Leland Miller on Xi (Audio)

from Moscow. I think it's blown out of proportion. Uh. You know, China is much less of a factor in the Ukraine debate than people make it out to be. On the one hand, Uh, there's China supporting Russia rhetorically, they're buying Russian oil and gas. On the other hand, there's some big red lines, you know, central bank sanctions, tech sector sanctions, uh, swift sanctions that that China is not about to violate. So they have you know, stayed

in their box from that perspective. So, you know, I think that the rhetorical differences between China pushing this or that, I just don't think there's much of a factor as people think. But we did see some kind of optimism

or euphoria. I would say about presidents in Boden meeting earlier in the week, and I feel that that was kind of what everybody was saying before we had the tension in Poland, that we are starting to see some kind of potential all front between the US and China tensions at least, Well, it depends what an offer up is. If an offer a means we are going to have a meeting, everyone will smile and then we will not have tensions deteriorate in the coming months. I think that's

a fair fair characterization. If it's a question of Okay, well, we're going to change the direction of the of the of the by ladder relationship in a in a different, you know, different direction going forward, I don't think that's going to happen. I think that there are too many underlying issues, uh between the two superpowers that that that you know, this is a temporary reprieve, Okay, temporary reprieve. What we are looking for is a reprieve on the

economic front in China. When does that happen and do we ever see China record the kind of pre pandemic growth levels. Well, the tricky question because you've got two different slowdowns going around right now on China's economy, you've got a structural slowdown, which was you know, prime merely driven by the deflation of the property sector, and that is continuing and it's gonna continue going forward, and I

don't see an end to that anytime soon. You have a bit of a restpit right now where conditions have been very very tight and now they're easing up a little bit in order to avery contagion. But then you're going to continue on down the line once I think things are stable. On the other hand, you also have a cyclical slowdown which is primarily driven by the COVID zero lockdowns. Uh. When COVID zero is rolled back, I think you are going to have a an impressive bounce

back in the economy. It will also be the first opportunity in a long time attractive opportunity for the government to stimulate. So I think that you have the potential that you know, cyclically, in the next year or so that you'll have start to have a nice bounce back, certainly a bounce in the data of very very low basive basis of comparison. So you're gonna have a cyclical bounce back. When COVID zero is past us, but the

structural slowdown will continue. So it's just a question of, you know, how do you avoid being head faked that one dynamic has happened, Yeah, but not both. And when COVID zero does eventually disappear, you still have the underlying property concerns. How I guess, um, welcome is that sixteen point plan that was put forward to to support the sector. It's, uh,

it's a temporary reprieve. You know, it is it is uh, you know, it's it's it's it's a the The idea here was never that that chi Jin peg was going to take property and just you know, flatline it down to zero, uh, and just week and week and week and week, and you have to make sure that strong firms are taken down. Supply Chaine remain uh, you know, vibrant cash flow continues. And so what you do is you you call the her, you get rid of we rid of weak firms, and then you step in to

make sure that that things don't get worse. We're in that period right now. We're you know, the idea that a lot of Wall Street firms are are are echoing right now that this is a game changer and property, and we're going to revert back to the old model. I think that's uh, that's extremely naive. We'll still looking

at what happened at the Party Congress. What did the appointments to the Pulit Berro and Standing committee tell you about she's plans that she this is the shijin pink show that you know, the idea that that she is not in full control was was disabused. Uh. The idea that, uh, you know that that she is under significant pressure to to pivot on big issues. I think that was disabused. Uh. If you look going forward, you're you're going to see

him tweak policy. But there's there's there's no there's no evidence that he sees the last two years as as a mistake, as misguided, that he needs some sort of you know, you turn from the direction he was going. So I think that maybe we see a period of a little bit of a little bit of experimentation on COVID zero. We'll see how long continue in the winter, uh,

and and a little bit of easy and property. But this doesn't changes from where we fundamentally have been going for the last couple of years, which is a structural slowdown into much slower levels of growth. So China's ambitions to become the world's number one economy. I mean, how much does that being effect it by COVID zera. It might have been affected, but you know, the key, the key takeaway from that should be to the extent that China becomes the largest economy, Uh, it means it hasn't

been doing its jobs. It actually hurts China. It's a sign of weakness because it means that there is a still a reliance or political sensitivity on heating high levels of growth. What chij and Ping has been doing, and this is this is the positive side of of what he's been doing in the restructure of the economy is he has been looking at the high levels of debt that are needed in order to fund property, to fund infrastructure, to fund all these other things and saying these are unsustainable.

China going forward needs to be have slower growth, but healthier growth, and that will that will invigorate China and the Chinese economy to the extent that you know, he falls for the idea that you know, we have to ramp up growth in order to to to beat the United States, and this ridiculous g d P race. I think that that is a that is a negative sign

for for Chinese governance. How investible is China? And it's to all these head winds because I mean, you can kind of argue that there's been a bit of a pomo rally happening in the last couple of weeks. Look, you know, the question is how much of this rally or people who have been waiting to unload assets? Uh?

You know. So look, look, there is um China is investable if you if you have a really sophisticated operation and understand what's going on, if you're if you're watching you know, so Chinese social media for rumors, you know, if you're you know, if you're in New York and you're guessing what's going on in the ground in Shanghai. Now, these are not the ways to do business. You can't operate in China that like that anymore. Uh. And so you know, you have to be very very careful and UH.

Sophisticated individual, sophisticated funds, uh, sophisticated sophisticated companies can operate on the ground. But it is a far cry from from the environment we were used to seeing. For the last couple of decades, Leyland has been an absolute pleasure and particularly to see you after a number of years of China Beige Book see Leyland Miller with me here