Asia Centric by Bloomberg IntelligenceAfter many months of threats, the US has imposed 10% tariffs on all Chinese goods coming into the country and China retaliated immediately, launching an investigation into Google and putting its own levies on a range of American goods including LNG. Thus begins a new era of protectionism.
The tariffs and any additional moves are set to slow economic growth in China, which is already struggling to boost consumer spending, reboot its property sector and lure more foreign investment. This is likely just the beginning, with higher levies to come in a repeat of the 2018-19 trade war. Despite the headwinds, Chinese President Xi Jinping still has a lot of tools at his disposal.
Helen Qiao, chief economist for Greater China at Bank of America, joins John Lee and Katia Dmitrieva to gauge the impact in the world's second largest economy and what could lay ahead.
You're listening to Asia Centric from Bloomberg Intelligence, the podcast that explores the big ideas and trends moving money across the region. I'm Katy Dmitrieva here in Hong Kong, and I'm.
John Lee on assignment in Seoul, South Korea. Katya, the trade war is finally upon us.
Yes, it feels like it's been a long time coming, but it has finally happened. It's kicked off. We're recording this on February fourth. We should know it for our dear listeners, because a lot could happen between now and when the episode airs. But as of right now, what we know is that Mexico and Canada, two of America's largest trading partners, have managed to escape tariffs, at least they're on hold for now. And as for China, well that's where the trade war is actually kicking off. The US has imposed ten percent tariffs on China across the board, and China has fought back.
Everything's still in a flux at the moment, lots of uncertainties, but what we do know is that the world's two largest economies, in US and China, are in a trade war, and that has huge ramifications for the whole global trade.
Yeah.
Absolutely, and I can't think of a better time to have our guest here today to walk us through all this and definitely what it means for Asia as a whole. Joining us today is Helen Chow. She's the chief economist for Greater China Bank of America. Welcome to the show, Helen.
Nice meeting you all.
Helen. I wanted to start with the topic of the day. We're going to be talking a lot about China, but tariff specifically. So we know that the deadline passed, We've now got ten percent tariffs on Chinese goods. China's retaliated as well, So what's going to be the impact.
Well, I would say, first of all, the start of this tariff imposition overnight was probably nothing too surprising. It was well telegraphed so that actually people were largely expecting it. So I would say also the second thing is that this is not the first time that China is seeing the the tariffs of being imposed on Chinese imports into the US, mainly because that if you look at what has been imposed back in twenty eighteen and then later in twenty nineteen, most of those tariffs actually remained in place. So in other words, we are seeing just on top of an existing set of on average about twenty percent of the tariffs on the Chinese products being imported into the US, we're seeing a blanket edition of about another ten percent on top of that. So this is actually what we see an escalation of what is already in place, rather than a completely introduction of something new. That said, I would say that still going to hurt the Chinese economy even with the expectation, even with the fact that this is not completely new, we are expecting the overall growth to be hurt, probably more visibly starting from a second quarter.
How much do you think we are.
Expecting that in sequential terms, potentially removing as much as more than two percent points Q and Q analyzed terms, so in year terms it's probably much less. So, you know, moving the GDP growth from five percent as of you know, last year or the last quarter five point four percent to maybe in first quarter now, I think the risks are increasingly higher that we're seeing the possible negative impact maybe in Q one already hurting the numbers, and we could see this number coming below five percent for the first quarter and for the second quarter, I think the risks are that we can see it going a little bit bigger over time. In Q three and Q four, I think it could probably look a bit better when Chinese exports find alternative routes to send the products, probably you know, without being counted as Chinese director exports to the US, or they can figure out some exemptions, and therefore I think the impact on growth might be a little bit less. And secondly, also because of the potential Chinese policy easing measures that they're going to introduce that is also going to help offset the headwinds coming from export side. So for those reasons, I think that Q three and the Q four will look better and the risks are still probably I was say, relatively balanced on either side around our GDP growth forecast this year at four point five percent.
