WEBVTT 1 00:00:01.880 --> 00:00:04.030 Of all the grim economic data coming out of 2 00:00:04.040 --> 00:00:07.220 China these days, this is especially revealing. 3 00:00:08.480 --> 00:00:10.910 For decades, foreign direct investment poured into China 4 00:00:10.920 --> 00:00:14.240 at steadily rising rates as investors and companies look 5 00:00:14.240 --> 00:00:16.690 to ride the wave of its economic boom. 6 00:00:17.000 --> 00:00:18.620 But it's fallen off a Cliff. 7 00:00:18.720 --> 00:00:21.880 Last year, FDI into China fell to just $33 billion, 8 00:00:22.600 --> 00:00:24.020 a 30 year low. 9 00:00:25.400 --> 00:00:28.480 Confidence is a key ingredient in any economic success story, 10 00:00:28.840 --> 00:00:32.240 and right now it's draining away from China. 11 00:00:32.670 --> 00:00:36.400 Whatever the goverment does it seems that the companies are basically 12 00:00:36.843 --> 00:00:40.083 households do not buy into the story. 13 00:00:40.117 --> 00:00:44.030 People in China, whether they're in the government or in the private sector 14 00:00:45.640 --> 00:00:47.790 Will tell you privately they are really worried 15 00:00:47.800 --> 00:00:50.670 about the country's direction and its future in a way 16 00:00:50.680 --> 00:00:54.840 that they have not said so for 30 years. 17 00:00:56.560 --> 00:00:59.030 China's problems have been blamed on many things, from the country's 18 00:00:59.040 --> 00:01:03.400 property crisis to the struggle to emerge from strict 0 COVID controls. 19 00:01:04.200 --> 00:01:07.800 But in this episode, we'll ask if there are more fundamental problems. 20 00:01:08.310 --> 00:01:11.430 Behind its crisis of confidence. 21 00:01:11.440 --> 00:01:16.910 Over time the temptation for authoritarians to exert their control and pick 22 00:01:16.910 --> 00:01:21.270 favorites and and demand loyalty outweighs the market. 23 00:01:22.840 --> 00:01:24.620 24 00:01:30.066 --> 00:01:32.380 The Chinese government is at a fork 25 00:01:32.380 --> 00:01:35.880 does it try to bring those hundreds of millions of people 26 00:01:35.880 --> 00:01:38.539 who are still poor into the middle class? 27 00:01:39.650 --> 00:01:41.390 Welcome to business beyond. 28 00:01:42.350 --> 00:01:45.910 One of the most obvious ways to see how China's economy has changed in 29 00:01:45.910 --> 00:01:48.730 the last few years is by looking at its growth rate. 30 00:01:50.000 --> 00:01:52.950 Near double digit growth has been a fact of life in China for much 31 00:01:52.960 --> 00:01:56.160 of the past two decades, but it plunged during the COVID-19 32 00:01:56.560 --> 00:01:59.800 crisis and the Post pandemic revival quickly lost steam. 33 00:02:00.280 --> 00:02:04.000 GDP is projected to fall to 4.6% this year, one of the 34 00:02:04.000 --> 00:02:05.900 lowest rates in 30 years. 35 00:02:07.280 --> 00:02:10.230 One particular story has loomed larger over the Chinese economy than 36 00:02:10.240 --> 00:02:12.080 any other in recent times. 37 00:02:12.090 --> 00:02:13.260 Its property. 38 00:02:13.910 --> 00:02:19.030 Property China growth for years has been driven by real estate. 39 00:02:19.030 --> 00:02:21.890 It's a multi decade bull market. 40 00:02:21.950 --> 00:02:23.180 Part of it was rational. 41 00:02:23.190 --> 00:02:27.430 The last sort of 5-6 years was definitely increasingly irrational. 42 00:02:28.030 --> 00:02:33.150 And through COVID plus a pretty heavy hand from Beijing, 43 00:02:33.669 --> 00:02:37.110 that property bubble has in effect popped. 44 00:02:37.110 --> 00:02:42.030 The property crisis thrust hundreds of massively indebted companies such as Evergrand 45 00:02:42.030 --> 00:02:44.170 into default and towards bankruptcy. 46 00:02:44.680 --> 00:02:47.760 As the crisis worsened, huge swathes of society have 47 00:02:47.760 --> 00:02:49.060 been severely affected. 