The Duran Podcast
China stimulus. Wang Yi blasts Blinken
All right, Alexander. Let's talk a bit about the Chinese economy and the stimulus package, which a lot of analysts are saying this is a huge stimulus. But I guess in the grand scheme of things, given the enormity of Russia's economy, would you say this is a big stimulus? And would you say that the Chinese economy is in trouble? Or how are you seeing things? The Chinese economy has matured, and it is much given the size that it has now, and the fact that it has matured to the extent that it has done. It cannot achieve the kind of double-digit levels of growth that it was achieving 15, 20 years ago. And I think this is a statistical reality, which many people, I think, have struggle understanding. So the fact that China is growing, or claims that it is growing, at a rate of 5% a year, rather than 10% or 15%, doesn't mean that it itself means that the Chinese economy is in trouble. What it simply means is that it's not grown to the level and is mature to the level, but that it is statistically impossible to maintain those kind of levels of growth. But it doesn't mean that they don't have problems. And this is where I think we have to go back to the earlier stimulus plans, of which the last one was made in 2014. And it was a bigger stimulus than the one we have seen now, which is that over the last 10 years, China's economy continued its growth. The main drivers of growth were no longer technology manufacturing things of that kind to the same extent. It was more construction in housing construction and in infrastructure. And this created a bubble, as it often does. And that bubble is being shrunk by the Chinese authorities. And as is often the case, when we are talking about a bubble, it is proving very, very difficult to shrink the bubble, or rather to burst the bubble without causing major problems in the economy as a whole. So what the Chinese authorities have done is, even as they've resisted up to now, pressure to conduct big stimulus packages, which could, in some way, re-inflate that property bubble and that stock market bubble that goes with it. They have now accepted that they must do because it looks as if with this bubble sort of deflating, the Chinese economy might actually fail to meet its normal 5% growth target this year, or perhaps even slip into recession. So they've unveiled another stimulus package. But relative to the size of the Chinese economy, which now is about $35 trillion by purchasing power parity levels, the current stimulus package, which is about $7 trillion. It isn't very big. This is more intended, or so it seems to me, to smooth out the problems caused by the deflation of the bubble than to really stimulate the economy in the way that bailouts and stimulus in the West is intended to do. Now, whether the Chinese are going to be able to smooth out this problem, whether they can avoid a recession is another matter. And there is a line of thought which says that when you are in a bubble, rather than try to deflate it gradually, the more sensible thing to do is to let economic processes run their course, accept a recession, recessions are an integral part of a market economy, countries have recessions, let the recession do its job, let any banks that have become overextended fail, the Chinese economy has enormous savings, tremendous structural strengths, it can absorb a brief recession. But the Chinese authorities, the Chinese government, for all kinds of political reasons and ideological reasons, doesn't want to do that. And that's why they're taking the line that they are. That's my own reading of the situation. Do you know what those political or ideological reasons are? Well, first of all, the Chinese government, the Communist Party of China likes to claim that China is gross, that they found the magic growth tree, that growth will continue indefinitely because they've got the model that will always deliver growth. Many countries say this. I have to say, socialist countries, communist countries have a particular tendency to say this. But even the United States likes to pretend that, you know, growth is something that's going to continue indefinitely, that recessions can be avoided at all times. The other problem, however, that they have is probably a more serious one and a more real one, which is that, of course, the Chinese people have become accustomed to 30 years of constant and very rapid growth, a recession, even if it was a relatively brief one, which, by the way, I think it would be, would come as a shock. And the Chinese government might be worried about how people would respond and whether there would be social unrest, as there was in the 1980s. And for that reason, they probably feel that it's better to try to deflate the bubble, gently rather than to let things take their course, let market processes work their way through to their conclusions, except a contraction, an economic contraction, a recession, in order for that to sort out the real problems that exist in the Chinese property market. How is this going to affect the world economy? Well, in terms of what China's going through. Right. If it's going to reflect, right, the immediate effect of the stimulus package is that it's already leading to a rise in a surge in stock