Isabella Weber on China’s Vision for Making Markets Work

like online education and video games and so forth. And we talked to Travis Lundie specifically about the stress to say the least, at the real estate developer developer evergrand But really it feels like we can't get enough of the China story. And I every time we do one of these episodes of My Head is just like filled with like a hundred more questions all China, all the time. I mean, both of those stories provoke some pretty big, sort of existential questions about China and its economy. I

mean specifically the crackdowns. Uh. You know, we saw a lot of people sort of scratching their heads and basically going, well, China built up you know this market economy, um, it built up it's stock market, it's technology sector. It's all supposed to be kind of um capitalist in style, and now it seems to be cracking down in a very um centrally ordered way, and what does that mean for China's market reforms? And then on the other hand, we saw a lot of people going, well, you know, it

was never that free market. It's always been essentially ordered economy, and this is everyone just sort of waking up to that fact. But I think there is a big question mark over where exactly the Chinese model is going right now. Yeah, and it kind of occurred to me, like there is

this tension. So one of these things. One of the things that Dan Wong points out is, Okay, China is like very keen to remain an industrial powerhouse, to be good at manufacturing, and of course that's been a theme of all the conversations that we've had with Dan, is like, you know, wants to be good at like hard tech and building a wide body or planes and semiconductors, etcetera. But on the other hand, you know, an ever grand

is sort of a perhaps a symptom of this. And I think that you coined the term the giant wall of money that just slashes around China, which is like, from at least from my outside perspective, the Chinese economy is whether it's real estate or people at home trading like iron ore futures. It's an economy that's like it's riven with speculation, right, hugely financialized, I think is the

right word. So like, on the one hand, yes, they want to make things, uh, Dan spoke about this idea of the German model and getting closer to you know, high quality manufacturing. But on the other hand, it seems like there is a lot going on in sectors is real estate, construction, UM even banking, finance, fintech. Some of the biggest companies in China of course have UM financial payments arms as well. So it just feels very financialized

and sort of abstract at the same time. Yeah, and I guess the last thing I would say about this is putting it all together what we've talked about so far, like and this is gonna sound sort of like trite. Maybe it feels very real, like you know, it's always you know, I feel like over the last several years news out of China it's like, Okay, you know, they're gonna they want to tamp down on real estate speculation, or it's like are gonna make it harder to buy

a fifth home or whatever. It is something about this moment feels extremely real, as in, let's take a turn in a different direction. And I don't know if that's true, but the combination of things, the letting, letting ever grand get to where it is, the effect that that is likely to have on the real estate sector, it feels like, um, this is a this is a pretty big moment. Well.

I think also when you wipe out billions of dollars worth of market value on some of your biggest companies through the crackdowns, that tends to focus people's attention quite a bit as well. Exactly right. So I want to understand further where China is going, what its goals are, how it understands the sort of how it sees economic management. So I'm very excited about our guest today. She is the author of a new book. We're gonna be speaking

with Isabella Vabor. She is an assistant professor of economics at the University of Massachusetts Amherst and the author of the book How China Escaped Shock Therapy the Market Reform Debate. This book is getting a lot of praise taking a big sweep at the big historical look at China's approach to liberalization, or how it thinks about capitalism and markets. So maybe the perfect person to contextualize this moment right

now Isabella. Thank you so much for joining us. Thank you so much for having me on this so so and crazy and it's a great privilege and honor to join you today. Very very kind of you to say, you know, let's just start, like, Okay, the title of your book, how China Escaped Shock Therapy, What does that mean? I mean, I guess I have some sense of shock therapy in the development contexts, the idea of like we're going to rip the band aids off, the nationalize all

the industries, free trade. Obviously China hasn't done that. But why is this the lens that you've decided to take to sort of like understand Chinese capitalism? Yeah, thank you. That's a great question. To go back to the ninety eighties to understand what's going on with China today is

a somewhat unorthodox decision. But at the same time, in the context of the increasing talk around the new Code War and so on, I think it makes sense to go back to the end of the previous Code war and to go back to the initial decade of market reforms in which I think to some extent China's approach to marketization and its basic state market relations were shaped. Now,

why to focus on shock therapy. In the eighties, shock therapy was a policy doctrine that really swept the word in some sense, even the Foker shock can be thought about as as one form of shock therapy. But more concretely, in the context of the transitions from socialists or communists or whatever you want to call it economies to market economies, that kind of was the policy choice of the day.