48 00:02:49.960 --> 00:02:52.750 Three really key parts of the Chinese economy are getting hit. 49 00:02:52.760 --> 00:02:55.790 The households, the banks and the local governments. 50 00:02:55.800 --> 00:02:56.950 The households, 51 00:02:56.960 --> 00:02:58.630 all their wealth is in property. 52 00:02:58.639 --> 00:02:59.980 Terrible for them. 53 00:03:00.207 --> 00:03:01.947 Banks, assets and liabilities, 54 00:03:01.947 --> 00:03:04.620 they're all property loans. Really bad for them. 55 00:03:05.110 --> 00:03:07.900 And then the local governments really important economic actor. 56 00:03:07.910 --> 00:03:11.070 They rely on land sales revenues to infrastructure 57 00:03:11.070 --> 00:03:12.660 to pay people salaries. 58 00:03:12.669 --> 00:03:15.090 And of course land sales have created as well. 59 00:03:15.669 --> 00:03:18.710 And the property sector collapse came as China was dealing 60 00:03:18.710 --> 00:03:21.810 with another crisis, the COVID-19 pandemic. 61 00:03:22.110 --> 00:03:26.710 China's 0 COVID policy saw Beijing exercise extremely strict controls on 62 00:03:26.710 --> 00:03:30.350 public and commercial life in an attempt to keep virus numbers 63 00:03:30.389 --> 00:03:34.430 to an absolute minimum, but unlike in most of the rest of the world. 64 00:03:35.240 --> 00:03:38.280 Restrictions in China were not lifted until the end of 2022 65 00:03:38.280 --> 00:03:41.840 and when that finally happened, it didn't turn out as well as many 66 00:03:41.840 --> 00:03:43.070 had been hoping for. 67 00:03:43.080 --> 00:03:46.480 When everyone else came out of Cutty bit, it had very strong 68 00:03:46.720 --> 00:03:47.950 positive wealth effects. 69 00:03:47.960 --> 00:03:51.280 Everyone's house price had gone up, all the equity markets had gone up. 70 00:03:51.280 --> 00:03:55.120 So you have this massive kind of wealth tailwind behind reopening. 71 00:03:55.280 --> 00:03:57.710 It was in a complete opposite in China. 72 00:03:57.720 --> 00:04:03.400 Ecabie's down, property down and really there was nothing to to fuel 73 00:04:03.480 --> 00:04:05.660 post COVID spending recovery. 74 00:04:05.950 --> 00:04:12.710 China's economic slump is larger and longer than just 75 00:04:12.710 --> 00:04:14.220 about anyone predicted. 76 00:04:14.230 --> 00:04:17.630 People thought China would come out of the pandemic growing 77 00:04:17.630 --> 00:04:20.530 relatively well, and in fact, it hasn't. 78 00:04:21.150 --> 00:04:24.210 A crisis of confidence has well and truly said in. 79 00:04:25.150 --> 00:04:29.230 Spurring consumption in an economy low on confidence is not easy, 80 00:04:29.589 --> 00:04:32.300 particularly given the outsized role that the property 81 00:04:32.310 --> 00:04:35.130 sector had played in that regard for so long. 82 00:04:36.400 --> 00:04:38.790 83 00:04:38.800 --> 00:04:46.240 84 00:04:48.320 --> 00:04:49.300 85 00:04:51.120 --> 00:04:55.760 86 00:05:00.277 --> 00:05:02.630 There's a long established relationship in economics 87 00:05:02.630 --> 00:05:05.410 between deflation and reduced consumer spending. 88 00:05:05.800 --> 00:05:09.630 Consumers may be discouraged to spend if they expect further price falls. 89 00:05:10.029 --> 00:05:13.580 And compared with similar sized economies, China has a 90 00:05:13.589 --> 00:05:16.210 worryingly dogged deflation problem. 91 00:05:16.990 --> 00:05:21.190 In 2021, there was a global surge of inflation amid pandemic supply 92 00:05:21.190 --> 00:05:24.550 chain shocks and the effects of government stimulus packages. 93 00:05:24.950 --> 00:05:27.620 Yet there was barely any inflation in China, 94 00:05:27.630 --> 00:05:30.460 and the country quickly entered a period of deflation, 95 00:05:30.470 --> 00:05:33.420 while economies like the US and the eurozone economy cut their 96 00:05:33.430 --> 00:05:35.370 inflation rates to healthier numbers. 