Program for you and not a lot of time. This hours going to fly by. Toms book is really a fantastic read, and but i do think that both especially in the United States theyre going the find the book controversial, and thats the great thing about a book. If a book doesnt generate a conversation, then it may not be worth reading. But this is a Glass Half Full story of chinas economy and the 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 manages that economy, is incompatible 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, howd they manage to continue to grow without a mayor financial cry crisis. And they keep it up. Im going to turn the floor over to tom in just a minute. Hell introduce his book, and then well hear from several commentators, all leading experts on chinas Financial System in their own right. And then well open up things to discussion with our online audience. You have pathways to submit questions through the chat function 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 that, hence a zoom room that can accommodate about 500 folks, but were overflowing. We had almost a thousand people register for the event, and whether and so no matter what, folks will be able to watch this now or online in just a bit. So im going the turn things over to tom. He is bloombergs chief economist. Prior to joining bloomberg, tom worked as china economics correspondent for the wall street journal as an adviser to the u. K. Executive director at the imf and policy analyst at the British Treasury and european commission. Hes also an author of understanding chinas Economic Indicators which delves deeply into chinese statistics. Tom, thank you so much for writing this book and really look forward to your presentation expect conversation this morning and the conversation this morning. Over to you. Thank you very much, scott. Just give me a minute while i, while i share my presentation. Now, is that working . That looks fantastic. And if i move, does it move in. It does. Okay, fabulous. Well, look, its really, its really never been more important that all of us understand not just chinas economy, but the intersection between chinas economy, chinas Financial System, china business, china leadership, china security. And i cant think of anyone in the world to pull those pieces together more smart wily and more comprehensively than the team at csis. So im delighted that csis would host this book talk, and thank you, scott and the team there, for helping to pull this together. So as i prepared to launch my book on the internet, i was thrilled to be doing it with csis, but i also had a concern. When you do a book launch in person, the audience is physically there, and they feel a kind of moral obligation to buy a copy of the book. When you do a web, a book launch over the internet, perhaps that sense of moral obligation isnt this or isnt quite as strong. So ive devised an extremely clever mechanism which im now going to use to try and insure that i engineer maximum sales from this event. So before i start my presentation, id like everyone to raise their right handing and and repeat after me. I, tom orlik, and here, of course, youd insert your own name, pledge that immediately after the presentation i will order a copy of china the bubble that the never pops. Thats the compulsory part of the presentation, and im not an unreasonable man, so the second part is voluntary, but feel free to follow along if you want to, and also one for each of my friends and relatives, and i will also leave a positive review on amazon. Okay. So with that done, let me, let me jump into my presentation. So i lived in china for 11 years from 20072018. And so that the entire time there was a consistent thread of pessimism, even a thread of doom running through the western view on what was happening in china. Yes, the story went 10 great, looks impressive, but poke a little bit beneath the surface, and there are problems. That is too high. Debt is too high. China will have a financial crisis. Leadership cant execute on reform. Theyre too invested. The state too big and too inefficient. And chinas median term Growth Prospects just arent that strong. Theres a demographic problem as the work force ages. And yet here we are in 2020, and the china bubble has not popped. So my great station 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 predictions of collapse, and how should that shape the way we in the and europe think about engagement with china Going Forward. So the presentation told 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. And i want to talk in particular about debt, reform, the state sector and the future. So first lets talk about debt. This chart tells you, i think, the way in which most foreign economists and many chinese economists think about the biggest risk to chinas economy. It shows you the ratio of debt to gdp in china. In 2008 chinas debt to gdp was around 140 . Fast forward to 2015, and that debt level had 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 can china has. But we can find a number of countries that took on significant debt, less debt than china, and still had a financial crisis. Korea in 19 is 1997 took on a lot of debt. Not as much debt as china. They had a financial crisis. The u. S. In 2006, 2007 took on a lot of debt, not as much debt as china, 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 about the borrowers, we have zombie enterprises, we have Real Estate Developers building ghost towns in the deserts, we have governments building roads to nowhere, and we have the explosive growth of a shadow Banking Sector skirting the rules, skirting the regulations and growing faster than they should do. So if you put all of that together, it looks like an extremely risky picture. But what that picture misses is something really important about financial crises and something really important about chinas Financial System, and thats whats happening on the liability side of banks Balance Sheets. Remember, the financial crises do not start on the asset side of the Balance Sheet. Lehman brothers did not fall over because it had too many investments in mortgagebacked securities. Careers banks did not koreas banks dud not fall over because they had too much exposure to crony capitalist organizations. Financial crises start on the liabilities side. 