# China's Vision for the Private Sector with Chang-Tai Hsieh  | Markus Academy | Ep. 93

https://www.youtube.com/watch?v=YngVgVpclF0

[00:03] So welcome back everybody for what another webinar organized by Princeton for everyone worldwide.
[00:09] They're very happy to have Chunk Taisha with us. Hi Chunk.
[00:13] Hi.
[00:15] Hey Marcus.
[00:16] Jungkook will talk about two strong hands, China's vision of the private sector.
[00:21] So we're looking forward to learn a lot about China and the vision that the Chinese government has for its economy.
[00:25] [Music]
[00:26] When I think about hands, I think about invisible hands by Adam Smith.
[00:31] And I was wondering to what extent strong hands or a strong hand destroys the invisible hand.
[00:37] And typically invisible hands, you can associate with the price signal.
[00:41] It's a conveyor of information about the scarcity of a particular product or an asset and the future cash flows or what it pays off.
[00:47] So one is the marginal utility, one is then the payoff.
[00:53] And if you have too much or if it damage, interventionistic hand, then the price signal might not depend necessarily what the information is about about the underlying fundamentals about the cash.
[01:04] flows and so forth but it might be much more signaling what the government will do in the future.
[01:07] I've done some work with the way Shaw and Microsoft where we really uh focus on that.
[01:12] We're saying actually once the investors think mostly what will the government do, what government intervention will come?
[01:20] They're zooming on collecting information about that and the price only signals about future government interventions rather than the cash flows and that actually might distort resources down the road.
[01:32] Now that's essentially if you have strong hands but more generally if you have a China's model.
[01:37] If you think about it as a government, if you might want to control the commanding heights, that's how Lenin put it.
[01:44] And Lenin said, okay, you don't have to control the whole economy, you just have to control the commanding heights consisting of strategically important sectors like public utilities, natural resources and I would say platforms which are now in the new world with data is is part of the commanding heights.
[02:04] like alibaba and financial tencent and others.
[02:06] so that's essentially where probably uh danger will go today.
[02:12] and one other challenge for china is essentially whether it will be caught in the middle income grab or not.
[02:16] so we know that if when economies catch up with the advanced economies initially it's a very different process because you just have to copy essentially what the advanced economies are doing.
[02:28] but once you're at the frontier you have to do your own r d and you have to have a very different economic structure.
[02:34] so this switch over from being a you know from trying to catch up from being at the frontier and pushing the frontier is very different.
[02:43] and you might be trapped if you don't manage to switch over so you don't have the resilience in a sense if you don't manage to switch over.
[02:50] and there's some examples where you know people escape this middle income trap.
[02:55] and if you go back in the 19th century you can actually compare imperial germany.
[03:00] when the imperial germany in the united states tried to catch up with the uk.
[03:06] similarly the u.s was trying to catch up.
[03:07] with uk.
[03:09] while china is catching up with the us.
[03:11] now and then you know being potentially caught in a middle income trap or not caught.
[03:16] but what's striking essentially is that there's a lot of similarities between imperial germany in 19th century to china today.
[03:23] so imperial germany actually was trying it was a landlocked empire.
[03:29] so it it tried to build you know railways in this famous berlin backed up railway.
[03:34] and if you go to istanbul you see you know still a lot of the remaining parts of these railways.
[03:40] and the belt in the road initiative is essentially a similar concept.
[03:44] um what china is doing now.
[03:46] there was also a lot of attempts to acquire new technological uh knowledge.
[03:52] and that's the same thing what china is doing now.
[03:53] there was you know you the way you compete is in order to be able to set the standards.
[03:58] there was a big competition you know for mobile communication and other types of communication how to set the standards.
[04:07] at that time.
[04:09] and and similarly there's some standard setting now in artificial intelligence.
[04:12] and china is putting a lot of this wars and stairs so there are a lot of similarities.
[04:14] it's striking how similar it is and germany and the us in the 19th century escaped the middle-income trap.
[04:21] and of course it could be that china is escaping it too but it requires certain strategies.
[04:25] and perhaps the two strong hands is one of the strategies.
[04:30] so when i think about the two strong hands and junction will say more about it.
[04:35] i comes to me to the battle of ideas you know what economic model does a country pursue.
[04:41] and the different ways to do it in one way.
[04:44] it seems very close to me to have this german auto liberalism perspective where you promote competition to limit concentration of power.
[04:51] so you really want to have no concentration of power.
[04:55] so you limit the concentration of power and one way to do it to have more competition.
[05:03] and you can do this on the private sector and on the public sector and this freiburger's school or the auto.
[05:09] liberalism they actually would like to have competition at the private sector.
[05:13] where you know instead of having national champions so in France they promote national champions.
[05:18] it's a different economic model in Germany they want to have this middle stand which is you know you have a lot mid-sized economies mid-sized uh mid-sized companies.
[05:28] and you promote the mr examples and promote competition among the mid-sized companies rather than have a few national champions being globally you know big companies.
[05:38] and that was essentially very much what the German model was and this German odor less became very prominent in Germany after the Second World War.
[05:47] also because the allies really didn't like any concentration of power in Berlin there would literally wanted to have a concentration avoid any consideration of power.
[05:55] so you have a lot of competition at the private sector so no concentration of economic power but also have a federal system not to have a concentration in one capital but you have a decentralized governance structure so there's no concentration of
[06:10] power uh unlike what the nazis had uh.
[06:14] It seems to me to some extent and i think junta day will enlighten us that for the private sector the the chinese going the same route that they would like to have more mid-sized companies confusedly competing with each other rather than a few national champions.
[06:29] But on the public sector it's very different.
[06:33] So the german structure was after the second war very federal structure.
[06:35] No concentration of political powers or while in china you had a tournament of local leaders and you select the best local leaders out of that.
[06:45] And i don't know how this will play out but there's of course a very strong power at the center.
[06:52] Much more powerful than in germany and that's you know a different way of going it.
[06:56] So i would be curious to learn uh how one would put these two strong hands in the context how you know we think in germany versus france where there's a struggle within europe what economic model uh to follow on.
[07:11] so chantai put forward three questions
[07:14] and i'm curious uh where how we will think about them after changtai gave us his perspective
[07:20] the first question was china's crackdown on the tech sector and the financial conglomerates will harm the economy yes or no
[07:28] and actually 83 thought it will harm the economy and 17 no
[07:35] so that's a strong so the going after and financial tencent and all this will actually harm the economy
[07:42] the second question was does jiji ping the president of china want does he want to return to mao's economic vision is it yes or no
[07:50] and actually only one quarter thought he wants to go back to mao's economic vision which you know might not be so successful but 75 think that we will go at a different direction
[08:01] uh that's uh for the second question
[08:03] the third question is china's economy will collapse in the medium turn on the medium run
[08:07] and only 10 percent think china's economy will collapse 90 think they will
[08:12] do fine and you know the high debt levels and all these things will not be worrying but it's not so worrisome because it won't collapse.
[08:21] so with this we pass on the the microphone to jiangtai and he will tell us about his two strong hands it's a very intriguing title and i think it's a very nice hypothesis to get deeper insights how the chinese economy will look like or is moving to a new framework.
[08:39] thanks again chantai we're looking forward to your presentation.
[08:44] thank you marcus uh can everybody hear me.
[08:46] yes perfect okay great.
[08:48] so i think that there's one message or one idea or one question that i want you to be thinking about it's the question is what is the political foundation for china's support of the private sector so that's going to be my overarching question and that's going to be what i'm going to try to answer.
[09:13] The way I'm going to start this is that I'm going to start by just revisiting the headlines coming out of China that we've seen in the last two or three years.
[09:21] And the headlines have been dominated by by the stories of of of of of the crackdowns on some of the most successful Chinese companies.
[09:34] That that that and it's and it's useful to group it into two groups of of companies.
[09:41] There's been a crackdown on some of the most innovative Chinese companies on the tech sector and here I'm just listing some of them but it's not these are not the only ones.
[09:52] So there's been a crackdown on on on Alibaba.
[09:55] There's been a crackdown in Tencent.
[09:56] There's been a crackdown on on May 1.
[09:59] There's been a crackdown on Didi.
[10:03] You know not so long ago I think I was having a a conversation with Marcus just a few years ago about whether some of the money platforms of
[10:13] Tencent or Ali are gonna dominate the world.
[10:15] Nobody is talking about that now.
[10:18] Right.
[10:19] We're talking about so so just think about sort of the sea change that we've seen in in the last two years.
[10:27] The other thing I did I want you to know that this has also come out in in the media but perhaps it's been less prominent but it's also been as important.
[10:39] This started earlier starting in about 2018.
[10:43] There's been a systematic dismantling of the largest Chinese conglomerates.
[10:49] So these are a combination of financial companies, real estate companies, or just mixed conglomerates that do a variety of things.
[10:57] So here I'm just listing some of them.
[10:59] The Wanda Group was perhaps one of the first one, the Anban Group, the Hainan Group that does everything from airlines to banking to real estate.
[11:07] You know it's a yeah I guess it's a conglomerate.
[11:13] The tomorrow group and and and last fall.
[11:17] Everybody was was uh focused on on the hangar or in English.
[11:22] Every grand, right, so that's been the other.
[11:25] But I just want you to realize that this is not all that's good going on.
[11:30] That I think that the message that what you see out, I think is absolutely right.
[11:35] That there's been a crackdown on some of the largest and some of the largest, some of the uh some of the most successful Chinese companies.
[11:43] Which you know, I think that if you're asked if we were to be doing the seminar three or four years ago or five years ago, nobody would have ever expected that.
[11:50] Everybody thought that some of these companies were going to be the Chinese were the Chinese champions or they were eventually going to be the Chinese champions.
