WEBVTT - 5 things you need to know about China’s economic slowdown | EP 2

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<v Speaker 1>mm hmm.

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<v Speaker 1>Hello and welcome to day five things you need to

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<v Speaker 1>know about the impact of the zero Covid policy on

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<v Speaker 1>the chinese economy. I'm sona Ramesh from money. Mind I'm

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<v Speaker 1>joined by Tommy wu lead china economist at capital Economics

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<v Speaker 1>and Shirley, you senior fellow at the Ash center at

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<v Speaker 1>the Harvard Kennedy school. Now there's been a stream of

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<v Speaker 1>disappointing data out of china

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<v Speaker 1>unemployment, rising retail sales down, we have factory activity down

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<v Speaker 1>and new home prices also down all these signs of

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<v Speaker 1>an economic slowdown. I think china's

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<v Speaker 2>economy is

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<v Speaker 1>already in a

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<v Speaker 2>slowdown or actually

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<v Speaker 1>in a contraction, especially in april and perhaps in

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<v Speaker 2>May, I would

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<v Speaker 1>expect the prolonged

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<v Speaker 1>shanghai

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<v Speaker 2>lockdown to have an impact

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<v Speaker 1>on shanghai itself,

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<v Speaker 2>but then also in other

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<v Speaker 1>parts of the

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<v Speaker 2>country, especially on the

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<v Speaker 1>coastal provinces in terms of how it's going to

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<v Speaker 2>affect industrial

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<v Speaker 1>production as well as exports because

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<v Speaker 2>of all the

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<v Speaker 1>prolonged restrictions, not

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<v Speaker 2>necessarily lockdowns

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<v Speaker 1>but restrictions in other parts of the

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<v Speaker 2>country. Household consumption and consumer

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<v Speaker 1>sentiment are

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<v Speaker 2>pretty weak at the moment.

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<v Speaker 1>So I would say that in

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<v Speaker 2>the second quarter

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<v Speaker 1>will perhaps see a quarter on

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<v Speaker 2>quarter contraction before

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<v Speaker 1>seeing things to improve. In

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<v Speaker 2>the second half,

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<v Speaker 1>the chinese economic slowdown is partly structural and partly cyclical

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<v Speaker 1>of the three drivers of the chinese economic growth trade,

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<v Speaker 1>particularly export is going to continue to retrench. In 2022

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<v Speaker 1>the easy money that has boosted the Western consumption in

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<v Speaker 1>the past couple of years is basically gone. So the

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<v Speaker 1>global demand for chinese goods will continue to weaken and

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<v Speaker 1>a lot of the chinese export in the low to

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<v Speaker 1>medium end of the global supply chain will continue to

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<v Speaker 1>shift towards asean. So we're going to see high export

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<v Speaker 1>growth in south Korea. Vietnam substitution effects of the chinese

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<v Speaker 1>products overseas. And that is the structural part. China's consumption

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<v Speaker 1>growth has been stagnant on real terms

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<v Speaker 1>in the past couple of years since the covid outbreak

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<v Speaker 1>And now it's coupled with rising unemployment and particularly in

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<v Speaker 1>the high tech high paying jobs. And so that is

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<v Speaker 1>not good for Chinese consumption. And we are continuing to

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<v Speaker 1>see rising challenges of youth unemployment, particularly for college graduates.

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<v Speaker 1>And so none of this is conducive for China's economic

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<v Speaker 1>growth in 2022.

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<v Speaker 1>Well that data is certainly not looking very conducive. So

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<v Speaker 1>how bad could it get? I mean, are we looking

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<v Speaker 1>at a recession here Tommy? Perhaps

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<v Speaker 2>the worst is behind us

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<v Speaker 1>now, shanghai is looking

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<v Speaker 2>to reopen

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<v Speaker 1>gradually in

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<v Speaker 2>june

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<v Speaker 2>and barring another significant city wide lockdown in the second half.

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<v Speaker 2>The chance of seeing a recession which means two quarters

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<v Speaker 2>of quarterly contraction. It's pretty slim. So I would say

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<v Speaker 2>that there will be a contraction in the second quarter

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<v Speaker 2>but there should be a more significant recovery starting from

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<v Speaker 2>the third quarter.

