Speaker 1: Hello, and welcome to another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Allaway and I'm Joe. Wasn't so Joe. It
Speaker 1: has to be said that there are many irony's to
Speaker 1: come out of the coronavirus crisis, but one of the
Speaker 1: big ones has to do with the fact that the
Speaker 1: outbreak started in China in early and yet China have
Speaker 1: the best performing economy that year. Yeah. I think it
Speaker 1: was the only major economy that actually um grew overall
Speaker 1: in which is pretty extraordinary. And I don't really know
Speaker 1: if it's if it's true or if it will be
Speaker 1: durably true, but I do think there's this sort of
Speaker 1: meme out there that like China one in some way
Speaker 1: that it came out ahead. I don't actually, I'm not.
Speaker 1: I have a getting necessarily been convinced of it. But
Speaker 1: because of China's growth and the quick rebound and it's
Speaker 1: successful suppression of the virus, that is like a thing
Speaker 1: people say. Yeah, so China's GDP grew I think it
Speaker 1: was two point three percent last year, which means it
Speaker 1: was the only major economy as as you mentioned, to
Speaker 1: escape contraction, which is pretty amazing. And then of course
Speaker 1: people have been pitching China's experience in as sort of
Speaker 1: like proof of the benefits of a command economy. When
Speaker 1: you have something like an outbreak in a country with
Speaker 1: a very strong government, you can control the population, you
Speaker 1: can put in place restrictions and things that are ultimately
Speaker 1: going to make it easier to to fight the virus,
Speaker 1: and of course you can pull a bunch of lovers
Speaker 1: to boost economic activity as well. So most people have
Speaker 1: been talking about what an exceptional year it was for
Speaker 1: China's sort of proofs of their economic model might be
Speaker 1: more resilient than some people think. But there are people
Speaker 1: out there who think that actually wasn't as good a
Speaker 1: year for China as it's been portrayed, and that if anything,
Speaker 1: China is coming out of in a more vulnerable position. Yeah,
Speaker 1: I don't think there's you know, it seems too early
Speaker 1: to know, right, So yes, it grew. Um, I'm I'm
Speaker 1: thinking back to our episode with Dan Wong from a
Speaker 1: few weeks ago where he said like his lessons from
Speaker 1: were a that on some level the government is more
Speaker 1: tough and brutal than he appreciated, but also in his
Speaker 1: view that the there's a can do spirit to Chinese
Speaker 1: business and the economy that he thinks is unmaged elsewhere.
Speaker 1: But I still think that, you know, regardless of what
Speaker 1: the situation is right now, we it's very much a
Speaker 1: jump ball open question of what the long term economic
Speaker 1: ramifications are going to be from this extraordinary past once
Speaker 1: basically right. Of course, time will ultimately tell, but given
Speaker 1: that we are coming up to the one year anniversary
Speaker 1: of Earth, by the time we release this episode will
Speaker 1: probably be in the midst of the one year anniversary
Speaker 1: of the big market sell off and the virus really
Speaker 1: um sort of expanding in the rest of the world.
Speaker 1: I think the China experience is worth discussing um, and
Speaker 1: of course we can talk about whether or not the
Speaker 1: strength that we saw a exists and be will continue
Speaker 1: into one. So I'm happy to say we have the
Speaker 1: perfect person on to talk about this, someone who has
Speaker 1: been on all thoughts before. It's Michael Pettis, finance professor
Speaker 1: over at Paking University and a senior fellow at the
Speaker 1: Carnegie Chinghwa Center. Everyone enjoys his thoughts on China. He's
Speaker 1: probably one of the best China commentators out there, so
Speaker 1: we're really grateful to have them on the program again, Michael,
Speaker 1: thanks for coming on. Thank you so great to be back.
Speaker 1: So did we get that right? China had two point
Speaker 1: three GDP growth in Lots of commentators described that as
Speaker 1: proof of Chinese exceptionalism, proof of the economic model. But
Speaker 1: you've written that you saw it slightly differently. What was
Speaker 1: China's year like for you? How strong was the economy? Actually? Well,
Speaker 1: the first point that I make pretty often and probably
Speaker 1: the last time we spoke, is that GDP in China
Speaker 1: means something very different than it means in other countries.
Speaker 1: GDP and China is an input and in other countries
Speaker 1: it's a measure of output, and that makes it non comparable.
Speaker 1: What what happened last year in China is that there
Speaker 1: are basically two types of growth that Beijing focuses on.
Speaker 1: There is what you know, what we call high quality growth,
Speaker 1: which is really the growth in consumption, the growth in
Speaker 1: business investment, which is closely tie to the growth and
Speaker 1: consumption and growth in exports. And then there is the
Speaker 1: growth that everyone recognizes is low quality growth, which Beijing
Speaker 1: has has pledged to reduce, and that's the growth that
Speaker 1: arises from increases in public sector infrastructure spending, much of
Speaker 1: which is really nonproductive and in real estate development. And
Speaker 1: it's not a big secret that China has one of
Speaker 1: the fastest growing debt ratio's debt burdens in the world,
Speaker 1: mostly generated by this investment in in in public sector
Speaker 1: infrastructure and real estate development. So um, what matters is
Speaker 1: how growth developed last year, and and it's no big surprise,
Speaker 1: is no big secret that you know, the quality growth,
Speaker 1: that is, consumption and business investment were down quite substantially.
Speaker 1: Exports were up, but collectively they were net down. And
Speaker 1: the only reason China had two point three percent real
Speaker 1: GDP growth is because of a seven percent surge in
Speaker 1: real estate development. And uh, I forget the number, but
Speaker 1: more than more than three or four percent growth in
Speaker 1: public sector infrastructure spending. And you can see that in
Speaker 1: you know, the soaring steel prices, copper prices, sales of machinery, etcetera, etcetera. Now,
Speaker 1: if this stuff was good growth, there wouldn't be a
Speaker 1: big debate about trying to restrain it. You know, if
Speaker 1: if you spend a hundred dollars to build the bridge
Speaker 1: and it makes you a hundred and fifty dollars richer,
Speaker 1: there shouldn't be any debate about whether or not you
Speaker 1: should build the bridge. The fact that there is such
Speaker 1: a bridge as a recognition that it's really not worth
Speaker 1: a hundred dollars. It's worth less than that. And that's
Speaker 1: the growth that was generated. That's what took China from
Speaker 1: a negative growth rate to a positive growth rate. And
Speaker 1: the coral corollary of that, of course, is that China's
Speaker 1: debt to GDP ratio went up twenty five percentage points
Speaker 1: last year. The year before that was pretty bad, it
Speaker 1: went up six percentage points. So that really gives you
Speaker 1: an idea of how China generated growth this year. You
Speaker 1: could argue that that was a great accomplishment, but you
Speaker 1: could also argue that it left the economy warsaw not
Speaker 1: better off. You know, on this question of um disaggregating
Speaker 1: high quality growth and low quality growth. I mean, one
Speaker 1: of the things that you know, since I've been following
Speaker 1: markets and economics for a little over a decade now professionally,
Speaker 1: I remember like two thousand nine, two thousand ten, and
Speaker 1: they posted those videos on YouTube of the so called
Speaker 1: ghost cities or you know, all these apartment towers that
Speaker 1: were completely unoccupied, like oh, look at all this wasteful spending,
Speaker 1: or there would be like a train station but no
Speaker 1: city around it, and then it seems like years later
Speaker 1: those cities did actually end up becoming occupied and those
Speaker 1: train stations that seem like they were in the middle
Speaker 1: of nowhere looked like, uh, actually people are using them.
