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Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you.

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Speaker 1: Along with my co host Lisa Brahma Wicks. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor, find a Bloomberg Penl podcast on Apple

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Speaker 1: Podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. For the first time since nineteen

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Speaker 1: when the Air Force was created out of what was

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Speaker 1: then the Army Air Corps, which my father was in

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Speaker 1: at the time, the US has created a new military branch,

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Speaker 1: the Space Force. At first I thought it was a

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Speaker 1: really odd idea, but after reading a particular column from

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Speaker 1: UH Admiral James Stravitis, who was a columnist for Bloomberg Opinion,

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Speaker 1: I kind of changed my tune here a little bit. So, Admiral,

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Speaker 1: thanks so much for UH joining us. Really to appreciate it.

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Speaker 1: You're a Bloomberg Opinion UH commissary, also a US Navy

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Speaker 1: admiral and former military commander of NATO. Talk to US

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Speaker 1: Admiral if you will about this Space Force, because I

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Speaker 1: think a lot of people don't really understand Dan what

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Speaker 1: it is and what it's supposed to do. I Ken, Paul,

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Speaker 1: and happy holidays. Let's start with, Uh, what most people

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Speaker 1: have in their mind are the voyages of the starship Enterprise.

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Speaker 1: And how soon are we can be in manned space

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Speaker 1: flight and have massive warships going into space? Listen, that's

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Speaker 1: a hundred and fifty to two hundred years away, I

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Speaker 1: would estimate. But what do we do now? We operate

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Speaker 1: a complex, highly complex and very large constellation of satellites

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Speaker 1: as well as a rising number of very small, manned

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Speaker 1: operations of space station. All of those have military aspects

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Speaker 1: to it. So the idea here, much as you just

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Speaker 1: alluded to, Paul about the foundation of the US Air

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Speaker 1: Force back in the forties, we wanted a group of

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Speaker 1: people who would focus specifically on aviation and the operations

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Speaker 1: of military activities in the air. Now we realize we

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Speaker 1: need that same thing in space. So that's the idea here.

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Speaker 1: I think it makes sense. Going to be small. It'll

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Speaker 1: start with a few thousand people. I don't think it

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Speaker 1: will ever get bigger than fifteen to twenty thousand folks,

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Speaker 1: which is of course a drop in the bucket in

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Speaker 1: the big one point two million people that are in

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Speaker 1: the Department of Defense. It's a good idea whose time

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Speaker 1: has come. Add well, as someone who grew up a

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Speaker 1: kind of a space kid, my dad worked on a

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Speaker 1: lot of the early space programs. I think when I

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Speaker 1: first heard about, you know, a sixth branch of the

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Speaker 1: Armed Forces, I'm thinking, like what to like, you know,

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Speaker 1: have folks on the moon or appen space. But but

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Speaker 1: when you think about what our world has become in

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Speaker 1: terms of data and information moving around the world, if

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Speaker 1: you knocked out a nation's satellite system, you could really

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Speaker 1: cripple them in a big way. And that's really what

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Speaker 1: it's about, whether it's on a military angle or you know,

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Speaker 1: pick your angle right, because there's so much floating out

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Speaker 1: there in space that is exactly right. And so what

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Speaker 1: the Space Force, these few thousand people that start off

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Speaker 1: are going to be doing is operating ground stations that

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Speaker 1: control those satellites. Are going to move the satellites around.

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Speaker 1: They're going to make sure our satellites are not attacked

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Speaker 1: by anti satellite weapons from Russia and China, both of whom,

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Speaker 1: by the way, already have space forces. They will build

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Speaker 1: and launch new satellites. So think of it as a

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Speaker 1: way to operationalize what is already happening in space, but

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Speaker 1: assign a very specific group of young men and women

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Speaker 1: to it. And I'll tell you the response within the

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Speaker 1: military has been fantastic. People really want to join the

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Speaker 1: space force and be part of it. And ultimately, to

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Speaker 1: pick up your point, there will also be a heavy

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Speaker 1: cyber and cyber security component in this, so I could

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Speaker 1: see this evolving into a space and cyber force over time. Admiral,

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Speaker 1: can you give us just kind of a sense of

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Speaker 1: the competitive landscape of space? Where is the US relative

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Speaker 1: to other countries? I guess we're talking about China and Russia,

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Speaker 1: but this gives a sense of how you think the

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Speaker 1: theater of space is playing out. UM at the moment

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Speaker 1: of the United States still enjoys I would say, a

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Speaker 1: lead overall in our ability to construct, launch, and operate

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Speaker 1: UM massive satellites in space that are capable of high

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Speaker 1: end communication. The drive the Global Positioning System GPS, and

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Speaker 1: also monitors and provides intelligence functions, collecting everything from communications

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Speaker 1: to taking photographs of the Earth to looking at infrared signatures.

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Speaker 1: For example, if North Korea launches this Christmas surprise and

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Speaker 1: decides to launch a long range ballistic missile. The first

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Speaker 1: indication will be our constellation of satellites seeing a heat

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Speaker 1: signature when that launch goes off on the North Korean peninsula.

