WEBVTT - Standoff 0:00:03.960 --> 0:00:07.360 This is Bloomberg opinion. I'm Vonnie Quinn this week. I 0:00:07.400 --> 0:00:10.760 think there is gender of a Chinese stemon collapse if 0:00:10.840 --> 0:00:14.120 we see trouble with local government financing. Shulie Ran on 0:00:14.160 --> 0:00:17.680 the standoff between President she and COVID zero. Also Tim 0:00:17.760 --> 0:00:21.240 Coulpen on the standoff between the US and China on semiconductors. 0:00:21.720 --> 0:00:25.120 First though, to financial stability in US markets. After Thursday 0:00:25.239 --> 0:00:28.520 saw a five percent swing for the SMB five, I 0:00:28.560 --> 0:00:32.040 spoke with Bloomberg Opinions John Authors. So, John, we got 0:00:32.040 --> 0:00:35.040 the CPI prints which showed harder inflation than expected, and 0:00:35.080 --> 0:00:36.839 the markets sold off, and then suddenly we got a 0:00:36.880 --> 0:00:40.199 turn around, a five percent swing on Thursday. How much 0:00:40.280 --> 0:00:43.360 the technical levels and programmed to buying feature. First of all, 0:00:43.440 --> 0:00:45.479 I'm going to be honest, of course, I don't know 0:00:45.840 --> 0:00:50.400 quite why that happened. That five percent turnaround makes it 0:00:50.560 --> 0:00:52.960 in the top five or six. Different people have come 0:00:53.040 --> 0:00:57.160 up with different estimates I've seen all time, So that's 0:00:57.200 --> 0:01:01.200 a seriously big deal on crazy days own news. Um, 0:01:02.120 --> 0:01:05.400 the best guess is that it's about technical levels if 0:01:05.400 --> 0:01:07.320 you look at it on a chart, if you do 0:01:07.360 --> 0:01:10.920 a fiber and actually retracements and we had reached the 0:01:10.959 --> 0:01:13.520 point of three thousand, five hundred on the SMP, which 0:01:13.560 --> 0:01:17.200 is obviously around number, and it's also exactly where you 0:01:17.240 --> 0:01:21.240 reach the fifty retracement. You've lost half of the game 0:01:21.280 --> 0:01:25.720 that you made since the COVID bottom, exactly. And it's 0:01:25.760 --> 0:01:29.480 too simple to blame everything on algorithm. Some human wrote 0:01:29.480 --> 0:01:35.319 the algorithm, but enough people were programmed to buy that 0:01:35.680 --> 0:01:39.759 you got a bid. At that point. The inflation numbers 0:01:39.800 --> 0:01:44.559 were unquestionably bad and worse than it was reasonable to hope. 0:01:44.840 --> 0:01:48.240 Service inflation was up, shelter inflation was up, all the 0:01:48.320 --> 0:01:53.400 sensible measures, trimmed mean, median, sticky price inflation, everything across 0:01:53.440 --> 0:01:55.600 the board was its highest in forty years. So it 0:01:55.640 --> 0:01:59.920 was unquestionably bad, but it wasn't game changing. Everybody assumed 0:02:00.040 --> 0:02:04.200 FED was going to hike BIPs, so after the initial 0:02:04.320 --> 0:02:07.320 shock there may have been a grasp of well, actually 0:02:07.920 --> 0:02:10.120 this isn't going to change anything much and stocks are 0:02:10.160 --> 0:02:13.480 really keep now, which is what we've seen before. You know, 0:02:13.480 --> 0:02:15.960 bad news is good news, etcetera, etceter etcetera. And also 0:02:16.000 --> 0:02:18.120 more visibility. Maybe we know that there's two seventy five 0:02:18.120 --> 0:02:19.880 basis point where tags coming out, Well, that's what the 0:02:19.919 --> 0:02:22.560 market certainly seems to think yes, So how much more 0:02:22.600 --> 0:02:24.679 damage could be done? People are still out there saying 0:02:24.680 --> 0:02:28.600 the bottom isn't in. There could be another downside. Jamie Diamon, Yes, 0:02:28.720 --> 0:02:33.760 I still think they're perfectly easily could be. I think 0:02:33.800 --> 0:02:38.760 the critical number is inflation. The longer it keeps doing this, 0:02:39.200 --> 0:02:43.839 or if the headline setting you high, then the Fed 0:02:43.880 --> 0:02:47.120 really has no choice but to keep on pushing. So 0:02:47.160 --> 0:02:49.480 the markets pricing at a terminal rate beyond four eight 0:02:49.520 --> 0:02:52.160 five percent. Right now we have a ten year yield 0:02:52.400 --> 0:02:55.480 very close to four percent again, which is also worth noting. 