Welcome to Crash Course, a podcast about business, political, and social disruption and what we can learn from it. I'm Tim O'Brien. Today's Crash Course China takes on the world and the US. Consider the numbers. China is home to one point four billion people, about eighteen percent of the planet's total population. Twenty two point three million people live in Shanghai and eleven point seven million in Beijing alone.
China has the world's second largest economy and has been on track to eventually overtake the US, although China's recent economic problems may delay that trajectory. Its geographic footprint is vast,
covering more than three point six million square miles. China is home to a thriving technology sector that birth such well known giants as ten Cent and Ali Baba, and China's corporate powerhouses collectively spent about two hundred and twenty eight billion dollars on research and development in twenty two twenty two. Over the past forty years, China has lifted eight hundred million people out of poverty, an epic achievement that some analysts consider the biggest reduction in inequality in
the modern era. China has also built a formidable military capacity featuring a world class navy, air force, nuclear missiles, and cyber warfare proficiencies. It regards the US as a robust but flabby economic and military competitor, and America as beset by social chaos and individualism so extreme that it undermines civil society. The South China Sea and Taiwan are flashpoints.
But China's economic growth may have plateaued and its politics have been so reshaped by President Xijinping that a cult of personality and raw authoritarianism has recast the country's image abroad and its direction at home. Joining me today here in Asia to discuss China's path present in future are two Bloomberg opinion columnists and wizards, Karishma Vaswani, who is a savvy political analyst, and Shulely Wren, who covers markets
in China's economy. Welcome to crash course, ladies. Shulely, you grew up in Shanghai. So as someone who's had a foot literally on the ground in China and elsewhere over the years, how do you think about China when you look at its whole trajectory during your own lifetime?
So to give you some background, I was born and grew up in Shanghai, and then I left for the United States for university in nineteen ninety six. By the time I was leaving for United States, Shanghai was already morphing into something I couldn't recognize, basically, like new subways and the new hiroads were coming up every year to this day. I was just in Shanghai this month, and what I saw was that, you know, if you are a taxpayer, you will see changes in the city pretty
much every year. They're building new pedestrian walkways, and if you go complain about the government civil services, you will get responses immediately. Big cities in China have transformed themselves, and the China model is basically, I build it and the economy will come for you.
Like what symbolizes that change most visibly? Is it skyscrapers? Is it the infrastructure? Like what are the most tangible reminders that this incredible change that occurred during your own lifetime?
I think it's coming hours. The subway is very very efficient. If we talk about going from the city center to airport express you can take this very fast speed real at the three hundred kilometers an hour, and you can get to the airport in about five six minutes. And that high speed real was actually built when I was still in the US almost twenty years ago, and I find that efficiency is very transformative and glaring to visitors' eyes.
Karishma, you were born in Singapore, raised in Indonesia, You've had a vast global experience apart from that, just like truly, when you look at China, what do you think about the last several decades of profound growth and change there?
Yeah, you know, just picking up tim on what Schuly was saying. I remember when I was growing up that India and China were almost around the same level, right like forty years ago in terms of how unavailable resources were for people, basic sort of poverty levels, all of that. And it was as a journalist in India when I first went to visit Beijing, and there is always this comparison between China and India, and it's very envious of
the achievements that China's been able to make. And I think nothing was more glaringly obvious in the strides that China had made for me at least you talked about the commuters and the subway system truly, but for me. It was the highways, because it was these gigantic highways that stretched out into the distance, huge monolithic structures that really showed the size and scale of the country and what it was able to to achieve and to your point about build it and they will come, it was
exactly that. China's now seen around the world as a country that has made remarkable strides, and I think it's really important to remember the fact that when they have had a plan, they have managed to achieve that plan. And that's something that a lot of countries in the region one look up to because they are trying to find an alternative model of economic growth but also a political system. There's been a lot of lecturing from the West to countries out in Asia about how ideologies should be.
That democracy is the right way forward. It's not always seen in the most palatable way for a lot of leaders out in this part of the world. But two, because it's actually been an achievement, They've done it. They said they were going to do it, and they've done it. And I think that evidence has helped to solidify the reputation of China as an economic genius in many ways, and that countries in the region have looked up to, and what do.
You think China it's elf wants to be if China was a person. This is such a bad way to frame a question, but it's actually useful. I think in this case, who does China want to be accepted?