I want to let John ask another question. I know something you wanted to ask, but just given your answer just now, I wonder if you can just quantify for listeners how big of a deal this is. At the beginning, you know that it was ten percent tariffs, much lower than the sixty percent promise during the campaign trail, and China retaliated, but not to the degree that the US has imposed heariffs, So like, how do you quantify this? Maybe on a scale of like one to ten. How should we be thinking about this?
Well, great question. I do recall that many of our clients, many of our colleagues, have been asking about how about sixty percent up front? Right? That probably was seen as one of the you know, very likely but worse scenario compared to what we currently see. I would remind everyone that not only there was this potential scenario where there could be a sixty percent up front, there was also this mentioning during the campaign rally that President Trump back then also mentioned one hundred percent on Chinese products, And therefore, I would like to remind everyone then maybe compared to one hundred percent, ten percent is indeed a very small amount of teriff punishment. But the problem is two things. Number one is that the tariffs on Chinese products, probably one, compared to those on the Mexican and Canadian imports, tend to be more permanent, which means if they are introduced, they probably will not be taken away. In other words, you know, if you look at the Mexico and also the Canadian twenty five percent, it was set out to be higher. However, it was avoided basically a few hours before it is going into action, and even if that goes into action, it probably wouldn't stay very long, mainly also because of the fact that this would hurt the US economy and especially on the consumer side a bit more visibly. But for China, I think now that ten percent, you know, while it does not necessarily look like as bad as one hundred percent, I think it has the potential challenge that here it also implies that it is going to stay on top of those existing twenty and therefore will end up with thirty, so that is definitely more hurtful. And secondly, I would say beyond these headline numbers, I think we also need to see into the details. For example, you know, on China, what happens to the exemptions of the previous you know tariffs that a lot of the products, the producers of those products have been applying and actually got waived of those tariffs temporarily many of them were expiring and we probably are about to expire in twenty twenty five. So whether those exemptions can be granted were extended I think could also be something to explore, which we do not know at the answer to number three. I think also, you know, the role on the small package, especially the TERRAFF waiver policies in the past on those small packages I think now have been revoked. So does it mean that these you know, small packages would have a completely different way of reporting to the customs? Are they going to buy the ten percent or are they going by the ten percent plus? You know, some average consumer goods are subject to about four percent of terraffs, so is that going to be on average fourteen percent? We still do not know. There are too many things right now. As you said, many things are still developing, and you know, it's hard to tell how it would be exercise. But so far, I think we have already found that in almost every single dimension there are many things that.
We do not know.
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Chair Helen, you mentioned that the China's economy is likely to fall to some like four point five percent this year from five percent last year. How will these tariffs impact the different sectors which will be hurt the most well?
When we are having this forecast on GP we do not specifically make by industry forecast or by sector, but we would imagine that this year the external sectors will probably be hurt more compared to the more domestic oriented ones because we are expecting such uncertainty around the tariffs, especially coming from the US, could potentially derail this external sector recovery that we saw from last year. A lot of those sectors in the in last year were actually I think benefiting from the fact that while domestic demand has been quite weak and the PPI has been staying in the deflationary territory and therefore their causes relatively low, what they have seen is rather robust demand coming from the US and elsewhere. I would say that for those that rely particularly on the US demand, I think the challenges that this year whether they would be able to go through twenty twenty five, especially against a very high base in twenty twenty four, when many of those US importers probably frontloaded there in their orders and try to take more inventory. At that point, they should have already thought about twenty twenty five when such peak demand goes over, and they probably need to prepare for some period of quietness or think about trade diversion. So that, I think is the most important thing that we are actually putting in our forecast without explicitly giving let's say a sector growth or production activity growth forecast. Second, I would also mention that while the external sectors, you know, for those that are actually more reliant on US demand seems to be more under pressure last year, China's export rebound was not completely based on just the US. If you look at what we have published, we actually were saying that last year a lot of the demand that came from the global South rather than global North. We basically put Japan, US, Europe, and also Australia and Canada together and look at China's exports and we found that for these destinations export growth have held up reasonably well, but they did not jump up. What has jumped up and overtaken their large share from the past was actually the global South. If we look at you know, Latin America, Africa, Asian countries thousand countries are becoming very important nowadays, as well as Russia, India and the Middle East countries as well as the Eastern European countries. We also saw a lot of the exports going there. I think that is partly related to the Chinese companies going overseas them so that I think could be more sustainable coming back. And you know, looking at the tariff impact, I would say that we probably cannot be just putting everything into one block and say that external sector is going to face a very tough time. I think depending on the destination market, if it is the US and primarily the US, I think that this is probably the time that we need to see some diversion. But otherwise I think that for the Global South, I think those exportsers are probably still going to do well. Meanwhile, if we look at the domestic economy, those that are you know, more reliant on the domestic demand. For example, you know a lot of people were saying that the consumer subsidies in China are finally coming and in the first three days of the Chinese New Year, we actually saw the data from t MAOL saying that they have seen these cell phone sales going through the roof growing by more than fifty percent, you know, year on year compared to the first or three days of the last Golden Week holidays around Lunar New Year in twenty twenty four. And this is probably because that there was this subsidy by as much as fifteen twenty percent from the local governments that if you buy a cell phone, then you can be subsidized, and that I think could probably be you know, some of the spotlight areas that we should be looking out for this year within Chinese economy to see that when policy comes out to help offset the pain from the tariffs impact, which sectors could potentially do better.
