This is csi online. We are going to go ahead and get started now. Folks are still arriving, which is fine. We want to get started because we have a fantastic program for you and not a lot of time. This hour will fly by. Toms book is really a fantastic read and, but, i do think that folks, especially in the United States are going to find the book controversial. That is a great thing about a book. If a book does not generate conversation, it may not be worth reading. This is a glass halffull story of chinas economy and the management of the Financial System. It is offered at a time when u. S. China relations are declining and attacks from all different corners in the United States of china system are growing. There is 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 risk. The book tries to answer the question, how did china manage to do it. How did they continue to grow without a major financial crisis and can they keep it up . I will turn the floor over to tom in just a minute. And then we will hear from several commentators all leading experts on chinas Financial System and their leading right. And then we will open up to discussion with our online audience. Used pathways to submit questions through chat functions or through email to our staff who will forward me the questions and then i will help moderate that conversation for the remainder of the program. We were expecting a small audience. A zoom room that can accommodate about 500. We were overflowing. Almost 1000 people registered for the event. And, so, no matter what, folks will be able to watch us now or online and just a bit. I will turn things over to tom. He is bloombergs chief economist. Prior to that he worked at China Economic correspondent for the wall street journal as an advisor to the uk imf and policy analyst at the British Treasury and european commission. He is also the author of understanding chinas Economic Indicators which delve deeply into chinese statistics. Tom, thank you so much for writing this book and i really look forward to your presentation in the conversation this morning. Over to you. Thank you very much. Just give me a minute while i share my presentation. Is that working . That looks fantastic. If i move it, does it move . It does. It really has never been more important that all of us understand not just chinas economy but the intersection between the economy, the Financial System, the leadership, security. I cannot think of anyone in the world who pulls these pieces together smartly and more comprehensively than the team. I am delighted that they would host this. Thank you for helping to pull this together. So, as i prepare to launch my book on the internet, i was thrilled to be doing it with cis, but when you do a book launch in person, the audience is physically there and they see the moral obligation to buy a copy of the book. When you do it over the internet, perhaps at sense of moral obligation is not there or is not quite as strong. An extremely clever mechanism to try to ensure this event. Before i start my presentation, i would like everyone to raise their right hand and repeat after me. I pledge that immediately after the presentation i will order a copy. That is a compulsory part of the presentation. The compulsory part of the pledge. I am not an unreasonable man. The second part is voluntary, but feel free to follow along, if you want to. I will also leave a positive review. Okay. With that done, let me jump into my presentation. From 2007 through 2018, for that entire time, there was a consistent thread of pessimism. Running through the western view of what was happening in china. Yes, the story went a little bit beneath the surface and there are problems. That is too high. China will have a financial crisis. Leadership cannot execute on reform. They are too conservative. The state sector is too big and too inefficient. Chinas median turn prospect just is not that strong as a demographic problem. And, yet, here we are in 2020 and the china bubble has not fallen. It was to try to understand why. What are the hidden sources of resilience in chinas economy, how does china continue to defy the pessimistic rejections of collapse. How does that shape the way that we think about engagement with china going forward. The presentation today, i want to touch on four areas where i think we had the story wrong on china and we have these emphasis in the wrong places. Talking particular about reform, the safe sector and the future. First lets talk about that. This told you, i think, the way in which many foreign economists and many chinese economists think about the biggest risk to chinas economy. Changing the ratio of gdp. In 2008 it was around 140 . Fast forward to 2015 and that debt level 250 . If we look around the world and we found the history books, we cannot find any other countries that have taken on as much debt as china as quickly as china has. We can find a number of countries that took on significant debt. Left debt in china and still had a financial crisis. Korea in 1997 took on a lot of debt not as much debt as china. They had a financial crisis. The u. S. In 2006, 2007, choke on a lot of debt. Not as much debt as china. They still had the lehman chalk in the great financial crisis. We think about the borrowers. We have zombie enterprises. We had state developers building ghost towns in the desert. Building roads to nowhere. If we look at the lender side, the explosive growth of a banking sector. Skirting the rules, skirting the regulations and growing faster than they should be. If you put all of that together, it looks like an extremely risky picture. What that missus is something really important about financial crises and something really important about chinas Financial System. That is what is happening from the liability side. Remember, the financial crises do not start on the outside side of the balance sheet. Having too many investments in mortgagebacked securities. Koreas banks did not fall over because they had too much exposure to crony capitalists corporations. They start on the liability side. They start because banks run out of funding. Because the money markets decided they did not want to fund it anymore. Koreas banks and the Asian Financial crisis fell over because Foreign Investors hold their