Transcription
[Music] welcome to copy time, a podcast series on markets and economies from DBS group research. I'm Tamur Bake, Chief Economist, welcoming you to our 120th episode. To the readers of Financial Times, today's guest is likely to be a familiar one. Just a few years ago, Henny Sender was FT's Chief Correspondent for International Finance, and I believe that was a 13-year stint. Henny has also spent formative years with the Wall Street Journal and Far Eastern Economic Review. Uh, but the journalist career is one. But in recent years, Henny has served as Managing Director at BlackRock and Senior Advisor to the Executive Office in Asia. And presently, she is the founder of New York-based consultancy Absara Advisory. Hy Sender, this has been a long time coming. A warm welcome to Kofi time.
Thank you so much. It's great to have you. You are talking to me from Hong Kong, but you were in Beijing till yesterday. What vibes did you pick up?
So, I was only in Beijing for one day. It was a glorious spring day. For those people who remember the pollution in Beijing years ago, it was a revelation to see those blue skies. And I do believe that China is absolutely committed to reducing the pollution of its skies and its waterways, etc. You know, cherry blossoms, peach blossoms, so it was delightful to be in Beijing.
And how was the overall mood? Was it getting uplifted by the good weather?
I believe it was. And I did not go by Metro from the airport to the city, which I used to do. And there are very few bicycles on the road in Beijing these days. And there are many, many electric vehicles. And, you know, this is the transition in Beijing, right? You know, and yet, you know, there is a confidence issue. And you speak to people all the time, and they don't feel optimistic about the future in the way they used to do years ago. And as you know, my story better than anyone, Tamer, you know, I had gone to India as a student, spent many years of my life in India. And the first time I went to China, I felt that I was seeing it through Indian eyes rather than than New York City eyes. And the sense of confidence and pride, you know, and rightfully so, and the sense that their lives were all getting better. In the last several years, you don't hear that narrative anymore. And the scars of COVID are still very deep. China is very good at not forgetting.
So, when we talk about deep scars from the pandemic, but when we try to square that with data, uh, certainly in 2023, that scar was deep, and we didn't see a confident return to travel and tourism. But Hy, when we look at data from the first three months of 2024, it seems like some vigor in inter-regional travel, domestic tourism, and so on. So, I, I hear you when you say that compared to those giddy days of strong, confident China, things look subdued now. But the delta, the movement on the margin, it seems to be on the upside as far as you're concerned.
So, you know, it, it depends when you want to start. And it is obviously, you know, confidence is very subjective. You know, from my point of view, they have the same target for growth this year as they did last year, but the base is much higher, you know, in '24 than it was in '23, because the base from the previous year was so depressed by COVID. You know, so you look at some indicators and they suggest better. But there is a certain opportunity cost in the measures they've adopted so far. And I respect the fact that you don't want bubbles. But, you know, there's so much more they could be doing, especially on the demand side. So, rightly, you say there's been too much speculation in housing. But, you know, sales are down 30%. And the measures so far have been much less than they could be, especially in rental housing and affordable housing. You know, so this government feels much more comfortable reform, putting reforms on the supply side. So, if I'm a household in some second-tier city, I may have lost a lot of money in the property market. I may have lost money in the equity market. And now I'm very conservative. I leave my money in the bank. But I can't get much return on my deposits because, you know, the government prefers to cut interest rates in the hope that that will produce more borrowing, especially from state-owned enterprises. But I'm not earning anything on my savings. And the measures so far to make me feel good about spending, trading in my old electrical appliances, isn't going to do much for me. It seems very marginal.
But forgive me, but let me ask you, what your analysis is as an economist?
