WEBVTT - TSMC's US Grants, Yellen Wraps China Trip 0:00:02.480 --> 0:00:10.480 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:10.520 --> 0:00:13.720 Daybreak Aisia podcast. I'm Doug Krisner. You can join Brian 0:00:13.800 --> 0:00:16.640 Curtis and myself for the stories, making news and moving 0:00:16.680 --> 0:00:19.560 markets in the APAC region. You can subscribe to the 0:00:19.600 --> 0:00:23.080 show anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.320 --> 0:00:26.080 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:27.360 --> 0:00:30.320 Joining us now is Wendy Kutler, vice president at the 0:00:30.360 --> 0:00:35.040 Asia Society Policy Institute and a former acting Deputy US 0:00:35.080 --> 0:00:39.479 Trade Representative. MS Keller. Thank you very much for joining us. So, 0:00:39.760 --> 0:00:44.440 Jannet Yellen's trip really didn't produce any specific agreements to 0:00:44.960 --> 0:00:49.720 lower tensions on trade and investment, but it does seem 0:00:50.000 --> 0:00:53.000 the mood is a little better. Is that just smoking 0:00:53.080 --> 0:00:54.080 mirrors or is it real? 0:00:55.560 --> 0:00:55.600 No? 0:00:55.840 --> 0:00:59.800 I think that's a correct assessment. There's clearly more engagement 0:01:00.280 --> 0:01:03.720 China at senior levels but also at the staff levels 0:01:04.160 --> 0:01:08.640 at the Treasury Department and other economic agencies. So that's positive. 0:01:08.959 --> 0:01:13.520 But as your other story indicated, there are serious concerns 0:01:13.560 --> 0:01:19.440 on the horizon, particularly the over capacity in China's manufacturing industries, 0:01:19.959 --> 0:01:24.120 which are grave concern not only to the US, but 0:01:24.520 --> 0:01:31.120 to other countries including Europe, South Africa, Brazil and others 0:01:31.160 --> 0:01:31.959 around the world. 0:01:32.120 --> 0:01:35.199 Yeah, definitely, the EU is moving closer. It would seem 0:01:35.240 --> 0:01:39.600 to imposing additional tariffs on Chinese evs. I don't know 0:01:39.640 --> 0:01:42.200 the way you can call it dumping necessarily, that used 0:01:42.200 --> 0:01:45.240 to be the term we applied in the old days 0:01:45.240 --> 0:01:48.320 when it came to these types of trade tensions. But 0:01:48.560 --> 0:01:50.840 I'm curious as to whether or not you think Beijing 0:01:51.000 --> 0:01:53.960 is marking a little time here until the dust settles 0:01:54.360 --> 0:01:57.640 with respect to the presidential election. What do you think? 0:01:58.800 --> 0:02:02.320 Well, I think that is a concern because Secretary Yellen 0:02:02.400 --> 0:02:08.320 announced kind of a new intensive engagements on balanced economy 0:02:08.360 --> 0:02:12.359 looking at the supply and demand factors, and given past 0:02:12.440 --> 0:02:16.399 experience with China, this could serve as an excuse by 0:02:16.520 --> 0:02:20.079 China just to delay, delay, delay, keep talking, don't take 0:02:20.120 --> 0:02:25.160 any actions. So I hope when she returns and reports 0:02:25.280 --> 0:02:29.200 on progress made and what she's heard in Beijing to 0:02:29.360 --> 0:02:34.760 the President that serious consideration will be taken in terms 0:02:34.840 --> 0:02:40.600 of how the US should respond to potential export surges 0:02:40.680 --> 0:02:44.280 by China in products like electric vehicles and batteries and 0:02:44.360 --> 0:02:45.079 clean energy. 0:02:45.560 --> 0:02:48.760 Well, the EV sector is really an interesting playing field 0:02:48.760 --> 0:02:52.880 to look at because China has actually innovated there and 0:02:52.919 --> 0:02:56.120 it has worked very hard to get a lead in 0:02:56.200 --> 0:03:00.520 the industry. But yes, it is selling vehicles very cheaply 0:03:01.040 --> 0:03:04.200 in particularly in Europe, and it is helped by subsidies 0:03:04.240 --> 0:03:07.000 in government aid. There's not really much doubt. I suppose 0:03:07.720 --> 0:03:10.720 in some ways both sides are right and both sides 0:03:10.720 --> 0:03:13.000 are wrong, and it depends on