Latest / Trumponomics / Confusion Reigns for Foreign Companies Operating in China

Transcript

Confusion Reigns for Foreign Companies Operating in China · Trumponomics

• 0:04
  Speaker 1: Well, welcome back to Stephanomics and these mini episodes giving
• 0:07
  Speaker 1: you a taste of the conversations here at the New
• 0:09
  Speaker 1: Economy Forum in Singapore. And today I wanted to have
• 0:14
  Speaker 1: a conversation with Kendra Schaeffer, who has a really interesting
• 0:20
  Speaker 1: perspective on current debates about the future of China and
• 0:24
  Speaker 1: the future of U S China relations as the head
• 0:27
  Speaker 1: of tech policy research at a Beijing based policy consultancy Triviaan. Kendra,
• 0:34
  Speaker 1: start by explaining a little about you, because you're just
• 0:37
  Speaker 1: your own sort of recent personal history is kind of interesting.
• 0:41
  Speaker 1: You're based in Beijing until very recently. Yeah, absolutely, thanks
• 0:45
  Speaker 1: for having me. So I just left Beijing a couple
• 0:47
  Speaker 1: of months ago. I actually went to college in Beijing
• 0:51
  Speaker 1: in two thousand and two. I kind of intended to
• 0:53
  Speaker 1: just stay there, you know, for a year and then
• 0:56
  Speaker 1: go back. I was a nerd kid. I started my
• 0:59
  Speaker 1: career as a developed for actually, and then I've just
• 1:01
  Speaker 1: been there for the last twenty years and my my
• 1:03
  Speaker 1: career kind of went from you know, I was there
• 1:06
  Speaker 1: right at the beginning of the Internet boom, and my
• 1:08
  Speaker 1: career went from development to to tech policy research and
• 1:11
  Speaker 1: a bizarre series of twists and turns. So yeah, I've
• 1:14
  Speaker 1: been there for for most of the COVID outbreak and
• 1:18
  Speaker 1: just just kind of stepped out. And you must have
• 1:21
  Speaker 1: this sort of interesting phenomena recently where those people who
• 1:24
  Speaker 1: have managed the academics and China experts who have been
• 1:28
  Speaker 1: able to be in China recently for one reason or another,
• 1:30
  Speaker 1: they're so rare they get sort of mobbed by people
• 1:34
  Speaker 1: for the kind of more recent take on on on
• 1:36
  Speaker 1: things in China. Has that been your experience this week
• 1:39
  Speaker 1: and in the last few weeks, Yeah, it absolutely has.
• 1:42
  Speaker 1: I mean that's been you know, exacerbated by US China tentions,
• 1:46
  Speaker 1: but it's also been exacerbated by a kind of axodus
• 1:49
  Speaker 1: of China experts from China during the COVID pandemic um
• 1:54
  Speaker 1: and so nobody has been able to really get back.
• 1:56
  Speaker 1: I mean, US China travel cross border dial has really
• 2:00
  Speaker 1: taken a nose dive in the last couple of years.
• 2:02
  Speaker 1: So yeah, there's a lot of interest in what it's
• 2:05
  Speaker 1: really like on the ground over there, particularly since you know,
• 2:09
  Speaker 1: China's kind of gone off on on this you know,
• 2:11
  Speaker 1: other timeline with COVID than the rest of the world.
