1 00:00:10,240 --> 00:00:13,640 Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast. 2 00:00:13,760 --> 00:00:15,080 Speaker 1: I'm Tracy Alloway. 3 00:00:14,840 --> 00:00:16,759 Speaker 2: And I'm Joe Wysn't thal Joe. 4 00:00:16,720 --> 00:00:19,439 Speaker 1: Do you remember at the beginning of the year there 5 00:00:19,600 --> 00:00:22,320 Speaker 1: was so much excitement about China reopening. 6 00:00:23,160 --> 00:00:24,239 Speaker 2: Yes. Absolutely. 7 00:00:24,280 --> 00:00:24,479 Speaker 1: You know. 8 00:00:24,560 --> 00:00:27,040 Speaker 3: It is interesting because I think if you go back 9 00:00:27,080 --> 00:00:30,280 Speaker 3: to last fall, there was all this talking's like, why 10 00:00:30,400 --> 00:00:32,839 Speaker 3: is it China giving up on COVID zero? When is 11 00:00:32,920 --> 00:00:35,599 Speaker 3: China going to give up on COVID zero? And then 12 00:00:35,680 --> 00:00:37,560 Speaker 3: and they're like, oh, it's not going to happen anytime soon. 13 00:00:37,640 --> 00:00:40,120 Speaker 3: And then one day it just happened, and everyone's like, Okay, 14 00:00:40,360 --> 00:00:42,800 Speaker 3: here comes China, Here comes all the demand from China. 15 00:00:42,840 --> 00:00:43,839 Speaker 2: It's on, that's right. 16 00:00:43,920 --> 00:00:47,080 Speaker 1: And so a big plank or portion of the Boll 17 00:00:47,159 --> 00:00:51,080 Speaker 1: thesis for twenty twenty three was that because China was 18 00:00:51,159 --> 00:00:54,920 Speaker 1: reopening its economy after basically being shut for three years, 19 00:00:55,120 --> 00:00:58,640 Speaker 1: you were going to get all this additional economic activity. 20 00:00:58,960 --> 00:01:03,000 Speaker 1: And while we have seen markets rally, it is not 21 00:01:03,880 --> 00:01:06,960 Speaker 1: it is definitely not because of China. In fact, China 22 00:01:07,040 --> 00:01:09,520 Speaker 1: really seems to be struggling here. So we have you know, 23 00:01:10,000 --> 00:01:14,200 Speaker 1: Chinese manufacturing is still at or nearer contraction. I think 24 00:01:14,240 --> 00:01:18,960 Speaker 1: exports are flagging. Inflation is basically around zero, which might 25 00:01:19,000 --> 00:01:21,200 Speaker 1: sound great to a number of other countries right now, 26 00:01:21,240 --> 00:01:25,000 Speaker 1: but of course it means that in China growth is subpar. 27 00:01:25,800 --> 00:01:27,319 Speaker 2: Yeah, I mean, I think it also. 28 00:01:27,959 --> 00:01:32,039 Speaker 3: The big story for the world too has been oil demand, 29 00:01:32,360 --> 00:01:35,440 Speaker 3: and there's a lot of expectation that's like, Okay, commodity 30 00:01:35,480 --> 00:01:38,640 Speaker 3: prices are kind of soft, but China's going to reopen. 31 00:01:38,720 --> 00:01:41,320 Speaker 3: Oil demand is going to surge, and that was expected 32 00:01:41,360 --> 00:01:46,400 Speaker 3: to contribute to like further inflationary pressures throughout the world oil, copper, 33 00:01:46,680 --> 00:01:50,720 Speaker 3: et cetera. And so yeah, that's that totally caught that 34 00:01:50,800 --> 00:01:53,200 Speaker 3: market by surprise and changed a lot of the sort 35 00:01:53,240 --> 00:01:55,800 Speaker 3: of macro dynamics globally that people were expecting. 36 00:01:55,960 --> 00:01:56,160 Speaker 4: Yep. 37 00:01:56,400 --> 00:01:59,360 Speaker 1: So now is the perfect time to dig into what 38 00:01:59,520 --> 00:02:02,280 Speaker 1: is going on with the Chinese economy, and you know, 39 00:02:02,560 --> 00:02:05,800 Speaker 1: to some degree, the weakness this year sort of highlights 40 00:02:05,880 --> 00:02:10,040 Speaker 1: these longer term concerns around China. How is it actually 41 00:02:10,280 --> 00:02:13,960 Speaker 1: transitioning or developing its economy. Is it going to be 42 00:02:14,000 --> 00:02:17,400 Speaker 1: able to achieve the ultra high levels of growth that 43 00:02:17,440 --> 00:02:19,880 Speaker 1: we've seen in the past, or is it going to 44 00:02:19,919 --> 00:02:23,200 Speaker 1: fall into something like a middle income trap what's going 45 00:02:23,200 --> 00:02:25,840 Speaker 1: on with Chinese local government debt that's been in the 46 00:02:25,840 --> 00:02:28,639 Speaker 1: headlines quite a bit recently, and all of that put 47 00:02:28,680 --> 00:02:33,320 Speaker 1: together has given rise to this idea of Japanification risk 48 00:02:33,560 --> 00:02:36,519 Speaker 1: for China. So the notion that you might have ultra 49 00:02:36,600 --> 00:02:39,799 Speaker 1: high levels of debt that weigh on future growth because 50 00:02:39,840 --> 00:02:42,680 Speaker 1: everyone has to spend their money basically paying down their 51 00:02:42,720 --> 00:02:46,000 Speaker 1: debt rather than investing in new and exciting things. 52 00:02:46,520 --> 00:02:50,000 Speaker 3: Yeah, it's weird because I feel like there's like, now, 53 00:02:50,080 --> 00:02:52,919 Speaker 3: there's two conflicting themes that I think about with China. 54 00:02:53,000 --> 00:02:55,400 Speaker 3: So one is exactly as you said that there is 55 00:02:55,480 --> 00:03:00,519 Speaker 3: this sort of sluggish growth, over capacity, debt, indebted cities 56 00:03:00,680 --> 00:03:03,680 Speaker 3: and so forth, lack of domestic consumption. And then the 57 00:03:03,720 --> 00:03:06,239 Speaker 3: other one is this sort of awe that the world 58 00:03:06,360 --> 00:03:10,799 Speaker 3: has that like the booming electric vehicle exports, that they 59 00:03:10,840 --> 00:03:14,239 Speaker 3: finally got the first flight of their domestic wide body 60 00:03:14,280 --> 00:03:18,040 Speaker 3: aviation that first planned the COMAC that we talked about 61 00:03:18,040 --> 00:03:21,560 Speaker 3: with Brad Setser, and of course all the anxiety about 62 00:03:21,600 --> 00:03:24,400 Speaker 3: the chip progress that the country has made, which is 63 00:03:24,400 --> 00:03:28,000 Speaker 3: why the Biden administration has cut off access to various 64 00:03:28,080 --> 00:03:31,680 Speaker 3: high tech, cutting edge semiconductor equipment. So there's these two things. 65 00:03:31,680 --> 00:03:34,600 Speaker 3: There's this like sort of like shokunawe at the success 66 00:03:34,639 --> 00:03:37,120 Speaker 3: they're having in batteries, cars and so forth. At the 67 00:03:37,120 --> 00:03:39,520 Speaker 3: same time, like the macro numbers do not look good. 68 00:03:40,040 --> 00:03:43,480 Speaker 1: It's true China is always like a giant waiting in 69 00:03:43,520 --> 00:03:47,880 Speaker 1: the wings to take over everyone else's economy. And also simultaneously, 70 00:03:48,280 --> 00:03:52,520 Speaker 1: this bundle of vulnerabilities that people are worried is going 71 00:03:52,560 --> 00:03:55,760 Speaker 1: to tip into a massive financial crisis. That's always the case. 72 00:03:56,120 --> 00:03:58,960 Speaker 1: But okay, I have to say, we really do have 73 00:03:59,040 --> 00:04:01,360 Speaker 1: the perfect guest to discuss all of this. We're going 74 00:04:01,400 --> 00:04:04,280 Speaker 1: to be speaking with Richard Ku, chief economist at the 75 00:04:04,360 --> 00:04:08,320 Speaker 1: Nomora Research Institute, which is the research arm of Japan's 76 00:04:08,320 --> 00:04:11,520 Speaker 1: biggest brokerage to Moora. And of course he is also 77 00:04:11,600 --> 00:04:15,040 Speaker 1: the man who basically wrote the book on balance sheet recession. 78 00:04:15,200 --> 00:04:17,760 Speaker 1: So Richard, thank you so much for coming back on 79 00:04:17,800 --> 00:04:18,279 Speaker 1: all thoughts. 80 00:04:18,360 --> 00:04:19,480 Speaker 4: Well, thank you for having me. 81 00:04:19,839 --> 00:04:23,120 Speaker 1: Yeah, really appreciate it. Maybe just to begin with, I 82 00:04:23,160 --> 00:04:26,479 Speaker 1: know you've been talking and writing about this theme of 83 00:04:26,520 --> 00:04:29,800 Speaker 1: a potential balance sheet recession in China. You also have 84 00:04:29,880 --> 00:04:31,880 Speaker 1: a book that came out I think it was just 85 00:04:32,000 --> 00:04:35,760 Speaker 1: last year called Pursued Economy, where you talk quite a 86 00:04:35,760 --> 00:04:39,480 Speaker 1: lot about the trajectory of China's economy, but talk to 87 00:04:39,600 --> 00:04:42,000 Speaker 1: us about what you're seeing now that suggests there may 88 00:04:42,040 --> 00:04:46,920 Speaker 1: be signs of a Japan style balance sheet recession in China. 89 00:04:47,640 --> 00:04:51,159 Speaker 5: Well, a lot of Chinese journalists economists are being contacted 90 00:04:51,279 --> 00:04:54,320 Speaker 5: me on this issue also, that are we going to 91 00:04:54,320 --> 00:04:58,120 Speaker 5: be Japan soon or are we already on that path? 92 00:04:58,760 --> 00:05:01,960 Speaker 4: And my answer to that is that. 93 00:05:02,320 --> 00:05:05,599 Speaker 5: A lot of similarities between what happened to Japan thirty 94 00:05:05,680 --> 00:05:09,080 Speaker 5: years ago and what's happening to China today, but they 95 00:05:09,080 --> 00:05:15,120 Speaker 5: are also important differences. And what the Chinese economists worried 96 00:05:15,160 --> 00:05:19,760 Speaker 5: about is that China may be following fall into what 97 00:05:19,800 --> 00:05:23,880 Speaker 5: I call balance recession. And balance recession is triggered by 98 00:05:24,320 --> 00:05:28,160 Speaker 5: this whole notion that people feel uncomfortable with their balance sheets, 99 00:05:28,440 --> 00:05:31,279 Speaker 5: suppose that the debt is too large relative to their assets, 100 00:05:31,600 --> 00:05:34,200 Speaker 5: and that typically happens after the bursting of a bubble. 