00:00We talk about, you know, where we are in this whole U.S.-China discussion, right, now that we are in this kind of one-year truce.
00:06The sentiment here seems to be like things are going to be doing quite well, at least we've stabilized things for now.
00:11What's it been like on the ground in China and Shanghai where you are?
00:14Well, I think in the last quarter, maybe two, we've really turned a kind of corner here where, I mean, this period of uncertainty,
00:20which kicked off arguably four years ago, I think we're kind of over it at this stage.
00:26And it's like we understand there are risks.
00:30We know that there's volatility.
00:31Not everything is perfect.
00:33But we have to go forward.
00:35We have to actually make our investments.
00:37We have to deploy capital.
00:38We have to start consuming a bit more than we have.
00:42We've repaired our balance sheets for the most part.
00:44So the view on the ground, I think, is that while, you know, it's not the 2019 go, go, go year,
00:50it is considerably better than where we were two years ago.
00:54And I think we're poised for growth.
00:56I really feel like there's an optimism here.
00:58How does the consumer feel to you on the ground?
01:01And obviously, Shanghai is a very small subset of the broader consumption profile of, you know, the mainland consumer.
01:08But how do things feel on the ground there?
01:10Well, I think that's best represented by the Louis Vuitton ship.
01:13Yes.
01:14Next to the Starbucks reserve, right?
01:17Yeah, next to the roastery, among the largest of their kind in the world.
01:21And with a line around the block to get into it.
01:24Now, whether they're actually buying the product is a different issue.
01:26So I have to say I understand Louis Vuitton's quarterly results were held up basically by China.
01:32So somebody is buying the product.
01:34But, yes, I think the consumer is the Shanghai and Chinese consumer.
01:39It's aspirational.
01:40It's a bit fickle.
01:40It's very, very bargain-oriented, value-oriented.
01:44Yeah.
01:44But the key thing I always think to remember is that the Chinese consumer saves 30% of their income every year.
01:49Every year they have more money.
01:52And it's going into the bank account.
01:53But then sometimes it comes out.
01:55And when it comes out, it buys a lot of handbags.
01:58Or cheap coffee sometimes.
01:59Or cheap coffee.
02:00Well, that's the other part.
02:01Because the Chinese consumer is, I wouldn't say, in many ways you could say spoiled for choice.
02:06And that now there's always a name brand.
02:09There's a global brand.
02:10But right next to that global brand, there are five or six local copycat alternatives.
02:15And they're actually offering a different proposition most of the time.
02:20So that's the Chinese consumer.
02:22They get to make that choice each and every day.
02:24Does it at least, I don't know, the whole kind of concerns of deflation.
02:29I mean, do you see any signs of that letting up in any way in the economy now?
02:33Well, we call it nadron or involution.
02:36And I think that it's present in a lot of manufacturing sectors.
02:40There is overcapacity.
02:42But we have to look carefully at what that is.
02:43So if you look at the auto sector, there's overcapacity.
02:46But it's mostly in traditional internal combustion engine cars.
02:49I mean, those are the factories that are running at 50%, 60% utilization.
02:53If you look at the EV factories, those are closer to 80% or 85%.
02:57I mean, it's not perfect again.
02:59But, yeah, I think that this is partly at least technological shifts.
03:03The industry is moving so fast that people who had factories for old stuff are no longer being able to depreciate.
03:09They're no longer going to occupy them.
03:10So that's a bit of it.
03:12And the rest of it is, yeah, China's fairly undisciplined approach to capital allocation.
03:16And we just tend to throw a lot of money at things.
03:18And it's a last-person-standing kind of outcome.
03:22So once you are cash positive at the bottom of all that, we'll consolidate things.
03:27I want to tie in your current expertise, of course, into the, let's call it unlocking the potential.
03:32So urban planning goes into really unlocking potential of, let's just call it the microeconomy, the GDP or capita, the ability of consumers to be able to, the mobility of consumers, for example.
03:43What are you busy with?
03:44And how do you look at that juxtaposed against the macro?
03:47Well, China has, of course, gone through the single biggest migration in history over the last 30 or 40 years, just in terms of numbers of people, you know, 400 or 500 million people.
03:57And so we built a lot of stuff.
03:59And now I wouldn't say it's over.
04:01There's still more to be done.
04:03But a lot of it is in the renewal stage.
04:06So the work in China is around particularly technology, infrastructure to be put into cities.
04:12So in Shanghai, for example, urban renewal around smart city technologies.
04:17We call it quantum city now.
04:19Quantum city.
04:20Yeah.
04:20So it's a lot of simulation and planning for urban services.
04:24How do we make the streets safer?
04:26How do we deliver the trash to where it should go?
04:29We manage recycling.
04:30Those are kind of China problems.
04:32Other places are different.
04:33If you look at India, India, only 30% of India has been built.
04:3770% remains to be built.
04:39So they are in that stage of it, which is more about taking advantage of what we now can do in terms of building modern infrastructure and finding places for it.
04:50Because so different countries, different kinds of projects involved in both.
04:55Yeah.
04:55I want to ask you about, interestingly, you brought up technology.
04:57As China looks to so, let's call it the bulk of the migrations taking place.
05:01You have these mega cities, Shanghai, Shenzhen.
05:04And the new evolution that they need to sort of come to grips with, things like driverless cars, for example.
05:10Yeah.
05:10As someone that looks at cities and how to plan a city of the future, what are the first things a developed city like Shanghai, for example, need to be thinking about?
05:22Just, I guess, as an example of how other cities should be thinking about these things.
05:25It's a terrific question.
05:27And I would always, I mean, sort of put people first.
05:31So they really have to start with inclusion.
05:34And so the good news is that every decile of Chinese society has improved its standard of living over the last 30 years.
05:41Everybody.
05:41Everybody's been better.
05:43Some people have been better than others.
05:45So the gaps are growing.
05:48And the challenge in a modern city, like in anywhere, is to make sure that we all can participate.
05:55And so every time that we introduce an automation tool, we throw somebody out of a job.
05:59And so where do they go?
06:01And how do we ensure that they still literally have a place in the city to sleep?
06:05So those are the challenges for Shanghai, particularly as Shanghai is a modern city.
06:10And it's a mega city that's been incredibly successful, but now it faces the challenge of that success.
06:16So that's the number one thing.
06:18Beyond that, environment, of course, I mean, when we grow, we tend to pollute.
06:22And so managing the externality, again, climate, a huge issue, adaptation to the hotter, wetter world that we've been creating here.
06:30And then finally, of course, the economic engine underlies all of that, which is how do we continue to innovate?
06:36And China now has its Thousand Talents program kind of scaling up with free visas for people who have gone to college.
06:43So basically, it's fine.
06:45So, okay, you know, but that's not really how you do it, but it's going to be a part of the solution.
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