The Daily Signal - Why China Wants You to Drive an EV

Episode Date: February 22, 2024

China’s economy is struggling: Many young people can't find jobs, the nation’s real estate market is in trouble after two major property development companies failed, and China's stock market has seen a $7 trillion decline in just a few years. But Beijing has a plan to do something about it. When the “green energy” movement began, China recognized an opportunity, Erin Walsh explains. Beijing saw an “opening because they don't have oil, so they had to come up with something else,” said Walsh, senior research fellow for international affairs in the Asian Studies Center at The Heritage Foundation. “Because, how do you electrify and grow, and become No. 1 in the world, which is their goal; how do you do that if you don't have energy,” she asked. (The Daily Signal is the news outlet of The Heritage Foundation.)  China has “hijacked the agenda” of the green movement, because the Asian giant is on the forefront of developing electric vehicles, batteries and solar energy, according to Walsh.  Walsh joins “The Daily Signal Podcast” to explain the factors that have led to China’s economic challenges and how Beijing is seeking to overcome its economic woes by further dominating the energy market.  Enjoy the show! Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Daily Signal podcast for Thursday, February 22nd. I'm Virginia Allen. China's economy is faltering. Their real estate market is struggling. And we're seeing the ripple effects of that across China. Additional regulations are harming their economy and their stock market has fallen by $7 trillion in just the past few years. Well, what is driving this? And what are the implications for the United States when we look at what is happening with China's economy. On today's podcast, we are joined by Aaron Walsh, Senior Research Fellow for International Affairs in the Asian Studies Center at the Heritage Foundation to discuss what we're seeing in China's economy right now and how China's push towards green energy, EV batteries, solar, is part of

a long game that China is playing to bolster its economy. Stay tuned for my conversation with Aaron Walsh after this. Hi, I'm John Carlo Canaparo. And I'm Zach Smith. And we host Scotus 101. It's a podcast where you'll get a breakdown of top cases in the highest court in the land. Hear from some of the greatest legal minds. And, of course, get a healthy dose of Supreme Court trivia.

Want to listen? Find us wherever you get your podcasts or just head toheritage.org slash podcasts. Case is submitted. I am so pleased to have with us on the show today, Aaron Walsh. Aaron serves a senior research fellow for international affairs and the Asian Studies Center at the Heritage Foundation. Erin, thanks for being here. It's great to be here. It's exciting time.

It certainly is. I want to, before we dive into our conversation and talking about China, the economy, where things stand, I want to just give a really, really brief snippet of your resume. It would take quite a while to go through the details of it, but you've served in four Republican, presidential administrations. And in addition to spending 16 years working in the government and serving in a number of critical roles, many of which were focused on international relations. You also spent 12 years working in the private sector. You worked at Goldman Sachs for five years as the executive director and head of the Office of Corporate Engagement for Asia Pacific. So, Aaron, I'm really glad that we have someone with your expertise here with us who has that

experience in the private sector working in nations like China and then also that government side to talk with us about what exactly what on earth is happening right now in China's economy, what's the story we're seeing in the news, and maybe what's the real story? So let's go ahead and just get a little bit of a picture of China's economy. What really drives China's economy? What are the industries and the sectors that make it thrive? So thanks so much for that introduction. China right now is the number two economy in the world.

And they have done this because they are a communist country, and they have. have control over all sectors of the economy and the population, so to speak. Right now, China is facing some economic headwinds. And basically, that's due to a number of factors. And the leading one that we see in the news all the time is the housing sector. So that has undergone a great crisis. And the two leading companies there, which were Garden and Evergrand, those two have gone under. And essentially those two have had $500 billion worth of debt.

Wow. And that is a very serious, serious problem. In fact, when we had our housing crash in 2007 in the United States, they are 350 times more in debt than we were at that time. And so that is a considerable thing to think about. And so I would say overall, they are in hot water and mostly with the people. because 70% of individuals' assets were in the housing market into their ability to buy apartments, so to speak. And so they've got some real disgruntled people over there right now, and it's only going to get worse.

Coupled with that, China right now has a decline in population. The numbers came out a couple of weeks ago. They are two million behind what they had, so people are not having children as they had hoped to increase the level of population. They've got an aging population. and yet they don't have work for a lot of their young people. So last year, work and unemployment for young people out of college was up to 21%. So they've got some serious problems that they are facing. And we've seen that China's stock market has also fallen significantly.

What are the causes of that? Is that related to that decrease in population and the struggles within housing? Or is that something separate? There's a lot of factors in that. I would say the recent number is $7 trillion that they have lost in the state. stock market in the last three years. Again, that is a significant amount to lose. One of the main reasons is that they have actually, China has been decoupling from the United States for years. And while they had the opening up and they were putting a number of their companies on the stock market,

the New York Stock Exchange, let's say the big one, Alibaba being the biggest. And then the second biggest that they were going to do was Diddy, which is their version of Uber. Well, the Chinese, right because Diddy did not properly inform the Chinese government of their IPO in New York, they pulled it down after they went public. They crashed down on Diddy. And that really began the whole movement of the crackdown on the tech sector. And so Alibaba has gone down 10 cents. These were their crown jewels in the last 10 years.