0:02:55.680 --> 0:02:57.720 David ian Horn said this week that value investing might 0:02:57.760 --> 0:02:59.840 be dead because no one knows the value of anything. 0:02:59.840 --> 0:03:03.800 That day thought I thought what he said was fascinating. 0:03:04.880 --> 0:03:10.040 The critical point, certainly, both low rates and the growth 0:03:10.080 --> 0:03:13.880 of passive investing could certainly be said to have undermined 0:03:14.760 --> 0:03:18.000 the whole business, the whole profession of value investing, of 0:03:18.040 --> 0:03:21.280 stock picking. So there are plenty of well trained people, 0:03:21.440 --> 0:03:25.040 but these days it's about macro and models and the 0:03:25.200 --> 0:03:27.600 kind of technical stuff we were just talking about, rather 0:03:27.680 --> 0:03:32.079 than crunching your way through balance sheets. So I did 0:03:32.200 --> 0:03:35.200 think there was a lot of sense in the argument 0:03:35.280 --> 0:03:38.840 he made that you can spot that something's too cheap 0:03:39.360 --> 0:03:42.320 and buy, and then wait for other people to notice 0:03:42.320 --> 0:03:47.280 what you've noticed, and this time nobody else notices. This 0:03:47.360 --> 0:03:50.160 has been said both about the growth of growth stocks 0:03:50.200 --> 0:03:54.680 and about the growth of passive There has logically at 0:03:54.760 --> 0:03:59.560 some point to come a time when the screamingly best 0:03:59.560 --> 0:04:03.320 way to make money is going and looking for all 0:04:03.360 --> 0:04:07.200 the ridiculously cheap stocks that have been created by passive investing. 0:04:07.440 --> 0:04:09.600 For years, it's been the idea of going into private 0:04:09.600 --> 0:04:12.960 markets because that's where the inefficiencies are at this point, 0:04:13.040 --> 0:04:18.279 I think David Eindhorn probably is right, but but sorry, 0:04:18.240 --> 0:04:19.800 y yeah, well I was just gonna say. I mean, 0:04:19.839 --> 0:04:22.240 even in a broader sense, no one really knows what 0:04:22.360 --> 0:04:24.400 the forward earnings of the SMP five hundred should be. 0:04:24.520 --> 0:04:26.960 No one really knows what the value of anything is. 0:04:27.040 --> 0:04:29.080 And that you have to throw in the shock of 0:04:29.240 --> 0:04:31.839 the pandemic followed by the shock of the Ukraine War. 0:04:33.320 --> 0:04:35.760 We don't have any good precedents to rely on here, 0:04:35.800 --> 0:04:40.839 and so there's uncertain about the YEP exactly. But I 0:04:40.880 --> 0:04:46.200 still ultimately think that there comes a point when ten 0:04:46.279 --> 0:04:48.920 years from now there probably are going to be some 0:04:49.800 --> 0:04:53.200 diligent long only people who bought a bunch of cheap 0:04:53.279 --> 0:04:56.280 stocks who will look as clever as David Swinson of 0:04:56.360 --> 0:04:59.400 the Yale Endowment did at one point and will be rewarded. 0:05:00.360 --> 0:05:02.280 Is liquidity an issue? I mean, obviously it might be 0:05:02.360 --> 0:05:04.159 in Britain depending on how things pan out with the 0:05:04.160 --> 0:05:07.839 pension funds. Are their concerns for the broader markets. Yes, 0:05:08.200 --> 0:05:10.960 you can tell from the results that they're not as 0:05:11.000 --> 0:05:15.080 acute as they were in Britain, where I had to 0:05:15.120 --> 0:05:18.960 talk to a contact referred to quantitative destruction that you 0:05:19.080 --> 0:05:22.560 had all these structures that had been built up to 0:05:22.600 --> 0:05:26.839 take advantage of low rates, but we're also necessary because 0:05:26.960 --> 0:05:31.640 low rates made the investment arena so dull, gave you 0:05:31.680 --> 0:05:34.119 a big incentive to take more risk. In the case 0:05:34.200 --> 0:05:36.840 of the UK, plainly we got to the we got 0:05:36.880 --> 0:05:40.120 to the point where there wasn't enough liquidity and it's still, 0:05:40.200 --> 0:05:43.480 we hope, only a liquidity issue. Pension funds have had 0:05:43.480 --> 0:05:46.840 a solvency issue for a long time, but hopefully this 0:05:46.880 --> 0:05:49.800 is remains as a liquidity otherwise it could be an 0:05:49.800 --> 0:05:55.200 extraordinary week next week too. I mean, you start talking 