President Trump and Xi Jinping met during the G20 summit.
What surprised the American team the most?
President Xi engaged in a level of detail -- you could even say he was selling this.
Xi backed down from a tough tit-for-tat stance; what is the real reason?
China feels like it's economically breaking down since its economy has been going downward
while the American economy is improving.
The Dow fell 800 points after the summit due to competing accounts from the White House
and Beijing.
Does the American public really believe Chinese media?
When the market moves, it's because investment bankers and financial professionals who are
aligned with the Chinese side of things are unhappy.
Is Trump close to hitting a homerun in the trade war with China?
Welcome to Zooming In, I am Simone Gao.
The Trump-Xi meeting at the G-20 summit last weekend took many people by surprise.
Before the summit, most pundits predicted there would be very little outcome.
Trump would persist on structural changes and Xi would refuse.
Most likely Beijing will revert to its old tactics of agreeing to something but never
really doing it.
They would intend to buy their time in order to come up with new ways to maintain the status
quo.
But this time it felt different.
Xi Jinping kicked off the conversation with a 30-45 minute monologue.
He detailed a substantial concession list from the Chinese side.
It seemed he did everything to prove his commitment before the American hawks.
Does he really want to give up what he absolutely wouldn't before?
If so, why the change of heart?
Let's explore the causes in this episode of Zooming In.
After the Trump-Xi meeting at the G20 summit, accounts from Beijing and the White House
about what the two leaders discussed and agreed on didn't match up.
According to a White House press release, President Trump agreed to leave tariffs at
10 percent on $200 billion dollars' worth of product starting January 1st, 2019.
He will not raise it to 25 percent at this time.
China agreed to purchase a substantial amount of energy, industrial, and other products
from the United States to reduce the trade imbalance between the two countries.
China agreed to start purchasing agricultural products from American farmers immediately.
The White House also said Trump and Xi agreed to immediately begin negotiations on structural
changes with respect to forced technology transfer, intellectual property protection,
non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.
Both parties agree that they will try to complete the transfer in the next 90 days.
If they can't reach an agreement within 90 days, percent.
Larry Kudlow, the director of the national economic council, attended the Trump-Xi meeting.
He described what he observed in a teleconference with the media.
I think this is just an enormous, enormous event.
Enormous event.
And I know we've been down this road with China in the past and we've been quite disappointed
with the lack of results and follow-through.
And that includes my own participation, which began with the Beijing trip.
I guess I started out as someone who was rather optimistic, but nothing happened so I turned
somewhat cynical.
This one covers so much ground and so much detail.
We've never seen this before.
And furthermore, we've never seen the hands-on participation by President Xi before.
In fact, that dinner was quite remarkable.
First of all, I -- it's the first time I've seen President Xi up close and personal.
I don't know him at all.
So I saw the chemistry between President Trump and President Xi.
You know, we've been hearing that they're friends and so forth.
I actually saw it.
And I think if you're a cynic and a hardened cynic, you would say, "Well, you know, that
stuff is just -- it doesn't mean anything."
And we'll get to the cold, hard facts in a minute.
But I do think it means something.
I do.
I think personal relationships matter and we'll see how this turns out.
But I will warn you I am cautiously optimistic about this.
And I secondly want to note that President Xi engaged in a level of detail -- you could
even say he was selling this, which was, in my opinion, quite unusual for the head of
state.
Guys like me are supposed to know the details.
He did.
He made the pitch himself.
Vice Premier Liu He, the top economic economics guru, as you know, actually told us -- we
had two private meetings with Liu before the dinner.
Liu kind of flagged it in the second meeting Saturday.
He said, "I'm not going to say anything.
It's going to be President Xi."
And we reported that to President Trump because that's quite unusual.
And he wasn't winging it, he was well prepared.
And so I was impressed with that and I felt that bolstered the Chinese commitment.
I may be wrong, but I believe it did.
According to Kudlow, Xi Jinping actually did the bidding directly.
White House National Trade Council Director Peter Navarro was also present and echoed
this account.
Peter Navarro: It was extraordinary to have the president of China himself at that dinner
spend the first 30 to 45 minutes laying out the parameters in detail of a deal — that's
never really happened in the history of the U.S.-China relationship.
The way this generally works is that the minions meet and talk about these things.