This was technically speaking, a policy package that was composed of four elements, that is, price liberalization and macro economic austerity as the first two elements, which taken together is considered the big bank. Where the idea is that liberalizing all prices helps you to get prices right, and then imposing microeconomic restraint helps you to keep the general price

level under control. Then this was meant to be complimented with trade liberalization to integrate the economies into the global market, and with privatization to basically lay the institutional foundations for a functioning market economy. Now, even the most diehard shock therapist thought that privatization was a slow and complicated process of rebuilding institutions, so that the most shocking element of shock therapy was really price liberalization and market economic austerity.

So much on the technical composition of these policies, but I think in a more broader sentence, the idea of shock therapy and encompasses the idea that you have to create markets by having the state withdraw from the economy and basically by destroying the plan to make space for markets to emerge spontaneously. Now, we think of China's state as UM very powerful, and as the recent episodes have showed,

UM continuing to be incredibly powerful in the economy. Right, so we tend to think that gradualism, experimentalism, pragmatism are just inherent in China's approach, and therefore this is just like somehow what China does, which to some extent is true.

But by going back to the nineteen eighties and to the struggles over market reforms, I'm kind of complicating this story by suggesting that in fact, in the first decade and to some extent throughout the reform period, that we're alternative ways of thinking about marketization and the idea of shock therapy or the basic idea of needing to have the state withdraw from the economy in order to create functioning market economy was very much present in China, um

and in many ways has been a position. It has been advanced throughout the last decade. Could you maybe talk a little bit more about how what you just described, you know, the market reforms of the eighties under Dang Shao Ping, how those actually stacked up against the socialist philosophy that was prevalent at the time. Because again, I think this is I believe Joe mentioned this in the intro, but this is sort of one of the tensions that

people struggle to understand in China. On the one hand, it's a self professed communist state that's trying to take care of everyone and wants to centrally direct resources. But on the other hand, certainly in the nineteen eighties they were talking about price liberalization and other types of things that one wouldn't necessarily associate with that kind of socialism. Yeah,

great question. Um So I think to understand what was going on, one kind of has to go back to the late nineties seventies and ask oneself where was Chinese economy and society yet at the dawn of reform, and I mean this is a moment um. A couple of years after Male's death in nineteen seventy six, the count revolutionists clearly all for people who have been leading the

Kaich Revolution arrested. But in addition to the failure of the idea of continuous revolution and ever more communist forms of political organization and mass um mass mobilization during the Kaich Revolution, there's also a failure under a mouse dedicated hair Hua film, which is a failure of a renewed attempt at big push industrialization. Now, a big push industrialization in some sense was the Stalinist kind of idea of

planned industrialization. In that case, there was a big ten year plan, and the idea was that China's catch up ambition could finally be realized in this ten year plan. That ten year plan failed quite dramatically, basically because of reasons that in some sense are quite timely, which are

in the seventies. China was finding quite substantial petroleum resources, and the basic plan had been to export petroleum and then import um international technology know how in capital goods and then basically achieved rapid planned industrialization but fueled with foreign knowledge and technology. Now, the projected petroleum findings were not forthcoming, so that by the late seventies this model had very quickly run out of steam. But China was

still a very poor country. It yes, it had achieved basic industrialization, advancement, its public health, infrastructure and so on during the MAOIs period. Nevertheless, just to give you a sense, the GDP per capital in China in night was still less than that of Sudano Haiti, So we are really talking pretty severe poverty for large parts of the country.

So there's a sense of we need to redo the economic system in order to um to move forward, in order to realize the ambition of the revolution that was not only about creating a non alienated society and all of that at least like big political ambitions, but it

was also about making China escape from backwardness and poverty. Right, So in that context, there's basically re orientation in the understanding of communism and socialism, where the idea is that under Mound China had tried to achieve two revolutionary forms of um of organization without having the material foundations in place. So ifone goes back to kind of orthodox historical materialism or an orthodox reading of marks understanding of the development

of history. Then there is a sense that the social relations or the social organization of society should, to some extent plays correspond with the material foundations of society. Right. In other words, you cannot leap from a medieval agricultural

society straight into for communism or something like that. Right. Um. So in the late seventies there is basically this huge ideological shift where the idea is that in order to lay the foundations for socialism and the future UM, China had to backtrack on socialist organization in the present and had to quote unquote make up lessons from capitalism in order to lay the foundations the material foundations that economic development foundations um Um that that would be necessary in

