1 00:00:07,220 --> 00:00:10,840 Speaker 1: Welcome to Kobe Time, a podcast series on Markets and 2 00:00:10,840 --> 00:00:14,470 Speaker 1: Economies from DBS Group Research. I'm Time Ruby, chief economist, 3 00:00:14,480 --> 00:00:18,349 Speaker 1: welcoming you to our 93rd episode which will be devoted 4 00:00:18,350 --> 00:00:19,369 Speaker 1: to China. 5 00:00:20,090 --> 00:00:25,210 Speaker 1: China had a torrent 2022 struggling to manage the pandemic, 6 00:00:25,220 --> 00:00:28,750 Speaker 1: dealing with distress in the property and tech sectors, facing 7 00:00:28,750 --> 00:00:31,610 Speaker 1: pushback from the U S and its allies on technology 8 00:00:31,610 --> 00:00:37,290 Speaker 1: and market access, etcetera. 2023 is off to a promising start. 9 00:00:37,300 --> 00:00:40,489 Speaker 1: But could this be a false done? Well, let's get 10 00:00:40,490 --> 00:00:44,010 Speaker 1: some expert views. Today's guest is a long standing supporter 11 00:00:44,010 --> 00:00:46,540 Speaker 1: of Kobe Time, Bert Hoffman. Bert 12 00:00:46,620 --> 00:00:50,010 Speaker 1: is the Director of the East Asian Studies Institute at 13 00:00:50,010 --> 00:00:53,390 Speaker 1: National University of Singapore and professor in practice at the 14 00:00:53,390 --> 00:00:57,060 Speaker 1: Lee Kuan Yew School. Before joining us, he worked at 15 00:00:57,060 --> 00:01:00,060 Speaker 1: the World Bank for 27 years, 22 of which were 16 00:01:00,060 --> 00:01:02,840 Speaker 1: in Asia and a dozen of those were in China 17 00:01:02,840 --> 00:01:05,510 Speaker 1: where he was country director for the World Bank from 18 00:01:05,510 --> 00:01:10,450 Speaker 1: 2014 to 2019, Bert Hoffman. Warm welcome back to Capitan. 19 00:01:10,450 --> 00:01:13,140 Speaker 1: You're our first three peat guest. 20 00:01:13,690 --> 00:01:15,290 Speaker 2: Great to be back. Time War. 21 00:01:15,300 --> 00:01:17,600 Speaker 1: It's great to have you a lot to talk about 22 00:01:17,610 --> 00:01:21,899 Speaker 1: but start with perhaps the pandemic bird. Let's begin by 23 00:01:21,910 --> 00:01:24,720 Speaker 1: taking stock of this remarkable turnaround that we have seen 24 00:01:24,720 --> 00:01:25,869 Speaker 1: in the last few months. 25 00:01:26,580 --> 00:01:30,470 Speaker 2: Yeah. Well, the, we're almost done with the turnaround. It 26 00:01:30,470 --> 00:01:33,300 Speaker 2: almost looks as if the numbers are showing that the 27 00:01:33,300 --> 00:01:35,850 Speaker 2: rural areas are a bit different than the less monitored 28 00:01:35,850 --> 00:01:39,920 Speaker 2: than the urban areas. But there's been this tremendous wave 29 00:01:39,930 --> 00:01:41,990 Speaker 2: starting sort of mid December 30 00:01:42,510 --> 00:01:46,270 Speaker 2: by early January, it was already starting to peter out. 31 00:01:46,270 --> 00:01:49,360 Speaker 2: And now over the Chinese New Year, we see a 32 00:01:49,360 --> 00:01:52,890 Speaker 2: further decline in at least the infections as far as 33 00:01:52,890 --> 00:01:55,840 Speaker 2: we know what the data are far less strong than 34 00:01:55,840 --> 00:02:01,700 Speaker 2: before because there's practically no more testing, but the government 35 00:02:01,710 --> 00:02:06,040 Speaker 2: has incidentally reported on the infection rate and that now 36 00:02:06,040 --> 00:02:10,970 Speaker 2: seems to come down quite dramatically. So, um 37 00:02:11,169 --> 00:02:13,579 Speaker 2: I mean, just three months ago, we were thinking this 38 00:02:13,580 --> 00:02:18,040 Speaker 2: was impossible and now we're almost through with the omicron wave. 39 00:02:18,050 --> 00:02:21,440 Speaker 2: Of course, there's been lots of suffering. There's been many 40 00:02:21,450 --> 00:02:25,660 Speaker 2: people that because they were not vaccinated enough or simply 41 00:02:25,660 --> 00:02:31,270 Speaker 2: because they were old that died because of Macron. But 42 00:02:31,270 --> 00:02:34,680 Speaker 2: it seems to be that from now on, at least 43 00:02:34,680 --> 00:02:38,680 Speaker 2: the economic recovery can really take, take hold. 44 00:02:39,520 --> 00:02:43,540 Speaker 1: But, but what does it say about pandemic management? I mean, 45 00:02:43,540 --> 00:02:48,570 Speaker 1: now we're the third year of this pandemic and in 46 00:02:48,570 --> 00:02:51,450 Speaker 1: the rest of the world, the M RNA vaccines played 47 00:02:51,450 --> 00:02:56,160 Speaker 1: a very large role in that pandemic management process in 48 00:02:56,160 --> 00:02:58,970 Speaker 1: the case. Of China. That wasn't the case. Does it 49 00:02:58,970 --> 00:03:00,850 Speaker 1: mean that whether you have the right vaccine or the 50 00:03:00,850 --> 00:03:03,440 Speaker 1: wrong vaccine or rather the more effective vaccine and not 51 00:03:03,440 --> 00:03:07,030 Speaker 1: so effective vaccine, you sort of go through the same narrative. 52 00:03:07,930 --> 00:03:13,079 Speaker 2: Well, I think what happened in China would have in part, 53 00:03:13,080 --> 00:03:17,370 Speaker 2: be avoidable first, I don't think that the local vaccines 54 00:03:17,370 --> 00:03:21,390 Speaker 2: are that much less effective. It just takes three shots 55 00:03:21,389 --> 00:03:27,269 Speaker 2: of them. Uh China did a lot of vaccination in 2021, 56 00:03:27,280 --> 00:03:29,730 Speaker 2: but then it sort of petered out in part because 57 00:03:29,730 --> 00:03:34,490 Speaker 2: they were so successful and they made a tactical mistake 58 00:03:34,490 --> 00:03:35,500 Speaker 2: in the beginning 59 00:03:35,680 --> 00:03:37,730 Speaker 2: to say what the vaccines are ready for the working 60 00:03:37,730 --> 00:03:39,760 Speaker 2: people because they go out and about and they need 61 00:03:39,760 --> 00:03:43,480 Speaker 2: to be protected. The elderly therefore, had the impression that 62 00:03:43,480 --> 00:03:46,309 Speaker 2: maybe this was not such a great idea for them. 63 00:03:46,310 --> 00:03:49,670 Speaker 2: And of course, elderly are also more vulnerable to any 64 00:03:49,680 --> 00:03:55,430 Speaker 2: side effects of vaccination. But the vaccine themselves are pretty effective, 65 00:03:55,430 --> 00:03:57,870 Speaker 2: not as effective as the M R N A s but, 66 00:03:57,880 --> 00:04:02,720 Speaker 2: but pretty high effectiveness after three vaccines. The problem is 67 00:04:02,720 --> 00:04:05,010 Speaker 2: that a lot of people got their third vaccine 68 00:04:05,300 --> 00:04:08,520 Speaker 2: the third shot already quite a while ago. So maybe 69 00:04:08,520 --> 00:04:13,520 Speaker 2: they were not under, under the most recent wave. At 70 00:04:13,520 --> 00:04:17,830 Speaker 2: the same time, Macron is far lighter. Uh the impact 71 00:04:17,830 --> 00:04:20,830 Speaker 2: of O Macron, even if you're not vaccinated is far 72 00:04:20,830 --> 00:04:25,909 Speaker 2: milder than say the delta, the delta variant, which caused 73 00:04:25,910 --> 00:04:28,820 Speaker 2: a lot of deaths in the United States and in Europe. 74 00:04:28,830 --> 00:04:29,719 Speaker 2: So 75 00:04:30,130 --> 00:04:33,940 Speaker 2: um in that sense, it did, it did pay for 76 00:04:33,940 --> 00:04:39,979 Speaker 2: China to wait. But of course, it came at considerable cost. 77 00:04:39,980 --> 00:04:41,349 Speaker 2: And I think that in the end was a big 78 00:04:41,350 --> 00:04:45,020 Speaker 2: factor for China to move out of COVID, 0 to 79 00:04:45,020 --> 00:04:50,000 Speaker 2: 0 COVID policy relatively quickly. I mean, I would say 80 00:04:50,000 --> 00:04:50,919 Speaker 2: too quickly 81 00:04:51,260 --> 00:04:56,130 Speaker 2: uh in, in November, December last year and the other 82 00:04:56,130 --> 00:05:01,210 Speaker 2: part of, of uh of the exit was of course 83 00:05:01,210 --> 00:05:04,690 Speaker 2: the demonstrations that took place. I mean, the people were 84 00:05:04,690 --> 00:05:09,000 Speaker 2: basically fed up. That was in early November, that was 85 00:05:09,000 --> 00:05:12,200 Speaker 2: after the Party Congress. There was an announcement, ok. We're 86 00:05:12,200 --> 00:05:15,929 Speaker 2: going to do the 20 point program and that basically 87 00:05:15,930 --> 00:05:19,940 Speaker 2: was a gradual exit from zero co of it. 88 00:05:20,400 --> 00:05:24,669 Speaker 2: But the effect was that infections showed up and local 89 00:05:24,670 --> 00:05:28,610 Speaker 2: governments still clamped down by means of lockdowns and that 90 00:05:28,620 --> 00:05:32,130 Speaker 2: triggered then the protests, I think by then already the 91 00:05:32,130 --> 00:05:38,440 Speaker 2: infections rates were so high that frankly, it was almost unstoppable. Again. 92 00:05:38,450 --> 00:05:42,320 Speaker 2: I think a more phased exit would have been desirable. 93 00:05:42,820 --> 00:05:47,719 Speaker 2: But as uh the great Donald Rumsfeld said it is 94 00:05:47,720 --> 00:05:49,550 Speaker 2: what it is. And now we are looking at a 95 00:05:49,550 --> 00:05:55,150 Speaker 2: recovery to uh to this, to this uh three years 96 00:05:55,150 --> 00:06:00,220 Speaker 2: really off COVID management that did have some that have results. 97 00:06:00,220 --> 00:06:01,570 Speaker 2: There's no question about it, 98 00:06:02,210 --> 00:06:05,690 Speaker 2: but China is now behind everybody else in, in the, 99 00:06:05,690 --> 00:06:08,669 Speaker 2: in the recovery phase. Mind you none of the countries 100 00:06:08,680 --> 00:06:13,150 Speaker 2: except maybe where I live, Singapore did it very well. 101 00:06:13,150 --> 00:06:16,440 Speaker 2: That exit Singapore went very carefully, very sort of two 102 00:06:16,440 --> 00:06:19,789 Speaker 2: steps forward, one step back in the exit took in 103 00:06:19,790 --> 00:06:23,400 Speaker 2: total about nine months to exit, to exit the zero 104 00:06:23,400 --> 00:06:26,070 Speaker 2: COVID or not the zero COVID, but a very strict 105 00:06:26,070 --> 00:06:28,549 Speaker 2: COVID management that, that Singapore had. 106 00:06:29,210 --> 00:06:32,000 Speaker 2: And I think that was a very good way to 107 00:06:32,000 --> 00:06:34,930 Speaker 2: go about. But nevertheless, they also experienced a wave. They 108 00:06:34,930 --> 00:06:39,650 Speaker 2: also experienced more, more death in the in the exit 109 00:06:39,650 --> 00:06:43,730 Speaker 2: of the, of the COVID management. So it was almost unavoidable. 110 00:06:43,740 --> 00:06:46,110 Speaker 2: I'm not even speaking about other countries in Europe or 111 00:06:46,110 --> 00:06:49,640 Speaker 2: the United States, the United States never exited because they 112 00:06:49,640 --> 00:06:55,890 Speaker 2: never really entered a COVID serious COVID management effort except 113 00:06:55,890 --> 00:06:57,049 Speaker 2: for the vaccines. 114 00:06:58,040 --> 00:06:58,240 Speaker 2: I 115 00:06:58,240 --> 00:07:00,739 Speaker 1: want to talk about the vaccine for just one more moment. 116 00:07:00,750 --> 00:07:03,190 Speaker 1: But if I may, I saw a recent article by 117 00:07:03,190 --> 00:07:08,020 Speaker 1: Joe Stiglitz where he basically accused Western Pharma companies of 118 00:07:08,029 --> 00:07:11,920 Speaker 1: hoarding the formula behind the M R N A vaccine. 119 00:07:11,920 --> 00:07:14,200 Speaker 1: And his point was this should be a global public good. 120 00:07:14,210 --> 00:07:16,400 Speaker 1: And if a company in China just wants to copy 121 00:07:16,400 --> 00:07:17,350 Speaker 1: it and sell it, 122 00:07:17,490 --> 00:07:19,720 Speaker 1: uh so be it because it is an issue of 123 00:07:19,730 --> 00:07:23,490 Speaker 1: global public health. Um would an approach like that, let's 124 00:07:23,490 --> 00:07:26,920 Speaker 1: say a year ago, would it have made a difference? 125 00:07:26,920 --> 00:07:29,650 Speaker 1: Because it seems to me a year ago, the narrative 126 00:07:29,650 --> 00:07:32,440 Speaker 1: out of China was M RNA is a Western vaccine 127 00:07:32,450 --> 00:07:34,750 Speaker 1: and that I think was very unfortunate. It should have 128 00:07:34,750 --> 00:07:36,600 Speaker 1: been something seen as a global good. 129 00:07:37,620 --> 00:07:40,350 Speaker 2: Yeah, look, frankly, I, I don't think the price was 130 00:07:40,350 --> 00:07:44,560 Speaker 2: an impediment for China. They could have afforded it. Um, 131 00:07:44,570 --> 00:07:47,580 Speaker 2: they chose not to and they chose to pursue their 132 00:07:47,580 --> 00:07:50,130 Speaker 2: own research in a local 133 00:07:50,350 --> 00:07:52,660 Speaker 2: M RNA. I mean, the irony is that they were 134 00:07:52,660 --> 00:07:56,440 Speaker 2: ready to produce it in, in, in China, the fighter, 135 00:07:56,450 --> 00:08:00,560 Speaker 2: the fighter biontech M RNA, they were ready to actually 136 00:08:00,560 --> 00:08:03,570 Speaker 2: produce it in on a major scale but that they 137 00:08:03,580 --> 00:08:06,520 Speaker 2: backed away from that. So I don't think price was 138 00:08:06,520 --> 00:08:09,960 Speaker 2: an issue. It was in some, in some developing countries, 139 00:08:09,960 --> 00:08:10,800 Speaker 2: it was an issue. 