0:05:55.200 --> 0:05:58.600 about things like tarp bailouts, the parallel is quite close 0:05:58.680 --> 0:06:01.719 that when it came to actually put in capital into banks, 0:06:01.960 --> 0:06:04.599 it wasn't the fit that did that. It was Congress 0:06:04.880 --> 0:06:07.400 using taxpayers money, and that turned out to be the 0:06:07.440 --> 0:06:12.080 single most important step in ending the crisis. Similarly, the 0:06:12.120 --> 0:06:15.200 Bank of England's can't print money and put it in 0:06:15.240 --> 0:06:17.960 people's pension plans. It's going to have to come from 0:06:17.960 --> 0:06:20.960 taxpayers if it comes to that, which is not a 0:06:21.080 --> 0:06:24.880 pleasant thought in the slightest, but it's somewhat less unpleasant 0:06:24.920 --> 0:06:28.720 than people going without their pensions. Bloomberg Opinions, John Authors. 0:06:28.960 --> 0:06:31.640 This Sunday, Chinese President chit and Ping will give the 0:06:31.680 --> 0:06:34.840 opening address to the twentieth National Congress of the Communist 0:06:34.839 --> 0:06:38.160 Party of China. The week long event happens twice a decade. 0:06:38.520 --> 0:06:41.320 This year, it will celebrate the one anniversary of the 0:06:41.480 --> 0:06:44.720 establishment of the Communist Party of China. President she is 0:06:44.760 --> 0:06:47.360 expected to win a third term as President and General 0:06:47.400 --> 0:06:50.880 Secretary of China's Communist Party. I spoke with Bloomberg Opinions 0:06:50.920 --> 0:06:53.839 Julie Ran on why markets are seeing this particular party 0:06:53.880 --> 0:06:56.800 congress as a line in the sand. First, though, here's 0:06:56.800 --> 0:07:00.200 Australia's former ambassador to China Jeff Raby on President She's 0:07:00.200 --> 0:07:03.880 in Ping's constituency Sunday and beyond. China does have an 0:07:03.920 --> 0:07:07.719 institutional mechanism of governance, say and like Russia these days, 0:07:07.800 --> 0:07:11.640 and Sheetingping is a servant of the party. So at 0:07:11.680 --> 0:07:14.400 the point of which the party feels that she is 0:07:14.440 --> 0:07:17.600 in some way undermining the party's legitimacy, its support in 0:07:17.640 --> 0:07:21.360 the broader community, then elite members of the party could 0:07:21.440 --> 0:07:23.480 well start to a question whether she is the right 0:07:23.520 --> 0:07:26.240 person to lead the party socially. Is there any danger 0:07:26.280 --> 0:07:28.760 at all that she will not secure a third term 0:07:28.760 --> 0:07:30.840 at the party congress or is it a foregone conclusion 0:07:30.880 --> 0:07:34.440 that obviously he will. I think it's a foregone conclusion already. 0:07:34.480 --> 0:07:37.520 I mean, like he already went abroad one month ahead 0:07:37.520 --> 0:07:40.800 of schedule, and this congress is sat to start in 0:07:40.840 --> 0:07:45.120 October instead of originally scheduled in November. So I think 0:07:45.120 --> 0:07:48.280 he has already this position locked up. Now. Is that 0:07:48.400 --> 0:07:51.080 wishful thinking on the part of Wall Street and traders 0:07:51.080 --> 0:07:55.480 globally that President she will pivot prioritizing the economy after 0:07:55.480 --> 0:07:58.560 the CPC, shifting away from COVID zero and so on. 0:07:58.920 --> 0:08:01.680 Is there any actual evidence that the CPC might be 0:08:01.720 --> 0:08:03.560 a line in the sand, and that he might change 0:08:03.560 --> 0:08:06.560 policies after that. I don't think it's necessarily wish for 0:08:06.640 --> 0:08:09.360 thinking in part because I'm in that camp. I think 0:08:09.440 --> 0:08:13.240 it's just inevitable because holding onto the COVID zero policy 0:08:13.360 --> 0:08:16.400 is very, very expensive. The last two years, China was 0:08:16.440 --> 0:08:19.800 doing quite okay in and one, so they had a 0:08:19.800 --> 0:08:22.240 little bit of fiscal room to hold down to COVID 0:08:22.320 --> 0:08:25.440 zero until the Party Congress. But twenty three, where is 0:08:25.480 --> 0:08:27.840 the fiscal money coming far? And it's going to be 0:08:27.960 --> 0:08:30.600 very difficult for China to continue. They will have to pivot. 0:08:31.000 --> 0:08:34.080 But vaccine take up has been relatively low in China. 