Richard Koo and Zichen Wang on What Just Happened in China

In September, Chinese policymakers shocked the markets by unveiling a set of stimulus measures designed to boost the economy and bolster the real estate market. While it's too soon to know whether the announcements will be successful, the stock market took off like a rocket in the wake of the news. Since the initial unveiling, further efforts have been announced with promises of more to come. So how big of a deal is this really? Is this the start of a major turning point in China's economic trajectory? Or is this just business as usual? On this episode, we speak with two guests. First, we discuss the macro situation with Richard Koo, chief economist at the Nomura Research Institute, and the famed theorist of "balance sheet recessions." Then we delve further into China's decision-making apparatus with Zichen Wang, the author of the must-read Pekingology newsletter. Our guests answer why this time may be different, how these measures come about, how they get implemented, and what to watch next in terms of their impact.

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Adam Tooze on the Big Misconceptions of the Chinese Economy

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Episode Transcript

Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News.

Speaker 2 (00:18):
Hello and welcome to another episode up the All Thoughts Podcast.
I'm Tracy Alloway.

Speaker 3 (00:23):
And I'm Joe Whysenthal.

Speaker 2 (00:24):
Joe, what is going on in China? We haven't asked
that question for a while, I mean, how.

Speaker 3 (00:29):
Long is it ever? How long do we ever go
without a China episode? But since the last time we
ever talked about China, which was probably like a month
ago or something, we have seen an absolute flurry of
policy announcements. Look, we know that the big picture is
that there's been slow growth. The real estate market is dismal,
consumption is slow, the stock market, which I don't think

(00:51):
is particularly important to Chinese policymakers, has been terrible. And
then over the last few weeks, we've had this flurry
of announcement.

Speaker 2 (00:58):
Right, so, there was something of a policy pivot in September,
which in itself is kind of unusual, and we'll get
into that. But we've basically seen you know, new polep
Bureau guidance. We've seen monetary easing, we've seen property support,
we've seen some signs of maybe more fiscal stimulus. And

(01:19):
that to me is kind of the big question because
so far, and you're going to hear me ask this
question a couple of times, I imagine, But so far,
the responses to what's been announced are kind of along
this range of some people thinking it's kind of nothing burger,
it's just more monetary easing. We've seen this kind of
thing before. But then there are people out there who think, no,

(01:40):
this is actually a big deal, and China is sort
of signaling a big shift in its mindset in how
it approaches things like fiscal stimulus and also social safety
nets totally.

Speaker 3 (01:50):
So we know that there was the mega Chinese fiscal
stimulus that happened in two thousand and eight and two
thousand and nine after the global financial crisis, and is
sort of historic how much got built then. But you know,
unlike much of the rest of the world, in the
wake of COVID, there has really been very little and
there's been this sort of drum beat that that's sort

(02:10):
of the way we think of countercyclical fiscal policy in
Western economies is not the preferred approach. That there's this
preference for domestic investment, the investment tech, exports, et cetera.
And so something happened though in this year in the
last several months that has prompted at least some sort
of pivot, and we need to understand why now and

(02:32):
what the goals are. Yeah.

Speaker 2 (02:33):
Well, you also mentioned some of the economic data that's
been coming out of China recently. One of the big
things that happened was I think the first contraction in
bank lending in nearly two decades. And so if we're
talking about contracting bank lending, then it feels like there's
one person we definitely need to talk to, and that

(02:54):
is Richard Ku of balance sheet recession fame. So listeners
might remember that we spoke to him last year when
his idea of a balance sheet recession in China was
really starting to take off. And again, if you look
at that bank lending contraction, it seems like that's kind
of been born out in the data. And then the
other perfect guest we have for this episode is someone

(03:17):
who's going to speak to the question of how economic
policy is actually implemented in China, because I think everyone
has this view of China as a very centralized command economy,
but you have all these local governments who actually have,
you know, some degree of autonomy when it comes to
deciding individual spending decisions, or how particular macro policy or

(03:41):
how particular macro policy should be implemented at the individual
micro level. It reminds me, do you remember that old
proverb of I think it's a heaven is high and
the emperor is far away? You know you heard that one?

Speaker 4 (03:57):
Anyway? Yes?

Speaker 3 (03:58):
Actually, yes, Wait are you listening to me?

Speaker 4 (04:00):
You no?

Speaker 3 (04:01):
No, I actually do remember that. I've come across that.

Speaker 2 (04:04):
So China is big and Shishin Ping is in Beijing
putting out like generalist mandates, but a lot of that
is going to get executed at a more local level.

Speaker 4 (04:12):
Right.

Speaker 3 (04:13):
So, after our conversation with Richard Kou, which will be
the first half of this, we're going to be speaking
with the Zishan Wong. He is a mid career master
student at Princeton University. He's on leave from the Center
for China and Globalization, and he is the author of
the excellent Pecnology subs deck. Listeners might remember we did
a recent episode with Adam Two's and he gave a

(04:34):
shout out to the Pecnology substack. So it's like, okay,
we got to get him on because if two gives
him a shout out, then obviously we needed to talk
to him, and then all of this flurry of China news.
This is the perfect hook. So you'll hear from Richard
and then you'll hear from Azishan.

Speaker 2 (04:49):
All right, let's start with Richard at the sort of
macro level. Richard Ku, thank you so much for coming
back on all thoughts.

Speaker 4 (04:56):
Oh, quite welcome. It's a great honor for me.

Speaker 3 (04:59):
Thank you, thank you.

Speaker 2 (05:00):
So I'll just jump in with the first question. There
seems to be a spectrum of responses to what China
has announced so far. And on the one end you
have people like George Magnus who are saying this is crazy.
It's the definition of doing the same thing over and
over again and expecting a different result. And then on
the other hand you have people who say this is

(05:20):
actually a really big policy shift. It's just that the
party is rolling stuff out incrementally, and so it may
still be the case that we get a big fiscal
response at some point. Where do you lie on that
sort of spectrum of opinions about what's been announced so far.

Speaker 4 (05:37):
Well, I am slightly closer to the people who think
this might be the beginning of a new move instead
of just doing the same thing over and over in
that the size of the package that came out, mostly
from People's Bank of China is quite significant, very large
there is, and that shows that for the first time

(05:58):
the Chinese women is indicating their awareness that this is
a serious business. And I think that's the indication that
we haven't seen until now. And so yes, I am
slightly positive because they actually indicated that they're very serious
about the problem we face. Now this is the same

(06:21):
thing over again. Well, central bank responses are the easiest
one to put in on the table compared to our
physical stimulus, where you have to decide you know, where
the money should be spent, and how should be spent,
and who gets the money and who doesn't in all
of those things will have to be worked out on
the fiscal side, but on the monetary side, you know,
only central bank have to make a decision how much

(06:43):
money to put in. So you would expect central bank
to move fast and first if they realize that they
have to do something. And so I'm not surprised that
central bank actions came first before the fiscal response. But
in a sense, we in Japan years ago did the

(07:05):
same thing. Thirty years ago, we had a word called PKO.
In a PKO usually means peacekeeping operation by the United Nations,
but those of us in the market. Thirty years ago,
the word PKO meant price keeping operations by the Ministry
of Finance trying to keep Japanese share prices from falling.
And so there's a little bit of similarities with what

(07:28):
Japanese did thirty years ago with what China is doing
with its share prices.

Speaker 3 (07:33):
If I can just jump in here when you say
this might be the beginning of something real, what is
it specifically that looks good to you?

