WEBVTT - World Economy Meeting Casts Spotlight on Trade War 0:00:01.800 --> 0:00:05.199 The IMF World Bank Meetings kicked off this week in Washington, 0:00:05.800 --> 0:00:09.560 and this year it feels very different. The world trade 0:00:09.600 --> 0:00:13.880 system is in chaos, and the US, usually a world 0:00:14.000 --> 0:00:17.280 leader in many ways, is now the cause of this 0:00:17.360 --> 0:00:24.000 chaos with President Donald Trump's tariffs on the world. You're 0:00:24.040 --> 0:00:28.200 listening to Asia Centric from Bloomberg Intelligence. I'm Katy Dmitrieva 0:00:28.400 --> 0:00:31.080 and this week I'm in Washington for the IMF World 0:00:31.120 --> 0:00:34.400 Bank Meetings, where the world's economic leaders have gathered for 0:00:34.479 --> 0:00:38.040 the week, and where the global trade war is hanging 0:00:38.120 --> 0:00:41.879 over the city. Arguably, the US and China is the 0:00:42.080 --> 0:00:45.800 relationship and trade deal to get right, and so far 0:00:46.040 --> 0:00:48.920 there don't seem to be many off ramps. Every few 0:00:48.960 --> 0:00:52.640 days it seems tariffs are escalated, heated words are exchanged, 0:00:52.720 --> 0:00:55.480 and the leaders of the world's two largest economies aren't 0:00:55.480 --> 0:00:59.440 getting any closer to actually talking. This week, we have 0:01:00.080 --> 0:01:02.680 probably the ideal person to talk to about this. We 0:01:02.720 --> 0:01:05.640 have Arthur Kroeber, co founder and head of research at 0:01:05.760 --> 0:01:10.080 gav Kal Dragonomics and author of China's Economy What Everyone 0:01:10.120 --> 0:01:12.760 needs to Know. Arthur, thank you so much for joining us. 0:01:12.760 --> 0:01:13.480 Great to be here. 0:01:14.440 --> 0:01:17.800 So let's kick off just as a scene setter. What's 0:01:17.840 --> 0:01:20.720 going on this week in DC? I noticed this year 0:01:20.760 --> 0:01:23.520 it's a bit more quiet in some ways. You know, 0:01:23.560 --> 0:01:27.080 there's usually kind of posters up or flags, but it's 0:01:27.080 --> 0:01:30.000 a lot more quiet this year. What does it kind 0:01:30.000 --> 0:01:30.760 of feel like? 0:01:31.600 --> 0:01:33.759 Well, I think the difference between this year and all 0:01:33.800 --> 0:01:37.520 past years is that we have the mother of all 0:01:37.560 --> 0:01:42.399 trade wars sitting in the background. Trump, despite having back 0:01:42.440 --> 0:01:46.119 down from his most extreme tariffic proposal, still has ten 0:01:46.120 --> 0:01:49.120 percent tariffs on pretty much everyone in the world, twenty 0:01:49.120 --> 0:01:52.040 five percent tariffs on some products like Steve Will and aluminium, 0:01:52.800 --> 0:01:55.520 and anywhere between one hundred and forty and two hundred 0:01:55.560 --> 0:01:58.560 and fifty percent tariffs on China, depending on exactly how 0:01:58.600 --> 0:02:01.919 you count them. And so I think anyone who's looking 0:02:02.000 --> 0:02:05.120 at the macro economy in any country or in the 0:02:05.120 --> 0:02:08.480 world as a whole, it just has to say, we 0:02:08.560 --> 0:02:12.240 don't really know what's going on until we see what 0:02:12.320 --> 0:02:15.320 the impact of these tariffs are. And remember the economic 0:02:15.440 --> 0:02:17.359 data that we have to work with only goes up 0:02:17.400 --> 0:02:20.480 to the end of last month. Well, we didn't have 0:02:20.520 --> 0:02:22.800 all of these tariffs. So we're in a whole new 0:02:22.800 --> 0:02:25.200 world and no one is quite sure what is in 0:02:25.200 --> 0:02:29.200 that world. So I think that probably accounts for the 0:02:29.240 --> 0:02:31.680 feeling of amusement that you may see around here. 0:02:31.960 --> 0:02:32.400 Yeah. 0:02:32.520 --> 0:02:36.000 I mean, usually the IMF meetings are really more focused 0:02:36.040 --> 0:02:39.800 on macro central banks, and this year it really is 0:02:40.000 --> 0:02:44.240 arguably about not just trade, but specifically US and China 0:02:44.440 --> 0:02:45.399 or that relationship. 