Life for on demand on your time. This is csi of online. Were going to go ahead and get started now. Folks are still running. That is fine. We want to get started because we have a fantastic program for you and not a lot of time. This hour is going to fly by read, who, is really a fantastic read. This is a Glass Half Full story of chinas economy and management of the Financial System and its offered at a time when u. S. China relations are declining and attacks from all different corners in the United States of chinas system are growing. And theres this argument that chinas economy, how it manage that economy is incompatable with the International System and as a result the u. S. And others need to reduce their exposure to chinas unique risks. The book tries to answer the question, how did china manage to do it . How did they manage to continue to grow without a major financial crisis . And can they keep it up . Im going to turn the floor over to tom in just a minute. So introduce his book and then well hear from several commentators, leading experts on chinas Financial System in their own right. And then well open up things to discussion with our online audience. You have ways to submit questions through the chat funk or through email to our staff who will forward me the questions and then ill help moderate that conversation for the remainder of the program. We were expecting a small audience for a specialty topic like this, hence a zoom room can accommodate over 500 phonings but ear overfleeing weapon had a thousand people register for the event so matter what folks can watch this now or online in just a bit. So, ill turn things over to tom. He is a bloombergs chief economist, prior to joining bloom boring tom worked at china economics correspondent for the wall street journal, as an adviser the uk executive director of the imf and policy analyst the British Treasury and european commission. He is also an author of understanding chinas economic indicators, which delved deeply into chinese statistics. Tom, thank you are so much for writing this book, and really look forward tower presentation and the conversation this morning. Over to you. Thank you very much. Just give me a minute while i share my presentation. Now is that working . That looks fantastic. If i move it, does it move . Its to. Fabulous. Well, look, it is really never been more important that all of us understand chinas economy and the intersection between chinas economy, chinas Financial System, chinas business, china leadership, china security, and i cant think of anyone in the world who pulls those pieces together more smartly and more come n sufficiently than the team at csif so im delighted that they would host this book talk and thank you scott and the team for helping pull this together. So, as i prepared to launch my book over the internet, i was thrilled to be doing it with csif and also had a concern. When you do a back launch in person, you audience is physically there and anyway see the kind of moral obligation to buy a copy of the book. When you do a book launch over the internet, perhaps that sense of moral obligation isnt there or quite as strong. So, devised an extremely clever mechanism which im going to use to try to ensure i engineer maximum sales from this event. With start my presentation i want everybody to raise their right hand and repeat after me, i tom orlik you insert your own enemy i pledge immediately after the preparation i will order a copy of china, the bubble that never pops. And thats the compulsory part of the presentation, of the pledge, and im not an unreasonable man so the second part is voluntary but feel free to follow along. Also one for each of my friends and relatives relatives and i wo leave a positive review on amazon. Okay. So with that done, let me jump into my presentation. So i lived in china for 11 years, from 2007 through 2018. And so that entire time there was a consistent thread of pessimism, even the thread of doom running through the western view on what was happening in china. Yes, the story went, 10 grate looks impressive, but poke a little bit beneath the surface there and there are problems. That is too high. China will have a financial crisis, leadership, cant execute on reform, theyre two conservative, to trapped by vested interests the state sector is too big and too even i efficient and the prospects just arent that strong. Theres a mile income trap, demographic problem, and yet, here we are in 2020, and the china bubble has not popped. So my motivation in putting pen to paper for my book was to try and understand why, what are the hidden sources of resilience in chinas economy, how does china continue to defy the pessimistic prediction of collapse and how does thats way we think about engagement with china Going Forward. So at the presentation today i want to touch on four areas where i think we dont have the story wrong on china, but we have the emphasis in the wrong place. I want to talk in particular about debt, reform, the state sector, and the future. So, first, let talk about debt. This chart tells you, i think, the way in which most foreign economists and many chinese economists think put the biggest risk for chinas economy. It shows you the ratio of debt to gdp in china. In 2008 china residents debt to gdp was around 140 . Fast forward to 2015, and that debt level has leapt to 250 . Now, if we look around the world, and we scan the history books, we cant find any other countries that have taken on as much debt as china as quickly as china has. But we can find a number of countries that took on significant debt but less debt than china and still had a financial crisis. Korea in 1997, took on a lot of debt, not as much as debt as china. They had a financial crisis. The u. S. In 20062007 took on a lot of debt, not as much debt as china, and they still had the lehman shock and the great financial crisis. And if we look a bit deeper into chinas Financial System, well, if we think but the borrowers, we have enterprises, we have Real Estate Developers building ghost towns in the desert, we have governments building roads to nowhere. Shadow Banking Sector skirting the rules and the regulations and growing faster than they should. So if you put all of that together it looks like an extremely risky picture. But what that picture miss is is something really important about financial crises and something really important about chinas Financial System and that is what is happening on the liability side of banks Balance Sheets. Remember the crises do not start on the asset side of the Balance Sheet. Lehman brothers did not fall over because it had too many invests in Mortgage Backed securities. Koreas banks did not fall over because they had too much score exposure to cloney