Trade Talks in Switzerland; Continuing Data Opacity Concerns; Xi Heads to Moscow; The CIA Takes to YouTube
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Hello and welcome back to another episode of Sharp China. I'm Andrew Sharp and on the other line, Bill Bishop. Bill, how you doing? I'm doing great, Andrew. Hello and hey, everybody. Hope you're all doing well. I hope those of you who had the May holiday had a nice break and are all recovered and ready to go back to work. Indeed. It's great to be back to work here on the podcast. We're going to begin with two housekeeping notes. First,

We're outside the paywall this week, so if you're listening to this and you're new, just a reminder that you can get every episode of Sharp China by subscribing to either the Stratechery bundle of podcasts or to Cynicism. We'll put links to subscribe in the show notes for this episode. You should really subscribe to both. I'm an avid consumer of both. And then second...

It's been too long since we did a Q&A. So email us questions for next week's show to email at sharpchina.fm and we'll try to hit as many as possible. We've already got a few that we can address next week. But if you have thoughts or questions you want to run by us, we would love to hear from you. So email at sharpchina.fm is where to send the thoughts or questions. And Bill, as for the show this week,

We waited a day to record because, as you said, the PRC was on holiday. It was a really quiet week. And then, sure enough, right as the holiday ended on Wednesday in Beijing, Tuesday night in the U.S., we got a statement from the PRC Ministry of Commerce, which reads in part,

Recently, senior U.S. officials have repeatedly signaled adjustments to tariff measures and, through various channels, proactively conveyed information to China indicating a desire to discuss tariffs and related issues.

China has carefully evaluated these U.S. signals. After fully considering global expectations, China's own interests, and appeals from U.S. industry and consumers, China has decided to agree to engage with the U.S.,

And that is consistent with a news brief from Bloomberg that ran around the same time, noting that per a U.S. announcement, Treasury Secretary Scott Besson and U.S. Trade Representative Jameson Greer will travel later this week to Switzerland for trade talks with China, led by Vice Premier He Lifeng, jumpstarting negotiations between the two nations.

So the plot thickens here, Bill. The story moves to Switzerland. What do you make of these latest developments? So I think it had become clear towards the end of last week, right before the holiday, that the Chinese side had shifted from its initial stance that there wouldn't be any talks, not even negotiations, even a meeting, even discussions, unless the U.S.,

pulled back on the tariffs that they'd put on. And then last, um, on April 30th, right before the holiday, the, um, CCTV, we chat account, you and Tan Tan came out with a, with a bit where they basically said, um,

I'll read it. They said, unless the U.S. takes substantial action, China has no need to enter into talks. However, if the U.S. wants to engage, doing so does no harm to China at this stage. On the contrary, China can use this opportunity to observe and even draw out the U.S.'s true intentions and

seizing the initiative and both negotiating and countering. So that was on, I guess, last Wednesday. That seemed to be them opening the door to, okay, maybe this is a sign of a bit of a softening position where there could actually be at least a meeting without concessions from the US side. Subsequently, there was more chatter over the weekend. We talked about it a bit in the

This is some chat and I certainly started to hear that talks were imminent. So this again, I think generally talking is better than not talking. The U.S. Treasury Secretary, after these announcements came out yesterday, he went on Fox News and

I think he basically said, look, at these rates, there's no trade. It's like an embargo. So expectations should be low for these talks, but it's a start. It is interesting that the Chinese side decided to waive their preconditions. Their explanation is that there's no harm. We can learn stuff. And also, we're taking into account the concerns of

global expectations, and appeals from U.S. industry and consumers. It's not clear who from the U.S. industry and consumers have actually appealed directly to the Chinese government to enter the talks, but maybe some of the trade groups have. So again, that's their way of saying, okay, we'll go have these talks. Don't call it negotiations yet, right? Because they're just talks. They're just a meeting. You did get the floating, I think on Friday or Saturday, first in the Washington Journal, and the New York Times confirmed it that

The Chinese side was considering making...

offers to do more on fentanyl and in fact, potentially sending Wang Xiaohong, who's State Counselor and Minister of Public Security and who's in charge of sort of anti-drug work to the US as an envoy as a way to break the ice. That may still happen, but that's obviously separate than this meeting over the weekend. But in general, I think it's better to be talking than not to be talking. But I do think that expectations should be low. And even if

They decide, both parties come out of the meeting and say, okay, we're going to have follow-up meetings. And maybe even there'll be at some point, this will help pave the way for a Trump-Xi conversation. I think the odds of them, both sides saying, okay, we're going to pull back all the tariffs back to, say, the fentanyl tariffs of an additional 20%.

not high. Certainly, you just don't know. Can't say it's impossible. But we're still probably getting into a situation where there are significant tariffs on goods on both sides. And so the underlying structural pressures that will force more companies to try and find solutions for sourcing that don't involve China, I don't think those would go away. And I don't think...

the impact on prices in the US probably would go away. And the impact on factories in China, again, might be mitigated to some extent. But unless the tariffs go way, way down, a lot of these goods are still going to be too expensive. Yeah. Yeah. I mean, it's interesting because we recorded last week and I made the point that the PRC faces some pretty enormous risks in the short term and medium term. And then we had this daily drip

of indications that the PRC might be willing to come to the table. Like I think the Ministry of Commerce said our door is wide open. You had that CCTV report, the Wall Street Journal report on fentanyl. And it certainly seems like there's been a shift as far as willingness to talk.

But to your point, then the question becomes, all right, so what might both sides actually discuss and what might the PRC be able to offer? And on that front, I don't know that anybody has good answers in terms of what the next moves could actually look like. One thing, too, last week, you know, we got that video for the Ministry of Foreign Affairs, you know, never kneel. And, you know, certainly there there has is a bit of a pattern where,

I mean, what's the saying? Basically, it's the darkest right before the dawn where the PRC side's propaganda gets the shrillest right before the break. Interesting. And so I think, you know, there certainly was a set of signals that said, OK, maybe there'll be some sort of a break. It was interesting that nobody, you know, the U.S. side, nothing leaked to the media. They actually held it really tight. Yeah.

