 You know, prestigious institutions such as the World Ban, the Woodrow Wilson Center, Columbia University. He was, you know, interviewed by Voice of America, Chinese Central TV. And the best part, you know, he's a high school wrestler with Pudahong and he was the team leader for our U.S. wrestling team at Cuba. So now let's just, you know, welcome him and let's listen to him. Okay. And then thank you for that kind introduction. It's an honor to be here to address your organization and how many people have been to China? Just curious. Okay, so we've got quite a bit. Okay, so I'm gonna give an overview of the U.S.-China trade war and its multiple fronts and then we're gonna go directly into the trade and business outlook and I'll go over the phase one agreement that was recently signed by the Trump administration. So the world's two largest economies, U.S. and China, have been facing off against each other in a full-blown, what we would say, as a trade war since the ascension of Donald Trump to the presidency in 2016. Now before discussing how and where this trade war is going, it's important to look at just how closely linked the two economies are to each other. In terms of financial integration and trade integration, the trade war between the U.S. and China is like a pair of Siamese twins fighting each other and the end result is unlikely to be positive without a comprehensive and viable trade deal. The 174 Chinese firms that have their main listing in Wall Street's stock market have a total market value of 394 billion U.S. Tech giants like Alibaba, Baidu, ID.com, and Starbucks look alike, Luchlan Coffee, have all used Wall Street as the one stop shop for serious financing. In terms of trade, the two countries are each other's biggest trading partners. U.S. trade with China in 2018, goods and services, total roughly 737.1 billion, with a deficit on the U.S. side of 378.6 billion, and the deficit in the trade of goods is the main reason, obviously, for the imbalance. The U.S. does boast of supply in services and the U.S. trade reps office estimates according to data that 911,000 jobs are supported by U.S. exports to China. So I will talk about three fronts where this trade war is being fought. Number one, the tariff front, followed by the technological front and then the currency front. So on the tariff front, when Donald Trump was campaigning to be president in 2016, he once promised to impose a 45% tariff on imports from China due to their unfair business practices and theft of intellectual property. In August of 2017, the U.S. initiated a review of China's intellectual property policies led by the top U.S. trade official on China. The intention behind this review was to initiate a formal process through which to punish China for its protectionist policies that had led to a 378 billion deficit. Through the review, the government also highlighted China's intellectual property theft, a leading cause of the trade deficit. Although the U.S. and China put tariffs on a few minor products such as soybeans, washing machines, solar panels, the tariff conflict turned into a war on April 3rd of 2018, when the U.S. threatened 25% tariffs on nearly 50 billion worth of imports from China. The U.S. trade reps office gave China's industrial subsidy program as well as its transfer of intellectual property as the justification for these increased tariffs. Rather than enacting any economic reforms, China ended up retaliating with 25% tariffs on 50 billion of U.S. goods. One month later, Washington listed another 200 billion worth of goods coming into the country from China to be subjected to tariffs at the border. This time, the tariff rate was set at a more competitive 10% with the deadline on January 1st before raising it to 25%. Now, the deadline ended up being postponed twice as China made reasonable concessions to American demands, but in the meantime, China raised tariffs by 10% on 110 billion U.S. products coming into the country. One of the reasons for this deadline was that a truce had been initiated and the two countries agreed to this in December of 2018. But negotiations ended up breaking down in May of 2019 when the Chinese made amendments to the agreement that removed any clauses which forced reforms in Chinese laws. And if you do business in China, it's not unusual for China to try and renegotiate a deal that's already been signed to take the other side off guard. So I was not surprised when I saw that happening. On May 10th though, after a flurry of angry tweets, President Trump raised the tariffs for the 200 billion worth of products affected at the second stage to 25%. After this tariff hike and its justification were announced in a rare press conference, Vice Minister of Commerce Wang Xiaowen said, quote, nothing is agreed until everything is agreed. And put the onus of the breakdown in negotiations on the aggressive stance of the US. Furthermore, China matched its own tariff rate by raising it to 25% on 60 billion of the 110 billion of the products already under increased tariff duties. So only about 10 billion worth of the goods coming into China remains under these duties, whereas the US had room to levy tariffs on 325 billion worth of products coming in from China. So I'll go now to the tech front. Such companies like ZTE are often involved in sectors that used advanced technologies like chip making, facial recognition, or telecommunications. Fears of Chinese dominance is not only felt by trade