WEBVTT - Here's Why China’s Economic Outlook Keeps Getting Worse

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news.

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<v Speaker 2>I'm Stephen Carol and this is Here's Why, where we

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<v Speaker 2>take one news story and explain it in just a

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<v Speaker 2>few minutes with our experts here at Bloomberg. After decades

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<v Speaker 2>of supercharged growth, China's economic miracle is dottering. A much

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<v Speaker 2>anticipated post pandemic recovery appears to have flopped.

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<v Speaker 1>You know, this is a moment in time where the

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<v Speaker 1>global headlines are all looking more negative for China. Yeah,

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<v Speaker 1>project prices country to decline, the which growth remains slow,

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<v Speaker 1>labor market remains loose. There are all points two that

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<v Speaker 1>consumption recovery will likely remain softer in the next couple

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<v Speaker 1>of months.

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<v Speaker 3>If the government is serious in terms of growing the

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<v Speaker 3>economy by about five percent, we need more policy support

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<v Speaker 3>from the government.

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<v Speaker 2>The latest growth figures show the slowest pace of expansion

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<v Speaker 2>in over a year. Consumer spending is we and the

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<v Speaker 2>property slump is ongoing. The official growth target of around

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<v Speaker 2>five percent annually is still within reach thanks to a

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<v Speaker 2>boom and exports, but there are risks there too. So

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<v Speaker 2>here's why China's economic outlook keeps getting worse. Are Greater

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<v Speaker 2>at China. Executive editor John Leuho joins US now for

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<v Speaker 2>more Hi John. So, the Chinese economy grew four point

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<v Speaker 2>seven percent, but in April and June that's a figure

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<v Speaker 2>other countries would love to see. But how bad is

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<v Speaker 2>it in a China context? Well, it's kind of bad.

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<v Speaker 3>It's the slowest that GDP has grown in six quarters,

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<v Speaker 3>and I think beyond the actual pace of growth, it's

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<v Speaker 3>the trajectory. And so you have to remember, for the

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<v Speaker 3>first twenty years of this millennium, China was growing at

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<v Speaker 3>nine ten double digit percentage points. When it came to GDP,

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<v Speaker 3>I remember in two thousand and seven, I think it

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<v Speaker 3>was the second quarter China's GDP grew fifteen percent. And

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<v Speaker 3>so if you're coming from a world where GDP is

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<v Speaker 3>growing that quickly to a world where it's growing at

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<v Speaker 3>five four point eight, four point seven, it's a big

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<v Speaker 3>come down, and I think that's what's got people worried.

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<v Speaker 2>So one of the problem parts of the Chinese economy.

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<v Speaker 3>Then, well, the biggest problem at the moment is the

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<v Speaker 3>real estate sector. There was a housing bubble that burst

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<v Speaker 3>about three years ago, and so we've seen prices come

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<v Speaker 3>down substantially, sometimes by half in some Chinese cities. We've

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<v Speaker 3>seen the number of homes sold falling tremendously. I think

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<v Speaker 3>it fell twenty six twenty seven percent in the month

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<v Speaker 3>of June from a year earlier. And we've seen the

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<v Speaker 3>amount of money being spent to build new homes fall

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<v Speaker 3>off dramatically as well. And so that is on one hand,

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<v Speaker 3>reduced the amount of spending by developers. But more importantly,

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<v Speaker 3>the vast majority of household wealth is stored in property,

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<v Speaker 3>and so if home prices come down, everybody feels a

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<v Speaker 3>little poor. And so that's led to a really subdued consumption.

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<v Speaker 3>People are not as are not spending as much, they're

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<v Speaker 3>trying to save more, and that's flowing into the economy

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<v Speaker 3>and keeping things weak.

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<v Speaker 2>So what is China doing about this? Then, present cheating

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<v Speaker 2>thing says he wants high quality development. What does that mean?

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<v Speaker 3>Well, high quality development is mostly about debt. So over

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<v Speaker 3>the last five, six, seven, eight nine years, a lot

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<v Speaker 3>of Chinese growth came from investment, and what that was

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<v Speaker 3>was a local government's borrowing money to build roads, to

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<v Speaker 3>build airports, to build apartment buildings, office buildings, And now

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<v Speaker 3>all of those debts are coming due and those buildings

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<v Speaker 3>and roads that were built, they're not generating the sort

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<v Speaker 3>of economic activity that would help pay off those debts,

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<v Speaker 3>and so overall debt for China is now in the

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<v Speaker 3>neighborhood of something like three hundred and fifty percent of GDP.