Hy, I think you will remember a conversation that you and I had last week. And my belief is, among the points that you made, and spot on, and I think the thing that needs to move first has to be the stock market. The property market adjustment will take years. We can't wait for the property market to bottom out and that be the lead driver of sentiment and growth. Uh, there has to be excitement for entrepreneurs to build companies and brands and take them public and become wealthy. And if that can happen, even while the property market adjustment continues, I think it'll be a very good offset. And this year, with the likes of Shein, and perhaps even an Financial, I don't know, there are a couple of IPOs that could be generating some degree of momentum, some degree of excitement. Um, so, I, I fully concur with you about the depressed nature of domestic sentiment. Uh, I do think that the policy environment is not in a state of paralysis. Things are being done, maybe not to the extent that you and I would like, but it's getting done. Uh, and I also think that there are probably a couple of pipeline things in the equity market that could help things on the margin. Um, but Henny, I, I, the moment I start talking about stock market, I need to, I feel like I should spill over into Hong Kong, which I don't want to do. I want to stay with China for a little longer. Um, your sense of strategy. We read a lot about what the US strategy is. Republicans, Democrats, there is no daylight between them. They all want to beat up on China, and they want to create more restrictions on market and tech access. We know all there. What is the Chinese playbook from the point of view of the US, or with right for like, you know, China sees sort of, you know, relentless escalation of trade and tech war. And what kind of strategy is possible for the Chinese to do in in the middle of all this?
So, it's, it's very interesting because it's a return to the first 50 years of the PRC, in my view. The Chinese narrative, the Chinese history, as they see it post-1949, was we have to depend on ourselves. All about self-reliance. And I was reading a history book, and there's a small footnote to that self-reliance narrative, which is that for 50 years, no one in the world helped us except for a Nanc. When we got aid from the former Soviet Union, and they cut us off at the knees. And in fact, that narrative isn't quite true. And they got a ton of aid, especially from Europe, European countries. But that's the narrative they tell themselves. And most people don't realize, but sitting in Hong Kong, we all realized that there was a debate in China about the wisdom of joining the World Trade Organization in December of 2001. And that debate was, can we trust the world? If we abandon self-reliance, will there be somebody who sells do what we need? And China is not self-sufficient in either fuel or food. So, will somebody sell us soybeans? Will somebody sell us corn? Will somebody sell us energy? So, with these decoupling policies from the US, which you point out rightly, embrace both trade and technology, China's response is to say, we were right not to trust the world. The US means that we have to return to our self-reliance narrative. And we can't get semiconductors from the US anymore. We can produce above seven, and that's good enough for most applications, actually. But we have to rely more on ourselves. And it comes at costs, you know. So, you know, one of the Chinese enterprises, Fan or Fushing in Mandarin, you know, had made all kinds of arrangements to license mRNA vaccines from the West. They could never get approval, you know. But they used locally developed vaccines, which weren't as effective, you know. And now that self-reliance, you can see it increasing in a host of technologies, including biotech. But the main thing is, let's rely on ourselves. And there are costs to it. But China is willing to pay those costs at the moment. Long answer, no great answer.
But in terms of self-reliance, it doesn't mean an inward-looking, uh, policy as far as trade is concerned. China seems to be still very keen on doing trade. And as you and I read on a regular basis, there's this fear now in the West that a new wave of cheap Chinese manufacturing is about to flood the world, from EVs to batteries, and so on. So, how do you sort of reconcile, on one hand, look, we now become again rudely aware of the fact that we can rely on the goodwill of the rest of the world, and we will focus on self-reliance, but at the same time, we believe in trade, and we want the rest of the world to buy our stuff? Is there a contradiction between those two narratives?
Um, I, I don't think so. Because the whole point of relying on ourselves is to be less dependent, especially, you know, to make ourselves strong. And that gives us competitive edges. But we know that, you know, the US used to be the number one importer of goods from China, and now they're in fourth place. And China does rely heavily on exports. But, you know, those exports and their competitive advantages will be much more reliant on self-reliance rather than imported, you know, ingredients, right? So, you know, the US, you know, China knows now that the old formulas of exporting have to change. So, I, for example, you know, India has a very complicated, intense relationship with China. I went to see a renewables project in India. It had 2.8 million solar panels. I said to the founder of this company, where are these solar panels imported from? And he said, Malaysia. Malaysia means a Chinese subsidiary operating in Malaysia. You know, so you see Chinese setting up to export to the West, but indirectly through a Malaysia, you know, given the Inflation Reduction Act in the US, which, which many people in Singapore and Korea and many other Asian countries feel like is American first protectionism. You know, the combination of NAFTA and IRA means a lot of Chinese investment is going to Mexico. So, they rely on exports as a source of growth. But to make them the competitive advantage that they are seeking, they rely on themselves. So that's how I, I look at it. Yeah.