Although, again, there had been some chatter, but no one reported out. It just suddenly popped up both from official side. So they actually did a good job of keeping it secret. But again, I think this is inevitable. It needs to happen. The status quo before the tariffs was unsustainable. The status quo now with 145 on Chinese goods and 125% on U.S. goods is also unsustainable. And so now the question is, will...

Will they be able to find a way to some place that allows for, I think what the, what Secretary Besson said is, you know, decoupling in strategic areas, but not decoupling in like, you know, making little,

lower end, lower value add goods, which of course is not what the Chinese want, but it's certainly what I think the Trump administration is pushing for. Well, and we're recording this on Wednesday afternoon, right around two o'clock. Did you see the Trump comments right as we came on to record here about the tariffs? No, what did you say? Well, I don't have exact quotes here, but I've got a couple updates from the Bloomberg ticker. I

All caps. Trump says no to potential for pulling back tariffs on China. Trump says China should reassess who asked for a meeting. And then the third headline, Trump unwilling to lower tariffs to get China to the table. So because the Chinese side. No, because, again, the Chinese side today that, you know, they've said the U.S. asked for this meeting. Yeah.

And U.S. officials repeatedly signaled adjustments through various channels, proactively conveying information to China. So Trump says he won't lower tariffs to jumpstart talks. Well, and that's a good way to just sort of level set expectations on the way into the weekend in Switzerland. But it's also it's I just say it's important, you know, because we're seeing all sorts of, you know, there's everyone's trying to spin things. I will just say that.

the fact that the Chinese are now willing to meet without the U S dropping these tariffs is actually a blink from the Chinese side. Now they can have their reasons for it and they can talk about, you know, it makes them, you know, they can say it makes us look like more of the responsible global power. You know, they're, they're the ones protecting in their version of this story. They're the ones protecting the global trading system. They're marketing. They're standing up for the rest of the world. Right. Exactly. Right. And so, so this, this is okay. We're being responsible. We're going to, we're going to meet with the bully. Right. Um,

but it is a shift from what they were saying even just over a week ago. So I think it's on the Trump side, they're probably feeling actually pretty good that they could hold firm and eventually the Chinese would have to come to the table. Whether or not anything happens, again, that we don't know, but it's certainly progress in terms of talking. One thing that I think was also interesting that is worth noting is after the announcement from the Chinese side that there was going to be this meeting yesterday,

And it was actually the Chinese side announced that Vice Premier He Liufang was going to meet with Secretary Besant. They didn't actually mention USTR head Jameson Greer, which was kind of interesting, even though on the US side, it's both. They're going there and this sort of

plays with the um trump one where you eventually you had manuchin and lighthizer had then head of ustr doing it navarro effectively had gotten got pushed out because he was it wasn't constructive to negotiations and looks like that may be happening again at least from the from the public side doesn't sound like the navarro i know mr constructive over there but but um

It's just interesting that also after the announcement, then the Ministry of Commerce puts out a statement that's in the form of responding to reporters' questions about the meeting and why you're having it. And the statement also has language that says –

The spokesperson added that China has taken note of the fact that some other economies are also negotiating with the U.S. It should be emphasized that appeasement will not bring peace, compromise will not earn respect, and adhering to one's principles and to fairness and justice is the proper way to safeguard one's interests. That's basically, that's the Chinese side saying they're concerned, as they've expressed earlier, this is reiterating concern that other countries may be entering into deals with the U.S. that will involve China

tougher treatment of Chinese origin goods, tranship Chinese goods to their countries. Yeah. Which, again, the Chinese side obviously does not want. Yeah. I think it's another indication that the PRC side is pretty anxious about the direction all of this is going. And in terms of the Trump comments, it's interesting because as we continue to peel the onion, we're now five weeks on from Liberation Day. I think one

one analytical mistake that people might be making, and I could be completely wrong here, but for the past five weeks, almost all the analysis surrounding the US and China has framed this as a trade war. And you've had people parsing statements, wondering which side is going to blink first, which side is more desperate for a deal, who's going to win, how do both sides save face, etc., etc., etc.

And it certainly seems like the market is treating it like a trade war and assuming that some kind of deal is inevitable. And even Trump and Besant at various points have talked about eventually working out a deal with China. Granted, Trump's comments today make you wonder. But two weeks ago, Trump was saying, all right, the tariffs are not going to be 145 percent. We're going to lower them. So it

Maybe it is a trade war and all the tension is designed to grease the wheels on negotiating a more favorable trade arrangement with the U.S.,

But where I think people might be making a mistake is the failure to allow for the possibility that it's not actually a trade war and that, in fact, what's happening is the U.S. has just decided that the PRC is a bad faith actor and is now working to remove the PRC from a huge portion of the Western economy. And if that's the case, there's not going to be any deal and there won't be any winners in the trade war. It's more like,

The game is just being permanently changed by the U.S. side. And I have no idea whether that's what's happening. But it's one thing that's sort of lingering in the back of my mind. I think that's certainly possible. I think if that is the game the Trump administration is playing, they've played part of it quite badly because they've alienated pretty much everybody. And so the idea that somehow...

that the US side can unilaterally remove China from a big chunk of the Western trading system is just a fantasy if they're not. I mean, even working with partners and allies, it wasn't going to happen. It's really more has to be a much more focused, okay, there are certain areas like certain things around tech, around pharma, around rare earths, where for national security reasons,

Those supply chains. Domesticated or relocated. Yeah. Can't have any reliance on China. And that's probably best case scenario. That's probably where things end up. But the thing is, is, you know, these things leave a mark. There's no, even again, even if they come out of, they have this wonderful meeting and Sunday night, they announced that they're going back to like,

tariffs, the fentanyl tariffs, which is 20%, which is a little bit. Let's perish that thought. The damage is done. I know. I'm just saying that there's no going back. And especially for companies that are all now scrambling to rejigger, even more rejigger their supply chains to get around having Chinese origins so that they're going to get tariffed in the U.S.,

why would these companies suddenly stop after, you know, maybe they'll breathe a little easier or sleep a little better. But that die, I think in many ways has been cast. Right. And, you know, what else has been cast is I think that there are going to be really meaningful supply chain disruptions that are felt throughout the United States over the summer here. And it's...

