Odd Lots - This Is Why The China Bubble Never Seems To Pop

Episode Date: June 29, 2020

For years and years, the Chinese economy has been characterized as a bubble, with too much debt, and a history of badly thought out, state-directed investment. Yet, for all of the dire warnings, the economy has continued to grow, and there hasn’t been a reckoning. So why is this? Is it only a matter of time before things all fall apart? Such questions are even more urgent in the wake of the COVID crisis, and questions the stability of the Chinese growth model during a time of weakened demand for Chinese-made goods. On this week’s episode, we speak with Tom Orlik, the Chief Economist at Bloomberg, and the author of the new book "China: The Bubble That Never Pops." He explains China’s resilience, and what could ultimately come back to haunt the Chinese economy.See omnystudio.com/listener for privacy information.

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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, and wherever you get your podcasts. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall.

And I'm Tracy Alloy. Tracy, there's been some interesting data out of China lately regarding the recovery from the coronavirus crisis. You're going to have to narrow that down quite a bit. Are you talking about some of the data that sort of supports the notion that they're seeing something of a recovery, although it's mostly driven on the supply side rather than the demand side. Is that what you're talking about? Yeah, sorry, I was being super cryptic. But yes, this idea that we have seen this sort of what some

people might characterize as kind of a V-shaped recovery on the industrial side, sort of an impressively fast and resilient restart of the factories and so forth, but not so much on the demand side yet, at least from the data, and maybe you have a better sense of this from the Hong Kong perspective, but it still seems like consumption, shopping, going out to eat, still kind of tame. Yeah, I think that's exactly right. Although I have to say in Hong Kong, we are starting to see a little bit of a pickup, mostly because everyone is stuck in the city. They can't actually leave.

When they have to come back, they have to go into two weeks' quarantine. So everyone is taking staycations and going out quite a bit lately. But with that exception made, yes, we are seeing a stronger supply driven. recovery than we are on the demand side. And one thing that I find interesting about that is that it sort of speaks to the very nature of China's economic model. I guess one of the benefits of having a command economy is that when times are bad, you can kind of command everyone to go back to work and you can tell companies to maintain jobs and start making products again. But of course, you know, the downside of a command economy is that you might not necessarily get as strong

consumer as you want. Right. So the industrial side, the corporate side is very much an extension of policy, much more so than consumption. And so this sort of dual speed recovery that we're seeing in China, it may be a queue right now, but it speaks to something much broader. And I'm thinking also we had a recent discussion with Matt Klein, just this sort of general idea that the Chinese economy has never really been as sort of consumption focused, household focused, as it is investment and production focused. Yeah, that's exactly right. And of course, the other big theme that's cropping up at the moment is what China is doing to support its financial system. So we know that the authorities are trying to walk this fine line between propping up the banks,

but also, you know, avoiding moral hazard and trying not to accumulate even more debt. So that's something else that's going on at the moment. So all these things are like kind of like microcosms or cute versions of stories that, I mean, you and I have been covered, talked about the world economy for years now, literally since I think the first day that I, you know, been covering the news, you just hear forever about the China bubble. And there's the most obvious bubble and there was all this debt supposedly and all this bad debt. And it's sort of taken for granted that it must come to an end, that there must be a reckoning.

And we know people shorting China forever and talking about how dysfunctional the system is. But, you know, it's been years and years since we've been talking about this. And the great sort of Chinese, I don't know, reset bubble popping, it never quite seems to happen. Yeah, China is forever a debt crisis sort of on the brink. And yep, it never seems to happen. There's always these false starts. Like, you'll see something like, oh, some apartment developer couldn't sell their units. And everyone's like, this is it. This is the moment we've all been waiting for. The Chinese real estate bubble is popping. And then six months later, it's like apartment price has hit new all-time highs and that goes away. Yeah, I mean, I would say in recent years, you've had some bigger ones.

