“Imitation is the sincerest form of flattery that mediocrity can pay to greatness.”
Oscar Wilde
The word “copycat” is contemptuous, nothing like “imitation,” which adds an air of innocence to intellectual or practical plagiarism, that is, unless you’re Oscar Wilde. He clearly wanted nothing to do with coded condescension; hence his mocking the fawning ideal of “flattery” by adding the clarifying asterisk, “…that mediocrity can pay to greatness.” Thirty-four years before the Irish poet and playwright known not just for his literary genius but also as the subject of one of the world’s first celebrity criminal trails was born, Charles Caleb Colton’s work, Lacon: or Many Things in Few Workds, addressed to those who think, first featured the original, “Imitation is the sincerest form of flattery.” In a twisted way, the caustic ending Wilde added to the proverb came back to haunt him. At the peak of his fame, in 1895, in the process of Wilde prosecuting the Marquess of Queensberry for criminal libel, evidence of criminal gross indecency was uncovered which prompted the literary great to drop the charges. The about face proved too late. Wilde went on to serve two years of hard labor stemming from his being the lover of the Marquess’ son, Lord Alfred Douglas.
De-criminalization of homosexuality was slow the world over including England, 1967, but it was even slower, in 1997, in China. If anything, the pandemic has ratcheted up oppression in all forms. The city of Xi’an, population 7.2 million, is the latest to be in full lockdown as the Omicron variant sweeps across the globe. This industrial hub reported growth of 4.5% in 2021’s first nine months; that robust showing compares to Beijing, which eked out 0.1% growth over that same period and Shanghai’s 0.3% contraction. One of the sources of the extraordinary growth is foreign direct investment (FDI). In the first three quarters of last year, official data show $6.6 billion in FDI, up 7.2% year-over-year (YoY), which compares to the national total of $103.3 billion, up 2.5% YoY. Samsung is a standout as the South Korean giant has plowed more than $10 billion in Xi’an to build out its semiconductor empire. The Korean Herald has reported that more money and hundreds of engineers were being sent to the city.
Prudence apparently required New Year’s Eve festivities be canceled not just in Xi’an, but across the Chinese mainland. So much for partygoers’ plans to attend a special event at Beijing’s Happy Valley amusement park which features the world’s only Superman-style rollercoaster (you ‘fly’ through the ride stomach down) not named after the superhero. Happy Valley? Superman? How very Apple Pie.
In the meantime, Xi Jinping has an unprecedented third term to win as the country’s supreme leader at this fall’s 20th Communist Party National Congress and exactly 32 days before the Winter Olympics Opening Ceremony on February 4th. The economic tightrope Xi will have to walk is one of the three essential areas to which investors will have to be attuned in 2022; the other two are Federal Reserve policy and commercial real estate. The intersection of these three inextricably related topics will be explored in Wednesday’s first Weekly Quill of the year.
As for today’s charts, they depict some of the data you may have missed over the holidays. Depending on where you live, you might have been shopping last week for grapes in increments of 12, lentils, black-eyed peas, or tamales for good luck in 2022.
It was indeed a busy week for China’s National Bureau of Statistics (NBS). Last Monday, the official data arbiter announced that Industrial Profits, (orange line) had grown at an appreciably slower pace in November, rising 9.0% YoY, a fraction of October’s rate of 24.6%. The culprits were the faltering property market, which consumes enormous amounts of industrial output, weakening consumer demand and falling raw materials prices.
Zhu Hong, a senior statistician at NBS, commented on the double-edged effect of the state’s efforts to subdue soaring wholesale prices, which necessarily crimp activity in the mining and raw materials sectors: “Companies still face great cost pressures, and the improvement in profits for the downstream sector needs to be further consolidated.”
Despite the bottom-line stress reported, the NBS reported a slight uptick in the manufacturing sector on Friday, with the headline purchasing managers index (PMI) rising to 50.3 from 50.1. Digging into the index’s components, true to officials’ words, Output Prices (blue line) and Input Prices (yellow line) slid beneath the 50-level that demarcates expansion from contraction. As for what’s to come, while New Orders (red line) did tick up, at 49.7, this leading indicator remained in contraction for a fifth straight month.
At 54.3, Expected Production (green line), a pent-up demand proxy, is below its post-pandemic average of 57.7, but equally comfortably in expansion. “Middling” is an apt term to describe how China’s factory sector is kicking off 2022, and that’s likely as Xi Jinping wishes it to be as he turns his focus to bolstering the domestic, but not international, economy.
Cutting through the “officialdom” of data, what we’re most curious to see is iron ore (purple line) pop so nicely off its lows – though still down 26.8% for all of 2021, it rose 16.0% in December…amidst a Chinese property crackdown that eviscerates demand for steel. A commodities trade to start out the New Year may be due; the fundamentals to justify “super-cycle” calls, not so much.