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In this episode, James Connor of Bloor Street Capital and George Calhoun, Director of the Quantitative Finance Program at Stevens Institute of Technology, dive deep into China’s faltering economy and its widespread impact. From the real estate crisis to the semiconductor supremacy battle, uncover the truths behind the headlines. Plus, get expert insights on China’s geopolitical strategies, including the tension over Taiwan and the TikTok controversy. Join us as we explore the intricacies of China’s economic challenges and their potential ripple effects on the world.


James Connor 0:05
Hi and welcome to Wealthion I’m James Connor. Today we’re going to discuss China’s faltering economy and its impact on the rest of the world. How bad is China’s real estate market? How will China respond if the US does ban tick tock? And will China invade Taiwan? These are some of the questions I will ask my guest, George Calhoun. And George is a professor at Stevens Institute of Technology and as a writer for Forbes, and he has written extensively on China. George, thank you very much for joining us today. How are things in Washington?

George Calhoun 0:37
Spring has come it’s it’s beautiful weather finally, the cherry trees are out. You know what could be better. They announced yesterday its Peak Peak cherry tree at 4pm. National Service came out and said it’s peak so you got to rush out and catch it.

James Connor 0:52
Very interesting. I have I haven’t been to Washington and many years. I’m going to have to go there. So now’s the time to go is it?

George Calhoun 1:00
Well, it depends if you like the crowds. There are a lot of people a lot of people out but it is beautiful. It is a beautiful, beautiful stroll around the Tidal Basin and other parts where the cherry trees are out.

James Connor 1:13
Washington is also home to an amazing hockey team in the Washington Capitals. It has one of the best players ever and Alexander Ovechkin Are you a Caps fan?

George Calhoun 1:21
I am not a Caps fan. I’m a I’m a Flyers fan, I hate to tell you and I know that you’re a Bruins fan, and you must be in a happy mood because they beat the flyers over the weekend. But it was close. It was a one goal game.

James Connor 1:35
And it’s going to be another interesting playoff season. George, you have written extensively on China and the problems China is having. And this is where I want to focus our discussion today. And why don’t we just start with a top down view on what exactly is happening with the Chinese economy?

George Calhoun 1:52
Well, the first thing to say about what the question what’s happening with the Chinese economy is that most of the numbers that are published by China are really not reliable indicators. You know, I’ll talk in a second about how they come up with some of those numbers. But there are, you know, the number, the GDP number, for example, gross domestic product number that they publish is it has political significance for them, they need to keep showing success, the Beijing regime, the Communist Party, is based upon their legitimacy or their ability to, to hold the position they hold is based upon the idea that they’re good managers, good stewards of the economy. And if the GDP number was reported, as it really has been, the past couple of years, it would have looked like they weren’t doing such a good job. So they they do manipulate the figures quite a bit. You know, the COVID lock downs, among other things really hammered their economy and is continuing to do so. It’s not just the lockdowns, it’s also the the outbreak of COVID, that has really decimated a large part of their population and overwhelmed their healthcare system. It’s also the finally the breakdown of some of the things they’ve been using the tools that the policies that they’ve been using for decades to stimulate the economy, for example, the real estate sector, the investment in manufacturing capacity, those are all things that have kind of run to the end of their ability to function in the way that the government was, was using them. So they’re kind of running out of the usual fuel for driving the economy forward. And apparently they’re not willing or don’t feel they’re able to engage in a stimulus program like the US has done and like other developed economies do so. So they’re in a they’re in a corner.

James Connor 4:02
So you said something that I want to expand on about the GDP, you said it’s not reliable. And the IMF is stated that the GDP number for 2023 was 5.2%. The IMF is forecasting for 2024. It’s going to be 4.6%. And this is the slowest growth we’ve seen in China in decades. What do you suggest suggesting the real number is if it’s not 4.6%?