cap yale owes organizations. Financial crises start on the banks run out of funding. Lehman fell over because the money markets decided they didnt want to fund it anymore, koreas banks in the Asian Financial crisis fell over because Foreign Investors pull their money out of the country. What does that mean for china . Well, china has an extremely high savings rate and it has controls on moving money out of the country. What that means is that theres a continued pileup of funds in the Banking System. Chinas deposit base, the deposit base for the banks continues to grow, and that means the funding for the banks is very secure, and so even as problems on the asset side of the Balance Sheet increase and i ensure there are a vast quantity of hidden bad loans on chinas bank Balance Sheets the trigger for crisis isnt there. So, the second area i want to talk about is chinas leadership and their capacity to execute meaningful reform on the economy and on the Financial System. So here you can see chinas previous leader, and chinas current liter, xi jinping. You can see both them applauding polite low. One of my observations from watching more chinese leadership meetings than i care to mention is the ability to applaud politely for a sustained period of time is a key requirement to make it the top of chinas leadership. If you cant applaud politely for a sustained period of time you wont make it on the standing committee. Thats sum i think maybe our western china watchers should pay a bit more attention to. Most seriously, for the xi jinping era theres been a consistent narrative about reform in china and its been a narrative about reform failure. Tao we were told is too consensus oriented, too much of a Committee Man to push through reforms. Xi jinping wear told is toocrest crew to push through the needed changes. That narrative blinds to us significant progress that chinas leadership have been able to make. Lets think put the two most important instruments for control of the economy. The Exchange Rate and the Interest Rate. The Exchange Rate sets the price of chinese goods relative to foreign goods the Interest Rate sets the price of money. Its really nothing more important for driving efficiency and dynamism in the economy andfesting it right on those two instruments. If we go back to 2003, when tang was just coming into office, both the Exchange Rate and the Interest Rate were managed by the government and set as an artificially low rate. And if you swing the calendar forward to today in 2020, well, the Exchange Rate is now close to fair value and moves substantially by Market Forces and on the Interest Rate, not quite so much progress has been made, but Interest Rates today are substantially more market set than they were five, 10, 15 years ago. Because we view chinas leadership through a kind of red mist, i think we are unable to recognize the important progress they do make on reform. That also means we dont pay sufficient attention to their ability to significantly move the dial in managing financial risks. So here i want to talk about chinas agenda. In 2016, the chief economic adviser to xi jinping kicked off the Deleveraging Campaign. A nationwide campaign to reduce risk in chinas financial sector. And with that signals, the peoples bank of china traveled around the country and knocked on the door of every single commercial bank and they said, show us your Balance Sheet. And if they didnt like what they saw, either on the asset side or liability side of banks Balance Sheets, if they thought the banks were taking too many linkses in lending or the sources of funding they relied on, they imposed meaningful punishment on those banks. I remember traveling around in summer of 2017 and speaking to a group of local banks and all of them, the campaign is Deleveraging Campaign had meaningful impact and we see that in data. The chart shows you the growth in shadow bank lehning, the riskiest parted of the chinese Financial System. Through 2016 it was growing at a rapid pace, when the Deleveraging Campaign kicked off, shadow helping first decelerated rapidly and then actually contracted for the best part of two years. We underestimate chinas leaders ability to execute on meaningful reforms and we underestimate chinas lead leaders able to meaningfully take steps to manage risks in the Financial System. The third area i want to talk about is the state sector. Now, theres really no area where the contrast between the u. S. Market system and chinas state centered economy is more obvious and here sharply drawn than on state ownership. In the u. S. , the private sector is a key driver of dynamism in the economy. In china, the state sector plays an outsized role. A vivid illustration of that, consider the revenue of chinas state owned industrial firms. As you can see in this chart, if chinas state owned industrial firms were an economy that would about the Third Largest economy in the world. Chinas state sector on it own is bigger than the entire german economy. Now, in the west, we view that entirely through a negative lens. We view it through the lens of inefficiency and corruption. And that is not an incorrect way to view it. Chinas state sector is very inefficient. Return on asset for chinas state sector is much lower than return on asset of the chinas private sector. That is not the only way to think but chinas state sector and that is not the way in which chinas leadership think about the state sector. So lets take step back and try to see the role of the state sector in china through the eyes of chineses leaders. To do that lets hear what xi jinping, chinas great reformer, thought oath mikhail doctor cough. He says my father thinks gorbachev is an idiot. Why did dung think that efficient have was an idiot . One important reason is that gorbachev attempted to reform the soviet economy by taking his hands off the he levers which controls the soviet economy and by doing so he ultimately lost control and failed to execute on his objectives. China residents leaders have taken a different approach. Chinas leaders have kept their hands on the levers which control the economy. The commanding height of the banks, the oil firms, the telecom firms, many Large Industrial firms remain stateowned. And that gives chinas leaders a powerful lever which they can use to execute on Development Objectives and on management of the economic cycle. On Development Objectives, chinas leaders can direct state banks and state firms to acquire technologies and put those technologies to work at enormous scale in the chinese economy. Bringing china closer towards the productivity frontier. On management of the economic cycle, chinas leaders can direct the state sector to hold on to their workers and to invest when private firms have become more