Speaker 1: So a is that true that a lot of what
Speaker 1: was characterized as malinvestment did become productive investment and be
Speaker 1: how can one identify in real time that what you
Speaker 1: characterize as bad growth or mediocre growth um low quality
Speaker 1: growth is in fact going to be um unproductive public investment.
Speaker 1: The the answer to your first question is that China
Speaker 1: is a huge country. It's really really I don't like
Speaker 1: to use specific examples because you can prove anything you want.
Speaker 1: There's certainly are areas that were considered to be overbuilt
Speaker 1: that filled up. There are even more areas that have
Speaker 1: never really filled up. If you go to ken Jin,
Speaker 1: for example, Uh, they decided that they wanted to become
Speaker 1: one of the leading financial centers of China. There's about
Speaker 1: ten cities that want to do that. And the way
Speaker 1: you become a leading financial center, according to Changin, is
Speaker 1: you build an entire Manhattan worth of office buildings on
Speaker 1: the outskirts of the city, and they did that. That
Speaker 1: area is quite visited, but it is visited by tourists.
Speaker 1: Nobody actually lives there, and it's really spectaculor. You've got
Speaker 1: all these beautiful buildings, just thousands of them. They're all empty,
Speaker 1: so you can you know, it's easy for you to
Speaker 1: find examples or counter examples. That's why I look at
Speaker 1: the aggregate numbers, and China has had the highest investment
Speaker 1: growth rate in history for forty years and the highest
Speaker 1: investment share of GDP of any country in history, ten
Speaker 1: percentage points higher than number two, which was South Korea
Speaker 1: for a brief period, but China has had it for
Speaker 1: thirty or forty years, and that alan should worry you.
Speaker 1: But more importantly is the debt trajectory, because when you
Speaker 1: borrow money to fund invest stament, if the investment is productive,
Speaker 1: by definition, your debt to GDP ratio can't go up,
Speaker 1: because while your debt goes up, your GDP should be
Speaker 1: going up at least as quickly. Chinese debt rose very
Speaker 1: quickly in the nine nineties, but nobody noticed it because
Speaker 1: g d P rose even more quickly it was only
Speaker 1: during some period around the first decade of the century
Speaker 1: where suddenly the growth in debt picked up and accelerated
Speaker 1: were while the growth and GDP slowed down. Because most
Speaker 1: of the debt goes to fund investment that cannot possibly
Speaker 1: happen if the if the investment is productive. You know,
Speaker 1: in theory, if you invest in in kindergartens, you don't
Speaker 1: get the results for another twenty or thirty years. But
Speaker 1: that's a tiny part of the investment. Most of it
Speaker 1: is bridges and subways and things like that, and we
Speaker 1: haven't seen the benefits yet. So in my mind, there's
Speaker 1: no question that much of this investment is misallocated. But
Speaker 1: what I think doesn't matter. Clearly Beijing is very worried
Speaker 1: about this. This is why they're having this huge debate
Speaker 1: about how much growth they need. If the growth was good,
Speaker 1: you shouldn't debate it. If you can get eight percent,
Speaker 1: get eight percent. If you can get ten percent, get
Speaker 1: ten percent. But they're not trying to get eight percent
Speaker 1: or ten percent, which they easily could they have the
Speaker 1: debt capacity, because clearly they don't believe in that growth,
Speaker 1: and that's why you have all of this talk about
Speaker 1: rebalancing and dual circulation. This is a clear recognition that
Speaker 1: there is a serious problem with the quality of growth.
Speaker 1: Could you dive into that a little bit more so?
Speaker 1: Beijing is obviously looking at a trade off between economic
Speaker 1: growth and more debt accumulation. How are they thinking about
Speaker 1: that and what are the political calculations that you see
Speaker 1: them making at the moment. Well, in a couple of
Speaker 1: weeks will start the famous two Sessions. Typically that's when
Speaker 1: they set out the plans for the year and for
Speaker 1: for people like you and me. The most important part
Speaker 1: of the two sessions is that they announced the GDP
Speaker 1: growth target for the year most or as we know
Speaker 1: by December, what the GDP growth target is. Last year
Speaker 1: there wasn't one, and this year there probably won't be
Speaker 1: a GDP growth target. But it's clear that there is
Speaker 1: a ferocious debate about growth versus debt. So you have
Speaker 1: one group of people saying it is really important to
Speaker 1: keep the growth rate as as high as possible, by
Speaker 1: which you know a lot of people are saying GDP
Speaker 1: growth this year in China will be eight to I
Speaker 1: don't think that's the case. I think they're more likely
Speaker 1: to go either between six and seven percent of the
Speaker 1: debt guys have the upper hand, or seven and eight
Speaker 1: percent of the growth guys have the upper hand. But
Speaker 1: either way, that's the nature of the debate that we're hearing.
Speaker 1: On the one hand, you have the politicos, the provincial leaders,
Speaker 1: and you know, some of the military and foreign affairs
Speaker 1: guys saying we need to keep growth rates as high
Speaker 1: as possible. On the other hand, there's almost unanimity among academics,
Speaker 1: m the Central Bank, people in the Ministry of Finance
Speaker 1: and the banking regulators, almost unanimity not complete, saying that no,
Speaker 1: we absolutely have to get debt under control. And so
Speaker 1: that's really what the discussion is going to be. Uh.
Speaker 1: But it's very hard to do. You cannot get debt
Speaker 1: under control, in my opinion, unless you're willing to accept
Speaker 1: growth rates of two to three percent or maybe even lower.
