Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisn'tal, and I'm Tracy Halloway. So, Tracy, obviously,
Speaker 1: a lot of the images in videos that we've seen
Speaker 1: out of China over the last week, I mean, I
Speaker 1: think it's safe to say they're pretty extraordinary, absolutely incredible.
Speaker 1: So I remember, I guess it might have been a
Speaker 1: month or two ago someone posted a sign in Beijing
Speaker 1: that was critical of the party leadership and the COVID restrictions,
Speaker 1: and that alone had like, you know, just d reams
Speaker 1: of ink spilled over this one sign that managed to
Speaker 1: be put up in Beijing, and it stayed there for
Speaker 1: a little while. But now we have these protests that
Speaker 1: have erupted in a number of Chinese cities everywhere from
Speaker 1: Beijing to Shanghai and other places, where people are marching
Speaker 1: in this streets, they're holding up multiple signs, and the
Speaker 1: extraordinary thing is that this has been allowed to happen
Speaker 1: at all, allowed to happen, and also the people in
Speaker 1: many of these cases are almost certainly taking huge personal risks.
Speaker 1: There have been some videos of people calling for you know,
Speaker 1: j and Ping to resign, and my understanding of China
Speaker 1: is that that is the type of public comment that
Speaker 1: could get one in very serious legal jeopardy. Absolutely, so
Speaker 1: this is a fascinating moment in Chinese history. It's a
Speaker 1: fascinating moment from an economic perspective as well, because, of
Speaker 1: course China is the world's second biggest economy. It has
Speaker 1: had a number of quite stringent COVID related restrictions over
Speaker 1: the past three years or so, and unlike other countries,
Speaker 1: it hasn't really eased up all that much. And so
Speaker 1: we're seeing this ground swell of populist anger and a
Speaker 1: lot of criticism over the way the party and specifically
Speaker 1: Shi shin Ping, has actually handled this whole situation, right.
Speaker 1: I mean, we're coming on, you know, almost three years
Speaker 1: now of COVID zero. I first heard of COVID in
Speaker 1: you know, it's a December here we are. We're recording
Speaker 1: this episode November. It's coming out in December, and uh,
Speaker 1: you know, this is extraordinary long time to have life
Speaker 1: disrupted in a very extreme way. Of course, the tightness
Speaker 1: of the lockdowns has sort of waxed and waned at times,
Speaker 1: but it's pretty extreme. In many cases. The efforts to
Speaker 1: contain COVID have been quite your cony in and as
Speaker 1: you say, the economic situation was already not that great.
Speaker 1: Growth is poor. Earlier this year we talked about a
Speaker 1: lot of the problems facing the real estate industry. We also,
Speaker 1: of course recently had the Party Congress, so an extraordinary
Speaker 1: moment for China in general right now. Yeah, and since
Speaker 1: you mentioned the Party Congress, you know, I think there
Speaker 1: was an expctation that maybe after this big political event
Speaker 1: was out of the way, after all the attention that
Speaker 1: had been turned on Shesh and paying basically securing leadership
Speaker 1: for life, that after that had passed, maybe some things
Speaker 1: would start to change, maybe some of the restrictions would
Speaker 1: be eased up a bit. That doesn't seem to have happened,
Speaker 1: and so well, there have been some other things that
Speaker 1: have happened in the interim, including a fire in a
Speaker 1: room she where people have criticized the government as having,
Speaker 1: you know, because of the COVID restrictions on this building,
Speaker 1: people were unable to escape, and I think ten people
Speaker 1: were reported to have died in that fire. That's the
Speaker 1: thing that's sort of sparked all of this. But it is,
Speaker 1: as you say, the result of three years of major,
Speaker 1: major disruptions to people's lives, right, and you mentioned, you know,
Speaker 1: there may have been some people might have thought, Okay,
Speaker 1: after the Party Congress, then the government can ease up,
Speaker 1: perhaps on COVID restrictions. But you know, we talked about
Speaker 1: this with Dan walk There is still the sort of
Speaker 1: brutal math for China of limited healthcare capacity, limited hospital beds,
Speaker 1: limited success in a mass vaccination and opening up means
Speaker 1: a lot more people will die. And when the government
Speaker 1: has sort of made a point about the success it's
Speaker 1: had in containing COVID, particularly compared to the rest of
Speaker 1: the world, that is a choice the government doesn't want
Speaker 1: to make. Well, I mean, the term painting yourself into
Speaker 1: a corner kind of springs to mind. And of course
Speaker 1: the big question is what can China do now. It's
Speaker 1: tied a lot of its political legitimacy to keeping people alive,
Speaker 1: which means you have to have these COVID restrictions. So
Speaker 1: what can it do in the face of mass unrest?
