1 00:00:10,160 --> 00:00:13,600 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:13,640 --> 00:00:17,239 Speaker 1: I'm Tracy Alloway and I'm Joe. Wisn't Joe? There is 3 00:00:17,280 --> 00:00:21,319 Speaker 1: a big event coming up, very very soon. It is 4 00:00:21,360 --> 00:00:24,959 Speaker 1: the National Congress of the Chinese Communist Party, something that 5 00:00:25,079 --> 00:00:28,040 Speaker 1: is held every five years, which means it is de 6 00:00:28,160 --> 00:00:31,240 Speaker 1: facto already a big event, but it's even bigger this 7 00:00:31,320 --> 00:00:37,400 Speaker 1: year because it is happening amidst Really, how do I 8 00:00:37,479 --> 00:00:41,400 Speaker 1: describe this a set of challenges for both the Chinese 9 00:00:41,400 --> 00:00:45,000 Speaker 1: government and the Chinese economy. Yeah, I mean, look, you 10 00:00:45,040 --> 00:00:47,600 Speaker 1: say every five years, and so five years ago was 11 00:00:47,680 --> 00:00:50,840 Speaker 1: during the Trump administration, and of course at the time, 12 00:00:50,840 --> 00:00:54,360 Speaker 1: you know, trade tensions were obviously ratcheting up under Trump. 13 00:00:54,640 --> 00:00:59,080 Speaker 1: But it feels like today in any of the sort 14 00:00:59,120 --> 00:01:02,600 Speaker 1: of tensions and long term challenges facing the economy, the 15 00:01:02,680 --> 00:01:07,039 Speaker 1: Chinese economy today, or the Chinese political system, everything seems 16 00:01:07,040 --> 00:01:11,360 Speaker 1: like it's probably tenfold more intense and more ambiguous than 17 00:01:11,400 --> 00:01:13,800 Speaker 1: where it was, say, five years ago. Right, So, there's 18 00:01:13,800 --> 00:01:17,120 Speaker 1: a lot of speculation around exactly what She shin Ping 19 00:01:17,440 --> 00:01:22,560 Speaker 1: has in store for this particular congress. There are questions 20 00:01:22,560 --> 00:01:25,840 Speaker 1: over whether or not China might ratchet down some of 21 00:01:25,880 --> 00:01:28,480 Speaker 1: its COVID zero policies, although I have to say we 22 00:01:28,520 --> 00:01:31,200 Speaker 1: did just see an editorial from the People's Daily in 23 00:01:31,280 --> 00:01:34,640 Speaker 1: defense of those policies, so that seems unlikely. But there 24 00:01:34,720 --> 00:01:37,640 Speaker 1: is this broad question mark over what's going on with 25 00:01:37,680 --> 00:01:41,440 Speaker 1: the Chinese economy and the government. Can it withstand all 26 00:01:41,520 --> 00:01:46,080 Speaker 1: these pressures on real estate from the strong dollar politically 27 00:01:46,600 --> 00:01:49,920 Speaker 1: and maintain some of the restrictions that it's had going 28 00:01:50,040 --> 00:01:53,760 Speaker 1: for I mean, really, what two or three years now? Yeah, 29 00:01:53,840 --> 00:01:57,480 Speaker 1: I mean there's so many things. You mentioned the real estate, 30 00:01:57,600 --> 00:02:01,320 Speaker 1: you mentioned, the COVID zero questions, and the other big 31 00:02:01,400 --> 00:02:04,720 Speaker 1: thing that is very new and it's something that we 32 00:02:05,360 --> 00:02:07,360 Speaker 1: haven't talked about in a while but will be very 33 00:02:07,360 --> 00:02:10,120 Speaker 1: familiar to odd lots of listeners, and that is the 34 00:02:10,160 --> 00:02:14,919 Speaker 1: growing restrictions on technology transfer, particularly semi conductors. Some very 35 00:02:14,919 --> 00:02:19,560 Speaker 1: aggressive moves from the Biden administration to restrict the export 36 00:02:19,639 --> 00:02:23,000 Speaker 1: of certain technologies related to chips to China. That is 37 00:02:23,040 --> 00:02:25,720 Speaker 1: a huge deal. Of course, we know that China has 38 00:02:25,760 --> 00:02:30,440 Speaker 1: domestic ambitions, but we see semi conductor stocks they've been 39 00:02:30,440 --> 00:02:34,840 Speaker 1: plunging lately. That's a huge story. Right. So China technology 40 00:02:34,919 --> 00:02:37,800 Speaker 1: hasn't been a major issue since we had that big 41 00:02:37,840 --> 00:02:41,440 Speaker 1: government crackdown, but it feels like the semiconductor angle is 42 00:02:41,520 --> 00:02:45,200 Speaker 1: heating up again. So we are going to be combining 43 00:02:45,440 --> 00:02:48,160 Speaker 1: all of this, all these headwinds, all these big questions, 44 00:02:48,200 --> 00:02:50,519 Speaker 1: these big issues, and speaking to one of our all 45 00:02:50,600 --> 00:02:53,360 Speaker 1: time favorite Odd Lots guests. We are going to be 46 00:02:53,400 --> 00:02:56,519 Speaker 1: talking to Dan Wong. He is, of course, a technology 47 00:02:56,560 --> 00:03:01,120 Speaker 1: analyst over at Gabaquelle Dragonomics, and he's left his farmhouse 48 00:03:01,160 --> 00:03:03,440 Speaker 1: in unn to Uh to come into the New York 49 00:03:03,440 --> 00:03:06,639 Speaker 1: studio and walk us through everything that's happening in China 50 00:03:06,760 --> 00:03:09,160 Speaker 1: right now. Have we ever recorded an episode with no 51 00:03:09,280 --> 00:03:11,760 Speaker 1: we have in studio? We go, what is this web? 52 00:03:11,840 --> 00:03:14,560 Speaker 1: We haven't? We did? We did one in the upstairs studio. 53 00:03:15,160 --> 00:03:17,480 Speaker 1: I think we did for TV. I've never been I've 54 00:03:17,520 --> 00:03:21,040 Speaker 1: never recorded Odd Lots in person. Really well, I think 55 00:03:21,120 --> 00:03:23,720 Speaker 1: Dan has taken the clear lead. Anyway, we should probably 56 00:03:23,760 --> 00:03:26,080 Speaker 1: talk about what we're gonna talk about. Dan. Thanks for 57 00:03:26,120 --> 00:03:29,280 Speaker 1: coming on. It's great to be here in person, Joe, 58 00:03:29,840 --> 00:03:33,040 Speaker 1: and you're a lot skinnier in person than the Internet 59 00:03:33,120 --> 00:03:36,640 Speaker 1: takes me to believe. I think that was an insult 60 00:03:37,680 --> 00:03:41,080 Speaker 1: believe that Dan. I'm going to start with a very 61 00:03:41,120 --> 00:03:44,760 Speaker 1: broad question, but how would you describe the state of 62 00:03:44,920 --> 00:03:49,840 Speaker 1: China's political economy right now? There's no way around it, 63 00:03:50,440 --> 00:03:54,840 Speaker 1: Tracy that it is pretty bad. Um. So right now 64 00:03:55,080 --> 00:04:00,080 Speaker 1: China is presently going into the third year of the 65 00:04:00,240 --> 00:04:04,600 Speaker 1: zero and uh, it's not very clear when or if 66 00:04:04,640 --> 00:04:09,480 Speaker 1: they can re emerge pretty quickly from that. China's economy 67 00:04:09,800 --> 00:04:14,080 Speaker 1: is in the worst shape in decades, caused partly by 68 00:04:14,280 --> 00:04:18,160 Speaker 1: COVID zero, and I would say mostly by the property downturn. 69 00:04:18,600 --> 00:04:22,200 Speaker 1: Property is a very very substantial part of the Chinese 70 00:04:22,279 --> 00:04:28,000 Speaker 1: economy by some measures over of the marginal growth, and 71 00:04:28,080 --> 00:04:31,600 Speaker 1: so it is really difficult for China's economy to do 72 00:04:31,680 --> 00:04:35,320 Speaker 1: well as a whole when property sector isn't doing well. 73 00:04:35,920 --> 00:04:40,600 Speaker 1: So the economy is being battered by COVID zero mostly 74 00:04:40,680 --> 00:04:44,840 Speaker 1: on the consumption side. The property downturn is affecting general 75 00:04:44,880 --> 00:04:47,960 Speaker 1: sentiment at large. Uh. And maybe the only thing that 76 00:04:48,040 --> 00:04:52,000 Speaker 1: has been going fairly well has been China's production side um, 77 00:04:52,160 --> 00:04:55,880 Speaker 1: mostly intended for exports, but even that is starting to soften. 78 00:04:56,200 --> 00:04:58,760 Speaker 1: And think there isn't too much choice left in the 79 00:04:58,800 --> 00:05:03,119 Speaker 1: squeeze for China's economy and exports to go really well 80 00:05:03,400 --> 00:05:05,560 Speaker 1: when most of the rest of the world isn't going 81 00:05:05,600 --> 00:05:08,719 Speaker 1: to be doing too well, especially if Europe and the 82 00:05:08,839 --> 00:05:13,159 Speaker 1: US soften in terms of economic growth too. So I 83 00:05:13,200 --> 00:05:16,960 Speaker 1: mean this sort of sets the stage for the National Congress, 84 00:05:16,960 --> 00:05:19,400 Speaker 1: which I mentioned in the intro, that's set to begin 85 00:05:19,560 --> 00:05:24,039 Speaker 1: on October six What is actually on the agenda? And 86 00:05:24,560 --> 00:05:27,800 Speaker 1: I mean sort of like background methodology question, but how 87 00:05:27,800 --> 00:05:30,000 Speaker 1: do you how do we know what's on the agenda? 88 00:05:30,320 --> 00:05:33,480 Speaker 1: And how are these things sort of formulated by the party, 89 00:05:33,560 --> 00:05:38,000 Speaker 1: how do they actually pick priorities. The most important event 90 00:05:38,279 --> 00:05:42,039 Speaker 1: in China every five years is the Party Congress. On 91 00:05:42,160 --> 00:05:47,080 Speaker 1: October sixteenth will have the twentie Party Congress. And it's 92 00:05:47,200 --> 00:05:51,680 Speaker 1: a really great question about methodology, tracy, because in general, 93 00:05:52,080 --> 00:05:55,760 Speaker 1: our rule of thumb should always be that the Communist 94 00:05:55,760 --> 00:05:59,360 Speaker 1: Party is a total black box, and they are. They 95 00:05:59,400 --> 00:06:02,200 Speaker 1: have a very good sense of omerta that makes it 96 00:06:02,279 --> 00:06:05,600 Speaker 1: pretty difficult for outsiders really to know what's going on, 97 00:06:05,839 --> 00:06:09,480 Speaker 1: and the insiders don't really talk to the outsiders, so 98 00:06:09,600 --> 00:06:12,919 Speaker 1: it becomes a little bit challenging for us to you know, 99 00:06:13,000 --> 00:06:16,920 Speaker 1: even interpret the results even when they come out. So 100 00:06:17,040 --> 00:06:20,240 Speaker 1: what I'm watching out for are three big items on 101 00:06:20,520 --> 00:06:24,240 Speaker 1: the agenda that will determine a lot of the future 102 00:06:24,279 --> 00:06:27,960 Speaker 1: based on, you know, mostly what happens in terms of personnel. 