What Will China’s Economy Look Like In 10 Years?

but especially in China. Hello and welcome to another edition of the Loots Podcast. I'm Tracy Alloway and I'm Joe. So Joe, I just want to double check, but you realize that I've missed of to Hong Kong, right. I Not only am I aware of the fact that you've moved to Hong Kong, I am incredibly jealous that you now live in Hong Kong because that's one of my favorite cities in the entire world, with some of my favorite food and I think, are we gonna come out and visit you in a few weeks in Hong Kong.

So I'm actually personally excited to benefit from the fact that you moved out there. Yes, and I promised to take you to some amazing restaurants. But in the meantime, one of the most exciting things about being in Hong Kong has to be, uh, writing about and observing the China story. And Hong Kong obviously is a special Administrative region in its own right, but it's a good advantage point from which to observe everything that's been going on

with the Chinese economy. And as you know, this is becoming more and more important given that the U. S seems to be on a on the verge of a trade war with China. Wait, so we're not talking about Chinese food on today's episode. No, but we should. We should probably do that, we should do a odd lots food spinoff, but we're not doing that today. Today we're on No. No. I I just just all jokes aside.

I'm interested for reasons beyond the food. And you're absolutely right that it just feels like there's a moment where understanding what's going on in China feels particularly important, right, And I should say, Uh, we're recording this in a week that's been particularly terrible for Chinese markets and Chinese assets. When I left the office today, the Shanghai Composite was down something like five cent ten cents. The big Internet giant that we have here had at one point dropped

about seven points seven percent. So it really feels like Chinese markets are bearing the brunt of a lot of the trade war pressures. But beyond that, one thing I've learned just from being here for a few weeks is that, of course, there is this ongoing question about China's economic adjustment and whether or not uh the aspirations of China's rulers the Chinese Communist Party are going to actually be

compatible with modern capitalism. Right, it feels like with China or at the intersection of a short term story and a long term story. So the short term story is maybe tensions with Trump, although that may turn into long term there's the market sell off other sort of things like that, and then the long term there's the efforts to restructure the economy, the effort to become really important in a bunch of big technological areas, which we've talked

about before on the show. And so part of the question in my mind that I'm trying to wrap my head around is to what degree to the short term pressures sort of stymy the long term efforts, right, that's actually a really good way of putting it, that in her section of a short term and a long term story. So we actually have the perfect guest to talk about this today. Not only is he a sort of a long running China expert, but he might actually be the

coolest economist that I know. The last time I saw him in person, he was wearing a leather jacket and jeans and he was on his way to Glastonbury. So um, pretty cool. I'm pretty excited, all right. So our guest for this episode is George Magnus. He is now an independent economist. He has also research associate at the China Center at Oxford University and so asked. He is also the author of a new book called Red Flags, all about the pressures facing China and its ruling authorities, and

he has the former chief economist at UBS. So, George, thank you so much for joining us today. Well, thank you for having me. Uh So, George, I guess just as an initial question, maybe for our listeners, you could walk us through how you became a China expert in the first place. Yeah, sure, So I think my first visit to China actually was in when I was a kind of a rookie for an exchange economist at a UK merchant bank that went by the name of s G Warburg, which later was taken over by a Swiss

bank corporation which eventually merged with UBS. And so that's how I kind of became kind of chief economist at UBS. And then China was very then definitely not just the kind of a place that I used to go to pitch at the People's Bank of China and the State Administration of Foreign Exchange for for f X business, but also a much more kind of meaningful kind of investigations

into what made the economy tick and so on. But I think my my big break, so to speak, came when actually I took a step away from management functions at UBS and had much more time to look at serious issues like what was going on in you know, the financial crisis and sub prime mortgages and the economy on the other side of the world, which is which is China. And I really have spent the last kind of ten or fifteen years, i'd say, just trying to penetrate what is really a kind of a very opaque

and still untransparent economic and particularly political system. I feel like, at best I have I'm I'm sort of a tourist when it comes to understanding China. I mean, I don't even know if I'm that good at understanding the US. But at no point have I ever felt like I had a particularly good grasp on what's really going on. I have some vague idea that they want to restructure their economy and that they have overcapacity in some legacy

