WEBVTT - Kopi Time E093 - China Outlook with Bert Hofman 0:00:07.220 --> 0:00:10.840 Welcome to Kobe Time, a podcast series on Markets and 0:00:10.840 --> 0:00:14.470 Economies from DBS Group Research. I'm Time Ruby, chief economist, 0:00:14.480 --> 0:00:18.349 welcoming you to our 93rd episode which will be devoted 0:00:18.350 --> 0:00:19.369 to China. 0:00:20.090 --> 0:00:25.210 China had a torrent 2022 struggling to manage the pandemic, 0:00:25.220 --> 0:00:28.750 dealing with distress in the property and tech sectors, facing 0:00:28.750 --> 0:00:31.610 pushback from the U S and its allies on technology 0:00:31.610 --> 0:00:37.290 and market access, etcetera. 2023 is off to a promising start. 0:00:37.300 --> 0:00:40.489 But could this be a false done? Well, let's get 0:00:40.490 --> 0:00:44.010 some expert views. Today's guest is a long standing supporter 0:00:44.010 --> 0:00:46.540 of Kobe Time, Bert Hoffman. Bert 0:00:46.620 --> 0:00:50.010 is the Director of the East Asian Studies Institute at 0:00:50.010 --> 0:00:53.390 National University of Singapore and professor in practice at the 0:00:53.390 --> 0:00:57.060 Lee Kuan Yew School. Before joining us, he worked at 0:00:57.060 --> 0:01:00.060 the World Bank for 27 years, 22 of which were 0:01:00.060 --> 0:01:02.840 in Asia and a dozen of those were in China 0:01:02.840 --> 0:01:05.510 where he was country director for the World Bank from 0:01:05.510 --> 0:01:10.450 2014 to 2019, Bert Hoffman. Warm welcome back to Capitan. 0:01:10.450 --> 0:01:13.140 You're our first three peat guest. 0:01:13.690 --> 0:01:15.290 Great to be back. Time War. 0:01:15.300 --> 0:01:17.600 It's great to have you a lot to talk about 0:01:17.610 --> 0:01:21.899 but start with perhaps the pandemic bird. Let's begin by 0:01:21.910 --> 0:01:24.720 taking stock of this remarkable turnaround that we have seen 0:01:24.720 --> 0:01:25.869 in the last few months. 0:01:26.580 --> 0:01:30.470 Yeah. Well, the, we're almost done with the turnaround. It 0:01:30.470 --> 0:01:33.300 almost looks as if the numbers are showing that the 0:01:33.300 --> 0:01:35.850 rural areas are a bit different than the less monitored 0:01:35.850 --> 0:01:39.920 than the urban areas. But there's been this tremendous wave 0:01:39.930 --> 0:01:41.990 starting sort of mid December 0:01:42.510 --> 0:01:46.270 by early January, it was already starting to peter out. 0:01:46.270 --> 0:01:49.360 And now over the Chinese New Year, we see a 0:01:49.360 --> 0:01:52.890 further decline in at least the infections as far as 0:01:52.890 --> 0:01:55.840 we know what the data are far less strong than 0:01:55.840 --> 0:02:01.700 before because there's practically no more testing, but the government 0:02:01.710 --> 0:02:06.040 has incidentally reported on the infection rate and that now 0:02:06.040 --> 0:02:10.970 seems to come down quite dramatically. So, um 0:02:11.169 --> 0:02:13.579 I mean, just three months ago, we were thinking this 0:02:13.580 --> 0:02:18.040 was impossible and now we're almost through with the omicron wave. 0:02:18.050 --> 0:02:21.440 Of course, there's been lots of suffering. There's been many 0:02:21.450 --> 0:02:25.660 people that because they were not vaccinated enough or simply 0:02:25.660 --> 0:02:31.270 because they were old that died because of Macron. But 0:02:31.270 --> 0:02:34.680 it seems to be that from now on, at least 0:02:34.680 --> 0:02:38.680 the economic recovery can really take, take hold. 0:02:39.520 --> 0:02:43.540 But, but what does it say about pandemic management? I mean, 0:02:43.540 --> 0:02:48.570 now we're the third year of this pandemic and in 0:02:48.570 --> 0:02:51.450 the rest of the world, the M RNA vaccines played 0:02:51.450 --> 0:02:56.160 a very large role in that pandemic management process in 0:02:56.160 --> 0:02:58.970 the case. Of China. That wasn't the case. Does it 0:02:58.970 --> 0:03:00.850 mean that whether you have the right vaccine or the 0:03:00.850 --> 0:03:03.440 wrong vaccine or rather the more effective vaccine and not 0:03:03.440 --> 0:03:07.030 so effective vaccine, you sort of go through the same narrative. 