Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to Bloomberg
Speaker 1: BusinessWeek with Carol Messer and Tim Steneveek on Bloomberg Radio. Hey.
Speaker 2: For a few years before the pandemic, it looked, at
Speaker 2: least to a lot of people, that Chinese tech companies
Speaker 2: were pretty much unstoppable.
Speaker 3: You remember this, Carol, right, I certainly do.
Speaker 1: Okay.
Speaker 2: So back in twenty seventeen, for example, ten Cent shot
Speaker 2: past what was then Facebook to become the fifth largest
Speaker 2: publicly health company. In twenty twenty, China was the was
Speaker 2: second to the US in terms of the number of unicorns,
Speaker 2: those private companies worth a billion dollars. Of the world's
Speaker 2: top ten unicorns in twenty twenty, six of them came
Speaker 2: from China. Four Chinese companies top the chart. All of
Speaker 2: this that I just read coming from the introduction to
Speaker 2: the new book High Wire, How China Regulates Big Tech
Speaker 2: and governs its Economy. The book by Angela Zong, a
Speaker 2: professor of law at the University of Hong Kong. Professor
Speaker 2: Zong joins us now from Washington, DC. Professor, good to
Speaker 2: have you with us this afternoon. How are you.
Speaker 4: I'm doing great? Hi, Carol and Tim Hi Hi.
Speaker 2: This is a great topic because we talk about it
Speaker 2: a lot, and just about investing in China and whether
Speaker 2: or not it is indeed investable right now. But I
Speaker 2: want to back up a little bit. How did we
Speaker 2: get to the point where Chinese tech companies, both public
Speaker 2: and private, seemed unstoppable and then suddenly in the midst
Speaker 2: of the pandemic there was this crackdown.
Speaker 5: What happened, well, I see the watershed moment was end
Speaker 5: Group's IPO suspensioned and a couple of weeks before a
Speaker 5: few days a couple of weeks before the suspension, Jackma
Speaker 5: made this highly controversial speech in the financial summit in Shanghai,
Speaker 5: as you may recall, and that really spoke to financial
Speaker 5: regulators who eventually, you know, wage of regulatory war against
Speaker 5: end and which caused the collapse of its IPO and
Speaker 5: also marked the beginning of an unprecedented crackdown that swept
Speaker 5: like that'spreadlight wildfire, affecting every sector of China's internet industry.
Speaker 2: Can you talk about competing forces for motivations here, because
Speaker 2: it would seem to be in the best interest of
Speaker 2: leadership of a country to have a thriving economic to
Speaker 2: have a thriving tech sector and to have a thriving economy.
Speaker 5: Here what happened, well, of course, right for a really
Speaker 5: long time, that was the main policy agenda of the
Speaker 5: Chinese Communist Party, and they introduced this Internet Plus initiative
Speaker 5: and have been very supportive of the development of the
Speaker 5: consumer tech businesses.
Speaker 4: And back then we have this.
Speaker 5: You know, very vibrant entrepreneurial environment. But what happened is
Speaker 5: that starting in twenty twenty, when AND was preparing for IPO,
Speaker 5: I mean, this firm trying to identify itself not as
Speaker 5: a think type business but rather as a tech farm.
Speaker 4: So it even.
Speaker 5: Changed its name from and Financial to end Group to
Speaker 5: avoid being identified as a financial institution, so that it
Speaker 5: can gain a much higher valuation and in fact four
Speaker 5: times as much valuation as we have got it would
Speaker 5: have gotten as a financial institution, and that really worries
Speaker 5: China's financial regulator, particularly the People Spank of China PBOC,
Speaker 5: and particularly AND got the really really high valuation. In
Speaker 5: the end it was three hundred and twenty billion US dollars,
Speaker 5: and that's even higher than JP Morgan, the then largest
Speaker 5: bank at that time.
Speaker 4: I mean, so that really worried the regulator.
Speaker 3: You know, Professor Zone. One thing I wonder is how
Speaker 3: you know your book is about how trying to regulate
Speaker 3: big technology, and I do wonder in a time where
Speaker 3: I look at US China relations are very strange, especially
Speaker 3: when it comes to it feels like technology and company
Speaker 3: know how between uh, the two nations. Having said that,
Speaker 3: what you are seeing in terms of the regulatory environment
Speaker 3: for China or what China has for its big tech companies,
Speaker 3: will the ultimately hold them back and stemy them? And
Speaker 3: maybe the I don't know, does the US not have
Speaker 3: to be so concerned about where China is going, especially
Speaker 3: when it comes to high tech?
Speaker 4: You're you're right.
