China's Millennials Are Changing the World

and they will change the world economy. And a few minutes I'll talk about that with our resident China hands, the former Wall Street Journal China editor Andrew Brown and Bloomberg Economics chief economist Tom Orlick. I'll also be grabbing a few minutes for the latest on US China trade wars with our senior trade reporter Sean Donnan. But first, here's Bloomberg China Economy reporter Kevin Hamlin with his insight

into the world of the parent EATA. Meet Jenny, a bubbly twenty five year old who works in a television station in Beijing. My mona called me, had me seecrets our generations were we are labeled as the lazy, ourself senter and and for me, how I don't save money. I want to spend my money on traveling where I want to enjoy the moment. She's one of more than four hundred million Chinese millennials roughly speaking people aged eighteen

to thirty five. That's five times more millennials than in the United States, and it's more than in North America, Europe, and the Middle East combined. Jenny and her millennial peers are very different from the generation who built modern China. The influence of Chinese millennials may even be so great that they also make the world very different from the one we know today. While the previous generation was known for its prolific saving habits, Jenny doesn't put away money

at all. She likes to spend spare cash on things including travel and branded cosmetics. She even pays thirty dollars a time for her cat to have a shower in a cat spa. Since Jenny graduated from University in Florida about a year ago, she's traveled to Japan, as well as Shanghai and Chan in China. She's looking to visit Greece and Spain in the next couple of years. Her dream is to be a blogger writing about her travel experiences,

something she says her parents think is ridiculous. If there's one thing that sums up Jenny, it's that she likes to live in the moment. I think my parents have saved enough money that I always encouraged them to spend some to spend money um on something they like that. They always try to to to save money. That's the point I don't understand. They worry about the future. The most extreme members of Jenny's generation are sometimes colloquially referred

to in a colorful way. They're called the parent eaters or a Mandarin condo, a term with profound implications for China and the global economy. Sky High home prices in big cities mean they struggle to get on the property ladder, and often parents have to use their savings to help them meet large down payments and monthly mortgage payments to buy a home. Zack dyke Wald is an American who wrote a book called Young China, How the Restless Generation

will Change China and the world. Here's what he has

to say about the potential global impact of millennials. It's the first East Asian power with enough political and economic clout that the way that they live, the way they see the world, what they want, what they want from a product, what they want from a style of loan, what they how they want to see the country perceived in the world, for the first time ever has enough cultural gravity that it could start to change that they could start to change the way that our world spins.

This young generation is going to be impacting you personally. They redefine every market they touch. And the craziest part about about a lot of this consumer culture that we're seeing really really blossoming with this young generation in China is it's hardly started yet. The consumer cloud of this young generation has only just begun to articulate itself on the world stage. The spending and saving behavior of the millennial generation already is helping bring down the nation's legendary

lofty savings rate from about last year. Here's what Ju Hi Bin, chief China colonomist that JP Morgan had to say. Because the population aging because of these new millenniums, are different spending pattern, China saving red were woken keen to move down. We were still pretty high, but we believe that we were having argued before that we're talking about lovely probably every year two percentage point of receiving rates. Yeah,

that's hobby. While the major macro theme to watch out, millennials choosing to spend on tourism and foreign products rather than save their money is one driver behind why China is poised to import capital from the rest of the world this year for the first time in the modern era, after decades of exporting its excess savings to other countries. Deloitte, a big consulting and accounting firm, says the trend will

change the world. For now, Jenny and her millennial peers may be too busy making their travel plans to worry about such abstractions. Die Quotes research shows that between two thousand and eight and two thousand and sixteen, China's spending on international travel roads until the nine percent of mainland Chinese without passports, two thirds are millennials. Here's Dike Wald again,

there's a different sense of why you're working hard. Before you were working hard because that's what everyone did, and you're saving up for the future, for the next generation even or for you to have a good life. You're

trying to push back subsistence. Now. You're working hard so you can afford that great hot pot meal with your friends on the weekend, so you can afford that Europe trip which you've been imagining, or that Beijing trip, or to buy that great bag that would give you a little bit more social status and make you feel like you're living a good life. I visited Jong Joe in central China recently, a city best known for a huge factory that makes Apple iPhones. I bumped into thirty euro

banker Jangee at a Starbucks coffee shop. He didn't want to be recorded for this podcast, but he told me that in October he and his wife spent fifty yuan or seven thousand, four hundred dollars on a trip to Iceland. That's about a quarter of their combined annual income. They've also recently visited Japan and the Maldives, as well as Chinese destinations such as Inner Mongolia and the tropical island

of Hainan. Jenny is among the very lucky ones because her parents have accumulated three apartments, so she doesn't worry about saving to buy one, and that frees her of a huge burden. Her plan to buy health insurance rather than have idle funds set aside for potential illness is another force that drives China's shift to consumption, which could in turn become a key driver for the country's growth. As for Jenny's other spending, not much of it pleases

her parents. The complains are about I spend a lot of money on my cats. I could buying a lot of toys and some snags for my cats, just like a resource. I don't think I have a very clear pictures of my futures, but I hope when I enter thirty years old, I can't have a lot of free time to go to go aboard to enjoy my holidays. Yeah, that's my goal. But for those who aren't so lucky.