0:08:34.240 --> 0:08:36.959 Why not mandate vaccine take up and open the economy 0:08:37.000 --> 0:08:39.920 as opposed to allowing people choose on vaccinations but having 0:08:40.000 --> 0:08:43.120 rolling lockdowns? Has there been much debate on vaccines in China. 0:08:43.400 --> 0:08:46.480 It's funny because you know, the vaccination drive pretty much 0:08:46.520 --> 0:08:49.480 stopped even after the Shanghai lockdown. I mean, my parents 0:08:49.480 --> 0:08:51.560 are in Shanghai. No one asked them to take any 0:08:51.640 --> 0:08:54.960 jabs um. I think it's kind of foregone conclusion. Now, 0:08:55.000 --> 0:08:58.120 like in Hong Kong, we have very similar problems. The elderly. 0:08:58.160 --> 0:09:01.199 They don't want to get the vaccinated. It again and again, right, 0:09:01.280 --> 0:09:03.640 so Hong Kong still open. What Hong Kong did was 0:09:03.720 --> 0:09:06.400 they called the three thousand elderly people and the state 0:09:06.640 --> 0:09:08.920 do you want to get back? And almost all of 0:09:08.920 --> 0:09:10.880 them say no. So the Hong Kong governments that we 0:09:11.000 --> 0:09:13.640 just have to open. And I expect that's what's going 0:09:13.679 --> 0:09:16.839 to happen to China. Even back then in twenty when 0:09:16.920 --> 0:09:19.640 China was starting the vaccination chart, they started with the 0:09:19.920 --> 0:09:23.640 younger working population instead of with the elderly. But Julie, 0:09:23.679 --> 0:09:25.800 is there any talk of what might happen if China 0:09:25.920 --> 0:09:28.880 does open and the vaccination rate is low. Hospitals might 0:09:28.920 --> 0:09:31.560 get overwhelmed. I mean it might look something like the 0:09:31.600 --> 0:09:34.600 original pandemic. Here right now we are seeing on the 0:09:34.640 --> 0:09:37.920 crown China has escaped from Delta, and Delta was the 0:09:38.080 --> 0:09:41.360 bad one, so I think it should be okay. Very 0:09:41.400 --> 0:09:45.480 recently there was a government document urgent the county level 0:09:45.600 --> 0:09:50.280 local government to prepare themselves for hospitalization, and some people 0:09:50.400 --> 0:09:53.640 on the marketplace see it as a tentative sign that 0:09:53.720 --> 0:09:58.240 the China is prepared to reopen um and the vaccination 0:09:58.360 --> 0:10:01.599 rate is lower for the elderly, but for the broader population, 0:10:01.679 --> 0:10:04.960 it's not low. People are chapter three times now you 0:10:05.040 --> 0:10:07.880 mentioned the local governments, the local economies. To an extent, 0:10:08.040 --> 0:10:13.040 Presidency has delegated fixing China's economy to the local municipalities. 0:10:13.200 --> 0:10:15.400 Do they have the resources to jump in if there's 0:10:15.440 --> 0:10:17.200 some kind of a crisis or some kind of an 0:10:17.200 --> 0:10:20.240 economic slowdown that they can't bear. No, that's the problem 0:10:20.280 --> 0:10:23.640 because COVID zero has been ongoing for too long. According 0:10:23.679 --> 0:10:26.120 to walk In Stanley, the Chinese government at the local 0:10:26.200 --> 0:10:30.160 level has been two trillion U n um COVID zero controls. 0:10:30.240 --> 0:10:33.040 I mean, that's just money wasted. And the local governments 0:10:33.080 --> 0:10:35.880 also rely on land sales and that's not going very 0:10:35.880 --> 0:10:39.120 well as well, and that's why, like I think, ultimately 0:10:39.240 --> 0:10:42.480 China just has to pivot away from COVID zero, perhaps 0:10:42.600 --> 0:10:45.400 within months, because this clay is just not going to work. 0:10:45.679 --> 0:10:48.360 So there's obviously the property market crisis that we heard 0:10:48.360 --> 0:10:51.360 a lot about over the last year. There's regulation around education, 0:10:51.400 --> 0:10:53.719 around gaming and so on. But while we've seen a 0:10:53.760 --> 0:10:56.079 lot of bondholder pain, we haven't seen, for example, the 0:10:56.160 --> 0:10:58.360 kind of systemic crisis that we might have seen during 0:10:58.400 --> 0:11:01.160 the Great financial crisis the United States, Is there any 0:11:01.200 --> 0:11:03.680 reason to think that China is in danger of having 0:11:03.760 --> 