order to achieve um higher forms of socialist organization or maybe even in the very long run, eventually some form of communism um in the distant future. So as such, the socialist ambition has been um in some stence postponed to some future date, which then raises a question whether this applies that it has actually been given up. So this actually no, this is great because this sort of gets it where I was going to go with the

next question. And I think if you like talk to people about China, there is this assumption of a linear trajectory. And I don't mean experts, I mean just sort of

like general commenters, people in business, etcetera. That there is this assumption of a linear but perhaps slow trajectory towards something that looks like a fully liberalized economy, a liberalized capital account, an economy in which they're understanding the Chinese understanding of IP laws are roughly similar to what they are in other they're developed economies, an economy in which foreign foreign companies can more or less do business at

the same level, the same plane field as local companies, And obviously China is not there, but it's a sub sort of like, Okay, this ongoing process of liberalizing step by step and so forth in one day, maybe that's where China get to. But you know, it seems like both like what you're saying and also what we've seen with some of lately is maybe this assumption of a straight line liberalization on a slow It's definitely not shocked therapy,

but a straight line liberalization. However, slow may just be the wrong premise to begin with. Yeah, um, so the subtitle of the book is the Market Reform Debates, right, And it's really about two competing understandings of how market

economies work. And one understanding of a market economy is that basically there's one model of market economies which is pretty much what we think of as best than market economies, or a form of market economy that can more or less capture with one economic model, so that marketization basically means moving towards one kind of fully liberalized type of market economy, right, which is basically in line with what you just said, and which is in some sense the

underpinning assumptions of the most extreme case that is shock therapy. On the other hand, the idea of experimentalist gradualism that ultimately prevails in China. These markets not as the goal in itself, but these markets as a tool in China's own process of transformation, where they are bigger political, developmental, economic, social goals in which the market can be used to serve China to move towards the implementation of these goals.

But marketization is not a goal in itself. Now, that of course always bears the potential that if you I mean, if you pursue the second approach and you have intense marketization, it always leaves open the first approach because as you get more markets, markets take on their own dynamic they I mean, powerful interests are created and so on. So in essence, I think that China did try to pursue the second approach in the nineteen eighties, but the challenge

from the first approach kind of has been there all along. UM, and the understanding of commentators of what China is doing has also often been primarily guided by the first idea of marketization being basically the same as for liberalization being the same as bestinization. So using maybe the second framework and the idea that you touched on earlier of China sort of having to postpone some of its socialist goals

in order to get the market reforms under way. When you see what China is doing now, when you look at the various crackdowns, um and things going on, I mean, there have been so many headlines over the past few weeks, but there's certainly been a lot of statements about creating a more equal society, making sure that you know, education is a priority and parents don't have to necessarily spend a ton of money in order to um secure their kids education. There are a lot of socialist principles that

are running through some of these crackdowns. So I'm curious how you're viewing that in the context of your historical framework and whether or not it is maybe like the long awaited return to Chinese socialism. Yeah, well, I'm I'm not sure if I can decide, but it's the big way to return to social that's fair enough, But I

can't try to provide some some historic perspective. So part of that second approach to market ice station was also to start from the non essential parts of the system and basically create a market dynamic in ways that allowed the state to keep control over the core parts of the system. So keep control over the essential strategic industries, keep control over, if you want so, the commanding heights of the economy. So there is a sense that your

unleash market dynamics at the margins of the system. But then eventually, if these margins actually become core of the system, then there might be a re calibration of the relationship between the state and the market in these areas. So if you take for example, private tutoring, as long as private tutoring is just something that a few elites relying on in order to make sure that their kids get into the right schools. Then this is maybe not socialists,

but it's a marginal phenomenon. When it comes to a point that private tutoring becomes so important that basically all middle class families fear that without private tutoring, their children have no chance of passing the university entrance exams and basically have no future, then suddenly private tutoring becomes part of a very essential element of the economy and society.

