Hello, and welcome to another episode of the odd Locks podcast. I'm chill, Why isn't and I'm Tracy Alloway, Tracy very weak economic data.
Out of China. Yeah, to put it.
Start starting very directly now, The data has been very weak.
I have a collection of paraphrased headlines here. So we're recording this on August sixteenth, and we just saw an emergency rate cut from China. They also announced that they would stop publishing the urban youth unemployment rate, which is never a good.
Sign when you just announced that a certain data right that people have been tracking for years suddenly will not be published anymore.
Yet exactly and a particularly politically sensitive data point two, Retail sales are coming in extremely weak, so rising less than three percent a year. They used to be in double digits. We have deflation setting in which is something we spoke about on the episode we did with Richard Ku. Manufacturing is contracting at exports are falling, the un is dropping against the dollar. Bank loans at a fourteen year low last month.
Camera.
I did. I Yeah, I know it's surprising, but I did.
Actually, I'm not surprised, I'm friend.
I did actually put together the data points because they're so startling. And again, if you compare it with all the excitement from earlier in the year about China reopening, the end of COVID zero, there was this expectation that China was going to end up being a positive catalyst for global growth this year, and instead we are potentially seeing the exact opposite.
Yeah, you bring up a good point. I think one of the theories is that there would be this big inflationary impulse globally from the China reopening, demand for steel, demand for various metals, obviously, demand for oil and gasoline, and that hasn't picked. You know, there has been this pretty mild, sort of mediocre reopening. It has that global shockwaves of anything people are talking about exporting deflation or disinflation.
And then on top of all of the sort of like economic weakness that you bring up, there's also the sort of like financial market weakness. So there was just a story today about one of the companies that sell
some of these wealth management products missing payments. There's obviously, I think it's a country Country gardens, the big developer running into a lot of trouble similar similar to the weakness we've seen in China evergrand So to your point though, just this sort of slew of negative headlines.
Well, also, I think clearly there is concern that if you get real economic weakness in China that could lead to something bad for the global economy, just in terms of real business activity. But I think there's also this financial channel that is probably the one that's likely to be the most problematic.
So if you think about.
China as in many ways a giant hoarder of financial assets, the big question now is what are they going to do with those financial assets. Do they have to, for instance, start selling off some FX reserves in order to support the UN Are they maybe going to buy fewer US treasuries? So I think that is definitely one aspect of this that is really worth exploring.
So many interesting elements right now we have, so we have to dive deeper into what is going on right now with the Chinese economy and what types of policy response is we might get or we might not get there. I always see, you know, there's like a furious debate always on Twitter. It's like why don't they just why doesn't the government just give more money to households, sort of like the Richard Ku conversation, the sort of you know,
got to boost domestic demand, what's the reluctance to do that? Like, all these sort of different questions, So I think we really need to dive into them further.
Let's do it.
Well.
I'm very excited because I think we have the perfect guest to discuss this. We're going to be speaking with songmans Zoe lu. She is the Maurice Greenberg Fellow for China Studies at the CFR, and she is also the author of a new book, Sovereign Funds, How the Communist Party of China Finances its global ambitions. Thank you so much for coming on, Lots.
Thank you Joe and the Chasy for having me. And I'm a big fan of the lots.
Very very kind of you to say, you know, why don't we just start off like super simply in your view, why hasn't China seen a more robust recovery since the lifting of the COVID restrictions?
Well, I would say that actually I have always been a contrarrian.
Oh good, I like this already.
I you know, if in November last year, I put out a piece on foreign policy basically made an argument to say that the zero COVID is the least economic challenging problem that present decision ping was facing that day, and even the party. In this case, it would be the party. And even if the party decided to read to remove zero COVID policy the next day, the economy won't rebound sustain a robust to rebound very quickly. Hu. And the reason it comes from what I characterize as
the four d's demand that demographics and decoupling. At that time it was decoupling on now is the.
Risking this is great, the four d's.
I think it's like the four d's of the apocalypse.
Yeah, no, that's really I feel like if you want to like have your thing, that's like a really demand debt, demographics, undecoupling. I'm writing these down, So this.
