1 00:00:00,160 --> 00:00:03,800 Speaker 1: The China Beije Books November flash data shows the economy 2 00:00:03,800 --> 00:00:06,920 Speaker 1: barely treading water, and a lot of this is tied 3 00:00:07,000 --> 00:00:10,600 Speaker 1: to some of the restrictions and lockdowns with the COVID 4 00:00:10,720 --> 00:00:15,080 Speaker 1: nineteen strategy in China. And let's get to Derek Scissors, 5 00:00:15,120 --> 00:00:18,560 Speaker 1: the chief economists at the China Beije Book. Derek, you know, 6 00:00:18,600 --> 00:00:20,960 Speaker 1: we have to talk a little bit about these comments 7 00:00:20,960 --> 00:00:24,760 Speaker 1: from the outgoing Vice Premier Sun chun Lan, because these 8 00:00:24,760 --> 00:00:28,000 Speaker 1: are some of the first comments that we've heard about 9 00:00:28,840 --> 00:00:32,319 Speaker 1: changing policy as a result of of the virus being 10 00:00:32,400 --> 00:00:35,320 Speaker 1: less dangerous than before. So it seems like that's the 11 00:00:35,400 --> 00:00:38,560 Speaker 1: cover here. They're talking about, Oh macron, as it becomes 12 00:00:38,680 --> 00:00:43,000 Speaker 1: less severe, a change in policy is only natural, and 13 00:00:43,080 --> 00:00:47,760 Speaker 1: she has been Sun, she has been synonymous with the 14 00:00:48,080 --> 00:00:51,879 Speaker 1: ferociously tough stance that China has taken on this virus. 15 00:00:51,920 --> 00:00:54,520 Speaker 1: So so interested in your thoughts whether or not this 16 00:00:54,600 --> 00:00:56,840 Speaker 1: is something that sticks or you know, part of the 17 00:00:56,840 --> 00:01:00,520 Speaker 1: policy that really does fluctuate a lot in China. Well, 18 00:01:00,640 --> 00:01:04,160 Speaker 1: I do think if we think about COVID policy in 19 00:01:04,160 --> 00:01:07,240 Speaker 1: December um it's going to be different than COVID policy 20 00:01:07,360 --> 00:01:09,679 Speaker 1: was in September. So I think that's fair and we're 21 00:01:09,680 --> 00:01:11,800 Speaker 1: getting signals of that, and there are lots of reasons 22 00:01:11,800 --> 00:01:15,480 Speaker 1: for it. The question is more hot, will it be 23 00:01:15,520 --> 00:01:19,040 Speaker 1: different enough to help the economy the very early returns 24 00:01:19,040 --> 00:01:22,039 Speaker 1: in November. The answer is no. The economy was quite 25 00:01:22,080 --> 00:01:25,160 Speaker 1: weak in November. That's even compared to a week October 26 00:01:25,240 --> 00:01:28,560 Speaker 1: or fairly week November of last year. Um. One of 27 00:01:28,560 --> 00:01:30,840 Speaker 1: the reasons in our survey was given by firms that 28 00:01:30,880 --> 00:01:33,600 Speaker 1: they had rising COVID cases. So, you know, one of 29 00:01:33,600 --> 00:01:36,120 Speaker 1: the questions is, well, maybe it's the restrictions that are 30 00:01:36,120 --> 00:01:38,960 Speaker 1: the problem. But of course if people are sick, as 31 00:01:38,959 --> 00:01:40,520 Speaker 1: we know in this country where we don't have the 32 00:01:40,560 --> 00:01:44,920 Speaker 1: same restrictions, it affects, you know, economic activity. So is 33 00:01:44,959 --> 00:01:48,640 Speaker 1: it COVID zero or is it COVID But either way, 34 00:01:48,680 --> 00:01:52,040 Speaker 1: the economy was weak in November and consuming COVID cases 35 00:01:52,040 --> 00:01:54,040 Speaker 1: are likely to rise. There's a risk of it being 36 00:01:54,040 --> 00:01:58,600 Speaker 1: weak in December and January as well. M of GDP 37 00:01:58,880 --> 00:02:03,640 Speaker 1: orts next state of that GDP numbers coming out of China, yeah, 38 00:02:03,680 --> 00:02:06,960 Speaker 1: those are going to be bad. In reality, I don't know. 39 00:02:07,080 --> 00:02:09,000 Speaker 1: We had a lot of people, including in the Chinese government, 40 00:02:09,040 --> 00:02:10,800 Speaker 1: saying the fourth quarter was going to be better because 41 00:02:10,960 --> 00:02:14,600 Speaker 1: they didn't really like the third quarter for obvious reasons. Um, 42 00:02:14,639 --> 00:02:17,320 Speaker 1: on the ground, we have two bad months in we 43 00:02:17,400 --> 00:02:19,600 Speaker 1: have no no, no change in trend at the end 44 00:02:19,639 --> 00:02:22,679 Speaker 1: of November. This includes the official pmys. It's not just us. 45 00:02:23,200 --> 00:02:25,440 Speaker 1: I think the fourth quarter is going to be poor. 46 00:02:25,680 --> 00:02:27,840 Speaker 1: Maybe they can at that point say the first quarter 47 00:02:27,880 --> 00:02:30,040 Speaker 1: of next year will be better. But the next set 48 00:02:30,040 --> 00:02:32,240 Speaker 1: of GDP numbers, if they're accurate, are going to be 49 00:02:32,320 --> 00:02:36,560 Speaker 1: quite weak. And how much is the housing crisis keeping 50 00:02:36,600 --> 00:02:39,960 Speaker 1: people from getting out and spending? Yeah, I mean that 51 00:02:40,080 --> 00:02:43,720 Speaker 1: that actually the the the the spending side from the government. 