money out of the country. What does that mean for china . China has an extremely high savings rate and it has controls on moving money out of the country. What that means is there is a continued pileup of funds in the Banking System. The deposit base continues to grow and the funding for the banks is very secure. Even as problems increase, and i am sure that there is a vast quantity on the balance sheet. Triggering the crisis in there. The second area that i want to talk about is chinas leadership to execute meaningful reform on the economy and on the Financial System. That i had dimension is that the ability to applaud politely the same period, was actually keep requirement to make at the top of chinas leadership. If you cannot applaud for assisting. Time, you will not make it onto the standing committee. Thats a subject that i think maybe western people should take up and Pay Attention to. More seriously, through the sarah and that consistent narrative of a reform in china. And its been a narrative about reform media. And they withhold the consensus oriented. Too much of the committee man. To push through difficult reforms. And they withhol were told theyo conservative to push through. And i think that narrative, lines us up to some very significant progress that the china leadership have in fact been able to make an lets think about the two most important instruments for control of the economy. In Exchange Rate in the Interest Rate. The Exchange Rate that is the price of chinese goods in foreign goods. The Interest Rate with the money print is really nothing more important than driving efficiency and economy been getting it right on these two instruments. If we go back to 2003, but the Exchange Rate in the Interest Rate managed by the government at an artificially low rate. In a few swing the calendar forward to today in 2020, the Exchange Rate is a value and moves by Market Forces and on the industry, not quite so much progress has been made but Interest Rates today are substantially more market than they were five or ten or 15 years ago. Because we view chinas leadership three kind of red mist. I think we are unable to recognize some of the important progress that we do make on reform. And that also means that we dont pay sufficient attention to their ability that significantly moves the dial in managing financial risk. So here i want to talk about chinas unique agenda. In 2016, the chief economics advisor of shing ping kicked off the campaign freedoms nationwide campaign to reduce risk and chinas financial sector. Without, the signal the people that china traveled around the country they north of the door of every single commercial bank. They said show balance sheet. If they didnt like what they saw either on the asset side of the liability side, if they thought the banks were taking too any risks in the lending, too any risks in term of the sources of funding they relied on, they would have meaningful punishment for them. I remember traveling in the summer of 2017. In speaking to a group of local people. And all of them had campaigned that had the meaningful impact. We see that in the data. This chart shows you that riskiest part of chinas Financial System. Through 2016, it was growing a rapid pace. And when the Campaign Kicks off, the lending first accelerated rapidly and actually contracted on the back part of two years. And they underestimate chinas leaders ability to execute the meaningful reform and we underestimate chinas leadership needed ability to meaningfully take steps to manage risk in the Financial System. In the third area i want to talk about is the state sector. There is really no area where the contrast between the u. S. Market system and chinas state census economy is more obvious and more sharply drawn then on the state ownership. In the u. S. , the private sector is a key driver in the economy and in china, the state sector plays a nice sized role played in the administration of that, consider a revenue of chinas stateowned industrial firm. As you can see the start, if chinas stateowned industrial firms for an economy, they would be the Third Largest economy in the world. China state sector on its own is bigger than the entire german economy. And in the west, we have viewed that entirely through a negative lens politically viewed through the lens of inefficiency and corruption. And that is not incorrectly to do it. Chinas state sector is very inefficient. And returning us in the is much lower than the external assets of the private sector. But that the to think about the fisher deb is not the way through it kind of the leadership, with the state sector. Lets take a step back and see the real estate sector in china through the eyes of chinas leaders. And to do that, lets hear what chinas great reformer and the other great reformer of the state of the union. Its what shing ping son said about his father. My father is an idiot. So why did he think the global trough was an idiot. Will one important reason is that he attempted to reform the soviet economy by taking his hands off the levers which controls the soviet economy and by doing so, he ultimately lost control. On his objectives. And chinas leaders are taking a different approach. Chinas leaders have kept their hands on which control the economy. The command the height of the banks and the oil firms in the Telecom Firms of the any Large Industrial firms remain stateowned. The gifts chinas leaders a powerful liver which they can use to execute on Development Objective and management. And on Development Objectives, chinas leaders can have the state banks and state firms to require technologies and for the technology to work. At enormous skills in the chinese economy. Bringing china closer towards the productivity. On management of this cycle, chinas leaders consider the state sector to hold onto their workers and two of the last when private firms have become for office. That is a powerful tool to avoiding christening the recession. If the states actually is inefficient and by focusing only on those negative, full full full the final also place that the driver of development and powerful tool that can be used o manage the economic cycle. In the last area where i think our focus in terms of thinking about china, only on the negative and missed