0:03:07.930 --> 0:03:13.079 Well, I think what happened in China would have in part, 0:03:13.080 --> 0:03:17.370 be avoidable first, I don't think that the local vaccines 0:03:17.370 --> 0:03:21.390 are that much less effective. It just takes three shots 0:03:21.389 --> 0:03:27.269 of them. Uh China did a lot of vaccination in 2021, 0:03:27.280 --> 0:03:29.730 but then it sort of petered out in part because 0:03:29.730 --> 0:03:34.490 they were so successful and they made a tactical mistake 0:03:34.490 --> 0:03:35.500 in the beginning 0:03:35.680 --> 0:03:37.730 to say what the vaccines are ready for the working 0:03:37.730 --> 0:03:39.760 people because they go out and about and they need 0:03:39.760 --> 0:03:43.480 to be protected. The elderly therefore, had the impression that 0:03:43.480 --> 0:03:46.309 maybe this was not such a great idea for them. 0:03:46.310 --> 0:03:49.670 And of course, elderly are also more vulnerable to any 0:03:49.680 --> 0:03:55.430 side effects of vaccination. But the vaccine themselves are pretty effective, 0:03:55.430 --> 0:03:57.870 not as effective as the M R N A s but, 0:03:57.880 --> 0:04:02.720 but pretty high effectiveness after three vaccines. The problem is 0:04:02.720 --> 0:04:05.010 that a lot of people got their third vaccine 0:04:05.300 --> 0:04:08.520 the third shot already quite a while ago. So maybe 0:04:08.520 --> 0:04:13.520 they were not under, under the most recent wave. At 0:04:13.520 --> 0:04:17.830 the same time, Macron is far lighter. Uh the impact 0:04:17.830 --> 0:04:20.830 of O Macron, even if you're not vaccinated is far 0:04:20.830 --> 0:04:25.909 milder than say the delta, the delta variant, which caused 0:04:25.910 --> 0:04:28.820 a lot of deaths in the United States and in Europe. 0:04:28.830 --> 0:04:29.719 So 0:04:30.130 --> 0:04:33.940 um in that sense, it did, it did pay for 0:04:33.940 --> 0:04:39.979 China to wait. But of course, it came at considerable cost. 0:04:39.980 --> 0:04:41.349 And I think that in the end was a big 0:04:41.350 --> 0:04:45.020 factor for China to move out of COVID, 0 to 0:04:45.020 --> 0:04:50.000 0 COVID policy relatively quickly. I mean, I would say 0:04:50.000 --> 0:04:50.919 too quickly 0:04:51.260 --> 0:04:56.130 uh in, in November, December last year and the other 0:04:56.130 --> 0:05:01.210 part of, of uh of the exit was of course 0:05:01.210 --> 0:05:04.690 the demonstrations that took place. I mean, the people were 0:05:04.690 --> 0:05:09.000 basically fed up. That was in early November, that was 0:05:09.000 --> 0:05:12.200 after the Party Congress. There was an announcement, ok. We're 0:05:12.200 --> 0:05:15.929 going to do the 20 point program and that basically 0:05:15.930 --> 0:05:19.940 was a gradual exit from zero co of it. 0:05:20.400 --> 0:05:24.669 But the effect was that infections showed up and local 0:05:24.670 --> 0:05:28.610 governments still clamped down by means of lockdowns and that 0:05:28.620 --> 0:05:32.130 triggered then the protests, I think by then already the 0:05:32.130 --> 0:05:38.440 infections rates were so high that frankly, it was almost unstoppable. Again. 0:05:38.450 --> 0:05:42.320 I think a more phased exit would have been desirable. 0:05:42.820 --> 0:05:47.719 But as uh the great Donald Rumsfeld said it is 0:05:47.720 --> 0:05:49.550 what it is. And now we are looking at a 0:05:49.550 --> 0:05:55.150 recovery to uh to this, to this uh three years 0:05:55.150 --> 0:06:00.220 really off COVID management that did have some that have results. 