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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode up the All Thoughts Podcast.

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Speaker 2: I'm Tracy Alloway.

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Speaker 3: And I'm Joe Whysenthal.

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Speaker 2: Joe, what is going on in China? We haven't asked

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Speaker 2: that question for a while, I mean, how.

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Speaker 3: Long is it ever? How long do we ever go

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Speaker 3: without a China episode? But since the last time we

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Speaker 3: ever talked about China, which was probably like a month

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Speaker 3: ago or something, we have seen an absolute flurry of

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Speaker 3: policy announcements. Look, we know that the big picture is

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Speaker 3: that there's been slow growth. The real estate market is dismal,

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Speaker 3: consumption is slow, the stock market, which I don't think

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Speaker 3: is particularly important to Chinese policymakers, has been terrible. And

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Speaker 3: then over the last few weeks, we've had this flurry

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Speaker 3: of announcement.

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Speaker 2: Right, so, there was something of a policy pivot in September,

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Speaker 2: which in itself is kind of unusual, and we'll get

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Speaker 2: into that. But we've basically seen you know, new polep

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Speaker 2: Bureau guidance. We've seen monetary easing, we've seen property support,

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Speaker 2: we've seen some signs of maybe more fiscal stimulus. And

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Speaker 2: that to me is kind of the big question because

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Speaker 2: so far, and you're going to hear me ask this

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Speaker 2: question a couple of times, I imagine, But so far,

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Speaker 2: the responses to what's been announced are kind of along

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Speaker 2: this range of some people thinking it's kind of nothing burger,

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Speaker 2: it's just more monetary easing. We've seen this kind of

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Speaker 2: thing before. But then there are people out there who think, no,

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Speaker 2: this is actually a big deal, and China is sort

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Speaker 2: of signaling a big shift in its mindset in how

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Speaker 2: it approaches things like fiscal stimulus and also social safety

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Speaker 2: nets totally.

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Speaker 3: So we know that there was the mega Chinese fiscal

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Speaker 3: stimulus that happened in two thousand and eight and two

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Speaker 3: thousand and nine after the global financial crisis, and is

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Speaker 3: sort of historic how much got built then. But you know,

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Speaker 3: unlike much of the rest of the world, in the

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Speaker 3: wake of COVID, there has really been very little and

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Speaker 3: there's been this sort of drum beat that that's sort

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Speaker 3: of the way we think of countercyclical fiscal policy in

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Speaker 3: Western economies is not the preferred approach. That there's this

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Speaker 3: preference for domestic investment, the investment tech, exports, et cetera.

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Speaker 3: And so something happened though in this year in the

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Speaker 3: last several months that has prompted at least some sort

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Speaker 3: of pivot, and we need to understand why now and

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Speaker 3: what the goals are. Yeah.

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Speaker 2: Well, you also mentioned some of the economic data that's

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Speaker 2: been coming out of China recently. One of the big

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Speaker 2: things that happened was I think the first contraction in

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Speaker 2: bank lending in nearly two decades. And so if we're

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Speaker 2: talking about contracting bank lending, then it feels like there's

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Speaker 2: one person we definitely need to talk to, and that

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Speaker 2: is Richard Ku of balance sheet recession fame. So listeners

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Speaker 2: might remember that we spoke to him last year when

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Speaker 2: his idea of a balance sheet recession in China was

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Speaker 2: really starting to take off. And again, if you look

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Speaker 2: at that bank lending contraction, it seems like that's kind

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Speaker 2: of been born out in the data. And then the

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Speaker 2: other perfect guest we have for this episode is someone

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Speaker 2: who's going to speak to the question of how economic

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Speaker 2: policy is actually implemented in China, because I think everyone

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Speaker 2: has this view of China as a very centralized command economy,

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Speaker 2: but you have all these local governments who actually have,

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Speaker 2: you know, some degree of autonomy when it comes to

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Speaker 2: deciding individual spending decisions, or how particular macro policy or

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Speaker 2: how particular macro policy should be implemented at the individual

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Speaker 2: micro level. It reminds me, do you remember that old

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Speaker 2: proverb of I think it's a heaven is high and

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Speaker 2: the emperor is far away? You know you heard that one?

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Speaker 4: Anyway? Yes?

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Speaker 3: Actually, yes, Wait are you listening to me?

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Speaker 4: You no?

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Speaker 3: No, I actually do remember that. I've come across that.

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Speaker 2: So China is big and Shishin Ping is in Beijing

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Speaker 2: putting out like generalist mandates, but a lot of that

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Speaker 2: is going to get executed at a more local level.

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Speaker 4: Right.

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Speaker 3: So, after our conversation with Richard Kou, which will be

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Speaker 3: the first half of this, we're going to be speaking

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Speaker 3: with the Zishan Wong. He is a mid career master

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Speaker 3: student at Princeton University. He's on leave from the Center

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Speaker 3: for China and Globalization, and he is the author of

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Speaker 3: the excellent Pecnology subs deck. Listeners might remember we did

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Speaker 3: a recent episode with Adam Two's and he gave a

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Speaker 3: shout out to the Pecnology substack. So it's like, okay,

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Speaker 3: we got to get him on because if two gives

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Speaker 3: him a shout out, then obviously we needed to talk

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Speaker 3: to him, and then all of this flurry of China news.

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Speaker 3: This is the perfect hook. So you'll hear from Richard

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Speaker 3: and then you'll hear from Azishan.

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Speaker 2: All right, let's start with Richard at the sort of

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Speaker 2: macro level. Richard Ku, thank you so much for coming

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Speaker 2: back on all thoughts.

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Speaker 4: Oh, quite welcome. It's a great honor for me.

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Speaker 3: Thank you, thank you.

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Speaker 2: So I'll just jump in with the first question. There

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Speaker 2: seems to be a spectrum of responses to what China

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Speaker 2: has announced so far. And on the one end you

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Speaker 2: have people like George Magnus who are saying this is crazy.

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Speaker 2: It's the definition of doing the same thing over and

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Speaker 2: over again and expecting a different result. And then on

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Speaker 2: the other hand you have people who say this is

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Speaker 2: actually a really big policy shift. It's just that the

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Speaker 2: party is rolling stuff out incrementally, and so it may

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Speaker 2: still be the case that we get a big fiscal

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Speaker 2: response at some point. Where do you lie on that

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Speaker 2: sort of spectrum of opinions about what's been announced so far.

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Speaker 4: Well, I am slightly closer to the people who think

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Speaker 4: this might be the beginning of a new move instead

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Speaker 4: of just doing the same thing over and over in

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Speaker 4: that the size of the package that came out, mostly

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Speaker 4: from People's Bank of China is quite significant, very large

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Speaker 4: there is, and that shows that for the first time

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Speaker 4: the Chinese women is indicating their awareness that this is

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Speaker 4: a serious business. And I think that's the indication that

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Speaker 4: we haven't seen until now. And so yes, I am

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Speaker 4: slightly positive because they actually indicated that they're very serious

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Speaker 4: about the problem we face. Now this is the same

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Speaker 4: thing over again. Well, central bank responses are the easiest

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Speaker 4: one to put in on the table compared to our

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Speaker 4: physical stimulus, where you have to decide you know, where

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Speaker 4: the money should be spent, and how should be spent,

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Speaker 4: and who gets the money and who doesn't in all

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Speaker 4: of those things will have to be worked out on

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Speaker 4: the fiscal side, but on the monetary side, you know,

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Speaker 4: only central bank have to make a decision how much

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Speaker 4: money to put in. So you would expect central bank

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Speaker 4: to move fast and first if they realize that they

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Speaker 4: have to do something. And so I'm not surprised that

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Speaker 4: central bank actions came first before the fiscal response. But

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Speaker 4: in a sense, we in Japan years ago did the

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Speaker 4: same thing. Thirty years ago, we had a word called PKO.

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Speaker 4: In a PKO usually means peacekeeping operation by the United Nations,

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Speaker 4: but those of us in the market. Thirty years ago,

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Speaker 4: the word PKO meant price keeping operations by the Ministry

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Speaker 4: of Finance trying to keep Japanese share prices from falling.

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Speaker 4: And so there's a little bit of similarities with what

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Speaker 4: Japanese did thirty years ago with what China is doing

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Speaker 4: with its share prices.

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Speaker 3: If I can just jump in here when you say

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Speaker 3: this might be the beginning of something real, what is

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Speaker 3: it specifically that looks good to you?

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Speaker 4: Well, first of all, I'm no great fan of using

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Speaker 4: monetary policy, meaning policies from the central bank to fight

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Speaker 4: what I call balanced you recession, and I think China

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Speaker 4: is facing balance recession. And balance recession happens when a

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Speaker 4: dead finance bubble burst. As the prices collapsed lie these

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Speaker 4: remain people realize that they are balance sheets underwater or

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Speaker 4: nearly so, and they all try to repair their balance

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Speaker 4: sheets all at the same time. And repairing balance sheets,

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Speaker 4: of course, is the right thing to do, but when

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Speaker 4: everybody does it all at the same time, we enter

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Speaker 4: the problem of fallacy or composition that even though everybody

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Speaker 4: is doing the right things, collectively, we get the wrong results.

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Speaker 4: And we get that problem in this case because in

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Speaker 4: the national economy, if someone is repairing balance sheets, meaning

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Speaker 4: pain down debt or increasing savings, someone has to borrow

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Speaker 4: those funds to keep the economy going. But and usual economies,

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Speaker 4: you know, you bring interust rates down, there'll be people

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Speaker 4: out there willing to borrow the money and spend it,

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Speaker 4: and that's how you keep the economy going. But in

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Speaker 4: the balance sheet recession, you bring interest rates down to

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Speaker 4: very low levels, and Chinese interest rates already pretty low,

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Speaker 4: but even if you bring it down to zero, people

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Speaker 4: would be still repairing balance sheets. Because if you're in

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Speaker 4: negative equity territory, you have to come out of that

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Speaker 4: as quickly as possible. And so when you're in that situation,

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Speaker 4: you cannot expect private sector to respond to lowering of

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Speaker 4: interest rates or quantitative easying, forward guidance and all of

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Speaker 4: those monetary policy to get this private sector to borrow

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Speaker 4: money again. And because they are all doing the right

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Speaker 4: things paying down debt. So when you're in that situation,

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Speaker 4: economy to go. We can vary very quickly because all

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Speaker 4: the safety funds that are returned to the banking system

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Speaker 4: cannot come out again, and that's how you end up

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Speaker 4: with economy drinking very, very rapid. And the only way

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Speaker 4: to stop this is for the government, which is outside

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Speaker 4: of the fallacy of composition, to borrow money. And that's

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Speaker 4: the fiscal policy, of course, but that hasn't come out yet.

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Speaker 4: And so yes, they did the quick and easy part

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Speaker 4: with big numbers on the monetary side. But if you

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Speaker 4: are in balanced your recession monetary policy, I'm afraid it's

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Speaker 4: not going to be very effective. You really need a

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Speaker 4: fiscal policy to get the economy moving, and that hasn't

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Speaker 4: arrived yet.

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Speaker 3: Well, then what's good? I mean you say, Okay, the

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Speaker 3: PBOC moved first. You think this could be the start

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Speaker 3: of something different. But if all they've really done, in

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Speaker 3: your view is announce the sort of substance on the

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Speaker 3: central bank side, I'm still trying to understand what you

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Speaker 3: see as maybe some reason for optimism.

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Speaker 4: Well, optimism in the sense that the amounts involved are

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Speaker 4: pretty large. Okay, you know, Center kept on saying, if

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Speaker 4: this is not enough, we're going to do more and

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Speaker 4: more and more. Well, as someone mentioned, this is just

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Speaker 4: like Mario Doraghi is saying that you see people do

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Speaker 4: whatever it takes to keep the Euro going. That kind

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Speaker 4: of sounds like that, and in that sense at least

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Speaker 4: Central Bank is indicating that situation is quite serious, okay,

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Speaker 4: which is a good thing because we haven't heard that

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Speaker 4: yet from those guys before. But what the real policy

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Speaker 4: that is needed is not from the monastery side. It

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Speaker 4: has to come from the fiscal side.

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Speaker 2: What could they do on the fiscal side? And this

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Speaker 2: is the thing I don't really understand, because I think

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Speaker 2: I've agrees that part of the problem here is the

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Speaker 2: lack of consumption, So why not just go directly? I

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Speaker 2: know monetary policy is faster and to some extent easier

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Speaker 2: to roll out, but why not move sooner on the

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Speaker 2: fiscal side and just stimulate consumption directly.

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Speaker 4: Well, if people are all concerned about repairing their balance sheets,

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Speaker 4: you give them money to spend, and too often they

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Speaker 4: just use it to pay down debt. And so even

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Speaker 4: within physical stimulus, you have to be very careful here

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Speaker 4: because tax cuts, I'm afraid, are not very effective during

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Speaker 4: balance sheet recessions, because people use that money to repair

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Speaker 4: their balance sheets, and repairing balances is of course the

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Speaker 4: right thing to do, but it will not add to

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Speaker 4: GDP when they're using that tax cuts to pay down

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Speaker 4: debt or rebuild their savings, so that will not add

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Speaker 4: to consumption as much as you would expect under ordinary circumstances.

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Speaker 4: And so I would really like to see government just

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Speaker 4: borrow and spend the money, because that would be the

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Speaker 4: most effective way to stop the deflationary spiral.

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Speaker 3: A source of funds in an economy that's experiencing balance

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Speaker 3: sheet recession that's sort of outside the fallacy of composition

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Speaker 3: or the composition effects is exports. And so you could

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Speaker 3: imagine that if the world is filled with people buying

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Speaker 3: bid vehicles and humanoid robots and batteries from cattle and

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Speaker 3: so forth, that that can bring in the cash and

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Speaker 3: that could be another source. Does the math add up

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Speaker 3: in your view? Can China export its way out of

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Speaker 3: the what you assess as a balance sheet recession?

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Speaker 4: Yes, Export is definitely one of the best ways if

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Speaker 4: you can use it to come out of balancing recession.

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Speaker 4: But China, just like Japan thirty years ago, is the

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Speaker 4: largest trade subplus country in the world, and if the

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Speaker 4: world's largest trade subplus country in the world tries to

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Speaker 4: export its way out. Very many trading partners will complain

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Speaker 4: that you're already such a large destabilizing factor on the

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Speaker 4: world trade. Now you're going to destabilize it even more.

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Speaker 4: And so I remember thirty years ago that United States,

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Speaker 4: Europe and others were very much against Japan trying to

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Speaker 4: expore its way out, and because of their displeasure, particularly

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Speaker 4: the US displeasure, Japanese en which thought that at one

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Speaker 4: hundred and sixty when the bubble burst in nineteen ninety

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Speaker 4: ended up eighty hundred of dollars five years later nineteen

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Speaker 4: ninety five. And what that indicated to me was that

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Speaker 4: if you're running trade deficit, you can probably expose your

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Speaker 4: way out and no one can really complain because you're

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Speaker 4: a deficit country to begin with. But if you're the

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Speaker 4: surplus country, and that if you're the largest straight subplus

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Speaker 4: country in the world, there will be huge pushback against

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Speaker 4: that kind of move by the Chinese. And we already

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Speaker 4: seen that in very many countries complaining that China should

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Speaker 4: not export its problems.

