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Beijing Wants Young Chinese Workers to Love Capitalism Again · Trumponomics

• 0:06
  Speaker 1: Hello, and welcome to Stephanomicks, the podcast that brings the
• 0:09
  Speaker 1: global economy to you. For a few weeks this spring,
• 0:12
  Speaker 1: something rather unusual happened. Were a bloomberg realized we were
• 0:16
  Speaker 1: actually forecasting that growth was going to be slightly higher
• 0:18
  Speaker 1: in the US this year than in China for the
• 0:22
  Speaker 1: first time since the mid nine seventies. While the numbers
• 0:25
  Speaker 1: have changed of it since then, growth in the US
• 0:27
  Speaker 1: is looking a bit slower and China slightly stronger, but
• 0:31
  Speaker 1: it was a reminder that China's entering a challenging new
• 0:33
  Speaker 1: phase in its economic development, one that's been made even
• 0:37
  Speaker 1: more challenging by COVID and arguably by the increasing power
• 0:41
  Speaker 1: of President Xi jing Ping. We're going to spend most
• 0:44
  Speaker 1: of today's podcast on that subject, talking to Chief economist
• 0:47
  Speaker 1: Tom Ulick about the deep seated weaknesses and China's system
• 0:51
  Speaker 1: that have come to the surface in the past two years,
• 0:54
  Speaker 1: and hearing from the graduates entering the Chinese labor market
• 0:58
  Speaker 1: who are reading Carl Marks and insisting they do not
• 1:01
  Speaker 1: in fact want to be capitalists. But first, they just
• 1:05
  Speaker 1: wanted to share with you a few minutes of a
• 1:07
  Speaker 1: conversation I had this week with Rachel Reeves, the Shadow
• 1:10
  Speaker 1: Chancellor for the UK opposition Labor Party. They might wonder
• 1:14
  Speaker 1: why on earth I would bother to share this with
• 1:16
  Speaker 1: you when all the action in the UK surely has
• 1:19
  Speaker 1: been in the battle to dethrone and now replace Prime
• 1:22
  Speaker 1: Minister Boris Johnson. But at a time of high inflation
• 1:26
  Speaker 1: on both sides of the Atlantic, the question of what
• 1:29
  Speaker 1: is a reasonable pay rise for workers, it's pretty fundamental,
• 1:34
  Speaker 1: and as you're here, it is not an easy one
• 1:36
  Speaker 1: for politicians to answer. Can I just start by asking
• 1:41
  Speaker 1: you what seems to be quite a sort of basic
• 1:42
  Speaker 1: question that only, certainly only center left party needs to
• 1:46
  Speaker 1: answer in the environment that we find ourselves, Which is
• 1:50
  Speaker 1: what's the higher priority for you? Taming inflation which hurts
• 1:55
  Speaker 1: households poorer households the worst, or restoring public services and
• 2:00
  Speaker 1: giving teachers and doctors and others a decent pay rise.
• 2:03
  Speaker 1: What do you think has to come first? Right now?
• 2:06
  Speaker 1: We've obviously got to address the cost of living crisis,
• 2:09
  Speaker 1: which is why since the start of the year I've
• 2:11
  Speaker 1: been arguing for a winfull tax to put money in
• 2:15
  Speaker 1: the pockets of people who are struggling with those higher bills.
