Is There a Discipline in the Dollar Bond Market?

Episode Notes:

Today's guest is Chen Long, co-founder and partner of Plenum, a research firm covering Chinese economy and politics. Prior to that, he was a China economist at Gavekal Dragonomics. Chen Long is a Beijinger, and graduated from Peking University. Welcome to the podcast. It's great to have you.

2:20 - I think the economy is a little bit like ice and fire, for now. There are certain areas certainly doing pretty poorly. Of course, everyone always talking about the property market, Evergrande, and basically every couple weeks we see a property developer default…

6:00 on the power generation problems - usually December is a peak of Chinese electricity consumption. I'm not sure the current supply of coal is not ... I mean, it's better than a month ago, but they probably have to do a little bit more. So I think it's still too early to say that we have totally overcome the end of the shortage.

13:07 on whether this time is different with the real estate market - a year after Beijing and many local governments introduced restrictive policies, finally, we had three months in a row of property sales volume falling by double digits, on a year on year basis. But this is just three months, right? If you look at the previous cycles, especially 2015, 16, we could have the down cycle for 15 months. But this is just three, right? So Beijing has not blinked yet, because it's only three months.

16:30 on Evergrande - I think there was a little bit of overreaction, especially when you see headlines linking Evergrande to Lehman Brothers, and this sort of thing. And I have to say that this is at least the third time I hear a Chinese Lehman moment in the last ten years.

35:50 on the 6th Plenum and likely historical resolution - The previous ones were all about resolutions on certain questions of the party's history. Right? And this one is not uncertain questions. There is no question. It is resolution on the party's accomplishments over the last 100 years, and the lessons. So I guess it's a big, big summary about what he has done. And, of course, this one I think will cement him as the core, right? And we have to follow whatever he thinks we should do so

Links: The Plenum website.

Transcript:

Bill:Hi everyone. Today's guest is Chen Long, co-founder and partner of Plenum, a research firm covering Chinese economy and politics. Prior to that, he was a China economist at Gavekal Dragonomics. Chen Long is a Beijinger, and graduated from Peking University. Welcome to the podcast. It's great to have you.Chen:Thank you, Bill. It's my honor to be your third guest.Bill:Oh, well, third time is the charm, I hope. And I hope things are well. And I hope things are well in Beijing. I have to say, I very much miss this time of year in Beijing. There is something really special about autumn in Beijing.Bill:So, to kick off, today, I think we want to talk about the state of economy, and various themes related to that, including common prosperity, and real estate, the sixth plenum that's coming up. But, to start out, could you just give a brief intro about yourself, and more specifically what Plenum does?Bill:Just for listeners, it's a high end research service. The website is at Plenum.ai. And it's really terrific. It's one of my top most favorite research services on China now. They're really sharp on economy and politics.Chen:Yeah. Thank you, Bill. I think, Bill, you have done basically all the marketing I need to do. So we are a pretty young firm. I mean, we were founded two years ago, almost exactly two years ago. And that's when we first started to publish reports. And we write on Chinese economy, policies, politics, geopolitics, other stuff. And we serve institutional clients. Some are financial institutions, some are non-financial corporations.Chen:And I think where we are a little bit different from others, is the team is basically entirely Chinese nationals. But, of course, we'll come from different backgrounds. A lot of people work in the US for many years. And, right now, I'm based in Beijing. Yeah.Bill:And I first came across your work, I think, because you were working with Arthur Kroger, over at Gavekal DragonomicsChen:Yes. I was at Gavekal for almost six years. Yeah.Bill:Right. And I think that's where I first started reading your work. So, anyway, it's great to have you. I've always been a big fan. So-Chen:Yeah. Thank you, Bill.Bill:From a top level, could you just give us your view on what's going on in the economy in China, and where things are?Chen:Yeah. I think the economy is a little bit like ice and fire, for now. There are certain areas certainly doing pretty poorly. Of course, everyone always talking about the property market, Evergrande, and basically every couple weeks we see a property developer default.Chen:But, on the other hand, you also see this energy crunch, which actually was because energy demand was really strong, right? And industrial demand was strong. And then the grid and then the power plants could not meet up with that demand. So you basically have one big sector of economy, and actually several big sectors, apart from the real estate, you have the automobile market actually shrinking this year, general consumption were pretty mediocre, right? Because whenever there's a COVID cluster, you have local governments will restrict travel, or implement some sort of lockdown for two or four weeks. So consumption will be affected.Chen:But, on the