Speaker 1: So we really do have the perfect guest to talk
Speaker 1: about this today. Absolutely, we are going to be speaking
Speaker 1: with Victor she He is a professor at the School
Speaker 1: of Global Policy, and strategy at you see San Diego,
Speaker 1: and he is also the author of the new book
Speaker 1: Coalitions of the Week. Victor, thank you so much for
Speaker 1: coming on, Thank you for having me, Joe and Tracy. Well,
Speaker 1: why don't we just start with the sort of big
Speaker 1: picture question, which is how extraordinary from your perspective are
Speaker 1: the protests that we've seen across the country. This has
Speaker 1: been very, very extraordinary in that these are in person,
Speaker 1: on the street protests across multiple major cities of China,
Speaker 1: and this is really something that we have not seen
Speaker 1: since so so this is very very striking. Indeed, So
Speaker 1: this is actually one thing I wanted to ask you,
Speaker 1: which is there is a perception that you know, in
Speaker 1: China it doesn't tolerate any descent, but historically, over vast
Speaker 1: periods of time, we have had certain protest movements, you know,
Speaker 1: student unrest or maybe laborers or farmers. Can you sort
Speaker 1: of put what we're seeing now in a historical context?
Speaker 1: What is this actually remind you of or are there
Speaker 1: historical analogies or parallels that can reach to to explain this. Yeah, So,
Speaker 1: as you point out, indeed, even though in the major
Speaker 1: cities we have not seen major protests for quite a
Speaker 1: number of years. There are protests, sit ins, even riots
Speaker 1: that take place all the time in China. According to
Speaker 1: statistics that we, you know, as outsiders, were able to
Speaker 1: gather from a few years ago, there are tens of
Speaker 1: thousands of protests across China. But nonetheless, the vast majority
Speaker 1: of protests up until recent days have taken place in
Speaker 1: rural areas, smaller cities, maybe medium sized cities. In a
Speaker 1: couple of cases, they have tended to you know, really
Speaker 1: focused on grievances that are very local, like land seizures,
Speaker 1: like benefits that people are not receiving, like a local
Speaker 1: abuse of power by the police forces. What we are
Speaker 1: seeing today instead as a multi city protests in some
Speaker 1: of the largest and politically most important cities in China,
Speaker 1: like Shanghai, like Beijing, and the slogans at least of
Speaker 1: the protesters are not very specific. There are very general
Speaker 1: slogans calling for constitutional reform, calling for democracy, calling for freedom,
Speaker 1: as well as the downfall of the Chinese leadership. So
Speaker 1: so that's that's uh, you know, very striking and something
Speaker 1: that we haven't seen for decades. So I mentioned in
Speaker 1: the intro that my perception is that anyone engaging in
Speaker 1: these protests is potentially taking big personal legal risk. What
Speaker 1: is the law? What? What what does it say about
Speaker 1: whether you can go out and protest or call for
Speaker 1: she shouldn't pink to step down? Is it against the
Speaker 1: law to do this? Uh so? Of course, constitutionally, Chinese
Speaker 1: citizens have the freedom of speech and the freedom of assembly. However,
Speaker 1: both in the constitution and also in the number of
Speaker 1: regulations and laws, any subversion of the Chinese Communist Party
Speaker 1: is considered illegal, and of course calling for the downfall
Speaker 1: of the you know, leadership of the Chinese Communist Party
Speaker 1: would would be with fall of foul of these regulations
Speaker 1: and laws, right, and everything is always open to significant interpretation,
Speaker 1: or at least you know, that seems to have been
Speaker 1: the case in Hong Kong with the National Security Law.
Speaker 1: It's kind of like it's vague enough that if you
Speaker 1: do something that upsets the party or the leadership that
Speaker 1: they can crack down on you. But this leads into
Speaker 1: another question, which is why are these protests being tolerated
Speaker 1: right now? Because, as as you point out, these are
Speaker 1: pretty big demonstrations with what would be very inflammatory slogans
Speaker 1: and language for the Communist Party, things that are very
Speaker 1: critical of She and Ping, calling for democracy and human
Speaker 1: rights and freedom. Why are these being allowed to happen?
Speaker 1: My read of it is is very tactical so far.
Speaker 1: In fact, today we've seen a lot of tightening up. Uh.
Speaker 1: You have to remember that since the Chinese government, of
Speaker 1: course has not been standing still, they've been doing an
Speaker 1: incredible amount of research, looking at experiences overseas, looking at
Speaker 1: domestic cases of disturbances, and really trying to engineer the
Speaker 1: best response to protest movements over time. And I think
Speaker 1: one of the lessons that they've learned is that if
Speaker 1: you know, there really is a high level of dissatisfaction,
Speaker 1: which is you know, which is the case here in
Speaker 1: China after three years of lockdown there, there is indeed
Speaker 1: a very high level of dissatisfaction among the people. At
Speaker 1: the first sign of trouble, you crack down using very
Speaker 1: bruto forces that could invite backlash protests. Uh. And I
Speaker 1: think they tactically allow, you know, at least for one
Speaker 1: or two day period for people around China to protests,
Speaker 1: to even post things online. I mean, one of the
Speaker 1: puzzles is, you know, why are they able to post
Speaker 1: things online and even you know, retweet them and so
Speaker 1: and so. Fourth part of it could be tactical. Today
Speaker 1: we have certainly seen today a lot more tightening, a
Speaker 1: lot greater police forces. It does take time for the
Speaker 1: police to deploy, get organized, to figure out a coherent response.
Speaker 1: I think kind of the extent and the scale of
Speaker 1: the protests also has been very surprising even to the authorities.
