Latest / Trumponomics / What Wuhan Can Teach Us About Recovery

Transcript

What Wuhan Can Teach Us About Recovery · Trumponomics

0:00
Speaker 1: So COVID nineteen is um is a kind of stress
0:03
Speaker 1: test for for how economic systems function, and if you
0:08
Speaker 1: look at how China and the US have performed in
0:11
Speaker 1: the last six months, China is actually doing rather better. Hello,
0:21
Speaker 1: and welcome to Stephanomics, the podcast that brings the COVID
0:23
Speaker 1: global economy to you. We're all about China this week,
0:27
Speaker 1: and that was Tom Aulick, Bloomberg's chief economist and old
0:30
Speaker 1: China hand, who has just published a book that helps
0:32
Speaker 1: explain why China's economy has not had the big crisis
0:36
Speaker 1: that so many experts have confidently predicted over the years,
0:40
Speaker 1: and why it also appears to be winning the fight
0:42
Speaker 1: against COVID nineteen. But first, you'll remember we spoke to
0:46
Speaker 1: Sharon Chen, Bloomberg's Beijing bureau chief, back in April. She
0:50
Speaker 1: was in quarantine then in her apartment after a reporting
0:53
Speaker 1: trip to Wuhan. That city was just coming out of lockdown.
0:57
Speaker 1: Then first into the COVID crisis and first out. We
1:00
Speaker 1: spoke to her then about the early signs of recovery
1:03
Speaker 1: there and what it might tell us about the road
1:05
Speaker 1: ahead for the rest of us. Well three months on,
1:08
Speaker 1: I was interested to find out what life has been
1:10
Speaker 1: like in China since then, and whether the authorities still
1:14
Speaker 1: feel good about the way they've handled the pandemic. Sharon,
1:23
Speaker 1: it's great to talk to you again. I know that
1:25
Speaker 1: you're planning another trip to Wuhan, but you've been talking
1:28
Speaker 1: to businesses there about what's what's happening. When we spoke
1:31
Speaker 1: at the beginning, it seemed to show something that we
1:34
Speaker 1: have seen in other places, that it's a twin track economy,
1:37
Speaker 1: that production side coming back but not so much the
1:41
Speaker 1: consumer side. Is that's still true? Yes, so um you know,
1:45
Speaker 1: bought the data and the anecdotes kind of indicate that
1:48
Speaker 1: that's what's happening. Unfortunately, obviously the data is a bit
1:52
Speaker 1: of a lagging indicator, but we have factory production and
1:55
Speaker 1: retail sales, exports, fixed st investment up till me UM
1:59
Speaker 1: and you know, the economy reopened in April, and even
2:02
Speaker 1: in May, we saw that local manufacturers had basically almost recovered.
2:07
Speaker 1: You know, industrial production was only zero point four percent UM,
2:10
Speaker 1: not lower than the year before in growth, but consumptions
2:14
Speaker 1: obviously still lagging UM and exports as well. I mean
2:18
Speaker 1: some more recent data, you know, we look at subway
2:21
Speaker 1: data and a lot of the cities, and in Buhan
2:23
Speaker 1: it shows that traffic passenger traffic has recovered to about
2:27
Speaker 1: half the level, which is you know, decent. And also
2:31
Speaker 1: it could be one of the reasons which we talked
2:33
Speaker 1: about earlier, that people are buying cars and just driving
2:36
Speaker 1: themselves instead of taking public transport, so it's not entirely
2:39
Speaker 1: reflective of how you know, how much people are out again.