I think I think that's pragmatic. And I think there is a limit of how many trade rules you can come up with to prevent Chinese subsidiaries in Mexico and Malaysia to stop trading with you. Uh, it, it would be, you know, let's put it this way, I was about to say it would be nearly impossible. But if there's a Trump 2.0, who knows, maybe even that would be something on the cards. Um, Hy, earlier you talked about this issue related to, um, chips. You didn't say the word chip, but you said seven. So, I know that you're talking about seven nanometer chips and below that. But so, let's just talk about that for a second. I had Chris Miller, who wrote that excellent book on, uh, Chip War, a couple of years ago, on my podcast last year. And Chris seemed to think that this goal to widen the tech gap between the US and China is a pretty pressing concern for the White House and Washington. And therefore, they would lean on, uh, lithography companies in Holland or materials companies to not trade with China and prevent China from going any further. How existential is this? Could it sort of render Chinese military substantially vulnerable to US military tech? Would it put a cap on China's tech progress if they can't access faster chips?
It certainly will slow down the move up the value-added chain. That is undoubted. You know, I, I thought your podcast with him was brilliant, and the book is brilliant. And, you know, he described semiconductors as the ultimate globalized industry because it's a series of technologies, actually. And you source different parts of that value chain from different companies in different countries, right? So, the whole effort is to slow down that effort. And, you know, when I sit down with the most brilliant venture capitalists in China, and I go through every technology, you know, is the gap widening or narrowing? And before COVID and this more intensified technological decoupling, I really overestimated the speed at which China would close the gap in some technologies. You know, there are technologies where China is moving up very quickly and becoming leading edge, and those include aerospace, robotics, and a number of other technologies, embracing the whole, you know, renewables effort, electric vehicles, batteries, solar, you know, that whole constellation. And there are others where the gap is widening. And I would include biotech there, which is rather surprising, and semiconductors. You know, everyone was surprised by the latest Huawei chips. And it's interesting because there's so much human capital exchange between TSMC and SMIC in Shanghai. And yet, you know, China is behind and desperately trying to catch up. And in that right, so you have to look at it in a more granular way, right? I fully agree. And, you know, in terms of frontier technology, there are things to do beyond the next fastest chip. In the sense that when we look at peer-reviewed journals in solid-state physics or biotechnology, Chinese scientists, um, are publishing, and and getting published in in top journals around the world. So it seems like there are certain foundational technologies where the hard work is bearing fruit. But in terms of commercializing the leading edge of semiconductor, I think that's one gap China is certainly going to feel more and more in the coming years.
Henny, you're talking to me from a hotel room in Hong Kong, a city where you have lived for a long time. And even now, although you're based in New York, you spend a lot of time in Hong Kong. Um, it's been a depressing few years for the city-state. Where do things stand now?
It, it continues to be very depressing. I don't think that you can entirely put the blame on Beijing. I think the quality of the government and the policies that would help, you know, put the life back into Hong Kong are totally lacking. You know, many more people left Hong Kong than came to Hong Kong over the long weekend that we just had. So, you know, Hong Kong is a series of monopolies to me. When I fly from New York to Hong Kong, Cathay Pacific has a monopoly. There's no other airline that flies nonstop. The fares they charge have become a competitive disadvantage for Hong Kong. When I go to Singapore, you know, I'm amazed at how much higher the quality of life is in Singapore than in Hong Kong. If you define, like me, you know, the quality of life as walking in a park and breathing clean air. By not living in Hong Kong, I'm saving so much money because the supply of affordable housing is kept artificially low. You know, if you can build an airport on landfill, you can build housing on landfill. When they moved the airport to one of the outer islands, they were supposed to redevelop the former airport land in Kowloon into affordable housing. They haven't done that. You know, there's so many things Hong Kong could do to improve the quality of life of its people, and they haven't done that. It, it's very sad to me.
