WEBVTT - Dan Wang On the Extraordinary Moment for China's Party Congress 0:00:10.160 --> 0:00:13.600 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:13.640 --> 0:00:17.239 I'm Tracy Alloway and I'm Joe. Wisn't Joe? There is 0:00:17.280 --> 0:00:21.319 a big event coming up, very very soon. It is 0:00:21.360 --> 0:00:24.959 the National Congress of the Chinese Communist Party, something that 0:00:25.079 --> 0:00:28.040 is held every five years, which means it is de 0:00:28.160 --> 0:00:31.240 facto already a big event, but it's even bigger this 0:00:31.320 --> 0:00:37.400 year because it is happening amidst Really, how do I 0:00:37.479 --> 0:00:41.400 describe this a set of challenges for both the Chinese 0:00:41.400 --> 0:00:45.000 government and the Chinese economy. Yeah, I mean, look, you 0:00:45.040 --> 0:00:47.600 say every five years, and so five years ago was 0:00:47.680 --> 0:00:50.840 during the Trump administration, and of course at the time, 0:00:50.840 --> 0:00:54.360 you know, trade tensions were obviously ratcheting up under Trump. 0:00:54.640 --> 0:00:59.080 But it feels like today in any of the sort 0:00:59.120 --> 0:01:02.600 of tensions and long term challenges facing the economy, the 0:01:02.680 --> 0:01:07.039 Chinese economy today, or the Chinese political system, everything seems 0:01:07.040 --> 0:01:11.360 like it's probably tenfold more intense and more ambiguous than 0:01:11.400 --> 0:01:13.800 where it was, say, five years ago. Right, So, there's 0:01:13.800 --> 0:01:17.120 a lot of speculation around exactly what She shin Ping 0:01:17.440 --> 0:01:22.560 has in store for this particular congress. There are questions 0:01:22.560 --> 0:01:25.840 over whether or not China might ratchet down some of 0:01:25.880 --> 0:01:28.480 its COVID zero policies, although I have to say we 0:01:28.520 --> 0:01:31.200 did just see an editorial from the People's Daily in 0:01:31.280 --> 0:01:34.640 defense of those policies, so that seems unlikely. But there 0:01:34.720 --> 0:01:37.640 is this broad question mark over what's going on with 0:01:37.680 --> 0:01:41.440 the Chinese economy and the government. Can it withstand all 0:01:41.520 --> 0:01:46.080 these pressures on real estate from the strong dollar politically 0:01:46.600 --> 0:01:49.920 and maintain some of the restrictions that it's had going 0:01:50.040 --> 0:01:53.760 for I mean, really, what two or three years now? Yeah, 0:01:53.840 --> 0:01:57.480 I mean there's so many things. You mentioned the real estate, 0:01:57.600 --> 0:02:01.320 you mentioned, the COVID zero questions, and the other big 0:02:01.400 --> 0:02:04.720 thing that is very new and it's something that we 0:02:05.360 --> 0:02:07.360 haven't talked about in a while but will be very 0:02:07.360 --> 0:02:10.120 familiar to odd lots of listeners, and that is the 0:02:10.160 --> 0:02:14.919 growing restrictions on technology transfer, particularly semi conductors. Some very 0:02:14.919 --> 0:02:19.560 aggressive moves from the Biden administration to restrict the export 0:02:19.639 --> 0:02:23.000 of certain technologies related to chips to China. That is 0:02:23.040 --> 0:02:25.720 a huge deal. Of course, we know that China has 0:02:25.760 --> 0:02:30.440 domestic ambitions, but we see semi conductor stocks they've been 0:02:30.440 --> 0:02:34.840 plunging lately. That's a huge story. Right. So China technology 0:02:34.919 --> 0:02:37.800 hasn't been a major issue since we had that big 0:02:37.840 --> 0:02:41.440 government crackdown, but it feels like the semiconductor angle is 0:02:41.520 --> 0:02:45.200 heating up again. So we are going to be combining 0:02:45.440 --> 0:02:48.160 all of this, all these headwinds, all these big questions, 0:02:48.200 --> 0:02:50.519 these big issues, and speaking to one of our all 0:02:50.600 --> 0:02:53.360 time favorite Odd Lots guests. We are going to be 0:02:53.400 --> 0:02:56.519 talking to Dan Wong. He is, of course, a technology 0:02:56.560 --> 0:03:01.120 analyst over at Gabaquelle Dragonomics, and he's left his farmhouse 0:03:01.160 --> 0:03:03.440 in unn to Uh to come into the New York 0:03:03.440 --> 0:03:06.639 studio and walk us through everything that's happening in China 0:03:06.760 --> 0:03:09.160 right now. Have we ever recorded an episode with no 0:03:09.280 --> 0:03:11.760 we have in studio? We go, what is this web? 0:03:11.840 --> 0:03:14.560 We haven't? We did? We did one in the upstairs studio. 