It becomes an essential part of the education system. So I think that to some extent, what we see what these crackdowns is a redefinition of the relationship between the state and the market, as some of these sectors that used to be much I have crossed the line towards becoming really essential. This is I think similar with a lot of the e commerce platforms. Where as long as this is just a bookshop for some second handbooks, then

it's a kind of really secondary, right. But once this becomes the main form of retail, as the pandemic has illustrated quite dramatically, then suddenly this is a platform that is basically running the retail economy of the country. Right, So from that perspective, I think we can, i mean, maybe make sense of why in certain sectors there is such a regaining of control that of course does not

explain the timing and why it's happening. Now, this is more like saying okay, kind of fits in a more general pattern, but it's it's it's not predictive in the sense that we could have said okay, therefore it would have happened in So the big thing, you know, you mentioned the tutor tutoring and so forth, But the sort of the big elephant in the room, at least from my perspective, seems to be the sort of extreme level of financialization in speculation. And I mentioned this in the intro.

But you know, I've followed Tracey's writing on China for years, and you know, people in the US like to trade stocks and cryptocurrencies, but it seems like even like more extreme in China. And you have like people at home trading iron or futures from their computers and trading oil futures in a way that I don't think very many

people in the US do. And then of course you have housing, which okay, on the one hand, is probably sort of like a core basic and necessity, but it's obviously a highly financialized, speculative world, and we see this sort of coming to a head with evergrand how much has that financialization essentially been I mean, is that a failure, the fact that so much of the economy has been

so much speculation, so much financialization. Do Chinese elites perceive that as having been a failure to let that become so rampant? Yeah, that's a great question. Um, certainly, I think there is a sense that speculation has gotten out

of hand, hence the crackdown. Right at the same time, I think that this massively rapid marchetization that we have observed throughout the last decades is part of the dynamic that the party itself has created, and that has led also to this massive markeetization of the behavior of individuals who have become market oriented in ways. Um, I fully agree with what you say, a really unusual now beyond what I have seen in the US or I'm from Germany,

clearly beyond what people in Germany are doing. I think that kind of goes back to another point, Um, that you made in the intro, which is this idea that UM we either see China as being totally capitalists and market or UM as the centrally ordered or planned economy. So then either we see the fanitialization simply as the result of of this um massive capitalist economy, or we see it as a totally abnormal phenomenon in relation to

what is supposed to be a centially ordered economy. Right, I'm kind of proposing a third perspective, which is that it's a state constituted market economy where the state has been the driving force behind marketization, has unleashed markets and finance realization in across the economy and across sectors in the hope of unleashing in a massive growth dynamic, which they have achieved, but always at the danger of kind of like dancing with the tiger, where this can take

on a dynamic of its own that is so so powerful that things get out of control. As regards financial stability and real estate, there is the sense of being at the brink of things getting out of control, hence

the crackdown. This is actually what I wanted to ask you next, which is you know, again using that sort of framework that you just describe a sort of middle path, how should we be looking at ever, grand So it does feel like China is in a tight spot here, in a difficult situation, because on the one hand, it has said repeatedly that it wants to introduce moral hazard into the system, It wants more fiscal discipline from its real estate developers, precisely because they've built up so much debt.

But on the other hand, as you mentioned, a lot of that financialization was basically driving China's economic growth. So the authorities presumably also want to avoid a really big destabilizing shock of a big failure that then cascades through the property market. So it seems like they're in a

really difficult position. Yeah, I've actually been surprised how little referenced there is to the seven Asian financial Crisis and the Langdong housing market turmoid in that context, and by no means an expert of that, I can just really

talk of the cuff on this topic. But my sense is that in the late nineties, UM there was this slogan of basically the forest being about to catch fire, and there were also big companies that were basically let go, even state owned companies, companies that were also active in

the real estate sector. So I think that to some degree we see something very similar happening where there is a sense that the situation in the real estate sector has become exceedingly dangerous, as you point out, unless many people have been saying for a long time, so that there's an attempt of basically letting go of ever grant

before the whole forest catches fire. So it's kind of like preparing for a big storm to come, so you kind of get rid of the weakest parts in order to make sure that if the storm actually comes you are you are prepared. So in that sense, um, this might be more targeted than it looks at the surface. And that seems to also be an important difference with

the with the Lehman brother moment um. I mean, there was this whole build up to this, this um, this situation with the three lad Ryans and the increased capitalization requirements and all of that that from the perspective of the Chinese government clearly must have led to turmoil in

in in the real estate sector. Right, So as such, I think this is preparing, I mean, basically cutting parts that are clearly very unstable in order to kind of secure the larger market, so kind of preventing the contation before it even happens. But whether this will work or not, it's it's an open question. And this is obviously a speculative interpretation, right, I mean, it's it's very interesting, this

