What to watch ahead of China’s 20th Party Congress, according to Damien Ma

Below is a complete transcript of the Sinica Podcast episode with Damien Ma.

Kaiser Kuo: Welcome to the Sinica Podcast, a weekly discussion of current affairs in China, produced in partnership with The China Project. Subscribe to The China Project’s daily Access newsletter to keep on top of all the latest news from China from hundreds of different news sources. Or check out all the original writing on our site at supchina.com. We’ve got reported stories. We’ve got editorials, regular columns, as well, of course, as a big ol’ library of podcasts. We cover everything from China’s fraught foreign relations to its ingenious entrepreneurs, from the ongoing repression of Uyghurs and other Muslim people in China’s Xinjiang region to the tectonic shifts underway as China rolls out what we call the Red New Deal. It’s a feast of business, political, and cultural news about a nation that is reshaping the world. We cover China with neither fear nor favor.

I’m Kaiser Kuo coming to you from Chapel Hill, North Carolina.

It’s busy, busy times for China watchers right now as we enter 2022, a year full of events of tremendous importance lies ahead. Remember 2012? Well, it might not be quite as full of drama as that doozy of a year, but it promises to be a consequential one. China, as we’ve talked about an awful lot on this program — so get used to it — China is in the process of deliberately shifting its economy onto a very different footing and will face significant challenges in doing so. So as we take in the pronouncements, the policies, the events in what promises to be a very packed political calendar this coming year, it will be vitally important to have a conceptual framework for interpreting and making sense of what’s happening, to know what to look for in terms of who stars are rising within the Chinese leadership, and ideally, to have some kind of an idea of what to expect from the economic impact of the Xi administration’s grand undertaking.

That is a tall order, of course, but I can think of very few people better positioned to fill that order than my good friend, Damien Ma. Damien is the co-author along with Bill Adams of an excellent book that though was published eight years ago, I am still recommending to people very frequently. It’s called In Line Behind a Billion People: How Scarcity Will Define China’s Ascent in the Next Decade. Damien is also managing director and co-founder of the Paulson Institute’s think tank, MacroPolo, with which I’m sure most of our, all of our listeners are already familiar, MacroPolo, which is still about the cleverest name I have ever freaking heard has built a well-deserved reputation across only a few short years as a place that publishes really smart data-driven, visually impactful, and highly legible, accessible research and analysis on very important China-related topics, Damien’s stamp is all over the thing, from its selection of topics to its engaging decidedly unstuffy style of presentation.

So Damien Ma, welcome back to Sinica, man. It’s good to see you.

Damien Ma: It’s great to be here. It’s been a long time coming, for sure, and I know I’m overdue, Kaiser, and I apologize for that. I was thinking if you’ll indulge me in a quick story, the last time, if I remember I was on Sinica, and that was still in the Beijing studio…

Kaiser: Oh, my God.

Damien: … when I came in solo. I mean, do you remember the crazy story afterwards? I got to tell this story if you give me two minutes.

Kaiser: Yeah, no, tell it.

Damien: Afterwards, you and Jeremy, you’re like, “Oh, we have this party at this bar in Sanlitun and at the time, you had a Filipino-American intern and there’s 20 something Americans there. I don’t know why.

Kaiser: I remember. Yeah.

Damien: You’re just like, “Oh, I’m Kaiser. I got my motorbike, so I’m going to book it, and you guys can take a cab and meet me at the bar.” I was like, “Okay.” So I was left with the interns, right? They didn’t really know what the hell they were doing. This was at a time just as the Beijing cabbies were really sick and tired of taking foreigners to the Western places. So it was impossible to get a cab. So they were all like, “Let’s just get one of those black cars.”

Kaiser: Oh, shoot. Bad idea.

Damien: “Let’s just get one of those black cars.” Me being the senior statesman, I was like, “I don’t know if that’s the best idea,” but, of course, within seconds, a black car pulls up. So they all get in, and I’m thinking to myself, “Not the best idea, but it’s probably a five-minute drive, so let’s do it.”

So there are five of us. So four of us were in the backseat. This was just this rickety jalopy hatchback. As soon as soon as I get in, I could tell. My sixth sense was like, “This guy, the driver, was not with it. He was either drugged up or something, whatever it was.” Of course, he books it down at 60 miles an hour, driving crazy in this little thing that was about to fall apart. I’m like, “This is no good already.”

Within two minutes, he turns around. He’s like, “So you guys are Americans?”

We’re like, “Yeah, we’re Americans.”

He was like, “Did you hear on the news this morning that somebody had attacked Ambassador Gary Locke’s car?” Do you remember that episode where-

Kaiser: Yeah, yeah, I do. I do remember.

Damien: It was that day.

Kaiser: Oh, wow.

Damien: Of course. I saw the news in my hotel. I was like, “Yeah, of course.”

He was like, “The cops are trying to catch the guy who attacked his car.”

I was like, “Okay.”

He pregnant paused, and then he looks at me, he goes, “I’m the guy.”

Kaiser: Oh, holy sh… I heard this story before. Oh, my God!

Damien: He was like, “I was the perpetrator.”

I was like, “What? You’re either whacked out and you’re lying, which is scary or you’re telling the truth, which is even scarier, and now I think we’re not going to where we’re supposed to go at all,” and he’s still booking it down at 60 miles an hour, right? All these young people around me, Gen Zs, they’re all like, “Yeah.” They’re talking. They were so nonchalant. I was like, “Guys, we need to get out of this car right now.”

So I was trying very nicely to persuade him and be truthful, “Please pull over, pull over.” He wouldn’t listen to me, and he just kept on going. I was like, “We’ll pay you double the money.” I was doing everything I can…

Kaiser: “We’re being kidnapped.” Oh, my God!

