WEBVTT - Derek Scissors on China Eco Data (Audio)

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<v Speaker 1>All right, let's get our next guest. We joined by

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<v Speaker 1>Derek Scissors, chief economists at China Beige Book, and they're

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<v Speaker 1>discussing that slew of economic data that we got out

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<v Speaker 1>of China by surprise yesterday and what comes next after

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<v Speaker 1>Chinese president and chuging things security a third term. First

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<v Speaker 1>of all, the data itself sort of perhaps belied that

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<v Speaker 1>speculation that it was delayed simply because it was bad,

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<v Speaker 1>because GDP was better than expected, and we had other

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<v Speaker 1>bits and bombs of data which were better than expected.

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<v Speaker 1>Apart from, of course, retail sales. That gives a sense

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<v Speaker 1>what the picture it drew for you. I do think

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<v Speaker 1>the second quarter the third quarter was better than the

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<v Speaker 1>second quarter. I don't think that's unreasonable. Second quarter was

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<v Speaker 1>terrible due to the Shanghai lockdown that was mentioned earlier,

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<v Speaker 1>among other things. I do think also that the data

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<v Speaker 1>has been massage to make it look a little better

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<v Speaker 1>than it actually is. I think the three third quarter

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<v Speaker 1>GDP growth is probably off by half percent or more.

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<v Speaker 1>Maybe it's more in the low three. He's on the

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<v Speaker 1>high threes. That is an effect on on annual TDP growth. Um.

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<v Speaker 1>I think even you know the retail sales are the weakness.

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<v Speaker 1>They were reported as gaining three point five percent in

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<v Speaker 1>the third quarter, but import growth to the third quarter

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<v Speaker 1>was below which is pretty hard to reconcile with with

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<v Speaker 1>stronger consumption from the second quarter. UM, So I think

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<v Speaker 1>the data. I think it's legitimate for China to say, hey,

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<v Speaker 1>the economy got better in the third quarter. I think

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<v Speaker 1>it did, but I also think that it was puffed

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<v Speaker 1>up a little bit for the Party Congress and still

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<v Speaker 1>plenty of issues from Maine. So we've had this route

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<v Speaker 1>in Chinese assets, and you do have some like Marko

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<v Speaker 1>Kolanovich and and others as well saying that this could

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<v Speaker 1>be an opportunity that doesn't support the fundamentals. But but

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<v Speaker 1>I think we do need to say that it could

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<v Speaker 1>be different this time. I mean, we may not get

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<v Speaker 1>a bounce because President she he's not going anywhere, and

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<v Speaker 1>he hasn't shown um the likelihood to change very much.

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<v Speaker 1>And so the campaign to reign in the private sector

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<v Speaker 1>maybe with us for a long time. Yeah, I think

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<v Speaker 1>that's the right take. I mean, we've seen Wall Street,

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<v Speaker 1>including JP Morgan say again and again and again, Okay,

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<v Speaker 1>you know, now China is going to turn around and

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<v Speaker 1>it doesn't. I suppose if you make the prediction ten times,

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<v Speaker 1>you're gonna be right once and then say, look, I

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<v Speaker 1>was right. But the key point is what you raised,

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<v Speaker 1>which is fundamentals include policy. They include the development model

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<v Speaker 1>that you're that you're trying to implement, and China is

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<v Speaker 1>not trying to implement a development model that a lot

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<v Speaker 1>of people want them to implement. Uh. They want to

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<v Speaker 1>turn back to growth and to think that more prosperity

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<v Speaker 1>for private business is really important. And that's just it

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<v Speaker 1>hasn't been the case. It hasn't been the case before

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<v Speaker 1>COVID shooting, paying attack the private sector in China. Before

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<v Speaker 1>COVID started, he wasn't exactly pro private sector before that.

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<v Speaker 1>So I think saying the fundamentals in China are good

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<v Speaker 1>misses a policy environment where China is not trying to

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<v Speaker 1>do with a lot of foreign observers wanted to do.