Speaker 4 (07:41):
Well, first of all, I'm no great fan of using
monetary policy, meaning policies from the central bank to fight
what I call balanced you recession, and I think China
is facing balance recession. And balance recession happens when a
dead finance bubble burst. As the prices collapsed lie these
remain people realize that they are balance sheets underwater or

(08:04):
nearly so, and they all try to repair their balance
sheets all at the same time. And repairing balance sheets,
of course, is the right thing to do, but when
everybody does it all at the same time, we enter
the problem of fallacy or composition that even though everybody
is doing the right things, collectively, we get the wrong results.
And we get that problem in this case because in

(08:26):
the national economy, if someone is repairing balance sheets, meaning
pain down debt or increasing savings, someone has to borrow
those funds to keep the economy going. But and usual economies,
you know, you bring interust rates down, there'll be people
out there willing to borrow the money and spend it,
and that's how you keep the economy going. But in
the balance sheet recession, you bring interest rates down to

(08:48):
very low levels, and Chinese interest rates already pretty low,
but even if you bring it down to zero, people
would be still repairing balance sheets. Because if you're in
negative equity territory, you have to come out of that
as quickly as possible. And so when you're in that situation,
you cannot expect private sector to respond to lowering of
interest rates or quantitative easying, forward guidance and all of

(09:11):
those monetary policy to get this private sector to borrow
money again. And because they are all doing the right
things paying down debt. So when you're in that situation,
economy to go. We can vary very quickly because all
the safety funds that are returned to the banking system
cannot come out again, and that's how you end up
with economy drinking very, very rapid. And the only way

(09:34):
to stop this is for the government, which is outside
of the fallacy of composition, to borrow money. And that's
the fiscal policy, of course, but that hasn't come out yet.
And so yes, they did the quick and easy part
with big numbers on the monetary side. But if you
are in balanced your recession monetary policy, I'm afraid it's

(09:55):
not going to be very effective. You really need a
fiscal policy to get the economy moving, and that hasn't
arrived yet.

Speaker 3 (10:02):
Well, then what's good? I mean you say, Okay, the
PBOC moved first. You think this could be the start
of something different. But if all they've really done, in
your view is announce the sort of substance on the
central bank side, I'm still trying to understand what you
see as maybe some reason for optimism.

Speaker 4 (10:18):
Well, optimism in the sense that the amounts involved are
pretty large. Okay, you know, Center kept on saying, if
this is not enough, we're going to do more and
more and more. Well, as someone mentioned, this is just
like Mario Doraghi is saying that you see people do
whatever it takes to keep the Euro going. That kind
of sounds like that, and in that sense at least

(10:41):
Central Bank is indicating that situation is quite serious, okay,
which is a good thing because we haven't heard that
yet from those guys before. But what the real policy
that is needed is not from the monastery side. It
has to come from the fiscal side.

Speaker 2 (10:55):
What could they do on the fiscal side? And this
is the thing I don't really understand, because I think
I've agrees that part of the problem here is the
lack of consumption, So why not just go directly? I
know monetary policy is faster and to some extent easier
to roll out, but why not move sooner on the
fiscal side and just stimulate consumption directly.

Speaker 4 (11:19):
Well, if people are all concerned about repairing their balance sheets,
you give them money to spend, and too often they
just use it to pay down debt. And so even
within physical stimulus, you have to be very careful here
because tax cuts, I'm afraid, are not very effective during
balance sheet recessions, because people use that money to repair

(11:42):
their balance sheets, and repairing balances is of course the
right thing to do, but it will not add to
GDP when they're using that tax cuts to pay down
debt or rebuild their savings, so that will not add
to consumption as much as you would expect under ordinary circumstances.
And so I would really like to see government just

(12:02):
borrow and spend the money, because that would be the
most effective way to stop the deflationary spiral.

Speaker 3 (12:09):
A source of funds in an economy that's experiencing balance
sheet recession that's sort of outside the fallacy of composition
or the composition effects is exports. And so you could
imagine that if the world is filled with people buying
bid vehicles and humanoid robots and batteries from cattle and
so forth, that that can bring in the cash and

(12:31):
that could be another source. Does the math add up
in your view? Can China export its way out of
the what you assess as a balance sheet recession?

Speaker 4 (12:40):
Yes, Export is definitely one of the best ways if
you can use it to come out of balancing recession.
But China, just like Japan thirty years ago, is the
largest trade subplus country in the world, and if the
world's largest trade subplus country in the world tries to
export its way out. Very many trading partners will complain

(13:05):
that you're already such a large destabilizing factor on the
world trade. Now you're going to destabilize it even more.
And so I remember thirty years ago that United States,
Europe and others were very much against Japan trying to
expore its way out, and because of their displeasure, particularly
the US displeasure, Japanese en which thought that at one

(13:29):
hundred and sixty when the bubble burst in nineteen ninety
ended up eighty hundred of dollars five years later nineteen
ninety five. And what that indicated to me was that
if you're running trade deficit, you can probably expose your
way out and no one can really complain because you're
a deficit country to begin with. But if you're the

(13:50):
surplus country, and that if you're the largest straight subplus
country in the world, there will be huge pushback against
that kind of move by the Chinese. And we already
seen that in very many countries complaining that China should
not export its problems.

Speaker 2 (14:21):
Yeah, this is something that I wanted to ask you,
which is it seems like part of the problem here
is that China is in need of a new type
of growth model, so one that maybe is less reliant
on things like exports and being a major beneficiary of globalization.
Given the restrictions that you just laid out, what could

(14:42):
that new model actually look like.

Speaker 4 (14:44):
You know, there are no balancing problems in the Chinese
economy today. We don't need a new model, right because
then there thinks will be still moving forward as before.
But suddenly Chinese domestic demand shrunk because of the balancing problems,
and then Chinese manufacturers or even the government is forced
to export its way out. I think what we need

(15:08):
to do is really fix the balance sheet problems first,
instead of talking about the new model of economic growth.
We can talk about these things a long time, but
I don't think that will solve the problem of balance recession.
And balance recession, by the way, can kill the economy
pretty quickly. So if I may give you an America example,
Suppose I have of thousand dollars of income and I
spend nine hundred myself. The nine hundred is already someone

(15:31):
else's income, so that's not a problem. But one hundred
dollars that I say to go through people like us,
our financial institutions, and we'll be lent to someone who
can use it. That person borrows and spends it, then
economy will be total expenditure in economy would be nine
hundred that I spent plus hundred dollars that this guy
spent together thousand dollars against original income of thousand dollars.

(15:52):
And that's how economy moves forward, right, And if there
are too many borrowers and economies doing well, center BANKU
race race to a few central BANKU lower race, make
sure that the cycle is maintained. That's the usual economy.
But what happens in the BALANCEE recession is that when
I have a thousand dollars to income and I spend
nine hundred myself, that nine hundred is not a problem,
but one hundred dollars, I decided to say, ends up

(16:13):
stuck in the financial system because no one's borrowing money,
and China so many people are refusing to borrow money
these days because of that issue. Then economy shrinks from
one thousand to nine hundred, so ten percent decline and
the next round, the nine hundred is someone else's income.
When that person decides to save ten percent, spends eight
hundred ten and decides to say ninety dollars. That ninety

(16:35):
dollars gets stuck in the financial system again because repairing
financial balance sheets could take a very long time. I mean,
Japanese took nearly twenty years to repair their balance sheets.
But in the meantime, economy can go from one thousand,
nine hundred, eight hundred ten, seven hundred and thirty very
very quickly. And that actually happened in the United States
during a great depression. You know, from nineteen twenty nineteen

(16:57):
nineteen thirty three, the United States lost forty six percent
of its nominal GDP. And something quite similar actually happened
in Spain after two thousand and eight, when unemployment rates
skyrocketed to twenty six percent in just three and a
half years or so. That's the kind of danger we
faced in the balancing recession and talking about the new

(17:17):
economic models among all these academics, you know, trying to say, okay,
what is the right model? Well, I don't think we
have that much time. In Chinese government does not have
that much time to think about the new economic model
when the economy is already in that kind of visual cycle.
So I would recommend that instead of talking about new
economic model when we have the time to do so

(17:40):
at the moment, I would very much like to see
Chinese governments borrow and spend one hundred dollars to keep
the economy from collapsing.