industrial state owned sectors. There are concerns about real estate bubbles, and they want to lead in tech. And when after I list off that that, I'm kind of coming to the end of my feel for the Chinese economy. What does it take to understand China? Is it repeated visits? Is it repeated conversations? Is it a granular understanding of

the data beyond the headlines? Because I kind of feel like I'm not alone, I suspect many American commentators really have only the most vague sense of how the Chinese economy really works. Well one, Joe, I think you're probably being rather modest too. I mean, it is quite a serious effort, really to try to understand a country that basically doesn't really work in the same way that our

western economies work. But I would say that, you know, a good place to start is you people need to understand a little bit about China's history and about how

it got to where it is today. So obviously, during the early years of the People's Republic under Mautsi Tong, I mean, China actually grew quite quickly, but it was still a pretty impoverished place um and nothing really changed in terms of its ketch up on the rest of the world until Dank Shaping came to power in the end of the nineteen seventies beginning of the nineteen eighties, and then then things started to really move because he was he was basically renowned or is certainly people a

tribute to him the phrase that you know, I don't care if it's a black cat or a yellow cat, so long as it's a cat that catches mice, And that was the kind of his way of basically saying to the Communist Party that you know, we have to be prepared to experiment with things that we haven't done before, particularly the marriage or the interaction between you know, a state run economic system and the use of market mechanisms, So people need to understand a little bit how that

happened and and also how we've kind of reached a

point now. And I don't really mean in two thousand and eighteen, because I think this has been brewing for about five or six years, but it's a point and I call in the book the end of extrapolation, because whatever we thought we knew about China during over the last thirty or thirty five years, I don't think you can kind of extrapolate that on a spreadsheet and say, well, because it's done this for the last you know, three or four decades, we think we can probably you know,

push this forward into the future and this is what China will look like in twenty thirty or twenty forty or fifty, because I think it has reached that point where it needs a big makeover, a big transformation. And you know, you don't have to take my word for it, because in two thousand and seven and two thousand and eleven,

so this is before Seeing Pin came to power. So this was when Jujintao and when Jibau were the president and the Premier of China respectively, and when Jibau notoriously said in in in both in both of these years that the Chinese economy was unstable and uncoordinated and unbalanced and needed to to change. And even as recently as last year at the Party Congress, he's said that the economy was unbalanced and inadequate to meet the people's needs

for a better quality of life. So everybody agrees, including the Chinese leadership, that it needs a transformation, it needs a makeover. And so what we're all trying to get to grips with really is how to try to understand what's required and what whether this government really has the wherewithal and the nouns to be able to make it happen.

So I have a sort of step back question, which is do we have a good idea of where the Chinese government actually wants to get to, Like is there a clear vision of what they want their economy to look like in ten or twenty or thirty years. Yes, we do have an idea. In fact, the thirteenth five Year Plan which was which is now sort of actually getting towards the last couple of years of its of

its kind of limit. Um I mean, does layout kind of guidelines and and signed posts for how to develop China into a modern economy with with modern industries and and moving away from its kind of traditional reliance on heavy industry like steel and coal and chemicals to something that's a little bit more familiar to us, in terms of more service producing industries, more consumer oriented sectors, and

so on. And I was going to say the sexier bit, but actually what I mean is kind of more interesting.

Bit about China's vision really came about in two thousand and sixteen, so not that long ago, when Alpha Go, as many people may remember, beat the reigning world champion of the game Go, and this shocked the Chinese into basically saying we want to be the world masters and artificial intelligence by by so or five, and and in between time there was also a very important industrial strategy called Made in China, which happens to be basically the

butt of the White House's objections to China's trade and industrial policies. And this sets out very clear quantitative, top down targets about China's aspirations to be where it wants to be in ten key sectors like um, you know, BioMed and electric vehicles and green energy and so on. By so, they definitely do have a very clear, top down vision about what they want to achieve and the kind of the time scale on which they want to do that by. But in a way that's kind of

the easy bit. Right. You can say, you know, I want to be Superman, but you you don't really know how that's going to happen or what you need to do to make that happen. And this is kind of what we're all trying to this in Bowel really about Chinese policy. At the moment, I hadn't realized that the AlphaGo victory was such a wake up call moment. We had another episode where we talked about the maid in China. But one question that I have so you mentioned, okay,

