This week, Trivium China Co-founder Andrew Polk sat down in Shanghai with fellow Co-founder Ether Yin and Trivium’s Head of Geopolitical Research Joe Mazur to discuss:
• Global businesses in Beijing for the China Development Forum
• The messages Chinese leaders are sending to the business community
• The stark contrast in mood between domestic and foreign businesses in China
• Whether consumer sentiment is finally turning a corner
• Beijing’s latest updates to the Anti-Foreign Sanctions Law
Transcript:
Andrew (00:10): Hi, everybody, and welcome to the latest Trivium China Podcast, a proud member of the Sinica Podcast Network. I’m your host, Trivium China co-founder, Andrew Polk, coming to you today from Shanghai. And I am really glad to be joined by two new guests from Trivium China, also both joining us from Shanghai today. So, we’ll start with another one of my Trivium China cofounders, Ether Yin. Ether, great to have you on the podcast for the first time. How’re you doing, man?
Ether Yin (00:38): Doing great, thank you, Andrew. I feel excited about joining our podcast for the first time.
Andrew (00:43): Yeah, it’s great to have you on. We’re going to have a good discussion.
Ether: Yeah.
Andrew: And then we are also delighted to have our head of geopolitical research, who’s usually based in Beijing but also in Shanghai today. That’s Joe Mazur. Joe, great to have you on. How're you doing?
Joe (00:57): Thanks. I’m doing good, Andrew. I’m a long-time listener, first-time caller.
Andrew (01:01): Yeah. Love it, love it. Well, it’s great to have both of you guys on, not only because I don’t get to see you guys very much, and we’re all in the same place, which is awesome, but also because we’re going to discuss what was the biggest development out of China this week, which was the holding of the annual China Development Forum, or CDF, which is where a bunch of foreign executives come to Beijing and get the chance to talk with senior Chinese leaders. And Joe being our lead geopolitical analyst and Ether being our, well, overall policy guru, but also very deep into our research on the overall business environment in China, you’re the perfect guests to have for this discussion. So, what we’re going to talk about today is the CDF, like I said, which is a big yearly confab where Chinese leaders get together with foreign business leaders.
(01:52):
So, we’ll get into the key developments that took place at the CDF and the overall tone of the gathering from the past few days. We’ll also discuss the wider thinking of the business community in China, as well as how consumers are feeling, sort of against this backdrop of ongoing geopolitical tensions. And then, thirdly, last thing we’ll touch on is kind of the latest development on the economic coercion front, which was Monday’s release of new regulations to beef up China’s Anti-Foreign Sanctions Law. So, lots to cover. But before we do that, we have to start with the customary vibe. And I feel like it’s particularly important this week because I find that often the vibes, especially around U.S.-China or around China, are different when you’re talking about China from the outside and when you’re on the ground here in Shanghai or Beijing or wherever. So, Joe, let me start with you. What’s your vibe as we kick off this podcast here in the last week of March?
Joe (02:45): Yeah, the vibes are good. I mean, just on a personal level, being here in Shanghai, seeing some colleagues who I don’t often get to see, the weather’s very nice, but also, I mean, on the work front, it may be hectic, but it’s certainly never boring. So, the vibes I will call stimulating.
Andrew (03:01): That’s a very positive spin. We keep hearing the word overwhelming. Kendra on the pod the other day said, I forget exactly what she said, but basically that we’re at turbo speed or something like that. So, you’re very much in line with everybody else. Let me throw that over to Ether then. Ether, how is your vibe in life in regard to sort of the China business environment, whether that’s domestic Chinese companies, foreign MNCs doing business in China, how are you feeling?
Ether (03:32): I think, first of all, life is great. Almost kind of half of my life is work with this company, I think we’re doing great. Also have you guys come in Shanghai makes me feel super, super happy. So, it’s great. Nothing to complain. About how is vibe, general vibe in regard to the China business environment, I think that’s gets too kind of interesting because I’m pretty sure we’ll get into that more later. But overall, I think, if we are talking about Chinese private business, I think the vibe there is actually going up, especially compared to last year. We can talk about why, what happened kind of later. But I think if we’re talking about foreign business, it’s probably in a different track. I think there are something, kind of improvement, improved for the… I think that’s probably on domestic front. But also, I think, just in general, external challenges they’re facing now is getting multiplied over the past few months. That’s bad for them, I think, on a net. I don’t know where that put them. I think, in general, they are, compared to Chinese internal private business, I think they are a bit more pessimistic and facing more challenges.
Andrew (04:49): Yeah, yeah. Well, we’ll get into why that is, why domestic private businesses may be feeling better and, as you say, why foreign multinationals in China sort of have ups and downs. But that’s a good point. On my vibe, I feel the same as you in terms of, on the podcast yesterday, I told everybody I was a coming here to Shanghai, and I’m now in Shanghai seeing the team. We’ve got our folks from Beijing down, so that’s amazing. Just for a little bit of showing people behind the curtain on how Trivium works. I mean, we’re a small company, but, basically, we have multinational problems is kind of what I say — small company with multinational problems. We very rarely get to be face-to-face with our colleagues. And so it’s been really great to have the Beijing team down and be here with everybody who’s based in China. So, really loving that.