101 00:05:34,360 --> 00:05:37,400 Speaker 5: If the bubble is financed with debt, and as the 102 00:05:37,480 --> 00:05:40,800 Speaker 5: prices collapse but the liabilities remain, people realize that their 103 00:05:40,839 --> 00:05:44,039 Speaker 5: balance is underwater. And if the balance is underwater, you 104 00:05:44,080 --> 00:05:45,760 Speaker 5: have to fix it, or how do you fix it? 105 00:05:46,040 --> 00:05:49,159 Speaker 5: You pay down debt. Well, that's the right thing to 106 00:05:49,200 --> 00:05:51,600 Speaker 5: do at the individual level, but when everybody does this 107 00:05:51,640 --> 00:05:54,080 Speaker 5: all at the same time, we got into a fallacy 108 00:05:54,080 --> 00:05:57,479 Speaker 5: of composition problems in that in the national economy, if 109 00:05:57,480 --> 00:05:59,920 Speaker 5: someone is saving money or paying down debt, you need 110 00:06:00,040 --> 00:06:02,440 Speaker 5: someone else to borrow and spend those money to keep 111 00:06:02,480 --> 00:06:05,560 Speaker 5: the economy going. And in the usual economy, you bring 112 00:06:05,839 --> 00:06:08,560 Speaker 5: you give too few borrowers, you bring interest rates down. 113 00:06:08,640 --> 00:06:12,240 Speaker 5: Too many borrowers, you push interest rates higher, and then 114 00:06:12,240 --> 00:06:15,880 Speaker 5: that's how you keep the economy is going. But when 115 00:06:15,920 --> 00:06:20,680 Speaker 5: the big bubble burst and as the prices collapse, everyone 116 00:06:20,720 --> 00:06:22,799 Speaker 5: will be paying down there no one will be borrowing 117 00:06:22,839 --> 00:06:25,679 Speaker 5: money even at zero interest rates, because if your balance 118 00:06:25,760 --> 00:06:28,160 Speaker 5: is underwater, you're not going to borrow money even if 119 00:06:28,560 --> 00:06:32,480 Speaker 5: interust rates come down to zero. And that's the prospect 120 00:06:32,560 --> 00:06:36,600 Speaker 5: that Chinese are worried about. And China got this huge bubble, 121 00:06:37,560 --> 00:06:42,680 Speaker 5: especially in the residential real estate, and the amount of 122 00:06:43,000 --> 00:06:48,640 Speaker 5: price increase that China observed on the residential real estate 123 00:06:48,720 --> 00:06:52,479 Speaker 5: is almost same as what happened to Japan thirty years 124 00:06:52,480 --> 00:06:57,240 Speaker 5: ago in Tokyo and Osaka. And so when the real 125 00:06:57,320 --> 00:07:01,080 Speaker 5: estate bubbles start collapsing last year, all these Chinese economists 126 00:07:01,120 --> 00:07:04,760 Speaker 5: begin to worry about japan like situation where so many 127 00:07:04,800 --> 00:07:06,960 Speaker 5: people are paying down there all at the same time, 128 00:07:07,920 --> 00:07:12,600 Speaker 5: and economy could then fall into a deflationary spiral. I 129 00:07:12,640 --> 00:07:15,760 Speaker 5: think that is actually already happening in China. A lot 130 00:07:15,840 --> 00:07:19,440 Speaker 5: of people are saying very few people borrowing, so many 131 00:07:19,440 --> 00:07:23,520 Speaker 5: people are paying down debt even with these low interest rates, 132 00:07:25,000 --> 00:07:30,480 Speaker 5: and that's a very bad sign macroeconomically. Individually they might 133 00:07:30,520 --> 00:07:33,480 Speaker 5: be doing the right things, but collectively they may be 134 00:07:33,680 --> 00:07:37,960 Speaker 5: killing the economy. But there's also a big difference between 135 00:07:38,000 --> 00:07:40,520 Speaker 5: the Chinese situation and the Japanese one, and that is 136 00:07:40,560 --> 00:07:45,720 Speaker 5: that Chinese are already very much aware of this risk 137 00:07:45,840 --> 00:07:50,960 Speaker 5: called balance recession. And thirty some years ago, when this 138 00:07:51,320 --> 00:07:55,000 Speaker 5: thing was happening in Japan, no one in Japan, including myself, 139 00:07:55,520 --> 00:07:58,640 Speaker 5: had any idea about this balance recession because it was 140 00:07:58,720 --> 00:08:02,040 Speaker 5: not taught in economic books. I mean certainly not when 141 00:08:02,080 --> 00:08:06,000 Speaker 5: I was going through. And so when the economy began 142 00:08:06,080 --> 00:08:10,960 Speaker 5: to lose forward momentums and Bank of Japan brought rays 143 00:08:11,000 --> 00:08:17,239 Speaker 5: down to very low levels, nothing happens. Structural reform, nothing happens. 144 00:08:18,000 --> 00:08:22,640 Speaker 5: Fiscal stimulus, well, fiscal stimulus always worked, but that was 145 00:08:22,720 --> 00:08:25,440 Speaker 5: cut short because they thought every time the economy showed 146 00:08:25,480 --> 00:08:28,680 Speaker 5: even the slightest sign of growth, they say, ah, we 147 00:08:28,720 --> 00:08:32,080 Speaker 5: don't need physical stimulus anymore. Economy is improving. And then 148 00:08:32,080 --> 00:08:35,240 Speaker 5: the economy tanked a game, and it tanked a game 149 00:08:35,360 --> 00:08:39,160 Speaker 5: because people were still repairing balance sheets and when a 150 00:08:39,280 --> 00:08:47,240 Speaker 5: large bubble burst, and as the prices collapsed badly, it's 151 00:08:47,280 --> 00:08:50,240 Speaker 5: going to take five ten years easily to repair those 152 00:08:50,240 --> 00:08:54,400 Speaker 5: balance sheets. And in the Japanese case, it was bubble 153 00:08:54,480 --> 00:08:56,560 Speaker 5: was led by the commercial real estate. The commercial real 154 00:08:56,640 --> 00:09:01,199 Speaker 5: estate prices fell eighty seven percent nationwide, not just in 155 00:09:01,240 --> 00:09:04,960 Speaker 5: the little corner of Tokyo, but the entire country. And 156 00:09:05,000 --> 00:09:08,600 Speaker 5: so the balance sheet challenge that Japanese companies face was 157 00:09:08,720 --> 00:09:11,960 Speaker 5: absolutely massive. They all start paying down that all at 158 00:09:12,000 --> 00:09:14,400 Speaker 5: the same time, and that's how we got into this 159 00:09:15,280 --> 00:09:18,520 Speaker 5: very slow growth. But the government did not know how 160 00:09:18,520 --> 00:09:23,440 Speaker 5: to handle this type of recessions because in economics we 161 00:09:23,520 --> 00:09:26,720 Speaker 5: will never talk to look at balance sheets, and so 162 00:09:26,920 --> 00:09:32,920 Speaker 5: Japanese responses were very inconsistent, I should say, whereas in 163 00:09:32,960 --> 00:09:36,800 Speaker 5: the Chinese case, they are fully aware of this recession 164 00:09:36,840 --> 00:09:39,920 Speaker 5: called balance recession. That's why they have been calling me 165 00:09:40,360 --> 00:09:44,080 Speaker 5: very frequently these days. I was told I don't know, 166 00:09:44,480 --> 00:09:47,400 Speaker 5: I have no way to prove this, but one Chinese 167 00:09:47,400 --> 00:09:52,199 Speaker 5: professor told me that about half of the PhD dissertations 168 00:09:52,280 --> 00:09:57,840 Speaker 5: written on economics in China today based on my work 169 00:09:57,840 --> 00:10:01,960 Speaker 5: on balance sheet recession. Now I don't know whether it 170 00:10:02,080 --> 00:10:05,440 Speaker 5: was just making that number up, but what that suggests 171 00:10:05,480 --> 00:10:08,760 Speaker 5: to me is that now the Chinese government know that 172 00:10:08,840 --> 00:10:13,080 Speaker 5: there is this disease called balance recession, and they should 173 00:10:13,080 --> 00:10:16,320 Speaker 5: know how to handle it. Also because once you know 174 00:10:16,400 --> 00:10:20,360 Speaker 5: that this is a recession which is produced by lack 175 00:10:20,480 --> 00:10:25,720 Speaker 5: of borrowers, and the borrowers are not coming into borrow 176 00:10:25,720 --> 00:10:28,320 Speaker 5: money because they have balanceing problems, So the private sector 177 00:10:28,360 --> 00:10:31,440 Speaker 5: themselves cannot change their behavior. After they are doing the 178 00:10:31,480 --> 00:10:34,960 Speaker 5: right things trying to repair their balance sheets, then the 179 00:10:35,000 --> 00:10:37,600 Speaker 5: government has to come in and borrow and put that 180 00:10:37,679 --> 00:10:41,720 Speaker 5: money back into the income stream, which means fiscal stimulus 181 00:10:41,960 --> 00:10:46,760 Speaker 5: is absolutely essential once you're in balance recession. And so 182 00:10:46,840 --> 00:10:50,600 Speaker 5: my guess is that Chinese government will put in the 183 00:10:50,640 --> 00:10:55,040 Speaker 5: fiscal stimulus, which they are actually quite good at, and 184 00:10:55,160 --> 00:10:59,199 Speaker 5: that will keep the recession from turning into a depression 185 00:10:59,280 --> 00:11:03,480 Speaker 5: or something. So that's the key difference between the Japanese situation. 186 00:11:03,600 --> 00:11:06,840 Speaker 5: Thirty years ago, and what the Chinese resent, what the 187 00:11:06,920 --> 00:11:10,120 Speaker 5: Chinese may be faced with today, that they already know 188 00:11:10,200 --> 00:11:14,760 Speaker 5: what disease they are dealing with, and they are probably 189 00:11:14,760 --> 00:11:17,400 Speaker 5: they are not going to waste any money, waste any 190 00:11:17,440 --> 00:11:22,520 Speaker 5: time trying monetary easy or structural reform policies. My guess 191 00:11:22,640 --> 00:11:25,360 Speaker 5: is that they'll go straight into the fiscal stimulus to 192 00:11:25,720 --> 00:11:27,959 Speaker 5: keep the economy from losing its power. 193 00:11:45,280 --> 00:11:49,640 Speaker 3: So you mentioned that one advantage perhaps that China has 194 00:11:49,920 --> 00:11:54,720 Speaker 3: is having seen the experience of Japan. Incidentally, the US 195 00:11:54,840 --> 00:11:57,520 Speaker 3: also had that advantage when we had the two thousand 196 00:11:57,520 --> 00:12:00,720 Speaker 3: and eight two thousand and nine financial crisis. You wrote 197 00:12:00,720 --> 00:12:03,320 Speaker 3: a whole book on it, the Holy Grail of Macroeconomics. 