140 00:08:11,400 --> 00:08:16,300 Speaker 2: And I think that whole system of incentives for innovation 141 00:08:16,300 --> 00:08:21,310 Speaker 2: would for global public goods can be reconsidered. And if 142 00:08:21,310 --> 00:08:27,220 Speaker 2: you want indeed go back 20 years. Uh it was 143 00:08:27,230 --> 00:08:30,830 Speaker 2: governments around the world that invested in the research that 144 00:08:30,830 --> 00:08:34,360 Speaker 2: made the M RNA vaccine possible, but it was also 145 00:08:34,360 --> 00:08:38,660 Speaker 2: companies that invested for 10 years, say to commercialize 146 00:08:39,260 --> 00:08:43,310 Speaker 2: the platform that made it in the end possible to, 147 00:08:43,320 --> 00:08:47,069 Speaker 2: to produce, to produce the vaccine itself and to respond 148 00:08:47,070 --> 00:08:52,120 Speaker 2: very quickly to the COVID 19, to the COVID 19 epidemic. 149 00:08:52,120 --> 00:08:55,120 Speaker 2: So I think 11 150 00:08:57,500 --> 00:09:00,990 Speaker 2: you know, it's amidst a pandemic, you always say, well, 151 00:09:00,990 --> 00:09:04,510 Speaker 2: they should give it away. But then the question is 152 00:09:04,510 --> 00:09:07,250 Speaker 2: also what's the impact on the next pandemic and the 153 00:09:07,250 --> 00:09:10,780 Speaker 2: incentives to, to do R N A? If it isn't 154 00:09:10,780 --> 00:09:15,439 Speaker 2: it purely government financed R and D that leads to 155 00:09:15,970 --> 00:09:19,569 Speaker 2: uh an outcome one can consider to say, okay, maybe 156 00:09:19,570 --> 00:09:20,620 Speaker 2: one should give it away. 157 00:09:22,630 --> 00:09:27,790 Speaker 1: Right. Um I think uh there are, you know, in, 158 00:09:27,800 --> 00:09:29,710 Speaker 1: in the middle of a big global crisis, I think 159 00:09:29,710 --> 00:09:32,150 Speaker 1: there's always a tendency to, you know, forget about long 160 00:09:32,150 --> 00:09:34,660 Speaker 1: term incentives, just get it done, get us out of 161 00:09:34,660 --> 00:09:36,750 Speaker 1: the crisis and then we'll see. But you're right. 162 00:09:36,920 --> 00:09:41,190 Speaker 1: Uh companies like Biontech and Moderna spent a decade or 163 00:09:41,190 --> 00:09:45,980 Speaker 1: more uh investing in the whole M RNA technology infrastructure 164 00:09:45,980 --> 00:09:49,620 Speaker 1: before you know, the timing came to be, you know, 165 00:09:49,630 --> 00:09:51,670 Speaker 1: sort of, you know, right for them to be very, 166 00:09:51,670 --> 00:09:54,410 Speaker 1: very effective around the world. I'm pretty sure that the 167 00:09:54,410 --> 00:09:57,699 Speaker 1: Chinese foreign companies will also get certain strategic investments from 168 00:09:57,700 --> 00:10:01,760 Speaker 1: the government of China preparation for the next rainy day. 169 00:10:01,770 --> 00:10:05,060 Speaker 1: Um but Macro China, 170 00:10:05,420 --> 00:10:10,359 Speaker 1: particularly the economic environment, so we in the last say, 171 00:10:10,360 --> 00:10:14,199 Speaker 1: 23 months have begun to pick up a pro growth 172 00:10:14,200 --> 00:10:18,230 Speaker 1: shift in economic policy. Uh Would you like to sort of, 173 00:10:18,230 --> 00:10:20,680 Speaker 1: you know, express your take on what's been going on 174 00:10:20,679 --> 00:10:21,559 Speaker 1: on the economic front? 175 00:10:22,320 --> 00:10:26,650 Speaker 2: Well, so the numbers may not show that much yet, 176 00:10:26,650 --> 00:10:29,470 Speaker 2: but if you want the tone has clearly changed and 177 00:10:29,470 --> 00:10:34,570 Speaker 2: that is, I think the watershed was the the 20th 178 00:10:34,570 --> 00:10:39,190 Speaker 2: Party Congress which took place in October and after that, 179 00:10:39,200 --> 00:10:42,360 Speaker 2: some major speeches, but then particularly the central economic work 180 00:10:42,360 --> 00:10:45,450 Speaker 2: conference reflects a far more, 181 00:10:45,880 --> 00:10:49,720 Speaker 2: not just pro growth stance, but also far more friendlier 182 00:10:49,720 --> 00:10:54,239 Speaker 2: stance towards the private sector are friendlier stance even towards 183 00:10:54,240 --> 00:10:59,450 Speaker 2: the previously maligned platform companies. So I think there has 184 00:10:59,450 --> 00:11:04,900 Speaker 2: been some realization that some of the previous policy directions 185 00:11:05,120 --> 00:11:07,800 Speaker 2: Would not bring China where it wants to be. I 186 00:11:07,809 --> 00:11:13,350 Speaker 2: continue to grow were relatively high with I mean the 187 00:11:13,360 --> 00:11:16,250 Speaker 2: informal target for the next 15 years is 188 00:11:16,610 --> 00:11:21,800 Speaker 2: this 4.75% that rolls out if you take Xi Jinping's 189 00:11:21,800 --> 00:11:26,210 Speaker 2: doubling of 2020 G D P by 2035. If you 190 00:11:26,210 --> 00:11:29,120 Speaker 2: take that series, you would need a growth rate of 191 00:11:29,130 --> 00:11:32,839 Speaker 2: 4.75 and you would probably need a higher growth within 192 00:11:32,840 --> 00:11:36,520 Speaker 2: the early years given that there are factors such as demographics, 193 00:11:36,520 --> 00:11:39,690 Speaker 2: such as other other factors that would sort of bring 194 00:11:39,690 --> 00:11:43,309 Speaker 2: in the later years, bring a lower growth rate. So 195 00:11:43,500 --> 00:11:48,880 Speaker 2: Um and and the previous policy stands with big emphasis 196 00:11:48,880 --> 00:11:52,800 Speaker 2: on controlling capital, I mean the in the 2021. So 197 00:11:52,800 --> 00:11:56,230 Speaker 2: not the latest, but the 2021 Central Economic Work Conference 198 00:11:56,230 --> 00:12:02,260 Speaker 2: that was controlling of the wild expansion of capital by 199 00:12:02,260 --> 00:12:06,180 Speaker 2: means of a traffic light system. So that all sounded quite, 200 00:12:06,190 --> 00:12:10,069 Speaker 2: quite scary. Now, the tone is different 201 00:12:10,300 --> 00:12:14,600 Speaker 2: and some of the actions are quietly frankly different. Uh 202 00:12:14,610 --> 00:12:20,900 Speaker 2: policymakers have said look, the rectification of the platform companies 203 00:12:20,900 --> 00:12:23,580 Speaker 2: is now over doesn't mean it's not gonna be any regulation, 204 00:12:23,580 --> 00:12:26,370 Speaker 2: but it's going to be a normal in a more 205 00:12:26,370 --> 00:12:31,719 Speaker 2: normal regulatory process. So it's not catching up on previously 206 00:12:31,720 --> 00:12:37,540 Speaker 2: lacking regulation. D D do Jin was allowed to 207 00:12:37,809 --> 00:12:41,560 Speaker 2: take on new users on their platform for two more 208 00:12:41,559 --> 00:12:44,199 Speaker 2: than two years, they couldn't do that. So there's some, 209 00:12:44,200 --> 00:12:47,850 Speaker 2: some positive signals there that, that, that promised a bit 210 00:12:47,850 --> 00:12:51,030 Speaker 2: more in the, in the, in the, in the coming 211 00:12:51,030 --> 00:12:52,140 Speaker 2: in the coming years. 212 00:12:52,710 --> 00:12:56,970 Speaker 2: Uh You know, I'm careful there because tone does not 213 00:12:56,970 --> 00:12:59,640 Speaker 2: yet mean real policies. And I think it will take 214 00:12:59,640 --> 00:13:03,250 Speaker 2: some time to see what is true, whether there is 215 00:13:03,250 --> 00:13:06,360 Speaker 2: truly a new direction under the new team that Xi 216 00:13:06,360 --> 00:13:09,960 Speaker 2: Jinping pass put in place and the transition will be 217 00:13:09,960 --> 00:13:14,010 Speaker 2: completed by March. And then we will probably see some 218 00:13:14,020 --> 00:13:17,480 Speaker 2: some more evidence of a change in direction 219 00:13:17,940 --> 00:13:22,900 Speaker 2: at say the third planet which is traditionally about economic policy. 220 00:13:22,900 --> 00:13:26,050 Speaker 2: So that would be somewhere in the fall. Um So 221 00:13:26,050 --> 00:13:28,469 Speaker 2: I'm a bit careful. I think a lot of investors 222 00:13:28,470 --> 00:13:30,560 Speaker 2: are still a bit careful and, and that of course, 223 00:13:30,559 --> 00:13:34,050 Speaker 2: brings you to this year's growth picture where 224 00:13:35,140 --> 00:13:39,020 Speaker 2: a lot of people expect this the big rebound in consumption, 225 00:13:39,020 --> 00:13:44,579 Speaker 2: the revenge consumption coming after COVID, I'd be I'd be 226 00:13:44,590 --> 00:13:46,979 Speaker 2: a little bit modest in my expectations. Yes, there will 227 00:13:46,980 --> 00:13:49,800 Speaker 2: be a bump in, in, in consumption, but there's still 228 00:13:49,800 --> 00:13:53,429 Speaker 2: lots of uncertainties out there. So the savings rate of 229 00:13:53,429 --> 00:13:59,679 Speaker 2: household may remain quite big. Second, uh The part of 230 00:13:59,679 --> 00:14:02,550 Speaker 2: the reason why the household saves so much is indeed 231 00:14:02,550 --> 00:14:04,920 Speaker 2: as you mentioned, the property sector. 232 00:14:05,130 --> 00:14:09,370 Speaker 2: So they couldn't invest in their traditional and favorite investment 233 00:14:09,370 --> 00:14:11,000 Speaker 2: I E apartments. 234 00:14:11,610 --> 00:14:16,890 Speaker 2: Uh that by itself was not a great idea anymore, 235 00:14:16,900 --> 00:14:22,560 Speaker 2: but there's very few alternative investment vehicles for, for China, 236 00:14:22,570 --> 00:14:25,590 Speaker 2: maybe stocks will get a bit more of a booster. 237 00:14:25,600 --> 00:14:28,580 Speaker 2: And yes, they will allocate a bit more in if 238 00:14:28,580 --> 00:14:32,070 Speaker 2: you want durable, durable goods such as cars and otherwise. 239 00:14:32,080 --> 00:14:34,980 Speaker 2: But whether that is going to be a major driver 240 00:14:34,980 --> 00:14:36,380 Speaker 2: of draws, after all, 241 00:14:36,800 --> 00:14:40,780 Speaker 2: Household consumption is only 38% of GDP by now. It's going, 242 00:14:40,780 --> 00:14:43,540 Speaker 2: it has come down again from almost 40 a couple 243 00:14:43,540 --> 00:14:46,730 Speaker 2: of years back. And, and so you still need that 244 00:14:46,730 --> 00:14:48,320 Speaker 2: investment component 245 00:14:48,860 --> 00:14:53,430 Speaker 2: to drive growth externally. It doesn't look very good. I 246 00:14:53,440 --> 00:14:57,630 Speaker 2: may not be as pessimistic as as some including the 247 00:14:57,630 --> 00:15:00,540 Speaker 2: I M F. Some see that some say that you know, 248 00:15:00,540 --> 00:15:03,250 Speaker 2: the Europe and the U S for sure are going 249 00:15:03,250 --> 00:15:05,450 Speaker 2: to be in a recession. I frankly, 250 00:15:05,960 --> 00:15:08,310 Speaker 2: I'm not so sure if I look at the numbers, 251 00:15:08,310 --> 00:15:12,910 Speaker 2: but I'm not the expert there, irrespective external demand is 252 00:15:12,910 --> 00:15:15,010 Speaker 2: not going to drive China's growth. I think we can 253 00:15:15,010 --> 00:15:18,140 Speaker 2: agree on that. So that investment growth is still very, 254 00:15:18,140 --> 00:15:22,490 Speaker 2: very important. Overall investment is still more than 40% of GDP. 255 00:15:23,180 --> 00:15:25,880 Speaker 2: Another question is okay. So, so, so part of that 256 00:15:25,880 --> 00:15:30,740 Speaker 2: of course, is is government investment, especially government investment in infrastructure. 257 00:15:31,290 --> 00:15:35,350 Speaker 2: Well, uh the ones that need to do that is 258 00:15:35,350 --> 00:15:39,700 Speaker 2: local governments and then by now pretty tight, they don't 259 00:15:39,700 --> 00:15:42,670 Speaker 2: have enough revenues and they have loaded up quite a 260 00:15:42,670 --> 00:15:46,910 Speaker 2: bit of formal debt on the books and informal debt 261 00:15:46,920 --> 00:15:52,620 Speaker 2: through the local government financing vehicles that are enjoying a 262 00:15:52,620 --> 00:15:55,490 Speaker 2: second leash of life. They were supposed to have been 263 00:15:55,490 --> 00:15:59,320 Speaker 2: phased out after 2015, but they're sort of back and 264 00:15:59,330 --> 00:16:00,270 Speaker 2: thriving and 265 00:16:00,670 --> 00:16:05,190 Speaker 2: yes, it's not formal government debt, but nevertheless, local governments 266 00:16:05,190 --> 00:16:08,040 Speaker 2: are probably going to be held responsible for it. So 267 00:16:08,050 --> 00:16:11,880 Speaker 2: maybe not as much as before, maybe not as much 268 00:16:11,890 --> 00:16:16,620 Speaker 2: impetus will come from infrastructure property. We've talked about maybe 269 00:16:16,620 --> 00:16:20,800 Speaker 2: not as much impetus from property simply because the mass 270 00:16:20,800 --> 00:16:24,250 Speaker 2: in the property sector still needs to be sorted out. 271 00:16:24,260 --> 00:16:25,440 Speaker 2: And if I had 272 00:16:25,950 --> 00:16:29,430 Speaker 2: A couple of $100,000 in China, I'm not sure whether 273 00:16:29,440 --> 00:16:33,210 Speaker 2: this year would be the moment to buy an apartment 274 00:16:33,210 --> 00:16:36,250 Speaker 2: that would be delivered to three years from now with 275 00:16:36,250 --> 00:16:38,810 Speaker 2: a company that I'm not sure whether it will be 276 00:16:38,810 --> 00:16:41,650 Speaker 2: around 23 years from now. So I think there's still 277 00:16:41,650 --> 00:16:44,700 Speaker 2: a lot of uncertainty there. It will probably stabilize at 278 00:16:44,700 --> 00:16:46,590 Speaker 2: a much lower level 279 00:16:47,330 --> 00:16:49,990 Speaker 2: but it won't be a major driver at all. So 280 00:16:49,990 --> 00:16:50,660 Speaker 2: that then 281 00:16:51,470 --> 00:16:55,320 Speaker 2: The remaining part is business investment, both public and private. 282 00:16:55,330 --> 00:16:59,800 Speaker 2: It's a surprisingly low share of GDP by now. Government 283 00:16:59,800 --> 00:17:03,810 Speaker 2: has stopped publishing the numbers unfortunately. So we can't really 284 00:17:03,810 --> 00:17:06,540 Speaker 2: determine it. But some of the estimates that we have 285 00:17:06,550 --> 00:17:11,610 Speaker 2: uh shows that it's only 12-14% of GDP is business investment. 