If we never ever have had guests bringing treats for us, and now this is two days in a row. This is incredible, happened? This is no two days in a row guests bringing in sweets for us, which which makes us very.

If we never ever have had guests bringing treats for us, and now this is two days in a row. This is incredible, happened? This is no two days in a row guests bringing in sweets for us, which which makes us very.

Popular in our row because then we'll share them with a thank you so much.

Popular in our row because then we'll share them with a thank you so much.

I can't definitely does this bring you guys back to Hong Kong?

I can't definitely does this bring you guys back to Hong Kong?

You know?

You know?

Yes?

Yes?

Yeah, I remember every year. I actually kind of miss it, like all the zodiac theme things every year, like you would walk around the streets and they'd be all the pastries and things, but also the little gold statues in like the shape of a dog or a bear, not a bear of a pig, or like a dragon and stuff. I missed that. We don't get that so much more. Joe, do you know what your zodiac animal is in China? I used to monkey, monkey, monkey, and I'm a bore.

Yeah, I remember every year. I actually kind of miss it, like all the zodiac theme things every year, like you would walk around the streets and they'd be all the pastries and things, but also the little gold statues in like the shape of a dog or a bear, not a bear of a pig, or like a dragon and stuff. I missed that. We don't get that so much more. Joe, do you know what your zodiac animal is in China? I used to monkey, monkey, monkey, and I'm a bore.

I'm very hello, yes, what are you?

I'm very hello, yes, what are you?

I'm read it? So this last year was my year?

I'm read it? So this last year was my year?

Did you have a good year?

Did you have a good year?

I think so I got, But.

I think so I got, But.

I'm here to carman? What Chinese zodiac animal? Are you?

I'm here to carman? What Chinese zodiac animal? Are you?

The horse?

The horse?

A good one too?

A good one too?

I did a deadlift one? Okay, so many Uh, this isn't after school Special, except.

I did a deadlift one? Okay, so many Uh, this isn't after school Special, except.

I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.

I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.

Where's the best with imposta?

Where's the best with imposta?

These are the important question? Is it robots taking over the world? No.

These are the important question? Is it robots taking over the world? No.

I think that like in a couple of years, the AI will do a really good job of making the odd launch podcast. And people say, I don't really need to listen to Joe and Tracy anymore.

I think that like in a couple of years, the AI will do a really good job of making the odd launch podcast. And people say, I don't really need to listen to Joe and Tracy anymore.

We do have the perfect welcome to lots more. Will we catch up with friends about what's going on right now.

We do have the perfect welcome to lots more. Will we catch up with friends about what's going on right now.

Because even when ad thoughts is over, there's always lots more and we.

Because even when ad thoughts is over, there's always lots more and we.

Really do have the perfect guest.

Really do have the perfect guest.

I'm always sort of skeptical of like, like when people talk about the end of the dollar, it sort of seems like crank stuff to me.

I'm always sort of skeptical of like, like when people talk about the end of the dollar, it sort of seems like crank stuff to me.

We have had this conversation so many times. And yes, a lot of the people who like having conversations about the end of dollar dominance, they are crank adjacent many of them. Many of them are firmly in crank territory. But I do think it is true if you look at what's happening in certain parts of the financial system, like, there are attempts being made, even if they're not officially called we are trying to move away from the dollar. They are called things like, well, we want a more resilient financial system, or we want one where we are not as tied or as reliant on what's happening to the dollar exposed exactly right. So the efforts are there, they are underway. Does it mean that things are going to change in the next like year, Absolutely not. I don't think so. But I don't think they can be disregarded in total.

We have had this conversation so many times. And yes, a lot of the people who like having conversations about the end of dollar dominance, they are crank adjacent many of them. Many of them are firmly in crank territory. But I do think it is true if you look at what's happening in certain parts of the financial system, like, there are attempts being made, even if they're not officially called we are trying to move away from the dollar. They are called things like, well, we want a more resilient financial system, or we want one where we are not as tied or as reliant on what's happening to the dollar exposed exactly right. So the efforts are there, they are underway. Does it mean that things are going to change in the next like year, Absolutely not. I don't think so. But I don't think they can be disregarded in total.

Well, in the studio with us, we have someone who is definitely not a crank or crank and Jason. Former guest Zoe Lu You've a great piece China wants to ditch the dollar in Noema magazine, and you know this is of course we've done episodes on China and the dollar. They want to dedollarize, et cetera. I actually find it kind of compelling. Maybe there's something going on here.

Well, in the studio with us, we have someone who is definitely not a crank or crank and Jason. Former guest Zoe Lu You've a great piece China wants to ditch the dollar in Noema magazine, and you know this is of course we've done episodes on China and the dollar. They want to dedollarize, et cetera. I actually find it kind of compelling. Maybe there's something going on here.

Wow. First of all, I do not get to choose the title, and I've spoken like a true journalist.

Wow. First of all, I do not get to choose the title, and I've spoken like a true journalist.

All journalists have had this. Although I've generally been pretty involved in.

All journalists have had this. Although I've generally been pretty involved in.