Aren't there some projects in place toward affordable housing capacity expansion?
They are so limited. And actually, most people in Hong Kong, you know, there was an article written in my former employer's paper, you know, by the former head of Morgan Stanley in Asia, saying Hong Kong is done. And what he meant was more than Hong Kong is done as an international financial center. Most people in Hong Kong don't have a sense that their life was improved by having Hong Kong be an international financial center. And the government made very little effort to insulate people from say, the rising cost of property in this city. And to me, Hong Kong is a banking center, but Singapore is far more truly a diversified financial center.
But when we talk about capital markets, and I was earlier referring to certain pipeline IPOs, you know, like the ones of Shein, um, if they were to happen, and London or New York seem to suffer from some degree of China phones, big Chinese IPOs, wouldn't that bring some vigor back? I mean, if Hong Kong was to provide liquidity, liquidity to these private companies trying to go public, it would be huge for Hong Kong, and it makes a lot of sense. And yet, they're all caught. You know, so the, the actual advantage that Hong Kong has always had is that our stock market is so vibrant. But we don't see. You know, I was talking recently to somebody who runs a credit hedge fund, and if a Chinese company is listed in Hong Kong, they're comfortable that Hong Kong has done a good job scrutinizing them, and there won't be frauds. You know, it is a competitive advantage, but it is being caught in decoupling. And it's getting harder for companies based in China to get approval to list for one reason or another. But for example, I see private sector firms going to places like Jakarta and saying, when you list, normally you will list in Jakarta. You will not list in Singapore. But why not consider Hong Kong? And slowly, you see the HKMA going on roadshows, say, to the Middle East. But when the private sector tries to engage in dialogues with the government, they don't find that they have a receptive hearing.
Yeah, I, I can sense that, uh, frustration time to time as well. But in addition to equity capital market, where I think you and I agree, there is substantial room for potential engagement. But right now, sentiments are not the greatest. But the regulatory environment, the legal environment still remain a bit of a bedrock, which ought to invite some additional flows in the coming years. But on the debt side, H, I just read that the dim sum market, which is Chinese companies issuing RMB denominated bonds in offshore hubs, by that, I really mean Hong Kong, that's taken on a bit of a momentum lately. There's some advantages of issuing RMB bonds in, uh, Hong Kong, given the low onshore interest rates. So, so perhaps, you know, it's again, not the greatest. I'm not trying to sugarcoat the situation. But what I try to push back against is, especially the articles like the one that you were mentioning, that the game is over. It seems to me that it is premature to say the game is over, because Hong Kong still has a couple of foundational aspects around its capital market, which can still allow, hopefully, you know, for some upsides in the future.
I, I completely agree with that. And, you know, our SFC, for the first time, has a local head who's amazingly capable. You know, I don't want to overgeneralize. You know, but obviously, you know, the fallout in China from property market, you know, and dollar issued bonds, you know, has had, you know, a a chilling effect, especially in a world where, you know, more passive indexing has become more common. Absolutely.
I, I want to talk about the portfolio managers' perspective on China and Hong Kong momentarily. But one final point, you were talking about earlier how during the holidays, we had actually more people leave than come in. I think we can generalize that observation to saying in the last few years, we've seen an exitus of expatriate professionals from Hong Kong. But I, I sometimes wonder when we talk about expats, are we only talking about Western expats? Because given the visa rules in Hong Kong, at least I would think that it would be a draw for professionals from ASEAN, Southeast Asia, North Asia, even, as long as some degree of affordability concerns are met. But from a tax and regulatory perspective, from ease of travel perspective, would you say that some of this Western exodus could be replaced by regional Asian, uh, talent going into Hong Kong?
