James Gruber: What about China then, where everybody seems bearish, or a word that's probably worse than bearish?

Andrew Clifford: Yeah, if there's such a word.

Gruber: Yes.

Clifford: China is in a very serious growth slowdown, call it a recession, if you like. I mean, the economy is still growing, but it's been surprising. So, for us, we would have said a year ago, we'll get beyond the lockdowns and this economy will bounce back. It's not done so. The center of this is the property market. And the important thing here is, it's not about the latest news of country guidance, debt defaults or whatever. What we've seen for two years is falling property sales, new apartments, and what follows after that is falling construction activity. So, we have construction activity back at the lowest levels we've seen in the best part of 20 years for residential apartments. It's a big part of the economy, and it's very sick at the moment.

Gruber: What led to that though?

Clifford: So, if we go back a couple of years ago, the Chinese government was trying to get control of the property market and property prices, and their view was that property was for – their slogan has been for the best part of 50 years – property is for living in, not for speculating. In fact, for 15 years, they've been trying to control property prices. It's quite ironic given we're having the same discussion in Australia the Chinese have been having it for a long time and they've done a lot more things and ultimately over-succeeded in crushing the property market.

Now, what has really happened there is they really broke the property buyers' confidence in the market with the government policies that were brought in. A lot of the developers then ended up in financial troubles. Projects weren't getting completed. That sort of reemphasized people's lack of confidence in the property market. And so, you've had very serious recession in this industry. It's not however – we don't think it is – it's often presented as if there's been this great bubble and too much property is being built. I think that's far from the case. Property prices have gone up at rates below nominal GDP growth. We've built probably 240 million new apartments in the country since 1999. So, that's the modern housing stock. So, we haven't even created a modern housing stock for urban populations yet by a long way. So, I think the property market can bounce back, but people have to have confidence in it. And certainly, in the China news every day there are announcements from the government about the property market trying to recreate that confidence that people had. So, I believe that will come in good time. But for the moment, that is in a difficult place. That industry is in a difficult place.

But I think it then gets turned into the – the headline story is, China is in trouble, but there's some really great stories happening in China at the moment. So, first quarter this year, they just surpassed Japan as the biggest exporter of motor vehicles, which is really quite something, and they've only just started. A part of that story is because they're the global leader in electric vehicles. They sold 6 million electric vehicles in China last year. I think about 2 million were sold in Europe, about 1 million in the U.S. That market is still booming today. But the country is also the leader in battery technology, battery materials and then all of the other exciting investment areas of the day. Solar panels – 80% of them made in China. The supply chain is very much China-centric. Wind power – same thing, 60% of wind turbines made in China. There's a dynamic private market economy here in China that is still doing what it's been doing for the last 25, 30 years. But we're all focused over here looking at this sort of disaster that's unfolded in residential property development.

Gruber: There are a lot of people calling for Xi Jinping to do more to stimulate the economy. Why do you think he has held back thus far?

Clifford: So, I think, trying to read – I think anyone who thinks they know is probably kidding themselves. But I've observed this that after – in 2008-2009, the Chinese had one of the greatest fiscal stimulus packages of all time. And within a couple of years of that, they saw that as a great mistake and pulled back on it very significantly. And what they saw was a lot of money went into projects where money was just wasted. Steel plants were built that shouldn't have been built and lots of industry built too much capacity. So, they're very wary of that type of policy approach.

I think in the West also we are so used to – the economy is not looking great – we expect our governments to do something about it. It's not clear to me is what would have happened if the governments did nothing. Because market systems are – they are a natural phenomenon, if you like, and they do self-repair. And I think probably in the West we are far too inclined to jump in and have governments do something. There are certain circumstances where governments have to. When you have a bank failing like a Silicon Valley Bank, I think if you let that go, you can create serious problems in the economy. But just the fact that the economy is sluggish and not performing as you'd like, I don't particularly believe that that is a reason that it will not get better on its own. And I do think that they're prepared because they do want to play the longer game and they know money is when you do stimulate like that, like you look at what happened in the pandemic, I think there will be a lot of big price to be paid in many countries where huge amounts of money were spent that ultimately weren't needed to be spent, that is the cause of the inflation we've had in the developed world. So, I think it's just the nuance – it's just the different view is my best guess. That's not to say I think they will – they know they – they've indicated clearly they want to see the property market revitalize, but they're not throwing huge resources. They're just trying to unwind a lot of the restrictions that they've had in place.