So you had Baushang Bank, which actually failed, which was very unusual. And now what's really interesting is you're starting to get some losses on wealth management products that a lot of banks sold to retail investors. That's another thing that lots of people thought was going to tip over the financial system into some sort of crisis because people weren't going to buy the products anymore and they would pull funding for the banks essentially. So, yeah, you have a lot of things that could go wrong, but the concept consequences never seem as dire as people originally predicted.

Exactly right. So anyway, I think that, you know, raises an interesting question of, well, why is this? Why does this, why does the, the doomsday bubble crash collapse scenario that so many people just assume is inevitable? Why has it not happened? Is it going to happen? We're going to be talking about that today with our own colleague, a special episode with one of our Bloomberg colleagues.

they were going to be speaking to Tom Orlik. He is the chief economist here at Bloomberg. And he has a new book out on exactly this topic called China, The Bubble That Never Pop. So Tom, thank you very much for joining it. Thanks, Joe. And I especially enjoyed your manly attempts to frame the subject without accidentally using the title of my book before you introduced it. Very impressive. Kind of guided it right there without quite using it. But it really. has been a thing. And even before I was aware that you had this book in the works, that you're coming out. Congratulations, by the way. This has been like a sort of like weird head scratcher because for as long as I've been following this stuff, it just seemed inevitable that China must be the most obvious bubble ever and that it was only a matter of time before it was crashing down. The only debate seemed to be when and not if it was going to happen. Yeah, that's completely right. So,

So I lived in China from 2007 to 2018, mainly focused on improving my table tennis game, but I did a little bit of economics as well. And that was the persistent narrative, right, from the great financial crisis and that famous 4 trillion yuan stimulus, which Premier Wen Zhao Bao launched all the way through now, there's been this massive rise in debt. And the question everybody has had has been, well, how long can this continue? and what's it going to look like when it melts down. So give us a summary of the weaknesses in China's economy or the financial system that people

have seen for this long. What is it that they are seeing? What is it that they're concerned about? So I break it down in three ways, Tracy. So the first is the size of the debt bubble. So if you go back to 2008, China's debt to GDP, looking at the whole economy, was around 140%. If you fast forward to 2016, 2017, it's gone all the way up to 250% at 260%. So that's an astronomical increase in debt in a really short period of time. The International Monetary Fund scanned the world.

They went back in history to, I think, World War II. They couldn't find another country, which had taken on so much debt so quickly. But they did find a bunch of countries that had taken on less debt and still had a financial crisis. So that's the first thing, just a huge amount of debt taken on very quickly. And then the second thing,

if we look at the borrower side of the Chinese economy, who's borrowing the money? Well, it's state-owned enterprises, investing in excess capacity, building steel mills when no one wants any more steel, cement kilns when no one wants any more cement. It's real estate developers building those ghost towns in the desert or those empty apartment blocks and its local governments building the roads to nowhere.

So on the borrower side, we've got a bunch of people making investments in things which have got low returns, so how are they going to pay the money back? And then on the lender side, you've got state-owned banks, state-owned banks operating more on policy directives than commercial incentives. They're probably making some bad lending decisions. And you have the explosive growth of a shadow banking sector. Shadow banks don't have the capital to absorb losses, a lending to really low-quality borrowers.

So the risks there have got to be higher. So I have a million questions already just based on that. But I'll start with one. And, you know, one of the things that's really been popular. conversation in the last couple of years. And partly popularized by the rise of, say, modern monetary theory is that there is a distinct difference between private sector debt and public sector debt. And that public sector debt just doesn't have, shouldn't be thought of with the same kind of credit risk. And I'm curious whether to some extent we can start getting our heads around the

Chinese debt bubble by the fact that, you know, you mentioned state-owned enterprise, state banks, local governments, which presumably are implicitly at some level backed by the federal government, the sort of difficulty that outside analysts have in distinguishing what's truly private sector credit versus public sector credit. And how much does that play to the sort of misconceptions about the debt sustainability? Yeah, so that's a really important point, Joe. And one thing which really distinguishes China from the rest of the world, or at least the liberal capitalist rest of the world, the US, Europe, and so on, is state participation in the economy, and in many instances, just state ownership of the key players. So let's say we have a bad loan in the US system.

