Macao’s Return to China
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Friend of the Bridge to China, Warwick Powell joins us to discuss the 25th anniversary of the return of Macau to China. Welcome to The Bridge, enlightening conversations on world cultures, life, and everything in between. Hey everyone, this is Jason Smith, host of The Bridge podcast from sunny California. If you like the show, don't forget to subscribe. We love The Bridge.

Hey, everyone. My name is Jason. I'm originally from sunny California, now living in beautiful Beijing. Dr. Warwick Powell is adjunct professor at Queensland University of Technology and a senior fellow at the Taihe Institute. He is author of China Trust and Digital Supply Chains, Dynamics of a Zero Trust World and

And the paperback version just came out recently. He's a frequent media commentator for CTTN, The Global Times, China Daily, Bloomberg and Al Jazeera. Welcome back to the Bridge to China, Professor Powell. Happy to be back. Great to see you again. We just met recently here in Beijing. You travel quite a bit. Very fun conversations on philosophy.

You know, we invited you back onto the show to talk about your relationship with Macau. You know, you mentioned to me that you lived in Macau as a young boy, and today we're going to test your memories. So, but, you know, I want to start with, do you return to Macau as an adult? And what is, where do you see Macau now? How is it its modernization path compared to when you used to go there as a young boy? Well, I did live in Macau.

until I was almost seven. And I did a couple of years of my schooling in Macau before coming to Australia. So that was a long time ago. It was in the early 1970s during a period of considerable change in China and a considerably dynamic environment. I won't

I went back to Macau and the last time I was back was actually about 10 years ago. It's not a place that I go back to that often. And it had obviously changed an incredible amount with the physical development of Macau, number one, particularly the reclamations, what used to be islands are almost connected by land now. But it's a place that still has plenty of

grittiness about it. You know, it's a very grounded place and the little streets and winding pathways that kind of define the Macau that I remembered, of course, are still there because there's a lot of people squeezed onto a very, very small amount of land. I'm actually hoping to go in 2025 for my first trip. My wife, she is a huge fan of Singapore. So I convinced her to go to Macau and

If we go to Macau, we spend half of our vacation there and then half of our trip in Singapore. So may I ask, when you were a young boy, what kind of school did you attend in Macau? I went to a school called Pui Dou, which is a Chinese school.

And at the time, the school, you know, instructions was in Cantonese and probably three main memories of going to school there. One was the school principal, Mrs Lee. She was actually a fervent, you know, nationalist, really, a Chinese patriot. And in our school during that period, we had portraits of Chairman Mao on the wall, number one. The second thing that I remember is

quite clearly was performing in a lot of school plays, which were, you know, very emblematic of the era and the period. And the third thing I remember, I'm left-handed, and doing brush writing and Chinese characters with your left hand really is very, very difficult. And so the third thing I remembered was being

being made to learn how to hold a brush with my right hand and write with my right hand. Did they force you to become ambidextrous? Pretty much. So to write Chinese characters, it is a lot easier to do it with your right hand, particularly for brush writing. And it's because of the way that the strokes are constructed. They require the ability to apply pressure with the point of a brush at different angles. And those angles and those pressure movements are actually quite...

hard to do in a way that makes the characters look like they should if you're trying to do it with your left hand. I'm so interested in that, actually. Now I want to find someone who's left-handed, who writes and who does Chinese calligraphy left-handed and see how their work compares. Yeah, that's really interesting. You know, there's got to be some people in my office building. Well, I met someone actually on Tuesday night in Beijing, and I noticed that she was using chopsticks with her left hand. So I

So I said, oh, you're left-handed. And then, of course, I asked her, do you write with your left hand or your right hand? She goes, no, I was made to write with my right hand. Wow. You know, in America, it used to be in the 1940s, 50s, 60s that people were forced to write with their right hand. But then increasingly, you know, the way that the American cultural movement has gone, people are like, oh, people should be able to do it however they want. So now there are a lot of left-handed writers in the United States and I guess the West in general. So I'm wondering, you know, if...

what the cultural connotation between these two kind of differences are. You know, because

What I understand is Macau belonged in some way to Portugal. Was Portuguese taught at your school? No, Portuguese wasn't taught at school. Macau was a Portuguese colony. The Portuguese settled Macau in the 1500s, well before the British came to Hong Kong. And in fact, the main port access point into the Pearl River Delta at the time was via Macau, not Hong Kong. And

The problem that the Portuguese ultimately had with Macau and why it was ultimately less advantageous as a port is that the harbour began to silt up and they couldn't get the ships in.

