Moody's Talks - Inside Economics - Inside China

Episode Date: January 16, 2026

The Inside Economics crew is joined by Logan Wright, partner and director of China market research at Rhodium Group. The team first unpacks December’s consumer price index and discusses the state of U.S. inflation. Then, Logan shares his expertise on the Chinese economy. From a slumping property sector, dubious economic data, and evolving trade flows, there was no shortage of topics to dive deep into. Guest: Logan Wright, Partner at Rhodium Group and Director of China Markets ResearchHosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' and BlueSky @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Sandy, the chief economist of Moody's Analytics, and I'm joined by one of my trusty co-host, Chris DeReedies. Hey, Chris. Old faithful. I'm here. Good to see you. Yeah, it's good to see you, Chris. Marissa is in and out. She's having technical difficulties. Hopefully she'll join us shortly. We also have Matt Collier. Hey, Matt. Hey, Matt. Hey, Mark. Hey, Chris. How's it going? And can I ask, what does it mean when Matt's on Inside Economics? What does that mean exactly, Chris? It can only mean one thing. Only one thing. Prices. Yeah. I got a narrow skill set, apparently.

I need to broaden things out. Well, the weird thing is that's absolutely positively not true. You have fingers into lots of different pies. Because every time I have a question about anything, I just ring you up. You know, you're deeply into the inflation numbers, the inflation statistics. So we have you aboard for that. We're going to talk about CPI, consumer price index, and what it means for inflation more broadly. And we have a guest, Logan, right.

Logan, good to see you. Hi, Mark. Chris, Matt, nice to be with you. Really appreciate the invitation. And thank you for joining us. Logan is a partner at Rhodium Group. Rodium is a fantastic, can I say consulting firm? That's not the right words, is it?

Independent research firm. Independent research firm. We do have an advisory practice, but we really are, you know, first and foremost independent researchers. And from my perch, you have Rhodium and you have two areas of deep expertise. One is on China. That's where you come in, and we're going to be talking a lot about the Chinese economy and bringing that back to here the U.S. The other is climate-related issues.

Is that right? Correct. Correct. Energy and climate issues primarily in the U.S., but around the world as well. Right. And I've gotten to know you from, I guess your founder or one of your founders, Dan Rosen. Dan's been on the podcast before. Did he tell you that, Logan? He did. He did sort of prep me a little bit. So, you know, looking forward to it. Yeah, Dan and I have known each other for over two decades. We started working together just a decade ago. Yeah, well, I'll tell you, when he came on, he was pretty combative, as I recall. Chris, do you remember this?

Yeah. Yeah, he was swinging away. you know. I'll be a lot nicer, I swear. That wouldn't be hard, Logan. I'm just saying, yeah. No, I'm only kidding. Dan's great.

I understand. That is great. And I've gotten to know him because we're on the National Committee for U.S. China Relations. And that's a pretty cool group that every six months or so we meet with a group of American economists and government folks and officials, business people, meet with a similar group from China and talk about the economy and policy and everything else. It's really, you know, very enjoyable.

I learn a lot. But good to have you all aboard, Logan. Can you just tell us a little bit more about... And by the way, you've known Dan for two decades. You look way too young to know anyone for more than two decades professionally. Yeah, can't explain that part. but I lived in for 21 years in Beijing and Hong Kong and met Dan the first time through his travels through China. And so, you know, my primary career, started my career was as a central bank watcher for the PBOC.

So back in the 2000s, it was far easier to get the central bank and officials to speak with you, especially as a grad student writing about Chinese exchange rate policy, which is what I did. And so I gradually discover that there was a far, you know, greater appetite for understanding, you know, the translation of Chinese rhetoric into actual monetary policy outcomes in for financial markets than there was for the academic community. And so I ended up working, you know, basically creating independent research around conditions in China's onshore financial system, understanding the plumbing of China's financial system. the onshore money markets, the operations, the central bank, and all the ways in which that impacts conditions the rest of the world. And so that's really what I do at Rhodium for our institutional investor clients in addition to our broader research following the money through China's financial system and understanding how changes in China's economy impact the

rest of the world. Yeah, you've done this really cool research on trying to estimate Chinese GDP. that's really quite interesting. And we'll come back to that for sure. I really want to dig deep into that and get a better understanding of how you do that and what you're finding. You said you were in China in Hong Kong for 21 years? 21 years from 2001 to 2022.

Wow. Are you a Mandarin speaker then as well? Yes, yes. I mean, and it's eroding every day, the longer I'm outside of China, as we all know how languages work. At one point, I was a lot better at being able to conduct meetings in Chinese, yes. Well, I mean, that's a tough language.

So, I mean, just being able to hang, I think, is a pretty big deal. It was a lot easier in the early 2000s when there really wasn't any alternative to learning how to get around pretty besides us speaking some modicum of Chinese. But I learned primarily from my colleagues in early work experiences there rather than sort of of a, you know, a classroom setting. And so, um, as my, uh, you know, Chinese official contexts often say that like, you sound, you use slang for the 1990s, like we've, we stopped using these words years ago. And I was just like, I, I don't know what to tell you. That's so, yeah, because language evolves, you know, everyone's like, yeah, that's pretty, in fact, I was re, this is a complete non-sequodor, but does anyone know what Riz means to have Riz?

I mean, no. Matt knows. I could triangulate, but I am far too old to have like a firsthand experience. I can kind of triangulate that with you, Mark. Yeah. Can someone tell me? Because someone's, I was just reading and they go, he has Riz. And I go, what the heck?

And I meant to look it up. I would say it would probably be, correct. If you disagree, Logan, chime in. Like a kind of charm like a vibe to you, positive energy that people like. It's a positive thing. Yeah. Charisma. Charisma is a memory.

Oh. Oh, now it makes sense. That makes sense. How do you say Riz in Mandarin, Logan? Good question. Good question. I mean, everything would be sort of, yeah, I'd be associated with some sort of a, yeah,

I couldn't even come up with the right word. My wife is a translator and would be far more on the spot here. Chinese? Oh, wow, cool. That's really interesting. Very cool. Hey, Marissa, do we have you back? I don't know, do we?

Can you hear me? Can you see me? You're coming through Latin and clear. All right. Yeah, excellent. Good to have you. Thanks. Yeah, we were just talking about you.

Yeah, all good. I'm sure. I'm not going to tell you what we said, but it's all good, right, Chris? All good. All good. All good. All right. All right.

Well, Logan, hang tight. We're going to come back to China in just a few minutes, but we're going to spend a few minutes here on the economic data in the U.S. and inflation in particular. So, Matt, give us the rundown on the CPI, the consumer price index. Yeah. So December is consumer price index. index, broad characterization, inflation's elevated. It's not accelerating to a worrying degree, but it's still materially above where the Fed would like it to be. So we got December's consumer

price index. 0.3% increase from November to December in the headline CPI. Forces underneath driving that solid increase are going to come from both food and energy. So food rose 0.7% from the month before grocery store prices. The CPI for food at home is the proxy we're looking at there. 0.7% increase. That's the fastest since 2022. What was happening back then, a lot of commodity prices, agricultural prices rising fast after Russia invades Ukraine. So the strongest gain in a while year over year food prices, grocery store prices are up 1.94. I'm sorry, 2.4%. They were up 1.9 the month prior. So rising quickly. But but not astronomically.