103 00:06:28,320 --> 00:06:31,159 Speaker 1: And I should say that the Party Congress is really 104 00:06:31,400 --> 00:06:34,680 Speaker 1: an internal party meeting. It is not so much just 105 00:06:34,760 --> 00:06:38,239 Speaker 1: lay out anything in terms of the specifics of policy choices. 106 00:06:38,680 --> 00:06:42,840 Speaker 1: The Party Congress is mostly for a way for the 107 00:06:42,880 --> 00:06:46,359 Speaker 1: party to celebrate itself, determine the personnel, and then figure 108 00:06:46,360 --> 00:06:49,440 Speaker 1: out what's going on in the next five years. And 109 00:06:49,480 --> 00:06:52,240 Speaker 1: so I think there are three big questions on the 110 00:06:52,279 --> 00:06:56,800 Speaker 1: agenda for this Party Congress. In particular, the first will 111 00:06:56,839 --> 00:07:01,440 Speaker 1: be whether Seeing King, the China top leader, will be 112 00:07:01,640 --> 00:07:05,479 Speaker 1: China's top leader for the next five years. Now, consensus 113 00:07:05,680 --> 00:07:09,680 Speaker 1: is that she will almost certainly have a third term, 114 00:07:09,760 --> 00:07:13,320 Speaker 1: and I am totally with consensus. I think it is 115 00:07:13,880 --> 00:07:18,040 Speaker 1: very very unlikely that she will be removed or somehow 116 00:07:18,080 --> 00:07:22,960 Speaker 1: retired in some sort of party decision. The second big 117 00:07:23,080 --> 00:07:25,600 Speaker 1: question that I think we should um, you know, pay 118 00:07:25,640 --> 00:07:30,400 Speaker 1: attention to, it's just exactly the composition of the personnel selected, 119 00:07:30,560 --> 00:07:33,480 Speaker 1: both in terms of the Pollock Bureau Standing Committee as 120 00:07:33,520 --> 00:07:36,680 Speaker 1: well as the Pollock Bureau at large. And then we 121 00:07:36,720 --> 00:07:39,160 Speaker 1: will have some idea of who is going to be 122 00:07:39,240 --> 00:07:42,120 Speaker 1: the premier, and then some suggestions of who is going 123 00:07:42,160 --> 00:07:45,200 Speaker 1: to be vice premier in charge of the economy, as 124 00:07:45,200 --> 00:07:48,280 Speaker 1: well as a lot of other things. And so the 125 00:07:48,520 --> 00:07:51,240 Speaker 1: third big question that I think we have to watch 126 00:07:51,240 --> 00:07:54,280 Speaker 1: out for, and really maybe this is the most important question, 127 00:07:54,760 --> 00:07:58,800 Speaker 1: is whether China's top leader, ce j Ping um annoints 128 00:07:58,880 --> 00:08:03,120 Speaker 1: any successors to be the future leader of China. And 129 00:08:03,320 --> 00:08:04,960 Speaker 1: right now I think this is one of the big 130 00:08:04,960 --> 00:08:08,560 Speaker 1: debates that Um. You know, perhaps she will allow some 131 00:08:09,040 --> 00:08:11,440 Speaker 1: younger personnel in so that he is not China's top 132 00:08:11,520 --> 00:08:15,160 Speaker 1: leader for a while, or maybe he is just goes 133 00:08:15,200 --> 00:08:18,080 Speaker 1: on ruling for a very long time. The last thing 134 00:08:18,080 --> 00:08:21,640 Speaker 1: I'll stress about um the party congress is again, the 135 00:08:21,640 --> 00:08:24,600 Speaker 1: Communist Party is a big black box. It is really 136 00:08:24,600 --> 00:08:27,560 Speaker 1: difficult for us to interpret what goes on. And there 137 00:08:27,560 --> 00:08:30,480 Speaker 1: are now some questions among China watchers, the people who 138 00:08:30,520 --> 00:08:33,680 Speaker 1: follow the politics and read the tea leaves really closely. 139 00:08:34,040 --> 00:08:36,080 Speaker 1: Some of them contend that well, it may not even 140 00:08:36,120 --> 00:08:39,000 Speaker 1: matter who is premier, whether that is someone like one 141 00:08:39,120 --> 00:08:41,880 Speaker 1: Young who is seen as a reformer, or someone like 142 00:08:41,960 --> 00:08:45,360 Speaker 1: Hutran Hua who might not be so closely associated with s. 143 00:08:45,960 --> 00:08:49,360 Speaker 1: The important thing here is that she has become all powerful. 144 00:08:49,440 --> 00:08:52,640 Speaker 1: He has been able to steamroll all opposition, And it 145 00:08:52,800 --> 00:08:56,320 Speaker 1: is possible that personnel doesn't matter so much because there 146 00:08:56,400 --> 00:08:58,640 Speaker 1: is now one guy who controls everything and that's the 147 00:08:58,679 --> 00:09:17,600 Speaker 1: most important thing. So just on the premier point, the 148 00:09:17,679 --> 00:09:21,640 Speaker 1: existing premier is Lead Ka Ching, and he has said 149 00:09:21,640 --> 00:09:23,880 Speaker 1: this is going to be his last term as premier 150 00:09:23,960 --> 00:09:26,360 Speaker 1: and that's why we're talking about potentially choosing new ones. 151 00:09:26,720 --> 00:09:29,800 Speaker 1: But he has this reputation for you know, there's the 152 00:09:29,880 --> 00:09:32,720 Speaker 1: lead kitchen index, um of course, and he has the 153 00:09:32,760 --> 00:09:37,240 Speaker 1: reputation of sort of opening up China to foreign investment 154 00:09:37,320 --> 00:09:42,520 Speaker 1: and foreign capital. Does that go away as he exits? 155 00:09:43,880 --> 00:09:49,000 Speaker 1: I don't think China will lose its openness towards foreign 156 00:09:49,040 --> 00:09:54,960 Speaker 1: capital or its friendliness read large towards multinationals that are 157 00:09:54,960 --> 00:09:58,960 Speaker 1: willing to invest in China with this personnel change. I 158 00:09:58,960 --> 00:10:02,200 Speaker 1: think in general in China, where you sit is what 159 00:10:02,320 --> 00:10:05,839 Speaker 1: you stand for, and there will be someone standing up 160 00:10:05,880 --> 00:10:09,840 Speaker 1: for a lot of these economic interests. So Um, again, 161 00:10:09,880 --> 00:10:12,680 Speaker 1: the party is a bit of a black box. It 162 00:10:12,720 --> 00:10:17,400 Speaker 1: could be that lekas Young is shuffled into some other position, 163 00:10:17,640 --> 00:10:20,400 Speaker 1: like the leader of the Legislature. That's one of the 164 00:10:20,400 --> 00:10:23,520 Speaker 1: possibilities floating out there. In that case, he would still 165 00:10:23,559 --> 00:10:27,840 Speaker 1: have some influence. China is a pretty discretionary system in 166 00:10:27,880 --> 00:10:32,120 Speaker 1: which the levers of power are not exactly always very legalistic, 167 00:10:32,559 --> 00:10:34,400 Speaker 1: and a lot of it comes down to have power 168 00:10:34,440 --> 00:10:36,960 Speaker 1: and influence. So I suspect that there will be some 169 00:10:37,280 --> 00:10:42,040 Speaker 1: substantial remnants of least influence, especially given that the economy 170 00:10:42,120 --> 00:10:44,440 Speaker 1: is just such an important part of, you know, the 171 00:10:44,440 --> 00:10:48,680 Speaker 1: Communist Party's message towards its own legitimacy. I want to 172 00:10:48,720 --> 00:10:51,800 Speaker 1: get to the various things that will be discussing all 173 00:10:51,840 --> 00:10:53,920 Speaker 1: of the issues facing China, but sort of one more 174 00:10:54,000 --> 00:10:58,720 Speaker 1: housekeeping question on the Congress itself. Is it a is 175 00:10:58,760 --> 00:11:03,000 Speaker 1: it a vote? What everyone comes together? How do they 176 00:11:03,040 --> 00:11:05,520 Speaker 1: decide on things? What is the sort of process by 177 00:11:05,559 --> 00:11:09,240 Speaker 1: which the meeting turns into policy or priority? So they 178 00:11:09,240 --> 00:11:13,600 Speaker 1: make the longest speeches on earth, That's the only thing 179 00:11:13,640 --> 00:11:15,680 Speaker 1: you need to know. I think part of it is 180 00:11:15,800 --> 00:11:20,640 Speaker 1: whoever can withstand the super long speeches, especially by see 181 00:11:21,280 --> 00:11:25,040 Speaker 1: they get to decide the vote. Um I've heard, don't 182 00:11:25,040 --> 00:11:29,720 Speaker 1: they say like in a communist countries? That isn't that 183 00:11:29,760 --> 00:11:32,920 Speaker 1: the sort of reputation that historically communist countries have had 184 00:11:33,360 --> 00:11:38,280 Speaker 1: long speeches? So lack of democracy or lack of transparency 185 00:11:38,440 --> 00:11:41,320 Speaker 1: is sort of counteracted by they say a lot of stuff. Yes, 186 00:11:41,400 --> 00:11:43,840 Speaker 1: that's right. It's a very opaque way of getting around 187 00:11:43,840 --> 00:11:46,480 Speaker 1: this transparency issue. You know, a lot of it comes 188 00:11:46,520 --> 00:11:52,240 Speaker 1: down to basically the China's top party leadership getting together, 189 00:11:52,440 --> 00:11:55,760 Speaker 1: whether that is people currently on the Central Committee, there 190 00:11:55,880 --> 00:11:59,520 Speaker 1: is the party elders, the retired people, the previous premiers 191 00:11:59,520 --> 00:12:03,760 Speaker 1: in general secretaries have some way of casting their vote 192 00:12:03,760 --> 00:12:06,960 Speaker 1: and influencing their decisions, and there is a formal way. 193 00:12:06,960 --> 00:12:10,160 Speaker 1: I think a very good explanation is by Lingley of 194 00:12:10,280 --> 00:12:13,320 Speaker 1: the University of Vienna. So I think I'm encouraged readers 195 00:12:13,320 --> 00:12:15,760 Speaker 1: to look at that piece to figure out what are 196 00:12:15,760 --> 00:12:19,240 Speaker 1: the exact mechanics here. So I know Joe was kind 197 00:12:19,240 --> 00:12:22,840 Speaker 1: of joking about transparency through speeches, but one of the 198 00:12:22,920 --> 00:12:25,920 Speaker 1: things that we actually learned from you on an ad 199 00:12:25,920 --> 00:12:29,199 Speaker 1: Blots episode, I mean, you emphasize this point that every 200 00:12:29,320 --> 00:12:34,360 Speaker 1: China investor should