This is it, isn't it, that the weakness
that we're seeing in the shorter term, how much does it play into the broader
restructuring, the slower new normal, the demographics that you talk about for
China? Because we know that even pre-pandemic
these were longer term concerns that were well flagged.
Well, we got a bounce, Heidi, in the first quarter of this year, as we had
expected following the ending of the zero COVID lockdowns.
But the big surprise was that it was what we call a dead cat bounce.
There wasn't much momentum afterwards. And I think that reflects the fact that
the undercurrent to the Chinese economy is is a worrisome one that resembles to
some extent, that which we saw in Japan in the nineties, which then, of course,
persisted for three more two more decades.
And, you know, the the working age population in China has peaked, peaked
in 1916, which is, excuse me, 2016, which is 18 years after the same peak in
Japan and like Japan with very weak underlying productivity.
That's very much the problem in China today.
And so it's really hard for the economy to sustain that type of momentum ahead
for that one quarter after the COVID related lockdowns.
We've talked about the fiscal buffers that Beijing has in terms of how much,
you know, big bang stimulus they can put through.
But is there also a concern about the productivity of that stimulus?
Because you know that, you know, per unit productivity of debt has also been
dwindling for China. Yeah, absolutely.
That's that's an important point. The productivity headwinds in in China
now are starting to blow quite fiercely. If you look at the broadest measure of
productivity of any economy, total factor productivity.
The numbers are a little bit dated, but in the nine years ending
2019, total factor productivity is down about 7/10 of a point per year
in part and not insignificantly reflecting the fact that a lot of the
economic support has been shifted under Xi Jinping to low productivity, state
owned enterprises and prospectively the pressures that
his leadership administration has put on the once dynamic
private sector, especially the Internet platform companies, is even going to be
more worrisome for productivity going forward.
So this is a big issue and one that the policymakers need to address.
Stephen, all of this coming at a time when President Xi Jinping and the
Chinese leadership have tried to really internationalize China, open up, or at
least the rhetoric has been that way. They want to expand the usage of the
Chinese yuan overseas as well. What are the implications in that sense
of China's economic might on the global stage when you have these domestic
challenges? Well, China has been the single most
powerful engine in the global economy for the past 15 years, in the years
following the financial crisis. Chinese economic growth accounted for
about 35% of the cumulative gains in world GDP.
And so, you know, the world needs China just as China needs the world.
But the slower growth we've seen recently has reduced the power of that
growth engine and China's global clout in driving a world GDP considerably.
And so that you have to ask yourself who is going to
take China's place or is the world itself headed for a slower growth
trajectory until or unless China can successfully address its growth
problems? We have for a while talked about how US
dollar dominance might come under pressure, especially with perhaps China
trying to really internationalize the yuan on a day like today when you have
Fitch cutting the credit rating of the United States.
Are we going to see more of this rivalry between the US and China?
And what are the broader implications when Beijing holds so much of the
Treasury market in its coffers? Well, I've learned very painfully
that one never wants to forecast the demise of the dollar.
I did that a few years ago and I wrote
several opinion pieces on the Bloomberg platform.
The latter the final one was a mere culpa for my
wrong way dollar crash scenario.
Certainly there was a case against the dollar and massive current account
deficit, extraordinary shortfall of domestic savings.
But and, you know, a Federal Reserve that
while it tightened dramatically and gave enormous support to the dollar over the
last several years, has now near the end of its tightening cycle.
But you have to consider the alternatives.
I did that. I was wrong.
I argued in favor of the euro, the yen, the renminbi.
And even for a while I was dumb enough to suggest that
some currency allocators would consider the Bitcoin as
an alternative to the dollar. All of that was wrong.
I regret that. But that doesn't mean
the dollar is going to stay as dominant as it has been forever.
But I think that's a story for another time.
Steven, so self-deprecating there. But and I wanted to get your views on
what options are left for China, because if we're talking about longer term
structural causes to the weakness that we see petering through the economy
here, then perhaps of rhetoric when it comes to consumer support, either
enterprise support may not be enough. Right.
What could actually have an impact is that, you know, direct fiscal transfers
to households. Is it more, you know, bold market
reforms? Do they need to do more when it comes to
the property market? Is there anything that's actually going
to steer this ship around? Well, let's hope they don't do more for
the overly levered property market. That would really be, I think,
you know, a unmitigated disaster for China right out of the script and
playbook of Japan.
The missing link is internal private consumption.
I've argued for years I've written books about it.
The. It's not that difficult.
They've got an excess of fear driven, precautionary saving, driven by the
rapid ageing of the Chinese workforce. They need to build out their social
safety net. Health care and retirement to convince
Chinese households that they need to put more of their discretionary
income to work in fueling discretionary consumption rather than putting it away
for a rainy day to deal with the safety net issues of health care and
pensions. They haven't done that and they continue
to suffer a lot from the. Save in your latest book is about the
clash of what you call false narratives between China and the US.
We know that this is a great strategic competition and relationship of our
time. Does the economic weakness, the policy
challenges mirrored as they are for a presidency change the calculus of how he
deals with the US? Does it change the amount of leverage
either side has? Well, it's a great question.
You know, the sort of the the political psychological answer to that is if
you're facing growth challenges, you deflect attention away to other matters
and conflicts with other nations are.
You know, I've always been a candidate and there was a great movie
in the U.S. made about that called Wag the Dog,
which puts the hat on the other end with the U.S.
concocting a fictitious war to deal with this,
to deflect attention away from its problems at home.
I'm not saying a Xi Jinping is going to follow the Hollywood script, but
nationalism, the the pride of the Chinese dream,
the conflict with the United States certainly does
change the debate, shifts it away from the growth problems that have occurred
on his watch. So, you know, it's it's a you know, a
convenient deflection of responsibility for addressing a more serious issue at
home.