0:06:00.220 --> 0:06:01.570 There's no question about it, 0:06:02.210 --> 0:06:05.690 but China is now behind everybody else in, in the, 0:06:05.690 --> 0:06:08.669 in the recovery phase. Mind you none of the countries 0:06:08.680 --> 0:06:13.150 except maybe where I live, Singapore did it very well. 0:06:13.150 --> 0:06:16.440 That exit Singapore went very carefully, very sort of two 0:06:16.440 --> 0:06:19.789 steps forward, one step back in the exit took in 0:06:19.790 --> 0:06:23.400 total about nine months to exit, to exit the zero 0:06:23.400 --> 0:06:26.070 COVID or not the zero COVID, but a very strict 0:06:26.070 --> 0:06:28.549 COVID management that, that Singapore had. 0:06:29.210 --> 0:06:32.000 And I think that was a very good way to 0:06:32.000 --> 0:06:34.930 go about. But nevertheless, they also experienced a wave. They 0:06:34.930 --> 0:06:39.650 also experienced more, more death in the in the exit 0:06:39.650 --> 0:06:43.730 of the, of the COVID management. So it was almost unavoidable. 0:06:43.740 --> 0:06:46.110 I'm not even speaking about other countries in Europe or 0:06:46.110 --> 0:06:49.640 the United States, the United States never exited because they 0:06:49.640 --> 0:06:55.890 never really entered a COVID serious COVID management effort except 0:06:55.890 --> 0:06:57.049 for the vaccines. 0:06:58.040 --> 0:06:58.240 I 0:06:58.240 --> 0:07:00.739 want to talk about the vaccine for just one more moment. 0:07:00.750 --> 0:07:03.190 But if I may, I saw a recent article by 0:07:03.190 --> 0:07:08.020 Joe Stiglitz where he basically accused Western Pharma companies of 0:07:08.029 --> 0:07:11.920 hoarding the formula behind the M R N A vaccine. 0:07:11.920 --> 0:07:14.200 And his point was this should be a global public good. 0:07:14.210 --> 0:07:16.400 And if a company in China just wants to copy 0:07:16.400 --> 0:07:17.350 it and sell it, 0:07:17.490 --> 0:07:19.720 uh so be it because it is an issue of 0:07:19.730 --> 0:07:23.490 global public health. Um would an approach like that, let's 0:07:23.490 --> 0:07:26.920 say a year ago, would it have made a difference? 0:07:26.920 --> 0:07:29.650 Because it seems to me a year ago, the narrative 0:07:29.650 --> 0:07:32.440 out of China was M RNA is a Western vaccine 0:07:32.450 --> 0:07:34.750 and that I think was very unfortunate. It should have 0:07:34.750 --> 0:07:36.600 been something seen as a global good. 0:07:37.620 --> 0:07:40.350 Yeah, look, frankly, I, I don't think the price was 0:07:40.350 --> 0:07:44.560 an impediment for China. They could have afforded it. Um, 0:07:44.570 --> 0:07:47.580 they chose not to and they chose to pursue their 0:07:47.580 --> 0:07:50.130 own research in a local 0:07:50.350 --> 0:07:52.660 M RNA. I mean, the irony is that they were 0:07:52.660 --> 0:07:56.440 ready to produce it in, in, in China, the fighter, 0:07:56.450 --> 0:08:00.560 the fighter biontech M RNA, they were ready to actually 0:08:00.560 --> 0:08:03.570 produce it in on a major scale but that they 0:08:03.580 --> 0:08:06.520 backed away from that. So I don't think price was 0:08:06.520 --> 0:08:09.960 an issue. It was in some, in some developing countries, 0:08:09.960 --> 0:08:10.800 it was an issue. 0:08:11.400 --> 0:08:16.300 And I think that whole system of incentives for innovation 0:08:16.300 --> 0:08:21.310 would for global public goods can be reconsidered. And if 0:08:21.310 --> 0:08:27.220 you want indeed go back 20 years. Uh it was 0:08:27.230 --> 0:08:30.830 governments around the world that invested in the research that 0:08:30.830 --> 0:08:34.360 made the M RNA vaccine possible, but it was also 0:08:34.360 --> 0:08:38.660 companies that invested for 10 years, say to commercialize 0:08:39.260 --> 0:08:43.310 the platform that made it in the end possible to, 0:08:43.320 --> 0:08:47.069 to produce, to produce the vaccine itself and to respond 0:08:47.070 --> 0:08:52.120 very quickly to the COVID 19, to the COVID 19 epidemic. 