[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.00,0:00:02.50,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:00:11.23,0:00:13.12,Default,,0000,0000,0000,,- [Prof. Tyler Cowen]\NSo why is the Chinese economy
Dialogue: 0,0:00:13.12,0:00:14.81,Default,,0000,0000,0000,,in so much trouble right now?
Dialogue: 0,0:00:14.81,0:00:17.35,Default,,0000,0000,0000,,Well, actually,\Nthis shouldn't come as a surprise.
Dialogue: 0,0:00:17.35,0:00:20.64,Default,,0000,0000,0000,,If you've been watching China\Nover the last several decades,
Dialogue: 0,0:00:20.64,0:00:22.82,Default,,0000,0000,0000,,you can understand\Nhow the current problems
Dialogue: 0,0:00:22.82,0:00:26.15,Default,,0000,0000,0000,,actually fall out of a lot\Nof their earlier successes.
Dialogue: 0,0:00:26.15,0:00:28.73,Default,,0000,0000,0000,,The story starts in 1979.
Dialogue: 0,0:00:28.73,0:00:32.17,Default,,0000,0000,0000,,And in 1979,\Nyou have Chinese reformers
Dialogue: 0,0:00:32.17,0:00:35.41,Default,,0000,0000,0000,,starting to do a good deal\Nto put the Chinese economy
Dialogue: 0,0:00:35.41,0:00:36.87,Default,,0000,0000,0000,,on a sounder track.
Dialogue: 0,0:00:36.87,0:00:39.76,Default,,0000,0000,0000,,At that time,\NChinese per capita income
Dialogue: 0,0:00:39.76,0:00:42.11,Default,,0000,0000,0000,,was only a few hundred\Ndollars a year,
Dialogue: 0,0:00:42.11,0:00:44.61,Default,,0000,0000,0000,,almost everyone was very poor,
Dialogue: 0,0:00:44.61,0:00:48.41,Default,,0000,0000,0000,,people would ride bicycles\Nrather than driving cars,
Dialogue: 0,0:00:48.41,0:00:51.33,Default,,0000,0000,0000,,and even starvation\Nwas still a possibility.
Dialogue: 0,0:00:51.84,0:00:54.57,Default,,0000,0000,0000,,So China introduces\Nmore private property,
Dialogue: 0,0:00:54.57,0:00:56.56,Default,,0000,0000,0000,,more capitalistic incentives,
Dialogue: 0,0:00:56.56,0:00:59.13,Default,,0000,0000,0000,,it privatizes\Nsome of its agriculture,
Dialogue: 0,0:00:59.13,0:01:02.27,Default,,0000,0000,0000,,it allows more manufacturing,\Nmore exporting.
Dialogue: 0,0:01:02.27,0:01:06.50,Default,,0000,0000,0000,,Overall, China starts moving\Ntoward being a modern economy,
Dialogue: 0,0:01:06.50,0:01:07.72,Default,,0000,0000,0000,,a normal economy.
Dialogue: 0,0:01:08.11,0:01:10.40,Default,,0000,0000,0000,,And once these reforms are underway,
Dialogue: 0,0:01:10.40,0:01:13.36,Default,,0000,0000,0000,,China is growing\Nat really an astonishing pace.
Dialogue: 0,0:01:13.36,0:01:15.78,Default,,0000,0000,0000,,For a lot of the last 35 years,
Dialogue: 0,0:01:15.78,0:01:19.44,Default,,0000,0000,0000,,China has been growing\Nat around 10% a year.
Dialogue: 0,0:01:19.44,0:01:20.60,Default,,0000,0000,0000,,That's amazing!
Dialogue: 0,0:01:20.60,0:01:22.36,Default,,0000,0000,0000,,The American economy typically
Dialogue: 0,0:01:22.36,0:01:25.00,Default,,0000,0000,0000,,doesn't grow\Nat much more than 2% a year.
Dialogue: 0,0:01:25.00,0:01:27.00,Default,,0000,0000,0000,,At 10% a year growth,
Dialogue: 0,0:01:27.00,0:01:31.10,Default,,0000,0000,0000,,that means that living standards\Ndouble about every 7 years.
Dialogue: 0,0:01:31.10,0:01:33.65,Default,,0000,0000,0000,,So if you go back,\Nyou keep on visiting China,
Dialogue: 0,0:01:33.65,0:01:36.46,Default,,0000,0000,0000,,it's as if every 7 years,\Nevery 10 years,
Dialogue: 0,0:01:36.46,0:01:38.90,Default,,0000,0000,0000,,you get to see\Nan entirely new country.
