Isabella Weber on China’s Vision for Making Markets Work

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

So Tracy, we've been talking about China a fair amount lately. We had that recent episode with Dan Wong about some of the specific industries that China's cracking down on, like online education and video games and so forth. And we talked to Travis Lundy specifically about the stress, to say the least, at the real estate developer Evergrande.

But really it feels like we can't get enough of the China story. And every time we do one of these episodes, my head is just filled with 100 more questions.

Tracy Alloway (0:56)

All China, all the time. I mean, both of those stories provoke some pretty big sort of existential questions about China and its economy. I mean, specifically the crackdowns, we saw a lot of people sort of scratching their heads and basically going, well, China built up this market economy. It built up its stock market, its technology sector. It's all supposed to be kind of capitalist in style. And now it seems to be cracking down in a very centrally ordered way. And what does that mean for China's market reforms? And then on the other hand, we saw a lot of people going, well, it was never that free market. It's always been a centrally ordered economy. And this is everyone just sort of waking up to that fact. But I think there is a big question mark over where exactly the Chinese model is going right now.

Joe Weisenthal (1:51)

Yeah, and it kind of occurred to me, like there is this tension. So one of the things that Dan Wong points out is, okay, China is very keen to remain an industrial powerhouse, to be good at manufacturing. And of course, that's been a theme of all the conversations that we've had with Dan is like, wants to be good at like hard tech and building wide body airplanes and semiconductors, et cetera.

But on the other hand, and Evergrande is sort of a perhaps a symptom of this. And I think that you coined the term, the giant ball of money that just sloshes around China, which is like, from at least from my outside perspective, the Chinese economy is whether it's real estate or people at home trading like iron ore futures. It's an economy that's like, it's riven with speculation.

Tracy Alloway (2:40)

Right. Hugely financialized, I think is the right word. So like on the one hand, yes, they want to make things. Dan spoke about this idea of the German model and getting closer to, you know, high quality manufacturing.

But on the other hand, it seems like there is a lot going on in sectors such as real estate, construction, even banking, finance, fintech. Some of the biggest companies in China, of course, have financial payments arms as well. So it just feels very financialized and sort of abstract at the same time.

Joe Weisenthal (3:15)

Yeah. And I guess the last thing I would say about this is putting it all together, what we've talked about so far. Like, and this is going to sound sort of like trite, maybe it feels very real. Like, you know, it's always, you know, I feel like over the last several years, news out of China is like, okay, you know, they're going to, they want to tamp down on real estate speculation, or it's like, are we going to like make it harder to buy a fifth home or whatever it is?

Something about this moment feels extremely real as in, let's take a turn in a different direction. And I don't know if that's true, but the combination of things, the letting, at letting Evergrande get to where it is, the effect that that is likely to have on the real estate sector, it feels like this is a, this is a pretty big moment.

Tracy Alloway (4:01)

Well, I think also when you wipe out billions of dollars worth of market value on some of your biggest companies through the crackdowns, that tends to focus people's attention quite a bit as well.

Joe Weisenthal (4:12)

Exactly right. So I want to understand further where China is going, what its goals are, how it understands the sort of how it sees economic management. So I'm very excited about our guest today.

She is the author of a new book. We are going to be speaking with Isabella Weber. She is an assistant professor of economics at the University of Massachusetts Amherst and the author of the book, How China Escaped Shock Therapy, The Market Reform Debate. This book is getting a lot of praise, taking a big sweep at the big historical look at China's approach to liberalization or how it thinks about capitalism and markets. So maybe the perfect person to contextualize this moment right now.