other hand, the export is really strong, right? We're probably seeing the best export performance since 2011. That's the best we have in a decade. And there's no sign that this is putting off. A lot of people have said, "No, this is just temporary. Not going to be sustainable." I've been hearing that argument since a year ago. And, right now, it's still really hot. So that's why you have certain sectors ... So that's a little bit special, I think, compared with any time in the last decade. Yeah.Bill:And, certainly, specifically around the energy challenges, you said it was really because demand was so high. How quickly do you think that the ... There have been a whole flurry of measures from the NDRC, and other government bodies, about making sure that the coal supply increases, and cracking down on price speculation.Bill:And, I mean, how quickly do you think that these regulatory actions are going to solve the problem? And, the reforming or the changing in the price mechanism, is that enough to make the power generators actually make money now, so they're more willing to produce energy? Or are we still going to be looking at probably fits and starts over the next few months?Chen:Yeah. I think a lot of the power plants may not be losing money at this point. The government basically did several things at the same time. One, they told all the coal miners just to increase supply as much as you can. And, two, they told the coal miners also to restrict the prices. Basically, they set a cap. And there's a debate on what exactly is the cap, because there are several different versions of the cap.Chen:But whatever version you believe in, there's a cap. And the cap is a lot lower than the market price we had two weeks ago. That's why we had this Zhengzhou thermal coal future price, basically halve in two weeks. And they also allow the power plants to raise the electricity prices by up to 20%, and more if the users are high energy intensity sectors.Chen:So there are flurry of changes happen just over the last months or so. And I think the coal supply has probably improved quite a bit. And we are hearing a lot less stories on companies running ... They face blackouts, or they were just told in very short notice that they have to cut production. We hear a lot less that sort of story. But that still exists, it's just a lot less than a month ago, or at the end of September.Chen:But with this winter heating season coming again, usually December is a peak of Chinese electricity consumption. I'm not sure the current supply of coal is not ... I mean, it's better than a month ago, but they probably have to do a little bit more. So I think it's still too early to say that we have totally overcome the end of the shortage.

Bill:Thanks. I mean, it is interesting how it really seemed to have caught a lot of people by surprise. I think both policy makers, but also investors. It's just interesting how that happened, and how so many people seemed to not understand what was going on, including myself.Chen:Yeah. Because, for 20 years maybe, people talk about China has over capacity in IPP, this is actually the power plants. China invested too much in some coal power plants. And I think, at one point, like 2015 or 2016, when over capacity got really serious. And then that was one of the sectors that local and others had to work very hard to cut capacity.Chen:So we never really thought for a second that China would have electricity shortage, because there's always huge supply, maybe oversupply. But I think a lot of things changed since the beginning of the pandemic. The services sector used to be growing a lot faster. But, so far, it's underperforming, while the industrial sector, which were slowing for many years, has suddenly started to outperform.Chen:So, basically, since the second quarter of last year, we have a Chinese economy moving further away from a service driven economy, to a more industrial driven economy. So that's a completely reversal of the trend since 2010, or even 2005.Bill:That's also a reversal of what a lot of economists have recommended China do, right?Chen:Yeah. I mean, people say, "No, yeah, China should become more service driven, and less industrial driven. And also, of course, more consumption driven, less investment driven." But I would say this whole rebalancing theme has somewhat reversed over the last year or so.Chen:And this just, again, has to do with this fire and ice, as I mentioned earlier. So this is just one sector doing really well, it's industrials. And the manufacturing facilities are just all pretty at fully capacity, demand from the rest of the world is really strong. And while the domestic consumption is very mediocre. And service sector, of course, the people just go out a little bit less than they were, in 2019 or earlier.Chen:So basically the economy itself is consuming much more electricity than it used to be, that means two years ago. So, suddenly, we have this issue.Bill:Interesting. And just on that stronger industrial, weaker consumption service sector, is that by design? Is that something that the policy makers want? Or is this just more of an outgrowth of the pandemic changing global dynamics, potentially consumer spending dropping because of concerns about consumer debt, for example? I mean, what's driving that?Chen:I don't think it's intended or planned, or even foreseen by Beijing, by the leadership, I think when China started to get out of the pandemic, in April or May 2020, I