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0:02:08 What we’re seeing now is basically the biggest growth driver that China’s had for around four decades is now falling off a cliff.
0:02:14 And so that raises the fundamental question, is the China growth miracle over?
0:02:20 Welcome to China Decode.
0:02:21 I’m Alice Han.
0:02:22 And I’m James King.
0:02:31 In today’s episode of China Decode, we’re discussing China’s economic slowdown and the wide-ranging impacts it could have on the global economy.
0:02:39 Plus, as the UN Climate Change Conference, COP30, comes to a close, is China a climate saint or a climate sinner?
0:02:40 We discuss.
0:02:44 And lastly, what is it really like to be a gig worker in China?
0:02:49 A former Beijing delivery man tells his story to an English-speaking audience for the first time.
0:02:50 That’s all coming up.
0:02:55 But first, let’s do a quick check-in with how the Chinese markets are starting the week.
0:03:01 On Monday, the Shanghai A-Share Index continued to dip after ending last week down over 3%.
0:03:07 The Hang Seng H-Share Index closed up 2%, erasing most of the losses from last week’s sell-off.
0:03:15 Alibaba rallied almost 5% on news that its AI app, Quen, hit 10 million downloads just a week after its launch.
0:03:21 And Baidu started the week up more than 4% after JPMorgan Chase boosted the stock’s rating.
0:03:26 Now, James, we had the AI bubble issue coming to the fore in U.S. markets.
0:03:30 Certainly, NVIDIA’s strong earnings make people feel a little bit less apprehensive.
0:03:35 About the AI bubble, but I don’t think that the fears have completely attenuated.
0:03:39 Some of that carried through to the Chinese mainland markets.
0:03:43 But we’ve seen some recovery, I would say, amongst the big Chinese tech companies.
0:03:44 What’s your reading on this?
0:03:48 I guess my reading is really what we said last episode, Alice.
0:03:55 You know, the bubble in AI, such as it is, and to the extent that it exists, is effectively in the U.S.
0:03:58 It’s a bubble that’s made in China.
0:04:06 What’s happening in simple terms is that the unbelievably low cost of developing these Chinese AI models
0:04:13 and the low cost of operating the Chinese AI models is giving people in the U.S. real pause for thought.
0:04:23 They’re wondering how their own models are so expensive, and then that leads them to the question of whether the U.S. AI model is a bubble.
0:04:32 So, I would say, you know, the bubblicious element of this is in the U.S., not in China, or certainly not to the same extent in China.
0:04:40 But certainly China’s price deflation, if you will, in the AI space, both in terms of the compute and the LLMs,
0:04:44 it seems to be pushing some of these concerns about a bubble in the U.S.
0:04:46 So, the two, I think, markets are somewhat intertwined.
0:04:49 But we’ll get right into the first story.
0:04:54 We begin this week with a story that’s been, I think, building for the last few months in China since the summer.
0:04:59 By many different measures, the economic health of China is in decline.
0:05:01 Exports are down for the first time this year.
0:05:03 Industrial output is weakening.
0:05:06 Consumer demand hasn’t been strong.
0:05:10 And there are signs that inflation may finally be recovering and on the rise.
0:05:16 Perhaps most troubling of all, I think, to my mind, is the overall decline in investment figures.
0:05:21 Notable amongst these declines is the drop in the real estate investment.
0:05:24 But also, manufacturing investment is starting to look weaker.
0:05:29 Fixed asset investment fell 1.7% year-on-year from January to October.
0:05:38 That includes a 14.7% decline in real estate development investment and a 4.5% drop in private sector investment.
0:05:45 I mean, the numbers, to my mind, having studied the Chinese economy for over a decade, are pretty startling,
0:05:47 given that we started off on a good note in China.
0:05:51 You know, growth was 5.2% year-on-year in the first half.
0:05:55 A lot of that was driven by strong outperformance in the export sector.
0:06:00 But what’s been interesting to me is that ever since we started to hear about the anti-involution
0:06:07 drive, I would say around about early July, there has been knock-on effects in terms of
0:06:12 a weakened performance in the manufacturing sector, which, since the real estate crackdown around
0:06:16 2021, has been one of the key drivers of the economy.
0:06:26 So when I looked into the numbers the other day, if I looked at cumulative FAI from January to October, we’ve seen, I think, five consecutive months of declining fixed asset investment.
0:06:30 And that has been some of the weakest performance in terms of monthly declines since COVID.
0:06:42 And again, as I mentioned at the top of this segment, it’s really the real estate investment that since 2021 has been a key drag to the economy and to fixed asset investment.
0:06:49 In fact, the October numbers looked worse than any that I’d seen since 2021, when you really saw the crackdown take place.
0:06:55 And then similarly, infrastructure investment down 0.1% cumulatively in October.
0:07:07 The real surprise for a lot of us watching this was the manufacturing investment figures, which were not negative, but certainly grew at a weakened pace at 2.7% year-on-year from January to October.
0:07:10 And that has been on a decelerating trend since July.
0:07:20 The upside, I think, and again, I want to throw this to you very soon, James, the upside is that we’re starting to see mild signs of a reflation in the economy.
0:07:27 CPI rose 0.2% year-on-year in October from negative 0.3% year-on-year in September.
0:07:35 PPI deflation is starting to reverse, suggesting that we’re seeing some bottoming out in the industrial deflation story.
0:07:48 And I would say that, generally speaking, when I look at the economy, I think they’re taking signs in a more positive direction in terms of rebalancing the economy away from purely being driven by manufacturing investment-led growth.
0:07:51 But I know there’s a lot, James, to cover.
0:07:54 This is kind of my bread and butter, but I want to hear what you have to think about this.
0:08:00 I mean, yeah, I think that we’re at a very important point in China’s development.
0:08:12 I mean, we’re at one of the most important points that we’ve seen for the last 40 years or 40 or more years since China began its reform and opening up to the rest of the world.
0:08:14 It really is that important.
0:08:16 And let me just try to explain why.
0:08:38 China’s economy has been driven by fixed asset investment for pretty much all of the last 40 years.
0:08:45 And then in October, we saw the biggest ever monthly fall in fixed asset investment.
0:08:50 As you said, it was down 12.2% on a year-on-year basis.
0:09:01 So what we’re seeing now is basically the biggest growth driver that China’s had for around four decades is now falling off a cliff.
0:09:06 And so that raises the fundamental question, is the China growth miracle over?
0:09:24 And if it is, then, of course, that has huge implications for the outside world because China has accounted for around 31, 32% of global GDP growth between 2015 and 2024.
0:09:32 So just to put that in perspective, the U.S. accounts for about 9.4% over the same period.
0:09:38 So China is by far and away the biggest contributor to global economic growth.
0:09:42 So, you know, the questions really couldn’t be any bigger.
0:09:46 The biggest motivator of Chinese growth has just fallen off a cliff.
0:09:49 China is the biggest contributor to global growth.
0:09:52 Does this mean that the global economy is headed for the buffers?
0:09:54 That, I think, is the question.
0:10:00 And I think the answer, just to give my sort of top-line answer, I think the answer is no.
0:10:10 I think what we’re seeing now is not a collapse in the Chinese economy, but a reordering of the Chinese growth model.
0:10:13 And you’ve already mentioned some elements of this.
0:10:21 But, for instance, if we look at what’s happening in manufacturing, you mentioned that, you know, manufacturing investments.
0:10:27 So this is all of the money that’s going into building factories and putting machinery in those factories and all of that.
0:10:30 We’ve seen that that is declining sharply.
0:10:34 But the reason for that is the key thing.
0:10:43 The reason seems to be that companies all over China are answering the call of Beijing to do this anti-involution.
0:10:50 And I check back, you know, we had an episode about a month ago in which we went into all of the ins and outs of involution.
0:10:51 What does it mean?
0:10:57 What it means is really stripping out overcapacity in many of China’s industries.
0:11:00 And so that apparently is what is happening now.
0:11:03 Overcapacity is being stripped out.
0:11:07 And that means that the investment in manufacturing goes down.
0:11:18 I think what happens next is that we see even bigger, even stronger Chinese companies emerging because, you know, they can sell better into the Chinese economy.
0:11:19 There’s less oversupply.
0:11:25 Their profit margins start to increase rather than the economy starts to collapse.
0:11:27 So anyway, that’s a rather long answer.
0:11:33 But my strong sense of this is that this does not spell China’s economic crisis.
0:11:49 This is a signal that China is making progress in reordering its economy from a vastly bloated, overcapacity-ridden economy with a manufacturing sector in which profit margins are wafer thin.
