Richard Koo and Zichen Wang on What Just Happened in China

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

we've seen some signs of maybe more fiscal stimulus. And 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, 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.

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 what the goals are. Yeah.

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 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

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?

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.

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.

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

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

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 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 Japanese did thirty years ago with what China is doing with its share prices.

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

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.

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 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 borrow and spend the money, because that would be the most effective way to stop the deflationary spiral.

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 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 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.

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

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.

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

more salient now? Are lots of people reaching out to you from China.

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.

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. 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 spend revenue.

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 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 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 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 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 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

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, 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 to the private sector, ended up going to our government

bond market. And I see the same pattern developing in China today. Right.

basically crack down on that entire sector and make it very very difficult to operate the business.

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 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 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 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. 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, 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 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, 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.

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, 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.

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

So don't worry about this problem. Fix your balance sheats and want your balance seats fixed, Come and stop making money again.

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.

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 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. 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. 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 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 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.

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

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 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.

that sort of thing. It's not that different. But then 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.

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. 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 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, 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 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 for quite a long time, but it didn't come, so suddenly it can.

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 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.

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 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. 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 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 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 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 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.

that's obviously not true. And for example, probably many people 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. 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 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 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

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 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. They would send the signals and the local governments will digest the signal and then make their own decisions.

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 somehow comes out of Beijing.

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 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, 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 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 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 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.

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?

for example, environmental degradation. So a few years into his ministration, 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

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, 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 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.

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 made to respond to the needs of the public.

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, they know what you know, Financial Times and Bloomberg are reporting. They are aware, you know.

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, 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 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 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

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 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

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

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 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 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 still very clear. It's like technology build up.

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.

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. 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 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 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

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.

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.

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 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 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 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.

That's a lot of consumption potential over there. So I 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, 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 there can be a lot of opportunities. So yeah, there are still a lot of things to be done.

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 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 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 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 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. 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, 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 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.

And then secondly, what are you watching in terms of what's next and what could be significant?

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 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 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, 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, 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 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 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 be the president of the United States.

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 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 watch for and also sign up for my newsletter.

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 the real estate sector, there was just this moment that had to pivot.

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?

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, 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.

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