This was president-to-president, so that's very much different as well.
According to the American team, not only was substantial ground covered in the meeting,
but the Chinese team used an important word: "immediately."
The other point I want to make is, when we met with Vice Premier Liu He, he said several
times -- and I pushed him on this -- that the China changes, with respect to tariffs
and non-tariff barriers and other structural issues that we'll get into in a few moments,
would begin immediately.
I don't think that's come out yet in the press reports.
I did mention that in some of the interviews that I did this morning, "immediately."
And I said, "What do you mean, 'immediately'?"
And he said, "Immediately."
I said, "Like Monday?
Get going, Monday?
That would be very persuasive."
And, I said that to his top deputies.
So we'll see.
But, I think, I can tell you I've never heard that "immediately" commitment before.
China's official Xinhua News agency agreed with its counterpart in describing a friendly
and constructive atmosphere.
But in terms of what was actually talked about and agreed upon, it depicts a different picture.
According to Beijing, the U.S. and China agreed to stop adding new tariffs, without mentioning
it's only a temporary cease fire.
The report said the next step is to work to eliminate all tariffs.
There is no mention of the 90 day negotiation period and what happens if the two parties
don't reach an agreement within three months.
Xinhua also said China will further open its market and increase imports based on the needs
of China's reforms and the Chinese market.
The report didn't mention the immediate purchase of large amounts of U.S. agricultural
goods.
Chinese Foreign Minister Wang Yi's press briefing was strictly in line with the Xinhua
News agency's report.
The two leaders have reached an agreement to stop raising new tariffs on each other.
China expresses its willingness to expand imports according to the needs of its domestic
market and people, including the purchase of marketable goods from the United States,
so as to gradually alleviate the trade imbalance.
In a response to mounting criticism from Chinese citizens that the media concealed important
details of the Trump-Xi meeting, chief editor Hu Xijin of China's Global Times defended
the Chinese government.
He said it is normal for diplomats to highlight information that is beneficial to their country.
He went on to say his media did not hide such information.
The Global Times also criticized the Trump administration for highlighting Beijing's
agreement to purchase $1.2 trillion dollars of American goods while failing to mention
where the U.S. made concessions.
It listed examples, like the U.S. hasn't mentioned Made in China 2025 for a while.
It also seemed to stop attacks on China's state-owned enterprises and related industrial
policies.
The Global Times is in an awkward position.
It still has to attack America even if it wants to somewhat differ from Xinhua.
It is likely this slight difference was also ordered by the regime.
The real question is why did the Chinese Communist Party feel the need to hide the details of
this meeting at all?
Here is my discussion with Chinese political strategist Pokong Chen.
In your opinion, why did the Chinese communist regime hide part of the Trump-Xi meeting from
its people?
The regime orchestrated this, as I had anticipated.
Simply because this is almost the last chance for it to warm up China-U.S. relations and
end confrontation between them.
This is also the last reprieve President Trump and the U.S. have granted him after Xi's
repeated requests.
So, evidently, it was China that made substantial concessions to the U.S.
You may call it caving in, admitting defeat, or a signal of sincerity.
It was flagged as "surrender," in accounts of Russian and Indian media.
That's why the Chinese Communist Party (CCP), who had been so assertive and high-profile,
was reluctant to publicize the truth.
We remember Xi's previous public remarks, claiming to "fight to the end," "teeth
for teeth," and "never back down a single step."
He even swore to prevent Trump from taking advantage of China like cutting off mutton
from a grown sheep.
So defiantly, so absolutely.
Despite such statements Xi's huge concessions made him unable to face the Chinese people,
which may provoke civilian criticism, political unrest or a power crisis.
As a result Xi Jinping and the Chinese communist regime concealed details of the talk.
Xi started the talk with a lengthy speech, offering great concessions, according to Navarro.
Why did he do so?
How is the Chinese communist regime doing amid the ongoing trade war?
The Chinese regime repeatedly employed a delaying tactic.
Soon after Trump took office they staged a "100-day negotiation," which ended up
in failure due to the CCP's delay.
Later Vice Premier Liu He came to the U.S. for another rounds of talks.
But no good faith had been found on the part of the Chinese regime.
Then the U.S. laid aside the negotiations.
China didn't ask the U.S. to resume the talks until its economy dropped to a dangerous
point with the escalating trade war.
