The End of China's Economic Miracle?

let's start our conversation on I think you know it's fair to say that the the Jamil film does view this rather extraordinary period of Chinese growth as as reaching a kind of an end of the of the play and I think we've been watching over the past 20 or 30 years one of the extraordinary kind of experiments in history namely can an economy that is a marxist-leninist economy that comes out of a revolution can it in effect strip away Marx keep Lenin add Adam Smith and yet cohere in some way that can find a stable angle of repose and go forward and I think we many of us have felt over the years that there was an instability factor here that sooner or later was going to cause some problems and what maybe we should start by doing jameelah's give you three minutes to sort of give us a sense of what it was what we will see and just kick us off this is actually a clever ploy to make you will go on the website of the FT and watch the video for yourselves and then sign up for as subscribers to the financial time so this is all planned thank you very much in advance for for your custom I'll very briefly go through the central thesis because actually Lucy and I worked on this very hard last year I was the Beijing bureau chief of the Financial Times until until January 1st and I'm now the Asia editor based in Hong Kong but last year Lucy and I and our colleagues we sat down at the very beginning of the year and we decided what our big topic for the year was what we were going to focus on for the year and do a series of pieces on and what we came up with was this idea of the end of the migrant miracle the end of this flow of humans from the from the countryside into the cities to work in the factories to work in the construction sites to to work in the restaurants and you will see later on that that actually is the biggest migration of any type of mammal ever it's quite it's quite amazing and it's actually the biggest annual migration of mammals because everyone who's a migrant worker 277 million of them they usually around Chinese New Year go home for for about a month back to the villages so that mass movement is much bigger than I think bats are the second biggest and there there are a lot smaller something like 90 million so it's astonishing when you think about it and that movement of people is really the one of the main things that has led to this extraordinary growth in China over the last thirty years is that just the fact of moving people from very low productivity jobs in the countryside to much higher productivity jobs in factories in construction sites just that shift is created enormous enormous wealth and our hypothesis which we believe to be most of us believe to be absolutely correct is that this has actually this endless flow supposedly endless flow of migrants is now drying up and it's probably or already peaked and is preparing to go into reverse so this is called in very technical economic terms this is called the Luas turning point it's happened in the u.s. it's happened in advanced societies of our advanced economies already in many parts of the world and we believe it's happening now in China and what it tends to mean is much higher wages which we are seeing in China over the last few years you've seen double-digit twenty thirty percent wage growth wage inflation it also means that economies slow down a lot and we're seeing that and if you don't have innovation in particular if you don't have a kind of a shift to a new innovate innovation led creativity led economy then these you know economies tend to stall and we've seen that through in so-called middle income trap that you see in many countries so one little thing I'll leave you with because it is part of the video but I sort of set the stage a little bit for when you watch it later if you'd said to any of us ten years ago that China the most the source of all cheap labor in the world the the workshop of the world was going to be importing workers we would have all said you were completely crazy but that's what's happening now and we interview in the video a young migrant worker from Vietnam illegal who smuggled across the border into China and is working and was working in the factories in southern China and we we don't have good numbers because these are all illegal flows but we estimate anything fifty thousand hundred thousand possibly more workers have have snuck into China through Myanmar Vietnam other other border states mostly those ones and are now working in the factories and you can go to some factories and there are people speaking only Vietnamese and some of these little factory towns and that's astonishing when you think about is China 1.4 billion but they're importing workers so this is the sort of crux of what we were looking at and we did a long series of pieces I urge you again to go on the website and buy a subscription and but I'm a Salesman now basically not a journalist but um but you should go and have a look we we did do a series and actually those are all free the the series of pieces we did about dozen pieces looking at different aspects of migration and different challenges that that migrant workers have and yet we really tried what we tried to do is humanize the story because so often we're talking about big China or bad China or weird China and I think what we what we've tried to do is also point out that this is a this is a phenomenon or these are phenomena that are affecting individuals real people like like us so you know those of us who've been around this block few times have encountered many occasions when people thought the end was near and yet we have seen one of the most extraordinary periods of economic dynamism in world history over the last couple decades and counter-intuitively it is somehow kept on going now let me just read you something here this is from The Telegraph if I can find it in basically what they're suggesting is that we've seen in this last quarter a kind of an uptick in the economy the housing market looks better growth rates and exports are better why should we believe that this is actually the last act of this drama you hasn't even well I'd like to ask all of you but you gotta start because you're not new laid down the the theorem sure I think there are a couple of things happening first of all on real estate I don't to get too technical and to in the