198 00:12:03,679 --> 00:12:07,640 Speaker 3: Of course, US policymakers didn't exactly listen or heed the 199 00:12:07,640 --> 00:12:10,000 Speaker 3: warnings of that book, and we had this pretty awful 200 00:12:10,440 --> 00:12:12,360 Speaker 3: decade for growth. 201 00:12:13,080 --> 00:12:13,880 Speaker 2: You know, I'm. 202 00:12:13,720 --> 00:12:17,240 Speaker 3: Curious though, just in terms of balance sheets diving in, like, 203 00:12:17,360 --> 00:12:21,320 Speaker 3: how do you see the distribution of debt in China? 204 00:12:21,400 --> 00:12:23,640 Speaker 3: So the federal government doesn't have much debt, we know 205 00:12:23,720 --> 00:12:27,520 Speaker 3: that is it? How much is it corporates versus real 206 00:12:27,640 --> 00:12:32,640 Speaker 3: estate developers, versus households versus local cities and municipalities, like 207 00:12:32,760 --> 00:12:35,160 Speaker 3: what does the distribution of debt in China look like? 208 00:12:35,920 --> 00:12:36,160 Speaker 4: Well? 209 00:12:36,480 --> 00:12:43,400 Speaker 5: Can I first comment on your first comment about the US. Sure, Well, 210 00:12:44,360 --> 00:12:47,160 Speaker 5: when I was trying to explain to my formal colleagues 211 00:12:47,160 --> 00:12:50,079 Speaker 5: at the Federal Reserve that we were suffering from balance 212 00:12:50,120 --> 00:12:53,160 Speaker 5: saing session in Japan and therefore we need fiscal stimulus, 213 00:12:53,240 --> 00:12:58,840 Speaker 5: not structural reform. And as a formal recipient of doctoral 214 00:12:58,840 --> 00:13:01,760 Speaker 5: fellowship from the Board of Goldness, I have been, you know, 215 00:13:02,360 --> 00:13:05,160 Speaker 5: going back to the FED to give seminars on this 216 00:13:05,240 --> 00:13:10,360 Speaker 5: issue throughout the nineties, and as you mentioned just now, 217 00:13:11,679 --> 00:13:14,880 Speaker 5: they did not take any of my warnings. I was 218 00:13:14,960 --> 00:13:19,240 Speaker 5: bashed every step of the way, with the FED economist saying, 219 00:13:19,559 --> 00:13:21,719 Speaker 5: come on, just Bank of Japan printing the money and 220 00:13:21,720 --> 00:13:24,640 Speaker 5: then everything be fine. But I would try to explain 221 00:13:24,679 --> 00:13:28,440 Speaker 5: that that doesn't work when they are now borrowers. Well, 222 00:13:28,800 --> 00:13:33,720 Speaker 5: once two thousand and eight Lehman crisis happened, someone I 223 00:13:33,760 --> 00:13:37,760 Speaker 5: don't know who brought my book to the attention of 224 00:13:38,120 --> 00:13:43,559 Speaker 5: Jimmer Benenki and he read it the Holy Gramach Economics, 225 00:13:43,760 --> 00:13:47,920 Speaker 5: the book you mentioned, and he told so many other 226 00:13:47,960 --> 00:13:49,960 Speaker 5: people in the Federal Reserve to read it as well. 227 00:13:51,360 --> 00:13:55,400 Speaker 5: And if you notice that at the beginning he was 228 00:13:55,520 --> 00:14:00,640 Speaker 5: arguing that yes, monetary policy can handle it, as he 229 00:14:00,800 --> 00:14:05,280 Speaker 5: was a disciple of Milton Freeman, who argue that if 230 00:14:05,320 --> 00:14:08,839 Speaker 5: the Fed acted more responsible during a great depression, things 231 00:14:08,840 --> 00:14:12,760 Speaker 5: wouldn't have gone so bad. But after reading my book, 232 00:14:13,440 --> 00:14:17,160 Speaker 5: he started talking about fiscal cliff, which is the opposite 233 00:14:17,240 --> 00:14:20,080 Speaker 5: of what treatment was saying. And I thought that was 234 00:14:20,120 --> 00:14:24,120 Speaker 5: a very important change in the US policy when Germin 235 00:14:24,160 --> 00:14:29,360 Speaker 5: Minanke at various events kept on saying we cannot afford 236 00:14:29,360 --> 00:14:32,359 Speaker 5: the fall off the fiscal cliff. The government has to 237 00:14:32,400 --> 00:14:36,800 Speaker 5: continue borrowing and spending money, meaning that fiscal policy is 238 00:14:36,800 --> 00:14:41,120 Speaker 5: absolutely essential. And I think that is the key difference 239 00:14:41,200 --> 00:14:46,040 Speaker 5: between the United States and Europe, because Europe really did 240 00:14:46,080 --> 00:14:50,000 Speaker 5: not heed any of my advice, especially at the top level, 241 00:14:50,840 --> 00:14:54,840 Speaker 5: and so they fell into a really serious balance recession 242 00:14:55,200 --> 00:14:58,680 Speaker 5: and that recession lasted for almost ten years, whereas in 243 00:14:58,680 --> 00:15:03,040 Speaker 5: the United States, the epicenter of this global financial crisis, 244 00:15:03,400 --> 00:15:06,360 Speaker 5: because of the efforts made by Jimmerman and get the 245 00:15:06,480 --> 00:15:10,160 Speaker 5: Fed and Larry Summers also, who actually endorsed my book 246 00:15:10,200 --> 00:15:14,200 Speaker 5: The Holy grailm Microeconomics. He talked about the importance of 247 00:15:14,240 --> 00:15:17,960 Speaker 5: fiscal stimulus. It has to be speedy, substantial, and sustained. 248 00:15:18,760 --> 00:15:21,680 Speaker 5: So Obama administration was trying to put in fiscal stimulus. 249 00:15:22,320 --> 00:15:26,360 Speaker 5: They made a lot of resistance from them from the Republicans, 250 00:15:26,920 --> 00:15:29,320 Speaker 5: but at least US was trying to do all the 251 00:15:29,400 --> 00:15:31,920 Speaker 5: right things, and I think that's why US came out 252 00:15:31,920 --> 00:15:36,760 Speaker 5: of balance sheet recession much faster than the Europeans. So 253 00:15:37,080 --> 00:15:40,400 Speaker 5: I would say that my book actually did have an 254 00:15:40,440 --> 00:15:45,840 Speaker 5: impact on the US policy. If it had impact earlier, 255 00:15:45,960 --> 00:15:49,640 Speaker 5: it would have probably helped the US economy even sooner. 256 00:15:50,320 --> 00:15:52,080 Speaker 5: So that's one comment I want to make, and that 257 00:15:52,240 --> 00:15:56,160 Speaker 5: is that US policy makers realize that they're facing balance 258 00:15:56,160 --> 00:16:00,800 Speaker 5: sheet recession like EO too into the recession and made 259 00:16:00,880 --> 00:16:05,600 Speaker 5: all the appropriate changes to fight it. Now, going back 260 00:16:05,600 --> 00:16:10,040 Speaker 5: to the Chinese issue of where the debt might be, 261 00:16:11,440 --> 00:16:13,000 Speaker 5: you know a lot of people like to talk about 262 00:16:13,040 --> 00:16:16,239 Speaker 5: the size of the debt, but what is really important 263 00:16:16,760 --> 00:16:19,560 Speaker 5: is the difference between the size of the debt and 264 00:16:19,600 --> 00:16:24,080 Speaker 5: the size of the savings. And the fact that the 265 00:16:24,200 --> 00:16:29,280 Speaker 5: Chinese interest rates, for example, ten year Chinese government bounds 266 00:16:29,320 --> 00:16:33,240 Speaker 5: today is offering what two point six percent suggests that 267 00:16:33,560 --> 00:16:37,360 Speaker 5: savings are far bigger than the debt because if the 268 00:16:37,360 --> 00:16:40,080 Speaker 5: debt or the borrowing is probabiger than the savings. Interest 269 00:16:40,120 --> 00:16:43,080 Speaker 5: rates should be higher, not lower, and the fact that 270 00:16:43,280 --> 00:16:45,440 Speaker 5: ten year government bounce is down to two point six 271 00:16:45,480 --> 00:16:50,240 Speaker 5: percent suggest to me that overall China's biggest problem is 272 00:16:50,240 --> 00:16:53,520 Speaker 5: that there are too much savings relative to borrowings. So, 273 00:16:53,640 --> 00:16:57,880 Speaker 5: having said that, who has the capacity to borrow and 274 00:16:57,920 --> 00:17:04,040 Speaker 5: spend this money? Well, as you correctly mentioned, the federal 275 00:17:04,080 --> 00:17:08,159 Speaker 5: government of the central government probably has plenty of rooms 276 00:17:08,240 --> 00:17:13,520 Speaker 5: left to borrow and spend. But the regional governments I understand, 277 00:17:13,600 --> 00:17:18,119 Speaker 5: are in very sad shape because they can't sell the 278 00:17:18,200 --> 00:17:23,200 Speaker 5: land as easily or as expensively as before, and they 279 00:17:23,200 --> 00:17:26,080 Speaker 5: have used up quite a bit of their resources in 280 00:17:26,119 --> 00:17:30,399 Speaker 5: the previous years trying to support the economy, and also 281 00:17:30,520 --> 00:17:35,320 Speaker 5: during the COVID nineteen and so the feeling I get 282 00:17:35,400 --> 00:17:42,160 Speaker 5: is that regional governments are really overburdened already, and probably 283 00:17:42,200 --> 00:17:44,280 Speaker 5: they will require quite a bit of help from the 284 00:17:44,320 --> 00:17:47,359 Speaker 5: central government going forward if they are going to be 285 00:17:47,520 --> 00:17:51,760 Speaker 5: the one who will be actually implementing fiscal stimulus, which 286 00:17:51,800 --> 00:17:53,640 Speaker 5: is needed during the balancey recession. 287 00:17:54,520 --> 00:17:58,640 Speaker 1: So, just on the idea of physical stimulus, historically, it 288 00:17:58,720 --> 00:18:02,359 Speaker 1: does feel like a lot of China's stimulus has come 289 00:18:02,480 --> 00:18:06,760 Speaker 1: in the shape of support measures to companies or these 290 00:18:06,840 --> 00:18:11,560 Speaker 1: huge construction projects, big infrastructure and development projects of one 291 00:18:11,600 --> 00:18:14,919 Speaker 1: sort or another. What would be the ideal form of 292 00:18:15,000 --> 00:18:19,159 Speaker 1: stimulus this time around, because, of course, China is trying 293 00:18:19,200 --> 00:18:22,960 Speaker 1: to balance various needs and goals here. It's talked a 294 00:18:22,960 --> 00:18:27,120 Speaker 1: lot about retooling its economy away from manufacturing and real 295 00:18:27,240 --> 00:18:33,000 Speaker 1: estate and more towards consumption. And yet historically we haven't 296 00:18:33,080 --> 00:18:37,800 Speaker 1: seen a lot of fiscal support for households and individuals. 