Richard Koo and Zichen Wang on What Just Happened in China

27:53If 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 then turned 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 or what are 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.

29:07This is before the bubble bursting. So if you are already running a budget deficit, 7 % of GDP, before the onset of balance sheet recession, then whatever you have to do to stop balance sheet 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 reason why Chinese policymakers, even though many of them are fully aware that in the balance recession, you need 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.

29:46I 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 the 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.

30:30cars, 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, Guatemala included, 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 is about 18 % of global GDP, and per capita GDP 13 ,000 also, or slightly less than 13 ,000.

31:20And 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 goods to India and Russia, I'm sure companies will try their best. But I don't think numbers will 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?

32:04What would be the one thing that you would like to see enacted? Well, if I have a policymaker in China, I will explain to the people what kind of disease we contracted. This disease is called balance sheet 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. Once your balance sheets are fixed, come and start making money again.

32:40That'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 completed.

33:20because in that case, well, you might have to take some heavy-handed actions, but basically the government should take over these companies and the projects and start 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 of being built. All the construction drawings are there. Workers are there. Materials are, 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, and who the order should go to.

34:00Remember President Obama, when he took over 2009, the U.S. was in a balance sheet 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 roads 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, the 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.

34:40So 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 will use the magic wand to get the brightest people in China to come into one room and ask them to come up 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 up with public works projects with a social rate of return higher than, let's say, 2.1 percent, then those projects will be basically self-financing. It won't be a burden on future taxpayers.

35:21And then once apartments are complete, then an economy still is struggling from balance to 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. Thank you. You're welcome. Thank you, Richard. That was great. Thank you.

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36:40The 84-year-old leather goods maker Coach is on a hot streak lately thanks to a new generation of consumers. After years in the retail doldrums, Coach logged almost$1.3 billion in revenue in the most recent fiscal quarter, up 15 % from the year before. Businessweek's Avalon Purnell writes the revival has been a decade in the making, as Coach worked to rebuild its cool factor by getting out of the mall and into the hands of tastemakers, closed and consolidated retail locations and ran ad campaigns featuring Selena Gomez, Jennifer Lopez, and other high-wattage names. Coach also tapped into the cultural zeitgeist as young consumers look for brands with some customization.

37:20TikTok influencers are often seen carrying Coach purses dripping with charms shaped like cherries, pears, and pretzels. That's the Bloomberg Business Week Minute brought to you by Amazon Business, your partner for smart business buying. Running a business? It's a lot, right? Orders to place, expenses to track, procurements to manage. It feels like there are never enough hours in the day. We could all use more time. That's where Amazon Business comes in. They offer smart buying solutions to help you make the most of yours, like Spend Visibility, a cloud-based system to track your buying patterns so you can optimize your savings, and Bulk Buying, so you can continue to save costs on select products with quantity discounts.

38:02Now that's smart. Amazon Business handles the heavy lifting, so you can finally focus on growing your business instead of drowning in admin. From customized recommendations to real-time spend tracking and delivery options tailored to your schedule, they've got your back every step of the way. Why not spend less time sweating the small stuff and more time crushing your goals or maybe even sneaking in some well-earned downtime? Discover more about smart business buying at AmazonBusiness.com. A Business Prime membership is required to access spend visibility. That was our interview with Richard Kuh, the chief economist of the Nomura Research Institute in Japan.

38:39And now we speak with Zishan Wang of the Pecanology Substack. So, Zishan, thank you so much for coming on OddLots. 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 caught the market and all the observers by surprise because nobody actually thought this coming.

39:18So what started this recent event is a press conference given by China's financial regulators leaders 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.

40:02A 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 rate 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 Kuh, 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.

40:46It'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 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 the economy.

41:25That didn't happen. And so this is an exception. And for the governing party of China to dedicate out of its past transition 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 Gongsheng, the governor of the central bank, announced the PBOC was going to lower the reserve ratio banks that put money at the central bank, cut the interest rates, lower the mortgage rates that Chinese residents pay for their housing, and also established a swap facility as well as another lending facility to help the stock market to have so many measures put together.

42:28At 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 the 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 the 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.

43:09I 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 in 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 would 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, just sort of has this vision in my head that Xi Jinping wants something and then it happens.

43:59I mean, I know it's not true and there's a real political system. But then you said, OK, 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. What is the process for, OK, 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. Yeah, 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.

44:39So traditionally, they will focus on the economy at the end of the year, for example, because in every December, which is 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 September's political bureau meeting is an exception. So I think the typical process is that 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.

45:20And 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 the political bureau meeting. And in China, I also just mentioned a state council 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.

46:08So 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 contribution significantly. Because I wouldn't imagine China's top leader to have such very specific details in whether it should be 100 billion or 200 billion. These very important numbers and plans sure are drawn up by the technocrats. And 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.

46:56Or 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 leadership. That's great. You mentioned deployment just then. How important is it to incentivize local officials in this process? Because I imagine, OK, 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.

47:38How 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%.

48:19If 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 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 growth fastest or have the best investment projects, for example, the gigafactory of Tesla in Shanghai, then they get appreciated and probably they will move up the career ladder.

