Bloomberg Daybreak Weekend: Economy, Budget, Xi

a summit with President and Nanionncom. I'm Joe Matthew in Washington, where we're preparing for President Biden to drop his new budget. I Ran Curtis in Hong Kong. We look at President

she touting intense changes to China's governance. That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg eleven, FREEO, New York, Bloomberg ninety nine one, Washington, d C, Bloomberg one oh six one, Boston, Bloomberg nine sixty, San Francisco, DAB, Digital Radio London, Sirius XM one nineteen and around the world on Bloomberg Radio dot com and via the Bloomberg Business App.

Good day to you. I'm Tom Busby, and we begin today's program with Federal Reserve Chair Jay Powell, the FED head. We'll be giving a semi annual monetary policy report to Congress this week. Also a look at the strength of the US labor market with the February jobs report. This is coming Friday. Now. Joining me now to talk about all of that. Bloomberg's International and Economics policy correspondent Michael McKee. Michael, thank you for being here. Lovely to be here. All right.

Inflation still soubornly high, borrowing rates keep going higher, consumers are worried despite the strength and the job market and the stock market as apparently stalled. What will Chairmer and Powell's message to be to lawmakers. Well, higher for longer is going to be the shorthand version of what he's going to be saying. The question is how high and for how long the latest data have, As you mentioned,

I've been particularly great. We have seen strength in the labor market and strength in wages, and consumers have been spending a lot of money, which all would be good in a normal period, but with inflation where it is, the FED would like to see some sort of slowdown in demand. So the question is, did the latest numbers that we've gotten push the Fed. Will it push the Fed to do fifty basis points instead of twenty five basis points on March twenty second? And how long do

they think they need to leave rates high? We had some Fed speakers saying at least through the end of the year. We'll see where the chairman is on that. Yeah, we had several top FED officials talking about being open to bigger interest rate hikes if necessary. Here's what Minneapolis Fed President Neil cash Carey had to say about that this week. There's a lot of attention to the next meeting in March. Is it going to be twenty five

or is it going to be fifty? I'm open minded at this point about whether it's twenty five or fifty basis points. To me much what's much more important than whether it's twenty five or fifty is what we signal in what's called the plot. I've got my own dot plot, and it's all about inflation and trying to combat it. How bad is inflation right now or how does the FEDS c inflation right now? And why does the scene to be getting worse? To you, ask anybody on the street,

anybody in the store, You know, it just keeps getting worse. Well, the problem is nothing moves in a straight line. Inflation has come down significantly. It was around nine percent when the FED got started, and now we're in the sixes for CPI and the fives for the FEDS indicator PC. So we have seen a big drop in inflation. It's about halved, but it's still significantly above where the FEDS

target is, the two percent target. And at this point, the easy, low hanging fruit to bring inflation down much of that has gone away. We've already seen a decline in goods prices, we have seen energy prices come down. It's the stuff on the services side, driven in many cases by higher wages that's still has to be attacked by the Fed. And that's why they're thinking they're going to need to be at a higher rate for longer, because they need to have the full weight of the

infest rates they've increased hit decision making in the economy. Now, this idea of higher rates for longer to come, will it be a tough sell to Congress? I mean there's a lot on his plate, Pal's plate. How is he going to sell it to these and what's the reception going to be first to the House, then to the Senate. Well, the FED chairman is always caught between the two political parties up on Capitol Hill. Each one will try to turn the testimony to try to see if there's some

support from the FED chair for their political views. In this case, it's the Democrats who are worried about infest rates being too high for too long because they're worried about unemployment going up, and usually when unemployment goes up, the lowest on the economic scale suffer the most. The answer to that, Paul will say is, we don't think we have to have unemployment goal up a lot, because the market is a labor market and the economy are

so strong it can withstand some higher interest rates. Republicans will counter that by saying, while the economy is so strong, inflation is not coming down fast enough, so you need to do more. And Pau will try to steer a course between the two of them, protecting the Fed's independence and saying we will do what's best for the economy in our best judgment and laying out those goals for the economy. For his policy for interest rates, I mean, he's not going to win against divided Congress is you

can't ever win up on Capitol Hill. No matter what the Fed Chairman says, somebody is going to be unhappy with it, and many of them will give speeches rather than ask questions because that's what politicians do. One of the interesting things to watch is going to be what he says about the debt limit. That's going to be a question that someone will bring up, and he has largely avoided any kind of characterization about what it would

do to the economy. He says, only there's that's only one solution, raise the debt limit, and I'm not going to talk about it beyond that. But you can imagine that both sides will try to get him to comment in some way, and it's also totally out of his purview.

