WEBVTT 1 00:00:00.230 --> 00:00:03.590 It's the most impressive economic success story of our time. 2 00:00:03.790 --> 00:00:07.270 But today, that success looks shakier than ever. 3 00:00:08.840 --> 00:00:12.160 In the last 20 years, China climbed the world's economic ranks. 4 00:00:12.320 --> 00:00:15.360 It managed the fastest sustained growth of any major 5 00:00:15.360 --> 00:00:17.370 economy ever recorded. 6 00:00:17.400 --> 00:00:21.280 Now its size remains second only to that of the United States. 7 00:00:23.720 --> 00:00:27.160 China's rapid rise propelled predictions that it will soon become 8 00:00:27.160 --> 00:00:29.220 the world's largest economy. 9 00:00:30.390 --> 00:00:32.780 Now the country's outlook is clouded. 10 00:00:32.790 --> 00:00:36.830 For the first time in two decades, China's economic output will fall 11 00:00:36.830 --> 00:00:39.050 behind that of the rest of Asia. 12 00:00:40.320 --> 00:00:43.600 A growth slowdown is prompting many experts to reconsider when China 13 00:00:43.600 --> 00:00:46.430 could overtake the US, and if it ever will. 14 00:00:46.440 --> 00:00:49.390 In this episode, we will look at the issues underlying 15 00:00:49.400 --> 00:00:51.379 China's cooling economy. 16 00:00:51.520 --> 00:00:55.800 The lifting of COVID does not necessarily change or solve 17 00:00:55.800 --> 00:00:58.430 China's economic structural problems. 18 00:00:58.440 --> 00:01:02.320 It's hard to maintain dynamic growth when your labor force is shrinking. 19 00:01:02.790 --> 00:01:06.430 If you're trying to export to the rest of the world and domestic 20 00:01:06.440 --> 00:01:10.630 demand remains very weak, I really think that puts a limit 21 00:01:10.630 --> 00:01:12.179 to your growth. 22 00:01:12.190 --> 00:01:16.390 Fundamentally, we will assess the international factors threatening 23 00:01:16.390 --> 00:01:17.170 growth. 24 00:01:18.440 --> 00:01:22.440 The external environment in China is really as bad as anybody 25 00:01:22.440 --> 00:01:26.240 could remember it since the era of Mao Zedong, and we 26 00:01:26.240 --> 00:01:29.880 will be asking, can China still become the world's largest economy? 27 00:01:31.520 --> 00:01:34.600 And China is still the world's largest exporter, 28 00:01:34.600 --> 00:01:38.640 still the world world's largest manufacturing centre. 29 00:01:40.110 --> 00:01:42.500 And the domestic market is huge. 30 00:01:42.510 --> 00:01:49.350 So if China does not make it, that's a point to overcome or surpass 31 00:01:49.350 --> 00:01:53.590 the US before 2027 or 8. 32 00:01:53.590 --> 00:01:55.140 It will never do. 33 00:01:55.150 --> 00:01:57.770 That's all coming up on business beyond. 34 00:02:00.200 --> 00:02:05.400 In 2010, China's GDP growth stood at an impressive 10.6%. 35 00:02:05.400 --> 00:02:08.360 Since then, the pace of expansion has slowed down. 36 00:02:08.370 --> 00:02:12.320 According to IMF forecasts, its GDP growth will continue a trend 37 00:02:12.320 --> 00:02:15.030 of decline even after the pandemic. 38 00:02:15.040 --> 00:02:18.760 In the coming years, it expects growth to hover below 5%, 39 00:02:18.760 --> 00:02:21.820 although some forecasts are slightly more optimistic. 40 00:02:23.090 --> 00:02:27.190 One big factor affecting the pace of economic growth is the 0 COVID 41 00:02:27.200 --> 00:02:31.000 policy that dominated life in China for the past three years. 42 00:02:31.560 --> 00:02:34.380 While most countries around the world began winding down 43 00:02:34.389 --> 00:02:38.990 their pandemic measures in 2022, China tightened its grip. 44 00:02:39.230 --> 00:02:43.150 At the moment, the Chinese economy the the growing 45 00:02:43.230 --> 00:02:48.830 rate The growth rate is not very high, but there are 46 00:02:48.830 --> 00:02:49.900 several reasons behind it. 47 00:02:49.910 --> 00:02:53.030 The most biggest the biggest reason is the pandemic. 48 00:02:53.630 --> 00:02:57.870 Draconian measures to contain the virus sapped domestic consumption, 49 00:02:57.990 --> 00:03:01.590 crippled small businesses and kept China's factories closed. 50 00:03:02.190 --> 00:03:05.590 They also eventually prompted the most widespread anti government 51 00:03:05.590 --> 00:03:07.570 protests and decades. 52 00:03:07.590 --> 00:03:11.190 In December 2022, the Chinese government rolled back 53 00:03:11.190 --> 00:03:14.669 the controversial policy, releasing its grip on the economy. 