Is there a limit to that though, like in terms of the stimulus that China can do, like what level of tariffs I guess or economic pain would kind of cross that threshold to where Chinese officials, you know, are kind of stuck. They can't necessarily give more of these incentives to consumers or change the mortgage rates or whatever other subsidies or stimulus they have.
So Kadia compared to twenties eighteen twenty nineteen, China probably has less. I would a levers to pull given that, you know, the domesa demand is less robust, you know, and then the room for easing on both physical and monetary policy fronts seems to be more limited right now. However, I wouldn't necessarily say that we are going to run into a constraint in any time in the near future. For example, on the monetary side, we're expecting potential tripleard cuts as well as interest rate cuts. We're expecting as much as forty basic points of seven day reverse report rate cuts this year.
And what is that, just for listeners who aren't familiar.
That is the policy interest rate in China. It's comparable to the federal funds deposit rate. The federal fund rate cuts in the US would generally be seen to be conducive to more accommodative financial conditions, and so is the rate cut in China. Policy rate cut lowers the cost potentially for the borrowing in the interbank market, so that actually it could be seen as being helpful to ultimately reducing the borring cost for households as well as corporate And if they cut it by let's say twenty basis points each time, and we have probably at least twice as much of twice of such cuts. Going forward, I think we could potentially see a boost to boast the investment as well as a consumer demand at the same time. Physical deficit is another area where China can do more of well. You know, of course, not all the deficit will be put onto the consumer subsidies that we just mentioned on home appliances, cell phones, paths, or cars. I think that a lot of that has also been put into infrastructure investment, et cetera. So physical deficit that we're expecting this year to grow from three percent last year to three point five percent for economy that is growing with a sub substantially you know, at a level that is substantially lower than its long term potential. I would say that China has been perhaps almost too disciplined on the physical side, that they have not really borrowed as much as they could, and they have kept the central government's budget at a pretty conservative level with a deficit running at only about three percent. We definitely see the upset to it, and we think they can increase it to at least at three point five this year, if not higher. And could that be helpful well, depending on how they use it, And there are many other, you know, I would say potential policy tools that they can use beyond the monetary policy and those physical deficits that we just mentioned to relax the equidity conditions of the local governments and potentially allow them to pay back their debt to local companies as well as pay employees and the boost to reboot the local economy. So we think that there is quite a lot more that they can do. But this is not all all for the sake of offsetting the impact from the tariffs. I think that Chinese domesad economy is in a state that requires and the warrants more policy eating, so that they definitely should do more.
Helen. It feels like we've been talking about this issue for a number of years now a week domestic economy in China. Now, a lot of global investors have been anticipating like almost like a big bang in terms of stimulus. Now, all these stimulus measures that you just mentioned, do you think there'll be enough to appease or satisfying.