The reason I wonder about the U.S.'s ultimate intentions is like the American side has not shown much urgency in getting to the negotiating table. And with even fentanyl, as an example, there have been reports for the last couple of months that like the Chinese side doesn't know what the U.S. even wants on fentanyl and doesn't know how to make an offer there. And so it's.

it just doesn't seem like the Americans have attempted to be all that constructive. I think the Chinese are pretty clear what the U.S. wants. The asks have been pretty clear from administrations in the Biden. There have been a lot of talks about fentanyl. But not from the Trump administration. I mean, there was a journal report a couple weeks ago saying, like, well, we don't know who to talk to on fentanyl. The dialogue hasn't been particularly constructive. Well, not knowing who to talk to, right?

um, is certainly... Yeah, your point is that there are clear steps that the PRC side could take if they wanted to make a good faith effort on fentanyl. And there was a great quote, I hope he's okay, from a Chinese academic, I think it was Shanding Li, let me just pull it up here, in the New York Times article about the possibility of Wang Xiaohong, the Minister of Public Security, coming to, uh,

Coming for a visit, Shanding Li, a Shanghai-based, I'm quoting from the New York Times article, I think it was on Saturday or Sunday, a Shanghai-based international relations scholar said China had the capacity to stamp out the fentanyl trade. Quote, China is one of the most effective countries in the world in terms of control, said Mr. Shun. The fentanyl problem has never been an unsolvable technical problem. It is just a political problem that can be solved in a matter of seconds, as long as there is sincerity.

Well, listen, that's what I have said on the podcast over and over again for two years. Right. But that is not, that is not quite the official Chinese line. And so again, but that is what lots of people in the U S and in Congress and in current and former administrations all believe. Yes. Um,

And I think it's a reasonable belief, but I'm glad to see the PRC side is coming around. One academic, at least. We'll see. Well, and apparently there are offers to cooperate. So, yes, we will monitor the talks in Switzerland this weekend in terms of progress.

Like, realistically, they're not going to lower the tariffs overnight over the weekend here. But what would be a sign of progress would be continuing talks like an announcement that there will be subsequent meetings. Is that right? Well, a mechanism. I mean, effectively setting up a mechanism where.

We know who the point people are, right? There's He Li-Fong, and then there'll be from the Ministry of Commerce, there'll be their lead international trade negotiator. And then on the US side, Besant and Jamison Greer from USTR, right? And then they have their working groups, right? They actually had an effective mechanism in Trump 1. You know, they actually...

They did a lot of work together. And I mean, someone described it to me and said, actually on the working level, the teams had built up a fair amount of trust and were able to do other things not related to trade when, when things were needed. So we'll see if they can get back to at least some sort of a working level mechanism where they know they can start exchanging, you know, exchanging demands, exchanging complaints and some more of a formal process. The challenge, I think, again,

I think the Secretary Bassett and Jameson Greer, their teams are likely to be disciplined, focused. Same thing on the Chinese side. The challenge, of course, will be the U.S. side at the top. The challenge is on full display as we record this. I don't know where Trump is talking. I think they have to sit in the room when they're negotiating with somebody who has a screen up of true social, just waiting to see what did the boss say, the American boss say, right? Because...

Xi is not out there posting on Weibo his views of U.S.-China trade in real time. No, although he did pen a thoughtful piece on world history in the Russian Gazette this week. Before we get to that, can I just say one thing before we jump to that? Sure. There's another piece that happened today on the Chinese side that's interesting, which is on the announcement of talks—

seen as positive news, certainly seen as positive news for Hong Kong stock market, PRC stock markets, as well as US markets. The Chinese financial leadership, including the head of the People's Bank of China, the central bank, the head of the Chinese version of the SEC, the CSRC, the head of the National Financial Regulatory Administration, they had a press conference Tuesday morning where they announced this package of measures to help

stimulate the economy. They cut interest rates. They cut the required reserve ratio to release more liquidity. They're doing some more things around the stock market, allowing insurers to invest more money in the market, et cetera, et cetera. And it's interesting timing where

You can certainly see that we had the coming out of the April Powell Bureau meeting on the 25th of April. Then some of the recent economic data around a couple of PMIs and then the consumer data over the holiday were not great. They weren't terrible, but they weren't great. They were certainly not... Again, you got to avoid the binary of, oh my God, boom, or oh my God, they're collapsing versus, okay, there's...

and things are not growing the way they'd like it to be. So I think this sort of, you could certainly, and I think some people are or will take the view from the US side that, okay, so this is a sign that the pain is starting to hit in the Chinese economy from these tariffs, right? So on the one hand, they're willing to now take these meetings without insisting on the preconditions they earlier insisted upon. And second, at this almost, you know, within 12 hours of announcing these talks,

They also then announced a package of looser monetary policy and other measures to try and stimulate the economy, get more consumption going and keep the, you know, help

stabilize the Chinese stock market. What's interesting is both Hong Kong and the mainland markets shot up at the beginning and market opened because, oh, this is great news. And then actually throughout the day, they basically drifted back. Interesting. Back down. And then at least in China, it's the Shanghai exchange. It was down for all. And then, of course, it goes back up because there's... Right now, it is very hard to look at the Shanghai composite and draw any conclusions about the underlying health of investor appetites or the economy because...

The mandate has come down from the top to stabilize the market. There is lots of state money in various forms that go into the market to keep it from going down. Yeah, that's the final hour of every trading day. The market is stable, but you can't look at that and say, oh, everything's fine. The market is stable for other reasons than just investor sentiment.