[12:00] So what's good going on and I was saying that there's one there's a conventional wisdom that is emerging that I see emerging and I'll just pick on two headlines to illustrate what I think is.
[12:13] The conventional wisdom, uh, Wall Street Journal sets, September 2021, the headline is.
[12:23] It, uh, says Xi Jinping aims to reign in Chinese capitalism, hue to Mao's socialist vision.
[12:28] That, that basically China is going back to Mao's economic model of socialism.
[12:32] Uh, central planning, uh, reliance on state-owned firms.
[12:39] Uh, just in the most recent issue of the Economist, the headline was, is China uninvestable?
[12:47] Right, so I would say this is one sort of dominant story that's come out of China.
[12:54] What I also want to highlight is that there's also another campaign that's been going on for five, six, seven years.
[13:09] That hasn't really made it into the headlines, but for anybody that pays attention to what goes on on the ground in China, it's equally big, equally strong.
[13:17] and and maybe even have uh have have have uh important effects.
[13:24] so i would so here's what i just want to summarize that.
[13:29] at the same time that you have seen this crackdown on on the largest and the most successful chinese private firms.
[13:37] what you also see is that there's been a roll out of a number of institutional changes that have improved conditions for private firms right.
[13:48] so i just want to and there's a lot that there's a lot here and i would say that this has been done maybe in a in a more quiet way.
[14:00] and none of this has made it into the western media but i think it's it's equally as important.
[14:05] and what i see quantitatively in the data is that they're equally as important.
[14:09] there's a lot of it so let me just try to summarize what i think are the most important parts of this.
[14:16] number one is that
[14:18] Business regulations have been dramatically simplified.
[14:21] That is in every locality in China.
[14:24] It is now really, really easy to register your business.
[14:29] That's either done online or there's or every single town, every single village, every single city, there's there's a one-stop shop where you can register your business.
[14:38] And the other thing that has happened is that the amount of capital that you need in order to register your business has uh uh uh has come down.
[14:47] So starting a business has become very, very easy in China.
[14:54] And later on, I'll show you some data that I think that this had a very big effect in the number of startups in China.
[15:01] The second piece of the changes that I've seen is I think that there's been a vast improvement or changes in what I'm going to call judicial legal institutions that are focused on business.
[15:13] Okay, I don't want to just leave the impression that there's been an overall improvement in judicial.
[15:20] in uh due in in the legal in the legal institutions there hasn't but particularly but the ones that are focused on business i don't think there's any question that these have changed and i think for for the better and i and i and here let me just highlight three things.
[15:37] there's a new bankruptcy law and there there's a there's a new bankruptcy law and there are new bankruptcy quotes.
[15:45] so this was a process bankruptcy used to be done by the local by used to be done by local congress and it's now out of the hands of the local congress and there's there there's now a legal system and there's now uh there there there's now a judicial system that deals with the bankruptcy.
[16:03] there's even a vast improvement in payment enforcement uh and i think that you know a big part of it has been the the creation and the spread of the social credit system so that it's now really easy or very hard to escape not making your payment so payment.
[16:21] enforcement uh has improved dramatically.
[16:26] they're also now new courts outside of bankruptcy.
[16:30] new legal there's now a new legal system whose only purpose is to adjudicate business disputes contract disputes and and things like that.
[16:40] empirically what you see in the data is that the the time that it takes to adjudicate a business dispute drops dramatically right.
[16:51] and if you sort of talk with people to to try to understand what's going on on the ground what you also find out very quickly is that is that there's the creation of this new legal system and they're also high-powered incentives that have been put in place on the on on the people that are in charge of the system to be as efficient as possible.
[17:12] so maybe the way to think about it is that there's like a mini maoist campaign to make business dispute resolution better or e or easier.
[17:21] what you also see is that all
[17:23] of these decisions are published online.
[17:26] so you can go and and there are millions of them.
[17:28] so then so it's really easy to get this information.
[17:33] can ask a quick is absolutely china why do the whole or is it from providence to providence different?
[17:40] so is there also a control that there's more control moving to beijing away from the local authorities?
[17:47] this is all done at the local level i mean this is all yeah but the bankruptcy law applies to all of china i guess.
[17:54] yes the bankruptcy law applies at the local uh yes that's that's right but but if you know anything about china that basically it's still in terms of the administrative authority it it's still it's still a hugely decentralized system.
[18:08] yes and then it's and it's up to the local government to implement this right uh uh um.
[18:16] the third thing that i i want to highlight is that i think that there's also been a big improvement of of uh of
[18:23] financial institutions that empirically
[18:25] what you see in the data is that the share of credit from the state-owned banks to small and medium-sized firms goes up
[18:31] empirically what you see in the data is that there's there's an explosion in vc funds and there's an explosion in startups that are funded by by uh by by uh
[18:43] but by uh vc funds there's a vibrant uh uh chinese version or several chinese versions of silicon valley in the shenzhen and also there's there's a district in beijing called zhongguo
[18:58] which which there's not been a whole lot of discussion uh here but i think it's also a vibrant startup ecosystem there as uh as well
[19:09] and the last thing i want to mention is that there are now two new stock exchanges there's now there there's a new beijing stock exchange and there was uh earlier there was a shanghai stock exchange called star which was dedicated only to to a science and technology
[19:26] Startup, so what what this does is that you can see how this helps houses helps the the DC's and the VC funded startups because it provides an exit option.
[19:38] And the one last fact if you want to summarize all this that if you look at how China did in the World Bank doing business indicators, this thing that was canned last year, which I think is rather unfortunate.
[19:55] There are all kinds of problems with with things like the World Bank doing being doing business indicators, but I do think there's a lot of useful information that.
[20:03] I think you know the way I think about the doing business indicators, it's like the U.S. News and World Report uh ranking of the best universities in the U.S.
[20:11] There are all sorts of problems, but I'd rather it be there than not being there because there's useful, there is there is useful information.
[20:17] But yeah, so but what you see in terms of the World Bank doing business indicators before it was canned last year is that China over the last 10.
[20:26] years has improved dramatically uh in
[20:30] and what you also see is that the
[20:32] chinese authorities have replicated
[20:34] something like the world bank doing
[20:36] business indicators across china's to to
[20:39] basically collect data on on how each
[20:43] locality was doing in terms of of of of
[20:47] of uh making business easier
[20:50] making the business better okay
[20:52] so
[20:53] this is what is going i think this is
[20:56] the reality in
[20:58] in in
[20:59] in
[21:00] in china now so can i just yes about
[21:03] this credit to smes the small and medium
[21:05] enterprises this is primarily coming
[21:08] from and financial and the new platforms
[21:10] which
[21:11] is it coming on from state
[21:12] no the data that i'm citing is basically
[21:15] a credit that is coming from the
[21:17] state-owned banks now if you add on the
[21:19] stuff that the coming from and from ant
[21:21] financial and all these other financial
[21:23] it's not just and financial but all
[21:25] these local financing vehicles what you
[21:28] see is that the share of money that of
[21:30] credit that's going to to the small and
[21:33] medium-sized private firms has really
[21:35] exploded dramatically uh so the data
[21:38] that i cited is only from the state of
[21:40] bags what i'm saying is that you even
[21:41] see it among the
[21:43] the uh state-owned banks
[21:45] so the way that i would say that
[21:48] you know the way you're in china can i
[21:50] trust is there a public policy statement
[21:53] saying that's our second hand or is
[21:55] there any official announcement or just
[21:57] you see it on the ground
[21:59] but there's no gg thing never announced
[22:01] that second there's never any
[22:02] announcement the the second hand or the
[22:05] even the first hand that's my
[22:07] terminology
[22:09] that's something that i i i can't no no
[22:12] so the the the names that i'm giving is
[22:15] not communist party name uh it's my name
[22:18] for it i'm trying to mimic the communist
[22:21] party that if if they were to have a
[22:24] marketing department or a
[22:26] well-functioning marketing department
[22:28] not the propaganda department but they
[22:30] will have a well-functioning market
[22:31] harbor this is what
[22:33] i would say they should do
[22:35] uh in terms of marketing all right so
[22:37] this is the chinese version of the
[22:39] marcus academy all right if you want to
[22:43] put it down
[22:44] that way so you may think that so let me
[22:47] just point out that what what what seems
[22:49] to be
[22:50] a contradiction in china's policy
[22:53] direction
[22:54] that on the one hand
[22:57] it is a very dangerous time to be
[22:59] somebody like java
[23:01] like it's it's it's uh and and this is
[23:05] well
[23:06] understood and in the data what you see
[23:08] and this is the part that is widely
[23:10] uh uh discussed in the media that the
[23:13] market cap of the largest public trade