Absolutely. And especially mainland talent. You know, and, you know, Hong Kong is trying to offer incentives, you know, for say, accountants, right? But on the other hand, you know, to me, Singapore has a much more active outreach to the best and brightest in Asia. They bring them to Singapore, they educate them, and it, it's a much more vibrant program. Whereas if you come to Hong Kong and you graduate from a university here, you only have a few months to find a job, and then you're out of luck. You know, I think that Singapore has done much better outreach. And, you know, there are all kinds of indirect ways in which the ridiculous land prices here discourage people. So, if you look at the quality of dorms at HKU, they're horrible. You know, but it's because HKU is in the middle of the city, and the land price is horrendous. So, if you're local, you don't want to stay at home, but you can't get into a dorm. And if you're coming from outside, you know, it, it's just so much less attractive, right? I mean, look, it, it boils down to the quality of of life issue.
So, no point, point very well taken. Hy. Uh, we, we'll come back to China, India, when we start talking about the perspective of global portfolio managers. But I want to complete our travel through Asia with your other favorite country, India. You're a longtime India watcher, and you have this ritual of visiting India and traveling through various states during the state elections, which is a pretty, uh, colorful, vibrant, noisy journey. Tell me, I started this conversation by asking you what is the vibe in China. Let's start with your take on the vibe in India.
You know, for many years, I felt that both the country and its people had an aspiration issue. You know, they weren't ambitious, they weren't hungry. And I think I told you about a trip we made to West Bengal, and Tata Motors was planning to put a car factory in West Bengal and make an affordable car called the Nano, that would retail for less than $2,000, and it would create thousands of jobs. And West Bengal has a history of rather dysfunctional economic policies. And we're visiting, and ultimately Tata decided to put this car plant in Gujarat. And eight years after the decision not to open a plant, I was visiting the village that would have been the locus for this plant, generating 2,000 jobs, with my election group, which is led by a brilliant investor named Rakesh Sharma. And I'm the only foreign journalist that generally goes on these yatras, these trips. And it's eight years later, and the people who sold land for the factory, which the government was collecting, had received the money, even though the factory ultimately wasn't built. And we're talking to somebody who had chosen to sell his land, and it was in Bengali, so there was a translator, because several, most of us don't speak Bengali. And the 18-year-old son of this person, who refused to sell his land, was sitting outside with nothing to do. And the father said, if this land, by which he meant a parcel of land that's the size of my hotel room, is good enough for my forefathers, it's good enough for me. It's also good enough, by implication, for his son, who has no job. You know, you will not find somebody in China who thinks that way. Everyone wants a better life for their kids. And it was so striking to me. So that's what I mean by saying a lack of aspiration and hunger. And now that's slowly beginning to change in India. My concern is the fact that the jobs that are being created in India today are mostly in the digital sector, and there's very few prospects for upward mobility, and there's no social safety net. So, if I'm a driver for the Indian equivalent of Uber or Didi, I have no social safety net. I have no prospect of upward mobility. I can work 20 hours a day, and that's still true. I'm better off being a driver for an individual who will look after me. And if my father has cancer, he will help me get medical aid for my father, and he will help my children get better educations. So my concern is that has, um, there's a lovely economist, um, in in, uh, Mumbai, who said to me, Digital India happened too soon, by which he means that these service jobs are very low-end, and that's where the growth in jobs is. So that's my biggest concern for India. And now people are aspiring to more, and how does that disappointment work out is a question mark.
Right. Very good point. You know, when we were talking about China, you commented that, you know, how striking it was to be on a blue sky, clear day in Beijing. I've, you know, been going to Delhi for a long time. I'm afraid I really can't share that observation. From Delhi. We know that the Chinese have become very serious about climate change and are doing all sorts of things from basic research to implementation of, um, overhaul of their infrastructure. Are you satisfied with the trajectory that India is taking in preparing for climate change?