286 00:17:11,609 --> 00:17:14,109 Speaker 2: So it's less than a third of total investment, 287 00:17:15,700 --> 00:17:19,580 Speaker 2: but they're somewhat more optimism coming from the more positive 288 00:17:19,580 --> 00:17:23,650 Speaker 2: tone that the central economic work conference and other major 289 00:17:23,650 --> 00:17:27,070 Speaker 2: policy actions provide for 290 00:17:27,760 --> 00:17:31,820 Speaker 2: Investors in, in public and private businesses that might give 291 00:17:31,820 --> 00:17:34,260 Speaker 2: a bit of a boost. But overall, the picture is 292 00:17:34,260 --> 00:17:36,689 Speaker 2: not that this is going to be a massive rebound 293 00:17:36,690 --> 00:17:39,940 Speaker 2: and we're gonna be in, up in the, in, in, 294 00:17:39,950 --> 00:17:43,850 Speaker 2: in the 7, 8% rate. It sounds we don't do 295 00:17:43,850 --> 00:17:48,380 Speaker 2: any formal projections, but 5-6, it's probably a good sort 296 00:17:48,380 --> 00:17:51,940 Speaker 2: of a good number to focus the mind on. 297 00:17:52,359 --> 00:17:56,139 Speaker 1: Right. I think bird even 5-6 would be pretty good 298 00:17:56,140 --> 00:17:59,510 Speaker 1: for the world even if one doesn't entertain outright recession 299 00:17:59,510 --> 00:18:02,580 Speaker 1: in Europe and the us, it is a slower outlook 300 00:18:02,590 --> 00:18:05,370 Speaker 1: and a rebound from China. You know, I'll take that 301 00:18:05,369 --> 00:18:11,330 Speaker 1: balancing outcome at least for 2023. You were describing the 302 00:18:11,330 --> 00:18:13,060 Speaker 1: property market and you talk about a big mess. So 303 00:18:13,060 --> 00:18:13,379 Speaker 1: I want to 304 00:18:13,390 --> 00:18:15,699 Speaker 1: get a little deeper into the big mess of the 305 00:18:15,700 --> 00:18:18,980 Speaker 1: property sector in terms of reform. So we have the 306 00:18:18,980 --> 00:18:21,840 Speaker 1: three red lines a couple of years ago. It seems 307 00:18:21,840 --> 00:18:25,200 Speaker 1: like right now there's a bit of a step back 308 00:18:25,210 --> 00:18:29,450 Speaker 1: from the three red lines direction of reforms because it 309 00:18:29,450 --> 00:18:31,379 Speaker 1: is a big mess and it has to be sorted out. 310 00:18:31,380 --> 00:18:33,590 Speaker 1: Otherwise it'll just become a big albatross around the neck 311 00:18:33,590 --> 00:18:34,410 Speaker 1: of the economy. 312 00:18:35,800 --> 00:18:40,330 Speaker 2: So it's it's it's a very complicated, I mean, that's 313 00:18:40,330 --> 00:18:45,700 Speaker 2: the property sector proper, sorry for the double proper. But 314 00:18:45,700 --> 00:18:48,100 Speaker 2: then there is the broader setting in which that property 315 00:18:48,100 --> 00:18:52,100 Speaker 2: sector has, has become such an important part of the economy. 316 00:18:52,109 --> 00:18:54,920 Speaker 2: And I think that is important as well. And that's 317 00:18:54,920 --> 00:18:58,480 Speaker 2: really linked to local government, to revenues of local government, 318 00:18:58,480 --> 00:18:58,950 Speaker 2: to 319 00:18:59,869 --> 00:19:04,580 Speaker 2: The intergovernmental fiscal system that really now needs reforms. I mean, 320 00:19:04,580 --> 00:19:07,500 Speaker 2: it's been almost 30 years that there was a serious 321 00:19:07,500 --> 00:19:15,219 Speaker 2: reform of of that fiscal sector. I think China is 322 00:19:15,220 --> 00:19:17,570 Speaker 2: ready for another wave of reforms there 323 00:19:18,210 --> 00:19:20,520 Speaker 2: on the property sector. So 324 00:19:21,340 --> 00:19:25,840 Speaker 2: yes, the government basically saved the number of companies that 325 00:19:25,840 --> 00:19:30,660 Speaker 2: got into trouble by very the three red line policy, 326 00:19:30,660 --> 00:19:35,199 Speaker 2: the very tight policy on leverage in property sector and 327 00:19:35,200 --> 00:19:40,780 Speaker 2: on indebtedness. But it caused part of the problem because 328 00:19:40,790 --> 00:19:41,940 Speaker 2: because 329 00:19:42,530 --> 00:19:46,700 Speaker 2: the property sector developing company developer companies were not able 330 00:19:46,700 --> 00:19:50,530 Speaker 2: to borrow as much as before they rely even more 331 00:19:50,530 --> 00:19:51,920 Speaker 2: on pre sales. 332 00:19:52,609 --> 00:19:57,310 Speaker 2: So pre sales became the vehicle by which they financed 333 00:19:57,310 --> 00:20:00,590 Speaker 2: the construction of companies of of of property. 334 00:20:02,170 --> 00:20:07,090 Speaker 2: Technically there is some sort of a guarantee on that, 335 00:20:07,100 --> 00:20:10,850 Speaker 2: but in reality, it doesn't really work. So you had 336 00:20:10,859 --> 00:20:16,300 Speaker 2: this no moment where property companies started to basically 337 00:20:16,980 --> 00:20:20,169 Speaker 2: default on their payments and they simply didn't have money 338 00:20:20,170 --> 00:20:26,550 Speaker 2: to finish their existing existing projects. That part, I think 339 00:20:26,550 --> 00:20:28,740 Speaker 2: the government has more or less fixed, 340 00:20:29,350 --> 00:20:32,910 Speaker 2: But it has not yet fixed is to think about. Well, 341 00:20:32,910 --> 00:20:36,210 Speaker 2: what kind of property sector do we want? And how 342 00:20:36,210 --> 00:20:39,150 Speaker 2: should that look? Like there's been some policy pronouncements on 343 00:20:39,150 --> 00:20:41,230 Speaker 2: that and I think they're going in the right direction. 344 00:20:41,230 --> 00:20:43,690 Speaker 2: I think everybody sort of agrees that it shouldn't go 345 00:20:43,690 --> 00:20:47,590 Speaker 2: back to the old days and the property sector shouldn't 346 00:20:47,590 --> 00:20:52,600 Speaker 2: be 18% of GDP, something even more, but we calculated 347 00:20:52,600 --> 00:20:55,540 Speaker 2: something in the order of 18% of GDP 348 00:20:55,800 --> 00:20:59,050 Speaker 2: it should probably be less and it should also be 349 00:20:59,050 --> 00:21:02,979 Speaker 2: a very different kinds of sector. So it shouldn't be 350 00:21:02,980 --> 00:21:07,270 Speaker 2: all the high end apartments that would be good for 351 00:21:07,280 --> 00:21:11,670 Speaker 2: the wealthier part of Chinese population. 352 00:21:12,290 --> 00:21:14,810 Speaker 2: But there should be a lot of the next wave. 353 00:21:14,810 --> 00:21:18,380 Speaker 2: If you want a big demand will be for rental housing, 354 00:21:18,380 --> 00:21:20,989 Speaker 2: it will be for low income housing. It will be 355 00:21:20,990 --> 00:21:23,820 Speaker 2: for the migrants who want to move out of their 356 00:21:23,820 --> 00:21:27,420 Speaker 2: dorms and want to start building their existence for their 357 00:21:27,420 --> 00:21:32,400 Speaker 2: families without having such high incomes as uh some of 358 00:21:32,400 --> 00:21:34,240 Speaker 2: these apartments are built for. 359 00:21:34,440 --> 00:21:38,060 Speaker 2: So that that is still a decent property sector and 360 00:21:38,060 --> 00:21:42,380 Speaker 2: demand is not is not gone. Also increasingly coming on, 361 00:21:42,380 --> 00:21:46,510 Speaker 2: the market is sort of replacement demand of a lot 362 00:21:46,510 --> 00:21:49,370 Speaker 2: of the apartments built in the 80s and the 90s. 363 00:21:49,369 --> 00:21:49,850 Speaker 2: And the 364 00:21:50,520 --> 00:21:53,830 Speaker 2: Even the 2000, you say, well, maybe people want to 365 00:21:53,830 --> 00:21:56,240 Speaker 2: live a little bigger but also the quality of the 366 00:21:56,250 --> 00:21:59,230 Speaker 2: buildings in those days was not that good. So that's 367 00:21:59,230 --> 00:22:02,480 Speaker 2: quite a bit of replacement demand coming, coming on stream 368 00:22:02,480 --> 00:22:06,610 Speaker 2: as well. But in terms of new demands, I believe 369 00:22:06,609 --> 00:22:09,630 Speaker 2: it's the migrants and the migrant workers that are in 370 00:22:09,630 --> 00:22:13,140 Speaker 2: the cities and that should, they don't have, but that 371 00:22:13,140 --> 00:22:14,280 Speaker 2: should be able to 372 00:22:14,619 --> 00:22:19,180 Speaker 2: Seattle have urban who co have access to financing for 373 00:22:19,180 --> 00:22:22,610 Speaker 2: their apartments. That would be the next wave of demand. 374 00:22:22,609 --> 00:22:24,429 Speaker 2: There will be a different kind of demand and it 375 00:22:24,430 --> 00:22:27,310 Speaker 2: will require different kinds of buildings. It would even require 376 00:22:27,310 --> 00:22:30,370 Speaker 2: different kinds of longer term finance. 377 00:22:31,270 --> 00:22:35,090 Speaker 2: Probably the banks may not even be the greatest vehicle 378 00:22:35,100 --> 00:22:38,109 Speaker 2: for that kind of find, especially not in social housing, 379 00:22:38,119 --> 00:22:42,090 Speaker 2: but there's other sources of finance including the National Social 380 00:22:42,090 --> 00:22:46,400 Speaker 2: Security Fund. It doesn't need massive returns, it doesn't need 381 00:22:46,400 --> 00:22:50,190 Speaker 2: to return and the positive one. But but in other countries, 382 00:22:50,190 --> 00:22:54,160 Speaker 2: that is often a source for social housing finance. So 383 00:22:54,170 --> 00:22:57,550 Speaker 2: so a lot of piece of the puzzle need to 384 00:22:57,550 --> 00:22:58,780 Speaker 2: come together then 385 00:22:59,090 --> 00:23:03,740 Speaker 2: if you no longer built, only for these high end 386 00:23:03,750 --> 00:23:08,560 Speaker 2: expensive apartments, local governments will get less for their land, 387 00:23:09,450 --> 00:23:12,510 Speaker 2: they probably shouldn't sell as much land as they did anyway. 388 00:23:13,480 --> 00:23:15,459 Speaker 2: But they do have a lot of burdens of social 389 00:23:15,460 --> 00:23:19,030 Speaker 2: services and and that burden will only increase as the 390 00:23:19,030 --> 00:23:23,770 Speaker 2: population ages and as new migrants come in. So they 391 00:23:23,770 --> 00:23:27,320 Speaker 2: need new sources of revenues and and again, so going 392 00:23:27,320 --> 00:23:33,330 Speaker 2: back to this property developer game promoted by local governments 393 00:23:33,330 --> 00:23:36,100 Speaker 2: that need the revenues to build the infrastructure and provide 394 00:23:36,100 --> 00:23:39,170 Speaker 2: the services. That would be, that would not be the 395 00:23:39,170 --> 00:23:41,640 Speaker 2: direction that that China should go. 396 00:23:42,440 --> 00:23:45,460 Speaker 1: Okay. So there is a lot of revenue need, there 397 00:23:45,460 --> 00:23:49,040 Speaker 1: is need for dealing with an aging population, dealing with 398 00:23:49,050 --> 00:23:52,760 Speaker 1: urban renewal, climate change and so on. Uh Burt where 399 00:23:52,760 --> 00:23:53,840 Speaker 1: will all this money come from? 400 00:23:54,859 --> 00:23:57,790 Speaker 2: Well, I have one simple solution that will probably not happen. 401 00:23:57,800 --> 00:24:00,890 Speaker 2: But the simple solution is that China is also the 402 00:24:00,900 --> 00:24:06,360 Speaker 2: largest carbon gas or greenhouse gas emitter in the world. 403 00:24:06,359 --> 00:24:13,119 Speaker 2: And they, there's about 12 gigatons, 14 Yucatan equivalent that 404 00:24:13,119 --> 00:24:16,689 Speaker 2: China miss every year. If you were to tax that, 405 00:24:18,030 --> 00:24:21,260 Speaker 2: if you were to tax it with an economically efficient 406 00:24:22,109 --> 00:24:25,500 Speaker 2: rates, which is about 75 to $80 a ton, 407 00:24:26,260 --> 00:24:28,420 Speaker 2: You'd raise 7% of GDP. 408 00:24:29,850 --> 00:24:32,239 Speaker 2: I don't expect that to happen. I don't expect that 409 00:24:32,240 --> 00:24:35,230 Speaker 2: to happen anytime soon, but China already has a carbon 410 00:24:35,230 --> 00:24:39,180 Speaker 2: tax and one that is pretty close to that 75, 411 00:24:39,190 --> 00:24:44,010 Speaker 2: they raise about 60-65 dollars on fuel. 412 00:24:44,600 --> 00:24:49,109 Speaker 2: So uh transport fuel. So cars when you go to, 413 00:24:49,119 --> 00:24:52,000 Speaker 2: when you go and fill up, you actually pay about 414 00:24:52,000 --> 00:24:58,690 Speaker 2: $60 a ton, implicitly a ton of uh CO2 emissions 415 00:24:58,700 --> 00:25:01,750 Speaker 2: through that tax on it. Well, that can be expanded 416 00:25:01,750 --> 00:25:05,140 Speaker 2: to industrial applications that can even be expanded to 417 00:25:05,580 --> 00:25:11,119 Speaker 2: uh energy uh and power production. Given that the current 418 00:25:11,130 --> 00:25:15,380 Speaker 2: system that has been introduced on an experimental basis. I 419 00:25:15,390 --> 00:25:20,230 Speaker 2: E the cap and trade frankly brings about such a 420 00:25:20,230 --> 00:25:23,649 Speaker 2: low price for carbon that is hardly worth, it's about 421 00:25:23,650 --> 00:25:26,730 Speaker 2: 6 to $7 on the on the market right now. 422 00:25:26,730 --> 00:25:30,300 Speaker 2: And it's very little trade. Um It seems that that 423 00:25:30,660 --> 00:25:34,260 Speaker 2: China is making the mistakes that Europe made 25 years ago. 424 00:25:34,270 --> 00:25:38,469 Speaker 2: So I don't see much of an incentive coming from 425 00:25:38,470 --> 00:25:38,960 Speaker 2: that 426 00:25:39,900 --> 00:25:42,919 Speaker 2: cap and trade market. Therefore, there is a lot of 427 00:25:42,920 --> 00:25:47,919 Speaker 2: scope for carbon pricing. The other one look, China, China 428 00:25:47,920 --> 00:25:50,770 Speaker 2: has said they want to do more common prosperity and 429 00:25:50,770 --> 00:25:55,730 Speaker 2: I also rich people would give more, give back more 430 00:25:55,730 --> 00:26:01,020 Speaker 2: to society. China for now seems to think that that 431 00:26:01,030 --> 00:26:05,060 Speaker 2: will be sort of donation based the tertiary distribution as 432 00:26:05,060 --> 00:26:06,020 Speaker 2: China calls it 433 00:26:06,240 --> 00:26:09,460 Speaker 2: met a more logical step is to simply tax richer 434 00:26:09,460 --> 00:26:13,950 Speaker 2: people more currently, that hardly happens. And there's a reason 435 00:26:13,950 --> 00:26:17,929 Speaker 2: because capital gains are not taxed in China, except on housing. 