Odd Lots - Richard Koo and Zichen Wang on What Just Happened in China

Episode Date: October 17, 2024

In September, Chinese policymakers shocked the markets by unveiling a set of stimulus measures designed to boost the economy and bolster the real estate market. While it's too soon to know whether the announcements will be successful, the stock market took off like a rocket in the wake of the news. Since the initial unveiling, further efforts have been announced with promises of more to come. So how big of a deal is this really? Is this the start of a major turning point in China's economic trajectory? Or is this just business as usual? On this episode, we speak with two guests. First, we discuss the macro situation with Richard Koo, chief economist at the Nomura Research Institute, and the famed theorist of "balance sheet recessions." Then we delve further into China's decision-making apparatus with Zichen Wang, the author of the must-read Pekingology newsletter. Our guests answer why this time may be different, how these measures come about, how they get implemented, and what to watch next in terms of their impact. And if you want more Odd Lots content, subscribe to our new daily newsletter over here. Read more:US Trade Rep Katherine Tai Describes the New Era of GlobalizationAdam Tooze on the Big Misconceptions of the Chinese EconomySee omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway. And I'm Joe Wisenthal. Joe, what is going on in China? We haven't asked that question for a while. I mean, how long do we ever go without a China episode? But since the last time we ever talked about China, which was probably like a month ago or something, we have seen an absolute flurry of policy announcements.

Look, we know that the big picture is that there's been slow growth. The real estate market is dismal. Consumption is slow. The stock market, which I don't think is particularly important to Chinese policymakers, has been terrible. And then over the last few weeks, we've had this flurry of announcements. Right. So there was something of a policy pivot in. September, which in itself is kind of unusual, and we'll get into that. But we've basically seen,

you know, new Politburo guidance. We've seen monetary easing. We've seen property support. We've seen some signs of maybe more fiscal stimulus. And that to me is kind of the big question, because so far, and you're going to hear me ask this question a couple of times, I imagine. But so far, the responses to what's been announced are kind of along this range of some people thinking, it's kind of a nothing burger. It's just more monetary easing. We've seen this kind of thing before. But then there are people out there who think, no, this is actually a big deal. And China is sort of signaling a big shift in its mindset in how it approaches things like fiscal stimulus and also social safety nets. Totally. So we know that there was the mega Chinese fiscal stimulus that happened in

2008 and 2009 after the global financial crisis and it was sort of historic how much got built then. But, you know, unlike much of the rest of the world in the wake of COVID, there's really been very little and there's been this sort of drumbeat that that's sort of the way we think of countercyclical fiscal policy in Western economies is not the preferred approach that there's this preference for domestic investment, the investment tech, exports, et cetera. And so something happened, though, in this year, in the last several months, that has prompted at least some sort of pivot. And we need to understand why now and what the goals are. Yeah. Well, you also mentioned some of the economic data that's been coming out of China recently.

One of the big things that happened was, I think, the first contraction in bank lending in nearly two decades. And so if we're talking about contracting bank lending, then it feels like there's one person we definitely need to talk to, and that is Richard Koo of Balance Sheet Recession fame. So listeners might remember that we spoke to him last year when his idea of a balance sheet recession in China was really starting to take off. And again, if you look at that bank lending contraction, it seems like that's kind of been borne out in the data. And then the other perfect guest we have for this episode is someone who's going to speak to the question of how economic policy is actually implemented in China. Because I think everyone has this view of China as a very

centralized command economy, but you have all these local governments who actually have, you know, some degree of autonomy when it comes to deciding individual spending decisions or how particular macro policy or how particular macro policy should be implemented at the individual micro level. It reminds me, do you remember that old proverb of, I think it's heaven is high and the emperor is far away? You know, you heard that one? Maybe. Anyway, yes. Actually, yes. Wait, are you even listening to me? Yeah, no, no, no. I actually do remember that. I've come across that.

So China is big and Xi Jinping is in Beijing, putting out like generalist mandates, but a lot of that is going to get executed at a more local level. Right. So after our conversation with Richard Koo, which will be the first half of this, we're going to be speaking with the Zishan Wang. He is a mid-career master's student at Princeton University. He's on leave from the Center for China and Global. And he is the author of the excellent pecanology substack. Listeners might remember, we did a recent episode with Adam Too's, and he gave a shout out to the pecanology substack. So it's like, okay, we got to get him on because if Toos gives him a shout out, then obviously we need to talk to him.

And then all of this flurry of China news is the perfect hook. So you'll hear from Richard, and then you'll hear from a audition. All right. Let's start with Richard at the sort of macro level. Richard Koo, thank you so much for coming back on all thoughts. Quite welcome. It's a great honor for me. Thank you. Thank you. So I'll just jump in with the first question.

There seems to be a spectrum of responses to what China has announced so far. And on the one end, you have people like George Magnus who are saying, this is crazy. It's the definition of doing the same thing over and over again and expecting a different result. And then on the other hand, you have people who say this is actually a really big policy shift. It's just that the party is rolling stuff out. incrementally, and so it may still be the case that we get a big fiscal response at some point. Where do you lie on that sort of spectrum of opinions about what's been announced so far? Well, I am slightly closer to the people who think this might be the beginning of a new move

instead of just doing the same thing over and over. In that the size of the package that came out mostly from People's Bank of China is quite significant, very large, that is, and that shows that for the first time, the Chinese government is indicating their awareness that this is a serious business. And I think that's an indication that we haven't seen until now. And so, yes, I am slightly positive because they actually indicated that they're very serious about the problem we face. Now, whether this is the same thing over again, well, Now, central bank responses are the easiest one to put in on the table compared to a fiscal stimulus where you have to decide, you know, where the money should be spent and how should

be spent and who gets the money and who doesn't. You know, all of those things will have to be worked out on the fiscal side. But on the monetary side, you know, only central bank have to make a decision how much money to put in. So you would expect central bank to move fast and first if they realize that they have to do something. And so I'm not surprised that central bank actions came first before the fiscal response. But in a sense, we in Japan years ago did the same thing. 30 years ago, we had a word called PKO. You know, PKL usually means peacekeeping operation by the United Nations. But those of us in the market