Damien: … to kindly let him pull over. He finally, for some reason, does it. I threw 100 RMB at him and said, “Thank you.” Just got the hell out of the car, and they all follow me, and then I see a cab. I finally waved one down. Of course, as soon as the cab, it does a U-ie, so clearly, he was taking us down a completely different direction.

Kaiser: Jesus.

Damien: We finally got to your place and I was just like, “Man, that could have turned out really, really bad,” but that was the last time I had been on Sinica.

Kaiser: I promise you this time will turn out better. We’re doing it remotely.

Damien: Well, I’m not getting a black cab anytime soon.

Kaiser: Yeah. You’re safely in your place, and congrats on your new digs.

Damien: So 10 years, that’s my story. Maybe not 10 years, but it’s been a while.

Kaiser: It has been, but God, good to see you again.

Damien: Good to see you.

Kaiser: I mean, actually, so just full disclosure, I mean, we talk every day, but that’s okay.

Damien: Sure, but not formally on your podcast. So I’m happy to be here.

Kaiser: No, Damien, just so everyone knows, is part of this very small select brain trust, we talk every day. It’s great. Anyway, you guys…

Damien: Mostly about Succession, mostly about Succession, but yes.

Kaiser: Yeah, yeah. We talk a lot about Succession and other good things…

Damien: That won’t make it into the podcast, anyway.

Kaiser: It will. Too bad.

Damien: Okay.

Kaiser: Anyway, Damien, you guys published a forecast for what to expect in the property market, just to get super serious right now, what to expect in the property market in China in the next few years because the property market is so central to the bigger economic picture. It also is really what to expect in terms of overall economic growth. Could you walk us through the numbers that you guys — and this was mainly your economist, Song Houze — what you guys forecast in the scenario that your team developed? You guys see a pretty substantial decline in the residential housing construction total between now and, what was it, the end of 2025?

Damien: 2025, five-year forecast. Yeah.

Kaiser: Yeah, five. So that’s down quite a bit from the hundred million new units that are built annually right now. How much of a decline are we talking?

Damien: Yeah. So this is largely a supply-side forecast. Obviously, it has demand implications, but Houze and I were talking quite a bit with the Evergrande crisis. That looks like it’s being managed into a protracted default, which was something we had anticipated. So now, it’s thinking through, “Okay. What does it mean if the Chinese property sector does undergo a more meaningful correction?” because there’s been a lot of what I might call the boy who cried wolf on the property sector that the correction was always around the corner but it never came.

So I think this time the wolf is going to come. There are a lot of reasons we outline in the outlook why that is, but to just get down to the headline numbers, we assume a 30% decline in private property construction. That’s our baseline scenario. So that’s the main assumption. Based on that assumption, we see overall growth taking a 2.8% hit by 2025, meaning the Chinese economy would be roughly 3% smaller in 2025 than it otherwise would be without the correction. So that shaves off about a 0.6 percentage point on the average growth rate.

Kaiser: Annual.

Damien: Annual average growth rate. So the bottom line kicker here is that when you look at these numbers, it’s essentially returning to the 2010 levels of property sales as a percentage of overall GDP. So from 15% to 10%.

Kaiser: And about 70 million new units built rather than 100 million.

Damien: Yes, yes, yes, down from 100. So it’s a much more significant correction on a supply-side than we’ve seen. So that’s our baseline. And part of that, of course, is when you’re talking about adjusting the investment driven model, fixed asset investment or in Chinese data, it’s fixed capital formation, however technical you want to get it, but basically investment. Property has to adjust or else they can’t get away from the investment driven model.

Kaiser: So many implications from that. So before we get into everything, let’s talk about what’s driving the decline that you forecast. How much of this is due to deliberate government policy to deflate the bubble, to take some of the air out of it, and how much is simply a drop in housing demand due to urbanization tapering off and population growth slowing or even reversing?

Damien: Yeah. That’s an excellent question. I think it’s a combination of broader secular trends like you said about the slow down in the urbanization rate. I think that’s a big constraint. We all know China, there’s just fewer and fewer people being born in China, we all know that, but coupled with that is that the urbanization has been the biggest, main propellant of property growth over the last 20-30 years.

In particular, the last 15, and depending on who you ask, and even Chinese officials, they’re admitting that China’s probably 70% urbanized.

Kaiser: Wow.

Damien: Depending on how you count migrants or not, it could be closer to 75, which is approaching advanced economy levels. So it has to slow down. It has to slow down. So they’re not going to get as much growth out of urbanization. So there’s just going to be naturally less demand for housing. So that’s one big secular trend. And the second is policy. The central government, Xi Jinping in particular, I think they really want to get away from speculative bubbles when it comes to housing and they want housing to be much more rationalized. So there’s a lot of harsh policies that’s happened over the last year. I think we might get even more draconian going forward to force more of an adjustment. That’s going to hit all the way down to local government finances and, like you said, all sorts of implications. So urbanization and policy combined I think is why we think, like I said, the wolf has finally arrived.

Kaiser: Finally at the door. Look, there are all sorts of means that Beijing has used to try to take some of the air out. I mean, once again, in the Work Report that we saw that come out this morning, there was once again a lot of that recitation of “houses are for living in, not for speculation.” Are we going to see more restrictions on second home ownership on curving speculation because this is where … Look, we have to remember 80% of Chinese are already homeowners, and a huge percentage of those own a second home already. Are we going to see more restrictions on speculation or are we going to see more rigid enforcement on the developers of the Three Red Lines or some combination thereof?