0:02:45.600 --> 0:02:48.680 Yeah, and I think what the transformation that we went 0:02:48.720 --> 0:02:51.240 through at the beginning of April was that Trump initially 0:02:51.240 --> 0:02:54.480 announced these very high tariffs on essentially every country in 0:02:54.520 --> 0:02:57.239 the world, and what we were left with was much 0:02:57.320 --> 0:03:00.760 lower tariffs, still significant ones in most countries, and gigantic 0:03:00.800 --> 0:03:05.360 ones on China. And what's interesting to me is that 0:03:05.680 --> 0:03:08.240 of all of the countries that got hit with these 0:03:08.280 --> 0:03:11.360 high terrifs, China was the only country that responded to 0:03:11.400 --> 0:03:14.560 this by direct retaliation. They ratcheted up their own teriff 0:03:14.639 --> 0:03:17.520 rates on US products to very high levels, and so 0:03:17.560 --> 0:03:21.280 you got into this tit for tat war of terrif escalation, 0:03:21.480 --> 0:03:24.760 which has left US in a very unusual spot. So 0:03:24.880 --> 0:03:28.600 two largest economies in the world tariff levels that, if 0:03:28.639 --> 0:03:32.320 they're fully enforced, basically mean that there's a trade embargo 0:03:33.080 --> 0:03:36.400 between the US and China, And we've just never been 0:03:36.640 --> 0:03:37.680 in a place like this. 0:03:37.560 --> 0:03:42.360 Before how bad does it get before there is a 0:03:42.400 --> 0:03:44.200 deal that's to be made. 0:03:44.480 --> 0:03:47.040 Well, if you're talking about the US and China specifically, 0:03:47.120 --> 0:03:49.720 I think the Chinese have actually made their position quite clear. 0:03:51.120 --> 0:03:53.160 They've said, we don't like trade wars. We don't think 0:03:53.160 --> 0:03:56.080 they're good for everyone. They put out a white paper saying, look, 0:03:56.080 --> 0:03:59.160 if you look at the total economic relationship between the 0:03:59.240 --> 0:04:01.400 US and China, Yeah, we have a goods trade surplus, 0:04:01.960 --> 0:04:05.440 but the US has a big services trade surplus with China. Plus, 0:04:05.600 --> 0:04:08.200 US companies make a ton of money in the Chinese 0:04:08.200 --> 0:04:12.760 market from domestic production. By my estimates, the sales of 0:04:12.840 --> 0:04:16.520 US companies in China are about triple the value of 0:04:16.600 --> 0:04:19.000 US exports to China. So when you add all that together, 0:04:19.040 --> 0:04:22.400 according to the Chinese, actually it's a balanced economic relationship. 0:04:22.400 --> 0:04:25.640 So they think this whole thing's unreasonable. So that's their position, 0:04:26.080 --> 0:04:28.400 and they've said they're not going to raise tariffs anymore 0:04:28.480 --> 0:04:30.640 because at this level, tariffs are a joke. 0:04:30.800 --> 0:04:34.239 That is a literal quote from the Chinese Ministry of Commerce. 0:04:35.080 --> 0:04:38.719 And they've said, look, if you're willing to talk about 0:04:38.760 --> 0:04:41.640 real things and be reasonable, we're happy to have a discussion, 0:04:42.480 --> 0:04:44.679 but we're not going to make the first phone call. 0:04:45.839 --> 0:04:47.920 And the US has taken the position. 0:04:47.560 --> 0:04:49.839 That no, China has to make the first call, and 0:04:49.880 --> 0:04:52.760 I don't think that's going to happen. So they're at 0:04:52.760 --> 0:04:56.960 a stalemate now where China has laid out its position, 0:04:57.960 --> 0:05:00.719 has stated that it's open to negotiation but is waiting 0:05:00.720 --> 0:05:02.480 for the US to make the first move. 0:05:02.520 --> 0:05:03.960 In the US is saying we're not going to make 0:05:04.000 --> 0:05:04.599 the first move. 0:05:04.920 --> 0:05:07.120 So where do we go from here? Because you've covered 0:05:07.480 --> 0:05:13.600 China as an academic, as a journalist, analyst, So in 0:05:13.760 --> 0:05:17.480 your view, how does this play out? How does this end? 0:05:17.800 --> 0:05:21.600 You know, is it the case that she might end 0:05:21.680 --> 0:05:24.599 up making that call? You just said, probably not. But 0:05:24.720 --> 0:05:27.000 how does this I mean it has to go somewhere? 