2:43
Speaker 1: And we should mention that Wuhan had a flare up
2:46
Speaker 1: in May, so it reopened um in early April, and
2:49
Speaker 1: then in May and new cluster of cases was discovered,
2:52
Speaker 1: and you know, the city reacted very strongly. Obviously, they
2:55
Speaker 1: put in place a lot of strict restrictions and then
2:57
Speaker 1: they tested the entire population of level million people in
3:01
Speaker 1: the span of two weeks and since then they haven't
3:03
Speaker 1: reported a single case. So, you know, just based on
3:06
Speaker 1: the anecdotes as well, we do see that factories are
3:09
Speaker 1: back up a full capacity UM, a lot of the
3:12
Speaker 1: exporters are benefiting. Trade did search as soon as the
3:16
Speaker 1: city reopened, but of course it depends on what kind
3:19
Speaker 1: of product you're making. You know. We spoke to one
3:21
Speaker 1: factory manager who they make plastic cups for airlines and
3:25
Speaker 1: for hotels, and you know, business has just evaporated because
3:29
Speaker 1: the travel industry just collapsed, like they just don't have
3:32
Speaker 1: any demand. But then we talked to another factory that
3:35
Speaker 1: was making helmets and then pivoted to making more face
3:38
Speaker 1: shields and protective gear, and they've seen, you know, demand
3:41
Speaker 1: from South America double because the virus cases there keep increasing.
3:45
Speaker 1: And then it's the same on the consumption front as well.
3:47
Speaker 1: You know, restaurant owners they are struggling because people don't
3:51
Speaker 1: really feel safe and also some of the habits like
3:53
Speaker 1: eating at home, they've just persisted. Um. But on the
3:56
Speaker 1: other hand, you know, we spoke to a factory owner.
3:58
Speaker 1: He produces hot dry noodles, but the instant kind like
4:02
Speaker 1: instant raman where you add hot water, and you know,
4:05
Speaker 1: business is just going through the roof. He's even expanded,
4:07
Speaker 1: he's now delivering to the next city because people just
4:10
Speaker 1: want to stay at home, but they want to eat
4:12
Speaker 1: your favorite food still, so you know, it's just definitely
4:15
Speaker 1: a mixed bag. So if you're if you're involved in
4:19
Speaker 1: the COVID business or you're providing, you're able to provide
4:22
Speaker 1: food that people don't need to be sitting in a
4:23
Speaker 1: restaurant to eat. You're doing You're doing all right. That
4:26
Speaker 1: was interesting what you said about the exports, because one
4:29
Speaker 1: of the concerns looking at China was that we saw
4:32
Speaker 1: the sort of early signs of a V shaped recovery,
4:35
Speaker 1: at least when it came to production, and then the
4:38
Speaker 1: fear was that the terrible things that were going on
4:41
Speaker 1: in the rest of the world would then bring China
4:44
Speaker 1: down again because of it's dependent on exports. But it's
4:47
Speaker 1: so what you're saying is there is that's a twin
4:50
Speaker 1: track as well. If you're on the consumption side, you're
4:52
Speaker 1: doing badly, but actually some of the core products are exporting.
4:56
Speaker 1: Well yeah, I mean, like the supply chain is so
5:00
Speaker 1: global and so integrated now as well, right, I mean,
5:02
Speaker 1: they also feel the impact on the raw material side,
5:05
Speaker 1: but I think you know, the trade story. What's interesting
5:08
Speaker 1: has is that it's also kind of shown the limits
5:11
Speaker 1: of government intervention on government support. You know, the government
5:14
Speaker 1: has rolled out a lot of support for these businesses
5:17
Speaker 1: and especially the smaller ones, but until global demand recovers,
5:22
Speaker 1: there is a limit to what the government can do.
5:25
Speaker 1: And you know, some of the companies that we spoke
5:27
Speaker 1: to said that they can apply for loans and they
5:30
Speaker 1: can apply for grants, but until their own clients overseas
5:34
Speaker 1: are really able to um bring those orders back, you know,
5:37
Speaker 1: there's there's really not much they can do. And then
5:40
Speaker 1: another option for them is to try to get new clients.
5:43
Speaker 1: But then with travel basically understand still, these these trade
5:46
Speaker 1: fairs and everything, I mean, those things aren't happening as well.
5:50
Speaker 1: You mentioned that they had tried in Wuhan to have
5:52
Speaker 1: various measures to stimulate consumption, and of course that's something
5:56
Speaker 1: we've had this week. The British government has been trying
5:58
Speaker 1: to throw a lot of the economy to to get
6:02
Speaker 1: consumers out and about now that the lockdown is easy,
6:05
Speaker 1: we've seen lots of consideration of that in the US
6:09
Speaker 1: as well. Does it work to be putting more money
6:13
Speaker 1: into consumers pockets or is it really all about confidence
6:16
Speaker 1: in the virus? I mean, I think it does work.