297 00:18:37,800 --> 00:18:40,280 Speaker 1: It just hasn't been a very big thing in China. 298 00:18:40,920 --> 00:18:44,280 Speaker 5: In terms of I mean, fiscal stimulus can come in 299 00:18:44,320 --> 00:18:47,760 Speaker 5: various forms, right, You can have tax cuts of all 300 00:18:47,800 --> 00:18:51,560 Speaker 5: of fiscal policy, or government actually borrowing and spending money, 301 00:18:51,600 --> 00:18:55,800 Speaker 5: and the spending can go to in very many different places. 302 00:18:56,760 --> 00:19:01,080 Speaker 5: First of all, tax cuts during balance research is not 303 00:19:01,240 --> 00:19:04,200 Speaker 5: going to be very effective, and the reason is quite simple. 304 00:19:04,240 --> 00:19:05,960 Speaker 5: Those people who get a tax cut who use the 305 00:19:06,040 --> 00:19:08,440 Speaker 5: money to pay down debt, and that's good for that 306 00:19:08,440 --> 00:19:11,880 Speaker 5: at the individual level perhaps, but collectively that won't help 307 00:19:11,920 --> 00:19:16,639 Speaker 5: the GDP from collapsing. And so during balanceing recession, tax 308 00:19:16,680 --> 00:19:21,879 Speaker 5: cuts should not be the main force of supporting the economy. 309 00:19:22,040 --> 00:19:24,919 Speaker 5: So the government has to borrow and spend money, so 310 00:19:25,160 --> 00:19:28,560 Speaker 5: within that what will be most effective. And I would 311 00:19:28,680 --> 00:19:37,240 Speaker 5: argue that all those residential housing projects that were started 312 00:19:37,920 --> 00:19:40,960 Speaker 5: but are now put on hold because the construction companies 313 00:19:41,280 --> 00:19:45,240 Speaker 5: either have gone bankrupt or having so much financial problems 314 00:19:45,280 --> 00:19:49,240 Speaker 5: they cannot move forward. I would recommend Chinese government to 315 00:19:50,680 --> 00:19:55,120 Speaker 5: go in there and help those construction companies so that 316 00:19:55,480 --> 00:20:01,320 Speaker 5: all the promised construction will be actually complete. I think 317 00:20:01,359 --> 00:20:04,600 Speaker 5: that would be the most effective way to spend fiscal 318 00:20:04,600 --> 00:20:09,960 Speaker 5: stimulus fiscal money, because that way, those people who were 319 00:20:10,040 --> 00:20:13,600 Speaker 5: feeling very insecure, I mean they paid for the apartment 320 00:20:13,600 --> 00:20:17,040 Speaker 5: house already or put the down payment. Now they're wondering 321 00:20:17,080 --> 00:20:20,440 Speaker 5: whether they will get anything from all the investments they made, 322 00:20:20,680 --> 00:20:25,280 Speaker 5: will at least get that apartments built and they can 323 00:20:25,800 --> 00:20:29,320 Speaker 5: look forward to perhaps some larger apartments as a result. 324 00:20:30,880 --> 00:20:34,800 Speaker 5: And the same part would be helping the construction industries. 325 00:20:35,080 --> 00:20:38,000 Speaker 5: And one key difference between the Japanese and the Chinese 326 00:20:38,040 --> 00:20:41,119 Speaker 5: situation is that construction is such a large part of 327 00:20:41,240 --> 00:20:45,040 Speaker 5: Chinese GDP. Construction accounts was something like twenty six percent 328 00:20:45,080 --> 00:20:49,199 Speaker 5: of Chinese GDP, whereas during the bubble days in Japan 329 00:20:49,280 --> 00:20:53,080 Speaker 5: it was only around twenty percent, and it wasn't a 330 00:20:53,119 --> 00:20:55,800 Speaker 5: big part of the picture, whereas in the Chinese bubble 331 00:20:56,320 --> 00:20:59,840 Speaker 5: it came with a huge construction boom. And so when 332 00:21:00,320 --> 00:21:05,840 Speaker 5: acid prices collapse but construction boom also go bust, then 333 00:21:05,880 --> 00:21:08,360 Speaker 5: you are hit from both the real side as well 334 00:21:08,400 --> 00:21:11,880 Speaker 5: as from the balance EAT side and BALANCEA side. There's 335 00:21:11,920 --> 00:21:14,960 Speaker 5: not much one can do. But on the construction side, 336 00:21:15,200 --> 00:21:20,119 Speaker 5: if government comes in and help finish those projects that 337 00:21:20,280 --> 00:21:24,400 Speaker 5: was started, I think that kind of money will probably 338 00:21:24,640 --> 00:21:27,960 Speaker 5: go a long way in helping the Chinese economy. 339 00:21:28,520 --> 00:21:31,120 Speaker 3: Can I ask what about the role of the foreign 340 00:21:31,400 --> 00:21:34,959 Speaker 3: sector when we sort of break down the Chinese economy 341 00:21:35,000 --> 00:21:37,280 Speaker 3: and a sort of sectoral model. So it's like, Okay, 342 00:21:37,320 --> 00:21:41,240 Speaker 3: we know that domestic households have a high level of savings. 343 00:21:41,240 --> 00:21:44,560 Speaker 3: We know the federal government has not borrowed a lot. 344 00:21:44,680 --> 00:21:49,360 Speaker 3: But on the other hand, the trade surpluses are massive. 345 00:21:49,680 --> 00:21:51,920 Speaker 3: And again I sort of mentioned in the intro that 346 00:21:51,960 --> 00:21:56,000 Speaker 3: one of the themes right now is that Chinese advanced exports, 347 00:21:56,000 --> 00:21:59,080 Speaker 3: particularly in areas like batteries and evs and other cutting 348 00:21:59,200 --> 00:22:01,120 Speaker 3: edge stuff, is kind of booming. 349 00:22:01,680 --> 00:22:04,960 Speaker 2: If it continues to boom, can. 350 00:22:04,840 --> 00:22:08,359 Speaker 3: That go some ways in sort of mitigating the need 351 00:22:08,760 --> 00:22:12,080 Speaker 3: for federal government borrowing absolutely. 352 00:22:12,240 --> 00:22:14,600 Speaker 5: I mean, if Chinese companies keeps on coming up with 353 00:22:14,760 --> 00:22:20,040 Speaker 5: new fantastic products, and both Chinese and non Chinese are 354 00:22:20,080 --> 00:22:22,600 Speaker 5: willing to borrow money to buy those products, then that 355 00:22:22,680 --> 00:22:26,639 Speaker 5: will be helping the Chinese economy in massive, massive fashion. 356 00:22:27,840 --> 00:22:31,160 Speaker 5: And I realized, as you mentioned already, that there are 357 00:22:31,280 --> 00:22:34,720 Speaker 5: many Chinese companies that are highly innovative, coming up with 358 00:22:34,760 --> 00:22:38,280 Speaker 5: a lot of interesting products, and they should find plenty 359 00:22:38,320 --> 00:22:42,119 Speaker 5: of export markets for those products, So that part is 360 00:22:42,160 --> 00:22:46,480 Speaker 5: definitely there. My concern, however, is the same concern that 361 00:22:46,600 --> 00:22:50,040 Speaker 5: Japan had back in those days. At that time thirty 362 00:22:50,119 --> 00:22:52,960 Speaker 5: years ago, Japan was running the largest trade of pluses 363 00:22:52,960 --> 00:22:56,240 Speaker 5: in the world. So many people wanted to buy Japanese cameras, 364 00:22:56,320 --> 00:23:01,719 Speaker 5: Japanese cars, Japanese appliances, and it was running such a 365 00:23:01,800 --> 00:23:04,679 Speaker 5: large trade surplus. 366 00:23:04,359 --> 00:23:06,639 Speaker 4: It could not push it even more. 367 00:23:08,160 --> 00:23:10,920 Speaker 5: In that if Japan wanted to export even more by, 368 00:23:10,960 --> 00:23:13,400 Speaker 5: for example, bringing the Japanese end down a little bit, 369 00:23:14,080 --> 00:23:18,080 Speaker 5: Americans would be very upset. The USTR will be knocking 370 00:23:18,080 --> 00:23:20,800 Speaker 5: on the Japanese and said, no, you ben opened your 371 00:23:20,840 --> 00:23:25,800 Speaker 5: market not sending these additional products to US. And I 372 00:23:26,080 --> 00:23:29,760 Speaker 5: was actually involved in the US Japan trade friction back 373 00:23:29,960 --> 00:23:34,560 Speaker 5: thirty years ago. At that time, the US Ambassador to 374 00:23:34,640 --> 00:23:39,240 Speaker 5: Japan was mister Walter Mondale, a former Vice president, who 375 00:23:39,320 --> 00:23:44,080 Speaker 5: asked away. Recently he found out that this guy Richard Ko, 376 00:23:44,280 --> 00:23:48,560 Speaker 5: who is frequently appearing in Japanese television programs, actually carries 377 00:23:48,600 --> 00:23:51,240 Speaker 5: an American passport. So he asked me to come over, 378 00:23:52,040 --> 00:23:55,919 Speaker 5: and he basically asked me to represent the United States 379 00:23:55,960 --> 00:23:59,520 Speaker 5: in all these Japanese TV programs on US Japan trade friction. 380 00:24:00,240 --> 00:24:05,639 Speaker 5: And at that time, usgvent trade friction was really really bad, serious, ugly, 381 00:24:06,119 --> 00:24:09,440 Speaker 5: you name it. It was really terrible. So I tried 382 00:24:09,480 --> 00:24:12,040 Speaker 5: to ill go to the US embassy to get a 383 00:24:12,080 --> 00:24:15,000 Speaker 5: food briefing from staff first there and then go to 384 00:24:15,040 --> 00:24:18,639 Speaker 5: the television's studios to try to explain the American position 385 00:24:18,720 --> 00:24:22,960 Speaker 5: to the Japanese audience, even though I was actually employed 386 00:24:22,960 --> 00:24:26,560 Speaker 5: by the Japanese Research Institute, and all these other Japanese 387 00:24:26,600 --> 00:24:29,359 Speaker 5: on the program waiting with their guns to shoot me down. 388 00:24:29,560 --> 00:24:32,199 Speaker 5: You know, that was that kind of situation. So I 389 00:24:32,320 --> 00:24:35,080 Speaker 5: learned a lot about trade friction back in those days, 390 00:24:36,080 --> 00:24:41,040 Speaker 5: and Japan really could not rely on additional exports because 391 00:24:41,080 --> 00:24:45,200 Speaker 5: it was already running such a large trade surplus. So 392 00:24:45,320 --> 00:24:49,320 Speaker 5: if Japan could have used exports by bringing the Japanese 393 00:24:49,359 --> 00:24:51,520 Speaker 5: hand down a little bit and export its way out, 394 00:24:52,119 --> 00:24:57,280 Speaker 5: that would have shortened the balanceing recession by some considerable years. 