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Speaker 1: So we are the leader. I'd say number two is

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Speaker 1: probably Russia, although number three is China, and they are

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Speaker 1: gaining fast as you would think. Um. All of this

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Speaker 1: sort of parallels the standings, if you will, in cyber

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Speaker 1: and cyber security, where the US has a lead. Uh,

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Speaker 1: Russia's quite good. China coming up behind. Next tier down

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Speaker 1: are the European nations. France operates capable satellites, Japan does, UM,

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Speaker 1: the Australians have a small capability, but it's really the

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Speaker 1: big three in space at the moment um. You know,

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Speaker 1: It's interesting and I'm curious when I think about, I

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Speaker 1: don't know fiscal policy, what would it cost to put

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Speaker 1: this into place, because you say it doesn't need to

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Speaker 1: be a huge um force, at least not initially. Indeed, UM,

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Speaker 1: I think it will be tens of billions of dollars,

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Speaker 1: which sounds like a lot, but hold on, the US

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Speaker 1: defense budget overall is seven hundred billion dollars, and I

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Speaker 1: think that the estimates for this space force will be

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Speaker 1: in the initially ten twenty thirty billion, it might at

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Speaker 1: some point get up to be eight to ten of

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Speaker 1: the overall defense budget. And I want to make a

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Speaker 1: very important point here, UM, None of that money and

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Speaker 1: none of the people involved here are new additions. This

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Speaker 1: is simply repurposing, at least at the moment, repurposing principally

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Speaker 1: air force, but also some army, some navy will go

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Speaker 1: out of their current service and go into this space force.

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Speaker 1: And the funding is already locked in place, UM. And

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Speaker 1: it is in the range as I mentioned, of tens

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Speaker 1: of billions of dollars to think of it as a

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Speaker 1: six percent of the defense budget. Now perhaps trekking upward,

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Speaker 1: which would make sense. And we'll just want to switch

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Speaker 1: gears real quickly. In the last question here China Navy.

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Speaker 1: We understand the China recently launched its first I guess

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Speaker 1: home built aircraft carrier. To tell us what you know

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Speaker 1: about that carrying what you believe the future of naval

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Speaker 1: UH forces for China will be indeed very significant. UM.

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Speaker 1: China has previously purchased UM older used platforms from Russia

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Speaker 1: and re engineered them into their carriers. This is the

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Speaker 1: first their third aircraft carrier coming off the ways. It's

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Speaker 1: about two thirds of the size of our US hundred

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Speaker 1: thousand ton Forward class carrier, so it'll be immediately one

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Speaker 1: of the largest in the world. Um, and they already

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Speaker 1: have here's the important point, three more carriers under construction,

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Speaker 1: the sixth of which is going to be nuclear powered.

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Speaker 1: The previous ones are conventional powered. So clearly China is

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Speaker 1: stepping up its maritime operations. They want to interact globally

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Speaker 1: and not just operate locally in the South China Sea. Well,

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Speaker 1: I have to say this is a fascinating column and

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Speaker 1: so great to check in with you. Admiral James Stavida

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Speaker 1: is he is calumnist at Bloomberg Opinion of course, um,

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Speaker 1: former military commander of Nada, retired U S. Navy Admiral,

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Speaker 1: And I do want to point out he's got a

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Speaker 1: new book that came out this year, Sailing True North

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Speaker 1: ten Admirals and the Voyage of Characters. So something Christmas

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Speaker 1: right for the holiday shopping list, right for those gifts

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Speaker 1: you still need. Definitely check it out. You want to

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Speaker 1: get into one of the most red stories on the

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Speaker 1: Bloomberg today. It's about China's bite Um Bye Dance. I

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Speaker 1: believe it is weighing a sale of its addictive video

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Speaker 1: app TikTok. We've got that story. We're watching. We're also

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Speaker 1: watching Uber's co founder Travis Kalanak to parting from the

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Speaker 1: company's board at the end of the year. There's a

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Speaker 1: lot going on when it comes to the world of text.

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Speaker 1: So let's get around up with Shara of a day.

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Speaker 1: She's Bloomberg Opinion technology columnists. She joins Paul and Me

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Speaker 1: and our Bloomberg Interactive Broker studio. So much for a

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Speaker 1: quiet day, huh, never a bloing dance technology. So talk

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Speaker 1: to us about Bye Dance. First of all, I feel

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Speaker 1: like there is folks out there who might not be

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Speaker 1: familiar with what Bye dances. But it's pretty big in China.

