185. Global perceptions of Israel-Gaza, Labour-Lib Dem bad blood, and Chinese economic crisis

25:58And it was just chilling to the logistical problems of trying to do something as simple as delivering medical aid right now. And so, I think it was, it was like a ten -minute voice note just kind of explaining what it was like right now. And I think we should probably just give people a sense of that. I was at the time, I was trying to find somebody actually on the ground that we could maybe talk to, but it was proving quite difficult. Part of the problem is the telecoms that's gone down, the electricity's gone down, people can't recharge their phones. So, it's actually surprisingly difficult to get here.

26:30Right along that side.

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28:47So welcome back to the Dresses Polities. Me, Anastakamble, and with me, Rory Stewart. I think we should tell listeners about what's been going on with some of the interviews that we've been doing. The leading channel, which people know about, where we've had people like Pancwa O 'Lean and Tony Blair and Hillary Clinton and all sorts of other people to reason may. And we've recently done these special interviews on the RESTIS Politics Feed with you from Noah Harari and with the Palestinian Ambassador. And we're going to be doing, as well as doing the every Monday we're trying to get that into you out.

29:20We will be doing more on the Middle East and we'll put those interviews on leading starting with Sia De Vasi. And we should also just chat a little bit about the one that's on there this week, which nothing to do with the Middle East. We recorded it before this current crisis blow up. And that was with your friend, Tech Bro Billionaire Reid Hoffman, which I enjoyed a lot more than I thought I would. Yeah, I was taken with that. I like the chemistry on that. I was a bit skeptical about whether Alistairn Reid were going to really hit it off. I thought it was lovely and I'm really pleased that we're also expanding out.

29:52We have done quite a lot for people who are interested on AI on leading. But Reid is a really interesting, major cultural figure. He's not just one of the wealthiest men in the world and the founder of LinkedIn and a big AI entrepreneur. But he's also a really interesting political plan in the United States where he's been the leading campaign already in many ways, financially against Donald Trump and supporting Joe Biden. But he also is rather sort of interesting and reflective about life, about finances, about the difference in Britain and the US. Well, I love this stuff on friendship actually.

30:26That was really interesting. He should write a book on friendship. He's definitely got a different take on it to a lot of people. Well, I spoke to him again this weekend and he keeps putting off this book on friendship. So we need to try to get him to encourage. He's currently saying, I've got to do more an AI, I've got to do more an AI. I'll get onto the friendship. Will AI destroy friendship? There's a book. That's a book. No, I think the leading podcast, if there's anybody listening who hasn't tried it, I think it's a lovely thing to get into because we have every different type of person. We have sport stars.

30:58We have business people and entrepreneurs. I think we might start bringing more creative people in. We've got people with amazing current affairs knowledge. We've got former prime ministers, world leaders. I was last night talking at St Martin's in the field, at church in London. And the priest who was hosting me was saying, one of his very favorite things is the leading podcast. He'd really liked, for example, the dynamic in the infu with Michael Ignatiev. And he really liked, George Fue with Mary McLeese, with the two that he picks out. They're not high profile ones. But I think that there's something in the leading podcast for everybody, depending on your sensibility.

31:39Excellent. Well, that's enough plugging of our leading podcast. Let's talk about China. You've been wanting to talk about the Chinese economy for a long time. And I guess you're coming at it from a negative perspective in terms of how well the Chinese economy's been doing. And I want to talk about the Belt and Road initiative, which I think history is going to look at as one of the most significant pieces of economic, diplomatic power play ever. Yeah. I think Belt and Road is fascinating. I'm really pleased that we're getting onto that. And we're getting onto that. It's the 10th anniversary. Yeah.

32:10Yeah. And so they had the anniversary last week, Xi Jinping and his full pomp. But it was interesting. The extent to which Putin was the very much the main other figure. They had these other leaders from around the world, or band -aid list to say popped up. But Putin was the guy. I mean, this ridiculously long red carpet, the big hugs with Xi Jinping. Putin was the one who spoke after Xi Jinping. I mean, okay, they didn't do the kind of no limits friendship thing that they'd done in the past, but it was very, very close, very, very warm. You know, you really got the sense of this is a, this is a separate power structure for the world.

