China's Economic Secret

[00:00:00]Western legacy media are back at it again, telling us about the imminent collapse of the Chinese economic engine.

[00:00:08]But are they merely crying wolf again?

[00:00:11]Hey everyone, I'm Jason Smith. I'm originally from sunny California now living in beautiful Beijing. Joining us today is Dr. Warwick Powell, an Australian geopolitical and economic analyst, adjunct professor and supply chain expert, author of his most recent book, Thermoe Economics in a Time of Monsters. Dr. Powell brings datadriven insights on multipolarity, energy transitions, China, Australian relations and the shifting global political economy. Welcome back to the Bridge to China. Dr. Powell, >> great to be with you again, Jason.

[00:00:46]You know, I I go online every day and I see the headlines and sometimes I read the articles from FT and from the economists and the BBC and they are definitely re reigniting this idea that China's economy is struggling that it's on the rocks and this has been a favorite for decades really. I mean it's been accelerated in the last decade but for decades they've been saying this and I think basically their most recent claims can be simplified to the following. consumers are spending less and this is the end of Chinese economic growth. Is there any truth to their claims?

[00:01:24]Um well, the short answer is no. And I guess over the next little while we'll dive into all of that and unpack it. But I think it's worth bearing in mind this particular pattern that you've identified and the fact that it comes and goes over the course of the last couple of decades. Actually, you'll recall that there were a number of observers, commentators, analysts, um, call them what you will, in the early 2000s who were already then uh, talking about the imminent collapse of China, whether it was, uh, English publications or American observers, they all ran the same sort of line. And I think that the intensity of these claims really uh emerges when there are a number of other things going on. Firstly, when the western economies themselves are experiencing significant uh problems, it is important to be able to distract people from those problems. And there is no better way than to of course point the finger elsewhere. Look over there is essentially what they're trying to do.

[00:02:30]The second part of that of course is to uh not only have people look elsewhere but to hopefully blame someone else for their own problems. Now this is where of course the narrative becomes a little bit interesting and more often than not contradictory because if China was the source of the woes of the western economies then a collapsing China really uh well it doesn't mesh very well with that particular narrative. We of course also have a bunch of hopeopium um playing out here at the moment which is this I I guess a deep-seated sense of displacement anxiety revealing itself in the hope that China itself will not uh succeed in its rise and its peaceful development uh and in doing so of course present actually an alternative proposition for the rest of the world. China itself does not officially seek to be an alternative. It certainly does not claim to be a model that others can emulate. Um but nonetheless I think from the point of view of global narrative management the greatest fear that American economic political elite have is the idea that there is actually a different way because the way that things have been done in the west are clearly leading down the garden path. So I think that there's some interesting dimensions to why these sorts of tropes reemerge from time to time. And I think they're invested deeply inopium and deeply in the idea that the political and economic elite in the west are very worried that their own narratives about their own economic systems are starting to unravel.

[00:04:16]>> You know that kind of well I have a bunch of questions so I don't know if we're going to be able to do them all.

[00:04:20]Probably not. Um so what role does the ideological commitment to unipolar exceptionalist framework play here? And what I mean by that is like I don't know when was it around the year 2000 the uh project for a new American century really got you know going. They launched a website and they basically said on their website that that the United States was going to control the world more or less. I mean they had theaters all over the world and different names for different regions of the world. And when China doesn't play along and it just says, you know what, we're China has decided we're going to manage China. We're going to govern ourselves. We don't need Americans and their ideological and polit economic political framework to govern our people. We're going to go our own own way. Do you think that there is some you know reticence about that and the United States media wants to portray China as because it did not follow the American path that was set out for the world that its economic uh conditions are not sustainable.

[00:05:19]Well, this is that question around uh China and China's own experiences uh offering what is in effect an alternative narrative to how economic development and social development can and should take place. You'll need to place all of this into a much longer frame because in truth for about 500 years and possibly a little bit longer, Western Europeans particularly through the ideological uh apparatuses of Christianity and then folding into liberalism have very much seen the western idea about how things should be.

[00:05:54]the idea of the good life, the economic life, the social life, the cultural life and the moral life. How that actually has universal civilizational properties to the extent that western colonial and imperial conduct was rationalized through this idea that the west was bringing civilization to the univilized natives around the world. It also rationalized how western uh imperial and colonial authorities imposed their will through force on local populations because local populations were inadequate to govern themselves. They were barbaric and they had not reached a sufficient level of human individual development. And this was very much wrapped around originally the ideas of Christianity but which then folded into the ideas of liberalism. Now the common thread in all of that incidentally is this notion that historical civilizational advance is symbolized by the emergence of this thing that we now call the individual within the western political and philosophical framework.

