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

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, there is a big event coming up very, very soon. It is the National Congress of the Chinese Communist Party, something that is held every five years, which means it is de facto already a big event. But it's even bigger this year because it is happening amidst really, how do I describe this?

A set of challenges for both the Chinese government and the Chinese economy.

Joe Weisenthal (0:43)

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, trade tensions were obviously ratcheting up under Trump, but it feels like today in 2022, any of the sort of tensions and long-term challenges facing 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.

Tracy Alloway (1:12)

Right, so there's a lot of speculation around exactly what Xi Jinping has in store for this particular Congress. There are questions over whether or not China might ratchet down some of its COVID-0 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?

Joe Weisenthal (1:53)

Yeah, I mean, there's so many things. You mentioned the real estate, you mentioned the COVID-0 questions, and the other big thing that is very new, and it's something that we haven't talked about in a while, but we'll be very familiar to Odd Lots listeners, and that is the growing restrictions on technology transfer, particularly semiconductors, 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 semiconductor stocks, they've been plunging lately. That's a huge story.

Tracy Alloway (2:33)

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 Wang. He is of course a technology analyst over at Gavekal Dragonomics, and he's left his farmhouse in Yunnan to come into the New York studio and walk us through everything that's happening in China right now.

Joe Weisenthal (3:07)

Have we ever recorded an episode with Dan? No, we haven't in the studio.

What is this?

Dan Wang (3:11)

No, we haven't.

Joe Weisenthal (3:12)

We did, we did one in the upstairs studio. I think we did.

Dan Wang (3:15)

For TV, I've never been. I've never recorded Odd Lots in person.

Joe Weisenthal (3:19)

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.

Dan Wang (3:27)

It's great to be here in person, Joe, and you're a lot skinnier in person than the internet leads me to believe.

Tracy Alloway (3:35)

I think that was an insult.

Joe Weisenthal (3:37)

Leave that in, Carmen.

Tracy Alloway (3:39)

Dan, I'm gonna start with a very broad question, but how would you describe the state of China's political economy right now?

Dan Wang (3:48)

There's no way around it, Tracy, that it is pretty bad.

So right now, China is presently going into the third year of COVID-0, and it's not very clear when or if they can reemerge pretty quickly from that. China's economy is in the worst shape in decades caused partly by COVID-0, and I would say mostly by the property downturn. Property is a very, very substantial part of the Chinese economy by some measures, over 50% 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-0, mostly on the consumption side. The property downturn is affecting general sentiment writ large, and maybe the only thing that has been going fairly well has been China's production side, mostly intended for exports. But even that is starting to soften, and I think there isn't too much juice 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 soon.