Higher indebtedness beckons household borrowing has been climbing for ten years straight at the pace that rivals any such run up in major economies. Fred who runs his own private equity firm in Beijing and used to be the chairman of Goldman Sachs in Greater China. He's fifty five years old, and his life has spanned the chaos of China's Cultural

Revolution to the emergence of a new consumer culture. When I was going up as a child, even for me to travel with the partvincial capital city was like a dream, And of course was very close by going to Hong Kong, Taiwan and the United States just to forget about it. When China was poor and asserted there was just no hope. People didn't have dreams. Didn't you endared to dream? Now for the younger generation of Chinese, anything is possible. The sky is the limit. I'm Kevin Hamlin in Beijing for

Bloomberg News. So I'm joined now by Andrew Brown, editorial director for the Bloomberg New Economy Forum, which is going to be held in Beijing later this year, who was previously China editor for The Wall Street Journal, and our own chief economist, Tom Aulick, who spent eleven years in Beijing before moving last year to d C. So, Andy, we had a lot there about parents, eaters, the millennials,

they're spending habits. Are they telling us that China is now on course to really becoming a consumer driven society? Oh yeah, China. China is well on its way to becoming a consumer society driven by the millennials. The millennials are the luckiest generation in Chinese history. Their grandparents experienced extreme deprivation, even starvation if they were alive in the

late fifties during the Great Leap Forward. Their parents understood hardship, but they also cashed in on the greatest economic boom in human history in the eighties, nineties, in the two thousand's. And the millennials are going to inherit it all. And what are they going to do to the economy and to society when you look to the next ten or twenty years. How is this going to shape China? I think it's going to transform the Chinese economy and with it,

potentially the global economy. I mean, I think if it in terms of three major trends. The first is that Chinese millennials want authenticity. They want the real thing. Their parents were okay with fakes. Uh. Yeah, it was all about the price tag and if the knockoff Gucci was as good as the real thing, that was fine. The millennials don't want that. So obviously this implies greater protection

for intellectual property. Uh. It implies more rule of law, and it implies less trade friction between China and its major trading partners, the days of China as the knockoff center of the globe and number. I think the second factor is that millennials care very deeply about how their goods are made. They care about environmental issues, environmental pollution, they care about safety, product safety, industrial safety, and the government has to focus on these issues like a laser

in response. Again a big positive for China with global implications. The third one I would mention is millennials want customization. They're not content to be merely passive consumers of goods as well as services. They want to be co creators. They want their Mini Cooper or their Nike sneakers to scream me. It's all about expressing their individuality and in a in a way, this sort of flips all the power relations in the Chinese economy. Its strengthens the market

over the state. It strengthens consumers of producers. It tends to work in favor of private enterprise. I don't know if it's going too far to say this, but I think in some ways it's the millennial consumers that is going to force the type of reforms onto the Chinese economy that the current crop of leaders in Beijing us so reluctant to implement and could in time lead to

political opening as well. Tom When people look at China, the two big things that China has to achieve if it's going to continue the kind of growth it's had. You know, we know this. It has to become a more consumer driven society. You know, economists have always said you have to have consumption risings and savings fall as a share of GDP. But they also need to get

productivity growth, and that's the big question mark. And people who are pessimists about China, who say the whole thing is going to blow up, tend to be pessimists on the productivity side. You know, how does this story that Andy's telling play into how you might think the economy is going to evolve? I think on the first access that you talked about, Stephanie, the UM shift away from

high saving and investment towards a more consumer driven economy. UM. This millennial shift that Andy has identified is going to be incredibly significant. The parents of the current generation, they grew up in the reform era, but they also grew up in a period where state and enterprises were closed. The iron Rice bowl of welfare benefits was broken, and they responded to that by saving, saving a really high share of their income. The millennial generation haven't experienced that

stripping away of social benefits. They certainly haven't experienced the privations of the Mao era, and so as Andy mentioned, they really have a different attitude to consumption. They're very free spending. That can only drive a shift in China's economy away from saving, away from investment, towards consumption. The second question which you raised is can this also drive higher productivity in China's economy. Ultimately, that's what's most important

