You Can Only Invest in China With This in Mind

Bloomberg Television
8 Apr 202405:06


TLDRThe discussion highlights the complex dynamics between China and the U.S., particularly focusing on the contrast between the official Chinese narrative of economic revival and the on-ground realities in cities like Shanghai. It addresses China's dependency on U.S. imports and the challenging business environment for foreign companies amidst Beijing's strict regulatory stance. The dialogue explores President Xi's efforts to advance China's technological and economic frontiers, yet underscores the difficulties faced without significant economic recovery. The conversation also delves into the importance of aligning with state enterprises and the precarious nature of contracts, suggesting a nuanced approach for Western businesses operating in China.


  • 🌏 China's economic situation appears inconsistent, with stories of revival conflicting with ground realities.
  • 🏙️ Iconic business establishments in Shanghai, especially in areas like Nanjing Road, are experiencing a significant downturn.
  • 📉 Despite official reports of prosperity in major cities like Shanghai, Shenzhen, and Quanzhou, the on-ground situation reflects struggling malls and real estate markets.
  • 🏡 Property sales in prime Beijing areas are facing steep discounts, indicating a weak real estate market.
  • 🔍 There's a noticeable discrepancy between the official narrative of China's economic health and the actual business environment.
  • 🇺🇸 U.S. business leaders, such as those from Apple and Tesla, continue to engage with China despite its hard stance on certain economic policies.
  • 📈 China is prioritizing high-tech, high-value industries to compensate for a declining population and to create high-salary jobs.
  • 🔄 The Chinese economy's current stagnation is hindering the desired technological and productivity advancements.
  • 🤝 U.S. and Western companies have significant leverage in negotiations with China due to the latter's current economic conditions.
  • 📊 Chinese President Xi's vision for the economy suggests increased roles for state enterprises, affecting both domestic and foreign private businesses.
  • 📜 The enforcement of contracts in China is influenced by political connections and alignment with the Communist Party's policies.

Q & A

  • What is the perceived relationship between China and the United States in terms of trade and economic policies?

    -The script suggests that China and the United States have a complex trade and economic relationship where China recognizes its dependency on the U.S. but wants to engage on its own terms. There's a tension between the need for mutual trade and the desire for autonomy in economic policies.

  • How do the official narratives about China's economic recovery compare with the on-the-ground realities in places like Shanghai?

    -While official narratives promote the idea of a booming economy, especially in major cities like Shanghai, the script indicates that the reality on the ground, such as in elite shopping areas, does not align with these claims, with many businesses struggling.

  • What is the significance of secondary cities in China's economic landscape according to the transcript?

    -The transcript implies that while secondary cities in China may not be doing as well, the primary cities like Shanghai, Shenzhen, and Quanzhou are seen as economic hubs where business is thriving, according to official stories.

  • How does the Chinese government's approach to technology and innovation affect foreign businesses operating in China?

    -The script suggests that President Xi's push for integrating new productive forces and high-tech industries in the Chinese economy affects foreign businesses by emphasizing partnerships with state enterprises and aligning with government policies to secure contract enforcement.

  • What challenges are foreign executives, such as Tim Cook from Apple, facing when doing business in China?

    -Foreign executives face the challenge of navigating China's economic environment, which includes aligning with state enterprises and adapting to a market where private businesses are under pressure and contract sanctity may depend on alignment with government vision.

  • How does the real estate market in Beijing reflect the broader economic conditions in China according to the script?

    -The script indicates that the real estate market in Beijing is struggling, with properties being listed at significantly reduced prices and lacking buyer interest, reflecting broader economic challenges despite the official narrative of economic strength.

  • What role do state-owned enterprises play in China's economic strategy as outlined in the transcript?

    -State-owned enterprises are central to China's economic strategy, with private sector companies being encouraged or required to merge with them, highlighting a shift towards more state-driven economic activities.

  • How does the script illustrate the impact of China's economic policies on the sanctity of contracts and joint ventures?

    -The script suggests that the sanctity of contracts and the success of joint ventures in China heavily depend on alignment with the Communist Party's policies and connections within the judicial system, rather than on universally applied legal principles.

  • What is the expected trajectory of China's economy according to the expert in the script, and how does it impact Western businesses?

    -The expert predicts a challenging trajectory for China's economy, emphasizing the need for economic revival before technological advancement can occur, which could affect Western businesses' strategies and expectations for growth in the Chinese market.

  • What dilemma do foreign businesses face in China as depicted in the transcript?

    -Foreign businesses in China face the dilemma of needing to support state-owned enterprises and align with government policies to succeed, while also dealing with the challenges of an unpredictable market and the potential vulnerability of their contracts.