Is exactly what I wanted to ask you, because I remember even in twenty eighteen, twenty nineteen, there were concerns and a lot of discussion about a slowdown in China's economic growth, and then COVID happened, and we sort of forgot about a lot of the structural issues that we had been talking about, and then lo and behold, in twenty twenty three, it feels like a lot of these structural problems are coming back to haunt the Chinese economy.
Can you dive a little bit further into what those issues are?
Yeah, sure, I would argue that a lot of these structural problems exactly as to what you were describing, Tracy, it seemed that during COVID, we were from both inside China and outside China, we were overwhelmed by the sudden pause of the economy because of the shutdown factories and all that, And it seemed that temporarily the pause of the economy covered up the structural problems that had been
embedded into the Chinese economic growth model. And then once the Party suddenly exit the zero COVID policy, given you know, the consumption pattern that we have observed here in America or in Europe, people started to realize, oh, okay, so this is a one point for billing market and people are going to spend, and that would be powerful and inflationary, you know, but you know, short term revengeful expenditure would not necessarily overcome the long term structural problems that have
dragged the Chinese economy, even just from GDP terms. You know, if we think about the Chinese economy. There are different ways that you can argue that the Chinese economy has picked. I mean, I'm not necessary that category. But if we just imagurate from GDP perspective or in terms of export as a percentage of GDP, the Chinese economy already picked.
You know, China surpass the Germany back in two thousand ten to become the largest trading of the largest exporting economy in the world and has at its height export as a percentage of GDP was about thirty percent and has since then plateaued. And the decrease right now is about twenty something percent. And if you think about GDP growth, the double double digital growth period already ended. So from that perspective, what we actually observe goes back to the forties.
The problem with demand is not necessarily at you know, I'm not talking about the ultimated demand. I'm specifically talking about the house the consumption component of demand for a long period of time. You know, yes, you can, we can make it the argument to say household consumption as a percentage contributing to the Chinese GP is you know, is about forty percent. Yet it has been low and you know, global average I'm not even talking about you know,
the OECD level. I'm talking about like a global average it's about sixty percent of a GDP, whereas the Chinese forty percent. We can make it the argument to say, well, the China household consumption has been a drag on the Chinese economy. However, up until twenty twelve. By the end of twenty twelve, actually household consumptions contribution to GDP growth at least has been on an upward trajection. In other word,
the growth of household consumption has been positive. You know, you see Chinese people do discretionary vacations and all that, but that has changed since two thousand thirteen. And if we just actually in between Presence Jimping's two terms, the second term was even worse than the first term.
So let's go further into that. A, why has it gotten worse? And then b you know, there's all this talk it's like, why don't they just do household stimulus? There's some version of that, and people are sort of bemused, maybe is the word. It's like, why isn't the Communist party more willing to extend support directly to the people, and you know, rebalancing things a why did it get worse?
But why is there this reluctant to do something like what we did in US just sort of print money and give it to people.
You know, Joe, that's an excellent, excellent question. You make me think about the why aspect of it, right, yea, So fundamentally, ber are I would argue about it. There are two aspect of why there has been a decreasing household consumption. The first one is, obviously you can't empirically observe from the data, there has been a decline in household income growth and household income growth up until President.
Before President came to power, household growth was income growth was significantly faster than after he came to power, and his again his second term was worse on average than his first term. So that's one aspect in terms of income household income growth. And then the second aspect of it would be household balance sheet detioriation. And a lot of this comes down to housing market property value depreciation
because of control on real estate policies and all that. Now, the reason why beer has been a reluctant in terms of stimulant basically provide stimulus checks to Chinese household it's not that Chinese economists have not thought about that option. You actually do see people do that on Chinese social media when they realize that, oh, you know what, my cousins in America be just a lineup, become just a lineup or waiting their ho and then male would come in,
you know, stimulus check. You know some students were even getting stimulus check. And then the problem becomes well, historically there has not been this kind of president, but no president does not necessarily stop the government from inventing one. Right, And the deeper problem, I would argue is the politics. The politics simply would not necessarily work. Part of that
is because empowering. This is probably deeper in the Chinese political philosophy in the sense that well, you know, it's a depending up on how which political scientists or political economists you are talking to. Some people would say, oh, you know, Chinese system is authoritarian capitalism or fragmented capitalism
or fragmented authoritarianism and things like that. But fundamentally, what we observe is that the Chinese economic growth model has been built upon financial repression, and at the center of the financial repression or the Chinese banks and who controls the bank is essentially the Chinese government led by the
Chinese Commedies and Party. Yeah. Other word, the Chinese commedies to Party has always been at the center of a capital allocation, and by empowering the household or for that matter, the private sector, it basically dilute or potentially remove their relevancy.
