WEBVTT - What Wuhan Can Teach Us About Recovery 0:00:00.320 --> 0:00:03.320 So COVID nineteen is um is a kind of stress 0:00:03.360 --> 0:00:08.640 test for for how economic systems function, and if you 0:00:08.680 --> 0:00:11.159 look at how China and the US have performed in 0:00:11.200 --> 0:00:21.079 the last six months, China is actually doing rather better. Hello, 0:00:21.200 --> 0:00:23.880 and welcome to Stephanomics, the podcast that brings the COVID 0:00:23.920 --> 0:00:26.880 global economy to you. We're all about China this week, 0:00:27.040 --> 0:00:30.160 and that was Tom Aulick, Bloomberg's chief economist and old 0:00:30.240 --> 0:00:32.760 China hand, who has just published a book that helps 0:00:32.800 --> 0:00:36.280 explain why China's economy has not had the big crisis 0:00:36.360 --> 0:00:39.800 that so many experts have confidently predicted over the years, 0:00:40.200 --> 0:00:42.000 and why it also appears to be winning the fight 0:00:42.040 --> 0:00:46.440 against COVID nineteen. But first, you'll remember we spoke to 0:00:46.479 --> 0:00:50.000 Sharon Chen, Bloomberg's Beijing bureau chief, back in April. She 0:00:50.120 --> 0:00:53.200 was in quarantine then in her apartment after a reporting 0:00:53.240 --> 0:00:57.000 trip to Wuhan. That city was just coming out of lockdown. 0:00:57.080 --> 0:01:00.880 Then first into the COVID crisis and first out. We 0:01:00.960 --> 0:01:03.840 spoke to her then about the early signs of recovery 0:01:03.840 --> 0:01:05.839 there and what it might tell us about the road 0:01:05.880 --> 0:01:08.600 ahead for the rest of us. Well three months on, 0:01:08.959 --> 0:01:10.880 I was interested to find out what life has been 0:01:10.920 --> 0:01:14.120 like in China since then, and whether the authorities still 0:01:14.160 --> 0:01:22.920 feel good about the way they've handled the pandemic. Sharon, 0:01:23.080 --> 0:01:25.160 it's great to talk to you again. I know that 0:01:25.240 --> 0:01:28.160 you're planning another trip to Wuhan, but you've been talking 0:01:28.200 --> 0:01:31.800 to businesses there about what's what's happening. When we spoke 0:01:31.840 --> 0:01:33.920 at the beginning, it seemed to show something that we 0:01:34.000 --> 0:01:37.480 have seen in other places, that it's a twin track economy, 0:01:37.640 --> 0:01:41.240 that production side coming back but not so much the 0:01:41.280 --> 0:01:45.480 consumer side. Is that's still true? Yes, so um you know, 0:01:45.680 --> 0:01:48.760 bought the data and the anecdotes kind of indicate that 0:01:48.760 --> 0:01:52.320 that's what's happening. Unfortunately, obviously the data is a bit 0:01:52.360 --> 0:01:55.440 of a lagging indicator, but we have factory production and 0:01:55.480 --> 0:01:59.720 retail sales, exports, fixed st investment up till me UM 0:01:59.760 --> 0:02:02.559 and you know, the economy reopened in April, and even 0:02:02.600 --> 0:02:07.080 in May, we saw that local manufacturers had basically almost recovered. 0:02:07.120 --> 0:02:10.639 You know, industrial production was only zero point four percent UM, 0:02:10.760 --> 0:02:14.600 not lower than the year before in growth, but consumptions 0:02:14.680 --> 0:02:18.359 obviously still lagging UM and exports as well. I mean 0:02:18.520 --> 0:02:21.240 some more recent data, you know, we look at subway 0:02:21.320 --> 0:02:23.480 data and a lot of the cities, and in Buhan 0:02:23.840 --> 0:02:27.280 it shows that traffic passenger traffic has recovered to about 0:02:27.280 --> 0:02:31.120 half the level, which is you know, decent. And also 0:02:31.200 --> 0:02:33.120 it could be one of the reasons which we talked 0:02:33.120 --> 0:02:36.600 about earlier, that people are buying cars and just driving 0:02:36.600 --> 0:02:39.760 themselves instead of taking public transport, so it's not entirely 0:02:39.800 --> 0:02:42.799 reflective of how you know, how much people are out again. 