[23:16] uh or the large largest publicly traded
[23:18] from the china has fallen by has fallen
[23:20] like a rock
[23:22] that if you put your money into publicly
[23:24] traded chinese firms god bless you
[23:27] because you would have lost a ton of
[23:29] money
[23:30] but at the same time the the conditions
[23:33] for the private small and medium-sized
[23:36] firms i think most
[23:38] obviously most of which are still not
[23:40] traded are still not traded
[23:42] have never been better if you look at
[23:44] the data on say the number
[23:46] the the number of firms you see a
[23:49] tripling in the number of firms over the
[23:52] last 10 years
[23:54] you see i mentioned before a vibrant
[23:57] startup and
[23:59] and
[24:00] and the vibrant vc
[24:02] industry
[24:04] so
[24:06] the big question is
[24:08] what is going on
[24:10] why is it dangerous to be dogma
[24:14] and why is it that at the same time that
[24:17] they're that they're putting down the
[24:19] hammer
[24:20] on the most successful chinese companies
[24:23] they're trying to help
[24:25] the other firms that could eventually
[24:28] turn out to be like jack ma
[24:31] going to take my time to answer that
[24:33] question because and i'm going to take a
[24:35] step back
[24:36] and i'm going to bring you back to china
[24:38] from 10 years ago and i want to
[24:40] illustrate
[24:42] um
[24:43] why is it that it is currently a very
[24:45] dangerous time to be judgmental because
[24:47] i think to understand that question you
[24:50] have to understand where chinese growth
[24:52] comes from
[24:54] okay so forgive me for my detour i'm
[24:56] going to give a five min a minute detour
[24:59] then i'm going to come back and
[25:01] and answer the
[25:02] question okay
[25:04] so
[25:05] let me start by bringing you back to
[25:07] china for about 10 years ago
[25:10] so
[25:11] about 10 years ago maybe this was nine
[25:14] years ago nine or eight years uh
[25:17] my collaborators on this other project
[25:20] we made a visit to a small chinese city
[25:23] in southern china small about two
[25:25] million people
[25:27] we went there because we wanted to
[25:29] understand uh uh
[25:32] what local governments did right so we
[25:34] got there
[25:36] and
[25:37] our entree into the system was through
[25:40] the this person that was a vice mayor of
[25:43] education in this city
[25:45] uh because he was a former student of
[25:47] one of one of the people that i i was
[25:50] doing this project with so my
[25:52] collaborators showed up at the vice
[25:54] mayor's office so just to be clear who
[25:56] this person was this was a person in
[25:58] charge of the public schools in this
[26:00] city
[26:01] we got there and the vice mayor was not
[26:03] there and
[26:05] this person chief of staff
[26:07] uh apologized and said that you know he
[26:09] was looking forward to your visit my his
[26:12] most honorable uh
[26:14] teacher
[26:15] uh and he's gonna try really hard to to
[26:18] to uh to meet with him later in the day
[26:20] but some important visitors had come
[26:22] had uh had come to the town so then um
[26:27] they started to chat about what the
[26:29] mayor's office does and the vice mayor's
[26:32] chief of staff proudly you know after
[26:34] about half an hour handed us this chart
[26:38] okay they say this is what we do
[26:41] okay
[26:42] and here i'm going to give you my
[26:44] translation of what this flowchart says
[26:46] so the vice mayor for education this is
[26:49] the most important thing that they do
[26:51] they there's a process they actively
[26:54] look for quality prospects they have an
[26:56] initial discussion they learn about the
[26:57] investor they undertake a feasibility
[27:00] analysis that i never landed other
[27:01] needed services then whatever it is that
[27:03] they're talking about goes to the
[27:05] approval by the vice mayor and they sign
[27:07] the uh that sign the agreement so
[27:11] let me take a pause here and let me ask
[27:13] if there's a way in which i can ask the
[27:15] audience what do you think the vice
[27:17] mayor's chief of staff is talking about
[27:24] yeah
[27:25] probably it's
[27:26] about new projects to sell a certain
[27:29] land where new companies can build
[27:32] it's not about land what let me say what
[27:34] this is this is exactly what it looks
[27:36] like that what the vice mayor's office
[27:39] was doing
[27:40] was basically what are called what are
[27:42] quality prospects these are basically
[27:45] businesses that
[27:46] that are that are setting up in the city
[27:50] so what you quickly find out and i guess
[27:53] we went there uh uh my my collaborators
[27:55] went there because they they knew what
[27:57] was going on
[27:59] that what you see
[28:01] in this city and this is something that
[28:03] you see in every city in china is that
[28:06] what at every level of the bureaucracy
[28:08] the main thing that the bureaucracy was
[28:11] doing is that they weren't doing what
[28:13] their official title or the official
[28:15] office what it was doing what they were
[28:16] doing is that they were basically
[28:19] working overtime
[28:21] to basically get companies to set up in
[28:23] the city that's what quality prospects
[28:25] are it's basically all these companies
[28:28] you know who can i uh so think of what
[28:30] they were doing as being sort of
[28:33] the equivalent of what hap of of uh
[28:37] you know what happened three years ago
[28:39] when uh
[28:41] in american cities when amazon said that
[28:43] they were going to set up a second
[28:45] headquarter right all the cities went
[28:47] into overdrive and saying hey me me me
[28:50] me it's uh my turn that's what these
[28:52] guys are doing right that's what these
[28:54] these guys so let me just give you a
[28:56] broader sense of of how this local
[28:59] government is organized the number one
[29:02] guy is the secretary of the communist
[29:04] party the number two guy is the mayor so
[29:06] this is i think that's well understood
[29:08] so if you ever do anything in china
[29:10] don't ever make the mistake to think
[29:11] that the mayor is the number one guy
[29:13] he's not he's not it's the party
[29:15] secretary that's the
[29:16] number one guy and then there are nine
[29:19] vice mayors and the guy that we knew is
[29:22] one of the nine vice mayors but what you
[29:25] find and then and then what we can
[29:28] document in this case is that each of
[29:30] the vice mayor is assigned roughly 20
[29:34] important projects and what what we mean
[29:37] by projects
[29:38] are are basically they are in charge
[29:40] they are the point person for specific
[29:43] private companies and they are
[29:45] responsible for bringing them into the
[29:47] city they're responsible for making sure
[29:49] that these companies have everything
[29:51] that they need
[29:52] in order to grow
[29:55] uh to grow and then we were we were not
[29:57] able to figure out
[29:59] the companies that the mayor was in
[30:00] charge of or the party secretary of
[30:02] charge but undoubtedly there are some
[30:04] that that are in their hands so the way
[30:06] that you want to see companies are these
[30:07] startups so these are large companies
[30:09] just searching for a new headquarters
[30:11] like amazon
[30:13] these are in this case it's mostly large
[30:16] companies the the uh
[30:19] uh yeah these are and just to be clear
[30:21] for you know for those of you who
[30:23] for those of you who are
[30:25] enamored with the notion of state-owned
[30:27] firms these are all private firms i mean
[30:29] these are all probably firms so so
[30:31] really like what these guys care the
[30:33] most about is not the local state-owned
[30:36] firms but it's but it's these private
[30:38] firms uh
[30:39] uh uh that that's what they're uh ten
[30:42] years ago that's what they are spending
[30:44] their time on uh and that that was their
[30:47] most important political priority to try
[30:50] to bring these companies into town and
[30:52] to get these companies to grow so the
[30:54] way i want to summarize sort of what the
[30:56] system was
[30:58] is that these local officials these
[30:59] local cadres they use the power of the
[31:02] local communist party to help their
[31:04] projects okay in this case think about
[31:07] 250 companies in this city of two
[31:11] in the city of two uh uh
[31:14] uh two million and then the other piece
[31:16] which i think is important is that it's
[31:18] not just this this local government that
[31:20] is doing that that all these local
[31:22] governments are competing with with are
[31:25] are
[31:26] are competing with each other in order
[31:28] in order to do this so the best way that
[31:31] i can think of to
[31:32] to describe how competition takes place
[31:36] is that
[31:37] it's it's really about the competition
[31:40] between businesses in the different
[31:42] cities uh it's the competition between
[31:45] shanghai inc all the companies that are
[31:47] tied to the party secretary of beijing
[31:50] versus beijing inc versus shenzhen inc
[31:53] versus the 2000 other
[31:55] localities in china okay so in terms of
[31:59] is it like opening the doors to make
[32:01] regulation easy or is it also providing
[32:03] funding so they're connected with
[32:04] state-owned
[32:06] banks
[32:08] these companies yeah that's a great
[32:10] question until about
[32:12] 2010 or so
[32:15] local governments did not have access to
[32:16] capitals it was not about access to
[32:19] capital one of the consequences of of
[32:21] the 2008 financial crisis was that china
[32:24] implemented a big fiscal stimulus and
[32:27] that opened the doors because the way
[32:29] that was implemented was that they
[32:30] basically
[32:31] got these local governments to create
[32:33] these off-balance sheet financial
[32:35] companies and then when the fiscal when
[32:37] that fiscal program the fiscal stimulus
[32:39] was over they basically use these
[32:42] financial vehicles these off-damaging
[32:44] companies to then channel money uh and
[32:47] and that then became the origin of uh
[32:50] shadow banking in in china a couple
[32:52] years later that's when uh shadow
[32:54] banking started as an effort to try to
[32:57] get access to funds directly from from
[33:00] from chinese families
[33:02] uh but that was the so think of this as
[33:04] being sort of
[33:06] where things were
[33:07] about 10 years uh ago why does this lead
[33:11] us up to the moment that we're in
[33:14] it's about the political implications of
[33:17] this model
