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China's COVID lockdowns made its people depressed and hurt its economy
China’s economy keeps slowing down, and that could be a problem for the rest of the world.
On GZERO World, Shaun Rein, founder and managing director of the China Market Research Group, sits down with Ian Bremmer to explain why he’s become bearish on China’s economic outlook.
2023 was supposed to be the year China’s economy came roaring back after almost three years of brutal zero-COVID lockdowns that ground domestic spending and production to a halt. But Rein points to a few reasons why China’s rebound hasn’t exploded the way some economists predicted.
“I think people underestimated how much the lingering effects, not just economically but physiologically, that [zero-COVID] would have on China,” Rein says, pointing out that 50% of people in Shanghai suffer from anxiety and depression, according to the government.
Rein argues that because income levels in 2022 stayed so low, with millions of Chinese locked down and furloughed from their jobs, the revenge spending expected after zero-COVID ended never materialized. He also says that an increasingly hostile geopolitical environment under the Biden administration has made COVID recovery even more challenging.
Watch the GZERO World episode: China’s economy in trouble
And watch GZERO World with Ian Bremmer every week on gzeromedia.com/gzeroworld and on US public television. Check local listings.
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China’s economy in trouble
China’s economy has averaged about 10% annual growth year over year for the past four decades. It’s undoubtedly the biggest economic success story of our lifetime, but how long can that last?
Shaun Rein, founder and managing director of the Shanghai-based China Market Research Group, sits down with Ian Bremmer on GZERO World to talk China's post-COVID recovery, Xi's crackdown on the private sector, and why the last year has turned him from a bull to a bear on China's economic outlook.
Annual GDP growth has been on a relative decline since 2010, barring a big jump coming out of the pandemic. Decades of infrastructure investment have left local governments drowning in debt. Almost three years of zero-COVID politics ground China’s economy to a halt. Youth unemployment is surging to record highs and expected to keep climbing.
At the same time, President Xi Jinping is moving China away from the pro-investment policies of his predecessors in favor of ideological and national security priorities. But public support for China’s Communist Party is starting to show cracks, especially among citizens in wealthy cities who experienced the brunt of China’s brutal zero-COVID policies.
Can communist ideology mixed with capitalist ambition sustain growth into the future? Is Xi setting up China for another 4 decades of economic success? And what do China’s citizens make of its return to socialist roots?
Watch GZERO World with Ian Bremmer every week at gzeromedia.com/gzeroworld or on US public television. Check local listings.
- China flirts with deflation. Why is that a bad thing? ›
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Podcast: China's great economic slowdown
Listen: China is undoubtedly the biggest economic success story of our lifetime.
Between 1978 and 2017, China averaged almost 10% year-over-year GDP growth. Decades of pro-investment policies transformed China from a closed, centrally-planned economy to an economic powerhouse that could rival the US.
But in the last decade, Chinese President Xi Jinping has been moving the country back to its socialist roots, with major crackdowns in tech, real estate, and foreign investment. Xi’s vision is one of almost total state control, where businesses conform to the goals of the Chinese Communist Party, not the other way around.
Can communist ideology mixed with capitalist ambition sustain growth into the future? Is Xi setting up China for another four decades of economic success? And what do China’s citizens make of its return to socialist roots?
To discuss all that and more on the GZERO World podcast, Ian Bremmer sits down with Shaun Rein, Founder and Managing Director of the China Market Research Group, based in Shanghai.
TRANSCRIPT: China's great economic slowdown
Shaun Rein:
The Chinese people and the Chinese government feel that Joe Biden and the Biden administration are trying to contain China's growth, destabilize the Party and maybe push for regime change.
Ian Bremmer:
Hello and welcome to the GZERO World Podcast. This is where you'll find extended versions of my interviews on public television. I'm Ian Bremmer, and today we are looking at China's post Covid recovery and its economic path forward.
China is the biggest economic success story of our lifetimes, but how long can that last? Decades of infrastructure investment have local governments drowning in debt. Almost three years of Zero Covid policies have sapped domestic spending and production and youth unemployment is at record highs. At the same time. President Xi Jinping is moving China away from the pro investment policies that fueled the last 40 years of almost 10% annual GDP growth in favor of ideological and national security priorities. So is President Xi setting up China for another four decades of runaway economic success or does what goes up have to eventually come down? And what did China's citizens make of its return to socialist roots? Joining me today for the perspective from inside China is Shaun Rein, founder and managing director of the China Market Research Group. Let's get to it.
Announcer:
The GZERO World Podcast is brought to you by our lead sponsor Prologis. Prologis helps businesses across the globe scale their supply chains with an expansive portfolio of logistics real estate, and the only end-to-end solutions platform addressing the critical initiatives of global logistics today. Learn more at prologis.com.
Ian Bremmer:
Shaun Rein, thanks so much for joining us.
Shaun Rein:
Thanks for having me, Ian, on my first trip back to the United States in four years.
Ian Bremmer:
In four years, and you've lived in China now for some 25 years.