6:19
Speaker 1: They've given out about five hundred million grand or shopping vultures,
6:23
Speaker 1: that's about seventy three million U S dollars and you know,
6:26
Speaker 1: people that we spoke to said that they regularly use
6:28
Speaker 1: those vultures, and I think it does get people spending,
6:32
Speaker 1: although it's unclear how much of that spending happens in
6:34
Speaker 1: person and how much of it is happening online because
6:37
Speaker 1: you know, a lot of transactions in China shop online
6:40
Speaker 1: very easily. Um So I don't know how much that
6:43
Speaker 1: is really helping encourage people to go outside and to
6:46
Speaker 1: do things that they used to do. Interestingly, one of
6:50
Speaker 1: the restaurant owners we spoke to said that it was
6:53
Speaker 1: the mass testing campaign that Juhan executed that was the
6:57
Speaker 1: big confidence booster. You know, he saw the most number
7:00
Speaker 1: of customers come in the day after they finished their
7:02
Speaker 1: campaign and announced that they had tested every single person
7:05
Speaker 1: in the city. And you know, if the city is
7:07
Speaker 1: able to pull that off, like, I think that that
7:10
Speaker 1: does kind of really reap dividends in terms of making
7:13
Speaker 1: people feel confident and making them feel safe. Of course,
7:20
Speaker 1: we're also looking ahead wondering how long we're going to
7:24
Speaker 1: feel like we're in uh what you described it when
7:28
Speaker 1: you came back from Wuhan last time, a sort of
7:30
Speaker 1: dystopian post lockdown world where everyone's getting temperature tests or
7:36
Speaker 1: where you're being socially distanced. How far when you're in
7:41
Speaker 1: your day to laid life and when you go out
7:44
Speaker 1: with friends in Beijing. I mean, how far do you
7:47
Speaker 1: still feel you are from normal life? Does it feel
7:50
Speaker 1: when you have these outbreaks that it's still one step
7:53
Speaker 1: forward one step back? Or is it are you starting
7:56
Speaker 1: to see the light at the end of the tunnel?
7:58
Speaker 1: I mean, personally, I do you like life is pretty
8:01
Speaker 1: much back to normal? So we had an outbreak in
8:03
Speaker 1: Beijing a couple of weeks ago, and you know, they
8:08
Speaker 1: they didn't employ the same kind of city wide lockdown
8:11
Speaker 1: that they've used in China and other places, in part
8:14
Speaker 1: because you know, the states are just higher in Beijing.
8:16
Speaker 1: They can't really bring the city to a stand still
8:19
Speaker 1: because there's just so much commerce going on, and then
8:22
Speaker 1: also the halls of government are here as well. So
8:26
Speaker 1: what they did was that they really took this very
8:28
Speaker 1: targeted approach. They broke up the entire city, you know,
8:31
Speaker 1: by district by street, and they determined whether each place
8:34
Speaker 1: was low risk, high risk, a medium risk, and they
8:37
Speaker 1: lockdown areas very specifically, and then they also did huge
8:42
Speaker 1: mass mass testing and they restricted people from leaving the
8:45
Speaker 1: city depending on you know, how risk of their areas were.
8:49
Speaker 1: But they did manage to maintain a large part of
8:52
Speaker 1: normal activity. You know, shops and restaurants all remained open.
