Latest / Trumponomics / Live from Hong Kong: Why China Can Afford to Wait for a Deal, and the US Can’t

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Live from Hong Kong: Why China Can Afford to Wait for a Deal, and the US Can’t · Trumponomics

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. China is not easy.
• 0:09
  Speaker 1: We want to open up China. It'll be a great
• 0:11
  Speaker 1: thing for China, a great thing for the rest of
• 0:12
  Speaker 1: the world.
• 0:22
  Speaker 2: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
• 0:25
  Speaker 2: and welcome to trump Andomics, the podcast that looks at
• 0:28
  Speaker 2: the economic world of Donald Trump, how he's already shaped
• 0:32
  Speaker 2: the global economy, and what on earth is going to
• 0:35
  Speaker 2: happen next. This week, we're recording Trumpomics in front of
• 0:39
  Speaker 2: an audience from Bloomberg invest Hong Kong, and we're looking
• 0:43
  Speaker 2: at what Trumpomics means for this part of Asia, notably
• 0:47
  Speaker 2: mainland China and Hong Kong. We've seen the latest round
• 0:50
  Speaker 2: of trade talks in London between the US and China
• 0:54
  Speaker 2: conclude with what our Bloomberg geoeconomics analyst Michael Deng has
• 0:59
  Speaker 2: called a tactical de escalation but not a strategic reset.
• 1:05
  Speaker 2: So we're none the wiser on where tariff rates will
• 1:08
  Speaker 2: end up or how deep the much discussed decoupling of
• 1:13
  Speaker 2: the world's two largest economies will go. But we have
• 1:18
  Speaker 2: plenty to discuss and I'm sure plenty of theories as
• 1:21
  Speaker 2: to what direction we're going about all of that and
• 1:24
  Speaker 2: maybe also the future of the dollar. I have some
• 1:28
  Speaker 2: great guests to help me talk this through. My colleague
• 1:32
  Speaker 2: Rebecca John Wilkins, Asia Economics and Government reporter for US
• 1:36
  Speaker 2: at Bloomberg, Howhong Managing Partner and chief investment officer at
• 1:41
  Speaker 2: Lotus Asset Management, and Robin Ching, the chief China economist
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  Speaker 2: at Morgan Stanley. Rebecca, I'll take advantage of you as
• 1:53
  Speaker 2: the reporter in the room. Take us up to speed
• 1:56
  Speaker 2: on how you're reading that statement we had out of London,
• 2:00
  Speaker 2: and I think we're still expecting a statement from the
• 2:02
  Speaker 2: Chinese about those talks as well.
• 2:04
  Speaker 3: Yes, I mean not a lot of detail in fact
• 2:07
  Speaker 3: from both sides, largely all of the detail coming from
• 2:09
  Speaker 3: the US side here, but more than twenty hours of
• 2:12
  Speaker 3: negotiations over two days, both the sort of heavy hitters
• 2:15
  Speaker 3: from the US and the China side. Essentially we are
• 2:19
  Speaker 3: back too. I think that point in the Geneva truce
• 2:22
  Speaker 3: where both sides were sitting down saying yep, maybe something
• 2:25
  Speaker 3: can happen, maybe we can do a deal.
• 2:26
  Speaker 4: We're going back to that pause.
• 2:28
  Speaker 3: But it's important to understand why there was that sort
• 2:30
  Speaker 3: of breakdown in the Geneva truce in the first place,
• 2:33
  Speaker 3: and it really fundamentally.
• 2:34
  Speaker 4: Is over this issue of rare earth.
• 2:37
  Speaker 3: China introduced restrictions on seven different rare earths. These were
• 2:41
  Speaker 3: global restrictions, essentially requiring licenses from companies all over the world,
• 2:45
  Speaker 3: now not just US, but in addition, there was effectively
• 2:49
  Speaker 3: a shadow ban on US requiring these licenses. Now, as
• 2:53
  Speaker 3: part of the Geneva truce, a really critical part of
• 2:56
  Speaker 3: that truce was this agreement that the Chinese side would
• 3:00
  Speaker 3: effectively lift that shadow bank and allow licenses. Now, the
• 3:06
  Speaker 3: whole disagreement and the reason why we saw this breakdown
• 3:08
  Speaker 3: between the US and China side is precisely what that meant.
• 3:11
  Speaker 3: What does it actually mean for Beijing to expedite these licenses.