Speaker 5: I mean, in the aftermath of the crackdown, we see
Speaker 5: that you know this, the tech sector has suffered a lot,
Speaker 5: I mean the loss over a trillion dollars of market
Speaker 5: cap during the crackdown, and a lot of these tech
Speaker 5: firms are laying off, a conducting massive layoff, and they
Speaker 5: would not be as competitive as they would have been,
Speaker 5: would it not be a massive crackdown? However, I mean,
Speaker 5: I still think that this companies obviously competitive as you
Speaker 5: can see by them, is able to fullster you know,
Speaker 5: a really successful company like TikTok, right, I mean in
Speaker 5: the first place. So I still think that these are
Speaker 5: you know, serious rivals to US consumer tech businesses. But
Speaker 5: you are definitely right that what the government.
Speaker 4: Did had on the mind its power.
Speaker 3: Well, it's interesting to you on a day where we
Speaker 3: talk to our Mark German about how was it one
Speaker 3: in seven iPhones through the lower end iPhones are now
Speaker 3: being made in India and how Apple is diversifying you know,
Speaker 3: where it's making items. And I understand that China wants
Speaker 3: to be playing certainly from a technology bent on a
Speaker 3: higher level, if you will, right, They don't want to
Speaker 3: be the manufacturer to the world. But as they start
Speaker 3: to see some of those coveted global technology companies maybe
Speaker 3: look to diversify, does that have China concern? Should they
Speaker 3: be concerned and is it a result of all the policy?
Speaker 5: Well, I think that diversification has less to do with
Speaker 5: the domestic regulatory policy, but more to do the deteriorated
Speaker 5: geo political environment.
Speaker 4: And so. But at the same time, you know.
Speaker 6: The.
Speaker 5: The very intense regulatory crackdown wasn't helping Chinese tech firms
Speaker 5: and hurt their competitiveness. But you know, US firm do
Speaker 5: what they need to do to diversify the portfolio, and
Speaker 5: especially if not just US large tech businesses, but also
Speaker 5: UH US investors who used to be the major UH
Speaker 5: investors in the Chinese consumer tech businesses, and now they
Speaker 5: are retreating from the Chinese tach sectors, partly also because
Speaker 5: they really don't like the regulatory regime.
Speaker 4: They think that too arbitrary.
Speaker 2: Yeah, okay, So I want to give you mentioned by
Speaker 2: Dan's TikTok. I do want to get your prediction for
Speaker 2: what's going to happen here in the US when it
Speaker 2: comes to the fate of TikTok. It's certainly not the
Speaker 2: focus of your book, but it's it's definitely something that
Speaker 2: I'm interested in your opinion on. I mean, what do
Speaker 2: you think happens here?
Speaker 4: Well, I mean I think it.
Speaker 5: Look, it's still relevant to the TikTok story because in
Speaker 5: TikTok is owned by Dance, a Chinese company, despite the
Speaker 5: fact that TikTok says we are not a Chinese company,
Speaker 5: but it has this Chinese link, right, I mean, so
Speaker 5: how China regulates by Dance will have implications for TikTok's businesses.
Speaker 5: Just like when the US introduced this bill says, you know, TikTok,
Speaker 5: you can either divest yourself or you know, disappear from
Speaker 5: the US market, and the China says, well, we we
Speaker 5: may not want you to sell set to buy dance.
Speaker 4: We may not want you to.
Speaker 5: Sell your your critical technology to uh you know, US
Speaker 5: US buyers.
Speaker 6: Right.
Speaker 5: I mean that was back in twenty twenty when the
Speaker 5: dermonstrations wanted uh TikTok to divest uh it's it's itself
Speaker 5: to oracle.
Speaker 4: Or sell it to other businesses.
Speaker 6: Right.
Speaker 5: I mean, China introduces export restrictions that will potentially block
Speaker 5: such cells. Now that being said, I don't think the
Speaker 5: Chinese government is hurting TikTok's position here. The fact that
Speaker 5: you know, Chinese government has this law and will be
Speaker 5: very likely to say, you know, we are blocking the cells,
Speaker 5: that will strengthen TikTok's argument that this is effectively a bent. Right.
Speaker 4: I mean, so when this case, even if.
Speaker 5: The Senate eventually approved this law, I mean, even if
Speaker 5: this become law, this could be a challenged in court,
Speaker 5: and court is highly unlikely. I mean, I think court
Speaker 5: is very unlikely to rule in favorable law that work
Speaker 5: effectively as a band, because that valet is the freedom
Speaker 5: of speech of too many affecting too many A citizens.