0:02:43.200 --> 0:02:46.320 And we should mention that Wuhan had a flare up 0:02:46.360 --> 0:02:49.800 in May, so it reopened um in early April, and 0:02:49.800 --> 0:02:52.280 then in May and new cluster of cases was discovered, 0:02:52.400 --> 0:02:55.960 and you know, the city reacted very strongly. Obviously, they 0:02:55.960 --> 0:02:57.880 put in place a lot of strict restrictions and then 0:02:57.880 --> 0:03:01.240 they tested the entire population of level million people in 0:03:01.280 --> 0:03:03.800 the span of two weeks and since then they haven't 0:03:03.800 --> 0:03:06.400 reported a single case. So, you know, just based on 0:03:06.440 --> 0:03:09.640 the anecdotes as well, we do see that factories are 0:03:09.680 --> 0:03:12.920 back up a full capacity UM, a lot of the 0:03:12.960 --> 0:03:16.400 exporters are benefiting. Trade did search as soon as the 0:03:16.440 --> 0:03:19.160 city reopened, but of course it depends on what kind 0:03:19.200 --> 0:03:21.600 of product you're making. You know. We spoke to one 0:03:21.639 --> 0:03:25.960 factory manager who they make plastic cups for airlines and 0:03:25.960 --> 0:03:29.480 for hotels, and you know, business has just evaporated because 0:03:29.639 --> 0:03:32.200 the travel industry just collapsed, like they just don't have 0:03:32.240 --> 0:03:35.040 any demand. But then we talked to another factory that 0:03:35.480 --> 0:03:38.240 was making helmets and then pivoted to making more face 0:03:38.280 --> 0:03:41.320 shields and protective gear, and they've seen, you know, demand 0:03:41.320 --> 0:03:45.120 from South America double because the virus cases there keep increasing. 0:03:45.520 --> 0:03:47.840 And then it's the same on the consumption front as well. 0:03:47.880 --> 0:03:51.040 You know, restaurant owners they are struggling because people don't 0:03:51.040 --> 0:03:53.240 really feel safe and also some of the habits like 0:03:53.320 --> 0:03:56.200 eating at home, they've just persisted. Um. But on the 0:03:56.240 --> 0:03:58.680 other hand, you know, we spoke to a factory owner. 0:03:58.920 --> 0:04:02.560 He produces hot dry noodles, but the instant kind like 0:04:02.640 --> 0:04:05.280 instant raman where you add hot water, and you know, 0:04:05.360 --> 0:04:07.760 business is just going through the roof. He's even expanded, 0:04:07.800 --> 0:04:10.320 he's now delivering to the next city because people just 0:04:10.440 --> 0:04:12.680 want to stay at home, but they want to eat 0:04:12.840 --> 0:04:15.640 your favorite food still, so you know, it's just definitely 0:04:15.680 --> 0:04:19.200 a mixed bag. So if you're if you're involved in 0:04:19.240 --> 0:04:22.120 the COVID business or you're providing, you're able to provide 0:04:22.120 --> 0:04:23.719 food that people don't need to be sitting in a 0:04:23.800 --> 0:04:26.760 restaurant to eat. You're doing You're doing all right. That 0:04:26.839 --> 0:04:29.680 was interesting what you said about the exports, because one 0:04:29.720 --> 0:04:32.760 of the concerns looking at China was that we saw 0:04:32.839 --> 0:04:35.440 the sort of early signs of a V shaped recovery, 0:04:35.440 --> 0:04:38.000 at least when it came to production, and then the 0:04:38.080 --> 0:04:41.240 fear was that the terrible things that were going on 0:04:41.279 --> 0:04:44.679 in the rest of the world would then bring China 0:04:44.760 --> 0:04:47.839 down again because of it's dependent on exports. But it's 0:04:47.839 --> 0:04:50.359 so what you're saying is there is that's a twin 0:04:50.440 --> 0:04:52.839 track as well. If you're on the consumption side, you're 0:04:52.839 --> 0:04:56.880 doing badly, but actually some of the core products are exporting. 0:04:56.920 --> 0:04:59.800 Well yeah, I mean, like the supply chain is so 0:05:00.000 --> 0:05:02.120 global and so integrated now as well, right, I mean, 0:05:02.160 --> 0:05:04.920 they also feel the impact on the raw material side, 0:05:05.400 --> 0:05:08.680 but I think you know, the trade story. What's interesting 0:05:08.880 --> 0:05:11.120 has is that it's also kind of shown the limits 0:05:11.120 --> 0:05:14.120 of government intervention on government support. You know, the government 0:05:14.200 --> 0:05:17.640 has rolled out a lot of support for these businesses 0:05:17.839 --> 0:05:22.920 and especially the smaller ones, but until global demand recovers, 0:05:22.960 --> 0:05:25.240 there is a limit to what the government can do. 0:05:25.640 --> 0:05:27.560 And you know, some of the companies that we spoke 0:05:27.640 --> 0:05:30.240 to said that they can apply for loans and they 0:05:30.240 --> 0:05:33.760 can apply for grants, but until their own clients overseas 0:05:34.200 --> 0:05:37.719 are really able to um bring those orders back, you know, 0:05:37.760 --> 0:05:40.560 there's there's really not much they can do. And then 0:05:40.680 --> 0:05:43.360 another option for them is to try to get new clients. 