1 00:00:11,400 --> 00:00:14,760 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,880 --> 00:00:19,720 Speaker 1: I'm Tracy Allaway and I'm Joe Wisenthal. So, Joe, did 3 00:00:19,760 --> 00:00:23,800 Speaker 1: I tell you that I got a tear gassed recently? Oh? 4 00:00:23,840 --> 00:00:27,400 Speaker 1: My god, No. I think I saw a tweet from 5 00:00:27,400 --> 00:00:30,120 Speaker 1: you that kind of hinted at that, but I couldn't 6 00:00:30,160 --> 00:00:33,159 Speaker 1: totally tell whether you actually did, or whether you were 7 00:00:33,159 --> 00:00:34,920 Speaker 1: just at risk of it, or whether it was just 8 00:00:35,280 --> 00:00:38,839 Speaker 1: in theory or you or your colleagues were so I 9 00:00:38,880 --> 00:00:42,040 Speaker 1: wasn't sure. So I you actually got tear gassed. Yeah, So, 10 00:00:42,600 --> 00:00:46,720 Speaker 1: just to clarify, this is not the norm in financial journalism, 11 00:00:46,720 --> 00:00:51,120 Speaker 1: but for those who haven't been following international news recently, 12 00:00:51,400 --> 00:00:55,200 Speaker 1: there have been a series of very big and historic 13 00:00:55,240 --> 00:00:59,920 Speaker 1: events in Hong Kong. We've had these massive protests now, 14 00:01:00,000 --> 00:01:03,440 Speaker 1: two of which were very very peaceful and very big, 15 00:01:04,080 --> 00:01:07,160 Speaker 1: and then on one occasion, we had a protest that 16 00:01:07,400 --> 00:01:11,680 Speaker 1: descended into I don't want to say violence, but a 17 00:01:11,680 --> 00:01:14,000 Speaker 1: little bit of chaos. There was a lot of police 18 00:01:14,160 --> 00:01:18,160 Speaker 1: pushed back, which I personally witnessed, and the police also 19 00:01:18,480 --> 00:01:22,560 Speaker 1: fired rubber bullets and they also fired tear gas canisters 20 00:01:22,600 --> 00:01:26,479 Speaker 1: and it was sort of a surreal experience. Because all 21 00:01:26,480 --> 00:01:29,520 Speaker 1: of this was taking place in an area of Hong 22 00:01:29,600 --> 00:01:33,680 Speaker 1: Kong called Admiralty, which is sort of like a midtown 23 00:01:33,720 --> 00:01:36,960 Speaker 1: Manhattan or maybe a Wall Street equivalent to New York. 24 00:01:37,080 --> 00:01:40,640 Speaker 1: And so among all these big office buildings, including the 25 00:01:40,640 --> 00:01:43,120 Speaker 1: Bank of America Mary Lynch office building, which was very 26 00:01:43,200 --> 00:01:45,600 Speaker 1: very close to where all this was happening. You had 27 00:01:45,640 --> 00:01:49,000 Speaker 1: these tear gas canisters being fired in the air as 28 00:01:49,040 --> 00:01:53,200 Speaker 1: commuters were trying to get home. It was pretty crazy. Yeah, 29 00:01:53,280 --> 00:01:58,160 Speaker 1: I was pretty struck by the images, and obviously exactly 30 00:01:58,200 --> 00:02:00,600 Speaker 1: that fact, because of course I would just visiting you 31 00:02:00,760 --> 00:02:04,200 Speaker 1: in Hong Kong last November, I think it was and 32 00:02:04,560 --> 00:02:08,160 Speaker 1: realizing that, you know, this is just a normal business 33 00:02:08,240 --> 00:02:12,600 Speaker 1: district that was utterly transformed, and being looking at those 34 00:02:12,680 --> 00:02:14,639 Speaker 1: roads and saying, hey, I was walking down those roads, 35 00:02:14,720 --> 00:02:18,200 Speaker 1: probably looking for Rose Duck at one point, and then 36 00:02:18,280 --> 00:02:22,920 Speaker 1: seeing the scenes that they had become was pretty extraordinary. 37 00:02:22,960 --> 00:02:25,519 Speaker 1: I think you did actually wander down that area looking 38 00:02:25,800 --> 00:02:27,959 Speaker 1: I'm pretty sure it was chicken wings and you told 39 00:02:28,000 --> 00:02:31,520 Speaker 1: me about it. I literally did. Yeah, I'm not exacted, 40 00:02:31,600 --> 00:02:34,000 Speaker 1: that's literally what Yeah, that's literally what I was there for. 41 00:02:34,840 --> 00:02:37,799 Speaker 1: All right. Well, the reason all of this was happening 42 00:02:38,280 --> 00:02:41,880 Speaker 1: was because of a proposed piece of legislature that was 43 00:02:42,120 --> 00:02:45,160 Speaker 1: working its way through the legal system in Hong Kong. 44 00:02:45,560 --> 00:02:48,639 Speaker 1: People referred to it as the Extradition Bill, and it 45 00:02:48,680 --> 00:02:52,880 Speaker 1: was a new law that would basically allow Hong Kong 46 00:02:53,600 --> 00:02:57,560 Speaker 1: residents or citizens to be extradited to China, and that 47 00:02:57,639 --> 00:03:01,919 Speaker 1: was something that wasn't allowed for. And Joe, I don't 48 00:03:01,919 --> 00:03:04,840 Speaker 1: know how much you know about the history of Hong Kong, 49 00:03:04,960 --> 00:03:11,040 Speaker 1: but you're familiar with them one country, two systems principle. Yes, right. 50 00:03:11,120 --> 00:03:15,200 Speaker 1: So after the British handoff of Hong Kong back to China, 51 00:03:15,680 --> 00:03:19,560 Speaker 1: the stipulation was that for several years, I think maybe 52 00:03:19,600 --> 00:03:22,720 Speaker 1: it was fifty Hong Kong would get to operate as 53 00:03:22,760 --> 00:03:25,400 Speaker 1: it generally does, is something more or less like a 54 00:03:25,440 --> 00:03:29,200 Speaker 1: liberal democracy with free speech and protest and free trade 55 00:03:29,360 --> 00:03:31,680 Speaker 1: and all that, and so that even on some level 56 00:03:31,720 --> 00:03:36,640 Speaker 1: it's politically now China, it is completely separate from a 57 00:03:36,720 --> 00:03:41,440 Speaker 1: lealistic standpoint than the mainland. Yeah, that's a good summation, 58 00:03:41,680 --> 00:03:44,080 Speaker 1: and I guess the thing to be aware of is 59 00:03:44,320 --> 00:03:47,880 Speaker 1: there's a sort of deadline hovering over this idea of 60 00:03:47,880 --> 00:03:51,760 Speaker 1: one country, two systems, and that is the year and 61 00:03:51,880 --> 00:03:56,800 Speaker 1: that's basically the date when that agreement sort of lapses, 62 00:03:56,960 --> 00:03:59,480 Speaker 1: and no one really knows what comes after that, but 63 00:03:59,600 --> 00:04:03,080 Speaker 1: most people assumed that they have a few more decades 64 00:04:03,200 --> 00:04:07,520 Speaker 1: at least of sort of having their own legal identity 65 00:04:07,680 --> 00:04:11,720 Speaker 1: separate to China. And when the legislature in Hong Kong 66 00:04:11,760 --> 00:04:16,160 Speaker 1: proposed this extradition change, people were suddenly very worried, very 67 00:04:16,240 --> 00:04:18,840 Speaker 1: up in arms, saying that this would bring that era 68 00:04:18,920 --> 00:04:22,880 Speaker 1: to a close even sooner than they had expected. There's 69 00:04:22,920 --> 00:04:25,840 Speaker 1: one more thing to note about this whole drama, and 70 00:04:25,880 --> 00:04:30,040 Speaker 1: that is the the chief executive of Hong Kong is 71 00:04:30,080 --> 00:04:34,680 Speaker 1: a woman called Carrie Lamb. She's not elected in a 72 00:04:34,720 --> 00:04:40,480 Speaker 1: democratic process, uh, and she's become something of a controversial figure. 73 00:04:40,680 --> 00:04:44,440 Speaker 1: She was pushing the extradition bill, and on the day 74 00:04:44,480 --> 00:04:49,239 Speaker 1: that we're recording this, she's actually just apologized for pushing 75 00:04:49,240 --> 00:04:53,920 Speaker 1: it through. She's also paused the bill, so it's no 76 00:04:54,000 --> 00:04:58,280 Speaker 1: longer winding its way through the Hong Kong legislature. But 77 00:04:58,480 --> 00:05:02,159 Speaker 1: it's still very unclear or exactly what is going to 78 00:05:02,320 --> 00:05:05,760 Speaker 1: happen to it. Is it actually dead and gone for good? 79 00:05:06,120 --> 00:05:08,839 Speaker 1: And needless to say, a lot of people are still 80 00:05:08,960 --> 00:05:13,640 Speaker 1: very very upset about the events of recent weeks, and 81 00:05:13,800 --> 00:05:17,560 Speaker 1: in particular the violence and the pushback that we've seen 82 00:05:17,720 --> 00:05:20,520 Speaker 1: from the police. No, I appreciate this because, like I 83 00:05:20,520 --> 00:05:23,720 Speaker 1: didn't even know, for example, that she wasn't elected. So 84 00:05:23,800 --> 00:05:26,560 Speaker 1: I appreciate all of this set up because otherwise I'd 85 00:05:26,600 --> 00:05:30,240 Speaker 1: be completely ignorant. Well, I, I know you know this part. 86 00:05:30,240 --> 00:05:33,719 Speaker 1: But Hong Kong is a very very large financial center, 87 00:05:33,880 --> 00:05:38,680 Speaker 1: and it's really the only international financial center within China 88 00:05:38,839 --> 00:05:41,440 Speaker 1: or close to China, and that makes it very special. 