cautious and that is a powerful tool to avoid or cushioning recession it. The state sector is big, the state sector is in ineffect but by focusing on only the negative we miss the crucial role that chinas state sectyear mys as a drive of development and a powerful tool that can be used to manage the economic cycle. The last area where i think our focus in terms of thinking but china focuses only on the negatives and miss the positives is only chinas medium term growth prospect. When he think but chins medium term Growth Prospects we tend to focus on a few stumbling blocks that china faces. The working age population is shrinking. Theres a middle mctrap, perhaps china wont be able to innovate enough, they trap the meddle level of development. Trade wars may block chinas access to global markets. And these things are true and theyre real problems, but china also has some very significant positives working in its favor. These positives are so obvious that they were obvious even to adam smith, the grandfather of modern economics when he wrote his book the wealth of nations all the way back in 1776. So, im just quote go quote briefly not Mam Adam Smith wrote about china more than 200 years ago. Two important points. Firstly, the great extent of the empire of china, the vast multitude of its inhabit tenants, render the whole market of the done through of so great extent as to be alone sufficient to support very great manufacturing and to admit very considerable subdivisions of labor. So thats the first Crucial Point. Because china is so big they can achieve massive economies of scale and massive efficiency gains through minute subdivision of tasks. The second Crucial Point from adam smith by more extensive navigation the chinese would naturally learn the art of using and constructing themselves all the different machines made useful in other country as well as the other improvements of art and industry which are practiced in all the different part of the world. Now, smith was wright right on that as well and also early. He was 200 years too early. When xi jinping opened the door between china and the world in 1978 and even moe when china joined he World Trade Organization in 2001 these two powerful drivers of growth came together and china had enormous scale and the capacity to learn from foreign technologies, and when you put these two things together you have an extraordinarily powerful engine of growth. The question then becomes, has this engine run out of steam . I think the answer that is, no. The reason i think that is because of the comparison between china and japan. Lets think about when japans economy fell over in 1989. Japans gdp per capita in 1989 had already caught up to the level in the United States. Japan was already on the frontier of what was possible in terms of using technology and becoming more productive. Chinas gdp per capita today is very significantly below the level in the United States. For me that means there is still significant catchups. I think in the middle of the decade its entirely possible china will still be greg 5 a year, i think at the end of the decade its entirely possible that china will still be greg at 3 or 4 a year. So, im going to wrap up in a second. Before i do let me try to pull these pieces together and apply them to thinking about what has happened to china in the last six months. Now, covid19 is of course a human tragedy. It is also an economic and Financial Stress test for the world, and for china. In the last few months, income for the biggest borrowers in chinas economy, state enterprises, Real Estate Developers, local governments, have all contracted. If the was a moment where the chinese bubble was going to pop, it would be now. As income for the biggest borrowers folds their able to Service Loans disappears and that is the moment where you expect to see some kind of day of reckoning for chinas economy. Of course that is not what has happened. In this chart you can see daily activity indicators that we built for china and other Major Economies and what you can see is that, yes, china fell but didnt fall as far as other Major Economies and they picked up more quickly and theyre now closer to normal levels of activity than most other economies in the world. So, why is that . Why didnt we see a financial crisis . Why has chinas been shallower and its recovery quicker than other economies . Well, this brings me back to some of those unrecognized sources of strength in chinas economy. Chinas banks, because they are wellfunded, can afford to give forebearance to companies and can say, yes, we know you cant pay us back this quarter, thats fine you pay us back next quart ore maybe even next year. Chinas leaders because they can pull the lever of the state enterprises have a powerful kind of cyclical industry and can tell china residents state and enterprises dont let go of any workers and maybe even hire more workers. We want you continue vest more and bus they can do that they can prevent financial crisis breaking out, and they can manage the downturn and making shallower and making the recover quicker than other questions in the world. Thats why i think the china is a bubble that never pops. Im going to hand back to scott to hear from some of our great discussants, logan, helga, joyce, and hans. Thank you. Thanks so much, tom. Really terrific presentation and i think you did an excellent job of summarizing your book and the overall story and really appreciate that. I like the you have trisense of humor and but dry sense of humor but also makes points and i appreciate that, too. As you said, adam smith was right hitch just had very bad timing. And so he may be a very good economist but heed be a terrible investor. Right . Now well turn to our commentators. I would not call this group murders row even if they have a variety of different opinions, but if you were going to form a Dissertation Committee of the best and brightest who work on chinas economy and Financial System, this would be the group. And so this is a real treat to have them with us. Let me briefly introduce them and then ill turn it over to each of them to allow them to offer a few minutes of commentary. Joyce chang is the chair of the Global Research at jp morgan. And is one of the leading analysts on chinas economy anywhere. She has helped top ranking institutional inveriors for emerging markets and before joining jp morgan was managing director at Merrill Lynch and sol low moan brothers. Helga berger is an assistant director imf Asian Pacific department and adjunct professor of mon tier economic of Free University of berlin and was a tenured full professor. He he previously taught at princeton, as well. And ann rutledge is a founding principle of the 20yearold Credit Ratings advisory