Titles, it's much less of a thing than it used to be. If you were working on a newspaper for many, many years, it was the sub editors who would choose the headline. I'm sorry, Zoe, we've totally interrupted you and hijack the conversation talk about journalists.

Titles, it's much less of a thing than it used to be. If you were working on a newspaper for many, many years, it was the sub editors who would choose the headline. I'm sorry, Zoe, we've totally interrupted you and hijack the conversation talk about journalists.

No, no, no, no. I actually, do you appreciate your explaining of this, because sometimes I get people emailing me saying that, well, the title of your article, you're saying that China is trying to ditch the dollar. But in reality, when we finish reading our article, it turned out that you are not saying that China is going to ditch the dollar. The bottom line of my argument is that for their art, economic and geopolitical reasons for countries like China to try to reduce its exposure to the dollar based system. And the reason I'm saying this is because just think about it. You can imagine China as the factory of the world, and you are buying a lot of commodities using one currency, and you are trying to sell your commodities are in the same currency. This is the story of China's rice. This is how China accumulated at one point for trillion for exchange reserves denominated in dollar, but every time when Chinese exporters importers doing a transaction, it has to go through the entire banking system, which is not denominated in the Chinese currency. This is why the Chinese financiers are grumpy about grumpy about right. They are saying that, well, you know, we're the largest trading punder with more than one hundred and twenty country them the world, and yet our currency is a very minimum.

No, no, no, no. I actually, do you appreciate your explaining of this, because sometimes I get people emailing me saying that, well, the title of your article, you're saying that China is trying to ditch the dollar. But in reality, when we finish reading our article, it turned out that you are not saying that China is going to ditch the dollar. The bottom line of my argument is that for their art, economic and geopolitical reasons for countries like China to try to reduce its exposure to the dollar based system. And the reason I'm saying this is because just think about it. You can imagine China as the factory of the world, and you are buying a lot of commodities using one currency, and you are trying to sell your commodities are in the same currency. This is the story of China's rice. This is how China accumulated at one point for trillion for exchange reserves denominated in dollar, but every time when Chinese exporters importers doing a transaction, it has to go through the entire banking system, which is not denominated in the Chinese currency. This is why the Chinese financiers are grumpy about grumpy about right. They are saying that, well, you know, we're the largest trading punder with more than one hundred and twenty country them the world, and yet our currency is a very minimum.

How much of the urge to maybe diversify a little bit comes from waning economic growth? And I'm very conscious that we are recording this in a week. You know, we are here on January twenty fifth. It has been a terrible week for both the Chinese economy and its financial assets. There's been a lot of ink spilt about the crash in Chinese stocks. I think the CSI three hundred index is down something like forty percent over the past three years. There's a lot of conversation about structural weakness in China's economy at the moment. How much of this urge to maybe dedollarize is too strong a word, but sort of diversify currency options is part of this economic evolution that makes a lot of sense tracy.

How much of the urge to maybe diversify a little bit comes from waning economic growth? And I'm very conscious that we are recording this in a week. You know, we are here on January twenty fifth. It has been a terrible week for both the Chinese economy and its financial assets. There's been a lot of ink spilt about the crash in Chinese stocks. I think the CSI three hundred index is down something like forty percent over the past three years. There's a lot of conversation about structural weakness in China's economy at the moment. How much of this urge to maybe dedollarize is too strong a word, but sort of diversify currency options is part of this economic evolution that makes a lot of sense tracy.

In fact, if we go back all the way to the early two thousands, that was actually the very first time when the Chinese officials was talking about seriously talking about diversifying their foreign exchange reserve holdings. So from that time on, with the growing of the Chinese foreign exchange reserve accumulation, the conversation has been focused has been focused on how to reduce the opportunity cost of investing all the foreign exchange asset in US treasuries. But things started to change around two thousand, after twenty fourteen, part of the reason was because of the West's threatening of kicking Russia off the Swift system. Now at that time the West did not go with the nuclear option with Russia, but it did sort of provided it did provide a wake up call for present putting as well as the Chinese. And one year later, it was around twenty fifteen that was a launch of CIPS, China's cross border interbank payment system. And at that time, again the idea was to facilitate broader use of the Internet of the reman be in the international system. But then systematically people started to realize, well, this can be a hatch or a insurance policy. Then things really started to get worse from Chinese perspective around two southern eighteen with the escalation of US China trade war during the Trump administration, and you have Chinese financial regulators, even the people the vice chairman of China's Securities Regulatory Commission, funcing how he came out and saying that, well, we should be prepared for the so called forced decoupling, meaning China was being kicked out of the US led global financial system. And obviously with Russia's invasion of Ukraine and present puddings more against uk in and the freeze of Russian reserves and kicking out of kicking Russia out of the swift system, this is really the moment where China realized, you know, we could be the next Russia. And by the way, China is not the only country in the world of facing that kind of insecurity. You have countries like Saudi Arabia started to worry, and at one point there was even floating the idea that Saudi Arabia was considering moving. The trading of shifting is part of the transactions of oil or denominating the oil price pricing in the Remanbi so this is where I think a lot of things have been underestimated.