Speaker 1: And I don't think even the hardest core debt warriors
Speaker 1: are willing to UH to see growth drop that quickly. So,
Speaker 1: you know, thinking back pre virus, and I think I
Speaker 1: don't remember when we had you on before, but it's
Speaker 1: been a consistent theme of your work, and we should,
Speaker 1: of course mentioned the book that you published this last
Speaker 1: year with Matt Klein Trade war are class wars, which
Speaker 1: seemed very timely. But this idea that Chinese growth has
Speaker 1: sort of come expense, come at the expense of household
Speaker 1: buying power, that it's so heavily focused on investment, not
Speaker 1: much consumption. Chinese households are forced to or the facto,
Speaker 1: forced to save a lot. You know, when when the
Speaker 1: when the crisis hit, it made me wonder, It's like, well,
Speaker 1: is this going to change? Is there going to be
Speaker 1: an increase in the social safety net so that households
Speaker 1: don't have to spend more, Will there be more public
Speaker 1: health spending? And will that infrastructure get built out also
Speaker 1: sort of allowing consumers to spend more. It seemed like
Speaker 1: that could be a catalyst for some meaningful change along
Speaker 1: that dimension. And I'm curious, you know, in the short term, yes, okay,
Speaker 1: lots of the growth has been um, you know, government
Speaker 1: spending on infrastructure. But is there any shift afoot in
Speaker 1: this sort of rebalancing of the economy that you've been
Speaker 1: talking about for years. There's certainly a lot more a
Speaker 1: focus on it, and it's become very fashionable now for
Speaker 1: local government officials to make one announcement after another that
Speaker 1: they're boosting consumption or upgrading consumption was the was the
Speaker 1: fashionable phrase. But the problem is that we we know
Speaker 1: why the consumption share of g d P in China
Speaker 1: is so low. It's it's just arithmetic. Households, ordinary households.
Speaker 1: They retain the lowest share of GDP of any country
Speaker 1: probably in history. And as a result, since most consumption
Speaker 1: is household consumption, if you have a low household consumption share,
Speaker 1: that low household income share, then you're gonna have a
Speaker 1: low household consumption share. So how do you resolve that problem? Well,
Speaker 1: there's really only two weeks, and again this is just arithmetic.
Speaker 1: You can you can keep shops open later at night,
Speaker 1: which they're proposing to do. You can, you know, make
Speaker 1: shopping malls more more beautiful, and you can improve online delivery, etcetera, etcetera.
Speaker 1: But none of that has an impact on on on
Speaker 1: consumption because basically the way you consume is you have
Speaker 1: a an income, and out of that income, you serve
Speaker 1: a certain you save a certain amount, and then you know,
Speaker 1: the rest is your consumption budget. If you spend more
Speaker 1: money late at night, you're going to spend less money
Speaker 1: in the day. There's only two ways to get you
Speaker 1: to consume a bigger share of GDP. One way is
Speaker 1: to encourage lots of consumer debt, and that happened in
Speaker 1: the last five or six years, a household debt surge
Speaker 1: to buy some measures higher than it is in the
Speaker 1: US UM And then the other way is to increase
Speaker 1: the household income share, and that's what you're talking about,
Speaker 1: by strengthening, strengthening the social safety net, raising wages, you know,
Speaker 1: all of these various measures. But the problem is that
Speaker 1: if I increase your share of GDP, by definition, I
Speaker 1: have to reduce somebody else's share. And that's the part
Speaker 1: that's never discussed um but we know basically, again it's
Speaker 1: just arithmetic. You have to reduce the share retained by
Speaker 1: um UH, local governments and the local elites in order
Speaker 1: to increase the share retained by ordinary households. You can
Speaker 1: also do it by screwing the business sector, but they
Speaker 1: don't want to do that because the business sector is
Speaker 1: the best part of the economy. But this is politically
Speaker 1: really tough to do. And again it's something new. We've
Speaker 1: known this for a while. It's just politically extremely difficult
Speaker 1: to manage these transfers, and that's what they have to resolve.
Speaker 1: So in a year like where we saw the government
Speaker 1: ramp up spending in nonproductive parts of the economy, and
Speaker 1: we also saw Chinese manufacturing really come roaring back, partly
Speaker 1: because or mostly because the US and the rest of
Speaker 1: the world we're buying lots of things like face masks
Speaker 1: and computers. How much of that rebalancing that China has
Speaker 1: been trying to do for so long now, you know,
Speaker 1: moving more of its economy towards consumption, how much of
Speaker 1: that actually got undone in and how difficult is it
Speaker 1: going to be to kind of um reverse that dynamic. Well, first, Tracy,
Speaker 1: let me tell you I'm a little bit skeptical about
Speaker 1: the traditional argument for the surge in China's trade surplus.
Speaker 1: I don't think it was because people bought lots of
Speaker 1: masks and and things like that, because had that been
Speaker 1: the story, the increase in Chinese export earnings would really
Speaker 1: have led to an increase in Chinese imports, and it didn't.
Speaker 1: Imports were actually down. So my view is a little
Speaker 1: bit different. If you look at how China responded to
Speaker 1: COVID nineteen, not just China, there were a few other
Speaker 1: countries in Asia that did the same thing. It was
Speaker 1: very different from the way the US and Europe responded.
Speaker 1: In the US and Europe, this was treated mainly as
Speaker 1: a demand side problem, and most of the policy responses
Speaker 1: were aimed at boosting demand and basically by distributing income
Speaker 1: to households. So what you see in Europe and in
Speaker 1: the US is that the proxy for consumption recovered quite strongly.
Speaker 1: The proxy for industrial production was still negative for the year.
Speaker 1: But in China the response was very different. There was
Speaker 1: very little demand side boost, basically nothing. It was all
Speaker 1: supply side boost, cutting taxes on corporates, improving logistics, subsidizing manufacturing, etcetera.
Speaker 1: So last year industrial production recovered very strongly. It was positive.