• 3:15
  Speaker 3: How quickly is that going to come through? On the
• 3:17
  Speaker 3: China side, of course, we are talking about an entirely
• 3:21
  Speaker 3: new system of export controls over seven different substances. It's
• 3:25
  Speaker 3: a global program, steply complex, forty five days of a
• 3:28
  Speaker 3: review process, etc. And it does seem on the US
• 3:32
  Speaker 3: side that there was an expectation that once that Geneva
• 3:35
  Speaker 3: agreement was made, that there would be a much more
• 3:37
  Speaker 3: rapid introduction implementation, So that's really at the crux, it
• 3:42
  Speaker 3: seems of where there was a sort of breakdown in
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  Speaker 3: relationships between the US and China.
• 3:48
  Speaker 4: So now it seems it seems.
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  Speaker 3: I said it very tentatively because we don't have a
• 3:51
  Speaker 3: lot of details, but it seems like there is a
• 3:54
  Speaker 3: quote unquote framework to allow this expeditive process or allow
• 4:00
  Speaker 3: these rare US to continue being exported into the US.
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  Speaker 3: We do not have any details on what that might mean,
• 4:07
  Speaker 3: and both sides still do need to go back to
• 4:10
  Speaker 3: their respective leaders and effectively run this by their bosses.
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  Speaker 2: But on the other side, there had been some excitement
• 4:17
  Speaker 2: in the last couple of days when the Commerce Secretary,
• 4:20
  Speaker 2: Howard Litnik actually mentions export controls and was also apparently
• 4:23
  Speaker 2: thinking about some of the US export controls on China,
• 4:27
  Speaker 2: which have been a very sore point for the Chinese.
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  Speaker 2: Do we have any clarity on which of those controls
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  Speaker 2: were discussed, because there's some are much more important than others.
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  Speaker 4: Absolutely, so sort of yes and no.
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  Speaker 3: Here we think that some of the immediate retaliatory export
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  Speaker 3: controls that the US rolled out when they believe that
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  Speaker 3: the Chinese side were not living up to their expectations
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  Speaker 3: and the agreement on rare US will be lifted. So
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  Speaker 3: that includes restrictions on things like software technology for developing semiconductors,
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  Speaker 3: nuclear materials, chemicals, some jet engine parts. So these are
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  Speaker 3: the late package of retaliatory measures that we've seen coming
• 5:03
  Speaker 3: out of the US since that breakdown in the Geneva truth.
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  Speaker 3: It's unclear if this will involve some of these more
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  Speaker 3: fundamental issues over export controls over semiconductors.
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  Speaker 4: That of course is the big sticking point, these.
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  Speaker 3: Restrictions that were rolled out under Biden and continue to
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  Speaker 3: be expanded.
• 5:20
  Speaker 2: Well, Robin seeing you know, of course Rebecca has to
• 5:23
  Speaker 2: stick to absolutely what she knows. But you get to
• 5:25
  Speaker 2: just speculate wildly on the basis of very serious economic analysis.
• 5:30
  Speaker 2: How are you reading where we've got to? And I
• 5:33
  Speaker 2: guess what will you be looking for in terms of
• 5:35
  Speaker 2: the economic impact of these ongoing talks.
• 5:39
  Speaker 5: Thank you, definitely, I like the word you used, speculating.
• 5:43
  Speaker 5: Human all the flip flop about trade talks so far,
• 5:47
  Speaker 5: the bid after gap between US and China is still
• 5:51
  Speaker 5: very wide. If you look at the readouts from the
• 5:54
  Speaker 5: US side, they are leader focusing on traded deer on
• 5:58
  Speaker 5: upcoming logistics for Real Earth, as Rebecca You elaborated, but
• 6:03
  Speaker 5: the Chinese version, Beijing's readoubt covered a much bigger picture.
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  Speaker 5: They want to reset the grand relationship between US and China,
• 6:12
  Speaker 5: covering tech curves student with geopolitical issues. So apparently Beijing
• 6:17
  Speaker 5: wanted a grand bargaining deal. So I think there is
• 6:21
  Speaker 5: a huge gap between the bid ask and that means
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  Speaker 5: the ongoing talks won't be easy. Maybe they can extend.
• 6:29
  Speaker 5: It's a trade tariff did on, but what Beijing wanted
• 6:33
  Speaker 5: is beyond tariffs. And Rebecca you mentioned the Real Earth.
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  Speaker 5: Now China is using it more like a strategic card.