Is the sense that I get, you know, like for the longest time, my impression has been that China consistently and you see this in some of the rhetoric from the Foreign ministry as well, it has a model that it wants to show the world is possible, that it is achievable, and that alternative way of being and of doing politics and of growing your economy is something that should be considered as on par with the United States,
if not in some ways superior. And I think what's happened in the last couple of years, particularly under the administration of Chijin Ping, because that's really where it all changed, right, Like I mean, up until that point, there was a sense that China was growing very well, there was engagement, there were concerns about some of the actions out in places like the South China Sea and Taiwan, but not to the extent that you have now. And I think
under Xi Jinping. It's become a lot more difficult for the outside world to understand. What are the intentions of this new China? What are the ambitions? Is it a sort of expansive and territorial empire building policy or is it a country that is trying to make itself known and seen on the global stage. And right now a lot of people that I talk to still haven't figured out which of the two it is.
So Shuley Karishma said that China just wants to be accepted. And I'm far less sophisticated than both of you on this topic. That would not have been my first goat to description of China. I feel like as an American watching this, but as someone who's trying to be objective beyond just being an American, I also see China as a country that wants to dominate certain aspects of its
relationships with commercially and economically and diplomatically with others. You don't have to agree with that, but I think Karishma's introduced to provocative talking point. I wonder what you thought of it.
I absolutely agree with the Karishma on that. Like going back to your question about China's identity, Okay, let me step back and say, going back to presenting Pin the politician, the political leader's sense of identity, he sees China as a producer first and then consumer. It's actually a very nineteen sixties mentality and ideology that he grew up with, whereas us it's a consumer based society. The philosophy of
governors is very different. Like China basically say, let's do industrial ambition, industrial policy, and then as we get rich, there will be money for the consumers and the workers, whereas US basically says, perhaps that's my wrong impression that a government's job is more or less to do no harm and to let people live, and the consumer society will flourish and will generate demand for new products, etc. So it is an identity issue, and the present sheging
Pin basically thinks the world have two ways of economic growth, when on the producer side one on the consumer side.
You would say that that entire posture on China's part is about wanting to be accepted.
Yes, I mean, if you look at Belt and Row initiative, and he just made a speech in Beijing right with President putting on his site, he basically said that we China are trying to improve the infrastructure, and that's the only economic growth model that he knows of, and he feels that China is doing good to the third world countries.
So, Karushimaban, is there a central thing that animates China? Staying on the conversation we just had, like, what is propelling China itself forward in terms of its own goals?
Perhaps it's worth looking at this tim from the perspective if I was to ask you that question about the United States, right, what is propelling the United States forward with its own goals? A desire to show that this is a country that is a global leader, a superpower, a military power. And China feels the same way. And I think that sometimes you know, there is an arrogance
in the West about the the hierarchy. Right, the US is at the top of the tree, and then everybody else is on the democratic column and on the democratic camp. And so you are our friends, and you belong in the in crowd and in the cool crowd and everybody else. Sorry, don't want you at the party, right. But for China, what it's been able to do is actually achieve a
remarkable as I'm repeating myself here. But you know, I don't think we can make that point enough that it's managed to bring, as you said in your introduction, eight hundred million people out of poverty and bring them to a level where they're creating world class companies, the sorts of companies that truly writes about every day, you know,
with innovation at a level. The first time I went to China, it was the highways that I remarked on the second time, when I went to Shinjin to interview the boss of Huawei, I was amazed by the fact that everything was you know, facial identification in the subways. You know, the level of technology is really something to remark on. But to go back to that point, right, I think it is worth recognizing that China is trying
to showcase its achievements. It wants to be accepted, and when it comes up against the US, that is where the conflict happens. That is where the clash happens. Because I think it's not just the Chinese side that is responsible for that.
The US has its own set of issues for sure, especially in the kind of shambalic politically era we're in right now in the United States. Truly how does China think about its own recent history? Obviously, with a country that has had such a rich and storied past, you could say recent history is the last three hundred years,
and that's still probably not recent. So I'm sort of thinking of recent like I was going to say post World War two, but I actually think almost postcolonial when she looks at nineteenth century China and twentieth century China, and now, how does he and the people around him think about the arc of that history.
I will say that there a little bit passive aggressive, aggressive in the sense that they feel that they were round in the nineteenth century and that China was almost colonialized, and then we have World War Two, the ninteen massacre by the Japanese Army, etc. Passive in the sense that they just feel that China is a huge empire. It has lasted longer than the Ottoman Empire, longer than the Roman Empire, and there is a cultural superiority that the
Chinese leadership feels that they can leverage on. For instance, if we talk about the global supply chain, the Chinese workers are stellar. They are the ones who are willing to work nine ninety six. You know from nine am to nine pm for six days a week. They feel that there is a very very strong cultural superiority. Last year, when I was on the reporting trip in Viennam, I spoke to quite a few Chinese entrepreneurs who opened factories
in Vietnam, and it was very politically incorrect. They said they prefer to open factories in northern Vietnam because it's culturally closer to Chinese Confucian spot and the people there were harder working in the southern Saigong area. So there is that sense. But sometimes they also get very angry if they feel that they are being slighted by global powers such as the United States. They will think back on the eighteen hundreds, how China was so humiliated by
the European and later on by the Japanese powers. So it's kind of that conflict that I see.
