1 00:00:02,440 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:09,240 --> 00:00:11,760 Speaker 2: I'm Stephen Carol and this is Here's Why, where we 3 00:00:11,840 --> 00:00:14,080 Speaker 2: take one news story and explain it in just a 4 00:00:14,080 --> 00:00:20,960 Speaker 2: few minutes with our experts here at Bloomberg. After decades 5 00:00:20,960 --> 00:00:26,079 Speaker 2: of supercharged growth, China's economic miracle is dottering. A much 6 00:00:26,120 --> 00:00:30,160 Speaker 2: anticipated post pandemic recovery appears to have flopped. 7 00:00:30,360 --> 00:00:32,199 Speaker 1: You know, this is a moment in time where the 8 00:00:32,240 --> 00:00:35,680 Speaker 1: global headlines are all looking more negative for China. Yeah, 9 00:00:35,720 --> 00:00:39,040 Speaker 1: project prices country to decline, the which growth remains slow, 10 00:00:39,400 --> 00:00:42,159 Speaker 1: labor market remains loose. There are all points two that 11 00:00:42,240 --> 00:00:46,120 Speaker 1: consumption recovery will likely remain softer in the next couple 12 00:00:46,159 --> 00:00:46,680 Speaker 1: of months. 13 00:00:46,920 --> 00:00:49,879 Speaker 3: If the government is serious in terms of growing the 14 00:00:49,920 --> 00:00:52,840 Speaker 3: economy by about five percent, we need more policy support 15 00:00:52,840 --> 00:00:53,440 Speaker 3: from the government. 16 00:00:53,680 --> 00:00:57,000 Speaker 2: The latest growth figures show the slowest pace of expansion 17 00:00:57,120 --> 00:01:00,520 Speaker 2: in over a year. Consumer spending is we and the 18 00:01:00,560 --> 00:01:04,679 Speaker 2: property slump is ongoing. The official growth target of around 19 00:01:04,720 --> 00:01:08,160 Speaker 2: five percent annually is still within reach thanks to a 20 00:01:08,200 --> 00:01:11,920 Speaker 2: boom and exports, but there are risks there too. So 21 00:01:12,240 --> 00:01:18,280 Speaker 2: here's why China's economic outlook keeps getting worse. Are Greater 22 00:01:18,280 --> 00:01:21,039 Speaker 2: at China. Executive editor John Leuho joins US now for 23 00:01:21,200 --> 00:01:23,960 Speaker 2: more Hi John. So, the Chinese economy grew four point 24 00:01:24,000 --> 00:01:26,240 Speaker 2: seven percent, but in April and June that's a figure 25 00:01:26,440 --> 00:01:29,360 Speaker 2: other countries would love to see. But how bad is 26 00:01:29,400 --> 00:01:32,000 Speaker 2: it in a China context? Well, it's kind of bad. 27 00:01:32,040 --> 00:01:35,399 Speaker 3: It's the slowest that GDP has grown in six quarters, 28 00:01:35,560 --> 00:01:38,760 Speaker 3: and I think beyond the actual pace of growth, it's 29 00:01:38,840 --> 00:01:41,880 Speaker 3: the trajectory. And so you have to remember, for the 30 00:01:41,880 --> 00:01:45,120 Speaker 3: first twenty years of this millennium, China was growing at 31 00:01:45,319 --> 00:01:48,840 Speaker 3: nine ten double digit percentage points. When it came to GDP, 32 00:01:49,040 --> 00:01:51,440 Speaker 3: I remember in two thousand and seven, I think it 33 00:01:51,480 --> 00:01:54,720 Speaker 3: was the second quarter China's GDP grew fifteen percent. And 34 00:01:54,760 --> 00:01:57,320 Speaker 3: so if you're coming from a world where GDP is 35 00:01:57,360 --> 00:02:00,240 Speaker 3: growing that quickly to a world where it's growing at 36 00:02:00,320 --> 00:02:03,320 Speaker 3: five four point eight, four point seven, it's a big 37 00:02:03,520 --> 00:02:05,680 Speaker 3: come down, and I think that's what's got people worried. 38 00:02:06,160 --> 00:02:08,760 Speaker 2: So one of the problem parts of the Chinese economy. 39 00:02:08,800 --> 00:02:11,200 Speaker 3: Then, well, the biggest problem at the moment is the 40 00:02:11,200 --> 00:02:14,360 Speaker 3: real estate sector. There was a housing bubble that burst 41 00:02:14,440 --> 00:02:17,679 Speaker 3: about three years ago, and so we've seen prices come 42 00:02:17,720 --> 00:02:21,560 Speaker 3: down substantially, sometimes by half in some Chinese cities. We've 43 00:02:21,560 --> 00:02:25,680 Speaker 3: seen the number of homes sold falling tremendously. I think 44 00:02:25,720 --> 00:02:28,440 Speaker 3: it fell twenty six twenty seven percent in the month 45 00:02:28,440 --> 00:02:30,840 Speaker 3: of June from a year earlier. And we've seen the 46 00:02:30,880 --> 00:02:33,680 Speaker 3: amount of money being spent to build new homes fall 47 00:02:33,720 --> 00:02:36,280 Speaker 3: off dramatically as well. And so that is on one hand, 48 00:02:36,360 --> 00:02:39,839 Speaker 3: reduced the amount of spending by developers. But more importantly, 49 00:02:40,000 --> 00:02:43,880 Speaker 3: the vast majority of household wealth is stored in property, 50 00:02:43,919 --> 00:02:45,919 Speaker 3: and so if home prices come down, everybody feels a 51 00:02:45,960 --> 00:02:49,600 Speaker 3: little poor. And so that's led to a really subdued consumption. 