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The Artisan Podcast: Can China Avoid a Hard Landing?

Updated: Apr 23, 2022

Explore with us the topic, "Can China Avoid A Hard Landing?", with Northland's Co-CIO, Joseph Abramson and our guest speaker, Alpine Macro's Chief EM and China Strategist, Yan Wang.

Key issues to be discussed on this podcast include:

  • The likelihood of a Chinese recession

  • Implications of a Chinese slowdown for commodities and the CAD

  • Whether Chinese stocks have bottomed

  • The probability of a war between China and the U.S. over Taiwan

Prior to Alpine, Yan spent 15 years at BCA Research, as the Managing Editor and Chief Strategist for BCA’s China Investment Strategy publication. Before that, he spent six years as an equity analyst in China and Hong Kong. Yan holds a B.A. in Finance from Nankai University, an M.A. in Economics from Tianjin Institute of Finance and an MBA in Finance from McGill University. He also holds the CFA designation.



Yan Wang, Joseph Abramson

Joseph Abramson 00:08

Welcome to The ARTISAN Podcast where we share insights from the investment world's leading minds. Today, you're in for a real treat. We have Yan Wang, Alpine Macro's China Strategist directly from China.

Yan Wang 00:22

Hey, Joe, good to see you again. Thanks for having me. Pleasure to be here. Yeah, so I have been in China for the past four months. So the purpose of the trip is a combination of business and, and personal. Because I've been traveling to China in the past several years, every year, quite frequently, actually. But my last trip to China was February 2020. So it was the beginning of the, the pandemic, so that in the past year and half, I, I wasn't able to come back, obviously. But I wanted I needed to get a sense of what's really happening on the ground. So as soon as the the kind of situation began to, to ease a little bit, and then I came back. So the trip was actually quite complicated because I I was quarantined in hotel rooms for for four weeks. So it's, it's, yeah, so. So basically, I was confined in hotels without doing anything in the first month, basically,

Joseph Abramson 01:23

I hope at least the food was decent?

Yan Wang 01:26

Yeah, the what? Yeah, the food was okay. But I guess one thing that I kind of I sense is, the purchasing power of the RMB of the Chinese currency is quite decent, because, you know, if we compare the hotel rooms and three meals a day is taken together and deliver to your door. Price was quite cheap, actually. Especially a lot, a lot cheaper than we have to pay in Canada. So I guess that's the that's suppose the the view that maybe the RMB has more room to appreciate.

Joseph Abramson 02:03

Another advantage of China, a cheaper quarantine?

Yan Wang 02:06

A cheaper quarantine. Definitely. Yeah.

Joseph Abramson 02:08

So I mean, if we take that the kind of hardline that China's taking towards COVID, and combine this with the Omicron, which is so much more contagious, what do you think of the risk of China you know, entering a hard landing?