0:11:06.960 one in the banking system or elsewhere. I think there 0:11:07.080 --> 0:11:10.320 is danger of a Chinese demon collapse if we see 0:11:10.400 --> 0:11:13.840 trouble with local government financing, develop her debt or the 0:11:13.880 --> 0:11:16.040 stuff that we're seeing the news headlines. A lot of 0:11:16.080 --> 0:11:18.880 it is US Dolard debt that's offshore, right, But if 0:11:18.960 --> 0:11:23.360 we're talking about income bank liquidity freeze, I'm sure that 0:11:23.400 --> 0:11:26.120 will have to do with local government debt because they 0:11:26.160 --> 0:11:29.840 have issued a lot. Yeah, does she have any wish 0:11:29.880 --> 0:11:32.760 to attract overseas capital and mainland markets? I mean, clearly 0:11:32.800 --> 0:11:34.240 at the moment, he is a lot on his plate. 0:11:34.360 --> 0:11:36.120 He has to figure out how to handle Russia. The 0:11:36.120 --> 0:11:38.360 G twenty is coming up, and obviously the CPC is 0:11:38.360 --> 0:11:40.480 what he has to get past first. But at the 0:11:40.520 --> 0:11:43.520 same time, investor confidence has definitely been damaged during his 0:11:43.640 --> 0:11:46.679 second term. Any evidence to suggest that he might want 0:11:46.679 --> 0:11:50.320 to woo investors again somehow? I think he is not 0:11:50.760 --> 0:11:53.520 Ma or Kim Jong yng, like I do feel that 0:11:53.520 --> 0:11:56.040 he still wants to reconnect with the world, right like 0:11:56.160 --> 0:11:59.440 he pretty much has not helped Russia during this Ukraine counphlict. 0:11:59.720 --> 0:12:02.840 That's knowls that he didn't want to be the prior globally. 0:12:03.080 --> 0:12:05.920 And also like the Chinese government has struck deals with 0:12:06.040 --> 0:12:09.120 the U s SEC to let the auditing Committee or 0:12:09.160 --> 0:12:12.720 the Chinese companies accounting papers right. And then also she 0:12:12.920 --> 0:12:15.480 is coming to G twenties, so I think he still 0:12:15.520 --> 0:12:19.600 wants to connect with the world. What market indicators are 0:12:19.640 --> 0:12:22.760 most reliable for explaining the shape of China's markets? What 0:12:22.760 --> 0:12:24.640 do you look at these days is just the major 0:12:24.679 --> 0:12:28.440 benchmarks Julie and the offshore ontour bonds. I think for me, 0:12:28.600 --> 0:12:31.280 I still look as stocks because they are quite volatile, 0:12:31.360 --> 0:12:35.560 and any think of possibly China reopening, you're going to 0:12:35.679 --> 0:12:39.160 see a pretty sharp bump, in part because the evaluation 0:12:39.320 --> 0:12:41.640 is very very low right now. So I will look 0:12:41.679 --> 0:12:45.679 at that. Will there be a UN policy. We've obviously 0:12:45.720 --> 0:12:48.680 seen the U on weekend dramatically, as have we seen 0:12:48.720 --> 0:12:50.840 many currencies we can dratically in the face of the 0:12:50.920 --> 0:12:54.640 dollar strength. But how do she and the p BOC interact. 0:12:54.800 --> 0:12:58.040 Willy have thoughts on how strong or weekly UN should be. 0:12:58.480 --> 0:13:00.920 I don't think they have a certain but seven point four, 0:13:01.000 --> 0:13:03.640 seven point five, I mean they're preparing the public thing. 0:13:03.720 --> 0:13:05.920 You know, whatever the UN is, it is against the 0:13:05.960 --> 0:13:09.320 stronger US dollar strength, and then compared to the yen 0:13:09.640 --> 0:13:12.040 or the euro or the British pounds, the UN is 0:13:12.080 --> 0:13:15.360 doing fairly well, and there is some incentive, to be honest, 0:13:15.760 --> 0:13:18.640 for the Chinese rand to be weaker because China still 0:13:18.640 --> 0:13:21.880 realize on a lot of exports. Right, Yeah, for sure, 0:13:21.880 --> 0:13:25.040 it's a double slided sword. What else will we hear 0:13:25.160 --> 0:13:28.120 out of the CPC. I mean, obviously human rights will 0:13:28.200 --> 0:13:30.520 almost definitely not be addressed, but what else will we 0:13:30.559 --> 0:13:33.480 be looking for a post CBC. I think that the 0:13:33.480 --> 0:13:36.719 most interesting thing for the Congress is the lineup. Who 0:13:36.760 --> 0:13:39.760 are what's the ranking of all the politicians? She is 0:13:39.800 --> 0:13:42.040 on top, who is going to be the Prime Minister, 0:13:42.240 --> 0:13:44.400 and who's going to be the head of the political 0:13:44.400 --> 0:13:48.040 standing Committee Because unfortunately for economic policies, it used to 0:13:48.120 --> 0:13:51.520 be just economic policies. People at the minister level they 0:13:51.559 --> 0:13:55.520 can just handle major decisions and stuff, But unfortunately the 0:13:55.559 --> 0:13:58.839 economic policies have become political in the last few years. 