officials in the US, but also by policy makers who work in cybersecurity sphere. Some perceived Chinese efforts to get ahead in advanced technology is motivated by a desire to undermine the cybersecurity of the US and its allies. The Pentagon warned in 2017 that state led Chinese investments in US firms working on facial recognition software, 3D printing, virtual reality systems, and autonomous vehicles is a threat because such products have, quote, blurred the lines, end quote, between civilian and military technologies. A year later, American intelligence agencies identified China as an unprecedented threat due to its targeted acquisition of high-tech US firms and its hiring of foreign scientists and its theft of intellectual property. So in light of these accusations, Chinese telecommunication giant Huawei has been the target of the wrath of the US administration. In December of 2018, as we know, the CFO Meng Wanzhou was arrested in Canada after being accused by US prosecutors for fraudulently deceiving four banks to enable Huawei to evade American sanctions against Iran. Since then, it has become clear that the list of grievances the US government has about the company don't end there. On May 15th of last year, the Commerce Department ended up adding Huawei to a list of firms which Americans cannot legally do business with, embargoing the company from receiving any technology from American tech firms. Now Huawei is not like any other firm in terms of how crucial it is to the Chinese economy and Chinese future dreams. Its name translates roughly to Chinese achievement. And as a flagship technology company, its value on the financial markets is on par with Microsoft. It also carries special importance due to how many 5G patents it holds. Their expulsion from international trade or lease trade supported by US firms continues to cause harm to their suppliers from the US as well as Intel, Qualcomm, Micron and Google. They've ceased their sales to the company out of fear of reprisal from Washington. However, the loss of Huawei will be felt on their balance sheets as revenues decrease and past contracts are torn apart. The US has warned its allies to be aware of Huawei technology in their plan construction of 5G networks. Many ASEAN countries as well as the European allies have increased their examination of any security breaches caused by the company since Washington's warning. However, not many have found justifiable reasons to block Huawei technology from their networks. The Malaysian prime minister actually praised Huawei before the Shangri-La Dialogue in June of last year while the Philippine representative at that conference asked if Apple was not similarly compromised. Now what's happening is the fight is moving to Latin America with Mexico and Argentina set to install their 5G systems this year followed by Brazil in 2021. The US has started to lobby hard against Huawei and the cyber policy circles of all three countries. But meanwhile, Huawei plans to build a factory in Brazil and a research lab in Sao Paulo increasing the economic stakes for the Brazilian government. Alibaba has also fallen victim to protection of sentiments in Washington. The online shopping giant has benefited greatly from the US's financial market since its founding when it needed large amounts of capital. But it started to move away from Wall Street to friendlier financial harbors such as Hong Kong after its payment affiliate and payment was blocked from acquiring MoneyGram, an American rival on national security grounds by the US. Furthermore, November of 2018, it came out that Mr. Ma was a Chinese Communist Party member which further hurt his image in American financial circles. So although the company has not yet fallen under attack by the Trump administration, it is hesitant to acquire American startups for fear of being caught in a protectionist net. The US has also been considering cutting off flow of idol American technology to five Chinese tech companies. These are Meg Yi, Zhejiang Dahua Technology Company, Hangzhou Hick Vision Digital Technology Company, Meia Pico, and Ifliya Company Limited. The White House administration again cited concerns about the technology that these companies produce which some say includes surveillance technologies that are being used to monitor ethnic Uyghurs in Xinjiang. So now we go to the currency front. This was opened up early in this trade war but has remained relatively quiet since then. During the presidential campaign, Trump promised to label China a currency manipulator in the first 100 days of his presidency. These 100 days came and passed and the government didn't ever pull the trigger. Then in February of last year, Treasury Secretary Steve Mnuchin said after a meeting between the delegation from the two states, quote, we actually concluded and reached an agreement, one of the strongest agreements ever on currency. It seemed then that the fire had been put out as no sanctions were announced. However, the embers were stoked again when the Commerce Department proposed a rule change that would allow the United States to expand its ability to penalize countries that manipulate their currencies. The rule change would make it so that if foreign companies weaken their currencies to subsidize their products, its tariffs could be levied against it as if it was a direct government subsidy. Eventually, this measure would expand the U.S.'s capability to sanction China for its perceived