89 00:05:41,480 --> 00:05:44,520 Speaker 1: And it's market, as I can attest to having been 90 00:05:44,520 --> 00:05:47,240 Speaker 1: here for seven or eight months now, is very very 91 00:05:47,320 --> 00:05:51,480 Speaker 1: unusual in many ways. So I thought, given recent events, 92 00:05:51,800 --> 00:05:54,479 Speaker 1: we could have someone who not only is an expert 93 00:05:54,560 --> 00:05:57,920 Speaker 1: on that market but also has been pushing to change 94 00:05:57,920 --> 00:06:01,520 Speaker 1: it in various ways, and someone who also has some 95 00:06:01,680 --> 00:06:04,440 Speaker 1: very very strong opinions on the future direction of Hong 96 00:06:04,520 --> 00:06:08,320 Speaker 1: Kong and what the recent spate of protests might mean 97 00:06:08,480 --> 00:06:11,640 Speaker 1: for that future. Like I said, there's so much I 98 00:06:11,680 --> 00:06:15,200 Speaker 1: have to learn about this, so I'm very excited about 99 00:06:15,279 --> 00:06:18,080 Speaker 1: this episode. I might get in a few questions, but 100 00:06:18,160 --> 00:06:19,520 Speaker 1: I think a big part of me we would just 101 00:06:19,520 --> 00:06:22,080 Speaker 1: be sort of sitting back and hearing our guests speak. 102 00:06:22,360 --> 00:06:25,159 Speaker 1: Because of how little I know, I'm very looking forward to. Oh, 103 00:06:25,200 --> 00:06:27,039 Speaker 1: I'm sure you'll come up with questions, Joe, You'll like 104 00:06:27,120 --> 00:06:30,839 Speaker 1: this one, I promised. So. Our guest for this particular 105 00:06:30,880 --> 00:06:34,599 Speaker 1: episode is David Webb. He's a former banker. He's now 106 00:06:34,640 --> 00:06:39,400 Speaker 1: an independent I suppose you describe him as an activist investor. 107 00:06:39,680 --> 00:06:43,360 Speaker 1: He runs a website where he sort of researches various 108 00:06:43,400 --> 00:06:46,760 Speaker 1: companies in Hong Kong and also writes down his thoughts 109 00:06:46,800 --> 00:06:49,760 Speaker 1: on politics as well. So, David Webb, thanks so much 110 00:06:49,800 --> 00:06:53,240 Speaker 1: for coming on. Thanks for having me, David. When I 111 00:06:53,279 --> 00:06:55,919 Speaker 1: was prepping for this episode, there are a lot of 112 00:06:55,920 --> 00:06:59,200 Speaker 1: people in the Bloomberg Hong Kong office who already know you, 113 00:06:59,400 --> 00:07:01,640 Speaker 1: um and our familiar with your work. And I was 114 00:07:01,680 --> 00:07:04,480 Speaker 1: sort of going around and asking people to tell me 115 00:07:04,560 --> 00:07:06,960 Speaker 1: things about you, and I heard so many varied things. 116 00:07:07,040 --> 00:07:10,760 Speaker 1: I heard that you used to be the chairman of 117 00:07:11,240 --> 00:07:15,520 Speaker 1: Hong Kong Mensa. Yes. I heard that you used to 118 00:07:15,560 --> 00:07:20,360 Speaker 1: design video games in the nineteen eighties. I was a programmer, yes, 119 00:07:20,800 --> 00:07:24,240 Speaker 1: So okay, walk us through your sort of like early development. 120 00:07:24,600 --> 00:07:27,120 Speaker 1: You were a video game programmer at one point, and 121 00:07:27,840 --> 00:07:31,000 Speaker 1: eventually you ended up in Hong Kong. Had that happen well. 122 00:07:31,040 --> 00:07:35,000 Speaker 1: I was writing books and games for the first generation 123 00:07:35,000 --> 00:07:38,480 Speaker 1: of home computers in the early nine eighties while I 124 00:07:38,520 --> 00:07:42,440 Speaker 1: was still at school and university, and I did mathematics 125 00:07:42,520 --> 00:07:46,680 Speaker 1: at Oxford for three years, and then after graduation I 126 00:07:47,120 --> 00:07:50,440 Speaker 1: stopped coding and went into the city of London in 127 00:07:51,240 --> 00:07:56,000 Speaker 1: six to start corporate finance, working in a small merchant bank. 128 00:07:57,160 --> 00:07:59,600 Speaker 1: That was the year before something that was the year 129 00:07:59,600 --> 00:08:04,800 Speaker 1: of Big Bang, which was when stockbrokers and jobbers or 130 00:08:05,240 --> 00:08:08,040 Speaker 1: you would call market makers, perhaps in New York they'd 131 00:08:08,080 --> 00:08:11,480 Speaker 1: be called specialists. UM and merchant banks were all brought 132 00:08:11,520 --> 00:08:15,160 Speaker 1: together under a regulatory reform. So that was a big year. 133 00:08:15,160 --> 00:08:18,160 Speaker 1: And then in nine of course we had the crash, 134 00:08:18,560 --> 00:08:21,200 Speaker 1: the Wall Street crash, Global crash. I carried on to 135 00:08:21,280 --> 00:08:24,920 Speaker 1: incorporate finance in London for two more banks, and then 136 00:08:25,000 --> 00:08:27,520 Speaker 1: the third one, Barclay, sent me out to Hong Kong 137 00:08:27,960 --> 00:08:31,400 Speaker 1: in to do I p O s and merchers and 138 00:08:31,400 --> 00:08:36,040 Speaker 1: acquisitions in Asia, which I did for them for three years, 139 00:08:36,600 --> 00:08:41,520 Speaker 1: doing an awful lot of travel on the company time, Indonesia, Thailand, Philippine, 140 00:08:41,600 --> 00:08:43,960 Speaker 1: South Korea and so on, and one of the first 141 00:08:44,000 --> 00:08:47,160 Speaker 1: b shares in mainland China, which was a B share 142 00:08:47,320 --> 00:08:51,240 Speaker 1: then was a share for foreign investors that was listed 143 00:08:51,679 --> 00:08:56,760 Speaker 1: in Shanghai. And I left that firm in ninety four 144 00:08:56,840 --> 00:08:59,240 Speaker 1: and went to work for a local conglomerate for four 145 00:08:59,320 --> 00:09:04,080 Speaker 1: years for a called family controlling shareholder, basically to advise 146 00:09:04,160 --> 00:09:08,600 Speaker 1: them on their corporate structuring and transactions and investments. And 147 00:09:08,640 --> 00:09:14,360 Speaker 1: then in as the Asian financial crisis rolled through to 148 00:09:14,400 --> 00:09:18,080 Speaker 1: Hong Kong, having started a year earlier in n I retired. 149 00:09:18,320 --> 00:09:21,080 Speaker 1: I haven't worked for anyone since then, and I set 150 00:09:21,160 --> 00:09:25,560 Speaker 1: up website dot com, which made use of some forward 151 00:09:25,600 --> 00:09:28,200 Speaker 1: planning with my surname, and that was a way of 152 00:09:28,240 --> 00:09:31,319 Speaker 1: giving something back to Hong Kong in terms of the 153 00:09:31,440 --> 00:09:34,760 Speaker 1: expertise I had built up in in the regulatory system 154 00:09:34,800 --> 00:09:38,520 Speaker 1: for companies here, particularly listed companies, and since I was 155 00:09:38,559 --> 00:09:40,760 Speaker 1: free of any conflicts I no longer had any employer, 156 00:09:40,800 --> 00:09:44,760 Speaker 1: I was able to write quite critically about the appalling 157 00:09:44,800 --> 00:09:47,520 Speaker 1: corporate governance that we have in many parts of Hong Kong. 158 00:09:48,200 --> 00:09:50,199 Speaker 1: And at the same time I was pursuing my hobby 159 00:09:50,240 --> 00:09:54,720 Speaker 1: investing in small caps on Hong Kong Stock Exchange because 160 00:09:55,480 --> 00:09:59,079 Speaker 1: they were then and and and still are largely overlooked, 161 00:09:59,280 --> 00:10:01,800 Speaker 1: and it's very hard to filter them for the value 162 00:10:02,280 --> 00:10:04,560 Speaker 1: um and for good governance. If you just filter for 163 00:10:04,600 --> 00:10:07,920 Speaker 1: one and not the other, you won't get decent returns. 164 00:10:07,960 --> 00:10:10,640 Speaker 1: So the website is not for profit. I've never made 165 00:10:10,679 --> 00:10:14,520 Speaker 1: any revenue, and I subsidize it quite heavily to keep 166 00:10:14,520 --> 00:10:17,120 Speaker 1: it going. And it has a big database of who's 167 00:10:17,120 --> 00:10:21,880 Speaker 1: who in Hong Kong and increasingly elsewhere, and I've been 168 00:10:21,880 --> 00:10:26,040 Speaker 1: writing content for it, looking at sort of corporate horror stories, 169 00:10:26,040 --> 00:10:29,080 Speaker 1: because as I filter through the stock market here, I 170 00:10:29,120 --> 00:10:32,920 Speaker 1: can find occasionally good companies, but an awful lot of 171 00:10:33,000 --> 00:10:35,560 Speaker 1: rubbish as well, and some of those are bad enough 172 00:10:35,600 --> 00:10:39,960 Speaker 1: to use for case studies on the need for regulatory reform. 