0:13:59.280 --> 0:14:02.679 Take housing policy or COVID zero policy for instance. So 0:14:03.000 --> 0:14:06.080 who is on top understanding committee is going to be 0:14:06.360 --> 0:14:10.640 very important to watch. Nuomeberg Opinions. Shuli ran the US 0:14:10.720 --> 0:14:13.440 this week unveiled a new set of restrictions on Chinese 0:14:13.440 --> 0:14:17.000 access to US semiconductor technology. I spoke with Bloomberg Opinions 0:14:17.080 --> 0:14:21.120 Tim Copen in Taipei on the ramifications for China, Taiwan 0:14:21.320 --> 0:14:24.240 and the United States. So, Tim President, she will likely 0:14:24.240 --> 0:14:26.680 be appointed to a third term after the Party congress 0:14:26.760 --> 0:14:29.120 next week. He obviously has a lot of contend with 0:14:29.480 --> 0:14:33.280 how far up his priority list will China's tech prowess 0:14:33.360 --> 0:14:37.040 being specifically it's chip prowess. It's gonna be very high 0:14:37.080 --> 0:14:38.800 on the list. There's a lot of things on she 0:14:38.960 --> 0:14:44.320 did mind right now, covid zeros, retaking Taiwan, but getting 0:14:44.320 --> 0:14:47.920 a chip industry that's up to global standards and competing 0:14:48.040 --> 0:14:50.880 with the U and with Taiwan and South Korea is 0:14:51.040 --> 0:14:55.760 something very very much wants that she Before that, independence technology, 0:14:55.760 --> 0:14:59.560 will independence of China, As you say, China had been 0:14:59.600 --> 0:15:03.200 aiming for almost self sufficiency in semiconductors. How much of 0:15:03.200 --> 0:15:06.560 a thorn and she's in pink side? Will this round 0:15:06.720 --> 0:15:09.800 of restrictions be? Can he stave off some of the 0:15:09.840 --> 0:15:13.960 worst dramifications. It is going to be very potent and 0:15:14.360 --> 0:15:17.960 quite damaging I think to China's chip goals and dreams. 0:15:18.160 --> 0:15:21.200 The Chinese had been somewhat catching up. That's found a 0:15:21.200 --> 0:15:23.560 lot of progress in the last twenty years. This is 0:15:23.600 --> 0:15:26.640 not just the Chi ji Ping move. Previous administrations in 0:15:26.720 --> 0:15:29.520 Beijing has been wanting to build up a chip sector. 0:15:30.000 --> 0:15:32.840 She has been pushing the harder and harder, and they 0:15:32.880 --> 0:15:35.400 had made progress. But it's important to remember that the 0:15:35.440 --> 0:15:38.280 West and I include Taiwan and South Korea and that 0:15:38.600 --> 0:15:42.280 are also moving ahead. Chip industry moved very very quickly ct. 0:15:42.320 --> 0:15:44.960 In fact, what would seem over last decade is that 0:15:45.040 --> 0:15:47.640 while China has improved so as the Western, the gap 0:15:48.000 --> 0:15:50.880 is not actually closed. And that's a little bit of 0:15:50.920 --> 0:15:53.000 an embarrassment for Baking because there's been a lot of 0:15:53.000 --> 0:15:55.720 money trying to close that gap. Now, with the Biden 0:15:55.840 --> 0:15:59.480 administration's latest rules, it's going to be harder and harder 0:15:59.520 --> 0:16:01.880 to close of that, and I would predict that made 0:16:01.960 --> 0:16:04.920 an EXPI to get my widen again as a result 0:16:05.040 --> 0:16:08.160 of these new district now. Ursula wonderlyand pointed out that 0:16:08.200 --> 0:16:10.120 the EU doesn't want to be in a situation where 0:16:10.120 --> 0:16:13.240 they're dependent on, say China for chips, like Europe became 0:16:13.280 --> 0:16:15.760 dependent on Russia for gas. When it comes to the 0:16:15.840 --> 0:16:19.000 US and China, tease a part for US, who exactly 0:16:19.040 --> 0:16:22.080 is dependent on whom. One of the key issues is 0:16:22.160 --> 0:16:26.320 that year everyone reliant on the