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Admiral Stavridis: It's Good Time For The Space Force · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you.
• 0:05
  Speaker 1: Along with my co host Lisa Brahma Wicks. Each day
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  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: you and your money. Whether at the grocery store or
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  Speaker 1: the trading floor, find a Bloomberg Penl podcast on Apple
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  Speaker 1: Podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. For the first time since nineteen
• 0:23
  Speaker 1: when the Air Force was created out of what was
• 0:26
  Speaker 1: then the Army Air Corps, which my father was in
• 0:28
  Speaker 1: at the time, the US has created a new military branch,
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  Speaker 1: the Space Force. At first I thought it was a
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  Speaker 1: really odd idea, but after reading a particular column from
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  Speaker 1: UH Admiral James Stravitis, who was a columnist for Bloomberg Opinion,
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  Speaker 1: I kind of changed my tune here a little bit. So, Admiral,
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  Speaker 1: thanks so much for UH joining us. Really to appreciate it.
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  Speaker 1: You're a Bloomberg Opinion UH commissary, also a US Navy
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  Speaker 1: admiral and former military commander of NATO. Talk to US
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  Speaker 1: Admiral if you will about this Space Force, because I
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  Speaker 1: think a lot of people don't really understand Dan what
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  Speaker 1: it is and what it's supposed to do. I Ken, Paul,
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  Speaker 1: and happy holidays. Let's start with, Uh, what most people
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  Speaker 1: have in their mind are the voyages of the starship Enterprise.
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  Speaker 1: And how soon are we can be in manned space
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  Speaker 1: flight and have massive warships going into space? Listen, that's
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  Speaker 1: a hundred and fifty to two hundred years away, I
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  Speaker 1: would estimate. But what do we do now? We operate
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  Speaker 1: a complex, highly complex and very large constellation of satellites
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  Speaker 1: as well as a rising number of very small, manned
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  Speaker 1: operations of space station. All of those have military aspects
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  Speaker 1: to it. So the idea here, much as you just
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  Speaker 1: alluded to, Paul about the foundation of the US Air
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  Speaker 1: Force back in the forties, we wanted a group of
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  Speaker 1: people who would focus specifically on aviation and the operations
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  Speaker 1: of military activities in the air. Now we realize we
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  Speaker 1: need that same thing in space. So that's the idea here.
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  Speaker 1: I think it makes sense. Going to be small. It'll
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  Speaker 1: start with a few thousand people. I don't think it
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  Speaker 1: will ever get bigger than fifteen to twenty thousand folks,
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  Speaker 1: which is of course a drop in the bucket in
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  Speaker 1: the big one point two million people that are in
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  Speaker 1: the Department of Defense. It's a good idea whose time
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  Speaker 1: has come. Add well, as someone who grew up a
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  Speaker 1: kind of a space kid, my dad worked on a
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  Speaker 1: lot of the early space programs. I think when I
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  Speaker 1: first heard about, you know, a sixth branch of the
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  Speaker 1: Armed Forces, I'm thinking, like what to like, you know,
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  Speaker 1: have folks on the moon or appen space. But but
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  Speaker 1: when you think about what our world has become in
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  Speaker 1: terms of data and information moving around the world, if
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  Speaker 1: you knocked out a nation's satellite system, you could really
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  Speaker 1: cripple them in a big way. And that's really what
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  Speaker 1: it's about, whether it's on a military angle or you know,
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  Speaker 1: pick your angle right, because there's so much floating out
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  Speaker 1: there in space that is exactly right. And so what
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  Speaker 1: the Space Force, these few thousand people that start off
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  Speaker 1: are going to be doing is operating ground stations that
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  Speaker 1: control those satellites. Are going to move the satellites around.
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  Speaker 1: They're going to make sure our satellites are not attacked
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  Speaker 1: by anti satellite weapons from Russia and China, both of whom,
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  Speaker 1: by the way, already have space forces. They will build
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  Speaker 1: and launch new satellites. So think of it as a
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  Speaker 1: way to operationalize what is already happening in space, but
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  Speaker 1: assign a very specific group of young men and women
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  Speaker 1: to it. And I'll tell you the response within the
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  Speaker 1: military has been fantastic. People really want to join the
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  Speaker 1: space force and be part of it. And ultimately, to
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  Speaker 1: pick up your point, there will also be a heavy
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  Speaker 1: cyber and cyber security component in this, so I could
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  Speaker 1: see this evolving into a space and cyber force over time. Admiral,
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  Speaker 1: can you give us just kind of a sense of
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  Speaker 1: the competitive landscape of space? Where is the US relative
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  Speaker 1: to other countries? I guess we're talking about China and Russia,
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  Speaker 1: but this gives a sense of how you think the
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  Speaker 1: theater of space is playing out. UM at the moment
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  Speaker 1: of the United States still enjoys I would say, a
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  Speaker 1: lead overall in our ability to construct, launch, and operate
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  Speaker 1: UM massive satellites in space that are capable of high
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  Speaker 1: end communication. The drive the Global Positioning System GPS, and
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  Speaker 1: also monitors and provides intelligence functions, collecting everything from communications
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  Speaker 1: to taking photographs of the Earth to looking at infrared signatures.
