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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: At the start of twenty twenty five, China's economy was

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Speaker 2: under strain and its outlook was daunting.

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Speaker 1: You had property in China doing terribly, You had weak

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Speaker 1: consumer spending.

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Speaker 2: John Liu is Bloomberg's executive editor for Greater China based

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Speaker 2: in Beijing.

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Speaker 1: Donald Trump had come into office saying that he was

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Speaker 1: going to put up tariffs, and so there was this

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Speaker 1: expectation that, you know, experts were going to suffer, China

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Speaker 1: was going to suffer, and there was going to be

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Speaker 1: a lot of tension between the world's two foremost powers.

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Speaker 2: Economists warned of a potential lost decade, drawing parallels with

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Speaker 2: Japan's stagnation in the nineteen nineties. At the beginning of

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Speaker 2: the year, global investors accelerated their exit of the Chinese market,

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Speaker 2: with some investors calling the stocks uninvestable.

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Speaker 3: The sensing the investment community is overwhelmingly pessimistic right.

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Speaker 2: Shuly Wren is a Bloomberg opinion columnist covering China mar

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Speaker 2: markets based in Hong Kong.

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Speaker 3: There was also talk of investing in emergent markets ex China. Basically,

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Speaker 3: peepoches left China for dead, but.

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Speaker 2: By the year's end, the perception of China couldn't be

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Speaker 2: more different.

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Speaker 1: The release of deep seek Ai from a Chinese company

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Speaker 1: should be a wake up call for our industries.

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Speaker 4: Tech talks in China up again because China, throughout this

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Speaker 4: process has learned that it has a very critical leverage

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Speaker 4: tool of its own, and that is those rare earths

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Speaker 4: that the United.

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Speaker 1: The start of twenty twenty five, I think the question

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Speaker 1: was how bad is China going to get beat up

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Speaker 1: by Trump? And now it seems like the general census

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Speaker 1: China won.

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Speaker 5: This is the Big Take Asia from Bloomberg News. I'm Wanhu.

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Speaker 2: Every week we take you inside some of the world's

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Speaker 2: biggest and most powerful economies and the markets, tycoons and

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Speaker 2: businesses that drive this ever shifting region. Today, in the show,

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Speaker 2: we dive into China's dramatic twenty twenty five, from dire

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Speaker 2: predictions to technological breakthroughs. How was China able to navigate

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Speaker 2: this year's turmoil largely unscathed, and looking ahead to twenty

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Speaker 2: twenty six, what dangers could derail its growth over the

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Speaker 2: past year. I've sat down with John Liu and truly

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Speaker 2: ran more times than I can count. When we talk,

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Speaker 2: it's mostly about China. We've tracked Beijing's response to President

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Speaker 2: Trump's tear fur, its efforts to boost domestic spending, and

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Speaker 2: it's pushed to become the dominant player in artificial intelligence.

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Speaker 2: We even made room for La Booboo, long before those

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Speaker 2: little monsters were picking out from under your Christmas tree.

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Speaker 2: I asked John and truly to join me again earlier

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Speaker 2: this month to make sense of what's been a chaotic

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Speaker 2: year for China going into twenty twenty five. The mood

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Speaker 2: on the ground was one of apprehension. China's economy was

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Speaker 2: battling challenges on multiple fronts, persistent deflation, a crippling property crisis,

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Speaker 2: and a stock market sell off. Then there was a

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Speaker 2: cloud that loomed over everything else.

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Speaker 1: Twenty twenty five it felt like the quiet before the storm,

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Speaker 1: and the storm being named Donald Trump, of course.

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Speaker 2: And quite a storm it was. The US took China

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Speaker 2: and the rest of the world on our tariff roller coaster.

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Speaker 2: The US raised levies on Chinese goods, first to ten percent,

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Speaker 2: then twenty percent, then one hundred and forty five percent,

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Speaker 2: before landing back at ten percent. Suly I want to

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Speaker 2: start with you, it's been a wild ride for China

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Speaker 2: this year. But as we close the book on twenty

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Speaker 2: twenty five, how is China looking? What surprised you the most.