Yan Wang 02:21

Yeah, so I guess I guess we need to define how how we define what is heart lending, right. So actually, here, we can bring up some charts. So are you able to see the chart? Joe? Absolutely. Okay, great. Yeah. So I think here, you can see, if you look at the Chinese GDP growth, on the left hand side, Chinese real GDP growth peaked over 18% in q1. Right, so then after that, we see the Chinese economy, if our in our model predicts GDP will probably drop below 4%. So from 18% to 4%, obviously, it's a massive decline. So a big part of that was was the base effect. Right? So last year, we had the collapse. So base effect, obviously, is true, played a role here. But I think more importantly, as I'm in China, when I'm talking to people, I get a sense of what's happening on the ground, the economy is quite weak. So, we did have a major major growth slowdown, you know, whether you call it Heartland your soft landing, the slowdown is is has happened quite, quite clearly. And on the other hand, you know, we see Chinese stock prices, both in the offshore market and offshore market, penny stock prices have dropped like 30 35% from the peak. So from there, you can also say, you know, the economy, financial market has had some kind of lending. So, I guess the reason for the reason for the such a kind of pretty significant slowdown, quite a couple of reasons. Reason number one, you mentioned the other day on the right hand side here, this is the basically the way that they are dealing with this COVID crisis has had repeated shocks on the economy. So here, this is just the Chinese New new domestic COVID cases since the beginning of the year. So basically, we can see a few mini outbreaks. So because China has had this is zero tolerance policy. Whenever we had a mini outbreak, then the whole country really tightened restrictions, especially local governments, it tightened restrictions very, very aggressively. So I was, I was I was in China, one one in the end of July. So during that period, we had a outbreak. So that's why, you know, normally I would I was supposed to be quarantined for two weeks, but because of that mini outbreak, then I was quarantined for four weeks. So now you can see the the COVID policy really tightens whenever they have a outbreak. So then they, you know, they have kind of repeated shocks on the economy. So, obviously, we had another outbreak. And if you mentioned and you also mentioned, we have the new variants, then chances are, they will tighten again. So they will just introduce repeated shocks to the economy. So nothing wrong with that, right. So, obviously, they have they have been in China has been quite successful in containing the virus. But the problem is, whenever, whenever they had this kind of a tightening in restrictions, the private sector can contracts, and retail sales begin to, to contract in traveling, basically, at least slows a lot. But then public sector is supposed to step in, the public sector is supposed to support aggregate demand, otherwise, you would have a growth problem. But that's precisely what the government the Chinese government has not done. If you look at on this chart on page three, on the left hand side, the blue line is infrastructure investment. Okay. And the red line is government expenditure. So throughout the whole year, the economy was repeatedly hit by all these mini outbreaks. But the public sector was also actually in a retrenchment. So that's the key reason why the economy has slowed quite a lot. And on the right hand side here, it's even, it's quite clear, right. So if you look at the top on the right hand side, top panel, this is China's fiscal thrust, fiscal thrust has been negative, since the beginning of the year. And the bottom panel, this is total social financing. So total social financing, this is the kind of aggregate financing the Chinese corporate sector, the entire households, on the garment sector, they get to the entire economy. We had a material slowdown. So all these are the reasons why we had such a dramatic growth problem, you know, we have the COVID policy, without public sector help. And we have a tightening on both fiscal and credit policy. So these are the reasons why the economy has been has weakened quite significantly. So I think I think overall, my sense is the economy will remain quite weak, at least in the near term. So a couple of reasons for that, if you look at this chart, on page four, on the on the left hand side. So I think now, obviously, we have a new problem, which is the housing market. So the housing market was actually quite strong throughout the pandemic, but then in the past couple of months, housing began to really pull off. I'm sure you've heard of Evergrande problem. So then, so now Evergrande is still a risk in the economy, in the marketplace, but what has clearly happened is because of the headline, kind of headline risks of the real estate sector, home sales have slowed dramatically. And mortgage borrowing, mortgage lending has also slowed dramatically. So these are, you know, in real estate is a very big part of the Chinese economy, right. So if you have such a kind of a clear down downtrend, then, you know, obviously, the economy will suffer. So this is the this is kind of looking forward. I think the real estate sector remains a headwind for the Chinese economy, and another another headwind for China will be exports. Okay, so export sector exports. Actually, if you look at Chinese economy, among all these sectors, exports have actually been doing phenomenally well, even in most recent month, export growth is still over 20%. So it's still very strong, but a big part of the the increase was is actually due to price increase in terms of volume volume actually has been a lot less robust than the overall growth. So that has implications for labor market, right. So if you look at this chart, this is the other revenue side. The red line is Chinese PMI new export orders, actually has been has been below 50 For the past, I think three or four months. And the blue line is small sized enterprises PMI so because China would actually China majority of Chinese exports are bound by small and medium sized enterprises, okay. So the fact that you know, export sector we especially go Next year, China benefited Chinese exports benefited this year because in other countries have been in lockdown, but if the lockdown the other countries begin to, to relax, then you know the supply chains of other countries will begin to renormalize that will also kind of take some market share away from Chinese exports. So, that will also mean the export sector will struggle and the small small enterprises will struggle. So, these are the reasons why I think we, the the economy will remain quite weak. But on the other hand, you know, I think from policymakers point of view, they're most concerned about the labor market. So, why I think this chart is important is because, majority of Chinese labor jobs, job creation is done by small and medium enterprises. So, we have a really weakening the outlook of the labor market is weakening. So, I think that will really pressure the Chinese policymakers to begin to ease policy more aggressively. So, now, we are seeing the transition from policy tightening, which has led to a very clear downtrend in the Chinese economy to a reflation process where hopefully, hopefully, you know, they have enough policy stimulus, okay supports a graduate upturn in the credit cycle and in the in the business cycle. Okay. Yeah, so, I think I think these are kind of some charts, we can after we see some tentative signs of that, right, if you if you look at on page six here. So, this is the Chinese money supply has kind of stabilized at record low level. So, this is below below 10, I think around in some percent and Chinese credit impulse, this measures the change in credit in credit flow. So, we can see the credit impulse after a massive decline now, it appears to be stabilizing and begin to pick begin to to improve. So this is this is the these are some of the most important indicators for us to monitor how the Chinese economy will be, because if you look at on the right hand side, the red line is the credit impulse. It's the same thing as the left hand bottom panel, and the blue line is our indicator for Chinese business cycle. So, we can see in the past especially in the past 10 years, we had a few very pronounced the credit cycle fluctuations. And each time you know the typical you can see the blue line the Chinese business cycle fluctuation has been almost entirely driven by the credit cycle with a time lag obviously. So now if if we are seeing the credit cycle is kind of bottoming chances are the business cycle will will continue to decelerate in the next maybe two, three months. And then after that, probably business cycle will begin to bottom out. So that's that's our kind of our theme. Now, you know, we believe China is in a transition period from policy tightening to to policy reflation, and from growth deceleration to a period of bottoming process.