Speaker 1: Today we're seeing a more coherent response. So I guess
Speaker 1: another question is why now why in November December. Obviously
Speaker 1: the COVID zero lockdowns have been you know, happening for
Speaker 1: almost three years uninterrupted, But why now, Yeah, So the
Speaker 1: immediate trigger, of course, is you point out, is the
Speaker 1: fire in Urumchi. But one of the potential trigger for
Speaker 1: that event as well if other events we've seen online
Speaker 1: where the neighborhood committees have barred people in their homes
Speaker 1: and not let them leave their homes, sometimes with very
Speaker 1: draconian measures like you know, putting like a rebar across
Speaker 1: people's doors and so and so forth. That was triggered
Speaker 1: by a relaxation of COVID policy that was announced on
Speaker 1: November eleven. So part of that relaxation was to switch
Speaker 1: from a seven day offsite quarantine in one of these
Speaker 1: giant quarantine warehouses, Uh, switch it into fewer days of
Speaker 1: that to five days, but then more days of mandatory
Speaker 1: in home quarantine. But for the local authorities, whose resources
Speaker 1: are extremely stretched already, they took shortcuts. And he's like, well,
Speaker 1: how do we make sure that people don't leave their
Speaker 1: homes when they're supposed to. Let's put a rebar across
Speaker 1: the door to make sure the door that's doesn't open.
Speaker 1: In some of the wealthier localities like Shanghai, they've put
Speaker 1: electronic monitors outside of people's doores to to monitor whether
Speaker 1: doors get open. That's that's a bit more humane. But
Speaker 1: in some of these poor localities they have resorted to
Speaker 1: some very crude measures um and that you know, certainly
Speaker 1: has pushed people's level of frustration and anger over the
Speaker 1: edge in many cases. So so ironically, I think it
Speaker 1: partly was triggered by this relaxation of COVID policies, which
Speaker 1: you know, people were right after the twenty Party Congress
Speaker 1: that there has been some relaxation. So for foreigners traveling
Speaker 1: to China, they don't have to quarantine for as many days.
Speaker 1: They don't have to test us often, et cetera. So
Speaker 1: just on this note, I mean historically, when there happened
Speaker 1: protests in China, one of the playbooks that gets trotted
Speaker 1: out very very quickly by the ruling party is blame
Speaker 1: for an influence and blame local officials for bungling you know,
Speaker 1: Beijing's Grand Plan. The plan was fine, but the local
Speaker 1: officials just implemented it poorly and it's all their fault.
Speaker 1: Is that a? Is that the kind of thing we're
Speaker 1: going to see here? Is that the playbook that we're
Speaker 1: going to see and then be do local officials deserve
Speaker 1: some of the blame here? Yeah? So we are seeing
Speaker 1: today some commentaries not from official Chinese government websites yet,
Speaker 1: but certainly unofficially they have a lot of influencers, let's
Speaker 1: just say online they are saying no foreign hostile forces
Speaker 1: are behind these protests. Of course, that's ridiculous because there
Speaker 1: are no foreigners left in China after three years of lockdown.
Speaker 1: The number of foreigners in China you know, have been
Speaker 1: cut by or something like that. So even if foreign
Speaker 1: hostile forces would like to you know, do something that
Speaker 1: they literally cannot do it in terms of local officials
Speaker 1: I think. You know, of course they bear some of
Speaker 1: the blame because some very prudent meass have been implemented
Speaker 1: by them. But for local level community workers, remember, you know,
Speaker 1: at the grassroots level, the Change governments that they have
Speaker 1: something called residential committees. But these are not people who
Speaker 1: are fully paid for by the Chinese governments, oftentimes their retirees.
Speaker 1: They get a very modest stipend a few hundred dollars
Speaker 1: a month, but they don't get the full pay and
Speaker 1: benefits of Chinese government officials. But for the past three
Speaker 1: years they have been the main force implementing public policies
Speaker 1: in China, you know, instituting the lockdown, doing testings, delivering
Speaker 1: food and sometimes even social services to distressed households. There
Speaker 1: are stretched to the brink um, you know, the Change
Speaker 1: government transfer some resources to the local level. There's there's
Speaker 1: free food for these community workers. Sometimes there there's bonus pay.
Speaker 1: But also the other factor is that at the local
Speaker 1: level local governments they don't have a lot of money.
Speaker 1: Revenue is down close to ten percent at the local level,
Speaker 1: and even civil service pay is being cut much less
Speaker 1: the pay of these community level workers, so they're stretched
Speaker 1: beyond other initial capacity, and one can understand why they
Speaker 1: take shortcuts when they're asked to institute very onerous you know,
Speaker 1: to the new policies, you know, really ask a lot
Speaker 1: of them because they have to track at the household
Speaker 1: level who's supposed to stay at home, who's who has
Speaker 1: a freedom of movement, and that's just not something they
Speaker 1: have the capacity to do in many cases. So this
Speaker 1: leads into something else that I wanted to ask you,
Speaker 1: And I love this conversation because it's one of those
Speaker 1: where you you answer something and then I immediately have
Speaker 1: like five other questions. But just on this note, I
Speaker 1: think people outside of China maybe don't necessarily appreciate how
Speaker 1: much manpower it actually takes to have these kinds of
Speaker 1: COVID restrictions, where you know, if you're in a big
Speaker 1: apartment building, there is a group of people who are
Speaker 1: charged with making sure that people aren't going in and
Speaker 1: out when they're not allowed to, and that people are
Speaker 1: you know, reporting their test results and that everything is
Speaker 1: sort of going to plan. And then also when you
Speaker 1: have these kind of protest movements, it takes a lot
Speaker 1: of manpower to police and potentially suppress them. So today,
Speaker 1: for instance, I'm seeing images of police officers who are
Speaker 1: you know, taking protesters phones individually and deleting photos off
Speaker 1: of them of the demonstrations, which is similar to what
Speaker 1: we saw in Hong Kong as well. So can that
Speaker 1: kind of I guess, manpower or that kind of like
Speaker 1: you need an army of workers basically doing this. Can
Speaker 1: that be maintained or is there a chance that eventually,
Speaker 1: you know, the people who are enforcing a lot of
Speaker 1: these rules are just going to say, you know what,
Speaker 1: it's not worth it anymore, and I'm out. Yeah, I
Speaker 1: think local fiscal stress can cause some kind of issues
Speaker 1: down the road, and I don't think we're quite there yet.