Well, how is that going to be resolved? Well, maybe there's some initial negotiations between the borrower and the bank, and then maybe there's some legal recourse for the bank if the borrower can't repay and they try and reclaim their collateral. How does that look in the Chinese context? Well, probably the local government owns the bank and they own the corporate, and they have some tax revenue or other sources of income they can put into play. And so that entire conversation, that entire negotiation is taking place within the state family. And as long as China continues to grow, and remember China continues to clock, not in this COVID-19 year, of course, but in general, China continues to grow around 5, 6%.

Then the government just has a lot of resources that they can continue to shuffle around the system, and that allows them to resolve a lot of problems behind closed doors without a blow-up taking place. Just on that note of sort of shuffling things around the system and also having this closed circuit of state-owned enterprises and banks that all sort of have relationships with each other. How much does the fact that we're essentially talking about a closed economy factor into China's resilience here? Because, of course, you know, there has been some degree of opening up, but you still have hefty capital control. So how much does that actually insulate China from

problems? Yeah, that's a really important point, Tracy. You often hear people saying that that China learned the lesson of the Asian financial crisis, right? They learned the lesson of the Asian financial crisis, and that's why they've been stable. What was the lesson of the Asian financial crisis that they learned? Essentially, it was don't let Wall Street in, don't let foreign capital in. In China, they actually have a phrase for sort of foreign speculative investors. They call them, I'm probably going to get this wrong, but it's like, da jing r u, which means big financial crocodiles. So the big financial crocodiles came and they came and gobbled up Seoul. It gobbled up

Korea in 1997. They destroyed much of the Asian great story. And China saw that and said, you know what? We're going to finance our own development. We don't need these foreign funds coming in, which are great when they're coming in and everyone's really happy. But when they leave, the system crashes down. And so because China's growth story has really been domestically financed, that gives China an important basis for stability that you just don't see in other emerging markets. This is like a really key point, just this idea of local denomination of debt basically. I mean, as long as debt is in a currency that you can print, that makes it more sustainable, because of Chinese incredible growth, it hasn't needed to use foreign money to. finance itself. Joe, I knew you'd find a way to work modern monetary theory into this conversation.

I knew it. It was inevitable. Just trying to see if like, you know, we're all speaking the same language. Yeah. And actually, I'm not as familiar with the precepts of MMT as Joe as Joe is. But from what I, from what little I do understand about it, I think China has actually been pursuing a kind of quasi-MMT type policy for the last 20 years without calling it MMT. You can get the news whenever you want it with Bloomberg News Now.

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One was on the pure financing side. But the other one was just about this sort of misallocation of capital. And it doesn't matter really what currency. investments are made in if they're bad investments they're bad investments and i remember like all those videos that used to be on youtube that um i forget the hedge fund manager used to go to those cities out in the middle of nowhere and nobody was in the in the cities did those ever get filled up like what happened to those go cities we were talking about like in 2011 did people eventually move into those apartment oh hugh henry that was the that was the fund manager that went made all those youtube videos

showing all these like empty city i remember the name i remember the name it's a shame they're were no drones in those days. He could have saved a lot himself a lot of time. So that's a really interesting story. And it speaks to another one of the themes in my book, which is how China's policymakers have policy instruments available to them, which enable them to move the dial on the macro economy in ways which other countries just wouldn't be able to do. So let me tell you a story about a trip I made to Guayang, the capital of Guajou province, back in 2000. 17. And Guayang had a serious ghost town problem. They built a bunch of shiny new tower blocks, but no one wanted to live in them. So what did the local government do? They got out the bulldozers,

and they went and knocked over everyone's house. And then they said, okay, sorry, we're not going to over your house. And by the way, we're going to have the land your house was on. But don't worry, here's some money. Go and move into the shiny new apartment block. That's one way to do it. The real estate developers who built the shiny new apartment blocks were happy because someone had come and bought them. The local government now had some land. The real estate developers who and I flushed with cash bought the land off the local government. So the financial circle was complete and the real estate, the empty real estate had been used up. And that wasn't just a Guayang story. That was a national story. That happened to millions of people every year for the last decade in China.

