China Beige Book International Managing Director Shehzad Qazi joins Yahoo Finance Live to break down Chinese market regulations in its tech crackdown, the denied Ant Group IPO, the country's zero-COVID and lockdown policies, U.S. tariffs, Taiwan, and stabilizing international markets.
- Shares of Chinese tech company sliding after regulators cast doubt on talk of reviving Ant's IPO, throwing into question whether the country's tech crackdown is going to come to an end. China Beige Book International managing director Shehzad Qazi joins us now. Shehzad, it's great to see you.
I think investors are trying really trying to wrap their heads around what we could expect from Chinese regulators when it comes specifically to a lot of these tech names. How do you think the market should be looking at the regulatory picture in China now?
SHEHZAD QAZI: Yeah. A couple of things right off the bat. First of all, markets are incredibly desperate for good news right now. And they're desperate for good news out of China. So they're hanging tight to any signs of let up, as far as a tech crackdown is concerned. But this is all very, very premature.
I think as a regulator out of China kind of made clear in terms of the Ant IPO that they're not working on anything, we have to wait and see how the policy evolves over a longer time period. We can't just take the positive messaging coming out of the-- around the [INAUDIBLE], essentially. This is all in the lead up to that.
I'd take it as a sure shot sign that tech regulation or the tech crackdown is behind us. I think to a certain degree, we can expect to see these measures continue to take shape perhaps early next year and so forth. So wait and see. Be cautious, and focus on actions, not just on positive messaging. That's how I would suggest investors look at this.
- And clearly, this is a situation that we've seen before. We've seen China making some of these promises, and you hope they follow through, but they don't always. But how do you see what we might be seeing in terms of an easing on the crackdown affecting competition with the US and how they're viewing some of these Chinese companies?
SHEHZAD QAZI: Yeah. That's another area where tensions are probably only going to escalate. I think we have taken here in the United States a very, very serious tone to words-- issues relating to delisting, issues relating to our ability to audit Chinese companies. We also are becoming more and more cautious about transferring technology to Chinese companies, and how that needs to be regulated.
Even though we're not seeing any type of concerted action coming out of the administration itself, you are seeing Congress especially focus on this more and more. Again, action is pending, but it's picking up steam. So I think, again, more uncertainty is certainly to come down the road.
- Shehzad, it appears uncertainty also describes the COVID situation across China. In Shanghai, reportedly 2.7 million people going back into lockdowns this weekend because they all have to be tested. How severe are the lockdowns coming? Is there any movement from the Zero COVID policy?
SHEHZAD QAZI: There is no movement from Zero COVID. Now, Zero COVID as it exists today is, I think, more flexible than it used to be in its initial iteration. That said, if you're an investor, and you're looking for signs-- positive signs for the economy, well, Zero COVID is not going anywhere. It's going to be a big risk factor.
And what that really means specifically is that any time you see a bit of letup or you see some amount of activity resume, it's going to get potentially shut down pretty much right away. If there are COVID outbreaks, it has a very, very serious impact on the consumption side of the economy. But as we've seen, it can also have a pretty serious impact on the manufacturing side of the economy, despite the bubble system and so forth that's been erected there to continue production on in certain instances.
- And Shehzad, what do you make of the Biden administration, the fact that we still don't have a China policy? Talk about whether or not we could see some of those tariffs imposed on Chinese goods, that could begin to roll back. Do you expect to see any material change in US tariff policy?
SHEHZAD QAZI: Look, there isn't going to be any type of major shift in tariff policy. So for example, you saw the Trump administration levy a bunch of tariffs and really change that landscape. Do not expect the Biden administration to take a decision in either case, either rolling it back or imposing perhaps a whole new host of measures.
And the reason for that is very, very clear. The administration is deeply divided on what to do about China, period, the tariff measures and tariff policy being one aspect of it. So sure, you may see some tweaking of tariffs in the coming weeks or coming months or so forth. The effects of that will likely be marginal.
It may very well end up being politically incredibly costly for the president and his administration, the Democrats in general. But regardless, the administration is yet to figure out what to do about China. They just can't seem to agree on it.
- And Shehzad, obviously outside some of the outbreaks that we're seeing with COVID, we're also seeing as China does also continue its recovery, some of the demand changing. How do you see the demand patterns that are coming out of China affecting the US economy, when you think of things like commodities and oil?
SHEHZAD QAZI: Yeah. Again, a lot of this has got to do with what happens in terms of economic activity. So for example, a lot of the news coverage in recent days about big infrastructure spending plans. Well, you could get some amounts of infrastructure spending that helps boost the economic picture. That, of course, will tie into demand for oil and construction materials and other inputs.
But really again, you have COVID hanging. And then of course, later on in the year, you start getting into the colder seasons, where construction activity has to be tamped down a bit. So I think the real problem is that there is no clear growth driver this year at all. And no matter what aspect or what segment of the economy you look at, there are so many risks that are just overhanging that it's hard to really claim that anything can decisively shift the economy towards positive growth or faster growth than in years prior.
- And Shehzad, probably the biggest question looming over the future related to China is a potential invasion of Taiwan. Is there any indication to hear anything [? about ?] which leads you to believe that they may be considering that? The US was pretty clear on their future involvement.
SHEHZAD QAZI: Look, I think right now, everything is focused towards the fall party Congress stabilizing the economy, making sure that market sentiment returns to being more positive in China, as it was in prior years. And I think any type of major costly or disruptive activity, such as the invasion of Taiwan, is not happening anytime soon.
Let's keep in mind, the party is very closely watching what has happened to Russia after Ukraine, even though it's, of course, a different situation in many ways. So I would not expect them to ratchet up instability. I think the focus is on creating more stability, not creating more instability.
- I want to talk to you about the US-China relationship. Obviously, we're in a midterm election year. You have this talk of tariffs coming down on the table. How costly could the relationship and how the Biden administration approaches this relationship be for the Biden administration this year?
SHEHZAD QAZI: Look, you can-- as I said earlier, if you're in a midterm election year, first of all. Number two, you're finally starting to see the trade deficit shrink. Even though that's a political talking point, if you decide that you're going to roll back tariffs, well, chances are, the Republicans are going to hit you pretty hard because of that as they go on to the campaign trail. So I do see this tariff policy in terms of any type of rollback being very, very politically costly this year.
As it is, there is no concerted effort on China. So painting the administration as being weak on China is easier to do, compared especially with the administration-- the previous administration, which, at least on paper, was incredibly aggressive. And that is definitely where the mood is in the country, if you look at public opinion polls, and certainly where the mood is if you look at the Hill, regardless of which party you're talking about right now.
- We do thank you for all your insight. Shehzad Qazi, China Beige Books International managing director. Thank you again.