Speaker 1: The proxy for consumption was negative. I think don't quote
Speaker 1: me on this, but I think it was five or
Speaker 1: six percent negative. So there's only you know, there's only
Speaker 1: one way, or there's only a couple of ways you
Speaker 1: can resolve it. If your industrial production recovers much more
Speaker 1: strongly than your consumption, then the only ways to resolve
Speaker 1: it is either with a significant increase in investment, which
Speaker 1: we saw or if the rest of the world has
Speaker 1: the opposite reaction, you can also resolve it with a
Speaker 1: significant increase in your trade surplus. And that's what happened
Speaker 1: in China. Exports surged, imports actually dropped last year, which
Speaker 1: shouldn't happen when exports surge, but the result was China
Speaker 1: is now running some of the biggest monthly trade surplus
Speaker 1: is that it has in its history. Now this is
Speaker 1: a problem because the reason the US and Europe boosted
Speaker 1: the demand side is of course they want that increase
Speaker 1: in demand to feed into a boost in supply side
Speaker 1: and employment at home, and part of it did, but
Speaker 1: part of it leaked abroad to Asia, and I know
Speaker 1: some of our friends at Treasury are looking at this
Speaker 1: very very closely. Now. I don't know how how long
Speaker 1: it can go on that China can run these huge
Speaker 1: trade surpluses, but I would guess that this is going
Speaker 1: to create increasing tensions during the year, which means that
Speaker 1: China has to find a different way of resolving this,
Speaker 1: either more investment, which it doesn't want to do, or
Speaker 1: much more pressure on rebalancing income, which, as I said,
Speaker 1: is is easy to explain but politically really hard to
Speaker 1: pull off. I'm glad you brought in the international tension
Speaker 1: because I was, you know, curious your take. It seems
Speaker 1: like the US is really in the middle of a
Speaker 1: pretty serious ideological policy pivot in terms of its appreciation
Speaker 1: of the power of fiscal stimulus. And of course, we
Speaker 1: saw one of the biggest fiscal packages of all time
Speaker 1: with the Cares Act basically a year ago. We saw
Speaker 1: another round of checks go out. At the end of
Speaker 1: it looks like we're going to get yet another pretty
Speaker 1: substantial stimulus, perhaps almost as much as two trillion, again,
Speaker 1: lots of checks, and we might get another spending plan
Speaker 1: even after that later in if Biden can push forward
Speaker 1: the Build Back Better plan, which would presumably be more
Speaker 1: long term and um infrastructure based. But you know, you
Speaker 1: mentioned this idea of the fiscal stimulus leaking and ultimately
Speaker 1: turning into incomfort for China, and I'm curious, a how
Speaker 1: you see that emerging as we get further rounds of stimulus,
Speaker 1: and be just in your view, how US policy makers
Speaker 1: should be thinking about using fiscal firepower in the most
Speaker 1: effective way such that it actually has uh, it's uh,
Speaker 1: it's desired goal of making the U s economy more Robot, Well,
Speaker 1: I think you're You're right, Joe. In the seventies we
Speaker 1: decided that fiscal policy doesn't work. It's all monetary. And
Speaker 1: I think now we're you know, we're reversing. We're figuring
Speaker 1: that the monetary policy no longer works, it's got to
Speaker 1: be fiscal and I think that makes a lot of sense.
Speaker 1: It seems to me that there are a couple of
Speaker 1: things that the US can do um that are that
Speaker 1: that that would be quite positive for US growth. First
Speaker 1: of all, if you believe that there is a demand
Speaker 1: side problem and that the reason businesses aren't investing is
Speaker 1: not because the cost of capital is too high, but
Speaker 1: because there's no demand, then it seems to me that
Speaker 1: if you can create demand, for example, by increasing the
Speaker 1: income of ordinary households, then businesses will begin to invest
Speaker 1: and the cost of of of those transfers to the
Speaker 1: households sector becomes self liquidating because while we increase, either
Speaker 1: through debt or monetary creation, the income of the household sector,
Speaker 1: there's no inflationary or debt impact because the supply side
Speaker 1: will automatically adjust. Americans will produce more stuff, or they'll
Speaker 1: produce the same amount of stuff with less household debt
Speaker 1: um so there will be no net cost to the US.
Speaker 1: It's a self liquidating process the other self liquidating process
Speaker 1: in my opinion, and I know there's some controversy about this.
Speaker 1: I'm surprised that there is. But the US has really
Speaker 1: bad infrastructure. It has enormous opportunities to upgrade the infrastructure,
Speaker 1: in which case, again, if you fund it by debt
Speaker 1: or if you fund it by money creation, it doesn't
Speaker 1: really matter because whatever increase on the demand side, the
Speaker 1: increase on the supply side is even greater. Obviously, if
Speaker 1: you repair the roads in New York City, the savings
Speaker 1: to American car owners is much greater than the cost
Speaker 1: of repair the roads, and and on and on and on.
Speaker 1: So the the US can do both of these things,
Speaker 1: and I think they're the right things to do. In
Speaker 1: the long term, infrastructure is probably more important, but in
Speaker 1: the short term, boosting household income for the poorest is
Speaker 1: extremely important. And the point is that in either case
Speaker 1: it's not going to create a burden for the US,
Speaker 1: because in either case it will boost the supply side
Speaker 1: at least as much as it boosts the demand side.
Speaker 1: The problem is that the US is also acting. And
Speaker 1: it's not a problem for the world. That's a problem
Speaker 1: for the US is also acting as again the consumer
Speaker 1: of last resort, that is, that is supplying demand for
Speaker 1: many other economies. And I think if the US were
Speaker 1: able to address that problem, either in some sort of
Speaker 1: multilateral convention or unilaterally if necessary, it would get a
Speaker 1: much greater bang for its domestic buck. So I have
Speaker 1: what might be a stupid question, but Joe described this
Speaker 1: ideological shift underway in the US and how people and
Speaker 1: certainly politicians think about fiscal stimulus. And we've been talking
Speaker 1: about some of the weaknesses of China's own stimulus measures
Speaker 1: in and this idea that a lot of them went
Speaker 1: into unproductive corners of the economy rather than directly into
Speaker 1: workers pockets so as to boost consumption. Why doesn't China
Speaker 1: just do stimulus through direct payments or you know, a
Speaker 1: system similar to the checks being written in the US.
Speaker 1: Like in many ways you would think that that would
Speaker 1: fit into China's professed um ideology of communism, like you know,
Speaker 1: the idea that they're helping workers, and why don't they
Speaker 1: just give people money? It's an interesting question. I mean,
Speaker 1: some people argue that China has really never developed an
Speaker 1: institutional framework for doing that. For forty years, the only
Speaker 1: thing that's really known how to do is to boost
Speaker 1: the supplies side. When they try to boost a household incomes. Again,
Speaker 1: they didn't do it by by transferring income to the
Speaker 1: household sector. They did it by subsidizing employment costs, which,
Speaker 1: if they work, work by increasing supply more than demand. Um.
Speaker 1: The other argument is that there are huge political implications
Speaker 1: to these types of transfers. To to give you an
Speaker 1: idea that I often use, household income in China is
Speaker 1: roughly fifty percent of GDP, So one way you can
Speaker 1: think about it is that there is a parity between
Speaker 1: the household sector and the non household sector, non household
Speaker 1: being businesses and government. For most countries, household income is
Speaker 1: seventy to eight percent of GDP. So even for China
Speaker 1: to get halfway to normal in terms of the distribution
Speaker 1: of income, we have to shift from an economy in
Speaker 1: which households are roughly the same size as non households
Speaker 1: to in a what I me in which households are
Speaker 1: two to three times the size of non households. And
Speaker 1: if you don't want that shift to be paid for
Speaker 1: by businesses, then by definition it's got to be paid
Speaker 1: for by governments. And I would submit to you that
Speaker 1: that huge shift in relative income must have a political implication,
Speaker 1: a pretty significant political implication, which I think is very
Speaker 1: very hard for China to deal with. I have another,
Speaker 1: perhaps stupid question, but it's something that you brought up, uh,
Speaker 1: that you brought up, And also I think you brought
Speaker 1: up the last episode and I meant to ask it,
Speaker 1: and I felt dumb at the time. So I'm just
Speaker 1: gonna ask you now, when you talk about the the
Speaker 1: income that's gained by local governments, why is that such
Speaker 1: a difficult source of income to touch? And who is
Speaker 1: actually benefiting from that? Other local politicians that in some
Speaker 1: way or another end up pocketing it, is other projects
Speaker 1: that extend their power. Like talk to us about why that,
Speaker 1: because that's not so much of a thing here, Like
Speaker 1: why is that such a politically difficult thing to fight? Well, um,
Speaker 1: that's a little politically sensitive. But I'll talk about a
Speaker 1: case that happened a few years ago under under both
Speaker 1: Chili because you know, he's a bad guy, so we're
Speaker 1: allowed to say this. But one of my former students
Speaker 1: worked in a private equity fund in in his city.
