Latest / Bloomberg Intelligence / Gavekal's Kroeber: China Needs a Consumer Led Economy (Audio)

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Gavekal's Kroeber: China Needs a Consumer Led Economy (Audio) · Bloomberg Intelligence

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  Speaker 1: Broadcasting live to New York, Bloomberg eleventh Rio to Washington,
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  Speaker 1: nine Team, and around the globe the Bloomberg Radio plus
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  Speaker 1: Appen Bloomberg got Gone. This is taking Stock. I'm Kathleen
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  Speaker 1: Hayes along with Pim Fox Well certainly one of the
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  Speaker 1: biggest factors in the big, big drop in the stock
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  Speaker 1: market the first quarter of six Team was the Chinese
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  Speaker 1: economy slowing down, dropping below seven percent as it moves
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  Speaker 1: from an export led to a consumer led economy. As
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  Speaker 1: the stock market recovers, people try to place their bets
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  Speaker 1: on investments for the rest of the year. What do
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  Speaker 1: we really need to know about China? We're going to
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  Speaker 1: find out in a new book coming up now, Pim. Yes,
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  Speaker 1: and we are also going to get some business news
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  Speaker 1: right now from Catherine Calgary in the Bloomberg newsroom. Thank you, Pam.
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  Speaker 1: The downward momentum continuing on Wall Street today, the smps
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  Speaker 1: I founded headed for its worst two day drops ince
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  Speaker 1: among today's top business stories. Valiant Pharmaceuticals International is trying
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  Speaker 1: has announced a shake off of its board and filing
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  Speaker 1: company at risk of defaulting on its debt. It is
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  Speaker 1: two thirty two on Wall Street, and that means it's
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  Speaker 1: time to get an update on some of the others
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  Speaker 1: where stories were following today On Bloomberg Radio, Catherine, thank
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  Speaker 1: you from the Bloomberg News Room. I'm Mark Crumpton. The
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  Speaker 1: Obama administration is proposing new rules for people applying for jobs.
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  Speaker 1: Bloomberg's Michael Barr with more on the story. Several employers
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  Speaker 1: not apply for positions dealing with national security, intelligence, and
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  Speaker 1: law enforcement. Michael Barr Bloomberg Radio. On Saturday, Americans can
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  Speaker 1: Rosenberg says officials are trying to address a national crisis.
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  Speaker 1: thousand Americans died of drug overdoses last year. Puerto Rico's
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  Speaker 1: health secretary says the island has recorded its first ZEKEA
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  Speaker 1: a drop in blood platelets in February. The US territory
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  Speaker 1: of those involved pregnant women. Senator Chuck Schumer's pushing new
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  Speaker 1: bureaus around the world. From the Bloomberg Newsroom. I'm Mark Crumpton, Catherine,
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  Speaker 1: thank you, and now let's get a quick update of
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  Speaker 1: the equity benchmarks down. Industrial averages down one thirty three
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  Speaker 1: points at seventeen thousand, six hundred ninety seven. Smp F
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  Speaker 1: I foundered down twenty points to two thousand fifty five.
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  Speaker 1: The nastact is down fifty seven fifty five. And that's
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  Speaker 1: a Bloomberg Business Flash BIS taking stock with Kathleen Hayes
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  Speaker 1: and Pim Fox on Bloomberg Radio China taking a look
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  Speaker 1: at China in the context of the country's economy. Also
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  Speaker 1: China taking ups yesterday to impose greater control and limit
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  Speaker 1: the influence of westerners on Chinese society, passing a new
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  Speaker 1: law that restricts the work of foreign organizations and their
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  Speaker 1: local partners, mainly through police surveillance. Here to help us
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  Speaker 1: survey the Chinese economy and the country is Arthur Kroeberg.
