Show host Gene Tunny talks with Emmanuel Daniel, founder of The Asian Banker, about China’s evolving economic policies under Xi Jinping. They explore China’s state intervention, the country’s property sector, and the global implications of Xi’s economic vision. Emmanuel also shares insights into Southeast Asia’s rise, focusing on Indonesia’s growth prospects. The conversation concludes with a discussion of Australia’s role in the region, its economic ties with China, and its alliance with the US and UK.
If you have any questions, comments, or suggestions for Gene, please email him at contact@economicsexplored.com or send a voice message via https://www.speakpipe.com/economicsexplored.
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What’s covered in EP253
- Introduction (0:00)
- China’s Property Sector and Economic Challenges (6:32)
- State’s Role in Economic Development and Social Infrastructure (15:20)
- China’s Economic Growth and Productivity (29:15)
- China’s Geopolitical Challenges and US Relations (35:58)
- Southeast Asia and the Rise of the Rest (44:50)
- Australia’s Role in the Region and Economic Ties with China (53:38)
- Final Thoughts and Future Directions (56:07)
Takeaways
- China’s State Activism: The Chinese state has reasserted itself in the economy, implementing policies restricting private sector growth with the objective of promoting long-term social stability.
- Challenges of State-Led Development: There are limitations to what the state can achieve compared to the dynamism of private markets, especially in frontier technologies.
- The Socialist-Capitalist Tension: China’s current policies reflect a unique blend of socialism and capitalism (aka socialism with Chinese characteristics), with the state playing a more prominent role than in Western economies.
- Global Implications: China’s economic trajectory under Xi Jinping will profoundly affect global markets, particularly as the state asserts more control over private companies.
- Rise of Southeast Asia: Countries like Indonesia are emerging as economic powerhouses, with domestic consumption and political stability driving their growth.
Links relevant to the conversation
About this episode’s guest Emmanuel Daniel:
https://www.emmanueldaniel.com/biography-and-contact/
Economics Explored ep171 on the Enterprise China model:
Reuters report “Indonesia minister says Musk to consider offer to build EV battery plant in country”:
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Transcript: From Academia to Impact: TFranchising Fitness: Lessons from the Expansion of Spartans Boxing Clubs w/ Russell Harrison, CEO – EP252
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Emmanuel Daniel 00:03
So the funny thing is that China, the state has become increasingly competent, and therefore became a lot more activist in the way in which the private sector is structured and the role it plays in the economy. I gene,
Gene Tunny 00:27
welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host gene, Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show us to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show. Hello and welcome to the show. In this episode, we’re taking a close look at what’s happening in China and Southeast Asia with Emmanuel Daniel, founder of the Asian banker. Emmanuel is very well informed about the region. He’s got some interesting perspectives that have really given me something to think about. Among other things, we talk about the direction of economic policy in China under Xi Jinping. Emmanuel alerted me to the fact that the Chinese Communist Party recently had a very significant policy meeting. In the communique from that meeting, they affirmed their support for fully implementing Xi Jinping thought on socialism with Chinese characteristics for a new era. What on earth does that mean? After talking to Emmanuel, I have a much better idea of what the Chinese administration has in mind. I think it’s worth hearing from him what he has to say. Okay, thanks to Lumo coffee for sponsoring this episode. This grade one organic specialty coffee from the highlands of Peru is jam packed full of healthy antioxidants. There’s a 10% discount for economics explored listeners. Details are in the show notes. Okay, without further ado, let’s dive into the episode. I hope you enjoy it. Emmanuel, Daniel, welcome to the program.
Emmanuel Daniel 02:10
Thanks for having me on, Jim. Looking forward to this conversation, and good morning, by the way. Oh
Gene Tunny 02:15
yes, yes. It’s 8am here in Brisbane, and you’re Are you in Singapore or Beijing or somewhere? Well,
Emmanuel Daniel 02:22
today I’m in Beijing, and it’s, you know, it’s 6am I think, so, you know. So I got up for this call, and I’m looking forward to this conversation.