Speaker 1: I think when he was the mayor, it wasn't of
Speaker 1: hard being before he became the mayor of chun Ching
Speaker 1: and invested in a company that makes locks, and the
Speaker 1: principle of this company was very close to some senior
Speaker 1: people in the government. Three months after they invested in
Speaker 1: the company that makes locks and keys, the city announced
Speaker 1: that for security reasons, all locks and keys in government
Speaker 1: buildings were going to be changed. And I don't need
Speaker 1: to tell you who got the mandate to do that.
Speaker 1: I think there's a very strong connection between local elites
Speaker 1: and local governments, and even in China that's been discussed.
Speaker 1: Remember in two thousand and seven, when when Jiabao gave
Speaker 1: his famous speech about how we need to rebalance the economy.
Speaker 1: Within a few months of that speech, you started to
Speaker 1: see in the Chinese press the phrase vested interest. These
Speaker 1: were the terrible groups that were opposing UH measures that
Speaker 1: Beijing was trying to make to re balance income. And
Speaker 1: then UH didn't work until two thousand and twelve when
Speaker 1: when Shijing Ping became secretary, and that's when you started
Speaker 1: to see this very strong anti corruption campaign which many
Speaker 1: people argued was as much about politics as it was
Speaker 1: about corruption. And again I don't want to, you know,
Speaker 1: speak too openly about it because these are sensitive topics.
Speaker 1: But I think there is a perception in China, a
Speaker 1: very clear perception that the ability of local governments to
Speaker 1: control enormous amounts of assets is closely allied to the
Speaker 1: wealth of local elites. Got it. So it is sort
Speaker 1: of like it's still it's kind of business income, even
Speaker 1: though we we talk, sorry, just to clarify, So when
Speaker 1: you're talking about like, Okay, there's local government income and
Speaker 1: there's business income, and we you know, we're going to
Speaker 1: increase buying power of the household sector, one of those
Speaker 1: has to get touched. It's kind of also business income.
Speaker 1: It's just perhaps a little bit more politically connected business income. Sure,
Speaker 1: today there was an announcement by by several large cities
Speaker 1: in which they're changing the land auctions system. And I
Speaker 1: don't pretend to be an expert on it, but several
Speaker 1: of my friends have told me that this new system
Speaker 1: will benefit the largest real estate developers at the expense
Speaker 1: of the smaller ones. You know, it's really useful to
Speaker 1: have some control over these kinds of policies. Again I'm
Speaker 1: speaking sort of euphemistically, but but you know, you know,
Speaker 1: you know what I mean. Some of that also, I
Speaker 1: think is just the problem of execution in a country
Speaker 1: as big as China, and this idea that you get
Speaker 1: an edict that might be handed down from Beijing, but
Speaker 1: local governments will carry it out in different ways, not
Speaker 1: necessarily always because of corruption, but maybe because of incompetence
Speaker 1: or something like that. Like there's a wide well, there's
Speaker 1: a huge room for interpretation on a lot of these.
Speaker 1: Also just institutional rigidities. Any mayor can very quickly build
Speaker 1: a new bridge, but he won't necessarily know how to
Speaker 1: distribute income to the household sector. Yeah, this is the
Speaker 1: I think this is an underappreciated thing because people think, oh,
Speaker 1: China has this command economy. If Beijing says, you know,
Speaker 1: flip a switch and start lending, like more lending from banks,
Speaker 1: for instance, people think that's really easy to do. But actually, um,
Speaker 1: we find that often like the banks have to think
Speaker 1: through this stuff. Sometimes the mandate isn't exactly clear, and
Speaker 1: so it's not as easy as it seems. But anyway,
Speaker 1: since um, since Joe and I seem to be an
Speaker 1: asking stupid question, mode, I have another one for you,
Speaker 1: which is we've been talking about how the policy response
Speaker 1: in has probably led to a further accumulation in debt.
Speaker 1: We've seen lots of investment in things like the real
Speaker 1: estate sector you just mentioned another land reform effort. We
Speaker 1: have seen Beijing take a lot of steps to prop
Speaker 1: up the property sector recently. What's the downside of China
Speaker 1: accumulating more debt because at the moment, in other parts
Speaker 1: of the world, like the US, for instance, people seem
Speaker 1: to be growing more comfortable with the idea of the
Speaker 1: government taking on debt in order to fund stimulus. Why
Speaker 1: is it a bad thing for China? Well, the simple
Speaker 1: answer is that if it weren't, it would be very
Speaker 1: easy to put together a policy that made everyone a
Speaker 1: real millionaire overnight. And clearly that makes no sense. Um,
Speaker 1: but we don't really know where are the limits of debt.
Speaker 1: But we know a couple of things. First Off, when
Speaker 1: debt levels rise quickly enough that there is real uncertainty
Speaker 1: about how debt payment debt servicing costs are going to
Speaker 1: be allocated. You know, basically there's two types of debt.
Speaker 1: You can borrow money that's self liquidating. In other words,
Speaker 1: you use the money to create the value that pays
Speaker 1: off the debt and and then you can borrow money
Speaker 1: for projects and are not self liquidating. And in that case,
Speaker 1: the only way you can repay the debt is through
Speaker 1: implicit or explicit transfers. You can you can tax the
Speaker 1: the people, you can lower wages, you can expropriate wealth,
Speaker 1: you can default. You know, there's all these different ways
Speaker 1: you can inflate it away, and those are just ways
Speaker 1: of assigning the cost of of servicing the debt. Uh.
Speaker 1: The problem with that is that we all know that,
Speaker 1: and once the uncertainty levels are high enough. We've seen
Speaker 1: this in country after country, economic agents change their behaviors
Speaker 1: in ways designed to protect themselves. For example, flight capital,
Speaker 1: which we've seen in China, private sector businesses disinvest which
Speaker 1: again we're seeing in China. Maybe you see workers organized,
Speaker 1: maybe you see the middle class pictom money out of
Speaker 1: the banking system. We're not seeing that yet. But once
Speaker 1: you reach that point, it becomes self reinforcing, and you
Speaker 1: want to avoid that point. That's true for any country,
Speaker 1: and I would say that in China, with debt growing
Speaker 1: so much faster than GDP and real real skepticism, with
Speaker 1: real skepticism about the true value of that GDP, that's
Speaker 1: a real risk. You don't want to find out where
Speaker 1: the limit is, but there has to be a limit.