54 00:03:16.270 --> 00:03:19.630 But many analysts believe that the end of 0 COVID in China 55 00:03:19.630 --> 00:03:23.470 won't signal the revival of economic growth as we know it. 56 00:03:23.750 --> 00:03:28.070 The lifting of COVID does not necessarily change or solve 57 00:03:28.070 --> 00:03:30.780 China's economic structural problems. 58 00:03:30.790 --> 00:03:33.260 To look beyond the short term issues and understand 59 00:03:33.270 --> 00:03:37.230 the underlying factors stunting economic growth in China, it's worth 60 00:03:37.230 --> 00:03:40.450 revisiting how its economy boomed in the first place. 61 00:03:41.720 --> 00:03:44.670 Half a century ago, China was reeling from 10 years of 62 00:03:44.680 --> 00:03:46.820 political and social chaos. 63 00:03:47.150 --> 00:03:50.270 The so-called Cultural Revolution under Mao Zedong 64 00:03:50.390 --> 00:03:53.590 aimed to rid the country of any vestiges of capitalism. 65 00:03:55.800 --> 00:03:58.840 But everything changed with the death of Mao Zedong and the 66 00:03:58.840 --> 00:04:02.240 eventual rise of Deng Xiaoping in 80s. 67 00:04:02.240 --> 00:04:08.120 Deng Xiaoping and his colleagues decided to send China towards a 68 00:04:08.680 --> 00:04:11.180 different route compared to 69 00:04:11.990 --> 00:04:15.510 Communist the socialist period. 70 00:04:15.510 --> 00:04:22.020 China was keen to liberalize, to open up, to embrace the global market. 71 00:04:23.610 --> 00:04:26.950 The country transformed Cities, factories and universities started 72 00:04:26.960 --> 00:04:28.790 filling up manufacturing. 73 00:04:28.800 --> 00:04:31.870 Technology and entrepreneurship exploded. 74 00:04:31.880 --> 00:04:33.990 China's middle class was thriving. 75 00:04:34.000 --> 00:04:37.600 Deng Xiaoping's reforms woke up a dormant economic superpower. 76 00:04:39.560 --> 00:04:42.220 You put all your children into primary school and secondary school. 77 00:04:42.430 --> 00:04:46.430 You move labour from low productivity agriculture into 78 00:04:46.430 --> 00:04:49.630 higher productivity manufacturing in urban areas. 79 00:04:51.200 --> 00:04:53.870 And you do these kinds of things, and if you if you're really good 80 00:04:53.880 --> 00:04:56.350 at doing them and you're very effective at doing them, 81 00:04:56.360 --> 00:04:58.190 obviously the rewards are huge. 82 00:04:58.200 --> 00:05:02.520 And they and they were in China's case. China's fundamental 83 00:05:02.520 --> 00:05:07.080 reforms reconciled its economy with global trading rules and swung open 84 00:05:07.080 --> 00:05:12.110 the door to the World Trade Organization in 2001. 85 00:05:12.110 --> 00:05:18.580 China went through an extremely high speed of growth after China 86 00:05:18.589 --> 00:05:19.880 joined the WTO. 87 00:05:20.360 --> 00:05:23.100 During the six years following China's accession, 88 00:05:23.110 --> 00:05:27.630 its annual GDP growth averaged an eye watering 12%. 89 00:05:27.630 --> 00:05:30.380 Cheap labor and its integration into the world economy 90 00:05:30.390 --> 00:05:32.020 fueled China's rise. 91 00:05:32.029 --> 00:05:35.130 It became the biggest global exporter. 92 00:05:35.310 --> 00:05:39.110 The economy went up really fast until the point 2008. 93 00:05:39.110 --> 00:05:41.340 The global financial crisis happened. 94 00:05:41.350 --> 00:05:45.110 China was not hit immediately, but it was indirectly affected 95 00:05:45.110 --> 00:05:48.230 because the US market and the European market 96 00:05:48.230 --> 00:05:49.970 was heavily influenced. 97 00:05:50.480 --> 00:05:54.120 Export orders from Europe and the US dried up during the financial crisis. 98 00:05:54.630 --> 00:05:59.589 So China began pumping more money into its own economy to create jobs. 99 00:05:59.870 --> 00:06:02.340 That paved the way for one of the biggest threats the 100 00:06:02.350 --> 00:06:04.730 Chinese economy is facing today. 101 00:06:04.830 --> 00:06:05.420 Debt. 102 00:06:05.430 --> 00:06:05.580 Yeah, 103 00:06:05.589 --> 00:06:10.710 So from 2010, well 2009 until about 2020 till 104 00:06:10.710 --> 00:06:16.230 COVID, China went on this huge debt Jamboree. 105 00:06:17.960 --> 00:06:21.920 And and really accumulated more debt than anybody 106 00:06:21.920 --> 00:06:24.180 could have predicted or would have expected. 