Speaker 1: The China Beije Books November flash data shows the economy
Speaker 1: barely treading water, and a lot of this is tied
Speaker 1: to some of the restrictions and lockdowns with the COVID
Speaker 1: nineteen strategy in China. And let's get to Derek Scissors,
Speaker 1: the chief economists at the China Beije Book. Derek, you know,
Speaker 1: we have to talk a little bit about these comments
Speaker 1: from the outgoing Vice Premier Sun chun Lan, because these
Speaker 1: are some of the first comments that we've heard about
Speaker 1: changing policy as a result of of the virus being
Speaker 1: less dangerous than before. So it seems like that's the
Speaker 1: cover here. They're talking about, Oh macron, as it becomes
Speaker 1: less severe, a change in policy is only natural, and
Speaker 1: she has been Sun, she has been synonymous with the
Speaker 1: ferociously tough stance that China has taken on this virus.
Speaker 1: So so interested in your thoughts whether or not this
Speaker 1: is something that sticks or you know, part of the
Speaker 1: policy that really does fluctuate a lot in China. Well,
Speaker 1: I do think if we think about COVID policy in
Speaker 1: December um it's going to be different than COVID policy
Speaker 1: was in September. So I think that's fair and we're
Speaker 1: getting signals of that, and there are lots of reasons
Speaker 1: for it. The question is more hot, will it be
Speaker 1: different enough to help the economy the very early returns
Speaker 1: in November. The answer is no. The economy was quite
Speaker 1: weak in November. That's even compared to a week October
Speaker 1: or fairly week November of last year. Um. One of
Speaker 1: the reasons in our survey was given by firms that
Speaker 1: they had rising COVID cases. So, you know, one of
Speaker 1: the questions is, well, maybe it's the restrictions that are
Speaker 1: the problem. But of course if people are sick, as
Speaker 1: we know in this country where we don't have the
Speaker 1: same restrictions, it affects, you know, economic activity. So is
Speaker 1: it COVID zero or is it COVID But either way,
Speaker 1: the economy was weak in November and consuming COVID cases
Speaker 1: are likely to rise. There's a risk of it being
Speaker 1: weak in December and January as well. M of GDP
Speaker 1: orts next state of that GDP numbers coming out of China, yeah,
Speaker 1: those are going to be bad. In reality, I don't know.
Speaker 1: We had a lot of people, including in the Chinese government,
Speaker 1: saying the fourth quarter was going to be better because
Speaker 1: they didn't really like the third quarter for obvious reasons. Um,
Speaker 1: on the ground, we have two bad months in we
Speaker 1: have no no, no change in trend at the end
Speaker 1: of November. This includes the official pmys. It's not just us.
Speaker 1: I think the fourth quarter is going to be poor.
Speaker 1: Maybe they can at that point say the first quarter
Speaker 1: of next year will be better. But the next set
Speaker 1: of GDP numbers, if they're accurate, are going to be
Speaker 1: quite weak. And how much is the housing crisis keeping
Speaker 1: people from getting out and spending? Yeah, I mean that
Speaker 1: that actually the the the the spending side from the government.
Speaker 1: The loosening of fiscal UH policy at least with regard
Speaker 1: to housing and monetary policy generally, that might eventually help. Um,
Speaker 1: there's certainly different credit conditions now. Credit conditions have loosened
Speaker 1: right now, it hasn't hit yet. We you know, we're
Speaker 1: still in the in the in the situation of of
Speaker 1: everyone trying to recover from the damage in housing, both
Speaker 1: on the producers side and the consumer side. Uh. It
Speaker 1: may be that government action to boast of the market
Speaker 1: will have an impact, maybe not in December, but in January, February. Yeah,
Speaker 1: you say you're seeing some signs of life and the
Speaker 1: credit markets. Can you tell us about what you're detecting, Well,
Speaker 1: you just you see. Uh, it's always worrisome when firms
Speaker 1: borrow more because you don't know whether they're borrowing because
Speaker 1: of opportunities or they're borrowing because they really need the money. Um,
Speaker 1: But you are seeing a pickup in borrowing, so either way,
Speaker 1: there's there's more interest in that on that side. And
Speaker 1: and cost came down, so we had we had a
Speaker 1: period where firms did not want to borrow. We kept
Speaker 1: talking about stimulus, stimulo stimulus, and firms didn't want to borrow.
