WEBVTT - Xi’s Big Challenge Is Getting People to Spend, Spend, Spend 0:00:02.720 --> 0:00:07.200 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.720 --> 0:00:12.360 This week, thousands of Chinese lawmakers are gathering in Beijing 0:00:12.520 --> 0:00:16.760 for the annual meeting of the NPC, the National People's Congress. 0:00:17.079 --> 0:00:23.120 The National People's Congress is China's parliament. It reads drafts 0:00:23.200 --> 0:00:24.320 and passes laws. 0:00:24.880 --> 0:00:28.680 John lu Is, Bloomberg's senior executive editor for Greater China 0:00:28.840 --> 0:00:29.639 based in Beijing. 0:00:29.960 --> 0:00:32.720 The number one thing that happens at the Congresses on 0:00:32.760 --> 0:00:36.640 the first day, China's premiere gives what is equivalent to 0:00:37.040 --> 0:00:40.120 the State of the Nation Address for China. He comes 0:00:40.159 --> 0:00:43.239 out and says how the country is doing, how it 0:00:43.280 --> 0:00:45.800 did in the past year, and then he lays out 0:00:45.800 --> 0:00:47.959 some very important targets for the coming year. 0:00:49.479 --> 0:00:51.519 I want to report to you on the work of 0:00:51.560 --> 0:00:56.960 the government for your deliberation and also for comments. For 0:00:57.040 --> 0:01:00.960 twenty twenty five, Beijing set an ambitious GDP growth target 0:01:01.080 --> 0:01:04.680 of about five percent, and Premier Lie Cheung declared that 0:01:04.920 --> 0:01:10.800 vigorously boosting consumption is the government's top priority. To help 0:01:10.920 --> 0:01:14.640 ramp up domestic demand, Beijing plans to expand its public 0:01:14.680 --> 0:01:19.080 spending by borrowing at a record level. The government raised 0:01:19.120 --> 0:01:22.160 the general budget deficit to around four percent of GDP, 0:01:22.600 --> 0:01:25.759 the highest level in more than three decades. But it's 0:01:25.840 --> 0:01:28.760 unclear whether that kind of stimulus will be enough to 0:01:28.800 --> 0:01:32.120 help the Chinese economy, whether the storm ahead, and then 0:01:32.160 --> 0:01:34.120 of course there's the wild card. 0:01:34.520 --> 0:01:37.960 China's economy is in this really awkward position at the moment. 0:01:38.600 --> 0:01:43.720 Property is struggling, domestic consumption is weak. The only good 0:01:43.720 --> 0:01:46.479 thing about the economy has been exports, and now that's 0:01:46.520 --> 0:01:48.920 in real danger because of Donald Trump and because of 0:01:48.960 --> 0:01:51.520 the tariffs of the United States is imposing. So going 0:01:51.520 --> 0:01:54.080 into the future, the question is what can China do 0:01:54.200 --> 0:01:57.440 to overcome all these challenges, And the problem is there 0:01:57.480 --> 0:01:59.320 isn't a solid, guaranteed solution. 0:02:01.160 --> 0:02:04.840 Welcome to The Big Take Asia from Bloomberg News. I'm wanh. 0:02:05.120 --> 0:02:07.560 Every week we take you inside some of the world's 0:02:07.560 --> 0:02:11.560 biggest and most powerful economies and the markets, tycoons and 0:02:11.720 --> 0:02:16.359 businesses that drive this ever shifting region. Today on the show, 0:02:16.600 --> 0:02:20.840 Beijing plans to get people to spend, spend, and spend, 0:02:21.000 --> 0:02:24.280 but how and will Trump's trade war get in the 0:02:24.320 --> 0:02:32.080 way of those efforts. On Wednesday, Premier Lee Chiang kicked 0:02:32.080 --> 0:02:35.360 off the National People's Congress with China's twenty twenty five 0:02:35.480 --> 0:02:39.280 Government work report. It reviewed the health of China's economy 0:02:39.400 --> 0:02:41.960 and laid out a policy roadmap for the coming year. 0:02:42.400 --> 0:02:45.639 Bloomberg's John Liu and his team have been closely reporting 0:02:45.720 --> 0:02:48.320 on what's coming out of the meetings this week, John, 0:02:48.440 --> 0:02:51.000 what's the biggest thing you were watching out for in 0:02:51.040 --> 0:02:52.360 the government report this year? 0:02:52.600 --> 0:02:55.440 So the three things