WEBVTT - China’s Turmoil May Be Milder Than It Looks 0:00:02.400 --> 0:00:06.920 You're listening to Asia Centric from Bloomberg Intelligence, the podcast 0:00:06.960 --> 0:00:10.120 that pulls back the curtain on global business so you 0:00:10.160 --> 0:00:14.360 can invest better across the Pacific rim. I'm Tom Corbett 0:00:14.360 --> 0:00:15.440 in Hong Kong. 0:00:15.520 --> 0:00:18.640 And I'm John Lee. The drumbeat of pessimism coming out 0:00:18.640 --> 0:00:20.840 of China is growing faster and louder. 0:00:20.920 --> 0:00:25.840 A property crisis, faltering economic growth, towering debt, and high 0:00:25.920 --> 0:00:30.840 youth unemployment have drowned out their cheers about China's growth juggernaut, 0:00:31.080 --> 0:00:35.440 leaving investors wringing their hands and wondering what's next. 0:00:35.400 --> 0:00:38.320 A China's days as an economic powerhouse a thing of 0:00:38.360 --> 0:00:41.720 the past. Is it just navigating a rough patch? Or 0:00:41.760 --> 0:00:45.159 can it overcome formidable forces to achieve bolder growth in 0:00:45.200 --> 0:00:46.080 a brighter future. 0:00:46.320 --> 0:00:49.400 I'm still not super barish about China's economy, but in 0:00:49.440 --> 0:00:51.840 the property sector, I think it will get worse before 0:00:51.880 --> 0:00:52.560 it gets better. 0:00:52.840 --> 0:00:57.000 Let's bring in Louis Kousch, Asia Pacific chief economist at 0:00:57.080 --> 0:00:59.040 S and P Global Ratings. 0:00:59.160 --> 0:01:02.480 Louis, welcome, Hey Louis, Thank you, Tom and John. Hi. 0:01:02.560 --> 0:01:03.120 How are you guys. 0:01:03.440 --> 0:01:06.120 Louis. You've been a China observerer for two decades. You 0:01:06.200 --> 0:01:09.280 lived in Beijing for seven years, You're hearing about all 0:01:09.319 --> 0:01:13.240 the negative news. Is it time to worry about China? 0:01:13.400 --> 0:01:16.360 I think it is legitimate to worry about China. It 0:01:16.480 --> 0:01:20.080 always is. It's a big economy. We rely on it internationally, 0:01:20.720 --> 0:01:23.880 so it's legitimate to worry. Now, you know, sometimes I 0:01:23.920 --> 0:01:26.840 feel maybe people worry a little bit too much, as 0:01:26.880 --> 0:01:30.039 in absolutely, we're going through a rough patch. There is 0:01:30.040 --> 0:01:34.600 a cyclical slowdown after the spurt, you know, the post 0:01:34.600 --> 0:01:37.520 COVID spurt. In addition, there are quite a few more 0:01:37.560 --> 0:01:40.280 structural headwinds. So definitely there are lots of things to 0:01:40.319 --> 0:01:43.199 worry about. But if you ask me, are China's time 0:01:43.400 --> 0:01:46.520 over as a country, as an economy that will continue 0:01:46.600 --> 0:01:48.840 to grow quite a bit faster than the US? I 0:01:48.840 --> 0:01:49.400 would say no. 0:01:50.040 --> 0:01:54.640 Louis to borrow a phrase from the global financial crisis 0:01:54.680 --> 0:01:58.559 of an earlier decade, Is China too big to fail? 0:02:00.120 --> 0:02:04.200 Probably not if you look at that from the perspective 0:02:04.280 --> 0:02:07.480 of Beijing. It hasn't really changed, right, So China may 0:02:07.480 --> 0:02:09.440 play a different role in the global economy now then 0:02:09.480 --> 0:02:11.840 it did, say fifteen years ago. But I guess from 0:02:11.880 --> 0:02:14.519 the perspective of Beijing they would look at it in 0:02:14.560 --> 0:02:17.320 a different way. Like I think for Beijing policy makers, 0:02:17.760 --> 0:02:22.359 things like growth have probably become a little bit less 0:02:22.960 --> 0:02:26.400 the one and only policy priority than they were fifteen 0:02:26.440 --> 0:02:32.480 years ago, compared to additional policy considerations like sustainability of growth, 0:02:32.520 --> 0:02:36.079 financial risk, and even things like national security issues. So 0:02:36.360 --> 0:02:38.960 the way that they are looking at economic growth is 0:02:39.000 --> 0:02:41.440 different now than they did fifteen years ago, and that 0:02:41.560 --> 0:02:44.280 has implications for the global economy. 