[33:18] of of this this particular uh uh
[33:22] model of growth and maybe the way that i
[33:24] want to illustrate this is to talk about
[33:26] a story that came out in the new york
[33:28] times in 2012 that did two things it won
[33:32] the new york times the pulitzer prize
[33:34] and it also got the new york times
[33:36] permanently blocked in china okay but
[33:39] and i think it's important because it's
[33:41] because i think this illustrates the the
[33:44] story in in the times illustrates the
[33:46] political
[33:48] um the the political consequences of
[33:51] that particular model which is which is
[33:54] going to lead us to the first strong
[33:55] hand that i'm going to get back to in a
[33:57] minute so the story in the times came
[34:00] out it came out in october of 2012 was a
[34:03] story about this big insurance company
[34:05] it wasn't just an insurance company
[34:07] called ping on insurance think of this
[34:09] as a company this was traded in hong
[34:11] kong and shanghai with a market cap
[34:13] about 200 billion dollars if you look at
[34:16] who owns the company it's the hsbc bank
[34:20] and three local financing vehicles uh so
[34:24] local governments uh that that have put
[34:26] their money
[34:27] what the new york times noticed so the
[34:29] the title the the article of the new
[34:32] york times was called the the the the
[34:34] hidden shareholders of
[34:36] of piping on and what the guy from the
[34:39] times figured out it's a good question
[34:41] how he fee
[34:43] how that a couple of years before 2012
[34:47] three percent of the company
[34:49] shifted to becoming owned by this by
[34:52] by this other company called tai hong
[34:55] holdings okay
[34:57] which what is tai hong holding it's
[34:59] basically a holding show right so what
[35:02] the article is about is basically what
[35:05] is tai hong holdings okay so this is a
[35:08] picture
[35:10] from that piece in the times okay
[35:13] what is tata home holdings when and what
[35:16] the times was able to do is that at the
[35:18] time
[35:20] there's this chinese registration data
[35:23] it's basically the the registration
[35:26] records of companies and it was possible
[35:28] at that time to basically go to these
[35:31] to these local registration offices you
[35:34] follow a a very basic form you pay a
[35:37] small fee and you can see the
[35:38] registration documents of every chinese
[35:40] company so that's what the times did and
[35:43] what and this is what he found that he
[35:45] he found that tai hong holdings is owned
[35:48] by two people
[35:49] and by three other holding shells
[35:52] okay
[35:53] and then he went back and he looked got
[35:55] the registration documents of each one
[35:57] of these holding shells and the first
[35:59] thing that he documented is that these
[36:01] holding shells are look like they look
[36:05] like a russian doll that is you know
[36:07] it's a holding shell we look at the
[36:09] holding shell it itself is owned by
[36:10] several other holding shells and then
[36:12] that holding shelf is owned by a bunch
[36:14] of other whole a bunch of other holding
[36:16] shells and so on
[36:18] what the reporter from the times he had
[36:20] the patience is that he basically went
[36:23] and he traced down the entire tree he
[36:26] traced down the entire tree
[36:28] and eventually he figured out that
[36:30] tychon holdings was owned by basically
[36:34] people that were relatives of one
[36:36] jabal's family which was who he was the
[36:40] the
[36:41] the the number two person in china at
[36:43] the time okay
[36:45] and
[36:46] by this other person called uh the the
[36:48] the the woman at the bottom called one
[36:52] caller
[36:57] there's now a fascinating book written
[36:59] by her former husband
[37:01] that came out last year called red
[37:04] roulette that i strongly recommend that
[37:06] you read because now i think with that
[37:08] book we now know the full story of this
[37:11] case okay so
[37:14] what do i want you to take away from
[37:16] this what i want you to take from this
[37:17] is that this kind of corporate structure
[37:20] started to become
[37:23] the standard the norm for all the large
[37:26] chinese private companies and then it's
[37:29] when you start to ask why it's easy to
[37:31] think about a reason why
[37:33] think back to the previous model where
[37:36] all these private companies they needed
[37:38] these local communist party officials to
[37:42] basically smooth the path for them
[37:44] okay now you can ask a question okay why
[37:47] are these local communist party
[37:48] officials doing this for them maybe
[37:50] they're doing this because they are the
[37:53] chinese equivalent of say priests of the
[37:56] catholic church they're doing this out
[37:57] of the goodness of their hearts and are
[37:59] the sense of ambition
[38:01] maybe that's part of what's going on but
[38:04] then at
[38:05] at a point where some of these companies
[38:08] some of these projects turned out to be
[38:10] billion dollar companies
[38:12] you know there's a very real
[38:15] temptation to say why not you know i
[38:18] work so hard to get this company from 10
[38:21] million dollars to a billion why isn't
[38:24] it just fair that i have
[38:26] a small piece of that okay so this
[38:29] started to become this practice started
[38:31] to become widespread
[38:35] to widespread so this brings us back
[38:37] then to the first strong hand okay so
[38:40] this is the world as of 2012 2013
[38:44] 2004
[38:48] what my interpretation
[38:50] is people almost oligarchs the chinese
[38:53] way of having oligarchs
[38:56] this is i would say that's right i would
[38:58] say i
[38:59] i think what prevents it from being
[39:01] oligarch is is just
[39:03] yes and no yes but what but there's also
[39:06] this other feature of the chinese system
[39:09] which is tremendous competition which
[39:11] basically limits the
[39:13] so it's different from the i think
[39:16] the russian model which what what one
[39:18] typically thinks about when you think
[39:20] about oligarchs is that very little of
[39:22] this i think is about rent most of it is
[39:25] really that these are real businesses
[39:28] these are real businesses and they're
[39:29] they are competitive
[39:31] uh they are it's a very competitive
[39:33] system uh um but
[39:36] the political so i want to bring you
[39:38] back the political implication
[39:41] of this particular model
[39:43] is that
[39:44] it's this
[39:46] is is that this system
[39:48] was based on this
[39:50] on this alliance
[39:53] between
[39:54] entrepreneurs and local party cadres
[39:58] okay
[39:58] so
[39:59] what what started to happen in my
[40:01] interpretation is that
[40:04] as these companies grew and became
[40:06] billion dollar companies you know
[40:08] billion dollars means that you start to
[40:10] matter right and and you start to matter
[40:13] and the influence of the wealthy people
[40:16] such as miss duan who was in
[40:19] the picture became so widespread that it
[40:23] was viewed as an existential threat to
[40:25] the party in in the following sense that
[40:28] basically if you are a local party cadre
[40:32] what do you care
[40:34] more about
[40:35] do you care more about your 100 million
[40:39] dollars worth of equity
[40:41] uh uh in these companies or do you care
[40:45] about maintaining your loyalty to the
[40:47] party
[40:48] and what is fabulous about the book by
[40:51] miss duan's husband and i strongly uh
[40:53] strongly recommend is that there's one
[40:55] chapter in the book where can you repeat
[40:57] the title because somebody would like to
[40:59] know that yes red roulette
[41:02] red
[41:02] roulette is is the title there's a
[41:05] fascinating chapter in the book where
[41:07] they describe how they were able to
[41:10] basically
[41:11] push for the promotion of their
[41:15] of of their people in the party uh uh so
[41:19] think about what what happens then the
[41:21] question is
[41:22] who controls who right is is is it the
[41:25] party that's in charge of sort of the
[41:27] most important parts of the party on in
[41:29] terms of who who gets promoted of the
[41:31] system or is it just the private
[41:34] interest of people like ms dwan and her
[41:36] husband and i would say that you what
[41:38] you see is growing evidence that that
[41:41] that
[41:42] that that it's is these entrepreneurs
[41:46] start to become really powerful
[41:48] politically
[41:49] uh they started to become very very
[41:51] powerful or at least there was that
[41:52] perception that these guys really
[41:54] mattered
[41:55] uh politically
[41:56] so
[41:57] connect so there's this understanding
[41:59] that how the chinese system works is
[42:01] through this tournament within the party
[42:03] you know you're very successful in your
[42:04] providence once you're more successful
[42:06] than the others you move up the ranks
[42:08] and become the more successful in
[42:09] beijing you this would be undermined do
[42:12] you subscribe to this tournament view
[42:15] or do you think this is now destroying
[42:16] the tournament view essentially i would
[42:18] i mean
[42:20] i mean the tournament view
[42:22] is i would say the official narrative in
[42:24] china that's the uh official narrative
[42:27] it's
[42:27] um
[42:28] obviously
[42:31] it's really hard
[42:32] to know whether this is what is going on
[42:35] or not i mean so that
[42:37] this is not a joke but it's like the day
[42:40] when i get access to the personnel files
[42:43] of the communist party's organization
[42:45] department i can test it empirically
[42:47] but
[42:48] that's not going uh that's not going to
[42:50] happen so i can safely say
[42:52] i'm going to put forward that i think
[42:55] that they are i i'm sure there are cases
[42:58] in which it's this tournament but i
[43:00] would say that that is i think a
[43:02] dramatic over simplification of
[43:05] of of
[43:06] of how who of who gets promoted and who
[43:10] does not get uh promoted and i want to
[43:12] say that there's
[43:14] there there there are lots of other
[43:16] potential forces that also draw that
[43:18] that oh that will also uh drive this so
[43:22] let me just come back and say
[43:24] what we have seen in china in the last
[43:27] 10 years is this broad-based campaign
[43:31] okay
[43:32] of which what i'm describing is only one
[43:34] part of it to restore the control of the
[43:38] party and i would say that the way that
[43:39] you want to think about it is that
[43:41] you know i think there's this
[43:42] conventional wisdom that that the senior