30 years ago, the word PKO meant pricekeeping operations by the Ministry of Finance, trying to keep Japanese share prices from falling. And so there's a little bit of similarities with what Japanese did 30 years ago, with what China is doing with its share prices. If I can just jump in here when you say this might be the beginning of something real, what is it specifically that looks good to you? Well, first of all, I'm no great fan of using monetary policy, meaning policies from the central bank, to fight what I call a balance recession. And I think China is facing balance sheet recession. And balance recession happens when of debt-financed bubble births, asset prices collapse, liabilities remain, people realize that

their balance sheets underwater or nearly so. And they all try to repair their balance sheets all at the same time. And repairing balance sheets, of course, is the right thing to do. But when everybody does it all at the same time, we enter the problem of fallacy or composition. In that even though everybody is doing the right things, collectively we get the wrong results. And we get that problem in this case because in the national economy, if someone is repairing balance sheets, meaning paying down debt or increasing savings, someone has to borrow those funds to keep the economy going. But unusual economies, you know, you bring interest rates down. There will be people out there who's willing to borrow the money and spend it, and that's how you keep the economy going. But in the balance

recession, you bring interest rates down to very low levels, and Chinese interest rates are already pretty low. But even if you bring it down to zero, people will be still repairing balance sheets because if you are in negative equity territory, you have to come out of that as quickly as possible. And so when you're in that situation, you cannot expect private sector to respond to lowering of interest rates or quantitative easing, forward guidance, and all of those monetary policy to get this private sector to borrow money again. because they are all doing the right things, paying down debt. So when you're in that situation, economic weekend very, very quickly because all the safe funds that are returned to the banking system

cannot come out again. And that's how you end up with economy shrinking very, very rapidly. And the only way to stop this is for the government, which is outside of the fallacy of composition, to borrow money. And that's the fiscal policy, of course. But that hasn't come out yet. And so, Yes, they did the quick and easy part with big numbers on the monetary side. But if you are in balancing recession, monetary policy, I'm afraid it's not going to be very effective. You really need a fiscal policy to get the economy moving. And that hasn't arrived yet. Well, then what's good? I mean, you say, okay, the PBOC moved first. You think this could be the start of something different, but of all they've really done in your view is announced the sort of substance on the central

bank side. I'm still trying to understand what you see as maybe some reason for optimism. Well, optimism in the sense that the amounts involved are pretty large. Okay. You know, central banks kept on saying, if this is not enough, we're going to do more and more and more. Well, as someone mentioned, you know, this is just like Mario Draghi saying that ECB will do whatever it takes to keep the euro going. That kind of sounds like that. And in that sense, at least central bank is indicating that situation is quite serious. Okay. Which is a good thing because we haven't heard that yet from those guys before.

But the real policy that is needed is not from the monetary side. It has to come from the fiscal side. What could they do on the fiscal side? And this is the thing I don't really understand because I think everyone agrees that part of the problem here is the lack of consumption. So why not just go directly? I know monetary policy is faster and to some extent easier to roll out, but why not move sooner on the fiscal side and just stimulate consumption directly? Well, if people are all concerned about repairing their balance sheets, you give them money to spend and too often they just use it to pay down debt. And so even within fiscal stimulus, you have to be very careful here.

because tax cuts, I'm afraid, are not very effective during balance sheet recessions, because people use that money to repair their balance sheets. And repairing balance sheets is, of course, the right thing to do, but it will not add to GDP when they're using the tax cuts to pay down debt or rebuild their savings. So that will not add to consumption as much as you would expect under ordinary circumstances. And so I would really like to see government just borrow and spend their money because that would be the most effective way to stop the deflationary spiral. A source of funds in an economy that's experiencing balance sheet recession that's sort of outside the fallacy of composition or the composition effects is exports.

And so you could imagine that if the world is filled with people buying BYD vehicles and humanoid robots and batteries from cattle and so forth, that that can bring in the cash, and that could be another source. Does the math add up, in your view, can China export its way out of what you assess as a balance sheet recession? Yes, export is definitely one of the best ways if you can use it to come out of balance sheet recession. But China, just like Japan 30 years ago, is the largest trade surplus country in the world. And if the world's largest trade surplus country in the world, and if the world's largest trade surplus

country in the world tries to export its way out, very many trading partners will complain that you're already such a large destabilizing factor on the world trade. Now you're going to destabilize it even more. And so I remember 30 years ago that United States, Europe and others were very much against Japan trying to export its way out. And because of their displeasure, particularly the U.S. displeasure, Japanese yen, which started at 160 yen when the bubble burst in 1990, ended up 80 to the dollar five years later, 1995. And what that indicated to me was that if you're running trade deficit,

you can probably export your way out. No one can really complain because you have a deficit country to begin with. But if you're the surplus country, and if you're the largest trade surplus country in the world, there will be huge pushback against that kind of move by the Chinese, and we already seen that in very many countries complaining that China should not export its problems. The news doesn't stop on the weekends. Context changes constantly.

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Listen on Bloomberg Radio, stream the show live on the Bloomberg business app, or listen to the podcast. That's Bloomberg this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example, executives making an impact on the IHeart radio app, Apple Podcast, or wherever you get your podcasts. Yeah, this is something that I wanted to ask you, which is it seems like part of the problem here is that China is in need of a new type of growth model.

So one that maybe is less reliant on things like exports and being a major beneficiary of globalization, given the restrictions that you just laid out. What could that new model actually look like? You know, if there are no balancing problems in the Chinese economy today, we don't need a new model, right? Because then things will be still moving forward as before. But suddenly, Chinese domestic demand shrunk because of the balanchi problems. and then Chinese manufacturers or even the government is forced to export its way out. I think what we need to do is really fix the balance sheet problems first, instead of talking

about the new model of economic growth. We can talk about these things a long time, but I don't think that will solve the problem of balancing recession. And balancing recession, by the way, can kill the economy pretty quickly. So if I may give you a numerical example, suppose I have a thousand dollars of income and I spend 900 myself. The 900 is already someone else's income, so that's not a problem. But the $100 that I save to go through people like us, financial institutions, and it would be lent to someone who can use it, that person borrows and spends it, then the economy will be, total expenditure in economy

would be 900 that I spent, plus $100 that this guy spent, together $1,000 against original income of $1,000, and that's how economy moves forward, right? And if there are too many borrowers, and economies doing well, central bank will raise, race, two few, central bank will lower race to make sure that this cycle is maintained. That's the usual economy. But what happens in the balance of recession is that when I have a thousand dollars of income and I spend 900 myself, that 900 is not a problem, but the $100 I decided to say ends up stuck in the financial system

because no one's borrowing money. In China, so many people are refusing to borrow money these days because of that issue. Then economy shrinks from $1,900,000 to $900. So 10% decline. And the next round, the 900 is someone else's income. When that person decides to save 10%, it spends $810 and decides to save $90, that $90 get stuck in a financial system again, because repairing financial balance sheets could take a very long time.

