Name: Eastworld Spotlight: U.S. GDP growth could surpass China's in 2021
Uploaded: 2021-03-11
Duration: 11 min 25 s
Description: Natixis’s Alicia Garcia-Herrero says the economic milestone is a long-shot, but possible

Natixis’s Alicia Garcia-Herrero says the economic milestone is a long-shot, but possible

Eastworld Spotlight: U.S. GDP growth could surpass China's in 2021

International

mhm. This is the week of the so called two sessions, the most important political meetings in China. And along with the two sessions we are getting some other important milestones were getting the 14th five year Plan, a series of goals that have been called the long range goals that are extended out until 2035. So a lot to take in. What are you focused on and what kind of significant economic aspects of this strike you first decisions have become so famous when I started covering China and he already was, and now it's like the whole world looks at it. It's just impressive. But as we speak, these positions are changing in nature. Before, it was all about like a channel speech and you know, the targets for the year. If I may say so and now it's becoming more structural. It's really about where China is heading in the million runs. This time around. The growth target became more relevant than last year simply because, after years of no target, we ended up with the target. But it wasn't really about the target itself, but how low the target and why and again this brings me back to the fact that it wasn't about this year's target, but how to manage China's structural deceleration within that target. And that is exactly why they chose a low target to avoid, You know, a sudden reduction in 2013. So China is thinking, long term, more than ever, it doesn't seem like there's more focus. Uh, not in having a high growth rate per se, uh, in this plan, uh, alone, but also having what they call quality growth. Okay, Yeah, The quality growth comes from the fact that I think they learned the lesson. Let's face it, they already had very, very poor Gini coefficient, meaning already very unequal distribution, so they don't want to go any further. And I think that's part of the story of quality growth. As you know, very well, President. She focused on the elimination of poverty, which was another aspect of the great rejuvenation. So so it is becoming more like conceptual rather than, you know, target driven or quantities quantitatively driven. But I think income distribution is key, and what they will do about it, though, is meaning it's very hard for them to to work against it. for the simple reason. It is costly because you need a much bigger welfare state. And China today has about 10% points of GDP in in social expenditures of pensions, health and so on. And it has been estimated that it needs to go all the way to 20 in the next 10 years and by 2035 close to 30. I mean, it's a massive amount of resources, even that they are increasing military expenditure. R and D expenditure and their fiscal deficits are estimates in consolidated terms is about 18% this year and even before covid close to 10. So you know, it's just very, very hard for China to do what it needs to be done with you to improve income distribution. That's why I think it is kind of an aspirational goal and they don't have any target because if they were to put a target there, I think frankly speaking, they would miss it. I say you mentioned the debt problem in China. Um, in your view, does this find your plan to tackle that problem aggressively enough, or is there not enough stimulus here? How do you see it this year? we have a slightly smaller fiscal deficit, 2.2 from 3.5, if I recall correctly. By the way, that number doesn't mean anything because that's only the central government deputies. And it doesn't really, as as I probably you probably figured from my previous figures doesn't really show the extent of fiscal expansion or physical evidence in China. But it gives you a sense of the direction they are worried about additional stimulus because the debt burden, including public debt and this is the difference. Before it was all about corporate debt, then we heard about household that growing quite fast. Now we know for a fact public that has grown too fast. So, you know, it's kind of a you know, and and, by the way, corporate debt. Let's be frank here to search our state owned companies so you know, state owned enterprises. So the ultimate, uh, public debt is very, very large in China, larger than the US, larger than Europe. And I think the worry is much more on potential growth, which makes that debt unsustainable over, you know, in the long run, because you just don't have the resources to pay back an actual immediate crisis. I don't think that's the worry, but they know that the worst is coming in the long run, and that long run is getting closer and closer. That's why you know they're focused on the long run is very obvious in this two sessions and in this five year plan. So in terms of GDP growth, whether it's 6% this year or whether it's uh, 8% we do know that China is is going to overwhelmingly be the kind of best growth story in the global economy, really the only big engine of global growth this year. Next year, the US presumably will start to bounce back. How do you see the other big economy? Uh, in the in the world contributing? It's a great question because a recent event, I think, actually, as as recent as yesterday, I did say that in 2021 there could be I mean, this is unlikely, but possible that the US would grow more than China and suddenly there was silence. You know, like like you can't possibly be true, but it could be true. This could happen 2021 and maybe 2041 and let me explain what I mean by that 2021. This is because with a 1.9 trillion stimulus, if we already had a growth rate, I mean, our projections were hoping around 6%. Now you can see people upgrading that to seven even higher, you know. So that's basically higher than the government reports. Target to get chance. 6% target. I don't think China will go beyond six, but it would be, you know, seven so pretty similar. And I think there's many reasons why, frankly, Chinese speaking on the US now, and that's unsustainable growth, and that's unsustainable there and that unsustainable stock market. But if you ask me, one of the reasons is they just can't figure having very similar growth rates in 2021. That, added to the very successful vaccine rollout in the U. S. Just makes me very nervous. I have to say, I c, I can feel that and I can understand that because you know, the humongous difference of 2020 suddenly vanishes. Yeah, in all in all respects, whether it's the the way you you know, the covid response to growth itself. Why did I think 2041 because that's when China will literally stop growing. And this is because all of the structural factors I mentioned so you can imagine a probe being below to put 2.5 very likely that the U. S potential role today so then will be a time where China will slow at part with the U. S. Is not lower. But by that time, China will be bigger than the US. However, China perk up there will be more than the U. S. So So you know this story as as to who will. It's not much, frankly speaking. But the point is, we do. We do not appreciate the changes in China. You know, we we try to get these linear in, and we need to, uh, come to the fact that China's growth down the road it would be much, much lower. And I think that's why Chinese, Russian, if you ask me in many many ways, um, the economists have different figures for when they think China in real terms, Chinese GDP will overtake the United States. Do you have a year when you think that uh, 2028 could be even, uh, you know, again, it depends. I mean, the 1.9 trillion I'm going to abstract from whether this is a good idea or not. I'm only going to say that these actually lengthen the time in which China will actually have passed the U. S. Of course, that's not the reason, but it does lengthen it because that's similar packages, not even a one year package. It's a 10 year, although it's front loaded in the first year and then less so in the second year. But that's going to bring growth to the to the U. S. In my opinion for quite some time. And that's going to delay. That's 2028 perhaps, that people have in mind. Uh, it will all depend on how much China needs to cut down on all financial risks. Think government obviously has a lot of tools to sort of manage the market. Um, we seem to have seen some some government driven stock purchases. It's often observed that this is a year that's the anniversary of the Communist Party, and that it would be unseemly for the market to tank in a year that's such an important anniversary do you? Do you share that view, or do you think that that reads too much into how how much Beijing actually cares about the market? Well, to be frank, one thing is to prop up stocks in Hong Kong for reasons that we are all very aware of. And the other thing is to prop up stocks in China at the time when the stock market is probably three times as big since they did it last time, which was 2015. It's just very hard now. They can look for a while, but they can't go against the wind. And yes, they control a number of state on broker brokerage houses and so on. And, of course, the main bank. But you know, it's just not sustainable to do that, whether they want to do it for the full of 2021 then the collapse in 2022 will be normal. So, you know, it's just not. It's a game that well, it's funny this way. If I were invested in time stuff, I would use this wonderful united front to get out at the best of all times. That's that's all I would do because you know that that market is too big to be to be propped up forever, so but that's what not when it works.