Just picking up on what Shirley said, because I think it can bring us down, you know, the sort of understanding of why then China, if it's just trying to be accepted or recognized for its achievements, get such a negative reaction in the outside world, right, Why does it
have this bad press so to speak? That example that you brought up of the entrepreneurs that you met in Vietnam, and you know the Belton Road projects where Chinese companies go overseas, but they want to bring Chinese labor with them, they want to bring that Chinese expertise. And then these projects that end up becoming vessels in a way for an export of Chinese workers to these countries is then viewed is not something that's beneficial to that country. Rather,
it's all going back to the empire. And I'm putting the word empire in quotation marks, and I think that's what China struggles with, right It is a rising superpower. There's no way we can deny that it's here to stay.
It's not going anywhere. And I think learning how to manage China, learning how to navigate it is essential for a country like the United States, because Biden has done a remarkable job of this deterrence and integrated deterrence, getting all of the partners in the region to sort of work together on this, recognizing China is this existential sort
of conflict that they've got to come up with. But nobody wants a conflict between the US and China, right, Like a lot of the countries in this part of the world and wondering why can't you just sort it out and get along, right.
I just want to add one more thing, just like a world Karishma said, we do need to think about what the Chinese leaders are thinking. They are a little bit like people were, like to say, an overconfident in China. But I think the outside were also should think about China being historically insecure. So when is these aggressive gestures from the US, it will overreact. So I think it's very important to tone it down on the western side, on both sides.
Actually, we'll probably get into this a little bit more later in the show, but Hong Kong to me, is such an emblematic city state for this very discussion because England turned it into a vassal property. They used it to introduce opium into mainland China. They used it controlled China so they could dominate and try to colonize China. And China has come out of that era and people now criticize China for the way it's pulling Hong Kong
back into its own orbit. But I also am sympathetic to the idea that Chinese have that it was never out of our orbit, other people came in and abused it essentially at different points in our history. And I still think you can be critical of the way that China is trying to absorb it now while also respecting I think truly what you just mentioned, that this insecurity China has that's born out of the way the history has played out. You don't have to agree with me
about that either, but Hong Kong fascinates me in that regard. Sure.
One thing that's interesting about Hong Kong is I live in Hong Kong, and you know the twenty nineteen protests. I spoke to Hong Kong local people, right, but they're ultimately Chinese. Got migrated from the north, and I notice a very strong generational divide. Like say, I speak to like people who are older, like in their sixties or whatever, like my juror mister Ma. He told me, he said, before China has Bruce Lee, now we have Chi Jin Pin.
He is actually very patriotic. A lot of old Hong Kong Chinese people are very patriotic, but if you move down to like people in their twenties or even thirties, they prefer British rule, believe it or not. And I think ultimately it's about governors. They see China as being too intrusive. The Chinese way of government is being too intrusive, whereas the British kind of sort of just left them alone and.
There was free speech, there was a free press, it was a very creative community. It was authentically international, and there's a real danger now that China is sort of squeezing that out of that kind of Hong Kong.
Yes, absolutely, But on the other side, Hong Kong's Chief executive Youngly just had his policy address earlier this week, right, and you can see the Hong Kong governance is changing. They're trying to give you more cash handouts. They're trying to build infrastructure. They're trying to incentivize and stimulate you through money and the buildings and the new artificial islands. You can see the way of a Hong Kong governess
is heading towards the Chinese way. And I have to say, like I personally think of Hong Kong, the infrastructure is getting dilapidated. If you go to the Central Business District this summer has been terrible. We can smell switch, you know. But the Hong Kong government much left you alone, and I think they are shifting to the mainland China model.
Couragem. I can see that you have some thoughts on that so way in here.
