WEBVTT - Gavekal's Kroeber: China Needs a Consumer Led Economy (Audio)

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<v Speaker 1>Broadcasting live to New York, Bloomberg eleventh Rio to Washington,

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<v Speaker 1>d C. Bloomberg to Boston, Bloomberg twelve hundreds to San Francisco,

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<v Speaker 1>Bloomberg nine to the country, Shoe Is Exam Channel one

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<v Speaker 1>nine Team, and around the globe the Bloomberg Radio plus

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<v Speaker 1>Appen Bloomberg got Gone. This is taking Stock. I'm Kathleen

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<v Speaker 1>Hayes along with Pim Fox Well certainly one of the

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<v Speaker 1>biggest factors in the big, big drop in the stock

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<v Speaker 1>market the first quarter of six Team was the Chinese

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<v Speaker 1>economy slowing down, dropping below seven percent as it moves

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<v Speaker 1>from an export led to a consumer led economy. As

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<v Speaker 1>the stock market recovers, people try to place their bets

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<v Speaker 1>on investments for the rest of the year. What do

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<v Speaker 1>we really need to know about China? We're going to

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<v Speaker 1>find out in a new book coming up now, Pim. Yes,

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<v Speaker 1>and we are also going to get some business news

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<v Speaker 1>right now from Catherine Calgary in the Bloomberg newsroom. Thank you, Pam.

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<v Speaker 1>The downward momentum continuing on Wall Street today, the smps

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<v Speaker 1>I founded headed for its worst two day drops ince

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<v Speaker 1>February amid disappointing ear injury reports Gilead Sciences is the

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<v Speaker 1>biggest drag in the benchmark index after its profit fell

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<v Speaker 1>short of analysts estimates and Apples declining for a seventh session.

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<v Speaker 1>Richard Dobbs, director of research at McKinsey, says investors should

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<v Speaker 1>be prepared for lower equity and fixed income returns, but

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<v Speaker 1>the returns that we've seen in the last um the

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<v Speaker 1>last thirty years of both EXTE and BOMBS have been

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<v Speaker 1>on average around suit descent for ex Season four cent

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<v Speaker 1>performed more than the hundred year average has been a

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<v Speaker 1>great parent. We check the market every fifteen minutes throughout

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<v Speaker 1>the training day. Dow Industrial Average is down two hundred

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<v Speaker 1>It's down one hundred twenty five points. That's a loss

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<v Speaker 1>of seven tens of percents. Reading at seventeen thousand, seven

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<v Speaker 1>hundred five. SMP five foundered down nineteen points, nearly one percent,

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<v Speaker 1>trading at two thousand fifty six. Then naz dack is

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<v Speaker 1>down forty nine points, a loss of one percent, training

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<v Speaker 1>at forty seven fifty five. West I since intermediate curt

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<v Speaker 1>Oil down twelve cents a barrel to spot rolled up

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<v Speaker 1>twenty six dollars. Announced at twelve thirty ten. Your Treasury

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<v Speaker 1>down three thirty seconds, held one point eight three percent

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<v Speaker 1>among today's top business stories. Valiant Pharmaceuticals International is trying

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<v Speaker 1>to put the worst of its problems behind it. Valiant

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<v Speaker 1>has announced a shake off of its board and filing

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<v Speaker 1>a long awaited annual report winner It promised significant changes

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<v Speaker 1>to its strategy and better oversight of its executives. It

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<v Speaker 1>blamed senior managers for problems that is center stock down

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<v Speaker 1>more than eight since last August, and then put the

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<v Speaker 1>company at risk of defaulting on its debt. It is

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<v Speaker 1>two thirty two on Wall Street, and that means it's

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<v Speaker 1>time to get an update on some of the others

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<v Speaker 1>where stories were following today On Bloomberg Radio, Catherine, thank

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<v Speaker 1>you from the Bloomberg News Room. I'm Mark Crumpton. The

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<v Speaker 1>Obama administration is proposing new rules for people applying for jobs.

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<v Speaker 1>Bloomberg's Michael Barr with more on the story. Several employers

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<v Speaker 1>will look into a job applicants passed for any criminal

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<v Speaker 1>record or their credit history. The Obama administration says too

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<v Speaker 1>many job applicants are rejected on that alone, even before

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<v Speaker 1>they get a fair chance to compete for the position.

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<v Speaker 1>A new rule is being proposed that would prohibit federal

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<v Speaker 1>agencies from asking certain job applicants such questions until a

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<v Speaker 1>conditional offer of employment has been made. The rules would

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<v Speaker 1>not apply for positions dealing with national security, intelligence, and

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<v Speaker 1>law enforcement. Michael Barr Bloomberg Radio. On Saturday, Americans can

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<v Speaker 1>safely drop off their old pills as part of a

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<v Speaker 1>semi annual take back day. The d A S Chuck

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<v Speaker 1>Rosenberg says officials are trying to address a national crisis.