[43:45] leader parties uh senior leaders in the
[43:47] party they frequently talk about the
[43:50] uh the the soviet union and eastern
[43:52] europe and they say that the main
[43:54] mistake that was made and this is a
[43:57] literal quote is that they were not man
[44:00] enough to stand up
[44:02] and take
[44:03] and and and and take and and
[44:06] and take and take back control so their
[44:10] prescription of what happened of of what
[44:13] happened in eastern europe is that the
[44:15] communist party lost
[44:17] uh uh lost their monopoly on power and
[44:19] they were not willing to fight in order
[44:21] to keep the monopoly in power so
[44:25] what happened what's happened in china
[44:27] in the last 10 years was basically like
[44:30] the
[44:31] sort of a big campaign by the party to
[44:34] not go that route okay
[44:36] to not go that route so i'm gonna call
[44:39] this this is not
[44:41] party the this is not what the party has
[44:43] called it but i'm gonna call it the
[44:45] first strong hand that is it's basically
[44:48] uh what has happened is that there's
[44:50] been a crackdown on forces that pose any
[44:53] kind of a threat to
[44:54] to the control the party which includes
[44:56] the large wealthy private firms and and
[44:59] and hopefully it's now clear at least my
[45:01] view on why is it that these guys pose
[45:04] was viewed as posing such a threat to
[45:07] the party so it's not just a standard
[45:09] story in the us that the wealthy
[45:12] companies have money and they have power
[45:14] but i think it's in china it's a little
[45:15] bit different just because of this of
[45:18] the particular
[45:19] alliance uh between the local communist
[45:22] party cadres and and the successful
[45:24] entrepreneurs but i also want want the
[45:27] audience to realize that it's not just
[45:29] this right that it's part of this
[45:31] broader cap it's part of the broader
[45:34] campaign to restore the control of the
[45:36] party that's the way you want to think
[45:38] about the anti-corruption campaign that
[45:41] almost all the anti-corruption cases is
[45:44] about these local cadres getting payouts
[45:46] from from from uh
[45:48] from uh wealthy uh for from wealthy
[45:51] entrepreneurs there's been a crackdown
[45:53] on celebrities you think about why are
[45:56] celebrities dangerous well because
[45:58] they're celebrities
[45:59] they're uh that
[46:01] they're a source of independent
[46:03] political powers with a crackdown on
[46:05] ngos there's a crackdown on all the
[46:07] other potential sources of the
[46:08] transmission of ideology at least that's
[46:11] my interpretation of the crackdown on on
[46:14] the after-school tutoring companies
[46:16] because there's now you know these these
[46:18] tutoring companies are not in the
[46:20] business of transmitting communist party
[46:22] ideology they're there to make sure your
[46:24] kid passes the math test and and that is
[46:27] no good uh because you don't control
[46:30] what is being taught uh in in the and
[46:33] then let me just go on and say they're
[46:35] the party cells in uh there's now
[46:38] widespread uh cells of the communist
[46:40] party in private companies golden shares
[46:42] in critical infrastructure
[46:44] companies at the level of the party
[46:48] party committees are now much more
[46:51] important in state entities by which i
[46:54] mean state-owned firms
[46:56] hospitals
[46:57] universities so anything it used to be
[47:00] there i mean there always has been this
[47:02] dual structure in in the state owned in
[47:05] this in the state-owned and uh
[47:07] state-owned entities for example for
[47:09] most of the people here in this audience
[47:10] you may have visited chinese
[47:12] universities that there's the president
[47:15] of the university or the dean of a
[47:18] school that that that you may see but
[47:21] what you also know
[47:22] is there almost always right across the
[47:25] corridor there's also the office of the
[47:27] party secretary of the the secretary of
[47:29] the communist party and the authority of
[47:32] of of the latter has increased relative
[47:34] to the authority of the of the farmer
[47:38] there's now the increased importance of
[47:40] showing making sure that you're loyal to
[47:41] the party in terms of in in terms of
[47:44] whether you are
[47:45] promoted empirically what you see is
[47:48] that the the the same guys that my
[47:50] co-authors visited they used to work 24
[47:54] 7
[47:55] on business development that's no longer
[47:57] true right they now spend
[47:59] a great deal of their time on political
[48:01] studies on on political studies
[48:05] political studies sessions learning xi
[48:07] jinping thought etc and also
[48:11] every few months there's now a different
[48:14] party inspection team that comes through
[48:17] that comes through checks on things and
[48:19] check something and it's a way to try
[48:21] i'm going to say it's all part of this
[48:23] camp part of this campaign to impose
[48:26] party discipline
[48:28] okay so is there a way to quantify how
[48:30] big the efficiency losses are in terms
[48:32] of economic progress
[48:34] that's a great question right
[48:38] um
[48:41] i wish yeah i mean i would love to do
[48:43] that or i would love if if somebody were
[48:46] able to even something simple like
[48:48] just a time used survey on what local
[48:50] countries are doing are spending time on
[48:53] are are are doing that time on that
[48:55] would be lovely but part of what the cut
[48:58] i think it would be very hard to do it
[48:59] in
[49:00] in uh two days china because it would be
[49:04] viewed
[49:04] as
[49:05] something that also threatens the
[49:07] control of the party if if you if you
[49:09] were to try to do that so
[49:12] so
[49:13] so this is the first strong hand and and
[49:16] the way i want you to understand is that
[49:18] it's not in isolation right it's not
[49:20] just this one thing but it's just par
[49:22] it's just i think probably the most
[49:24] important component of this broader
[49:27] of this of this broader campaign to try
[49:31] to you know i guess to use marcus's term
[49:34] to try to make sure
[49:36] that chinese oligarchs
[49:38] do not
[49:40] control the political system
[49:43] okay
[49:44] now let me just say that what just be
[49:48] clear sort of this is my view on what
[49:50] this is not okay it is not a crackdown
[49:53] on large companies per se
[49:55] right that is it's not about the chinese
[49:58] all of a sudden becoming like elizabeth
[50:01] warren uh that i i don't think that
[50:03] that's what it is because there's no
[50:05] crackdown if if you know there's a lot
[50:07] of people who are saying that oh it's
[50:09] about crackdown um monopolies trying to
[50:11] deal with mar trying to deal with the
[50:14] market power of somebody's platform
[50:16] company there was zero crackdown on some
[50:18] of the biggest monopolies but they just
[50:20] happened to be stayed on right
[50:23] and let me just also
[50:25] highlight for the for for the foreign
[50:28] investors is that there is zero
[50:30] crackdown on the large foreign firms and
[50:33] in fact the conditions from the foreign
[50:35] firms i think have gotten even better uh
[50:39] so tesla in shanghai has gotten deals
[50:43] that i think no other company
[50:45] in china has been able to get access to
[50:47] taiwan semiconductor in the non
[50:50] in nanjing
[50:53] is treated well it's really well and if
[50:55] they ever wanted to expand in china you
[50:58] will i guarantee you that a thousand
[51:01] local governments will be
[51:03] will
[51:04] will be knocking on their door foxconn
[51:08] is then organized by the local
[51:09] government or in beijing that give tesla
[51:12] a special deal who is deciding about
[51:14] this special it's shanghai i mean it's
[51:16] it's
[51:17] it's the shanghai
[51:19] i mean let me just say that like the
[51:21] biggest deal that that
[51:23] i mean
[51:25] you look at the kind of deals that that
[51:26] tesla has it's it's incredible they like
[51:30] they get some of the best land in
[51:32] shanghai for free uh they are the only
[51:35] foreign car company that's uh that has
[51:37] been allowed
[51:38] to
[51:39] own the company 100
[51:42] all the other companies have to operate
[51:44] through joint ventures uh and the reason
[51:47] is because it is viewed
[51:49] in the it's viewed in the same way by
[51:52] the chinese as us
[51:54] as us investors like if you think about
[51:57] why tesla is
[51:58] valuation is so high it's because it's
[52:01] viewed as being the company that is
[52:03] going to bring us to the next stage of
[52:06] cars that we are finally
[52:08] going to move away from the 100 year
[52:10] from the model that was introduced by
[52:12] henry ford and there's going to be the
[52:14] new paradigm and tesla is going to be in
[52:17] in charge of it so
[52:18] they are willing to do whatever it takes
[52:20] to to get their piece of
[52:23] of of this so for and and if the way i
[52:27] think about it is that look the reason
[52:29] why there's no crack on a large fort
[52:31] lawn enlarge for foreign firms
[52:33] is or it's easy to understand why
[52:35] there's no crackdown on the state-owned
[52:37] monopolies that is you control them so
[52:40] they never pose a threat to you why is
[52:42] there not a crackdown on the large
[52:44] before what precisely because they're
[52:45] for
[52:46] that is because they're foreign firms
[52:49] they can
[52:50] they they can never challenge you
[52:53] politically
[52:54] in the same way that that jack ma can
[52:58] okay
[52:59] so it sort of reminds me of the story i
[53:02] don't know whether it's true but there's
[53:03] a story that i've heard about indonesia
[53:05] under suharto that the only people that
[53:07] could make the deals with suharto's
[53:09] families were the indonesian chinese the
[53:12] if you're a native indonesian you
[53:14] weren't able to make a deal and the
[53:16] reason it was because the chinese were
[53:17] in the minority and they were also hated
[53:20] they were also hated so then even if
[53:22] they become billionaires because they
[53:24] were chinese they could never threaten
[53:26] so hard to
[53:27] pull they can never threaten so hard to
[53:29] pull
[53:30] uh uh so uh so hard to or politically so
[53:34] i again i i want to emphasize here that
[53:36] it's it's my view is that it's not about
[53:39] sort of it's a very different although
[53:42] on the surface it may look like the same