femur, credit spectrum. An expert on the logic of Capital Market development. Testified before the u. S. Senate, adviser to hong kongs monetary authorities and is just one of the leading experts on all issues related to credit. Logan wright is director 0ed a rhodium. Leaded the china re each and nonresidented a junk fellow with us in the trustee chair, previously logan was head of China Research for medley groel in and is joining us from hong kong today. So ill turn things over to joyce first. Then helga, and anne and then logan in that order and then well look at questions from the audience. So, joyce, over to you. Thank you so much, scott. Its a real pleasure to be here with you, scott, and i want to congratulate you on awe this will work you have didnt doing, look at the test issue. We look at your work closely and great group of panelist. I want to congratulate tom because as somebody who has looked at china for the last throw decade highly recommend the book because it goes through the four different stages of the cycle that china is in and what they have learn from each stage of the cycle that has caused them to really take a more gradualist approach and theres a few things that tom highlights but i think are worth china has never experienced an economywide door shut panic. And i think the other thing that stanes out in this become is how much china learned from the asia financial creases. That it been eclipped by the Global Financial crisis, the Great Recession that were in right now, but china learned very speaker important question and to points out that this is not japan. Japan ran a surplus after their bubble collapsed and china is running a def civility thatting is good to by 15 of gdp. Also nothings korea because korea has to rely on experts of similar to but foreign major role in and chain has been managing this gradually. Very insightful book for what it says about what china ha learn from past crieses in the region and how its managed different stages of the cycle. Id like to just make three points hundred were seeing china right now. Talk about the current and the medium tumor forecast that jp morgan has and why we agree china is on the path for selfsufficiency and the joeow political risks. So we do think china is having a v shaped recovery this year. We have taken up our china forecast. We have it at 2 this year. We had it below 1 . We have the rest of the world the Global Economy contracting 4 . So 2 growing in china and next year in 2020 we have China Growing at over 8 . Ive been very amidsted by how quickly theyve been able to return to some type of normalcy if dont think this can be rep e replicated elsewhere given their able to control so many part of the economy. China has enormous sources of strong. The Stable Funding from the financial sector, a single party that can marshal resources and we do see them doing an enormous stimulus this year, and youll a fiscal deficit that will be north of 15 of gdp. But i would just say that i agree its a bubble that never pops but the rest of the world would also pop. We estimate every 1 percentage point decline in chinas growth takes. 4 arizona off of Global Growth and as much as one to one in the mat exporting emerge market country thursday latin america. The important thing is we see china los growth slowing but what we are looking at is something more in the range of 4 to 401 2 percent at the end up 4 1 2 pend at the end of the decade, innovate something it that is a change. We have Global Growth coming down off the cost of the crisis and we see Public Sector debt rising across the globe, around 15 to 20 percent opinion. China has a debt pron legal and the rest of the world will come out of this with a lot of debt. The other pointed selfsufficiency. Think china is very wellblessed to achieve selfsufficiency and Global Leadership in certain areas. And i would just say that we think that china has already attained selfsufficiency in Consumer Tech years that are growing National Security concerns. Increased importance on the tech infrastructure. Up grade their holmgren tech spokeswoman chains the he higher value areas not that ease you to move the supply chain but we see in tech telecommunications, a. I. , the internet, and also in clean energy, where theres a true need in china, where they will have selfsufficiency by 2030. I think harder to make the case at that time china is a bubble that will pop that quickly. Id just to just conclude with things we are watching on the geopolitical side and the construct because i do think there are red lynns in chinas mind and one of those red lines . The National Security legislation by the mpc has amended into the basic law of hong kong. I think a tougher stance towards tie taipei. The spites in the South China Sea and want to remain a key player in the Korean Peninsula and i think they also are very much seeing their approach to how theyre fighting epidemics and pandemics as a better model for the world. But i do agree with tom that china is a bubble that never pops and if it were to pop, there we be many other things popping first. Thank you, joyce. Really appreciate. That lets turn to helga now. All right. Thank you. Scott you can hear me . Yes. Super. So, tom this is a faction book. I already told you earlier i bought it even though i didnt have to so i at any time have to take the pledge i didnt have to take the pledge it and has important messages for china today but i think it also less handle this somebody lick you who knows the country so well, still a lot to learn and its looking back to history to do this we all need to. While id like as an aside is thats youre describing a very complicated subject, there are many things interacting to form the whole, and its really hard to think but generally criticism but even harder to write clearly about it and thats what you do. I think its a fantastic book. Im with you when you describe sort of the strength of china. Its important not to underestimate the country this potential to growing, ability of policymakers to at least try to manage even though sometimes theres not a big plan, you point to all the right places size and scale, potential to grow, high saving rates and i like the stress you put on the ability of policymakers to act decisively and flex flexibly and i think the covid episode is important. The covid episode has a remind theyre some of the strengths china has may ultimately sort of lead to more binding economic constraint and while china is a large economy and an important economy and has very talented policymaker, economics all apply to the country and bugged Budget Constraints mary and let me stress the issues i neil your overall summary leading to the optimistic bubble that never pops headline that is still on this screen. Get a