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<v Speaker 1>It's instead trying to make itself more independent, which is

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<v Speaker 1>a very different thing than growing quickly. This is it,

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<v Speaker 1>isn't it. I mean, it's meant to be about qualitative

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<v Speaker 1>and not quantitative growth right now. But you know that's

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<v Speaker 1>one way of looking at it. I suppose I mean,

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<v Speaker 1>you know, if you depends on what you mean by qualitative.

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<v Speaker 1>I do think there's less pollution in China, so that

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<v Speaker 1>that's a positive. They do want to have better jobs,

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<v Speaker 1>not not make shift construction jobs the way that they

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<v Speaker 1>were creating when when the labor force was expanding really rapidly.

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<v Speaker 1>But another element of quality for Shijing Ping, I think

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<v Speaker 1>it's pretty clear is if we're less dependent on the

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<v Speaker 1>rest of the world and the world rest of the

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<v Speaker 1>world is more dependent on us, that's good growth. I'd

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<v Speaker 1>rather have three percent growth like that than six or

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<v Speaker 1>seven percent growth where I fear my political opponents overseas,

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<v Speaker 1>for example in the United States, have more leverage, So

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<v Speaker 1>that's another element of quality for him. Quality growth is

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<v Speaker 1>a political term as well as an economic and environmental term. Well,

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<v Speaker 1>let's talk about quality of policymaking, because you know, that's

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<v Speaker 1>one of the reasons why we've seen the sell off

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<v Speaker 1>in Chinese assets is that it's it's not just that

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<v Speaker 1>all the power rests with shijin Ping, it's that some

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<v Speaker 1>people will be appointed into position ends out of loyalty

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<v Speaker 1>rather than out of the quality of management. I think

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<v Speaker 1>that's that's reasonable. I don't know how important it is. Um,

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<v Speaker 1>did the people who were in these positions before have

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<v Speaker 1>any discretion? I don't. I almost hesitate to name people's names.

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<v Speaker 1>But the current I think did. Right. Lee Ka Chong

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<v Speaker 1>sort of stood up to President she in some ways

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<v Speaker 1>uh and actually changed the policy making a structure at

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<v Speaker 1>the State Council. Uh. He didn't. He wasn't able to

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<v Speaker 1>modify zero COVID. Um. He didn't stop the attack on

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<v Speaker 1>the private sector in two thousand nineteen. Um. You know,

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<v Speaker 1>there are a lot of examples. You may be right,

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<v Speaker 1>don't get me wrong. I I'm not saying that, Oh,

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<v Speaker 1>we know what really goes on behind the scenes, and

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<v Speaker 1>maybe Lee Ka Chong had more influence than we think.

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<v Speaker 1>But if he did have more influence than we think,

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<v Speaker 1>imagine how bad in terms of of you know, growth

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<v Speaker 1>model China would be following. Because things have not been

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<v Speaker 1>good in terms of Chinese economic policy maximizing prosperity. It's

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<v Speaker 1>accomplished other goals, but not maximizing prosperity. If Lee has

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<v Speaker 1>been able to modify that, yes, then we're heading for

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<v Speaker 1>big trouble. But I don't think it's because of quality.

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<v Speaker 1>I think it's because who has influence over she I

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<v Speaker 1>think that's the question more than well. And I think

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<v Speaker 1>that the general gist of the question was that policymaking

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<v Speaker 1>may not get better from here. Oh I don't just

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<v Speaker 1>thank that. No, there's no reason to think that it would.

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<v Speaker 1>I don't know why anyone would have thought that a

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<v Speaker 1>week ago exactly as the point it could get, it

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<v Speaker 1>could get worse, depending upon I suppose you know what

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<v Speaker 1>you think. Um, you know the the dividing line is, Derek,

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<v Speaker 1>we're out of time. Unfortunately. Derek Scissors, chief economist at

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<v Speaker 1>China Bag Book