436 00:26:17,940 --> 00:26:23,720 Speaker 2: Interestingly enough, the various sources of income are taxed differently. 437 00:26:23,720 --> 00:26:27,520 Speaker 2: So it's a, it's a schedule er income tax and 438 00:26:27,520 --> 00:26:31,700 Speaker 2: then also the exemption of the income tax is very high. 439 00:26:31,910 --> 00:26:34,699 Speaker 2: So in China, you're exempt up to the level of 440 00:26:34,700 --> 00:26:38,800 Speaker 2: four times the average wage. Whereas if you look at 441 00:26:38,800 --> 00:26:41,350 Speaker 2: the O E C D countries, they, they give you 442 00:26:41,350 --> 00:26:46,310 Speaker 2: an exemption until about a quarter to half of the 443 00:26:46,310 --> 00:26:49,520 Speaker 2: average wage. So if you were to gradually put more 444 00:26:49,520 --> 00:26:53,100 Speaker 2: people into the personal income tax, by simply not by 445 00:26:53,100 --> 00:26:56,590 Speaker 2: simply not increasing that personal exemption, 446 00:26:57,140 --> 00:27:00,040 Speaker 2: you would gradually get more from the personal income tax. 447 00:27:00,050 --> 00:27:04,060 Speaker 2: Right now. China gets 1% of GDP out of the 448 00:27:04,060 --> 00:27:07,200 Speaker 2: personal income tax. The average O E C D country 449 00:27:07,200 --> 00:27:09,350 Speaker 2: gets 8% of GDP 450 00:27:09,940 --> 00:27:13,780 Speaker 2: out of the Breslin income tax. True. Xi Jinping says 451 00:27:13,780 --> 00:27:14,919 Speaker 2: we don't want to have a, 452 00:27:15,890 --> 00:27:18,700 Speaker 2: well, for a stage, we don't have a text and spent. 453 00:27:18,710 --> 00:27:21,169 Speaker 2: But if you look at Korea or Japan, that are 454 00:27:21,170 --> 00:27:22,810 Speaker 2: not necessarily 455 00:27:24,170 --> 00:27:29,470 Speaker 2: Nordic welfare states, there's still tax to about 4-5% of 456 00:27:29,480 --> 00:27:33,190 Speaker 2: GDP and personal income tax. It's simply a good tax. 457 00:27:33,190 --> 00:27:36,679 Speaker 2: China has a good tax and that's the value added tax, 458 00:27:36,680 --> 00:27:43,810 Speaker 2: very productive, very efficient. Unfortunately, it's also regressive because poorer people, 459 00:27:44,210 --> 00:27:48,850 Speaker 2: they spend more of their income on consumption than richer 460 00:27:48,850 --> 00:27:51,879 Speaker 2: people do. And therefore the tax burden coming from V 461 00:27:51,880 --> 00:27:56,730 Speaker 2: A T is simply higher on low income strata. So 462 00:27:56,740 --> 00:27:59,610 Speaker 2: China should keep the V A T but then compensate 463 00:27:59,609 --> 00:28:02,389 Speaker 2: for the distributional effects through the personal income tax. 464 00:28:04,130 --> 00:28:08,090 Speaker 1: The sort of, you know, messaging that we get from 465 00:28:08,090 --> 00:28:11,109 Speaker 1: the authorities with respect to fiscal reform, the things that 466 00:28:11,109 --> 00:28:14,110 Speaker 1: you just talked about. Okay, let's put the side, the 467 00:28:14,310 --> 00:28:17,750 Speaker 1: Idealized version of $75 a ton carbon tax on every 468 00:28:17,750 --> 00:28:20,870 Speaker 1: single source of emission. Clearly that's not gonna happen. But 469 00:28:20,869 --> 00:28:24,420 Speaker 1: in terms of corporate sector tax reform, personal tax reform 470 00:28:24,430 --> 00:28:27,619 Speaker 1: and sort of this view about the current taxation system 471 00:28:27,619 --> 00:28:30,840 Speaker 1: being somewhat regressive. What is your reading? I mean, is 472 00:28:30,840 --> 00:28:34,650 Speaker 1: there a alignment by the within the government that they 473 00:28:34,650 --> 00:28:36,860 Speaker 1: need to go in the right direction on these things? 474 00:28:36,869 --> 00:28:40,830 Speaker 2: Well, unfortunately, no, not yet. Um 475 00:28:41,080 --> 00:28:45,880 Speaker 2: I think there is a gradually a deeper understanding that 476 00:28:45,890 --> 00:28:46,590 Speaker 2: um 477 00:28:48,420 --> 00:28:53,410 Speaker 2: the current trajectory of the fiscal is not sustainable. 478 00:28:54,580 --> 00:28:55,270 Speaker 2: Um 479 00:28:55,840 --> 00:29:01,450 Speaker 2: That includes the recent measures taken during COVID. There's been 480 00:29:01,460 --> 00:29:04,520 Speaker 2: a lot of tax exemption, a lot of V A 481 00:29:04,520 --> 00:29:07,040 Speaker 2: T exemption of small and medium enterprises, a lot of 482 00:29:07,040 --> 00:29:12,300 Speaker 2: exemption of social security premium for medium smaller media enterprises. 483 00:29:12,310 --> 00:29:14,810 Speaker 2: That sounds good. But it also means that you basically 484 00:29:14,810 --> 00:29:18,290 Speaker 2: empty the coffers of the National Social Security Fund that 485 00:29:18,290 --> 00:29:20,440 Speaker 2: we're already not enough 486 00:29:20,930 --> 00:29:25,960 Speaker 2: to sustain the current pension system in the medium term. 487 00:29:25,970 --> 00:29:28,460 Speaker 2: So a lot, a lot needs to happen and I 488 00:29:28,460 --> 00:29:31,210 Speaker 2: think the sustainability issue will then drive it. 489 00:29:31,940 --> 00:29:35,270 Speaker 2: But once you, once you want to address the sustainability issue, 490 00:29:35,280 --> 00:29:38,440 Speaker 2: you need to bring in a lot of elements that 491 00:29:38,440 --> 00:29:43,000 Speaker 2: common prosperity theme that is very dear. It wasn't in 492 00:29:43,000 --> 00:29:47,250 Speaker 2: the central economic work conference document, but it clearly hasn't 493 00:29:47,250 --> 00:29:50,320 Speaker 2: gone away. And frankly, it, it makes sense for China 494 00:29:50,320 --> 00:29:54,960 Speaker 2: to now aim for something which is a more shared 495 00:29:54,970 --> 00:29:59,430 Speaker 2: phase of still growth but more shared growth and, and 496 00:29:59,430 --> 00:30:01,190 Speaker 2: that can be done without, 497 00:30:01,710 --> 00:30:07,830 Speaker 2: without chasing away the entrepreneurs, without without controlling capital. It 498 00:30:07,830 --> 00:30:11,770 Speaker 2: can be done by fairly sensible policies that would improve 499 00:30:11,770 --> 00:30:16,650 Speaker 2: the sustainability of uh of fiscal policies. Over time, it's 500 00:30:16,650 --> 00:30:19,860 Speaker 2: not yet being debated that much as in fact, the 501 00:30:19,860 --> 00:30:22,740 Speaker 2: East Asian Institute, we just had a conference on 502 00:30:23,360 --> 00:30:28,170 Speaker 2: fiscal policy for the new era and we were well, 503 00:30:28,170 --> 00:30:31,430 Speaker 2: we were honored by the presence of former Finance Minister 504 00:30:31,430 --> 00:30:34,360 Speaker 2: Lo G Way. He's one of the key thinkers on 505 00:30:34,360 --> 00:30:37,360 Speaker 2: fiscal policies over the past 2025 years. And 506 00:30:37,940 --> 00:30:41,260 Speaker 2: um he was also, I mean, he did express a 507 00:30:41,260 --> 00:30:44,980 Speaker 2: lot of areas where he said reforms would be possible 508 00:30:44,990 --> 00:30:47,510 Speaker 2: but was also less confident in 509 00:30:48,300 --> 00:30:52,740 Speaker 2: stating that indeed, those reforms are already on the books. 510 00:30:52,750 --> 00:30:55,440 Speaker 2: I think there's time for this and you know, this 511 00:30:55,440 --> 00:30:59,970 Speaker 2: requires a good academic debates. Then the policy makers in 512 00:30:59,970 --> 00:31:03,060 Speaker 2: the ministries need to put the pen to paper and 513 00:31:03,060 --> 00:31:06,209 Speaker 2: see what they can, what what can be done politically. 514 00:31:06,220 --> 00:31:11,710 Speaker 2: Uh and, and technically, and then you know, the overtime 515 00:31:11,710 --> 00:31:13,880 Speaker 2: that needs to, that needs to happen. It doesn't need 516 00:31:13,880 --> 00:31:16,520 Speaker 2: to happen overnight. It doesn't need to happen this year. 517 00:31:17,020 --> 00:31:21,740 Speaker 2: But the fiscal sustainability issue expressing the commitment by the 518 00:31:21,740 --> 00:31:24,670 Speaker 2: government to say, yes, we want in the medium we 519 00:31:24,670 --> 00:31:30,210 Speaker 2: want that fiscal sustainability achieve and we want fiscal instruments 520 00:31:30,210 --> 00:31:33,840 Speaker 2: to play a role in common prosperity. And I would 521 00:31:33,840 --> 00:31:36,930 Speaker 2: let me add a third. I would also say I 522 00:31:36,930 --> 00:31:41,570 Speaker 2: want fiscal policies on budget fiscal policies to play a 523 00:31:41,570 --> 00:31:46,120 Speaker 2: role in macroeconomic stabilization. So the classic factors, 524 00:31:46,560 --> 00:31:51,600 Speaker 2: The classic goals, objectives of fiscal policy, then then that 525 00:31:51,610 --> 00:31:54,660 Speaker 2: would give a lot of confidence that indeed those issues 526 00:31:54,660 --> 00:31:57,150 Speaker 2: will be solved in the next 5 to 10 years. 527 00:31:57,880 --> 00:32:01,800 Speaker 1: Um Burt earlier when you were talking about revenues, um 528 00:32:01,810 --> 00:32:07,400 Speaker 1: you started talking about the revenue coming from taxing emissions 529 00:32:07,400 --> 00:32:10,050 Speaker 1: and so on. And you talked about how the cap 530 00:32:10,050 --> 00:32:12,410 Speaker 1: and trade system or what is known as the emission 531 00:32:12,410 --> 00:32:16,010 Speaker 1: trading system in China is probably subject to the same 532 00:32:16,010 --> 00:32:16,690 Speaker 1: sort of 533 00:32:16,870 --> 00:32:21,940 Speaker 1: errors that the European GTs made two decades ago. Elaborate 534 00:32:21,950 --> 00:32:23,800 Speaker 1: on that a little bit about. You know, why do 535 00:32:23,800 --> 00:32:26,830 Speaker 1: you think that there are these flaws in that system 536 00:32:26,830 --> 00:32:27,440 Speaker 1: or that approved? 537 00:32:27,500 --> 00:32:32,190 Speaker 2: So, so I mean, the there's a couple of problems 538 00:32:32,190 --> 00:32:35,180 Speaker 2: and that the, the, the Europeans made exactly the same 539 00:32:35,180 --> 00:32:37,000 Speaker 2: mistakes first. 540 00:32:37,650 --> 00:32:44,070 Speaker 2: Um China issued a lot of permits to emit okay. 541 00:32:44,080 --> 00:32:47,580 Speaker 2: And they didn't auction them off, they gave them to 542 00:32:47,580 --> 00:32:53,150 Speaker 2: existing polluters that is very convenient, very comforting for the 543 00:32:53,150 --> 00:32:55,469 Speaker 2: existing polluters. So they won't be in the way. As 544 00:32:55,470 --> 00:32:58,310 Speaker 2: a matter of fact, they will make money out of it, 545 00:32:58,980 --> 00:33:00,780 Speaker 2: they will make money out of it 546 00:33:01,450 --> 00:33:03,520 Speaker 2: and the state will not. 547 00:33:04,080 --> 00:33:06,880 Speaker 2: So your hand out and in this case a lot, 548 00:33:06,890 --> 00:33:10,440 Speaker 2: normally you would say, well, you hand out as many 549 00:33:10,440 --> 00:33:14,880 Speaker 2: as you think is sustainable is necessary and that would 550 00:33:14,880 --> 00:33:20,700 Speaker 2: mean a reduction of emissions compared to before starting a 551 00:33:20,710 --> 00:33:23,880 Speaker 2: cap and trade. But basically the caps were put at 552 00:33:23,890 --> 00:33:28,520 Speaker 2: existing emissions. One reason that's one reason why that price 553 00:33:28,520 --> 00:33:29,850 Speaker 2: is very low. 554 00:33:30,140 --> 00:33:32,960 Speaker 2: There's a second effect of that cap and trade that 555 00:33:32,960 --> 00:33:37,350 Speaker 2: economists haven't really thought about yet. But it also actually 556 00:33:37,350 --> 00:33:41,690 Speaker 2: makes entry much more difficult, entry into any sector, much 557 00:33:41,690 --> 00:33:43,560 Speaker 2: more difficult because then you have to go out and 558 00:33:43,560 --> 00:33:49,240 Speaker 2: buy those emissions. So your competitors got a handout from 559 00:33:49,240 --> 00:33:50,090 Speaker 2: government 560 00:33:51,090 --> 00:33:55,560 Speaker 2: on the permits, but you have to go and buy that. 561 00:33:55,570 --> 00:33:58,620 Speaker 2: So it distorts competition to some extent. A text would 562 00:33:58,620 --> 00:34:01,320 Speaker 2: not do that. A text would not do that. The 563 00:34:01,320 --> 00:34:05,080 Speaker 2: taxes other downsides. But the upside of a cap and 564 00:34:05,080 --> 00:34:09,590 Speaker 2: trade are theoretically are theoretically that there would be smart 565 00:34:09,590 --> 00:34:10,400 Speaker 2: people that 566 00:34:11,290 --> 00:34:15,990 Speaker 2: invent new things to reduce emissions and then sell it 567 00:34:16,630 --> 00:34:21,480 Speaker 2: or sell permits on the basis of that invention. That's 568 00:34:21,480 --> 00:34:22,360 Speaker 2: the theory. 