little bit underrated. So, there are basically two broad areas. One is that ability to have all hands on deck and tackle any problem at any time in a topdown approaches an asset of course. Its an asset right now. But also comes with risks. You yourself point the overshooting that can happen if you put all your eggs in one basket and the stimulus after the Global Financial crisis is a good example. Went way too for a in hindsight and brought a lot of problems and narrowed policy space Going Forward. Youre well aware of it but i just stress it. You have an episode and you ask them in the book, the one child policy and that is an example of longer term rigidity. The system is flexible at times but other times isnt but on the policymaking part its important that policymakers the bigger opinions for me and thats not bus my paycheck is coming from the imf and were paid to worry about risks. It is because i feel these are points that are worth economic budget constrained matter for china and the policymake are elite has to face those. Otherwise we will not see the optimistic groel of Going Forward of the of the 4 to 5 . Agings i important. Foreign investment efficiency is important. Great numbers in your book that stress that. But let me stress in this area the access to technology. It is true that china has made great leaps here and joyce cited a couple of areas where this the case but its also important to remember in the ways china is significantly below the global frontier in terms of technology. That has an impact on productivity, an impact on growth so enormous potential for reforms if you pick them up. Savings. Its good to have ample savings but its not healthy to have savings at the National Level of 55 of gdp. There are inefficiency lead in this and come from it and they have to face. Debt levels too high. You tom put out that a property black collar chart on debt but narrow this down a little bit, talk but corporate debt. The country has between 100 now and 170 of gdp corporate debt. That depends on what you assume what a corporation is at the local government level. Every other country on the planet averages 90 . Thats emerging economies. You see the tension that needs so my appeal to the readers of the book, take all that material that is there, but focus on chapter 11, i believe, where tom is again war gaming a crisis and theres some of these issues that he himself has described are listed that need to be taken up by these policymakers. Theyre strong, theyre flexible but theyve their work cut out for them. Thanks. Terrific. Lets turn now to ann. I want to express my gratitude to Scott Kennedy and csif for including me and any views on china which you do frequently and liberally, and i take the pledge. I really liked toms book very much. I want to read it again. But he deserves to be paid for it and Oxford University press is a great press and also do deserve the income. At professional and personal level i like the book them first i think it shifts the dialogue about chinas economy in to the important ways. Before i say that the first thing i want to say is by walking us through the four cycles of chinas financial history, through chinas 2025, tom thinking about financial history as a continuous process. I lived through a lot of this history personally. This narrative has integrity. Its year and liberating to read another persons anywheration of my private experience. So, ill just say i arrived in hong kong ten days before mao died and i lived in hong kong through the gang of four. As pressure and reader of the Chinese Press i knew the credit markets back story of the first cycle. And that is the story that has not been welltold. The first time that ive actually seen it welllaid out. I worked in the Hong Kong Futures Exchange during the second cycle and tos retailing faithful to my experience the spiff of the become skirt the false choice of free mark verse state authoritarian capital models read and moves it toward a more china centric marritive. Its hugely vallable and rolls this the red mist. I look ahead why the bubble hasnt burst but maybe a point of the book is that bubbles are in the eye of story teller. One persons bubble is anothers garden variety economic dysfunction and every nation has those. It just the lens from an economic story to a financial story and thats very valuable. Chinas financial narrative is a difficult story to tell as joyce some helga both said and i think tom does a great job in pointing up social differences especially between how the u. S. And china understand finance. I say social rather than cultural because finance experts have their own culture. They speak a special language ofman that transcends whether youre operating in finance in china or the u. S. As im sure tom knows well. Everybody reads bloomberg. It is truly a language because it allows us to debate idea. Vigorous debate is lacking in the culture of finance but i think this says more but the parochialism of the practitioner than but what finance can do. So ooh hugh great for new ideas. But i would say from my experience, both professional and personal the Financial System if lose incarcerate history is a complicated as dynamic. In i ate goat stew from an old cal droner in a railroad station in 19ment and was there when the first mats exchange opened in 1990 and i going to bring up a because it sill traits a slide because it illustrates a point. If if can. Okay. Going to the second slide. This is the opening. Can you see it . Yes. This is the opening of the mats exchange. First youll see the clock before it opened on the very first day. And you see the happy faces of the floor trade and their then observers in he the Observation Deck five multiples after the market launch evidence success any and i think one of the thing that we forget is that ill stop my share one thing we forget is that this is also the real finance. Now, china, if we were going to tell the story of chinas evolution we would also talk about all the exchanges it has thousands of exchanges, trading thousands of different assets. Another point that i mean thats not for tom to do but i want to talk a little bit about a theme i think did belong in the telling and that is the role of the shadow mark. Tom does a great job talk little about by rate issue and the role of real estate and talk put the Asian Financial crisis and Lessons Learned with respect to Exchange Rate role but securitization played a bill role. China has the second large e securitization market in the world. This is going to become a bubble. China and the u. S. Have both embarked on financial poll sid that are designed to eliminate rather than harness financial on opportunism. Neither the u. S. Nor chosen gets i right and aapparent to newt recall eye but the shadow market