China’s economy is going through a phase

Make Me Smart September 20, 2022 transcript

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Kimberly Adams: The irony though, like it’s almost as if this was designed for us.

Kai Ryssdal: No joke.

Kimberly Adams: I almost feel like we’re being trolled like someone makes it.

Kai Ryssdal: Well, dear listener, you will find out what we’re talking about in about 15, 20 minutes.

Kimberly Adams: Yeah. Hello, I’m Kimberly Adams. Welcome to Make Me Smart, where none of us is as smart as all of us.

Kai Ryssdal: I’m Kai Ryssdal. Tuesday today, a single topic on the podcast. It’s China today. Its standing in the global economy, its standing in global politics, what it means for everybody and everything on this planet. Because, honestly, that’s what it affects, that country does, truly. Although I guess we’ll let Jennifer figure that out. Sorry, I gave it away. Special guest.

Kimberly Adams: Special guest. It’s Jennifer Pak, our China correspondent here at Marketplace, who knows all of these things and is regularly making, personally me, smart about things in China. And if you don’t follow her on Instagram, you should be, because she has all sorts of cool things. And I’ll just get right to it. Welcome, Jennifer!

Jennifer Pak: Howdy.

Kimberly Adams: Howdy, you’re in LA this week. So fun time of staring at Kai across the table. How’s that going?

Kai Ryssdal: You said that like it’s a terrible thing. Give me a break.

Jennifer Pak: Oh, is it because it’s radio? I like it.

Kai Ryssdal: Yeah, it’s weird.

Kimberly Adams: All right. So Jennifer, what is happening with China’s economy right now?

Jennifer Pak: Well, it’s going through a really turbulent period, basically. And that’s from its own doing, and also for geopolitical reasons, in a nutshell.

Kai Ryssdal: Say more.

Jennifer Pak: Okay, so, for geopolitical reasons, of course, it’s just basically what everybody else is experiencing. You have the Ukraine war, so prices are going up. A lot of uncertainty. You have the US-China trade war – hello? Still going on? Still going on. So I mean, I mean, the manufacturers exporters that we’ve been speaking to, they would say, okay, we have held on for a very long time, so the people who couldn’t deal with the extra tariffs, they went away. The people who could, they muddled along, they split some of the extra costs between the – well, ultimately the consumer and themselves. But then came the Ukraine war. And then there were supply chain issues. So everybody’s reporting these astronomical fees for container ships, and the wait time. So think about like Shanghai, for example, when, in normal times, for example, a factory wants to do – this Japanese manufacturer, they wanted to do a short turnaround, they wanted to sample. So they imported some of the raw materials from Japan and Europe to China. And they basically then from Shanghai, moved it into inland to a factory for them to do a quick sample, move it back out to Japan so that they can inspect it. That normally took, I would say, a few days. And suddenly, because of the first few days of the lockdown in Shanghai, then suddenly that took two weeks, okay? And that’s, and because of the lockdown in the first week in Shanghai, they already missed the fall – yeah, they missed it. And they had no way of explaining to them. So there’s just utter uncertainty in the entire supply chain in the whole economy. I mean, if you talk to people now, the definition of success is surviving. It’s not revenue. Yeah. And so that’s for geopolitical reasons. Domestically, of course, as I sort of touched on is about the zero-tolerance-for-COVID policy, which means that at any point in time, whether you’ve caught COVID, or somebody you know has caught COVID, or maybe they were in contact with someone else who was also in touch with somebody else who might have been in touch with a COVID patient. You know, they might get locked down, you’re sealed in for 48 hours at a time. And then it depends on your local officials, they will go plus plus, you know, five days of monitoring or seven days or, you know, two weeks, and it’s just…

Kai Ryssdal: Sorry, let me just jump in here super quick. We were sitting in my office yesterday, chit chatting, and you said you think zero COVID goes on for another year.