West ships. The US, 0:16:26.440 --> 0:16:29.280 even though they don't manufacture a lot of chips, is 0:16:29.280 --> 0:16:31.480 a leader in the chip industry because they create a 0:16:31.480 --> 0:16:34.760 lot of the technologies, for example, equipment and the software 0:16:34.960 --> 0:16:38.800 needed to make chips, and then they basically outsourced to Asia, 0:16:38.920 --> 0:16:42.280 to Taiwan, to South Korea, to Japan and elsewhere. And 0:16:42.280 --> 0:16:45.760 that's something that doesn't sit comfortably with the United States, 0:16:45.880 --> 0:16:48.640 and it doesn't see it comfortably with China. So ironically, 0:16:48.720 --> 0:16:50.920 China and the US are in a similar position, have 0:16:50.960 --> 0:16:54.160 a similar level of discomfort that they don't have control 0:16:54.280 --> 0:16:58.200 over the manufacturing of even the chips that they design themselves, 0:16:58.240 --> 0:17:01.560 and both sides both aging of Washington is something about it, 0:17:01.600 --> 0:17:03.520 and find a lot of money to try and rectify 0:17:03.600 --> 0:17:06.879 that problem, literally passing the Chips Act of fifty two 0:17:06.920 --> 0:17:10.440 billion dollars to award domestic semiconductor production in the United States. 0:17:10.640 --> 0:17:14.040 Now you're in Taipei. Obviously Taiwan is watching all of 0:17:14.080 --> 0:17:16.800 this with huge interest as well. Talk to us about 0:17:16.840 --> 0:17:18.879 t s m C. T s MCS model is to 0:17:18.960 --> 0:17:22.159 allow its own clients design their own chips. But it's 0:17:22.200 --> 0:17:26.159 a company that produces nine of the world's most advanced semiconductors. 0:17:26.760 --> 0:17:30.199 Will it be a victim of this chip war? You 0:17:30.200 --> 0:17:32.600 could say it's victim chip war. It's also, I guess, 0:17:32.600 --> 0:17:35.919 a major beneficiary of the chip war. They're definitely in 0:17:35.920 --> 0:17:39.760 the crosses of Beijing. Is sorts of stark humor about 0:17:39.840 --> 0:17:43.040 you know, taking Taiwan just for the chips that of 0:17:43.119 --> 0:17:45.879 course would not work it with sale At the same time, 0:17:46.000 --> 0:17:49.200 Taiwan and itself front and center of the global stage 0:17:49.400 --> 0:17:52.639 because now suddenly everyone has woken up and realized how 0:17:52.760 --> 0:17:54.880 much they need to Taiwan and how much they need 0:17:54.920 --> 0:17:58.720 to people like myself has been watching this for two decades. 0:17:58.760 --> 0:18:01.520 They've known about it a long time, but it's happened 0:18:01.600 --> 0:18:05.760 kind of under their nerses without people realizing it. Now, suddenly, 0:18:05.760 --> 0:18:09.440 with the pandemic chip shortages and it's greater need for 0:18:09.520 --> 0:18:12.600 more electronic products, everybody's woken up and realized how much 0:18:12.640 --> 0:18:16.280 they need the am and seeing they're doing well, this 0:18:16.480 --> 0:18:18.640 is great. You want me to sell off a factory 0:18:18.680 --> 0:18:21.840 in in your territory, showing me the money. And that's 0:18:21.880 --> 0:18:24.040 what they're doing with Arizona, that's what they're doing with 0:18:24.200 --> 0:18:26.720 the kind of what they may be in Europe. They're 0:18:26.760 --> 0:18:29.680 getting up countries to basically pulling up some of the 0:18:29.760 --> 0:18:33.040 different setting up a factory. ANC isn't a very nice 0:18:33.040 --> 0:18:35.600 spot right well, and so this brings me to another point. 0:18:35.760 --> 0:18:38.280 Chris Miller has written a history of semi conductors. It 0:18:38.320 --> 0:18:41.280 concludes that basically World War Two was decided by steal 0:18:41.359 --> 0:18:44.560 an aluminum. The Cold War was behind by atomic weapons, 0:18:44.640 --> 0:18:47.040 and the rivalry, he says, between the U. S and China, 0:18:47.119 --> 0:18:50.720 may well be determined by computing power. Is that an overstatement? 