weeds because you know Lucy and I think about this every day is sort of what we're we argue back and forth a little bit but first of all on real estate we have seen an uptick in a rebound but it's only in the top city top tier cities it's in Beijing Shanghai Shenzhen Guang Guangzhou in the second and third tier cities prices are still falling volumes are not rebounding in the in the way that that you'd like to see them plus if you look back over the last two years you've seen a drop last year prices were still up by you know almost flat they were about flat and volumes of sales were still going sorry thromes and sales were going down but investment was still up overall investment in real estate was still up overall but in the last two years if you look at New Starts and investment they're down like 20-30 percent so actually what we're seeing now if you want to have a continued growth in in investment in real estate the main driver of the economy you're going to have to see a huge rebound and new starts we're seeing a small rebound and I expect by the end of this year for the first time that investment in real estate will actually contract leading to a much much bigger slowdown in the Chinese economy so that's first on real estate the second thing is you have seen a slight rebound and things like fixed asset investment and several other key indicators only in the last three months by the way but that has been accompanied by the biggest growth and debt that we've seen yet and China has already had the most incredible debt explosion over the last six or seven years it's gone from depending on whose numbers you look at it's gone from one hundred and thirty hundred and forty percent of GDP the overall debt load to 260 270 we have an F T article again out in the next week or so which which gives the latest in estimates which we've calculated ourselves and that is not necessarily a problem in itself the absolute debt level is not a huge issue although it's approaching Japan levels which is the the highest levels in the in the world the key problem is the speed at which you've gone from 130 percent of GDP to 260 percent no economy in history as far as we've been able to find has ever seen that quick ramp up in in debt without a financial crisis so I mean I think you you have to look beyond I mean obviously we're tied to the news cycle the monthly data we have to we have to always report this but you have to look beyond that and look at what's happening over you know the broader economy and I think all the signs are pretty much negative I think so George let's let me turn to you you've watched this for decades now and there's been every time there's a problem there stimulus and the debt increases do you think that China can continue to bail itself out of these slowdowns by this strategy well I think there's a an eerie resemblance what's happening in China to what happened here leading up to the financial crisis 2007-2008 and it's a similarly fueled by a credit growth and eventually unsustainable extension of credit about it feeds on itself and it has a lot to do with real estate as you was mentioned and but there is and of course since it feeds on itself it can reach the turning point later than anybody expects this happens in in America where you know 2005-6 a lot of people like Paul Volcker saw it coming but it went on the to 2007-2008 and most of the damage was actually occurred in the last year's because it's kind of a parabolic circle where more and more credit is needed to sustain growth and in the case of China by based on I think 2015 numbers it takes seven units of credit to get one unit of growth and I think this is since it's a parabolic it probably continues to expand now it's just a few years earlier like ten years ago it's that's double the amount of credit you need for GDP well it's now up to what T on of the total Social Credit is three hundred and fifty percent I think around oh and it's if you look at the numbers of course it has been growing exponentially so that now the what happened now is the slowdown that has been building up reached a point where it would have caused a decline in employment and that the government cannot afford and correctly it took measures to stimulate the economy effectively the most most successful way of doing it is to relight the furnaces and produce steel and cement and to do that you need a fossil to have some place to use it and that's a construction and it's a of course house construction because the construction boom and that is in fact what is now occurring but that really it can have value additional time but it makes the problem that much bigger so that's a very hard but they have quite successfully it seems to me in the last several decades pushed this problem forward with more stimulus each time and I wonder George of 10-15 years ago did you think we were at the end of the road maybe I did over ones timing I think from you graduated in 1980 in 1888 I said the the end of the capitalist server subject and then of course the authorities intervened that's not that's correct so that's but now again correctly they decided they can't afford to have unemployment and so they rebuilt the furnaces and they also induced a construction boom and the real estate boom and that or bubble well it is a bubble but it's a it can grow and then can feed on itself and markets are not infallible and they they buy into it and that of course is another factor that that makes it grow and that is in fact what has happened so the markets are reassured when I see that the in March credit grew by enormous amount that is taken as a sign well recovery is underway and to be I think it's a warning sign because it shows how much water did is needed to to bring about to bring up or to stop a decline so Lucy from where you sit in Beijing following this how do you view it in terms of sort of the stages to some sort of de Namur do you think we are at a stage where the old strategies of releasing more credit and stimulus to keep things going and reassuring people is coming to an end yes I think we are but I don't necessarily think that that means a super hard landing I think that you can visualize it in a way that you know if you assume there was sort of a general level of organic growth that should have happened given China's population growth general increase in wealth let's say from 1949 it should