97 00:05:36.760 --> 00:05:38.100 So what's to be done? 98 00:05:38.440 --> 00:05:41.220 A major government stimulus package is one option. 99 00:05:41.360 --> 00:05:45.320 During a slump in 2015, China devalued its currency, slashed 100 00:05:45.320 --> 00:05:48.520 interest rates and poured money into property and infrastructure. 101 00:05:48.800 --> 00:05:51.300 But Beijing has been more reluctant this time. 102 00:05:51.910 --> 00:05:56.190 Xi Jinping is willing to take quite a lot of pain with the vision 103 00:05:56.190 --> 00:06:00.070 with the goal in mind of having more sustainable long term growth. 104 00:06:00.070 --> 00:06:03.990 So he wants the property sector to contract in a controlled manner, 105 00:06:04.470 --> 00:06:08.310 in theory to set China up on a more balanced growth path going forward. 106 00:06:08.950 --> 00:06:12.550 She's planned for a controlled real estate decline appears to be 107 00:06:12.550 --> 00:06:16.270 part of a general reluctance to pump more money into a struggling economy. 108 00:06:16.750 --> 00:06:20.870 If you look at some of the other part of the economy, our fiscal revenue 109 00:06:20.870 --> 00:06:25.950 from land sales fell 20% and investment fell 10% last year. 110 00:06:26.510 --> 00:06:30.550 If everything is falling then it will eventually get back to 111 00:06:30.550 --> 00:06:34.310 the problem of you know, whether the government has the has 112 00:06:34.310 --> 00:06:36.420 enough resources to stimulate the economy. 113 00:06:36.430 --> 00:06:39.690 So, so it seems to me that it's a cycle that. 114 00:06:41.480 --> 00:06:43.870 Can still be turning to the downside. 115 00:06:43.880 --> 00:06:48.279 And at the same time, there seems to be no clear Plan B for the economy. 116 00:06:48.839 --> 00:06:51.860 China has taken measures to stabilize the situation. 117 00:06:52.240 --> 00:06:53.350 They've cut interest rates. 118 00:06:53.360 --> 00:06:56.440 They've provided liquidity to banks, to struggling property firms and 119 00:06:56.440 --> 00:06:57.780 to local authorities. 120 00:06:58.000 --> 00:06:59.740 But nothing seems to be working. 121 00:07:00.080 --> 00:07:01.670 They've done a whole variety of things. 122 00:07:01.680 --> 00:07:05.800 Of course, they've also tried to reassure foreign investors that 123 00:07:05.800 --> 00:07:08.390 China is a good place to do business and they can make 124 00:07:08.400 --> 00:07:09.780 money and get deals. 125 00:07:10.950 --> 00:07:14.150 Nevertheless, that's still not been enough. 126 00:07:14.150 --> 00:07:17.550 I think it shows a very big problem because it shows 127 00:07:17.550 --> 00:07:22.710 that household corporate are kind of indifferent to whatever policies that 128 00:07:22.710 --> 00:07:24.500 are being rolled out. 129 00:07:24.510 --> 00:07:29.990 So which means that the government will need to basically provide an 130 00:07:29.990 --> 00:07:33.750 even clearer road map or maybe even a sharper you return to 131 00:07:33.750 --> 00:07:36.950 convenience the market that the policies are changing. 132 00:07:37.550 --> 00:07:39.290 So is there something else going on? 133 00:07:39.950 --> 00:07:42.820 Although Xi Jinping has been unwilling to intervene with a major 134 00:07:42.830 --> 00:07:46.670 stimulus package this time around, some experts say that it's his desire 135 00:07:46.670 --> 00:07:50.030 for the Chinese Communist Party to have total control over the 136 00:07:50.030 --> 00:07:52.810 country that's doing a lot of the damage. 137 00:07:54.080 --> 00:07:55.060 Under President Xi, 138 00:07:55.830 --> 00:08:00.510 the Chinese Communist Party has sort of broken a compact they had 139 00:08:00.510 --> 00:08:02.050 with the Chinese people. 140 00:08:03.320 --> 00:08:05.620 The compact was what I call no politics, no problem. 