mean, there was a real fear, because the rest of the world is experiencing the worst of the pandemic. So the worry, at the time, was China is going to face a demand collapse from the rest of the world. So you got a double whammy economic crisis. So just get out from the domestic demand collapse, you're going to see an external demand collapse.Chen:But somehow that external demand collapse didn't really happen, or just basically happened for one month or so. And turned out to be that the export was really strong. And people in Beijing could hardly believe that. And people say, "Oh, this is just temporary. Because this supply chain was disrupted. But maybe when the things get better next year, the demand will go away. And somebody might has to do with this stimulus checks, given by US government, European governments. Once that effect expires, the demand will go away."Chen:But, so far, it still hasn't gone away. And with Southeast Asia, and Eastern Europe, Latin America, lot of developing manufacture hubs in trouble, China basically became the only manufacture hub that can still maintain enough supplies. So I think that really caught a lot of people, including the Chinese government, by a big surprise.Bill:No, it is. It is really interesting. And so as you talk about the economy, I think you called it fire and ice, I mean, one area that seems a bit icy is real estate. And, obviously, Evergrande's been in the news. But there are plenty of real estate developers that have violated the three red lines, or seem to be in various states of default or near default on some of their debt.Bill:One thing that's been interesting is we've seen real estate stresses that are over the last 15 years or so. Every few years, it seems like there's a cycle, and it's usually policy driven. Because the policy makers want to crack down on real estate speculation and unproductive investment. But then when things start getting bad, and stressed, and companies start having problems, and prices maybe start looking like they're going to drop in some places, the policy makers always blink and pull back, and basically find ways to loosen things up, and let the market return.Bill:It seems like, this time, they've been much more disciplined, I think surprising a lot of people, in terms of being willing to ride out a lot more pain around the real estate sector. Is that a fair assessment? And, if it is, why is that? And if it's not, how do you see what's going on?Chen:Yeah. I tend to believe that this time is not that much different from previous episodes. I mean, I know there's the argument there, saying, "Xi really wants to reduce the share of the real estate in the economy, and wants to curb housing prices." But I don't think this is new. We have this episode, like you just mentioned, multiple times in the last 15 years. Basically every three years, we have a property cycle, from trough to peak to trough. Right? And the Chinese government, in both central and local, that will change policies very, very quickly.Chen:And this time is no different, right? Because you talk about the three red lines, the three red lines really were just introduced a year ago, last August. Right? And, well, the background of that was the PBOC, along with other policy makers, the property market recovered too quickly, and think they're doing too well. And housing prices in cities, especially big cities like Shenzhen or Shanghai, were rising too fast. And that was a little bit unanticipated. So they said, "No, we have to restrict the area, this kind of bull run."Chen:And now a year after Beijing and many local governments introduced restrictive policies, finally, we had three months in a row of property sales volume falling by double digits, on a year on year basis. But this is just three months, right? If you look at the previous cycles, especially 2015, 16, we could have the down cycle for 15 months. But this is just three, right? So Beijing has not blinked yet, because it's only three months. Right?Chen:And we are seeing a little bit some early signs, like PBOC two weeks ago said, "Oh, some banks misunderstood our intention, when we told them to restrict the lending. And some of the normal projects would not be restricted," blah, blah, blah. And then I think today, or yesterday, one of the state-owned media, Economic Daily again published article about these housing regulations. So I think we're seeing some signs that those things are easing a little bit. So it's not like they are just letting the market die.Bill:Right. Well, and I mean, there are real risks. I mean, there are real risks around ... I mean, I owned property in China for a while, and certainly had lots of friends, including some real estate developers, and people with lots of ... I mean, there was just this sense that, in these previous cycles, they would go until prices started dropping, and there was a risk of people getting really pissed off because they were losing money again.Bill:And so is that one of the things ... I mean, again, it doesn't seem like the prices have dropped that much yet in most places. Is that one of the things to look for, where if we start seeing housing prices actually go negative, is that one of the triggers that makes the government maybe start loosening faster, just because they're worried about how ... I mean, they have their constituency, and people who own property. They do care what they think, right?Chen:Yeah. That's certainly one thing they care about. And I think