0:08:52.120 --> 0:08:55.120 So I think 11 0:08:57.500 --> 0:09:00.990 you know, it's amidst a pandemic, you always say, well, 0:09:00.990 --> 0:09:04.510 they should give it away. But then the question is 0:09:04.510 --> 0:09:07.250 also what's the impact on the next pandemic and the 0:09:07.250 --> 0:09:10.780 incentives to, to do R N A? If it isn't 0:09:10.780 --> 0:09:15.439 it purely government financed R and D that leads to 0:09:15.970 --> 0:09:19.569 uh an outcome one can consider to say, okay, maybe 0:09:19.570 --> 0:09:20.620 one should give it away. 0:09:22.630 --> 0:09:27.790 Right. Um I think uh there are, you know, in, 0:09:27.800 --> 0:09:29.710 in the middle of a big global crisis, I think 0:09:29.710 --> 0:09:32.150 there's always a tendency to, you know, forget about long 0:09:32.150 --> 0:09:34.660 term incentives, just get it done, get us out of 0:09:34.660 --> 0:09:36.750 the crisis and then we'll see. But you're right. 0:09:36.920 --> 0:09:41.190 Uh companies like Biontech and Moderna spent a decade or 0:09:41.190 --> 0:09:45.980 more uh investing in the whole M RNA technology infrastructure 0:09:45.980 --> 0:09:49.620 before you know, the timing came to be, you know, 0:09:49.630 --> 0:09:51.670 sort of, you know, right for them to be very, 0:09:51.670 --> 0:09:54.410 very effective around the world. I'm pretty sure that the 0:09:54.410 --> 0:09:57.699 Chinese foreign companies will also get certain strategic investments from 0:09:57.700 --> 0:10:01.760 the government of China preparation for the next rainy day. 0:10:01.770 --> 0:10:05.060 Um but Macro China, 0:10:05.420 --> 0:10:10.359 particularly the economic environment, so we in the last say, 0:10:10.360 --> 0:10:14.199 23 months have begun to pick up a pro growth 0:10:14.200 --> 0:10:18.230 shift in economic policy. Uh Would you like to sort of, 0:10:18.230 --> 0:10:20.680 you know, express your take on what's been going on 0:10:20.679 --> 0:10:21.559 on the economic front? 0:10:22.320 --> 0:10:26.650 Well, so the numbers may not show that much yet, 0:10:26.650 --> 0:10:29.470 but if you want the tone has clearly changed and 0:10:29.470 --> 0:10:34.570 that is, I think the watershed was the the 20th 0:10:34.570 --> 0:10:39.190 Party Congress which took place in October and after that, 0:10:39.200 --> 0:10:42.360 some major speeches, but then particularly the central economic work 0:10:42.360 --> 0:10:45.450 conference reflects a far more, 0:10:45.880 --> 0:10:49.720 not just pro growth stance, but also far more friendlier 0:10:49.720 --> 0:10:54.239 stance towards the private sector are friendlier stance even towards 0:10:54.240 --> 0:10:59.450 the previously maligned platform companies. So I think there has 0:10:59.450 --> 0:11:04.900 been some realization that some of the previous policy directions 0:11:05.120 --> 0:11:07.800 Would not bring China where it wants to be. I 0:11:07.809 --> 0:11:13.350 continue to grow were relatively high with I mean the 0:11:13.360 --> 0:11:16.250 informal target for the next 15 years is 0:11:16.610 --> 0:11:21.800 this 4.75% that rolls out if you take Xi Jinping's 0:11:21.800 --> 0:11:26.210 doubling of 2020 G D P by 2035. If you 0:11:26.210 --> 0:11:29.120 take that series, you would need a growth rate of 0:11:29.130 --> 0:11:32.839 4.75 and you would probably need a higher growth within 0:11:32.840 --> 0:11:36.520 the early years given that there are factors such as demographics, 0:11:36.520 --> 0:11:39.690 such as other other factors that would sort of bring 0:11:39.690 --> 0:11:43.309 in the later years, bring a lower growth rate. So 0:11:43.500 --> 0:11:48.880 Um and and the previous policy stands with big emphasis 0:11:48.880 --> 0:11:52.800 on controlling capital, I mean the in the 2021. So 0:11:52.800 --> 0:11:56.230 not the latest, but the 2021 Central Economic Work Conference 0:11:56.230 --> 0:12:02.260 that was controlling of the wild expansion of capital by 0:12:02.260 --> 0:12:06.180 means of a traffic light system. So that all sounded quite, 0:12:06.190 --> 