China’s Challenging Transition

Published on
February 6th, 2019
32 minutes

China’s Challenging Transition

The Expert View ·
Featuring Olivier Desbarres

Published on: February 6th, 2019 • Duration: 32 minutes

Will China's growth implode or explode? Many see it as a binary outcome, when the reality may be somewhere in between. Olivier Desbarres of 4X Global Research outlines a China that is in transition, from hyper cyclicality towards a more sustainable growth path. It is possible that it will be a smooth transition, though there will inevitably be some collateral damage amongst her major trade partners along the way. Filmed on January 30, 2019 in London. The latest note from 4X Global Research, covering these topics in further detail, will be published on the Think Tank platform on February 7th.


  • MP
    M P.
    6 February 2019 @ 11:29
    I'm really enjoying RV's insights on China, and thank you Mr Desbarres for sharing... But can we go back to the China heavy-weights please? This video doesn't hold much weight when compared against the superb Graham Allison, Kyle Bass or Magnus videos. The analysis here is very light and doesn't really correspond to what's happening on the ground today. Disclosure: Brit living in Singapore, looking at China as part of my work. To me, Kyle's videos are too bearish in the short-term (although he might very well be proven right in the long run); while Mr Desbarres hedges every interesting point he makes to cover all possible outcomes. We know that official GDP figures are meaningless and shouldn't be relied upon. The PMI data is better but can be distorted, has a significant lag and doesn't cover all areas of the economy. Yes, China is less reliant on exports and consumption has become a larger share of the economy. But trade uncertainty is already affecting managers' investment decisions and households' spending habits. Chinese citizens are already genuinely worried about money and their investments (employment, side businesses and property / stock market). As far as I can tell, unemployment is rising surprisingly quickly and SMEs are increasingly running into cash flow problems and can't access short-term capital due to the crackdown on shadow lending. SOEs will survive and their banking loans will be rolled over, but they are not the largest employers in China nor is their workforce productive enough to raise GDP sustainably. Its likely that China will temporarily be able to patch over some of the cracks which the government sees as 'core'. But its unlikely that there will be no repercussions for itself in the long run or APAC economies. A little more nuance in your future China videos please!
    • DC
      D C.
      7 February 2019 @ 22:33
      Thanks for additional insight. When did SOEs no longer become the largest employers in China? Any estimate of percent of labor force they still employ?
    • MP
      M P.
      12 February 2019 @ 03:55
      Just saw your comment D.C. - sorry for the delay. I haven't got the data to hand but its well-known that the private sector employs more people than the SOEs (despite their mammoth size). See link below, stating 80% of jobs are provided by the private sector. Now, of course that figure is going to be distorted given the cross-holdings and state control of private businesses (example - is Alibaba private or a pseudo-SOE type company given its heft in the financial system?), but it's the best I could find on hand.
  • RD
    Rahul D.
    10 February 2019 @ 10:23
    Run of the mill views
  • FB
    Floyd B.
    7 February 2019 @ 23:32
    Very high level background information and frankly a bit boring. Sounded more academic rather than someone that actually spent any meaningful time in China or has sources on the ground there. Sorry i couldn't have been more positive on this video.
  • PL
    Paul L.
    7 February 2019 @ 19:46
    I followed real vision for about half a year on YouTube before finally signing up after watching interviews with Felix Zulauf and Stanley Druckenmiller and Kyle Bass. Now I feel cheated as the line up of guests and quality of the interviews have significantly deteriorated /declined compared to last year. Take the Chinese conundrum for example. Even an average middle class housewife can give you a better explanation. It's a problem of imbalances, everywhere. Starting with the imbalance in revenue and expenditure between the central and local government, adding on the top down impossible gdp target that local officials are being held responsible for, of course you end up with massive local government debts and unprofitable infrastructure projects. Then local governments came up with this clever way to raise revenue and transfer government debt to the balance sheet of corporate and middle class Chinese thru land sale and housing privatisation. You got the housing boom followed by the housing bubble. Same time the private companies are being squeezed by both the increasing cost of labor, material (thanks to the social insurance reform and non stop money printing by the PBOC), and higher local taxes and state policy that favors the SOEs, they had little choice but to borrow to stay alive and of course you get the slow down in the real economy once the state decides to deleverae and axed shadow banking. The imbalance here is that private companies actually provide most of the employment while getting very little state help relative to the SOEs. The questions I'd like to know are 1. Will China continue with its deleveraging effort or will it revert back to money printing and debt issuing again in the near term? And who will benefit and who will suffer in each scenario? 2. How the government can fix the legacy problems and address the above imbalances in the near to mid term? How will such policies affect the housing market, private economy and exchange rate of rmb? 3. How will China's relationship with US and the rest of the world be like in the next decade? Personally I don't think it's wrong for China to want to learn and copy from the west, build a manufactoring sector like that of Germany and Japan, and tech sector like that of Israel and US, instead of being just the provider of cheap labor and assembly line for the world. And don't think anyone, or any country, can stop it from making the transition in the long run. Because as corrupt, authoritarian or inefficient as the communist state aperture is considered by many, the Chinese ppl are more like the rising Victorian working class, in an never ending quest for self improvement and always desparate for advancement and wealth and pretty much willing to do whatever it takes to get there. And history shows that attitude does pay off in the long run.
  • BH
    Bin H.
    7 February 2019 @ 08:07
    I think the data can not be trusted. The following link is the talk of inside researcher in China talking about Chinese data. He was chief economist of Agricultural Bank of China. If you know Chinese, you can watch the first 3 mins which is about real GDP data. He gave two numbers: 1.6% or below 0 The slowdown is the consensus, my question is how long and to what extent can China keep on issuing bond? I would be very appreciated for any opinion.
  • DS
    David S.
    6 February 2019 @ 21:48
    Well thought through macro background. This is not a trade idea. Mr. Desbarres is giving his economic and political views on China. If you agree or disagree it does not matter. The important thing is to think about what Mr. Desbarres said and see if you feel you should adapt your positions. Disparate viewpoints help all of us. He also shared his ideas on how different scenarios could play out. One viewpoint only helps if it is the only correct viewpoint. DLS
  • CS
    Christo S.
    6 February 2019 @ 15:01
    Did anyone hear him mentioning at least one number?
    • DS
      David S.
      6 February 2019 @ 21:28
      There are more than 10 charts. DLS