569 00:34:22,910 --> 00:34:26,820 Speaker 2: I think if you look back on the experience over 570 00:34:26,820 --> 00:34:30,890 Speaker 2: the past 25 years, that actually it takes different instruments 571 00:34:30,890 --> 00:34:32,709 Speaker 2: to get that done. Take solar 572 00:34:33,650 --> 00:34:36,540 Speaker 2: solar was not suddenly profitable because there was a cap 573 00:34:36,540 --> 00:34:39,840 Speaker 2: and trade in Europe. Solar was suddenly profitable because it 574 00:34:39,840 --> 00:34:43,420 Speaker 2: was a feed in tariff, a feed in tariff on 575 00:34:43,430 --> 00:34:48,930 Speaker 2: electricity production. And that worked wonderfully well. Similarly now with 576 00:34:48,940 --> 00:34:53,690 Speaker 2: electric vehicles, um they become 577 00:34:54,360 --> 00:35:00,400 Speaker 2: profitable because there's still heavy subsidies, it's getting less, but 578 00:35:00,400 --> 00:35:04,870 Speaker 2: it's still heavy subsidies on adopting an electric vehicle. And 579 00:35:04,870 --> 00:35:08,540 Speaker 2: that then brings the production to scale and that drives 580 00:35:08,540 --> 00:35:11,740 Speaker 2: down costs. So I think that, that we know that 581 00:35:11,739 --> 00:35:15,150 Speaker 2: that is a very efficient way of doing it. 582 00:35:15,330 --> 00:35:18,779 Speaker 2: You know, the next the next area is that that 583 00:35:18,780 --> 00:35:23,230 Speaker 2: kind of policy can work is one carbon capture. And again, 584 00:35:23,230 --> 00:35:26,300 Speaker 2: China can play a big role and two would be 585 00:35:26,300 --> 00:35:30,270 Speaker 2: hydrogen and hydrogen is, I mean, it's nothing new and 586 00:35:30,270 --> 00:35:31,560 Speaker 2: we know how to produce it, we know how to 587 00:35:31,560 --> 00:35:35,180 Speaker 2: produce it in a clean way, the green hydrogen, 588 00:35:35,920 --> 00:35:38,130 Speaker 2: but we don't really have a market yet and it 589 00:35:38,130 --> 00:35:42,350 Speaker 2: costs too much at the moment. So putting up a 590 00:35:42,350 --> 00:35:45,680 Speaker 2: feed in tariff would be a very good idea and 591 00:35:45,680 --> 00:35:51,080 Speaker 2: it would really make renewable energy tradable right now. One 592 00:35:51,080 --> 00:35:53,920 Speaker 2: of the big downsides of renewables is that you can 593 00:35:53,920 --> 00:35:55,770 Speaker 2: have your windmill in your backyard, 594 00:35:56,630 --> 00:35:59,410 Speaker 2: but transporting it over fast, 595 00:36:00,000 --> 00:36:05,320 Speaker 2: vast lengths of space is very expensive because you lose 596 00:36:05,320 --> 00:36:08,360 Speaker 2: a lot in the process. China has done a lot 597 00:36:08,360 --> 00:36:12,150 Speaker 2: with high voltage transmission. So within the country, they're pretty efficient. 598 00:36:12,150 --> 00:36:13,819 Speaker 2: The losses are pretty limited. 599 00:36:14,469 --> 00:36:17,500 Speaker 2: But you really want, you know, you really want to 600 00:36:17,510 --> 00:36:21,400 Speaker 2: make use of the sun in, in Saudi Arabia, in 601 00:36:21,410 --> 00:36:25,930 Speaker 2: Australia and in Algeria. And that's probably all you need 602 00:36:25,940 --> 00:36:28,520 Speaker 2: to get all the energy in the world, but they 603 00:36:28,520 --> 00:36:31,370 Speaker 2: need to get it out there. Hydrogen is a fantastic 604 00:36:31,370 --> 00:36:31,859 Speaker 2: way 605 00:36:32,270 --> 00:36:34,600 Speaker 2: to get from A to B actually where you first 606 00:36:34,600 --> 00:36:38,450 Speaker 2: make ammonia. But that's, that's a technical detail because hydrogen 607 00:36:38,450 --> 00:36:40,840 Speaker 2: is a bit explosive. So you don't want to have 608 00:36:40,850 --> 00:36:44,370 Speaker 2: ships exploding. So you turn it into ammonia and then 609 00:36:44,370 --> 00:36:48,310 Speaker 2: you turn it back into hydrogen on the point of destination. 610 00:36:48,320 --> 00:36:51,170 Speaker 2: All those processes are known. There's nothing that needs to 611 00:36:51,170 --> 00:36:52,839 Speaker 2: be invented. You just need to bring it to a 612 00:36:52,840 --> 00:36:53,800 Speaker 2: scale 613 00:36:55,070 --> 00:36:59,610 Speaker 2: where the costs are less than the alternatives that was 614 00:36:59,620 --> 00:37:04,730 Speaker 2: done miraculously well with solar pretty well with wind, not 615 00:37:04,730 --> 00:37:08,379 Speaker 2: yet with other alternatives. So, so so and cap and 616 00:37:08,380 --> 00:37:12,569 Speaker 2: trade frankly, is almost completely disconnected from that. The the 617 00:37:12,570 --> 00:37:16,770 Speaker 2: only mechanism that was in place was the clean development 618 00:37:16,770 --> 00:37:19,500 Speaker 2: mechanism I E and the World Bank where I used 619 00:37:19,500 --> 00:37:20,080 Speaker 2: to work, 620 00:37:20,610 --> 00:37:23,009 Speaker 2: they played a role in that I E they, 621 00:37:23,860 --> 00:37:25,240 Speaker 2: they basically 622 00:37:25,880 --> 00:37:31,820 Speaker 2: transferred money from the Eu to China and other countries 623 00:37:32,520 --> 00:37:36,860 Speaker 2: to reduce their carbon emission, sort of a means of. 624 00:37:37,230 --> 00:37:42,020 Speaker 2: And that was then based on the trading in the policies, 625 00:37:42,020 --> 00:37:45,420 Speaker 2: the Kyoto Protocol policies that were implemented in Europe. 626 00:37:46,030 --> 00:37:49,690 Speaker 2: I think those days may simply be gone simply because 627 00:37:49,700 --> 00:37:53,960 Speaker 2: it requires a level of international cooperation that may no 628 00:37:53,960 --> 00:37:57,960 Speaker 2: longer be available, giving subsidies to China to become less 629 00:37:57,960 --> 00:38:02,040 Speaker 2: polluting may not be the most popular political proposition at 630 00:38:02,040 --> 00:38:04,250 Speaker 2: this point in time, even though it might economically be 631 00:38:04,250 --> 00:38:05,370 Speaker 2: the right thing to do. 632 00:38:06,330 --> 00:38:09,100 Speaker 1: Okay. So you just made the perfect segue to my 633 00:38:09,100 --> 00:38:13,310 Speaker 1: next question which is on climate change. I hear from 634 00:38:13,320 --> 00:38:18,040 Speaker 1: Western experts on security side as well as on climate change, 635 00:38:18,040 --> 00:38:20,339 Speaker 1: said that the US has more or less given up 636 00:38:20,340 --> 00:38:23,430 Speaker 1: on China, they'll do their thing and the U S 637 00:38:23,430 --> 00:38:27,130 Speaker 1: will find allies in Europe and elsewhere to make progress 638 00:38:27,130 --> 00:38:29,500 Speaker 1: on climate change. So this challenge is going to go 639 00:38:29,510 --> 00:38:32,120 Speaker 1: at it alone or do you see there being some 640 00:38:32,120 --> 00:38:34,500 Speaker 1: scope for international cooperation on 641 00:38:34,690 --> 00:38:39,020 Speaker 1: taxonomy and the E T S best practice and so on. 642 00:38:39,310 --> 00:38:43,700 Speaker 2: Look on T S I don't know, but on a 643 00:38:43,700 --> 00:38:46,170 Speaker 2: number of technologies, there is actually 644 00:38:47,580 --> 00:38:50,790 Speaker 2: a perfect some competition is fine, 645 00:38:51,510 --> 00:38:54,410 Speaker 2: Some competition is absolutely fine and looking for the next 646 00:38:54,420 --> 00:38:59,160 Speaker 2: IP that, that that would help create, you know, the 647 00:38:59,160 --> 00:39:01,710 Speaker 2: miracles that we buy now need in order to stay 648 00:39:01,710 --> 00:39:07,310 Speaker 2: below 1.5° of temperature increase. 649 00:39:08,190 --> 00:39:12,210 Speaker 2: But there is actually a very good complementarity between China 650 00:39:12,210 --> 00:39:15,189 Speaker 2: and the rest of the world because China has two advantages. One, 651 00:39:15,190 --> 00:39:15,830 Speaker 2: they have 652 00:39:16,500 --> 00:39:17,899 Speaker 2: a very big scale 653 00:39:18,560 --> 00:39:21,950 Speaker 2: two, they have enormous manufacturing capacity 654 00:39:22,580 --> 00:39:25,700 Speaker 2: and and go back to the story of solar. It 655 00:39:25,700 --> 00:39:29,700 Speaker 2: was not Chinese I P, it was Australian I P 656 00:39:29,700 --> 00:39:35,280 Speaker 2: and European I P and China took that used the 657 00:39:35,280 --> 00:39:40,009 Speaker 2: German policy tool. German invented policy to feed in tariff. 658 00:39:40,170 --> 00:39:42,920 Speaker 2: I made that a success. They were a little bit 659 00:39:42,920 --> 00:39:46,739 Speaker 2: naughty because they didn't allow others to come in and 660 00:39:46,750 --> 00:39:50,650 Speaker 2: there was real issues. So so frankly, there was distortion 661 00:39:50,650 --> 00:39:54,950 Speaker 2: in trade. Their same now is happening with batteries for instance, 662 00:39:54,960 --> 00:40:00,380 Speaker 2: where China is conducting an industrial policy that impedes trade 663 00:40:00,380 --> 00:40:03,690 Speaker 2: and it would be it would be a case that 664 00:40:03,690 --> 00:40:05,550 Speaker 2: you could bring to the W T O 665 00:40:05,930 --> 00:40:08,470 Speaker 2: Western countries never brought China to the W T O 666 00:40:08,469 --> 00:40:11,930 Speaker 2: on except for the solar panel issue. But that was 667 00:40:11,930 --> 00:40:17,040 Speaker 2: a fairly targeted issue. So there's issues with China's policy. 668 00:40:17,050 --> 00:40:20,230 Speaker 2: But at the same time, if you suppose you time 669 00:40:20,230 --> 00:40:23,490 Speaker 2: or in the rest of the afternoon, you would invent 670 00:40:23,489 --> 00:40:27,850 Speaker 2: the miracle, the miracle to do carbon capture in the 671 00:40:27,850 --> 00:40:29,200 Speaker 2: most efficient way. 672 00:40:29,969 --> 00:40:33,230 Speaker 2: Well, where would you go? You wouldn't do it in Singapore. 673 00:40:33,230 --> 00:40:36,220 Speaker 2: You wouldn't probably not even in Europe because Europe is yes, 674 00:40:36,219 --> 00:40:38,500 Speaker 2: it's united, but it's not really because there's still lots 675 00:40:38,500 --> 00:40:42,080 Speaker 2: of countries China and bring it to scale. 676 00:40:42,680 --> 00:40:47,400 Speaker 2: So that scale and the manufacturing capability to bring things 677 00:40:47,400 --> 00:40:49,850 Speaker 2: to scale is enormously important. 678 00:40:50,500 --> 00:40:53,430 Speaker 2: And if you were to sort of do your own thing, 679 00:40:53,440 --> 00:40:56,840 Speaker 2: you would lose that complementarity. I don't think it will 680 00:40:56,840 --> 00:40:58,770 Speaker 2: be a total loss because I think some of the 681 00:40:58,770 --> 00:41:00,160 Speaker 2: competition is good, 682 00:41:00,730 --> 00:41:02,730 Speaker 2: some of the competition, it will also be good for 683 00:41:02,730 --> 00:41:06,800 Speaker 2: other countries, for third countries that might benefit from competition 684 00:41:06,800 --> 00:41:07,450 Speaker 2: between 685 00:41:08,020 --> 00:41:12,930 Speaker 2: say a Western solution and a Chinese solution. But, but 686 00:41:12,930 --> 00:41:14,339 Speaker 2: there would be losses as well, 687 00:41:16,340 --> 00:41:20,550 Speaker 1: right? I remember having a conversation with David Victor who 688 00:41:20,550 --> 00:41:24,460 Speaker 1: wrote that book making Climate policy work. And he made 689 00:41:24,460 --> 00:41:26,590 Speaker 1: one point that, you know, we as economists, you know, 690 00:41:26,600 --> 00:41:29,460 Speaker 1: had all sorts of market based solutions in mind for 691 00:41:29,460 --> 00:41:32,220 Speaker 1: dealing with climate change. But over the last 23 decades, 692 00:41:32,219 --> 00:41:34,540 Speaker 1: to your point about Europe's experience on E T S 693 00:41:34,540 --> 00:41:35,900 Speaker 1: is that we've come to the solution, you need a 694 00:41:35,900 --> 00:41:36,380 Speaker 1: lot of 695 00:41:36,390 --> 00:41:41,609 Speaker 1: top down nudges whether setting price of carbon or even 696 00:41:41,610 --> 00:41:44,259 Speaker 1: the quantity that could be traded within the exchange. All 697 00:41:44,260 --> 00:41:46,700 Speaker 1: of that has to come from the regulator or the 698 00:41:46,700 --> 00:41:50,510 Speaker 1: government or whatever. And from that perspective, China, I suppose 699 00:41:50,510 --> 00:41:53,050 Speaker 1: is even if it goes on its own and it's 700 00:41:53,050 --> 00:41:57,520 Speaker 1: just being a source of competition as opposed to complementarity might, 701 00:41:57,530 --> 00:42:02,280 Speaker 1: you know, work out. Um But moving from the green agenda, 702 00:42:02,280 --> 00:42:03,989 Speaker 1: I want to talk a bit about tech, 703 00:42:04,170 --> 00:42:07,489 Speaker 1: the tech sector regulation, of course, was a huge team 704 00:42:07,500 --> 00:42:10,890 Speaker 1: for China in the last couple of years. Uh In fact, 705 00:42:10,890 --> 00:42:12,509 Speaker 1: it's not just a China thing. I mean, the rest 706 00:42:12,510 --> 00:42:15,640 Speaker 1: of the world as well, their regulators and governments grappling 707 00:42:15,640 --> 00:42:19,140 Speaker 1: with data privacy and oligopoly or monopoly nature of large 708 00:42:19,140 --> 00:42:22,360 Speaker 1: tech firms. So what do you make of the seismic 709 00:42:22,360 --> 00:42:25,069 Speaker 1: actions of the last few years? And now that we're 710 00:42:25,070 --> 00:42:26,160 Speaker 1: seeing some 711 00:42:26,430 --> 00:42:29,650 Speaker 1: easing of those actions? I mean, what did the employee 712 00:42:29,660 --> 00:42:33,750 Speaker 1: imply for China's tech entrepreneurs and also the future of 713 00:42:33,760 --> 00:42:34,860 Speaker 1: innovation in China? 