how you actually see 0:03:13.040 --> 0:03:16.079 globalization as to how you figure out who's right here. 0:03:17.360 --> 0:03:20.280 Well, I look at it more like fair trade and 0:03:20.480 --> 0:03:25.919 unfair trade. And unfair trade to me is based on subsidies, 0:03:25.960 --> 0:03:32.079 financial assistance, low cost loans, incentives for battery procurement from 0:03:32.120 --> 0:03:35.480 local companies. All of this has been used by China 0:03:35.840 --> 0:03:40.000 to propel their electric vehicle sector. So no doubt they're 0:03:40.040 --> 0:03:44.480 competitive now, but their competitiveness is based on a lot 0:03:44.520 --> 0:03:49.040 of government money spent over a series of years to 0:03:49.400 --> 0:03:51.720 propel them on the global stage. 0:03:51.920 --> 0:03:55.280 It's interesting because after Yellen made her remarks later in 0:03:55.320 --> 0:03:58.760 the day, we heard from the Vice Finance Minister Leol Minh. 0:03:58.920 --> 0:04:01.280 He was saying that China is going to rely on 0:04:01.680 --> 0:04:05.200 market forces to remove any excess in terms of capacity. Now, 0:04:05.240 --> 0:04:09.560 whether that suggests that Beijing is willing to stomach stomach 0:04:10.920 --> 0:04:15.040 what could be bankruptcy and some kind of consolidation as 0:04:15.080 --> 0:04:17.680 a remedy to this situation. Do you think that's likely? 0:04:17.800 --> 0:04:19.720 Or is Beijing going to dig in a little bit, 0:04:20.240 --> 0:04:23.240 given everything that it's dealing with in terms of economic 0:04:23.360 --> 0:04:27.000 sluggishness right now, and try to prop up companies for 0:04:27.040 --> 0:04:28.000 as long as it can. 0:04:29.160 --> 0:04:32.200 Well, they have an important decision to make. I think 0:04:32.240 --> 0:04:36.440 they heard Secretary Yellen's message very clearly, and so now 0:04:36.480 --> 0:04:39.680 they need to decide whether they continue and just export 0:04:39.800 --> 0:04:44.520 NonStop or take a pause and implement some policies not 0:04:44.560 --> 0:04:50.760 only to restrain domestic production but also to promote domestic demand. 0:04:51.360 --> 0:04:55.280 And the domestic demand part of the equation is just 0:04:55.839 --> 0:04:59.159 an area and not really addressed by their economic policies. 0:05:00.240 --> 0:05:04.360 Ms Keller. We on purpose ran those two stories TSMC 0:05:04.520 --> 0:05:08.840 getting eleven point six billion dollars in grants and loans 0:05:08.839 --> 0:05:11.920 from the United States right next to the ev story. 0:05:12.960 --> 0:05:14.880 You know, if you're on the Chinese side and you 0:05:14.920 --> 0:05:18.560 see that, I mean, isn't that industrial policy, isn't that subsidy? 0:05:20.160 --> 0:05:23.600 Well it is, but our policies are in response to 0:05:23.800 --> 0:05:27.920 China's policies, and let's keep in mind, five to ten 0:05:28.040 --> 0:05:32.560 to twenty billion dollars is nowhere in the ballpark of 0:05:32.600 --> 0:05:35.240 the hundreds of billions of dollars that China has put 0:05:35.320 --> 0:05:38.480 into this industry to promote it and to make it 0:05:38.600 --> 0:05:39.880 a global competitor. 0:05:40.480 --> 0:05:43.200 I want to change gears because Prime Minister of fum 0:05:43.279 --> 0:05:45.159 Yo Kishida is going to be in the US first 0:05:45.240 --> 0:05:48.960 date to visit this week, and obviously one topic is 0:05:49.040 --> 0:05:51.919 going to be Nippon Steele's attempt to buy US Deal. 0:05:52.600 --> 0:05:55.960 Kishida will be addressing a joint session of Congress on Thursday, 0:05:56.000 --> 0:05:59.400 and the following day US Deal shareholders are set to 0:05:59.520 --> 0:06:02.599 vote on this fourteen billion dollar takeover. Do you think 0:06:02.640 --> 0:06:06.359 it's right for the US to object to this based 0:06:06.440 --> 0:06:10.080 on grounds of Well, I don't know whether national security 0:06:10.120 --> 0:06:13.719 even enters into it. Certainly it feels a little protectionistic, 0:06:13.760 --> 0:06:14.159 does it not. 0:06:16.760 --> 0:06:19.320 Well, first, I don't think this issue is going to 0:06:19.360 --> 0:06:22.400 come up during the summit. I think that given all 0:06:22.480 --> 0:06:28.320 of the issues that the US and Japan are cooperating on, 0:06:28.760 --> 0:06:35.320 the Nipon steel issue is really minor in the larger landscape. 