(05:39):
Thanks for the five checks guys. Good to kick things off with that. Let me, before we get into the meat of discussion, go through a couple of quick housekeeping notes as usual. First, I always have to stress — We’re not just a podcast. Trivium China’s a strategic advisory firm that helps businesses and investors navigate the China policy landscape. So, if you need any help on that front, please reach out to us at hq@triviumchina.com. We’d love to have a conversation via email or set up a call to talk about how we could help you stay on top of Chinese policy as it impacts your business fund. Otherwise, if you’re interested in receiving more trivium content, please check out our website, www.triviumchina.com, I already said it, where we have a bunch of different subscription products, both free and paid. You’ll find something that will fit your needs there if you need to stay on top of what’s happening in China.
(06:26):
And finally, please do tell your friends and colleagues about Trivium generally and about the podcast. And while you’re at it, subscribe to the pod and leave us a rating. It really helps people to learn more about Trivium, and hopefully grows the audience who support the podcast so we get to inform more people about what’s going on in China on a week-to-week basis. All right, with that, fellows, let’s get into the China Development Forum that’s happened over the past couple days. So, we’re recording on Wednesday the 26th of March. It was Monday, Tuesday, the 23rd of 24th. We’ll talk a little bit about what the forum is exactly. So, it’s been held annually since the year 2000. The CDF is China’s top forum for connecting foreign executives directly with senior Chinese officials to discuss trading investment. This year, top executives from 86 multinational companies attended the forum.
(07:15):
That’s a slight decline from 2024. And U.S. companies topped the list, sending 27 senior executives. One of the highlights of this meeting is typically, first, a speech from the premier talking about the economy. It’s usually talking about the economy, how great it is, how welcome foreign businesses are. And that was, again, the case this year. We’ll get into a little bit of what Li Qiang, the premier, talked about. But also the premier usually meets with foreign business leaders. And that happened this year, which was notable because last year they canceled the one-on-one or small group meeting with the premier and senior business leaders, which was pretty disappointing for folks who had come all the way from their home countries to meeting the premier. The meeting with the premier is usually kind of the highlight for these executives, but…
Ether: Yeah.
Andrew (08:03): Kind of giving that background… Oh, go ahead, Ether. Go ahead.
Ether (08:05): No, I just want to point out, I think if you look at premier’s meetings with business, it’s still, I could argue for some business, some foreign business, still disappointing because that whole setting is primarily focused on U.S. business. And I think the meeting in the U.S. delegation is led by a Republican senator. So, you can consider an argument, you can still argue that kind of meeting is not inclusive enough to address the whole foreign business community.
Andrew (08:39): Yeah, that’s a good point. And the geopolitics, obviously, in the U.S.-China specifically relationship hangover everything. It’s interesting, you did mention Steve Daines, who’s… Joe, is he from your home State of Montana, is that right?
Joe (08:53): He’s from the Great State of Montana.
Andrew: All right. Well, so he’s here along with the delegation, trying to potentially moot the groundwork or lay the groundwork for a meeting between Xi Jinping and Donald Trump later in the year, which we’ll get into that as well. But your point, Ether, is that it was actually similar to last year in that Xi Jinping met with only U.S. businesses last year. And we’ll get into this as well, so I don’t want to jump too far ahead, but it kind of is all about the U.S. business community. And the European business community and the Asia community are kind of like, “Well, WTF, how do we fit in?” It just underscores the point that geopolitics are hanging heavy over everything. But let’s stop there for a sec. And I want to throw it over to Joe. Joe, what was the message that you really got from Li Qiang? What is the senior government or senior government officials on the Chinese side, what message are they trying to send to foreign business leaders at the moment? And give us any other color from the CDF that you think we’re missing here.
Joe (09:56): Yeah. Well, so I mean I think it’s probably just worth saying that if it’s not obvious, CDF is a great chance for foreign CEOs to do a number of things. First of all, they get a chance to interface directly with high-level Chinese officials, which is a fairly rare opportunity in most cases. It’s opportunity for them to get a sense check of how things are on the ground and to possibly discuss, with their fellow titans of industry, how they feel about the China market. So, just for all those reasons, it’s sort of an event not to be missed and really have drawn pretty wide selection of CEOs in different industries from high-profile companies. There’s also a chance to show that we’re in China for China, and to kind of express their commitment to the China market because that’s also quite important.
(10:39):
But in terms of the messaging that come out of the CDF, I think that, in a lot of respects, it’s pretty standard. And if you follow these sort of meetings, you’ll be familiar with a lot of these talking points. So, things like China remained committed to opening, we welcome foreign companies to participate in China’s development, we’re going to continue to relax restrictions to treat foreign companies equally with Chinese companies. And so these are all fairly standard talking points from events like this, and just about Chinese messaging towards the foreign business community in general. There’s also a piece, which I think is quite interesting, and we’ve seen more of in recent years, which is the overtures the Chinese side is making to foreign companies to play an important role in resisting protectionism and unilateralism, right?
(11:30):
So, the hope that these companies as beneficiaries of China’s opening, of beneficiaries of globalization, will then maybe exert some kind of influence on their home governments to say, “Hey, we understand you have these concerns about trade deficits, about security, but really we think that the trade relationship between our country and China is important, it’s worth preserving, and it’s worth expanding.” That’s another note that the Chinese side has hit on pretty frequently in recent years, and was again reiterated here at the CDF.
