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.