George Calhoun 4:28
Well start with the number they’re quoting. So it was interesting that in the third quarter of last year, for example, the GDP growth for the United States with 4.9% was later revised upwards. The GDP growth for China was 4.9%. I don’t think it’s been revised. But the headlines were completely different in the US 4.9% is the economy is booming. It’s overheated, it may delay the onset of of monetary loosening by the Federal Reserve, it was almost viewed as a problem being too too robust. Whereas all the headlines in China were about deflationary tendencies. Whether or not China is entering into a long, they sometimes call it Japan if occation following the pathway that Japan fell into, in the at the end of the 1980s, and really has been in almost since that time of long term stagnation and deflation and property values dragging on the economy. So just start with the fact that the same number in the two contexts was receiving a very different two very different interpretations. I think one of the things that you need to everyone needs to keep in mind about GDP is it’s a number that can be manipulated, in the sense that you may not realize it, but every expenditure of any type that is made by anyone in the economy contributes to GDP. So when you are sitting in traffic, when you’re stuck in traffic, and you’re you don’t and you’re your engine is running and you’re burning gasoline, you’re contributing to the GDP. If you’re if a country like Russia is investing has turned its economy towards a wartime footing and is investing in military actions and military equipment that contributes to the GDP. China can do that as well. They can manage their GDP by making investments in certain sectors and they’ve done that in to a fault they’ve they’ve overcapacity, they’ve they’ve created overcapacity in many sectors of their economy, and that is now a problem that they’ve got to deal with. Because if there’s overcapacity, that means there’s a glut of production, that means there’s deflation. It’s, they’re in a very difficult bind. And people that have looked at the numbers more carefully or looked at alternative views of gross domestic product and China have come up with much lower numbers than the official numbers that are being posted. And I usually follow the rhodium group, for example, is one of the firm’s one of the groups that I think has done a very good job of tracking the true GDP. And they saw last year on I believe they stated a negative growth. And this year, it’s a very low growth. So you know, they’re the numbers in China have a political significance, but the substances behind them is increasingly not bearing up to the robust picture that they’re trying to portray.

James Connor 7:54
It doesn’t matter what country you’re looking at, if it’s the US, China or Russia, it’s all about selling, right? You’re always trying to put the best foot forward, if you will.

George Calhoun 8:03
Well, you know, there was a commentator Jim Chanos, a famous short seller made, he did an interview a few years ago, which I saw, he made a point that, I think is worth keeping in mind in the United States. And in most economies, GDP is something that you measure, at the end of a period, how much production there was. So you make you attempt to measure it. In China, it’s it’s a stated political goal. And it’s passed down from the top to the local regions, and all everybody has their goal to hit. It’s like a sales goal. They’ve got to hit that net goal. And how do they do it? Well, if they don’t have real productive activity, they can do it by investing in building skyscrapers that aren’t occupied and may never be finished. But all all the investments that they’re making to build those to build that housing that we’ve seen the ghost cities that have gone up in China, all of that contributes to the GDP. So you know, it’s it’s a different way of looking at how you try to measure and project the performance of the economy. But overall, it is pretty clear that China is in a difficult situation and is facing the prospect of having a long term workout that may start to look like the Japanese scenario that they’ve been stuck in in Japan for several decades, maybe just now beginning to come out of it.

James Connor 9:39
So let’s talk a little bit more about real estate because we hear a lot of China’s commercial and residential real estate sector. Earlier this year, China’s largest real estate developer called Evergrande was forced into bankruptcy. Maybe you can give us some backdrop on what exactly is happening within the real estate market there and what caused this bubble to burst, if you will?