And India needs to do much more. You know, India is a quarter of the world's population, so the world cannot meet its targets unless India does. You know, India is capital short compared to a China, so it will need to depend on external capital as well as domestic capital. But my concern is the speed and magnitude of climate change in India when compared to the lack of resources to deal with it. So, you know, we should tell your listeners about the story that I, I told you last week about extreme climate change, with especially the challenge of water. Not only rising temperatures, which can make the plains of India unlivable in 20 years, but extreme water events. So, you know, I was talking to you about a dam that burst in the Northeast with a combination of much more severe rain and an earthquake in Nepal, which triggered landslides in India, which caused a glacial lake to flood, which then sent a wall of water into a dam and burst it with the loss of dozens of lives. Now, that dam had insurance, but can a new dam get affordable insurance today? Almost impossible because of the severity and frequencies of these events. So many farmers are discovering they can't afford crop insurance. So now the states have to obtain crop insurance and subsidize it for the farmers. You know, companies that are trying to build resilience against rising sea levels, you know, these challenges are hugely expensive. And, you know, there's a huge challenge for resources. And, you know, the, the extrapolations, you know, the dangers increase geometrically, not arithmetically. You know, how do you live? Electricity demand will explode with rising temperatures because you need more air conditioning. You will see many climate change refugees, right? You know, so India is so challenged, you know, and where will the resources come from to meet those challenges? It's a huge concern.
Right. So, in a way, a lot of these climate challenges and market failures would require very strong, strong intervention from the public sector, uh, both in terms of, as you said, underwriting insurance that the private sector won't, or trying to garner FDI to build, uh, better renewable infrastructure and so on. So, of course, the current government has been in power for 10 years, looks very likely that would get re-elected to rule for another five, at least. And has been fairly successful in galvanizing global investor sentiment. What's your sense, uh, from outside looking in, of large companies are finding India an attractive place to put their money?
So, you know, India historically has relied much less on manufacturing. Now it's trying to attract manufacturing. It still lacks scale, you know, and that's a huge challenge. China's advantage wasn't cheap labor, it was actually scale. You know, and I've seen so many companies in India, you know, who go from "Make in India" to "Assemble in India" instead of going the other way around because it lacks scale. So, you know, that is a challenge today. You know, and the government is trying to build the infrastructure that it had lacked. So, when I was a student in India, I spent two months in Allahabad University, which is Eastern UP. And at the time, I was a student, the trains were like 22 kilometers an hour. And until a few years ago, they were still 22 kilometers an hour. I felt like I was still 20 years old because nothing had changed. And now the government is trying to improve the infrastructure, you know, whether it's roads or railways or airports, right? And that is a critical piece, you know, as they try to attract foreign companies, scale, right?
Right. And, uh, it, it'll be interesting to see whether the "Make for India" as import substitution, or "Make in India" for export, which one wins out. I think, uh, Raghuram Rajan has written over the years about just the import substitution part, just reduce trade deficit by building more in India, even if it means just assembling it's a good step, and then aspire for exports. It's, it'll be interesting to see how that pans out. Just this morning, I was reading about Elon Musk, uh, being courted by India, and he might be opening a Tesla manufacturing plant. The way it has worked out for Tesla in China, I'm curious to see whether that's replicable in India, or they would have to, so fundamentally different model.
So, every time we talk about India, up on that point, sure. You know, there's fierce opposition from local, very powerful conglomerates when foreign companies want to set up in India, because often the companies do not have leading-edge technology. The quality of their products is not competitive with the foreigners. But yet, they will use their local power to try and sabotage foreign companies coming in, bringing scale and quality and higher technology. Right.
I interrupted you. No, no, it's completely related to that issue. And China, from WTO onward, for the last 25 years, even if it has moved towards self-reliance, has been very much pro-trade. India has decided not to be super open. It hasn't joined RCEP, which was something that would have opened its markets to Southeast Asia as well as China. And it is signing a few FTAs here and there. But by and large, average tariff, market access issues, certain "Make in India" much less favorable toward trade than China has been over the last two, three decades. Is this a dealbreaker? Do you think India needs to open up a lot, or is it possible to pursue its development paradigm without lowering tariffs or opening up its domestic competitors to foreign competition too much?