Right. Yeah. I mean, don't worry that that has also been a theme over the last five weeks or so. But in terms of the fiscal measures, I mean, the way I interpreted that was in part to the extent any of it is correlated to the negotiations here. The PRC doesn't want to be at the negotiating table looking weak. And so they're trying to stimulate the economy, but also

keeping some powder dry. Like I'm not interpreting it as a bazooka stimulus. No, no, no. It was nothing. It was, it was all really on the, on the monetary side there. There's nothing at all. Bazooka like, and in fact, yeah,

They've already been... I think some sell-side reports are saying it's just disappointing. It's not enough. But that's not how they roll. This is an incremental... And they talked about the April Polyborea meeting. They have a whole bunch of policies in reserve. They're going to start using them. And then out of that Polyborea meeting, it was clear that they were going to cut some of the interest rates soon to release more liquidity. So this, again, wasn't necessarily a surprise. And again, like I said, it was in some cases...

maybe seen as underwhelming, but it is just a sign of a, you know,

trying to be steady as she goes, incrementally responding when needed, as opposed to sort of panicking and just blowing out a bazooka where they did that in 07, 08, and it caused a whole bunch of problems. So they're much more disciplined now. We'll see if it works. I think they still have a fair amount of confidence that they can keep this kind of steady as they go, incrementalism, and that will be enough. And especially if they get a break, if there is a bit of a break on the trade war and the

some trade starts picking up again outside of the areas that have been exempted on both the Chinese and the U.S. side. Yeah, well, time will tell. And we should also note, as far as negotiations are concerned, HoloFung will lead the negotiations with Besson in Switzerland and then continue on to France at the beginning of next week. So there may be news on the EU-China front as well in the week to come. So stay tuned. We can circle back next week.

One thing before we get to Xi in Russia, we got this note from Hanos. He says, Andrew and Bill, longtime listener here, first time caller. Love the podcast. And I'm wondering when you both talk about how China is doing with tariffs, what economic or other data are you relying on for your observations? I asked because I had a feeling that China was restricting the supply of information about its economy publicly and

And a Wall Street Journal article from last weekend titled How Bad is China's Economy seems to be focusing on this very topic. If we don't have the data, how do we know how bad or well their economy is actually doing? So I read that because you mentioned the data a minute ago. What do you think? How do you answer that question? It's a great question. And it's a long question.

This isn't a new problem or frustration. Almost religious debate over the quality of PRC data. And I think the answer is that, one, over the weekend, there was a Wall Street Journal article that listed out all the types of data that have effectively disappeared over the last several years. Yeah, I can read from it in a minute. Some of those data sets, you could sort of maybe make a national security argument, but some of those are clearly because the data just was not good, right? And so it was, you know, people, analysts were able to

use all sorts of other data to build their own calculations of, you know, GDP and other, other metrics in the Chinese economy that did not mesh with the official numbers that were coming out of the, um, the state beer statistics. And so, um, I think the answer is, you know, the good analysts they will look at and, you know, you see it in the sell side guys do some people do some good reports. There are any number of independent research shops that, um,

try and build their own different, you know, build a picture using other alternative data, you know, some proprietary. It is a huge problem though. It is far too opaque for what is the second largest economy in the world, you know, the most for an economy with so much global influence. Yeah. It should be much more transparent. And so, you know, things like,

documented in that Wall Street Journal article, which I put in the show notes, you know, just all of a sudden data sets about youth unemployment disappear for a few months until they can rejigger it so it looks better. You know, but then they rejigger it, it looks better, and then a whole bunch of people go, oh, no, no, this is a better calculation, it's all fine, blah, blah, blah, right? You get not only the data change, but then you get the propaganda push, right, to sort of explain

why no, this is the right way to do it. And it just is, it's a problem overall. It goes back to just how the party controls the economy, you know, controls the system, wants to control information that China should have be much more transparent than it is. And so it makes it much easier for people to question the validity of the data and

And sometimes I think they question it correctly. And sometimes I think they question it in bad faith and it leads to bad decisions, sort of like, for example, you know,

you know, people who assume that, oh, going to the trade war, China's playing with a pair of twos or, you know, we just push a little bit and then they'll have to collapse. Right. Things like those. I'll say it again. I think it was two summers ago, those back to back economists covers about how China was collapsing, which is actually pretty close to the bottom. But no. So I think I think, again, it is a it's a problem that

It is also not fair to say all the data is fake, which some people do. I think that is not correct. And there are really smart people who put a lot of work into trying to figure out the real data. And they tend to come up with numbers that are lower, like for GDP growth, that are lower than the official numbers. But...

also not indicating like, oh, my God, the place is collapsing. Yeah. Yeah. Well, that was a long winded answer. But but this is a good answer from somebody who's been dealing with this for decades, long debate, 15 years. No, exactly. And for anybody who's curious, I'll read from the journal story that inspired the email from her nose. They write not long ago, anyone could comb through a wide range of official data from China. Then it started to disappear.

Land sales measures, foreign investment data, and unemployment indicators have gone dark in recent years. Data on cremations and a business confidence index has also been cut off. Even official soy sauce production reports are gone. In all, Chinese officials have stopped publishing hundreds of data points once used by researchers and investors. Well, and the data on cremations was interesting because that disappeared right after China ripped the band-aid off and opened up.

