Deborah you really are a China expert we'd always love it when you're on give us a sense of how China has changed in the last
25 years. And one way I can start actually is Covid Covid has changed us all. What about President Xi's reaction to Covid 0
Covid as it's called. Well really excellent question and David it's so nice to see you again.
Thanks for having me on. China has changed unbelievably in the last 25 years. As I look
back when I was doing trade negotiations at that time one of the most fundamental concessions that we got from the Chinese just
to give you an example and put this in context is the fact that they would actually have to publish their trade laws and only
ones that were published were enforceable. So we've come a long way as they built a world class legal
system and trade system. Now enforcement is a whole other question but it shows the significant changes that we've seen
over time in the development of the economy. Covid is a whole other issue.
She today reiterated his position on following a dynamic Covid policy. They have definite concerns about the impact that it's
had on the economy. But he had reiterated the fact that people were willing to sacrifice on the social and economic cost given
the potential of deaths in China. Had an article recently in Nature magazine where they estimated that if of Akron were
allowed to go free essentially in China it could result in one point six million deaths. China is not going to stand for that
particularly in the lead up to the party plenum. This likely this November. So for Xi they now look at what is the impact on
the economy as he looks last year. Last year was a banner year for China. They were the largest
source of direct foreign investments. Most foreign companies who were there reiterated they were going
to stay. The majority of them were profitable. They were positive about the prospects.
She went into 2022 in a very strong position and with a view that his policy around Covid was the best in the world.
Now hits Ukraine. Russia's invasion world potential recession. And then the
lockdown in Shanghai definitely was overzealous officials who were going after that. But that had both psychological impact
when it was a city is sophisticated and is crucial to China as Shanghai but also to the rest of the world. And it's really
causing ripples through the economy. We're likely to only see zero percent well negative growth or zero percent growth in the
second quarter. And they definitely will not hit their targets of 5.5 percent
that they had for this year. But I will say one last thing to when Xi Jinping made his comments doubling down and he was in Wu
Hon obviously where Covid first broke out to make these comments the most important thing that the Chinese did was actually put
out a policy to try and govern and create guidelines for actions that local officials should take if there is a Covid break out
in their city. And this is an attempt to address this issue of overzealous
officials to limit the economic impact where possible when there are just a few breakouts. So Deborah that's interesting sort of
cabin as it were. So the activities of local officials at the same time a lot of Western experts that we talked to here on
Bloomberg say you know President Xi is approaching zero Covid just wrong. He's going to have to change that to go into
vaccinations. He's got to change his economic approach overall. Is that the way President Xi sees it. Because there are some
indications. You pointed out a chart actually indicating that if you look at the objective norms of how many deaths per million
by Covid and also the reduction in GDP China is not doing all that bad.
Right. I mean looking at that Bloomberg chart it is pretty astonishing.
What if you just look at that chart how well China has done compared to other countries. If I can't I can't say whether she
honestly believes it's the right policy or not but there's no question they're not going to change it. They may fiddle around
the edges. They now call it the dynamic Covid policy in the lead up to the party plenum later this year. But if the goal is to to
create economic growth they only have a number of limited options to do that. They have not double down on fiscal or
monetary policy. They kept it relatively stable. So the only other option that they have is they really need to find a way to
generate growth in consumption. China did not see the kind of consumption bump that the United States and Western Europe saw.
People were not taking their money and going out and buying during Covid buying goods when they couldn't buy services.
Instead what's happened and this has been particularly exacerbated after Shanghai is people are reporting their money
because they're concerned if there is a Covid breakout in their city they're going to have to pay for it. So they're not
spending money they're just keeping it. And that is having a dampening effect on the economy and definitely a dampening
effect on consumption. So the only way that they can start to free up that money is if the Chinese people feel safe and in the
short term they're not going to feel safe. If we if China opens the borders because that is absolutely going to result in
additional cases of Covid. So they only have a few limited options. They
have to start to vaccinate the population. And even though China has high vaccination rates amongst the elderly there it's very
low. And if we look at Hong Kong and as an example the overwhelming majority over 90 percent of the deaths there were
in the elderly in Hong Kong. So as an example extrapolating into China there's a lot of fear about that. It didn't refer much to
trade with the outside world. How important is it to President Xi and his regime to actually get back into a situation where
you have more growth that's generated by international trade rather than domestically.
Well they've certainly substituted export growth initially in the post Covid world to government investment and so that was a
critical part of economic growth as they started to open up again after their first shutdown with Covid. It is a very
important part but they know that they have to diversify even though they had record exports to the United States last year.
They know that they have to diversify from the market because obviously with the politics different politicians are looking at
ways to try and limit Chinese imports into the US. And there's a lot of concern about the growing trade deficit. The Europeans
particularly as we've heard coming out at the G7 are also starting to reconsider their policies with China. And China
anticipates that Europe could start shutting down their market. And so they've been very active in looking for new markets. And
we have seen a regular and steady flow of leaders from the Middle East for example traveling to China and signing trade
deals. You mentioned a couple of times this 20th party plenum toward
the end of the year maybe around November time. I mean in a sense we have midterms in United States. They've got their own
elections of of sort for President Xi over there. How is that affecting decision making right now by President Xi and the
people around him. Well I'm sure president she was hoping for stability going into
this year and he certainly didn't get that on the economic front. And there's certainly a lot of concern even domestically
with unrest for two reasons. One objections to these very stringent Covid policies with complete lockdowns. But two
because we're seeing over 18 percent unemployment amongst Chinese youth. And when you look at the social contract that
China had basically made to the Chinese government had baby with the middle class. Part of it was that they would be willing to
trade away some of their social liberties in exchange for continued economic growth. When many of these families are
highly dependent on one child to support the parents and two sets of grandparents it's critically important that these
children can find jobs. But as we look ahead to the platform and ironically it might even be around the same time as the U.S.
midterms one of the really interesting factors that she has in his favor when it comes to his own position of power is that
there is going to be over 60 percent turnover at the central committee. And most of the new people who will be coming in due
to China's age limits are going to be people who were born in the 1960s. They have a very different perspective. Many have
traveled widely overseas. They have been educated overseas. They are professionals in their fields. They are going to be the
feeders to the Politburo core then feeders to the standing committee which are the top group that then rule China. And part
of this collective leadership along with Xi Jinping.