In fact, if we go back all the way to the early two thousands, that was actually the very first time when the Chinese officials was talking about seriously talking about diversifying their foreign exchange reserve holdings. So from that time on, with the growing of the Chinese foreign exchange reserve accumulation, the conversation has been focused has been focused on how to reduce the opportunity cost of investing all the foreign exchange asset in US treasuries. But things started to change around two thousand, after twenty fourteen, part of the reason was because of the West's threatening of kicking Russia off the Swift system. Now at that time the West did not go with the nuclear option with Russia, but it did sort of provided it did provide a wake up call for present putting as well as the Chinese. And one year later, it was around twenty fifteen that was a launch of CIPS, China's cross border interbank payment system. And at that time, again the idea was to facilitate broader use of the Internet of the reman be in the international system. But then systematically people started to realize, well, this can be a hatch or a insurance policy. Then things really started to get worse from Chinese perspective around two southern eighteen with the escalation of US China trade war during the Trump administration, and you have Chinese financial regulators, even the people the vice chairman of China's Securities Regulatory Commission, funcing how he came out and saying that, well, we should be prepared for the so called forced decoupling, meaning China was being kicked out of the US led global financial system. And obviously with Russia's invasion of Ukraine and present puddings more against uk in and the freeze of Russian reserves and kicking out of kicking Russia out of the swift system, this is really the moment where China realized, you know, we could be the next Russia. And by the way, China is not the only country in the world of facing that kind of insecurity. You have countries like Saudi Arabia started to worry, and at one point there was even floating the idea that Saudi Arabia was considering moving. The trading of shifting is part of the transactions of oil or denominating the oil price pricing in the Remanbi so this is where I think a lot of things have been underestimated.

I'm glad who brought up oil. Actually I should mention we talked to Zoe last year. I think it was maybe last August. She's the author of Sovereign Funds, How the CPC finances its global ambitions. She's the Maurice R. Greenberg Fellow at the Council on Foreign Relations. Perfect guests literally, But actually I'm glad you brought up oil because I thought one of the most fascinating aspects of your piece on China and the dollar, and I had never seen anyone put this together, which is that if China is going to be I don't know, if it's a dominant provider of rare earth metals, and we talk about this all the time in the context of like batteries and clean tech and certain needs for high tech, et cetera. And there's you know, this talk a dependence on China for all these things. If China is going to be I don't know, maybe the Saudi Arabia of some of these commodities, then this is an opportunity to create brand new markets that aren't not from day one. You know, It's like saudis like a bulkhead.

I'm glad who brought up oil. Actually I should mention we talked to Zoe last year. I think it was maybe last August. She's the author of Sovereign Funds, How the CPC finances its global ambitions. She's the Maurice R. Greenberg Fellow at the Council on Foreign Relations. Perfect guests literally, But actually I'm glad you brought up oil because I thought one of the most fascinating aspects of your piece on China and the dollar, and I had never seen anyone put this together, which is that if China is going to be I don't know, if it's a dominant provider of rare earth metals, and we talk about this all the time in the context of like batteries and clean tech and certain needs for high tech, et cetera. And there's you know, this talk a dependence on China for all these things. If China is going to be I don't know, maybe the Saudi Arabia of some of these commodities, then this is an opportunity to create brand new markets that aren't not from day one. You know, It's like saudis like a bulkhead.

Yeah.

Yeah.

Yeah, Like Saudi Arabia is like okay, maybe if they're all these years, maybe it'll trade a little bit more oil and some other currency. But China could create a new market for these and not and have it be undollarized from day one.

Yeah, Like Saudi Arabia is like okay, maybe if they're all these years, maybe it'll trade a little bit more oil and some other currency. But China could create a new market for these and not and have it be undollarized from day one.

I think that is an excellent point to summarize my argument, and I wish you were my editor right at the top of very much. So this is how I think about the relationship between energy and finance. Right right now, we are living through a moment of the so called energy transition, but this is actually not the very first time we leave. The human society lived through this from fire to coal to oil, and the next thing could be renewable or clean energy. Could it be a variety of renewable resources or clean energy sources. And the danger of this is that when we move from an oil denominated global economy, which is about eighty percent of the global economy now is a fueld by oil. Right so, oil is one commodity that has one single market. It does not matter where you are trading it, whether you're in Texas, you are in Dubai, or in Singapore or Shanghai or London. At least for most of the time, there is only one global oil market price change here it moves over there. But renewables is totally different because it's a very much decentralized and distributed system. And even for natural gas is the same thing. Right, there is no single global market for natural gas. So from this perspective, this decentralized and fragmented market provide opportunity for the emergence of a different trading hub, different trading system, and different pricing mechanism. And this is where China see energy transition as an opportunity to reduce their dependence on the dollar system. And China actually has the market power in this regards because it is already one of It is the world's largest import of a lot of commodities, and it also dominates a lot of the processing capacity for critical minerals. So from that perspective, you see China has access to the resources, has the processing capacity. They also have the manufacturing capacity in the transition through.