[00:07:13]This is the touchstone against which all other civilizational experiences are judged. And so China uh which comes from a very different philosophical and cultural traditions about what constitutes the good life, how the world is, what the ontology of the place um is and how people seek to navigate through that understanding of the world that represents something quite different.

[00:07:38]Now going back 100 plus years, actually going back a couple of hundred years, China was increasingly framed as this static backward other. There was a period in the European China experience where all things Chinese were put on a pedestal and they were really seen as you know important symbols of um civilizational development whether it was in the arts and porcelain and um uh silk et and of course Chinese tea uh you know there's a bunch of stuff that came from China that really captured the European and indeed the American imagination for a while, but that turned and it eventually became or China eventually became framed through the idea that it was a static backward other um as opposed to a dynamic individual freedom driven western civilization.

[00:08:41]This situation, this perspective on China, I guess, really came to a head in 1949 when the Communist Party of China successfully won the Civil War on the mainland. And for those who are uh uh recalling American history of that period, so we're talking about late 1949, early 1950s into 1951-52.

[00:09:14]The debate that animated the American body politic concerning China was the question of who lost China.

[00:09:27]And that focused in on McCarthyism because it was McCarthy whom in fact first argued that there were sympathizers inside the US state department sympathizers towards the communists that is um that ultimately led to the loss of China.

[00:09:49]this idea that China as an other, as a different civilization had been lost to the United States and had been lost to the West, that the barbarism and what became known as um a form of oriental desperatism had reemerged. um and that there was a a a a need for the modernizers, the great modernizers and civilizers of humanity embodied in western culture and the Americans in particular that had to regain China. Now from then on for the last 80 years this pulse has come and gone but it has never disappeared. this belief that China needed to be liberated from its own despotic history and to be liberated by uh giving it access to the wonderments of western cultural virtue. Right? So this is what's been going on now for for centuries in large part but in a very particular way in relation to China more recently. So this issue of you know the west and the American media or the western mainstream media needing to in a sense uh retackle this problem of China.

[00:11:14]uh it must be understood as part of this longer pattern of framing China as an uncivilized backward other which as a consequence should not actually be able to succeed because there is only one path to success. There is only one path to modernization and that is the western European come American liberal path. And so the idea that China is succeeding is just an aathema. It is in congruent with this particular sense of historical destiny for the west, it sense of exceptionalism and the fact that as Francis Fukuyama said way back in 1991 that it represented the end of history.

[00:11:55]Um so history didn't end. China developed its own pathways by drawing on its own rich histories and traditions and the west is seeking desperately to find ways of saying no no no that's just a temporary thing because the civilizational virtues inherent in the western model however we want to frame that um must ultimately overcome and must ultimately prove that it is the only viable way for civilization and humanity to progress and advance onwards historically.

[00:12:31]>> You know, I studied postc colonialism and this is my field, but the way that you were able to sum that up is so succinctly, I think, has reframed my own thinking about the topic because I'm often trying to figure out why did they come to this conclusion which is, you know, not correct about China's economy.

[00:12:49]And I sometimes I think it's some new thing. It's like a, you know, pushed from above. Oh, you need to address this issue. But I think it is an all civilizational problem in the west where you know we do have this long history and it is ingrained in our entire like civilizational discourse about how we see the world and how about how liberal uh westerners see the world and you know this makes a lot of sense actually thank you so much for your answer on the issue of porcelain there's also that you know ingrained love of porcelain week after next I'm going to Jing Jen to buy porcelain not because I need porcelain but because It does have this track history of beauty and I want to have some in my house. But I I want to talk about, you know, more contemporary issues with China's economy and you you address your is your area of expertise in econ economics and talk about, you know, short-term fluctuations in China's economy or um maybe metrics that have been taken out of uh context. Are there deeper structural transformation in China's economy as it's undergoing this rapid industrialization or you know what I'm really trying to ask is what are western economists at FT the economist BBC and so forth what are they missing do you think they're missing it on purpose also before I get to that let me just say a couple of things about porcelain and jingun it's been 12 years since I've been to Jing Dunan and Jing Dunan for um your viewers and listeners who might not be familiar with the place is one of the um the centers of and historical centers going back thousands of years of Chinese porcelain technologies and capabilities.

[00:14:30]It's recognized as um one of the if not the most significant production site for porcelain these days. And um uh one of the interesting things about Kingdom Jason if you have a chance to visit is that uh as we know when you make porcelain not every piece comes out perfectly and many of the broken fragments of course were thrown away and there are now historic excavation sites that go that have unearthed thousands of years of historical evidence of Jingerjan's porcelain knowhow by virtue of the fact that all of these fragments were discarded. So, um, uh, ding dungeon is very worthwhile. I've actually got a vase, which is a little bit different cuz porcelain, um, is made from clay, right? Um, but I have a vase here, uh, that is actually a jingun vase made of glass.