Gene Tunny 02:33
Very good. Yes. So, I mean, you’re someone who has a having a close look at the global economy, and in particular the East Asia, Southeast Asia, and I’m keen to talk to you today about what’s going on there. It seems that there’s been some big news out of China recently regarding their approach to economic development that you alerted me to. Would you be able to tell us what’s going on their place. Emmanuel, well,
Emmanuel Daniel 03:01
you know, I’ve been in China, by the way, since 2000 as in, my first time visiting China was 1994 and then I started a business called the Asian banker. It’s a research publishing business and so on. And so I’ve had a very close view of developments in China, especially the economic, banking sector. And, you know, I’ve seen China make very important decisions that were, you know, like not taken seriously. You know, in the West, I guess, and I’ve seen them benefit from it, you know, like good things happen, you know, after, after a while, and you you see how it all comes together. And I guess that right now, they’re in the process of making yet another very important decision, and I’m now putting together all the elements that you know, will give me a very clear, a much clearer picture of where they’re taking this, you know. So you know, just to give you a background, like in the early 2000s 2001 was when China joined the WTO, you know. And I remember a conversation in 2003 in Washington, DC, where I was with a senator and a lobbyist, and they were saying that, you know, the US could afford a billion dollars a month, you know, to pursue the Iraq war, but that they were very concerned about the non performing loans of The Chinese banks. And I said, Okay, I put it at the back of my mind, and then 20 years later, you see which country actually had economic you know, or a banking crisis, or several banking crises, and which country kept growing quite strongly, you know. And then I look back and say. What were the elements that enabled China to grow strongly from, you know, about 2001 and it grew, you know, unabated until about 2014 you know, and then it started on to a decline. So right now, I think we all are, all of us are familiar with the fact that the party in China has come in and put lots of curbs on the private sector, you know, and and then we see that on from the surface, it looks reactionary, but when we look at the decisions that they made at the Third Plenum of the 20th Party Congress just a few weeks ago. It looks very deliberate, very well thought through and, you know, and very structured. So the one thing that I’ve come to realize about China is that whenever I say this, my my friends in the West, you know, like, like, raise eyebrows, which is that China is actually very transparent in its policies, at least in its economic policies. So it bears well to read what the decisions that have made and so on. So the third premium, they added more structure to where they want to take this economy. I think, about four years ago, the leader, you know, Xi Jinping, made this comment that houses are meant for living. And, you know, and there are three red lines that we cannot cross in terms of the property sector and so on. And at that time, even within China, the property developers thought that, you know, it was just wishful thinking on the part of the state. But as you can see, they have, you know, been very recorded in terms of the way in which they dealt with the property sector, you know. And then you’d think that, like in most countries, they would be more concerned about revitalizing economic growth and so on, but they were not in any hurry. And that’s that was the actual that was actually the feedback that lots of economists and analysts had outside of China to the decisions made in the third plenum that was just helped, which is that, hey, I thought that you’d be serious about revitalizing economic growth and so on. You know, I spend lots of time in China. I’m a friend of a number of the economists who actually contribute to national thought and, you know, to the State Council. They, you know, present papers and so on. And there are many different, you know, opinions floating around in the marketplace, but the state has taken the view that it has the resources to, you know, to take a socialist approach to creating an equitable society, you know, and it’s paying the price for it right now. And I think that for the rest of us, it bears to take a look at the decisions that they’ve made and, you know, the options that they have given themselves and what they’ve not given themselves, and see how far they can go with it. You know, I think that what they’re really trying to deal with is that blatant capitalism is not good for China. You know, that’s that’s a policy decision that the politicians have made. In fact, a couple of the economists have told me that there’s a big difference between what the economist think about, you know, spurring growth and creating a sustainable society and all that should, how that should work out, and what the politicians think. And it’s a there’s a big divide between the two. So the big question that we need to set for ourselves now is, will the politicians be able to afford the kind of economic system that they, you know, that they’re working on, you know? And you know, what will work and what will not work going forward,
Gene Tunny 09:13
right? Okay, look, there’s a lot to a lot to talk about there. Manuel, I think that’s, yeah, that’s a terrific setup for this conversation about China. A few things just to just so we establish the facts. First, you mentioned there were, was it three red lines for property, for construction, or did I miss
Emmanuel Daniel 09:40
it ago? Now, like you know that, that I forget what they are now, but one of it was that, you know, the property sector cannot borrow extensively from the banking sector and, and I can’t remember the other two. But so basically, you know, the state put out. Uh, guidelines in terms of what the property sector needed to do. The interesting thing with the property sector is that it was, until recently, the, the only, or the most important source of revenue for the provincial governments. So China operates, you know, in a centralized economy, but with a federated system, where the central government expects the, you know, the provincial government to generate their own sources of income. And so when the property sector just grew out of air, meaning, you know, it borrowed extensively from the from the banking sector, there was oversupply in some places, and property prices went up because property was basically the only asset class that most Chinese could invest in. China’s financial sector is not as broad based and as liberal as much of the rest of the world. So all these factors contributed to overheating in the property sector. And when the state put curbs on it, they did it did not give the provincial government, you know, much other options in terms of new sources of income. And so what you see now happening in China is that a number of the provincial governments have problems raising revenue and and then in turn, you know, has an effect on state owned enterprises, jobs and stuff like that right now. Gotcha.
