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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and am Marie Hordern join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App.
Joining us now is someone with tons of contexts, both when it comes to strategy as well as when it comes to the economy in China. Leland Miller of the China Paige Book. Leland, great to see you, Thank you for being here. I want to start with this question of what is at stake in order to even get a phone call between Jijinping and Donald Trump, something that we've heard a couple times before, but that from what we understand, hasn't yet happened.
A phone call should be very easy, but I think the reality is that the Chinese side is very skeptical that the US side will keep whatever commitments that it that it that it's that it asks for, and that it will convey exactly what it wants, and that it will have a point person that will be able to have the authority to be able to make a deal for what, you know, for whatever the us I want. So, you know, a call is easy, a meeting is easy. There's nothing that you really have to give away in
order to do that. But I think that the in Beijing right now there's a worry that if they come to the table and and President she looks bad, then this this will uh, you know, this will be a net negative for the for the for the relationship, and for for China's leverage. So they're holding off on that until they think that they have a have a better hand.
We'll see if it happens.
Is week Leland, the ranimbee is up one and a half percent this year versus a dollar, yet it's fallen in each of the last three years. I had a number of friends and attendance at the JP Morgan Global China Summit last week and they all came away with this bias toward a weaker dollar. Does that mean a weaker dollar relative.
To the yuon.
Well, the dollar and the yu wan are tied very closely together. I mean, you know, we pretend like the yuan is a free floating currency.
It's not. It's pegged to the dollars.
So if you have a weaker dollar, you're going to have pressure on the yuan to fall. But I think that China will want to keep it a little bit up relative to that, because their bias is for a little bit of upside appreciation in a falling dollar world.
So yeah, if you have reciprocal tariffs and the US China relationship and all these other things weighing on the dollar and the dollars falling, then then the yuan will be pulled down a little bit, but it will They'll want to have a little bit of an upward bias for it. So yeah, you should expect upward, some mild modest upward appreciation in a falling dollar world.
Leland, it was only a few years ago when multinationals claimed that they couldn't afford to pull out of China given the economy size, its overall influence. What are your thoughts on China as an investment destination from the perspective of a US institutional investor, is China investable now?
Well, I think you made a nice distinction between you know, institutional investors and those companies that are in there with hard assets and a presence throughout China very difficult to extricate themselves at that point. If you're an institutional investor and you're looking at China, then you have to be asking yourself, what edge do I have here?
Am I just waiting for.
This ridiculous thesis of you know, things have been down for eleven years, but now they're going to bounce back in the stock market? Do you have an edge in a technology sector but that it's going to be closed off by export controls or by teriffs in the near future. You know, it's not impossible to trade in China, but it's getting very dangerous. And most of the people who
have traditionally done this have done this very lackadaisically. They look at, you know, Chinese data, they've got a DC consultant that tells them a little bit about China, and then they, you know, they buy.
A bunch of Chinese tech companies. You can't do that anymore.
So if you're still in China, then you better have a tremendous edge in terms of investing.
There Leilan, the Chinese tenure rate is a near one point seven percent, near multi decade lows. Is there any ignoaled to take from that about underlying Chinese economic health, mostly as we consider the rest of the world where long and yields are screaming higher.
Yeah, absolutely, there is a signals.
If you look at our credit data, China Basebook credit data, it's remarkable what's happening on the monetary easing side, and we've seen rates continue to go down, down, down, down down, and this is a this is a time in which there's elevated inflation elsewhere. So what they're trying to do is, you know, on the fiscal front there they're manning the you know, the army, the cannons. On the monetary side,
they continue to cut rates. There's a downside to doing that because you're hitting the profitability of banks and.
You're you're you're hurting savers.
But right now they're just trying to keep the economy going during during the early onset of this of these trade tensions, you know, trade War two point zero.
So they're cutting.
Rates, but it has a lot of a detrimental effect, you know, down downstreaming the economy.
How much fiscal firepower do you think that China has. There seems to be an assumption that China has a lot more room than other countries around the world.
Is that the case, It is the case.
What's interesting is that for several years, while every headline, you know, we'd see every day was, you know, China stimulus, promising stimulus, pledging stimulus, it.