• 2:18
  Speaker 1: And that is the immediate priority because people can't wait
• 2:21
  Speaker 1: for that help with their energy bills, with the rising
• 2:23
  Speaker 1: food prices, with the rising price of petrol to fill
• 2:26
  Speaker 1: up their car. But then everything else really, whether it
• 2:29
  Speaker 1: is better wages of public sector workers, more investments in
• 2:34
  Speaker 1: our public services, or improving people's living standards, it all
• 2:38
  Speaker 1: comes down to economic growth. When you have low growth,
• 2:42
  Speaker 1: it means you don't have the money to invest in
• 2:44
  Speaker 1: public services. You always have to raise taxes anytime you
• 2:49
  Speaker 1: want to do anything because you're not getting those proceeds
• 2:52
  Speaker 1: of growth. And so ultimately, everything you want to do,
• 2:58
  Speaker 1: whether it is improving our public service, is improving living standards,
• 3:02
  Speaker 1: or lifting all parts of the country to to to
• 3:06
  Speaker 1: to share in prosperity, has got to come through a
• 3:08
  Speaker 1: plan for growth. But growth is really important. But right now,
• 3:12
  Speaker 1: what would be a reasonable pay rise for teachers and
• 3:15
  Speaker 1: indeed ordinary workers across the country. What do you think
• 3:18
  Speaker 1: would be a sensible to be a responsible course for
• 3:22
  Speaker 1: you as chancellor to support the pay review? Bodies at
• 3:24
  Speaker 1: the moment are in negotiations and it wouldn't be right
• 3:26
  Speaker 1: whether you're in government or in opposition, to cut across
• 3:29
  Speaker 1: that process. And I don't intend to do so. But
• 3:32
  Speaker 1: the truth is you're not going to be able to
• 3:35
  Speaker 1: improve public services, including the wages being paid to public
• 3:38
  Speaker 1: service who certainly deserve a pay rise. But you're not
• 3:42
  Speaker 1: going to be able to get any of those things
• 3:43
  Speaker 1: on a sustainable basis unless you're growing the economy. And
• 3:47
  Speaker 1: that is the truth of it, which is why my
• 3:51
  Speaker 1: focus is on how we can get growth and productivity
• 3:54
  Speaker 1: off the floor so we can then bring in the
• 3:56
  Speaker 1: tax revenues to invest in the public services that you
• 3:58
  Speaker 1: speak about. Is coming back to this because you're you're
• 4:01
  Speaker 1: you're an economist, and it's quite important to sort of
• 4:04
  Speaker 1: work out what we think about this inflation. The higher
• 4:06
  Speaker 1: cost of imported food and energy has made us poorer
• 4:11
  Speaker 1: as a nation. It's a hit to all of our
• 4:13
  Speaker 1: standard of living, a permanent hit, and all you can
• 4:16
  Speaker 1: hope to do is at the margin, affect the short
• 4:19
  Speaker 1: term distribution of that hit um and certainly potentially affect
• 4:24
  Speaker 1: the timing of that hit, because you can you can
• 4:26
  Speaker 1: kick the can down the road if you like, with
• 4:28
  Speaker 1: with matching wage increases, but at their cost potentially of
• 4:32
  Speaker 1: setting off another round of inflation. Do you accept that
• 4:34
  Speaker 1: there's been a permanent hit to our living standards, whatever
• 4:36
  Speaker 1: we managed to do about growth in the next five
• 4:38
  Speaker 1: or six years with an amazing new plan, and what's
• 4:41
  Speaker 1: the responsible way to respond to that. So you're absolutely
• 4:44
  Speaker 1: right that this has a hit and it's up to
• 4:46
  Speaker 1: them governments how they respond and ensure under my plans
• 4:52
  Speaker 1: that it would be the lower income people who are
• 4:54
  Speaker 1: struggling most of the rising cost of living would get
• 4:57
  Speaker 1: the most help. So I think that's what you best
• 5:00
  Speaker 1: can do distribute distributionally. The Governor of the Bank of
• 5:04
  Speaker 1: England has specifically said he's he's certainly nervous about wage
• 5:08
  Speaker 1: it growth that's going beyond five percent and across the
• 5:11
  Speaker 1: economy because anything above say three and a half percent,
• 5:15
  Speaker 1: would clearly be inflation. What do you think he's right
• 5:18
  Speaker 1: in making that. Let's look at where the wage growth
• 5:21
  Speaker 1: is happening. So wage growth in the top one percent
• 5:25
  Speaker 1: is twenty times higher than wage growth for the bottom
• 5:28
  Speaker 1: ten percent, and four or five times higher than for
• 5:31
  Speaker 1: those in the middle and wage growth in the private
• 5:34
  Speaker 1: sector is running at something like four or five times
• 5:36
  Speaker 1: higher than wage growth in the public sector. So I
• 5:40
  Speaker 1: don't think the Bank of England have suggested this, but
• 5:42
  Speaker 1: I think the government would quite like to suggest this
• 5:44
  Speaker 1: that somehow ordinary working people and particularly those in the
• 5:47
  Speaker 1: public sector, are somehow responsible for this inflation shock and
• 5:52
  Speaker 1: and and and a sustained on as the higher inflation
• 5:55
  Speaker 1: is just a fallacy and the people who are getting
• 5:58
  Speaker 1: the biggest pay rises are those the top of the
• 6:00
  Speaker 1: income distribution who are at least affected by the rise
• 6:03
  Speaker 1: of inflation. So if restraint is needed anywhere, is his
• 6:06
  Speaker 1: restraint at the top. The public has been very supportive
• 6:09
  Speaker 1: to date of Ukraine and are very muscular support of Ukraine.