Speaker 1: But you know, basically grassroots level community workers and police
Speaker 1: forces who are official civil servants actually are very limited
Speaker 1: in numbers and is certainly not sufficient to carry out
Speaker 1: all the tasks that the government asked them to do today,
Speaker 1: you know, which include enforcing quarantine, providing social services, etcetera, etcetera.
Speaker 1: So the Change government has had to rely on these
Speaker 1: informal workers quasi formal workers at the community level for quarantine,
Speaker 1: but also in terms of repression, there is a whole
Speaker 1: entire you know, base of manpower who are quasi formal
Speaker 1: enforcers for the Chinese governments, their contract workers. They get
Speaker 1: hired sometimes even on the spot. So I've seen footages
Speaker 1: where in Juhan to to deal with the protests, the
Speaker 1: Chinese government just gather a bunch of guys off the
Speaker 1: pay them and say okay, you all get three woman
Speaker 1: b a day and they become enforcers for the Chinese government.
Speaker 1: That all works okay, as long as the money is there.
Speaker 1: But at the local level, not every local government can
Speaker 1: come up with the money at the drop of a
Speaker 1: hat anymore, especially in tier three tier four cities in
Speaker 1: China outside of provincial capitals, the fiscal resources are really stretched.
Speaker 1: Land sales have collapsed, as you guys have discussed on
Speaker 1: the show already, that has been a major source of
Speaker 1: discretionary spending at the local level. Now, if there's a
Speaker 1: major protests at a second tier of third tier city,
Speaker 1: they have to write a note to the central government saying, oh, hey,
Speaker 1: you know we have protests, Please give us some money
Speaker 1: so we can pay for people to quell the protests.
Speaker 1: That may not happen fast enough, and we really could
Speaker 1: see some things getting out of control. Fortunately for the
Speaker 1: Chinese government in places like Beijing and Shanghai, there's plenty
Speaker 1: of money. Police forces in these places, as we're seeing,
Speaker 1: are enormous, especially in Beijing. There are just tens and
Speaker 1: tens of thousands of different kinds of police forces in
Speaker 1: the immediate immediate vicinity of the city, and some of
Speaker 1: them are being mobilized right now. You know you sort
Speaker 1: of anticipated my next question, but can you talk more
Speaker 1: about the nexus of local government economic stress and the
Speaker 1: decline in real estate because I think we we've talked
Speaker 1: about it in a few different episodes in the past.
Speaker 1: How important real estate sales or land sales specifically are
Speaker 1: two local finances, But can you explain that mechanism, like
Speaker 1: what is the role that local land sales play? And
Speaker 1: then how much stress have the local governments come under
Speaker 1: thanks to the well known property bus that's going on. Yeah, so,
Speaker 1: so there's an intimate link. I mean, the first thing
Speaker 1: to realize about China is that despite the fact that
Speaker 1: we talk about, you know, Chinese industrial policies and all
Speaker 1: these great tech companies in China, these tech and industrial companies,
Speaker 1: they only benefit a small handful of cities in China.