Certainly a politically salient point there. The grocery store prices are rising. Energy, positive contribution as well. This was expected. I would say at large our expectation for the month-a-month increase in December. It was as expected. And one of the forces we saw coming was a pretty solid positive contribution from energy prices. So 0.3% increase in the CPI for energy.

It's not a gasoline story, more energy services. So a lot of the utility gas that gets pumped at people's houses. Natural gas, wasn't it? It was a cold month. Natural gas jumped 4.4% on the month. Electricity, which is often about, you know, I think estimates 40 to 50% of electricity. Household electricity comes from natural gas. So it didn't see much of an increase there.

It's, you know, a little bit of a temporal issue. But we'll see maybe some of that in the next couple months. Expectation for January is that we see a pretty hefty negative contribution. So retail gas prices have been inching lower. It's a big portion of the energy category in the CPI. It's about 2.75, I think, is the average gallon of gas right now. Can I stop you, Matt, just for a second? I mean, we're nerdy, but you are really nerding me out here.

I can't say that's a compliment or you're telling me to speed things up. The weight of the natural gas measure in what it means for January CPI. Are you kidding me? It seemed important. I still can't tell if too nerdy is a compliment. Or you're telling me to be a little more concise or speed it up a bit. I'm just saying. I'm just saying.

Let's take. Okay, go ahead. I'm sorry. For CPI, 0.2% increase year-over-year. Almost rounded up to 3. So 0.24% almost rounded up. I think it was 0.24, right? Rounded down, instead of rounded up.

Rounded down. Almost, you know, went the other way. So year-over-year, 2.6%. I've made it this far without plugging our alternative measures of CPI. Of course, we have the October data that was really wonky because of the government. and shut down the way the BLS measured shelter inflation, I think transparent, methodologically defensible but not practical or realistic or consistent with prior months. And it's really distorting the year-over-year growth rate in not just shelter aggregates, but given the weight

of shelter, we're seeing it in CPI and core CPI. So instead of the 2.7 and 2.6 year-over-year rate for headline and core CPI, we're at 3 and 2.9%. So, about a three-tenths of a percentage point gap that we think is being understated by the published rates from the BLS right now. We expect that continues. There's ways that this could be addressed. Just to paraphrase. So because of the government shut down, the BLS, Bureau of Labor Statistics, couldn't conduct its survey in the month of, was it October. So they had to make an assumption about what happened in October, and they assumed basically no price changes for most of the goods and service.

is in the index. That's bogus. They were very transparent about it. You had to do something, so that's what they did. But that's, you know, obviously not what the reality of what happened. We made our own estimates. And you're saying once you look at our estimates that are corrected for that October value, we're at 3% on year-over-year CPI inflation.

They're at 2-7. Core CPI, excluding food injury. we're at 2-9, they're at 2-6. That's what you're saying. Did I get that right, roughly? Exactly right. Right, got it. That's where we are.

So 3% is kind of where we've been, and that's elevated. That's uncomfortably high. The Fed's target on CPI would be something just north of two, because the CPI varies by construction from the consumer expenditure flater, which is a 2% target. So we're not a, we're a little under a point above where the Fed would feel comfortable with inflation. At least we're also to their target.

That's, is that roughly right? I would agree. You're under a percentage point, but yeah, still a pretty healthy distance. Okay. Okay. Can I, can I ask, because with the CPI and with the PPI, the producer price index, we can make an estimate of we haven't gotten the inflation measure from the consumer expenditure flier yet. That's the, that's the one the Fed targets. That's the 2% target.

Can you make an estimate of what that would be based on CPI and whatever data we've gotten on PPI? Yeah, if we can. So we'll get next week. You paused. Why did you pause? I'm just asking. No, because I have to get into the details unnecessarily and really hammer it down. The, it was dramatic effect. This needs to be as isoteric as humanly possible. And dramatic, yes. So we're going to get next week, PCE and Core PCE. We haven't had in a while.

We're going to get October and November data. The BEA is who publishes, the government agency that publishes those data points. They've said that they're going to average September and November's changes for October, where, again, we don't have data. But our expectation is that we lift from 2.8% year-over-year PC inflation up to 2.9. that's for headline PCE. That's about 0.3% increases on each month. For core PCE, it's a little bit stronger.

So we're expecting going from 2.8, closer to 3.1% after two months of solid growth. And again, that's just through November. December, we don't have producer prices yet. We'll get them soon. This is, again, it's a effect of the shutdown. And there, we haven't made a solid estimate for December. But in general, our expectation is that both those measures drift higher

on a year-over-year basis, largely because the shelter distortion from the government shutdown is one being addressed differently and shelter gets less of a weight within the PC deflator to begin with. So that effect is minimized. But elsewhere, what we're seeing is relatively strong increases, especially in consumer price index, the components that flow directly in the PCE were a little bit hotter than the CPI on average. So both the consumer price index and now the consumer expenditure deflator, two different measures of inflation. they're both around 3%. And on the PCE

which is weird, isn't it a little because generally CPI runs a little hotter than PCE. Yeah, that wedge being small is weird and it's just also been pretty flat if you just took a step back for the past three or four months. Shutdown's weird.

But that's inflation at 3% I think has been a true comment for four or five months down. Right. So we're at 3% regardless of which measure you use and that's about a point above the Fed's target. So I keep saying uncomfortably high, and you would agree with that characterization uncomfortably high. Yes.

Yeah, okay. One mother said one other question before we go back to Logan and China, the imputations. A lot of the data, this was even before the shutdown because of government job loss at the BLS and cuts to government funding for the BLS and other. government agencies, statistical agencies, the percent of prices for the, the percent of goods and services for which prices are imputed has risen considerably over the past year. Can you just fill us in on that and where we stand in terms of those imputations? Yeah, so in December, the imputation rate that we're most focused on is called different cell

imputation, which is kind of a blinder way than other estimates used that the BLS has at its disposal to estimate prices where the data just doesn't exist. That 40% is up from roughly 10% at the beginning of the year and kind of historically norm in recent years. But what that 40% represents is the share of all the prices that are imputed, 40% are coming from this less precise way, this different cell imputation. Again, that's a dramatic rise, but it doesn't mean that 40% of prices that go into the BLS's estimate are imputed this way. It's just within the population of imputed prices. Forty percent are being imputed. So estimates that you see floated around about, okay, what is the total share of imputed prices in a given month? That's closer to 20 percent. And that's

risen as well. And that's risen because of cuts that the BLS has, again, been very transparent about, but announced there's cities that don't get covered the way they used to. And then even in cities that are still being covered. So enumerators are still spreading out through Pittsburgh or Philadelphia and looking at certain prices, the number of items that they're actually tracking down

has been reduced in a lot of instances. So the imputation measure has gone up and then within that imputation, the less precise different cell imputation rate has also gone up considerably. Yeah, so roughly 20% of all the prices that are measured across goods and services

are imputed and that's up from how much a year ago, just a few percent? Two, three percent is kind of the percent. That's consequential. And then, of course, you're saying, of the imputations, 40 percent of those imputations are now different,

so-called different cell, and that's a pretty big leap there when you're using a different cell. Absolutely, yeah. Okay, okay, got it. Okay. So the quality of the data that we're observing, is eroding.

