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Speaker 1: Jeremy Stevens. He is the chief China economist at Standard Bank,

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Speaker 1: joining from Beijing. Jeremy, thanks for being with us. I'm

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Speaker 1: looking at the new COVID cases just reported from the government. Um,

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Speaker 1: where you are? Eight seven? I'm sorry, so we're at

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Speaker 1: a new record. This is really going to hold back

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Speaker 1: the economy quite a bit, isn't it. Hi, Doug yuess

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Speaker 1: and happy Thankgiving. Totally You're totally right, but I think

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Speaker 1: this is just the tip of the iceberg. To tell

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Speaker 1: you the truth, Um, there's there's obviously been quite a

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Speaker 1: lot of confusion on the ground here in China, but

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Speaker 1: there's been, as far as I can tell, a clear

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Speaker 1: change in the attitude of the government towards COVID and

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Speaker 1: the pandemic. And the goal is quite clearly no longer

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Speaker 1: to grind back to zero each pocket of infection, and

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Speaker 1: instead what they aim to do is metabolize as many

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Speaker 1: new cases as possible at a rate that doesn't overwhelm

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Speaker 1: the health care facilities. And the issue is of these

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Speaker 1: thresholds are very much unknown. They're still working them out.

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Speaker 1: The time arising is very uncertain as well, and there's

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Speaker 1: additional confusion because the exact same tools that they used

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Speaker 1: to grind the cases to zero are going to be

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Speaker 1: the tools that they used to try and maintain what

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Speaker 1: they believe to be is a healthy rate of infection

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Speaker 1: um But these numbers are going to look quaint at

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Speaker 1: some point. To put it in perspective, in the last month,

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Speaker 1: China has had about three and seventy thousand cases of

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Speaker 1: COVID asymptomatic and symptomatic, and at that rate they would

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Speaker 1: probably have about four point four million cases by the

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Speaker 1: end of next year, and really in reality they need

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Speaker 1: twenty times that thirty times that. So we're seeing a shift,

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Speaker 1: and it's how people digest that change is going to

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Speaker 1: take time, and the path ahead is very uncertain. So

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Speaker 1: maybe no change on the policy front when it where

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Speaker 1: it applies to zero COVID, But I'm thinking a shift

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Speaker 1: monetary policy. Are you thinking that maybe we're going to

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Speaker 1: get a let's say a triple our cut today? I

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Speaker 1: know it would be largely a symbolic measure, but are

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Speaker 1: authorities in Beijing concerned that to the extent that they're

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Speaker 1: going to begin applying a lot more stimulus. Well, so

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Speaker 1: yes on the triple are cut almost definitely in terms

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Speaker 1: of rate cuts, probably not because of the deviation in

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Speaker 1: policy rates between the US and China and what the

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Speaker 1: impact that may be on UM the currency and capsule

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Speaker 1: are flows. But they'll certainly be leaning towards making sure

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Speaker 1: that there's ample liquidity inside the financial system. But the

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Speaker 1: issue is that the demand for leans is relatively low,

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Speaker 1: and so they what they say is they're pushing on

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Speaker 1: a string, right, It's not necessarily going to change the

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Speaker 1: fundamental dynamics. The issue China has is that business sentiments

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Speaker 1: and consumer sentiments at all time lows, and in terms

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Speaker 1: of the records kept, it's the lowest they have been

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Speaker 1: since they tanked in in in April of this year,

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Speaker 1: and they really haven't recovered. Um. They've got significant issues,

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Speaker 1: as all your listeners know, with the property sector. UM.

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Speaker 1: I'm watching very carefully what's happening with manufacturing investment, because

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Speaker 1: that's been sort of leading the party this year. But

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Speaker 1: the reality is, I'm not seeing a lot of evidence

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Speaker 1: of upgrading manufacturing capacity. I'm actually seeing a few subsectors

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Speaker 1: of manufacturing expand capacity to meet rising export orders, and

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Speaker 1: those have started to diminish quite considerably as the rest

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Speaker 1: of the world struggles with their own economic fundamentals, So

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Speaker 1: what happens to that? Yeah, carry on, Sorry, I'm no

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Speaker 1: I was wondering. You seem to be kind of sketching

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Speaker 1: out here a critical state. How critical is it? Um?

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Speaker 1: So in terms of the growth trajectory, I think maintaining

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Speaker 1: these kinds of levels of growth for the next two

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Speaker 1: quarters is reasonable to expect, as they iryan rejig their

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Speaker 1: relationship with covid Um, and they'll do what they can

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Speaker 1: to support the economy as best they can with the

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Speaker 1: tools that they have at their disposal, which is vague,

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Speaker 1: but the reality is that they are running out of

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Speaker 1: road in some of their traditional levers, and they're very

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Speaker 1: well aware of that. And I do think that the

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Speaker 1: stimulus that they've done in and two have been something

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Speaker 1: they didn't want to necessarily do, but felt compelled to do.

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Speaker 1: And so there's a scenario where they have to do

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Speaker 1: the same thing again next year, which obviously adds kindle

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Speaker 1: to potential financial instability later on down the road. Um.

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Speaker 1: But you do have the benefit of having really positive

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Speaker 1: GDP growth in the second quarter something like eight percent,

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Speaker 1: just because of base effects. And then what you'll see

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Speaker 1: is in the second half of next year, these structural

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Speaker 1: fundamental challenges reassert themselves and growth will probably drift much lower,

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Speaker 1: somewhere around three percent by the end of this end

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Speaker 1: of next year. And and and that's really what investors need

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Speaker 1: to become accustomed to. China's economic growth is going to

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Speaker 1: be much much slower. The Party has delinked its legitimacy

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Speaker 1: from trying to maintain fast growth, and the rest of

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Speaker 1: the world just needs to sort of start to see

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Speaker 1: China in a different lights. Jeremy, thank you so much

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Speaker 1: for being with us and sharing your perspective. Jeremy Stevens

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Speaker 1: is chief China economist at Standard Bank, joining us here

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Speaker 1: on dB A