we were really keen on finding 0:02:55.480 --> 0:02:57.800 out were one, what was the GDP tar you're going 0:02:57.840 --> 0:03:01.160 to be for twenty twenty five? The target of about 0:03:01.200 --> 0:03:03.280 five percent, which is the same as it was for 0:03:03.320 --> 0:03:04.200 twenty twenty four. 0:03:04.520 --> 0:03:07.720 Now, keeping the country's growth rate level might not sound 0:03:07.760 --> 0:03:10.320 like a big deal to an outsider, but the Chinese 0:03:10.360 --> 0:03:14.440 economy is facing serious headwinds right now. John says. Just 0:03:14.560 --> 0:03:17.880 how serious those headwinds are and how difficult it will 0:03:17.919 --> 0:03:20.880 be to reach that goal was reflected in another number 0:03:20.960 --> 0:03:24.000 that was released this week, the borrowing threshold. 0:03:24.200 --> 0:03:28.000 They were going to expand the budget deficit for the 0:03:28.040 --> 0:03:30.640 central government to about four percent of GDP. That's the 0:03:30.800 --> 0:03:34.839 biggest that it's been since nineteen ninety four, since they 0:03:34.880 --> 0:03:37.840 had some major changes in how they calculate fiscal deficits, 0:03:37.840 --> 0:03:41.480 and so it's really the biggest on record. What that says, though, 0:03:41.560 --> 0:03:44.240 is they're going to spend a lot more money to 0:03:44.360 --> 0:03:46.440 have the same growth they had in twenty twenty four, 0:03:46.520 --> 0:03:49.320 So they're spending a lot more money to basically stay 0:03:49.360 --> 0:03:52.680 in place. So that's actually not a very optimistic signal 0:03:52.720 --> 0:03:53.520 for the rest of the year. 0:03:54.320 --> 0:03:58.480 Consumption. People buying dishwashers are going out to restaurants made 0:03:58.520 --> 0:04:01.640 up less than forty five percent of China's GDP growth 0:04:01.720 --> 0:04:04.440 last year. That's the lowest since two thousand and six 0:04:04.680 --> 0:04:07.880 and excludes the pandemic year of twenty twenty. In most 0:04:07.880 --> 0:04:11.400 developed economies, that number would be typically between sixty percent 0:04:11.440 --> 0:04:15.680 to eighty percent. Basically, people in China are feeling kind 0:04:15.680 --> 0:04:18.400 of broke right now, so they're not spending as much 0:04:18.640 --> 0:04:22.480 as fast and this creates a vicious and dangerous cycle. 0:04:22.800 --> 0:04:25.800 People are just not willing to spend, and that has 0:04:25.839 --> 0:04:30.160 resulted in companies need to compete more aggressively to get business, 0:04:30.200 --> 0:04:33.159 and mostly they've been doing that by cutting prices. And 0:04:33.200 --> 0:04:35.760 so if companies are cutting prices, they have less money 0:04:35.800 --> 0:04:37.839 that they're bringing in that they can then give to 0:04:37.880 --> 0:04:40.240 their workers that they can use to hire more workers, 0:04:40.279 --> 0:04:43.960 and that results in households feeling even more uncertain about 0:04:43.960 --> 0:04:47.080 the future, and it motivates people to save even more 0:04:47.240 --> 0:04:49.640 to spend even less. It's a very vicious and very 0:04:49.760 --> 0:04:50.560 dangerous cycle. 0:04:52.640 --> 0:04:56.000 To achieve the five percent growth target, the Chinese government 0:04:56.120 --> 0:04:59.320 has a laundry list of issues to overcome. Some are 0:04:59.360 --> 0:05:02.839 long term, like the country's aging population, which is putting 0:05:02.880 --> 0:05:07.080 pressure on an already strained pension system, but others are 0:05:07.120 --> 0:05:10.760 more pressing, like the property market. The real estate market 0:05:10.880 --> 0:05:13.400 used to be one of the country's biggest growth drivers, 0:05:13.720 --> 0:05:15.560 but it's been in a slump for the last several 0:05:15.640 --> 0:05:19.520 years and it remains deep in trouble today. John It 0:05:19.600 --> 0:05:22.520 sounds like the real estate crisis has affected almost every 0:05:22.520 --> 0:05:26.240 region of China and certainly every level of society. How 