And the deeper harbours on the other side of the Pearl River Delta, which is now Hong Kong, were much better. The other thing that actually that reminds me of is also another experience growing up there. That was my father was an avid sailor and he got permission from the government of Macau at the time to dredge up one of the old junks that had been dropped into the bottom of the harbour.

so that he could renovate it. And these junks were the ones that were used to run opium up and down the Pearl River during the opium war period.

He got the approvals and one of the big projects that he embarked on while I was growing up there was every weekend down to the... He basically built a dry dock or a barricade around a sunken junk, 40-foot junk, and eventually raised it, renovated it and sailed it in the oceans between Hong Kong and Macau. But we found a whole lot of little clay pots that...

were, of course, at the time full of opium. And that's how opium was smuggled into China through that corridor. So we were speaking the other night. You mentioned something that kind of surprised me, that at the time of the Passover of Macau from Portugal back to China's mainland, that the Portuguese wanted, were very eager to pass it back to China. Can you tell me more about that? Yeah, in fact, the Portuguese...

So Macau was passed back to the People's Republic of China in 1999. But prior to that, the Portuguese had actually made overtures to the government of the PRC well before with a view to handing Macau back. And the PRC declined the offer at the time. They didn't believe that they were quite ready to

to take it back and to incorporate it within the frameworks that they ultimately did incorporate Macau into an integrated sovereign system. So they declined. And the Portuguese, so when I was growing up, you know, it was a very laid-back place. Macau was very different from Hong Kong.

And it had a very, I guess, a very Portuguese feel from a cultural point of view mixed in with the sort of merchant Cantonese cultural ethos. And so there was lots of hustle and bustle, but at the same time, it had a very languid style. The architecture, the tropical boulevards, the grand boulevard on the oceanfront,

And it really felt like a place that was actually incredibly Chinese, but had strong Portuguese influences. So the Macanese flavour was definitely there, both through food styles and architecture. But really, it was an incredibly Chinese place. And the Portuguese administration in the 70s had a very hands-off approach.

a relatively hands-off approach to how Macau ran. What would you say your fondest memories of being a boy in Macau are? Yeah, that's a great question. There are lots of memories. I mean, other memories were going down to the Formula 3 Grand Prix, which is held in Macau every year. And my father worked for the Macau tourism body and was the marketing guy for the Grand Prix.

And so I, you know, as a young kid got, you'd call them backstage passes, but really I got pit lane passes and was able to hang out with the drivers and all those sorts of things. So that was, you know, that was quite a unique experience, I think, for a young person. I really didn't know much about it other than that, you know, these were stars and I got to sort of wander around pit lane and that sort of thing. Yeah.

Look, I think the most memorable things about growing up there was actually the laid-backness of life. And, you know, there were different times. So this was in the early 70s, as I mentioned. And so a life in a place like Macau was, you know, you ran around in the streets with your friends.

There was no sort of TV in your world, certainly no computer games or anything like that. So it was a very...

grounded, out and about kind of growing up experience. And we often travelled to the mainland for holidays. So my mother and her friends would often do weekend trips to various scenic spots around Guangdong province. And of course, I'd tag along because that's what you do. So, you know, it was a lot of fun. And, you know, I have a lot of fond memories of Macau and

And that time, you know, for me, this is a learning experience. And I was recently just Googling images of Macau's return to the PRC to China. And what surprised me were the PLA troops were rolling down one of the boulevards and just.

Everyone on the sides holding flags with huge smiling faces. Everyone was so elated that, you know, Macau was finally rejoining the rest of China. So, you know, what was your impression at the time of the Passover? Would you say the mood was like? It was very buoyant.

And again, I'll put it into the context of my own experience growing up there. The period when I was there was of course in the second half of the Cultural Revolution. And at the time, you'd probably be surprised to know that in fact, there was a very strong Cultural Revolution influence in Macau, particularly amongst the younger people.

And there are photographs of buildings covered in red posters. The famous St Paul's facade was for a period covered in red banners and red posters, evoking the sort of slogans and images of the period. So it already had a strong sense of it being Chinese. Yes, it had this Portuguese influence, the Macanese have

have a very distinct, you know, feel about themselves as well. But the connections between the people in Macau and those of the Pearl River Delta and, you know, modern day Zhuhai, Shunda, Zhongshan,

even all the way up to Foshan. So this is where my family hail from, this part of the world. There's a lot of links there because many people who lived in Macau were first or second generation who came from the mainland.

