Dan Wang On the Extraordinary Moment for China's Party Congress

government and the Chinese economy. Yeah, I mean, look, you say every five years, and so five years ago was during the Trump administration, and of course at the time, you know, trade tensions were obviously ratcheting up under Trump. But it feels like today in any of the sort of tensions and long term challenges facing the economy, the Chinese economy today, or the Chinese political system, everything seems like it's probably tenfold more intense and more ambiguous than

where it was, say, five years ago. Right, So, there's a lot of speculation around exactly what She shin Ping has in store for this particular congress. There are questions over whether or not China might ratchet down some of its COVID zero policies, although I have to say we did just see an editorial from the People's Daily in defense of those policies, so that seems unlikely. But there is this broad question mark over what's going on with

the Chinese economy and the government. Can it withstand all these pressures on real estate from the strong dollar politically and maintain some of the restrictions that it's had going for I mean, really, what two or three years now? Yeah,

I mean there's so many things. You mentioned the real estate, you mentioned, the COVID zero questions, and the other big thing that is very new and it's something that we haven't talked about in a while but will be very familiar to odd lots of listeners, and that is the growing restrictions on technology transfer, particularly semi conductors. Some very aggressive moves from the Biden administration to restrict the export of certain technologies related to chips to China. That is

a huge deal. Of course, we know that China has domestic ambitions, but we see semi conductor stocks they've been plunging lately. That's a huge story. Right. So China technology hasn't been a major issue since we had that big government crackdown, but it feels like the semiconductor angle is heating up again. So we are going to be combining all of this, all these headwinds, all these big questions, these big issues, and speaking to one of our all time favorite Odd Lots guests. We are going to be

talking to Dan Wong. He is, of course, a technology analyst over at Gabaquelle Dragonomics, and he's left his farmhouse in unn to Uh to come into the New York studio and walk us through everything that's happening in China right now. Have we ever recorded an episode with no we have in studio? We go, what is this web? We haven't? We did? We did one in the upstairs studio. I think we did for TV. I've never been I've never recorded Odd Lots in person. Really well, I think

Dan has taken the clear lead. Anyway, we should probably talk about what we're gonna talk about. Dan. Thanks for coming on. It's great to be here in person, Joe, and you're a lot skinnier in person than the Internet takes me to believe. I think that was an insult believe that Dan. I'm going to start with a very broad question, but how would you describe the state of China's political economy right now? There's no way around it,

Tracy that it is pretty bad. Um. So right now China is presently going into the third year of the zero and uh, it's not very clear when or if they can re emerge pretty quickly from that. China's economy is in the worst shape in decades, caused partly by COVID zero, and I would say mostly by the property downturn.

Property is a very very substantial part of the Chinese economy by some measures over of the marginal growth, and so it is really difficult for China's economy to do well as a whole when property sector isn't doing well. So the economy is being battered by COVID zero mostly on the consumption side. The property downturn is affecting general

sentiment at large. Uh. And maybe the only thing that has been going fairly well has been China's production side um, mostly intended for exports, but even that is starting to soften. And think there isn't too much choice left in the squeeze for China's economy and exports to go really well when most of the rest of the world isn't going to be doing too well, especially if Europe and the

US soften in terms of economic growth too. So I mean this sort of sets the stage for the National Congress, which I mentioned in the intro, that's set to begin on October six What is actually on the agenda? And I mean sort of like background methodology question, but how do you how do we know what's on the agenda? And how are these things sort of formulated by the party, how do they actually pick priorities. The most important event in China every five years is the Party Congress. On

