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For a few years before the pandemic, it looked, at least to a lot of people, that Chinese tech companies were pretty much unstoppable.
You remember this, Carol, right, I certainly do.
Okay.
So back in twenty seventeen, for example, ten Cent shot past what was then Facebook to become the fifth largest publicly health company. In twenty twenty, China was the was second to the US in terms of the number of unicorns, those private companies worth a billion dollars. Of the world's top ten unicorns in twenty twenty, six of them came
from China. Four Chinese companies top the chart. All of this that I just read coming from the introduction to the new book High Wire, How China Regulates Big Tech and governs its Economy. The book by Angela Zong, a professor of law at the University of Hong Kong. Professor Zong joins us now from Washington, DC. Professor, good to have you with us this afternoon. How are you.
I'm doing great? Hi, Carol and Tim Hi Hi.
This is a great topic because we talk about it a lot, and just about investing in China and whether or not it is indeed investable right now. But I want to back up a little bit. How did we get to the point where Chinese tech companies, both public and private, seemed unstoppable and then suddenly in the midst of the pandemic there was this crackdown.
What happened, well, I see the watershed moment was end Group's IPO suspensioned and a couple of weeks before a few days a couple of weeks before the suspension, Jackma made this highly controversial speech in the financial summit in Shanghai, as you may recall, and that really spoke to financial regulators who eventually, you know, wage of regulatory war against end and which caused the collapse of its IPO and also marked the beginning of an unprecedented crackdown that swept
like that'spreadlight wildfire, affecting every sector of China's internet industry.
Can you talk about competing forces for motivations here, because it would seem to be in the best interest of leadership of a country to have a thriving economic to have a thriving tech sector and to have a thriving economy.
Here what happened, well, of course, right for a really long time, that was the main policy agenda of the Chinese Communist Party, and they introduced this Internet Plus initiative and have been very supportive of the development of the consumer tech businesses.
And back then we have this.
You know, very vibrant entrepreneurial environment. But what happened is that starting in twenty twenty, when AND was preparing for IPO, I mean, this firm trying to identify itself not as a think type business but rather as a tech farm.
So it even.
Changed its name from and Financial to end Group to avoid being identified as a financial institution, so that it can gain a much higher valuation and in fact four times as much valuation as we have got it would have gotten as a financial institution, and that really worries China's financial regulator, particularly the People Spank of China PBOC,
and particularly AND got the really really high valuation. In the end it was three hundred and twenty billion US dollars, and that's even higher than JP Morgan, the then largest bank at that time.
I mean, so that really worried the regulator.
You know, Professor Zone. One thing I wonder is how you know your book is about how trying to regulate big technology, and I do wonder in a time where I look at US China relations are very strange, especially when it comes to it feels like technology and company know how between uh, the two nations. Having said that, what you are seeing in terms of the regulatory environment for China or what China has for its big tech companies,
will the ultimately hold them back and stemy them? And maybe the I don't know, does the US not have to be so concerned about where China is going, especially when it comes to high tech?
You're you're right.
I mean, in the aftermath of the crackdown, we see that you know this, the tech sector has suffered a lot, I mean the loss over a trillion dollars of market cap during the crackdown, and a lot of these tech firms are laying off, a conducting massive layoff, and they would not be as competitive as they would have been,
would it not be a massive crackdown? However, I mean, I still think that this companies obviously competitive as you can see by them, is able to fullster you know, a really successful company like TikTok, right, I mean in the first place. So I still think that these are you know, serious rivals to US consumer tech businesses. But you are definitely right that what the government.
Did had on the mind its power.
Well, it's interesting to you on a day where we talk to our Mark German about how was it one in seven iPhones through the lower end iPhones are now being made in India and how Apple is diversifying you know, where it's making items. And I understand that China wants to be playing certainly from a technology bent on a higher level, if you will, right, They don't want to be the manufacturer to the world. But as they start to see some of those coveted global technology companies maybe
look to diversify, does that have China concern? Should they be concerned and is it a result of all the policy?
Well, I think that diversification has less to do with the domestic regulatory policy, but more to do the deteriorated geo political environment.
And so. But at the same time, you know.
The.
The very intense regulatory crackdown wasn't helping Chinese tech firms and hurt their competitiveness. But you know, US firm do what they need to do to diversify the portfolio, and especially if not just US large tech businesses, but also UH US investors who used to be the major UH investors in the Chinese consumer tech businesses, and now they are retreating from the Chinese tach sectors, partly also because they really don't like the regulatory regime.
They think that too arbitrary.
Yeah, okay, So I want to give you mentioned by Dan's TikTok. I do want to get your prediction for what's going to happen here in the US when it comes to the fate of TikTok. It's certainly not the focus of your book, but it's it's definitely something that I'm interested in your opinion on. I mean, what do you think happens here?
Well, I mean I think it.
Look, it's still relevant to the TikTok story because in TikTok is owned by Dance, a Chinese company, despite the fact that TikTok says we are not a Chinese company, but it has this Chinese link, right, I mean, so how China regulates by Dance will have implications for TikTok's businesses.
