Fareed Zakaria GPS with Keyu Jin

Title: Fareed Zakaria GPS
With Julia Ioffe; Andrei Soldatov, Keyu Jin, PhD and Simon Winchester, OBE.

Transcript

With demographic challenges, political missteps and international competition, is China's economy about to peak? That was the question posed in a recent issue of the economist. Here to help answer is Keyu Jin. Professor at the London school of economics who has just released a book called "The New China Playbook, Beyond Socialism and Capitalism."

Welcome. To the big surprise which has given some of the predictions for us, the biggest surprise economically this year is the Chinese economy has not recovered as fast as many people were expecting. Why do you think that is?

Well, China has the opposite probe problem to the U.S. Which is lack of demand. We have to ask why. The main reason is a severe loss of confidence built over the years in the pandemic and a greater uncertainty. So more than ten years ago the state could call on China, state banks, and -- and build roads an the gdp will go up. Today the private sector is firmly in the driver's seat and they have to do the heavy lifting. But they're confidence is not back.

What do you say to the economists cover story that said China has peaked and that -- and the argument is that it is about demographics? You're not going to get as much innovation with the state in charge. You have all of these international challenges. But they're predicting a plateau that China will muddle along roughly where it is now.

If Kline manages to grow at 1.5 percentage points faster than the U.S., it is feasible. It is the world's largest economy in a little over ten years. But let's not underestimate the fact that there are 600 million people in China with less than $300 of monthly income. They will about' huge boost to the consumption if they reach middle income by international standards. Let's not underestimate not casting -- not telling the cost, casting the net wide. The all encompassing industrial chain and the proximity between ai companies and chip industries an the market and enterprising people, these are major forces. And if demographics didn't explain the China going on the way up, it won't explain its way on the way down.

The biggest misconception is looking at the centralization of China and this is what you call the economy runs by hundreds and hundreds of mayors and their very market friendly.

Yes. Exactly. If you don't understand how that model works, you're not going to know where China is going. It is not dominated by an Al mighty state that -- we have to look at what is on the ground. The local mayors galvanizing information. If you look at the unicorns, it is all over China, it is not just in beijing, Shanghai or schenn gin. And the local mayors have the incentive to promote the best companies and they're working with entrepreneurs, no the just supporting one or two national champions.

U.S. Has made very concerted effort to deny China the ability to access the very highest end computer chips which are the heart of a lot of advanced military technology, but also ai and quantum computing. What will be the effect of that ban?

I thinks in short run there is a damage to many companies in China. But we have to understand that for every action, there is a reaction and they're are unexpected out comes. Now you have all of this demand which was going to American companies. Now redirected back to Chinese chip companies and of course the state flushing them with capital. But even more importantly, China has a industrial supply chain which means the proximity of the ultimate downstream players like ai companies and autonomous vehicles, they get this very quick feedback loop and demand and if we look at Japan, part of the rise of the industry was rise of the Japanese electronic companies. But they were in close proximity. So you could imagine a chip company sitting in Europe and the U.S. And feeding back. That is not actually going to work.

So what you're saying is that this ban might have the effect actually in the medium term of accelerating China's own domestic chip industry and move it up the value chain?

It has already done so. And look, there are so many companies trying to come up with new chip designs just to circumvent these rules. It is also -- it is almost a strategic gift. But we have to understand the short run, many companies will have to suffer.