another thing they care about is the impact on economy, like the GDP, right? The housing and the real sector as a whole, if you found all the upstream industries all together, it'd account for probably one third of Chinese economy. Right? So if you kill the real estate sector, basically you kill the economy. And they can't do that. That's suicide.Bill:No. It's still a quarter of the economy. Right? So somewhere around there, if you add up all the various-Chen:Yeah. Depending on how you estimate, anywhere between 20% to a third, that's kind of the estimation. Yeah.Bill:So, Evergrande, there was a massive freak out over Evergrande. And I think it's maybe even a month ago, or a little longer. Did people overreact to what's going on at Evergrande. And what is going on there? And how do you think it gets resolved?Chen:Yeah. I think it has a little bit of sense that people were a little bit overreacting. I got called by Al Jazeera twice in two days, saying, "We need you to comment on Evergrande." I was like, "Come on, guys. You guys, yeah, are very respectful media TV, but you don't need to tell your audience in Qatar what's going on in Evergrande, in two days in a row. And one of that is a Sunday."Chen:So I was like, "Oh, this is really everywhere. Right? It's not just Bloomberg or Wall Street Journal. This has gone to non-financial media as well." And that was basically the main theme in the last week, or last two weeks of September. Right? So I think there was a little bit of overreaction, especially when you see headlines linking Evergrande to Lehman Brothers, and this sort of thing. And I have to say that this is at least the third time I hear a Chinese Lehman moment in the last ten years.Bill:I was just going to say, is the default analogy when ... Oh my God, China's Lehman moment. And we saw it. I remember it was, I think, 2013, when the interbank market basically went crazy, the end of Q2, early Q3. And I forget the other one. But, no, every time I see someone say, "China's Lehman market," basically, just to be honest, I just tune it out. Because it doesn't fit. And it never has. And if China has a big problem like Lehman Brothers, it won't be like Lehman brothers. It'll be something else, is my view.Chen:Yes, totally. And I don't know that even if Lehman Brothers exist today. I mean, if the same thing happens today, with the current federal reserve, with the current Fed chairman, that this will not have happened. Because they would just do QE.Bill:So what does happen with Evergrande? I mean, how does this thing get resolved?Chen:Evergrande, on the surface, just a very large company, over leveraged, and had a liquidity problem, maybe has solvency problem. We don't really know how much of its assets is real, or how much liability is real. Maybe its liability is a lot more than is stated. It says it has 2 trillion RMB liability, but if it has 2.5 trillion, then the company is insolvent, right? So we don't really know.Chen:And the thing is, we just start to see that this company started to have funding problem, since PBOC introduced the three red lines, because it failed in all the three. Banks were afraid of giving it money, and couldn't refinance in the bank market either. And the trust company, and the trust world that everyone saw, started to have problems. So, basically, with leverage at that size, you have to keep borrowing. To Evergrande, they're reducing the debt. And once that snowball stops moving, then basically you collapse, right? So I guess that's basically what it faced.Chen:And how we're going to resolve it, I think, in the best case scenario, that a lot of the estate projects will just ... First, they have to get it finished. And some of the land, or some other projects be sold to other developers. And Evergrande will downsize to a much smaller developer, and then will start to exist.Chen:And that's quite similar to what Wanda did. Wanda was a much bigger property developer five years ago. But then since has sold a lot of the projects, both in China and overseas. And, basically, right now, it's like a property management company, and doesn't have a lot of power assets. So that's what Wang Jianlin did to save himself, basically, and his company.Chen:So maybe, on Evergrande, if you're rational, you think that's a good scenario. But I think Hui Ka Yan doesn't want to give up. I think that he is betting on another big easing from Beijing. Right? Because he has been in this, I would say, in the live or die moment, at least twice in the last 15 years. Right? The first time I heard about Evergrande was 2007, right? I saw news that Hui Ka Yen was having drinks with the Hong Kong tycoons, and playing mahjong together. And, finally, he received a lot of money from the Hong Kong tycoons. And then that saved him in 2008, when the company was on the edge of collapse.Chen:And the second time was 2015. The company was again on the edge of collapse. And then it bet on a big easing from Beijing, and then property market turned around. It became much bigger. And I think, this time, Hui Ka Yen doesn't want give up. But he did say two weeks ago that he wants to move further from property developing, wants to become electricity car company. God knows whether he can succeed or not, but he's not going to just give up.Bill:Right. Right. No, he's the kind of ... I mean, that's why he's been so successful, and why he's been able to pull this off, right? I mean, he's just going to go until he can't go anymore. And it will