0:03:15.160 --> 0:03:17.480 I think we did for TV. I've never been I've 0:03:17.520 --> 0:03:21.040 never recorded Odd Lots in person. Really well, I think 0:03:21.120 --> 0:03:23.720 Dan has taken the clear lead. Anyway, we should probably 0:03:23.760 --> 0:03:26.080 talk about what we're gonna talk about. Dan. Thanks for 0:03:26.120 --> 0:03:29.280 coming on. It's great to be here in person, Joe, 0:03:29.840 --> 0:03:33.040 and you're a lot skinnier in person than the Internet 0:03:33.120 --> 0:03:36.640 takes me to believe. I think that was an insult 0:03:37.680 --> 0:03:41.080 believe that Dan. I'm going to start with a very 0:03:41.120 --> 0:03:44.760 broad question, but how would you describe the state of 0:03:44.920 --> 0:03:49.840 China's political economy right now? There's no way around it, 0:03:50.440 --> 0:03:54.840 Tracy that it is pretty bad. Um. So right now 0:03:55.080 --> 0:04:00.080 China is presently going into the third year of the 0:04:00.240 --> 0:04:04.600 zero and uh, it's not very clear when or if 0:04:04.640 --> 0:04:09.480 they can re emerge pretty quickly from that. China's economy 0:04:09.800 --> 0:04:14.080 is in the worst shape in decades, caused partly by 0:04:14.280 --> 0:04:18.160 COVID zero, and I would say mostly by the property downturn. 0:04:18.600 --> 0:04:22.200 Property is a very very substantial part of the Chinese 0:04:22.279 --> 0:04:28.000 economy by some measures over of the marginal growth, and 0:04:28.080 --> 0:04:31.600 so it is really difficult for China's economy to do 0:04:31.680 --> 0:04:35.320 well as a whole when property sector isn't doing well. 0:04:35.920 --> 0:04:40.600 So the economy is being battered by COVID zero mostly 0:04:40.680 --> 0:04:44.840 on the consumption side. The property downturn is affecting general 0:04:44.880 --> 0:04:47.960 sentiment at large. Uh. And maybe the only thing that 0:04:48.040 --> 0:04:52.000 has been going fairly well has been China's production side um, 0:04:52.160 --> 0:04:55.880 mostly intended for exports, but even that is starting to soften. 0:04:56.200 --> 0:04:58.760 And think there isn't too much choice left in the 0:04:58.800 --> 0:05:03.119 squeeze for China's economy and exports to go really well 0:05:03.400 --> 0:05:05.560 when most of the rest of the world isn't going 0:05:05.600 --> 0:05:08.719 to be doing too well, especially if Europe and the 0:05:08.839 --> 0:05:13.159 US soften in terms of economic growth too. So I 0:05:13.200 --> 0:05:16.960 mean this sort of sets the stage for the National Congress, 0:05:16.960 --> 0:05:19.400 which I mentioned in the intro, that's set to begin 0:05:19.560 --> 0:05:24.039 on October six What is actually on the agenda? And 0:05:24.560 --> 0:05:27.800 I mean sort of like background methodology question, but how 0:05:27.800 --> 0:05:30.000 do you how do we know what's on the agenda? 0:05:30.320 --> 0:05:33.480 And how are these things sort of formulated by the party, 0:05:33.560 --> 0:05:38.000 how do they actually pick priorities. The most important event 0:05:38.279 --> 0:05:42.039 in China every five years is the Party Congress. On 0:05:42.160 --> 0:05:47.080 October sixteenth will have the twentie Party Congress. And it's 0:05:47.200 --> 0:05:51.680 a really great question about methodology, tracy, because in general, 0:05:52.080 --> 0:05:55.760 our rule of thumb should always be that the Communist 0:05:55.760 --> 0:05:59.360 Party is a total black box, and they are. They 0:05:59.400 --> 0:06:02.200 have a very good sense of omerta that makes it 0:06:02.279 --> 0:06:05.600 pretty difficult for outsiders really to know what's going on, 0:06:05.839 --> 0:06:09.480 and the insiders don't really talk to the outsiders, so 0:06:09.600 --> 0:06:12.919 it becomes a little bit challenging for us to you know, 0:06:13.000 --> 0:06:16.920 even interpret the results even when they come out. So 0:06:17.040 --> 0:06:20.240 what I'm watching out for are three big items on 0:06:20.520 --> 0:06:24.240 the agenda that will determine a lot of the future 0:06:24.279 --> 0:06:27.960 based on, you know, mostly what happens in terms of personnel. 