0:05:26.279 --> 0:05:28.360 are local governments then dealing with that? 0:05:28.880 --> 0:05:33.000 Many local governments around China are very indebted. They've borrowed 0:05:33.000 --> 0:05:35.200 a lot of money to build the infrastructure over the 0:05:35.279 --> 0:05:38.600 last decade or so, and now as economic growth slows, 0:05:38.680 --> 0:05:41.880 they're finding it harder to generate tax revenue from those 0:05:41.960 --> 0:05:45.400 infrastructure projects to pay them off, and so as a result, 0:05:45.600 --> 0:05:47.960 there's less money to go around. They have to pay 0:05:48.000 --> 0:05:51.120 the interest on those borrowings. That means they have less 0:05:51.400 --> 0:05:54.920 for new projects, they have less potentially to pay government 0:05:55.000 --> 0:05:58.640 workers to provide public services, and so the central government. 0:05:59.160 --> 0:06:02.240 The plan has been for the central government to borrow 0:06:02.320 --> 0:06:05.039 and then to give that money over to the local 0:06:05.080 --> 0:06:07.360 government to pay off the debt. And so basically you're 0:06:07.400 --> 0:06:10.520 transferring the debt load from the local level to the 0:06:10.520 --> 0:06:11.760 central level and. 0:06:11.720 --> 0:06:15.400 Also on the government's list of priorities turning around a 0:06:15.440 --> 0:06:16.799 sluggish job market. 0:06:17.000 --> 0:06:19.560 So the job market, I think the pain point that 0:06:19.600 --> 0:06:22.839 has been most pronounces with youth unemployment. There was even 0:06:22.839 --> 0:06:25.360 a period when they stopped publishing the data for youth 0:06:25.400 --> 0:06:28.480 unemployment because it was so high. In the summer of 0:06:28.520 --> 0:06:30.719 this year, we are going to get a record number 0:06:30.720 --> 0:06:33.400 of new graduates hitting the employment market, and so that's 0:06:33.440 --> 0:06:36.320 going to add additional pressure on the government to create jobs. 0:06:37.400 --> 0:06:40.000 How they go about doing that, I think it looks 0:06:40.040 --> 0:06:43.000 like right now they are putting an emphasis on private enterprise, 0:06:43.320 --> 0:06:45.400 and if you look at the data, the vast majority 0:06:45.400 --> 0:06:49.480 of jobs, especially in Chinese cities, comes from the private sector, 0:06:49.480 --> 0:06:52.520 and so it looks like that the government's main push 0:06:52.560 --> 0:06:56.040 there is to try and reduce regulation, to try and 0:06:56.240 --> 0:06:59.200 reduce the amount of scrutiny on private enterprises and hopefully 0:06:59.240 --> 0:07:02.520 that translates into to a more robust sector and more jobs. 0:07:02.680 --> 0:07:04.760 I mean, the private sector does seem to be something 0:07:04.800 --> 0:07:07.440 of a point of light for China's economy. We've certainly 0:07:07.480 --> 0:07:09.440 seen some big gains made in the last year, right 0:07:09.480 --> 0:07:12.840 particularly in tech. You've got deep seek on the AI front, 0:07:13.080 --> 0:07:16.160 You've got tech giant Huawei surprising people with their phones, 0:07:16.760 --> 0:07:19.560 and that seems to bode well for domestic consumption, which 0:07:19.600 --> 0:07:21.320 is a big target for the Chinese government. 0:07:21.360 --> 0:07:25.600 Right So, I think if China, as it has proclaimed 0:07:25.920 --> 0:07:28.640 at the NPC that it wants to make boosting domestic 0:07:28.680 --> 0:07:31.000 demand the number one priority, if it can do that, 0:07:31.000 --> 0:07:33.920 that would actually be very helpful for domestic innovation, I think, 0:07:33.960 --> 0:07:37.760 because what you would see is companies here in China 0:07:37.960 --> 0:07:42.480 being able to potentially raise prices, having more customers, and 0:07:42.520 --> 0:07:46.200 that would in turn results in greater profitability, which means 0:07:46.200 --> 0:07:47.640 they have more to invest in R and T. 0:07:48.360 --> 0:07:51.720 Now, John, is there anything that's going well in China's economy. 