market prices, and it will ultimately also lead to a surge in demand. So we're going to see goods and capital move back into China, whereas until fairly recently, they've been moving out. So the Chinese have been running an ever bigger surplus, and money has been leaving China rather than going into it. For a temporary period of time, this is going to reverse. My own view is that this stimulus is going to run its course in a few months, and then we're probably going to see return to something like the situation that we had before, which is a gradual rebalancing of the economy, which is what Xi Jinping and the Politburo wants. They want to move away from property bubbles and that kind of stock market speculation. I get the sense, by the way, the Xi Jinping who has a rather austere side to his personality that people don't mention very much, but it's definitely there if you follow his speeches. He doesn't like bubbles. He doesn't like property speculation. He's one of these people who says the production industry, technology, high-tech technology, that's where it ought to be. We need to redirect investment capital away from property construction and building and that kind of thing back to where we're strongest, which is an industry, especially high-tech industry, supercomputers, aircraft, EVs, that kind of thing. I think that ultimately, whatever happens, whether we get a recession or whether we get a, whether this stimulus package works and smooths the problems out. Ultimately, that's where the focus of Chinese economic activity will shift back to. Then we will revert to a situation where money starts leaving China again and the Chinese trade surplus increases and this temporary blip in upward demand and stock market prices, property prices and all of that with goods going into China and all of that sort of thing. I think in a couple of months time, say three or four, five, six months at most, that period of surge will have run in schools. The risk the Chinese run, if I could say, is that by trying to deflate the bubble in the way that they're doing, you know, trying to avoid a recession, they are actually allowing problems to remain debt issues and things like that to remain. I mean, the advantage of recessions is that they clear out accumulated problems. They erase bad debts, for example. If you keep these debts on the books, they continue to act as a drag and they actually slow growth and investment going forward, which is what happened to Japan in the 90s. I'm not saying it's going to happen to China in the same way, but what the Chinese are trying to do to deflate the bubble by avoiding a recession is a difficult trick to pull off. All right, let's talk very quickly, Alexander, to wrap up the video about some geopolitics with China. Blinken met with Wang Yi at the UN General Assembly on the sidelines of the UN and it does look like Biden is going to have a phone call with Xi Jinping. What's going on there? What are they discussing? Well, the Chinese have produced a readout of Wang Yi's meeting with Blinken, and it was one of the most ferocious readouts I have ever read. Wang Yi, according to the Chinese readout, actually said to Blinken that you're being too faced. So on the one hand, you want our help all the time. On the other hand, you're doing everything you can to contain us, to isolate and suffocate China. You cannot have it both ways. You cannot be our friend and partner when it suits you and our enemy and our adversary when it suits you. And it was really a very, very, it seems that the Chinese readout, it'd be a very, very difficult meeting. Chinese readouts of meetings between Chinese officials and American officials have been getting harsher and harsher with every single iteration of them for at least the last three years. And this was the harshest one yet. So there is going to be a telephone call between Biden and Xi Jinping. And I think what Xi Jinping is going to want to say to Biden is do not even think of doing anything that could disrupt our relationship further whilst you are still president. Don't even think of taking steps with Taiwan, for example, real serious steps with Taiwan. You're going to already, you're already talking about giving Taiwan a lot more weapons. We see this as a major breach of the promises that we were given back in the 1980s, 1970s and 80s, when we agreed to establish relations. But if you want to go, if you're going to go even further than that, then we will respond. And if you continue along that course, well, we've just demonstrated that that we have military power, we've just, we've just tested a new intercontinental ballistic missile system, we're building up our Navy, we've just launched our latest aircraft carrier, we're becoming stronger, you're becoming weaker. I mean, he's not going to say it in exactly those terms. But based on what the reader of the meeting between Wang Yi and Blinken says, it's going to be a very tough call from the Chinese side. The final call, fine imagine, before Biden exits, before yeah, yeah, of course. All right, the Duran dot locals dot com, we are on Rumble Odyssey, but you tell the grand rock fit and Twitter X and go to the Duran shop, pick up some, merch the link is in the description box down below. Take care. (upbeat music) [MUSIC PLAYING]