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Speaker 1: It is very big in China. It owns two at

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Speaker 1: least two popular apps in China. There's kind of a

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Speaker 1: news feed kind of app called Totio and then what

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Speaker 1: is called in the rest of the world, uh TikTok

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Speaker 1: goes by a different name in China, but TikTok is

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Speaker 1: basically a short video app that lets people set sort

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Speaker 1: of skits or dance routines to music, and it has

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Speaker 1: gotten very popular quite quickly in the US and in

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Speaker 1: India and some other places outside of China. So the

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Speaker 1: issue is the US federal government has some concerns about TikTok,

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Speaker 1: and that's that's making Bye Dance maybe rethink. Maybe it's ownership. Yes,

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Speaker 1: so there have been some concerns I would say on

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Speaker 1: both sides of the political aisle in Congress about TikTok,

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Speaker 1: and the concerns are basically they stem from the ownership

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Speaker 1: of TikTok by a Chinese internet company. So the worries

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Speaker 1: are twofold. One is that TikTok, again because it's owned

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Speaker 1: by a Chinese company, is collecting data about users in

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Speaker 1: the United States that can be used or misused by

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Speaker 1: the Chinese government. The second worry is that, again because

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Speaker 1: of TikTok's ownership by a Chinese internet company, that it

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Speaker 1: engages in censorship of content outside of China. That um

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Speaker 1: would be that is relatively common inside of China, right,

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Speaker 1: that Chinese internet companies are expected to scrub their services

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Speaker 1: for content that is generally not prohibited by the Chinese government,

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Speaker 1: whether it's talking about Hong Kong protests, in a certain

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Speaker 1: way or other things. Um TikTok and Bite Dance, for

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Speaker 1: for their parts, say that they segregate data about Chinese

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Speaker 1: about non Chinese internet users from what's happening in China,

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Speaker 1: and that they do not engage with censorship, engage in

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Speaker 1: censorship outside of China in the same way they engage

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Speaker 1: inside of China. It seems kind of extreme, now, is it, like,

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Speaker 1: is this a kin to like Google selling I don't know,

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Speaker 1: YouTube or you know what I mean, one of its properties,

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Speaker 1: Like it just seems like stream And yeah, I agree,

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Speaker 1: we should say that. Our callings in Bloomberg News said

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Speaker 1: that this is one option under consideration by Byte Dance

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Speaker 1: to calm some of the anxiety in in u s

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Speaker 1: political circles about the Bite Dance ownership of TikTok. That

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Speaker 1: maybe they'll sell a majority steak or some portion of

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Speaker 1: TikTok to presumably to a US financial player. It does

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Speaker 1: seem extreme. We'll see if that happens, and we'll see, honestly,

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Speaker 1: even if they sell all or a majority steak of TikTok,

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Speaker 1: whether that actually changes how some of the hardliners feel

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Speaker 1: about Bite Dance ownership of this popular dagus Internet service,

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Speaker 1: did they pretend who do they sell it to? And

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Speaker 1: do they potentially sell it like forgive me? And I'm

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Speaker 1: always suspicious when it comes to some of this stuff,

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Speaker 1: but I mean, I do wonder do they sell it

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Speaker 1: to an entity that is still somehow Chinese owned? Yeah,

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Speaker 1: fair enough. I think that the question will always be,

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Speaker 1: even if TikTok is sold or a majority of TikTok

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Speaker 1: is sold to a US company, if that really means

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Speaker 1: that a Bye Dance will be completely hands off. I

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Speaker 1: think if I'm just gonna put my investment banker hat

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Speaker 1: on here, my advice to them would be, if you

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Speaker 1: think there is some kind of risk coming from the U. S. Government,

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Speaker 1: you better sell now before that becomes apparent because that

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Speaker 1: can impact valuation. Is that maybe some other thinking? Certainly,

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Speaker 1: I think that's a legitimate concern that Look, Byte Dance

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Speaker 1: is now, by by most accounts, the most highly valued

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Speaker 1: UM private technology company in the world. The valuation that's

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Speaker 1: something like seventy billion dollars, and the company wants, at

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Speaker 1: least by news reports, wants to go public relatively soon.

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Speaker 1: And I think there's an open question about whether UM

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Speaker 1: Bye Dance can go public if it has all of

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Speaker 1: these questions hanging over its head about being whether TikTok

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Speaker 1: is allowed in the United States and also whether the

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Speaker 1: US government it will become kind of a standard center

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Speaker 1: for governments elsewhere in the world. Also questioning the Chinese

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Speaker 1: ownership of TikTok. Is that this this go to that,

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Speaker 1: you know, the Cold War for technology, that people are

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Speaker 1: concerned that they'll be technology for the West and that

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Speaker 1: technology for China. This would be another I guess brick

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Speaker 1: in that wall. Yeah, and look, I think this is

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Speaker 1: somewhat new ground for the United States. This is really

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Speaker 1: the first time that the US government and US citizens

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Speaker 1: honestly have had to reckon with the idea that there

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Speaker 1: is now a very popular internet service that is not

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Speaker 1: run by an American company. And what does that mean? Yeah?

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Speaker 1: And I do think back going back to if they

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Speaker 1: want to go public and right, they've got some interesting

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Speaker 1: investors in terms of Bye Dance, I think is soft Bank,

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Speaker 1: Sequoia Capital, Right, Is that correct? Those are some companies

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Speaker 1: that I think maybe potential buyers or buyers of it.