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Speaker 3: Just the fact that the animal spirit is starting to

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Speaker 3: come back in China. That's just so surprising because we

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Speaker 3: just didn't feel that way at the beginning of the year. Right,

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Speaker 3: Like when you talk to global investors, what they're saying

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Speaker 3: is that at the beginning of the year there was

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Speaker 3: the sense that, Okay, China does have the world's most

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Speaker 3: powerful factory. It has manufacturing locked. But if AI manages

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Speaker 3: to come along and develop further, there's a chance that

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Speaker 3: the you know, in the future or the manufacturing will

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Speaker 3: be automated and China would lose its biggest edge. And

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Speaker 3: they turned out at the end of the year, actually,

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Speaker 3: you know, China is stealed the world's most powerful factory

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Speaker 3: despite Trump's tariffs.

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Speaker 2: Now, AI, as you mentioned, was a big win for China.

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Speaker 2: It started the year with that big win. In January,

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Speaker 2: deep Sea came out of nowhere right and emerged as

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Speaker 2: its low cost AI breakthrough, and that triggered a massive

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Speaker 2: selloff in US stocks.

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Speaker 1: China's deep seek is freaking out the AI world right

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Speaker 1: now text talks Tom what does.

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Speaker 6: It say about China that it's managed to clock so

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Speaker 6: much progress in high tech even as the US was

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Speaker 6: trying to hold it back by restricting sale of these

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Speaker 6: advanced ships that they need to develop AI with.

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Speaker 3: I think the seeds of success were sold a long

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Speaker 3: time ago, and the only by the law of large

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Speaker 3: numbers that innovation comes out in China. Let's start with

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Speaker 3: like a higher education to present. Shooting King's credit, he

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Speaker 3: has fostered higher education during the last ten plus years.

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Speaker 3: In two thousand, basically twenty five years ago, only ten

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Speaker 3: percent of high school graduates they will go to universities.

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Speaker 3: These days, close to half they will go to universities,

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Speaker 3: and engineering is by far the most popular graduate school

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Speaker 3: studies for Chinese students. And if you look at like

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Speaker 3: global rankings of top AI researchers, close to fifty percent

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Speaker 3: graduated from universities in China versus only eighteen percent in

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Speaker 3: the US.

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Speaker 6: Now, John You and I talked in March during the

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Speaker 6: National People's Congress about how the export sector was really

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Speaker 6: at that point the only bright spot in China's economy,

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Speaker 6: and it was facing serious threats from Trump's tariffs. I

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Speaker 6: wonder now, you know, as we look back, what kind

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Speaker 6: of report card grade does China get in navigating this

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Speaker 6: trade war.

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Speaker 1: I would say it gets a B plus. And the

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Speaker 1: reason it doesn't get an A is instead of shipping

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Speaker 1: all those goods to the United States, they're still getting

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Speaker 1: shipped out of China, They're just getting shipped to other markets.

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Speaker 1: But China has a trade surplus of over a trillion

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Speaker 1: dollars for a second year, and it's not a sustainable

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Speaker 1: way to run an economy.

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Speaker 6: What is that though? Say to you about China that

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Speaker 6: it's managed to pull off a record trade surplus of

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Speaker 6: a trillion dollars, that it's emerged unscathed really from this

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Speaker 6: trade war.

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Speaker 3: Economic central planning has its advantages, right Like, you cannot

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Speaker 3: pull this feast of blocking rear earth exports if you

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Speaker 3: do not have a powerful central planner. It's pros and

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Speaker 3: cons And in the way, you start to see a

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Speaker 3: little bit more central planning even coming out of the

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Speaker 3: US the trump An administration. They are trying to adapt

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Speaker 3: somewhat China's industrial policy because they do recognize its advantages.

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Speaker 2: Trade war winds aside, we're also seeing China's tech industry

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Speaker 2: drive the stock market revival. After a couple of really

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Speaker 2: rocky years, we're now seeing tech rallies and markets rebound,

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Speaker 2: and I guess that raises the question is China investible again?

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Speaker 1: So this is a little bit processing, but you know,

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Speaker 1: every morning we get together as a newsroom and we

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Speaker 1: decide what are going to be the biggest stories of

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Speaker 1: the day. And when we have a exciting IPO coming

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Speaker 1: to market, as we had today the company called meta x,

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Speaker 1: which makes chips, people are hoping it might one day

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Speaker 1: be China's answer to Nvidia. For a company like this,

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Speaker 1: for an IPO, we set a bar for, you know,

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Speaker 1: how much the stock has to go up before we

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Speaker 1: send alerts and red flashy headlines everywhere to let people

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Speaker 1: everywhere know something big has happened. And as we were

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Speaker 1: talking about it, our colleague on the stock market team

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Speaker 1: said the bar would be a fifty percent increase in

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Speaker 1: the stock and I had to stop. I said five zero,

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Speaker 1: and she's like, yes, fifty percent. I know our expectations

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Speaker 1: are very high. When I looked before I came back,

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Speaker 1: the shares were up seven hundred and fifty five percent.