0:05:27.080 --> 0:05:29.840 Right, Well, it's a good question, and maybe it doesn't 0:05:29.880 --> 0:05:31.920 have to go anywhere, Maybe it just stays in place. 0:05:32.560 --> 0:05:35.200 But I'll give you a few ideas about how things 0:05:35.240 --> 0:05:37.640 could play out from here. So number one, she is 0:05:37.680 --> 0:05:40.799 absolutely not going to make that first call. The Chinese 0:05:40.839 --> 0:05:44.640 have been very, very explicit and pretty i would say, 0:05:44.680 --> 0:05:50.600 open about what their negotiating agenda is. And I think 0:05:50.640 --> 0:05:52.640 the other thing that's important to add is that they 0:05:52.839 --> 0:05:56.400 tried sending messages to the Trump administration in January February 0:05:56.440 --> 0:06:00.000 several times about specific things that could be discussed on try, 0:06:00.800 --> 0:06:03.720 including many of the things that Trump administration has talked about, 0:06:03.760 --> 0:06:08.119 like ventanyl flows and stuff like that, And each time 0:06:08.160 --> 0:06:12.000 that they sent these ideas through, they got no response, 0:06:12.320 --> 0:06:17.359 and instead they got more tariffs on ventanyl into two tranches. 0:06:18.360 --> 0:06:22.200 So their view is, look, we've tried to negotiate, Trump 0:06:22.240 --> 0:06:25.039 has showed no interest, So we're going to stop and 0:06:25.040 --> 0:06:27.120 we're going to do our thing and we're going to 0:06:27.120 --> 0:06:29.599 protect our economy as best we can. And they have 0:06:29.640 --> 0:06:32.720 a lot of tools that they can use, and then 0:06:32.760 --> 0:06:34.840 if the US wants to negotiate, it is on them 0:06:34.960 --> 0:06:37.240 to come to us and explain what it is that 0:06:37.240 --> 0:06:38.040 they want to talk about. 0:06:38.040 --> 0:06:40.279 Then we're happy to talk. So I don't see that 0:06:40.320 --> 0:06:41.840 they're likely to move at all. 0:06:41.960 --> 0:06:43.720 And there's going to be a lot of pressure in 0:06:43.720 --> 0:06:46.120 the Chinese economy this year, but my sense is that 0:06:46.160 --> 0:06:48.480 the government is confident that they can handle the pressure 0:06:49.080 --> 0:06:52.360 and so there's no reason for them to make a move. Now. 0:06:52.360 --> 0:06:55.640 If you look at the Trump administration, essentially, of two 0:06:55.680 --> 0:06:57.920 things that have been said, one is President Trump has 0:06:57.920 --> 0:07:00.080 said I want Chijen Pain to make the first call. 0:07:00.320 --> 0:07:01.040 That's not going to happen. 0:07:01.040 --> 0:07:03.160 He said that a few times, several times. 0:07:03.240 --> 0:07:05.440 Yeah, and him saying it more times doesn't make it 0:07:05.480 --> 0:07:08.000 any more likely to happen. So I think that's just unrealistic. 0:07:08.800 --> 0:07:12.160 And then you have the Treasury Secretary Scott Bessens, who said, look, 0:07:12.160 --> 0:07:16.160 our negotiation strategy is we're going to cut lots and 0:07:16.200 --> 0:07:18.480 lots of trade deals with other countries first, and then 0:07:18.480 --> 0:07:21.680 we're going to all gang up on China and get 0:07:21.760 --> 0:07:23.120 China to change its ways. 0:07:23.760 --> 0:07:24.560 Or put another. 0:07:24.360 --> 0:07:26.720 Way, what he's saying is we're going to go to 0:07:26.720 --> 0:07:29.560 countries and say, if you want lower tariffs, then the 0:07:29.560 --> 0:07:31.520 price of those lower tariffs is that you have to 0:07:31.640 --> 0:07:35.600 increase your trade and investment restrictions with China. And that 0:07:35.760 --> 0:07:40.080 is his stated open negotiating strategy. I think there is 0:07:40.120 --> 0:07:42.679 almost no chance that that can possibly work. 0:07:43.200 --> 0:07:45.760 You mean other countries, Yeah, other countries. 