens exposed to the pandemic. This will impact their economic recovery, as these countries cannot afford to open their borders like countries with vaccination rates close to 80 precent. At the very least, the global growth rate will be affected by this situation, and another consequence will be the increased mobility of unemployed youth around the globe.
The supply chain interruptions observed since the beginning of 2020 are still an event that occurs far too often and threatens to disrupt the recovering economy in all parts of the world, including Switzerland. Some logistics companies indicate that this will continue into 2023 or even longer in certain industries and categories of goods. This affects not only computer chips for car manufacturing and Christmas lights and gifts, but also building materials and other raw materials on a global scale. The shortage is making itself felt in house construction in rural Switzerland as well as rural Malaysia, and it is now having a global impact. It is further compounded by the energy crisis caused by a faster-than-expected economic recovery. This is driving up prices for materials that consume a lot of energy, such as steel and aluminum, to levels not seen for many
years.
The reverberations of Evergrande’s financial problems are still in play. While Evergrande may be able to save itself, other real estate developers may not be able to survive the current market and financing situation. We will not know what this means for the real estate market in China and its financial institutions for several months or until the 2021 annual reports are published. However, we believe Evergrande’s troubles do not constitute a systemic risk for China’s financial sector, since 99 percent of China’s financial institutions are controlled by the government already.
Meanwhile, the CCP celebrated its 100th anniversary. Due to the closed borders and measures to protect Chinese citizen from the pandemic, the events took place domestically without the usual international fanfare.
All this makes one realize that China is now fully part of the global economy and acts as a recipient and source of events that influence the well-being of the world. Although the country’s system of governance and values may seem foreign and opaque to us, we cannot neglect the fact that it affects us. To dismiss China and not make an effort to understand the reasons for China’s actions is counterproductive. Right now, we must increase our efforts to understand China. Only then we will have the arguments we need to discuss with China the areas where we agree and disagree. This includes legislations that are meant to be poison pills for China, but are also poison pills for all investors from countries that want to invest in Switzerland.
Kind regards and stay healthy,
Felix Sutter
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