China Walking a Tightrope With Russia’s War

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg Global News. So I mentioned the rally in Chinese stocks. The a d R s here in the US as measured by the Golden Dragon China Index up. We saw stocks in China Hong Kong rally overnight this as China made a strong vow to short battered financial market. So that's going on. Quite a turnaround in Chinese stocks.

They've been under pressure because of greater regulatory oversight, and then there's concerns about China's relationship with Russia, how that might impact growth, the possibility of sanctions against and these companies. Just a lot going on, let's put pressure on China. Yeah, that's why we're so grateful to have Dexter Tiff Roberts join us. He's a Senior Fellow for the Mansfield Center at the University of Montana, also senior Fellow at the

Atlantic Council's Asia Society Initiative. Also a former Bloomberg Business Week China Bureau chief, and the author of the Myth of Chinese Capitalism, The Worker of the Factory and the Future of the World. Tiff, how are you. I'm doing well. Great to be back on the show with you and Carroll. Yeah, really great to have you apologize because I forgot you were here. I've been here for a long time. I just to think you were overseas a lot so I can remember, but I was I was engaging more often

than New York Carol. Okay, fair enough, But I feel like you do know everybody, Carol, so yeah, you know, Hey, uh, Tiff, I I do want to start with what Carol said about Chinese stocks, Okay, because this is a story that we've been following for more than a year now very closely, as Chinese stocks have been absolutely getting beat up, and I'm wondering if you were surprised at all, UH, at the last minute that you saw the Chinese government step

in and say they were gonna offer support. Well, I'm not really surprised because, as you said, it's been so it's been almost a blood bath for Chinese stocks in Hong Kong and Shanghai, and UH. I think they became concerned.

So shi Jing King's right hand economic person, Leo Ja you know, he met with UH top finance officials and basically said, UH, it's time to market stability is what we need to focus on now, and promised to UH ease up on the regulatory pressure that's been on the tech stocks that's brought down UH brought down so many of them in terms of their value. UM, So I wasn't that surprised. I guess the question is how how long or how sustained will this rally D I think

there are continuing issues, particularly on the regulatory side. I don't mean China's backing away from its desire to deal with what they perceive as national security concerns related to online data, which many of the companies that have been hit very hard have been in one way or another involved in that business. Tip is churn it all starting to back away from its relationship with Russia too, because that has also been something we all are watching very

very closely. I think that China wants to signal to us that it's backing away from its relationship with Russia. I think they are disturbed by how long this war has been going on. They're definitely disturbed by the degree to which their international reputation has taken a beating for this perceived support and this real support for Russia during this during during the invasion, in the war. So I think that's the message that they're trying to put out,

that they are actually stepping back. I'm not so sure for a whole variety of reasons that they're they're going to actually create real distance between them and Russia. What would real distance look like? And and I mean, could China actually actually afford to do it, especially if you know, Russia is so cut off from the rest of the world that China is really the only country that can

supply it with high with with higher end technology. Yeah, I mean I think for China, I mean the trade relationship. You look at the Russian trade relationship, I think it's about hundred forty seven billion dollars last year. For Russia, it matters a whole lot. China is their number one trading partner for For China, not so much. I think it's about two percent of China's trade. That compares to roughly twelve percent each for the US and the EU.

So the relationship, the economic relationship is far less important to China. Uh. I think there are I think what we're dealing really with here are political issues, and that's where the alignment between the two countries becomes very, very important. Well, it's very clear, right, and I know we've talked about this with you. We've just got about thirty seconds or so and then we'll come back and talk some more.

But I mean China's increasingly drawing that line in the sand about how it feels about democracy and and US dominance, whether it's through the dollar or something else, just quickly. Absolutely, I know. I think the big issue here is China feels like it's the political values are roughly aligned with Russia, and much of that is defined by opposing the values of the US and Western liberal democracy. They see that as as really um to what they're trying to achieve. Hey, Ti,

so who needs China more more. I mean you talked about the importance for Russia, But does Russia or the US needs China more? And who needs the US more? Russia China? Uh sorry, that's a little complicated. I need a whiteboard. The second I'll go for the second part. China needs the US more than Russia. I think obviously the US is I guess it out just right, just barely smaller trade relationship with the US than with the EU, but extremely important the source of much of China's high technology.