107 00:06:24.710 --> 00:06:28.430 The Chinese government shielded its economy with bricks and mortar 108 00:06:28.510 --> 00:06:29.460 and it worked. 109 00:06:29.470 --> 00:06:33.630 China's investment boom maintained economic growth at close to 10% 110 00:06:33.630 --> 00:06:35.340 even after the crisis. 111 00:06:35.350 --> 00:06:38.750 But propping up the economy with infrastructure investments meant 112 00:06:38.750 --> 00:06:40.740 that government had to keep on building. 113 00:06:40.750 --> 00:06:45.470 Eventually you're going to have enough harbours and roads, airports. 114 00:06:46.070 --> 00:06:49.110 China's super speed railway system illustrates its 115 00:06:49.110 --> 00:06:50.980 inefficient spending spree. 116 00:06:50.990 --> 00:06:54.310 The country boasts the world's longest high speed rail network. 117 00:06:55.120 --> 00:06:58.100 But despite excess capacity and mounting financial losses. 118 00:06:58.350 --> 00:07:02.150 The network keeps growing even less populated locations where 119 00:07:02.150 --> 00:07:03.940 there isn't much demand. 120 00:07:03.950 --> 00:07:07.390 Now maintenance costs and interest payments have overtaken 121 00:07:07.390 --> 00:07:08.970 the railways income. 122 00:07:10.240 --> 00:07:12.620 They've overbuilt local infrastructure. 123 00:07:12.680 --> 00:07:15.110 So on the one hand, if you travel around China, 124 00:07:15.120 --> 00:07:18.360 it's very impressive that they have all these expressways, 125 00:07:18.560 --> 00:07:22.160 high speed rail, airports, but a lot of them are severely 126 00:07:22.160 --> 00:07:26.680 underutilized and some of it frankly are white elephants 127 00:07:27.000 --> 00:07:30.960 that are not generating a lot of additional economic activity. 128 00:07:31.990 --> 00:07:35.750 In 2008 to 2021, China's debt more than doubled from 129 00:07:35.750 --> 00:07:39.510 140 to 286% of GDP. 130 00:07:39.590 --> 00:07:43.270 Today, Chinas total debt is three times the size of its economy. 131 00:07:44.840 --> 00:07:47.190 Much of that debt didn't end up on Beijing's balance sheet, 132 00:07:47.200 --> 00:07:49.230 but on that of local governments. 133 00:07:49.240 --> 00:07:52.030 To pay for what Beijing ordered, they relied on 134 00:07:52.040 --> 00:07:56.080 another debt ridden sector in the Chinese economy, real estate. 135 00:07:56.720 --> 00:08:00.760 In order to raise money for Beijing's plans, local governments started 136 00:08:00.760 --> 00:08:03.880 selling publicly owned land to real estate developers. 137 00:08:04.470 --> 00:08:07.790 The developers rushed to buy what was on offer, inflating a 138 00:08:07.790 --> 00:08:09.690 giant housing bubble. 139 00:08:10.070 --> 00:08:15.630 China had a property boom over a couple of decades, Which was. 140 00:08:17.480 --> 00:08:18.030 You know, massive. 141 00:08:18.040 --> 00:08:19.710 It fuelled a lot of optimism. 142 00:08:19.720 --> 00:08:24.120 It fuelled a lot of really, really bad risk taking. 143 00:08:24.920 --> 00:08:27.300 Property developers got into too much debt. 144 00:08:28.800 --> 00:08:31.580 Household started on taking a lot of mortgage debt. 145 00:08:32.880 --> 00:08:33.900 It's a typical story. 146 00:08:34.510 --> 00:08:38.190 Especially in smaller Chinese cities, housing construction started 147 00:08:38.200 --> 00:08:42.870 outstripping demand, giving rise to China's so-called ghost cities. 148 00:08:43.030 --> 00:08:46.270 Today, China has enough unoccupied apartments to house 149 00:08:46.270 --> 00:08:48.140 the population of France. 150 00:08:48.150 --> 00:08:50.460 With a mountain of real estate debt at risk of 151 00:08:50.470 --> 00:08:53.750 collapse, the government tightened property restrictions. 152 00:08:53.750 --> 00:08:59.880 But it all began to start to go wrong in about 2021. 153 00:08:59.880 --> 00:09:05.720 The government introduced regulations that tried to limit the liabilities 154 00:09:05.720 --> 00:09:09.520 and constrain the balance sheets of property developers. 155 00:09:10.110 --> 00:09:15.550 And what we got eventually was a bust in 2022, 156 00:09:15.550 --> 00:09:18.870 which the government has become frightened about because 157 00:09:19.390 --> 00:09:22.209 the consequences have been really, really harsh. 158 00:09:23.880 --> 00:09:27.670 So hundreds of thousands of people own properties that can't 159 00:09:27.679 --> 00:09:30.840 be finished by the developers because they're bust 160 00:09:31.000 --> 00:09:33.849 and there's a lot of debt in the sector. 