Jennifer Pak: At least, at least. Because you know what’s happening now after the Shanghai and Xi’an lockdown, which were quite brutal in that, the scale and the amount of disruption to the internal logistics, in terms of like, say, basic necessities, food. They’re replicating that everywhere. Look what happened in Sanya, they did the exact same thing. They’re doing that in Tibet, and they’re doing that in Xinjiang. So every place is learning from, unfortunately, from Shanghai, and it’s not going to get any better because even though you’re coming out, nobody is looking normal. So in all of the mega cities, Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou as well, which is the high tech hub for Alibaba. Everybody has to test regularly. Best case scenario, every second day. In Shenzhen for a while it was 24 hours, that meant that they were testing twice a day. 5am in the morning when family said and then at like midnight, just so that they can – it was like a video game. It’s like you can extend your life and move about the city, you know, go take public transport, go into office buildings, go into the supermarket, which is why I myself have not done any of that since the lockdown officially sort of lifted in June. I’ve not walked into any shop, I have not gone into any supermarket, no shopping mall, I just don’t want to be traced and suddenly get caught in a lockdown. So, you know, clearly that’s where the consumer sentiment is coming from. Everyone’s just, you know, hanging on.

Kimberly Adams: But I mean, Jennifer, what you’re talking about here, you know, there’s the geopolitical stuff that is serious and a major effect on the Chinese economy, and I also imagine sort of just how people are feeling. But then layer on top of that the zero COVID policy, which, you know, you’ve definitely shared, has been exhausting and difficult and frustrating. And I have to imagine the rest of people in the country are feeling that way. Is Beijing worried about this and sort of how much strain the economy can take and the Chinese people can take?

Jennifer Pak: They definitely are worried. But how worried is the question, and how much pain can they take. So let’s go back to the beginning of why they started the zero tolerance for COVID policy. It started because they said they wanted to save lives. They saw what was happening in the US as well. And now it’s emboldened them, that they said, well, we can’t – the term they’re using is lie flat, “Tang Ping”, which is we can’t just do nothing. Because on the best days, the best of days, if I walk into a hospital in Shanghai, it is super overcrowded. It is chaotic on the best of days. So can you imagine even a very tiny percentage of people on COVID? Like, for example, in the early days, who would require respirators? I mean, it would just completely collapse the whole system. Add to that, that the medical system, the best resources are all located in Beijing and Shanghai, which is why you often see queues of people from all over the country waiting out there. What’s going to happen to the rest of the country if suddenly you let it rip through? Okay, now we come to Omicron. Okay, and there’s a fair percentage of people who are vaccinated, unfortunately, not the elderly people. So in the US, weirdly enough, in the US, and in the Western world, everybody vaccinated the most vulnerable population first, meaning the elderly. In China, they went the opposite, they vaccinated all of the young people first. So they didn’t force them, but your building, or maybe your work, said, okay, well, you have to – a certain percentage of people have to get vaccinated. So indirectly, people were forced to vaccinate or pressured into it. So actually, most of the young people are vaccinated. Now, it’s just left the people who are aged over 60. And more importantly, the people over the age of 80. Especially in Shanghai, it’s very, there’s a massive age population there. They’re the ones who are not taking it, and they’re the most rebellious ones. And, you know, they can’t, they can’t force them. And part of it is, you know, because they had controlled COVID so well beforehand, elderly people are saying, okay, well, chances of me catching COVID not so high, chances of me having an adverse reaction to this vaccine that I don’t know what is in it much higher. And the question then of course becomes, well, who’s going to pay for it? And medical bills are really expensive. So that’s, that’s sort of the distrust. It’s interesting that, for some reason, the Chinese Communist Party is much more comfortable in locking people into their homes, you know, caging them with barbed wire and making them feel like their animals trapped inside, you know, cut off the food supply, but not okay to force people to vaccinate the elderly. So I mean, back to your question about economic pain, yeah, there is going to be a tipping point. It doesn’t seem as if it’s happened yet.

Kai Ryssdal: Alright, so can we get away from COVID for a minute. We were talking also in my office yesterday about how American news consumers view and feel about China. So let me ask you the flip question, walking down the street in Shanghai or Beijing, assuming you can get out and talk to somebody. What’s the general impression of the United States over there right now?