October sixteenth will have the twentie Party Congress. And it's a really great question about methodology, tracy, because in general, our rule of thumb should always be that the Communist Party is a total black box, and they are. They have a very good sense of omerta that makes it pretty difficult for outsiders really to know what's going on, and the insiders don't really talk to the outsiders, so it becomes a little bit challenging for us to you know,

even interpret the results even when they come out. So what I'm watching out for are three big items on the agenda that will determine a lot of the future based on, you know, mostly what happens in terms of personnel. And I should say that the Party Congress is really an internal party meeting. It is not so much just lay out anything in terms of the specifics of policy choices. The Party Congress is mostly for a way for the party to celebrate itself, determine the personnel, and then figure

out what's going on in the next five years. And so I think there are three big questions on the agenda for this Party Congress. In particular, the first will be whether Seeing King, the China top leader, will be China's top leader for the next five years. Now, consensus is that she will almost certainly have a third term, and I am totally with consensus. I think it is very very unlikely that she will be removed or somehow

retired in some sort of party decision. The second big question that I think we should um, you know, pay attention to, it's just exactly the composition of the personnel selected, both in terms of the Pollock Bureau Standing Committee as well as the Pollock Bureau at large. And then we will have some idea of who is going to be the premier, and then some suggestions of who is going to be vice premier in charge of the economy, as

well as a lot of other things. And so the third big question that I think we have to watch out for, and really maybe this is the most important question, is whether China's top leader, ce j Ping um annoints any successors to be the future leader of China. And right now I think this is one of the big debates that Um. You know, perhaps she will allow some younger personnel in so that he is not China's top leader for a while, or maybe he is just goes

on ruling for a very long time. The last thing I'll stress about um the party congress is again, the Communist Party is a big black box. It is really difficult for us to interpret what goes on. And there are now some questions among China watchers, the people who follow the politics and read the tea leaves really closely.

Some of them contend that well, it may not even matter who is premier, whether that is someone like one Young who is seen as a reformer, or someone like Hutran Hua who might not be so closely associated with s. The important thing here is that she has become all powerful. He has been able to steamroll all opposition, And it is possible that personnel doesn't matter so much because there is now one guy who controls everything and that's the

most important thing. So just on the premier point, the existing premier is Lead Ka Ching, and he has said this is going to be his last term as premier and that's why we're talking about potentially choosing new ones. But he has this reputation for you know, there's the lead kitchen index, um of course, and he has the reputation of sort of opening up China to foreign investment and foreign capital. Does that go away as he exits?

I don't think China will lose its openness towards foreign capital or its friendliness read large towards multinationals that are willing to invest in China with this personnel change. I think in general in China, where you sit is what you stand for, and there will be someone standing up for a lot of these economic interests. So Um, again, the party is a bit of a black box. It could be that lekas Young is shuffled into some other position, like the leader of the Legislature. That's one of the

possibilities floating out there. In that case, he would still have some influence. China is a pretty discretionary system in which the levers of power are not exactly always very legalistic, and a lot of it comes down to have power and influence. So I suspect that there will be some substantial remnants of least influence, especially given that the economy is just such an important part of, you know, the

Communist Party's message towards its own legitimacy. I want to get to the various things that will be discussing all of the issues facing China, but sort of one more housekeeping question on the Congress itself. Is it a is it a vote? What everyone comes together? How do they decide on things? What is the sort of process by which the meeting turns into policy or priority? So they make the longest speeches on earth, That's the only thing

you need to know. I think part of it is whoever can withstand the super long speeches, especially by see they get to decide the vote. Um I've heard, don't they say like in a communist countries? That isn't that the sort of reputation that historically communist countries have had long speeches? So lack of democracy or lack of transparency is sort of counteracted by they say a lot of stuff. Yes, that's right. It's a very opaque way of getting around

this transparency issue. You know, a lot of it comes down to basically the China's top party leadership getting together, whether that is people currently on the Central Committee, there is the party elders, the retired people, the previous premiers in general secretaries have some way of casting their vote and influencing their decisions, and there is a formal way. I think a very good explanation is by Lingley of

the University of Vienna. So I think I'm encouraged readers to look at that piece to figure out what are the exact mechanics here. So I know Joe was kind of joking about transparency through speeches, but one of the things that we actually learned from you on an ad Blots episode, I mean, you emphasize this point that every China investor should be reading the speeches and the publications

that the Chinese Communist Party actually puts out. And they do have this magazine called Seeking Truth that they put out regularly, and it does have interesting policy suggestions and ideas in it, and there was one that came out recently that had I think a previously unpublished speech by She where he was really talking about I guess building up China's external influence. How important is that idea as as we approached the Congress, Like, is this something that

