China’s economy braces for Trump
16:50 Share

BaLance your trading strategy by adding futures. C, M, A group helps you manage risk and capture opportunities in all market environments, capitalized on around the clock access to highly liquid global futures and options markets across all major asset classes. Visit your online broker and get started. See what adding futures can do for you at cma group dot comes lash podcast donatives are not suitable for all investors and involve the risk of losing more than the amount originally deposited and any profits you might have made. This is not a recommendation to offer to buy cell or retain any specific investment or service.

For the past couple of years, the fs china bureaux ef joe lay says that china's economy has been in a tough place.

Things are being looking pretty bleak. In china, ordinary people have been hit by a realistic slump. Many local governments projects drive china's economy, have not been paying salaries, and suppliers, even the Better off, have been feeling pretty bad.

At the end of the temple this year, there weren't many signs that this was onna change. That is, until one tuesday, september twenty.

china announced a massive monetary stimulus package that sent everyone's interest in a tiny stocks soaring again. The market basically went crazy. Amy, if you look at the chart from that day, it's vertical Cliff.

After chinese stocks spent years and consistent decline, millions of retail investors pile back in .

csi three hundred, which is, you know, the benchmark stocks index in china just went strike up about a week .

for china rise. We marked the biggest single week again in nearly sixteen years.

Those groups, I think by the end of that first week, IT was up around twenty four percent, even shut the socket, changed down for a little. Also, IT was a huge day for the china market.

You says that this package was china's first major stimulus push since the pandemic began, and IT Marks a significant departure from how the country had been trying to navigate a post, covet slum.

This a lot, riding on this new stimulus push. If china can't get out of this lump, then at risks getting stuck in a deflation respiring al, that could stand its growth for years to come.

I M callin dera, from the financial times today on behind the money we're looking at at president sheet pings new stimulus measures mean for china's economy, and also have dona tram election win in the U. S. Could derail his plans.

Over the last few years, china's economies had its fair share of problems. My colleague joe points out that there's been the crisis in the country's property sector and then the effects of the zero .

covered lockdowns twenty twenty two, really, when sort of things really got hard in china, you had the shanghai locked down, which is like three months, even sort of food shortages in the city, and those lockdowns spread throughout the country.

Remember, china's government tried to keep the country and a covered free bubble up through the end of twenty two.

and then abruptly, at the end of twenty twenty two, the government relaxed all of these measures. And economists, you naturally believe that twenty twenty three, we would say that this kind of huge bounce in the chinese economy, like we saw in other countries, you know, coming out of code in revenge spending by a consumers and all this kind of stuff.

but those expectations never fully materialize.

coming out of covered china really did not have the momentum that people expected.

And this lack of momentum is a significant problem for chinese president SHE.

In the not long after he came to power, and around twenty twelve, he said a goal for china to double its perceptual income by twenty thirty five.

Reaching this goal would allow china to overtake their main geopolitical rival, the U. S, as the world's biggest economy. So to try and dress this, SHE geen pang opens up the economic playbook that he's used for many years.

That playbook revolves around pouring lots of money into things like infrastructure and industry. The hope is that this, i'll create jobs and boost the economy. More recently, that's been implemented with a twist that is favoring support for high tech industry to try and reduce china's reliance on the outside world and Better compete with the U. S.

I think SHE, his focus has been much more on how can china sort of move up the value chain in various industries he's been watching as the U. S. Has put export controls on high tech exports into china, such as semiconductors, and he became more more terminal as he came out of covered, that china should invest its money into sort of trying to become more self reliant, especially in terms of high tech industry, but across the board .

becoming out of zero COVID. This old playbook hasn't been super effective, and that's for a few reasons.

He didn't really focus that much on this problem of actually, the chinese consumer coming out of covered wasn't feeling very happy. And there's another reason for that, which is during covered china essentially crackdown on the property sector, had this property bubble that had been building up for years and IT decided put limits on property development leverage, and then the market essentially collapsed. And so consumers who had all of their wealth tied up in property naturally weren't feeling very, very good as they watched their Prices collapsed by thirty percent and in different places. And so coming out of cover, that hangover was still there.

You, after effects of a property crash, can leave a long lasting impact.

This kind of phones on after you had a massive really set bubble and that bursts. And then everyone, instead of investing, I stop paying down their debt. That's being described as a baLance sheet recession, and that's what we're seeing.