• 2:14
  Speaker 1: So people are very interested in what's happening, and you
• 2:17
  Speaker 1: are day to day, of course, also observing what's happening
• 2:20
  Speaker 1: in the in the tech policy space and giving kind
• 2:24
  Speaker 1: of daily up to you and your team might imagine
• 2:26
  Speaker 1: are updating your clients and talking to people in a regular,
• 2:29
  Speaker 1: regular basis and how is your how is your business
• 2:32
  Speaker 1: done over the last few years, I guess is one
• 2:34
  Speaker 1: way of putting it. Well, yeah, so basically what we
• 2:38
  Speaker 1: do is, you know, my tech team spends all day
• 2:40
  Speaker 1: digging around in in Chinese tech policy documents and kind
• 2:43
  Speaker 1: of trying to explain Beijing's motivations for you know, some
• 2:47
  Speaker 1: of the things that have happened, particularly in the last
• 2:50
  Speaker 1: couple of years. And so business is booming. It's never
• 2:53
  Speaker 1: a dull day, especially considering we've seen you know, the
• 2:56
  Speaker 1: twentieth Party Congress, We've seen the tech crackdown, We've seen
• 3:00
  Speaker 1: you know, all of these companies kind of get hit
• 3:03
  Speaker 1: fire hosed with new regulations coming out of Beijing. We've
• 3:06
  Speaker 1: seen you know, censorship increase. So there's just been a
• 3:08
  Speaker 1: lot of a lot of things to follow, and there's
• 3:11
  Speaker 1: been significant interest in those things. And you were saying
• 3:14
  Speaker 1: to me that, you know, one of the distinguishing features
• 3:17
  Speaker 1: of the consultancy is everybody there reads at least one
• 3:20
  Speaker 1: big pile of very boring policy documents every morning when
• 3:24
  Speaker 1: it comes out. So we spend you know, I mean,
• 3:27
  Speaker 1: we spend a couple hours a day just digging through
• 3:29
  Speaker 1: the latest releases from the various government agencies. But not
• 3:32
  Speaker 1: just that, also you know blogs from you know, policy
• 3:36
  Speaker 1: advisors and you know, other kind of micro moves from
• 3:41
  Speaker 1: from Chinese think tanks and that kind of stuff, to
• 3:43
  Speaker 1: really kind of get a sense of these these little
• 3:45
  Speaker 1: steps forward. Whereas the media tends to focus on the
• 3:48
  Speaker 1: big headlines, right, big big new movements, we kind of
• 3:50
  Speaker 1: track what's happened after those issues are not headlines anymore.
• 3:54
  Speaker 1: But a lot of people listening to this podcast, I
• 3:55
  Speaker 1: imagine they're kind of fairly interested. I hope they're fairly
• 3:59
  Speaker 1: interested in the global economy, um, but then maybe not
• 4:02
  Speaker 1: focused necessarily on what's happening in business or tech policy
• 4:07
  Speaker 1: at any given time. When we hear that headline, you know,
• 4:09
  Speaker 1: the tech crackdown. What do you think has actually been
• 4:12
  Speaker 1: going on over the last couple of years with what
• 4:15
  Speaker 1: we consider to be the tech crackdown in China? Yeah,
• 4:18
  Speaker 1: I mean that's a fascinating topic. It's pretty much all
• 4:22
  Speaker 1: anybody wanted to hear about last year, right, And because
• 4:25
  Speaker 1: I think it's surprised so many investors. Um. But to
• 4:28
  Speaker 1: be perfectly frank, it probably shouldn't have. Ultimately, what is
• 4:34
  Speaker 1: there was a lot of things going on. Number One,
• 4:36
  Speaker 1: for the last fifteen years really maybe twenty years, since
• 4:40
  Speaker 1: China's big tech companies really started to develop. Um. You know,
• 4:44
  Speaker 1: the state has struggled with figuring out where big tech
• 4:49
  Speaker 1: fits into the socialist market economy. Right. I mean, when
• 4:52
  Speaker 1: you really think about it, it's fascinating because big tech company,
• 4:55
  Speaker 1: the emergence of big tech companies is the first time
• 4:57
  Speaker 1: that Beijing has ever had to deal with with big, private,
• 5:02
  Speaker 1: domestic firms that are not state owned enterprises, right, And
• 5:07
  Speaker 1: so the state has kind of not really known what
• 5:09
  Speaker 1: to do with big tech in that regard. And for
• 5:11
  Speaker 1: the first fifteen years of tech company development, to be
• 5:14
  Speaker 1: perfectly frank, tech firms were very dismissive of regulators. And
• 5:18
  Speaker 1: you have a similar issue in the States, right, They
• 5:19
  Speaker 1: kind of brushed off a lot of regulatory authority and pressure.