Andrew (12:01): Yeah, you hit the points well. I mean, I guess, one follow-up question. The Chinese have been trying to work with the business community to influence U.S. government decisions, at least for, I mean decades, right? And that used to work. Is it still working, or is business hard from your perspective in, I mean, other capitals as well, but D.C. and Brussels in particular, are the Chinese barking up the wrong tree or is it still just worth them doing it even if the business community doesn’t have as strong of a voice among politicians? What are your thoughts there?
Joe (12:33): Yeah. I mean, it’s sort of a brave new world, especially in the context of the U.S. and the Trump administration. I mean, yeah, certainly, I think it doesn’t hurt for them to try to make this overture. I think it’s certainly worth them saying, “Hey, think about it. You’ve gained a lot of opportunities from the China market and there are still more to come." So, it behooves you to try to stabilize the trade relationship. And I do think, to some extent, yeah, certainly in the past, companies and trade bodies have played a role in influencing the trajectory of U.S.-China policy and China’s relationship with other countries. And so, now I think we talk about U.S.-China versus EU-China. Those are sort of two different things. I think that what we’ve seen in the case of the EU is that this sort of business pressure does work both positive and negative, sort of in the lead up to the EU’s decision to impose tariffs on Chinese EVs back in, I think it was November.
(13:29):
There was a lot of politicking happening and China was exerting pressure both in terms of inducements and threats to kind of win over votes to their side on that. And ultimately, those tariffs did go through, but I think that it shows that there is a degree of efficacy to this sort of wheeling and dealing. For the U.S. side, I think that really remains to be seen. I mean, my immediate reaction is that I don’t think the Trump administration necessarily cares what happens to any individual, U.S. company in the China market. I think they’re so laser-focused on the trade deficit and sort of this America-first economic policy, which we’ll probably get more of a hint of, April 2nd. But I mean, it certainly, it doesn’t hurt to try. And who knows? I mean, maybe if you have a high profile enough CEO like Tim Cook lobbying the Trump administration, sort of maybe not on behalf of China, but with coterminous goals with China. I don’t think maybe there’s something to be said for that. And maybe that would be enough to get the U.S. to sort of at least consider what its policy means for U.S. companies in China.
Ether (14:31): Yeah, I mean that’s-
Andrew: Go ahead, Ether.
Ether (14:33): I think that’s actually a very interesting question and actually I want to ask you guys about, I think, in particular Andrew, you, because most of the time you’re based in D.C. so you are very familiar with the atmosphere there and how things are in D.C. My question is, generally, do you think that, compare Trump and Biden, on the Trump administration, there’s more room for U.S. business to influence the policy a little bit? My assumption would be my understanding with Biden because his administration operated on certain kind of principles and red lines. And, basically, when U.S. business have conversation trying to influence certain policies and trying to reach to, okay, this is kind of a national security matter for U.S. government, then that’s the end of the conversation. There’s no room for U.S. business to continue to influence. But with Trump, it’s more like there’s basically no principles or many kind of red lines. Is there more room for us business to influence his policies?
Andrew (15:39): Well, it’s interesting. Happy to walk through my thinking. As I often say, I mean, this is great because you guys are in China thinking about what the U.S. side is doing. We do, obviously, as I say to our listeners, always try to be thinking about what’s happening in China. And this is a great point, and it’s pertinent to, of course, what’s happening at the CDF. I mean, my view would be that basically the business communities influence on policy was reduced dramatically in the first Trump administration. And that, basically, that’s when you started hearing, especially vis-à-vis China, Trump administration, in the first Trump administration, Trump administration officials saying, “Basically, your companies are part of the problem. You helped create this view of driving a trade surplus from China by outsourcing a lot of production there, and you’re part of the problem. And so we’re not going to listen to your voice; we’re trying to undo the things that you have done.”
(16:36):
And then that kind of mentality was not said the exact same way; you’re part of the problem, but was also maintained throughout the Biden administration for the reasons that you said, which was the Biden administration just said, “Well, business community, your concerns are noted, but we are not going to take them really on board because national security trumps them.” Now, in the second Trump administration, I think it’s a little bit too early to tell, but what we definitely see is a lot of global businesses or a lot of U.S. businesses trying to get on Trump, on his good side, right? They’re dropping their DEI policies; they’re doing all these other stuff. The tech companies are showing up at the inauguration and helping to giving, you know, donating to the inauguration. So, I think there is space for the business community to have more of a say in this second Trump administration, generally, and potentially when it comes to China.
(17:30):
And, basically, companies have had four years to plan for how they might try to influence or work with a second Trump administration. So, everyone’s a little bit more prepared than they were last time.
Ether (17:42): Right. Yeah. I mean, that’s good to know. That’s good to know. Yeah.
Andrew (17:45): Do you have another question? I was going to throw one back at you.
Ether (17:48): No, I was just going to say that’s actually… I mean, I understand that actually helps reinforce our understanding about just basically whether Premier Li Qiang’s call to foreign business to resist the protectionism or this things kind of going to work. I think it won’t. I think that’s the bottom line just because, for multinational companies, they’re facing increasing pressure either from their home country government or even from public, right? So, because, to a certain extent, the like bring jobs back, bring production back to the country is what the public wants as well. That’s one thing. And the other thing on the messages the premier wanted to send as CDF is really kind of on the domestic front. It’s basically trying to assure foreign companies that government has the back of economy.