Was never happening.
In twenty twenty two, twenty three, twenty four, we got to the very end of twenty twenty four and early twenty twenty five, you know, we have a fiscal activity index. It showed significant things were happening and a significant borrowing and bond issuance by transportation construction firms. So they were really getting ready for what might be a real downside scenario.
We've seen that eb off a little bit, so we have not seen the blast to any type of canon, but they are preparing in a way very differently than they did.
The last three years. This this should have been expected.
China does not want to do big stimulus, but at the end of the day, they're going to have to batten down the hatches their economy if they get a larger trade tip with the United States, which is.
The reason why le Lynn and I think that all of us are trying to get at the ultimate question, which is who has the most leverage, who's in the better position economically right now as a US and China go head to head. We got this data overnight that China's private factory gauge punched the weeks going back to twenty twenty two. It went against some of the official data. Some people are saying it's messier, it's a smaller sample size. Do you think that China is hurting more or the
US is hurting more? Is it possible to even make that equation?
Well, look, first, on the Sisheen survey, I mean, we agree with the official data here. We're much much bigger than Serve Hall, a lot more companies than Saisheen does, and we actually saw it improvement in manufacturing activity.
Not great.
It's down from a year ago, but it's up from the lows that we've seen in the last couple of months, so there's something there. There's a lot more resilience both in the consumption side, which is surprising, and the manufacturing side, which is not in China right now, so I would take that away from the economic data.
So I think at this point, you.
Know, look, we have to be watching the data closely, but also keeping in mind that China is looking a little bit more resilient than we thought going into the Geneva talks and beyond.
Leilan Miller of China Page Book, thank you so much for your insight. It's really helpful. Meta signing a twenty year contract with Constellation and Energy to buy power from an Illinois nuclear plant more evidence of technology companies appetite for energy to run data centers, and AI is the promise of that technology potentially transforms the world we live in. PwC out with its twenty twenty five AI Jobs Barometer, which was a link between AI adoption and productivity growth.
Matt Wood of PwC joins us now and Matt, you're answering the questions that a lot of people have been asking, which is basically, how many of us are going to lose our jobs and become irrelevant because of some of this new technology.
Well, it's looking like right now none of us. In fact, counterintuitively, the number of jobs and the wages associated to them are actually going up, not going down. So we looked at over a billion job postings globally from twenty four different countries, and we found that for organizations, whether they were advanced in their aiuse or early in the AIR use, they had more job hostings than they had before. We found that the productivity of people working inside those organizations
was up. We found that the revenue generation for those workers was three x higher than it's ever been before, and that the wages associated with those workers were also going up. And so it's a little canterintuitive to what maybe some other folks are seen, but our barometer shows a very very different picture, a.
Really optimistic look for people who have the tools, have the capability of using artificial intelligence and machine learning to actually become more efficient, become more relevant. At a time where Microsoft is cutting hundreds of jobs because a number of people currently own their roles can be replaced by
artificial intelligence, how messy would this transition be? Because even though there are some people who get paid more, be more productive, and be more in demand if they have those skills, they're going to be even more people potentially who lag behind that and can't catch up quickly.
Enough.
Well, for sure, the way that we are going to work is going to change. And for those organizations that are furthest a head on the AI journey, these skills are changing the fastest. And this is a this is a very humane problem. This is not a technical problem.
This is a problem that we have to work through with all of our workers, with all of our staff, and as leaders, we need to really sure that we're investing to make sure that all of our workers in every industry have the access to the skills and the education and upskilling to be able to take advantage of this dramatic productivity game.
Matt, the courts are going to they just gave Donald Trump approval to take away half a million visas here in the US. What impact is that going to have on the AI sector.
Well, education is remarkably vibrant place for AI to not just be used, but also to be created. AI is very very very early, and a lot of the research that we need to do to advance the state of the art is going to come out of those sorts of organizations, those sort of institutions super important that they remain funded and remain active.