0:07:52.440 --> 0:07:57.280 I think that the stability in the housing market that 0:07:57.320 --> 0:07:59.960 we've seen in the last couple of months is very encouraged. 0:08:01.160 --> 0:08:05.640 I think that the AI innovations, the breakthroughs that we've 0:08:05.680 --> 0:08:09.040 had with deep seek, even with Tenson and Ali Baba 0:08:09.080 --> 0:08:13.760 introducing their own large language models, that's helped produced a 0:08:13.800 --> 0:08:18.320 lot of confidence. I think when the stock market goes 0:08:18.400 --> 0:08:21.400 up as it has because of those innovations, that leads 0:08:21.560 --> 0:08:25.240 people to feel more confident about the future, and maybe 0:08:25.360 --> 0:08:28.000 they think, you know what, I'll go and have a 0:08:28.080 --> 0:08:31.400 nice dinner out, I'll buy a nice bag, I'll splurge 0:08:31.400 --> 0:08:33.800 on something. And if enough people do that, it could 0:08:33.840 --> 0:08:35.440 start to turn things around. 0:08:36.360 --> 0:08:39.680 Another bright spot has been exports. About a third of 0:08:39.760 --> 0:08:43.720 China's GDP growth came from net exports last year. And 0:08:44.000 --> 0:08:45.680 what could possibly go wrong. 0:08:45.920 --> 0:08:49.200 We've been ripped off for decades by nearly every country 0:08:49.240 --> 0:08:53.640 on Earth, and we will not let that happen any longer. 0:08:54.040 --> 0:09:07.080 That's after the break. As premierly wrapped up his work 0:09:07.080 --> 0:09:09.480 report in the Great Hall of the People in Beijing, 0:09:09.880 --> 0:09:12.200 President Trump, on the other side of the world, was 0:09:12.240 --> 0:09:16.160 getting ready to address Congress in Washington, DC. In his 0:09:16.280 --> 0:09:19.600 first speech to both chambers since returning to office, Trump 0:09:19.679 --> 0:09:21.439 defended the use of tariffs. 0:09:21.720 --> 0:09:27.199 Whatever they tariff US other countries, we will care off them. 0:09:27.280 --> 0:09:30.800 Let's recip wi goal back and forth whatever they tax us, 0:09:31.920 --> 0:09:34.720 we will tax them. 0:09:34.840 --> 0:09:37.760 John, How do you think Trump's speech to Congress might 0:09:37.800 --> 0:09:41.239 have been received by Chinese leaders in Beijing? 0:09:41.760 --> 0:09:46.040 If you talk to policymakers, there is a broad assumption 0:09:46.360 --> 0:09:49.439 amongst them that Trump is looking for a deal. That's 0:09:49.480 --> 0:09:54.079 reinforced by when President Trump talks about how great a 0:09:54.160 --> 0:09:57.240 relationship he has with President husing Ping, and so I 0:09:57.240 --> 0:10:01.080 think when Chinese officials here President Trump telling Congress these 0:10:01.080 --> 0:10:05.040 things about more tariffs, more taxes, all of this stuff, 0:10:05.640 --> 0:10:07.320 I think they take it astride and they're trying to 0:10:07.360 --> 0:10:11.280 figure out what they can do to get the best 0:10:11.280 --> 0:10:14.280 deal they can and what President Trump wants. 0:10:14.600 --> 0:10:16.880 Do you think with these tariffs that we've seen so far, 0:10:17.080 --> 0:10:20.240 this trade war could escalate like it did in twenty eighteen. 0:10:20.800 --> 0:10:24.920 I think the officialdom in Beijing expects things to get 0:10:24.960 --> 0:10:28.480 more heated. But I think Beijing is balancing that with 0:10:28.920 --> 0:10:34.000 the damage that President Trump is causing to America's relationship 0:10:34.000 --> 0:10:39.199 with other countries Canada, Mexico, Europe, the Global South, and 0:10:39.280 --> 0:10:41.880 I think Beijing's sort of viewing it in a more 0:10:42.080 --> 0:10:45.680 holistic sense, in that, yes, all these tariffs on Chinese 0:10:45.720 --> 0:10:47.319 goods are going to hit the economy, and that is 0:10:47.360 --> 0:10:50.280 going to have a negative impact. But at the same time, 0:10:50.679 --> 0:10:55.000 maybe all of these actions by the Trump administration undermining 0:10:55.040 --> 0:10:58.760 the American partnerships and relationships that it has with countries 0:10:58.800 --> 0:11:01.600 around the world, that creates more space for China to 0:11:01.640 --> 0:11:07.440 actually strengthen it's trading relationships, links, it's diplomatic relationships with 0:11:07.559 --> 0:11:09.760 all these other countries who have been distanced by the 0:11:09.800 --> 0:11:10.640 Trump administration. 