Shaun Rein:
For most of the last 25 years I've been living in China. I'm actually born and raised in Concord, New Hampshire, but around the mid-nineties, I went to China to study at Nankai University and I found that I loved what was happening on the ground. There was this electric optimism when I was interviewing and happenings there that wasn't properly being reflected in the New York Times and in the Wall Street Journal. So I thought I wanted to go to graduate school, focus on Chinese studies and learn as much as I could about the country from a sociological or anthropological view, and then I ended up just living there the last 25 years.
Ian Bremmer:
We want to talk a lot about China, but I first want to ask because it's going to come up. So Bloomberg has banned you, right? But yet CNBC, no problem. You've had a book of yours not published in China. How do you navigate someone who's from the US, living now for a long time in China, dealing with an incredibly politicized environment?
Shaun Rein:
That's a great question, Ian. So actually I've written three books on China and all three of them have been banned for sale in China. Yet at the same time, many Western media outlets think that I am a tool of the Chinese government, and so they ban me. So as you said, Bloomberg has officially banned me because they said I'm too pro-China in my analysis. But I actually don't think I am. So I think I'm fairly balanced. If you look at all of my writings, I will say what's good about China. So for instance, the Chinese government has uplifted eight hundred million people out of poverty over the last 40 years, and they've done a really good job at I think, empowering females, which is why you see females are the ones who are leading a lot of the sales in China for companies like Starbucks or Louis Vuitton. But at the same time, I'm willing to be critical.
Ian Bremmer:
Think about one of the books that you wrote. When you're writing one of these books, do you think to yourself, I know that because I'm writing this, this is not going to get published in China?
Shaun Rein:
Yeah, absolutely.
Ian Bremmer:
Give me an example.
Shaun Rein:
So my first book, The End of Cheap China, I talked about how there was a lot of local government corruption that was protecting the Red Light district. And so there was a lot of prostitution in China in the late 1990s, two thousands. I think it was very hard to get a good job. It was really hard, especially for females so they were selling their bodies. And so I wrote about this and I said, even though the central government is trying to crack down on this, and even though the government is trying to empower females, it's not happening right now because of local government corruption. Now that's a no-no. You can't say anything like that.
Ian Bremmer:
Even though you're saying nice things about the central government,
Shaun Rein:
You can't say anything negative about China sometimes when you're writing. And so I was saying that local government corruption was a problem. I'll give another example. I recently went out and did a film documentary with Xinhua News, and I went to Tibet, which is a Chinese state media outlet, and I interviewed this probably about a 30-year-old Tibetan. And he said to me, "Shaun, my life when I was young was terrible. I couldn't get food. I couldn't buy good products. But now life is great because of the Party." And he actually said, "Because of the Party, life is good. I can now buy Adidas sports apparel and I can eat whatever I want." That scene was cut from the Xinhua newsroom.
Ian Bremmer:
Because?
Shaun Rein:
Why? Because they said in the 1990s he was saying Tibet was poor. And at that point, Tibet had already become part of mainland China under Communist Party rule, and some of the censors were scared that it would reflect badly on leaders from the 1990s saying Tibet was too poor at the time.
Ian Bremmer:
So it's funny, I did a show recently talking with a former congresswoman Jane Harman about how too many things in the United States get classified because the sensors themselves, people that want to put top secret classifications in the US are overzealous. What I'm hearing from you is that sensors in China are massively overzealous.
Shaun Rein:
And I think it tends to be very often not directed by the senior government officials. It's often done by mid-level bureaucrats who are scared of their jobs. So back to The End of Cheap China, I actually gave that book to a lot of senior leaders in Zhongnanhai, they loved the book because it was telling the truth about China. It was saying that there is local government corruption, but the central government's doing a good job.
What I found, the more senior you go in China, the more they want the truth. They want the unvarnished state of what's happening. Now, my book was banned from probably some mid-level bureaucrat who is petrified of losing his job if he approved the book and it turned into a scandal and he would be held accountable. So that's one of the problems that goes on in China because of the one Party system is that the bureaucracy is scared about making mistakes. So they often are ultra conservative. They play the safe game, and so things don't always move in the right direction.
Ian Bremmer:
Let's think about Zero Covid, right? So you had Zero Covid and then suddenly you went to, everyone gets Covid for a short period of time. At that point, once it came from on high, that Zero Covid we're done with that, was it then okay for you to criticize Zero Covid or not? Inside China.
Shaun Rein:
You're still not supposed to criticize Zero Covid. So the way to get around that is by criticizing the implementation of Zero Covid. So you can say Xi Jinping and the Communist Party did a great job with Zero Covid. It saved lives, okay? People didn't die like you saw the numbers in India or in the United States, and it became a real ideological battle. You saw the state owned media in 2020 and 2021 said "A communist system is far superior to a democracy at stopping a pandemic." But the way to make a criticism is to say you're respectful of the government, but the implementation of Zero Covid wasn't good and blame that on local government officials. So last year I was locked down for three months in my home in Shanghai and the first two -
Ian Bremmer:
And we saw a lot of videos from Shanghai. People were really fed up of this.