173 00:10:40,080 --> 00:10:43,400 Speaker 1: Would you talk about the appalling state of governance in 174 00:10:43,720 --> 00:10:47,839 Speaker 1: listed Hong Kong companies. What are the common themes that 175 00:10:47,920 --> 00:10:51,839 Speaker 1: you see, What are the what are the characteristics that people, 176 00:10:52,000 --> 00:10:54,959 Speaker 1: perhaps in other markets would be horrified to see, or 177 00:10:55,080 --> 00:10:59,520 Speaker 1: the things that people get away with until you uncover them. Well, 178 00:10:59,559 --> 00:11:01,800 Speaker 1: the one of one of the underlying themes is that 179 00:11:01,880 --> 00:11:05,000 Speaker 1: because most companies do have a controlling shareholder, and it 180 00:11:05,160 --> 00:11:08,400 Speaker 1: used to be families mainly, but since since we started 181 00:11:08,440 --> 00:11:13,040 Speaker 1: listing mainland Chinese companies, it's also government control. But because 182 00:11:13,080 --> 00:11:16,240 Speaker 1: of that, the so called independent directors aren't really independent 183 00:11:16,320 --> 00:11:20,079 Speaker 1: because they're only they're all elected by the controlling shareholders, 184 00:11:20,120 --> 00:11:22,400 Speaker 1: so they're only as independent as the king wants them 185 00:11:22,400 --> 00:11:25,800 Speaker 1: to be, and that causes problems because a lot of 186 00:11:25,840 --> 00:11:27,920 Speaker 1: them are just rubber stamps and they're looking the wrong way, 187 00:11:28,000 --> 00:11:30,400 Speaker 1: or that they're hired for their ability to look the 188 00:11:30,400 --> 00:11:33,560 Speaker 1: wrong way, So there aren't really the checks and balances 189 00:11:33,600 --> 00:11:37,040 Speaker 1: that you might expect. There's also fairly low levels of 190 00:11:37,080 --> 00:11:40,480 Speaker 1: financial disclosure. We only get full financial statements once a year, 191 00:11:40,520 --> 00:11:44,320 Speaker 1: and we get a condensed set of half yearly statements 192 00:11:44,559 --> 00:11:46,640 Speaker 1: um and for the main Board of Hong Kong, we 193 00:11:46,640 --> 00:11:50,080 Speaker 1: don't get any quarterly financial statements except for a few 194 00:11:50,120 --> 00:11:54,080 Speaker 1: companies not a voluntary basis, and for ironically, for mainland 195 00:11:54,080 --> 00:11:56,640 Speaker 1: companies that have if they're listed in Shanghai or Shen's end, 196 00:11:56,679 --> 00:12:00,000 Speaker 1: and they must also report quarterly and and that gets 197 00:12:00,040 --> 00:12:04,000 Speaker 1: reflected into Hong Kong. There's lots of insider related party 198 00:12:04,000 --> 00:12:08,120 Speaker 1: transactions and sometimes they are not disclosed as such. So 199 00:12:08,240 --> 00:12:12,000 Speaker 1: if an acquisition looks ridiculously overpriced or a disposal looks 200 00:12:12,080 --> 00:12:15,040 Speaker 1: ridiculously underpriced, and it's and it's with a b v 201 00:12:15,200 --> 00:12:18,080 Speaker 1: I company, the owners of which are not disclosed British 202 00:12:18,160 --> 00:12:21,560 Speaker 1: Virgin Islands. That means then you have no way of 203 00:12:21,559 --> 00:12:26,080 Speaker 1: knowing who's really behind it, because offshore jurisdictions don't have 204 00:12:26,120 --> 00:12:30,160 Speaker 1: to disclose in the b v I, particularly shareholders, So 205 00:12:30,800 --> 00:12:33,520 Speaker 1: there's there's quite a bit of that. Also, you find 206 00:12:33,559 --> 00:12:36,800 Speaker 1: that when companies go public here they may have skimped 207 00:12:36,800 --> 00:12:41,000 Speaker 1: and saved on the controlling shareholders salaries as directors, but 208 00:12:41,080 --> 00:12:44,559 Speaker 1: once they go public, they suddenly deserve a tenfold pay increase, 209 00:12:44,600 --> 00:12:48,600 Speaker 1: and so they can extract money that way. So there's 210 00:12:48,600 --> 00:12:51,160 Speaker 1: there's a there's probably if there are a hundred ways 211 00:12:51,160 --> 00:12:52,680 Speaker 1: to leave your lover, there's at least that many ways 212 00:12:52,679 --> 00:12:55,240 Speaker 1: to rip off your shareholders, and I've written about most 213 00:12:55,240 --> 00:12:59,520 Speaker 1: of them over the years. So I'm curious, given that 214 00:12:59,600 --> 00:13:02,960 Speaker 1: lack of information and disclosure, how do you actually go 215 00:13:03,000 --> 00:13:06,600 Speaker 1: about researching Hong Kong companies, Because judging by everything that 216 00:13:06,679 --> 00:13:11,200 Speaker 1: I've read, you've been quite successful in doing this. So 217 00:13:11,400 --> 00:13:14,920 Speaker 1: Bloomberg had a profile of you a few months ago, 218 00:13:15,000 --> 00:13:18,840 Speaker 1: and I think we valued your portfolio at something like 219 00:13:18,840 --> 00:13:23,400 Speaker 1: a hundred seventy million dollars and also described how it 220 00:13:23,440 --> 00:13:26,240 Speaker 1: had been out performing the general market for some time. 221 00:13:26,600 --> 00:13:30,640 Speaker 1: So clearly something is working in your research process. How 222 00:13:30,679 --> 00:13:34,280 Speaker 1: how are you going about that? Well, you can you 223 00:13:34,280 --> 00:13:37,480 Speaker 1: can thank Janet Yellen's husband, George Jakoloffs for the theory 224 00:13:37,520 --> 00:13:41,400 Speaker 1: behind this, but it's fairly obvious that he wrote a 225 00:13:41,400 --> 00:13:45,720 Speaker 1: paper on the lemon problem and one a Nobil prize 226 00:13:45,760 --> 00:13:48,439 Speaker 1: for it. And and basically, if you are an expert 227 00:13:48,480 --> 00:13:52,720 Speaker 1: mechanic walking around a secondhand car lot, then you generally 228 00:13:52,800 --> 00:13:56,360 Speaker 1: you don't get warranties. You have to look carefully and 229 00:13:56,440 --> 00:13:58,600 Speaker 1: if you and if you do, and you're an expert, 230 00:13:58,679 --> 00:14:03,000 Speaker 1: you can find carefully maintained cars that are underpriced because 231 00:14:03,000 --> 00:14:06,080 Speaker 1: they're all discounted for the risk of being lemons, and 232 00:14:06,160 --> 00:14:08,120 Speaker 1: most most of the good cars would never be there 233 00:14:08,120 --> 00:14:11,440 Speaker 1: in the first place. So in in company terms, I 234 00:14:11,480 --> 00:14:15,160 Speaker 1: look closely at the corporate governance of all the small 235 00:14:15,200 --> 00:14:18,160 Speaker 1: companies and find a few of them that are actually 236 00:14:18,200 --> 00:14:20,600 Speaker 1: well governed, and I get in the back seat, usually 237 00:14:20,640 --> 00:14:23,400 Speaker 1: because the driver in the front is a controlling shareholder, 238 00:14:23,760 --> 00:14:27,240 Speaker 1: so I have to be confident that they will be 239 00:14:27,280 --> 00:14:30,960 Speaker 1: able to deliver honest returns and give me my fair 240 00:14:31,000 --> 00:14:34,040 Speaker 1: share of the returns, and but they're they're all discounted 241 00:14:34,440 --> 00:14:37,600 Speaker 1: for the risk of being lemons. Occasionally one of them 242 00:14:37,600 --> 00:14:41,680 Speaker 1: does actually crash badly, but more often than not, I've 243 00:14:41,680 --> 00:14:45,000 Speaker 1: been able to avoid the most of the crooks most 244 00:14:45,000 --> 00:14:47,360 Speaker 1: of the time, as it were, and that means that 245 00:14:48,320 --> 00:14:51,760 Speaker 1: I can help perform the general market by doing that. 246 00:14:52,440 --> 00:14:55,800 Speaker 1: It's weird because when I think of Hong Kong, you know, 247 00:14:55,840 --> 00:14:58,560 Speaker 1: I think of it as one of the main obviously 248 00:14:59,240 --> 00:15:01,840 Speaker 1: financials owners of the auto world. So I would think 249 00:15:02,120 --> 00:15:08,360 Speaker 1: New York, London, Singapore, Hong Kong, and that's kind of 250 00:15:08,400 --> 00:15:12,960 Speaker 1: about it. Typically, why are the standards so bad? So, 251 00:15:13,080 --> 00:15:16,440 Speaker 1: why is there this sort of corporate governance discount and 252 00:15:16,520 --> 00:15:20,960 Speaker 1: an inability to essentially bring the listing requirements or the 253 00:15:21,000 --> 00:15:25,200 Speaker 1: listing oversight in line with other markets where people don't 254 00:15:25,280 --> 00:15:29,960 Speaker 1: have this overriding negative perception. Well, there's a number of issues. 