George Calhoun 10:01
Well, I would say to step back and the big picture on the real estate scenario in China, I would make two points. One is that it is one of the real estate investment has been one of the policy levers for creating GDP that I was just alluding to. So by the government, over many, over many years, facilitating investment in real estate, encouraging the construction industry, it’s now it I mean, some of the estimates are that it’s close to 30% of the economy, or it has been until the collapse that started now. That’s twice the impact twice the level of the footprint that real estate has in the United States, even with our enormous investment in residential, commercial, real estate and housing and the importance of that to our economy. In China, it occupies something like twice, almost twice the footprint in the economy. And that’s a result of government policy, which, you know, inevitably has led to overbuilding, and now we’re seeing the consequences of that as the bubble has begun to deflate, and you have construction that will is not finished probably will never be finished, maybe never really paid for and the the companies are beginning to fall in the DOM like the Domino’s. The other big picture comment I would make is that in China, the social safety net that we think of here is not nearly as robust, not nearly as developed, and the Chinese citizen needs to save needs to put aside rather than spend needs to save and savings rates are much higher in China, spending rates, consumer spending is a much smaller part of their economy than it is here, for example. And where that traditional store of value has gone was into the real estate world. So there’s a there 10s of millions of homes in China that are not occupied that are that are held that were that were being held as investment propositions and speculation in the real estate market was, let’s say similar to what was what went on in the subprime crisis back in the United States back in the 2000s. In the United States, but it’s larger, it’s a larger component of their economy, it’s more significant for the average citizen, it’s where they saw their nest egg for their weather, whether it’s their retirement or just their safety net, in a in a government in a system that doesn’t have the same backstop for social safety net that other developed economies will have. So all of this has kind of promoted a bubble. And it’s a big one, it’s now deflating, and it is going to take a long time, if you look at how long real estate bubbles tend to, to last, again, the Japanese example exists as a parallel that it really was decades, 20 or 3020 25 years, almost 30 years that they have been struggling with a backlog of overvalued real estate that in the case of China is an even larger proportion of their economy. So so the real estate crisis is is not going to resolve itself anytime soon. And it’s a potential source of social unrest because many people millions of people have paid for apartments that that aren’t finished. They’re paying mortgages on their mortgage protests now that they the the apartments that they’ve purchased, aren’t even finished, can’t be moved and probably won’t be finished. So it’s, it’s a big problem there.

James Connor 14:25
And do we have any idea how much the real estate market is pulled back? Or how much valuation it’s lost from its peak?

George Calhoun 14:36
Well, there are many numbers and again, the government puts out numbers then people try to look at the sales numbers in the sale selling prices. They’re all down you know, whether it’s down a couple of percent or whether it’s down 1020 30% in different markets, but it you know, the trend is is in the wrong direction for sure.

James Connor 15:00
And so just a follow up question or when you talk about the real estate market collapsing, the stock market has also collapsed. And if you look at China’s CSI 300 index, which is comprised of the 300 largest companies in China is down 45% Give or take from its highs, and the government has actually stepped in. And they’ve implemented a number of politics policies to stop this falling. And one of the policies they implemented was a ban against short selling. What are your thoughts on that?

George Calhoun 15:34
Well, the ban, the idea of banning short selling has never really worked historically, Korea has also undertaken a similar policy lately. There were brief experiments with it in the very dark moments of the 2008 2009 crisis here in the United States, where us for brief periods, certain categories of stocks were short selling was limited. But it doesn’t work it it just stores up a problem for the future. And I think what it shows the IT and other measures that the Chinese government is trying to take, you know, they have not really learned how markets work. And they’re going to go through the learning process, I think, and it’s going to be one failed policy after another until they figure out that markets have their own markets form their own views, I mean, in value, you can’t force investors to invest you can’t they’ve they’ve done things to make it very difficult for foreign investors to stay active in the market. And there’s a big pullback by the foreign investors that they would like to see me at the at the very, let’s say top of the list is the question of whether they’ve got a financial market that is open and allows free flow of capital in the way that you need to do if you want to be a world player, a world financial market on on, on a par with, with the West, and China, that’s very difficult for them to accept that would mean giving up a lot of control over their economy. They have a problem with capital flight, rich Chinese taking every opportunity, it seems to get their capital out of China. That’s something that has contributed to this decline in the stock market. So you know, I think, yes, it’s a it’s a, it’s one of those symptoms, one of those signals of what is really happening in China is not the rosy picture that the official government statistics are, are trying to portray.

James Connor 17:55
And I should add that both the CSI the Shanghai index have also seen lifts here in the recent in the last few weeks. Speculation is it’s the government that they’re supporting the markets, buying up all the stocks.

