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Q: What are you taking from the Chinese so to speak recovery, is it giving you a sense that global recovery will follow suit pretty quickly?

Ahya: I think the key thing that we were highlighting is that the speed at which the China businesses are able to restart is some indication of how things could go in the other parts of the world. Of course there are lot of differences between the way China operates and the scope of the outbreak in the US and Europe, but we definitely thought that that was one indication that was giving us that the manufacturing businesses will start much earlier in every part of the world. Look – over the last few weeks what we are also seeing is that this services sector in China has also been able to restart.

One factor that I have been watching is the traffic in the subways because that is way you really have a large congregation of people and that has also recovered to around 80 percent in China. So this development is heartening in terms of assessing the progress in others parts of the world.

Q: Would you agree, have you lately increased the speed of global GDP recovery or of any of its specific regions?

Harris: I think the China is the best case scenario because let’s remember the China was able to drive the number of new cases down to zero and they are only experiencing very narrow hotspots right now. They have extremely aggressive tracking and quarantine system. Of course it is a very heavily government controlled country so they can do draconian shutdowns at the snap of the finger. The difference between China and the rest of the world is none of the other countries have been able to get cases down to zero except the ones like China that have serious tracking and tracing programs.

So when you think about the re-engagement you are going to get in the US and Europe it is going to be quite slow and hesitant because it is not just about governments announcing – you can go out and have fun now. It is about individuals feeling trust that if they do enter that subway or they do enter that crowded area that there is nobody in that crowd that has the virus. So I think we have already seen some evidence in the US with the initial opening up in some states where we look at the data, high frequency data like credit card spending, the pickup in activities is very slow, it is in for good reason because people are very cautious. So it is hopeful and it shows that you can come out of this but the experience in China is really a best case scenario.

Q: Do you see different speeds in the east itself, maybe China has been able to recover but will many of the countries do as well as China? What is your pecking order?

Aziz: There will be a difference of speed and if you look at Chinese recovery we called it a sight to behold and I think it is a sight to behold. Industrial production in level terms is almost back to where it was in December. Production of cement, production of steel are all back there. As Chetan talked about service sector, so consumption and retails sales will be lagging but there too we have seen a significant upturn that has almost taken place.

Just about a 10 days back when we were discussing about China we would say that very sharp recovery that we had in the second quarter maybe there is downside risk to it because the high frequency data wasn’t showing that. But I think as the data flow has come in, probably there is even upside risk to what will happen in China in the second quarter that is not the case in the rest of the Asia even in countries that are very closely tied to China – Taiwan and Korea forget about the rest of the countries.

In the case of Korea, Korea is much more open to what happens to global demand because its entire export base is not just China, but it is also based on other countries and it is getting hit. In the case of Taiwan- Taiwan is actually doing better than what we had expected but almost entirely on IT. IT has clearly been the one place where global demand has actually picked up because of work from home etc. However, there I know you want to talk about political risks there – I think over there – there is a political risk.

I think the ruling that was done 10 days back which affects Huawei actually affects also TSMC which is the largest semi-conductor producer in Taiwan. Because one of the biggest customer is Huawei. So yes I mean we are expecting different speeds taking place but I think lot will depend upon policies, the pace of opening up, what kind of policies are going to be put as part of the support from the governments, so I think these are all things on which the ultimate pace at which we will begin with and as Ethan said it will also depend upon on how human behaviour changes.

Q: How worried would you be that global trade could get disrupted primarily because of the tension that existed anyway even before, it seemed to be ebbing the US-China trade tension, but now we are seeing President Trump attack both the World Health Organization (WHO) and China for the virus itself so do you think there could be a serious disruption because of people wanting to kind of at least pull out of China or diversify from China?