Damien: I think it’s going to be more reflected on the developers because, clearly, right now, housing developers are also — you know, the whole leverage issue, right? So they’ve been bombarded with bad debt. So that’s a huge issue. So as a restructure, the whole housing developer sector, I mean, that’s going to obviously hurt some developers, but I think the key to note here is that the implications and the effects of this adjustment is going to manifest pretty differently across China. China, like the United States, is a huge, huge, huge market. The San Francisco housing market is very different than the housing market here in Chicago. You have similar trends in China, too, where Gansu, Guizhou, those places are probably going to take the harder hit because they have more of the unused overcapacity in housing. The one thing that I should know about slow down and urbanization is that there’s been, frankly, a lot of intra-country migrations. So 50 million people have moved around over the last 10 years from less developed cities to the Shanghais and the Beijings and the Shenzhens of China.

Kaiser: So let’s puzzle this out, though, because, I mean, it’s interesting to see because aren’t the areas that are likely to see the biggest declines in housing construction also the places that are already seeing big population outflows? I mean, so you’re going to get double whacked then.

Damien: Yeah. You’re absolutely right. So they’re going to be disproportionately hit and that’s the problem. I think that the central government has to figure out how to support and help those regions where they’ve seen significant housing outflow, and that’s where demands … If you got working age population, which are the consumers of housing, they no longer live in Guizhou or in America, maybe they don’t live in Detroit or they don’t live in Pittsburgh. That’s going to have a problem. That will really hurt the local housing market. So it’s like looking at where are the Detroits and Pittsburghs of China, right?

Kaiser: Well, Pittsburgh’s a different story now. Of course, it’s…

Damien: Pittsburgh is different, yeah, but it had to bounce back. It had to bounce back, right?

Kaiser: Sure, sure, sure. Yeah, right, right.

Damien: So it’s a similar dynamic because they’re both very large continental sized countries.

Kaiser: Maybe taking some of the edge off of that is that these are not the places where housing prices were super inflated and overvalued in the first place, right? The really, really hot overpriced housing markets are, well, the first tier cities are different because they’re national markets, anyone with money anywhere is going to want to buy in Beijing or Shanghai, but it’s like the second and third tier cities. These are the ones that are really, I mean — anyway, I feel like it could cushion the impact a little bit. The fact that if you go to Guizhou, it’s not like the housing prices were anywhere close to the multiples on original purchase price that we see in the major metropolitans.

Damien: Right. So the key thing, I guess I’ll throw out one more figure. The key thing in terms of this bifurcation is 60/40. So the regions that have seen the outflow population is about 60% of China’s GDP. So it’s the 40% and that are what you might call growth or superstar regions. So it’s like what do you do with that 60% of GDP. It’s not all dire, but those are the areas that seen population outflow, whereas the other 40% has seen population inflow.

Kaiser: So we’ve alluded a little bit to how this is going to really hurt local governments and their abilities to raise revenues. A bunch of questions related to this. So first of all, we’re also seeing or you guys predict a pretty substantial drop in public infrastructure spending by local governments. So how are they going to make up for the shortfall in revenues, which has traditionally come almost exclusively from sale of land, from expropriation and sale of land, of rural land and turning it into, basically, technology parks and things like that.

Damien: Yeah. So I won’t give everything away yet, but we actually have, Houze and I are working on something where we actually think revenue from land sales has been exaggerated over the last few years. So it’s actually less of an impact from land sales per se, but we’re going to come out with that fairly soon, but one thing they’ll have to do for sure is that they’re going to have to raise the central fiscal deficit, and they’ll probably have to raise it to probably at least 3% of GDP, which is already pretty big. The Chinese government, they don’t like to have fiscal deficits. They’re mostly deficit hawks. They don’t like to have a big deficit. So going to 3% of GDP is already pretty big for them. So they’re raising that in order to transfer some of the central funds to the most needed localities that may suffer the most from this adjustment. So that’s one way to do it, and then there are other ways they can do taxes.

Kaiser: Yeah. I actually hadn’t realized this before reading your report, and I think probably a lot of people also don’t know that actually, construction investment as a percentage of total GDP has actually been tapering off for a decade, right?

Damien: Yeah, yeah.

Kaiser: Yeah. What are the implications of that? So, I mean, it won’t maybe hit quite as hard either on local governments or on the overall GDP picture, right? I mean, it’s not as abrupt as maybe some of us are imagining it’s going to be.

Damien: No. I think if it’s well managed and if somewhat orderly, meaning they don’t just let everybody default and they provide the appropriate cushion fiscally to local governments because that’s really the main is how do they provide the fiscal cushion to a lot of local government, not enough money for everybody, but the worst-hit areas that they decide will really need help, if they manage that well, I think, the hit to growth in our baseline scenarios is fairly modest, but that’s predicated on competently managing this process over a period of five years, not tomorrow, not overnight.

Kaiser: There’s another possible cushioning that’s going on here. It’s another maybe silver lining. We all hear an awful lot about the shortage of factory workers in China, but with this decline in construction, you guys expect that you’re actually going to see a reallocation of a lot of labor that was involved in construction to the manufacturing sector. Is that right? So that may actually address that shortfall.

Damien: Probably services like, how does a company like Meituan have all the delivery workers? That’s a pretty good illustration of the reallocation of labor. Yeah. We expect something like 80% to 85% of reallocation of construction workers into services or other sectors, but that’s still roughly about 15 million people that might lose their construction jobs. But if you think about 15 million relative to ’90s, remember the SOE reforms?

Kaiser: Oh yeah.

Damien: I mean, the shock on people, that was 40 million people. So this compared to that is more moderate.

Kaiser: So we’ve been talking quite a bit about common prosperity, the Red New Deal and all that stuff. What is the Damien Ma hypothesis on what’s happening now, big picture in China, this thing that we’re calling the “new journey” or most frequently, common prosperity? What do you make of this whole common prosperity thing?