0:06:35.960 --> 0:06:38.080 Well, I want to ask you a question. This kind 0:06:38.080 --> 0:06:41.599 of laced with you know, all kinds of hyperbole. I 0:06:41.600 --> 0:06:45.840 suppose the US China tussle at the moment is like 0:06:45.880 --> 0:06:51.760 playing marbles compared to what the AI tussle might be 0:06:51.880 --> 0:06:54.440 is sort of compared to like Russian roulette. 0:06:54.600 --> 0:06:55.120 Is that true? 0:06:55.160 --> 0:06:58.359 I mean, are we going into a very very difficult environment. 0:06:59.520 --> 0:07:02.640 Look, environment has been difficult for a long time, and 0:07:02.680 --> 0:07:05.920 we shouldn't fool ourselves that just with these engagement and 0:07:05.960 --> 0:07:09.840 trips by cabinet officers and senior leadership between the two 0:07:09.920 --> 0:07:14.120 countries that the tensions are going to go away. All 0:07:14.160 --> 0:07:17.720 that said, we need to remain engaged with China, and 0:07:17.800 --> 0:07:22.040 so I think Secretary Yellen's trip was very important, not 0:07:22.120 --> 0:07:27.560 only to send important messages and convey concerns to China, 0:07:27.960 --> 0:07:32.000 but also define areas where we can cooperate. And with 0:07:32.040 --> 0:07:36.520 respect to artificial intelligence, I believe that there are aspects 0:07:36.560 --> 0:07:39.840 of AI where not only we should cooperate, but we 0:07:39.960 --> 0:07:43.440 need to cooperate to mitigate the potential risks of AI. 0:07:44.000 --> 0:07:46.840 MIS and Mss Cutler very quickly in terms of the TikTok, 0:07:47.040 --> 0:07:49.280 whether or not we get a bill here through Congress 0:07:49.280 --> 0:07:53.560 that would force di vestiture away from the Chinese parent 0:07:53.640 --> 0:07:54.960 bike dance. What's your view on that. 0:07:57.280 --> 0:08:02.520 My view is that this is a very complicated issue, 0:08:02.840 --> 0:08:05.480 but I think the US is on solid ground to 0:08:05.600 --> 0:08:09.440 want to restrict the activities of TikTok, you know, if 0:08:09.480 --> 0:08:12.200 not just for reciprocal reasons. If you look at the 0:08:12.200 --> 0:08:17.360 ability of our comparable companies to operate in China, there's 0:08:17.480 --> 0:08:20.280 no opportunity for them to operate. So I think it's 0:08:20.360 --> 0:08:23.920 very hypocritical for China to complain about what we're doing 0:08:23.960 --> 0:08:26.880 on TikTok when they don't let our big tech companies 0:08:26.960 --> 0:08:28.120 operate in their countries. 0:08:28.840 --> 0:08:31.800 Many thanks, Wendy Cutler, or vice president at the Asia 0:08:31.880 --> 0:08:43.760 Society Policy Institute. With us, we'll please to say that 0:08:43.840 --> 0:08:47.520 Joshua Crab, head of Asia Pacific Equities at Robiko, is 0:08:47.559 --> 0:08:51.080 with us here, live in our studios, so Joshua, pretty 0:08:51.080 --> 0:08:53.959 interesting time here. We do have the US inflation data 0:08:53.960 --> 0:08:56.760 this week that might color trading a little bit and 0:08:56.840 --> 0:09:00.439 might also color whether we get two or three cuts 0:09:00.480 --> 0:09:03.280 this year, and some are even saying, with US economy 0:09:03.280 --> 0:09:05.920 this strong, we may not get any rate cuts. First, 0:09:06.000 --> 0:09:08.720 before we get to some individual picks and regions and 0:09:08.760 --> 0:09:12.200 sectors and such, how do you feel generally about risk assets. 0:09:11.840 --> 0:09:12.280 At the moment. 0:09:14.360 --> 0:09:16.520 Well, I think it depends on which risk assets we're 0:09:16.520 --> 0:09:18.760 talking about. I think if we, you know, look at 0:09:18.800 --> 0:09:21.840 the US market, for example, it's a very narrow market 0:09:21.960 --> 0:09:24.560 led by small number of stocks we all know, very 0:09:24.640 --> 0:09:27.120 very high valuations and very very high expectations. 