Shaun Rein:
People were angry. I mean, I couldn't buy food for the first two, three weeks of the lockdown. And so a lot of Shanghainese would say, "Okay, if you want to lock us down to protect the greater good and not have Covid spread throughout the country, we accept that, but you have to be able to get food for us. What happens if we get sick?" And there's all kinds of instances of Shanghainese getting a heart attack or some other illness, and they're unable to get to a hospital on time because they didn't have-
Ian Bremmer:
This is the wealthiest city in China. This is the shining jewel. If you could do it anywhere you could do in China.
Shaun Rein:
It's the most international city. Shanghainese have always been proud that this is the greatest city in the world. This is how Shanghainese view it. And last year people were dying because they couldn't get to the doctors. So how do you criticize? You can say local government officials are doing a bad job and they need to be held accountable. And then you say, please, Beijing, you petition Beijing, you go on video and you say, Beijing, please step in and help us. And that's what people did. They said, "Vice Premier Sun Chunlan, please come to Shanghai and solve everything." And so she came and things did get better. So you're allowed to criticize you just can't try to criticize the central government too much and push for an overthrow of the Communist Party.
Ian Bremmer:
That's not surprising in an authoritarian state. Now, on the other side, Bloomberg banning you, CNBC, fine. I don't usually think of those two as politically different in the United States or in the West. Do you have any understanding or views or have you heard from them why one decided to keep you on and the other didn't?
Shaun Rein:
Bloomberg used to be the gold standard. So I actually started my writing career at Business Week, which was acquired by Bloomberg, and I was quoted by Bloomberg Monthly for over a decade. And I was even talking with Bloomberg West about having a weekly appearance, and then suddenly I stopped getting calls. And so I asked some of my friends who had been quoting me for years, and they said that they had a new editor for Asia who said that I was considered too pro-China. And so I think over the last five, six years, Bloomberg has become less nuanced in their analysis of China. Frankly, as somebody who lives in China, I feel that a lot of their reporters don't speak the language, are not based in China, and they've taken a fairly negative view of China over the last five, six years. CNBC, on the other hand, A, they like that Bloomberg has banned me because they have my voice and they feel that I'm more objective because I'm not a partisan.
I'm not a member of the Communist Party. I'm not a Republican, I'm not a Democrat. I'm just a businessman who's using data to make analysis of what's happening in the economy. And I think CNBC welcomes that. Ty Matheson, one of the anchors for CNBC heard that I was in the United States. He called me up and he goes, "We need to bring you over because we want to hear a different view of what's happening on the ground in China than maybe what we're getting from China experts based in the United States."
Ian Bremmer:
That's so interesting. I mean, it could be the equivalent of your local censors in the sense that, I mean, Mike Bloomberg goes to China all the time. He's considered one of the more pro-engagement figures out there. The New Economy Forum, I mean, I was there when they had it in Beijing, all this kind of stuff. So it was really interesting to me when I found out, given who you are and what you do, that of the two, that Bloomberg was the one that decided to take you off.
Shaun Rein:
It was surprising to me. But I also think that over the last five, six years, Bloomberg has had less access in China, and some of the state-owned banks are not using their terminals as much. I think they got into some political trouble because they wrote about corruption of some of the big elite families, and that came out, I can't remember the exact date, but about six, seven years ago. And after that, they started to get more political pressure while CNBC really has a very small footprint on mainland China actually. So most of their stuff is done from Hong Kong and Singapore.
Ian Bremmer:
Over the course of the last few years, you have gone from being one of the most noteworthy bulls on China and their expectations for economic growth to frankly one of the more pessimistic viewers of where China is going economically. Why the pivot?
Shaun Rein:
So I think there are a couple of things. I mean, we've known each other for about 10 years now, and I've always been one of China's biggest bulls for 25 years. But starting really early March of 2022, I started to become more negative on the economy.
Ian Bremmer:
It's the middle of Covid.
Shaun Rein:
Middle of Covid, right when Shanghai locked down. I think people underestimated how much the lingering effects not just economically, but psychologically that lockdown would have on China, and I was right. So right now, about 50% of Shanghainese, according to the Chinese government, are suffering from anxiety and depression. So that's hurting consumer confidence. That's why you see there wasn't the revenge shopping in January and February after China opened its borders and ended Zero Covid. So Goldman Sachs, JP Morgan, they were very critical of me because they said China's going to have revenge spending.
Ian Bremmer:
Well, they've been bullish of what they expect coming out of the pandemic, really a strong V-shaped recovery for China.
Shaun Rein:
They said a V-shaped, and I said, there wouldn't be, and they were critical of me. And there are three reasons why I thought China's economy was weak and why I'm a bear right now. The first is the income levels in 2022 were low. So many Chinese, if not most Chinese actually had their salaries cut. There was a lot of unpaid furloughs. There were times where three, four hundred million Chinese were actually locked down in their homes because of Zero Covid. So no business was done.