141 00:08:05.880 --> 00:08:10.280 And from 1979 till around 2015, when Xi consolidated 142 00:08:10.280 --> 00:08:15.720 power, the Chinese Coast Party basically left average Chinese alone 143 00:08:16.000 --> 00:08:18.620 to do their business, to save, to invest. 144 00:08:19.390 --> 00:08:21.980 The argument goes that under Xi Jinping, 145 00:08:21.990 --> 00:08:25.510 the Chinese Communist Party has become so authoritarian that it 146 00:08:25.510 --> 00:08:27.930 has compromised economic development. 147 00:08:27.990 --> 00:08:30.130 Not every problem is resolved. 148 00:08:30.870 --> 00:08:34.540 By liberalization and justice, allowing more market forces to 149 00:08:34.550 --> 00:08:35.650 work you need 150 00:08:36.230 --> 00:08:41.070 some discipline you need, some order, you need some extent 151 00:08:41.080 --> 00:08:42.890 of intervention. 152 00:08:43.550 --> 00:08:47.300 But Xi Jinping really has gone too far and I think. 153 00:08:49.360 --> 00:08:55.120 Made a challenging situation worse, and that wasn't meant to be always. 154 00:08:55.120 --> 00:08:56.300 It wasn't inevitable. 155 00:08:57.880 --> 00:09:00.960 Long time China watcher Scott Kennedy believes that Xi Jinping's 156 00:09:00.960 --> 00:09:04.200 consolidation of power within the Chinese Communist Party 157 00:09:04.559 --> 00:09:07.960 has made him even more controlling as the years have gone on. 158 00:09:08.750 --> 00:09:11.870 And the more the problems arose, the more he went 159 00:09:11.870 --> 00:09:15.420 back to his strategy of control. 160 00:09:16.470 --> 00:09:19.590 And that's just speed up. 161 00:09:19.590 --> 00:09:25.350 And the pandemic really pushed those control impulses even further, 162 00:09:25.390 --> 00:09:27.490 the tensions with the US and the West. 163 00:09:28.760 --> 00:09:29.270 As well. 164 00:09:29.280 --> 00:09:35.732 And so just about every challenge he sees, he responds with the same approach. 165 00:09:36.760 --> 00:09:39.500 There are many recent examples to back up the point. 166 00:09:39.679 --> 00:09:42.910 When billionaire business magnate Jack Ma criticized Chinese 167 00:09:42.920 --> 00:09:47.640 financial regulation in October 2020, it directly led to the suspension of 168 00:09:47.640 --> 00:09:49.900 the IPO of his company and group. 169 00:09:50.390 --> 00:09:53.510 A huge regulatory crackdown on various tech companies followed. 170 00:09:55.550 --> 00:09:58.020 The property crisis was in part prompted by 171 00:09:58.030 --> 00:10:00.890 the government restricting how companies could borrow. 172 00:10:01.200 --> 00:10:04.630 An understandable move to rein in an overheated sector, perhaps, 173 00:10:05.150 --> 00:10:07.370 but undoubtedly a heavy-handed one. 174 00:10:08.309 --> 00:10:11.910 And Speaking of heavy-handed, there was also zero COVID. 175 00:10:13.830 --> 00:10:17.940 And what seems to have changed over the course of COVID and Xi is 176 00:10:17.950 --> 00:10:21.980 the willingness to change in a positive direction. 177 00:10:23.520 --> 00:10:26.080 That there's more control being imposed, there's more risk 178 00:10:26.090 --> 00:10:28.179 aversion being felt. 179 00:10:29.559 --> 00:10:33.790 The the party is getting much more directive and in part because of 180 00:10:33.960 --> 00:10:38.400 US and external behaviors, but mostly domestically is getting 181 00:10:38.400 --> 00:10:43.280 much more about self-sufficiency and choosing winners and privileging 182 00:10:43.280 --> 00:10:45.780 the state sector over the private sector. 183 00:10:46.590 --> 00:10:50.260 Such an approach has a clear impact on free enterprise. 184 00:10:52.280 --> 00:10:55.210 185 00:10:57.840 --> 00:11:04.760 186 00:11:04.960 --> 00:11:06.860 187 00:11:11.400 --> 00:11:14.960 188 00:11:15.440 --> 00:11:19.160 Many analysts say that both people and businesses have become very 189 00:11:19.160 --> 00:11:21.540 careful about how they spend their money in China. 