some of the positives is on chinas medium term great prospects. Solely think about chinas medium term prospects. We tend to focus on a few stumbling blocks that china faces. The working age population is shrinking. There is a middle income trap perhaps china will be able to innovate enough to attract the middle level of development. Trade wars may block chinas access in the global market. And these things are true and they are real problems. Between also has some very significant postures working in his favor. These positives are so obvious that they were obvious even to adam smith, the grandfather of economics when he brought his book, the loss of nations all of the way back in 1776. So im just going to fight briefly from what adam smith wrote about china for than 200 years ago. Two important points. The great extent of the empire of china, a vast multitude of its inhabitants, they render the whole plan ahead of that country of such a great extent to be alone sufficient to support very great manufacturers and to admit very considerable subdivision of labor. It says the first Crucial Point. Because can achieve massive economies of scale and efficiency gains through minute subdivision of power. In the Crucial Point from adam smith. A more extensive navigation, the chinese would naturally learn the art of using and constructing themselves of all of the different machines making seven other countries as well as the other improvements of our industry which affects all the different parts of the world. Now smith was right on that as well. He was also early. 200 years too early. So when xi jinping opens during the 1978, even more when china during the wto in 2001, these two powerful drivers came together in china had enormous scale in the capacity to learn from our Current Technology for the sleep of these two things together, and extraordinary engine of hope for the question then becomes as the engine picked up speed. I think the answer to that is no. And the reason i think that is because the comparison between china and japan, lets think about when japans economy fell over in 1989 rated japans gdp per capita in 1989 and already caught up to the levels in the United States. Japans already on the frontier of what was possible in terms of using technology and becoming more productive. Chinas per capita today is very significantly slower not in the United States. To me, that means very still significant catch up space. And i think in the middle of this decade, is entirely possible that attorneys will still be drawing. I think at the end of this decade, its entirely possible that china will still be drawing at three or 4 percent a year. And so i am going to wrap up in a second party to bed i do, let me try to pull these pieces together and apply them thinking about what is happened to china in the last six months. Now covid19 is of course a human tragedy. It is also an economic and Financial Task for the world and the four china. In the last few months, income with the biggest borrowers in chinas economy and enterprises, real estate developers, local governments, as a full contracted. If there was a moment that the chinese bubble was going to pop, it would be now. It is the income for the biggest borrowers falls, the benefits to the Service Loans disappears and that is the moment where you would expect to see some kind of day of reckoning for the chinese economy. And of course, that is not as what has happened. In this chart, you can see the daily activity indications that we built in china and other Major Economies invite you can see his china fell but they do not fall as far as other Major Economies. In the picked up more quickly. In a now closer to normal levels of activity than most other economies in the world. So why is that and why do we see a financial crisis. Why is recovery quicker and other economies. While this brings me back to some of the sun recognizes sources of strength and chinas economy. Chinas banks because they are wellfunded gave forbearance to companies. They can say you cannot pay us back this quarter. That is fine. You pay us back next quarter or maybe even next year. They can fall the labor of state enterprises, they have a powerful instrument. They can tell the enterprises in china, maybe even hire more workers. It you dont stop investing. In fact you were to invest more. Because they can do that, they can prevent financial crisis breaking out. They can manage the gains in making shallower and make the recovery quicker than other economies in the world. That is why think that china bubble that never pops an envoy handed back to hear from some of our great discussions. Logan. If we look forward to hearing this. Thank you. Thank you so much tom. That really is terrific presentation part and i think you did an excellent job of summarizing your book in the overall story and we really appreciate that. And i like that you have a dry sense of humor. But also, that makes a point. Soy appreciate that. As you said, adam smith was right. He just had very bad timing. And so he may be a very good economist but he would be a terrible investor. So now we are going to turn to our commentator. I would not call this group, murderers rope targeted even if they have a variety of different opinions. But if you going to form a Dissertation Committee of the best and the brightest. The 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 that i will turn it over to each of them to allow them to offer a few minutes of commentary. Joyce chang is a Level Research of jc morgan. That is one of the leading analysts on chinas economy anywhere. She is helped top ranking Institutional Investors surveys for investing market and it before joining jp morgan was managing director rated and another is assistant director and also mentor festered monetary economics of the university of berlin. Where he served as a tenure full professor. It is previously taught princeton as well. And another is a founding principle of the 20 yearold Credit Rating advisory firm, spectrum. Shes an expert on the logic of Capital Market development and testified for the u. S. Senate. Been an advisor to hong kongs monetary and is just one of the leading experts on all issues related to credit. In logan is director of a group, and the china market research. Is