Chinese spy balloon’s timing ‘couldn’t be worse’ amid country’s reopening: Expert

China Beige Book International Managing Director Shezhad Qazi discusses the current state of China's economy and U.S.-China relations.

Video Transcript

- All right, the takedown of the Chinese spy balloon is raising investors' concerns about a fresh round of geopolitical tensions. For more on the impact and the downfall of the Chinese spy balloon, Shehzad Qazi is here, China Beige Book International managing director.

This is just fascinating. You've got several members of Congress backdropped to this, trying to ban TikTok. You've got Kevin McCarthy planning a visit to Taiwan. You've got the Secretary of State planning to visit China. And in the midst of all this, they're spying on us with the balloon. How does it impact? How does it deflate, if you will-- yes, pun intended-- US-China relations?

SHEHZAD QAZI: Yeah, this is-- the timing of this could not be worse I think. The obvious, of course, is what you just mentioned, especially with the Secretary of State's visit coming up. But I think from the Chinese perspective, the timing couldn't be worse, because, look, they have just reopened the economy. They are out of the Spring Festival holiday period. They are supposedly over their COVID peak. This is an economy that is getting ready by, what you hear out of Beijing, to roar back to life. And this is where they want investor confidence to go up, not to be hurt.

This is not a time where they needed geopolitical tensions. But by mistake or by design, they have undone some of that, at least over the last 24 hour period from what we can tell. So from the standpoint of wanting to encourage investors to take a positive look at China, well, not kicking off 2023 on the best note for now.

- And Shehzad, when we think about Taiwan, potential headwind, not necessarily in the near future, but heading down the road here, I'm just wondering, does this still-- well, I know it's stoking conspiracy theories in the US, and also investors who are concerned about the potential implications of an invasion of, well, I guess a more forceful takeover of the Taiwan economy. What are the odds of this?

SHEHZAD QAZI: Look, it depends how far out you want to look, right? So is it happening by the end of this year? No. But in the next 4 and 1/2, 5 years, can we be looking at a 50-50, maybe 60% chance of a Taiwanese invasion by China? Quite probable, yes. So it depends on that.

Now, we know for a fact that the Speaker of the House wants to take a trip to Taiwan. And I think what we're going to get when that happens is probably a far more aggressive Chinese posture than the one we got when former Speaker Nancy Pelosi made her visit.

- He has no choice now but to show strength, McCarthy, and continue with that visit. So I'm looking at KWEB here, down about 2 and 1/2%. What's the impact on Chinese US listed companies?

SHEHZAD QAZI: Yeah, it's negative. I mean, last night you got a sell off in the Asian equity markets. There's already been concern. Now, keep in mind, this adds on to concerns that perhaps we don't get a consumption rebound in China as swiftly and that is as big as the initial positioning suggested back in December.

So as it is, investors are starting to get concerned about how soon do we get this Chinese recovery to take place? This is, of course, just making things a little bit worse at the moment.

- So are we just simply kicking the can down the road? I want to get back to the Chinese stocks because that's what investors may be caring about here. You know, and you talked before about this happening at an inopportune time. We've seen the rise of Chinese stocks tend to be correlated with margin debt, meaning that the retail investor in China, very important. What does this do for Chinese stocks?

SHEHZAD QAZI: Well, look, I mean, you know, let's see what they look like through the rest of this week. But I think this is starting to dampen investor confidence for sure.

And look, mainland investors are pulling out too. That was a big story overnight, right? They're getting concerned. There's off coming from that side as well.

- And you've got companies beginning to shift their production away from China well ahead of all this, like namely Apple. What about a congressional response, whether it be Republican or the Democratic party?

SHEHZAD QAZI: Yeah, a couple of things here. First of all, I think this really strengthens the hands of people like Rep Gallagher, Mike Gallagher, and the idea that you need a select committee on competition with the Chinese Communist Party. I can't think of a better reason than this, politically speaking.

I think this may force some of the Democrats, especially those Democrats who have some very valid concerns about how this could go wrong, they may have to take a second look at it, and become a little bit more serious in having a conversation in DC.

- Do you think it only speeds up the TikTok ban calls, in both parties, quite frankly?

SHEHZAD QAZI: It absolutely will go a long way in accelerating the timeline on becoming serious about Chinese investment in the United States, access-- China's access to US technology inputs, and so forth.

- Let me ask-- let me go back to the stock market yet again. Because it was a couple years ago, shot off the bow, Didi IPO launches in the US. And the Chinese regulators, they just-- they don't treat that situation very well. I'm just wondering, do you think there is lingering hostility towards the sharing of US listings with Chinese companies? And do you think that's something that's going to see more controversy and more conflagration in the future?

SHEHZAD QAZI: We may get some more controversy and conflagration. But one thing we're certainly getting is the larger concept of financial decoupling. I think there has been a decision made in Beijing that if certain Chinese companies cannot list in New York or cannot stay listed in New York, well, then so be it. They're going to come home. They're going to go to Hong Kong. They're going to go to Shanghai. That's the landscape I think investors need to become smart on and prepare for.

- All right, really great stuff there. We got to leave it there. Shehzad Qazi, thank you.