Speaker 2 (17:49):
So, speaking of a pressing time constraint, I remember the
last time we spoke to you a little over a
year ago. It was again about this balance sheet recession
in China idea, and at the time you mentioned that
there were a lot of Chinese officials who had been
reading your work and lots of domestic policy papers being

(18:11):
published that referenced your work. What's the discourse been like
for you over the past year or so. Do you
get a sense that you know the urgency is even
more salient now? Are lots of people reaching out to
you from China.

Speaker 4 (18:27):
Well, that is actually quite true, speaking engagements one after another.
But the country is not exactly the safest place on
earth to go, and so I'm trying to meet all
these speech requests by doing things online or meeting them
in Tokyo or some safer places instead of traveling to China.

(18:51):
But yes, huge number of requests that are coming my
way from people all walks of life. They wanted to
hear more about what happened to you depends thirty years
ago and how similar is the situation they faced today.

Speaker 3 (19:05):
So we're recording this October fourteenth. Over the weekend October twelfth,
the Ministry of Finance did hold a press conference, and
I think the view is kind of to your point.
There were not a lot of details on we are
going to spend money now, which is what you prescribe,
but there were some comments and there are going to
be some more things expected to roll out. One of
my understandings about Chinese fiscal policy is it's very decentralized

(19:29):
and that the local governments control a lot of the
levers of spending. And that model, to some extent is
broken because a lot relied on land sales. And at
the same time, the central government has tried to prick
the bubble of real estate, and there's all kinds of
stress on that model. One of the things that seems
to have come up in the mof press conference is
this idea of allowing local governments to issue more debt.

(19:52):
Maybe the central government could take more direct role in
repairing the balance sheets of local government. Can you talk
about that, setting aside like the question of like how
much to be spent right now, is there much juice
to be had essentially out of changing the fiscal structure
of local governments and changing how local governments collect and

(20:13):
spend revenue.

Speaker 4 (20:14):
Well, there are multiple issues. What you what you just said? Okay, Now,
if you look at local governments in the United States
or Japan, most places, you know they are supposed to
around large deficits. Right There's a rule in almost all
countries that local governments should not run large deficits. And

(20:35):
that is because if local governments go bad at the
end of the day, central bank might have to look
after those those problems, and local governments cannot print money
like the central government can. Right But in China, even
though same rules should have applied, local governments were able
to sell lots of land, make a lot of money

(20:56):
in the process, and then they were able to do
quite a bit of fiscal sticks, which also of course
added to their GDP. That model will have to be
completely revised now because no one wants to buy land anymore,
and so the big source of revenue of local governments
are gone, and as a result, many of them are

(21:19):
very close to bankrupt and under the circumstances I'm afraid
central government will have to take over a lot of
these problems from the local government. So this myth that
Chinese central government the budget DeFore said is not a
very big part of GDP. That myth will have to
be thrown out and central government will have to take

(21:43):
on not all of it, perhaps, but some of the
liabilities are the local governments, so that local governments can
move forward. Now, in terms of actual financing fiscal stimulus,
the balancing recession is caused by excess savings in the
private sector. Talking about one hundred dollars dimension to you earlier.
So the money is there. So even though budget deficit

(22:07):
of China might be very large, the money is there
for government to borrow. If the money is not there
for the government to borrow, Chinese government bondills should have
gone up higher and higher, but as you know, Chinese
government venue government bondills almost down to two point zero,
zero one or two percent when that low because there

(22:28):
are not enough borrowers out there. Financial institutions have to
place this money somewhere. All these deliveraged funds coming back
into the financial institutions, newly generated savings, all the money
that central bank put in, all comes to basically people
like us in the financial institutions, the fund managers. But
if the private sector is not borrowing money, the only

(22:49):
borrow left is the government. And so even if the
budget required budget deficit might be very large to stabilize
the economy, the funds are available in the financial market
only the government just have to borrow that and spend it.
So financing should not be a big issue for governments.
In balance recession, you know, Japan was running huge budget deficits,

(23:13):
and a lot of commission on minded economists who never
understood the dynamics of balance recession was warning about Japan's
budget deficit growing sky high and then interest rates going
sky high. Well, interest rates kept on coming down because
of the mechanism that I just described to you, that
all these ones coming into the financial sector cannot go

(23:33):
to the private sector, ended up going to our government
bond market. And I see the same pattern developing in
China today. Right.

Speaker 2 (23:40):
So Joe mentioned the real estate crackdown, and you're talking
about the reluctance of the private sector to lend, and
I guess I have to ask to what extent is
that reluctance to lend, not just a product of the
debt dynamics that you've already laid out, but also a
product of the sort of policy whiplash that we've seen

(24:02):
from the party in recent years, where maybe you fund
I don't know, an education startup or something like that,
but then one day officials wake up and decide to
basically crack down on that entire sector and make it
very very difficult to operate the business.

Speaker 4 (24:18):
Well, that's another big problem of China today. So in
aside from balanceing recession, which is a very very serious
disease to begin with, we have those other factors that
started hurting the Chinese economy I would say starting as
early as twenty sixteen. So when you look at the

(24:39):
flow funds data for the Chinese economy, you notice that
the Chinese corporate sector started reducing their borrowings starting around
twenty sixteen. So until twentand sixteen, Chinese companies are borrowing
or the household sector savings generated, which is of course
the ideal world household sector saving money, co PRO sector
borrowing mone But starting around twenty sixteen you see COPRA

(25:03):
sector borrowing less and less, and around the COVID time,
cop Pro sector was actually a net safer a net borrower.
So that trend I think has to do with what
you just described. That regulatory uncertainties got bigger and bigger
under the current leadership, and I think people began to

(25:24):
realize that even after you make these big investments in
the new projects, they may not be able to expect
the same revenue stream that they expected earlier because of
this regulatory uncertainty. And on top of that, of course,
we have you know, what is known as middle income trap.
If you reach a certain level of income factories who

(25:46):
will start moving away from you instead of coming to you.
So those factors all combine starting around twenty fifteen twenty
sixteen ended up reducing Chinese corporate borrowings. But if household
sector is saving money but the corporate sector is not
borrowing money, you need someone else to fill that gap.

(26:07):
And actually that gap was filled by Chinese government, mostly
decentralized local governments. But if that temporary fiscal joto fiscal
stimulus then turned the economy around, then those local government
interventions would have been justified. But because this was a
much more deeply rooted here, I would use structural problems,

(26:31):
This regulatory uncertainties and middle income trap and so forth.
Local government just had to keep on borrowing and spending
money to keep the economy going. And that was happening
long before the bubble burst. So if you look at
total or what are called general government spending, not just
the central government, but the general government, they were financial

(26:53):
deficits to the tune of almost seven percent of GDP
by twenty twenty two. This is before the bubble bursting.
So if you already writing a budget deficit seven percent
of GDP before the onset of balance recession, then whatever
you have to do to stop balance recession, we have
to be on top of this seven percent. Suppose you
need five percent GDP equivalent to keep the economy going,

(27:15):
then you're talking about twelve percent of GDP budget deficit.
And I think that's one of the reasons why Chinese
policy makers, even though many of them are fully aware
that in the balance servisssion you need the government to
come in, they haven't been able to come to a
full consensus yet because even before the bubble burst, Chinese
government was writing a large budget deficit.