However, Trump declared more than once that he wouldn't restart the negotiations so
soon, saying that China was not ready to reach a deal.
The U.S. didn't agree to launch this meeting until many promises, even from Xi himself,
were made.
So the spotlight of this talk was the fact that Xi spent 30 minutes elaborating his concessions
to the U.S. team at the very start of the summit.
This was done for two reasons.
One, Xi almost lost his reputation for the U.S. part.
Back in 2015, Xi made two promises to then-American President Obama: one, the South China Sea
would never become militarized, but China ate its words later; two, China's cyber
theft targeted at American businesses would be stopped, which turned out to be more alarming
than ever.
Therefore, Xi lost (or nearly lost) his credibility in the U.S.
Further, the past two years' interactions with the Xi administration taught the U.S.
counterpart that the barrier to Sino-U.S. talks or ties was no other than Xi himself.
Both Mr. Kudlow, the director of the national economic council, and President Trump showed
that Liu He and others consented to a deal, but finally Xi stood in the way.
So this time, Xi Jinping himself had to stand out and air his own statements and commitments.
Otherwise this meeting would be impossible.
Moreover, this posture unmistakably signaled that Xi has the authority of giving a final
say.
Only by doing so could Xi gain his credibility from the U.S.
Again, the last chance for him.
There are three reasons for his willingness to back down.
First, China is the inflicting party, with the U.S. being the victim, thereby accounting
for Xi's concessions.
Secondly, compared with American democracy, Xi's domination in a party state like China
paved his way to concessions, whose authority can stifle dissent either from the CCP or
from the Chinese society.
Thirdly, China feels like it's economically breaking down since its economy has been going
downward while the American economy is improving.
If market transfers and manufacturing collapse occurs, China's whole economy will be shaken.
As a result, Xi Jinping had to offer sweeping concessions.
Just now you mentioned that China feels like it's breaking down economically.
Then, how serious is that situation?
Primarily because China's economic pattern is heavily dependent on foreign exchange,
capital, and trade.
China is the largest foreign trading country in the world.
Its income mainly comes from this source, which also makes up its largest portion of
foreign exchange reserve.
However, since the trade war the U.S. levied tariffs ranging from 10 percent to 25 percent
on Chinese imports worth $253 billion, which has made Chinese goods less competitive.
Currently, markets are transferring; goods from southeast Asia, including Vietnam, Indonesia,
Thailand, and the Philippines, are rushing into the U.S. foreign capital.
We also note that it is rushing into southeast Asia and other regions.
So communist China is less competitive in the world.
Moreover, China's economy mainly consists of manufacturing, which takes up 40 or 50
percent.
In the past four decades, China has established its status as a manufacturing power, whose
collapse will cripple China's economy, too.
Now China uses very plausible, mild or misleading terms to describe its economy: "slowed economic
growth," or "economic slowdown."
The reality is this: downward, or zero growth or even negative growth.
So with this background, if the trade war drags on, especially when the tariffs on Chinese
imports worth $200 billion rise to 25 percent and those on the remaining $267 billion, again,
increase to 25 percent, China's economy will face the risk of being fundamentally
shaken, as in the manufacturing sector.
Even worse, the Chinese regime's unfair or illegal means will no longer work in terms
of intellectual property and market access.
I believe its economy will be hit hard as a whole.
Mind you, the legitimacy of the Chinese communist regime (or its superficial legitimacy) in
the past decades has rested in nothing but its economic growth.
Once an economic downturn occurs to private enterprises or ordinary people, I judge that
trend may politically shake the CCP's authority and even Xi's own authority.
I also asked Greg Autry his opinion on the summit.
Mr. Autry is assistant Professor of Clinical Entrepreneurship at the Marshall School of
Business at the University of Southern California.
He also co-wrote the book "Death by China."
Regarding the Trump-Xi summit, some analysts say Trump was fooled by Xi Jinping.
Xi will not really make substantial concessions.
Instead, they will just trick the U.S. in order to buy some time to come up with new
ways to maintain the status quo, just like what they did with previous administrations.
Do you think Trump will be fooled and manipulated again by Xi Jinping?
I don't think that Donald Trump is easily fooled.