• 5:22
  Speaker 1: We kind of conceptualized that as the central government came
• 5:25
  Speaker 1: after big tech. It's not really what happened. You know,
• 5:28
  Speaker 1: you basically had a multitude of regulators going after, you know,
• 5:34
  Speaker 1: concerned about a multitude of issues in the tech space.
• 5:37
  Speaker 1: So that included things like the Central Bank was worried
• 5:40
  Speaker 1: that fintech platforms were being regulated like tech companies and
• 5:44
  Speaker 1: not like banks, but they were basically behaving like banks,
• 5:46
  Speaker 1: or at least by like financial institutions. Um. You know,
• 5:50
  Speaker 1: you you had transport regulators and market regulators concerned about
• 5:56
  Speaker 1: low levels of compliance legal compliance in the right hailing sector.
• 6:00
  Speaker 1: You had the Ministry of Education concerned that ed tech
• 6:04
  Speaker 1: companies were you know, overcharging parents and kind of making
• 6:07
  Speaker 1: it more expensive to have kids in a time when
• 6:11
  Speaker 1: the population is declining. And so all of these things
• 6:13
  Speaker 1: have been bubbling under the surface for you know, over
• 6:17
  Speaker 1: a decade um and then you know, as the state's
• 6:23
  Speaker 1: priorities and their vision for the future digital economies started
• 6:27
  Speaker 1: to solidify under Shijin Ping's government, you know, there was
• 6:31
  Speaker 1: this growing concern that the state needed to step in,
• 6:35
  Speaker 1: that all these regulators needed to step in and put
• 6:38
  Speaker 1: these tech companies forced them to get in line with
• 6:42
  Speaker 1: state directed goals, and so there was kind of a
• 6:46
  Speaker 1: green light signal from the central government that these regulators
• 6:50
  Speaker 1: could now go after you know, tech companies across this
• 6:54
  Speaker 1: whole range of issues, and it just created a tidal
• 6:57
  Speaker 1: wave of kind of pent up regular ship that I'll
• 7:01
  Speaker 1: just crash down on tech companies at the same time. Uh,
• 7:04
  Speaker 1: And that's kind of what investors experienced last year when
• 7:07
  Speaker 1: we see in the National Party Congress. Obviously the takeaway
• 7:10
  Speaker 1: that I think anyone who paid any attention at all
• 7:14
  Speaker 1: had saw the headline, you know, she jumping consolidating his power.
• 7:19
  Speaker 1: That's raised question marks about whether policy going forward will
• 7:24
  Speaker 1: be driven by kind of considerations of what's best for
• 7:28
  Speaker 1: the economy or much more about what's best for she
• 7:30
  Speaker 1: and what's best for for the for the government, and
• 7:33
  Speaker 1: it's continued control. If when you look at in technology,
• 7:37
  Speaker 1: it was a key part of China's future growth is
• 7:40
  Speaker 1: going to be innovation in that sector. Does one see
• 7:44
  Speaker 1: the same kind of concern that she's increasingly iron grip
• 7:50
  Speaker 1: could start slowing China's innovation or getting in the way
• 7:55
  Speaker 1: of its growth. Yes, So the critical issue there is
• 8:00
  Speaker 1: really that the state wants to encourage innovation, but innovation
• 8:05
  Speaker 1: along the lines of state directed goals. Right, The idea
• 8:09
  Speaker 1: is really become that tech companies and particularly I'm talking
• 8:12
  Speaker 1: about platform companies here UM, should be on board with
• 8:17
  Speaker 1: leveraging their capital and directing their resources towards UH solving
• 8:23
  Speaker 1: what the Chinese government tends to call bottleneck or chokehold technologies. Right,
• 8:28
  Speaker 1: so the messages listen, tech platforms, we don't want you
• 8:32
  Speaker 1: guys disrupting pizza delivery or whatever it is you're doing
• 8:35
  Speaker 1: that's not helping the state. We want you to leverage
• 8:38
  Speaker 1: your capital UH to develop high end chips, which were
• 8:43
  Speaker 1: you know, UM currently struggling to China currently struggling to
• 8:46
  Speaker 1: develop that industry. We want you to leverage your capital
• 8:49
  Speaker 1: towards AI, towards you know, certain elements of blockchain development UM,
• 8:53
  Speaker 1: and those are the goals that the state sees will
• 8:57
  Speaker 1: help it develop its digital economy. That I should still
• 9:00
  Speaker 1: back a little bit because one of the fascinating pieces
• 9:02
  Speaker 1: of the digital economy, the way that the state has
• 9:04
  Speaker 1: kind of framed it is that the growth of the
• 9:06
  Speaker 1: digital economy in China is you know, many times faster
• 9:12
  Speaker 1: than the growth is the real economy. But their vision
• 9:16
  Speaker 1: for the digital economy doesn't really include or platforms just
• 9:19
  Speaker 1: kind of developing whatever they want, right, So that's really
• 9:22
  Speaker 1: that's really the issue. They want to put platform companies
• 9:27
  Speaker 1: on a trellis and then have them develop on the
• 9:30
  Speaker 1: trellis that the party has established. Does that make sense? Yeah?