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 pulled their money out of the country. What does that mean for china . Well, china has an extremely high e savings rate, and it has controls on moving money out of the country. And what that means is that there is 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 am sure that there are a vast quantity of hidden bad loans on chinas bank Balance Sheets the trigger for crisis isnt there. So the second area that i want to talk about is chinas leadership and their capacity to execute meaningful reform on the economy and on the Financial System. Is so here you can see chinas previous leader and current leaguer, xi jinping. You can see both of them applauding politely. One of my observations from watching chinese leadership meetings than i care to mention is that the ability to applaud politely for a sustained period of time is actually a key requirement to make it to the top of chinas leadership. If you cant applaud politely for a sustained period of time, youre not going to make it onto the standing committee. Thats a subject that i think may be our western china watchers should pay a bit more attention to. More seriously, through the hu jintao era and the xi jinping era, theres been a consistent narrative about reform in china, and its been a narrative the about reform failure. Hu jintao, we were told, is too much of a Committee Man to push through physical reforms. Xi jinping were told is too conservative to push through the needed liberalizations. And i think that narrative or or or or blinds us to some very significant progress that chinas leadership have, in fact, been able to make. Lets think about 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. Theres really nothing more important than driving efficiency and dynamism in the economy and getting it right on those two instruments. If we go back to 2003 when hu jintao was just coming in to office, both the Exchange Rate and Interest Rate were managed by the government and set at an artificially low rate. And if you swoing the calendar swing the calendar forward to today in 2020, well, the Exchange Rate is now closes to fair value and moved 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 5, 10, 15 years ago. Because we view chinas leadership through a kind of red mist, i think we are unable to recognize some of the important progress they do make on reform, and that also means we dont pay sufficient attention to their ability to significantly move the dial in managing Financial Risks. So here i i i want to talk about chinas agenda. In 2016 the chief economic adviser to xi jinping kicked off the Deleveraging Campaign. It was a nationwide campaign to reduce risk in chinas financial sector. And with that thatll from leo, the peoples bank traveled around the country, and they knd 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 or liability side of banks Balance Sheets, if they thought banks were taking too many risks in their lending or too many the risks in the sources of funding they relied on, they imposed meaningful punishment on those banks. I remember traveling around in summer 2017 and speaking to a group of local banks, and for all of them the campaign, this Deleveraging Campaign had a meaningful impact. And we see that in the data. This chart shows you the growth in shadow bank lending. The riskiest part of chinas Financial System. Through 2016 it was growing at a rapid pace when the Deleveraging Campaign kicked off shadow lending 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 leadership, chinas leaders ability 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 statecentered economy is is more obvious and more 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 a sideline role. A vivid illustration of that, consider the revenue of chinas stateowned industrial firm. As you can see in this chart, if chinas stateowned industrial firms were an economy, they would be the Third Largest economy in the world. Chinas state sector on its 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 do it. Chinas state sector is very inefficient, its much lower than chinas private sector. But that is not the only way to think about chinas state sector, and that is not the way in which chinas own leadership think about the state sector. So lets take a step back and try and is see the role of the state sector in china through the eyes of chinas leaders. And to do that, lets hear what dunn shoo ping, chinas great reformer, heres what his son said about his fathers view. My father is an idiot. So why does he think that gorbachev was an idiot . Well, one important reason is that gorbachev attempted to reform the soviet economy by taking the his hands off the levers which controlled the soviet economy. And by doing so, he ultimate hi control and failed to execute on his objectives. Chinas leaders have taken a different approach. Chinas leaders have kept their hands on the levers which control the economy. The commanding heights of the banks, the oil firms, or 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 close towards the productivity frontier. On management of the economic cycle, chinas leaders can digress the tate sector to hold on to state sector to hold on to their workers and to invest when private firms have become more cautious, and that is a powerful tool for avoiding or cushioning recessions. The state sector big, the state sector is inefficient, but by focusing only on those negatives, we miss the crucial role that chinas state sector also plays as a driver 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 about china focuses only on the negatives and misses some of the positives is on chinas median term growth process tent prospects. So while we think about the medium term Growth Prospects, we tend to focus on a few stumbling blocks. The working age population is shrinking. There is a middle income trap. Perhaps china wont be able to innovate, and theyll stay trapped at a middle level of development. Trade wars may block chinas access to global markets. And these thingses are true things are true and theyre real problems, but china also has some very significant positives working in its favor. And these positives are so obvious that the 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 going to quite briefly, if what adam smith wrote about china more than 200 years ago. Two important points. The great extent of the empire of china, the multitude of its inhabitants render the home market of that country of so great extent as to be a lone position to support very great manufacturers and to admit a very considerable subdivision of labor. 