So not only is inflation rising, but we really don't know, really, we don't have as good a fix on to what degree it's rising and how above target it really is. Larger margins of error. Yeah. Right, right.

Okay. Okay, very good. Anything else on the inflation numbers? Chris, no, I. Anything you want to bring up? No, okay. Matt, you were going to say something?

The vehicle market, again, seems to be perplexing. New vehicle prices didn't rise. They're only up 0.3% despite a 15% tariff on exported or imported cars and automotive parts. So still waiting there.

Hasn't really happened, but that's probably the only other thing I'd call out. Feels like that may come. I mean, there's a bright, shiny light on those prices. So maybe that everyone's taking their time

before they pass through, but we'll see. I think that's right. Yeah. Talk about the... Oh, I'm sorry, go ahead, Chris. Sorry, what about the tariff-sensitive goods? I know you follow those closely.

Good segue, because it was weak. 0.1% increase, 0.14% increase in our tariff-sensitive CPI. So take all the stuff that's import heavy and weigh it appropriately. And that's a mild increase, but it's the new vehicle story. So no change in new vehicle prices is going to be a big weight there. There's some stories, I mean, some things you can look at and make a lot of sense. Home furnishings. again, a lot of that furniture, those products are imported, big strong jump there, apparel

similarly, but a 4.6% decline in appliances, which is a big component of our tariff-sensitive index, that's going to pull the other way. And of course, new vehicles being flat, we're pretty strong offsets. I point to food, too. So meats, a lot of beef, roasted coffee, gets a lot of attention. Both those took big increases on the month. But, you know, have some, some noisy movements in the other direction or no direction at all in the case of new vehicles that kept that index week in December. What's the year over year on the tariff sensitive CPI? You said the tariff sensitive CPI is 2.2% which is down slightly from the month before, yeah. Got it. Good. Well, talk about squirrely data. Logan, maybe we can bring you in because I know

you've done a lot of work trying to measure GDP in China. And I consider you in Rodium pretty bearish when it comes to your perspectives on China. And that partly derives from this work that you've done measuring GDP. Do you want to talk a little bit about that and what you're learning? Sure thing. And I think that there's long been questions about China's economic data. and, you know, we wrote an entire study back in 2015, which we called Broken Abacus, explaining really in a very different context, the evolution of China's statistical system and from a Soviet system that was largely focused on output-based measures, production-based measures of the economy, into a more modern S&A-compliant, S&A tables, compliant system of national accounts, compliance system.

and yet a transition that was still entirely incomplete. And so at the time in 2015, you know, we took a look back at the 2008 economic census in China and concluded that, you know, based on their valuation of the property sector of owners' equivalence rents in particular, you know, they were really underestimating GDP in 2008. That actual, the economy was probably far more. dependent upon the rise in the real estate sector up to that point. Then, you know, the debate over China's statistical accuracy really morphed because from 2014 to 2019, and if you, I'd urge anyone really interested in this to go back and look at the official year-on-year growth

rates of China's GDP between 2014 and 2019 compared against other global indicators like the movement of the dollar, movements of global commodity prices, global PMIs, and think about the changes in, you know, Fed policy during that time, and think about how China could have a cycle that is so overwhelmingly stable relative to all of those fluctuations in global economic indicators and prices, of which China was a major driver of global demand and, you know, a contributor to global, cyclical momentum during that time. If you look at 2014 to 2019, GDP growth basically never moves. The total volatility of growth rates, you're on your growth rates over that time frame was less than two percentage points. I think it was a little over two percentage points from basically

about five point, I'm going to get this slightly wrong, but it's basically about 5.8% to 7.4 over that time frame, extremely narrow range of volatility. And so that's a lot of was kind of a big jumping off point for us. We wrote this note in 2019, Dan and I, called GDP the costs of Omerta. And what we were describing was it's really not. It's amazing you remember the title. These are great titles.

All we have, Mark, as you know, is like really, you know, catchy titles to try to encourage people to read our stuff. This is necessary. But, you know, they're also useful in getting people in the frame. The framework of thinking about that. That's the idea anyway. It doesn't always work.

Sorry. Sorry. Yeah. No worries. But the point is, like, there used to be this legitimate debate on maybe there are errors in both directions on GDP. And in 2014 to 2019, there was this new problem because the data was just far too stable. And it didn't make sense that the.

actual rate of economic performance could be so stable. Still, there was probably a reasonable argument that maybe they overstated growth from 2014 to 2015, her stated growth from 2016 to 2017, and maybe these errors net net out. By the time we got to 2022 and 2023, zero COVID, the collapse of the property sector, the story is increasingly, I mean, there is really no debate, I think, on that China's GDP data are accurate. The debate is over the extent of the distortions and how unidirectional they are, you know, how much they tilt in one direction. And I think that is still legitimate debate to have. But no one really officially defends the Chinese GDP data, even Chinese officials themselves. By 2022, you had a property sector that was in

free fall, a property sector that represented, you know, anywhere from 20 to 25% of GDP in China, including upstream and downstream impacts. In 2022 itself, new starts fell by 40%. You had zero COVID lockdowns occurring around the country. You had, you know, official consumption statistics, retail sales that were negative. And yet they still reported 3% GDP growth for the year. And then a stabilization of growth from to 5.2% in 2023, 5% in 2024, and we'll get the full year growth rate for 2025 on Monday, but it's likely to be around 5% as well. And in our view, the story is far more, is far darker. You had a much sharper deceleration in overall investment activity. And China is an investment-led economy, of which the property sector was by far the most

a significant driver of investment, and new starts in the property sector over that four-year cycle have been down 74%. It's an outright collapse. Sales in dollar terms on annualized basis have fallen from about $2.7 trillion in property sales to a little over a trillion. It's just not realistic to be reporting the same rates of investment growth before the pandemic and after the pandemic when a sector that's this important has basically fallen off a cliff and the GDP data does not account for that. And no one really has an accounting for it. I can get into a lot of the debates around this. The other issue is that despite the pledges to reform China's statistical system, China doesn't report expenditure side GDP data on a quarterly basis. They reported on an annual

basis and then it sort of fits some of the production side GDP data. But it's just important to highlight how extraordinarily unusual this is. I mean, the economies that are so important for the rest of the world, you typically, you will not see exclusively production side value added reporting for GDP, except among major commodity producers, right? I'm struggling to think of exactly who still does this does this exclusively, but it's typically not major, you know, economies out there. And so we don't have, you know, real-time comparable data in China relative to the rest of the world. So in our view, the real story is that growth was far weak, was slightly negative in 2022. We've had a very modest recovery averaging around 2% growth over the last three years since