George Calhoun 18:08
Right, they’ve apparently the state owned, some of the state owned companies have been directed to get into the market and provide support. I guess it’s a form of quantitative easing, and worked through the through the state owned entities. It won’t, you know, it’s it’s not it be tokens, a, as I said, a failure, I think, to understand the nature of how markets function, and the idea that you can prop it up, you know, in in any long term sense with measures like this, these things have been, have been tried. I mean, not to blame the Chinese entirely either. We have done it in our market, our bond market was quantitative easing, we bought, the Fed has bought $9 trillion. I mean, now they’re now they’re rolling it off. But they they bought a $9 trillion of treasury bonds and mortgage backed securities to in some sense, prop up the bond market and created a lot of distortions in our in our markets, our financial markets as well. So there’s the government should recognize that they do not have the ability to control the financial market the way they might be able to control other aspects of their economy and that that recognition is is anathema to the principles of stop top down command economy that China’s current regime is based on.

James Connor 19:45
You made mentioned earlier that the consumer aspect of the GDP is much smaller than that of the US is and I’m just wondering what this pullback in the real estate market and also the stock market is doing to the wealth effect and and people’s willingness to spend

George Calhoun 20:01
Well, I think you’re on target with that point. Everything that we see coming out of China today is that consumers are in a funk, they, their real estate, dreams of creating a nest egg for themselves with real estate have been severely damaged, severely impaired, that tends to cause a pullback. You know, it’s natural for consumers everywhere, when a recession hits, to pull back, save more in the with the fear that they may need that nest egg even more if if things are not looking good in the economy overall. Well, that brings to the fore this, you know, the famous paradox of thrift that John Maynard Keynes and other economists classically called attention to if everybody saves part to the extent that people increase their savings, they’re reducing their spending, it contributes to the, to the very problem that they’re trying to anticipate by increasing their spending contributes to the recession, it pulls pull spending and demand out of the economy. It’s a depressive contribution to the overall economy and and that’s that certainly is going on in China right now.

James Connor 21:22
So I want to move on now and I want to discuss tick tock, I’m not I don’t I’m not on tick tock. Are you on TikTok?

George Calhoun 21:29
I am not on TikTok. No, I, I don’t I don’t match the age profile for being on TikTok, I guess.

James Connor 21:37
So it’s one of the most popular social media platforms in the world, it’s owned by a Chinese company called ByteDance. And during the Trump administration, the President was very vocal in banning TikTok. And I think it was even reported that Oracle was lined up as a buyer. And then all of a sudden, it just kind of disappeared. We never heard anything more about it. Now, here we are. With a few months ago before the US election and tick tock is out in the limelight again. And I want to get your thoughts on this. Is this just political maneuvering ahead of an election? Why are we hearing so much more about tick tock now?

