WEBVTT - Phase 1 Trade Deal Is Just The Beginning: Leland Miller 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul swing you, 0:00:05.360 --> 0:00:07.640 along with my co host Lisa Brahma wits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:20.840 that Bloomberg dot com. We have our good friend Leland Miller, 0:00:21.079 --> 0:00:23.640 CEO of the BA Shop China Basebook International. He'll give 0:00:23.720 --> 0:00:27.000 us very informed thoughts on kind of what this means 0:00:27.000 --> 0:00:29.240 for China. Should we get some informed thoughts from him, 0:00:29.280 --> 0:00:32.000 Let's do it. I mean, I think that might be 0:00:32.000 --> 0:00:35.839 better than me pretending it. I could. I'm happy to pretending. 0:00:36.840 --> 0:00:39.360 Willam Mill are here in studio with us. What are 0:00:39.360 --> 0:00:43.080 you looking for today? You know, I I don't think 0:00:43.080 --> 0:00:44.839 that there's a chance of a breakdown. I think that 0:00:44.920 --> 0:00:48.560 we're you know, the the deal is UH is pretty 0:00:48.640 --> 0:00:51.680 much spelled out. It's a purse agreement. Not many people 0:00:51.720 --> 0:00:54.640 are expecting big things on I P or other issues. 0:00:54.920 --> 0:00:57.720 So look, I think you're you're looking for a lot 0:00:57.760 --> 0:01:00.840 of CEOs clicking CHAMPAGEO US is and saying, you know, 0:01:00.840 --> 0:01:03.080 we're gonna be friends for the next year, all right, 0:01:03.120 --> 0:01:07.280 but you are you skeptical that this is a material 0:01:07.360 --> 0:01:09.320 deal or I mean, is there anything it's a really 0:01:09.400 --> 0:01:11.680 meat here? How are you kind of viewing this? The 0:01:11.720 --> 0:01:15.440 meat is the purchases beyond what the Chinese have provided 0:01:15.440 --> 0:01:19.160 are talking about buying. Uh No, there really isn't There 0:01:19.200 --> 0:01:22.200 really isn't a core deal. The Chinese are putting in 0:01:22.319 --> 0:01:27.399 certain I p uh measures, some of them they have 0:01:27.440 --> 0:01:31.480 announced previously six months ago or longer. Uh So, look 0:01:31.520 --> 0:01:34.399 this this the reason there's not a bigger deal is 0:01:34.400 --> 0:01:36.959 that the two sides just decided that they couldn't come 0:01:36.959 --> 0:01:38.920 to terms with either rolling back a ton of a 0:01:39.000 --> 0:01:41.640 ton of terroiffs in order to get the big I 0:01:41.680 --> 0:01:43.840 p forced tech stuff. And so they said, look, the 0:01:43.840 --> 0:01:45.160 best way to do it is to is to go 0:01:45.280 --> 0:01:47.600 right on in and and and just do buys. I'm 0:01:47.600 --> 0:01:50.480 a big questions has been uh sort of the overlap 0:01:50.720 --> 0:01:54.800 between between the w t O agreement that the fact 0:01:54.800 --> 0:01:59.120 that the US, UH, the UK, or rather the U, S, 0:01:59.480 --> 0:02:02.120 the E, and Japan have all teamed up to try 0:02:02.160 --> 0:02:06.240 to pressure China to reduce their industrial subsidies at the 0:02:06.280 --> 0:02:08.880 same time that we're signing this Phase one agreement. How 0:02:08.919 --> 0:02:13.639 are these multilateral and bilateral tracks overlapping or not? Well, 0:02:13.680 --> 0:02:17.200 I think that the administration realized early, well it realized 0:02:17.360 --> 0:02:21.120 recently that it's better to have friends, and so at 0:02:21.120 --> 0:02:23.720 the beginning, everything was bilateral, We're gonna get a Bilattal 0:02:23.760 --> 0:02:26.040 trade deal, We're gonna get bilateral agreement from the Chinese. 0:02:26.160 --> 0:02:27.919 Did not not to do this or to do that. 0:02:28.360 --> 0:02:30.320 And they've come around to the idea that it's it's 0:02:30.400 --> 0:02:32.679 it's an easier process if you get the rest of 0:02:32.720 --> 0:02:34.720 the world on board. Is that true? I mean, so 0:02:34.960 --> 0:02:38.800 the Trans Pacific Partnership would would be the arguably the 0:02:38.800 --> 0:02:44.320 epitome of a multilateral group negotiating. They're not that, they're 0:02:44.320 --> 0:02:46.880 still not supportive of those types of agreements, are they not? Yet? 0:02:46.919 --> 0:02:50.080 But the t p P is very closely associated with Obama. 