2022 and 2022, 23, 2024, and 2025. And entering 2026, we have another cyclical downturn from that modest recovery. And we're probably entering at roughly a pace of one and a half to two percent GDP growth. If you sort of add up some of reasonable estimates of the expenditure side components, which is exactly what we do. And within that context, you have an economy that is showing very weak domestic demand and far more reliance upon net exports than before,

even then at the start of 2025. So I can get into a lot of the details of that, but I'll stop there. Let me know what's on your mind. Yeah, yeah, just to make it clear to the listeners. So a number of points, but one was a more technical point about GDP and how you measure it. There's different ways of measuring GDP.

In the U.S., we measure it from most of the time we spend looking at the, as you called it, the expenditure side, the accounts, you know, consumer spending plus business investment, plus government spending, plus net exports. You can also calculate it by looking at production across different industries. You can also calculate by looking at income and profits, and there's different ways of doing it. But you're saying, in the case of China, they produce the data based on the production side of the accounts. They don't really, they don't do it on the expenditure side of the accounts, which is just weird.

And probably goes to your second broad point, and that is the data we're looking at is not the reality of what's going on. They're not growing 5%, which is the GDP growth rates that are coming out of the production side of the accounts. They're growing something 2%, 3%. And then you're saying in the case of 2025, even less than that, it was 1 to 2%, I think. For the full year in 2025, we're probably at 2.5, 3%. percent based on our calculations, but it's a notable slowdown from the first half to the

second half of the year. And yeah, I think the debate in China over the accuracy of GDP data is now focused on should the production side GDP data have any, you know, have any direct bearing on the expenditure side GDP reporting? Because basically people kind of default to, well, we just don't have great indicators of Chinese consumption. We just don't have great indicators of Chinese of Chinese investment spending or ways to calculate government consumption. So we'll just default to the production side data. And we just think that's wrong, that there really should be a direct correlation between these two sets. And as a result, if you're seeing significant divergences from how you can reasonably account for

Chinese consumption and investment and the headline GDP data, it is more likely that the overly stable headline GDP data is wrong rather than and overstated, which can be for all sorts of reasons, many of them politically driven in China, rather than it's a data problem, and therefore we have to default to accepting Beijing's official version of reality. The way I kind of put it is that the difference between China and many other economies when you're looking at some of the statistical data is it's not that there are not data series out there that tell you about Chinese macroeconomic performance. It's that Beijing wants you to look at certain data series and not others. And if you actually take a broader view and just go outside of

some of the official S&A tables and some of the official indicators, looking at things like credit, looking at things like prices, I mean, for example, I mean, this is a good economics question I've never received a good answer to. Are there economies in history that have had 5% real GDP growth over three years with three years of persistent deflation. Yeah, good point. Especially investment led, you know, investment led economies. I think the answer I've gotten from someone is maybe the U.S. in the late 19th century when you had a lot of, you know, commodity price bust and a lot of immigration, but

I can't think of any others. And yet that's exactly what China has reported over the last three years. Anyway, sir. Now, there's a boatload of implications of that, but before we get to the to the implications, of that. Why is this happening? I mean, there's some obvious things. Let's take it as get, let me take one step back, just to level set. You're saying growth really in the post-pandemic period has been much weaker than the Chinese have let on based on the data that they're asking us to focus on the production side of the accounts. And that is a change. I mean, if you go back,

Prior to that period, during the GFC, they could have been undercounting growth or they were growing more strongly than the data would suggest. In the subsequent post-GFC period, there were some periods where it was above, some periods below. But now it's consistently, they are purporting numbers that are stronger than the reality of what's going on. So one obvious reason for this is what's going on in the real estate markets, the property markets, as you say. And that's, that's, they're, they're, they're, they're, they're in a sense, the Chinese are experiencing kind of sort of what we, what we experienced in the GFC when the property markets collapsed and we got crushed. That's what they're, they're, they're experiencing now. Do I have that roughly right, Logan? You do. The underlying causes, I would say, are are more finance, are linked to the financial system. Basically, the easiest way to understand the slowdown in China's economy now is as the, the flip side of an unprecedented credit bubble. You had the largest single country credit expansion in at least a century in a single banking system after the global financial crisis. China added a third of global GDP in new bank assets in eight years. We've just never seen anything like this.

And so the net result of that is you can't keep a financial system like that growing at those rates indefinitely. Credit growth averaged 18% per year between 2000. 2008 and 2016. It was cut in half after what was called the de-leveraging campaign, an attempt to crack down on shadow banking. And I can explain some of that process from 2017 to 2024 at about 9%. Right now, credit growth is 6%. You know, properly, properly measured. You're not going to have the same pace of investment growth with credit basically being cut in half and half of the previous borrowers,

no longer having access to the same types of finance. in an investment-led economy with very weak operating cash flows throughout the state-run system where credit has a much larger impact on activity. Now, it's unsurprising that the property sector is a highly leverage-exposed industry, and the contraction in the property sector took longer even after credit growth slowed, and I can explain why that happened. But in the end, you know, developers were unable to access the same degree of finance. from both homebuyers in the form of pre-construction sales and from shadow banks. And so pre-construction sales revenues.

And so as a result, you just saw activity, you know, really collapsed. And that was the primary vector through which this deceleration and credit growth, the end of this credit bubble, started to slow activity in the real economy. What's important to understand about the financial linkages to this is that that is what, It's underappreciated in global economic circles that China has real limitations on supporting domestic demand at this point using its traditional policy levers. They don't have the same fiscal scope of action as before. They don't have the same tools available.

They don't have the financial system that can actually power investment growth at the same rates because these tools have already been extended and that they are now exhausted. And so many people say, well, you know, yes, we see this notable slowdown in, okay, zero COVID was a mistake. Okay, bursting the property sector bubble is a mistake. China can basically turn to different fiscal measures and, you know, additional forms of investment, the new quality productive forces, new strategic industries to replace growth. The problem is that you haven't written off the previous loans because starting to, and the financial system, therefore, is highly impaired, you know, becoming zombified. It's the, what I call the pretending prevents extending problem. Is that a word, zombieified? Zombified. In Japanese financial circles, people talk about, you know, the zombification of banks.

Zambification. Yeah. Okay. So, I'd say that's a only, there's a word that's only used by someone who has Riz, I think. Just saying. Yeah. So, you know, zombie, like the entire zombie discussion and comparisons to Japan are, you know, very much in focus. Also, it's very familiar to me right here in the U.S. I mean, we kind of, we had the GFC.