currency manipulation. This was motivated by the R&B's 8% fall since the beginning of the trade war which had increased the trade deficit to 419 billion in 2018. Nevertheless, like previous threats, these also fizzled out in a short period of time. And on May 28th, 2018, the Trump administration declined to list China as a currency manipulator. China was still kept on a watch list. However, U.S. allies such as Germany, Ireland, Italy, Japan, and South Korea are also on the very same watch list. So how did China respond to this threat of a currency tariff? So they struck back with its own list of what they consider unreliable entities against U.S. accusations against its own tech firms. China's Ministry of Commerce classified such companies as those that don't obey market rules, violate contracts, cut off supply for non-commercial reasons, pose a threat to national security, damage the interests of Chinese companies. And this puts the companies that have locked off access to Huawei such as Qualcomm or Intel at risk of losing access to the Chinese market. So a company like FedEx, they were singled out after it diverted two packages headed for Huawei and China from Japan to the U.S. And their vice-minister Wang Shouen said, look, we welcome foreign investors to do legal business in China, but if they break the law, then we must investigate them according to Chinese law. So FedEx was being used as an example to other foreign companies regarding what might happen to them if they suddenly find themselves on a list of unreliable companies. Another substantive threat from Beijing came regarding our possible rare earth blockade. On May 2nd of last year, China's Ministry of Commerce published a white paper which mentioned the possibility of blocking rare earths to the U.S. if their economy was continually targeted by the American sanctions and tariffs. Again, vice-minister Wang said, we're willing to satisfy other country's normal demands for rare earth, but if a company uses Chinese rare earth to make products that are then obstructing Chinese development, this is of course hard to accept. And according to the U.S. geological survey data, China provides about 80% of the U.S.'s rare earth imports. And rare earths are elements that are in short supply throughout the globe and are necessary for manufacturing advanced technological goods. They're divided into two classifications, light and heavy, corresponding to their atomic weight. Heavy earths are rare and are often used in more critical processes. Some major ones are dysprosium, used in magnets, yttrium, used in lighting and flat screens, and ytturbium, used in treating cancer and earthquake monitoring. Technology metal research LLC found that China produces 95% of the global output in the elements and that a blockade would have a devastating impact across swaths of U.S. economy. When experts said China definitely dominates supplies and if China abandons these exports, I don't think the U.S. can find alternatives. Now the main in China 2025 is very important. When the U.S. administration expressed concerns about China's desire to overtake the U.S.'s dominant role in high value added industries, they're not pulling facts out of thin air. This concern was expressly stated as a goal in China's Made in China 2025 policy which proposed to transition the Chinese economy into a leading manufacturing power by 2049. This plan outlines nine main tasks and 10 key sectors to focus on in the near future to achieve this target. These sectors such as new information technology, biomedicine, high-end rail transportation equipment, energy saving cars are central to the so-called fourth industrial revolution which refers to the integration of big data, cloud computing and other emerging technologies into global manufacturing supply chains. Semiconductors are an area of particular emphasis given their centrality in nearly all electronic products. China accounts for about 60% of global demand for semiconductors but only produces 13% of global supply. Now the U.S. responded to China's plans of dominating high-tech industries with a protectionist law called the Foreign Investment Risk Review Modernization Act and made protecting U.S. tech from Chinese investment a national security issue. Firmah passed Congress in August of 2018 and urged that considering national security risks, the Committee on Foreign Investment should act to suspend transactions or refer them to the White House for review but which transaction is reliable to this new law? There are two common scenarios when such a suspension can take place is described in the two clauses in the bill. Number one, whether a covered transaction involves a country of specific concern that has a demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect United States leadership in areas related to national security. Two, the potential national security related effects of the cumulative control of or pattern of recent transactions involving any type of critical infrastructure, energy, asset, critical material or critical technology by a foreign government or a foreign person. Although the bill not once names China, the intended target is clear. So now that we've discussed that, I will go directly into the overview of the US-China business development following the 2019 trade deal. So here's a chart on the trade between US and China starting from the first quarter of 2018 all the way through the second quarter of 2019 and the slides will