And when there was all the turmoil at the time of the end of the Civil War, you know, a lot of people were trying to find what, you know, basically safe harbour. And that's how my family ended up in Macau, which is my grandparents came from the mainland and into Macau in the early 1950s, you know, because obviously at the end of a civil war, so this is 1949, there's a lot of...

a lot of discombobulation, you know, that nothing was very settled, a lot of uncertainty. Not many people knew what was going to happen, of course. And especially when you're so far south and so far away from the political centres, it's hard to know where the future will go. And so they ended up in Macau. And those links between family and people, I think, have really laid the foundations for Macau.

Macau's very smooth handover back to the People's Republic of China. - You're listening to The Bridge. - A lot of people talk to me who do international finance and business about Macau's special status in a one country, two systems arrangement. I kind of wanted to ask you as an economist,

How has Macau's special status and unique economic arrangement benefited China overall? And, you know, how is it different and special? Well, Macau is a small place, right? So, you know, it's whatever, 15 square miles or whatever it is with a little bit less than a million people perhaps living there. And but it's a very dense and intense environment. Of

Of course, for a long time, the main internationalised gateway between the Western world and the mainland was via Hong Kong. Now, Macau has progressively diversified what was a relatively narrow economy. So its economic base historically revolved around some fishing, of course, increasingly tourism services sector activities.

And of course, the casinos. So Macau was well known for its casino setup, which for many, many decades was a monopoly by the Stanley Ho organization. But in recent decades, all the major franchises globally have now got operating licenses to run casinos in Macau. So Macau, of course, people often think of it as the casino place, but it has a lot of

broader tourism. Now, in the last probably 15 years, it has made big efforts to diversify its economic base. And it's done that through commitments to universities to try to expand the university offerings that Macau has and to cultivate, I guess, a culture of education and research excellence. It's

It's also begun to court international capital, particularly from a capital management perspective, so funds management, to establish in Macau and operate particularly forward-looking funds management organisations out of Macau. And the area that comes to mind is in this burgeoning area of green finance. So that has been a very significant part of Macau's recent story is the emergence of

an infrastructure, both soft and hard, around global green finance management and funds management. The integration into the Greater Bay Area is probably the most significant thing that is affecting the long-term dynamics of the Macau economy. The connectivity that exists today between Macau and the rest of the Pearl River Delta is, of course, excellent. When I was a kid, of course, we were getting around, going onto the mainland and having to take

either little buses or and eventually get onto a boat to get to Guangzhou or take a an old green leather seated train to head off to you know one of the tourist sites these days it's a you know it's a fast train of some sort of course there's lots of boats and the bridges across the Pearl River make make east west connections very very easy so just like most cities in the Pearl River Delta it's

It's connected to every other major city by a transport link that would require someone to spend no more than maybe an hour, hour and 15 minutes to get from A to B. So all of that, I think, is contributing to a diversification of the Macau economy and one in which it

has a chance of increasingly being recognised as another bridgehead between the mainland economy and the external world. Hong Kong, of course, has been the dominant node in terms of people's mental maps and populations and enterprises there. But Macau, I think, is starting to roll its sleeves up and put in some big efforts to

be more than just a casino and tourism center. Well, I'm kind of curious what happens at the end of the, I guess it's a 50-year period. Will they need to give up their gambling? I guess we don't, we won't know yet. In terms of Macau's one country, two systems arrangement and that of Hong Kong, what do you see are similar or maybe dissimilar between the two regions? In theory, they're relatively similar, but I think

Operationally, they've been a little bit different. So Macau has its own local administrative arrangements. It has local elections. And those local elections never draw any real global interest or global controversy. Many, many years ago, when Macau came back into the People's Republic of China, it did what was agreed to, including the adoption of national security laws. Hong Kong was meant to as well, and Hong Kong didn't.

So the Hong Kong LegCo tried in the early days, back in the early 2000s, to pass national security laws and they didn't get through. Now, this was actually a requirement and an agreement out of the handover package with the UK, which many people often fail to mention. This was actually what was agreed would need to happen, that Hong Kong and Macau would both have national security laws. Eventually, Hong Kong did.

Of course, Hong Kong implementing or adopting these national security laws was a focal point in the last few years for particularly external interest in the governance affairs of Hong Kong. Now, these national security laws aren't particularly controversial. If you looked at them from a global comparative point of view, just about every country has national security laws, which unsurprisingly has provisions that forbid people

you know, activities that go to undermining the sovereignty of a country, et cetera, et cetera. So Macau adopted all of this very, very quickly and just moved on. So in many ways the – and perhaps this was because the historic relationships with Macau and the people there and the mainland and the Portuguese was one where there was a lot less – well,

by the 70s and 80s, there wasn't a real sense of colonial right. The Portuguese really didn't come to Macau and exude a sense that they still ran the show. And, of course, the governor there was appointed from Lisbon, but really it was a much more relaxed set-up. Hong Kong, as we know, remained a very important part of the British Empire.