0:06:28.320 --> 0:06:31.159 And I should say that the Party Congress is really 0:06:31.400 --> 0:06:34.680 an internal party meeting. It is not so much just 0:06:34.760 --> 0:06:38.239 lay out anything in terms of the specifics of policy choices. 0:06:38.680 --> 0:06:42.840 The Party Congress is mostly for a way for the 0:06:42.880 --> 0:06:46.359 party to celebrate itself, determine the personnel, and then figure 0:06:46.360 --> 0:06:49.440 out what's going on in the next five years. And 0:06:49.480 --> 0:06:52.240 so I think there are three big questions on the 0:06:52.279 --> 0:06:56.800 agenda for this Party Congress. In particular, the first will 0:06:56.839 --> 0:07:01.440 be whether Seeing King, the China top leader, will be 0:07:01.640 --> 0:07:05.479 China's top leader for the next five years. Now, consensus 0:07:05.680 --> 0:07:09.680 is that she will almost certainly have a third term, 0:07:09.760 --> 0:07:13.320 and I am totally with consensus. I think it is 0:07:13.880 --> 0:07:18.040 very very unlikely that she will be removed or somehow 0:07:18.080 --> 0:07:22.960 retired in some sort of party decision. The second big 0:07:23.080 --> 0:07:25.600 question that I think we should um, you know, pay 0:07:25.640 --> 0:07:30.400 attention to, it's just exactly the composition of the personnel selected, 0:07:30.560 --> 0:07:33.480 both in terms of the Pollock Bureau Standing Committee as 0:07:33.520 --> 0:07:36.680 well as the Pollock Bureau at large. And then we 0:07:36.720 --> 0:07:39.160 will have some idea of who is going to be 0:07:39.240 --> 0:07:42.120 the premier, and then some suggestions of who is going 0:07:42.160 --> 0:07:45.200 to be vice premier in charge of the economy, as 0:07:45.200 --> 0:07:48.280 well as a lot of other things. And so the 0:07:48.520 --> 0:07:51.240 third big question that I think we have to watch 0:07:51.240 --> 0:07:54.280 out for, and really maybe this is the most important question, 0:07:54.760 --> 0:07:58.800 is whether China's top leader, ce j Ping um annoints 0:07:58.880 --> 0:08:03.120 any successors to be the future leader of China. And 0:08:03.320 --> 0:08:04.960 right now I think this is one of the big 0:08:04.960 --> 0:08:08.560 debates that Um. You know, perhaps she will allow some 0:08:09.040 --> 0:08:11.440 younger personnel in so that he is not China's top 0:08:11.520 --> 0:08:15.160 leader for a while, or maybe he is just goes 0:08:15.200 --> 0:08:18.080 on ruling for a very long time. The last thing 0:08:18.080 --> 0:08:21.640 I'll stress about um the party congress is again, the 0:08:21.640 --> 0:08:24.600 Communist Party is a big black box. It is really 0:08:24.600 --> 0:08:27.560 difficult for us to interpret what goes on. And there 0:08:27.560 --> 0:08:30.480 are now some questions among China watchers, the people who 0:08:30.520 --> 0:08:33.680 follow the politics and read the tea leaves really closely. 0:08:34.040 --> 0:08:36.080 Some of them contend that well, it may not even 0:08:36.120 --> 0:08:39.000 matter who is premier, whether that is someone like one 0:08:39.120 --> 0:08:41.880 Young who is seen as a reformer, or someone like 0:08:41.960 --> 0:08:45.360 Hutran Hua who might not be so closely associated with s. 0:08:45.960 --> 0:08:49.360 The important thing here is that she has become all powerful. 0:08:49.440 --> 0:08:52.640 He has been able to steamroll all opposition, And it 0:08:52.800 --> 0:08:56.320 is possible that personnel doesn't matter so much because there 0:08:56.400 --> 0:08:58.640 is now one guy who controls everything and that's the 0:08:58.679 --> 0:09:17.600 most important thing. So just on the premier point, the 0:09:17.679 --> 0:09:21.640 existing premier is Lead Ka Ching, and he has said 0:09:21.640 --> 0:09:23.880 this is going to be his last term as premier 0:09:23.960 --> 0:09:26.360 and that's why we're talking about potentially choosing new ones. 0:09:26.720 --> 0:09:29.800 But he has this reputation for you know, there's the 0:09:29.880 --> 0:09:32.720 lead kitchen index, um of course, and he has the 0:09:32.760 --> 0:09:37.240 reputation of sort of opening up China to foreign investment 0:09:37.320 --> 0:09:42.520 and foreign capital. Does that go away as he exits? 