0:12:10.069 quite scary. Now, the tone is different 0:12:10.300 --> 0:12:14.600 and some of the actions are quietly frankly different. Uh 0:12:14.610 --> 0:12:20.900 policymakers have said look, the rectification of the platform companies 0:12:20.900 --> 0:12:23.580 is now over doesn't mean it's not gonna be any regulation, 0:12:23.580 --> 0:12:26.370 but it's going to be a normal in a more 0:12:26.370 --> 0:12:31.719 normal regulatory process. So it's not catching up on previously 0:12:31.720 --> 0:12:37.540 lacking regulation. D D do Jin was allowed to 0:12:37.809 --> 0:12:41.560 take on new users on their platform for two more 0:12:41.559 --> 0:12:44.199 than two years, they couldn't do that. So there's some, 0:12:44.200 --> 0:12:47.850 some positive signals there that, that, that promised a bit 0:12:47.850 --> 0:12:51.030 more in the, in the, in the, in the coming 0:12:51.030 --> 0:12:52.140 in the coming years. 0:12:52.710 --> 0:12:56.970 Uh You know, I'm careful there because tone does not 0:12:56.970 --> 0:12:59.640 yet mean real policies. And I think it will take 0:12:59.640 --> 0:13:03.250 some time to see what is true, whether there is 0:13:03.250 --> 0:13:06.360 truly a new direction under the new team that Xi 0:13:06.360 --> 0:13:09.960 Jinping pass put in place and the transition will be 0:13:09.960 --> 0:13:14.010 completed by March. And then we will probably see some 0:13:14.020 --> 0:13:17.480 some more evidence of a change in direction 0:13:17.940 --> 0:13:22.900 at say the third planet which is traditionally about economic policy. 0:13:22.900 --> 0:13:26.050 So that would be somewhere in the fall. Um So 0:13:26.050 --> 0:13:28.469 I'm a bit careful. I think a lot of investors 0:13:28.470 --> 0:13:30.560 are still a bit careful and, and that of course, 0:13:30.559 --> 0:13:34.050 brings you to this year's growth picture where 0:13:35.140 --> 0:13:39.020 a lot of people expect this the big rebound in consumption, 0:13:39.020 --> 0:13:44.579 the revenge consumption coming after COVID, I'd be I'd be 0:13:44.590 --> 0:13:46.979 a little bit modest in my expectations. Yes, there will 0:13:46.980 --> 0:13:49.800 be a bump in, in, in consumption, but there's still 0:13:49.800 --> 0:13:53.429 lots of uncertainties out there. So the savings rate of 0:13:53.429 --> 0:13:59.679 household may remain quite big. Second, uh The part of 0:13:59.679 --> 0:14:02.550 the reason why the household saves so much is indeed 0:14:02.550 --> 0:14:04.920 as you mentioned, the property sector. 0:14:05.130 --> 0:14:09.370 So they couldn't invest in their traditional and favorite investment 0:14:09.370 --> 0:14:11.000 I E apartments. 0:14:11.610 --> 0:14:16.890 Uh that by itself was not a great idea anymore, 0:14:16.900 --> 0:14:22.560 but there's very few alternative investment vehicles for, for China, 0:14:22.570 --> 0:14:25.590 maybe stocks will get a bit more of a booster. 0:14:25.600 --> 0:14:28.580 And yes, they will allocate a bit more in if 0:14:28.580 --> 0:14:32.070 you want durable, durable goods such as cars and otherwise. 0:14:32.080 --> 0:14:34.980 But whether that is going to be a major driver 0:14:34.980 --> 0:14:36.380 of draws, after all, 0:14:36.800 --> 0:14:40.780 Household consumption is only 38% of GDP by now. It's going, 0:14:40.780 --> 0:14:43.540 it has come down again from almost 40 a couple 0:14:43.540 --> 0:14:46.730 of years back. And, and so you still need that 0:14:46.730 --> 0:14:48.320 investment component 0:14:48.860 --> 0:14:53.430 to drive growth externally. It doesn't look very good. I 0:14:53.440 --> 0:14:57.630 may not be as pessimistic as as some including the 0:14:57.630 --> 0:15:00.540 I M F. Some see that some say that you know, 0:15:00.540 --> 0:15:03.250 the Europe and the U S for sure are going 0:15:03.250 --> 0:15:05.450 to be in a recession. I frankly, 0:15:05.960 --> 0:15:08.310 I'm not so sure if I look at the numbers, 0:15:08.310 --> 0:15:12.910 but I'm not the expert there, irrespective external demand is 0:15:12.910 --> 0:15:15.010 not going to drive China's growth. I think we can 0:15:15.010 --> 0:15:18.140 agree on that. So that investment growth is still very, 0:15:18.140 --> 0:15:22.490 very important. Overall investment is still more than 40% of GDP. 0:15:23.180 --> 0:15:25.880 Another question is okay. So, so, so part of that 0:15:25.880 --> 0:15:30.740 of course, is is government investment, especially government investment in infrastructure. 