0:07:45.440 --> 0:07:48.040 Won't do it because the majority of countries in the 0:07:48.080 --> 0:07:51.320 world have China as their number one trading partner. Many 0:07:51.320 --> 0:07:54.680 of them rely quite significantly on flows of technology or 0:07:54.720 --> 0:07:58.440 investment to or from China. These are very deep, complex 0:07:58.480 --> 0:08:01.480 relationships that have been built up over de kids, and 0:08:01.720 --> 0:08:04.800 no leader in his right mind would throw that down 0:08:04.840 --> 0:08:07.600 the drain for some kind of a deal with the 0:08:07.720 --> 0:08:10.880 US administration that has shown that it doesn't really adhere 0:08:10.960 --> 0:08:13.000 to deals for more than three or six months at 0:08:13.000 --> 0:08:13.600 a time. 0:08:13.600 --> 0:08:16.000 Even with the tariff levels where they are, though, I mean, 0:08:16.040 --> 0:08:19.480 it's going to be really painful for economies like Vietnam, Cambodia. 0:08:19.560 --> 0:08:19.800 Yeah. 0:08:19.840 --> 0:08:22.720 So I think there will be a few countries, you know, 0:08:22.800 --> 0:08:26.880 like Vietnam, which depends heavily on essentially being a conduit 0:08:27.520 --> 0:08:32.360 for trade from Chinese component factories through to final demand. 0:08:32.040 --> 0:08:32.559 In the US. 0:08:33.080 --> 0:08:35.520 But even there, you'd think that they have a big 0:08:35.559 --> 0:08:37.680 incentive to deal. But you know, a few days ago, 0:08:38.240 --> 0:08:41.800 Hijin Ping went to Hanoi, he got the red carpet treatment. 0:08:41.880 --> 0:08:45.280 They signed forty five different agreements. You know, probably some 0:08:45.320 --> 0:08:47.920 of them were, you know, not all that meaningful, but 0:08:48.040 --> 0:08:50.000 Vietnam was signaling, look, we think that this is a 0:08:50.000 --> 0:08:53.719 really important relationship. We value the Chinese relationship and the 0:08:53.800 --> 0:08:56.439 US relationship. So I think even a country like Vietnam 0:08:57.200 --> 0:09:00.440 is going to push back pretty hard in some stance 0:09:01.000 --> 0:09:03.960 on being told to cut back trade with China because 0:09:03.960 --> 0:09:05.040 they just can't afford. 0:09:04.800 --> 0:09:07.559 To It's literally impossible for them to do so. 0:09:07.720 --> 0:09:10.360 I think the problem that you have here is that 0:09:10.400 --> 0:09:15.240 the United States has set out some very unrealistic expectations 0:09:15.320 --> 0:09:19.160 for what can happen, and I think basically those expectations 0:09:19.200 --> 0:09:22.600 have to be ground down and then the US has 0:09:22.679 --> 0:09:26.600 to find some other way to negotiate. And we saw 0:09:26.720 --> 0:09:30.760 a glimpse of this a while back when Trump announced 0:09:30.800 --> 0:09:32.760 that electronics imports. 0:09:32.320 --> 0:09:33.600 Would be exempt from tariffs. 0:09:34.400 --> 0:09:37.439 And what was interesting there is that the Chinese government 0:09:37.480 --> 0:09:40.680 the instant that that message came out, they had a 0:09:40.679 --> 0:09:43.040 statement that said, this is a good step, this is 0:09:43.080 --> 0:09:45.600 in the right direction. We'd like to see more, but 0:09:45.679 --> 0:09:48.120 we're looking with interest. So that was a very clear 0:09:48.160 --> 0:09:50.160 signal from China that they were looking at that as 0:09:50.200 --> 0:09:53.360 a possible off ramp. That you exempt a whole bunch 0:09:53.440 --> 0:09:58.440 of specific products from tariffs, you lower the temperature and 0:09:58.480 --> 0:10:00.839 then you can start to have a discuss about things. 