That is Congress's exactly. Well, it's an economic issue for the US, so the Fed chairman has credibility on economic issues, so they'll try to get him to The Republicans will ask him to say that we need to cut spending significantly because we're on an unsustainable fiscal path, which he has said before. He just hasn't said that you need to do it today, And the Democrats will say, well, you're going to crash the economy if you breach the debt limit and default, and he doesn't want to get

in between the two sides. Got it all right, Michael, Let's start to this Friday's February jobs report in the state of the US labor market. Boy, we have a real surprise in January, over half a million jobs added, the unemployment rate, the Lowison's nineteen sixty nine first time jobless claims. The last few weeks we've seen an upside

surprise there. What are we looking at for the labor market for jobs added in February, Well, we're kind of in the same position we were a month ago, where economists are looking for a significant slowdown from last month. They're looking for about the same number that they forecast last month, two hundred and twenty thousand and an unemployment rate that's unchanged at three point four percent. Both would

be very strong numbers. It's a little harder to characterize the total jobs numbers in that way because of five hundred and seventeen thousand jobs in January, but a lot of people, a lot of you kind of think that that was a function of the weather and some seasonal adjustment changes that the bl makes and so that it

should come down. But at this point there doesn't seem to be any significant sign in any of the other indicators of labor market strength that would suggest we're seeing the kind of results that the FED is expecting a rising unemployment rate because demand is falling in the economy.

This is a completely different time. We're coming out of the pandemic recession and employers couldn't find workers for a very long time, and in some sectors they still can't, and so it seems that at this point companies are holding on to workers rather than letting them go as they might ordinarily do when the economy slows. And anecdotally we hear of tech sector workers being laid off on

moss at some big companies finding jobs elsewhere. Whether it's a autowindustry, yeah, well, the tech industry is those are high scaled people generally, and so they can find jobs more easily. I remember a CEO of a tech company telling me a couple years ago every company is a tech company now because we all have websites and we all have technology that needs to be maintained. So there are jobs out there. It's more the people on the

lower end construction workers. With housing slowing, there should be an impact on construction, but we haven't seen it yet. Retail sales, there should be an impact on retail sales workers, and we haven't seen it yet. That's what everybody's waiting for, is some of those early signs that maybe the economy is slowing in companies or don't need as many workers, but it hadn't happen yet. Well, speaking of retail sales,

we heard from some major retailers last week. Most reported pretty solid holiday quarterly sales, but just about all of them with week outlooks for the full year expecting a big pullback in consumer spending, a lot of worries about the economy slowing. What does this tell us about retailers, about the economy and how retailers see consumers right now. Well, I think retailers are like everybody else, reading the headlines and listening to everybody talk about the inevitable recession, the

most the longest awaited recession in history. Perhaps it may be the goodot of recessions, and so they're talking at this point like they're preparing, they've drawn up the plans for dealing with a recession. But they haven't put them into practice yet because we haven't seen a pullback significantly in consumer spending, and so where you may see it first is in retail inventories. They may not buy as

much stuff ahead of time. The question is how long do they hold off, because when you get into June, that's about the time that they start ordering for the holiday season. And they've got to try to make a prediction for the holiday season, and this year I can imagine it's going to be very difficult. Well, Michael McKay, Bloomberg's International Economics and Policy correspondent, Thank you so much for being here, Michael. Coming up on Bloomberg Daybreak weekend,

Britain's Prime minister meets with France's leader, Emmanuel McCrone. I'm Tom Buzzby and this is Bloomberg. This is Bloomberg Daybreak weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. Up later in our program Biden's next budget and Republican

pressure for spending cuts. But first after the post breaks it agreement on Northern Ireland reach between the EU and the UK, the British Prime Minister has another important European rendezvous looming as he heads to Paris for a summit with Francis Emmanuel Macrone. For more, let's hit to London and bring in Bloomberg Daybreak europe banker Stephen Carroll tom Rishis Nach's trip to Paris falls neatly after he's resolved the biggest beef with his neighbors, disagreements over the post

Brexit trading grils for Northern Ireland. This Franco British summit has meant to relaunch closer ties between the UK and France after years of strained relations. To discuss what's on the agenda, I'm joined out by Bloomberg opinion columnist Leonel Laurent in Paris and tries Raphael with me here in