• 6:15
  Speaker 1: If the polls started to suggest that with another round
• 6:19
  Speaker 1: of massive energy price rises that the public was actually
• 6:23
  Speaker 1: starting to blame the war for these cost soaring prices
• 6:28
  Speaker 1: and was actually starting to sort of wane in its
• 6:31
  Speaker 1: support for Ukraine. With that effect, in any way what
• 6:33
  Speaker 1: you thought was the right thing to do for the
• 6:35
  Speaker 1: British government. I think that the biggest risk is if
• 6:38
  Speaker 1: Vladimir Putin thinks that his behavior and his aggression in
• 6:42
  Speaker 1: Ukraine and elsewhere goes unchecked. That's what happened unfortunately after
• 6:47
  Speaker 1: his invasion in Crimea. We can't let it happen again
• 6:49
  Speaker 1: because he won't stop at Ukraine. We all know that
• 6:53
  Speaker 1: I don't think that the the support of the British people
• 6:54
  Speaker 1: will buy him. I think the support given not just
• 6:57
  Speaker 1: by politicians but even more so the whole country for
• 7:00
  Speaker 1: Ukraine has been an amazing out pouring. But ultimately, and
• 7:05
  Speaker 1: when it comes to the sort of defense and security realities,
• 7:09
  Speaker 1: the most important thing is Vladimoputin knows that he can't
• 7:12
  Speaker 1: get away with this because of that would put us
• 7:14
  Speaker 1: in greater danger in the future. Okay, so I probably
• 7:18
  Speaker 1: do seem to have ended up with Ladimir Putin instead
• 7:19
  Speaker 1: of long term growth, But thank you very much, Rachel Reason.
• 7:32
  Speaker 1: Now we hear a lot about the struggles of jen
• 7:34
  Speaker 1: z in the US and Europe, young people starting out
• 7:38
  Speaker 1: who might struggle to have the same quality of life
• 7:41
  Speaker 1: as their parents. Now we don't hear so much about
• 7:44
  Speaker 1: the young people now entering the workforce in China. But
• 7:47
  Speaker 1: it turns out they are making very different early career
• 7:50
  Speaker 1: choices than their parents did, choices which could tell us
• 7:54
  Speaker 1: a lot about the future of China's economy. Here's Bloomberg's
• 7:58
  Speaker 1: senior China economy reporter Tom Hancock in Hong Kong. This
• 8:07
  Speaker 1: is a live job fair on quite show. A Chinese
• 8:10
  Speaker 1: video platform similar to TikTok that's generally used by young
• 8:14
  Speaker 1: people to share amusing short videos. What you're hearing is
• 8:19
  Speaker 1: a recruiter responding to job seekers in a live stream chat.
• 8:26
  Speaker 1: She got this key information from them, like age and gender,
• 8:29
  Speaker 1: and tosses back potential job opportunities based on their situation.
• 8:34
  Speaker 1: There are about a hundred people in the chat, and
• 8:37
  Speaker 1: the hiring agency told us that many of them are
• 8:39
  Speaker 1: students looking for jobs over the summer brick but there
• 8:43
  Speaker 1: are barely any matches. China's young generation is the best
• 8:52
  Speaker 1: educated in the country's history, and that was expected to
• 8:56
  Speaker 1: help them land better jobs and push China's economy to
• 9:00
  Speaker 1: a more innovative future. But instead, an estimated fourteen million
• 9:05
  Speaker 1: Chinese young people are currently jobless. Making things worse, More
• 9:10
  Speaker 1: than twelve million fresh graduates will flood the labor market
• 9:13
  Speaker 1: this year. Because of the pandemic and Beijing's hardline approach
• 9:18
  Speaker 1: to controlling it, China's youth jobless rate is likely to
• 9:22
  Speaker 1: be pushed to that's about double what it was before
• 9:26
  Speaker 1: the pandemic. To find out how young people are coping,
• 9:30
  Speaker 1: we spoke to graduate students across China. Many are anxious
• 9:34
  Speaker 1: about their future and are lowering their expectations. They're seeking
• 9:39
  Speaker 1: safety in public sector jobs rather than positions in private companies,
• 9:44
  Speaker 1: which are generally paid higher wages. Anyway, concerning this is
• 9:58
  Speaker 1: shut Chun. He's a empty two year old visual art
• 10:01
  Speaker 1: major who's been unsuccessfully job hunting for months. His dream
• 10:06
  Speaker 1: job a state owned enterprise managed by the central government
• 10:14
  Speaker 1: up under COVID. Jobs at many private companies are not secure.