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 a more extensive navigation, the china would naturally use the art of learn the art of using and constructing themselves all the different machines they find useful in other countries wells the improvements of art and industry which are practiced in all the different parts of the world. Now, smith was right on that as well. He was also early. He was 200 years too early. But when dun chow ping opens the world in 1978 and even more when china joined the world trade organization, these two powerful drivers of innovation 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. The question then becomes has the engine run out of steam. And i think the answer to that is no. Expect reason i think that and 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 capitad today is very significantly below the level in the United States, and to me, that means that there is still significant catchup space. I think in the middle of this decade its entirely possible china will still be growing 5 a year. I think at the end of this decade its entirely possible that china will still be growing at 3 or 4 a year. So im going to wrap up in a second, but before i do, let me try and 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, stateowned enterprises, Real Estate Developers, local governments have all contracted. If there was a moment where the chinese bubble was going to pop, it would be now. As income for the biggest borrowers falls, their ability to Service Loans disappears, and that is the moment where youd expect to see some kind of day of reckoning for chinas economy. And, of course, that is what not happened. In this chart you can see daily indicators for china and other major economies, and you can see, yes, china fell, but they 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 crises . Why has its recovery been 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 well funded, can afford to give forbearance to companies. They can say, yes, we know you cant pay us back this quarter with, thats fine, you pay us back next quarter or maybe even next year. Chinas leaders, because they can pull the lever of the stateowned enterprises, have a powerful cyclical instrument. They can tell chinas stateowned enterprises, you dont let go of any of your workers. Maybe you sure more workers. You dont stop investing, in fact, invest more. They can do that, they can prevent financial crisis breaking out, and they can manage the and making shallower and make the recovery quicker than other economies in the world. Thats why i think that china is a bubble that never pops. Im going to hand back to im now going to hand back to scott to hear from some of our great discussants. Look forward to hearing your comments. Thank you. Thanks so much, tom. Really, really terrific presentation, and and i think you did an excellent job of summarizing your book expect overall story and the overall story and really, really appreciate that. And i like the you have a dry sense of humor but also make points. And so i appreciate that too. As you said, adam smith was right. He just had very bad timing. And so he may be a very good economist, but hed be a terrible investor, right . So now were going to turn to our commentators. I would not call this group murderers row even if they have a variety of different opinions. But if you were going to form a Dissertation Committee of the best expect bright 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 im going to turn it over to each of them to allow them to offer a few minutes of commentary. Joyce chang is the chair of Global Research at jpmorgan and is one of the leading analysts on chinas economy anywhere. Shes helped top ranking Institutional Investors surveys, and before joining jpmorgan, she was managing director of Merrill Lynch and solomon brothers. Helge berger is an adjunct professor of monetary economics at Free University of berlin where he serves as a tenured full professor. Hes previously taught at princeton as well. Ann rutledge is a founding principal of the 20yearold Credit Ratings Advisory Firm credit spectrum. Shes an expert on the logic of capital development, testify thed before u. S. Senate, been an adviser to hong kongs Monetary Authority and is just one of the leading experts on all issues related to credit. Logan wright is director of [inaudible] hes also nonresident add junket fellow with us and the trustee chair at csis. Previously, logan was head of [inaudible] both in beijing, and he is joining us from hong kong today. So im going to turn things over to joyce first, then helge, ann and logan in that order, and then we will look at questions from the audience. So, joyce, over to you. Oh, thank you so much, scott. Its a real pleasure to be here with you, scott, and i also want to congratulate you on all the work youve been doing looking at the test issues. We look at your work very closely, and its a great group of panelists. I really wanted to be here to congratulate tom because im somebody who has looked at china for the last three decades. I highly recommend this book. It didnt go through the four different stages of the cycles that china is in and what they have learned from each stage that has caused them to take a more gradualist approach x. Theres a few things that tom highlights that i think are worth emphasizing. First of all, that chinas never experienced an economy ewide panic. And i think the other thing that stands out in this book is how much china learned from the Asian Financial crisis. The Great Recession