0:02:50.160 --> 0:02:52.720 So if you, you know, you rename TPP Trump Pacific 0:02:52.720 --> 0:02:55.040 Partnership three years from now, then is there a chance 0:02:55.080 --> 0:02:58.160 that they come around to it. It's I've I've discussed 0:02:58.160 --> 0:03:03.400 it with administration officials, ingest who knows. Look, there's a 0:03:03.440 --> 0:03:06.040 there was a desire by the Trump White House to 0:03:06.160 --> 0:03:09.120 break from everything Obama. Uh, some things are good, some 0:03:09.160 --> 0:03:12.079 things are more controversial. But t p P was was 0:03:12.080 --> 0:03:15.720 was not gonna work under Trump, but a revised version 0:03:15.720 --> 0:03:18.519 of it in the future, who knows. So what precipitate 0:03:18.600 --> 0:03:22.960 did this come to Jesus moment for the administration multilateralism? Well, 0:03:23.000 --> 0:03:25.280 I think they wanted to continue to claim that that 0:03:25.360 --> 0:03:29.440 they're pushing the Chinese on odd subsidies. So if you're 0:03:29.440 --> 0:03:31.280 if it's not part of Phase one, and you don't 0:03:31.320 --> 0:03:33.880 have Phase two coming about, then why not go with 0:03:33.919 --> 0:03:36.280 your allies, the w t O and and then get 0:03:36.280 --> 0:03:39.200 the Europeans and Japanese animated about Chinese subsidies which they 0:03:39.240 --> 0:03:41.440 care about as well. So this is this is not 0:03:41.520 --> 0:03:44.040 really a come to Jesus so much as if they're 0:03:44.080 --> 0:03:46.960 not getting progress on this now, why not utilize the 0:03:46.960 --> 0:03:50.240 other tools in the toolbox to to push China. And 0:03:50.360 --> 0:03:52.320 this the shift of of course done been done by 0:03:52.400 --> 0:03:55.600 from the beginning, but it's it's it's making its way 0:03:55.600 --> 0:03:58.880 back there. President Trump also mentioned at one point that 0:03:59.120 --> 0:04:02.800 once this is one deal assigned that he I believe said, 0:04:02.840 --> 0:04:05.480 would go to China to begin negotiating a phase two. 0:04:05.680 --> 0:04:08.400 Is there any reason to believe that that will occur, 0:04:08.720 --> 0:04:10.720 and will we have any success If you have a 0:04:10.880 --> 0:04:13.440 second Trump term, then yeah, there will be a continuation 0:04:13.560 --> 0:04:17.480 of of of the trade war trade negotiations. Then, Uh, 0:04:17.520 --> 0:04:21.480 there's nothing contemplated right now now. The one asterist I 0:04:21.480 --> 0:04:24.800 would put on that is if the economy starts to 0:04:24.839 --> 0:04:28.159 really slide, if stock markets start to tank, they have 0:04:28.800 --> 0:04:32.839 they have created this phased uh sequencing uh for the 0:04:32.839 --> 0:04:35.200 ability for for for the President simply to jump into 0:04:35.240 --> 0:04:38.520 and say, I'm going to start negotiating again and We're 0:04:38.520 --> 0:04:40.679 going to do more tariff bullback. So we're gonna grant 0:04:40.680 --> 0:04:42.560 some other concessions and we're gonna get more in return. 0:04:42.839 --> 0:04:45.479 And so it will allow him, if he finds it 0:04:45.560 --> 0:04:48.560 politically necessary to do so, to jump back in in 0:04:48.640 --> 0:04:51.080 two thousand twenty. But that's not the game play. And 0:04:51.240 --> 0:04:53.680 right now I still have struggling with this idea that 0:04:53.720 --> 0:04:58.560 we're bilaterally negotiating, that the US and China are bilaterally 0:04:58.640 --> 0:05:04.039 negotiating while there's a multilateral push on another level. I'm 0:05:04.080 --> 0:05:07.039 just wondering, does that mean that Phase two is going 0:05:07.080 --> 0:05:10.120 to be a multilateral Phase two or does that mean 0:05:10.200 --> 0:05:14.680 that Phase two will continue with added pressure from allies 0:05:14.760 --> 0:05:17.680 and others. I think I think what Phase two has 0:05:17.680 --> 0:05:20.400 always been sold as is, we're going to do the 0:05:20.480 --> 0:05:24.080 big moves next, So don't don't hold us to this now, 0:05:24.240 --> 0:05:27.279 but we're