have gone you know at a certain level instead it went way down then there was sort of a boomerang effect like pulling on elastic bang band where it shot way up started to moderate and come back to the mean and then as mr. Soros just said it they juiced it now it's coming back to the mean again they've juiced it again sooner or later I think it'll always come back to the mean I think the mean is still going to be growing though there's still a number of Chinese that don't have our standard of living and aspire to that which is quite normal the question is just whether inducing it you know whether they're willing to accept a time where it should go below that mean again before it reverts to a more sort of organic or natural stage and I think as you say they're very afraid of that so you wrote a wonderful book about the party about how things work politically so two thoughts occur to me one do you think politics are relevant to how China manages its economy and do you think at this stage that Xi Jinping has both the power and the will to correct the fundamentals of the situation so that it doesn't have to keep getting as Lucy's so elegantly put it juste I think if you look at si Jinping and you can divide divided his his power or his behavior into two areas there's one area is the party area and if you think what he has control of the three PS he has control of the pla personnel and propaganda whether in fact you like what he's doing in those areas he can be very effective very decisive very nimble in controlling those levers of power when it comes to the economy that's sort of increasingly you know authoritarian style of leadership that we see in C Jinping doesn't work it may work a little bit you know we have had a slight uptick in property prices and everything this year in the first three months of this year I think that's a temporary thing but you know China is a vast sprawling continental complicated economy xi jinping is up is that you know chairman of everything as we know he's the chairman of the the party internal group overseeing the economy but I doubt he has that much time and people tell me to actually focus on it he has a very tight inner circle but within that inner circle on the economic side he has a very cosmopolitan worldly market oriented advisors I don't see any sign that he's really listening to that but in any case he can't you know click his fingers on the economy as he might be able to click his fingers and get the governor of this or that province removed and that's difficult now if we go a one step beyond that and ask the question of whether Xi Jinping is comfortable with an economy ever reliant on the market which goes markets which go up and down and in developing countries with great alacrity and causing great damage at some on some occasions then does he really want to take a risk we're coming into the political season in China with pushing forward with the so-called quote unquote decisive role for the market I'm not sure that's his instincts actually and his instincts might be deduce things I might say very briefly I don't to be a Pollyanna on the Chinese economy but there are you know things are changing there are other changes happening I think we've had four years in a row where matter-of-fact manufacturing and construction has contributed less than consumption and services there is a transition happening but you know when the financial crisis comes and there inevitably will be one I think the real question is just how bad it is and what is hidden that we don't already know about it so there's a transition underway can that sort of Sprint or amble ahead of the big challenge down the track I just don't think we really know so I mean you raise the interesting question about you know whether Xi Jinping is willing to countenance doing exactly what he said he'd like to do namely let market forces determine the allocation of capital to a greater extent but as we saw in the stock market crash a year ago when push comes to shove the party wants to move in and fix things do you think we will reach ever a time when it will be safe enough to begin the kinds of reforms which the party itself declares are necessary right so this to all of you I'll speak briefly then up that well I think know in some respects I think the Communist Party as long as it survives will always want to have you know the state or at least enterprises over which they control you know the personnel at the top of to have you know the commanding heights of the economy if you like so that that's the first thing the I mean if you look for example at the moment when Jurong G was in charge and they did the the massive overhaul of the state sector something between 40 and 50 million people were laid off in the last few weeks we've heard talk about 1.8 million people being laid off now it's obviously that's a difficult for anybody who does lose their job but compared to what the economy went through before that's almost a rounding error and in terms of Chinese employment it's almost a rounding error it's almost like attrition and if that's a difficult decision now compared to what the Chinese leaders managed to push through before then you do sense sort of loss of nerve in really transforming the economy completely you know and I don't think they want to do that in any case I mean Jamil they they clearly have centralized power as you pointed out in fact the Prime Minister the premier is now really almost an accessory which means that the responsibility for what happens in the government is also centralized how do you think if Xi Jinping is going to manage to sort of spread the blame in fact your scenario comes to be true sure well I think he can still blame the premiere I think the premiere is still nominally in charge of the economy and we've heard recently that the premiere has not been travelling for the last five months because he has to stay back in China and deal with the economy so he's still the fall guy if things get really bad obviously it's not good for the Communist Party and the idea of unity at the top if you're firing your you're number two but the gossip last time I was in Beijing the gossip was very much focused around whether or not Li Keqiang would stay the premier where whether he would be allowed to stay on for another for another term second five-year term and I think that's unclear actually I think