that were in right now, but china learned some very important lessons, and i think that tom very clearly points out that this is not japan. Japan ran a surplus after their bubble collapsed, and china is running a deficit thats going to be 15 of gdp. Many advanced countries on that same category. Its also not korea because korea had to rely on ec exports, but [inaudible] and chinas been managing this very gradually. The very insightful book about what thigh china has learned and how its managed the different stages of cycle. Id like to make just three points on how were seeing china right now, talk about the current and the immediate kwanterm fore medianterm forecast and some of the geopolitical risks were monitoring. We do think that china is having a vshaped recovery this year. We have it at 2 this year. We had it below 1 . With the rest of the world, we have the Global Economy contracting 4 , but 2 growth in china and next year in 2021 we have China Growing at 8 . Weve been amazed at how quickly theyve returned to some type of normalcy. I dont think this can be replicated elsewhere because china as the ability has the ability to control so many parts of its economy. Tom outlines in his book the Stable Funding from the financial sector, a single party that can martial resources. We do see them doing enormous stimulus this year, and youll a a fiscal deficit that will be north of 15 of gdp. But i would just say i agree that the bubble never pops, but if it were to pop, the rest of the world would also pop. We estimate every one percentage dechain in chai i thats growth is as much as 3 to 1 in the commodityexporting country in latin america. But the important thing that i would say is that we to see chinas growth slowing, but what we are looking at something more in the range of [inaudible] at the end of the decade. Not something that is a collapse. We also have Global Growth coming down, also the costs of this crisis. And on average we see Public Sector debt rising across the globe around 1520 percentage points. So china has a debt problem, but the rest of the world is ultimately going to come out of this with a lot of debt. The second point is on selfsufficiency. We think china is actually very well placed to achieve selfsufficiency and Global Leadership in certain areas. And i would just say that we think that china has already attained selfsufficiency in most Consumer Tech areas, National Security concerns. Theres been an increased importance on the tech infrastructure. Theyve upgraded a lot of their home grown tech supply chains, the higher value areas, and i dont think its that easy to lose the supply chain. But we do see telecommunications, a. I. , fellowshiptech, the internet and also in fintech and also in clean energy where they will have selfsufficiency by 2030, making it, i think, harder to make the case that china is a bubble that will pop quickly. Just a few of the things that we are watching on the yee yo political side been geopolitical sides because i do think there are red lines in chinas mind, and what are those . The National Security legislation by the mpc as amended, basic law of hong kong. I think a tougher stance towards taipei, the territorial disputes in the china sea, also, you know, they want to remain a key player in the korean peninsula, and i think they also are very much are advocating their approach to how theyre fighting ab pandemics as a better model for the world. But i agree with tom that china is a bubble that never pops, and if it were to pop, there were many other things that would be popping first. Thank you, joyce. Really appreciate that. Lets turn to helge now. All right. Thank you. Scott, you can hear me . Yes. Super. Okay. So is, tom, this is a fantastic book. I already told you earlier i actually bought it even though i didnt have to, and so i didnt have to take the pledge. I think it has important messages for china today. But i think it also, you know [inaudible] somebody like you who knows the country so well that theres still a lot to learn and looking back to history to do it, i think we all need to. What id like [inaudible] youre describing a very complicated subject where many things are interacting to form the whole, and its really hard to predict them, but its harder to write clearly about them x thats what youre doing. So i think its a great book. Im with you when you describe sort of the strength of china and support not to underestimate the country, its potential to grow, the ability of its policymakers to at least crisis manage even though, you know, sometimes not a big fan, you point to all the right places, size and scale, potential to grow, high savings rate, and i like the stress that you put on the ability of the banks to act decisively and reflexly. And i think the covid episode is important here. However, the covid episode also has a reminder that some of these strengths that china has may ultimately sort of lead to more binding economic budget constraints. And while chinas a large economy and important economy, very talented policymakers, economics also apply to that cup. Budget constraints matter. And let me just stress some of the issues there that i feel in your overall summary, you know, leading to the very optimistic bubble that never pops headline thats still on the screen, you know, a little bit underrates. So underrated. So there are basically two broad areas. One is that ability to have all hands on deck and tackle any problem anytime, you know, in a topdown approach is an asset, of course. It is an asset right now, but it also comes with risks. You yourself point to the overshooting that can happen if you put all your eggs in one basket and the stimulus are half of the global [inaudible] went way too far and brought a lot of problems to the narrowed policy space Going Forward. Youre well aware of [inaudible] also, you know, you have an episode where you discuss them in the book the onechild policy, and and that is an example of longer term rigidity. The system is flexible at times, but at other times it isnt. And so on the policy making part, you know, its important that policymakers sort of, you know [inaudible] the bigger point for me, and