also nonresident fellow with us in trustee chair ses i have prayed previously logan was head of research of the global advisories and china analyst and research. With amazing bradys joining us from hong kong today. Some going to turn things over to joyce first. And into logan and in that order. And then we will look at questions from the audience. He said joyce, over to you. Joyce thank you so much scott. Its a real pleasure to be here with you scott. Also want to congratulate you on all the work that you been doing with it testing issues. I look at your work very closely. But i really want to congratulate tom because of somebody is with the china for the last three decades. I highly recommend this book. It really goes through the four different stages of the cycle that china has done and what they have learned from each stage of the cycle that is cause them to really take a more gradual approach. And tom, he highlights these things. First walk of the china is a strengthening economy wise, and i think the other thing that stands out from this book is how much china learn asia financial crisis. As then by the financial crisis with the global of the Great Recession that we are in right now afraid of a china learned in very important lesson. I think it tom very clearly points out that this is not japan. The surplus after their bubble. China is 15 percent of gdp in any of them in that country is on the same category. Also north korea because korea had to rely on expert similar major role in times been managing this very gradual. So very insightful book with what it says about what china is learned from past crises in the region. And also how is manage the different stages of cycles. I would like to just make three points on how we are sing china by now. Talking with the guardian and medium forecast at that j. P. Morgan has been whether you agree that on the path of selfsufficiency is of the deals clinical monitoring. We do think that chinas having a vshaped recovery history of naturally seen a Jennifer Kastner and we havent 2 percent this year and we had below 1 percent with the rest of the world contracting 4 percent. And next year, in 2020, is china going over a percent. Think thats a very amazed by how them actually be able to return to type in time sometimes normalcy this cannot be replicated elsewhere. Given that china has the ability to control somebody parts of its economy. I think the china has an enormous force strength. It it outlines it in this book, the Stable Funding from the financial sector. A single party. Did you see it during an enormous stimulus this year. In the fiscal deficit that will be north of 15 percent of gdp. So i would just say that i agree that if it were to pop, that the rest of the world would also pop. Estimates and every one percentage point decline in china, takes about. 4 percent off of Global Growth. As much as one one in the commodity exploiting emerging arcade countries in latin america. But the important thing that i would say is we do see chinas growth slowing. But what we are looking at on the range of four four and a half percent. At the end of the decade. Not something that is collapse. Also have Global Growth just off of the crises. On average private sector that pricing across the globe. Ron 15 20 percentage points. So china has that problem with the rest of the world is hopefully coming out of this debt. The second point that i would make it selfsufficiency is that china is actually wellplaced to receive self sufficiency Global Leadership in certain areas. I would say that the the china has already obtained selfsufficiency and most Consumer Tech areas. Its been great as National Security concerns. Theres been an increase in importance on the tech infrastructures. Theyve upgraded a lot of the homegrown tech supply chains. The higher valued areas and i dont think it is that easy to move the supply chain. But we do see telecommunications ai and the internet. And also energy that you need in china. Where they will have sufficiency by 2030. Working harder to make the case that china is a bubble that will pop that quickly. I just want to conclude with just a few of the things that we are watching the geopolitical side. In one of those redlines chinas minds. The National Security legislation to the mpc as amended and the basic law of hong kongs. I think its a. [silence]. In the territorial in the south china sea. Also one of the main equator and that peninsula. I think they also very much sing their approach to how to apply this pandemic as a better model for the world. I grew tom that china is a bubble that never pops but if it werent pop, there would be any other cities that would be popping first. Thank you list into logan now. Logan thank you. Can you hear me. Super. So if this is a fantastic book tom. Barry told you earlier. Actually boffins even though i do not have to. I think it has important messages for china today. I think it is also less than semi like you who knows the country so well and theres still a lot to learn. And also looking back to history, i think we all need to. And as you are describing this complicated subject. Any things are forming the whole. It is really hard to think about right clearly about this. I think it is a fantastic book. Im with you when you described this strength of china as support, not to underestimate the country and its potential to grow in the ability of its policymakers to at least try to manage even though sometimes is not a big plan. You point to all of the right places, the size and scale the potential to grow. In lifesaving things. I like sort of this stressing approach of the ability of all of these actors to act sizable he inflexible late. I think the covid19 episode is important here. However the covid19 episode also has a reminder that some of these things that china has, may ultimately sort of lead to inviting economic constraints. And while china is a larger economy in the 40s kia economy in these policymakers. This rely on the country. If and let me just stress some of these issues there that i feel in your overall summary, leading to very optimistic bubble that never pops in the headline that is on the screen. Its real really little bit under rated. Basically two broad areas. I think one is that the ability to have all hands