0:10:01.040 --> 0:10:03.400 So again, I think that the Chinese have been clear 0:10:03.600 --> 0:10:07.319 that they're looking for a way to negotiate because this 0:10:07.360 --> 0:10:10.280 is not an ideal situation for them, but they're only 0:10:10.320 --> 0:10:10.760 willing to. 0:10:10.720 --> 0:10:11.280 Go so far. 0:10:11.679 --> 0:10:14.840 And then the problem was after that Chinese statement, Trump 0:10:14.920 --> 0:10:17.880 and Secretary of Lucnik came out with statements saying, oh no, no, 0:10:17.960 --> 0:10:23.280 these these exemptions electronic, They're only temporary. So they backed 0:10:24.080 --> 0:10:27.920 write up that off ramp onto their tariff super highway, 0:10:28.120 --> 0:10:29.960 and they're still speeding down the road. 0:10:30.880 --> 0:10:34.199 Asia Centric is produced by Bloomberg Intelligence, where more than 0:10:34.240 --> 0:10:38.080 five hundred experienced analysts and strategists work around the clock 0:10:38.160 --> 0:10:41.640 to bring you timely, world class research. Our coverage spans 0:10:41.679 --> 0:10:45.960 two hundred market indices, currencies, commodities, and industries, as well 0:10:46.000 --> 0:10:49.040 as over two thousand equities and credits. To learn more 0:10:49.040 --> 0:10:53.240 about Bloomberg Intelligence, visit bi go on the Bloomberg terminal. 0:10:53.800 --> 0:10:56.319 If you like what you hear, don't forget to subscribe 0:10:56.320 --> 0:10:56.680 and share. 0:10:57.600 --> 0:11:01.200 The other question that comes with a potential deal or 0:11:01.200 --> 0:11:04.600 what it might look like, is whether China actually needs it. 0:11:04.640 --> 0:11:07.040 You know, we've had a lot of economists in the 0:11:07.040 --> 0:11:10.800 private sector coming out with revised estimates for China's growth 0:11:10.840 --> 0:11:12.520 this year. They're not necessarily going to be able to 0:11:12.520 --> 0:11:16.000 make the five percent target. So what's your view on that. 0:11:16.120 --> 0:11:18.439 Is it possible with these tariffs to meet that target? 0:11:18.840 --> 0:11:21.920 Yeah, it's going to be tough. So before the tariffs, 0:11:22.440 --> 0:11:26.520 China had launched quite a lot of monetary and fiscal support, 0:11:27.720 --> 0:11:30.680 and with all of that support, we thought they might 0:11:31.000 --> 0:11:33.840 just be able to hit the five percent for this year. 0:11:34.760 --> 0:11:37.080 And then the tariffs come on, and you know, most 0:11:37.200 --> 0:11:41.120 economists estimate that they'll knock off at least a point 0:11:41.160 --> 0:11:44.120 and probably two from Chinese GDP growth this year, so 0:11:44.160 --> 0:11:47.480 they'll essentially eat up all of the stimulus that has 0:11:47.480 --> 0:11:50.120 already been announced. So if they want to get close 0:11:50.160 --> 0:11:51.800 to five they're going to have to do a lot more, 0:11:51.840 --> 0:11:55.800 And they've talked a lot about stimulating consumer demand, et cetera. 0:11:56.360 --> 0:11:58.760 But it's going to be tough. So I think that's 0:11:58.800 --> 0:12:02.800 one of the reasons that these their preferred outcome here, 0:12:03.000 --> 0:12:05.319 that there is some kind of negotiation and the tariffs 0:12:05.320 --> 0:12:09.680 come down. They're not trying to prolong this unnecessarily, but 0:12:09.760 --> 0:12:13.600 they also want a deal that kind of makes sense 0:12:13.800 --> 0:12:18.280 and reflects economic fundamentals, and that frankly doesn't make their 0:12:18.320 --> 0:12:22.560 government look too weak. So Xi Jinping really has to 0:12:22.559 --> 0:12:24.240 look strong, and I think this is one of the 0:12:24.280 --> 0:12:28.760 reasons that they decided to retaliate, which no other country did. 0:12:30.240 --> 0:12:32.360 But I think number one they were frustrated that all 0:12:32.360 --> 0:12:36.680 their efforts to negotiate had been rebuffed. And then number two, 0:12:36.720 --> 0:12:38.640 they thought, well, we're going to get high tariffs no 0:12:38.679 --> 0:12:43.200 matter what we do. So politically, what's the best way 0:12:43.240 --> 0:12:44.840 for us to play this. What's the best way for 0:12:44.920 --> 0:12:48.080 us to mobilize public support at home for what we 0:12:48.120 --> 0:12:50.240 know is going to be difficult no matter what we do. 0:12:51.360 --> 0:12:52.679 And I think they came up with the answer that 0:12:52.720 --> 0:12:54.400 we're going to fight back and we're going to prove 0:12:54.400 --> 0:12:57.080 that we're strong and we're standing up to Trump. So 0:12:57.200 --> 0:13:01.080 politically it's pretty important for them to to, you know, 0:13:01.160 --> 0:13:03.840 maintain that posture. But it's going to be tough, and 0:13:04.080 --> 0:13:06.920 you know, if there is no resolution to this within 0:13:06.960 --> 0:13:10.720 the next three or four months. I'm personally pretty skeptical 0:13:10.720 --> 0:13:12.160 of the hit five percent. 