161 00:09:34.160 --> 00:09:37.200 Recent history has seen huge real estate developers 162 00:09:37.210 --> 00:09:39.080 like Evergrand Default. 163 00:09:39.090 --> 00:09:41.780 Now people's life savings are at risk. 164 00:09:42.030 --> 00:09:45.660 Banks are on the hook and local governments are drowning in debt. 165 00:09:45.910 --> 00:09:50.510 Now, the local governments, of course, don't have means to get 166 00:09:50.990 --> 00:09:56.190 financing, because of course land sales were the largest revenue. 167 00:09:56.630 --> 00:10:00.470 But what do China's debt difficulties mean for its economic trajectory? 168 00:10:02.040 --> 00:10:04.990 For many years we've argued that China cannot get into crisis. 169 00:10:05.000 --> 00:10:08.280 You know, I mean, I've been saying this for many years. 170 00:10:08.280 --> 00:10:12.160 That is nearly impossible for many reasons, because China is. 171 00:10:12.750 --> 00:10:15.070 Very controlled, The banks are controlled, 172 00:10:15.080 --> 00:10:18.270 blah blah blah and kind of virtual circle. 173 00:10:18.270 --> 00:10:19.929 Everybody helps each other. 174 00:10:21.210 --> 00:10:24.480 That's well the minute you start having too much debt. 175 00:10:24.480 --> 00:10:28.960 So then you either have to issue more debt to just to service 176 00:10:28.960 --> 00:10:30.459 the interest payments. 177 00:10:32.240 --> 00:10:35.720 Or you have to shrink expenditure, and shrinking 178 00:10:35.720 --> 00:10:38.790 expenditure is very difficult in the middle of a, you know, 179 00:10:38.800 --> 00:10:42.240 a health crisis basically that's ongoing. 180 00:10:42.870 --> 00:10:46.950 To reduce its giant deficit, China's authorities will have to cut 181 00:10:46.960 --> 00:10:51.270 spending, meaning they have to veer away from the strategy that propped 182 00:10:51.270 --> 00:10:53.780 up its economy in the 1st place. 183 00:10:53.790 --> 00:10:57.350 This will continue to be a drag to the Chinese economy. 184 00:10:58.920 --> 00:11:00.750 Because companies and governments, they always have to 185 00:11:00.760 --> 00:11:02.459 service their debt. 186 00:11:02.480 --> 00:11:05.459 Whatever income they make, they always have to. 187 00:11:07.240 --> 00:11:10.480 You know, pay interest basically, and that limits 188 00:11:10.480 --> 00:11:12.939 the amount of investment. 189 00:11:14.350 --> 00:11:15.500 And also consumption. 190 00:11:15.510 --> 00:11:18.340 Consumption is another cloud in China's outlook. 191 00:11:18.350 --> 00:11:21.670 To wean its economy off of public debt and real estate, 192 00:11:21.670 --> 00:11:26.030 the country needs to strengthen another economic engine demand. 193 00:11:26.150 --> 00:11:28.890 Chinese consumers need to spend more. 194 00:11:28.950 --> 00:11:30.770 But that's not what's happening. 195 00:11:32.040 --> 00:11:35.480 Harsh pandemic measures suppressed consumption for the past three years, 196 00:11:35.600 --> 00:11:38.510 But zero COVID isn't the only reason people in China 197 00:11:38.520 --> 00:11:41.390 are holding on to their cash nowadays. 198 00:11:41.400 --> 00:11:44.459 China Chinese people save up for their future. 199 00:11:45.309 --> 00:11:46.729 Because. 200 00:11:48.200 --> 00:11:54.960 The public welfare scheme is still not covering the entire population. 201 00:11:55.559 --> 00:11:59.200 China has one of the highest National Savings rates in the world. 202 00:11:59.320 --> 00:12:03.400 Analysts agree that a big reason is a fragile social safety net. 203 00:12:03.600 --> 00:12:06.760 Once you retire, don't know how, how you are, how you are going 204 00:12:06.760 --> 00:12:08.710 to sustain yourself, and so on and so forth, right? 205 00:12:08.720 --> 00:12:11.390 And when people get sick, for those people who 206 00:12:11.400 --> 00:12:15.640 don't necessarily have good access to the healthcare system, 207 00:12:15.760 --> 00:12:16.859 you are afraid. 208 00:12:17.030 --> 00:12:21.750 To get sick because you cannot afford to go to see the doctor. 209 00:12:22.470 --> 00:12:26.230 Another reason consumers aren't driving enough growth in China 210 00:12:26.230 --> 00:12:29.410 is one we are already familiar with: Debt. 211 00:12:29.510 --> 00:12:32.830 The problem for middle class is that on the one hand if you have to, 212 00:12:32.830 --> 00:12:35.950 they are suffering from these arms race of you know, 213 00:12:35.950 --> 00:12:39.550 the competition of spending on their children education. 