I think that is an excellent point to summarize my argument, and I wish you were my editor right at the top of very much. So this is how I think about the relationship between energy and finance. Right right now, we are living through a moment of the so called energy transition, but this is actually not the very first time we leave. The human society lived through this from fire to coal to oil, and the next thing could be renewable or clean energy. Could it be a variety of renewable resources or clean energy sources. And the danger of this is that when we move from an oil denominated global economy, which is about eighty percent of the global economy now is a fueld by oil. Right so, oil is one commodity that has one single market. It does not matter where you are trading it, whether you're in Texas, you are in Dubai, or in Singapore or Shanghai or London. At least for most of the time, there is only one global oil market price change here it moves over there. But renewables is totally different because it's a very much decentralized and distributed system. And even for natural gas is the same thing. Right, there is no single global market for natural gas. So from this perspective, this decentralized and fragmented market provide opportunity for the emergence of a different trading hub, different trading system, and different pricing mechanism. And this is where China see energy transition as an opportunity to reduce their dependence on the dollar system. And China actually has the market power in this regards because it is already one of It is the world's largest import of a lot of commodities, and it also dominates a lot of the processing capacity for critical minerals. So from that perspective, you see China has access to the resources, has the processing capacity. They also have the manufacturing capacity in the transition through.

Yeah, I didn't realize this. So I knew China had rare earth capacity, I didn't realize it also has the tungsten capital of the world in in Ganjo. Am I pronouncing that right, very right in Ganjo. And it's funny because I've been to Ganjo on my way to Guylan, but the sitting, Yeah, but this was like I mean, it must have been like two thousand and four or something when my mother was working in Beijing, and you know, I was at university at the time, and rare earth metals were not on my mind, So the importance of that particular city of flew over my head at that time. But Tungsten capital of the world, as you point out.

Yeah, I didn't realize this. So I knew China had rare earth capacity, I didn't realize it also has the tungsten capital of the world in in Ganjo. Am I pronouncing that right, very right in Ganjo. And it's funny because I've been to Ganjo on my way to Guylan, but the sitting, Yeah, but this was like I mean, it must have been like two thousand and four or something when my mother was working in Beijing, and you know, I was at university at the time, and rare earth metals were not on my mind, So the importance of that particular city of flew over my head at that time. But Tungsten capital of the world, as you point out.

The example that you pointed out is very important to Tracy because Ganjo is the it is the location where you I cannot believe you actually have been there because I have never been there. Many tourists would not even no.

The example that you pointed out is very important to Tracy because Ganjo is the it is the location where you I cannot believe you actually have been there because I have never been there. Many tourists would not even no.

It was a way stop on the way to Guilan. And I remember I've had a lot of of adventures in getting lost in foreign places, but this was one of the places where we genuinely got lost because we were only there for a night and we really struggled to find a restaurant to eat in and no one back then spoke English, and you know, we didn't have translator apps and things like that, so I remember we went to a restaurant and we ordered something and I think we got back. I think we thought we were ordering like chicken or beef, and we got I'm pretty sure it was pan fried scorpions. In the end, this was one of my like only like no, no, but anyway it was. It was not a tourist destination, as you point out. It was really a way stop on the way to Gwaelan, which is definitely a tourist destination and is beautiful.

It was a way stop on the way to Guilan. And I remember I've had a lot of of adventures in getting lost in foreign places, but this was one of the places where we genuinely got lost because we were only there for a night and we really struggled to find a restaurant to eat in and no one back then spoke English, and you know, we didn't have translator apps and things like that, so I remember we went to a restaurant and we ordered something and I think we got back. I think we thought we were ordering like chicken or beef, and we got I'm pretty sure it was pan fried scorpions. In the end, this was one of my like only like no, no, but anyway it was. It was not a tourist destination, as you point out. It was really a way stop on the way to Gwaelan, which is definitely a tourist destination and is beautiful.

Very much so. But Gun Joe is important in the sense that it has China's a second rare metals exchange mechanism, and the whole idea behind setting up this is rare mineral exchange mechanism has been to increase the pricing power of the reman be in a lot of these critical minerals very much relevant for the energy transition, and China not only have one. China not only has one, but has another one in ne Mango Can Oh sorry no, I was just pointing out the name of the city. I believe it's abouttle rare earth mineral and just a small segue about rare earth. This is another aspect of why Chinese finance seers have been grumpy. They're saying that, Well, you know, China, it is the largest rare mineral exporting country in the world for a lamp period the time, but they have been exporting rare earth at an extremely cheap price. The idea is, you sell rare earth is a very important mineral, but you sell it dirt cheap. In Chinese word, rare earth is called a heat tool. It's like a rare earth means the two too. It's like, literally it means dirt. So you are selling something precious at the price of a dirt. So this is why we are really interesting in sort of increasing the pricing power of their meanbi.

Very much so. But Gun Joe is important in the sense that it has China's a second rare metals exchange mechanism, and the whole idea behind setting up this is rare mineral exchange mechanism has been to increase the pricing power of the reman be in a lot of these critical minerals very much relevant for the energy transition, and China not only have one. China not only has one, but has another one in ne Mango Can Oh sorry no, I was just pointing out the name of the city. I believe it's abouttle rare earth mineral and just a small segue about rare earth. This is another aspect of why Chinese finance seers have been grumpy. They're saying that, Well, you know, China, it is the largest rare mineral exporting country in the world for a lamp period the time, but they have been exporting rare earth at an extremely cheap price. The idea is, you sell rare earth is a very important mineral, but you sell it dirt cheap. In Chinese word, rare earth is called a heat tool. It's like a rare earth means the two too. It's like, literally it means dirt. So you are selling something precious at the price of a dirt. So this is why we are really interesting in sort of increasing the pricing power of their meanbi.