thats not because my paycheck is coming from the imf and we are paid to worry about risks. No, it is because with i e feel these are points that are worth stressing. And so my main point economic budget constraintses matter also for china. And the policy makers have to stand up and face this, other side we not see the optimistic growth Going Forward at the 45 level that joyce was talking about. Aging important. Falling investment efficiencys important. You have great numbers in your book that stress that. But let me stress the access to technology. It is true that china has made great leaps here, and joyce cited a couple of areas, but its also important to remember that in the vast majority of industrial sectors, china is still significantly lower in terms of technology. Now, that has an impact on productivity, that has an impact on growth, so enormous potential for reforms if you actually pick them up. Savings. Its good the to have ample savings, but its not healthy at the National Level of 45 of gdp. Its just not. And there are inefficiency es that lead to this, inefficiencies that come from it, and they have to face it. Debt levels are way too high. You, you know, toms put out the appropriately blackcolored chart on debt, but just, you know, narrow this down a little bit, talk about corporate debt. So the country has between 130170 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 on average around 90 . Thats advanced economies, emerging economies. You see the tension that needs tackling. So my appeal to the readers of the book is take all that material thats there, but, you know, focus on, you know, the belief where tom is more gaming the cry us. Crisis. There are some of these issues that he himself has described that are listed that need to be taken up by these policymakers. Theyre strong, theyre flexible, but they have their work cut out for them. Thanks. Terrific. Thank you, hehge. Lets turn now to ann. First, i want to express my gratitude to Scott Kennedy and csis for including me and my view on china and finance which you do frequently and liberally. And i e take the pledge. I really like toms book very much. I want to read it again. He deserves to be paid for it, and Oxford University press is a great press. They also deserve the income. So at a professional and a personal level, i like this book. The first i think it shifts the dialogue about chinas economy in three important way, but before i say that, the first thing i wanted to say is by walking with us through the four cycles of chinas financial history through chinas [inaudible] tom motivates thinking about financial history as a continuous process. I lived through a lot of this history personally x this narratives has integrity. Its kind of eerie and kind of lib a rating to read another persons narration of my private experience. So ill just say i arrived in hong kong ten days before mao died, and i lived through the gang of four there. As a practitioner and leader of the chinese press, i knew the credit market back story of the first cycle. I worked and that is a story that has not been well told. This is the first time that ive actually seen it well laid out. I worked in a Hong Kong Futures Exchange during the second cycle and [inaudible] to my experience there too. The perspective of the book skirts the false choice of free market versus state authoritarian capital models that we usually read in u. S. Centric economic studies and moves it toward a more china [inaudible] i think thats hugely valuable. As tom said, it rolls back some of the red mist. I kept skipping ahead e to see if the story ends with a definnive pronouncement definitive pronouncement about why the bubble hasnt burst, but maybe one persons bubble is anothers garden share few economic disfunction variety. It adjusts the lens to the financial story. Thats also very valuable. Chinas financial their ty is a difficult narrative is a difficult story to tell, and i think tom does a great job in pointing out social differences especially between how the u. S. And china understand finance. And i say social rather than cultural because finance experts have their own culture. They speak a special language of money that transcends, you know, when 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 ideas. Now, vigorous debate is lacking in the culture of finance, but i think this says more about the parochialism of the practitioners than it does about what finance can do. So hooray for new paradigms. Finance benefits from competition and ideas. But i would say from my experience both professional and personal that Financial System evolutionary history is as complicated as it is dynamic. You know, i ate goat stew from an open cauldron near the railroad station when i visited in 1979, and i was there again when the First Commodities Exchange opened in 1990. And im going to actually bring up a slide on this, because it illustrates a point. If i can. Okay. Go to the second slide. This is the opening. Can you all see it in. Yes. This was the opening of the commodities exchange. First you see the clock before it opened, you see the rapt and happy faces of the floor traders, and then you see the observers up in the Observation Deck five minutes after the market launched successfully. And i think, you know, one of the things that we with forget is that ill stop my share. One of the things that 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 that i think did belong in the telling, and that is the role of the shadow market. Tom does great job of talking about Interest Rate issues which are very complicated and the role of real estate, and he talks about the Asian Financial crisis and Lessons Learned with respect to Exchange Rate controls. But securitization played a very large role in the Asian Financial crisis too. China now has the second largest securitization market in the world. This is going to become a bubble. China and the have both embarked on financial policies that are designed, i think, to eliminate rather than harness financial opportunism. The glint you saw in the eyes of the floor traders, thats what i mean. Neither the u. S. Nor china gets it right, and i think thats