And once you get into that sort of pattern, you can get into a deflationary sort of spiral downwards, if you like, where people are spending less or their downgrading their spending. Companies are making less money. So they stop cutting salaries and everything sort of starts going downwards and that that's not a good place to be.

Despite all this, for a while, he and other chinese officials are largely acting like everything's fine.

The narrative is always been in. The official narrative is always been. It's all good a little bit wake on the domestic demand side, but it's all fine. We're going to pursue these headline blue sky strategic objectives. We're going to invest in manufacturing and are going to move up the value chain.

But earlier this year, as the summer winds down, that positive narrative begins to crack. IT looks as if she's twenty thirty five. G, D, P, target could be falling out of reach.

We had a of a slew of increasingly a negative economic data, retail cells, not very strong, not meeting expectations, very high youth unemployment, which is a real concern for the party because, you know, that implies has implications for social stability. So there was increasing indications that the economy was not heading in the direction that they wanted.

The worst of those figures starts to take shape. In early september, officials realized china isn't going to meet its third quarter GDP growth target. This number is a key indicator for whether he is on track to hit his twenty thirty five goal.

Text, what ant, this figure, I guess if you take, you know how people watch the feed and the rights it's going to set in the U. S this GDP figure is honor the equivalent.

but this isn't the only issue.

There's a lot of other kind of stories around that know local governments were complaining up to sheepmen's level about how bad things were at the local government level. A lot of these local governments can't pay salaries. They can't pay their suppliers.

They're struggling to pay their debts. This was getting worse and worse. So it's possible that all of this fed up to sheet en pink, and he was on a trip to guns, which is one of the in a western provinces, is one of china, is not one of its richest provinces. And there's also speculation that perhaps while he was out there, he said of, saw some things that convinced him that, you know, maybe the time has come for us to do something about this.

Now, IT seems like red lights are flashing for SHE gen ping. And if that news is an enough hanging over china's domestic issues, there something else, the increasingly close presidential race in the U. S. Between camera Harris and Donald trump, and are going to tell of the hilaro them.

Chinese officials and scholars were well aware that if trump becomes president, he probably would try to do what he promised in the campaign, which is levy terf s up, up to sixty percent on chinese imports. And if this happen, this would knock several percentage points of chinese GDP gers. So this was becoming a quite an urgent concern .

at this point. A deflationary spiral seems closer than chinese officials expected, and that brings us back to late september and to the stock rally we heard about earlier, a massive monetary stimulus package coming up the markets immediate reaction boats well for sheet en ping. But what exactly does he have plan? And how will the election of Donald trump affect that?

It's crypt of perfect nope. But neither was email when I was invented in one thousand nine hundred seventy two. And yet today we send three hundred and forty seven billion emails every single day.

Crypto is no different. It's new. But like email is also revolutionary with cracking is easy to start your ecri pda journey with twenty four, seven support.

When you need that, go to crack in dot com and see what crypto can be. Don't invest unless you prepare, lose all the money. invest. This is a hist investment, and you should not expect to be protected something wrong.

The stimulus package from september was a big push from china is central bank. The monitary .

stimulus package was mostly a combination of interest rate cuts, including interest rates on mortgage and also support for the stock market. So the government announced various programs to try to get majority shareholder, if you like, to put more money into the stock market and give you a boost. And then on the other side, they were helping consumers with their mortgages by cutting rates. So all of this was aimed that essentially boosting the property market a little bit and giving a big boost to the stock market.

Joe, what was your initial reaction when china central bank governor announced these measures .

when the monetary package was first announced in the temple? I think everyone was a little bit surprised at the about turn from the government because up until then, he had been a you are saying that everything's okay. The economist is all right, just a little bit of domestic demand that we don't have. And then suddenly the government comes out and unleashes the sort of monetary kind of blitz.

But he says that he quickly wondered, well, the economies received this monetary similar, that is, these measures from the central bank. But what about a fiscal package?

You've got the central bank pumping money into the stalks and cutting interest rates and other things I was waiting for. You know, other any details on the fiscal of stimulus? M, yeah, because ultimately, what we really need to fix china's economy is probably more of a fiscal impulse because people are not borrowing.