Jennifer Pak: Either they don’t know, or there is a narrative being pushed by the Communist Party that America is in decline. This started probably since the 2008 financial crisis, when officials in China thought maybe all the reforms we’re doing should not be completely aligned and following the path of the US in terms of the financial system. And they thought, well, let’s go our own way. And if you look at 2008, there was a massive stimulus which sort of contributed to the current day problems. But you certainly didn’t see a lot of the problems that happened in the US. And so I remember, it was almost quite ridiculous, but it had rained in Beijing. And I remember, there were these trees, where – I don’t know what you call it, but they were like, you know, planted on the sidewalk, but there’s this little square around it… Right. Okay, so it accumulated some water. There were eight guys, six guys fishing out the water, like with shovels, and like two guys like on watch. And I thought, wow, that’s job creation.

Kai Ryssdal: Job creation, right? That’s exactly right.

Jennifer Pak: So that’s sort of like what they did. And then if you look at – during this pandemic, so Shanghai went through a crazy facelift. So people along the Suzhou Creek facing the Bund, you know, a very iconic Skyline there, along the street, every single building got a new fresh coat of paint, my building included because we’re in the former French concession, and roads were being fixed. And so it’s kind of like make work. So when you start hearing the drills, you kind of know, okay, well, you know, some activity’s going on. But that’s starting to pick up again, I think Shanghai is going to do that again. But in general, I would say that Chinese people have been hearing more. Every time there have been complaints about the zero COVID policy, the Chinese government then counters and says one million people or one plus million people died in the US, is this what you want? And, and that’s the fact that you can’t get away. It’s true, right? And so people would assume for a very long time that COVID was really bad. But gradually, of course, people, you know, they have relatives who are traveling to the US, they can see that you can move freely around. And there are people who are questioning like, well, I mean, Omicron, it’s not that, it’s not that bad. Why can’t we? And the other impression, by the way, of the US is that people in business, even if they deal with the US, their overriding thinking is that the origins of this tension between the two countries is really because America is on the decline, and it cannot take the fact that China is on the rise. That’s it. Yeah.

Kimberly Adams: But do you find that to be true based on what you’re seeing? And, you know, you just spent all this time talking about these sort of headwinds of the Chinese economy. But do you still see China on track to overtake the US as the top economic power in the world, which has been forecasted for a long time? And I guess it doesn’t matter if they do.

Jennifer Pak: I think it depends on what metric you’re looking at. The majority of the country still have not owned their first car yet. Okay? I mean, in the cities, yes. You hear GM, you hear Volkswagen, you hear Ford, they always talk about China is the biggest market. It is, but it’s in the mega cities of like 20 plus million or close to 20 million people, okay? But there are still people, including our news assistant, Charles Zhang. His family has not had their first car yet. I’m saying family, not him personally. So that’s an indication that there’s still a long way to go. So it would keep that in perspective. There is a group of people, especially in the cities, who are able to accumulate wealth, mostly through property, and then was able to kind of live a lifestyle that I think we can find comparable, if not even more expensive in the West.

Kai Ryssdal: So one last thing and then we’ll let you go, because honestly, we could go all down forever. Yeah. But you know, one of the things before the pandemic, the secret handshake in China obviously was, listen, we will let you get rich, we will have a capitalist economy, provided you surrender your political rights. And that kept the government happy, it kept the people happy, and that was kind of modus operandi. Still true, even now, two and a half years into a pandemic, where people have been shut in their homes for days and days and days and weeks and months?

Jennifer Pak: That’s an interesting question. I don’t have a definitive answer. Certainly, at this point in time, it doesn’t feel so and the people who, you know, especially small business owners, who basically have depleted their life savings over the last three years to try to keep their business alive, don’t think so. But I would say that right now, there’s no alternative to the Communist Party. So yeah. Okay, so that’s one. The second thing is that there is still a tacit trust of the government to, I guess, look out for their welfare. So if you look at, for example, housing, we’ve been talking about mortgage boycotts, remember?

Kai Ryssdal: Yeah yeah yeah.