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Speaker 2: Yeah, this is something that I wanted to ask you,

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Speaker 2: which is it seems like part of the problem here

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Speaker 2: is that China is in need of a new type

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Speaker 2: of growth model, so one that maybe is less reliant

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Speaker 2: on things like exports and being a major beneficiary of globalization.

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Speaker 2: Given the restrictions that you just laid out, what could

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Speaker 2: that new model actually look like.

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Speaker 4: You know, there are no balancing problems in the Chinese

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Speaker 4: economy today. We don't need a new model, right because

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Speaker 4: then there thinks will be still moving forward as before.

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Speaker 4: But suddenly Chinese domestic demand shrunk because of the balancing problems,

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Speaker 4: and then Chinese manufacturers or even the government is forced

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Speaker 4: to export its way out. I think what we need

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Speaker 4: to do is really fix the balance sheet problems first,

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Speaker 4: instead of talking about the new model of economic growth.

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Speaker 4: We can talk about these things a long time, but

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Speaker 4: I don't think that will solve the problem of balance recession.

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Speaker 4: And balance recession, by the way, can kill the economy

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Speaker 4: pretty quickly. So if I may give you an America example,

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Speaker 4: Suppose I have of thousand dollars of income and I

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Speaker 4: spend nine hundred myself. The nine hundred is already someone

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Speaker 4: else's income, so that's not a problem. But one hundred

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Speaker 4: dollars that I say to go through people like us,

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Speaker 4: our financial institutions, and we'll be lent to someone who

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Speaker 4: can use it. That person borrows and spends it, then

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Speaker 4: economy will be total expenditure in economy would be nine

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Speaker 4: hundred that I spent plus hundred dollars that this guy

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Speaker 4: spent together thousand dollars against original income of thousand dollars.

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Speaker 4: And that's how economy moves forward, right, And if there

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Speaker 4: are too many borrowers and economies doing well, center BANKU

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Speaker 4: race race to a few central BANKU lower race, make

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Speaker 4: sure that the cycle is maintained. That's the usual economy.

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Speaker 4: But what happens in the BALANCEE recession is that when

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Speaker 4: I have a thousand dollars to income and I spend

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Speaker 4: nine hundred myself, that nine hundred is not a problem,

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Speaker 4: but one hundred dollars, I decided to say, ends up

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Speaker 4: stuck in the financial system because no one's borrowing money,

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Speaker 4: and China so many people are refusing to borrow money

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Speaker 4: these days because of that issue. Then economy shrinks from

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Speaker 4: one thousand to nine hundred, so ten percent decline and

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Speaker 4: the next round, the nine hundred is someone else's income.

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Speaker 4: When that person decides to save ten percent, spends eight

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Speaker 4: hundred ten and decides to say ninety dollars. That ninety

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Speaker 4: dollars gets stuck in the financial system again because repairing

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Speaker 4: financial balance sheets could take a very long time. I mean,

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Speaker 4: Japanese took nearly twenty years to repair their balance sheets.

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Speaker 4: But in the meantime, economy can go from one thousand,

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Speaker 4: nine hundred, eight hundred ten, seven hundred and thirty very

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Speaker 4: very quickly. And that actually happened in the United States

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Speaker 4: during a great depression. You know, from nineteen twenty nineteen

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Speaker 4: nineteen thirty three, the United States lost forty six percent

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Speaker 4: of its nominal GDP. And something quite similar actually happened

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Speaker 4: in Spain after two thousand and eight, when unemployment rates

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Speaker 4: skyrocketed to twenty six percent in just three and a

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Speaker 4: half years or so. That's the kind of danger we

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Speaker 4: faced in the balancing recession and talking about the new

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Speaker 4: economic models among all these academics, you know, trying to say, okay,

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Speaker 4: what is the right model? Well, I don't think we

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Speaker 4: have that much time. In Chinese government does not have

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Speaker 4: that much time to think about the new economic model

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Speaker 4: when the economy is already in that kind of visual cycle.

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Speaker 4: So I would recommend that instead of talking about new

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Speaker 4: economic model when we have the time to do so

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Speaker 4: at the moment, I would very much like to see

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Speaker 4: Chinese governments borrow and spend one hundred dollars to keep

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Speaker 4: the economy from collapsing.

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Speaker 2: So, speaking of a pressing time constraint, I remember the

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Speaker 2: last time we spoke to you a little over a

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Speaker 2: year ago. It was again about this balance sheet recession

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Speaker 2: in China idea, and at the time you mentioned that

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Speaker 2: there were a lot of Chinese officials who had been

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Speaker 2: reading your work and lots of domestic policy papers being

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Speaker 2: published that referenced your work. What's the discourse been like

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Speaker 2: for you over the past year or so. Do you

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Speaker 2: get a sense that you know the urgency is even

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Speaker 2: more salient now? Are lots of people reaching out to

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Speaker 2: you from China.

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Speaker 4: Well, that is actually quite true, speaking engagements one after another.

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Speaker 4: But the country is not exactly the safest place on

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Speaker 4: earth to go, and so I'm trying to meet all

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Speaker 4: these speech requests by doing things online or meeting them

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Speaker 4: in Tokyo or some safer places instead of traveling to China.

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Speaker 4: But yes, huge number of requests that are coming my

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Speaker 4: way from people all walks of life. They wanted to

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Speaker 4: hear more about what happened to you depends thirty years

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Speaker 4: ago and how similar is the situation they faced today.

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Speaker 3: So we're recording this October fourteenth. Over the weekend October twelfth,

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Speaker 3: the Ministry of Finance did hold a press conference, and

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Speaker 3: I think the view is kind of to your point.

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Speaker 3: There were not a lot of details on we are

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Speaker 3: going to spend money now, which is what you prescribe,

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Speaker 3: but there were some comments and there are going to

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Speaker 3: be some more things expected to roll out. One of

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Speaker 3: my understandings about Chinese fiscal policy is it's very decentralized

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Speaker 3: and that the local governments control a lot of the

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Speaker 3: levers of spending. And that model, to some extent is

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Speaker 3: broken because a lot relied on land sales. And at

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Speaker 3: the same time, the central government has tried to prick

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Speaker 3: the bubble of real estate, and there's all kinds of

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Speaker 3: stress on that model. One of the things that seems

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Speaker 3: to have come up in the mof press conference is

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Speaker 3: this idea of allowing local governments to issue more debt.

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Speaker 3: Maybe the central government could take more direct role in

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Speaker 3: repairing the balance sheets of local government. Can you talk

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Speaker 3: about that, setting aside like the question of like how

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Speaker 3: much to be spent right now, is there much juice

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Speaker 3: to be had essentially out of changing the fiscal structure

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Speaker 3: of local governments and changing how local governments collect and

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Speaker 3: spend revenue.

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Speaker 4: Well, there are multiple issues. What you what you just said? Okay, Now,

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Speaker 4: if you look at local governments in the United States

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Speaker 4: or Japan, most places, you know they are supposed to

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Speaker 4: around large deficits. Right There's a rule in almost all

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Speaker 4: countries that local governments should not run large deficits. And

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Speaker 4: that is because if local governments go bad at the

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Speaker 4: end of the day, central bank might have to look

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Speaker 4: after those those problems, and local governments cannot print money

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Speaker 4: like the central government can. Right But in China, even

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Speaker 4: though same rules should have applied, local governments were able

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Speaker 4: to sell lots of land, make a lot of money

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Speaker 4: in the process, and then they were able to do

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Speaker 4: quite a bit of fiscal sticks, which also of course

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Speaker 4: added to their GDP. That model will have to be

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Speaker 4: completely revised now because no one wants to buy land anymore,

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Speaker 4: and so the big source of revenue of local governments

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Speaker 4: are gone, and as a result, many of them are

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Speaker 4: very close to bankrupt and under the circumstances I'm afraid

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Speaker 4: central government will have to take over a lot of

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Speaker 4: these problems from the local government. So this myth that

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Speaker 4: Chinese central government the budget DeFore said is not a

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Speaker 4: very big part of GDP. That myth will have to

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Speaker 4: be thrown out and central government will have to take

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Speaker 4: on not all of it, perhaps, but some of the

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Speaker 4: liabilities are the local governments, so that local governments can

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Speaker 4: move forward. Now, in terms of actual financing fiscal stimulus,

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Speaker 4: the balancing recession is caused by excess savings in the

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Speaker 4: private sector. Talking about one hundred dollars dimension to you earlier.

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Speaker 4: So the money is there. So even though budget deficit

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Speaker 4: of China might be very large, the money is there

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Speaker 4: for government to borrow. If the money is not there

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Speaker 4: for the government to borrow, Chinese government bondills should have

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Speaker 4: gone up higher and higher, but as you know, Chinese

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Speaker 4: government venue government bondills almost down to two point zero,

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Speaker 4: zero one or two percent when that low because there

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Speaker 4: are not enough borrowers out there. Financial institutions have to

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Speaker 4: place this money somewhere. All these deliveraged funds coming back

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Speaker 4: into the financial institutions, newly generated savings, all the money

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Speaker 4: that central bank put in, all comes to basically people

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Speaker 4: like us in the financial institutions, the fund managers. But

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Speaker 4: if the private sector is not borrowing money, the only

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Speaker 4: borrow left is the government. And so even if the

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Speaker 4: budget required budget deficit might be very large to stabilize

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Speaker 4: the economy, the funds are available in the financial market

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Speaker 4: only the government just have to borrow that and spend it.

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Speaker 4: So financing should not be a big issue for governments.

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Speaker 4: In balance recession, you know, Japan was running huge budget deficits,

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Speaker 4: and a lot of commission on minded economists who never

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Speaker 4: understood the dynamics of balance recession was warning about Japan's

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Speaker 4: budget deficit growing sky high and then interest rates going

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Speaker 4: sky high. Well, interest rates kept on coming down because

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Speaker 4: of the mechanism that I just described to you, that

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Speaker 4: all these ones coming into the financial sector cannot go

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Speaker 4: to the private sector, ended up going to our government

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Speaker 4: bond market. And I see the same pattern developing in

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Speaker 4: China today. Right.

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Speaker 2: So Joe mentioned the real estate crackdown, and you're talking

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Speaker 2: about the reluctance of the private sector to lend, and

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Speaker 2: I guess I have to ask to what extent is

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Speaker 2: that reluctance to lend, not just a product of the

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Speaker 2: debt dynamics that you've already laid out, but also a

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Speaker 2: product of the sort of policy whiplash that we've seen

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Speaker 2: from the party in recent years, where maybe you fund

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Speaker 2: I don't know, an education startup or something like that,

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Speaker 2: but then one day officials wake up and decide to

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Speaker 2: basically crack down on that entire sector and make it

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Speaker 2: very very difficult to operate the business.

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Speaker 4: Well, that's another big problem of China today. So in

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Speaker 4: aside from balanceing recession, which is a very very serious

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Speaker 4: disease to begin with, we have those other factors that

436
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Speaker 4: started hurting the Chinese economy I would say starting as

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Speaker 4: early as twenty sixteen. So when you look at the

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Speaker 4: flow funds data for the Chinese economy, you notice that

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Speaker 4: the Chinese corporate sector started reducing their borrowings starting around

440
00:24:48,359 --> 00:24:52,280
Speaker 4: twenty sixteen. So until twentand sixteen, Chinese companies are borrowing

441
00:24:52,680 --> 00:24:56,000
Speaker 4: or the household sector savings generated, which is of course

442
00:24:56,680 --> 00:24:59,520
Speaker 4: the ideal world household sector saving money, co PRO sector

443
00:24:59,520 --> 00:25:03,560
Speaker 4: borrowing mone But starting around twenty sixteen you see COPRA

444
00:25:03,640 --> 00:25:07,760
Speaker 4: sector borrowing less and less, and around the COVID time,

445
00:25:08,000 --> 00:25:11,040
Speaker 4: cop Pro sector was actually a net safer a net borrower.

446
00:25:11,640 --> 00:25:14,639
Speaker 4: So that trend I think has to do with what

447
00:25:14,680 --> 00:25:20,400
Speaker 4: you just described. That regulatory uncertainties got bigger and bigger

448
00:25:20,760 --> 00:25:24,840
Speaker 4: under the current leadership, and I think people began to

449
00:25:24,880 --> 00:25:28,359
Speaker 4: realize that even after you make these big investments in

450
00:25:28,440 --> 00:25:31,600
Speaker 4: the new projects, they may not be able to expect

451
00:25:31,600 --> 00:25:36,399
Speaker 4: the same revenue stream that they expected earlier because of

452
00:25:36,440 --> 00:25:40,320
Speaker 4: this regulatory uncertainty. And on top of that, of course,

453
00:25:40,359 --> 00:25:43,359
Speaker 4: we have you know, what is known as middle income trap.

454
00:25:43,760 --> 00:25:46,840
Speaker 4: If you reach a certain level of income factories who

455
00:25:46,840 --> 00:25:50,320
Speaker 4: will start moving away from you instead of coming to you.

456
00:25:50,960 --> 00:25:55,440
Speaker 4: So those factors all combine starting around twenty fifteen twenty

457
00:25:55,520 --> 00:26:01,760
Speaker 4: sixteen ended up reducing Chinese corporate borrowings. But if household

458
00:26:01,760 --> 00:26:03,800
Speaker 4: sector is saving money but the corporate sector is not

459
00:26:03,880 --> 00:26:07,040
Speaker 4: borrowing money, you need someone else to fill that gap.

460
00:26:07,680 --> 00:26:11,560
Speaker 4: And actually that gap was filled by Chinese government, mostly

461
00:26:12,480 --> 00:26:18,040
Speaker 4: decentralized local governments. But if that temporary fiscal joto fiscal

462
00:26:18,080 --> 00:26:22,200
Speaker 4: stimulus then turned the economy around, then those local government

463
00:26:22,240 --> 00:26:26,520
Speaker 4: interventions would have been justified. But because this was a

464
00:26:26,600 --> 00:26:31,280
Speaker 4: much more deeply rooted here, I would use structural problems,

465
00:26:31,440 --> 00:26:35,000
Speaker 4: This regulatory uncertainties and middle income trap and so forth.

466
00:26:35,960 --> 00:26:38,639
Speaker 4: Local government just had to keep on borrowing and spending

467
00:26:38,640 --> 00:26:41,920
Speaker 4: money to keep the economy going. And that was happening

468
00:26:42,040 --> 00:26:46,000
Speaker 4: long before the bubble burst. So if you look at

469
00:26:46,240 --> 00:26:49,239
Speaker 4: total or what are called general government spending, not just

470
00:26:49,240 --> 00:26:53,159
Speaker 4: the central government, but the general government, they were financial

471
00:26:53,200 --> 00:26:56,040
Speaker 4: deficits to the tune of almost seven percent of GDP

472
00:26:56,640 --> 00:26:59,680
Speaker 4: by twenty twenty two. This is before the bubble bursting.