So there's no doubt that China needs the US more than than Russia. Dies Um, so I think, uh, yeah, so I I would just point that out. And then the first part of your question is, um, uh does the US maybe maybe tell me again, Russia or the USA? I think the US clearly. Again, Uh, doesn't you know the China, China and the US have a tremendously important economic and trade relationship. It's tremendously important to a lot

of our biggest multinationals in the US. So even as the UH, you know, even as tensions grow on the political side between the two countries, I think, uh, the U s will continue to put rightly so a tremendous amount of importance on maintaining a strong economic and trade relationship with China without questions. So it sounds like both ways, whether it's coming from China or from the US, they both really need each other. Um, that's what it says.

I think so. I think so. Now having said that, that doesn't preclude the fact that UH was a political relationship just keeps getting worse and worse, and I think that will continue unfortunately. So it's a real it's a tough position for both countries. UH. You know, increasing anger, outright anger and disagreement about how they look at the world,

but at the same time very tightly economically linked. Dexter Tiff, we haven't been able to talk to you since Russia's invasion of Ukraine, and you know, it really seems like a big part of the conversation early on in this this war was where China would go and how this could embolden Xiji and Pang to take over Taiwan. And I'm wondering where you fall on that if if you think that what Vladimir Putin is doing and has done in Ukraine, how that leaves UH China and the situation

in Taiwan. Yeah. Well, first of all, I think it explains to a large degree white China is being I would call it wishy washy on on which side they want to stand stand behind. UM. China knows that. I mean, first of all, China I think feels that they feel Putin's pain, if I can say that, they actually think that Putin is is is an a grieved party here and that NATO expansion is a threat to Russia, and they sympathize with that in large part because they see UH a rough parallel to the to the U S

and Indo Pacific, and particularly Taiwan. They see also UM a threat obviously U there. And I'm just finished by saying they would like Russia's support going forward. When when and when they eventually do decide to move more forcefully against Taiwan, is that just a matter of time? I am afraid. So I'm one of those I think that I don't think that she Jimping is a status quo

sort of a guy. He I think he made it fairly clear that he would like to see UH Taiwan much more under China's thumb during you know, during his watch. I mean, the good news is Chijing. Things gonna be around for a long time, so they don't have to do it tomorrow or anything. But yes, I think I think he uh, he doesn't want to see the relationship change dramatically. One thing that jumped out and I was actually off for a day, but I saw the ster and I'm like, I gotta send it to myself because

I it's just sitting with me. Um the Dad Jones report about Saudi Arabia in active talks with Beijing to price some of its oil sales to China in the yuan. That it's something that they've been talking about for years. Uh. And this is a guys, according to people with the matter and so on and so forth. What's your read on that? That's pretty to mattic to me. I think so.

I mean, this is obviously all about China's long term goals and maybe not so long term to internationalize the U N currency, and this would be a significant step. I'm having said that. I think we can. I think we can get ahead of ourselves. I mean if we look at you know, just looking at for example, Swift, the global provider of financial transactions, compared to the China's rival, the steps the I p s. I mean there's no

competition whatsoever. We're you know, we're talking about I think something like eleven thousand institutions globally processing five or six tillion dollars a day by swift, and China's doing, you know, less than twelve trillion, I think for the entire last year. So I think, you know, I think to your question, Carrol, I think it's a step forward, but there's still a long way to go. And I don't think, by the way, I don't think China has is capable of bailing out

Russia there um as sanctions tighten on on that country. Tiff. We've covered a lot. We've covered, uh this Chinese stocks, not just Chinese stocks listed in the US, but those in Shanghai and Hong Kong. We've covered the Russian invasion of Ukraine. Uh. I want to talk a little bit about trade between the U. S And China, because during the Trump administration, we'd call this a trade war, and that's something that I think has been really lost in

recent years with the coronavirus pandemic. Here Um, give us an update on what you think we need to be watching for when it comes to trade between the U S. And China and how things actually get better from here. Well, I think the tensions are still there. You know, we can the trade war may go away. And by the way, you know, the Phase one deal signed by the previous Trump administration went nowhere, as you know, so China did not satisfy or meet its uh it's commitments on that

on that trade on that Phase one trade deal. So we still have a lopsided trade relationship. We had news just about a week ago that the Biden administration was considering leving uh some kind of sanctions, perhaps car ups

related to China's continuing mercantilist practices, it's industrial policy. Um. So I think the tensions are still there, um and uh, you know, they may sort of be pushed to the side momentarily when we're dealing with you know, a global international crisis as we are with the Russian war against Ukraine. But but but I think it's still there. I don't see that really getting much better. All right, we gotta run, Tiff,

Thank you so much. I really appreciated Tiff. Robert Senior Fellow at the Atlanta Council's Asia Security Initiative, Man's faild fellow at University of Montana. Former Bloomber Business Week China be our chief, and of course check out his book. It's very relevant to all of these discussions the myths of Chinese capitalism. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovy on Bloomberg Radio.