So after the borders opened and after we were allowed to go outside again, a lot of consumers said, "We don't have money. We haven't had the stimulus the United States had over the previous three years." China's government really didn't loosen monetary policy. So they said, "Let's save for what rainy day." But there's two bigger issues, Ian. The second issue is geopolitics. I think at the end of the day, the Chinese people and the Chinese government feel that Joe Biden and the Biden administration, I think some people in China will call it the regime, are trying to contain China's growth, destabilize the Party, and maybe push for regime change.
Ian Bremmer:
Here you're talking about semiconductors, cloud computing, 5G, that sort of thing.
Shaun Rein:
Exactly. So when the Chinese get good at something, so when the Chinese get good at 5G and Telecom, like they were with Huawei, all of a sudden the United States says, "This is a national security risk. We need to ban Huawei from," not just the United States, but they need to coerce European nations like the United Kingdom or the Dutch or the Australians, not to use Huawei Telecom equipment. When the Chinese get good in mobile apps like Temu or Shine or TikTok, which is really popular in the United States, members of Congress try to ban that and say it's a national security risk.
Ian Bremmer:
When you say that. Now of course, American social media apps like Facebook and Twitter can't have access to China. I mean, the Chinese don't see that as reciprocity in some way?
Shaun Rein:
Not really, because there's a slight difference, and it's very fine line. So Facebook and Twitter could have been allowed in China is what the Chinese government says if they followed Chinese government rules and house all of the data in China and allowed the Chinese government access as needed. And so that's why LinkedIn until very recently was fully allowed in China and was very active. And actually Microsoft made the decision to close LinkedIn in China. It wasn't from the Chinese government. When it comes to TikTok. It's no matter what TikTok does, simply because it's Chinese, simply because China is run by the Communist Party, it's automatically guilty until proven innocent.
Ian Bremmer:
And yet it's like the most popular app still among American teenagers right now in the social space.
Shaun Rein:
Yes because-
Ian Bremmer:
It's rhetoric but they're still making a lot of money.
Shaun Rein:
They're making a lot of money but the question is that there's a Sword of Damocles that's hanging over TikTok and all Chinese apps, and so they're saying, "Do we actually want to invest in the United States right now?" The reality is not. If you look at it, the investment from China into the US has dropped about 95% over the last five years.
Ian Bremmer:
So what I'm hearing from you is not so much that the United States is unfair in its treatment to China as much as there is no trust in this relationship. Because for everything you just said, the Americans would say that for them, the Sword of Damocles is hanging over them because they don't have access to an independent judiciary and Minth Group would suddenly get raided, or Bain would suddenly get raided or they can suddenly be shut down. So it feels to me like there's literally no trust in this relationship between the two most important economies of the world.
Shaun Rein:
Yeah, there's no trust and there's very little communication right now. So I mean, I was talking to one of my good friends who was a deputy secretary, and he's very pro-China in many ways, an American one, and he was a former US ambassador. And he said, "The problem right now, Shaun, is I don't know who to talk to in China, and I don't even know if I can get access to that type of person." So I think over the last five years you had a fraying of relations. There was a lack of people exchanges and just no trust starting from the Trump administration but then it really went downhill under Biden. I think part of that was accelerated by Covid because of Zero Covid -
Ian Bremmer:
No connections, no travel, nothing.
Shaun Rein:
None of the top seven members of the Standing Committee of the Politburo of China left for three full years. Han Zheng, who's now the vice president, he left basically the day Zero Covid ended, and China has been doing a charm offensive over the last six months. So after Xi Jinping was named chairman for a third term, his first meeting was with the president of Vietnam. He also met with the president of Pakistan, and he actually traveled to Saudi Arabia for the GCC to try to improve relations with the Middle East. So what you've seen is China has launched a massive, massive charm offensive to Europe, to the Middle East, to Asia and Africa, and really focused on the global south over the last six months. But they've been very hesitant to try to forge relations with the United States again, and that's one of the reasons why consumer confidence, why business confidence is so low right now in China and while the economy is really in a very negative state.
Ian Bremmer:
So you talked about Chinese consumption not rebounding as quickly as we expected. We talked about geopolitics at the high level, particularly the US, the G7, advanced industrial economies being problematic headwinds there. You said there were three, what's the third?
Shaun Rein:
The third one is a little bit more sensitive. I think part of the problem is people have trusted the Chinese government to do the right thing. It was almost, they were invincible. For the first 25 years of my life in China, whenever there was a problem, the everyday peasant would say, "Don't worry, the Party will fix things."
Ian Bremmer:
You have 40 years of 10% growth on average, you can say that.
Shaun Rein:
They did a great job. You have to give them credit. But Zero Covid wasn't done well. And so a lot of people, especially those who are from Shanghai, especially the wealthy in Shanghai, suffered the most during Zero Covid. So they're starting to lose some of their support for the Party and certain members because they feel that, A, the government didn't do a good job of implementation. And second, there's also a fear that China is moving towards socialism. So they fear that China's not pro-business like it has been in the last 20 years. They see that Jack Ma is no longer in charge of Alibaba, which is one of the giant internet companies in the country, and was actually kind of forced to split into six different companies.