Interesting, this is exactly what I wanted to ask you, and I just did a thread on Twitter that made a similar point. But how much of this is a political economy problem in the sense that both on the business side and the consumption side, where we've seen the
Communist Party be sort of well be controlling in many ways. So, for instance, on private business, we've had the property crackdown, the tech sector cracked down, and that would apparently seem to perhaps make people more reluctant to do their own startups and things like that. And then on the household side, it does feel like you have a reluctance from the party to sort of empower the individual at the risk of losing some of their own power and perhaps the collective power.
I am a political economist, so I would argue the answer is yes is yes, you are rights and from an intellectual perspective. I do think this is a political economy problem, because if you look at the history of the Chinese economic growth since nineteen forty nine, it's not that the economy has never experienced shocks. Actually, the Chinese system experienced a lot of shocks from even in the
nineteen fifties. You experience the Chinese economy experienced the Great Leap forward, and when the Communists took over, they also destroyed a lot of the banking systems in Shanghai and elsewhere established by the Perierlist. Right, So, and then there was also revolution and all that, but then there is also the sudden stop of the cultural revolution. In other word, the Chinese economic political economic system a is not short
of crisis, or for that matter, man made crisis. And secondly, the Chinese political economic system was also not unfamiliar with sudden reverse or sudden policy corrections. And what that means for today, that basically means the growth, the rapid growth of the Chinese economy has fundamentally been led by the government and the party, and it's just a degree of party state involvement. Now if we think about the rise of dnaping. He corresponded to the rapid rise of China
and all that. But if we remember what actually made China, the starting point of China's rapid growth was not necessary. Yes, it was nineteen seventy eight the clear signal that Chinese reform and opened up. But then there was a Chiamen and the China was put under sanctions and all that. And then nineteen ninety two he made this famous southern tour. You know, he toured Shinzen and all those places, and he gave a clear signal during his speech when he
was touring the south southern part of China. And I was just recently revisited his speech, so I remember, this is something that I learned very recently. This is why I read his speech so many times. So he cited this one example, this rich person. Apparently he was one of the if not the earliest. He was one of the earliest Chinese entrepreneur to make one hundred million um.
He was the founder of this sunflower seed company called Shasguas or idiot sunflower seed when idiots the sunflower seeds yes or food sunflower seeds shats guads.
And name.
At that time out of jealousy or some other or other reasons. There were some voices among Chinese people or policy makers to say, this guy becomes so rich, we need to take him down. And in his in his speech, don't some things that I'm aware of, these kind of recommendations, but we cannot do that. He stracked it down. And the reason he also explained why he the party cannot do that. He said, if we punished him, that would send a terrible signal. It would make people think that
we changed our policy of reform and open up. And there are so many instances that we can do things and make people think we changed our policies, and we cannot do that. So from his perspective, you know, the part the big risk, as he charakrized it, is to make mistakes to make people think that we changed our policy.
Can I ask sort of I don't know, maybe it's a devil's advocate question or I don't know how to characterize it, but you know, obviously there's this big household debt overhang that you're talking about. It seems from the outside, and it seems from any commenters like a pretty unhealthy real estate market in terms of the level of UH speculation,
the level of costs et cetera. It also seems as though the government would like to sort of find a way to get out of that trap where like so where it's not all about, you know, not everything revolves around the cost of housing or buying a new apartment.
Is there an argument to be made that stimulus direct to households today under the current economic structure would just sort of further fuel a real estate bubble or real estate demand, and that until the sort of domestic economy has shifted in some way more such that it's not out of that dynamic, that it doesn't make sense to boost demand for those reasons.