0:09:27.480 --> 0:09:28.800 That's at one end of the spectrum. 0:09:29.160 --> 0:09:31.800 Bring it back to Asia, I think you have you know, 0:09:31.840 --> 0:09:34.520 a number of markets here that have quite good long 0:09:34.640 --> 0:09:38.319 term or medium term sort of growth prospects in Vietnam, 0:09:38.360 --> 0:09:41.640 in Indonesia, in the Philippines, et cetera. And then you 0:09:41.640 --> 0:09:45.120 have places like China which maybe don't have as strong 0:09:45.160 --> 0:09:47.559 a long term growth but have very very cheap valuations. 0:09:47.559 --> 0:09:50.160 So I think risk assets are actually quite dispersed at 0:09:50.160 --> 0:09:50.800 the moment. 0:09:51.120 --> 0:09:52.800 When you look at China. One of the things that 0:09:52.800 --> 0:09:54.959 we're going to be paying very close attention to this 0:09:55.000 --> 0:10:00.680 week is the PPI CPI data midweek is in a 0:10:00.720 --> 0:10:07.079 period of stagnant deflation to the degree that we should 0:10:07.120 --> 0:10:09.520 really be worried about the economy and putting more money 0:10:09.520 --> 0:10:12.679 to work in markets, whether it's the real estate market 0:10:12.760 --> 0:10:13.760 or the equity market. 0:10:14.840 --> 0:10:16.679 Yeah, So, I mean, I think I think that sort 0:10:16.720 --> 0:10:18.520 of it depends with you on look backward or forward. 0:10:18.559 --> 0:10:21.200 I think looking backwards, that's absolutely the case. Clearly we've 0:10:21.200 --> 0:10:23.960 seen we've seen that environment. But it's always a question 0:10:24.000 --> 0:10:26.000 of where we're you know, looking forward, what that sort 0:10:26.040 --> 0:10:28.760 of changes. So we have very very low expectations on growth, 0:10:29.080 --> 0:10:31.680 we have very low expectations on things like inflation, et 0:10:31.720 --> 0:10:34.520 cetera at this point in time. But if we look forward, 0:10:34.559 --> 0:10:36.040 I think, you know, and this is interesting to us. 0:10:36.080 --> 0:10:38.280 It's like, you know, for example, you know, companies had 0:10:38.280 --> 0:10:40.680 been missing quite a lot of being missing earnings, but 0:10:40.760 --> 0:10:43.040 the expectations can get so low that even in a 0:10:43.080 --> 0:10:45.600 weak environment, they start to beat. And you already have 0:10:45.640 --> 0:10:48.240 sort of quite low valuations that sort of sit with that. 0:10:48.600 --> 0:10:50.560 So I guess from my perspective. 0:10:50.000 --> 0:10:52.640 The question is here is okay, so maybe maybe we 0:10:52.679 --> 0:10:54.240 don't have a great growth environment. A lot of those 0:10:54.240 --> 0:10:56.000 negatives are now in the price, So how do we 0:10:56.000 --> 0:10:58.439 make money in that market? And you know, I think 0:10:58.440 --> 0:10:59.960 this is where it's interesting mireseing some some of the 0:11:00.240 --> 0:11:02.520 is now starting to beat. Now they're not beating because 0:11:02.520 --> 0:11:04.920 things are wonderful. They're beating because the expectations have got 0:11:04.920 --> 0:11:07.760 that low. But also the valuations are low. You're seeing 0:11:07.800 --> 0:11:12.120 increase things like buybacks, diffidends, privatizations, and that to us 0:11:12.160 --> 0:11:13.600 is sort of when you start to see a bottomy 0:11:13.679 --> 0:11:16.480 out of a market. Now for US, that really is 0:11:16.520 --> 0:11:18.880 stock specific for now, so you really need to dive 0:11:18.880 --> 0:11:19.600 into the stock. 