0:02:44.600 --> 0:02:47.640 Where did this all go wrong? China was supposed to 0:02:47.680 --> 0:02:50.600 really come out of COVID very strong, like a lot 0:02:50.639 --> 0:02:53.040 of western countries did, but obviously been a lot weaker 0:02:53.040 --> 0:02:53.679 than expected. 0:02:54.160 --> 0:02:57.600 Well, if I look at our forecasts and how they 0:02:57.639 --> 0:03:01.360 have evolved over the last nine to months, yeah, we 0:03:01.440 --> 0:03:04.880 have recently downscaled the forecast a bit, like we bumped 0:03:04.880 --> 0:03:08.720 it up earlier on. So I would say absolutely during 0:03:08.760 --> 0:03:12.639 twenty twenty three, forecasts have been going down a bit. 0:03:12.880 --> 0:03:15.400 But it's not as if we're talking about a crash 0:03:15.440 --> 0:03:17.840 in the economy, right, We're still talking about you know, 0:03:17.880 --> 0:03:20.360 we used to have our forecasts a little bit above 0:03:20.400 --> 0:03:23.040 five percent for this year. We may be coming out 0:03:23.080 --> 0:03:25.960 somewhere lower than five percent, but this we are still 0:03:26.000 --> 0:03:30.320 growing faster than pretty much all other large economies in 0:03:30.360 --> 0:03:33.080 the world. This year next year is a big challenge, 0:03:33.080 --> 0:03:35.440 and it's going to be key to see how the 0:03:35.560 --> 0:03:39.280 authorities are responding to this cyclical slow down. Do they 0:03:39.320 --> 0:03:42.000 still care quite a bit about growth as I would think, 0:03:42.120 --> 0:03:44.720 or is it as some other people say that they 0:03:44.840 --> 0:03:47.760 have stopped fully caring about growth. That matters a lot, 0:03:47.800 --> 0:03:50.080 of course for how you look at that slowdown. But 0:03:50.160 --> 0:03:53.280 you know, I would still say in part, people are 0:03:53.320 --> 0:03:56.760 disappointed because perhaps some of the expectations were a little 0:03:56.760 --> 0:03:57.360 bit higher. 0:03:58.160 --> 0:04:00.720 So, Louis, you talked about the sickly slow down, but 0:04:00.760 --> 0:04:05.320 what about the structural issues Country Garden, the country's largest 0:04:05.400 --> 0:04:09.480 private developers. Just mister coupon payment. You worried about the 0:04:09.520 --> 0:04:11.400 problems in the property sector. 0:04:12.280 --> 0:04:15.480 Yeah, so the property side is absolutely you know, if 0:04:15.520 --> 0:04:18.120 you ask me what is the one reason why we 0:04:18.200 --> 0:04:20.280 have a slowdown in China at the moment, I would 0:04:20.279 --> 0:04:22.800 say it's the property sector. The weakness in the property 0:04:22.839 --> 0:04:26.359 sector has a lot of negative economic implications. In addition 0:04:26.400 --> 0:04:29.719 to that, it has lots of financial problems. Right, we 0:04:29.800 --> 0:04:32.599 have the defaults, we have all of the negative sentiment 0:04:32.640 --> 0:04:34.719 that comes as a result of that. It is also 0:04:34.760 --> 0:04:37.640 affecting households if they want to buy a house or not, 0:04:37.720 --> 0:04:41.240 so a lot of implications what to make of that 0:04:41.640 --> 0:04:44.680 weakness in the property sector. To some extent, it is 0:04:44.720 --> 0:04:49.200 a little bit deliberate in the sense that the authorities 0:04:49.279 --> 0:04:54.120 in twenty twenty one did go in and basically force 0:04:54.400 --> 0:04:59.039 that sector to start to take on a smaller footprint 0:04:59.120 --> 0:05:02.760 in the overall economy. That was a major objective of 0:05:02.480 --> 0:05:05.280 the initiative that they took in twenty twenty one. There 0:05:05.320 --> 0:05:07.560 was a bit of a u turn later in twenty 0:05:07.600 --> 0:05:10.080 twenty two when they realized, Okay, we don't want to 0:05:10.160 --> 0:05:13.880 overdo the impact on the economy. There's too much weakness, 0:05:13.920 --> 0:05:15.560 and maybe we should take a bit of a breather 0:05:15.640 --> 0:05:17.880 in terms of how much pain we want to inflict. 