Yeah, I think this idea or the framing of you can accept and sort of remark positively on aspects of how China has done things, but also be clear eyed and critical of the way, for example, it's operated in Hong Kong is crucial for our understanding of China. From the Chinese side, it's very clear. We've discussed that why they feel about Hong Kong the way that they do. But from young Hong konger's that I spoke to, just as you mentioned, surely on some of those reporting trips
I made there, they do not feel Chinese. They do not feel mainland Chinese, even if they are ethnically Chinese. And I think the fact that a political system in China, this is going to be my sense, is one of the biggest issues going forward for young people who've grown up in that system but no longer feel that they
have opportunities the way they saw for their parents. They don't feel that they have the ability to say the things that you know, we talk about a sort of closed system in China, but it's become even more closed now to the extent where you know, somebody says something on Wabo and within minutes it's wiped away, right, And I think it's really important for us to be clear eyed about what is happening there and be able to criticize but also to commend.
I would suspect, And it seems evident in the way this has progressed that Chinese government when it sees young Hong Kongers who are saying I like the Hong Kong my parents had, and I want a Hong Kong that's not specifically on the Chinese model, that the Chinese say, well, then go live somewhere else, because this is the model we're going to have. Whether or not you feel romantic about the past, am I you know, misinterpreting them to me?
It just seems patently obvious that that's where we're headed.
Absolutely the Chinese government, so far head and stop the Hong Kongers from leaving. If you don't like this model, just please go ahead and leave.
And I think that's the danger, right because when you look at the way that the mainland has operated in Hong Kong, it is increasingly clear that that is the root that is going to consistently be the way that they approach politics there. There hasn't been a lessening of Beijing's influence in Hong Kong. To the contrary, you see it in every aspect of public life.
Precisely because some of the things I cited in the introduction, this incredible economic success that mainland China has had, and its muscularity around its military presence and the way it's asserting itself in the world. They can point to a successful track record as reason for why they want to continue to roll the way they have. Though, and we'll get into this later in the show, there's starting to
be a little bit of cracks in the model. On that note, I'm going to take a quick break to hear from one of our sponsors, and then we'll come right back. We're back with karisim of Uswani and Shuley Wren. They're both Bloomberg opinion columnists, and we're talking about China. So surely, what is the secret sauce in China's economic rives?
If you were to identify the things that are very specifically Chinese that were key to its growth, that differentiated it from the growth paths that other countries, including the US, has taken. What would those be.
I would now say it's the Chinese people. I think that the Chinese Communist Party can be very very efficient, at least in the era when the economic growth was very fast. If there was a directive from the top, it will get executed very quickly. I remember, I mean I saw Chump high transform right, like a highway will be built within just a year. There will be all sorts of lend issues that people don't want to move.
What the government would just say, Okay, if you don't want to move, I'm just going to cut off water, electricity, gas and as important you will want to move right, So everything gets built very quickly, whereas places that I've seen in Vietnam, Indonesia, land rights is always an issue, even in like other communist countries. So in that sense, I think the Chinese government is very efficient. If it wants to do something, it will get it done.
And it's loaded with talented people. It has the kind of civil service you want. The UK is famous for having a lifelong civil service that tries to be nonpartisan. Singapore, I think, is a great example of a very well compensated civil service that recruits for talent. And I think China has done that at a massive, massive scale, hasn't it.
Absolutely? Like if you look at Seisha, I'm hi right, Like the government has an app and then they have also of entries, say like a switch problem, electricity problem. You can click on the entry and then you can leave a comment. Within twenty five hours, somebody will contact you and say, what's your problem, and now don't try to get a fixed winning a week.
Wow, So that doesn't happen in the United States. Karishma, what are your thoughts about China's economic rise?
Yeah, I wonder surely whether you'll agree with this, But to me, you know, it's also the private entrepreneurs. And when you look back at the Ero and China opened up and Dougshaoping, etc. There was a real encouragement of private industry that governments sort of you know, at least to me, it seemed let flourish without too much interference.
It only started to get involved when these companies became so big and they started to become more popular, or the CEOs became more popular in the mind space of young people than Sheijin Ping did you know, the sort of jackmasied and ping plash that we can get into later. But the companies themselves grew up in this rather messy and chaotic environment, which then they had to deal with
the problems that were apparent to them. In China, they had those opportunities, and initially they were servicing that market by selling products to the United States, but also leveraging off the vast labor force that they had in the country. And I think that's also really remarkable. It's the unique thing that China had that other countries in the region didn't have at the time. The nation of private entrepreneurs, government efficiency as you point out, and a huge labor force.
And in part, I think China studied the Russian model and it found it wanting. It was statism, so bureaucratic and extreme and corrupt and inefficient, and it didn't really allow for free enterprise. It seems to me that Chinese said, we can have efficient central planning and an efficient government plumbing around our economy, but we will also allow people to become wealthy, will allow people to own their own property, own their own businesses. So it was this unusual hybrid model.