there was this incident. They're like, all right, we want to lead in AI. So they set out the national priority that we want to be a leader and artificial intelligence. What happens then, so they set the priority, what specifically

do they do to implement it? Well, in the first place, it starts with with with targets, right, so they say that, you know, we want to be a world leader, we want to have market share of you know, or or you know, we want to reduce our dependence on UM you know, American semiconductor companies, because we want to develop

these industries ourselves. In fact, that happens to be a very live issue for China, particularly since the incident that we had earlier this year when the United States basically sort of well restrained as ZnTe from being able to access products, and that was subsequently kind of softened up. It was a national security issue at the time, over

zes relationships with with Iran. But the the it starts off really with you know, the prioritization of Chinese companies gaining or winning market share in specific industries and sub sectors. And then there are is a whole raft of industrial policies that range from subsidies to tax benefits to the facilitation of you know, university research departments with UM I mean nominally private companies like for example bai Do and ten Cent and UM and Ali Baba and san Me.

So there are you know, with all the kind of leading tech companies in China to to basically help them along their way to achieve these targets. I mean in a way, I mean some of these companies are private already we think of them as private, but actually then they're kind of not private in the way that we think about private companies in the West, because the chief executives and the boards of these companies no precisely which side of the you know, which their their bread is

buttered on. And um, you know, they wouldn't do anything to fall foul of the government, and they basically, you know, receive benefits and and favors and procurement privileges from the government. So they are nominally private, but not kind of private as we think of them. Um. So I want to zero in on the corporate story a little bit because on the day that we're recording this, we did just see a very big sell off in Chinese stocks, and

it's kind of unusual. This came in the midst of a global sell off, but it was a little bit surprising because Chinese stocks had already fallen by quite a lot before today. They had really borne the brunt of some of the trade war concerns, so some people were

surprised that they fell out of bed today as well. Um, what's going on here, and our Chinese companies as vulnerable to the trade war fears as the market seems to be implying, Well, it's this this particular week in which we're doing this recording is it's been quite a little bit complicated because the previous week the Chinese had been on holiday, so there's been a little bit of a catch up going on because markets have been weaker following

very robust US economic data and revised interest rate expectations, So there was a little bit of catch up going on. But you're absolutely right, Tracy. I think the you know, there's there's an ongoing concern that even though the trade conflict hasn't really compromised the Chinese economy or Chinese companies in any material way as yet, and by the way, if it has, then it's probably been offset by the easing of lending and interest rate and bank reserve policies

that have been taken this year. But there is an ongoing feeling that cumulatively the trade war will have an effect on the Chinese economy, aggravating what is already a slowing down in investment, and to some degree also in the consumer sector as well. So there is for example, quite close attention paid. It's always difficult to know what to make of it, but just as it is in the United States or in the EU, for example, people pay a lot of attention to the purchasing manager in disease.

These are kind of vays of of major companies and medium sized companies about sentiment that are that come out usually at the first couple of trading days each month, and the ones that came out at the beginning of October, which is now just about kind of eight nine days away behind us were notable really because they were quite weak when they when you look at the curve of components that are about export orders. Okay, that's kind of what we would expect to see if tariff's are starting

to have an effect. They were quite weak when it came to employment. Now that's quite important really because obviously the legitimate legitimacy of the Communist Party, you know, basically rests, amongst other things, but certainly importantly on you know, the achievement of sustainable growth in living standards and prosperity without interruption, in which high levels of employment are are really important.

So if the labor market is weakening, then that's obviously think we need to kind of pay some attention to. But there were other indications in these surveys that that things are not going all that well for the economy.