Investors, Well, it's a jo I think that's a little bit hard to guess. How much is the institutional investors expecting and you know by when the market will be saying Oh, that's good enough. Clearly that China is not delivering something like a Basuoka package that many probably have been hoping for. For example, many were in the past probably two years, have been hoping for China to deliver something, you know, along the lines of giving helicopter dropping ash to everyone, so that you know, like what the US did to the American household, writing the blank checks, so that you can actually get an immediate boost to consumer demand right away. That I think has pretty much been seen as being very unlikely by now. But you can see that there are alternative measures that have been adopted that are actually designed to do something similar. For example, the subsidy program, right the consumer product trade in So this treateding program started last year and then it covers from cars to home appliance and also now to technology products.
Pretty successful, right.
I think so. Even some of your colleagues over here told me that she bought quite a lot using the subsidies because she was getting married, so I trust her. I wasn't able to use it, but I have heard a lot of people saying that that has been pretty effective because they probably were still hesitating in terms of if they should buy a new one or they stay put with the existing gear. But then this really gives them the push to say that okay, let me frontload the person decision and let me get it done. So I think that those turn out to be pretty effective, and according to the Ministry of Commerce, it has really boosted retail sales quite substantially, especially in the second half of last year. But I would say would that be enough. Probably not, especially not only from a market perspective to make all the investors happy, which tend to be more transient. I think it's more important to see if we are seeing all these boosts to the economy to ultimately deliver the productivity growth that we were looking for, the technology progress that we were hoping to see, so that ultimately we can see more sustainable growth down the road. That's actually where we mentioned that we need to see probably more than just a consumer subsidy program, more than the physical deficit expansion, and not just the interest rate and trip our cuts. Beyond that, we need to see that actually if there could be some measures being taken to promote the positive incentives in our view, in the system so as to allow people to work towards their individual goals more efficiently. When we mentioned that, I think a lot of people were saying, what kind of positive incentives are you talking about? Well, what we mean is it's not just about these headline you know, physical and monetary policy measures, but instead we hope to see that for governmental officials, for SOE managers, as well as private individuals, business owners and households. We hope to see more upside so that they could potentially work harder and more willingly take risks, and therefore we could see a stronger economy when the investment demand comes back. That I think is probably more crucial then let's say a fifty basic points of a physical deficiting expansion.
What do you think is about this time around between monetary policy? Like, I know you had mentioned the potential for more essentially interest rate cuts in the years ahead, the sort of counterbalance as impact of tariffs, But doesn't that risk the currency? Like, how do you think the government is thinking about that balance? Well?
I do think that the government is probably trying to stabilize the exchange rate as much as possible. I think there are easy options at this point. Right if China has seen this tariff increase, it could potentially relax the controls on effects and let the women be depreciate. But so far we do not necessarily see a lot of this being used as a weaponry basically by the PBOC to offset the pain from the tariffs. I think this is probably due to the going concerns. Number one, the effects of depreciation is probably easy to implement. However, you know that probably raised a question to your other trading partners that what are you trying to do here?
Right?
You know, nobody wants to see a bigger side neighbor type of situation with a competitive exchangeerate depreciations. And at the same time, I would say that the depreciation may not necessarily send the right signal to people holding the one assets or REMAMBI assets on shore were offshore, because nobody wants to hold on to a currency that is depreciating.
Uh.
And it seemed to be continue to be this depreciating over time, and therefore it may trigger more capital outflows uh And therefore you know, kind of increasing the pressure on the effects. So I don't necessarily think that the exchange rate approach, well, let's say depreciation would be an easy and efficient approach to really address the domestic issues over here, and that is why in our view that the Chinese government probably so far has been refraining using that as the most important tool to address the growth concerns well going forward, Whether they would continue to hold on to the current level in USDC and white terms, we're not so sure because that also depends on what the dollar does.
Right.