Just like when the US introduced this bill says, you know, TikTok, you can either divest yourself or you know, disappear from the US market, and the China says, well, we we may not want you to sell set to buy dance.
We may not want you to.
Sell your your critical technology to uh you know, US US buyers.
Right.
I mean that was back in twenty twenty when the dermonstrations wanted uh TikTok to divest uh it's it's itself to oracle.
Or sell it to other businesses.
Right.
I mean, China introduces export restrictions that will potentially block such cells. Now that being said, I don't think the Chinese government is hurting TikTok's position here. The fact that you know, Chinese government has this law and will be very likely to say, you know, we are blocking the cells, that will strengthen TikTok's argument that this is effectively a bent. Right.
I mean, so when this case, even if.
The Senate eventually approved this law, I mean, even if this become law, this could be a challenged in court, and court is highly unlikely. I mean, I think court is very unlikely to rule in favorable law that work effectively as a band, because that valet is the freedom of speech of too many affecting too many A citizens. So actually I think the Chinese, the Chinese actually helps TikTok's position if you look at it from this perspective.
One thing I want to do. We just have about forty five seconds left here, Just quickly, Professor Zong and G's all about common prosperity. And that's how you justify some of the regulatory crackdown if you will and oversight a big technology. Will it lead to a more prosperous or widespread prosperous economy for China or not necessarily? And again sorry, just about thirty seconds here.
Well, the Commons Prosperity initiative was well intention However, I mean the way it had been implemented had led to unintended consequences. I mean, the tech crackdown is one excellent example. It was supposed to empower all the platform participants like users, bias, merchants to better.
Negotiate with the platform. However, it did really achieve this goal. It hasn't really changed.
The competitive dynamics or enhanced consumer welfare.
Really really interesting. Yeah, hey, maca think check out the book. It's called High Wire, How China regulates Big Tech and governs its economy. Angela Zong, a professor of law at the University of Hong Kong, joining us just now. Professor Zong, thank you so much, really appreciate it.
This is Bloomberg Business Week inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news as it happens. Bloomberg Business Week with Carol Meser and Tim Stenebek on Bloomberg Radio.
It is Bloomberg a business Week. I don't know if you saw this, Carol, but it seems like everybody's coming out with new chips these days. I agree, so Meta platforms today, it's.
Like there's an AI race or new AI racism or something.
So Meta announced this new homegrown chip. What it's going to do is to help power its AI services. The idea here is that it aims to decrease its reliance on semis from Nvidia and other outside companies. And you know what, it comes just a day after Intel essentially did the same thing. They rolled out a new version of their AI chip also aiming to challenge in Vidia in one of the fastest growing parts of the semiconductor industry.
All right, needless to say, AI and the chips that power AI, they are so hot right now?
Is that a Zulender reference? I think I think she just did a Zelander reference. Maybe maybe chips so hot right now?
All right?
One of our go tos on chips is Dan Morgan. He's senior portfolio manager at Sonova's trust company, joining us right now from Atlanta. You actually write about the top players in the red hot AI chip market. It does feel like there's a lot going on, Dan Morgan, What are you paying attention to, whether it's Meadow, whether it's Intel, or what Nvideo is up to.
What's interesting, Carol, because you know, we kind of started off this conversation with who are the top traditional chip makers who are coming out with AI, you know, AI products to compete against Nvidio. So we had conversations about let's say, AMD or Broadcom or Marvel and to a
certain extack Qualcom on the handset. And now that everything's kind of turned around, Tim and Carroll, where we have the end user buyer of the chip is actually producing their own chips, like you mentioned the recent announcements that came out over the last couple of days. I mean, you've got but we alpha bed, we're actually on chip.
I'm sorry, go ah, I just want to Is it that easy that Meta can just create a chip that competes within VIDIA.
Well, it's kind of interesting. Meta's chip, the nt I A is what it's abbreviated as, which is Meta Training Inference Accelerator Version one, which is kind of a long name. But to say, Tim, that that chip could go head to head against let's say, a Blackwell one hundred, which is the new in video chip that came out a couple of weeks ago, I'm sure you guys covered that
probably not be an accurate statement. But for the purpose of Meta in regards to what they're trying to do obviously, which is trying to post advertising when you're doing your social media searches and so forth in the right places to increase ROI, it might work very well for them. So it is interesting, though, Tim, that we're getting all these companies that are the end users who are now producing their own proprietary chips.
So is that a no, Well, well, here's the deal, right, not all tips are the same. We know that we've talked to you, We talked to our Ian king. You know, I'm assuming that different companies are putting out things to make accelerator chips to make the you know, to make the AI applications happen more efficiently, use less energy, and so on and so forth. So how are you looking
at the AI chip space? Like, what's important? What does our audience kind of need to know here as all this news continues to come at them.