[00:15:24]>> Um, it's one of the very few pieces uh from Jingden that isn't a porcelain base piece, which uh, which uh, and and the glass is very fine. It's very delicate and it's almost translucent. You can see the light through it. Um it's a rather stunning piece even if I do say so myself. Anyway, that's um that's porcelain. Uh the issue around the Chinese economic system and how to think about it and understand it. Uh the mainstream western narratives which you'll find largely across the transatlantic uh basically run the argument today that China's economy is unbalanced. Okay, so that's the first cornerstone proposition that's made and they mean by that that China produces too much and consumes too little of what it produces.

[00:16:18]As a result of that, it is forced to export what it produces in excess, which then leads to the imbalances of trade globally.

[00:16:32]The reason why China does not consume enough is because of wage suppression.

[00:16:39]That there is an historic institutional setup which biases in favor of enterprises and production over consumption.

[00:16:50]So that's the basic story. And in fact, you could look at just about any commentary concerning China and uh from these mainstream sources and realize that the basic propositions anchor on those core themes that I've mentioned.

[00:17:10]So what's wrong with this particular view? Well, there is some basic evidence which suggests that that that some of the core premises are wrong to start with and then I'll get to this idea of how you actually understand things with a different framework. Right? But firstly, let's just look at some evidence. The claims about household income suppression.

[00:17:35]Well, over the course of the last 14 years or thereabouts, uh, Chinese household incomes have been growing at roughly 5% perom compounded.

[00:17:47]They have well more than doubled in real terms over the course of the last decade and a half. That is not a sign of income suppression.

[00:18:01]In fact, we also know, and this is ironic because this is a point that's often featured in Western commentaries about China, that the flip side of household income growth, real growth, has actually been repressed profits at an industrial level. Profits and household income typically work in opposite um dynamic with each other. Okay? because they are claims literally on the surpluses of production.

[00:18:34]So they come from the same pot. And if we want to maintain the view and the evidence does show this that corporate profits in China have been relatively modest in terms of their growth rates for quite some time. Um you can't sustain that whilst also sustaining the idea that wages growth has been suppressed. The evidence of course tells us that wages growth has not been suppressed. The other thing that the evidence tells us is that wages growth has been uneven. Okay. Okay. So there there's there's a demographic point here and a geographical point.

[00:19:13]Demographically we know that uh the incomes of the blue collar workers particularly in the last half a dozen years or so has actually been increasing at a faster rate than the income of white collar workers.

[00:19:29]Okay. Um, and that includes, by the way, the yellow vested delivery drivers who are now earning up to and around 8,000 R&B a month on average. Now, depending on what city you're in in China, 8,000 R&B enables you to get by quite okay, or it enables you to get by more than quite okay with sufficient left over to save for other things, whether it's to buy a house, a car, pay for children's future education, or what have you, or in fact to pay for the big holiday at the end of the year. So income growth has not been suppressed.

[00:20:20]We also have counterveiling evidence in the last 6 months which proves the point. So the last 6 months has seen industrial profit levels spike. They've gone through the roof 18 19%.

[00:20:36]And lo and behold, wages growth, real wages growth has tapered off from about 5% to 3.8. So you can see how these things work diametrically opposite with each other.

[00:20:49]Okay. So that's the first thing.

[00:20:51]Household incomes have not been suppressed. Part of the argument then runs that oh you know uh Chinese save too much. Okay. And there'll be a bunch of orientalist tropes around all of this. it's because they're frugal. Um or it's because um uh the social safety net doesn't exist and and uh Chinese people are petrified about the future and and therefore um hoard money and don't spend today. Okay, so that's the argument and therefore um you know there's not enough expenditure in the economy. This gets a totally um pardon the French ass about.

[00:21:31]Savings is a residual.

[00:21:34]Savings is what you have after you've spent everything that you have on the things that you need and want and then you have whatever's left. Savings is actually not a constraint. It is what's left over. So the real question isn't this sort of question about whether Chinese are frugal or not and all of that sort of stuff. The real question is is under what conditions is it possible for there to be such high levels of savings? Well, the conditions that make it possible is that there is a high level of real income over the cost of living.

[00:22:10]That is what makes high savings possible. Contrast that with savings rates in the United States where savings rates are now down to less than 3% or thereabouts from memory, right? They spiked during co but they've come right back down as people have eaten into the savings that they were able to accumulate during the pandemic period, right? to a point now where the gap between what people earn each week or each fortnite or each month and their expenses has narrowed so much that there are American households now who are giving up on meals so as to pay mortgage and rent. Over 60% of American households live paycheck to paycheck.