If the dollar actually substantially appreciates against other currencies, I think, you know, then if the PBOC looks at the c FATS and they consider the nominal effective exchange rate, they might need to do something different. But at the moment, if we're seeing a relatively stable dollar index, I think that we could potentially see the central bank probably being willing to hold on to a relatively stable exchange rate level and at the same time probably use more a combination of quannotative as well as price based approach domestically to boost the growth. Many people are saying, oh, you know, would they be able to do so? Because there is this famous impossible trinity theory that if you would like to control your exchange rate, then you probably need a capital control to help you, you know, at the time when you want to have your monetary policy independence. But at this point I think that the PBOC is probably trying to strike a balance between those two while maintaining the domestic monetary policy at a level to address the domestic growth support issues.
John had mentioned consumer spending. How you know, we just talked a lot about levers that could be pulled and things that have worked in the past. I wanted to ask you about the property sector, and I wonder to what extent tariffs or this trade war that is escalating now delays the process of the property market coming back to life in China.
Indirectly, not directly. I would say that if the overall aggregate demand is still going to be seeing this hit from the tariffs without being you know, fully addressed by domestic policy easing or further easing, then yes, household income growth is unlikely to recover anytime soon, and therefore people's expectations for housing sectors to recover would also be postponed. So under the big if that China does not fully address this demand problems at home, then we could potentially see the delay in the property sector recovery. But I don't necessarily think that it's necessarily the case. If China would be able to intensify policy easing in time. You know, we could see quite some stabilization in the near term, especially if let's say this Terff shock turns out to be short lived and you know, the impacts them to be relatively limited, then we probably could see that it was China's stimulus. Then there could be more a faster turnaround, let's say in the property sector. We think that that could probably take place in the second half of this year, if let's say we do not see much further Terraff shock from what we have seen so far in the very near future. But I think on that different economists may have different views to someeople may think that they have to wait until twenty twenty six.
Well, well, Katia earlier mentioned that Beijing has been relatively restrained in retaliating against the US in terms of tariffs. They've imposed some tariffs limited in amount. But if things do get worse in US relations, what levers does China have retaliating.
Well, at the moment, we think that the measures that we have seen, the reactions have been more measured compared to even the twenty eighteen time. I think at that time we have seen probably especially rhetorically more aggressive kind of exchange of tariff increased spreads, et cetera that this time we have seen less of. But in the report that we publish on potential retaliations China could have if let's say the US imposes are ten percent, twenty up to sixty or even one hundred percent tariffs, we think that there are potentially other means that China could could use. One is the tariff's re act. Have seen a little bit of you know today, which is China is imposing tariffs on the imports from the US, including on energy products, So that I think could probably be one area where we can see that China can turn up the dial a little bit, which is if you're seeing the you know, what US is importing in China is about three times as much as what China is importing from the US. And therefore, by definition, you know, even if that China is imposing the same amount of terraffs on the US imports, you wouldn't necessarily hurt the US exports that buy as much simply because China is not buying as much. Right second, we can also see the export sanctions, for example on rare earth and other important industrial or special purpose used materials. And then number three, we could also see let's say, certain measures being taken on US businesses operating in China. So I think that at this point we can probably still safely that there is more US business interests in China operating than Chinese businesses operating in the US. So that could be one area that China could be looking at, But obviously they need to be very careful because that also could send a message to others, you know, are you actually hurting you foreign businesses in China? If that is the case, then would businesses from Europe or Latin America from Japan feelm still secure?
Right?
So those are the measures that we think could potentially be wielded, but we don't necessarily think that there is a lot of freedom for China to use it very freely, though, mainly because that more aggressive use of those measures could potentially challenge you know, the let's say, the recovery that China was hoping to see. And beyond that, we can see other measures such as exchange rey depreciation as well as threatening to sell US treaty bonds. But I think those measures are probably seen to be more aggressive, and therefore China would way more carefully when it comes down to using such options.
How long have you been covering China for now? Can I say, what decorade? Two decades?
Yes?
Wow?
Since two o five?
So you started when you were twelve? Yeah, exactly, started at a very young age. So, Helen, you've been covering China for about two decades. I wanted to ask you this to get your thoughts because we were just talking about the reaction that China's had And if you're looking at this reaction or this retaliation compared to previous years, what message do you think it sends? You know, we just spoke about how it's a bit more of a moderate response maybe, But how would you if you were looking at the kind of opening gambit or opening moves of these two nations, how would you kind of define it or look at it?