0:11:19.440 --> 0:11:21.920 Level, Joshua, despite what you said at the top, but 0:11:21.960 --> 0:11:24.680 we have actually seen quite a broadening out in the 0:11:24.760 --> 0:11:28.080 US market, and you know, we only have to debate 0:11:28.120 --> 0:11:30.360 that now. But if you look at Asia markets like 0:11:30.440 --> 0:11:33.840 Korea or Japan, are we seeing the same sort of 0:11:34.040 --> 0:11:37.560 activity with a broadening or has it really just solidly 0:11:37.600 --> 0:11:38.920 been that way in Asia. 0:11:39.280 --> 0:11:42.360 It's a little bit different depending on the market. I 0:11:42.360 --> 0:11:44.480 think Japan and Career are interesting ones to sort of 0:11:44.840 --> 0:11:46.880 use as a showcase because I think they've been a 0:11:46.880 --> 0:11:49.080 bit different. There's a different driver of that, and in 0:11:49.120 --> 0:11:52.880 Japan that's been going on for some time around you know, restructuring, reorganization, 0:11:53.080 --> 0:11:56.520 more shareholder friendly policies, and we've started to see that eken. 0:11:56.320 --> 0:11:58.160 A little bit in Korea as well. 0:11:58.440 --> 0:11:59.920 So if we bring that back to Japan, I think 0:12:00.000 --> 0:12:01.679 you have had a number of stocks which are sort 0:12:01.720 --> 0:12:03.960 of caught up in that sort of AI sort of 0:12:04.000 --> 0:12:06.520 aura that have done very, very well, you've had a 0:12:06.600 --> 0:12:08.680 number of the very large cap companies which is often 0:12:08.679 --> 0:12:11.400 correlated with that, that have done very well as well. But 0:12:11.440 --> 0:12:13.720 outside of that, over a sort of longer period, we've seen, 0:12:13.800 --> 0:12:15.800 you know, some of the things like the financials do well. 0:12:16.200 --> 0:12:17.800 We've seen the industrials, and I think that's been the 0:12:17.840 --> 0:12:19.880 standout sector because they're the ones where we are seeing 0:12:19.920 --> 0:12:23.280 those unwine year cross shareholdings, that rationalization of business, and 0:12:23.320 --> 0:12:24.640 the increase in things like buybacks. 0:12:24.720 --> 0:12:27.160 So I hear what you're saying when you're talking about 0:12:27.280 --> 0:12:30.199 having to really drill down into specific names. But if 0:12:30.200 --> 0:12:32.680 we can talk about industry groups. You just mentioned the 0:12:32.679 --> 0:12:35.480 financials there maybe some of the industrial names. What are 0:12:35.480 --> 0:12:39.600 the areas that you want to avoid in China industries specifically, 0:12:40.600 --> 0:12:40.920 sorry in. 0:12:41.400 --> 0:12:44.120 China or Japan in China, Okay. 0:12:44.200 --> 0:12:47.640 So the way I would sort of from an industry perspective, 0:12:47.760 --> 0:12:50.920 I think that you know, things like the export market, 0:12:50.960 --> 0:12:53.880 for example, has been and think things like export and 0:12:53.920 --> 0:12:55.920 real estate has been a big driver of the economy 0:12:55.960 --> 0:12:59.160 for decades. Right, And if we sort of look forward 0:12:59.200 --> 0:13:01.439 about what needs to happen in China, as we need 0:13:01.480 --> 0:13:04.280 to see more focus on the consumer, right, we need 0:13:04.280 --> 0:13:06.439 to see more focus on sort of what's happening internally. 0:13:06.640 --> 0:13:08.679 We need to see more focus on moving to higher 0:13:08.960 --> 0:13:10.600 value add in the manufacturing sector. 0:13:10.679 --> 0:13:13.360 So that's that for US is where you need to look. 0:13:13.640 --> 0:13:16.280 Now you have to be careful because you know the 0:13:16.320 --> 0:13:17.920 rest of the market knows this as well. So some 0:13:17.960 --> 0:13:21.000 of these stocks are trading at two higher premiums relative. 0:13:21.679 --> 0:13:23.960 But we think that is the area where what needs 0:13:23.960 --> 0:13:26.240 to change in China for it to go back onto 0:13:26.280 --> 0:13:27.960 a better growth trajectory than what we've seen. 0:13:28.160 --> 0:13:31.440 Well, it needs to get you know, the discount sort 0:13:31.480 --> 0:13:34.920 of set aside by investors. For one thing, you have 0:13:35.360 --> 0:13:39.400 a discount on South Korea, which you've had long standing 0:13:39.440 --> 0:13:43.000 in place, and China now as well. For instance, this year, 0:13:43.160 --> 0:13:45.400 you know some of the market we talked about the 0:13:45.480 --> 0:13:48.559 Nike and also the Taiaks in Taiwan up eight and 0:13:48.600 --> 0:13:51.120 a half to nine to ten percent year to date, 