Speaker 1: So a lot of the industrial activities concentrated in cities
Speaker 1: in Guangdong, in Jorjian Province, in Shanghai obviously, and of
Speaker 1: course you have political financial activities in Beijing. Outside of
Speaker 1: these key cities. You remember, China has like four hundred cities, right,
Speaker 1: so for the vast majority of cities in China, there's
Speaker 1: really not much going on in some of these cities
Speaker 1: in western China and northeastern China and some parts of
Speaker 1: the Southwest. And so for those governments, in order to
Speaker 1: generate GP growth, what they need to do is to
Speaker 1: sell land to property developers. Property developers build the land,
Speaker 1: and then also for the government, they use the current
Speaker 1: revenue stream from selling land as well as the prospect
Speaker 1: of land value in the future as collateral to get
Speaker 1: loans from the banks to build infrastructure. So using current
Speaker 1: and future land sales as a way to finance infrastructure
Speaker 1: building is the main economy model for the majority of
Speaker 1: cities in China. The problem, of course, recently is because
Speaker 1: of the leveraging policies and COVID lockdown, property sales have
Speaker 1: been negative for quite a few months now, and then
Speaker 1: that means land sales have completely dropped off, you know,
Speaker 1: down a year to date, and so then for the
Speaker 1: local government's their ability to build infrastructure also has diminished
Speaker 1: quite substantially, and this has caused economic slowdown across many
Speaker 1: localities in China. One other dynamic I'm curious about, and
Speaker 1: maybe it's totally off the mark here, but I seem
Speaker 1: to recall that at the recent People's Congress, one of
Speaker 1: the and I can't remember his name, but one of
Speaker 1: the Chinese Communist Party officials that was elevated was perceived
Speaker 1: as having been rewarded for successfully implementing a hard lockdown
Speaker 1: in I think it was Shanghai. And I'm curious whether
Speaker 1: regional chiefs others sort of see this dynamic and sort
Speaker 1: of and when you're thinking about the sort of draconian
Speaker 1: approach to containing COVID, whether there's sort of an inter
Speaker 1: regional competition among local officials who perceived this as a
Speaker 1: moment to elevate their standing within the National Communist Party. Yeah,
Speaker 1: so I think you're referring to Yin Lei, who's a
Speaker 1: public health expert, former party chief of Citron, who has
Speaker 1: been made the party sector of Beijing. I believe this,
Speaker 1: by the way, actually will be a big test for him,
Speaker 1: because of course part of a party chief's job is
Speaker 1: to handle instability. Yeah, so, so I think you have
Speaker 1: cases like that, people getting promoted for pursuing very draconian
Speaker 1: lockdown policies. But in general, I think the problem is
Speaker 1: that if if you look at the new regulations issued
Speaker 1: on November eleventh, the twenty measures, even though it's signals
Speaker 1: some kind of relaxation, at the same time, it also
Speaker 1: basically required local officials to still remain very vigilant about
Speaker 1: the spread out of COVID, still holding them responsible for
Speaker 1: very rapid proliferation of COVID cases. Of course, with Amicron
Speaker 1: that is just going to happen. With any degree of relaxation,
Speaker 1: inevitably you will have rapid spread of COVID. So local
Speaker 1: officials are still very afraid that they would be held
Speaker 1: responsible for rapid spread of COVID under their charge in
Speaker 1: the jurisdiction that that they control, and therefore in many
Speaker 1: cases they have still ordered their underlings to be extremely
Speaker 1: vigilant against the spread of COVID, which then, of course
Speaker 1: has led to a lot of these crude measures that
Speaker 1: people are protesting about. So so I think what is
Speaker 1: required is a very clear signal from the central government
Speaker 1: that you know, indeed, we're not going to hold people
Speaker 1: responsible anymore for the rapid spread of COVID. And despite
Speaker 1: you know, various rumors that are swirling around that you know,
Speaker 1: you know, some investment banks are talking about, I just
Speaker 1: don't see that happening in the immediate future, because, uh,
Speaker 1: such a clear signal would really go back against sort
Speaker 1: of three years of very strict COVID policies which the
Speaker 1: Chinese government has told the world but especially the people
Speaker 1: of China, that the stringent policies have been China's model
Speaker 1: has worked against the spread of COVID, and to completely
Speaker 1: go against that, I think would be pretty un usual.
Speaker 1: I want to dig more into what sort of happens
Speaker 1: from here, but before we do, just going back to
Speaker 1: the question of why are these protests being allowed to
Speaker 1: happen now? I mean, one of the theories, and again
Speaker 1: it's something that tends to pop up when there are
Speaker 1: signs of dissent. One of the theories is that, well,
Speaker 1: maybe there are various factions of political elites who are
Speaker 1: actually allowing these to happen and maybe signaling that they
Speaker 1: are unhappy with she Ji and Ping's leadership or something
Speaker 1: like that. This is basically your expertise China's elite. So
Speaker 1: do you buy that viewpoint? Is that possibility here? I
Speaker 1: don't buy that there. I mean, look, there are very
Speaker 1: dissatisfied people within the Chinese government, but they're not the
Speaker 1: ones who are in charge anymore. As you know, people
Speaker 1: who are not in she Jimping's factions happen by and
Speaker 1: large removed, you know, from the Chinese government forced into
Speaker 1: retirement and the new leadership which has taken power after
Speaker 1: the Twentie Party Congress. They're they're almost all uh she
Speaker 1: Jimping followers with a record of being very loyal to
Speaker 1: she Jimping. I really think this is a matter of
Speaker 1: the authorities being surprised, but then also tactically not to
Speaker 1: join the most bruto tools at their disposal immediately for
Speaker 1: fear of a backlash protests. What I do find a
Speaker 1: little bit odd is is how people are able to
Speaker 1: post footages of protests slogans in various forms on online platforms.
Speaker 1: I mean, those are supposed to be censored very strictly, clearly,
Speaker 1: at least for a day or two. It has not
Speaker 1: been very strict censorship of this content. Perhaps that is
Speaker 1: going to tighten, but certainly we have We've had a
Speaker 1: lot of very deep dissatisfaction from the tech industry in China,
Speaker 1: and I do wonder if that has something to do
Speaker 1: with it. Going back to you know, we started this
Speaker 1: discussion putting these protests in historical context. Do protests make
Speaker 1: changes happen? And how does the government respond because obviously
Speaker 1: there's no electoral electoral democracy, so you can't easily switch
Speaker 1: out the government, but there's you know, you imagine there's
Speaker 1: some feedback mechanism. How historically has the Chinese government adjusted
Speaker 1: policies in response to protests and what could it look
Speaker 1: like here given the self imposed COVID zero constraints. Yeah,
Speaker 1: so historically, you know, for some of these protests are
Speaker 1: that are narrow and focus and ask for very specific things.