8:57
Speaker 1: The main difference was that UM a lot of housing
9:00
Speaker 1: compounds didn't allow visitors in and out, although some did
9:03
Speaker 1: continue to do that. UM And also you know, by
9:06
Speaker 1: now China's developed a lot of the tools that it
9:08
Speaker 1: needs for contact tracing, so everyone has the ability to
9:12
Speaker 1: check on their phone whether they've been in contact with
9:15
Speaker 1: anyone who's a risk, or they've been to any risky areas,
9:18
Speaker 1: or they've traveled. So as long as you're able to
9:20
Speaker 1: show that you have that green call, you can basically
9:23
Speaker 1: go anywhere. So I do think it's like much less
9:27
Speaker 1: dramatic now when there are flare ups, like the government
9:29
Speaker 1: has developed the ability to board test and contact trace
9:32
Speaker 1: and be more targeted in its restrictions. Do you feel
9:36
Speaker 1: I mean we should perhaps say that we were we
9:38
Speaker 1: were hoping to play some clips from some of the
9:41
Speaker 1: people you spoke to Wan who then said they didn't
9:43
Speaker 1: feel comfortable and actually they've been discouraged from talking to
9:46
Speaker 1: foreign media after the last time that you went there.
9:50
Speaker 1: There's a lot of scrutiny on China at the moment
9:54
Speaker 1: in terms of not just what's happened in Hong Kong.
9:56
Speaker 1: But how how it's handled the pandemic. Do you feel
10:02
Speaker 1: as a reporter that the restrictions are tighter or the
10:06
Speaker 1: more limits on what you can do, or is this
10:08
Speaker 1: more or less business as usual? I mean, you know,
10:11
Speaker 1: for Bloomberg, we focus a lot on economic and financial news,
10:14
Speaker 1: and you know, most of the time that's fine, but yeah,
10:17
Speaker 1: I mean, the environment is changing. I mean, you look
10:19
Speaker 1: at what's happening in Hong Kong obviously, and you know,
10:22
Speaker 1: the Chinese government has also taken steps that seemed to
10:25
Speaker 1: be moves towards silencing more criticism and being more focused
10:31
Speaker 1: on making sure that social unrest doesn't take hold. Um.
10:34
Speaker 1: You know, the President Jumping himself has said that social
10:37
Speaker 1: stability is a concern in the wake of the virus,
10:40
Speaker 1: and I think they are hyper aware of anything that
10:43
Speaker 1: may kind of, you know, foment the same amount of
10:46
Speaker 1: unhappiness that happened when the virus was really bad. And
10:50
Speaker 1: you know about the whistleblowers who are silenced and all that,
10:54
Speaker 1: and you know, simultaneously we're seeing this increasing tension between
10:58
Speaker 1: China and the US word the media. So China kicked
11:02
Speaker 1: out several reporters and the US has also been cracking
11:04
Speaker 1: down on American news organizations. Then now we have this
11:07
Speaker 1: spat between the UK and c GTN statement media about
11:12
Speaker 1: airing force confessions and so, you know, I think as
11:15
Speaker 1: China becomes more assertive, yeah, I mean, it definitely is
11:19
Speaker 1: narrowing the scope from for us to act freely. Not
11:24
Speaker 1: that it was free before, but yeah, well you still
11:27
Speaker 1: do you still produce a lot of stories. Will you
11:29
Speaker 1: have to do the same quarantine if you go to
11:33
Speaker 1: Wuhan or is that now you just you just have
11:36
Speaker 1: to show people your at your foot apple and your phone. Yeah.
11:40
Speaker 1: And in fact, um, you know, Wuhan is considered a
11:42
Speaker 1: low risk area. Now there's no cases and they've tested everybody.
11:45
Speaker 1: So actually do you have you were saying they do
11:48
Speaker 1: have floods they just can't break. They've now got people
11:52
Speaker 1: dying from floods. Yeah, I mean there's floods. There's flooding
11:56
Speaker 1: now in southern China. I mean it's a problem every year,
11:58
Speaker 1: but this year it's one of it's it's really becoming
12:02
Speaker 1: more severe. Um, so it's been tough for people in Well, Sharon,
12:06
Speaker 1: I'm sure we might we might check in on you
12:08
Speaker 1: again in in a few months, I mean time, Thank
12:11
Speaker 1: you very much. Yeah, no problem. M Well, that was
12:21
Speaker 1: the view this week from Beijing and Mouhan. Now, as
12:25
Speaker 1: I mentioned at the start, we have the long view
12:27
Speaker 1: on China from our chief economists, Tom Worlick. He's based
12:30
Speaker 1: in Washington now, but he spent eleven years in Beijing,
12:33
Speaker 1: and he's just published a book based on his time there,
12:36
Speaker 1: at least in part, called China The Bubble That Never Pops. Tom.