there was a national program that the government sort of euphemistically called it slum clearance. Millions of people every year for the best part of a decade, getting their old home knocked over and getting some money to move into a new home. And when you can do that kind of thing, which China can, and I don't think any other country in the world can, then problems like massive real estate overcapacity suddenly become a little bit easier to deal with. Can we talk about the downsides of having this sort of closed circular command economy system? Because, you know, we're talking about the misallocation of capital.

And one thing that you do tend to see in the Chinese market a lot is there is a lot of excess cash. And it sort of just rolls into one thing after another. So, you know, it'll go into property and then it will go into stocks and then it will go into something else. And people do lose money on those investments. and every once in a while you do hear stories of outrage at someone who's, you know, from someone who's lost their entire savings on, you know, a peer-to-peer loan scheme or something like that. What are the downsides of having that kind of circularity in a closed system?

So I think the first thing to say is that there are some very serious social downsides, right? Just think about that slum clearance example. Did those millions of people want to have their... homes bulldozed so that the government can solve the problem of real estate over capacity. I think there's a reason democratic countries wouldn't be able to do that, basically, because people don't like it. So there's some very serious social downsides to it.

There's also economic downsides as well. If you have very large-scale misallocation of capital, then you have very low return on assets, very low productivity growth. And ultimately, when China has used up all the space it has to catch up with the US, to catch up with Germany, to catch up with Japan in terms of its use of modern technology, its use of modern management techniques, then that's going to come back to bite really hard. And China's growth is going to be very weak. And we are going to see a day of reckoning in the economy and in the financial system. that day just is much further away than most people realize. I remember there's that one street in Beijing

where a lot of the really big state-owned enterprises have their sort of headquarter offices and a friend of mine used to refer to it as the street where capital goes to die. We need photos of that, the street where capital goes to die. But Tom, I want to press you on that last point because you referred to a day of reckoning, will it be a day? I mean, and I mean that kind of literally in the sense that when we think about, say, the U.S. housing bubble having collapsed, okay, it took place

over a period of time, but, you know, there's like a few days that really stand out, the Lehman brothers collapse and so forth. In the China context, is there going to be a day when it collapses, or will it just be that at some point you expect we'll look back and say years and years of misallocation and other bad decisions led to a degradation of growth and productivity that clearly set it back? Is it going to be a crash or just sort of like a bad period? Yeah, I think it's kind of the, is it Lehman or is it Tokyo, right? Yeah, right, yeah.

The moment where everything went wrong and Tokyo being the kind of the example of an economy which just kind of lost its moxie. Is it moxie or is it mojo? Maybe both over an extended period of time. I think the point I come back to is that what China's government needs in order to successfully backstop the system is continued growth in its resources. If the government has continued growth in profits from state firms, continued growth in profits from state banks, continued growth in tax revenue, continued land sales revenue, then it's got money that it can carry on shuffling around the system to make everybody whole, right, to paper over the cracks. And to have those things, what it needs is growth. For me, the point when the bubble pops, whether it is the kind of the beginning of a long stagnation or a kind of a crisis point is the moment when the growth stops.

So the question is when's that going to be? And one powerful way of thinking about that is, well, where is China relative to the technology frontier? Where is China relative to the level of productivity that we see in the United States and Japan and elsewhere? And the answer is actually still a really long way. GDP per capita in China is a third of the level that it is in the United States. Japan fell over in 1989. Japan's GDP per capita in 1989 was already at US levels. Based on that way of thinking about things, China still has quite a long way to run.