We bring up a good point, Carol, and that is that up to this point, most of the action has been a data center, right, And Tim and Carroll we have covered in Nvidia for many many years and talked about their you know, trajectory through that space. And now you have other companies who are trying to focus on the data center, right, Amd, Intel trying to come out with chips to go against Nvidia. And then you have the top players in that space, which would be Amazon
with AWS. They just came out with a couple of new chips, so the graviton for the Tredium two. Then we also have believe it or not, Microsoft, which is the head of operating systems, has come out with their
own chips also in that space for ASER. So it's interesting, Carol, because you have the proprietary companies developing chips specific to for example, Amazon for AWS, and you have let's say Microsoft with ASER, but they are still focused in the data center and that still seems to be the hot spot in terms of profits and so forth, and where a lot of the action is right now, not to take away from, for example, what Meta or maybe Alphabet is doing, but so far the hot spot for investors
has been definitely in the data center.
Hey, Dan, what would you say to someone I want to switch gears a little bit and talk about investment opportunities Because you watch the space really closely. What would you say to somebody who said, you know what I missed out on in videos two hundred and forty percent run up last year. I missed out on some of the seventy five percent increase this year meta platforms two hundred percent increase last year, or meta platforms you know,
close to fifty percent increase so far this year. And they're thinking to themselves, wait a second, I feel like a lot of the gains to be had with AI have already been had. What would you say to that, you.
Know, I would say, Tim, we're still in the beginning stages. I mean, you could add Broadcom to that list of huge winners right in terms of investment over the last year. But you know, I think that it's you know, some people have said it's over hyped, it's kind of like what happened back in the summer of two thousand and I would totally disagree, just because these companies are all
very profitable, they have very solid products. I still think there's a huge amount of upward potential, you know, in a lot of these names that we're talking about today. I mean, the projected growth rate for artificial intelligent chips is about twenty five percent going out, so definitely one
of the fastest growing groups. And I still think we're in the beginning stages, Tim and Carroll, And I know that sounds a little crazy after these huge run ups, but this is where the action is right now in tech, and I still believe it to continue to go.
Can I ask you, I mean, there are chips in everything, right, how many times do have we said this? If we all had a buck for every time we said that, we would all be living on our private islands.
You could almost afford some and video chips or stock right exactly now.
But having said that, there are chips in everything, so not all chips are like, you know, how much of our world currently today is an AI related chip of some sort? How many? How much will be?
Well, it's interesting, Carol, because you know, we've talked before about Micron technology being more of a commodity based chip maker with d RAM and nand and then we swing the pendulum over to AI right as being right like in video as being like, wow, they charged twenty to thirty thousand dollars a chip. We're even a high level Micron high bandwidth memory chip would probably be one thousand to fifteen hundred dollars, just give you difference in the pricing.
So you know, I wouldn't say at this point, Carol, that everything has an AI chip in it. It's mostly like we mentioned the data center, but it is moving to other applications. But again it's just it's a sector that is still in its infinity stages in terms of like you just mentioned, is it going to end up that we have an AI chip in our washing machines that we do our laundry and I wouldn't be surprised that we don't, and we're getting there.
I can't even connect from the washing machine to the internet.
But no, but that's your point. No, is there a way that it's right? Like, I don't know, do you anticipate someone who understands this industry that there will be an AI chip in everything? Is that where we're going?
Yeah, I don't know if you could say, but pretty close, especially in terms of the you know, you look at the driverless vehicles, that's a huge AI option, you know, opening for them. You look at mobile phones. I mean, Apple hasn't done that much in that space.
We have.
Qualcomm has a chip that they have introduced in terms of the AI one hundred. But that's a huge open frontier right getting away from the data center, getting away from cloud. So there are a lot of opportunities in other spaces and maybe a wright, Carol, we'll get to the point where everything has an AI chip in it. We're not there yet, and that's what creates the growth.
I wasn't actually joking about not being able to connect my washing machine into the internet.
We have Do you think that's crazy?
I have a tooth brush that I can do like connect to an app.
I'm like, I don't.
I just need to brush my team.
No, we our washing machine is supposed to connect to the internet. It just won't work.
But why do you want that?
You know, I was trying to down down the app it won't connect.
Instead of the household when laundry kind of the use?
I have no idea. Hey, Dan, before we let you go, give give me some, give us some give give our investing audience some some picks for the remainder of the years of stocks you like.
Do you have a favorite name in this space?
Well, I mean Tech it's hard not to like, you know, and Nvidio. I mean these are names that are currently on our by list. Broadcom is another AI play. Qualcomm is interesting uh just as I mentioned before, as a play on on the actual uh cdm A based phones
of course Android based Apple. So those would be some kind of some names in the space you know that are currently on our buy list that if you know, the client's risk tolerance and objectives are in line, that would be something that we look at in terms of AI. So those again are names that aren't uncommon. I'm sure a lot of people have already looked at those, but you know, there's not that many ways to play it right now, and those are probably the top place.
Hey twenty seconds, are you buying Microsoft Alphabet or Meta because of its chips?
Real quickly?
You know, Microsoft looks really good coming into this upcoming report in about two weeks Carol and SODA's Meta in terms of ability to blow numbers. So even beyond the jen Ai focused which we'll hear about on the conference call, I think there's other things that are working really strong for those.
Companies now, Dan Morgan, great report. Great to chat with you, Dan Morgan of Sonovas.
Thanks