You, you know, it's, it's a really important question. You know, India's competitive advantage has always been in services. India feared it would just be overrun by cheap products from places like China, which would be affordable for a country where households don't have income. You know, I feel that India should have opened up. So, when Posco wanted to put a plant in Odisha, it would have raised the quality of steel, upgraded, forced the whole country to upgrade. You know, Tesla Shanghai is so much more productive than Tesla California. Tesla is constantly sending people from Shanghai to try and improve efficiency in its operations in California. I feel that India has ill-served its own population by making them dependent on the prices of local conglomerates that have much lower quality and are too expensive. Right. So, I do feel, you know, India is among the most protected, you know, markets. And in, you know, ratings of, you know, think tanks that produce these statistics, it ranks really, really poorly.
That's right. Uh, I, I think, uh, I very much believe that lowering tariffs and allowing for more competition would be net net a very big positive for India. Um, but, uh, seems like it's not likely in the very near term. Times have changed, Henny. On the issue of global portfolio managers, you, you spent a lot of time advising very large asset managers in the US. Of course, we know that in the last few years, financial market returns from China have not been good. There has been a trend of reducing weight toward allocating capital to China. And at the same time, we're seeing increasing interest and increasing weight on India. So, I want to frame this question from the perspective of public and private markets. Where do you see the balance between private and public markets in terms of the attitude toward India and China?
So, you know, politically, the question is almost irrelevant when it comes to China, except for family offices, if we're talking about US investors. You know, you cannot invest in China. It's virtually uninvestable if you are even an endowment today. So, the only investors who can invest are, you know, wealthy individuals, family offices, that kind of thing. I think the private markets in China are very interesting today, precisely because there's so much less money going into them. And, you know, bank credit is available, and there's so much less competition. And China still has amazing, world-class companies. And if you have dollar or RMB funds in China, you can borrow money from Chinese banks very cheaply to invest in those companies. So, your equity check is less, and your debt check is much more. And interestingly, when China was growing 8% a year, management wasn't critical, right? But when China is slowing, going to five or less, management is critical. So, these companies, you know, these investment companies are focused on introducing best management practice and making companies more profitable. And that means their exit becomes easier. And one of the sources of equity these days is state-owned enterprises, who want to learn more efficient management. So, I can make a case that investing in private markets in China is quite interesting, but it's only interesting to a very small pool of capital coming from outside. And historically, you know, your exit was to list in the West or sell to a Western strategic, which is much harder to get approval for today. It's looked on as capital flight. But the fact that you have local state-owned enterprises, who have access to as much bank borrowing as they possibly can use and need better management, it's a very interesting dynamic.
Now, to India. You know, Indian public market is on fire. The valuations are very high. And at the same time, retail investment in the public market through borrowed money and derivatives is massive. So, a lot of foreigners say valuations are too high, and they still are going up in India. And despite, you know, Fed no longer having zero interest rates, and the cost of capital going up in the US, there still is a lot of liquidity in the world, and a lot of liquidity coming from the US. And total financial conditions are not all that tight. So, I think there's huge opportunity in the private markets. I've never seen as big a disconnect between private markets and public markets as in India today. You know, and there are so many interesting startups that raised a ton of money from big players like SoftBank in '21, and now are looking at down rounds because big pools of money are out of those markets. And I think there's amazingly interesting opportunities. And, you know, it's so much harder to raise money in India that you see many brilliant Indian entrepreneurs going to the West where they can raise money. You know, and so many of these companies have very interesting ESG solutions. You know, I was, um, meeting an investment firm in Singapore, and their investors are big multinationals who have problems with recycling waste, you know, consumer companies, you know, that generate massive amounts of plastic waste and are looking for solutions. And this investment firm is very active in India. So, for example, they had invested in a company that figures out how to separate man-made synthetic fibers and natural like, which makes it much easier to recycle fast fashion, so it doesn't end up in landfills. So, I'm hugely optimistic about the private markets in India.
How do you see it?
