00:00Mark Oswald is Chief Economist and Global Strategist at ADM Investor Services International.
00:05Hello, Mark.
00:06So the context of this, of course, is that there's been less than perfect growth for China in the last
00:12quarter.
00:12So they're really pushing to up that forecast.
00:16Why the focus on domestic spending?
00:19What is it about the Chinese consumer that makes them a little reluctant to splash the cash?
00:26Well, I think that's actually not too difficult to identify.
00:30What you've seen in terms of the makeup of the labor market is a fairly rapid increase in the so
00:36-called gig economy,
00:37i.e. workers without a lot of social safety nets and a drop in the formal labor market
00:50and fairly stagnant income growth over the past couple of years, in no small part, partly due to involution.
00:58There's no doubt that that's contributing and to trade wars.
01:03So that's the big challenge now.
01:07One of the big pushes is AI+, which essentially China wants to see artificial intelligence throughout the economy,
01:16basically revolutionizing everything.
01:19How is this going to help sort of boost consumer spending, for example?
01:24That I'm not so sure about.
01:27It certainly is going to make things more efficient, likely improve profits,
01:34and it's definitely going to improve the supply of both goods and of services.
01:40But, as we've already identified, the real problem is how much of a boost is it going to give to
01:47incomes?
01:47And on that, I think the jury will have to remain out.
01:52What I wouldn't dispute, though, is there's not really any need for additional stimulus,
01:59given that government spending in China is actually lower than has been budgeted.
02:04So there's quite a lot of extra money available to target some of these projects in the second half of
02:11the year.
02:13Service is another really big push in China.
02:17The idea is to make this a services-rich economy.
02:21Just talk us through the thinking behind that and how that might help grow.
02:29Improving services, China's economy does need to rebalance from the intense investment-led manufacturing sector.
02:38Obviously, there will obviously be a lot more invested going forward in the high-quality end
02:46and the technologically-based things and, indeed, in pharmaceuticals.
02:52But the silver economy, i.e. the care for the elderly,
02:59and providing an economy which encourages the older members of the population
03:06to actually spend more, more efficient and better provision of that.
03:12Particularly, there's a target of trying to improve demand in the rural areas of China,
03:18above and beyond the urban areas.
03:21That will basically be an improvement, particularly if it can be done without high costs.
03:27And that's where the application of AI and advanced technologies such as robotics will definitely help.
03:34Yeah, it's a very interesting time.
03:37I want to speak to you about China in the world,
03:39because, of course, the Politburo also spoke about the importance of trade relations,
03:43the need to normalise trade relations.
03:45But all of this, of course, Mark, against quite a volatile global context.
03:50You know, we don't know where tariffs are going.
03:52Well, they seem to be worsening at this stage.
03:54But also, we don't know the impact the Middle East is going to have on any of us.
04:00Yeah, I mean, the impact of the Middle East on raw materials prices and energy prices is a big unknown.
04:07China has a long, good and strong historical record of managing that very, very well.
04:14But there's only so far one can go with good management processes when there's so much uncertainty.
04:20But on trade, I would say that Chinese external demand is proving to be very robust.
04:30And it's proving to be very robust because as much as trade with the U.S. has diminished,
04:36trade out with other parts of the world continues to increase, not only with Europe,
04:41because Europe basically is no longer competitive in a lot of industries,
04:46and it's easier to actually import from China, but also with regions such as Africa,
04:53still strong growth in exports to the Middle East and indeed to South America.
04:58And that's really where the real growth area in trade for China is going to be.
05:03It's proven to be a very strong trend, particularly over the past year.
05:08But...
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