🌏 Sino-American Economic Relations and Ground Realities

This segment explores the complex economic interdependencies between China and the United States, despite China's desire to dictate the terms of engagement. It highlights the inconsistencies between official narratives of economic revival and the actual economic situations on the ground in China, particularly in elite business districts and secondary cities. The discussion includes personal anecdotes about the real estate market struggles in Beijing, reflecting broader economic challenges. The narrative then shifts to the Chinese government's hardline stance on capitalism and its efforts to integrate new productive forces into its economy, aiming for technological advancement and high-value industries despite current economic stagnations. The segment also touches on the implications for American and Western businesses operating in China, emphasizing the necessity to align with state-owned enterprises and the precarious nature of contracts not supported by the government.



💡Import export policies

Import export policies refer to the regulations and guidelines governing the trade of goods and services across international borders. In the context of the video, these policies are critical for the Chinese economy, particularly for businesses in major cities like Shanghai, which rely heavily on trade with the United States. The speaker mentions the urgent need for these policies to be in place, highlighting their significance in stabilizing and reviving economic interactions between China and the U.S.

💡Economic revival

Economic revival refers to the process of an economy recovering from a period of downturn and regaining strength and growth. The video discusses contrasting reports about the Chinese economy's revival, suggesting a discrepancy between official data and the ground reality in business areas like Shanghai and Beijing. This revival is crucial for the overall health of China's economic sectors, especially those dependent on international trade.

💡Secondary cities

Secondary cities in China are those that are significant but not as prominent as the primary cities like Shanghai or Beijing. The video mentions that these cities are not performing as well economically, which contrasts with the booming business environments in primary cities. This distinction is important for understanding the uneven economic development within China and the focus of governmental economic policies.

💡State enterprises

State enterprises are businesses owned or controlled by the government. The video highlights a shift in China where state enterprises are increasingly in the driver's seat, shaping economic activities and business practices. This shift affects how private companies operate, necessitating alignments with government policies and strategies to survive and thrive in the Chinese market.

💡Technological industry

The technological industry involves companies engaged in the development, production, and marketing of technology-based goods and services. The video references China's past interactions with major tech companies like Alibaba to illustrate the government's harsh approach towards private sector tech enterprises. This context is crucial for understanding the current business environment and the challenges foreign and domestic tech companies face in China.

💡New productive forces

New productive forces in the video refer to the initiatives introduced by President Xi to incorporate advanced technological capabilities and high-value industries into China's economy. This strategy aims to position China at the forefront of technological innovation and ensure high-paying jobs for its population amidst a demographic decline. The narrative underscores the challenges of implementing these forces without a strong economic foundation.

💡Sanctity of contracts

Sanctity of contracts refers to the principle that agreements and contracts are respected and enforced according to their terms. In the video, this concept is discussed in the context of business operations in China, where the enforcement of contracts can depend heavily on political favor and alignment with governmental visions. This creates a precarious situation for foreign businesses seeking to enter or expand in the Chinese market.

💡Joint venture tragedies

Joint venture tragedies are referred to in the context of previous business collaborations between foreign and Chinese companies that ended poorly, often due to conflicts over control, cultural misunderstandings, or misalignments with governmental policies. The video uses this term to question the current reliability of business agreements in China, highlighting the risks involved in such ventures.

💡Negotiating leverage

Negotiating leverage refers to the advantage or power one party has to influence the terms of negotiations in their favor. The video suggests that the U.S. and Western countries currently possess strong negotiating leverage over China, particularly in economic and trade discussions, due to China's internal challenges and the need for stable international relations.

💡Managerial magic

Managerial magic in the video refers to the expertise and innovative management practices that foreign businesses like Apple might bring to Chinese state-owned enterprises to improve their efficiency and productivity. This concept is mentioned as a strategy for foreign companies to gain favor and operate successfully within the Chinese market, despite the challenging business environment.


The complex dependency between China and the United States, highlighting the need for mutual import-export policies.

The discrepancy between the official data on China's economic revival and the ground reality, as seen in Shanghai's elite establishments.

The lack of business in iconic places on Nanjing Road in Shanghai, emphasizing the economic downturn.

The focus on primary cities like Shanghai, Shenzhen, and Quanzhou as business hubs, despite struggles in secondary cities.

The contrasting situation of the real estate market in Beijing, with properties selling at significantly lower prices.

The hardline approach of the Chinese government towards capitalism and its impact on the technology industry.

Leading U.S. executives like Tim Cook and Elon Musk's efforts to maintain and develop ties in China.