be available for everybody after the presentation. This is from the US Census but you can see US exports to China and the trade deficit. Now it's gone up, no. Okay, so the general points I wanted to mention on this phase one agreement, Trump administration canceled the tariff and reduced the levies from 15% to 7.5% on 120 billion in Chinese products. The Chinese promised to buy soybeans, pork, cotton and wheat. The opportunity to diversify the Chinese economy and reform the financial system very important. The phase one agreement leaves in place tariffs on some 370 billion worth of Chinese goods, about 65% of total US imports from the People's Republic of China. And President Trump said the US would lift the remaining tariffs if the two sides could reach a second more substantial agreement which is in the works. Tariffs that were scheduled to go into effect on December 15th on nearly 160 billion worth of Chinese goods included cell phones, laptop computers, toys, clothing, have now been suspended indefinitely. China's retaliatory December 15th tariffs, including a 25% tariff on US made autos have all been suspended. Okay, Treasury Department's Committee on Foreign Investment in the US called CIFIUS. They are gonna have expanded scope now to regulate even transactions in which a foreign entity gains a non-controlling stake in a US company where that non-controlling stake allows the foreign company to gain access to technical info or sensitive data, acquire membership, or observe rights on a US company's board, become involved in the management of critical technology or infrastructure, or otherwise take actions that pose national security threats. Again, this is what FERMA was enacted to do. And this, CIFIUS had been limited to transactions in which a foreign entity acquired a controlling stake in a firm with US assets. So the idea is to make sure that the Chinese don't enter the market in a nefarious way, and that's why FERMA went into effect. Okay, okay. So purchasing part as part of the steal, China did agree to purchase 200 billion worth of US goods and services by 2021, right? Commitment does include 50 billion in energy exports, 32 in agricultural goods, 77 billion in manufactured goods, additional 37 billion in services. China bought 130 billion in US goods in 2017 before this trade war began, and 56 billion in services according to US data. So what's happening now is China's gonna divert a trade from a number of their trading partners to meet US export targets in this phase one deal. So under agriculture, you've got all these oil seeds, meats, seafood, cereals, and cotton. Under manufacturing, you have industrial machinery, electrical equipment and machinery, vehicles, pharmaceutical products, aircraft, orders and deliveries, iron and steel, optical and medical instruments, and other manufactured goods. And finally, under energy, we talk about crude oil, coal, refined products, and liquefied natural gas. So. What did you just say now? Huh? All of that is going to go where? Huh? China is diverting trade from various... From those sectors? From countries that they're already trading with to go into those sectors. And depending on these, it's like coal, they've got, I think it's Indonesia, Brussels, Mongolia, yeah, so. It's, they've got, they trade with so many other countries, but now because of this trade agreement, they're going to have to pull out of dealing with those countries and engage with the US. So that's why it's tough for them, I think, because they've never been able to, they never were forced into a position like they are now, because Donald Trump is a very unusual candidate, in the sense he's not a politician or a diplomat, he's a businessman. So he's sort of forced the Chinese to come to the table and really negotiate in a way that I think is benefiting the US for the first time. It's forcing China to withdraw money that they're engaged with other countries and putting it into the US, which they never had to do before. Okay, US export targets for agriculture, energy and manufactured goods. Maybe difficult to achieve. You have the chart. That's the projection based on 2012 to 2017. Export trend, there's a Chinese GDP growth projection based on China's economic growth and projections from 2017 to 2021. So now we go into manufactured goods. US export trend projection is again 2012, 2017. Chinese GDP growth projection is based on China's economic growth and projections from 2017 to 2021. And again, energy, US export trend projection again, 2012 to 2017, Chinese GDP growth projection based on China's economic growth and projections. And China has taken the position that all energy options have risks. So they look at nuclear as well, which is certainly a source of friction in this country, but in China. So again, services, projections based on 2012, 2017 export trend. You have the Chinese GDP growth projection based on China's economic growth, 2017 to 2021. And then services again, continuing to rise. So what does it all mean, bro? You're going to tie it? Yeah, right. I mean, this is all part of what was negotiated as a way to grow the US and the Chinese economy by ensuring that they are inextricably linked, okay? That there's transparency, there's accountability and a free flow of trade and services. So the two economies are going to benefit. Okay, so intellectual property. The phase one agreement is aimed at improving intellectual property protections in China. Very, very important. A 