This episode explores the decline of the Chinese economy, framing the discussion as a "game of Clue" to identify the culprits. Against the backdrop of China's post-zero-COVID reopening, Adam Posen introduces the concept of "economic long COVID," arguing that the state's overreaction to the pandemic, coupled with increased government intervention, has eroded consumer confidence and led to decreased spending. More significantly, Posen highlights a broken "no politics, no problem" compact, where the Chinese people are now hesitant to invest due to fear of arbitrary government actions. Zoe Liu, while agreeing with Posen's assessment of the impact of government policies, argues that the underlying problems are deeper and predate Xi Jinping's leadership, citing issues like debt, demographics, and decoupling. In contrast, Michael Pettis traces the roots of the economic slowdown even further back to around 2006, attributing it to an unsustainable high-investment growth model that eventually became obsolete. He emphasizes the shift from a hard to a soft budget constraint, leading to excessive debt accumulation, particularly in local governments and the property sector. As the discussion pivoted to policy prescriptions, a consensus emerged on the need to boost domestic consumption, but disagreements arose on how to achieve this, with differing views on the effectiveness of fiscal and monetary stimulus. The debate highlighted the complex interplay between structural economic issues, government policies, and the behavior of Chinese households, underscoring the challenges facing policymakers in navigating this economic slowdown and its global implications.