Speaker 1: The second thing, and this is where China is very
Speaker 1: different from other countries, is that um when you borrow
Speaker 1: money and spend it on something that doesn't create value,
Speaker 1: from an accounting point of view, you should expense it.
Speaker 1: But in China it isn't expense it's capitalized. So if
Speaker 1: I borrow a hundred dollars and spend it on something
Speaker 1: that's worth twenty, I should take an eighty dollar right now,
Speaker 1: but I don't. I carry the whole thing out a
Speaker 1: hundred dollars. That means that there is eighty dollars of
Speaker 1: recorded wealth that isn't real wealth. Right The total wealth
Speaker 1: of the country is overstated on paper relative to the
Speaker 1: real wealth of the country, and that has to be amortized.
Speaker 1: That is automatically amortized over time, but you don't see
Speaker 1: the amortization as long as debt continues to grow more
Speaker 1: quickly than the amount that is implicitly amortized. But that
Speaker 1: requires an acceleration in the growth rate of debt, and
Speaker 1: at some point when you can no longer accelerate the
Speaker 1: growth rate in debt, you start implicitly amortizing all of
Speaker 1: these costs, which means basically you start to take losses
Speaker 1: and they subtract from the GDP growth number as well
Speaker 1: as setting off what we call financial distress costs. I
Speaker 1: apologize if it's a little bit pedantic, but basically, we
Speaker 1: know that you don't have infinite debt capacity, but we
Speaker 1: don't know when you reach your limit. We also don't
Speaker 1: want to find out, and I think that's the problem
Speaker 1: with the rise in debt in China. So I do
Speaker 1: think it's your to this to your last answer, that
Speaker 1: one of the strengths of your approach, and I would
Speaker 1: say the approach of a lot of sort of more
Speaker 1: heterodox economists, is the sort of deep understanding of accounting,
Speaker 1: and not that accounting is everything, but that if you
Speaker 1: don't understand accounting, you you miss a lot of this stuff.
Speaker 1: But that being said, there is more than accounting. And
Speaker 1: we have you know, we we mentioned we we had
Speaker 1: a recent episode on the rise of Chinese semiconductor industry
Speaker 1: and some other domestic industries. Things that actually, you know,
Speaker 1: technological improvements, increases in productive capacity as the country gets
Speaker 1: richer and has more know how, how do you see
Speaker 1: that developing? Just you know, accounting aside this sort of
Speaker 1: the boom in uh sort of world class or it's
Speaker 1: the attempt to achieve sort of world class corporations that
Speaker 1: whether on a tech basis or sort of cultural export basis.
Speaker 1: I mean we see it with TikTok are really white
Speaker 1: dad's are really emerging in China? And how much is
Speaker 1: that sort of changing the equation so to speak, Well,
Speaker 1: you're right about accounting. Accounting doesn't tell you the truth,
Speaker 1: but it tells you things that are clearly not true,
Speaker 1: and it allows you to dismiss a lot of stuff
Speaker 1: on on on the issue of investment in high tech
Speaker 1: that gets a huge amount of attention is very sexy.
Speaker 1: Everybody loves it. But we have to you know, we
Speaker 1: have to make two points here. First of all, it's very,
Speaker 1: very small, and when you compare it to total investment
Speaker 1: in China, it's tiny if you want. You know, for
Speaker 1: years and years China has said, don't worry about the
Speaker 1: investment problem. All we have to do is shift out
Speaker 1: of bad investment into productive, good investment, for example, high
Speaker 1: tech and that, and that's that problem solved. Well, they've
Speaker 1: been talking about this for ten fifteen years and it
Speaker 1: hasn't really happened. And I liken that a little bit too.
Speaker 1: You know, don't worry about your child getting an education.
Speaker 1: All she has to do is win the lottery ticket
Speaker 1: and she won't need an education. Yeah, it's true, but
Speaker 1: winning the lottery ticket is quite hard, and so far
Speaker 1: very few countries have been able to pull this off.
Speaker 1: It's a huge amount of new investment that has to
Speaker 1: replace this old, less valuable investment. But the other problem
Speaker 1: is that we don't really know how to cost a
Speaker 1: lot of this. I think Chinese online retail is a miracle.
Speaker 1: I think it was also created when nobody was watching,
Speaker 1: because basically, all these very smart kids leap frog a
Speaker 1: terribly creepy retail distribution system. But I'm not sure all
Speaker 1: these other areas, you know, the super fast computers, the satellites,
Speaker 1: a high speed rail network, I'm not sure how economically
Speaker 1: successful they are. They are great programs, right, there's spectacular technology,
Speaker 1: but it's only sustainable if the economic value added of
Speaker 1: that technology is greater than the cost, and it's very
Speaker 1: easy to come up with cases in history where a
Speaker 1: lot of trophy investment in technology in the long run
Speaker 1: turned out not to be sustainable. So we just don't know.
Speaker 1: But for me, the key problem is that you know,
Speaker 1: this is great stuff, but it's just not big enough
Speaker 1: to replace all the railroads and bridges and empty buildings.
Speaker 1: So given the investment in unproductive or less productive industries,
Speaker 1: given the debt accumulation, and given I know you took
Speaker 1: some issue with this idea, but given the idea that
Speaker 1: strong manufacturing probably helped China offset some weaknesses in and
Speaker 1: we can debate by how much, but how vulnerable do
Speaker 1: you see the economy the Chinese economy in this year
Speaker 1: as things presumably start to normalize, um maybe as the
Speaker 1: spending boom in the US starts to die down a
Speaker 1: little bit, what's going to happen to China? Well, I
Speaker 1: think one is going to be a very good year
Speaker 1: for China, in which it looks like it will have
Speaker 1: achieved many of its subjectives, but it will only be
Speaker 1: really by it will start to change again. And the
Speaker 1: reason is because in China, like in most other countries,
Speaker 1: we saw a huge increase in the household savings rate
Speaker 1: last year. You know, we can debate about the reasons.
Speaker 1: Part of it had to do when you're locked in
Speaker 1: and locked up in home, you can't go out and shop.
Speaker 1: It's much harder to shop. Obviously, you're not going to restaurants, etcetera, etcetera.