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  Speaker 1: For example, if North Korea launches this Christmas surprise and
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  Speaker 1: decides to launch a long range ballistic missile. The first
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  Speaker 1: indication will be our constellation of satellites seeing a heat
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  Speaker 1: signature when that launch goes off on the North Korean peninsula.
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  Speaker 1: So we are the leader. I'd say number two is
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  Speaker 1: probably Russia, although number three is China, and they are
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  Speaker 1: gaining fast as you would think. Um. All of this
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  Speaker 1: sort of parallels the standings, if you will, in cyber
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  Speaker 1: and cyber security, where the US has a lead. Uh,
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  Speaker 1: Russia's quite good. China coming up behind. Next tier down
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  Speaker 1: are the European nations. France operates capable satellites, Japan does, UM,
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  Speaker 1: the Australians have a small capability, but it's really the
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  Speaker 1: big three in space at the moment um. You know,
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  Speaker 1: It's interesting and I'm curious when I think about, I
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  Speaker 1: don't know fiscal policy, what would it cost to put
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  Speaker 1: this into place, because you say it doesn't need to
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  Speaker 1: be a huge um force, at least not initially. Indeed, UM,
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  Speaker 1: I think it will be tens of billions of dollars,
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  Speaker 1: which sounds like a lot, but hold on, the US
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  Speaker 1: defense budget overall is seven hundred billion dollars, and I
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  Speaker 1: think that the estimates for this space force will be
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  Speaker 1: in the initially ten twenty thirty billion, it might at
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  Speaker 1: some point get up to be eight to ten of
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  Speaker 1: the overall defense budget. And I want to make a
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  Speaker 1: very important point here, UM, None of that money and
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  Speaker 1: none of the people involved here are new additions. This
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  Speaker 1: is simply repurposing, at least at the moment, repurposing principally
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  Speaker 1: air force, but also some army, some navy will go
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  Speaker 1: out of their current service and go into this space force.
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  Speaker 1: And the funding is already locked in place, UM. And
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  Speaker 1: it is in the range as I mentioned, of tens
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  Speaker 1: of billions of dollars to think of it as a
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  Speaker 1: six percent of the defense budget. Now perhaps trekking upward,
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  Speaker 1: which would make sense. And we'll just want to switch
• 6:40
  Speaker 1: gears real quickly. In the last question here China Navy.
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  Speaker 1: We understand the China recently launched its first I guess
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  Speaker 1: home built aircraft carrier. To tell us what you know
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  Speaker 1: about that carrying what you believe the future of naval
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  Speaker 1: UH forces for China will be indeed very significant. UM.
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  Speaker 1: China has previously purchased UM older used platforms from Russia
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  Speaker 1: and re engineered them into their carriers. This is the
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  Speaker 1: first their third aircraft carrier coming off the ways. It's
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  Speaker 1: about two thirds of the size of our US hundred
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  Speaker 1: thousand ton Forward class carrier, so it'll be immediately one
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  Speaker 1: of the largest in the world. Um, and they already
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  Speaker 1: have here's the important point, three more carriers under construction,
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  Speaker 1: the sixth of which is going to be nuclear powered.
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  Speaker 1: The previous ones are conventional powered. So clearly China is
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  Speaker 1: stepping up its maritime operations. They want to interact globally
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  Speaker 1: and not just operate locally in the South China Sea. Well,
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  Speaker 1: I have to say this is a fascinating column and
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  Speaker 1: so great to check in with you. Admiral James Stavida
• 7:49
  Speaker 1: is he is calumnist at Bloomberg Opinion of course, um,
• 7:53
  Speaker 1: former military commander of Nada, retired U S. Navy Admiral,
• 7:57
  Speaker 1: And I do want to point out he's got a
• 7:58
  Speaker 1: new book that came out this year, Sailing True North
• 8:01
  Speaker 1: ten Admirals and the Voyage of Characters. So something Christmas
• 8:05
  Speaker 1: right for the holiday shopping list, right for those gifts
• 8:08
  Speaker 1: you still need. Definitely check it out. You want to
• 8:19
  Speaker 1: get into one of the most red stories on the
• 8:21
  Speaker 1: Bloomberg today. It's about China's bite Um Bye Dance. I
• 8:24
  Speaker 1: believe it is weighing a sale of its addictive video
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  Speaker 1: app TikTok. We've got that story. We're watching. We're also
• 8:30
  Speaker 1: watching Uber's co founder Travis Kalanak to parting from the
• 8:33
  Speaker 1: company's board at the end of the year. There's a
• 8:35
  Speaker 1: lot going on when it comes to the world of text.
• 8:37
  Speaker 1: So let's get around up with Shara of a day.
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  Speaker 1: She's Bloomberg Opinion technology columnists. She joins Paul and Me
• 8:42
  Speaker 1: and our Bloomberg Interactive Broker studio. So much for a
• 8:45
  Speaker 1: quiet day, huh, never a bloing dance technology. So talk
• 8:48
  Speaker 1: to us about Bye Dance. First of all, I feel
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  Speaker 1: like there is folks out there who might not be
• 8:52
  Speaker 1: familiar with what Bye dances. But it's pretty big in China.