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Speaker 1: But I do wonder if they do want to go public, right,

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Speaker 1: what they need to do in order to make that

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Speaker 1: happen and to kind of clean it up, clean up

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Speaker 1: the business. Well, look, there are internet companies in China

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Speaker 1: that have gone public and they have done very well.

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Speaker 1: Met you On, which is a sort of mostly a

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Speaker 1: food delivery and travel services company, and Nina there's companies

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Speaker 1: like Ali Baba and Tencent that again their operations are

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Speaker 1: largely in China that are public companies and have done

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Speaker 1: very very well. So there's a precedent for being a

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Speaker 1: China focused internet company. Byte dances a little bit of

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Speaker 1: a different animal again because it's one of the very

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Speaker 1: very few Chinese internet companies that has successfully proven popular

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Speaker 1: outside of its home country. Carol, you were absolutely correct.

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Speaker 1: Early investors into calling Bloo Bloomberg reporting early investors include

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Speaker 1: soft Bank, Sequoia Capital in Susquehannan, and National So some big,

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Speaker 1: big players. And I just do wonder about right investors

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Speaker 1: who are saying, Okay, now we want to see you know,

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Speaker 1: make our money, right we investor, and you know at

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Speaker 1: some point you want to take this company public. So

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Speaker 1: I just do wonder, you know, the kind of pressure

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Speaker 1: on them to kind of do something and do something soon.

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Speaker 1: And look, there are also pedestrian business questions, big business

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Speaker 1: questions about Bye Dance as well, whether it's at particularly TikTok,

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Speaker 1: can prove lasting outside of China, and also whether it

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Speaker 1: can generate enough money enough and to justify it's very

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Speaker 1: large evaluation. We have too because we have you here

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Speaker 1: just really quickly, Uber Travis Kalinak like goodbye. Yeah, I

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Speaker 1: mean this this has been coming for a long time,

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Speaker 1: right that Travis Kalenik was forced out of his company

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Speaker 1: two and a half years ago and he's been selling

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Speaker 1: apparently he has now sold his entire stake. We've been

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Speaker 1: arding for billions of dollars, and so I think it

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Speaker 1: was inevitable. This has been a long divorce. It's interesting.

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Speaker 1: I mean that's right. So he was forced out and

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Speaker 1: you know, just a couple of years ago, and now

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Speaker 1: he's selling, you know, over I guess most of his

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Speaker 1: stock over two billion dollars now stepping off the board officially.

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Speaker 1: So it seems like it's a clear break here from

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Speaker 1: the one of the co founders and the company. Sure,

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Speaker 1: over Day, thanks so much for joining us us here

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Speaker 1: is a technology columns for Bloomberg Opinion. Joining us here

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Speaker 1: on Christmas eat in our Bloomberg Interactive Broker Studio. I

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Speaker 1: tak there's usually so much buzz in the Bloomberg building,

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Speaker 1: particularly on the sixth floor. It is like a beehive.

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Speaker 1: Nobody there, nobody here, so but we're here at Bloomberg

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Speaker 1: Radio and here is here working hard. Uh. And I

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Speaker 1: always say, you know, her coms are great. You should

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Speaker 1: check out all the work opinion columns. They're great stuff.

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Speaker 1: You can find out on the website Bloomberg dot com,

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Speaker 1: slash Opinion or on the terminal O P I n go.

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Speaker 1: You know. One of the fastest growing areas that it

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Speaker 1: just amazes me in finit financial services is whole eke

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Speaker 1: F issue. That seems like there's an e t F

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Speaker 1: for just about everything out there. I love to get

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Speaker 1: up to dated on what's going on with the et

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Speaker 1: F world. Denise Chrisco can help us. She is president

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Speaker 1: and co founder of Vident Investment Advisory. She joins us

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Speaker 1: on the phone from New Jersey. Denise, thanks so much

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Speaker 1: for joining us. One thing I want to start with

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Speaker 1: is something I have no idea how it works, is

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Speaker 1: what is an active e t F. Good morning, Thanks

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Speaker 1: for having me right and active ETF is essentially an

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Speaker 1: active open end investment fund that is in and within

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Speaker 1: the e t F rapper. So unlike a passive or

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Speaker 1: an index fund where you're very tightly acting a specific

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Speaker 1: index which is being calculated every day. UM, active incorporates

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Speaker 1: the strategy investment philosophy and quite honestly, UM I p

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Speaker 1: of a specific asset manager. So denise why an active

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Speaker 1: e t F versus a mutual fund? And I know

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Speaker 1: there's differences in terms of when they trade, when they price,

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Speaker 1: and I guess tax implications, But tell me why would

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Speaker 1: I choose that over a mutual fund? Sure? Well you

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Speaker 1: know right now, you you um, you know, hit the

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Speaker 1: hit the nail on the head. The biggest differences are

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Speaker 1: with the e t f s. Of course, our tax

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Speaker 1: advantages and ability to trade UM with active e t

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Speaker 1: F UH, the tax advantages have really been very limited

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Speaker 1: until more recently. UM. Recently, the SCC past what has

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Speaker 1: been referred to as the e t F rule Rules