London now. I want to just set up our conversation with the snippet of a Bloomberg interview with Luke Alice, the CEO of the world's largest publicly traded hedge fund, Man Group, expressing a sentiment I think many people have felt after the UK's deal with the EU last week, if we never had to talk about Brexit again, the UK would be more investable. I hope that the last couple of days gives us a firm place to move forward for the relationship with Europe and that will definitely

improve the way people think about the UK. Okay terres Raphael with me in studio. How relieved will Rishi sacB that this meeting with Emmanuel Macron doesn't have to be

about Brexit. Oh, I think it's symbolically very important that they're meeting, and the fact that you know, he's just got this Winter Framework, the kind of updated, reworked Northern Ireland Protocol, makes it more than symbolic, because I think it gives him the opportunity to build on that momentum and try to uh, you know, reach some kind of agreement with Macrol on mutual areas of interest for SUNAC that is clearly going to you know, be that list

would be topped by h stopping migrant votes boats, which was one of his five priorities that he set out earlier this year. And you know, I don't think there's been leone will check me in this. I don't think there's been a bilateral h big bilateral since twenty eighteen, so so we're really looking at a kind of reset of Anglo French relations which have over the I was going to say years, but centuries. You had everything from the time ward arrival read to alliance. So I think

it's quite important. And yes, Brexit not top of the list for once, Yes, Leonella Ryan Paris. What's in this for France? Then, what does a manual Macron want to achieve? Basically Macro also wants to kind of get over the Brexit period, the Brexit hump, not because France had as bad a time as the UK. I mean, the fact is that mac Horn was reelected recently, while the UK has gone through several prime ministers, but the whole Brexit

effect has kind of faded. In terms of France's leadership in Europe, France is feeling a bit trapped at the moment because Germany really seems to be capitalizing the most in terms of leadership in the wake of the Ukraine War. France is kind of having trouble with German either. The relationship there is kind of stuck, and so I think it's looking around for friends. And the UK historically has, as Terres says, it's been an enemy but also a friends.

You have a kind of freenemy relationship, but the two countries look more alike today than they did around Brexit, because they're both kind of service based economies that have a proud history of military hitability and intervention. They're both kind of looking for their place in this geopolitically risky world. They've they've both pledged a support for Ukraine and so I think mac Hall's really gonna try to look for defense and an industrial policy as his priorities in this meeting.

So as one of the things that you mentioned it their immigration and this migration channel across the English Channel. Soonac frames that is being stopping small boats as being one of his key policy goals. What would look like

an advance for Rishi Sonac from this encounter on that issue. Yeah, I think there will have to be something concrete that he can point to at the end of this meeting on small boat And it may be I mean that really problems got a lot worse when the UK, you know, could no longer be part of the I mean, someone

could argue defunct Dublin arrangement for returning refugees. But also I think access you know, maybe to UM maybe it's not direct access, but some way of tapping into EU databases, police cooperation, um, you know, that combination of policing returns. I mean, this is a it's a really difficult issue. I don't think they're going to just somehow snap their fingers and come up with a way of stopping the

migrant boats. But you know, as we saw with the protocol, so much depends on good faith negotiations and so much depends on the trust between leaders and having a different UK Prime minister fronting this I think well has a potential to make a difference. I mean, let's not forget you know, it was twenty twenty one. We had Jacob riesmog tweeting that the French are still sore about Agincourt

and Trafalgar. We had Liz trust saying, you know, she wasn't really sure whether France was a you know, friend or foe. So all of that kind of um mood music really soured the ability of these bilateral you know talks to achieve anything. And you know, as Lionel rightly said, the full crumb of that relationship, which is completely off the headlines for years, has been the defense and security relationship,

and that arguably wasn't that affected by Brexit. You know, the Lancaster House treaties that were signed in twenty ten between Cameron and Sarkoz the sharing of nuclear facilities. You know, those were fifty year agreement and I think that the other one was was a combined expeditionary force. So things have been at a stalemate since twenty sixteen. But the security and defense side of things are very much, you know,

at the heart of that relationship. And you know, the Lionel says that these are geostrategic twins in many ways. They're the two nuclear powers in Europe. They're the two powers that use their military as a key part of their foreign policy. You know, they have similar economies. And the big change now is there is war in Europe, and really I think that just changes everything for both countries.