0:05:18.040 --> 0:05:23.280 But I don't think that fundamental project to lower the 0:05:23.320 --> 0:05:26.680 economic footprint of the property sector in the economy. I 0:05:26.680 --> 0:05:30.279 don't think that that has changed, and that unfortunately goes 0:05:30.360 --> 0:05:32.200 along with quite a bit of short term pain. But 0:05:32.240 --> 0:05:35.120 it's a little bit something that we all, all of 0:05:35.160 --> 0:05:39.039 the external observers have been asking for for a long time. 0:05:39.120 --> 0:05:41.359 You know, everybody asked China, you need to lower the 0:05:41.360 --> 0:05:42.839 footprint of your property sector. 0:05:43.520 --> 0:05:47.240 You just spoke about the Chinese property sector and the 0:05:47.240 --> 0:05:51.760 influencer was having on consumer confidence. What could do more damage? 0:05:51.800 --> 0:05:55.560 Is it just the debt, the defaults, the deflation, or 0:05:56.040 --> 0:05:59.960 could the crisis of confidence actually be causing more damage 0:06:00.080 --> 0:06:01.840 than the former three. 0:06:02.160 --> 0:06:04.159 Your question is a good one in the sense that 0:06:04.600 --> 0:06:09.720 the confidence aspect of all of these developments is really 0:06:10.240 --> 0:06:14.200 weighing over the sentiment sentiment of potential buyers, and people 0:06:14.240 --> 0:06:16.760 have become reluctant to buy right because they worry that 0:06:17.040 --> 0:06:18.960 the company that they're buying from and that they have 0:06:19.040 --> 0:06:21.760 to advance money to may not even be able to 0:06:21.839 --> 0:06:24.640 deliver the home, let alone what it will do to 0:06:24.680 --> 0:06:27.880 the housing price. So absolutely, I think confidence is a 0:06:27.960 --> 0:06:31.960 really important part over here, and we are definitely not 0:06:32.080 --> 0:06:35.240 out of the woods. Broadly speaking. I'm still not super 0:06:35.279 --> 0:06:38.279 bearish about China's economy, but in the property sector, I 0:06:38.279 --> 0:06:41.040 think it will get worse before it gets better, given 0:06:41.279 --> 0:06:43.599 how damaged confidence has been. 0:06:44.720 --> 0:06:47.520 Louis Kaus, You've been studying China for decades, you lived 0:06:47.560 --> 0:06:51.800 there for many years. How does this confluence of pessimism, 0:06:51.960 --> 0:06:55.480 if you will, this parade of economic doom and gloom, 0:06:55.560 --> 0:06:58.280 so to speak, how does it stack up against the 0:06:58.320 --> 0:07:01.120 broader challenges of the past have century in China. Is 0:07:01.160 --> 0:07:02.680 this the worst the country has faced? 0:07:03.440 --> 0:07:07.000 You know, I think in terms of how downbeat everybody 0:07:07.120 --> 0:07:11.040 is about the prospects, both internationally but also within China, 0:07:11.040 --> 0:07:13.320 I think, you know, this would stand out is probably 0:07:13.360 --> 0:07:16.680 among the less optimistic phases. 0:07:16.800 --> 0:07:19.720 Absolutely, And is there a way out of it? What 0:07:19.840 --> 0:07:23.160 would you say would be China's roadmap to steering out 0:07:23.160 --> 0:07:24.760 of it? And is that going to be a long 0:07:24.880 --> 0:07:26.280 term or a short term solution? 0:07:27.120 --> 0:07:30.880 I think tom so many people are wondering how much 0:07:31.160 --> 0:07:33.920 short term stimulus is the government going to give, right 0:07:34.200 --> 0:07:34.880 and I think. 0:07:34.840 --> 0:07:36.400 They've been reluctant to give stimulus. 0:07:37.080 --> 0:07:40.360 They've been very reluctant, and that may not even be 0:07:40.520 --> 0:07:42.760 such a bad thing, but it would actually be quite 0:07:42.840 --> 0:07:45.440 helpful for them to be a bit more explicit and 0:07:45.560 --> 0:07:47.760 clear about that. What do you have in mind? Or 0:07:47.960 --> 0:07:50.920 you know, it could well be that the argumentation is, look, 0:07:51.120 --> 0:07:53.880 we said we were going to grow by about five percent, 0:07:54.320 --> 0:07:57.440 maybe four point eight percent is about five percent, So 0:07:57.680 --> 0:08:00.120 that is why we are not piling on with stimulus. 