on deck. They can handle any problem anytime. The topdown approach. It is happening right now. But it also comes with risk. Yourself pointed to the overshooting that can happen if you put all of your eggs in one basket read in the stimulus after the Global Financial crisis is a good example. The way too far but in hindsight we know that. And abroad a lot of problems and narrow the policy space moving forward. Youre well aware of addressing it. Im also, you have an episode where in the book, the one policy. That is an example of the longerterm rigidity. Its flexible at times but other times its not. So on the policy making part, it is important the policymakers are indeed airport the bigger point for me and is not because paycheck is coming from them. They worry about risks. It is because i feel these are points that are worth looking at. My main point is to acknowledge the policy for china. It and it has to stand up and face us. Otherwise, we will not be optimistic role going forward. In the 5 percent level that joyce was talking about. An aging is important for you to the deficiency. Yet great numbers in your book the stress that. But any stress in the area of the technology. It is true that china has made rate leaves here. And so i cited a couple of areas. It is also important to remember that in the waste majority, china is still significantly in the front tier in terms of technology. That has an impact on productivity and has an impact on certain enormous potential for reforms that can actually pick them up. And saving, it is good to have ample savings but is not healthy to have savings at the National Level of 45 percent of gdp. Its just not. And so there are inefficiencies. And that come from it and they have to fight this. The debt levels are way too high. And tom put out that the sovereignty a debt. But to narrow this down and talk about corporate debt. The company is estimated at 70 percent of gdp cost of debt. That depends on what you assume of what appropriation is at the local government level. Every other country averages around 90 percent. You see the tensions that need tackling. So my appeal to the readers of the book is take all the material that is there but focus on chapter 11 believe we are tom again we are in a crisis. There some of these issues that he himself had to deal with. And they need to be taken outside of these policymakers. They are strong in their effective but they have to work it out. Thank you. Terrific and thank you. Lets turn out to and. Guest first of all i want to express my gratitude to you for including me for my view on china. And i take the pledge. I really liked toms book very much. I want to read it again. He deserves to be paid for it. Oxford University Press is a great press. They also deserve the income freighted with other professional and personal level. I like this book. It shows a lot about the economy in three different ways but before go there. Especially want to say by walking us through the fourth cycle, of chinas financial history through china of 2025, thomas thinking about financial history is a continuous process. I lived through a lot of this personally. In his narrative is there. It is february and kind of liberating to read another persons narration in my private experience. So have to say that i wrote in hong kong. And as a practitioner and reader of the chinese press, i knew the credit market best story. In the first cycle. That is a story that is not been well told. This the first time that have actually seen it will laid out. I worked in Hong Kong Exchange during the second cycle. And tom is talking about that in his book to mike springs as well. And first regarding the free market. The models that we usually use in the citrix economic studies. The movie towards a more sucked china centric narrative. That is hugely valuable. As tom to set them up its in a red mist. And i kept skipping ahead to see if the story ended about why the bubble has not burst. It may beat the point of the book is also the bubble in the eye of the storyteller. One persons bubble is another persons garden variety economic dysfunction. And every nation has those. And the lens from an economic story to a financial story. Its also very valuable. Chinas financial narrative is difficult story to tell. In his joyce said. I think he did a great job in putting up social differences especially between how new york and china understand china. And at the social rather than cultural, because china desperate for their own culture. The speak a special language of money that transcends whether youre operating in china from china or whether the u. S. S hong kong as well. And everybody should read this book. It is truly language because of the debating of ideas. In this debate is lacking in the cultural finance but i think it says more about the practitioners than it does about what finance can do. So hooray for new paradigms become from china. The more the better freighted finance benefits from competition. In competition and ideas. But i would say from my experience, both professionally and personally, the system of evolutionary history is as complicated as it is dynamic. And in i ate stew from open cold winds near the railroad station when i visited the 1979. And i was there again when the exchange opened in 1990. Im going to actually bring up a slide on it because it also points i can. Lets go to the second slide. This is the opening. Can you also get . This is the opening of the exchange. First you see it before it opens in the very first day. You see the happy faces of the traders. And then you see the observers up in the upper division. Five minutes after the market launched freighted successfully. And i think, one of the things. This year. This is also the finance. China if youre going to see or hear the exchange, thousands of exchanges and thousands of different abstract. That is not for tom to do. But i want to talk a little bit about the theme that i think did the long in the telling. And i think that is the role of the china market. Tom did a great job of talking about interestrate issues which is very complicated. And the role of real estate. Any talks about the financial crisis the Lessons Learned with but another played a very large role of the credit financial crisis as well