[53:46] kind of thing that we're seeing in the
[53:47] us you know
[53:49] the stories that we're hearing out of
[53:50] the ftc the things stories we're hearing
[53:53] out of elizabeth warren's staff
[53:55] about you know growing monopoly power
[53:58] etcetera etcetera i don't think this is
[54:00] at all what is going on in china despite
[54:02] on this one on the surface it looks like
[54:04] the same thing here i think it
[54:06] fundamentally
[54:07] is about the threat to
[54:10] to uh to a threat to the leninist party
[54:16] now
[54:17] let me end by saying that you know the
[54:19] obvious problem
[54:21] with this political campaign with the
[54:23] first strong hand and this was what
[54:25] marcus
[54:27] hi the wizards what what uh marcus
[54:31] highlighted that if you crack down on
[54:32] some of your most successful firms and
[54:35] more broadly if you if if if you crack
[54:37] down on the model on this
[54:40] alliance that has delivered you growth
[54:43] then obviously
[54:45] you know you're going to hurt growth
[54:47] that if if so and then if you hurt
[54:50] growth then that if you hurt growth then
[54:52] then i mean that then
[54:54] that is the other thing that eventually
[54:56] i think if if the chinese economy
[54:59] falters in the long run that i think is
[55:02] also going to pose a very real threat to
[55:04] the party to to the power of the party
[55:06] because it's built a lot of its
[55:08] legitimacy on this notion that it is
[55:11] competent and and it is deliver growth
[55:14] on prosperity to chinese citizens and if
[55:17] it doesn't do that anymore then that
[55:20] then then that is serious political
[55:23] trouble
[55:24] so this is where the second strong hand
[55:27] comes in
[55:29] right the second strong and and i i and
[55:32] i and then i i i'm i'm not going to
[55:36] to
[55:37] repeat the list of things that i've done
[55:38] but let me just say
[55:40] what is the vision
[55:42] that the vision is that it's basically
[55:44] the recognition that the first strong
[55:47] hand which they need in order to survive
[55:50] politically
[55:51] basically to kill off
[55:53] the oligarchs also hurts growth but then
[55:56] if you really hurt growth that is also
[55:58] going to kill you so you and then the
[56:00] second strong hand is to try to square
[56:03] that circle that is it's what we're
[56:05] gonna what what what i think what
[56:07] they're attempting to do
[56:08] is to support the the millions of small
[56:12] and medium-sized firms to do what they
[56:14] haven't done for decades but now they're
[56:17] beginning to they they are they are
[56:20] beginning to to uh to do this and the
[56:23] key advantage of of the small and
[56:25] medium-sized firms is that as long as
[56:27] they remain small they don't pose a
[56:30] political threat
[56:32] they're not oligarchs so it's about you
[56:35] don't pull you don't face a threat from
[56:37] a 30 million dollar company but you do
[56:39] face a threat from a 30 billion dollar
[56:42] company
[56:43] but if somebody owns
[56:45] 20 of these firms is this a problem
[56:49] it is possible it's possible that
[56:51] there's somebody that owns
[56:53] 20 of them and if you have me back
[56:56] marcus i have another paper where i try
[56:58] to document this i try to tell you but
[57:01] let me not go
[57:03] in
[57:04] let me not go into that now but let me
[57:06] just end by just saying by summarizing
[57:09] what i think the vision is that
[57:13] it's about trying to do to have two
[57:15] things
[57:16] it's about having a dynamic market
[57:19] economy okay
[57:21] that is fully under the control
[57:24] of the communist party
[57:27] that's the goal
[57:29] okay and
[57:31] whether they're going to be able to do
[57:33] it or whether these two or another way
[57:36] to say this is that whether these two
[57:37] strong hands are in contradiction
[57:41] i guess i don't know i i i i don't know
[57:44] so uh you know
[57:46] can you have growth if you
[57:49] if if from from a lot more million
[57:52] dollar companies but at the same time
[57:54] you kill off the
[57:56] the you kill off the billion dollar
[57:59] companies will the millions of dollar
[58:00] companies stop investing if they know
[58:03] that if they ever become a billion
[58:04] dollar company
[58:06] uh they they will come into the firing
[58:08] line of the party right i don't know i i
[58:12] i don't know and that's the but
[58:14] here i i i
[58:16] yeah so i guess that's all that's all i
[58:18] want to say that is
[58:20] this is where i think china is now and
[58:22] whether it'll work or not
[58:25] uh time will tell
[58:27] so let me ask a few questions also from
[58:29] the audience
[58:31] so you have more slides or we can
[58:33] [Music]
[58:34] yeah let me questions let me kill myself
[58:38] so
[58:39] one thing is if i'm a small medium
[58:42] enterprise but i'm very successful
[58:44] become bigger and bigger yep
[58:46] what do i do when i become too big i
[58:48] spin off companies in order to stay
[58:50] small or do it just stop growing and
[58:52] saying i don't i want to fly under the
[58:54] radar
[58:55] and the two ways is that i just don't
[58:57] become active anymore i just
[58:59] keep doing what i'm doing but i don't
[59:01] expand well i ai spin-off companies do
[59:04] we see already certain companies
[59:05] spinning off other sub-companies just to
[59:08] stay small
[59:09] this would be one conclusion somebody
[59:12] might have
[59:14] you specialize more and rather than
[59:17] everything i'll conglomerate but
[59:18] covering many many things i spin off
[59:20] companies and they're all small and
[59:22] independent
[59:27] that's a good question i guess i don't
[59:29] have the evidence yet to fully i i yeah
[59:32] i would say that i don't have the
[59:33] evidence to fully answer that question
[59:36] um
[59:39] i mean one answer could could be that
[59:41] you just you that if you know this is
[59:43] gonna happen then you just don't
[59:45] undertake the efforts and you don't
[59:47] undertake the investments that are
[59:48] needed in order to grow
[59:50] uh
[59:51] uh how to start a new company
[59:54] the question then is what is view
[59:58] you could start off a new company
[01:00:01] and i guess i do have documentation that
[01:00:04] an important margin by which
[01:00:06] entrepreneurs grow in china is is
[01:00:09] through
[01:00:09] is through the is through the extensive
[01:00:12] margin uh uh not and not so much to the
[01:00:15] um the question is whether having lots
[01:00:18] of companies will also put you in the
[01:00:20] firing line uh uh uh then uh
[01:00:24] um
[01:00:26] let me just say that and i think there's
[01:00:28] because you said everybody was managing
[01:00:29] 20 companies it could be that i
[01:00:31] mentioned 100 companies 100 small
[01:00:33] companies and i'm my incentives are
[01:00:35] equally distorted not to be loyal to the
[01:00:37] party to but be loyal yeah yeah yeah no
[01:00:39] it used to let me just go back to sort
[01:00:42] of uh the story from the times it so the
[01:00:44] way that the guy from the times did it
[01:00:46] is that he basically went through the
[01:00:48] he went through the paper documents
[01:00:51] what is now possible is that all that
[01:00:54] all these registration data
[01:00:56] it's been digitized and there are now a
[01:00:58] couple of companies that now sell it
[01:01:01] that now sell access so now it is really
[01:01:03] easy to sort of to to put together this
[01:01:06] ownership map
[01:01:08] of a given person so it's really before
[01:01:10] it used to be hard you basically have to
[01:01:12] go through every single uh registry if a
[01:01:15] person owns 200 companies it's a lot of
[01:01:17] work to uh figure it out now i think
[01:01:20] it's it's it's much easier to figure out
[01:01:22] whether a person has two uh two
[01:01:25] has 200 companies and then if you have
[01:01:28] 200 companies that are collectively
[01:01:30] worth 30 billion dollars
[01:01:34] i would think that the party is going to
[01:01:35] think of them in the same point right
[01:01:37] because
[01:01:43] so i don't really know
[01:01:45] sorry
[01:01:46] is that this you know if you think about
[01:01:48] when people talk about what's the big
[01:01:50] advantage of china and everybody tells
[01:01:53] me it's a scale you know it's like you
[01:01:56] have 1.6 million people a billion people
[01:01:59] well if you go to another market it's a
[01:02:01] small tiny market here you have to scale
[01:02:04] and that speaks essentially that there's
[01:02:06] a huge advantage for being big
[01:02:09] and if the official doctrine is not to
[01:02:11] allow it to you to be big you don't take
[01:02:13] advantage of the scale
[01:02:15] so you can actually reduce the scope to
[01:02:17] become much more specialized and still
[01:02:19] scale up
[01:02:21] uh is this what you see that you know
[01:02:23] companies become more specialized less
[01:02:25] conglomerates
[01:02:26] but they still want to exploit this
[01:02:28] scale
[01:02:30] or that there will be a tension of the
[01:02:31] two strong hands and saying know you
[01:02:33] know the first one will prevent the
[01:02:35] exploiting the scale dimension
[01:02:39] we see lots of creation of small
[01:02:40] companies i think that the creation of
[01:02:42] new companies is
[01:02:45] is recent enough that i don't
[01:02:49] so let me just say that there are two
[01:02:51] things that that we've seen in the data
[01:02:54] in the last 15 years so what i'm going
[01:02:56] to tell you now is based on the
[01:02:58] registration right
[01:02:59] on the registration records
[01:03:02] that
[01:03:03] you see that the top the top owners grow
[01:03:07] and the way they grow is is by
[01:03:11] essentially by by
[01:03:13] by building up more firms and the way
[01:03:15] it's typically done is that they build
[01:03:17] up more firms
[01:03:19] by through joint ventures with
[01:03:21] state-owned firms so that's one pattern
[01:03:24] uh now
[01:03:25] whether that has come to a halt that's
[01:03:27] called a hall i guess our data doesn't
[01:03:30] it's it's i think this this what i'm
[01:03:32] talking about is too recent uh for it to
[01:03:35] show up yet in uh in the data uh the
[01:03:39] other thing that you see is a lot of the
[01:03:41] single owner or one owner one firm
[01:03:44] that that
[01:03:46] has
[01:03:47] that has exploded
[01:03:50] the question that you're asking i think
[01:03:51] is really more a question about 10 years
[01:03:54] down the line what are these guys going
[01:03:55] to do right and yes and will and we'll