Ahya: In terms of the actual trade data, we are getting the exact opposite. Today we got the Japan trade data and what it was showing is that the China imports for Japan had picked up and right now because China is still pretty much entrenched in the supply chain, at the margin the data is showing that China is doing better compared to other countries in trade. But in the medium term that is a risk. Our view at this point of time is that the US administration will be watchful of the economic impact of any additional actions on tariff front and so they will focus on non-tariff measures rather than taking up additional tariff on imports from China.The action of the economies will be based on what type of response the administration takes up. If it is non-tariff barriers then I think in the near term, we have less risk to the global outlook. But if it is tariff action then that is the one which we have to consider. But right now we are operating with a base case assumption that it will be non-tariff barriers.

Q: Ethan, are you expecting that companies will aggressively want to diversify out of China and nations will also encourage that? We did get that out of Japan isn’t it, giving SOPs for people who move out of China.

Harris: We need to be careful here about the way we interpret recent statistics. When you come out of a shutdown, you are going to have shortages of some things and so there is some pent-up demand that increase the activity for a while and that may be explaining some of what is going on with China. So we need a few months to figure out what the real demand situation is there. I am actually more worried to tell you the truth about non-tariff barriers than tariff barriers. The biggest risk here is the tech war. It is the idea that the US would decide to cut off Chinese companies from critical technology. When you do a cut off as opposed to a tariff, there is no way around it, it is not like you can pay the tariff and continue to operate your business.

I think it is very likely that we will get a major response from China if the Trump administration follows through on lot of the threats they are doing. With that said, I don’t think they are going to move ahead aggressively. I think this is a lot more rhetoric than reality. There is a good reason why the Trump administration agreed to a phase I trade deal at the beginning of this year, it is because it is an election year. Any major escalation that starts to damage the equity market and then subsequently the economy, threatens President Trumps re-election. So, I think the trade war is more of an issue for after the election or if China decides around the elections that it is time for them to hit back which could happen right around the election, but right now it is a lot more rhetoric than reality.While there is a lot of talk about moving supply chains out of China, you don’t do that during a recession. During a recession, you have spare capacity all over the place, you are not going to invest billions of dollars in new factories in the middle of a recession. So the recession is going to slowdown the reshoring and the movement of business even as the Trump administration puts pressure on companies to get moving. They are all going to try to delay ad think about this in terms of plans but to actually do big investment movement during a recession, I don’t see how that can happen.

Q: There were emerging market economists who were actually saying that there will be winners and losers from this COVID bacchanal. Some countries like Vietnam and Indonesia doing very well, you don’t think so, that there are winners emerging from this and is India anywhere in that pecking order?

Aziz: First of all in a recession you don’t do something like that. Governments may want you to do it but you never do something like that in a recession. Even after recession, I think the way in which we were thinking about it, that countries would shift out of China to some other parts to diversify risk, the question is what is the risk that these companies are diversifying? The risk that they are diversifying is that US does not go after these countries or intellectual property, on transfer of technology, on subsidies that these countries provide to their own companies etc. No one was talking about companies shifting out of China because there are better cost structures somewhere or easier way of doing business. If the reason as to why people are moving out of China is because there is a concern that you could get a de-coupling between US and China because of China’s intellectual property, transfer of technology etc, then the discussion needs to be which country offers that? The discussion cannot be that India is going to be the place where China is going to move because labour costs are lower, it has to be does India have better intellectual property rights than China does and that is not a discussion that is taking place. So I am not exactly sure how those two arguments work because so far we have seen absolutely no evidence of any company actually shifting out of China but they are talking about it.

Q: When we sit inside India, we get the feeling that we have gone into the crisis weaker than other countries and our lockdown is more severe than others, that is how we understand it. Do you think India is going to be a shell of its former self as a former RBI governor put it recently because even fiscal stimulus has not been that much?

Ahya: Emerging markets and India are in the same place this time. I think the difference in this cycle versus 2008 is that emerging markets do not have the policy buffers that they had during 2008 crisis. So we think in this cycle they are more likely to be a beta play rather than being able to generate domestic demand alpha through counter cyclical policy support.I don’t think that in this cycle emerging markets like India will be able to provide domestic demand alpha. So they just have to unfortunately take the pain and hope that recovery comes within the global economy and that is what will bring back these emerging markets.