Gene Tunny 11:38
Okay? And and, so what, what did the state do? So, you mentioned they put curbs on it, and what was going on with the property sector? I mean, we saw that there were, there was a whole bunch of development. I mean, you had ever grand, and it looked like there were, there were cities being developed, that were ghost cities, that, at least, that was the, you know, what was being talked about over here. I mean, what actually, what actually happened was it just a mania, a construction building boom. Was the state behind it? What was actually driving it? And then, how did they, how did they curb it? Well,
Emmanuel Daniel 12:14
they basically went after the biggest property developers and and curb, you know, the ability to borrow from the from the banking system, because they were very clear that if this, you know, if this sector overheats, it will have a reproduction on the banking system. But as I said, the real issue in the property sector was that property was basically the most important source of revenue for Provincial Government. So what they do, what they did was, you know, acquire land and hand it over to the developers, who then borrowed money from the banks to develop that and resold that, and that became a source of revenue for the provincial government, you know. And the thing is that you know this narrative alone, the idea that you know there were ghost cities and so on, belies the fact that there were good things that were achieved, you know, in the property sector. China today has easily 20 to 30 a grade cities, you know, relative to the rest of the world. I mean, in that it built very, very good cities in as many ghost cities that you find that were created in provinces that were either underdeveloped or, you know, where sources of income and jobs were not as well developed as the property. That’s where, you know. And then, because of rural urban migration, the concentration of population moved to the a great cities, and then leaving these other small towns emptied out. And I think that’s actually what happened. But if you look at the overall figure, the urban population of China is actually still underdeveloped relative to what you see in the West, in the US, I think in the US, I think about 80% of the population lives in urban centers. In China, it’s still about 60 something percent. So it’s still got a way to go. It’s just not well distributed, you know, and they are capable of working it through over time, you know, if this was the US, what we will be seeing is widespread bankruptcies, and you know, fallout from the from the parts of the country which economically not viable, in favor of the part of the country that where the concentration of jobs and in. Streets are so I think so it’s in my view, because I live here, I spend time here. That’s the redistribution. That’s what’s happening in China on the property front.
Gene Tunny 15:12
Gotcha, okay, can I ask about this, this new Well, what the Chinese administration is what it’s saying about economic development. It’s saying blatant. Well, this might have been the president blatant. Capitalism is not good for China. So to what extent is that? I mean, that’s self serving rhetoric in favor of the existing party, or is it? I mean, what’s the basis for that statement? Do they have any factual basis for it? I mean, capitalism, to the extent that they’ve embraced the market, hasn’t that been behind their economic development? Could you just tell us a bit more about what their what their justification for that statement is? Please. Emmanuel, the
Emmanuel Daniel 15:55
single most important justification is that the Gini Coefficient of China is almost the same as that of the US, so the rich getting richer and the poor being left behind is as much a phenomenon in China. In other words, it’s just as capitalist as the US, and they’re trying to reverse that and make it more equitable. But the way in which they’re doing it is that the state has become a much more, you know, dominant, capable force. And here’s, you know, here’s my structure by which I think through what the state wants to achieve and where it is in that evolution, you know, between 2001 and 2014 the state was putting in place very interesting policies that facilitated private sector growth. And you know, by the time you get to 2004 after China joined the WTO Goldman Sachs started to put out reports saying that, you know, the future is China. Is the future is the large populations the world, and then they come into China. And at that time, the platform players like Alibaba were just coming on on stream, and the Western, you know, capital markets funded these platform players dramatically, you know, and from the time that Goldman Sachs and Masayoshi Son, you know, the private equity the venture capitalists came in and took, You know, stock of potential winners in China. They led some of these to incredible growth. So at the height of its being listed in the US company like Alibaba, was able to be the capitalization was like $830 billion and when you’re capitalized to that extent, you visit a city like Hangzhou in Zhejiang province in China. And the, I call it the cascading effect of capital, the capital comes back into the city, and Alibaba invests in, you know, second tier startups which were, you know, which were the size of a few billion dollars, and those invested down the downstream to other startups. And you have a whole ecosystem of very good players. Now today, Alibaba is about 150 160 100 and $70 billion dollars in market cap and and that shows up in Hangzhou. Again. You go to Hangzhou today, there is widespread joblessness, and you know, and it’s very difficult to pick and choose which frontier technologies that they want to invest in and so on. And the state is saying that that’s okay, because not to worry. We will, we will fund you. We will, you know, guide you. And we will, you know, we will lead the economic growth. And there’s this huge debate whether you know how much of the next phase of economic growth in China should be led by the state, and which phase should be led by the private sector now, so between about 2001 and 2014 the state was happy with The role of facilitating some structure so that the capital markets, and especially the foreign capital markets, can, you know, can create winners out of the private sector companies like Alibaba. And after 2014 the the state started to become, I call it competent, uh. You know, the funny thing is that, and I think this phenomenon, by the way, is repeated in every other country in the world, including highly capitalized, capitalistic countries like the US. When the state becomes confident it creates gets a handle on how to manage, you know, huge infrastructure companies like Amazon and so on. It becomes intrusive. It becomes important, you know, it becomes involved in the in the structure that it’s creating. So between after 2014 the state put in place