0:09:43.880 --> 0:09:49.000 I don't think China will lose its openness towards foreign 0:09:49.040 --> 0:09:54.960 capital or its friendliness read large towards multinationals that are 0:09:54.960 --> 0:09:58.960 willing to invest in China with this personnel change. I 0:09:58.960 --> 0:10:02.200 think in general in China, where you sit is what 0:10:02.320 --> 0:10:05.839 you stand for, and there will be someone standing up 0:10:05.880 --> 0:10:09.840 for a lot of these economic interests. So Um, again, 0:10:09.880 --> 0:10:12.680 the party is a bit of a black box. It 0:10:12.720 --> 0:10:17.400 could be that lekas Young is shuffled into some other position, 0:10:17.640 --> 0:10:20.400 like the leader of the Legislature. That's one of the 0:10:20.400 --> 0:10:23.520 possibilities floating out there. In that case, he would still 0:10:23.559 --> 0:10:27.840 have some influence. China is a pretty discretionary system in 0:10:27.880 --> 0:10:32.120 which the levers of power are not exactly always very legalistic, 0:10:32.559 --> 0:10:34.400 and a lot of it comes down to have power 0:10:34.440 --> 0:10:36.960 and influence. So I suspect that there will be some 0:10:37.280 --> 0:10:42.040 substantial remnants of least influence, especially given that the economy 0:10:42.120 --> 0:10:44.440 is just such an important part of, you know, the 0:10:44.440 --> 0:10:48.680 Communist Party's message towards its own legitimacy. I want to 0:10:48.720 --> 0:10:51.800 get to the various things that will be discussing all 0:10:51.840 --> 0:10:53.920 of the issues facing China, but sort of one more 0:10:54.000 --> 0:10:58.720 housekeeping question on the Congress itself. Is it a is 0:10:58.760 --> 0:11:03.000 it a vote? What everyone comes together? How do they 0:11:03.040 --> 0:11:05.520 decide on things? What is the sort of process by 0:11:05.559 --> 0:11:09.240 which the meeting turns into policy or priority? So they 0:11:09.240 --> 0:11:13.600 make the longest speeches on earth, That's the only thing 0:11:13.640 --> 0:11:15.680 you need to know. I think part of it is 0:11:15.800 --> 0:11:20.640 whoever can withstand the super long speeches, especially by see 0:11:21.280 --> 0:11:25.040 they get to decide the vote. Um I've heard, don't 0:11:25.040 --> 0:11:29.720 they say like in a communist countries? That isn't that 0:11:29.760 --> 0:11:32.920 the sort of reputation that historically communist countries have had 0:11:33.360 --> 0:11:38.280 long speeches? So lack of democracy or lack of transparency 0:11:38.440 --> 0:11:41.320 is sort of counteracted by they say a lot of stuff. Yes, 0:11:41.400 --> 0:11:43.840 that's right. It's a very opaque way of getting around 0:11:43.840 --> 0:11:46.480 this transparency issue. You know, a lot of it comes 0:11:46.520 --> 0:11:52.240 down to basically the China's top party leadership getting together, 0:11:52.440 --> 0:11:55.760 whether that is people currently on the Central Committee, there 0:11:55.880 --> 0:11:59.520 is the party elders, the retired people, the previous premiers 0:11:59.520 --> 0:12:03.760 in general secretaries have some way of casting their vote 0:12:03.760 --> 0:12:06.960 and influencing their decisions, and there is a formal way. 0:12:06.960 --> 0:12:10.160 I think a very good explanation is by Lingley of 0:12:10.280 --> 0:12:13.320 the University of Vienna. So I think I'm encouraged readers 0:12:13.320 --> 0:12:15.760 to look at that piece to figure out what are 0:12:15.760 --> 0:12:19.240 the exact mechanics here. So I know Joe was kind 0:12:19.240 --> 0:12:22.840 of joking about transparency through speeches, but one of the 0:12:22.920 --> 0:12:25.920 things that we actually learned from you on an ad 0:12:25.920 --> 0:12:29.199 Blots episode, I mean, you emphasize