• 10:19
  Speaker 1: State owned companies are much more stable in comparison. That's
• 10:23
  Speaker 1: what I wanted to be with them. In addition, state
• 10:26
  Speaker 1: owned companies also have better subsidies and benefits in terms
• 10:29
  Speaker 1: of housing and data expenses than private firms. Choose preference
• 10:35
  Speaker 1: for state owned companies is widespread. In a recent survey,
• 10:39
  Speaker 1: nearly forty of graduates said state owned enterprises with their
• 10:43
  Speaker 1: top choice. That's up from just in seen. On the
• 10:49
  Speaker 1: other hand, interest in private and international companies took a dive.
• 10:53
  Speaker 1: Only thirty percent said those are their top priority. Shape
• 11:00
  Speaker 1: at a T five fashion fashion meet, Kay Low a
• 11:04
  Speaker 1: postgraduate with a master's degree in law from ching Hwa University,
• 11:08
  Speaker 1: basically China's equivalent of m I T. After doing internships
• 11:13
  Speaker 1: at a law firm, an Internet giant, a securities brokerage,
• 11:17
  Speaker 1: and the court. K eventually had a change of heart.
• 11:20
  Speaker 1: She took an offer to work in the government. Was actually,
• 11:26
  Speaker 1: when I first started my graduate program, I was averse
• 11:30
  Speaker 1: two jobs that are quote unquote within the system. I
• 11:33
  Speaker 1: thought civil servants jobs were really boring and you could
• 11:36
  Speaker 1: almost predict what you'll be doing in the next to
• 11:39
  Speaker 1: five decades. But over the past or three years, I've
• 11:43
  Speaker 1: gone through a lot and changed a lot. The pandemic
• 11:46
  Speaker 1: has made everyone prioritize stability in jobs. Civil servants are
• 11:50
  Speaker 1: among the most stable jobs, and that's definitely one of
• 11:54
  Speaker 1: my considerations. China's Communist Party and President ce Jim Ping
• 11:58
  Speaker 1: might be relieved that unemployed youth are trying to join
• 12:02
  Speaker 1: the government rather than overthrow it, but she did express
• 12:06
  Speaker 1: his concerns at a rare appearance at a university last month.
• 12:16
  Speaker 1: According to state media, see caution the students that to
• 12:20
  Speaker 1: get rich and famous overnight is unrealistic. He asked the
• 12:24
  Speaker 1: students to be down to earth and to be willing
• 12:27
  Speaker 1: to lower their expectations. However, preference for the public sector
• 12:33
  Speaker 1: is not just about market forces, it's also about ideology.
• 12:38
  Speaker 1: Speaking of her previous internship at a law firm. Case
• 12:41
  Speaker 1: said the job felt meaningless because she felt she was
• 12:44
  Speaker 1: just quote working for some capitalists the whole. After I
• 12:50
  Speaker 1: read Marks, I became increasingly opposed to capitalists pursuit of wealth.
• 12:57
  Speaker 1: I chose to become a civil servant at the end,
• 13:00
  Speaker 1: because that way I will at least get a sense
• 13:02
  Speaker 1: of self accomplishment. I will be serving the people and
• 13:07
  Speaker 1: contributing to my mother land. But as a result of
• 13:17
  Speaker 1: this shift, competition for jobs has become a lot more fierce.
• 13:22
  Speaker 1: For some positions, there are as many as two hundred
• 13:25
  Speaker 1: applicants for a single government post. That's an acceptance rate
• 13:29
  Speaker 1: of zero point five. On top of all that, applicants
• 13:34
  Speaker 1: in general are overqualified. A study published last year found
• 13:38
  Speaker 1: that half of job seekers have a bachelor's degree, but
• 13:41
  Speaker 1: only twenty of jobs require them. But even with high unemployment,
• 13:46
  Speaker 1: manufacturers still say they're having trouble recruiting. Here's Lou Fung,
• 13:51
  Speaker 1: a professor of economics at Peaking University. A lot of
• 13:56
  Speaker 1: people of the in their age will go toward the
• 13:59
  Speaker 1: future actress, but not I think these young people would.