255 00:15:30,000 --> 00:15:33,360 Speaker 1: In the first of all, Hong Kong is a very 256 00:15:33,360 --> 00:15:36,920 Speaker 1: small geographic place with population of seven million, or about 257 00:15:36,960 --> 00:15:40,720 Speaker 1: zero point five percent of China. So for all of 258 00:15:40,720 --> 00:15:44,720 Speaker 1: the Chinese listed managed companies that are listing in Hong Kong, 259 00:15:45,040 --> 00:15:48,320 Speaker 1: they are in a different jurisdiction, which means cross border 260 00:15:48,400 --> 00:15:52,680 Speaker 1: enforcement is fairly difficult, whereas in America, it's such a 261 00:15:52,760 --> 00:15:55,960 Speaker 1: vast economy and place that most of the companies that 262 00:15:56,000 --> 00:15:58,360 Speaker 1: list in America are managed in America as well, and 263 00:15:58,400 --> 00:16:02,280 Speaker 1: so it's probably a bit easier to hold people to account, 264 00:16:02,280 --> 00:16:04,520 Speaker 1: although not, I would add in the case of Chinese 265 00:16:04,560 --> 00:16:08,360 Speaker 1: companies are sitting listed in America, that's another problem as well. 266 00:16:08,640 --> 00:16:11,640 Speaker 1: And it never held out America as a bastion of 267 00:16:11,680 --> 00:16:14,040 Speaker 1: corporate governance. It's got its own set of problems that 268 00:16:14,560 --> 00:16:17,280 Speaker 1: derived from the race to the bottom that has basically 269 00:16:17,400 --> 00:16:22,240 Speaker 1: ended in Delaware with very management friendly company laws that 270 00:16:22,680 --> 00:16:26,520 Speaker 1: tend to allow entrenchment of managers to start behaving like 271 00:16:26,560 --> 00:16:30,480 Speaker 1: owners and excessive pay as a consequence. And and also 272 00:16:31,040 --> 00:16:35,040 Speaker 1: America tends to have fewer opportunities for shareholders to vote 273 00:16:35,080 --> 00:16:37,480 Speaker 1: on things like related party transactions. Quite often they're just 274 00:16:37,560 --> 00:16:40,520 Speaker 1: approved by a board after hiring an adviser to say 275 00:16:40,520 --> 00:16:44,400 Speaker 1: that they're okay. The UK overall has in my view, 276 00:16:44,640 --> 00:16:48,520 Speaker 1: better corporate governance than America and Hong Kong by some 277 00:16:48,640 --> 00:16:51,520 Speaker 1: margin on its main board, at least, not so much 278 00:16:51,560 --> 00:16:55,760 Speaker 1: on the newly created things like the alternative investment market 279 00:16:55,760 --> 00:16:59,760 Speaker 1: aim which is a lawless kind of regime, and so 280 00:17:00,040 --> 00:17:02,880 Speaker 1: and and also the control structure has to be mentioned 281 00:17:02,880 --> 00:17:06,080 Speaker 1: because you know, continental Europe has the same issues, lots 282 00:17:06,080 --> 00:17:09,879 Speaker 1: of families controlling most of the companies or governments. And 283 00:17:09,920 --> 00:17:14,000 Speaker 1: then it's very hard for independent shareholders to have any 284 00:17:14,080 --> 00:17:17,119 Speaker 1: say even to elect the independent directors unless there is 285 00:17:17,160 --> 00:17:21,359 Speaker 1: some sort of proportional representation system in the boards. So 286 00:17:21,600 --> 00:17:23,280 Speaker 1: if you looked at the hang Thing Index at any 287 00:17:23,280 --> 00:17:25,880 Speaker 1: point in time in the last thirty years, there's only 288 00:17:25,920 --> 00:17:29,160 Speaker 1: been a handful or less of companies that don't have 289 00:17:29,200 --> 00:17:34,320 Speaker 1: a controlling shareholder, including companies like HSBC, which tend tend 290 00:17:34,359 --> 00:17:38,040 Speaker 1: to have better governance just because will they're regulated as 291 00:17:38,080 --> 00:17:41,520 Speaker 1: banks in that case, but be without a controlling shareholder, 292 00:17:41,840 --> 00:17:45,800 Speaker 1: and with good corporate laws that prevent things like poison 293 00:17:45,880 --> 00:17:48,439 Speaker 1: pills and that you have in America, you tend to 294 00:17:48,480 --> 00:17:53,760 Speaker 1: get better behavior overall. And the companies constantly, unless they're very, 295 00:17:53,840 --> 00:17:57,440 Speaker 1: very big, they're constantly looking over their shoulder and making 296 00:17:57,440 --> 00:18:00,280 Speaker 1: sure that they're delivering shareholder value because otherwise some will 297 00:18:00,320 --> 00:18:22,159 Speaker 1: take them over and do it for them. So, David, 298 00:18:22,240 --> 00:18:26,199 Speaker 1: you sort of operate in a particular niche in the 299 00:18:26,240 --> 00:18:29,280 Speaker 1: Hong Kong market, which is small cap stocks. I'd like 300 00:18:29,359 --> 00:18:33,440 Speaker 1: to get to the big topic in recent weeks, which 301 00:18:33,480 --> 00:18:37,160 Speaker 1: is of course, the extradition bill and the ensuing protests 302 00:18:37,240 --> 00:18:41,959 Speaker 1: in Hong Kong. I'm wondering do the events of recent 303 00:18:42,040 --> 00:18:47,240 Speaker 1: weeks change your perspective on either the future of the 304 00:18:47,280 --> 00:18:50,560 Speaker 1: Hong Kong market or the future of Hong Kong as 305 00:18:50,600 --> 00:18:55,520 Speaker 1: a financial center. Well, it's been in fascinating time. What 306 00:18:55,920 --> 00:19:00,919 Speaker 1: we're seeing is all wrapped up in the overall situation 307 00:19:01,000 --> 00:19:04,400 Speaker 1: with mainland China Visavi America as well and the trade war. 308 00:19:05,160 --> 00:19:08,520 Speaker 1: China has become increasingly confident in the last decade as 309 00:19:08,560 --> 00:19:11,400 Speaker 1: its economy has grown and it started to look out 310 00:19:11,440 --> 00:19:15,280 Speaker 1: woods and has made built built islands in the South 311 00:19:15,400 --> 00:19:19,720 Speaker 1: China Sea, launched an aircraft carrier, has been increasingly assertive 312 00:19:19,800 --> 00:19:23,240 Speaker 1: over Hong Kong. For the first ten years after such 313 00:19:23,320 --> 00:19:27,560 Speaker 1: change of sovereignty here, they largely stayed out of sight 314 00:19:27,800 --> 00:19:32,720 Speaker 1: the Liaison Office on Hong Kong Island, which represents the 315 00:19:32,720 --> 00:19:38,120 Speaker 1: mainland government. They hardly ever appeared in public at events here. 316 00:19:38,960 --> 00:19:42,320 Speaker 1: That's all changed and now they are increasingly interfering in 317 00:19:42,680 --> 00:19:47,600 Speaker 1: Hong Kong affairs. This Extradition Bill. Although it was we 318 00:19:47,800 --> 00:19:50,920 Speaker 1: were told conceived in Hong Kong, the amendment to the 319 00:19:50,960 --> 00:19:53,920 Speaker 1: Extradition Bill, it was backed with gusto by the mainland 320 00:19:53,920 --> 00:19:56,320 Speaker 1: when they realized this would give them the opportunity to 321 00:19:57,000 --> 00:19:59,840 Speaker 1: basically close what they see as a loophole but what 322 00:20:00,000 --> 00:20:03,159 Speaker 1: to others see as a firewall, and allow them to 323 00:20:03,640 --> 00:20:06,120 Speaker 1: grant people from Hong Kong and extradite them to face 324 00:20:06,200 --> 00:20:10,080 Speaker 1: charges in the Mainland. That basically it drives a tank 325 00:20:10,160 --> 00:20:14,480 Speaker 1: through the firewall between the two systems and two jurisdictions. 326 00:20:14,520 --> 00:20:16,399 Speaker 1: Because Hong Kong has its own courts all the way 327 00:20:16,440 --> 00:20:19,560 Speaker 1: up to the Court of Final Appeal, which are widely 328 00:20:19,560 --> 00:20:23,159 Speaker 1: regarded as trustworthy. They include at least one foreign judge 329 00:20:23,160 --> 00:20:26,359 Speaker 1: on on the courter final Appeal on any given hearing. 