Damien: Well, first of all, I really like what you guys came up with, which is the Red New Deal.

Kaiser: Oh, thanks.

Damien: I think that’s a really interesting and compelling metaphor for it. The way I look at common prosperity is really through the prism of the principle contradiction that was unveiled at the 19th party Congress. To me, that’s the key to everything.

Kaiser: You guys, I got to say, you guys called that really well. I think a lot of people just looked at it, “Oh, okay. So they’ve changed the definition of the primary contradiction,” but you guys made a big deal about that. You and Evan Feigenbaum both wrote about that. I think you called it probably earlier than anyone else. That was good.

Damien: Well, yeah. I mean, I don’t know if it was really calling it or not, but I just thought that was a pretty significant change that was launching or preparing the country for a fairly fundamental shift to the incentives underlying the growth model, which was really about investment-driven, GDP-focused. Since then, obviously, you’ve seen that, Xi Jinping has really, if not completely ditched, but really watered down the growth target. That becomes much less of an important metric now.

I think that’s been corroborated with a lot of people in China that people are not going to care as much about that fixed target,

But that also brings its own set of problems because it’s a lot easier when you have one number for every single local government to target at, “Okay. We need 7% this year. We need 8% next year,” but now you say, “Okay. We don’t care about this figure.” What are they supposed to do? So they have to divine like, “Okay. How do I achieve my performance? How do I get my KPIs when it’s not about 7% or 8% anymore? What is it?” So that’s a governance challenge, I think, and I think that’s where you’re seeing a lot of different behaviors because people are trying to interpret like, “With this fundamental adjustment coming, what do I need to do to satisfy the higher ups to show that I’m still meeting my targets even though they no longer care about the GDP?”

Kaiser: So is it that they no longer care about the GDP — In other words, is it all about common and not about prosperity anymore? Or I mean, do you think is there…

Damien: No, no. No. I really think it’s still prosperity first and common way second. If you’ve seen what they’ve said since they’ve come out with common prosperity because I think there was a lot of pushback because people got scared that it was all about distribution or redistribution. You mentioned the Central Economic Work Conference, but you look at that again. Every time now they mention common prosperity, they make sure they have a follow-up clarification saying, “We still mean growing the cake first and foremost. We really mean that, and then only after that will we find some channels for appropriately redistributing those dividends.”

So it’s clearly a prosperity-first agenda because as I think I’ve written elsewhere, the goal, again, it’s been very clear in 15 years, China wants to become the biggest economy in the world. So a certain level of growth is absolutely needed. So they can’t go down to 2% to 3% because that will mean they will miss a growth goal. They will miss becoming the biggest economy by 2035.

Kaiser: So in 2017, in the 19th party Congress, they redefined this primary contradiction. From 1981, they had talked about the primary contradiction as that between the “ever growing material and cultural needs of the people,” on the one hand, versus “backward social production,” right? In other words, it was all about a bigger cake, right? Now, what they say is that it’s a contradiction between unbalanced and inadequate development. In other words, that’s really talking about distribution of the cake and the people’s ever growing needs for a better life, which is their more higher order needs, right? Getting off the ground floor of Maslow’s hierarchy, right? Moving up a little bit, which is really interesting. I think that that is very crucial to understanding this new emphasis on qualitative growth rather than on just GDP uber all this.

Damien: Well, it’s funny because we actually bring up Maslow’s pyramid in our book, too, on scarcity because that’s exactly what it’s been about is meeting different expectations. If you can even distill it even simpler, I think the Chinese government knows that what it means to be the world’s biggest economy also means that you’re going to get the world’s biggest middle class.

Kaiser: So they’ve been talking about in olive-shaped economies, an olive shape distribution, right? So a big fat middle, a big middle class. Damien, I mean, you brought up scarcity and you brought up Maslow’s hierarchy in your 2013 book. This scarcity framing is, I think, super effective. It includes what we typically think of the usual land and natural resources, even things like social services and education and the competition for that, but you also include things like political rights. Can you remind people who haven’t read the book about this idea in particular? What do you mean when you talk about scarcity when it applies to political rights?

Damien: Sure. Well, let me first give some context. The way we thought about scarcity as a prism that Bill and I when we wrote the book, when we were brainstorming is we wanted to settle on what our own mental model was for the Chinese political economy. Two main factors to me really defines the Chinese political economy as in reality. I think one of which is that the Chinese government for the most part tends to resort to a lot of supply-side thinking. It’s mainly a supply-side way of thinking about a lot of things. So it’s always about things that are in need of they need to supply it, whether it’s raw materials, commodities or services like higher education, et cetera, et cetera.

The other thing is competition. I think competition to me very much defines how the Chinese political economy ticks more than anything else, more than state versus private, more than ownership, identity, all those other things that people say, which, of course, are true, but I think if I had to boil it down to two things, it’s supply-side thinking guides a lot of their approaches, and also they’re trying to deal with hyper competition at every level of Chinese society.

So when you have competition perceived or real, you start thinking in scarcity terms. So that’s the animating idea that I had about it. That’s how you think about their behavior. You’re trying to understand why do they do these things, and it’s because I think to me, supply-side thinking and competition.

So when it comes to political ideology, and we had a whole chapter on ideological scarcity, well, look at what Xi Jinping has been doing on the ideological side and on the value side trying to promote more of a sinified Chinese values type of things. I mean, those were the two things he really prioritized even in his first term.

Kaiser: So I mean, a deliberate constraint of supply in that way. It’s not like you can walk into the ideological grocery store and there are 87 brands of ideology to choose from. It’s just like-

Damien: No.

Kaiser: There’s one. Right, right, right.

Damien: Yeah, but I think he probably believed the party was kind of ideologically bankrupt to some extent. So he want to supply ideological sustenance to the party, and that’s been one of his biggest things since 2013.