trip. China has a second largest rating 20 become a bubble. China and the u. S. Have both embarked on financial policies that are designed to thing to eliminate rather than harness opportunism. But the grip that you saw in the eyes of the traders, that is what, i mean, by financial opportunism. It even the u. S. Nor china gets it right. I think that is very apparent but the shadow market holds a piece. And i would just leave with a comment that i somewhat disagree with toms view about what a bubble begins. I think they begin on the exit side of the balance sheet. They run out of funding, myself. See economies around the intelligible value to monetize. A generation of intelligent and trent intended intangible is a quality. We have a lot to learn here. Thank you. Thank you and i really appreciate it must go now to logan. Thank you for joining us. Logan thank you guys, really appreciate the invitation. And tom, i just want to say during this call, congratulations for this book. Its a very impressive coverage of a wide range of history in china. What is most impressive was it really integrates a lot of the political insights and some of the key events within chinas economic history together. I have seen various things very few people have really attempted this. I also found that this discussion of the debt dynamic in terms of borrowers dividing up the borrowers and the lenders, and then telling the history. This a very novel way of addressing Different Actors within the system. And really in of itself. So some of the anecdotes here were great particularly when you are talking to entrepreneurs and borrowers. And a lot of the other integrations of contemporary references to Chinese Literature for example. So i would highly recommend that everybody picks up this book. It is within finance books. Field is generally fairly boring. As difficult to actually go through any different titles. It is very refreshing to read something that is far more interesting. So i would recommend everybody listening to pick up toms book. I focus my comments on the subsidence into areas. One is on the Deleveraging Campaign that you described and i would have a slightly different interpretation of it. But i think that i would ask you to sort of reacted to it. The second one is on the major state capacity as youre describing it. I think the Deleveraging Campaign is being described wi with, being described as being somewhat costless in this telling. I think it is actually still an Ongoing Development in terms of crackdown on credit. As shadow credit that is underway. And i would argue that is not costless. What is really happen is one of the substitution of some of the funding sides risks for slowdown in economic growth. And thats exactly what is taking place. China has not really avoided the tradeoff here. Just more wrists are materializing in the bank sectors itself and forms of credit risk. One of the reasons for that is shadow lenders broadly speaking, there is a lot of speculative activity. But they do find the real economy. And there always any shadow lenders basically engaging in that activity on the high performing loans for the Banking System or to violate the credit policies to get around restrictions on that Property Developers local government financing vehicle or something of that nature. Our own analysis it was strange that its about at least that we can demonstrate at least 52 percent and nonbank financial institutes. And basically standard credit or sort of nonstandard credits. Thats probably conservative. It does have an impact on growth. And in 2018, had a very sharp impact on growth. And he basically, the impact was the Corporate Credit growth was cut more than a half, probably by about two thirds. Theres really no new ones to that approach. I would argue would actually highlight some of the bluntness of the approach that china took rather than a statement about state capacity overall. If you look at industrial output in 2018, for 70 of the 103 indicators that china publishes, the formal data for, they declined our right. In the weighted average that we told you about, six or 7 percent have fallen industrial output overall. Policymakers of course respond. We are also seeing since that time, new credit risks to realize in system. In including on the side of the balance sheets. In 2019, it was largely the byproduct and certainly a corruption investigation and have political overtones. In excess of shadow lending. And they made the decision to basically impose, the cdc did, impose costs on lenders that were expanding and using these shadow and my abilities. But at the same time, after that failure, we ended up seeing a watershed in terms of new credit risks. After we started defaulting and local governments could not protect road. Another makes started to see interbank funding being withheld. And companies this year even for facing protests outside the front doors. For them the lesser muslim. Two smaller banks, just of the past weekend. So i was interested in your reaction than this interpretation of the arranging campaign as last costs less so to speak. How it might change your perception and state capacity. The second set of comments is on crisis banishment in general. He placed emphasis on the Interest Rate, rightly so. But its really hard to redirect savings in a crisis i think youre completely correct to focus on the funding side of things. The ability spinoza said those were soda running. And i think the interesting thing here is that they can always inject liquidity to manage the crisis. But. Ellipsis crisis is acknowledged, as a crisis in china might not ever acknowledge it, they dont necessarily have the capacity to do so. So i think the argument relies on government creativity. So i just put this these questions to you. When you really deploy the management tools if youre never going to admit that youre going to basic the crisis itself. And if you do so, doesnt make it look like a financial crisis. The second is, the creativity really has clear limits. Property rises are down 30 50 percent which seems within the realm of possibility in the future. Given the imbalance of the property sector. The tools and china can use in other countries cannot when youre dealing with problems of this magnitude. And i will stop there. Thank you very