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00:00CHOYLEVA, SHE IS FROM ENODO ECONOMICS. WELCOME. WE PUT UP A LIST OF THESE ISSUES AND WE HAVE AT LEAST SEVEN OF THEM. THERE IS A LOT TO SORT THROUGH, WHETHER IT IS INTELLECTUAL PROPERTY OR WHAT IS GOING ON WITH THE VARIOUS COMPANIES, HOW CAN THEY GET THROUGH ALL OF THIS? DIANA: LOOK, THEY HAVE TIME TO GET THROUGH THIS, BUT ACTUALLY THEY WILL NOT BE GOING THROUGH THIS WHOLE LIST, BECAUSE SOME OF THE POINTS YOU HAVE LISTED, THE CHINESE ARE NOT PREPARED TO NEGOTIATE ON. THAT IS OF COURSE MADE IN CHINA 2025 AND ALSO 5G. WHERE I SEE LIKELY PROGRESS IS IN ANY TYPE OF DEAL THAT LOWERS THE TRADE DEFICIT, BUT IMPORTANTLY, ACTUALLY, ALSO ON INTELLECTUAL PROPERTY RIGHTS. CHINA IS WILLING TO MAKE CONCESSIONS ON THOSE FRONTS, AS WELL AS CONTINUE TO OPEN ITS FINANCIAL SECTOR. BUT, WHAT WE HAVE TO REALIZE IS EVEN THOUGH THERE IS LIKELY TO BE PROGRESS ON THE TRADE WAR FRONT, THE TRADE WAR IS MORPHING INTO A TECH WAR. AND THIS ONE IS MUCH MORE SERIOUS. DAVID: THAT TAKES US TO SOMETHING LIKE 5G, WHICH YOU MENTIONED, BUT NEITHER SIDE GETS WHAT THEY WANT IN TRADE NEGOTIATIONS I HAVE SAYING, SO ON THE OTHER ISSUES WILL THEY GET SOMETHING THAT SAYS AT LEASE THERE IS SOME MOVEMENT SO THE PRESIDENT CAN SAY, I HAVE A VICTORY? DIANA: EVEN IF DONALD TRUMP COMES WITH BIG WENT ON AND ELECTORAL PROPERTY RIGHTS, OR CHINA OPENING UP FINANCIAL SERVICES, ON THE CHINESE BANK, ANYTHING AND EVERYTHING FROM AMERICA, ALSO AS WELL ON TECHNOLOGY TRANSFER, THIS WILL BE BIG WINS AND ENOUGH FOR HIM TO CLAIM SOME SORT OF VICTORY. AND THE CHINESE ARE WILLING TO OFFER THOSE WINS. HOWEVER, THE MADE IN CHINA 2025, EVEN THOUGH NOW THAT TERM HAS DISAPPEARED FROM THE CHINESE COMMENTARY ON THIS ISSUE, IS SOMETHING THAT IS NONNEGOTIABLE FOR XI JINPING. AND AMERICA UNDERSTANDS THAT CLEARLY. SO, WHAT WE SAW WITH THE ARREST OF WANZHOU MENG, THE EXECUTIVE IN CANADA, THOSE TYPES OF EVENTS AND A VERY CONCERTED EFFORT ON THE U.S. SIDE TO RAMP UP ITS CYBERSECURITY AND ENSURE THAT THE SUPPLY CHAINS, ESPECIALLY WITH RESPECT TO CRITICAL TECHNOLOGY, ARE SECURE, THIS IS GOING TO BE THE THEME OF 2019. ALIX: WHEN YOU TAKE A LOOK AT THE U.S. AND CHINA, WHICH COUNTRY IS GOING TO BE UNDER THE MOST DOMESTIC PRESSURE ECONOMICALLY, OR MARKET WISE, TO COME TO THE TABLE? CHRIS: I THINK THE ANSWER IS UNDOUBTEDLY CHINA. IT SEEMS CLEAR TO ME THAT THE CHINESE ECONOMY AND THE PRIVATE SECTOR IS UNDER PRESSURE. AND MY FAVORITE CHART ON THAT IS LOOKING AT M1 MONEY SUPPLY, WHICH HAS SLOWED ITS GROWTH RATE SINCE 1989. SO 30 ODD YEARS OF THE SLOWEST GROWTH RATE IN MONEY SUPPLY, WHICH I THINK HAS A REALLY STRONG MESSAGE TO IT. NO DOUBT AS THEY TRIED TO TIGHTEN UP MONEY IN THE PRIVATE SECTOR, THERE IS A LOT OF PAIN BEING FELT ACROSS MANY PARTS OF THE CHINESE ECONOMY. SO THE U.S. IS SLOWING, BUT STILL GROWING. CHINA IS SLOWING RAPIDLY FROM A VERY GOOD GROWTH RATE TO SOMETHING THAT IS NOT GOOD ENOUGH FOR THAT ECONOMY. SO THERE IS A LOT OF PRESSURE IN CHINA AND I THINK THAT THE LEADERSHIP IS PROBABLY FEELING THAT. AND I THINK IN TERMS OF NEGOTIATIONS, WE HAVE A HAD HAD A LOT OF SIGNALS, WHERE