0:13:51.200 --> 0:13:52.559 similar to what we've seen from the S and P 0:13:52.640 --> 0:13:56.480 five hundred. The cost be actually lower, the cost be 0:13:56.640 --> 0:14:00.360 down one point seven percent US dollar terms. So is 0:14:00.400 --> 0:14:02.640 Korea one that can can be different for the rest 0:14:02.640 --> 0:14:03.120 of this year? 0:14:03.800 --> 0:14:04.440 I think it can. 0:14:04.480 --> 0:14:06.320 And this is where things like the election are really 0:14:06.320 --> 0:14:08.839 going to matter. You know, you talked about, you know, 0:14:09.480 --> 0:14:11.920 the career discount, and there are a number of reasons 0:14:11.920 --> 0:14:13.360 for that, but one of the ones that I think 0:14:13.440 --> 0:14:16.120 is most relevant and can have the biggest impact in 0:14:16.160 --> 0:14:19.480 the short term is shareholder policies, right, And it's a 0:14:19.480 --> 0:14:21.600 bit like Japan. You know, we haven't seen a lot 0:14:21.640 --> 0:14:23.240 of dividends, you don't see a lot of buyerbacks, you 0:14:23.240 --> 0:14:25.000 don't see a lot of these type of activities. But 0:14:25.160 --> 0:14:26.920 a bit like Japan, there is a bit of a 0:14:27.000 --> 0:14:29.760 mindset change happening. We've talked about this for decad for 0:14:29.800 --> 0:14:31.440 the best part of a decade, but I think there 0:14:31.440 --> 0:14:33.720 are a number of you know, impacts happening at the 0:14:33.760 --> 0:14:36.440 same time here. Right, you've got the pension schemes locally 0:14:36.640 --> 0:14:38.720 not putting money and needing to take money out. Now 0:14:38.920 --> 0:14:41.120 you've got a stock exchange which is quite focused on 0:14:41.400 --> 0:14:44.240 bringing up the valuations of these companies. And then I 0:14:44.280 --> 0:14:45.640 think you've also got a you know, sort of a 0:14:45.720 --> 0:14:47.960 national element. Like the Japanese have done this, we can 0:14:48.000 --> 0:14:49.480 do this as well. So I think there are a 0:14:49.560 --> 0:14:52.200 number of these influencers coming at the same time. So 0:14:52.440 --> 0:14:55.520 if the election stays, if the current party stays in power. 0:14:55.520 --> 0:14:57.920 This continues to be a push. I think then you 0:14:58.000 --> 0:14:59.680 find the management teams that actually are really going to 0:14:59.680 --> 0:15:01.320 affect change. And yes, I think there can be some 0:15:01.360 --> 0:15:04.280 great opportunities to make money, but probably more alpha than 0:15:04.280 --> 0:15:06.000 I would say look at the individual market, because some 0:15:06.040 --> 0:15:06.880 companies won't. 0:15:07.000 --> 0:15:09.480 All right, Yeah, some good tips there, Joshua, thanks very 0:15:09.520 --> 0:15:12.200 much for coming into our studios with us live here, 0:15:12.560 --> 0:15:23.680 Joshua crabhead of Asia Pacific Equities at Robiko, lad Savov, 0:15:23.680 --> 0:15:27.240 Bloomberg Tech editor with us in our studios here in 0:15:27.280 --> 0:15:29.840 Hong Kong. It's nice to have you back in here. 0:15:30.440 --> 0:15:32.840 So this is a big deal. You got three plants 0:15:32.840 --> 0:15:35.960 by TSMC, and we just mentioned that whopping sixty five 0:15:36.000 --> 0:15:39.480 billion dollars in total investments, the US helping out with 0:15:39.600 --> 0:15:43.520 some subsidies I suppose. And this is also a very 0:15:43.640 --> 0:15:46.240 high tech plant that we're talking about here, this third 0:15:46.320 --> 0:15:50.080 fabrication site, because they will have next generation two nanometer 0:15:50.200 --> 0:15:54.600 process technology. When is that likely to come to fruition. 0:15:55.560 --> 0:15:58.720 Well, it's an interesting question, and one way to look 0:15:58.760 --> 0:16:02.520 at it is also to the specific challenges that TSMC 0:16:02.640 --> 0:16:05.440 has in building its chip making facilities in the US. 0:16:05.880 --> 0:16:09.040 It isn't Taiwan, which is where TSMC has built up 0:16:09.040 --> 0:16:11.160 its lead as the world's leading ship maker. It is 0:16:11.160 --> 0:16:15.120 in Japan where TSMC just inaugurated its new plant ahead 0:16:15.160 --> 0:16:20.200 of time. Because Japanese construction is largely uncontested around the world. 