First of all, I would say household demand for properties or for housing in China is on a perpetual decline for two reasons. The first reason is that from empirical data, we can't observe that China's urbanization rate has picked. And secondly, demographic goes back to one of the four the.
Third year demographs demographics.
As of last year, Chinese population growth for the first time declined, and there are some numbers saying that actually now India's population is more than Chinese population. So from the it's not just the population decline on its own is not necessarily causing an immediate shock or negative shock on housing demand, but is actually the lower family formation rate and the idea that people, for whatever, for cultural reasons, is very expensive to get married for fancy you know,
banquet and all that. But you know, it's also very expensive to risk kids in China, especially in big cities. So from that, so those are the two structural reasons why demand for housing is on a perpetual decline in China. Even if the government gives simulus checks to the Chinese household, in the current mix of policy environment, I would not necessarily be confident that the Chinese household are going to a b incentivized to spend or be think that this
is a good time to buy house. And the reason there are two reasons. The first reason is negative confidence shock and the second is a deflationary policy environment. And the negative policy the negative confidence part of that comes from you know, people's material feeling up that their household balance sheet deteriorated, as being filed by the Chinese people as well. You know, I can impurely observe the value of my house went lower, and yet I am still
paying a lot of mortgage. So you see, well, there is early mortgage payment which the banks is not the banks are not happy about it. And then on the other hand, as the Chinese GDP grow slows down, you know, three percent last year despite record a high export last year. And then on top of that we see the move out or the redistribution of global supply chains and international multinational multinationals become less you know, bullish about the Chinese
market than you know, high paying jobs being there. There are less high paying jobs being created, so Chinese people becomes like, well, wait a moment, I don't think I'm going to make more money. Therefore, they are not going to be a sign to spend. They are going to be more incentivized to save. Not because of good environment, about because of lack of confidence and then deflationary policy
environment is because people are waiting. Well, it seems that as fround the beginning of this year, the government has put out so many policies to incentivize people to spend or for that a matter of support the housing market. And there is this popular saying if you don't buy, if I don't buy, the housing price persone meter next week is going to be cheaper by two hundred again.
So everyone weighs on strike right to try to get a lower price. I think this is such a good point because historically a lot of Chinese growth has been driven by infrastructure investment and housing, and it feels like infrastructure has kind of run its course. China does have a lot of great infrastructure right now, and at the same time, housing the other sort of twin engine of growth. There are a lot of doubts about it, as you just like out perfectly. I want to go back to
something you said earlier. I've never heard anyone phrase it quite like this, but I think it's absolutely correct, the idea that the Chinese economy is sort of predicated on financial repression and that introduces inherent limitations in a situation like this. Can you talk a little bit more about how you see that working.
Sure, you know there are so many people talk about financial repressions, and obviously people you know, Tracy, you are absolutely right. A lot of infrastructure and housing have been the twined growth engine for the Chinese economy because they drive up aggregate demand and they also drive up global
commodity prizes. And to say that it's not that the China built too much infrastructure or for the matter too much housing is that the over built it to the extent that if population growth, population keep growing, or more international companies move into China, or there are more demand for factories because of entrepreneurs and all that growing supply growing demand. The whole idea is, this is the Chinese policy maker's mentality. As long I build it, as I
provided the infrastructure, they will come. Right. But now the problem is international companies are not coming for a variety of reasons, and a lot of the reasons goes back
to my quote about dun shaping reasons. The Chinese leaders have simply made policy choices and policy decisions, created a huge uncertainty and signaled even if they did not have the intention, but at least from our observation, they created the signal that perhaps the Chinese government or the Party changed their policies with regard to reform and open up. So a lot of these boil down to yes, you know, the Party is still very much out of the center
of capital allocation. Ye. In this whole idea of financial repression, this whole idea is to use high savings that Chinese people tend to save, and these high savings is being channeled through Chinese banking system. And you know, the two the four biggest banks are stayed owned and through lower depositors saving rate, lower depositors rate, they are able the banks are able to lend cheaply to support state owned enterprises or channel credit to sectors that are prioritized by
the government. And it's many people you know who follows China, especially stayed on enterprises. They are familiar with this idea of the government has these guidelines or government guidelines for prioritized prioritized sectors. Every five years or so, they would update it, right, you know.