12:41
Speaker 1: Nice to have you back on the podcast. In your
12:44
Speaker 1: recent piece for Business Week about your book, you started
12:47
Speaker 1: with this line, don't tell Trump, but China's winning. Is
12:51
Speaker 1: China winning everything or just the fight against COVID nineteen.
12:56
Speaker 1: So COVID nineteen is is a kind of stress test
12:59
Speaker 1: for for how economic systems function. And if you look
13:04
Speaker 1: at how China and the US have performed in the
13:07
Speaker 1: last six months, China is actually doing rather better. China's
13:11
Speaker 1: got the virus under control. The US doesn't have the
13:14
Speaker 1: virus under control. China managed to control unemployment, the U
13:18
Speaker 1: saw unemployment rise to levels not seen since the Great Depression.
13:23
Speaker 1: China's poised to get back to growth. Factories are already
13:26
Speaker 1: in a better place than they were a year ago.
13:29
Speaker 1: The US is still a long way underwater, so there's
13:33
Speaker 1: a broader point there as well. I think the way
13:36
Speaker 1: we look at the Chinese model is flawed. We only
13:40
Speaker 1: see the downsides and the stresses. We don't see the
13:43
Speaker 1: strengths and the sources of resilience well, and the general,
13:47
Speaker 1: as you say, the general thesis of your book is
13:49
Speaker 1: that China is stronger than it looks economically. Certainly. I
13:53
Speaker 1: know when I was working in the investment world and
13:55
Speaker 1: people would say, what are your top three or top
13:57
Speaker 1: five risks for the year, And when you hear the
14:02
Speaker 1: sort of strategist talk about it, if they had sort
14:04
Speaker 1: of run out of one, they would just throw in
14:06
Speaker 1: China blowing up, because it was sort of a standard
14:08
Speaker 1: thing that you would expect China's debt issues and financial
14:12
Speaker 1: problems to finally all come home to roost. You're saying
14:16
Speaker 1: that we could carry on waiting quite a long time. Yeah,
14:20
Speaker 1: so I was in I was in China for eleven years,
14:23
Speaker 1: and for that entire time, there was this sort of
14:26
Speaker 1: thread of pessimism, thread of doom, almost running through the
14:30
Speaker 1: Western commentary on China. Yes, the story went tem percent
14:35
Speaker 1: growth looks impressive, but if you pope beneath the surface,
14:38
Speaker 1: it's all financed by debt. All the debt is being misallocated.
14:42
Speaker 1: It's a bubble and it's going to blow up, and
14:45
Speaker 1: of course it doesn't ever blow up. So my motivation
14:48
Speaker 1: in putting pen to paper for this book was, of
14:51
Speaker 1: course mainly fame and wealth beyond my wildest dreams, but
14:55
Speaker 1: beyond that, I also wanted to explain why the bubble
14:59
Speaker 1: never pops, and I think an important reason is we
15:02
Speaker 1: look at the negatives, we don't consider the positives. And
15:06
Speaker 1: on the financial system, what that means is we look
15:09
Speaker 1: at the massive build up of debt. We look at
15:11
Speaker 1: how the debt has been allocated to zombie firms and
15:16
Speaker 1: real estate developers building ghost towns in the desert, and
15:19
Speaker 1: those are big problems. But what we forget is for
15:22
Speaker 1: bad loans to turn into a financial crisis, you also
15:25
Speaker 1: need to have a funding problem for the banks. And
15:28
Speaker 1: because China's saving rate is so high, and because it's
15:31
Speaker 1: hard to take money out of the country, the funding
15:33
Speaker 1: base for the banks is actually really solid. And as
15:37
Speaker 1: you say, there's all the things that people identify that
15:39
Speaker 1: a weaknesses. You know that debt exists um, But you're
15:43
Speaker 1: saying that there is also that there is a corresponding
15:45
Speaker 1: strength there which the government has room to support the
15:48
Speaker 1: banks in a way they don't in other countries. I
15:51
Speaker 1: think you know some one of a couple of your
15:53
Speaker 1: other strengths that you point out is that state intervention
15:57
Speaker 1: that you have there is actually effective and strength, not
16:01
Speaker 1: just a question of of meddling in the economy and
16:04
Speaker 1: getting in the way of markets. And you have the
16:06
Speaker 1: sheer scale of the economy. That's also an advantage, isn't it. Yeah.
