:00:24. > :00:28.Welcome. The epicentre of the financial crisis, at least at the
:00:28. > :00:35.moment, maybe in Europe, but its effects are being felt as far away
:00:35. > :00:39.as China. The world's second- slowest pace in three years. Can
:00:39. > :00:49.the new political line-up to live that a prosperous and stable
:00:49. > :00:53.
:00:53. > :01:00.Sachs management. And the chairman of a research company.
:01:00. > :01:08.Has a soft landing be achieved in China? What China? Whatt mean?
:01:08. > :01:12.whole soft versus hard is very simplistic. Given al
:01:12. > :01:20.in the future. To think of China and landing is probably a mistake.
:01:20. > :01:24.It will keep travelling. A soft landing is broadly seen as an
:01:24. > :01:32.economy slowing down. But sustainable at a lower rate of
:01:32. > :01:38.growth. There is more evidence to support the soft landing crowd
:01:38. > :01:43.rather than the hard landing crowd. But I would also add that one of
:01:43. > :01:47.the reasons China has slowed, the slowest in many years, is because
:01:48. > :01:54.the policy makers deliberately slowed it. Their biggest battle has
:01:54. > :01:58.been inflation. Would you agree with that? We should not worry
:01:58. > :02:06.about it? And it has very little to do with the European financial
:02:06. > :02:12.crisis. Not really. We calculate Chinese GDP. Many do not believe
:02:12. > :02:19.the official figures, in terms of real growth. Last year, it was 4%.
:02:19. > :02:25.By Chinese standards, he is a hard landing. That sounds quite
:02:25. > :02:34.ambitious, measuring the growth. Reduce their numbers and
:02:34. > :02:40.recalculate the inflation rate. -- we used their numbers. Let's
:02:40. > :02:44.address this issue for the needs of China to be balance is economy if
:02:44. > :02:50.it is to move forward. What is the main priori main priorimore
:02:50. > :02:56.domestically generated. It is funny how I get two people to look as
:02:56. > :03:03.something and they have such different views. For a long time, I
:03:03. > :03:09.was leading a group are calculated China's GDP. We have had this one
:03:09. > :03:17.for 15 years, it is somewhere between six -8. I do not agree much
:03:17. > :03:21.with what Charles has said. Chart - - consumption has started to rise.
:03:21. > :03:27.This need to rebalance the economy, is it something a new political
:03:27. > :03:34.line-up can achieve? Prices have come down a long way. Wages have
:03:34. > :03:41.come down a bit, but not enough. The difference between the two, it
:03:41. > :03:47.has gotten wider. Why do you one wages to go down? The businesses
:03:47. > :03:53.compared compared to where they were before.
:03:53. > :03:59.Labour costs are up 2% but the prices are down to present. There
:03:59. > :04:07.is a squeeze on margins. They are paying much higher interest rates.
:04:07. > :04:12.It is 6% but the inflation rate is -3 %. That is plus 9%. People do
:04:12. > :04:18.not want to spend. Businesses will go into it a burn mode. It means
:04:18. > :04:24.reducing wages as well as everything else. China has to
:04:24. > :04:33.become an economy which has more value anywh value anywhannot just be a
:04:33. > :04:38.cheap manufacture. Is it going see that as a problem. The days of
:04:38. > :04:43.China been the low-value producer of the world is behind us. It is
:04:44. > :04:50.the natural stage of evolution and development. He see it relocating
:04:50. > :04:54.to other pa to other pae world. Mexico is a big winner of it. And because
:04:54. > :04:58.of the leaked -- the low energy costs, the US is showing some
:04:59. > :05:04.modest signs of benefiting as well. I do not worry about that from a
:05:04. > :05:08.Chinese perspective. That was inevitable. The rise of income is
:05:08. > :05:14.wide the consumer is already starting to do better. One it comes
:05:14. > :05:19.to the leadership, their job is to sort of make sure it does not steal
:05:19. > :05:22.off course too much. Luckily for them, the incoming leadership
:05:22. > :05:29.appeared at a time when there is evidence of this adjustment taking
:05:29. > :05:35.place. They have a nice deck of cards that has been given to them.
:05:35. > :05:45.Let's talk about some of the obstacles, notably banking. Some
:05:45. > :05:48.
:05:48. > :05:56.people say they are highly liquid. hidden. I take the bad loan view.
:05:56. > :06:05.where commission mac income is earned a half of the total output.
:06:05. > :06:09.It is unusual. Business and government income is much higher.
:06:09. > :06:14.Half of up port in the government income and just under half of up
:06:15. > :06:18.are being invested. Yet, the money does not get there it easily. It
:06:18. > :06:23.has to go through the banking system. It means China is taking
:06:23. > :06:27.away money from the probable places, inside the corporate state, and
:06:27. > :06:37.giving it to a bunch of provincial people who set up plants that do
:06:37. > :06:40.
:06:40. > :06:50.plagued other plants. A low was the return of capitals. -- it results
:06:50. > :06:50.
:06:50. > :06:59.in a low return. Shine that engages in a state capitalism. -- China
:06:59. > :07:09.engages. Dame did not have the a way
:07:09. > :07:11.
:07:11. > :07:20.a democracy can. -- des do not. How long can that model sustain China?
:07:20. > :07:26.It former's -- it forces a limitation. It is very tricky. You
:07:26. > :07:31.look at some of the dilemmas in the West at the moment. Alternative
:07:31. > :07:35.energy and energy efficiencies, for example. By the end of this decade,
:07:35. > :07:42.China may have made of progress and some of these areas than in the
:07:42. > :07:52.to give the capital that is needed. In some areas, it is a distinct
:07:52. > :07:56.advantage. Battery-operated cars, for example. They have a much
:07:56. > :08:02.better chance of getting somewhere dead than elsewhere because it is
:08:02. > :08:06.not private capital having to deal with stock market risks. If you
:08:06. > :08:15.listen carefully to what those close to the leaders are saying,
:08:15. > :08:25.dismantling the degree of dominance corner. It is part of the
:08:25. > :08:26.
:08:26. > :08:36.implementation of this five-year These
:08:36. > :08:37.
:08:37. > :08:47.These big organisations will not be quite as dominant. I think it is a
:08:47. > :08:51.
:08:51. > :08:55.distinct advantage. Dr Gray, Charles? -- do you agree. I like to
:08:55. > :09:05.hear companies like Goldman Sachs explaining the advantages of state
:09:05. > :09:10.capitalism. No, is the short answer. They need better allocation of
:09:10. > :09:14.capital. If the look of the growth rate of China, which is 10%, it
:09:14. > :09:24.depends more and more on capital employed and less and less on
:09:24. > :09:24.
:09:24. > :09:32.genuine productivity. Jim is right in the centre of the stability.
:09:32. > :09:35.But they want to reduce the capital input. You have to raise the growth
:09:35. > :09:40.of real productivity and that means proper allocation of capital, and
:09:40. > :09:49.that is what you do not get when you get the government telling you
:09:49. > :09:54.what to do. Corruption is a big is that capital spending pops the
:09:54. > :10:04.economy up. We are looking backwards again. It is quite clear
:10:04. > :10:08.
:10:08. > :10:15.in the econ in the econ weakened significantly. That is
:10:15. > :10:22.part of the reason why the economy has closed. The consumer has
:10:23. > :10:27.accelerated. Winup get -- we cannot tomorro
:10:27. > :10:37.tomorrow. It is something that takes time, but we are moving in
:10:37. > :10:44.
:10:44. > :10:48.deep right direction. One of the spend any time with the leaders of