be reading the speeches and the publications 201 00:12:34,400 --> 00:12:37,960 Speaker 1: that the Chinese Communist Party actually puts out. And they 202 00:12:38,000 --> 00:12:41,200 Speaker 1: do have this magazine called Seeking Truth that they put 203 00:12:41,200 --> 00:12:45,880 Speaker 1: out regularly, and it does have interesting policy suggestions and 204 00:12:45,920 --> 00:12:48,960 Speaker 1: ideas in it, and there was one that came out 205 00:12:49,040 --> 00:12:52,800 Speaker 1: recently that had I think a previously unpublished speech by 206 00:12:52,880 --> 00:12:56,440 Speaker 1: She where he was really talking about I guess building 207 00:12:56,559 --> 00:13:03,880 Speaker 1: up China's external influence. How important is that idea as 208 00:13:04,000 --> 00:13:06,280 Speaker 1: as we approached the Congress, Like, is this something that 209 00:13:06,360 --> 00:13:08,640 Speaker 1: China is serious about? And how do you see it 210 00:13:08,679 --> 00:13:13,880 Speaker 1: going about actually building up that external influence? Sure? Well, Tracy, 211 00:13:13,960 --> 00:13:16,680 Speaker 1: just to put a little bit of nuance on my point, 212 00:13:17,080 --> 00:13:20,439 Speaker 1: I think that investors should be aware of what are 213 00:13:20,480 --> 00:13:25,439 Speaker 1: the major pronouncements of the Communist Party, especially speeches by She, 214 00:13:26,200 --> 00:13:28,200 Speaker 1: But I think it would be a little bit much 215 00:13:28,240 --> 00:13:30,720 Speaker 1: to try to read all of them. Now, I did 216 00:13:30,800 --> 00:13:35,120 Speaker 1: read every issue of Tillshare, the magazine that translates into 217 00:13:35,200 --> 00:13:39,280 Speaker 1: Seeking Truth, and I'm afraid it broke me and it 218 00:13:39,600 --> 00:13:44,280 Speaker 1: was just far too much communist fbh um to process. 219 00:13:44,320 --> 00:13:46,080 Speaker 1: But I think it would be a good rule of 220 00:13:46,080 --> 00:13:48,160 Speaker 1: thumb to, you know, try to have some sense of 221 00:13:48,160 --> 00:13:50,840 Speaker 1: what's going on in this magazine and how the party 222 00:13:51,040 --> 00:13:54,680 Speaker 1: is communicating to its insiders and the pert echelons of 223 00:13:54,840 --> 00:14:00,400 Speaker 1: the leadership. Now, presidency has talked about making China have 224 00:14:00,480 --> 00:14:04,679 Speaker 1: greater influence abroad, and that is a recurring message from him. 225 00:14:05,040 --> 00:14:09,720 Speaker 1: I believe it was sometime last year that presidency said that, um, 226 00:14:09,800 --> 00:14:12,840 Speaker 1: what China should do is to make the country's image 227 00:14:12,920 --> 00:14:16,400 Speaker 1: more credible and more lovable. And what has he done 228 00:14:16,440 --> 00:14:20,720 Speaker 1: subsequently really to make China's image much more lovable. Well, 229 00:14:20,760 --> 00:14:24,400 Speaker 1: there hasn't been a very substantial shift in policies in 230 00:14:24,440 --> 00:14:28,840 Speaker 1: any direction. So on the credibility side, you know, it's taken, um, 231 00:14:28,880 --> 00:14:31,640 Speaker 1: you know, kind of a battering, given how much the 232 00:14:31,680 --> 00:14:35,160 Speaker 1: economy has suffered this year. And has China become a 233 00:14:35,160 --> 00:14:38,040 Speaker 1: lot more lovable recently, Well, it's a little hard to 234 00:14:38,080 --> 00:14:41,400 Speaker 1: see what the standards are, but we haven't seen China 235 00:14:41,520 --> 00:14:45,640 Speaker 1: create a lot of let's say, anime skits on the 236 00:14:45,760 --> 00:14:49,200 Speaker 1: Japanese style or you know, really anything that um, you know, 237 00:14:49,320 --> 00:14:53,120 Speaker 1: makes China very broadly appealing. There isn't that much culture 238 00:14:53,240 --> 00:14:56,400 Speaker 1: that the rest of the world has really gotten. So um, 239 00:14:56,440 --> 00:14:59,480 Speaker 1: I think I chalk it up to presidency saying something 240 00:14:59,520 --> 00:15:02,400 Speaker 1: important because he is always talking about these sort of things. 241 00:15:02,760 --> 00:15:06,160 Speaker 1: But on any level, China's image has gotten worse over 242 00:15:06,200 --> 00:15:09,320 Speaker 1: the last five years, over the last ten years since 243 00:15:09,400 --> 00:15:12,880 Speaker 1: the start of his term, especially given China's various alleged 244 00:15:12,960 --> 00:15:17,760 Speaker 1: human rights abuses in Hong Kong. In Sin Yang in Tabat, 245 00:15:18,080 --> 00:15:21,240 Speaker 1: as well as the alignment with Russia earlier this year 246 00:15:21,480 --> 00:15:25,400 Speaker 1: when Presidency declared a no limits friendship with President Putin. 247 00:15:25,840 --> 00:15:29,040 Speaker 1: So by any measure, I wouldn't say that it has been, um, 248 00:15:29,080 --> 00:15:32,120 Speaker 1: you know, a very big priority for the Communist Party 249 00:15:32,200 --> 00:15:35,360 Speaker 1: really to win hearts and minds abroad. Since you mentioned 250 00:15:35,600 --> 00:15:40,040 Speaker 1: the alignment with Putin, where how would you summarize China's 251 00:15:40,080 --> 00:15:44,600 Speaker 1: stands on the war today and the in particular, both 252 00:15:44,720 --> 00:15:46,920 Speaker 1: the war itself and then the sort of trajectory of 253 00:15:46,960 --> 00:15:50,400 Speaker 1: the relationship with Russia. I think it can be best 254 00:15:50,600 --> 00:15:55,920 Speaker 1: described as tacit support for Russia's invasion of Ukraine. The 255 00:15:56,000 --> 00:15:59,000 Speaker 1: Communist Party would never come out and say, yes, we 256 00:15:59,120 --> 00:16:04,160 Speaker 1: support this special military operation, this pretty aggressive invasion in 257 00:16:04,320 --> 00:16:09,160 Speaker 1: any explicit terms, um. But the diplomatically and rhetorically, I 258 00:16:09,200 --> 00:16:13,560 Speaker 1: think it is fairly clear that Beijing is aligned with Moscow. Now, 259 00:16:13,600 --> 00:16:17,280 Speaker 1: what hasn't very obviously happened is that China has not, 260 00:16:17,920 --> 00:16:21,480 Speaker 1: um in any big way try to help Russia work 261 00:16:21,480 --> 00:16:24,880 Speaker 1: around these extraordinary U S sanctions that block a lot 262 00:16:24,960 --> 00:16:29,600 Speaker 1: of technologies to Russia. Has not very broadly provided much 263 00:16:29,680 --> 00:16:33,400 Speaker 1: financial support, to say nothing of military support, and there 264 00:16:33,440 --> 00:16:37,280 Speaker 1: are some signs that Beijing is not terribly pleased that 265 00:16:37,360 --> 00:16:40,720 Speaker 1: it has shackled itself to Russia, which is not doing 266 00:16:40,800 --> 00:16:43,160 Speaker 1: very well in the war. And so there are some 267 00:16:43,400 --> 00:16:47,280 Speaker 1: rhetorical support, there is some public sentiments support rallied by 268 00:16:47,320 --> 00:16:49,760 Speaker 1: the Party and support of Russia, but there has not 269 00:16:49,840 --> 00:16:54,400 Speaker 1: been any substantial material and financial support. And so that's 270 00:16:54,400 --> 00:16:56,040 Speaker 1: why I think, you know, it is kind of a 271 00:16:56,120 --> 00:17:00,600 Speaker 1: diplomatic gesture and not anything broader. So why don't we 272 00:17:00,640 --> 00:17:03,680 Speaker 1: talk a little bit more about what's going on domestically, 273 00:17:03,800 --> 00:17:06,639 Speaker 1: because you know, of course there are plenty of foreign 274 00:17:06,720 --> 00:17:09,600 Speaker 1: issues to keep us busy, but there's a lot going 275 00:17:09,680 --> 00:17:13,760 Speaker 1: on within China itself. And you already mentioned dan COVID zero. 276 00:17:14,320 --> 00:17:17,280 Speaker 1: This has been going on for three years now. I 277 00:17:17,280 --> 00:17:19,760 Speaker 1: guess the question that a lot of people would ask 278 00:17:19,800 --> 00:17:23,160 Speaker 1: at this point is what exactly does Shi shin Ping 279 00:17:23,280 --> 00:17:26,640 Speaker 1: and the Chinese authorities, what do they get out of 280 00:17:26,680 --> 00:17:32,120 Speaker 1: the COVID zero policy three years on? That's uh an 281 00:17:32,160 --> 00:17:35,560 Speaker 1: extremely important question. So the first thing I should say 282 00:17:35,600 --> 00:17:39,240 Speaker 1: is that COVID zero has proved exhausting to a lot 283 00:17:39,320 --> 00:17:42,320 Speaker 1: of folks in China. There are um a lot of 284 00:17:42,400 --> 00:17:46,800 Speaker 1: public expressions of discontent for COVID zero. That to say 285 00:17:46,800 --> 00:17:50,400 Speaker 1: nothing of going abroad that makes it difficult to leave 286 00:17:50,720 --> 00:17:54,920 Speaker 1: one's own hometown or um to travel to business centers 287 00:17:55,000 --> 00:17:57,760 Speaker 1: like Beijing, Shanghai or shin Jin. A lot of people 288 00:17:57,880 --> 00:18:01,439 Speaker 1: are really sick of having to have no notice and 289 00:18:01,480 --> 00:18:05,320 Speaker 1: be locked in their apartment compounds for a few days 290 00:18:05,359 --> 00:18:08,320 Speaker 1: at a time, perhaps weeks at a time. And many 291 00:18:08,320 --> 00:18:11,480 Speaker 1: people are sick of going on the train somehow being 292 00:18:11,480 --> 00:18:14,680 Speaker 1: declared a close contact with others and then having to 293 00:18:14,760 --> 00:18:20,000 Speaker 1: quarantine en route to whatever one's destination is. So it 294 00:18:20,160 --> 00:18:23,560 Speaker 1: is pretty important to understand why China is still so 295 00:18:23,640 --> 00:18:27,040 Speaker 1: committed to zero COVID. And I think if I had 296 00:18:27,080 --> 00:18:29,800 Speaker 1: to try to read the mind of the polit bureau here, 297 00:18:30,280 --> 00:18:35,119 Speaker 1: I would say something like this, that the Chinese government 298 00:18:35,240 --> 00:18:39,480 Speaker 1: keeps saying that it's most important job is to protect lives. 