395 00:24:57,920 --> 00:25:00,639 Speaker 5: But that option really was not available to Japan at 396 00:25:00,680 --> 00:25:04,560 Speaker 5: that time because it was such a large trade cirplust country. 397 00:25:05,440 --> 00:25:08,320 Speaker 5: And I think that applies to China today as well 398 00:25:09,000 --> 00:25:09,359 Speaker 5: as you know. 399 00:25:09,480 --> 00:25:09,760 Speaker 4: China. 400 00:25:09,760 --> 00:25:12,200 Speaker 5: As you mentioned, China is the largest trade circlust country 401 00:25:12,240 --> 00:25:15,600 Speaker 5: in the world, and if China tries to bring exchange 402 00:25:15,680 --> 00:25:19,320 Speaker 5: rates down and try to export its way out, I'm 403 00:25:19,320 --> 00:25:23,480 Speaker 5: sure a lot of countries will be complaining. So there's 404 00:25:23,520 --> 00:25:27,040 Speaker 5: something that Chinese can do in that export side, especially 405 00:25:27,040 --> 00:25:29,639 Speaker 5: they're coming up with new products so that other people 406 00:25:30,480 --> 00:25:33,280 Speaker 5: in the United States, Japan, or or Western Europe have 407 00:25:33,440 --> 00:25:36,639 Speaker 5: no reason to resist because there's no domestic manufacturers for 408 00:25:36,680 --> 00:25:41,520 Speaker 5: those new products. Still, overall, I don't think it's a 409 00:25:41,520 --> 00:25:46,360 Speaker 5: good idea for China to rely too much on exports 410 00:25:46,400 --> 00:25:51,560 Speaker 5: because that could produce backlash called trade friction, which is 411 00:25:51,560 --> 00:25:53,840 Speaker 5: why Japan faced thirty years ago as well. 412 00:25:55,240 --> 00:25:57,880 Speaker 1: Just going back to today, we've been talking a lot 413 00:25:57,920 --> 00:26:01,200 Speaker 1: about both the parallels and the difference between China's current 414 00:26:01,240 --> 00:26:04,919 Speaker 1: situation and the one that Japan found itself in a 415 00:26:04,920 --> 00:26:08,679 Speaker 1: few decades ago. But we haven't yet touched on demographics, 416 00:26:08,720 --> 00:26:13,359 Speaker 1: and of course population growth or the lack of it, 417 00:26:13,400 --> 00:26:16,159 Speaker 1: is something that is much discussed when it comes to 418 00:26:16,520 --> 00:26:23,160 Speaker 1: Japan's economy. Is a similar concern going to emerge for China? 419 00:26:23,320 --> 00:26:24,160 Speaker 4: Well, I know. 420 00:26:24,240 --> 00:26:27,880 Speaker 5: That's the kind of a standout Washington consensusy if I. 421 00:26:27,880 --> 00:26:28,919 Speaker 4: May, on Japan. 422 00:26:30,000 --> 00:26:34,760 Speaker 5: But if you look at the actual statistics, Japan's population 423 00:26:35,200 --> 00:26:39,440 Speaker 5: peaked two thousand and nine. What that means is that 424 00:26:39,560 --> 00:26:43,479 Speaker 5: the bubble burst nineteen ninety, So there was nineteen years, 425 00:26:43,520 --> 00:26:48,520 Speaker 5: almost two decades, where Japanese population was actually growing, but 426 00:26:48,640 --> 00:26:53,280 Speaker 5: Japan was stealing deflation. In fact, that twenty years, Japan 427 00:26:53,440 --> 00:26:58,040 Speaker 5: was experienced the most serious deflation because everyone was paying 428 00:26:58,080 --> 00:27:01,920 Speaker 5: down debt and so so I would argue that most 429 00:27:01,920 --> 00:27:06,199 Speaker 5: of the decline that a lot of people referred to population. 430 00:27:07,320 --> 00:27:11,119 Speaker 5: One can use that perhaps the recent ten years, but 431 00:27:11,240 --> 00:27:14,959 Speaker 5: certainly not the first twenty years of after the bursting 432 00:27:14,960 --> 00:27:18,480 Speaker 5: of the bubble. The first twenty years came almost exclusively 433 00:27:18,560 --> 00:27:23,359 Speaker 5: exclusively from balance sheet problems, not from population problems. Having 434 00:27:23,400 --> 00:27:26,320 Speaker 5: said that, then you look at the Chinese situation, and 435 00:27:26,400 --> 00:27:31,240 Speaker 5: we noticed that Chinese populations start shrinking well this year 436 00:27:31,280 --> 00:27:34,600 Speaker 5: or last year. That's the same year the bubble burst, 437 00:27:35,640 --> 00:27:39,360 Speaker 5: So Japan had nineteen years before the population started shrinking. 438 00:27:39,680 --> 00:27:43,160 Speaker 5: In a Chinese case, bursting of the bubble and decline 439 00:27:43,200 --> 00:27:46,639 Speaker 5: of the population are happening on the same year, and 440 00:27:46,720 --> 00:27:50,840 Speaker 5: that is likely to make Chinese policy response that much 441 00:27:50,880 --> 00:28:04,199 Speaker 5: more challenging. 442 00:28:08,600 --> 00:28:12,520 Speaker 3: You know, you mentioned that one constructive thing that the 443 00:28:12,520 --> 00:28:15,760 Speaker 3: federal government in China or the central government could do 444 00:28:16,000 --> 00:28:20,240 Speaker 3: is just make sure the apartments get built. That people 445 00:28:20,320 --> 00:28:22,960 Speaker 3: have all this uncertainty because they put down payments on 446 00:28:23,160 --> 00:28:26,920 Speaker 3: apartments they're waiting for that the developers are then hobbled, 447 00:28:27,359 --> 00:28:29,919 Speaker 3: and there's all kinds that creates all kinds of stagnation. 448 00:28:30,320 --> 00:28:31,560 Speaker 2: Suppose that happens. 449 00:28:32,160 --> 00:28:36,320 Speaker 3: Is there something further that's next, because presumably China doesn't 450 00:28:36,320 --> 00:28:39,200 Speaker 3: want to just go back to the old model where 451 00:28:39,240 --> 00:28:43,200 Speaker 3: construction is twenty five or twenty six percent of GDP, 452 00:28:43,320 --> 00:28:46,440 Speaker 3: or presumably that wouldn't be your prescription to just go back. 453 00:28:46,640 --> 00:28:49,280 Speaker 3: So let's say that somehow they were able to clean 454 00:28:49,360 --> 00:28:52,440 Speaker 3: up the mess that the developers and remove some of 455 00:28:52,440 --> 00:28:56,600 Speaker 3: that overhang is there some structural move that should be 456 00:28:56,640 --> 00:28:59,960 Speaker 3: then done further, whether it's direct support to household something 457 00:29:00,040 --> 00:29:03,040 Speaker 3: with the safety net, et cetera, that the government should 458 00:29:03,080 --> 00:29:06,080 Speaker 3: then undertake to sort of continue on these reforms and 459 00:29:06,080 --> 00:29:07,480 Speaker 3: not fall back into. 460 00:29:07,400 --> 00:29:08,080 Speaker 2: A debt trap. 461 00:29:08,880 --> 00:29:14,880 Speaker 5: Well, I'm actually concerned about the fact that Chinese companies 462 00:29:15,800 --> 00:29:21,240 Speaker 5: stop borrowing money long before the bubble burst. When you 463 00:29:21,320 --> 00:29:24,160 Speaker 5: look at the Chinese flow funds data, and if you 464 00:29:24,200 --> 00:29:29,080 Speaker 5: look at the corporate sector, they stop borrowing money around 465 00:29:29,120 --> 00:29:32,560 Speaker 5: twenty sixteen. Well up to twenty sixteen, they were borrowing 466 00:29:32,600 --> 00:29:34,640 Speaker 5: quite a bit of twenty fifteen, they were borrowing quite 467 00:29:34,640 --> 00:29:37,280 Speaker 5: a bit of money. So household sector was saving money, 468 00:29:37,280 --> 00:29:40,320 Speaker 5: corporate sector was borrowing money, and that's how economists are 469 00:29:40,320 --> 00:29:45,320 Speaker 5: supposed to move forward. But starting twenty sixteen, the corporate 470 00:29:45,360 --> 00:29:52,680 Speaker 5: borrowing starts shrinking quite substantially, and that was, in my view, 471 00:29:52,760 --> 00:29:56,040 Speaker 5: the most disturbing development in the Chinese economy that we 472 00:29:56,080 --> 00:30:00,160 Speaker 5: should pay great attention to. And that is because you 473 00:30:00,200 --> 00:30:03,160 Speaker 5: mentioned earlier, Chinese companies are coming up with all these 474 00:30:03,160 --> 00:30:08,000 Speaker 5: new products, great products on electric vehicles, batteries and other areas. 475 00:30:08,680 --> 00:30:12,360 Speaker 5: They should be borrowing money at this stage of Chinese 476 00:30:12,360 --> 00:30:16,040 Speaker 5: economic development. Just like you know the United States in 477 00:30:16,040 --> 00:30:19,680 Speaker 5: the fifties and sixties or Japan in the seventies when 478 00:30:19,720 --> 00:30:23,400 Speaker 5: they had lots of competitive advantage, great new products. Those 479 00:30:23,480 --> 00:30:27,640 Speaker 5: companies should be borrowing money, not saving money. But for 480 00:30:27,640 --> 00:30:31,800 Speaker 5: some reason, Chinese companies start reducing their borrowings stock in 481 00:30:31,840 --> 00:30:37,280 Speaker 5: twenty sixteen, so they were like in the balance reat recession, 482 00:30:37,320 --> 00:30:41,320 Speaker 5: long before the bubble burst. And I really want to 483 00:30:41,360 --> 00:30:45,840 Speaker 5: find out what is the cost of this Chinese non 484 00:30:45,920 --> 00:30:48,080 Speaker 5: borrowing before the bubble burst. 485 00:30:48,160 --> 00:30:51,200 Speaker 4: After the bubble burst, you can explain everything on bolonce. 