Dialogue: 0,0:01:38.90,0:01:42.00,Default,,0000,0000,0000,,For me personally, China is the most\Ninteresting country in the world
Dialogue: 0,0:01:42.00,0:01:44.22,Default,,0000,0000,0000,,to visit as an economist.
Dialogue: 0,0:01:44.22,0:01:45.83,Default,,0000,0000,0000,,They have grown at a pace
Dialogue: 0,0:01:45.83,0:01:47.77,Default,,0000,0000,0000,,that no other place has matched.
Dialogue: 0,0:01:47.77,0:01:52.54,Default,,0000,0000,0000,,Imagine about 10% a year growth\Nfor almost 35 years.
Dialogue: 0,0:01:52.54,0:01:54.78,Default,,0000,0000,0000,,That has transformed everything.
Dialogue: 0,0:01:54.78,0:01:56.20,Default,,0000,0000,0000,,So even year to year,
Dialogue: 0,0:01:56.20,0:02:00.63,Default,,0000,0000,0000,,parts of a city or a neighborhood\Ncan simply change before your eyes.
Dialogue: 0,0:02:01.02,0:02:03.22,Default,,0000,0000,0000,,So you see human progress at work,
Dialogue: 0,0:02:03.22,0:02:06.93,Default,,0000,0000,0000,,you see what took some parts\Nof the world centuries to achieve,
Dialogue: 0,0:02:06.93,0:02:10.00,Default,,0000,0000,0000,,happening in decades or even years.
Dialogue: 0,0:02:10.00,0:02:13.02,Default,,0000,0000,0000,,You see human hope\Nand faith and progress,
Dialogue: 0,0:02:13.02,0:02:16.24,Default,,0000,0000,0000,,and a deep underlying optimism\Nabout what is possible.
Dialogue: 0,0:02:16.24,0:02:19.49,Default,,0000,0000,0000,,So the Chinese economy\Nduring these years of rapid growth --
Dialogue: 0,0:02:19.49,0:02:21.44,Default,,0000,0000,0000,,it had some very notable features.
Dialogue: 0,0:02:21.44,0:02:23.37,Default,,0000,0000,0000,,It had high levels of savings,
Dialogue: 0,0:02:23.37,0:02:25.89,Default,,0000,0000,0000,,it had super high\Nlevels of investment,
Dialogue: 0,0:02:25.89,0:02:28.32,Default,,0000,0000,0000,,and they built lots\Nand lots of infrastructure.
Dialogue: 0,0:02:28.32,0:02:30.36,Default,,0000,0000,0000,,And those were all very positive.
Dialogue: 0,0:02:30.36,0:02:33.11,Default,,0000,0000,0000,,It's wonderful how good\Nthe infrastructure is in China.
Dialogue: 0,0:02:33.11,0:02:37.00,Default,,0000,0000,0000,,I would much rather ride\Non a Chinese high-speed rail train
Dialogue: 0,0:02:37.00,0:02:39.56,Default,,0000,0000,0000,,than take the Amtrak\Nfrom Washington, D.C.
Dialogue: 0,0:02:39.56,0:02:40.58,Default,,0000,0000,0000,,to New York City.
Dialogue: 0,0:02:40.58,0:02:43.14,Default,,0000,0000,0000,,The Chinese train\Nis quicker, nicer,
Dialogue: 0,0:02:43.14,0:02:45.23,Default,,0000,0000,0000,,and it's far more likely\Nto be on time.
Dialogue: 0,0:02:45.70,0:02:47.00,Default,,0000,0000,0000,,But here’s the thing --
Dialogue: 0,0:02:47.00,0:02:49.04,Default,,0000,0000,0000,,for a long time\NChina has been investing
Dialogue: 0,0:02:49.04,0:02:51.87,Default,,0000,0000,0000,,almost half of its GDP every year.
Dialogue: 0,0:02:51.87,0:02:53.51,Default,,0000,0000,0000,,Half!\NThat's astonishing.
Dialogue: 0,0:02:53.51,0:02:55.00,Default,,0000,0000,0000,,When you think about it,
Dialogue: 0,0:02:55.00,0:02:57.00,Default,,0000,0000,0000,,it is remarkably hard, every year,
Dialogue: 0,0:02:57.00,0:03:00.69,Default,,0000,0000,0000,,to invest half of your GDP\Nand to invest it well.