be-Chen:Yeah, yeah. I think that the government ... Yeah. Sorry.Bill:No, go ahead. Go ahead, please.Chen:Yeah. I think from the government's perspective, the government would just want Evergrande to downsize, finish the existing projects, pay off your debt. It becomes a smaller company. And then your risk also is a lot smaller. But I'm not sure that's something that Hui Ka Yen has decided to do. Because then he will become a much less relevant person. Right?Bill:Right. And the government does also seem concerned now about the risks of defaults in the overseas debt markets. Right? I mean, it seems like this is the constant tension, right? They want introduce some discipline, and they want to avoid moral hazard, but they can't have a bunch of offshore bonds default in a short period of time. Right? Because then that potentially really screws up the market for them for a while, doesn't it?Chen:Yeah. That's actually an interesting point. Because when people ask me about Evergrande like a month and a half ago, and I was basically saying, "I think the dollar bond market matters the least for Beijing." Right? Because you have a different kind of creditors of Evergrande, right? You have the home buyers, who've paid, but they haven't received the houses. And then you have the construction firms and their workers. And you have the domestic banks, the domestic WMP holders, domestic trust companies. And they all matter a great deal for the Chinese financial system. And the last one is a hedge fund or someone who bought a bond in Hong Kong. But all of a sudden, they had a meeting a week ago, saying, "Hey, guys, we have to have a little bit discipline. Don't just run away. And you have to also take care of your offshore debt." I still haven't figured out why, what changed in their thinking. Maybe this is just a way to calm down the Wall Street. But why did they suddenly feel they have to calm down the Wall Street, six weeks after the crisis happened? I haven't figured out.Chen:My hypothesis is maybe some Wall Street bosses put some pressure on Chinese leadership. I did notice that a lot of the big bankers, and the big American company, and the senior executives had a video conference with Wang Qishan two or three weeks ago, in the name of the Xinhua advisory board.Bill:Right. Right, right, right. That's interesting. And I have to say, I find it very, very strange that the US Secretary of State, Blinken, brought up Evergrande a couple weeks ago, which he made some comment about hoping the Chinese manage ... I forget exactly, but it just-Chen:Well, he was asked by CNN, or someone. Yeah, he was asked.Bill:Oh, was it a response? He was asked? Okay. It just seemed like it was very out of his lane, in terms of what the Secretary of State would talk about. So-Chen:Yeah. He basically said, "People have to act responsibly."Bill:Interesting. I mean, I think it is interesting though. It definitely does seem to be a shift. So, speaking of shifts, I know we only have a few more minutes, but I'd love to get your thoughts on ... Again, this is something lots of people ... Outside of China, I know we're scratching their heads, but certainly folks I've talked to inside China too, are trying to really get their hands around, what does common prosperity mean? And, really, what changes, what policy direction are we really going to see around common prosperity? And there was that strange WeChat post that was from a very sort of Neo-Maoist-Chen:Li GuangmanBill:Yeah, yeah, the very Neo-Maoist blogger, that was picked up over the weekend by the online properties of Xinhua big state media properties, which caused a lot of consternation outside China, but I think inside China as well. And so it seems like the messaging is a little bit mixed, and there's obviously a lot of politics involved. But what do you see, or what's your guys' view, the point of view on what common prosperity means going forward?Chen:Well, we tend to think that common prosperity is next step after President Xi completed the poverty alleviation campaign, right? So after poverty alleviation, in theory, China should have no absolutely poorer people, right? Nobody's living in poverty anymore. And then what's the next step, right? That's not the end. Right? You get out of poverty, but you should get richer, and you have a better life.Chen:So I think that's something that he came up with after that, that we want everyone to have a more decent lifestyle. And, of course, he chose Zhejiang province, a province he spent five years as party secretary to be this pilot program, or pilot area for common prosperity. And the thing about Zhejiang was ... The thing Zhejiang published was rather, I would say, a standard, right? It basically said, "No, we want to increase the household time by one percentage point, or increase the GDP by certain percentage point. And then the equality among different cities should be restricted within a ratio, and people should be able to find the jobs very easily," blah, blah. So a lot like that.Chen:So it's still very pro growth, the Zhejiang plan. But we all know the common prosperity is not only about growth, it's also about redistribution, which is something Zhejiang did not mention very much in his own report, which is understandable. Because that requires tax policy changes that Zhejiang has no say. So Beijing has to decide what kind of tax, what you have to introduce, right? People talk about this property tax, and more pilot programs for property taxes. And