This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, he's a former UK Deputy Prime Minister. He has now met as president of Global Affairs, new to that job, although he's been at the company for a few years. He is also the one dealing with the latest crisis at the company,

and that is to solve Meta's Russia problem. The story the upcoming issue of Business Week, and we're talking about none other than Nick Clegg, not Mark Zuckerberg, not Cheryl Sandberg, but the man charged with navigating the global political crises. Kurt Wagner's technology reporter at Bloomberg News. He joins us on the phone from San Francisco. Kurt story is featured in the upcoming issue of Business Week magazine. Check it out, though now on the Bloomberg Terminal, also at Bloomberg dot

com slash business Week. Okay, Kurt, for people who don't follow Facebook is closely meta platform z Inc. Excuse me, I keep doing that as closely as you have for so many years. Who is Nick Clegg? Yeah? Nick Clegg is basically the head of all policies at Facebook. So anytime you think about misinformation, you think about relationships with governments, uh speech, right, Like what's allowed on Facebook and Instagram

what's not? These are policy decisions and now all of those roll up to Nick Klegg, and he is kind of the final word, um on what Facebook and and Meta do in those instances. And obviously that's a lot of different things, especially as we get ramping up here on another U S election, you can imagine that all of these decisions are pretty consequential, and um, he's now the guy in charge of all that. All right, what's

up with Cheryl and Zack? Yeah? Well they're still there for those wondering, And and this has always been a kind of two headed monster at Facebook, right. It was it was Mark Zuckerberg handling the product and Cheryl Sandberg handling the business. But then after the election, all of these policy issues I was just talking about really um real their head for for kind of the first time, and so they took off, Like Cheryl kind of started

addressing a lot of this. Mark obviously got much more involved. We started hearing from him on all these different issues around politics and policy. And over the last you know, a couple of years, what they've realized is one neither of them are necessarily uh something that they want to do. This is not a job that's very fun. And number two, they've become so unpopular in a lot of ways that their message Facebook's message is often getting lost simply because

of who's delivering it. Right, So, anytime Mark Zuckerberg says something, people have a strong opinion about him, regardless of what he's saying. And I think part of that is is, you know why Nick Clegg is now the face of all this stuff? So how did this come into sharp relief?

And look not just during the Trump administration, because I think that was the name that Nick Clegg was a name that people became familiar with that and even if they weren't following British politics before, but with Russia's invasion of Ukraine in late February how has it all come to a head. Yeah, so the timing is pretty incredible, really, Um Meta promoted Nick Clegg on I believe was February sixte um, so just a month ago to the day, and uh at that point Mark Zuckerberg said, Hey, he's

the last word on all of these big things. You know, if you have an issue, to take it to Nick. About a week later, Russia invades Ukraine and suddenly, um, you know, here's Nick one week into his his new fancy job, and um you know, he's back channeling with the Ukrainian UH President Zelenski and his staff. He's talking with Russian regulators trying to kind of navigate this whole thing.

Um in in the first big challenge that happens immediately after he gets this promotion, And so the story really kind of looks at how these first couple of weeks has gone for him. We actually got a chance to

sit down and interview him for this. It was his first interview since getting that promotion, and UM, you know, I just think it's kind of a timely look at who this guy is and why he suddenly um has you know, one of the most important jobs and so help, so help me out here, Kurt, because in your story, you're right met His critics called the announcement when he

was named little more than a public relations move. Yet at the same time you say that he's the one who's been Cleggett Nick clegg has been talking to Russian officials, He's the one who has talked with President Zelinsky. So I don't know, how do you see it? Well, I I don't think that it's just a pr thing. I think he truly is making a lot of these decisions. And it was actually a question that I got to ask him, Um, I brought up that criticism. I said,

what would you say to people who you know? Are you you just got promoted to be um someone to take all the heat off of your bosses, you know? And he said, look, if I wasn't actually wielding any power internally, if I didn't actually have any control over the things that I had to go out and then defend, then yeah, this wouldn't be a very good job. And

it's not one that I would have accepted. But he says, you know, he's willing to take that heat because he's the one making these decisions, and as a former politician, he's not you know, unfamiliar with people being angry at him no matter what he does. Yeah, it's it's I mean, look, it's not it's not a job for everyone obviously, you know, making but but it is if you think about it.