laws like, you know, data privacy rules, and then also took assertive influence in terms of where these companies go out to raise capital and so on. So the funny thing is that China, the state has become increasingly competent, and therefore became a lot more activist in the way in which the private sector is structured and the role it plays in the economy. Now the status other two other functions to play. One is to provide the social infrastructure, the, you know, the education, the healthcare and all of that. And it does that really very well, you know. And we shouldn’t undermine what China has achieved on that front. In fact, if you come visit China, you’d be, you know, you’d be very impressed with the quality of life in China. And then the second pillar, as I think, as I think about it, is the way in which the state funds or subsidizes frontier technology. So this is not the US capital market. Is the Chinese state looking out for, you know, next generation technologies and and infrastructure that it needs to invest in. And there it had. It had invested in a number of areas. So 5g for example, you know, China is one of the first, was one of the first countries that went veg. The state invested in it. But today I’m actually hearing a few speeches given by former ministers in China saying that, you know, we hurried up and built all this infrastructure for G but there are no applications, and a veg base station cost three times more to run than a base station, and if the applications can’t come on stream as quickly as they should, you know, the telcos don’t benefit from it. And, you know, the investment is way ahead of its time, you know, and and so the thing is that, when, when China, then, you know, says that, look, our EV car business is doing very well. It was the result of the state subsidizing 1000s of EV car initiatives in multiple cities. And then, you know, and that becoming affiliate, you know, a it takes up momentum, and it becomes takes a life of its own. So you can point to a few things where the subsidies have generated new technologies and new industries that didn’t exist before and become world players on top of it. But you can also point to industries that floundered and, you know, being left behind or being quiet. So now the state wants to be the, you know, most important investor in AI technology, you know. But the thing is that on the AI front, the capital that does the Chinese state can put into it, it pales in comparison to what the US is doing. So if you look at the top six AI players in the US, the capital that they are able to garner is about ten trillion I think, and that’s the entire capital market of China. So there is a limit to what the state, any state, can do. It’s not just China, but even the US is not able to fund its own frontier technologies. Is the, it’s the US capital market, which is the giant in this, in this, in this area. And then comes the role of the private sector. No, why can’t the private sector go out and raise its own capital and all of that? So that’s the lay of the land. That’s the, you know, the issues that China is facing. And the big question I’m asking myself, as I put all this together, is, will the state be able to afford the kind of economic structure that is trying to build?
Gene Tunny 24:59
Yeah. Yeah, okay, so I just want to, you know, talk a bit more about, you know, the nature of the Chinese economy. Because the just sort of, I guess I’ve reacted a bit to this statement, blatant capitalism is not good for China. I’m not sure to what extent they’ve had blatant capitalism. Because, I mean, my understanding of China, I mean, this may be wrong, but it’s, you know, it’s state directed capitalism or or it’s socialism with Chinese characteristics, as Deng Xiaoping described it, you know, many years ago. So, I mean, the state’s been heavily involved, and that brings all sorts of complications. You’ve got all these SOEs, state owned enterprises. There’s this enterprise China model that one of my guests was talking about a couple of years ago when I had him on. I’ll have to link in the show notes to that, the idea that, you know, once you get to a certain size that there’s a party official, you have to have someone on your your staff, who’s, you know, connected to the party. I mean, it just seems that the state is already very heavily involved in in business in China, and the idea that it could be getting more involved, I’m not sure that’s the that’s the recipe for for economic success, but that that’s just my my view, just That’s my reaction to that statement. So just interested in any reflections on that, or we could move on, please, up to you. Emmanuel,
Emmanuel Daniel 26:28
yeah. I mean, you know, thing is that the idea of the state becoming competent enough so that it has the confidence to involve itself in the private sector. That’s where China is today. For large state owned enterprises, they’ve always had a Communist Party official in there. The whole picture is one of the competency of the socialist state. And for the longest time, we’ve never had that, you know, the during the Cold War, the socialist state wasn’t competent. It wasn’t a good allocator of capital. You know, it didn’t motivate individuals to to be self reliant and you know, and generate capital, you know, and there, you know. It was just an inferior form of creating economics relative to patent capitalism. But when we put it alongside each other today, patent capitalism did has is destroying the US right now. You know, it’s, you know, it causes this great divergence in terms of the ability to, you know, even look after yourself. You know, the the rise of homelessness in the US and all of that, and the divergence in salaries. I mean, you got CEOs who earn hundreds of millions of dollars in salary for the same 24 hour work that that the last worker gets paid. So you get all these, you know, these courts in in capitalism, which is what China is trying to deal with, but you have a state that has come to a level of competence, that it thinks that it can pull this through. So, you know? So now I’d say we take a wait and see attitude. Now, what I say to myself is I missed the big picture in about 2003 2004 when I doubted China’s ability to generate economic growth given the non performing loans that set in the banking system. But they averted that by by hiving out all the bad, bad debt and putting it into two huge asset management companies. And as the economy grew, they were able to deal with that NPL situation. So now, with the slowing economy and geopolitics up against them, some of those options are not available anymore, so we will have to see. But however, given the fact that China has now come to about $12 trillion in GDP. It has sufficient internal momentum to keep growing, you know, but not in with the at the rate at which it was growing when it was, you know, much it was benefiting a lot from the global capital markets.