0:08:00.240 --> 0:08:02.200 Would be good to be a bit more explicit and 0:08:02.280 --> 0:08:05.000 clear about that. And of course, secondly, it would be 0:08:05.040 --> 0:08:09.280 really helpful to attack those pressure points that the private 0:08:09.320 --> 0:08:12.880 sector worries about, that households worry about the role of 0:08:12.920 --> 0:08:15.000 the private sector. What do you have in mind with 0:08:15.080 --> 0:08:19.680 regard to that, the role of reforms to boost productivity 0:08:19.840 --> 0:08:22.760 and to unleash market forces, but also the kind of 0:08:22.840 --> 0:08:26.640 reforms that are needed to boost household spending, because to 0:08:26.800 --> 0:08:30.240 increase household confidence would be really helpful to see more 0:08:30.520 --> 0:08:33.440 steps to really address these issues in a structural manner. 0:08:34.080 --> 0:08:36.520 Well, what type of stimulus do you think the government 0:08:36.679 --> 0:08:39.679 could do. Are you talking about monetary stimulus or is 0:08:39.720 --> 0:08:41.040 it more fiscal stimulus. 0:08:41.320 --> 0:08:43.080 I think at the moment we will have to look 0:08:43.120 --> 0:08:46.080 more at physical stimulus. On the monetary side, they're a 0:08:46.080 --> 0:08:49.440 bit constrained, actually, especially with regard to interest rates. We 0:08:49.600 --> 0:08:54.000 know the authorities are quite keen to keep the interest 0:08:54.120 --> 0:08:56.320 margin for the banks at a certain level, so that 0:08:56.440 --> 0:08:58.800 is a constraint for them. On top of that, US 0:08:58.920 --> 0:09:01.160 rates we all follow the news that they are not 0:09:01.240 --> 0:09:04.320 going to come down anytime soon. So on the monetary side, 0:09:04.320 --> 0:09:07.400 it's not easy. On the fiscal side, I wouldn't say 0:09:07.400 --> 0:09:11.680 it's easy in terms of the traditional mode of fiscal stimulus, 0:09:11.720 --> 0:09:15.000 Traditionally the government has always relied a lot on local 0:09:15.040 --> 0:09:18.840 government stimulus. The local governments are highly stretched at the moment, 0:09:19.000 --> 0:09:21.400 so that's not going to be easy. But there's no 0:09:21.559 --> 0:09:25.760 reason in principle why the central government couldn't borrow more 0:09:25.800 --> 0:09:28.839 and increase its deficit. It's not used to doing that, 0:09:28.880 --> 0:09:31.480 but there's no obvious reason why it wouldn't take that course. 0:09:31.640 --> 0:09:34.800 But it wouldn't be the typical, say, infrastructure spending that 0:09:34.840 --> 0:09:36.920 we saw in previous cycles with it. 0:09:36.920 --> 0:09:42.360 It wouldn't be the local government led infrastructure spending. You know, 0:09:42.679 --> 0:09:45.680 if the national government wanted to, it could chip in more, 0:09:45.720 --> 0:09:49.119 it could increase its share that has traditionally been relatively 0:09:49.200 --> 0:09:52.000 low over there, or it could take other fiscal measures. 0:09:52.600 --> 0:09:55.280 Louis, do you have any thoughts about why the Chinese 0:09:55.280 --> 0:09:59.720 government has been so reluctant to say, give stimulus directly 0:09:59.720 --> 0:10:03.319 to how holds. They've been particularly recalcitured about that. Can 0:10:03.320 --> 0:10:04.640 you talk a little bit about why. 0:10:06.000 --> 0:10:09.120 Yeah, this is a good question because we have seen 0:10:09.160 --> 0:10:13.439 many other governments taking such measures right to boost household income. 0:10:13.480 --> 0:10:19.120 The United States, other economies in this region, Australia did 0:10:19.120 --> 0:10:21.120 a lot as well, and there have been some others. 0:10:21.280 --> 0:10:25.319 I think traditionally this is not something that China has 0:10:25.360 --> 0:10:29.240 relied on. Even before we get into anything like traditional 0:10:29.320 --> 0:10:32.600 philosophy or anything like that, I think China has had 0:10:32.640 --> 0:10:36.400 a recipe for stimulus that the authorities know has always worked. 