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How China’s middle-class belt-tightening will impact the world
This episode explores the implications of China's middle-class consumers tightening their belts amidst economic downturns. As spending habits shift towards cost-effectiveness, the ripple effects ...
How China’s middle-class belt-tightening will impact the world
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Interactive Transcript
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妳知真來了
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我已經替妳開始
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這是補兆的
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日本人卻也是
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禁妳的姦牙
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但她以為不是
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你也可以說
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你為什麼看了妳跟你跟姦牙說
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比較好
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抓起ilen Rome 連日以来 Wu Ma Myfts
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有你很厉害?
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那一刻的一切
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是因为
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林郑的杰
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他在一个15000林郑在五个月
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他罚了一万一万
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他在30万一万的罚了
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毕竟
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《 State Broadcaster CCTV》
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发布了一篇
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《星期日》的绿绿
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starting with consumers
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作为unk Spin Mire
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但是这クリーム
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renters upset so many Chinese consumers
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这是太多虽适制免任的
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跟冠军电视身的
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资合assed by the news
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是南南 China
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I'm Thomas Yao
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我视频的 owners vend CNN
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是Gang Yadeng
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一个 consumer analysis
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乌鱼着在北南南 China
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YellingFans were speaking with us,
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What is the general mood among Chinese consumers
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given all the news about an economic downturn
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and downgrade the consumption?
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So, what consumption downgrade,
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I think what essentially means is that people
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have become more valued driven.
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They focus more on cost effectiveness.
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Some of my friends were saying that they deleted
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the tabo and Timor and they only buy
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a Pinduoduo now,
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because it truly saves the money.
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And a lot of these friends
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who have conversations with our middle class consumers.
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Well, for context,
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Alibaba's Timor is sort of like Amazon in China.
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And just to note,
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Alibaba is also the owner of the South China Morning Post.
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Pinduoduo is the wild west of online shopping platforms
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where you can buy an 85-inch TV for $150 USD.
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Of course, the reliability of a TV
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at that price range is another story.
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Customer decision journey has become a lot longer.
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So when it comes to durability, price comparison,
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performance of the products they want to buy.
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I think such behavior changes happen
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not only because of sentiment,
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not only because they think saving money is cool,
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but because they really don't have much money
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or have a lot less money than before.
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But what is it like to be in the middle of things?
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I spoke with Yvonne,
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who joined one of China's tech giants in 2017.
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When these companies were known for their
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ex-Chefigan sales events and generous packages,
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she requested anonymity
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because she was not authorized
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to discuss internal company matters.
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Hi, Yvonne, can you recall what it was like
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when you first joined the tech company?
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I feel like this group has a little bit of a wind.
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This is quite out of control.
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Everyone wanted to create a team
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because this was the fastest way to be promoted.
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I remember part of my package includes stock options.
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And the HR officer told me that the value
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will only go up.
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In the skyrocketed,
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I knew people who cashed in their stock options
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and bought an apartment without needing a mortgage.
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At the time, I didn't know if that was normal.
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Like all parties,
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the music eventually stopped.
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Chinese authorities initiated a regulatory storm
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targeting the country's big-tech firms in late 2020,
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that in concerns that the major internet platforms
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were becoming too large and powerful.
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Authorities halted IPO's launched
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anti-trust investigations
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and find these tech companies
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for data security and anti-competition violations.
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Chinese tech companies,
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which once rivaled their foreign counterparts
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in market capitalization,
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saw their share prices plummet.
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Yvonne, so what is it like to work in the tech sector now?
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現在的表演
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Work has become sort of a performance.
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Everyone just pretends that they're busy working.
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But I know you're not working
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and you know that I'm not working.
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Everyone knows everyone is not working.
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But the performance has to go on.
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You and the Jiaqi,
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the lipstick king are in the same business.
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Why do you think that he was in so much trouble
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over his remarks?
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Because at that time,
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the data was not working.
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I think it's remarks represented ethos from the past,
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which is that hard work guarantees success.
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In his case, he worked his way up
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from a salesperson in a department store
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to become an internet star.
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But once a lot of people realized
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that making a living is not that easy,
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his words became hard to accept.
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And how has your consumption
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evolved over the years?
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When I was not pressured by economic realities like I am today,
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I was a person who impulsively bought a lot of stuff
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that I didn't really need.
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I had a mentality that I deserve better,
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which translated into buying premium items.
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Nowadays, it's a different story.
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I would wait for a big sale,
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and there's also a lot of soul searching
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when it comes to consumption.
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Do I really need this thing?
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Or do I buy it because society makes me feel like I need this?
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Is it accurate to say that external factors
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push these changes in you?
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I think it's okay.
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Yes, exactly.
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I would say external factors matter.
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And I'm also at a different live stage,
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now that I'm married.
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China's consumer price index in April 2024
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grew by just 0.1%.
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Meaning people are not eager to span
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and there's an oversupply of goods.
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To survive, many Chinese companies
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are eyeing overseas markets to sell their products,
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such as lithium batteries, solar panels,
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and electric cars.
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And that makes developed markets
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like the United States and the European Union
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quite nervous.