486 00:30:50,960 --> 00:30:56,400 Speaker 5: Sheets, but with the borrowings are shrinking before that, you 487 00:30:56,480 --> 00:31:00,440 Speaker 5: cannot use balance argument to say why these these companies 488 00:31:00,480 --> 00:31:05,600 Speaker 5: are not borrowing money. And if the reason why these 489 00:31:05,640 --> 00:31:09,360 Speaker 5: companies are not borrowing money is due to this renewed 490 00:31:09,560 --> 00:31:12,960 Speaker 5: trade issues with the United States, then it's a much 491 00:31:13,000 --> 00:31:17,360 Speaker 5: more serious problem for the Chinese economy because the trade 492 00:31:17,360 --> 00:31:20,640 Speaker 5: friction and the possible de coupling with the outside world. 493 00:31:20,800 --> 00:31:25,800 Speaker 5: But the coupling with the Western world means Chinese companies 494 00:31:25,840 --> 00:31:29,840 Speaker 5: will be losing some of their best customers and the 495 00:31:29,960 --> 00:31:35,080 Speaker 5: richest customers because the Western nations have far higher per 496 00:31:35,080 --> 00:31:39,080 Speaker 5: capita GDP than the rest, so if the coupling happens, 497 00:31:39,240 --> 00:31:43,240 Speaker 5: all these companies will lose their export markets or they 498 00:31:43,240 --> 00:31:45,920 Speaker 5: cannot rely on export market as much as they were 499 00:31:45,920 --> 00:31:49,040 Speaker 5: able to do before. And if that's the reason companies 500 00:31:49,080 --> 00:31:54,080 Speaker 5: were not borrowing money, then Chinese economic problem has a 501 00:31:54,200 --> 00:32:00,400 Speaker 5: much deeper, much deeper problems to resolve. And as a 502 00:32:00,440 --> 00:32:03,720 Speaker 5: result of these companies not borrowing money, but the household 503 00:32:03,720 --> 00:32:07,600 Speaker 5: sector is still saving money. Chinese government actually had to 504 00:32:07,640 --> 00:32:10,840 Speaker 5: borrow money and spend it to keep the Chinese economy 505 00:32:10,880 --> 00:32:16,280 Speaker 5: going for five six years before the bubble burst, and 506 00:32:16,440 --> 00:32:21,240 Speaker 5: that borrowing, mostly done by the regional governments, is putting 507 00:32:21,280 --> 00:32:25,120 Speaker 5: regional governments in very difficult position now because they have 508 00:32:25,520 --> 00:32:28,280 Speaker 5: basically used up quite a bit of their borrowing power 509 00:32:28,600 --> 00:32:35,240 Speaker 5: already before the balance recession is starting, and there I 510 00:32:35,280 --> 00:32:36,800 Speaker 5: think they will have to come up with a lot 511 00:32:36,840 --> 00:32:42,680 Speaker 5: of new financing techniques to make sure that these regional 512 00:32:42,720 --> 00:32:46,320 Speaker 5: governments can continue to borrow and do whatever the fiscal 513 00:32:46,360 --> 00:32:50,280 Speaker 5: stimulus that is needed to fight the balance recession. But 514 00:32:50,480 --> 00:32:55,240 Speaker 5: until we find out why Chinese companies stop borrowing money 515 00:32:55,320 --> 00:32:59,400 Speaker 5: around starting twenty sixteen, it's very difficult to predict where 516 00:32:59,400 --> 00:33:03,240 Speaker 5: the Chinese economy is going. Because if that if Chinese 517 00:33:03,320 --> 00:33:08,520 Speaker 5: companies reduce their borrowings start in twenty sixteen because of 518 00:33:09,120 --> 00:33:16,440 Speaker 5: the coupling fears with the West, or regulatory uncertainties, because 519 00:33:16,480 --> 00:33:19,360 Speaker 5: Chinese government have been putting in all sorts of regulatory 520 00:33:19,600 --> 00:33:26,040 Speaker 5: shocks to the IT industry, to the education industry, financial industry, 521 00:33:26,320 --> 00:33:28,760 Speaker 5: and of course the real estate industry. If those are 522 00:33:28,800 --> 00:33:33,320 Speaker 5: the reasons why Chinese companies stop holding back their investments 523 00:33:33,320 --> 00:33:38,720 Speaker 5: and borrowings, then even after balancey problems are resolved, those 524 00:33:38,760 --> 00:33:41,400 Speaker 5: problems will be still with us, and that will be 525 00:33:41,480 --> 00:33:44,440 Speaker 5: a huge drag on the Chinese economy going forward. 526 00:33:44,880 --> 00:33:47,200 Speaker 1: This was going to be my next question, actually, which 527 00:33:47,240 --> 00:33:50,440 Speaker 1: is I think in twenty fifteen we had some supply 528 00:33:50,560 --> 00:33:54,000 Speaker 1: side reforms from China, but then in later years we 529 00:33:54,080 --> 00:33:58,320 Speaker 1: had various crackdowns on things like the technology sector, on 530 00:33:58,480 --> 00:34:03,400 Speaker 1: property developers, some parts of the education system. Very famously 531 00:34:03,400 --> 00:34:05,600 Speaker 1: when it came to real estate, we had the three 532 00:34:05,680 --> 00:34:09,440 Speaker 1: Red Lines missive and things like that. Are there signs 533 00:34:09,480 --> 00:34:14,399 Speaker 1: in your opinion that this type of regulatory uncertainty is 534 00:34:14,800 --> 00:34:19,680 Speaker 1: making companies more nervous about perhaps ramping up their borrowing 535 00:34:19,880 --> 00:34:20,719 Speaker 1: or their investment. 536 00:34:21,760 --> 00:34:26,759 Speaker 5: Well, it's very difficult to ask that directly. Because you 537 00:34:26,800 --> 00:34:28,800 Speaker 5: know how it is in China. People are not free 538 00:34:28,840 --> 00:34:34,160 Speaker 5: to say things these days. But talking to a lot 539 00:34:34,160 --> 00:34:37,120 Speaker 5: of people, I get the sense that those are the 540 00:34:37,200 --> 00:34:42,760 Speaker 5: concerns that many companies have. And on top of it, 541 00:34:42,960 --> 00:34:45,480 Speaker 5: China is in the middle of what economists will call 542 00:34:45,840 --> 00:34:50,439 Speaker 5: middle income trap. You know, middle income chap is if 543 00:34:50,480 --> 00:34:54,759 Speaker 5: you are the lowest cost producer, all the companies will 544 00:34:54,840 --> 00:34:58,000 Speaker 5: be moving factories to China because you can produce things 545 00:34:58,080 --> 00:34:58,399 Speaker 5: at the. 546 00:34:58,320 --> 00:35:00,000 Speaker 4: Lowest cost in China. 547 00:35:00,719 --> 00:35:06,120 Speaker 5: But once your wages start increasing and other places like Vietnam, Indonesia, 548 00:35:06,520 --> 00:35:12,200 Speaker 5: Bangladesh start offering even more attractive places to produce products, 549 00:35:12,600 --> 00:35:16,200 Speaker 5: then these factories will start moving abroad. And China is 550 00:35:16,239 --> 00:35:18,960 Speaker 5: in the middle of the middle income trap per capital 551 00:35:19,080 --> 00:35:23,399 Speaker 5: GDP of about one hundred and twenty thousand US. At 552 00:35:23,400 --> 00:35:29,600 Speaker 5: that point, they should be very careful to encourage more 553 00:35:29,920 --> 00:35:34,440 Speaker 5: companies to come in and stay invested in China. But 554 00:35:35,160 --> 00:35:40,239 Speaker 5: those regulatory interventions from the Chinese government's doing the opposite 555 00:35:40,400 --> 00:35:43,279 Speaker 5: of what Chinese governments should be doing. So if you 556 00:35:43,360 --> 00:35:45,919 Speaker 5: add that on top of all the other things, that 557 00:35:46,120 --> 00:35:48,600 Speaker 5: China is already in the middle income trap for capital 558 00:35:48,680 --> 00:35:52,320 Speaker 5: GDP twelve thousand, that's when these things become very important. 559 00:35:52,680 --> 00:35:55,040 Speaker 5: That may be one of the key reason why people 560 00:35:55,480 --> 00:35:57,520 Speaker 5: companies are not investing in China. 561 00:35:57,640 --> 00:35:59,759 Speaker 3: You know, I just want to ask one sort of 562 00:35:59,760 --> 00:36:02,200 Speaker 3: I have one last question from my perspective, and I 563 00:36:02,239 --> 00:36:04,719 Speaker 3: actually would love to just shift at the end here 564 00:36:04,840 --> 00:36:08,120 Speaker 3: to your perspective on the US. And you know, if 565 00:36:08,120 --> 00:36:11,239 Speaker 3: the US in two thousand and nine was a bit 566 00:36:11,360 --> 00:36:14,000 Speaker 3: slow out of the gate with the fiscal response, it 567 00:36:14,080 --> 00:36:18,080 Speaker 3: certainly was not slow in twenty twenty, in twenty twenty one, 568 00:36:18,719 --> 00:36:22,520 Speaker 3: persistent fiscal support in twenty twenty two and twenty twenty 569 00:36:22,560 --> 00:36:26,400 Speaker 3: three with some of the public investment acts, et cetera. 570 00:36:27,120 --> 00:36:30,520 Speaker 3: How much would you attribute, say, the above trend inflation 571 00:36:31,120 --> 00:36:34,640 Speaker 3: in the US to the fiscal support And do you 572 00:36:34,719 --> 00:36:39,040 Speaker 3: see some sort of fiscal cutbacks as necessary in order 573 00:36:39,120 --> 00:36:42,880 Speaker 3: to get inflation back to target or can monetary policy 574 00:36:43,280 --> 00:36:47,600 Speaker 3: and just sort of stabilization and normalization get the job done. 575 00:36:48,400 --> 00:36:53,160 Speaker 5: Wow, So we are moving to the US, right, I 576 00:36:53,200 --> 00:36:56,880 Speaker 5: think what happened to the United States? Of course, at 577 00:36:56,920 --> 00:37:01,279 Speaker 5: the beginning during the pandemic, people kind of allow inventories 578 00:37:01,360 --> 00:37:05,239 Speaker 5: to fall because they never knew when people will come 579 00:37:05,320 --> 00:37:09,360 Speaker 5: back to their stores again. And then once they realized 580 00:37:09,400 --> 00:37:12,440 Speaker 5: that COVID nineteen problems behind us. I don't know what 581 00:37:12,560 --> 00:37:15,919 Speaker 5: that's actually behind us, because I'm seeing quite a few 582 00:37:15,920 --> 00:37:20,000 Speaker 5: people getting sick recently, even in Taiwan, and so I 583 00:37:20,000 --> 00:37:22,520 Speaker 5: don't know whether we are really behind this thing. But 584 00:37:23,120 --> 00:37:28,839 Speaker 5: suddenly everybody start ordering for more goods to replenish their inventories. 