this point that every 0:12:29.320 --> 0:12:34.360 China investor should be reading the speeches and the publications 0:12:34.400 --> 0:12:37.960 that the Chinese Communist Party actually puts out. And they 0:12:38.000 --> 0:12:41.200 do have this magazine called Seeking Truth that they put 0:12:41.200 --> 0:12:45.880 out regularly, and it does have interesting policy suggestions and 0:12:45.920 --> 0:12:48.960 ideas in it, and there was one that came out 0:12:49.040 --> 0:12:52.800 recently that had I think a previously unpublished speech by 0:12:52.880 --> 0:12:56.440 She where he was really talking about I guess building 0:12:56.559 --> 0:13:03.880 up China's external influence. How important is that idea as 0:13:04.000 --> 0:13:06.280 as we approached the Congress, Like, is this something that 0:13:06.360 --> 0:13:08.640 China is serious about? And how do you see it 0:13:08.679 --> 0:13:13.880 going about actually building up that external influence? Sure? Well, Tracy, 0:13:13.960 --> 0:13:16.680 just to put a little bit of nuance on my point, 0:13:17.080 --> 0:13:20.439 I think that investors should be aware of what are 0:13:20.480 --> 0:13:25.439 the major pronouncements of the Communist Party, especially speeches by She, 0:13:26.200 --> 0:13:28.200 But I think it would be a little bit much 0:13:28.240 --> 0:13:30.720 to try to read all of them. Now, I did 0:13:30.800 --> 0:13:35.120 read every issue of Tillshare, the magazine that translates into 0:13:35.200 --> 0:13:39.280 Seeking Truth, and I'm afraid it broke me and it 0:13:39.600 --> 0:13:44.280 was just far too much communist fbh um to process. 0:13:44.320 --> 0:13:46.080 But I think it would be a good rule of 0:13:46.080 --> 0:13:48.160 thumb to, you know, try to have some sense of 0:13:48.160 --> 0:13:50.840 what's going on in this magazine and how the party 0:13:51.040 --> 0:13:54.680 is communicating to its insiders and the pert echelons of 0:13:54.840 --> 0:14:00.400 the leadership. Now, presidency has talked about making China have 0:14:00.480 --> 0:14:04.679 greater influence abroad, and that is a recurring message from him. 0:14:05.040 --> 0:14:09.720 I believe it was sometime last year that presidency said that, um, 0:14:09.800 --> 0:14:12.840 what China should do is to make the country's image 0:14:12.920 --> 0:14:16.400 more credible and more lovable. And what has he done 0:14:16.440 --> 0:14:20.720 subsequently really to make China's image much more lovable. Well, 0:14:20.760 --> 0:14:24.400 there hasn't been a very substantial shift in policies in 0:14:24.440 --> 0:14:28.840 any direction. So on the credibility side, you know, it's taken, um, 0:14:28.880 --> 0:14:31.640 you know, kind of a battering, given how much the 0:14:31.680 --> 0:14:35.160 economy has suffered this year. And has China become a 0:14:35.160 --> 0:14:38.040 lot more lovable recently, Well, it's a little hard to 0:14:38.080 --> 0:14:41.400 see what the standards are, but we haven't seen China 0:14:41.520 --> 0:14:45.640 create a lot of let's say, anime skits on the 0:14:45.760 --> 0:14:49.200 Japanese style or you know, really anything that um, you know, 0:14:49.320 --> 0:14:53.120 makes China very broadly appealing. There isn't that much culture 0:14:53.240 --> 0:14:56.400 that the rest of the world has really gotten. So um, 0:14:56.440 --> 0:14:59.480 I think I chalk it up to presidency saying something 0:14:59.520 --> 0:15:02.400 important because he is always talking about these sort of things. 0:15:02.760 --> 0:15:06.160 But on any level, China's image has gotten worse over 0:15:06.200 --> 0:15:09.320 the last five years, over the last ten years since 0:15:09.400 --> 0:15:12.880 the start of his term, especially given China's various alleged 0:15:12.960 --> 0:15:17.760 human rights abuses in Hong Kong. In Sin Yang in Tabat, 0:15:18.080 --> 0:15:21.240 as well as the alignment with Russia earlier this year 0:15:21.480 --> 0:15:25.400 when Presidency declared a no limits friendship with President Putin. 