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00:00[CC may contain inaccuracies] We spoke with Kevin Rudd a couple of days ago. He was saying, look, stabilisation does not equal normalization. But does the mere de-escalation of these tensions change your outlook when it comes to future Chinese growth? Not really, because I don't think that the. I don't think we set a floor on the where tensions can go going forward. Right now, it's great the leaders are able to meet. We have at least some period of time in which the relationship will not deteriorate further. But if you look into next year, there's a lot of things that could get trickier. You know, you've got a lot of dynamics in the U.S. Congress that may irritate tensions. You may have some trips to Taiwan that might irritate tensions. There are export controls. And then you've got a U.S. presidential election and a Taiwanese presidential election, 2024. So it's great that for now, we can restart things. But but this isn't going to hold for long, I don't think. Then let me flip Heidi's question and ask. Did the easing of geopolitical tensions, especially the openness from President Xi Jinping, come from a weak Chinese economy? Well, there is a weak Chinese economy right now. I think that, you know, Xi Jinping right now would just assume focus on his domestic issues and headaches and not have to deal with a whole bunch of headaches coming from United States elsewhere. So from that perspective, I think that's right. But look, you know that the problems, the domestic economy are considerable. And so, you know, he's going to have to navigate those going forward, despite the fact that U.S. tensions are good increase over time, probably. And we should address those pressures that the property sector that's across this is ongoing. The demand side in terms of whether the global economy will continue to slow. Also, the longer term, the financial stability aspect, because Covid 0 is expensive. One of these, you know, chickens coming home to roost. I am less worried about the financial stability aspect. Not that this is a great use of budgetary resources, but the Chinese financial system is a non-commercial financial system. So when they need to, they can sort of swish, swish tidal waves of capital on one side and visualize like bowls of debt and capital rolling. That's exactly, exactly what happens. And it means that, you know, you're less likely to have an acute crisis, but it also means over time you have a stagnation of growth because you're constantly putting good money after bad. You're constantly paying off bad debt. You're constantly using capital for more and more non-productive uses rather than using it to grow the economy. What we heard from Vice President Wang Qishan as well here at the New Economy Forum, and he insisted again, as he did last year, that he wanted to continue opening up the Chinese economy. And yet we have seen global banks now starting to cut China jobs because they're not seeing that on the ground. I don't think anybody is. I mean, look, there's a there's a story of opportunity in China. And for some companies in some sectors, they will probably do well. But if you look at the overall China story, it has been a disappointment for years and years. And. Right. If you look at the political tenor of the environment over there, it doesn't look particularly appetizing for foreign firms. You know, in the short term, yes, you've got Covid 0 and that sort of chased a lot of firms out. But if you're looking at can I be a foreign company and succeed in China despite the geopolitics, despite the domestic politics. I think the answer to that is getting tougher and tougher and tougher. And yet we have seen some measures that seem a little bit of more loosening when it comes to some policy support for real estate developers, perhaps some of the restrictions on Covid 0 being a little bit more targeted. Is that some sign that potentially we could see a little bit of a better landscape next year? Yeah, I think the big issue is when Covid 0 gets pulled back. But I think the mistake that people make is thinking it's a switch to be flipped off. This is a long multi-stage process. You're seeing some easing of the Covid restrictions right now. That's a positive step. But the question is, can that be maintained through the winter when cases are going to are going to skyrocket? I think the problem here is that nobody knows. I don't think the leadership in Beijing knows. I think they're looking at the data and seeing what they can get away with very large chance that we see some sort of reversal and go back into lockdowns quite soon. Are you worried about the longer term pressures that productivity, for example, the fact that we see credit lending being turned on and nobody's really taking it up? Not to mention the demographics as we go on. Yeah. Obviously, that's an issue. It's a particular issue during Covid 0, because the most important takeaway we've had from our data this year is it firms have told us that as long as Covid euros there, they're not going to borrow. They're not going invest and they're not going to hire, period. That doesn't mean a press conference announcing Covid zero is gone, but it's not really gone. Covid zero has to be gone for for there to be a real reactivation of economic activity in China. This is a long process. So when that happens, there's going to probably be a very beautiful cyclical bounce back. But this could be farther off than people think. The party Congress. We just had. What sort of signals did you get about the direction of the economy? We heard more of the likes of common prosperity, which in the past and news media has sort of translated in bringing down all of these tech bill. And there are some reining in some of the exuberance that we have seen in certain parts