32:46And so far as Xi Jinping's concerned, the economy and the economic spread of Chinese power is absolutely fundamental to that. But you think the Chinese economy is in a bit of a mess? Well, yes. I mean, let me, let me start by sort of trying to new our set a little bit by saying before we get on to the fact that it's in a bit of a mess, I think we just have to begin with the fact that it is absolutely in all this. One of the things that we sometimes talk about, which I still find is very, very difficult to get our heads around, is that the British economy was still larger than the Chinese economy in 2005, right?

33:20When, when, when you were coming into office in 1997 and you were, you just stopped there, Roy. So when labor empire, the economy was bigger than China. And now, now, now, 97 times, China's seven times larger than the British economy, it became larger than the British economy, 2005, larger than the German economy, 2006, larger than the Japanese economy, 2007. And this is because since 2013, China has been 40 % of all global growth compared to 22 % out from the US and only 9 % from the EU. So you get a sense of how these kind of global growth, not as a global economy, but a global growth. Yeah.

33:59So while the EU has been about 9 % of global growth, China's been 40 % of global growth. And therefore, the statistics around China, before we get into the problems there, and are just absolutely staggering. It's 20 % of the global economy. It's had growth rates averaging nearly 10 % over 30 years. So put that in context, and in Britain, we're pretty pleased if we get about 2 % growth. So as you can imagine, if you were doing the maths on your own investments, somebody growing at 10 % of the year, this should do you have any, somebody growing at 10 % a year manages to grow very, very much more quickly than someone growing at 10 % of the year.

34:34Largest manufacturing economy in the world, largest exporter of goods, fastest growing consumer market, second largest importer of goods, largest recipient of foreign direct investment, largest outward investor, world's largest labor force. So I mean part of the core is it's 1 .4 billion people. And a growing middle class? Incredible sorry around the middle class. I mean, I first went to China in 1979. I was not a boy's spy. A child's spy. A child's spy. No, I mean, it was amazing. I mean, I still remember it because 1979, with my family, with my family, my parents, yeah. And everybody was still in blue mouse suits, little red books being carried around.

35:22Everybody on bicycles, we moved around on bicycles. It was a very, very poor country. You know, 708 million people living in what we would now describe as extreme poverty, living on less than a dollar a day. And since then, Dongsi -Alping, who came in and the 1979, opened up to the Chinese economy and created this 30 years of 10 % growth, which meant that hundreds of millions of people have been lifted out of extreme poverty. We've ended up with three 400 million of a Chinese middle class. And some of the stats around it aren't still absolutely staggering. I mean, China produces half of the entire steel in the world is produced by China.

36:04Produces 70 % of the world's sex toys. It's the world's largest automobile manufacturer. 70 % of the world's sex toys. That's a good figure isn't it? I can say my first visit to China was very different to yours because it was to Shanghai. And I could not believe the place. This was in the probably the late 90s. And so because my image of China was very much the one that you'd described, it was mind -blowing to see this phenomenal energy. And that growth has been driven. This is where being a dictatorship does help because they just don't have to worry about the stuff that we have to worry about.

36:46They can't kind of plan for the long term. As Xi Jinping now, the Belt and Road Initiative, which is now covering 150 countries, and more to come, an interesting, some of them like Spain and Ireland. Just quickly, let's just then I'll hand back to you. The Belt and Road Initiative is came out of a Chinese vision of essentially building out the infrastructure to connect the world. Roads, bridges, dams, enormous projects. So Pakistan, 42 billion dollars worth a minute. The numbers are staggering. I remember the normal smug stuff that you get from British ambassadors. And in those days when I was the minister responsible for Pakistan, Ambassador would say smuggly to us.

37:32Well, I think Britain is the number one country in Pakistan. And at that time, we were spending about 350 million pounds a year. And China just announced 42 billion. This is 100 times more going into Pakistan. And it's repeated this. I mean, obviously, we talk a lot about China and Africa, the enormous investments. In Zimbabwe, there are 150 ,000 Chinese people, many of them working. A few go to Kenya as part of this. The train line between Mombasa and Nairobi, not just designed by Chinese, funded by Chinese, built by Chinese, but it's actually run by Chinese. So Chinese people on the train making the train.