very apparent to a neutral eye, but the shadow market holds the key. I somewhat disagree with toms thesis about where bubbles begin. I think they begin on the asset side of the Balance Sheet. Banks dont run out of funding, its economies that run out of intangible value to monetize, and the generation of intangible value is a [inaudible] and i think this is an area where we all have a lot to learn still. Thanks. Thanks, ann. Really appreciate that. Lets go now to logan wright. Thanks for joining us, logan. Thank you, scott, and thank you, tom. Really appreciate the invitation. And tom, just want to say, join the calls of congratulations for this book. Its, you know, its a very impressive coverage of a wide range of events throughout can chinas financial history. And, you know, what i found most impressive was it really integrates a lot of the political insights and some of the key events within chinas economic history together. And ive seen very few books even really attempt this. I also found, you know, this discussion of the debt dynamics in terms of borrowers, dividing up the borrowers and lenders and then telling the history was a very novel way of addressing, you know, Different Actors within the system, and, you know, really innovative. So some of the anecdotes here are great particularly when youre talking to entrepreneurs and borrowers. And, you know, a lot of the other integrations of, you know, contemporary references to chinese literature, for example. So i e highly recommend everyone pick up this book. Its, you know, our field is generally fairly boring. Its difficult to actually slog through many different, you know, many different titles. Its very refreshing to reading something thats far more interesting. So would heartily recommend everyone listening to puck up, to pick up toms book. I focus my comments on the substance in sort of two areas. Ones on the Deleveraging Campaign that you describe, and i would have a slightly different interpretation of it, but i think id like to ask you to sort of react to. And the second is on the nature of state capacity as youre describing it. You know, i think the deleveraginging campaign is being described with a bit of, you know, its being described as if it was somewhat costless in this telling. And i think its actually still an Ongoing Development in terms of the crackdown on credit thats shadow credit thats underway. And i would argue it has not been costless. Whats really happened is sort of a substitution of some of the funding side risk for a slowdown in Economic Growth which is exactly whats taken place. China hasnt really avoiding the tradeoff here. More risks are now materializing within the Banking Sector themselves in the form of credit risks. And one of the reasons for that is shadow lenders, broadly speaking, there is a lot of speculative activity, but they do fund the real economy. And there are ways many shadow lenders are basically engaging in that activity to hide nonperforming loan for the formal banks system or to violate credit policy to get around restrictions on lending to Property Developers or local government financing vehicles or something of that nature. Our own analysis demonstrates that its about, at least we can demonstrate that at least 52 of nonbank Financial Institution assets are basically standard the credit card, sort of nonstandard credits. And thats probably conservative. So the point was this really does have an impact on growth. And in 2018 it had a very sharp impact on growth. Basically, the impact was that Corporate Credit growth was cut more than in half, probably by about twothirds, and, you know, theres really no nuance to that approach. I would argue it actually highlights some of the bluntness of the approach that china took, that china took rather than, you know, a statement about state capacity overall. And if you look at industrial output in 2018, for 70 out of the 103 indicators that china publishes formal data for, they declined outright on year on year terms. The boughted average weighted average about a 67 fallen 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 Sheets. The bank failure in 2019 was largely the byproduct of certainly a corruption investigation and had political overtones but was largely the byproduct of an excess of shadow eleven aring. And lending. And they made the decision to impose some cost on lenders that were expanding using these shadow liabilities, but at the same time after that failure took place we ended up seeing a a variety, you know, a watershed e in terms of new credit risks as the lease started defaulting and other banks started seeing interbank funding being withheld. Trust Companies Even this year are facing protests outside their front doors, you know, four of them in the last three months alone. Two Smaller Banks faced bank runs just over the past weekend. So im interested in your reaction that interpretation of this Deleveraging Campaign is less costless, so to speak, and how it might if change your perception of state capacity. The second set of comments is on Crisis Management in general. You know, if you place emphasis on the savings rate, you know, rightfully so, but its really hard to redirect savings in a crisis, and i think youre completely correct to focus on the funding side of things, Balance Sheets. But as i said, those are sort of eroding. I think the interesting thing here is that if the pboc can always injectly quid inject liquidity, and china might not ever actually acknowledge a crisis, they dont necessarily have that capacity to do so. I think the argument relies a lot on government creativity. So i just put this, you know, these questions to you. You know, does can you really deploy Crisis Management tools if youre never going to admit that you are facing a crisis itself . And if you do so, doesnt that make it look like a financial crises . And the second is government creativity really has clear limits. You know, property prices are down 3050 which seems, you know, within the realm of possibility in the future given the imbalances within the property sector. Are there tools that china can use that other countries cant when youre dealing with problems