473
00:27:00,000 --> 00:27:03,280
Speaker 4: So if you already writing a budget deficit seven percent

474
00:27:03,280 --> 00:27:07,280
Speaker 4: of GDP before the onset of balance recession, then whatever

475
00:27:07,320 --> 00:27:10,320
Speaker 4: you have to do to stop balance recession, we have

476
00:27:10,440 --> 00:27:12,840
Speaker 4: to be on top of this seven percent. Suppose you

477
00:27:12,880 --> 00:27:15,840
Speaker 4: need five percent GDP equivalent to keep the economy going,

478
00:27:15,920 --> 00:27:18,600
Speaker 4: then you're talking about twelve percent of GDP budget deficit.

479
00:27:19,080 --> 00:27:21,120
Speaker 4: And I think that's one of the reasons why Chinese

480
00:27:21,359 --> 00:27:24,440
Speaker 4: policy makers, even though many of them are fully aware

481
00:27:24,760 --> 00:27:26,920
Speaker 4: that in the balance servisssion you need the government to

482
00:27:26,960 --> 00:27:29,920
Speaker 4: come in, they haven't been able to come to a

483
00:27:29,960 --> 00:27:34,760
Speaker 4: full consensus yet because even before the bubble burst, Chinese

484
00:27:34,800 --> 00:27:36,680
Speaker 4: government was writing a large budget deficit.

485
00:27:37,440 --> 00:27:39,720
Speaker 3: I want to go back to exports for a second,

486
00:27:39,720 --> 00:27:43,119
Speaker 3: and you've noted which seems objectively true that here you

487
00:27:43,119 --> 00:27:46,040
Speaker 3: have this huge surplus country, and many countries around the

488
00:27:46,080 --> 00:27:50,399
Speaker 3: world do not want to tolerate a further expansion of

489
00:27:50,440 --> 00:27:53,680
Speaker 3: the surplus. And you see the reticence, not just reticence,

490
00:27:53,760 --> 00:27:55,919
Speaker 3: but pushback in the United States in the form of

491
00:27:55,920 --> 00:27:58,920
Speaker 3: tariffs and promise of more tariffs. You see the anxiety

492
00:27:59,119 --> 00:28:02,560
Speaker 3: in Europe of On the other hand, earlier this year,

493
00:28:02,680 --> 00:28:06,159
Speaker 3: is visiting my mother in Guatemala, and I saw billboards

494
00:28:06,200 --> 00:28:10,680
Speaker 3: for Chinese vehicles for sale there. I have to imagine

495
00:28:10,680 --> 00:28:12,840
Speaker 3: that there's a lot of appeal in the sort of

496
00:28:13,200 --> 00:28:16,879
Speaker 3: the non western parts of the world for cheaper vehicles,

497
00:28:17,200 --> 00:28:21,480
Speaker 3: not being dependent on more expensive European and US cars,

498
00:28:21,480 --> 00:28:24,760
Speaker 3: et cetera. Is there money to be made, an opportunity

499
00:28:24,800 --> 00:28:28,359
Speaker 3: to grow exporting to the rising parts of the world

500
00:28:28,359 --> 00:28:29,880
Speaker 3: that aren't the US or Europe.

501
00:28:30,440 --> 00:28:34,560
Speaker 4: Well, I'm sure, I mean Chinese companies will look at

502
00:28:34,840 --> 00:28:39,320
Speaker 4: what an opportunity that's available out there. But the West

503
00:28:39,440 --> 00:28:42,719
Speaker 4: accounts for something like fifty seven percent of the global GDP,

504
00:28:43,640 --> 00:28:47,680
Speaker 4: and the capital GDP on average is almost sixty thousand dollars.

505
00:28:48,120 --> 00:28:53,960
Speaker 4: The so called non West Malay but India, Africa, South America, Russia,

506
00:28:54,520 --> 00:28:57,960
Speaker 4: they're only about twenty five percent of global GDP and

507
00:28:58,040 --> 00:29:01,760
Speaker 4: put capita GDP on average is like thirteen thousand dollars there.

508
00:29:02,120 --> 00:29:05,920
Speaker 4: China itself is what eighteen percent of global GDP and

509
00:29:06,040 --> 00:29:09,520
Speaker 4: per capita GDP thirteen thousand and also or slightly less

510
00:29:09,560 --> 00:29:14,880
Speaker 4: than thirteen thousand and So if you lose market, which

511
00:29:14,920 --> 00:29:17,360
Speaker 4: is fifty seven percent of global GDP with all the

512
00:29:17,440 --> 00:29:20,640
Speaker 4: rich customers, and you only left with this remaining twenty

513
00:29:20,680 --> 00:29:25,000
Speaker 4: five percent with much poorer customers, of course you have

514
00:29:25,040 --> 00:29:28,040
Speaker 4: to sell to your customers those poorer customers, because you

515
00:29:28,080 --> 00:29:32,920
Speaker 4: have no choice but to upset what you lose in

516
00:29:32,960 --> 00:29:36,560
Speaker 4: a developed world Western world and make up for that

517
00:29:36,640 --> 00:29:41,080
Speaker 4: by sending Morgus to Indian and Russia. I'm sure companies

518
00:29:41,080 --> 00:29:44,200
Speaker 4: will try their best, but I don't think numbers will

519
00:29:44,240 --> 00:29:44,680
Speaker 4: add up.

520
00:29:45,960 --> 00:29:48,200
Speaker 2: If you were a Chinese policy maker and you could

521
00:29:48,280 --> 00:29:53,200
Speaker 2: waive a magic wand and basically make anything happen, what

522
00:29:53,240 --> 00:29:55,440
Speaker 2: would you do in terms of policy? What would be

523
00:29:55,480 --> 00:29:57,560
Speaker 2: the one thing that you would like to see and

524
00:29:57,680 --> 00:29:59,240
Speaker 2: act in Wow?

525
00:29:59,360 --> 00:30:03,160
Speaker 4: If five in China, I will explain to the people

526
00:30:03,200 --> 00:30:06,680
Speaker 4: what kind of disease we contracted. This disease is go

527
00:30:06,800 --> 00:30:10,320
Speaker 4: balance you recession. Everyone is doing the right things, trying

528
00:30:10,360 --> 00:30:13,160
Speaker 4: to repair their balance sheets. But because this will cause

529
00:30:13,160 --> 00:30:16,880
Speaker 4: the fallacy of composition problems, we the government will be

530
00:30:17,000 --> 00:30:20,640
Speaker 4: there to keep the economy going. That is, the government

531
00:30:20,680 --> 00:30:22,920
Speaker 4: will continue to borrow one hundred dollars and spend it.

532
00:30:23,520 --> 00:30:26,920
Speaker 4: So don't worry about this problem. Fix your balance sheats

533
00:30:26,960 --> 00:30:30,320
Speaker 4: and want your balance seats fixed, Come and stop making

534
00:30:30,360 --> 00:30:30,880
Speaker 4: money again.

535
00:30:31,160 --> 00:30:35,640
Speaker 3: Yeah, but just to press further on Tracy's question, because again,

536
00:30:35,760 --> 00:30:40,320
Speaker 3: as you yourself mentioned, fiscal policy isn't as easy as

537
00:30:40,520 --> 00:30:43,520
Speaker 3: a central bank policy because actual decisions have to be made.

538
00:30:43,560 --> 00:30:45,240
Speaker 3: So it's one thing to say we're going to spend,

539
00:30:45,720 --> 00:30:48,320
Speaker 3: but someone is going to get that money, and someone

540
00:30:48,480 --> 00:30:50,440
Speaker 3: is not going to get that money. So just to

541
00:30:50,440 --> 00:30:53,400
Speaker 3: push you on this a little bit further, because as

542
00:30:53,400 --> 00:30:56,040
Speaker 3: you said, fiscal policy is not blanket and generic like

543
00:30:56,080 --> 00:30:59,640
Speaker 3: monetary policy is. How should that spending be channeled in

544
00:30:59,640 --> 00:31:01,840
Speaker 3: a way it's productive and actually gets to the balance

545
00:31:01,840 --> 00:31:02,800
Speaker 3: sheets that need repairing.

546
00:31:03,200 --> 00:31:08,000
Speaker 4: Well, I would use money first to complete all the

547
00:31:08,040 --> 00:31:12,200
Speaker 4: apartments that were started but are not yet complete, because

548
00:31:13,040 --> 00:31:15,920
Speaker 4: in that case, well you might have to take some

549
00:31:16,320 --> 00:31:20,320
Speaker 4: heavy handed actions. But basically the government should take over

550
00:31:20,360 --> 00:31:23,800
Speaker 4: these companies and the projects and start putting money so

551
00:31:23,880 --> 00:31:27,120
Speaker 4: that they will complete the projects. That way, you don't

552
00:31:27,160 --> 00:31:29,720
Speaker 4: have to decide what to make because the things that

553
00:31:29,760 --> 00:31:33,360
Speaker 4: already in the process are being built. All the construction

554
00:31:33,480 --> 00:31:37,880
Speaker 4: drawings are there, workers are there, materials are you know

555
00:31:37,920 --> 00:31:40,960
Speaker 4: where to get the materials, and in many cases potential

556
00:31:40,960 --> 00:31:44,600
Speaker 4: buyers already know. So in that case, you don't waste

557
00:31:44,640 --> 00:31:48,360
Speaker 4: time thinking about what to build, who's to design, and

558
00:31:48,400 --> 00:31:52,840
Speaker 4: who the orders should go to. Remember President Obama when

559
00:31:52,880 --> 00:31:56,000
Speaker 4: he took over two thousand and nine, US was in

560
00:31:56,040 --> 00:32:00,360
Speaker 4: the balance recession after the collapse of the housing bubble. Yeah,

561
00:31:59,760 --> 00:32:02,840
Speaker 4: but he was so careful not to make the Japanese

562
00:32:02,920 --> 00:32:05,840
Speaker 4: mistake of building bridges to nowhere and roads to nowhere.

563
00:32:05,960 --> 00:32:09,320
Speaker 4: He took a long time to decide which projects should

564
00:32:09,360 --> 00:32:12,800
Speaker 4: be funded. But that year and a half or so

565
00:32:13,520 --> 00:32:15,800
Speaker 4: I think U has lost quite a bit of time

566
00:32:16,920 --> 00:32:20,240
Speaker 4: because during that time economy continued to weaken. There was

567
00:32:20,280 --> 00:32:22,960
Speaker 4: no shovel ready projects. But in the Chinese case, I

568
00:32:22,960 --> 00:32:27,320
Speaker 4: would argue that these uncompleted apartments are the shove already projects.

569
00:32:27,600 --> 00:32:30,040
Speaker 4: You already know who wants them, to pay their down

570
00:32:30,080 --> 00:32:33,040
Speaker 4: payments and all of that, So I will spend the

571
00:32:33,080 --> 00:32:37,120
Speaker 4: money first on those projects, complete those projects, and use

572
00:32:37,200 --> 00:32:40,960
Speaker 4: the time while the money is used to complete these apartments.

573
00:32:41,400 --> 00:32:44,200
Speaker 4: I would use the magic wound to get the brightest

574
00:32:44,200 --> 00:32:47,280
Speaker 4: people in China to come into one room and ask

575
00:32:47,360 --> 00:32:50,520
Speaker 4: them to come up with the public works projects with

576
00:32:50,600 --> 00:32:53,440
Speaker 4: a social radia return higher than two point zero percent.

577
00:32:53,960 --> 00:32:57,200
Speaker 4: And the reason is that Chinese government bounded. You know,

578
00:32:57,240 --> 00:33:00,880
Speaker 4: this is about two point zero zero something. These people

579
00:33:00,920 --> 00:33:04,000
Speaker 4: can come up with public works projects with associate RADA

580
00:33:04,040 --> 00:33:06,800
Speaker 4: written higher than let's say two point one percent, then

581
00:33:06,840 --> 00:33:09,800
Speaker 4: those projects will be basically self annancing. It won't be

582
00:33:09,960 --> 00:33:14,400
Speaker 4: a burden of future taxpayers. And then once apartments are

583
00:33:14,400 --> 00:33:17,840
Speaker 4: completed and economy still is struggling from balance she recession,

584
00:33:18,320 --> 00:33:20,480
Speaker 4: then I would like to spend the money on those

585
00:33:20,480 --> 00:33:23,600
Speaker 4: projects that these bright people might come up with.

586
00:33:24,840 --> 00:33:27,760
Speaker 2: All right, Richard, really appreciate you coming back on odd

587
00:33:27,840 --> 00:33:30,400
Speaker 2: lots to give us an update on where we are

588
00:33:30,440 --> 00:33:33,600
Speaker 2: in China's balance sheet recession. Thank you so much. That

589
00:33:33,720 --> 00:33:34,080
Speaker 2: was great.

590
00:33:34,440 --> 00:33:35,440
Speaker 4: Oh, thank you.

591
00:33:35,560 --> 00:33:36,840
Speaker 3: Right, welcome, Thank you, Richard.

592
00:33:36,840 --> 00:33:37,280
Speaker 4: That was great.

593
00:33:52,840 --> 00:33:55,840
Speaker 3: That was our interview with Richard Kue, the chief economist

594
00:33:55,880 --> 00:33:58,920
Speaker 3: of the nomer Or Research Institute in Japan. And now

595
00:33:58,920 --> 00:34:02,200
Speaker 3: we speak with us and one of the pechnology substack.

596
00:34:02,320 --> 00:34:04,600
Speaker 3: So Zishan, thank you so much for coming on odd

597
00:34:04,640 --> 00:34:05,800
Speaker 3: last thrilled to have you here.

598
00:34:06,120 --> 00:34:07,360
Speaker 5: It's so great to be here.

599
00:34:08,200 --> 00:34:11,720
Speaker 3: What did you tell us big picture or small picture?

600
00:34:12,040 --> 00:34:15,200
Speaker 3: Why now we've got this flurry of announcements really over

601
00:34:15,239 --> 00:34:18,759
Speaker 3: the last couple of weeks. We're recording with you. October fifteenth,

602
00:34:18,840 --> 00:34:21,440
Speaker 3: in the recent weekend, there was a Ministry of Finance

603
00:34:21,560 --> 00:34:24,600
Speaker 3: press conference. Prior to the recent Golden week there was

604
00:34:24,640 --> 00:34:27,040
Speaker 3: a flurry of comments from the PBOC et cetera.

605
00:34:27,360 --> 00:34:32,040
Speaker 5: Why now, Well, I think all these developments were called

606
00:34:32,040 --> 00:34:35,720
Speaker 5: the market and all the observers by surprise because nobody

607
00:34:35,719 --> 00:34:39,440
Speaker 5: actually thought this coming. So what started this, you know,

608
00:34:39,640 --> 00:34:44,040
Speaker 5: recent event is a press conference given by China's financial

609
00:34:44,080 --> 00:34:47,720
Speaker 5: regulators led by the Central Bank, which is the People's

610
00:34:47,719 --> 00:34:51,279
Speaker 5: Bank of China, on I think September twenty fourth. So

611
00:34:51,480 --> 00:34:55,200
Speaker 5: after that, two days later there was the Political Bureau

612
00:34:55,239 --> 00:34:58,000
Speaker 5: meeting of the Communist Party of China, and the following

613
00:34:58,040 --> 00:35:01,680
Speaker 5: that there was the State Council exactly meeting, and then

614
00:35:01,719 --> 00:35:04,759
Speaker 5: we had a press conference by the National Development and

615
00:35:04,960 --> 00:35:08,279
Speaker 5: Reform Commission and then the Finance Ministry, which happened on

616
00:35:08,440 --> 00:35:12,120
Speaker 5: Saturday over the weekend. So, as you correctly said, Joe,

617
00:35:12,160 --> 00:35:15,640
Speaker 5: there are a lot of policy announcements, and I think

618
00:35:16,000 --> 00:35:19,520
Speaker 5: right now it's October and kind of just published some

619
00:35:19,960 --> 00:35:24,280
Speaker 5: macroeconomic data. A lot of people are saying that maybe

620
00:35:24,400 --> 00:35:28,560
Speaker 5: one of the reasons for the reasoned economic measures was

621
00:35:28,600 --> 00:35:33,640
Speaker 5: that China is maybe very difficult to reach the five

622
00:35:33,760 --> 00:35:36,600
Speaker 5: percent growth race for the year of twenty twenty four.