16:11
Speaker 1: When we look at the state system in China from
16:14
Speaker 1: our perspective here in the West, where we, you know,
16:16
Speaker 1: firmly believe that free markets of the answer, we just
16:20
Speaker 1: see corruption and we see inefficiency, and those are real problems.
16:24
Speaker 1: If you look at return on assets for China's state firms,
16:27
Speaker 1: they're much lower than return on assets for private firms.
16:32
Speaker 1: But what we miss is that for countries that are
16:35
Speaker 1: big and that have somewhat effective industrial planners and which
16:40
Speaker 1: are still at an early stage in their development, state
16:43
Speaker 1: ownership can be a powerful instrument of development. The state
16:48
Speaker 1: banks can finance acquisitions of new technologies, the state and
16:52
Speaker 1: enterprises can deploy those technologies at a massive scale, and
16:56
Speaker 1: that becomes an instrument which can take China's on me
17:00
Speaker 1: as a whole closer to the technology frontier and make
17:03
Speaker 1: it more productive, even as the state sector itself is
17:07
Speaker 1: inefficient when looked at from a sort of narrow balance
17:10
Speaker 1: sheet accounting perspective. No, and obviously that's something we're being
17:14
Speaker 1: reminded of in many countries of the important In some areas,
17:18
Speaker 1: the government really is the only one that can intervene,
17:22
Speaker 1: and boy if they've done so in response to COVID nineteen. Now,
17:25
Speaker 1: obviously you've achieved one important thing. You've managed to get
17:28
Speaker 1: this book out before the bubble pops, which I'm sure
17:31
Speaker 1: was a concern for your publisher, But you probably weren't
17:34
Speaker 1: expecting to have it come out in the middle of
17:36
Speaker 1: a pandemic, which clearly has meant that you weren't able
17:39
Speaker 1: to have any lavish book party. So I'm sorry, not
17:41
Speaker 1: that Bloomberg would have thrown you any but has the
17:45
Speaker 1: last few months changed your view on any of the
17:47
Speaker 1: arguments you've made in your book or put them in
17:49
Speaker 1: a different perspective. Perhaps it's it's an emotional roller coaster
17:53
Speaker 1: being on this podcast. Stephanitiely, I thought you were offering
17:56
Speaker 1: me a lavish book party, and then in the very
17:58
Speaker 1: next sentence it was yanked away from me. Um. Fortunately,
18:02
Speaker 1: I'm going to be working from home for the foreseeable future,
18:04
Speaker 1: so no one will be able to see the disappointment
18:06
Speaker 1: on my face. So so so covid' is a stress
18:09
Speaker 1: test for the Chinese economy. And let's think about what
18:12
Speaker 1: happened in the first six months of the year. So
18:15
Speaker 1: real estate developers didn't sell any houses, state owned enterprises
18:20
Speaker 1: saw their profits turn into losses. Local governments didn't sell
18:24
Speaker 1: any land, and they saw their tax revenue collapse. And
18:28
Speaker 1: who are the biggest borrowers in China's economy, Well, it's
18:31
Speaker 1: the real estate developers, the state owned enterprises, and the
18:35
Speaker 1: local governments. So if there was going to be a
18:37
Speaker 1: financial crisis in China, presumably it would have just happened.
18:42
Speaker 1: All of the biggest borrowers saw their income collapse, they
18:45
Speaker 1: couldn't service their loans. This was the moment when we
18:48
Speaker 1: should have seen a financial crisis, and clearly that didn't happen. Um.