and trying to really spread the wealth. What will that mean when it comes to investments and potential opportunities and risks for the economy? Well, I think that the singular message from the party Congress was. This is Xi Jinping show. It's his team. It's his economy. It's his government. And so one of the mistakes people are making investors are making right now is that when they look at 21 and just 21 and 2022, a lot of people are saying, OK, well, you know, she hit his pain threshold and now he's ready to do a big pivot back to the old ways. But this is she's economy. There's no evidence at all that he sees that he has done wrong on this. So you're going to see more continuation of policies, not a reversion in that sense. Is it a bit easier than it's also for investors to kind of gauge what the policy priorities for this one person are and perhaps less uncertainty about what to expect? Because if you get the execution right, it's pretty clear where the lines are. Right. As always, you get the timing right, which obviously is the issue with CAC era. Right. So I would I would I would agree, except that what I'm seeing right now from investors, from clients, from others is huge debate about what is actually happening here. A lot of people in the markets are calling what's happening in property a game changer. It's not a game changer. What they're doing is they're calling the herd than they're releasing pressure in order to avert contagion. And then I'll call the herd again. So it's putting a floor on some of the problems in property, but it's not a game changer. You've got questions over that. You've got questions over is this the end of Covid 0 or is just sort of an early signal and a long process? People should be more of one mind, but opinions are everywhere right now. We want to see it's RTS area. I think even with a de-escalation in tensions that there's going to be a re coupling with key strategic areas like semiconductors. Right. So to that end, does the Chinese narrative, which which is decades long, that the U.S. is trying to curtail its growth potential, does that come true? Well, I think from the Chinese perspective, they'd certainly see that export controls have started on advanced technology. Mean, we see it on semiconductors. We are going in that direction. There's not going to be a reversal. We're going to get more and more in the direction. It may not be as fast as people think. But that's the direction we're going. So, yes, there's going to be a Chinese interpretation of that, which is. OK. Well, the U.S. is trying to keep us down and we're going to have to to do our own thing. It's it's it's probably unavoidable at this point. You know, it's it's it's it's a strategic decision for the United States. Do you allow China the inputs to defeat it commercially, potentially militarily in the future, or do you cut that off now? This debate has been raging for a long time, but this is the decision has been made now and it's a strategic decision for investors as well. Right. Because, I mean, these geopolitical tensions have led to comments about China being on investable as well. But at the same time, there's so much more. This is a huge economy and it's a huge opportunity from where you sit. Is a risk or reward bigger, I think. I think the risks are rising so dramatically that if you're going into China, there are opportunities there. It is you know, it's a gigantic economy. There's a lot of consumers. There is opportunity in China. But the traditional way of viewing China business are moving into China was OK, we're not going to move in. We're going to start to listen to the government. We're going to just hope things work out and we're gonna give it 20 years. It's a lot tougher on the ground right now. People have to have a strategy to have to have good insights, have to give good data and that to take it very, very seriously, because the downsides and increased dramatic really difficult to do that digital ends when you're not in there with Covid 0 2. Right. The problem is there's no ready market elsewhere to replace the role of China. And in fact, we see the risks for the global economy with it not being able to pay that countercyclical growth factor this time around. Where would you be making money in China, assuming that we have an exit out of private zero by March? Well, I think that the key to that is to look at what the government wants and what what is it interested in in bringing in foreign expertise and capital for obviously their things. You know, there's a big question about the financial services industry. As property deflates, will all these assets go into financial products? And that will be a big opportunity. Certainly, that's what Wall Street thinks, which is why Wall Street has been running in there for years. You know, you've got you've got a demographic problem. So elderly care. Anything related to births will be subsidized and encourage in the future. So there's a lot of areas of the green technology. So there are areas there which the government's going to want to support, subsidize, bring in foreign town. You probably can make a lot of money in there if you do the right things. But you've got to be very careful because it's not an easy environment to be in.

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China Story Has Been a Disappointment for Years: China Beige Book CEO

China Beige Book Chief Executive Officer Leland Miller discusses the prospects for the world's second-largest economy amid the government's Covid Zero policy. He also talks about the bilateral relations between the US and China. He speaks on the sidelines of the Bloomberg New Economy Forum in Singapore with Haidi Stroud-Watts and Shery Ahn on "Bloomberg Daybreak: Australia." (Source: Bloomberg)

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