I mean, Japanese took nearly 20 years to repair their balance sheets. But in the meantime, the economy can go from 1,000, 9,800, 8, 10, 730 very, very quickly. And that actually happened in the United States during the Great Depression. You know, from 1920 to 1933, United States lost 46% of its nominal GDP. And something quite similar actually happened in Spain after 2008, when unemployment rates skyrocketed to 26% in just three and a half years or so. That's the kind of danger we face in the balancing recession. And talking about the new economic models among all these academics, you know,

trying to see, okay, what is the right model? I don't think we have that much time. Chinese government does not have that much time to think about the new economic model when the economy is already in that kind of vicious cycle. So I would recommend that instead of talking about a new economic model when we have the time to do so,

at the moment, I would very much like to see Chinese governments borrow and spend $100 to keep the economy from collapsing. So speaking of a pressing time constraint, I remember the last time we spoke to you a little over a year ago, it was again about this balance sheet recession in China idea. And at the time, you mentioned that there were a lot of Chinese officials who had been reading your work and lots of domestic policy papers being published that referenced your work. What's the discourse been like for you over the past year or so? Do you get a sense that, you know, the urgency is even more salient now?

are lots of people reaching out to you from China? Well, that is actually quite true. I'm getting speaking engagements one after another, but the country is not exactly the safest place on earth to go. And so I'm trying to meet all these speech requests by doing things online or meeting them in Tokyo or some safer places instead of traveling to China. But yes, huge number of requests are coming.

my way from people, all walks of life. They wanted to hear more about what happened to Japan 30 years ago and how similar is the situation they face today. So we are recording this October 14th. Over the weekend, October 12th, the Ministry of Finance did hold a press conference. And I think the view is, kind of to your point, there were not a lot of details on we are going to spend money now, which is what you prescribe. But there were some comments and there are going to be some more things expected to rolled out. One of my understanding is about Chinese fiscal policy is it's very decentralized and that the local governments control a lot of the levers of spending and that model to some extent is broken because a lot relied on land sales and at the same time

the central government has tried to prick the bubble of real estate and there's all kinds of stress on that model. One of the things that seems to have come up in the MOF press conference this idea of allowing local governments to issue more debt. Maybe the central government could take more direct role in repairing the balance sheets of local government. Can you talk about that, setting aside like the question of like how much to be spent right now, is there much juice to be had essentially out of changing the fiscal structure of local governments and changing how local governments collect and spend revenue? Well, there are multiple issues in what you just said.

Okay. Now, if you look at local governments in United States or Japan, most places, you know, they are not supposed to run large deficits, right? There's a rule in almost all countries that local governments should not run large deficits. And that is because if local governments go bad, at the end of the day, Central Bank might have to look after those problems. And local governments cannot print money like the central government can. Right. But in China, even though same rules should have applied, local governments were able to sell lots of land, make a lot of money in the process, and then they were able to do quite a bit of fiscal stimulus, which also, of course, added to their GDP.

That model will have to be completely revised now because no one wants to buy land anymore. And so the big source of revenue of local governments are gone, and as a result, many of them are very close to bankrupt. And under the circumstances, I'm afraid central government will have to take over a lot of these problems from the local government. So this myth that Chinese central government, the budget deficit, is not a very big part of GDP, that myth will have to be thrown out. And central government will have to take on not all of it, perhaps, but some of the liabilities. of the local governments so that local governments can move forward.

Now, in terms of actual financing fiscal stimulus, the balancing recession is caused by excess savings in the private sector. So I'm talking about the $100 that I mentioned to you earlier. So the money is there. So even though budget deficit of China might be very large, the money is there for government to borrow. If the money is not there for the government to borrow, Chinese government bond yields should have gone up higher and higher.

But as you know, Chinese government, Kenya government bond yields almost down to 2.0101 or 2%. It went that low because there are not enough borrowers out there. Financial institutions have to place this money somewhere, all these deleveraged funds coming back into the financial institutions, newly generated savings, all the money that Central Bank put in, all comes to basically people like us in the financial institutions. the fund managers. But if the private sector is not borrowing money, the only borrower left is the government.

And so even if the required budget deficit might be very large to stabilize the economy, the funds are available in the financial market. Only the government just have to borrow that and spend it. So financing should not be a big issue for governments in balanced recession. You know, Japan was running huge budget deficits and a lot of conventional,

unminded economists who never understood the dynamics of balancing recession was warning about Japan's budget deficit growing sky high and then interest rates going sky high. Well, interest rates kept on coming down because of the mechanism that I just described to you, that all these funds coming into the financial sector cannot go to the private sector and then I were going to our government bond market. And I see the same pattern developing in China today. Right. So Joe mentioned the real estate crackdown, and you're talking about the reluctance of the private sector to lend. And I guess I have to ask, to what extent is that reluctance to lend, not just a product of the debt dynamics that you've already laid out, but also a product of the sort of policy whiplash that we've seen from the party

in recent years, where maybe you fund, I don't know, an education startup or something like that, but then one day officials wake up and decide to basically crack down on that entire sector and make it very, very difficult to operate the business. Well, that's another big problem of China today. So aside from Balanchu recession, which is a very, very serious disease to begin with, we have those other factors that started hurting the Chinese economy. I would say starting as early as 2016. So when you look at the flow of funds data for the Chinese economy, you notice that the Chinese corporate sector started reducing their borrowings starting around 2016.

So until 2016, Chinese companies were borrowing all the household sector savings generated, which is, of course, the ideal world, household sector saving money, corporate sector borrowing money. But starting around 2016, you see corporate sector borrowing less and less. and around the COVID time, copra sector was actually a net saver, not a net borrower. So that trend, I think, has to do with what you just described, that regulatory uncertainties got bigger and bigger under the current leadership. And I think people began to realize that

even after you make these big investments in the new projects, they may not be able to expect the same revenue stream that they expected earlier because of this regulatory uncertainty. And on top of that, of course, we have, you know, what is known as middle income trap. If you reach a certain level of income, factories will start moving away from you instead of coming to you. So those factors all combined, starting around 2015-2016, ended up reducing Chinese corporate borrowings. But if household sector is saving money, but the corporate sector is not borrowing money, you need someone else to fill that gap,

and actually that gap was filled by Chinese government, mostly decentralized local governments. But if that temporary fiscal jolt of fiscal stimulus and turn the economy around, then those local government intervention would have been justified. But because this was a much more deeply rooted, here I would use structural problems, this regulatory uncertainties and middle-income trap and so forth, local government just had to keep on borrowing and spending money to keep the economy going. And that was happening long before the bubble burst. So if you look at total, what it called general government spending,

not just the central government, but the general government, they were financial deficit to the tune of almost 7% of GDP by 2022. This is before the bubble bursting. So if you are already running a budget deficit, 7% of GDP, before the onset of balance recession, then whatever you have to do to stop balancing recession, we have to be on top of the 7%. Suppose you need 5% GDP equivalent to keep the economy going.