Joseph Abramson 13:38

Yeah, I have some some questions about the slowdown and the risks there. And then also the policy reflation. So at the start, you were speaking about definition? Well, let's just define it the way that we normally would in North America, you know, to two down quarters. So the third quarter was essentially zero growth. And so if there was a crack down, you know, in reference to COVID, you know, maybe we could be back into that in the fourth quarter. What do you think are the risks of something close? I mean, because Because trend growth in China is much faster than that in North America. So what's what's close to 0%? Growth over a couple quarters? What's the risk?

Yan Wang 14:29

Yeah, so I think I think, in Q4, most likely growth would continue to decelerate from Q3 in Q3. I think it's 4.8, something like that. And then Q4 most likely will be far below 4%. Probably, maybe slightly above three, because the economy in all the leading indicators are still slowing. And if you look at our chart here, it's approaching a bottom but it's not improving yet. So most likely, growth worldwide. mean, basically, the growth news out of China will be weaker before they get better.

Joseph Abramson 15:07

Okay. Okay. And maybe let's talk a little bit about what that means, you know, for markets, you know, because there aren't that many economists here people are really kind of interested in, in how to make money or at least how to avoid losing money. So, you know, what do you think this means for commodities, which were strolling up until really, you know, a couple of weeks ago? Do you think that the slowdown in China has been discounted in the commodity markets? And then after that, we'll speak about the Canadian dollar?

Yan Wang 15:43

No, I don't think I don't think the Chinese slowdown has been discounted in the commodity market. That's why you know, we are we are cautious. We are bearish on on especially on base metals. Fossil fuel it's we have different view because we you know, can we recognize this the supply bottlenecks in fossil fuel. So we are more bullish on fossil fuel on especially on crude oil. But on base metals, we see downside. So actually, we can see one more chart here. If you look at this chart on the left hand side panel, this is a commodity prices versus Chinese I'm one bottom panel is trying to copper prices versus Chinese copper imports. Okay. So obviously, you know, historically the correlation is very clear. So, so, so here, obviously, we see downside, you know, simply because Chinese consumption of base metals accounted for over 50% of global total. Right. So if we have Chinese slowdown, then obviously, you know, the demand for commodities was slow quite a bit. So that's why I think from purely from this the, the demand side, I think, and especially for base metals, they do not really have that kind of, you know, supply bottlenecks, the same supply bottlenecks as the fossil fuel sector. So that's why we see downside risk for commodities. For the Canadian dollar. We are we are less bearish on Canadian dollar. We're actually more bullish on Canadian dollar because we are bullish on oil, number one. Number two is we believe the Canadian economy is reasonably strong. And they will be they will the Bank of Canada will tighten, at least the policy of discrepancy between the Fed and the BOC will not be as big as with other major economies. So actually, we are we are more bullish on the Canadian dollar, especially, you know, the dollar has weakened by so much in the past couple of sessions.