299 00:18:39,840 --> 00:18:42,800 Speaker 1: And I want to, you know, take that statement at 300 00:18:42,880 --> 00:18:45,960 Speaker 1: face value, and if I can, you know, try to 301 00:18:46,000 --> 00:18:48,919 Speaker 1: imagine what it would be like for COVID zero to 302 00:18:49,200 --> 00:18:51,960 Speaker 1: run loose in China. I think that would be a 303 00:18:52,080 --> 00:18:55,320 Speaker 1: very big catastrophe. Indeed, So if we take a look 304 00:18:55,359 --> 00:18:58,240 Speaker 1: at you know, the US, and let's say we have um, 305 00:18:58,280 --> 00:19:00,680 Speaker 1: you know, except the number of a million people dead 306 00:19:00,720 --> 00:19:03,679 Speaker 1: from COVID. Use that as the benchmark. You know, I 307 00:19:03,680 --> 00:19:06,159 Speaker 1: wonder how many deaths there would be in China if 308 00:19:06,200 --> 00:19:08,720 Speaker 1: somehow there was you know, let let let loose. And 309 00:19:08,760 --> 00:19:11,240 Speaker 1: I want to say, you know, it's perfectly plausible to 310 00:19:11,320 --> 00:19:13,920 Speaker 1: me that this could be north of ten million deaths. 311 00:19:14,040 --> 00:19:17,439 Speaker 1: And here the very rough, simple calculation here is that 312 00:19:18,040 --> 00:19:20,879 Speaker 1: China has four times the number of the population of 313 00:19:20,920 --> 00:19:23,040 Speaker 1: the US, and then let's say one quarter in the 314 00:19:23,080 --> 00:19:25,880 Speaker 1: medical capacity of the U S you get to sixteen 315 00:19:26,000 --> 00:19:29,280 Speaker 1: times the level of possible fatalities. But then you reduce 316 00:19:29,359 --> 00:19:31,760 Speaker 1: that a bit because you know, um Asia can be 317 00:19:31,880 --> 00:19:35,120 Speaker 1: in China in particular, can be pretty different of how 318 00:19:35,280 --> 00:19:37,679 Speaker 1: the the US manage things. And so you know, if 319 00:19:37,680 --> 00:19:41,000 Speaker 1: you're thinking about a rough benchmark of a possible ten 320 00:19:41,040 --> 00:19:45,000 Speaker 1: million debts, this becomes a really unacceptable to the Party. 321 00:19:45,080 --> 00:19:48,120 Speaker 1: And I think no party official, season Ping, least of all, 322 00:19:48,400 --> 00:19:50,879 Speaker 1: will ever put his hand up and say that, you know, 323 00:19:51,040 --> 00:19:53,640 Speaker 1: we are willing to accept this as the price of 324 00:19:53,760 --> 00:19:56,320 Speaker 1: you know, letting people run free. And I think the 325 00:19:56,359 --> 00:20:00,199 Speaker 1: Party has judged that COVID has not been only a 326 00:20:00,240 --> 00:20:03,520 Speaker 1: public health crisis in the world, and especially in the 327 00:20:03,600 --> 00:20:07,280 Speaker 1: U S. That's not only triggered in economic crisis and 328 00:20:07,440 --> 00:20:10,760 Speaker 1: um financial problems as well, it has also been a 329 00:20:10,800 --> 00:20:15,560 Speaker 1: political disaster for the US, in which very polarized country 330 00:20:15,960 --> 00:20:18,920 Speaker 1: is somehow even more at each other's throats, I think 331 00:20:19,000 --> 00:20:22,760 Speaker 1: is what the Chinese would think, in which the Republicans 332 00:20:22,800 --> 00:20:26,120 Speaker 1: and the Democrats are even more disdainful of each other. 333 00:20:26,440 --> 00:20:30,119 Speaker 1: And that is um just maybe something that the Communist 334 00:20:30,119 --> 00:20:33,479 Speaker 1: Party is able to appreciate, especially that um you know, 335 00:20:33,560 --> 00:20:37,200 Speaker 1: maybe makes sense less sense to us today. As you mentioned, 336 00:20:37,280 --> 00:20:39,960 Speaker 1: there's obviously a lot of frustration among people who have 337 00:20:40,040 --> 00:20:43,000 Speaker 1: to deal with these restrictions and the unpredictability of them. 338 00:20:43,160 --> 00:20:46,520 Speaker 1: But I assume, I mean, there's also an economic cost, 339 00:20:46,720 --> 00:20:51,399 Speaker 1: and presumably they can't go on literally forever. So what 340 00:20:51,680 --> 00:20:54,920 Speaker 1: is the cost the longer, the longer the COVID your 341 00:20:55,040 --> 00:20:57,880 Speaker 1: policies are maintained, and then what does the ultimate way 342 00:20:57,920 --> 00:21:01,480 Speaker 1: out is there? Is it a accepting of a m 343 00:21:01,600 --> 00:21:04,639 Speaker 1: R and a vaccine from a foreign drug manufacturer? Like 344 00:21:04,680 --> 00:21:08,080 Speaker 1: what is what is a possible path out ultimately, Well, 345 00:21:08,400 --> 00:21:13,880 Speaker 1: the cost is has not really been apparent until two 346 00:21:14,359 --> 00:21:18,159 Speaker 1: I would say that China was pretty okay with the 347 00:21:18,200 --> 00:21:21,760 Speaker 1: cost of COVID in when it UM was able to 348 00:21:21,800 --> 00:21:25,600 Speaker 1: produce and nobody else was in manufacturing all sorts of goods, 349 00:21:25,640 --> 00:21:28,000 Speaker 1: and so actually regained a lot of the share of 350 00:21:28,119 --> 00:21:33,239 Speaker 1: the global economies manufactured exports. And in one Beijing had 351 00:21:33,280 --> 00:21:37,120 Speaker 1: felt so confident in itself that it had the confidence 352 00:21:37,160 --> 00:21:39,960 Speaker 1: to smash a lot of its most profitable companies as 353 00:21:40,000 --> 00:21:44,479 Speaker 1: well as trying to tackle systematic risks and property and 354 00:21:44,520 --> 00:21:48,399 Speaker 1: really the cost came home this year when O Macron 355 00:21:48,520 --> 00:21:51,720 Speaker 1: proved devastating to a lot of Chinese cities, and that 356 00:21:51,800 --> 00:21:54,760 Speaker 1: it is an ongoing UM rise in cases UM as 357 00:21:54,800 --> 00:21:57,640 Speaker 1: we speak right now, Joe, Right now, the Chinese economy 358 00:21:57,680 --> 00:22:01,040 Speaker 1: is not doing well, mostly because of the pretty UM sector, 359 00:22:01,119 --> 00:22:05,720 Speaker 1: but also zero COVID isn't helping. It is really crushing consumption, 360 00:22:05,840 --> 00:22:08,439 Speaker 1: and then also the UM it is contributing to a 361 00:22:08,480 --> 00:22:12,440 Speaker 1: general exhaustion among people that they are locked down very 362 00:22:12,520 --> 00:22:16,120 Speaker 1: very often. Now, what is the way out? Well, I 363 00:22:16,119 --> 00:22:19,800 Speaker 1: think that it would be a fairly long time. We 364 00:22:19,800 --> 00:22:22,000 Speaker 1: would have a lot of warning before we can see 365 00:22:22,040 --> 00:22:25,080 Speaker 1: that China is on its way out. And I am 366 00:22:25,119 --> 00:22:28,760 Speaker 1: not predicting that there will be very substantial loosening after 367 00:22:28,800 --> 00:22:31,080 Speaker 1: the Party Congress I think that would be a fantasy 368 00:22:31,119 --> 00:22:33,359 Speaker 1: to think that somehow, a week from now China just 369 00:22:33,480 --> 00:22:37,119 Speaker 1: acides it won't do anymore lockdowns. I think it is 370 00:22:37,160 --> 00:22:39,120 Speaker 1: a little bit more plausible that there will be more 371 00:22:39,200 --> 00:22:43,080 Speaker 1: movement in March after the National People's Congress, which turns 372 00:22:43,280 --> 00:22:46,800 Speaker 1: party decisions into law, and there might be a little 373 00:22:46,840 --> 00:22:49,680 Speaker 1: bit more movement. And I think the really two things 374 00:22:49,720 --> 00:22:52,399 Speaker 1: to look for are things we would have a lot 375 00:22:52,480 --> 00:22:56,120 Speaker 1: of warning. And first, the party has to feel very confident. 376 00:22:56,880 --> 00:23:00,520 Speaker 1: And it's um therapeutics as well, it's its vaccines. Now, 377 00:23:00,560 --> 00:23:03,680 Speaker 1: I'm not sure that Beijing will allow the imports of 378 00:23:03,720 --> 00:23:06,040 Speaker 1: a lot of m R and a vaccines um, but 379 00:23:06,080 --> 00:23:08,520 Speaker 1: I think it is possible that they help that big 380 00:23:08,560 --> 00:23:11,560 Speaker 1: are the inhaled vaccines, which are much much easier to 381 00:23:11,560 --> 00:23:15,480 Speaker 1: administer and possibly more effective in blocking transmission, as well 382 00:23:15,520 --> 00:23:18,760 Speaker 1: as the severity of the disease um. And then that 383 00:23:18,960 --> 00:23:20,920 Speaker 1: is something we would be able to see months ahead 384 00:23:20,960 --> 00:23:23,240 Speaker 1: of time, because there would be a very very big drive. 385 00:23:23,480 --> 00:23:27,640 Speaker 1: Even if they are able to vaccinate one to three 386 00:23:27,680 --> 00:23:30,800 Speaker 1: percentage points of the population, you know, it will take 387 00:23:30,920 --> 00:23:33,320 Speaker 1: you know, at least a month or two or three 388 00:23:33,440 --> 00:23:37,080 Speaker 1: before many people are able to get shots in arms 389 00:23:37,200 --> 00:23:40,720 Speaker 1: or shots in um noses inhaled and then I think 390 00:23:40,720 --> 00:23:43,520 Speaker 1: they are also waiting a little bit for the therapeutics 391 00:23:43,520 --> 00:23:46,120 Speaker 1: to be better so that they don't have something like 392 00:23:46,440 --> 00:23:49,280 Speaker 1: two million people debt. And maybe, you know, the last 393 00:23:49,280 --> 00:23:51,280 Speaker 1: thing to watch out for is that, you know, we 394 00:23:51,320 --> 00:23:54,960 Speaker 1: have to consider that Beijing has spent nearly three years 395 00:23:54,960 --> 00:23:58,720 Speaker 1: now terrifying people about this virus that a lot of 396 00:23:58,720 --> 00:24:01,200 Speaker 1: people in China are very very scared about to mask. 397 00:24:01,240 --> 00:24:04,040 Speaker 1: Compliance in China is still very high, and people are 398 00:24:04,359 --> 00:24:07,159 Speaker 1: reluctant to you know, get the virus and you know, 399 00:24:07,280 --> 00:24:09,720 Speaker 1: run free. And so I think what we'll see is 400 00:24:10,119 --> 00:24:13,679 Speaker 1: months and months of propaganda