we've seen with Xi Jinping that he's willing to to rip up the rulebook all the we used to talk a lot about unwritten rules unwritten consensus rules which are now being unwritten even more as in they're being discarded entirely things like there was this as you'll be very familiar with the the rule that if you're 67 years old you can be promoted into the or stay on and the in the Standing Committee of the Politburo if you're 68 you have to retire and as you know back in the the reason for that was because Jung's arm in the former president had a rival who happened to be 68 and he had a friend who happened to be 67 so he instituted this new rule which became an unwritten rule which they followed ever since but it's not written down anyway and I think there's a very good chance Wang Qishan for example will be allowed to stay on he's the key hatchet man very important person in the anti-corruption campaign and many other things so I would point out that Xi Jinping has has really taken power on so many things that we we hear about some of these are sort of secret some of them are more open but there are now something like thirty something small leading working groups which are the real way that power is exercised including how to fix the Chinese soccer team which i think is hilarious there's a small working group led by the president with the Premier is the vice chair and you know all these people and they sit around and talk about how how and why their soccer team sucks so much it's that is that broke it is really bad there's the soccer team really does suck don't you know their men's team by the way the woman seems fantastic yes I don't shower ping was head of the old China bridge associations right his highest well that's actually a point I was going to make is that people say well look at Xi Jinping he's got all of these positions he's got all these formal roles as the head as a head of all these small working groups but I always point I make the same point that you've just made that the formal levers and institutions of power are far far less important than your your gravitas and your your standing within the party and your your informal networks and as you point out dong shellping ran the country he was the paramount leader and the only title he held was chairman of the Chinese bridge Association for like a decade right I mean so so you don't need all these titles you need the support and the loyalty of the generals number one obviously very first thing you need and then all the cutters you know our down through the system you need the officials behind you and once you and I would say that the fact he has to hold these formal levers means he probably has less of these informal power structures he just showed up on Central Chinese television wearing a camouflage army fatigues and touring visiting the People's Liberation Army that was a really just talking about it yeah yeah so Lucy let me ask you you live in Beijing and you cover the economy how do you think ordinary people are experiencing this sort of evolution of economic things in China well I think it depends what type of ordinary person you are right so for a lot of the migrant workers things are getting very tough because despite the rhetoric about increased urbanization actually there are increased efforts to push people out of the cities and that particularly hits children so they had relaxed a lot of rules for children attending schools parents had brought them with them to try to raise them themselves in the cities now they're pushing them back out to inferior schools in the countryside to be taken care of by elderly grandparents so at that level the decreased ability to provide these services is felt not so much as dollars in your pocket but in terms of the human separation that you're not allowed to have a normal life with your six-year-old you have to send your six-year-old on a train 2,000 miles away and you know I've had people say to me I've got the money I can pay for the school fees they just won't give me the paperwork to put her in but otherwise are you finding people optimistic pessimistic frightened a lot of people are looking at real estate in California yeah well so so this is something I wanted to ask you about George there's much talk about capital flight and of course there is a policy to do mergers and acquisitions as well do you think that this is a sort of a hemorrhage to be worried about or a normal phenomenon for a country that's increased its its wealth and power and wants to go abroad no it's it's a it's a growing phenomenon and I think the anti-corruption Drive which can hit people unexpectedly because it's used as a way of purging your enemies makes people very nervous and I think it's a there is a definite urge to diversify to get your wealth out and you've got also people who are influential who are using the loopholes of for improving the international expansion of that their businesses at to actually move money abroad of course the standing example was this insurance company that wanted to buy Starwood so I think this is an ongoing thing but the authorities have imposed capital controls at or great extend and it's something that is approved now by the IMF so it's a it's a an accepted way of dealing with the with the problem and it has had an effect on I think probably households find it difficult to get access to the allowed quote affecting 50,000 hours long yeah so they cannot draw it so it authorities are aware of it and try to to control it but I'm not familiar with the details of the inside situationally of what I am learning listening to you but but there is a fundamental contradiction between a party control and particularly if it's centralized have and and a market solution because for instance you need information markets insist on information now information that was previously available is now has been interrupted so it's much more difficult to follow developed and you need a free press you need a media and the media has been brought under the personal they had to swear a personal fealty to the leader so that I think is a very troubling development so how do you three view the prospect of this country that wants to be innovative wants to be modern in a somewhat information compromised environment do you think that the economy can move forward as robustly and energetically as it will need to if information