Joseph Abramson 17:45

Okay, and you know, commodities tend to be a little bit more coincident, right, where stocks are more leading. So maybe stocks wouldn't be so focused on the current slowdown in China. And they might be in fact, if you look historically, they're much more sensitive to the policy reflation. They're very sensitive to the chart you showed on m two, they're very sensitive on the chart you showed on social financing. So how close are we to this handoff, from growth slowdown to policy reflation? You know, EM, stocks have underperformed for over a decade and massively this year? When is it gonna be time to step in and bottom-fish? EM?

Yan Wang 18:34

Yeah, so I think it's probably a bit early to bottom-fish EM now, for a couple of reasons. Reason number one is, you know, we showed this chart earlier. So we so we show, we see Chinese slowdown has become quite advanced, China is probably in the bottoming process. But China because China has been such a big marginal driver for the global economy. The Chinese the impact of the Chinese credit cycle downturn is just I think it's just beginning to be felt by other major economies in the commodity is only here. If you look at on the right hand side, keep this chart. This is exports, global exports. Right? Again, the cycle has been pretty synchronized in China has been leading. And then so basically, for EM, we have commodities and we have global trade EM countries are either sensitive to global trade or sensitive like in Asia, or sensitive to commodities, which are Latin countries or South Africa, Russia, right. So all young countries will be impacted by the slowdown in China, but not just India, right. So if you look at here, this is a Chinese credit cycle versus euro, euro area, manufacturing, PMI, and even the US plus so you can see the point I'm trying to make is Chinese product. probably already slowdown as are the here is quite advanced, but other countries are just at the beginning of a downturn, or at least from from, from the China factor. So that's why I think it's probably kind of a bit early to jump into EM. So, because we have we have a growth problem, we have a China growth problem and then we have a global growth problem. Number two is we have a Fed tightening the Fed is now is tapering, but will probably tighten going into next year. So if the Fed tightens, then basically we have a pretty bearish combination for EMs because growth is slowing down. And and the liquidity conditions are being tightened. So EM typically suffer in this kind of environment. And even in EM, many other many young countries are, are tightening. So I think this chart is quite important. So if you look at EM on the top panel, here, the blue line is EM trading P ratio, versus our policy risk diffusion index. So this, this index measures how many young countries are easing, versus the number of young countries that are that are tightening. So if we have the Redline is coming down, it means majority of young countries are tightening. So basically, that's a synchronized tightening cycle. So obviously, we see whenever you know, the blue line, the blue line basically follows the red line. So, we have a multiple when we have a monetary easing, that we have multiple expansion, then we have a tightening that we have a multiple compression. So now we are in this multiple compression period. And bottom panel is earnings. So if you look at here, bottom panel is trading EPs in DM versus LTI diffusion index. Okay, so this leading economic indicator LTI leading economic indicator division, Dax, it measures how many countries growth is accelerating, versus the number of growth countries growth is decelerating. So if we have a moderating the red line is rolling over means that majority of young country's growth rate begins to slow down, I think, obviously follows the Chinese downturn. So then here, we have a multiple compression combined with weakening earnings. So that's why, you know, this is still kind of premature, to to to buy EM aggressively. But I think the point that you made is a very good one, because you know, you mentioned precisely this, this chart is showing here, yam has underperformed a PM, drastically, right. So, from 2010 and two, so, basically, we have a 10 year bear market completely reversed the previous 10 year relative bull market. So here, if we have kind of a long term trend line, now is one sigma below the long term trend. So you know, we recognize this is an overshoot, or undershoot and yam stocks are quite cheap, sentiment is very weak. So in here, we recognize this is overshoot to the downside. So, you know, we may be prepared to, to turn for, for. So basically, the catalysts could include, you know, we talked about why the Chinese growth begin begins to improve after policy reflation. If the inflation begins to kind of pick out in the US, then the Fed will, will begin to at least, the the hawkishness will be out next year, then that will kind of bring bring some relief, young countries to tighten, and then the dollar will probably weaken. So on that, we will probably begin to Limbo into EMSS.