Dialogue: 0,0:03:00.92,0:03:03.54,Default,,0000,0000,0000,,In the early years\Nof China's economic growth,
Dialogue: 0,0:03:03.54,0:03:06.61,Default,,0000,0000,0000,,the required investments were\Npretty simple and straightforward.
Dialogue: 0,0:03:06.61,0:03:08.60,Default,,0000,0000,0000,,They needed to build more homes,
Dialogue: 0,0:03:08.60,0:03:10.70,Default,,0000,0000,0000,,they needed\Nto put in more train lines,
Dialogue: 0,0:03:10.70,0:03:12.69,Default,,0000,0000,0000,,they needed to build more roads,
Dialogue: 0,0:03:12.69,0:03:15.00,Default,,0000,0000,0000,,they needed to equip\Ntheir urban centers
Dialogue: 0,0:03:15.00,0:03:17.97,Default,,0000,0000,0000,,with all of the normal features\Nof everyday modern life.
Dialogue: 0,0:03:17.97,0:03:20.94,Default,,0000,0000,0000,,And the Chinese government\Ndid a really good job
Dialogue: 0,0:03:20.94,0:03:22.49,Default,,0000,0000,0000,,at all of those things.
Dialogue: 0,0:03:22.49,0:03:26.27,Default,,0000,0000,0000,,It's a big reason why, actually,\NChina's growth has been so strong.
Dialogue: 0,0:03:26.27,0:03:27.91,Default,,0000,0000,0000,,But the problem is this --
Dialogue: 0,0:03:27.91,0:03:30.66,Default,,0000,0000,0000,,the way decision-making\Nin China is set up --
Dialogue: 0,0:03:30.66,0:03:34.26,Default,,0000,0000,0000,,it's very good for achieving things \Nwith a kind of checklist --
Dialogue: 0,0:03:34.26,0:03:38.06,Default,,0000,0000,0000,,known tasks that require a lot\Nof resources and a lot of effort,
Dialogue: 0,0:03:38.06,0:03:40.89,Default,,0000,0000,0000,,and you throw everything\Nyou have at getting it done,
Dialogue: 0,0:03:40.89,0:03:42.68,Default,,0000,0000,0000,,and you get it done pretty quickly.
Dialogue: 0,0:03:42.68,0:03:44.55,Default,,0000,0000,0000,,China has been great at that.
Dialogue: 0,0:03:44.55,0:03:47.53,Default,,0000,0000,0000,,But now, a lot of that\Nlow-hanging fruit is gone.
Dialogue: 0,0:03:47.53,0:03:50.00,Default,,0000,0000,0000,,A lot of the infrastructure\Nwhich China needs
Dialogue: 0,0:03:50.00,0:03:51.62,Default,,0000,0000,0000,,already has been built,
Dialogue: 0,0:03:51.62,0:03:55.00,Default,,0000,0000,0000,,but now their economy\Nneeds more complex investments.
Dialogue: 0,0:03:55.00,0:03:57.00,Default,,0000,0000,0000,,They need a better\Nhealthcare system,
Dialogue: 0,0:03:57.00,0:04:01.00,Default,,0000,0000,0000,,they need better retail services,\Nthey need more startups.
Dialogue: 0,0:04:01.00,0:04:02.00,Default,,0000,0000,0000,,And in these areas,
Dialogue: 0,0:04:02.00,0:04:05.00,Default,,0000,0000,0000,,there’s not a simple \Nchecklist way to get it done.
Dialogue: 0,0:04:05.00,0:04:08.18,Default,,0000,0000,0000,,It's not just a question\Nof throwing resources at the problem.
Dialogue: 0,0:04:08.18,0:04:11.52,Default,,0000,0000,0000,,You need more trial and error,\Nmore experimentation,
Dialogue: 0,0:04:11.52,0:04:14.04,Default,,0000,0000,0000,,you need more\Nof a market discovery process
Dialogue: 0,0:04:14.04,0:04:16.74,Default,,0000,0000,0000,,to figure out which\Nare the profitable investments
Dialogue: 0,0:04:16.74,0:04:18.88,Default,,0000,0000,0000,,and which\Nare the unprofitable ones.
Dialogue: 0,0:04:19.06,0:04:21.28,Default,,0000,0000,0000,,And it’s hard to plan\Nand manage those
Dialogue: 0,0:04:21.28,0:04:23.46,Default,,0000,0000,0000,,the same ways\Nthat the Chinese did that
Dialogue: 0,0:04:23.46,0:04:25.30,Default,,0000,0000,0000,,with all of their infrastructure.