190 00:11:21.910 --> 00:11:25.590 Due to doubts over what kind of actions the government may take in the furture. 191 00:11:25.756 --> 00:11:29.309 North-south, East, West Center, the party controls 192 00:11:29.309 --> 00:11:34.550 everything that's straight out of Xi Jinping's recent speeches 193 00:11:35.283 --> 00:11:37.770 and that's not how they're going to solve things. 194 00:11:37.990 --> 00:11:42.510 I know that makes them feel better, that they have things under control 195 00:11:43.190 --> 00:11:46.140 and they can have a superficial level of stability, 196 00:11:46.150 --> 00:11:49.329 but the reality is that that just grinds people down. 197 00:11:49.350 --> 00:11:52.670 China's suffering from what I call economic long COVID, that there is 198 00:11:52.670 --> 00:11:58.590 this residual of low energy, of fearfulness, and this shows up in 199 00:11:58.590 --> 00:12:02.830 people saving more people saving more in cash and liquid things 200 00:12:02.830 --> 00:12:06.350 than investing in durable goods or or longer term investments. 201 00:12:07.160 --> 00:12:10.260 People responding less to stimulus packages from the government. 202 00:12:10.710 --> 00:12:14.190 203 00:12:14.190 --> 00:12:15.690 204 00:12:19.320 --> 00:12:20.580 205 00:12:23.200 --> 00:12:27.800 206 00:12:28.080 --> 00:12:29.940 207 00:12:32.790 --> 00:12:37.030 It all feeds into a wider argument that while authoritarian regimes 208 00:12:37.030 --> 00:12:40.290 can spur economic growth at an earlier stage of development. 209 00:12:40.630 --> 00:12:42.140 Eventually they run out of road 210 00:12:42.150 --> 00:12:44.130 if control is the primary goal. 211 00:12:44.910 --> 00:12:50.910 The historical record of authoritarian regimes sustaining 212 00:12:50.910 --> 00:12:53.689 growth is not good. 213 00:12:53.950 --> 00:12:59.350 Oftentimes, whether it's Orban or Erdogan or Putin or even in 214 00:12:59.350 --> 00:13:03.870 Venezuela and the Chavez, the Maduro, you get an initial boost of growth. 215 00:13:04.510 --> 00:13:09.070 But over time, the temptation for authoritarians to 216 00:13:09.470 --> 00:13:14.150 exert their control and pick favorites and and demand loyalty, 217 00:13:14.960 --> 00:13:15.670 outweighs the market. 218 00:13:15.679 --> 00:13:19.280 It's really hard to think of an example where that type of 219 00:13:19.280 --> 00:13:21.140 state lead development. 220 00:13:21.590 --> 00:13:26.630 Has pushed economic growth for economies that are in the middle, 221 00:13:26.630 --> 00:13:30.550 trying to move up to upper middle trying to move her to higher levels. 222 00:13:30.950 --> 00:13:33.860 We've seen how the rising authoritarianism of China under 223 00:13:33.870 --> 00:13:37.309 Xi Jinping has serious implications for the country's economy. 224 00:13:37.870 --> 00:13:39.820 But it raises plenty of other questions, too. 225 00:13:39.830 --> 00:13:42.929 And one of the biggest is about the future of Taiwan. 226 00:13:43.950 --> 00:13:47.750 She has repeatedly said that the island is part of China and 227 00:13:47.750 --> 00:13:50.130 that China will decide its fate. 228 00:13:51.110 --> 00:13:54.510 His increasingly close relationship with Russian President Vladimir Putin 229 00:13:54.510 --> 00:13:55.809 raises a question. 230 00:13:56.190 --> 00:13:58.980 Could Xi see some kind of military intervention in 231 00:13:58.990 --> 00:14:03.350 Taiwan as a way of distracting from or changing the dynamic of 232 00:14:03.630 --> 00:14:05.849 China's economic difficulties? 233 00:14:06.870 --> 00:14:10.630 This is a really interesting, high stakes, tough question, 234 00:14:10.630 --> 00:14:13.830 and I've discussed it with senior U.S. officials. 