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<v Speaker 1>It's important for folks to know that this is completely anonymous.

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<v Speaker 1>We just want those medicines out of their cabinets so

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<v Speaker 1>other people down the line don't get hurt. Forty six

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<v Speaker 1>thousand Americans died of drug overdoses last year. Puerto Rico's

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<v Speaker 1>health secretary says the island has recorded its first ZEKEA

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<v Speaker 1>related death. A seventy year old man infected died from

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<v Speaker 1>a drop in blood platelets in February. The US territory

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<v Speaker 1>has seen more than six hundred ze cases, seventy three

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<v Speaker 1>of those involved pregnant women. Senator Chuck Schumer's pushing new

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<v Speaker 1>laws to help the state school districts test their water

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<v Speaker 1>for lead contamination. He says discoveries of high lead levels

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<v Speaker 1>and more than sixty samples show testing is needed. Global

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<v Speaker 1>News twenty four hours a day, powered by our twenty

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<v Speaker 1>four hundred journalists in more than one hundred fifty news

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<v Speaker 1>bureaus around the world. From the Bloomberg Newsroom. I'm Mark Crumpton, Catherine,

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<v Speaker 1>thank you, and now let's get a quick update of

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<v Speaker 1>the equity benchmarks down. Industrial averages down one thirty three

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<v Speaker 1>points at seventeen thousand, six hundred ninety seven. Smp F

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<v Speaker 1>I foundered down twenty points to two thousand fifty five.

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<v Speaker 1>The nastact is down fifty seven fifty five. And that's

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<v Speaker 1>a Bloomberg Business Flash BIS taking stock with Kathleen Hayes

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<v Speaker 1>and Pim Fox on Bloomberg Radio China taking a look

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<v Speaker 1>at China in the context of the country's economy. Also

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<v Speaker 1>China taking ups yesterday to impose greater control and limit

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<v Speaker 1>the influence of westerners on Chinese society, passing a new

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<v Speaker 1>law that restricts the work of foreign organizations and their

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<v Speaker 1>local partners, mainly through police surveillance. Here to help us

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<v Speaker 1>survey the Chinese economy and the country is Arthur Kroeberg.

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<v Speaker 1>He is the author of a new book entitled China's

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<v Speaker 1>Economy What Everyone Needs to Know, and he is a

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<v Speaker 1>founding partner of gav Cal dragon Omics. Arthur, thank you

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<v Speaker 1>very much for coming into the studio. First begin by

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<v Speaker 1>telling us about gave La gav Cal dragon Omics. Why

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<v Speaker 1>is it called dragon omics? Dragonomics is a company that

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<v Speaker 1>I found in Beijing in two thousand and two to

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<v Speaker 1>provide economic information about China too, um, institutional investors, companies, governments,

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<v Speaker 1>anyone who's interested in what's going on there. Uh. And

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<v Speaker 1>you know dragon stands for China and anomics is economics,

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<v Speaker 1>and so that's what it's all about. So it's a

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<v Speaker 1>very interesting time in China's politics and its culture in

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<v Speaker 1>a society so many challenges they face, and the markets

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<v Speaker 1>have made so much of this slowdown. You know, us

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<v Speaker 1>be ten eleven percent now below seven and some would

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<v Speaker 1>say it's much weaker, maybe three and a half percent,

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<v Speaker 1>because the Chinese measurements aren't necessarily accurate. But is it

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<v Speaker 1>partly that their economy is so much bigger and more

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<v Speaker 1>mature that that early stage double digit growth could never

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<v Speaker 1>happen now, and that if you put it in more perspective,

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<v Speaker 1>you'd say Yeah, it's an economy with challenges like any

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<v Speaker 1>other economy, but the growth rate is fairly healthy. Yeah,

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<v Speaker 1>that's basically right. And I just like to say, I mean,

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<v Speaker 1>there's a lot of commentary that you can't believe the

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<v Speaker 1>Chinese numbers and the actual growth rate is much lower

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<v Speaker 1>than they report, and and basically I think you should

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<v Speaker 1>ignore those kinds of statements. There definitely some issues with

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<v Speaker 1>Chinese statistics, uh. And there's a bit of a marchin

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<v Speaker 1>of air on either side. But the people kind of

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<v Speaker 1>make those statements ignore the fact that China is now

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<v Speaker 1>a two track economy. There's an old economy it's related

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<v Speaker 1>to investment in capital spending and so forth, and that's

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<v Speaker 1>in some serious trouble uh. And it's going very slowly,

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<v Speaker 1>but there's a new economy of consumer spending and services

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<v Speaker 1>that's going incredibly rapidly, is very vibrant. And yeah, I