0:15:25.840 --> 0:15:29.040 So by any measure, I wouldn't say that it has been, um, 0:15:29.080 --> 0:15:32.120 you know, a very big priority for the Communist Party 0:15:32.200 --> 0:15:35.360 really to win hearts and minds abroad. Since you mentioned 0:15:35.600 --> 0:15:40.040 the alignment with Putin, where how would you summarize China's 0:15:40.080 --> 0:15:44.600 stands on the war today and the in particular, both 0:15:44.720 --> 0:15:46.920 the war itself and then the sort of trajectory of 0:15:46.960 --> 0:15:50.400 the relationship with Russia. I think it can be best 0:15:50.600 --> 0:15:55.920 described as tacit support for Russia's invasion of Ukraine. The 0:15:56.000 --> 0:15:59.000 Communist Party would never come out and say, yes, we 0:15:59.120 --> 0:16:04.160 support this special military operation, this pretty aggressive invasion in 0:16:04.320 --> 0:16:09.160 any explicit terms, um. But the diplomatically and rhetorically, I 0:16:09.200 --> 0:16:13.560 think it is fairly clear that Beijing is aligned with Moscow. Now, 0:16:13.600 --> 0:16:17.280 what hasn't very obviously happened is that China has not, 0:16:17.920 --> 0:16:21.480 um in any big way try to help Russia work 0:16:21.480 --> 0:16:24.880 around these extraordinary U S sanctions that block a lot 0:16:24.960 --> 0:16:29.600 of technologies to Russia. Has not very broadly provided much 0:16:29.680 --> 0:16:33.400 financial support, to say nothing of military support, and there 0:16:33.440 --> 0:16:37.280 are some signs that Beijing is not terribly pleased that 0:16:37.360 --> 0:16:40.720 it has shackled itself to Russia, which is not doing 0:16:40.800 --> 0:16:43.160 very well in the war. And so there are some 0:16:43.400 --> 0:16:47.280 rhetorical support, there is some public sentiments support rallied by 0:16:47.320 --> 0:16:49.760 the Party and support of Russia, but there has not 0:16:49.840 --> 0:16:54.400 been any substantial material and financial support. And so that's 0:16:54.400 --> 0:16:56.040 why I think, you know, it is kind of a 0:16:56.120 --> 0:17:00.600 diplomatic gesture and not anything broader. So why don't we 0:17:00.640 --> 0:17:03.680 talk a little bit more about what's going on domestically, 0:17:03.800 --> 0:17:06.639 because you know, of course there are plenty of foreign 0:17:06.720 --> 0:17:09.600 issues to keep us busy, but there's a lot going 0:17:09.680 --> 0:17:13.760 on within China itself. And you already mentioned dan COVID zero. 0:17:14.320 --> 0:17:17.280 This has been going on for three years now. I 0:17:17.280 --> 0:17:19.760 guess the question that a lot of people would ask 0:17:19.800 --> 0:17:23.160 at this point is what exactly does Shi shin Ping 0:17:23.280 --> 0:17:26.640 and the Chinese authorities, what do they get out of 0:17:26.680 --> 0:17:32.120 the COVID zero policy three years on? That's uh an 0:17:32.160 --> 0:17:35.560 extremely important question. So the first thing I should say 0:17:35.600 --> 0:17:39.240 is that COVID zero has proved exhausting to a lot 0:17:39.320 --> 0:17:42.320 of folks in China. There are um a lot of 0:17:42.400 --> 0:17:46.800 public expressions of discontent for COVID zero. That to say 0:17:46.800 --> 0:17:50.400 nothing of going abroad that makes it difficult to leave 0:17:50.720 --> 0:17:54.920 one's own hometown or um to travel to business centers 0:17:55.000 --> 0:17:57.760 like Beijing, Shanghai or shin Jin. A lot of people 0:17:57.880 --> 0:18:01.439 are really sick of having to have no notice and 0:18:01.480 --> 0:18:05.320 be locked in their apartment compounds for a few days 0:18:05.359 --> 0:18:08.320 at a time, perhaps weeks at a time. And many 0:18:08.320 --> 0:18:11.480 people are sick of going on the train somehow being 0:18:11.480 --> 0:18:14.680 declared a close contact with others and then having to 0:18:14.760 --> 0:18:20.000 quarantine en route to whatever one's destination is. So it 0:18:20.160 --> 0:18:23.560 is pretty important to understand why China is still so 0:18:23.640 --> 0:18:27.040 committed to zero COVID. And I think if I had 0:18:27.080 --> 0:18:29.800 to try to read the mind of the polit bureau here, 0:18:30.280 --> 0:18:35.119 I would say something like this, that the Chinese government 0:18:35.240 --> 0:18:39.480 keeps saying that it's most important job is to protect lives. 