0:10:36.679 --> 0:10:39.839 We pump money into the economy by infrastructure and in 0:10:40.400 --> 0:10:43.000 the past also the household sector. We want to see 0:10:43.040 --> 0:10:46.320 investment growth, and ideally we want to be the entities 0:10:46.520 --> 0:10:49.600 that do this spending rather than relying on say, household 0:10:49.679 --> 0:10:52.360 because we are never sure whether they will actually spend 0:10:52.360 --> 0:10:55.080 that money if we give them more money. And actually 0:10:55.080 --> 0:10:59.439 there has unfortunately been a not so positive precedent a 0:10:59.480 --> 0:11:02.000 few years ago. I think that was perhaps what a 0:11:02.120 --> 0:11:07.640 twenty twenty where the authorities did take a more western 0:11:07.720 --> 0:11:11.560 type of physical expansion. They gave text cuts to both 0:11:11.640 --> 0:11:14.480 businesses and households. It didn't really work at that time, 0:11:14.520 --> 0:11:17.200 and that I think has further reduced, in the eyes 0:11:17.240 --> 0:11:20.520 of Maaging the attractiveness of such a measure. Even though 0:11:20.720 --> 0:11:23.560 most external experts would say you're going to have to 0:11:23.600 --> 0:11:24.760 try this out at some point. 0:11:25.720 --> 0:11:29.520 You're listening to Asia Centric from Bloomberg Intelligence. By the way, 0:11:29.600 --> 0:11:32.400 if you like what you hear, and we hope you do. 0:11:32.880 --> 0:11:37.720 Please rate us on Apple Podcasts, Spotify, Google Podcasts, or 0:11:37.760 --> 0:11:40.480 wherever you may be listening to us. Of course, more 0:11:40.520 --> 0:11:44.280 stars are better. Your feedback matters, and we love hearing 0:11:44.320 --> 0:11:48.800 from our listeners. A step that China has taken recently 0:11:48.920 --> 0:11:51.720 that attracted a lot of attention a lot of reaction 0:11:51.800 --> 0:11:55.160 in the West, has been its decision to stop releasing 0:11:55.440 --> 0:11:59.640 youth unemployment figures. This is on the heels of recent 0:11:59.679 --> 0:12:03.880 figures that showed youth unemployment exceeding twenty twenty one percent 0:12:04.000 --> 0:12:06.920 in China. You know, sometimes the reaction to bad news 0:12:06.960 --> 0:12:09.880 can be worse than the bad news itself. Do you 0:12:09.920 --> 0:12:13.040 think this great quote unquote walling off is a sign 0:12:13.080 --> 0:12:15.480 that conditions in China are worse than we're seeing or 0:12:15.520 --> 0:12:18.080 do you sense a kind of retrenchment? What do you 0:12:18.080 --> 0:12:19.480 think is at work in that decision? 0:12:20.160 --> 0:12:23.319 Yeah, you know, probably if China were booming, we may 0:12:23.360 --> 0:12:26.000 have seen a different type of a response, right, Sure, 0:12:26.559 --> 0:12:29.040 But I agree with you sometimes the medicine can be 0:12:29.120 --> 0:12:32.440 more problematic than the disease. Personally, I think that the 0:12:32.520 --> 0:12:36.000 increase in youth employment in July is likely not to 0:12:36.080 --> 0:12:41.680 have been as problematic as the bad reputational consequences of 0:12:41.760 --> 0:12:45.079 this decision that everybody, including my uncle in the Netherlands 0:12:45.080 --> 0:12:47.840 now knows about that China is withholding this data. I 0:12:47.840 --> 0:12:50.480 think it was a mistake. There could well be reasons, 0:12:50.520 --> 0:12:53.440 and I think youth unemployment is not an easy concept 0:12:53.440 --> 0:12:56.560 to get right. We know from the European experience where 0:12:56.559 --> 0:12:58.520 we've had you know, when I was young, we had 0:12:58.880 --> 0:13:02.079 something like forty percent youth unemployment in Italy and Greece. 0:13:02.360 --> 0:13:06.319 It's a funny concept. So I would accept some technical 0:13:06.400 --> 0:13:10.760 qualifications and nuances, but stopping the publication of such data 0:13:10.920 --> 0:13:15.120 is much less productive than flanking the existing one with 0:13:15.200 --> 0:13:17.920 an additional one. Right, So it is definitely, in my 0:13:18.000 --> 0:13:21.200 view not in the benefit of China to continue on 0:13:21.240 --> 0:13:21.680 this road. 0:13:21.960 --> 0:13:25.080 For the Western investor, it raises questions about transparency. 