0:15:31.290 --> 0:15:35.350 Well, uh the ones that need to do that is 0:15:35.350 --> 0:15:39.700 local governments and then by now pretty tight, they don't 0:15:39.700 --> 0:15:42.670 have enough revenues and they have loaded up quite a 0:15:42.670 --> 0:15:46.910 bit of formal debt on the books and informal debt 0:15:46.920 --> 0:15:52.620 through the local government financing vehicles that are enjoying a 0:15:52.620 --> 0:15:55.490 second leash of life. They were supposed to have been 0:15:55.490 --> 0:15:59.320 phased out after 2015, but they're sort of back and 0:15:59.330 --> 0:16:00.270 thriving and 0:16:00.670 --> 0:16:05.190 yes, it's not formal government debt, but nevertheless, local governments 0:16:05.190 --> 0:16:08.040 are probably going to be held responsible for it. So 0:16:08.050 --> 0:16:11.880 maybe not as much as before, maybe not as much 0:16:11.890 --> 0:16:16.620 impetus will come from infrastructure property. We've talked about maybe 0:16:16.620 --> 0:16:20.800 not as much impetus from property simply because the mass 0:16:20.800 --> 0:16:24.250 in the property sector still needs to be sorted out. 0:16:24.260 --> 0:16:25.440 And if I had 0:16:25.950 --> 0:16:29.430 A couple of $100,000 in China, I'm not sure whether 0:16:29.440 --> 0:16:33.210 this year would be the moment to buy an apartment 0:16:33.210 --> 0:16:36.250 that would be delivered to three years from now with 0:16:36.250 --> 0:16:38.810 a company that I'm not sure whether it will be 0:16:38.810 --> 0:16:41.650 around 23 years from now. So I think there's still 0:16:41.650 --> 0:16:44.700 a lot of uncertainty there. It will probably stabilize at 0:16:44.700 --> 0:16:46.590 a much lower level 0:16:47.330 --> 0:16:49.990 but it won't be a major driver at all. So 0:16:49.990 --> 0:16:50.660 that then 0:16:51.470 --> 0:16:55.320 The remaining part is business investment, both public and private. 0:16:55.330 --> 0:16:59.800 It's a surprisingly low share of GDP by now. Government 0:16:59.800 --> 0:17:03.810 has stopped publishing the numbers unfortunately. So we can't really 0:17:03.810 --> 0:17:06.540 determine it. But some of the estimates that we have 0:17:06.550 --> 0:17:11.610 uh shows that it's only 12-14% of GDP is business investment. 0:17:11.609 --> 0:17:14.109 So it's less than a third of total investment, 0:17:15.700 --> 0:17:19.580 but they're somewhat more optimism coming from the more positive 0:17:19.580 --> 0:17:23.650 tone that the central economic work conference and other major 0:17:23.650 --> 0:17:27.070 policy actions provide for 0:17:27.760 --> 0:17:31.820 Investors in, in public and private businesses that might give 0:17:31.820 --> 0:17:34.260 a bit of a boost. But overall, the picture is 0:17:34.260 --> 0:17:36.689 not that this is going to be a massive rebound 0:17:36.690 --> 0:17:39.940 and we're gonna be in, up in the, in, in, 0:17:39.950 --> 0:17:43.850 in the 7, 8% rate. It sounds we don't do 0:17:43.850 --> 0:17:48.380 any formal projections, but 5-6, it's probably a good sort 0:17:48.380 --> 0:17:51.940 of a good number to focus the mind on. 0:17:52.359 --> 0:17:56.139 Right. I think bird even 5-6 would be pretty good 0:17:56.140 --> 0:17:59.510 for the world even if one doesn't entertain outright recession 0:17:59.510 --> 0:18:02.580 in Europe and the us, it is a slower outlook 0:18:02.590 --> 0:18:05.370 and