holds the key and i leave with the comment, i somewhat disagree with the the thesis where bubbles again. I belief they begin on the asset side of the Balance Sheet. Banks dont run out of funding, its economies that run out of value to monetize, and a generation of intangible value is a function of information quality and this is an area where we have a lot to learn still. Thanks. Thanks, ann. Lets good now to logan wright. Thank you, scott, and thank you, tom, and really appreciate the invitation, and tom just want to say, join the call to congratulations for this book. It is a very prim Service Coverage of a impressive coverage of a write range of events in chinas financial history and where i found it most impreparessive i integrates the political insight and key event friday within chinas economic history together and ive seen very few books attempt this. I also found this discussion of the debt s in terms the debt dynamics to terms of borrows dieding thump borrowers and lenders and then telling the history am very novel way of addressing Different Actors within the system, and really innovative. So, some of the anecdotes are great particularly when you talk to when entrepreneurers and borrowers and references to chinese literature, for example. So i highly recommend everyone pick up this book. Its within finance books our fieldes generally fairly boring. Its difficult to actually slog through many different tight littles. Its very refreshing read something that is far more interesting. So with heartily recommend everyone listening to pick up toms book. I focus my comments on the substance in two areas. One is on the Deleveraging Campaign that you described, and i would have a slight live disinterpretation than that id ask you react to and the second on the nature of state capacity as youre describing it. I think the Deleveraging Campaign is being described with a bit of its being describe as if it was somewhat costless in this telling, and i think it is actually still an Ongoing Development in terms of the crackdown on credit that is shadow credit underway, and i would argue its not been costless. What really happened is a substitution of some of the funding side risk for a slowdown in economic growing, which is exactly what is taking place. China hasnt really avoided the tradeoff here, just more risks now materializing within the Banking Sector themselves in the form of credit risk and one reason for that is shadow lenders broadly peeking theres a lot of speculative activity but the fund the real economy, and there are ways of many shadow lenders are basically engageing in that activity to hide nonperforminglines or violate credit policy to get around restrictions on lening to Property Developer odd are local government financing vehicles or something of that nature. Our own analysis demonstrated its at least we can demonstrate at least 52 of nonbank Financial Institutions assets are basically standard credit sort of nonstandard credit and they probably conservative. This has an impact on growth and in 2018 it had a very sharp impact on growth. You basically the impact was that Corporate Credit growth was cut more than in half, probably by twothirds, and theres really no nuance to that approach and highlights the bluntness of the approach that china took rather than a statement about state capacity overall. And if you look at industrial output in 2018, per 70 out of the 103 indicators that china published formal data for, they declined outright in year terms the weighted average leads 6 to 7 fall in industrial output overall and policymakers were forced to respond. Were also seeing since that time new credit risks materialize within the system, and including on the liability side of banks balance sheatheds the failure in 2019 was a byproduct of a investigation but the byproduct of an excess of shadow lending, and the pboc made the decision to basically impose some costs on lenders that were expanding using the shadow using the shadow liabilities, but at the same time, after that failure took place, we end up seeing a water shed in term of credit limit its. Other banks started seeing interbank funding being withheld. Trust companies this year are faces protests outside the front doors. Four of them the last three months alone two Smaller Banks faced bank runs over the past weekend; so im interested in your reaction to this interpretation that the Deleveraging Campaign is less costless so to speak and might change your perspective of state capacity. The second set of comments is crisis manage independent general. You place emphasis on the savings rate, rightfully so but its hard to redirect savings in a crisis and youre completely correct to focus on the funding sinusoid banks about balances sheets but those are eroding. The interesting thing here is if the pboc can always inject liquidity to manage a crisis but unless the crisis is acknowledged as a crisis, and china might not ever actually acknowledge a crisis that is correct dont necessarily have the capacity to do so. So, i think the argument relies a lot of government creativity so i put these questions to you. Does can you real deploy Crisis Management tools if you never admit that you are facing a crisis itself . And if you do so doesnt that make it look like a financial crisis . The second is, government creativity has clear limits. If property prices are down 30 to 50 which seems within the realm of possibility, in the future, given the imbalance within the property sector there are to tools china can use that other countries cant when you deal with problems of this magnitude . Ill stop there. Thank you, league again, really appreciate it. As i told you, told everyone at the beginning with my warning is that we would this hour would fly by. Still have eight or nine minutes left and im willing to go a few minutes longer because this is such a risk conversation prompted by a terrific book. I said the commentators might be considered as like a Dissertation Committee and everything i heard from them was that at the end of the day theyd sign off that form that second late inside the room and with flying colors. Obviously theres a but not to say that everyone agrees on everything put what we have is a very important conversation where we have highlighted what the true areas of debate that are needed to engage. While we have been listening, our audience has been committing questions submitting questions which ive collected and they come in the groups and what i want to do is sort of mention some of these and i want to then turn give tom a few minutes to pick and choose amongst them and then actually then good back through our commentators in reverse order, logan, ann, hell good and choice, for final reactions from their side as well. But