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Speaker 5: Wow, that's crazy.

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Speaker 1: That's something that would not have happened in twenty twenty

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Speaker 1: four in China, and I think it speaks to greater confidence,

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Speaker 1: more optimism about technology and the investability of China. But

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Speaker 1: that's primarily a local Chinese investor base we're talking about

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Speaker 1: getting into that stock. I don't know that investors in

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Speaker 1: the US or Europe their minds I don't think have

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Speaker 1: changed as much.

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Speaker 6: So then what do you think in terms of the

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Speaker 6: broader picture? I mean, are we seeing that fundamental shift

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Speaker 6: in how foreign investors are now looking at the Chinese

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Speaker 6: market as well?

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Speaker 5: This year?

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Speaker 3: In twenty twenty five, AI is a huge theme and

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Speaker 3: that any market that doesn't have the AI exposure, they're

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Speaker 3: just not going to do as well. And I'm about India,

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Speaker 3: whereas China right now we have this AI exposure and

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Speaker 3: you just cannot stay out of this market at this

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Speaker 3: point because we all know this. This theme is going

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Speaker 3: to continue into twenty twenty six, and there are two

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Speaker 3: competing forces fighting for the crown jewel, right who wins

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Speaker 3: the AI race? And you cannot invest in the US

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Speaker 3: without investing in China somewhat as well.

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Speaker 6: Just as diversification now to the extent that China's navigated

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Speaker 6: this year's turmoils so well, how much of the credit

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Speaker 6: goes to present Cijinpin and what that says about his leadership?

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Speaker 1: I think, you know, in a system like China that

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Speaker 1: is so top down, there has to be a lot

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Speaker 1: of credit given to Sijinpin and the way that he

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Speaker 1: not only executed his strategy, but his decision to use

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Speaker 1: the strategy to stand up to the United States by

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Speaker 1: putting up tariffs every time Trump put up tariffs, to

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Speaker 1: put an emphasis on technology, to be willing to spend

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Speaker 1: the billions and billions of dollars that Beijing has thrown

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Speaker 1: at chips and ai, not knowing if ultimately it would

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Speaker 1: pay off. I think a lot of credit goes.

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Speaker 6: To him, truly, you have any thoughts on that.

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Speaker 3: I think it cuts both ways. This year we are

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Speaker 3: seeing a very strong China standing up to a bully

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Speaker 3: basically President Trump, right, But three years ago we also

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Speaker 3: saw a very unfitted China refusing to exit COVID zero

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Speaker 3: and locking down the big chunk of the nation. So

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Speaker 3: I think it all depends on the narrative, right, Like

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Speaker 3: maybe in twenty twenty six or twenty twenty seven, the

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Speaker 3: narrative will shift back. It's just the nature of China's

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Speaker 3: political system.

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Speaker 1: I suppose, I think truly makes a very good point,

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Speaker 1: and I would add that like on certain fronts, the

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Speaker 1: success that President She has had Visa v. Trump, Visa

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Speaker 1: VI Tech, Visa v. Markets belies the fact that actually

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Speaker 1: the domestic economy in China is in many ways still

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Speaker 1: suffering and in many ways probably in a way worse

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Speaker 1: condition today than it was at the end of twenty

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Speaker 1: twenty four.

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Speaker 2: Coming up after the break, how China's domestic challenges from

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Speaker 2: rising deflation to youth unemployment could undermine the gains it

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Speaker 2: made this year. Going into twenty twenty five, China's top

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Speaker 2: priority was to get its populations spending. Again, that push

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Speaker 2: hasn't had much success. Consumption was soft throughout the year,

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Speaker 2: and China's leaders have again made consumer spending the top

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Speaker 2: priority for twenty twenty six.

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Speaker 5: It's an uphill battle.

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Speaker 2: Chinese consumers are increasingly priced sensitive. That's prompting businesses to

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Speaker 2: roll out steep discounts to lure buyers. But Bloomberg surely

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Speaker 2: Ren and John Lieu say the price wars don't seem to.

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Speaker 5: Be helping much.