2018 USTR report said that Chinese theft of American IP currently costs between 225 billion and 600 billion annually. But analysts say the deal's provisions may last lack specificity required to achieve meaningful change. So look for this to be further strengthened as they move to round two. The deal does include stronger Chinese legal protection for patents, trademarks, copyrights, including improved criminal and civil procedures to combat online infringement, pirated and counterfeited goods. Commitments by China's previous pledges to eliminate any pressure for foreign companies to transfer technology to Chinese firms as a condition of market access, licensing or administrative approvals, and to eliminate any government advantages for such transfers. China has also agreed to refrain from directly supporting outbound investment aimed at acquiring foreign technology to meet its industrial plans. Transactions are already restricted by stronger US security reviews. Okay, financial services. The idea is for improved access to China's financial services market for US companies that includes, as I said, banking insurance, securities and credit rating. It aims to address a number of longstanding US complaints against about investment barriers in the sector. That include foreign equity limitations, discriminatory regulatory requirements. China, again, has pledged for years to open this up, but now, under this agreement, it's more definitive on what they are required to do. The idea is to boost imports of foreign financial services from the US. Okay, currency. Again, I talked about China is to refrain from currency and devaluations and not to target its exchange rate for an unfair trade advantage. Again, the deal subjects any violations of currency commitments to the agreement's enforcement mechanisms under which they could incur US tariffs. The currency agreement is based on provisions in the US-Mexico-Canada agreement that was signed to replace NAFTA. It requires three countries to disclose monthly data on international reserve balances and intervention in foreign exchange markets, along with quarterly balance of payments data and other public reporting to the IMF. Okay, so this is a history of the US-China trade war tariff, an up-to-date chart. I kind of went into that earlier. And then the next slide. Okay, I have one, oh, we missed. Oh, okay, this one didn't make it. Anyway, it's again, it's a chronology of everything from 2018, 2019 through the 20th. So you can review that later on. Now we get into the trade deal opportunities and challenges. Okay. I'll get into the challenges. Chinese FDI and the US industries fell 2019 to an estimated 3.1 billion. Tariffs still remain on roughly 360 billion of Chinese goods, two-thirds of what Americans buy from China for at least 10 months as a means of enforcement for the deal. Average tariffs on Chinese imports will remain elevated at 19.3%. So it's six times higher than before the trade war started. As one analyst said, it's a cessation of hostilities, phased one coupled with some barrier, some barter. Washington and Beijing certainly have been locked in a trade dispute for nearly two years. It's not over though with the signing of this partially China deal. But again, it's a reprieve for months of uncertainty and threats of tariff increases. So look for round two to be more substantive and to provide this level of clarity. There are signs of future difficulty certainly on the technology front. The Commerce Department looks to eliminate that loophole that will let US companies through their overseas facilities sell to Huawei. As I said, the company of the US puts on its export restrictions list last year. So what are the pros? The pros are the deal provides much needed certainty to American businesses as we begin 2020. That's according to Tom Donahue, the CEO of the US Chamber of Commerce. But again, he said it's critical for both sides to begin negotiations on phase two as soon as possible to address significant concerns in the areas of subsidies, digital trade and data discrimination and non-tariff barriers to US manufacturers and service providers. For those who can stomach volatility, again, this is a good entry point for long-term investors into emerging market stocks. And the intellectual property and privacy will allow for foreign companies to have a more competitive foreign advantage in the Chinese market. So it's a good start, but we still have a long way to go. So the second phase is gonna be crucial. The global effect. Countries bilateral import commitments ignore the fact that trade outcomes rest on multilateral relationships. The greed targets for increased purchases of agricultural products, for example, suggests that China might have to buy considerably less agricultural products from Brazil. Other indicate that it may have to purchase far fewer. Plains from Airbus, these are according to some analysts that under normal market conditions, such arbitrary adjustments distort global markets. The deal certainly will lower the United States trade deficit with China, but it'll largely be offset by higher deficits with other countries. The diversion also contravenes WTO's guidelines and will inevitably drag affected parties into a complex litigation process. So let's see what happens on that moving forward. The assumption that technology transfer and intellectual property protections are the basis for US Chinese great power competition, but in reality, they're