And I think the trade conflict is something which cumulatively, as I say, will have an effect not only on the Chinese economy, but it might if it's protracted, it might have an effect on the construction of supply chains and the location of businesses by foreign companies who may feel that it is judicious to diversify or move some activities out of China. So these things could be cumulatively

quite important. George, I want to talk more about the trade board tensions in a second, but Tracy started off her question asking about the stock market, and something that I'm always sort of curious about is how important is the stock market in China? And I asked because I think it's very important here for a number of reasons. In the US, because of decent part of the population

owned stocks. It is arising stock market can spur more investment as people want to flip startups onto the public market. There's all kinds of reasons to watch the U s stock market as a decent barometer for other bigger trends in the US economy. Does the Chinese stock market play that same role or is it not as good of a gauge into what's going on. No, I mean it

isn't as good a gauge. I mean it's it's not widely owned by Chinese households in the way that stocks are held, either directly or through four oh one K plans or other forms of pension assets. So ownership by citizens of the Chinese equity market is not wide, and it does doesn't have the same kind of role in terms of equity rate capital raising for companies and and and wealth ownership as it does in in the United States,

for example. I don't really think it has the kind of economic effect or can have the kind of galvanizing or destructive the economic effect that it might do in Western countries. So I guess I'm curious. But if you were to characterize the Chinese economy at the moment, how would you do? So? Is it strong? Is it weak? Is it going through a transition period? What does it actually look like to you? I think it's definitely going through a transition, I would say, Tracy. I mean it's um,

it's it's yet another transformation. It's waiting to happen, but we don't really know what the end game is going

to look like. So the basic transformation is from a or an economy that has become far too dependent on credit creation to keep growing, far too in which misallocation of resources and misallocation of lending has featured all two prominently, and which needs to basically restructure away from its over lee heavy dependence on capital investment and credit to a greater reliance on more open service producing industries and and and the consumer. So this is the kind of transition

which that the Chinese call it rebalancing. So this is the kind of transformation China has got to try to go through. But it's very very early days, and we're already starting to run into a few issues with the whole de leveraging cycle, which began with great seriousness at

the end of two thousand and sixteen. I think the Chinese leadership became very cognizant of the fact they could not carry on with this sort of overly heavy dependence on credit creation um and they've been partially successful in limiting the growth of lending to companies and in cleaning up some of the more egregious forms of risk in funding of that lending, in other words, through overnight and very very short maturity deposits in the inter bank market

and through products that have become known as wealth management products. So they've been quite quite adept at doing that up to a point. But at the same time they haven't really been able to get a strong grip on containing the growth of debt by local governments, which are really important agents in the economy, and household debt, which previously was actually rather tame, is now on a bit of

a tear. In fact, the ratio of household debt to income in China as of about June of two thousand and eighteen was almost a hundred and so, you know, it's a mixed scorecard. And during the course of this year two thousand and eighteen, we've seen lots of exhortations by the People's Bang of China and the regulatory agencies to banks to lend more, to export companies, to small companies, to local governments to spend more on infrastructure or issue

more bonds to fund infrastructure. Reserve requirements for banks have been cut four times, interest rates have come down, so this kind of accumulating evidence that actually the Chinese authorities don't really like the consequences of de leveraging. And of course it's not a good thing, you know, to have to put your economy through a ringer to wash you know, leverage out of the system. But if you don't do it when times are good, you have to do it

when times are bad. And the worry is that if the authorities are now kind of backing away from deleveraging a little bit, that it just exacerbates the problem down the road and it differs the rebalancing for along a

long time to come. So how much of this pause on rebalancing or these exhortations two banks to lend more and to continue the credit driven growth model, how much are they in response to trade war led slow down and thus sort of you know, sort of gets to the question of whether the tensions with the US and other parts of the world are sort of disrupting the

long term plans. Yeah, my my views, I don't think the trade conflict to date has really had a marked effects on what the authorities probably think is going on

in the economy. And if it has had any effect, it's probably been compensated for by the easing of monetary and financial policy, including, by the way, the depreciation of of the yue, which has dropped by about eight percent since the spring, pretty much offsetting the latest round of ten percent tariffs, which the White House announced in September or early October for the moment at least, but I think it will become a bigger issue, particularly as the

tariffs go up to on the first of January two thousand and nineteen, and also if President Trump decided to broaden the implementation of punitive tariffs to the whole of imports from China. Great George, I wanted to ask you about this because when we talk about the things that China could possibly due to offset a slowdown in its economy, there are a couple of things that usually come up. You know. One of them is always the US treasury issue.