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<v Speaker 2>If we measure recession using the western definition that is

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<v Speaker 2>two consecutive quarters of negative GDP growth. I don't think

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<v Speaker 2>it's likely to happen in china. I don't think the

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<v Speaker 2>chinese leadership will allow the scenario to happen. The first

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<v Speaker 2>quarter performance is soft but it's so positive. China can

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<v Speaker 2>always use monitoring in the

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<v Speaker 1>fiscal stimulus to

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<v Speaker 2>deliver some immediate economic impacts

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<v Speaker 2>if it needs to. However, the key really to induce

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<v Speaker 2>long term sustainable

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<v Speaker 1>economic growth for china

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<v Speaker 2>is to continue to innovate and continue to deepen reforms.

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<v Speaker 2>The capital market reform is going to be a major area,

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<v Speaker 2>including the full adaptation of the registration based I. P. O.

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<v Speaker 2>System this year comparing to china's residential

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<v Speaker 2>real estate market size. The chinese stock market size is

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<v Speaker 2>actually tiny. It speaks to china's urgent need to broaden

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<v Speaker 2>and widen the capital market reform in order to continue

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<v Speaker 2>to finance not only china's take rights but also the

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<v Speaker 2>aging population and really the key is also to revitalize

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<v Speaker 2>china's private sector

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<v Speaker 2>Real estate supply chain consists of 20

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<v Speaker 1>percent of china's

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<v Speaker 2>GDP in china's real estate sales revenue in april declined 46.6%

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<v Speaker 2>from a year ago. This scale of decline eclipses the

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<v Speaker 2>worst of the real estate bubble burst in the United

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<v Speaker 2>States between oh six and oh eight and so it

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<v Speaker 2>is a dire situation there. So it's really important to

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<v Speaker 2>restore the confidence for not only the real estate developers,

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<v Speaker 2>but also the local governments and most importantly the consumers

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<v Speaker 2>and it's important to restore the confidence in china's rising

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<v Speaker 2>big takes that have been under heavy crackdown since last year.

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<v Speaker 2>We need to ensure that the tech entrepreneurs

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<v Speaker 1>continue to innovate innovation curve is long? It takes years

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<v Speaker 1>to come to fruition for some of the R and D.

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<v Speaker 1>So I think if china can continue to unleash the

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<v Speaker 1>private sector vitality, the economic fundamentals will stay intact.

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<v Speaker 1>A fundamental part of Chinese economic policy is the annual

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<v Speaker 1>growth target and that's currently 5.5% for 2022. Can China

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<v Speaker 1>meet the target this year. Shirley, what's your take?

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<v Speaker 1>I think meeting the 5.5% GDP growth target is challenging

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<v Speaker 1>and it's highly uncertain at this point. One big variable

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<v Speaker 1>is how quickly china can come out of the zero

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<v Speaker 1>covid policy in another big variable is to what extent

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<v Speaker 1>the global economy will suffer

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<v Speaker 2>from the Fed's

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<v Speaker 1>unprecedented quantitative tightening. And so china wishes to double its

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<v Speaker 1>GDP over the next 15 years, which implies a 4.7%

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<v Speaker 1>GDP growth per annum over the next decade and a half.

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<v Speaker 1>And so there is still some room for a really

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<v Speaker 1>bad year. If 2022 happens to be one and if

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<v Speaker 1>that happens, I'm sure china will spare no efforts to

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<v Speaker 1>deliver large scale stimulus. So, to sum up the chinese

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<v Speaker 1>economy is feeling the full brunt of zero covid,

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<v Speaker 1>things aren't

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<v Speaker 2>Expected to get better before the second half of the year.

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<v Speaker 2>And that's gonna be a big challenge to hit that

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<v Speaker 2>growth target of 5.5%.

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<v Speaker 2>So if zero Covid is a problem for the

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<v Speaker 1>economy is the

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<v Speaker 2>solution to just well move away from zero Covid or

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<v Speaker 2>do you think that this creates

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<v Speaker 1>a different set of

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<v Speaker 2>problems Tommy. I don't necessarily think that by abandoning the

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<v Speaker 2>Zero Covid policy right now would actually be a good

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<v Speaker 2>thing for china because of the

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<v Speaker 2>low vaccination rates among the elderly. Which means that by

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<v Speaker 2>opening up right now perhaps the rate of infection and

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<v Speaker 2>also the death rate will be very high and also

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<v Speaker 2>it will be overwhelming the public health system at this

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<v Speaker 2>moment because of the efficacy issue of the domestic vaccines,

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<v Speaker 2>it will require three shots

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<v Speaker 2>in order for the general population to be

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<v Speaker 2>safe against the omicron variant,

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<v Speaker 2>only about a little bit more than half of the

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<v Speaker 2>population have already had the booster shot. So I think

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<v Speaker 2>a better timing to actually reopen fully is when everyone

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<v Speaker 2>gets the booster shot

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<v Speaker 2>and basically the vaccination rate among the elderly is high enough.