Speaker 1: So a lot of that increase in savings was simply
Speaker 1: because I wanted to spend money but I couldn't. Part
Speaker 1: of that increase in savings was probably again not just
Speaker 1: in China, but in the whole world. COVID nineteen scared
Speaker 1: us all, and I think all of us decided that
Speaker 1: we're going to be better prepared for the next crisis
Speaker 1: and probably will save a little bit more money than
Speaker 1: we normally do. Now we don't know the breakdown, but
Speaker 1: at least some of the increase in savings last year
Speaker 1: is going to be reversed this year in China. And
Speaker 1: my guess is that between the increase in consumption, which
Speaker 1: could be eight or nine percent this year, maybe even
Speaker 1: a little more, and the increase in business investment aimed
Speaker 1: at consumption. Let's ignore what happens to the exports sector,
Speaker 1: because I could go either way, but those two things
Speaker 1: should generate in my opinion, between six to seven percentage
Speaker 1: points of growth this year. This is all healthy growth. Now.
Speaker 1: If China is satisfied with six to seven percent growth,
Speaker 1: then that means we won't need significant growth and real
Speaker 1: estate development or in public sector infrastructure spending um in
Speaker 1: order to achieve that implicit growth target. There will probably
Speaker 1: be some, but I would argue that this year the
Speaker 1: debt to GDP ratio will probably only increase by one
Speaker 1: or two percentage points, and a hundred percent or nearly
Speaker 1: a hundred percent of the growth will be generated by
Speaker 1: the good stuff. But it's important to remember that this
Speaker 1: is mostly a reversal of last year. Last year the
Speaker 1: debt to GDP ratio went up by twenty five percentage points.
Speaker 1: If it goes up by only one or two that's
Speaker 1: still roughlycent a year for two years, which has doubled
Speaker 1: the rate of previous years. So this year will look
Speaker 1: quite good, but it's mainly a reversal of how bad
Speaker 1: last year looked. And then once that reversal and consumption
Speaker 1: has worked its way through, then you know, then we're
Speaker 1: back to the same old problem, which is that consumption
Speaker 1: is too low a share of GDP for China to
Speaker 1: give up on on on nonproductive investment to generate growth
Speaker 1: rates much above two or three percent. So I want
Speaker 1: to just go back to the sort of very question
Speaker 1: that we set up at the beginning. And I don't
Speaker 1: even really like the question or something like, but it's
Speaker 1: like this idea. It's like, Okay, did like did China
Speaker 1: win like it was this year? Like a did it
Speaker 1: improve China's trajectory and standing in the world? And I
Speaker 1: guess part of the question is, and again it goes
Speaker 1: to your book, is obviously some of it. The question
Speaker 1: has to do with China's own domestic policy, its own
Speaker 1: success at fighting COVID, but also in the changing policy
Speaker 1: stance of other countries. And it goes back to the
Speaker 1: US and whether the US will continue to be the
Speaker 1: consumer of last resort. Also, we had yesterday were recording
Speaker 1: recording this February, but yesterday we had Biden, Biden coming
Speaker 1: out and talking about focusing on rebuilding the US semiconductor
Speaker 1: industry and not being dependent on China for complex supply
Speaker 1: chain needs, which raises the question of whether maybe there
Speaker 1: will be a meaningful change. So, looking down the road,
Speaker 1: is it possible that things that in the end that
Speaker 1: were catalyzed by COVID by end up really not playing
Speaker 1: to China's favor of the way people are imagining right now. Well,
Speaker 1: you know, I think I think China's response to COVID
Speaker 1: nineteen was incredibly impressive. You know, a month ago when
Speaker 1: there was that new outbreak, they moved really really quickly.
Speaker 1: I got tested several times. They really they you know,
Speaker 1: they reset up all of the barriers into my neighborhood,
Speaker 1: into every neighborhood. You had to you have to check
Speaker 1: your state is constantly, etcetera. It's very inconvenient, but it's
Speaker 1: incredibly effective. Now, I think for institutional reasons, it's very
Speaker 1: difficult for countries in the US and Europe to replicate that.
Speaker 1: But still, the Chinese responded really well to COVID nineteen.
Speaker 1: But the way I think about COVID nineteen is a
Speaker 1: little bit differently. I don't think it changed everything. I
Speaker 1: think what it did is it accelerated everything. All of
Speaker 1: the underlying problems in the global economy, income inequality, trade imbalances,
Speaker 1: rising debt, etcetera. Were seriously exacerbated by COVID nineteen. So
Speaker 1: for me, the the answer to the long term question
Speaker 1: is that COVID nineteen made adjustment all the more urgent
Speaker 1: for China, for the US, for Europe, for Brazil, for everybody.
Speaker 1: So the questions is which types of systems are better
Speaker 1: at adjusting. And this may just be the American in
Speaker 1: me speaking, but you know, I also think the historical
Speaker 1: precedents are pretty clear. For all of their faults, democracies
Speaker 1: are pretty good at adjusting, and when they adjust, it's
Speaker 1: always such a messy, ugly process that that's precisely when
Speaker 1: democracies lose their prestige, like in the nineteen seventies or
Speaker 1: in the nineteen thirties. The irony is that they lose
Speaker 1: their prestige exactly when they're doing what they do best.
Speaker 1: Autocracies have much more difficulty adjusting, and you can see
Speaker 1: in China China responded to OVID by COVID nineteen by
Speaker 1: exaggerating its previous supply side responses. It's very difficult for
Speaker 1: autocracies to make that adjustment. Now, it's not impossible in
Speaker 1: history isn't a perfect map of the future. But I
Speaker 1: would say the answer to your question, Joe, we're only
Speaker 1: really going to know over the next three to four years,
Speaker 1: and and the answer will be those systems that did
Speaker 1: a better job of adjusting to the acceleration COVID nineteen
Speaker 1: created ultimately will be the quote unquote winners, and those
Speaker 1: systems that had trouble adjusting are are going to be
Speaker 1: worse off because of of COVID nineteen. Does that make sense? Yeah?
Speaker 1: That was great. Alright, Michael Pettis on all thoughts yet again,
Speaker 1: Thank you so much. Really appreciate it, my pleasure. Thank you. Yeah,
Speaker 1: that was great, Michael, thank you so much for coming back. Sorry,
Speaker 1: Can I just ask one question? What's the mood like
Speaker 1: in Beijing at the moment? And I'm curious, like are
Speaker 1: people going out? I know you, um you had some
Speaker 1: interest in nightclubs, Like are people going out to clubs
Speaker 1: at the moment? Are they allowed to? Well? Things completely
Speaker 1: opened up around September, a lot of my bands were
Speaker 1: touring around China. It was amazing, sold out shows everywhere
Speaker 1: they went, etcetera, etcetera. And then about a month ago,
Speaker 1: because of the new outbreak in Hebei Province, which surrounds us,
Speaker 1: all the shows in Beijing were canceled and they haven't
Speaker 1: been reopened, but we're expecting them to reopen fairly soon.
Speaker 1: So you know, you go outside and everything is packed.
Speaker 1: What's your favorite band right now that we should check out?