0:13:25.240 --> 0:13:27.520 For sure, it's a little bit like an on goal. 0:13:28.040 --> 0:13:31.679 It was not necessary, I think definitely. Sometimes our economic 0:13:31.800 --> 0:13:34.760 indicators have issues, have problems. I think the best way 0:13:34.800 --> 0:13:37.360 to respond to that is to explain what is wrong 0:13:37.400 --> 0:13:39.600 with them, rather than to withhold them. 0:13:39.880 --> 0:13:42.960 So we had the consumer prices fall in July for 0:13:43.000 --> 0:13:45.640 the first time in many years, and it's created this 0:13:45.840 --> 0:13:49.720 narrative that China is almost turning into a Japan of 0:13:49.760 --> 0:13:55.680 the nineteen nineties with low growth japanification exactly do you 0:13:55.720 --> 0:13:58.200 think this comparison is really apt? 0:13:59.200 --> 0:14:03.800 I wouldn't want to argue that there is absolutely zero comparison, 0:14:03.880 --> 0:14:07.880 absolutely zero shared characteristic between China now and Japan. Before 0:14:07.920 --> 0:14:10.640 you know, there are some similarities, right, Both are highly 0:14:10.960 --> 0:14:14.720 manufacturing led lots of supply, not always a lot of demand, 0:14:14.760 --> 0:14:17.320 So there are some similarities. I would say if you 0:14:17.360 --> 0:14:21.960 look at say the stage of development, also the policy response, 0:14:22.000 --> 0:14:24.840 I would say there's still a lot of differences. So 0:14:25.560 --> 0:14:30.360 China's headline inflation was negative in July. How worried some 0:14:30.640 --> 0:14:33.600 is that I would I wouldn't worry too much about it. 0:14:33.880 --> 0:14:38.080 China's core inflation is still quite solidly positive. It mainly 0:14:38.320 --> 0:14:42.560 the headline number fell because of food and fuel price declines. 0:14:42.920 --> 0:14:46.080 Those declines will not be with us for a long time, 0:14:46.120 --> 0:14:49.040 so I would expect China to be in positive territory 0:14:49.160 --> 0:14:51.880 later this year. Again, I think China will always be 0:14:52.280 --> 0:14:56.080 a low inflation country, given that China's economy is very 0:14:56.120 --> 0:14:59.040 good in creating supply. We said that before, less good 0:14:59.080 --> 0:15:02.240 in creating demand, So low inflation is probably the norm, 0:15:02.280 --> 0:15:03.880 But I wouldn't worry too much about. 0:15:03.760 --> 0:15:07.120 Deflation, and you don't think they can experience a similar 0:15:07.200 --> 0:15:09.760 sort of lost decade like Japan, so to speak. 0:15:10.160 --> 0:15:12.320 I think it's a bit too early for that, given 0:15:12.360 --> 0:15:14.200 where China is. You know, if you look at where 0:15:14.280 --> 0:15:17.240 Japan was in terms of its stage of development, at 0:15:17.280 --> 0:15:19.880 something like almost seventy percent of the US in terms 0:15:19.920 --> 0:15:23.760 of productivity and income levels, China is at less than 0:15:23.880 --> 0:15:26.680 half of that. So even with all of the challenges 0:15:26.720 --> 0:15:28.760 that China faces, it's going to be a bit easier 0:15:28.800 --> 0:15:32.120 to get underlying growth of something I don't know, four 0:15:32.200 --> 0:15:34.000 four and a half five percent or so, and that 0:15:34.120 --> 0:15:37.360 makes it a bit less likely to get jependification already. 0:15:37.600 --> 0:15:40.480 Luis Couch, how much of this, what we're seeing, this 0:15:40.640 --> 0:15:43.760 narrative coming out of China right now, reaches back to 0:15:43.960 --> 0:15:48.120 COVID zero. We all remember the lockdowns, the restrictions, the 0:15:48.160 --> 0:15:53.040 blow it took on retail manufacturing supply chains. It almost 0:15:53.040 --> 0:15:56.400 seems too easy to blame COVID zero. But does it 0:15:56.440 --> 0:15:59.320 go beyond that or is that really the culprit? 