And that's made this this um you know, the alliance and the partnership and the friendship side of this bilateral relationship far more important than the niggling issues between them. Whether it's accus, which is obviously, you know, not such a small issue. It was quite important to the French and the small boats issue, which is hugely politically important

to sooner. The other issue that the europe is facing as a whole, and I include the UK, so we're referring geographically the Inflation Reduction Act posing a question about subsidies rivaling the US. So far, the US talking about its plan to rival at the UK hasn't caught up so much yet. Could this be an area perhaps of cooperation. Yeah, that's a really interesting question because the EU has come

up with its own response. Actually, Lionel's written very well on that recently, and it's it's it's a complicated response. They're different pillars. Parts of it, you know, include easing the regulatory environment, but there's also you know, a nod to UM, you know, opening the floodgates potentially for more state aid and that makes UM the UK nervous because

it doesn't have its own response. I think, you know, it would be interesting to see whether from the readout there are any discussions about coordinating, because I think it is Sunac ideologically is is you know, would be an opponent of this, uh, you know, of of of state aid becoming the answer here, and because we know that France and Germany, the deeper pockets, will be the ones to uh you know, throw more at their industries. At the same time, Britain will need to formulate its own response.

The only other thing I would add is, you know Maccolm's European political community, which was something that you know, trust signaled support of, is one way that you know the two could potentially also find common ground outside the EU. SUNAC could potentially throw some support behind that as well. Excellent plenty to watch out for. Thank you to our powerhouses of Bloomberg Opinion, Leonel Laurent Entorez Raphael for your views as we look ahead to some of which of

course we will be covering here on Bloomberg Radio. I'm Stephen Carlin London. You can catch us every weekday morning here for Bloomberg Daybreak. You're at beginning at six am in London and one am on Wall Streets. Tom, thank you, And coming up on Bloomberg Daybreak weekend, President Biden's budget proposal is about to come out. How much support can he win from Republicans? I'm Tom Busby and this is Bloomberg Broadcasting live from the Bloomberg Interactive Broker Studio in

New York. Bloomberg Elomon FREEO to Washington, DC, Bloomberg ninety nine one to Boston, Bloomberg one O six one to San Francisco, Bloomberg nine sixty to the country, Sirius XM Channel one nineteen to London, DAB digital radio, and around the globe the Bloomberg Business app in Bloomberg Radio dot Com. This is Bloomberg Daybreak Weekend. I've Tom bust be in New York with your global look ahead at the top

stories for investors in the coming week. President Biden presumably putting the finishing touches on his twenty twenty four budget request. We're expecting to come out this coming Thursday. Joining us now with some insight on what to expect and just how tricky this one will be. Bloomberg Sound On host Joe Matthew. Thank you Tom. The budget, of course, is a blueprint. It's far from a final version of the President's been talking about some of his top priorities lately.

Folks in Congress. They want to eliminate a lot of healthcare coverage, so its mega Republicans, increased costs for millions of Americans. Joining us now for some insights, Bloomberg Government's Jack Fitzpatrick, who specializes in the budget process. He covers appropriations and it's great to see it. Jack did we

get a clue. Where have we been getting clues about the president's budget in the recent string of speeches, Like the State of the Union, of course would be the big one, So this won't actually be much of a surprise when he drops it. The big stuff is not

going to be surprising, but it is. There's some nuance here that a lot of the president's top priorities that we heard about in the State of the Union, when he's gone after Republicans saying well, now they want to go after your Medicaid, they used to want to go after your Social Security, Medicare, I'm going to stop that. A lot of that is what he opposes about things

that Republicans have brought up. It's not necessarily clear how he weaves that into a budget proposal now, I will say, even talking to members of Congress over the last week, I talked to Brendan Boyle, the top Democrat on the House Budget Committee, who said, really, the top stuff he's looking for in the budget is protecting and maintaining the things that Democrats feel they have already accomplished, whether it's an Affordable Care Act, making sure Republicans don't chip away

at Medicaid, or anything like that, or even making sure the money continues to go out in an infrastructure bill. This does not appear to be one of those budgets where there's one ask that he's making of Congress. That's the big thing. It's really almost more about what he wants Republicans to not do any things he likes, and, like you said, preserving what's already been accomplished in the

last two years. You mentioned a major entitlement program though, and I wonder what we're going to hear about Social Security, Medicare, and so on, following this sort of endless debate recently with Kevin McCarthy, the new Speaker of the House. Yeah, so that has already started to play out through the

debt limit debate. You've heard Democrats come out and say, you know, if we want to get into a conversation separate from the debt limit about the solvency of Social Security, we could lift the cap on the maximum taxable income for Social Security payroll taxes. But really largely it seems that Democrats and now Republicans are kind of joining them, are saying we're keeping our hands off of this. Republicans kind of feel that maybe they either touched the third