52 00:02:50,080 --> 00:02:52,880 Speaker 3: People are not as are not spending as much, they're 53 00:02:52,880 --> 00:02:55,519 Speaker 3: trying to save more, and that's flowing into the economy 54 00:02:55,520 --> 00:02:56,440 Speaker 3: and keeping things weak. 55 00:02:56,760 --> 00:02:59,480 Speaker 2: So what is China doing about this? Then, present cheating 56 00:02:59,480 --> 00:03:02,839 Speaker 2: thing says he wants high quality development. What does that mean? 57 00:03:03,280 --> 00:03:07,560 Speaker 3: Well, high quality development is mostly about debt. So over 58 00:03:07,600 --> 00:03:10,720 Speaker 3: the last five, six, seven, eight nine years, a lot 59 00:03:10,760 --> 00:03:13,640 Speaker 3: of Chinese growth came from investment, and what that was 60 00:03:13,639 --> 00:03:17,480 Speaker 3: was a local government's borrowing money to build roads, to 61 00:03:17,520 --> 00:03:22,040 Speaker 3: build airports, to build apartment buildings, office buildings, And now 62 00:03:22,200 --> 00:03:25,639 Speaker 3: all of those debts are coming due and those buildings 63 00:03:25,639 --> 00:03:28,359 Speaker 3: and roads that were built, they're not generating the sort 64 00:03:28,360 --> 00:03:31,560 Speaker 3: of economic activity that would help pay off those debts, 65 00:03:31,760 --> 00:03:34,000 Speaker 3: and so overall debt for China is now in the 66 00:03:34,040 --> 00:03:36,600 Speaker 3: neighborhood of something like three hundred and fifty percent of GDP. 67 00:03:36,960 --> 00:03:40,400 Speaker 3: So President Hijiping is really worried that if China continues 68 00:03:40,440 --> 00:03:42,800 Speaker 3: on this model, it's going to end very poorly. And 69 00:03:42,840 --> 00:03:45,480 Speaker 3: so he's talking about high quality in the sense that 70 00:03:45,520 --> 00:03:47,720 Speaker 3: we're going to get growth without creating more debt. 71 00:03:48,160 --> 00:03:51,760 Speaker 2: Okay, So the third Planum Policy Meeting is meant to 72 00:03:51,800 --> 00:03:55,400 Speaker 2: set long term economic goals, but will anything they decide 73 00:03:55,440 --> 00:03:57,960 Speaker 2: actually help in the short term with the issues that 74 00:03:58,000 --> 00:03:58,960 Speaker 2: you've been telling us about. 75 00:03:59,240 --> 00:04:01,160 Speaker 3: There have been a lot of economists who have been 76 00:04:01,200 --> 00:04:05,760 Speaker 3: suggesting and recommending that the government in Beijing give direct 77 00:04:05,760 --> 00:04:09,440 Speaker 3: transfers to consumers, so just give the average Chinese citizen 78 00:04:09,520 --> 00:04:12,520 Speaker 3: money like that happened in the United States during the pandemic. 79 00:04:12,640 --> 00:04:15,160 Speaker 3: There's been a lot of hesitancy in terms of the 80 00:04:15,200 --> 00:04:18,920 Speaker 3: government's response to those ideas. If we got some sort 81 00:04:18,960 --> 00:04:22,960 Speaker 3: of change in the way the government looked at that proposal, 82 00:04:23,360 --> 00:04:26,840 Speaker 3: that would really help with sentiment. Again, another thing, the 83 00:04:26,880 --> 00:04:30,200 Speaker 3: retirement age. There's been a lot of economists suggesting the 84 00:04:30,240 --> 00:04:32,359 Speaker 3: retirement age should be raised. If they came out and 85 00:04:32,400 --> 00:04:35,200 Speaker 3: did that, that would have a very immediate impact as well. 86 00:04:35,600 --> 00:04:37,880 Speaker 2: We've heard a lot in the conversation in the US 87 00:04:37,960 --> 00:04:41,760 Speaker 2: election campaign about the threat of more tariffs on China. 