Richard Koo on China's Risk of 'Japanification'

Odd Lots

Bloomberg

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4.4 • 1.6K Ratings

🗓️ 10 July 2023

⏱️ 54 minutes

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Summary

Richard Koo literally wrote the book on balance sheet recessions, or the idea that large levels of debt can weigh on future growth for years and even decades to come. Now, the Nomura Research Institute chief economist sees a similar risk emerging in China. The country has been struggling with vast levels of debt and slowing economic growth in the wake of the Covid-19 pandemic. In this episode, Koo discusses the signs he sees that a balance sheet recession is already underway as China's companies shy away from borrowing more money for future investment. He also suggests some ideas for just what China's authorities should do about it.

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1:10.0	Hello and welcome to another episode of the Oddlots podcast. I'm Tracy Alloway.
1:14.5	And I'm Joe Wyzenthal. Joe, do you remember at the beginning of the year, there was so much excitement about China reopening?
1:22.8	Yes, absolutely. You know, it's interesting because I think if you go back to last fall, there was all this talk.
1:29.3	It's like, why isn't China giving up on COVID-0? When is China going to give up on COVID-0?
1:34.9	And then, and they're like, oh, it's not going to happen anytime soon. And then one day it just happened.
1:38.8	And everyone's like, okay, here comes China. Here comes all the demand from China. It's on.
1:43.1	That's right. And so a big plank or portion of the bull thesis for 2023 was that because China was reopening its economy,
1:52.5	after basically being shut for three years, you were going to get all this additional economic activity.
1:58.6	And while we have seen markets rally, it is not. It is definitely not because of China. In fact,
2:06.4	China really seems to be struggling here. So we have, you know, Chinese manufacturing is still
2:11.8	at or near contraction. I think exports are flagging. Inflation is basically around zero, which might sound great
2:19.2	to a number of other countries right now. But of course, it means that in China, growth is subpar.
2:25.5	Yeah, I mean, I think it also, the big story for the world to has been oil demand. And there was a lot of
2:32.9	expectation that's like, okay, commodity prices are kind of soft. But China is going to reopen.
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