Gene Tunny 29:40
Yeah, and was the Chinese economic development story. Was a lot of it the migration of people from rural areas into the cities. I mean, it’s the old Arthur Lewis economic development story. You’ve got people underutilized or, you know, not very productive on the land. They move to the cities. You get a big bump up. Productivity is that, is that still occurring? That migration? Yes,
Emmanuel Daniel 30:03
well, the migration was a reallocation of human resources, you know. And China invested in 40,000 kilometers worth of high speed railway, you know. And and China Railway cooperation, and its, you know, related organizations about $800 billion in debt right now, but it’s a debt that they are able to absorb, because as long as the economy keeps growing, you know, it will be able to ameliorate the debt over a period of time and but as an infrastructure, it’s amazing. It’s going to stay for a long time to come, you know, but all of that did not really result in higher productivity gains, and China is the one economy that grew dramatically without a commensurate growth in productivity, and that’s interesting part of the story that it’s not very talked talked about. So, so now you have wages rising, you know, well beyond sustainable levels. And the state has come in and said, No, we can slow down a bit now, so that, you know, we spread out the wages to the rest of the economy, and bring up agriculture, for example, and revitalize the small towns this urban, rural urban migration was necessary at a time when, you know, China’s urban population was not developed enough to, you know, to take advantage of a lot of the export led, you know, industries. So they needed to create jobs in the big cities. But right now, they want to spread it out a bit more. And the cities that benefited were, you know, were not, were not universal. It wasn’t all cities that benefited, and that’s why we see the ghost towns. The there are many cities that try to become more urbanized, more industrialized, but just didn’t have the means to
Gene Tunny 32:16
so what is the Chinese economic growth story? Is it? I mean, is it foreign investment, or is it, it’s domestic investment in a supposing capital? What is it? What’s the story? So,
Emmanuel Daniel 32:31
exactly as I indicated earlier in this conversation, which is, there are three pillars of economics, okay, one is the state spending and building infrastructure. The second is the state subsidizing industries, and the third is foreign capital. And so what has drawn back now is the access to foreign capital, and the state thinks that it’s able to make up for that by, you know, by supporting private sector companies, which, as you indicated just now, have got Communist Party officials sitting in the company, you know, and second guessing the decisions that need to be made. You know, it’s this is as far as socialism has come as being a viable alternative to capitalism, you know, and they’ve taken it very far, you know, it’s a working system. It’s just that they now have the confidence to think that they can take it further. So like in the main cities, for example, in Beijing, in Shanghai, investment bankers used to be paid the same as investment bankers in the West, which is you try and second guess how much capital you’re able to raise for your client’s company, and you get paid on a success basis, and on a success basis, they paid incredible amounts of bonuses. And now the state has come in to say that investment bankers cannot be paid as they used to be, that those bonuses are illegal under, you know, Chinese style socialism and the capital market here is reverberate, reverberating from those decisions. Saying, Wow, okay, let’s see where you going to take us now. So it’s it’s work in progress, and when you look at states that eventually centralize the economy, a lot everything from Germany before World War Two to Japan in the last 30 years, the capacity of the state to to hold an economy together, especially a large state, can go a long way. You know, it won’t be the same as a, you know, a openly capitalist country, but, but it still can. Um, you know, this story can go go on for another 10 to 15 years.
Gene Tunny 35:05
Okay, what about this socialist approach to creating an equitable society? What types of measures do you think they they have in mind?