0:11:55 Because everybody’s competing for every nickel and dime into a more streamlined, more profitable economy.
0:12:08 Well, I definitely am not in the full bear case that this is a sign of portending doom or a crash in the Chinese economy.
0:12:17 I am more in the camp, I think, of quite skeptic because the way that I see the Chinese economy anytime it talks about rebalancing is that it’s a cha-cha.
0:12:20 Rebalancing is a cha-cha because it’s one step forward and two steps back.
0:12:34 And I think ultimately, because growth has been so strong this year and because deflation has been, I think, one of the top two issues in the economy, they’ve had the firepower policy-wise to go forward on this anti-involution campaign.
0:12:45 And that has led to the central government putting pressure on the local governments to cut back on capacity, to slow roll and delay on plant approvals across a number of sectors.
0:12:50 That, I think, has weighed down quite significantly on manufacturing investment.
0:12:59 And then similarly to this, we haven’t mentioned yet, infrastructure investment historically has also been a key driver of fixed asset investment and thereby the economy.
0:13:10 What we have seen is that instead of the bond issuance, which the central government allocates to the local governments every year, being used for infrastructure investment, it’s increasingly being used to pay down debt levels.
0:13:23 We see a lot of local governments that have been heavily burdened not only by COVID scarring, but also the real estate crackdown hitting their revenues, needing to use that bond issuance effectively to pay back some of their debts.
0:13:31 So I think that those two elements combined are seriously adding to the stress on the fixed asset investment front.
0:13:38 And the reason fixed asset investment, I can’t overstate it, is so important to China, is that China historically is so imbalanced.
0:13:40 I mean, listeners will appreciate this.
0:13:47 The consumption share of GDP globally on average is around 74, 75 percent.
0:13:50 Investment is 24 to 26 percent of GDP.
0:14:00 China, by contrast, the consumption accounts for 53 percent of GDP, investment accounts for 43 percent of GDP, and net exports makes up the rest at around 4 percent of GDP.
0:14:14 So that goes to show you how, unlike most other economies like the U.S. and the West, China is still heavily reliant on fixed asset investment, which is why, to answer your question, James, I think that this rebalancing will be somewhat short-lived.
0:14:27 Because when we get into 2026 and we start to get, say, another 5 percent GDP target or thereabouts, they’re going to have to do a lot more fixed asset investment to make up that growth target.
0:14:35 Because if I look at the numbers on consumption, even although they’re not terrible, 2.9 percent year-on-year in October, that’s still not robust.
0:14:50 And I think it’s, if we look at some of the signs in the data for households’ propensity to consume, I don’t see any real positive signals that households are immediately going to start to consume more and really boost the economy through consumption.
0:14:56 One last thing that I’ll say is that the services consumption has started to look a bit stronger.
0:15:06 But again, I think as long as China is wedded to these targets for annual growth, they will continue to rely on fixed asset investment as a key driver.
0:15:11 So for now, I see it as a mini rebalancing, but I think it’s going to be short-lived.
0:15:12 That’s really interesting.
0:15:15 I mean, I think we’re going to have to see what happens.
0:15:20 As you say, there are basically three big contributors to Chinese GDP.
0:15:24 One of them is the investment, so-called fixed asset investment.
0:15:27 The other is consumer spending, which you’ve just mentioned.
0:15:29 And the other is exports.
0:15:35 We’ve all seen China’s export performance this year has been just unbelievably robust.
0:15:42 And China’s heading for an unprecedentedly large trade surplus of more than a trillion US dollars.
0:15:50 I’m pretty sure that no country in human history has ever had a trade surplus of a trillion US dollars in a single year.
0:15:54 So, you know, I think there are two takeaways from this.
0:16:06 One, it shows how much China depends on these exports, and therefore how little China is sympathetic to countries around the world that are finding the inflows of Chinese goods sort of almost unbearable.
0:16:16 You know, China just can’t alter course because its fixed asset investment contributor to gross domestic product is falling away, as we’ve just discussed.
0:16:26 And as you’ve just mentioned, Alice, the consumer spending aspect or contributor to China’s gross domestic product is kind of a little bit underwhelming.
0:16:37 And I think that gives the reason why exports are so crucial for China and why China is so dead set on driving its exports into markets all over the world.
0:16:47 The one area I think I might disagree with you on a little bit is not consumer spending overall, which, as I agree, is a little bit underwhelming.
0:16:56 But the services sector in China, services form a part of consumer spending, and that, I think, is really going quite strongly.
0:16:59 You know, people are spending much more money on experiences.
0:17:07 They want to enjoy their lives, their internal tourism, external tourism, going to the cinema, having fun.
0:17:11 You know, that seems to be an area that is fairly strong in China.
0:17:13 But I don’t know.
0:17:14 We need to follow this.
0:17:22 I’m calling a reordering of the China economic model, not a Chinese economic collapse or a crisis.
0:17:24 But we’ll see how it turns out.
0:17:26 Yeah, definitely.
0:17:27 Watch this space.
0:17:29 OK, we’ll be back with more after a quick break.
0:17:30 So stay with us.
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0:20:01 Last week in Brazil, the United Nations held their 30th Global Climate Change Conference, COP30.
0:20:06 And one of the largest themes in the reporting this year has been the decline of the leadership
0:20:08 and influence of the United States.
0:20:14 Now, the Trump administration has shown animosity toward global climate cooperation, with a White
0:20:19 House spokesperson commenting over the weekend that, quote, President Trump will not jeopardize
0:20:24 our country’s economic and national security to pursue vague climate goals that are killing
0:20:25 other countries.
0:20:30 So the big question is, in the wake of the U.S.’s climate retreat, will China pick up
0:20:33 the slack and become a new global climate leader?
0:20:37 On the one hand, China has made dramatic improvements to combating air pollution.
0:20:43 They are now exporting clean technology around the world and are a leader in electric vehicle
0:20:43 production.
0:20:49 But on the other hand, China is also still the global leader in coal consumption and still the
0:20:53 world’s largest greenhouse gas emitter by orders of magnitude.
0:20:59 This is, I think, a very topical issue now that we have the United Nations meeting for
0:21:02 that global climate change conference, COP30.
0:21:05 There certainly is a lot of debate and uncertainty.
0:21:10 I think the general consensus view is that China can meet one of its dual carbon mandates,
0:21:12 the 2030 mandate of peaking emissions.
0:21:15 I think it’s well beyond being on track.
0:21:17 In fact, it’s probably surpassing that target.
0:21:22 And the other target, which I think people are more skeptical about, is the 2060 carbon
0:21:24 neutrality target.
0:21:29 Xi Jinping, I think, announced several years ago that he wanted the Chinese economy and the
0:21:32 Chinese people to reach these two carbon targets.
0:21:38 But on the other side, it’s hard to contest that China is importing more coal, especially
0:21:44 from my country, Australia, and emitting more of these fossil fuels in order to fund these
0:21:48 electricity developments, whether it’s in data centers or even in producing batteries and
0:21:50 solar panels and electric vehicles.
0:21:55 So the irony is that it’s emitting more carbon in order to produce a lot of these clean energy
0:21:56 technologies.
0:21:59 And on the other hand, it shouldn’t be understated.
0:22:01 China is deeply concerned about energy security.
0:22:07 The problem with a lot of these renewable energy sources like solar and wind is that they’re not
0:22:08 exceptionally reliable.
0:22:14 And so historically, they’ve had to rely on some of these fossil fuels like coal to make
0:22:15 up the rest.
0:22:18 So it’s hard for me to see how China pivots.
0:22:23 I haven’t got a sense, for instance, that the carbon emissions trading scheme has been a
0:22:24 success.
0:22:29 A lot of the quite pollutive industries are not covered by that ETS scheme.
0:22:36 So I’m somewhat in the skeptic camp, even although China is producing a lot of the clean energy
0:22:39 technologies, is ironically using a lot of fossil fuels to do that.
0:22:41 But James, maybe you wildly disagree with me.
0:22:49 I mean, you know, I sort of think that there’s a big dichotomy going on here because China is,
0:22:55 at the same time, the world’s biggest climate saint and the world’s biggest climate sinner.
0:23:02 You know, I think that obviously China is the biggest emitter, but China is also the biggest
0:23:05 deployer of renewable energy.
0:23:07 In other words, kind of clean, green energy.
0:23:13 And so the world just has to get used to this sort of dual role that China has.
0:23:15 Some people want to look on the saint side.
0:23:18 Other people want to look on the sinner side.