Wait, but is that just to try to get market share? Because I think about rare earth's and I think finite resources, a lot of people are struggling to get them or reliable access to them. Why would you sell it cheap?

Wait, but is that just to try to get market share? Because I think about rare earth's and I think finite resources, a lot of people are struggling to get them or reliable access to them. Why would you sell it cheap?

That is an excellent question. For a long period of time, rare earth as a metal, it didn't have a lot of applications. In the transition to renewables. Like if we were having this conversation back in let's say two thousand and seven, the market is definitely very different from what we are saying today. So from that perspective, yes, having market share is important, but the problem is the demand is not necessarily as high as it is today.

That is an excellent question. For a long period of time, rare earth as a metal, it didn't have a lot of applications. In the transition to renewables. Like if we were having this conversation back in let's say two thousand and seven, the market is definitely very different from what we are saying today. So from that perspective, yes, having market share is important, but the problem is the demand is not necessarily as high as it is today.

Oh I see, Okay, So a lot of the discussion around the shortage of rare earth metals is still very hypothetical, very much so.

Oh I see, Okay, So a lot of the discussion around the shortage of rare earth metals is still very hypothetical, very much so.

Something that has come up on a couple of episodes we've done, but I don't think we've talked about it with you is the Belton Road initiative and the degree to which that has or hasn't actually been particularly effective at creating a renmend B network that rival or a renmen be system. And I think what was it, like a lot of the lending is still dollarized, right Terseay? Yeah, what is going on with that? And how did how do you see like you know, obviously the geopolitics ort of building relationships. Of course we've seen the emergence and growing of the formal like bricks group of countries. How does that How do some of these endeavors play into China's currency strategy in your view?

Something that has come up on a couple of episodes we've done, but I don't think we've talked about it with you is the Belton Road initiative and the degree to which that has or hasn't actually been particularly effective at creating a renmend B network that rival or a renmen be system. And I think what was it, like a lot of the lending is still dollarized, right Terseay? Yeah, what is going on with that? And how did how do you see like you know, obviously the geopolitics ort of building relationships. Of course we've seen the emergence and growing of the formal like bricks group of countries. How does that How do some of these endeavors play into China's currency strategy in your view?

So, the Belt on the Road initiative initially started as a way for Chinese leaders in particular Season to address China's domestic overcapacity problem, right is after the financial during the financial crisis, China, due to the fort tralling, remenbe stimulate and then it creates a lot of domestic overcapacity. Therefore, using President czimping his own word, he said, you know, China's overcapacity problem is a problem for us, but it could be beneficial for other countries. So that was the contact, that was the background. But it's in reality, it's not necessarily how it was imagined. Right, You're right. A lot of the lending have been denominated in dollars. However, Chinese financiers, including Presidence MP himself as the leader, have been evasioning having bri Beldroom Road Initiative as a vehicle or a mechanism to broaden the use of remenbe along Beldom Road initiative countries. And they even created a sovereign funds to help broadening the use of remenb and that sovereign funds is called the Silk Road Fund, and it was launched around to south end it if I remember it correctly, it should be around two thousand fourteen, two thousand fifteen ish if I remember it correctly, And at one of those Bolt and Road initiative International Corporation Forum, President City things that I'm going to give it, you know, another capital injection, and this time the capital injection is going to be denominated like the capital injection is going to be in I mean B. The whole purpose is to broaden the use of REMENB through this initiative. And what is fascinating is once President made the announcement, the Chinese Central Banker at that time came out and saying that this is a great idea and we are going to use the socro defund as a mechanism to facilitate the reminbi internationalization initiative. But the important part here is to remember is the is not really internationalization. It's not that they are removing capital controls or anything like that. They are doing this through creating a relatively regional space for Chinese importers acts orders to make transactions right. And in this particular context is also very important because Seal Croade Fund, the creation of the Seal Code of Fund was using China's foreign exchange reserves managed by State Administration of a Foreign exchange or safe which was which is the foreign exchange reserve management arm of the People's Bank of China, and in order to create the Seal Crode Fund, the PBOC created a special entity called Buttomwood and although capitalizing the Sellcrode Fund was bottom with initial mission, it then later went on to create additional investment funds played a very important role in stabilizing China's stock market.

