China Shock 2.0

Katie Martin (0:06)

Pushkin.

When you think of China's role in the global economy, you might think of it as the place that makes low-value stuff for the world. It makes widgets, it makes the basics, and it does that quickly, cheaply and on a huge scale. And that makes it hard for other countries to make widgets and basics, because we just can't beat China on price or speed. But it's also made life much cheaper for all of us over the years as we load up on bargain goods that are made in China. People who are very upset about this include a Mr. Donald J. Trump. But actually, that image of China is really out of date. In fact, China is absolutely crushing it as a superpower in super high-tech industries, including electric vehicles and solar.

Today in the show, what does that mean for the rest of the world? And also, how might China emerge as the big winner from the war in Iran? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. Katie Martin, a markets columnist at the FT in sunny but chilly London. With me down the line from New York City, back from his jolly in Switzerland, we have a somewhat jet lagged Robert Armstrong. Rob, say hi.

Rob Armstrong (1:24)

Hi. What time is it right now?

Katie Martin (1:27)

I don't know. Maybe you can check your cuckoo clock. Did you purchase a cuckoo clock while you were there?

I'll take that as a no. But excitingly, with me in the studio here in London, I also have our man in Beijing, Joe Leahy. Joe, thanks for coming in.

Joe Leahy (1:42)

Thanks, Katie.

Katie Martin (1:43)

I spotted you in the newsroom in London and I thought, aha, I'm going to kidnap Joe Leahy and make him talk about China.

Rob Armstrong (1:52)

Joe, I read the excellent China Shock 2 series that you and several colleagues put together.

It is a tapestry of many threads. Can you kind of give us the summary?

Joe Leahy (2:05)

Yeah, thanks very much, Rob. So the series really describes how China is moving up into very high tech industries and really hitting the economies of other producers, such as Europe and Southeast Asia.

And the reason we thought of doing this series was that we thought that the world really needs to wake up and take notice of this is one of the trends, perhaps one of the most important trends of the decade.

Katie Martin (2:28)

It's not about the widgets anymore. It's about the solar panels and all of that good stuff. What's the deal here?

Joe Leahy (2:34)

Yeah, I mean, this is something that's been coming slowly. And I think during COVID, people sort of lost touch with China for a while.

Katie Martin (2:42)

Right.

Joe Leahy (2:44)

And during that period, I mean, even before that, China had set its sights on these high-tech items. And it's not just solar panels and green stuff. It's machine tools as well. So very high-quality machine tools. You know, you name it, China's actually producing it these days. And it's creating a shock for Europe and also for Southeast Asia and all countries that have an industrial base are being challenged.

Katie Martin (3:09)

How long have you been out there? How much has it changed since COVID?

Joe Leahy (3:13)

I've been there since the end of COVID. I got there in 22 I was locked down for a while and even almost put in one of those COVID camps at one point.

Thank God it didn't happen to me. But it has, it's just going very fast, this process. I think when I arrived there, I was surprised like most people at the number of electric vehicles, beautiful, very high-quality electric vehicles on the streets of Beijing.

Katie Martin (3:38)

Yeah, I hear Beijing and Shanghai are like quiet.

Joe Leahy (3:41)

Yeah, exactly. That was one of the first things I noticed. I used to go to China in the 90s and then the 2000s.

And it was always very noisy with trucks and motorbikes like in East City. And now it's just strangely quiet. It's kind of almost surreal.

Katie Martin (3:53)

It's just humming along on all those EVs. And so, as you say, like, it's getting good at the high-end stuff.

Like part of this series that you've just been involved in this China Shock 2 series is like the rest of the world is waking up to this. What does it mean? Like, how much should this bother Rob Armstrong and his ilk out in the States?

Joe Leahy (4:16)

Well, I think that the States don't need to be bothered because they already got deindustrialized by China Shock 1.0.