So we've talked about household demand, We've talked about debt, talked about demographics. There was actually a headline just yesterday and Reuter's China's fertility rate drops her record low one point zero nine into.
The one headline I left off.
You had to save one for me. I appreciate that, which is so obviously still going, you know, in the wrong direction. And I want to talk about, you know, the actual topic of your book. But I think maybe there's the fourth D in your four D framework, the decoupling, and so obviously I mean, I think there's some like sort of intuitions like okay, like US or global multinationals
maybe like less inclined to invest in China. Obviously the sort of growing trade tensions that started under Trump and really have continued or maybe even ratcheted higher under Biden. But how do you think of that we're decoupling? What does it mean to you?
Like?
How do you how would you define it?
Honestly? I felt decoupling at the individual. First of all, Joe, I appreciate that you asked me, you know how I feel about it? Because people have people are very confused about what is decoupling or what are talking about the risking and there is actually no formal definition about what they are at a personal level. The moment during COVID, the moment I realized I cannot get a plan from New York to go back to Shanghai or Beijing. For me,
that is a sign of decoupling. And right now there is, if I am correct, there is still no direct flight between New York and Beijing or Shanghai, and the flight right now, I think there are concrete policies that you know, the concrete initiatives in the evasion industry between US and China and to increase the flight, but still very below pre pandemic level. So what we are we can concretely
observe less and the less people to people communication. And from economic sense obviously or political economy sense, decoupling obviously means or for that you know right now we're talking about the risk is very much a Western term if we view it from China or Chinese as a maker's perspective, because this is the term that they condemn a lot. You see Premier Letiang in the China in the summer, devils intandians that you know, decoupling is a terrible idea,
is a false prefaces and all that. But decoupling really, I understand it from the perspective of supply chain diversification. The idea really is really not about getting rid of a China simply because of China is on every part of your supply chain, How could you possibly get rid of China? Right, But it's really about not being overly reliant on your one simple supplier. The whole idea of you know, eykon one on one used to be economy of scale, but now economy of scale become a risk.
Huh, that's what that's very well put economies of scale becoming a risk.
So why don't speaking of scale, why don't we talk about the sovereign wealth funds? Because when you look at the numbers of something like CiCe, I mean they're massive. With China, numbers are almost always massive. The accumulation of this wealth and the fact that it is held by these public investment entities, what does that mean in times like this? China has you know, billions, possibly trillions of dollars worth of FX reserves. I can't remember the exact number.
I think there's some debate over it now as well. But could they tap some of those assets to provide support in times of economic slowdown?
Tracy, that's not excellent point. In times of economic slow down, I would say there are opportunities, But in times of economic crisis they have done that before. And actually China's summer funds initially was not created for geopolitical or geoeconomic
aspiration power projection. It was created out of crisis. The very first time that the Chinese policy makers used foreign exchange reserves was to recapitalize the Chinese banks in the early two thousands, when the major Chinese state owned banks were crippled by non performing loans. At that time, some of those banks were suffering from at non performing loans as high as higher than twenty or twenty five percent, so by definition they were actually they were, you know,
non solvent. So at that time they decided that they created this special policy vehicle called Centraligin and used function reserves through Centralkuigan to recapitalize these Chinese banks. They have been quite successful. Therefore, when there were a few I think it's around twenty fifteen if I remember correctly, there was this baushining Hun crisis. It's another medium sized bank crisis in China, and a lot of confusion at that time. People were saying that, oh, you know, the central bank
is going to take it over. Actually it's not the central bank, it was a Central Oigian. And now when a lot of these bad loan managers, our bad debt managers are the so called assets stayed owned asset management the company, a lot of them are in trouble now and the idea is, I wouldn't be surprised, you know, Huisin is going to step in and take them under on its balance sheet because this is a well established channel that Central Cuisine knows how to do it and do it successfully.
Stepping back further, I mean, you know, a lot of sovereign wealth funds around the world. I associate with commodity real commodity export countries, so obviously the Norwegian Sovereign Wealth Fund one of the biggest, the various golf sovereign wealth funds, and they tend to be in large part about sort of currency stabilization given the inherent volatility of GDP and their ex channel. You mentioned, you know, the sort of
origin of them and the banking crisis. Broadly speaking, what purpose do they serve for China like currently sitting aside the current economic weakness?