China owns a lot of US treasuries, They're a major creditor to the US, and there's this underlying theory that at some point they could possibly sell off those holdings, basically to um make a point about US policy. Uh. And then there's also the Renman b issue that you just alluded to. They could always devalue their currency, either in an obvious or a slightly more stealthy way. But there's also a greater fear that maybe at some point China might try to overturn the US dollars supremacy in

the global financial system. How realistic are either of those threats, well, I mean to the extent that anybody can predict how

things are going to evolve. I think the Chinese would give them both very very serious thought from the point of view of do we really want to do this with all the consequences that they would entail, Because actually both of these policies, which so either selling US treasuries or and or allowing the yuan or the MMB to depreciate much more aggressively, would be causes of self harm and domestic instability. I think. So the treasury issue is

an old chestnut. We've been here many many times before in the last kind of five to seven years, and we should remember a couple of things. One is that the Chinese have a great deal of pride in their foreign exchange reserves. I mean, they did peek out at about four trillion dollars in two thousand and fourteen. They're now kind of hovering around three trillion. So I don't

think they would treat this very lightly. And I think that there's no guarantee that selling US treasuries would actually achieve the results that they would want, other than just to make the White House really angry. So during two thousand fifteen, two thousand and sixteen, when the Chinese were going through a mini financial crisis, when they were going through this, they bled about five to seven hundred billion dollars worth of US dollar reserves without really impacting the

treasury market at all. Okay, so we could say that times were different then because the FED wasn't raising rates and the economy wasn't as strong. And so if China did sell its treasury holdings or some of its treasury holdings now, they would don't They would be doing so into a falling market when you know, people expect the FED to keep on raising rates and so on. That's true, so it could have, you know, a more significant effect.

But I think it's it's like what happens if the first five hundred billion dollars worth of sales don't work? You know, do they keep on doing this? I mean there is a level of reserves below which they will clearly not want to go. And I think it's quite dangerous because it's um it could quite easily trigger un instability and lack of confidence in Chinese financial markets and actually induce capital outflows at a time when they're trying

to stop that happening. The same applies with the currency depreciation. So I think at the moment it's quite ironic, really, but Treasury Secretary Steve munition Is basically said a few things during the I m F meetings going on in Bali about you know, China's manipulation of the currency and so on so forth. If the Chinese actually did float their currency, it would probably drop like a stone. And I think at the moment the Chinese are doing whatever

they can to basically keep it from depreciating. Politically, of course, they could change that policy. They could decide that if the tariffs are going up as our schedule to do, and because of the impacts of the domestic economy and tariff's trade conflict and so on, that if they wanted to compensate by depreciating the renmin be much more aggressively, that they could allow a depreciation of maybe five ten

something like that. It would be unprecedented, I would say, in in certainly in recent times, and I think it would also be highly destabilizing for China for emerging markets for China's rhetoric about wanting to be the leader of globalization as the United States retreats. So none of this stuff would really work. If China were seen to be, you know, embarking on a competitive evaluation. Would it happen

politically anyway? It's possible. I don't think we can rule it out, but it's not really something that I think China's leaders, who are quite cautious and they do crave stability, I don't think they would be very aggressive in in allowing that to happen. Depreciation was probably gonna happen anyway, but I would say it will be measured. George, you mentioned earlier that you do think we're in for a protracted US China trade war. There seemed to be two

dimensions to the US China tension. So the president when he talked and I'm talking about the U S. President President Trump now, when he talks about China, he he tends to focus a lot on the UH the bilateral trade deficit and wanting to balance out the numbers. And that's usually how he seems to think about the world, and most people, many mainstream economists, don't give him a

lot of credit. For that viewpoint, fairly or unfairly. On the other hand, there is a more sort of sophisticated and widespread backing for the idea that something must be done to sort of counter China's industrial policy, that things like the forced transfer of technology are patently unfair and at least in spirit, violate the rules of free trade, and that something must be done to sort of counter what we were talking about earlier, the Made in China

initiative and various endeavors by the country to become a dominant player in these industries. Ultimately, is there a path in your view for China to continue it's technological and industrial pursuits which might be a little bit more qualitative and also satisfy the demands of the US. Is there a is there a middle ground or are these sort