Right absolutely, I mean, I do agree that private entrepreneurship is very important, and I still think there is a lot of animal spirits remaining in China based on my conversations with entrepreneurs, et cetera. But I think that the government's role is also very important. Like I think about
how China got rich. It was world's biggest factory floor, right, and then to grow rich through manufacturing, you have to have the high way, the big deep seap ports, and the good cargo planes, etc. And the government has built that. So I think it's a combination.
And Karushima, How has Chinese politics evolved during this time? During this massive economic boom, we end up at its peak state with Shijinping, who is now on his third term he comes into power in twenty twelve. Has the political architecture in China taken turns that surprise you? Is it also strategic or is it more a little bit of a cult of personality or some of both?
Gosha, I think it's really disappointing, actually more than anything else, because in some respects if China had continued down a path where you didn't have a Shijinping as commander in chief for what now looks like life, it would have still grown economically strong. It would have still, in my view, you get to a point where developing economy reaches a
sort of mature level. These five percent growth rates that we're seeing now, they're excellent growth rates by any account, But you could have still had a very rich, profitable, and thriving China without a Shi Jin pain at the helm of China. And I often wonder if you'd had a different kind of leader, somebody who doesn't seem as inclined as Shei jinping is to build this cultive personality around him, around the idea of what the party should be in public life, in the minds of people. Then
you know what kind of country would that be? Would that be a nation that would be far more willing to cooperate and collaborate with the United States? Would it have set itself up in this way on a path of competition but also conflict rather than competition and cooperation. And obviously we'll never know, but I do think there was a real turning point when Xijin Pin came into power.
Talk a little bit more about that, truly, because I want to talk about some also some specific things she has done recently are I think revelatory, and we can get into some of those, But tell me what you think about the Shi era, for lack of a better term, I.
Think she is pretty much a puritan. He is nothing like the other Communist political leaders of his era. He doesn't go party drink, you know. I mean. There are talks of his family's business associations, like in particular his sister, but he himself seems a little bit of a more anti materialistic, if I may use the term. He is more ideologically driven, I think, and he seems to be genuinely interested in the everlasting dynasty of the Chinese Communist Party.
I mean, what we hear is that his mother, who's in her nineties, she's still alive, and despite all the pursion of his own family, right, his mother is still a big believer and a very very red heart. So the sum perhaps it's just carrying on the family legacy.
I think. It was two years ago when Hu Jinta got publicly embarrassed and escorted out of a major party meeting in China in front of the country's political leaders. It seemed very calculated and felt to me at the time like she signaling a demonstrable break from a past, a different kind of leadership. More recently, he's been purging
the military. They say that it's for corruption, that he's uncovered corruption, but both of his leading defense ministers had very short terms and they were shown the door, most recently Li Shangfu. And he's been purging obviously, the business class. Some of the entrepreneurs that Kirishima mentioned earlier who had been I think symbolic to younger Chinese who wanted to get rich, wanted to be creative, wanted to be entrepreneurial, wanted to have their own companies, have now seen this
whole class of entrepreneurs sort of defenestrated. What do you make of all of that?
I think ultimately it goes down to his production first, consumption second ideology. I mean what you see is he's encouraging industrial tech and he wants to build those little little deep tech companies that the world's supply chain system cannot deal without, and they will be always integrated into the world no matter what happens too politically, consumer tach
he's knocking out. I mean, perhaps it's his own ideas about how an economy can grow, but it's also like, if you think about China become a very consumer oriented society, young people will have their own thoughts, their own ideas, and will the CCP's dynasty last. They have lasted for fifty sixty years, but how about much longer another hundred two hundred. He's thinking about in terms of Chin or Ming dynasty terms.
So he's playing long ball and everyone else is playing shirtball.
In fact, he is very sensitive when people these days talk about the Ming dynasty or Chin dynasty, because China's censorship thinks people are just making very veal reference to him, for instance, founding father of Ming dynasty. After he became the emperor, he basically killed all his comrades. So when people make these kind of jokes, they will as censored online.
And in fact, a book recently has disappeared from bookshops in Beijing because it exactly implies the fact that if a certain kind of emperor proceeds in this way, you end up having an awful end. But just to the point of why the party or why Shi Jinping would want ideology to be controlled in this way, I think it's precisely that that private entrepreneurs and the economy that
you were talking about just now Shirley. Young people felt like they had a way out of the system, and when you curtail those opportunities for young people, then the party becomes the most important thing inside the minds of people as well. It interferes in every aspect of public and private life, and I think that's what he is attempting to do.