52 00:02:44,080 --> 00:02:46,600 Speaker 1: The loosening of fiscal UH policy at least with regard 53 00:02:46,639 --> 00:02:51,280 Speaker 1: to housing and monetary policy generally, that might eventually help. Um, 54 00:02:51,320 --> 00:02:55,040 Speaker 1: there's certainly different credit conditions now. Credit conditions have loosened 55 00:02:55,800 --> 00:02:57,679 Speaker 1: right now, it hasn't hit yet. We you know, we're 56 00:02:57,680 --> 00:03:00,840 Speaker 1: still in the in the in the situation of of 57 00:03:00,880 --> 00:03:03,280 Speaker 1: everyone trying to recover from the damage in housing, both 58 00:03:03,280 --> 00:03:05,680 Speaker 1: on the producers side and the consumer side. Uh. It 59 00:03:05,760 --> 00:03:08,120 Speaker 1: may be that government action to boast of the market 60 00:03:08,160 --> 00:03:12,120 Speaker 1: will have an impact, maybe not in December, but in January, February. Yeah, 61 00:03:12,120 --> 00:03:14,200 Speaker 1: you say you're seeing some signs of life and the 62 00:03:14,200 --> 00:03:17,480 Speaker 1: credit markets. Can you tell us about what you're detecting, Well, 63 00:03:17,520 --> 00:03:22,000 Speaker 1: you just you see. Uh, it's always worrisome when firms 64 00:03:22,040 --> 00:03:24,560 Speaker 1: borrow more because you don't know whether they're borrowing because 65 00:03:24,560 --> 00:03:28,239 Speaker 1: of opportunities or they're borrowing because they really need the money. Um, 66 00:03:28,600 --> 00:03:32,040 Speaker 1: But you are seeing a pickup in borrowing, so either way, 67 00:03:32,120 --> 00:03:34,520 Speaker 1: there's there's more interest in that on that side. And 68 00:03:34,520 --> 00:03:36,760 Speaker 1: and cost came down, so we had we had a 69 00:03:36,760 --> 00:03:39,160 Speaker 1: period where firms did not want to borrow. We kept 70 00:03:39,160 --> 00:03:41,520 Speaker 1: talking about stimulus, stimulo stimulus, and firms didn't want to borrow. 71 00:03:41,560 --> 00:03:43,720 Speaker 1: It just didn't work, um. And one of the reasons 72 00:03:43,760 --> 00:03:46,520 Speaker 1: was with high cost. So both both the quantity of 73 00:03:46,560 --> 00:03:49,920 Speaker 1: borrowing and the cost of borrowing have have eased in November. 74 00:03:50,320 --> 00:03:52,760 Speaker 1: That's not going to have an immediate effect. It wasn't dramatic, 75 00:03:53,120 --> 00:03:55,480 Speaker 1: but it is a change in direction for credit markets. 76 00:03:56,840 --> 00:04:01,360 Speaker 1: How serious of a problem might deflation be going for word, Yeah, 77 00:04:01,440 --> 00:04:03,880 Speaker 1: that's a that's a very good question. Um. You know, 78 00:04:03,960 --> 00:04:06,440 Speaker 1: everyone's focused on while they're loosening COVID zero and there's 79 00:04:06,440 --> 00:04:08,560 Speaker 1: a stock market rally and this will help the economy, 80 00:04:08,640 --> 00:04:11,040 Speaker 1: and we don't see that yet, and you know at 81 00:04:11,120 --> 00:04:13,960 Speaker 1: some point it will. But until then, we we have 82 00:04:14,040 --> 00:04:18,360 Speaker 1: weakening prices across the board. That's producer prices, sales prices, wages, 83 00:04:18,400 --> 00:04:21,080 Speaker 1: et cetera, and our survey um. And it's getting to 84 00:04:21,120 --> 00:04:24,599 Speaker 1: the point where there's the potential for not just disinflation 85 00:04:24,640 --> 00:04:27,240 Speaker 1: but deflation. So there's kind of a race going on 86 00:04:27,360 --> 00:04:30,000 Speaker 1: with economic weakening versus what we think is going to 87 00:04:30,000 --> 00:04:32,479 Speaker 1: be improvement at some point next year, you know, which 88 00:04:32,760 --> 00:04:34,680 Speaker 1: is that improvement going to hit before we get into 89 00:04:34,680 --> 00:04:39,880 Speaker 1: a