Dialogue: 0,0:04:25.97,0:04:28.81,Default,,0000,0000,0000,,Here is another problem\Nwith the Chinese economic model.
Dialogue: 0,0:04:28.81,0:04:32.68,Default,,0000,0000,0000,,If your economy grows\N10% a year or so for so long,
Dialogue: 0,0:04:32.68,0:04:35.00,Default,,0000,0000,0000,,businessmen\Nand also your governments --
Dialogue: 0,0:04:35.00,0:04:37.00,Default,,0000,0000,0000,,they start thinking\Nthere isn't much risk.
Dialogue: 0,0:04:37.00,0:04:40.75,Default,,0000,0000,0000,,At 10% growth, \Nthere's so much forward impetus.
Dialogue: 0,0:04:40.75,0:04:43.19,Default,,0000,0000,0000,,You can have a business plan\Nwith a lot of mistakes,
Dialogue: 0,0:04:43.19,0:04:46.96,Default,,0000,0000,0000,,you can have a lot of debt,\Nyou can be very poor on execution,
Dialogue: 0,0:04:46.96,0:04:49.94,Default,,0000,0000,0000,,but a lot of those investments\Nare still going to make money
Dialogue: 0,0:04:49.94,0:04:51.73,Default,,0000,0000,0000,,at about 10% growth.
Dialogue: 0,0:04:51.73,0:04:54.36,Default,,0000,0000,0000,,So what happens is,\Nthe underlying economy
Dialogue: 0,0:04:54.36,0:04:56.38,Default,,0000,0000,0000,,loses some of its discipline.
Dialogue: 0,0:04:56.38,0:04:58.86,Default,,0000,0000,0000,,People get sloppy,\Nthey overextend,
Dialogue: 0,0:04:58.86,0:05:00.78,Default,,0000,0000,0000,,they become too optimistic.
Dialogue: 0,0:05:00.78,0:05:03.53,Default,,0000,0000,0000,,They think they can make\Nany investment or any decision
Dialogue: 0,0:05:03.53,0:05:05.91,Default,,0000,0000,0000,,and somehow\Nit will pay off or be validated,
Dialogue: 0,0:05:05.91,0:05:07.43,Default,,0000,0000,0000,,just because everyone else
Dialogue: 0,0:05:07.43,0:05:10.00,Default,,0000,0000,0000,,is pushing\Non that 10% rate of growth.
Dialogue: 0,0:05:10.00,0:05:12.19,Default,,0000,0000,0000,,A turning point\Nfor the Chinese economy
Dialogue: 0,0:05:12.19,0:05:13.84,Default,,0000,0000,0000,,comes in 2009
Dialogue: 0,0:05:13.84,0:05:18.03,Default,,0000,0000,0000,,when there’s a significant recession\Nin many other parts of the world.
Dialogue: 0,0:05:18.03,0:05:20.00,Default,,0000,0000,0000,,At the time,\Na lot of observers thought,
Dialogue: 0,0:05:20.00,0:05:22.96,Default,,0000,0000,0000,,"Well, there’s going to be\Na big recession in China too."
Dialogue: 0,0:05:22.96,0:05:24.40,Default,,0000,0000,0000,,But there wasn't.
Dialogue: 0,0:05:24.40,0:05:27.46,Default,,0000,0000,0000,,The Chinese government\Nundertook some very special steps
Dialogue: 0,0:05:27.46,0:05:30.90,Default,,0000,0000,0000,,to avoid or maybe\Njust postpone that recession.
Dialogue: 0,0:05:30.90,0:05:32.37,Default,,0000,0000,0000,,So the Chinese government
Dialogue: 0,0:05:32.37,0:05:34.42,Default,,0000,0000,0000,,spent a lot more money\Non infrastructure
Dialogue: 0,0:05:34.42,0:05:36.33,Default,,0000,0000,0000,,at a time where maybe
Dialogue: 0,0:05:36.33,0:05:39.23,Default,,0000,0000,0000,,less infrastructure investment\Nwas called for.
Dialogue: 0,0:05:39.64,0:05:41.90,Default,,0000,0000,0000,,The Chinese government,\Nthe state-owned banks,
Dialogue: 0,0:05:41.90,0:05:43.42,Default,,0000,0000,0000,,the state-owned companies,
Dialogue: 0,0:05:43.42,0:05:46.66,Default,,0000,0000,0000,,acted in concert to encourage\Na lot more borrowing,
Dialogue: 0,0:05:46.66,0:05:48.00,Default,,0000,0000,0000,,a lot more debt.