of this magnitude . Ill stop there, but thank you very much. Really terrific. Thank you, tom logan. Really appreciate it. As i told you, told everyone at the beginning with my warning is that we would, this hour would fly by, we still have about 8 or 9 minutes left, and im willing to go a few minutes longer because this is such a rich conversation prompted by a terrific book. I said the commentators might be considered like a Dissertation Committee, and everything that i heard from them was that, at the end of the day, theyd sign off that form that circulated in the room with flying colors, right . They, obviously, have theres but its not to say that everyone agrees on everything. But what we have a very important conversation where weve highlighted what the true areas of debate that are needed to engage. While weve been listening, our audience has been submitting questions which i have collected, can and they come in sort of three groups. And what i wanted 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 go back through our commentators in reverse or order, logan and helge and joyce, for some final reactions from their side as well. And, tom, i know dont feel like were putting too much on your plate. Really just this is the start of the conversation, not the end. So from our audience sort of, as i said, sort of three kinds of questions. The first has to do with chinas system and whether or not its too brittle. And weve heard some of that from the commentators. But with in your telling, xi jinping still seems relatively pragmatic e. The system seems adaptable. Can you explain that a little bit further . Second type of questions had to do with sort of whether or not the description of chinas Economic Performance is overly rose is rosy. And they point to, people can ask about chinas technology abilities, questions about debt and productivity and what can you say about what ises the proper what is the proper standard to judge chinas Economic Performance. And third are questions about u. S. china relations expect international and the international system, the cold war with, you know, what happens if the tries to lock china out of swift or really clamps down on Technology Much further than its done so far. Is this really 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 commentatorses and from our audience questions with. Tom . Thanks very much, scott. And thanks very much to all of the discussants. I 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. And so let me try and take on a few of these. So, first of all, to logans point on the cost of deleveraging, so i think thats completely right. Deleverageing has not been painless or a costfree process. And its certainly true that if we look at alternative indicators, chinas growth in 2016, 2017, 2018 may well have been significantly below what the official data suggests. Kind of 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 itself an ed of their willingness to grasp the nettle, right in what are the choices . The choices are dont delever, continue growing really fast but then have a financial crisis, or attempt to manage the problems and take some costs now. Most economies around the world go for option two, or right . They let things run and then they have a crisis. China moved early and accepted some costs. So i think that in itself goes to some of the strengths of the chinese economic and Financial System. And ann, i thought, made a really interesting point about where financial crises come from, and they come when we run out of intangible value for the Financial System to monetize. And i think what that speaks to really is a question about chinas underlying growth story, right . So if we really think that chinas growth story is over then, yes, we would be extremely worried about a financial crisis because the resources which banks, corporations and government have to paper the cracks would be flat or even shrinking, and thats when the crisis happens. So underpinning some of my optimism is that more positive, longer term view on chinas outlook, forecast for chinas growth which i think is sort of broadly in line with where joyces numbers came in on where china would be in 2030 and where helges imf numbers would coin around 2030 come in around 20 30. So we had a question from the audience about brittleness. And we didnt get to talking about the sort of the social side of china, but i think unless also an area where this is also an area where we underestimate the robustness, right . For as long as ive been thinking about and writing about china, theres been a story, theres been kind of a faustian pact between the Chinese People and the communist party, right . You give us growth, and we will give you control, and we wont contest that control. When paying started to reform. If the us at that point said no about coming into the Global Economy, we wont share our technology and expertise there will not be a blow to chinas early reform ambitions in the Global Economy stays different to how it does that in 2020 chinas second biggest economy in the world, exports of capital to many emerging markets. Multinationals in the us, japan and korea are deeply invested in their china relationship, as a source of supply and source of demand. It is clear there has been a change in how the world views china. Very clear in the us and europe and other parts of the world, a shift in focus to worrying about the risks of how to manage them. Is that going to mean a decoupling . Is that going to mean a cold war in a meaningful sense where economic ties are comprehensively broken . I find that hard to imagine. Im afraid i didnt get to all the amazing comments from the panel or the questions from the audience but that deals with the big ones. Terrific. Masterful reaction to the comments from commentators and the audience. I want to give a minute or so to each of the commentators in reverse order, react from your fellow commentators and then wrap things up. Logan. The covid19 outbreak on the Financial System stability. It is far too early to say weve seen the effects. State owned enterprises for banks, to see Financial Risks rise. I expect to see that occur in a system like