Speaker 3 (27:37):
I want to go back to exports for a second,
and you've noted which seems objectively true that here you
have this huge surplus country, and many countries around the
world do not want to tolerate a further expansion of
the surplus. And you see the reticence, not just reticence,
but pushback in the United States in the form of
tariffs and promise of more tariffs. You see the anxiety

(27:59):
in Europe of On the other hand, earlier this year,
is visiting my mother in Guatemala, and I saw billboards
for Chinese vehicles for sale there. I have to imagine
that there's a lot of appeal in the sort of
the non western parts of the world for cheaper vehicles,
not being dependent on more expensive European and US cars,

(28:21):
et cetera. Is there money to be made, an opportunity
to grow exporting to the rising parts of the world
that aren't the US or Europe.

Speaker 4 (28:30):
Well, I'm sure, I mean Chinese companies will look at
what an opportunity that's available out there. But the West
accounts for something like fifty seven percent of the global GDP,
and the capital GDP on average is almost sixty thousand dollars.
The so called non West Malay but India, Africa, South America, Russia,

(28:54):
they're only about twenty five percent of global GDP and
put capita GDP on average is like thirteen thousand dollars there.
China itself is what eighteen percent of global GDP and
per capita GDP thirteen thousand and also or slightly less
than thirteen thousand and So if you lose market, which

(29:14):
is fifty seven percent of global GDP with all the
rich customers, and you only left with this remaining twenty
five percent with much poorer customers, of course you have
to sell to your customers those poorer customers, because you
have no choice but to upset what you lose in
a developed world Western world and make up for that

(29:36):
by sending Morgus to Indian and Russia. I'm sure companies
will try their best, but I don't think numbers will
add up.

Speaker 2 (29:45):
If you were a Chinese policy maker and you could
waive a magic wand and basically make anything happen, what
would you do in terms of policy? What would be
the one thing that you would like to see and
act in Wow?

Speaker 4 (29:59):
If five in China, I will explain to the people
what kind of disease we contracted. This disease is go
balance you recession. Everyone is doing the right things, trying
to repair their balance sheets. But because this will cause
the fallacy of composition problems, we the government will be
there to keep the economy going. That is, the government

(30:20):
will continue to borrow one hundred dollars and spend it.
So don't worry about this problem. Fix your balance sheats
and want your balance seats fixed, Come and stop making
money again.

Speaker 3 (30:31):
Yeah, but just to press further on Tracy's question, because again,
as you yourself mentioned, fiscal policy isn't as easy as
a central bank policy because actual decisions have to be made.
So it's one thing to say we're going to spend,
but someone is going to get that money, and someone
is not going to get that money. So just to
push you on this a little bit further, because as

(30:53):
you said, fiscal policy is not blanket and generic like
monetary policy is. How should that spending be channeled in
a way it's productive and actually gets to the balance
sheets that need repairing.

Speaker 4 (31:03):
Well, I would use money first to complete all the
apartments that were started but are not yet complete, because
in that case, well you might have to take some
heavy handed actions. But basically the government should take over
these companies and the projects and start putting money so

(31:23):
that they will complete the projects. That way, you don't
have to decide what to make because the things that
already in the process are being built. All the construction
drawings are there, workers are there, materials are you know
where to get the materials, and in many cases potential
buyers already know. So in that case, you don't waste

(31:44):
time thinking about what to build, who's to design, and
who the orders should go to. Remember President Obama when
he took over two thousand and nine, US was in
the balance recession after the collapse of the housing bubble. Yeah,
but he was so careful not to make the Japanese
mistake of building bridges to nowhere and roads to nowhere.

(32:05):
He took a long time to decide which projects should
be funded. But that year and a half or so
I think U has lost quite a bit of time
because during that time economy continued to weaken. There was
no shovel ready projects. But in the Chinese case, I
would argue that these uncompleted apartments are the shove already projects.

(32:27):
You already know who wants them, to pay their down
payments and all of that, So I will spend the
money first on those projects, complete those projects, and use
the time while the money is used to complete these apartments.
I would use the magic wound to get the brightest
people in China to come into one room and ask
them to come up with the public works projects with

(32:50):
a social radia return higher than two point zero percent.
And the reason is that Chinese government bounded. You know,
this is about two point zero zero something. These people
can come up with public works projects with associate RADA
written higher than let's say two point one percent, then
those projects will be basically self annancing. It won't be
a burden of future taxpayers. And then once apartments are

(33:14):
completed and economy still is struggling from balance she recession,
then I would like to spend the money on those
projects that these bright people might come up with.

Speaker 2 (33:24):
All right, Richard, really appreciate you coming back on odd
lots to give us an update on where we are
in China's balance sheet recession. Thank you so much. That
was great.

Speaker 4 (33:34):
Oh, thank you.

Speaker 3 (33:35):
Right, welcome, Thank you, Richard.

Speaker 4 (33:36):
That was great.

Speaker 3 (33:52):
That was our interview with Richard Kue, the chief economist
of the nomer Or Research Institute in Japan. And now
we speak with us and one of the pechnology substack.
So Zishan, thank you so much for coming on odd
last thrilled to have you here.

Speaker 5 (34:06):
It's so great to be here.

Speaker 3 (34:08):
What did you tell us big picture or small picture?
Why now we've got this flurry of announcements really over
the last couple of weeks. We're recording with you. October fifteenth,
in the recent weekend, there was a Ministry of Finance
press conference. Prior to the recent Golden week there was
a flurry of comments from the PBOC et cetera.

Speaker 5 (34:27):
Why now, Well, I think all these developments were called
the market and all the observers by surprise because nobody
actually thought this coming. So what started this, you know,
recent event is a press conference given by China's financial
regulators led by the Central Bank, which is the People's

(34:47):
Bank of China, on I think September twenty fourth. So
after that, two days later there was the Political Bureau
meeting of the Communist Party of China, and the following
that there was the State Council exactly meeting, and then
we had a press conference by the National Development and
Reform Commission and then the Finance Ministry, which happened on

(35:08):
Saturday over the weekend. So, as you correctly said, Joe,
there are a lot of policy announcements, and I think
right now it's October and kind of just published some
macroeconomic data. A lot of people are saying that maybe
one of the reasons for the reasoned economic measures was

(35:28):
that China is maybe very difficult to reach the five
percent growth race for the year of twenty twenty four.
And also the Federal Reserve cut its policy rates, which
opened the room for you know, the Chinese counterparts.

Speaker 2 (35:44):
So I'm going to ask you basically the same question
I asked Richard Q, which is the responses to what's
been announced so far seemed to fall on a sort
of continuum where you have some people who think this
is just repeating what China has already done. You know,
a lot of it so far is monetary easing and
that sort of thing. It's not that different. But then

(36:06):
on the other end of the continuum, you have people
who think this is very significant because the signaling suggests
that there's something different here, that maybe they're opening the
door to more fiscal stimulus and things like that. Where
do you fall along that spectrum of interpreting the significance
of what we've seen so far, I.

Speaker 5 (36:27):
Do think this is quite significant, and I think we
can look at this from a number of perspectives. First
of all, by transition, the political bureau of the Companist
Party of China just doesn't have a meeting in September
to focus on the economy. That didn't happen, and so
this is an exception. And for the governing party of

(36:50):
China to dedicate out of its past trandition on the
economy last times of political signal. So you know, that's
very important from a Chinese political perspective if you are
like working in the Chinese government. And secondly, some of
the measures already announced I think did exceed market expectations.

