Speaker 1: All right, let's get our next guest. We joined by
Speaker 1: Derek Scissors, chief economists at China Beige Book, and they're
Speaker 1: discussing that slew of economic data that we got out
Speaker 1: of China by surprise yesterday and what comes next after
Speaker 1: Chinese president and chuging things security a third term. First
Speaker 1: of all, the data itself sort of perhaps belied that
Speaker 1: speculation that it was delayed simply because it was bad,
Speaker 1: because GDP was better than expected, and we had other
Speaker 1: bits and bombs of data which were better than expected.
Speaker 1: Apart from, of course, retail sales. That gives a sense
Speaker 1: what the picture it drew for you. I do think
Speaker 1: the second quarter the third quarter was better than the
Speaker 1: second quarter. I don't think that's unreasonable. Second quarter was
Speaker 1: terrible due to the Shanghai lockdown that was mentioned earlier,
Speaker 1: among other things. I do think also that the data
Speaker 1: has been massage to make it look a little better
Speaker 1: than it actually is. I think the three third quarter
Speaker 1: GDP growth is probably off by half percent or more.
Speaker 1: Maybe it's more in the low three. He's on the
Speaker 1: high threes. That is an effect on on annual TDP growth. Um.
Speaker 1: I think even you know the retail sales are the weakness.
Speaker 1: They were reported as gaining three point five percent in
Speaker 1: the third quarter, but import growth to the third quarter
Speaker 1: was below which is pretty hard to reconcile with with
Speaker 1: stronger consumption from the second quarter. UM, So I think
Speaker 1: the data. I think it's legitimate for China to say, hey,
Speaker 1: the economy got better in the third quarter. I think
Speaker 1: it did, but I also think that it was puffed
Speaker 1: up a little bit for the Party Congress and still
Speaker 1: plenty of issues from Maine. So we've had this route
Speaker 1: in Chinese assets, and you do have some like Marko
Speaker 1: Kolanovich and and others as well saying that this could
Speaker 1: be an opportunity that doesn't support the fundamentals. But but
Speaker 1: I think we do need to say that it could
Speaker 1: be different this time. I mean, we may not get
Speaker 1: a bounce because President she he's not going anywhere, and
Speaker 1: he hasn't shown um the likelihood to change very much.
Speaker 1: And so the campaign to reign in the private sector
Speaker 1: maybe with us for a long time. Yeah, I think
Speaker 1: that's the right take. I mean, we've seen Wall Street,
Speaker 1: including JP Morgan say again and again and again, Okay,
Speaker 1: you know, now China is going to turn around and
Speaker 1: it doesn't. I suppose if you make the prediction ten times,
Speaker 1: you're gonna be right once and then say, look, I
Speaker 1: was right. But the key point is what you raised,
Speaker 1: which is fundamentals include policy. They include the development model
Speaker 1: that you're that you're trying to implement, and China is
Speaker 1: not trying to implement a development model that a lot
Speaker 1: of people want them to implement. Uh. They want to
Speaker 1: turn back to growth and to think that more prosperity
Speaker 1: for private business is really important. And that's just it
Speaker 1: hasn't been the case. It hasn't been the case before
Speaker 1: COVID shooting, paying attack the private sector in China. Before
Speaker 1: COVID started, he wasn't exactly pro private sector before that.
Speaker 1: So I think saying the fundamentals in China are good
Speaker 1: misses a policy environment where China is not trying to
Speaker 1: do with a lot of foreign observers wanted to do.
Speaker 1: It's instead trying to make itself more independent, which is
Speaker 1: a very different thing than growing quickly. This is it,
Speaker 1: isn't it. I mean, it's meant to be about qualitative
Speaker 1: and not quantitative growth right now. But you know that's
Speaker 1: one way of looking at it. I suppose I mean,
Speaker 1: you know, if you depends on what you mean by qualitative.
Speaker 1: I do think there's less pollution in China, so that
Speaker 1: that's a positive. They do want to have better jobs,
Speaker 1: not not make shift construction jobs the way that they
Speaker 1: were creating when when the labor force was expanding really rapidly.
Speaker 1: But another element of quality for Shijing Ping, I think
Speaker 1: it's pretty clear is if we're less dependent on the
Speaker 1: rest of the world and the world rest of the
Speaker 1: world is more dependent on us, that's good growth. I'd
Speaker 1: rather have three percent growth like that than six or
Speaker 1: seven percent growth where I fear my political opponents overseas,
Speaker 1: for example in the United States, have more leverage, So
Speaker 1: that's another element of quality for him. Quality growth is
Speaker 1: a political term as well as an economic and environmental term. Well,
Speaker 1: let's talk about quality of policymaking, because you know, that's
Speaker 1: one of the reasons why we've seen the sell off
Speaker 1: in Chinese assets is that it's it's not just that
Speaker 1: all the power rests with shijin Ping, it's that some
Speaker 1: people will be appointed into position ends out of loyalty
Speaker 1: rather than out of the quality of management. I think
Speaker 1: that's that's reasonable. I don't know how important it is. Um,
Speaker 1: did the people who were in these positions before have
Speaker 1: any discretion? I don't. I almost hesitate to name people's names.
Speaker 1: But the current I think did. Right. Lee Ka Chong
Speaker 1: sort of stood up to President she in some ways
Speaker 1: uh and actually changed the policy making a structure at
Speaker 1: the State Council. Uh. He didn't. He wasn't able to
Speaker 1: modify zero COVID. Um. He didn't stop the attack on
Speaker 1: the private sector in two thousand nineteen. Um. You know,
Speaker 1: there are a lot of examples. You may be right,
Speaker 1: don't get me wrong. I I'm not saying that, Oh,
Speaker 1: we know what really goes on behind the scenes, and
Speaker 1: maybe Lee Ka Chong had more influence than we think.
Speaker 1: But if he did have more influence than we think,
Speaker 1: imagine how bad in terms of of you know, growth
Speaker 1: model China would be following. Because things have not been
Speaker 1: good in terms of Chinese economic policy maximizing prosperity. It's
Speaker 1: accomplished other goals, but not maximizing prosperity. If Lee has
Speaker 1: been able to modify that, yes, then we're heading for
Speaker 1: big trouble. But I don't think it's because of quality.
Speaker 1: I think it's because who has influence over she I
Speaker 1: think that's the question more than well. And I think
Speaker 1: that the general gist of the question was that policymaking
Speaker 1: may not get better from here. Oh I don't just
Speaker 1: thank that. No, there's no reason to think that it would.
Speaker 1: I don't know why anyone would have thought that a
Speaker 1: week ago exactly as the point it could get, it
Speaker 1: could get worse, depending upon I suppose you know what
Speaker 1: you think. Um, you know the the dividing line is, Derek,
Speaker 1: we're out of time. Unfortunately. Derek Scissors, chief economist at
Speaker 1: China Bag Book