gonna do it next time. And look, anyone 0:05:27.320 --> 0:05:30.520 who's dealt with the Chinese uh for for years will realize, 0:05:30.760 --> 0:05:33.440 like like the administration now has. They'll realize that the 0:05:33.520 --> 0:05:35.920 Chinese are very savvy negotiators, and they'll string this out 0:05:36.000 --> 0:05:37.560 and they're not going to give up core things that 0:05:37.600 --> 0:05:40.039 are important to them without a lot of pain. So 0:05:40.200 --> 0:05:43.320 I think this is more of a situation where, uh, 0:05:43.520 --> 0:05:47.120 you know, the White House realized that its administration was 0:05:47.960 --> 0:05:50.560 divided on on what to go after. The President had 0:05:50.560 --> 0:05:53.120 different priorities and some of his some of his other principles, 0:05:53.480 --> 0:05:57.520 and they would go after agricultural purchases first, try to 0:05:57.520 --> 0:05:59.719 get the trade deficit in order as much as possible. 0:06:00.080 --> 0:06:03.200 And while they're waiting that out, they'll they'll start to 0:06:03.200 --> 0:06:06.160 to maybe go back and and and utilize again these 0:06:06.200 --> 0:06:09.719 other tools which involve using Europeans and Japanese and everyone 0:06:09.720 --> 0:06:11.640 else to try to push back on the Chinese model. 0:06:11.800 --> 0:06:13.880 I'm not even sure I even buy off on the 0:06:13.880 --> 0:06:17.280 whole agricultural aspect of this phase one, weren't they They 0:06:17.279 --> 0:06:20.760 were buying agriculture and soybeans and stuff before. Now it's 0:06:20.760 --> 0:06:22.520 gone a year, they haven't been buying. Now they're gonna 0:06:22.520 --> 0:06:25.679 start buying again. I'm not sure what's incremental here. Well, 0:06:25.760 --> 0:06:27.840 the big question is can they hit any of these 0:06:27.839 --> 0:06:30.440 targets that are that are quite big that they claim 0:06:30.480 --> 0:06:32.599 to be able to do over two years. So the 0:06:32.680 --> 0:06:35.200 promise is that they're not going to just get the 0:06:35.279 --> 0:06:37.640 number back up to two billion, that they're going to 0:06:37.680 --> 0:06:39.840 get another two hundred billion on top of that. So 0:06:39.960 --> 0:06:43.560 if by some miracle of math they're able to do that, 0:06:43.600 --> 0:06:45.400 then there would be a real DNT in the Bilottal 0:06:45.400 --> 0:06:48.159 trade deficit. The problem is is that this is really 0:06:48.200 --> 0:06:50.760 a one year trade deal because the administration and the 0:06:50.839 --> 0:06:54.000 Chinese are both motivated to get through the election. Uh, 0:06:54.120 --> 0:06:57.680 at frontloads some of those purchases. Keep keep the keep 0:06:57.680 --> 0:07:00.479 the guns the guns and ammo dry and try to 0:07:00.480 --> 0:07:03.839 get into see where the situation is there. But look, 0:07:03.880 --> 0:07:08.160 these targets are extremely bold. Uh they're they're almost mathematically 0:07:08.200 --> 0:07:12.040 impossible to hit, the agriculture not being the most difficult 0:07:12.040 --> 0:07:14.440 to hit, and so you're gonna you're You're gonna see 0:07:14.480 --> 0:07:16.640 a lot of challenging things here. And if the Chinese 0:07:16.680 --> 0:07:18.960 are actually getting close to me those targets, they're gonna 0:07:18.960 --> 0:07:20.960 really irritate all their other trading partners who they're no 0:07:21.000 --> 0:07:23.080 longer buying from. So the Chinese are trying to thread 0:07:23.080 --> 0:07:25.800 this needle. It's probably not possible, but what they want 0:07:25.800 --> 0:07:27.280 to do is get through this year first, and then 0:07:27.280 --> 0:07:29.680 they're gonna worry about it here too. Lela Miller is 0:07:29.720 --> 0:07:32.280 the person joining us right now, chief executive officer of 0:07:32.480 --> 0:07:36.360 China Beige Book International, as we await the signing of 0:07:36.440 --> 0:07:39.480 this trade deal between the US and China at the 0:07:39.480 --> 0:07:43.240 White House. It's been widely anticipated, but no one's actually read, 0:07:43.440 --> 0:07:45.920 at least in the public, the eighties six page document. 