[00:22:56]They don't save. They live paycheck to paycheck. They have barely enough to survive a month without an income.

[00:23:05]Right? So this is the situation with American households.

[00:23:09]The and and I raise this not to make a point about the United States per se. I think we've done that on other occasions, but to contrast and to illustrate how savings is a residual of real income versus cost of living.

[00:23:27]Okay. So, Chinese household real incomes and the cost of living to lead a normal relatively decent life enables people to have a substantial amount of savings.

[00:23:42]That's the second point. The next point that people raise is well they're not spending much anyway. The rate of retail expenditure growth is modest. Okay, so this is the the next line of argument.

[00:23:56]Chinese consumers don't spend enough.

[00:23:59]Well, retail expenditure um has been relatively modest in recent times compared to in previous times. But there is also an interesting statistical issue here now and that is that a new category has been introduced to capture specific data on household expenditure and that goes to what they're spending on services. So retail expenditure captured information on what people spent on things.

[00:24:37]Okay, people spent money on things and that is captured in retail data and we now know quite clearly that in large parts of the country as people have gotten better off they're actually spending less well the amount that they spend on things is not growing that fast compared to last year or the month before because they've got most of the things that they need. Okay. Um what they are starting to spend money on though unsurprisingly if we actually understand the dynamics of what we call Engle's law which is the maturation of consumption and the transformation of consumption from the goods of daily necessity to you know things that are not what you'd call necessities but um uh um well they're not luxuries necessarily but they are um thing things that you spend money on through choice and those services expenditures are growing significantly. In fact, services expenditure is growing by over 5% peranom at the moment. Um, so what we're starting to see is a a maturation in the consumption base, the things that people normally spend money on, and a dramatic growth in these uh discretionary things particularly around services. by which we mean travel, tourism, domestic tourism, um eating out or getting delivered.

[00:26:14]Um uh digital services including computer games, um um but also consuming other digital services, entertainment, um uh uh shows um etc etc. Right? So that's actually what's going on. There isn't a collapse in Chinese consumption expenditure.

[00:26:39]What there is is a structural transformation of what that expenditure is now focused on. So we've dealt with two of these core themes already. Okay?

[00:26:48]And I'm only going to touch on one more, right? Um because I know that there's a fair bit for people to try and get their head around. The question that's never asked by the [clears throat] western critics who frame this as a choice between production and investment on the one hand and consumption on the other.

[00:27:06]You know, too much investment, too much investment, wasted investment, not enough spending.

[00:27:12]What they don't explain to you is what the relationship is between these two.

[00:27:18]You can't spend what you don't earn.

[00:27:21]Households don't have income. If households don't have income, they don't have incomes to spend.

[00:27:26]The real question we have to ask ourselves is where do the incomes come from?

[00:27:32]And the incomes come from and I know this is going to be a surprise to many of you but the incomes come from production activities that employ people to do things and those production activities require investment.

[00:27:48]Okay, they require investment in terms of fixed capital investment of course but they also require [clears throat] what we call the the demand for intermediate goods, right? Which is the things that go into a production process, whether it's um paying for um components and parts or what have you. Okay? Paying for for other things that go into the production process. And it is that circuit or those series of circuits that pushes new money into an economic system. Some of which finds its way into the uh the pay packets of um households, some of which is retained by companies.

[00:28:32]Um but when you actually start to think about this as a series of circulations at some point everything flows back through households and then into the rest of the system but it always begins with the commitment of new money into the system by way of investment.

[00:28:51]Okay. So if you want to say that there's a problem with consumption, what we actually need to understand is what the relationship is between production and consumption. They are dynamically interrelated. So this is a framework question where in fact you cannot have consumption if you don't have investment. So if you look at the United States again by way of a contrast and again I'm not making a critical point per se but more conceptual point real wages in the United States have declined for the bottom 50% of people more or less over the course of the last so many decades investment in fixed capital has been relatively tame because most of the surplus funds are being channeled into other sectors mainly around fictitious capital the creation of financial instruments etc etc. That's where the growth in asset value growth has been but the contraction in the available amount of circulating financial surpluses for households has been contracting.

[00:29:56]I'd say if you if you are concerned so let's take at face value these concerns that these western observers have about the China situation. if they're concerned about households not spending enough money. Um, well, the idea that China reduces the amount that it invests in the name of improving household expenditure is a is a is a fallacy. The dynamic interreationship between investment and consumption is a strong one because without the investment, you don't get the incomes.