of fundamentally diametrically opposed goals? Well, um, I mean, they are pretty fundamental on both sides actually, and it's quite difficult, I think to see how UM either side could actually back down and um and say that their goals have been met, because that would not be the case. And certainly, you know, China not contemplate actually any kind of intrusion on what it would regard as its sovereign right to

have whatever industrial policies it deems to be appropriate. Um. And at the same time, you know, the United States has clearly recognized that, you know, China as an adversary in technological matters but also closely related that to military

matters and the industrial policies that underlie both of those narratives. Really, this is a serious issue where you know, you can't really compromise, and I think I think in some respects, I think we we should, you know, basically say that whatever we think about tariffs is a policy or as a tool, but that the concept of actually calling China out on some of its practices actually is certainly a

defensible position. So is there a middle ground? Well, obviously the atmospherics would have to calm down first, I imagine, um, you know, and I'm just guessing here, but I imagine that, um, in the end, the United States will accept that it cannot change China's industrial policy, but the Chinese may eventually decide that there are certain things that they could do

about intellectual property protection, about market access. And I don't don't just mean rhetoric, which is kind of what we largely get after you know, meetings between senior officials or used to get them when they were having meetings. But I pr protection market access, a willingness to engage and to see where there might be some kind of mutual advantages in in agreeing on you know, different types of concessions for for industries. I mean I think that I

think the technological and military issues are existential. I think it would be a mistake for either side to kind of back off so speak, And I think, you know, probably America's and the West's best kind of hope of countering China is actually is to invest more in you know, technological leadership to counter But I think there I think I hope there would be a middle ground where, you know, both sides are prepared to kind of back off a little bit and compromise. I mean, that's the only way

you get to the middle ground. But I think the atmospherics have to cool down a lot from where they are at the moment, which is which is pretty feisty. So, George, you mentioned the E word existential questions. Um, basically, I have an existential question, which is that I'm acutely aware that all three of us are outsiders basically peaking into the Chinese system in varying degrees. Obviously you have a better vantage point than either Joe or I do. But

I'm wondering. We've had Western commentators who have been warning about pressures on the Chinese economy for decades now, and people talking about how the depth fueled growth is going to collapse. We've seen the Chinese economies struggle at various times, but we've been pretty far off of a collapse. So I guess my question is, to what degree should we think about Chinese exceptionalism when it comes to the economy.

Is there a way that China can actually buck what we think are intrinsic rules that that take place when when economies operate. So the answer to that is, I

mean's a typical kind of economics answer, isn't it. It's sort of yes and no. So there are bits of Chinese exceptionism, if you want to call it that, which I think we we we do have to recognize, and it's why a lot of the kind of the calls that sometimes have been made in the last kind of five or ten years about you know, it's about to collapse,

it's about to implode, etcetera. Have persistently proved wrong. And that is because the Chinese have a very kind of marked system of control and have and can deploy tools which most Western governments can't simply because of the role of the state and the role of the party in

the economy. So I you know, I mean I've spoken before myself about the possibility that China would kind of come to what a lot of people have kind of now colloquially called a Minsky moment, which is sort of a point where leverage becomes far too high and causes some kind of financial policy or financial system reaction. And I mean, I think it is at that point, but I don't think it's different from the rest of us.

And I don't think this is a charge about you know, you Western as you think about things in a different way. I don't think that really holds water, because the misallocation of resources from excessive reliance on credit has to be paid for one day by consumers, by governments, by creditors,

by companies. Um. You know, whether whatever the system of governance you have, whether it's a kind of a free market system or whether it's a state controlled system, and what we call kind of financial deepening, which is when you know, financial assets and liabilities grow at a multiple, a big multiple of the rate of growth of the economy for years and years on end. That cannot go on ad nauseam without giving rise to bubbles, speculation, and

financial risk. And I honestly believe that this is the point that China is at. When I say at the moment, I don't mean you know, in October or November two thousand and eighteen, but you know for the for the moment, meaning for the next couple of years, two or three years, and and that what the most likely manifestation of all of this as it gets resolved, is a protracted period of much lower economic growth than we've been accustomed to.