Kaiser: Even if it is just not-particularly-nutritious pabulum.

Damien: Yeah. Yeah, yeah, yeah, yeah.

Kaiser: At least it’s filling their bodies, filling their minds, their souls.

Damien: Yeah. Yeah. I don’t know the caloric content to the sustenance, but yeah, but he’s trying to do that.

Kaiser: It’s okay because, you know, the actual food is pretty darn tasty. So yeah.

Damien: True that.

Kaiser: What’s interesting to me, though, is, I mean, I think that scarcity lens is still really useful when you look at today’s China. So what are some of the ways in which you think that it helps to unlock our understanding of what’s going on in China today, the scarcity lens?

Damien: Well, one really clear example that I gave in my piece, but I’ll talk about it briefly here is when you think about that one thing about the Xi Jinping administration is that they’ve been pretty good at coming up with a lot of neologisms to describe their policy approaches. Common prosperity is one of them, but then there’s supply-side structural reform. There was another one before that. I can’t even keep track of all the neologisms they’ve come up with, but they’ve come up with these things to describe their policy emphasis.

Kaiser: Shuāng xúnhuán.

Damien: Yeah, dual circulation. Yeah. So when it comes to supply-side structural reform, that to me is a very simple way to think about both the supply-side thinking and also scarcity is that what that means in very simplistic terms is simply is they want to supply less of the bad things in their opinion now that doesn’t support this current stage of Chinese growth and supply more of the things that are more necessary for the next stage of growth, which are things like higher education, services, quality of life type of things, so less GDP-specific, less highways, fewer highways, fewer bridges, better higher education, better financial services.

So that’s literally, I think, that’s what they think is just we just need to give people those things that have been inadequate because we have enough bridges, we have enough housing, and so structural supply-side reform is to me a pretty simple way of understanding what they’re trying to do.

Kaiser: Yeah, yeah, yeah. I totally agree. So as I said in the intro, we are going into what promises to be a very interesting year politically. Lots of us are watching what’s happening very closely. I want to talk about a couple of things. First of all, more concretely, you folks at MacroPolo have put out something called Selection 2022. It’s still at an early stage, of course, because we’re only getting into the new year, which tracks mentions of leaders’ names, Xīnwén Liánbō, the most widely watched and authoritative state news broadcast, the evening news, basically. It also tracks appointments of key party personnel. So whose names are you tracking first of all in Selection 2022? Is it just Politburo members? Does it include all central committee members? Is it just the 25 Politburo members or is it the 300 some odd central committee? Whose names are you tracking?

Damien: Yeah. So for the press mentions, like you said, Xīnwén Liánbō is important. It’s something that I think has almost cultural resonance, I think, for a lot of Chinese families.

Kaiser: Yeah, for sure.

Damien: They sit around the dinner table and then they watch it. It’s the half an hour literally verbatim reading of the top political news and it’s where top leaders get mentioned. So for that one, we’re just looking at press mentions of the Politburo standing committee members each day. It’s in realtime. So it’s updated every single day in realtime. It’s a way to look at who’s getting more press mentions day to day, month over month.

We actually have about 15 years of data going back 15 years to Hu Jintao days, but, obviously, we’re not going to put that all the way up there, but we do have that. Personnel changes, we’re looking specifically at just the central committee retirements, new appointments, promotions and, of course, sometimes there’s been corruption charges so then they get perched. So there’s that, too. So it’s everybody in the central committee. So about 371 people.

Kaiser: What have we seen so far? Are there any clear patterns emerging on either the media mentions on Xīnwén Liánbō or on the promotions?

Damien: The personnel changes, well, so I’ll give you another preview. So we’re coming out with something that’s going to be looking at the generational shift from the ’50s to the ’60s generation cohort, and generations have a lot of resonance in Chinese politics, and we’re trying to look at some interesting trends right now. For example, I’ll give you one quick little highlight. For example, we’ve noticed that there’s been a number of people getting promotions that have their alma mater as Beihang University, which is focused on aerospace. So it’s not like Beida, it’s Beihang. So there seem to be a new Beihang clique emerging. We’re not sure yet, but we’re looking at it. There’s definitely been some high promotions in the aerospace industry. So that’s been interesting.

There are some young rising stars that are still in their 50s that have gotten pretty significant appointments. Of course, on the retirement side, I would say one person to look at, I think everyone knows him because he’s been instrumental in US-China relations is Liu He.

Kaiser: Yeah, who is now, he’s 70 or something now. He’s 70.

Damien: He’s above the age, yeah. So that’s going to be an interesting replacement of who’s going to run the financial and the economic portfolio.

Kaiser: Yeah. That will be interesting. I’m also curious about this Beihang clique that you’re talking about if that comes. I mean, are we looking at a resurgence of technocrats?

Damien: It’s kinda niche. I don’t think people know what Beihang is, but –

Kaiser: Yeah. So it’s the aerospace university.

Damien: Yeah. So they work on China space, and they work on probably the COMAC C919 planes and all those big industrial projects.

Kaiser: It’s really the super technical and industrial elite university. ‪Tsinghua, of course is where you’re going to get your particle physicists and things like that, but Beihang is a little more hands-on, a little more tied to industry and very, very closely tied to the defense industry, especially. So, yeah, that’s interesting.

So I guess here the big question is what should a smart China watcher be watching this next year ahead of the 20th? I mean, what are the key dates or the events that should be the focus for those of us who are trying to really read the tea leaves? How important are the two meetings in March going to be? What should we be looking for? Is there going to be Beidaihe meeting this summer? What should we be looking for?

Damien: Well, man, maybe I should ask you. What are you looking for, Kaiser?