Speaker 1: Protesters have had some success. You know, In fact, there's
Speaker 1: a saying in China that you know, if you don't protest,
Speaker 1: you're not going to get a result. If you organize
Speaker 1: a small protest, you get a small result. If you
Speaker 1: organize a big protest and you'll get major results. Uh So,
Speaker 1: this is certainly a case of major protests. At the
Speaker 1: local level, we are seeing some concessions already, at least
Speaker 1: for now. You know, of course, some of these concessions
Speaker 1: can go away after a few days. At some of
Speaker 1: the elite universities, for example at Chinghua University, Peaking universities,
Speaker 1: that there there has been some relaxation and COVID policies,
Speaker 1: The dorms have opened up, people can move a bit
Speaker 1: more freely. All that can be taken away. Of course,
Speaker 1: you know, at the neighborhood level, people are just taking
Speaker 1: down the barricades themselves. No one's really stopping them. So
Speaker 1: I think even if the central policies do not change
Speaker 1: the factor, I think sort of facts on the ground
Speaker 1: maybe shifting that we could see kind of you know,
Speaker 1: medium term gradual relaxation of COVID policies, as people take
Speaker 1: matters in their own hands, and as the government does
Speaker 1: not try to re institute very draconian lockdown policies. Of course,
Speaker 1: that will depend on the trajectory of COVID spreading. If
Speaker 1: COVID really becomes out of hand and that we have
Speaker 1: a large number of serious cases popping up, China's capacity
Speaker 1: to treat serious COVID cases is very limited, even in
Speaker 1: major cities like Beijing and Shanghai, so that could force
Speaker 1: the authorities to go back. The other thing that I think,
Speaker 1: unfortunately will happen is that the authorities are of course
Speaker 1: taking very careful records of the protesters and especially the
Speaker 1: protest leaders. They know who they are, and there will
Speaker 1: be a wave of arrest in the coming days. So
Speaker 1: one of the criticisms that is sort of bubbling to
Speaker 1: the surface right now, given the fact that COVID zero
Speaker 1: restrictions have gone on for something like three years now,
Speaker 1: and given this outbreak of dissent, one of the criticisms
Speaker 1: is that China's government basically squandered three years of preparation
Speaker 1: time to get its house in order and maybe start
Speaker 1: thinking about what an exit from COVID zero actually looks like,
Speaker 1: and that it doesn't seem like they had a viable
Speaker 1: exit plan in place. Maybe they were too focused on
Speaker 1: the National Party Congress and things going on with Chit
Speaker 1: and Ping and things like that. But why why does
Speaker 1: it seem like there hasn't been much thought given to
Speaker 1: how to actually start to wind down some of these restrictions.
Speaker 1: We saw a little bit of movement after the Party Congress,
Speaker 1: as you pointed out, but it doesn't seem like she
Speaker 1: shin Ping or anyone from the party has ever gone
Speaker 1: out and said here are our steps to reopening. Yeah. No,
Speaker 1: I think that is a big puzzle, especially in the
Speaker 1: vaccination front. China has had a vaccination campaign, a couple
Speaker 1: of rounds of it, and you know, of course, the
Speaker 1: vast majority of people in China have been vaccinated, but
Speaker 1: the vaccination and booster rates among elderly population remains very low,
Speaker 1: and so instead of using its vast propaganda, publicity, grassroots
Speaker 1: level capacity to to persuade the elderly population to get vaccinated,
Speaker 1: the Change government has not done too much on that front,
Speaker 1: at least not since so there was a round of
Speaker 1: vaccination in late The other thing that's puzzling is that
Speaker 1: China runs a massive trade surplus, but at the same
Speaker 1: time it refuses to approve any of the Western vaccines,
Speaker 1: the mr and A vaccine, and instead has focused on
Speaker 1: industrial policies to to develop China's own vaccines. And that's
Speaker 1: very puzzling because you know, even if China were to
Speaker 1: import mRNA vaccine for a few years, I'm sure within
Speaker 1: a couple more years China will have developed pretty effective
Speaker 1: mRNA vaccine of its own, given its its own biotech capacity.
Speaker 1: So for a few years, you spend a few billion
Speaker 1: dollars buying Western vaccines from a trade balance perspective, is
Speaker 1: really a small drop in China's vast trade surplus bucket.