So, the Belt on the Road initiative initially started as a way for Chinese leaders in particular Season to address China's domestic overcapacity problem, right is after the financial during the financial crisis, China, due to the fort tralling, remenbe stimulate and then it creates a lot of domestic overcapacity. Therefore, using President czimping his own word, he said, you know, China's overcapacity problem is a problem for us, but it could be beneficial for other countries. So that was the contact, that was the background. But it's in reality, it's not necessarily how it was imagined. Right, You're right. A lot of the lending have been denominated in dollars. However, Chinese financiers, including Presidence MP himself as the leader, have been evasioning having bri Beldroom Road Initiative as a vehicle or a mechanism to broaden the use of remenbe along Beldom Road initiative countries. And they even created a sovereign funds to help broadening the use of remenb and that sovereign funds is called the Silk Road Fund, and it was launched around to south end it if I remember it correctly, it should be around two thousand fourteen, two thousand fifteen ish if I remember it correctly, And at one of those Bolt and Road initiative International Corporation Forum, President City things that I'm going to give it, you know, another capital injection, and this time the capital injection is going to be denominated like the capital injection is going to be in I mean B. The whole purpose is to broaden the use of REMENB through this initiative. And what is fascinating is once President made the announcement, the Chinese Central Banker at that time came out and saying that this is a great idea and we are going to use the socro defund as a mechanism to facilitate the reminbi internationalization initiative. But the important part here is to remember is the is not really internationalization. It's not that they are removing capital controls or anything like that. They are doing this through creating a relatively regional space for Chinese importers acts orders to make transactions right. And in this particular context is also very important because Seal Croade Fund, the creation of the Seal Code of Fund was using China's foreign exchange reserves managed by State Administration of a Foreign exchange or safe which was which is the foreign exchange reserve management arm of the People's Bank of China, and in order to create the Seal Crode Fund, the PBOC created a special entity called Buttomwood and although capitalizing the Sellcrode Fund was bottom with initial mission, it then later went on to create additional investment funds played a very important role in stabilizing China's stock market.

Yeah, I remember this. I think it came up in another one of our episodes, although I cannot remember which one. Since you brought up she listening to you lay out why China wants this type of diversification, it makes a lot of sense. And I think this is in many ways an underappreciated aspect of Shishin Ping and the CCPs, that like, they are good at identifying problems and vulnerabilities, it's just that sometimes they're bad at maybe identifying solutions. And sometimes I think Dan Wang, another one of our guests, pointed this out in his annual letter. And I'm probably paraphrasing here, but like, sometimes the solution is more painful than the problem itself. And you could make that argument for things like housing, what happened in the for profit education space, the tech crackdown, all of those things. What is the mechanism or the scenario in which China's attempt to diversify away from the dollar ends up harming it in some way. Like essentially, what are the risks here? I feel like they need to be discussed.

Yeah, I remember this. I think it came up in another one of our episodes, although I cannot remember which one. Since you brought up she listening to you lay out why China wants this type of diversification, it makes a lot of sense. And I think this is in many ways an underappreciated aspect of Shishin Ping and the CCPs, that like, they are good at identifying problems and vulnerabilities, it's just that sometimes they're bad at maybe identifying solutions. And sometimes I think Dan Wang, another one of our guests, pointed this out in his annual letter. And I'm probably paraphrasing here, but like, sometimes the solution is more painful than the problem itself. And you could make that argument for things like housing, what happened in the for profit education space, the tech crackdown, all of those things. What is the mechanism or the scenario in which China's attempt to diversify away from the dollar ends up harming it in some way. Like essentially, what are the risks here? I feel like they need to be discussed.

So let me take a step back by explaining what are the risk What are the motivations for China totempt to reduce exposure? Right? In addition to economic reasons, there are what I consider as very important geopolitical vulnerabilities that has direct financial security implication, and I describe it as the three eyes. I know that last time we talked about the four d s.

So let me take a step back by explaining what are the risk What are the motivations for China totempt to reduce exposure? Right? In addition to economic reasons, there are what I consider as very important geopolitical vulnerabilities that has direct financial security implication, and I describe it as the three eyes. I know that last time we talked about the four d s.

Any great comment or has to have their thing or guest recently Jason Cummins from Resident REVN. Howard the three ends. So we like they say, all right, what are the three eyes?

Any great comment or has to have their thing or guest recently Jason Cummins from Resident REVN. Howard the three ends. So we like they say, all right, what are the three eyes?

So the three eyes is under rising geopolitical tension, exposed countries like China to ill liquidity challenge. It's exposed countries like China to insecure challenge, and they find the other part would because of insecurity, because of ill liquidity. China is building an alternative to to ensure against a lot of these vulnerabilities. Right, So those are the three and the mechanism for China to achieve. This is to create an alternative system. It can be summarized as the split. You have settlement and payment, that's the S and a P. You have liquidity, which is l and liquidity. The whole idea of liquidity is to create international demand for the reminbi and the remanbi asset. Right, and then I would be creating a sort of this international international system to increase the insurance. And then the key part would be the trading. The whole idea of China being not just the world factory but also a very important player in global commodities market. Now the backfire scenario would be at the T scenario. Now you have all this plumbing system. You know, the settlement, the payment, A lot of these are the plumbing. Yes, you can make it the argument to say that the transaction volume on the swift on the Chinese CIPS system is still very low. But the point is it's approved of concept. The idea is you buy insurance, you hope that you don't need it, but in case you need it, you have it ready to go. Right, and if the worst case scenario for China would be with the continued supply chain diversification, you started to say, okay, so what the implication for global currency system would be China started to build its own trading system, whereas a denominating year may be whereas the rest of the world is trading an entirely different currency. Now, if in that scenario you have a currency war, and for central bankers, experience would be foreign exchange reserves are one day in the central bank, but the next day could be gone. China lived through this around two sixteen twenty seventeen. Within one year, foreign exchange reserves decreased from four tillion dollars to three trillion dollars. Right, so this experience is sort of very insecure from Chinese financier's perspective. Therefore, if the entire global trading system is split into two parts, to whom is China going to export in order to accumulate all the foreign exchange reserves? That back China's remy be internationalization operation.