(18:45):
I think we already saw that during Two Sessions in March when the government announced very aggressive or expensive fiscal policies. I think we talked about that in previous podcast. I think the other key message the premier really tried to bring home at the CDF is that everyone knows things can get worse later this year if, say, Trump very dramatically increased tariffs on China, right? And things can go bad very quickly. So, one key message Li Qiang tried to send is that we also… the policy-makers also have thought about that, and we already have a plan. And this time, we’ll be kind of better prepared. Before that even happens, we will release additional policies, i.e., policies not included at the Two Sessions policy package. So, they’re trying to send that message loud and clear just to assure, if you are worried about the China’s economy, we have a claim to deal with that, so don’t worry about that.
Andrew (19:56): Yeah. So, they’re trying to say, basically, like we’re willing to stimulate more, we’ve got a bunch of tools in the toolkit. We’ve got a lot of dry powder. And, oh, by the way, we understand that the economy is not in the best shape, and we’re sort of going to accelerate our policy support.
Ether (20:14): Yeah, totally. I mean, if we look at just all the Chambers of Commerce survey, foreign Chambers of Commerce survey, last year, they’re basically… Across Chamber of Commerce, the top two issues for multinational companies is the economy and this kind of geopolitical tension. And I think this, especially last year, the top concern is actually the economy, China’s economy. And the second one is geopolitical tension. I think that the order switched over this year when Trump came to power. I think for most of multinational companies, geopolitical, top one concern, but economy, I think, is still the second concern. So, they’re just trying to address those concerns.
Andrew (21:07): Well, and that gets to the next question, Ether, which is I was in Beijing for the CDF last year. I didn’t go to the CDF, I just happened to be in Beijing at that time. And I talked to a ton of senior business executives, some of our clients. And the mood was actually like, despite the economy being pretty bad, the mood was pretty upbeat. This was spring 2024. I found it pretty noticeable that this was the first time a lot of these executives actually had been to China since the pandemic started, right? So, there were COVID policy all the way to the end of 2022, then 2023 people were sort of sending lower-level executives through, trying to get their feet back into the China market. And then the senior executives, for the first time, came in spring 2024, and there was like a lot of positive energy around these four business people finally being back in China.
But then, throughout the rest of 2024, the economy still struggled. So, my question to you is what is your sense around the CDF of what the mood is among businesses, but domestic and foreign? You’ve touched on it a little bit. And then the second thing is, sure, the Chinese government is saying, like, we’ve got the economy’s back, we know the issues. But does anybody believe it? You know what I mean? Truly, where are businesses heads at?
Ether (22:22): Yeah, totally. I think in terms of kind of like the business vibes, I think for Chinese kind of business, and even I sense that among the public a little bit is actually, right after the Chinese New Year, the sentiment kind of getting to start to improve or getting warmed up, I think…
Andrew (22:40): But that’s just Chinese New Year 2025. So, February 25, basically.
Ether (22:44): Yes. And I think the biggest thing happened there is actually, over the Chinese New Year, if you all can remember, DeepSeek, overnight, become a headline globally, right? Kind of tanked the U.S. stock market, even kind of temporarily, but still basically made headlines all over the world. I think what that does to both public sentiment and a business sentiment, I mean Chinese business sentiment in particular, is that, basically over the past few years, you are under this narrative or things that we, by we, I mean China’s kind of economy or Chinese kind of industries being kind of suppressed by the U.S., either both government sanctions and also U.S. business. But just because of DeepSeek, everyone feels like we made a breakthrough. We can argue that if that’s true or not and to what extent that’s true.
(23:44):
But still, that gives people a boost of confidence that we can do this. The industry, the economy can make a breakthrough in that conterminal suppression, whatever. And then you got all the business, manufacturings, everyone want to figure out, in their business, how they can integrate into this AI thing. And I think, visibly, in premier Li’s government work report during Two Sessions, I think they didn’t say that, but we can see some signs that because of DeepSeek, they even changed some language in the government work report because some of the AI initiative wouldn’t be possible without DeepSeek’s overnight success. That’s big and huge. And then also that leads to, I think, global investors reevaluation of Chinese stock market, and the price going up. A lot of folks here has investment in that. That also helps to both sentiment. And then that lead to March Two Sessions. I would say nothing is unexpected from the economic policies, but it’s also not disappointing, which is basically to the public and industry here that, okay, government will keep their promise that the policy, economic policy is going to be very supportive this year. So, I think that changed the overall sentiment a lot.
Andrew (25:11): So, that’s huge. I mean, I want to bring Joe in here because… The reason I say that’s huge is, so I’ve just said I was in Beijing around the time or during the time of the CDF 2024. So, that was the spring. Like I said, among the foreign business community, there was sort of optimism just because it was the first time these senior executives had been in China, and they felt like they were like reengaging the China market. Throughout the course of the rest of 2024, though, the economy really struggled over the summer of 2024 and in the fall of 2024. I was in China during both of those periods. And it became evident at that point, like sentiment among businesses, not just foreign businesses, but domestic business and domestic individuals was… I mean, that’s all anybody would talk about, like housing markets still under wraps. People don’t want to spend money just like things are not good.
(26:04):
And so, hearing that you’re saying, you think just in the past few months that’s really started to turn a corner is interesting. Joe, you’ve lived in China, for what? I mean, 10 years now. Have you seen a change in sentiment as well just among kind of yourself as a consumer in China? Your network of both Chinese and foreign individuals living here, just living life, what’s your read on all that?