585 00:37:29,520 --> 00:37:31,440 Speaker 5: But here, of course, you get into a fanancy or 586 00:37:31,480 --> 00:37:34,480 Speaker 5: composition problems again. Right, if you're just doing if you're 587 00:37:34,520 --> 00:37:36,279 Speaker 5: the only one doing it, it's not a big deal. 588 00:37:36,280 --> 00:37:38,279 Speaker 5: But when everybody does it all of the same time, 589 00:37:38,680 --> 00:37:41,120 Speaker 5: then there will be bottlenecks everywhere. And I think that's 590 00:37:41,120 --> 00:37:45,759 Speaker 5: how the whole thing started, this inflation talk started. But 591 00:37:45,920 --> 00:37:49,480 Speaker 5: what else that happened is that, you know, the United 592 00:37:49,480 --> 00:37:53,600 Speaker 5: States lost for twenty two million jobs during the pandemic. 593 00:37:54,080 --> 00:37:58,320 Speaker 5: The first part of the pandemic. When that many people 594 00:37:58,360 --> 00:38:02,560 Speaker 5: lose jobs all of the same time, these workers cannot 595 00:38:02,560 --> 00:38:05,399 Speaker 5: afford to stay in the same city waiting to find 596 00:38:05,480 --> 00:38:07,879 Speaker 5: jobs in the same industry any longer. Many of them 597 00:38:07,920 --> 00:38:13,360 Speaker 5: had to find jobs that will pay them in any industry, 598 00:38:13,480 --> 00:38:18,239 Speaker 5: in any geographical location. But when people start moving all 599 00:38:18,280 --> 00:38:23,880 Speaker 5: over the place to look for jobs, their expertise know 600 00:38:24,040 --> 00:38:27,879 Speaker 5: how skills will be lost because they are not going 601 00:38:27,920 --> 00:38:31,720 Speaker 5: back to the same jobs. And I think that really 602 00:38:31,760 --> 00:38:36,680 Speaker 5: effectively moved labors apply curve to the left. That is 603 00:38:36,719 --> 00:38:39,200 Speaker 5: to say, if you want to get the same people 604 00:38:39,239 --> 00:38:41,520 Speaker 5: with the same set of skills, you just had to 605 00:38:41,520 --> 00:38:44,160 Speaker 5: pay more because there's so few of them left in 606 00:38:44,200 --> 00:38:51,600 Speaker 5: your neighborhood. And if you look at countries where unemployment skyrocketed, 607 00:38:51,840 --> 00:38:55,960 Speaker 5: like the United States and Canada, wages have also gone 608 00:38:56,080 --> 00:38:59,759 Speaker 5: up quite sharply this time around, Whereas when you look 609 00:38:59,760 --> 00:39:03,359 Speaker 5: at Japan, where companies tried to hold on to their 610 00:39:03,400 --> 00:39:06,719 Speaker 5: workers as long as they can, and so unemployment rate 611 00:39:06,760 --> 00:39:09,200 Speaker 5: in Japan only went up to three point four percent, 612 00:39:10,040 --> 00:39:12,440 Speaker 5: that was the worst, and that was just for a 613 00:39:12,480 --> 00:39:14,960 Speaker 5: month or two and then start coming down again. 614 00:39:15,640 --> 00:39:18,000 Speaker 4: Most of the workers are still with the company, all 615 00:39:18,040 --> 00:39:20,959 Speaker 4: the skills are still available, so when the demand picked 616 00:39:21,040 --> 00:39:23,719 Speaker 4: up the game, the kind of labor shortage that the 617 00:39:23,840 --> 00:39:27,200 Speaker 4: United States and Canada faced were not seeing in Japan. 618 00:39:27,480 --> 00:39:28,000 Speaker 4: And as a. 619 00:39:27,960 --> 00:39:32,760 Speaker 5: Result, wage increases are much lower, much lower than US 620 00:39:32,880 --> 00:39:35,600 Speaker 5: or Canada. And so a lot depends on what kind 621 00:39:35,640 --> 00:39:39,680 Speaker 5: of labor mahak you had. In the case of our 622 00:39:39,800 --> 00:39:44,000 Speaker 5: United States. Because of this rather sharp left wood shift 623 00:39:44,040 --> 00:39:49,480 Speaker 5: of labor supply. Earth US ended up having wages going 624 00:39:49,560 --> 00:39:52,520 Speaker 5: up sharply higher, and that's adding to the inflation that 625 00:39:52,680 --> 00:39:56,920 Speaker 5: we are talking about now. Whereas those countries where workers 626 00:39:56,960 --> 00:40:02,160 Speaker 5: stayed with the companies wages are moving up much more slowly. 627 00:40:02,600 --> 00:40:05,880 Speaker 5: So we have to make adjustments for these key differences 628 00:40:05,920 --> 00:40:06,800 Speaker 5: between the countries. 629 00:40:06,840 --> 00:40:09,720 Speaker 1: I think you know, I have just one more question, 630 00:40:09,800 --> 00:40:12,719 Speaker 1: which is when we last had you on the podcast. 631 00:40:12,800 --> 00:40:15,680 Speaker 1: I think it was something like May twenty twenty, and 632 00:40:15,920 --> 00:40:18,920 Speaker 1: a lot of these decisions about how to respond to 633 00:40:18,960 --> 00:40:22,279 Speaker 1: the pandemic were just being made at that time, and 634 00:40:22,320 --> 00:40:25,840 Speaker 1: I think the headline of our podcast was something like 635 00:40:26,000 --> 00:40:29,520 Speaker 1: Richard Coo on why the recovery will be difficult. So, 636 00:40:30,080 --> 00:40:34,240 Speaker 1: looking back now, was there anything that surprised you about 637 00:40:34,280 --> 00:40:37,400 Speaker 1: the speed or shape of the recovery in the US 638 00:40:37,520 --> 00:40:39,400 Speaker 1: or the Western world. 639 00:40:39,880 --> 00:40:47,040 Speaker 5: Well, actually, the vaccines were developed much faster than anyone 640 00:40:47,080 --> 00:40:49,960 Speaker 5: had right to expect. You know, typically the things takes 641 00:40:50,000 --> 00:40:52,920 Speaker 5: five to ten years before it's fully approved, but this 642 00:40:53,040 --> 00:40:55,759 Speaker 5: time around they will approved much sooner. And people of 643 00:40:55,840 --> 00:41:00,400 Speaker 5: course came out with these highly innovative vaccines that no 644 00:41:00,440 --> 00:41:03,840 Speaker 5: one thought of before, So that was a big surprise 645 00:41:03,880 --> 00:41:08,759 Speaker 5: from the medical side, and the government also putting, as 646 00:41:08,880 --> 00:41:13,960 Speaker 5: I mentioned earlier, these massive monetary and physical help to 647 00:41:14,280 --> 00:41:18,480 Speaker 5: the people so that they really didn't have to deplete 648 00:41:18,520 --> 00:41:22,319 Speaker 5: their savings. As it were, I thought recovery would be 649 00:41:22,400 --> 00:41:26,120 Speaker 5: slow because one of the reasons I thought recovery would 650 00:41:26,120 --> 00:41:30,400 Speaker 5: be slow is because I thought a lot of people 651 00:41:30,440 --> 00:41:34,759 Speaker 5: would be depleting their savings during these lockdowns, and so 652 00:41:34,840 --> 00:41:38,800 Speaker 5: once the economy begins to normalize, I thought these people 653 00:41:38,840 --> 00:41:42,840 Speaker 5: would be rebuilding their savings. But if they're rebuilding their savings, 654 00:41:42,840 --> 00:41:46,000 Speaker 5: replenish their savings to the previous level of possible to 655 00:41:46,080 --> 00:41:50,000 Speaker 5: go even higher, that would be like another balanceing recession 656 00:41:50,040 --> 00:41:53,319 Speaker 5: in that so many people be replenishing their savings and 657 00:41:53,360 --> 00:41:55,320 Speaker 5: as a result, there will be excess savings in the 658 00:41:55,360 --> 00:41:59,279 Speaker 5: private sector. That was slow that the economic recovery. That 659 00:41:59,440 --> 00:42:01,719 Speaker 5: was one of the thought that I had back in 660 00:42:01,760 --> 00:42:07,680 Speaker 5: those days. But instead the governments supplied quite a bit 661 00:42:07,680 --> 00:42:13,000 Speaker 5: of support to these households, and we ended up talking 662 00:42:13,080 --> 00:42:16,640 Speaker 5: about excess savings in the household sector that can propel 663 00:42:16,719 --> 00:42:21,560 Speaker 5: the economy further. That was not in my mind when 664 00:42:21,760 --> 00:42:27,080 Speaker 5: we last spoke in May of twenty twenty. So those 665 00:42:27,160 --> 00:42:30,480 Speaker 5: are the surprises that I was not anticipating at the time. 666 00:42:31,560 --> 00:42:35,560 Speaker 5: But then you turn this thing around. In the Chinese case, 667 00:42:36,440 --> 00:42:41,360 Speaker 5: Chinese government really did not give as generously as the 668 00:42:41,360 --> 00:42:44,960 Speaker 5: American government or the European governments to these people who 669 00:42:44,960 --> 00:42:49,239 Speaker 5: were suffering on the lockdowns, and as a result, the 670 00:42:49,320 --> 00:42:51,960 Speaker 5: sense I get is that a lot of Chinese households 671 00:42:52,000 --> 00:42:55,919 Speaker 5: and Chinese companies, small and medium sized companies, they had 672 00:42:56,000 --> 00:43:00,960 Speaker 5: to really draw down their savings to whether the lockdowns. 673 00:43:02,080 --> 00:43:07,000 Speaker 5: And if those Chinese companies felt that they don't have 674 00:43:07,239 --> 00:43:12,319 Speaker 5: enough savings to whether the future rainy days and they 675 00:43:12,360 --> 00:43:15,319 Speaker 5: would like to increase their savings to make sure that 676 00:43:15,880 --> 00:43:19,920 Speaker 5: they have enough ammunition to fight the next round, then 677 00:43:19,960 --> 00:43:23,360 Speaker 5: we may end up having something like balanceet recession, but 678 00:43:23,480 --> 00:43:26,080 Speaker 5: this time it's on the asset side of the balance sheet, 679 00:43:26,120 --> 00:43:28,319 Speaker 5: not on the liability side of the balance sheet. But 680 00:43:28,360 --> 00:43:30,720 Speaker 5: the effect will be the same. If all these Chinese 681 00:43:30,719 --> 00:43:33,799 Speaker 5: households and companies try to rebuild their savings all at 682 00:43:33,840 --> 00:43:38,120 Speaker 5: the same time, then Chinese economy would be that much 683 00:43:38,160 --> 00:43:42,239 Speaker 5: more weaker. It's very difficult to get any data on 684 00:43:42,320 --> 00:43:46,439 Speaker 5: something like this from the Chinese side, but my sense 685 00:43:46,560 --> 00:43:50,200 Speaker 5: is that this could be a bigger problem in China 686 00:43:50,280 --> 00:43:52,680 Speaker 5: than in the United States or in Europe. 