then we talk about the consumption taxes. So this kind of stuff, Zhejiang has no say, right? So Beijing has to decide what exactly they're going to do with all these taxes.Chen:So there's certainly an element also about redistribution, restricting certain super rich, and especially those who got rich without behaving, how to say, legally, or you operate in gray area. For many years, there was no law or no regulation. You got rich, but maybe you broke the law. Right? So if you got rich through that channel, then maybe you have to rethink a little bit. Yeah. Or at least you have to change your model completely, because that's no longer tolerated. Right? Because the President did say, "We encourage everyone to work very hard to get rich. And that's great. But we also want to restrict people from getting rich using dodgy channels."Bill:Right. And I think that's what has certainly freaked out a fair number of people. Right? Because it's always unclear what the definition of dodgy or not legal actually is, and how far back they might go. And, that, I think also ties a bit into ... I know you guys have written a fair amount about all these various regulatory actions, and specifically around anti-monopoly policies and regulatory decisions, and also the changing approach to internet platform regulation.Bill:Are we in a new normal, when it comes to regulation? I talk to some people who think this is all passed, and it's going to get better again. But, to my perspective, it really feels like we're in a new era of this kind of stuff. And so, the big internet companies, their businesses are still good, but they're never going to be the same. And it feels like, their costs, they're going to have a lot higher cost base, because they're not going to be able to exploit workers and customers, like the way they used to be able to.Chen:Yeah. I think the compliance cost will certainly be a lot higher than before. And these regulations have passed. And they will stay here. They'll not go away. They'll not be rolled back. So I don't think there's anything like the end of the regulation, or the end of the regulatory competitor. There will be no end.Chen:But I do think maybe the peak is behind us. Think about the largest internet companies in China, Alibaba and Meituan were already punished for antitrust. And the Tencent was not directly affected by the trust, but the gaming thing was also mentioned, and a lot of other guys also name checked, like ByteDance, or Pinduoduo, they were also a little bit worried. So it is hard to say who will be bigger than Alibaba, who will be a bigger victim than Alibaba, it's very hard to ... Unless Tencent suddenly runs into a big trouble. But nobody else is bigger than Alibaba in the Chinese internet domain.Chen:So I guess, after these campaigns, maybe since we settled down a little bit, it will not be over, but we're likely to suddenly see another company find 18 billion RB immediately, or another large fintech company saying, "You have to dissolve, or you have to be separated into different arms." Nobody else is really as big as Ant Right? So I guess maybe we have passed a peak.Chen:And especially, this year, again, I think there's something different about this year, is since the very beginning, Xi made it very clear that this is a year that we don't have to worry very much about economic growth, because it's very easy. Right? They said the growth is targeted at 6% intentionally, which is a target they're going to reach anyway. Right? So, basically, they can do a lot of other things, like structural reforms, and some things they wanted to do in the past, but didn't have the time or the capacity. But, finally, this year, you can spend all your efforts in these things.Chen:But next year will be different again. But next year, actually, we'll go back to the normal China, that you have to be worried about growth target, right? Where is Beijing going to set the growth target? People are debating. I think it's still being something like five and a half percent. And I definitely don't think it'll be lower than 5%. And given the current trajectory, they have to change policy quite a bit to reach either target, especially…Bill:So you're saying, if they decide the target for next year is 5%, they'd have to ease up on some things for next year?Chen:Yeah. I think, five, there is a little bit. And if five and a half, they have to ease quite a lot. And that means you have to be a little bit nicer to companies in general. Right? So, last year in 2020, Xi had several symposiums with various people, and at least two with large companies, right? One, there was a foreign company, the other was all Chinese private firms.Chen:But, this year, at least on the record, I haven't seen any of these kind of symposiums with companies. Right? So he only does that when he's worried about the corporate sector. And, this year, he's not worried, apparently. But, next year, if he's worried again, he could come up, and then they'll have a conversation with these guys in person. And if he does that, then the crackdowns will be a lot softer, at least. Right?Bill:Interesting. So last question, I know you got to go, is what do you think we're going to see out of the sixth plenum, that investors and others should really be paying attention to, that starts ... I guess it starts on Monday and runs through, I think, Thursday next week, right?Chen:Yeah. Yeah. Well, the sixth plenum is all about one thing, right? It's this resolution about