• 14:04
  Speaker 1: They have the higher education already, they just don't want
• 14:08
  Speaker 1: to do the acting and the manufacturing sector. The actually
• 14:11
  Speaker 1: they still need a lot of info eats, but the
• 14:17
  Speaker 1: salary they can offer enough that attractive enough. So that
• 14:21
  Speaker 1: is that some of deferation of the match problem. It
• 14:25
  Speaker 1: is it is huge in this catch. To make things worse,
• 14:30
  Speaker 1: China's rapid urbanization has helped to widen the mismatch in
• 14:34
  Speaker 1: the labor market. In the past decades, China's two d
• 14:38
  Speaker 1: and eighty million migrant workers acted as a shock absorber
• 14:42
  Speaker 1: for the economy. They returned to their homes to do
• 14:47
  Speaker 1: agricultural labor when the economy slowed, and came back to
• 14:50
  Speaker 1: the cities when the markets needed them. But now there's
• 14:54
  Speaker 1: a shift of attitude. Younger migrants, who are less likely
• 14:58
  Speaker 1: to be university educated, tend to stay put when the
• 15:01
  Speaker 1: economy slows because a lot of them even now erased
• 15:06
  Speaker 1: in the rural area. So even they don't have an
• 15:10
  Speaker 1: urban hospital respiration, they regarded themselves as urban people. That
• 15:15
  Speaker 1: means the constraints or the government has changed in a
• 15:19
  Speaker 1: substantial in this regard. It's more tough than the past.
• 15:26
  Speaker 1: Beijing knows that the state sector isn't large enough to
• 15:29
  Speaker 1: solve the unemployment problem. It needs private companies to start
• 15:33
  Speaker 1: hiring again, but the private sector will only really get
• 15:38
  Speaker 1: hiring if growth returns. That depends mainly on China's ability
• 15:43
  Speaker 1: to avoid further COVID lockdowns this year. In addition, the
• 15:48
  Speaker 1: private sector's confidence has been bruised by the slump in
• 15:52
  Speaker 1: China's real estate industry, the almost complete closure of private
• 15:56
  Speaker 1: tutoring businesses, and a regulatory crackdown on tech sector. It's
• 16:02
  Speaker 1: clear that China's unemployment problem isn't going to be solved
• 16:06
  Speaker 1: anytime soon. In the meantime, China's young people are lowering
• 16:10
  Speaker 1: their pay expectations and seeking jobs in state owned companies,
• 16:15
  Speaker 1: which are generally less innovative than the private sector. As
• 16:19
  Speaker 1: a result, there could be a negative impact on the
• 16:21
  Speaker 1: world's second largest economy for decades to come. In Hong Kong.
• 16:28
  Speaker 1: I'm Tom Hancock for Bloomberg News. So I thought that
• 16:42
  Speaker 1: piece gave us an opportunity to talk to our chief economist,
• 16:45
  Speaker 1: Tom Orlick, who spent eleven years thinking and writing about
• 16:48
  Speaker 1: China's economy while living in Beijing. That and the fact
• 16:52
  Speaker 1: that the paperback edition of his book on that subject
• 16:54
  Speaker 1: is just about to come out in the US. So Tom,
• 16:57
  Speaker 1: we can get to the book, plug and the big
• 17:00
  Speaker 1: economic challenges facing China in just a minute, But first
• 17:04
  Speaker 1: I just wanted what your reaction was to that evidence
• 17:07
  Speaker 1: in that piece that China's graduates are turning to Marx
• 17:10
  Speaker 1: but also very much to the public sector for work.
• 17:13
  Speaker 1: I mean, as an economist, it doesn't sound like good
• 17:15
  Speaker 1: news for the flexibility of the economy if they're not
• 17:19
  Speaker 1: wanting to go to the private sector, especially given that
• 17:21
  Speaker 1: the state owned enterprises can be the least productive. I
• 17:24
  Speaker 1: think that's right, Stephanie. Let's be clear, there's nothing wrong
• 17:27
  Speaker 1: with wanting to go into the public sector. Here in America.