sort of like prairie fire idea. It's like you try to have some you have a burn, but you sort of hope that it could be a controlled burn and

then the ecosystem becomes healthier. Are there other times? I mean if you look at the sort of like the long scope of Chinese I guess Chinese usage or Chinese taming of market, or you can think of similar approaches of having done some sort of like let someone go or let some pain persisted some parts of the economy, and the hope that in the grand scheme of things, it makes the system more resilient and robust. I've already

mentioned the Asian financial crisis. I think the privatizations of the late nineties actually might be another one where there was this whole slogan of grasping the big and letting go of the small, where basically the idea was to let go off small unprofitable state on enterprises with largely outdated capital stocks in order to consolidate the state on enterprise actor and UM thereby basically strengthen the viable parts

of the state and enterprise system. So in some sense this is also to preserve the phil at pieces and getting rid of the bones if you want so. Obviously, this is a very different kind of scenario compared to the realistic estate sector now, and in some sense it's it's a reverse logic in in in that it is letting go in the sense of letting go to the

market of the small enterprises. But nevertheless, I think this this underpinning logic of preserving the essential, viable UM strategically most significant parts of the system by sacrificing some other parts might be to some extent a parallel. So one of the things that stands out from talking to you now is this idea of UM. You know, I think Joe mentioned this as well, but the idea of China's economic development not necessarily being a straight line in terms

of ideology. So you know, you can have trade offs and interactions between free market reforms and socialist goals. And there's an argument that's been made and I think we're hearing it more and more that the West is sort of growing more similar to China's economic model UM than perhaps the opposite case, the idea of China actually growing

more capitalist in western in style UM. Some of our previous add thoughts, guests like Victor Schwetz over at McQuary has has made this argument, the idea that because of covid UM, because of the pandemic and the economic crisis after that, a lot of people feel that governments should have more of an active role in how the market

works and how the economy works. A lot of people have, you know, received unemployment benefits, a lot of people are in favor of in first structure spending or maybe some type of green deal, that sort of thing. So I guess my question is what lessons can the West learn from China's economic development? Yeah, great question, thank you, If you don't mind, I would like to make a quick

comment on the idea of not a straight line. So one of the things that I actually found in my research on the nineteen eighties that a lot of the first generation revolutionary leaders repeatedly we're arguing that China had to go back to the strategies of UM the Civil War and the immediate post liberation era, when the communists were fighting and economic warfare against the nationalists in the

context of rampant hyper inflation. In that context, the communists, as revolutionaries, as career fighters, as um as people who were dedicating their life to the project of a communist revolution, we're actually playing the market, and we're building up commerce structures and we're recreating market links in the so called

liberated based areas. So in that sense, at the very beginning of the Communist revolution, in the decades of revolutionary struggled towards the revolution, the use of the market as a tool in pursuit of socialist goals was an essential element. So as such, yes, there's no straight line, because then there is of course the whole moul Is period and the treachers search for for an economic model in that context. Nevertheless, this theme of using the market is one that is

really quite deeply ingrained in Chinese history. To the question of how this links to the West and whether the

West can learn from China. In the book, I actually also have a chapter on the World War two economy and the immediate post war economy in the United States, And that is for a reason in the sense that in the eighties, when China was starting to create a new kind of economic model, it was also looking to the experience of the United States with planning, price controls and pretty direct guidance of the state over the economy

in the war and its aftermath. So in that sense we are seeing a increasing appreciation of industrial policy and a certain rethinking of the state market relationship in the vest that is inspired by China. But I think it is not simply following China's example, but in fact it is also quite deeply rooted in in the postal history

of the United States itself. So what I'm trying to get here is that I think, um, it is a good idea to not simply think in terms of China and the United States, is these totally opposite models that always have been different and that inherently are somehow completely um not alike, but rather to see that there are has worka constellations that are in the US that have inspired China, and then there are also elements now in China that are inspiring um the bdonomics and the redoing

of public investments on in the US. But in some sense this is part of a history of mutual inspiration rather than too economic models that have developed in silos and that now like suddenly are looking at one another. I want to bring up another sort of like I guess, complicating aspect of the story. In China. We've talked about real estate, and this is something that you know, Matt Klein and Michael Petters brought uh discussed a lot in their book trade Wars or class Wars, which is that

there is this class dynamic obviously in China. And part of the reason, for example, that we may or that there has been so much real estate speculation or so much investment in housing, is because many in many people have been deprived of savings opportunities, investment opportunities, so called financial oppression. That there are basically policies designed to minimize the incomes of workers and to maximize the wealth of

the elites. That the social safety net is not particularly robust in China, and therefore that requires people to save a lot for themselves, that deprives domestic demand and so forth. I'm curious from your perspective, you're talking about these like different tracks, these different models for thinking about Chinese economic development.