tom, know were trying dont feel like were putting too much on your plate. Just this is the start of the conversation, not the end. So, from our audience three kinds of questions the first has to do with chinas system, and whether or not it is too brittle. Be heard that some of that from the comment taters, but in your telling xi jinping still seal septembers relatively practicing mat nick. The system seems adaptable. Can you explain that at built further. Second type of question has to do with sort of whether or not the description of chinas Economic Performance is overly rosy, and they point to people ask about chinas technology abilities, questions about debt and productivity, and what can you say about what is the proper standard to judge chinas Economic Performance . And third, our questions about u. S. China relations and the International System, the cold war, what happens if the u. S. Tries to lock china out of swift or ramps clown on tech until much further than its done is is going to constrain china and lead to a popping of the bubble . So lets turn things back to you. And get some initial reactions from the commentators and from our audience questions. Tom . Thanks very much, scott. And thanks very much to all of the discussants. Think all of you got the balance between effusive and undeserved praise and gentle but completely correct pushback, really completely right. So, thank you for that. So let me try and take on a few of these. So, first of all, to logans point on the costs of deleveraging, so, i think thats completely right. Deleveraging has not been a painless or costfree process, and it certainly true that if we look at alternative indicators, chinas growth in 201620172018 may well have been significantly below p. M. What the official data suggests, macro cost of deleveraging. The point i would make, though, is that the fact that chinas leaders were willing to embark on a painful Deleveraging Campaign is its an evidence of their willingness to grasp the nettle. What are the choices in the choices are, dont delever, coin growing really fast and then have a financial crisis, or attempt to manage the problems and pay some costs now. Most economies around the world go for option two, he let things run and then have a chinese. China moved early and accepted costs. That guess to some of the strengths the chinas economic and Financial System. Ann i thought made a really interesting opinion where financial crieses come from and they come when we run out of intangible val our for the Financial System to monetize. What that speaks to real is a question about chinas underlying great story, right . So if we really think the chinas great story is over, then, yes, we would be extremely worried but a financial crisis because the resources which banks, corporations and governments, have to paper over the crack was be flat or shrinking and thats when the crisis happens. So, underpinning my 0 optimism is that more positive longer term view on chinas outlook. Forecasts for chinas growth which i think is broadly in line with where joyces numbers came in on where china would be in 2030 and where helgas imf numbers come in for communicate in 2030. Dont think china as run out after intangible value to generate. So we had a question from the audience but brittleness. And we didnt get to talking about the sort of social side of china, but i think this is also an area where we unestimate the robustness. From as long as ive been thinking and writing about china theres been a story that has been a kind of foustan pact between the Chinese People and the communist party. You give us growth and well give you control and we wont contest that control. The story is always been, well, if unemployment rises look out bears theres going to be social instability and thens why china is so determined to glow at 8 a year, even though theres these costs in terms of increasing imbalances. In first half of 202 we have had a stress test on that as well, right . The economy has shrunk 6. 8 . Household income has contracted. Unemployment risen, and if we look at most chinese provinces we dont see social instability. Multinational here in the u. S. And europe and japan and korea pretty deeply invested in the china relationship. As a source of why demand. So be clear that america is going to change in the way that the worldviews china. It is very clear here in the u. S. And europe and another part of the world. Theres been a shift in focus from having the opportunities from worry about the risk and thinking about how to manage them. Is that going to me a cold war in a meaningful sense were economic comprehensive things happen. I find that very hard to imagine. Some of freud i didnt get to all, so have from the panel greater all of the interesting questions from the audience but i think that is sort of the big ones. Terrific tom. Masterful reaction to the comments from the commentators in the audience. Only get a minute or so to teach about commentators going in reverse order. To react to you think that what tom has had or things that you have heard from a fellow commentators. Then i will wrap things up. Guest i will just Say Something very briefly about the covid19 outbreak in the fact that we think that it should have in the Financial System. In the stability. I think it is far too early to say that we have really seen the effect so far. The other issue is that when government guarantees for the enterprises, for banks and Government Support thats being extended. It wouldnt necessarily expect to see financial risk rise we would like to see that occur in a system like china are thing assumed to be guaranteed. When the government guarantees are being withdrawn. When conditions are normalizing. So maybe to her legacy that it is really up to sort of actually recovering we elect more of the regular regulation of the Banking System that we see poor credit risks emerge because the losses from the nonperforming loans will start to appear. That being said, im also concerned about the or what rest we are already saying within the nonbank institutions. Terrific. And pretty. For small that was my story. Lets not forget that china has a large market that is not counted in that. So not to say the characterization is wrong. Im a practitioner to simply say that chinas express strategy to move the banking, so theres leverage. Number two, from my experience, analysts, every reporting agency counts that incorrectly because they counted and on a marginal basis instead of on an accumulative basis. The actual amount of debt by each country somewhere between two times and four times what is reported. You count that, differently. The default, not debt. Number three, im very worried about not just the fragility of tonight in china but of the Global Economy