38:10I saw a thing on the BBC website recently. It was a BBC guy in Asia reporting on this high speed rail in Indonesia. And it was going and the Japanese had been in line to do this job. And then last minute, they, well, not last minute, but they switched to China. And it was just something, I read this on the week that the HS2 project was cancelled or the extension was cancelled. And you mentioned Zimbabwe. I think there is a real worry in Africa that a lot of that there is this whole thing about, you know, they've got them on debt, the debt and so -called debt and trapman. But these economies are not able to build at the pace that they need to build out without this support.

38:58And meanwhile, Xi Jinping is able to project it almost like the Americans projected the Marshall Plan. It's like the world is an ames. And we are going to take the leadership role and rebuilding it. And one way of thinking about why this is staggering and interesting, Belt and Road, is that the current estimate is that the US and its allies put on the US spent $3 .7 trillion on the interventions in Iraq and Afghanistan. And achieved so little. I mean, Afghanistan, we literally went in 20 years to go to get rid of a Taliban government, spent 20 years, spent one and a half trillion dollars left and handed it back to a Taliban government again.

39:35This is complete fast. But that is almost exactly the same amount that China spelt on the Belt and Road Initiative. And the difference in what China got out of that investment compared to what the US got out of its investments in Iraq and Afghanistan. I think that's why the imagery of President Xi and Putin was so kind of powerful and alarming. Because there you have a situation where the West has been drawn into this war provoked by Putin in Ukraine, which is going on. And now it's becoming more difficult for the Ukrainians, not least because there's now this other war going on. And of course, they're more or less sitting that one out.

40:16The focus on that one now very much on America taking the lead. And as you say, the figures on trade so that the World Bank reckon that the Belt and Road Initiative is going to boost trade flows in the 155 participating countries by 4 .1 %, cutting the cost of trade by between 1 and 2 % and growing the GDP of those countries by an average of 2 .63 to 3 .9%. So you're talking about huge economic development alongside massive concerns about the environment, about human rights and about this the whole debt trap diplomacy. And so the critics will say it's a different form of neocolonialism. But for China, and maybe this is the best, this is the time for you to go on to some of the economic problems they've got.

41:07But in terms of projecting both power and growth, I think you'd have to say the Belt and Road Initiative has been a pretty big success. Yeah, I think it's I mean, the question I guess is can these countries service their debt? I mean, a lot of this was China was making a lot of cash, put a lot of money in places like Ghana, Femme sells having to default on their debt. And so I think China may have trouble being repaid for a lot of these assets. But yes, let's move on. So let's take it as red that China is an enormous economy. And it's particularly well positioned in certain sectors, very, very well positioned for the energy transition.

41:46So it dominates the world in manufacturing of wind turbine solar panels. And the processing is things like cobalt and lithium, which are essential for batteries. World's largest producer of electric vehicles, the Chinese are buying electric vehicles domestically, far more enormous than anyone else. And China's becoming a very, you know, it's the world's largest automobile manufacturer, a huge export of oil and bills. So take that as red. However, at the hearts of this is property that that triggered this problem. So a lot of the Chinese economy, nearly 20 % of the Chinese economy has been connected with property and the building of new apartment blocks.

42:22And this is this enormous middle class, hundreds of millions of people who as they've better themselves both want to get a house, but also see it as an investment vehicle, bit like the Brits, like the house was an extraordinary opportunity to make a lot of money. The house prices were going up very, very steeply. And you know, it's true in the United Kingdom. Many people who lucky enough to buy a house a few decades ago have made more money on the inflation value of the house than they ever made from their salaries, same as China. But as the Chinese economy began to hit various kinds of buffers, COVID, big problem for many other economies and supply chain problems, and other problems that we'll talk about a little bit in the next couple of minutes.

43:03The housing market began to get hit very hard. And the first thing that began to go wrong was a company called Evergrand, which is the largest housing developer in the world, which defaulted in 2021. And it was founded in 96. I mean, it gives the sense that these Chinese companies are very, very recent. And in about 15 years had sort of dominated its huge sectors, the Chinese economy in a pig farming, bottled water, financial investment, all this kind of stuff. And in 2020, the Chinese government began to get very, very worried about the state of the balance sheets of these companies. They were borrowing too much.