Joe (26:31): Yeah. Well, I mean, first of all, I think it’s an interesting question in terms of whether or not me being on the ground, I mean, I feel like, in some ways, the fact that you can come here between a gap of several months, I feel in some ways you’re better positioned to say like, “Oh, this is different from the last time I was here.” Whereas for me, it’s a little bit like a frog in a boiling pot as you kind of don’t realize the change until all of a sudden… Having said that, yeah, I mean, I tend to agree with Ether just on the anecdotal level. Yeah, last year, my friends in Beijing, it was kind of doom and gloom. We had young Chinese people were saying to me, “Well, my parents kind of pressured me into buying a house, but now it’s underwater in terms of price, and I kind of feel like I regret it.”
(27:14):
I hear less of that now. I think other small indicators, I see fewer closed storefronts, which I think has sort of been a fairly noticeable thing in the aftermath of COVID is a lot of closed storefronts. People seem to be getting out a lot as well. And I’m worried that there might be a conflating variable there and that the weather is starting to get nice. Maybe that’s why people are coming out. In general, yeah, and I mean I think that there have been a number of, I think, developments in the news that have also made people feel maybe somewhat better. Ether already talked about DeepSeek, but I also think events in the U.S., by comparison, people in China maybe feel like they’re not so bad off. I mean, they’re certainly reading the news about the economic hardship that a lot of Americans are facing. But even something like the Xiaohongshu phenomenon where it was the first time, and possibly ever, where you had a lot of young Chinese and Americans kind of interacting with each other on a large scale.
(28:09):
And I think whether or not they gained a fully accurate picture of one another, I think the narrative that emerged from that was for Chinese people was like, “Oh, wow, it’s really not so bad living in China." And there’s a lot of aspects about the U.S., which are quite troubling. Again, I mean, we can debate whether or not that’s a fair takeaway from all of that, especially given the different ways that the information ecosystems are curated in the two countries. But I really feel like all these contributing factors are things that are making people say, well, things are not great, but they could be worse, right? I mean, I also have a lot of friends who are taking advantage of the consumer trade-in program. And so, yeah, I mean, I wouldn’t say it’s like a massive night and day shift, but it’s certainly, just as a sense check in terms of the overall vibe as an economic indicator, it does seem somewhat better than it’s in the past year or so.
Ether (28:58): Yeah, totally. I mean, Joe made a great point. I think another aspect here or contributing factor here is that actually the Chinese are over prepared for the Trump administration. What I mean is like everyone expecting a second term would be very hard at the beginning. As of now, it’s still not great but still better than expected. And also, on top of that, there’s this feeling that over the past few years, it’s U.S. against China because it seems the U.S. government is very focused on taking on China. But now it’s like it’s U.S. against the world. Everyone suffers. It’s not just us. That also helps you to improve how you feel a little bit. Yeah.
Andrew (29:46): Yeah, I mean, that’s really interesting because just as you guys were talking, both of you, I was thinking about how, I mean, for several years now, we’ve really talked about the lack of consumer confidence, the weak business confidence, the struggling real estate market and how, if the government was going to turn things around, they needed a catalyst. They needed something to change the narrative, something to sort of jolt people onto a better path. And our thesis was like, well, the government will have to do it. It’ll have to do it at the third plenum, which happened last year, do it at the Two Sessions. And it kept feeling like the government was missing these opportunities. But then here, the private sector, the DeepSeek thing comes, and maybe it seems like… we’ll wait to see, it’s only been a month and a half or so, but maybe that was the catalyst that they needed.
(30:39):
And then I will say that the government has really ridden the wake of that, and said, you know what? From that DeepSeek development, like you said, how important AI is and how we now have the path towards putting it into government policy and supporting it via government policy. And we recognize the role of the private sector in accomplishing some of the tech goals that we want to accomplish. And so, turns out that maybe the catalyst was totally outside the purview or really even expectation of the Chinese government, and it truly did come from this private sector company.
Ether (31:20): Yeah. And not to overuse that, but I do think, if you remember last year, things are great in Q1, and I think things started to go bad in Q2. I do want to say there’s a few things here. Second, it depends on whether Trump decided to tighten the screw on China again, significantly increased tariffs. I think that does have significant impact of that. And I think, more importantly, is if that happens, will the policy-makers do as they say, which is deploy additional policy support in a very timely manner? Because if that happens again, I can see this kind of fragile confidence building up is going to go away very quickly.
Andrew (32:05): Yeah, so a hundred percent. It is not the slam dunk that we are now on a new path. Well, this is our business. We watch this stuff closely and we try to see if we are on the new trajectory. That’s a good, actually perfect pivot point. Speaking of Trump and potentially new tariffs, this kind of constant will they, won’t they reporting around whether or not Xi Jinping and Donald Trump will meet, and again, I just want to reemphasize the whole point of this podcast is to try to think about China’s perspective on things and not make it all about U.S.-China. But with the CDF and kind of this context this week, I think this is particularly relevant diving into the potential for a meeting between Xi Jinping and Donald Trump. And so, just before I came over here, I had some meetings with some Chinese officials in D.C., and they were expressing to me a point that I thought made sense from what I know about the Chinese system. Because we were talking about whether or not Xi Jinping and Donald Trump would meet. And they were like, “We have no idea.”
