WEBVTT - PAG's Shan on China Stimulus, Private Consumption 0:00:02.520 --> 0:00:06.560 You're listening to Asia Centric from Bloomberg Intelligence, the podcast 0:00:06.600 --> 0:00:10.040 that explores the big ideas and trends moving money across 0:00:10.080 --> 0:00:12.640 the region. I'm John Lee in Hong Kong. 0:00:12.560 --> 0:00:15.160 And I'm Kai te Dmitriyeva, also in Hong Kong. 0:00:15.800 --> 0:00:16.120 John. 0:00:16.239 --> 0:00:19.040 It's hard to fathom right now, but there was a 0:00:19.079 --> 0:00:22.480 time when the US and China actually got along, when 0:00:22.600 --> 0:00:26.480 trade investment between the two countries was flourishing. Rather than 0:00:26.480 --> 0:00:29.560 the current period we've got tensions and tariffs. 0:00:30.160 --> 0:00:33.520 Our guest today, Weijian Shan, had a front row seat 0:00:33.600 --> 0:00:37.640 during this exciting period. He's the executive chairman of PAG, 0:00:38.240 --> 0:00:41.720 an alternative investment firm focused on the Asia Pacific region 0:00:42.040 --> 0:00:45.480 with fifty five billion dollars in assets under management. He's 0:00:45.520 --> 0:00:48.559 also the author of three books, including one of my 0:00:48.640 --> 0:00:52.040 personal favorites on China, Out of Gobi, My Story of 0:00:52.120 --> 0:00:55.720 China and America. Welcome Weijin Shan to Asia Centric. 0:00:56.200 --> 0:00:58.760 Thank you, and Sean. 0:00:58.880 --> 0:01:01.440 I know you prefer to be called that, even though that. 0:01:01.480 --> 0:01:04.120 Was my last name, my family name. Everybody calls me 0:01:04.440 --> 0:01:06.000 find that last name Sean. 0:01:06.120 --> 0:01:09.959 Good to know Sean. Many people might know you as 0:01:09.959 --> 0:01:13.560 a pioneer of private equity investing in Asia. What they 0:01:13.680 --> 0:01:16.800 might not know is that you were also a professor 0:01:16.959 --> 0:01:20.000 at the Wharton School, and Janet Yellen actually was your 0:01:20.200 --> 0:01:23.640 academic advisor at Berkeley. She also wrote the intro to 0:01:23.720 --> 0:01:26.880 the book that John just mentioned. So before discussing your 0:01:26.959 --> 0:01:29.640 day job and private equity, I wanted to get your 0:01:29.640 --> 0:01:33.360 thoughts on what's happening in China's economy. You know, there's 0:01:33.360 --> 0:01:36.360 been a lot. We just had several rounds of stimulus 0:01:36.400 --> 0:01:40.480 announced by authorities. Still seems like it falls short of 0:01:40.520 --> 0:01:43.360 removing all real estate curbs, which is something you had 0:01:43.360 --> 0:01:46.959 spoken about with US earlier this year. So, given everything 0:01:47.000 --> 0:01:50.880 that's happening, given what officials have announced, is it enough 0:01:51.160 --> 0:01:54.800 do you think to finally jumpstart the economy in China? 0:01:56.200 --> 0:01:59.960 Whether or not the measures taken by the Chinese government 0:02:00.600 --> 0:02:04.320 since I would say September twenty fourth, when they announced 0:02:04.440 --> 0:02:09.679 a major monetary package to stimulate the economy, I think 0:02:09.720 --> 0:02:14.320 it's too early to tell. In two ways. First, we 0:02:14.400 --> 0:02:17.239 don't see or I don't know if it's a full 0:02:17.320 --> 0:02:21.280 package as yet. What they announced on September twenty fourth 0:02:22.080 --> 0:02:26.919 was a package to stimulate the economy, but in monetary 0:02:27.000 --> 0:02:29.960 terms only and that is they cut the interest rates, 0:02:30.040 --> 0:02:34.080 they cut the reserve ratios, and they released liquidity into 0:02:34.120 --> 0:02:38.240 the system. But that's on the monetary side, and I 0:02:38.240 --> 0:02:43.520 think the market was respecting more measures. On the physical side. 0:02:44.240 --> 0:02:48.920 They have made some announcement, but I don't think that's completed. 