much. Really terrific. Thank you. As i told everyone at the beginning, this is my morning is that we would the seller would fly by. We have eight or nine minutes left and willing to go a few minutes longer. Because this is such a rich conversation fronted by a terrific book. And i said they might be considered like a Dissertation Committee. And everything they heard from them. Was at the end of the day that they would sign off that form that circulated in the room. With flying colors. Obviously they have but a sudden say that everyone agrees on everything but what we have is a very important conversation worried highlighted this true area of debate that are needed to engage freighted while we been listening in our audience has been submitting questions which i collected it. And they come in sort of three groups and what i wanted to do so to mention some of the allies and then turn and give tom a few minutes to pick and choose amongst them. And actually go back through our commentators in reverse order. Logan and helga and joyce. For final reactions from their side as well. I know, will dont feel like were putting too much on your plate tom. This is really the start of the conversation at 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. We heard that some of that from the commentators but in your telling that xi jinping seems relatively well the system seems adaptable. Can you explain that a little bit further. In second type of question has to do with sort of whether or not the description of chinas Economic Performance, is overly rosy. They point to people ask about chinas technology abilities and about chinas debt and what can you say about what is a proper standard about Economic Performance with china. Third, u. S. China relations in the International System. The cold war what happens the u. S. Try to lock china out of swift door really clamps down on Technology Much further that is done so far. It will really constrain china and into a thumping of the bubble. His lets turn things back to you. Thank you and lets get some initial reactions on the commentators and from our audience. Tom. Thomas thank you very much to you and to all of the discussions. And i think that all of you got the balance between undeserved praise and the gentle but completely correct pushback. And youre completely right. So thank you for that. Living try to take on a few of these. So first of all, to logans point on the cost. I think it is completely right. Cost reprocess it is not been. Certainly true that if we look at alternative cases, in 20692017, and also 2018 may well have been significantly below the official basis suggested for unit and the point that i would make though, is that affecting chinas leaders were willing to embark on a painful delivery deg campaign. He felt pride in their willingness to grapple with the choices are. They continued to grow really fast. But with the financial crisis or attempt to manage the problems and take the cost now. Most around the world go with option two. China moved early. And i think that in itself moves to some of the strength of the chinese economic and Financial Systems have. And i had a made a really interesting point about that whe run out of intangible values from the Financial System to monetize like an said. I think with that speaks to his really is a question about the underlying story. So we really think the chinas Great Stories over the news we would be extremely worried about financial crisis. If the resources in the make cooperations in the governments have, that they would be flat or even shrinking. And that is when the crisis happens. So underpinning some of my optimism. It is that in a more global term, the i think will broadly align with where joyces numbers came in over where china would be in 2030. And that helga numbers came in in 1930. In the intangible can generate. So we had a question from the audience about brittleness. We did not get to talking about the sort of social side of china. So think this is also an area where we underestimate their robustness. As long as ive been thinking and writing about china, is been a story is been a kind of impact between the Chinese People in the communist party. You give us grief and we will give you control. And we can test that control the story is always been, unemployment rises freighted then look out because there will be social instability. That is why china is so determined even though there is cost of increasing balances. In the first half of 2020, we have that is well right. The economy is from 6. 8 percent freighted income has contracted it. Employment has risen. And if we look at most chinese provinces, we can instability. So i think that story is about brittleness, and chinas society. It actually is considerably overstated. And we just take on that last question from the audience about the cold war. I think we went back to 1978, when xi jinping started the process, the u. S. At that point and said no, you not coming into the global economy. We want to invest with you or share our technology and expertise, and that wouldve been a crushing blow to chinas early reform commission. And may be the global today wouldve been very different to how and actually does. But here we are in 2020, and china has an economy in the worlds biggest exporter in the world. An exporter increasingly in the capital to any emerging markets. And multi nationals here in the u. S. And europe and japan and korea. There are equally invested in the china relationships. Those of the support sources of supply and demand. So it is clear that there has been a change in the way that the worldviews china party did this very clear here in the u. S. And in europe and other parts of the world. Theres been a shift in focus from things that might be opportunities to worrying about the risks and how to manage them. And is that going to mean a cold war, in a meaningful since were economic parties are comprehensively broken. I find that very hard to imagine. Summa freighted did not get to all of these amazing comments that you had on the panel or from the audience but i think that deals with some of the big ones. The headed back to scott. It. Scott terrific tom. That is very masterful reaction to some of the comments from the commentators in the audience. I want