is George describes that it's beginning to be more and more circumscribed well it's political information that circumscribed I think technical information isn't you know just agree because in one case it's not your right in general technical information is not circumcised but if you look at the case last year of the Taiji journalist who was thrown in prison because he reported on a technical matter in the stock market or he was a stock market crash well he was reporting that the government was going to remove its it was a scoop it was a great scoop we were very jealous he was going was reporting that the party was going to remove its support for stocks stop buying the stocks on the on the same level as ahead over the last month and that was enough to get him arrested and thrown in prison and a confession on live television right well that's yet that fair enough but that's politics I think yeah that was a political crunch time well I guess technical let me put it differently technological the of course in what George says broadly is true you know you're not going to build a great society unless you have an open society but China I think has done better than anybody expected having it both ways now how do you explain that well there's the effect that Lucy talks about you know it's the boomerang effect remember this is the society bouncing back it's a highly educated society obviously in Modena mainly in urban areas compared to rural areas very without getting into sort of cultural mumbo-jumbo it's you know will you go to China is very energetic it's very entrepreneurial people want to improve their lives and they've been able to do that and so there's a great incentive to you know you can work hard and get on and also if you go to the sort of basic technology that we use getting around the city these days you know the ubers and the like and the Chinese version of DDI or whatever it's called all those sorts of things the Chinese do very well with them and you know the alibaba's and this that and the other in terms of consumption it's a very switched-on place now can it prosper and grow at the rates it has if all the sort of the the horrible sort of you know the Kryptonite at the heart of the party system stays there I doubt it and I think it will be a drag but I don't think we should think it can't be innovative but there is a school of thought that believes precisely because there's so many impediments and Chinese have such incredible dynamism and energy the sort of Darwinian imperative of finding ways around these impediments has created an enormous sort of innovative that's wrong creativity it's a skill it's a skill I'll give you any thug Lucy I've heard a Chinese person say to me that if they didn't spend so much brainpower on navigating the bureaucratic system they could have invented the iPhone well that sort of refutes my argument I've got another slight rebuttal to your acumen Bob so I have a friend he he's he made it he studied at MIT actually in 1989 he was a student in 89 I don't want to say too much of em because he might be identified but he was a student in 89 careful kill so he student 89 but he left that year and he went to MIT he he made his first sold his first company several years later for 100 million dollars he went back to China and he has lived it for a long time he his family have a big car dealership business that's what he does but he's still a nerdy programmer at heart and he has four or five guys who are old sort of friends of his old colleagues of his working he pays for them to just innovate and they are really innovative they've come up with some amazing stuff but but including it was several years ago now they came up with this wonderful software which could live broadcast from your iPhone straight to your Wii chair or your Weibo account and this is the first in the world to come up with this it was a really innovative so it's like live streaming to your Twitter account and anyone could go on to see what you're doing what you're looking at now think about the implications of that for a police state for an authoritarian system where I could be sitting there Xi Jinping Pyxis knows I'm live-streaming that to everyone on the internet all there's a protest down in this village or that village I'm live-streaming and so he recognized immediately the huge potential for this but also the huge danger he was in having come up with this technology and so what he ended up doing is selling it to the state security system and for like a pittance because they knew he couldn't I rest my case yeah exactly innovation at work very innovative but but killed it it birthed basically and now it's been you know obviously that technology is now available others have come up with it but he was the first I mean really he he swore to me was the first than other people said he was so um I mean that's really sad if you do have an extremely innovative society which can't really properly bring it to market can't really monetize on you know popularize we're going to in a minute we're going to try again to watch Jameel film but George I want to ask you about why not just devalue well it would have very there's a severe effects of the internationally that's the in fact one of the reasons my markets are reassured is because there is genuine cooperation with between particularly between the United States and and China people talk about the g22 not not too loudly though never got too much purchase no no but it's a I think is quite real I think that that the United States rightly wants to have China participate in the international financial system and which they came very close to setting up a rival one and then they were given the right to join the as the SCRC to become a recognized currency st Azam have and and she G ping agreed to that that it is his accomplishment and he's his bought into it which is a very good thing so that that has avoided a competitive devaluation which wrought havoc in the 1930s so that we have learned quite a bit from that experience we are avoiding it so far exactly based on the efforts that we have learnt from that and and this is why the markets are actually Tama than they were at the beginning of the year and you think that China will sort of maintain that sort of responsible stakeholder posture yes it will actually make them their position were more difficult actually because it means