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U.S.-China relations: Timing of spy balloon ‘is strange,’ expert says

Rhodium Group China Corporate Advisory's Reva Goujon joins Yahoo Finance Live to discuss the Chinese spy balloon and how it will impact the U.S.-China trade and diplomatic relationship.

Video transcript


BRAD SMITH: And then switching gears here. Back to our top story this morning, China's suspected spy balloon. Not the only casualty of the weekend. The event deflating the possibility of a trade relations thaw, as the semiconductor war heats up.

Joining us now, we've got Reva Goujon who is the Rhodium Group China corporate advisory director. Great to have you here with us this morning. First and foremost, when you think about the activities that transpired over the weekend and the reality of where the relations can start to gain some footing, what would you be looking for next from here?

REVA GOUJON: Well, apologies in advance for any puns. This balloongate is kind of riddled with it. But as you said, balloongate, it needs to deflate, right? Like, so there-- this will take some time for that to play out.

We may have seen that there's another balloon-- that the US has essentially called out China for having another balloon that's over Latin America currently. And so that may need some time to play out. I don't know if we're actually gonna see another shoot down. But certainly the US will want to draw attention to violations of sovereignty.

But now for next steps, right? As we get over this one episode-- because really when you step back, surveillance is part and parcel of great power competition. There will be missteps and that's exactly why you need high-level dialogue to be able to manage the fallout. I do think that is something that this US administration understands quite well.

And so the messaging from the government so far has been, we will continue-- the Blinken visit hasn't been canceled, it's been postponed. And it will resume when, quote unquote, "conditions allow." So what do those conditions look? Like, well, one, time.

And Beijing has already expressed regret, initially, when it thought there was still a chance to get the Blinken visit back on track to the original plan. Now, you're seeing some posturing where they're protesting the shootdown of the balloon. This will play out. Its fine.

But I do think you will see the Blinken visit take place. Treasury Secretary Janet Yellen is also expected to go to Beijing. There's a lot of urgency, especially to get military-to-military dialogue back on track.

JULIE HYMAN: Reva, first and foremost, you never have to apologize to us for puns. We're big fans. But it seems to me-- as a non-China expert decidedly, but it seems to me that this is unusually clumsy on the part of the Chinese. Something this visible, right? Is it? Is it a sign-- are there any sort of bigger takeaways from that?

REVA GOUJON: It does appear to be a misstep. I mean, obviously, the timing is terrible. Beijing did want to see this high-level visit happen. It's trying to reassure investors that, look, China is still a safe place to come in to invest. Zero-COVID is over. All the messaging has been about progrowth, pro-investment. And so when you have high-level diplomatic exchanges, that is something that's intended to boost confidence.

So, yeah, the timing is strange. It raises some questions about does the right hand know what the left hand is doing? But that's where when we look at just the timing of the visit, you can understand a bit more now why the White House was deliberating whether or not to delay the visit because shooting down the balloon while Blinken is in Beijing or en route would have made for a pretty awkward situation and, honestly, would have just distracted from the entire original agenda.

BRIAN SOZZI: Reva, do you anticipate any changes to trade policy either way because of this? Or it's too soon to tell?

REVA GOUJON: No, I mean, again, this is part of the competitive climate. So an incident like this is not going to have a direct impact on trade but there is a lot going on in the trade and investment climate already to be aware of. Most importantly, just seeing how US policy is evolving to target China on a number of fronts where we're seeing hard-hitting export controls targeting foundational technologies. And that target list is expanding.

And you're seeing a number of Chinese tech champions that are under threat from US restrictions. Anything from human rights to data security, to military end use. These are all different grievances that the US can raise to target China's tech champions at a time when it needs those companies to spur growth, to spur innovation in a time of structural weakness.

BRAD SMITH: There are typically some significant moments in the past where anything that China deems, perhaps, that it thinks is unsafe for the public there to see on social media, it's censored. You can't find it. You can't see a video like this. This video, there are reports that you can see this very openly.

And this, at a time where there's already been this shift that's noted around some US companies that do operate in China and that are trying to have better relations with the consumer in China, as well. Does that signal anything to you when you hear that there are reports that, hey, yeah, we still see this video on social media for anybody who wants to find it at that time and in conjunction?

REVA GOUJON: Yes, it's a good observation. You know, this is just raw nationalism playing out. In the United States, we saw kind of the jubilation over the-- that incredible video of the shoot down. And then on China's side, right, you can spin this into a narrative of, well, this is-- you know, the claims coming out are-- it's a violation of international law, which is kind of funny because this is invading US sovereignty and airspace.

But you know each side will spin its own story around this, get what it can out of the moment and then move on. But I think there's a deeper sentiment. You are also seeing out of Chinese social media, a strong desire to get that Blinken visit back on track and to get to a more stable point of US-China relations.

But here's the thing, when high-level visits are happening between the US and China, it, I think, you know, a lot of the investor community looks at that with wishful thinking saying, OK, things, the temperature is going down. In reality, though, these high-level interactions are about managing escalation in the competition, which is critical because you don't want it to go off the rails, you don't want to turn this into kinetic conflict. But we certainly are in an escalatory phase.

JULIE HYMAN: So, Reva, bottom line, are there implications for investors when it comes to Chinese stocks trading in the US in terms of a blanket avoid or a blanket caution? Or does this particular incident not really have implications for that?

REVA GOUJON: You're gonna see, you know, short term kind of market sentiment analysis. But beyond that, there are bigger issues in play where the US is drawing the line on, for example, outbound investment restrictions, which is a policy emerging in the United States. And these, as National Security Advisor Jake Sullivan terms as force-multiplying technologies, and semiconductors, and quantum, and AI.

Those are the companies where if a Chinese company is touching those more sensitive areas, they are likely to be a target. And so as we see that start to bleed out further into the market, that's what I would be watching for moving forward.

BRIAN SOZZI: Reva Goujon, Rhodium Group China Corporate Advisory Director, good to see you this morning. I appreciate it.