China is serious about? And how do you see it going about actually building up that external influence? Sure? Well, Tracy, just to put a little bit of nuance on my point, I think that investors should be aware of what are the major pronouncements of the Communist Party, especially speeches by She, But I think it would be a little bit much

to try to read all of them. Now, I did read every issue of Tillshare, the magazine that translates into Seeking Truth, and I'm afraid it broke me and it was just far too much communist fbh um to process. But I think it would be a good rule of thumb to, you know, try to have some sense of what's going on in this magazine and how the party is communicating to its insiders and the pert echelons of

the leadership. Now, presidency has talked about making China have greater influence abroad, and that is a recurring message from him. I believe it was sometime last year that presidency said that, um, what China should do is to make the country's image more credible and more lovable. And what has he done subsequently really to make China's image much more lovable. Well, there hasn't been a very substantial shift in policies in

any direction. So on the credibility side, you know, it's taken, um, you know, kind of a battering, given how much the economy has suffered this year. And has China become a lot more lovable recently, Well, it's a little hard to see what the standards are, but we haven't seen China create a lot of let's say, anime skits on the Japanese style or you know, really anything that um, you know, makes China very broadly appealing. There isn't that much culture

that the rest of the world has really gotten. So um, I think I chalk it up to presidency saying something important because he is always talking about these sort of things. But on any level, China's image has gotten worse over the last five years, over the last ten years since the start of his term, especially given China's various alleged

human rights abuses in Hong Kong. In Sin Yang in Tabat, as well as the alignment with Russia earlier this year when Presidency declared a no limits friendship with President Putin. So by any measure, I wouldn't say that it has been, um, you know, a very big priority for the Communist Party

really to win hearts and minds abroad. Since you mentioned the alignment with Putin, where how would you summarize China's stands on the war today and the in particular, both the war itself and then the sort of trajectory of the relationship with Russia. I think it can be best described as tacit support for Russia's invasion of Ukraine. The Communist Party would never come out and say, yes, we support this special military operation, this pretty aggressive invasion in

any explicit terms, um. But the diplomatically and rhetorically, I think it is fairly clear that Beijing is aligned with Moscow. Now, what hasn't very obviously happened is that China has not, um in any big way try to help Russia work around these extraordinary U S sanctions that block a lot

of technologies to Russia. Has not very broadly provided much financial support, to say nothing of military support, and there are some signs that Beijing is not terribly pleased that it has shackled itself to Russia, which is not doing very well in the war. And so there are some rhetorical support, there is some public sentiments support rallied by the Party and support of Russia, but there has not

been any substantial material and financial support. And so that's why I think, you know, it is kind of a diplomatic gesture and not anything broader. So why don't we talk a little bit more about what's going on domestically, because you know, of course there are plenty of foreign issues to keep us busy, but there's a lot going on within China itself. And you already mentioned dan COVID zero.

This has been going on for three years now. I guess the question that a lot of people would ask at this point is what exactly does Shi shin Ping and the Chinese authorities, what do they get out of the COVID zero policy three years on? That's uh an extremely important question. So the first thing I should say is that COVID zero has proved exhausting to a lot of folks in China. There are um a lot of

public expressions of discontent for COVID zero. That to say nothing of going abroad that makes it difficult to leave one's own hometown or um to travel to business centers like Beijing, Shanghai or shin Jin. A lot of people are really sick of having to have no notice and be locked in their apartment compounds for a few days at a time, perhaps weeks at a time. And many people are sick of going on the train somehow being declared a close contact with others and then having to

quarantine en route to whatever one's destination is. So it is pretty important to understand why China is still so committed to zero COVID. And I think if I had to try to read the mind of the polit bureau here, I would say something like this, that the Chinese government keeps saying that it's most important job is to protect lives. And I want to, you know, take that statement at face value, and if I can, you know, try to imagine what it would be like for COVID zero to

run loose in China. I think that would be a very big catastrophe. Indeed, So if we take a look at you know, the US, and let's say we have um, you know, except the number of a million people dead from COVID. Use that as the benchmark. You know, I wonder how many deaths there would be in China if somehow there was you know, let let let loose. And I want to say, you know, it's perfectly plausible to me that this could be north of ten million deaths.