And that's why you see so many people who have worked in politics take on these policy type positions help us think forward beyond Ukraine, beyond um, Russia's invasion of Ukraine and the challenges that that Clegg has in front of him when it comes to regulators in the United States and in Europe. Yeah, of course, well, I mean we there's some data transfer regulations happening in Europe right now, or discussions i should say, around data transfer. That's very

important and that Facebook has been vocal about. I think the election here in the US, of course, mid terms are coming up, and they're going to be dealing with all of the same issues that they dealt with in right. How how do they want to handle back checking the

political post, how do they want to handle advertisements from candidates? Right? Um, these are all the issues that haven't gone away um in the last couple of years, and so he'll be looking at those and then I think one of the biggest ones is that in January of next year, um, former President Donald Trump's to year ban will be listed, right, and suddenly you have um President Trump back on the platform. And that's gonna, I imagine, create you know, a lot

more issues for Facebook. It certainly has in the past. Well, and as you said, he played cleg played a critical role in removing Donald Trump from that platform. All right, Kurt Wagner, great stuff, technology reporter at Bloomberg News. This story in the new issue of Bloomberg Business Week magazine online and on the Bloomberg terminal. Catch it all now online and catch the magazine. It'll be out tomorrow. This is Bloomberg mo. Yeah, but you let me drive. Oh no,

no, no no, no, honey, please, I'll do the BLS. I want to drive. It's a good question, A pretty clue, our birds. You've just heard our simulcast on TV and radio. Tom Kim said, Ramoitz and Jonathan Pharaoh that FED meting second FED meeting of the year. We'd I've been looking forward to it, uh, and we got that marched rate increase has expected. I think what's interesting is what they have talked about in terms of growth here. J Powell talk about what he thought was a strong growth forecast,

but also moving up their inflationary expectations. But longer term, the expectation is inflation comes down again. I've been tracking the markets here, Tim and you know turnally broke down the numbers. But it looks like the equity market, based on my you know, calculations, and just as the news of the Fed announcement was coming out at two fifteen Wall Street time, we are higher in terms of where

stocks were prior to that announcement. So we've definitely seen a bounce back after initial sell up, and it looks like that tenure has settled down to where it was prior to the FED news. The two year the shorter end of the yield curve UH close to where it was a little bit higher. Well, let's go back to the equity market, because I think that this was a really important point for at least equity investors. When Powell said, quote the economy is very strong and well positioned to

handle tighter monetary policy. It was at that point that equity started moving higher. Recording to our Bloomberg Live blog team, when it comes to the UH, well, what the f O m C chair was saying and what markets were doing, because it was pretty remarkable. As soon as his statement came out, we saw a real sell off and equities, yeah we did initially, but we've seen a bounce back.

And if you look at the yield curve, UM, we saw the yield curve between five and ten years invert after the f o MC decision, right after it, UH, and the five to thirty year yield curve just a little bit about thirty minutes ago, the curve extends, it's flattening to under twenty five basis points. So this is what's key. We're watching that that inversion, especially when it comes to to intend UH and what it tells us

about the potential for a recession. And so you know, we've talked about that in particular right now though, um, you know, yields, like we said, kind of staying where they were the bit up to it, but down from some of the spikes we saw right after that FED decision. Okay, so the Fed raising interest rates by a quarter percentage points, signaling hikes at all six remaining meetings this year, launching a campaign to tackle the fastest inflation in four decades.

We got the dot plot the median projection was for the target rate to end at about one point nine percent, kind of in line with bets, but then rise carroll to two point eight percent. Yeah, this is what's kind of interesting. In our live blog on the FED really pointed this out there, like, wow, look at that inflation forecast four point three percent from the end of this year. A major overshoots. Um, well, that's the question they still have it coming down to two point three twenty four.