• 17:31
  Speaker 1: Many of the best and brightest want to make a
• 17:33
  Speaker 1: career at the Treasury or the Federal Reserve or other
• 17:36
  Speaker 1: bits of the US government because they want to make
• 17:38
  Speaker 1: a contribution. I think what's troubling in the report we
• 17:43
  Speaker 1: just heard from Tom Hancock is that in China it's
• 17:46
  Speaker 1: something more than that. Right, It's not just the desire
• 17:49
  Speaker 1: to make a contribution, it's also the entrenched view that
• 17:52
  Speaker 1: the state sector in the public sector is stable and
• 17:55
  Speaker 1: the private sector is risky, unstable and not a good
• 17:59
  Speaker 1: place to build a career. And I think what that
• 18:02
  Speaker 1: speaks to is some of the structural costs of the
• 18:05
  Speaker 1: big policies which She Jinping has introduced in the last
• 18:09
  Speaker 1: two years. COVID zero, Well, it's easy enough to deal
• 18:14
  Speaker 1: with COVID zero if you're a massive state owned enterprise,
• 18:18
  Speaker 1: much harder to deal with an on off economy if
• 18:21
  Speaker 1: you're a small business, let alone a startup. And of course,
• 18:25
  Speaker 1: the common Prosperity agenda she's attempts to engineer a more
• 18:29
  Speaker 1: equal society has ended up hammering the outlook for big
• 18:35
  Speaker 1: private companies like Ali, Baba and ten Cents. Now, if
• 18:39
  Speaker 1: you put those pieces together and you listen to Tom's report,
• 18:43
  Speaker 1: it's clear that young people are starting to get the
• 18:46
  Speaker 1: message they want to go to the state sector, not
• 18:49
  Speaker 1: the private sector. That's bad news for China's productivity growth,
• 18:53
  Speaker 1: bad news for China's long term development prospects. People listening
• 18:57
  Speaker 1: might wonder why you'd singled out a career at the
• 19:00
  Speaker 1: treasury as a productive example of the state sector, and
• 19:03
  Speaker 1: perhaps need to know that you used to work in
• 19:05
  Speaker 1: the UK Treasury, and I indeed spent some time in
• 19:07
  Speaker 1: the U s Treasury, But that that aside, what you
• 19:10
  Speaker 1: just said sort of takes us back to something which
• 19:12
  Speaker 1: I think we have talked about before, which is when
• 19:15
  Speaker 1: we looked at the end of the first year of
• 19:17
  Speaker 1: the COVID pandemic in China looked really good. It was
• 19:20
  Speaker 1: the only economy that had managed to grow it's it's
• 19:24
  Speaker 1: strategy of of locking down the disease looked quite robust.
• 19:29
  Speaker 1: It now clearly looks much less clever. But how's our
• 19:34
  Speaker 1: view of China more broadly evolved in these two years.
• 19:39
  Speaker 1: So I think COVID nineteen is primarily a human tragedy,
• 19:44
  Speaker 1: but it is also a stress test for governance, financial
• 19:50
  Speaker 1: and economic systems. As you mentioned, If we looked at
• 19:54
  Speaker 1: China at the end of one, Chinese performance through the
• 20:00
  Speaker 1: COVID stress test was looking remarkably robust. From where we
• 20:05
  Speaker 1: are in the middle of two, the picture looks, I think,
• 20:10
  Speaker 1: much less positive. Or Macron has tested China's COVID zero
• 20:17
  Speaker 1: strategy and exposed some of the big problems there, with Shanghai,
• 20:22
  Speaker 1: Beijing other big Chinese cities spending big chunks of the
• 20:26
  Speaker 1: year under lockdown. A Chinese economy which has ground to
• 20:31
  Speaker 1: a halt for substantial periods of time has also revealed
• 20:36
  Speaker 1: some of the weaknesses which have been hiding in plain sight,
• 20:40
  Speaker 1: things like the real estate sector, where we've had sales
• 20:43
  Speaker 1: drying up, prices stagnating, and as a consequence, real estate
• 20:48
  Speaker 1: developers getting into huge trouble in their capacity to repay
• 20:53
  Speaker 1: their debts. And of course China's international standing has taken
• 20:57
  Speaker 1: a beating as well. I'm sure many stephonomics listeners have
• 21:01
  Speaker 1: seen that Pew survey which shows unfavorable views of China
• 21:07
  Speaker 1: rocketing up here in the United States, in Europe and
• 21:10
  Speaker 1: also in Asia as well. And for a country that
• 21:14
  Speaker 1: which does so much of its business overseas, growing by exporting,
• 21:19
  Speaker 1: growing by learning technologies, or if we're being less charitable,
• 21:22
  Speaker 1: stealing technologies from the rest of the world, that rocketing
• 21:26
  Speaker 1: up in unfavorable views of China, that's bad news for
• 21:30
  Speaker 1: long term growth as well. It often looks sort of
• 21:33
  Speaker 1: tempting to have very centralized control of the country, especially
• 21:38
  Speaker 1: if it's if most of the leavers are in the
• 21:40
  Speaker 1: hands of one man. Uh, it's attractive to think, oh,
• 21:44
  Speaker 1: you can pull leavers and you can get things done
• 21:46
  Speaker 1: and be effective short term, but long term we like
• 21:50
  Speaker 1: to think anyway, there's a an effect of lowering standards,
• 21:55
  Speaker 1: reducing the quality of government is that what we're is
• 21:57
  Speaker 1: that what we're seeing that kind of negative effect on governance.