Speaker 1: Yet the Chinese government has consistently refused to do so,
Speaker 1: and the latest, you know, after Shultz visit, Finally, you know,
Speaker 1: foreigners in China, which you know now number in in
Speaker 1: just a few thousands, can get the m RNA vaccines,
Speaker 1: but no one else can. That's that's really really puzzling,
Speaker 1: and it shows that the Chinese government makes policies according
Speaker 1: to its own logic, not according to even public health needs,
Speaker 1: and certainly not strictly according to the needs of its
Speaker 1: population all the time. So my impression is, you know,
Speaker 1: if you get three doses of the sinovac vaccine, it's
Speaker 1: actually reasonably effective compared to m r n A. So
Speaker 1: in some respects, the focus on foreign vaccines is kind
Speaker 1: of a red herring, but it does beg the question
Speaker 1: why China hasn't. You know, we talk a lot about
Speaker 1: the benefits of a centralized economy and a centralized society
Speaker 1: in many ways. But why why didn't China just you know,
Speaker 1: tell people go out and get vaccinated, and if you
Speaker 1: get vaccinated, maybe some of these restrictions start to ease
Speaker 1: off of it. It doesn't seem like a carrot was
Speaker 1: ever offered, and frankly, it doesn't seem like there was
Speaker 1: much of a stick to force people to get vaccinated either. Yeah. Well,
Speaker 1: so that there were some carrots being offered in late
Speaker 1: when the Sinovac first rolled out, and so that a
Speaker 1: wave of vaccination had pretty highs access rates, even among
Speaker 1: the elderly population. But you know, as you pointed out,
Speaker 1: for signal back to work reasonably well. Although although I
Speaker 1: have to say, there isn't like a ton of data
Speaker 1: on that, um, you know, there has you know, I
Speaker 1: forgot whether people have to be triple boosted or you know,
Speaker 1: get four shots or three shots, And there has not
Speaker 1: been a concerted effort to get the elderly population to
Speaker 1: get those booster shots. And that is indeed puzzling, especially puzzling.
Speaker 1: You know that actually even when it made sense in
Speaker 1: the run up to the twenty Party Congress or you know,
Speaker 1: certainly immediately afterward, it would have made sense to immediately
Speaker 1: launch a campaign to boost people, especially the elderly's, but
Speaker 1: we have not seen that. And of course there's this
Speaker 1: interesting fact that the elderly's are the most drawn to
Speaker 1: government propaganda, you know. So if you look at kind
Speaker 1: on on weve ball, you know who clicks on Chinese
Speaker 1: government messaging the most. They tend to be the elderly
Speaker 1: population who trusts the government the most. And so a
Speaker 1: concerted government propaganda campaign probably would have had a significant effectiveness.
Speaker 1: The Chinese goverman did not do that. I want to
Speaker 1: go back to the economy for a moment, and of
Speaker 1: course we've talked about the real estate bust and the
Speaker 1: fiscal impact that that's having, and we've talked about that
Speaker 1: on passed episodes. As you mentioned, one of the things
Speaker 1: that's been working very well for the Chinese economy is
Speaker 1: the exports, and it's just running an absolutely enormous current
Speaker 1: account surplus right now, partly due to exports, but also
Speaker 1: probably because it's not importing that much oil these days
Speaker 1: with the lockdowns. But even on the exports side, maybe
Speaker 1: some signs that things are creaking. It is a report
Speaker 1: that came out I believe today again November about supply
Speaker 1: curtail mints for Apple, which is almost you know, back
Speaker 1: to the future. One of the first topics that we
Speaker 1: discussed on this show three years ago is what would
Speaker 1: it mean for Apple's supply chain, but just more broadly economy.
Speaker 1: Three years of disruptions, three years of various in person
Speaker 1: service things like restaurants and other services not taking place
Speaker 1: as normal. What's this episode going to do to the
Speaker 1: Chinese economy and the sort of trajectory of where it goes? Yeah, no,
Speaker 1: I think um. This is part of the reason why
Speaker 1: we're seeing so many young people coming out the streets
Speaker 1: and protesting, because the prospects for many of them is
Speaker 1: not good. You know, as we've seen in this u
Speaker 1: S data, when you graduate from college at a time
Speaker 1: of economic recession, it affects the entire career trajectories of people.
Speaker 1: You know, if they don't find that first job, they
Speaker 1: don't get on the career ladder, you know, their ability
Speaker 1: to find jobs in future is effected, the pay goes
Speaker 1: up more slowly, etcetera, etcetera. This is happening to an
Speaker 1: entire generation of people in China, especially those who do
Speaker 1: not major in electrical engineering, or computer science. I mean,
Speaker 1: I think for the CS and w E people, they
Speaker 1: can still find jobs in defense, in the tech industry, etcetera.
Speaker 1: But for people you know, who are majoring in social
Speaker 1: sciences and the humanities, who typically would go into some
Speaker 1: of these service sector jobs, you know, helping a restaurant
Speaker 1: market their food, helping deliver various kinds of services, legal services, etcetera.
Speaker 1: All of these industries are suffering tremendously because of the lockdown,
Speaker 1: because of how poorly the Chinese economy is doing. You know,
Speaker 1: of course, the Chinese economy as a whole did okay
Speaker 1: one because of stimulus in the West, in the US
Speaker 1: and in Europe, which bolster demanding these economies for a
Speaker 1: couple of years. But as uh, you know, that is
Speaker 1: fading away in the West, a demand for Chinese goods
Speaker 1: also has fallen, and so across the board, you know,
Speaker 1: China will face some economic head winds in the next
Speaker 1: few months, and so I think, you know, of course,
Speaker 1: the Chinese government is trying to counteract by relaxing property policies,
Speaker 1: and now all these loans going to property developers, that
Speaker 1: of course only helps them complete the projects that have
Speaker 1: been ongoing it doesn't necessarily stimulate demand to buy properties.