THEY ARE PREPARED TO GIVE GROUND. I AM ENCOURAGED AND I THINK THAT CHINA ARE THE ONES THAT ARE PRESSURED THE MOST TO GET A RESULT FROM THESE TRADE NEGOTIATIONS. DAVID: TALK ABOUT THE STRENGTH WHERE WEAKNESSES OF THE CHINESE ECONOMY AT THIS MOMENT. WE HAVE PUT UP A CHART OF M1. I WILL PUT UP A DIFFERENT CHART OF PMI ' S. MY QUESTION IS, HOW MUCH OF THE DROP OFF IS BECAUSE OF THE TRADE CONFLICT, AND HOW MUCH IS INDEPENDENT FROM THE TRADE CONFLICT AND PUTS PRESSURE ON CHINA IN THESE NEGOTIATIONS, BECAUSE THEY HAVE A WEAKENING ECONOMY ANYWAY? DIANA: SOME OF IT IS DEFINITELY THE TRADE CONFLICT, BUT ALSO IT IS A COMBINATION OF SWEEPING CHANGE IN THE WAY THAT CHINA ' S ECONOMY IS NOW BEING RUN UNDER XI JINPING. AND I WOULD ACTUALLY ARGUE THAT THAT HAS BEEN THE KEY DRIVER IN TERMS OF DAMPENING DOMESTIC CONFIDENCE. IT IS VERY CLEAR, IN THE MIDDLE CLASS -- AND THE MIDDLE CLASS HAS NOW UNDERSTOOD, THAT THE CHINA THEY ARE LIVING IN UNDER XI IS 180 DEGREES OPPOSITE TO THAT UP TO THAT POINT. XI HAS THROWN OUT OF THE WINDOW ALMOST ALL OF THE OLD IDEAS, IN PARTICULAR TO GET RICH IS GLORIOUS. HE IS DETERMINED TO NOT HAVE HOUSE PRICE INCREASES. THE DELEVERAGING HAS MADE THE SITUATION HARD FOR PRIVATE COMPANIES. SO THE COMPETITION OF ALL OF THOSE HAS BEEN DAMPENING GROWTH IN CHINA. AND THE TRADE CONFLICT HAS COME ON TOP OF THAT. AND IN A WAY, AS AN EXTERNAL CONFIRMATION THAT THIS IS A VERY DIFFERENT WORLD CHINA AND THE CHINESE WILL BE LIVING IN. ALIX: SO, IF YOU ARE LOOKING FORWARD AND TAKING INTO ACCOUNT WHAT YOU HAVE HEARD FROM THE U.S. DELEGATION AND CHINESE DELEGATION, WHAT DO YOU NEED TO HEAR FROM BOTH SIDES TO GIVE YOU CONFIDENCE THAT THIS COULD BE MOVING FORWARD IN A MORE CONSTRUCTIVE WAY? DIANA: WELL, IT IS DIFFICULT TO ANSWER THIS QUESTION BECAUSE ONE OF THE STRONGEST CONVICTIONS I HAVE IN TERMS OF WHERE THE WORLD ECONOMY IS GOING IS THAT IT IS DE-GLOBALIZING INTO AMERICAN AND CHINESE SPHERES OF INFLUENCE. WE ARE IN THE END OF THE START OF A NEW DIGITAL COLD WAR. SO, AS I SAID, I AM CAUTIOUSLY OPTIMISTIC THAT ON SOME OF THE TRADE ISSUES THERE WILL BE SIGNIFICANT PROGRESS, NOT LEAST BECAUSE IT IS IN CHINA ' S INTEREST TO MAKE CONCESSIONS ON INTELLECTUAL PROPERTY RIGHTS, AS THEY NOW EXPECT TO BE HAVING INNOVATIONS AND REAPING THOSE INTELLECTUAL PROPERTY REVENUES THEMSELVES. BUT WHEN IT COMES TO STRATEGICAL, TECHNOLOGICAL RACE GOING FORWARD, THERE IS NO WAY THAT THE TWO SIDES CAN FIND A COMPROMISE. SO IT IS NOT IMPOSSIBLE FOR ME TO IMAGINE SOMETHING COMING OUT OF CHINA AND THE U.S. OF THAT WILL ALLEVIATE THOSE FEARS I HAVE, THAT WE ARE IN A TECH WAR. AND THAT TECH WAR IS THE MUCH

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Choyleva Says U.S.-China Trade War Is Morphing Into Tech War

Diana Choyleva, chief economist at Enodo Economics, and Chris Watling, chief executive officer and chief market strategist at Longview Economics, discuss U.S.-China trade talks resuming and the state of China's economy. They speak with Bloomberg's Alix Steel and David Westin on "Bloomberg Daybreak: Americas." (Source: Bloomberg)

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