if China is going to sustain high growth. I think they're the jury is still out that A couple of points suggest reasons for optimism. Firstly, that desire for authenticity is going to mean that China needs to put in place firm of protections for intellectual property. If you don't have intellectual property protections, the market will continue to be flooded with fakes um. When you put the intellectual property protections in place, that's part of creating the right atmosphere

for a more dynamic entrepreneurial economy. The second point I would make is that the millennial generation are just much better educated than their parents and certainly their grandparents. Their parents probably graduated from high school. The millennials probably graduated from university, and many of them will have studied overseas as well. That higher level of education is also a

basis for optimism about a more productive economy. You know, it's interesting that if you bring together the things that both of you have talked about, UM, I'm struck by two things. You know. One is it's sort of starts to look like the story that was always told about China. You know, we've talked in the past about why, you know what what the West quote unquotes thought where they

let China into the World Training Organization. That you know, if you if you allow, if you see embrace China in the global economy, inevitably being part of a more global market economy makes you also more likely to be a democracy um, and a more market led country. We haven't seen that to the extent to the extent that we thought we were going to see it, certainly not

on the democracy front. But I think but you're suggesting that we just said it's just a matter of time that inevitably the individualism of a consumer driven society means you have to start giving political choices to people as well as choices in the marketplace. Do you think that's yeah, well, I think I think it's all it's all generational. You know. So the grandparents of today's millennials, Um, we're penny pinchers. They counted their pennies very carefully. The parents with thrifty

they saved. And the millennials who have never experienced an economic downturn, and actually their parents haven't really experienced an economic downturn for the last four decades or so, and they want to spend ah, and you know, they can dip into family savings. See, a lot of their parents would have I think that's where the parent eating comes out. This is where this is where the parents, there's where

the parents. I mean that a lot of their parents would have bought property for a song in the late nine nineties early two thousand's when China privatized its housing stocks, so they haven't had to, you know, buy their own homes. Their education has been paid for. Um, you know, they've traveled overseas as young adults on their own mom and dad's credit cards. But I will say I will say that there are there are serious caveats to this scenario,

and the good times are not gonna last forever. At some point, China is going to have a major turndown. We don't know when that's going to be, but it will have one, and when it comes, it could be

pretty brutal. I mean, you could see sharply lower property prices eating into the major asset value of Chinese households, potentially this old speculative, potentially inflation, which could you know, eat away at at savings, and it's going to sort of scramble the way that millennials think about the future. I've never had to worry about this before. I would say. The second factor is China's aging demographic. That China faces

this demographic time bomb. The baby boomers of the fifties and sixties are retiring, and they're going to be supported by a workforce that is shrinking as a result of the one child family policy which kicked in in the

seventies and eighties. And what that's going to mean is that all of these savings, a lot of these savings are going to go into caring for the elderly and all the conditions associated with aging, um stroke and heart attack, cancers, and so on, and so these enormous pools of family savings aren't going to look quite as big when faced with with this demographic shock. I mean, that's right, isn't it.

Tom That on top of everything else, you know, every country is trying to deal with the challenge of aging, and China has that in a particularly acute way. How do you generate productivity growth in that kind of environment? Andy, I really feel like you've dragged the mood down in this discussion. We came in talking about customized Mini Coopers

and Nike trainers. I thought maybe Hello Kitty or k Pop might get mentioned at some point, and now here we are talking about old people's home strengths and heart attacks. Is it's deeply depressing? Um so um? I think it's a it's a critically important question. Japan, in some respects

points the way forward. They're the first economy in the world to sell more adult diapers than they sold child diapers, and I think if we delve into Japan, we see various ways in which they're thinking of innovative responses to the problem of aging, including use of a robotics in caring, for example. So perhaps there is a path there um. The concluding thought which I which I had, was we should be careful about our assumptions on what drives what

we've talked about. The assumption in the past that entering the World Trade Organization would be a driver of economic reform and democratization for China, the idea that Western markets would be sort of seed carriers of Western values. Clearly that didn't play out, um, And now we have the idea that the millennials will be potentially the seed carriers of a similar set of values because they're more individualistic. Um, they're more highly educated, and that is an entirely plausible story.

But there's also another plausible story, which is the millennials are allowed to be individualistic and express their preferences when it comes to consumption. They can have whatever color Mini Cooper or whatever color Nike trainers, they want the color adult diaper looking indeed, and maybe some hollow kitty adult lopers. Um. But their freedom, their individualism is restricted to that relatively narrow world of consumption, and we don't see the largest

systemic impacts that many people anticipate. Thank you very much, Andy Brown and Tom Mollett, thank you. Thanks. What we were trying to think big about the future of China, and I think I think we did that, But of course we can't. We can't talk about China these days without also having a few words about US China trade wars.