So I'd be curious to get your take on what you think China sees as its role in the global financial system. like what is China actually trying to achieve with some of its capital markets opening up? You mentioned this idea that it wanted to keep a lot of the Western speculators out earlier. And is there a moment at which China's global financial ambitions maybe become constricted by that closed economy that we've been describing? There's a real cost to autarchy, Tracy, some of those points that you were mentioned. mentioning so much money sloshing around in the system, chasing returns on P-to-P schemes today and equity tomorrow and real estate on Thursday. And so China's policymakers recognize

that there are some benefits in terms of efficiency to having a more open system, to allowing money to go on, to come in and out of the country. At the same time, there's still a real fear about what might happen if they open up too quickly. I spoke to one senior executive in a Chinese firm who said opening up with all of the weaknesses we have in our banking system would be like Zhao Su, it would be like seeking death. So they want the efficiency gains, but they want to do it gradually so they can try and minimize the costs. I'm June Grosso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court cases, the latest actions

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And on the West Coast, catch up in the evening. That's the Bloomberg Law Podcast with me, June Grosso. Subscribe today wherever you get your podcast. I want to ask you a question that's sort of not necessarily the focus of your book, which had obviously been in the works for a while, but it's sort of of acute importance. You mentioned post the last crisis, the $4 trillion stimulus, got a lot of attention.

There was this big sort of commodities boom associated with it, sort of between 2009, 2011. It was a huge amount of enthusiasm towards emerging markets, which then faded over the subsequent decade, but at least initially coming out of the crisis, all kinds of sort of after effects from that sort of massive move on the demand side. We haven't seen that this time around. It feels like the measures have been more limited. In fact, we just started this conversation talking about sort of dual speech. nature of the recovery. Could you see China doing something like that, again, particularly if global demand for their goods remains soft, just due to the sort of slow reopening of the West

and elsewhere? I think there's two big differences between 2008 when they did that massive shock and awe stimulus and today. So the first is they just don't have as much policy space as they did. There is a cost to running a massive credit stimulus for a long period of time, and the cost is you can't do it again. And then the second thing is, actually, that stimulus didn't work out so great for them. It was a stimulus which was very popular with the rest of the world, but that's because it created massive positive spillovers for the rest of the world. The benefits, yeah, there were benefits for China, but because a lot of the money went to importing iron ore, for example, a lot of the benefits spilled over to Australia and Brazil in the form of more volumes and higher prices

for their commodity sales. So China this time, they're running a pretty big stimulus. We think the fiscal deficit's going to go up to 11% of GDP this year. That's not nothing. But it's certainly smaller than it was in 2008. And it's kind of, it's meaner, right? It's more smartly focused. So the benefits are much more going to stay inside China. We're not going to see those big positive spillovers to the rest of the world. I think we'd be remiss if we didn't ask you a little bit about the ongoing trade tensions with the US and what those mean for the Chinese economy. But how much damage do they actually inflict on China?

Because there's an argument, at least domestically in China, that in some ways, by closing off the country from the rest of the global market, you're sort of encouraging it to double down on its domestic. focus and maybe even speed up the development of its own domestic market even faster? I think there's a couple of things. A trade war is definitely not good for China. And a trade war at the same time as they are managing this painful deleveraging process, trying to manage down some of that debt they took on after the great financial crisis. And at the same time as they have the COVID-19 crisis is definitely painful.

So they certainly don't want tariffs to go back up. I'm sure they'd like them to come down. But then the second question is, is a trade war going to fundamentally derail China's development process? And I think the answer to that is no. And it's for the reasons that you suggested, Tracy. So firstly, China's domestic innovation engine, I mean, China does not have a Stanford or a Harvard, but China's domestic innovation engine is pretty powerful.