Kaiser: I don’t know. I mean –

Damien: That’s a hard question.

Kaiser: So yeah. That’s why I’m asking you because I am not that guy, right? I’m not that guy who just tracks elite politics in and out, but you guys, look, you’ve had a pretty darn good track record. Don’t be modest here. You guys have done some really good predictions over the years, right? I mean, I think every year there’s this little, every five years –

Damien: Yeah, I mean, predictions are, what’s Yogi Berra’s famous saying? Predictions are really hard…

Kaiser: Especially about the future.

Damien: Especially about the future. Yeah, yeah. I mean-

Kaiser: I guess that’s not really what I’m asking, though. I’m asking what are the things that you’re going to be paying especially close attention to, what little political confabs. I mean, I guess part of the answer is that. I mean, you’ve answered it by putting out this tracker, the Selection ’22 tracker. So obviously, media mentions are going to be an important thing, and then the ups and downs of appointments. What is the organization department…

Damien: Yeah. So I’ll answer your question this way. I think, obviously, personnel changes is a big deal, right? That’s something we already launched a tracker and so that’ll be updated in real time anytime there is an important change in personnel, and we all know personnel is political power…

Kaiser: Absolutely.

Damien: … in the Communist Party. So that’s definitely one important aspect, but beyond that, I think I’ll answer your question and thinking through what are some of the questions that I think might be worth thinking about going to 2022? One question is, of course, how much do age limits still matter beyond a certain level? So there’s been a big debate and there was already debate in the last party Congress about age, and does it matter less as you go up or is it just uniformly matters less? So there’s that. That’s one big question.

The other big question is in my mind is looking at the juxtaposition between experience versus network. How much does political experience running big provinces, those types of things, do they still matter or is it proximity or knowing the right people close to the top that’s going to matter more in this round? So those are the things.

Kaiser: Do you lean one way or the other on this question because it’s one of the big questions?

Damien: Right. It is.

Kaiser: You look at the composition of the current Politburo standing committee anyway, and almost everybody has run a province, right? All six of seven of them have either run a province as governor or as provincial party secretary, if not a province, then a provincial level municipal, Chongqing or Beijing or Tianjin, right? Not of course Wang Huning. Wang Huning is one exception, but he isn’t there by proximity to Xi Jinping either. He’s there because he brings that ideological weight, but would you be looking for example?

I mean, I guess what I would say is we know what the KPIs are, right? We don’t need to know, but we can look at a province’s performance and we can look at things like incidents of mass demonstrations and how well they were handled. We can look at per capita GDP. We can look at how well they did in some of these signature projects like poverty alleviation, and we can see who ticks the boxes, and if there’s some young 50-plus-year-old provincial Party secretary no matter where. We can see if he’s moving up, if he’s moving toward the center. I mean, if I had like a betting card as a track here, these are the things I would be looking for, right? So, yeah. I mean, that’s how I would answer that question.

Damien: Right. So yeah. So I think you’re absolutely right. I don’t have any concrete answers for you right now. I’ll just say that’s why we launched Selection 2022.

Kaiser: Man, I’m going to be paying really close attention to that. That’s great stuff.

Damien: So watch for it.

Kaiser: Hey, so Damien, before we wrap up, I’d love for you to talk about a couple of things that MacroPolo has done that you are especially proud of. Could you pick a couple of projects that you’ve done that you’d like to draw the listeners’ attention to it and talk about how they came together?

Damien: Well, since we’re talking about Selection 2022 and politics, I think one of the cooler things or perhaps more useful things we did was the committee database, which it’s not simply just a database, but it’s got a search function and it’s a fairly simple, easy user interface for you to quickly understand who’s who, and I think back in the day, maybe not everyone who are your listeners will know this, but back in the day, there was this thing called China Vitae.

Kaiser: Yeah. I remember.

Damien: I don’t know if you remember.

Kaiser: I remember it well. Actually, we talked about — we were in a long conversation with them about possibly helping out in some way because this was something that Evan had in his portfolio when he arrived at Carnegie. Carnegie was funding them. So we were in a conversation with him about that. I hope that thing keeps going.

Damien: Yeah. So that was really useful. I mean, it was so comprehensive.

Kaiser: Yeah. It was amazing.

Damien: It had a lot of things in there. So obviously, that was already really comprehensive. So we just wanted to focus on the central committee itself, and the way I was thinking about it is you have what? 400, is it? I can’t remember. Is it 453 or 435 members of the U.S. Congress? So I was thinking, “Okay.” Well, it’s not the same, obviously, but I’m trying to analogize this. You have basically the main members, 371 or so, depending on the year. So that was behind that and to create an intuitive and easy-to-use useful product, and it’s something that can be updated and iterated over the years. Of course, coming up in 2022, you’re going to get a whole new database because it’s going to be a lot of new people in there.

Kaiser: Yeah, a lot of turnover.

Damien: So that’s been an interesting way that I thought that I’d like quite a bit just because I think it’s useful. The other one is we did a thing fairly early on before. I think people were preoccupied with batteries and supply chains. We did a supply chain jigsaw where we looked at –

Kaiser: Oh, that was cool.

Damien: Yeah. Thanks, what I thought were the three key products that would be really important to the future economy. So we looked at glass, advanced all that glass for your phones and for your computer and AI chip specifically. So it was a way to look at supply chain through three concrete products whose demand that I thought was going to get huge because of where the economy was going.

So yeah, that took a lot of effort because the way I looked at it was I wanted to create a bit of what I might call a digital book idea. So it was separated into chapter. So each chapter was like, “This is one product you should know because it’s so important. Here is its market economics, and here are the supply chain things.” So that was just a slightly different way to get at the supply chain.