So the three eyes is under rising geopolitical tension, exposed countries like China to ill liquidity challenge. It's exposed countries like China to insecure challenge, and they find the other part would because of insecurity, because of ill liquidity. China is building an alternative to to ensure against a lot of these vulnerabilities. Right, So those are the three and the mechanism for China to achieve. This is to create an alternative system. It can be summarized as the split. You have settlement and payment, that's the S and a P. You have liquidity, which is l and liquidity. The whole idea of liquidity is to create international demand for the reminbi and the remanbi asset. Right, and then I would be creating a sort of this international international system to increase the insurance. And then the key part would be the trading. The whole idea of China being not just the world factory but also a very important player in global commodities market. Now the backfire scenario would be at the T scenario. Now you have all this plumbing system. You know, the settlement, the payment, A lot of these are the plumbing. Yes, you can make it the argument to say that the transaction volume on the swift on the Chinese CIPS system is still very low. But the point is it's approved of concept. The idea is you buy insurance, you hope that you don't need it, but in case you need it, you have it ready to go. Right, and if the worst case scenario for China would be with the continued supply chain diversification, you started to say, okay, so what the implication for global currency system would be China started to build its own trading system, whereas a denominating year may be whereas the rest of the world is trading an entirely different currency. Now, if in that scenario you have a currency war, and for central bankers, experience would be foreign exchange reserves are one day in the central bank, but the next day could be gone. China lived through this around two sixteen twenty seventeen. Within one year, foreign exchange reserves decreased from four tillion dollars to three trillion dollars. Right, so this experience is sort of very insecure from Chinese financier's perspective. Therefore, if the entire global trading system is split into two parts, to whom is China going to export in order to accumulate all the foreign exchange reserves? That back China's remy be internationalization operation.

I just have one more question about the current state of things in China. We got to slew data recently. Not great, still slump, but a second year in a row of declining population. I believe more deaths than birds and a little bit worse than expected. This is another top demographics or another topic kind of like the dollar ridge with a lot of people have a lot of opinions and things to say, and I never really know how serious is What do you think of as the economic implications or any implications of a shrinking population?

I just have one more question about the current state of things in China. We got to slew data recently. Not great, still slump, but a second year in a row of declining population. I believe more deaths than birds and a little bit worse than expected. This is another top demographics or another topic kind of like the dollar ridge with a lot of people have a lot of opinions and things to say, and I never really know how serious is What do you think of as the economic implications or any implications of a shrinking population?

First of all, I would say that currently perhaps we are living through a mood swing of the Chinese economy because you know, during the around twenty twenty two, before China officially exited the zero COVID policies, you know, a lot of people in the West were anticipating in China's a rapid snap back. But obviously the economy, the recovery of the economy has been disappointing. Therefore, we are now becoming having this very much doom Seer's mood and demographics is one of the fourties that we talked about, and I think in the short run, perhaps the challenge is even even bigger than the long term implication. Now, the long term implication is that, well, you know, the labor premium that is China benefited from has shrinked. Obviously, that's one argument that you can say. But you know, China is also spending a lot of money and investing in artificial intelligence, robotics and all that. And I guess what Japan is a good example. Instead of labor, instead of relaxing the immigration policy, they use robotics, right, So I do think the short run implication is more severe because shrinking population the reason why birth rate goes lower. Part of the reason is because well, perhaps people are no longer getting married as often as the family formation rate. The marriage ratio declined, and it has a severe implication for the housing market because the demount for housing decrease and housing remen constitute about thirty percent of China's GDP, and without housing market recovery, it is very difficult for the Chinese economy to recover in the short run.

First of all, I would say that currently perhaps we are living through a mood swing of the Chinese economy because you know, during the around twenty twenty two, before China officially exited the zero COVID policies, you know, a lot of people in the West were anticipating in China's a rapid snap back. But obviously the economy, the recovery of the economy has been disappointing. Therefore, we are now becoming having this very much doom Seer's mood and demographics is one of the fourties that we talked about, and I think in the short run, perhaps the challenge is even even bigger than the long term implication. Now, the long term implication is that, well, you know, the labor premium that is China benefited from has shrinked. Obviously, that's one argument that you can say. But you know, China is also spending a lot of money and investing in artificial intelligence, robotics and all that. And I guess what Japan is a good example. Instead of labor, instead of relaxing the immigration policy, they use robotics, right, So I do think the short run implication is more severe because shrinking population the reason why birth rate goes lower. Part of the reason is because well, perhaps people are no longer getting married as often as the family formation rate. The marriage ratio declined, and it has a severe implication for the housing market because the demount for housing decrease and housing remen constitute about thirty percent of China's GDP, and without housing market recovery, it is very difficult for the Chinese economy to recover in the short run.