• 8:55
  Speaker 1: It is very big in China. It owns two at
• 8:58
  Speaker 1: least two popular apps in China. There's kind of a
• 9:01
  Speaker 1: news feed kind of app called Totio and then what
• 9:06
  Speaker 1: is called in the rest of the world, uh TikTok
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  Speaker 1: goes by a different name in China, but TikTok is
• 9:11
  Speaker 1: basically a short video app that lets people set sort
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  Speaker 1: of skits or dance routines to music, and it has
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  Speaker 1: gotten very popular quite quickly in the US and in
• 9:22
  Speaker 1: India and some other places outside of China. So the
• 9:25
  Speaker 1: issue is the US federal government has some concerns about TikTok,
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  Speaker 1: and that's that's making Bye Dance maybe rethink. Maybe it's ownership. Yes,
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  Speaker 1: so there have been some concerns I would say on
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  Speaker 1: both sides of the political aisle in Congress about TikTok,
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  Speaker 1: and the concerns are basically they stem from the ownership
• 9:46
  Speaker 1: of TikTok by a Chinese internet company. So the worries
• 9:49
  Speaker 1: are twofold. One is that TikTok, again because it's owned
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  Speaker 1: by a Chinese company, is collecting data about users in
• 9:59
  Speaker 1: the United States that can be used or misused by
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  Speaker 1: the Chinese government. The second worry is that, again because
• 10:07
  Speaker 1: of TikTok's ownership by a Chinese internet company, that it
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  Speaker 1: engages in censorship of content outside of China. That um
• 10:16
  Speaker 1: would be that is relatively common inside of China, right,
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  Speaker 1: that Chinese internet companies are expected to scrub their services
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  Speaker 1: for content that is generally not prohibited by the Chinese government,
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  Speaker 1: whether it's talking about Hong Kong protests, in a certain
• 10:31
  Speaker 1: way or other things. Um TikTok and Bite Dance, for
• 10:34
  Speaker 1: for their parts, say that they segregate data about Chinese
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  Speaker 1: about non Chinese internet users from what's happening in China,
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  Speaker 1: and that they do not engage with censorship, engage in
• 10:45
  Speaker 1: censorship outside of China in the same way they engage
• 10:48
  Speaker 1: inside of China. It seems kind of extreme, now, is it, like,
• 10:53
  Speaker 1: is this a kin to like Google selling I don't know,
• 10:56
  Speaker 1: YouTube or you know what I mean, one of its properties,
• 10:59
  Speaker 1: Like it just seems like stream And yeah, I agree,
• 11:01
  Speaker 1: we should say that. Our callings in Bloomberg News said
• 11:03
  Speaker 1: that this is one option under consideration by Byte Dance
• 11:06
  Speaker 1: to calm some of the anxiety in in u s
• 11:10
  Speaker 1: political circles about the Bite Dance ownership of TikTok. That
• 11:14
  Speaker 1: maybe they'll sell a majority steak or some portion of
• 11:18
  Speaker 1: TikTok to presumably to a US financial player. It does
• 11:22
  Speaker 1: seem extreme. We'll see if that happens, and we'll see, honestly,
• 11:26
  Speaker 1: even if they sell all or a majority steak of TikTok,
• 11:30
  Speaker 1: whether that actually changes how some of the hardliners feel
• 11:33
  Speaker 1: about Bite Dance ownership of this popular dagus Internet service,
• 11:36
  Speaker 1: did they pretend who do they sell it to? And
• 11:38
  Speaker 1: do they potentially sell it like forgive me? And I'm
• 11:40
  Speaker 1: always suspicious when it comes to some of this stuff,
• 11:44
  Speaker 1: but I mean, I do wonder do they sell it
• 11:45
  Speaker 1: to an entity that is still somehow Chinese owned? Yeah,
• 11:49
  Speaker 1: fair enough. I think that the question will always be,
• 11:52
  Speaker 1: even if TikTok is sold or a majority of TikTok
• 11:55
  Speaker 1: is sold to a US company, if that really means
• 11:59
  Speaker 1: that a Bye Dance will be completely hands off. I
• 12:02
  Speaker 1: think if I'm just gonna put my investment banker hat
• 12:04
  Speaker 1: on here, my advice to them would be, if you
• 12:07
  Speaker 1: think there is some kind of risk coming from the U. S. Government,
• 12:10
  Speaker 1: you better sell now before that becomes apparent because that
• 12:13
  Speaker 1: can impact valuation. Is that maybe some other thinking? Certainly,
• 12:16
  Speaker 1: I think that's a legitimate concern that Look, Byte Dance
• 12:19
  Speaker 1: is now, by by most accounts, the most highly valued
• 12:23
  Speaker 1: UM private technology company in the world. The valuation that's
• 12:27
  Speaker 1: something like seventy billion dollars, and the company wants, at
• 12:31
  Speaker 1: least by news reports, wants to go public relatively soon.