0:02:50.040 --> 0:02:56.240 Some measures may have to be taken after further internal process, 0:02:56.280 --> 0:03:00.280 for example the approval of the Standing Committee of the 0:03:00.280 --> 0:03:05.440 People's Congress. So I don't think that the other shoe 0:03:05.639 --> 0:03:10.040 has completely dropped. With regard to the market. As we 0:03:10.120 --> 0:03:16.480 have seen, the market has reacted quite positivity. In fact, 0:03:16.560 --> 0:03:21.400 the first announcement took the market by surprise with regard 0:03:21.440 --> 0:03:25.359 to its magnitude. But I think the market is also 0:03:25.960 --> 0:03:31.440 waiting for whatever physical measures then the government is going 0:03:31.480 --> 0:03:35.320 to announce, and whether it's going to be a big 0:03:35.360 --> 0:03:39.840 package or they're going to release small timeages, one step 0:03:39.880 --> 0:03:44.280 at the time. But the stock market has reacted quite positively, 0:03:45.160 --> 0:03:48.120 and if you look at data on the housing market 0:03:48.880 --> 0:03:52.720 in the first two weeks of October, it has been positive. 0:03:53.720 --> 0:03:58.120 And the good question is whether or not this rebound 0:03:58.760 --> 0:04:00.000 will be sustained. 0:04:01.200 --> 0:04:03.040 Do you think it will be well? 0:04:03.080 --> 0:04:08.240 Again, it's too early to tell because more measures hopefully 0:04:08.360 --> 0:04:13.040 will be taken. And I think that in order to 0:04:13.080 --> 0:04:18.760 completely turn around expectations, which is the key, the measures 0:04:18.800 --> 0:04:22.120 will have to be bold. It has to be very big, 0:04:22.760 --> 0:04:27.280 and it has to be consistent and has to be continuous. 0:04:27.720 --> 0:04:31.960 So this is a very early stage, and I don't 0:04:31.960 --> 0:04:36.279 think that we have seen the full impact of the 0:04:36.320 --> 0:04:39.839 measures on the economy. So it's too early to tell. 0:04:40.839 --> 0:04:45.960 And the hope is that the policy makers have made 0:04:46.080 --> 0:04:51.480 decisions to turn around the economy and the market. Now 0:04:51.520 --> 0:04:55.280 they will have to own it, and therefore they will 0:04:55.320 --> 0:04:58.599 have to make sure that the measures are sufficient to 0:04:58.680 --> 0:05:05.039 sustain the recovery, not only in the stock market, in 0:05:05.080 --> 0:05:09.360 the housing market, but also in the confidence in the marketplace. 0:05:10.720 --> 0:05:14.440 You mentioned fiscal policy. Now a lot of pundits are 0:05:14.480 --> 0:05:18.359 waiting for a fiscal berzuokah, so to speak, Why do 0:05:18.400 --> 0:05:21.320 you think the authorities have been so reluctant so far 0:05:21.520 --> 0:05:23.400 to release these measures. 0:05:24.360 --> 0:05:29.440 I think in the past few years the policy makers 0:05:30.279 --> 0:05:36.520 have stuck to the impressive rule that physical deficit should 0:05:36.560 --> 0:05:41.239 now exceed three percent of GDP, and there's no such 0:05:41.360 --> 0:05:46.800 fast rule anywhere in the world. At one time in 0:05:46.839 --> 0:05:51.000 the past, some Western countries thought it's prudent not to 0:05:51.040 --> 0:05:54.480 exceed three percent of GDP. But if you look at 0:05:54.480 --> 0:05:59.039 the United States in twenty twenty and twenty one, deficit 0:05:59.360 --> 0:06:02.520 reached teen point five percent. Currently, I think it's about 0:06:02.520 --> 0:06:06.800 seven percent, So to stick to the three percent rule 0:06:07.200 --> 0:06:12.720 is too potent, too conservative. Another thing I think that 0:06:12.720 --> 0:06:19.159 has prevented them from taking variable measures is that every 0:06:19.240 --> 0:06:23.680 policy has pros and costs, and if you focus on 0:06:23.720 --> 0:06:27.360 the cost, then you don't want to do anything because 0:06:27.400 --> 0:06:34.279 if become reserverse, we're not the cost. For example, China's 0:06:34.720 --> 0:06:38.040 interest rate prevading interest rate at this point is still 0:06:38.040 --> 0:06:42.040 about four percent. Inflation rate is zero point four percent 0:06:42.120 --> 0:06:45.960 CPI last month, so basically it doesn't exist, and in 0:06:46.000 --> 0:06:51.320 fact there's deflationary pressure. But as the fact was raising 0:06:51.400 --> 0:06:55.799 interest rates, and if China cuts interest rates, of course 0:06:55.920 --> 0:07:01.440 that food pressure on the change rate. Cut these interest 0:07:01.520 --> 0:07:04.560 rates just about a month ago, I think they were 0:07:04.640 --> 0:07:09.120 very reluctant to eat on the money to resign right. 