Dialogue: 0,0:05:48.00,0:05:50.71,Default,,0000,0000,0000,,And it's true --\Nthis did spur spending,
Dialogue: 0,0:05:50.71,0:05:52.49,Default,,0000,0000,0000,,it boosted investment,
Dialogue: 0,0:05:52.49,0:05:55.00,Default,,0000,0000,0000,,kept the economy\Nrunning at a higher level,
Dialogue: 0,0:05:55.00,0:05:57.00,Default,,0000,0000,0000,,but actually debt rose to the point
Dialogue: 0,0:05:57.00,0:05:58.71,Default,,0000,0000,0000,,where it was too high
Dialogue: 0,0:05:58.71,0:06:02.28,Default,,0000,0000,0000,,relative to the rates of return\Navailable on those projects.
Dialogue: 0,0:06:02.66,0:06:05.44,Default,,0000,0000,0000,,So now, we don't have\Nvery exact measures,
Dialogue: 0,0:06:05.44,0:06:08.62,Default,,0000,0000,0000,,but it seems that\Ntotal Chinese debt of all kinds
Dialogue: 0,0:06:08.62,0:06:11.52,Default,,0000,0000,0000,,is well over 200% of GDP --
Dialogue: 0,0:06:11.52,0:06:15.00,Default,,0000,0000,0000,,possibly as high as 300% of GDP.
Dialogue: 0,0:06:15.00,0:06:17.00,Default,,0000,0000,0000,,And maybe that can work
Dialogue: 0,0:06:17.00,0:06:18.93,Default,,0000,0000,0000,,when your underlying\Nrate of growth is 10%,
Dialogue: 0,0:06:18.93,0:06:21.94,Default,,0000,0000,0000,,but as your underlying\Nrate of economic growth falls,
Dialogue: 0,0:06:21.94,0:06:25.65,Default,,0000,0000,0000,,it's harder and harder\Nfor that debt to be sustainable.
Dialogue: 0,0:06:26.12,0:06:28.27,Default,,0000,0000,0000,,So how much is China growing today?
Dialogue: 0,0:06:28.27,0:06:30.00,Default,,0000,0000,0000,,Well, it depends who you listen to.
Dialogue: 0,0:06:30.00,0:06:32.86,Default,,0000,0000,0000,,The Chinese government, circa 2015,
Dialogue: 0,0:06:32.86,0:06:37.00,Default,,0000,0000,0000,,is claiming China\Nis still growing at about 7% a year.
Dialogue: 0,0:06:37.67,0:06:40.00,Default,,0000,0000,0000,,But not many external\Nobservers believe this,
Dialogue: 0,0:06:40.00,0:06:42.60,Default,,0000,0000,0000,,because they’re looking\Nat other pieces of data.
Dialogue: 0,0:06:42.60,0:06:46.14,Default,,0000,0000,0000,,No one is sure what the real rate\Nof economic growth is,
Dialogue: 0,0:06:46.14,0:06:49.46,Default,,0000,0000,0000,,but what we know is that \Nit is probably sharply lower
Dialogue: 0,0:06:49.46,0:06:52.88,Default,,0000,0000,0000,,and China is now entering \Na great recession.
Dialogue: 0,0:06:53.96,0:06:55.60,Default,,0000,0000,0000,,To track this recession,
Dialogue: 0,0:06:55.60,0:06:59.67,Default,,0000,0000,0000,,we can keep in mind\Nfive issues or problem areas --
Dialogue: 0,0:06:59.67,0:07:02.69,Default,,0000,0000,0000,,the real estate bubble,\Nthe stock market bubble,
Dialogue: 0,0:07:02.69,0:07:05.49,Default,,0000,0000,0000,,the excess level of municipal debt,
Dialogue: 0,0:07:05.49,0:07:08.32,Default,,0000,0000,0000,,excess capacity\Namong Chinese businesses,
Dialogue: 0,0:07:08.32,0:07:10.44,Default,,0000,0000,0000,,and finally,\Nthe risk of capital flight.
Dialogue: 0,0:07:10.81,0:07:14.08,Default,,0000,0000,0000,,The first of these\Nis the real estate bubble.
Dialogue: 0,0:07:14.50,0:07:16.08,Default,,0000,0000,0000,,Chinese property prices
Dialogue: 0,0:07:16.08,0:07:18.54,Default,,0000,0000,0000,,became too high\Nin many Chinese cities
Dialogue: 0,0:07:18.54,0:07:20.00,Default,,0000,0000,0000,,and China overbuilt.