43:42You can see how they could service the debt. So the Chinese government tried to step down and put rules in place to try to protect investors and stop these companies borrowing more. And as they put those rules in place, COVID came along. And these companies began to fold. Evergrand, and then another huge company called Country Garden. And they end up with enormous numbers of unbuilt apartments. So, and the numbers again are staggering, 55 to 82 billion worth of unbuilt apartments. So put that in context that the British government every year will, you know, spend a few hundred billion. So this is maybe, that's seven, eight percent of the total budget spend on the British government just tied up in unbuilt apartments.

44:21But more than that, $390 billion, which, you know, maybe a third of the entire spend on the British government in suppliers, you know, all the painters and decorators and builders. And, and of course, at the core of this is the Chinese consumer because people have bought apartments off plan. And these apartments have not been built. What the companies were doing was taking the money that you get off plan. It's got, it's got slight feel of the subprime mortgage at the American crash. So you've got Evergrand finished 300 ,000 homes last year, but have got 720 ,000 to still to build, which have nonetheless been bought as it were.

44:59And what's the other thing that's been going on is, is just, I don't know if you can look into this, is youth unemployment. So what's happening on that? So youth unemployment is terrifying. And again, we can talk a lot about Chinese data and statistics. And the suspicion is that China is not being completely open about its youth unemployment statistics because it's too worrying. But in the official statistics, at least between a quarter and a fifth of the 16 -25 year old population is currently unemployed. And this is terrifying because in this huge economic boom from 1980s, people were just flooding into work.

45:33Fantastic achievement unemployment. And Chinese parents sending their children increasingly to university, expect them to get a job. And now many of my friends in China are talking about the fact that increasingly their kids are just living at home. They're not even appearing in the unemployment statistics because they're not even really going out to try to find work. They've sort of given up on the ability to get work. And you can sense that in a whole series of ways. I mean, you talks about the amazing speed with which China has built things like high speed rail and done these infrastructure investments.

46:06But you could argue that China may have completely overdone it, that it's done it too fast, and that a lot of these rail lines will turn out to be unaffordable. And that Shenzhen, for example, which is this huge new economic zone near Hong Kong, built out sort of staggering seven tube lines. So as the Chinese economy has got itself into trouble, the world economy got the financial crisis 2008 China sort of saved the world economy through big public investment. And again, during COVID, essentially when these things happen, the Chinese government says to all these local governments, spend borrows, spend borrows, build all the infrastructure dreams you ever had, this is the time to do it.

46:46And of course, the kind of logic to that and it's sort of worked for the Chinese economy. But you then end up with seven underground lines built around Shenzhen. And not only are they going to really struggle to cover the debt payments because they borrowed the money to build these things, they're actually going to struggle to even cover the maintenance costs on these lines. I mean, in Britain, we are sort of familiar with this because of this man that we all hate called beaching who closed all our train lines. But the reason beaching did this is that the British government concluded in the 1960s that we simply could have fought.

47:18Yeah. Yeah. Yeah. So where does it go? Where does the Chinese economy go? And what's the impact for that on the rest of the world? If the Chinese economy goes belly up, we're all a bit of a problem, aren't we? Yeah. So I think we really hit doom and gloom in July when GDP projections have fallen down to 3%, which would be a dream in Britain, but is terrifying in China, which is used to 910%. Explicit. I hope that Ray was not listening to us here. Yeah, we haven't really taken on the UK ray with the debt of growth anyway. Consumer prices went housing prices began to collapse. Investment was weak.

47:55We talked about youth unemployment. Now, the recent figures are a little bit more optimistic on some of these indicators. But the fundamental structural problems are, I think, threefold debt is China getting itself into a horrible debt trap that it's not going to be able to get itself out of. It got itself into what felt like a very bad debt trap in the late 1990s, but it grew so fast that it got itself out of that. Second, it's still a very, very dominated by manufacturing. 40 % of its economy is industrial manufacturing. And a loss of this is about export. And that depends on the strength of the world economy, European economy growing, American economy growing.

48:36That's good for China because it's selling goods, but actually the European economy has been struggling. The third thing is, of course, we're not in an age that we were in the 1990s of everybody loving free trade. It's becoming more and more protectionist, which means that it's more difficult for Chinese goods to get out there. And the US is a very striking example of this. China still exports enormously to the European Union. So I think 20 % of European imports come directly from China. But the US, for a whole series of reasons, this is Trump putting on tariffs. This is Biden beginning to subsidize his own industries.