Kaiser: Yeah. So I mean, if you go to the MacroPolo site, there’s all sorts of really, really cool stuff. You guys have done stuff on what’s the ROI on high speed rail, for example.

Damien: Oh, the bullet train. Yeah.

Kaiser: Yeah. That was really cool.

Damien: That gets a lot of people going. I don’t know why that’s so controversial.

Kaiser: It’s not controversial. Well, I mean, for me, it’s not controversial. I thought it was –

Damien: Well, it’s controversial on Twitter.

Kaiser: Yeah, yeah, for sure.

Damien: Everyone’s like, “It’s a boondoggle. It’s a white elephant,” or all kinds of stuff. So we deliberately named it as “a boon or boondoggle” because that’s literally what everyone’s thinking about.

Kaiser: Right. You come down pretty solidly on the boon side. So yeah. I can’t believe anyone who has lived in China in the last decade doesn’t see it as, I mean, God! I mean, some people will quibble with some of the metrics that you used in figuring that out, assigning a value to the time saved and assigning, but, hey, whatever. I thought that was great. So check it out.

What I want to ask you, though, is it strikes me that there is some guiding principle to the way that you guys do things. I know how I would describe it myself. I think I gave a little bit of a description of it at the outset here when I was talking about your work, but I’m curious to see how you’d put it. What is “the MacroPolo Way,” Damien?

Damien: Well, that seems pretty profound. I don’t know if there’s actually a “MacroPolo Way” per se, but it’s pretty hard. It’s pretty hard to articulate simply, but I guess if I were to do so, if there were some organizing principle to our approach, I guess I would just call it simplifying complexity, which to me is qualitatively different than dumbing things down, and I think if people should be able to tell the difference between those two approaches.

So I’ve been pretty influenced by, I don’t know if you know who, and I’m sure you know who he is, but Richard Feynman.

Kaiser: Yeah, of course. Yeah, the physicist.

Damien: The Nobel winning physicist.

Kaiser: We’ve all watched the Feynman Lectures, yeah.

Damien: Yeah, yeah, and I’ve been watching his lectures and I read about his method and his method was very simple. He tried to test himself to see if he could explain very complex physics ideas and concepts to a first grader, to a seven-year-old. He said, “If I couldn’t fully explain it and the seven-year-old couldn’t understand what I was trying to say,” then he realized he didn’t fully understand the concept because kids are actually extremely intellectual, curious, and naive. They’ll ask all kinds of crazy questions that adults may not.

So his method was actually, he’s like, “I want this. I want E=MC² or the complexity of that to be intelligible to a seven-year-old.” This is coming from a Nobel Prize winning physicist.

Kaiser: Yeah, hell of a precocious seven-year-old. I mean, I think maybe if you can explain these complex ideas to a dumdum like me, who are doing pretty good. Think of me as —

Damien: Well, I think you’re being a little too modest there, but yeah. So I think not to say we’re trying to make first graders interested in this stuff, but I think the idea of trying to simplify complexity as much as we can, obviously, we don’t always achieve it and we fail many times, but that’s the distilled approach that I can think of to really capture it in a couple words.

Kaiser: I use the word legibility. In addition to that, I think you guys have an aesthetic sense, though. I think there’s something to that, too. There’s a clean design and it’s attractive and it isn’t intimidating. That’s not spoonfeeding. It’s not like you say dumbing down, but it’s good. I mean, I really dig it and you guys have a lot of fans out there. I mean, rest assured you really do.

Damien: Well, thanks. Well, I mean, that’s what design is about. Design should make something less intimidating, right?

Kaiser: Yeah, yeah, yeah, for sure.

Damien: I mean, that’s the whole point. So hopefully, yeah, I mean, yeah. Well, thanks. I don’t know. I mean, legibility is a good word, too.

Kaiser: Yeah. I’ve been doing a lot of thinking about thinking about China, and one podcast that is coming up in, I think we’re recording in January, and I’m very excited about is with Anthea Roberts and Nicolas Lamp who wrote this book called Six Faces of Globalization. I’ve been spending a lot of time prepping for this thing. It’s great. It’s not going to be about globalization. Although China, obviously, has a huge role in globalization, but it’s in the approach they have to talking about, thinking through complex issues.

So the book itself, it’s almost like it takes globalization as this case study, and it’s really more about how we think about complex issues. So I’m really looking forward to that. It’s going to be a totally, totally cool podcast. Anthea and Nicolas are brilliant and their book is really cool.

Damien: That sounds really cool, and that sounds like a really phenomenal episode. I think what you said about thinking about thinking about China or thinking about thinking about China, I think you could have a, I mean, I don’t know, just to pitch an idea to you, but you could do probably a whole episode on people’s different mental models on China and how they’ve evolved over the years, just like what are the core attributes that frames your thinking about China or —

Kaiser: Okay. Well, you’re going to be one of the guests on that episode. So, that’ll be great.

Damien: I don’t know about that.

Kaiser: No. I do.

Damien: I think that’s fun.

Kaiser: All right. Yeah, for sure.

Damien: Because I think those assumptions really inform how a lot of people think differently or similarly about a particular subject.

Kaiser: Okay. Well, shuōdìngle. We will have you on for that conversation. Thank you so much, Damien. I look forward to seeing you again in the new year and to help us really to keep abreast of what’s happening within the Chinese leadership and within the broader macro economy.

Let’s move on to recommendations, but before we do that, just a quick reminder that Sinica podcast is powered by The China Project. If you want to support what we’re doing here at Sinica, the best thing you can do, oh, short of, of course, investing in us, in our crowdfund raise right now, but the best thing that you can do short of that is to subscribe to our The China Project Access newsletter, which brings you the most important news out of China every weekday. While you are at it, check out our business-focused The China Project AM, which is free and our weekly roundup of society and culture news, The China Project Vibe, which Feng Jiayun does, and it’s a fantastic newsletter. Also free, The China Project Vibe. Onto recommendations. Damien, man, what do you got for us?