So you can cut rights, but that doesn't mean they they're going to borrow. What you really need is money in people's hands or cash that they can spend, and we haven't had that yet. So even on that day, I have to say I was kind of waiting for that extra leg of the stimulus .

that fiscal package shows talking about appear several weeks later in early november .

when the fiscal package finally time IT did not be more of a debt restructuring program for local governments than a really a spending program. IT was a big one. One of the biggest in recent years were the total of about ten trillion rem, or about one point four trillion dollars. One of the ideas behind this, we think, is that by helping local government solve their debt problems, he can set a stronger foundation for the overall economy before IT ends up getting hit by Terry s. That we expect donal prompt to introduce next year when he enters office without strong local governments, it's really very difficult in china to do stimulus spending, especially at the grass roots level.

So what was the reaction to this announcement? IT wasn't .

exactly what investors were hoping for, at least foreign investors. That really was nothing there for consumers or households to get them spending again. And I mean, from my side, I wasn't really expecting a big simulate this time around. So this package made IT look like, I think that they were just trying to get all of the ducks in order while they waited to see what might come next year when trumped his office.

Yeah, joe, I want to zero in on that point a bit more so we can piva a bit and talk about the U. S. And trumps win here. Trumps of course, talked about these significant tariff s on chinese goods. Um but how does that actually impact china's economy?

Are thinking broadly about trump policies. If he implements abroad decoupling with china, if he really tries to follow that through and he is able to do IT in terms of domestic U S. Policy, it'll have a an incredibly deep impact on china's economy.

China will have to try to get exports through other countries to the U. S. If that blocked, it'll need other places to export to in china is already doing that. The belt road initiative, that's all about creating new markets for for chinese products.

We're seeing a lot of chinese companies investing abroad and setting up factories in southeast asia and other places will probably also see china trying to mend ties with other trading partners around the world. I had a lot of tension with india, had a lot of tension with europe. We could start to see china working to repair that a little bit. So the impact of what trumps planning, if you actually does, that will be incredibly profound on china's economy.

So given all these restrictions that can be on the way, would you say that, that was a big factor and why they didn't go further with the fiscal stimulus?

So I think a lot of people think that they're waiting in beijing to see a little bit more what the next prompt administration will look like and and then they can implement the same this once they see what's coming towards them, they might have to be a very big stimulus if prop does everything he's talking about and probably they holding back some drive powder, getting ready.

嗯， one more, you know more.

One of the key dites, I think people will be looking for is around mid december when the chinese leadership pulls one of its principal economic meetings of the year um and at that meeting, people be looking for indications of how china plans to go forward with a stimulus. I think one thing is for sure, there will be more stimulus. There's no doubt about that.

It's just how big IT will be. We will probably see some more monetary stimulus that to keep going. The central banks promised that. Um but we should also see a little bit more physical stimulus s as well. And that could be money spent to help the property market, which hasn't completely stabilized yet. Certainly in the lower ty cities of china, property Prices are still way or falling, uh, and we should say something for consumers, but the consumer stuff could be more just ort of subsidies to buy home appliance is all things like this. I still might not be what the market looking for.

So recently SHE jumping s been criticize for focusing too much on global competition and specifically competing with the U. S. While kind of ignoring domestic issues. But given trump's election, I just wonder, could that global opposites taken for a few years actually help him more now in reaching, you know, that twenty thirty five growth target.

yeah, is sheep's being balancing security with economic growth for some time now, and critics would say, is been giving too much focus to security and not enough on economic growth. I think now there's a realization in china that without this you know a bigger role for the domestic economy.

They are very exposed to trade into exports and with Donald trump coming in um china is public be going to be forced in some ways um to become an economy that does have a bigger role for domestic demand. Does this fall impede she's goals of doubling per capital income by twenty thirty five? I think there's a lot of headwinds.

I mean, trump election is certainly gone to pose a massive chAllenge for that, and only time will tell whether china can come up with different ways of a new engines of growth to replace some of the trade didn't IT might lose with the U. S. And also, you know the loss of the property sector as a big growth engine.

Behind the money is hosted by me, mica genera safia f made is our producer sound design in mixing by C M G of vince o and Joseph salado. Special thanks to me, sir Franko. So for for has is our executive producer, shero.

Gramley is the global head of audio. Original music is by hand is Brown. Thanks for listening. See you next week.

Presented by black rock.

want to know what's happening in the markets on the bid, a podcast from black rock.

We break down what's .

happening in the world of .

we see in many that develop economies. People just don't have the adequacy of savings to live in retirement india, specifically in the united.

and explore the forces changing the economy and finance.

We've never had such fantastic align nant around public policy and a technological innovation that we see an infrastructure right now subscribed to .

the bid wherever you get your podcast.