Exactly. Yeah. Because suddenly people were looking at like provincial level cremation reports and realizing that, oh my gosh, a lot more people seem to have suddenly died than official statements. Right. And people were starting to put together, well, projecting out of this province is X many people died. Then probably, you know, it's many times the official number of,

Right. And then all of a sudden it all just disappeared. And then, you know, that's just bad faith. Right. And that's then, okay, fine. Then you, you want to cover something up. So that's why you hit the data. No. And in terms of what people, uh, then have to resort to, I remember for a little while there, uh, after the reopening, people were looking at like different heat maps to tell when cremation facilities were working and estimating from that. And so it gets pretty elaborate and arcane. Um,

And also, it just makes the field wide open for people to make up whatever they want about the data. Totally, totally. And that is to the Chinese government's detriment. Yeah, yeah. Well, and the journal also cited fertility as an example. In the mid-2000s, an economist named Yi Fuxian questioned the accuracy of China's population data and argued that tuberculosis vaccinations were a better measure of

population growth because every newborn in China is required to be vaccinated. In 2020, 5.4 million such vaccines were administered, according to data compiled by the private Chinese think tank Forward Business and Intelligence. Chinese authorities said the country recorded 12.1 million births that year. A year later, the National Institutes for Food and Drug Control discontinued the weekly data report.

of tuberculosis vaccines administered along with other vaccine data. So there are a lot of different indicators that were highlighted by the journal where the information just isn't as available as it once was. Because it doesn't, because it doesn't,

In a lot of cases, it doesn't support the picture that the government, the propaganda authorities are trying to paint. Yeah, yeah. Well, and to your point, this is a longstanding issue. Like the journal also cited a CIA cable where former Premier Lee Keqiang allegedly told the U.S. ambassador not to trust the GDP data because it was, quote unquote, manmade. That was in 2007. Yeah.

There's been a long project inside the Chinese government to try and clean up the GDP data because it's not just foreigners that have a problem. The leadership has a problem because all the localities lie. Many

They've shifted the KPIs a bit, but for growth in the area of your responsibility, if you're a local official at whatever level you're at, is one of your big KPIs, right? That's how you get promoted. And so you want to make it sound like everything's great. Yes, exactly. That's what Lee Keqiang was referring to. In fact, it was provincial data that he was questioning. Right. And the provincial leaders have problems with the local data because everybody lies up

the chain. And so this is not solely about how we present it externally. This is also a... And this goes back before 1949. You go back to imperial history. I mean, then you have during the Mao era, right? I mean, there's this constant problem with fake numbers that flow up through the system because of the incentives in the system. And because, honestly, there's no way to call BS from outside the system. Yeah. Right? And so...

So now, and they've done, I think, a lot of work to clean up, for example, the GDP. And because, you know, they need to understand what's going on, they being the leaders, they need to understand what's actually going on in the country. I mean, one of the things you hear about, you know, obviously there's a big problem with local government debt, right? And it's been a big problem for a long time. And I think they're now like they have done three or four audits to finally get to the bottom of the total amount of hidden local debt in China.

and they keep having to do it because the local officials keep hiding the debt. So if you're a policymaker in Beijing and you're trying to understand how bad is the problem, it's not about let's fool the foreigners. This is about how do we figure out even our own system how bad it is? And those local officials, they're hiding the debt in service of their own promotions up the ranks. Is that right? Or because they stole some of the money, all sorts of reasons. And now you see more cases of local officials ending up

So it's a mess for PRC leadership as much as the West. Yeah. I mean, in some ways even more because it's trying to get control of their own system. Yeah. Yeah.

Well, I mean, that's fascinating. So thank you, Hanos, for sending the email, because I hadn't considered that it's just as challenging within the system as it is for outsiders trying to understand what's actually happening on the ground in China.

As one of those outsiders, I mean, this is going to sound weird, but I see how comprehensive the opacity has become. Even since I started hosting this podcast like two and a half years ago, I remember recording when they said, we're just going to stop publishing youth unemployment data back in, I think, 2023. Given all the efforts to lock down information,

What's actually fascinating to me is that we get any information or any visibility at all. Like you mentioned the Chinese academic earlier. If I were a business owner or a party member considering talking to Western media, like I would never take that risk.

But at least to date, there is still some good reporting on what's going on on the ground in China and what's going on at some of the factories around China in the midst of this trade war. And there are some folks who are able to still run, so they have a Chinese partner, they can run Chinese surveys. Like China Beige Book has decent granular data. They're still able to get some survey data. And so it's, but it is, again, it just, it shouldn't be this hard given China

Both the size of the Chinese economy, its global importance, and the country, the leadership's aspirations for its role in the global... Global leadership, yeah. For global leadership. It should not be this opaque. Yep. Well, speaking of the efforts as far as global leadership, Xi Jinping is headed to Moscow this week. He'll be on the ground. I think he's on...

on the flight now. Yeah. By the time this podcast publishes, he will be in Moscow. I'll set the scene with a piece from Brookings that ran on Monday. As Russian tanks roll through Red Square for Victory Day on May 9th, Chinese President Xi Jinping will stand alongside Russian President Vladimir Putin, a jarring image for a country that claims to be a force for global stability.

The image of Xi in Moscow underscores the growing tension at the heart of China's foreign policy. Its strategic partnership with Russia increasingly collides with its broader ambitions to be seen as a responsible global leader, as a steadying alternative to what it depicts as American volatility and Western decline.

So, Bill, a lot of different directions we could go here as Xi visits Putin for Victory Day. But big picture, what are the risks for the PRC as they deepen the relationship with Russia? Well, I think the risks, the opportunities. I mean, what's interesting is yesterday, Monday or Tuesday this week, the Xi exchange congratulations with the leaders of the

European Commission, the EU, on the... This year is the 50th anniversary of the establishment of relations. And, you know, also they, both sides, you know, the Chinese had pulled back on sanctions on members of European Parliament. And then both sides announced yesterday that they were going to restore exchanges, like parliamentary exchanges. And I mean, it's interesting that the EU does this, you know, the day before Xi flies off to Russia to celebrate

And it's not a surprise trip. The EU is well aware. They're well aware of the 80th anniversary of World War II and they very... Xi and Putin have a mind meld on the history of World War II and the end of it and the creation of the post-World War II order. The risks are...

One, I mean, there's risk that Ukrainian drones may be hitting Moscow during the parade, which I think would be kind of nuts and probably not a good idea for the Ukrainians to do anything that would threaten the security of Xi Jinping. But clearly there are concerns that, you know, and Ukraine has demonstrated its ability to hit targets in Moscow. Other risks, though, again, it's just...