330 00:20:27,240 --> 00:20:33,000 Speaker 1: And China, on the other hand, has secret, closed door trials, 331 00:20:33,000 --> 00:20:37,960 Speaker 1: no often no access to lawyers, forced confessions, televised confessions, 332 00:20:38,560 --> 00:20:43,040 Speaker 1: and a system which is very poorly regarded globally and 333 00:20:43,240 --> 00:20:46,239 Speaker 1: including in Hong Kong. And the public knows that. And 334 00:20:46,359 --> 00:20:49,000 Speaker 1: the opinion poll that was done at the end of 335 00:20:49,040 --> 00:20:51,919 Speaker 1: made by the University of Hong Kong found that by 336 00:20:51,960 --> 00:20:55,040 Speaker 1: a ratio of four point two to one. Hong Kong 337 00:20:55,040 --> 00:20:58,200 Speaker 1: people don't trust the mainland courts, and what we're seeing 338 00:20:58,320 --> 00:21:02,439 Speaker 1: is is basically given that the Legislative Council here that 339 00:21:02,520 --> 00:21:05,840 Speaker 1: makes the laws is now essentially a rubber stamp. The 340 00:21:05,840 --> 00:21:10,280 Speaker 1: majority of its members are pro government people elected in 341 00:21:10,520 --> 00:21:14,040 Speaker 1: often small so called functional constituencies. I call them dysfunctional 342 00:21:14,080 --> 00:21:18,080 Speaker 1: constituencies because the things like licensed to banks and licensed 343 00:21:18,080 --> 00:21:22,040 Speaker 1: insurers and so on. Often they don't bother having contested 344 00:21:22,080 --> 00:21:24,880 Speaker 1: elections because it's only a small hundred and fifty ydd 345 00:21:24,920 --> 00:21:28,440 Speaker 1: electorate of companies and they decide amongst themselves. But because 346 00:21:28,480 --> 00:21:30,640 Speaker 1: of that rubber stamp thing, the only thing that stands 347 00:21:30,760 --> 00:21:37,440 Speaker 1: between bad laws and unpopular laws and those being passed 348 00:21:37,960 --> 00:21:40,600 Speaker 1: is the general public, where if the issue is big enough, 349 00:21:40,600 --> 00:21:43,880 Speaker 1: they will come out and protest against it in massive numbers. 350 00:21:44,400 --> 00:21:46,320 Speaker 1: So that was heartwarming in a way that that Hong 351 00:21:46,400 --> 00:21:49,679 Speaker 1: Kong people still are able to do that and to 352 00:21:49,760 --> 00:21:54,440 Speaker 1: come between the Chief Executive and her rubber stamp legislature 353 00:21:54,560 --> 00:21:57,640 Speaker 1: and stop that proposal. At least for now. The bill 354 00:21:57,760 --> 00:22:00,919 Speaker 1: is still in is in the Legislative Counsel. And one 355 00:22:00,960 --> 00:22:04,520 Speaker 1: of the most appalling things about today's purported apology by 356 00:22:04,560 --> 00:22:07,600 Speaker 1: the Chief Executive, which is what she basically said, I 357 00:22:07,640 --> 00:22:10,120 Speaker 1: apologize for the fact that you didn't understand this bill, 358 00:22:10,200 --> 00:22:13,320 Speaker 1: and I'm not withdrawing it. She wasn't really apologizing for 359 00:22:13,400 --> 00:22:16,800 Speaker 1: the bill itself, and it's it's it's not really sincere 360 00:22:16,880 --> 00:22:19,439 Speaker 1: if you're going to keep it hanging over people and 361 00:22:19,480 --> 00:22:22,719 Speaker 1: just wait for it to expire when the Legislative Council 362 00:22:22,840 --> 00:22:26,760 Speaker 1: term expires in July. So you know, in practice she 363 00:22:26,840 --> 00:22:31,520 Speaker 1: won't if she hasn't already entered the terminal stages of 364 00:22:31,880 --> 00:22:35,240 Speaker 1: her position. She won't commit political suicide by trying to 365 00:22:35,240 --> 00:22:38,560 Speaker 1: bring it back in July before July twenty. But the 366 00:22:38,640 --> 00:22:41,320 Speaker 1: right thing to have done to respond to public opinion 367 00:22:41,400 --> 00:22:44,080 Speaker 1: would have been to withdraw it. Why can't she It's 368 00:22:44,119 --> 00:22:47,240 Speaker 1: because she's also appointed by Beijing, and when you are 369 00:22:47,600 --> 00:22:51,280 Speaker 1: an authoritarian iron fist regime, you must never admit that 370 00:22:51,320 --> 00:22:53,920 Speaker 1: you've made a mistake. You have to be be seen 371 00:22:54,400 --> 00:22:58,800 Speaker 1: as infallible. And and so Beijing won't let her withdraw 372 00:22:58,880 --> 00:23:02,520 Speaker 1: the bill even she could, and I've been advocating that 373 00:23:02,560 --> 00:23:06,160 Speaker 1: she withdraws it and refers the whole question of extradition 374 00:23:06,560 --> 00:23:10,359 Speaker 1: and mutual legal assistance, which also could freeze people's money 375 00:23:10,359 --> 00:23:14,080 Speaker 1: while they're being investigated. To refer all that to the 376 00:23:14,520 --> 00:23:18,240 Speaker 1: Hong Kong Law Reform Commission, which would be able to 377 00:23:18,960 --> 00:23:22,000 Speaker 1: apply their minds, including the Chief Justice of Hong Kong, 378 00:23:22,000 --> 00:23:26,080 Speaker 1: the our highest judge and others, to actually focus on 379 00:23:26,080 --> 00:23:28,000 Speaker 1: the issues and decide whether there's a need to reform 380 00:23:28,040 --> 00:23:30,479 Speaker 1: these laws and if so, how can I ask a 381 00:23:30,520 --> 00:23:34,320 Speaker 1: sort of a very big picture question when I when 382 00:23:34,320 --> 00:23:39,520 Speaker 1: you see these images and these extraordinary protests essentially trying 383 00:23:39,560 --> 00:23:43,160 Speaker 1: to push back the tide of greater integration and tracy 384 00:23:43,400 --> 00:23:47,480 Speaker 1: noted in the intro, the sort of one country, two 385 00:23:47,520 --> 00:23:54,720 Speaker 1: systems framework that's only scheduled to last until fifty years 386 00:23:55,160 --> 00:24:01,120 Speaker 1: after the handoff, is the goal to maximize? Is the 387 00:24:01,240 --> 00:24:05,880 Speaker 1: freedom of Hong Kong up until seven or is there 388 00:24:05,920 --> 00:24:10,760 Speaker 1: a longer vision of hopefully maintaining some pressure and somehow 389 00:24:10,840 --> 00:24:16,760 Speaker 1: after that year, still maintaining some sort of notion of separateness. Right, So, 390 00:24:16,960 --> 00:24:19,400 Speaker 1: so the Joint Declaration and the Basic Law only says 391 00:24:19,400 --> 00:24:21,800 Speaker 1: that there will be no change for the first fifty years. 392 00:24:21,800 --> 00:24:23,720 Speaker 1: It doesn't say that there must be change after that, 393 00:24:24,520 --> 00:24:27,760 Speaker 1: And this, of course will become an increasingly important question 394 00:24:27,920 --> 00:24:30,879 Speaker 1: in many areas of the economy and society. As we 395 00:24:30,920 --> 00:24:32,879 Speaker 1: get closer to two or four seven, we've got twenty 396 00:24:32,920 --> 00:24:35,160 Speaker 1: eight years left, but I can imagine in about ten 397 00:24:35,240 --> 00:24:37,880 Speaker 1: years time, with eighteen years to go, people will get 398 00:24:37,920 --> 00:24:41,359 Speaker 1: quite nervous about things like mortgages and also simply about 399 00:24:41,400 --> 00:24:43,959 Speaker 1: whether they want to after they graduate stay in Hong 400 00:24:44,040 --> 00:24:47,280 Speaker 1: Kong to build their careers, will move overseas. And after all, if, 401 00:24:47,320 --> 00:24:49,000 Speaker 1: for example, you want to be a lawyer, you'd like 402 00:24:49,040 --> 00:24:50,720 Speaker 1: to know whether you're going to be practicing under the 403 00:24:50,720 --> 00:24:54,040 Speaker 1: common law legal system that we've inherited from the British, 404 00:24:54,440 --> 00:24:58,800 Speaker 1: or whether we'll be practicing in the Guangzho People's Intermediate 405 00:24:58,840 --> 00:25:02,359 Speaker 1: Court under under mainly and law. And so if China 406 00:25:02,440 --> 00:25:05,520 Speaker 1: has not substantially reformed on its own in the next 407 00:25:05,520 --> 00:25:08,600 Speaker 1: ten years and started to open up into a pluralistic 408 00:25:08,840 --> 00:25:11,720 Speaker 1: and democratic society, which I don't think is on the 409 00:25:11,760 --> 00:25:14,359 Speaker 1: near term agenda, then people are going to get quite 410 00:25:14,359 --> 00:25:16,800 Speaker 1: nervous here. I have to say, I'm an optimist. In 411 00:25:16,800 --> 00:25:19,119 Speaker 1: the long run, I'll be eighty two in two o 412 00:25:19,240 --> 00:25:21,960 Speaker 1: four seven. I hope I'm still here, and I think 413 00:25:22,000 --> 00:25:25,439 Speaker 1: that there's