• 22:02
  Speaker 1: So one of the concerns about Shijin Ping is that
• 22:07
  Speaker 1: he's going to break China's governance system. Dong Xiao Ping,
• 22:11
  Speaker 1: China's great reformer, is noted for opening up the economy,
• 22:16
  Speaker 1: but the other thing he did was reform China's governance
• 22:19
  Speaker 1: system and introduce the two term limit for leaders. That
• 22:24
  Speaker 1: two term limit limit was observed by Um Hujin Tao
• 22:30
  Speaker 1: and by jangs the men Um very likely is not
• 22:33
  Speaker 1: going to be observed by Hijin Ping. And the concern
• 22:37
  Speaker 1: that brings is that, well, if we look around the
• 22:40
  Speaker 1: world at countries which have a single party system and
• 22:45
  Speaker 1: a leader who's in charge for too long, UM, that
• 22:49
  Speaker 1: can come at some really really serious costs in terms
• 22:52
  Speaker 1: of governance quality. That's what happened in China under Chairman Mao,
• 22:56
  Speaker 1: That's what happened in Russia under Vladimir Putin Um. Now,
• 23:01
  Speaker 1: if we think about China's COVID zero strategy and the
• 23:05
  Speaker 1: kind of debate over when that is going to end,
• 23:09
  Speaker 1: the message you hear most consistently from China watches is
• 23:13
  Speaker 1: well COVID zero can't end until Shi Jinping has secured
• 23:18
  Speaker 1: his third term as President of China and General Secretary
• 23:23
  Speaker 1: of the Communist Party. And what that suggests to me
• 23:27
  Speaker 1: is that some of that dictator decline in government standards
• 23:31
  Speaker 1: is already with us, and a matter of huge national importance,
• 23:36
  Speaker 1: touching the lives of all of China's one point four
• 23:38
  Speaker 1: billion people, is being settled not entirely in the national interest,
• 23:44
  Speaker 1: but rather in the interests of sort of rather narrow
• 23:48
  Speaker 1: political decision. We've had years of thinking the big risk
• 23:52
  Speaker 1: we had to worry about with China was going to
• 23:55
  Speaker 1: come from the financial sector. The bubble in the property market,
• 23:58
  Speaker 1: debts in the bankings to them. But it sounds like
• 24:03
  Speaker 1: that's just a symptom potentially of a broken growth model.
• 24:08
  Speaker 1: Is that overstating it. I'm not sure that growth model
• 24:12
  Speaker 1: is broken quite yet, Stephanie. China's GDP per capita is
• 24:16
  Speaker 1: still around a third of the level in the United States.
• 24:20
  Speaker 1: And what that means is that the growth model for
• 24:22
  Speaker 1: China doesn't have to be around innovation. It can, for
• 24:27
  Speaker 1: the foreseeable future, be about learning, copying, stealing foreign technologies.
• 24:34
  Speaker 1: And if that's your growth model, then you don't actually
• 24:38
  Speaker 1: need the same kind of liberty and individual choice and
• 24:42
  Speaker 1: dynamism that you have when you're trying to push back
• 24:45
  Speaker 1: the technology frontier. So I don't think the growth model
• 24:49
  Speaker 1: is broken, um, but I do think that the COVID
• 24:52
  Speaker 1: crisis is exposing some of the cracks, some of the
• 24:56
  Speaker 1: cracks and governance, some of the stresses in the financial
• 25:00
  Speaker 1: sector and the real estate sector. And you talked about
• 25:05
  Speaker 1: China's sort of decline in sort of public opinion polls.