(37:11):
For example, were started in the September twenty four press
conference by the People's Bank of China. Pangung Chung, the
governor of the central bank, announced, you know, the PBOC
was gonna lower the reserve racial banks that put money
at the central Bank, that cut the interest rate, lower
the margage rate that you know Chinese residents pay for

(37:34):
their housing, and also established a swab facility as well
as another lending facility to help the stock market. You know,
to have so many measures put together at a single
press conference and followed by a very decisive announcement by
the Finance Ministry that they're working on a physical stimulus,

(37:57):
but they haven't announced the number because Chinese law, this
sort of physical spending has to be approved by the legislature,
which is a National People's Congress Standing Committee, so they
haven't announced the number. So putting everything together within the
past two or three weeks out of the expectation, that's
indeed very significant. And some of these numbers not what

(38:22):
China got used to for the past two or three
or four years, especially since COVID, I mean, let's not
kid ourselves. The market expectation for the Chinese government to
make some stimulus policies has been high, and there is
this awareness both inside China as well as and the
international market that had hoped for some sort of intervention

(38:46):
for quite a long time, but it didn't come, so
suddenly it can.

Speaker 3 (38:49):
First of all, this is already very helpful because I
was not aware, for example, about the sort of tradition
of where on the calendar such things should be discussed.
And this is interesting but also gets to another question,
which is I think the most naive American China observer,
and I would consider myself in the most naive category.

(39:12):
It just sort of has this vision in my head
that Chesin Ping wants something, and then it happens. I mean,
I know it's not true and there's real, a real
political system. But then you said, okay, so fiscal stimulus
technically has to be approved and ratified by the legislature.
Talk to us about that process, because this is a
level of sort of political understanding that I truly know

(39:34):
nothing about. How do the what is the process for Okay,
some numbers drafted or some allocation of money is drafted,
how do these decisions actually get made then implemented.

Speaker 5 (39:45):
Well that's a very big question. Yeah, so you take
it narrow, you are way too humble, And uh yeah,
I think of all the meetings I've mentioned, the most
important one is certainly the Political BILLI meeting, which in
China happens every month. So conditionally there will focused on
the economy at the end of the year. For example,
because in every December, which you know just two months away,

(40:07):
there will be a Central Economic Work Conference which will
make up economic development plans for the next year. But September,
this September is political bureau meeting is an exception. So
I think the typical process is that you know, all
these Chinese bureaucratic agencies or the ministries, all these committees
that are part of the Communist Party of China, they

(40:29):
monitor the situation of the economic data, what are people saying,
what are Bloomberg reporting, and then they draw up plans
and they submit to the Chinese leadership. And so when
there is an instruction, when you know, certain information caught
the attention of the leadership, they will typically make return
restructions or give oral instructions which really put things to work.

(40:53):
And it has to be formalized at a meeting, and
the most important one is political bureau meeting. And in
China I also just mentioned a State Council executive meeting.
The State Council is like the Chinese government cabinet or
the PBOC, the NDC, the Ministry of Finance or the
Ministry of Public Security or the Tax Bureau. They are

(41:15):
all subordinate to the State Council. So the State Council
their mission is to implement the decisions of the Communist
Party of China's central committees political bureau. So it's the
political bureau meeting, the State Council Executive meeting, and then
translates to specific deployments, rade cards, phacecoalt spending implemented by

(41:40):
the different ministries, which of course involves their contributions significantly,
because I wouldn't imagine like China's top leader to have
such very specific details in you know, whether it should
be one hundred billion or two hundred billion. These very
important you know, numbers and plans through are drawn up

(42:00):
by the technocrats. And also there are a lot of
you know, think tanks, university research institutions by college professors,
and they would have their own channels to submit their
observations or they make their comments publicly and which are
also monitored by the leadership. You know, there is no

(42:21):
first amendment in China to be Franks, but so there
is still a substantial discussion of substantative policies. So all
of these things contribute to the decision making at to
the Chinese leadership.

Speaker 2 (42:34):
You mentioned deployment. Just then, how important is it to
incentivize local officials in this process, because I imagine, okay,
she Shin Pin can give a general mandate, but to
your point, it's often the local government officials the technocrats
there who are actually in charge of implementing and executing
the policy and in some respects designing it to be

(42:56):
most effective. How does that process work.

Speaker 5 (42:59):
Well, I think some background should be given because granted,
China is a unitary state, so it's not a at
least politically, it's not a federalist system. So people's perception,
especially Westerners and American perception would be like it's just
women telling everyone what to do every single matter. So
that's obviously not true. And for example, probably many people

(43:23):
are not aware like local government spending in China's overall
government spending is at i think eighty three or eighty
five percent, and so the central government spending in China
as a part of the wall spanning, it's only fifteen percent.
If you compare that to all the advanced market economy
in the world, it's among the lowest share in the world.

(43:45):
So from that perspective, the Chinese, at least in terms
of physical spending, is very very decentralized. And also if
you examine the literature on you know, the China Miracle
for the past three or four decades, one of the
most prominent theories is that China effect has a sort
of tournament for local government officials who ever get the

(44:08):
GDP group fastest or have the best investment projects for
example the giga factory of Tesla in Shanghai, then they
get appreciated and probably they will move up the career ladder.
So indeed it's very important. And also China is a
huge country. It's, you know the world's second largest economy
with over thirty provinces one performed billing people. So the

(44:30):
philosophy is that the central authority gives some mandate, gives
some direction, but it has to be implemented on a
region by region basis. For example, China has this housing
purchase restrictions, but each specific city sets their own criteria.
For example, if you are Beijing or Shanghai, they have

(44:53):
by far the most strict housing restrictions. For example, if
you have a local household RESI restriction, you can only
buy one apartment, But if you live in a third
or fours tier city, maybe the restriction over there is
much more loose. So you know how thing sector is
an important part of the economic story in China. So

(45:13):
for example, to revive the real estate industry, the like
the Ministry of Urban affairs of the Housing ministry. Basically,
they would, under the mandate given by the central leadership,
tell everyone, you know, it's time to relax all the
housing restrictions. But they wouldn't tell, you know, shen jen
or chanting our hand, you know what to do exactly.

(45:36):
They would send the signals and the local governments will
digest the signal and then make their own decisions.

Speaker 3 (45:58):
We talked to Richard Koub about this. One of the
things that I have some understanding of is this sort
of very decentralized policy making, very decentralized fiscal infrastructure. One
of the things I think was sort of hinted at
at the Finance Ministry press conference was there many people
who have written about the land sales in various regions
and the sort of limits to that method of fiscal architecture,

(46:22):
so to speak. And I think there were some hints
at the Ministry of Finance about like, eventually perhaps that's
going to evolve more debt being taken on by the
central government, et cetera. I take your point about the
sort of regional competition, but can you talk like, do
you foresee some sort of evolution post the land sales
model for regional fiscal spending such that more of it

(46:45):
somehow comes out of Beijing.

Speaker 5 (46:48):
Well, the background is in China, a lot of local
government finances used to rely on basically sales fland to
real estate developers because by China's constitution or the urban
land are owned by the state, which in fact is
the city governments where they're in. But because of the
housing slump we're in right now, this revenue has basically stopped.