49:00So indeed, it's very important. And also China is a huge country. It's 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 rest restriction, 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.

49:50So, you know, housing sector is an important part of the economic story in China. So, for example, to revive the real estate 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.

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51:19I'm Carol Masser. The 84-year-old leather goods maker Coach is on a hot streak lately thanks to a new generation of consumers. After years in the retail doldrums, Coach logged almost$1.3 billion in revenue in the most recent fiscal quarter, up 15 % from the year before. Business Week's Avalon Purnell writes the revival has been a decade in the making, as Coach worked to rebuild its cool factor by getting out of the mall and into the hands of tastemakers. closed and consolidated retail locations and ran ad campaigns featuring Selena Gomez, Jennifer Lopez, and other high-wattage names. Coach also tapped into the cultural zeitgeist as young consumers look for brands with some customization.

52:01TikTok influencers are often seen carrying Coach purses dripping with charms shaped like cherries, pears, and pretzels. That's the Bloomberg Business Week Minute brought to you by Amazon Business, your partner for smart business buying. Running a business? It's a lot, right? Orders to place, expenses to track, procurements to manage. It feels like there are never enough hours in the day. We could all use more time. That's where Amazon Business comes in. They offer smart buying solutions to help you make the most of yours, like Spend Visibility, a cloud-based system to track your buying pattern so you can optimize your savings, and Bulk Buying, so you can continue to save costs on select products with quantity discounts.

52:43Now that's smart. Amazon Business handles the heavy lifting, so you can finally focus on growing your business instead of drowning in admin. From customized recommendations to real-time spend tracking and delivery options tailored to your schedule, they've got your back every step of the way. Why not spend less time sweating the small stuff and more time crushing your goals or maybe even sneaking in some well-earned downtime? Discover more about smart business buying at amazonbusiness.com. A Business Prime membership is required to access spend visibility. 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.

53:24One 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 the 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?

54:05Well, 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 China's constitution, all the urban land are owned by the state, which in effect is the city governments where they are in. But because of the housing slump we are 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.

54:50And the housing market is estimated to account for, I think, something between 15 % to 30 % of China's GDP. So basically, it's in crisis. And a lot of the biggest real assets developers have defaulted on that. 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 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. manufacturing, and which will take a bigger share of the economy at the expense of the dwindling housing market share.

55:41But that transition has to be a gradual process, which has to be managed as smoothly as possible. So maybe just eradicating the real estate industry is just not possible. So right now, I think the Chinese banks have been encouraged by the government basically to continue to lend to the developers. And there is also a political consideration in this. It's because in China, most of the 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.

56:22People 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?

57:03I 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, you cause scientific development.

57:46So it's not just an emphasis on 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 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 War 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.

58:35But then, especially after the very devastating four-year COVID and China's drastic restrictions to contain the pandemic, the economic growth has slowed down significantly. So what we are seeing right now in these past two or three years is a re-emphasize on get the economy going. And if anything, I think local governments, their mandate now is to 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.

59:22It'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 and the live flat movement and so forth, etc. 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.

1:00:05And I translated and contextualized the speech in my technology newsletter just, I think, a few days ago by a former 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, you know, Financial Times and Bloomberg are reporting. They are aware, you know. So yeah, I think actually foreign media, international media have an outsized role actually within China's discourse and its policymaking process.

1:00:48But 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 costs 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, Bajhana is now trying to make its own C919 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.

1:01:39So, 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.

1:02:39Because 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.

1:03:20The range, for example, 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 equipments. This put together is known as Liang Xin 2 New.

1:03:59And 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's two new. These are promoted by the NDRC in the press conference to everyone that this is our way of stimulating 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.

1:04:42But on the other hand, I think the direction is still very clear. It's like technology buildup. 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 whiplash that we've seen in various crackdowns on, you know, consumer tech or the education sector and things like that.

1:05:23Yeah, I think the three red line is a very good example. And there are a lot of scholarly pushback against 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 lines, basically, to sum it up, to make financing for real estate companies much more difficult. So the concern is you are pushing too hard. When you say 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 phase out, to be decreased in the importance of the economy.

1:06:08So that's definitely something because you are seeing now the Chinese government is encouraging the banks to lend 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 annual spending. The deficit should not be 3 % larger than the, and also, you know, your outstanding national debt should not be over 40 % of your GDP or something like that.

1:06:56China 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 to help the financial industry. And by the way, the PBOC's very recent invention is somewhat similar to what the Fed created. But the Chinese have been playing by these rules for quite some years, which in fact 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 is that you got to eat bitterness.

1:07:45You got to spend little money and save for the future. and that is still in the mindset, in the philosophy of Chinese decision-making.

1:08:10For enterprise organizations, managing all your food needs is a tall order. But with Easy Cater, you get a single workplace food vendor with the tools and resources to make it easy, giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform, all while consolidating your corporate food spend so you can control costs, streamline billing and payment, and simplify reporting. Easy Cater, your business tool for food. To learn more, visit easycater.com slash podcast. This is the Bloomberg Businessweek Minute brought to you by Amazon Business. I'm Carol Masser.