Ian Bremmer:
He was kind of seen as a hero by a lot of young Chinese.
Shaun Rein:
Oh, he was a rockstar. People in China love Jack Ma. You need to think of him as Elon Musk, Warren Buffett, Bill Gates, and Steve Jobs all wrapped into one. So he was the person that every young person in China wanted to be for the last 20 years. Someone who was able to rise as a peasant, make a lot of money. He's really popular, but he was taken down in large part because his company truthfully became too powerful. It started to pose a lot of systemic threats.
Ian Bremmer:
Who could have been too powerful against the Americans? I mean, you'd think that a confident Chinese leadership with a leader like Xi Jinping who gets rid of term limits, I mean, he is there for life, he's consolidated all of the leaders around him that are loyal. Wouldn't he want someone that could take the fight globally for China, someone that could inspire the Chinese. This is the kind of thing I could do. It doesn't feel like the kind of thing a leader who wants to be a superpower would suddenly go after.
Shaun Rein:
That's a great question, Ian. I think there's two parts to answer that. First, Jack Ma started becoming almost like a foreign minister of his own. And what he was saying publicly wasn't always the same thing that Xi Jinping and Li Keqiang, the prime minister at the time was saying. So for instance, after Trump launched the trade war, which has really crippled China's economy over the last several years, Jack Ma said, "Don't worry. Trump's a good guy. Let's give him time." And when he said that it was almost like he was rivaling statesmanship and he was creating his own policies.
I think that's something that probably upset the Chinese government. But I think even more importantly, as a businessman, I actually support the crackdown on Alibaba in the tech sector because Alibaba controlled too many sectors. He was in insurance, he was in banking, he was in e-commerce, he was in movie ticket buying, he was in transportation, he was in taxis. Basically any business that was profitable, Alibaba or Tencent controlled it. And so it started to stifle fair market competition. It started to stifle innovation and consumer choice. So I think the Chinese government was right to crack down. Their problem is they didn't do a very good job of communicating not just to the Chinese, but to the international investor community what were the underlying reasons and the need for this crackdown? So I think people were scared.
Ian Bremmer:
In part because they took him out.
Shaun Rein:
Well, he still has his shares.
Ian Bremmer:
Well, he sold out.
Shaun Rein:
He still has his money. They haven't put him in jail. They haven't taken his money away.
Ian Bremmer:
He was sort of under house arrest for a period of time, no?
Shaun Rein:
No. I think that was a rumor. I don't know. But some of his closest friends are my close friends, and they said he was fine just laying low, sort of let the political winds go as they are. But I think there's a fear, Ian, in China right now amongst the wealthy that China's making a sharp shift towards socialism. And I think one of the great things about China over the last 40 years was that if you worked hard and you were willing to take a risk, borrow money, pool money with friends, you could get rich like Jack Ma. But the problem is that there was -
Ian Bremmer:
To get rich is patriotic.
Shaun Rein:
It is patriotic, but there became too many haves and have-nots. [inaudible] was too high.
Ian Bremmer:
That was a Chinese communist phrase.
Shaun Rein:
Yeah. And I think it was good, but it also reached the point where some people in the tier one cities especially were just too rich, while the Communist Party was almost neglecting the needs of 850 million people living in the countryside.
And so under Xi Jinping, the government has launched common prosperity, which is an initiative where they're trying to get education access, healthcare access to the 850 million peasants. So if you say to Xi or the Communist Party, "You disagree with the crackdown on education, you disagree with the crackdown on technology," they're going to say, "Oh, you mean you don't want to take care of these poor people?" So that's hard. It's hard to say that you disagree with what they're doing because there's reason, it's not evil intention. They're trying to help the majority, but the real movers and shakers of the country, they've lost that excitement. They've lost that ability to take risks.
So there's a lot of capital flight. A lot of these wealthy Chinese are moving to Singapore. A lot of them are moving to Australia. Some are coming to the United States right now because they're saying, "You know what? I've already made my money. There's a serious crackdown on corruption. We're not sure if the country's moving towards a 1960 socialist type standpoint. Let's just leave or let's just take a wait and see attitude."
Ian Bremmer:
Because profitability in China, efficiency in China has been driven more by the private sector, than by state owned enterprises. So if we see the Chinese government now starting to freeze out some of those people, I mean, you're not going to see 5% growth.
Shaun Rein:
Yeah. And that's the big problem. I mean, the real movement, the real excitement of the last 20, 30 years in China's economy has been from the private sector. But the state-owned enterprises are getting larger, they're getting more important and more critical for the economy. Especially now because actually when you look at it, the government has tried easing monetary policy over the last quarter, but almost no private SMEs have been willing to borrow money because they just don't have the confidence. So actually borrowing by state-owned enterprises went up 8% last quarter year over year.