235 00:14:15.400 --> 00:14:17.910 They went from, Oh my God, China's economy is going 236 00:14:17.920 --> 00:14:19.030 so well and it's so big. 237 00:14:19.040 --> 00:14:22.200 It's a threat to, Oh my God, China's economy is going 238 00:14:22.200 --> 00:14:25.720 so badly, they make you want to wag the dog, do something distracting. 239 00:14:25.720 --> 00:14:26.580 It's a threat. 240 00:14:27.950 --> 00:14:31.310 But China's level of integration into the global economy compared with 241 00:14:31.310 --> 00:14:33.740 Russia makes it a very different case. 242 00:14:33.750 --> 00:14:37.310 China is not like Russia because of that 40 year plus 243 00:14:37.310 --> 00:14:39.010 record of connectivity. 244 00:14:40.430 --> 00:14:41.609 As a result. 245 00:14:43.880 --> 00:14:48.520 China has a lot to lose if there is a war in the Taiwan Strait. 246 00:14:50.560 --> 00:14:55.800 Not just with regard to chips from Taiwan, but it will become 247 00:14:55.800 --> 00:14:57.230 a global economic pariah. 248 00:14:57.240 --> 00:15:01.560 As long as Taiwan doesn't declare independence in the rest of the 249 00:15:01.560 --> 00:15:05.840 world, recognize that that there is a jury independent state. 250 00:15:07.520 --> 00:15:09.220 Then the chances of war really low. 251 00:15:09.790 --> 00:15:16.430 And so have to be extremely vigilant, but I think the chances of outright 252 00:15:16.430 --> 00:15:20.430 conflict in the Taiwan Strait are are relatively small. 253 00:15:21.510 --> 00:15:24.750 Yet X Jinping's presidency has raised questions about 254 00:15:24.750 --> 00:15:28.030 China's role in the world, unlike any leader of the country 255 00:15:28.030 --> 00:15:29.060 since Mao Zedong. 256 00:15:29.070 --> 00:15:32.830 The whole part of this conversation is about how unique Xi Jinping is. 257 00:15:32.830 --> 00:15:36.030 So he could he could take a page out of Putin's 258 00:15:36.030 --> 00:15:39.090 book or someone else's and and go in a different way. 259 00:15:39.150 --> 00:15:44.630 But I think at least what we know is the cost would be extremely high. 260 00:15:44.710 --> 00:15:48.030 He'd be rolling the dice of this Communist Party's 261 00:15:48.030 --> 00:15:50.090 future if he did that. 262 00:15:50.190 --> 00:15:53.790 China's crisis of confidence may have other structural causes. 263 00:15:54.590 --> 00:15:57.590 And there is one major long term issue which becomes 264 00:15:57.590 --> 00:15:59.210 more urgent by the day. 265 00:15:59.710 --> 00:16:03.710 The country is aging and its population is shrinking fast. 266 00:16:05.230 --> 00:16:09.150 Since the 1960s, births have far outnumbered deaths in China. 267 00:16:09.590 --> 00:16:11.860 But since 2016, the gap has been closing, 268 00:16:11.870 --> 00:16:14.460 and last year China's population shrank for the 269 00:16:14.470 --> 00:16:16.570 first time in more than 60 years. 270 00:16:18.550 --> 00:16:22.310 As the population ages and less and less children are born, 271 00:16:22.590 --> 00:16:24.930 the population decline will accelerate. 272 00:16:25.110 --> 00:16:28.230 China is projected to have 100 million less people 273 00:16:28.230 --> 00:16:34.200 by 2050 and around 400 million less by 2075. 274 00:16:34.200 --> 00:16:37.240 A shrinking population is rarely good news for an economy 275 00:16:37.320 --> 00:16:38.460 that wants to grow. 276 00:16:40.220 --> 00:16:42.650 The easiest way to think about Chinese long run 277 00:16:42.660 --> 00:16:47.300 economic growth is to compare it to Japan and see what's similar and 278 00:16:47.300 --> 00:16:49.880 what's different and learn from that experience. 279 00:16:49.980 --> 00:16:54.100 So China and Japan are similar in that fertility 280 00:16:54.100 --> 00:16:57.900 is declining to below replacement rate, right? 281 00:16:57.900 --> 00:17:02.660 This happened to Japan in the 90s and this was accompanied 282 00:17:02.660 --> 00:17:05.080 by a period of economic stagnation. 