714 00:42:37,880 --> 00:42:41,860 Speaker 2: Right. Well, I mean, looking back over the past 23 715 00:42:41,860 --> 00:42:45,739 Speaker 2: years on the regulatory crackdown and, and the effects of it, 716 00:42:45,739 --> 00:42:50,040 Speaker 2: I think there's some, there's some upsides and some downsides 717 00:42:50,040 --> 00:42:52,529 Speaker 2: to that. I think the downside was really the way 718 00:42:52,530 --> 00:42:57,480 Speaker 2: it was done, the suddenness with which the regulatory atmosphere 719 00:42:57,489 --> 00:43:03,630 Speaker 2: changed and it will make, you know, investors intact a bit, 720 00:43:03,640 --> 00:43:04,540 Speaker 2: a little bit 721 00:43:04,910 --> 00:43:07,760 Speaker 2: queasy for a long time to come because who knows 722 00:43:07,760 --> 00:43:11,450 Speaker 2: who's next that I think is the long term damage. 723 00:43:11,450 --> 00:43:13,569 Speaker 2: If you look at some of the upsides, 724 00:43:14,260 --> 00:43:14,710 Speaker 2: China, 725 00:43:15,460 --> 00:43:19,620 Speaker 2: some of the concerns that have been debated for by 726 00:43:19,620 --> 00:43:20,989 Speaker 2: now decades 727 00:43:21,630 --> 00:43:24,460 Speaker 2: in the United States in Europe, Europe is a bit 728 00:43:24,460 --> 00:43:28,989 Speaker 2: different because they never managed to basically bring about sort 729 00:43:28,989 --> 00:43:31,190 Speaker 2: of a tech company at scale at the level of 730 00:43:31,200 --> 00:43:36,740 Speaker 2: Google or, or Facebook or, or otherwise China has in 731 00:43:36,739 --> 00:43:40,720 Speaker 2: part by keeping them out by keeping the Googles and 732 00:43:40,730 --> 00:43:45,510 Speaker 2: uh Facebooks and the Amazons out. 733 00:43:46,120 --> 00:43:49,260 Speaker 2: That part was a distortion of competition or quite a 734 00:43:49,260 --> 00:43:52,180 Speaker 2: question about it, but it did, it did deliver them 735 00:43:52,190 --> 00:43:56,830 Speaker 2: a viable alternative. So they have, they've done well in 736 00:43:56,830 --> 00:44:00,330 Speaker 2: that sense in the first two decades, when they started 737 00:44:00,330 --> 00:44:05,620 Speaker 2: to result into monopolistic behavior of those platforms, China intervened, 738 00:44:05,620 --> 00:44:07,380 Speaker 2: China has the political 739 00:44:08,070 --> 00:44:11,190 Speaker 2: system to behave, that is a lot more complex in 740 00:44:11,190 --> 00:44:14,380 Speaker 2: the West. I recognize that, but I actually did it 741 00:44:14,390 --> 00:44:17,279 Speaker 2: and they did it also with the purpose of, of 742 00:44:17,280 --> 00:44:21,870 Speaker 2: indeed rectifying some of the monopolistic behaviors of uh of 743 00:44:21,880 --> 00:44:25,140 Speaker 2: the Alibaba's and the J D the 10 cents of 744 00:44:25,140 --> 00:44:29,590 Speaker 2: the world. So that, that seems very reasonable. Then beyond 745 00:44:29,590 --> 00:44:33,620 Speaker 2: that there is something that is much more political control 746 00:44:33,620 --> 00:44:36,750 Speaker 2: oriented um um like 747 00:44:38,210 --> 00:44:44,709 Speaker 2: censorship games um and, and others. And then there is 748 00:44:44,710 --> 00:44:49,700 Speaker 2: the common prosperity, reducing the burden on, on the, on 749 00:44:49,700 --> 00:44:54,280 Speaker 2: the middle, the middle income households by banning online tutoring. 750 00:44:54,280 --> 00:44:56,340 Speaker 2: I don't know how that helps, but that was at 751 00:44:56,340 --> 00:44:58,989 Speaker 2: least the stated motivation. No, because the tutoring 752 00:44:59,000 --> 00:45:00,750 Speaker 2: it's not gonna go away. It's not gonna be online, 753 00:45:00,750 --> 00:45:02,940 Speaker 2: it's going to be in person and then only the 754 00:45:02,940 --> 00:45:05,799 Speaker 2: rich can afford the in person. So it frankly, I 755 00:45:05,800 --> 00:45:08,569 Speaker 2: think that was wrong headed but but it was, that 756 00:45:08,570 --> 00:45:13,340 Speaker 2: was the stated motivation. So, so one can understand that 757 00:45:13,340 --> 00:45:16,450 Speaker 2: that was a policy action. I think it was the 758 00:45:16,450 --> 00:45:20,860 Speaker 2: wrong policy action but leaving that aside. So, so, so 759 00:45:20,860 --> 00:45:22,460 Speaker 2: so China is now 760 00:45:23,330 --> 00:45:27,200 Speaker 2: as per statement in the Central Economic Work conference. Uh 761 00:45:27,210 --> 00:45:30,840 Speaker 2: you also said a number of things in Davos. And so, 762 00:45:30,840 --> 00:45:34,620 Speaker 2: so they're in common water in the regulation, the regulation 763 00:45:34,620 --> 00:45:35,830 Speaker 2: is not going to go away. 764 00:45:36,340 --> 00:45:39,440 Speaker 2: It will be, it will be the market will be, 765 00:45:39,450 --> 00:45:42,630 Speaker 2: you know, regulated by the government so that the optimal 766 00:45:42,630 --> 00:45:47,450 Speaker 2: outcome for society results not the optimal outcome for the 767 00:45:47,450 --> 00:45:50,420 Speaker 2: owners of the company. And, and you know, that is, 768 00:45:50,430 --> 00:45:51,820 Speaker 2: that sounds 769 00:45:52,550 --> 00:45:57,069 Speaker 2: for some, that sounds for Americans, maybe that sounds scary. But, 770 00:45:57,080 --> 00:45:59,670 Speaker 2: but frankly, it is the way most Europeans would think 771 00:45:59,670 --> 00:46:03,070 Speaker 2: about the company. So you regulate the market and such 772 00:46:03,070 --> 00:46:05,910 Speaker 2: as you get the optimal outcome. And in fact, it's 773 00:46:05,920 --> 00:46:09,180 Speaker 2: Adam Smith's first book was all about that. People would 774 00:46:09,180 --> 00:46:12,110 Speaker 2: like to read people like to read the wealth of nations, 775 00:46:12,110 --> 00:46:14,379 Speaker 2: but the first book was all about the moral sentiments 776 00:46:14,380 --> 00:46:14,830 Speaker 2: and the, 777 00:46:15,219 --> 00:46:18,350 Speaker 2: yeah, the moral cultural setting in which the market takes place. 778 00:46:18,350 --> 00:46:20,920 Speaker 2: So nothing new under the sun in that sense and 779 00:46:20,920 --> 00:46:23,700 Speaker 2: that will look different in China, then it will look 780 00:46:23,700 --> 00:46:26,360 Speaker 2: in Europe that which is different from how it looks 781 00:46:26,360 --> 00:46:29,200 Speaker 2: in the United States or how it looks in Japan. 782 00:46:29,200 --> 00:46:33,140 Speaker 2: That market is not one thing, it is, it's a 783 00:46:33,150 --> 00:46:37,190 Speaker 2: social construct if you want. I think as a result 784 00:46:37,200 --> 00:46:40,319 Speaker 2: and I'm sure I'm not going to make your investors happy. 785 00:46:40,320 --> 00:46:41,260 Speaker 2: But 786 00:46:41,480 --> 00:46:44,630 Speaker 2: as a result, the, you know, the valuation of those 787 00:46:44,630 --> 00:46:49,400 Speaker 2: companies will be less, will be less than previous expectations. 788 00:46:50,020 --> 00:46:53,930 Speaker 2: Okay. Previous expectation was like, oh my goodness, the sky's 789 00:46:53,930 --> 00:46:58,300 Speaker 2: the limit because even if you count Alibaba and JD 790 00:46:58,300 --> 00:47:02,109 Speaker 2: and others, if you add them all up, they still 791 00:47:02,110 --> 00:47:05,569 Speaker 2: only have whatever 30% of the retail market and could 792 00:47:05,570 --> 00:47:08,850 Speaker 2: go to 60 or 90%. So, so I think some 793 00:47:08,850 --> 00:47:12,870 Speaker 2: of that, that sort of infinite possibilities has gone 794 00:47:13,780 --> 00:47:18,470 Speaker 2: second and that there are of two minds, but I 795 00:47:18,469 --> 00:47:21,240 Speaker 2: think we'll find we'll find it relatively soon. And that 796 00:47:21,239 --> 00:47:24,120 Speaker 2: is on the financial side because the one thing that 797 00:47:24,120 --> 00:47:27,060 Speaker 2: where I think that the government in a way, 798 00:47:28,110 --> 00:47:33,620 Speaker 2: got the wrong motivation was with the fintech. Now, the 799 00:47:33,620 --> 00:47:36,450 Speaker 2: fintech has built on the back of 800 00:47:37,210 --> 00:47:41,360 Speaker 2: the e commerce transactions by, by Alibaba buy tents and 801 00:47:41,360 --> 00:47:44,969 Speaker 2: by others was actually a very efficient way of getting 802 00:47:44,969 --> 00:47:45,580 Speaker 2: money 803 00:47:46,190 --> 00:47:47,569 Speaker 2: to small companies 804 00:47:48,400 --> 00:47:52,180 Speaker 2: and it was a big competition of course for the 805 00:47:52,180 --> 00:47:56,400 Speaker 2: banks and the banks, I think were the big beneficiaries 806 00:47:56,400 --> 00:48:01,270 Speaker 2: of the crackdown on the, on the and finance and others. 807 00:48:01,280 --> 00:48:05,660 Speaker 2: I think that also had real economic cost. So right 808 00:48:05,660 --> 00:48:09,400 Speaker 2: now we have back return to these, promoting the policies 809 00:48:09,400 --> 00:48:13,100 Speaker 2: for credit to small and medium enterprises. Well, it wasn't 810 00:48:13,100 --> 00:48:14,250 Speaker 2: an issue 811 00:48:14,950 --> 00:48:19,410 Speaker 2: when and finance could provide the credits on the basis 812 00:48:19,410 --> 00:48:22,420 Speaker 2: of the payment behavior of companies. They could approve your 813 00:48:22,420 --> 00:48:22,980 Speaker 2: credit 814 00:48:23,640 --> 00:48:26,580 Speaker 2: in, uh what was it? It was in three seconds. 815 00:48:26,580 --> 00:48:28,610 Speaker 2: I think they said that they claimed that they could 816 00:48:28,610 --> 00:48:30,960 Speaker 2: do so, I think, I think they're, the government should 817 00:48:30,960 --> 00:48:33,790 Speaker 2: reconsider what did they want to keep their and, and, 818 00:48:33,790 --> 00:48:34,609 Speaker 2: and indeed, 819 00:48:35,180 --> 00:48:40,600 Speaker 2: you know, the proof of the pudding is will and 820 00:48:40,600 --> 00:48:42,910 Speaker 2: finance be able to go back to I P O. 821 00:48:42,910 --> 00:48:46,720 Speaker 2: It will probably, again, we had an evaluation much less 822 00:48:47,480 --> 00:48:52,910 Speaker 2: Than before before. I think the plans were to issue 823 00:48:52,920 --> 00:48:57,070 Speaker 2: something that would lead to evaluation almost $300 billion. I 824 00:48:57,070 --> 00:49:01,900 Speaker 2: think that's history. But still, there's still lots of value 825 00:49:01,910 --> 00:49:05,450 Speaker 2: in the evening, the regulated and finance model. So the 826 00:49:05,450 --> 00:49:06,560 Speaker 2: government should go ahead. 827 00:49:07,200 --> 00:49:09,570 Speaker 2: They're going to go ahead and allow that competition for 828 00:49:09,570 --> 00:49:13,100 Speaker 2: the traditional banks who haven't been doing, who haven't been 829 00:49:13,100 --> 00:49:16,500 Speaker 2: doing that job. It's also competition two ways yesterday may 830 00:49:16,500 --> 00:49:20,839 Speaker 2: have been anticompetitive behavior in the, in the online sphere. 831 00:49:20,840 --> 00:49:26,420 Speaker 2: There's also anticompetitive behavior in the traditional and the traditional 832 00:49:26,430 --> 00:49:29,910 Speaker 2: industries in China. So they should address that as well. 833 00:49:31,800 --> 00:49:33,960 Speaker 1: I wanted to sort of go back to the very 834 00:49:33,960 --> 00:49:36,850 Speaker 1: first point you made in answer to my question, which 835 00:49:36,850 --> 00:49:40,870 Speaker 1: is that maybe it will have a negative impact on 836 00:49:40,870 --> 00:49:45,860 Speaker 1: the overall entrepreneurial Zeal. Um you probably will not have 837 00:49:45,860 --> 00:49:47,950 Speaker 1: a lot of upside to your point, you know, and 838 00:49:47,950 --> 00:49:51,200 Speaker 1: will not be 300 billion. So a budding entrepreneur growing 839 00:49:51,200 --> 00:49:54,400 Speaker 1: up in China, would they want to go down the 840 00:49:54,400 --> 00:49:57,319 Speaker 1: rather challenging route of being an entrepreneur and deal with 841 00:49:57,320 --> 00:49:59,880 Speaker 1: all the pain and risk of failure when the upside 842 00:49:59,880 --> 00:50:01,350 Speaker 1: is going to be fundamentally lower. 843 00:50:02,580 --> 00:50:06,460 Speaker 2: Well, so look, I think there's still frankly knowing China 844 00:50:06,460 --> 00:50:07,259 Speaker 2: and knowing 845 00:50:07,880 --> 00:50:10,280 Speaker 2: the people from China, there will be tons of entrepreneurs 846 00:50:10,280 --> 00:50:13,550 Speaker 2: and and one of the incredibly striking statistics is the 847 00:50:13,550 --> 00:50:18,110 Speaker 2: number of new companies registered ever since. 848 00:50:18,790 --> 00:50:24,359 Speaker 2: Uh Li Keqiang made mass entrepreneurship his policy. A lot 849 00:50:24,360 --> 00:50:28,230 Speaker 2: of these companies went under during COVID and even before. 850 00:50:28,230 --> 00:50:32,530 Speaker 2: But you know, startups, they go under unfortunately. But so 851 00:50:32,530 --> 00:50:36,520 Speaker 2: I think there's still a lot of uh entrepreneurial zeal. 852 00:50:36,530 --> 00:50:39,430 Speaker 2: What what is a risk? 853 00:50:39,670 --> 00:50:42,279 Speaker 2: And that is in the short term may be an 854 00:50:42,280 --> 00:50:44,650 Speaker 2: opportunity for places such as Singapore. But but there's a 855 00:50:44,650 --> 00:50:48,890 Speaker 2: risk where that people opt out earlier. So I think 856 00:50:48,900 --> 00:50:53,040 Speaker 2: uncertainty on that regulatory environment, it I don't think it 857 00:50:53,040 --> 00:50:58,029 Speaker 2: will stop entrepreneurial activity but it would change your entrepreneurial activity. 