By the time this episode heirs, I think Joe Biden will have already met with Yang Yi, China's foreign minister. They're scheduled to meet during the time that we were producing this, so we don't have to be specific about
the outcome of that meeting. But it does feel actually significant to me that in this moment where we've got a lot of geopolitical conflicts Russia and Ukraine, the Gaza Strip has flamed up, and there's been constant talk about whether or not China wants to invade Taiwan, and if it does invade Taiwan, what are the geopolitical knockoff effects
of that. So within an environment like that, the fact that Biden is taking a meeting with a senior, the senior Chinese foreign affairs diplomat, it seems significant to me. But do you think about it in a different way.
No, I think it's extremely significant, and it's the latest in a series of what I would say are very significant engagements between the US and China. Shijinping has met with Kevin Yusom from California. A group of US senators who were in Beijing also meeting with him. You know, it's all leading up to what everybody is hoping will be a meeting between chi Jinping and Joe Biden at
APEX in San Francisco. At the same time, though, going back to that point of how we must be clear eyed about China and also be willing to criticize when the time is right, the Chinese Coastguard has been involved in at least two collisions with two ships from the Philippine side in the South China Sea, blaming Manila and the United States for interfering in what Beijing sees as its own water waste. So, on the one hand, you see strategic engagement improving, and it's an encouraging sign between
the United States and China. But you know this isn't going to be solved overnight, right. You know, it's going to be a situation where Beijing consistently says, this is our backyard. The thing I think China would want the most is us please leave, please leave from this part of the world. We'll manage it. And as long as you understand that these are our strategic interests so you don't get involved, then we're fine. We can continue to cooperate.
Does that ring true to you too, Shuley?
I think one question we can ask is like, why is President Chimpin suddenly trying to be friendly with the United States again? And I think it's because within China there are a lot of concerns about your political risks. A lot of Chinese entrepreneurs have told me, they said, if we cannot get along with the world's most powerful country, the Chinese economy cannot do well and the China has no future. And I think presence she needs to address
that kind of very valid concerns in mainland China. I mean, just given an example, there was news that China was going to investigate Fox CONT's landues, right and the day after, China had our Black Monday on the store market. Because people just say, what you're talking about Taiwan and invasion. This is very very much on the business people's mind and when China is clearly in the recession. Chi Chimpin has two to somehow tom down that very aggressive or rhetoric.
On that happy note of kumbaya and maybe reprochemomp between the United States and China. I'm going to take another quick break and we'll come right back. We're back with Karishma Vaswani and Shuly Ren and we're continuing to discuss
the ever fascinating subject of China. Surely you have done incredible work, original work around China's looming debt problem, and you've really wetted great of gum shoe reporting, looking at local debt levels, looking at corporate debt levels, looking at sectors like the real estate industry, where the debt is suffocating and potentially more systemically dangerous. Obviously, China's economic growth was fueled by a lot of debt spending, with the
idea that it was rational spending. It was spending for the long term, the country could earned back from that debt. It created jobs, it created infrastructure, created new property. But maybe the accounting for all of that debt wasn't as clear as it should have been. And you've just written a series of columns over the last two years, probably at least laying out for readers and analysts how bad this could get. How do you think now about China's debt problem.
So we talked about China building a lot of infrastructure and the public good, and I mentioned the high spirial in Shanghai that gets you to the airport in five minutes, right, and guess how much it costs. The ticket is only five US dollars and then if you go to the ticket counter you can get an extra twenty percent disco. That's the problem with China. That's the ultimate problem with China's step path. So far, the government has built a lot of beautiful things and the public we enjoy it
very very much. Everyone will enjoy it. But the question is, as China slows down, who is going to pay for it? And it's unclear so far. A lot of bund investors they complain they have been paying for and then they complain to me why they are the ones that have been paid for and on the other hand, like it should be the people who have been paying for So basically that's the ultimate question. China has buil beautiful things and how is it going to pay for this?
It has about one hundred and thirty seven billion dollars in sovereign that it's running its biggest deficits I think in decades. At this point, how does that get resolved? Like, how do you see this getting cleaned up?
I think what needs to happen is that China needs to have another physical reform. So what happened was that in nineteen ninety four, when China was just opening up right, the government had a tax reform. Basically, the central government will get most of the tax revenue and then the local government will do most of the physical spending. That
is not going to work for the local government. So what they've been doing the last thirty years is basically relying on lensales to developers, which propel China's property bubble, and by borrowing that with this kind of unclear shell company's titles. So what will happen is that I think the central government will have to put on more that on its own balance sheet. And by the way, China's Central Bank of People's Bank of China, its balance sheet
is squeaky cling, unlike the federal reserve. So I think inevitably at this point, unless China is willing to have local government that blow up, China will have to do its own quantitative.