Damien: Well, I got one thing that I’ve been thinking about and sorry I don’t have more than one thing, but there’s a recent piece by Derek Thompson for The Atlantic. It’s actually through his newsletter, I believe, and he’s been writing for The Atlantic for a while and his beat has been on ideas, innovation, and technology. So he’s been writing a lot about that and it’s a piece called “America Running on Fumes,” and it’s building on the works of people like Tyler Cowen and economists like Robert Gordon, who’s been talking about the stagnation productivity and American productivity, and why that has been, despite all these technological advancements, why has productivity stagnated.

So he goes through a lot of these reasons and one of the main takeaways is this idea of complacency, which I think Cowen has also written about. I mean, he has a whole book on the complacent class. So to me, it was just a fascinating piece to think through what’s driving this funk in U.S. productivity and is it institutional, is it economic, is it immigration? So I just found that to be a very intellectually stimulating piece.

Kaiser: You know who weren’t complacent? The Beatles. The Beatles were not complacent. I mean, maybe my recommendation is a little too obvious, but I’m just going to say it anyway because in case you haven’t watched it, in case anyone hasn’t watched it, the amazing Peter Jackson Beatles documentary, Get Back, my God! It made me feel like, gosh, we terrible unworthy humans, we are completely undeserving of something that’s truly wonderful, the documentary and, of course, the band itself.

I loved it so much. I’ve been listening obsessively through the Beatles catalog, well, listening to everything from maybe Help onward ever since I’ve started watching it. I’m saving the last bit, which is the rooftop concert for maybe the right occasion when I’m feeling super festive, but, wow, it’s so good. I mean, I’m back in love with them again. Just unbelievable, and they’re not complacent. They are working.

I mean, their style of work is so great. It just mixes this playfulness with this real, just these creative bursts that are captured on film. You can see them develop ideas for songs that go on to become just absolute mega hits, iconic songs. There’s this genius at work. Watching that is just phenomenal.

Damien: So this is Peter Jackson of Lord of the Rings fame?

Kaiser: That’s right, Peter Jackson of Lord of the Rings. So he took all the, what is it? 600 hours something like that, a film that they did. They’re in a studio and they have basically a month to get ready for a concert that they’re going to do. Decided they haven’t played live forever. I believe you haven’t seen this yet. You’re going to have to. I’ve been talking about it on our little chat.

Damien: So I have a book sitting on my nightstand. Don’t quote me on it, but I think the title is called Dreaming of the Beatles. It’s a biography on the Beatles. I don’t know. They’re a fascinating group.

Kaiser: Absolutely.

Damien: Fascinating band, I mean. What do you think, pound for pound? Is there another four-piece man that’s as collectively creative or individually creative perhaps as the Beatles were?

Kaiser: No. I mean, maybe Zeppelin, and that’s the only thing that comes close in my mind. Maybe Pink Floyd, but –

Damien: Because I think just a rarity because everybody in that band were just really creative people.

Kaiser: Yeah. They’re fantastic. George comes off a little whiny. You’ll see, but, my God, I have such renewed admiration for Paul McCartney. I mean, it’s also just the lovable personality of him. I mean, he’s just earnest and he’s really the driving force. I mean, everyone I think over-credits Lennon. Anyway, I love it. It’s great. All of them are fantastic. So that’s my recommendation.

Damien: Well, wasn’t Paul McCartney the lead songwriter in many of the hits that the Beatles had?

Kaiser: Yeah, yeah, absolutely. I mean, they’re all credited, Lennon/McCartney, but you’ll see. Watching it in process you’ll start to understand what goes on. Anyway, watch it. I mean, you and I have both been in bands and we know what that dynamic is like.

Damien: Yeah. Hey, so can I ask you one thing that we started the conversation with because people can’t see it, but I can clearly see a drum set in the background. So what’s harder, guitar or drums?

Kaiser: I think they’re both really hard. I mean, I think that people think that drums are easy and they’re absolutely not, that four-way separation you need to attain. I mean, playing it at a really simple level on drums is attainable within just a few months, but to become actually good and musical at it, it takes a lot of work. I’ve been at it for about three years and I haven’t been playing super, super regularly.

Damien: Wow. Okay.

Kaiser: I think I’ve gotten to a point right now where I wouldn’t be embarrassed to sit down. I don’t have to play publicly. I mean, I’m no longer terrible, which is all I could say.

Damien: What have you been listening to on drums? Who do you –

Kaiser: So my new obsession is this drummer named Gavin Harrison. He’s not a new obsession, but he’s the drummer of Porcupine Tree. Now, he plays with Pineapple Thief, but Gavin Harrison, he’s my new idol just because he has just such subtlety and musicality to the way he plays. I’ll send you some stuff, Damien. I’ll send you some. You’ll dig him.

Damien: Okay.

Kaiser: All right, man. Hey, what a fantastically fun conversation. I’m going to save my other recommendation that I had for another show because I always run out of these, but thanks again, man. It was so good to talk to you.

Damien: It was great to see you after so many … Great to be on a show after so many years and hope to see you in person soon.

Kaiser: All right. The Sinica Podcast is powered by The China Project and is a proud part of the Sinica Network. Our show is produced and edited by me, Kaiser Kuo. I’d be delighted if you would drop me an email at sinica@thechinaproject.com or just as good, give us a rating and a review on Apple podcasts as this really does to help people discover the show. Meanwhile, follow us on Twitter or on Facebook at @SupChinaNews and make sure to check out all the shows in the Sinica Network. Thanks for listening and we’ll see you next week. Take care.