0:07:10.360 --> 0:07:15.560 So I think that's probably a reason why no older 0:07:15.880 --> 0:07:20.840 measures have been taken until very recently. But now I 0:07:20.840 --> 0:07:25.920 think the priority has shifted towards making sure that they 0:07:25.920 --> 0:07:30.640 will achieve the growth target of five percent and if 0:07:30.680 --> 0:07:34.680 you do do something bolder, more aggressive, you will not 0:07:34.800 --> 0:07:37.920 be able to do it. And that's why I think 0:07:38.400 --> 0:07:41.920 they are rolling out these measures just to make sure 0:07:42.760 --> 0:07:45.520 that they will achieve the target and to make sure 0:07:46.120 --> 0:07:48.480 that the growth can be sustained as well. It's not 0:07:48.560 --> 0:07:53.040 just for this year and hopefully for a longer term. 0:07:53.200 --> 0:07:55.160 Do you expect, by the way, the China to make 0:07:55.360 --> 0:07:56.880 around five percent growth this year? 0:07:58.280 --> 0:08:02.680 I never had any doubt since the beginning of twenty 0:08:02.880 --> 0:08:08.280 twenty two. If they announced a growth target, they will 0:08:08.320 --> 0:08:11.080 be more or less achieve that target. I don't know 0:08:11.120 --> 0:08:14.720 if they will do it precisely, but around that number 0:08:14.960 --> 0:08:17.559 I have no doubt at all they will be able 0:08:17.600 --> 0:08:20.400 to achieve it. The reason for that is very simple. 0:08:21.440 --> 0:08:27.600 It is because China has more policy space, policy rules 0:08:27.960 --> 0:08:32.000 than any other major economy in the world. I already mentioned. 0:08:32.160 --> 0:08:37.480 On the monetary side, interest rate remains quite high. Last 0:08:37.559 --> 0:08:41.680 year at this time was more than five percent, and 0:08:41.720 --> 0:08:45.560 there's no inflation, so there's a room to ease on 0:08:45.600 --> 0:08:50.160 the monetary side. In fact, if we look at another metric, 0:08:50.600 --> 0:08:55.560 which is the reserve requirement ratio for banks to park 0:08:55.720 --> 0:08:59.959 their departits with a central bank, even with fifty five 0:09:00.040 --> 0:09:06.920 vis points cut on September twenty fourth, the average reserve 0:09:07.040 --> 0:09:14.400 ratio remains seven percent. One percentage drop on the reserve 0:09:14.520 --> 0:09:19.400 ratio would release through treating R and B about three 0:09:19.480 --> 0:09:22.920 hundred billion US donors liquidity into the system, So they 0:09:22.960 --> 0:09:26.200 have a lot of room to stimulate the economy on 0:09:26.240 --> 0:09:32.280 the monetary side. On the physical side, China's central governments 0:09:32.840 --> 0:09:37.040 that as a percentage of GDP is among the lowest 0:09:37.600 --> 0:09:41.000 among major economies in the world. If they want to 0:09:41.040 --> 0:09:44.360 expand on the physical side, they have plenty of room 0:09:44.400 --> 0:09:47.840 to do so, and that's why I'm quite confident they 0:09:47.880 --> 0:09:51.360 will be able to achieve their target if they wish to, 0:09:51.520 --> 0:09:54.280 because they have the tools to do so. In the 0:09:54.360 --> 0:09:59.360 United States, for example, the fat didn't have any policy 0:09:59.440 --> 0:10:02.960 space to ease on the monetary side in the past 0:10:03.000 --> 0:10:07.160 two years because they have to contain inflation, right, so 0:10:07.160 --> 0:10:10.160 they could only tightened. But that's not the situation in 0:10:10.240 --> 0:10:13.360 China today, so there's. 0:10:13.160 --> 0:10:16.040 A lot more policy space that could help with growth. 