I do think, however, the expectations of the United States' government as a whole and
the financial interests that go beyond the government, and particularly, multinational
corporations and investors want to see some sort of negotiation and agreement, so there
was a great deal of pressure on Trump and the Trump team to at least appear that they
were open to doing so.
So as long as Xi said some of the right things, I think that they were required to give China,
frankly, a little more leash.
And we're just going to have to just wait and find out, of course, that those promises
made by Xi are false, which they always are.
But, unfortunately, I think the president was in a situation where he couldn't look
like that bad guy.
He had to let Xi, one more time, make a false promise.
And I think the fact that Trump set a very tight deadline on it of 90 days before he
upped the tariffs, and that deadline starts, not on January 1st, but it starts right now,
makes it clear to me that they don't intend to mess around with this for very long.
In your recent article in Foreign Policy, you wrote, "Over the last two years, establishment
pundits shifted from spouting nonsense about China's inevitable progress toward capitalism
and democracy to asking whether tariffs are the right way to confront a dangerous regime
we all agree is built on lies and cheating."
So what about that?
Do you think Trump has pinned his success on trade alone, more specifically, are tariffs
the only tool or the best tool at Trump's disposal?
I think that of all of Trump's policies, his trade policy has been the most effective.
U.S. unemployment rate is at a record low.
GDP growth is exceptionally high.
People on the street are happy with economic performance, and just the opposite is happening
in China.
So he's achieved what he wanted, which was leverage over the Chinese leadership in an
economic realm using the tariffs.
That said, that's not the only tool that would be available to the administration if
they wanted to pursue this further.
One of the things they could do would be look at visas for Chinese executives and Chinese
students.
The recent arrest of a Huawei executive says to me that they're looking very seriously
at the actual behavior of individuals involved in the intellectual property theft and transfer
and threats to U.S. national security.
It's also quite reasonable to assume that the U.S. will begin looking at reciprocal
laws.
So if Chinese organizations want to come to the U.S., they'd be forced into joint partnerships
very similar to the way that U.S. companies are forced into joint partnerships often with
Chinese state-owned enterprises in order to do business in the Chinese market.
We could also force Chinese companies to transfer technology in order to have access to our
market the same way that the Chinese government has done.
And if they don't have any technology, perhaps we could charge a market access fee where
they need to essentially pay for us to develop technology if they're going to come into
our market.
The fact that U.S. companies and individuals can't really own property in China, and
yet Chinese companies have been allowed to come into the U.S. and buy up real property
and large swaths of land and mineral resources, which are not available to U.S. firms operating
in China, we should level those rules out and prevent Chinese access to real estate,
to land, and to mineral resources.
Coming up, besides Trump, what else caused Beijing to make concessions?
Leading up to the Trump-Xi summit, the stock market showed confidence until December 4th,
when the Dow Jones Industrial Average suddenly fell nearly 800 points.
Bond yields also plummeted.
The Washington Post attributed the market downturn to the differing U.S. and China accounts
from the G20 summit.
The Post challenged some of Trump's claims, saying they could not be confirmed by officials
from the administration.
It also quoted an anonymous former official criticizing Trump, saying, quote, "You don't
do this with the Chinese.
You don't triumphantly proclaim all their concessions in public.
It's just madness."
MSNBC's headline was more blunt: "Trump's 'incredible deal' with China doesn't
appear to exist."
The slew of reports made me wonder if there were discrepancies in the accounts between
the White House and Chinese state-owned media.
Does the American public believe the Chinese media more?
I asked Mr. Autry whether they do or not.
On December 5, the Dow fell nearly 800 points.
The Washington Post suggested it dropped because of the contradicting reports from China and
the U.S.
My question is this: If there are discrepancies in the description between the two sides,
are the American people really inclined to believe the Chinese side?
Otherwise, why did the stock market fall?
So the Chinese have a much better perception management campaign, the Communist Party has
the best global propaganda system in the world.
And they're very good at making their message be felt.
And, frankly, most American multinational corporations are more aligned with the Chinese
interests.
That's where most of their jobs are and their products are produced.
And most American investment bankers and finance folks that get quoted in the media or make
donations to D.C. think tanks that produce the dominant paradigm that ends up in the
financial media, these folks are all aligned with the Chinese side, and they take their
messaging right from the Communist Party, and they repeat it.
And that's easy to do, and the American public is used to that and comfortable with
that, in fact.