a rebound from China. You know, I'll take that 0:18:05.369 --> 0:18:11.330 balancing outcome at least for 2023. You were describing the 0:18:11.330 --> 0:18:13.060 property market and you talk about a big mess. So 0:18:13.060 --> 0:18:13.379 I want to 0:18:13.390 --> 0:18:15.699 get a little deeper into the big mess of the 0:18:15.700 --> 0:18:18.980 property sector in terms of reform. So we have the 0:18:18.980 --> 0:18:21.840 three red lines a couple of years ago. It seems 0:18:21.840 --> 0:18:25.200 like right now there's a bit of a step back 0:18:25.210 --> 0:18:29.450 from the three red lines direction of reforms because it 0:18:29.450 --> 0:18:31.379 is a big mess and it has to be sorted out. 0:18:31.380 --> 0:18:33.590 Otherwise it'll just become a big albatross around the neck 0:18:33.590 --> 0:18:34.410 of the economy. 0:18:35.800 --> 0:18:40.330 So it's it's it's a very complicated, I mean, that's 0:18:40.330 --> 0:18:45.700 the property sector proper, sorry for the double proper. But 0:18:45.700 --> 0:18:48.100 then there is the broader setting in which that property 0:18:48.100 --> 0:18:52.100 sector has, has become such an important part of the economy. 0:18:52.109 --> 0:18:54.920 And I think that is important as well. And that's 0:18:54.920 --> 0:18:58.480 really linked to local government, to revenues of local government, 0:18:58.480 --> 0:18:58.950 to 0:18:59.869 --> 0:19:04.580 The intergovernmental fiscal system that really now needs reforms. I mean, 0:19:04.580 --> 0:19:07.500 it's been almost 30 years that there was a serious 0:19:07.500 --> 0:19:15.219 reform of of that fiscal sector. I think China is 0:19:15.220 --> 0:19:17.570 ready for another wave of reforms there 0:19:18.210 --> 0:19:20.520 on the property sector. So 0:19:21.340 --> 0:19:25.840 yes, the government basically saved the number of companies that 0:19:25.840 --> 0:19:30.660 got into trouble by very the three red line policy, 0:19:30.660 --> 0:19:35.199 the very tight policy on leverage in property sector and 0:19:35.200 --> 0:19:40.780 on indebtedness. But it caused part of the problem because 0:19:40.790 --> 0:19:41.940 because 0:19:42.530 --> 0:19:46.700 the property sector developing company developer companies were not able 0:19:46.700 --> 0:19:50.530 to borrow as much as before they rely even more 0:19:50.530 --> 0:19:51.920 on pre sales. 0:19:52.609 --> 0:19:57.310 So pre sales became the vehicle by which they financed 0:19:57.310 --> 0:20:00.590 the construction of companies of of of property. 0:20:02.170 --> 0:20:07.090 Technically there is some sort of a guarantee on that, 0:20:07.100 --> 0:20:10.850 but in reality, it doesn't really work. So you had 0:20:10.859 --> 0:20:16.300 this no moment where property companies started to basically 0:20:16.980 --> 0:20:20.169 default on their payments and they simply didn't have money 0:20:20.170 --> 0:20:26.550 to finish their existing existing projects. That part, I think 0:20:26.550 --> 0:20:28.740 the government has more or less fixed, 0:20:29.350 --> 0:20:32.910 But it has not yet fixed is to think about. Well, 0:20:32.910 --> 0:20:36.210 what kind of property sector do we want? And how 0:20:36.210 --> 0:20:39.150 should that look? Like there's been some policy pronouncements on 0:20:39.150 --> 0:20:41.230 that and I think they're going in the right direction. 0:20:41.230 --> 0:20:43.690 I think everybody sort of agrees that it shouldn't go 0:20:43.690 --> 0:20:47.590 back to the old days and the property sector shouldn't 0:20:47.590 --> 0:20:52.600 be 18% of GDP, something even more, but we calculated 0:20:52.600 --> 0:20:55.540 something in the order of 18% of GDP 0:20:55.800 --> 0:20:59.050 it should probably be less and it should also be 0:20:59.050 --> 0:21:02.979 a very different kinds of sector. So it shouldn't be 0:21:02.980 --> 0:21:07.270 all the high end apartments that would be good for 0:21:07.280 --> 0:21:11.670 the wealthier part of Chinese population. 