0:18:39.840 --> 0:18:42.800 And I want to, you know, take that statement at 0:18:42.880 --> 0:18:45.960 face value, and if I can, you know, try to 0:18:46.000 --> 0:18:48.919 imagine what it would be like for COVID zero to 0:18:49.200 --> 0:18:51.960 run loose in China. I think that would be a 0:18:52.080 --> 0:18:55.320 very big catastrophe. Indeed, So if we take a look 0:18:55.359 --> 0:18:58.240 at you know, the US, and let's say we have um, 0:18:58.280 --> 0:19:00.680 you know, except the number of a million people dead 0:19:00.720 --> 0:19:03.679 from COVID. Use that as the benchmark. You know, I 0:19:03.680 --> 0:19:06.159 wonder how many deaths there would be in China if 0:19:06.200 --> 0:19:08.720 somehow there was you know, let let let loose. And 0:19:08.760 --> 0:19:11.240 I want to say, you know, it's perfectly plausible to 0:19:11.320 --> 0:19:13.920 me that this could be north of ten million deaths. 0:19:14.040 --> 0:19:17.439 And here the very rough, simple calculation here is that 0:19:18.040 --> 0:19:20.879 China has four times the number of the population of 0:19:20.920 --> 0:19:23.040 the US, and then let's say one quarter in the 0:19:23.080 --> 0:19:25.880 medical capacity of the U S you get to sixteen 0:19:26.000 --> 0:19:29.280 times the level of possible fatalities. But then you reduce 0:19:29.359 --> 0:19:31.760 that a bit because you know, um Asia can be 0:19:31.880 --> 0:19:35.120 in China in particular, can be pretty different of how 0:19:35.280 --> 0:19:37.679 the the US manage things. And so you know, if 0:19:37.680 --> 0:19:41.000 you're thinking about a rough benchmark of a possible ten 0:19:41.040 --> 0:19:45.000 million debts, this becomes a really unacceptable to the Party. 0:19:45.080 --> 0:19:48.120 And I think no party official, season Ping, least of all, 0:19:48.400 --> 0:19:50.879 will ever put his hand up and say that, you know, 0:19:51.040 --> 0:19:53.640 we are willing to accept this as the price of 0:19:53.760 --> 0:19:56.320 you know, letting people run free. And I think the 0:19:56.359 --> 0:20:00.199 Party has judged that COVID has not been only a 0:20:00.240 --> 0:20:03.520 public health crisis in the world, and especially in the 0:20:03.600 --> 0:20:07.280 U S. That's not only triggered in economic crisis and 0:20:07.440 --> 0:20:10.760 um financial problems as well, it has also been a 0:20:10.800 --> 0:20:15.560 political disaster for the US, in which very polarized country 0:20:15.960 --> 0:20:18.920 is somehow even more at each other's throats, I think 0:20:19.000 --> 0:20:22.760 is what the Chinese would think, in which the Republicans 0:20:22.800 --> 0:20:26.120 and the Democrats are even more disdainful of each other. 0:20:26.440 --> 0:20:30.119 And that is um just maybe something that the Communist 0:20:30.119 --> 0:20:33.479 Party is able to appreciate, especially that um you know, 0:20:33.560 --> 0:20:37.200 maybe makes sense less sense to us today. As you mentioned, 0:20:37.280 --> 0:20:39.960 there's obviously a lot of frustration among people who have 0:20:40.040 --> 0:20:43.000 to deal with these restrictions and the unpredictability of them. 0:20:43.160 --> 0:20:46.520 But I assume, I mean, there's also an economic cost, 0:20:46.720 --> 0:20:51.399 and presumably they can't go on literally forever. So what 0:20:51.680 --> 0:20:54.920 is the cost the longer, the longer the COVID your 0:20:55.040 --> 0:20:57.880 policies are maintained, and then what does the ultimate way 0:20:57.920 --> 0:21:01.480 out is there? Is it a accepting of a m 0:21:01.600 --> 0:21:04.639 R and a vaccine from a foreign drug manufacturer? Like 0:21:04.680 --> 0:21:08.080 what is what is a possible path out ultimately, Well, 0:21:08.400 --> 0:21:13.880 the cost is has not really been apparent until two 0:21:14.359 --> 0:21:18.159 I would say that China was pretty okay with the 0:21:18.200 --> 0:21:21.760 cost of COVID in when it UM was able to 0:21:21.800 --> 0:21:25.600 produce and nobody else was in manufacturing all sorts of goods, 0:21:25.640 --> 0:21:28.000 and so actually regained a lot of the share