Jennifer Pak: Okay. But do you know why they are boycotting and not defaulting, though? In the US, you would have just defaulted, right? I have no money –

Kai Ryssdal: You do a little…

Jennifer Pak: They are calling, they’re threatening a boycott, because they want the government to step in. And there is still this in so many investments, and in so many sectors, there is a tacit agreement or like an understanding from the public that if things really go awry, the government is going to step in and right the wrongs, right the ship, because they know, they know that the government is very worried about stability. And so they make some noise, rattle the cages, the officials are gonna step in. That used to always be true. The party now is starting to try to train people to think differently. There are risks when it comes to investments even when you buy a home. And so they’re trying to – I wouldn’t say it’s breaking it, but still just trying to train them.

Kai Ryssdal: Which I love, because they’re trying to do it after what, 75, 80 years of the Chinese Communist Party being in charge and taking care of everything.

Jennifer Pak: It’s tough.

Kai Ryssdal: Jennifer Pak is our correspondent in Shanghai. She is here with us today, on happy circumstance. It’s really good to have you.

Jennifer Pak: Thanks for having me. Thanks, guys.

Kai Ryssdal: All right.

Kimberly Adams: Jennifer knows just so many things.

Kai Ryssdal: I know, right? It’s crazy. She does. She does. Did it without notes. She brought a bunch of notes and didn’t look at them once. Just saying, just saying.

Kimberly Adams: She’s making us smarter. And let us know what y’all think. And if you have questions for Jennifer, I imagine we can shoot them her way as well. Our number is 508-827-6278 also known as 508-U-B-SMART. You can also send us a voice memo at makemesmart@marketplace.org. And we’ll be right back.

Kai Ryssdal: this midterm election stands to be one of the most important elections America’s ever had. Hi, I’m David plumb Brock, Obama’s campaign manager thrilled to be back with the new season of my free podcast campaign HQ. We’re gonna go deep into nine critical states in this election. I’ll speak with local experts, campaign managers and other senior campaign staff who don’t just have opinions about what is happening on the ground. They know because they’re in the arena, listen to campaign HQ, a presentation of cadence 13 Studios with me David Plouffe available now for free on the Odyssey app or wherever you listen to your podcast.

Kimberly Adams: Alright, news fixes! What you got, Kai?

Kai Ryssdal: So I got two, one is just a quickie to let everybody know that supply chain problems are not over. Ford Motor Company, that of the Big Blue Oval, said yesterday that supply chain problems are going to cause it a billion dollars in extra cost. Now, I should say that Ford says it’s still going to be able to make all its deliveries on time, that it’s working with its suppliers, but it’s just going to cost them a boatload more money. And that’s kind of a big problem when you’re a company as big as Ford, right? I mean, stock is down 11% today as I walked into the studio, and I just think everybody needs to understand that the pandemic is not over, despite what the President says. Sorry. Sorry.

Kimberly Adams: Yes. And for people who’ve missed this during an interview on 60 minutes, the president said the pandemic is over, which is not.

Kai Ryssdal: Literally he said the pandemic is over. Literally. He used those words.

Kimberly Adams: Yes, those words. And his team has been like backpedaling as quickly as they possibly can on that, because it is not over, hundreds of people are still dying per day. I imagined the sentiment he was getting at was this idea that the sort of severity and all encompassing nature of the response to COVID is waning. And whether or not that should be the case is something that’s debatable.

Kai Ryssdal: You’re exactly right. But when you’re the President of the United States, you don’t get to say, oh, you know what I meant, come on. Right? You don’t get to do that. Alright, so that’s my one.

Kimberly Adams: Actually, no, but we’ve talked about this before, about what the President can say, you know, changed forever because of Trump. We talked about this right after Biden got elected because we had this, all this time of Trump saying whatever he wanted, and people being like, ah well it’s just Trump talking, but still the President of the United States talking. Have we just sort of, you know? No. Maybe I’m self serving in my memory of this. But I remember being not at all forgiving him, Mr. Trump, when he would say ridiculous things. And he would say… Exactly. Not you specifically, but sort of the narrative.