and messaging saying it's no 401 00:24:13,720 --> 00:24:16,880 Speaker 1: big deal. Guys. You know, the virus is endemic now, 402 00:24:17,000 --> 00:24:20,160 Speaker 1: the flu has evolved to be more transmissible and less severe, 403 00:24:20,600 --> 00:24:23,000 Speaker 1: and um, you know, it's time for us to open 404 00:24:23,080 --> 00:24:25,960 Speaker 1: up and rejoin the world. I'm not really expecting for 405 00:24:26,040 --> 00:24:29,040 Speaker 1: that to happen the beginning of next year, and I'm 406 00:24:29,080 --> 00:24:31,560 Speaker 1: not even sure I would be very confident that it 407 00:24:31,600 --> 00:24:33,560 Speaker 1: can happen at the end of next year and the 408 00:24:33,640 --> 00:24:39,160 Speaker 1: end of what are the long term consequences to China's 409 00:24:39,200 --> 00:24:46,160 Speaker 1: economy of prolonged COVID zero policies, I mean basically prolonged closures. Right, 410 00:24:46,240 --> 00:24:50,080 Speaker 1: you mentioned consumption. The Party has been trying to shift 411 00:24:50,080 --> 00:24:53,120 Speaker 1: the economy more towards consumption in a way from manufacturing 412 00:24:53,160 --> 00:24:56,320 Speaker 1: for years, and it seems, if anything, this particular COVID 413 00:24:56,400 --> 00:24:59,080 Speaker 1: zero policy has kind of put some of that into reverse, 414 00:24:59,680 --> 00:25:03,360 Speaker 1: are you agree? And the UM they are much more 415 00:25:03,400 --> 00:25:07,320 Speaker 1: focused on UM, you know, trying to boost recovery in 416 00:25:07,400 --> 00:25:10,320 Speaker 1: terms of production, and China has always been much more 417 00:25:10,320 --> 00:25:13,359 Speaker 1: of a supply side economy. And it has been fairly 418 00:25:13,400 --> 00:25:16,760 Speaker 1: remarkable that there was a big divergence between the West's 419 00:25:16,800 --> 00:25:21,119 Speaker 1: response to the economic crisis that is created by COVID UM, 420 00:25:21,200 --> 00:25:24,280 Speaker 1: and that was to send a lot of stimulus checks 421 00:25:24,320 --> 00:25:27,600 Speaker 1: and direct support to different households so that they are 422 00:25:27,640 --> 00:25:31,360 Speaker 1: able to get through this difficult time. China has sent 423 00:25:31,480 --> 00:25:36,080 Speaker 1: almost no direct stimulus to households. It has not increased 424 00:25:36,440 --> 00:25:40,199 Speaker 1: UM welfare benefits in any substantial way. Instead, China has 425 00:25:40,240 --> 00:25:43,040 Speaker 1: been laser focused on trying to make sure that production 426 00:25:43,080 --> 00:25:47,160 Speaker 1: can continue, probably because you know, the American consumers can 427 00:25:47,359 --> 00:25:49,679 Speaker 1: spend all of their new money from the government on 428 00:25:49,840 --> 00:25:52,280 Speaker 1: Chinese goods, and so that has been a lot of 429 00:25:52,280 --> 00:25:56,160 Speaker 1: its strategy for quite a long while. Now spill over stimulus, 430 00:25:56,280 --> 00:25:59,359 Speaker 1: it's still that's right, that's right, um, And so you know, 431 00:25:59,480 --> 00:26:02,440 Speaker 1: the longer HERM, I think the costs are mostly going 432 00:26:02,480 --> 00:26:06,640 Speaker 1: to be political on China. UM Beijing has snipped off 433 00:26:06,840 --> 00:26:09,399 Speaker 1: a lot of these people to people exchanges such that 434 00:26:09,520 --> 00:26:13,840 Speaker 1: it is really difficult for businesses, for students to enter 435 00:26:13,880 --> 00:26:16,159 Speaker 1: the country, and UM, you know, I think this is 436 00:26:16,160 --> 00:26:19,720 Speaker 1: why also a little bit of why UM Beijing has 437 00:26:19,880 --> 00:26:23,359 Speaker 1: felt pretty okay with the costs of the COVID zero. 438 00:26:23,640 --> 00:26:26,600 Speaker 1: The costs are political, not exactly economic, so they are 439 00:26:27,000 --> 00:26:30,359 Speaker 1: kind of unseen, and so it kind of feels that, well, 440 00:26:30,400 --> 00:26:33,120 Speaker 1: it can continue this. But I think the long term 441 00:26:33,160 --> 00:26:35,680 Speaker 1: costs on China from being cut off from the rest 442 00:26:35,680 --> 00:26:39,320 Speaker 1: of the world is absolutely catastrophic. And um, there's going 443 00:26:39,359 --> 00:26:42,520 Speaker 1: to be far less understanding and willingness to engage after 444 00:26:42,600 --> 00:26:47,040 Speaker 1: this year. So, speaking of China's relationship with the rest 445 00:26:47,080 --> 00:26:51,960 Speaker 1: of the world, perhaps when the Biden administration came into office, 446 00:26:52,960 --> 00:26:55,199 Speaker 1: I don't know, but perhaps it was some thought that 447 00:26:55,240 --> 00:26:58,240 Speaker 1: maybe okay, Trump had a very hawker stance on China 448 00:26:58,400 --> 00:27:01,080 Speaker 1: and maybe that would get relaxed. But instead of anything 449 00:27:01,160 --> 00:27:04,800 Speaker 1: it seems to have ratcheted up and in particularly over 450 00:27:04,800 --> 00:27:07,960 Speaker 1: the last several days on the subject of chips, which 451 00:27:07,960 --> 00:27:10,679 Speaker 1: we touched on in the very beginning, and my sense 452 00:27:10,880 --> 00:27:16,120 Speaker 1: is that the latest moves to restrict UH chip exports 453 00:27:16,200 --> 00:27:18,480 Speaker 1: or the export of chip technology into China has some 454 00:27:18,600 --> 00:27:21,800 Speaker 1: pretty real teeth. You see it in chip stocks. But 455 00:27:22,000 --> 00:27:25,000 Speaker 1: everything's sort of been tumbling lately. But my impression is like, 456 00:27:25,040 --> 00:27:27,080 Speaker 1: this is pretty real and significant, So why don't you 457 00:27:27,080 --> 00:27:29,560 Speaker 1: just sort of to start give us your high level 458 00:27:29,720 --> 00:27:33,560 Speaker 1: overview of what's been announced and the significance of it. 459 00:27:34,160 --> 00:27:37,119 Speaker 1: I really agree with your framing. Joe. I spent the 460 00:27:37,200 --> 00:27:40,280 Speaker 1: last week in Washington, d C. Trying to get a 461 00:27:40,320 --> 00:27:44,520 Speaker 1: handle of what are the most hawkish actions that could 462 00:27:44,520 --> 00:27:48,720 Speaker 1: come out of the Biden administration on China, and certainly 463 00:27:48,840 --> 00:27:52,760 Speaker 1: the chips action announced by the Department of Commerce's Bureau 464 00:27:52,800 --> 00:27:56,560 Speaker 1: of Industry and Security on Friday represent I think a 465 00:27:56,640 --> 00:28:00,960 Speaker 1: fairly big blow. This was a thirty nine h order 466 00:28:01,000 --> 00:28:05,639 Speaker 1: consisting of eight parts that very substantially restrict semi conductors. 467 00:28:06,200 --> 00:28:09,080 Speaker 1: And this very long order has been so complex that 468 00:28:09,480 --> 00:28:11,959 Speaker 1: even a lot of lawyers I know are scratching their 469 00:28:12,000 --> 00:28:14,480 Speaker 1: heads and trying to make head or tails of this. 470 00:28:15,119 --> 00:28:17,800 Speaker 1: So at a first cut, I think this looks like 471 00:28:17,880 --> 00:28:21,119 Speaker 1: a very traumatic order. And um, the three things that 472 00:28:21,119 --> 00:28:24,200 Speaker 1: I would really highlight in that are important in this order. 473 00:28:24,560 --> 00:28:28,639 Speaker 1: Our first controls on chips themselves. So a lot of 474 00:28:28,680 --> 00:28:32,880 Speaker 1: the most advanced chips that are important for supercomputers UM 475 00:28:32,920 --> 00:28:36,160 Speaker 1: as well as a lot of the most advanced chips 476 00:28:36,200 --> 00:28:39,640 Speaker 1: that are important for supercomputers are now being cut off 477 00:28:39,720 --> 00:28:43,480 Speaker 1: from China. That's the first item. The second item consists 478 00:28:43,560 --> 00:28:48,000 Speaker 1: of controls on semiconductor production equipment, and the Commerce Department 479 00:28:48,040 --> 00:28:51,880 Speaker 1: has been fairly clear that if you're shipping semiconductor production 480 00:28:51,880 --> 00:28:56,720 Speaker 1: equipment that is below fourteen sixteen nanometers or less to 481 00:28:57,120 --> 00:29:02,840 Speaker 1: China above hight levels for nand memory tips, as well 482 00:29:02,880 --> 00:29:06,760 Speaker 1: as below eighteen nanometers have pitched or less um for 483 00:29:07,280 --> 00:29:09,800 Speaker 1: d RAM, then you need to get a license from 484 00:29:09,880 --> 00:29:13,080 Speaker 1: the U S Department of Commerce with the presumption of denial. 485 00:29:13,560 --> 00:29:16,760 Speaker 1: And then the third most important, highly novel control announced 486 00:29:16,760 --> 00:29:20,520 Speaker 1: by Commerce is your license requirement on US persons from 487 00:29:20,520 --> 00:29:24,840 Speaker 1: being able to support the development of China's advanced semiconductor industry. 