[01:03:58] see
[01:04:02] so the other things and you hinted to it
[01:04:03] a little bit is that it might be that
[01:04:05] certain data is just reclassified so
[01:04:07] once you know the government doesn't
[01:04:09] like big firms anymore i'd rather have
[01:04:12] five small smes
[01:04:14] and what was initially treated as one
[01:04:16] big firm is now you know two or five
[01:04:19] smes
[01:04:20] uh is there an issue that holds the loan
[01:04:22] data and other things you know given
[01:04:24] that i'm get a favorable treatment if i
[01:04:26] label myself and sme
[01:04:29] that there's a re-labeling going on and
[01:04:30] that distorts the data in a sense
[01:04:36] just to
[01:04:40] i guess in the data in the data that i
[01:04:42] have it does so i have let me just
[01:04:44] i have access to the registration data
[01:04:46] up until 2009 uh until 2019 i don't see
[01:04:50] that yet in the data
[01:04:53] uh so maybe it eventually is going to
[01:04:55] happen but i haven't seen it yet
[01:04:59] so the next
[01:05:00] issue would like to raise is
[01:05:03] there was always the understanding and
[01:05:05] we talked about this earlier
[01:05:07] that the chinese firms expand become
[01:05:09] national champions and then also to make
[01:05:11] take on an important role in the
[01:05:13] international markets in other countries
[01:05:16] uh if you don't allow national champions
[01:05:18] if you don't allow big companies it's
[01:05:19] probably much harder to reach abroad
[01:05:23] is this less important for the chinese
[01:05:24] party that you know you have some
[01:05:26] national champions you know being very
[01:05:28] active in in other asian countries or in
[01:05:31] africa
[01:05:33] one is sacrificing that deliberately or
[01:05:36] that's
[01:05:38] it's overlooked
[01:05:39] that that's a one of the costs that's
[01:05:41] not so important
[01:05:44] if you go back to the world in china in
[01:05:46] 2012 or 2013 there's this really
[01:05:49] interesting pattern that you see in the
[01:05:51] chinese data
[01:05:52] that
[01:05:55] in almost every country in the world
[01:05:57] what you see is a large firm's export
[01:05:59] and smaller firms don't but that's a
[01:06:02] pattern you see almost
[01:06:04] everywhere in china in in at least in
[01:06:07] the manufacturing data you see exactly
[01:06:10] the opposite pattern what you see is
[01:06:12] that the smaller firms are the one that
[01:06:14] export and the big firms don't
[01:06:18] my interpretation of that pattern is is
[01:06:20] that it's one of the consequences one
[01:06:23] it's one of the negative consequences of
[01:06:25] that particular of the model of growth
[01:06:27] that i described
[01:06:28] that if you are say a car company based
[01:06:32] in shanghai what you do is that because
[01:06:34] you are the
[01:06:35] local champion
[01:06:37] you don't
[01:06:38] uh
[01:06:39] you have the power to not let anybody
[01:06:42] else into that market
[01:06:44] okay
[01:06:46] but these are the largest companies
[01:06:48] these are like if you look at the
[01:06:49] largest car companies these are the
[01:06:51] shanghai-based car car companies now
[01:06:54] the the car companies that export in
[01:06:57] china these are the companies that are
[01:06:59] the local champions of a city like the
[01:07:02] one that i described
[01:07:04] i visit a 2 million person city these
[01:07:07] are the companies that would like to
[01:07:09] sell in shanghai but they don't
[01:07:11] they don't because they're basically
[01:07:13] blocked by by by the by the shanghai
[01:07:16] companies so
[01:07:17] so the way that they can do it so what
[01:07:20] you see them doing is that the and this
[01:07:23] is almost their words they say that when
[01:07:25] we sell in central america the reason
[01:07:28] that we sell in central america is
[01:07:30] because we can compete on a level
[01:07:32] playing field in central america but in
[01:07:36] shanghai or beijing or other other
[01:07:38] cities we don't we're up against the
[01:07:40] local party boss
[01:07:42] so
[01:07:44] i would think to just flip your question
[01:07:46] on the head that having more small and
[01:07:49] medium size because of this part so that
[01:07:51] let me just say lark the empirical
[01:07:53] pattern is that the larger chinese
[01:07:56] companies generally by and large do not
[01:07:59] export or they export less it's a small
[01:08:02] and medium-sized firms that do that do
[01:08:04] having more small media sized firms that
[01:08:08] forge by itself my prediction is that
[01:08:10] that's going to lead to more not less
[01:08:12] okay
[01:08:13] with one caveat with one caveat which is
[01:08:18] is
[01:08:20] the reaction of the west
[01:08:23] to this model
[01:08:25] that is
[01:08:26] uh if you know
[01:08:28] that
[01:08:29] this is what you're dealing with uh what
[01:08:31] what you are that is you are that that
[01:08:34] you are trading
[01:08:36] with the market economy that is under
[01:08:38] the control of the communist party then
[01:08:42] does that will that make you and we see
[01:08:44] lots of discussion about this will that
[01:08:47] make you try to be more cautious in
[01:08:49] terms of who you engage in trade with
[01:08:51] that fundamentally you know that even
[01:08:54] these are small companies that they are
[01:08:56] fundamentally still under the control of
[01:08:59] the party
[01:09:00] right so it's it's it's it's the huawei
[01:09:03] debate writ large
[01:09:06] but if i may summarize what you're
[01:09:08] saying because of this local party
[01:09:10] control you have essentially a segmented
[01:09:13] market at home in china yeah and you
[01:09:16] don't have this scale effect because
[01:09:17] it's so segmented so it's a big
[01:09:19] disadvantage
[01:09:20] so what you do is rather than try to
[01:09:22] sell abroad you become an international
[01:09:24] small company exporting a lot yeah
[01:09:27] absolutely
[01:09:28] but china for goals essentially through
[01:09:30] the segmentation there's the big
[01:09:32] advantage of scale effects at home which
[01:09:34] it still allows the teslas the foreign
[01:09:36] firms they can exploit the scale but the
[01:09:38] domestic ones cannot exactly is this too
[01:09:41] yes stock okay
[01:09:44] i see so that's so very interesting but
[01:09:46] in a sense it reminds me you're in
[01:09:48] germany we have this middle stand these
[01:09:50] mid-sized companies
[01:09:52] which are small very specialized but
[01:09:55] very internationally active they're the
[01:09:57] leaders in very small segments
[01:10:01] around the globe
[01:10:02] uh but they don't grow to large
[01:10:04] conglomerates they're just run by some
[01:10:06] families
[01:10:09] and there's some similarity there i
[01:10:10] guess uh
[01:10:12] on this
[01:10:13] the
[01:10:15] of new thing
[01:10:15] market i would love to know why is it
[01:10:17] that germany
[01:10:19] developed in this way i
[01:10:21] i mean i i
[01:10:23] i don't i
[01:10:26] um
[01:10:28] so historically germany was very
[01:10:29] segmented too you know it was it was not
[01:10:31] one country it was many little
[01:10:34] uh
[01:10:35] small states come together and
[01:10:39] there was a spirit always to have
[01:10:40] smaller companies family-run companies
[01:10:43] what's small in
[01:10:45] probably it's what's small in china
[01:10:46] might be large in germany because the
[01:10:48] number of people is
[01:10:50] much larger
[01:10:52] so
[01:10:54] let me just conclude
[01:10:57] a little bit so we also we did not touch
[01:11:00] on this over investment in real estate
[01:11:02] the huge debt burden does this interact
[01:11:05] in this vision somehow and this came
[01:11:07] also from you know how you may how china
[01:11:09] was actually managing in 2008 the global
[01:11:11] financial crisis by having this huge
[01:11:13] stimulus you touched upon it a little
[01:11:15] bit that this had some implications that
[01:11:18] suddenly the local leaders could also
[01:11:20] help in the financing of these new
[01:11:21] companies
[01:11:22] and give them extra leverage and it is
[01:11:25] more powerful and for the first hand
[01:11:27] then but you see the debt level
[01:11:29] interplaying with this and over
[01:11:31] investment in real estate is this
[01:11:33] totally orthogonal or do we have to see
[01:11:35] any correction
[01:11:36] i think it's part of it i mean i think
[01:11:38] it's it's part of it i mean where does
[01:11:41] that come from i mean it
[01:11:42] it it it comes from the same
[01:11:46] it comes from the same alliance
[01:11:48] it comes from exactly the same uh
[01:11:50] alliance
[01:11:52] um but where
[01:11:55] it was i'm gonna say the institutional
[01:11:58] consequence of how china decided to fund
[01:12:00] its fiscal stimulus that is
[01:12:03] the funny thing is that if you look at
[01:12:05] the if you look at the
[01:12:07] the the accounts of the chinese
[01:12:10] government in 2008 2009
[01:12:13] when they ran a huge fiscal stimulus
[01:12:16] you look at the budget deficit of of the
[01:12:19] government nothing changed
[01:12:21] this is about and the reason is because
[01:12:23] the way that they did it was basically
[01:12:25] to create all these off-balance sheet
[01:12:26] companies and then they would borrow
[01:12:28] they're not officially part of the gov
[01:12:31] officially part of the government the
[01:12:32] really interesting that then to just go
[01:12:35] back to your story is what happened
[01:12:36] after 2010
[01:12:39] when the fiscal stimulus was over the
[01:12:41] central government said okay guys the
[01:12:43] the fiscal stimulus program is over that
[01:12:46] let's shut down all these local these
[01:12:48] these all balance sheet companies and
[01:12:50] you can imagine what these local
[01:12:52] governments said that you know i have 10
[01:12:55] of gdp flowing in
[01:12:56] flowing through these financial
[01:12:58] companies no thank you i like
[01:13:01] having khan having control over this
[01:13:05] then what happened is that then they
[01:13:06] started to fund these companies and they
[01:13:08] started they started to fund these
[01:13:09] projects right it is is this alliance
[01:13:13] and starting in 2015 and then
[01:13:17] if you want to go through the full story
[01:13:19] in 2012 then what what
[01:13:22] what happened was that the the central
[01:13:24] government basically ordered the
[01:13:25] state-owned banks to stop lending to
[01:13:28] these off-balance sheet companies the
[01:13:30] response of the local government then