George Calhoun 22:14
Well, let me first give them what I the perspective I would have from the company of the ByteDance and TikTok I don’t know a whole lot about them. I have studied other companies in the emergent tech industry in China Alibaba, and Jack Maas Empire, and I’ve looked at in some detail, but these guys are, you know, they were I have to, I think we have to talk in the past tense, they were the hope for the Chinese economy to really move up into a truly competitive strategic position with the West, it had to be based upon the entrepreneurial drive that would match what we see here in the United States. And it was going to come from some of these entrepreneurs like Jack Ma and others that have that we’re in the process of building, potentially world class competitors, for our attack industry. And what happened, what has happened to that entrepreneurial class in the last several years is they have been, the crackdown has been very severe. They’ve been some of them have been driven out of the country. Some of them have been detained in prison kidnapped, in some cases out there famous case of one of the entrepreneurial leading lights being kidnapped out of the Four Seasons Hotel in Hong Kong, taken out in a stretcher and, and now he’s in jail in China. So the cooling, the severe cooling of the entrepreneurial sector, I think, is the context for ByteDance. And as I said, I don’t know too much about the details of that company in China. But what I have to imagine is that they are in the same position that Jack Ma and some of the others are, they’re trying to figure out how not to get on the wrong side of the regime. And so they have to adopt a very they have to tread a difficult path between the US demands that they cut their relationship with the Communist Party and the regime in Beijing, which does not want to see an independent business, entrepreneurial business sector flourishing at least that seems to be the policy they’re following at the moment. So I think bytedance is probably not the malevolent actor that Some people have assumed, but they are compromised by the fact that they have to make the deal with the regime in Beijing, or at least they can’t move to a fully independent status. You know, I had a lot of. I also had a lot of interaction with Huawei. I wrote a number of columns about it. And they reached out to me, and we went back and forth on some of the things I was recommending that they could do to get out of the difficulties that while Huawei was under and, you know, as we know, Huawei was basically subject to a full ban in the United States and many of the other Western markets and lost their position, their international position, they still have a strong Chinese business, but their international business was more or less crushed by these policies. And, you know, I had some sympathy for Huawei and all that, because I think once again, they, they really wanted to just sort of do business as a business and be successful, and they were being successful, but they couldn’t adopt a position that was independent, sufficiently independent of the Chinese government, to satisfy the United States, Britain, Australia, and other countries that ended up banning their equipment. And I think, but bytedance is probably in the same position, it’s not that they want to be an espionage entity, they want it, they have a business, they have a good idea that that should have should make them into one of the leading tech companies in the world on a global scale, but they can’t cut that channel back to the regime in such a way that would produce confidence over here that they were truly independent. So I think they’re stuck and as to what it means in the American political setting. You know, I think China, as everyone points out, is one of the very few bipartisan issues in the United States political scene today. And the recent votes certainly have shown that and I think, you know, yes, there’s a political characterization of it in the current election cycle, and but I think that we’re gonna see a we’re gonna see a deal there. But it’s not probably the deal that is envisioned in the current policy, because that is kind of too mechanical, you know, sell it within six months, or we’ll shut it down. Both of those options selling it was an article I was just reading this morning, it’s going to be a lot more complicated to sell it, and the US version of the US branch of it, and probably China won’t allow it Beijing regime. And shutting it down is not that easy, either. I mean, it’s the internet, we don’t have the control over the internet and the electronic digital universe that that China does. So we may be in a position to obstruct and ban certain aspects, maybe the the app stores won’t be able to officially download but you know, the, the the web, the internet is too wide open to really envision how we would completely stop people from accessing that. And you know, and then there of course, there are two big, huge legal issues that attached to this one is antitrust if it’s going to be sold, who’s going to buy it at the talking about a valuation of $100 billion dollars. You know, Microsoft was essentially stopped from thinking hard about purchasing it the last time around Oracle, who, any of the companies, that would be the logical ones to step up to purchase it, it would be it would raise antitrust concerns. And it also raises First Amendment concerns about the banning of free speech. And the you know, I think it’s, it points to the issues related to the regulation of social media that are broader than Tik Tok. They address all the social media platforms here in the United States as well. And, you know, that’s an area that we haven’t figured out yet. How to how to square up first amendment with public safety with the regulatory concerns. You know, just to dip into a slightly side topic, if you look at cryptocurrencies. You know, what’s amazing to me about that whole market is how inept and slow the reg dilatory process has been to catch up with some of the abuses in the cryptocurrency market that are just obvious that they should have been subject to some greater attention, scrutiny regulation. And yet you have the SEC and the CFTC, the various regulatory agencies all kind of pointing fingers at each other and not sure who can make the first move while this market goes on and, and develops at a furious pace.

James Connor 30:28
Former Treasury Secretary Stephen Minuchin is putting together an investor group to buy Tiktok. And you might call this inside access, creating outside opportunity. What are your thoughts on this?

George Calhoun 30:40
Well, Steve Minuchin is obviously very smart guy. I’ll start with that. I think he’s one of the the folks in the former Trump administration that everybody kind of says, yeah, he knew what he was doing. He did a good job managing the Treasury. So I don’t want to second guess, what he may have in mind. I think, you know, the details are not out there enough yet to have a clearer picture. But what I kind of infer from his the proposal, at least the headlines that I’ve seen is that he he’s looking at he’s envisioning a, a bid that would not come from one of the existing tech Titans, but would be put together as initially as a financial proposition. Maybe you know, with along the lines of Elon Musk’s Twitter adventure, which was pretty is pretty much a financial proposition, did not build off of an existing social media platform.