1:08:48The 84-year-old leather goods maker Coach is on a hot streak lately thanks to a new generation of consumers. After years in the retail doldrums, Coach logged almost$1.3 billion in revenue in the most recent fiscal quarter, up 15 % from the year before. Businessweek's Avalon Purnell writes the revival has been a decade in the making. as Coach worked to rebuild its cool factor by getting out of the mall and into the hands of tastemakers, closed and consolidated retail locations, and ran ad campaigns featuring Selena Gomez, Jennifer Lopez, and other high-wattage names. Coach also tapped into the cultural zeitgeist as young consumers look for brands with some customization.

1:09:29TikTok influencers are often seen carrying Coach purses dripping with charms shaped like cherries, pears, and pretzels. That's the Bloomberg Business Week Minute brought to you by Amazon Business, your partner for smart business buying. Running a business, it's a lot, right? Orders to place, expenses to track, procurements to manage. It feels like there are never enough hours in the day. We could all use more time. That's where Amazon Business comes in. They offer smart buying solutions to help you make the most of yours, like Spend Visibility, a cloud-based system to track your buying pattern so you can optimize your savings, and bulk buying, so you can continue to save costs on select products with quantity discounts.

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1:10:50I 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.

1:11:28That's very important. And that's 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, something like the 78th 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.

1:12:16It's just not enough. And there is a national pension system, and it's not looking well, because part of that is demographic changes. You will have more 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.

1:13:13So if similar reforms by 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 the hukou 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 hukou household registration in the cities, your children can't go school in the city. So your children have 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.

1:13:51You can't buy the TVs and decorate the house. There'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, this 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.

1:14:28Sometimes 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 use. You work for 11 years at the Xinhua 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?

1:15:09Okay, 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 Xinhua 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 reporter. And then I worked in Europe and then in Beijing headquarters. So there are Xinhua News Agency. 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.

1:15:46And 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-run 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 state 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.

1:16:30So 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 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 publication 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 are directly put out by the Chinese state media.

1:17:27So 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 formal 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.

1:18:18Yes. Let 10 ,000 China-U.S. journalist correspondents 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 Dorsey, 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.

1:19:07And 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 officials' 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 US elections. I think this is also a discussion in China because this is like the most important election in the world and it's going to have very big impact on China-US relations.

1:19:55I 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 US elections.

1:20:39But I think the thinking is that he's just so unpredictable. And nobody knows what he will wake up in the morning, 5 AM and tweet out. And And I'm not sure Beijing is really a big fan of that. But as Rastouche 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.

1:21:33Whoever 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, the stimulus measures. Well, first of all, watch 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 what is exactly the size of that stimulus? I think a very respected Chinese news magazine, Caixin, had already put out some numbers.

1:22:15And I believe Bloomberg had also quoted that number in the terminal. And that's something very important. And also, China has this five-year planning. 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 directional change in terms of that. And I think I also mentioned that every December there will be the Central Economic World Conference. It typically happens during the Christmas season. But, yeah, I think that's like the things we are going to closely watch for. And also sign up for my newsletter.

1:22:59Definitely sign up. Zixuan Wang, thank you so much for coming on Outlaw. Thank you for having me. Like I said, we'll have to do it again sometime. Thank you.

1:23:19Joe, that was so good having Richard and Zichen 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 Kuh 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, OK, yes. And to Zishan's point, the long term goal is to maintain that sort of high tech manufacturing led scientific growth.

1:24:05But 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?

1:24:48You 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 Zishan just now. Very interesting. This idea that like, OK, 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. And so, 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 signals something different than business as usual.

1:25:32It 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.

1:26:09Right. 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 Odd Lots podcast. I'm Tracy Allaway. You can follow me at Tracy Allaway. And I'm Jill Weisenthal. You can follow me at The Stalwart. Follow our guest, Zishan Wong. He's at Zishan Wong here. Also check out his excellent pecanology sub stack. Follow our producers, Kerman Rodriguez at Kermanerman, Dash O 'Bennett at Dashbot, and Kale Brooks at Kale Brooks.

1:26:43Thank you to our producer, Moses Andam. For more Odd Lots content, Go to Bloomberg.com slash OddLots. We have transcripts, a blog, and a newsletter. And you can chat about all of these topics 24-7 in our Discord, discord.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. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free.

1:27:21All you need to do is find the Bloomberg channel on Apple Podcasts and just follow the instructions there. Thanks for listening.

1:27:59For enterprise organizations, managing all your food needs is a tall order. But with EasyCater, you get a single workplace food vendor with the tools and resources to make it easy. giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform, all while consolidating your corporate food spend so you can control costs, streamline billing and payment, and simplify reporting. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. There are two kinds of people in the world, people who think about climate change and people who are doing something about it.

1:28:37On the Zero podcast, we talk to both kinds of people. People you've heard of, like Bill Gates. I'm looking at what the world has to do to get to zero, not using climate as a moral crusade. And the creative minds you haven't heard of yet. It is serious stuff, but never doom and gloom. I am Akshat Rati. Listen to Zero every Thursday from Bloomberg Podcasts on Apple, Spotify, or anywhere else you get your podcasts.