Then you're talking about 12% of GDP budget deficit. And I think that's one of the reasons why Chinese policymakers, even though many of them are fully aware that in the balance of recession needed the government to come in, they haven't been able to come to a full consensus yet because even before the bubble burst, Chinese government was running a large budget deficit. I want to go back to exports for a second, and you noted, which seems objectively true, that here you have this huge surplus country and many countries around the world do not want to

tolerate a further expansion of this surplus. And you see the reticence, not just reticence, but pushback in the United States, in the form of tariffs and promise of more tariffs. You see the anxiety in Europe, obviously. On the other hand, earlier this year, I was visiting my mother in Guatemala, and I saw billboards for Chinese vehicles for sale there. I have to imagine that there's a lot of appeal in the sort of the non-Western parts of the world for cheaper vehicles, not being dependent on more expensive European and U.S. cars, etc. Is there money to be made an opportunity to grow exporting to the rising parts of the world that aren't the U.S. or Europe? Well, I'm sure, I mean, Chinese companies will look at whatever

opportunity that's available out there. But the West accounts for something like 57% of the global GDP and per capita GDP on average is over $60,000. The so-called non-West, you brought in my but India, Africa, South America, Russia, they're only about 25% of global GDP. And per capita GDP, on average, is like $13,000 there. China itself was about 18% of global GDP, and per capita GDP is 13,000 also, slightly less than 13,000.

And so if you lose market, which is 57% of global GDP with all the rich customers, and you're only left with this remaining, 25% with much poorer customers. Of course, you have to sell to your customers, those poorer customers, because you have no choice. But to offset what you lose in the developed world, Western world, and make up for that by sending more goes to India and Russia, I'm sure companies will try their best, but I don't think numbers would add up.

If you were a Chinese policymaker and you could wave a magic wand and basically, make anything happen, what would you do in terms of policy? What would be the one thing that you would like to see enacted? Well, if we're a policymaker in China, I will explain to the people what kind of disease we contracted. This disease is co-balancing recession. Everyone is doing the right things trying to repair their balance sheets, but because this will cause the fallacy of composition problems, we, the government, will be there to keep the economy going. That is the government will continue to borrow the $100 and spend it. So don't worry about this problem. Fix your balance sheets. And once your balance sheets are fixed, come and start making money again. That's what I would do.

Just to press further on Tracy's question, because, again, as you yourself mentioned, fiscal policy isn't as easy as central bank policy because actual decisions have to be made. So it's one thing. to say we're going to spend, but someone is going to get that money and someone is not going to get that money. So just to push you on this a little bit further, because as you said, fiscal policy is not blanket and generic like monetary policy is, how should that spending be channeled in a way that's productive and actually gets to the balance sheets that need repairing? Well, I would use money first to complete all the apartments that were started but are not yet complete because in that case, well, you might have to take some, you know, heavy-handed actions,

but basically the government should take over these companies and the projects and stop putting money so that they will complete the projects. That way, you don't have to decide what to make because the things are already in the process are being built. All the construction drawings are there. Workers are there. You know, where to get the materials. And in many cases, potential buyers already know. So in that case, you don't waste time thinking about what to build, who's to design, who the order should go to. Remember President Obama, when he took over 2009, U.S. was in the balance of recession after the collapse of the housing bubble. But he was so careful not to make the Japanese mistake of building bridges to nowhere and rose to nowhere. He took

a long time to decide which projects should be funded. But that year and a half or so, I think U.S. lost quite a bit of time because during that time, economy continued to weaken. There was no shovel-ready projects. But in the Chinese case, I would argue that these uncompleted apartments are the shovel-ready projects. You already know who wants them, who paid their down payments, and all of that. So I will spend the money first on those projects, complete those projects, and use the time while the money is used to complete these apartments, I would use the magic wand to get the brightest people in China to come into one room and ask them to come out with the public works projects

with a social rate of return higher than 2.0%. And the reason is that Chinese government bond is about 2.00 something. If these people can come out with public works projects with the social rate of return higher than, let's say, 2.1%. then those projects would be basically self-financing. It won't be a burden of future taxpayers. And then once apartments are complete that an economy still is struggling from balanced recession, then I would like to spend the money on those projects

that these bright people might come up with. All right, Richard, really appreciate you coming back on odd lots to give us an update on where we are in China's balance sheet recession. Thank you so much. That was great. Oh, thank you. You're quite welcome. Thank you, Richard. That was great.

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executives making an impact on the eye heart, radio app, Apple Podcast, or wherever you get your podcast. That was our interview with Richard Koo, the chief economist of the Nomura Research Institute in Japan. And now we speak with the Zishan Wong of the Pecanology substag. So Zishan, thank you so much for coming on odd lots. thrilled to have you here. It's so great to be here. Why don't you tell us big picture or small picture? Why now? We've got this flurry of announcements, really over the last couple of weeks. We're recording with you October 15th in the recent weekend. There was a Ministry of Finance press conference.

Prior to the recent Golden Week, there was a flurry of comments from the PBOC, etc. Why now? Well, I think all these developments were cut the market and all the observers by surprise because nobody actually thought this coming. So what started this recent events is a press conference given by China's financial regulators, led by the Central Bank, which is the People's Bank of China, on I think September 24th. So after that, two days later, there was the political bureau meeting of the Communist Party of China. And following that, there was the State Council Executive Meeting.

And then we had a press conference by the National Development and Reform Commission, and then the Finance Ministry, which happened on Saturday over the weekend. So as you correctly said, Joe, there were a lot of policy announcements. And I think right now it's October, and China just published some macroeconomic data. A lot of people are saying that maybe one of the reasons for the recent economic measures was that China is maybe very difficult to reach the 5% growth rates for the year of 2024. And also the Federal Reserve cut its policy rate, which opened the room for their Chinese counterparts. So I'm going to ask you basically the same question I asked Richard Koo, which is the responses to what's been announced so far seem to fall on a sort of continuum where you have some people who think this is just repeating what China has already done.

You know, a lot of it so far is monetary easing and that sort of thing. It's not that different. But then on the other end of the continuum, you have people who think this is very significant because the signaling suggests that the, there's something different here that maybe they're opening the door to more fiscal stimulus and things like that. Where do you fall along that spectrum of interpreting the significance of what we've seen so far? I do think this is quite significant. And I think we can look at this from a number of perspectives. First of all, by transition, the political bureau of the Communist Party of China just doesn't have a meeting in September to focus on this.

economy. That didn't happen. And so this is an exception. And for the governing party of China to dedicate out of its past tradition on the economy, that sends a political signal. So, you know, that's very important from a Chinese political perspective if you are like working in the Chinese government. And secondly, some of the measures already announced, I think did exceed market expectations. For example, was started in the September 24 press conference by the People's Bank of China. Pan Gong Sheng, the governor of the central bank, announced, you know, the PBOC was going to lower the reserve ratio banks that put money at the central bank that cut the interest rate, lower the mortgage rate that, you know, Chinese residents pay for their housing, and also established a swap facility as well as another lending facility. to help the stock market, you know, to have so many measures put together at a single press conference

and followed by a very decisive announcement by the finance ministry that they're working on a fiscal stimulus, but they haven't announced a number because by Chinese law, this sort of fiscal spending has to be approved by the legislature, which is a National People's Congress Standing Committee, so they haven't announced a number. So putting everything together within the past two or three weeks out of the expectation, that's indeed very significant. And some of these numbers, not what China got used to for the past two or three or four years, especially since COVID. I mean, let's not kid ourselves. The market expectation for the Chinese government to make some stimulus policies has been high.