623
00:35:37,080 --> 00:35:40,359
Speaker 5: And also the Federal Reserve cut its policy rates, which

624
00:35:40,440 --> 00:35:43,520
Speaker 5: opened the room for you know, the Chinese counterparts.

625
00:35:44,360 --> 00:35:47,000
Speaker 2: So I'm going to ask you basically the same question

626
00:35:47,239 --> 00:35:51,680
Speaker 2: I asked Richard Q, which is the responses to what's

627
00:35:51,719 --> 00:35:54,680
Speaker 2: been announced so far seemed to fall on a sort

628
00:35:54,680 --> 00:35:58,880
Speaker 2: of continuum where you have some people who think this

629
00:35:59,040 --> 00:36:01,759
Speaker 2: is just repeating what China has already done. You know,

630
00:36:01,800 --> 00:36:04,200
Speaker 2: a lot of it so far is monetary easing and

631
00:36:04,239 --> 00:36:06,680
Speaker 2: that sort of thing. It's not that different. But then

632
00:36:06,719 --> 00:36:09,200
Speaker 2: on the other end of the continuum, you have people

633
00:36:09,239 --> 00:36:13,279
Speaker 2: who think this is very significant because the signaling suggests

634
00:36:13,320 --> 00:36:16,799
Speaker 2: that there's something different here, that maybe they're opening the

635
00:36:16,840 --> 00:36:20,880
Speaker 2: door to more fiscal stimulus and things like that. Where

636
00:36:20,960 --> 00:36:25,560
Speaker 2: do you fall along that spectrum of interpreting the significance

637
00:36:25,560 --> 00:36:27,319
Speaker 2: of what we've seen so far, I.

638
00:36:27,280 --> 00:36:30,600
Speaker 5: Do think this is quite significant, and I think we

639
00:36:30,680 --> 00:36:34,200
Speaker 5: can look at this from a number of perspectives. First

640
00:36:34,239 --> 00:36:38,160
Speaker 5: of all, by transition, the political bureau of the Companist

641
00:36:38,160 --> 00:36:42,440
Speaker 5: Party of China just doesn't have a meeting in September

642
00:36:42,520 --> 00:36:46,080
Speaker 5: to focus on the economy. That didn't happen, and so

643
00:36:46,160 --> 00:36:50,719
Speaker 5: this is an exception. And for the governing party of

644
00:36:50,800 --> 00:36:55,640
Speaker 5: China to dedicate out of its past trandition on the

645
00:36:55,640 --> 00:36:59,440
Speaker 5: economy last times of political signal. So you know, that's

646
00:36:59,520 --> 00:37:03,120
Speaker 5: very important from a Chinese political perspective if you are

647
00:37:03,480 --> 00:37:07,120
Speaker 5: like working in the Chinese government. And secondly, some of

648
00:37:07,160 --> 00:37:11,440
Speaker 5: the measures already announced I think did exceed market expectations.

649
00:37:11,520 --> 00:37:15,000
Speaker 5: For example, were started in the September twenty four press

650
00:37:15,000 --> 00:37:18,400
Speaker 5: conference by the People's Bank of China. Pangung Chung, the

651
00:37:18,480 --> 00:37:22,720
Speaker 5: governor of the central bank, announced, you know, the PBOC

652
00:37:23,000 --> 00:37:27,280
Speaker 5: was gonna lower the reserve racial banks that put money

653
00:37:27,480 --> 00:37:30,720
Speaker 5: at the central Bank, that cut the interest rate, lower

654
00:37:30,800 --> 00:37:33,920
Speaker 5: the margage rate that you know Chinese residents pay for

655
00:37:34,000 --> 00:37:39,439
Speaker 5: their housing, and also established a swab facility as well

656
00:37:39,480 --> 00:37:43,839
Speaker 5: as another lending facility to help the stock market. You know,

657
00:37:43,920 --> 00:37:48,000
Speaker 5: to have so many measures put together at a single

658
00:37:48,080 --> 00:37:53,000
Speaker 5: press conference and followed by a very decisive announcement by

659
00:37:53,040 --> 00:37:57,600
Speaker 5: the Finance Ministry that they're working on a physical stimulus,

660
00:37:57,640 --> 00:38:01,719
Speaker 5: but they haven't announced the number because Chinese law, this

661
00:38:01,840 --> 00:38:06,200
Speaker 5: sort of physical spending has to be approved by the legislature,

662
00:38:06,200 --> 00:38:09,399
Speaker 5: which is a National People's Congress Standing Committee, so they

663
00:38:09,400 --> 00:38:13,320
Speaker 5: haven't announced the number. So putting everything together within the

664
00:38:13,360 --> 00:38:17,239
Speaker 5: past two or three weeks out of the expectation, that's

665
00:38:17,400 --> 00:38:22,680
Speaker 5: indeed very significant. And some of these numbers not what

666
00:38:22,920 --> 00:38:25,919
Speaker 5: China got used to for the past two or three

667
00:38:26,000 --> 00:38:29,200
Speaker 5: or four years, especially since COVID, I mean, let's not

668
00:38:29,280 --> 00:38:33,440
Speaker 5: kid ourselves. The market expectation for the Chinese government to

669
00:38:33,520 --> 00:38:37,840
Speaker 5: make some stimulus policies has been high, and there is

670
00:38:37,840 --> 00:38:40,640
Speaker 5: this awareness both inside China as well as and the

671
00:38:40,719 --> 00:38:45,400
Speaker 5: international market that had hoped for some sort of intervention

672
00:38:46,040 --> 00:38:48,600
Speaker 5: for quite a long time, but it didn't come, so

673
00:38:48,640 --> 00:38:49,440
Speaker 5: suddenly it can.

674
00:38:49,800 --> 00:38:52,200
Speaker 3: First of all, this is already very helpful because I

675
00:38:52,239 --> 00:38:55,120
Speaker 3: was not aware, for example, about the sort of tradition

676
00:38:55,239 --> 00:38:58,320
Speaker 3: of where on the calendar such things should be discussed.

677
00:38:58,320 --> 00:39:01,320
Speaker 3: And this is interesting but also gets to another question,

678
00:39:02,000 --> 00:39:08,719
Speaker 3: which is I think the most naive American China observer,

679
00:39:09,120 --> 00:39:12,600
Speaker 3: and I would consider myself in the most naive category.

680
00:39:12,640 --> 00:39:15,080
Speaker 3: It just sort of has this vision in my head

681
00:39:15,239 --> 00:39:18,520
Speaker 3: that Chesin Ping wants something, and then it happens. I mean,

682
00:39:18,560 --> 00:39:20,319
Speaker 3: I know it's not true and there's real, a real

683
00:39:20,360 --> 00:39:23,759
Speaker 3: political system. But then you said, okay, so fiscal stimulus

684
00:39:23,880 --> 00:39:28,359
Speaker 3: technically has to be approved and ratified by the legislature.

685
00:39:28,600 --> 00:39:31,200
Speaker 3: Talk to us about that process, because this is a

686
00:39:31,320 --> 00:39:34,600
Speaker 3: level of sort of political understanding that I truly know

687
00:39:34,719 --> 00:39:38,280
Speaker 3: nothing about. How do the what is the process for Okay,

688
00:39:38,320 --> 00:39:41,600
Speaker 3: some numbers drafted or some allocation of money is drafted,

689
00:39:41,760 --> 00:39:44,480
Speaker 3: how do these decisions actually get made then implemented.

690
00:39:45,600 --> 00:39:48,080
Speaker 5: Well that's a very big question. Yeah, so you take

691
00:39:48,120 --> 00:39:50,799
Speaker 5: it narrow, you are way too humble, And uh yeah,

692
00:39:50,840 --> 00:39:53,319
Speaker 5: I think of all the meetings I've mentioned, the most

693
00:39:53,360 --> 00:39:56,120
Speaker 5: important one is certainly the Political BILLI meeting, which in

694
00:39:56,200 --> 00:40:00,600
Speaker 5: China happens every month. So conditionally there will focused on

695
00:40:00,640 --> 00:40:03,240
Speaker 5: the economy at the end of the year. For example,

696
00:40:03,760 --> 00:40:07,439
Speaker 5: because in every December, which you know just two months away,

697
00:40:07,600 --> 00:40:10,279
Speaker 5: there will be a Central Economic Work Conference which will

698
00:40:10,280 --> 00:40:14,279
Speaker 5: make up economic development plans for the next year. But September,

699
00:40:14,440 --> 00:40:17,680
Speaker 5: this September is political bureau meeting is an exception. So

700
00:40:17,760 --> 00:40:20,239
Speaker 5: I think the typical process is that you know, all

701
00:40:20,320 --> 00:40:26,080
Speaker 5: these Chinese bureaucratic agencies or the ministries, all these committees

702
00:40:26,239 --> 00:40:29,000
Speaker 5: that are part of the Communist Party of China, they

703
00:40:29,360 --> 00:40:33,200
Speaker 5: monitor the situation of the economic data, what are people saying,

704
00:40:33,280 --> 00:40:37,040
Speaker 5: what are Bloomberg reporting, and then they draw up plans

705
00:40:37,239 --> 00:40:40,640
Speaker 5: and they submit to the Chinese leadership. And so when

706
00:40:40,680 --> 00:40:44,200
Speaker 5: there is an instruction, when you know, certain information caught

707
00:40:44,239 --> 00:40:48,200
Speaker 5: the attention of the leadership, they will typically make return

708
00:40:48,320 --> 00:40:52,600
Speaker 5: restructions or give oral instructions which really put things to work.

709
00:40:53,200 --> 00:40:56,160
Speaker 5: And it has to be formalized at a meeting, and

710
00:40:56,320 --> 00:40:59,319
Speaker 5: the most important one is political bureau meeting. And in

711
00:40:59,400 --> 00:41:03,720
Speaker 5: China I also just mentioned a State Council executive meeting.

712
00:41:03,760 --> 00:41:07,759
Speaker 5: The State Council is like the Chinese government cabinet or

713
00:41:07,800 --> 00:41:11,520
Speaker 5: the PBOC, the NDC, the Ministry of Finance or the

714
00:41:11,560 --> 00:41:15,759
Speaker 5: Ministry of Public Security or the Tax Bureau. They are

715
00:41:15,760 --> 00:41:20,000
Speaker 5: all subordinate to the State Council. So the State Council

716
00:41:20,480 --> 00:41:24,480
Speaker 5: their mission is to implement the decisions of the Communist

717
00:41:24,520 --> 00:41:28,560
Speaker 5: Party of China's central committees political bureau. So it's the

718
00:41:28,640 --> 00:41:32,239
Speaker 5: political bureau meeting, the State Council Executive meeting, and then

719
00:41:32,320 --> 00:41:39,960
Speaker 5: translates to specific deployments, rade cards, phacecoalt spending implemented by

720
00:41:40,080 --> 00:41:45,280
Speaker 5: the different ministries, which of course involves their contributions significantly,

721
00:41:45,360 --> 00:41:49,440
Speaker 5: because I wouldn't imagine like China's top leader to have

722
00:41:50,160 --> 00:41:54,160
Speaker 5: such very specific details in you know, whether it should

723
00:41:54,200 --> 00:41:57,279
Speaker 5: be one hundred billion or two hundred billion. These very

724
00:41:57,280 --> 00:42:00,600
Speaker 5: important you know, numbers and plans through are drawn up

725
00:42:00,640 --> 00:42:03,879
Speaker 5: by the technocrats. And also there are a lot of

726
00:42:03,960 --> 00:42:10,080
Speaker 5: you know, think tanks, university research institutions by college professors,

727
00:42:10,320 --> 00:42:13,879
Speaker 5: and they would have their own channels to submit their

728
00:42:14,000 --> 00:42:18,880
Speaker 5: observations or they make their comments publicly and which are

729
00:42:18,920 --> 00:42:21,239
Speaker 5: also monitored by the leadership. You know, there is no

730
00:42:21,400 --> 00:42:23,560
Speaker 5: first amendment in China to be Franks, but so there

731
00:42:23,640 --> 00:42:29,279
Speaker 5: is still a substantial discussion of substantative policies. So all

732
00:42:29,320 --> 00:42:32,200
Speaker 5: of these things contribute to the decision making at to

733
00:42:32,239 --> 00:42:33,240
Speaker 5: the Chinese leadership.

734
00:42:34,280 --> 00:42:37,800
Speaker 2: You mentioned deployment. Just then, how important is it to

735
00:42:37,880 --> 00:42:42,480
Speaker 2: incentivize local officials in this process, because I imagine, okay,

736
00:42:42,480 --> 00:42:45,319
Speaker 2: she Shin Pin can give a general mandate, but to

737
00:42:45,400 --> 00:42:48,960
Speaker 2: your point, it's often the local government officials the technocrats

738
00:42:49,000 --> 00:42:52,640
Speaker 2: there who are actually in charge of implementing and executing

739
00:42:52,680 --> 00:42:55,680
Speaker 2: the policy and in some respects designing it to be

740
00:42:56,000 --> 00:42:58,560
Speaker 2: most effective. How does that process work.

741
00:42:59,000 --> 00:43:02,840
Speaker 5: Well, I think some background should be given because granted,

742
00:43:02,960 --> 00:43:06,440
Speaker 5: China is a unitary state, so it's not a at

743
00:43:06,520 --> 00:43:10,960
Speaker 5: least politically, it's not a federalist system. So people's perception,

744
00:43:11,200 --> 00:43:14,759
Speaker 5: especially Westerners and American perception would be like it's just

745
00:43:14,880 --> 00:43:18,359
Speaker 5: women telling everyone what to do every single matter. So

746
00:43:18,440 --> 00:43:23,200
Speaker 5: that's obviously not true. And for example, probably many people

747
00:43:23,239 --> 00:43:27,360
Speaker 5: are not aware like local government spending in China's overall

748
00:43:27,440 --> 00:43:30,680
Speaker 5: government spending is at i think eighty three or eighty

749
00:43:30,760 --> 00:43:35,120
Speaker 5: five percent, and so the central government spending in China

750
00:43:35,280 --> 00:43:38,320
Speaker 5: as a part of the wall spanning, it's only fifteen percent.

751
00:43:38,520 --> 00:43:41,360
Speaker 5: If you compare that to all the advanced market economy

752
00:43:41,440 --> 00:43:45,560
Speaker 5: in the world, it's among the lowest share in the world.