The GFC was real estate housing driven by excessive lending. It all blew up. The financial system took a long time to repair itself. You know, in the post-GFC period, we didn't go anywhere very quickly because the financial system. had to recapitalize and everything else. It sounds like the same kind of dynamic processes playing out in China. Yeah, the difficulty is in China, the financial system is not repairing itself. Because if the financial system was going to repair itself, growth would be even weaker than it is right now. And what I mean by that is you are an investment-led economy that requires a certain expansion of new lending every year. The banking system is around three and a half times GDP in terms of total assets. So you have to keep growing at a certain pace of investment growth every

year, but the only way in which you can do so is to add to your capital basis out of retained earnings, which means that you have to have a certain level of profitability, bank net interest margins, that are higher than where interest rates probably would be in an economy facing deflation. So you have this tradeoff between bank profitability and corporate investment, and the net result has been to prioritize, well, we can't write off that many bad loans because that would impair profitability. So we have to keep lending to these same borrowers who can't necessarily pay us. And so the efficiency of credit in generating investment continues to decline. The profitability of banks comes under pressure.

But it becomes a distributional challenge between, I mean, the way I like to put it is local governments are going bankrupt, paying banks at interest rates higher than they probably can or should, but the alternative is that they would lose access to credit and therefore investment would collapse even faster. So this is the sort of decay or zambification process that we're seeing in China's financial system. And that is what makes it so difficult because you have to basically stop, recapitalize the banks, you know, repair the system, but doing so, you know, is very costly in fiscal resources.

and to stop, the critical question in China is not, what are the new growth drivers? The critical question in China is, who loses? How are you going to write off existing assets? Who is going to lose access to credit that has had it before? I know this is multifaceted and there's lots of issues, factors behind China's economic malaise. I think that's a way of describing it.

Would you also put in on, the list, the, what the U.S. is doing with regard to tariffs and trade and just de-globalization more broadly. I mean, it felt like China feasted on the process of globalization when they entered into the World Trade Organization in the early 2000s. But now we're de-globalizing pretty quickly, and that feels like that's a very significant headwind. Would you agree with that? I would. I say it's a huge headwind. What's interesting is it hasn't really materialized yet. get for China. And that's in part because of the way in which the U.S. has implemented tariffs.

So last year, China's trade surplus all-time high in 2025, $1.19 trillion. The U.S. trade deficit is narrowing now, but if you factor in the front loading at the start of the year, we're also probably headed for over a trillion or close to a trillion dollars. So by most measures, global imbalances are expanding, not contracting, despite the U.S. tariffs that have been put in place. Now, how is that happening? In part, because the U.S. has put tariffs on both allies and allies and partners as well, as some of its other trading partners, those countries, particularly in Europe, don't want to wage a two-front trade war. So they haven't really engaged in the same kind of trade defense or protection against Chinese exports. I draw attention to, you know, Canada's trade deal with China today, announced over, you know, auto quotas. There's more incentives for other countries to say, okay, if we're going to be facing this pressure from the U.S., we can't necessarily, you know, we can't necessarily throw up our walls against Beijing at the same time. That has kept export markets open for Beijing. Unsurprisingly, there's not a, there's a lot of transshipment that happens around U.S. tariffs through Southeast Asian countries that has kept.

trade flows open, that's unsurprising. And then there's been real geographic diversification of China's exports into third markets and into emerging markets as well. The fastest growing component of China's trade surplus or the fastest growing source of China's trade surplus is not the EU, the EU or ASEAN, it's the rest of the world outside of those countries, which is indicative of the fact that a lot of this is because of domestic deflation, depreciation of the real exchange rate. real competitiveness. It's competition on price. In emerging markets, that's typically what's taking place. So, yes, the external environment for China, I think, is tightening overall. It's just not evident yet. And so the real debate that we're all having, you know, in is what's going to derail

the Chinese trade surplus from rising further? I mean, there could be three things, hypothetically. One, you could get voluntary export restrictions, trying to try to tamp down trade tensions on their own. You see some signs of this new price undertakings with the Europeans on electric vehicles, for example. You know, you could see, you've seen changes in export tax rebates on solar panels. You might see additional signs here and there.

But again, this is a major growth engine. They're probably not going to restrict exports across the board. The second option, not quite as effective, would be a real, a large appreciation of the real exchange. rate. So do you get a 20, 30% appreciation of the real exchange rate? Again, possible, strong pressure for inflows right now, but it adds to domestic deflationary pressure. There's not really a strong constituency for this within China. And so it kind of runs into its own resistance, even if you get some momentum or stronger currency over time. And would that also imply that appreciation vis-vis the

dollar too, right? That's right. Yeah, that doesn't feel like that's going to happen. I mean, the problem is like even if you nominally appreciate against the dollar in a deflationary domestic environment, you need to be a larger nominal appreciate. You're talking about record highs in the Chinese exchange rate before you would, you know, the record high was 6.02 to the dollar in early 2014. You're not going to see a record in the, you know, post exchange rate era. You're not going to see that kind of movement otherwise. Or you can have broader trade restrictions among, you know, emerging. economies, and that could start to limit China's trade, China, start to limit China's export engine.

The danger here is that the world is facing more deflationary exported pressures from Chinese goods because of this process. So many emerging economies are likely seeing this domestic deflationary pressure and downward pressure on prices within their own industries, which forces deindustrialization. There will be greater incentives over time for political. forces to align to protect domestic industries, limit those imports. But you're not seeing them right now in a coordinated fashion that would really derail the overall momentum of China's export engines. And so for Beijing, their objective is keep those export markets open, expand global

export market share, and bilateralize our trade disputes, manage the U.S. relationship, and therefore use combinations of carrots and sticks in other bilateral relationships, such as what they're doing with the Canadians today. Yeah, you make it, it sounds like a pretty tough spot. I mean, it sounds like their only source of growth here is exports to the rest of the world. That feels very problematic in the context of what's going on with the U.S. and trade more broadly. I think that's right. I think it's underappreciated that China is far more dependent upon exports now than at any point in the last decade.

And this has changed really in the last three years as well. So you had the property sector collapse. You had the recovery from zero COVID measures. You had a gradual recovery in household consumption. And you had some sort of second derivative improvements in a lot of the property sector indicators. It did look like there were that the worst of the property sector decline. was behind you. You had slightly more fiscal policy support. You had some subsidies for autos and home appliances. So the situation in domestic demand was not all bad at the start of 2025.