[01:13:31] was was to say okay fine we're then
[01:13:34] going to set up these shadow banking
[01:13:36] institutions to basically get money that
[01:13:39] we can no longer get from the you know
[01:13:42] no longer get from the central banks i
[01:13:43] know what they started
[01:13:44] and i would say that what is off
[01:13:47] this would make a lovely study to do
[01:13:49] that that is
[01:13:51] i think that what they've been doing
[01:13:53] is
[01:13:54] partly what you said to basically lend
[01:13:57] to real estate lend to all these
[01:13:59] projects that are that are
[01:14:02] have gone bust that will eventually go
[01:14:04] past
[01:14:05] but i also think that
[01:14:08] almost all of the vc funds are also
[01:14:11] funded by these local financing the
[01:14:14] locals so i see that i i
[01:14:17] might uh my guess is that if you were to
[01:14:20] get all that data and you would look at
[01:14:22] the product of what they've invested
[01:14:23] their money in i think that what you
[01:14:25] what you're going to find is a bimodal
[01:14:27] distribution that is there are going to
[01:14:29] be a bunch of projects that i think are
[01:14:32] are is this stuff that you think that
[01:14:34] the financial sector should be doing and
[01:14:36] and a bunch of stuff that looks like
[01:14:38] that looks like crony lending
[01:14:42] [Music]
[01:14:43] that's my guess right that's my guess
[01:14:45] but but the long answer to your question
[01:14:47] is is that it's think about it as the
[01:14:49] consequence of this this over lending as
[01:14:52] as it's coming from the same alliance
[01:14:56] coupled with financial liberalization
[01:14:59] in the chinese way
[01:15:02] so let me conclude with the final
[01:15:04] question
[01:15:05] [Music]
[01:15:06] do you think what the chinese
[01:15:08] party does is the optimal thing for them
[01:15:10] to do given that i want to stay in
[01:15:12] control
[01:15:14] and secondly do you think it was a
[01:15:15] deliberate strategy with two strong
[01:15:17] hands
[01:15:18] that having or we have these two
[01:15:19] components
[01:15:21] what do you think it just happened this
[01:15:22] turned out this way and you exposed
[01:15:25] found this rationalization
[01:15:30] let me answer the second question first
[01:15:32] i absolutely believe
[01:15:34] that
[01:15:35] it is very much the way i would describe
[01:15:37] it
[01:15:38] i don't think at all it was a deliberate
[01:15:41] strategy i think it really is the second
[01:15:43] thing that you you are describing i
[01:15:45] think what i mean i may the way i
[01:15:48] present it may sound like it was the
[01:15:49] deliberate strategy that i don't mean to
[01:15:51] do that at all it was very much like to
[01:15:53] use the chinese term
[01:15:55] uh crossing the river by
[01:15:58] touching stones it was very much i think
[01:16:02] just trial and error and figure out what
[01:16:04] works and figure out what
[01:16:06] what what what the uh what
[01:16:09] uh doesn't work but i think that is true
[01:16:10] of almost of like almost everything that
[01:16:13] you see coming out of china that i think
[01:16:15] that that that very rarely is a plan in
[01:16:19] this way is a plan in this way and it's
[01:16:21] only after the fact that that
[01:16:24] you start to package it into i mean i
[01:16:26] think you know you started out by
[01:16:28] talking about the belted road about
[01:16:30] about the world the way i think about
[01:16:32] the belt and road is that it was
[01:16:33] primarily a marketing campaign that it
[01:16:36] was already going it was i think it's
[01:16:37] one the other consequence
[01:16:39] of the fiscal stimulus that after the
[01:16:41] fiscal stimulus ended all these
[01:16:42] companies then took their projects and
[01:16:44] they went and they basically took their
[01:16:46] projects abroad in 2015 then what the
[01:16:49] central government decided to do is
[01:16:51] basically put a ribbon around all these
[01:16:53] projects and call it a campaign and many
[01:16:57] of us
[01:16:58] then
[01:16:59] interpreted us this campaign by the
[01:17:02] communist party to control the world
[01:17:04] that i
[01:17:04] when i look at what what is what what
[01:17:06] the origin of it i i don't think that's
[01:17:08] the case that's the case at all so let
[01:17:10] me just answer this i don't think at all
[01:17:13] it was a delib it was a deliberate
[01:17:15] campaign i think that the first strong
[01:17:17] hand i think very much is a deliberate
[01:17:20] campaign because that i think was i
[01:17:22] don't think they call it that right they
[01:17:24] they they that's not what they call it
[01:17:26] um but that and but but even then i
[01:17:31] don't think they decided on all the
[01:17:33] pieces at the same time i mean the first
[01:17:35] piece was the anti-corruption campaign
[01:17:38] and all the other pieces was again
[01:17:40] crossing the river right across the
[01:17:42] river by by touching the song so
[01:17:45] in a sense i guess to what i'm doing is
[01:17:48] that i am
[01:17:49] yeah i i am putting a label i'm putting
[01:17:51] a ribbon
[01:17:52] on on on what i see them doing but do
[01:17:56] you think it's the optimal strategy for
[01:17:57] the chinese communist party
[01:18:01] or is it just what goal
[01:18:03] given the goal you want to stay in
[01:18:04] control
[01:18:06] and you don't want to ruin the economic
[01:18:08] growth
[01:18:09] i mean you have to keep as you said keep
[01:18:11] economic growth going otherwise you also
[01:18:13] lose power
[01:18:14] my own view uh you want my own view uh
[01:18:17] uh yes
[01:18:20] i mean my own personal view is it
[01:18:22] absolutely is the wrong strategy
[01:18:25] it absolutely wrong strategy not it's
[01:18:27] absolutely it's a wrong is is it wrong
[01:18:29] it's wrong i i mean
[01:18:31] i think it comes back to sort of this
[01:18:35] i'm going to call it this new
[01:18:37] this new eroticism of the party that
[01:18:40] that that
[01:18:42] you either have complete control over
[01:18:45] everything
[01:18:46] or you die or you die that i think is
[01:18:49] just i mean that is sort of fundamental
[01:18:51] to the dna of the party my own belief is
[01:18:55] that it's absolutely nuts
[01:18:57] right but it's a way that they it's a
[01:18:59] way that they think it's the way that
[01:19:00] they think and and you know i
[01:19:02] i respect how everybody thinks but in my
[01:19:06] own personal view i i think that's just
[01:19:07] a crazy view of the world i mean you
[01:19:10] know i believe in freedom i i believe in
[01:19:13] freedom i think that there are ways in
[01:19:15] which you can do what you want to do
[01:19:17] while still
[01:19:19] giving people their freedom
[01:19:21] uh uh
[01:19:22] i mean what is it it's liberal democracy
[01:19:24] right
[01:19:27] so you don't i think so this strategy
[01:19:29] makes it harder to stay within one
[01:19:32] unified global economy do you think that
[01:19:36] mix makes a bipolar world more likely as
[01:19:39] well or
[01:19:40] because you have on the one hand you
[01:19:41] have more yeah
[01:19:43] or is this
[01:19:45] independent we can still have a lot of
[01:19:47] trade and it's a great question right
[01:19:50] it's it's a great question marcus and
[01:19:52] i've been
[01:19:54] struggling with this
[01:20:00] let me refer to you in 2019
[01:20:03] giannis kornai
[01:20:05] wrote this op-ed in the financial times
[01:20:08] the title something like
[01:20:11] i have created a frankenstein and if you
[01:20:13] know something about janos hornary
[01:20:16] he was instrumental
[01:20:18] in the first 10 years of chinese reform
[01:20:22] he was one of the people behind sort of
[01:20:25] the design of their price liberalization
[01:20:28] strategy
[01:20:29] there was a famous week-long boat ride
[01:20:32] down the yangtze river in 1985 where all
[01:20:35] the young chinese re all the young
[01:20:38] chinese reformers hammered out their
[01:20:41] plan and janos was invited on that boat
[01:20:44] ride was a and then janus wrote and
[01:20:47] basically said look you know i thought
[01:20:49] back in 1985 that i was doing something
[01:20:52] good right but what i've done what he
[01:20:55] said is that i've created this
[01:20:56] frankenstein which is
[01:20:58] by which he means it's this
[01:21:02] rich country
[01:21:04] but with the particular political
[01:21:06] structure and it's it's become a
[01:21:08] frankenstein
[01:21:10] and
[01:21:11] i don't know the answer to to that well
[01:21:13] i guess would i say that i i don't know
[01:21:17] i don't know so so it's it's it's that i
[01:21:20] think it is the fundamental question
[01:21:24] that
[01:21:25] that faces us right
[01:21:28] that that face uh we all understand
[01:21:30] about the gains from trade we all you
[01:21:32] know so that that's well understood the
[01:21:34] question is what are you willing
[01:21:37] to trade off right what are you really i
[01:21:39] mean sort of the same dilemma that
[01:21:41] europe is facing germany is facing with
[01:21:43] respect to russia now right
[01:21:46] that there are gains from trade but uh
[01:21:49] what else are you
[01:21:50] are
[01:21:51] are you trading out so the question is
[01:21:53] what and this is beyond my pay scale
[01:21:56] which is
[01:21:58] what are the implications of the world
[01:22:01] for having
[01:22:02] if we
[01:22:03] if this vision works
[01:22:05] right yeah
[01:22:06] what are the implications for the world
[01:22:08] if the the most powerful
[01:22:11] country economically in the world
[01:22:14] is this land in the structure as well
[01:22:17] right and
[01:22:21] good so with this big open question i
[01:22:24] don't know i i don't know
[01:22:27] we will come back
[01:22:28] once you have answered or found a
[01:22:30] solution
[01:22:31] uh to that this was a very fascinating i
[01:22:34] think it's very nice to you know put a
[01:22:36] ribbon around it and have the big vision
[01:22:38] and conceptualization uh what's going on
[01:22:41] i think i really appreciate that and i
[01:22:43] really like it
[01:22:45] um
[01:22:46] so thanks to you and thanks to all the
[01:22:48] participants
[01:22:50] and next week we will talk about uh
[01:22:52] how we can actually make oil purchases
[01:22:54] more efficient in particular by having a
[01:22:56] purchasing board
[01:22:58] in contrast to opec so how to design
[01:23:01] the best way to purchase energy and
[01:23:04] silva shazam will
[01:23:05] present next thursday
[01:23:08] so thanks again
[01:23:11] talk to you soon all right