china where everything is assumed to be guaranteed. It may be too early to see if china has recovery and back to more regulation of the Banking System so because of the losses from nonperforming loans extended during this time would start to appear. That being said, i am concerned about the risk you are already seeing, with smaller banking. Terrific. . I will try to keep this short. With respect to deleveraging, 7 trillion in that. Not that securitization is wrong. Chinas express strategy for securitization. Number 2, from the securitization, every reportingagency incorrectly, a marginal basis on the cumulative basis, the actual amount of debt for each country somewhere from two to four times will support it, you count them differently. Point number 3, i am very worried not just about the fragility of china but the fragility of the Global Economy and i see a direct attack on science and i see my point about how you count this is part of that. The gains that go on in manipulating covert covid19 mortality systems which soften. And statistics, that this is a growing way to do it and the attacks on science take two forms. From the United States, in china they control the interpretation of what science is in some of the problems that we see related to hong kong others are not just beijing but others. Our control of science is a relatively new phenomenon. The last thing i want to say, i dont talk about politics but in 2016 the Council Published what i thought was the best system on capital searchers it was published, a few ideas about the development of Sustainable Capital system and that was going to be the way forward but it is not progressive and we do not have a stable concept of capital structure in any of the countries i operate on. That is enough said. I worry about stability. If both countries have it wrong we are all in trouble. Great discussion. Two points. Covid19 we have to be careful before we celebrate in part because many of the measures we need right now in china and elsewhere have ramifications Going Forward. If we stop dealing with mpls properly, we have to keep an eye on this. And important point on the sources there is the income level relative to other countries, tangible efforts Financial Markets can work with but also improving efficiency in this country has a lot of potential improving efficiency in a way that uses resources and reform as a big part of it. There is a lot of growth on the table policymakers can pick up. Thank you so much. I want to add a couple comments on the financial sector, in the tech markets, manufacturing the geopolitical consequences but the global reach in Financial Markets has been very limited. This is one area to watch. If you oversee the foldings of chinese assets in the portfolio of 2. 3 , a mainstream financial folding, a key issue to look at in terms of the crisis. Going into the mainstream equity and fixed income investors, one third of the way to the process of putting it in these indexes and the Financial Markets, one important determinant of how it looks ahead. They are under invested in Financial Markets, 2 thirds of household assets, mutual funds, 16, 4 , whether the Financial Markets will continue to develop as china progresses is an important question. The remedy proceeds very very close after the covid19 crisis and transparency and the risks to integrate and slow down. It is a requirement for china Going Forward. One thing, with investment flows looking at supply chains to diversify. The credit goes to tom for writing a great book to get us started on this. I want to emphasize why we wanted to host this program, it is different for folks in new york or london or folks that work in Financial Markets, very important. How important it is for the washington policy community to get china right. Each administration is focused on capital, a vision of china as either partner or competitor that looks at how their views of how sustainable the economic trajectory is and how fragile the system is and whether chinas economic trajectory that is next opportunity or risk for the United States. The risks and the downside which are definitely there, adding balance to the conversation and continue to investigate this so when you think about economic policies toward china and globally, we have an accurate picture as we possibly can. Thank you for that, very long shelf life. And organizing today doing a masterful job. And a great Dissertation Committee, to everybody, please be back with us in september 20 second as we have a rollout of logan rights report about Financial Risks in china. This is a topic that is not going away. We will be providing more information in the weeks ahead. Wherever you are, hope you have a good evening or a good rest of the day. Thank you for tuning in, take care. Heres a look at some books being published this week. Sean hannity argues a credit victory in 2020 would lead to socialism and economic strife in live free or die. Cnn and New York Times legal analyst jeffrey tube and recounts the Mueller Investigation and impeachment of donald trump in true crimes and misdemeanors. Pulitzer prize winning author Isabel Wilkerson argues in her latest book cast that history has been shaped by a hidden caste system. In a lab of ones on the National Science foundations first female director discusses her career and sexism in the scientific field. Also being published this week, evolutionary biologist carl burks to mandate a lab cofounder explains how to identify misinformation on datadriven arguments calling bs. Sean king writes about his life and work as a social justice activist. Edward ball recounts the life of his greatgreatgrandfather, a ku klux klan member in life of a klansman. Find these titles wherever books are sold and watch for many authors in the near future on booktv on cspan2. Good evening. Im executive director of the National Library for the study of George Washington mount vernon commonly known as the washington library. We have events we were set to hold in march before closure forced us to delay, we have the Martha Washington marcher. Some of the most important scholarships on the mother of George Washington. That is the name of martha washon