• 9:33
  Speaker 1: I mean I think a lot of governments would look
• 9:35
  Speaker 1: at that and say, yeah, of course, we like to
• 9:37
  Speaker 1: have all the innovation or being super valuable useful things,
• 9:42
  Speaker 1: and not in these things that seem rather frivolous or
• 9:45
  Speaker 1: distracting from your knowledge of the way innovators work. I mean,
• 9:50
  Speaker 1: is how plausible is it that the government is just
• 9:53
  Speaker 1: going to be able to encourage innovation in some areas
• 9:55
  Speaker 1: and not others. No, I mean, I think that remains
• 9:58
  Speaker 1: to be seen. You know, I think about the answer
• 9:59
  Speaker 1: to question, I'd be a bazillionaire. But you know, what
• 10:04
  Speaker 1: we have seen as a response from platform companies indicating
• 10:07
  Speaker 1: at least nominally that they are trying to get on
• 10:11
  Speaker 1: the boat. So we've seen platform companies go into chip design.
• 10:14
  Speaker 1: We've seen platform companies go into you know AI. We've
• 10:17
  Speaker 1: seen also seen a lot of moves by platform companies
• 10:21
  Speaker 1: to uh create platforms that help solve other domestic problems.
• 10:27
  Speaker 1: So for example, food security issues or rural revitalization, right
• 10:31
  Speaker 1: kind of bringing jobs to the countryside, to to um
• 10:34
  Speaker 1: you know, increase wealth in the farming population. So those
• 10:38
  Speaker 1: are all state directed priorities. And just to be clear,
• 10:41
  Speaker 1: sorry when you say platform companies, what kind of companies?
• 10:44
  Speaker 1: And Ali Baba video you know, you know d D
• 10:47
  Speaker 1: So you know we've seen a lot of movements from
• 10:50
  Speaker 1: those companies too to at least nominally follow that path.
• 10:55
  Speaker 1: Whether or not that results in innovation down those passes
• 10:58
  Speaker 1: is a question mark. But I you know, I think
• 11:01
  Speaker 1: it's a little bit silly to say that state direction
• 11:05
  Speaker 1: has not resulted in innovation in China. UM. You know,
• 11:10
  Speaker 1: it has in many cases, and so there's you know,
• 11:15
  Speaker 1: there's a there's a possibility that they do succeed. The
• 11:18
  Speaker 1: other thing that you have advantage point on it was
• 11:20
  Speaker 1: obviously relevant to this is US China relations and how
• 11:25
  Speaker 1: that's playing out on the ground. I mean, it feels
• 11:29
  Speaker 1: on the outside as if there's an enormous tension at
• 11:31
  Speaker 1: the moment between sort of the direction that politicians are
• 11:34
  Speaker 1: moving in UM, whether it's what Congress people say about
• 11:39
  Speaker 1: Taiwan or even what the administration says about wanting to
• 11:42
  Speaker 1: prevent China from getting cutting edge chips and what businesses
• 11:47
  Speaker 1: feel is realistic or desirable in the way of decoupling
• 11:52
  Speaker 1: from China. You know, I hear it again and again,
• 11:54
  Speaker 1: companies saying, well, we hear this. You know, we're thinking about,
• 11:57
  Speaker 1: you know, diversifying some of our supply chains, but when
• 12:00
  Speaker 1: not pulling out of China, and we are, if anything,
• 12:03
  Speaker 1: trying to you know, still continue to build our relationships there.