global development issues. So US China tech tensions have been distracted from the fact that foreign direct investment has long been a key conduit for technology transfer to developing countries. Emerging economies seek to promote the inflow of knowledge through a variety of means, while developed economies argue for safeguarding the incentive to innovate. These trade-offs apply to everyone and general principles for best practices are already enshrined in the TRIPS agreement, which China consented to as part of its WTO accession. So investing in the Chinese market. The Chinese real estate market was prosperous for over two decades. Today, property values in China overpriced and continue to skyrocket. This means that the profit margin for investing in real estate is very limited. Therefore, the real estate sector is not a viable investment vehicle, but on the other hand, the Chinese stock market was never fully developed due to various factors and they're two main factors. One is to the policies enacted by the central government. Beijing had made several bad decisions regarding its market intervention policies over the past two decades. As a result, local Chinese investors completely lost confidence and transferred their liquidity into just the housing market. The other factor is that current tax policy in China has created loopholes. However, the Chinese central government is working to update its tax legislation. The previous two negative factors can be eliminated through the legislative process in China. Now, for global financial investors moving forward, this means there are huge potential opportunities in terms of investing in the Chinese stock market. One of the investment vehicles is the focus on purchasing goods and services when the price is low and then holding on until the value increases. Okay, so the coronavirus. What is the effect of that? One of the participants actually called me today and said, Ralph, I have an issue with the coronavirus. They want to know if I had been to China when I was last in China because they were going to Hong Kong, they had canceled their trip because they're very concerned. They have young kids, right? So I said, don't worry. I haven't been there since November, so I, and I was not in the affected part, so your fine's a come. Another effect is that on the mainland, if you look Asian and you are trying to order Uber or Lyft, you likely will not be picked up in places like New York and Philadelphia because they think if you're from China that you might have the virus. So this is another unintended negative effect of this virus. It's a definite risk though for global investors because the coronavirus outbreak increased economic uncertainty worldwide. February 2nd of this year, the first day the Chinese stock market opened after the Chinese New Year, the Shanghai and Shenzhen Security Composite Index took a deep dive and the markets tanked. Similarly, the Chinese currency was devalued dramatically on the same day. This became the catalyst for the Chinese central government to address and develop new economic policies to stimulate the Chinese economy. As a result, the Chinese stock market index recently went up. Over the long term, China can offset the economic loss and balance the side effects since the GDP of the People's Republic of China is ranked number one in the world. But nobody knows the long-term impact of the coronavirus, so we have to monitor that and see, I'd say in the next three months or so we should know. On the ground in China, people's movements are restricted, many people are working out of their home, and they may go out to the office one day a week. And then people will send a family member out to do grocery shopping and get supplies. So in effect, everyone is sort of under a quarantine, but people are still engaged in doing business, which is a very good thing. So my last slide is the ideal client. What is the ideal client if you wanna do business in China? The ideal client is a client that has sales between five to 30 million a year, number one. Number two, the client can be in a variety of businesses and our firm there is industry agnostic, although we have particular expertise and knowledge in manufacturing, software, retail, online commerce, pharmaceuticals, on a mode of franchising restaurants and other concepts, including apparel and fashion. Three, the firm represents WF, Williamson Dickies, L, and many other fashion brands and apparel footwear. Number four, the ideal client is someone who wants to enter the Chinese market for sales and service of their products and services. The client could be interested in a joint venture, manufacturing or direct retailing. Number five, the firm deals with clients with existing relationships in China, but their joint venture partners are no longer playing ball and need conflict resolution. Number six, the firm handles litigation, arbitration and other conflict resolution proceedings within China. Seven, the ideal candidate, client includes someone who wants their IP protected, trademarks, domain, copyrights, patents. The client would want to have a comprehensive strategy and program in China and needs both registration, maintenance and prevention of counterfeiting. Eight, the ideal client also includes someone who wants to sensitize their Chinese subsidiaries to the need for compliance with ethical, employment HR compliance, including the Foreign Corrupt Practices Act. So, finish my presentation.