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Speaker 1: six C eleven UM, which really has created a much

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Speaker 1: more consistent and even playing field across you know, all

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Speaker 1: e t f s and potential ETF sponsors and so

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Speaker 1: active et f s will also be able to take

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Speaker 1: advantage of some of the tax advantages of the E

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Speaker 1: t F structure. UM. That's why we believe here invite

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Speaker 1: into that active ETFs are going to very likely become

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Speaker 1: more popular as we go into and beyond, because until

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Speaker 1: now you've had a number of active mutual fund managers

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Speaker 1: or active managers with other product types, for example, that

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Speaker 1: would be interested perhaps in an e t F, but

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Speaker 1: realizing that UM the tax advantages weren't really equivalent for

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Speaker 1: active ETFs, UM weren't so inclined to launch a product.

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Speaker 1: As well as the fact that you know, E t

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Speaker 1: f s also required daily transparency of holdings, which UM

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Speaker 1: was something that many asset managers were not interested in.

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Speaker 1: UM that's also changed recently as well. So there's a

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Speaker 1: lot on the horizon for so then it gives a

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Speaker 1: sense of the cost structure cost advantages of active ETFs

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Speaker 1: versus mutual funds right so to the retail investor that

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Speaker 1: the cost savings can be significant. UM with the e

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Speaker 1: t F the expense ray shows are typically lower than

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Speaker 1: with mutual funds UM, although you know you do have

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Speaker 1: to weigh that against brokerage cost, commissioned fees and importantly

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Speaker 1: the bitest spread of course on any h t F

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Speaker 1: UM notably active ETF. So you know, the costs UM

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Speaker 1: could be UH advantageous to the retail investor, UM definitely

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Speaker 1: to the asset manager. UH costs are are generally lower

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Speaker 1: to to run such a vehicle, and so that would

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Speaker 1: be another reason why they may be attractive. Denise, I

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Speaker 1: do wonder too that if I'm going to do an

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Speaker 1: active e t F and I think about funds, about

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Speaker 1: some of the fees and so on and so forth.

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Speaker 1: I mean, why would I do anybody but the biggest,

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Speaker 1: whether it's Vanguard or State Street, right, because I'm assuming

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Speaker 1: they're going to have the lowest feeds, That's right. I

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Speaker 1: mean they'll have the lowest explicit fees, the lowest expense ratio.

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Speaker 1: And you know the majority of assets are flowing to

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Speaker 1: the largest etf issuers UM. These days, we work you

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Speaker 1: know with numerous smaller and mid sized firms and some

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Speaker 1: larger firms as well, UM who you know, have unique ideas,

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Speaker 1: have very you know, different perspectives. UM have really innovated

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Speaker 1: UM to create strategies UM that really can't be found

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Speaker 1: anywhere else. We we manage almost four and a half

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Speaker 1: billion dollars of assets and it's all almost exclusively to

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Speaker 1: customized indicies. And so it's these types of products investors

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Speaker 1: that are looking for something maybe different than what they

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Speaker 1: offer now, and you know, I respect that. I just

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Speaker 1: you know, what's what's interesting about the E t F

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Speaker 1: L I kind of said to Paul coming in, Oh man,

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Speaker 1: the E t F world kind of drives me crazy,

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Speaker 1: because I do feel like it's, you know, every month,

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Speaker 1: every week we have somebody new, you know, coming on

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Speaker 1: with a new E t F idea, and I feel

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Speaker 1: like until you have some history, you know, a few

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Speaker 1: years in to get an idea of how these performs,

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Speaker 1: you know, I think for investors they have to be

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Speaker 1: very careful. It is. It is a challenge, especially from

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Speaker 1: you know, some of the smaller firms that many investors

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Speaker 1: may not be as familiar with. UM. They're looking for

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Speaker 1: longer term track records UM. You know. We have had

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Speaker 1: a number of funds also that have formed really very well,

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Speaker 1: funds that we have subadvised for our clients that have

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Speaker 1: really had excellent performance, but unfortunately weren't able to garner

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Speaker 1: those assets and you know, ultimately closed, you know, which

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Speaker 1: has really been a phenomenon we've seen industry wide. I

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Speaker 1: think that will continue as well, you know, as we're

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Speaker 1: going too we see additional launches. There's gonna be a

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Speaker 1: lot of excitement potentially to launch active ets, especially now

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Speaker 1: that there's options available for non transparent and semi transparent

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Speaker 1: active ETFs. UM you know that that to me, I

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Speaker 1: want transparency. What is semi are non transparent? Forgive me?