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  Speaker 5: So what you said, it's like Beijings thinking if you
• 6:45
  Speaker 5: cut our chips, I will cut your magnets. And over
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  Speaker 5: the last seven years since the first trade war in
• 6:51
  Speaker 5: twenty eighteen, China has strengthened these dominance in key supply
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  Speaker 5: chains like Real Earth. Today they control more than eighty
• 7:00
  Speaker 5: percent of real refining capacity, more than ninety percent of
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  Speaker 5: the magnet production, which is widely used in next generation
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  Speaker 5: of attack, and the supply chain including TV cars, humanoids, robotics,
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  Speaker 5: even modern defense system So now China is using that
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  Speaker 5: in exchange for potential relaxation of tech curves. That's also
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  Speaker 5: part of Beijing's strategic play, sending a message to US allies.
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  Speaker 5: It's making them think twice about aliging too closely to
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  Speaker 5: the tech curbs on China. So I do think all
• 7:36
  Speaker 5: these showed China wanted the grand bargaining deer covering not
• 7:39
  Speaker 5: just the tariff but attack and geopolitical issues. Given that's
• 7:44
  Speaker 5: not going to be easy, you may see continued uncertainty
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  Speaker 5: on trade tards so our base cases. By end of
• 7:51
  Speaker 5: this year, the US terminal tariff rate on China will
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  Speaker 5: probably stay similar to today's level thirty percent forty percent.
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  Speaker 5: Given all these, if the divergent felt for Beijing and
• 8:02
  Speaker 5: the Washington for redoubt and that going to cost the
• 8:05
  Speaker 5: foreign forum margins, they cost the Chinese ex quarters the job.
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  Speaker 1: So if downside the ryth to the economy.
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  Speaker 2: How hung I mean, it feels like the US side
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  Speaker 2: had not fully grasped how reliant key parts of the
• 8:23
  Speaker 2: US supply chain was on these rares. So and I'm
• 8:26
  Speaker 2: kind of reminded of the depiction someone had of the
• 8:29
  Speaker 2: ongoing debate, which is the US has decided they absolutely
• 8:32
  Speaker 2: want a divorce from China in ten years time, but
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  Speaker 2: lived together in the interim for the entire ten years.
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  Speaker 2: You know, that is the challenge that you see in
• 8:40
  Speaker 2: some of these talks.
• 8:42
  Speaker 6: Yeah, well, I think it's similar to a couple fighting
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  Speaker 6: through a divorce process, right, so the two parties don't
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  Speaker 6: see each other in the future, but then at the
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  Speaker 6: same time they still have to live with the consequence
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  Speaker 6: and how to divide up the assets. Rebecca and Robin
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  Speaker 6: mentioned about the rare earth is because the counter off
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  Speaker 6: from the US part is probably not good enough for China, right. So,
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  Speaker 6: I think as a result, even though China has agreed
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  Speaker 6: to restart the approval process for rare exports at the
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  Speaker 6: Geneva session, the Chinese can always run slower than expected
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  Speaker 6: process to approve it.
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  Speaker 7: Right.
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  Speaker 6: So, normally it takes probably one to two weeks to
• 9:21
  Speaker 6: approve to get a permit for exports, and now it
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  Speaker 6: takes two months. Right then, that way, on the surface,
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  Speaker 6: on paper, Chinese is not violating the agreement, but then
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  Speaker 6: at the same time it's still not getting your key
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  Speaker 6: ingredient for your GPUs. So I think China can do
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  Speaker 6: a lot of these things to slow down the process,
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  Speaker 6: and also at the same time, people have to recognize
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  Speaker 6: the situation that the American consumers probably can't live for
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  Speaker 6: much longer at the higher prospect of much substantial higher invasion.
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  Speaker 6: And then at the same same time, because of the
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  Speaker 6: process of this tradel on how this trail will started,
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  Speaker 6: it actually somehow united the Chinese people together, right, So
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  Speaker 6: if you're in mainland China, you can you can really
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  Speaker 6: feel the atmosphere rooting for President she and us also
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  Speaker 6: rooting for China in this negotiation process.
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  Speaker 1: So I think the Chinese.
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  Speaker 6: People is very famous for it bitter, right, So in
• 10:13
  Speaker 6: the Chinese culture it bitter means it can endure substantial
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  Speaker 6: hardship for a very long time. So as a result,
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  Speaker 6: you can see this group of people is ready to fight.
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  Speaker 6: But then at the same time, the American consumers really
• 10:25
  Speaker 6: want to get cheap goods. So then that way you
• 10:28
  Speaker 6: can see the China can afford to wait. And so
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  Speaker 6: I think it's setting a stage for the negotiation. So
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  Speaker 6: I think one shouldn't be too surprised that as China
• 10:37
  Speaker 6: Jet one, then the Americans would have to give more
• 10:40
  Speaker 6: concession during the process, and then towards the end we
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  Speaker 6: probably get a result that is more favorable than expected
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  Speaker 6: for the Chinese people.