214 00:12:39.630 --> 00:12:42.710 And on the other hand, you also have to have buy a house and 215 00:12:42.710 --> 00:12:46.590 a housing market is for a long period of time. 216 00:12:46.590 --> 00:12:47.900 It's just so expensive. 217 00:12:47.910 --> 00:12:50.809 Housing is so expensive in China and 218 00:12:51.520 --> 00:12:57.840 that contributes a lot to be actually change the Chinese savers 219 00:12:57.840 --> 00:13:00.880 to Chinese household from savers to actually very much 220 00:13:00.880 --> 00:13:03.880 indebted and mortgage suppress. 221 00:13:04.429 --> 00:13:07.870 Now that Beijing's zero covert policies winding down, 222 00:13:07.990 --> 00:13:11.230 many analysts say that alleviating anxieties around 223 00:13:11.230 --> 00:13:14.550 money is key to unlocking a new growth phase. 224 00:13:16.120 --> 00:13:19.520 A lot of economists, you know, including Chinese ones even 225 00:13:19.520 --> 00:13:23.040 now are trying to say to the Chinese government is 226 00:13:23.040 --> 00:13:29.200 that they need a US style or European style fiscal stimulus, 227 00:13:29.840 --> 00:13:32.670 which primarily benefit the households. 228 00:13:32.679 --> 00:13:35.300 You just transfer money to the households. 229 00:13:36.510 --> 00:13:40.470 To, you know, give them additional spending power. 230 00:13:42.040 --> 00:13:44.819 But up to this point, the Chinese government has refused. 231 00:13:46.200 --> 00:13:49.320 Driving up demand comes with a price tag the Chinese government hasn't 232 00:13:49.320 --> 00:13:51.030 been willing to pay so far. 233 00:13:51.040 --> 00:13:53.110 China has no fiscal room anymore. 234 00:13:53.120 --> 00:13:57.240 China's public debt is very high and it is engaging 235 00:13:57.240 --> 00:14:00.280 in massive increase in military expenditure. 236 00:14:00.520 --> 00:14:04.360 So the room for the welfare state for, you know, 237 00:14:04.360 --> 00:14:08.440 for for kind of a, you know, room for consumption, 238 00:14:08.440 --> 00:14:10.420 which is another important factor. 239 00:14:10.910 --> 00:14:14.390 To support consumption isn't really there. 240 00:14:14.590 --> 00:14:19.750 And China is contending with another internal problem, demographic change. 241 00:14:20.230 --> 00:14:24.470 China is the fastest aging country on earth, not the oldest, 242 00:14:24.470 --> 00:14:25.770 which is Japan. 243 00:14:26.110 --> 00:14:29.190 But it's ageing faster than almost any other country. 244 00:14:29.910 --> 00:14:33.070 New births in China have fallen to record lows. 245 00:14:33.190 --> 00:14:37.150 In earlier decades, women had an average of 2.7 children. 246 00:14:37.270 --> 00:14:40.870 In 2021, that number shrunk to 1.2. 247 00:14:40.870 --> 00:14:44.670 That's significantly below 2.1, the rate needed to sustain 248 00:14:44.670 --> 00:14:46.690 the population size of a country. 249 00:14:47.960 --> 00:14:51.920 In 2023, China's population fell for the first time in decades. 250 00:14:52.240 --> 00:14:55.920 the United Nations projects that China will lose its status as 251 00:14:55.920 --> 00:14:59.060 the world's most populous country this year. 252 00:15:00.520 --> 00:15:04.080 The one child policy, imposed from 1980 until 2015, 253 00:15:04.080 --> 00:15:06.859 is one reason behind the demographic crunch. 254 00:15:06.880 --> 00:15:09.310 But even though having more than one child is permitted 255 00:15:09.320 --> 00:15:12.880 nowadays, many young people are still rejecting the idea of having 256 00:15:12.880 --> 00:15:15.540 larger families or any children at all. 257 00:15:16.110 --> 00:15:19.180 But hey, if women get educated, women have a career. 258 00:15:19.190 --> 00:15:23.030 They are their priority is not staying in the household and give 259 00:15:23.030 --> 00:15:23.900 birth to children. 260 00:15:23.910 --> 00:15:26.780 Finally, there is also the problem of raising a child is expensive. 261 00:15:26.790 --> 00:15:27.900 You know, raising. 262 00:15:27.910 --> 00:15:32.830 There are systematic studies showing that raising a child in big Chinese 263 00:15:32.830 --> 00:15:36.630 cities are even more expensive in major cities in the West. 264 00:15:37.270 --> 00:15:40.430 China's population is at a turning point with profound 265 00:15:40.430 --> 00:15:42.620 ramifications for its future. 