And here the very rough, simple calculation here is that China has four times the number of the population of the US, and then let's say one quarter in the medical capacity of the U S you get to sixteen times the level of possible fatalities. But then you reduce that a bit because you know, um Asia can be in China in particular, can be pretty different of how

the the US manage things. And so you know, if you're thinking about a rough benchmark of a possible ten million debts, this becomes a really unacceptable to the Party. And I think no party official, season Ping, least of all, will ever put his hand up and say that, you know, we are willing to accept this as the price of

you know, letting people run free. And I think the Party has judged that COVID has not been only a public health crisis in the world, and especially in the U S. That's not only triggered in economic crisis and um financial problems as well, it has also been a political disaster for the US, in which very polarized country is somehow even more at each other's throats, I think is what the Chinese would think, in which the Republicans and the Democrats are even more disdainful of each other.

And that is um just maybe something that the Communist Party is able to appreciate, especially that um you know, maybe makes sense less sense to us today. As you mentioned, there's obviously a lot of frustration among people who have to deal with these restrictions and the unpredictability of them. But I assume, I mean, there's also an economic cost,

and presumably they can't go on literally forever. So what is the cost the longer, the longer the COVID your policies are maintained, and then what does the ultimate way out is there? Is it a accepting of a m

R and a vaccine from a foreign drug manufacturer? Like what is what is a possible path out ultimately, Well, the cost is has not really been apparent until two I would say that China was pretty okay with the cost of COVID in when it UM was able to produce and nobody else was in manufacturing all sorts of goods, and so actually regained a lot of the share of

the global economies manufactured exports. And in one Beijing had felt so confident in itself that it had the confidence to smash a lot of its most profitable companies as well as trying to tackle systematic risks and property and really the cost came home this year when O Macron proved devastating to a lot of Chinese cities, and that it is an ongoing UM rise in cases UM as we speak right now, Joe, Right now, the Chinese economy is not doing well, mostly because of the pretty UM sector,

but also zero COVID isn't helping. It is really crushing consumption, and then also the UM it is contributing to a general exhaustion among people that they are locked down very very often. Now, what is the way out? Well, I think that it would be a fairly long time. We would have a lot of warning before we can see

that China is on its way out. And I am not predicting that there will be very substantial loosening after the Party Congress I think that would be a fantasy to think that somehow, a week from now China just acides it won't do anymore lockdowns. I think it is a little bit more plausible that there will be more movement in March after the National People's Congress, which turns party decisions into law, and there might be a little

bit more movement. And I think the really two things to look for are things we would have a lot of warning. And first, the party has to feel very confident. And it's um therapeutics as well, it's its vaccines. Now, I'm not sure that Beijing will allow the imports of a lot of m R and a vaccines um, but I think it is possible that they help that big are the inhaled vaccines, which are much much easier to administer and possibly more effective in blocking transmission, as well

as the severity of the disease um. And then that is something we would be able to see months ahead of time, because there would be a very very big drive.

Even if they are able to vaccinate one to three percentage points of the population, you know, it will take you know, at least a month or two or three before many people are able to get shots in arms or shots in um noses inhaled and then I think they are also waiting a little bit for the therapeutics to be better so that they don't have something like

two million people debt. And maybe, you know, the last thing to watch out for is that, you know, we have to consider that Beijing has spent nearly three years now terrifying people about this virus that a lot of people in China are very very scared about to mask. Compliance in China is still very high, and people are reluctant to you know, get the virus and you know, run free. And so I think what we'll see is months and months of propaganda and messaging saying it's no