0:10:16.400 --> 0:10:19.920 How concerned are you though about deflation and the potential 0:10:20.120 --> 0:10:23.960 for sort of a deflationary spiral in China or do 0:10:23.960 --> 0:10:25.760 you think that the policy space kind of addresses that 0:10:25.840 --> 0:10:26.200 as well. 0:10:27.320 --> 0:10:34.199 Yes, I think that again deflation is a result of 0:10:34.320 --> 0:10:42.560 function of monetary policy being too tight, and if you 0:10:42.720 --> 0:10:47.120 loosen on the monetary side, obviously that would help on 0:10:47.320 --> 0:10:52.600 price levels. I think the problem with deflationary pressure in 0:10:52.679 --> 0:10:57.360 China is not so much the result of monetary policy, 0:10:58.160 --> 0:11:03.520 but as a result of over competition almost every major 0:11:03.600 --> 0:11:06.200 industry that you can think of. You know, just look 0:11:06.200 --> 0:11:11.880 at the electric vehicle sector. There are probably one or 0:11:11.880 --> 0:11:17.280 two hundred even makers in China, maybe more than all 0:11:17.320 --> 0:11:21.760 the even makers combined in the world. Right, so the 0:11:21.920 --> 0:11:26.559 competition is cut throat, and they compete of course by 0:11:26.760 --> 0:11:32.319 depression prices, and I think that's a major deflator of 0:11:32.520 --> 0:11:35.920 the economy. But again, you know, if you stimulate the 0:11:35.960 --> 0:11:40.040 economy with monetary policies, you should be able to help 0:11:40.480 --> 0:11:44.800 change the expectations on the price side and therefore hopefully 0:11:44.920 --> 0:11:46.800 raised price levels across the board. 0:11:47.880 --> 0:11:50.760 Do you see that happening anytime in the next year, 0:11:51.200 --> 0:11:53.040 in the next twelve months. 0:11:52.840 --> 0:11:58.280 I think again, if they're consistent with the stiumulus policies, 0:11:58.720 --> 0:12:02.400 both on the monitory side on the physical side, you 0:12:02.440 --> 0:12:07.280 would expect that to happen. Where does that money go, right, 0:12:07.720 --> 0:12:12.520 so it has to have some impact on price levels eventually. Yes. 0:12:13.120 --> 0:12:16.520 And for example, you know, if we look at the 0:12:16.640 --> 0:12:23.440 property market, housing market expectations hopefully are shifting. We don't 0:12:23.440 --> 0:12:26.720 know if has completely shifted. But in the first two 0:12:26.800 --> 0:12:32.520 weeks of October, especially during this national holiday period, you 0:12:32.600 --> 0:12:37.560 have seen prices stabilizing in the property sector, but you 0:12:37.640 --> 0:12:45.360 have seen the sales increasing quite dramatically. So I think 0:12:45.400 --> 0:12:51.560 it takes time. But if the policies don't continue to 0:12:51.600 --> 0:12:57.520 support the signals send out on September twenty fourth with 0:12:57.640 --> 0:13:02.560 a big monetary steamulus package, then things may face all 0:13:02.600 --> 0:13:06.000 out right, So I hope they keep doing that. I mean, 0:13:06.440 --> 0:13:10.760 they can't keep doing that, but it shows a change 0:13:11.040 --> 0:13:16.520 in policy attitude to support the economy. And then once 0:13:17.240 --> 0:13:20.440 they made up their mind to do so, you would 0:13:20.480 --> 0:13:23.880 expect that they have the tools to achieve their goals. 0:13:25.000 --> 0:13:28.839 Asia Centric is produced by Bloomberg Intelligence, where more than 0:13:28.840 --> 0:13:32.840 five hundred experienced analysts and strategists work around the clock 0:13:32.920 --> 0:13:36.840 to bring you timely, world class research. Our coverage spans 0:13:36.880 --> 0:13:41.560 two hundred market indices, currencies, commodities, and industries, as well 0:13:41.600 --> 0:13:44.800 as over two thousand equities and credits. If you like 0:13:44.840 --> 0:13:49.160 what you hear, don't forget to subscribe and shair Sean, 0:13:49.280 --> 0:13:53.320 you did mention over capacity is an issue and if 0:13:53.360 --> 0:13:57.679 I could digress. Bloomberg News recently interviewed former President Donald 0:13:57.720 --> 0:14:01.559 Trump and he mentioned that is his favorite word in 0:14:01.600 --> 0:14:05.000 the English dictionary. I wanted to get your views. What's 0:14:05.200 --> 0:14:08.920 your views on the impact of tariffs and how can 0:14:08.960 --> 0:14:12.920 it impact China's economic growth trajectory. 0:14:13.520 --> 0:14:20.000 We were talking about whether or not China's stimulus measures 0:14:20.480 --> 0:14:26.760 announced recently would have the desired effect on the market, 0:14:27.000 --> 0:14:30.360 on the property market, on the stock market, and on 0:14:30.400 --> 0:14:34.240 the economy in general. And I just said, it's too 0:14:34.280 --> 0:14:39.880 early to tell because barely a month has passed since 0:14:39.920 --> 0:14:43.400 they made the first announcement, and they may announce new 0:14:43.480 --> 0:14:47.520 measures in the days to come. But when it comes 0:14:47.520 --> 0:14:52.640 to the trade war, we've had a history already because 0:14:53.720 --> 0:14:59.920 trade war started in twenty eighteen during the first trum administra. 0:15:01.880 --> 0:15:05.000 And then that's six years ago, so we have enough 0:15:05.040 --> 0:15:10.040 time to observe whether or not the trade war has 0:15:10.640 --> 0:15:16.720 achieved this intended effect for the United States and for 0:15:16.760 --> 0:15:22.440 its effect on the Chinese trade or the economy. And 0:15:22.760 --> 0:15:27.360 I must say that data tell us it has produced 0:15:27.520 --> 0:15:31.800 no effect on the Chinese economy at all, in the 0:15:31.880 --> 0:15:37.960 sense of denting its esports capability or retarding its economic growth. 0:15:39.000 --> 0:15:43.000 In twenty eighteen, the year before the trade war started, 0:15:43.080 --> 0:15:48.560 or the year in which the trade war started, China's 0:15:49.120 --> 0:15:54.440 total esports represented about thirteen percent of the world's total. 0:15:55.680 --> 0:16:01.200 Today is fifteen percent. Actually, Chinese esports have increased. 0:16:01.520 --> 0:16:04.440 Also diversified more Southeast Asia trade. 0:16:04.560 --> 0:16:11.720 Precisely, China's esports as a percentage of American's total imports 0:16:12.120 --> 0:16:18.080 have decreased. China's total esports have not decreased. An American's 0:16:18.120 --> 0:16:23.040 trade deficit has not narrowed. So the trade war has 0:16:23.080 --> 0:16:29.239 not achieved the objective of reducing deficit for the United States. 0:16:29.480 --> 0:16:33.320 It has not achieved the objective of reducing a sports 0:16:33.360 --> 0:16:37.000 for China. So what has it achieved. It has made 0:16:37.880 --> 0:16:41.160 the worlding called me much less efficient. You're talking about 0:16:41.320 --> 0:16:46.960 moving from the most efficient producer to second best. Right. 0:16:47.720 --> 0:16:52.680 It has made American cornmy less efficient. It has contributed 0:16:53.000 --> 0:16:57.160 to inflation. So if that's the history, if that's the 0:16:57.240 --> 0:17:03.320 track record, you can imagine that more terriffs is not 0:17:03.440 --> 0:17:07.399 going to achieve any further results than what we have 0:17:07.520 --> 0:17:12.760 seen already. Those are just fashion numbers, right, and anybody 0:17:12.760 --> 0:17:13.200 can check. 0:17:13.920 --> 0:17:15.960 Do you think it'll get harder though? You know, we 0:17:16.000 --> 0:17:19.520 have a candidate, Donald Trump who's proposing sixty percent tariffs. 0:17:20.000 --> 0:17:21.040 Would that change the math? 0:17:22.080 --> 0:17:27.760 It will get harder, But I would say that that's 0:17:27.800 --> 0:17:29.760 not going to be very good for the United States, 0:17:30.040 --> 0:17:33.199 for sur prices are going to go up because consumers 0:17:34.000 --> 0:17:39.400 hate the terriffs. And if America does not buy from 0:17:39.480 --> 0:17:43.240 China because it's too expensive, then will buy from other 0:17:43.280 --> 0:17:50.040 countries where costs may be higher. I read an article 0:17:50.200 --> 0:17:54.919 by Boomberg on trailers sold in the United States. You know, 0:17:55.560 --> 0:18:00.560 now trade is very much done by big containers across 0:18:00.760 --> 0:18:04.520 the ocean, and then once they land somewhere, then you 0:18:04.560 --> 0:18:07.600 will have to use trailers to take all these containers 0:18:08.000 --> 0:18:11.800 to different places. This article, which is quite lengthy but 0:18:12.720 --> 0:18:18.760 very interesting, basically told a story of a Chinese Soe 0:18:19.040 --> 0:18:23.159 state owned company being a dominant supplier of trailers in 0:18:23.160 --> 0:18:27.359 the US market before the Biden administration imposed a two 0:18:27.480 --> 0:18:32.320 hundred and twenty percent tariff on all the trailers imported 0:18:32.359 --> 0:18:37.240 from China. So this company set up a production facility 0:18:37.400 --> 0:18:40.439 in the United States and continue to sell to the 0:18:40.560 --> 0:18:45.919 US market and then this Chinese company filed a lawsuit 0:18:46.240 --> 0:18:51.800 against this American competitor for importing components from China without 0:18:51.880 --> 0:18:54.520 being the twenty percent terrors. 