that they one root of currency adjustment is his is denied and they did it the decouple from from being tied to the dollar so they now are tied to a basket of currencies of which the dollar is just one and therefore they can rebalance and if the dollar goes through the roof then they they can decouple from the dollar and so it's actually a very positive development for the world I think it's a very healthy thing that there is this called cooperation okay now I suggest that we sit here and see what happens look let's see if our heads are in the way we'll move but let's let's dim the lights and see if we can get the film up and then we'll have questions for you all afterwards well good more interesting so before we have questions from you all let me ask our panelists just in literally 15 seconds what one thing do you think China could do and should do um throw open the books financially and get complete transparency and all everything that's that's hidden inside the system political reform I think Lucy that doesn't leave much does it I would say socially if they remove what's called the hukou that binds people and still prevent you resistance and I hope they'll manage to prevail so we sort of return to where we began whether perhaps Marx and Lenin belong together but Lenin and Adam Smith finally are not such congenial partners anyway let's have some questions from you all there are some microphones because this is being webcast and so we can have your question it be webcast as well and please make your questions short and tell us who you are and let's have the lights up so I can see you right there I see a hand yeah so I have a question for mr. George Soros um if you were the Chinese leader what would you do to have Chinese people to fight against the economy hardship and it mitigated the financial loss thank you so did you get that George what would you do to fight against what was it economically economic hardship well I think that if the authorities realize that they can't afford to have large-scale unemployment and and they are right to do so and and that's why they actually we ignited the the the furnaces and our producing steel and so on and that will delay the the problem the financial problem but it will make it that much bigger so they are in a way digging a deeper hole but at the same time but there are also positive developments which I'll mention that there is an increase the tertiary industry the service industry is is growing is gaining momentum but of course their productivity increase is more difficult to come by than in a manufacturing okay another question let's see I see one right here let's have a microphone down here if we could and maybe let's position another mic maybe right here for the next question thank you I just wanted to ask about and you are Nicholas Davidoff I just wanted to ask about some news in the FT this morning about the Chinese operating their own gold fix and just the general interests of the PBOC in gold generally given the politics of the you know Shanghai accord with the Fed what do you think about that is that a parallel strategy or a hedge for the PBOC I'll leave the technicals of monetary policy to mr. Soros but I think that there's a broad ideological concept here that the Chinese leadership for years has looked overseas ideologically they don't haven't brought up in a culture that a market can be set by itself and so there's a lot of discourse in China about having pricing power and the perception is that if we have the exchange if we have the fix then we can set prices and not you and so we won't be at the mercy of your price and of course the dollar as the world sort of lingua franca currency is the ultimate goal there but you know you've seen that rhetoric attached to every commodity large or small so without daring to answer how it would affect the BBC's technical movements I think that you should also look at this as very much a response to an ideological perception of how markets work and and who holds the power in those markets and and trying to take that power and move the center of that power to China as China thinks that George Soros has all the power and he can sit on prices in the world and say they want to take that power back from him and have it in Shanghai fortunately I can't comment because I couldn't hear the credit very convenient question right here yes my name is Kevin Doherty and the question is about the currency that mr. Soros brought up and certainly recently in the last weeks and months it does seem that there's more stability and perhaps on some agreements by different central banks to try and keep things more stable but over the last whatever period you want to go 2 3 5 8 10 years there's been extreme currency volatility globally in whatever currency you look at how long do you think they can really maintain some sort of tacit agreement to try and keep things stable when market forces are pushing things so strongly towards instability because it I should answer yeah with market forces pushing currencies towards instability how long can we expect this sort of balance to be maintained in Chinese currency well as I say there is a definite cooperation between particularly United States and and and China and that makes actually in a way the task of the of the Chinese government more difficult but it does protect the rest of the world and that is why the markets are having a sigh of relief because the the danger of competitive devaluation has a greatly diminished so here George you view the Chairman although actually what what just now happened today where the dollar strengthened considerably and because oil has made a you high Wilson sanction dollar and will make the commodity producing country's position what difficulty so you think in a certain sense China should be commended for its the role it's playing in keeping world currency stable yes okay next question let's see right here on the very edge a woman hi my name is Erica Chang I'm a graduate student at Columbia University and I would like to address my question to our Financial Times representatives how would you interpret the messages that China is sending by militarizing to South China Seas could we say that it's a Chinese government's effort to assert or reinforce this global power during this economic downturn so how do our Financial Times representatives interpret China's