• 12:34
  Speaker 1: And I think there's an open question about whether UM
• 12:38
  Speaker 1: Bye Dance can go public if it has all of
• 12:41
  Speaker 1: these questions hanging over its head about being whether TikTok
• 12:46
  Speaker 1: is allowed in the United States and also whether the
• 12:49
  Speaker 1: US government it will become kind of a standard center
• 12:54
  Speaker 1: for governments elsewhere in the world. Also questioning the Chinese
• 12:57
  Speaker 1: ownership of TikTok. Is that this this go to that,
• 13:01
  Speaker 1: you know, the Cold War for technology, that people are
• 13:05
  Speaker 1: concerned that they'll be technology for the West and that
• 13:07
  Speaker 1: technology for China. This would be another I guess brick
• 13:09
  Speaker 1: in that wall. Yeah, and look, I think this is
• 13:12
  Speaker 1: somewhat new ground for the United States. This is really
• 13:14
  Speaker 1: the first time that the US government and US citizens
• 13:17
  Speaker 1: honestly have had to reckon with the idea that there
• 13:21
  Speaker 1: is now a very popular internet service that is not
• 13:23
  Speaker 1: run by an American company. And what does that mean? Yeah?
• 13:27
  Speaker 1: And I do think back going back to if they
• 13:28
  Speaker 1: want to go public and right, they've got some interesting
• 13:31
  Speaker 1: investors in terms of Bye Dance, I think is soft Bank,
• 13:33
  Speaker 1: Sequoia Capital, Right, Is that correct? Those are some companies
• 13:37
  Speaker 1: that I think maybe potential buyers or buyers of it.
• 13:40
  Speaker 1: But I do wonder if they do want to go public, right,
• 13:43
  Speaker 1: what they need to do in order to make that
• 13:45
  Speaker 1: happen and to kind of clean it up, clean up
• 13:47
  Speaker 1: the business. Well, look, there are internet companies in China
• 13:51
  Speaker 1: that have gone public and they have done very well.
• 13:54
  Speaker 1: Met you On, which is a sort of mostly a
• 13:57
  Speaker 1: food delivery and travel services company, and Nina there's companies
• 14:01
  Speaker 1: like Ali Baba and Tencent that again their operations are
• 14:04
  Speaker 1: largely in China that are public companies and have done
• 14:08
  Speaker 1: very very well. So there's a precedent for being a
• 14:11
  Speaker 1: China focused internet company. Byte dances a little bit of
• 14:14
  Speaker 1: a different animal again because it's one of the very
• 14:17
  Speaker 1: very few Chinese internet companies that has successfully proven popular
• 14:22
  Speaker 1: outside of its home country. Carol, you were absolutely correct.
• 14:25
  Speaker 1: Early investors into calling Bloo Bloomberg reporting early investors include
• 14:28
  Speaker 1: soft Bank, Sequoia Capital in Susquehannan, and National So some big,
• 14:32
  Speaker 1: big players. And I just do wonder about right investors
• 14:35
  Speaker 1: who are saying, Okay, now we want to see you know,
• 14:37
  Speaker 1: make our money, right we investor, and you know at
• 14:40
  Speaker 1: some point you want to take this company public. So
• 14:41
  Speaker 1: I just do wonder, you know, the kind of pressure
• 14:44
  Speaker 1: on them to kind of do something and do something soon.
• 14:46
  Speaker 1: And look, there are also pedestrian business questions, big business
• 14:50
  Speaker 1: questions about Bye Dance as well, whether it's at particularly TikTok,
• 14:54
  Speaker 1: can prove lasting outside of China, and also whether it
• 14:57
  Speaker 1: can generate enough money enough and to justify it's very
• 15:01
  Speaker 1: large evaluation. We have too because we have you here
• 15:04
  Speaker 1: just really quickly, Uber Travis Kalinak like goodbye. Yeah, I
• 15:07
  Speaker 1: mean this this has been coming for a long time,
• 15:09
  Speaker 1: right that Travis Kalenik was forced out of his company
• 15:12
  Speaker 1: two and a half years ago and he's been selling
• 15:15
  Speaker 1: apparently he has now sold his entire stake. We've been
• 15:18
  Speaker 1: arding for billions of dollars, and so I think it
• 15:20
  Speaker 1: was inevitable. This has been a long divorce. It's interesting.
• 15:23
  Speaker 1: I mean that's right. So he was forced out and
• 15:25
  Speaker 1: you know, just a couple of years ago, and now
• 15:27
  Speaker 1: he's selling, you know, over I guess most of his
• 15:28
  Speaker 1: stock over two billion dollars now stepping off the board officially.
• 15:31
  Speaker 1: So it seems like it's a clear break here from
• 15:34
  Speaker 1: the one of the co founders and the company. Sure,
• 15:36
  Speaker 1: over Day, thanks so much for joining us us here
• 15:38
  Speaker 1: is a technology columns for Bloomberg Opinion. Joining us here
• 15:41
  Speaker 1: on Christmas eat in our Bloomberg Interactive Broker Studio. I
• 15:44
  Speaker 1: tak there's usually so much buzz in the Bloomberg building,
• 15:47
  Speaker 1: particularly on the sixth floor. It is like a beehive.
