Former Communist Atheist Explains Why A Market Economy With Churches Works China Is In Need Of Spiritual Reform To Save Economy When A Country Lacks Faith In God, The Nation Becomes Its God "I think there are four flash points of global geopolitical situations, and out of the four I identify three as already being ignited, namely the Ukraine-Russian War, the Middle East War situation, and also southern China between Pakistan and India. And so the fourth one is between China and Taiwan. I think this is not just a geographical military conflict. I also think this is a turning point for civilization. If there's a war break out between China and Taiwan, not only is it a disaster for a geopolitical situation, but also it's a test of our virtue and faith." —Dr. Peter Zhao, as stated by his translator * * * Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany. We have a guest today, Dave, that is a well-known economist, but also sees economics the way I think you do, where I heard at one time from a friend of mine, economics is politics applied to spiritual faith and you really can't separate the three, economics, politics, and values. And so we have Peter Zhao with you right now in Amsterdam. David: Peter Zhao is an economist who spent time working for the Communist Party Central Committee and has done extensive research, is very well published, 200-plus articles, and respected in the field. To be honest with you, I don't know anyone else on the planet who's had 10 million Twitter followers. I suppose you could find somebody out there, but certainly no economists. And as some of his ideas have challenged the status quo in China, there is a certain cancel culture there as well, a certain limitation of views beyond a certain threshold, and so you won't find his Twitter handle anymore, and you won't find the 10 million followers. But his ideas have been very influential in China, and I've gotten to know him through the years. I have immense respect for him. Kevin, I'll be honest, this doesn't happen very often, but there is a handful of people that I see from across the room and I just want to cross the room as fast as I can and give them a hug. I love them. I respect them. I hold them in such high regard, and we don't see each other often enough. I just am ecstatic to have a reunion. Kevin: Well, David, your family, your dad first when I came to work for him, and you, value highly speaking the truth no matter what the cost, and oftentimes there is a huge cost. And so I really look forward to this interview. Also, just a note to our listeners, the interview with Dr. Peter Zhao today, the voice you hear will be the interpreter. David: Well, it's a real pleasure to introduce to our listening audience someone who I've had a tremendous amount of respect for a long time. Peter, you and I have shared ideas about China since we first met in Singapore in 2015. First, we were on a panel at an economics conference discussing macroeconomic trends, and later we got to speak privately and expand on several global macro themes. Since then, I've had the privilege of seeing you at these same economic conferences. Here we are in Amsterdam for the discussion today, and I've always appreciated your insights. My thoughts and musings on China are those of an outside observer. Your reflections, however, are those of a true insider. Trained as a PhD economist in China with continued studies at Harvard, you've worked as an advisor to the Central Committee in China, and as a member of the Communist Party have a unique set of insights. I'd love to review your current take on what is today the second-largest economy in the world. We'll get to some questions here in a minute, but thank you for adding your perspectives and insights. Peter: I'm so glad to meet you and we can talk like this. I ask my friend to help me with language. David: Excellent. So we'll do some translation, and I'm so glad that you're here with us. Well, initial reforms in China began under Deng Xiaoping more than 50 years ago, and then rapidly increased after acceptance into the WTO, World Trade Organization, in December of 2001. How would you characterize Chinese growth in the pre-2000, post-2000, and finally the post-global financial crisis periods? Translator: Yeah, China's economic growth has three phases. So phase one is pre-year 2000, which the growth can be categorized as low cost, low labor cost, and infrastructure investment-based growth. So we can say that in a way we're chasing, China's catching up, the industrialization and modernization, sort of the characteristic of the first phase of Chinese economic growth. So since China's joining of WTO in 2001, China basically had a golden 10 years of growth, which can be categorized as exporting driven and high investment driven growth. By post-2008, a global financial crisis. China's economy is more and more dependent on government credit and government driven, which covered the structural problem. It was more like a Keynes kind of— David: Keynesian interventionism. Translator: Keynesian interventionism, which those hidden problems is more and more kind of popping up right now and become more problems. David: The scale of the problems is something that many analysts are concerned about, and we'll get to that in a moment. So export-led growth has been the model used in China, favoring tradable goods over domestic consumption. In the US, domestic consumption makes up 70% of GDP, and it's much less in China with almost a mercantile or export focus. What is the state of the Chinese economy now? Translator: So the current state of China's economy I would categorize as very, very severe, almost close to US Great Depression level. So all the problems that's accumulated and hidden over the years is about to basically explode at the same time. So these multiple crises are the crisis of high debt level and the demographic problem right now. So it's like declining of new birth rate and the credit or the confidence for the private enterprises and also decoupling with the world economy. The risk is increasing with decoupling, so it's close to the limitation of the dependency on the government investment and export [unclear]. David: There seems to be a little irony. Today in the US, we want to pursue export led growth. We're moving back to an older mercantile model. That's what the Trump administration has said they want to do, shift from having a trade deficit, with the surplus being with our trade partner, in this case China, and we want to equalize. We don't want the deficit in surplus, so we have US tariffs, and they are an attempt to reinvigorate that US production and manufacturing, resolve our trade deficit. What is your perspective on the global trade imbalances and the tariff war? Translator: The root problem is not a tariff. It is basically the imbalance of the trade of the world. The fundamental problem is the difference in political systems, [unclear] institute differences and also in the deficit in trust. So the US problem of tariff, the deficit trade, China has the same problems, and many countries in the world have the same problems. So it's not the only problem that US has. The fundamental problem right now is US and China don't trust each other. The attempt for the US to rebuild this manufacturing capability is fundamentally because the US doesn't trust China, because they're treating each other as enemies. To prevent this potential war between the US and China, the US basically is attempting to rebuild this manufacturing so the US doesn't rely on China on this manufacturing capability. The tariff problem is only the surface. The fundamental problem is the difference in values, the difference in systems. So, the goal of the US is to basically rebuild this manufacturing capability to prevent this potential war or worst-case scenario with China. David: Some have argued that state intervention and the massive credit provisions by the People's Bank of China following the global financial crisis show us a new and better approach to economic planning and stability. I think of it as Keynesianism on steroids. Having spent time as a member of the Communist Party, what is your perspective? Translator: China's economy pre-Deng Xiaoping's economic reformation was government-planned. It's like Marxism. So, it's proven it's not working. It's a failure. And after 2008, China started stimulating the economy, which found another trap. It sort of looked like it worked. David: Keynesian. Translator: Keynesianism, it sort of worked for a period of time. However, right now, it's proven that's also not working. China's already failed twice. The first failure was the Marxism. The planned economy proved didn't work. So, the second failure is proven not working was the Keynesianism. It's government-heavy intervention, [unclear] didn't work. A lot of the foreign friends, the China's economy made a misjudgment. They felt that China's economy was working, which I think it's not, because of the government intervention. It is proven to be a failure right now. David: When you look at economic growth around the world, Chinese economic growth has driven most of the improvement for several decades. Where do you see global economic growth coming from going forward? Translator: A global economy also slowed down after 2008, global financial crisis. The growth has been slowing down by about 1.5%. So, with the Chinese slowing down, the whole global economy hasn't really recovered back to pre-2008 level. However, you could look at countries like India or Vietnam. It looked like their economy is looking very vibrant. And we look at the new frontier, such as AI, is driving a new kind of growth. So, we're not too pessimistic about the future or the current state of the global growth.