753
00:43:45,760 --> 00:43:49,160
Speaker 5: So from that perspective, the Chinese, at least in terms

754
00:43:49,200 --> 00:43:53,480
Speaker 5: of physical spending, is very very decentralized. And also if

755
00:43:53,520 --> 00:43:56,680
Speaker 5: you examine the literature on you know, the China Miracle

756
00:43:56,760 --> 00:43:59,840
Speaker 5: for the past three or four decades, one of the

757
00:43:59,840 --> 00:44:03,439
Speaker 5: most prominent theories is that China effect has a sort

758
00:44:03,480 --> 00:44:08,600
Speaker 5: of tournament for local government officials who ever get the

759
00:44:08,640 --> 00:44:11,960
Speaker 5: GDP group fastest or have the best investment projects for

760
00:44:12,000 --> 00:44:15,480
Speaker 5: example the giga factory of Tesla in Shanghai, then they

761
00:44:15,480 --> 00:44:18,920
Speaker 5: get appreciated and probably they will move up the career ladder.

762
00:44:19,040 --> 00:44:22,960
Speaker 5: So indeed it's very important. And also China is a

763
00:44:23,239 --> 00:44:26,040
Speaker 5: huge country. It's, you know the world's second largest economy

764
00:44:26,160 --> 00:44:30,160
Speaker 5: with over thirty provinces one performed billing people. So the

765
00:44:30,239 --> 00:44:34,760
Speaker 5: philosophy is that the central authority gives some mandate, gives

766
00:44:34,800 --> 00:44:39,040
Speaker 5: some direction, but it has to be implemented on a

767
00:44:39,080 --> 00:44:43,080
Speaker 5: region by region basis. For example, China has this housing

768
00:44:43,160 --> 00:44:49,040
Speaker 5: purchase restrictions, but each specific city sets their own criteria.

769
00:44:49,120 --> 00:44:52,759
Speaker 5: For example, if you are Beijing or Shanghai, they have

770
00:44:53,200 --> 00:44:57,600
Speaker 5: by far the most strict housing restrictions. For example, if

771
00:44:57,640 --> 00:45:00,480
Speaker 5: you have a local household RESI restriction, you can only

772
00:45:00,480 --> 00:45:03,479
Speaker 5: buy one apartment, But if you live in a third

773
00:45:03,560 --> 00:45:07,600
Speaker 5: or fours tier city, maybe the restriction over there is

774
00:45:07,800 --> 00:45:10,400
Speaker 5: much more loose. So you know how thing sector is

775
00:45:10,440 --> 00:45:13,359
Speaker 5: an important part of the economic story in China. So

776
00:45:13,440 --> 00:45:18,160
Speaker 5: for example, to revive the real estate industry, the like

777
00:45:18,280 --> 00:45:22,560
Speaker 5: the Ministry of Urban affairs of the Housing ministry. Basically,

778
00:45:23,120 --> 00:45:26,760
Speaker 5: they would, under the mandate given by the central leadership,

779
00:45:26,800 --> 00:45:29,200
Speaker 5: tell everyone, you know, it's time to relax all the

780
00:45:29,440 --> 00:45:33,080
Speaker 5: housing restrictions. But they wouldn't tell, you know, shen jen

781
00:45:33,400 --> 00:45:36,680
Speaker 5: or chanting our hand, you know what to do exactly.

782
00:45:36,719 --> 00:45:39,319
Speaker 5: They would send the signals and the local governments will

783
00:45:39,719 --> 00:45:43,200
Speaker 5: digest the signal and then make their own decisions.

784
00:45:58,400 --> 00:46:00,440
Speaker 3: We talked to Richard Koub about this. One of the

785
00:46:00,440 --> 00:46:02,719
Speaker 3: things that I have some understanding of is this sort

786
00:46:02,760 --> 00:46:08,080
Speaker 3: of very decentralized policy making, very decentralized fiscal infrastructure. One

787
00:46:08,080 --> 00:46:10,279
Speaker 3: of the things I think was sort of hinted at

788
00:46:10,400 --> 00:46:13,960
Speaker 3: at the Finance Ministry press conference was there many people

789
00:46:14,000 --> 00:46:17,480
Speaker 3: who have written about the land sales in various regions

790
00:46:17,640 --> 00:46:21,880
Speaker 3: and the sort of limits to that method of fiscal architecture,

791
00:46:22,040 --> 00:46:23,959
Speaker 3: so to speak. And I think there were some hints

792
00:46:24,040 --> 00:46:27,480
Speaker 3: at the Ministry of Finance about like, eventually perhaps that's

793
00:46:27,480 --> 00:46:30,640
Speaker 3: going to evolve more debt being taken on by the

794
00:46:30,640 --> 00:46:34,360
Speaker 3: central government, et cetera. I take your point about the

795
00:46:34,400 --> 00:46:37,440
Speaker 3: sort of regional competition, but can you talk like, do

796
00:46:37,520 --> 00:46:41,760
Speaker 3: you foresee some sort of evolution post the land sales

797
00:46:42,040 --> 00:46:45,720
Speaker 3: model for regional fiscal spending such that more of it

798
00:46:45,840 --> 00:46:48,160
Speaker 3: somehow comes out of Beijing.

799
00:46:48,880 --> 00:46:52,640
Speaker 5: Well, the background is in China, a lot of local

800
00:46:52,719 --> 00:46:57,160
Speaker 5: government finances used to rely on basically sales fland to

801
00:46:57,360 --> 00:47:00,919
Speaker 5: real estate developers because by China's constitution or the urban

802
00:47:01,000 --> 00:47:03,600
Speaker 5: land are owned by the state, which in fact is

803
00:47:03,640 --> 00:47:06,560
Speaker 5: the city governments where they're in. But because of the

804
00:47:06,920 --> 00:47:11,560
Speaker 5: housing slump we're in right now, this revenue has basically stopped.

805
00:47:11,800 --> 00:47:15,640
Speaker 5: So the plan drawn up in the July meeting of

806
00:47:15,880 --> 00:47:19,680
Speaker 5: the Communist Body of China Central Committee was that there

807
00:47:19,719 --> 00:47:22,680
Speaker 5: will be a sort of tax and the physical reform

808
00:47:23,280 --> 00:47:27,520
Speaker 5: where the local governments will be given new revenue or

809
00:47:27,560 --> 00:47:31,560
Speaker 5: a bigger share of certain tax revenues to replace the

810
00:47:31,640 --> 00:47:36,279
Speaker 5: dwindlin land sales and the housing market is estimated to

811
00:47:36,320 --> 00:47:39,840
Speaker 5: account for I think something between fifteen percent to thirty

812
00:47:39,880 --> 00:47:43,840
Speaker 5: percent of the Chinese GDP. So basically it's in crisis

813
00:47:43,880 --> 00:47:47,080
Speaker 5: and a lot of the biggest real essets developers have

814
00:47:47,160 --> 00:47:51,080
Speaker 5: defaulted on that. That and the Chinese government is very rigid,

815
00:47:51,200 --> 00:47:54,520
Speaker 5: it's very reluctant to help these companies. But at the

816
00:47:54,600 --> 00:47:57,760
Speaker 5: end of the day, I think there has been this reckoning,

817
00:47:58,120 --> 00:48:02,880
Speaker 5: which is you've got to have some sort of real

818
00:48:02,960 --> 00:48:07,320
Speaker 5: esty revival, and because it's just such a large portion

819
00:48:07,400 --> 00:48:10,520
Speaker 5: of the Chinese economy, you know, the overall Chinese strategic

820
00:48:10,560 --> 00:48:16,200
Speaker 5: plan is basically to have more high end value added

821
00:48:16,360 --> 00:48:19,880
Speaker 5: manufacturing and which will take a bigger share of the

822
00:48:19,920 --> 00:48:24,399
Speaker 5: economy at the expense of the dndling housing market share.

823
00:48:24,440 --> 00:48:28,120
Speaker 5: But that transition has to be a gradual process which

824
00:48:28,160 --> 00:48:31,560
Speaker 5: has to be managed as smoothly as possible. So maybe

825
00:48:31,760 --> 00:48:36,720
Speaker 5: just eradicating the real accidence the industry, it's just not possible.

826
00:48:36,800 --> 00:48:41,200
Speaker 5: So right now, I think the Chinese banks have been

827
00:48:41,400 --> 00:48:44,719
Speaker 5: encouraged by the government basically to continue to land to

828
00:48:44,800 --> 00:48:48,319
Speaker 5: the developers. And there is also a political consideration in this.

829
00:48:48,520 --> 00:48:52,600
Speaker 5: It's because in China, most of their apartments are sold

830
00:48:52,800 --> 00:48:55,439
Speaker 5: before they are delivered, so people have already put down

831
00:48:55,520 --> 00:48:58,759
Speaker 5: a down payment and they are paying their mortgage. But

832
00:48:58,840 --> 00:49:01,719
Speaker 5: if they can't get the apartments that they have been

833
00:49:01,800 --> 00:49:04,680
Speaker 5: promised but with they had paid for them, then there

834
00:49:04,680 --> 00:49:06,800
Speaker 5: will be social rests. People will go to the streets

835
00:49:06,840 --> 00:49:11,560
Speaker 5: to protest, so that's a huge issue for potential social instability.

836
00:49:11,680 --> 00:49:16,319
Speaker 5: So from that perspective, the real asset industry is I

837
00:49:16,360 --> 00:49:19,360
Speaker 5: guess too big to fail or certain extent.

838
00:49:20,040 --> 00:49:22,320
Speaker 2: That's a good line. Just going back to the local

839
00:49:22,360 --> 00:49:25,600
Speaker 2: governments for a second, So you mentioned how local governments

840
00:49:25,640 --> 00:49:29,360
Speaker 2: have traditionally been judged, you know, whoever has the highest

841
00:49:29,360 --> 00:49:34,360
Speaker 2: GDP growth, whoever builds the biggest, shiniest new infrastructure project,

842
00:49:34,520 --> 00:49:37,520
Speaker 2: that sort of thing. Do you see any sign that

843
00:49:37,680 --> 00:49:43,040
Speaker 2: maybe the incentive mechanisms for local government actors are starting

844
00:49:43,080 --> 00:49:46,880
Speaker 2: to change or they might be judged by something different.

845
00:49:46,960 --> 00:49:49,000
Speaker 2: I guess this is a very long winded way for

846
00:49:49,040 --> 00:49:51,600
Speaker 2: me to ask you about long range fishing and things

847
00:49:51,719 --> 00:49:54,560
Speaker 2: like that, But are there signs of change in terms

848
00:49:54,600 --> 00:49:56,520
Speaker 2: of how the local governments are being judged?

849
00:49:57,000 --> 00:50:00,240
Speaker 5: I think actually that changed quite a few years back,

850
00:50:00,360 --> 00:50:04,840
Speaker 5: so after seeing him came to power, after China's economy

851
00:50:04,880 --> 00:50:09,839
Speaker 5: transitioned to a mid to high growth numbers and there

852
00:50:09,840 --> 00:50:12,600
Speaker 5: were a lot of collateral damage from the high speed growth,

853
00:50:12,680 --> 00:50:17,960
Speaker 5: for example, environmental degradation. So a few years into his ministration,

854
00:50:18,200 --> 00:50:22,880
Speaker 5: the current Chinese president actually I think that actually started

855
00:50:22,920 --> 00:50:26,880
Speaker 5: even in his predecessor, which highlights what's in the Chinese

856
00:50:27,120 --> 00:50:30,799
Speaker 5: you know, party speak, because scientific development, so it's not

857
00:50:30,920 --> 00:50:34,120
Speaker 5: just an emphasis on you know, whether it's eight percent

858
00:50:34,280 --> 00:50:36,360
Speaker 5: or next year it has to be eight point two percent.

859
00:50:36,719 --> 00:50:40,040
Speaker 5: It was no longer that, and there are more attention

860
00:50:40,160 --> 00:50:44,799
Speaker 5: pay to also security and you know, to resilience. So

861
00:50:45,200 --> 00:50:48,520
Speaker 5: there was not a single emphasis on the growth rate

862
00:50:48,840 --> 00:50:51,520
Speaker 5: for quite some time. What we are seeing in the

863
00:50:51,560 --> 00:50:54,840
Speaker 5: past two or three years, I think is actually a

864
00:50:54,960 --> 00:50:58,799
Speaker 5: comeback to the priority of growth. For example, I think

865
00:50:58,880 --> 00:51:02,000
Speaker 5: in the very important Setro Economic War conference last year,

866
00:51:02,360 --> 00:51:06,680
Speaker 5: it was highlighted that development was still the top priority.

867
00:51:06,719 --> 00:51:09,760
Speaker 5: You know, when I was relatively young, when Chrya started

868
00:51:10,200 --> 00:51:13,600
Speaker 5: the reforment opening up in the late nineteen seventies. That's

869
00:51:13,600 --> 00:51:16,880
Speaker 5: the slogan development is the top priority, which implies that

870
00:51:17,000 --> 00:51:21,200
Speaker 5: economic growth is everything. But then especially you know, after

871
00:51:21,440 --> 00:51:26,320
Speaker 5: the very devastating for your COVID and you know China's

872
00:51:26,880 --> 00:51:31,480
Speaker 5: drastic restrictions to contain the pandemic, the economic growth has

873
00:51:31,600 --> 00:51:34,360
Speaker 5: slowed down significantly. So what we're seeing right now in

874
00:51:34,760 --> 00:51:37,600
Speaker 5: these past two or three years is a re emphasized

875
00:51:38,000 --> 00:51:41,120
Speaker 5: you know, get the economic going and if anything, I

876
00:51:41,120 --> 00:51:44,000
Speaker 5: think local governments there manday now is to you know,

877
00:51:44,080 --> 00:51:45,880
Speaker 5: do everything for the economy.

878
00:51:45,920 --> 00:51:49,400
Speaker 3: This has come up on episodes in the past. But

879
00:51:49,520 --> 00:51:53,200
Speaker 3: how would you describe the process again, you know, in

880
00:51:53,239 --> 00:51:56,880
Speaker 3: the US, we think that feedback between the public and

881
00:51:56,920 --> 00:52:01,279
Speaker 3: the government happens via elections or because you know, we

882
00:52:01,400 --> 00:52:04,600
Speaker 3: have the First Amendment and there's enough scope for people

883
00:52:04,600 --> 00:52:07,680
Speaker 3: to talk about whatever it's frustrating, and then politicians react

884
00:52:07,680 --> 00:52:10,760
Speaker 3: to that. I know there's a political discourse in China

885
00:52:10,800 --> 00:52:13,280
Speaker 3: and social media and there's you know, people talk about

886
00:52:13,440 --> 00:52:16,320
Speaker 3: the garbage time of history and the live flat movement

887
00:52:16,480 --> 00:52:19,920
Speaker 3: and so forth, et cetera. How would you describe, however,

888
00:52:20,120 --> 00:52:25,400
Speaker 3: the feedback process view which the central government recognizes that

889
00:52:25,520 --> 00:52:28,000
Speaker 3: some sort of pivot or temporary pivot has to be

890
00:52:28,080 --> 00:52:30,040
Speaker 3: made to respond to the needs of the public.