283 00:17:05.420 --> 00:17:08.609 Their population is shrinking extremely rapidly. 284 00:17:09.640 --> 00:17:13.070 And this is a big deal for economic growth. 285 00:17:13.070 --> 00:17:15.180 This is a big deal for the size of their economies. 286 00:17:15.190 --> 00:17:18.340 It's a big deal for the balance of who's old versus young, as viewers 287 00:17:18.350 --> 00:17:20.500 in Germany and throughout Europe are familiar with. 288 00:17:20.510 --> 00:17:24.150 But this is much more extreme and rapid than even what Italy and 289 00:17:24.160 --> 00:17:25.690 others have seen in Europe. 290 00:17:25.990 --> 00:17:29.950 With all this bad news, it may be easy to forget just how well the 291 00:17:29.950 --> 00:17:33.830 Chinese economy has performed on the whole over the last 40 years. 292 00:17:34.190 --> 00:17:37.310 It may even be the case that the country has become a victim of 293 00:17:37.350 --> 00:17:40.210 unfair expectations because of all that success. 294 00:17:40.710 --> 00:17:43.150 And it's certainly not all bad news when it comes to 295 00:17:43.160 --> 00:17:45.050 China's economic potential. 296 00:17:46.359 --> 00:17:49.640 The leadership has talked of maintaining strategic focus, 297 00:17:49.840 --> 00:17:52.270 which some economists interpret as trying to achieve 298 00:17:52.280 --> 00:17:56.160 sustainable growth by reducing the country's huge debt pile whilst 299 00:17:56.170 --> 00:17:59.720 also trying to develop technological supremacy in various fields. 300 00:18:01.520 --> 00:18:03.550 There are strengths in China to be recognized. 301 00:18:03.560 --> 00:18:09.760 I think fundamentally they have cracked the ability to do medium 302 00:18:09.890 --> 00:18:14.880 tech manufacturing better, cheaper than anyone else in the world. 303 00:18:15.950 --> 00:18:18.630 Without horribly underpaying the workers, because the 304 00:18:18.640 --> 00:18:22.710 manufacturing workers in China are reasonably well paid and would see 305 00:18:22.710 --> 00:18:25.730 this in their potential dominance of electric vehicles. 306 00:18:27.000 --> 00:18:28.740 And related industries like batteries. 307 00:18:28.920 --> 00:18:31.940 So there's clearly a fundamental strength there. 308 00:18:32.170 --> 00:18:35.830 It is the tech sector that they are most optimistic about and you look at 309 00:18:35.840 --> 00:18:39.060 some of the breakthroughs that have come through in the past year. 310 00:18:40.440 --> 00:18:43.640 Reasonably advanced Semiconductors China's new airplane 311 00:18:43.650 --> 00:18:46.180 Huawei Phone Now Out selling Apple. 312 00:18:47.230 --> 00:18:52.030 Batteries, solar, You can run through a whole range of sectors 313 00:18:52.030 --> 00:18:55.190 where China is, is very rapidly catching up or 314 00:18:55.190 --> 00:18:56.530 leading in the world. 315 00:18:57.800 --> 00:18:59.880 Yet even when assessing China's strength in tech, 316 00:18:59.890 --> 00:19:01.859 there are risks to be considered. 317 00:19:03.200 --> 00:19:07.040 High tech is very important and leading powers have advanced 318 00:19:07.119 --> 00:19:10.160 high tech in a range of areas that help their economies. 319 00:19:10.600 --> 00:19:13.030 On the other hand, that's not the be all end all. 320 00:19:13.040 --> 00:19:16.859 70 plus percent of Chinese that were born last year 321 00:19:17.400 --> 00:19:18.780 were born in the countryside. 322 00:19:18.790 --> 00:19:23.390 2/3 of those folks will never finish high school. 323 00:19:24.830 --> 00:19:28.390 That's the big challenge for China's economy, 324 00:19:29.109 --> 00:19:32.190 helping those people become better educated. 325 00:19:33.760 --> 00:19:37.000 Have better healthcare so they can become productive citizens 326 00:19:37.359 --> 00:19:39.100 if AI takes off. 327 00:19:39.170 --> 00:19:43.720 That's going to be great for the few highly skilled people who work in AI, 328 00:19:44.280 --> 00:19:47.440 but it's not going to help the hundreds of millions. 