big deal. Guys. You know, the virus is endemic now, the flu has evolved to be more transmissible and less severe, and um, you know, it's time for us to open up and rejoin the world. I'm not really expecting for that to happen the beginning of next year, and I'm not even sure I would be very confident that it can happen at the end of next year and the end of what are the long term consequences to China's economy of prolonged COVID zero policies, I mean basically prolonged closures. Right,

you mentioned consumption. The Party has been trying to shift the economy more towards consumption in a way from manufacturing for years, and it seems, if anything, this particular COVID zero policy has kind of put some of that into reverse, are you agree? And the UM they are much more focused on UM, you know, trying to boost recovery in terms of production, and China has always been much more

of a supply side economy. And it has been fairly remarkable that there was a big divergence between the West's response to the economic crisis that is created by COVID UM, and that was to send a lot of stimulus checks and direct support to different households so that they are able to get through this difficult time. China has sent almost no direct stimulus to households. It has not increased

UM welfare benefits in any substantial way. Instead, China has been laser focused on trying to make sure that production can continue, probably because you know, the American consumers can spend all of their new money from the government on Chinese goods, and so that has been a lot of its strategy for quite a long while. Now spill over stimulus, it's still that's right, that's right, um, And so you know, the longer HERM, I think the costs are mostly going

to be political on China. UM Beijing has snipped off a lot of these people to people exchanges such that it is really difficult for businesses, for students to enter the country, and UM, you know, I think this is why also a little bit of why UM Beijing has felt pretty okay with the costs of the COVID zero. The costs are political, not exactly economic, so they are kind of unseen, and so it kind of feels that, well,

it can continue this. But I think the long term costs on China from being cut off from the rest of the world is absolutely catastrophic. And um, there's going to be far less understanding and willingness to engage after this year. So, speaking of China's relationship with the rest of the world, perhaps when the Biden administration came into office, I don't know, but perhaps it was some thought that maybe okay, Trump had a very hawker stance on China

and maybe that would get relaxed. But instead of anything it seems to have ratcheted up and in particularly over the last several days on the subject of chips, which we touched on in the very beginning, and my sense is that the latest moves to restrict UH chip exports or the export of chip technology into China has some pretty real teeth. You see it in chip stocks. But

everything's sort of been tumbling lately. But my impression is like, this is pretty real and significant, So why don't you just sort of to start give us your high level overview of what's been announced and the significance of it.

I really agree with your framing. Joe. I spent the last week in Washington, d C. Trying to get a handle of what are the most hawkish actions that could come out of the Biden administration on China, and certainly the chips action announced by the Department of Commerce's Bureau of Industry and Security on Friday represent I think a fairly big blow. This was a thirty nine h order consisting of eight parts that very substantially restrict semi conductors.

And this very long order has been so complex that even a lot of lawyers I know are scratching their heads and trying to make head or tails of this. So at a first cut, I think this looks like a very traumatic order. And um, the three things that I would really highlight in that are important in this order.

Our first controls on chips themselves. So a lot of the most advanced chips that are important for supercomputers UM as well as a lot of the most advanced chips that are important for supercomputers are now being cut off

from China. That's the first item. The second item consists of controls on semiconductor production equipment, and the Commerce Department has been fairly clear that if you're shipping semiconductor production equipment that is below fourteen sixteen nanometers or less to China above hight levels for nand memory tips, as well as below eighteen nanometers have pitched or less um for d RAM, then you need to get a license from the U S Department of Commerce with the presumption of denial.

And then the third most important, highly novel control announced by Commerce is your license requirement on US persons from being able to support the development of China's advanced semiconductor industry. And this is fairly novel, I think for the U S Department of Commerce, to impose law controls on the level of US persons. And though so, you know, trying to cut off more people to people exchanges in China

with respected technology that is another big thing. Now, I think the caveats to, you know, trying to take a maximumly gloomy view. UM is, first of all, you know, companies tend to be dynamic actors, and companies have already adapted to a lot of US controls by, for example, offshoring some of their US production equipment such that they are able to ship continued to ship goes to China