0:05:43.400 --> 0:05:46.960 But then with travel basically understand still, these these trade 0:05:46.960 --> 0:05:49.520 fairs and everything, I mean, those things aren't happening as well. 0:05:50.000 --> 0:05:52.039 You mentioned that they had tried in Wuhan to have 0:05:52.200 --> 0:05:56.320 various measures to stimulate consumption, and of course that's something 0:05:56.440 --> 0:05:58.920 we've had this week. The British government has been trying 0:05:58.960 --> 0:06:02.120 to throw a lot of the economy to to get 0:06:02.160 --> 0:06:05.680 consumers out and about now that the lockdown is easy, 0:06:05.680 --> 0:06:09.280 we've seen lots of consideration of that in the US 0:06:09.440 --> 0:06:13.120 as well. Does it work to be putting more money 0:06:13.200 --> 0:06:16.040 into consumers pockets or is it really all about confidence 0:06:16.080 --> 0:06:18.960 in the virus? I mean, I think it does work. 0:06:19.040 --> 0:06:23.520 They've given out about five hundred million grand or shopping vultures, 0:06:23.560 --> 0:06:26.839 that's about seventy three million U S dollars and you know, 0:06:26.839 --> 0:06:28.920 people that we spoke to said that they regularly use 0:06:28.960 --> 0:06:32.279 those vultures, and I think it does get people spending, 0:06:32.360 --> 0:06:34.760 although it's unclear how much of that spending happens in 0:06:34.760 --> 0:06:37.560 person and how much of it is happening online because 0:06:37.560 --> 0:06:40.600 you know, a lot of transactions in China shop online 0:06:40.680 --> 0:06:43.440 very easily. Um So I don't know how much that 0:06:43.760 --> 0:06:46.719 is really helping encourage people to go outside and to 0:06:46.800 --> 0:06:50.599 do things that they used to do. Interestingly, one of 0:06:50.600 --> 0:06:53.200 the restaurant owners we spoke to said that it was 0:06:53.240 --> 0:06:57.039 the mass testing campaign that Juhan executed that was the 0:06:57.080 --> 0:07:00.559 big confidence booster. You know, he saw the most number 0:07:00.560 --> 0:07:02.919 of customers come in the day after they finished their 0:07:02.960 --> 0:07:05.880 campaign and announced that they had tested every single person 0:07:05.920 --> 0:07:07.640 in the city. And you know, if the city is 0:07:07.680 --> 0:07:10.040 able to pull that off, like, I think that that 0:07:10.080 --> 0:07:13.480 does kind of really reap dividends in terms of making 0:07:13.480 --> 0:07:20.920 people feel confident and making them feel safe. Of course, 0:07:20.960 --> 0:07:24.320 we're also looking ahead wondering how long we're going to 0:07:24.440 --> 0:07:28.600 feel like we're in uh what you described it when 0:07:28.640 --> 0:07:30.480 you came back from Wuhan last time, a sort of 0:07:30.560 --> 0:07:36.320 dystopian post lockdown world where everyone's getting temperature tests or 0:07:36.400 --> 0:07:41.040 where you're being socially distanced. How far when you're in 0:07:41.080 --> 0:07:44.120 your day to laid life and when you go out 0:07:44.160 --> 0:07:47.920 with friends in Beijing. I mean, how far do you 0:07:47.960 --> 0:07:50.560 still feel you are from normal life? Does it feel 0:07:50.600 --> 0:07:53.280 when you have these outbreaks that it's still one step 0:07:53.360 --> 0:07:56.120 forward one step back? Or is it are you starting 0:07:56.120 --> 0:07:57.720 to see the light at the end of the tunnel? 