[00:30:27]Without the incomes, you don't get the money to spend. Okay, so that's some of the key things that we get wrong from an evidence point of view. We can dive into some of the conceptual stuff in a moment if you want. Well, I kind of wanted to talk about infrastructure, but before I get to that, I want to continue our parallel conversation about Jinga Jen because in addition to going to I've been there once before, going again, I I had a family member recently give me aqing dynasty vase, which was I I'm not sure how much value it has, but we keep it in a glass case nonetheless because it will definitely have value in a century or two to come if we can keep it safe. But what I really find fascinating is you're talking about consumption. I go on Pindua, which is a one of the many apps you can buy things here in China.

[00:31:16]And I buy these, you know, unneeded items of value. And I I uh recently have been eyeing, you know, 1950s and 1960s porcelain where they began to make, you know, portraits of Mao Zadong and portraits of uh uh other leaders at the time and, you know, sort of really interesting how the uh culture has changed over time to reflect uh what's going on in the broader Chinese society.

[00:31:46]And at at one time a lot of the porcelain that was being made uh is you know basically revolutionary porcelain.

[00:31:53]And I I find that absolutely fascinating. I want to get a couple of those. But going back to talking about investment and maybe this is not the kind of investment you're talking about.

[00:32:02]Are we talking about household investment? Are we talking about investment by the state? Because there's an enormous amount and you know you also mentioned Fukuyama. Fukuyama came out recently in the last year and said that he was actually quite impressed that you know with uh China's investment in infrastructure-based sort of economy and that maybe he was it looked like he was sort of changing his opinion about history having ended. Maybe it hasn't ended after all. But you know a lot of people also say that these are wa you know wasted projects that China is building these bridges 5G 6G even in 10G in one city now highspeed rail and robotics. What do you make of the massive investment in all of these projects throughout China by SOE stateowned enterprises?

[00:32:50]Well, they're by and large of [clears throat] um a constructive and positive nature for China's own economic development today and into the future in large part because an economic system has vitality.

[00:33:04]When people, information, goods, and services can flow smoothly and the more connected people are into these networks of circulation, the more viable their economic activities become. If you're disconnected from mainstream markets for example and you're a long way away up in the mountains for example uh then you will find it difficult and costly to participate in what you would might call the formal economy. Okay. And uh and you know the ide the idea that a group of people who live in remote parts of China should be disenfranchised uh by for want of adequate connective infrastructure may go down well in the United States but it doesn't go down well in China.

[00:33:58]and and and of course over time and I'm talking 50 60 70 years now some of this infrastructure will doubtless be less used than it is used today in part because the urbanization process is going to continue urbanization has seen China double its urbanization in the last 40 years from 30 odd% of people living in urban situations conditions to over 60% close to 65 66 and it is likely that by the time China really settles down in terms of its urban rural configuration some 80 to 85% of Chinese people will live in urban situations and the provisions are being made for that to consolidate those around these large urban and connibations, the mega city clusters, and to build improved connectivity between these mega cities.

[00:35:05]And we're going to see, I think, an ongoing evolution of this whereby the last 100 million or so people, maybe a few more, will eventually become what you'd call urbanized. And that is going to take another, you know, 15 to 20 years. It's not going to happen overnight for lots of different reasons.

[00:35:25]the pace of urbanization has tapered off after the the mad rush of the last, you know, 25 30 years. But what that will mean is that some of this infrastructure, you know, the the the long roads and all of that will be less used in the future than they are today for the purposes that they've been used today.

[00:35:46]They might of course continue to be of incredible economic and social value because it enables access into remote parts of China for different reasons whether it's for travel and hospitality reasons or for ecological management reasons or what have you. Okay. So infrastructure that's built and maintained will actually have use and purpose for a very very long time once built.

[00:36:10]Western observers in a sense have this very um uh what's the best word? Scarcityoriented view of economics.

[00:36:24]the mainstream economics textbooks. If anybody's ever done economics 101, the definition of economics is basically around you know the the allocation of scarce resources without ever asking where do these resources come from and why is it that these resources are scarce.

[00:36:45]China I don't think subscribes to that basic idea as the foundations of either economics or of the purposes of social and economic governance. On the contrary, Chinese governmentality is focused around the issue of overcoming scarcity to be able to provide plenty and abundance so as to improve the quality of life of 1.4 billion people.

[00:37:12]You don't improve the quality of life of 1.4 billion people if your simple idea of economics and the purposes of governance is the management of scarcity and the allocation of scarce resources.

[00:37:25]Your focus is actually on the production of resources so that they become abundant. And that is precisely what we have seen. So if you want a philosophical distinction point, a fulcrum that distinguishes between a Chinese mentality if you will and a mainstream western neocclassical train mentality on questions of economics, that's where you'll find it. One focuses on the allocation of scarce resources without ever wondering where so those resources come from or how they come into existence and whether or not you can actually do something about the extent to which they are scarce.

[00:38:00]And then the China side which is focused upon um the development of productive forces so as to overcome scarcity to the greatest extent possible and improve quality of life through the delivery of abundance and plenty.