• 15:50
  Speaker 1: Nobody there, nobody here, so but we're here at Bloomberg
• 15:54
  Speaker 1: Radio and here is here working hard. Uh. And I
• 15:57
  Speaker 1: always say, you know, her coms are great. You should
• 15:59
  Speaker 1: check out all the work opinion columns. They're great stuff.
• 16:02
  Speaker 1: You can find out on the website Bloomberg dot com,
• 16:04
  Speaker 1: slash Opinion or on the terminal O P I n go.
• 16:16
  Speaker 1: You know. One of the fastest growing areas that it
• 16:18
  Speaker 1: just amazes me in finit financial services is whole eke
• 16:21
  Speaker 1: F issue. That seems like there's an e t F
• 16:23
  Speaker 1: for just about everything out there. I love to get
• 16:26
  Speaker 1: up to dated on what's going on with the et
• 16:28
  Speaker 1: F world. Denise Chrisco can help us. She is president
• 16:31
  Speaker 1: and co founder of Vident Investment Advisory. She joins us
• 16:34
  Speaker 1: on the phone from New Jersey. Denise, thanks so much
• 16:37
  Speaker 1: for joining us. One thing I want to start with
• 16:39
  Speaker 1: is something I have no idea how it works, is
• 16:43
  Speaker 1: what is an active e t F. Good morning, Thanks
• 16:46
  Speaker 1: for having me right and active ETF is essentially an
• 16:50
  Speaker 1: active open end investment fund that is in and within
• 16:54
  Speaker 1: the e t F rapper. So unlike a passive or
• 16:57
  Speaker 1: an index fund where you're very tightly acting a specific
• 17:01
  Speaker 1: index which is being calculated every day. UM, active incorporates
• 17:05
  Speaker 1: the strategy investment philosophy and quite honestly, UM I p
• 17:10
  Speaker 1: of a specific asset manager. So denise why an active
• 17:14
  Speaker 1: e t F versus a mutual fund? And I know
• 17:16
  Speaker 1: there's differences in terms of when they trade, when they price,
• 17:19
  Speaker 1: and I guess tax implications, But tell me why would
• 17:22
  Speaker 1: I choose that over a mutual fund? Sure? Well you
• 17:26
  Speaker 1: know right now, you you um, you know, hit the
• 17:29
  Speaker 1: hit the nail on the head. The biggest differences are
• 17:32
  Speaker 1: with the e t f s. Of course, our tax
• 17:34
  Speaker 1: advantages and ability to trade UM with active e t
• 17:39
  Speaker 1: F UH, the tax advantages have really been very limited
• 17:42
  Speaker 1: until more recently. UM. Recently, the SCC past what has
• 17:46
  Speaker 1: been referred to as the e t F rule Rules
• 17:48
  Speaker 1: six C eleven UM, which really has created a much
• 17:51
  Speaker 1: more consistent and even playing field across you know, all
• 17:55
  Speaker 1: e t f s and potential ETF sponsors and so
• 17:58
  Speaker 1: active et f s will also be able to take
• 18:00
  Speaker 1: advantage of some of the tax advantages of the E
• 18:04
  Speaker 1: t F structure. UM. That's why we believe here invite
• 18:07
  Speaker 1: into that active ETFs are going to very likely become
• 18:11
  Speaker 1: more popular as we go into and beyond, because until
• 18:15
  Speaker 1: now you've had a number of active mutual fund managers
• 18:19
  Speaker 1: or active managers with other product types, for example, that
• 18:22
  Speaker 1: would be interested perhaps in an e t F, but
• 18:24
  Speaker 1: realizing that UM the tax advantages weren't really equivalent for
• 18:28
  Speaker 1: active ETFs, UM weren't so inclined to launch a product.
• 18:32
  Speaker 1: As well as the fact that you know, E t
• 18:34
  Speaker 1: f s also required daily transparency of holdings, which UM
• 18:38
  Speaker 1: was something that many asset managers were not interested in.
• 18:41
  Speaker 1: UM that's also changed recently as well. So there's a
• 18:44
  Speaker 1: lot on the horizon for so then it gives a
• 18:47
  Speaker 1: sense of the cost structure cost advantages of active ETFs
• 18:51
  Speaker 1: versus mutual funds right so to the retail investor that
• 18:55
  Speaker 1: the cost savings can be significant. UM with the e
• 18:58
  Speaker 1: t F the expense ray shows are typically lower than
• 19:01
  Speaker 1: with mutual funds UM, although you know you do have
• 19:04
  Speaker 1: to weigh that against brokerage cost, commissioned fees and importantly
• 19:08
  Speaker 1: the bitest spread of course on any h t F
• 19:11
  Speaker 1: UM notably active ETF. So you know, the costs UM
• 19:14
  Speaker 1: could be UH advantageous to the retail investor, UM definitely
• 19:19
  Speaker 1: to the asset manager. UH costs are are generally lower
• 19:24
  Speaker 1: to to run such a vehicle, and so that would
• 19:26
  Speaker 1: be another reason why they may be attractive. Denise, I
• 19:29
  Speaker 1: do wonder too that if I'm going to do an
• 19:31
  Speaker 1: active e t F and I think about funds, about
• 19:35
  Speaker 1: some of the fees and so on and so forth.