0:23:26 But if I had to sort of make a call on this, I would say that the saint quotient is developing
0:23:28 quicker than the sinner quotient.
0:23:36 In other words, China’s deployment of renewable energy is cutting down its carbon emissions fairly
0:23:36 quickly.
0:23:44 And if we look at some of the details of China’s deployment of this renewable energy, it really
0:23:45 is quite stunning.
0:23:54 For instance, China’s deployment of wind power is 2.2 times that of America, and its deployment
0:23:57 of solar power is 2.8 times that of America.
0:24:05 And much more important than that, because it forms a structural reason to invest in both
0:24:09 wind and solar energy in China, is the cost of generating.
0:24:18 And here, what we have is the average price of producing electricity in China is 88 US dollars
0:24:19 per megawatt hour.
0:24:25 And in the US, it costs 188 US dollars per megawatt hour.
0:24:31 So you can see that the technology that China is using to generate electricity, particularly
0:24:34 in the areas of wind and solar, is so much cheaper.
0:24:37 I just want to give another quick fact on this.
0:24:44 Some of the latest solar panels that are being produced in China by Chinese companies produce
0:24:47 the cheapest electricity in the world anywhere.
0:24:52 And they cost about 2 US cents per kilowatt hour.
0:24:59 Now, that is about one fifth of the cost of producing electricity from coal in a country such
0:25:00 as the US or the UK.
0:25:08 So the reason why China is becoming more and more of a climate saint is because it’s making
0:25:15 technology to generate power at far cheaper rates than any other country in the world can
0:25:15 manage.
0:25:22 But at the same time, James, how do you read the fact that they are importing and using even
0:25:22 more coal?
0:25:24 I mean, I was looking at the numbers the other day.
0:25:29 Fossil fuel power generation rose 7.3% year on year in October.
0:25:33 And a lot of that is powered by coal and some by natural gas.
0:25:36 The electricity demand is only ever going to go up.
0:25:41 I think the AI computer is probably going to push that up further, I expect.
0:25:43 So how do you square the two?
0:25:45 I find that very puzzling.
0:25:51 Now, if we break down the energy composition, and you already alluded to it, I mean, China’s
0:25:54 coal energy production is 9x the US’s.
0:25:58 Hydropower and wind and solar are still considerably larger than the US.
0:26:00 But I bet that coal number is huge.
0:26:03 Nuclear is still trailing behind the US.
0:26:07 Now, they could go the nuclear path, which I think that they will increase in terms of the
0:26:08 share of total energy.
0:26:11 But certainly, they rely a lot more on coal.
0:26:16 And the US relies a lot more on, say, gas, for instance, where it leads at 6.2 times the
0:26:17 amount China produces.
0:26:24 But I find that difficult to understand, especially in a period in which I expect electricity generation
0:26:25 to only go upwards.
0:26:26 Yeah, absolutely.
0:26:28 You’re so right to mention that.
0:26:35 I remember in China going to some coal towns, which are so polluted with coal dust that you
0:26:41 can barely see sort of 20 meters in front of the taxi as you drive through town.
0:26:47 There’s a sort of yellow haze that hangs over the city, rather like Dickensian London.
0:26:49 You know, it really is.
0:26:50 It really is extraordinary.
0:26:54 And so, you know, it does raise this urgent question of why.
0:27:01 Why, if you’ve got solar panels that can generate electricity much more cheaply than coal, why
0:27:06 are you still polluting the atmosphere, mining coal, you know, going through all the danger
0:27:07 that mining coal requires?
0:27:10 And I think it comes down to local politics.
0:27:18 It’s a question of local governments in cities, in numberless cities, in places that people outside
0:27:23 China have never heard of that use coal in order to earn money, to make a living and to
0:27:24 get by.
0:27:30 We need to remember that China is still a country where real poverty exists.
0:27:34 And if there’s coal underground, then the local government’s going to dig it up and try and make
0:27:35 money.
0:27:42 And I don’t think the Chinese central government has the ability to shut down all of these coal
0:27:43 mines all over the country.
0:27:49 And neither probably do they want to, because they need to consider China’s security.
0:27:56 And, you know, you need to be able to generate domestic electricity using domestic resources.
0:28:02 Let’s say if you got into a war, maybe in the South China Sea, maybe over Taiwan or something
0:28:02 like that.
0:28:08 So I think the coal is going to be very stubborn to strip out.
0:28:12 And therefore, China’s emissions are also going to be quite stubborn.
0:28:14 I think we’re going to be talking about this in 10 years’ time.
0:28:19 I think, you know, China’s coal emissions, you know, are still going to be very large.
0:28:22 Yeah, I think the coal addiction is going to be hard to break.
0:28:27 And if geography is destiny, the U.S. benefits from having natural plentiful reserves of gas
0:28:28 and oil.
0:28:29 China doesn’t.
0:28:34 So China has to rely on importing a lot of this dirty coal and burning it to generate
0:28:35 electricity.
0:28:39 Now, they have invested way more in renewable energy than any other country, I think, three
0:28:41 times the amount the U.S. has invested.
0:28:43 But that’s still not going to be enough.
0:28:48 And if you think that demand in electricity rises, I think the coal addiction probably holds.
0:28:50 But we will pause there.
0:28:52 Let’s take a quick break and stay with us.
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0:30:21 Gig work has changed the face of labor all over the world, with many displaced industrial
0:30:27 or farm workers finding new economic life performing work mediated by the tech platforms, often for
0:30:30 precarious wages where they are paid per task.
0:30:36 China has an army of gig workers, well over 200 million of them, and there’s no doubt that
0:30:39 they are shaping both China’s economy and society.
0:30:45 Now, one such worker, the motorcycle parcel delivery man, Hu An-yen, documented the life of a gig
0:30:51 worker in his 2023 memoir, I Deliver Parcels in Beijing, which detailed the drudgery, precarity,
0:30:54 and relentlessness of this profession.
0:31:01 When it was published in China, it sold 2 million copies and caused a huge stir, waking up a great
0:31:04 many people to the harsh realities of how their packages are delivered.
0:31:07 And in China, they get a lot of packages.
0:31:12 In 2024, there were 175 billion parcels delivered in China.
0:31:15 There are 1.4 billion people in China, just for reference.
0:31:20 And that’s an average of about 124 for each and every person in one year.
0:31:24 Hu’s book was just released in English translation last month.
0:31:29 I’ve been reading the Chinese version and seeing some of his original blogs.
0:31:33 But James, you’ve got some great facts on the gig economy.
0:31:34 So over to you.
0:31:40 You know, I think to anyone who’s lived in China, this really is the underside of the Chinese
0:31:41 economic miracle.
0:31:44 On this podcast, we talk a lot about China’s tech advances.
0:31:49 We talk a lot about, even in this session, we’ve been talking about China’s extraordinary
0:31:55 growth over the last 40 years and the way that it’s transformed its prosperity.
0:31:59 But there is this huge underclass of people.
0:32:01 And to be honest, it’s getting worse.
0:32:08 You know, this is effectively the reverse of what the communist revolution in China promised
0:32:09 to deliver.
0:32:15 It promised to deliver the dictatorship of the proletariat, a decent life for, you know,
0:32:19 average people and the overthrow of the capitalist class.
0:32:26 But what we’ve got now in the shape of these gig workers is the proletariat, i.e. people who
0:32:33 have next to nothing, are really numerous and are eking a living, sleeping underneath the big
0:32:39 bridges and the underpasses in China’s main cities, being unable to get their kids into schools,
0:32:45 not being able to get access to health care and other social services, really living a very
0:32:46 miserable life.
0:32:49 And the numbers of these people is truly extraordinary.
0:32:57 It’s estimated that China’s gig economy involves about 200 million employees.
0:33:03 So just think, that’s way over twice the size of the population of the UK.
0:33:07 It really is the population of many of the largest countries in the world.
0:33:16 And this accounts for about 40% of the entire urban workforce of China.
0:33:24 So it’s also predicted that the gig economy in China will double to about 400 million people
0:33:26 by 2036.
0:33:33 So what we’re seeing in China is really, you know, a dystopian or potentially dystopian future
0:33:40 opening up where you have the capitalist class who basically run the companies and have the
0:33:44 AI models and make profits in, you know, in the big corporations.
0:33:50 And then you have the guys doing menial work for very little money and very few prospects.
0:33:59 And it seems that that class of people is going to balloon to about 400 million people by 2036.
0:34:03 It really is quite an indictment of China’s economic model.
0:34:05 That’s how I see it anyway.
0:34:07 I mean, I don’t know if you have a different take.
0:34:09 What are you reading in the book, actually, Alice?