0:07:58.480 --> 0:08:01.160 I mean, personally, I do you like life is pretty 0:08:01.200 --> 0:08:03.600 much back to normal? So we had an outbreak in 0:08:03.640 --> 0:08:07.560 Beijing a couple of weeks ago, and you know, they 0:08:08.000 --> 0:08:11.520 they didn't employ the same kind of city wide lockdown 0:08:11.560 --> 0:08:14.720 that they've used in China and other places, in part 0:08:14.760 --> 0:08:16.600 because you know, the states are just higher in Beijing. 0:08:16.680 --> 0:08:19.480 They can't really bring the city to a stand still 0:08:19.520 --> 0:08:22.480 because there's just so much commerce going on, and then 0:08:22.600 --> 0:08:26.320 also the halls of government are here as well. So 0:08:26.360 --> 0:08:28.440 what they did was that they really took this very 0:08:28.440 --> 0:08:30.960 targeted approach. They broke up the entire city, you know, 0:08:31.040 --> 0:08:34.320 by district by street, and they determined whether each place 0:08:34.400 --> 0:08:36.840 was low risk, high risk, a medium risk, and they 0:08:37.240 --> 0:08:42.120 lockdown areas very specifically, and then they also did huge 0:08:42.160 --> 0:08:45.880 mass mass testing and they restricted people from leaving the 0:08:45.920 --> 0:08:48.600 city depending on you know, how risk of their areas were. 0:08:49.040 --> 0:08:52.680 But they did manage to maintain a large part of 0:08:52.840 --> 0:08:56.680 normal activity. You know, shops and restaurants all remained open. 0:08:57.280 --> 0:09:00.280 The main difference was that UM a lot of housing 0:09:00.280 --> 0:09:03.080 compounds didn't allow visitors in and out, although some did 0:09:03.200 --> 0:09:06.440 continue to do that. UM And also you know, by 0:09:06.480 --> 0:09:08.800 now China's developed a lot of the tools that it 0:09:08.840 --> 0:09:12.280 needs for contact tracing, so everyone has the ability to 0:09:12.440 --> 0:09:15.240 check on their phone whether they've been in contact with 0:09:15.320 --> 0:09:18.480 anyone who's a risk, or they've been to any risky areas, 0:09:18.559 --> 0:09:20.800 or they've traveled. So as long as you're able to 0:09:20.800 --> 0:09:23.280 show that you have that green call, you can basically 0:09:23.280 --> 0:09:27.120 go anywhere. So I do think it's like much less 0:09:27.200 --> 0:09:29.600 dramatic now when there are flare ups, like the government 0:09:29.640 --> 0:09:32.480 has developed the ability to board test and contact trace 0:09:32.720 --> 0:09:36.880 and be more targeted in its restrictions. Do you feel 0:09:36.920 --> 0:09:38.880 I mean we should perhaps say that we were we 0:09:38.880 --> 0:09:41.560 were hoping to play some clips from some of the 0:09:41.559 --> 0:09:43.760 people you spoke to Wan who then said they didn't 0:09:43.800 --> 0:09:46.440 feel comfortable and actually they've been discouraged from talking to 0:09:46.520 --> 0:09:49.880 foreign media after the last time that you went there. 0:09:50.520 --> 0:09:53.800 There's a lot of scrutiny on China at the moment 0:09:54.000 --> 0:09:56.280 in terms of not just what's happened in Hong Kong. 0:09:56.320 --> 0:10:02.079 But how how it's handled the pandemic. Do you feel 0:10:02.080 --> 0:10:06.400 as a reporter that the restrictions are tighter or the 0:10:06.600 --> 0:10:08.520 more limits on what you can do, or is this 0:10:08.559 --> 0:10:11.440 more or less business as usual? I mean, you know, 0:10:11.480 --> 0:10:14.760 for Bloomberg, we focus a lot on economic and financial news, 0:10:14.960 --> 0:10:17.720 and you know, most of the time that's fine, but yeah, 0:10:17.720 --> 0:10:19.800 I mean, the environment is changing. I mean, you look 0:10:19.800 --> 0:10:22.720 at what's happening in Hong Kong obviously, and you know, 0:10:22.760 --> 0:10:25.880 the Chinese government has also taken steps that seemed to 0:10:25.920 --> 0:10:31.199 be moves towards silencing more criticism and being more focused 0:10:31.200 --> 0:10:34.920 on making sure that social unrest doesn't take hold. Um. 0:10:34.960 --> 0:10:37.760 You know, the President Jumping himself has said that social 0:10:37.800 --> 0:10:40.440 stability is a concern in the wake of the virus, 0:10:40.440 --> 0:10:43.439 and I think they are hyper aware of anything that 0:10:43.559 --> 0:10:46.760 may kind of, you know, foment the same amount of 0:10:46.840 --> 0:10:50.160 unhappiness that happened when the virus