rail or got accused of touching the third rail. But when you look back to the State of the Union, they clearly are trying to make it as explicit as possible that there's not really a social Security and Medicare solvency conversation happening on the hill. It will have to happen in the next it's i think twelve years before one of the deadlines, even shorter before another, but it's not happening now. So it'd be a surprise if the budget really got into that, and there's no bipartisan will

to really start those conversations at this point. It's become a huge talking point, of course for this president who likes to point to Senator Rick Scott's proposal, and we've talked about it a lot here on Bloomberg Radio, to Sunset, these programs, and that's not what the leadership is saying. Kevin McCarthy and Mitch McConnell have both made clear to your point that Social Security Medicare are off the table.

But the President had a lot of fun with this at the SA, like at the State of the Union, getting Republicans to yell and boo and he's still making hay out of this in his speeches. Everybody who says we're not going to cut Medicare social Security. When I asked them to join us and reject the cuts Medicare, wasn't it something? They all stood up. They all stood up, and they're all on camera, got all their pictures. Like I said, I believe in conversion. Believe in conversion, as

he said that night. This is interesting though, because Republicans think that he's being disingenuous. He's been actually criticized quite a bit for it, knowing that that is not a real debate at the moment. Jack, right, Well, it's clearly not a debate at the moment because anyone who is interested in tying Social Security and Medicare changes to the debt limit have backed off and said, well, clearly it's not happening now. Part of this is the politics of

using the word cut or slash. If Republicans say we should raise the eligibility age, we should other things to lower the projected increase in costs, like more means testing, which essentially would be cutting for higher earners. They are There are Republicans, including you know, at one point last year Jody Arrington, the new House Budget Chair, said we need to use the debt limit to get some sort of policy change or at least process change for major

entitlement solvency. And the Republicans are going to come into that saying we want to reduce the trajectory of spending. There are a bunch of examples of lawmakers who have said that kind of thing. They don't take kindly when you say, oh, so you're going to slash social security? Obviously democratic politicians they're going to kill it all together. Yeah. Democratic politicians are going to hear that and say, well,

that's a cut. There's been such a back and forth on I didn't say cut, I met I said maybe we should change the age of eligibility. That it's it's spiraled out of control at this point, and that has contributed to the fact that no, clearly the debt limit is not going who trigger some sincere debate over the solvency of these programs. Whenever that happens, it'll be later, and even in the president's budget proposal or separate. It does not sound like there's a lot of motivation to

have a real conversation. So it's a big semantics debate, and that's how we got here, right, And we're not going to change this apparently anytime soon, at least not in this budget debate. The war in Ukraine is another big question, Jack Fitzpatrick. This president has been bumping up against some Republican members of the House, even some progressive Democrats, who have been tiptoeing around the idea of, you know, not just no blank checks, but let's have a concerted

debate over what we're going to be spending. Now. There are tens of billions approved last year, right that will still likely carry us through this year. So is this something that will come up again in this budget debate. I don't know exactly when it's going to come up again. It is going to come up again in some capacity. You're right that there was about forty billion dollars included for Ukraine in the December omnibus spending bill that carries you for a while. There will be a more regular

debate on aid to Ukraine. That was a big supplemental sort of emergency spending bill. This when they fund the State Department. And there will be things in the budget proposal that says, here's what we want to go through the State Department. Here's the bilateral assistance we want for this country. In that country, they have that debate for

the appropriations bills. It's smaller than a big forty billion dollar bill, but there is a debate brewing on to what is the extent of the economic assistance we want to send Ukraine through the regular State Department aid that kind of thing. I will say I spoke within the last week or so with Mario Diaz Ballart, who's the new House Republican essentially in charge of funding the State Department through the Appropriations Committee. He said, you've got to

be skeptical about funding. House Republicans want to cut a lot of spending, even for Ukraine, even for things they might support, they are going to be very skeptical. There are others like Lindsay Graham in the Senate who does not agree with that. There's going to be a debate to some degree about regular funding. I would not be surprised if within the next year the President says we actually also need another big bill for Ukraine. That would be an even bigger fight. So there are probably a

couple fights to come. So on Ukraine. We're not overdoing this though in covering this in the media that either the Republicans say no more blank checks, they're walking away from Ukraine. Is it safe to say a majority of Republicans on Capitol Hill still support funding this war effort as opposed to the conversation happening at CEPAK For instances, to some degree, I think there's a lot of debate, but it's a very mainstream Republican position to say, we

do need to continue sending aid to Ukraine. When you get into the finer points of how much defense aid, how much economic aid, which a lot of Democrats would say is extremely important, Republicans get a bit more skeptical. There are differences between House Republicans and Senate Republicans, are a difference in how they're going to draft the initial bills and what they're going to do and it comes

to a final vote, it's they're a bit fractured. It's hard to pin down the exact Republican position, but yeah, the idea that Republicans have walked away from Ukraine, that would, at least I can say, that's a minority position, it's not the Republican position. Fascinating as ever, you can find him on the terminal. Jack Fitzpatrick at Bloomberg Government. It's great to see it. Jack, many thanks thanks for having me.