0:34:12 I mean, do you have any stories from the book?
0:34:15 Well, I’ll share some excerpts in just a bit.
0:34:19 But just to piggyback on what you said earlier about the Dickensian nature of the coal plants,
0:34:24 I think that’s a great way to think about the Mercedes underbelly of China’s rapid economic
0:34:25 growth.
0:34:29 I just finished Patrick McGee’s excellent book, Apple in China.
0:34:31 He’s a colleague of yours at the FT formerly.
0:34:36 And in it, he said one of the key reasons why China was so special for Apple was the flexible
0:34:37 labor market.
0:34:42 You had a highly flexible labor market that could come in and out, scale up rapidly depending
0:34:43 on seasonal demand.
0:34:48 And I think that’s a great entry point into understanding how oftentimes a lot of people,
0:34:53 if they get fired or can’t find jobs, will go into some of these casual, informal types
0:34:59 of employment, whether it’s as a delivery driver working as a courier or in a logistics company
0:35:01 or in a store as a shop salesperson.
0:35:07 What I have noted in the piece that I think is quite interesting, firstly, these people
0:35:08 get paid so little.
0:35:15 He says that he saw himself, quote unquote, as a delivery machine earning 30 RMB, that is
0:35:20 four US dollars an hour, and would get angry and frustrated if he didn’t reach his quota.
0:35:25 He says, separately, I already felt my brain wasn’t working well anymore.
0:35:29 Mainly, my reactions became slow and sluggish, and my memory started to decline.
0:35:35 Because of the long hours and overwork, your emotional control declined significantly.
0:35:40 The feedback, I’ve seen some of it online from everyday Chinese, has been considerable.
0:35:45 I think that this memoir has been so popular in China because it’s shone a light on the fact
0:35:50 that a lot of these workers get paid so little, and they feel very dislocated and disillusioned
0:35:51 about their work.
0:35:57 I read separately in an interview with a writer that he was very much inspired by American
0:35:58 writers like J.D.
0:36:04 Salinger and Richard Yates, and inspired by the discussion in their books of the disillusionment
0:36:08 that people, especially young people, felt towards their jobs and towards life.
0:36:14 And I look at this story, and I feel quite worried about the 12 million new grads that have entered
0:36:15 the workforce in China.
0:36:20 That number will increase next year because we haven’t hit peak graduate enrollment.
0:36:25 And it makes me worried about the youth unemployment figure, which is now almost 19% as per the
0:36:27 latest October figures.
0:36:34 I wonder about the future of the labor force if a lot of these jobs get automated.
0:36:39 We discussed, remember, Yihang, the low-altitude economy.
0:36:46 We discussed some of these drones that can be used for commercial spaces.
0:36:53 And I think these drones and autonomous vehicles would take up a lot of jobs, not right now, but
0:36:55 certainly in the foreseeable future.
0:37:00 And so I worry a little about what happens when you have, on the one side, a highly educated
0:37:02 workforce, or rather increasingly educated workforce.
0:37:07 And then on the other side, what happens in terms of an economy that is structurally displacing
0:37:07 them.
0:37:11 So when I think about it at a macro level, it’s deeply worrying.
0:37:16 And it’s not clear to me when I talk to people in Beijing and Shanghai who are close to the policymakers
0:37:18 that they really understand that.
0:37:24 I think they still feel as though AI is a technology input that will boost productivity gains.
0:37:29 But I’m not sure if they’re thinking about retooling the labor market or integrating some of these
0:37:35 gig economy workers that I think will be the first line of people to be displaced by some of the
0:37:37 technologies that we discussed on previous episodes.
0:37:38 Absolutely.
0:37:39 I couldn’t agree more.
0:37:45 I think this is the biggest impediment to the Chinese growth model that exists.
0:37:50 And I think a lot of people outside China, they don’t really know so much about this.
0:37:59 We discussed in previous episodes how the amount of money or the salary that a top graduate in
0:38:07 sciences from the top universities in China can expect these days is about half what it was
0:38:10 back in 2018, 2019.
0:38:17 And that’s because of the same problems that you’ve just identified, Alice, such as AI taking people’s
0:38:25 jobs, oversupply of talent, oversupply of people, really, in the most, well, in the second most
0:38:29 populous country in the world, I think, because India has just overtaken China.
0:38:31 And I think this is a major, major problem.
0:38:39 I really think that from an ideological standpoint, you know, China’s communist revolution of 1949
0:38:44 promised normal people, the proletariat, a better life.
0:38:50 And what we’re seeing now is a telescoping of society so that some people enjoy extraordinary
0:38:56 riches and some people are left, as you mentioned, earning 30 renminbi an hour.
0:39:02 However, that’s about four U.S. dollars for delivering parcels with no job security whatsoever.
0:39:05 So I don’t know where this ends.
0:39:11 You know, I mean, is it possible for China to just merrily go along, you know, on this course?
0:39:15 Or will there be, you know, a big kind of roadblock?
0:39:18 Will there be a big hole in the road at some point?
0:39:22 People’s, you know, dissatisfaction just boils over.
0:39:23 I don’t know.
0:39:23 Yeah.
0:39:29 And to link it back to what we discussed about carbon emissions goals, you may recall, James,
0:39:30 because I think you may have been in China at the time.
0:39:37 In 2015, there was a documentary under the dome that was a documentary that became so viral
0:39:43 and politically charged that in a way it forced Beijing’s hand, it forced the central government
0:39:49 to wake up to the fact that pollution was a political social issue and that they had to
0:39:49 combat it.
0:39:56 And that, I think, paved the way for a really comprehensive campaign to reduce air pollution
0:39:59 and carbon emissions that are attendant to the pollution.
0:40:04 It could well be that we may have more stories like this that come out before the central government
0:40:08 starts to realize that this is a social and political issue, not just an economic one.
0:40:09 Absolutely.
0:40:12 All right, James, it is now prediction time.
0:40:15 What are you seeing in your crystal ball?
0:40:23 Okay, so I mentioned just briefly how the services sector in China is really quite robust these
0:40:23 days.
0:40:27 You know, we’ve been talking about China’s economic problems.
0:40:29 We’ve been talking about how investment is going down.
0:40:33 But services are a relatively bright spot.
0:40:40 What I’m talking about is everything from legal services to entertainment to internal tourism,
0:40:44 everything like that that is categorized under the services basket.
0:40:52 My prediction is that next year, services will account for more than half of China’s total
0:40:57 consumer spending, up from currently around 45 percent.
0:41:03 We were talking at the top about how consumer spending in China is, you know, it’s still growing,
0:41:05 but it’s not terribly robust.
0:41:11 People in China are buying fewer goods, fewer durables, but they are spending quite a lot
0:41:12 on services.
0:41:17 And I think this is a very interesting theme and an interesting topic that we might come
0:41:17 back to.
0:41:25 So that’s a slightly more upbeat forecast to end what has been a fairly gloomy episode.
0:41:26 But what about you, Alice?
0:41:27 What are you seeing?
0:41:28 What’s your forecast?
0:41:31 So mine is going to be more on the macro front.
0:41:37 I think we’re going to get probably close to 5 percent, maybe even smack on 5 percent growth
0:41:40 that is announced for 2025.
0:41:43 That is higher than what the IMF is forecasting.
0:41:46 Currently, I believe they’re forecasting at 4.8 percent.
0:41:49 And I certainly think this may be out of consensus.
0:41:54 We’ll see in March at the NBC National People’s Congress and in the work report.
0:41:58 I think that they will target, quote unquote, around 5 percent growth.
0:42:04 I think given a lot of the uncertainties in the external environment, they want to make
0:42:06 sure that growth is somewhat stable and on track.
0:42:13 And again, I think if that were to happen, we may have to see more manufacturing and infrastructure
0:42:15 related investment to try to drive growth.
0:42:21 So that’s those are my two predictions, if I could put them in one for the near future.
0:42:22 All right.
0:42:24 That’s all for this episode.
0:42:26 Thank you for listening to China Decode.
0:42:28 This is a production of Prof G Media.
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0:02:08 What we’re seeing now is basically the biggest growth driver that China’s had for around four decades is now falling off a cliff.
0:02:14 And so that raises the fundamental question, is the China growth miracle over?
0:02:20 Welcome to China Decode.
0:02:21 I’m Alice Han.
0:02:22 And I’m James King.
0:02:31 In today’s episode of China Decode, we’re discussing China’s economic slowdown and the wide-ranging impacts it could have on the global economy.
0:02:39 Plus, as the UN Climate Change Conference, COP30, comes to a close, is China a climate saint or a climate sinner?