266 00:15:42.630 --> 00:15:45.180 During the period of its sharpest economic ascent, 267 00:15:45.190 --> 00:15:48.630 the country benefited immensely from a demographic dividend. 268 00:15:49.070 --> 00:15:52.150 It had a massive labor force to staff its factories. 269 00:15:52.310 --> 00:15:54.370 Now the picture is shifting. 270 00:15:55.640 --> 00:15:58.900 Their labor force has peaked and is going to start shrinking. 271 00:15:59.000 --> 00:16:03.080 It's hard to maintain dynamic growth when your labor force is shrinking. 272 00:16:03.520 --> 00:16:06.670 A shrinking population means there are fewer workers, 273 00:16:06.680 --> 00:16:09.630 and having fewer workers drives up wages. 274 00:16:09.640 --> 00:16:13.960 Experts warn that because of this, China will have a harder time feeding 275 00:16:13.960 --> 00:16:16.950 the world's appetite for cheap imports. 276 00:16:16.960 --> 00:16:19.190 Well, you would need to make the people who are still 277 00:16:19.200 --> 00:16:23.040 working more productive, or you would need to use robots or 278 00:16:23.120 --> 00:16:25.340 something that is capital intensive. 279 00:16:26.190 --> 00:16:28.940 A growing population of older adults will also put 280 00:16:28.950 --> 00:16:32.550 a strain on the countries already underfunded pension system 281 00:16:32.550 --> 00:16:36.670 and this means that the the burden of dependency 282 00:16:36.670 --> 00:16:41.470 of older people on the falling working age population 283 00:16:41.910 --> 00:16:45.310 is going to rise and this is normally associated with 284 00:16:45.310 --> 00:16:48.630 a more depressing sort of growth picture. 285 00:16:49.270 --> 00:16:51.740 Demographic change is a long term phenomenon, 286 00:16:51.750 --> 00:16:54.530 so the Chinese government still has room to respond. 287 00:16:54.790 --> 00:16:58.230 It has already switched to a three child policy, which includes 288 00:16:58.230 --> 00:17:01.830 improved maternity benefits, cheaper education and childcare. 289 00:17:01.990 --> 00:17:04.660 So far it hasn't yielded strong results. 290 00:17:04.670 --> 00:17:11.470 The government can also potentially expand or delay 291 00:17:11.470 --> 00:17:12.780 the retirement age. 292 00:17:12.790 --> 00:17:15.830 Instead of having people to say, hey, how about you guys just return 293 00:17:15.869 --> 00:17:18.390 at the at the age of 50 or 55. 294 00:17:18.400 --> 00:17:21.790 You can extend that to 60, the same as a lot of Western countries. 295 00:17:23.359 --> 00:17:26.030 China steering towards a demographic dilemma, but it could 296 00:17:26.040 --> 00:17:28.940 still take time before it's shrinking population. 297 00:17:29.310 --> 00:17:32.390 Shrinks economic growth, at least in the short run. 298 00:17:32.400 --> 00:17:36.470 The Chinese labor force is the relatively robust and for those 299 00:17:36.470 --> 00:17:40.070 people who are the the pillar in the labor force are the, you know, 300 00:17:40.070 --> 00:17:44.550 the one child generation or you know, the the 80 people who were born 301 00:17:44.550 --> 00:17:47.830 after the after, you know, 1980s, right. 302 00:17:47.869 --> 00:17:49.390 So these are still robust. 303 00:17:49.400 --> 00:17:51.740 The labor force, they are very much skilled and they 304 00:17:51.750 --> 00:17:55.150 are a higher quality labour compared with the earlier generation. 305 00:17:55.190 --> 00:17:58.150 It's not just what's happening within China's borders 306 00:17:58.160 --> 00:18:00.210 that's threatening economic growth. 307 00:18:00.510 --> 00:18:04.310 The international environment that enabled its economic eruption 308 00:18:04.310 --> 00:18:05.369 is shifting. 309 00:18:06.650 --> 00:18:09.740 For the last 20 to 35 years. 310 00:18:11.080 --> 00:18:16.080 China's increasing integration into the world's economic system 311 00:18:16.560 --> 00:18:20.160 and to become the world's biggest export country 312 00:18:20.359 --> 00:18:25.080 and the centre of so many very, very complex supply chains. 313 00:18:25.359 --> 00:18:29.350 This is this has really been the bread and part of the bread and 314 00:18:29.359 --> 00:18:33.560 butter of, as we say in English, China's economic. 315 00:18:34.030 --> 00:18:38.310 Explosion Today as the world is facing an economic slowdown and 316 00:18:38.310 --> 00:18:42.230 surging inflation, demand for Chinese products has decreased. 