Speaker 5: So actually I think the Chinese, the Chinese actually helps
Speaker 5: TikTok's position if you look at it from this perspective.
Speaker 3: One thing I want to do. We just have about
Speaker 3: forty five seconds left here, Just quickly, Professor Zong and
Speaker 3: G's all about common prosperity. And that's how you justify
Speaker 3: some of the regulatory crackdown if you will and oversight
Speaker 3: a big technology. Will it lead to a more prosperous
Speaker 3: or widespread prosperous economy for China or not necessarily? And
Speaker 3: again sorry, just about thirty seconds here.
Speaker 5: Well, the Commons Prosperity initiative was well intention However, I
Speaker 5: mean the way it had been implemented had led to
Speaker 5: unintended consequences. I mean, the tech crackdown is one excellent example.
Speaker 5: It was supposed to empower all the platform participants like users, bias,
Speaker 5: merchants to better.
Speaker 4: Negotiate with the platform. However, it did really achieve this goal.
Speaker 4: It hasn't really changed.
Speaker 5: The competitive dynamics or enhanced consumer welfare.
Speaker 2: Really really interesting. Yeah, hey, maca think check out the book.
Speaker 2: It's called High Wire, How China regulates Big Tech and
Speaker 2: governs its economy. Angela Zong, a professor of law at
Speaker 2: the University of Hong Kong, joining us just now. Professor Zong,
Speaker 2: thank you so much, really appreciate it.
Speaker 1: This is Bloomberg Business Week inside from the reporters and
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Speaker 1: global business, finance and tech news as it happens. Bloomberg
Speaker 1: Business Week with Carol Meser and Tim Stenebek on Bloomberg Radio.
Speaker 2: It is Bloomberg a business Week. I don't know if
Speaker 2: you saw this, Carol, but it seems like everybody's coming
Speaker 2: out with new chips these days. I agree, so Meta
Speaker 2: platforms today, it's.
Speaker 3: Like there's an AI race or new AI racism or something.
Speaker 2: So Meta announced this new homegrown chip. What it's going
Speaker 2: to do is to help power its AI services. The
Speaker 2: idea here is that it aims to decrease its reliance
Speaker 2: on semis from Nvidia and other outside companies. And you
Speaker 2: know what, it comes just a day after Intel essentially
Speaker 2: did the same thing. They rolled out a new version
Speaker 2: of their AI chip also aiming to challenge in Vidia
Speaker 2: in one of the fastest growing parts of the semiconductor industry.
Speaker 3: All right, needless to say, AI and the chips that
Speaker 3: power AI, they are so hot right now?
Speaker 2: Is that a Zulender reference? I think I think she
Speaker 2: just did a Zelander reference. Maybe maybe chips so hot
Speaker 2: right now?
Speaker 5: All right?
Speaker 3: One of our go tos on chips is Dan Morgan.
Speaker 3: He's senior portfolio manager at Sonova's trust company, joining us
Speaker 3: right now from Atlanta. You actually write about the top
Speaker 3: players in the red hot AI chip market. It does
Speaker 3: feel like there's a lot going on, Dan Morgan, What
Speaker 3: are you paying attention to, whether it's Meadow, whether it's Intel,
Speaker 3: or what Nvideo is up to.
Speaker 6: What's interesting, Carol, because you know, we kind of started
Speaker 6: off this conversation with who are the top traditional chip
Speaker 6: makers who are coming out with AI, you know, AI
Speaker 6: products to compete against Nvidio. So we had conversations about
Speaker 6: let's say, AMD or Broadcom or Marvel and to a
Speaker 6: certain extack Qualcom on the handset. And now that everything's
Speaker 6: kind of turned around, Tim and Carroll, where we have
Speaker 6: the end user buyer of the chip is actually producing
Speaker 6: their own chips, like you mentioned the recent announcements that
Speaker 6: came out over the last couple of days. I mean,
Speaker 6: you've got but we alpha bed, we're actually on chip.
Speaker 2: I'm sorry, go ah, I just want to Is it
Speaker 2: that easy that Meta can just create a chip that
Speaker 2: competes within VIDIA.
Speaker 6: Well, it's kind of interesting. Meta's chip, the nt I
Speaker 6: A is what it's abbreviated as, which is Meta Training
Speaker 6: Inference Accelerator Version one, which is kind of a long name.
Speaker 6: But to say, Tim, that that chip could go head
Speaker 6: to head against let's say, a Blackwell one hundred, which
Speaker 6: is the new in video chip that came out a
Speaker 6: couple of weeks ago, I'm sure you guys covered that
Speaker 6: probably not be an accurate statement. But for the purpose
Speaker 6: of Meta in regards to what they're trying to do obviously,
Speaker 6: which is trying to post advertising when you're doing your
Speaker 6: social media searches and so forth in the right places
Speaker 6: to increase ROI, it might work very well for them.