(47:11):
So the plan drawn up in the July meeting of
the Communist Body of China Central Committee was that there
will be a sort of tax and the physical reform
where the local governments will be given new revenue or
a bigger share of certain tax revenues to replace the
dwindlin land sales and the housing market is estimated to

(47:36):
account for I think something between fifteen percent to thirty
percent of the Chinese GDP. So basically it's in crisis
and a lot of the biggest real essets developers have
defaulted on that. That and the Chinese government is very rigid,
it's very reluctant to help these companies. But at the
end of the day, I think there has been this reckoning,

(47:58):
which is you've got to have some sort of real
esty revival, and because it's just such a large portion
of the Chinese economy, you know, the overall Chinese strategic
plan is basically to have more high end value added
manufacturing and which will take a bigger share of the

(48:19):
economy at the expense of the dndling housing market share.
But that transition has to be a gradual process which
has to be managed as smoothly as possible. So maybe
just eradicating the real accidence the industry, it's just not possible.
So right now, I think the Chinese banks have been

(48:41):
encouraged by the government basically to continue to land to
the developers. And there is also a political consideration in this.
It's because in China, most of their apartments are sold
before they are delivered, so people have already put down
a down payment and they are paying their mortgage. But
if they can't get the apartments that they have been

(49:01):
promised but with they had paid for them, then there
will be social rests. People will go to the streets
to protest, so that's a huge issue for potential social instability.
So from that perspective, the real asset industry is I
guess too big to fail or certain extent.

Speaker 2 (49:20):
That's a good line. Just going back to the local
governments for a second, So you mentioned how local governments
have traditionally been judged, you know, whoever has the highest
GDP growth, whoever builds the biggest, shiniest new infrastructure project,
that sort of thing. Do you see any sign that
maybe the incentive mechanisms for local government actors are starting

(49:43):
to change or they might be judged by something different.
I guess this is a very long winded way for
me to ask you about long range fishing and things
like that, But are there signs of change in terms
of how the local governments are being judged?

Speaker 5 (49:57):
I think actually that changed quite a few years back,
so after seeing him came to power, after China's economy
transitioned to a mid to high growth numbers and there
were a lot of collateral damage from the high speed growth,
for example, environmental degradation. So a few years into his ministration,

(50:18):
the current Chinese president actually I think that actually started
even in his predecessor, which highlights what's in the Chinese
you know, party speak, because scientific development, so it's not
just an emphasis on you know, whether it's eight percent
or next year it has to be eight point two percent.
It was no longer that, and there are more attention

(50:40):
pay to also security and you know, to resilience. So
there was not a single emphasis on the growth rate
for quite some time. What we are seeing in the
past two or three years, I think is actually a
comeback to the priority of growth. For example, I think
in the very important Setro Economic War conference last year,

(51:02):
it was highlighted that development was still the top priority.
You know, when I was relatively young, when Chrya started
the reforment opening up in the late nineteen seventies. That's
the slogan development is the top priority, which implies that
economic growth is everything. But then especially you know, after
the very devastating for your COVID and you know China's

(51:26):
drastic restrictions to contain the pandemic, the economic growth has
slowed down significantly. So what we're seeing right now in
these past two or three years is a re emphasized
you know, get the economic going and if anything, I
think local governments there manday now is to you know,
do everything for the economy.

Speaker 3 (51:45):
This has come up on episodes in the past. But
how would you describe the process again, you know, in
the US, we think that feedback between the public and
the government happens via elections or because you know, we
have the First Amendment and there's enough scope for people
to talk about whatever it's frustrating, and then politicians react

(52:07):
to that. I know there's a political discourse in China
and social media and there's you know, people talk about
the garbage time of history and the live flat movement
and so forth, et cetera. How would you describe, however,
the feedback process view which the central government recognizes that
some sort of pivot or temporary pivot has to be

(52:28):
made to respond to the needs of the public.

Speaker 5 (52:30):
That's a very good question, and I think it's a
million dollar question. And you know, there are indeed complaints
and the speculations if there is some sort of eco
chamber or in the Chinese a more popular term information
cocoon at the decision making level. And I translated and
contextualized a speech in my technology newsletter just I think

(52:53):
a few days ago by a Foremo central economic official,
which recumentally denies that. I think in this for more
official and in the Chinese official way, this course, the
government insists that they are not sitting in some sort
of information cocoon or echo chamber. They are monitoring the
situation very closely. They know what the people are talking about,

(53:16):
they know what you know, Financial Times and Bloomberg are reporting.
They are aware, you know.

Speaker 4 (53:21):
Yeah.

Speaker 5 (53:22):
I think actually foreign media, international media have a outside
the role actually within China's discourse and this policy making process.
So but what I think it's the sort of they
have this determination which is basically China needs to again,
you know, advance to a different level of economic development.

(53:45):
So they are willing to pay for the pains and
the court in this transition, which is going to be
a long term process. You know, this is something that
is eyeing into many Chinese minds. It's basically, you know,
China make a billion T shirts to pay for one
Boeing plane from the United States or air busts from Europe. So,

(54:09):
but China is now trying to make its own C
nine one nine aeroplane, and it wants to have its
own very robust semiconductor sector. It is already the largest
shipbuilding power in the world, followed by South Korea, so
it wants to pivot to this higher value manufacturing with
a lot of scientific and technology input into these industries

(54:31):
and to make this you know, hardware innovation sexy and
even at the expanse of maybe some consumer internet. So
in the Chinese policy making view, these hardware based machines tools,
these are very very important, and I think from the

(54:52):
very recent even from the press conference given by the
Ministry of Finance and the NBC, we can have some
lose to that because you know, a lot of the
talk amount especially Western China watchers, is that they believe
the insufficient domestic demound has to be basically countered by

(55:14):
giving money, giving director subsidies to the Chinese population, or
basically to have the households have a bigger share of
the Chinese economy because when compared to other economies, the
government share of the economy in Chinese significally larger than
that in the development markets. But if you read the
NDSC in National Development and Reform Commission, which is typically

(55:36):
known described as the top economic planner in China, their
plan to revitalizing domestic demound is categorized into basically two things.
One is consumption, where it's mentioned for example, China gives
some subsidies to very poor people before October first, and Secondly,
the Chinese government gave more scholarship to college students and

(56:00):
increase the student loans. The range, for example, used to
be five thousand un but now it's seven thousand un so.
And on the other hand, the trans government also announced
that they are still trying to promote the domestic amount.
From an investment point of view, what they are trying
to do is, you know, there is this ongoing trade

(56:22):
in movement. Basically, if you have an old Huawei phone
or phone, or iPhone or TV screen, you can give
it back and get a new one where the government
will give you a relatively big subsidy in the process,
where they are encouraging the factories to basically to replace
their old equipments. This put together is known as Leon
Singh Too New. And also there is also another large

(56:45):
investment project called you know in Chinese Lean drown two
key industries, which is two key sectors, one of which
is known as the major projects of the nation and
the other is known as the major projects that strengthen
the critic capabilities of the Chinese nation. So there's two
key and there is this too New. These are promoted

(57:07):
by the NDIS in the press conference to everyone that
this is our way of stimulate domestic demounts. So so
far as you can see, they're trying to give some
help to the households and you know, to basically solve
the needs of the most unfortunate who are suffering the most.
But on the other hand, I think the direction is

(57:29):
still very clear. It's like technology build up.

Speaker 3 (57:31):
And yeah, just on.

Speaker 2 (57:33):
The informational cocoon point, do you see any you know,
you talked about how there is a lot of discourse
around economic policy and a lot of that takes place
in public in various ways. Do you see any introspection
on the part of the party and various officials in
terms of policies that maybe didn't work out as intended

(57:55):
in recent years. So I'm thinking of three red lines
for instance, or some of the policy whiplash that we've
seen in various crackdowns on you know, consumer tech or
the education sector and things like that.