And the empire brought a much stronger colonial disposition towards Hong Kong and its future and continues in some respects to believe that it has some kind of extraordinary right to have a say about what goes on in Hong Kong, as if the former colonial master really should continue to have a say. But Macau didn't have that confidence.

kind of experience. And perhaps it's because the harbour silted up many centuries ago and it wasn't such an important place, together with the fact that the Portuguese colonial empire across the globe really didn't last into the 20th century. So it was a much smoother experience. And

And you'll notice that if you scout the international media around both Macau and Hong Kong, that there's never any issues of controversial note in relation to what's going on in Macau. Whereas Hong Kong, it seems that every American and every British person who has some beef with China thinks that they need to have a view about what's going on in Hong Kong.

Hey everyone, this is Jason Smith, host of The Bridge podcast from sunny California. If you like the show, don't forget to subscribe. We love The Bridge. You're listening to The Bridge.

There were riots in Hong Kong a few years ago, but none of that extended to Macau. What's your thinking on that? Why did Macau not experience? Well, in large part, I think it's because the turbulence that happened in Hong Kong was largely driven by external interests building up the turbulence. And if you read a book by Nuri Patachi, for example, it goes in great detail as to how the

the Hong Kong riots came about, who was behind it, and how the funding happened, the operational impetus, the training, the resourcing. And in fact, the current trial of Jimmy Lai is revealing an incredible amount of information actually about the role of external bodies, whether they were NGOs or externally funded media organisations too.

to generate this kind of public reaction. And Macau had none of that. And I think in large part because there wasn't the raw material to work with, whereas in Hong Kong there was enough of these sinews had been sort of laid out and had been there from the early 2000s as part of the legacy of both British colonialism but also American capital in Macau.

in Hong Kong so that the Western forces that wanted to destabilise Hong Kong were able to activate their networks and their resources. Now, the primary target was actually not Hong Kong itself. The primary target was to send a message to the folk in Taiwan and

And of course, if you looked at the polling of public attitudes in Taiwan over the course of the last 10 years or so, I think it's fair to say that the disruptions that were caused in Hong Kong did have the kind of intended effects of those causing the disruptions wanted to have in Taiwan. Now, when all of this began, the situation was, so, you know, if you wind your wind back

12 years or 15 years. The relationships between the two sides of the Taiwan Straits and also with the Hong Kong administration and of course Macau being the most laid back of the three was actually incredibly positive. The economic integration or collaborations across the Taiwan Straits was expanding. The flow of people for tourism, education and work was

was growing, it was quite clear that a kind of a pathway, even if it wasn't fully defined, had begun to emerge that was taking Taiwan down the path of some kind of a reunification, whatever that would look like. But the relationships and the conditions were emerging for something to happen.

And there's plenty of folk around the world who don't want that to happen. Plenty in Washington who don't want that to happen. One of the things, and they did many things, but one of the things as part of their efforts to destabilise that stabilisation across the Straits was what they activated in Hong Kong.

and to some success, no doubt about it, and certainly set back the stabilisation that had been achieved across the Taiwan Straits and had very successfully set that back for how long, who knows. At the same time, of course, the efforts went into supporting the election of the TPP in Taiwan and that whole Taiwan-Hong Kong dynamic was actually quite critical to trying to get...

the Thai reelected last time when she ran because she was having some troubles and stirring up Hong Kong actually helped her campaign quite a bit. You mentioned traveling back to Macau 10 years ago. What was that experience like? Well, I went back as a tourist really. So it was just a family and friends visit. And I went back as a tourist and went to all, all,

all these old places that I remembered, right? There's the old public library, which of course I thought was a much bigger building than it actually is. You know, it's still there. The prior grand, of course, the famous waterfront boulevard is still there and it's still quite magnificent. The St. Paul's Cathedral, the facade, of course, and

and the forts, the Barra forts, all the food, of course. I mean, look, I mean, one of the fondest memories actually, and I really should have mentioned it earlier, was growing up eating dai pao dong,