• 12:07
  Speaker 1: You're on the ground, or you were until recently, but
• 12:09
  Speaker 1: you're still talking to um clients who are asking you
• 12:13
  Speaker 1: for the latest in China. Have you seen any let
• 12:17
  Speaker 1: up in the number of US or global companies who
• 12:21
  Speaker 1: are investing in China and making long term plans for
• 12:25
  Speaker 1: business in China. Well, I think you're I think you're
• 12:28
  Speaker 1: spot on there. Um. What we're really seeing is that
• 12:31
  Speaker 1: companies are in a holding pattern. Part of the reason
• 12:34
  Speaker 1: is US China relations That's half of it. But I
• 12:36
  Speaker 1: actually think the bigger driver is china zero COVID policies,
• 12:40
  Speaker 1: because the zero COVID situation for tech manufacturing is just
• 12:43
  Speaker 1: out of control. You know, you have factories that are
• 12:46
  Speaker 1: are trying to produce hardware that are just getting caught
• 12:50
  Speaker 1: up in lockdowns every two weeks. And you know, I
• 12:52
  Speaker 1: don't I don't know if you've been following this, like
• 12:54
  Speaker 1: Fox can issue in Jung Joe, there was a COVID
• 12:56
  Speaker 1: outbreak at the factory. Factory got locked down and most
• 13:00
  Speaker 1: of the workers and we're tracking this right now, most
• 13:02
  Speaker 1: of the workers fled. They just went home, right and
• 13:06
  Speaker 1: and and just you know, they walked because no transportation
• 13:10
  Speaker 1: would take them because they weren't supposed to be you know,
• 13:13
  Speaker 1: on public transport if they were you know, under lockdown.
• 13:15
  Speaker 1: People just picked up their bags and said, you know,
• 13:18
  Speaker 1: forget this, and they walked back to their hometowns. Right.
• 13:21
  Speaker 1: I mean, it's just been it's been crazy that kind
• 13:24
  Speaker 1: of stuff, you know. And then there was issues at
• 13:26
  Speaker 1: the you know, Tesla factory and Shanghai. I mean there's
• 13:29
  Speaker 1: just been worker protests and so it's really more that
• 13:33
  Speaker 1: issue that I think is the immediate threat. What we're
• 13:37
  Speaker 1: hearing is that, you know, the same thing you're hearing
• 13:40
  Speaker 1: UM companies are looking to diversify outside of China to
• 13:43
  Speaker 1: mitigate risk both zero COVID and US China tension risk. Uh,
• 13:48
  Speaker 1: they don't want to leave because there are few options
• 13:53
  Speaker 1: and in some cases they literally have no other choice
• 13:57
  Speaker 1: because the supply chain in China is so much or
• 14:00
  Speaker 1: for certain industries ship building for example, UM, that there's
• 14:05
  Speaker 1: just nowhere else on on planet Earth they can go,
• 14:08
  Speaker 1: you know, continue to do business at the same scale
• 14:10
  Speaker 1: and continue to produce at the same scale. So they
• 14:12
  Speaker 1: don't want to leave UM and are are concerned about
• 14:15
  Speaker 1: being driven out, but definitely are trying to hedge hedge
• 14:18
  Speaker 1: that risk. But the other thing we're hearing is that
• 14:20
  Speaker 1: in many cases, you know, a duplicate supply chain would
• 14:25
  Speaker 1: require ten years to build in the cases of many
• 14:28
  Speaker 1: of these companies. So you've just got you know, people
• 14:33
  Speaker 1: are just doing their best to hedge their bets, but
• 14:36
  Speaker 1: are largely still dependent on China. I guess finally people
• 14:39
  Speaker 1: will be interested to know whether you have any plans
• 14:42
  Speaker 1: to go back. I think you'll live it. You're now
• 14:44
  Speaker 1: living in Portland, UM, which must feel pretty different after