0:13:12.200 --> 0:13:14.679 Even with the additional monetary. 0:13:14.480 --> 0:13:17.040 Even with additional stimulus, it's just very, very hard to 0:13:17.080 --> 0:13:20.360 get consumer confidence going. Again, that's not something you can 0:13:20.520 --> 0:13:23.600 turn a switch on. But I think the point is 0:13:23.600 --> 0:13:26.439 they're willing to take that pain. Essentially, what they're saying 0:13:26.559 --> 0:13:28.640 is like, Okay, maybe we don't hit our five percent, 0:13:28.720 --> 0:13:30.160 maybe we get three and a half percent. 0:13:30.920 --> 0:13:31.960 We'll live with that. 0:13:32.360 --> 0:13:36.440 Because we think that we can live with that outcome 0:13:36.760 --> 0:13:39.559 more than the US public can deal with a lot 0:13:39.679 --> 0:13:42.319 lower growth and higher inflation that's going to come down 0:13:42.320 --> 0:13:44.680 the road from tariff. So if we have to, we'll 0:13:44.679 --> 0:13:47.840 just play a waiting game and we'll see who cracks first. 0:13:47.920 --> 0:13:49.600 And we bet that it's the Americans that. 0:13:49.559 --> 0:13:50.360 Will crack first. 0:13:50.760 --> 0:13:52.360 Yeah, So literally a game of chicken. 0:13:52.760 --> 0:13:56.160 It's a game of chicken, or economic attrition or you know, 0:13:56.160 --> 0:13:57.160 whatever you want to call it. 0:13:57.240 --> 0:13:57.480 Yeah. 0:13:57.559 --> 0:14:01.959 Yeah, And you've just said that consumer in China it's 0:14:02.000 --> 0:14:04.480 not just about flipping a switch. You know, it doesn't 0:14:04.880 --> 0:14:07.280 happen overnight. This really doesn't happen in a few years. 0:14:07.960 --> 0:14:11.920 What's your read on the government's moves right now to 0:14:12.000 --> 0:14:15.480 try to stimulate the consumer is that, you know, they 0:14:15.480 --> 0:14:18.280 had this trade in program that seemed very successful, but 0:14:18.360 --> 0:14:19.720 sort of a longer term. 0:14:20.120 --> 0:14:22.440 Well, I want to back up and just give you 0:14:22.480 --> 0:14:25.600 my theory of what ails the Chinese consumer. Please do 0:14:25.840 --> 0:14:27.400 because the reality is, I mean, if you go back 0:14:27.440 --> 0:14:30.320 to twenty nineteen, before the pandemic, Chinese consumer is in 0:14:30.360 --> 0:14:34.880 pretty good shape. It was a vibrant, fast growing consumer market, 0:14:35.200 --> 0:14:40.040 very diverse consumption of both products and services, becoming more sophisticated, 0:14:40.440 --> 0:14:41.960 doing a lot of international travel. 0:14:42.000 --> 0:14:43.840 It was a very positive story. 0:14:44.400 --> 0:14:47.720 And basically what we've seen in the last years is 0:14:47.760 --> 0:14:50.840 that story went off the rails. I think reason number 0:14:50.920 --> 0:14:54.280 one was that you had the pandemic and everything shut 0:14:54.320 --> 0:14:56.880 down for a few months in twenty twenty, and China 0:14:56.960 --> 0:14:59.800 was really the only major economy in the entire world 0:15:00.600 --> 0:15:04.280 that did not help out consumers and households during the pandemic. 0:15:04.280 --> 0:15:07.680 The US mailed stimulus checks, most European countries put in 0:15:07.720 --> 0:15:11.880 employment or wage guarantees. China did nothing, so there was 0:15:11.880 --> 0:15:14.760 a big hit to consumer confidence. Then things came back 0:15:14.800 --> 0:15:16.240 a bit, and then they got the second round of 0:15:16.240 --> 0:15:18.720 the pandemic in twenty twenty two, Shanghai lockdowns. 