And there is this awareness both inside China as well as, and the international market that had hoped for some sort of intervention for quite a long time, but it didn't come. So suddenly it came. First of all, this is already very helpful because I was not aware, for example, about the sort of tradition of where on the calendar such things should be discussed, and this is interesting. But that also gets to another question, which is, I think, the most naive American China observer, and I would consider myself in the most naive category.

It just sort of has this vision in my head that Xi Jinping wants something and then it happens. I mean, I know it's not true and there's a real political system. But then you said, okay, so fiscal stimulus technically has to be approved and ratified by the legislature. Talk to us about that process because this is a level of sort of political understanding that I truly know nothing about. But what is the process for, okay, some number is drafted or some allocation of money is drafted? How do these decisions actually get made and then implemented? Well, that's a very big question. Take it narrow.

You are way too humble. And, yeah, I think of all the meetings I've mentioned, the most important one is certainly the political bureau meeting, which in China happens every month. So traditionally, they will focus on the economy at the end of the year, for example, because in every December, which is, you know, just two months away, there will be a central economic work conference which will make up economic development plans for the next year. But September, this at September's political bureau meeting is an exception. So I think the typical process is that, you know, all these Chinese bureaucratic agencies,

all the ministries, all these committees that are part of the Communist Party of China, they monitor the situation of the economic data, what are people saying? what are Bloomberg reporting, and then they draw up plans and they submit to the Chinese leadership. And so when there is an instruction, when certain information caught the attention of the leadership, they would typically make written instructions or give oral instructions, which really put things to work. And it has to be formalized at a meeting. And the most important one is a political bureau meeting. And in China, I also just mentioned a state council executive executive.

meeting, the State Council is like the Chinese government cabinet, or the PBOC, the NDRC, the Ministry of Finance, or the Ministry of Public Security, or the Tax Bureau, they are all subordinate to the State Council. So the State Council, their mission is to implement the decisions of the Communist Party of China's Central Committee's Political Bureau. So it's the Political Bureau meeting, the State Council, Executive Meeting, and then translates to specific deployments, rate cuts, fiscal spending, implemented by the different ministries, which of course involve their contributions significantly, because I wouldn't imagine, like, China's top leader to have such very specific details in, you know, whether it should be

a hundred billion or two hundred billion. These very important, you know, numbers and plans sure are drawn up by the technocrats. And also, Also, there are a lot of think tanks, university research institutions by college professors, and they would have their own channels to submit their observations, or they make their comments publicly and which are also monitored by the leadership. You know, there is no First Amendment in China, to be frank, but there is still a substantial discussion of substantive policies. So all of these things contribute to the decision-making, to the Chinese leader.

shape. It's great. You mentioned deployment just then. How important is it to incentivize local officials in this process? Because I imagine, okay, Xi Jinping can give a general mandate, but to your point, it's often the local government officials, the technocrats there, who are actually in charge of implementing and executing the policy and in some respects designing it to be most effective. How does that process work? Well, I think some background should be given because granted, China is a unitary state. So it's not a, at least politically, it's not a federalist system. So people's perception, especially Westerners and American perception, would be like, it's just women telling everyone what to do on every single matter. So that's obviously not true.

And for example, probably many people are not aware. Like local government spending in China's overall government spending is at, I think, 83 or 85%. And so the central government spending in China as a part of the overall spending is only 15%. If you compare that to all the advanced market economy in the world, it's among the lowest share in the world. So from that perspective, the Chinese, at least in terms of fiscal spending, is very, very decentralized. And also, if you examine the literature on, you know, the China miracle for

the past three or four decades. One of the most prominent theories is that China, in fact, has a sort of tournament for local government officials who ever get the GDP grew fastest or had the best investment projects, for example, the gigafactory of Tesla in Shanghai, then they get appreciated and probably they would move up the career ladder. So indeed, it's very important. And also China is a huge country. the world's second largest economy with over 30 provinces, 1.4 billion people.

So the philosophy is that the central authority gives some mandate, gives some direction, but it has to be implemented on a region-by-region basis. For example, China has this housing purchase restrictions, but each specific city sets their own criteria. For example, if you are Beijing or Shanghai, they have by far the most. strict housing restrictions. For example, if you have a local household restration, you can only buy one apartment. But if you live in a third or fourth tier city, maybe the restriction over there is much more loose. So, you know, housing sector is an important part of the economic story in China. So for example, to revive the real asset industry, like the Ministry of Urban

Affairs, the housing ministry, basically, they would under the mandate given by the central leadership, tell everyone, you know, it's time to relax all the housing restrictions. But they wouldn't tell, you know, Shenzhen or Chongqing or Chengdu or Wuhan, you know, what to do exactly. They would send the signals and the local governments will digest the signal and then make their own decisions. I'm Francine Lacqua, an award-winning journalist, and I've got a new podcast, leaders with Francine Laqua from Bloomberg Podcasts. I've interviewed everyone from Heads of State to fashion icons about the news of the moment. But I've always been curious, who are these people as leaders?

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We talked to Richard Koo about this, and one of the things that I have some understanding of is this sort of very decentralized policymaking, very decentralized, fiscal infrastructure. One of the things I think was sort of hinted at at the finance ministry press conference was there are many people who have written about the land sales in various regions and the sort of limits to that method of fiscal architecture, so to speak. And I think there were some hints at the Ministry of Finance about like eventually perhaps that's going to evolve more debt being taken on by the central government, etc. I take your point about this sort of regional competition. But can you talk like, do you foresee some sort of evolution

post-the-land sales model for regional fiscal spending such that more of it somehow comes out of Beijing? Well, the background is in China, a lot of local government finances used to rely on basically sales of land to real estate developers because by Chinese constitution or the urban land are owned by the state, which in effect is the city government. where they are in. But because of the housing slump we're in right now, this revenue has basically stopped. So the plan drawn up in the July meeting of the Communist Party of China Central Committee was that there will be a sort of tax and fiscal reform where the local governments will be given new revenue or a bigger share of certain tax revenues to replace the dwindling land sales. And the

housing market is estimated to account for, I think, something between 15% to 30% of the China's GDP. So basically, it's in crisis. And a lot of the biggest real assets developers have defaulted on the debt. And the Chinese government is very rigid, is very reluctant to help these companies. But at the end of the day, I think there has been this reckoning, which is you've got to have some sort of real estate revival. And because it's just such a large portion of the Chinese economy, you know, the overall Chinese strategic plan is basically to have more high-end value-added manufacturing and which will take a bigger share of the economy at the expense of the dwindolin housing market share. But that transition has to be a gradual process which has to be managed as smoothly as possible. So maybe just eradicating the real-acid industry is just not possible.