Ah? Sure? In the Joe, I appreciate that you mentioned the origin of summern funds right, because a lot of this is sovereign so called Summer and Wells fund. In the entire universe of a sovereign Wells fund. As a Tracy mentioned earlier, these funds are massive, and the Chinese funds are actually see see I see alone it managed more than one point three trillion asset, which is larger
than the size of Mexico's GDP. And I think Mexico is like the world seventeenth largest economy or something like that, and China has more than that, so broadly speaking, despite that, yes, you know, originally these funds were the first time that China did. It was to solve a crisis. And then as China's reserve accumulation increased, or at least you know, Tracy was, there is a debate with regard to how we should think about the size of China's foreign exchange asset.
But if we think about if we think about foreign exchange reserves using IMF's narrow definition, China's foreign change reserve was at one point peaked at four trillion dollars. Right now it's plate held around three trillion, slightly higher than
three trillion dollars. And as china reserve accumulates faster and more, the debate in terms of how to better manage China's foreign exchange reserves started, and after President Being came to power, in particular, there has been a shift to strategically use the foreign change reserves to serve certain foreign policy agenda or to finance certain government initiatives, such as the creation of the Sale Cow defund to specifically advance or finance the belt hand the road initiative.
Right, So I remember Brad sets are recently just on the debate over the size of FS reserves. Brad Setster had a great piece of research about the possibility that maybe China has an additional three trillion dollars. I think it was worth of assets that aren't necessarily accounted for in official statistics. The idea being that if it hadn't channeled so much of that money into the Silk Road Fund or Belt and Road and programs like that, this would be an available pool of cash that it could
use for other things. What is the political appetite, I guess, to move away from using that money to exert Chinese influence in other parts of the world, buy up commodities things like that, built ports in Africa, whatever, versus maybe starting to channel some of it more domestically.
No, Tracy, that's accellent The point Brad and I wear colleagues, and somehow we have done independent research on similar topics and all that. His research has always been brilliant and uh and and as solid. His charts are fantastic, and sometimes I would question the color coding aspect of it, but but his charts are great. My estimation of the
size of shadow reserves or whatever you know. They are the assets foreign exchange assets that are not recorded on China's official foreign exchange statistics, would would be in ballpark in the same proximity to breast asthmate. And in particular for a lot of these assets managed by State Administration of Foreign Exchange. You know, it's established UH domestic and
international investment corporations. And my assessment of to what extent this would be used to solve to project power globally, I would say perhaps in the current global geopolitical environment, not so much. And the reason is because this perhaps is another point where China's policymakers tend to think differently in terms of economic or financial management diversification. It used to be the at least starting from two to seven
to two some thirteen. During this period of time, the discussion about diversification of foreign change reserves has been diversified away from US treasury is because the yield on US strategies was so low and an opportunity for US to hold most of our reserves in the US strateury is
so high. Therefore, we need to diversify in strategic asset overseas, such as critical minerals or guests or you know, some startup companies and all that, and certain people even put out agenda in terms of these are the six areas that we need to think about in terms of a strategic asset. But now diversification becomes a risk, you know, because diversification can not diversify away systemic risk, right and for China at this moment, systemic risk becomes being sanctioned
by the West. This is my assessment. Obviously, you know I did not get this from he or anybody. But given what Russian given the West collective sanction against the Russia, especially the freeze of Russian reserves, now you realize, well, who has the largest oarn reserves in the world. It's China. And where are most of the reserve invested or most of the assets invested or owned by sovereign funds. Most
of the sovereign funds investing in Europe and America. They are not necessarily politically aligned or geopolitically aligned in times of geoeconomic contingency such as Taiwan.
I think that's a very reasonable assumption. You actually brought up something that I wanted to ask you about as well, which is China's buying of US treasuries, and there is a sort of perpetual concern that one day China is not going to be there to finance the US deficit. I guess how realistic is that concern in an era where China is potentially worried about something like sanctions.