And basically they have really brought them to their knees. at the same time, they have had a lot of control and regulation and brought a lot of their so-called private sector back to state-owned enterprises, which is what they're really trying to build back up. The problem is state-owned enterprises are fossils, and they do not move at the speed of the private sector at all. And sadly, the private sector, which was never fully a private sector in China, but the West always hoped it would be Xi Jinping, has clamped down on them. And so they no longer, because of all of his laws that he has put in, the national security law, the data law, and just recently the counterintelligence, so-called spine law, is not safe for American and foreign companies to be in the country.

Okay. And so therefore, foreign direct investment, which was at its highest point there, actually, in 2022, which is shocking. The United States has put billions into growing the rise of China and all these companies. companies. The United States primarily has been the investor in these startups, Alibaba 10 cent, bydo, all of these, and all of their energy companies, which I'll get to in just a moment. And basically, because of all these laws, because of the regulations, there's been a flight of capital. There's been a flight, absolutely. And the foreign direct investment this year

has been lower than it's been in 30 years. So that's going to be a real hit. And that's why Xi Jinping was out here meeting with President Biden, had the big dinner in California with all the CEOs and the CEOs in America from Silicon Valley and across the country, gave him a standing ovation because they believe in continuing to invest in China as China continues to really. I mean, it's a very sad state of affairs because of what they're doing, cracking down on their people and in Xinjiang and what's going on over there and the one million people in internment camps. I mean, but the United States wants to follow the money. But as Goldman Sachs CEO recently said, money is going to be flying out because money is going to go where we can make money. And so they are continuing to move their assets and they're funding in other markets. They're looking to other markets. They're never going to shut down entirely in China.

Yeah. But that's where we are right now. Significant shifts. There is, yeah. Yeah, really significant. Now, China is often perceived kind of on the global stage as, yes, a communist country, but also a somewhat economically free nation? Is that wrong? Is that an inaccurate assumption to make or assessment to make? Right. So China, I mean, the whole, it's an oxymoron because economically they did open up and they were

opening up and going out. And that was the opportunity for foreign companies to come in and to look at the market, 1.4 billion people, the biggest market in the world, so to speak. I mean, India has now surpassed them in terms of population, but they don't have the same level of, infrastructure, manufacturing, and everything at this time. When Xi Jinping came in, he wants to be as big, if not bigger than Mao, and he's very much a Marxist-Leninist in his viewpoint and wants the control of the state. And so while previous presidents had really, from Mao forward to Jean-Gemin and Hu Jentau, they all allowed entrepreneurship and foreign investment to come in. But people were really starting to get a lot more free and believe that they had the whole world

in their hands. And Xi saw that the control of the Communist Party was shifting a bit. And so he wanted to bring that dynamic back home and really make sure that they were on track. And so that's why he's come up with all of these new laws and a crackdown. Really a crackdown. So they never were free. They opened up to, number one, get the technology, because Mao always felt that science and technology would be what led them to be able to lead economically and to be able to control ideologically and to become number one in the world with their sanitization of what they wanted to create. So they never were, but they allowed it. And the United States, sadly, put so much hope in that. and we didn't begin to realize it until 2016 and wake up and see, hey, wait, we had hoped that they would democratize and become one of us. Yeah, sure.

Does China's economic troubles that they're facing right now, the shifts and changes that they're seeing within their economy, does that affect China's position globally, geopolitically? Does it change their ability to play economically on the world stage? And does it also change their threat level that for us as Americans, for so long, we've seen China as a major threat? Does this decrease or increase them as a threat? So I think people should not get their hopes up too high that they're in decline economically because the thing that kept them at their growth rate of 5.2% this year was their green energy push. So they have really hijacked the world on this green energy agenda. They are the largest emitters and the largest producers of coal and emissions in the world. I lived in Beijing in 2013 and you couldn't walk outside.

It was like a black cloud everywhere. It could have been a sunny day. You would have no idea. Instead of snow, it was just black dirt soot. You couldn't see 15 feet in front of you. And that was like on a very regular basis. So they knew at that time that they had a real problem at the same time we had the green religion, so to speak. I mean, people are supportive, obviously, of the environment, and many people believe in climate change, and that's really not the issue here.