(33:08):
But just so you know, our normal operating procedure is to have working level meetings to iron out a lot of details, a lot of back and forth, then we kick that up to the next level after a lot of things have been either agreed upon or ironed out to the next higher level. Maybe it’s the ministerial/cabinet level. Those people work out. Then we go up to the next level, which might be the senior leaders or the heads of state. They meet. It’s pretty much just kind of pro forma. They’re just putting their signatures on things that have already been agreed. That’s how we like to operate, right? And I was like, “Well, those working level meetings don’t seem like they’re happening.” They’re like, “No, they’re not happening.” But, obviously, Donald Trump… And so, first of all, those working level meetings, like I said, aren’t happening. I think, maybe not obviously, but Donald Trump clearly wants to go the other route.
(33:56):
He wants to start at the head of state and basically have a one-on-one with Xi Jinping, sort things out, and then go top-down instead of bottom-up, have everybody below them then work out the details of how to get things done. I guess let me bring in Joe again here, and then we’ll bring you in, again, Ether. Do you think that’s the right read on the situation, Joe, and, secondly, I mean where does that put you in terms of whether or not a meeting truly is likely soon?
Joe (34:22): Yeah, I mean, I think that absolutely tracks. I think, to some extent, diplomats are very protocol-conscious no matter where they’re from. And I think that’s especially true in the Chinese system, where politics is very choreographed in most respects. And beyond just sort of the simple questions of protocol, I think this is coming at an extremely delicate time, obviously, in U.S.-China relations, both in terms of optics and outcomes. So, we’re talking about optics, right? There was one of the reports I read suggested that the U.S. side had floated Xi Jinping going to Mar-a-Lago and meeting with Trump. And maybe that was something that Trump himself had suggested.
(35:01):
Of course, that’s the kind of thing that makes Xi look like a supplicant. You’re going to not only Trump’s home turf in terms of being in the states, but his literal home turf. There were other suggestions that Donald Trump could pay a state visit to China as soon as April, which I think is something that the Chinese side would be much more amenable to because a lot more of the protocol is then in their hands, and play the gracious host. And there have been a number of other suggestions as to when and where they might meet. After the initial few reports on a possible Trump-Xi meeting, I’m now of the opinion that I don’t think one is imminent. It doesn’t mean one won’t happen, but I think that the Chinese side, as you mentioned, is very nervous about, I suppose, the very ad hoc way that Donald Trump approaches diplomacy. And that sort of brings me to the second point, which is outcomes, right?
(35:53):
So, beyond the optics of Xi not wanting to be seen as a supplicant or to be ambushed with some kind of proposal that he was not aware of or didn’t agree to or anything like that, there’s a lot riding on this meeting, right? I mean, Trump has repeatedly said that he has a good relationship with Xi Jinping — that he would like to strike some kind of deal. I think it was Scott Bessent, the Treasury Secretary, proposed possibly some kind of agreement whereby China could make good on its purchases from the Phase One trade deal from way back in 2020. I mean, if it goes well, if a Trump-Xi meeting were to go well, you could see possibly a stabilization or even a resolution of some of the big issues at the heart of U.S.-China trade and economic tension, right? Equally, if it goes badly, I mean, you probably really only have this one shot to make it work, and if it goes badly after that, the prospects of another summit, I think, will increasingly dim. And that possibility of striking some kind of grand bargain or at least agreeing to work towards something that’ll help to satisfy both side, that reduces dramatically, right? And the fact that working level group have apparently stalled out mean that it’s going to really require the impetus of the two leaders to move things forward. So, it’s really important that both sides get this right. And if they don’t, well, I mean, I think they could be the beginning of a fairly long downward spiral, which certainly the Chinese side doesn’t want to see, and ultimately would probably be pretty destructive to the U.S. as well.
Ether (37:20): Yeah, I totally agree with you both. I think I just want to trying to think through because our job is trying to be forward-looking. As you talk about, the stakes are pretty high for both sides of this deal. And I think what could happen is actually… Andrew, you mentioned that Trump prefer top-down kind of approach, and for the Chinese, they prefer kind of bottom-up. And I think the possible way out is probably start from someone kind of at middle level, which is both leaders appoint a deputy who is in charge of this and they can hash things out. And if you look back to Trump 1.0, it’s basically Lighthizer hashed out a deal with Liu Hu, right? So far, we haven’t seen that level, kind of very productive engagement at that level. I think Vice Premier He Lifeng had one call with his counterpart in the state side, but not much engagement so far.
(38:22):
But I think it still takes a call from both leaders to kick off that kind of process is basically they hop out on the call, saying, “Hey, this deal is important for both of us. Should we both appoint a deputy to kick off this process?” That may be the way to go about it. I think if-
Andrew: Can I ask you-
Ether: Yeah, go ahead.
Andrew (38:44): I was just going to ask you, so I mean, who on the Chinese side do you think that would be?
Ether (38:48): He Lifeng.
Andrew: I’m struggling on the U.S. side to think who it would be, partly because I just, like I said, I think Donald Trump wants to take the lead and isn’t quite inclined to back any of his cabinet secretaries to necessarily be the lead. I basically don’t think he trusts them to take that over. It’s my reading of it so far. Obviously, Daines, the senator that we talked about from Montana’s trying to sort of make a play to become an envoy. I mean, I’ll just leave that U.S. side aside for now because that’s not quite clear to me who that would be. But my question for you is, who do you think it would be on the Chinese side?