But don't assume that because you see that Dow fall significantly or the bond market
adjust that that's the American public.
Most of the American public are not active traders of equities.
And the ones that are, as individuals, that's a very small amount of the market.
When the market moves, it's because investment bankers and financial professionals who are
aligned with the Chinese side of things are unhappy.
And so I think they've realized that this isn't going to happen.
And so they've pulled back a bit, and that shouldn't be a surprise.
Talking about the U.S. economy, a number of investors, including Goldman Sachs, predicted
a U.S. recession next year.
What do you think?
Well, first of all, we've got to realize we've had a ten-year growth spurt, so having
a recession next year would not be a surprise.
There are certainly a number of indicators that many of the markets, including the real
estate and equity markets, are, as we say, long in the tooth, meaning that they've
grown for so long that a correction is to be expected.
So I don't know that that won't happen.
The yield curve and other indicators suggest that it's entirely possible.
I would hope the Federal Reserve would stop raising interest rates at this point because
that has helped move us to that position.
But we're in a really strong position and, if we underwent any normal recession, it wouldn't
be a significant problem.
The problem with Goldman Sachs and most of the investment banks that control a lot of
the financial media opinions, their interest is only in what happens next quarter and returning
short-term profits because the analysts and traders at those companies retire early, and
the CEOs did help back the multinational corporations.
They're only, on average, a CEO for five years.
So they want short-term results.
They don't care about the long-term interests of the United States, the long-term interests
of workers, our national security, or any of those other things.
And Donald Trump understands that, and I don't think he's going to take their opinions
more seriously than any of the other stakeholders he represents.
That said, do you think a prolonged trade war with China will really hurt the U.S. economy?
Or has it already hurt the U.S. economy?
So far there's no sign that it's hurt the U.S. economy.
And one of the important things is, of course, the people who make money off of the China
trade have been trying to scare American consumers into believing that the prices of their goods
would increase substantially, and that just isn't true.
It's important to understand that any time a tax, a tariff, or additional cost comes
into the supply chain for a product, that that cost is not just deposited on the consumers.
Businesses can't just raise the price by 25 percent and make consumers pay more.
They have to deal with the reality of the economic demand curve that exists: What are
consumers willing to pay and able to pay for certain goods.
And the consumers will pay a small portion of it, but most of it ends up reducing the
margins of the producers and the distributors in the chain.
And we've already seen that the U.S. retailers aren't willing to take that cost, and they've
pushed it right back on the Chinese producers.
So not only are Chinese producers seeing less demand, but they're also getting a lot less
margin for their products.
So, so far, it hasn't hurt the U.S. economy.
That said, trade is a great, valuable thing, and we'd love to have more of it, I'm
sure.
But if trade means you get to sell 100 million or even a billion dollars' worth of soybeans,
but you have to look the other way while China steal 400 million dollars' worth of high
technology every year, that is not realistic, and we've got to get over this kind of anecdotal
"look at that, look at this particular loss" in one market and realize that the overall
scope of things has been very, very bad for the last 20 years.
And with the current deficit that we run with China, if we just cut off trade with China
and didn't buy or sell them anything, American GDP would go up by about two-and-a-half percent,
all other things being equal.
And that's pretty incredible.
So we need to be realistic about what the overall effect is and not focus on the trees.
The forest is more important.
Coming up, what's happened since the summit?
On December 1st, the same day President Trump and his Chinese counterpart, Xi Jinping, agreed
to a trade war truce, Canada arrested the chief financial officer of China's Huawei
Technologies, Meng Wanzhou.
Meng is the deputy chair of Huawei's board and the daughter of the company's founder,
Ren Zhengfei.
The arrest warrant was issued by the United States a week earlier.
A Canadian justice then issued a warrant on November 30th.
Meng allegedly committed fraud in 2013 by lying to U.S. financial institutions about
Huawei's connection with Hong Kong company SkyCom, which reportedly sold U.S. goods to
Iran in violation of U.S. sanctions.
Huawei is the world's largest maker of telecommunications network equipment.
In 2004, CISCO sued Huawei for using stolen Cisco technology to develop a lineup of routers
and switches sold in competition to the American company.
Cisco later dropped the lawsuit in exchange for a promise from its rival to modify its
product lineup.