It just looked a lot worse as most of those factors reversed at the end of 2025. And there's not really the policy set up right now at the start of 2026 to say that with any degree of confidence, there's going to be an acceleration in domestic investment or domestic or household consumption in China based on income growth, based on additional fiscal support. You're not seeing a reversal in some of those downward trends. So the economy is far more dependent upon exports than before. And that in a world in which China is the world's largest source of investment, about 26% of global investment, for China to grow in relative terms to the rest of the world, while remaining an investment-led economy,

but not adding to global consumption at the same rate, that means that essentially China's fighting over a shrinking pie of global demand or a future shrinking pie of global demand, not quite a current shrinking pie. And that requires essentially disinvestment in the rest of the world. These are new conditions. We really haven't seen this before. And so this is where you see the pushback against China's trade actions

around the world, but like I said, it is still fragmented, particularly without, it's a far easier world for Beijing to navigate this bilaterally, rather than a hypothetical scenario where you could have seen this at the start of the Trump administration where they said, we're going to have some version of the Robert Lightheiser, low tariff inside the wall, high tariff outside the wall kind of structure in which the higher the tariffs you put on Chinese goods, the lower the tariffs you'll get on trade with the U.S. and, you know, trade with the G7. We don't have that structure in place at this point. And, you know, even though there are, you know, some incremental signs that that sort of vision prevails,

but it's certainly not, you know, operative at this point. So this is kind of where we are at the start of this. It's a very fragmented kind of relationship for Beijing to manage. And this is what they're trying to do. You know, it's so interesting because the kind of the perception, or at least my perception of the perception out there of China, is that they're much stronger than that, than everything that you've described.

In one place where that is manifest, that strength is in artificial intelligence, AI, you know, it's other technologies, solar, EV, batteries, you know, things that are critical to, at least here in the U.S., what we think of long-term economic growth. And it feels like the Chinese are these formidable deep seek, you know, is the poster child, you know, for that kind of fear. Should we, is that something that we should fear? Or, I mean, is that, are they really, is that, is that going to save the day for the

Chinese or is that just overstated? It's not going to save the day for, I think it's appropriate to understand. understand that strategy, this high-tech development strategy in China, it is not an economic strategy in my view. It is not a growth-focused strategy. It is a security-focused strategy. It is largely focused on developing, you know, dual-use or multifaceted kind of technological strengths that then can be leveraged for other political purposes. That does not necessarily mean that they're going to rescue the economy. So we did, there's a new 20, because we, because we, are deeply geeky and are constantly watching for new data sets that we can use. In mid-November,

there were new input output tables for the Chinese economy released across all new industries. And we got some of the first data on the input output calculations of how different sectors relate to one another for the new energy vehicle sector and for power construction, especially involving batteries and batteries electric storage. We didn't get anything new for AI and robotics, so I can explain that. But we use these tables and then some secondary industry data on investment in AI and advanced robotics and a few other higher tech industries. And we tried to calculate, look, how large are they as a proportion of GDP? And how does that compare to the industries that are collapsing, like the property sector?

And what's the tradeoff? And is this strategy going to work? and how can you, you know, factor that in? And by our calculations, it's kind of astonishing because the decline in traditional sectors just over the last two years has been around six times the pickup in the new highly developed sector,

the new high-tech sectors. Now, we could be wrong by a factor of two in measuring a lot of these things, and I'm completely open to that possibility that we're missing some of these downstream effects and the data we're using on AI and robotics investment is incomplete because there's other, you know, spillovers into other technologies that we're not thinking about. But the conclusion would remain about the same. Those industries collectively are about 6% of GDP. A lot of them, six point,

by our calculation it rose from, and I'm going to get this slightly wrong, but it's on our website, 5.5% to 6.3% of GDP over the last two years. So is that rising? Yes. Is it rising fast enough to produce growth, ceteris, paribus, in the absence of, in combination with other industries declining, not at all. There's still an overall decline in investment, which is consistent with the slowdown and overall credit growth, as I would suggest. But can individual firms like Deepseek, can, you know, individual industry clusters create significant drivers of innovation that create security challenges for the U.S. and the rest of the world? Absolutely. It's not a macroeconomic question, though. So the way I like to put it is you have different risks emerging from China when people think, people talk about risks from China and they were all rising at the same time over the last 10 years, but particularly since zero coat, particularly since the pandemic. But now there's three risks and they're all kind of diverging. You know, one is a military and security risk. So that's in, increasing. China's, you know, military buildup is continuing. Defense spending is growing faster

than the overall budget at 7.2%. There are real formidable capabilities that, you know, the world has to be worried about in terms of China's actual, you know, physical shipbuilding, military buildup that's out there, and it's being funded by the domestic budget. So that's one, that's still rising. Second is exactly the question you raise. The industrial and technological competitiveness aspect of of China. So can they compete with U.S. industries in semiconductors and artificial intelligence, in, you know, in robotics, in other advanced manufacturing techniques, quite possibly? And so there's a contested space there. It's kind of a flat sort of risk. But the risk that's declining, and this is, I think, critical to understand, is the risk that China's economy

really ever overtakes the United States. It's not plausible at this stage, especially if we're even close to right about our GDP data. Because China peaked as a proportion of the global economy at 18.5% of global GDP in 2021. It has declined since then. It will continue to, it's now, even on the official data, about 17% of global GDP. By our calculations, it's closer to 15, 15.5. The mechanism for that changing is largely, you know, the mechanism for that changing is largely a shift in exactly this dynamic of investment-led growth, that China's domestic demand would expand faster than investment. But if you just look at U.S. versus Chinese nominal GDP over the last three years, U.S. GDP is faster. Yes, that's because of inflation. But again,

purchasing power parity, inflation versus deflation, but purchasing power parity adjustments don't make any sense in a world in which you're actually comparing sort of relative economic strength and external projection of that strength, not just measuring what a developing country can produce within its own borders. So the systemic competition from China is basically over. What is more relevant is that the economy is not going to be able to sustain the same pace of those other two threats. And so in my view, people should think about these threats from China as more contingent rather than growing inevitably over time. And it is in Beijing's interest, and they use the GDP data for exactly this reason,

to portray their rise as inevitable. Because by portraying their rise as inevitable, they can encourage countries to receive outbound direct investment from China, supply them with long-term raw materials contracts, engage in, you know, Remembeen denominated transactions to avoid U.S. sanctions in statecraft and other state craft measures. All of these, and to keep trading with China, even under the face of U.S. tariff threats. So all of those, you know, messages from Beijing kind of intersect.

But the reality is that if there's no obvious additional source of Chinese growth that's going to save this economy over time, if you just look at those new strategic, industries by our calculation for them to add cederus paribus assuming nothing else declined two percentage points of GDP growth from investment every year for the next five they would have to basically expand somewhere around seven times their current size and i just don't think that's realistic or possible over that time for him so that's a very long answer to uh what was a what was a straightforward question so i apologize for letting you know it's a great frame i like i love the frame. And we're running a bit out of time, but I want to explore those two threats in a little bit

more detail. One is military, and we'll come back to that in the context of Taiwan. Maybe we'll end there, the conversation there. But the other kind of the economic threat, you know, the kind of the battle over technology and trade and, you know, what we're in the middle of right now. do you think China's kind of weakened position? No, the reality is they can say look over here, but the reality is they're in a very weakened position and everyone knows it or is coming to that conclusion. Does that weaken their hand in the negotiations with the U.S.?