No one spent, no one apart from America spends more on R&D than China. If you look at the innovation rankings, China is punching way above its weight relative to its level of development. It's important to remember that it's actually really hard for other countries to decouple from China, right? The US has really moved aggressively in that direction, but they can't move completely in that direction because the apples and the Qualcomms of the world are deeply invested in the China relationship. And that is also true of the big multinationals in Europe and big multinational. in Japan. So trade war is definitely bad. Trump, in a sense, is kind of like the anti-Nixon. Nixon opens China up. Trump seems to be doing his best to close it down. I don't think he's going to succeed. Ultimately, I don't think this is going to be anything more than a little bump on

China's development trajectory. What about, and no one seems to talk about this as much anymore, or only when you hear about it seems to be about failures or disappointments. But, the endeavors of the Belt and Road initiative or just creating all of these financing investments in other countries, which might theoretically one day be sources of demand for China and further opportunities for growth. Is that stalled out? Is that not going as planned? What's happening with that? So Xi Jinping came into power and he basically had a different conception of China's role in the world, right? So Deng Xiaoping famously, said, we should bide our time and hide our strength, right? We should just stay quiet, benefit

from favorable global conditions and develop. And Xi Jinping came in and said, you know what, we've arrived. We won all the medals of the Olympics. We've got the biggest foreign exchange reserves, with the biggest exporter in the world. We're here. And we're not going to, we're not going to hide it any. So you had a bunch of initiatives from Xi Jinping. You had the Belt and Road scheme, which was basically announcing their arrival as a kind of a geopolitical power. You had China 2025, where they announced their ambition to kind of own the future of technology. Both of those things were, frankly, PR disasters for China, right? The entire rest of the world said, what?

You're going to be taking over Africa and owning AI and robots? That's not acceptable. So it's not a coincidence that the announcement of the. the Belt and Road scheme and the announcement of China 2025 came immediately before the shift in the global perception of China towards a basically more sort of cautious, hostile view of what China's rise meant. And it's also not a coincidence that China has stopped talking about both of these things, right? China doesn't really talk about China 2025 anymore. They don't really talk so much about the Belt and Road anymore. And that's not because they're not doing them still.

it's because they've realized that it doesn't actually strategically make sense to make these bold claims. I have like a semi-interesting analogy about table tennis and the Chinese economy. Oh yeah, yeah, yeah. Tell us that you hit a great thread on Twitter about this, and I want our listeners to hear it. So before we go, tell us how table tennis explains the resilience of the Chinese economy. So I spent a lot of time in China playing table tennis. I actually moved to China. partly because I wanted to be a China economist, but mainly because I wanted to be a better table tennis player. Wait, for real? I was young and foolish.

I played in sweaty basement clubs. I played in the headquarters of some of China's biggest state-owned banks. I played with the Shanghai University ping-ponged team who are really good at table tennis. Oh, there are YouTube videos. Joe, there are YouTube videos. Tom ordered a table tennis match in Shanghai. Yeah, I just look these up. Oh, Tom, that was a mistake telling us.

Laura, could we get some sound in here? Just some, like, I love that sound of the ping pong ball. Going back and look. So China's table tennis has some really serious problems. The men's team went on strike a few years ago because they weren't happy because there was some backroom political deal, which got rid of the coach they really liked. If you speak to professional players in China,

they all have stories about bribes, and corruption and payments they needed their parents needed to make to get them into the best training programs. The best players in China, they had to start training when they were eight or nine drop out of school to have any chance of making it. So you've got corruption, you've got nepotism, you've got a kind of mechanical, almost inhuman approach to training. And yet, China's table tennis team are indisputably the best in the world. Go and check the international table tennis federation rankings, look at the top 10 for men, the top 10 for women. There's a lot of Chinese people on that list. So why is that? Well, there's a few reasons. The first is there's 1.3