0:16:20.280 --> 0:16:22.440 The Japanese very proud of how quickly they build their 0:16:22.440 --> 0:16:27.320 fab TSMC, for its part, its first facility has been delayed, 0:16:27.360 --> 0:16:31.200 has been subject to delays. Part of it is TSMC 0:16:31.320 --> 0:16:34.200 has said this, it's the lack of qualified labor. It's 0:16:34.240 --> 0:16:37.240 also running to issues with labor unions. In the United States. 0:16:37.280 --> 0:16:39.160 It isn't as smooth sailing as it has been in 0:16:39.160 --> 0:16:43.320 Taiwan and Japan, So some of this is I mean, 0:16:43.320 --> 0:16:47.080 it's a very optimistic, very positive outlook at the moment, 0:16:47.320 --> 0:16:50.400 with both the nation and the company putting their best 0:16:50.400 --> 0:16:52.520 foot forward, putting a lot of money into it. But 0:16:52.680 --> 0:16:55.240 it is going to depend on the smooth operation of 0:16:55.280 --> 0:16:57.240 construction and development as we go along. 0:16:57.760 --> 0:17:00.560 Yeah, definitely, And I think it's a big concerned that 0:17:00.600 --> 0:17:03.360 there is a delay here in a presidential election year 0:17:03.400 --> 0:17:06.359 where the administration would probably like to see a little 0:17:06.400 --> 0:17:09.760 bit more in the way of progress. Is there anything 0:17:09.840 --> 0:17:13.600 that you think the administration can do to improve the 0:17:13.640 --> 0:17:16.320 timeline here or is this outside the control of the 0:17:16.359 --> 0:17:16.920 White House. 0:17:17.800 --> 0:17:20.760 Well, I think the measures of the White House has 0:17:20.800 --> 0:17:25.560 taken so far significant more than significance. I mean, when 0:17:25.600 --> 0:17:27.080 you compare it to the rest of the world. I 0:17:27.119 --> 0:17:30.359 mentioned Japan, they're putting in much smaller sums of money. 0:17:31.040 --> 0:17:33.320 When you look at the US, they're kind of uncontested 0:17:33.359 --> 0:17:34.960 in the amount of money that they can in both 0:17:35.000 --> 0:17:37.760 in grants and in loans to these companies. It's six 0:17:37.840 --> 0:17:40.960 point seven billion dollars in grants to TSMC. That's part 0:17:41.000 --> 0:17:44.320 of what's enticed TSMC to step up into its investments. 0:17:44.560 --> 0:17:48.800 Until yesterday, officially TSMC had only planned two plants. Now 0:17:48.800 --> 0:17:51.160 that they made the announcements, it's free plans. It's more 0:17:51.160 --> 0:17:53.360 than sixty five billion dollars. Previously it was more than 0:17:53.359 --> 0:17:56.439 forty billion dollars. So what the US is doing is 0:17:56.520 --> 0:17:59.639 it's putting in the investment directly, it's leveraging it to 0:17:59.640 --> 0:18:02.680 get your investment from the likes of TSMC and Edwin, 0:18:02.920 --> 0:18:05.679 who you cited earlier. He mentioned Samson is in the running. 0:18:05.760 --> 0:18:08.280 Samson also stepped off his investment because the way that 0:18:08.320 --> 0:18:11.800 the US has structured its subsidies and support. Is the 0:18:11.800 --> 0:18:13.439 more you put in, the more you will get out 0:18:13.480 --> 0:18:17.719 of us. And moreover, it's worth saying they have various 0:18:17.760 --> 0:18:21.240 benchmarks that they're going to have as TSMC goes through 0:18:21.240 --> 0:18:23.159 with the development. They're not just going to unload the 0:18:23.160 --> 0:18:26.639 money in TSMC's theoretical bank account and leave them to it, 0:18:27.040 --> 0:18:29.600 which I think shows also a bit of foresight and 0:18:29.640 --> 0:18:32.120 a bit of some of the lessons learned maybe from 0:18:32.119 --> 0:18:34.200 the experience with Fox Cone in Wisconsin previously. 0:18:35.080 --> 0:18:39.600 And Heine's also looking to get some funding. I'm curious, though, 0:18:39.640 --> 0:18:41.640 what you think this little bit of a black eye 0:18:41.640 --> 0:18:45.120 that the US doesn't have the same quality tech workers. 