0:02:40 We discuss.
0:02:44 And lastly, what is it really like to be a gig worker in China?
0:02:49 A former Beijing delivery man tells his story to an English-speaking audience for the first time.
0:02:50 That’s all coming up.
0:02:55 But first, let’s do a quick check-in with how the Chinese markets are starting the week.
0:03:01 On Monday, the Shanghai A-Share Index continued to dip after ending last week down over 3%.
0:03:07 The Hang Seng H-Share Index closed up 2%, erasing most of the losses from last week’s sell-off.
0:03:15 Alibaba rallied almost 5% on news that its AI app, Quen, hit 10 million downloads just a week after its launch.
0:03:21 And Baidu started the week up more than 4% after JPMorgan Chase boosted the stock’s rating.
0:03:26 Now, James, we had the AI bubble issue coming to the fore in U.S. markets.
0:03:30 Certainly, NVIDIA’s strong earnings make people feel a little bit less apprehensive.
0:03:35 About the AI bubble, but I don’t think that the fears have completely attenuated.
0:03:39 Some of that carried through to the Chinese mainland markets.
0:03:43 But we’ve seen some recovery, I would say, amongst the big Chinese tech companies.
0:03:44 What’s your reading on this?
0:03:48 I guess my reading is really what we said last episode, Alice.
0:03:55 You know, the bubble in AI, such as it is, and to the extent that it exists, is effectively in the U.S.
0:03:58 It’s a bubble that’s made in China.
0:04:06 What’s happening in simple terms is that the unbelievably low cost of developing these Chinese AI models
0:04:13 and the low cost of operating the Chinese AI models is giving people in the U.S. real pause for thought.
0:04:23 They’re wondering how their own models are so expensive, and then that leads them to the question of whether the U.S. AI model is a bubble.
0:04:32 So, I would say, you know, the bubblicious element of this is in the U.S., not in China, or certainly not to the same extent in China.
0:04:40 But certainly China’s price deflation, if you will, in the AI space, both in terms of the compute and the LLMs,
0:04:44 it seems to be pushing some of these concerns about a bubble in the U.S.
0:04:46 So, the two, I think, markets are somewhat intertwined.
0:04:49 But we’ll get right into the first story.
0:04:54 We begin this week with a story that’s been, I think, building for the last few months in China since the summer.
0:04:59 By many different measures, the economic health of China is in decline.
0:05:01 Exports are down for the first time this year.
0:05:03 Industrial output is weakening.
0:05:06 Consumer demand hasn’t been strong.
0:05:10 And there are signs that inflation may finally be recovering and on the rise.
0:05:16 Perhaps most troubling of all, I think, to my mind, is the overall decline in investment figures.
0:05:21 Notable amongst these declines is the drop in the real estate investment.
0:05:24 But also, manufacturing investment is starting to look weaker.
0:05:29 Fixed asset investment fell 1.7% year-on-year from January to October.
0:05:38 That includes a 14.7% decline in real estate development investment and a 4.5% drop in private sector investment.
0:05:45 I mean, the numbers, to my mind, having studied the Chinese economy for over a decade, are pretty startling,
0:05:47 given that we started off on a good note in China.
0:05:51 You know, growth was 5.2% year-on-year in the first half.
0:05:55 A lot of that was driven by strong outperformance in the export sector.
0:06:00 But what’s been interesting to me is that ever since we started to hear about the anti-involution
0:06:07 drive, I would say around about early July, there has been knock-on effects in terms of
0:06:12 a weakened performance in the manufacturing sector, which, since the real estate crackdown around
0:06:16 2021, has been one of the key drivers of the economy.
0:06:26 So when I looked into the numbers the other day, if I looked at cumulative FAI from January to October, we’ve seen, I think, five consecutive months of declining fixed asset investment.
0:06:30 And that has been some of the weakest performance in terms of monthly declines since COVID.
0:06:42 And again, as I mentioned at the top of this segment, it’s really the real estate investment that since 2021 has been a key drag to the economy and to fixed asset investment.
0:06:49 In fact, the October numbers looked worse than any that I’d seen since 2021, when you really saw the crackdown take place.
0:06:55 And then similarly, infrastructure investment down 0.1% cumulatively in October.
0:07:07 The real surprise for a lot of us watching this was the manufacturing investment figures, which were not negative, but certainly grew at a weakened pace at 2.7% year-on-year from January to October.
0:07:10 And that has been on a decelerating trend since July.
0:07:20 The upside, I think, and again, I want to throw this to you very soon, James, the upside is that we’re starting to see mild signs of a reflation in the economy.
0:07:27 CPI rose 0.2% year-on-year in October from negative 0.3% year-on-year in September.
0:07:35 PPI deflation is starting to reverse, suggesting that we’re seeing some bottoming out in the industrial deflation story.
0:07:48 And I would say that, generally speaking, when I look at the economy, I think they’re taking signs in a more positive direction in terms of rebalancing the economy away from purely being driven by manufacturing investment-led growth.
0:07:51 But I know there’s a lot, James, to cover.
0:07:54 This is kind of my bread and butter, but I want to hear what you have to think about this.
0:08:00 I mean, yeah, I think that we’re at a very important point in China’s development.
0:08:12 I mean, we’re at one of the most important points that we’ve seen for the last 40 years or 40 or more years since China began its reform and opening up to the rest of the world.
0:08:14 It really is that important.
0:08:16 And let me just try to explain why.
0:08:38 China’s economy has been driven by fixed asset investment for pretty much all of the last 40 years.
0:08:45 And then in October, we saw the biggest ever monthly fall in fixed asset investment.
0:08:50 As you said, it was down 12.2% on a year-on-year basis.
0:09:01 So what we’re seeing now is basically the biggest growth driver that China’s had for around four decades is now falling off a cliff.
0:09:06 And so that raises the fundamental question, is the China growth miracle over?
0:09:24 And if it is, then, of course, that has huge implications for the outside world because China has accounted for around 31, 32% of global GDP growth between 2015 and 2024.
0:09:32 So just to put that in perspective, the U.S. accounts for about 9.4% over the same period.
0:09:38 So China is by far and away the biggest contributor to global economic growth.
0:09:42 So, you know, the questions really couldn’t be any bigger.
0:09:46 The biggest motivator of Chinese growth has just fallen off a cliff.
0:09:49 China is the biggest contributor to global growth.
0:09:52 Does this mean that the global economy is headed for the buffers?
0:09:54 That, I think, is the question.
0:10:00 And I think the answer, just to give my sort of top-line answer, I think the answer is no.
0:10:10 I think what we’re seeing now is not a collapse in the Chinese economy, but a reordering of the Chinese growth model.
0:10:13 And you’ve already mentioned some elements of this.
0:10:21 But, for instance, if we look at what’s happening in manufacturing, you mentioned that, you know, manufacturing investments.
0:10:27 So this is all of the money that’s going into building factories and putting machinery in those factories and all of that.
0:10:30 We’ve seen that that is declining sharply.
0:10:34 But the reason for that is the key thing.
0:10:43 The reason seems to be that companies all over China are answering the call of Beijing to do this anti-involution.
0:10:50 And I check back, you know, we had an episode about a month ago in which we went into all of the ins and outs of involution.
0:10:51 What does it mean?
0:10:57 What it means is really stripping out overcapacity in many of China’s industries.
0:11:00 And so that apparently is what is happening now.
0:11:03 Overcapacity is being stripped out.
0:11:07 And that means that the investment in manufacturing goes down.
0:11:18 I think what happens next is that we see even bigger, even stronger Chinese companies emerging because, you know, they can sell better into the Chinese economy.
0:11:19 There’s less oversupply.
0:11:25 Their profit margins start to increase rather than the economy starts to collapse.
0:11:27 So anyway, that’s a rather long answer.
0:11:33 But my strong sense of this is that this does not spell China’s economic crisis.
0:11:49 This is a signal that China is making progress in reordering its economy from a vastly bloated, overcapacity-ridden economy with a manufacturing sector in which profit margins are wafer thin.
0:11:55 Because everybody’s competing for every nickel and dime into a more streamlined, more profitable economy.
0:12:08 Well, I definitely am not in the full bear case that this is a sign of portending doom or a crash in the Chinese economy.
0:12:17 I am more in the camp, I think, of quite skeptic because the way that I see the Chinese economy anytime it talks about rebalancing is that it’s a cha-cha.
0:12:20 Rebalancing is a cha-cha because it’s one step forward and two steps back.