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<v Speaker 3>So President Hijiping is really worried that if China continues

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<v Speaker 3>on this model, it's going to end very poorly. And

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<v Speaker 3>so he's talking about high quality in the sense that

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<v Speaker 3>we're going to get growth without creating more debt.

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<v Speaker 2>Okay, So the third Planum Policy Meeting is meant to

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<v Speaker 2>set long term economic goals, but will anything they decide

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<v Speaker 2>actually help in the short term with the issues that

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<v Speaker 2>you've been telling us about.

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<v Speaker 3>There have been a lot of economists who have been

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<v Speaker 3>suggesting and recommending that the government in Beijing give direct

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<v Speaker 3>transfers to consumers, so just give the average Chinese citizen

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<v Speaker 3>money like that happened in the United States during the pandemic.

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<v Speaker 3>There's been a lot of hesitancy in terms of the

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<v Speaker 3>government's response to those ideas. If we got some sort

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<v Speaker 3>of change in the way the government looked at that proposal,

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<v Speaker 3>that would really help with sentiment. Again, another thing, the

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<v Speaker 3>retirement age. There's been a lot of economists suggesting the

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<v Speaker 3>retirement age should be raised. If they came out and

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<v Speaker 3>did that, that would have a very immediate impact as well.

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<v Speaker 2>We've heard a lot in the conversation in the US

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<v Speaker 2>election campaign about the threat of more tariffs on China.

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<v Speaker 2>How much of a concern would that be for the

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<v Speaker 2>Chinese economy.

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<v Speaker 3>It would be a real concern consumptions down. As we

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<v Speaker 3>talked about in one of the bright spots of the

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<v Speaker 3>economy has been exports and specifically electric cars, batteries, solar panels,

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<v Speaker 3>some of these new technology, high end industries, and if

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<v Speaker 3>tariffs came in that one would really undermine the growth

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<v Speaker 3>that exports has created in terms of jobs and investment

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<v Speaker 3>here in China. But two, it would really undermine this

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<v Speaker 3>further development of things like the electric car industry. If

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<v Speaker 3>China wants its electric car industry to really grow and flourish,

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<v Speaker 3>it needs to have access to foreign markets. If it

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<v Speaker 3>can't sell to the US, if it can't sell to Europe,

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<v Speaker 3>that's really going to make things tough.

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<v Speaker 2>And China's targeting a growth rate of five percent over

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<v Speaker 2>time or what that need to slow down. If we

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<v Speaker 2>think about the future.

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<v Speaker 3>As the economy gets bigger, I think naturally the pace

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<v Speaker 3>of growth will slow, and if China wants to achieve

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<v Speaker 3>high quality growth as we talked about, that pace will

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<v Speaker 3>have to come down as well. But I think there's

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<v Speaker 3>different ways to look at it. At five percent, China's

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<v Speaker 3>a seventeen trillion dollar economy. At five percent, that's adding

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<v Speaker 3>about eight hundred and fifty billion dollars of economic activity years.

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<v Speaker 3>That's the size of Switzerland basically, and so yes, the

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<v Speaker 3>economy will grow more slowly, but it will still be

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<v Speaker 3>a big, big impact on overall growth globally.

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<v Speaker 2>What does though a weaker Chinese economy in terms of

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<v Speaker 2>growth mean for the rest of the world.

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<v Speaker 3>I mean, China is a huge in market for a

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<v Speaker 3>lot of things. It's a huge market for iPhones. Recently,

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<v Speaker 3>we've had some news about Apple selling eight billion US

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<v Speaker 3>dollars worth of stuff in India, and there's a lot

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<v Speaker 3>of excitement about that because it's growing very quickly. But

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<v Speaker 3>just to give your sets by comparison, Apple sells seventy

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<v Speaker 3>two billion dollars worth of stuff in China. So it's

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<v Speaker 3>a huge market for lots of very big important companies.

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<v Speaker 3>And if that market slows If that market shrinks, it'll

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<v Speaker 3>have big impacts all around the world.

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<v Speaker 2>Thanks to our Greater China Executive editor, John lu. For

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<v Speaker 2>more explanations like this from our team of twenty seven

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<v Speaker 2>hundred journalists and analysts around the world, search for quick

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<v Speaker 2>take on the Bloomberg website or the Bloomberg Business app.

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<v Speaker 2>I'm Stephen Caroll. This is here's why. I'll be back

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<v Speaker 2>next week with more. Thanks for listening.