00:00The temptation is to look at the growth targets and look at that as perhaps a solution to most of
00:06the economy's issues at the moment.
00:08How are you looking at the prism of a growth target and the broader challenges of this economy right now?
00:15Yeah, thanks very much. So I think the growth target is basically irrelevant to the problems that are facing China
00:21today.
00:22And the basic reason for this is the growth target is expressed in real terms.
00:26And right now, real growth has a significant component of deflation in it.
00:31And deflation, which is a reflection of these problems of excess supply, insufficient demand and so forth, is the real
00:40problem that they need to be tackling.
00:42And the only way that you can address that is by targeting something other than real growth, so nominal growth
00:49or the inflation rate.
00:50And there really isn't any indication, I don't think, that the government is moving significantly away from its real growth
00:58target.
00:58So I think basically what we're expecting, I'm sorry to say, is more of the same from the Chinese leadership
01:06in the current planning cycle.
01:10In terms of consumption, this sort of, you know, the rebalancing the economy away from export oriented, away from investment
01:19heavy sort of economy has been slow going to say the least.
01:23I mean, in terms of the consumption side of things, what are you expecting this time around?
01:29Basically the same as what we've seen over the last couple of years, which is a certain amount of rhetorical
01:34support for this idea that there needs to be more domestic demand.
01:38There needs to be more consumption, but nothing really serious that changes the fundamental strategic orientation of the government, which
01:45has been very clear for several years.
01:47They've said their major task is to increase the technological capacity of the economy, focus on tech intensive manufacturing, both
02:00as a way of stimulating long run productivity growth and also insulating the Chinese economy from U.S. pressure.
02:08And since they're not really changing that overall strategic orientation, they can't really offer anything serious on a major shift
02:18towards consumer spending.
02:22Arthur, any points of urgency?
02:27And the reason I ask that is the economy doesn't seem to be doing extremely bad, but it's also not
02:34doing extremely well.
02:36Things are actually OK.
02:38But I wonder what specific urgent fronts you think we should be paying attention to and whether or not you
02:45think they'll be addressed at the upcoming NPC.
02:49Well, I mean, to be frank, I don't really get the sense that the Chinese government has a sense of
02:54urgency.
02:55And I think their assessment is, as you said, there are issues in the economy.
03:01The shakeout from the property sector, I think, has taken longer than they would have ideally liked.
03:07So you still have the deflationary impact of the property contraction, et cetera.
03:14You know, they are concerned about excessive competition or excess supply in a lot of manufacturing sectors.
03:19And they're trying to address that.
03:23But there's not a high sense of urgency.
03:26And, you know, the other thing, obviously, they could be quite concerned about is what we've seen in the Middle
03:31East.
03:32What does that mean for China's imported energy supplies?
03:37And even there, I think the evidence is that they've prepared for this quite well.
03:42They've stockpiled huge amounts of oil.
03:44They probably also have some natural gas stockpiled.
03:48So they're pretty well secured against both the crises, the geopolitical crises of the moment and the longer-term problems
03:57of the economy.
03:58So they seem to be basically pretty patient in taking the view that, look, we're making investments in the tech
04:04-intensive manufacturing sector for the long term, for the next 10, 20 years.
04:09Maybe this will take some time to pay off, but we're willing to make those investments.
04:14And if we have to suffer somewhat lower growth and some deflation in the short term, so be it.
04:20So I don't really get a sense that the government thinks that there are urgent problems that they need to
04:25work really, really hard to correct the more sort of management problem.
04:30Yeah, you mentioned about trade.
04:31I mean, Arthur, we have this big meeting between Presidents Trump and Xi in just a few weeks.
04:36And just adding to the whole Iran situation does add to the complexity of what they might discuss.
04:42I'm just wondering, what are your expectations?
04:45Is there anything beyond just what we saw in APEC in South Korea, the truce there?
04:50Could we see anything more than what was achieved there?
04:54Right.
04:55Well, I think there are two questions.
04:56The first question, obviously, is given what's going on in Iran right now, is the meeting going to take place?
05:03And I think some people had some questions about that.
05:06My sense is that the Chinese really want this meeting to occur.
05:12They place a large value on stabilizing the relationship with the United States.
05:17Their relationship with Iran is fundamentally pretty transactional.
05:22They don't have a lot invested there.
05:23So my expectation is that despite the drama there, the Chinese will choose to go ahead with this meeting.
05:32And then the second question is, what do we get out of it?
05:34I think from the Chinese standpoint, they would be happy for some stabilization of the relationship, an extension of the
05:43truce, the reduction of tariffs.
05:46Obviously, that's a lot easier now that the Supreme Court has ruled that a lot of these tariffs on China
05:51are illegal.
05:52So the Chinese negotiating position on that has improved quite a lot.
05:57And again, from the Trump administration, I don't really get the sense that the ambitions are very high.
06:04Again, I think for Trump's perspective, he doesn't see that any conflict with China will serve him well in the
06:12midterm election campaign.
06:13So he just wants a stable relationship.
06:16I think he would want some more commitments on Chinese sales of rare earth elements and other critical minerals to
06:23the U.S.
06:23So they'll be pushing pretty hard for that.
06:25But for the most part, I think we're just going to see an extension of the truce.
06:29The most interesting thing to watch would be whether they can make any progress on creating a framework for increased
06:35Chinese investment in the United States.
06:37I think that's something the Chinese would like.
06:41Politically very difficult to pull off in the U.S.
06:43So I think real questions on the U.S. side whether Trump would go that far.
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