18:53
Speaker 1: And I think that's a reminder of some of the
18:56
Speaker 1: sort of hiding in plain site sources of strength in
18:59
Speaker 1: China as economy. In China's financial system, the banks have
19:02
Speaker 1: a very strong funding base, and so they don't actually
19:06
Speaker 1: need loans to be repaid on time. They can say
19:09
Speaker 1: to the borrowers, you know what, we know this is
19:11
Speaker 1: a really difficult quarter, maybe even a very difficult year.
19:14
Speaker 1: You pay us back in the second half, or even
19:17
Speaker 1: you pay us back in one Private businesses are going
19:21
Speaker 1: to be letting go of workers and canceling investment projects.
19:25
Speaker 1: But China has a massive state sector inefficient, but the
19:29
Speaker 1: government can use the state sector as a kind of
19:32
Speaker 1: a counter cyclical instrument and say to the state sector,
19:35
Speaker 1: you know what, don't let any workers go, and accelerate
19:39
Speaker 1: that investment project. And what that means is the economy
19:42
Speaker 1: can climb out of the COVID hole a bit quicker
19:45
Speaker 1: than it otherwise would. So we have obviously had the
19:56
Speaker 1: events in Hong Kong, the passing of the legislation in
19:58
Speaker 1: Hong Kong in the last few weeks, and and one
20:00
Speaker 1: thing that has been very striking is the way that
20:04
Speaker 1: along with the economic success and apparent resilience, the Chinese
20:10
Speaker 1: government is sort of doubling down on some of the
20:13
Speaker 1: more uncompromising aspects of its economic models. Shall we say,
20:19
Speaker 1: you look at China and you know the major change
20:21
Speaker 1: it has to have over the next few years, and
20:24
Speaker 1: then the government is trying to achieve is to move
20:26
Speaker 1: from being an export driven economy to a consumer driven economy.
20:30
Speaker 1: And I guess the fond belief of many economists and
20:34
Speaker 1: certainly many outside policymakers has always been that it's quite
20:38
Speaker 1: hard to be a really successful kind of individualistic, consumer
20:43
Speaker 1: driven economy when you're not giving those consumers rights as
20:49
Speaker 1: citizens and moving towards a democracy. Is that being proved
20:55
Speaker 1: wrong in China? So I don't want to come across
20:58
Speaker 1: as um. I don't want to come across as as
21:01
Speaker 1: like a Pollyanna on China's social system. Clearly there are
21:07
Speaker 1: absolutely enormous costs to China's social system. The question is
21:14
Speaker 1: is that going to be Is that going to translate
21:16
Speaker 1: into economic costs? And the answer so far has been no.
21:22
Speaker 1: And I think there's two reasons for that. Um. So
21:24
Speaker 1: the first reason we sort of alluded to Stephanie is
21:28
Speaker 1: China's position in the development process. Right, so, when do
21:32
Speaker 1: you need freethinking innovators, Well, you really need freethinking innovators
21:37
Speaker 1: when you get to the technology frontier and you need
21:40
Speaker 1: to innovate, and that's not where China is. China's GDP
21:43
Speaker 1: per capita is the third of the level in the
21:45
Speaker 1: United States. There are a long way from the technology frontier,
21:49
Speaker 1: and that means that for the next foreseeable future, growth
21:53
Speaker 1: is going to be a process of catching up and copying,
21:56
Speaker 1: not necessarily a process of pushing act and developing innovative
22:02
Speaker 1: technologies themselves. The second reason I think is that actually
22:08
Speaker 1: we have a somewhat we have a settled view of
22:13
Speaker 1: the relationship between social systems and economic progress, which actually
22:20
Speaker 1: China is challenging. Right. Um, we think that democracy, markets
22:25
Speaker 1: and growth go together, right, And if you have markets,
22:31
Speaker 1: then you will grow, and also also if you have markets,
22:33
Speaker 1: that will be a driver of democracy. And actually what
22:36
Speaker 1: we're seeing in China is that these relationships which seems
22:41
Speaker 1: so settled in the West don't actually necessarily hold well.
22:45
Speaker 1: These relationships kind of reassert themselves over the long term.