0:07:45.960 --> 0:07:48.920 A lot of questions remain about the details, in particular 0:07:49.000 --> 0:07:54.200 any concessions that China gave aside from making these agricultural purchases. 0:07:54.520 --> 0:07:57.440 That's been one question raised. Do we know anything about 0:07:57.480 --> 0:08:01.360 further concessions that China might have made. No, uh, we don't, 0:08:02.600 --> 0:08:05.920 um look that. Here's here's the difficulty. A lot of 0:08:05.960 --> 0:08:08.240 the things that that has been talked about in terms 0:08:08.240 --> 0:08:10.160 of I P have been things that the Chinese have 0:08:10.200 --> 0:08:13.680 announced domestically over the last several months. Uh So, one 0:08:13.720 --> 0:08:16.000 of the things that was recently touted was the fact 0:08:16.040 --> 0:08:18.680 that you know, there will be heavier criminal penalties for 0:08:18.840 --> 0:08:22.320 i P infringers. Okay, but we knew that months ago. 0:08:22.600 --> 0:08:24.800 So what they're doing right now is they're trying to 0:08:24.840 --> 0:08:28.520 scoop in all the developments that have happened in the 0:08:28.600 --> 0:08:32.240 Chinese economy and Chinese corporate landscape for the last you know, 0:08:32.400 --> 0:08:35.240 three six, nine months and say these are part of 0:08:35.280 --> 0:08:38.240 the i P changes that the administration is pushing about. Um, 0:08:38.440 --> 0:08:40.920 we're not going to try to quantify them. We're more 0:08:40.920 --> 0:08:44.719 worried about the purchases. But this is more than just purchases. 0:08:45.200 --> 0:08:47.400 Uh this is this is us really moving the system. 0:08:47.440 --> 0:08:50.160 So thet the lack of clarity is something it's it's 0:08:50.200 --> 0:08:51.880 sort of hard to get around. And Leland, I know 0:08:51.960 --> 0:08:54.360 in the past, when you've been in our studios talking 0:08:54.360 --> 0:08:57.520 to us about China, you said to us, it's about enforcement. 0:08:57.640 --> 0:08:59.680 We have to be able to enforce this, and that's 0:08:59.679 --> 0:09:01.760 been a challenge in the past. Is there any reason 0:09:01.800 --> 0:09:05.040 to believe that this agreement will include some provisions for 0:09:05.280 --> 0:09:09.120 proper enforcement, so so I have and others have been 0:09:09.240 --> 0:09:12.200 very critical the idea of snapback tariffs or some sort 0:09:12.200 --> 0:09:15.600 of automatic mechanism for the simple fact that nothing's automatic 0:09:15.679 --> 0:09:17.880 if you've got a president who will be weighing the 0:09:17.920 --> 0:09:22.160 political ups and downs of throwing tariffs back on. So 0:09:22.200 --> 0:09:25.079 there's nothing automatic about an enforcement mechanism, and that was 0:09:25.120 --> 0:09:28.880 always oversold. However, this deal in some ways was done 0:09:29.000 --> 0:09:32.480 very cleverly because the Chinese are very motivated to do 0:09:32.520 --> 0:09:35.160 the purchases for the first year. If they can get 0:09:36.120 --> 0:09:38.280 the numbers up and the numbers to where President Trump 0:09:38.320 --> 0:09:41.199 likes it, then after November, sometime in the November to 0:09:41.280 --> 0:09:44.160 January period, they have been promised behind the scenes that 0:09:44.240 --> 0:09:46.920 they will get a tariff rollback. So they have to 0:09:46.920 --> 0:09:49.720 get President Trump elected. They have to honor their commitments, 0:09:49.720 --> 0:09:51.920 and if they do, then you're gonna see a tariff 0:09:52.000 --> 0:09:56.400 rollback in the first few months of a Trump second term. Meanwhile, 0:09:56.760 --> 0:09:59.000 the trade agreement has yet to be seen, and we 0:09:59.040 --> 0:10:01.800 will be getting the document and perhaps passed through it 0:10:02.320 --> 0:10:05.360 in real time as we get the text of it. 0:10:05.600 --> 0:10:09.160 There is a question about China's underlying economy, particularly how 0:10:09.160 --> 0:10:12.520 they've adjusted to the ongoing trade tensions. We got some 0:10:12.559 --> 0:10:14.600 trade data that was kind of interesting showing how they've 0:10:14.600 --> 0:10:18.079 shifted