James Connor 31:49
That’s a great overview of tick tock, I want to move on now and discuss Taiwan, there’s been a lot of speculation about China invading Taiwan. And one of the things that you’ve written a lot about is the fact that Taiwan controls 90% of the fabrication of semiconductors. And why don’t you just give us an overview of this and how important this industry is to the world?

George Calhoun 32:12
Well, again, to start at the top, it’s been compared to the role that oil played in earlier stages of the economic development of the global economy. Now, digital technology is the driver of a huge and growing segment of our economy, anything that what we’re doing right now on our computers and our social media links, and smartphones, of course, is all based on an artificial intelligence all based upon the advanced semiconductor technology that is really quite an amazing and complex ecosystem, but in that ecosystem that produces this digital gold, digital oil. There are a few choke points where there’s an aspect of the technology that is so advanced and sophisticated that it’s controlled by one or sometimes a couple of key players who really have the ability to dominate and determine a lot of the flow of technology and product. One of those is a company called Taiwan semiconductor manufacturing company TSMC. In Taiwan, that over the well, let me say it this way, about 30 years ago, the semiconductor industry sort of launched a strategic initiative where they began to divide into two groups there were the companies that design chips and the companies that manufacture the chips and that separation has proceeded to the point today where there’s their companies like Nvidia Qualcomm, AMD whether or not people understand they don’t manufacture anything at all Nvidia does not manufacture the chips that its name is attached to. They are a design company. And who manufactures those chips is the foundry company called TSMC. In Taiwan, so that’s true for AMD is true for Qualcomm is true for Apple, they’re all in the business. They’ve figured out that it’s been more profitable to design the chips and then have somebody else manufacture them for you. And that’s somebody else over the past couple of decades that it’s called the foundry business in semiconductors the foundry segment has consolidated to the point where TSMC as you say, Now manufacture For something like 85 or 90% of the high end ships in the in the world, and this makes them a choke point. And if if there’s a threat to that choke point, it becomes a critical threat to all the customers that use. So Nvidia, AMD, Qualcomm, Apple, Microsoft, all these companies today rely upon TSMC if that choke point was taken out of business tomorrow. The implication would be for example, that those companies I just rattled off and Vidya Qualcomm and so forth, they they would be their business would be would come to a halt, basically, for the for the foreseeable future, until they were able to find an addition a new foundry relationship. And that is not something that can happen overnight. So it would be an incredibly disruptive event for the world economy. Now, will China really take those steps? You know, I think there’s a lot of gaming going on in the thinking of people about that question I, I kind of see it as inconceivable, because it would be virtually it. First of all, it would hurt China’s own semiconductor, the China’s semiconductor economy is backwards to use a blunt word, and it is not going to come it’s not going to be in a position to substitute for what TSMC can do. For many years, if ever, they’re trying very hard. They’ve been trying very hard. Their efforts have not succeeded. They’ve been kind of top down Soviet style investment programs instead of the entrepreneur allowing the entrepreneurial sector to move forward, which I’ve already commented on how they Zhang has kind of repressed that. So it would, it would definitely be a blow to China itself, if they did anything to threaten the truly threaten the potential choke point there in Taiwan. Nevertheless, it’s an issue that has got to be on the minds of all the major players in the industry today. And I think you’re beginning to see this big supertanker turn, it’s going to take a while, but it’s going to move away from China in general, as a customer as a manufacturer, and it’s going to move, it’s going to force TSMC to do what they’re doing, which is they’re building a plant in Japan, they’re building a $40 billion plant in Arizona, they’re going to have to diversify. And it will also, I think, play to the strength of one of the just two other companies, I think that can potentially play that role, which is Intel. Here in the United States, Intel has announced that they are getting into the foundry business, they traditionally were not in that business they did they made their own chips, they design their own chips, they made their own chips, they were the really one of the only companies that was continuing to do that. But they’ve now added to their business model, the foundry option so that they’re going to look to create an alternative to TSMC. And they had a recent win with Microsoft on one of their most advanced fabrication technologies that will come forward in the next couple of years. So so it’s a it’s a big a big U turn in the industry, it’s going to be interesting to see how it develops. I I can’t believe China will actually undertake a military action because it would be self defeating in a number of ways. But you know, they’ve been making blunder after blunder over there in Beijing in the last last decade. So I guess you can’t rule out that. You know, they were they you can’t rule out something that seems inconceivable, I guess.