317 00:18:43.800 --> 00:18:47.040 Exports of goods and services as a percentage of Chinese GDP 318 00:18:47.040 --> 00:18:54.040 declined from 36% in 2006 to 20% in 2021. 319 00:18:54.040 --> 00:18:57.109 Another important factor is that the world is facing a future defined 320 00:18:57.119 --> 00:19:00.020 more by separation than by integration. 321 00:19:01.650 --> 00:19:03.300 The external environment in China. 322 00:19:03.510 --> 00:19:07.830 Is really as bad as anybody could remember it since the era of 323 00:19:07.830 --> 00:19:13.270 Mao Zedong because of geopolitics export controls. 324 00:19:14.440 --> 00:19:15.270 Decoupling. 325 00:19:15.280 --> 00:19:16.619 Disengagement. 326 00:19:17.040 --> 00:19:19.950 The world's two economic superpowers are wedged in 327 00:19:19.960 --> 00:19:21.880 a strategic competition. 328 00:19:21.890 --> 00:19:25.920 That trend was further exacerbated by the COVID-19 pandemic, 329 00:19:26.040 --> 00:19:29.160 which laid bare the practical cost of codependence. 330 00:19:31.920 --> 00:19:35.680 The United States has adopted a less friendly 331 00:19:35.680 --> 00:19:37.500 attitude toward China. 332 00:19:37.750 --> 00:19:42.910 It's worried about China's rise as an authoritarian power trying to change 333 00:19:42.920 --> 00:19:44.100 the global order. 334 00:19:44.109 --> 00:19:48.859 I think Europe is worried too, but to less of an extent than the US is. 335 00:19:49.070 --> 00:19:53.790 And concretely, that leads to various restrictions that the US 336 00:19:53.790 --> 00:19:57.790 and Europe are putting on technology transfer to China, 337 00:19:57.990 --> 00:20:00.330 trade and investment with China. 338 00:20:00.640 --> 00:20:04.510 And all of that is going to slow down China's development. 339 00:20:06.080 --> 00:20:08.990 In October of 2022, the US introduced a series of 340 00:20:09.000 --> 00:20:10.780 sanctions and regulations. 341 00:20:11.190 --> 00:20:14.260 They don't just target Chinese individuals and companies, 342 00:20:14.270 --> 00:20:17.450 but aim to hamper an entire industry. 343 00:20:17.750 --> 00:20:21.150 China is the largest producer of semiconductors in the world, 344 00:20:21.160 --> 00:20:25.030 and they're used in many other products that the Chinese make, 345 00:20:25.430 --> 00:20:27.260 automobiles, for example. 346 00:20:27.270 --> 00:20:31.100 And they're not technologically capable enough to 347 00:20:31.109 --> 00:20:35.230 compete with the real top end of of tiny semiconductors, 348 00:20:35.350 --> 00:20:39.630 but they produce a huge volume of kind of middle technology. 349 00:20:40.460 --> 00:20:41.490 Semiconductors. 350 00:20:41.500 --> 00:20:46.220 And now the United States has put restrictions on the sale of the 351 00:20:46.220 --> 00:20:52.260 equipment that makes sophisticated semiconductors to China. 352 00:20:52.460 --> 00:20:55.980 Without semiconductors, advanced semiconductors, you don't really have 353 00:20:55.980 --> 00:20:59.740 very much opportunity in the advanced kind of technology sector. 354 00:20:59.910 --> 00:21:03.540 How far economic interdependencies between the two countries 355 00:21:03.540 --> 00:21:07.700 will untangle is unclear, but what is certain is that the 356 00:21:07.700 --> 00:21:10.280 environment which once let China flourish, 357 00:21:10.790 --> 00:21:12.130 is becoming more cutthroat. 358 00:21:12.500 --> 00:21:15.820 And it's going to delay China's technological development. 359 00:21:15.859 --> 00:21:18.570 It's going to make it very costly. 360 00:21:18.580 --> 00:21:23.780 But could China eventually launch its own chip making 361 00:21:23.910 --> 00:21:27.330 manufacturing machines and could it make it advanced chips? 362 00:21:27.340 --> 00:21:29.050 I think China is still on the trajectory 363 00:21:29.060 --> 00:21:33.500 of developing its own capacity, technological capacity, 364 00:21:33.740 --> 00:21:39.180 especially that now that you know, a lot of American Western trained 365 00:21:39.820 --> 00:21:42.840 scientists have went back to China. 366 00:21:42.910 --> 00:21:46.380 In the beginning of this video, we asked whether China is still on 367 00:21:46.390 --> 00:21:49.080 track to becoming the world's biggest economy. 368 00:21:49.220 --> 00:21:53.020 The experts we spoke to described a superpower that has outgrown 369 00:21:53.020 --> 00:21:54.560 its economic blueprint. 