Sam Radwan’s China-focused consultancy, which he co-founded 16 years ago, advises financial services CEOs in the Greater China Region. He advises all kinds of clients, meets with all kinds of officials, soaks up what think tanks have to say, and shares his insights with them. He is definitely a finger-on-the-pulse-of what’s-going-on kind of guy.
When I catch up him for this interview, he is in Beijing and President Trump has just announced that China President Xi Ching will be visiting the U.S. soon. Tariffs are dominating market moves and news shows. Bets are being made on how aggressively and even negatively Xi will respond to Trump. So that’s where we start, of course.
What surprised me from the start? How upbeat Sam is on Trump and Xi coming to the table with the two of them ready to do whatever needs to be done to strike a deal, one that benefits them both, a very different view from the pessimism that prevails there.
So dive in and hear what he has to say about why China offers what Trump needs to declare an important victory in his tariff war, and why Xi must and can strike a deal with Trump that will help him rev up an economy that badly needs a boost.
Tariffs, Trump China in clear focus 00:02:07.050
Well, there's no question about it that it is top of mind. The whole tariff issue, and how China is going to navigate through this and try to figure out what's going to be on Trump's mind. That is a critical component of how China's looking to re-energize its economy. And they're keeping a very, very close eye on that…
How does China look at this? 00:02:56.486
Very pessimistic… They are expecting the worst, and in a way that is kind of reflecting the mood and the consumer confidence which we will get into in a little bit more detail, but they are really very pessimistic about what the outcome might be.
I am not so pessimistic-Trump WANTS to make a deal 00:03:15.290
However, I take a different view, and I talk to my counterparts and tell them that it's not going to be as bad as they think it's going to be. and the primary reason for that is, I believe, that trump is coming into this wanting to make a deal
Trump has 3 objectives 00:03:42.630
Sam Radwan: but he knows very well that China is a critical component of achieving his economic goals. And from my understanding, those economic goals fall into 3 areas.
(1) one area is to see to it that the stock market prospers significantly during his term
(2) number 2 is employment, and
(3) number 3 is inflation.
And if there's any economy that can impact all 3, in my view, it is China.
China is smart, too 00:04:13.330
So the Chinese are very smart, especially with Wang Yi and his negotiation capability. It's a question of are they now going to be able to play Trump's game, and that's what we're going to see unfold. So I'm a little bit more optimistic than my counterparts here in China.
China is a critical low cost provider- 00:04:58.310
China is a critical low cost provider to the American population, especially lower income population across the board. You know the number one export from China is electronics, and that is a key component to consider along with apparel and toys, etc. So on and so forth.
China’s tech investment could be lured to the US 00:05:42.540
If they start investing some of their newer technology where America may be lagging to some degree in the Us. The example we talked about is electric vehicles. China has come a long way in developing cost effective electric vehicles
The right Chinese capital inflows could be welcomed 00:06:30.660
but the 3rd component was around. You know the stock market right? There's a rule called CFIUS, right where the Us. Is limiting, how much Chinese can invest in the Us right up to 5% and not having a controlling stake in a company. but that capital will still be welcome right as long as it hits that particular limit in order to see to it that there's more capital investment on the part of the Chinese.
China is opaque but eager to make a deal 00:08:14.750
Sam Radwan: Well, everybody's keeping their cards close to their vest, right? Or but I would say that Xi. Jinping has never been more eager to make a deal than now. Given the current domestic situation
Real estate still holds the key 00:11:01.920
The real estate market is at the core and the heart of the economy in China. And what we're witnessing right now is good news and bad news. So since we last spoke there has been a deceleration of the number of foreclosures coming to the market. So that's the good news. : The not so good news is because of such a glut of inventory. The auction price realized <on foreclosures> is at a steeper discount than it was last year around 74% of what the bidding price is right now. So that's putting tremendous pressure on home prices
China is committed to technology- 00:11:58.590
Jinping recently had a visit which was again unprecedented with the tech industry and the tech entrepreneurs To emphasize how they are a critical part of the economy and it is time for China to continue its path down innovation. In other economies it would be considered a nonevent. But in China this is a critical message that they needed to hear
The tiers of the Chinese real estate market 00:13:01.230 --> 00:13:12.029
Sam Radwan: Well, certainly, I mean, if we look at the real estate crisis, you know there are 3 tiers that you need to take a look at right? One is tier one. Cities like Beijing and Shanghai. Right? I think they're going to be okay and they may be flattening out to recovering. Maybe sometime this year. Then there are tier 2 cities. They will probably be okay as well. But the time of their recovery is going to be maybe 2 to 3 years. But the big question remains with the tier. 3 cities, and will they ever, ever recover? Right? And that's the big question.
A plan takes shape 00:13:49.050
If you read between the lines one of the most important policies that they're putting in place is providing loans to local governments in order to take the real estate that they have and reconfigure the inside of the real estate in order to make it housing affordable for lower income individuals. Right? So that is one way they're looking to deal with the tier 3 crisis.
The Consumer is still struggling even with help 00:04:35.200
Sam Radwan: So, yes, absolutely. The real estate market itself
has to show significant improvement before you start seeing consumer confidence coming back? I'd like to give you an example of you know the numbers that came out on consumer spending. you know, a first look at what you see in terms of consumer spending, you would say, yes, you know, 4 to 5% growth in consumer spending. That is fairly healthy. But if you look underneath the numbers, you know, there are 2 parts. One part is the products and the other one's services. If we take a close look at products. There has been significant subsidies that the Government has been providing for vehicles for trading in your car for appliances, for electronics, etc. Yes, they did boost spending, but they were deflationary, and there was negative CPI on the product side.
Share this post