But how much of a problem or how much will the rubber hit the road in your view, if China continues to sort of go down to path in which there really are sort of deprivation of safety net and income opportunities for the typical working class. One of the outcomes of marketization was the dismantling of the social safety

net that was there under the plant economy. Right. So whereas in the European context, at least, we often think of the social safe safety net as part of the economy that is basically protected from marketization, and it is organized based on principles of state provisioning rather than some profit driven individual incentives of private or state firms. In China, a large part of what we would consider as part

of of socio baffare has been very deeply marketized. So in that sense, to go back to your entry question of the of whether it's a capitalist or plant economy, and that sense, China economy, even though the state plays such an important role in the market, actually in some sense it's more capitalist than some of the European countries. Now, to go back to your question of class relations and how viable that that is in in in the medium run, I think that the tensions um within China are of

course considerable as regards inequality and so on. But my sense is that um the pandemic has actually created pretty widespread sense of proud within the Chinese people and a sense that the system is actually I mean, it has its flaws and all of that, but um as regards public safety and so on, it is actually working quite well for them, which which was quite unexpected when we look back to early UM twenty. Now from a more marker economic perspective, I think there's can be little doubt

that an increase in domestic demand is absolutely important. Um So in that sense, I agree with the analysis of Klient and Patties, even though as regards trade I wouldn't see the class tension only in China, but I would see this as as being linked also to class tensions and in the rest of the wor. But on the social safety net question, like there has been at least, that's one of the questions I've had in my mind is like, is that going to get built in a

more robust way. Is there going to be a significant investment in say public health or something resembling social security such that, I mean, as you mentioned, are ways with China's maybe even more capitalist than Europe. Do you expect that to be part of, part of part of this

new path. I think so yes. I think that as as Dan Juan was also saying, UM, the doing circulation and common prosperity at two big slogans that as the pretty wake, but that kind of complementary the sense that doural circulation means strengthening of domestic demand and UM common prosperity means the goal, whether this will be achieved or not, of moving towards that kind of olive shaped income distribution, and also improved provisioning of public services for large parts

of China's population, which these two things go hand in hand in the sense that if there is an improved social safety net, then households have to save less privately, can spend more. Therefore can enhance UM domestic demand UM and therefore this is I think quite consistent with the

idea of tour circulation. I think one aspect that might be interesting to take into account in the most recent developments is that my impression is that there's a sense in China of UM preparing for via the realist his sector, but also more broadly preparing for a continued heightened instability in the global economy, so that the timing of this regaining control over strategically important sectors I think is also connected to an attempt to kind of ring fans the

Chinese economy and prepare the Chinese economy for um possibly pretty major turbulences had um And of course these attempts themselves, as for example, in regard to climate change, can then again unleashed termoils as we have just seen in the

energy market. Right, So it's not not necessarily the case that trying to prepare for turmoil and trying to come up with with policies that facilitate the kind of fast structure change that seems to be um necessary not only in China but around the I in order to respond to climate change. Maybe a smooth right, But I think that this is kind of part of the context in terms of what we have been seeing and what we're

probably gonna see in the next months to come. So this is one more thing that I realized we haven't touched on during this entire conversation, which is going to influence the question, but to what degree is China actually worried about the middle income trap? Because we used to hear all the time that you know, this was like

the ultimate threat to China's economy. They were really really worried that they would go the same route as various other Asian emerging markets and they would never be able to get out of it, and that this was sort of informing all of their economic policy decisions in the way they were structuring their economy. But I don't know, it feels like you don't hear so much about that anymore. So I'm wondering if that's no longer perceived as like

a major threat. Yeah, interesting question. I mean, it seems like that, at least until very recently, has been a sense of new confidence in in China in terms of