It does. It does. Absolutely. Okay. But it doesn't feel that way because they're saying, you know, the rare earth's choke point, it feels like they're fighting back. They're the only, really, when you think about it, their only country on the planet that's fighting back against the U.S. terrorists.

That's true. And it does look that way, in part because this is a, this is a question of you have this rare earth is an extreme example of a broader phenomenon of whose interest is it to weaponize global supply chains. You know, over time, if China can, if China continues to weaponize access to all of its supplies of everything, including industrial materials, that's not in its interest. It can be in its interest to withhold a supplies of critical industrial inputs where they have an extraordinarily high concentration of global production and where barriers to entry are extremely high

because of all of these network effects that have come out of Chinese metals processing and the fact that they build this up over time. So this is very much a time-limited kind of exercise. For example, if the United States was to credibly threaten restrictions on different types of Chinese exports as a condition for making supplies of rare earths available, this is a use of leverage that can be used. The critical issue on whether you think China has more or less leverage is whether you think controls on supply are more sustainable than controls on demand. And, you know, that is a theoretical kind of monopoly versus monopsony power sort of, you know, sort of discussion. But fundamentally, I think the question is China is willing to use this

extremely powerful tool of leverage. I would argue it's probably a strategic mistake that they have done so so early in this conflict. Precisely because when you want to escalate further, you know, eventually, no one really thinks that this is the end-all and be-all of U.S.-China trade tensions, that all of a sudden, you know, the Trump administration has decided to make a deal and that's going to hold. And, I mean, we know that these tensions will come back in some form because the trade imbalances are expanding, not, you know, not contracting at this stage, particularly globally. And so if you're Beijing, you've already used probably your most potent state craft tool,

and you're already negotiating over the supply of rare earths. You can withhold it in the future. You can walk back on what you've negotiated over. But then you're just in a different negotiation over maintaining access to U.S. markets. So, I mean, I think the critical issue is how willing and able are the U.S. and its allies collectively. to put those threats against China in exchange for market access. An allied front against Beijing

is far more credible in using that leverage than what we're seeing right now from the Trump administration. But even the U.S. leverage, I would argue, is stronger than what seems to be deployed at this point. And we don't know what's going on

in the behind-the-scenes conversations. But the point is, Beijing has negotiated explicitly over the flow of rare earths. They have been able to win strategic concessions from the Trump administration in terms of slowing down export controls, pairing back some of those export controls

in terms of chips. Those are real tactical gains for Beijing in doing that. The question is how time limited are they? Because undoubtedly, this is not the only round and you're already negotiating over rare earth flows. There will be alternative.

supplies available. You know, harder to crack some of these very heavy rare earths, but there is a considerable volume of energy, you know, amount of energy put into developing alternative stockpiles, alternative supplies precisely to limit this form of coercion in the future. And then you look down the, on the lines, everything else Beijing has to control. It's not that you can't find other choke points.

You can find them any time. but everything else they have is presumably less salient than where they are. So it's notable that both sides have already escalated to a very high level. The U.S. threatened a de facto trade embargo, China threatened, you know, shutting down global manufacturing engines. And then both sides de-escalated and said we can't necessarily, you know, rise to that level. That's an interesting dynamic because it means that we're probably going to have renewed tensions, but it sort of, operates within this ongoing negotiation rather than huge flare-ups

like we saw in April and May. Well, let's turn to the other threat, and that is the military threat, and it feels like that's manifested most salently through Taiwan, the risks to Taiwan. How concerned should we be about that threat? I think we should be concerned because of the enormous implications such any Chinese military action would have for the global economy, the enormous consequences that would have for global trade flows and the likely response that it would generate.

Nonetheless, these are, you know, there's, in my view, it's inappropriate to extrapolate from a straight line that Beijing's capabilities are, you know, there's, in my view, it's inappropriate to extrapolate from a straight line that Beijing's capabilities are. rising and therefore action is inevitable. I think the way Beijing generally thinks about it is that they have more options than they had in the past, but at no point is military action toward Taiwan a risk-free option for Beijing. It would essentially involve sacrificing significant, you know, future economic prospects and economic growth for, you know, questionable political gains. unless they're, you know, really starting to think about sort of the ultimate option, which is an invasion and takeover of the Taiwanese state. Most of the things we're worried about are intermediate actions, gray zone actions, escalation of tensions, the creation of crises in which China tries to make political points or change the political calculus in Taiwan without more aggressive military actions. And we're very concerned about those going into the Taiwanese elections in early 2028, which will also coincide with the end of Xi Jinping's third term.

And so it might be a more politically sensitive time in China as well. But I think it's more appropriate to think about this as sort of Beijing's options are expanding with this additional military capability. It's not that there are timelines and they're being advanced per se. these are all still very contingent decisions that are never, you know, are never taken, you know, lightly at all. And I'm, you know, I think these are unknowable phenomena, but it is right for the world to be concerned about it and it's right for the world to think much harder about how to establish clearer lines of deterrence so that the highest cost but lowest probability options become unthinkable. for Beijing and that we were therefore talking about, you know, the continued assertion of a political dispute using military means, things like military exercises that they're expanding, rather than scenarios that would involve the widespread loss of life. I just wrote a paper with my colleague Charlie Vest on it for the German Marshall Fund,

which is available online, on what we call China's economic escalation dilemma. The peril for Beijing here is that you're wholly dependent upon keeping global export markets open for growth. You want to send political signals vis-a-vis Taiwan. You have to send a contrary signal to the rest of the global markets that, yes, we're doing this military action, but we're going to calm down very quickly. And things are going to go back to normal very quickly. That's difficult to do and actually achieve your political aims at the same time. I mean, yes, if they're committed to initiating a conflict regardless of the economic cost, there's not much you can do in terms of, you know, in terms of reiterating the economic cost of deterrence there. But that's not typically the scenarios that I think are most concerning or most probable in this context. Does the events in Venezuela or the conversation around Greenland change her calculation here? I mean, it does feel like.

It should. Yeah. It should. And I think markets, we've had several clients ask this military action we thought was improbable. Is it more probable? Is this other military action more probable at this stage? It was a very reasonable question to ask. Again, I would sort of frame it as, I think Beijing will take away from the Venezuela action that the U.S. strategic focus is more in the Western Hemisphere rather than on China. And so we don't know what the lesson. they'll take away from that, but I don't think they're immediate lessons. I think it's more that they might have more options at their disposal that wouldn't necessarily prompt as aggressive a response. So for Beijing, it's always just about you're trying to send political messages. Can you send those messages at a level that doesn't cause an overreaction, but does deliver, you know, the intended effect? This is an unfair question. And in, uh, You can just blow me off. And sorry, we were going to play the statistics game, but this conversation was so good.

We just don't have time for this. No problem. No problem. But here's the unfair question. And it's a, from my own parochial perspective, because we do a lot of scenarios, and we have to attach probabilities to those scenarios. That's what our clients use our scenarios in their work. and it's very quantitative and it's very probabilistic oriented.

