00:00Dr. Yen Liang is Chair Professor of Economics at Willamette University in the United States.
00:06Thank you very much indeed for joining me.
00:08So what do these figures tell us about the way that China's economy is performing?
00:14Yeah, good to be with you.
00:15So as you just reported, the manufacturing PMI actually is a 0.6 points increase from the July meeting.
00:22So that means the manufacturing activity is actually, you know, improving,
00:26but of course it's still in that slightly contractual zone.
00:30And we're seeing that, I think, that's because of three major reasons.
00:33One, I think, has some seasonal factors, right?
00:36July and August had some extreme weather in China with typhoons and floods.
00:41That, I think, in some ways slowed down the production activities.
00:44But then I think more importantly is there are relatively weak domestic demand,
00:49especially when it comes to retail sales.
00:51We know that only grew, you know, by 1.1% in the first seven months.
00:54But I think the last important reason is we're seeing the structural transformation in China's economy.
00:59As you mentioned, some of the high-tech manufacturing, high-value-added sectors,
01:03we're seeing quite large expansion.
01:06So, for example, industrial value added in the first seven months grew by 5.3%.
01:10But for high-tech manufacturing, that grew by 13.3%.
01:14But some of the traditional manufacturing, like furniture, household appliances,
01:20and some of the home goods, they are seeing, you know, slowdown in production.
01:23So, I think all three reasons point to that the Chinese economy remains quite resilient.
01:27But because in this sort of transition period and also because of the real estate slump,
01:32I think there is some weakness in the demand side
01:34and also in some of the traditional services and industry side.
01:38So, policy needs to, you know, help to accelerate the transition,
01:41but also put in some stabilizing measures.
01:44Now, why is there such a divergence, do you think,
01:47between sectors that are doing well and those that are contracting?
01:51Yeah, that's a great question.
01:53So, I think this is a deliberate policy choice because, you know,
01:57some of the old traditional sectors, like the real estate sector,
02:01it has pretty much run out its course.
02:04It has played a really important role in boosting growth,
02:07especially after the, you know, global financial crisis in 2008 and 2009.
02:11But the sector is over-leveraged and also giving, you know, demographic changes and so on.
02:16The real estate sector is not going to be able to, you know, continue to drive economic growth.
02:21And some of the traditional, you know, manufacturing sectors,
02:24they're more labor intensive, they're resource intensive,
02:27and they're having, you know, diminishing marginal return.
02:30That's why I think, you know, China's government has made a decision
02:33to pivot away from this traditional sector
02:35and try to pursue more emergent and new technology sector.
02:38But those sectors are still, you know, in the growth mode.
02:41They're still relatively small compared to the broader economy.
02:44But that said, I think, you know, the growth is momentous, it's rapid.
02:48And so hopefully, you know, that transition is going to help to, you know,
02:52push the economy forward.
02:53But like I said, you know, the real estate sector slum
02:56continue to drag on the economy, both on the demand side and also investment side,
03:01the consumer demand and investment side.
03:03So there should be some more policies to support,
03:06to stabilize some of these traditional sectors.
03:09What more do you think policymakers could be doing to keep that momentum going?
03:14Yeah, that's an excellent question.
03:16So I think what we're seeing now, as you also reported before the show,
03:20is that there are policies.
03:22For example, in terms of housing policies, there's the mortgage extension.
03:28Now you have 40 years mortgage loans that hopefully will help some to energize, right,
03:33to stimulate a little bit more housing demand.
03:35But there's also, you know, for example,
03:38interest subsidies on small businesses to help with their business.
03:41And also, you know, interest subsidies for consumer demand.
03:45And finally, I think fiscal policy is really important.
03:48The Ministry of Finance has already talked about that they are going to mobilize the resources
03:53and accelerate some of the existing projects.
03:55For example, the so-called six networks investments,
03:58that is budgeted about $1 trillion for this year.
04:01So I think accelerating these kinds of new infrastructure that are both for, you know,
04:06the economy in the short term to still make demand, investment demand,
04:11but also I think, you know, really will play an important role in the long term
04:15because that would make the economy AI ready, right, when you have 6G network,
04:19when you have logistics to facilitate e-commerce and so on and so forth.
04:23And also whether, you know, climate resilient,
04:26a lot of these underground pipeline projects are really preparing the economy,
04:31you know, for that sort of climate change in the future.
04:33So I think these kinds of fiscal projects, right, investment in infrastructure,
04:38cutting edge, you know, futuristic kind of infrastructure
04:40will be really helpful to both stabilize the short-term growth
04:43but really help to provide the kind of long-term growth opportunities.
04:48Dr. Yan Liang, thank you very much indeed for that.