That's the big call. In my view. It's possible that China could have a much bigger financial crisis, um if you think about you know, our own ten years ago, um,

something along those lines. I think it's less likely because I don't think China will allow any major banks or financial institutions to go bust, and so the likelihood is that there will be repression, financial repression, and they will basically sit on and try to kind of evergreen the bad loans and the misallocated lending for as long as possible, But you know, not even centrally controlled economies can do that in perpetuity. So my feeling is this has all

been building up. A lot of people have had premature calls of collapse, and the calls for collapse themselves have been wrong. But you know that there will be a hay back for all of this. I think is inevitable China or not? George, I want to ask one real quick question before we go. So Tracy mentioned at the beginning that you go to UH festivals like Glastonbury, the music festivals, but I'm sure you also go to lots of conferences and panels where elite thinkers and bankers and

economists gather and talk about serious issues. And I'm curious when they look at what's going on in the US with our political paralysis and our president, and they look at what's going on in the UK dealing with Brexit, and then they look at China with these multi year plans and there's extraordinary investment into things like clean energy and artificial intelligence. Have you sensed a swing in terms of sort of elite viewpoints about the merits of a

more centrally planned system. Oh, I think that's definitely. Uh, it's a good question, and I think that's definitely something that has you know, has worked his way into public discussion and political debate. Well, I would say it's not you know, look, the Chinese have this great model, you know,

let's just copy it. I don't think. I don't think I hear a lot of that, But I do hear a lot of debate now about where should the lines be between what we think the private sector is capable and willing to do and where we think the government or public authorities need to step in to make things

happen or to facilitate things happening more quickly. But I do think that people have just kind of looked at our own experience in the financial crisis and the build up to it and since, and looked at the alternative kind of governance systems, which obviously we see all around us now, and a lot of governments and countries have basically flirted with, or or done more than flotation with autocratic forms of government and started to sort of ask

questions about, you know, where those red lines should be and should we be a bit more accommodative about what the role of the state or the role of public sector agencies might be in trying to deliver better outcomes that we all kind of want, all right, George mcnus, I'm afraid we're going to have to leave it there. Fascinating discussion. Thank you so much for me with us today. That was George Magnus, the author of Red Flags. Why

She's China is in Jepardy. Thank you so, Joe. I thought that was a really interesting conversation about the future of China, and your question at the very end about whether or not China's exceptionalism has kind of caused some people to think about the benefits of Western democracy is

sort of spot on. It feels like there's just sort of there's a pendulum of ideas that swings back and forth, and we're at this period where a lot of elites and intellectuals and economists in the West are fairly disgusted by what they see in the US and they sort of yearn for, uh, some of the more directed economic approaches that they see in China, particularly when it comes

to investment in technology. But I always, you know, like I said, it feels like it's a pendulum, and that maybe I don't know whether we've swung all the way to one side, but I don't think that it will stay that way forever, and at some point it'll probably

swing back in the other direction. Well, I will say that any China Bowl that you talked to in Hong Kong, one of the big components of their China Bowl argument is usually, China is a command economy, and it's able to order a bunch of people around or pull a bunch of lovers to engineer the outcome that it wants, which is something that you never hear about in Western societies. No,

absolutely not. But then again, in five years we might be hearing, uh, China is a command economy and uh technology, technology never flourishes when there's not more market competition, and they're gonna miss allocate and pick winners and losers wrong. So you know, what they say today about how China is able to stave off downturns and all this stuff,

it may not be what they say five years from now. Yeah, but it does feel like we're getting to a bit of a crunch point where whatever happens over the next two or three years is going to bolster someone's argument one way or another, Right, Tracy, when I come to visit, you can we go across and uh go into China without network out. Uh, well we can try, That's all i'm gonna say. All Right, Well I'm looking forward to seeing it. Yeah, it'll be good. There will be lots

of Chinese food, I promise. All right. On that note, this has been another episode of the ad 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 Stalwark, And you should follow George on Twitter He's at George magnus one, and definitely follow our producer So for Foreheads, he's at foreheads t as well as the Bloomberg head of podcast, Francesco Levie at Francesca Today. Thanks for listening.