militarization of the South China Sea Richard's working on a book on sort of this topics then not actually on that it's right sort of sort of but the well I'm more East China Sea but the I think that I mean we're talking earlier about is China innovative Janet could be very strategically innovative we might know of course whether what it's doing in the South China Sea now will work we might need ten or twenty years perhaps we have to wait until we have the first shangri-la hotel open on the Paracel Islands or something to see if the strategy is really working but I think basically you know there's a lot of cult in talking about China these days there's a lot of the cult of Xi Jinping it's all about Xi Jinping but I think really what he's doing he's certainly more decisive and he acts more quickly drives consensus but China's claims to the South China Sea or all the sorts of envelopes that China are pushing at the moment none of that is new all is that the main thing that's new I guess is we have a more decisive leader but China has much greater capability to enforce those claims and this tactics they've been using the so-called salami slicing tactics are I think on one level very clever the u.s. is not going to war over a newly-built sandy at all it probably isn't going to go to war either though after these islands have been militarized which obviously is taking it to a novel let another level altogether at the current stage China couldn't defend those islands in ten years they might be able to the flip that around though and the strategy doesn't look so clever China might think as a certain other country has at different times mighty is right but you look at what's happening in Asia these days we hear about the u.s. pivot the real pivot in Asia or the real impact of the pivot in Asia is the multiple areas of cooperation opening up against China it's Japan and the Philippines it's Japan and Vietnam it's even Vietnam in the Philippines of all places not that they're very powerful but everybody is making all these links Malaysia and Indonesia we've had the issue with the Chinese fishing boats all the way down in Michener Islands in the last few weeks so can China just do what he wants which is what it's doing is China as the state councilor then foreign minister Yang Jiechi famously said in 2010 in Hanoi you know China is a big country and you're you're all just small countries and that's just a fact is that is that sustainable I really wonder about that and I really wonder this but the every time China Rover reaches like this everybody says oh my gosh they're going to reassess and pull back and frankly the opposite has happened so you know I think it's you know we're not at a inflection point right now but I think it's going to be very very dangerous in the next five to ten years it's a bit of a ramble relative comment really um I mean the only I've got a slightly I mean I agree with everything Richard said but I gotta be careful Richard hired me to the FT and he's in Chinese we say beloved ah so he's my he's my rabbi so I gotta be a little careful um I have a slightly my religion I'd say if you push him sorry bishop yeah Oh getting confused my so I mean I have a toy with this slightly unorthodox idea that China sometimes I think China could be being more belligerent China could be being even more assertive and and as you pointed out that it's all the claims that they're making are claims they've made for decades so we're not seeing the claims expand we're just seeing the ability I think I'm agreeing with you again the ability to enforce those claims is much greater than it was before I almost read an article and didn't end up doing it but I was going to call China the reluctant superpower it's kind of educated its populace in nationalism educated its people to believe that all this the these border areas belong to China they've always belonged to China and now it sort of has to kind of act on it but it's kind of reluctant it doesn't want I mean I see elements in the system that doesn't want to expand too much it doesn't want to get into a fight with America obviously and it doesn't really want to get a fight with Japan it doesn't so I actually if I flip it around a little bit I'd say China could be a lot worse than it is being could be a lot more belligerent and is maybe yeah but then I then I go back and think they're really mean and nasty and bullying their neighbors so I sort of toy with this idea of you know what would be the worst case scenario they could be making bigger claims they could be saying Mongolia was always part of China they could be saying that you know Hungary was part of China at one point Genghis Khan made it all the way to the gates of Vienna why not say that that all belongs to you know it was the UN Empire right so 100 - like the hundred - line all around the world I mean you know maybe we'll see that one day but but actually Korea belonged to China you know Japan maybe Vietnam definitely belong you know they could say they could make a lot bigger claims maybe they will I just think that you know if they all they want is a few piddly islands in the SAR got to be really careful here tiddly Islands like Taiwan and you know Japan following the right policy in corporate it wasn't it was her cooperating where China cooperates and pushing back where China is pushing forward and that will I think hopefully that attitude will keep China from pushing too far forward and there will some signs of greater cooperation with with Japan you know is saved in the South China Sea but actually there as we know trouble recently with the Kikuyu our eyelids because I think China hopes that that Japan will invest in China so I hope it will work because I think Peace River depends on that I'll just make one very quick point related back to the topic at hand the economy I mean you know these days you can't mobilize the Chinese economy like you used to be able to you can't just have inputs and get growth that way but you can mobilize people emotionally I think in China it's a different form of mobilization and you know does one if the economy slows do we automatically move to that to some sort of sort of nationalist prop for the party it's a bit of a sort of conventional binary maybe too simplistic view but there's I think there's definitely an element of that and this is not a data point as political scientists