Emmanuel Daniel 35:15
It’s every facet of society, everything from the time in which they they banned, you know, educational institutions outside of this, you know, formal school structure, there were online learning systems that, you know, that were making lots of money. You know, people generally spend a lot of money on on things that they’re afraid of, healthcare, you know, education and so on. And you had this, this making, you know, a lot of money from parents, you know, fearing for the future of their kids and so on, you know. So it’s in every facet of society, the building of affordable housing, you know, access to health care. You know, China has got one of the best public sector health care system in the world, you know, and it’s, it’s getting better, Social Security, putting that into place, and ensuring that that, you know, people have income for the rest of their life, which is not pension, you know, in the like in the old days and so on. So I think that just touching on every facet of society, you know, right down to how much time a kid can should spend on on gaming, online gaming, you know? So, so then for the rest of us, looking in, we’ll think that, well, that’s a bit intrusive. And the state making lots of decisions for everyday life, which is, which is what it’s doing right now. So you know how far they’re able to take. That will remain to be seen.
Gene Tunny 37:01
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Gene Tunny 37:35
now. Back to the show. I’m sorry to keep talking so much about China, it’s just that it is so. I mean, it’s such a pivotal part of the global economy now, and that it’s it’s hard to talk about anything else so, and I have so many questions. I mean, I like, I agree with you. I mean, it’s been an incredible success story. I mean, it’s within our lifetimes that, I mean the predominant, like when we were young. I mean, they’ll, you know, the predominant mode of transport in China would have been bicycle, wouldn’t it? I mean, like, the amount of economic progress that they’ve had, particularly since, you know, Deng Xiaoping opened up, start open up progressively from the late 70s and the 80s is just absolutely extraordinary. So, yeah, just just incredible progress. What I want to ask is about the, you know, I have, I’ve had a few guests on my show, or maybe two, or maybe a couple, who are very concerned about, you know, the whole China, Taiwan. They’re concerned about China being aggressive militarily, and it looks like there are some very hawkish there’s a very hawkish pivot, or a tilt in the US State Department towards China. There’s more, rather than seeing, you know, 20 years ago, we had this view of cooperation, or, you know, the gains from trade and all of that. Now there’s a lot of concern about national security. Do you have any thoughts on that? I mean, how is, how do you see that as playing out over the next decade or so?
Emmanuel Daniel 39:09
You know, from about 2010 I guess I started coming across commentators who were, you know, putting China on and making it believe that it will become the next leading nation of the world, and all of that since Xiaoping’s economic direction and economic model did not include grandstanding and did not include trying to project itself as as a world power and all of that. In fact, there was a lot of work to be done in China. Was very happy to be, you know, a work in progress. In fact, one of the reasons I am in China is because they invited people who are experts in all kinds of different growth of the country. Three but after 2010 there was this growing assertiveness, and I guess the Americans reacted to that right and and China’s economic growth would not have been possible if the US didn’t allow China to join the WTO in 2001 and that that entry process itself was a long iteration before that. So you get a situation where, you know, the country that used to, you know, just provide the rest of the world with manufactured goods and so on, is asserting itself as a world power. The thing is that China is dialed back a little bit on that, on that narrative, because, from a business point of view, why would you, you know, get on the heckles of your most important client. You know, the business that China does with the US is larger than the business than that China does with any other country in the world, almost put together, right? So, so China has to figure out, you know, how to continue doing business and selling to the US. In fact, you now start hearing that there’s an effort to, you know, to soften that relationship with the US. But at the same time, there’s this thing called Xi Jinping thought which he’s promoting kids in school right up to presidents or banks have to study it, and the way in which it’s been put together is that he’s firing on all cylinders. He’s he’s working on all objectives at the same time, you know, so you get situations where he’s trying to promote regional trade and, you know, forming trade associations and trade alliances, while at the same time having border problems with, you know, all 14 of its of the of the countries on China’s borders. So you know, how will he, or how he will be able to, you know, build a sustainable narrative from, from, you know, pursuing all objectives at the same time will remain to be seen. I think that he will achieve a few of his objectives well, and some will have to, you know, he needs to stand down on them if he’s going to get any good will out of not just the US, but, you know, any of the other countries, with the Philippines, with Vietnam, with India, you know, and so on. So. So I think that he’s being incredibly ambitious. And I anyone in his shoes, will say that, yeah, we will not be able to achieve all our objectives, you know, and and some will have to go by the wayside. The thing about Taiwan is that when China sets itself up as a as Taiwan being a non negotiable, you know, item, it also sets itself up to be ridiculed by countries that want to find the soft spot of China. So, so it’s not, not surprising that the US would use Taiwan as a, you know, as a sore point that on which it could raise the heckles of China. So, you know, and by the way, don’t sell, sorry. Xi Jinping has has has given a mandate that by 2049 which is the 100 years you know of 2049 that that that that should be re reunification, so, so by giving himself a deadline, he reduces the number of options available to, you know, to make this possible. So, you know, I think that some form of military, militaristic approach is inevitable just by reducing the options given to themselves. So it’s, I’m not a, I’m not a, you know, military person, so I wouldn’t comment on how exactly that’s going to be carried out, but it’s the rhetoric that gets them there. Yeah,
Gene Tunny 44:30
yeah. I mean, it’s, it is a great concern. I mean, that certainly could be a, you know, huge Flashpoint globally. But yeah, I mean, yeah, I’ve had, had a few conversations about about Taiwan and the issues there. It’s all fascinating. Emmanuel, that’s been great on China. I really appreciate your insights. I think we’ve got a little bit more time. I’d like to ask you about the, what you call the rise of the rest. I mean. One country I’ve had a bit to do with is Indonesia. I’ve done, done courses for finance ministry officials there and for their economic development agency, I think Baba NAS, if I remember correctly, what’s happening there. At the moment, we’ve got riots. I mean, there’s a whole bunch of instability. What’s the outlook for Indonesia?