891
00:52:30,640 --> 00:52:32,480
Speaker 5: That's a very good question, and I think it's a

892
00:52:32,480 --> 00:52:36,920
Speaker 5: million dollar question. And you know, there are indeed complaints

893
00:52:36,960 --> 00:52:40,200
Speaker 5: and the speculations if there is some sort of eco

894
00:52:40,280 --> 00:52:44,960
Speaker 5: chamber or in the Chinese a more popular term information

895
00:52:45,160 --> 00:52:50,040
Speaker 5: cocoon at the decision making level. And I translated and

896
00:52:50,160 --> 00:52:53,000
Speaker 5: contextualized a speech in my technology newsletter just I think

897
00:52:53,040 --> 00:52:56,160
Speaker 5: a few days ago by a Foremo central economic official,

898
00:52:56,480 --> 00:53:00,279
Speaker 5: which recumentally denies that. I think in this for more

899
00:53:00,320 --> 00:53:04,360
Speaker 5: official and in the Chinese official way, this course, the

900
00:53:04,400 --> 00:53:07,440
Speaker 5: government insists that they are not sitting in some sort

901
00:53:07,480 --> 00:53:11,520
Speaker 5: of information cocoon or echo chamber. They are monitoring the

902
00:53:11,560 --> 00:53:15,520
Speaker 5: situation very closely. They know what the people are talking about,

903
00:53:16,360 --> 00:53:19,759
Speaker 5: they know what you know, Financial Times and Bloomberg are reporting.

904
00:53:20,280 --> 00:53:21,360
Speaker 5: They are aware, you know.

905
00:53:21,800 --> 00:53:22,040
Speaker 4: Yeah.

906
00:53:22,080 --> 00:53:25,759
Speaker 5: I think actually foreign media, international media have a outside

907
00:53:25,760 --> 00:53:31,000
Speaker 5: the role actually within China's discourse and this policy making process.

908
00:53:31,120 --> 00:53:34,839
Speaker 5: So but what I think it's the sort of they

909
00:53:34,840 --> 00:53:40,800
Speaker 5: have this determination which is basically China needs to again,

910
00:53:40,880 --> 00:53:44,920
Speaker 5: you know, advance to a different level of economic development.

911
00:53:45,080 --> 00:53:49,520
Speaker 5: So they are willing to pay for the pains and

912
00:53:49,560 --> 00:53:52,560
Speaker 5: the court in this transition, which is going to be

913
00:53:52,600 --> 00:53:55,759
Speaker 5: a long term process. You know, this is something that

914
00:53:56,000 --> 00:53:59,319
Speaker 5: is eyeing into many Chinese minds. It's basically, you know,

915
00:53:59,480 --> 00:54:04,239
Speaker 5: China make a billion T shirts to pay for one

916
00:54:04,320 --> 00:54:09,040
Speaker 5: Boeing plane from the United States or air busts from Europe. So,

917
00:54:09,480 --> 00:54:11,480
Speaker 5: but China is now trying to make its own C

918
00:54:11,719 --> 00:54:15,080
Speaker 5: nine one nine aeroplane, and it wants to have its

919
00:54:15,120 --> 00:54:19,280
Speaker 5: own very robust semiconductor sector. It is already the largest

920
00:54:19,440 --> 00:54:22,960
Speaker 5: shipbuilding power in the world, followed by South Korea, so

921
00:54:23,080 --> 00:54:26,960
Speaker 5: it wants to pivot to this higher value manufacturing with

922
00:54:27,040 --> 00:54:30,680
Speaker 5: a lot of scientific and technology input into these industries

923
00:54:31,200 --> 00:54:37,600
Speaker 5: and to make this you know, hardware innovation sexy and

924
00:54:37,680 --> 00:54:41,960
Speaker 5: even at the expanse of maybe some consumer internet. So

925
00:54:42,400 --> 00:54:49,440
Speaker 5: in the Chinese policy making view, these hardware based machines tools,

926
00:54:50,040 --> 00:54:52,680
Speaker 5: these are very very important, and I think from the

927
00:54:52,920 --> 00:54:56,200
Speaker 5: very recent even from the press conference given by the

928
00:54:56,239 --> 00:54:59,799
Speaker 5: Ministry of Finance and the NBC, we can have some

929
00:55:00,080 --> 00:55:02,000
Speaker 5: lose to that because you know, a lot of the

930
00:55:02,120 --> 00:55:07,280
Speaker 5: talk amount especially Western China watchers, is that they believe

931
00:55:07,400 --> 00:55:13,840
Speaker 5: the insufficient domestic demound has to be basically countered by

932
00:55:14,719 --> 00:55:18,759
Speaker 5: giving money, giving director subsidies to the Chinese population, or

933
00:55:19,120 --> 00:55:21,680
Speaker 5: basically to have the households have a bigger share of

934
00:55:21,719 --> 00:55:25,560
Speaker 5: the Chinese economy because when compared to other economies, the

935
00:55:25,600 --> 00:55:28,480
Speaker 5: government share of the economy in Chinese significally larger than

936
00:55:28,480 --> 00:55:32,120
Speaker 5: that in the development markets. But if you read the

937
00:55:32,239 --> 00:55:36,600
Speaker 5: NDSC in National Development and Reform Commission, which is typically

938
00:55:36,760 --> 00:55:41,680
Speaker 5: known described as the top economic planner in China, their

939
00:55:41,800 --> 00:55:47,040
Speaker 5: plan to revitalizing domestic demound is categorized into basically two things.

940
00:55:47,360 --> 00:55:51,919
Speaker 5: One is consumption, where it's mentioned for example, China gives

941
00:55:51,960 --> 00:55:55,920
Speaker 5: some subsidies to very poor people before October first, and Secondly,

942
00:55:56,480 --> 00:56:00,279
Speaker 5: the Chinese government gave more scholarship to college students and

943
00:56:00,840 --> 00:56:04,440
Speaker 5: increase the student loans. The range, for example, used to

944
00:56:04,480 --> 00:56:07,520
Speaker 5: be five thousand un but now it's seven thousand un so.

945
00:56:07,680 --> 00:56:10,759
Speaker 5: And on the other hand, the trans government also announced

946
00:56:10,800 --> 00:56:15,400
Speaker 5: that they are still trying to promote the domestic amount.

947
00:56:15,480 --> 00:56:18,440
Speaker 5: From an investment point of view, what they are trying

948
00:56:18,440 --> 00:56:21,960
Speaker 5: to do is, you know, there is this ongoing trade

949
00:56:22,080 --> 00:56:25,399
Speaker 5: in movement. Basically, if you have an old Huawei phone

950
00:56:25,480 --> 00:56:29,040
Speaker 5: or phone, or iPhone or TV screen, you can give

951
00:56:29,080 --> 00:56:31,040
Speaker 5: it back and get a new one where the government

952
00:56:31,080 --> 00:56:34,040
Speaker 5: will give you a relatively big subsidy in the process,

953
00:56:34,400 --> 00:56:38,720
Speaker 5: where they are encouraging the factories to basically to replace

954
00:56:38,760 --> 00:56:42,000
Speaker 5: their old equipments. This put together is known as Leon

955
00:56:42,080 --> 00:56:45,240
Speaker 5: Singh Too New. And also there is also another large

956
00:56:45,560 --> 00:56:48,520
Speaker 5: investment project called you know in Chinese Lean drown two

957
00:56:48,600 --> 00:56:52,520
Speaker 5: key industries, which is two key sectors, one of which

958
00:56:52,719 --> 00:56:56,200
Speaker 5: is known as the major projects of the nation and

959
00:56:56,239 --> 00:56:59,640
Speaker 5: the other is known as the major projects that strengthen

960
00:56:59,719 --> 00:57:03,719
Speaker 5: the critic capabilities of the Chinese nation. So there's two

961
00:57:03,800 --> 00:57:07,880
Speaker 5: key and there is this too New. These are promoted

962
00:57:07,960 --> 00:57:11,040
Speaker 5: by the NDIS in the press conference to everyone that

963
00:57:11,160 --> 00:57:15,200
Speaker 5: this is our way of stimulate domestic demounts. So so

964
00:57:15,360 --> 00:57:18,680
Speaker 5: far as you can see, they're trying to give some

965
00:57:18,840 --> 00:57:22,720
Speaker 5: help to the households and you know, to basically solve

966
00:57:22,800 --> 00:57:25,600
Speaker 5: the needs of the most unfortunate who are suffering the most.

967
00:57:26,200 --> 00:57:29,080
Speaker 5: But on the other hand, I think the direction is

968
00:57:29,120 --> 00:57:31,720
Speaker 5: still very clear. It's like technology build up.

969
00:57:31,920 --> 00:57:33,680
Speaker 3: And yeah, just on.

970
00:57:33,680 --> 00:57:37,400
Speaker 2: The informational cocoon point, do you see any you know,

971
00:57:37,440 --> 00:57:40,000
Speaker 2: you talked about how there is a lot of discourse

972
00:57:40,040 --> 00:57:43,120
Speaker 2: around economic policy and a lot of that takes place

973
00:57:43,280 --> 00:57:47,680
Speaker 2: in public in various ways. Do you see any introspection

974
00:57:48,120 --> 00:57:51,360
Speaker 2: on the part of the party and various officials in

975
00:57:51,440 --> 00:57:54,840
Speaker 2: terms of policies that maybe didn't work out as intended

976
00:57:55,040 --> 00:57:58,120
Speaker 2: in recent years. So I'm thinking of three red lines

977
00:57:58,240 --> 00:58:01,040
Speaker 2: for instance, or some of the policy whiplash that we've

978
00:58:01,080 --> 00:58:05,040
Speaker 2: seen in various crackdowns on you know, consumer tech or

979
00:58:05,040 --> 00:58:07,000
Speaker 2: the education sector and things like that.

980
00:58:07,480 --> 00:58:09,880
Speaker 5: Yeah, I think the three red line is a very

981
00:58:09,920 --> 00:58:13,920
Speaker 5: good example, and there are a lot of scorely pushback

982
00:58:13,960 --> 00:58:17,120
Speaker 5: against three red lines, especially by some professors at the

983
00:58:17,200 --> 00:58:19,720
Speaker 5: National School of Development at Picking University, one of the

984
00:58:19,800 --> 00:58:23,000
Speaker 5: top universities in China. You know, the three red lines

985
00:58:23,000 --> 00:58:26,720
Speaker 5: basically sum it up to make financing for real essay

986
00:58:26,840 --> 00:58:29,800
Speaker 5: company is much more difficult. So the concern is you

987
00:58:29,840 --> 00:58:32,959
Speaker 5: are pushing too horten you say real estate, Yeah, okay,

988
00:58:33,080 --> 00:58:36,480
Speaker 5: I'm sorry. And so the concern was you shouldn't just

989
00:58:36,760 --> 00:58:40,480
Speaker 5: shut down the tap too fast. You should still leave

990
00:58:40,600 --> 00:58:47,040
Speaker 5: some room for the housing sector to to softly phase out,

991
00:58:47,760 --> 00:58:51,840
Speaker 5: to be decreased in the in the importance of the economy.

992
00:58:51,920 --> 00:58:55,360
Speaker 5: So that's that's definitely something because you are seeing now

993
00:58:55,400 --> 00:58:58,840
Speaker 5: the Chinese company is encouraging the banks to land to

994
00:58:59,320 --> 00:59:02,240
Speaker 5: the housing project. There are also other things that I

995
00:59:02,320 --> 00:59:05,840
Speaker 5: think is typically not very well known. For example, believe

996
00:59:05,880 --> 00:59:09,400
Speaker 5: it or not, the Chinese come and place by the

997
00:59:09,440 --> 00:59:14,160
Speaker 5: text book of some sort of Western economic policy making

998
00:59:14,760 --> 00:59:18,960
Speaker 5: very rigidly. There is something called I think mas strict Treaty,

999
00:59:19,000 --> 00:59:21,080
Speaker 5: which is the treaty of the European Union, which basically

1000
00:59:21,120 --> 00:59:23,880
Speaker 5: says if a member state wants to join the EU,

1001
00:59:24,000 --> 00:59:27,040
Speaker 5: it has to meet some certain thresholds, one of which

1002
00:59:27,160 --> 00:59:30,520
Speaker 5: is annual spending. The devastation should not be three percent

1003
00:59:30,720 --> 00:59:35,080
Speaker 5: larger than the and also you know, your outstanding national

1004
00:59:35,160 --> 00:59:38,400
Speaker 5: debt should not be over forty percent of your GDP.

1005
00:59:38,600 --> 00:59:42,160
Speaker 5: Or something like that. Chinda really took it to its heart.

1006
00:59:42,280 --> 00:59:45,200
Speaker 5: And you know, during the financial crisis in two thousand

1007
00:59:45,200 --> 00:59:48,560
Speaker 5: and eight, the Federal Reserve created a lot of facilities

1008
00:59:48,600 --> 00:59:51,840
Speaker 5: and swaps and to help the financial industry. And by

1009
00:59:51,880 --> 00:59:56,200
Speaker 5: the way, the PBOC is very recent inventions, is somewhat

1010
00:59:56,240 --> 00:59:59,280
Speaker 5: similar to what the FAST created. But the Chinese have

1011
00:59:59,320 --> 01:00:03,680
Speaker 5: been playing by these rules for quite some years, which

1012
01:00:03,760 --> 01:00:07,640
Speaker 5: in fact creates a very tightening effect. And I think,

1013
01:00:08,080 --> 01:00:10,920
Speaker 5: you know, trying to learn to adopt the sort of

1014
01:00:10,960 --> 01:00:15,320
Speaker 5: practice and teachings of these experiences and lessons from the

1015
01:00:15,360 --> 01:00:18,360
Speaker 5: advanced economy is one thing, and the other thing is.

1016
01:00:18,640 --> 01:00:19,840
Speaker 4: It's quite cultural.

1017
01:00:20,840 --> 01:00:25,040
Speaker 5: I think there is this emphasis of frugality in the

1018
01:00:25,160 --> 01:00:28,680
Speaker 5: Chinese mind is that you got to eat bitterness, you

1019
01:00:28,840 --> 01:00:32,720
Speaker 5: got to spend little money and save for the future,

1020
01:00:33,280 --> 01:00:37,160
Speaker 5: and that is still in the mindset in the philosophy

1021
01:00:37,200 --> 01:00:51,440
Speaker 5: of Chinese decision making.

1022
01:00:54,080 --> 01:00:57,960
Speaker 2: So part of the problem here is that China notoriously

1023
01:00:58,200 --> 01:01:03,920
Speaker 2: has a extremely savings rate. I think it's like, I

1024
01:01:03,920 --> 01:01:07,120
Speaker 2: think China saves like forty percent of GDP, which is

1025
01:01:07,160 --> 01:01:10,680
Speaker 2: basically twice the amount that the US saves and four

1026
01:01:10,800 --> 01:01:13,720
Speaker 2: times the amount that like the rest of the world saves.