President Xi's campaign to integrate new productive forces into the Chinese economy, aiming for technological leadership.

The challenge of achieving technological and productivity advancements without first revitalizing the Chinese economy.

The leverage the U.S. and the West hold over China in terms of negotiating power due to economic conditions.

The shift towards state enterprises playing a dominant role in China's new economic model, impacting private sector companies.

The opening of new, significant foreign businesses like an Apple store in Shanghai amid the closure of local private businesses.

The changing business mantra in China to support state-owned enterprises' efficiency and productivity.

The variable enforcement of contracts in China based on alignment with the Communist Party's policies and vision.

The potential risk for foreign companies trying to operate independently in China without involving state-owned enterprises.



They know they can't live without the United States, but they want to have the


states come to them on their terms. You know, for every story that we hear


about how the Chinese economy is reviving, there are stories that we also


hear that don't match up with the official data.


Iconic places on Nanjing Road in Shanghai that have long been


establishments that serve the elites of business.


Yes, I'm just shocked now because there's no business and they really need


to have our import export policies in place because they need stuff from the


United States just as much as the United States did stuff.


You're expert at this, Bill, and I know Hong Kong gets all the attention and the


emotion of the British in that, but you just zeroed in on Shanghai.


Are we looking for a jump condition change from Beijing to say, okay, we


didn't mean it, let's get back to business or just some slow motion


incremental soap opera? In fact, the jump condition I'm actually


seeing is that for you know, a lot of people say the secondary cities are are


not doing so well. But that's okay because the primary


cities of Shanghai, Shenzhen Quanzhou, those are the places where businesses


are really booming and they're doing fine.


And that's what the official story line has been.


And every official meeting you see that that the Chinese authorities have held


have peddled this story. But the story on the ground, when you


look at the shopping malls in these elite places, they're not doing well.


I have some friends who are trying to sell property in some of the prime


places in Beijing, and they're starting off with bids that are 30, 40% off their


asking price. And even there, they're not getting


much, much activity. So the situation on the ground with the


people who live there and the people who are doing business there is really quite


different from the official picture. And Bill, I think what a lot of our


listeners and viewers like myself are probably confused about, we see a very


hard line coming from China. It seems like by and large, as relates


to their view of capitalism, I just think about, you know, kind of how they


dealt with the technology industry a few years ago and Alibaba and all those


companies. Yet at the same time, we see leading


U.S. executives, Tim Cook, the fellow from


Tesla, going over to China and trying to maintain and develop ties there.


Where does a government really want to take this thing?


President Xi has a campaign to what he he's trying to put in what he calls new


productive forces into the Chinese economy that will push them into the


bleeding edge, the leading edge of technology.


The most important industries will be the high tech industries, the high value


added industries, so that the declining population in China will be having


occupations and jobs that are in high salary occupations.


What we are seeing in reality is that they really can't get this stuff in


place without first reviving the Chinese economy.


You can't get the kind of technological change and productivity change with an


economy that is in the doldrums and with GDP growth.


You know, as much as the official numbers are, you know, five plus or the


actual numbers are closer to three plus. So


should we expect or should, I guess, you know, American or Western CEOs expect


any meaningful change in the next several years here?


Because, again, it seems like the U.S. and the West is we're in a pretty strong


position vis a vis China just in terms of negotiating leverage.


That's a very important point, Paul. The current businesses that are there in


China are realizing that President Xi's new China is going to involve a lot more


in the way of state enterprises being in the in the driver's seat.


The smaller private sector companies are asked to merge with their counterparts


on the official side. So everyone that's doing business there


knows they have to curry the favor of local authorities because that's where


the new contracts are coming from. And I think you're seeing Tim Cook over


there opening up a new branch, a new Apple store, probably one of the biggest


in Asia, in Shanghai. But at the same time, that same shopping


mall is seeing stores closed left and right, you know, in private as private


businesses are starving for business. So so I think the new mantra for


businesses going into China would be, you know, help the state owned


enterprises become more efficient. Do whatever managerial magic you can to


help to have them come up in productivity.


But is is is sanctity of contracts still valid versus joint venture tragedies of


recent decades? As as you know, Tom, the sanctity of


contracts in China depends upon who you know is in the judicial system and


whether or not you are currying the favor and your policies are in line with


those of the Communist Party vision of where China is going.


If you're helping Chinese companies promote their activities, your contracts


will be enforced full, full force. If you are heading off on your own


trying to carve out a share of the Chinese market.


Get for yourself without involving the Chinese state owned enterprises, the oil


contracts are likely not going to be held.

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