would say but I've never met anybody in China who doesn't think the South China Sea belongs to China you know there's not it's not even open for discussion and if you go outside of China of course you get a very different view and that seems a really tough issue to solve and of course it used to be the 11 - line and then the Chinese took two dashes away for North Vietnam in a comradely action but that hasn't helped them in the long term in their relations with Vietnam I mean I think the danger is the South China Sea becomes like Taiwan and Hong Kong you know a core interest where there's no discussion there's no no's no diplomacy can do anything it's just there's it stays okay now I think we have time for maybe one more question let me see who there's a gentleman right in the middle there if we could get a mic to him not the FT journalists the no no not him the other one yeah well whoever this our very ardent looking gentleman is here so now he's going to be overseen well we tried thank you I'm John Laxmi it seems to me that this is presented here is invalidated by some of the things presented in the movie itself Adam Smith seems to be prevailing over Lenin and Marx if India and Vietnam and Nigeria and other manufacturing countries they become more manufacturing oriented isn't there a market place global marketplace working here to even out wage pressures in China and also the urban population going back to the villages as this gentleman pointed out they start businesses and other parts of the economy start growing in China is in the marketplace actually working even though it may not work in the way they the leadership wants I think this is for you Julia yeah I think that's exactly what's happening I think China the Communist Party recognizes the power of market forces and has tried to harness them and is also at the same time fighting against them but the big things that are going to change the Chinese economy the Chinese society the world are unstoppable they're things like demographics which we touched on that in that movie but I think are far more important actually than any sort of investment model or I mean you just can't stop demographics actually and China for the last thirty years has had huge numbers of people entering the workforce entering the working age population and for the last two three years we've seen it's shrinking the working age population so that's all tied to what we were talking about the one-child policy is all tied to all this so yes I think despite the parties wish and desire to control market forces to to have the sort of final say in how markets operate and how they the outcomes that come out of them these forces are unstoppable and are very powerful so yeah what's happening is definitely market forces that they can't control I hope that answers but if I could add a word I think your question is actually what's obsessing Chinese leadership right now earlier this week there is a two-day conference in Beijing called avoiding the middle income trap or something about the middle income trap and every influential Chinese economist pretty much was there so the concern is exactly as you stated the markets working globally and you mentioned Nigeria India maybe other countries are taking up that low skill manufacturing and so that provides a natural cap to China's ability to employ those people and that's why we saw the gentleman from Hunan going home the problem that they're worried about is that that is the middle income trap right so you could have a scenario where those low wage jobs kind of even themselves out worldwide the price of the t-shirt doesn't change but then China's kind of stuck as well unless they can make the leap as say Korea has done Japan has done as the British Empire did as the Americans did unless they can make that leap to a more complex economy that is not reliant on textile and low-income factory jobs so that is you've just encapsulated the very worried that they have and and they're not entirely confident of their ability to make that transition yeah I would argue that all the examples you give Japan Taiwan South Korea in just in the region they're all that transition that evasion of the middle income trap is is generally accompanied by democratization and political reform so I mean call me as L it but but I think those two things go together I think that's also part of the market the inexorable market forces that are driving so either China's going to get stuck in this middle income trap or it's going to be driven by the it will be accompanied by political natural political reform I think that's my sense although I have to say Jamil having thought this almost every single year over the last thirty year I have to take take my hat off to how far they've gotten without having that political reform that used to just is so essential now we have one person right in the front here do you have a quick question good let's have a quick microphone because we don't want to keep you here too late well no microphone shout it out so the question I believe and I think I am understood I think the key is the banking system because the bad debts I mean now with the the most of the money that banks supply is needed to keep the bad debts and and the the loss making enterprises alive you can practice you can close branches but you can't actually close entire factories entire companies you can close a factory that you can't close an entire company without having to after that so the banking system nano has more loans that it has deposits so it has travels on the asset side but it also has increasingly trouble under liability side because it now the depends on the system to provide that accredit other banks have to lend to each other and that is a an additional source of uncertainty and instability so the the the problem has been deferred and it can be deferred for maybe another year or two but it's growing it is growing at an exponential rate so that's the problem that they are facing well listen um please join me in thanking our four great panels and thanks to all of you for coming

Channel: Asia Society

Views: 68,624

Keywords: financial times, jamil anderlini, lucy hornby, richard mcgregor, asia society new york, current affairs, george soros, orville schell, economy, politics, society, documentary

Id: K-P6UIXyz-c

Length: 69min 31sec (4171 seconds)

Published: Thu Dec 15 2016