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<v Speaker 1>think your basic point is correct that this is a

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<v Speaker 1>natural transition. China group for about thirty thirty five years

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<v Speaker 1>at a very high rate building all the infrastructure for

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<v Speaker 1>modern economy, and every country that's gone through that, Japan,

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<v Speaker 1>South Korea, Taiwan and for that, the European countries. Uh,

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<v Speaker 1>you get to the end of that stage, and then

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<v Speaker 1>you have to have an economy that's built on consumer

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<v Speaker 1>spending services efficiency, and the natural growth rate is a

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<v Speaker 1>lot slower. So a lot of the slowdown that we're

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<v Speaker 1>seeing in China is related to that transition. The role

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<v Speaker 1>of the Communist Party and particularly the Organization Department. Tell

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<v Speaker 1>people about this, well, Okay, so China is kind of

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<v Speaker 1>a weird Malcolm. It's a very dynamic economy that many

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<v Speaker 1>elements of it are highly capitalist and highly competitive and

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<v Speaker 1>almost wild West in their nature. Uh. And it's married

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<v Speaker 1>to a political system that's still highly leninist and controlled

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<v Speaker 1>and authoritarian and centralized and in a lot of ways

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<v Speaker 1>hasn't changed that much in the last twenty years. Uh.

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<v Speaker 1>And the Communist Party obviously is at the center of that.

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<v Speaker 1>And one of the mechanisms that they use to uh

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<v Speaker 1>control the country is that they their their personnel department,

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<v Speaker 1>their human resources department points not only all the top

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<v Speaker 1>government officials, but the heads of all the main media organizations,

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<v Speaker 1>the heads of all the university's think tanks, all the

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<v Speaker 1>top judges, etcetera. It's very comprehensive, um. And you could think, well,

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<v Speaker 1>This is a really bad way of running things to

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<v Speaker 1>have one central HR department for a country at one

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<v Speaker 1>point four billion people. But they've actually managed it pretty

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<v Speaker 1>well because, um, they have a system of bring people

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<v Speaker 1>up based on kind of objective criteria, rotating through jobs

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<v Speaker 1>and making sure that people don't stay around in any

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<v Speaker 1>one job for too long. So as these things go,

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<v Speaker 1>it's it's a pretty effective mechanism. Arthur Carl Walter was

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<v Speaker 1>on our show recently. He's the former CEO CEO of

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<v Speaker 1>JP Morgan in Chinese, been a long time there. You

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<v Speaker 1>mentioned tensions rising in China now and UH President gen

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<v Speaker 1>Ping being reluctant to trim back the state role role

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<v Speaker 1>and let markets rule. Carl does the stuff further, he

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<v Speaker 1>said that there's a sense that there's something more akin

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<v Speaker 1>to how the cult of Mao and how that rule was,

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<v Speaker 1>that that that regime was structured and how it ran

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<v Speaker 1>things seems to be some of that seems we have

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<v Speaker 1>possibly cropping back in the j pain. What do you think? Well,

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<v Speaker 1>first have to say, Carl's an old friend of mine

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<v Speaker 1>and I have enormous respect for his knowledge and judgment. Um,

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<v Speaker 1>I have a slightly different take on that where I

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<v Speaker 1>would disagree. I don't think the Chijing pain is the

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<v Speaker 1>reincarnation of now. It's a very different country. It's a

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<v Speaker 1>very different system. The bureaucracy is much more powerful UH,

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<v Speaker 1>and he is using a few maur As tactics, but

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<v Speaker 1>fundamentally UH is a much more sort of organizationally oriented,

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<v Speaker 1>sort of sort of leader UH. I think where Karl

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<v Speaker 1>is on the mark, and this would be my big

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<v Speaker 1>concern too, is that China needs to make this transition

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<v Speaker 1>to a more consumer and service oriented economy. What that

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<v Speaker 1>means is that the state needs to take a step back.

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<v Speaker 1>It doesn't need to go away necessarily, but he needs

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<v Speaker 1>to step back. It needs to give more space for

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<v Speaker 1>market forces in the private sector. And what we've seen

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<v Speaker 1>in China is a mixture. We've seen some policies that

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<v Speaker 1>seem to move in that direction, and then we've seen

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<v Speaker 1>some real reluctance to let market forces fully play out.

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<v Speaker 1>So there's I think I think there is a real

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<v Speaker 1>risk that UH there will be some hiccups on the

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<v Speaker 1>way to China's transition to a consumer led economy. Arthur Krobert,

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<v Speaker 1>You'll have to follow all these developments with us. Check

0:10:54.720 --> 0:10:57.080
<v Speaker 1>out his new book China's economy, but everyone needs to know.

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<v Speaker 1>This is a little brig. Radio Bloomertaking Stock is brought

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