because i see a direct attack on science. Amazing that the way in my point about how you count default as part of that. The same gains they go on and manipulating that these have gone on in the statistics of the covid19 statistics but there arent enough people who actually under stand statistics. To understand that this is the right way to do it or the wrong way to do it. The attack on six different forms. From the United States control the forces of science. In china, the control interpretation. What sciences. I think some of the problems that you see, related to hong kong are not just beijing but beijing comes with that information culture. In the control of science is relatively new phenomenon. Unless think that i want to say is that the other things. Talk about politics but the other thing i want to say is that in 2014, state Council Published what i thought was the best piece on subculture. It was published on a few ideas about the development of the sustainable Multi Capital system. That was going to be the way forward. It that is not way the chinas progressing we do not have the concept of capital structure in any of the countries that i operate on. Thats enough said. This is not the way they did it. Thank you. Right discussion. Covid19, we have to be careful before we celebrate in part because many of the measures that we need now, and chinas elsewhere, from education educag forward. And ultimately it will hurt you. An important point of the sources. Yes, there is the income level. And potential for the Financial Markets that they can work with theres also improving efficiency. In this country has a lot of potential in improving efficiencies in the way it uses its resources. Theres a lot of growth on the table the policymakers can pick up. Choice. Thank you so much. I wanted to add a couple of comments on the financial sectors. You talk about chinas global reach that test market in the the geopolitical consequences. But in their financial records have been actually very limited. If you look at who oversee closings of attorneys in the portfolio about 2. 3 percent. So well try to be able to become a more mainstream financial holdings. I see issues to look at as they occur out of this crisis. We are seeing china beginning to feel into the mainstream for the equity and fixed income investors come about one third of the way through the process now of putting it into the investors. But i think that of their Financial Markets, one important determinant of how the future china looks ahead. Make deposits are still about two thirds of the household assets. The question whether Financial Market will continue to develop as china progresses, i think is an important question. I think globalization could be very reactive to the covid19 crisis. There is the whole issue of how and transparency and integrate as it does slow down there. I think that this is a key requirement for china Going Forward because you still have the risk of a manmade financial crisis. As all of the other speakers have talked about. It will continue to attract these investment flows. And everybodys looking at the supply chains. The money that to survive. Terrific. Thank you so much joyce. This is been a fantastic discussion of the credit goes to tom writing the great book to get us all started on this. I want to emphasize white we wanted to host this program. Why think it is different than for folks who are in new york for london or works in Financial Markets for its obviously very important. I cant emphasize enough how important it is for washington policy community to get china engage administration occurrences and puzzles focuses capitol hill in their minds, have a vision of china is either partner a competitor looks and how these are sustainable chinas trajectory is, whether or not chinas economic trajectory is an opportunity or rest of the United States. I think washington has been consumed by a certain kind of image by china looks a lot of the rest and the downside which are definitely there. I think what thomas dunns bad balance to that conversation. I think we need to continue to investigate this so that when we think about economic policies for china and globally, we have an accurate picture as we possibly can. And tom really think you very much for helping us develop that picture today and with your book. It will have a very long shelf life. I am certain of it. I want to thank our staff, alyssa, our intern for organizing todays event. Doing a masterful job. Also door commentators joyce and logan, terrific commentary. It great Dissertation Committee. I hope you get the bandit together again to our audience for tuning and asking the questions. And to everybody. Please be back with us on september 22nd when we have a rollout of logans report about financial risk in china as well. This is a topic is not going like great we will be providing more information about the report in the event in the weeks ahead. Wherever you are, hope you have a good afternoon. Because mature tuning in and take care. To book tv in prime time, where Magazine Editor reports on the creation, growth and future of facebook. Former speaker of the house Newt Gingrich offers is because of my President Trump should be reelected in 2020. David former speechwriter for president obama, within on issues with american democracy. Start at 9 00 p. M. Eastern. Or Schedule Information on your Program Guide for online at booktv. Org. On tuesday, President Trump niece mary, mr. Book that is critical of the president. It is titled too much and never enough. Good morning america this past week she talked about the impact her grandfather fred is trump and on the rest of her family. He was a sociopath. Yes pretty. We mean by that pretty. He had no empathy. It was incredibly different driven and when it turned other people including children, his wife into ponds. To butte used to his own ends. If somebody could a servant to him. And he would use them. If they cannot be, he excised them. In my fathers case tragically, he was not abuse. With the complicity of silence, and inaction of the siblings, destroyed my father. That was hard to write. Much harder to witness. Is a of the heart sentenced to write. That left out the lights sentence. I cannot let him destroy my country. That sounds pretty arrogant. Islam aisling wouldve been treated i feel right in the book there are so many parallels between the circumstances in which my family operated and which is country is now operating. I saw firsthand what focusing on the wrong things elevating the wrong people can do. The Collateral Damage that can be created by allowing somebody to live their lives without accountability. I can do anything, to change the narrative of truth, i need to do that because i dont believe the american me b