Richard Koo and Zichen Wang on What Just Happened in China

Joe Weisenthal (0:02)

Bloomberg Audio Studios.

Tracy Alloway (0:04)

Podcasts, radio, news. Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:23)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, what is going on in China? We haven't asked that question for a while.

Joe Weisenthal (0:28)

I mean, how long is it ever, how long do we ever go without a China episode? But since the last time we ever talked about China, which was probably like a month ago or something, we have seen an absolute flurry of policy announcements. Look, we know that the big picture is that there's been slow growth, the real estate market is dismal, consumption is slow, the stock market, which I don't think is particularly important to Chinese policymakers, has been terrible. And then over the last few weeks, we've had this flurry of announcements.

Tracy Alloway (0:58)

Right. So there was something of a policy pivot in September, which in itself is kind of unusual, and we'll get into that. But we've basically seen new Politburo guidance, we've seen monetary easing, we've seen property support, we've seen some signs of maybe more fiscal stimulus. And that to me is kind of the big question, because so far, and you're going to hear me ask this question a couple of times, I imagine. But so far, the responses to what's been announced are kind of along this range of some people thinking it's kind of a nothing burger. It's just more monetary easing. We've seen this kind of thing before. But then there are people out there who think, no, this is actually a big deal. And China is sort of signaling a big shift in its mindset in how it approaches things like fiscal stimulus and also social safety nets.

Joe Weisenthal (1:49)

Totally. So we know that there was the mega Chinese fiscal stimulus that happened in 2008 and 2009 after the global financial crisis. And it was sort of historic how much got built then. But unlike much of the rest of the world in the wake of COVID, there's really been very little. And there's been this sort of drumbeat that that's sort of the way we think of countercyclical fiscal policy in Western economies is not the preferred approach that there's this preference for domestic investment, the investment tech, exports, etc. And so something happened, though, in this year, in the last several months, that has prompted at least some sort of pivot. And we need to understand why now and what the goals are.

Tracy Alloway (2:33)

Yeah. Well, you also mentioned some of the economic data that's been coming out of China recently. One of the big things that happened was, I think, the first contraction in bank lending in nearly two decades. And so if we're talking about contracting bank lending, then it feels like there's one person we definitely need to talk to, and that is Richard Koo of balance sheet recession fame. So listeners might remember that we spoke to him last year when his idea of a balance sheet recession in China was really starting to take off.

And again, if you look at that bank lending contraction, it seems like that's kind of been born out in the data. And then the other perfect guest we have for this episode is someone who's going to speak to the question of how economic policy is actually implemented in China. Because I think everyone has this view of China as a very centralized command economy, but you have all these local governments who actually have some degree of autonomy when it comes to deciding individual spending decisions, or how particular macro policy should be implemented at the individual micro level. It reminds me, do you remember that old proverb of, I think it's heaven is high and the emperor is far away? You know, you heard that one?

Joe Weisenthal (3:57)

Anyway, yes. Actually, yes.

Tracy Alloway (3:59)

Wait, are you even listening to me?

Joe Weisenthal (4:00)

Yeah, no, no, no. I actually do remember that. I've come across that.

Tracy Alloway (4:04)

So, China is big and Xi Jinping is in Beijing, putting out generalist mandates, but a lot of that is going to get executed at a more local level.

Joe Weisenthal (4:12)

Right. So, after our conversation with Richard Koo, which will be the first half of this, we're going to be speaking with the Zichen Wang. He is a mid-career master student at Princeton University. He's on leave from the Center for China and Globalization. He is the author of the excellent Pekingology Substack. Listeners might remember, we did a recent episode with Adam Tooze and he gave a shout out to the Pekingology Substack. So it was like, okay, we got to get him on because if Tooze gives him a shout out, then obviously we need to talk to him. And then all of this flurry of China news is the perfect hook. So you'll hear from Richard and then you'll hear from Zichen.