22:50
Speaker 1: I think as we get closer to the technology front frontier,
22:53
Speaker 1: the chances are that they will Is that going to
22:56
Speaker 1: matter for China in the next three for five years
23:01
Speaker 1: when g d P per capita is still a third
23:03
Speaker 1: of the level in the United States. I think the
23:05
Speaker 1: answer is probably no. But isn't the mess lesson of
23:09
Speaker 1: the Huawei controversy and some of these others involving China
23:14
Speaker 1: technology is that they are closer to that frontier than
23:17
Speaker 1: we like to think. And indeed, in that sector that
23:20
Speaker 1: they seem to be, they have one company that is
23:22
Speaker 1: pretty much dominant. Yeah. I think there's two things there.
23:26
Speaker 1: So the first thing is UM, technological progress is unevenly distributed, right, So, Yeah,
23:33
Speaker 1: if you look at five G or AI or sustainable
23:38
Speaker 1: energy for example, China is at or near or pushing
23:42
Speaker 1: back the technology frontier. UM. If you look at other areas,
23:46
Speaker 1: China still lags by a considerable margin. China can't make
23:49
Speaker 1: competitive semiconductors, China can't make competitive airplanes for example. UM.
23:56
Speaker 1: And then the second point I would make is that
23:58
Speaker 1: sort of the success of Huawei UM and sort of
24:02
Speaker 1: the advances they've made in five G I think goes
24:05
Speaker 1: to UM the sort of confused approach that we have
24:09
Speaker 1: to thinking about China in the West. Right, on the
24:11
Speaker 1: one hand, we say state and enterprise is a huge
24:14
Speaker 1: and inefficient and corrupt, and they are an impediment to
24:18
Speaker 1: China's growth um And we also say Huawei is pretending
24:22
Speaker 1: to be a private company, but secretly it's state and enterprise.
24:25
Speaker 1: And then in the same breath we say Huawei is
24:29
Speaker 1: dominating the next generation of the most critical technology for
24:32
Speaker 1: the future of the world economy. So which is it
24:35
Speaker 1: the state and enterprises? These kind of like corrupt, inefficient
24:39
Speaker 1: dinosaurs who are dragging China down, or are they technology
24:44
Speaker 1: innovators who are going to dominate the future of communication?
24:50
Speaker 1: Can't be both right? Either argument stems from fear, and
24:53
Speaker 1: I think that's probably the uniting force in in quite
24:56
Speaker 1: a lot of the commentary around China these days. But
24:58
Speaker 1: we have certainly done the long term view, and I'm
25:02
Speaker 1: sure we'll talk about this again. I'm interested, just as
25:06
Speaker 1: a final question, if the bubble had popped before you've
25:10
Speaker 1: got this book out, had you and your publisher had
25:12
Speaker 1: any conversation about changing the title or what what would
25:14
Speaker 1: plan b So the bubble that took a long time
25:20
Speaker 1: to hop with a quick with a new forward. So
25:23
Speaker 1: clearly by publishing a book with this title, Stephanie, I
25:26
Speaker 1: have tempted fate and increase the chances that the bubble
25:30
Speaker 1: will pop. So what's absolutely critical is that list listeners
25:35
Speaker 1: to the Stephonomics podcast go out immediately and buy a
25:38
Speaker 1: copy of the book so I can enjoy some royalties
25:41
Speaker 1: before my arguments and conclusions are falsified by events. To all,
25:45
Speaker 1: thank you very much, Thanks Stephanie, thanks for listening to Stephanomics.
25:52
Speaker 1: We'll be back next week with more on how COVID
25:54
Speaker 1: nineteen is transforming the global economy. In the meantime, you
25:57
Speaker 1: can find us on the Bloomberg Terminal, webs app or
26:01
Speaker 1: wherever you get your podcasts, and for more news and
26:03
Speaker 1: analysis from Bloomberg Economics, you just have to follow at
26:07
Speaker 1: Economics on Twitter. This episode was produced by Magnets Hendrickson
26:11
Speaker 1: special thanks to Sharon Chen and Tom Orlick. Lucy Meekin
26:15
Speaker 1: is the acting executive producer of Stephonomics and the head
26:18
Speaker 1: of Bloomberg Podcast is Francesca Levy.