What is that? Street food. Specifically, what kind of street food is it? So, you know, we can get our listeners a taste of it. Oh, anything and everything. Everything. Well, anything and everything, really. But people with trolleys basically selling things, whether it was, you know, skewers of stuff or, you know, tripe, which is a favorite in southern China or

all sorts of things. And those experiences were ones that I was still able to enjoy to a large extent. Of course, you know, by the early 2010s, the prevalence of all those street stalls was much diminished. The sort of moves towards a conscious commitment to food hygiene, food safety and all those sorts of things.

to ultimately the cleaning up of a lot of the hawkers and the vendors. Though I don't ever recall there being any significant outbreaks of food poisoning or anything over the centuries where this kind of food was something that people enjoyed. But I think in the efforts to, quote, clean up the image, this was part of what was done. And the same happened in Hong Kong too. You know, a lot of the street vendors are no longer there. A lot of the street side vendors

restaurants that would just pop up and all these fold-out chairs would just emerge. Well, they're no longer there except under strict license conditions, whereas in the old days it was a lot more free-for-all. So I was able to go and do all of those things. And I wandered through the casinos, which I must say I find incredibly dull, but clearly it's something that at

that attracts some people but you know once you've seen one you've seen them all in my view you know there's there's flashing lights and um uh you know noise free drinks for people you know last thing lastly the operator wants is for them to get out of their seat and leave the table so you know there's plenty of waiters bringing stuff around um but it was just a really nice experience to go back and and just to see and i caught up with some old friends and um and

And that was, you know, that was nice because I hadn't seen them for 30 years. So, you know, that's always quite special just to see what has happened to them all and what did they end up doing in their lives. And many of them, of course, have businesses in Macau. But what I found interesting was that many actually lived in Juhai, which is on the mainland side, just across the border.

And they travel into Macau each day for work and business and then go back home over the border to Juhai.

And the main reason for that is that they were able to buy newer and bigger in Juhai than you could ever get in Macau for a dollar. So, you know, it became very attractive for people to set up houses on the mainland side and commute to Macau. Look, the Macau food scene is probably one of the most remarkable parts of the Macau experience, and it is because it...

fuses the influences of Portuguese food styles with amazing food styles from that part of Guangdong province. And so on the mainland side, Shunde is seen as probably one of the gastronomic centres of China. And that's literally, you know, 30, 40 miles away. So that influence is incredibly strong. And because Macau is a tourism centre, that tradition,

tries to attract some of the top end, particularly with the casinos. It has some amazing restaurants and some amazing chefs, some amazing food. What you mentioned about the ties between the mainland and the periphery,

Nuri Vitace says the same thing. When I interviewed him recently, a lot of Hong Kongers are traveling into China's mainland for food and shopping and even real estate now because it's just more affordable. And so some of them are just migrating and others are just going back and forth more often, especially now that the infrastructure to go back and forth is so well developed. I have many friends who've retired there. So, you know, I mean, they're a bit older than me. So often they were the the

the brothers, for example, of some of my mother's friends, they're younger brothers, you know, so in between ages and they've retired to Zhuhai or to Shenzhen, you know,

They did what they did, they've worked, they're in their early 60s and they're all on the mainland side now because the quality of housing, the quality of the estates, the quality of the environment, the social services are so well developed and so well advanced that it is more desirable for people

for a retiree to settle there rather than in a much smaller accommodation opportunity in Hong Kong. The fact is that Hong Kong's a very crowded place with very small, on average, accommodation. Macau's the same. Macau's the same. And so people do that. You live in Australia and I was...

I was wondering, question number one, is gambling legal in Australia? There's quite a few. You have casinos. Yeah. Oh, wow. So do Australians travel? Because when I as an American think of Macau and as someone living in China, I think of Las Vegas. You know, when I lived in California, you know, especially in the 1980s when I was young, gambling was not legal in very many places other than, you know, state sanctioned lottery gambling, which goes to pay for schools and things. Yeah.

So when I think of gambling, I think of Vegas. And when I moved to China, when I think of gambling, I think of Macau, though I've not been to Vegas and I've not been to Macau. I guess I'm just not into gambling. But my question is, you know, do Australians and other people in this part of the world go to Macau for the purpose of going to the casinos? Yep, they do. High rollers, particularly, they're lured by, you know, the packages that are offered, you know, great accommodation. You know, they're people who are obviously successful in their fields of

you know, whatever it is that they do. And they get their thrills out of gambling very, very large amounts of money. Wow. And I know a few people who do this and I have asked them because I've been with them when they've gambled large amounts of money and, and,

and watch them lose, like lose quite a lot in five minutes and then say, well, let's go to lunch now. And over lunch... Goodness me. Oh, look, just put, you know, 50,000 on a blackjack table. No, I lost it. Do it again. Lost it. Oh, well, let's go to lunch. Now, I've asked them then, you know, well, what did you... What was that about? What was that experience all about? And literally...