0:11:11.040 --> 0:11:13.280 Well, that would be a smart approach. Right when door closes, 0:11:13.360 --> 0:11:15.200 you try to look for others. Is there a risk 0:11:15.280 --> 0:11:18.360 there that US tariffs if they continue, if if they're 0:11:18.400 --> 0:11:22.360 piling on, could that dent that five percent growth target? 0:11:22.480 --> 0:11:25.280 I think it certainly could. When those tariffs get high enough, 0:11:25.600 --> 0:11:28.480 any advantage will be taken away, and so at a 0:11:28.520 --> 0:11:31.480 high enough rate, it will do real damage to Chinese 0:11:31.520 --> 0:11:34.520 exporters and that will have a real impact on the economy. 0:11:34.600 --> 0:11:37.760 In turn. What rate that is, I think it's hard 0:11:37.800 --> 0:11:42.280 to theorize, but I would expect Beijing to be ready 0:11:42.360 --> 0:11:45.839 to provide more support as those tariffs go up. 0:11:46.440 --> 0:11:49.360 So, with all that we've talked about, the challenges at 0:11:49.360 --> 0:11:53.920 home and beyond, is China's growth target of five percent achievable? 0:11:54.440 --> 0:11:58.640 The five percent target for GDP to me, is a 0:11:58.760 --> 0:12:03.600 relatively pessimistic target. It's in combination with the fact that 0:12:03.640 --> 0:12:07.400 they've also pledged a record amount of deficit spending and 0:12:07.480 --> 0:12:11.040 so China is having to spend more to stay in place. 0:12:11.520 --> 0:12:14.720 That to me suggests the government is looking around the world. 0:12:14.760 --> 0:12:16.839 It's looking at what the United States is doing, it's 0:12:16.880 --> 0:12:19.840 looking at what's happening in Europe, and it's thinking this 0:12:19.920 --> 0:12:22.079 year is going to be a tough year, and they're 0:12:22.400 --> 0:12:25.480 trying to be realistic about what they can get done. 0:12:25.760 --> 0:12:29.720 I think they didn't want to lower the target because 0:12:29.880 --> 0:12:32.600 it would have sent I think the wrong signal to 0:12:33.200 --> 0:12:36.319 bureaucrats around the country that maybe they didn't have to 0:12:36.360 --> 0:12:37.920 work as hard, they didn't have to try as hard. 0:12:38.000 --> 0:12:40.959 It would have also sent the wrong message to financial 0:12:41.040 --> 0:12:45.360 markets in terms of what to expect, how ambitious, how 0:12:45.440 --> 0:12:48.240 much effort the government is going to put into making 0:12:48.240 --> 0:12:51.400 the economy better again, reviving growth again. And so it 0:12:51.559 --> 0:12:55.600 sort of is an acknowledgement of the challenges, but also 0:12:55.960 --> 0:12:59.200 trying to show that the central government is up to 0:12:59.240 --> 0:13:01.440 the task of trying to tackle those challenges. 0:13:05.200 --> 0:13:07.800 This is the big take Asia from Bloomberg News. I'm 0:13:07.880 --> 0:13:11.400 wan Ha. This episode was produced by Young Young, Naomi 0:13:11.480 --> 0:13:14.440 M and Jessica Beck. It was edited by Patti Hirsh 0:13:14.520 --> 0:13:17.120 and Daniel ten Kate. It was fact checked by Naomi 0:13:17.160 --> 0:13:19.880 and Young and mixed and sound designed by Alex Duguerra. 0:13:20.480 --> 0:13:23.640 Our senior producer is Naomi Shaven. Our senior editor is 0:13:23.679 --> 0:13:28.040 Elizabeth Ponso. Our executive producer is Nicole Beemster Bower. Sage 0:13:28.040 --> 0:13:31.400 Bowman is Bloomberg's head of podcasts. If you liked this episode, 0:13:31.480 --> 0:13:33.920 make sure to subscribe and review The Big Take Asia 0:13:34.040 --> 0:13:36.920 wherever you listen to podcasts. It really helps people find 0:13:36.920 --> 0:13:39.280 the show. Thanks for listening, See you next time.