0:12:34 And I think ultimately, because growth has been so strong this year and because deflation has been, I think, one of the top two issues in the economy, they’ve had the firepower policy-wise to go forward on this anti-involution campaign.
0:12:45 And that has led to the central government putting pressure on the local governments to cut back on capacity, to slow roll and delay on plant approvals across a number of sectors.
0:12:50 That, I think, has weighed down quite significantly on manufacturing investment.
0:12:59 And then similarly to this, we haven’t mentioned yet, infrastructure investment historically has also been a key driver of fixed asset investment and thereby the economy.
0:13:10 What we have seen is that instead of the bond issuance, which the central government allocates to the local governments every year, being used for infrastructure investment, it’s increasingly being used to pay down debt levels.
0:13:23 We see a lot of local governments that have been heavily burdened not only by COVID scarring, but also the real estate crackdown hitting their revenues, needing to use that bond issuance effectively to pay back some of their debts.
0:13:31 So I think that those two elements combined are seriously adding to the stress on the fixed asset investment front.
0:13:38 And the reason fixed asset investment, I can’t overstate it, is so important to China, is that China historically is so imbalanced.
0:13:40 I mean, listeners will appreciate this.
0:13:47 The consumption share of GDP globally on average is around 74, 75 percent.
0:13:50 Investment is 24 to 26 percent of GDP.
0:14:00 China, by contrast, the consumption accounts for 53 percent of GDP, investment accounts for 43 percent of GDP, and net exports makes up the rest at around 4 percent of GDP.
0:14:14 So that goes to show you how, unlike most other economies like the U.S. and the West, China is still heavily reliant on fixed asset investment, which is why, to answer your question, James, I think that this rebalancing will be somewhat short-lived.
0:14:27 Because when we get into 2026 and we start to get, say, another 5 percent GDP target or thereabouts, they’re going to have to do a lot more fixed asset investment to make up that growth target.
0:14:35 Because if I look at the numbers on consumption, even although they’re not terrible, 2.9 percent year-on-year in October, that’s still not robust.
0:14:50 And I think it’s, if we look at some of the signs in the data for households’ propensity to consume, I don’t see any real positive signals that households are immediately going to start to consume more and really boost the economy through consumption.
0:14:56 One last thing that I’ll say is that the services consumption has started to look a bit stronger.
0:15:06 But again, I think as long as China is wedded to these targets for annual growth, they will continue to rely on fixed asset investment as a key driver.
0:15:11 So for now, I see it as a mini rebalancing, but I think it’s going to be short-lived.
0:15:12 That’s really interesting.
0:15:15 I mean, I think we’re going to have to see what happens.
0:15:20 As you say, there are basically three big contributors to Chinese GDP.
0:15:24 One of them is the investment, so-called fixed asset investment.
0:15:27 The other is consumer spending, which you’ve just mentioned.
0:15:29 And the other is exports.
0:15:35 We’ve all seen China’s export performance this year has been just unbelievably robust.
0:15:42 And China’s heading for an unprecedentedly large trade surplus of more than a trillion US dollars.
0:15:50 I’m pretty sure that no country in human history has ever had a trade surplus of a trillion US dollars in a single year.
0:15:54 So, you know, I think there are two takeaways from this.
0:16:06 One, it shows how much China depends on these exports, and therefore how little China is sympathetic to countries around the world that are finding the inflows of Chinese goods sort of almost unbearable.
0:16:16 You know, China just can’t alter course because its fixed asset investment contributor to gross domestic product is falling away, as we’ve just discussed.
0:16:26 And as you’ve just mentioned, Alice, the consumer spending aspect or contributor to China’s gross domestic product is kind of a little bit underwhelming.
0:16:37 And I think that gives the reason why exports are so crucial for China and why China is so dead set on driving its exports into markets all over the world.
0:16:47 The one area I think I might disagree with you on a little bit is not consumer spending overall, which, as I agree, is a little bit underwhelming.
0:16:56 But the services sector in China, services form a part of consumer spending, and that, I think, is really going quite strongly.
0:16:59 You know, people are spending much more money on experiences.
0:17:07 They want to enjoy their lives, their internal tourism, external tourism, going to the cinema, having fun.
0:17:11 You know, that seems to be an area that is fairly strong in China.
0:17:13 But I don’t know.
0:17:14 We need to follow this.
0:17:22 I’m calling a reordering of the China economic model, not a Chinese economic collapse or a crisis.
0:17:24 But we’ll see how it turns out.
0:17:26 Yeah, definitely.
0:17:27 Watch this space.
0:17:29 OK, we’ll be back with more after a quick break.
0:17:30 So stay with us.
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0:19:55 Welcome back.
0:20:01 Last week in Brazil, the United Nations held their 30th Global Climate Change Conference, COP30.
0:20:06 And one of the largest themes in the reporting this year has been the decline of the leadership
0:20:08 and influence of the United States.
0:20:14 Now, the Trump administration has shown animosity toward global climate cooperation, with a White
0:20:19 House spokesperson commenting over the weekend that, quote, President Trump will not jeopardize
0:20:24 our country’s economic and national security to pursue vague climate goals that are killing
0:20:25 other countries.
0:20:30 So the big question is, in the wake of the U.S.’s climate retreat, will China pick up
0:20:33 the slack and become a new global climate leader?
0:20:37 On the one hand, China has made dramatic improvements to combating air pollution.
0:20:43 They are now exporting clean technology around the world and are a leader in electric vehicle
0:20:43 production.
0:20:49 But on the other hand, China is also still the global leader in coal consumption and still the
0:20:53 world’s largest greenhouse gas emitter by orders of magnitude.
0:20:59 This is, I think, a very topical issue now that we have the United Nations meeting for
0:21:02 that global climate change conference, COP30.
0:21:05 There certainly is a lot of debate and uncertainty.
0:21:10 I think the general consensus view is that China can meet one of its dual carbon mandates,
0:21:12 the 2030 mandate of peaking emissions.
0:21:15 I think it’s well beyond being on track.
0:21:17 In fact, it’s probably surpassing that target.
0:21:22 And the other target, which I think people are more skeptical about, is the 2060 carbon
0:21:24 neutrality target.
0:21:29 Xi Jinping, I think, announced several years ago that he wanted the Chinese economy and the
0:21:32 Chinese people to reach these two carbon targets.
0:21:38 But on the other side, it’s hard to contest that China is importing more coal, especially
0:21:44 from my country, Australia, and emitting more of these fossil fuels in order to fund these
0:21:48 electricity developments, whether it’s in data centers or even in producing batteries and
0:21:50 solar panels and electric vehicles.
0:21:55 So the irony is that it’s emitting more carbon in order to produce a lot of these clean energy
0:21:56 technologies.
0:21:59 And on the other hand, it shouldn’t be understated.
0:22:01 China is deeply concerned about energy security.
0:22:07 The problem with a lot of these renewable energy sources like solar and wind is that they’re not
0:22:08 exceptionally reliable.
0:22:14 And so historically, they’ve had to rely on some of these fossil fuels like coal to make
0:22:15 up the rest.
0:22:18 So it’s hard for me to see how China pivots.
0:22:23 I haven’t got a sense, for instance, that the carbon emissions trading scheme has been a
0:22:24 success.
0:22:29 A lot of the quite pollutive industries are not covered by that ETS scheme.
0:22:36 So I’m somewhat in the skeptic camp, even although China is producing a lot of the clean energy
0:22:39 technologies, is ironically using a lot of fossil fuels to do that.
0:22:41 But James, maybe you wildly disagree with me.
0:22:49 I mean, you know, I sort of think that there’s a big dichotomy going on here because China is,
0:22:55 at the same time, the world’s biggest climate saint and the world’s biggest climate sinner.
0:23:02 You know, I think that obviously China is the biggest emitter, but China is also the biggest
0:23:05 deployer of renewable energy.
0:23:07 In other words, kind of clean, green energy.
0:23:13 And so the world just has to get used to this sort of dual role that China has.
0:23:15 Some people want to look on the saint side.
0:23:18 Other people want to look on the sinner side.
0:23:26 But if I had to sort of make a call on this, I would say that the saint quotient is developing
0:23:28 quicker than the sinner quotient.
0:23:36 In other words, China’s deployment of renewable energy is cutting down its carbon emissions fairly
0:23:36 quickly.
0:23:44 And if we look at some of the details of China’s deployment of this renewable energy, it really
0:23:45 is quite stunning.
0:23:54 For instance, China’s deployment of wind power is 2.2 times that of America, and its deployment
0:23:57 of solar power is 2.8 times that of America.