the accomplishments of the party in the last one, two years. Right? And I think the previous two resolutions, we had one in 1945, another in 1981, right? Maybe the 1981 one is more relevant, because of course that's more recent, and that was done by Deng Xiaoping. And, without the second, we wouldn't have known there would be another resolution. Right?Chen:But I think this time it's quite different. Because both in the first resolution, basically written by and approved by Chairman Mao, and the second one basically drafted and finally approved by Deng and Chen Yun and other old comrades. But they had to fight with a different ideology. Right?Chen:So in the first resolution, Chairman Mao was basically saying that the party made a lot of mistakes in the 1930s. Right? And ended up then with the Long March. And then we had the Zunyi conference. And then I had to be this poor core. And then the party was saved. Right? So there was a real fight between Mao and a lot of other guys, from Wang Ming and others. So he used that resolution to cement what happened in the party over the past 20 years or so, which was right and which was wrong. So that was basically that resolution was all about.Chen:And the 1981 resolution was similar. Right? So this old comrades had to ... They felt they had to come with something to summarize what happened since 1949, what was right, what was wrong? Where did chairman Mao did right? And where did he did wrong? And what we should do next? Right? So there was a lot of that. And also of course Hua Guofeng at the time was still relevant. Right? So he had to make sure that this 两个凡是, that whatever Mao said, we had to follow. Right? This is...Bill:Yeah, the two whateversChen:Yes. Yeah. So he had to crack that. So, in both occasions, there were clear things they had to correct. But, this time, I really don't think there's a clear thing that President Xi has to correct. Because no one is really arguing something else. And I think they usually talk about their mistakes, or some problems the party had since 1981. Maybe the biggest thing was what happened in the late '80s. Right?Chen:But since 1992, when Deng did this sudden speech, and everything was basically all about the reform, and open up, blah, blah. Of course, we had a little bit of chaos during the 18th party Congress, Bo Xilai and all these guys. But that, I think, was so minor, if you compare all the other accidents the party had over the last 100 years, right? Maybe it's only relevant in the last 40 years. So I think this all ...Chen:And also the name was a little bit different, right? The previous ones were all about resolutions on certain questions of the party's history. Right? And this one is not uncertain questions. There is no question. It is resolution on the party's accomplishments over the last 100 years, and the lessons. So I guess it's a big, big summary about what he has done. And, of course, this one I think will cement him as the core, right? And we have to follow whatever he thinks we should do so, and that's something definitely right.Bill:That's an interesting point, about if it's not actually about certain questions. And probably, certainly, if people want to ahead of this, I think reading that document ... I think it came out in August. It was basically a long piece about the party's accomplishments. I'm guessing that there'll be a lot in this resolution that is very similar to that language.Chen:Yeah, yeah.Bill:Right? I mean, it seems like it's a draft almost. And, really, like you said, it's not about settling a fight that's been going on, so much as more forward working. But so what does that mean? I mean, I assume this will tie into common prosperity. And I guess, this plenum, it really is going to be about this. There's probably nothing from a policy perspective that's going to affect the economy, or how investors should look at China in the near term, right?Chen:Yeah. I guess not that much in the near term. Well, of course, this one will set a stage for next year, where the big thing will happen. So the 20th party Congress, will get them to say, "No, we're going to follow this revolution, and then do whatever we should do in the next few years." Right.Bill:Great. Well, hey, I really appreciate your time. I think really want to thank you for being one of the first guest of Cynicism. And I will put a link to the Plenum website in the show notes. And I highly recommend anyone who is a financial market professional in China, you should go sign up for trial. Like I said, these guys, Chen Long and his team, and the Plenum research product is really quite terrific. So thanks again for your time. And I hope everything stays safe in Beijing. We see lots of headlines about COVID in Beijing right now. But I-Chen:Yeah, it is absolutely safe. If I go out, I may not be able to come back. So it's absolutely safe to stay here.Bill:Right. So you're probably not leaving Beijing until February, right? I mean, is it possible that you really can't leave before the Olympics?Chen:I think I can. I think, after next week, things may be a little bit relaxed. I think it's just partly because of next week, the sixth plenum.Bill:The plenum.Chen:And partly because the COVID clusters are still on the rise. But I think after next week, I might be able to travel a little bit.Bill:Great. Well, anyway, thanks again for your time. And I hope to talk to you soon.Chen:Yeah. Thank you, Bill. Yep.

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