some of their uh, their channels. Um. But also 0:10:18.200 --> 0:10:21.280 what remains to be seen is supply chains getting truly 0:10:21.360 --> 0:10:24.840 rejiggered and the impact on China. How much have we 0:10:24.960 --> 0:10:27.000 seen that already go into effect. How much more are 0:10:27.040 --> 0:10:31.240 we going to see supply chains move away from that nation? Plenty? Uh, 0:10:31.600 --> 0:10:33.920 But the question is you know in what areas? So 0:10:34.040 --> 0:10:36.160 if you're if you're a tech company and you're trying 0:10:36.160 --> 0:10:39.280 to figure out how to uh to to play the 0:10:39.360 --> 0:10:41.880 US China game, you're gonna have to make a decision. 0:10:41.920 --> 0:10:43.840 It looks it looks like they're gonna be cracking down 0:10:43.840 --> 0:10:45.959 more and more and more as things go by. You're 0:10:45.960 --> 0:10:48.120 not gonna be able to supply Huawei if you're supplying 0:10:48.240 --> 0:10:52.040 you know, US firms and and US government um. And 0:10:52.040 --> 0:10:54.839 this is going to continue from there. On the manufacturing side, 0:10:54.880 --> 0:10:57.040 I think there is also going to be more and 0:10:57.080 --> 0:11:01.400 more of a concerted effort to separate the supply chains. 0:11:01.559 --> 0:11:05.400 They're gonna have even foreign companies developing inside China for 0:11:05.520 --> 0:11:08.640 the China's China market, and that's going to be separate 0:11:08.720 --> 0:11:11.559 from where other firms are supplying the United States the 0:11:11.600 --> 0:11:14.959 rest of the world, so a lot of this supply chain, uh, 0:11:15.040 --> 0:11:19.400 decoupling is happening. Um. It doesn't mean that decoupling overall 0:11:19.520 --> 0:11:22.000 has to happen in some sort of scary sense, but 0:11:22.040 --> 0:11:24.120 there's no question things are going in this direction. And 0:11:24.160 --> 0:11:25.960 on the tech side, this is going to be the 0:11:25.960 --> 0:11:28.199 battle that people fight, you know, for the next five 0:11:28.480 --> 0:11:30.320 fifteen years. You know what, while we have you here, 0:11:30.520 --> 0:11:32.280 just give us kind of an update on how things 0:11:32.360 --> 0:11:36.719 are in China broadly speaking from an economic perspective. Well, 0:11:36.720 --> 0:11:41.360 it's it's it's interesting because people are less worried about 0:11:41.360 --> 0:11:44.240 the Chinese economy right now than they were, say three 0:11:44.240 --> 0:11:46.880 months ago or six months ago. Uh, and fair enough 0:11:47.080 --> 0:11:50.080 because our fourth quarter data were an improvement on Q three, 0:11:50.280 --> 0:11:52.839 their improvement on year from a very very weak Q 0:11:53.040 --> 0:11:56.440 four of last year. But you know, it's it's it's 0:11:56.480 --> 0:12:02.040 more of a temporary stability, I think, Um, we when 0:12:02.080 --> 0:12:05.720 we talk to firms, they are investing more and they 0:12:05.720 --> 0:12:09.240 are hiring more. So so the fourth quarter again beyond 0:12:09.280 --> 0:12:11.880 even the top line look better than than the third quarter. 0:12:12.160 --> 0:12:13.680 But why are they doing this? If you look at 0:12:13.720 --> 0:12:16.280 new orders, new orders are weaker for the second quarter 0:12:16.280 --> 0:12:18.280 in a row. You look at cash flow, cash flow 0:12:18.320 --> 0:12:20.360 is the weakest we've seen in the entire history of 0:12:20.400 --> 0:12:23.760 China Beige Book for the fourth quarter of two thousand nineteen. Now, 0:12:23.800 --> 0:12:25.800 why are they investing then? Why are they hiring it? Well? 0:12:25.800 --> 0:12:27.920 Are they? Are they just looking at trade war headlines 0:12:27.960 --> 0:12:30.880 and seeing a truce and investing blindly. That's what we're 0:12:30.880 --> 0:12:33.560 going to see in early We're gonna see whether this 0:12:33.640 --> 0:12:37.319 is a refusal of companies to listen to their customers 0:12:37.320 --> 0:12:39.600 who are or they invest more because the government tells 0:12:39.640 --> 0:12:41.400 them to invest more to make the numbers look good 0:12:41.440 --> 0:12:44.720 because