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<v Speaker 2>And with those preconditions then china will be ready to

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<v Speaker 2>reopen and it won't cause further disruption. The reason I

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<v Speaker 2>said this is because even if you are open today

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<v Speaker 2>with only half of the population having the booster shot.

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<v Speaker 2>This also means that if there's a you know a

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<v Speaker 2>significant reopening moving away from zero Covid, there will still

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<v Speaker 2>be lots of workers absent from work because they got infected,

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<v Speaker 2>they got sick and they cannot go to work. So

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<v Speaker 2>the impact on the supply change. It's still highly unpredictable.

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<v Speaker 2>Even if we abandon the zero covid today within china.

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<v Speaker 2>What

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<v Speaker 1>about the impact of china's slowdown on

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<v Speaker 2>ASia and the rest of the world? Is it all

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<v Speaker 2>bad

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<v Speaker 1>news

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<v Speaker 2>with the supply disruptions within china particularly the logistics disruption

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<v Speaker 2>because of the covid restrictions. It's not just within shanghai,

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<v Speaker 2>say in april and may but it's also there are

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<v Speaker 2>these highway controls in various parts of the country that

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<v Speaker 2>is slowing the logistic recovery within china.

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<v Speaker 2>So the logistics disruptions that's affecting china itself is going

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<v Speaker 2>to have a spillover effect on its exports and its

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<v Speaker 2>exports to Asia. And also the global economy which means

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<v Speaker 2>that a lot of the supply of intermediate goods from

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<v Speaker 2>china will be affected. And also a lot of the

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<v Speaker 2>supply of consumer goods out of china

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<v Speaker 2>will be affected.

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<v Speaker 2>So this will have a profound impact on ASia and

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<v Speaker 2>global supply chain given china is playing an integral part

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<v Speaker 2>of the global supply chain. It is a mixed bag

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<v Speaker 2>with the initiation of the RCEP agreement to the regional

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<v Speaker 2>Comprehensive Economic Partnership. We're starting to see not only Asian

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<v Speaker 2>integration but also a substitution of effects of the chinese

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<v Speaker 2>production supply chain in ASIA and I think the semiconductor

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<v Speaker 2>industry will

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<v Speaker 1>continue to be

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<v Speaker 2>concentrated in south Korea and Taiwan in Asia Vietnam will

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<v Speaker 2>be well poised to replace quite a lot of the

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<v Speaker 2>middle to low end of the chinese production capacity

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<v Speaker 2>and India will rise as a regional tech economy and

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<v Speaker 2>I think Singapore

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<v Speaker 1>will still very strongly

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<v Speaker 2>as an asian financial headquarters and the financial center china's

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<v Speaker 2>slowdown will impact the global supply chain in a fundamental way.

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<v Speaker 2>But it's not all bad stories for all asian

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<v Speaker 1>neighbors to sum up the chinese economy is feeling

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<v Speaker 2>the full brunt of

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<v Speaker 1>zero covid

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<v Speaker 2>restrictions and lockdowns

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<v Speaker 2>and

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<v Speaker 1>things aren't expected

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<v Speaker 2>to get better before

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<v Speaker 1>the second half of the

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<v Speaker 2>year.

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<v Speaker 2>So it's going to be a big challenge to meet

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<v Speaker 2>that official growth target of 5.5%.

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<v Speaker 1>The slowdown will cause

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<v Speaker 2>headwinds for asian economies.

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<v Speaker 1>But there could

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<v Speaker 2>be new business opportunities for some.

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<v Speaker 2>My thanks to my guest today Tommy will lead china

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<v Speaker 2>economist at

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<v Speaker 1>capital Economics

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<v Speaker 2>and Shirley, you senior fellow

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<v Speaker 1>at the Ash center at the Harvard Kennedy school

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<v Speaker 1>and that's the five things that you need to know about.

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<v Speaker 1>The impact of zero covid on china's economy. Money. Mind

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<v Speaker 1>airs every saturday at 10 30 PM on Mediacorp C N. A.

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<v Speaker 1>You can also catch us online at CNN dot ASia

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<v Speaker 1>on youtube.

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<v Speaker 1>Mhm.

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<v Speaker 1>Mhm