The Duran Podcast - China stimulus. Wang Yi blasts Blinken

Episode Date: October 6, 2024

China stimulus. Wang Yi blasts Blinken

All right, Alexander, let's talk a bit about the Chinese economy and the stimulus package, which a lot of analysts are saying this is a huge stimulus. But I guess in the grand scheme of things, given the enormity of Russia's economy, would you say this is a big stimulus? And would you say that the Chinese economy is in trouble? Or how are you seeing things? The Chinese economy has matured and it is much, it's given it, given the size that it has now, the fact that it has matured to the extent that it has done, it cannot achieve the kind of

double-digit levels of growth that it was achieving 15, 20 years ago. And I think this is a statistical reality, which many people, I think, have struggle understanding. So the fact that China is growing or claims that it is growing at a rate of 5% a year rather than 10 or 15% doesn't mean that it doesn't in itself mean that the Chinese economy is in trouble. What it simply means is that it's now grown to the level and is mature to the level, that it is statistically impossible to maintain those kind of levels of growth. But that doesn't mean they don't have problems. And this is where I think we have to go back to the earlier stimulus plans of which the last one was made in 2014. And it was a bigger stimulus than the one we have seen now, which is that over the last 10 years, China's economy continued its growth. The main drivers of growth were no longer technology, manufacturing, things of that kind.

to the same extent. It was more construction, in housing construction, and in infrastructure. And this created a bubble, as it often does. And that bubble is being shrunk by the Chinese authorities.

And as is often the case, when we're talking about a bubble, it is proving very, very difficult. to shrink the bubble or rather to burst the bubble without causing major problems in the economy as a whole. So what the Chinese authorities have done is even as they've resisted up to now pressure to conduct big stimulus packages which could in some way reinflate that property bubble and that stock market bubble that goes with it. They have now accepted that they must do because it looked as if, it looked as if with this bubble sort of deflating, the Chinese economy might actually fail to meet its nominal 5% growth target this year or perhaps even slip into recession. So they've unveiled another stimulus package.

But relative to the size of the Chinese economy, which now is about $35 trillion by purchasing power parity levels, the current stimulus package, which is about $7 trillion, it isn't very big. This is more intended, or so it seems to me, to smooth out the problems caused by the deflation of the bubble, then to really stimulate the economy in the way that bailouts and stimulus in the West is intended to do. Now, whether the Chinese are going to be able to smooth out this problem,

whether they can avoid a recession is another matter. And there is a line of thought which says that when you are in a bubble, rather than try to deflate it gradually, the more sensible thing to do is to let processes, economic processes, run their course, except a recession. Recessions are an integral part of a market economy. countries have recessions. Let the recession do its job. Let any banks that have become overextended fail. The Chinese economy has enormous savings, tremendous structural strengths. It can absorb a brief recession. But the Chinese authorities, the Chinese government, for all kinds of political reasons and ideological reasons, doesn't want to do that. And that's why they're taking the line that they are. That's my own reading of the situation.

Did you know what those political or ideological reasons are? Well, first of all, China, the Chinese government, the Communist Party of China likes to claim that, you know, China's growth that they found the magic growth tree, that growth will continue indefinitely because, you know, they've got the model that always deliver growth. Many countries say this. I have to say countries, socialist countries, communist countries, have a particular tendency to say this. But even the United States likes to pretend that, you know, growth is something that's going to continue indefinitely, that recessions can be avoided at all times. The other problem, however, that they have is

probably a more serious one and the more real one, which is that, of course, the Chinese people have become accustomed to 30 years of constant and very rapid growth, a recession, even if it was a relatively brief one, which, by the way, I think it would be, would come as a shock. And the Chinese government might be worried about how people would respond and whether there would be social unrest as there was in the 1980s and for that reason they probably feel that it's better to try to deflate the bubble gently rather than to let things take their course let market processes work their way through to their conclusions except a contraction an economic contraction a recession in order for that to sort out the real problems that exist in the Chinese property market.