was really bad. And 0:10:50.200 --> 0:10:53.240 you know about the whistleblowers who are silenced and all that, 0:10:54.160 --> 0:10:58.199 and you know, simultaneously we're seeing this increasing tension between 0:10:58.720 --> 0:11:02.040 China and the US word the media. So China kicked 0:11:02.040 --> 0:11:04.600 out several reporters and the US has also been cracking 0:11:04.600 --> 0:11:07.839 down on American news organizations. Then now we have this 0:11:07.920 --> 0:11:12.520 spat between the UK and c GTN statement media about 0:11:12.679 --> 0:11:15.720 airing force confessions and so, you know, I think as 0:11:15.800 --> 0:11:19.319 China becomes more assertive, yeah, I mean, it definitely is 0:11:19.640 --> 0:11:24.080 narrowing the scope from for us to act freely. Not 0:11:24.160 --> 0:11:27.080 that it was free before, but yeah, well you still 0:11:27.200 --> 0:11:29.320 do you still produce a lot of stories. Will you 0:11:29.360 --> 0:11:33.440 have to do the same quarantine if you go to 0:11:33.520 --> 0:11:36.200 Wuhan or is that now you just you just have 0:11:36.240 --> 0:11:39.880 to show people your at your foot apple and your phone. Yeah. 0:11:40.000 --> 0:11:42.559 And in fact, um, you know, Wuhan is considered a 0:11:42.600 --> 0:11:45.360 low risk area. Now there's no cases and they've tested everybody. 0:11:45.520 --> 0:11:48.040 So actually do you have you were saying they do 0:11:48.120 --> 0:11:52.199 have floods they just can't break. They've now got people 0:11:52.280 --> 0:11:56.320 dying from floods. Yeah, I mean there's floods. There's flooding 0:11:56.320 --> 0:11:58.880 now in southern China. I mean it's a problem every year, 0:11:58.960 --> 0:12:02.439 but this year it's one of it's it's really becoming 0:12:02.440 --> 0:12:06.920 more severe. Um, so it's been tough for people in Well, Sharon, 0:12:06.960 --> 0:12:08.520 I'm sure we might we might check in on you 0:12:08.600 --> 0:12:11.440 again in in a few months, I mean time, Thank 0:12:11.480 --> 0:12:21.320 you very much. Yeah, no problem. M Well, that was 0:12:21.360 --> 0:12:25.480 the view this week from Beijing and Mouhan. Now, as 0:12:25.520 --> 0:12:27.640 I mentioned at the start, we have the long view 0:12:27.679 --> 0:12:30.559 on China from our chief economists, Tom Worlick. He's based 0:12:30.559 --> 0:12:33.640 in Washington now, but he spent eleven years in Beijing, 0:12:33.840 --> 0:12:36.760 and he's just published a book based on his time there, 0:12:36.880 --> 0:12:41.760 at least in part, called China The Bubble That Never Pops. Tom. 0:12:41.840 --> 0:12:44.160 Nice to have you back on the podcast. In your 0:12:44.240 --> 0:12:47.240 recent piece for Business Week about your book, you started 0:12:47.280 --> 0:12:51.560 with this line, don't tell Trump, but China's winning. Is 0:12:51.640 --> 0:12:55.560 China winning everything or just the fight against COVID nineteen. 0:12:56.240 --> 0:12:59.559 So COVID nineteen is is a kind of stress test 0:12:59.640 --> 0:13:04.800 for for how economic systems function. And if you look 0:13:04.800 --> 0:13:07.480 at how China and the US have performed in the 0:13:07.559 --> 0:13:11.280 last six months, China is actually doing rather better. China's 0:13:11.280 --> 0:13:14.079 got the virus under control. The US doesn't have the 0:13:14.160 --> 0:13:18.680 virus under control. China managed to control unemployment, the U 0:13:18.840 --> 0:13:22.880 saw unemployment rise to levels not seen since the Great Depression. 0:13:23.200 --> 0:13:26.920 China's poised to get back to growth. Factories are already 0:13:26.960 --> 0:13:28.880 in a better place than they were a year ago. 0:13:29.240 --> 0:13:33.760 The US is still a long way underwater, so there's 0:13:33.760 --> 0:13:36.680 a broader point there as well. I think the way 0:13:36.720 --> 0:13:40.280 we look at the Chinese model is flawed. We only 0:13:40.360 --> 0:13:43.880 see the downsides and the stresses. We don't see the 0:13:43.920 --> 0:13:47.440 strengths and the sources of resilience well, and the general, 0:13:47.480 --> 0:13:49.160 as you say, the general thesis of your book is 0:13:49.160 --> 0:13:53.320 