James Connor 39:23
So there’s a lot to unpack here. But I guess when you when I hear this story of of Taiwan and how prevalent they are when it comes to the manufacturing of semiconductors, it reminds me of so many other elements that we in the West, especially in North America, we’re beholden to these other countries. And I guess if you look at it, this is one big positive that came out of the pandemic, right? We realize that we’re beholden to China when it comes to the production of lithium ion batteries for EVs. Even though China produces very little in the way of raw materials, they control 80 to 90 90% of the production of lithium ion batteries. So if you’re a GM, or your Ford or your Tesla, you have to go to China for these batteries. And it’s the same thing within the nuclear energy sector. We in the West, especially in the US, we’re beholden to Russia for a lot of these nuclear services that only they produce, and no one else does. And now here we are, you’re telling me about the semiconductors, and how Taiwan, Taiwan Semiconductor produces 90% of all semiconductors, not

George Calhoun 40:29
Not all semiconductors, but of the most advanced semiconductors that are most advanced

James Connor 40:34
But that’s what everybody wants. That’s what Apple wants. That’s what Nvidia wants. And they’re,

George Calhoun 40:41
they’re the supplier for the names that are driving the market today, Nvidia, AMD Apple, they’re Qualcomm. They’re the supplier.

James Connor 40:51
Now in these other sectors that I mentioned, there is massive investment going on within the US. They’re trying to make up for this right. But it’s going to probably take 1015 20 years before they get caught up. And I can only imagine the same thing is going to happen with the semiconductors, you’ve made mention of the fact that Taiwan semi is building a plant in Arizona, how long will that take to manufacture?

George Calhoun 41:15
Well, there, it’s, you’re right, it’s not something that happens overnight, I think they’re now talking about 2027 to be sort of up and running, the data has been moving around a bit. They they’ve, as you, as you probably no, there’s a new industrial policy initiative in the United States called the chips Act, which is going to channel let’s say 10s of billions of dollars. Again, there are different numbers that are bandied about, but channel a lot of government funding to support manufacturing in the United States. TSMC is negotiating for a big chunk of that as Intel, AMD, not AMD Global Foundries, which is the former branch of AMD, the foundry piece that they spun off when they split their business model, you know, 10 or 12 years ago? So, you know, yeah, it’s gonna take some time. But I would, I would say, again, assuming that there is no military action that truly threatens the Taiwanese situation right away. I think by 2030, the industry is going to look very, very different, there’s going to be a lot more production capability in friendly areas, whether whether in the United States or in our allies. And China will have, I mean, I view, I view it as another sort of huge strategic blunder instead of, you know, following a policy that would have encouraged further integration and eventually brought China into that ecosystem in a way that would give them more influence. They’re following a policy that’s going to lead to them being excluded from it. And it’s, you know, it’s not, it’s not clear that they would have the ability to duplicate, you know, the capabilities of the semiconductor ecosystem in China anytime soon. It’s not like making solar panels. It’s not bending metal. It’s not like mining lithium, you know, it’s not battery technology. It’s not solar panel technology, it’s it’s orders of magnitude, more sophisticated. And it’s moving very fast. And it’s not about costs, driving costs down and using overcapacity to crush world markets with dumping policies, which they can do with steel, they can do it with many, you know, with with automobiles now electric, I mean, the electric vehicles that China is capable of making far outstrips the domestic demand. So what are they going to do? They’re going to take those vehicles and sell them in Europe and sell them try to sell them everywhere they can and use that to support the overcapacity that they’ve invested in. But semiconductors isn’t like that. It’s and they have, if you look carefully at the track record in China of trying to invest and develop their semiconductor, their chip industry. It’s a long history of essentially a failure at this point, and it does not seem as though they have figured out why it has failed and what they need to do to have it be more successful. Or maybe they figured it out. And it’s that again, that entrepreneurial sector that they should encourage but if they do encourage it, it reduces the control of the party and you know, they’ve made their call that that that’s not something they’re going to tolerate

James Connor 44:59
Joe He did touch on this earlier, but I just want to hit on this point again, if China was to invade Taiwan tomorrow, what would that do to the stock price of a name like apple? Or Nvidia?