0:18:54.680 --> 0:18:56.320 I believe that was Shawn don In. That was a 0:18:56.359 --> 0:18:58.200 Shawn don In special exactly. 0:18:58.680 --> 0:19:03.080 Then this American company got into serious trouble. So these 0:19:03.119 --> 0:19:07.760 two companies are both in trouble now, and the sales 0:19:07.760 --> 0:19:11.280 in the United States almost collapsed as a result of 0:19:11.320 --> 0:19:16.080 these terraffs, which we're supposed to protect the US market 0:19:16.200 --> 0:19:20.879 and US producers ended up not protecting anyone right. And 0:19:20.920 --> 0:19:25.439 I also think that a major vulnerability in the Chinese 0:19:25.520 --> 0:19:32.840 economy its dependent on esports on foreign markets. I think 0:19:32.840 --> 0:19:36.000 it's a good thing for China not to rely so 0:19:36.480 --> 0:19:41.960 heavily on a sport markets on foreign markets. Especially today, 0:19:43.160 --> 0:19:47.840 protectionism miss on the rise and many countries are wary 0:19:48.680 --> 0:19:53.840 about Chinese products flooding into their markets. At the same time, 0:19:54.880 --> 0:20:00.639 domestic demand is insufficient. So I think that China needs 0:20:00.640 --> 0:20:03.960 to shift its growth model, and I've been talking about 0:20:04.000 --> 0:20:09.119 this in the past ten years, away from investments and 0:20:09.320 --> 0:20:14.920 esports in the direction private consumption, which represents only about 0:20:14.920 --> 0:20:17.080 forty percent of Chinese GDP. 0:20:17.160 --> 0:20:20.200 Compared to something like seventy seventy five in the US. 0:20:20.160 --> 0:20:25.040 Sixty eight percent private consumption for the United States. Right, 0:20:25.520 --> 0:20:30.760 so China needs to shift its growth model in order 0:20:30.800 --> 0:20:35.879 to sustain is economic growth. There's another thing, you know. 0:20:35.960 --> 0:20:41.840 The biggest advantage the Chinese economy has more than any 0:20:42.119 --> 0:20:45.960 other major economy by a big margin, is the savings rate. 0:20:47.200 --> 0:20:52.720 That gives its a huge advantage because savings rate, in 0:20:52.800 --> 0:20:57.920 terms of macroeconomics is roughly equal to investment rate. So 0:20:57.960 --> 0:21:02.440 the reason that has been able to grow so rapidly 0:21:02.520 --> 0:21:05.880 in the past few decades, it's because it has such 0:21:05.880 --> 0:21:09.800 a high savings rate that it's fixed asse investments have 0:21:09.920 --> 0:21:13.680 been representing about forty five percent of GDP year after year. 0:21:14.920 --> 0:21:18.880 But what's China doing right now with that high savings rate. 0:21:19.640 --> 0:21:23.120 It exports it to the United States. Have you noticed 0:21:23.160 --> 0:21:26.840 that it has three trillion dollars of foreign change reserves. 0:21:28.280 --> 0:21:32.439 Not long ago, it was the largest owner of treasure 0:21:32.480 --> 0:21:35.640 bills to assumee about trillion dollars. Now I think they 0:21:35.640 --> 0:21:38.719 have trimernated it down to about eight hundred or more 0:21:38.760 --> 0:21:41.119 than eight hundred bill US dollars. Still we're in a 0:21:41.200 --> 0:21:45.480 large amount. So the esports savings to the United States 0:21:45.760 --> 0:21:51.119 helping America to be able to grow its economy, and 0:21:51.240 --> 0:21:57.200 America doesn't appreciate it. Right, So if the external environment 0:21:57.600 --> 0:22:01.879 the theories, then China will have to focus on investing 0:22:01.920 --> 0:22:06.120 that money in the domestic market again, shifting away from 0:22:06.160 --> 0:22:10.240 investments and esports to private consumption. I think in the 0:22:10.320 --> 0:22:12.320 long run that's what China should do. 0:22:13.840 --> 0:22:15.919 I guess how do you spur that to happen? 