• 19:37
  Speaker 1: I mean, why would I do anybody but the biggest,
• 19:39
  Speaker 1: whether it's Vanguard or State Street, right, because I'm assuming
• 19:42
  Speaker 1: they're going to have the lowest feeds, That's right. I
• 19:45
  Speaker 1: mean they'll have the lowest explicit fees, the lowest expense ratio.
• 19:48
  Speaker 1: And you know the majority of assets are flowing to
• 19:51
  Speaker 1: the largest etf issuers UM. These days, we work you
• 19:55
  Speaker 1: know with numerous smaller and mid sized firms and some
• 19:58
  Speaker 1: larger firms as well, UM who you know, have unique ideas,
• 20:05
  Speaker 1: have very you know, different perspectives. UM have really innovated
• 20:08
  Speaker 1: UM to create strategies UM that really can't be found
• 20:11
  Speaker 1: anywhere else. We we manage almost four and a half
• 20:14
  Speaker 1: billion dollars of assets and it's all almost exclusively to
• 20:18
  Speaker 1: customized indicies. And so it's these types of products investors
• 20:21
  Speaker 1: that are looking for something maybe different than what they
• 20:23
  Speaker 1: offer now, and you know, I respect that. I just
• 20:26
  Speaker 1: you know, what's what's interesting about the E t F
• 20:28
  Speaker 1: L I kind of said to Paul coming in, Oh man,
• 20:29
  Speaker 1: the E t F world kind of drives me crazy,
• 20:32
  Speaker 1: because I do feel like it's, you know, every month,
• 20:34
  Speaker 1: every week we have somebody new, you know, coming on
• 20:37
  Speaker 1: with a new E t F idea, and I feel
• 20:39
  Speaker 1: like until you have some history, you know, a few
• 20:41
  Speaker 1: years in to get an idea of how these performs,
• 20:44
  Speaker 1: you know, I think for investors they have to be
• 20:45
  Speaker 1: very careful. It is. It is a challenge, especially from
• 20:49
  Speaker 1: you know, some of the smaller firms that many investors
• 20:52
  Speaker 1: may not be as familiar with. UM. They're looking for
• 20:54
  Speaker 1: longer term track records UM. You know. We have had
• 20:57
  Speaker 1: a number of funds also that have formed really very well,
• 21:01
  Speaker 1: funds that we have subadvised for our clients that have
• 21:04
  Speaker 1: really had excellent performance, but unfortunately weren't able to garner
• 21:07
  Speaker 1: those assets and you know, ultimately closed, you know, which
• 21:10
  Speaker 1: has really been a phenomenon we've seen industry wide. I
• 21:12
  Speaker 1: think that will continue as well, you know, as we're
• 21:14
  Speaker 1: going too we see additional launches. There's gonna be a
• 21:17
  Speaker 1: lot of excitement potentially to launch active ets, especially now
• 21:21
  Speaker 1: that there's options available for non transparent and semi transparent
• 21:25
  Speaker 1: active ETFs. UM you know that that to me, I
• 21:30
  Speaker 1: want transparency. What is semi are non transparent? Forgive me?
• 21:34
  Speaker 1: What does that mean? Yeah? So essentially, you know, the
• 21:38
  Speaker 1: SEC has approved programs that have been created um to
• 21:43
  Speaker 1: uh not necessarily fully disclosed the holdings of the e
• 21:46
  Speaker 1: t F subject to as you can imagine, numerous other
• 21:50
  Speaker 1: restrictions as well. UM. In the non transparent option, for example, UM,
• 21:55
  Speaker 1: they would the holdings are actually traded in and out
• 21:57
  Speaker 1: of a blind trust so that those positions aren't known
• 22:01
  Speaker 1: publicly and the asset manager can you know, retain um
• 22:06
  Speaker 1: you know, the i P I suppose and not be
• 22:08
  Speaker 1: divulging you know, their active management strategy and the semi
• 22:11
  Speaker 1: transparent it's a bit of a hybrid. Um there is
• 22:14
  Speaker 1: there are you know, holdings that are released on a
• 22:17
  Speaker 1: daily basis, although those don't look exactly like the true
• 22:20
  Speaker 1: underlying portfolio, with the idea being that it is hard
• 22:23
  Speaker 1: for someone to maybe copycat or you know, try to
• 22:26
  Speaker 1: trade that strategy on their own on the side. All right,
• 22:29
  Speaker 1: I couldn't leave it on that note. He did. He's
• 22:30
  Speaker 1: happy holidays. Denise Chris, president and co founder of Ident
• 22:33
  Speaker 1: Investment Advisory, joining us on the phone, say, there's a great,
• 22:46
  Speaker 1: great story on the Bloomberg today, and I love the
• 22:49
  Speaker 1: opening paragraph. China last week commissioned it's first home built
• 22:53
  Speaker 1: aircraft carrier to protect it's military minded. It's now on
• 22:56
  Speaker 1: a mission to create quote aircraft carrier sized investment bank
• 23:00
  Speaker 1: to take on Wall Street. Chiants surely not rotch and
• 23:03
  Speaker 1: joins us He's from Bloomberg News. He covers all things
• 23:06
  Speaker 1: financial joints us here in our Bloomberg Interactive Broker studio.