0:24:05 And much more important than that, because it forms a structural reason to invest in both
0:24:09 wind and solar energy in China, is the cost of generating.
0:24:18 And here, what we have is the average price of producing electricity in China is 88 US dollars
0:24:19 per megawatt hour.
0:24:25 And in the US, it costs 188 US dollars per megawatt hour.
0:24:31 So you can see that the technology that China is using to generate electricity, particularly
0:24:34 in the areas of wind and solar, is so much cheaper.
0:24:37 I just want to give another quick fact on this.
0:24:44 Some of the latest solar panels that are being produced in China by Chinese companies produce
0:24:47 the cheapest electricity in the world anywhere.
0:24:52 And they cost about 2 US cents per kilowatt hour.
0:24:59 Now, that is about one fifth of the cost of producing electricity from coal in a country such
0:25:00 as the US or the UK.
0:25:08 So the reason why China is becoming more and more of a climate saint is because it’s making
0:25:15 technology to generate power at far cheaper rates than any other country in the world can
0:25:15 manage.
0:25:22 But at the same time, James, how do you read the fact that they are importing and using even
0:25:22 more coal?
0:25:24 I mean, I was looking at the numbers the other day.
0:25:29 Fossil fuel power generation rose 7.3% year on year in October.
0:25:33 And a lot of that is powered by coal and some by natural gas.
0:25:36 The electricity demand is only ever going to go up.
0:25:41 I think the AI computer is probably going to push that up further, I expect.
0:25:43 So how do you square the two?
0:25:45 I find that very puzzling.
0:25:51 Now, if we break down the energy composition, and you already alluded to it, I mean, China’s
0:25:54 coal energy production is 9x the US’s.
0:25:58 Hydropower and wind and solar are still considerably larger than the US.
0:26:00 But I bet that coal number is huge.
0:26:03 Nuclear is still trailing behind the US.
0:26:07 Now, they could go the nuclear path, which I think that they will increase in terms of the
0:26:08 share of total energy.
0:26:11 But certainly, they rely a lot more on coal.
0:26:16 And the US relies a lot more on, say, gas, for instance, where it leads at 6.2 times the
0:26:17 amount China produces.
0:26:24 But I find that difficult to understand, especially in a period in which I expect electricity generation
0:26:25 to only go upwards.
0:26:26 Yeah, absolutely.
0:26:28 You’re so right to mention that.
0:26:35 I remember in China going to some coal towns, which are so polluted with coal dust that you
0:26:41 can barely see sort of 20 meters in front of the taxi as you drive through town.
0:26:47 There’s a sort of yellow haze that hangs over the city, rather like Dickensian London.
0:26:49 You know, it really is.
0:26:50 It really is extraordinary.
0:26:54 And so, you know, it does raise this urgent question of why.
0:27:01 Why, if you’ve got solar panels that can generate electricity much more cheaply than coal, why
0:27:06 are you still polluting the atmosphere, mining coal, you know, going through all the danger
0:27:07 that mining coal requires?
0:27:10 And I think it comes down to local politics.
0:27:18 It’s a question of local governments in cities, in numberless cities, in places that people outside
0:27:23 China have never heard of that use coal in order to earn money, to make a living and to
0:27:24 get by.
0:27:30 We need to remember that China is still a country where real poverty exists.
0:27:34 And if there’s coal underground, then the local government’s going to dig it up and try and make
0:27:35 money.
0:27:42 And I don’t think the Chinese central government has the ability to shut down all of these coal
0:27:43 mines all over the country.
0:27:49 And neither probably do they want to, because they need to consider China’s security.
0:27:56 And, you know, you need to be able to generate domestic electricity using domestic resources.
0:28:02 Let’s say if you got into a war, maybe in the South China Sea, maybe over Taiwan or something
0:28:02 like that.
0:28:08 So I think the coal is going to be very stubborn to strip out.
0:28:12 And therefore, China’s emissions are also going to be quite stubborn.
0:28:14 I think we’re going to be talking about this in 10 years’ time.
0:28:19 I think, you know, China’s coal emissions, you know, are still going to be very large.
0:28:22 Yeah, I think the coal addiction is going to be hard to break.
0:28:27 And if geography is destiny, the U.S. benefits from having natural plentiful reserves of gas
0:28:28 and oil.
0:28:29 China doesn’t.
0:28:34 So China has to rely on importing a lot of this dirty coal and burning it to generate
0:28:35 electricity.
0:28:39 Now, they have invested way more in renewable energy than any other country, I think, three
0:28:41 times the amount the U.S. has invested.
0:28:43 But that’s still not going to be enough.
0:28:48 And if you think that demand in electricity rises, I think the coal addiction probably holds.
0:28:50 But we will pause there.
0:28:52 Let’s take a quick break and stay with us.
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0:30:21 Gig work has changed the face of labor all over the world, with many displaced industrial
0:30:27 or farm workers finding new economic life performing work mediated by the tech platforms, often for
0:30:30 precarious wages where they are paid per task.
0:30:36 China has an army of gig workers, well over 200 million of them, and there’s no doubt that
0:30:39 they are shaping both China’s economy and society.
0:30:45 Now, one such worker, the motorcycle parcel delivery man, Hu An-yen, documented the life of a gig
0:30:51 worker in his 2023 memoir, I Deliver Parcels in Beijing, which detailed the drudgery, precarity,
0:30:54 and relentlessness of this profession.
0:31:01 When it was published in China, it sold 2 million copies and caused a huge stir, waking up a great
0:31:04 many people to the harsh realities of how their packages are delivered.
0:31:07 And in China, they get a lot of packages.
0:31:12 In 2024, there were 175 billion parcels delivered in China.
0:31:15 There are 1.4 billion people in China, just for reference.
0:31:20 And that’s an average of about 124 for each and every person in one year.
0:31:24 Hu’s book was just released in English translation last month.
0:31:29 I’ve been reading the Chinese version and seeing some of his original blogs.
0:31:33 But James, you’ve got some great facts on the gig economy.
0:31:34 So over to you.
0:31:40 You know, I think to anyone who’s lived in China, this really is the underside of the Chinese
0:31:41 economic miracle.
0:31:44 On this podcast, we talk a lot about China’s tech advances.
0:31:49 We talk a lot about, even in this session, we’ve been talking about China’s extraordinary
0:31:55 growth over the last 40 years and the way that it’s transformed its prosperity.
0:31:59 But there is this huge underclass of people.
0:32:01 And to be honest, it’s getting worse.
0:32:08 You know, this is effectively the reverse of what the communist revolution in China promised
0:32:09 to deliver.
0:32:15 It promised to deliver the dictatorship of the proletariat, a decent life for, you know,
0:32:19 average people and the overthrow of the capitalist class.
0:32:26 But what we’ve got now in the shape of these gig workers is the proletariat, i.e. people who
0:32:33 have next to nothing, are really numerous and are eking a living, sleeping underneath the big
0:32:39 bridges and the underpasses in China’s main cities, being unable to get their kids into schools,
0:32:45 not being able to get access to health care and other social services, really living a very
0:32:46 miserable life.
0:32:49 And the numbers of these people is truly extraordinary.
0:32:57 It’s estimated that China’s gig economy involves about 200 million employees.
0:33:03 So just think, that’s way over twice the size of the population of the UK.
0:33:07 It really is the population of many of the largest countries in the world.
0:33:16 And this accounts for about 40% of the entire urban workforce of China.
0:33:24 So it’s also predicted that the gig economy in China will double to about 400 million people
0:33:26 by 2036.
0:33:33 So what we’re seeing in China is really, you know, a dystopian or potentially dystopian future
0:33:40 opening up where you have the capitalist class who basically run the companies and have the
0:33:44 AI models and make profits in, you know, in the big corporations.
0:33:50 And then you have the guys doing menial work for very little money and very few prospects.
0:33:59 And it seems that that class of people is going to balloon to about 400 million people by 2036.
0:34:03 It really is quite an indictment of China’s economic model.
0:34:05 That’s how I see it anyway.
0:34:07 I mean, I don’t know if you have a different take.
0:34:09 What are you reading in the book, actually, Alice?
0:34:12 I mean, do you have any stories from the book?
0:34:15 Well, I’ll share some excerpts in just a bit.
0:34:19 But just to piggyback on what you said earlier about the Dickensian nature of the coal plants,
0:34:24 I think that’s a great way to think about the Mercedes underbelly of China’s rapid economic
0:34:25 growth.
0:34:29 I just finished Patrick McGee’s excellent book, Apple in China.
0:34:31 He’s a colleague of yours at the FT formerly.