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Speaker 1: What does that mean? Yeah? So essentially, you know, the

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Speaker 1: SEC has approved programs that have been created um to

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Speaker 1: uh not necessarily fully disclosed the holdings of the e

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Speaker 1: t F subject to as you can imagine, numerous other

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Speaker 1: restrictions as well. UM. In the non transparent option, for example, UM,

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Speaker 1: they would the holdings are actually traded in and out

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Speaker 1: of a blind trust so that those positions aren't known

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Speaker 1: publicly and the asset manager can you know, retain um

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Speaker 1: you know, the i P I suppose and not be

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Speaker 1: divulging you know, their active management strategy and the semi

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Speaker 1: transparent it's a bit of a hybrid. Um there is

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Speaker 1: there are you know, holdings that are released on a

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Speaker 1: daily basis, although those don't look exactly like the true

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Speaker 1: underlying portfolio, with the idea being that it is hard

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Speaker 1: for someone to maybe copycat or you know, try to

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Speaker 1: trade that strategy on their own on the side. All right,

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Speaker 1: I couldn't leave it on that note. He did. He's

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Speaker 1: happy holidays. Denise Chris, president and co founder of Ident

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Speaker 1: Investment Advisory, joining us on the phone, say, there's a great,

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Speaker 1: great story on the Bloomberg today, and I love the

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Speaker 1: opening paragraph. China last week commissioned it's first home built

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Speaker 1: aircraft carrier to protect it's military minded. It's now on

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Speaker 1: a mission to create quote aircraft carrier sized investment bank

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Speaker 1: to take on Wall Street. Chiants surely not rotch and

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Speaker 1: joins us He's from Bloomberg News. He covers all things

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Speaker 1: financial joints us here in our Bloomberg Interactive Broker studio.

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Speaker 1: So that's just a great view of how China is

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Speaker 1: thinking about the investment banking business. And I spent most

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Speaker 1: of my life investment banking, and I hadn't really thought

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Speaker 1: about that. There isn't a China size investment bank out

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Speaker 1: there to compete against the goverment sacks and the Morgan Stanleys.

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Speaker 1: What are they thinking these days? And then that's the

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Speaker 1: reason they're possibly thinking about it at this stage, right,

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Speaker 1: and this is a fabulous story when you look at

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Speaker 1: some of the stats in this piece, China has about

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Speaker 1: a hundred and thirty one securities films all of their

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Speaker 1: assets combined is equal to one Goldman Sacks the trillion

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Speaker 1: dollar balance shee the Goldman Sacks as it takes about

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Speaker 1: a hundred and thirty Chinese investment banks to get there.

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Speaker 1: China has large scale commercial banks right I CBC has

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Speaker 1: a much bigger balance sheet than even JP Morgan uh

431
00:23:51,640 --> 00:23:53,480
Speaker 1: north of four trillion dollars. But when it comes to

432
00:23:53,520 --> 00:23:57,000
Speaker 1: investment banks, they never really had a large scale player,

433
00:23:57,280 --> 00:24:00,080
Speaker 1: and that is critical, especially if you look at a

434
00:24:00,119 --> 00:24:03,760
Speaker 1: global view of the big financial players, who think, especially

435
00:24:03,760 --> 00:24:06,720
Speaker 1: inside the Chinese market, you're closer to the starting block

436
00:24:07,160 --> 00:24:09,720
Speaker 1: rather than having a fully developed market. So as the

437
00:24:09,760 --> 00:24:12,399
Speaker 1: market opens up, as more and more international players come in,

438
00:24:12,720 --> 00:24:14,840
Speaker 1: the local banks have to figure out a way to

439
00:24:14,880 --> 00:24:18,880
Speaker 1: compete with them, and you possibly have to consolidate, possibly

440
00:24:18,920 --> 00:24:21,199
Speaker 1: have to think about mergers to be able to go

441
00:24:21,240 --> 00:24:23,080
Speaker 1: to to toe with them. So surely is the goal

442
00:24:23,160 --> 00:24:27,840
Speaker 1: here about creating this massive global bank that ultimately will

443
00:24:27,880 --> 00:24:30,840
Speaker 1: be funding and working with companies around the Global's just

444
00:24:30,920 --> 00:24:34,520
Speaker 1: really about helping out Chinese companies and building Chinese industry.

445
00:24:35,280 --> 00:24:37,639
Speaker 1: I guess two things there. If you look at Ali Baba,

446
00:24:37,960 --> 00:24:40,680
Speaker 1: the one thing you've learned from that is you don't

447
00:24:40,760 --> 00:24:44,040
Speaker 1: necessarily have to be a loge scale global player to

448
00:24:44,119 --> 00:24:47,680
Speaker 1: be a successful Chinese company. Uh, that market is big enough.

449
00:24:47,720 --> 00:24:50,320
Speaker 1: There are enough people then the markets developed enough to

450
00:24:50,400 --> 00:24:53,600
Speaker 1: make a lot of money just focused on China. But

451
00:24:54,400 --> 00:24:56,560
Speaker 1: I mean, do your question. I am interested in finding

452
00:24:56,560 --> 00:24:58,320
Speaker 1: out if part of their goal is also to make

453
00:24:58,359 --> 00:25:01,600
Speaker 1: sure that these firms can also go across the globe

454
00:25:01,640 --> 00:25:03,840
Speaker 1: and compete with the governments and the Morgan Stanleys of

455
00:25:03,840 --> 00:25:07,119
Speaker 1: the world. And there's an interesting cautionary tale there if

456
00:25:07,119 --> 00:25:08,840
Speaker 1: you look at it. If you if you go back

457
00:25:08,880 --> 00:25:11,680
Speaker 1: to late eighties, early nineties, at that time, you had

458
00:25:11,720 --> 00:25:16,199
Speaker 1: a uh, smallish Deutsche Bank that was looking outside a

459
00:25:16,320 --> 00:25:20,520
Speaker 1: sleepy industrial German economy, trying to take itself across the world.