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Speaker 3: I just don't see Chinese people consuming at all. I mean,

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Speaker 3: this whole deflation thing. It's a mindset, right, If you

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Speaker 3: expect a cup of coffee to cost a ten end

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Speaker 3: this year, next year, it might just be a u

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Speaker 3: n right, Like it's so ingrained, Like it's very common

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Speaker 3: for consumers to go to a restaurant I ask for

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Speaker 3: deals at this point, Like before people start ordering, they

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Speaker 3: will open their dmping or made to one at app

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Speaker 3: and start looking for online deals.

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Speaker 6: What does it feel like for you, John on the

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Speaker 6: ground there in terms of spending and deflation.

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Speaker 1: You know, I can feel the prices going down because

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Speaker 1: I am enjoying a lot of discounts, so in some

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Speaker 1: ways not bad. But the other thing that I've noticed

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Speaker 1: is how much people are saving. Chinese households have always

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Speaker 1: been big savers, but during the pandemic it got really outsized.

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Speaker 1: I think at some point people were saving a third

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Speaker 1: of their incomes, and I think that reflects the sense

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Speaker 1: that you know, if you're getting ready for retirement, you're

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Speaker 1: getting ready for old age and maybe needing medical care.

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Speaker 1: You are depending on yourself, You're depending on your family.

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Speaker 1: You are not expecting very much help from the government.

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Speaker 6: So with all that saving that's going on, what does

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Speaker 6: it mean for China on whether it's on track to

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Speaker 6: meet the five percent growth target that it had set

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Speaker 6: earlier this year.

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Speaker 1: I think China will meet the five percent GDP target

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Speaker 1: that I believe is pretty clear. But I think what's

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Speaker 1: interesting there is the five percent GDP target is real

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Speaker 1: GDP growth. So real GDP growth is nominal. So you

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Speaker 1: take the actual dollar terms of GDP this year, and

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Speaker 1: you subtract what last year was and you get the difference,

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Speaker 1: and then you account for inflation or in China's situation, deflation,

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Speaker 1: and so actual nominal GDP is Actually, it may not

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Speaker 1: even hit four percent this year because there's deflation in China.

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Speaker 1: You know, we're adding on another percent of growth to

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Speaker 1: compensate for that, which is how you get to five percent.

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Speaker 1: So yes, we'll get to the target, but no, it

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Speaker 1: may not feel like we're growing that fast on the ground.

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Speaker 2: With prices falling all across the board, China is experiencing

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Speaker 2: its longest streak of deflation since the nineteen nineties. Economists

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Speaker 2: worry that if deflation persists, China could end up experiencing

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Speaker 2: its own version of Japan's lost decades of economic stagnation.

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Speaker 2: One of the biggest issues China has to deal with,

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Speaker 2: John says youth unemployment.

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Speaker 1: Youth unemployment is much higher, multiples higher than the rate

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Speaker 1: of unemployment for other segments of the population, and I

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Speaker 1: think that reflects both a stagnation with corporates because of deflation.

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Speaker 1: They're not growing, so they're not hiring more. I think

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Speaker 1: it's probably also starting to reflect the prevalence of AI

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Speaker 1: and so companies just in their hiring their behavior has changed.

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Speaker 1: Other than that, I think property is still a big issue.

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Speaker 1: Falling home prices makes everybody feel a little poor, even

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Speaker 1: if their incomes are not changing. There's talk about providing

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Speaker 1: subsidies for people's mortgage payments and so that could help,

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Speaker 1: but you know, we're still watching prices go down.

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Speaker 2: China's real estate sector has been declining since twenty twenty one.

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Speaker 2: Both investment in property and sales of real estate have

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Speaker 2: fallen since their peaks that year. Local governments, which rely

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Speaker 2: on property sales to fund their budgets and invest heavily

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Speaker 2: in real estate, are trillions of dollars in debt. All

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Speaker 2: of these domestic issues are leaving the Chinese economy vulnerable

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Speaker 2: to risks abroad. China shifted its economic strategy to a

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Speaker 2: reliance on foreign demand to drive growth for much of

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Speaker 2: this year. That created a trillion dollar trail surplus that

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Speaker 2: John says could create a problem for China down the line.