• 14:49
  Speaker 1: all those years in Beijing. But you know, if there
• 14:52
  Speaker 1: was a m if you were presented with a sort
• 14:55
  Speaker 1: of compelling reason to to go back to beiging to live,
• 14:59
  Speaker 1: would you would you consider that? Or do you think
• 15:01
  Speaker 1: or is it becoming a bit more difficult to be
• 15:05
  Speaker 1: an American focused on China Chinese tech policy. Oh, I'd
• 15:10
  Speaker 1: absolutely go back given half a chance. I mean, I've
• 15:13
  Speaker 1: got a big network of friends and obviously our our
• 15:16
  Speaker 1: clients and and uh, you know, work friends over in Beijing,
• 15:20
  Speaker 1: and and I still, you know, deeply love it there. Um,
• 15:23
  Speaker 1: but zero COVID has made it very difficult to remain
• 15:27
  Speaker 1: right when you can't get in and out of the country,
• 15:29
  Speaker 1: especially when you travel as much as I do. It's
• 15:31
  Speaker 1: a little bit difficult. So, I mean, my plans are
• 15:33
  Speaker 1: just to wait and see what happens with zero COVID.
• 15:35
  Speaker 1: As soon as the restrictions start to let up, I'll
• 15:37
  Speaker 1: I'll reassess. I've spoken to a number of people who
• 15:40
  Speaker 1: do feel more vulnerable as US citizens in China now,
• 15:45
  Speaker 1: just not that that that they personally would be under threat,
• 15:48
  Speaker 1: but that they could potentially be caught up in something
• 15:50
  Speaker 1: larger or a diplomatic spat. But that's not something that
• 15:53
  Speaker 1: concerns you particularly well. I Mean, the issue essentially for
• 15:57
  Speaker 1: for me is that you know, I like to be
• 15:59
  Speaker 1: right in the middle of the action, regardless of any
• 16:01
  Speaker 1: of that stuff. Um, it's definitely the tensions on the
• 16:04
  Speaker 1: ground have the kind of feeling of being there as
• 16:08
  Speaker 1: American has definitely changed. It's most certainly changed since I
• 16:13
  Speaker 1: got there in two thousand and four, when everyone was
• 16:15
  Speaker 1: very excited to, you know, meet an American. And now
• 16:18
  Speaker 1: you know, they ask you where you're from and you
• 16:20
  Speaker 1: say the US and they don't. So but I think
• 16:25
  Speaker 1: that's happening on both sides of the ocean, right, I mean,
• 16:27
  Speaker 1: you essentially have a media environment both in the U
• 16:30
  Speaker 1: S And China that is kind of painting the other.
• 16:32
  Speaker 1: You know, in the US, it's like China's this big,
• 16:34
  Speaker 1: evil authoritarian state and the kind of number one adversary
• 16:38
  Speaker 1: of of the U S. And you know, in China
• 16:40
  Speaker 1: you're hearing things like, you know, the US is a
• 16:43
  Speaker 1: hegemonic power that doesn't want to share with you know,
• 16:46
  Speaker 1: anybody else except people that believe as they believe. And
• 16:49
  Speaker 1: so there's this kind of you know, downward spiral of
• 16:53
  Speaker 1: um communication, misscommunication and you know, negative conversation about the other,
• 17:00
  Speaker 1: which is a very unfortunate situation to be in. And
• 17:02
  Speaker 1: I have definitely felt that over there. But you know
• 17:05
  Speaker 1: that said on a day to day basis, people are people,
• 17:07
  Speaker 1: and you know that's true all over the world, Kendra Scheffer,
• 17:15
  Speaker 1: thank you so much. Thank you. Well, that's it for
• 17:18
  Speaker 1: this mini episode of Stephonomics from the New Economy Forum
• 17:22
  Speaker 1: in Singapore. We will be back with more but in
• 17:25
  Speaker 1: the meantime. Thanks to Yang Yang for producing this episode.