there's no way that China can continue to 414 00:25:25,480 --> 00:25:30,520 Speaker 1: deliver prosperity to its people, which they will demand without 415 00:25:30,920 --> 00:25:36,280 Speaker 1: significant liberalization in terms of removing the various restrictions on 416 00:25:36,520 --> 00:25:39,159 Speaker 1: on the movement of capital, on them, on the movement 417 00:25:39,160 --> 00:25:42,320 Speaker 1: of people, on what they can read on the internet, 418 00:25:42,480 --> 00:25:45,760 Speaker 1: and giving them some accountability at the ballot box as well. 419 00:25:45,760 --> 00:25:48,159 Speaker 1: I just think that if you look at history at 420 00:25:48,200 --> 00:25:51,919 Speaker 1: all experiments at central planning of large scale economies, they 421 00:25:51,960 --> 00:25:55,080 Speaker 1: simply don't work. Whether it's outright communism as they tried 422 00:25:55,119 --> 00:25:59,760 Speaker 1: from seventy nine or the current form of Marxism with 423 00:26:00,040 --> 00:26:03,719 Speaker 1: Chinese characteristics as they call it, it simply doesn't deliver 424 00:26:04,119 --> 00:26:07,320 Speaker 1: the prosperity because it assumes that someone at the top 425 00:26:07,359 --> 00:26:11,919 Speaker 1: knows best for everything and allocates resources by feat Whether 426 00:26:11,960 --> 00:26:15,399 Speaker 1: that reform process happened smoothly, which I hope it obviously 427 00:26:15,440 --> 00:26:17,480 Speaker 1: hope it does, I hope there's some sort of Gorbachov 428 00:26:17,560 --> 00:26:21,080 Speaker 1: type figure that emerges, or group of them that take 429 00:26:21,200 --> 00:26:25,080 Speaker 1: China towards the sunlit up plans of capitalism, or whether 430 00:26:25,160 --> 00:26:28,119 Speaker 1: we have to have an economic crisis big enough for 431 00:26:28,160 --> 00:26:30,280 Speaker 1: the people in heart and and sudden enough for the 432 00:26:30,320 --> 00:26:33,920 Speaker 1: people to wake up to this and take their own initiative. 433 00:26:33,960 --> 00:26:37,040 Speaker 1: I don't know, because when you look at the surveillance 434 00:26:37,080 --> 00:26:41,200 Speaker 1: tools available in the Internet era to to the government there, 435 00:26:41,240 --> 00:26:45,480 Speaker 1: they have tools that no previous authoritarian regime has has had, 436 00:26:46,160 --> 00:26:49,880 Speaker 1: at least until about ten years ago. They their facial recognition, 437 00:26:50,000 --> 00:26:53,119 Speaker 1: the constant surveillance of everything you buy and wherever you 438 00:26:53,160 --> 00:26:55,919 Speaker 1: are with the mobile phone and so on, so they 439 00:26:56,000 --> 00:27:00,639 Speaker 1: can they can spot patterns of potential disturbance very quickly 440 00:27:01,000 --> 00:27:04,119 Speaker 1: and try to stamp them out. So I don't know 441 00:27:04,200 --> 00:27:06,040 Speaker 1: quite how that's going to pan out, but I hope 442 00:27:06,080 --> 00:27:08,960 Speaker 1: I'm right that eventually, on way or the other, we'll 443 00:27:09,000 --> 00:27:12,000 Speaker 1: get that reform, which case we won't be worrying any 444 00:27:12,000 --> 00:27:13,920 Speaker 1: more about our freedoms in Hong Kong because they'll be 445 00:27:13,960 --> 00:27:17,320 Speaker 1: the same freedoms that China will be enjoyed too. You 446 00:27:17,359 --> 00:27:21,640 Speaker 1: mentioned that technological capability that China has at its disposal now, 447 00:27:21,680 --> 00:27:24,560 Speaker 1: and we actually saw that on display when it came 448 00:27:24,560 --> 00:27:29,280 Speaker 1: to how the Hong Kong protests were shown or I 449 00:27:29,280 --> 00:27:32,560 Speaker 1: should say not shown on the mainland. So of course 450 00:27:32,600 --> 00:27:36,080 Speaker 1: we had the usual censorship, you know, scenes of the 451 00:27:36,119 --> 00:27:39,639 Speaker 1: protests on CNN and other international news networks were of 452 00:27:39,680 --> 00:27:44,840 Speaker 1: course blacked out and censored. We also had particular words 453 00:27:44,960 --> 00:27:48,199 Speaker 1: blocked on way boat. We had do you hear the 454 00:27:48,240 --> 00:27:53,159 Speaker 1: people sing? The song from lay Miss h blocked on 455 00:27:53,320 --> 00:27:56,960 Speaker 1: ten cents music streaming service when Winning the Poo was 456 00:27:57,000 --> 00:28:00,040 Speaker 1: banned some time ago as well, of course, because it 457 00:28:00,119 --> 00:28:03,880 Speaker 1: because cartoonists likened him to Zegon Ping. So I guess 458 00:28:03,920 --> 00:28:08,679 Speaker 1: I'm curious how long can China really hold the visuals 459 00:28:08,880 --> 00:28:12,200 Speaker 1: of an event as big as the Hong Kong protests 460 00:28:12,400 --> 00:28:15,760 Speaker 1: at Bay Because, of course, as part of the liberalization 461 00:28:15,800 --> 00:28:18,080 Speaker 1: that has been going on so far on the mainland, 462 00:28:18,119 --> 00:28:21,200 Speaker 1: you do have more Chinese citizens who are traveling abroad, 463 00:28:21,240 --> 00:28:23,760 Speaker 1: and you do have people who are able to get 464 00:28:23,800 --> 00:28:27,200 Speaker 1: around the Great Firewall in one way or another. So 465 00:28:27,400 --> 00:28:30,640 Speaker 1: are they fighting a losing battle on that front. I've 466 00:28:30,640 --> 00:28:33,600 Speaker 1: been impressed at how how successful they've been at censoring 467 00:28:33,600 --> 00:28:35,720 Speaker 1: the Internet in China. I didn't think twenty years ago 468 00:28:35,760 --> 00:28:38,600 Speaker 1: they'd be able to do it, but they have. But 469 00:28:38,680 --> 00:28:41,400 Speaker 1: you're right that since they are allowing their people to 470 00:28:41,480 --> 00:28:45,200 Speaker 1: travel overseas in the tens of millions every year and 471 00:28:45,560 --> 00:28:49,120 Speaker 1: thereby get exposure to foreign media and read about things, 472 00:28:49,560 --> 00:28:54,600 Speaker 1: then the truth eventually starts to filter in. But you 473 00:28:54,640 --> 00:28:57,160 Speaker 1: have to remember, though, that there's an awful lot of 474 00:28:57,240 --> 00:29:01,560 Speaker 1: effective brainwashing going on within the Chinese system. You're you're 475 00:29:01,720 --> 00:29:05,840 Speaker 1: you're brought up not to question the parties infallible judgment. 476 00:29:06,360 --> 00:29:09,640 Speaker 1: So you start off with a well, just look at 477 00:29:09,640 --> 00:29:12,960 Speaker 1: the Westwater message in they had this global financial crisis 478 00:29:13,040 --> 00:29:15,640 Speaker 1: and then they elected this weird president who's a sort 479 00:29:15,640 --> 00:29:18,440 Speaker 1: of reality TV guy, and you know, and then look 480 00:29:18,440 --> 00:29:21,320 Speaker 1: at Brexit and look at all the euro crisis and 481 00:29:21,600 --> 00:29:25,280 Speaker 1: surely the mainland you know, leaders are the Communist Party 482 00:29:25,280 --> 00:29:27,840 Speaker 1: of China is better at this. They protected us from 483 00:29:27,880 --> 00:29:30,080 Speaker 1: all of these things. Aren't we lucky to have them? 484 00:29:30,200 --> 00:29:34,160 Speaker 1: So that's the kind of messaging that gets prominence when 485 00:29:34,200 --> 00:29:37,680 Speaker 1: there isn't any effective alternative messaging coming from the outside 486 00:29:38,280 --> 00:29:41,600 Speaker 1: into the Chinese Internet. But at the end of the day, 487 00:29:41,640 --> 00:29:45,880 Speaker 1: I think that money talks louder, and people in people's lives, 488 00:29:46,240 --> 00:29:50,239 Speaker 1: in their personal wallets, and so you know what in 489 00:29:50,280 --> 00:29:55,920 Speaker 1: the end brings down authoritarian governments is not great ideals, 490 00:29:55,920 --> 00:29:58,640 Speaker 1: but the price of bread effectively, and that's what started 491 00:29:58,680 --> 00:30:02,719 Speaker 1: the Tunisian Spring. It was inflation and high unemployment. And 492 00:30:02,760 --> 00:30:05,800 Speaker 1: I think that you'll you'll potentially see some sort of 493 00:30:06,040 --> 00:30:10,640 Speaker 1: financial crisis that would that would trigger reform in China if, 494 00:30:10,680 --> 00:30:12,920 Speaker 1: as I say, if the leaders don't start reforming on 495 00:30:12,960 --> 00:30:16,720 Speaker 1: their own pretty quickly, pretty