billion people in China and they all try table tennis. So there's a massive talent pool to pick from and huge economies of scale. The second reason is they have a really well-planned approach to ensuring that they're going to be the best. If a foreign player develops a serve or a good shot and wins a few games against the Chinese team. They'll get a video camera, they'll record the foreign player, they'll take the video home, they'll break it down, they'll analyze it, they'll make sure they've mastered that technique. So the technique might work once against the Chinese team, but it's not going to work twice. And writ large, those benefits that the Chinese table tennis system has are also the benefits the Chinese economy has. China is the most

popular country in the world, which means they have absolutely enormous economies of scale. China's trade with the rest of the world means that they can learn foreign technologies and foreign techniques. And when you put together the foreign technologies and the foreign techniques with China's massive scale, what you end up with in table tennis and in the economy is the potential for a world-leading system. I love it. I'm so glad we got this in. But it's perfect. And, you know, just the idea, you can mismanage you a lot. But when you have that much raw resources, you can still be the best.

That's exactly right. By my book, China the bubble that never comes. By the book, people. Thank you so much, Tom. Now, I want to do one on Russian chess during the Soviet era. I wonder how many analogies there are between Chinese ping pong and the dominant of Russian chess. But we can talk about that another time.

Thanks again, Tom. Congratulations. Thanks so much. So, Joe, I really enjoyed that conversation, not least because it has led me down the internet warmhole of watching Tom Orlik table tennis videos from years ago. That's fun. But also because it is interesting to think of China as sort of one of the first examples of a real quasi-MMT economy with all the benefits and also the downsides that might entail.

Yeah, I was thinking, you know, back to our, you know, and I think about this episode a lot. Remember, Fadal Kaboub, I think that was last year, or maybe it was two years ago and talking about sort of MMT in the developing market context. And, of course, most countries don't really have the sort of industrial or technical or growth capacity the way China has had. But that is sort of just like this very different model of not relying on external financing to grow. And there are costs and benefits. but one benefit is you don't have those sort of financial crises the same way where suddenly you have a huge obligation in a foreign currency. Yeah.

And I mean, you have to say there are some advantages to having a command economy in times of crisis. And specifically, I guess in times of national pandemics, as we've seen, you know, the U.S. might struggle or at least take some time to institute job safety, Whereas in China, like, I think they're much, much more used to telling people and companies what to do. And so you see that sort of economic machinery start much faster. Yeah, I think that's right. And I think the key thing that I took away from that is not that there aren't massive risks to the Chinese growth model.

And there clearly are and there are all kinds of problems. And building cities if no one wants to live in them is going to be an issue. or building steel plants for steel that goes unused is going to be an issue. I think what the key thing is just sort of being clear about identifying what the risks are. And if you're looking for the sort of Lehman moment or something like that, it's probably not going to be that, but more along the lines of like an ongoing degradation and productivity if you build an economy of stuff that nobody wants. So I think what may be perhaps analysts,

got wrong is not about the sustainability or unsustainability per se, but about what the aftermath looks like if things go bad. And I think that's where Tom's perspective is really helpful. Yeah, cities full of streets where capital goes to die. And now I'm going to spend the rest of the day watching ping pong video. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthall. You can follow me at the stalwart. Be sure to follow our guest on Twitter, Tom Orlik. He's at Tom Orlik. And check out his new book, China, the bubble that never popped. And be sure to follow our producer, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca today.

And check out all of our podcasts at Bloomberg under the Twitter handle at podcasts. Thanks for listening. Bloomberg Tech returns to San Francisco, June 3rd and 4th. me, Emily Chang, along with Tom Giles, as we convene the CEOs, investors, and innovators shaping what's next in technology. Powered by Bloomberg's global newsroom and unrivaled terminal data will break down the capital, connectivity, and big ideas driving the industry forward. Be part of the conversation. Register now at Bloomberglive.com slash tech. That's Bloomberg.com.com.com.