460
00:25:21,160 --> 00:25:24,280
Speaker 1: Through the nineties and the two thousand's, Deutsche Bank did

461
00:25:24,359 --> 00:25:28,639
Speaker 1: become a Wall Street powerhouse, a massive fix income shop,

462
00:25:28,880 --> 00:25:30,600
Speaker 1: made a ton of money. But look at where we

463
00:25:30,640 --> 00:25:33,280
Speaker 1: are right now. They're on the retreat and saw a

464
00:25:33,280 --> 00:25:36,880
Speaker 1: lot of their European peers and the ones who are

465
00:25:36,960 --> 00:25:40,040
Speaker 1: benefiting from that are the large US banks that seem

466
00:25:40,119 --> 00:25:42,639
Speaker 1: to be beefing up. So if they want to plot

467
00:25:42,720 --> 00:25:46,560
Speaker 1: sort of this global expansion, they have to make sure

468
00:25:46,600 --> 00:25:49,200
Speaker 1: that they can careful steps. So I have to ask

469
00:25:49,200 --> 00:25:52,640
Speaker 1: a question, why haven't Why hasn't China created a much

470
00:25:52,640 --> 00:25:56,360
Speaker 1: more vibrant investment banking industry as it has for say,

471
00:25:56,400 --> 00:25:59,679
Speaker 1: the commercial banking side. Is there something structural there? Or

472
00:26:00,160 --> 00:26:02,960
Speaker 1: if you're just focusing internally in Chinese don't necessarily need

473
00:26:03,040 --> 00:26:07,840
Speaker 1: these big investment banks. My guests would be perhaps more structural.

474
00:26:07,920 --> 00:26:10,440
Speaker 1: You probably don't have an economy that has the full

475
00:26:10,480 --> 00:26:14,000
Speaker 1: time requirements of a lode scale investment bank. Even the

476
00:26:14,160 --> 00:26:16,920
Speaker 1: securities films that we talked about in this story, they

477
00:26:16,960 --> 00:26:19,160
Speaker 1: say a lot of them are not full service investment bank.

478
00:26:19,320 --> 00:26:21,440
Speaker 1: You know, they're small, they're not full service investment. A

479
00:26:21,480 --> 00:26:23,800
Speaker 1: lot of them seem to be doing business with the uh,

480
00:26:23,840 --> 00:26:26,320
Speaker 1: you know, your mom and pop retail customers, which which

481
00:26:26,359 --> 00:26:28,520
Speaker 1: is not a way to compete with the government's accent.

482
00:26:28,560 --> 00:26:30,399
Speaker 1: The Morgan Stanley is the world. But now as the

483
00:26:30,440 --> 00:26:33,399
Speaker 1: economy opens up, now as they're looking to deepen the

484
00:26:33,440 --> 00:26:38,680
Speaker 1: footprint of their you know, capitalistic economy, even even under

485
00:26:38,720 --> 00:26:40,560
Speaker 1: the control of the government. If you're looking to sort

486
00:26:40,560 --> 00:26:45,640
Speaker 1: of strengthen the pillars of what drive modern business. If

487
00:26:45,680 --> 00:26:48,440
Speaker 1: you do that, you definitely need a lot scale investment

488
00:26:48,440 --> 00:26:51,400
Speaker 1: bank to service that, to raise money, to help companies

489
00:26:51,440 --> 00:26:54,000
Speaker 1: go public, to do trading, everything that comes with the

490
00:26:54,000 --> 00:26:57,480
Speaker 1: full service investmentank. But is it really opening up It's

491
00:26:57,640 --> 00:27:01,200
Speaker 1: what forty five trillion dollar financial industry. Is China truly

492
00:27:01,320 --> 00:27:04,000
Speaker 1: opening it up so that any global bank, and I

493
00:27:04,000 --> 00:27:06,399
Speaker 1: think about the US big players, will they really be

494
00:27:06,480 --> 00:27:09,120
Speaker 1: able to kind of set up shop there and operate

495
00:27:09,200 --> 00:27:11,720
Speaker 1: like they do around the rest of the world. That's

496
00:27:11,720 --> 00:27:13,480
Speaker 1: the goal. By the end of next year, the number

497
00:27:13,520 --> 00:27:14,920
Speaker 1: of the U s from the number of the large

498
00:27:14,960 --> 00:27:17,679
Speaker 1: international banks will be able to take dent controls of

499
00:27:17,680 --> 00:27:20,520
Speaker 1: their subsidiaries. Some of them already are in the process.