Ether (39:23): It would be Vice Premier He Lifeng. He has a portfolio. U.S.-China commercial relation is under him. And also he is probably the most trusted official of Xi Jinping. So, he is a perfect person. Yeah.
Andrew (39:36): Yeah. Great.
Ether (39:37): And he is a very savvy operative, very good at enforcing whatever Xi Jinping wants.
Andrew (39:43): And so he’s in lockstep with Xi and sort of speak for Xi Jinping.
Ether: Yes.
Andrew: And I think that’s the challenge on the U.S. side is like it’s not exactly clear “who speaks for Donald Trump.” Okay. So, that’s been a great discussion on the CDF and the wider geopolitical kind of moment that we’re in that’s sort of shaping the context for that. And we’ll see what happens with this potential Trump-Xi meeting. But in the meantime, I want to talk about the last thing that we have on our list today, which we’ve been tracking closely, which is China’s evolving approach to economic coercion or economic lawfare in terms of how they’re choosing to hit back against U.S. tariffs and export controls, etc. So, this week we had a pretty big new development on this front, with the state council issuing new regulations to beef up China’s anti-foreign sanctions law.
(40:35):
As a reminder, China passed the Anti-Foreign Sanctions Law or AFSL in 2021 as part of a larger effort to build a legal framework to strike back against foreign economic coercion, particularly from the U.S. And so these new regulations strengthened the enforceability of China’s existing countersanctions toolkit by clarifying the law scope and prohibited activities. Specifically, the regulations stipulate that “Any foreign country organization or individual that implements, assists, or supports acts that endanger China’s sovereignty, security, and development interests” is liable to be sanctioned. And so they also lay out specific punishments. If you are sanctioned or listed under the Anti-Foreign Sanctions Law, there’s a list of punishments. And then, finally, these regulations specify a clear division of labor for departments overseeing the laws enforcement.
(41:27):
Joe, let me bring you back in or throw this over to you. We’ve got these bevy of foreign executives in Beijing, and Beijing saying, “Hey, we’re open for business. Come invest.” During that meeting, they release these regulations that say, “Oh, by the way, here’s how we can punish foreign companies if they comply with U.S. or European sanctions." So, what’s going on here? What do we make of it?
Joe (41:52): Yeah. Well, I mean, I suppose the overhaul message that China wants to send, we’re putting it all together, is that, yes, we are open for business, we welcome you to participate in China’s development and we will continue opening and providing you a better business environment. But if you try to harm our economic interests or basically carry water for foreign governments trying to suppress China’s economic interests, then we have the power to strike back. And in perfect fairness, I mean this is sort of the implication that underlines business in any country, right? No country is going to accept a foreign entity which eases as harming its national security, right? But I mean, what I would say is that, yes, I think there is sort of an inherent contradiction there. But I think it’s also an effort to sort of clarify or give a little bit of clarity to foreign companies about where the red lines are and what’s at stake, right?
(42:44):
I think a criticism about China treatment of foreign companies in the past has been, well, it’s random, it’s opaque. You never know if you’re going to be on the chopping block. And I think that China’s really keen to sort of move away from that narrative or to counteract that narrative by saying, “Look, here are the specific things that will get you in trouble. Here are the specific penalties that you can expect to face. And these are the specific organizations that are going to be carrying it out.” Right? I think that’s the message that China wants to send. I don’t know if that’s going to be received as such by foreign companies, because you’re right. I mean, it does, on the face of it, seem a little bit contradictory. But I think the point here is that China wants to make it clear to foreign companies that you are welcome to do business in China so long as you follow the rules, and these are what those rules are.
Andrew (43:32): Yeah, yeah. Great points, great points. Ether, your thoughts on this, on the regs from the council on the ASFL?
Ether (43:39): No, I think my point will be I think Chinese policymakers has shown this consistently the past three years is that they want to build out a legal toolbox where they can counter U.S. sanctions. They’ve been doing that and making progress on that. And this regulation is just one of that. And I’m sure we’ll see more next. My point there is that I think the Chinese policymakers’ kind of intention with this thing is not to use those tools at the first place. This is purely for, if U.S. has put out either sanctions or tariffs and hurting Chinese economy and industries, they will use these tools to retaliate. I think, when they view it from that lens, they view it as we are doing kind of self-defense. And, unfortunately, foreign companies becomes the collateral damage of that.
Andrew (44:41): Well, that’s exactly what I was going to say. So, what strikes me is we’ve been covering all the, what we call economic coercion toolkit or the lawfare toolkit that China’s been building up for several years now. We’ve been covering it very closely since 2018. Basically, this is one of the big things we’ve been waiting for because we’ve been telling our clients, like, hey, they can’t really use the ASFL, it’s not ready for primetime because they haven’t done some of the detailed work to make sure that they know which agencies in charge of which aspects of the punishment. And these regs, they address that issue. Right? And so, I mean, it’s a very clear signal to me that the ASFL is now getting closer to being ready for primetime and that it will be used, as you said, as retaliation.
(45:26):
And not, I think, proactively necessarily to punish foreign companies to try to get them to do China’s bidding just in general, but even used as a reactionary or retaliatory tool. I mean, it just puts businesses right in the middle of a potential sanctions for tap back and forth. I mean, what do you do if you’re business?