I have just one more question, and it's not that important, but I'm going to ask it. Last time you were on the show, you gave us one of the greatest gifts in all LOTS history, which is knowledge of the existence of idiot sunflower seeds, which has become one of my all time favorite companies, like both for the business itself, but also for what it says about the development of the Chinese economy and what's happening now under Sheshan Ping. Give me a new uh wormhole to go down in the Chinese currency market, or the economy, or rare earth metals, any of those. I'm up for it.

I have just one more question, and it's not that important, but I'm going to ask it. Last time you were on the show, you gave us one of the greatest gifts in all LOTS history, which is knowledge of the existence of idiot sunflower seeds, which has become one of my all time favorite companies, like both for the business itself, but also for what it says about the development of the Chinese economy and what's happening now under Sheshan Ping. Give me a new uh wormhole to go down in the Chinese currency market, or the economy, or rare earth metals, any of those. I'm up for it.

I think we can get obsessed with.

I think we can get obsessed with.

This is a good question. I was trying to look through the Chinese economy. I'm trying to find like company icons that can correspond to a different era. I have the idea the watermelon seed that is won stunflower seed, but I have been struggling to find another one. And since we were talking about energy transition and potential Chinese potential challenge to the dollar based the system, I'm going to see Bui D. It's a good choice.

This is a good question. I was trying to look through the Chinese economy. I'm trying to find like company icons that can correspond to a different era. I have the idea the watermelon seed that is won stunflower seed, but I have been struggling to find another one. And since we were talking about energy transition and potential Chinese potential challenge to the dollar based the system, I'm going to see Bui D. It's a good choice.

You know.

You know.

It just stands for bewed your dream right. And if you look at how buid the rise of Bui D and to what extent it challenges a lot of foreign ev makers, it shows that perhaps the Chinese market is extremely competitive and there are still reasons to be hopeful for the Chinese economy, especially for the high tech sector. However, I would offer another cautious piece here, which is if you look at bid and who's the largest shareholders of his publicly listed shares, you will find Central Roisin owns more than ten percent of his publicly listed shares.

It just stands for bewed your dream right. And if you look at how buid the rise of Bui D and to what extent it challenges a lot of foreign ev makers, it shows that perhaps the Chinese market is extremely competitive and there are still reasons to be hopeful for the Chinese economy, especially for the high tech sector. However, I would offer another cautious piece here, which is if you look at bid and who's the largest shareholders of his publicly listed shares, you will find Central Roisin owns more than ten percent of his publicly listed shares.

Yeah, it's funny you bring it up, because Joe and I were actually talking about this earlier in the week. Bid shares have also fallen a lot. And it's this incredibly promising company that I think has overtaken Tesla to become, yeah, to become the biggest maker of electric vehicles. But investors are really down on its outlooks. I think in part because, like the government has basically said, this is a really important part of our economy and we want to be leaders in the EV market, and so there's a lot of pressure on them to invest, especially if one of their dominant shareholders is actually a public entity. You know, they're all sort of working together for the future development of the Chinese economy. So that means reinvestment capex, it doesn't necessarily mean dividends and share buybacks.

Yeah, it's funny you bring it up, because Joe and I were actually talking about this earlier in the week. Bid shares have also fallen a lot. And it's this incredibly promising company that I think has overtaken Tesla to become, yeah, to become the biggest maker of electric vehicles. But investors are really down on its outlooks. I think in part because, like the government has basically said, this is a really important part of our economy and we want to be leaders in the EV market, and so there's a lot of pressure on them to invest, especially if one of their dominant shareholders is actually a public entity. You know, they're all sort of working together for the future development of the Chinese economy. So that means reinvestment capex, it doesn't necessarily mean dividends and share buybacks.

Also, maybe the dollar system is under some sort of threat, but the English system. If the leader of your domestic manufacturing is build your dreams, then I think the network effects of the English language are still extremely very much so.

Also, maybe the dollar system is under some sort of threat, but the English system. If the leader of your domestic manufacturing is build your dreams, then I think the network effects of the English language are still extremely very much so.

Lots More is produced by Carmen Rodriguez and Dashel Bennett, with help from Moses Ondom and Kale Brooks.

Lots More is produced by Carmen Rodriguez and Dashel Bennett, with help from Moses Ondom and Kale Brooks.

Our sound engineer is Blake Maples.

Our sound engineer is Blake Maples.

Sage Bauman is the head of Bloomberg Podcasts.

Sage Bauman is the head of Bloomberg Podcasts.

Please rate, review, and subscribe to Odd, Lots and Lots More on your favorite podcast platforms.

Please rate, review, and subscribe to Odd, Lots and Lots More on your favorite podcast platforms.

And remember that Bloomberg subscribers can listen to all of our podcasts and free by connecting through Apple Podcasts. Thanks for the let snake

And remember that Bloomberg subscribers can listen to all of our podcasts and free by connecting through Apple Podcasts. Thanks for the let snake