its UH, its economic model and so on. But I think that the strengthening of industry and the attempt to reach and resources into semiconductor industries and to basically ensure that China is um is strong in the upstream technology intensive industries that has also been touched upon in the interview with then One, in some sense can be seen as part of china strategy to try to avoid being

trapped in in a middle income situation. Since I think this is seen as some sort of a precondition for the creation of native companies that have global competitiveness, which again is at least one element of trying to um not get stuck in a income trap, but instead for to head to the technological frontier in key sectors, which then has implications for the growth model. Well, uh, Isabelle, I think that's a great place to leave it. Really appreciate you coming on. Congrats on the new book and

all the praise it's getting. And thank you for joining us on Outlock. Thank you so much for having me. This has been great pleasure. Thank you for your great questions. It's an honor to join you. Thanks. That was so good. Really appreciate it. Thank you so much. So I found it really helpful, Tracy, this sort of big picture historical sweep.

I mean, I think that like, look, this idea that hey, you know other Dan has talked about this before another, this idea of like markets serving a broader purpose and markets not being an end to themselves. But I think, uh, Isabella did a really good job sort of talking about this just like it's kind of dangerous, it's risky, like

things can get out of control. And I think she used the term dancing with the tiger at some point, and I think thinking about like Evergrand or maybe the rise of say the private tutoring industry, even though it doesn't have the same financial implications, sort of a good example.

It's like you can aim for that, and China has arguably done a good job, you know, obviously lifting millions of people out of poverty, but there are risks left it right to the model when you introduce markets to the world, right, I mean to me, Evergrand is sort of the the ultimate expression of that tension. But I think two things that stood out for me from that conversation. One was this idea that you know, China is willing to allow markets to build up certain industries and kind

of ignore them until they actually become pervasive and important. Um. And again, like, I think this is something that you've seen most clearly recently with the consumer tech crackdowns. Um, it does feel like everyone realized what an enormous part of the economy those had actually become, and so the authorities started paying more attention to them. And then the other thing that stood out to me was this idea of a sort of fluid relationship between socialism and capitalism.

So this idea, that it doesn't develop in a straight line, or your ideology doesn't necessarily um unfold in a straight line, and that um, you know, China and the West can actually share some characteristics. So Isabella had that great example of you know, Western economies after World War Two in the nineteen fifties and nineteen sixties, where there was a lot of government expenditure on infrastructure and social programs. Um. And I that's also a great reminder that these things

can ebb and flow. Yeah. Absolutely, that is super helpful. And you know, I guess maybe another way I'm thinking about, you know, because we started, when we started doing these recent series of China episodes. I'm sure we'll do more in the near future. You know, as I keep going back to this question, like what is the what is the goal here? What what's the so called like endgame?

And I'm starting to feel like maybe it you know, it's like you have these like two tracks, the something that resembles more socialists, something that resembles more sort of like Western style liberalism and capitalism. Does feel like what we're seeing right now is a sort of recognition that China perhaps had gone too far down the sort of like liberalized track, it is trying to make a hard pivot to the other one. And I think maybe you know,

Isabella brought up like this idea. It's like, Okay, it's one thing if an e commerce company sells books or use books online. It's another thing if like they also run like every like payment system that everyone uses. And so maybe there's just the sort of recognition that right now there's this moment to like skip over to the other skip back to the other track, and remind everyone

what the purpose of all this is. Yeah, totally. And again we've spoken about this before, but there are plenty of Western governments out there who would probably like to do a similar thing with their tech companies, And of course the difference would be, you know, they would do it in a different way, and it would take years and years to get done, and no one would agree on what actually needed to be done, um, in order to curb big tech. But um, you know where we are.

And again, it kind of like goes back to that idea of similarities between the two economic models, or at least they sort of like switch back and forth maybe between socialism and capitalism more than we actually real eyes absolutely well, lots more. I'm sure we'll be talking about this a lot more in the in the weeks to come. Yeah, so much more to come. Okay, shall we leave it there? Yeah's leave it there? All right. This has been another

episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Why Isn't All? You can follow me on Twitter at the Stalwart. Follow our guest Isabella Faber on Twitter. She is at Isabella M. Faber, Assistant Professor of Economics, UMass and the author of the new book China Escaped Shock Therapy the Market Reform Debate. Be sure to follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson.

Follow the Bloomberg head of podcast, Francesco Levi at Francesca Today, and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening to