1 00:00:05,680 --> 00:00:09,440 Speaker 1: Hello, Odd Lots listeners. Of course, normally we released new 2 00:00:09,520 --> 00:00:13,600 Speaker 1: episodes on Monday, but today we're bringing you a special 3 00:00:13,840 --> 00:00:18,799 Speaker 1: midweek episode. That's because it's very timely one. Obviously a 4 00:00:18,840 --> 00:00:22,520 Speaker 1: lot of interest in the coronavirus and the effect that 5 00:00:22,680 --> 00:00:25,720 Speaker 1: it's having on supply chains around the world, so we 6 00:00:25,760 --> 00:00:28,120 Speaker 1: didn't want to wait. We didn't want to slot it 7 00:00:28,160 --> 00:00:30,440 Speaker 1: in future in the schedule. We wanted to get it 8 00:00:30,480 --> 00:00:49,320 Speaker 1: out now, and hopefully you've h Hello and welcome to 9 00:00:49,360 --> 00:00:53,320 Speaker 1: another episode of the Odd Lots Podcast. I'm Joe Wisenthal. 10 00:00:53,840 --> 00:00:56,960 Speaker 1: I'm Tray all Away, Tracy. You know, it's really struck 11 00:00:57,040 --> 00:00:59,880 Speaker 1: me in the markets over the last several weeks. I 12 00:01:00,920 --> 00:01:07,200 Speaker 1: go on, Well, obviously the crisis over the coronavirus continues 13 00:01:07,240 --> 00:01:12,600 Speaker 1: to be this massive story for the global economy, for China, Asia, 14 00:01:13,240 --> 00:01:16,800 Speaker 1: all kinds of different companies, and yet investors, in a 15 00:01:16,840 --> 00:01:21,440 Speaker 1: weird way, outside of some specific names or specific currencies, 16 00:01:21,880 --> 00:01:27,080 Speaker 1: still seem surprisingly or maybe not surprisingly, but generally not 17 00:01:27,160 --> 00:01:31,280 Speaker 1: that worried. Right now. Yeah, um, I find this pretty amazing. 18 00:01:31,440 --> 00:01:34,560 Speaker 1: So at the time that we're recording, I think the 19 00:01:34,680 --> 00:01:38,839 Speaker 1: SMP five is still pretty close to its all time high, 20 00:01:39,080 --> 00:01:42,080 Speaker 1: and what amazes me about that is we spent two 21 00:01:42,200 --> 00:01:46,360 Speaker 1: years collectively worrying about how trade tensions between the U 22 00:01:46,440 --> 00:01:50,080 Speaker 1: S and China we're going to affect global supply chains 23 00:01:50,160 --> 00:01:53,440 Speaker 1: and economic growth and consumption, and we sort of followed 24 00:01:53,520 --> 00:01:55,760 Speaker 1: every tiny in and out when it came to the 25 00:01:55,800 --> 00:02:00,520 Speaker 1: trade negotiations. And now when you have something the ownavirus 26 00:02:00,600 --> 00:02:03,680 Speaker 1: and the containment efforts underway in China, you have something 27 00:02:03,720 --> 00:02:09,320 Speaker 1: that is guaranteed to impact production and consumption in the 28 00:02:09,320 --> 00:02:12,919 Speaker 1: world's second biggest economy as well as disrupt a bunch 29 00:02:12,960 --> 00:02:17,480 Speaker 1: of supply chains, and no one seems to care. Yeah, 30 00:02:17,520 --> 00:02:21,320 Speaker 1: it's it's really odd, it's really surprising, it's counterintuitive. It's 31 00:02:21,320 --> 00:02:24,000 Speaker 1: not what I would have guessed. Even this week, the 32 00:02:24,040 --> 00:02:28,119 Speaker 1: week that we're recording it, we got um a warning 33 00:02:28,520 --> 00:02:32,280 Speaker 1: from one of the sort of emblems of US China 34 00:02:32,520 --> 00:02:36,120 Speaker 1: trade globalization, Apple, which is heavily exposed to China on 35 00:02:36,200 --> 00:02:39,840 Speaker 1: the supply chain front and heavily exposed to China on 36 00:02:40,280 --> 00:02:43,320 Speaker 1: the revenue front, saying, look, this quarter is going to 37 00:02:43,360 --> 00:02:48,120 Speaker 1: be worse than we previously expected. Factories aren't opening up 38 00:02:48,440 --> 00:02:51,680 Speaker 1: for our suppliers as fast as we had anticipated. A 39 00:02:51,720 --> 00:02:54,480 Speaker 1: couple of weeks ago, we're not totally sure when things 40 00:02:54,480 --> 00:02:58,240 Speaker 1: will be back to normal. Uh, not to mention the 41 00:02:58,280 --> 00:03:01,880 Speaker 1: fact that people are outlets opping and uh, you know, 42 00:03:01,919 --> 00:03:05,840 Speaker 1: the stock fell about two in the immediate wake of that, 43 00:03:05,919 --> 00:03:09,200 Speaker 1: maybe because people figured this was the case already, And 44 00:03:09,200 --> 00:03:13,000 Speaker 1: then the next day the stock immediately basically erased all 45 00:03:13,040 --> 00:03:18,600 Speaker 1: of those losses. So even a company coming out and saying, um, no, 46 00:03:18,760 --> 00:03:21,600 Speaker 1: this is a serious issue for us, even it's not 47 00:03:21,680 --> 00:03:23,800 Speaker 1: having that much effect on them right now, I guess 48 00:03:23,840 --> 00:03:25,880 Speaker 1: people are so confident that the effects will just be 49 00:03:26,160 --> 00:03:29,080 Speaker 1: transitory and everyone will okay, but be back to be 50 00:03:29,120 --> 00:03:32,480 Speaker 1: back to work eventually. Yeah, and our colleagues over at 51 00:03:32,600 --> 00:03:36,760 Speaker 1: Bloomberg Intelligence actually counted up the number of companies that 52 00:03:36,800 --> 00:03:39,320 Speaker 1: are talking about the coronavirus at the moment, and I 53 00:03:39,360 --> 00:03:43,920 Speaker 1: think they counted something like nine trillion dollars worth or 54 00:03:44,040 --> 00:03:48,480 Speaker 1: companies accounting for nine trillion dollars worth of market cap 55 00:03:48,560 --> 00:03:52,520 Speaker 1: have mentioned the coronavirus. But so far we only really 56 00:03:52,520 --> 00:03:55,040 Speaker 1: have a handful of them who are issuing, you know, 57 00:03:55,120 --> 00:03:57,440 Speaker 1: the kind of warnings that we saw from Apple. Most 58 00:03:57,480 --> 00:04:00,320 Speaker 1: of them are just talking about how it's too really 59 00:04:00,520 --> 00:04:03,480 Speaker 1: to say that, you know, they'll get a direct hit 60 00:04:03,600 --> 00:04:07,360 Speaker 1: but again, frankly, watching all of this uh go down 61 00:04:07,520 --> 00:04:11,080 Speaker 1: in China and in Asia, I find it really difficult 62 00:04:11,120 --> 00:04:15,280 Speaker 1: to see how global supply chains would not be impacted 63 00:04:15,320 --> 00:04:18,240 Speaker 1: at this point. Right. So obviously, look, we don't know 64 00:04:18,279 --> 00:04:20,400 Speaker 1: what the markets are going to do, and nobody does, 65 00:04:20,560 --> 00:04:23,320 Speaker 1: and we'll just see what happens. But I do think, 66 00:04:23,360 --> 00:04:25,720 Speaker 1: and I did think, in light of that Apple warning, 67 00:04:25,760 --> 00:04:29,000 Speaker 1: we really need to dive deeper into the question of 68 00:04:29,080 --> 00:04:33,080 Speaker 1: supply chaine because so much of the world, so much 69 00:04:33,240 --> 00:04:37,320 Speaker 1: so many companies that manufacture anything are exposed to China 70 00:04:37,520 --> 00:04:40,200 Speaker 1: or East Asia in some way, and getting some sort 71 00:04:40,240 --> 00:04:43,400 Speaker 1: of handle on what the risks are is key, and 72 00:04:43,440 --> 00:04:45,840 Speaker 1: what the risks of course to the China economy are 73 00:04:45,839 --> 00:04:49,800 Speaker 1: going to be that's also key. Uh So that's what 74 00:04:49,839 --> 00:04:54,720 Speaker 1: we're going to discuss today. Great, I think that's a good, good, 75 00:04:54,760 --> 00:04:57,400 Speaker 1: good idea given the circumstances, let's do it all right. 76 00:04:57,440 --> 00:04:59,760 Speaker 1: We have a really great guest. We've had him on 77 00:05:00,200 --> 00:05:03,520 Speaker 1: podcast I think a couple of times before, at least once, 78 00:05:03,560 --> 00:05:07,080 Speaker 1: but I'm pretty sure twice. He's Dan Wang. He's an 79 00:05:07,120 --> 00:05:10,960 Speaker 1: analyst at gav coll dragon Omics. He's talking to us 80 00:05:11,000 --> 00:05:13,840 Speaker 1: from Beijing. He's a tech analyst really knows a lot 81 00:05:13,880 --> 00:05:19,160 Speaker 1: about Chinese manufacturing, Chinese supply chains, the interaction with global tech, 82 00:05:19,240 --> 00:05:22,159 Speaker 1: and uh, he'll walk us through the risks posed by 83 00:05:22,200 --> 00:05:24,000 Speaker 1: this virus, what we're seeing right now, as well as 84 00:05:24,080 --> 00:05:27,360 Speaker 1: other risks that maybe people aren't even thinking about right 85 00:05:27,400 --> 00:05:29,960 Speaker 1: now beyond the virus. So Dan, thank you very much 86 00:05:30,120 --> 00:05:33,120 Speaker 1: for joining us. Thanks very much for having me on 87 00:05:33,160 --> 00:05:37,440 Speaker 1: a gun. We've all seen the images of various cities 88 00:05:37,720 --> 00:05:41,920 Speaker 1: across China, either quarantined or de facto quarantine, empty streets 89 00:05:41,920 --> 00:05:45,039 Speaker 1: and so forth. We know that there are numerous factories 90 00:05:45,080 --> 00:05:48,240 Speaker 1: that have yet to reopen, and the schedule for that 91 00:05:48,440 --> 00:05:52,360 Speaker 1: is remains unclear. We got the warning this week from 92 00:05:52,360 --> 00:05:54,800 Speaker 1: Apple that this is going to be a hit to 93 00:05:54,839 --> 00:05:58,960 Speaker 1: their performance in the current quarter, So that's known. What 94 00:05:59,160 --> 00:06:02,040 Speaker 1: to you, based on your work that you're doing looking 95 00:06:02,080 --> 00:06:07,000 Speaker 1: at the industry, what you've seen, what really jumps out 96 00:06:07,000 --> 00:06:11,200 Speaker 1: at you in terms of the coronavirus hit to China's 97 00:06:11,200 --> 00:06:15,920 Speaker 1: industrial economy. So I think you've all lad by saying 98 00:06:16,320 --> 00:06:19,039 Speaker 1: within a really good way, by saying that basically the 99 00:06:19,120 --> 00:06:22,479 Speaker 1: market seems to be parting all of this off. I 100 00:06:22,520 --> 00:06:26,159 Speaker 1: think there could be an economics way of thinking about 101 00:06:26,240 --> 00:06:29,440 Speaker 1: that in just uh, you know, if you assume that 102 00:06:29,560 --> 00:06:32,479 Speaker 1: the virus is going to be mostly contained in this 103 00:06:32,600 --> 00:06:36,479 Speaker 1: current quarter, and there's some evidence that that could be 104 00:06:36,560 --> 00:06:40,800 Speaker 1: the case, um, and that's the Chinese economy while basically 105 00:06:40,800 --> 00:06:44,240 Speaker 1: bounced back into the normal previous trend growth, that will 106 00:06:44,279 --> 00:06:47,200 Speaker 1: be all expecting there will be some pent up demands 107 00:06:47,240 --> 00:06:49,840 Speaker 1: that would be released later on, and you know that 108 00:06:50,320 --> 00:06:53,640 Speaker 1: it will be a quite that quarter, but everything gets 109 00:06:53,680 --> 00:06:57,040 Speaker 1: back to trend. I think that case could be made 110 00:06:57,480 --> 00:06:59,839 Speaker 1: for the general macro economy, and that's why most people 111 00:06:59,880 --> 00:07:03,360 Speaker 1: are not reacting very much. But in terms of electronics, 112 00:07:03,600 --> 00:07:06,440 Speaker 1: I think that story would not be so simple, and 113 00:07:06,480 --> 00:07:11,520 Speaker 1: that's because electronics manufacturing is uh some involves most some 114 00:07:11,560 --> 00:07:14,800 Speaker 1: of the most complex supply chain ever. Um. You need 115 00:07:14,960 --> 00:07:18,080 Speaker 1: basically a lot of different components in place in order 116 00:07:18,120 --> 00:07:21,640 Speaker 1: to begin production. You need a thousand and one or 117 00:07:21,880 --> 00:07:24,480 Speaker 1: movie even a dollient and one components all at the 118 00:07:24,560 --> 00:07:27,560 Speaker 1: right place and all at the right time. And so 119 00:07:27,640 --> 00:07:32,240 Speaker 1: if you have this delay, which hasn't really resolved itself yet, 120 00:07:32,720 --> 00:07:35,600 Speaker 1: I think that can ripple on and cascade on throughout 121 00:07:35,600 --> 00:07:37,800 Speaker 1: the supply chain all the way throughout the rest of 122 00:07:37,800 --> 00:07:41,400 Speaker 1: the year. When it comes to basically the peak selling season, 123 00:07:41,480 --> 00:07:44,000 Speaker 1: which is the Christmas season in the US. I think 124 00:07:44,000 --> 00:07:46,320 Speaker 1: that will ripple on throughout the rest of the year. 125 00:07:47,080 --> 00:07:51,320 Speaker 1: How much flexibility is there when it comes to altering 126 00:07:51,520 --> 00:07:55,160 Speaker 1: global supply chains for electronics companies, because you know, during 127 00:07:55,440 --> 00:07:58,480 Speaker 1: the trade tensions, we saw a lot of people talking about, well, 128 00:07:58,520 --> 00:08:01,680 Speaker 1: they'll just move production from China to Vietnam or to 129 00:08:01,800 --> 00:08:06,520 Speaker 1: wherever there was that option. But in the current situation, 130 00:08:06,640 --> 00:08:09,520 Speaker 1: it seems like, first of all, you have to do 131 00:08:09,560 --> 00:08:13,760 Speaker 1: it much much more quickly um And secondly, no one's 132 00:08:13,800 --> 00:08:15,600 Speaker 1: really sure how the virus is going to play out, 133 00:08:15,640 --> 00:08:18,640 Speaker 1: so you don't necessarily have the motivation to move production 134 00:08:18,960 --> 00:08:21,480 Speaker 1: if you're thinking that it's going to end very very quickly. 135 00:08:21,560 --> 00:08:25,520 Speaker 1: So how easy is it to to shift supply chains 136 00:08:25,520 --> 00:08:30,240 Speaker 1: for electronics companies? It is all pretty difficult. And we 137 00:08:30,320 --> 00:08:35,280 Speaker 1: have not seen a great deal of production move overseas 138 00:08:35,400 --> 00:08:39,120 Speaker 1: um as a result of the US terristan Chinese production. 139 00:08:39,200 --> 00:08:42,040 Speaker 1: We have that certainly seen. Some have seen a few 140 00:08:42,120 --> 00:08:47,599 Speaker 1: marginal products something like servers and something like wearables move overseas, 141 00:08:47,800 --> 00:08:51,680 Speaker 1: especially to Vietnam that's the most cited place, But in general, 142 00:08:51,720 --> 00:08:55,840 Speaker 1: it hasn't been a wholesale movement of supply chains, and 143 00:08:55,920 --> 00:08:59,760 Speaker 1: I think, um, you know, that's a pretty difficult thing 144 00:08:59,840 --> 00:09:03,440 Speaker 1: for our companies to deal with on a short term. 145 00:09:03,440 --> 00:09:07,400 Speaker 1: A manufacturer made a statement a while ago to say that, 146 00:09:08,000 --> 00:09:10,080 Speaker 1: you know, the terrorists are something that we can deal with. 147 00:09:10,320 --> 00:09:13,080 Speaker 1: That's a cost increase, and that's something you have to 148 00:09:13,240 --> 00:09:17,280 Speaker 1: we're into, but that is a predictable and something that 149 00:09:17,360 --> 00:09:20,480 Speaker 1: we are able to resolve. Where he as Um, if 150 00:09:20,520 --> 00:09:23,599 Speaker 1: we do not have a lot of parts, as that 151 00:09:23,880 --> 00:09:27,200 Speaker 1: coronavirus has threatened. Um, if we do not have workers 152 00:09:27,200 --> 00:09:30,240 Speaker 1: in our factories because they just are not coming back, 153 00:09:30,360 --> 00:09:34,040 Speaker 1: or we cannot pass these sanetary checks or quarantine checks 154 00:09:34,200 --> 00:09:37,960 Speaker 1: uh imposed by the local government, then we don't even 155 00:09:38,000 --> 00:09:40,760 Speaker 1: have the parts in place to engage in production. So 156 00:09:40,880 --> 00:09:44,360 Speaker 1: this is like a much bigger deal. Talk to us 157 00:09:44,400 --> 00:09:48,520 Speaker 1: a little bit more about modern electronics supply chains, and 158 00:09:48,559 --> 00:09:52,319 Speaker 1: in a sense, uh, there are an absolute marvel because 159 00:09:52,360 --> 00:09:55,480 Speaker 1: all these different companies come together and the logistics are 160 00:09:55,559 --> 00:09:59,760 Speaker 1: such that companies can hold very little inventory, and and 161 00:09:59,800 --> 00:10:03,320 Speaker 1: the key part arrives just in time for the other 162 00:10:03,640 --> 00:10:06,800 Speaker 1: company or the other manufacturer to assemble it into something 163 00:10:06,840 --> 00:10:09,000 Speaker 1: and then that goes into something else. And it's this 164 00:10:09,080 --> 00:10:13,360 Speaker 1: sort of beautiful orchestra. Maybe when it's working, uh, when 165 00:10:13,360 --> 00:10:16,839 Speaker 1: it's working, ideally, talk to us about what you said 166 00:10:17,000 --> 00:10:19,719 Speaker 1: when you pointed out, look, it's not as simple as 167 00:10:19,800 --> 00:10:23,440 Speaker 1: just restarting this because it's so complex. It's not just 168 00:10:23,480 --> 00:10:25,360 Speaker 1: a matter of Okay, the switch goes off for a 169 00:10:25,360 --> 00:10:27,920 Speaker 1: few weeks and then maybe you just turn it back on. 170 00:10:28,520 --> 00:10:30,960 Speaker 1: What is that cast scading effect you're talking about? And 171 00:10:30,960 --> 00:10:32,800 Speaker 1: why is it not so simple to get it going 172 00:10:32,840 --> 00:10:37,360 Speaker 1: again once? Once? Uh, the you're ready to restart, Yeah, 173 00:10:37,400 --> 00:10:41,440 Speaker 1: that's exactly right. So basically, to really get production going 174 00:10:41,679 --> 00:10:45,960 Speaker 1: at the major manufacturer like fox Con, you need a 175 00:10:46,000 --> 00:10:49,040 Speaker 1: lot of different components in place. So you need to 176 00:10:49,080 --> 00:10:51,680 Speaker 1: have let's play something like the house and components in place. 177 00:10:52,160 --> 00:10:54,959 Speaker 1: You need all of the labor in place. Also, to 178 00:10:55,040 --> 00:10:58,120 Speaker 1: begin stacking, you need to make sure that all of 179 00:10:58,160 --> 00:11:03,600 Speaker 1: the components are um aliving on a daily basis that um, 180 00:11:03,640 --> 00:11:06,520 Speaker 1: there is a lot of flow. You need to make 181 00:11:06,520 --> 00:11:09,040 Speaker 1: sure that the components are of pretty good quality and 182 00:11:09,160 --> 00:11:11,439 Speaker 1: used to make sure that the labor is of good quality. 183 00:11:11,840 --> 00:11:14,720 Speaker 1: And right now, basically none of those conditions are holding. 184 00:11:15,040 --> 00:11:19,800 Speaker 1: So fox Con, it's not said, uh, very publicly very 185 00:11:19,840 --> 00:11:23,480 Speaker 1: much about how many workers have been able to return UM. 186 00:11:23,600 --> 00:11:26,960 Speaker 1: Our estimate is that something like half of China's UH 187 00:11:27,240 --> 00:11:31,959 Speaker 1: migrant labor force has UH allied back into other factories. 188 00:11:32,400 --> 00:11:35,640 Speaker 1: It's going to take up quite a while, probably in 189 00:11:35,760 --> 00:11:38,880 Speaker 1: March or early April, for everyone to get back into 190 00:11:38,920 --> 00:11:42,200 Speaker 1: their place. And so you know, I think that the 191 00:11:42,400 --> 00:11:45,959 Speaker 1: larger manufacturers are probably able to deal with a lot 192 00:11:46,000 --> 00:11:49,680 Speaker 1: of these problems. So fox Con, in spite of a 193 00:11:49,720 --> 00:11:52,480 Speaker 1: lot of bad press that has received over the last decade, 194 00:11:52,800 --> 00:11:57,040 Speaker 1: is still the best pain of the large manufacturers that 195 00:11:57,200 --> 00:12:00,360 Speaker 1: has the best working conditions. UM it is just really large. 196 00:12:00,559 --> 00:12:03,560 Speaker 1: It employees about a million people in China every year, 197 00:12:04,040 --> 00:12:07,240 Speaker 1: and then the five other big contract manufacturers in Taiwan 198 00:12:07,480 --> 00:12:11,120 Speaker 1: UM employee about collectively UH five thousand, so about one 199 00:12:11,120 --> 00:12:14,640 Speaker 1: point five million people total working on UM, which is 200 00:12:14,800 --> 00:12:18,640 Speaker 1: just directly on all types of electronics, but especially the smartphone. 201 00:12:19,200 --> 00:12:22,120 Speaker 1: And so basically Apple needs a lot of people in 202 00:12:22,200 --> 00:12:25,240 Speaker 1: place UM and it should be able to hire all 203 00:12:25,280 --> 00:12:28,720 Speaker 1: of the people that it needs. But if fox Con 204 00:12:28,880 --> 00:12:31,880 Speaker 1: is able to hire for everyone, because it is working 205 00:12:31,880 --> 00:12:34,200 Speaker 1: for its largest customer, Apple, which has a lot of 206 00:12:34,240 --> 00:12:37,199 Speaker 1: cash to throw at these problems, UM, it might suck 207 00:12:37,240 --> 00:12:40,600 Speaker 1: away the labor from a lot of the sub assemblers, 208 00:12:40,880 --> 00:12:44,679 Speaker 1: so the component makers that are supplying goods for Fox 209 00:12:44,760 --> 00:12:48,160 Speaker 1: con to put onto lines of people to actually produce. 210 00:12:48,679 --> 00:12:52,000 Speaker 1: So you know, again, I want to emphasize that it 211 00:12:52,080 --> 00:12:55,640 Speaker 1: only takes a few missing parts for an entire supply 212 00:12:55,720 --> 00:12:57,920 Speaker 1: chain not to be functional, and so there will be 213 00:12:57,960 --> 00:13:01,720 Speaker 1: a lot of these gaps out there, even for Apple. 214 00:13:02,080 --> 00:13:05,720 Speaker 1: Apple every year launches a new iPhone by Q four 215 00:13:05,840 --> 00:13:09,160 Speaker 1: that is highly predictable. But even for Apple it is 216 00:13:09,360 --> 00:13:13,160 Speaker 1: a pretty hot affair. The supply chains are pretty tight 217 00:13:13,440 --> 00:13:17,600 Speaker 1: and every week counts towards Q four, and not very 218 00:13:17,600 --> 00:13:20,600 Speaker 1: many firms have a few weeks of production to lose. 219 00:13:21,160 --> 00:13:25,000 Speaker 1: So my thought here is that even though large manufacturers 220 00:13:25,320 --> 00:13:29,200 Speaker 1: working for large consumer electronics companies like Apple are able 221 00:13:29,240 --> 00:13:32,080 Speaker 1: to get through this, many smaller companies are going to 222 00:13:32,120 --> 00:13:35,640 Speaker 1: have a lot more problems. Q one is typically the 223 00:13:35,679 --> 00:13:39,600 Speaker 1: time of the year where many consumer electronics companies um 224 00:13:39,760 --> 00:13:45,200 Speaker 1: engage in prototyping and developments with the UH with the manufacturers, 225 00:13:45,280 --> 00:13:48,920 Speaker 1: and if the manufacturers just are have persistent labor shortages 226 00:13:48,960 --> 00:13:51,920 Speaker 1: and supply shortages, are going to be dedicating all of 227 00:13:51,920 --> 00:13:54,960 Speaker 1: their people to their large customers like Apple, and I 228 00:13:55,000 --> 00:13:57,520 Speaker 1: think the the the case would be here that this 229 00:13:57,600 --> 00:14:01,080 Speaker 1: year that consumer electronics will be pretty that a lot 230 00:14:01,120 --> 00:14:03,560 Speaker 1: of smaller companies won't even be able to launch the 231 00:14:03,559 --> 00:14:06,240 Speaker 1: products they had hope to launch by the Christmas season. 232 00:14:06,360 --> 00:14:09,080 Speaker 1: It's if that's already probably the case, and it's going 233 00:14:09,120 --> 00:14:21,920 Speaker 1: to be a stretch even for Apple. Could you talk 234 00:14:21,960 --> 00:14:25,360 Speaker 1: to us a little bit more about the labor shortage 235 00:14:25,440 --> 00:14:29,920 Speaker 1: idea and how the containment efforts that we've seen rolled 236 00:14:30,200 --> 00:14:34,200 Speaker 1: out across China at this point, how those actually impact 237 00:14:34,600 --> 00:14:38,440 Speaker 1: the way the labor market functions. So China today has 238 00:14:38,600 --> 00:14:41,920 Speaker 1: a lot of restrictions in place in who can go where. 239 00:14:42,360 --> 00:14:44,640 Speaker 1: When I leave my apartment in Beijing, I have to 240 00:14:44,680 --> 00:14:48,240 Speaker 1: have flash this little card at these doormen who have 241 00:14:48,840 --> 00:14:52,960 Speaker 1: are newly set up to exit and enter the building. Um. 242 00:14:53,120 --> 00:14:57,080 Speaker 1: Every uh three blocks I go, there is someone um 243 00:14:57,080 --> 00:14:59,960 Speaker 1: taking my temperature to make sure that I'm all right. 244 00:15:00,680 --> 00:15:04,680 Speaker 1: One thing that I'm struck by now is that the 245 00:15:04,680 --> 00:15:08,200 Speaker 1: amount of state capacity that China has brought to bear 246 00:15:08,240 --> 00:15:14,000 Speaker 1: on this problem is impressive and also frightening. That China 247 00:15:14,320 --> 00:15:18,360 Speaker 1: has been able to quarantine about sixteen million people around 248 00:15:18,360 --> 00:15:21,680 Speaker 1: the population of Italy and the span of around twelve hours. 249 00:15:22,680 --> 00:15:25,600 Speaker 1: My thought here is that China can mobilize it, that 250 00:15:25,760 --> 00:15:28,920 Speaker 1: isn't more quickly than many countries can mobilize their armies, 251 00:15:29,480 --> 00:15:33,920 Speaker 1: and so it is imposing many sorts of restrictions on labor. 252 00:15:34,400 --> 00:15:38,160 Speaker 1: Even today, many UH migrants are not able to enter 253 00:15:38,240 --> 00:15:42,040 Speaker 1: the large cities to actually begin a production. So a 254 00:15:42,040 --> 00:15:45,800 Speaker 1: lot of the public transportation in terms of trains are shut, 255 00:15:46,440 --> 00:15:49,200 Speaker 1: a lot of roads are a lot of cars are 256 00:15:49,240 --> 00:15:52,600 Speaker 1: not able to go on the road, and this is 257 00:15:52,600 --> 00:15:56,240 Speaker 1: creating a lot of problems for factories that really needed labor. 258 00:15:56,360 --> 00:15:59,240 Speaker 1: And I think the biggest issue here is that there's 259 00:15:59,280 --> 00:16:04,120 Speaker 1: considerable and certainty about when this virus could be declared 260 00:16:04,120 --> 00:16:07,360 Speaker 1: eradicated and for everybody to feel faced to go back 261 00:16:07,760 --> 00:16:12,840 Speaker 1: to other jobs. So these travel restrictions could evaporate, um 262 00:16:13,080 --> 00:16:15,480 Speaker 1: let's say next week. Um there are tap could take 263 00:16:15,800 --> 00:16:19,080 Speaker 1: something longer, um let's say a month, But it will 264 00:16:19,120 --> 00:16:22,920 Speaker 1: take probably even longer for all of the flights to 265 00:16:23,000 --> 00:16:26,040 Speaker 1: resume and for all of the people to feel that 266 00:16:26,120 --> 00:16:29,920 Speaker 1: they can safely travel about in China, and that will 267 00:16:29,920 --> 00:16:32,360 Speaker 1: create a lot of uncertainties. There is just a lot 268 00:16:32,360 --> 00:16:37,400 Speaker 1: of human contacts feel required for to engage in production. Yeah. 269 00:16:37,480 --> 00:16:40,160 Speaker 1: And one of the things that we've seen anecdotally as 270 00:16:40,200 --> 00:16:43,800 Speaker 1: well is this notion of a sort of patchwork of 271 00:16:44,120 --> 00:16:48,320 Speaker 1: local and national rules. So, for instance, in order to 272 00:16:48,360 --> 00:16:51,880 Speaker 1: open up a factory, you know, local officials will require 273 00:16:52,400 --> 00:16:55,560 Speaker 1: the factory owner to give face masks to all of 274 00:16:55,560 --> 00:16:58,600 Speaker 1: its workers. But of course there's a giant face masks shortage, 275 00:16:58,640 --> 00:17:00,920 Speaker 1: and so there are an able to do that. And 276 00:17:00,960 --> 00:17:04,879 Speaker 1: we've seen a lot of chaos, let's say, in confusion 277 00:17:05,200 --> 00:17:07,879 Speaker 1: when it comes to what the rules are and what 278 00:17:08,000 --> 00:17:11,680 Speaker 1: they are not when it comes to work environments, right 279 00:17:11,840 --> 00:17:16,480 Speaker 1: can trying to deal with that right around the holiday 280 00:17:16,520 --> 00:17:19,679 Speaker 1: and uh, you know, the huge moves extraordinary, Dan. Is 281 00:17:19,760 --> 00:17:23,800 Speaker 1: there a compounding effect of the delays such that okay, 282 00:17:24,040 --> 00:17:25,720 Speaker 1: uh you know, I know that at one point the 283 00:17:25,760 --> 00:17:28,680 Speaker 1: goal was okay, reopened by February tenth. That didn't happen 284 00:17:28,720 --> 00:17:31,320 Speaker 1: in many cases. But is there a sort of nonlinearity 285 00:17:31,480 --> 00:17:35,479 Speaker 1: where a week of delays does not just mean a 286 00:17:35,480 --> 00:17:40,280 Speaker 1: week of problems and each week the situation uh sort 287 00:17:40,280 --> 00:17:45,040 Speaker 1: of snowballs and grows, uh you know, compounds or grows exponentially. Yes, 288 00:17:45,119 --> 00:17:48,200 Speaker 1: there is that risk that there is a lot nonlinear 289 00:17:48,280 --> 00:17:51,520 Speaker 1: aspect of this. UM. If you were expecting basically a 290 00:17:51,520 --> 00:17:55,120 Speaker 1: lot of components to rise and a few don't, then UM, 291 00:17:55,560 --> 00:17:58,560 Speaker 1: a lot of manufacturers could be quite stuck. And for 292 00:17:59,320 --> 00:18:01,800 Speaker 1: the manufacturer like Fox cons who are at the end 293 00:18:01,920 --> 00:18:05,760 Speaker 1: of a supply chain basically waiting for everybody to send 294 00:18:05,840 --> 00:18:10,159 Speaker 1: everything through, UM, they don't necessarily have great visibility into 295 00:18:10,320 --> 00:18:14,160 Speaker 1: which little part they require. That just doesn't necessarily make 296 00:18:14,200 --> 00:18:17,959 Speaker 1: it so UM. Every time there's an earthquake in Japan, 297 00:18:18,320 --> 00:18:23,760 Speaker 1: UM reminds us. The reminds the world about how dependent 298 00:18:24,200 --> 00:18:27,760 Speaker 1: the entire world is on perhaps a particular factory making 299 00:18:27,800 --> 00:18:31,399 Speaker 1: a particular widget, and so UM, these things can be 300 00:18:31,600 --> 00:18:35,000 Speaker 1: a little bit unpredictable. But I think the the I 301 00:18:35,040 --> 00:18:39,879 Speaker 1: think the large companies like Apple realize that at this point, 302 00:18:39,920 --> 00:18:41,520 Speaker 1: and I think everybody is going to be in a 303 00:18:41,640 --> 00:18:44,720 Speaker 1: scramble in the coming weeks to really understand how deep 304 00:18:44,800 --> 00:18:48,280 Speaker 1: the supply chains are. Another issue for Apple right now 305 00:18:48,480 --> 00:18:51,560 Speaker 1: is that Apple sends a lot of engineers from its 306 00:18:52,119 --> 00:18:55,400 Speaker 1: headquarters in Cupertino to come over to China and then 307 00:18:55,440 --> 00:18:59,360 Speaker 1: actually monitor a station. These engineers and monitor the progress 308 00:18:59,359 --> 00:19:03,760 Speaker 1: of these component makers. Have quality assurance and product development purposes. 309 00:19:04,160 --> 00:19:06,800 Speaker 1: A lot of those flights are canceled, and I expect 310 00:19:06,880 --> 00:19:09,679 Speaker 1: that Apple is only able to send a trickle of 311 00:19:09,760 --> 00:19:13,920 Speaker 1: staff over to China to actually monitor all of that production. 312 00:19:14,280 --> 00:19:16,400 Speaker 1: So there are a lot of these worsts out there. 313 00:19:17,840 --> 00:19:20,960 Speaker 1: Dan talk to us a little bit about I guess 314 00:19:21,040 --> 00:19:24,359 Speaker 1: the big picture, long term impact when it comes to 315 00:19:24,600 --> 00:19:28,520 Speaker 1: China's technology ambition. So I think the first time we 316 00:19:28,600 --> 00:19:30,720 Speaker 1: had you on this podcast was to talk about the 317 00:19:30,760 --> 00:19:34,720 Speaker 1: MAIDE in China initiative, where China is really trying to 318 00:19:34,760 --> 00:19:39,639 Speaker 1: bulk up its own technology expertise. Would you expect something 319 00:19:39,720 --> 00:19:43,560 Speaker 1: like the coronavirus outbreak to have a long term impact 320 00:19:43,640 --> 00:19:48,919 Speaker 1: on those efforts? Certainly, I think it will push greater 321 00:19:49,280 --> 00:19:54,760 Speaker 1: geographic diversity. I think that um, the the the events 322 00:19:54,840 --> 00:19:57,880 Speaker 1: of the last two years have shown that companies are 323 00:19:57,960 --> 00:20:01,080 Speaker 1: highly dependent on China for our produc ships. I think 324 00:20:01,119 --> 00:20:05,240 Speaker 1: many companies are thinking more deeply about what geographic diversity 325 00:20:05,240 --> 00:20:09,080 Speaker 1: actually means. So previously we we thought that geographic diversity, 326 00:20:09,320 --> 00:20:11,560 Speaker 1: um you know, it's important in case there's a flood 327 00:20:11,760 --> 00:20:15,000 Speaker 1: or an earthquake, which are fairly localized events, and so 328 00:20:15,080 --> 00:20:18,680 Speaker 1: if you want to basically have a more robust supply chain, 329 00:20:18,760 --> 00:20:22,320 Speaker 1: you should locate a lot of your factories just geographically 330 00:20:22,400 --> 00:20:25,360 Speaker 1: quite far away from each other. And I think the 331 00:20:25,440 --> 00:20:28,680 Speaker 1: events at least of the last year have shown that 332 00:20:29,119 --> 00:20:33,240 Speaker 1: when President Trump has imposed tariffs on Chinese goods, but 333 00:20:33,320 --> 00:20:36,000 Speaker 1: there is a political element, So even if you produced 334 00:20:36,080 --> 00:20:40,200 Speaker 1: in northern China and then southeastern China, you may necessarily 335 00:20:40,280 --> 00:20:42,560 Speaker 1: you might still be hit by a lot of these 336 00:20:42,600 --> 00:20:47,720 Speaker 1: name risks. Now whether and how it impacts China's technology development, 337 00:20:48,320 --> 00:20:50,120 Speaker 1: I think it is going to make it a little 338 00:20:50,119 --> 00:20:52,920 Speaker 1: bit more difficult for China to do everything that I 339 00:20:52,960 --> 00:20:55,560 Speaker 1: would like. Um, at the very least, it is turning 340 00:20:56,080 --> 00:20:59,840 Speaker 1: on some foreigners and ex pats out off the idea 341 00:21:00,080 --> 00:21:04,760 Speaker 1: of living for most of the time in places like Baching, 342 00:21:04,920 --> 00:21:08,080 Speaker 1: China Hi, and I think that will be at least 343 00:21:08,160 --> 00:21:12,680 Speaker 1: a loss of potential talents that Chinese firms are able 344 00:21:12,720 --> 00:21:17,360 Speaker 1: to hire. Dan I think, uh, that's a great opportunity 345 00:21:17,640 --> 00:21:23,000 Speaker 1: to sort of segue into another another risk factor facing 346 00:21:23,480 --> 00:21:26,879 Speaker 1: Chinese manufacturing, Chinese supply chain, because it was just a 347 00:21:26,880 --> 00:21:30,000 Speaker 1: few months ago that there was this thought that Okay, 348 00:21:30,200 --> 00:21:32,879 Speaker 1: the big risk was just on the trade front. That 349 00:21:33,040 --> 00:21:36,000 Speaker 1: seems to have cleared up. They got the Phase one deal. 350 00:21:36,480 --> 00:21:39,720 Speaker 1: Now suddenly there's this which is uh, you know, as 351 00:21:39,760 --> 00:21:43,439 Speaker 1: your point, could potentially change everything, or at least change 352 00:21:43,680 --> 00:21:46,800 Speaker 1: really changed the way companies around the world think about 353 00:21:47,080 --> 00:21:51,240 Speaker 1: their exposure to China. But as you point out, and 354 00:21:51,280 --> 00:21:54,320 Speaker 1: as you've been writing, the coronavirus is really not the 355 00:21:54,400 --> 00:21:59,480 Speaker 1: only major threat to UH Chinese supply, Chaine Chinese manufacturing, 356 00:21:59,480 --> 00:22:03,080 Speaker 1: and that there's an another thing lurking out there that 357 00:22:03,440 --> 00:22:05,880 Speaker 1: people need to pay attention to. So what is that? 358 00:22:06,920 --> 00:22:12,000 Speaker 1: So that is the um the current US policy on 359 00:22:12,119 --> 00:22:17,360 Speaker 1: how to restrict technology flows to China, and so they're 360 00:22:17,440 --> 00:22:19,920 Speaker 1: as part of the trade war. There has also been 361 00:22:19,960 --> 00:22:22,240 Speaker 1: a bit of a tech war hovering in the background 362 00:22:22,640 --> 00:22:26,680 Speaker 1: in terms of US policy action. I think the first 363 00:22:26,720 --> 00:22:30,159 Speaker 1: major shot of that was last year or or or 364 00:22:30,600 --> 00:22:33,880 Speaker 1: almost a year and a half ago now when President 365 00:22:33,880 --> 00:22:39,720 Speaker 1: Trump administration designated ETE to something called the Denied Person's List, 366 00:22:40,320 --> 00:22:44,280 Speaker 1: which more or less cut off vts entire ability to 367 00:22:44,480 --> 00:22:49,960 Speaker 1: procure from American technology, especially semiconductors, And so that has 368 00:22:50,320 --> 00:22:53,320 Speaker 1: brought the firm to its kneed, almost the virtual bankruptcy 369 00:22:53,359 --> 00:22:57,240 Speaker 1: until Presidency and Trump reached a political solution to save 370 00:22:57,320 --> 00:23:00,639 Speaker 1: the company. There has been this element covering the background 371 00:23:00,800 --> 00:23:06,480 Speaker 1: of the US exercising investment restriction on the ability of 372 00:23:06,560 --> 00:23:11,400 Speaker 1: foreigners to invest in US firms, especially technology firms. There 373 00:23:11,400 --> 00:23:14,960 Speaker 1: has been a process initiated by the Department of Justice 374 00:23:15,040 --> 00:23:18,720 Speaker 1: to scrutinize Chinese actions much more closely in terms of 375 00:23:19,080 --> 00:23:23,880 Speaker 1: treats ecretments, appropriation, but also Chinese activities, and say university 376 00:23:24,000 --> 00:23:26,840 Speaker 1: is working with certain professors, and then it US also 377 00:23:26,920 --> 00:23:32,199 Speaker 1: manifested in specifically this issue of AWE becoming a large 378 00:23:32,359 --> 00:23:36,000 Speaker 1: player in the tech world. And then the administration is 379 00:23:36,240 --> 00:23:40,359 Speaker 1: thinking much more carefully now about how to deny products 380 00:23:40,440 --> 00:23:43,800 Speaker 1: American products to a firm that it considers a national 381 00:23:43,800 --> 00:23:48,560 Speaker 1: security threat. What would be the impact on China's tech 382 00:23:48,640 --> 00:23:52,960 Speaker 1: industry if the US does actually go through UM with 383 00:23:53,040 --> 00:23:54,960 Speaker 1: a lot of the things that it's threatening, and what 384 00:23:55,119 --> 00:24:00,000 Speaker 1: options does China have to offset the impact of those curves. 385 00:24:01,640 --> 00:24:04,919 Speaker 1: I think the issue right now for China is to 386 00:24:04,960 --> 00:24:09,560 Speaker 1: figure out how to be Americanized supply chain. So UM again, 387 00:24:09,600 --> 00:24:12,680 Speaker 1: this is sort of a supply chain story in which 388 00:24:12,800 --> 00:24:15,919 Speaker 1: the lack of a few components can really defeat system. 389 00:24:15,960 --> 00:24:17,520 Speaker 1: So if you take a look at your smartphone and 390 00:24:17,640 --> 00:24:20,360 Speaker 1: has something like fifteen hundred different components in it, and 391 00:24:20,520 --> 00:24:23,879 Speaker 1: if you lack even through your four different components, the 392 00:24:23,920 --> 00:24:27,920 Speaker 1: whole system might be defeated. So your phone needs, for example, 393 00:24:27,960 --> 00:24:30,919 Speaker 1: a battery, it needs a process or needs memory chips, 394 00:24:31,200 --> 00:24:33,840 Speaker 1: and it needs a screen. And if you don't have these, 395 00:24:34,040 --> 00:24:37,480 Speaker 1: then you don't really have a phone. And given that 396 00:24:38,119 --> 00:24:41,479 Speaker 1: the US has figured out that it is almost a 397 00:24:41,520 --> 00:24:46,600 Speaker 1: monopolis on very important technologies, especially the semiconductor and by 398 00:24:46,680 --> 00:24:51,560 Speaker 1: denying U S semiconductors to particular firms of previously EPs 399 00:24:51,600 --> 00:24:56,720 Speaker 1: figured out, it can really cripple China technology advancement. Now 400 00:24:56,760 --> 00:24:59,800 Speaker 1: I take the view that over the long term, China, 401 00:25:00,080 --> 00:25:04,120 Speaker 1: now that has realized it is very dependent on US technologies, 402 00:25:04,720 --> 00:25:08,040 Speaker 1: it should be able to figure out a lot of 403 00:25:08,200 --> 00:25:13,119 Speaker 1: long technologies. UM. In turn, so UM, it's difficult to 404 00:25:13,240 --> 00:25:16,920 Speaker 1: name in history a country that has monopolized the key 405 00:25:16,960 --> 00:25:20,480 Speaker 1: technology over the long term. So in the eighteenth century, 406 00:25:20,480 --> 00:25:23,520 Speaker 1: when the UK was the leading industrial power at the time, 407 00:25:23,560 --> 00:25:27,359 Speaker 1: and when they tried to export control certain textile mills 408 00:25:27,680 --> 00:25:31,280 Speaker 1: and enginery to the US rising power, certain people just 409 00:25:31,520 --> 00:25:34,240 Speaker 1: memorize a bunch of mill design gone into a ship 410 00:25:34,280 --> 00:25:36,000 Speaker 1: and then went to the US. So one of these 411 00:25:36,000 --> 00:25:40,080 Speaker 1: people is Samuel Slater, who's known in the UK as 412 00:25:40,119 --> 00:25:43,639 Speaker 1: later the Treator and states side as the father of 413 00:25:43,640 --> 00:25:47,240 Speaker 1: the US Industrial Revolution. A lot of knowledge just consists 414 00:25:47,240 --> 00:25:50,920 Speaker 1: in people's heads, uh, and transfers. I used to working 415 00:25:51,040 --> 00:25:53,480 Speaker 1: Silicon Valley. The same that we had there was that 416 00:25:53,720 --> 00:25:56,639 Speaker 1: knowledge travels that has bit of beer beer copy bit 417 00:25:56,760 --> 00:25:59,160 Speaker 1: for poison. And so long as you can just talk 418 00:25:59,200 --> 00:26:02,399 Speaker 1: through these sort of ing um and a lot of 419 00:26:02,440 --> 00:26:05,800 Speaker 1: technology is able to travel. The Chinese don't have to 420 00:26:05,960 --> 00:26:09,240 Speaker 1: invent anything to novo um. They only have to replicate 421 00:26:09,320 --> 00:26:13,360 Speaker 1: existing processes. But that is still a pretty big chal um. 422 00:26:13,480 --> 00:26:16,840 Speaker 1: The US is basically a monopolist and very many key 423 00:26:16,880 --> 00:26:20,159 Speaker 1: semic cocceptor of technologies, including the capital equipment to actually 424 00:26:20,240 --> 00:26:24,159 Speaker 1: advocate the sety conductors and also in things like aviation 425 00:26:24,280 --> 00:26:26,640 Speaker 1: engines in which China is also kind of catch up. 426 00:26:26,920 --> 00:26:28,760 Speaker 1: And so this is why there has been a pretty 427 00:26:28,760 --> 00:26:31,960 Speaker 1: active debate in the White House on how to actually 428 00:26:31,960 --> 00:26:35,760 Speaker 1: restrict a lot more technologies to China while also being 429 00:26:35,800 --> 00:26:39,440 Speaker 1: able to protect the ability of US firms to sell 430 00:26:39,520 --> 00:26:42,800 Speaker 1: goods to their largest markets and then also generate the 431 00:26:42,840 --> 00:26:47,159 Speaker 1: revenue for greater R and D. It's so interesting, uh, 432 00:26:47,440 --> 00:26:51,440 Speaker 1: just sort of thinking about the symmetry or the asymmetry 433 00:26:51,480 --> 00:26:54,520 Speaker 1: or I guess it's the symmetry of the needs and 434 00:26:54,560 --> 00:26:57,080 Speaker 1: priorities of China when it comes to trade, and the 435 00:26:57,119 --> 00:26:59,200 Speaker 1: needs and priorities of the U S when it comes 436 00:26:59,200 --> 00:27:03,960 Speaker 1: to trade. Obviously, we know President Trump feels that they 437 00:27:04,000 --> 00:27:07,480 Speaker 1: he would like to bring back jobs from China, and 438 00:27:07,520 --> 00:27:10,359 Speaker 1: though maybe you know, it's debatable whether anything that's been 439 00:27:10,400 --> 00:27:14,399 Speaker 1: done so far I would really accomplish that. Obviously that 440 00:27:14,560 --> 00:27:17,600 Speaker 1: was a key driving aspect of his campaign and his 441 00:27:18,119 --> 00:27:21,800 Speaker 1: message and so forth. And then you have the Chinese 442 00:27:21,880 --> 00:27:25,880 Speaker 1: economy and the Chinese priorities that you've talked to us 443 00:27:25,960 --> 00:27:29,920 Speaker 1: on the podcast before, and it's not about jobs per se. 444 00:27:30,000 --> 00:27:33,399 Speaker 1: It's about the over alliance and uh, you know, winning 445 00:27:33,400 --> 00:27:37,520 Speaker 1: back the tech tech war against uh, the US. So 446 00:27:37,560 --> 00:27:39,800 Speaker 1: it's really sort of the same thing in a sense 447 00:27:40,119 --> 00:27:43,520 Speaker 1: of both just wanting to not need the other. Yeah, 448 00:27:43,600 --> 00:27:47,719 Speaker 1: that's right. So both countries are clients to reach the 449 00:27:47,920 --> 00:27:51,480 Speaker 1: purpose serves the technology, which is right now mostly an 450 00:27:51,520 --> 00:27:55,960 Speaker 1: American affair, and the Chinese also wanting many of the 451 00:27:56,000 --> 00:27:59,760 Speaker 1: same things. So I guess then the question is, you know, 452 00:27:59,800 --> 00:28:02,840 Speaker 1: I've see on the first half of the conversation you 453 00:28:02,880 --> 00:28:07,600 Speaker 1: were talking about Okay, US companies are going to think 454 00:28:07,600 --> 00:28:11,639 Speaker 1: about geographic diversity for manufacturing. And of course during the 455 00:28:11,680 --> 00:28:14,120 Speaker 1: trade war, we heard a lot about Vietnam. But there's 456 00:28:14,200 --> 00:28:20,040 Speaker 1: really no country immediately that can just suddenly absorb a 457 00:28:20,280 --> 00:28:23,280 Speaker 1: huge influx of new demand for manufacturing. I mean, there's 458 00:28:23,280 --> 00:28:25,080 Speaker 1: just all kinds of things that need to go into that. 459 00:28:25,200 --> 00:28:27,159 Speaker 1: It's not like you just build a fox Con in 460 00:28:27,600 --> 00:28:30,520 Speaker 1: Vietnam overnight, or a fox Con in Brazil overnight or 461 00:28:30,520 --> 00:28:34,400 Speaker 1: anything like that. Who into the race, Like, how long, 462 00:28:34,880 --> 00:28:38,360 Speaker 1: UH say, will it take for China to accomplish what 463 00:28:38,440 --> 00:28:42,120 Speaker 1: it needs on sort of, you know, being able to 464 00:28:42,400 --> 00:28:45,680 Speaker 1: design some of its own semiconductors so that it can 465 00:28:45,840 --> 00:28:49,280 Speaker 1: wean itself off of US tech. That's a great question 466 00:28:49,680 --> 00:28:51,960 Speaker 1: thinking about it in terms of a race, and I 467 00:28:52,080 --> 00:28:54,840 Speaker 1: tend to think that the US has the advantage here. 468 00:28:55,400 --> 00:28:59,240 Speaker 1: It is a lot more straightforward for uh Apple to 469 00:28:59,520 --> 00:29:03,040 Speaker 1: move most of its supply chain out of China uh 470 00:29:03,120 --> 00:29:07,719 Speaker 1: and into let's say, a mix of places that include India, Brazil, 471 00:29:08,200 --> 00:29:12,320 Speaker 1: in Vietnam. Then it is for China to figure out semiconductors, 472 00:29:12,400 --> 00:29:16,120 Speaker 1: which are the most complex technologies in the world. When 473 00:29:16,120 --> 00:29:19,480 Speaker 1: I think of something like a semi conductor manufacturing equipment 474 00:29:19,640 --> 00:29:23,640 Speaker 1: from a firm like an smel. Basically, these pieces of 475 00:29:23,680 --> 00:29:28,880 Speaker 1: machinery are about as large as buses. Each machine costs 476 00:29:28,920 --> 00:29:32,400 Speaker 1: about two hundred million US dollars UM and you're really 477 00:29:32,400 --> 00:29:35,960 Speaker 1: playing with light and physics and math at that point. 478 00:29:36,000 --> 00:29:39,120 Speaker 1: It's almost like a pure science affair, and the Chinese 479 00:29:39,160 --> 00:29:42,480 Speaker 1: just have not had enough experience really doing a lot 480 00:29:42,520 --> 00:29:46,000 Speaker 1: of these things. Now they're the The question that becomes 481 00:29:46,440 --> 00:29:50,560 Speaker 1: when the US exercises these ex core control actions on China, 482 00:29:51,040 --> 00:29:54,720 Speaker 1: does it accelerate Chinese technology development or does it are 483 00:29:54,760 --> 00:29:58,080 Speaker 1: really crippled? Right? I think odd all over the long 484 00:29:58,200 --> 00:30:03,520 Speaker 1: term it should still the accelerating China technology development. So 485 00:30:03,800 --> 00:30:06,320 Speaker 1: UM right now, the you know, the Chinese have always 486 00:30:06,360 --> 00:30:10,920 Speaker 1: had a program to replace its own internal uh, the 487 00:30:11,000 --> 00:30:15,480 Speaker 1: technologies that it uses with Chinese made equipment. Part of 488 00:30:15,520 --> 00:30:18,200 Speaker 1: that has that has always been a program and has 489 00:30:18,240 --> 00:30:23,360 Speaker 1: somewhat accelerated UM in after the sting revelations of UM 490 00:30:23,840 --> 00:30:28,680 Speaker 1: different spying, and I think the Chinese now are m 491 00:30:28,880 --> 00:30:32,800 Speaker 1: This is the difference in the last two years is 492 00:30:32,840 --> 00:30:36,160 Speaker 1: that this is no longer a whimsical government effort which 493 00:30:36,200 --> 00:30:40,320 Speaker 1: has never really been terribly successful in the past. Now 494 00:30:40,400 --> 00:30:43,640 Speaker 1: this has led much more by private companies, by firms 495 00:30:43,720 --> 00:30:47,560 Speaker 1: like um Ali Baba or ten Signs or High Division 496 00:30:48,040 --> 00:30:51,160 Speaker 1: or sell Me that are asking themselves, can I depend 497 00:30:51,240 --> 00:30:54,560 Speaker 1: on American supply such that I'm willing to build off 498 00:30:55,640 --> 00:30:59,080 Speaker 1: my build my technology off in American stack for the 499 00:30:59,120 --> 00:31:02,000 Speaker 1: next ten years and UM, they are becoming a little 500 00:31:02,000 --> 00:31:05,640 Speaker 1: bit more hesitant to do something like that. UM, and 501 00:31:05,680 --> 00:31:08,320 Speaker 1: so they are taking the lead and trying to develop 502 00:31:08,760 --> 00:31:14,880 Speaker 1: it's there more homeground, more politically dependable components. Uh. So, Dan, 503 00:31:15,440 --> 00:31:18,000 Speaker 1: just to sum it all up, I'm kind of curious 504 00:31:18,040 --> 00:31:22,120 Speaker 1: to get some of your personal observations about the situation 505 00:31:22,280 --> 00:31:26,120 Speaker 1: at the moment. What has surprised you about how the 506 00:31:26,160 --> 00:31:31,360 Speaker 1: coronavirus or the containment efforts around the coronavirus have impacted 507 00:31:31,920 --> 00:31:35,520 Speaker 1: either the tech industry or the electronics industry. What was 508 00:31:35,840 --> 00:31:41,680 Speaker 1: most surprising. I think the speed and scale of the 509 00:31:41,960 --> 00:31:46,640 Speaker 1: payment effort. I think after Woohim was quarantined, um first 510 00:31:46,640 --> 00:31:51,680 Speaker 1: of all, they quarantined Wolhi really quickly, and basically there 511 00:31:51,680 --> 00:31:58,600 Speaker 1: has been a really enormous demonstration of state uh power 512 00:31:58,720 --> 00:32:01,920 Speaker 1: here and state compa sit here, and I think are 513 00:32:01,960 --> 00:32:05,400 Speaker 1: now trying to figure out given that there are some 514 00:32:05,520 --> 00:32:10,040 Speaker 1: encouraging signs that the virus is abating. Um. The number 515 00:32:10,080 --> 00:32:14,440 Speaker 1: of infections x Hube has been in the double digits 516 00:32:14,520 --> 00:32:16,560 Speaker 1: I think for the last three days, meaning that the 517 00:32:16,600 --> 00:32:21,200 Speaker 1: epidemic seems to be mostly contained in in Hube and Wolheim. 