Dialogue: 0,0:07:20.89,0:07:24.37,Default,,0000,0000,0000,,I took a train trip from Beijing\Nthrough the center of the country --
Dialogue: 0,0:07:24.37,0:07:25.83,Default,,0000,0000,0000,,a six hour train trip.
Dialogue: 0,0:07:25.83,0:07:29.39,Default,,0000,0000,0000,,And along the way,\NI kept on seeing city after city
Dialogue: 0,0:07:29.39,0:07:32.70,Default,,0000,0000,0000,,with dozens and dozens\Nof apartment blocks.
Dialogue: 0,0:07:32.70,0:07:36.02,Default,,0000,0000,0000,,You would see so many buildings,\Nbut so few people,
Dialogue: 0,0:07:36.02,0:07:39.15,Default,,0000,0000,0000,,so few retail stores, so few cars.
Dialogue: 0,0:07:39.15,0:07:42.00,Default,,0000,0000,0000,,Many of those cities\Nare grossly overbuilt,
Dialogue: 0,0:07:42.00,0:07:44.44,Default,,0000,0000,0000,,relative to what can be supported.
Dialogue: 0,0:07:44.97,0:07:48.73,Default,,0000,0000,0000,,The Chinese stock market bubble\Nis another potential problem.
Dialogue: 0,0:07:48.73,0:07:51.99,Default,,0000,0000,0000,,For a while, Chinese\Nstock prices were rising rapidly,
Dialogue: 0,0:07:52.00,0:07:54.21,Default,,0000,0000,0000,,but then they fell rapidly too.
Dialogue: 0,0:07:54.21,0:07:57.80,Default,,0000,0000,0000,,Too many people were encouraged\Nto buy stocks on margin,
Dialogue: 0,0:07:57.80,0:08:00.49,Default,,0000,0000,0000,,the ratio of prices\Nto corporate earnings
Dialogue: 0,0:08:00.49,0:08:02.00,Default,,0000,0000,0000,,has been extremely high,
Dialogue: 0,0:08:02.00,0:08:05.29,Default,,0000,0000,0000,,and probably those stock prices\Nwill continue to fall
Dialogue: 0,0:08:05.29,0:08:06.91,Default,,0000,0000,0000,,at a pretty rapid pace.
Dialogue: 0,0:08:06.91,0:08:10.00,Default,,0000,0000,0000,,That will depress consumer \Nspending, lower confidence
Dialogue: 0,0:08:10.00,0:08:12.68,Default,,0000,0000,0000,,and it also will be a problem\Nfor some Chinese banks.
Dialogue: 0,0:08:13.17,0:08:15.40,Default,,0000,0000,0000,,The third problem is municipal debt.
Dialogue: 0,0:08:15.82,0:08:18.93,Default,,0000,0000,0000,,No one really knows exactly\Nhow big a problem this is.
Dialogue: 0,0:08:18.93,0:08:21.85,Default,,0000,0000,0000,,We do know that\NChinese municipal governments
Dialogue: 0,0:08:21.85,0:08:24.26,Default,,0000,0000,0000,,were not supposed\Nto be able to borrow money --
Dialogue: 0,0:08:24.26,0:08:26.66,Default,,0000,0000,0000,,they were supposed\Nto run balanced budgets.
Dialogue: 0,0:08:26.66,0:08:30.43,Default,,0000,0000,0000,,But in fact, a lot of them ended up\Nborrowing money off the books,
Dialogue: 0,0:08:30.43,0:08:33.64,Default,,0000,0000,0000,,and in fact they were encouraged\Nby the central government to do this,
Dialogue: 0,0:08:33.64,0:08:37.00,Default,,0000,0000,0000,,to keep up that expenditure\Non all the infrastructure.
Dialogue: 0,0:08:37.00,0:08:38.20,Default,,0000,0000,0000,,But what’s happened is,
Dialogue: 0,0:08:38.20,0:08:41.59,Default,,0000,0000,0000,,they borrowed a lot more than\Nright now they are able to pay back.
Dialogue: 0,0:08:42.40,0:08:45.42,Default,,0000,0000,0000,,And the central government\Nin Beijing is feeling the need
Dialogue: 0,0:08:45.42,0:08:48.05,Default,,0000,0000,0000,,to try to bail out\Nthese municipal governments.
Dialogue: 0,0:08:48.05,0:08:50.58,Default,,0000,0000,0000,,Another big problem\Nin the Chinese economy
Dialogue: 0,0:08:50.58,0:08:52.74,Default,,0000,0000,0000,,is what I would call\N"excess capacity".