The war, Russia's invasion of Ukraine, that war, the ceasefire that President Trump thought he could get appears to be still not within reach. It's clear to pretty much everybody that China has been a significant enabler of the Russian war machine and then the Russian economy. And, you know, Russia would not likely be able to keep prosecuting its war without Chinese support.

So, but, you know, the risks of like, oh, you know, Xi will show up on, you know, he'll be at Red Square. He'll have these conversations with Xi. There'll be talks. Maybe they'll finally get some sort of deal around this power of Siberia 2 pipeline that the Russians really want. There'll probably be other discussions around defense technology that we won't hear about. But the risks are,

In terms of like, oh, the Europeans are going to get upset and do something. I mean, they knew he was going and then they had exchanged congratulations the day before his trip. They restored these parliamentary exchanges. I think the Chinese are like, the Europeans are going to keep squawking, but...

They're not really doing much to us. Yeah, it's interesting. And thank you, President Trump, because, you know, the Europeans seem like they almost dislike the U.S. and Trump now more than they're upset about China and the Russian. I mean, they're obviously upset about the Russian invasion of a European nation, a land war on the European continent. But but they are in Europe.

but they're clearly not so upset about China's support for Russia and its war machine that they're not willing to make

Start bending towards China. Right. And it's really interesting because for about two years now, you and I have been podcasting about this and raising this concern. And I thought Brookings articulated it well. They wrote, by visibly aligning with Putin while Russia wages a war of aggression against Ukraine, Beijing reinforces suspicions that it is willing to side with revisionist powers over defending international norms.

To be sure, the diplomatic costs of this alignment are uneven. Many governments in the global south view Beijing's partnership with Moscow as unproblematic or at least secondary to their broader interests with China. But in Europe and parts of Asia, where skepticism of Beijing already runs high, Xi's overtures are unlikely to offer reassurance.

And on one hand, like you look at this and say, this is a really sensitive time with the PRC and they need allies, especially rich allies. And so you would think that aligning with the biggest security threat in Europe would jeopardize those efforts.

But we'll see. I mean, a year and a half ago, we were talking about the trade tensions between the EU and China and saying, well, the PRC should really be careful here because they need to keep the relationships with the EU countries in a good place. And their support for Ukraine is pretty dangerous to that effort. And it just hasn't

really mattered that much. And maybe the bet now is that Europe is so desperate and so alienated by Trump that it won't matter going forward. I don't know. Well, I mean, here's an example I think of, you know, so every July they're supposed to have this EU China summit. And this July, it was a Chinese turn to go to go to Europe. Mm hmm.

Apparently, this is, I think, from South China Morning Post reporting, she didn't want to travel. So the European leadership decided, okay, we'll make precedent and we'll go to Beijing. Yeah. I mean, that's a remarkable flex from the Chinese side and the Europeans just buckle. Right. The message you're sending to your Chinese negotiators is...

pretty remarkable. You're saying, wow, I'm really pretty desperate for something. We need you more than you need us, and we get it. Desperate, naive, and quite feckless. Right. And so back to your question, what are the risks? You know,

I mean, honestly, I think that going into it, I think Xi Jinping looks at this as more as what are the opportunities. Right. Yeah. Like the world is changing. Trump is accelerating those changes. China and Russia are accelerating those changes. And, you know, I think he feels like he's going into this

this round of meetings with Putin in actually a better situation than it was a year ago. The US potentially is getting more isolated. China gets to play the, we're the defender of the multilateral trading system. There's a big piece from Xinhua

that just came out, right. As you know, Xi Jinping's leaving from Moscow called Xi Jinping, a steadfast supporter, defender, and promoter of world peace and development. Um, he published a, you know, before his state visits, he always, there'll always be an article in local media from Xi Jinping. Right. And, and so he, he published an article in the Russian Gazette. I think it's probably translating it wrong. Um,

on the title Learning from History to Build Together a Brighter Future. I think you referenced it earlier. And it is just quite a remarkable statement of really how I think both Xi and Putin view the world and view the history of World War II and since World War II. And in some ways, it's very revisionist. It's very much how you can see... The Americans don't really feature in the World War II story at all. You can sort of see how...

The Soviet Union and the early PRC could have written the same thing. Mao and Stalin could have probably written something similar. There's a whole section in there about Taiwan and why Taiwan is China and will inevitably be restored to China. Nothing about Ukraine.

A lot of talk about how the world needs justice, not hegemonism. And a lot of talk about protecting security interests. Yep. While, you know, and that the two nations are constructive forces for maintaining global strategic stability and for improving global governance. I mean, that is pretty amazing given what Russia is doing in Ukraine. Yeah, right. But that's where we are. But you don't... But also, again...

The sort of the cost to China from its support for Russia in its war on Ukraine, I think, have actually been lower than the Chinese originally feared. Totally. And they're going to diminish given the way the EU and the US are fracturing in the Trump 2 era.

Yeah. Well, and in terms of what the PRC gains from the partnership with Russia, my understanding is that it's energy security and military technology on the PRC side. Is there anything else that they're getting out of this partnership? And obviously, the PRC has been supporting the Russian economy for the last several years. I mean, the PRC gets a lot of markets. They get access to a lot of commodities. Mm-hmm.

They have a peaceful multi-thousand kilometer land border. And even if it weren't peaceful, there's not much the Russia could do now because their military is so damaged and preoccupied in Ukraine. And I think, are the Chinese policymakers worried about this reverse Nixon sort of fantasy that's circulating in parts of DC? I think if it worked, it would be a problem. But again, I don't think there's

a lot of evidence that it's actually gotten any traction. And in some ways, I would just assume both sides, both Russia and Xi will find ways to pocket gains from any sort of attempts on the U.S. side to make nice with Russia in this fantasy of trying to get some sort of a, build some sort of a split between Russia and China. At the same time, Putin probably can leverage the idea that, well, gee, Trump being real nice to me, that maybe they'll get

more things from the Chinese side. But overall, I mean, I think if you're Xi and Putin, you go to these meetings, certainly if you're Xi...