687 00:43:53,560 --> 00:43:56,759 Speaker 1: Well, Richard, you brought us back full circle to China. 688 00:43:56,840 --> 00:43:59,359 Speaker 1: So thank you so much. We really appreciate you coming 689 00:43:59,360 --> 00:44:02,200 Speaker 1: back on all a delight to have you here with 690 00:44:02,280 --> 00:44:04,680 Speaker 1: us once again and hear what you are thinking about 691 00:44:04,719 --> 00:44:07,760 Speaker 1: the current situation in China and elsewhere in the world. 692 00:44:07,880 --> 00:44:09,000 Speaker 1: So thank you so much. 693 00:44:09,160 --> 00:44:10,640 Speaker 4: Oh, thank you. I love them. 694 00:44:23,960 --> 00:44:27,960 Speaker 1: So Joe, that was so much fun. I thought it 695 00:44:28,000 --> 00:44:31,680 Speaker 1: was really fascinating the distinction he drew between what happened 696 00:44:31,760 --> 00:44:35,280 Speaker 1: in Japan and what might be happening in China now, 697 00:44:35,360 --> 00:44:38,400 Speaker 1: and the idea of the big difference being that today 698 00:44:39,200 --> 00:44:42,440 Speaker 1: people do have this idea of a balance sheet recession 699 00:44:42,600 --> 00:44:47,200 Speaker 1: in their minds, so you can identify the problem, diagnose it, 700 00:44:47,239 --> 00:44:51,040 Speaker 1: and then try to identify policy solutions that will hopefully 701 00:44:51,080 --> 00:44:54,760 Speaker 1: help fix it. Whereas in Japan after the property bubble burst, 702 00:44:55,120 --> 00:44:58,040 Speaker 1: no one was really quite sure what was happening or 703 00:44:58,040 --> 00:44:59,960 Speaker 1: what the economic consequences of it. 704 00:45:00,040 --> 00:45:03,319 Speaker 3: It might be right, which is why you know the 705 00:45:03,400 --> 00:45:07,080 Speaker 3: title of his book, The Holy Grail of Macroeconomics, which 706 00:45:07,120 --> 00:45:10,440 Speaker 3: is all about that Japanese balance sheet recession. You know, 707 00:45:10,560 --> 00:45:13,759 Speaker 3: the idea being you can look at Japan and just 708 00:45:13,880 --> 00:45:18,399 Speaker 3: learn so much about how economies work. I still think 709 00:45:18,400 --> 00:45:21,680 Speaker 3: he gives you a policymakers like too much credit for 710 00:45:21,920 --> 00:45:22,960 Speaker 3: the amount of physical. 711 00:45:22,640 --> 00:45:24,280 Speaker 2: Supports to Europe. 712 00:45:24,400 --> 00:45:25,759 Speaker 1: Very strange China. 713 00:45:26,600 --> 00:45:27,520 Speaker 2: So it'll be interesting, you know. 714 00:45:27,640 --> 00:45:29,960 Speaker 3: I remember if we just talked to Brad Setser and his. 715 00:45:30,040 --> 00:45:31,520 Speaker 2: Conclusion was that. 716 00:45:33,320 --> 00:45:33,560 Speaker 5: Deep. 717 00:45:33,719 --> 00:45:35,920 Speaker 2: So I think or at least a. 718 00:45:35,920 --> 00:45:39,880 Speaker 3: Deep skeptic in support to households. So it'll be really 719 00:45:39,920 --> 00:45:44,120 Speaker 3: interesting to see if and when the government decides, look, 720 00:45:44,440 --> 00:45:46,600 Speaker 3: GDP is slow, it's not getting better, we really have 721 00:45:46,680 --> 00:45:47,240 Speaker 3: to do something. 722 00:45:47,560 --> 00:45:47,840 Speaker 5: Yeah. 723 00:45:47,840 --> 00:45:50,879 Speaker 1: Well, in my mind, and I remember we spoke about 724 00:45:50,920 --> 00:45:53,880 Speaker 1: this with Brad Setzer as well, it is very strange 725 00:45:53,880 --> 00:45:56,879 Speaker 1: to me that China does seem to have this reluctance 726 00:45:57,000 --> 00:45:59,920 Speaker 1: to support the household sector in ways that we have 727 00:46:00,160 --> 00:46:02,600 Speaker 1: seen in other parts of the world. So I think 728 00:46:02,680 --> 00:46:06,560 Speaker 1: during the COVID pandemic, and remember the shutdown in China, 729 00:46:06,680 --> 00:46:09,759 Speaker 1: those shutdown measures were in many respects much harsher than 730 00:46:09,800 --> 00:46:11,880 Speaker 1: what we saw in other parts of the world, and 731 00:46:11,960 --> 00:46:16,279 Speaker 1: yet there was very little support for individuals. If you 732 00:46:16,400 --> 00:46:20,120 Speaker 1: lost your job, if you became unemployed, you basically had 733 00:46:20,160 --> 00:46:22,919 Speaker 1: to live off of your savings. I think there were 734 00:46:22,960 --> 00:46:26,759 Speaker 1: some parts of China where maybe people got consumption vouchers, 735 00:46:26,960 --> 00:46:30,080 Speaker 1: spending vouchers, things like that, but it really wasn't for 736 00:46:30,200 --> 00:46:34,239 Speaker 1: very much money. And so if you're trying to reorient 737 00:46:34,360 --> 00:46:38,560 Speaker 1: your economy towards more of a consumption driven one and 738 00:46:38,680 --> 00:46:43,600 Speaker 1: simultaneously revive economic growth, it seems to me like supporting 739 00:46:43,680 --> 00:46:48,480 Speaker 1: households and individuals would appear to be a slam dunk. 740 00:46:48,560 --> 00:46:52,279 Speaker 1: But for some reason that just hasn't happened. And the 741 00:46:52,320 --> 00:46:54,400 Speaker 1: other thing I would say, and I think this is 742 00:46:54,400 --> 00:46:56,440 Speaker 1: what is confusing to a lot of people, is that 743 00:46:56,520 --> 00:47:01,440 Speaker 1: now we see more support or more momentum towards potential 744 00:47:01,520 --> 00:47:04,560 Speaker 1: fiscal stimulus, and it seems like once again it's going 745 00:47:04,600 --> 00:47:07,839 Speaker 1: to take the form of perhaps bailing out property developers 746 00:47:08,239 --> 00:47:11,879 Speaker 1: finishing up some of those big construction projects. And yet 747 00:47:11,960 --> 00:47:13,919 Speaker 1: just a couple of years ago we saw President Shei 748 00:47:13,920 --> 00:47:16,960 Speaker 1: shin ping really cracked down on that sector. And so 749 00:47:17,600 --> 00:47:20,200 Speaker 1: there seems to be a little bit of whiplash here, 750 00:47:20,360 --> 00:47:23,920 Speaker 1: maybe a little bit of mixed messaging. But I guess 751 00:47:24,719 --> 00:47:29,080 Speaker 1: in China the idea of opposing or conflicting messages are 752 00:47:29,160 --> 00:47:30,080 Speaker 1: not that unusual. 753 00:47:30,520 --> 00:47:33,319 Speaker 3: You know, what I thought was really interesting, and I 754 00:47:33,320 --> 00:47:36,960 Speaker 3: hadn't really thought about this before, which is that, you know, 755 00:47:37,440 --> 00:47:41,839 Speaker 3: obviously China runs a massive trade surplus. 756 00:47:41,440 --> 00:47:43,840 Speaker 2: And this idea that eventually. 757 00:47:43,200 --> 00:47:48,400 Speaker 3: Gigantic trade surpluses invokes some sort of political reaction globally 758 00:47:48,600 --> 00:47:51,239 Speaker 3: that eventually the world does not want to be the 759 00:47:51,280 --> 00:47:53,960 Speaker 3: buyer of last resort for your economy and you could 760 00:47:53,960 --> 00:47:56,640 Speaker 3: only push it so far, which I thought was like 761 00:47:56,800 --> 00:48:00,200 Speaker 3: super interesting. And that really started under Trump obviously with 762 00:48:00,280 --> 00:48:03,600 Speaker 3: the tariffs, and then is sort of continued under Biden 763 00:48:03,680 --> 00:48:06,160 Speaker 3: with some of the various trade restrictions and so forth. 764 00:48:06,360 --> 00:48:09,080 Speaker 3: But this idea that's sort of like politically there might 765 00:48:09,120 --> 00:48:12,239 Speaker 3: not be even Yes, exports may be growing, but there 766 00:48:12,280 --> 00:48:14,560 Speaker 3: isn't a lot of juice and the squeeze to that 767 00:48:15,080 --> 00:48:17,640 Speaker 3: just because at some point you sort of get this 768 00:48:17,719 --> 00:48:20,440 Speaker 3: global political backlash to your export dominance. 769 00:48:20,640 --> 00:48:24,839 Speaker 1: Yep, absolutely, shall we get there? All right? This has 770 00:48:24,880 --> 00:48:28,360 Speaker 1: been another episode of the ad Thoughts Podcast. I'm Tracy Alloway. 771 00:48:28,440 --> 00:48:30,800 Speaker 1: You can follow me on Twitter at Tracy Alloway. 772 00:48:31,000 --> 00:48:33,840 Speaker 3: And I'm Joe Wisenthal. You can follow me on Twitter 773 00:48:34,000 --> 00:48:38,400 Speaker 3: at the Stalwart. Follow our producers Carmen Rodriguez at Carmen 774 00:48:38,560 --> 00:48:41,960 Speaker 3: Arman and Dash el Bennett at dashbot and check out 775 00:48:42,000 --> 00:48:45,520 Speaker 3: all of the Bloomberg podcasts at podcasts and for more 776 00:48:45,560 --> 00:48:48,920 Speaker 3: odd Lots content, go to Bloomberg dot com slash odd Lots, 777 00:48:48,920 --> 00:48:51,920 Speaker 3: where we have a blog transcription in the newsletter, and 778 00:48:52,000 --> 00:48:54,680 Speaker 3: to chat twenty four to seven with fellow listeners. 779 00:48:54,320 --> 00:48:55,920 Speaker 2: About all of these topics. 780 00:48:56,520 --> 00:49:00,279 Speaker 3: Check out the discord discord dot gg slash odd lots 781 00:49:00,280 --> 00:49:03,160 Speaker 3: really fun, all these things get discussed. I'm in there 782 00:49:03,200 --> 00:49:04,759 Speaker 3: a lot, come check it out yep. 783 00:49:04,840 --> 00:49:08,040 Speaker 1: And if you enjoy odd Lots, if you like hearing 784 00:49:08,120 --> 00:49:11,080 Speaker 1: from guests like no more Is Richard Ko, then please 785 00:49:11,200 --> 00:49:14,560 Speaker 1: leave us a positive review on your favorite podcast platform. 786 00:49:14,560 --> 00:49:31,719 Speaker 1: Thanks for listening.