How is this going to affect the world economy? Well, if there's a... What China's going through. Right. If it's going to reflect, right, the immediate effect of the stimulus package is that it's going to it's already leading to a rise in a surge in stock market price. and it will ultimately also lead to a surge in demand. So we're going to see goods and capital move back into China,

whereas until fairly recently they've been moving out. So, you know, the Chinese have been running an ever bigger surplus and money has been leaving China rather than going into it. For a temporary period of time, this is going to reverse my own view is that this stimulus is going to run its course in a few months and then we're probably going to see return to something like the situation that we had before, which is a gradual rebalancing of the economy, which is what Xi Jinping and the Pollock Bureau wants.

They want to move away from property bubbles and that kind of stock market speculation. I get the sense, by the way, the Sishimping, who has a rather austere side to his personality that people don't mention very much, but it's definitely there if you follow his speeches. He doesn't like bubbles. He doesn't like property speculation. He's one of these people who says, you know, the production industry, technology, high technology, that's where it ought to be.

we need to redirect investment capital away from property, construction, and building and that kind of thing, back to where we're strongest, which is an industry, especially high-tech industry, super computers, aircraft, EVs, that kind of thing. And I think that ultimately, whatever happens, whether we get a recession, or whether we get a, whether this stimulus package works and smooths the problems out. Ultimately, that's where the focus of Chinese economic activity will shift back to. And then we will revert to a situation where money starts leaving China again and the Chinese trade surplus increases.

and this temporary blip in upward demand and stock market prices and property prices and all of that with goods going into China and all of that sort of thing. I think in a couple of months' time, say three or four, five, six months at most, that process will have run it, that period of surge will have run its course. the risk the chinese run if i can say is that by trying to deflate the bubble in the way that they're doing um rather you know trying to avoid a recession they are actually allowing problems to remain debt issues and things like that to remain i mean the advantage of recessions is that they clear out accumulated problems.

They erase bad debts, for example. If you keep these debts on the books, they continue to act as a drag and they actually slow growth and investment going forward, which is what happened to Japan in the 90s. I'm not saying it's going to happen to China in the same way, but what the China is, what the China is,

are trying to do to deflate the bubble by avoiding a recession is it is a is a difficult is a difficult trick to pull off all right let's uh talk very quickly alexander to wrap up the video about some geopolitics with china blink in met with wang yi at the u.n general assembly on the sidelines of the u.n and it does look like biden is going to have a phone phone call with Xi Jinping. What's going on there? What are they discussing? Well, the Chinese have produced a redoubt of Wang Yi's meeting with Blinken and it was one of the most ferocious readouts. I have ever read. Weng Yi, according to the Chinese readout, actually said to Blinken that you're being two-faced. So on the one hand, you want,

help all the time. On the other hand, you're doing everything you can to contain us, to, you know, isolate and suffocate China. You cannot have it both ways. You cannot, you cannot be our friend and partner when it suits you and our enemy and our adversary when it suits you. And it was really a very, very, it seems that the Chinese readout, it had been a very, very, very, very, very, very difficult meeting. Chinese readouts of meetings between Chinese officials and American officials have been getting harsher and harsher with every single iteration of them for at least the last three years.

And this was the harshest one yet. So there is going to be a telephone call between Biden and Xi Jinping. And I think what Xi Jinping is going to want to say to Biden. is do not even think of doing anything that could disrupt our relationship further whilst you are still president. Don't even think of taking steps with Taiwan, for example, real serious steps with Taiwan. You're already talking about giving to Taiwan a lot more weapons. We see this is a major breach of the promises that we were given back in the 1980s, 1970s and 80s, when we are. agree to establish relations. But if you want to go, if we're going to go even further than that,

then we will respond. And if you continue along that course, well, we've just demonstrated that we have military power. We've just tested a new intercontinental ballistic missile system. We're building up our navy. We've just launched our latest aircraft carrier. We're becoming stronger. you're becoming weaker. I mean, he's not going to say it in exactly those terms. But based on what the reader of the meeting between Wang Yi and Blinken says, it's going to be a very tough call from the Chinese side. The final call, I imagine, before Biden exits.

Before Biden exits. Yeah, of course. All right, the durand.locals.com. We are on Rumble Odyssey, bitch you, telegram, rock fit, and Twitter X, and go to the Duran shop, pick up some merch.

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