Well, Kadia, I will say that, you know, just at the face value, the Chinese retaliation so far probably is not at a very high level as we you know agreed. However, we're not so sure if they are going to stay over here right going forward. Neither do we know that if the tariffs on Chinese products are going to be added just by ten percent or you know, let's say a month later be increased by another twenty right. So, I think with those uncertainties in mind, we can see, however, that there is still some healthy conversations between the two sides, especially at a very high level, which I think could probably be read as the telltale sign that there could be more negotiations and things are not in the words shape compared to, for example, twenty twenty. At that point, I think there was a lot of you know, ultimatum threatening and a lot of bad will basically in that relationship of the two most important economic powers in the world. But right now we can see that the negotiations are probably happening behind the scene. Then maybe we're not being allowed to view what exactly happened so far. I think that right now there are some interesting evidence that there is still some conversation and things are probably going to be held at a reasonably rational level. For example, I think if we're looking at what has been addressed to TikTok right so far, I think that has been seen as a commercial decision and both sides has exercised a restraint. Another thing is that on the the most important TV show in China, which is on the lunar New Year Eve that is watched by more than five hundred million Chinese and my family watched as well. And there was an interesting episode where an American you know, was invited to be the host temporarily to introduce some some program, some performances, and and this American was actually seen as the you know, the person who brought back not only brought back to China and donated a very important album from the Second World War, but also that he is seen as the symbol of a friendship. This is a very important gesture. It does not happen very often, you know. To be honest, I do not recall any other time in the recent past that an American would be so high profilingly like introduced at this show. So I think that this is probably suggesting that the current bilateral relationship is not as bad as some may have been postulating and thinking that it has to be a sixty percent up front tariff, you know, to to to hurt China, to put China to the corner and start a war. I don't think that it looks that bad. There probably is some kind of conversation behind the scene, and we still believe that rational thinking is over over time, it's still going to trimuth.
So if rational thinking will prevail, what could a potential deal look like between the US and China? I mean, where where does the relationship go from here?
Well, I think it's very likely to be an exchange of interest. And as we have actually put down in our reports, you know, repeatedly previously, we are expecting, for example, that China could promise something that the US is very much hoping to see, especially President Trump is willing to see. I think that increasing such tariffs and pushing up CPI inflation in the US could be probably not necessarily a welcoming sign or a welcoming headline anywhere. However, if let's say China can promise to buy more oil and gas from the US and deliver maybe more of it's a phase one deal, I think that could potentially be something that the US would be interested in. At the same time, I think there could be also many other areas where China can offer to work together with the US, as President Trump recently were suggesting, you know, on many issues together, you know, geo, political wise, environment wise, etc. So I think that at this point we could see that, you know, if China could add actually proposed to probably purchase more from the US and probably on the US treasuries, maybe suggest that that they would keep the market relative stable by not dumping into the market. That would be helpful. Promising that you know, riman be to the dollar would remain relatively stable. That would be another very welcoming gesture. So I think it's probably going to be a combination of those measures that would probably help repair the relationship. In the meantime, the US could probably come more towards China, not only to remove those tariffs, but also possibly you know, make adjustment on the technology, sunctions or other type of issues that are you know, at the moment hurting were becoming the roadblocks of the economic relationship of the two countries.
So you were talking about the how they're kind of where the relationship could go from here and how the US and China could coordinate. Is that your base case though, like this scenario you're just laid out. Do you think that's going to happen?
Well, I think that's the bookcase scenario for a basic case scenario. I think the two sides are going to negotiate, but we're not placing hope on the potential reduction of teriffs on the Chinese products going into the US. So, yes, that has been the hopeful scenario that the two sides could negotiate with each other, hopefully starting soon. But I would say that it's interesting to see that at this point, let's say, starting from November last year, and you know, increasingly now we're seeing, for example, the market is probably having their views going up and down with the headline news. And also we're seeing that my competitors are sales side has been also going up and down with the tariff assumptions. So at this point it is hard to tell what turns out. Let's say only ten percent, you know, and the staying here for another six months, would that necessarily be a positive surprise for the market. If you look at the H share today, the equity market, and also the fxys, I think it seems to be suggesting, yeah, it is better than investors we're thinking. But how much longer are we going to see this? You know, market sentiment staying at this level, could it be affected by further news and especially potentially bad news on the tariff front.