0:21:12.290 --> 0:21:14.810 But there should be a lot of the next wave. 0:21:14.810 --> 0:21:18.380 If you want a big demand will be for rental housing, 0:21:18.380 --> 0:21:20.989 it will be for low income housing. It will be 0:21:20.990 --> 0:21:23.820 for the migrants who want to move out of their 0:21:23.820 --> 0:21:27.420 dorms and want to start building their existence for their 0:21:27.420 --> 0:21:32.400 families without having such high incomes as uh some of 0:21:32.400 --> 0:21:34.240 these apartments are built for. 0:21:34.440 --> 0:21:38.060 So that that is still a decent property sector and 0:21:38.060 --> 0:21:42.380 demand is not is not gone. Also increasingly coming on, 0:21:42.380 --> 0:21:46.510 the market is sort of replacement demand of a lot 0:21:46.510 --> 0:21:49.370 of the apartments built in the 80s and the 90s. 0:21:49.369 --> 0:21:49.850 And the 0:21:50.520 --> 0:21:53.830 Even the 2000, you say, well, maybe people want to 0:21:53.830 --> 0:21:56.240 live a little bigger but also the quality of the 0:21:56.250 --> 0:21:59.230 buildings in those days was not that good. So that's 0:21:59.230 --> 0:22:02.480 quite a bit of replacement demand coming, coming on stream 0:22:02.480 --> 0:22:06.610 as well. But in terms of new demands, I believe 0:22:06.609 --> 0:22:09.630 it's the migrants and the migrant workers that are in 0:22:09.630 --> 0:22:13.140 the cities and that should, they don't have, but that 0:22:13.140 --> 0:22:14.280 should be able to 0:22:14.619 --> 0:22:19.180 Seattle have urban who co have access to financing for 0:22:19.180 --> 0:22:22.610 their apartments. That would be the next wave of demand. 0:22:22.609 --> 0:22:24.429 There will be a different kind of demand and it 0:22:24.430 --> 0:22:27.310 will require different kinds of buildings. It would even require 0:22:27.310 --> 0:22:30.370 different kinds of longer term finance. 0:22:31.270 --> 0:22:35.090 Probably the banks may not even be the greatest vehicle 0:22:35.100 --> 0:22:38.109 for that kind of find, especially not in social housing, 0:22:38.119 --> 0:22:42.090 but there's other sources of finance including the National Social 0:22:42.090 --> 0:22:46.400 Security Fund. It doesn't need massive returns, it doesn't need 0:22:46.400 --> 0:22:50.190 to return and the positive one. But but in other countries, 0:22:50.190 --> 0:22:54.160 that is often a source for social housing finance. So 0:22:54.170 --> 0:22:57.550 so a lot of piece of the puzzle need to 0:22:57.550 --> 0:22:58.780 come together then 0:22:59.090 --> 0:23:03.740 if you no longer built, only for these high end 0:23:03.750 --> 0:23:08.560 expensive apartments, local governments will get less for their land, 0:23:09.450 --> 0:23:12.510 they probably shouldn't sell as much land as they did anyway. 0:23:13.480 --> 0:23:15.459 But they do have a lot of burdens of social 0:23:15.460 --> 0:23:19.030 services and and that burden will only increase as the 0:23:19.030 --> 0:23:23.770 population ages and as new migrants come in. So they 0:23:23.770 --> 0:23:27.320 need new sources of revenues and and again, so going 0:23:27.320 --> 0:23:33.330 back to this property developer game promoted by local governments 0:23:33.330 --> 0:23:36.100 that need the revenues to build the infrastructure and provide 0:23:36.100 --> 0:23:39.170 the services. That would be, that would not be the 0:23:39.170 --> 0:23:41.640 direction that that China should go. 0:23:42.440 --> 0:23:45.460 Okay. So there is a lot of revenue need, there 0:23:45.460 --> 0:23:49.040 is need for dealing with an aging population, dealing with 0:23:49.050 --> 0:23:52.760 urban renewal, climate change and so on. Uh Burt where 0:23:52.760 --> 0:23:53.840 will all this money come from? 0:23:54.859 --> 0:23:57.790 Well, I have one simple solution that will probably not happen. 0:23:57.800 --> 0:24:00.890