[00:38:20]If you look at data for example on how much protein Chinese people consume today per kilogram per year compared to the situation 30 years ago. It's two different worlds, right? There was a time when I was growing up and when my family in southern China um barely had meat to eat once a month, right? My mother's family coming from the mainland in the uh late 1940s and early 1950s, their idea of an exciting meal was a bit of fermented tofu with rice and maybe a few scars of vegetables. But the idea of meat, the idea of protein other than tofu was a luxury. Okay.

[00:39:10]Today, finding a Chinese household that goes short on meat proteins is, I think, almost impossible.

[00:39:21]Right? So, that's a transformation from a question of the allocation of scarce resources to the provision of abundance.

[00:39:30]So, you know, when Western commentators want to talk about infrastructure and waste, um, well, it's one thing for them to say that from the comforts of 2026 having experienced 200 years of industrialization and what that's delivered for them. compared to a population uh that until 30 or 40 years ago did not experience electricity in a broad broad scale level or running portable water for that matter.

[00:40:03]So these western commentators who bloate about about waste and infrastructure I think they well I'll put them probably a little bit less politely they can go and pound sand as far as I'm concerned.

[00:40:16]Well, I mean that brings up so many other questions and you know I think about this a lot but I'm not an economist. I don't have you know the kind of training that you have. But when I look around the world it looks like the eur Europe and America Euroamerican uh imperialism is what caused their wealth. The extraction of wealth from Africa, Asia, Latin America and elsewhere. China rose from extreme poverty in the 1950s to being a superpower, an economic superpower to some extent right now and it looks like it's going to continue to grow. So when we were you're talking about China doesn't look at economics the way that Western economists have indicated that they ought to and that they're erasing scarcity by creating abundance.

[00:41:02]It looks to me, you know, without the proper training that China is essentially rewriting the rules of economics for itself in its own way, for its own model and western economists are simply not able to come to grips with what China is doing because it defies the logic that they have been building for decades if not centuries. Would you say that western economists simply lack the kind of insight that is required to understand how China's economy is different from the models and the ways that they have been governing for the last centuries?

[00:41:39]Well, I think we need to be clear that we're mainly talking about western neocclassically trained economics which has dominated the uh the economic profession and the economic academy since the early 1920s or thereabouts.

[00:41:55]But there are other traditions in economic thinking and I think China's own approach draws deeply from those other traditions.

[00:42:05]Of course, has its own domestic traditions going back thousands of years in the ways that it contemplates and thinks about the role of state craft in the uh in the governance of abundance and scarcity and how that affects the dynamics of merchants and the welfare of people. And I speak particularly to things like the uh the thinking behind the creation and operations of large grain storage facilities, for example.

[00:42:35]and how they were established along river and canal systems. The Grand Canal was created in part not just to move things uh which of course is is its core function but moving things also required creating things that enable things to be stored. So if you looked at the Grand Canal, you will actually also find a network of grain silos and other large scale storage facilities. And that enabled the movement and storage of critical resources for social stability, grains in particular, from places that experienced abundant harvests either on a periodic basis to places that were suffering temporarily, whether it was through drought or flood or what have you, or of course to be able to relocate surpluses from places that had naturally high yields because of more fertile and more conducive growing environments and other parts two parts of China that were actually relatively low yielding. So the state and the sensibility around state craft has all always had a view that critical public goods such as food um uh was actually a responsibility of the state as much as it is of anybody else. And so a network of granaries was created and run. And in fact, China still has large scale granaries. It has large scale, by the way, national um uh inventories of frozen pork as well that periodically uh the national government will dip into to help ease potential shortages. It hasn't had to do that in recent times cuz we've actually had an abundance of pork. Um and the abundance of pork incidentally came about as a result of the shortage of pork during co.

[00:44:31]Okay. So there was a spike in demand and expectations of greater demand. Um pork producers poured in um had their pigs breed really quickly. Um and uh and we've actually now got more pork in China than than uh than than there was say six years ago. Um abundance, right?

[00:44:52]And that's why pork prices have been pretty flat. Um and so Chinese statecraft itself going back millennia has a particular sensibility and they talked about these things by the way using uh the language of heat and cold and heavy and light. Um so the governance of the system was described in those terms. And of course for those of you familiar with um Chinese uh ways of mapping the body and things will also and mapping the cosmos and the universe will understand that this idea of light and heavy heat and cold are part and parcel of um the whole um and need to be modulated in a in a dynamic way.