we're going to Washington negotiating. Historically the answers yes, 0:12:44.840 --> 0:12:46.839 and it's historically with state firms the answer is a 0:12:46.880 --> 0:12:48.840 double yes. So we're gonna see how much of that 0:12:48.960 --> 0:12:51.360 is is the government saying, look, improve conditions. But you 0:12:51.400 --> 0:12:53.560 can't do that forever. You can you can order a 0:12:53.559 --> 0:12:57.079 temporary tick up, but you know, economics are economics. So 0:12:57.280 --> 0:13:00.160 I think early twenty will be a a look to 0:13:00.200 --> 0:13:02.520 the government to see how much slower growth it's willing 0:13:02.520 --> 0:13:04.719 to accept now that the trade wars is going to 0:13:04.760 --> 0:13:07.040 be temporary. Out of the headlines, what do we look 0:13:07.080 --> 0:13:09.080 at now. A lot of people say, well, you know, 0:13:09.160 --> 0:13:12.280 this all sounds problematic, but there's such a fire hose 0:13:12.320 --> 0:13:16.760 that the PBOC has to release to the market to 0:13:16.840 --> 0:13:19.400 sort of prop everything up that it doesn't matter. How 0:13:19.440 --> 0:13:22.480 long can that be true? Well, the big argument we've 0:13:22.520 --> 0:13:25.280 had with the consensus over the past years, we think 0:13:25.320 --> 0:13:28.480 the PBOC and the China's credit environment overall are very 0:13:28.520 --> 0:13:32.200 active right now. Now. The pushback usually is, well, we 0:13:32.240 --> 0:13:35.160 don't see all the building we saw in that is correct. 0:13:35.200 --> 0:13:39.280 We are not seeing a style stimulus where it's you know, build, 0:13:39.400 --> 0:13:41.360 build it and they will come. Uh, this is not 0:13:41.440 --> 0:13:45.720 heavy infrastructure spending right now. Our transportation construction indicators sharply weaker, 0:13:45.920 --> 0:13:49.480 commodities are weaker. Uh so we're not seeing a build out. 0:13:49.559 --> 0:13:52.679 But we are seeing is tremendous provision of credit to 0:13:52.800 --> 0:13:57.400 corporates are are borrowing numbers are sky high. Our bond 0:13:57.440 --> 0:14:00.720 sales numbers have gone up six consecutive quarters. We're seeing 0:14:00.720 --> 0:14:03.360 a resurgence in shadow finance, which has not yet been 0:14:03.360 --> 0:14:06.640 publicly admitted by Beijing. So that the PBOC has already 0:14:06.640 --> 0:14:11.360 been very very active. And what is the result. Well, 0:14:11.480 --> 0:14:14.480 they've got a stable economy. Now, things aren't falling, but 0:14:14.520 --> 0:14:16.959 they're not getting a jolt. So it's a little bit 0:14:17.040 --> 0:14:19.480 disconcerting that the PBOC is as active as it is 0:14:19.560 --> 0:14:22.080 right now and they're not seeing a surgeon growth. They're 0:14:22.120 --> 0:14:25.600 simply avoiding a much worse outcome. I want to bring 0:14:25.600 --> 0:14:28.480 in Andy Brown right now. Andy's editorial director of the 0:14:28.480 --> 0:14:31.320 New Economy Forum at Bloomberg, And you were reading the 0:14:31.400 --> 0:14:34.040 signing of the trade agreement, the Phase one trade agreement 0:14:34.040 --> 0:14:36.520 between the US and China. What does it mean to 0:14:36.560 --> 0:14:41.160 you this trade agreement. Less in this trade agreement than 0:14:41.600 --> 0:14:44.400 meets the eye that's always been saying for quite some time. 0:14:45.200 --> 0:14:49.120 Uh So, the tariffs on most Chinese imports into the 0:14:49.200 --> 0:14:53.600 United States remain okay. And the concessions that the Chinese 0:14:53.600 --> 0:14:56.520 side of making have been on the table or they 0:14:56.520 --> 0:14:59.840 were working on them long before this trade will began, 0:15:00.360 --> 0:15:06.920 which includes concessions on intellectual property, which includes apparently concessions 0:15:06.920 --> 0:15:10.840 on currency manipulations. In fact, China hasn't been manipulating its 0:15:10.920 --> 0:15:13.200 currency now for many years, has been propping it up 0:15:13.640 --> 0:15:17.360 rather than allowing it to depreciate. Um And the reason 0:15:17.400 --> 0:15:20.720 that China has been proceeding with these