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Speaker 1: You cannot have the livelihoods of your people based on

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Speaker 1: your ability to sell a trillion dollars more stuff than

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Speaker 1: you buy from other people. That sort of statistic means

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Speaker 1: that there's just going to be endless trade tensions, and

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Speaker 1: we've seen that between China and the Europeans, Latin America,

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Speaker 1: even with some African countries. Just the flood of goods

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Speaker 1: coming from China, you know, they're cheap, and companies in

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Speaker 1: those other jurisdictions find it very hard to compete. For example,

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Speaker 1: recently there was a spat with the EU trying to

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Speaker 1: put tariffs on European pork imports that you put tariffs

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Speaker 1: on Chinese cars, And actually just this week China actually

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Speaker 1: lowered the tariffs that it was putting on European pork too,

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Speaker 1: somewhere between four to fourteen percent, and it had been

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Speaker 1: as high as over sixty percent. And in turn, you

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Speaker 1: saw the French President Emmanuel Macron saying that you know,

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Speaker 1: putting up tariffs would not the cooperative way to deal

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Speaker 1: with these differences. And so I think you see both

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Speaker 1: China and its trading partners trying to find a way

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Speaker 1: to get through this.

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Speaker 5: However you slice it.

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Speaker 2: Twenty twenty five has been a big year for China

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Speaker 2: and uncertain start, a mountain of opposition, but the country

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Speaker 2: has stuck to its principles and done a good job

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Speaker 2: of resisting a double barreled onslaught in the form of

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Speaker 2: tariffs and verbal abuse from Donald Trump. But that resistance

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Speaker 2: hasn't come without a cost, and there are plenty of

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Speaker 2: challenges ahead for China.

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Speaker 3: If you speak to business people in China, people still

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Speaker 3: talk about Taiwan. It's still an issue that has not

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Speaker 3: been resolved. So this kind of tensions my flare up.

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Speaker 3: And again the interaction with the White House, I mean,

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Speaker 3: that is still a question mark.

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Speaker 1: So in twenty six I think there's a very interesting

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Speaker 1: phenomenon where President Trump says he's going to visit China

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Speaker 1: in April and that he wants President she to then

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Speaker 1: visit the US. But then at the end of the year,

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Speaker 1: China is hosting APEC in the middle of November and Shinjin,

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Speaker 1: and then the United States is hosting G twenty in Miami,

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Speaker 1: and so you have the situation where the two presidents

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Speaker 1: could meet each other face to face four times in

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Speaker 1: twenty twenty six. That could provide pillars of support stability

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Speaker 1: for the relationship. But it could also, as we've seen

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Speaker 1: ahead of these meetings, you have the potential for flare

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Speaker 1: ups to happen. People are trying to put themselves in

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Speaker 1: the best bargaining position by putting out this tariff or

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Speaker 1: that export control and so it could also be that

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Speaker 1: next year we're going to see four flare ups before

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Speaker 1: we see four solutions, and so it could be more

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Speaker 1: tumult of anything.

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Speaker 6: So as we wrap up music for thought, what do

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Speaker 6: you think is a good theme song for China as

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Speaker 6: it steps into twenty twenty six.

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Speaker 5: I will pick a beto'sa Yellow sup Ring.

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Speaker 3: We just have no clarity into the future, right like

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Speaker 3: we just have a glimpse of this and that, and

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Speaker 3: then we're just hidden under the water. And I feel

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Speaker 3: like twenty twenty six is going to be like that.

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Speaker 6: And John, what about you?

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Speaker 1: One of the big issues for China at the moment

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Speaker 1: is there is a lack of money for a lot

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Speaker 1: of local governments and to some extent even the central government.

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Speaker 1: And you see a lot of local governments because the

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Speaker 1: property market is so bad. They used to make so

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Speaker 1: much money selling land. That money's gone. They're finding it

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Speaker 1: hard to finance the projects they want to do. And

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Speaker 1: so the song I would pick is there's an old

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Speaker 1: Motown song called money.

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Speaker 5: Our best thing.

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Speaker 1: I think it goes, but you can keep them for

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Speaker 1: the birds and bees. I want.

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Speaker 6: What I want.

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Speaker 1: That's what I want. That's what I want. That's how

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Speaker 1: it goes.

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Speaker 2: That's Bloomberg's John Lee. Ladies and gentlemen, John truly, you

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Speaker 2: guys have been fantastic. Happy holidays.

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Speaker 5: Thanks to you all. This is The Big Take Asia

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Speaker 5: from Bloomberg News. I'm wan hu.

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Speaker 2: to all of Bloomberg dot Com, subscribe today at Bloomberg

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