858 00:50:58,030 --> 00:51:00,459 Speaker 2: I e you want to make money and then set 859 00:51:00,460 --> 00:51:03,500 Speaker 2: up your family office in Singapore and live off the 860 00:51:03,620 --> 00:51:06,979 Speaker 2: live off the proceeds from that. That's a very different 861 00:51:06,980 --> 00:51:08,370 Speaker 2: kind of entrepreneurship 862 00:51:08,920 --> 00:51:12,799 Speaker 2: that brings about the very big innovation that brings that 863 00:51:12,800 --> 00:51:14,910 Speaker 2: brings about the M RNA is where you need a 864 00:51:14,910 --> 00:51:19,480 Speaker 2: 10 year, 15 year horizon. So with regulatory uncertainty, you 865 00:51:19,480 --> 00:51:24,399 Speaker 2: shorten the horizon for entrepreneurs and they do different things. 866 00:51:24,410 --> 00:51:26,710 Speaker 2: I don't think that is healthy for China 867 00:51:27,230 --> 00:51:32,660 Speaker 2: and I think China would do well in really very 868 00:51:32,660 --> 00:51:33,710 Speaker 2: deliberately 869 00:51:34,530 --> 00:51:40,549 Speaker 2: restoring some of that regulatory certainty and regulatory certainty doesn't need. 870 00:51:40,560 --> 00:51:43,759 Speaker 2: It's almost irrespective of the political system. I mean, you 871 00:51:43,760 --> 00:51:48,220 Speaker 2: know that it's this predictability in in the process is 872 00:51:48,219 --> 00:51:50,610 Speaker 2: it's the fair hearings. It's the 873 00:51:50,830 --> 00:51:57,470 Speaker 2: uh yeah, floating first ideas and white papers on regulations 874 00:51:57,469 --> 00:52:02,680 Speaker 2: in particular areas, giving people an opportunity to talk about that. 875 00:52:02,690 --> 00:52:06,330 Speaker 2: That's not all too radical and not too dissimilar from 876 00:52:06,330 --> 00:52:09,670 Speaker 2: what China is already doing had been doing. So I 877 00:52:09,670 --> 00:52:11,270 Speaker 2: think some of that we need to come back to 878 00:52:11,270 --> 00:52:12,790 Speaker 2: restore some of the confidence. 879 00:52:13,510 --> 00:52:20,450 Speaker 1: Okay. Um Switching gears again, I read obituaries of Belt 880 00:52:20,450 --> 00:52:25,070 Speaker 1: and Road these days uh in various journals that it's 881 00:52:25,070 --> 00:52:29,670 Speaker 1: been a spectacular failure and waste of China's capital and 882 00:52:29,670 --> 00:52:33,550 Speaker 1: diplomatic overtures and it will just end up creating a 883 00:52:33,550 --> 00:52:36,550 Speaker 1: bunch of white elephants or at its worst, you know, 884 00:52:36,560 --> 00:52:40,570 Speaker 1: highly indebted countries which will end up defaulting. What's your sense? 885 00:52:41,870 --> 00:52:46,400 Speaker 2: Well, that's not my sense. I think there is, I mean, 886 00:52:46,400 --> 00:52:48,629 Speaker 2: if you look at the numbers and there's been some 887 00:52:48,630 --> 00:52:51,820 Speaker 2: recent papers on on new data basis because the numbers 888 00:52:51,820 --> 00:52:54,510 Speaker 2: are not that great. You get a lot of announcements 889 00:52:54,510 --> 00:52:57,520 Speaker 2: from China, the realization the numbers are a little bit 890 00:52:57,520 --> 00:53:00,319 Speaker 2: difficult to get. So if you take the new data basis, 891 00:53:01,380 --> 00:53:03,479 Speaker 2: then that disbursement on 892 00:53:05,730 --> 00:53:10,370 Speaker 2: overseas investment from China almost came to a halt during COVID. 893 00:53:10,380 --> 00:53:14,319 Speaker 2: And I think that's almost by necessity. So there was 894 00:53:14,320 --> 00:53:16,870 Speaker 2: a lot needed at home. A lot of fiscal resources 895 00:53:16,870 --> 00:53:20,610 Speaker 2: were needed at home. So uh some of the overseas 896 00:53:20,610 --> 00:53:24,739 Speaker 2: investment simply fell by the wayside. Second. Yes, there have 897 00:53:24,739 --> 00:53:26,040 Speaker 2: been issues 898 00:53:26,969 --> 00:53:31,980 Speaker 2: and some countries I won't name them accuse China of 899 00:53:33,110 --> 00:53:39,950 Speaker 2: pursuing a debt trap. Diplomacy. Frankly, that is that is 900 00:53:39,950 --> 00:53:43,480 Speaker 2: not in China's interest in China doesn't do that. What 901 00:53:43,480 --> 00:53:46,540 Speaker 2: China does do is take more risk. 902 00:53:47,310 --> 00:53:52,630 Speaker 2: And that is not always, that doesn't always pan out. 903 00:53:52,640 --> 00:53:55,020 Speaker 2: But the counterfactual of that is that they have actually 904 00:53:55,020 --> 00:53:55,560 Speaker 2: been 905 00:53:56,520 --> 00:54:00,830 Speaker 2: a lot more flexible in rescheduling debt. If you look 906 00:54:00,830 --> 00:54:04,150 Speaker 2: at China's record on rescheduling debt, they've been really quite 907 00:54:04,150 --> 00:54:08,090 Speaker 2: good at it and bringing solutions such as a debt 908 00:54:08,090 --> 00:54:12,210 Speaker 2: equity swap which is maligned in international 909 00:54:12,230 --> 00:54:17,589 Speaker 2: circles. But what happened with the famous humbling Total Total 910 00:54:17,870 --> 00:54:21,590 Speaker 2: report was that China took an equity stake and there 911 00:54:21,590 --> 00:54:24,900 Speaker 2: simply to wipe out the debt, it shouldn't have been 912 00:54:24,900 --> 00:54:27,940 Speaker 2: debt financed, so probably shouldn't have been financed. 913 00:54:28,880 --> 00:54:32,120 Speaker 2: But the president of the damn president of Sri Lanka 914 00:54:32,120 --> 00:54:34,390 Speaker 2: really wanted to have that report, then it should have 915 00:54:34,390 --> 00:54:36,320 Speaker 2: been financed with so much debt. 916 00:54:36,760 --> 00:54:40,169 Speaker 2: So the debt equity swap was actually a solution and, 917 00:54:40,180 --> 00:54:43,980 Speaker 2: and the contract that Chinese contractor did to run it 918 00:54:43,980 --> 00:54:47,399 Speaker 2: for 100 years was a solution for the project. People 919 00:54:47,400 --> 00:54:49,750 Speaker 2: failed to see that. But there was a lot of, 920 00:54:49,760 --> 00:54:51,400 Speaker 2: there was a lot of engineering, a lot of financial 921 00:54:51,400 --> 00:54:54,740 Speaker 2: engineering to make the best of it still never going 922 00:54:54,739 --> 00:54:57,380 Speaker 2: to be great or not for a long time. But 923 00:54:57,380 --> 00:54:59,190 Speaker 2: at least now there's a fighting chance 924 00:54:59,469 --> 00:55:03,960 Speaker 2: China has done a number of other investment, just like others. 925 00:55:03,969 --> 00:55:07,890 Speaker 2: You know, the World Bank had a success rate 926 00:55:08,640 --> 00:55:11,450 Speaker 2: of its investments of about 70%,, 927 00:55:13,570 --> 00:55:17,540 Speaker 2: 70% not 100% 70%. So it's pretty good bank. I 928 00:55:17,540 --> 00:55:20,220 Speaker 2: think they've been around for a long time. So it's 929 00:55:20,219 --> 00:55:24,649 Speaker 2: not that every development finance becomes a success. The World 930 00:55:24,650 --> 00:55:29,560 Speaker 2: Bank maybe does more difficult stuff like building health systems 931 00:55:29,560 --> 00:55:33,510 Speaker 2: and you know, conditional cash transfers, maybe that's more difficult 932 00:55:33,510 --> 00:55:38,170 Speaker 2: than infrastructure but not every, not every project became a success. 933 00:55:38,180 --> 00:55:41,130 Speaker 2: Same if China, not every project becomes a success, 934 00:55:41,560 --> 00:55:44,740 Speaker 2: some of the incentives in the system as it is 935 00:55:44,739 --> 00:55:48,870 Speaker 2: I e quite a decentralized mobilization of projects, it's probably 936 00:55:48,870 --> 00:55:52,400 Speaker 2: less desirable if you want to make a good initiative 937 00:55:52,410 --> 00:55:56,870 Speaker 2: of global connectivity, which by itself is a good idea. 938 00:55:56,880 --> 00:56:00,620 Speaker 2: So long story short, I think there's a bit of 939 00:56:00,620 --> 00:56:04,029 Speaker 2: a pause. China needs some of those more resources at 940 00:56:04,030 --> 00:56:09,459 Speaker 2: home but it's not gone. It is key initiative of 941 00:56:09,469 --> 00:56:10,630 Speaker 2: Xi Jinping, 942 00:56:10,950 --> 00:56:15,300 Speaker 2: it won't go away. Um uh It's morphing a little 943 00:56:15,300 --> 00:56:18,740 Speaker 2: bit into something broader even as a global development initiative. 944 00:56:18,739 --> 00:56:20,350 Speaker 2: And part of it, if you want the Belt and 945 00:56:20,350 --> 00:56:24,500 Speaker 2: Road is part of the global development initiative. But as 946 00:56:24,500 --> 00:56:28,100 Speaker 2: you say, it's also not just about infrastructure, it's about diplomacy, 947 00:56:28,100 --> 00:56:29,970 Speaker 2: it's about policy coordination, 948 00:56:30,640 --> 00:56:37,700 Speaker 2: it's about financial integration i alternatives to the dollar based system. 949 00:56:37,710 --> 00:56:41,210 Speaker 2: So it's a lot more than just a bit of 950 00:56:41,210 --> 00:56:43,840 Speaker 2: infrastructure around the world. So it's not gone, it will 951 00:56:43,840 --> 00:56:48,330 Speaker 2: be back and actually a lot, a big part of 952 00:56:48,330 --> 00:56:50,520 Speaker 2: the investments are quite, quite okay, 953 00:56:51,580 --> 00:56:54,719 Speaker 1: right? And if it was such an unmitigated disaster, we 954 00:56:54,719 --> 00:56:58,420 Speaker 1: will not be seeing now the U S, for example, 955 00:56:58,430 --> 00:57:01,779 Speaker 1: redouble its effort to its own sort of 956 00:57:02,050 --> 00:57:06,140 Speaker 2: smaller, smaller, right? 957 00:57:06,150 --> 00:57:10,750 Speaker 1: Um But us China rivalry, it seems like, you know, 958 00:57:10,750 --> 00:57:12,900 Speaker 1: there's no end to it. Not a week goes by 959 00:57:12,900 --> 00:57:15,370 Speaker 1: when I don't read one more action by the Americans 960 00:57:15,370 --> 00:57:19,480 Speaker 1: to widen the tech gap between the US and the Chinese. 961 00:57:19,690 --> 00:57:24,310 Speaker 1: And we see increasing efforts to widen that uh sort of, 962 00:57:24,310 --> 00:57:27,760 Speaker 1: you know, coalition if you will, the Dutch are joining in, 963 00:57:27,760 --> 00:57:30,460 Speaker 1: in terms of S M L s, uh you know, 964 00:57:30,470 --> 00:57:33,010 Speaker 1: ability to sell technology to China. 965 00:57:33,190 --> 00:57:38,050 Speaker 1: Um and uh the idea that, you know, TSMC produces 966 00:57:38,050 --> 00:57:40,120 Speaker 1: right next door to China, but its frontier products will 967 00:57:40,120 --> 00:57:43,790 Speaker 1: not be accessible to China seems to me rather dangerous. 968 00:57:43,800 --> 00:57:46,670 Speaker 1: Uh As far as the, you know, China's sense of 969 00:57:46,670 --> 00:57:50,120 Speaker 1: security is concerned. Um where do you see this, this 970 00:57:50,120 --> 00:57:51,450 Speaker 1: whole rivalry going? 971 00:57:53,020 --> 00:57:55,390 Speaker 2: Well, I I hope it will end somewhere on the 972 00:57:55,390 --> 00:58:00,690 Speaker 2: table where some sensible solutions are being discussed but failing that. 973 00:58:00,700 --> 00:58:04,100 Speaker 2: And there's now been some this talk, not yet an 974 00:58:04,110 --> 00:58:09,180 Speaker 2: official reaction from China but talk about possible countermeasures. The 975 00:58:09,180 --> 00:58:15,670 Speaker 2: one that was prominently discussed in Beijing was on solar 976 00:58:15,670 --> 00:58:18,760 Speaker 2: panels and solar technology where China is now in the lead. 977 00:58:19,070 --> 00:58:21,770 Speaker 2: And they said, well, our national security may require us 978 00:58:21,770 --> 00:58:25,270 Speaker 2: to limit the experts of of that technology. I don't 979 00:58:25,270 --> 00:58:29,150 Speaker 2: know how serious that is but clearly China might be 980 00:58:29,150 --> 00:58:32,310 Speaker 2: looking for some retaliation. And of course, you want to, 981 00:58:32,320 --> 00:58:34,810 Speaker 2: you want to hit those sectors that are very high 982 00:58:34,810 --> 00:58:39,710 Speaker 2: priority to the country that is trying to restrict you. 983 00:58:40,030 --> 00:58:45,330 Speaker 2: There's other areas where China has an uncomfortable hold over 984 00:58:45,340 --> 00:58:48,120 Speaker 2: over the U S. The U S may not may 985 00:58:48,120 --> 00:58:51,600 Speaker 2: not yet be aware but more more on the more 986 00:58:51,600 --> 00:58:54,880 Speaker 2: positive side of positive side on on a different take, 987 00:58:54,890 --> 00:58:59,820 Speaker 2: China will of course now double down on on developing 988 00:58:59,820 --> 00:59:02,530 Speaker 2: its own technology and it's hard and they have failed 989 00:59:02,530 --> 00:59:04,510 Speaker 2: in the past, but in the past, 990 00:59:05,220 --> 00:59:08,330 Speaker 2: they could fail because there was always an alternative right now, 991 00:59:08,330 --> 00:59:11,120 Speaker 2: there is no alternative. And so it will bring a 992 00:59:11,130 --> 00:59:13,240 Speaker 2: very different kind of dynamic 993 00:59:15,020 --> 00:59:18,680 Speaker 2: to the next phase of semiconductor development. And and take, 994 00:59:18,690 --> 00:59:22,190 Speaker 2: take the A S M L the, you know, the 995 00:59:22,200 --> 00:59:30,560 Speaker 2: extreme ultraviolet lithography that's incredibly hard to pull together 996 00:59:31,130 --> 00:59:35,430 Speaker 2: with, you know, thousands of components coming from hundreds of companies. 