So right now, I think the Chinese banks have been encouraged by the government, basically, to continue to land to the developers. And there is also a political consideration in this. It's because in China, most of their apartments are sold before they are delivered. So people have already put down a down payment and they are paying their mortgage. But if they can't get the apartments that they have been promised, but they had paid for them, then there will be social rest. People will go to the streets to protest. So that's a huge issue for potential social instability.

So from that perspective, the real estate industry is, I guess, too big to fail on a certain extent. That's a good line. Just going back to the local governments for a second. So you mentioned how local governments have traditionally been judged, you know, whoever, has the highest GDP growth, whoever builds the biggest, shiniest new infrastructure project, that sort of thing. Do you see any sign that maybe the incentive mechanisms for local government actors are starting to change, or they might be judged by something different? I guess this is a very long-winded way for me to ask you about long-range fishing and things like that. But are there signs of change in terms of how the local governments are being judged?

I think actually that changed quite a few years back. So after Xi Jinping came to power, after China's economy transitioned to a mid-to-high growth numbers, and there were a lot of collateral damage from the high-speed growth, for example, environmental degradation. So a few years into his administration, the current Chinese president actually, I think that actually started even in his predecessor, which highlights what's in the Chinese, Chinese, you know, party speak, cause scientific development. So it's not just a emphasis on, you know, whether it's 8% or next year it has to be 8.2%. It was no longer that. And there are more attention paying to also security and, you know, to resilience. So there was not a

single emphasis on the growth rate for quite some time. What we are seeing in the past two or three years, I think, is actually a comeback to the priority of growth. For example, I think in the very important central economic work conference last year, it was highlighted that development was still the top priority. You know, when I was relatively young, when China started the reform and opening up in the late 1970s, that's the slogan, development is the top priority, which implies that economic growth is everything. But then, especially, you know, after the very devastating four-year COVID and, you know, China's drastic restrictions to contain the pandemic, the economic growth has slowed down significantly.

So what we are seeing right now in this past two or three years is a re-emphasize on, you know, get the economy going. And if anything, I think local governments, their mandate now is to, you know, do everything for the economy. This has come up on episodes in the past. But how would you describe the process? Again, you know, in the U.S., we think that feedback between the public and the government happens via elections, or because, you know, we have the First Amendment and there's enough scope for people to talk about whatever. It's frustrating. And then politicians react to that. I know there's political discourse in China and social media and there's, you know, people talk about the garbage time of history.

the live flat movement and so forth, et cetera. How would you describe, however, the feedback process via which the central government recognizes that some sort of pivot or temporary pivot has to be made to respond to the needs of the public? That's a very good question, and I think it's a million-dollar question. And, you know, there are indeed complaints and speculations

if there is some sort of echo chamber or in the Chinese, a more popular term, information cocoon at the decision-making level. And I translated and contextualized a speech in my technology newsletter just, I think, a few days ago, by a formal central economic official, which vehemently denies that. I think in this former official and in the Chinese official way, discourse, the government insists that they are not sitting in some sort of information cocoon or echo chamber. They are monitoring the situation very closely.

they know what the people are talking about. They know what Financial Times and Bloomberg are reporting. They are aware, you know, yeah, I think actually foreign media, international media have a outsized role actually within China's discourse and this policymaking process. So, but what I think it's the sort of, they have this determination, which is basically China needs to, again, advance to a different level of economic development. So they are willing to pay for the pains and the cost in this transition, which is going to be a long-term process. You know, this is something that is ironed into many Chinese minds. It's basically, you know, China makes a billion T-shirts to pay for one Boeing plane from the United States or an airbus from Europe.

So, China is now trying to make its own C-919 aeroplane, and it wants to have its own very robust semiconductor sector. It is already the largest shipbuilding power in the world, followed by South Korea. So it wants to pivot to this higher value manufacturing with a lot of scientific and technology input into these industries, and to make this, you know, hardware innovation sexy. and even at the expense of maybe some consumer internet. So in the Chinese policymaking view, these hardware-based machines, tools, these are very, very important.

And I think from the very recent, even from the press conference given by the Ministry of Finance and the NDRC, we can have some clues to that. Because a lot of the talk among, especially Western China Watchers, is that they believe the insufficient domestic demand has to be basically countered by giving money, giving direct subsidies to the Chinese population or basically to have the households have a bigger share of the Chinese economy

because when compared to other economies, the government share of the economy in China is significantly larger than that in the developed markets. But if you read the NDRC National Development and Reform Commission, which is typically known, described as the top economic planner in China. Their plan to revitalizing domestic demand is categorized into basically two things. One is consumption, where it mentions, for example, China gave some subsidies to very poor people before October 1st. And secondly, the Chinese government gave more scholarship to college students and increased the student loans.

The range, for example, it used to be 5,000 yuan, but now it's 7,000 yuan. And on the other hand, the Chinese government also announced that they are still trying to promote the domestic demand from an investment point of view. What they are trying to do is, you know, there is this ongoing trade-in movement. Basically, if you have an old Huawei phone or Xiaomi phone or iPhone or a TV screen, you can give it back and get a new one where the government will give you a relatively big subsidy. in the process where they are encouraging the factories to basically to replace their old equipment. This put together is known as Liang Xin, too new. And also, there is also another

large investment project called, you know, in Chinese Liang Zhong, two key industries, which is two key sectors, one of which is known as the major projects of the nation, and the other is known as the major projects that strengthen the security capabilities of the Chinese nation. So, There's two key and there is this two new. These are promoted by the NDRC in the press conference to everyone that this is our way of stimulate domestic demand. So so far, as you can see, they're trying to give some help to the households and, you know, to basically solve the needs of the most unfortunate who are suffering the most. But on the other hand, I think the direction is still very clear. It's like technology built up.