0:15:19.120 --> 0:15:21.800 It was really bad, and I. 0:15:21.680 --> 0:15:25.240 Think Chinese consumers were just traumatized by that sort of 0:15:25.280 --> 0:15:29.320 double whammy of getting hit and not getting any support 0:15:29.360 --> 0:15:31.200 from the government, so they were very cautious coming out 0:15:31.200 --> 0:15:33.520 of the pandemic. And then, of course, the other thing 0:15:33.560 --> 0:15:35.720 that happened in that period is that the Chinese government 0:15:35.720 --> 0:15:37.880 decided to squash the property market, which is the main 0:15:37.920 --> 0:15:40.600 source of household wealth. They've done a very effective job 0:15:40.640 --> 0:15:44.320 of that, and they've been very determined not to reinflate 0:15:44.320 --> 0:15:47.200 the property bubble. But what that means is that one 0:15:47.280 --> 0:15:50.320 of the key sources of household confidence, which is their 0:15:50.400 --> 0:15:54.800 rising wealth, has been knocked out. So you have kind 0:15:54.800 --> 0:16:00.120 of a bad employment market PTSD from the COVID lockdowns 0:16:00.800 --> 0:16:04.600 and a comatost property sector and you add all that 0:16:04.640 --> 0:16:08.600 stuff up, and Chinese consumers are just they do not 0:16:08.720 --> 0:16:12.680 want to spend an extra nickel if they can avoid it. 0:16:13.600 --> 0:16:16.760 And so how do you reverse that cycle because that 0:16:16.840 --> 0:16:19.960 also feeds into business confidence business as well. Consumers aren't buying, 0:16:19.960 --> 0:16:21.880 so we're not going to hire or invest in new 0:16:21.920 --> 0:16:26.320 acqui And if business is aren't hiring, then households say, wait, 0:16:26.360 --> 0:16:27.760 if I lose my job, I'm not going to get 0:16:27.760 --> 0:16:29.880 a new one because no one's hiring. So you have 0:16:29.920 --> 0:16:33.600 a negative confidence spiral and you have to do a 0:16:33.600 --> 0:16:38.120 bunch of things to turn that around. And I think 0:16:38.120 --> 0:16:40.160 they're going to have to do quite a bit more 0:16:40.240 --> 0:16:44.360 in terms of promoting private sector business confidence, which they've 0:16:44.400 --> 0:16:48.320 started to do with the Internet companies. They probably have 0:16:48.400 --> 0:16:50.240 to do a little bit more to support the property 0:16:50.280 --> 0:16:53.760 market than they're comfortable doing now, and they probably just 0:16:53.800 --> 0:16:56.400 have to pump a lot more government money into the 0:16:56.440 --> 0:16:59.520 system than they have done so far. And I think 0:16:59.560 --> 0:17:01.320 at the end of the day they will be willing 0:17:01.360 --> 0:17:03.560 to do all of those things, but they're doing them 0:17:04.040 --> 0:17:06.320 kind of slowly and step by step, so it's not 0:17:06.359 --> 0:17:09.560 going to be easy for them to turn. 0:17:09.359 --> 0:17:12.040 On a dime and get consumer confidence up again. 0:17:12.320 --> 0:17:14.760 Yeah, and for the consumer specifically, do you see these 0:17:14.800 --> 0:17:19.280 measures as sort of a shorter term, you know, trying 0:17:19.280 --> 0:17:20.959 to address the issues in the short term, or do 0:17:21.000 --> 0:17:24.879 you see this as fundamentally potentially changing the psychology of 0:17:24.880 --> 0:17:28.879 the consumers longer term? In other words, can this actually 0:17:29.160 --> 0:17:30.960 create a consumer led economy? 0:17:31.560 --> 0:17:33.679 Well, so, I think a lot of the stuff that 0:17:33.680 --> 0:17:36.600 they've done up until now has been essentially short term, 0:17:36.720 --> 0:17:39.480 like these trade in programs, and trade in programs did 0:17:39.520 --> 0:17:41.520 work a lot better than I thought they would, frankly. 0:17:42.680 --> 0:17:44.919 And that's the equipment and home applying. 