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  Speaker 1: He is the author of a new book entitled China's
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  Speaker 1: Economy What Everyone Needs to Know, and he is a
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  Speaker 1: founding partner of gav Cal dragon Omics. Arthur, thank you
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  Speaker 1: very much for coming into the studio. First begin by
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  Speaker 1: telling us about gave La gav Cal dragon Omics. Why
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  Speaker 1: is it called dragon omics? Dragonomics is a company that
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  Speaker 1: I found in Beijing in two thousand and two to
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  Speaker 1: provide economic information about China too, um, institutional investors, companies, governments,
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  Speaker 1: anyone who's interested in what's going on there. Uh. And
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  Speaker 1: you know dragon stands for China and anomics is economics,
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  Speaker 1: and so that's what it's all about. So it's a
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  Speaker 1: very interesting time in China's politics and its culture in
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  Speaker 1: a society so many challenges they face, and the markets
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  Speaker 1: have made so much of this slowdown. You know, us
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  Speaker 1: be ten eleven percent now below seven and some would
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  Speaker 1: say it's much weaker, maybe three and a half percent,
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  Speaker 1: because the Chinese measurements aren't necessarily accurate. But is it
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  Speaker 1: partly that their economy is so much bigger and more
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  Speaker 1: mature that that early stage double digit growth could never
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  Speaker 1: happen now, and that if you put it in more perspective,
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  Speaker 1: you'd say Yeah, it's an economy with challenges like any
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  Speaker 1: other economy, but the growth rate is fairly healthy. Yeah,
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  Speaker 1: that's basically right. And I just like to say, I mean,
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  Speaker 1: there's a lot of commentary that you can't believe the
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  Speaker 1: Chinese numbers and the actual growth rate is much lower
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  Speaker 1: than they report, and and basically I think you should
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  Speaker 1: ignore those kinds of statements. There definitely some issues with
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  Speaker 1: Chinese statistics, uh. And there's a bit of a marchin
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  Speaker 1: of air on either side. But the people kind of
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  Speaker 1: make those statements ignore the fact that China is now
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  Speaker 1: a two track economy. There's an old economy it's related
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  Speaker 1: to investment in capital spending and so forth, and that's
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  Speaker 1: in some serious trouble uh. And it's going very slowly,
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  Speaker 1: but there's a new economy of consumer spending and services
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  Speaker 1: that's going incredibly rapidly, is very vibrant. And yeah, I
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  Speaker 1: think your basic point is correct that this is a
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  Speaker 1: natural transition. China group for about thirty thirty five years
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  Speaker 1: at a very high rate building all the infrastructure for
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  Speaker 1: modern economy, and every country that's gone through that, Japan,
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  Speaker 1: South Korea, Taiwan and for that, the European countries. Uh,
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  Speaker 1: you get to the end of that stage, and then
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  Speaker 1: you have to have an economy that's built on consumer
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  Speaker 1: spending services efficiency, and the natural growth rate is a
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  Speaker 1: lot slower. So a lot of the slowdown that we're
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  Speaker 1: seeing in China is related to that transition. The role
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  Speaker 1: of the Communist Party and particularly the Organization Department. Tell
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  Speaker 1: people about this, well, Okay, so China is kind of
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  Speaker 1: a weird Malcolm. It's a very dynamic economy that many
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  Speaker 1: elements of it are highly capitalist and highly competitive and
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  Speaker 1: almost wild West in their nature. Uh. And it's married
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  Speaker 1: to a political system that's still highly leninist and controlled
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  Speaker 1: and authoritarian and centralized and in a lot of ways
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  Speaker 1: hasn't changed that much in the last twenty years. Uh.
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  Speaker 1: And the Communist Party obviously is at the center of that.
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  Speaker 1: And one of the mechanisms that they use to uh
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  Speaker 1: control the country is that they their their personnel department,
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  Speaker 1: their human resources department points not only all the top
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  Speaker 1: government officials, but the heads of all the main media organizations,
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  Speaker 1: the heads of all the university's think tanks, all the
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  Speaker 1: top judges, etcetera. It's very comprehensive, um. And you could think, well,
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  Speaker 1: This is a really bad way of running things to
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  Speaker 1: have one central HR department for a country at one
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  Speaker 1: point four billion people. But they've actually managed it pretty
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  Speaker 1: well because, um, they have a system of bring people
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  Speaker 1: up based on kind of objective criteria, rotating through jobs
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  Speaker 1: and making sure that people don't stay around in any
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  Speaker 1: one job for too long. So as these things go,
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  Speaker 1: it's it's a pretty effective mechanism. Arthur Carl Walter was
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  Speaker 1: on our show recently. He's the former CEO CEO of
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  Speaker 1: JP Morgan in Chinese, been a long time there. You
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  Speaker 1: mentioned tensions rising in China now and UH President gen
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  Speaker 1: Ping being reluctant to trim back the state role role
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  Speaker 1: and let markets rule. Carl does the stuff further, he
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  Speaker 1: said that there's a sense that there's something more akin
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  Speaker 1: to how the cult of Mao and how that rule was,
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  Speaker 1: that that that regime was structured and how it ran
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  Speaker 1: things seems to be some of that seems we have
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  Speaker 1: possibly cropping back in the j pain. What do you think? Well,
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  Speaker 1: first have to say, Carl's an old friend of mine
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  Speaker 1: and I have enormous respect for his knowledge and judgment. Um,
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  Speaker 1: I have a slightly different take on that where I
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  Speaker 1: would disagree. I don't think the Chijing pain is the
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  Speaker 1: reincarnation of now. It's a very different country. It's a
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  Speaker 1: very different system. The bureaucracy is much more powerful UH,
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  Speaker 1: and he is using a few maur As tactics, but
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  Speaker 1: fundamentally UH is a much more sort of organizationally oriented,
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  Speaker 1: sort of sort of leader UH. I think where Karl
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  Speaker 1: is on the mark, and this would be my big
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  Speaker 1: concern too, is that China needs to make this transition
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  Speaker 1: to a more consumer and service oriented economy. What that
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  Speaker 1: means is that the state needs to take a step back.
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  Speaker 1: It doesn't need to go away necessarily, but he needs
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  Speaker 1: to step back. It needs to give more space for
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  Speaker 1: market forces in the private sector. And what we've seen
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  Speaker 1: in China is a mixture. We've seen some policies that
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  Speaker 1: seem to move in that direction, and then we've seen
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  Speaker 1: some real reluctance to let market forces fully play out.
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  Speaker 1: So there's I think I think there is a real
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  Speaker 1: risk that UH there will be some hiccups on the
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  Speaker 1: way to China's transition to a consumer led economy. Arthur Krobert,
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  Speaker 1: You'll have to follow all these developments with us. Check
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  Speaker 1: out his new book China's economy, but everyone needs to know.
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