while complying with US regulations. And UM that speaks to a broader point, which is that there are a lot of lawyers in d C who are very, very clever and also pretty well paid, who are able to help these companies make sense of these compliance requirements and still figure out some way to sell to China, which is after all, the biggest market for so many semig natural companies,

whether we're talking about chips or chip making equipment. And so I think the key point here is that this is pretty likely to be damaging, but I want to reserve a little bit of judgment, and you know, I think We'll only really see the real impacts for a few months from now, when everybody has had a chance to digest these rules. So we have seen some early

reaction from China. I should say here that we are recording this on October eleventh, and we've seen, you know, some noises about how these are unfair measures and they will hurt the Chinese economic recovery and things like that. What kind of response would you expect from China? What

can they do here? And to a point that we've actually discussed before many times on the podcast, it does seem like every time there is some sort of technological restriction imposed on China by the US, that the narrative in China itself is that this will only make us stronger. You know, it's sort of a short term challenge that we need to overcome, but eventually it will help us

build up our own domestic technological independence and prowess. Is that the same kind of messaging that we're going to see here, I expect so, and um China has issued a lot of angry words and angry editorials about all of these things, but I think it is pretty standard for China. It is just a ProForma response, and you know, I think there will not be um, you know, very obvious responses from Beijing on these regulations for you know,

to broad reasons. I mean, first, these rules were released when the entire country was on a big holiday, and I think Presidency Dping has bigger fish to fry rather than thinking about semi conductors over the next week. But I think Beijing is also aware that, you know, the impacts of these regulations will take some months to really bear out, and so it's going to see what the impact is before it really decides to take its gloves off.

And what I want to emphasize is that Beijing has maintained pretty impressive strategic forbearance against lashing out at US companies over the actions of the US government. And I think, um, you know, when during President Trump's trade war, many of us were expecting that Beijing would finally blow its top now and you know, start plunging the knife into American companies, whether that is Apple or Intel or Qualcom or any

other big US company operating in China. And for the most part, it has proven itself remarkably restrained, and I think it has made the judgment that first of all, it really wants more multinational investment into China, and anything that hurts these companies would ultimately hurt the country much more over the longer term. And second, Beijing has decided to really embrace a lot of these companies and hug

them even closer. And that is a more subtle form of retaliation because Beijing recognizes that when you have big companies like Apple or Tesla investing more in Shanghai, then um, they have a little bit more at stake, and then they go back to d C and advocate for a better relationship, better business relationship. So Beijing has recognized that businesses, big banks, whether that is Black Rock or anyone else

seeing seeking to tap into China's wealth management. You know that big businesses are China's China's last and best friends in Washington, d C. And would much rather that these businesses are advocating for greater engagement rather than the reverse. Now, over the longer term, what I expect is for a lot of these regulations too, as you say, Tracy, to probably accelerate China's self sufficiency in a lot of different

technologies over the longer term. Now you can define what success means here, and you can define what longer term means here when in general I think it is pretty difficult for any large country to monopolize key technologies over the longer run. These products are technologies, They're not magic, and the Chinese task is to reinvent a lot of existing wheels. We know that a micron de ramchip can

exist because there it is. It does exist, and what the Chinese have to do is just an order of magnitude less difficult than trying to push forward the technological frontier and dream up new inventions to novo. And if progress and semiconductor slows down, which is a lot of consensus now, it just takes far too much money to continue building these big new fabs, then at some point

China will figure out a lot of these things. And I expect that these US regulatory actions um will ultimately constrain the US businesses and the US position and mostly strengthen China's position, but only over the longer run. Just one last question on the chips. I mean we were talking a little bit about China's you know what it means for China. Why now from the Biden administration and what is your reading of like, you know, this is

they're really cranking up the dial. How much is it about constraining China's own ambitions versus sort of this broader effort and we saw it with the Chips Act to bring you know, I guess, reshore and strength and give

a leg up to domestic players. That's a great question, Joe and I Sometimes I find it actually pretty remarkable that we've had a change in administration, but there has not been very obviously any change I think, at least with respect to technology controls as well as other regulatory controls on China, for example, with tariffs. And I thought, you know, none of us were really expecting that, you know, Biden, which has completely reverse course from President Trump's here's and

you know, just start making China anything like a friendly power. Again, I think that card was never on the table. But I think it has been fairly remarkable that President Biden has proven himself mostly immune to these business concerns that you know, they need to sell more in China, engage more with this market, fund future R and D, and

not incentivized the Chinese create their own technology. Now what I would point to UM for why there are more hawkish actions now, well, I think there are these two big events this year that really prompted a lot of the U. S. Government to adopt a much more hawkish stance.