370 00:21:55.830 --> 00:21:58.830 One of the things which I think most international kind of 371 00:21:58.830 --> 00:22:02.270 economic watchers agree on, actually the Chinese government, 372 00:22:02.270 --> 00:22:06.109 I think basically agrees with this too, is that the development model 373 00:22:06.109 --> 00:22:11.630 which worked so well for China during the 1990s and the 2000s really 374 00:22:11.670 --> 00:22:14.050 isn't working for them as well anymore. 375 00:22:14.300 --> 00:22:18.020 All this is to say that China can still grow, 376 00:22:18.140 --> 00:22:21.820 but at the cost of growth probably is going to be higher. 377 00:22:23.390 --> 00:22:26.390 As an emerging economy, China's rapid rise was driven by 378 00:22:26.390 --> 00:22:30.390 urbanization, population growth, and upgrades in manufacturing. 379 00:22:30.510 --> 00:22:34.430 As these economic engines slow, others need to be fueled. 380 00:22:34.950 --> 00:22:37.770 So it's a natural process, if I may say so, 381 00:22:38.030 --> 00:22:40.300 that is basically unavoidable. 382 00:22:40.310 --> 00:22:42.169 Again, this is like gravity. 383 00:22:43.670 --> 00:22:46.300 Countries, when they develop, they become, I mean, they grow 384 00:22:46.310 --> 00:22:48.859 the product, not the level, the level, not the level, 385 00:22:48.869 --> 00:22:52.230 the growth of productivity, which explains economic growth. 386 00:22:52.740 --> 00:22:54.130 Starts to decelerate. 387 00:22:54.140 --> 00:22:57.660 But animals also believe that policymakers hold the tools for 388 00:22:57.660 --> 00:23:00.660 a new kind of economic growth in their hands. 389 00:23:01.140 --> 00:23:06.220 Whether China will actually come back, it depends on the policies. 390 00:23:06.220 --> 00:23:09.780 Depends on the government is providing enough support for small 391 00:23:09.780 --> 00:23:14.980 business whether the government is doing the right thing to. 392 00:23:17.070 --> 00:23:20.710 Push for technological progress in the long run. 393 00:23:22.660 --> 00:23:26.837 When the government is ensuring, 394 00:23:26.840 --> 00:23:27.840 395 00:23:28.950 --> 00:23:32.030 the growth is sustainable, is balanced. 396 00:23:32.150 --> 00:23:36.190 China would benefit enormously if it could embark on 397 00:23:36.190 --> 00:23:42.510 policies that shifted the focus of growth away from investment in 398 00:23:42.510 --> 00:23:44.169 property and infrastructure. 399 00:23:46.150 --> 00:23:49.250 And towards consumer spending and services. 400 00:23:49.270 --> 00:23:52.180 China's economy is at an inflection point. 401 00:23:52.190 --> 00:23:54.859 What that means for its path to becoming the world's biggest 402 00:23:54.869 --> 00:23:57.530 economy has analysts split. 403 00:23:57.780 --> 00:24:04.660 So if China does not make it, that's a point to overcome or surpass 404 00:24:04.660 --> 00:24:08.900 the US before 2027 or 8. 405 00:24:08.900 --> 00:24:13.380 It will never do in my opinion, because growth will not be strong 406 00:24:13.380 --> 00:24:16.420 enough China needs to use these years. 407 00:24:17.700 --> 00:24:23.300 To really make it by 2027/28, they might if the US 408 00:24:23.300 --> 00:24:27.859 gets into a very big recession, maybe. Could China grow by number? 409 00:24:27.940 --> 00:24:29.050 Yes, for sure. 410 00:24:29.060 --> 00:24:33.020 But quality wise, I think that there are a lot of challenges. 411 00:24:33.580 --> 00:24:38.300 I think it might still happen because the scale is still very big. 412 00:24:39.869 --> 00:24:42.340 China is still the world's largest exporter, 413 00:24:42.350 --> 00:24:46.310 still the world world's largest manufacturing centre. 414 00:24:47.780 --> 00:24:50.440 And the domestic market is huge. 415 00:24:51.180 --> 00:24:55.020 As the country re emerges from three years of 0 covic rule, 416 00:24:55.100 --> 00:24:58.900 its path to becoming the world's largest economy has become rockier. 417 00:24:59.180 --> 00:25:02.900 Beijingers next move could determine whether China finds a new steady 418 00:25:02.900 --> 00:25:04.600 course or stalls. 419 00:25:05.619 --> 00:25:08.740 And that wraps up this episode of Business Beyond. 420 00:25:08.900 --> 00:25:11.900 If you like what you see here, check out one of our other videos. 421 00:25:12.260 --> 00:25:15.740 A good place to start would be our episode on demographic change. 422 00:25:15.859 --> 00:25:17.020 Goodbye and take care.