reforms is not 0:15:20.960 --> 0:15:23.440 because of pressure from the White House, but because it's 0:15:23.520 --> 0:15:27.640 good for the Chinese economy. Andy, we heard from the 0:15:27.680 --> 0:15:31.240 Democratic candidates last night and they made clear in their 0:15:31.280 --> 0:15:34.200 discussions about trade they weren't necessarily going to take a 0:15:34.240 --> 0:15:37.960 softer line with China. How much is that kind of 0:15:38.000 --> 0:15:41.200 weighing on the Chinese delegation's minds at this idea that 0:15:41.600 --> 0:15:44.280 you know, it's not just about waiting it out and 0:15:44.320 --> 0:15:47.120 waiting until President Trump if he gets reelected, and then 0:15:47.120 --> 0:15:50.560 figuring it out from there. That you know is picking 0:15:50.880 --> 0:15:53.440 you know, the lesser of evils and just to sort 0:15:53.480 --> 0:15:56.320 of go with it. You know, I think that the 0:15:56.400 --> 0:16:00.520 Chinese side are about as confused as everybody is over 0:16:00.600 --> 0:16:04.000 a central contradiction which is at the heart of US 0:16:04.080 --> 0:16:08.520 training policy to China, that the White House cannot cannot 0:16:08.560 --> 0:16:10.520 figure out what it is it wants to get out 0:16:10.520 --> 0:16:13.480 of this trading relationship. What we're all waiting for, of course, 0:16:13.560 --> 0:16:16.640 is the Phase two deal. Now, this phase to deal 0:16:17.200 --> 0:16:20.960 is the about the rolling back of state owned enterprise 0:16:21.080 --> 0:16:24.440 privilege and power in the Chinese economy to level the 0:16:24.520 --> 0:16:28.080 playing field for foreign investors, including US investors, now to 0:16:28.120 --> 0:16:31.520 the extent that that succeeds, it will actually open the 0:16:31.560 --> 0:16:35.080 door for more foreign investment, more US investment in the 0:16:35.160 --> 0:16:38.760 Chinese economy, which is apparently precisely the opposite of what 0:16:38.880 --> 0:16:41.920 some in the Trump White House want, which is to 0:16:42.200 --> 0:16:46.040 bring jobs and bring manufacturing back to the United States 0:16:46.240 --> 0:16:49.960 with the unstated goal, of course, of economically weakening and 0:16:50.080 --> 0:16:55.640 economic and security competitor. So both Democrats and Republicans need 0:16:55.720 --> 0:16:58.080 to really get to grips with this issue. What is 0:16:58.120 --> 0:17:01.920 it that the US wants out of the trading relationship? Lelan? 0:17:02.440 --> 0:17:04.720 What do you think the Chinese government? How do you 0:17:04.720 --> 0:17:06.800 think the Chinese government is going to portray this phase 0:17:06.840 --> 0:17:10.840 one deal? Is at a great victory for China economically 0:17:11.119 --> 0:17:13.399 or is it just it's a step along the way 0:17:13.440 --> 0:17:15.800 and it's not that big a deal. Well, I think 0:17:15.800 --> 0:17:17.680 at the very beginning you didn't hear much in the 0:17:17.760 --> 0:17:19.920 Chinese press about this because they couldn't figure that out. 0:17:20.280 --> 0:17:23.159 And now that they are convinced that President Trump is 0:17:23.200 --> 0:17:25.960 serious about having this done, we'll see in a few minutes. 0:17:26.440 --> 0:17:31.840 Uh they are. They are conveying a sense of victory, 0:17:31.880 --> 0:17:33.960 but this is just a small step on the road. 0:17:34.160 --> 0:17:36.680 So you know, there there are many disagreements. The fact 0:17:36.760 --> 0:17:39.800 we came together on this and found compromises is healthy. 