The response was, look, it was 100,000 in so many minutes. My company makes 20 times that in so many minutes. And look, if I win, I win and I have this moment of a thrill. And if I lose and I just know that I've actually just made more than what I've lost. And that was it. It was actually a very odd insight into the ways in which incredibly wealthy people or

or certain types of incredibly wealthy people have to get their endorphin, that little endorphin moment.

And that's what it was. Wow. Can't relate at all. I couldn't relate. Just watching it happen, I just thought that that was – that's why I asked. I thought it was a remarkable moment where – and there was no sense of care or worry or disappointment. There was nothing. It was just, well, if I – you know, I had that moment of thrill waiting as the little white ball, click, click, click, click, click, click, click, and then the disappointment that did it again.

And, you know, if I got my buzz, got my little endorphin hit, then that's great. But let's go to lunch kind of thing. Very peculiar activity, in my opinion. I don't relate. Let me ask you a little bit about some of the big questions. You know, the year of the snake is coming. That is 2025. We have an early Chinese New Year at the end of January. What do you think of the prospects for China's economy in 2025 in the year of the snake? Yeah, I think they're good. And I think they're good because...

of the ongoing structural transition that the Chinese economy is going through now, where it has often described as three major rotations. So the first big rotation is rotating from a significant dependence on the property sector to

developing new capabilities in high-tech manufacturing and areas like that. And that has required a tremendous rotation of capital from one particular industry to another. Now, that rotation then has a couple of other pieces that go with it. And they are a demographic dimension. And that is to try to get household incomes in the lower tier cities to rise. And that has been happening. The

household income growth in your tiers two, three and four cities is actually higher than has been taking place in your tier one cities in a percentage sense. So people living outside of your tier one cities are experiencing a greater improvement to their real incomes than those living in the first tier cities. Now that leads to a geographical dimension too. So the demography and the

the objective, of course, is to spread out the economic development and the economic welfare across more cities in China and to continue to enable a process of urbanization. So the Chinese urbanization rates in the 60 odd percent and most advanced economies hit an urbanization rate of 80 plus percent. So the Chinese situation would

would suggest that there is still quite a lot of room to grow from an urbanisation point of view. The question is, is how does that happen? And that has to happen in the lower tier cities so that you are not creating more property bubbles in the big cities, number one, that you are enabling your infrastructure that has been developed in your lower tier cities to be utilised to their full effectiveness so that you're really getting significant efficiencies from your historic

And importantly, by building the transportation and the energy infrastructure into all of these lower tier cities and connecting China up through high speed rail and the like, we're

we're able to enable new industries to emerge in the lower tier cities as well. So if you looked at a map of where, for instance, China's leading EV manufacturer, BYD, has its own factories, you'll find them scattered right across China. They're not in just Shanghai. You know, they have factories in over 20 locations, substantial factories and operations. So that process

process of transformation has been happening. Now, wrapping around those three big rotations is the big energy transition. And the energy transition aims to progressively increase the proportion of China's energy needs being met by renewable energy. And the EV story is part of it, energy storage technology developments and batteries, depending on where you are, wind, solar, etc., etc. And

All of that work has been taking place now for a long time. And I think that this next 12 months will largely see the tapering off of the contraction in the property sector.

when that contraction tapers off and levels out, we will see, I think, the property sector no longer being a drag on the economy, but actually now then contributing again positively. This transformation has been really incredibly significant, Jason. Six years ago, the average price to income ratio across China for house

housing had reached something like 18 to one. So it was 18 years of income for, to be able to buy a property. And only five years before then, it was 12 to one. So the cost of housing had increased by 50% in the space of five years. And in fact, in some of the big cities that had gone up to 22, 23 to one. So where you are in Beijing, for an average, you would need 20%,

23 years of an average income to buy an average apartment. That was the price. So the government was quite concerned about this from a social point of view, obviously, in terms of housing affordability, but also from an economic or finance industry stability point of view, because much of this price growth was being driven by leverage. And the growth in credit in that period of

2015 to 2018 in the property sector was extremely high. And come 2017, end of 2017, one of the then directors of the People's Bank of China actually publicly observed or commented on concerns that China was heading down a path where it would face its own quote, Minsky moment. So a Minsky moment is named after an economist, Heineken,