I think he would make an argument that actually things are moving in their direction. And this is all actually the historical trends are continue to be favorable for China's rise and the reshaping of the global system. I think you're probably right. And behind closed doors, they're probably having a good laugh about the reverse Nixon dreams of the past couple months. On that point, though, the one thing I would say is I was reminded this week of

of comments that Marco Rubio made back in February explaining at least how he saw the reverse Nixon strategy. And I liked what he had to say. He said, I don't know if we'll ever be successful completely at peeling them off of a relationship with the Chinese. I also don't think having China and Russia at each other's neck would be good for global stability because they're both nuclear powers.

But I do think we're in a situation now where the Russians have become increasingly dependent on the Chinese, and that's not a good outcome either. If Russia becomes a permanent junior partner to China in the long term, now you're talking about two nuclear powers aligned against the United States. And even 10 years from now or five years from now, if this trend continues, we could find ourselves in a situation where whether Russia wants to improve its relations with the U.S. or not,

They can't because they've become completely dependent on the Chinese because we have cut them off. I don't know if that's a good outcome for us. What's a better outcome for us is to have a relationship. We're going to have competition and maybe even direct confrontation, not militarily, I hope, but otherwise with the Chinese because they're doing all kinds of cheating and stealing when it comes to trade and economics.

We're going to have disagreements with the Russians, but we have to have a relationship with both. These are big, powerful countries with nuclear stockpiles. They can project power globally. I think we have lost the concept of maturity and sanity in diplomatic relations.

Part of diplomatic relations is the ability to communicate with and manage through problems with other great powers around the world to avoid war and to avoid conflict. But I think having a situation where the Russians are permanently a junior partner to China, having to do whatever China says to do because they are dependent on them, I don't think that's a good outcome for Russia, and it's not a good outcome for America or for Europe or for the world.

And I think generally speaking, those comments are all pretty reasonable and reflect a mature understanding of geopolitics and the dynamics with these relationships.

But at the same time, I don't know that the U.S. can make any headway and the ship may have sailed in terms of Russia as a junior partner to the PRC. But that's what I'll be wondering as more news emerges from Moscow over the next couple of days. I guess we'll have to wait and see. It's a mess. Yeah. But again, going back to I mean, Russia is, you know,

Russia has agency. You know, you look at the use of North Korean troops. It's not clear that China is particularly happy about that. It's not clear that China can actually do anything about it. You know, some of the sort of recent Russia-North Korea moves, again, you know, I mean, these are not...

countries and leaders that are necessarily going to trust each other. But at this moment in time, they're extremely useful to each other. And the challenge, though, is, again, geography matters, right? Russia has now, frankly, a vulnerable border with China, not necessarily that China's going to do anything. But China has a four-plus-thousand-kilometer border, land border with China. They need to have a good relationship with that neighbor. And especially given how powerful China has become, they don't have the capacity to

have an adversarial relationship with China. Totally. I mean, it's pragmatic for both sides of the Russia-PRC partnership. But with Xi, that's the other question I have, because Xi and Putin have been on the same wavelength and seem to have had a good relationship for the duration of Xi's reign. But also, you read this document, the Xi's article about sort of...

his view of learning from history, you know, it ties in with, you know, Putin thinking that, you know, that the fall of the USSR was the greatest tragedy. You know, she's thinking something similar, right? I mean, these are, I think people who have a, you know, they look at how the world should be structured in a way that comes from the original Cold War. Right. Right.

I mean, that's the thing. It's like part practical and part ideological in terms of the alignment. But also so much of that is a dislike of America and America's power and America's role in the world. And so a willingness to do whatever they can to diminish and delegitimize the United States. And I think honestly...

you know, that's been happening for a while. It is accelerating now. And a lot of some of those, some of the reasons accelerating are self-owned, self-inflicted. Right. Yeah. So again, going back to risks or opportunities, uh,

I would just say I think they're both, but I would not underestimate the opportunities that someone like Xi Jinping sees in the current environment and the current global situation. It certainly seems like Xi saw an opportunity with the war in Ukraine and has used that to deepen the relationship with Putin and has thus far not necessarily suffered any consequences as far as global standing is concerned. And if the war in Ukraine ends up

For a while, it looked like it was strengthening NATO. Now it may end up fracturing NATO because of the change in the U.S. administrations. The Chinese were getting really upset in the Biden administration when there was talk about sort of an Asian outpost for NATO. And I don't think they're worried about that happening now. And then that ultimately flows back to, and there's a reason there's a paragraph in Xi's article about Taiwan, because it ultimately helps create space for the PRC to...

to do whatever it thinks it needs to do to make Taiwan part of the PRC. Yeah. Well, when specifically what she wrote in the Russian Gazette was no matter how the situation on the Taiwan Island evolves or what troubles external forces may make, the historical trend toward China's ultimate and inevitable reunification is unstoppable. So, yeah,

An unsettling but unsurprising sentiment there. Speaking of external forces, though, we could close with this. A tweet from the CIA. In case you missed it yesterday, the CIA released two Mandarin language videos aimed at recruiting Chinese officials to help the U.S. And then it includes a link to a YouTube video, which we can include in the show notes.