0:17:44.960 --> 0:17:47.000 So if you have an old appliance or an old car, 0:17:47.040 --> 0:17:48.760 you can trade it in, you can get a subsidy 0:17:48.800 --> 0:17:51.400 to buy a new one, and that's you know, been 0:17:51.440 --> 0:17:55.040 reasonably effective. But essentially what that does is says you're 0:17:55.080 --> 0:17:57.000 going to buy something in two or three years anyway, 0:17:57.160 --> 0:17:59.520 Why don't you buy it now, so that's just borrowing 0:17:59.560 --> 0:18:03.320 demand from the future. It's not really creating new sustainable demand, 0:18:03.760 --> 0:18:06.719 so that's more of a short term fix. Similarly, you know, 0:18:06.800 --> 0:18:09.439 JD dot Com has set up a fund to buy 0:18:09.640 --> 0:18:13.959 goods from exporters for resale on the domestic market, so 0:18:14.000 --> 0:18:16.040 that's again that's kind of like a short term gimmick 0:18:16.080 --> 0:18:18.120 that's not going to really get. 0:18:17.960 --> 0:18:18.560 You very far. 0:18:18.880 --> 0:18:21.400 But I think the thing that has changed is that 0:18:21.440 --> 0:18:24.320 since last December, Xijionping has made it very clear that 0:18:24.440 --> 0:18:27.480 promoting consumption is a top political primary and this is 0:18:27.560 --> 0:18:31.880 very different than at any other time in his administration. 0:18:32.600 --> 0:18:37.520 So the political importance of promoting consumption has now become paramount, 0:18:37.920 --> 0:18:39.840 and that makes a big difference. In the Chinese system 0:18:39.920 --> 0:18:43.200 and the Chinese system, a lot happens based on signals 0:18:43.480 --> 0:18:45.960 from the top government officials, and for the last five years, 0:18:45.960 --> 0:18:48.720 the signals were mainly, we have to invest a lot 0:18:48.760 --> 0:18:51.960 in high tech industry to become self sufficient. It was 0:18:52.000 --> 0:18:55.239 all a supply side strategy. Now the signal is very 0:18:55.240 --> 0:18:57.879 clearly we need to work on demand. And so what 0:18:58.000 --> 0:19:01.320 usually happens is that they flail around for while after 0:19:01.359 --> 0:19:04.080 these signals go out and then gradually they figure out 0:19:04.520 --> 0:19:07.080 tools that help them get to. 0:19:07.040 --> 0:19:08.480 The desired political objective. 0:19:08.880 --> 0:19:11.600 So I think that is important, and I think over 0:19:11.760 --> 0:19:14.000 the course of a year or two, what that will 0:19:14.000 --> 0:19:18.200 mean is that you'll probably get stronger consumer activity. I 0:19:18.280 --> 0:19:21.320 don't think you're headed towards a consumer led economy because 0:19:21.359 --> 0:19:24.359 the DNA of huge and pain in the communist parties. 0:19:24.440 --> 0:19:26.880 It's all about growth. 0:19:26.560 --> 0:19:29.399 Comes from investment in technology. That's what they really believe 0:19:29.440 --> 0:19:31.960 at bottom. So even if they've made a pretty big 0:19:32.000 --> 0:19:35.359 pivot right now to support consumption, I think their longer 0:19:35.480 --> 0:19:39.800 term strategy is still very much all about technology investment. 0:19:40.040 --> 0:19:44.280 Interesting because that isn't necessarily I mean quite aside from 0:19:44.320 --> 0:19:47.399 what officials in China have said. I mean, you heard 0:19:47.800 --> 0:19:51.760 Janet Yellen speak about the importance of China pivoting to 0:19:51.800 --> 0:19:54.920 the consumer. You're seeing a lot of other countries who 0:19:54.920 --> 0:19:59.040 are hoping that that happens so they don't get access 0:19:59.359 --> 0:20:00.600 stuff from China. 0:20:01.520 --> 0:20:04.840 Yeah, and I just think that it's going to be 0:20:04.880 --> 0:20:10.200 a long, hard slog to achieve that. You know, other 0:20:11.040 --> 0:20:15.240 central bankers, trade ministers, you name it. They've been talking 0:20:15.320 --> 0:20:20.800 for decades literally about how China needed to invest less 0:20:21.400 --> 0:20:24.880 and consume more, and the Chinese have been, you know, 0:20:25.600 --> 0:20:28.800 not very interested in what these people have to say. 0:20:28.920 --> 0:20:31.600 So I don't think that they're really going to take 0:20:31.640 --> 0:20:34.399 too many cues on their domestic policy from Janet Yellen, 0:20:34.560 --> 0:20:42.480