Joe (45:49): Yeah, I mean, so I would add to that is, yeah, I mean I do think that this is probably a prelude to them, to these regulations being used more extensively. And just if you look at China’s retaliation against the most recent Trump tariffs, it’s been a multi-pronged approach. It’s like, yes, there have been some counter-tariffs, but much more targeted compared with the blanket U.S. tariffs. And I think a bigger and possibly more important part of that response has been directly targeting U.S. companies. And so, yes, obviously, that’s going to be something that spooks foreign companies, and particularly U.S. companies, however, the companies that I’m thinking of in question, so PVH group and Illumina, there was also a fairly direct political tie in where they had both done things that were seen as directly infringing on China’s interests. So, in PVH, that was the exclusion of Xinjiang patent from their supply chains.
(46:40):
And in the case of Illumina, that was lobbying, sort of against Chinese competitors in the U.S. Congress. So, I think it’s not just going to be China pulling names of random U.S. companies out of a hat and saying, “Oh, bad luck.” I expect there will almost always be a specific political tie-in that China can point to and say, “Hmm, yep, you actively sought the harm our development interests, so now you’re going on the list.” I mean, that may or may not be comforting at all to U.S. companies because these are possibly things that will be applied ex post facto. It’s they did something a few years ago that China didn’t like. And for that reason, they end up as part of the next round of retaliation. But yeah, I mean, it will be primarily defensive. It won’t be particularly random. I think there will almost always be a political tie-in.
Andrew (47:26): Yeah, let me just make one observation before I throw it to you for the last word, Ether, is I’ll just say, Joe, that’s a good point. And also, in both the case of PVH and Illumina, which they weren’t put on an ASFL, were put on the unreliable entities list. The punishment, as far as I know, there still has been no specific announced punishment for PVH. And then for Illumina, the punishment was sort of just like you can’t import certain gene sequencers into China, but you can still make those gene sequencers inside China, where they have a big footprint. So, a pretty kind of slap on the wristy punishment. All that is to say, I do think they’re going to use it more proactively, but I think they will be cautious because they don’t want to scare off the entire foreign business community. Their whole goal is to keep companies operating here. So, I just wanted to add that onto what you said, Joe. And then Ether, what are you thinking? Go ahead, Joe.
Joe (48:20): Sorry, one more quick thing is it’s a deterrent, right? The idea, hopefully, it’s the sort of thing that puts foreign companies on notice to say, “Oh man, we really got to be careful about this.” And to reassess their operations to say, “Are we doing anything that could run us afoul of these regulations?” I think, first and foremost, well, I mean it is the defensive tool but also it’s hopefully one that will achieve the intended result just by being on the books. I’m sure it will get used more extensively, but I think that that’s sort of a secondary purpose of these regulations.
Andrew (48:52): Yeah, the bulkage… Go ahead, Ether.
Ether (48:54): I want to add points you both made is that I think for multinational companies, the Chinese regulators will use those tools very cautiously is an important point to remember. I think that cautiousness will be reflected on two fronts. I think, one, or first one, what we’ll see is that if you kind of look at all the companies being put on EUL or other kind of list, I can see they are trying to basically outline the Chinese government red lines by singling out one company who is doing very badly on that. If you look at PVH, it’s about Xinjiang. If you look at kind of Illumina, it’s about biotech, I think the next one worth looking at is if they’re going to do anything with the U.S. chip industry. I mean, they already put Nvidia… open the monopoly investigation on Nvidia.
(49:54):
I think, by singling out those company, they’re basically showing to the world, here are few kind of red line issues for us. That’s one thing. I don’t think they are intending to expand that scope. So, for each issue, we set an example. I think that’s their approach. And the second one, I think, exactly your point, Andrew, about there’s, maybe with the exception of Illumina, there’s no punishment. I think it’s still our view that the end goal here is that they are preparing, the Chinese is preparing for getting back to the table with Trump and to negotiate a deal. And when both sides sit across the table, what kind of leverage do you have or bargain chips you have, right? For Trump, there’s a lot of kind of chips because, over the past few years, there are so many tariffs, there are so many sanctions. So many Chinese companies are on the sanction list. But if you look at Chinese companies, they don’t have much kind of bragging chips. So, they’ve been kind of announcing those investigations without announcing penalties, which makes them perfect bargain chips. If you remove certain Chinese company off your list, I’ll remove those U.S. company off my list, right? I think that’s kind of the thing they’ve been trying to prepare.
Andrew (51:12): Yeah, that’s a great point. Great point. And I think that’s actually a great place to leave it for today. We obviously covered a lot of ground. And just another quick plug, like we’ll be watching all of this stuff, especially on the sanctions and export controls and lawfare side very closely. And we help foreign non-Chinese companies and investors figure this stuff out and navigate it. If you have an issue with this stuff or if you’re anticipating needing to navigate this, reach out to us at hq@triviumchina.com. We’d love to work with you. But in the meantime, let’s wrap it up there, guys. Joe, Ether, so great to have you on the pod for the first time. I’m sure this is the first among many. So, thanks to you both for being here.
Ether (51:58): Yeah.
Joe: All right, thanks so much, Andrew.
Ether (52:01): Good having this conversation with you guys. Yeah.
Andrew (52:03): Yeah, absolutely. And after this, we can go grab some drinks together and hang out. All right, guys, y’all take care. Thanks everybody for joining us and listening, and we’ll see you next time. Bye, everybody.
Ether (52:14): Bye, everyone.
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