997 00:59:35,430 --> 00:59:38,040 Speaker 2: But but in the end, if you, if you take 998 00:59:38,040 --> 00:59:40,010 Speaker 2: your time, you would probably be able to do it. 999 00:59:40,010 --> 00:59:43,169 Speaker 2: I mean, SML didn't start with that machine. It took 1000 00:59:43,170 --> 00:59:45,990 Speaker 2: them 20 years to build that machine and importing lots 1001 00:59:45,990 --> 00:59:49,100 Speaker 2: of technologies. So, so building a supply chain that can 1002 00:59:49,100 --> 00:59:55,160 Speaker 2: make an ultra field at lithography, extreme lithography 1003 00:59:55,380 --> 00:59:58,860 Speaker 2: that may take some time, but it's now absolutely necessary 1004 00:59:58,860 --> 01:00:02,190 Speaker 2: for China. So that, that's the irony. So you, you 1005 01:00:02,200 --> 01:00:05,440 Speaker 2: gave a very strong incentive where China failed before now 1006 01:00:05,440 --> 01:00:09,830 Speaker 2: you get the strongest incentive to China to succeed. So 1007 01:00:09,840 --> 01:00:13,000 Speaker 2: there probably would have been alternative pathways where you say, well, 1008 01:00:13,010 --> 01:00:15,760 Speaker 2: you know, we're going to continue to deliver you chips 1009 01:00:15,760 --> 01:00:18,520 Speaker 2: for a whole range of things. So just not for 1010 01:00:18,530 --> 01:00:21,990 Speaker 2: areas that are linked directly to military. 1011 01:00:22,400 --> 01:00:25,570 Speaker 2: Uh So I think this the measures happened too broad, 1012 01:00:25,570 --> 01:00:27,560 Speaker 2: brushed and um 1013 01:00:29,200 --> 01:00:32,130 Speaker 2: second and, and that is probably more fundamental. I mean, it's, 1014 01:00:32,140 --> 01:00:34,210 Speaker 2: it's it's very hard to go back 1015 01:00:34,950 --> 01:00:36,570 Speaker 2: if the U S would not say oh no, no, 1016 01:00:36,570 --> 01:00:38,380 Speaker 2: but you know, we didn't mean it and you know, 1017 01:00:38,390 --> 01:00:39,770 Speaker 2: we're gonna be okay, 1018 01:00:40,430 --> 01:00:41,960 Speaker 2: the trust is gone. 1019 01:00:43,270 --> 01:00:47,330 Speaker 2: So China would basically continue that that course of action, 1020 01:00:47,330 --> 01:00:50,850 Speaker 2: I think to, to develop alternatives and then over time 1021 01:00:50,860 --> 01:00:53,410 Speaker 2: it will be of a different of you need a 1022 01:00:53,410 --> 01:00:57,640 Speaker 2: different different ecosystem that could potentially still be narrow, say 1023 01:00:57,640 --> 01:01:01,190 Speaker 2: too limited to things such as semiconductors. But it could 1024 01:01:01,190 --> 01:01:04,680 Speaker 2: also be much border. I mean, in, in the National 1025 01:01:04,680 --> 01:01:09,370 Speaker 2: Security Adviser speech that announced the preview the measures that 1026 01:01:09,370 --> 01:01:12,300 Speaker 2: were put in place a month later by commerce. 1027 01:01:13,010 --> 01:01:16,870 Speaker 2: Uh there were a number of other sectors mentioned and 1028 01:01:16,870 --> 01:01:19,210 Speaker 2: so China things, well, you know what sector is going 1029 01:01:19,210 --> 01:01:21,740 Speaker 2: to be next. So they will take a very different 1030 01:01:21,740 --> 01:01:26,330 Speaker 2: take on technology development. They would want to now put 1031 01:01:26,330 --> 01:01:29,660 Speaker 2: it to very serious use to reduce the reliance. It 1032 01:01:29,660 --> 01:01:32,490 Speaker 2: will be it will be difficult and it will be costly, 1033 01:01:32,560 --> 01:01:34,310 Speaker 2: costly for China in the short run, 1034 01:01:34,490 --> 01:01:37,130 Speaker 2: but it will also be costly for others because China 1035 01:01:37,130 --> 01:01:39,680 Speaker 2: will probably also not share some of the new technology 1036 01:01:39,680 --> 01:01:42,470 Speaker 2: that they develop with other countries. The I M F 1037 01:01:42,470 --> 01:01:45,950 Speaker 2: has made some guesstimates because it's very hard to make 1038 01:01:45,950 --> 01:01:49,150 Speaker 2: estimates on what is actually cost. They said a sort 1039 01:01:49,150 --> 01:01:52,530 Speaker 2: of a total decoupling and technology sphere would cost about 1040 01:01:52,540 --> 01:01:57,080 Speaker 2: half a percent 0.6% of growth to China, but it 1041 01:01:57,080 --> 01:02:01,560 Speaker 2: was also cost the West quite a bit of growth. So, 1042 01:02:01,570 --> 01:02:03,190 Speaker 2: so it's uh 1043 01:02:03,430 --> 01:02:07,780 Speaker 2: it's very unfortunate that that we are where we are. Look, 1044 01:02:07,790 --> 01:02:12,270 Speaker 2: it's way beyond economics, it's national security, it is politics, 1045 01:02:12,270 --> 01:02:12,820 Speaker 2: it is 1046 01:02:13,440 --> 01:02:18,090 Speaker 2: uh perceptions on what the other side wants in this world. 1047 01:02:18,090 --> 01:02:20,560 Speaker 2: So that's a very big conversation that we can't have on, 1048 01:02:20,570 --> 01:02:24,660 Speaker 2: on podcast but so complex, not going in the right 1049 01:02:24,660 --> 01:02:27,450 Speaker 2: direction at this, at this point. And it will have 1050 01:02:27,460 --> 01:02:33,240 Speaker 2: been like, like SML uh being a Dutch person. I 1051 01:02:33,250 --> 01:02:35,580 Speaker 2: know that that a lot of my friends are quite 1052 01:02:35,580 --> 01:02:39,300 Speaker 2: unhappy because it simply caused SML market 1053 01:02:39,970 --> 01:02:41,890 Speaker 2: and they are the best in the world and they're 1054 01:02:41,890 --> 01:02:45,030 Speaker 2: proud of it. And now they can't sell to all 1055 01:02:45,030 --> 01:02:47,150 Speaker 2: the clients that they want to and it happens to 1056 01:02:47,150 --> 01:02:48,730 Speaker 2: be a very big client, China. 1057 01:02:49,950 --> 01:02:51,590 Speaker 1: No, it's not just A S M L I mean 1058 01:02:51,590 --> 01:02:54,770 Speaker 1: and video is another company where the second these restrictions 1059 01:02:54,770 --> 01:02:57,070 Speaker 1: went into place, we see it impact very negatively on 1060 01:02:57,070 --> 01:02:59,540 Speaker 1: the share price because they made a huge amount of 1061 01:02:59,540 --> 01:03:02,640 Speaker 1: money selling these high end chips to Chinese gaming companies 1062 01:03:02,640 --> 01:03:06,730 Speaker 1: and Chinese uh internet companies and so on. So so 1063 01:03:06,730 --> 01:03:10,110 Speaker 1: I I hear you that it's a lose, lose proposition 1064 01:03:10,110 --> 01:03:11,660 Speaker 1: but I also hear you that is probably here to 1065 01:03:11,660 --> 01:03:14,100 Speaker 1: stay final question. Birth 1066 01:03:14,390 --> 01:03:17,730 Speaker 1: companies will not stand on the sidelines on all these 1067 01:03:17,730 --> 01:03:21,470 Speaker 1: China plus one discussion and so on. You're seeing Korean 1068 01:03:21,470 --> 01:03:24,440 Speaker 1: Japanese companies, you know, trying to create multiple supply chains 1069 01:03:24,440 --> 01:03:26,600 Speaker 1: and so on. But what about Chinese companies themselves? With 1070 01:03:26,600 --> 01:03:30,660 Speaker 1: Chinese capital become very strategic around the China plus one. 1071 01:03:30,660 --> 01:03:32,830 Speaker 1: And by that, I mean, would we see Chinese companies 1072 01:03:32,830 --> 01:03:35,630 Speaker 1: trying to do M and A or acquisitions in Vietnam 1073 01:03:35,630 --> 01:03:39,920 Speaker 1: and Malaysia, etcetera so that they can use Vietnam Stamp. 1074 01:03:40,270 --> 01:03:42,020 Speaker 2: So I think we've already seen a little bit of 1075 01:03:42,020 --> 01:03:45,380 Speaker 2: that in reaction to the Trump to the Trump tariffs. 1076 01:03:45,380 --> 01:03:51,240 Speaker 2: And uh some more of that might, might happen in 1077 01:03:51,240 --> 01:03:54,550 Speaker 2: the future. And you know, it, it sits a little 1078 01:03:54,550 --> 01:03:58,670 Speaker 2: bit uneasy with China's other strand and that is its 1079 01:03:58,670 --> 01:04:01,770 Speaker 2: dual circulation where they want to on shore as much 1080 01:04:01,770 --> 01:04:06,070 Speaker 2: of critical supply chains, but maybe the less critical supply chains, 1081 01:04:06,070 --> 01:04:07,930 Speaker 2: they might be more comfortable and 1082 01:04:08,310 --> 01:04:10,930 Speaker 2: moving abroad. And part of that will be indeed done 1083 01:04:10,930 --> 01:04:14,500 Speaker 2: by Chinese companies. I cannot imagine that they would, 1084 01:04:15,520 --> 01:04:18,380 Speaker 2: you know, put a lot of tech, tech money into, 1085 01:04:18,390 --> 01:04:21,169 Speaker 2: into Vietnam or Singapore and otherwise that, that they want 1086 01:04:21,170 --> 01:04:25,280 Speaker 2: to have on shore, that's part of their objectives. Of course, 1087 01:04:25,280 --> 01:04:27,540 Speaker 2: a lot of the money that will move and still, 1088 01:04:27,540 --> 01:04:30,430 Speaker 2: I think we're still largely talking about moving rather than 1089 01:04:30,430 --> 01:04:31,560 Speaker 2: actually moving 1090 01:04:31,930 --> 01:04:35,640 Speaker 2: the only, you know, the very concrete case. And everybody 1091 01:04:35,640 --> 01:04:38,730 Speaker 2: knows that the Foxconn case where you know, they open 1092 01:04:38,730 --> 01:04:41,750 Speaker 2: up facilities in India that might potentially be down the road, 1093 01:04:41,760 --> 01:04:47,590 Speaker 2: be be uh an alternative. There's some carmakers looking at Indonesia, 1094 01:04:47,600 --> 01:04:49,900 Speaker 2: more beefing up of Thailand. But a lot of it 1095 01:04:49,900 --> 01:04:52,300 Speaker 2: is still a lot of talk because also 1096 01:04:52,920 --> 01:04:59,200 Speaker 2: people still like the Chinese market for European companies far 1097 01:04:59,200 --> 01:05:04,650 Speaker 2: more than for us companies. Frankly, they're more deeply embedded into, into, 1098 01:05:04,660 --> 01:05:07,540 Speaker 2: into the Chinese economy. I mean, yes, all the apples 1099 01:05:07,540 --> 01:05:10,180 Speaker 2: are made in, in China, but none of them are 1100 01:05:10,180 --> 01:05:13,510 Speaker 2: actually made by an American company made by Taiwanese company. 1101 01:05:13,510 --> 01:05:14,030 Speaker 2: So the 1102 01:05:14,350 --> 01:05:17,170 Speaker 2: it's a very different kind of embedding than say, having 1103 01:05:17,170 --> 01:05:20,520 Speaker 2: a wholly owned subsidiary like B S F S that 1104 01:05:20,520 --> 01:05:24,190 Speaker 2: opens a $10 billion facility in Guangdong, that's bricks and 1105 01:05:24,190 --> 01:05:27,520 Speaker 2: mortar right there with all the risks that you can, 1106 01:05:27,530 --> 01:05:31,380 Speaker 2: that you can, that you can imagine. So, so there's 1107 01:05:31,380 --> 01:05:32,850 Speaker 2: a lot of talk and if you look at the 1108 01:05:32,850 --> 01:05:35,950 Speaker 2: service of foreign investors, a lot of talk that they 1109 01:05:35,950 --> 01:05:38,480 Speaker 2: are now seriously looking at the way I sort of 1110 01:05:38,480 --> 01:05:40,630 Speaker 2: said it, look at it went from the, 1111 01:05:40,930 --> 01:05:44,410 Speaker 2: from the white board of the strategy department to the boardroom. 1112 01:05:44,420 --> 01:05:49,190 Speaker 2: So nowadays, boardroom stuff and and big investments, additional investments 1113 01:05:49,190 --> 01:05:53,470 Speaker 2: in China. Now before they were almost sort of automatically approved, 1114 01:05:53,470 --> 01:05:59,010 Speaker 2: now they're being screened on supply chain risk, but especially 1115 01:05:59,010 --> 01:06:04,690 Speaker 2: vulnerability to geopolitical risk because that's the most difficult one 1116 01:06:04,690 --> 01:06:08,830 Speaker 2: to handle for any company because you know, you get these, 1117 01:06:09,210 --> 01:06:13,040 Speaker 2: these unpleasant surprises like Russia's invasion of the Ukraine who would, 1118 01:06:13,050 --> 01:06:16,930 Speaker 2: who had expected that and suddenly we're there. So, so 1119 01:06:16,940 --> 01:06:21,310 Speaker 2: that's I think very difficult risk risk to manage and 1120 01:06:21,310 --> 01:06:25,350 Speaker 2: that will influence investment flows around the world, some of 1121 01:06:25,350 --> 01:06:29,100 Speaker 2: them from China. But China has different reasons for investing 1122 01:06:29,100 --> 01:06:31,610 Speaker 2: abroad in part because they become too expensive. 1123 01:06:32,260 --> 01:06:37,860 Speaker 1: That's right. Uh Bert what a sweeping, you know, discourse 1124 01:06:37,860 --> 01:06:42,130 Speaker 1: on China. I'm very grateful for your terrific insights and 1125 01:06:42,130 --> 01:06:45,180 Speaker 1: very nuanced analysis. Thank you, Bert. 1126 01:06:45,730 --> 01:06:49,010 Speaker 2: My pleasure. Good to be back and maybe we'll make 1127 01:06:49,010 --> 01:06:50,380 Speaker 2: it 1/4 time. 1128 01:06:50,480 --> 01:06:53,000 Speaker 1: It will be the three figures of Kobe time by 1129 01:06:53,000 --> 01:06:54,850 Speaker 1: then for sure. But yeah, you will be the first 1130 01:06:54,850 --> 01:06:56,640 Speaker 1: one to make that. I can guarantee you that. 1131 01:06:56,890 --> 01:06:59,670 Speaker 1: Uh So thank you, Bert and thanks to our listeners, 1132 01:06:59,680 --> 01:07:03,110 Speaker 1: Kobe Time was produced by Ken Del Bridge from Spice Studios, 1133 01:07:03,120 --> 01:07:06,740 Speaker 1: Daisy Sharma and violently provided additional assistance. This podcast is 1134 01:07:06,740 --> 01:07:09,740 Speaker 1: for information only and does not offer any investment advice. 1135 01:07:09,750 --> 01:07:13,270 Speaker 1: All 93 episodes of Coffee time are available on youtube 1136 01:07:13,280 --> 01:07:16,530 Speaker 1: and on all major platforms including Apple Google and Spotify. 1137 01:07:16,540 --> 01:07:19,690 Speaker 1: As for our research publications and webinar recordings, you can 1138 01:07:19,690 --> 01:07:23,220 Speaker 1: find them all by Googling DBS research Library. Have a 1139 01:07:23,220 --> 01:07:23,950 Speaker 1: great day.