Emmanuel Daniel 45:21
I mean, Indonesia has been a success story for Southeast Asia. It’s a $1.3 trillion economy, so it brings it up to the level of the large countries in the world. But even as we spend time thinking about US China relations and the US, China, dynamics, and the rest of the world. I think what we’re seeing now is the rise of the rest, and not just in Southeast Asia, in different parts of the world, in in the Balkans, I see Serbia coming up pretty strongly in, you know, Latin America, you have Brazil, and these are what I call the middle income, the middle power countries, you know, not, not the the, you know, the Cold War belligerents, but the the second tier players. And Indonesia also has had the most successful, you know, move into a sustainable, democratic, you know, structure since the 1997 1997 Asian financial crisis, 1998 Asian financial crisis. It’s come a very long way, except that it’s now, you know, solidifying into a political structure which is sustainable now in the US, outside of the Democratic and Republican parties, there is no chance for independents to come on and and provide a different political agenda. You know, there’s no platform that makes any independent or a third party viable, despite many attempts to build that. And I think that all that is happening in Indonesia right now is that the incumbents who have become successful in, you know, in building their own political asset are now trying to, you know, centralize the assets and and to become, you know, the deterministic force in Indonesia, and this, essentially is Widodo political party and his family and his friends and the people that he wants to work with. So the as even as the new president is taking over, in fact, the in the best indicator of a very successful political process is one where you don’t remember the last six presidents. You know, in other words, the transitions have been going very well, but I think that there’s enough political assets that have been created where the political players want to solidify it by putting in place laws that that favor them. And people are going out on the streets and saying, No, we won’t let you do that, because we want to have a political system where new players can come on stream and challenge you if they wanted to. So I think that in some ways, it’s a natural evolution of stable political system, but on another level, it’s it threatens democracy because it reduces the number of players and entries into the democratic process. But at the same time, economically, Indonesia is doing profoundly Well, I think that we forget that it’s got a viable domestic consumption market, in fact, much more successful than China. And because of that, there is a desire for foreign investors to be invested directly in Indonesia. The Indonesian stock market is now bigger than that of Singapore, which is a regional finance supposed to be a regional financial center, and is, and just by the sheer size of the economy, is the most attractive economy in that part of the world, and so and in the same way, when we look at countries where populations on the increase, like like Vietnam, Philippines, Thailand, they GDP growth is being driven not by productivity gains or shifts in industries and so on. It’s just by the sheer size of the growth in the population. And as they do that, they need the political system to hold you know, the kind. Country together. So, so each of these countries have different problems that they’re facing and and they’re finding their way. And, you know, so it’s a work in progress, as it were, now. The The upshot of all of that is that some of the older developed countries in the region, Singapore, being one of them, are floundering because they are losing the role that they used to play, which is the regional, regional financial center, and they have to reinvent themselves to to be relevant to the rest of the region.