Hyman Minsky, who described the instabilities in finance, whereby the dynamics of the finance sector ultimately leads to what is in effect highly leveraged Ponzi-like finance. And the global financial crisis of 2008 arguably was a great example of that. And so you had the People's Bank of China saying, look, we're actually really worried that the extent of leverage had gotten to a point where we could actually have

a significant financial crisis. At the same time, President Xi Jinping also sent clear messages to the property sector to deleverage by saying that houses are for living and not for speculating. So from 2018 onwards, there has been concerns that property was overleveraged and was a source of significant financial stability and social and adverse social impact risk. They had to bring that into line. Now, if you take

The property sector, which was at the time contributing about 30% of GDP, and you have to slow that down. The risk that you run is, of course, a massive collapse in the GDP and significant unemployment. So you've got to figure out how you can wind one back whilst enabling a transition to take place.

we know that the transition has been absorbed largely in employment in the new industrial sectors, as well as in some of the services sectors. And that transition has been actually relatively successful because you can see that in aggregate, China's unemployment rate has hovered around the 5.1, 5.2% throughout this entire period with rising real wages. So people

People who are being displaced out of the property sector are finding alternative employment elsewhere. And that transition has been managed relatively well. Household incomes have been rising. So one of the myths about China that's often peddled is that households have been subsidising industry and households don't spend enough. Well, households have...

had real income growth over the last 10 years. Very significant. Since 2012, China's average household incomes have increased by some 700%. Every year, household consumption continues to grow as well. So even this year, you know, where external critics would talk about how China doesn't consume enough, the households in urban areas and rural areas are expanding their real expenditure, right?

Not inflation-driven expenditure, but their real expenditure. So I think that all lays some very important foundations for China's economy in the year of the snake. In terms of headwinds, the main one relates to the international situation. And that in particular has to do with the dynamics around the global trading environment. So the risk is that

global trade will be severely disrupted as a result of tariffs, additional tariffs from, firstly, the Trump administration that then feed into a daisy chain of protective measures undertaken by countries. So the risk is that the move towards more tariffs, more aggressive tariffs from the US will trigger a greater trend in protectionism globally. I've

I suspect that that won't happen in large part because most economies across the world actually see merit in the open trading regimes that exist today. They don't see any real reasons to have widespread applications of tariffs for the purposes of industry policy. So you don't see an acceleration of trade wars? Well, only the US, but

Will that lead to a daisy chain effect? And I think that, well, one of the things to watch next year is whether it does or it doesn't. My sense is that there's plenty of good reasons for developing economies in particular to resist going down that path. The story in Europe's a little bit different. It's a mixed bag. I think it would be counterproductive for the Europeans to also go down the path of increasing trade barriers, but...

Their attitudes on these issues, I think, are being clouded by a whole range of other considerations that are less about economics and more about ideology. So the Europeans, I think, are in a bit of a pickle at this stage. But the other point to remember about the US trade relations with China is that the US represents about 2% of China's total exports. It represents about...

11, 12% from memory of total global exports market. So it's not small. It's a big economy. This isn't to say that the United States economy is globally insignificant, but it's to say that in the scheme of things, it's no longer in a position to throw its weight around in the way that perhaps it could 25 years ago, where denial of market access was a make or break problem. The question for...

the global economy or national economies around the world should the Trump administration go through with their views on tariffs is the extent to which different national economies can adjust to that and how quickly they will adjust to it. And I've seen some recent research which estimates that China will be amongst the first set of countries to successfully adjust to the closure of the American market. And in

In the worst case scenario, which was estimated, it was that market access would be fully denied from 2025. If it was fully denied, how long would it take given existing trade patterns and economic growth rates and trade growth patterns for China to fully compensate for its lost market access in the US by natural growth in trade with other countries? And the estimates was it would happen within two to two and a half years. So, yeah,

Yes, it would be disruptive, but it just has a short-term effect really and the world moves on. Now, my own sense is that Chinese enterprises could respond even more aggressively. So these estimates were based on if there was just a straight line continuation of current trade patterns. But if there were concerns about loss of market access in the United States for Chinese exporters, then they

they would work doubly hard to grow their markets elsewhere. So that's one. The other thing too that tariffs can do is cause a geographic or a spatial rearrangement of where things get made. Now, the theory is that or the hope is that it would lead to a rejuvenation of domestic manufacturing in the United States. I don't think it will. We've had the experiences of the last six years now to really

really try and understand how the United States economy and industries respond in the context of tariffs and trade protection. And well, the evidence is that the jobs haven't returned to the mainland, to the homeland. And so I don't think that this is actually a viable industrial policy from the United States point of view, but it is likely to, I think,

the ongoing export of capital from Chinese companies who will continue to expand their global footprints by investing in factories and assembly plants all over the world. And that in time will change the, well, continue to change the contours of global economic value flow. And whether the US is a part of that or not really is going to be a question for the United States. Right.