The first was Ajing's tacit support of Russia in its invasion of Ukraine, in which it really aligned itself with while what the West considers to be just a very aggressive and hostile act, and that is manifesting also in Europe when people are, you know, especially unhappy with China's

tact support for the Ukraine invasion. And the other big event was after Speaker Nancy Pelosi's visit to Taiwan in August, a lot of people in Beijing were very upset, and then they had these very substantial military naval exercises that surrounded the island and that has in turn upset people in Washington, D C. That they want to be quite a lot more aggressive against China, and so um, you know, Washington has already been pretty hostile and unfriendly towards China,

and then these two actions really sharpened their desire to do more against China. And what I find very interesting is that, you know, I spent a week in Washington, d C. And I think what everyone acknowledges now is that the US will continue to create highly novel regulatory measures. And the really big one that I'm watching out for

is the creation of the outbound investment review mechanism. I've just been a long threatened to review the investment of US firms, whether that is a bank or an investment fund or a corporate direct investment UM to set up a US government body to be able to see what US investors are putting money in in China and then

possibly have the power to block that transaction. This has been um in the discussion for a pretty long time, but it looks like the US government will probably create from the White House and Executive order on this in the next few months. Uh, and then also the US Congress will possibly legislate something into a law as soon

as this year. I'm really to try to restrict either the likes of Sequoia and Black Rock from investing in China, and or restrict the likes of Apple and Intel from investing in China, and that is just going to be another big blow to US businesses and stop them from

deploying capital where they like. M Speaking of investment, you know, the last time we had you on I think it was in so last year to discuss the annual ten episode to discuss the big crackdown on tech companies, and at that time, we've seen a number of crackdowns, you know, on online education firms, on video games, on the property sector that was just starting to ramp up, and we're

kind of seeing the consequences of that this year. What what were the broader lessons that we've learned from those crackdowns or what have the sort of longer term impacts been. And the reason I'm asking is because it looks like, I mean, it looks like we haven't really stopped rolling out the crackdowns. Because I see a story right now about Chinese liquor shares dropping because of a local report about a potential ban on civil servants drinking alcohol, both

edificial functions and at home. So it seems like these are still on the table. So walk us through the sort of longer term effect of these now that we're a year on and presumably we've we've learned something. Well, Tracy, I think it's great to bring up the booze because, um, one of my favorite stories was from Bloomberg News um a few weeks ago that highlighted that ten Cent is no longer now smaller than that liquor company. And so

you know what is the response here. Instead of boosting ten Cent, what they're doing is bashing more the liquor. So that's you know, one other way that the government is able to use its industrial policy to you know, I guess support attack in in this way. Um. Well, you know, the longer term of China's tech crackdown is I think going to still take a long while to to to really figure out. I think, um, one thing that is certain is that China's internet platforms have not

had a good year. Um and UM, things are still really really bad. Ten Cent in the Bloomberg story shed something like I don't know about six hundred billion dollars in value over the last year. It's absolutely enormous. And you know, the mood at a lot of these tech companies is pretty grim. A lot of Chinese tech workers have been unhappy to be bashed by the Chinese government, and the Chinese government has also really significantly restrained a

lot of their activities. And I think we are in this new normal now in which it is pretty difficult for a lot of China's internet platforms to reach as much upside as they did. The the ability to reach almost endless profits based on these digital technologies I think is at its end, and so you know, I think the mood of these companies is not really good, and I suspect that even the Chinese government did not really