Well, Matt, let's talk data centers. For a second, because we've got this big news in the market with MATA. You know, I've seen some statistics that last year, for the four year twenty twenty four, you're in the US data center build out accounted for roughly or more than eighty percent of the entire US economy's capital expenditures for the full year. You know, first we had Microsoft scaling backets plans following Deep Seek. Now we have Meta, you know,
buying it or leasing a nuclear plant. Who are today's investors, who are like, who's going to provide the long term takeout capital for these data centers after all is said and done here.
Well, data center is super interesting because they're not just data centers. It's actually more of a full vertically integrated stack of investment that covers just an entirely new ecosystem that is being built out across industries because of AI.
So if you think of just the real estate that those data centers have to sit on, the energy infrastructure that has to surround those data centers, the data centers themselves with all of their discs and their GPUs and all of the infrastructure required to house and cool them, then you've got the large language models that sit inside that infrastructure. You've got the applications that sit on top
of those language model. So there's a full ecosystem that bleeds from real estate to energy, to computer science to big tech, which just didn't exist before. And this blurring of industries into new ecosystems is happening around data centers because of AI, and I think we expect to see it across multiple different industries going forward.
Given the massive investment we've seen from all these companies into AI infrastructure, how are you thinking about monetization, mostly as you've seen competition pick up, What will the returns look like for all of this investment?
I think it's I think it's an interesting question. I don't personally see it as an investment that most organizations should be seeking a return from.
Today.
AI is more like intellectual infrastructure for your organization. We don't look at internet access inside an organization and say, hey, what's the return on investment of my bandwidth? Instead, you say, well, all of my work is done in a completely different way, and in a much more efficient way, in a much more productive way, three times more productive in the case of AI. What is the impact of not doing that?
And so you see very very few organizations today that don't enable broad fast internet access to their organizations and to their teams. We'll see the same thing with AI. Most organizations will want for upskilling and retention and for hiring the very best people and keeping productive the people they've already got. They're going to want the most robust AI intellectual infrastructure inside their organization, similar to networking.
How advanced of companies been in the US and adopt adapting to some of these new tools Given the fact that it is quickly evolving, the bigger have an advantage with respect to data, with respect to resources. How much is this really bifurcated this sphere from big to small companies, it's not.
So much big to small. It's actually again the little counterintuitive. So those organizations that we see moving the quickest are actually the regulated industries, so financial services, insurance, healthcare, manufacturing, those sorts of domains where the compliance with the regulations around that they've had to live with the past twenty years and maybe have felt like a bit of a headwind,
particularly around data governance and data quality. Those are all the things that you need to get right to be successful in artificial intelligence, and so whilst that headwind has been there, it's actually driven all the right investments for those organizations to be successful with artificial intelligence. And as a result, the aipiece is just a small incremental lift on top of that and they're able to move much more quickly.
Matt Word of PwC, thank you so much for being with us.
Welcome.
Republican Congressman Andy Barr of Kentucky voted in favor of the President's bill last month, and he joins us now. Congressman, thank you so much for being with us today.
Morning, Lisa, Good morning.
So I want to start with asking about the deficit, and I'm watching that thirty year bond yield as everyone on Washington in Washington, DC is do you believe what President Trump said on his truth social posts last night that this doesn't add to the deficit, even though you have a whole host of different estimates saying that it will add three trillion dollars to the deficit over the next ten years.
Well, Republicans are also watching the thirty year We're watching the tenure, We're watching instability in the bond market. We're looking at weakness in demand for treasuries, but blaming the Big Beautiful Bill for weakness in the treasury market or instability in the treasury market is like blaming the firefighter. The arsonists blaming the firefighter for the inferno. We just went through four years of a drunken sailor spending spree by the Democrats that put.
Us way behind the eight ball.
Also COVID, and there was some bipartisan spending associated with COVID, But it's very rich for Democrats to accuse Republicans of fiscal irresponsibility when we just went through this spending binge that produced forty year high inflation, twenty percent increase in price.
Look, the bottom line is, we know we have to.
Achieve a greater fiscal discipline and frankly, we need some bipartisan work on mandatory spending reform. But we also need is economic growth. We will never balance the budget, we will never get our fiscal house in order without robust economic growth.
I believe, as Kevin.