• 23:09
  Speaker 1: So that's just a great view of how China is
• 23:11
  Speaker 1: thinking about the investment banking business. And I spent most
• 23:14
  Speaker 1: of my life investment banking, and I hadn't really thought
• 23:16
  Speaker 1: about that. There isn't a China size investment bank out
• 23:20
  Speaker 1: there to compete against the goverment sacks and the Morgan Stanleys.
• 23:23
  Speaker 1: What are they thinking these days? And then that's the
• 23:25
  Speaker 1: reason they're possibly thinking about it at this stage, right,
• 23:28
  Speaker 1: and this is a fabulous story when you look at
• 23:30
  Speaker 1: some of the stats in this piece, China has about
• 23:33
  Speaker 1: a hundred and thirty one securities films all of their
• 23:36
  Speaker 1: assets combined is equal to one Goldman Sacks the trillion
• 23:39
  Speaker 1: dollar balance shee the Goldman Sacks as it takes about
• 23:42
  Speaker 1: a hundred and thirty Chinese investment banks to get there.
• 23:44
  Speaker 1: China has large scale commercial banks right I CBC has
• 23:48
  Speaker 1: a much bigger balance sheet than even JP Morgan uh
• 23:51
  Speaker 1: north of four trillion dollars. But when it comes to
• 23:53
  Speaker 1: investment banks, they never really had a large scale player,
• 23:57
  Speaker 1: and that is critical, especially if you look at a
• 24:00
  Speaker 1: global view of the big financial players, who think, especially
• 24:03
  Speaker 1: inside the Chinese market, you're closer to the starting block
• 24:07
  Speaker 1: rather than having a fully developed market. So as the
• 24:09
  Speaker 1: market opens up, as more and more international players come in,
• 24:12
  Speaker 1: the local banks have to figure out a way to
• 24:14
  Speaker 1: compete with them, and you possibly have to consolidate, possibly
• 24:18
  Speaker 1: have to think about mergers to be able to go
• 24:21
  Speaker 1: to to toe with them. So surely is the goal
• 24:23
  Speaker 1: here about creating this massive global bank that ultimately will
• 24:27
  Speaker 1: be funding and working with companies around the Global's just
• 24:30
  Speaker 1: really about helping out Chinese companies and building Chinese industry.
• 24:35
  Speaker 1: I guess two things there. If you look at Ali Baba,
• 24:37
  Speaker 1: the one thing you've learned from that is you don't
• 24:40
  Speaker 1: necessarily have to be a loge scale global player to
• 24:44
  Speaker 1: be a successful Chinese company. Uh, that market is big enough.
• 24:47
  Speaker 1: There are enough people then the markets developed enough to
• 24:50
  Speaker 1: make a lot of money just focused on China. But
• 24:54
  Speaker 1: I mean, do your question. I am interested in finding
• 24:56
  Speaker 1: out if part of their goal is also to make
• 24:58
  Speaker 1: sure that these firms can also go across the globe
• 25:01
  Speaker 1: and compete with the governments and the Morgan Stanleys of
• 25:03
  Speaker 1: the world. And there's an interesting cautionary tale there if
• 25:07
  Speaker 1: you look at it. If you if you go back
• 25:08
  Speaker 1: to late eighties, early nineties, at that time, you had
• 25:11
  Speaker 1: a uh, smallish Deutsche Bank that was looking outside a
• 25:16
  Speaker 1: sleepy industrial German economy, trying to take itself across the world.
• 25:21
  Speaker 1: Through the nineties and the two thousand's, Deutsche Bank did
• 25:24
  Speaker 1: become a Wall Street powerhouse, a massive fix income shop,
• 25:28
  Speaker 1: made a ton of money. But look at where we
• 25:30
  Speaker 1: are right now. They're on the retreat and saw a
• 25:33
  Speaker 1: lot of their European peers and the ones who are
• 25:36
  Speaker 1: benefiting from that are the large US banks that seem
• 25:40
  Speaker 1: to be beefing up. So if they want to plot
• 25:42
  Speaker 1: sort of this global expansion, they have to make sure
• 25:46
  Speaker 1: that they can careful steps. So I have to ask
• 25:49
  Speaker 1: a question, why haven't Why hasn't China created a much
• 25:52
  Speaker 1: more vibrant investment banking industry as it has for say,
• 25:56
  Speaker 1: the commercial banking side. Is there something structural there? Or
• 26:00
  Speaker 1: if you're just focusing internally in Chinese don't necessarily need
• 26:03
  Speaker 1: these big investment banks. My guests would be perhaps more structural.