Speaker 1: I think for Chinese people, you know, the investment demand
Speaker 1: has dried up to some extent because people realize that
Speaker 1: there's just way more supplied than demand, and the what's
Speaker 1: called heart demand, so demand from news new household formation
Speaker 1: that has slowed down tremendously also because of youth unemployment
Speaker 1: over right now, and it could be getting worse in fact.
Speaker 1: So for a lot of these graduates of social sciences
Speaker 1: and humanities, the job prospects are very dim. They can
Speaker 1: work for the government, but the government in many cases
Speaker 1: will send them to the rural areas, you know, to
Speaker 1: to village in western China, somewhere where where they live
Speaker 1: in uh, you know, the conditions that they're not used to. Fore.
Speaker 1: She didn't paining that's perfectly fine, perfectly normal, because he
Speaker 1: himself went through that. But I think for this generation
Speaker 1: of Chinese who grew up amiss very high economic growth
Speaker 1: initially a lot of hope for the future, unemployment or
Speaker 1: this kind of you know, government made employment are not
Speaker 1: very attractive. Victor. She thank you so much for coming
Speaker 1: on oud lot, thank you for having thanks Victor. Picture
Speaker 1: that was fascinating. Yeah, that was really excellent, Thanks Tracy.
Speaker 1: I really enjoyed talking to Victor and that helped clear
Speaker 1: up a lot of things in my head. But you know,
Speaker 1: just to start, like this idea of you know, it's
Speaker 1: not just the sort of three years of COVID zero
Speaker 1: and lockdowns and disruptions, etcetera on the property, but this
Speaker 1: idea of like a generation of younger Chinese students and
Speaker 1: graduate who may not have or may see that their
Speaker 1: future is not going to be what they expected because
Speaker 1: of this huge disruption and slow down is like a
Speaker 1: really interesting context for all this absolutely, and I guess
Speaker 1: in that respect, like it is probably important that a
Speaker 1: lot of this is taking place in Shanghai, which you know,
Speaker 1: traditionally was that sort of hotbed of entrepreneurship and tech billionaires,
Speaker 1: and then China cracked down on it and now there's
Speaker 1: a big question mark over whether or not that kind
Speaker 1: of employment prospects still exists. The other thing that really
Speaker 1: struck me was just that, you know, the sort of
Speaker 1: manpower issue, which is it takes a lot of people
Speaker 1: and a lot of resources and presumably a decent amount
Speaker 1: of money to actually have these types of restrictions in
Speaker 1: place and you know, restrictions that are naturally crimping some
Speaker 1: of your economic growth at the same time. And I
Speaker 1: guess it's interesting to me the question of whether or
Speaker 1: not they're going to be able to maintain those absolutely,
Speaker 1: And you know, I hadn't really thought about that prior
Speaker 1: in the context of the real estate collapse that we've
Speaker 1: been we have talked about multiple times on this show.
Speaker 1: I knew that, and probably from some of our past conversations.
Speaker 1: I knew that they were a significant portion of local
Speaker 1: government revenue, but I hadn't really appreciated the degree to which, okay,
Speaker 1: if that fell, that really does constrain the state capacity
Speaker 1: of these local governments, and that you know, even though
Speaker 1: it is a sort of the Chinese Communist Party, etcetera,
Speaker 1: that there are a lot of people, as a victor
Speaker 1: pointed out, not working for full government salaries even though
Speaker 1: they sort of our government officials, and that there really
Speaker 1: isn't you know, a a national budget the same way
Speaker 1: kind of like here in a respect in which you know,
Speaker 1: if there's you know, during the housing bust of California
Speaker 1: in two thousand and two thousand nine, that of course
Speaker 1: caused local austerity and layoffs and so to see that
Speaker 1: sort of similar structure of government finance there, how it's
Speaker 1: playing out in the context of COVID is really interesting. Absolutely,
Speaker 1: it certainly seems like we'll have more to discuss on
Speaker 1: this topic. But shall we leave it there for now?
Speaker 1: Let's leave it there, all right. This has been another
Speaker 1: episode of the ad Thoughts podcast. I'm Tracy Alloway. You
Speaker 1: can follow me on Twitter at Tracy Alloway and I'm
Speaker 1: Joe wi Isn't though. You can follow me on Twitter
Speaker 1: at the Stalwart. Follow our guest Victor She He's at
Speaker 1: v she to follow our producer Carmen Rodriguez at Carmen
Speaker 1: Armine and check out all of our podcasts at Bloomberg
Speaker 1: unto the handle at podcasts and for more Odd Lots content,
Speaker 1: go to Bloomberg dot com slash odd Lots, where you
Speaker 1: get transcript Tracy and I blog and we even write
Speaker 1: a newsletter that you should subscribe to and Odd Lots listeners.
Speaker 1: Tracy and I are going to be doing an a
Speaker 1: m A Ask Me Anything episode where you can ask
Speaker 1: us questions about us, what we're into, what we cover,
Speaker 1: send us a voice memo, state your name, where you're from,
Speaker 1: and one question put it in an email to odd
Speaker 1: Lots at Bloomberg dot net, and we'll give you our answers.
Speaker 1: Thanks for listening.