Dialogue: 0,0:08:52.74,0:08:55.64,Default,,0000,0000,0000,,That is, in too many sectors\Nyou have too many firms,
Dialogue: 0,0:08:55.64,0:08:57.37,Default,,0000,0000,0000,,you have too much overconfidence,
Dialogue: 0,0:08:57.37,0:08:59.65,Default,,0000,0000,0000,,too much stimulation of investment,
Dialogue: 0,0:08:59.65,0:09:02.31,Default,,0000,0000,0000,,and a lot of those companies\Nprobably are not profitable --
Dialogue: 0,0:09:02.31,0:09:05.01,Default,,0000,0000,0000,,they're being kept afloat\Nby cheap credit
Dialogue: 0,0:09:05.01,0:09:06.78,Default,,0000,0000,0000,,from Chinese state-owned banks,
Dialogue: 0,0:09:06.78,0:09:09.64,Default,,0000,0000,0000,,or they may be Chinese \Nstate-owned companies themselves,
Dialogue: 0,0:09:09.64,0:09:12.35,Default,,0000,0000,0000,,which have political privileges\Nof various kinds.
Dialogue: 0,0:09:12.35,0:09:15.00,Default,,0000,0000,0000,,But a lot of those\Ncompanies right now --
Dialogue: 0,0:09:15.00,0:09:17.67,Default,,0000,0000,0000,,they’re not making\Nreally productive investments
Dialogue: 0,0:09:17.67,0:09:20.48,Default,,0000,0000,0000,,in the kinds of things\Nthat Chinese consumers want.
Dialogue: 0,0:09:21.21,0:09:23.17,Default,,0000,0000,0000,,If you look at price indices,
Dialogue: 0,0:09:23.17,0:09:26.32,Default,,0000,0000,0000,,if you look at the index\Nfor producer prices in China --
Dialogue: 0,0:09:26.32,0:09:28.75,Default,,0000,0000,0000,,that's one measure\Nof this excess capacity.
Dialogue: 0,0:09:28.75,0:09:31.31,Default,,0000,0000,0000,,That index actually\Nhas been falling now
Dialogue: 0,0:09:31.31,0:09:34.15,Default,,0000,0000,0000,,for over three years running,\Nfalling every month.
Dialogue: 0,0:09:34.15,0:09:37.55,Default,,0000,0000,0000,,That's a sign that too many\Nproducer goods have been built
Dialogue: 0,0:09:37.55,0:09:39.72,Default,,0000,0000,0000,,for what can be sustained profitably.
Dialogue: 0,0:09:39.72,0:09:43.00,Default,,0000,0000,0000,,So maybe the biggest\Npotential problem is capital flight.
Dialogue: 0,0:09:43.00,0:09:45.23,Default,,0000,0000,0000,,There’s a risk that capital within China,
Dialogue: 0,0:09:45.23,0:09:47.83,Default,,0000,0000,0000,,foreign capital,\Nbut especially domestic capital,
Dialogue: 0,0:09:47.83,0:09:49.48,Default,,0000,0000,0000,,seeks to leave the country
Dialogue: 0,0:09:49.48,0:09:52.24,Default,,0000,0000,0000,,out of fear of China's\Neconomic problems.
Dialogue: 0,0:09:52.24,0:09:54.66,Default,,0000,0000,0000,,But if too much\Nof this capital leaves the country,
Dialogue: 0,0:09:54.66,0:09:57.11,Default,,0000,0000,0000,,that actually makes\Nthe problems much worse,
Dialogue: 0,0:09:57.11,0:09:59.71,Default,,0000,0000,0000,,as we saw\Nwith the Asian financial crisis
Dialogue: 0,0:09:59.71,0:10:02.20,Default,,0000,0000,0000,,in the 1990s for other countries.
Dialogue: 0,0:10:02.84,0:10:04.74,Default,,0000,0000,0000,,The big danger in China
Dialogue: 0,0:10:04.74,0:10:07.00,Default,,0000,0000,0000,,is simply that\Ncapital flight accelerates.
Dialogue: 0,0:10:07.69,0:10:08.93,Default,,0000,0000,0000,,But in the meantime,
Dialogue: 0,0:10:08.93,0:10:10.97,Default,,0000,0000,0000,,think of the problems\Nthe Chinese government has
Dialogue: 0,0:10:10.97,0:10:12.67,Default,,0000,0000,0000,,trying to manage all of this.