Speaker 6: So it is interesting, though, Tim, that we're getting all
Speaker 6: these companies that are the end users who are now
Speaker 6: producing their own proprietary chips.
Speaker 3: So is that a no, Well, well, here's the deal, right,
Speaker 3: not all tips are the same. We know that we've
Speaker 3: talked to you, We talked to our Ian king. You know,
Speaker 3: I'm assuming that different companies are putting out things to
Speaker 3: make accelerator chips to make the you know, to make
Speaker 3: the AI applications happen more efficiently, use less energy, and
Speaker 3: so on and so forth. So how are you looking
Speaker 3: at the AI chip space? Like, what's important? What does
Speaker 3: our audience kind of need to know here as all
Speaker 3: this news continues to come at them.
Speaker 6: We bring up a good point, Carol, and that is
Speaker 6: that up to this point, most of the action has
Speaker 6: been a data center, right, And Tim and Carroll we
Speaker 6: have covered in Nvidia for many many years and talked
Speaker 6: about their you know, trajectory through that space. And now
Speaker 6: you have other companies who are trying to focus on
Speaker 6: the data center, right, Amd, Intel trying to come out
Speaker 6: with chips to go against Nvidia. And then you have
Speaker 6: the top players in that space, which would be Amazon
Speaker 6: with AWS. They just came out with a couple of
Speaker 6: new chips, so the graviton for the Tredium two. Then
Speaker 6: we also have believe it or not, Microsoft, which is
Speaker 6: the head of operating systems, has come out with their
Speaker 6: own chips also in that space for ASER. So it's interesting, Carol,
Speaker 6: because you have the proprietary companies developing chips specific to
Speaker 6: for example, Amazon for AWS, and you have let's say
Speaker 6: Microsoft with ASER, but they are still focused in the
Speaker 6: data center and that still seems to be the hot
Speaker 6: spot in terms of profits and so forth, and where
Speaker 6: a lot of the action is right now, not to
Speaker 6: take away from, for example, what Meta or maybe Alphabet
Speaker 6: is doing, but so far the hot spot for investors
Speaker 6: has been definitely in the data center.
Speaker 2: Hey, Dan, what would you say to someone I want
Speaker 2: to switch gears a little bit and talk about investment
Speaker 2: opportunities Because you watch the space really closely. What would
Speaker 2: you say to somebody who said, you know what I
Speaker 2: missed out on in videos two hundred and forty percent
Speaker 2: run up last year. I missed out on some of
Speaker 2: the seventy five percent increase this year meta platforms two
Speaker 2: hundred percent increase last year, or meta platforms you know,
Speaker 2: close to fifty percent increase so far this year. And
Speaker 2: they're thinking to themselves, wait a second, I feel like
Speaker 2: a lot of the gains to be had with AI
Speaker 2: have already been had. What would you say to that, you.
Speaker 6: Know, I would say, Tim, we're still in the beginning stages.
Speaker 6: I mean, you could add Broadcom to that list of
Speaker 6: huge winners right in terms of investment over the last year.
Speaker 6: But you know, I think that it's you know, some
Speaker 6: people have said it's over hyped, it's kind of like
Speaker 6: what happened back in the summer of two thousand and
Speaker 6: I would totally disagree, just because these companies are all
Speaker 6: very profitable, they have very solid products. I still think
Speaker 6: there's a huge amount of upward potential, you know, in
Speaker 6: a lot of these names that we're talking about today.
Speaker 6: I mean, the projected growth rate for artificial intelligent chips
Speaker 6: is about twenty five percent going out, so definitely one
Speaker 6: of the fastest growing groups. And I still think we're
Speaker 6: in the beginning stages, Tim and Carroll, And I know
Speaker 6: that sounds a little crazy after these huge run ups,
Speaker 6: but this is where the action is right now in tech,
Speaker 6: and I still believe it to continue to go.
Speaker 3: Can I ask you, I mean, there are chips in everything, right,
Speaker 3: how many times do have we said this? If we
Speaker 3: all had a buck for every time we said that,
Speaker 3: we would all be living on our private islands.
Speaker 2: You could almost afford some and video chips or stock
Speaker 2: right exactly now.
Speaker 3: But having said that, there are chips in everything, so
Speaker 3: not all chips are like, you know, how much of
Speaker 3: our world currently today is an AI related chip of
Speaker 3: some sort? How many? How much will be?