0:16:00.000 --> 0:16:03.120 So we talked about the property issue, right and the 0:16:03.120 --> 0:16:07.080 property weakness, the property all drums are to a little 0:16:07.120 --> 0:16:10.720 extent related to COVID, to a large extent related to 0:16:11.120 --> 0:16:15.840 both policy and some kind of correction after previous accesses. Right, 0:16:16.360 --> 0:16:19.360 more generally, especially looking at the consumer, I think that 0:16:19.720 --> 0:16:23.920 we are still facing hangovers from the COVID period. If 0:16:23.920 --> 0:16:27.200 you talk to Chinese people and policy makers in Beijing, 0:16:27.640 --> 0:16:31.440 they would point out a few ways in which people's 0:16:31.480 --> 0:16:35.480 behavior is still affected by COVID. People continue to be 0:16:35.680 --> 0:16:39.280 quite comfortable at home sometimes and be less keen to 0:16:39.320 --> 0:16:39.640 go out. 0:16:39.720 --> 0:16:42.240 Also true as much of the world as well. 0:16:42.400 --> 0:16:46.560 Yeah, also probably where China is a bit different. I 0:16:46.560 --> 0:16:48.160 think in the West we've seen quite a bit of 0:16:48.240 --> 0:16:51.160 revenge spending. I'm not saying that we haven't seen any 0:16:51.200 --> 0:16:53.800 revenge spending in China, but perhaps it was a little 0:16:53.800 --> 0:16:55.880 bit disappointing on that front. 0:16:56.440 --> 0:16:59.600 Louis, you're an economist. You have been for over thirty years. 0:17:00.120 --> 0:17:03.040 Your profession has had a really bad run at predicting 0:17:03.080 --> 0:17:07.560 the global economy. Firstly, you look, economists overestimated the impact 0:17:07.720 --> 0:17:10.919 of COVID and the world actually rebounded a lot faster. 0:17:11.480 --> 0:17:15.280 And then economists we're talking about inflation being transitory. Now 0:17:15.320 --> 0:17:18.520 that's obviously, you know, being wrong. It's lasted a lot 0:17:18.560 --> 0:17:21.520 longer than expectations, And we just talked about how China 0:17:21.640 --> 0:17:26.240 was expected to rebound out of COVID much faster than expected. 0:17:26.840 --> 0:17:30.800 What's been so difficult in forecasting these global trends? And 0:17:31.280 --> 0:17:33.679 could economists be wrong about China this time? 0:17:34.720 --> 0:17:37.080 Yeah, so, I'm not going to defend the whole profession, 0:17:37.119 --> 0:17:38.879 and because there are a lot of people involved and 0:17:38.920 --> 0:17:41.320 there are lots of mistakes that we make. One thing, 0:17:41.359 --> 0:17:44.720 of course, is that it's not that difficult to forecast 0:17:45.040 --> 0:17:48.160 if all the rules of the game remain unchanged. And 0:17:48.560 --> 0:17:51.280 there are a few things that happened during and after 0:17:51.440 --> 0:17:53.960 COVID which kind of implied that the rules of the 0:17:53.960 --> 0:17:56.240 game had changed. Right. If you look at the policy 0:17:56.320 --> 0:17:59.520 stimulus during COVID, it is just, i mean, mind boggling. 0:17:59.560 --> 0:18:01.720 If you look the amount of money that was pumped 0:18:01.720 --> 0:18:04.240 into the economy, not just in the US, also in 0:18:04.280 --> 0:18:07.679 many other economies. We're still dealing with the aftermath of that. 0:18:07.800 --> 0:18:12.040 It's spectacular, and of course that was not expected by economists. 0:18:12.160 --> 0:18:13.879 You know. I was just on the way here listening 0:18:13.920 --> 0:18:17.280 to how people in the US are not sending their 0:18:17.359 --> 0:18:20.879 kids back to school in the way that we had expected. Labor, 0:18:21.160 --> 0:18:24.000 the relation to the labor market is different, so the 0:18:24.040 --> 0:18:27.240 relation to employers. Quite a few things that are still 0:18:27.640 --> 0:18:30.760 coming out of the COVID period affecting our behavior and 0:18:31.280 --> 0:18:34.760 economists are particularly bad at those types of times. 0:18:35.640 --> 0:18:39.960 Louis Beijing is usually sensitive to its media image in 0:18:40.000 --> 0:18:42.960 the West, and it's usually quick to refute any negative 0:18:43.000 --> 0:18:46.920 news that may make its way into the Western media narrative. Lately, 0:18:47.160 --> 0:18:52.000 it's been surprisingly silent, even as this drumbeat of negativity 0:18:52.040 --> 0:18:54.840 beats around us. Is there anything we should read into that? 0:18:56.520 --> 0:18:56.720 You know? 0:18:56.800 --> 0:19:02.199 I think China is probably a actually sensitive as it 0:19:02.320 --> 0:19:07.399 regards things like politics, geopolitics, things like that. It's also 0:19:07.840 --> 0:19:13.640 clearly more sensitive, you know, the domestic Mandarin speaking narrative 0:19:13.760 --> 0:19:17.080 than you know, in comparison to what's happening outside. I 0:19:17.119 --> 0:19:19.800 cannot be certain, but I wouldn't be surprised if one 0:19:19.880 --> 0:19:22.040 of the things that Beijing is kind of telling us 0:19:22.080 --> 0:19:25.639 that some people are getting really hung up about the slowdown. 