to give a minute to each of our commentators again going into reverse order. To just react to something that tom has said now for things that you have heard from your fellow commentators. That will wrap things up. So logan. Logan also something very briefly about the covid19 outbreak and the effect it will have on the Financial System. It in the stability of the Financial System. So think it is far too early to say that weve really seen the effects so far. But the other issue is that when government guarantees for banks the enterprises and that Government Support to be extended. It would not necessarily expect to see financial risk rise. I would expect to see that occur in a system like china where everything is assumed to be guaranteed when the government guarantees are being withdrawn. And when the conditions are normalizing. So it may be too early to see that when it is really after sort of china has a recovery we get back to more regular regulation of the Banking System that we see more credit risks emerge because of the losses for nonperforming loans extended during this time. They will start to appear. That being said, im also concerned about what the risk we are already saying within nonbank Financial Institution such as the trust and even in smaller banks. Scott terrific. First of all with the deleveraging, yes. There was a great story but lets not forget that they have 7. 7 trillion market. Is not counted in that. So, not to say that securitization is wrong. My practitioner but to say that it was chinas expressed strategy to move it out of banking freighted so theres leverage as well. Cell number two, my experience, as an analyst, i know that every reporting agency counts that incorrectly because it counted on the marginal basis on a cumulative basis and the actual amount of debt each country is somewhere between two times and four times what is reported. I know that because you cant that, and the results differently. The default, not debt. A great number three, very worried about not just the fragility of china but the fragility of the global economy. Because i see a direct attack on china. And i see that in my point about how you count part of that. In the same gains they go on and manipulating things that have gone on and manipulating covid19 statistics. It is shocking. But are not enough people actually understand statistics to stand up and say that this the right way to do it this the wrong way to do it. We entered the attack on science takes two different forms. From the United States, we control the sources of science. And to try i think controls interpretation. What science is. I think that some of the problems that we see related to hong kong are not just faith and trent beijing amazing with the foreign information. In our control science is a new phenomenon, the lesson that i want to say is that the other thing, i dont talk about politics but the only thing that i want to say is that in 2014, the Council Published what i thought was capital structure. [inaudible]. It was published a few ideas by the development of the Sustainable Capital system. And there was going to be the way forward but thats not the way that china is progressing. We do not have the stable concept of capital structure in any of the countries that i operate on. The agency nor the controls. And i will say that is enough said. I am worried about fragility. But with respect to the United States as well. And if both countries have a wrong, then we are in trouble. Scott next. Great discussion. It one, we have to be careful before we celebrate. In part because any of the measures that we need now in china, is to have ramifications going forward. If youre stuck dealing with these improperly, it will hurt you. They have to keep an eye on this. An important point on the sources of control. Yes, as income level. Theres potential for the Financial Markets to work but also inefficiency. In this country has a lot of potential in the way of using these resources. It is an evil form, that is a big part of it. Scott choice. Speech of thank you so much. I think we could add a couple of comments on the financial sector. So we talk about chinas global tech markets in the manufacturing, and geopolitical consequences freighted with Global Financial markets is actually been very limited. I think that is one serious watch. If you look at the overseas funding attorneys and the portfolios is about 2. 3 percent. Civil china became a mainstream financial holdings. Thank theres the issue to look at as we come out of this crisis. We are seeing china to begin to go into the mainstream equity and taking about one third of the way to the stocks now. But i think having to develop the financial market, its going to be important determinants of how it looks ahead. The households are heavily invested in the Financial Markets. Bank deposits are still about two thirds of assets. Stocks and mutual funds are about 16 and also 4 percent. So question whether the Financial Markets will continue to develop as china progresses, i think thats an important question. Think the remedy will be very slow after the covid19 crisis. There is a whole issue of trust and how the transparency is and how we integrate the outgrowth of the slow down there. So i think this is a key requirement for china moving forward to. Because they still have the manmade financial crisis as all of the other speakers have talked about. And they will really need to continue to attract these kind of investment flows. And also the fbi has come down as well as others looking in the supply chains and the greater needs to diversify. Scott terrific and thank you so much joyce. This has been a fantastic discussion. In the credit goes to tom for writing a great book to get us all started on this. I want to emphasize why we wanted to host this program. And why i thank you so different than for the folks who are in new york or london or folks who work in the Financial Markets. This is obviously very important. I cannot emphasize enough how important it is for the washington policy community to get china right. I think each administration that comes in as well as on capitol hill have in their minds, a vision of china as either a partner or a competitor that looks at how their views about how stable chinas economic traj