that China is stronger than it looks economically. Certainly. I 0:13:53.400 --> 0:13:55.120 know when I was working in the investment world and 0:13:55.160 --> 0:13:57.480 people would say, what are your top three or top 0:13:57.600 --> 0:14:02.040 five risks for the year, And when you hear the 0:14:02.120 --> 0:14:04.000 sort of strategist talk about it, if they had sort 0:14:04.040 --> 0:14:06.040 of run out of one, they would just throw in 0:14:06.240 --> 0:14:08.320 China blowing up, because it was sort of a standard 0:14:08.360 --> 0:14:12.720 thing that you would expect China's debt issues and financial 0:14:12.720 --> 0:14:16.400 problems to finally all come home to roost. You're saying 0:14:16.559 --> 0:14:20.400 that we could carry on waiting quite a long time. Yeah, 0:14:20.920 --> 0:14:23.200 so I was in I was in China for eleven years, 0:14:23.400 --> 0:14:26.400 and for that entire time, there was this sort of 0:14:26.480 --> 0:14:30.680 thread of pessimism, thread of doom, almost running through the 0:14:30.680 --> 0:14:35.280 Western commentary on China. Yes, the story went tem percent 0:14:35.400 --> 0:14:38.320 growth looks impressive, but if you pope beneath the surface, 0:14:38.680 --> 0:14:42.800 it's all financed by debt. All the debt is being misallocated. 0:14:42.920 --> 0:14:45.280 It's a bubble and it's going to blow up, and 0:14:45.320 --> 0:14:48.160 of course it doesn't ever blow up. So my motivation 0:14:48.200 --> 0:14:51.040 in putting pen to paper for this book was, of 0:14:51.040 --> 0:14:55.280 course mainly fame and wealth beyond my wildest dreams, but 0:14:55.440 --> 0:14:59.000 beyond that, I also wanted to explain why the bubble 0:14:59.040 --> 0:15:02.640 never pops, and I think an important reason is we 0:15:02.680 --> 0:15:06.280 look at the negatives, we don't consider the positives. And 0:15:06.320 --> 0:15:09.520 on the financial system, what that means is we look 0:15:09.560 --> 0:15:11.600 at the massive build up of debt. We look at 0:15:11.640 --> 0:15:16.000 how the debt has been allocated to zombie firms and 0:15:16.200 --> 0:15:19.240 real estate developers building ghost towns in the desert, and 0:15:19.240 --> 0:15:22.640 those are big problems. But what we forget is for 0:15:22.680 --> 0:15:25.640 bad loans to turn into a financial crisis, you also 0:15:25.680 --> 0:15:28.360 need to have a funding problem for the banks. And 0:15:28.400 --> 0:15:31.400 because China's saving rate is so high, and because it's 0:15:31.400 --> 0:15:33.920 hard to take money out of the country, the funding 0:15:33.960 --> 0:15:37.280 base for the banks is actually really solid. And as 0:15:37.280 --> 0:15:39.800 you say, there's all the things that people identify that 0:15:39.840 --> 0:15:43.360 a weaknesses. You know that debt exists um, But you're 0:15:43.400 --> 0:15:45.760 saying that there is also that there is a corresponding 0:15:45.760 --> 0:15:48.640 strength there which the government has room to support the 0:15:48.680 --> 0:15:51.760 banks in a way they don't in other countries. I 0:15:51.800 --> 0:15:53.560 think you know some one of a couple of your 0:15:53.560 --> 0:15:57.360 other strengths that you point out is that state intervention 0:15:57.560 --> 0:16:01.080 that you have there is actually effective and strength, not 0:16:01.200 --> 0:16:04.040 just a question of of meddling in the economy and 0:16:04.080 --> 0:16:06.280 getting in the way of markets. And you have the 0:16:06.640 --> 0:16:11.240 sheer scale of the economy. That's also an advantage, isn't it. Yeah. 0:16:11.280 --> 0:16:14.080 When we look at the state system in China from 0:16:14.080 --> 0:16:16.480 our perspective here in the West, where we, you know, 0:16:16.560 --> 0:16:20.040 firmly believe that free markets of the answer, we just 0:16:20.080 --> 0:16:24.280 see corruption and we see inefficiency, and those are real problems. 0:16:24.320 --> 0:16:27.760 If you look at return on assets for China's state firms, 0:16:27.960 --> 0:16:31.240 they're much lower than return on assets for private firms. 