0:19:26.000 --> 0:19:30.040 I do also think tom that when foreigners worries so 0:19:30.200 --> 0:19:33.600 much about what is going wrong in China at the moment, 0:19:33.640 --> 0:19:37.399 it could well be because the shape of China's recovery 0:19:37.760 --> 0:19:40.280 is just not benefiting them as much. Right, if we 0:19:40.320 --> 0:19:44.440 look at all of the strength in consumer spending, especially 0:19:44.680 --> 0:19:48.280 in the service area, all that you know, people are traveling, 0:19:48.359 --> 0:19:51.719 they are visiting, they are going to restaurants. That is 0:19:51.840 --> 0:19:55.960 not spilling over very much into the global economy, and 0:19:55.960 --> 0:19:59.760 perhaps that is why internationally people are a bit disappointed. 0:20:00.080 --> 0:20:02.400 Even though I have to say, I know economists don't 0:20:02.400 --> 0:20:04.879 do a good job in many ways, but we have 0:20:05.119 --> 0:20:09.000 always since November last year, explained that this is going 0:20:09.040 --> 0:20:11.480 to be a service and consumer led recovery. 0:20:12.000 --> 0:20:15.199 It's the old joke. Economists have forecast three of the 0:20:15.280 --> 0:20:20.040 last nine recessions, or nine of the last three recessions, 0:20:20.560 --> 0:20:23.800 any of those, Louis, do you think what China is 0:20:23.840 --> 0:20:26.800 going through right now is just a temporary rough patch 0:20:26.840 --> 0:20:30.439 it's fleeting, it will pass, or could it be that 0:20:30.480 --> 0:20:33.600 we're on the cusp of some more fundamental change emerging. 0:20:35.080 --> 0:20:38.199 I do think that there are two things going on. 0:20:38.359 --> 0:20:41.800 We talked about the cyclical slowdown. We are also, as 0:20:41.840 --> 0:20:43.880 we have been already for quite a number of years 0:20:43.920 --> 0:20:46.640 and as we will be for decades, we are undergoing 0:20:46.760 --> 0:20:50.280 a cooling of China's trend growth that is going to 0:20:50.280 --> 0:20:53.280 be relentless it will continue. We will never go back 0:20:53.320 --> 0:20:55.920 to the six or let alone eight percent growth of 0:20:55.960 --> 0:20:58.200 the past, and so we all need to get used 0:20:58.240 --> 0:21:02.080 to that cooling, not of the actual number of GDP growth, 0:21:02.080 --> 0:21:05.240 but of the trend beneath that, the potential growth rate. 0:21:05.520 --> 0:21:07.800 That's something that we have been expecting. It's something that 0:21:08.000 --> 0:21:10.080 has gotten a bit worse because of things like the 0:21:10.160 --> 0:21:12.600 technology restrictions by the US and things like that. But 0:21:12.640 --> 0:21:16.600 so we are facing that long term slow down, and yeah, 0:21:16.640 --> 0:21:18.920 we all have to incorporate that in our views. 0:21:19.040 --> 0:21:20.919 And the applications for global growth. 0:21:21.240 --> 0:21:25.520 The implications for global growth, interestingly enough, are not significant 0:21:25.560 --> 0:21:29.160 as you would expect because China's economy continues to expand 0:21:29.200 --> 0:21:32.040 you know, if you look at the pronouncement by the IMF, 0:21:32.119 --> 0:21:34.200 the IMF, I would say it's a little bit more 0:21:34.200 --> 0:21:37.280 negative on China's growth in the coming decade than I am. 0:21:37.440 --> 0:21:40.320 But even on their numbers, they find that as the 0:21:40.400 --> 0:21:43.480 economy keeps on expanding, and as they continue to grow 0:21:43.520 --> 0:21:47.159 almost double the rate of the US, China's contribution to 0:21:47.200 --> 0:21:51.040 global rate will continue to be quite large. Even in 0:21:51.119 --> 0:21:54.400