• 26:07
  Speaker 1: You probably don't have an economy that has the full
• 26:10
  Speaker 1: time requirements of a lode scale investment bank. Even the
• 26:14
  Speaker 1: securities films that we talked about in this story, they
• 26:16
  Speaker 1: say a lot of them are not full service investment bank.
• 26:19
  Speaker 1: You know, they're small, they're not full service investment. A
• 26:21
  Speaker 1: lot of them seem to be doing business with the uh,
• 26:23
  Speaker 1: you know, your mom and pop retail customers, which which
• 26:26
  Speaker 1: is not a way to compete with the government's accent.
• 26:28
  Speaker 1: The Morgan Stanley is the world. But now as the
• 26:30
  Speaker 1: economy opens up, now as they're looking to deepen the
• 26:33
  Speaker 1: footprint of their you know, capitalistic economy, even even under
• 26:38
  Speaker 1: the control of the government. If you're looking to sort
• 26:40
  Speaker 1: of strengthen the pillars of what drive modern business. If
• 26:45
  Speaker 1: you do that, you definitely need a lot scale investment
• 26:48
  Speaker 1: bank to service that, to raise money, to help companies
• 26:51
  Speaker 1: go public, to do trading, everything that comes with the
• 26:54
  Speaker 1: full service investmentank. But is it really opening up It's
• 26:57
  Speaker 1: what forty five trillion dollar financial industry. Is China truly
• 27:01
  Speaker 1: opening it up so that any global bank, and I
• 27:04
  Speaker 1: think about the US big players, will they really be
• 27:06
  Speaker 1: able to kind of set up shop there and operate
• 27:09
  Speaker 1: like they do around the rest of the world. That's
• 27:11
  Speaker 1: the goal. By the end of next year, the number
• 27:13
  Speaker 1: of the U s from the number of the large
• 27:14
  Speaker 1: international banks will be able to take dent controls of
• 27:17
  Speaker 1: their subsidiaries. Some of them already are in the process.
• 27:20
  Speaker 1: Others have applied for it. They have been waiting on
• 27:23
  Speaker 1: it for a while. The Chinese promise has always been there.
• 27:26
  Speaker 1: You almost feel like these banks have been knocking at
• 27:28
  Speaker 1: the door for a while, but you really haven't gotten
• 27:31
  Speaker 1: the fruits out of it yet. And you have to remember,
• 27:34
  Speaker 1: with the backdrop of the trade war, maybe some of
• 27:36
  Speaker 1: that has also delayed the process and there's some level
• 27:38
  Speaker 1: of nervousness when you talk to the CEOs of the
• 27:40
  Speaker 1: U S investment banks as to when that promise will materialize.
• 27:44
  Speaker 1: But it is a promise they believe in, and it
• 27:46
  Speaker 1: is a promise that they're willing to invest in. That's interesting.
• 27:49
  Speaker 1: I think the yes, I think about some of the
• 27:51
  Speaker 1: U S firms. They've been knocking on the door in
• 27:53
  Speaker 1: China for a long time. Um, did they view that
• 27:57
  Speaker 1: as a big, big growth opportunity. Absolutely, they're ready and
• 28:01
  Speaker 1: eager to jump in. What has stopped them is not
• 28:04
  Speaker 1: their hesitation or trapodition on their part. What to stop
• 28:08
  Speaker 1: them is their ability to jump in the market. There's,
• 28:11
  Speaker 1: if not in no entry sign, at least a bobbed
• 28:14
  Speaker 1: wire gate that sort of makes sure that you can't
• 28:17
  Speaker 1: really jump into the market full time. But the banks
• 28:20
  Speaker 1: are eager to get in there as they look just
• 28:22
  Speaker 1: quickly about forty seconds, or as they look to expand tree.
• 28:25
  Speaker 1: I mean, is their government support behind it or is
• 28:27
  Speaker 1: this truly a private enterprise and as private as it
• 28:30
  Speaker 1: can be in China. Well, if you have to create
• 28:33
  Speaker 1: an aircraft carrier sized rival to government zacks alongstly, you
• 28:37
  Speaker 1: better hope there is a government will behind that. But
• 28:40
  Speaker 1: we have seen that in the past, especially in a
• 28:43
  Speaker 1: system like the Chinese economy the way it operates. If
• 28:47
  Speaker 1: there's government bill will a lot can get done and
• 28:51
  Speaker 1: they will need a lot of it to make sure
• 28:53
  Speaker 1: that they can create an institution like that. Right, but
• 28:55
  Speaker 1: then you see how the world use it because there
• 28:57
  Speaker 1: is government involvement. Sure, thank you so much. Always appreciate
• 29:00
  Speaker 1: appreciate it. Tree not Rody, and he is finance reporter
• 29:03
  Speaker 1: at Bloomberg News, joining us in our Bloomberg Interactive Broker Studio.
• 29:06
  Speaker 1: Fascinating story. I'm in the most read and I'll put
• 29:08
  Speaker 1: it out on our Twitter feeds because it definitely is
• 29:11
  Speaker 1: something you should check out. Thanks for listening to the
• 29:14
  Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
• 29:16
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• 29:20
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• 29:23
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• 29:25
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• 29:28
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