• 25:09
  Speaker 1: That's more than reflected I think in elite opinion in
• 25:13
  Speaker 1: Europe and the US. You know, every gathering that I
• 25:16
  Speaker 1: am in of of policy makers or foreign policy thinkers
• 25:20
  Speaker 1: is all the talk is of a return to a
• 25:23
  Speaker 1: new Cold War between the US and China, or potentially
• 25:26
  Speaker 1: the US and Europe and China. We had years in
• 25:31
  Speaker 1: the old Cold War of overestimating the strength of the
• 25:35
  Speaker 1: Soviet Union. Do you think we're under or overestimating China's
• 25:40
  Speaker 1: economic power? So, look, there are pards. There are persistent
• 25:46
  Speaker 1: concerns about the quality of China's economic data. In particular,
• 25:52
  Speaker 1: there are persistent and in my view, well founded concerns
• 25:56
  Speaker 1: that GDP is smooth and massaged of political purposes. And
• 26:01
  Speaker 1: if we stripped that out of the calculation on how
• 26:04
  Speaker 1: big China's economy is, and we stacked them up against
• 26:07
  Speaker 1: the United States, well, what it would tell us is
• 26:11
  Speaker 1: that China is still further behind, is still some way
• 26:15
  Speaker 1: behind the United States, and is catching up more slowly
• 26:19
  Speaker 1: than the official data suggest. So on that basis, yes,
• 26:23
  Speaker 1: I think there is a possibility that we are overstating
• 26:27
  Speaker 1: China's economic strength. At the same time, if we think
• 26:31
  Speaker 1: about China's longer term trajectory, we're talking about an economy
• 26:36
  Speaker 1: of one point four billion people, an economy where GDP
• 26:41
  Speaker 1: per capita is still a third of the level in
• 26:43
  Speaker 1: the United States, which means very substantial room to grow productivity,
• 26:49
  Speaker 1: not by innovating or doing anything particularly complicated or fancy,
• 26:53
  Speaker 1: just by absorbing the technologies which are already being used
• 26:57
  Speaker 1: here in the US and in Japan and in career
• 27:00
  Speaker 1: and in Europe. And if we think about Beijing, well,
• 27:04
  Speaker 1: Beijing does a bunch of stuff that we don't really like,
• 27:07
  Speaker 1: does a bunch of stuff we don't really like in
• 27:09
  Speaker 1: Hong Kong, a bunch of stuff we don't really like
• 27:11
  Speaker 1: in Shinjiang. But one thing they demonstrably do really really
• 27:15
  Speaker 1: well is developed the economy. Um, So I think the
• 27:20
  Speaker 1: kind of the short answer to your question is, are
• 27:23
  Speaker 1: we underestimating China's economic strength? Well, yes and no. The
• 27:28
  Speaker 1: longer answer is we might well be overestimating how big
• 27:33
  Speaker 1: their economy is right now, but it would be a
• 27:36
  Speaker 1: big mistake for us to underestimate how big they will
• 27:40
  Speaker 1: likely become in the next ten or twenty years. We've
• 27:43
  Speaker 1: run out of time. But I just had one final question,
• 27:46
  Speaker 1: which is where can I go for a smart and
• 27:48
  Speaker 1: super readable introduction to China's economic challenges and how it
• 27:52
  Speaker 1: may yet overcome them. Well, I'm delighted to ask that question, Stephanie.
• 27:56
  Speaker 1: The second edition of my book, China, The Bubble That
• 27:59
  Speaker 1: Never Pop is being published by Oxford University Press later
• 28:04
  Speaker 1: in August. Um, if you rush out and buy it immediately,
• 28:08
  Speaker 1: you may get it before the bubble pops and my
• 28:11
  Speaker 1: main conclusions are disapproved, And we should say it has
• 28:14
  Speaker 1: been well reviewed by many major media organizations that are
• 28:18
  Speaker 1: not Bloomberg. Thank you very much, Tom Marlick. So that's
• 28:33
  Speaker 1: it for this episode of Stephonomics. Will be back next week.
• 28:36
  Speaker 1: In the meantime, do please rate the show if you
• 28:38
  Speaker 1: like it. And check out the Bloomberg News website for
• 28:41
  Speaker 1: more economic news and views on the global economy. You
• 28:44
  Speaker 1: can also follow at economics on Twitter. This episode was
• 28:48
  Speaker 1: produced by Summer Saddi and Young Young. The story from
• 28:52
  Speaker 1: China was reported by You, Jane Lowe and Tom Hancock.
• 28:56
  Speaker 1: Special thanks also to Tom Warlick, Labor Party Shadow Chances,
• 29:00
  Speaker 1: Rachael Reeves, and the Resolution Foundation in London. Mike Sasson
• 29:04
  Speaker 1: is the executive producer of Stephanomics. M