Speaker 1: It just didn't work, um. And one of the reasons
Speaker 1: was with high cost. So both both the quantity of
Speaker 1: borrowing and the cost of borrowing have have eased in November.
Speaker 1: That's not going to have an immediate effect. It wasn't dramatic,
Speaker 1: but it is a change in direction for credit markets.
Speaker 1: How serious of a problem might deflation be going for word, Yeah,
Speaker 1: that's a that's a very good question. Um. You know,
Speaker 1: everyone's focused on while they're loosening COVID zero and there's
Speaker 1: a stock market rally and this will help the economy,
Speaker 1: and we don't see that yet, and you know at
Speaker 1: some point it will. But until then, we we have
Speaker 1: weakening prices across the board. That's producer prices, sales prices, wages,
Speaker 1: et cetera, and our survey um. And it's getting to
Speaker 1: the point where there's the potential for not just disinflation
Speaker 1: but deflation. So there's kind of a race going on
Speaker 1: with economic weakening versus what we think is going to
Speaker 1: be improvement at some point next year, you know, which
Speaker 1: is that improvement going to hit before we get into
Speaker 1: a deflationary situation. You made a point earlier about it's
Speaker 1: all very well to exect COVID zero, but then people
Speaker 1: call in sick and that fixed productivity as well. But
Speaker 1: you know, what are the implications for the rest of
Speaker 1: the world in terms of supply chains? Well, I think
Speaker 1: the long term implication of looser COVID zero. I remember
Speaker 1: a lot of people thought COVID zero was going to
Speaker 1: loosen after the party the National People of Congress next March,
Speaker 1: and so it was to happen in April or May
Speaker 1: or something like that. And the long term implication, you know,
Speaker 1: should be regained trust and supply chains, not immediately, um.
Speaker 1: But you know, but but it will happen. The short term,
Speaker 1: I think you still have to worry about Chinese supply chains.
Speaker 1: COVID is unlikely to get better in China, whether COVID
Speaker 1: zero is still in place or not during the winter months,
Speaker 1: and so I think the next several months are going
Speaker 1: to see tough supply chain conditions, even as you can
Speaker 1: look forward to maybe, hey, the second half of next year.
Speaker 1: You know, we should have a better, better partners in China.
Speaker 1: Derek is someone who's watched China for a long time.
Speaker 1: How surprised were you by the protests that erupted over
Speaker 1: the weekend? Uh? And I know they've gone away pretty quickly,
Speaker 1: that that's the nature of things sometimes in China, But
Speaker 1: it did send a strong message. Do you think that
Speaker 1: that message is in any part um the reason why
Speaker 1: we're seeing some modest tweaks to the COVID policy. I
Speaker 1: definitely think it's part of it. I think you you
Speaker 1: kept not having, as you just said, we now have
Speaker 1: a senior official who is associated with COVID zero saying
Speaker 1: oh things are different. You kept not having that validation
Speaker 1: at the top end of the leadership um. You know,
Speaker 1: there was all this talk and rumors and and and
Speaker 1: people making comments with the top end of the leadership
Speaker 1: did not weigh in. I think when you add some
Speaker 1: political stress here with we want these these protests to
Speaker 1: go away quickly, let's throw very standard for the Communist Party,
Speaker 1: throw protesters a bone. You're not giving them exactly what
Speaker 1: they want, but you're giving them something to pacify them.
Speaker 1: So I do think the protests added to the pressure
Speaker 1: such that you have senior leadership now saying we hear you,
Speaker 1: we don't need to keep this policy exactly the way
Speaker 1: it's been in place. Yeah, it's quite interesting, So a
Speaker 1: lot to unfold here going forward. Derek, thanks very much
Speaker 1: for being with us. Derek Scissors, chief ugonomists at the
Speaker 1: China Beige Book