Joseph Abramson 24:12

Sure, I believe actually, historically, EM relative performance is positively correlated with the Fed, because as you said, M is driven by growth. And that is usually raising rates, reflecting strong growth. I guess the question would be, there's some very important political events next year, you know, the five year cycle. And you would think that in China, the government wouldn't want to see the economy, as weak as it is now, going into those, you know, the major Congress and what have you. Do you think that there'll be no particular stimulus in the lead up to those events, a strong stimulus or money stimulus. And given that view, would it be strong enough to basically step in and buy emerging market stocks? Or still better? I understand it's a little early now. But is it early or just hands off?

Yan Wang 25:17

At this moment, we see rising signs that the Chinese policymakers are getting really nervous about housing markets, about the the overall kind of slowdown, sluggishness in the economy. And that, especially the labor market, in my view, the labor market next year will be quite challenging. I think now we see, Chinese policymakers are responding to those kinds of roving pressure points. So they are the country's reserve requirement ratio ones. And I think yesterday or during the weekend, the Chinese Premier, he said, you know, China would cut reserve accommodation again, soon. So I think, most likely in the next week or so, we would have a, we would have a another kind of major policy announcement. So I do think we are in this process of getting more aggressive policy easing, and especially your point, next year will be a very politically sensitive year in China, they have this major party congress. So most likely, they will have to make sure the economy is stable, the labor market is stable, so that they can make they can they can be a kind of celebrate this party congress. So that's basically will be proceeding third term. So I think from that point of view, I think we are early to get into get into EM. But actually, the only market that we like, or some among the most major markets, I think China is actually getting interesting, okay? Because if you look at this chart, on the left hand side, so this is MSCI, China, versus EM, outside of China. So obviously, China has been massively degraded. We know because of a lot of problems, you know, a lot of regulatory changes, growth downturn, a lot of kind of political tension with the US. So whatever reason, you know, the slowdown has been quite dramatic. And if you look at on the right hand side, bottom panel, this is the this is a three, three year rolling drawdown. Okay, from peak to trough, right. So, basically, whenever the market drops by this much, okay, oh, it's a further downside, have been significantly reduced from, you know, purely from a historical point of view. So that's why basically, my view is that this market has has come down so much. Right, and growth downturn has become quite advanced. And the Chinese policymakers are the only major economy the only major economy that are easing. Alright, so, I think those are the reasons why we think it actually begins, it makes sense to be more, a little bit more aggressive on Chinese assets with with India,

Joseph Abramson 28:16

Given that you have the boots on the ground in China, and how cheap the market is, and how oversold it is, we would expect that one of your first calls, as they relate, is to your friends at Northland, you know, as to as to when to buy EM or China stocks. So I mean, maybe this is enough, on the kind of cyclical the shorter term, maybe we can talk a little bit more about some of these really interesting, long term structural trends that we've seen in China. I mean, first of all, we've seen a pretty big relic regulatory crackdown, first on tech, Internet, and education, most recently on property companies. And then we also are hearing about this, this big theme of common prosperity versus what has really been kind of growth at any cost over the last, you know, couple decades. So maybe you can talk about some of these structural themes, the the five to 10 year view, and, and what that means, you know, a decade ago, we were buying commodities here in Canada, because of what China was doing. But China's still massive. So what are the big themes over the next five or 10 years? You know, either from a regulatory clamp down point of view, or a common prosperity perspective.