Easy Let's switch gears a little bit on that Karishma. We talked a lot about in this episode China's relationship with the US. I want to talk about some of the other regional players that are equally important in my mind as the US in terms of the future of the region, China's place in the region. Let's get the big wildcard question out of the way first. Do you think China will invade Taiwan.
I don't think it wants to. I think peaceful reunification. I think we should believe that when China says that it's serious about that. What it doesn't like is when the United States get involved. It does not want any declaration of independence from Taiwanese government political parties. The status quo would be ideal in the sense that as long as Taiwan doesn't declare independence and doesn't make too many noises, that makes it far closer to the United States. Beijing would,
I think accept that. So I think that unless it is pushed to invade Taiwan, it won't do so of its own volition.
In that same context, I feel like whenever we talk about Taiwan and excluding the US from the discussion for now, you also have to talk about Japan, and when I've visited the region in the past, I've met with national security officials within the Japanese government who are very hawkish about the idea, at least that China might invade Taiwan.
I think the Japanese government has obviously started to ramp up their own military spending as a I don't know if it's a hedge against an invasion, but certainly to just be rational about the possibility of a military action. How do you think about Japan as a player in the region right now, I think.
That as a hedge to what you're seeing as a ramp up to military build up in China, they have to do that. I think it only makes sense to do that. What Japan's been able to do quite cleverly, I think, is be the proxy for the United States in this part of the world. I know you said, like, let's leave the US out, but it's impossible to have a discussion about this region without bringing Washington into it.
And I think you can see that, particularly in the Strategic Alliance of the Quad, because through the Quad, which is actually a Japanese idea to begin with.
And let's define the quad for our listeners, which is Australia, in the ED, Japan, and the US for countries that are trying to have an alliance as a bulwark against Chinese ambitions in the region exactly.
And it's supposed to be a sort of unified like minded countries coming together working together to be able to provide deterrence. And I think that's the key thing, right, how do you provide deterrence, because that's the best way to avoid conflict, And you're seeing that even with regards not just to Taiwan, but also the South China Sea. Japan plays a crucial role in all of that because
it has strategic interests in all of these places. So when you hear from national security analysts, for instance, in the Japanese government that they're worried about Taiwan, I think it's a big a worry about China's militarization in this part of the world. And you know, in the latest twenty twenty three report, China's Military Power Report that's come out of the United States, the US has echoed that
as well. It is the biggest concern going forward. The way that the Chinese have built up their militaries, spent money on submarines, on fighter jets in the region, and it looks if you don't do anything to combat that you will be left behind. So it makes sense for these countries to take the actions that they're doing.
Surely another intriguing country to me in the region, not just for me, I think, but for anyone looking at all these interesting dynamics going on as India. You've done a lot of travel in the region, specifically that to Vietnam, where you sort of looked at other countries in the regions that are equally entrepreneurial in both their culture and the execution of policy and business growth. Like China, India has a very entrepreneurial tradition. It does not have a
large tradition of an honest and capable civil service. But China is India rather is in the midst of its own I think, muscularity and thinking about how it wants to play a role in the region. Obviously Visa VI Russia, visa VI China, visa viv the United States. How do you see the Chinese relationship with India playing out?
I think there are a lot of Chinese entrepreneurs who are genuinely interested in investing India. What they see is that they're very practical and hard knows people. They don't care about democracy or whatever. What they see in Ranger Modi is basically somebody who's willing to take the China growth model. Produce first and then they will come right and then they tell me, oh, you know, is a really nice new highway between Eli and Mumbaya and they
were modeling at it. So I think on the civilian level, there is genuine interest in foreign direct investment into India.
Since we're doing geopolitical bingo Karishma, I also want to talk about Russia and China's relationship with Russia, and particularly in the context of the Ukraine invasion. It's been hard for me watching this to figure out whether or not China really wants to step onto the world stage and be an authentic broker of complex diplomatic situations. This has come up obviously around Gaza. People have wondered whether or not that conflict will kind of compel China to step up.
But it seems even clearer to me in the Ukraine conflict because she has gone out of his way to Putin up over the years Russia's leader Vladimir Putin. I think Putin has maneuvered to where that relationship on his sleeve. How do you see China's relationship with Russia evolving and does China really want to be a global diplomat or not.