Speaker 5 (58:07):
Yeah, I think the three red line is a very
good example, and there are a lot of scorely pushback
against three red lines, especially by some professors at the
National School of Development at Picking University, one of the
top universities in China. You know, the three red lines
basically sum it up to make financing for real essay
company is much more difficult. So the concern is you

(58:29):
are pushing too horten you say real estate, Yeah, okay,
I'm sorry. And so the concern was you shouldn't just
shut down the tap too fast. You should still leave
some room for the housing sector to to softly phase out,
to be decreased in the in the importance of the economy.

(58:51):
So that's that's definitely something because you are seeing now
the Chinese company is encouraging the banks to land to
the housing project. There are also other things that I
think is typically not very well known. For example, believe
it or not, the Chinese come and place by the
text book of some sort of Western economic policy making

(59:14):
very rigidly. There is something called I think mas strict Treaty,
which is the treaty of the European Union, which basically
says if a member state wants to join the EU,
it has to meet some certain thresholds, one of which
is annual spending. The devastation should not be three percent
larger than the and also you know, your outstanding national

(59:35):
debt should not be over forty percent of your GDP.
Or something like that. Chinda really took it to its heart.
And you know, during the financial crisis in two thousand
and eight, the Federal Reserve created a lot of facilities
and swaps and to help the financial industry. And by
the way, the PBOC is very recent inventions, is somewhat

(59:56):
similar to what the FAST created. But the Chinese have
been playing by these rules for quite some years, which
in fact creates a very tightening effect. And I think,
you know, trying to learn to adopt the sort of
practice and teachings of these experiences and lessons from the
advanced economy is one thing, and the other thing is.

Speaker 4 (01:00:18):
It's quite cultural.

Speaker 5 (01:00:20):
I think there is this emphasis of frugality in the
Chinese mind is that you got to eat bitterness, you
got to spend little money and save for the future,
and that is still in the mindset in the philosophy
of Chinese decision making.

Speaker 2 (01:00:54):
So part of the problem here is that China notoriously
has a extremely savings rate. I think it's like, I
think China saves like forty percent of GDP, which is
basically twice the amount that the US saves and four
times the amount that like the rest of the world saves.

(01:01:14):
How can they go about unlocking that savings, because on
the one hand, it seems very difficult to change the mindset,
as you just pointed out. But on the other hand,
you know, they're starting from a relatively low base. There's
not a big social safety net in the country, so
there are perhaps things that could be done there. But
how do you unlock that chunk of savings.

Speaker 5 (01:01:36):
Well, I think you mentioned the social safety net. That's
very important, and that's a lot of Chinese experts have
been opening calling for in the past several years. It's
basically for the government to spend more money, to devote
more resources to enhancing, to broadening, to strengthening China's social
safety net. You know, China's GDP per capitary thirteen thousand

(01:01:59):
US dollar, something like the seventy.

Speaker 4 (01:02:01):
Eighth in the world.

Speaker 5 (01:02:02):
But it has built up a universal healthcare system and
so basically, I don't know, ninety eight ninety nine percent
of the people have some sort of health insurance and
you know, basically they can they just have to pay
a portion of their medical costs. But as you correctly mentioned,
the social safety net, perhaps as a result of the

(01:02:23):
overall national economic development it's still not think enough. It's
just not enough. So and there is a national pension
system and it's not looking well because part of that
is demographic changes. You have more you know, old people
and no longer so many young people, so that's under
stress as well. So one big part of the current
ongoing discussion is for the government to spend more money

(01:02:45):
into pension, into strengthening the medical care for the system.
And another very important is institutional reform. So you know,
paper China's urbanization rate is something like sixty five percent,
but only if forty eight percent of the people have
urban household registration, so there is so that means there

(01:03:07):
is still many people who actually work and live in cities,
but they do not have the sort of legal household
registration in Chinese cities, which means they are not entitled,
they cannot enjoy the benefits of you know, education, medical care,
and those cities they're actually living. So if similar reforms

(01:03:27):
by you know, making it much easier for them to
relocate into cities to enjoy the social benefits and so
that they will no longer be stuck to their rural land,
that could increase the productivity under unleashed consumption as well.
And I think this is this is the Hohoka reform.

Speaker 4 (01:03:45):
Yeah, that's right.

Speaker 5 (01:03:46):
And also the it is related to the rural land reform.
And you know, because if you don't have the houk
household registration in the cities, your children can't go school
in the city, so your children have to go to
a rural school. And so that means you can't move
your family over there, and you can't buy an apartment
over there, you can't buy the TVs and decorate the house.
That's a lot of consumption potential over there. So I

(01:04:08):
think on the bright side, there is a reason for
optimism for China's long term growth is simply because there
is just so much things to do. There is just
so many things that can be done. And you know,
in Chinda this very recent talk of low altitude economy,
so which basically for airspace less than one thousand meters,

(01:04:28):
so you can use students to do logistics, and it
can work on agriculture and a lot of things. But
in the past it was not possible because there were
a lot of regulations about airspace, sometimes from a security
or military perspective. But now I think the Chinese company
is working on basically reduced They regulate this place, so

(01:04:49):
there can be a lot of opportunities. So yeah, there
are still a lot of things to be done.

Speaker 3 (01:04:54):
You mentioned the role of foreign media and the importance
of the sort of outside perspective in the information ecosystem
that leaders in Beijing use. You work for eleven years
at the Shinwa News Agency. It's a state news agency.
What is the role of the state news agency in
this information eco system and how does it interact in

(01:05:16):
terms of what is the role what is the basic
mission of these agencies?

Speaker 5 (01:05:20):
Okay, sure, So some personal background. I was born, raised
in China. I'm totally educated in China. So after college
in twenty eleven, I joined Singhua News Agency, the state
news agency. I worked for eleven years there. For the
first six and a half years I worked in two
provincial bureaus, so basically a local news reporter, and then
I worked in Europe and then in Beijing headquarters. So

(01:05:43):
there are Singhua News agencies. There is what is now
known as China Media Group, which is the state broadcaster,
and then there is China Daily. And there is also
People Stilly, which is more better known. It's the flagship
newspaper of the Commutist Party of China, and one of
his affiliates is very well known. It's called the Global Times.
And I think in these cases, I think a big

(01:06:06):
rule of these Chinese state around news agencies and newspapers
communicating Beijings, policies and intentions, and of course facilitating a
domestic discourse that's favorable to the Chinese government because you know,
the Chinese goverment beliefs this is the best way for

(01:06:27):
the country to move forward. And I think there is
a crucial difference between the Chinese state news system and
that is practice for example, in the United States. In
the United States, in the White House, you have a
press communications team. So whatever President Joe Biden or Vice
President Kamlin Harris put out is put out by the

(01:06:47):
White House and then picked up by the White House
Press Court, and them are picked up by the news media, which,
based on their own editorial standards, decide to report it
or not reported. In the Chinese there is no such
mechanism of centralized news publication by the central authority. That

(01:07:09):
function is delegated to the state media. So at Sinque
neuwis agency at the China Central television at people stealing newspaper.
So in the sense, these state media are playing a
role of the White House communications team. So you know,
the TV footage of the Chinese President, of the Chinese premier,
who they meet, and what happened in China these meetings.

(01:07:34):
The read outs are directly put out by the Chinese
state media. So the roles, the setup, and of course
you know, the political system and also the discretion they
have are indeed vastly different from that of the United States.
And you mentioned the role of foreign news media. I
think very unfortunately, and this is something as a formal correspondent,

(01:07:56):
as a former journalist, I really want to highlight is
China has been unable to send it's journalists to the
United States. And it's also very difficult for New York Times, Bloomberg,
Washington Post. What's the journal to have is journalists on
the ground in China. This doesn't help anybody. And you know,
as the two countries get their relations right, I sincerely

(01:08:19):
hope that you know, the two sides can figure something
out to have more journalists in each other, which would
help with you know, understanding China better and understanding the
United States better.