49:09And this is the decoupling de -risk scheme. There's been huge pressure to move investment away from China. Jake Sullivan, the national security advisor that we talk about a great deal, has essentially been going around telling companies to get out of China and to reshore to Mexico and Canada. So, Mexico and Canada are now ahead of China in terms of exports to the US. It's huge. Yep, it's amazing. Absi -stag running. And it's happened quite recently. Mexico is now doing 16 % of US imports compared to only 11 -12 % from China. And the benefit for the US is that those Mexican exports are full of US goods, lots of US parts, because they're going back and forth across the border.

49:50So nearly 40 % of the things that the US imports from Mexico are American, 40 % of the products American. Whereas when they import from China, it's only about 6 % of American products. And it also avoids having to move stuff across the Pacific because after COVID people got very worried about supply chains. You'll remember when you're, I don't know, with you all of things on Amazon, but suddenly things got delayed because instead of a ship taking a month to get across the Pacific, it was taking three months to get across the Pacific, you can get things out of Mexico in two weeks. So, what does this all mean?

50:20This means that in dealing with its debt crisis coming out of the housing problem, China is no longer in the environment that it was in in the 1990s when it could rely on free global trade and these growing economies to be able to grow itself out of the problem. And it's also, of course, facing this demographic problem for the first time, the Chinese population is beginning to drop. And this means that China, which was on track to overtaken dollar terms, the US economy, may not actually get that. It's growth may begin to slow that it doesn't actually become the largest economy world. And in the really worst case scenario, it could be another Japan.

50:58And what do we mean by that? Well, we mean that in the 1980s, Japan was everything. Paul Kennedy wrote this book, essentially arguing, rice and four of the great powers, Japan was going to take over. You'll remember there were movies, die hard, for example, it's all about an enormous Japanese company, and Japan was buying up the world. And it was leading in technology, you know, all the most impressive technological developments from Japan, the Royal Palace compound in Tokyo was worth more than the whole of Manhattan. Since when's Clarosis? Since when, Scorosis. And you know, I was talking to you from Japan about the fact that the travel age and time is traveling with her house was worth 10 times more in 1990 than it is today.

51:41And Japan hit a buffer, which was all about debt in the end. And it never came out of it. It just stalled. And so if this happens, China will remain an enormous economy for a very long time to come. But it is facing problems which will create internal problems. And I guess this will also lead to the question of, and this was an argument I was having with the Chinese friend. Does this make the world safer? So she was arguing, well, if there are economic problems at home, teaching things are going to give up on adventures and places like Taiwan, I'd argue the opposite. I'd argue that as we saw with Putin, when economic problems hit hard in Russia, what he did was respond by distracting people through invasions of Crimea and Ukraine, I think it's perfectly possible that as the economic problems deepen in China, Xi Jinping will be more encouraged to make aggressive nationalistic moves against places like Taiwan to distract his population.

52:34And to give the Americans something else to worry about, he was remarkably positive, much more positive than you've been in his speech. The Belton Road Initiative represents the advancing of our times and the right path forward. We must announce ideological confrontation, geopolitical rivalry and block politics. And he focused on unilateral sanctions and the decoupling of supply chains. In other words, he's projecting himself as the great sort of the new globalizer. And the Americans is now putting up all these barriers. But there will be Chinese business people listening to that. Who would be worried?

53:10And we'll be blaming him. I mean, there will be some internal Chinese saying, wait a second, you're aggressive confrontation policy. So he came in in 2012, has driven this decoupling and derisking. The reason we're in this travel, the reason we're not exporting what we used to to the United States is because of you. And there will be many people nostow chick for the days of Dung Siang Ping and Jiang Xie Min who tried to go for a much more no problems policy towards the United States. Well, if any of you from Chinese governments listening, we'd love to have Xi Jinping on leading. We might even go learn, would we learn Mandarin entirely?

53:50We could work on that together. Definitely. So there we are. He'd be very, very happy. Yeah, there's the deal. If we get to, if Xi Jinping, we will work on our matter. We'll both do. Yeah, excellent. Okay, Rory, we've covered a fair bit today. China, Middle East, Labour Party, Tory Party. And we'll see you tomorrow for question, Don. See you tomorrow for question time.