So it's the SOEs that are pushing the economy, but their goal isn't economic efficiency. Their goal isn't making profits. Their goal is to do what the Chinese government wants them to do as a public good. So SOEs are state-owned enterprises, they're owned by the Chinese government, and they actually report to the Chinese government while SMEs are small medium enterprises that are owned by private entrepreneurs. So for instance, there's about a 20.8% youth unemployment rate right now. So the government is pushing SOEs to hire those people even though they don't need them. So the SOEs are good for the economy on the one hand, but they're also sucking the efficiency and the profit making ability on the other side. And that's why I'm becoming more bearish.
Ian Bremmer:
At the same time as the Indian government is investing very, very heavily in new technology and expanding the private sector, and of course the demographics are much more attractive.
Shaun Rein:
Yeah, you're starting to see a lot of European and American companies especially, they're trying to de-risk from China, and so they're looking to manufacture or source from other nations. So you see a lot of the top companies are saying, you know what? We're not going to leave China. Let's be clear. They're not getting up and moving their operations, but they're not investing into China. So that's why FDI into China only went up 2% in Q1 of this year. What they are doing is looking at India, they're looking at Vietnam, and especially for the American companies, they're moving closer and setting up shop in Mexico. So the Indian economy, I think they're probably the greatest growth opportunity over the next five, 10 years.
Ian Bremmer:
Shaun Rein, thank you so much.
Shaun Rein:
Thanks for having me.
Ian Bremmer:
That's it for today's edition of the GZERO World Podcast. Do you like what you heard? Of course you did. Why don't you check us out at gzeromedia.com and take a moment to sign up for our newsletter, it's called GZERO Daily.
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Subscribe to the GZERO World Podcast on Apple Podcasts, Spotify, Stitcher, or your preferred podcast platform, to receive new episodes as soon as they're published.Ian Explains: Why China’s era of high growth is over
Is China still on track to becoming the world’s largest economy? Ian Bremmer breaks down China’s great economic slowdown.
Between 1978 and 2017, China averaged almost 10% year-over-year GDP growth. Decades of pro-investment policies transformed China from a closed, centrally-planned economy to an economic powerhouse that could rival the US.
But President Xi Xinping has been moving China away from the pro-investment policies of his predecessors and back to its socialist roots. In recent years, the government has cracked down on everything from technology to finance to entertainment to foreign investment.
At the same time, 3 years of Zero-Covid policies sapped domestic spending and production. Decades of infrastructure investment have left local governments drowning in debt. China’s once-hot real estate market is in a massive slump. And youth unemployment is surging to record highs, threatening the very social pact that gives the Chinese Communist Party legitimacy in widespread support.
Can China’s communist ideology and capitalist ambition sustain growth into the future? Or does what goes up eventually have to come down?
For more on China’s lagging economy, watch the upcoming episode of GZERO World with Ian Bremmer on US public television and at gzeromedia.com/gzeroworld.
- China flirts with deflation. Why is that a bad thing? ›
- We need to talk about China’s economy ›
- The Graphic Truth: Zero-COVID is hurting China's economy ›
- Why is Xi Jinping willing to slow down China’s economy? ›
- Russian Black Sea Fleet commander still alive despite Ukraine's claims - GZERO Media ›
- Davos 2024: China, AI & key topics dominating at the World Economic Forum ›
Silicon Valley Bank collapse: Not 2008 all over again
Ian Bremmer shares his insights on global politics this week on World In :60.
With the Silicon Valley Bank collapse, is it 2008 all over again?
There's one very clear way that it's not, which is that it's not a big enough crisis for people to come together. And remember, after 2008, everyone understood that we needed to do everything possible to get the markets functioning, get trust in the system again, and avoid a great depression. Nobody's saying that right now. And it's not just because the US political system is more divided, it's also because people feel like it's fine to go after the "woke" banks. It's fine to go after the Trump era deregulation around the medium size banks. And everyone can point at their favorite villain while you don't really need to do a hell of a lot beyond the bazooka that Secretary Yellen threw at SVB and Signature Bank this weekend. So no, in that regard, it's very much not 2008 all over again. In some ways I'm happy about that and other ways I'm not.
As China reopens to tourism, is COVID finally behind us?
Well yeah, in the sense that we can travel everywhere. I mean, the fact that you haven't been able to go to China for three years now. First because of COVID, then because of zero-COVID policies is a real problem. I mean, engaging with Chinese policy leaders, corporate leaders on a Zoom, you're just not getting a lot of information. And Munich Security Conference was the first time I met with a senior Chinese delegation face-to-face, aside from China's then ambassador, now foreign minister to Washington in three years. So I mean, just my level of understanding of what the hell is going on in China is significantly less than I need it to be. And now that we can all start going to China again, that's a really big deal. So I think that makes COVID behind us. Of course, long COVID isn't behind us. And this is a permanent disease that, in terms of COVID's reality, people are still going to die from this thing, but in terms of treating it like a pandemic, yeah, I think it's pretty clear that that we are over and done with and I'm glad to say it.
Will the AUKUS deal shift the balance of power in the Indo-Pacific region?