And, yeah. Just on the informational cocoon point, do you see, and you know, you talked about how there is a lot of discourse around economic policy and a lot of that takes place in public in various ways. Do you see any introspection on the part of the party and various officials in terms of policies that maybe didn't work out as intended in recent years? So I'm thinking of three red lines, for instance, or some of the policy withlash that we've seen in. various crackdowns on consumer tech or the education sector and things like that. Yeah, I think the three red line is a very good example. And there are a lot of scholarly pushback again three red lines, especially by some professors at the National School of Development at Peking University, one of the top universities in China. You know, the three red line is basically

to sum it up to make financing for real asset companies much more difficult. So the concern is you are pushing too hard. When you say real estate, real estate. Yeah, real estate. I'm sorry. And so the concern was you shouldn't just shut down the tap too fast. You should still leave some room for the housing sector to softly face out to be decreased in their importance of the economy. So that's definitely something because you are seeing now the Chinese government is encouraging the banks to land to the housing projects. There are also other things that I think is typically not very well known.

For example, believe it or not, the Chinese government plays by the textbook of some sort of Western economic policymaking very rigidly. There is something called, I think, Maastricht Treaty, which is the Treaty of the European Union, which basically says if a member state wants to join the EU, it has to meet some certain thresholds, one of which is in annual spending, the deficit should not be three. percent larger than the, and also, you know, your outstanding national debt should not be over 40 percent of your GDP or something like that. China really took it to its heart. And, you know, during the financial crisis in 2008, the Federal Reserve created a lot of facilities and swaps and to help the financial industry. And by the way, the PBOC's very recent inventions is somewhat similar to what the fast created. But the Chinese have been playing by these rules for quite some years, which in effect creates a very tightening effect.

And I think, you know, trying to learn to adopt the sort of practice and teachings of these experiences and lessons from the advanced economy is one thing. And the other thing is, it's quite cultural. I think there is this emphasis of frugality in the Chinese mind. It's that you got to eat bitterness. You've got to spend little money and save for the future. And that is still in the mindset, in the philosophy of Chinese decision making. This is Tom Keen, inviting you to join us for the Bloomberg Surveillance Podcast. It's about making you smarter every business day. I'm Paul Sweeney. We bring you complete coverage of the U.S. market open. We cover stocks, bonds, commodities, even crypto,

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So part of the problem here is that China notoriously has a extremely high savings rate. I think it's like, I think China saves like 40% of GDP, which is basically twice the amount that the U.S. saves and four times. the amount that like the rest of the world saves. How can they go about unlocking that savings? Because on the one hand, it seems very difficult to change the mindset, as you just pointed out. But on the other hand, you know, they're starting from a relatively low base. There's not a big social safety net in the country. So there are perhaps things that could be done there. But how do you unlock that chunk of savings?

Well, I think you mentioned the social safety net. That's very important. And that's very important. a lot of Chinese experts have been openly calling for in the past several years. It's basically for the government to spend more money, to devote more resources, to enhancing, to broadening, to strengthening China's social safety net. You know, China's GDP per capita is 13,000 US dollars, something like the 78s in the world. But it has built up a universal healthcare system. And so basically, I don't know, 98, 99% of the people have some sort of health insurance. And, you know, basically they can, they just have to pay a portion of their medical

costs. But as you correctly mentioned, the social safety net, perhaps as a result of the overall national economic development, it's still not thick enough. It's not, it's just not enough. So, and there is a national pension system, and it's not looking well, because part of that is demographic changes. You have more, you know, old people and no longer so many young people, so that's under stress as well. So one big part of the current ongoing discussion is for the government to spend more money into pension, into strengthening the medical care for the system. And another very important is institutional reform.

So, you know, on paper, China's urbanization rate is something like 65%, but only 48% of the people have urban household registration. So that means there is still many people who actually, work and live in cities, but they do not have the sort of legal household registration in Chinese cities, which means they are not entitled, they cannot enjoy the benefits of education, medical care, and those cities, they're actually living. So if similar reforms by, you know, making it much easier for them to relocate into cities to enjoy the social benefits, and so that they would no longer be stuck to their rural land, that could increase.

the productivity and unleash consumption as well. And I think this is actually- This is the Hukau reform. Yeah, that's right. And also it's related to the rural land reform. And, you know, because if you don't have the Hukau household registration in the cities, your children can't go school in the city. So your children had to go to a rural school.

And so that means you can't move your family over there. And you can't buy an apartment over there. You can't buy the TVs and decorate the house. That's a lot of consumption potential over there. So I think on the bright, side, there is a reason for optimism for China's long-term growth is simply because there is just so much things to do. There is just so many things that can be done.

And you know, in China, there's very recent talk of low altitude economy, so which basically for airspace less than a thousand meters, so you can use drones to do logistics and it can work on agriculture and a lot of things. But in the past, it was not possible because there were a lot of regulations about airspace. sometimes from a security or military perspective. But now I think the Chinese government is working on basically reduce, deregulate this place. So there can be a lot of opportunities. So, yeah, there are still a lot of things to be done.

You mentioned the role of foreign media and the importance of the sort of outside perspective in the information ecosystem that leaders in Beijing used. You worked for 11 years at the Shinwa News Agency. It's a state news agency. What is the role of the state news agency in this information ecosystem and how does it interact in terms of what is the role? What is the basic mission of these agencies? Okay, sure. So some personal background, I was born and raised in China.

I'm totally educated in China. So after college in 2011, I joined Xinjiang News Agency, the state news agency. I worked for 11 years there. For the first six and a half years, I worked in two provincial bureaus, so basically a local news. so basically a local news reporter, and then I worked in Europe and then in Beijing headquarters. So there are Xinhua news agencies, there is what is now known as China Media Group, which is the state broadcaster. And then there is China Daily, and there is also People's Daily, which is more better known as the flagship newspaper of the Communist Party of China. And one of its affiliates is very well known, it's called the Global Times.

And I think in these cases, I think a big role of these Chinese state-runner, news agencies and newspapers communicating Beijing's policies and intentions, and of course, facilitating a domestic discourse that's favorable to the Chinese government because the Chinese government believes this is the best way for the country to move forward. And I think there is a crucial difference between the Chinese news system and that is practiced, for example, in the United States. In the United States, in the White House, you have a press communications team. So whatever President Joe Biden or Vice President Kamala Harris put out,

it's put out by the White House and then picked up by the White House press call and then picked up by the news media, which based on their own editorial standards, decide to report it or not report it. In the Chinese, there is no such mechanism of centralized news publications. by the central authority, that function is delegated to the state media. So at Xinhua News Agency, at China Central Television, at people's daily newspaper. So in a sense, these state media are playing a role of the White House Communications team. So, you know, the TV footage of the Chinese president, of the Chinese premier, who they meet.