0:22:15.960 --> 0:22:16.160 Though? 0:22:16.200 --> 0:22:18.560 That's sort of the trillion dollar question. 0:22:18.680 --> 0:22:24.000 Yes, yes, you can't because again I've been talking about 0:22:24.000 --> 0:22:29.280 this for probably more than a decade, and it's very 0:22:29.280 --> 0:22:34.159 difficult to change it. Because if the esport market is 0:22:34.200 --> 0:22:38.880 so good, now, why don't esport during the COVID years 0:22:39.080 --> 0:22:42.440 as you remember in twenty twenty and twenty twenty one, 0:22:43.160 --> 0:22:47.200 and China was exporting everything to all over the world 0:22:47.600 --> 0:22:50.920 and esports went up very substantially during that period of time. 0:22:51.840 --> 0:22:56.160 So I don't think left to their own devices, they 0:22:56.200 --> 0:22:59.040 would be able to make the shift. Because you can't 0:22:59.080 --> 0:23:02.960 control all theate owned companies. You can't just tell them 0:23:03.040 --> 0:23:06.239 not to sell to esport markets, but to sell to 0:23:06.280 --> 0:23:10.040 the domestic market or somehow to help with domestic consumption. 0:23:10.119 --> 0:23:12.800 You can't do it. You know, it's like what Adam 0:23:12.880 --> 0:23:16.720 Smith said, everybody is for himself and there's no visible 0:23:16.760 --> 0:23:25.600 hand directing all these parties. Unless the esport market somehow 0:23:25.720 --> 0:23:29.040 becomes more difficult, and that is a trail war. That's 0:23:29.040 --> 0:23:31.320 why I don't think that trade war is necessarily bad 0:23:31.320 --> 0:23:34.040 thing for China for the long term, and many people 0:23:34.040 --> 0:23:36.639 don't realize that. And I think that they will have 0:23:36.720 --> 0:23:40.800 to be forced to focus on domestic market if the 0:23:40.960 --> 0:23:46.800 conditions of foreign markets become very bad, are too expensive. 0:23:47.080 --> 0:23:51.080 You know, think about it. If the Biden administration has 0:23:51.200 --> 0:23:56.480 raised terrors on Chinese eees to what one hundred percent 0:23:56.640 --> 0:23:59.760 or more, I don't know, if it has fast Congress, 0:24:00.080 --> 0:24:03.480 but you know that makes it very difficult for them 0:24:03.480 --> 0:24:05.160 to ask for to the US market. 0:24:06.440 --> 0:24:07.280 Then what do they do? 0:24:07.640 --> 0:24:10.240 They will have to focus on the domestic market. 0:24:11.240 --> 0:24:13.359 Sean, We've talked about a lot of things like the 0:24:13.400 --> 0:24:19.080 geopolitical risks, the threat of tariffs, over capacity in certain industries, 0:24:19.119 --> 0:24:21.400 and I think you mentioned evs, but then you also 0:24:21.400 --> 0:24:24.880 said the potential growth of the China consumer sector. Now, 0:24:25.280 --> 0:24:29.720 you run one of the largest alternative investment managers, and 0:24:29.920 --> 0:24:32.560 some of your investments are in China. How do all 0:24:32.600 --> 0:24:38.000 these views you know, coalesce into investing in China right now? 0:24:38.720 --> 0:24:44.400 Well, first of all, PAG my firm is Asia focused 0:24:44.880 --> 0:24:48.720 investment firm, and China is one of our own markets. Yep, 0:24:49.480 --> 0:24:52.680 it's not even the biggest one in the splitting your point, 0:24:53.920 --> 0:25:01.480 because China probably represents about thirty or less of our 0:25:01.560 --> 0:25:09.159 investment portfolio. We're very active in Japan, in Australia, in India, 0:25:09.680 --> 0:25:15.199 in Southeast Asia in addition to China. In Asia, the 0:25:15.240 --> 0:25:20.560 total GDP of Asia Pacific, by our calculation is about 0:25:20.560 --> 0:25:25.879 thirty three treating US donors. China is eighteen treating, so 0:25:25.960 --> 0:25:31.120 it's more than a half. So as a rational investor, 0:25:31.560 --> 0:25:35.200 you know China has to be part of it. EU 0:25:35.640 --> 0:25:39.920 is about seventeen treating dollars in GDP, so China is 0:25:39.960 --> 0:25:44.680 bigger than EU. And China is a single market, whereas 0:25:44.840 --> 0:25:49.040 EU has single currency, but twenty seven countries, different laws, 0:25:49.080 --> 0:25:55.120 different languages, different culture, very fragmented as Southeast Asia. So 0:25:55.240 --> 0:26:02.480 China is part of Asia and China is important for US. 0:26:03.520 --> 0:26:08.880 I think that different types of investors who look at 0:26:09.119 --> 0:26:14.199 Asian markets very differently. For example, if you are a 0:26:14.280 --> 0:26:20.880 venture campal firm, then the most interesting place is China. 