488 00:29:25,240 --> 00:29:27,720 Speaker 1: And this is fairly novel, I think for the U 489 00:29:27,840 --> 00:29:30,640 Speaker 1: S Department of Commerce, to impose law controls on the 490 00:29:30,720 --> 00:29:33,400 Speaker 1: level of US persons. And though so, you know, trying 491 00:29:33,400 --> 00:29:36,040 Speaker 1: to cut off more people to people exchanges in China 492 00:29:36,120 --> 00:29:39,760 Speaker 1: with respected technology that is another big thing. Now, I 493 00:29:39,760 --> 00:29:42,360 Speaker 1: think the caveats to, you know, trying to take a 494 00:29:42,480 --> 00:29:46,479 Speaker 1: maximumly gloomy view. UM is, first of all, you know, 495 00:29:47,080 --> 00:29:51,600 Speaker 1: companies tend to be dynamic actors, and companies have already 496 00:29:51,640 --> 00:29:55,000 Speaker 1: adapted to a lot of US controls by, for example, 497 00:29:55,160 --> 00:29:59,160 Speaker 1: offshoring some of their US production equipment such that they 498 00:29:59,160 --> 00:30:01,880 Speaker 1: are able to ship continued to ship goes to China 499 00:30:02,240 --> 00:30:05,840 Speaker 1: while complying with US regulations. And UM that speaks to 500 00:30:05,880 --> 00:30:09,160 Speaker 1: a broader point, which is that there are a lot 501 00:30:09,200 --> 00:30:12,240 Speaker 1: of lawyers in d C who are very, very clever 502 00:30:12,480 --> 00:30:15,240 Speaker 1: and also pretty well paid, who are able to help 503 00:30:15,320 --> 00:30:18,800 Speaker 1: these companies make sense of these compliance requirements and still 504 00:30:18,800 --> 00:30:21,680 Speaker 1: figure out some way to sell to China, which is 505 00:30:21,760 --> 00:30:25,240 Speaker 1: after all, the biggest market for so many semig natural companies, 506 00:30:25,360 --> 00:30:29,000 Speaker 1: whether we're talking about chips or chip making equipment. And 507 00:30:29,040 --> 00:30:31,960 Speaker 1: so I think the key point here is that this 508 00:30:32,040 --> 00:30:35,320 Speaker 1: is pretty likely to be damaging, but I want to 509 00:30:35,360 --> 00:30:37,480 Speaker 1: reserve a little bit of judgment, and you know, I 510 00:30:37,520 --> 00:30:39,880 Speaker 1: think We'll only really see the real impacts for a 511 00:30:39,880 --> 00:30:42,040 Speaker 1: few months from now, when everybody has had a chance 512 00:30:42,080 --> 00:30:45,120 Speaker 1: to digest these rules. So we have seen some early 513 00:30:45,240 --> 00:30:48,520 Speaker 1: reaction from China. I should say here that we are 514 00:30:48,600 --> 00:30:52,040 Speaker 1: recording this on October eleventh, and we've seen, you know, 515 00:30:52,080 --> 00:30:55,240 Speaker 1: some noises about how these are unfair measures and they 516 00:30:55,240 --> 00:30:58,600 Speaker 1: will hurt the Chinese economic recovery and things like that. 517 00:30:59,480 --> 00:31:03,640 Speaker 1: What kind of response would you expect from China? What 518 00:31:03,720 --> 00:31:06,720 Speaker 1: can they do here? And to a point that we've 519 00:31:06,760 --> 00:31:10,120 Speaker 1: actually discussed before many times on the podcast, it does 520 00:31:10,160 --> 00:31:12,720 Speaker 1: seem like every time there is some sort of technological 521 00:31:12,760 --> 00:31:16,960 Speaker 1: restriction imposed on China by the US, that the narrative 522 00:31:17,640 --> 00:31:21,000 Speaker 1: in China itself is that this will only make us stronger. 523 00:31:21,040 --> 00:31:22,880 Speaker 1: You know, it's sort of a short term challenge that 524 00:31:22,920 --> 00:31:26,200 Speaker 1: we need to overcome, but eventually it will help us 525 00:31:26,280 --> 00:31:31,640 Speaker 1: build up our own domestic technological independence and prowess. Is 526 00:31:31,680 --> 00:31:33,480 Speaker 1: that the same kind of messaging that we're going to 527 00:31:33,520 --> 00:31:37,800 Speaker 1: see here, I expect so, and um China has issued 528 00:31:37,840 --> 00:31:42,120 Speaker 1: a lot of angry words and angry editorials about all 529 00:31:42,120 --> 00:31:45,080 Speaker 1: of these things, but I think it is pretty standard 530 00:31:45,120 --> 00:31:49,280 Speaker 1: for China. It is just a ProForma response, and you know, 531 00:31:49,400 --> 00:31:52,560 Speaker 1: I think there will not be um, you know, very 532 00:31:52,600 --> 00:31:56,720 Speaker 1: obvious responses from Beijing on these regulations for you know, 533 00:31:56,840 --> 00:32:00,000 Speaker 1: to broad reasons. I mean, first, these rules were released 534 00:32:00,080 --> 00:32:02,800 Speaker 1: when the entire country was on a big holiday, and 535 00:32:02,840 --> 00:32:06,120 Speaker 1: I think Presidency Dping has bigger fish to fry rather 536 00:32:06,160 --> 00:32:08,520 Speaker 1: than thinking about semi conductors over the next week. But 537 00:32:08,560 --> 00:32:11,720 Speaker 1: I think Beijing is also aware that, you know, the 538 00:32:11,760 --> 00:32:14,960 Speaker 1: impacts of these regulations will take some months to really 539 00:32:15,040 --> 00:32:17,080 Speaker 1: bear out, and so it's going to see what the 540 00:32:17,120 --> 00:32:20,200 Speaker 1: impact is before it really decides to take its gloves off. 541 00:32:20,560 --> 00:32:23,360 Speaker 1: And what I want to emphasize is that Beijing has 542 00:32:23,400 --> 00:32:27,800 Speaker 1: maintained pretty impressive strategic forbearance against lashing out at US 543 00:32:27,840 --> 00:32:31,520 Speaker 1: companies over the actions of the US government. And I think, um, 544 00:32:31,560 --> 00:32:34,760 Speaker 1: you know, when during President Trump's trade war, many of 545 00:32:34,840 --> 00:32:37,760 Speaker 1: us were expecting that Beijing would finally blow its top 546 00:32:37,920 --> 00:32:42,480 Speaker 1: now and you know, start plunging the knife into American companies, 547 00:32:42,520 --> 00:32:46,920 Speaker 1: whether that is Apple or Intel or Qualcom or any 548 00:32:46,960 --> 00:32:50,280 Speaker 1: other big US company operating in China. And for the 549 00:32:50,320 --> 00:32:53,840 Speaker 1: most part, it has proven itself remarkably restrained, and I 550 00:32:53,840 --> 00:32:56,240 Speaker 1: think it has made the judgment that first of all, 551 00:32:56,320 --> 00:33:00,840 Speaker 1: it really wants more multinational investment into China, and anything 552 00:33:00,880 --> 00:33:04,120 Speaker 1: that hurts these companies would ultimately hurt the country much 553 00:33:04,160 --> 00:33:08,440 Speaker 1: more over the longer term. And second, Beijing has decided 554 00:33:08,480 --> 00:33:11,640 Speaker 1: to really embrace a lot of these companies and hug 555 00:33:11,720 --> 00:33:14,280 Speaker 1: them even closer. And that is a more subtle form 556 00:33:14,320 --> 00:33:18,400 Speaker 1: of retaliation because Beijing recognizes that when you have big 557 00:33:18,440 --> 00:33:22,880 Speaker 1: companies like Apple or Tesla investing more in Shanghai, then um, 558 00:33:22,920 --> 00:33:24,880 Speaker 1: they have a little bit more at stake, and then 559 00:33:24,920 --> 00:33:27,680 Speaker 1: they go back to d C and advocate for a 560 00:33:27,760 --> 00:33:33,360 Speaker 1: better relationship, better business relationship. So Beijing has recognized that businesses, 561 00:33:33,480 --> 00:33:37,520 Speaker 1: big banks, whether that is Black Rock or anyone else 562 00:33:37,720 --> 00:33:41,000 Speaker 1: seeing seeking to tap into China's wealth management. You know 563 00:33:41,160 --> 00:33:44,560 Speaker 1: that big businesses are China's China's last and best friends 564 00:33:44,560 --> 00:33:47,320 Speaker 1: in Washington, d C. And would much rather that these 565 00:33:47,320 --> 00:33:52,480 Speaker 1: businesses are advocating for greater engagement rather than the reverse. Now, 566 00:33:52,520 --> 00:33:54,880 Speaker 1: over the longer term, what I expect is for a 567 00:33:54,880 --> 00:33:58,040 Speaker 1: lot of these regulations too, as you say, Tracy, to 568 00:33:58,280 --> 00:34:02,920 Speaker 1: probably accelerate China's self sufficiency in a lot of different 569 00:34:02,920 --> 00:34:06,080 Speaker 1: technologies over the longer term. Now you can define what 570 00:34:06,320 --> 00:34:09,359 Speaker 1: success means here, and you can define what longer term 571 00:34:09,360 --> 00:34:12,560 Speaker 1: means here when in general I think it is pretty 572 00:34:12,560 --> 00:34:16,840 Speaker 1: difficult for any large country to monopolize key technologies over 573 00:34:16,880 --> 00:34:20,640 Speaker 1: the longer run. These products are technologies, They're not magic, 574 00:34:20,800 --> 00:34:23,200 Speaker 1: and the Chinese task is to reinvent a lot of 575 00:34:23,280 --> 00:34:26,440 Speaker 1: existing wheels. We know that a micron de ramchip can 576 00:34:26,520 --> 00:34:28,960 Speaker 1: exist because there it is. It does exist, and what 577 00:34:29,000 --> 00:34:30,800 Speaker 1: the Chinese have to do is just an order of 578 00:34:30,840 --> 00:34:34,319 Speaker 1: magnitude less difficult than trying to push forward the technological 579 00:34:34,400 --> 00:34:37,719 Speaker 1: frontier and dream up new inventions to novo. And if 580 00:34:37,760 --> 00:34:40,880 Speaker 1: progress and semiconductor slows down, which is a lot of 581 00:34:40,880 --> 00:34:43,440 Speaker 1: consensus now, it just takes far too much money to 582 00:34:43,560 --> 00:34:46,560 Speaker 1: continue building these big new fabs, then at some point 583 00:34:46,719 --> 00:34:48,520 Speaker 1: China will figure out a lot of these things. And 584 00:34:48,560 --> 00:34:52,080 Speaker 1: I expect that these US regulatory actions um will ultimately 585 00:34:52,120 --> 00:34:55,480 Speaker 1: constrain the US businesses and the US position and mostly 586 00:34:55,520 --> 00:34:59,239 Speaker 1: strengthen China's position, but only over the longer run. Just 587 00:34:59,400 --> 00:35:01,719 Speaker 1: one last question on the chips. I mean we were 588 00:35:01,760 --> 00:35:04,600 Speaker 1: talking a little bit about China's you know what it 589 00:35:04,600 --> 00:35:07,759 Speaker 1: means for China. Why now from the Biden administration and 590 00:35:07,800 --> 00:35:09,839 Speaker 1: what is your reading of like, you know, this is 591 00:35:09,920 --> 00:35:12,560 Speaker 1: they're really cranking up the dial. How much is it 592 00:35:12,600 --> 00:35:18,800 Speaker 1: about constraining China's own ambitions versus sort of this broader 593 00:35:18,840 --> 00:35:21,440 Speaker 1: effort and we saw it with the Chips Act to 594 00:35:21,520 --> 00:35:24,839 Speaker 1: bring you know, I guess, reshore and strength and give 595 00:35:24,880 --> 00:35:28,360 Speaker 1: a leg up to domestic players. That's a great question, 596 00:35:28,440 --> 00:35:32,480 Speaker 1: Joe and I Sometimes I find it actually pretty remarkable 597 00:35:32,680 --> 00:35:37,359 Speaker 1: that we've