And what happened in China, these meetings, the readouts directly put out by the the Chinese state media. So the rules, the setup, and of course, the political system and also the discretion they have are indeed vastly different from that of the United States. And you mentioned the role of foreign news media. I think very unfortunately, and this is something as a formal correspondent, as a former journalist I really want to highlight, is China has been unable to send its journalists to the United States. And it's also very difficult for New York Times, Bloomberg, Washington Post, Wall Street Journal to have its journalists on the ground in China. This doesn't help anybody. And, you know, as the two countries get their relations right, I sincerely hope that, you know, the two sides can figure something out to have more journalists in each other, which would help with, you know, understanding China better and understanding the United States better. Yes. Let 10,000 China, U.S. journalist correspondence bloom. I agree. I have just one more question.

Actually, it's two questions, but I'm doubling my personal productivity by asking them together very quickly. Number one, how much do the U.S. elections matter here? Like, come November 5th, is there going to be some big rethink of China domestic policy, or are there certain things that hinge on the outcome of that election? And then secondly, what are you watching in terms of what's next and what could be significant? So you mentioned here. You mean in China, right? I think Rush Doshi, the former deputy senior director, National Security Council of the White House, wrote something either yesterday or the day before yesterday on the New York Times, which is a very helpful read.

And he is clearly trying to help Kamala Harris. And I think there is this discussion about basically whether China wants a democratic president or Donald Trump's second presidency. First of all, I think the Chinese official stance is this is domestic affairs of the United States and we don't interfere with the United States domestic elections. And I think at least in this round, if you examine the responses from the U.S. officials, including those in the intelligence community, if I'm not mistaken, they have said they did not see any instance of Chinese interference in the U.S. elections. I think this is also a discussion in China because this is like the most important.

important election in the world and it's going to have very big impact on China-U.S. relations. I think the thinking is that if Kamala Harris became the president, she will some sort of continue the path that President Joe Biden has already laid out. It's going to be some sort of stabilization of the status quo. I mean, make no mistake. Nobody has any illusions about China-U.S. relations these days. It will be difficult for both sides and there will be disagreements and even, you know, not armed conflicts, but serious disagreements. But it will be predictable and probably manageable. But Donald J. Trump, to become the next president, well, I'm a Chinese citizen.

I really don't want to interfere with U.S. elections. But I think the thinking is that he's just so unpredictable. And nobody knows whether he will wake up in the morning 5 a.m. and tweet out. and I'm not sure Beijing is really a big fan of that. But as Rastush Toshi pointed out, that Donald Trump is probably going to mess up the alliance with Europe and a lot of U.S. allies, which if you really take a 30,000 feet view,

could be good for China because the U.S. messes up its alliance system. But in my understanding, the cost is unpredictability. you have to face the drama on a weekly basis. So there are pros and cons. And I think the Chinese attitude is we will stand on our ground and China will, you know, stick to its principles and defend its interests, whoever gets into the White House in power. I'm really not sure there is a clear preference

for who is going to be the president of the United States. And in terms of what's next, what we should watch out for? Oh. The stimulus measures. Well, first of all, which for the National People's Congress Standing Committee meeting of ratifying the size of the fiscal stimulus out of the finance ministry, because the finance minister made it very clear that we can't tell you now because it has to be ratified. And that's something very important. And so exactly the size of that stimulus, I think a very respected Chinese news magazine, Tai Xin had already put out some numbers, and I believe Bloomberg has. had also, you know, quoted that number in the terminal.

And that's something very important. And also, you know, China has this five-year plannings. And so next year, China will be making up its 15th five-year plan. And so that's a mid-term to long-term prospect. And, you know, one can gorge if there is any direction or change in terms of that. And I think I also mention that every December there will be the Central Economic Work It typically happens during the Christmas season. But yeah, I think that's like the things we're going to closely watch for.

And also sign up for my newsletter. Definitely sign up. Zishuan Wang. Thank you so much for coming on out. Thank you for having me. And like I said, we'll have to do it again sometime. Thank you. Joe, that was so good having Richard and Zicheng on as well.

What a treat. That was... The macro and the micro. No, exactly. I thought that was fantastic. As you said, the macro and the micro. I'm trying to think where to begin because there was so much in both of those conversations. I appreciate, you know, the big picture, the sort of Richard Koo balance sheet recession that you get in these difficult situations where everyone is saving, everyone is concerned, the downward growth feeds on itself.

I appreciate this sort of idea that like China hit a moment where, okay, yes, and to a position's point, the long. term goal is to maintain that sort of high-tech manufacturing-led scientific growth. But I think the common thread is, with the decline of the real estate sector, there was just this moment that had to pivot. Yeah, well, two things there. I mean, it does seem fairly clear to me that China has taken that balance sheet recession idea on board. Like, what they are doing now is trying to boost real assets so that people want to invest more and they sort of build up their confidence and things like that. I guess the big question I have is there does seem to be a lot of low-hanging fruit in terms of reducing the savings rate and getting people to spend and invest more.

But on the other hand, it kind of begs the question, why hasn't this happened before? You know, stuff like hookout reform and things like that. Why didn't they do it before? And I guess my question is, is this an economic problem or is it one of perhaps political will? Yeah, totally. And I guess, right, like we don't really know the answer. From the second part of that conversation with the position just now, very interesting this idea that like, okay, one signal is simply this fact that like the announcement happened now in the calendar year. Like right before Golden Week, I didn't realize that there was like a time of year to talk about economic things. No, I didn't. So, and, you know, if there's like a econ policy making going on at that time of year, then that signal is. something different than business as usual. It certainly makes a lot of sense to me, you know, just this idea that like even in a sort of centralized political system that these things take time to implement that things have to be approved, that ideas, that there is a period of debate for ideas, as he noted, even in the absence of First Amendment free speech norms, there's going to

be different views on how things get implemented. And I thought that was very interesting. Yeah, and also I think Richard brought this up, but the idea that, you know, fiscal is a little bit more difficult than monetary policy because you're deciding who gets the money rather than the sort of generalized easing. Right. And that is something that on the specifics of how much and whom the money goes to, probably not something specific that Xi Jinping would have in his head. All right. Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Jill Wisenthal. You can follow me at the stalwart. Follow our guest, Zishan Wong. He's at Zishan Wong here. Also check out his excellent pecanology substack. Follow our producers, Kerman Rodriguez, at Kermannerman, Dashel Bennett at Dashbot, and Kel Brooks. Thank you to our producer, Moses Andam.

For more Oddlots content, go to Bloomberg.com slash oddlots, where we have transcripts, a blog, and a newsletter. And you can chat about all of these topics 24-7 in our Discord. Discord. dot gg slash oddlots. By the way, that newsletter is daily now. So subscribe and you can hear from me and Tracy every day. Definitely subscribe to the newsletter. And if you enjoy Oddlots, if you like it when we do these two-part episodes on China Economic Policy, then please leave us a positive review on your favorite podcast platform.

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