Yan Wang 29:44

Yeah, those are those are really great questions and really tough to answer. So obviously, you know, we don't really have access to what really isn't being faints, right. So, you know, this is we just tried to make sense of What's happening. So I think on the economic front is quite easy to see, Chinese growth will continue to moderate. Because, you know, because precisely because of kind of the policy shift that you mentioned. So basically, all the kind of growth at all costs mentality is gone. So that much is quite clear. And another point is, the economy has become quite, a lot more advanced than before. So if as your base is rising, so all economies face diminishing rate of return, right, so as your your base is rising, then the rate, the rate of increase will begin to moderate, you know, this is the same as what happened in Japan, in Korea, in Taiwan, and Singapore, in, in many in Israel, in many of the kind of newly industrialized economies have gone through. So I don't think I don't think that much, that will change much. But you know, but also, as the size of the economy grows bigger, the impact on the rest of the world may not be will not be smaller than before. So I think that's the key point. In terms of the regulatory changes, I think, I think I prepared some charts, because, you know, we talked about this before, I just want to show how much China itself has changed. So that's why I think this chart is actually quite important for us to understand that. So this is, you know, this 100% of the world population. And the green areas are the Chinese population in China has been around 20% of the world population throughout the past in 50, some years. And the blue bars are the countries with population, the population of countries with per capita GDP lower than China. So these are poor countries. These are richer countries. So obviously, when China began to reform in 1978, that's the year China began to open up began to reform, China was actually was the poorest country, maybe only two to 3% of the world population was poorer than the Chinese. Oh, China was absolutely the poorest country. But that throughout, obviously now, even though, you know, the Chinese per capita GDP is only like 11,000 or 12,000. US dollar, much lower than the US, Europe, in Canada, Australia, Japan, Korea, right. So a lot, a lot poorer than many developed countries. But all the countries, Russia and China combined, they only account for less than 20% of the world population. So majority of the world population now are actually poorer than the Chinese. So this is a drastic change, and happened in a very short period of time. So I think this is very important starting point, for us to understand why policies are changing, because growth at all cost is no longer that important. So that's why we we have, you know, I published the chart before I published a report a few years ago, it's called a CMP. It's a shock therapy. So I try to make sense of what's happened, what happened after the meeting took over. So I think, you know, in 2015, there was a survey public opinion survey, you know, asking what are what were the top public concerns in 2018? So they listed 15, top concerns, only three of them are related to the economy. Oh, like, they are raising prices? Traffic, you know, I think traffic probably not not even traveling, maybe I can say infrastructure problem. Right. So then employment, so only three of these are remotely related to economic issues. Okay. Everything else are like, for example, the top one is corrupt officials. Okay, that's what's the anti corruption campaign was all about. The second one, air pollution, water pollution. That's the environmental campaign that explains why China appears to be determined to reach peak carbon emission, it was I think, over 35 and then turn 60 They want to become carbon neutral. So basically, these are all and then safety of goods, quality of manufactured goods. So basically, that's really to that campaign to improve people's livelihood. And then the last one, the third one, this is the gap between the rich and poor. That's what this common prosperity is all about. So I think this really explain all these points explain what's happening, you know why she's been doing that. So these these acts are not random. They are actually highly targeted to address some deeply rooted public concerns in the Chinese society? Okay, so I think with that, what kind of impact this will have on growth probably will be will be bearish because, you know, basically, you know, all policies are a trade off between equality and efficiency, before everything was about efficiency. Now, needle is shifting to the other side to to to equality. So I think growth will probably suffer, but probably as the benefit will be a less volatile, more stable political and social environment. I think that. So basically, I think this addresses the issue, a lot of people are making the case that, you know, all these policy changes are random, you know, you know, somehow China just became a turning a communist country, I think it's far from that. So from that point of view, I do not buy the view that China somehow because of that, becomes an investable. I think that's the, that's the bottom line of this.

Joseph Abramson 36:06

But, I mean, from an absolute perspective, you know, as a capitalist investor, you're interested in profits. So that is more attuned to growth, and it's more attuned to policies that are business friendly. And so if your policies are more in favor of equality, that's not necessarily a in the interest of the investor of the of the owner of capital, usually, historically, it's been against their interests. So that would be the absolute argument. I mean, to me, if you're favoring equality over over liberty, or over growth, it's less friendly to stock market, but then you have a relative question as well. You know, to be honest, I'm not sure that that policy is less than it is in countries like Europe, and the United States, where if you look at the carbon view in the United States, so it may be something that is absolutely necessary. However, it really can impede capitalism and the government, both fiscally, as well as the central bank monetarily is really having a very strong impact, you know, on on the economy. So I guess, from an absolute point of view, I mean, would you argue that this can't be negative?