I think you'll see the relationship with Russia continue to grow strong. I think it's interesting in the first days after the Ukraine invasion, you didn't actually see Beijing jump to Russia's defense right away. I think it was making up its mind. And it's the same sort of pattern that you've seen post the conflict between Israel and Hamas and what you're seeing in Gaza. China doesn't jump right away to sort of make a decision about how it feels.
I think it's still trying to figure itself out and figure out what is the foreign policy statement that we should make about this. And we can get into that in the second part of this answer. But to go back to Russia, that relationship serves as a bulwark to the United States because it makes Beijing feel like it's got a powerful companion that is going to go up against the US with it. China on its own is in and of itself a strategic concern. A rival competitor
to the US. China with Russia is even more concerning for the United States, so I think it provides it a little bit of security. The second part of this
is is China ready to be a global diplomat? And I think yes, it wants to be, but it doesn't necessarily have the foreign policy infrastructure that other countries have had because it hasn't wanted to get its hands messy and get involved in some of these geopolitical struggles that you've seen countries like the US do you know, it has a long history, obviously with lots of flaws in
the process. But the problem for China is that on the one hand, it says it is this rising superpower, it is emerging as a global power, but it hasn't had the experience or the foreign policy capacity to be able to get involved in complex regional or global issues beyond providing solutions like we should have a two state solution, for instance, in the Israeli and Gaza. And I think that's going to consistently be a problem for China as it tries to navigate this role of global diplomat.
The future surely you perked up during that little conversation I was just having with Kurashima. Tell me your thoughts on the exact same thing.
I just think people need to know that Hijinping's Joe political also over the United States really has taken its toll on the Chinese economy. I was just in Shanghai two weeks ago. You know, when you enter the Pudong, beautiful, big put On airport, you don't see international rivals. Now we're in Tokyo, there's so many foreigners, Americans, you know,
people from everywhere in the world. And two weeks ago, when I was in Shanghai speaking to friends, you know, they just say, have you noticed Shanghai has very very few foreigners left? And then if you really look carefully, they're the wrong kind. I was like, what do you mean they're the wrong kind? They said, they're white Russians. Literally, it's true. Like in Pudon, at the Mandarin Oriental at Risk Carton, if you look at the elevator, people going up and down one sing in a while, you see
like a foreign face and they speak Russian. A lot of private entrepreneurs they're very, very concerned about that. I mean, I agree with them, Like Shanghai these days feel very very insulated, like it's all Chinese people and maybe one in a thousand that you see a foreigner, and that feels like late nineteen eighties Shamghai, you know, like it's very very different.
Yeah, this is an easy segue into the last question, and I wanted to ask both of you, but I always like to ask people at the end of the show, since the show is about learning moments and what we can learn from epic collisions, what have you learned if you look at China over the last couple of years and all of the stuff that has surfaced in the economy and in its diplomatic relationships, What have you learned that you didn't know before? What has been sort of a signal sort of aha for you?
I think shi Jinping's administration is not as efficient as the previous administrations, and that China is growing up, but it doesn't know where it wants to go the next.
I think that the world is trying to come to
grips with this new China and the shi Jinping. I think for me what really showed me the difference was COVID actually and how China managed COVID under Shijinping was the turning point, the sort of a ha moment for me about what kind of China we were going to see next, Because up until that point we had seen Sijinping go out to the Davos's and speak at big international conferences that seemed to be implying that he was going to consistently take China down a route which would
be palatable to the global economy and the sort of global geopolitical dynamics. But for me, it was COVID that sort of made me think, this is something different, the way that he managed COVID and how China's come out of that.
We've run out of time, Karishma, will you come back again sometime and converse about all this stuff again?
Sure?
I would love to. Shulely, thanks for joining us when you come back to Absolutely. Shuly Ren and Karashima Vaswani our Bloomberg Opinion columnists, and you can find their work on the Bloomberg Opinion website and on the Bloomberg terminal. Here at Crash Course, we believe the collisions can be messy, impressive, challenging, surprising,
and always instructive. In today's Crash Course. I learned that my own gloomy outlook about China that a hardening of sides between the US and China may not be as inevitable as I once thought it was. What did you learn? We'd love to hear from you. You can tweet the Bloomberg Opinion, handle at Opinion or me at Tim O'Brien using the hashtag Bloomberg Crash Course. You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.
This episode was produced by the indispensable Anna Maserakas and me. Our supervising producer is Magnus Hendrickson, and we had editing help from Sage Bauman, Jeff Grocott, Mike Nize and Christine Vanden Bilart. Blake Maples does our sound engineering, and our original theme song was composed by Luis Gara. I'm Tim O'Brien. We'll be back next week with another Crash Course