Tom back to you all right, Thank you, Joe. When you can hear Joe Matthew on Sound on New Time one to three pm Wall Street Time. Starting Monday on Bloomberg Radio and coming up on Bloomberg Daybreak Weekend, China's leader, Shi Jin Thing is moving to intensify his control over the country. I'm Tom Busby, and this is Bloomberg. This is Bloomberg Daybreak Weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom

Busby in New York. China's president, as we've been boarding, is spending time these days trying to become even more powerful. For a look at why, Let's go to Hong Kong and Bloomberg Daybreak Asia host Brian Curtis and his colleague Doug Krisner. Tom. The so called Two Sessions are underway in Beijing this weekend, as the National People's Congress and the Advisory Body the CPPCC president Shi Jinping is consolidating

the Communist Party's grip on power. Earlier this week, he laid out plans for changes to China's bureaucracy, and he spoke of more influence on the private sector indeed, and he said those changes would be intense. Now the party would roll out plans for deepening reform in the financial sector, and officials would exercise more control over the science and technology industries. Joining us now to talk a little bit about what's happening. What's really happening in China is Bloomberg

opinion columnist Shuley ren So. Shuley, some of this that we just talked about runs a little counter to what we thought was going to be the main focus, which is the targets and the stimulus and the economy going forward. Let's talk a little bit about this consolidation of power. What is presidency up to. I think he's starting to realize that Chinese Communist parties bureaucracy is not quite working.

I mean, we last year we heard a lot of local government debt problem for instance, right, and a lot of it is COVID zero controls. And then the government stimulus checks into infrastructure building, but a fair chunk is inefficiencies in the system. So I think he's trying to

make this whole gigantic apparalyus working better. On the other hand, there is also a power consolidation, right like if he won't if he thinks that he is the man who will put China a CCP in power for the next five hundred years, he needs power or consolidating to him into his inner circles military, economical, and the financial. So how much of the debt problem for some of the regional governments has to do with the property market and

the implosion in real estate a lot. So before COVID local governments they get about forty percent of their income from tax local taxes with the arrest thirty percent from land sales, and another thirty percent from government from central government tax transfers. And then because of the property market ISLAM, thirty percent of their income was kind of gone. Right, that is a big hit. And I would like to go back to talking about the conflict between central and

the local governments. So basically in the early nineteen nineties, the central government realized that it was getting very poor, whereas local governments, say like in the Guangdong province or

in Shanghaiedi, economy was doing much better. So they changed the whole phisical system entirely, and then basically like the biggest tax revenues such as the vat the value added, the taxes, they will all going to the central government, and then the central government will they said, okay, how much money do I give to the local government As a compromise, they were saying, okay, as a local government, you can sell land and the revenue from that lend

sales comes to you. And that's why local governments always have incentive to boost it's a real estate market, because that boosts their lands sale value and so and so forth. And you can see a lot of the economic problems that China is facing today comes from the fiscal reform in the early nineteen nineties, during which the central government was taking the bigger chunk of the tax revenue, leaving

the local government with less money. Many researchers say that this will mean more party officials at the helm in a lot of state owned institutions and with huge influence on private companies. So I think the big question is is this more about loyalty and control or is it more about execution and efficiency. It's both. It's just like asking President Shijing pings and high Prussian campaign, is it more about political control or about getting rid of the

dirt in the system. I think it's both. Shuli, thanks so much for joining us. Bloomberg opinion columnist Shule Ren with us, I'm Brian Curtis along with Doug Krisner. You can catch us every weekday here for Bloomberg Daybreak Asia, beginning at seven am in Hong Kong and six pm on Wall Street. Tom, thank you, Brian and Doug. And that does it for this edition of Bloomberg Daybreak Weekend. Join us again Monday morning at five am Wall Street time for the latest on markets overseas and the news

you need to start your day. I'm Tom Buzbee. Stay with us. Top stories and global business headlines are coming up right there.