had a change in administration, but there has 598 00:35:37,440 --> 00:35:41,560 Speaker 1: not been very obviously any change I think, at least 599 00:35:41,560 --> 00:35:45,480 Speaker 1: with respect to technology controls as well as other regulatory 600 00:35:45,520 --> 00:35:49,280 Speaker 1: controls on China, for example, with tariffs. And I thought, 601 00:35:49,440 --> 00:35:52,720 Speaker 1: you know, none of us were really expecting that, you know, Biden, 602 00:35:52,760 --> 00:35:56,799 Speaker 1: which has completely reverse course from President Trump's here's and 603 00:35:57,000 --> 00:36:00,600 Speaker 1: you know, just start making China anything like a friendly power. Again, 604 00:36:00,680 --> 00:36:03,840 Speaker 1: I think that card was never on the table. But 605 00:36:04,320 --> 00:36:07,120 Speaker 1: I think it has been fairly remarkable that President Biden 606 00:36:07,239 --> 00:36:11,080 Speaker 1: has proven himself mostly immune to these business concerns that 607 00:36:11,280 --> 00:36:13,360 Speaker 1: you know, they need to sell more in China, engage 608 00:36:13,360 --> 00:36:15,400 Speaker 1: more with this market, fund future R and D, and 609 00:36:15,520 --> 00:36:18,880 Speaker 1: not incentivized the Chinese create their own technology. Now what 610 00:36:18,960 --> 00:36:21,879 Speaker 1: I would point to UM for why there are more 611 00:36:21,920 --> 00:36:25,160 Speaker 1: hawkish actions now, well, I think there are these two 612 00:36:25,200 --> 00:36:28,040 Speaker 1: big events this year that really prompted a lot of 613 00:36:28,040 --> 00:36:31,720 Speaker 1: the U. S. Government to adopt a much more hawkish stance. 614 00:36:31,800 --> 00:36:35,359 Speaker 1: The first was Ajing's tacit support of Russia in its 615 00:36:35,840 --> 00:36:39,040 Speaker 1: invasion of Ukraine, in which it really aligned itself with 616 00:36:39,080 --> 00:36:41,759 Speaker 1: while what the West considers to be just a very 617 00:36:41,760 --> 00:36:45,480 Speaker 1: aggressive and hostile act, and that is manifesting also in 618 00:36:45,520 --> 00:36:49,720 Speaker 1: Europe when people are, you know, especially unhappy with China's 619 00:36:49,760 --> 00:36:54,000 Speaker 1: tact support for the Ukraine invasion. And the other big 620 00:36:54,040 --> 00:36:59,680 Speaker 1: event was after Speaker Nancy Pelosi's visit to Taiwan in August, 621 00:37:00,239 --> 00:37:02,960 Speaker 1: a lot of people in Beijing were very upset, and 622 00:37:03,000 --> 00:37:07,120 Speaker 1: then they had these very substantial military naval exercises that 623 00:37:07,400 --> 00:37:10,760 Speaker 1: surrounded the island and that has in turn upset people 624 00:37:10,880 --> 00:37:13,600 Speaker 1: in Washington, D C. That they want to be quite 625 00:37:13,600 --> 00:37:16,960 Speaker 1: a lot more aggressive against China, and so um, you know, 626 00:37:17,040 --> 00:37:21,960 Speaker 1: Washington has already been pretty hostile and unfriendly towards China, 627 00:37:22,239 --> 00:37:25,400 Speaker 1: and then these two actions really sharpened their desire to 628 00:37:25,480 --> 00:37:29,080 Speaker 1: do more against China. And what I find very interesting 629 00:37:29,160 --> 00:37:31,840 Speaker 1: is that, you know, I spent a week in Washington, 630 00:37:31,920 --> 00:37:35,040 Speaker 1: d C. And I think what everyone acknowledges now is 631 00:37:35,040 --> 00:37:39,320 Speaker 1: that the US will continue to create highly novel regulatory measures. 632 00:37:39,520 --> 00:37:41,880 Speaker 1: And the really big one that I'm watching out for 633 00:37:42,520 --> 00:37:46,080 Speaker 1: is the creation of the outbound investment review mechanism. I've 634 00:37:46,120 --> 00:37:50,560 Speaker 1: just been a long threatened to review the investment of 635 00:37:50,880 --> 00:37:54,280 Speaker 1: US firms, whether that is a bank or an investment 636 00:37:54,320 --> 00:37:58,239 Speaker 1: fund or a corporate direct investment UM to set up 637 00:37:58,320 --> 00:38:02,400 Speaker 1: a US government body to be able to see what 638 00:38:02,760 --> 00:38:06,319 Speaker 1: US investors are putting money in in China and then 639 00:38:06,400 --> 00:38:10,640 Speaker 1: possibly have the power to block that transaction. This has 640 00:38:10,680 --> 00:38:13,239 Speaker 1: been um in the discussion for a pretty long time, 641 00:38:13,280 --> 00:38:16,760 Speaker 1: but it looks like the US government will probably create 642 00:38:16,800 --> 00:38:19,360 Speaker 1: from the White House and Executive order on this in 643 00:38:19,400 --> 00:38:22,359 Speaker 1: the next few months. Uh, and then also the US 644 00:38:22,440 --> 00:38:26,480 Speaker 1: Congress will possibly legislate something into a law as soon 645 00:38:26,520 --> 00:38:29,080 Speaker 1: as this year. I'm really to try to restrict either 646 00:38:29,200 --> 00:38:32,880 Speaker 1: the likes of Sequoia and Black Rock from investing in China, 647 00:38:33,000 --> 00:38:36,160 Speaker 1: and or restrict the likes of Apple and Intel from 648 00:38:36,200 --> 00:38:38,160 Speaker 1: investing in China, and that is just going to be 649 00:38:38,200 --> 00:38:42,120 Speaker 1: another big blow to US businesses and stop them from 650 00:38:42,120 --> 00:39:01,600 Speaker 1: deploying capital where they like. M Speaking of investment, you know, 651 00:39:01,840 --> 00:39:03,920 Speaker 1: the last time we had you on I think it 652 00:39:04,000 --> 00:39:09,080 Speaker 1: was in so last year to discuss the annual ten 653 00:39:09,160 --> 00:39:14,760 Speaker 1: episode to discuss the big crackdown on tech companies, and 654 00:39:15,080 --> 00:39:17,640 Speaker 1: at that time, we've seen a number of crackdowns, you know, 655 00:39:17,719 --> 00:39:21,880 Speaker 1: on online education firms, on video games, on the property 656 00:39:21,960 --> 00:39:24,080 Speaker 1: sector that was just starting to ramp up, and we're 657 00:39:24,160 --> 00:39:27,960 Speaker 1: kind of seeing the consequences of that this year. What 658 00:39:27,960 --> 00:39:31,600 Speaker 1: what were the broader lessons that we've learned from those 659 00:39:31,640 --> 00:39:35,800 Speaker 1: crackdowns or what have the sort of longer term impacts been. 660 00:39:35,920 --> 00:39:37,960 Speaker 1: And the reason I'm asking is because it looks like, 661 00:39:38,640 --> 00:39:40,439 Speaker 1: I mean, it looks like we haven't really stopped rolling 662 00:39:40,440 --> 00:39:42,440 Speaker 1: out the crackdowns. Because I see a story right now 663 00:39:42,480 --> 00:39:47,200 Speaker 1: about Chinese liquor shares dropping because of a local report 664 00:39:47,320 --> 00:39:51,520 Speaker 1: about a potential ban on civil servants drinking alcohol, both 665 00:39:51,640 --> 00:39:54,879 Speaker 1: edificial functions and at home. So it seems like these 666 00:39:54,880 --> 00:39:57,319 Speaker 1: are still on the table. So walk us through the 667 00:39:57,360 --> 00:40:01,560 Speaker 1: sort of longer term effect of these now that we're 668 00:40:01,719 --> 00:40:06,120 Speaker 1: a year on and presumably we've we've learned something. Well, Tracy, 669 00:40:06,160 --> 00:40:09,600 Speaker 1: I think it's great to bring up the booze because, um, 670 00:40:09,840 --> 00:40:12,839 Speaker 1: one of my favorite stories was from Bloomberg News um 671 00:40:12,880 --> 00:40:16,440 Speaker 1: a few weeks ago that highlighted that ten Cent is 672 00:40:16,520 --> 00:40:20,000 Speaker 1: no longer now smaller than that liquor company. And so 673 00:40:20,080 --> 00:40:22,240 Speaker 1: you know what is the response here. Instead of boosting 674 00:40:22,680 --> 00:40:25,840 Speaker 1: ten Cent, what they're doing is bashing more the liquor. 675 00:40:25,960 --> 00:40:28,320 Speaker 1: So that's you know, one other way that the government 676 00:40:28,360 --> 00:40:31,560 Speaker 1: is able to use its industrial policy to you know, 677 00:40:31,640 --> 00:40:35,000 Speaker 1: I guess support attack in in this way. Um. Well, 678 00:40:35,320 --> 00:40:38,960 Speaker 1: you know, the longer term of China's tech crackdown is 679 00:40:39,040 --> 00:40:42,040 Speaker 1: I think going to still take a long while to 680 00:40:41,800 --> 00:40:44,440 Speaker 1: to to really figure out. I think, um, one thing 681 00:40:44,480 --> 00:40:48,040 Speaker 1: that is certain is that China's internet platforms have not 682 00:40:48,239 --> 00:40:51,360 Speaker 1: had a good year. Um and UM, things are still 683 00:40:51,719 --> 00:40:54,760 Speaker 1: really really bad. Ten Cent in the Bloomberg story shed 684 00:40:54,880 --> 00:40:57,520 Speaker 1: something like I don't know about six hundred billion dollars 685 00:40:57,560 --> 00:41:03,040 Speaker 1: in value over the last year. It's absolutely enormous. And 686 00:41:03,080 --> 00:41:05,680 Speaker 1: you know, the mood at a lot of these tech 687 00:41:05,719 --> 00:41:09,400 Speaker 1: companies is pretty grim. A lot of Chinese tech workers 688 00:41:09,440 --> 00:41:13,120 Speaker 1: have been unhappy to be bashed by the Chinese government, 689 00:41:13,560 --> 00:41:17,359 Speaker 1: and the Chinese government has also really significantly restrained a 690 00:41:17,360 --> 00:41:19,759 Speaker 1: lot of their activities. And I think we are in 691 00:41:19,800 --> 00:41:23,120 Speaker 1: this new normal now in which it is pretty difficult 692 00:41:23,239 --> 00:41:26,560 Speaker 1: for a lot of China's internet platforms to reach as 693 00:41:26,640 --> 00:41:29,840 Speaker 1: much upside as they did. The the ability to reach 694 00:41:30,040 --> 00:41:33,759 Speaker 1: almost endless profits based on these digital technologies I think 695 00:41:33,880 --> 00:41:35,919 Speaker 1: is at its end, and so you know, I think 696 00:41:36,320 --> 00:41:39,080 Speaker 1: the mood of