Kai Ryssdal: Right. Okay, here’s my other one. It’s a little dorky, but bear with me, because welcome to my podcast. The number of the day today as I walked into the studio is 3.549%. That’s the yield on the 10-year treasury note, as of you know, 10 o’clock this morning, Los Angeles time on Tuesday. It’s the highest it’s been in – I think now 12 years for some context. The government could borrow money at half a percent in mere two years ago. It was 0.5% for 10 years. Today, the government wants to borrow, it’s gotta pay 3.6%. And look, this is what’s supposed to be happening as the Federal Reserve raises interest rates, right. But this is going to roll out into mortgage rates and car loans and credit cards. And oh, by the way, the $30 trillion that the United States government, and the people thereof, owe as well in the national debt. So just bonds and mortgages, I’m telling you, it’s a big deal. Tightening financial conditions. Sorry, I’m just geeky. But everybody needs to pay attention to that.

Kimberly Adams: Well, I mean, but it’s the world that we’re living in. And it’s sort of yet another economy, where if you have money, and you can put it in savings, not savings accounts, and so not really paying anything. But if you have money, and you can put it in like an I bond or something like that, or something that is earning interest, that is actually based on rising interest rates, you’re in great shape. But if you’re on the other side of the economy, where you’re paying those interest rates, not so good for you.

Kai Ryssdal: Exactly, exactly.

Kimberly Adams: So I also have to first check in on hurricane Fiona, which is still going, still causing so much damage, I was looking at – it says dropped 30 inches of rain in some parts of Puerto Rico.

Kai Ryssdal: Like less than a day, right? I mean, two and a half feet of water falling from the sky.

Kimberly Adams: Yeah. And now it’s going through Turks and Caicos, and it’s threatening the Bahamas, it already has been through the Dominican Republic. And, you know, the damage in Puerto Rico was awful. And so a lot of these places have, you know, not even the same kind of infrastructure that Puerto Rico does. And it’s going to be a lot of suffering. And this is the first storm of the year. And I remember earlier, we were talking about how it got a late start to the season. But wow, it certainly came back with a vengeance. So hopefully, you know, not as many people are injured or hurt. But we’ve already got a couple of deaths related to that. Um, my other one is checking on another story that we talked about last week, I guess? That a Texas sheriff has now opened an investigation into those flights of Venezuelan migrants that were sent by private plane from San Antonio to Martha’s Vineyard by Ron DeSantis. When that happened, a lot of people were wondering if this would count as human trafficking, you among them Kai, you know, it would be illegal for most of us to do that. And especially because several of the folks on those trips, those “trips”, said that they were told they were going someplace else, and that there would be resources and opportunities waiting for them. And so there is now an investigation, I should say, that the sheriff in Texas who is launching this investigation does happen to be an elected Democrat. But it will be very fascinating to see if there are any charges that actually stick here. And there’s a really interesting piece in Texas Monthly, looking at sort of the back and forth between Texas Governor Greg Abbott’s efforts about bussing migrants and Florida Governor Ron DeSantis’s efforts to also kind of send migrants from elsewhere, but the sort of escalating cruelty of this for the purposes of political statements and political theater. So, very thoughtful piece there.

Kai Ryssdal: Totally. All right. That’s the news. Yeah, let’s do the mailbag.

Kimberly Adams: Okay, some of you might have noticed that recently, we’ve, well, Bridget has bleeped Kai a few times here and there. We got this email from listener Alex. According to a recent article by WordTips, people on Twitter named Kai are the most profane on the platform. Bridget should therefore consider cutting Mr. Ryssdal some slack for his occasional potty mouth, since it is clearly the result of the societal, cultural and perhaps even economical pressures placed on the Kais of this world that the rest of us cannot begin to fathom.

Kai Ryssdal: It’s hard being me man. It’s crazy. It’s crazy. But here’s the flip side of that thing, right? So Kais swear the most, who swear the least? Kimberlys.

Kimberly Adams: It’s amazing, like we clicked on this link and I’m looking at this chart. So this website, which I know nothing about but it entertained me, it breaks down what’s the most popular swear word in each state, what day of the week people swear the most? It’s Tuesday. Events that trigger a lot of swearing online. But yeah, top 10 names in America that swear the most and the least. Top on the – what they say, whe top 10 sweariest names, which counts the tweets per 1000 with swearing, Kai. Top 10 least sweariest names, Kimberly. Kais have about 64 swear words per 1000 tweets. Kimberlys apparently have nine swear words – nine tweets with swear words per 1000 tweets. And I’m wondering how much of this is you Kai?