88 00:04:41,960 --> 00:04:44,080 Speaker 2: How much of a concern would that be for the 89 00:04:44,160 --> 00:04:45,080 Speaker 2: Chinese economy. 90 00:04:45,640 --> 00:04:48,400 Speaker 3: It would be a real concern consumptions down. As we 91 00:04:48,480 --> 00:04:50,400 Speaker 3: talked about in one of the bright spots of the 92 00:04:50,400 --> 00:04:56,359 Speaker 3: economy has been exports and specifically electric cars, batteries, solar panels, 93 00:04:56,360 --> 00:05:00,120 Speaker 3: some of these new technology, high end industries, and if 94 00:05:00,279 --> 00:05:04,279 Speaker 3: tariffs came in that one would really undermine the growth 95 00:05:04,320 --> 00:05:07,479 Speaker 3: that exports has created in terms of jobs and investment 96 00:05:07,600 --> 00:05:10,760 Speaker 3: here in China. But two, it would really undermine this 97 00:05:11,000 --> 00:05:13,920 Speaker 3: further development of things like the electric car industry. If 98 00:05:14,000 --> 00:05:17,120 Speaker 3: China wants its electric car industry to really grow and flourish, 99 00:05:17,120 --> 00:05:19,760 Speaker 3: it needs to have access to foreign markets. If it 100 00:05:19,800 --> 00:05:21,880 Speaker 3: can't sell to the US, if it can't sell to Europe, 101 00:05:21,880 --> 00:05:23,520 Speaker 3: that's really going to make things tough. 102 00:05:23,839 --> 00:05:27,440 Speaker 2: And China's targeting a growth rate of five percent over 103 00:05:27,760 --> 00:05:30,479 Speaker 2: time or what that need to slow down. If we 104 00:05:30,520 --> 00:05:31,840 Speaker 2: think about the future. 105 00:05:32,040 --> 00:05:35,279 Speaker 3: As the economy gets bigger, I think naturally the pace 106 00:05:35,320 --> 00:05:38,880 Speaker 3: of growth will slow, and if China wants to achieve 107 00:05:39,360 --> 00:05:42,080 Speaker 3: high quality growth as we talked about, that pace will 108 00:05:42,080 --> 00:05:43,760 Speaker 3: have to come down as well. But I think there's 109 00:05:43,800 --> 00:05:46,240 Speaker 3: different ways to look at it. At five percent, China's 110 00:05:46,240 --> 00:05:50,320 Speaker 3: a seventeen trillion dollar economy. At five percent, that's adding 111 00:05:50,320 --> 00:05:53,680 Speaker 3: about eight hundred and fifty billion dollars of economic activity years. 112 00:05:53,760 --> 00:05:56,719 Speaker 3: That's the size of Switzerland basically, and so yes, the 113 00:05:56,760 --> 00:05:59,440 Speaker 3: economy will grow more slowly, but it will still be 114 00:05:59,760 --> 00:06:03,160 Speaker 3: a big, big impact on overall growth globally. 115 00:06:03,720 --> 00:06:06,919 Speaker 2: What does though a weaker Chinese economy in terms of 116 00:06:06,960 --> 00:06:09,479 Speaker 2: growth mean for the rest of the world. 117 00:06:09,720 --> 00:06:12,279 Speaker 3: I mean, China is a huge in market for a 118 00:06:12,320 --> 00:06:15,280 Speaker 3: lot of things. It's a huge market for iPhones. Recently, 119 00:06:15,360 --> 00:06:19,159 Speaker 3: we've had some news about Apple selling eight billion US 120 00:06:19,240 --> 00:06:21,160 Speaker 3: dollars worth of stuff in India, and there's a lot 121 00:06:21,160 --> 00:06:23,440 Speaker 3: of excitement about that because it's growing very quickly. But 122 00:06:23,520 --> 00:06:25,960 Speaker 3: just to give your sets by comparison, Apple sells seventy 123 00:06:26,000 --> 00:06:28,760 Speaker 3: two billion dollars worth of stuff in China. So it's 124 00:06:28,800 --> 00:06:32,000 Speaker 3: a huge market for lots of very big important companies. 125 00:06:32,040 --> 00:06:36,000 Speaker 3: And if that market slows If that market shrinks, it'll 126 00:06:36,000 --> 00:06:38,200 Speaker 3: have big impacts all around the world. 127 00:06:38,320 --> 00:06:42,039 Speaker 2: Thanks to our Greater China Executive editor, John lu. For 128 00:06:42,120 --> 00:06:44,680 Speaker 2: more explanations like this from our team of twenty seven 129 00:06:44,800 --> 00:06:47,520 Speaker 2: hundred journalists and analysts around the world, search for quick 130 00:06:47,560 --> 00:06:50,360 Speaker 2: take on the Bloomberg website or the Bloomberg Business app. 131 00:06:51,560 --> 00:06:54,400 Speaker 2: I'm Stephen Caroll. This is here's why. I'll be back 132 00:06:54,440 --> 00:06:56,320 Speaker 2: next week with more. Thanks for listening.