intend for this. They wanted to control for a lot of these technocratic issues that these UM companies may not have handled very well, and they may have tried to rein them in politically, and they may have tried to shift them over too, so that they're pursuing more strategic technologies like aviation as well as semi conductors. But at least in the short term, things haven't worked out very well. I think that's mostly because the Chinese economy has been

um really really terrible for the last few months. But you know, it's also the case that these tech workers are feeling pretty dispirited, and so are the vcs. So Dan, you know, as we've been discussing, we do have the Party Congress coming up on October six, But beyond that, what are you looking at as the sort of next flash point when it comes to the Chinese economy or the Chinese government. So the big thing right now is to go through the Party Congress and we will see

what sort of personnel announcements are in place. Then I think the tu big problems now with China is basically at all boils down to first the property mass and second zero COVID. And so the property mess is something that is mostly a policy induced crisis that I think

is in Beijing's a bill to resolve. They have all sorts of self imposed constraints um not to really boost property in part because they're concerned about to morrow hazard issues, um, in part because China is close to reaching a structural peak in terms of how much it needs additional floor space per person. So they've been somewhat reluctant to really, um you know, boost confidence again in the property sector. But that is something possible that we can watch for.

That's aging realizes that the economy is quite bad and really has to solve this big issue. And then the other thing to watch out for is a possibility of the end of zero COVID. And I think I'm not still not really expecting the country to just completely loosen up by the middle of next year, and maybe by the end of three there will be something approaching normality.

But what we do know is that there will be very substantial warning in terms of how much the vaccine and the therapeutics uptake is boosted, as well as to what extent Fijing is coming out with assurances saying that this is not a big deal, rather than people Staley commentary saying that we must maintain Sarah Covid. All right, Dan Wong, it was lovely having you on the show again. Yeah, always great to catch up and fantastic to do it in person for once. Thank you so much. Always a pleasure,

Thanks so much. I think we did it in person one other times, but I believe you. Thanks so much, so Joe. I love catching up with Dan. It's always a fun conversation. Although I well, fun might not be the right way to describe this one, because it does feel like there is a set of challenges building within China, particularly in the property sector, and we had that episode recently where we sort of dove into some of the very specific issues there. But it does feel like there

are no easy answer at this point, or no easy exits. No, and there's so much property obviously, you know, as we talked about in the beginning of the conversation, I guess everyone is being affected in somewhere or another by the ongoing war. China's sort of maybe dismay about how it's going, the relationship with Russia, and you know the fact that the bind administration has proved to be much more hawkish than perhaps people expected, particularly on this tech transfer issue.

Just an endless series of challenges, not to mention COVID zero. The other thing that I do find noteworthy is, you know, there are benefits of a centrally planned economy, and we saw some of those in the early days of COVID. China was able to shut everything down relatively quickly and contain the spread, and it was one of the possibly the best performing economy in because of that. But there are a lot of downsides as well, and it feels like some of those are kind kind of coming home

to roost now. And there are unexpected consequences of you know, trying to intervene in domestic industries. And I love the example of, you know, crackdown on ten Cent and then Mutai shares go up the liquor company, and then you need to crack down on the liquor company, and then it's like, well, what happens next, it feels almost like I'm using too many metaphors. Here are lots of mixed metaphors, but it feels a bit whack a mole at this point. Yeah, no,

it totally does. And again, you know this is helpful also just an understanding the process that's about to unfold, the People's Congress and having some sense of what to watch and how that will turn into a set of priorities for the country. So just extremely I thought it was fun. I mean, there's the topics are serious, but I do genuinely enjoy learning so much from a guest like Dan. Yeah. Well, at the very least, we have been primed to to watch those ultralong policy speeches, so

I get ready for that. All right, shall we leave it that. Let's leave it there. This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe wi Isn't Though. You can follow me on Twitter at the Stalwart. Follow our guest Dan Wong, He's at Dan w Wong. Follow our producer Kerman Rodriguez at Carmen Arman, and check out all of our podcasts at Bloomberg unto the handle at Podcasts. Thanks for listening.