So if I ask you the question, what is the probability that China engages in some type of incursion in Taiwan and to find out however you want over the next year and over the next three years? What would you say? Just to get a better sense of what the risk is. Would you define the military actions, the military exercises they just engaged in in response to recent arms sales as an incursion? No, no, they're actually on the island. They're in some way. Actually, on the island. I think that's going in in some way. In the next year, in the next year and the next three years.

Next year and next three years are very different. I would say it's virtually zero percent this year. This year and probably, you know, still very close to zero, but non-zero in the next three years. Okay, so it's very low probability then. The reason being that this is, that would essentially be a defeat for China's policy. their objective will be to try to gain the appropriate political effects of

making steps toward Taiwan's reunification with the mainland without military force precisely because the cost of doing so. That doesn't mean that'll be successful, but that's, I think, why it's such a low probability because it would be very much last resort and the military measures are largely used as deterrence of, in their view, deterrence of actions by the Taiwanese leadership and others.

So that's how I would think about it. I think, by the way, you know, I don't think we have a unified view on virtually any macro question at Rhodium. We have a lot of smart people working there and we certainly don't hold house views. Caviat being, all of this is just, you know, is my view outside of the GDP work, which is a lot more collaborative among my colleagues, is my view rather than others. But I think you'd have any range of well-informed channel watchers,

you'll have a huge range of opinion on that question. And I am certainly not an expert on the military matters, and mine should be taken with that appropriate grain of salt. Got it, got it, got it. Hey, we're going to end the conversation before we do. Chris and Marissa, any, it was pretty wide-ranging. Anything you want to drill down on before we call it a podcast? I'll go to you.

I sure, Chris. Yeah. One question, you asked all the right questions, Mark. Did I? Okay. Took a lot from me. But one question I do have is around the Chinese relationship with South America. Certainly that has been an area of some growth.

You mentioned some of that dependency or expanded trade relationships outside of the U.S. or ASEAN or Europe. And I'm curious, kind of piggybacking on Mark. previous question, given the kind of renewed focus on the Western hemisphere of the US, do you see that playing a role here? Is that going to actually strengthen some of the relationships, that can't push folks into into Chinese negotiations, or pull things away? I think a lot to watch. You know, for country like Brazil, they have a trade surplus with China, you know, a very productive trade relationship.

don't want to be, you know, they have complaints about that. They've put steel tariffs on and Chinese exports, but this isn't a country that's, you know, actively moving into the U.S. orbit and out of the Chinese orbit, you know, any time soon in terms of this kind of competition. So I think that the way that Beijing will frame the actions in Venezuela is that, you know, the U.S. is increasingly a rogue actor and therefore we're the more reliable partner. and you should continue to engage with us. I don't know how successful that'll be. We're very much watching what happens in terms of

we'll try to react to seizures of its own assets, how will they react to changes in trade flows associated with oil, although I don't think that the Chinese interests in Venezuelan oil are that considerable in a macro context. Their own oil demand is declining pretty sharply, you know, especially with the electrification of the domestic vehicle fleet. So it's tested.

It will be tested, I think. But I don't think this is an area for a huge escalating competition between China and the U.S. I think Beijing will make those messages. They'll say the U.S. is increasingly an unreliable partner and we're an increasingly stable one and they'll kind of see how that goes, but ultimately the trade relationships will carry a lot of ballast within those discussions as well. I was going to ask a similar question just sort of about the Belt and Road initiative, and I was thinking about Africa. I was thinking the same thing, just sort of all their investment

in the southern hemisphere. And does this, does the latest, what's happened since since the beginning of this Trump administration change anything from China's perspective about investment? So I think it's, Belt and Road is probably one of the least, it's kind of, it's often misquoted in terms or misunderstood in terms of what it really was.

I kind of view Belt and Road as a way of rebranding China's outbrown lending within a broader sort of convening power type framework that gives China more, credibility within developed markets. And this was in part because well before Belt and Road, China was extending considerable volumes of loans to, in Africa, to Venezuela. For example, under the auspices of the China Development Bank, then you create the Belt and Road initiative, and this sort of gets turbocharged. And you have this wide expansion and infrastructure lending.

A lot of it is designed basically not to be repaid. And a lot of it is designed basically to provide no-bid contracts to Chinese SOEs in terms of how that's structured. There's a huge debt burden that's accumulated as a result of that. We counted, you know, this was three years ago, but we counted, I think, over $80 billion in defaulted Chinese loans, even just since 2020, on a lot of external, on a lot of this external borrowing. There have been cases with debt renegotiations, Zambia, Sri Lanka, I'm I'm forgetting a couple of the others that were

Suriname that were moving forward. So there's, I think, a limited appetite to see this kind of borrowing expand at the same rate, in part because of previous debt constraints. But there's still an appetite for overseas infrastructure investment. If, you know, Chinese firms are willing to provide it at essentially low-cost financing, the question just becomes, you know, how willing are Chinese banks to continue to provide that effort?

And last year, the Forum on China-Africa cooperation, they reiterated kind of a $50 billion forward-looking allocation toward investment lending in Africa. So it is a downgrade of where we were in previous forms of external lending, but it certainly hasn't disappeared. and this is still very useful for Beijing in certain areas. I think it's underappreciated that net repayments of loans exceeded net outlays for most, I mean, it's unclear, but for most of the last five years. So most of the time since I believe that inflection point was in 2019, 2020. And so it's a very different set of relationships in Africa. and my colleagues just wrote a report for the Atlantic Council,

in cooperation with the Atlantic Council's Geo-economic Center, on exactly this issue. The Chinese slowdown of the change of the trade relationship in Africa. It is not the same relationship if the domestic Chinese demand component isn't growing as fast, which would actually facilitate the kind of trade flows that would be necessary to deepen those trade-investment relationships. over time.

Logan, we took a lot of your time. We covered a lot of ground. It was fantastic conversation. I know I think you're struggling with a cold. So thank you for. Yes, apologies. Yeah. Not at all.

No, you're not alone. I feel for you. And this is a good place for us to plug our sister podcast, the global economy unwrapped, and that's hosted by our colleague, Garab Ganguly. And they focus on China quite a bit. So if you're interested in this conversation, and I don't know how you couldn't be interested in this conversation. I think you'd be, you'd find that podcast interesting as well. But hey, Logan, thanks,

thanks so much for spending time with us. Go, go, go, go have some Chinese tea or something, you know. Yeah, sorry. I hope I didn't sound that bad. I hope it didn't sound that bad. I could not, you did, you'd handle a great, great. I just, I just feel for you. I can, I can. Yeah, I don't know. It's like it. I have a two-year-old and therefore I have all the diseases, as you might imagine. As you might imagine. Thank you so much, Mark. Appreciate it. Anytime. Give my best to Dan. Yeah, we'll do. All righty.

Take care, everybody.