Speaker 2 (01:08:30):
Yes, let ten thousand China US journalist correspondence Bloom. I agree.
I have just one more question. Actually it's two questions,
but I'm doubling my personal productivity by asking them together
very quickly. Number one, how much did the US elections
matter here? Like come November fifth? Is there going to
be some big rethink of China domestic policy or are

(01:08:53):
there certain things that hinge on the outcome of that election?
And then secondly, what are you watching in terms of
what's next and what could be significant?

Speaker 5 (01:09:03):
So you mentioned here you mean in China, right. I
think Rush DOORSI, the former Deputy Senior Director National Securit
Coounce of the White House, wrote something either yesterday or
the day before yesterday on the New York Times, which
is a very helpful read, and he's clearly trying to
help Kamla Harris. And I think there is this discussion

(01:09:24):
about basically whether China wants a democratic president or Donald
Trump's second presidency. First of all, I think the Chinese
official this is domestic affairs of the United States, and
we don't in the field with the United States domestic elections.
And I think at least in this round, if you

(01:09:44):
examine the responses from the US officials, including those in
the intelligence community. If I'm not mistaken, they have said
they did not see any instance of Chinese interference in
the US elections. I think this is also a discussion
in China about the because this is like the most
important election in the world and it's gonna have very

(01:10:04):
big impact on China US relations. I think the thinking
is that if Kamala Harris became the president, she will
some sort of continue the path that President Joe Biden
has already laid out. It's gonna be some sort of
stabilization of the status quo. I mean, make no mistake,

(01:10:25):
nobody has any illusions about China US relations these days.
It will be difficult for both sides, and there will
be disagreements and even you know, not un conflicts, but
serious disagreements. But it will be predictable and probably manageable.
But Donald J. Trump to become the next president, well,

(01:10:47):
I'm a Chinese citizen, I really don't want to interfere
with US elections. But I think the thinking is that
he's just so unpredictable and nobody knows what. You will
wake up in the morning five am and it out
and I'm not sure Beijing is really a big fan
of that. But as Rassuci pointed out that Donald Trump

(01:11:09):
is probably going to mess up the alliance with Europe
and a lot of US allies, which, if you really
take a thirty thousand feits view, could be good for
China because the US messes up its alliance system. But
am my understanding the courses on predictability. You have to

(01:11:30):
face the drama on a weekly basis, So there are
pros and cons, and I think the Chinese attitude is
we will stand on our grounds and China will, you know,
stick to its principles and defend its interests. Whoever gets
into the White House in power, I'm really not sure
there is a clear preference for who is going to

(01:11:51):
be the president of the United States.

Speaker 2 (01:11:54):
And in terms of what's next, what we should watch
out for, Oh, the stimulus measures.

Speaker 5 (01:11:59):
Well, first of all, watch for the National People's Congress
Standing Committee meeting of ratifying the size of the fiscal
stimulars out of the Finance Ministry, because the Finance Minister
made it very clear that we can't tell you now
because it has to be ratified, and that's something very important.
And so what is exactly the size of that stimulus.

(01:12:20):
I think very respected Chinese news magazine Tai Sing had
already put out some numbers, and I believe Bloomberg had also,
you know, quoted that number and the terminal, and that's
that's something very important. And also you know, China has
this five year plannings and so next year China will
be making up is fifteenth five year plan and so

(01:12:45):
that's a mid term to long term prospect and you
know when can goage if there is any directional change
in terms of that. And I think I also mentioned
that every December there will be the Central Economic World Conference.
It typically happens on the during the Christmas season. But yeah,
I think that's like the things we're going to closely

(01:13:08):
watch for and also sign up for my newsletter.

Speaker 3 (01:13:10):
Definitely sign up, Hysician Wang. Thank you so much for
coming on allum.

Speaker 5 (01:13:14):
Thank you for having things and.

Speaker 3 (01:13:15):
Like I said, we'll have to do it against the time.
Thank you, Joe.

Speaker 2 (01:13:31):
That was so good having Richard and zichen on as well.

Speaker 3 (01:13:35):
What a treat that was.

Speaker 2 (01:13:37):
The Macro and the micro.

Speaker 3 (01:13:38):
No exactly, I thought that was fantastic. As you said,
the macro and the micro I'm trying to figure like
where to begin, because there was so much in both
of those conversations. I appreciate, you know, the big picture,
the sort of Richard Coo balance sheet recession that you had,
getting these difficult situations where everyone is saving, everyone is concerned,

(01:14:00):
the downward growth feeds on itself. I appreciate this sort
of idea that like, China hit a moment where okay, yes,
and physicians point the long term goal is to maintain
that sort of high tech manufacturing led scientific growth. But
I think the common thread is with the decline of

(01:14:21):
the real estate sector, there was just this moment that
had to pivot.

Speaker 2 (01:14:24):
Yeah, well two things there. I mean, it does seem
fairly clear to me that China has taken that balance
sheet recession idea on board. Like what they are doing
now is trying to boost real assets so that people
want to invest more and they sort of build up
their confidence and things like that. I guess the big
question I have is there does seem to be a

(01:14:46):
lot of low hanging fruit in terms of reducing the
savings rate and getting people to spend and invest more.
But on the other hand, it kind of begs the
question why hasn't this happened before, you know, stuff like
Kukau reform and things like that. Why didn't they do
it before? And I guess my question is is this
an economic problem or is it one of perhaps political will?

Speaker 3 (01:15:10):
Yeah, totally, And I guess right like we don't really
know the answer. From the second part of that conversation
with a physician. Just now, very interesting this idea that like, okay,
one signal is simply this fact that like the announcement
happened now in the calendar year, like right before goldenweg
I didn't realize that there was like a time of

(01:15:31):
year to talk about economic things and so no, I
didn't so and you know, if there's like a econ
policy making going on at that time of year, then
that signal is something different than business as usual. It
certainly makes a lot of sense to me, you know,
just this idea that, like even in a sort of
centralized political system, that these things take time to implement,

(01:15:55):
that things have to be approved, that ideas, that there
is a period of debate for ideas as you know,
not even in the absence of First Amendment free speech norms,
there's going to be different views on how things get implemented,
and I thought that was very interesting.

Speaker 2 (01:16:08):
Yeah, and also I think Richard brought this up. But
the idea that, you know, fiscal is a little bit
more difficult than monetary policy because you're deciding who gets
the money rather than the sort of generalized easing.

Speaker 3 (01:16:20):
Right, and that is something that on the specifics of
how much in whom the money goes to probably not
something specific that Chijinping would have in his head.

Speaker 2 (01:16:29):
All right, shall we leave it there.

Speaker 3 (01:16:31):
Let's leave it there.

Speaker 2 (01:16:32):
This has been another episode of the au Thloughts podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.

Speaker 3 (01:16:38):
And I'm Jill wysenth Thal. You can follow me at
the Stalwart. Follow our guest Zishan Wong. He's at Zishan
Wong here. Also check out his excellent pechnology substack. Follow
our producer Kerman Rodriguez at Carman Ermann dash Ol Bennett
at Dashbot and kel Brooks at kel Brooks. Thank you
to our producer Moses Onam. More odd laws content, go

(01:16:58):
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(01:17:36):
and just follow the instructions there. Thanks for listening, then,

(01:18:04):
in e.