The issue is national security. And so when Chinese hijacked that agenda and began to see that, wow, their national security will depend on energy and the ability to have all of that and feed their people and have a big military, you need oil and gas, they don't have that naturally. And so they had to import it throughout the globe. The United States has that naturally. And so they made a very serious calculation that they were going to really get in and help drive this agenda. And they had Gore, and then they had Kerry. And now they've had Biden that have come in and really want to, they think it's all part of this whole globalization and we'll all come together and have a green. It's not what the Chinese have in mind. And so they have been the number one exporter and they want to take over this whole green agenda.

And they are doing it in terms of their new trends. So instead of having the big internet companies that they've had, they've now moved to EVs, batteries, solar, and wind. Their top three are the first three that I had mentioned. Okay. So the success of the green movement, like you say, equals the success of China, in other words. Absolutely. They are hoping to dominate. this whole agenda. They've got the world behind it. They've got the UN behind it. And people are

starting to catch up. Europe, who had been the number one in terms of leading on this climate change and the green turnover, transition. They are now seeing that these EVs are flooding their market and hurting their car industry and the batteries, the cars and the batteries, are doing that to them. So they've just opened an investigation on this. And China is now threatening them. So we're beginning to see a real dynamic in the trade. The problem is, here in the United States is that we have suppressed in the last three years under the Biden administration, we have suppressed our own growth in opening up operations for more oil discovery, more LNG, more fracking, et cetera, so that we have the opportunity to be a great energy exporter. Now, Biden

has even put a pause on limiting LNG most recently. So that's very scary. The other thing is, With this new transition in the IRA, this IRA inflation reduction act with all this massive funding coming in to build manufacturing plants for solar, for cars, for batteries, et cetera, we have our top car companies that have gone into electric vehicles. Well, the bottom line is they cannot compete with China because Chinese industry is so heavily subsidized. and the Chinese have put $860 billion into subsidizing their companies. And so now, just in the last couple weeks, they've made a real push to say, we need to start manufacturing overseas our EVs and our batteries. And so as a result in the last year or so, they have gone to the state level. And so, for example, in Michigan, they wanted to set up a Goshen, which is one of the big battery companies.

And the local town did not want this. And so, but the slate of local politicians had already approved it. So Goshen was coming in to build the battery plant. Well, there was a local fight that went on, and a couple of ambassadors that we had had during the Trump administration, Joe Sella and Pete Hoxtra, went and joined them to try to help them to fight this. And lo and behold, just in November, they had to turn over the slate of the politicians. And so there is an opportunity at the local level to begin to block this. Now, what they're doing is in other states, such as Illinois, of course, I mentioned Michigan,

and certainly in California, they are starting to do this. And this is a real threat to our own national security, that they are doing this, bringing in the battery. And they're going to be building cars in Mexico, having factories built there for their EVs, so that they can have them exported from Mexico. And we've got the free trade agreement with Mexico, of course. so that they can get them into the United States. And basically that's their way of crippling us

and dominating the entire supply chain. They're playing the long game. They are. But it's coming in shorter than we think because the U.S. is helping to fund their rise. What do you see happening in the next few years as we're seeing on the one side, like we've talked about, we have this shakiness within China's economy,

but as we've said, they have a plan, they're smart, they're taking strategic action. How could this play out, especially for the U.S.? I think that, We're going to have to have a conservative president come in. We're going to have to win elections to get things done because the president has the power, the trade power. He's got the power to do a lot of things that can help slow China up. And we're not trying to so-called contain China, but the bottom line is China is an adversary, a very serious adversary to the United States. And it's going to be critically important to get ourselves for national security purposes and for economic purposes to get our fossil fuel. back online. We've got the cleanest coal in the world, and we also have the cleanest gas and natural gas that we can be exporting. So economically, we need to be strong. There's no reason why we cannot have a combination of some of these different, you know, clean energy things. It will be great overall,

I think. We're not ruling that out. No one is, but we're not going to be beholden to China and have the Chinese handcuffs so the United States can no longer grow, and we are completely reliant on China. We need to be self-reliant. In fact, we need to be a net energy exporter. Critical. Erin Walsh of the Heritage Foundation. Thank you, Erin, for your time. We really appreciate you breaking this down for us. Thank you. It was wonderful to be here, so stay tuned. Stay tuned. Lots more on this coming. All right. Thanks so much. Thank you. Bye. Bye.

With that, that's going to do it for today's episode. If you want to keep up with all of Aaron's research coming out of the Heritage Foundation, you can visit heritage.org and search for Aaron Walsh. That's Aaron W.A.L.S.H. W.A.L.S.H. W. W. Thanks so much for being with us today. Make sure that you check out our top news edition of the Daily Signal podcast around 5 p.m. today so you can stay up with the news of the day and take a minute to subscribe and share the show. Leave us a five-star rating and review wherever you like to listen. Have a great rest of your day. We'll see you right back here on 5 p.m. for our top news edition. The Daily Signal podcast is brought to you by more than half a million members of the

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