Kai Ryssdal: Well, no small part of it, right? No small part of it, is me.

Kimberly Adams: Like there’s not all that many Kais.

Kai Ryssdal: Oh, you mean like the overall statistic is me? Maybe, maybe.

Kimberly Adams: Yeah, how about you skewing the number?

Kai Ryssdal: That’s fair. That’s fair. I don’t know. Man. Let’s move along, shall we? We talked about a possible beer shortage, not the other day, yesterday. All right. Matt called in with a potential solution.

Matt: Hi, Kimberly and Kai. I can’t believe that I’m even saying this. And I’m grossing myself out as I do. But if they’re able to make beer, they just can’t put fizz into it, couldn’t they just sell it as like unfizzed beer for all these people who like, I don’t know, bought soda streams in the early aughts and like have them collecting dust in their basements or whatever? Because like, isn’t that just what it does? I don’t know. I’m not a scientist. I’m just thinking, maybe this is actually like a golden market opportunity. Maybe.

Kimberly Adams: It sounds logical on its face. Is that how beer works?

Kai Ryssdal: No. See, the way beer works is that the fermentation process and the process of brewing lead to the carbonation, lead to the the bubbles in the beer, as opposed to soda where the carbon dioxide is added to the mix.

Kimberly Adams: So then why does the CO2 shortage even matter for beer if it’s part of the fermentation process to begin with?

Kai Ryssdal: Maybe there’s some – oh God, here’s, here’s a word. You’re ready? Maybe there’s a Cicerone out there who can explain it? To me Cicerone is like a sommelier except for beer, who can explain it to us.

Kimberly Adams: Yeah, someone out there make us smart on beer. Maybe we need a deep dive on beer. Because I don’t know much about it. I know it’s very important to you. So.

Kai Ryssdal: Yes, I appreciate that.

Kimberly Adams: Yeah. Okay. Before we go, we’re gonna leave you with this week’s answer to the make me smart question, which is what is something you thought you knew, but later found out you were wrong about?

Tamra: This is Tamra from Colorado, I thought that utilities entirely made their money off of the commodities that they sell, whether it be electricity or water or internet or natural gas. And I recently found employment at a wonderful utility here in Colorado and found out that I was completely wrong. Utilities actually just make their money off of the infrastructure that they put into or on top of the ground. Anyway, love the show. Thanks for making making me smart! Bye.

Kai Ryssdal: So we should explain this a little bit right? So the products that utilities provide, generally speaking, are provided at costs to consumers but what their profit comes from is the infrastructure, whether it’s the wires the pipes or whatever, so that when they bill, they can bill to recoup the costs plus profit of the infrastructure. And the water and all that jazz is a small portion of the equation. So that’s how that works out.

Kimberly Adams: So what, they’re just like renting to us use of these, you know, poles and things?

Kai Ryssdal: In essence, right? In essence.

Kimberly Adams: Ha. Yeah, I didn’t know that either. Thanks.

Kai Ryssdal: That’s why we call this podcast make me smart, people. And you can send us your answer to the make me smart question via voice memo to our email at makemesmart@marketplace.org or leave us just plain old message 508-827-6278. 508-U-B-SMART. Make Me Smart is directed and produced by Marissa Cabrera. Our intern is Olivia Zhao. Ellen Rolfes writes our newsletter. Today’s program is engineered by Jayk Cherry. Mingxin Qiguan is going to mix it down later. Ben Tolliday and Daniel Ramirez composed our theme music.

Kimberly Adams: The senior producer is Bridget Bodnar. Donna Tam is the Director of On Demand. And Francesca Levy is the Executive Director of Digital. Marketplace’s Vice President and General Manager is Neil Scarborough. I think I wonder if there’s just – Kimberly is such a common name.

Kai Ryssdal: That could be the other part of it, right. If I’m disproportionately represented…

Kimberly Adams: Yeah. Not that I swear online much. Ever. Actually, ever.

Kai Ryssdal: Yeah well I think you are much more, decorous, shall we say.

Kimberly Adams: Or much more aware of the response that I will get if I swear online versus the response that you’ll get if you swear online.