518 00:32:21,760 --> 00:32:24,800 Speaker 1: And as a question now is really how to restart 519 00:32:25,080 --> 00:32:28,960 Speaker 1: the economy. So they have been really good at making 520 00:32:28,960 --> 00:32:32,200 Speaker 1: sure that people are in their place and that these 521 00:32:32,200 --> 00:32:35,680 Speaker 1: states has the ability to quarantine very many people. UM. 522 00:32:35,760 --> 00:32:38,800 Speaker 1: Now I think the interesting a lot points to watch 523 00:32:38,920 --> 00:32:41,280 Speaker 1: is how quickly they can reverse a lot of these 524 00:32:41,280 --> 00:32:45,880 Speaker 1: restrictions to uh, well everyone's fears and then really restart 525 00:32:45,920 --> 00:32:51,000 Speaker 1: the economy because a lot of things are just halted. Now. Well, Dan, 526 00:32:51,720 --> 00:32:55,280 Speaker 1: really appreciate you joining us. Always love chatting with you, 527 00:32:55,640 --> 00:32:58,000 Speaker 1: and we should probably you know, do one again, maybe 528 00:32:58,080 --> 00:33:01,600 Speaker 1: in three months or six month and just sort of 529 00:33:01,960 --> 00:33:05,200 Speaker 1: reassess where things are on the supply chain and the 530 00:33:05,320 --> 00:33:08,280 Speaker 1: degree to which the industrial economy has been able to 531 00:33:08,560 --> 00:33:12,000 Speaker 1: come back. But Dan, thank you, and hope everything returns 532 00:33:12,080 --> 00:33:16,240 Speaker 1: to some semblance of normalcy fairly soon. Thanks very much, 533 00:33:17,920 --> 00:33:37,840 Speaker 1: Thanks so much. Dan, that's really good. So Joe, I 534 00:33:37,920 --> 00:33:41,840 Speaker 1: found that conversation really really interesting. It's nice to dig 535 00:33:41,960 --> 00:33:44,600 Speaker 1: deep into the supply chain issue. And I do think 536 00:33:44,680 --> 00:33:48,680 Speaker 1: there seems to be a sense out there that they 537 00:33:48,680 --> 00:33:52,440 Speaker 1: can be very flexible and they can be reoriented as needed. 538 00:33:52,520 --> 00:33:55,720 Speaker 1: But as Dan pointed out, they they're actually quite complex 539 00:33:56,000 --> 00:33:59,200 Speaker 1: and it takes time to move these things. Now. There 540 00:33:59,200 --> 00:34:02,200 Speaker 1: are so many things that he pointed out that I 541 00:34:02,240 --> 00:34:07,560 Speaker 1: hadn't seen anyone discuss before thinking about. So, for example, okay, 542 00:34:07,800 --> 00:34:12,239 Speaker 1: Christmas shopping or holiday electronics sales, that seems like a 543 00:34:12,239 --> 00:34:15,880 Speaker 1: long time from now. But if the basic prototyping of 544 00:34:15,920 --> 00:34:18,600 Speaker 1: the next generation of any products is Q one and 545 00:34:18,680 --> 00:34:22,960 Speaker 1: QN is looking like for sure a total disaster, then okay, 546 00:34:23,040 --> 00:34:26,359 Speaker 1: even if there is a big economic rebound in Q two, 547 00:34:26,400 --> 00:34:28,200 Speaker 1: which we don't know for sure yet, but even if 548 00:34:28,200 --> 00:34:32,480 Speaker 1: there is, there will be inevitably this cascading effect that 549 00:34:32,640 --> 00:34:35,560 Speaker 1: last at least through the year, and that to some 550 00:34:35,600 --> 00:34:39,680 Speaker 1: extent there's no getting back this lost time. Yeah, And 551 00:34:39,719 --> 00:34:42,440 Speaker 1: the other thing I've been thinking about is we you know, 552 00:34:42,520 --> 00:34:45,240 Speaker 1: we were just speaking about the production side of things, 553 00:34:45,400 --> 00:34:48,719 Speaker 1: but you would think that the coronavirus outbreak is going 554 00:34:48,760 --> 00:34:51,279 Speaker 1: to end up having a very very large impact on 555 00:34:51,400 --> 00:34:54,399 Speaker 1: consumption as well. So China is basically in for both 556 00:34:54,440 --> 00:34:58,759 Speaker 1: a supply and demand shock to its economy, And I 557 00:34:58,800 --> 00:35:03,120 Speaker 1: also wonder when it comes to the consumption decline, how 558 00:35:03,160 --> 00:35:05,879 Speaker 1: long is that going to last and is it going 559 00:35:05,920 --> 00:35:09,000 Speaker 1: to be similar like supply chains and that it takes 560 00:35:09,000 --> 00:35:11,279 Speaker 1: a while to get back to normal. You know, the 561 00:35:12,239 --> 00:35:15,960 Speaker 1: Chinese government has spent so long, uh telling people that 562 00:35:16,000 --> 00:35:18,480 Speaker 1: they really need to make efforts to contain the virus, 563 00:35:18,520 --> 00:35:21,040 Speaker 1: they have to stay at home. Is it going to 564 00:35:21,120 --> 00:35:25,239 Speaker 1: be easy for them to lift those and suddenly tell everyone, Oh, 565 00:35:25,280 --> 00:35:27,640 Speaker 1: everything is back to normal, you don't need to worry anymore. 566 00:35:27,760 --> 00:35:31,400 Speaker 1: To Dan's point in the last question, yeah, totally. Because 567 00:35:32,080 --> 00:35:35,239 Speaker 1: you know, there's obviously there's no cure. There's no vaccine 568 00:35:35,320 --> 00:35:38,239 Speaker 1: that we have or anything like that yet. So to 569 00:35:38,400 --> 00:35:42,520 Speaker 1: declare victory over the virus or to declare that it's 570 00:35:42,600 --> 00:35:46,160 Speaker 1: been eradicated seems like an extremely difficult thing. And even 571 00:35:46,239 --> 00:35:49,719 Speaker 1: after you know, people start coming back to work, it 572 00:35:49,840 --> 00:35:52,759 Speaker 1: seems plausible that fear of a new outbreak, or fear 573 00:35:52,840 --> 00:35:55,000 Speaker 1: just one person having it and spreading into a new 574 00:35:55,040 --> 00:36:01,200 Speaker 1: super spreader situation could really change how people behave at 575 00:36:01,239 --> 00:36:06,640 Speaker 1: least for quite some time after, you know, after whatever 576 00:36:06,760 --> 00:36:10,040 Speaker 1: that the idea of any sort of imminent resume, resumption 577 00:36:10,520 --> 00:36:13,759 Speaker 1: of normal life, it kind of seems implausible. There's so 578 00:36:13,840 --> 00:36:16,600 Speaker 1: much going on. It's such an interesting story and really 579 00:36:16,960 --> 00:36:21,600 Speaker 1: sort of unprecedented in many ways. So what a fascinating 580 00:36:21,640 --> 00:36:25,040 Speaker 1: topic to talk about. Hearing Dan talk about how there's 581 00:36:25,080 --> 00:36:28,839 Speaker 1: someone who checks um checks his temperature literally every three 582 00:36:28,840 --> 00:36:32,000 Speaker 1: blocks and as he pointed out, the state capacity required 583 00:36:32,400 --> 00:36:35,120 Speaker 1: simply to set that up. I mean, it's just extraordinary 584 00:36:35,200 --> 00:36:40,880 Speaker 1: to think about what they what has been done already. Yeah, 585 00:36:40,920 --> 00:36:42,960 Speaker 1: they're doing it in Hong Kong as well, though not 586 00:36:43,080 --> 00:36:46,279 Speaker 1: quite on that scale, but certainly to get into the 587 00:36:46,360 --> 00:36:48,520 Speaker 1: major office buildings at the moment, you have to get 588 00:36:48,560 --> 00:36:53,960 Speaker 1: your temperature taken, so it's a big change. This has 589 00:36:54,000 --> 00:36:57,960 Speaker 1: been another episode of the All Thoughts podcast. I'm Tracey Alloway. 590 00:36:58,080 --> 00:37:00,560 Speaker 1: You can follow me on Twitter at Chase the Alloway, 591 00:37:01,000 --> 00:37:03,960 Speaker 1: and I'm Joe Wisenthal. You can follow me on Twitter 592 00:37:04,080 --> 00:37:07,160 Speaker 1: at the Stalwart. And you should follow our producer on Twitter, 593 00:37:07,480 --> 00:37:11,239 Speaker 1: Laura Carlson. She's at Laura M. Carlson, as well as 594 00:37:11,280 --> 00:37:15,080 Speaker 1: the Bloomberg head of podcast, Francesca Levie at Francesca Today 595 00:37:15,200 --> 00:37:18,920 Speaker 1: and check out all of the Bloomberg Podcasts, under the 596 00:37:18,960 --> 00:37:21,600 Speaker 1: handle at podcast, Thanks for listening.