0:17:40.000 --> 0:17:42.560 But let's not pretend that this is the end of 0:17:42.560 --> 0:17:44.680 the road for the trade war. They've They've made sure 0:17:44.720 --> 0:17:47.639 to add that in quite often when discussing this in 0:17:48.000 --> 0:17:50.160 the in the Chinese press. So I think that they 0:17:50.200 --> 0:17:53.639 see this as a temporary truce. It is just a 0:17:53.640 --> 0:17:56.400 temporary truce and uh, and they're waiting for the other 0:17:56.400 --> 0:18:01.359 shoe to drop, all right. We're just to reiterate we 0:18:01.400 --> 0:18:03.960 are waiting this trade agreement to be signed. And we 0:18:04.000 --> 0:18:06.520 are speaking currently with Leland Miller, CEO of China beige 0:18:06.560 --> 0:18:09.840 Book International, as well as Andy Brown, who runs a 0:18:09.840 --> 0:18:12.199 New Economy forum here at Bloomberg for US, and we 0:18:12.200 --> 0:18:14.879 really appreciate both of your perspectives. One question I have 0:18:15.080 --> 0:18:18.879 is we're coming out about a delay of ten months 0:18:18.960 --> 0:18:22.119 before the tariffs get ruled back that the US has 0:18:22.160 --> 0:18:25.199 put on China, And this is sort of differ This 0:18:25.320 --> 0:18:27.879 just differs from what we've heard earlier where these tariffs 0:18:27.920 --> 0:18:32.000 would be rolled back as as China sort of agreed 0:18:32.040 --> 0:18:35.359 with or sort of complied with certain requirements. Is this 0:18:35.400 --> 0:18:38.240 a big deal, Andy, I think it is a big deal. 0:18:39.280 --> 0:18:41.720 I mean you know, you've you've got tariffs on three 0:18:42.000 --> 0:18:45.200 sixty billion dollars of Chinese exports to the US. That's 0:18:45.200 --> 0:18:49.600 two covers two thirds of all of the exports. So um, 0:18:49.640 --> 0:18:52.479 you know you you this hasn't this, This isn't the end, 0:18:52.640 --> 0:18:54.000 of course, is not the end of the trade. Well, 0:18:54.040 --> 0:18:58.280 this this represents at best a truce. And then you 0:18:58.359 --> 0:19:00.800 have to look at what the Chinese need to do 0:19:01.080 --> 0:19:03.359 in order to get these tariffs. Now they have to 0:19:03.400 --> 0:19:08.359 comply with this purchase agreement two billion dollars, which includes 0:19:08.440 --> 0:19:12.399 something like eighty billion dollars of manufacturers from the United States. 0:19:12.720 --> 0:19:15.240 This is not going to be easy for the unit 0:19:15.320 --> 0:19:18.280 either for the United States to fulfill. Uh, you know, 0:19:18.400 --> 0:19:21.840 where where is this? Where is this additional industrial capacity 0:19:21.920 --> 0:19:24.399 going to come from to supply the Chinese market? In 0:19:24.440 --> 0:19:28.040 two billion dollars, by the way, implies something like increase 0:19:28.840 --> 0:19:33.159 annual increase in US exports to China over what they 0:19:33.200 --> 0:19:36.280 were in two thousand and seventeen before the trade war started. 0:19:36.320 --> 0:19:40.760 How's that going to happen? So Leland within China itself? 0:19:41.080 --> 0:19:43.480 Did you in your data at the China Bage book, 0:19:43.520 --> 0:19:46.199 did you see data? Are you seeing data that the 0:19:46.320 --> 0:19:50.840 trade war. The trade uncertainty has caused Chinese companies to 0:19:50.960 --> 0:19:53.359 pull back on maybe some of their investment and growth 0:19:53.400 --> 0:19:56.440 and you know, building new plants and so on. It's 0:19:56.440 --> 0:19:59.399 had an effect. It's not the reason the Chinese economy 0:19:59.440 --> 0:20:01.719 is descellering. It it it has had an effect. What you 0:20:01.760 --> 0:20:05.240 saw in the early early tranches of tariffs was a 0:20:05.359 --> 0:20:08.280 Chinese counter reaction. You know, they would there would there 0:20:08.320 --> 0:20:11.560 was a devaluation, depreciation of the currency. There were some 0:20:11.600 --> 0:20:15.119 backdoor subsidies to basically counteract the effects of the first 0:20:15.200 --> 0:20:19.080 waves of tariff UH, and then you saw a bit 0:20:19.119 --> 0:20:21.480 of pain come from the next wave. But I think 0:20:21.480 --> 0:20:24.360 that the real fear has always been the nightmare scenario, 0:20:24.480 --> 0:20:29.199 which is putting tariffs, probably very high tariffs on all 0:20:29.200 --> 0:20:33.359 five billion plus of Chinese of Chinese imports and keeping 0:20:33.400 --> 0:20:35.879 them on there, and that would cause significant pain to 0:20:35.880 --> 0:20:39.840 the Chinese economy. And that is why this entire trade 0:20:39.840 --> 0:20:43.800 war UH, as animated as has been, has come to 0:20:44.320 --> 0:20:46.439 the point we are today, which the Phase one signing. 0:20:46.480 --> 0:20:48.960