0:18:45.520 --> 0:18:48.600 It may just be the numbers because the US has 0:18:48.720 --> 0:18:53.440 so many demands on its well educated engineers and tech workers. 0:18:54.080 --> 0:18:56.760 But is this something that will have to change for 0:18:56.840 --> 0:19:02.320 this third fabrication site to actually, you know, make any progress. 0:19:03.640 --> 0:19:05.440 Well, I would imagine what are. 0:19:05.320 --> 0:19:07.560 We seeing on the US side to you know, to 0:19:07.640 --> 0:19:10.160 increase the number of these types of workers to be available. 0:19:10.520 --> 0:19:13.160 I would imagine TSMC would very much welcome that. Let's 0:19:13.160 --> 0:19:15.200 put it in those terms. But I should also mention 0:19:15.880 --> 0:19:17.840 there is one company I don't want to mention the 0:19:17.880 --> 0:19:20.600 company necessarily, but they do their production in China and 0:19:20.640 --> 0:19:24.399 then they do specific production for military purposes for the 0:19:24.520 --> 0:19:27.359 US in Finland. And what it told me is that 0:19:27.400 --> 0:19:29.560 the cost of labor is two to three times. It 0:19:29.600 --> 0:19:31.639 makes the product two to three times more expensive to 0:19:31.640 --> 0:19:34.320 produce the same product that they do in China in Finland. 0:19:34.680 --> 0:19:38.040 It's just simply the case that for the qualification and 0:19:38.119 --> 0:19:41.040 the cost, Asia is uncontested as far as labor force goes. 0:19:41.119 --> 0:19:44.000 So the US is dealing with an issue that most 0:19:44.040 --> 0:19:47.320 of Europe is dealing with. Likewise, so I am sure that. 0:19:47.720 --> 0:19:50.639 I mean, there are politicians, there are members of the 0:19:50.720 --> 0:19:55.479 administration who are pushing to improve things like immigration measures 0:19:55.520 --> 0:19:58.240 to encourage more people to come over. But likewise, this 0:19:58.520 --> 0:20:03.240 is an international competition. And Japan, again I keep mentioning it, 0:20:03.240 --> 0:20:06.560 it has its own initiatives to bring its own semiconductor 0:20:06.560 --> 0:20:09.080 engineers back from places like the US so that they 0:20:09.080 --> 0:20:11.359 can support Japan's own chip making endeavors. 0:20:11.800 --> 0:20:13.879 It's interesting that you make that point because if you 0:20:13.960 --> 0:20:17.160 look at the history of the semiconductor industry, I mean, 0:20:17.200 --> 0:20:19.840 these products were developed in the United States. Hong Kong 0:20:20.080 --> 0:20:25.719 at one point was a major place of assembly Japan 0:20:25.840 --> 0:20:28.879 as well, and then it migrated obviously to Taiwan. And 0:20:28.920 --> 0:20:33.120 now we're talking about China trying to create greater runway 0:20:33.200 --> 0:20:36.159 for advanced chips. But in terms of the companies that 0:20:36.200 --> 0:20:39.480 are going to benefit downstream, and I'm thinking about ASML 0:20:39.560 --> 0:20:44.399 in particular. This company undoubtedly, no matter where you slice it, 0:20:44.480 --> 0:20:47.399 just by virtue of the fact that they own so 0:20:47.520 --> 0:20:50.680 much of the high end manufacturing technology, they will also 0:20:50.800 --> 0:20:53.240 be a big beneficiary in this build up, will they not? 0:20:53.920 --> 0:20:54.080 Oh? 0:20:54.119 --> 0:20:56.679 Absolutely? And the fun part for ASMOS don't have to 0:20:56.720 --> 0:20:59.280 do anything. The entire thing is just falling into their 0:20:59.359 --> 0:21:02.520 lab because likely, as you say, the extreme ultra violet 0:21:02.600 --> 0:21:05.040 machines which are the key to doing the most advanced 0:21:05.200 --> 0:21:08.120 of making today until somebody invents an alternative, and that's 0:21:08.160 --> 0:21:11.639 nowhere on the horizon. ASMO is the only provider of those. 0:21:11.720 --> 0:21:14.520 So the more that the likes of Japan, the US, 0:21:15.080 --> 0:21:18.520 China too, but ASMO can't explot those to China. The 0:21:18.520 --> 0:21:21.840