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China wants to use manufacturing
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as the way out of its slowdown.
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That means that the China share of global manufacturing
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must grow twice as quickly as its share of global GDP
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and more than three times as quickly
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as its share of global consumption.
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There was Michael Pettis,
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professor of finance at Peking University,
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who has long been arguing that China's economic model
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suffers from an over-reliance
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on investment, driven growth,
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while at the domestic consumption.
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That means for it to be successful,
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the rest of the world has to agree
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to increase consumption and reduce manufacturing.
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Even if there were no geopolitical tensions,
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the rest of the world would refuse to do that.
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But given how tense the geopolitical environment is,
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it's very clear that that's not going to happen.
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The US is already expanding its manufacturing share.
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So is Japan.
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India has made it very clear that they will not accept
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a reduction in their manufacturing share.
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By now, most economists, not all,
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but most serious economists agree
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that China must raise the consumption share of GDP
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by raising the household income share.
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Which is if you raise the household share,
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you must reduce the share either of businesses
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or of the government.
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It shouldn't be businesses.
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So ultimately, it must be a reduction
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in the government share.
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And in China, as you know,
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there are basically two governments.
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There's the central government
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and there are the local governments.
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And so I think the real discussion,
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which is not really being held yet,
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is which government will it be Beijing
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or will it be the local governments
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that pay for the increase in the household share of income?
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So Professor, one of the possible outcomes
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of this economic debacle.
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Technically, there's three scenarios.
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So rebalancing means that for the next few years
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or next few decades, consumption has to grow faster
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than GDP and investment has to grow slower than GDP.
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One way that could happen is the good way,
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which has never happened in history,
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but it could happen.
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That is that China implements policies
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that drive up the growth and consumption
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to something like 7%.
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And this would allow them to bring the growth
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and investment down to one or two percent
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and still have GDP growth of over 4%.
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Could they do this?
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Yes, if they transferred about one to two percent
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of GDP every year from local governments
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to the household sector, they could do this.
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So what's the second way?
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The second way of adjusting is the way Japan adjusted
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and that is that consumption growth drops a little bit
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but investment growth drops a lot
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and GDP growth drops a lot.
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So in that scenario, consumption growth in China
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could continue at 4% to year.
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Investment growth would drop to maybe zero
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or even negative, but GDP growth would drop
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to around 2% or less a year.
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The first scenario would be the third form of adjustment
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is sort of the way the US adjusted in the 1930s
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and that is very quickly and very brutally.
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The US in the first three years of the decade saw GDP
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contract by 35%.
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So you talk about transferring income
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from local governments to households
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and we are on a tier, how can we do that?
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There are many ways they can do that.
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So for example, local governments
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can improve the social security,
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can improve the pension system,
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can provide cheap housing.
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These are all ways of taking resources
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from the local government
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to increase the wealth and income of the household sector.
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But aren't the local governments not doing so great financially?
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I mean, some of them are having problems
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paying local civil servants.
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From a cash flow point of view, yes,
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they're in serious trouble
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because they relied so heavily on the real estate sector
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as an alternative for taxes.
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But don't forget local governments own a lot of assets.
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The poster child of bankrupt local governments
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is Guijou and Guijou owns many things
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including their own Mao Tai,
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one of the most valuable companies in China.
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And so the question is,
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do local governments need to own all of these assets?
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No, in most countries,
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governments don't own so many assets.
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Can those assets be transferred directly or indirectly
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to the household sector to boost household income
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in principle, yes, politically very difficult to do?
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So what should ordinary people do in such uncertainties?
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Well, the problem is that what's best for ordinary people
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is not best for the economy.
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What's best for ordinary people is to be cautious
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and to increase their savings.
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But if everyone increases their savings
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that reduces demand and so the whole economy slows down,
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and in the end nobody has any moral savings.
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So it's very tough.
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This is why policy is so important.
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Depending on what policies are Beijing implements,
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we could see very, very different outcomes.
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But trade war and geopolitical tensions aside
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for ordinary people like Yvonne,
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fighting clarity and certainty in such trying times
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is the key to staying sane.
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Yvonne, you were telling me that you fell away
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to which yourself of anxiety and depression.
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Can you tell me why these emotions are coming among your peers?
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I think it is the disappearance of certainties
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and a sense of achievements,
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which are brought by a weak economy.
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Lots of my friends are feeling depressed and anxious
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and it has sort of become a trend among the middle class.
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I've tried to cope with this by starting my own podcast
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to talk about random things in life.
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I produce one episode every week
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through producing a program I can build a routine.
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And through that routine,
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I can find a bit of certainty in my life
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and that's how you build a positive feedback loop.
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I think Chinese people are very resilient
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and heartworking just like me.
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I believe that they can find a way to heal themselves
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and keep going.
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Whether it is China's young professional tightening their belts
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or for needless crying foul of a China's alleged
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of a capacity problem,
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how the world's second largest economy deals with a slowdown
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who have huge consequences on its domestic economic health,
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its international relationships
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and individual Chinese people's choices.
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Remember you can keep up to date on China's economy
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and more at snp.com.
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I'm Thomas Yao.
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Thank you for listening.