So I've brought in Sean Donnan, our senior trade reporter, to give me the low down on that and also a bit of insight into how trade wars and the uncertainty they create might be affecting the US economy and indeed US politics. Sean, thanks for grabbing a few minutes. I know it's a it's a busy week for you. Just tell us briefly what to think about the developments

of the last week or so. You know, I think those people who were not following the day to day on this might have thought we were cruising towards some kind of US China trade deal. Now everything seems to have gone in reverse over the weekend. What's up? Yeah, Well, I think the the short answer is the endgame and trade negotiations is always messy. There's always ups and downs. There isn't this kind of linear path, linear rational path

to to a deal in trade negotiations. There's always just by the nature of the negotiations and the way they're constructed, the difficult issues are always left to the end, and that's always where you you kind of run into the roadblocks and so but there's no doubt that what we're seeing now is some real questions about whether the US and China can even reach a deal because we're getting to the hard part here, which is both sides have

to give something, and both sides of domestic constituencies. And they also have economies that look a lot better and they did six or nine months ago, which means that they're less inclined to give. So you to get the sense that the Chinese speak with one voice on this, whereas there's quite a lot of different voices and different viewpoints inside Donald Trump's administration on trade. How are those

feeding into this? Yeah, I mean, it's always hard to figure out what happened, what is happening exactly internally in terms of the debate and China, they're much more opaque than UH folks are here in the United States. But clearly we've seen cycles of hawks and doves gaining the ascendancy over the past year or two in the Trump administration, and we may be on a cycle now where the

hawks are are gaining a little bit more footing. Part of that has to do with the kind of robust economic data that the President is seeing about the U s economy recently, but part of that is also other

things we're hearing. For example, that Larry Cudlow has taken a few blows over the nomination of Stephen Moore to the FED and that going wrong, and that has kind of hurt his credibility inside the imagers did He's the presidents of Economic Advisor, he's the head of the National Economic Council in theory that the kind of the grand economic strategist, if you will, And he's also someone who's been in the past anti tariff and very propreate. True.

I guess what I'm particularly interested in is the impact on the economy. You know, economists have tended to always assume that trade wars, tariffs but also the uncertainty from trade wars is going to be bad for the US economy. I saw you wrote an interesting piece on this at the end of last week, just sort of looking at how the numbers were playing out in terms of job

losses and job gains and what did you find. Yeah, so one of the interesting things in ter force or trade wars, is that they're clearly our job gains and protected industries, but there's always a question as to how long does gains last for. And what we're starting to see in the jobs numbers, and that showed up in the April jobs report, is that the gains from in protected industries like steel and electric appliances seem to be peaking UH and in fact, in some cases even going

into reverse. If you look at the primary metals industry, this is one of the big beneficiaries of Trump's tariffs UH. Over the past years, since he introduced tariffs on steel and aluminum, the industry has added jobs. That compares to two point six million jobs added in the overall economy. So it's a tiny number compared to the overall editions. But in April it actually went into reverse and he actually lost two thousand jobs in primary moles. Now we need to be careful of of looking too much or

giving too much credence to monthly data. This stuff is volatile and so on, but it gets at that kind of economic case for tariffs UH, is this adding US production, is adding jobs and in the economy. Donald Trump believes it is his advisors. His hawks certainly believe it is, but the data is starting to show something a little

bit more complicated. Yeah, and as you point out, even even his own even the president story focuses on one relatively small industry, the steel industry, when we know that, you know, there are far more consumers of steel in US, in the US economy than there are producers of steel. And I think there's even there's more manicurists than there are steel workers in the US, So we always have

to have some perspective. Sure, Night, We've already had you on the program with our launch episode on the Economics of Fortnight, and I'm sure we'll be talking to you again about trade in the near future. Thanks along, thanks for having me, Thanks for listening to Stephanomics. Come back next week for more on the ground insights into the global economy. In the meantime, you can find us on the Bloomberg Terminal, website, app, or wherever you get your podcast.

We'd love it if you took the time to rate and review our show so it can reach more listeners. For more news and analysis from bloom of Economics, follow at Economics on Twitter, and you can also find me on at My Stephanomics. The story in this episode was reported and written by Kevin Hamlin with assistance from hand Mew.

It was produced by Magnus Hendrickson and edited by Jeff Black and Scott Lamman, who is also the executive producer of Stephanomics Special Thanks to Andrew Brown, Tom Olig, and Sean Donnan. Francesco Leviy is a head of Bloomberg Podcasts.