On December 4th, 38 Chinese government branches published a united memo laying out an array
of punishments over intellectual property theft.
These measures include establishing a social credit system to target people and entities
who commit severe intellectual property rights violations.
The social credit score could restrict companies' access to borrowing and state-funded support.
On the same day, President Trump tweeted, quote, "Very strong signals being sent by
China once they returned home from their long trip, including stops, from Argentina.
Not to sound naive or anything, but I believe President Xi meant every word of what he said
at our long and hopefully historic meeting.
ALL subjects discussed!"
What does all this say about the U.S.-China trade war and President Trump's attitude
toward China now?
Let's hear form Greg Autry and Pokong Chen again.
On December 1st, Meng Wanzhou, Huawei C.F.O. and daughter of the founder of the company,
was arrested in Canada for extradition to the U.S.
What do you make of her arrest?
Do you think it is related to the U.S.-China trade war?
Absolutely.
It, to some extent, couldn't not be because the focus on the penalties that the U.S. is
putting on China are not necessarily over the specific products on the list, but over
the intellectual property theft and behavior that requires the transfer of intellectual
property.
And Huawei is like the poster child for stealing U.S. intellectual property and as a tool for
the Chinese party to insert network infrastructure and communications infrastructure into Western
countries that it can further use to inflict cyber espionage and industrial espionage on
those countries.
So it's the perfect message to send.
I don't know whether the arrest was intentionally related to that, but Huawei has been a company
that I identified back in 2013 when I testified to the House Foreign Affairs Committee on
China cyber espionage as the primary target to look at.
So I'm not surprised by that.
So you think this is not a coincidence?
It says something about trump's attitude towards China?
I think it's possible.
And, again, I think you might see that they take action on visas for corporate executives
or maybe even for students or, who knows, because they've got a lot of other tools
in their pocket and they don't intend to let a foreign power continue to steal U.S.
assets.
And I think they're going to be pretty strong about that.
And tariffs are not the only way to do it.
So if they put the tariffs on hold, like I said, they could look at those reciprocal
rules, they could look at all these other issues.
Can America finally get what it demands from China this time?
Let's hear from Pokong Chen.
Will Xi Jinping honor his promises?
Or will the U.S. meet its goals within 90 days?
For Xi and China they face two challenges: one, are they willing to keep their promises?
And two, are they capable of performing their commitments?
For the first, Xi is reluctant to do that.
He tends to cope with Americans by delaying, stealing and tricking.
Lip service is his top option.
As to his ability, that's another question.
Currently, there's little chance for the Chinese regime to try to cheat the Trump administration
again.
The presence of all American hawks declares their assertiveness.
Further, the lead negotiator was Robert Lighthizer, also a hawk, who served as deputy U.S. trade
representative in negotiating with the Japanese 30 years ago, and who is a U.S. Trade Representative
and a barrister.
According to Navarro, Lighthizer will conduct reciprocal negotiations with China under "International
Law" and other laws, chapter by chapter, article by article, until structural reforms.
The deadline given by Trump is only 90 days.
So if no deal is reached then, the trade war will go on and get escalated.
For the CCP, therefore, it certainly wants to break its promises, to escape, and to delay.
But I guess it'll have great difficulty in doing so.
There's little room for Xi.
Considering his breaking promises twice, a third time would bring China-U.S. relations
to the brink of complete confrontation.
It's not just an issue of new Cold War.
An all-out conflict in every fronts, I'm afraid.
The CCP would be most likely to repeat the collapse of the former Nazi Germany, militaristic
Japan and the former Soviet Union.
So right now, the CCP finds itself at a critical crossroad, having to make a hard choice to
where to go.
Before, there was an understanding that communist China and Xi Jinping are unable to make structural
changes because it would change how the Communist Party runs the economy, how it runs the country,
and basically how it stays in power.
So changing these would require political reform of some sort, which has always been
its bottom line that can't be broken.
So by agreeing to these structural changes, will Xi Jinping and the communist regime really
be giving up their bottom line?
It is still hard to believe at this point.
There is only one way to find out: time.
So stay tuned to find out if Trump really will hit a homerun in the U.S.-China trade
war.
Thanks for watching.
I am Simone Gao.
Please like our Facebook page and subscribe to our YouTube channel at Zooming In with
Simone Gao.
See you next time.
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