It's a few years from now, but that's the expectation that it rights itself. Uh. And then when it comes to growth, I mean back in the December forecast they were looking at more like four percent for this year. Now it's down to two point eight percent. So what does it mean in real terms? Um, you know, we've just heard from our TV colleagues that, you know, do

these numbers really add up? Does it make sense? So, Uh, this is what we're all going to have to be guessing and maybe waiting for the next uh FED meeting, but also the jobs report, because higher rates are probably going to meet a higher unemployment rate. So what is the appetite for j PAL and the FED when it comes to that. Well, that next FED meeting is happening on May four, so that's what we have to look forward to. Then, hey, let's not bring in Lizzi Ane Saunders,

chief investment strategist at Charles Schwap. She joins us on the phone from Naples, Florida. Liz Anne, Um, what is your big takeaways after watching fed share Powell just now for the last hour and a half. Yeah, so obviously the move they made with raising rates is not at all a surprise. I think it was the relatively optimistic assessment he gave up the economy and light of what have been, you know, growing concerns about recession. Now we have to keep in mind that the FED broadly fed

shares specifically haven't necessarily been the best. Um. Forecasters of of recessions are often sort of whistling past the proverbial graveyards. So but I think that is probably the key takeaway, as he doesn't see recession risk is particularly high at this point. I mean, Liz, do you find first of all great to have you here? Uh? And we you know, you and I have talked about lots of market cycles over the you know, past many years, and I do wonder how you see this one, right, you've seen strains

and stresses in this system. I think going back to the you know, we talked about the financial crisis, how do you see this market cycle? How would you describe it? I think it's different in so many ways, not least being what interestingly is no longer front page news, which is the virus, and and that's just really turned topsy turvy.

Any traditional analysis of with the business cycle looks like the fact that most of what we're seeing in the economy, not least being inflation, is much more typical of a late cycle phenomenon. Yet, if you were to just look at the calendar relative to when we went into the COVID recession, you would think we would be earlier in the cycle. We also know that the FET is now launched off the zero bound at a point where inflation is raging and growth expectations for the first quarter are

quite low and the yield curve is quite flat. So the background conditions for the said to start raising interest rates, Um, this is not what you typically I see. Now. Whether or not that means there's a greater chance of the so called policy mistake, I think it's easier to argue that if we're going to say that that has made

a mistake. They may have already made it by not having gotten off the zero bound or starting to shrink the balance sheet sooner than they did, but that's sort of the ultimate counterfactual because we can't go back in time to change things. Well do you agree, you know, Liz, I'm just thinking of some of the highlights from J. Powell in a statement, but more importantly in that press conference that followed. You know, he said, all signs are that this is a strong economy, the economy likely to

flourish with less accommodative policy. Um. Do you agree with him? Um? Not right now. I think if you look at the fact that we have two and a two and a half months out of three already kind of built into the numbers for first quote of growth, and you look at the pretty anemic forecast at a metric like Atlanta fat GDP, now as um, no, we're not in a strong economy right now. In fact, there are some measures of the economy that are actually already in recession territory.

If you look not so much at consumer competence at the headline level, but if you look at the spread between expectations and the present situation. We've never been UM as well as this other than in recession. So uh, I don't think the economy is particularly strong now, but I don't think it's a stretch to believe that we're sort of in some payback in the first quarter from

what we saw in the fourth quarter. I don't think a recession is is the easy call at this point, but his first quarter growth is going to be on the weaker end of the spectrum. Yeah, So, so what does concern you about where we are in this economy that we're not so much facing stagflation? I think, or maybe it's semantics that that that term, if you're going to use the true definition born out of the vent, was inclusive of a high end rising unemployment rate, which

clearly we don't have right now. What I think we're experiencing, which could persist is counter cyclical inflation UM. And that's that comes after last year's pro cyclical inflation, where it was strong demand that was part of the trigger for higher prices starting to put downward pressure on demand and turned downward pressure on growth. And given that whether it's wage growth or income growth, if you look in nominal terms, it still looks very strong if you look in real terms,

much less so. And the fact that I think we were already going to have tent down demand at least on the good side of the economy, just because I think we've sort of exhausted our demand across goods. I think we were set to see an economy slow anyway, and now we have the added big wrinkle of of the invasion and the impact on on food and energy prices. Hey, Liz, Jess got about twenty five seconds. So where do you

commit new money in this environment? Real quickly? I think you want to stay close to benchmarks, use volatility to maybe rebalance a bit more frequently, and absolutely focus on on quality and lowercase V value. I don't mean just by the value indexes, but screened for a reasonable value. And you can even do that in segments of the market that live in the growth indexes. All right, Gonna leave it there. Great to hear your voice, Liz Ansander.

She's chief investment strategist at Charles Schwab joining us. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News