0:34:36 And in it, he said one of the key reasons why China was so special for Apple was the flexible
0:34:37 labor market.
0:34:42 You had a highly flexible labor market that could come in and out, scale up rapidly depending
0:34:43 on seasonal demand.
0:34:48 And I think that’s a great entry point into understanding how oftentimes a lot of people,
0:34:53 if they get fired or can’t find jobs, will go into some of these casual, informal types
0:34:59 of employment, whether it’s as a delivery driver working as a courier or in a logistics company
0:35:01 or in a store as a shop salesperson.
0:35:07 What I have noted in the piece that I think is quite interesting, firstly, these people
0:35:08 get paid so little.
0:35:15 He says that he saw himself, quote unquote, as a delivery machine earning 30 RMB, that is
0:35:20 four US dollars an hour, and would get angry and frustrated if he didn’t reach his quota.
0:35:25 He says, separately, I already felt my brain wasn’t working well anymore.
0:35:29 Mainly, my reactions became slow and sluggish, and my memory started to decline.
0:35:35 Because of the long hours and overwork, your emotional control declined significantly.
0:35:40 The feedback, I’ve seen some of it online from everyday Chinese, has been considerable.
0:35:45 I think that this memoir has been so popular in China because it’s shone a light on the fact
0:35:50 that a lot of these workers get paid so little, and they feel very dislocated and disillusioned
0:35:51 about their work.
0:35:57 I read separately in an interview with a writer that he was very much inspired by American
0:35:58 writers like J.D.
0:36:04 Salinger and Richard Yates, and inspired by the discussion in their books of the disillusionment
0:36:08 that people, especially young people, felt towards their jobs and towards life.
0:36:14 And I look at this story, and I feel quite worried about the 12 million new grads that have entered
0:36:15 the workforce in China.
0:36:20 That number will increase next year because we haven’t hit peak graduate enrollment.
0:36:25 And it makes me worried about the youth unemployment figure, which is now almost 19% as per the
0:36:27 latest October figures.
0:36:34 I wonder about the future of the labor force if a lot of these jobs get automated.
0:36:39 We discussed, remember, Yihang, the low-altitude economy.
0:36:46 We discussed some of these drones that can be used for commercial spaces.
0:36:53 And I think these drones and autonomous vehicles would take up a lot of jobs, not right now, but
0:36:55 certainly in the foreseeable future.
0:37:00 And so I worry a little about what happens when you have, on the one side, a highly educated
0:37:02 workforce, or rather increasingly educated workforce.
0:37:07 And then on the other side, what happens in terms of an economy that is structurally displacing
0:37:07 them.
0:37:11 So when I think about it at a macro level, it’s deeply worrying.
0:37:16 And it’s not clear to me when I talk to people in Beijing and Shanghai who are close to the policymakers
0:37:18 that they really understand that.
0:37:24 I think they still feel as though AI is a technology input that will boost productivity gains.
0:37:29 But I’m not sure if they’re thinking about retooling the labor market or integrating some of these
0:37:35 gig economy workers that I think will be the first line of people to be displaced by some of the
0:37:37 technologies that we discussed on previous episodes.
0:37:38 Absolutely.
0:37:39 I couldn’t agree more.
0:37:45 I think this is the biggest impediment to the Chinese growth model that exists.
0:37:50 And I think a lot of people outside China, they don’t really know so much about this.
0:37:59 We discussed in previous episodes how the amount of money or the salary that a top graduate in
0:38:07 sciences from the top universities in China can expect these days is about half what it was
0:38:10 back in 2018, 2019.
0:38:17 And that’s because of the same problems that you’ve just identified, Alice, such as AI taking people’s
0:38:25 jobs, oversupply of talent, oversupply of people, really, in the most, well, in the second most
0:38:29 populous country in the world, I think, because India has just overtaken China.
0:38:31 And I think this is a major, major problem.
0:38:39 I really think that from an ideological standpoint, you know, China’s communist revolution of 1949
0:38:44 promised normal people, the proletariat, a better life.
0:38:50 And what we’re seeing now is a telescoping of society so that some people enjoy extraordinary
0:38:56 riches and some people are left, as you mentioned, earning 30 renminbi an hour.
0:39:02 However, that’s about four U.S. dollars for delivering parcels with no job security whatsoever.
0:39:05 So I don’t know where this ends.
0:39:11 You know, I mean, is it possible for China to just merrily go along, you know, on this course?
0:39:15 Or will there be, you know, a big kind of roadblock?
0:39:18 Will there be a big hole in the road at some point?
0:39:22 People’s, you know, dissatisfaction just boils over.
0:39:23 I don’t know.
0:39:23 Yeah.
0:39:29 And to link it back to what we discussed about carbon emissions goals, you may recall, James,
0:39:30 because I think you may have been in China at the time.
0:39:37 In 2015, there was a documentary under the dome that was a documentary that became so viral
0:39:43 and politically charged that in a way it forced Beijing’s hand, it forced the central government
0:39:49 to wake up to the fact that pollution was a political social issue and that they had to
0:39:49 combat it.
0:39:56 And that, I think, paved the way for a really comprehensive campaign to reduce air pollution
0:39:59 and carbon emissions that are attendant to the pollution.
0:40:04 It could well be that we may have more stories like this that come out before the central government
0:40:08 starts to realize that this is a social and political issue, not just an economic one.
0:40:09 Absolutely.
0:40:12 All right, James, it is now prediction time.
0:40:15 What are you seeing in your crystal ball?
0:40:23 Okay, so I mentioned just briefly how the services sector in China is really quite robust these
0:40:23 days.
0:40:27 You know, we’ve been talking about China’s economic problems.
0:40:29 We’ve been talking about how investment is going down.
0:40:33 But services are a relatively bright spot.
0:40:40 What I’m talking about is everything from legal services to entertainment to internal tourism,
0:40:44 everything like that that is categorized under the services basket.
0:40:52 My prediction is that next year, services will account for more than half of China’s total
0:40:57 consumer spending, up from currently around 45 percent.
0:41:03 We were talking at the top about how consumer spending in China is, you know, it’s still growing,
0:41:05 but it’s not terribly robust.
0:41:11 People in China are buying fewer goods, fewer durables, but they are spending quite a lot
0:41:12 on services.
0:41:17 And I think this is a very interesting theme and an interesting topic that we might come
0:41:17 back to.
0:41:25 So that’s a slightly more upbeat forecast to end what has been a fairly gloomy episode.
0:41:26 But what about you, Alice?
0:41:27 What are you seeing?
0:41:28 What’s your forecast?
0:41:31 So mine is going to be more on the macro front.
0:41:37 I think we’re going to get probably close to 5 percent, maybe even smack on 5 percent growth
0:41:40 that is announced for 2025.
0:41:43 That is higher than what the IMF is forecasting.
0:41:46 Currently, I believe they’re forecasting at 4.8 percent.
0:41:49 And I certainly think this may be out of consensus.
0:41:54 We’ll see in March at the NBC National People’s Congress and in the work report.
0:41:58 I think that they will target, quote unquote, around 5 percent growth.
0:42:04 I think given a lot of the uncertainties in the external environment, they want to make
0:42:06 sure that growth is somewhat stable and on track.
0:42:13 And again, I think if that were to happen, we may have to see more manufacturing and infrastructure
0:42:15 related investment to try to drive growth.
0:42:21 So that’s those are my two predictions, if I could put them in one for the near future.
0:42:22 All right.
0:42:24 That’s all for this episode.
0:42:26 Thank you for listening to China Decode.
0:42:28 This is a production of Prof G Media.
0:42:30 Our producer is David Toledo.
0:42:33 Our associate producer is Eric Janikas.
0:42:36 Our video editor is Ness Smith-Savidoff.
0:42:39 Our research associate is Dan Shalan.
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0:42:47 And our executive producer is Catherine Dillon.
0:42:51 Make sure to follow us wherever you get your podcasts so you don’t miss an episode.
0:42:53 And talk to you again next week.
0:43:04 Support for this show comes from Volkswagen.
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In this episode of China Decode, hosts Alice Han and James Kynge dig into China’s economic slowdown—what’s driving the decline in investment, why the AI boom isn’t delivering a broader lift, and how the downturn could ripple across global markets and Beijing’s foreign ambitions. Then, as COP30 wraps up in Brazil, they break down whether China is emerging as a climate leader or doubling down as the world’s biggest emitter. And finally, a rare look inside China’s vast gig economy: the former Beijing deliveryman whose bestselling memoir pulled back the curtain on the lives of 200 million workers.
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