of 0:21:28.119 --> 0:21:33.239 the global economies manufactured exports. And in one Beijing had 0:21:33.280 --> 0:21:37.120 felt so confident in itself that it had the confidence 0:21:37.160 --> 0:21:39.960 to smash a lot of its most profitable companies as 0:21:40.000 --> 0:21:44.479 well as trying to tackle systematic risks and property and 0:21:44.520 --> 0:21:48.399 really the cost came home this year when O Macron 0:21:48.520 --> 0:21:51.720 proved devastating to a lot of Chinese cities, and that 0:21:51.800 --> 0:21:54.760 it is an ongoing UM rise in cases UM as 0:21:54.800 --> 0:21:57.640 we speak right now, Joe, Right now, the Chinese economy 0:21:57.680 --> 0:22:01.040 is not doing well, mostly because of the pretty UM sector, 0:22:01.119 --> 0:22:05.720 but also zero COVID isn't helping. It is really crushing consumption, 0:22:05.840 --> 0:22:08.439 and then also the UM it is contributing to a 0:22:08.480 --> 0:22:12.440 general exhaustion among people that they are locked down very 0:22:12.520 --> 0:22:16.120 very often. Now, what is the way out? Well, I 0:22:16.119 --> 0:22:19.800 think that it would be a fairly long time. We 0:22:19.800 --> 0:22:22.000 would have a lot of warning before we can see 0:22:22.040 --> 0:22:25.080 that China is on its way out. And I am 0:22:25.119 --> 0:22:28.760 not predicting that there will be very substantial loosening after 0:22:28.800 --> 0:22:31.080 the Party Congress I think that would be a fantasy 0:22:31.119 --> 0:22:33.359 to think that somehow, a week from now China just 0:22:33.480 --> 0:22:37.119 acides it won't do anymore lockdowns. I think it is 0:22:37.160 --> 0:22:39.120 a little bit more plausible that there will be more 0:22:39.200 --> 0:22:43.080 movement in March after the National People's Congress, which turns 0:22:43.280 --> 0:22:46.800 party decisions into law, and there might be a little 0:22:46.840 --> 0:22:49.680 bit more movement. And I think the really two things 0:22:49.720 --> 0:22:52.399 to look for are things we would have a lot 0:22:52.480 --> 0:22:56.120 of warning. And first, the party has to feel very confident. 0:22:56.880 --> 0:23:00.520 And it's um therapeutics as well, it's its vaccines. Now, 0:23:00.560 --> 0:23:03.680 I'm not sure that Beijing will allow the imports of 0:23:03.720 --> 0:23:06.040 a lot of m R and a vaccines um, but 0:23:06.080 --> 0:23:08.520 I think it is possible that they help that big 0:23:08.560 --> 0:23:11.560 are the inhaled vaccines, which are much much easier to 0:23:11.560 --> 0:23:15.480 administer and possibly more effective in blocking transmission, as well 0:23:15.520 --> 0:23:18.760 as the severity of the disease um. And then that 0:23:18.960 --> 0:23:20.920 is something we would be able to see months ahead 0:23:20.960 --> 0:23:23.240 of time, because there would be a very very big drive. 0:23:23.480 --> 0:23:27.640 Even if they are able to vaccinate one to three 0:23:27.680 --> 0:23:30.800 percentage points of the population, you know, it will take 0:23:30.920 --> 0:23:33.320 you know, at least a month or two or three 0:23:33.440 --> 0:23:37.080 before many people are able to get shots in arms 0:23:37.200 --> 0:23:40.720 or shots in um noses inhaled and then I think 0:23:40.720 --> 0:23:43.520 they are also waiting a little bit for the therapeutics 0:23:43.520 --> 0:23:46.120 to be better so that they don't have something like 0:23:46.440 --> 0:23:49.280 two million people debt. And maybe, you know, the last 0:23:49.280 --> 0:23:51.280 thing to watch out for is that, you know, we 0:23:51.320 --> 0:23:54.960 have to consider that Beijing has spent nearly three years 0:23:54.960 --> 0:23:58.720 now terrifying people about this virus that a lot of 0:23:58.720 --> 0:24:01.200 people in China are very very scared about to mask. 0:24:01.240 --> 0:24:04.040 Compliance in China is still very high, and people are 0:24:04.359 --> 0:24:07.159 reluctant to you know, get the virus and you know, 0:24:07.280 --> 0:24:09.720 run free. And so I think what we'll see is 0:24:10.119 --> 0:24:13.679 months and months of propaganda and messaging saying it's no 0:24:13.720 --> 0:24:16.880