[00:45:34]But China also draws deeply from its Marxist traditions in terms of thinking about and framing uh its economic development model. Now I actually spoke to an old um friend of mine, my former honors assessor, Professor Michael Dutton recently who kept reminding me that one of the problems in the West when they look at China is that they refuse to actually just read what's on the box >> and they dismiss it. So when China says that it is a socialist market economy, you get this sort of snigger and chuckle, right? Oh, that's just ideological, you know, propaganda clap trap. It's just a it's just really capitalism, right? So that's how often that's dealt with. Um or um oh, you know, yes, they they'll say that they're a Marxist um you know, state, but but really that's just ideology.

[00:46:31]it sort of just gets dismissed out of hand.

[00:46:35]But Michael says to me, if you actually want to understand China, it would actually be a good starting point to read what's on the package.

[00:46:45]And when China says that it's a socialist market economy and it is in the processes of well developing the force of production in the early stages of socialism or what was in the 1980s described as the primary stages of socialism then we would actually have a better idea of how the Chinese policym fraternity if you will intuitively thinks about how the system works and this goes back to I guess the earlier discussion Jason about the way that the west frames economics and how China frames it. These are some conceptual issues. So the west tends to view things at a very particularly neocclassical economics tends to view things at a very high level of aggregation.

[00:47:35]It talks about this imbalance between consumption and investment. This big supply demand imbalance.

[00:47:44]China actually views these dynamics in a richer deeper sense and it's not because they're Chinese. It's because they're drawing on from their own traditions as well as framing things through these other traditions that are have become quite important in the way uh the Chinese intelligence think about these issues and that is Marxist political economy and variations that have been built on those themes. And so rather than seeing the economy as this sort of one-dimensional flat supply demand problem, it actually views this as a qualitative transformation question.

[00:48:24]This idea of the transformation or the development of the force of the production is deeply qualitative. Of course, we have the most modern conceptual innovation on that, which is the idea of the um uh the the new highquality productive horses, right?

[00:48:41]And that builds on this Marxist economic scaffold, right? You you won't find this idea of high quality productive forces in neocclassical economics.

[00:48:53]Neocclassical economics tries to reinterpret that as oh that's high technology and innovation. Well, okay.

[00:49:00]You know, if that's a conceptual bridge and trying to understand what's going on here, well and good. The issue around productive forces is that they fulfill a transformational role in a system sense.

[00:49:14]And you can understand this when you think about that transformation from what people were buying as I described earlier, you know, the basics of life to now spending more and more money on tourism, travel and experiences. But similarly, if you look at what the Chinese economic system produces, it produces things that are qualitatively different today than the things that are produced in 1980.

[00:49:45]We have a situation today where China is able to manufacture motor vehicles of a standard, of a technological advancement, and of a volume that was inconceivable 30 years ago.

[00:50:02]We have a national economic system that is now manufacturing renewable energy technologies that simply were not possible 30 years ago.

[00:50:12]So we've seen a qualitative transformation in the way the e economy is able to produce things and because it can do this it is also fundamentally transforming the efficiency at root and I mean by that this idea that not only are we looking at greater productivity in terms of of you know getting more out based on what comes in but it has been transforming it funament al energy thermmoeconomic or thermodynamic efficiency in each production node and throughout the system at large. So this is the transformation that's been going on and there is no way that a monodimensional mono single commodity supply demand GDP based accounting system can actually comprehend what on earth going on. None whatsoever. And so you get all of this nonsense. I'm trying to im unbalance.

[00:51:12]There's another way of thinking about unbalanced Jason and it is an idea that in fact Shigin mentioned in a couple of recent um uh publications. He talks about the need to pursue dynamic balance.

[00:51:29]Now you won't find dynamic balance in any mainstream neocclassical economic textbook. It's not possible. It's either disequilibrium or equilibrium, right?

[00:51:38]And the whole point of the system, so the claim goes, is that, you know, left to its own devices, it finds this equilibrium state and somehow it supposedly stays there. And the only reason it doesn't stay there is because things outside the system come and mess it up, right? It's a silly idea, right?

[00:51:55]Because the things outside the system that mess things up really are part of a broader sense of what the system is, which is humans in nature, right? and somehow excluding them from thinking about economics is um it well it it's it discards obviously an ability to think about change.

[00:52:14]So the Chinese government today and when you read you know Xinping writing about economics will talk about dynamic balance right uh King Hong and the idea of dynamic balance is that this balance is not only a mathematical question of two sides of an equation but it's a qualitative issue who because this is the dynamic piece, right? What constitutes something that resembles balance today when China is making EVs and batteries at the newest levels and all this sort of stuff compared to a day when you know people got around on push bikes.

[00:53:03]It's very different, you know, and if you think that somehow a mainstream economic supply demand curve explains this, well, it's little wonder that these people are clueless about China's economic development experience.