No, I don't think so. I mean, it's a big deal for the Americans to be sharing advanced nuclear technology and hardware with the Australians, something the Americans wouldn't have done before. That is in part a growing concern about China. By the way, it's also potentially an intelligence risk because Australian level of security around their intelligence and information and their susceptibility to espionage from Beijing is a lot higher than that of the United Kingdom, than that of the United States. So there is a risk on board with that, but no, I think the important thing is that the Americans are continuing to focus on what is really a pivot towards Asia, more military equipment, more economic engagement, and of course, more concern of American allies and partners all across the region that they need the Americans from the security perspective, even as China becomes the critical economic partner. So that I think is important incrementally, strategically, but I wouldn't say AUKUS is the big mover, this week's San Diego meeting notwithstanding.
- SVB collapse: Don’t say the B-word ›
- Yellen brings bazooka to stop SVB contagion ›
- China-US tensions over COVID origins & Russia's war ›
- COVID ain't over ›
- Hard Numbers: Colombia's grim record, Ukraine reconstruction planning, Chinese beach tourists, India's strong arm ›
- What We’re Watching: Battle for Bakhmut, Xi’s diplomatic muscle, AUKUS sub deal ›
- Who does Washington blame for the Silicon Valley Bank collapse? - GZERO Media ›
- Ian Explains: Banking turmoil and the panic pandemic - GZERO Media ›
What We’re Watching: Tense G-20 talks in India, Finland’s fence-building, China’s economic activity, Chicago’s mayoral runoff
An awkward G-20 summit in Delhi
When G-20 foreign ministers met in New Delhi on Thursday, it was, as expected, an awkward affair. While India, the current G-20 chair, had hoped that the bloc would focus on issues of importance to the Global South, like climate change and the global food crisis, the agenda was disrupted by US-Russia bickering over the war in Ukraine, which US Secretary of State Antony Blinken called "unprovoked and unjustified war", while Russian Foreign Minister Sergei Lavrov blamed the West for not doing enough to extend a deal to allow Ukrainian grain exports that will soon expire. Of course, focusing on anything else was going to be a tall order when the top diplomats of the US, China, and Russia were all in the same room. (President Biden and Xi Jinping last met at the G-20 summit in Bali in November, though there was no bilateral meeting between the US and Russia.) In a sign of how fractured Washington's relationship remains with these two states, Blinken on Wednesday again urged Beijing not to send lethal weapons to Russia and canned China’s peace plan for Ukraine. As for US-Russia relations … need we say more? India, which has gone to painstaking lengths to maintain its neutral status over the past year, says it thinks the group can get stuff done. But at a meeting last month of G-20 financial heads, the group couldn’t even agree on a joint statement.
Finland builds a border fence against Russia
Rakentaa se aita! That's Finnish for "Build that fence!" — which is what Finland plans to do to protect its borders from Russian draft dodgers. Construction of a 10-foot tall wall, ahem, fence began this week along Finland's 800-mile border with Russia, with the first section expected to be finished by June. The Finns want to stop Russians from entering after fleeing the draft to fight in Ukraine, a number that could rise if Vladimir Putin orders another mobilization in the coming months. Meanwhile, Finland's parliament on Wednesday overwhelmingly approved the government's plan to speed up the process to join NATO — ideally along with Sweden, a fellow Nordic, if Turkey ever backs off. Going back to the fence, parts of it will have all the bells and whistles — night-vision cameras, lights, and loudspeakers — that former US President Donald Trump could only dream of for his partially built "Big, beautiful wall." And like Mexico, you can bet that Russia won't pay for it.
Chinese economic activity rebounds
China's official manufacturing sector purchasing managers’ index — a closely watched indicator of economic activity — reached 52.6% in February, expanding at its fastest monthly pace in over a decade. What's more, home sales rose for the first time in two years amid a persistent property-sector slump. The good: The two figures beat expectations and are a clear sign that the world's second-largest economy is recovering quicker than expected after abruptly ditching zero-COVID. The bad: The starting point was very low, as China's GDP grew last year by only 3%, barely half of what the ruling Communist Party had targeted. The ugly: While this is excellent news for Xi Jinping and a global economy that's eager for both more Chinese demand for stuff and more Chinese capacity to make stuff, economic activity has yet to reach pre-pandemic levels. Also, China's economy is still facing strong pressure from the fallout of the US-China rivalry, with American companies feeling increasingly bearish about the future as ties between Beijing and Washington get icier.