Hassett has argued, that this legislation, this one big beautiful bill could produce, along with the deregulatory project, along with more energy production in the United States, that we could achieve that three to four percent GDP growth. That's the kind of dynamism that is not accounted for by the Congressional Budget Office and some of these static scores.
So let's talk about that why it's not being accounted for that in places like the Committee for a Responsible Federal Budget that expects us to increase the deficit and says it only cut spending by zero point eight percent of GDP. Where are people not including growth that you see as being part of this bill.
Well, I mean, the CBO just doesn't.
They were off a trillion dollars underestimating revenue reflow that came as a result of growth from the Tax Cuts and Jobs Act in twenty seventeen. The CBO has a terrible track record of not including the dynamic impacts of these tax cuts. And in this bill, not only does it make key features permanent, providing that certainty instability for private sector investors, but the business tax cuts are really
the rocket fuel that are included in the bill. So bonus appreciation for five years pulling forward all that capex. There's a reason why the Atlanta Fed is projecting four percent GDP in the second quarter because business businesses and business optimism is increasing because of anticipation of R and D interest deductibility, increasing the small business pass through deduction
from twenty to twenty three percent, making that permanent. So these business tax cuts are really increasing business sentiment and I think again pulling forward that investment that can really allow this economy.
To take off.
Congressman Eastid on the House Select Committee on the Strategic competition between the US and Chinese Communist Party, what is going on between President she and President Trump? Where are we with that relationship right now?
I think President Trump is the first president Republican or Democrat in our lifetime who has taken the threat from China seriously. Under this president, no more unfair trade deals, no more Chinese fentanyl poisoning our people through the southern border, and no more spy balloons coming across the continental United States deterrence, peace through strength, that is the idea the
Big Beautiful Bill. To the extent we increase spending in there, there's more military modernization dedicated for the Western Pacific theater.
That's what we need. We need to win this competition.
We need to be the best version of ourselves. We need to enhance, of course, our investment in defense, but we also have to be strong economically, and we have to grow. China has its problems, we have a debt problem, but we can produce growth by being free market capitalists.
There is a question, though, in your quest to be free market capitalists of both getting revenue from tariffs that have to do with continued trade, albeit with something of attacks, versus decoupling in its entirety. And what you see from a lot of the data right now is that trade is going down quite considerably and exports from the US
are going down quite considerably. So how do you account for some of the revenue and the growth from some of these tariffs if you're also talking about potentially decoupling in certain key industries between some of the biggest economies out there.
I liked what Jamie Diamond said at the Reagan Economic Forum in California.
When he's said.
When he talked about, you know, strategic de risking from China on those national security sensitive industries, not complete decoupling on things like tennisuees or basketball shoes or apparel or things that do not implicate national security. What I would say about that in general as a free trader, why I support President Trump's agenda is because of the enormous potential that this has to actually open up markets for
American exporters. If we can open up India, for example, and reduce their protectionism and their trade barriers against our exporters, that is massive. And if you think about it, from where we were on liberation data, now we're back in basically a bull market.
With a correction embedded.
Every trade deal that is inked from here on out is again jet fuel for the economy. We get the certainty of trade deals in place with more market access for American exporters, plus deregulation, plus the tax cuts.
I do see four percent GDP.
What do you think the Senate is going to do to change the bill that you would be okay with in terms of cutting salt tax deductions, potentially adding back and potentially even increasing some of the CBO's score for the deficits with respect to medicaid. What are you going to be okay with?
Well, look, we've got to get this done. I think we have to have an ability to compromise on some of these details, whether it's salt, whether it's Medicaid.
I welcome fiscal.
Hawks in the Senate saying hey, we need to do more on the spending restraint side. So Ron Johnson, my colleague Ran Paul from Kentucky. Good for them for asking for a reduced size and scope of the federal bureaucracy. I like that, let's codify some of the doughe savings. But at the end of the day, we have to get this done and deliver this. Seventy seven million Americans voted for this pro growth agenda. I think at the end of the day, we'll come together, we'll get it done.
Congresspin, thank you so much for being here. Great to do with Congressman Andy Barr here in New York.
This is the Bloomberg Seventans podcast, bringing you the best in markets, economics, angiet politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.
Mm hmm.