Yan Wang 37:44

No, no, this is no, this is obviously negative. Okay. But this is negative, from the point of view that, you know, we have the trade off, shifting from pure pursuit of efficiency to, to also to at least the caring for you for your quality. But what I'm, what I'm arguing against, is the view that somehow China just became, becomes a communist country, which is far from true, because, you know, now I'm in China, right? So you know, now you have business running 24 hours, everywhere. In Canada, we are used to businesses close at 9pm, or 5pm, during the weekdays, in China, like, you know, even in China, now, they have the so called 996 culture. Right? So basically, what they say is, employees are, are expected to work from nine 9am. Tonight, PM, six days a day, six weeks, six days a week. So this is their nine by six work culture. So basically, the, you know, you know, I remember Jack Ma said, you know, this nine-to-six is, it's fortunate for young people to work nine- -to-six, because, you know, if you work harder than you, you're cheap, more, which obviously, is true. But can we imagine, you know, any business leader outside of China can say that thing. Right. So this is, you know, to me, I think China is still one of the most capitalist systems countries in the world. It's just shifting, because of the, because of the changes that, that we saw here. What when the country was really dirt poor, then obviously, it could do anything, they wanted to do anything to become richer. And now actually, Chinese are among the richer people in the world. That's why we see so many Chinese tourists in other countries, Chinese students in other universities, because they are actually much richer than a majority of the world population. I think that's the key key message. But on the other hand, you know, we have cycles, right? So you know, if the Chinese if you look at here, this is Chinese stocks, relative to EM. We had a massive underperformance so far this year So, even without considering all these kinds of long term problems, then, you know, we have cycles here. So the cycle will be, will be in favor for Chinese stocks, you know, based on cyclical factors that we just talked about.

Joseph Abramson 40:13

Okay. Okay. So, I mean, I think it comes back to the cyclical that, you know, we're waiting for this reflation, you know, maybe we're past the worst. And you know, that basically to stay tuned to when Alpine macro becomes more positive.

Yan Wang 40:30

Right? Yeah.

Joseph Abramson 40:32

Well, I certainly I'll have my phone open, I think we'd be remiss if we didn't mention some of the saber rattling between, you know, China and the US over Taiwan. I know some of your respective counterparts are saying there will be a conflict. What's What's your view? And what do you think is the view of the people in China? I mean, you've been there for quite some time when, when you're speaking to your, your your friends and colleagues? What's the view inside China? And what's your professional view?

Yan Wang 41:11

Hmm. Yeah. So I think the risk has obviously increased quite significantly over the past couple of years, especially in the past two years. I think the reason for that is China said, Taiwan used to Chelsea's Taiwanese, us completely redline. So there's zero room for compromise. If, let's say if Taiwan declares independence in something like that, so there's absolutely zero room for compromise. So if that happens, no Chinese leader can survive a formal independence of Taiwan of Taiwan. So I from that point of view, I think something will have to happen. So we can we just bet. We just hope, you know, things will not go that far. But obviously, things are moving toward that direction. From from both the US side from from from the Taiwan side, Taiwan, the current administration. They have they have a pre pro independence agenda from the party. And the US obviously wants to play the Taiwan card in the geopolitical robbery with the with China. And I think China is also under this kind of rising nationalism sentiment says I'm here, you know, clearly, you can sense that. It's not just the Chinese government wants to do is actually the Chinese public, the 1.4 billion population, they want to, they want to to unify Taiwan, so in their words, so their long term policy has been peaceful unification with Taiwan. Okay, so the emphasis of the rest of the world in the past was the peaceful part. But the Chinese emphasis has been the unit unification part. Okay. Right. So I think that's the key. That's the key problem, you know, everybody agrees that you would need to peacefully solve this problem. But the Chinese solution is to eventually unify with Taiwan. Okay, so I think that I think that's, that's how the two parts see this differently. So how do I see this in the near term? Okay, I have, I have a very hard time to believe there will be a real military conflict between China and Taiwan. I think the stakes are too high, the risks are too high, especially Taiwan is only kind of, you know, 100 miles off the Chinese coast. And we know Chinese East Coast region, is the most profitable, prosperous region in China in the majority of population live on the east coast. Majority of the economy is in the east coast. So I do not think China wants to risk a real conflict, the military conflict with the US or with Taiwan. Now we have Australia, we have Japan. So yeah, so long term, I'm worried. But in the near term, I see risk of real military conflict is still very, very low.

Joseph Abramson 44:27

Okay, well, that's good enough for me. You know, so let's end, you know, on that note, thank you so much. That was wonderful.

Yan Wang 44:40

Pleasure. Pleasure talking to you, Joe. Good to see you again.

Joseph Abramson 44:44



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