George Calhoun 45:13
Well, well, if they actually invaded, I think the, the view is that the entire production operation and they, they cannot invade and take over the TSMC operation in China, it’s not like the Japanese invading Malaysia and Singapore at the beginning of World War Two where they could take over oil fields and pump the oil because, you know, that was something that they needed for their economy, the capabilities in Taiwan would disappear, they would be vaporized from five different directions. And that’s why I can’t believe I mean, they they would not be gaining anything by doing that they would only be destroying it would be an act of destruction in the world economy. And yes, Apple, Nvidia, AMD, all of those companies, I mean, particularly companies that are chip designers, and don’t have a separate product line Apple arguably has has a more diversified business model. But in video, their whole business is based upon TSMC, providing them the products that they design. During the fabrication work. I don’t so I can’t see that China would do it that way. I think, you know, the more a more likely scenario that’s been discussed as the idea of a blockade, let’s call it and that could be a spectrum of embargoes, blockades, you know, maybe just making life more difficult for Taiwan and in a graduated way to perform the business function, but without actually invading and trying to take over those factories. But that, you know, I I tend to feel that would have, again, the downside without the upside. If China move made those moves, it would be viewed as an act of certainly of economic warfare and close to full on warfare that would provoke provoke a response from, from the government’s from the companies that they want to, to encourage to be part of their economy, or at least they used to. So I don’t know, maybe I’m being too optimistic. But I think that the scenario for an invasion is so, so much of a zero, no win proposition, even for the Chinese that I can’t imagine they would do it, but I couldn’t imagine they would shut down their whole country for three years, because of COVID the way they did and and really cripple their economy. I couldn’t imagine they would cripple Hong Kong, Hong Kong, you know, was probably on its way to being the number two financial center of the world displacing London, even some people were talking that way. It’s gone. Hong Kong in the financial sector is is on its way out. I think, you know, it’s so the blunders that they’ve made that have had destructive consequences. were ones that would have seemed seemed inconceivable at the time. So I guess, I guess we have to say it’s not. It’s not, it may be inconceivable, it doesn’t mean it’s impossible.

James Connor 48:44
Fascinating discussion. And this is why I love geopolitics because the ramifications are massive. But Georgia as we wrap up, if someone would like to learn more about you or read many of your publications and articles, where can they go? Well,

George Calhoun 48:57
I do a column online for Forbes, I tried to do about one a week. Sometimes I make that sometimes it’s one every other week. But if you Google, my name, George Calhoun and Forbes, you’ll find the link. I’ve been writing a lot recently on monetary policy, maybe not as exciting as geopolitics but in some ways, at least until war breaks out it’s it’s pretty important for our economy and for our markets. So anyhow, that’s that’s probably the best place to look for the the work that I do.

James Connor 49:35
Well, that was a great discussion. And I want to thank you for spending time with us today. And if I come to Washington, we’re gonna have to go to a cap scheme.

George Calhoun 49:41
We will do that. We will do that. And we got to see Ovechkin you know, he is a power. Just amazing. Amazing. Great to see him.

James Connor 49:52
That’s great. Thanks again.

George Calhoun 49:54
Thank you.

James Connor 49:55
Wow, what a conversation with George Calhoun on China. This is why it’s so According to understand geopolitics and the impact it plays on financial markets and consequently, our financial well being. If you need help in trying to make sense of everything that’s going on in the world and how these global events might impact your financial future, consider having a discussion with a Wealthion endorsed financial advisor on After providing some basic information, Wealthion will put you in touch with one of their vetted advisors. There’s no obligation whatsoever to work with these advisors is a free service that will be on provides to all of its viewers. Once again, don’t forget to subscribe to our channel, wealthy and hit that notification button to be kept up to date on future events. We have some amazing content coming out in the days and weeks to come. Once again, I want to thank you for spending time with us today and I look forward to seeing you again soon.


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