500
00:27:20,560 --> 00:27:23,359
Speaker 1: Others have applied for it. They have been waiting on

501
00:27:23,359 --> 00:27:26,680
Speaker 1: it for a while. The Chinese promise has always been there.

502
00:27:26,720 --> 00:27:28,600
Speaker 1: You almost feel like these banks have been knocking at

503
00:27:28,640 --> 00:27:31,439
Speaker 1: the door for a while, but you really haven't gotten

504
00:27:31,440 --> 00:27:34,080
Speaker 1: the fruits out of it yet. And you have to remember,

505
00:27:34,080 --> 00:27:36,240
Speaker 1: with the backdrop of the trade war, maybe some of

506
00:27:36,280 --> 00:27:38,400
Speaker 1: that has also delayed the process and there's some level

507
00:27:38,400 --> 00:27:40,680
Speaker 1: of nervousness when you talk to the CEOs of the

508
00:27:40,800 --> 00:27:44,240
Speaker 1: U S investment banks as to when that promise will materialize.

509
00:27:44,400 --> 00:27:46,280
Speaker 1: But it is a promise they believe in, and it

510
00:27:46,400 --> 00:27:49,480
Speaker 1: is a promise that they're willing to invest in. That's interesting.

511
00:27:49,520 --> 00:27:51,320
Speaker 1: I think the yes, I think about some of the

512
00:27:51,400 --> 00:27:53,439
Speaker 1: U S firms. They've been knocking on the door in

513
00:27:53,520 --> 00:27:57,480
Speaker 1: China for a long time. Um, did they view that

514
00:27:57,560 --> 00:28:01,320
Speaker 1: as a big, big growth opportunity. Absolutely, they're ready and

515
00:28:01,440 --> 00:28:03,760
Speaker 1: eager to jump in. What has stopped them is not

516
00:28:04,280 --> 00:28:08,000
Speaker 1: their hesitation or trapodition on their part. What to stop

517
00:28:08,080 --> 00:28:11,040
Speaker 1: them is their ability to jump in the market. There's,

518
00:28:11,560 --> 00:28:14,879
Speaker 1: if not in no entry sign, at least a bobbed

519
00:28:14,960 --> 00:28:17,399
Speaker 1: wire gate that sort of makes sure that you can't

520
00:28:17,400 --> 00:28:20,439
Speaker 1: really jump into the market full time. But the banks

521
00:28:20,480 --> 00:28:22,600
Speaker 1: are eager to get in there as they look just

522
00:28:22,720 --> 00:28:25,160
Speaker 1: quickly about forty seconds, or as they look to expand tree.

523
00:28:25,320 --> 00:28:27,760
Speaker 1: I mean, is their government support behind it or is

524
00:28:27,800 --> 00:28:30,439
Speaker 1: this truly a private enterprise and as private as it

525
00:28:30,480 --> 00:28:33,280
Speaker 1: can be in China. Well, if you have to create

526
00:28:33,280 --> 00:28:37,000
Speaker 1: an aircraft carrier sized rival to government zacks alongstly, you

527
00:28:37,119 --> 00:28:40,160
Speaker 1: better hope there is a government will behind that. But

528
00:28:40,320 --> 00:28:43,400
Speaker 1: we have seen that in the past, especially in a

529
00:28:43,480 --> 00:28:47,640
Speaker 1: system like the Chinese economy the way it operates. If

530
00:28:47,680 --> 00:28:51,000
Speaker 1: there's government bill will a lot can get done and

531
00:28:51,600 --> 00:28:53,400
Speaker 1: they will need a lot of it to make sure

532
00:28:53,440 --> 00:28:55,680
Speaker 1: that they can create an institution like that. Right, but

533
00:28:55,680 --> 00:28:57,640
Speaker 1: then you see how the world use it because there

534
00:28:57,720 --> 00:29:00,640
Speaker 1: is government involvement. Sure, thank you so much. Always appreciate

535
00:29:00,640 --> 00:29:03,240
Speaker 1: appreciate it. Tree not Rody, and he is finance reporter

536
00:29:03,240 --> 00:29:06,640
Speaker 1: at Bloomberg News, joining us in our Bloomberg Interactive Broker Studio.

537
00:29:06,720 --> 00:29:08,920
Speaker 1: Fascinating story. I'm in the most read and I'll put

538
00:29:08,960 --> 00:29:11,920
Speaker 1: it out on our Twitter feeds because it definitely is

539
00:29:11,960 --> 00:29:14,160
Speaker 1: something you should check out. Thanks for listening to the

540
00:29:14,160 --> 00:29:16,800
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen

541
00:29:16,840 --> 00:29:20,120
Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.

542
00:29:20,400 --> 00:29:23,040
Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm

543
00:29:23,080 --> 00:29:25,760
Speaker 1: Lisa bram Woyds. I'm on Twitter at Lisa bram Woyds.

544
00:29:25,840 --> 00:29:28,640
Speaker 1: One before the podcast, you can always catch us worldwide.

545
00:29:28,680 --> 00:29:29,680
Speaker 1: I'm Bloomberg Radio