You know, I was listening to an economist in D.C., Yukon Huang, and he mentioned that it almost doesn't make sense for the United States, given its economic model right now, to try to move backwards into manufacturing from a service economy. And, you know, that sounds...

sounded right to me, but I'm not an economist. So I wanted to ask someone who knows, does it make sense for the United States to try to rewrite its economy after having already moved on to becoming a service economy? Well, I think that there's a couple of things to think about here. One is what the politics is of this particular approach. And the politics is that the

the progressive hollowing out of American manufacturing over the last 50 years, so it's not just the last 20 years, over the last 50 years, has resulted in the hollowing out of manufacturing employment. And that has left many individuals, families and communities in a very poor state. So you can understand the politics of wanting to bring the jobs back. The challenge, of course, is why

what is it that makes it even possible for these sorts of jobs to come back in a way that is internationally competitive? The jobs that have been lost over the last 50 years aren't jobs that are going to come back. American manufacturing output actually continued to grow until about eight or nine years ago. And since then, it's tapered off. It continued to grow despite the fact that employment in manufacturing basically was disappearing rapidly.

So what was going on was an automation of American manufacturing. America is a big manufacturer, right? So the impression that when people talk about this is that the US is not a big manufacturer. The US manufactures about 12% of world manufactured output. China is almost three times bigger than that now. So, you know, I mean, that gives you a sense of

proportionality, but the US actually is the second largest manufacturer in the world. It just doesn't employ anywhere near as many people as manufacturing used to employ in the 1970s.

And those jobs aren't coming back. So even if we could increase manufacturing in the United States, it would just go to robots. Well, that's the pathway. So that's actually been happening in the US, robotics and automation. And it also gives rise to a different set of skill types, right? So people, to be able to hold down jobs, need to have certain kinds of skills. And so the real challenge in industrial transformation environments isn't necessarily to try and hold back the tide or to...

wind the clock back. The challenge is how do you enable a population to be able to adapt to the changing needs of the labour market and the changing needs of industry? And the foundational issue here, Jason, is actually the extent to which the American labour force is literate and numerate. So we're going to the heart of the education

educational levels of the population as a whole, but in particular, the educational levels and skills of those who in a previous time would have gone and gotten themselves a job in a factory. I mean, that actually makes sense to me. I don't,

I'm going to have to interrupt you because we have very little time left. I'd like to ask one last, I mean, I agree with you completely. I think that as education is probably something that the United States needs to work on, especially in a K through 12 level, we're not producing enough STEM majors to be innovative anymore. Last question, how do you see, how do you hope that China and the United States can complement one another in the coming year or two? Look, there are many things in which these two great economies

and great nations could be very complementary. The rise of China's research capabilities really does complement still some of the best universities in the world, and they are in the United States. That's incredibly complementary. The fact that China manufactures many things or, you know, intermediate goods and capital goods that the US needs for its own industries, that's actually a good thing for the United States because it is able to get access to equal

equipment and intermediate goods at prices that they could not otherwise get. And that's good for industries in the United States. The complementary elements are still there. The energy transitions continue to be there. China is a global leader in the cost-effective manufacturing of battery technologies. The latest data from Bloomberg shows that Chinese costs have fallen further this last 12 months than costs in

in the United States or in Europe. Chinese production costs for batteries is lower now, well, continues to be lower than anywhere else in the world, but the gap's widening. Now, if you want clean energy and you want low-cost clean energy, then there's incredible partnerships there in areas like solar panel manufacturing. Chinese enterprises now have got incredible know-how that could, in the right conditions,

bring new types of factories to the United States. That's through joint ventures, through direct investments. It could involve training people in, you know, a whole bunch of these technologies and systems. There's a lot that could be done if the approach was less defensive, you know,

you know, which is this idea that, you know, we've got to defend our position and we've got to stop someone's rise. You know, Joe Biden said four years ago, China wants to be the best and greater, whatever it is, but it's not going to happen on my watch. Well, with that attitude, with that attitude, you don't grasp the opportunities and the opportunities are there, you know, but everybody

a little bit of an attitude change. This is not an existential risk to the United States. This is actually a renaissance opportunity for the United States. I'm going to have to cut you off there. We're out of time. That was very enlightening. Thank you so much for your time, Dr. Warwick Powell. Absolute pleasure. Thank you.