Speaker 6: Well, it's interesting, Carol, because you know, we've talked before
Speaker 6: about Micron technology being more of a commodity based chip
Speaker 6: maker with d RAM and nand and then we swing
Speaker 6: the pendulum over to AI right as being right like
Speaker 6: in video as being like, wow, they charged twenty to
Speaker 6: thirty thousand dollars a chip. We're even a high level
Speaker 6: Micron high bandwidth memory chip would probably be one thousand
Speaker 6: to fifteen hundred dollars, just give you difference in the pricing.
Speaker 6: So you know, I wouldn't say at this point, Carol,
Speaker 6: that everything has an AI chip in it. It's mostly
Speaker 6: like we mentioned the data center, but it is moving
Speaker 6: to other applications. But again it's just it's a sector
Speaker 6: that is still in its infinity stages in terms of
Speaker 6: like you just mentioned, is it going to end up
Speaker 6: that we have an AI chip in our washing machines
Speaker 6: that we do our laundry and I wouldn't be surprised
Speaker 6: that we don't, and we're getting there.
Speaker 2: I can't even connect from the washing machine to the internet.
Speaker 3: But no, but that's your point. No, is there a
Speaker 3: way that it's right? Like, I don't know, do you
Speaker 3: anticipate someone who understands this industry that there will be
Speaker 3: an AI chip in everything? Is that where we're going?
Speaker 6: Yeah, I don't know if you could say, but pretty close,
Speaker 6: especially in terms of the you know, you look at
Speaker 6: the driverless vehicles, that's a huge AI option, you know,
Speaker 6: opening for them. You look at mobile phones. I mean,
Speaker 6: Apple hasn't done that much in that space.
Speaker 5: We have.
Speaker 6: Qualcomm has a chip that they have introduced in terms
Speaker 6: of the AI one hundred. But that's a huge open
Speaker 6: frontier right getting away from the data center, getting away
Speaker 6: from cloud. So there are a lot of opportunities in
Speaker 6: other spaces and maybe a wright, Carol, we'll get to
Speaker 6: the point where everything has an AI chip in it.
Speaker 6: We're not there yet, and that's what creates the growth.
Speaker 2: I wasn't actually joking about not being able to connect
Speaker 2: my washing machine into the internet.
Speaker 4: We have Do you think that's crazy?
Speaker 3: I have a tooth brush that I can do like
Speaker 3: connect to an app.
Speaker 4: I'm like, I don't.
Speaker 3: I just need to brush my team.
Speaker 2: No, we our washing machine is supposed to connect to
Speaker 2: the internet. It just won't work.
Speaker 3: But why do you want that?
Speaker 2: You know, I was trying to down down the app
Speaker 2: it won't connect.
Speaker 3: Instead of the household when laundry kind of the use?
Speaker 2: I have no idea. Hey, Dan, before we let you go,
Speaker 2: give give me some, give us some give give our
Speaker 2: investing audience some some picks for the remainder of the
Speaker 2: years of stocks you like.
Speaker 3: Do you have a favorite name in this space?
Speaker 6: Well, I mean Tech it's hard not to like, you know,
Speaker 6: and Nvidio. I mean these are names that are currently
Speaker 6: on our by list. Broadcom is another AI play. Qualcomm
Speaker 6: is interesting uh just as I mentioned before, as a
Speaker 6: play on on the actual uh cdm A based phones
Speaker 6: of course Android based Apple. So those would be some
Speaker 6: kind of some names in the space you know that
Speaker 6: are currently on our buy list that if you know,
Speaker 6: the client's risk tolerance and objectives are in line, that
Speaker 6: would be something that we look at in terms of AI.
Speaker 6: So those again are names that aren't uncommon. I'm sure
Speaker 6: a lot of people have already looked at those, but
Speaker 6: you know, there's not that many ways to play it
Speaker 6: right now, and those are probably the top place.
Speaker 3: Hey twenty seconds, are you buying Microsoft Alphabet or Meta
Speaker 3: because of its chips?
Speaker 4: Real quickly?
Speaker 6: You know, Microsoft looks really good coming into this upcoming
Speaker 6: report in about two weeks Carol and SODA's Meta in
Speaker 6: terms of ability to blow numbers. So even beyond the
Speaker 6: jen Ai focused which we'll hear about on the conference call,
Speaker 6: I think there's other things that are working really strong
Speaker 6: for those.
Speaker 3: Companies now, Dan Morgan, great report. Great to chat with you,
Speaker 3: Dan Morgan of Sonovas.
Speaker 4: Thanks