0:18:51.359 --> 0:18:53.600 I think that's pretty true. Even if you think of 0:18:53.680 --> 0:18:56.920 kinetic weapons, that is, in the bombs and missiles and planes, 0:18:57.320 --> 0:18:59.840 they need chips. In fact, you know the first guided 0:19:00.040 --> 0:19:03.560 missiles which were deployed in Vietnam the Americans, we are 0:19:03.600 --> 0:19:05.639 dropping a lot of bombs on Vietnam and something was 0:19:05.960 --> 0:19:08.480 their charcus. And still they use cemic conductors to help 0:19:08.760 --> 0:19:11.520 guide them to their destination. And then of course we 0:19:11.600 --> 0:19:14.640 have a cyber warfare, and that is a huge, huge, 0:19:14.760 --> 0:19:17.320 you know, you can create a lot of damage by 0:19:17.359 --> 0:19:20.600 hacking your rival systems. We saw that happened when a 0:19:20.760 --> 0:19:25.119 US route including the UN hacked into around Nuclear Fund 0:19:25.320 --> 0:19:28.320 and basically messed up their center view US for making 0:19:28.400 --> 0:19:33.119 nuclear materials. We've also seen that when Colonial pipeline brought 0:19:33.160 --> 0:19:37.480 down by hackers last year. So the cemic conductor is 0:19:37.640 --> 0:19:40.640 very important in this process. At the end of the day, 0:19:40.640 --> 0:19:42.639 you still need boots on the ground. Is it going 0:19:42.680 --> 0:19:46.000 to take the territory as as Vadimir quick't be discovering, 0:19:46.440 --> 0:19:48.680 But semic conductor is a very important part of being 0:19:48.680 --> 0:19:51.760 able to do that. Tim Colp as always do get 0:19:51.800 --> 0:19:54.960 in touch. Comments and opinions always welcome at Volley Quinn 0:19:55.000 --> 0:19:57.640 on Twitter or email v Quinn at Bloomberg dot net. 0:19:58.480 --> 0:20:02.359 Many commodity prices are down to stantially from their peaks. That's, however, 0:20:02.480 --> 0:20:05.800 cold comfort for nearly eight hundred million food insecure around 0:20:05.800 --> 0:20:09.280 the world. Let's get to David Fickling for some explanation. So, David, 0:20:09.320 --> 0:20:11.560 there was huge relief in grain markets when we saw 0:20:11.640 --> 0:20:14.080 that first ship leave the port of Odessa for Elebanon. 0:20:14.400 --> 0:20:16.679 Prices have come down for all sorts of grains and 0:20:16.800 --> 0:20:19.040 oil seeds, and it's a big difference from when we 0:20:19.080 --> 0:20:22.119 spoke earlier in the year about the difficulties in palm oil, 0:20:22.320 --> 0:20:25.440 wheat and other markets. But in terms of food security, 0:20:25.800 --> 0:20:28.800 the situation is much more complicated and multi factored than 0:20:28.920 --> 0:20:32.160 simply prices are too high. I think that's right. It's 0:20:32.280 --> 0:20:35.040 very much feels like we've passed the sort of acute 0:20:35.040 --> 0:20:39.040 phase of food crisis. But I think there's a chronic 0:20:39.119 --> 0:20:42.240 problem underlying this. To use the sort of medical metaphor, 0:20:42.320 --> 0:20:45.360 I mean, you look at a bunch of commodities, spring wheets, 0:20:45.400 --> 0:20:47.879 the benchmark in the US, it's done more than a 0:20:47.960 --> 0:20:50.320 third at this point from where it was in March. 0:20:50.560 --> 0:20:52.840 Palm all you mentioned oil feeds that stounds forty percent 0:20:53.040 --> 0:20:56.119 in April corn prices than by nearly a course in 0:20:56.280 --> 0:20:59.639 sort of my sugar and Arabic at coffee. They're all 0:21:00.000 --> 0:21:02.680 on year nine months load. But although the price of 0:21:02.720 --> 0:21:07.120 these commodities are still actually reasonably hired by ten years standards, 0:21:07.280 --> 0:21:09.160 certainly compared to where we where a few months ago, 0:21:09.200 --> 0:21:11.879 there's come down a great deal and we're starting to 0:21:11.960 --> 0:21:14.359 see signs that maybe certainly things were returning to normal. 0:21:14.600 --> 0:21:17.359 So that great, and we should be very excited for 0:21:17.520 --> 0:21:20.040 the world's poor and hungry that perhaps they have a 0:21:20.160 --> 0:21:22.480 chance to get food again. But that's not quite the case, 0:21:22.640 --> 0:21:25.600 is it. That's right, because I think there's a tendency 0:21:25.720 --> 0:21:28.600 for us in rich countries, looking at commodity markets to 0:21:28.840 --> 0:21:33.280 rather overestimate the importance of the prices of benchmark commodity 0:21:33.400 --> 0:21:36.560 futures as a sort of index of the affordability of 0:21:36.640 --> 0:21:39.879