0:26:22.119 --> 0:26:26.760 Why would you say that, because on June the twelfth 0:26:26.800 --> 0:26:31.040 of this year, the Economists ran a cover page article 0:26:31.840 --> 0:26:38.600 calling China a technology and scientific silverpower. Today. In August, 0:26:39.680 --> 0:26:45.200 Australian Strategical Policy Institute published what they call twenty year 0:26:45.359 --> 0:26:52.200 Leading Technology Track Study. They follow sixty four leading technologies 0:26:52.280 --> 0:26:56.320 in the world since two thousand and three. In two 0:26:56.400 --> 0:26:59.800 thousand and three, of the sixty four leading technologies in 0:26:59.840 --> 0:27:04.760 the world, and they measure by the biggest impact that 0:27:04.840 --> 0:27:09.439 your research output would have in the literature and so forth. 0:27:10.600 --> 0:27:14.240 In two thousand and three, of the sixty four leading technologies, 0:27:14.840 --> 0:27:19.479 how many do you think America was leading twenty years ago? 0:27:20.119 --> 0:27:22.880 Would it be like fifty of those sixty. 0:27:22.480 --> 0:27:26.560 Four sixty sixty of the sixty four sixty America is 0:27:26.640 --> 0:27:32.240 leading by twenty twenty three, how many do you think 0:27:32.320 --> 0:27:34.720 America I'm. 0:27:34.600 --> 0:27:36.600 Still going to strike out a guess and say that 0:27:36.640 --> 0:27:37.520 it's maybe half that. 0:27:38.920 --> 0:27:45.679 Actually eleven percent of sixty four and that is seven, 0:27:46.160 --> 0:27:50.680 So fell drastically seven of the sixty four. What about 0:27:50.680 --> 0:27:54.399 the rest China now needs? In fifty seven of the 0:27:54.440 --> 0:27:58.680 sixty four, eighty nine percent of the leading technologies in 0:27:58.720 --> 0:28:02.640 the world. So if you're venture capital firm, you would 0:28:02.640 --> 0:28:05.640 invest in the United States, no question about it. Now, 0:28:06.520 --> 0:28:13.320 high impact research doesn't necessarily translate into high technology products. 0:28:13.400 --> 0:28:16.000 You know, I have to caution you in this regard, 0:28:16.680 --> 0:28:22.080 but it's a good measure of what is to come. Right. So, 0:28:22.320 --> 0:28:25.359 if you're a VC firm, there are only two places 0:28:25.560 --> 0:28:28.520 I think you need to invest when it's the United States, 0:28:28.680 --> 0:28:33.000 which is still leading in applications in high technology, and 0:28:33.040 --> 0:28:36.040 the other is China. There are basically no other and 0:28:36.080 --> 0:28:38.840 we are not a VC firm, so we don't invest 0:28:39.400 --> 0:28:43.600 in startup companies and all that. If you're growth company 0:28:44.160 --> 0:28:48.720 that is growth investor, which were not, then you can 0:28:48.800 --> 0:28:55.480 find growth opportunities in China, in Southeast Asia, any India, 0:28:55.560 --> 0:29:00.400 not so much in Japan because there's hardly any growth Japan. 0:29:00.840 --> 0:29:04.400 But if you're a buy on firm, you would invest 0:29:05.160 --> 0:29:09.440 in large markets where you would see very large scale businesses, 0:29:09.840 --> 0:29:13.320 and that would be China, Japan, Australia and India. We're 0:29:13.280 --> 0:29:16.600 a buy on firm, so we're most active in those 0:29:16.680 --> 0:29:21.120 forem markets in Asia, but when it comes to China, 0:29:22.160 --> 0:29:27.560 our strategy is to focus on leading businesses which cater 0:29:27.760 --> 0:29:32.280 to private consumption I just mentioned, I think the future 0:29:32.800 --> 0:29:35.960 is private consumption. Right, the country will have to shift 0:29:36.000 --> 0:29:39.840 this growth model away from investments, away from a sports 0:29:40.320 --> 0:29:45.280