0:16:32.000 --> 0:16:35.280 But what we miss is that for countries that are 0:16:35.320 --> 0:16:40.040 big and that have somewhat effective industrial planners and which 0:16:40.120 --> 0:16:43.360 are still at an early stage in their development, state 0:16:43.360 --> 0:16:48.000 ownership can be a powerful instrument of development. The state 0:16:48.040 --> 0:16:52.480 banks can finance acquisitions of new technologies, the state and 0:16:52.640 --> 0:16:56.840 enterprises can deploy those technologies at a massive scale, and 0:16:56.920 --> 0:17:00.280 that becomes an instrument which can take China's on me 0:17:00.320 --> 0:17:03.640 as a whole closer to the technology frontier and make 0:17:03.680 --> 0:17:07.159 it more productive, even as the state sector itself is 0:17:07.480 --> 0:17:10.840 inefficient when looked at from a sort of narrow balance 0:17:10.920 --> 0:17:14.680 sheet accounting perspective. No, and obviously that's something we're being 0:17:14.720 --> 0:17:18.840 reminded of in many countries of the important In some areas, 0:17:18.960 --> 0:17:22.480 the government really is the only one that can intervene, 0:17:22.600 --> 0:17:25.520 and boy if they've done so in response to COVID nineteen. Now, 0:17:25.600 --> 0:17:28.520 obviously you've achieved one important thing. You've managed to get 0:17:28.520 --> 0:17:30.880 this book out before the bubble pops, which I'm sure 0:17:31.000 --> 0:17:34.399 was a concern for your publisher, But you probably weren't 0:17:34.440 --> 0:17:36.800 expecting to have it come out in the middle of 0:17:36.800 --> 0:17:39.760 a pandemic, which clearly has meant that you weren't able 0:17:39.760 --> 0:17:41.919 to have any lavish book party. So I'm sorry, not 0:17:41.960 --> 0:17:45.320 that Bloomberg would have thrown you any but has the 0:17:45.400 --> 0:17:47.800 last few months changed your view on any of the 0:17:47.920 --> 0:17:49.879 arguments you've made in your book or put them in 0:17:49.920 --> 0:17:53.639 a different perspective. Perhaps it's it's an emotional roller coaster 0:17:53.680 --> 0:17:56.240 being on this podcast. Stephanitiely, I thought you were offering 0:17:56.280 --> 0:17:58.200 me a lavish book party, and then in the very 0:17:58.200 --> 0:18:02.440 next sentence it was yanked away from me. Um. Fortunately, 0:18:02.480 --> 0:18:04.840 I'm going to be working from home for the foreseeable future, 0:18:04.880 --> 0:18:06.719 so no one will be able to see the disappointment 0:18:06.720 --> 0:18:09.639 on my face. So so so covid' is a stress 0:18:09.680 --> 0:18:12.600 test for the Chinese economy. And let's think about what 0:18:12.720 --> 0:18:15.000 happened in the first six months of the year. So 0:18:15.480 --> 0:18:19.520 real estate developers didn't sell any houses, state owned enterprises 0:18:20.200 --> 0:18:24.920 saw their profits turn into losses. Local governments didn't sell 0:18:24.960 --> 0:18:28.320 any land, and they saw their tax revenue collapse. And 0:18:28.359 --> 0:18:31.640 who are the biggest borrowers in China's economy, Well, it's 0:18:31.680 --> 0:18:35.080 the real estate developers, the state owned enterprises, and the 0:18:35.119 --> 0:18:37.800 local governments. So if there was going to be a 0:18:37.840 --> 0:18:42.280 financial crisis in China, presumably it would have just happened. 0:18:42.640 --> 0:18:45.520 All of the biggest borrowers saw their income collapse, they 0:18:45.520 --> 0:18:48.359 couldn't service their loans. This was the moment when we 0:18:48.400 --> 0:18:53.479 should have seen a financial crisis, and clearly that didn't happen. Um. 0:18:53.520 --> 0:18:55.960 And I think that's a reminder of some of the 0:18:56.000 --> 0:18:59.639 sort of hiding in plain site sources of strength in 0:18:59.720 --> 0:19:02.919 China as economy. In China's financial system, the banks have 0:19:02.960 --> 0:19:05.800 a very strong funding base, and so they don't actually 0:19:06.160 --> 0:19:09.160 need loans to be repaid on time. They can say 0:19:09.160 --> 0:19:11.399 to the borrowers, you know what, we know this is 0:19:11.400 --> 0:19:14.160 a really difficult quarter, maybe even a very difficult year. 0:19:14.600 --> 0:19:16.960 You pay us back in the second half, or even 0:19:17.119 --> 0:19:21.760 you pay us back in one Private businesses are going 0:19:21.800 --> 0:19:25.280 to be letting go of workers and canceling investment projects. 