soon, because for a long 496 00:30:16,760 --> 00:30:19,560 Speaker 1: time now, the quality of the GDP growth that you 497 00:30:19,600 --> 00:30:23,160 Speaker 1: read about has been very poor. It's it's been building 498 00:30:23,200 --> 00:30:27,800 Speaker 1: extra roads and airports and exhibition centers that aren't actually 499 00:30:27,800 --> 00:30:31,440 Speaker 1: economic but keep people busy and generate GDP while you're 500 00:30:31,480 --> 00:30:34,160 Speaker 1: doing it. The moment you stop with that, so called 501 00:30:34,160 --> 00:30:37,920 Speaker 1: the Austrians economists been called broken windows, then suddenly you 502 00:30:37,960 --> 00:30:41,360 Speaker 1: find you've got rather low quality of GDP because you 503 00:30:41,360 --> 00:30:43,720 Speaker 1: haven't been given giving people the freedoms that they need 504 00:30:43,760 --> 00:30:47,360 Speaker 1: to to make their own choices. And there's also been 505 00:30:47,360 --> 00:30:50,160 Speaker 1: a huge credit bubble building up in the shadow banking 506 00:30:50,200 --> 00:30:53,960 Speaker 1: system in China, which includes a lot of so called 507 00:30:54,000 --> 00:30:57,960 Speaker 1: wealth management products which had basically repackaged poor quality loans 508 00:30:58,560 --> 00:31:04,080 Speaker 1: solders investments through banks, and the government has got a 509 00:31:04,120 --> 00:31:07,120 Speaker 1: sort of growing potential liability that even though they're not 510 00:31:07,160 --> 00:31:09,280 Speaker 1: guaranteed by the banks, because they've been sold that way, 511 00:31:09,280 --> 00:31:10,840 Speaker 1: and because the banks are ruined by the government, you 512 00:31:10,920 --> 00:31:14,000 Speaker 1: may end up with a massive need to for people 513 00:31:14,080 --> 00:31:16,720 Speaker 1: to swallow those losses or to bail out the banks 514 00:31:16,720 --> 00:31:19,719 Speaker 1: and let them take those products onto their balance sheets. 515 00:31:20,320 --> 00:31:22,840 Speaker 1: So there's a number of different ways that China could 516 00:31:22,880 --> 00:31:25,760 Speaker 1: get into a financial mess of its own making. Not 517 00:31:25,840 --> 00:31:29,360 Speaker 1: even beginning to think about what the US could do 518 00:31:29,880 --> 00:31:32,640 Speaker 1: in the ongoing trade war, which I think could develop 519 00:31:32,680 --> 00:31:34,880 Speaker 1: into a broader financial war. Then, so far it's all 520 00:31:34,880 --> 00:31:37,960 Speaker 1: been about tariffs on imports from China. But what about 521 00:31:38,000 --> 00:31:41,600 Speaker 1: the fact that at the same time as that America 522 00:31:41,760 --> 00:31:45,960 Speaker 1: is quite rightly complaining that the Chinese government subsidizes a 523 00:31:45,960 --> 00:31:49,800 Speaker 1: lot of its economy and distorts the allocation of capital. Well, 524 00:31:50,120 --> 00:31:52,640 Speaker 1: guess what, a lot of American investors are financing the 525 00:31:52,680 --> 00:31:55,640 Speaker 1: same government control companies by investing in things like Petro 526 00:31:55,760 --> 00:31:58,960 Speaker 1: China and China Telecom and so on in Air China. 527 00:31:59,000 --> 00:32:02,760 Speaker 1: And that all the big old economy stocks are listed 528 00:32:03,120 --> 00:32:05,680 Speaker 1: in Hong Kong or even in New York and are 529 00:32:05,720 --> 00:32:09,600 Speaker 1: invested by Americans. And it's possible that that could become 530 00:32:09,640 --> 00:32:12,840 Speaker 1: the next The powers of the President, through the Office 531 00:32:12,840 --> 00:32:16,640 Speaker 1: of Foreign Assets Control, could be weaponized against that by 532 00:32:16,840 --> 00:32:21,959 Speaker 1: requiring US persons to divest themselves of those stocks. It 533 00:32:22,000 --> 00:32:25,240 Speaker 1: has been tried against a Russian aluminium company called Russel, 534 00:32:25,320 --> 00:32:27,800 Speaker 1: and it was very successful in terms of the devastation 535 00:32:27,880 --> 00:32:31,440 Speaker 1: it calls their share price because the Treasury basically said 536 00:32:31,440 --> 00:32:34,120 Speaker 1: that the controlling shareholder was too close to Vladimir Putin 537 00:32:34,840 --> 00:32:37,440 Speaker 1: and that Americans must stop dealing with the company and 538 00:32:37,480 --> 00:32:40,480 Speaker 1: sell their stock and bonds within three months. I think 539 00:32:40,480 --> 00:32:42,400 Speaker 1: it was three months. In the end, the order was 540 00:32:42,440 --> 00:32:45,800 Speaker 1: reversed after there was a change in the shareholding structure 541 00:32:45,840 --> 00:32:47,840 Speaker 1: of of russ Sale and it was taken off the list. 542 00:32:47,960 --> 00:32:51,720 Speaker 1: But it was quite devastating for that company, and it 543 00:32:51,760 --> 00:32:54,400 Speaker 1: could be applied in a in a more broader way 544 00:32:54,760 --> 00:32:58,520 Speaker 1: under the guise of protecting the US national security and 545 00:32:58,560 --> 00:33:03,480 Speaker 1: the economy. Just to bring it back to the recent protests, 546 00:33:03,520 --> 00:33:06,640 Speaker 1: you told me earlier this week that that you yourself 547 00:33:06,840 --> 00:33:10,120 Speaker 1: had attended the protests. I'm just curious what did you 548 00:33:10,160 --> 00:33:12,960 Speaker 1: think about them? What do you think about the atmosphere? 549 00:33:12,960 --> 00:33:16,520 Speaker 1: Two million people on the street according to the organizer's 550 00:33:16,640 --> 00:33:20,480 Speaker 1: estimate on on the most recent Sunday's March. What was 551 00:33:20,520 --> 00:33:23,800 Speaker 1: remarkable to you about it? Would you observe? Well? It 552 00:33:23,880 --> 00:33:28,040 Speaker 1: was it was damn hot humidity and thirty thirty two 553 00:33:28,200 --> 00:33:30,880 Speaker 1: what would be about ninety something fahrenheit in American terms, 554 00:33:31,240 --> 00:33:33,720 Speaker 1: And it took a long long time to make that walk. 555 00:33:33,800 --> 00:33:37,960 Speaker 1: But you have to applaud the peaceful nature of Hong 556 00:33:38,000 --> 00:33:43,080 Speaker 1: Kong protests generally speaking, and particularly on Sunday when the 557 00:33:43,080 --> 00:33:46,680 Speaker 1: police were given orders to stay away, and you know, 558 00:33:46,840 --> 00:33:50,080 Speaker 1: not a single shop window was broken. Some of the 559 00:33:50,080 --> 00:33:53,200 Speaker 1: protesters at the end were cleaning up their own rubbish. 560 00:33:53,400 --> 00:33:59,800 Speaker 1: It was very um, peaceful and and also heartwarming to 561 00:34:00,040 --> 00:34:02,920 Speaker 1: see people of all ages and all professions, many of 562 00:34:02,960 --> 00:34:07,080 Speaker 1: whom have never come out before and had their heads counted, 563 00:34:07,120 --> 00:34:10,279 Speaker 1: all voices heard coming out saying enough is enough. And 564 00:34:10,320 --> 00:34:13,319 Speaker 1: as long as they keep doing that has said many 565 00:34:13,400 --> 00:34:17,439 Speaker 1: times the price of freedom is eternal vigilance. They will 566 00:34:17,480 --> 00:34:21,440 Speaker 1: stand in the way of draconian laws um and hopefully 567 00:34:21,480 --> 00:34:26,400 Speaker 1: hold Hong Kong together until China itself starts to become 568 00:34:27,040 --> 00:34:32,200 Speaker 1: a more open and freer place. David Web it's been 569 00:34:32,239 --> 00:34:34,319 Speaker 1: a pleasure talking to you. Thank you so much for 570 00:34:34,360 --> 00:34:37,760 Speaker 1: coming on the show. Thanks for having me. Thanks David, 571 00:34:37,800 --> 00:34:58,880 Speaker 1: that was great, So Joe, I hope that wasn't too 572 00:34:59,080 --> 00:35:02,160 Speaker 1: Hong Kong centric for you, But I do think it 573 00:35:02,440 --> 00:35:06,360 Speaker 1: gets to some very big developments for the global economy, 574 00:35:06,400 --> 00:35:09,719 Speaker 1: one of which, of course, is what is China going 575 00:35:09,760 --> 00:35:12,560 Speaker 1: to look like as it sort of develops its own 576 00:35:12,560 --> 00:35:16,919 Speaker 1: economy and its own power, and it feels like there's 577 00:35:16,920 --> 00:35:19,359 Speaker 1: this huge debate about how it could go either way 578 00:35:19,400 --> 00:35:21,120 Speaker 1: at this point. You know, it could sort of double 579 00:35:21,200 --> 00:35:24,680 Speaker 1: down on the authoritarianism, or it could, as David pointed out, 580 00:35:24,800 --> 00:35:28,279 Speaker 1: maybe actually liberalized. Yeah. Well, first of all, there's no 581 00:35:28,360 --> 00:35:30,960 Speaker 1: such thing as to Hong Kong for me, because you 582 00:35:31,000 --> 00:35:32,919 Speaker 1: know how much I love Hong Kong and I wish 583 00:35:32,960 --> 00:35:35,279 Speaker 1: I lived there, and I'm jealous that you live there, 584 00:35:35,719 --> 00:35:39,160 Speaker 1: So that's never an issue. I thought it was interesting 585 00:35:39,680 --> 00:35:43,440 Speaker 1: that David was an optimist, because I feel like the 586 00:35:43,520 --> 00:35:46,960 Speaker 1: conventional wisdom on the direction that China is going and 587 00:35:47,000 --> 00:35:51,000 Speaker 1: then ultimately the direction towards which Hong Kong will be dragged, 588 00:35:51,400 --> 00:35:54,120 Speaker 1: most people would say, are far more pessimistic and only 589 00:35:54,239 --> 00:35:59,600 Speaker 1: see the pace of authoritarianism accelerating and the surveillance state 590 00:36:00,040 --> 00:36:02,759 Speaker 1: only getting deeper into people's lives. So I did think 591 00:36:02,760 --> 00:36:06,040 Speaker 1: it was interesting that he actually had a moral optimistic 592 00:36:06,120 --> 00:36:09,799 Speaker 1: view on it, although it didn't sound like as optimism 593 00:36:09,840 --> 00:36:12,000 Speaker 1: was based on any trends other than the fact that 594 00:36:12,040 --> 00:36:16,799 Speaker 1: the current trajectory would be ultimately unsustainable and collapse in 595 00:36:16,840 --> 00:36:22,200 Speaker 1: some way, right and speaking of unsustainability, there was one 596 00:36:22,200 --> 00:36:24,600 Speaker 1: other thing he mentioned, and you know, he didn't really 597 00:36:24,719 --> 00:36:28,080 Speaker 1: frame it as a pessimistic thing, but I think it 598 00:36:28,120 --> 00:36:31,560 Speaker 1: could be interpreted this way, and that's the notion of 599 00:36:31,680 --> 00:36:35,960 Speaker 1: in order for Hong Kong to avoid having unfavorable laws 600 00:36:36,040 --> 00:36:41,840 Speaker 1: passed through its local legislature, basically the people have to 601 00:36:41,920 --> 00:36:46,400 Speaker 1: mount these massive protests every time because the legislative system 602 00:36:46,440 --> 00:36:50,000 Speaker 1: itself isn't really up to the task anymore. You have 603 00:36:50,080 --> 00:36:54,360 Speaker 1: a basically a biased set of lawmakers and potentially well, 604 00:36:55,000 --> 00:36:58,200 Speaker 1: I think they ended the ability to filibuster a while ago, 605 00:36:58,320 --> 00:37:01,080 Speaker 1: so it's it's really up to the general population to 606 00:37:01,600 --> 00:37:05,879 Speaker 1: um stop what they see as as bad or unfavorable legislature. 607 00:37:05,920 --> 00:37:09,160 Speaker 1: And I wonder how realistic is it that people are 608 00:37:09,200 --> 00:37:13,200 Speaker 1: going to be marching every Sunday. Yeah, it does seem unrealistic. 609 00:37:13,280 --> 00:37:16,920 Speaker 1: It's interesting because, like some of the Hong Kong experts 610 00:37:17,000 --> 00:37:21,320 Speaker 1: that I follow on Twitter, we're sort of skeptical that 611 00:37:21,480 --> 00:37:25,040 Speaker 1: the people of of Hong Kong still had the appetite 612 00:37:25,360 --> 00:37:27,399 Speaker 1: to come out and protest like this. And I guess 613 00:37:27,400 --> 00:37:29,400 Speaker 1: there had been a view And again I'm speaking as 614 00:37:29,480 --> 00:37:32,239 Speaker 1: like a real outsider tourist here who has no real information, 615 00:37:32,440 --> 00:37:35,040 Speaker 1: But I guess there had been some question of like, well, 616 00:37:35,320 --> 00:37:39,120 Speaker 1: do Hong Kong citizens really want to do what it 617 00:37:39,160 --> 00:37:42,359 Speaker 1: takes to preserve their existing freedoms and fight for them 618 00:37:42,800 --> 00:37:47,120 Speaker 1: or are they resigned to look eventually it's all gonna 619 00:37:47,160 --> 00:37:50,880 Speaker 1: be one country, one system anyway. And so you know, 620 00:37:50,920 --> 00:37:53,799 Speaker 1: it's still as you said, it's re mains to be clear. Well, well, 621 00:37:53,840 --> 00:37:57,400 Speaker 1: people continual go out on the streets every time something 622 00:37:57,440 --> 00:38:00,560 Speaker 1: that impinions on their freedoms pops up in the just lature. 623 00:38:00,920 --> 00:38:03,880 Speaker 1: At least it's a possibility. I mean, it's hard to replicate, 624 00:38:03,920 --> 00:38:05,880 Speaker 1: but that will be the uh, that will be an 625 00:38:05,880 --> 00:38:09,520 Speaker 1: interesting thing to watch. Yeah, And in the meantime, there 626 00:38:09,600 --> 00:38:13,120 Speaker 1: is this oddity that Hong Kong sort of continues to 627 00:38:13,160 --> 00:38:16,680 Speaker 1: operate as normal, even though, as David mentioned, there's twenty 628 00:38:16,680 --> 00:38:21,759 Speaker 1: eight years to go until now the deadline for the 629 00:38:21,880 --> 00:38:26,239 Speaker 1: one country, two systems idea. But you can still go 630 00:38:26,280 --> 00:38:28,839 Speaker 1: into a bank and get a thirty year mortgage, And 631 00:38:28,880 --> 00:38:32,080 Speaker 1: of course people are still signing on to long term 632 00:38:32,120 --> 00:38:36,400 Speaker 1: business contracts, so I guess there are explicit assumptions embedded 633 00:38:36,440 --> 00:38:40,120 Speaker 1: into those types of contracts. So it's interesting, Yeah, it'll 634 00:38:40,160 --> 00:38:45,160 Speaker 1: be really interesting, and uh, let's definitely record another episode 635 00:38:45,200 --> 00:38:48,640 Speaker 1: in ten years from now when when there's only eighteen least. 636 00:38:48,760 --> 00:38:51,880 Speaker 1: I thought you're gonna say in well, let's do that 637 00:38:51,920 --> 00:38:54,520 Speaker 1: too obviously, Yeah, okay, but you know, we could do 638 00:38:54,560 --> 00:38:56,480 Speaker 1: one every five or ten years as it gets closer 639 00:38:56,520 --> 00:38:59,319 Speaker 1: to see if some of these financial instruments, if the 640 00:38:59,680 --> 00:39:03,600 Speaker 1: risk that emerge around the well, wonder are there any 641 00:39:03,640 --> 00:39:06,080 Speaker 1: like volatility curves that go out that far where we 642 00:39:06,120 --> 00:39:09,680 Speaker 1: can start to see, Uh, that'll be interesting, right, a 643 00:39:09,800 --> 00:39:13,600 Speaker 1: volatility event. Yeah, really long dated options on the hang 644 00:39:13,760 --> 00:39:16,800 Speaker 1: saying stock index to see if they start reflecting risks 645 00:39:16,840 --> 00:39:20,359 Speaker 1: around anyway, I'll take a look. I'll see if those 646 00:39:20,400 --> 00:39:24,719 Speaker 1: are available for you. Okay. This has been another episode 647 00:39:24,719 --> 00:39:27,560 Speaker 1: of the Odd Lodge podcast. I'm Joe Wisenthal. You can 648 00:39:27,600 --> 00:39:31,200 Speaker 1: follow me on Twitter at the Stalwart and I'm Tracy Alloway. 649 00:39:31,280 --> 00:39:33,759 Speaker 1: You can follow me on Twitter at Tracy Alloway. You 650 00:39:33,800 --> 00:39:38,320 Speaker 1: can also follow David web He's at web with two 651 00:39:38,360 --> 00:39:44,760 Speaker 1: Bees h K. His website is web dash site again 652 00:39:44,840 --> 00:39:48,919 Speaker 1: Web with two Bees. You can find all his research there. 653 00:39:49,320 --> 00:39:53,279 Speaker 1: And a big thanks to my Bloomberg colleague Benjamin Robertson 654 00:39:53,800 --> 00:39:58,000 Speaker 1: for helping us organize this particular interview. You can follow 655 00:39:58,080 --> 00:40:04,240 Speaker 1: Benjamin over at b M M Robertson, and be sure 656 00:40:04,280 --> 00:40:08,239 Speaker 1: to follow our producer on Twitter, Laura Carlson. She's at 657 00:40:08,320 --> 00:40:12,080 Speaker 1: Laura M. Carlson. And the Bloomberg Head of podcast, Francesco 658 00:40:12,160 --> 00:40:16,440 Speaker 1: Levy at Francesca Today And check out the new home 659 00:40:16,800 --> 00:40:21,799 Speaker 1: of Bloomberg Podcast on Twitter at the handle at podcasts. 660 00:40:22,200 --> 00:40:22,960 Speaker 1: Thanks for listening