[00:53:22]Yeah, that makes a lot of sense actually. They're trying to translate new ideas into old formula formulas and they're miss missing. You know, when I when I look around China and I go to the mall and I experience people out having a good time, spending an enormous amount of money, having restaurants full, wait list to get into places, movie theaters full. And then I look at Western economists and they're saying, "Oh, there's some it's terrible." I'm like, "Okay, clearly there's something wrong, not with China's economy, but with the way that they're trying to interpret China's economy." And I think that your answer touched on that. We have very little time. So I only have one question I'm going to ask you because this is the bridge. We want to try to facilitate uh western China understanding cooperation.

[00:54:06]So you know when we talk about that old trope of what what was it called?

[00:54:10]D-risking is the latest one. Uh you know you know let's talk Mitch Presnik Harvard University wants the United States to work with China. Wants the United States to leverage China's advantages to help the US economy. Kyle Chen, Princeton University very much wants the same thing. You know, why can't industry work together? China and the United States. US should be investing in China. China should be investing in the United States. you know, how will US political decisions which are being made today which seem to be trying to move gravitate away from China, how can they potentially hurt the US and and instead if we were if Western countries Europe you know this they're they're dealing with this challenge too this idea of how do we you know create a system that can cooperate with China how can cooperation with China potentially help western economic growth prospects.

[00:55:07]>> Well, China has clearly reached the lead leading edges of productive forces development in many arenas.

[00:55:18]robotics, automation, clean energy, not just today but clean energy for tomorrow in terms of developments in uh highdensity energy storage technologies like uh hydrogen and and its applications, right?

[00:55:38]I mean pushing the the boundaries on how these new energy forms are enabling transportation not just EVs but trucks lries on roads um uh driving uh ocean going um uh you know freight vessels.

[00:56:03]Now, these aren't huge at the moment, but China is not going to somehow stop at the idea that clean energy can only, you know, drive cars or um container vessels that carry 700 containers as opposed to 15,000.

[00:56:26]China is going to be committed. It's driven to energetic efficiency within the overall economic body as a whole.

[00:56:34]And these are untapped dimensions.

[00:56:38]We see I think a whole bunch of upsides but also risks in artificial intelligence particularly in the ways that um artificial intelligence has already um embedded itself into the machinery of war making in the United States. That's a problem, Ryan. and some level of coordination and agreement around some behavioral norms, some rules of engagement, if you will, and some standards um in the interests of humanity at large wouldn't go astray.

[00:57:07]But I'm not sure that this is going to come in the short term, Jason. There's a generational issue. There's a lot of anxiety issues in the United States and in Europe, which tends to drive a lot of the short-term decision-making by the political elite. Ordinary people, however, have a very different experience. Whether it's Europeans buying Chinese-made air conditioners in droves or the tens of thousands of Americans who visited China in the course of the last 12 months. In fact, when Xiinping talked about 50,000 Americans um visiting China, um his expectation was that that would take a number of years, right, for for that target to happen. Well, it's happened already. Um and uh but it will require, I think, a um a generational change. Um the upside in all of this is that whilst an older generation in the shadows of the Cold War, in the shadows of the who lost China debates, as those folk fade away as they join Lindsey Graham, uh a new generation of people will come and the public opinion surveys and the behaviors of people of the newer generation point in a different direction and that is one that has abandoned a lot of the the anxieties of the Cold War, you know, the pent up hatreds, the ideological frames that define the us and the them and are far more interested actually in just engaging with each other as people.

[00:58:38]And younger people in particular in the United States based on the surveys that I've seen actually hold not only positive attitudes about China, but hold incredibly positive attitudes about how Chinese people and Americans and people from anywhere in the world can actually find common ground and address the issues that they all share and find ways of living on this one planet.

[00:59:08]peacefully. So, you know, that's what we've got to do. It is going to take, I think, some generational change. In the meantime, let's just try and keep the wararmongers at bay for a little bit longer.

[00:59:20]>> Well, that's really well said and I I'm going to make that my goal. You know, trying to keep peace and, you know, I really think that we need each other and that war is not possible. Actually, I don't think it I don't I don't that would destroy profits for the Americans and happiness for everyone else. So, it's not in anyone's interest. Thank you so much for your time. Wait, where would you prefer people find you online? And uh can you tell us where can they find your book?

[00:59:46]>> Uh they can find my book, Thermmoeconomics in a Time of Monsters on Amazon. They can find me at warrickpal.substack.com and uh and I've got my own little um narrow uh YouTube channel. Um but uh uh well it's narrow because it it it focuses on things that are of interest to me um which is mainly around global south and um and and uh Asian academic voices not only Asian academic voice so people can find me on YouTube as well but um yeah go to Amazon look for the book and find me at Substack where I try to publish twice a week.

[01:00:25]>> Thank you so much for your time Dr. Warwick Powell.