To be honest, I would I'm not surprised that the appetite for China to slow down or by less US treasuries has exist or has already happened. Part of the reason is because the conversation has already started in the two thousands, and the people already start. People already realized, well,
there is opportunity cost of holding US treasuries. At that time, the opportunity cost was purely in terms of economic But now the problem becomes perhaps there is also geopolitical risk, right the diversification, the diversification aspect of it, and then the other aspect of the debate comes down to, well, perhaps the China would not necessarily want to dump you as a treasury enlarge amount too fast, either because ultimately any volatility yin US a treasury market, or for that
no matter the depreciation of US dollar is going to inflict a huge pan on the Chinese Central Mexic balance sheet as well.
So I just have one more question, and this is going to be one of those questions. It's totally unfair because it's actually like incredibly open ended. We could probably do another hour on this, but like, you know, it's got to be like one question. But you know the title of your book, how the Communist Party of China or sovereign funds? How the Communist Party of China finances? It's global ambition. We've been talking a lot about the financing, but what are the global ambitions?
This is actually another episode.
I know it's a whole other episode because we are probably of a whole series of like, but I do think we should like touch on that, like how would you summarize the global ambitions of the Chinese Communist Party.
I think the global ambitions have changed and evolved over time. It used to be the case that from dun Shopping onward before up until twenty thirteen or the end of two thousand twelve, the global ambition has been growing the economy, raising out of the people's life standard and so that
the party can stay in power. And starting from Twosun thirteen onward, we started to see there is an inflation of the party's ambition, from the Belt and Road initiative to the building of shared human destiny, and a lot of these reside or resonates with the present. The current leader, President Jimpings, continue to search for great ideas and this
brings me back to Donaping. Don Shaping in his nineteen ninety two tour he said, it is okay for us to not have new ideas as long as we do not the change with our economic reform and open app policy. But right now the ambition seems to be changing, and it seems to be a moving target with regard to figuring out what exactly we are trying to do well.
I do think maybe we should at some point have you back for like an hour, just unlike how this is all changing and where it's all going and how it's evolving a song with Zoe lud This was a fascinating conversation. Really appreciate you coming on up.
Thank you both for having me and yeah, I'm a big thing.
Thanks much, Tracy. I thought that was great. I need to come up with something like the four d's of something just like I feel like it's like a calling card some big things like it's so good.
Well, I'm glad you asked that last question about the ambitions of China, because I think it hints at the fundamental tension here which and Zoe mentioned this, which is, for years the party justified its control by promising economic growth. So you have that social contract. But I think the difficulty now is what if that control is coming at
the expense of economic growth. You know, if we're talking about a lot of these difficulties are in fact a political economy problem, then I think it raises that question and becomes extremely tricky for the Party to actually navigate.
I hadn't really thought about that point before, about the sort of I guess I would say inherently decentralizing effect of more household demand, right that at some level, if households have more cash, if they're less financially repressed, et cetera, then at some level, like there's a limit of the degree of control that political leaders can have about that spending and where it goes and how that money is.
I hadn't really, like, you know, like I sort of had this conception that well, maybe for like domestic industrial purposes, you know, you know, you want to like prioritize the interests of certain exporters or certain certain industries. But just the idea of like an inherently like sort of like decentralizing effect is one that I hadn't thought about at all well.
And also it sort of highlights the importance of the public business entities in China. And this is something that I only realized from actually spending time in Beijing, which is, you know, a lot of countries have big government buildings or monuments of some sort. A lot of the biggest buildings in Beijing are the CIC and the other sort of state owned enterprises, and if you walk around the ring roads of Beijing, you get a real sense of
their sort of monumental importance to the economy. There is a there's physical evidence of it, which you can't really appreciate unless you see them.
The other thing that I thought was really.
Interesting was the idea of more need for diversification in order to offset the decoupling aspect that Zoe talked about. But again in times like this where you need more money to support the domestic economy, but at the same time you're worried about the external environment, and you want to diversify away from the US to sort of offset that.
That also seems really difficult to do so many interesting things. Also, can I just say I am now, I'm slightly obsessed with idiot melon seeds, and I'm going to go off and research.
I guess I was going to do the same thing.
Yes, excellent, All right, shall we leave it there?
Let's leave it there.
Okay.
This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
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