Chicago election result portends impending showdown over policing
Voters in Chicago denied Lori Lightfoot, who made history as the city’s first openly gay and Black female mayor, a second term amid concerns over rising crime, which increased by 41% between 2021 and 2022. Lightfoot, who cruised to office in 2019 on an anti-corruption platform, had been widely criticized for the high crime rate in America’s third-largest city. No candidate in the Democratic stronghold clinched over 50% of the vote needed to win outright this week, so the two remaining candidates – both Dems – will go to an April 4th runoff, with the controversial issue of policing underscoring the stark divide between them. On one side is Paul Vallas, who has drawn criticism for past comments and for associating with the Windy City’s controversial police union leader. He promises to add hundreds of officers back to the police force if elected. His challenger, Brian Johnson, favors investment in services like housing, education, and mental health over more policing. Amid rising post-pandemic crime in major US cities, political differences over investment in public safety measures will play an increasingly central role in US mayoral elections. We’ll be watching as Philadelphia and Houston head to the polls later this year.Hard Numbers: China zeroes out zero, German tanks run low, Turkey jails a journalist, Greek train crash, police find ‘spiritual girlfriend’ in Peru
0 x 0: Remember China’s zero-Covid strategy? No you don’t, at least not if you’re the Chinese Communist Party, which is now aggressively zeroing out public mentions of the draconian lockdowns that kneecapped the country’s economy and provoked rare widespread protests against Xi Jinping. Here’s our own portrait of zero-Covid life from last spring.
62: Despite promising to give tanks to Kyiv, Germany and other NATO allies have struggled to rustle up enough of them — 62 to be precise — to fill two Ukrainian battalions worth. Part of the problem is that no one on the continent has planned for a major European land war in 30 years, so tanks, parts, and trainers are limited.
10: Turkey has sentenced a journalist to 10 months in prison for posting an unsubstantiated allegation that police officers and soldiers had sexually assaulted a young girl. This is the first jail term handed down under a new law meant to combat disinformation that critics fear will be used to stifle criticism of the government.
36: A train collision has killed at least 36 and injured dozens more near the city of Larissa in northern Greece. Railway employees reported that there were issues with electric coordination of traffic control, despite recent modernization of Greece’s railway system, which is operated by Italy’s state-owned railway company Ferrovie dello Stato Italiene.
1.5: The sentence you are about to read does not end the way you think it will: Police searching a delivery man who was acting drunk at a Peruvian archaeological site found in his backpack a 1.5-meter tall pre-hispanic mummy named “Juanita.” He said the mummy, which once belonged to his dad, lives with him as “a kind of spiritual girlfriend.” We love this LatAm remake of "Fin de Semana at Bernie’s.
What We’re Watching: Bolsonaro skipping town, Putin’s New Year’s gift, Vietnam’s growth, a bit of Xi & Putin face time
Bolsonaro takes off, Lula takes charge
On Sunday, left-wing former president Luiz "Lula” Inacio da Silva will once again be sworn in as Brazil’s president, a post he last held from 2003 to 2010. Hundreds of dignitaries will attend the ceremony in Brasilia, save for one very important person: Brazil’s outgoing President Jair Bolsonaro. The right-wing incumbent will be spending New Year’s Eve in Florida with someone who loves him — former US President Donald Trump. What signal does this send? Bolsonaro has suggested that the bitterly fought election against his nemesis Lula was unfair, and he has done little to stop his supporters from protesting to that effect, sometimes violently. Will his decision to skip the festivities quell concerns about a possible January 6 event in Brazil, or will his supporters read his decision to watch from Mar-a-Lago as a signal that the entire inauguration is illegitimate, fueling more anger as Lula takes power? Ever since the election, Bolsonaro and his team have been in close touch with Trump about next steps. On Sunday, we’ll be watching Lula, of course, but we’ll also be watching Bolsonaro’s supporters watching him watching Trump.
Putin tries again to freeze Ukraine over
Russia launched a huge attack on Ukraine’s energy infrastructure Friday, using cruise missiles and drones to target power stations and other facilities across the country. Although Ukraine said it had managed to shoot down most of the Kremlin’s missiles, a number of facilities still suffered damage. Just days before the New Year’s holiday, Putin is intensifying his strategy of trying to freeze Ukraine into submission (see our recent interview with an undaunted young woman in Kyiv). Meanwhile, to Ukraine’s north, Belarus said it had shot down a Ukrainian air-defense missile that had strayed across the border. Belarusian authorities gave no indication that they considered it an attack on their territory. As Ukraine remains under aerial attack, this is the second time in the past six weeks that a Ukrainian air defense missile has strayed — in mid-November one landed in a Polish border town, killing several people and briefly stoking (unfounded) fears that Russia had deliberately targeted a NATO member.
Vietnam’s GDP boom
While many countries are experiencing growing pains, Vietnam’s gross domestic product rose by 8.02% in 2022, the fastest growth rate in Asia. This was in large part due to a strong performance in the final quarter of the year. For context, GDP growth in China, Japan, and Thailand this year is slated to hit 3%, 1.7%, and 3.2% respectively. While China’s manufacturing capacity was hindered by Beijing’s relentless zero-COVID policy, Vietnam's manufacturing juggernaut has expanded, growing by more than 8.1% year-on-year. Still, as global inflation remains high and fear of recession looms, there are already signs that Vietnam’s export-reliant economy could face tougher times in 2023. While global exports are up in 2022, demand is likely to slump next year as a result of central banks’ belt-tightening. Asian economies, particularly in southeast Asia, have benefited greatly from ongoing tensions between the US and China, with both major economies boosting trade with this bloc since 2018 when the tit-for-tat trade war began.