1027
01:01:14,640 --> 01:01:18,640
Speaker 2: How can they go about unlocking that savings, because on

1028
01:01:18,720 --> 01:01:22,880
Speaker 2: the one hand, it seems very difficult to change the mindset,

1029
01:01:23,040 --> 01:01:25,080
Speaker 2: as you just pointed out. But on the other hand,

1030
01:01:25,480 --> 01:01:27,919
Speaker 2: you know, they're starting from a relatively low base. There's

1031
01:01:28,000 --> 01:01:31,120
Speaker 2: not a big social safety net in the country, so

1032
01:01:31,160 --> 01:01:33,320
Speaker 2: there are perhaps things that could be done there. But

1033
01:01:33,400 --> 01:01:36,440
Speaker 2: how do you unlock that chunk of savings.

1034
01:01:36,760 --> 01:01:40,160
Speaker 5: Well, I think you mentioned the social safety net. That's

1035
01:01:40,280 --> 01:01:43,640
Speaker 5: very important, and that's a lot of Chinese experts have

1036
01:01:43,720 --> 01:01:46,760
Speaker 5: been opening calling for in the past several years. It's

1037
01:01:46,800 --> 01:01:50,160
Speaker 5: basically for the government to spend more money, to devote

1038
01:01:50,200 --> 01:01:55,200
Speaker 5: more resources to enhancing, to broadening, to strengthening China's social

1039
01:01:55,280 --> 01:01:59,280
Speaker 5: safety net. You know, China's GDP per capitary thirteen thousand

1040
01:01:59,440 --> 01:02:01,520
Speaker 5: US dollar, something like the seventy.

1041
01:02:01,280 --> 01:02:02,400
Speaker 4: Eighth in the world.

1042
01:02:02,520 --> 01:02:06,760
Speaker 5: But it has built up a universal healthcare system and

1043
01:02:06,960 --> 01:02:09,680
Speaker 5: so basically, I don't know, ninety eight ninety nine percent

1044
01:02:09,680 --> 01:02:12,600
Speaker 5: of the people have some sort of health insurance and

1045
01:02:13,080 --> 01:02:15,840
Speaker 5: you know, basically they can they just have to pay

1046
01:02:15,880 --> 01:02:20,160
Speaker 5: a portion of their medical costs. But as you correctly mentioned,

1047
01:02:20,360 --> 01:02:23,840
Speaker 5: the social safety net, perhaps as a result of the

1048
01:02:23,920 --> 01:02:27,360
Speaker 5: overall national economic development it's still not think enough. It's

1049
01:02:27,920 --> 01:02:31,040
Speaker 5: just not enough. So and there is a national pension

1050
01:02:31,080 --> 01:02:33,960
Speaker 5: system and it's not looking well because part of that

1051
01:02:34,120 --> 01:02:37,400
Speaker 5: is demographic changes. You have more you know, old people

1052
01:02:37,440 --> 01:02:39,840
Speaker 5: and no longer so many young people, so that's under

1053
01:02:39,840 --> 01:02:42,520
Speaker 5: stress as well. So one big part of the current

1054
01:02:42,640 --> 01:02:45,360
Speaker 5: ongoing discussion is for the government to spend more money

1055
01:02:45,360 --> 01:02:49,680
Speaker 5: into pension, into strengthening the medical care for the system.

1056
01:02:49,720 --> 01:02:53,600
Speaker 5: And another very important is institutional reform. So you know,

1057
01:02:54,720 --> 01:02:58,960
Speaker 5: paper China's urbanization rate is something like sixty five percent,

1058
01:02:59,360 --> 01:03:02,480
Speaker 5: but only if forty eight percent of the people have

1059
01:03:03,200 --> 01:03:07,120
Speaker 5: urban household registration, so there is so that means there

1060
01:03:07,200 --> 01:03:10,640
Speaker 5: is still many people who actually work and live in cities,

1061
01:03:10,880 --> 01:03:14,560
Speaker 5: but they do not have the sort of legal household

1062
01:03:14,600 --> 01:03:18,600
Speaker 5: registration in Chinese cities, which means they are not entitled,

1063
01:03:18,640 --> 01:03:22,280
Speaker 5: they cannot enjoy the benefits of you know, education, medical care,

1064
01:03:22,320 --> 01:03:26,840
Speaker 5: and those cities they're actually living. So if similar reforms

1065
01:03:27,320 --> 01:03:30,520
Speaker 5: by you know, making it much easier for them to

1066
01:03:30,600 --> 01:03:35,320
Speaker 5: relocate into cities to enjoy the social benefits and so

1067
01:03:35,400 --> 01:03:38,320
Speaker 5: that they will no longer be stuck to their rural land,

1068
01:03:38,400 --> 01:03:42,720
Speaker 5: that could increase the productivity under unleashed consumption as well.

1069
01:03:42,760 --> 01:03:45,120
Speaker 5: And I think this is this is the Hohoka reform.

1070
01:03:45,280 --> 01:03:45,960
Speaker 4: Yeah, that's right.

1071
01:03:46,000 --> 01:03:48,960
Speaker 5: And also the it is related to the rural land reform.

1072
01:03:49,080 --> 01:03:51,200
Speaker 5: And you know, because if you don't have the houk

1073
01:03:51,360 --> 01:03:54,200
Speaker 5: household registration in the cities, your children can't go school

1074
01:03:54,200 --> 01:03:55,960
Speaker 5: in the city, so your children have to go to

1075
01:03:56,000 --> 01:03:59,520
Speaker 5: a rural school. And so that means you can't move

1076
01:03:59,560 --> 01:04:02,200
Speaker 5: your family over there, and you can't buy an apartment

1077
01:04:02,200 --> 01:04:05,040
Speaker 5: over there, you can't buy the TVs and decorate the house.

1078
01:04:05,360 --> 01:04:08,440
Speaker 5: That's a lot of consumption potential over there. So I

1079
01:04:08,440 --> 01:04:11,240
Speaker 5: think on the bright side, there is a reason for

1080
01:04:11,400 --> 01:04:15,640
Speaker 5: optimism for China's long term growth is simply because there

1081
01:04:15,720 --> 01:04:17,760
Speaker 5: is just so much things to do. There is just

1082
01:04:17,800 --> 01:04:20,160
Speaker 5: so many things that can be done. And you know,

1083
01:04:20,200 --> 01:04:24,400
Speaker 5: in Chinda this very recent talk of low altitude economy,

1084
01:04:24,480 --> 01:04:28,600
Speaker 5: so which basically for airspace less than one thousand meters,

1085
01:04:28,680 --> 01:04:31,760
Speaker 5: so you can use students to do logistics, and it

1086
01:04:31,800 --> 01:04:34,360
Speaker 5: can work on agriculture and a lot of things. But

1087
01:04:34,480 --> 01:04:36,520
Speaker 5: in the past it was not possible because there were

1088
01:04:36,720 --> 01:04:41,840
Speaker 5: a lot of regulations about airspace, sometimes from a security

1089
01:04:41,880 --> 01:04:46,400
Speaker 5: or military perspective. But now I think the Chinese company

1090
01:04:46,440 --> 01:04:49,800
Speaker 5: is working on basically reduced They regulate this place, so

1091
01:04:49,840 --> 01:04:52,680
Speaker 5: there can be a lot of opportunities. So yeah, there

1092
01:04:52,720 --> 01:04:54,360
Speaker 5: are still a lot of things to be done.

1093
01:04:54,560 --> 01:04:57,200
Speaker 3: You mentioned the role of foreign media and the importance

1094
01:04:57,240 --> 01:05:01,320
Speaker 3: of the sort of outside perspective in the information ecosystem

1095
01:05:01,520 --> 01:05:05,640
Speaker 3: that leaders in Beijing use. You work for eleven years

1096
01:05:05,640 --> 01:05:09,000
Speaker 3: at the Shinwa News Agency. It's a state news agency.

1097
01:05:09,280 --> 01:05:12,240
Speaker 3: What is the role of the state news agency in

1098
01:05:12,280 --> 01:05:15,920
Speaker 3: this information eco system and how does it interact in

1099
01:05:16,080 --> 01:05:18,760
Speaker 3: terms of what is the role what is the basic

1100
01:05:18,840 --> 01:05:20,360
Speaker 3: mission of these agencies?

1101
01:05:20,480 --> 01:05:24,600
Speaker 5: Okay, sure, So some personal background. I was born, raised

1102
01:05:24,600 --> 01:05:28,480
Speaker 5: in China. I'm totally educated in China. So after college

1103
01:05:28,520 --> 01:05:31,520
Speaker 5: in twenty eleven, I joined Singhua News Agency, the state

1104
01:05:31,640 --> 01:05:34,880
Speaker 5: news agency. I worked for eleven years there. For the

1105
01:05:34,960 --> 01:05:37,360
Speaker 5: first six and a half years I worked in two

1106
01:05:37,440 --> 01:05:40,240
Speaker 5: provincial bureaus, so basically a local news reporter, and then

1107
01:05:40,320 --> 01:05:43,720
Speaker 5: I worked in Europe and then in Beijing headquarters. So

1108
01:05:43,840 --> 01:05:46,480
Speaker 5: there are Singhua News agencies. There is what is now

1109
01:05:46,480 --> 01:05:49,640
Speaker 5: known as China Media Group, which is the state broadcaster,

1110
01:05:50,200 --> 01:05:53,120
Speaker 5: and then there is China Daily. And there is also

1111
01:05:53,320 --> 01:05:56,120
Speaker 5: People Stilly, which is more better known. It's the flagship

1112
01:05:56,200 --> 01:05:58,680
Speaker 5: newspaper of the Commutist Party of China, and one of

1113
01:05:58,720 --> 01:06:02,160
Speaker 5: his affiliates is very well known. It's called the Global Times.

1114
01:06:02,480 --> 01:06:06,160
Speaker 5: And I think in these cases, I think a big

1115
01:06:06,240 --> 01:06:10,520
Speaker 5: rule of these Chinese state around news agencies and newspapers

1116
01:06:11,320 --> 01:06:17,640
Speaker 5: communicating Beijings, policies and intentions, and of course facilitating a

1117
01:06:17,680 --> 01:06:24,600
Speaker 5: domestic discourse that's favorable to the Chinese government because you know,

1118
01:06:24,680 --> 01:06:27,080
Speaker 5: the Chinese goverment beliefs this is the best way for

1119
01:06:27,120 --> 01:06:29,560
Speaker 5: the country to move forward. And I think there is

1120
01:06:29,600 --> 01:06:35,000
Speaker 5: a crucial difference between the Chinese state news system and

1121
01:06:35,120 --> 01:06:37,560
Speaker 5: that is practice for example, in the United States. In

1122
01:06:37,600 --> 01:06:39,440
Speaker 5: the United States, in the White House, you have a

1123
01:06:39,920 --> 01:06:44,120
Speaker 5: press communications team. So whatever President Joe Biden or Vice

1124
01:06:44,120 --> 01:06:47,560
Speaker 5: President Kamlin Harris put out is put out by the

1125
01:06:47,560 --> 01:06:51,080
Speaker 5: White House and then picked up by the White House

1126
01:06:51,160 --> 01:06:55,120
Speaker 5: Press Court, and them are picked up by the news media, which,

1127
01:06:55,200 --> 01:06:59,600
Speaker 5: based on their own editorial standards, decide to report it

1128
01:06:59,720 --> 01:07:02,800
Speaker 5: or not reported. In the Chinese there is no such

1129
01:07:02,920 --> 01:07:09,480
Speaker 5: mechanism of centralized news publication by the central authority. That

1130
01:07:09,720 --> 01:07:13,200
Speaker 5: function is delegated to the state media. So at Sinque

1131
01:07:13,200 --> 01:07:17,440
Speaker 5: neuwis agency at the China Central television at people stealing newspaper.

1132
01:07:17,880 --> 01:07:21,280
Speaker 5: So in the sense, these state media are playing a

1133
01:07:21,400 --> 01:07:25,480
Speaker 5: role of the White House communications team. So you know,

1134
01:07:25,560 --> 01:07:29,440
Speaker 5: the TV footage of the Chinese President, of the Chinese premier,

1135
01:07:29,600 --> 01:07:34,560
Speaker 5: who they meet, and what happened in China these meetings.

1136
01:07:34,880 --> 01:07:37,960
Speaker 5: The read outs are directly put out by the Chinese

1137
01:07:38,000 --> 01:07:41,560
Speaker 5: state media. So the roles, the setup, and of course

1138
01:07:41,880 --> 01:07:45,000
Speaker 5: you know, the political system and also the discretion they

1139
01:07:45,040 --> 01:07:49,080
Speaker 5: have are indeed vastly different from that of the United States.

1140
01:07:49,120 --> 01:07:52,120
Speaker 5: And you mentioned the role of foreign news media. I

1141
01:07:52,120 --> 01:07:56,480
Speaker 5: think very unfortunately, and this is something as a formal correspondent,

1142
01:07:56,920 --> 01:07:59,360
Speaker 5: as a former journalist, I really want to highlight is

1143
01:08:00,160 --> 01:08:03,080
Speaker 5: China has been unable to send it's journalists to the

1144
01:08:03,160 --> 01:08:07,280
Speaker 5: United States. And it's also very difficult for New York Times, Bloomberg,

1145
01:08:07,400 --> 01:08:10,760
Speaker 5: Washington Post. What's the journal to have is journalists on

1146
01:08:10,800 --> 01:08:15,400
Speaker 5: the ground in China. This doesn't help anybody. And you know,

1147
01:08:15,560 --> 01:08:19,680
Speaker 5: as the two countries get their relations right, I sincerely

1148
01:08:19,760 --> 01:08:22,320
Speaker 5: hope that you know, the two sides can figure something

1149
01:08:22,320 --> 01:08:24,759
Speaker 5: out to have more journalists in each other, which would

1150
01:08:25,000 --> 01:08:28,840
Speaker 5: help with you know, understanding China better and understanding the

1151
01:08:29,200 --> 01:08:30,080
Speaker 5: United States better.

1152
01:08:30,320 --> 01:08:35,360
Speaker 2: Yes, let ten thousand China US journalist correspondence Bloom. I agree.

1153
01:08:36,280 --> 01:08:39,080
Speaker 2: I have just one more question. Actually it's two questions,

1154
01:08:39,360 --> 01:08:43,360
Speaker 2: but I'm doubling my personal productivity by asking them together

1155
01:08:43,479 --> 01:08:47,080
Speaker 2: very quickly. Number one, how much did the US elections

1156
01:08:47,080 --> 01:08:49,960
Speaker 2: matter here? Like come November fifth? Is there going to

1157
01:08:50,000 --> 01:08:53,040
Speaker 2: be some big rethink of China domestic policy or are

1158
01:08:53,080 --> 01:08:56,400
Speaker 2: there certain things that hinge on the outcome of that election?

1159
01:08:56,920 --> 01:09:00,719
Speaker 2: And then secondly, what are you watching in terms of

1160
01:09:00,920 --> 01:09:03,240
Speaker 2: what's next and what could be significant?