329 00:19:49.170 --> 00:19:51.030 Who need middle class jobs very much. 330 00:19:51.040 --> 00:19:53.310 And that's something else that the Chinese government and 331 00:19:53.320 --> 00:19:55.500 the Chinese economy has to consider. 332 00:19:56.230 --> 00:19:59.990 What happens to China's economy has profound implications, not just for 333 00:19:59.990 --> 00:20:03.250 its 1.4 billion people, but for the whole world. 334 00:20:04.520 --> 00:20:07.430 Its economic success powered global growth for decades and 335 00:20:07.440 --> 00:20:10.409 it's unraveling would be equally consequential. 336 00:20:10.760 --> 00:20:13.030 As much as China is dependent on the rest of the world, 337 00:20:13.040 --> 00:20:20.200 we are connected to China as well, and certainly if China suffers a 338 00:20:20.200 --> 00:20:22.410 significant economic crisis, 339 00:20:22.590 --> 00:20:25.790 they'll bear the biggest brunt of those challenges, 340 00:20:26.109 --> 00:20:29.510 but the rest of the world will will feel it in a variety of ways. 341 00:20:29.510 --> 00:20:33.750 Economically, Xi Jinping has spoken of the economic recovery 342 00:20:33.750 --> 00:20:36.540 being at a critical point, and there is still time for the 343 00:20:36.550 --> 00:20:39.950 country's leadership to rebuild trust and, crucially, confidence. 344 00:20:41.950 --> 00:20:45.510 The ability of China to get back onto a higher growth path, 345 00:20:45.510 --> 00:20:48.790 though not as high as it once was, is still there. 346 00:20:50.359 --> 00:20:55.760 And maybe it is a matter of time that if the government party 347 00:20:55.760 --> 00:20:59.480 says some form of, well, we did these things specifically under the 348 00:20:59.480 --> 00:21:03.590 emergency of COVID and we're not going to do it again. 349 00:21:03.600 --> 00:21:08.640 And people initially are doubtful, but over a few years they stop being 350 00:21:08.650 --> 00:21:10.590 quite so arbitrary interventionist. 351 00:21:10.600 --> 00:21:13.800 Maybe trust will be reborn to some degree and their growth rate 352 00:21:13.800 --> 00:21:14.700 will go up. 353 00:21:15.430 --> 00:21:18.910 But such a scenario may require an ideological shift that seems 354 00:21:18.920 --> 00:21:20.210 ever more unlikely. 355 00:21:21.850 --> 00:21:25.570 China today looks richer. 356 00:21:26.470 --> 00:21:31.430 Stronger, healthier and safer than ever before. 357 00:21:33.070 --> 00:21:36.550 They ought to be celebrating the successful rejuvenation of 358 00:21:36.550 --> 00:21:38.010 the Chinese nation. 359 00:21:38.160 --> 00:21:44.430 Instead, they're looking for conspiracies internally, externally. 360 00:21:46.000 --> 00:21:49.100 Everything to the leadership is glass 3/4 empty. 361 00:21:50.560 --> 00:21:54.920 362 00:21:57.000 --> 00:22:01.160 363 00:22:01.160 --> 00:22:05.310 2024 is the year of the Dragon in China. 364 00:22:05.910 --> 00:22:10.070 The symbolism will not be lost on a leader who desperately needs to 365 00:22:10.070 --> 00:22:12.260 fire up one of the world's most important 366 00:22:12.270 --> 00:22:17.070 economic engines and extinguished doubts about the part he has played 367 00:22:17.270 --> 00:22:18.369 in its struggles. 368 00:22:19.880 --> 00:22:22.020 That's all from this episode of Business Beyond, 369 00:22:22.160 --> 00:22:25.139 and to improve what we do, we'd love to hear from you. 370 00:22:25.440 --> 00:22:28.640 If you have the time, please fill in the survey in the on screen link 371 00:22:28.640 --> 00:22:31.700 or in the video description to tell us what you think about the show. 372 00:22:32.080 --> 00:22:34.800 Thanks a lot for watching, and until the next time, take care.