Dialogue: 0,0:10:12.67,0:10:15.64,Default,,0000,0000,0000,,There are a lot of firms\Nwhich are no longer profitable,
Dialogue: 0,0:10:15.64,0:10:18.38,Default,,0000,0000,0000,,but the government’s reluctant\Nto let them go bankrupt
Dialogue: 0,0:10:18.38,0:10:20.00,Default,,0000,0000,0000,,because of fear of unemployment
Dialogue: 0,0:10:20.00,0:10:22.80,Default,,0000,0000,0000,,and also alienating\Nspecial interest groups.
Dialogue: 0,0:10:22.80,0:10:25.94,Default,,0000,0000,0000,,There’s too much credit and too much\Nborrowing in the economy,
Dialogue: 0,0:10:25.94,0:10:27.51,Default,,0000,0000,0000,,but if that bubble is burst,
Dialogue: 0,0:10:27.51,0:10:30.56,Default,,0000,0000,0000,,well, then economic activity\Nwill fall all the more.
Dialogue: 0,0:10:30.56,0:10:32.93,Default,,0000,0000,0000,,There's been too much\Ninvestment in real estate,
Dialogue: 0,0:10:32.93,0:10:35.71,Default,,0000,0000,0000,,there’s too much continuing\Nreliance on infrastructure,
Dialogue: 0,0:10:35.71,0:10:37.09,Default,,0000,0000,0000,,and somehow the government
Dialogue: 0,0:10:37.09,0:10:39.40,Default,,0000,0000,0000,,is supposed to juggle\Nall of these balls at once
Dialogue: 0,0:10:39.40,0:10:41.65,Default,,0000,0000,0000,,and stop the recession\Nfrom getting worse.
Dialogue: 0,0:10:41.65,0:10:44.09,Default,,0000,0000,0000,,When you put\Nall of those issues together,
Dialogue: 0,0:10:44.09,0:10:46.63,Default,,0000,0000,0000,,it is indeed\Na very complex picture,
Dialogue: 0,0:10:46.63,0:10:48.38,Default,,0000,0000,0000,,very difficult to understand.
Dialogue: 0,0:10:48.38,0:10:51.91,Default,,0000,0000,0000,,But what we see is that\Nthe world's number two economy
Dialogue: 0,0:10:51.91,0:10:55.34,Default,,0000,0000,0000,,really is running a very\Nserious risk of a recession
Dialogue: 0,0:10:55.34,0:10:56.69,Default,,0000,0000,0000,,which will be deep,
Dialogue: 0,0:10:56.69,0:10:59.68,Default,,0000,0000,0000,,and also may last really\Nquite some number of years.
Dialogue: 0,0:11:00.00,0:11:05.00,Default,,0000,0000,0000,,My personal view is that, at this point, these \Nproblems are so deeply baked into the Chinese economy,
Dialogue: 0,0:11:05.00,0:11:10.00,Default,,0000,0000,0000,,there is no way to set this all right. \NBut still there are some major reasons
Dialogue: 0,0:11:10.00,0:11:15.00,Default,,0000,0000,0000,,to be optimistic looking forward. First, \Nthe most important source of wealth in any economy is
Dialogue: 0,0:11:15.00,0:11:20.00,Default,,0000,0000,0000,,human capital. The Chinese have \Ndone a fantastic job investing
Dialogue: 0,0:11:20.00,0:11:25.00,Default,,0000,0000,0000,,in their own human capital. So from \Nthe economist’s point of view, which values
Dialogue: 0,0:11:25.00,0:11:30.00,Default,,0000,0000,0000,,human capital above all else, as the most fundamental \Nsource of national wealth. When we look at the future
Dialogue: 0,0:11:30.00,0:11:35.00,Default,,0000,0000,0000,,of China in the medium-term prospects, \Nwe really should be optimistic
Dialogue: 0,0:11:35.00,0:11:40.00,Default,,0000,0000,0000,,or even cheery. Because China has \Ninvested very well in human capital.
Dialogue: 0,0:11:40.00,0:11:45.00,Default,,0000,0000,0000,,Those investments will survive the \Ncurrent recession intact, and we have
Dialogue: 0,0:11:45.00,0:11:50.00,Default,,0000,0000,0000,,every reason to believe that China will be extending the \Ntalents, energies, drives, and ambitions of its people,
Dialogue: 0,0:12:22.00,0:12:25.00,Default,,0000,0000,0000,,Subtitles by the Amara.org community