these companies is not really good, and 697 00:41:39,200 --> 00:41:41,840 Speaker 1: I suspect that even the Chinese government did not really 698 00:41:41,880 --> 00:41:44,640 Speaker 1: intend for this. They wanted to control for a lot 699 00:41:44,640 --> 00:41:47,799 Speaker 1: of these technocratic issues that these UM companies may not 700 00:41:47,880 --> 00:41:49,719 Speaker 1: have handled very well, and they may have tried to 701 00:41:49,760 --> 00:41:51,920 Speaker 1: rein them in politically, and they may have tried to 702 00:41:51,960 --> 00:41:55,680 Speaker 1: shift them over too, so that they're pursuing more strategic 703 00:41:55,719 --> 00:41:58,880 Speaker 1: technologies like aviation as well as semi conductors. But at 704 00:41:58,920 --> 00:42:01,120 Speaker 1: least in the short term, things haven't worked out very well. 705 00:42:01,320 --> 00:42:04,399 Speaker 1: I think that's mostly because the Chinese economy has been 706 00:42:04,719 --> 00:42:07,279 Speaker 1: um really really terrible for the last few months. But 707 00:42:07,560 --> 00:42:10,440 Speaker 1: you know, it's also the case that these tech workers 708 00:42:10,440 --> 00:42:13,480 Speaker 1: are feeling pretty dispirited, and so are the vcs. So Dan, 709 00:42:14,080 --> 00:42:16,040 Speaker 1: you know, as we've been discussing, we do have the 710 00:42:16,080 --> 00:42:20,680 Speaker 1: Party Congress coming up on October six, But beyond that, 711 00:42:21,280 --> 00:42:24,120 Speaker 1: what are you looking at as the sort of next 712 00:42:24,440 --> 00:42:28,239 Speaker 1: flash point when it comes to the Chinese economy or 713 00:42:28,560 --> 00:42:33,040 Speaker 1: the Chinese government. So the big thing right now is 714 00:42:33,080 --> 00:42:36,399 Speaker 1: to go through the Party Congress and we will see 715 00:42:36,520 --> 00:42:42,200 Speaker 1: what sort of personnel announcements are in place. Then I 716 00:42:42,239 --> 00:42:46,920 Speaker 1: think the tu big problems now with China is basically 717 00:42:46,920 --> 00:42:50,080 Speaker 1: at all boils down to first the property mass and 718 00:42:50,400 --> 00:42:54,160 Speaker 1: second zero COVID. And so the property mess is something 719 00:42:54,239 --> 00:42:58,319 Speaker 1: that is mostly a policy induced crisis that I think 720 00:42:58,480 --> 00:43:01,399 Speaker 1: is in Beijing's a bill to resolve. They have all 721 00:43:01,440 --> 00:43:04,640 Speaker 1: sorts of self imposed constraints um not to really boost 722 00:43:04,680 --> 00:43:08,879 Speaker 1: property in part because they're concerned about to morrow hazard issues, um, 723 00:43:08,920 --> 00:43:12,080 Speaker 1: in part because China is close to reaching a structural 724 00:43:12,120 --> 00:43:14,800 Speaker 1: peak in terms of how much it needs additional floor 725 00:43:14,840 --> 00:43:18,880 Speaker 1: space per person. So they've been somewhat reluctant to really, 726 00:43:19,200 --> 00:43:22,440 Speaker 1: um you know, boost confidence again in the property sector. 727 00:43:22,800 --> 00:43:25,279 Speaker 1: But that is something possible that we can watch for. 728 00:43:25,440 --> 00:43:28,799 Speaker 1: That's aging realizes that the economy is quite bad and 729 00:43:28,920 --> 00:43:31,320 Speaker 1: really has to solve this big issue. And then the 730 00:43:31,360 --> 00:43:33,920 Speaker 1: other thing to watch out for is a possibility of 731 00:43:34,000 --> 00:43:37,279 Speaker 1: the end of zero COVID. And I think I'm not 732 00:43:37,400 --> 00:43:41,080 Speaker 1: still not really expecting the country to just completely loosen 733 00:43:41,200 --> 00:43:43,920 Speaker 1: up by the middle of next year, and maybe by 734 00:43:43,960 --> 00:43:47,520 Speaker 1: the end of three there will be something approaching normality. 735 00:43:47,840 --> 00:43:49,839 Speaker 1: But what we do know is that there will be 736 00:43:50,200 --> 00:43:54,279 Speaker 1: very substantial warning in terms of how much the vaccine 737 00:43:54,280 --> 00:43:57,840 Speaker 1: and the therapeutics uptake is boosted, as well as to 738 00:43:57,880 --> 00:44:01,520 Speaker 1: what extent Fijing is coming out with assurances saying that 739 00:44:01,680 --> 00:44:04,240 Speaker 1: this is not a big deal, rather than people Staley 740 00:44:04,400 --> 00:44:08,400 Speaker 1: commentary saying that we must maintain Sarah Covid. All right, 741 00:44:08,520 --> 00:44:12,120 Speaker 1: Dan Wong, it was lovely having you on the show again. Yeah, 742 00:44:12,280 --> 00:44:14,680 Speaker 1: always great to catch up and fantastic to do it 743 00:44:14,719 --> 00:44:17,680 Speaker 1: in person for once. Thank you so much. Always a pleasure, 744 00:44:17,680 --> 00:44:19,359 Speaker 1: Thanks so much. I think we did it in person 745 00:44:19,480 --> 00:44:21,480 Speaker 1: one other times, but I believe you. Thanks so much, 746 00:44:35,800 --> 00:44:39,640 Speaker 1: so Joe. I love catching up with Dan. It's always 747 00:44:39,640 --> 00:44:42,640 Speaker 1: a fun conversation. Although I well, fun might not be 748 00:44:42,960 --> 00:44:45,239 Speaker 1: the right way to describe this one, because it does 749 00:44:45,320 --> 00:44:49,320 Speaker 1: feel like there is a set of challenges building within China, 750 00:44:49,440 --> 00:44:52,400 Speaker 1: particularly in the property sector, and we had that episode 751 00:44:52,400 --> 00:44:55,200 Speaker 1: recently where we sort of dove into some of the 752 00:44:55,280 --> 00:44:58,520 Speaker 1: very specific issues there. But it does feel like there 753 00:44:58,520 --> 00:45:02,880 Speaker 1: are no easy answer at this point, or no easy exits. No, 754 00:45:03,239 --> 00:45:07,239 Speaker 1: and there's so much property obviously, you know, as we 755 00:45:07,320 --> 00:45:10,880 Speaker 1: talked about in the beginning of the conversation, I guess 756 00:45:10,880 --> 00:45:14,359 Speaker 1: everyone is being affected in somewhere or another by the 757 00:45:14,400 --> 00:45:19,800 Speaker 1: ongoing war. China's sort of maybe dismay about how it's going, 758 00:45:19,960 --> 00:45:23,719 Speaker 1: the relationship with Russia, and you know the fact that 759 00:45:23,840 --> 00:45:26,640 Speaker 1: the bind administration has proved to be much more hawkish 760 00:45:26,640 --> 00:45:31,240 Speaker 1: than perhaps people expected, particularly on this tech transfer issue. 761 00:45:31,480 --> 00:45:35,319 Speaker 1: Just an endless series of challenges, not to mention COVID zero. 762 00:45:35,719 --> 00:45:38,160 Speaker 1: The other thing that I do find noteworthy is, you know, 763 00:45:38,760 --> 00:45:42,680 Speaker 1: there are benefits of a centrally planned economy, and we 764 00:45:42,719 --> 00:45:45,000 Speaker 1: saw some of those in the early days of COVID. 765 00:45:45,120 --> 00:45:48,600 Speaker 1: China was able to shut everything down relatively quickly and 766 00:45:48,640 --> 00:45:51,440 Speaker 1: contain the spread, and it was one of the possibly 767 00:45:51,480 --> 00:45:56,520 Speaker 1: the best performing economy in because of that. But there 768 00:45:56,560 --> 00:45:58,640 Speaker 1: are a lot of downsides as well, and it feels 769 00:45:58,640 --> 00:46:00,919 Speaker 1: like some of those are kind kind of coming home 770 00:46:00,960 --> 00:46:05,400 Speaker 1: to roost now. And there are unexpected consequences of you know, 771 00:46:05,520 --> 00:46:10,279 Speaker 1: trying to intervene in domestic industries. And I love the 772 00:46:10,360 --> 00:46:13,400 Speaker 1: example of, you know, crackdown on ten Cent and then 773 00:46:13,440 --> 00:46:16,759 Speaker 1: Mutai shares go up the liquor company, and then you 774 00:46:16,800 --> 00:46:18,520 Speaker 1: need to crack down on the liquor company, and then 775 00:46:18,560 --> 00:46:21,200 Speaker 1: it's like, well, what happens next, it feels almost like 776 00:46:21,840 --> 00:46:24,520 Speaker 1: I'm using too many metaphors. Here are lots of mixed metaphors, 777 00:46:24,560 --> 00:46:27,200 Speaker 1: but it feels a bit whack a mole at this point. Yeah, no, 778 00:46:27,840 --> 00:46:30,880 Speaker 1: it totally does. And again, you know this is helpful 779 00:46:31,000 --> 00:46:35,120 Speaker 1: also just an understanding the process that's about to unfold, 780 00:46:35,360 --> 00:46:38,920 Speaker 1: the People's Congress and having some sense of what to 781 00:46:39,000 --> 00:46:41,600 Speaker 1: watch and how that will turn into a set of 782 00:46:41,640 --> 00:46:45,480 Speaker 1: priorities for the country. So just extremely I thought it 783 00:46:45,520 --> 00:46:48,040 Speaker 1: was fun. I mean, there's the topics are serious, but 784 00:46:48,200 --> 00:46:51,399 Speaker 1: I do genuinely enjoy learning so much from a guest 785 00:46:51,480 --> 00:46:53,960 Speaker 1: like Dan. Yeah. Well, at the very least, we have 786 00:46:54,000 --> 00:46:57,400 Speaker 1: been primed to to watch those ultralong policy speeches, so 787 00:46:57,480 --> 00:46:59,399 Speaker 1: I get ready for that. All right, shall we leave 788 00:46:59,400 --> 00:47:01,600 Speaker 1: it that. Let's leave it there. This has been another 789 00:47:01,640 --> 00:47:04,680 Speaker 1: episode of the Odd Thoughts podcast. I'm Tracy Alloway. You 790 00:47:04,680 --> 00:47:07,279 Speaker 1: can follow me on Twitter at Tracy Alloway and I'm 791 00:47:07,360 --> 00:47:09,600 Speaker 1: Joe wi Isn't Though. You can follow me on Twitter 792 00:47:09,760 --> 00:47:13,080 Speaker 1: at the Stalwart. Follow our guest Dan Wong, He's at 793 00:47:13,200 --> 00:47:17,800 Speaker 1: Dan w Wong. Follow our producer Kerman Rodriguez at Carmen Arman, 794 00:47:18,280 --> 00:47:21,160 Speaker 1: and check out all of our podcasts at Bloomberg unto 795 00:47:21,200 --> 00:47:23,720 Speaker 1: the handle at Podcasts. Thanks for listening.