We do not know.
So I'm afraid that at this point we can only see that, you know, the we are hoping, keeping our fingers crossed and hoping that the two sides could come to a resolution sometime soon. But I would say that judged by the experience we had from twenty eighteen twenty nineteen, I wouldn't hold my breath for it a.
Realist, Helen, We've been talking a lot about tariffs, but I wanted to discuss sanctions. And the reason why I'm asking is that last week there was major news China's Deepsek launched an AI model that pretty much rivaled usps but at a fraction of the cost. Now, this is raising some questions that perhaps US sanctions on China tech is not working.
What do you say to that, Well, I think at this moment it's probably too early to say that that the US sanctions on Chinese technology companies are not working yet. However, I would say that it is important to see that such technology breakthroughs probably still suggests that there are interesting, you know, uncertainties still in the environment where you know, I think that people largely form the consensus view that China would not necessarily be able to develop as much of a technology when they are being put under such sanctions. So I think that at this point the necessity really drove the much of the innovation and therefore I think contributed to the technology progress, and that I think could be used not only by Chinese companies but also by globally by any companies right since it is open source. So I think that at this point, from a macro perspective, I'm not so sure about the corporate level, But if we speak from the thirty feet birth eye view, I think this is basically saying that, you know, there are indeed things that US and China could do together to push the technology frontier to a higher level instead of trying to contain each other. And could we actually see that, you know, being the best example, that we could do something together and achieve something greater. I certainly hope so. But at this point, I think there is still a lack of institutions maybe between the two countries, and probably potentially some willingness as well to achieve that. But I think that, you know, at this point, it's interesting to see that the technology driver of growth, which economists like Solo probably saw as the most important driver rather than investment, is still having a chance to come back to China and contributed to its growth recovery, and that very encouraging and.
From a macro level, if you're looking at this company and the reaction globally to what it does and what it can do from a macro view, from a thirty thousand for view, you know, as you're modeling economic growth or looking at forecasts, like did it influence at all how you think about China in the next couple of years, and you know, things from GDP to productivity to technology development.
Good question if we look at the growth purely from the perspective on the supply side, and people think of, okay, how much investment you are going to put in more capital or how much more labor growth are we going to see, you know, not much because of aging or at the same time human capital. How much more cramming, you know, exams and training can you put into one's heads. I think that we all see constraints. So the only hope that we're placing in is on TFP total factor productivity. This is saying that beyond those factory inputs we just mentioned, there is still this possibility that we can achieve higher productivity through technology progress, through better allocation of resources through achieving better scale of the economy, and I think that China is probably not necessarily going to look that bad if we look back in five years time on what we're seeing now, I think, interestingly, in contrast to the very verish consensus on the Chinese economy, by then we probably could say that China is, you know, at this point in twenty twenty five, still preparing to get to the next level of technology, of economy, of scale through going overseas, for example, and that I think could probably be quite interesting, given that right now the consensus is too one way and pretty much saying that, you know, nothing could work out of the current Chinese economic development. However, I think that we have seen more and more evidence that as capital stock in China goes up, as human capital stock has been showing also like to be accumulating very quickly, we would probably see not immediately one after the other, but occasionally, you know, every few months, some surprising project like deep seek in different areas that China could potentially push the technology frontier forward, and hopefully that could happen in the global context where we could see more cooperation rather than trade wars.
Well, it's been an interesting discussion, lots more to unpack in the days to come, I'm sure. Helen, thank you so much for joining us today.
Thank you for having me.
You've been listening to Asia Centric from Bloomberg Intelligence. You can find more episodes on Apple Podcasts, Spotify, or wherever you get your podcasts. I'm Katy Dimitrieva again, and you can find me on LinkedIn or on the Bloomberg terminal.
And I'm John Lee.
You can also find me on LinkedIn. And this podcast was produced and edited by Clara Chen And thanks for listening.