So not only did the CIA publish a Mandarin YouTube video designed to recruit party officials, they promoted it on Twitter and then did the blogger thing where they doubled back with an in case you missed it tweet saying,

All of it was pretty incredible. What did you think of this video? And how might that effort be perceived by the PRC? I couldn't get a feel for whether it's like essentially commonplace between two rival superpowers or this was particularly provocative from the American side. So so they've done it. I mean, they've done a Chinese one before. They've done it for Russia. I think they're public.

that the CIA has said, oh, they were successful, so they're going to keep doing them. You know, the videos end with a... They're basically... One is...

from the perspective of junior official, one is from the perspective of a more senior official. The junior official, it's about you're working so hard, you're trying to get all these things, and yet it seems to be only the other people get it. Like, you're more powerful, you're a corrupt leader, you're a corrupt boss, et cetera, et cetera. And, you know, you're like, don't you want a better life? And then here's how you can contact the CIA, like through some... And they provide a tour address at the end. The other one is a more senior official and talks about how, you know,

Other people want your job and other officials keep disappearing, you know, playing on this idea of a reasonable concern. You know, these investigations of senior officials, just all of a sudden they're just gone one day. You know, maybe you can't help yourself. And what about your family? Don't they need a way out? Don't they need it? Like a like a like a escape escape valve or escape plan? You know, contact the CIA. The the the phrasing in the the accents were a little off. They got some mocking comments.

And it certainly got some mocking on the Chinese internet, although I think some of it was...

actually good marketing for them because you, you know, the more people mock them, the more people might want to like understand what they were about. It went viral because, because the accents are safe, safe to talk about it if you're mocking it. Right. And you know, like, so it was like sometimes in sports, like ESPN will go viral because they'll amplify a particularly bad take and like the social media editors they have. And I'm convinced they do it. Yeah.

Yeah, because they know people will respond. The other thing, I don't know. The video's dropped on May 1st, the start of the May holiday. And, you know, I don't know if that was intentional from the CIA. Officials traveling, yeah. Hoping that maybe some of the people who know stuff they'd be interested in are traveling and outside the country and therefore might feel more safer about initiating some sort of electronic contact. You know, but back to sort of how they will be perceived. I mean, these are...

Actually pushing right at, I think, the system's biggest pain point, which is political security. And I think it's seen as the Ministry of Foreign Affairs, effectively, they called it a hostile act. I think they actually see it as a hostile act. The current Minister of State Security, Chen Yixing, has said,

got quite a propaganda flair, and he's the one who's brought the MSS into the internet age where they have their WeChat account, they're regularly posting things, they make cartoons, they make little docudramas about cases. That's true. They're blogging too, right along with the CIA. It would be really quite a good troll if they decided to put out a really slick English blog

language series of videos targeting disaffected U.S. officials and talking about here's how you contact the MSS. I don't know if they do that, but I certainly think it's not. Why not? It'd be entertaining. Someone in China did like an AI spoof. It was not great. I saw that, yeah. It was kind of lame. But someone who actually wants to put some energy into it could probably put together an interesting response. So we'll see. I mean,

they've been churning out a number of propaganda videos. They're good. No, some of them are, some of them are get the MSS involved. So, but no, I mean, again, it's just, it's just back to the earlier comment about this is more than a trade war. This is more than a trade war. Yeah.

No, exactly. And I was wondering whether this was an extension of the escalations. I do have a faint memory of the CIA making similar outreach under Biden online, but I could be wrong there.

But yeah, I mean, in terms of the back and forth with intelligence gathering, I know there was a CNN report in the early days of Trump that Russia and China were secretly, not on Twitter, making outreach to fire Doge employees. So there's some back and forth in this area. That's how it works. All over LinkedIn. I mean, sending emails to people...

you know, hey, we'd love to hire, you know, we want to hire, like we're a Chinese company unnamed and we want to hire, we're looking for help for a geopolitical risk analysis. And based on your background, you'd be great and we'll pay for it. You know, would you be interested?

Mm hmm. Exactly. No, it's just common smart business. And it is common. Yeah. I mean, that's part of the story as well. Do you have any good stories about U.S. recruiting efforts when you were living in Beijing? You mean U.S. trying to recruit Chinese? Yeah. Like asset recruiting? No. Okay.

Okay. Well, let's just say nothing that I'm going to talk about in a public podcast. Okay, fair enough. Well, I mean, there's one story that I have from a friend of a friend who wasn't living in China at the time, but was living elsewhere in Asia. And

he was approached by an intelligence officer who offered to pay for his daughter's birthday party on the condition that they invite a member of his daughter's class whose father was a potential asset. And the guy thought about it and turned it down. He didn't want his daughter to be a pawn in an intelligence operation. He was in Beijing? Where was he? He was not in Beijing. He was in...

another country. I won't name the country. Oh, okay. But...

So he didn't have to worry about repercussions by staying in China. He was outside of China. He was outside of China, yeah. But the whole thing just made him a little bit uncomfortable. I will say, as somebody who just hosted a two-year-old's birthday party, it's pretty chaotic, and there are plenty of opportunities to make inroads to people who attend. And there was a utility van parked outside your house the whole time. It had some weird antenna sticking out, right? That's right. Monitoring, yeah.

Tashi and I were like, Tashi's little tracker started buzzing. It was a little weird. It's too bad. Tashi should have come in. We had a lot of extra cake. But on that note, Bill, we can update people next week on

what the hell happens in Switzerland this weekend? Um, any announcements that emerged from Moscow in the days to come here? I think substantively the power of Siberia to pipeline is one thing that I'll be monitoring in the next couple of days here. Uh,

But other than that... It's a regular wish from the Russian side. It's been like three years, exactly. Perhaps they'll finally break through on those negotiations. The Chinese won't pay a lot for it and they'll probably get more than cash if they finally agree to do it. Yep. I mean, the Russians still have certain defense-related technologies that I think the Chinese...

Less than it used to be, but there's still some that the Chinese would like. Yes. Apparently, the Russians have been very helpful with submarines. There's certain IP. Which is not good. From a U.S. perspective, that is very not good. Yep. A lot of this is not good, but I'm going to take refuge in the NBA playoffs for the next several days, and we'll circle back next week. Bill, it's great to see you. And again, people, email at sharpchina.fm. We're going to do more Q&A on the next episode. We'd love to hear from you.

But until then, Bill, have a great couple of days and I will talk to you soon. Thanks, Andrew. Thanks, everybody.