I fully concur. I remember reading this book by Tarun Khanna at Harvard about six, seven years ago, and the book was called "Billions of Entrepreneurs." And his point was that given the number of constraints that an average Indian faces on a day-to-day basis, it makes them very good problem solvers, which itself is a key intrinsic entrepreneurial quality. And hence, India is a country of a billion entrepreneurs. At that time, it was like, you know, this is the way the country can grow in spite of all the constraints. But now, I think as the constraints are getting removed, it becomes a source of like a turbocharged momentum to to get all these problem solvers out there and build interesting solutions for, as you said, environmental issues, consumer issues, the full gamut.
Hy, normally I like to end the podcast on a positive note, but today's not going to be it, because my final question to you is about the other city where you spend your time, not just Hong Kong, but you spend most of your time actually in New York these days. So, state of US politics in an election year. Maybe we end on that one. So, tell me a little bit about that.
You know, when I have dinner parties and the subject comes up, if at least half my guests don't leave in tears, I feel the conversation has been incredibly superficial. I'm embarrassed to be American when I travel abroad because our presidents have an impact on the whole world. And recently, I can't say that impact has been benign. And, you know, one of the points that I make is that the Electoral College determines the outcome, it's not popular vote. And it's very easy to game the Electoral College, and that system should have been scrapped years ago. And the combination of manipulating votes and gaming the system means the outcome can be totally distorted. So, that's the first point. The second point is that these candidates, you know, America has become so divided, and it discourages the best people from even going into politics. And the quality of the debates gets worse and worse. And I just don't see how you reverse that trend. And it's very, very sad to me. So, I feel like I should apologize to everyone in the region. And at one point, you know, I was, um, asked about this in India, and I said, we should outsource elections to you guys. You can do a better job than we Americans can.
Okay. Hy, it is, you know, but it's not a serious. People aren't discussing the most important issues, let alone coming up with creative solutions.
So, Hy, turn it on to you. But if I share your disappointment, but at the same time, we are talking about a time in history when US tech remains supreme. The new wave of artificial intelligence, all the innovations, the products are coming from Silicon Valley. We are seeing the Inflation Reduction Act having a pretty profound impact on green infrastructure in the country. And for better or for worse, in the geopolitical space, you know, they are the big dog. So, how do you reconcile that dysfunctionality of domestic politics, but at the same time, on technology and military and geopolitical power, it seems like it's almost like an all-time high?
You know, it's interesting. You're referring to what we call short-term US exceptionalism, right? And two questions: Is it lasting? Given the populism in the states, the debt dynamics in the states, you know, these are real questions. How fundamental is US exceptionalism? And we are also raising questions about whether technology today and generative AI are ultimately dystopian or benign? And can the US government have the understanding so that we have the best impacts of technology and not the worst impacts of technology, right? You know, and, and that's an open question. But, you know, we have amazing startups, they're changing the whole world. But there are all kinds of new challenges that technology brings. And are our politicians up to it? Are they capable of enlightened policies when it comes to ensuring that we enjoy the benign effects, whether it's in medical breakthroughs, for example, you know, without the dystopian, you know, surveillance control, income disparities, sup, you know, superfluous, you know, you know, people with nothing, no jobs, no prospects, you know, how do we deal with that? How lasting is US exceptionalism? And if I'm ever invited back, I'll turn the tables and ask you.
Henny, it's been such a long time coming, as I said earlier, and I look forward to having you on the podcast on Kofi Time every year. Uh, again, I'm very grateful to you for your time and insights. Thank you so much.
Thank you. It was a pleasure, and hope to do it in person next time.
Absolutely. Uh, thanks to our listeners as well. Copy Time was produced by Ken Delbridge at Splice Studios. Violet Lee and Daisy Sharma provided additional assistance. It is for information only and does not represent any trade recommendations. All 120 episodes of Copy Time are available on YouTube and on all major podcast platforms, including Apple, Google, and Spotify. As for our research publications, webinars, and live streams, you can find them all by Googling DBS Research Library. Have a great [Music] day.