0:19:25.760 --> 0:19:29.359 But China has a massive state sector inefficient, but the 0:19:29.400 --> 0:19:32.080 government can use the state sector as a kind of 0:19:32.200 --> 0:19:35.600 a counter cyclical instrument and say to the state sector, 0:19:35.760 --> 0:19:39.080 you know what, don't let any workers go, and accelerate 0:19:39.119 --> 0:19:42.600 that investment project. And what that means is the economy 0:19:42.640 --> 0:19:45.800 can climb out of the COVID hole a bit quicker 0:19:45.840 --> 0:19:55.879 than it otherwise would. So we have obviously had the 0:19:56.000 --> 0:19:58.280 events in Hong Kong, the passing of the legislation in 0:19:58.280 --> 0:20:00.480 Hong Kong in the last few weeks, and and one 0:20:00.520 --> 0:20:03.760 thing that has been very striking is the way that 0:20:04.080 --> 0:20:10.359 along with the economic success and apparent resilience, the Chinese 0:20:10.359 --> 0:20:12.919 government is sort of doubling down on some of the 0:20:13.000 --> 0:20:18.480 more uncompromising aspects of its economic models. Shall we say, 0:20:19.040 --> 0:20:21.679 you look at China and you know the major change 0:20:21.680 --> 0:20:23.960 it has to have over the next few years, and 0:20:24.000 --> 0:20:26.360 then the government is trying to achieve is to move 0:20:26.440 --> 0:20:30.360 from being an export driven economy to a consumer driven economy. 0:20:30.640 --> 0:20:34.840 And I guess the fond belief of many economists and 0:20:34.880 --> 0:20:38.600 certainly many outside policymakers has always been that it's quite 0:20:38.760 --> 0:20:43.720 hard to be a really successful kind of individualistic, consumer 0:20:43.840 --> 0:20:49.600 driven economy when you're not giving those consumers rights as 0:20:49.680 --> 0:20:55.240 citizens and moving towards a democracy. Is that being proved 0:20:55.280 --> 0:20:58.560 wrong in China? So I don't want to come across 0:20:58.680 --> 0:21:01.720 as um. I don't want to come across as as 0:21:01.760 --> 0:21:07.520 like a Pollyanna on China's social system. Clearly there are 0:21:07.800 --> 0:21:14.200 absolutely enormous costs to China's social system. The question is 0:21:14.200 --> 0:21:16.520 is that going to be Is that going to translate 0:21:16.960 --> 0:21:21.520 into economic costs? And the answer so far has been no. 0:21:22.160 --> 0:21:24.920 And I think there's two reasons for that. Um. So 0:21:24.960 --> 0:21:28.199 the first reason we sort of alluded to Stephanie is 0:21:28.800 --> 0:21:32.439 China's position in the development process. Right, so, when do 0:21:32.440 --> 0:21:37.760 you need freethinking innovators, Well, you really need freethinking innovators 0:21:37.760 --> 0:21:40.000 when you get to the technology frontier and you need 0:21:40.040 --> 0:21:43.639 to innovate, and that's not where China is. China's GDP 0:21:43.800 --> 0:21:45.800 per capita is the third of the level in the 0:21:45.880 --> 0:21:49.359 United States. There are a long way from the technology frontier, 0:21:49.800 --> 0:21:53.639 and that means that for the next foreseeable future, growth 0:21:53.680 --> 0:21:56.200 is going to be a process of catching up and copying, 0:21:56.760 --> 0:22:02.200 not necessarily a process of pushing act and developing innovative 0:22:02.240 --> 0:22:07.680 technologies themselves. The second reason I think is that actually 0:22:08.520 --> 0:22:13.240 we have a somewhat we have a settled view of 0:22:13.280 --> 0:22:20.360 the relationship between social systems and economic progress, which actually 0:22:20.480 --> 0:22:25.760 China is challenging. Right. Um, we think that democracy, markets 0:22:25.760 --> 0:22:30.840 and growth go together, right, And if you have markets, 0:22:31.200 --> 0:22:33.800 then you will grow, and also also if you have markets, 0:22:33.800 --> 0:22:36.679 that will be a driver of democracy. And actually what 0:22:36.720 --> 0:22:40.959 we're seeing in China is that these relationships which seems 0:22:41.000 --> 0:22:45.720