deflationary situation. You made a point earlier about it's 90 00:04:39,920 --> 00:04:42,599 Speaker 1: all very well to exect COVID zero, but then people 91 00:04:42,640 --> 00:04:45,800 Speaker 1: call in sick and that fixed productivity as well. But 92 00:04:45,920 --> 00:04:47,640 Speaker 1: you know, what are the implications for the rest of 93 00:04:47,640 --> 00:04:51,080 Speaker 1: the world in terms of supply chains? Well, I think 94 00:04:51,120 --> 00:04:54,120 Speaker 1: the long term implication of looser COVID zero. I remember 95 00:04:54,160 --> 00:04:55,760 Speaker 1: a lot of people thought COVID zero was going to 96 00:04:55,839 --> 00:04:58,960 Speaker 1: loosen after the party the National People of Congress next March, 97 00:04:59,000 --> 00:05:01,599 Speaker 1: and so it was to happen in April or May 98 00:05:01,680 --> 00:05:05,159 Speaker 1: or something like that. And the long term implication, you know, 99 00:05:05,160 --> 00:05:09,600 Speaker 1: should be regained trust and supply chains, not immediately, um. 100 00:05:09,680 --> 00:05:11,719 Speaker 1: But you know, but but it will happen. The short term, 101 00:05:12,000 --> 00:05:14,559 Speaker 1: I think you still have to worry about Chinese supply chains. 102 00:05:14,800 --> 00:05:17,880 Speaker 1: COVID is unlikely to get better in China, whether COVID 103 00:05:17,960 --> 00:05:21,040 Speaker 1: zero is still in place or not during the winter months, 104 00:05:21,440 --> 00:05:23,240 Speaker 1: and so I think the next several months are going 105 00:05:23,279 --> 00:05:26,720 Speaker 1: to see tough supply chain conditions, even as you can 106 00:05:26,760 --> 00:05:29,360 Speaker 1: look forward to maybe, hey, the second half of next year. 107 00:05:29,560 --> 00:05:32,080 Speaker 1: You know, we should have a better, better partners in China. 108 00:05:33,120 --> 00:05:35,520 Speaker 1: Derek is someone who's watched China for a long time. 109 00:05:36,040 --> 00:05:38,760 Speaker 1: How surprised were you by the protests that erupted over 110 00:05:38,839 --> 00:05:41,960 Speaker 1: the weekend? Uh? And I know they've gone away pretty quickly, 111 00:05:42,279 --> 00:05:45,760 Speaker 1: that that's the nature of things sometimes in China, But 112 00:05:45,839 --> 00:05:47,880 Speaker 1: it did send a strong message. Do you think that 113 00:05:47,880 --> 00:05:51,880 Speaker 1: that message is in any part um the reason why 114 00:05:51,880 --> 00:05:55,240 Speaker 1: we're seeing some modest tweaks to the COVID policy. I 115 00:05:55,279 --> 00:05:57,359 Speaker 1: definitely think it's part of it. I think you you 116 00:05:57,600 --> 00:06:00,160 Speaker 1: kept not having, as you just said, we now have 117 00:06:00,240 --> 00:06:03,280 Speaker 1: a senior official who is associated with COVID zero saying 118 00:06:03,279 --> 00:06:06,280 Speaker 1: oh things are different. You kept not having that validation 119 00:06:06,320 --> 00:06:08,919 Speaker 1: at the top end of the leadership um. You know, 120 00:06:09,040 --> 00:06:11,360 Speaker 1: there was all this talk and rumors and and and 121 00:06:11,400 --> 00:06:13,400 Speaker 1: people making comments with the top end of the leadership 122 00:06:13,400 --> 00:06:15,920 Speaker 1: did not weigh in. I think when you add some 123 00:06:15,960 --> 00:06:18,960 Speaker 1: political stress here with we want these these protests to 124 00:06:18,960 --> 00:06:22,680 Speaker 1: go away quickly, let's throw very standard for the Communist Party, 125 00:06:22,680 --> 00:06:25,120 Speaker 1: throw protesters a bone. You're not giving them exactly what 126 00:06:25,160 --> 00:06:27,600 Speaker 1: they want, but you're giving them something to pacify them. 127 00:06:27,640 --> 00:06:30,000 Speaker 1: So I do think the protests added to the pressure 128 00:06:30,120 --> 00:06:33,360 Speaker 1: such that you have senior leadership now saying we hear you, 129 00:06:33,720 --> 00:06:35,960 Speaker 1: we don't need to keep this policy exactly the way 130 00:06:36,000 --> 00:06:40,000 Speaker 1: it's been in place. Yeah, it's quite interesting, So a 131 00:06:40,000 --> 00:06:43,000 Speaker 1: lot to unfold here going forward. Derek, thanks very much 132 00:06:43,000 --> 00:06:45,640 Speaker 1: for being with us. Derek Scissors, chief ugonomists at the 133 00:06:45,720 --> 00:06:46,600 Speaker 1: China Beige Book