Speaker 1: Oh god, it's like asking, you know, he's your favorite
Speaker 1: son or daughter. It's not there. There there's a lot
Speaker 1: of them. Uh, you know, it's well, what's interesting is
Speaker 1: that there was this new TV show that came out,
Speaker 1: you know, in all of our indie bands were indie bands,
Speaker 1: you know, the most famous one Carsit Cars could play
Speaker 1: and you know, could draw an audience of two hundred. Now,
Speaker 1: when they announced a tour in three months, within a minute,
Speaker 1: half of the tour is sold out, and within the
Speaker 1: day the entire tour is sold out. And these are
Speaker 1: venues of two thousand, three thousand people. So we're really
Speaker 1: starting to see a sea change in the you know,
Speaker 1: the attitude towards what was a very indie underground music scene.
Speaker 1: So that's pretty exciting. I'm gonna have to listen to
Speaker 1: some Car Sit Cars. I see the on Spotify, so
Speaker 1: t K fourteen ourselves besides me Lonely Leery dream Can
Speaker 1: there's so many jokes. Great, we know I'll have to
Speaker 1: I'll have to start adding them to my morning rotation.
Speaker 1: Thank you there you go, and at some point maybe
Speaker 1: we'll have to have you back and some for just
Speaker 1: a discussion on Chinese Indian punk bands and just talk
Speaker 1: about I'd love to do it. That would be great.
Speaker 1: We'll do that as well. Thanks Michael, Thank you so Joe.
Speaker 1: There's obviously a lot to go through from that conversation,
Speaker 1: but one of the things that definitely struck me was
Speaker 1: Michael repeating this idea that COVID basically exacerbated existing trends.
Speaker 1: So if we saw China having some difficulty rebalancing its
Speaker 1: economy before, difficulty with them inequality and things like that
Speaker 1: really hardened that trend. Yeah, I mean, it's sort of
Speaker 1: like this big macro thing that's beyond China. And of
Speaker 1: course I would say, like in the middle of neck
Speaker 1: in the middle of last summer, there was probably more
Speaker 1: of COVID is going to change everything, and some things
Speaker 1: that probably will change, but I also think a lot
Speaker 1: of things um are are going to get even more
Speaker 1: are clearly getting more extreme, and this sort of like
Speaker 1: Chinese macro imbalances, uh, certainly looks like it's it's one
Speaker 1: of them. Yeah. And the other thing that I thought
Speaker 1: was interesting was his description of adjustment periods in democracy
Speaker 1: and how when democracies are going through a period of
Speaker 1: volatility or uncertainty, everyone starts writing articles about how, you know,
Speaker 1: the Chinese is winning and command economies have benefits and
Speaker 1: that sort of thing. But actually what's happening is that
Speaker 1: the Chinese economy just isn't adjusting very well while democracies
Speaker 1: are in the process of doing that adjustment. I'm not sorry,
Speaker 1: I'm not nearly as no Lucid as Michael was on this,
Speaker 1: but you know what I mean, Yeah, No, I thought
Speaker 1: that was really interesting. Also, like his point about tech, like,
Speaker 1: obviously it is really impressive in many cases what some
Speaker 1: big these Czech tech giants have done. But on the
Speaker 1: other hand, like in the in a country and economy
Speaker 1: as large as China's, do they how much do they
Speaker 1: really move the needle yet in terms of like sort
Speaker 1: of macro discussions, And you know, it's even like here,
Speaker 1: you know, even in the US, like, of course we
Speaker 1: have a handful of these incredibly successful startups and tech giants,
Speaker 1: but for the vast majority of Americans it's not like
Speaker 1: they're working for them, or it's not like they've seen
Speaker 1: like some huge economic benefit from them other than perhaps
Speaker 1: as consume yours, and so you know, you can imagine
Speaker 1: how in China it's even uh, that phenomenon is even
Speaker 1: more extreme. Words. It's interesting a lot of people making
Speaker 1: money world class tech in some cases, but whether they
Speaker 1: actually move to the macro dial is sort of another question, right. Well,
Speaker 1: that was another thing in Michael's conversation that struck me,
Speaker 1: this idea of attention between consumers and businesses, and that
Speaker 1: you can't necessarily re balance towards consumers without taking something
Speaker 1: away from business. Um, and I guess it seems kind
Speaker 1: of obvious in retrospect, but you can see how that
Speaker 1: would be really politically sensitive for the Communist Party. Yes,
Speaker 1: and I was I'm glad he clarified what he's talking
Speaker 1: about when we when people talk about income that goes
Speaker 1: through local governments, because of course, for the most part,
Speaker 1: like local government in you know, of course, any regional
Speaker 1: government in US wants more tax revenue, etcetera. But that's
Speaker 1: not it's clearly a different dimension. And his ex planation
Speaker 1: of why that would be a very sort of politically
Speaker 1: sensitive thing to rebalance and come from local government to
Speaker 1: the everyday household sector that was extremely helpful. I didn't
Speaker 1: really get that before. All right, well, we'll have Michael
Speaker 1: on on again to talk I guess the economics of
Speaker 1: Chinese indie rock bands. Does that work? Or maybe we
Speaker 1: don't even have to talk echo. Why don't we just
Speaker 1: like have him play some of his favorite songs and
Speaker 1: then chat about like we could do like we could
Speaker 1: just like a real music episode, you know, just let's
Speaker 1: listen to bands together. Oh well, we maybe we should
Speaker 1: save him for like the Variety show or something like that,
Speaker 1: or have it Variety show. That'd be good. That's actually
Speaker 1: a really good idea. Maybe we could Oh that's a
Speaker 1: good idea we should for or maybe our next live show,
Speaker 1: whether maybe online. What if we like talked to Michael
Speaker 1: we did a little like eco chat and then we
Speaker 1: had him introduced one of his bands that they could
Speaker 1: play a few songs. I think that'd be fun, be
Speaker 1: like thoughts the China Club experience. Yeah, this is a
Speaker 1: good idea. All right, this is definitely what this is
Speaker 1: what this is what we have to do. Okay, Um,
Speaker 1: well we recorded all of that, so all thoughts listeners,
Speaker 1: you just had an insight into our our work process
Speaker 1: for planning Um, shall we leave it there? Yeah? All right,
Speaker 1: let's leave it there. This has been another episode of
Speaker 1: the All Thoughts Podcast. I'm Tracy Alloway. You can follow
Speaker 1: me on Twitter at Tracy Alloway and I'm Joe Why
Speaker 1: Isn't All? You can follow me on Twitter at the Stalwart.
Speaker 1: Follow our guest Michael Pettis on Twitter. He's at Michael
Speaker 1: X Pettis. Follow Laura Carlson, our producer. She's at Laura M. Carlson.
Speaker 1: Followed the Bloomberg head of podcast, Francesco Leavi at Francesca Today,
Speaker 1: and check out all of our podcast at Bloomberg under
Speaker 1: the handle at podcasts. Thanks for listening to