1161
01:09:03,439 --> 01:09:06,000
Speaker 5: So you mentioned here you mean in China, right. I

1162
01:09:06,040 --> 01:09:11,080
Speaker 5: think Rush DOORSI, the former Deputy Senior Director National Securit

1163
01:09:11,080 --> 01:09:14,120
Speaker 5: Coounce of the White House, wrote something either yesterday or

1164
01:09:14,200 --> 01:09:16,960
Speaker 5: the day before yesterday on the New York Times, which

1165
01:09:17,000 --> 01:09:20,559
Speaker 5: is a very helpful read, and he's clearly trying to

1166
01:09:20,600 --> 01:09:24,240
Speaker 5: help Kamla Harris. And I think there is this discussion

1167
01:09:24,360 --> 01:09:29,839
Speaker 5: about basically whether China wants a democratic president or Donald

1168
01:09:29,840 --> 01:09:34,639
Speaker 5: Trump's second presidency. First of all, I think the Chinese

1169
01:09:35,000 --> 01:09:38,680
Speaker 5: official this is domestic affairs of the United States, and

1170
01:09:38,880 --> 01:09:42,200
Speaker 5: we don't in the field with the United States domestic elections.

1171
01:09:42,360 --> 01:09:44,200
Speaker 5: And I think at least in this round, if you

1172
01:09:44,439 --> 01:09:48,080
Speaker 5: examine the responses from the US officials, including those in

1173
01:09:48,120 --> 01:09:51,960
Speaker 5: the intelligence community. If I'm not mistaken, they have said

1174
01:09:52,040 --> 01:09:55,280
Speaker 5: they did not see any instance of Chinese interference in

1175
01:09:55,320 --> 01:09:59,080
Speaker 5: the US elections. I think this is also a discussion

1176
01:09:59,120 --> 01:10:01,599
Speaker 5: in China about the because this is like the most

1177
01:10:01,640 --> 01:10:04,559
Speaker 5: important election in the world and it's gonna have very

1178
01:10:04,560 --> 01:10:07,799
Speaker 5: big impact on China US relations. I think the thinking

1179
01:10:07,920 --> 01:10:12,160
Speaker 5: is that if Kamala Harris became the president, she will

1180
01:10:12,439 --> 01:10:17,360
Speaker 5: some sort of continue the path that President Joe Biden

1181
01:10:17,439 --> 01:10:20,280
Speaker 5: has already laid out. It's gonna be some sort of

1182
01:10:20,439 --> 01:10:25,120
Speaker 5: stabilization of the status quo. I mean, make no mistake,

1183
01:10:25,240 --> 01:10:28,599
Speaker 5: nobody has any illusions about China US relations these days.

1184
01:10:28,640 --> 01:10:31,720
Speaker 5: It will be difficult for both sides, and there will

1185
01:10:31,760 --> 01:10:36,400
Speaker 5: be disagreements and even you know, not un conflicts, but

1186
01:10:36,520 --> 01:10:42,520
Speaker 5: serious disagreements. But it will be predictable and probably manageable.

1187
01:10:43,240 --> 01:10:47,240
Speaker 5: But Donald J. Trump to become the next president, well,

1188
01:10:47,360 --> 01:10:49,479
Speaker 5: I'm a Chinese citizen, I really don't want to interfere

1189
01:10:49,479 --> 01:10:52,679
Speaker 5: with US elections. But I think the thinking is that

1190
01:10:52,880 --> 01:10:58,000
Speaker 5: he's just so unpredictable and nobody knows what. You will

1191
01:10:58,040 --> 01:11:00,479
Speaker 5: wake up in the morning five am and it out

1192
01:11:00,560 --> 01:11:03,559
Speaker 5: and I'm not sure Beijing is really a big fan

1193
01:11:03,640 --> 01:11:08,920
Speaker 5: of that. But as Rassuci pointed out that Donald Trump

1194
01:11:09,000 --> 01:11:13,320
Speaker 5: is probably going to mess up the alliance with Europe

1195
01:11:13,320 --> 01:11:17,280
Speaker 5: and a lot of US allies, which, if you really

1196
01:11:17,320 --> 01:11:21,680
Speaker 5: take a thirty thousand feits view, could be good for

1197
01:11:21,840 --> 01:11:25,880
Speaker 5: China because the US messes up its alliance system. But

1198
01:11:26,040 --> 01:11:30,400
Speaker 5: am my understanding the courses on predictability. You have to

1199
01:11:30,439 --> 01:11:34,040
Speaker 5: face the drama on a weekly basis, So there are

1200
01:11:34,080 --> 01:11:37,200
Speaker 5: pros and cons, and I think the Chinese attitude is

1201
01:11:37,760 --> 01:11:41,439
Speaker 5: we will stand on our grounds and China will, you know,

1202
01:11:41,479 --> 01:11:45,559
Speaker 5: stick to its principles and defend its interests. Whoever gets

1203
01:11:45,600 --> 01:11:48,479
Speaker 5: into the White House in power, I'm really not sure

1204
01:11:48,600 --> 01:11:51,400
Speaker 5: there is a clear preference for who is going to

1205
01:11:51,400 --> 01:11:53,879
Speaker 5: be the president of the United States.

1206
01:11:54,000 --> 01:11:56,599
Speaker 2: And in terms of what's next, what we should watch

1207
01:11:56,600 --> 01:11:59,040
Speaker 2: out for, Oh, the stimulus measures.

1208
01:11:59,120 --> 01:12:02,639
Speaker 5: Well, first of all, watch for the National People's Congress

1209
01:12:02,680 --> 01:12:06,559
Speaker 5: Standing Committee meeting of ratifying the size of the fiscal

1210
01:12:06,840 --> 01:12:10,360
Speaker 5: stimulars out of the Finance Ministry, because the Finance Minister

1211
01:12:10,479 --> 01:12:12,920
Speaker 5: made it very clear that we can't tell you now

1212
01:12:12,960 --> 01:12:16,599
Speaker 5: because it has to be ratified, and that's something very important.

1213
01:12:17,080 --> 01:12:20,880
Speaker 5: And so what is exactly the size of that stimulus.

1214
01:12:20,920 --> 01:12:25,800
Speaker 5: I think very respected Chinese news magazine Tai Sing had

1215
01:12:25,840 --> 01:12:29,479
Speaker 5: already put out some numbers, and I believe Bloomberg had also,

1216
01:12:29,560 --> 01:12:32,880
Speaker 5: you know, quoted that number and the terminal, and that's

1217
01:12:33,160 --> 01:12:35,800
Speaker 5: that's something very important. And also you know, China has

1218
01:12:35,800 --> 01:12:40,000
Speaker 5: this five year plannings and so next year China will

1219
01:12:40,040 --> 01:12:45,439
Speaker 5: be making up is fifteenth five year plan and so

1220
01:12:45,560 --> 01:12:49,200
Speaker 5: that's a mid term to long term prospect and you

1221
01:12:49,200 --> 01:12:52,719
Speaker 5: know when can goage if there is any directional change

1222
01:12:52,760 --> 01:12:55,719
Speaker 5: in terms of that. And I think I also mentioned

1223
01:12:55,720 --> 01:12:59,360
Speaker 5: that every December there will be the Central Economic World Conference.

1224
01:12:59,400 --> 01:13:04,800
Speaker 5: It typically happens on the during the Christmas season. But yeah,

1225
01:13:04,840 --> 01:13:08,080
Speaker 5: I think that's like the things we're going to closely

1226
01:13:08,120 --> 01:13:10,160
Speaker 5: watch for and also sign up for my newsletter.

1227
01:13:10,880 --> 01:13:13,960
Speaker 3: Definitely sign up, Hysician Wang. Thank you so much for

1228
01:13:14,000 --> 01:13:14,599
Speaker 3: coming on allum.

1229
01:13:14,640 --> 01:13:15,880
Speaker 5: Thank you for having things and.

1230
01:13:15,840 --> 01:13:17,320
Speaker 3: Like I said, we'll have to do it against the time.

1231
01:13:17,560 --> 01:13:31,080
Speaker 3: Thank you, Joe.

1232
01:13:31,120 --> 01:13:35,120
Speaker 2: That was so good having Richard and zichen on as well.

1233
01:13:35,560 --> 01:13:37,000
Speaker 3: What a treat that was.

1234
01:13:37,439 --> 01:13:38,920
Speaker 2: The Macro and the micro.

1235
01:13:38,840 --> 01:13:41,360
Speaker 3: No exactly, I thought that was fantastic. As you said,

1236
01:13:41,439 --> 01:13:44,680
Speaker 3: the macro and the micro I'm trying to figure like

1237
01:13:44,720 --> 01:13:47,040
Speaker 3: where to begin, because there was so much in both

1238
01:13:47,080 --> 01:13:50,759
Speaker 3: of those conversations. I appreciate, you know, the big picture,

1239
01:13:50,880 --> 01:13:54,640
Speaker 3: the sort of Richard Coo balance sheet recession that you had,

1240
01:13:54,720 --> 01:13:59,720
Speaker 3: getting these difficult situations where everyone is saving, everyone is concerned,

1241
01:14:00,240 --> 01:14:04,439
Speaker 3: the downward growth feeds on itself. I appreciate this sort

1242
01:14:04,439 --> 01:14:08,080
Speaker 3: of idea that like, China hit a moment where okay, yes,

1243
01:14:08,240 --> 01:14:12,759
Speaker 3: and physicians point the long term goal is to maintain

1244
01:14:12,920 --> 01:14:17,479
Speaker 3: that sort of high tech manufacturing led scientific growth. But

1245
01:14:17,520 --> 01:14:20,960
Speaker 3: I think the common thread is with the decline of

1246
01:14:21,000 --> 01:14:23,640
Speaker 3: the real estate sector, there was just this moment that

1247
01:14:23,680 --> 01:14:24,320
Speaker 3: had to pivot.

1248
01:14:24,600 --> 01:14:27,280
Speaker 2: Yeah, well two things there. I mean, it does seem

1249
01:14:27,320 --> 01:14:30,200
Speaker 2: fairly clear to me that China has taken that balance

1250
01:14:30,240 --> 01:14:33,479
Speaker 2: sheet recession idea on board. Like what they are doing

1251
01:14:33,520 --> 01:14:37,400
Speaker 2: now is trying to boost real assets so that people

1252
01:14:37,640 --> 01:14:40,000
Speaker 2: want to invest more and they sort of build up

1253
01:14:40,040 --> 01:14:42,880
Speaker 2: their confidence and things like that. I guess the big

1254
01:14:43,000 --> 01:14:46,320
Speaker 2: question I have is there does seem to be a

1255
01:14:46,360 --> 01:14:50,040
Speaker 2: lot of low hanging fruit in terms of reducing the

1256
01:14:50,080 --> 01:14:53,439
Speaker 2: savings rate and getting people to spend and invest more.

1257
01:14:53,920 --> 01:14:56,240
Speaker 2: But on the other hand, it kind of begs the

1258
01:14:56,320 --> 01:15:00,000
Speaker 2: question why hasn't this happened before, you know, stuff like

1259
01:15:00,080 --> 01:15:02,640
Speaker 2: Kukau reform and things like that. Why didn't they do

1260
01:15:02,680 --> 01:15:04,960
Speaker 2: it before? And I guess my question is is this

1261
01:15:05,160 --> 01:15:09,639
Speaker 2: an economic problem or is it one of perhaps political will?

1262
01:15:10,479 --> 01:15:13,400
Speaker 3: Yeah, totally, And I guess right like we don't really

1263
01:15:13,479 --> 01:15:16,600
Speaker 3: know the answer. From the second part of that conversation

1264
01:15:16,680 --> 01:15:20,519
Speaker 3: with a physician. Just now, very interesting this idea that like, okay,

1265
01:15:20,720 --> 01:15:25,360
Speaker 3: one signal is simply this fact that like the announcement

1266
01:15:25,400 --> 01:15:28,640
Speaker 3: happened now in the calendar year, like right before goldenweg

1267
01:15:29,160 --> 01:15:31,080
Speaker 3: I didn't realize that there was like a time of

1268
01:15:31,160 --> 01:15:33,680
Speaker 3: year to talk about economic things and so no, I

1269
01:15:33,680 --> 01:15:36,439
Speaker 3: didn't so and you know, if there's like a econ

1270
01:15:36,560 --> 01:15:39,519
Speaker 3: policy making going on at that time of year, then

1271
01:15:39,560 --> 01:15:43,720
Speaker 3: that signal is something different than business as usual. It

1272
01:15:43,800 --> 01:15:46,320
Speaker 3: certainly makes a lot of sense to me, you know,

1273
01:15:46,520 --> 01:15:49,519
Speaker 3: just this idea that, like even in a sort of

1274
01:15:49,640 --> 01:15:54,760
Speaker 3: centralized political system, that these things take time to implement,

1275
01:15:55,160 --> 01:15:57,400
Speaker 3: that things have to be approved, that ideas, that there

1276
01:15:57,479 --> 01:15:59,920
Speaker 3: is a period of debate for ideas as you know,

1277
01:16:00,040 --> 01:16:03,880
Speaker 3: not even in the absence of First Amendment free speech norms,

1278
01:16:03,920 --> 01:16:06,680
Speaker 3: there's going to be different views on how things get implemented,

1279
01:16:06,800 --> 01:16:08,040
Speaker 3: and I thought that was very interesting.

1280
01:16:08,160 --> 01:16:10,600
Speaker 2: Yeah, and also I think Richard brought this up. But

1281
01:16:10,640 --> 01:16:13,160
Speaker 2: the idea that, you know, fiscal is a little bit

1282
01:16:13,200 --> 01:16:17,320
Speaker 2: more difficult than monetary policy because you're deciding who gets

1283
01:16:17,479 --> 01:16:20,600
Speaker 2: the money rather than the sort of generalized easing.

1284
01:16:20,600 --> 01:16:23,479
Speaker 3: Right, and that is something that on the specifics of

1285
01:16:23,520 --> 01:16:26,840
Speaker 3: how much in whom the money goes to probably not

1286
01:16:26,920 --> 01:16:29,479
Speaker 3: something specific that Chijinping would have in his head.

1287
01:16:29,960 --> 01:16:31,200
Speaker 2: All right, shall we leave it there.

1288
01:16:31,280 --> 01:16:31,960
Speaker 3: Let's leave it there.

1289
01:16:32,120 --> 01:16:34,920
Speaker 2: This has been another episode of the au Thloughts podcast.

1290
01:16:35,040 --> 01:16:38,400
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.

1291
01:16:38,160 --> 01:16:40,519
Speaker 3: And I'm Jill wysenth Thal. You can follow me at

1292
01:16:40,520 --> 01:16:44,360
Speaker 3: the Stalwart. Follow our guest Zishan Wong. He's at Zishan

1293
01:16:44,439 --> 01:16:49,160
Speaker 3: Wong here. Also check out his excellent pechnology substack. Follow

1294
01:16:49,160 --> 01:16:52,519
Speaker 3: our producer Kerman Rodriguez at Carman Ermann dash Ol Bennett

1295
01:16:52,560 --> 01:16:55,360
Speaker 3: at Dashbot and kel Brooks at kel Brooks. Thank you

1296
01:16:55,439 --> 01:16:58,439
Speaker 3: to our producer Moses Onam. More odd laws content, go

1297
01:16:58,479 --> 01:17:01,200
Speaker 3: to bloomberg dot com slash lots, where you have transcripts,

1298
01:17:01,240 --> 01:17:04,240
Speaker 3: a blog and a newsletter and you can chat about

1299
01:17:04,280 --> 01:17:06,439
Speaker 3: all of these topics twenty four to seven in our

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