Gene Tunny 50:34
Okay, okay, yeah, that’s, yeah, that is a bit of a concern, like what you’re saying about Singapore, because it has had that reputation and, but, I mean, now it’s got a flourishing tourism sector, hasn’t it? I mean, it’s got a lot of advantages to it. And I guess there’s a domestic, you know, the services economy there. I mean, what are the prospects for Singapore and, and, I mean, other other countries in the region,
Emmanuel Daniel 51:01
it used to be the, you know, the financial center in which you raise capital, and today it’s got a capital market that’s smaller than, you know, several of its neighbors, smaller than Indonesia, smaller than Thailand, and less active than even Malaysia, which has had political problems. So what’s interesting is to see, you know, countries where the politics is unstable, but the economics is pretty good, and the economics is, you know, growing from strength to strength. And when I look at the numbers, and I try to figure out what the drivers are, on the onset, the most important driver, really is population growth, and then comes everything else. So if you’re going to be invested in Indonesia, you should be invested directly in Indonesia, and not, you know, come to use Singapore as a regional center and then get into Indonesia. So that’s where industries are right now, and everyone from Elon Musk to, you know, fund managers are directly invested in the countries that they are interested in. And so to that, Singapore has to reinvent itself. And you know, there are industries where by just being marginally better than the rest of the region, like ports, for example, or airports. It has the up effect that is, you know, you land in Singapore before you go to go off to any of the cities. But as the cities themselves improve their infrastructure, they become direct destinations themselves. So Singapore is, you know, has to work very hard to figure out its relevance. Now, having said that, it doesn’t mean that Singapore is going to be left behind. I think a rising tide, you know, raises all boats. So Singapore’s own GDP continues to grow, but not on the same elements that gave it the growth 10 years ago. You know, it just needs to be more relevant and more plugged in with to the rest of the region. Yeah,
Gene Tunny 53:09
yeah. I just pulled up of that’s an interesting point you mentioned about Elon Musk. So I’ve just noticed Musk to consider opening battery plant in Indonesia. So it looks like there’d be some deal done with the the administration, and probably some subsidy of some kind, so that, yeah, that’s interesting. I’ll put a link to that in the show notes. Okay. I mean, you’re, I think this has been terrific. I’m going to have to have you on again. I think, I mean, there’s so much to talk about, and you’re such a wealth of, wealth of knowledge and insights into the region. So I think we’ll have to wrap up for now. But any final words before we we do wrap up, and hopefully I can chat with you sometime in the future.
Emmanuel Daniel 53:49
Yeah. I mean, I’m very interested in how the world looks like from Australia looking out, you know, and Australia’s own, you know, role in the rest of the world. I think that Australia is a, you know, the largest exporter of commodities to China, and now that the relationship has been, you know, put on a more even footing, we find Australian wines back in the stores in Beijing, you know. So Australia is the middle tower, which has a very different dynamics from, you know, from the Geo, geographically centric model, which is, you know, if you are in Southeast Asia, it’s Indonesia. If you’re in the Balkans, in Serbia, if you’re in North Africa, it’s Morocco. But Australia sits outside of the of the ring of influence that it wants to play in. So, so that’s, that’s another conversation, and another day, yeah,
Gene Tunny 54:51
I think so. I mean, you’re right. I mean, we are so like, yeah, we’re such a big commodity exporter, and now our economy is so. Are tied to China’s at the moment, and, you know, it affects the the iron ore price and the coal price. It is extraordinary how connected we are and and yet, that’s why we’re having a big debate at the moment about, you know, they’re the orcas deal. Maybe we should talk about that another time. But there’s a big debate about whether us aligning so closely with the Americans and the British in this aukus nuclear submarine deal, possibly antagonizing China. Actually, I think we are antagonizing China doing that. What are the implications of that? We’ve, we’ve had a, I mean, while, I mean, I think there’s a lot of sympathy for the Americans. I mean, we’re, we have a very, very strong links with the United States, particularly because of the wartime relationship. I mean, I’m in Brisbane, here where we had Douglas MacArthur based, okay, and so we’re very grateful for for the Americans. But, yeah, at the same time, we’ve got a prime minister, Paul Keating, who was very, you know, very strongly, fervently nationalist Australian, very, and he was, he’s become very critical of that orca steel. So I think it is something to that we need to talk about some more in in this country, that’s more of a, more of a comment from me. Any any reactions to that before we close. Yeah,
Emmanuel Daniel 56:21
so it comes back to my the first point I was trying to make in this conversation was that if we take the labels off and, you know, and not deal with the desire of countries to build working economic systems and not call it, you know, capitalistic or socialist, we were able to evaluate them much more equitably and then understand the baselines from which they work. So China’s baseline is that it’s, you know, it’s the momentum that’s created for itself in the economy. It can go for a while yet, you know, despite, you know it being, you know the areas in which it’s made some mistakes, or it’s slowing down or or de prioritizing at the moment. So so let’s see where they go with that.
Gene Tunny 57:13
Very good Absolutely. Manuel, Daniel, thanks so much for the conversation. I found it really informative, and yeah, love your insights. Certainly want to chat with you some more. And yeah, keep up the great work. So thanks again for coming on the show.
Emmanuel Daniel 57:28
Thanks gene for having me on. And great conversation,
Gene Tunny 57:33
righto, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics, explore.com or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave a writing. Thanks for listening. I hope you can join me again next week.
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Credits
Thanks to the show’s sponsor, Gene’s consultancy business, www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts and other podcasting platforms.