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  Speaker 2: And just to follow up on that, the World Banks
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  Speaker 2: obviously brought out some new forecasts this week, and it's
• 10:55
  Speaker 2: cut the growth forecast for seventy percent of the world's economies,
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  Speaker 2: almost all of the world's biggest economies. It's halved this
• 11:01
  Speaker 2: year's forecast for the US. The only country that it
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  Speaker 2: hasn't cut the forecast for this year next is China.
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  Speaker 2: So I guess to come back to you, how long
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  Speaker 2: at this point, it's China winning the trade war. It's
• 11:13
  Speaker 2: China coming out of this certainly and much better than
• 11:15
  Speaker 2: the US.
• 11:16
  Speaker 6: Yeah, well, I think it's much better than the trailer
• 11:20
  Speaker 6: phase one in twenty eighteen, right, So I think during
• 11:23
  Speaker 6: the current trade war, Chinese more prepared than before. And
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  Speaker 6: also Chinese is ready to use the asymmetric retaliation towards
• 11:30
  Speaker 6: the US counterpart. So I think as a result, on
• 11:32
  Speaker 6: the surface, but the Chinese growth is steady, Chinese exports
• 11:36
  Speaker 6: is steady, and if you look at the Chinese domestic economy,
• 11:39
  Speaker 6: you're seeing two parts of the economy. One part is
• 11:41
  Speaker 6: export manufacturing driven that is doing really well. So even
• 11:45
  Speaker 6: though the exports to the US has been down, like
• 11:47
  Speaker 6: one third, but then to the rest of the world
• 11:50
  Speaker 6: is really booming. And then at the same time, if
• 11:52
  Speaker 6: you want to bury on the Chinese economy, you can
• 11:54
  Speaker 6: look at the consumer sector right, which is way below
• 11:57
  Speaker 6: expectation and it's still not recovering. And if you look
• 12:00
  Speaker 6: at the housing sector, the housing bubble bursting process is
• 12:03
  Speaker 6: still dragging on. So depending on which part of the
• 12:06
  Speaker 6: Chinese economy you will get and then you can draw
• 12:08
  Speaker 6: very different conclusions.
• 12:10
  Speaker 2: We have debates in Bloomberg and with the economists as well,
• 12:13
  Speaker 2: because we'll have analysis of the growth trajectory being lower
• 12:17
  Speaker 2: for China and what that means in terms of people's
• 12:19
  Speaker 2: expectations after years of double digit growth. But alongside that
• 12:23
  Speaker 2: sort of pessimism around the Chinese economy, you know, we'll
• 12:27
  Speaker 2: also be reading the latest release of the breakthrough deep
• 12:31
  Speaker 2: seek or the latest incredible charging technology for electric cars,
• 12:36
  Speaker 2: where China seems to be powering ahead much faster.
• 12:38
  Speaker 1: Than people expected.
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  Speaker 2: So how do you deal with that schizophrenia day to
• 12:42
  Speaker 2: day when people are asking you how's the China economy?
• 12:46
  Speaker 3: Well, I think to how Hung's point, to a certain extent,
• 12:48
  Speaker 3: it really depends where you look. And clearly there are
• 12:51
  Speaker 3: areas where we've had most notably high quality manufacturing, where
• 12:56
  Speaker 3: enormous amounts of investment has been pouring in, and you
• 12:59
  Speaker 3: do you see the clear emergence of winners among Chinese firms.
• 13:04
  Speaker 3: Think about electric cars, think about deep seek ai. These
• 13:08
  Speaker 3: are investments that have been going in for the last.
• 13:11
  Speaker 4: Decade or so.
• 13:11
  Speaker 3: We can think about the China twenty twenty five plans,
• 13:14
  Speaker 3: for example, by and large, aside from semiconductors, China has
• 13:18
  Speaker 3: met all of its aspirations in becoming either a global
• 13:22
  Speaker 3: leader or one of a global leader in those key sectors.
• 13:25
  Speaker 3: So in some ways, China is meeting its own tests.
• 13:29
  Speaker 3: But on the other hand, to how Hong's point, there
• 13:31
  Speaker 3: is still this quite painful transformation that is being ushered
• 13:36
  Speaker 3: away from a debt driven property investment led society, and
• 13:41
  Speaker 3: that clearly does still provide drags on the economy. I know,
• 13:45
  Speaker 3: Morgan Stanley that you have your own sort of social
• 13:47
  Speaker 3: metric index of content in China. That's one way to
• 13:51
  Speaker 3: put it. But another way is when you kind of look,
• 13:53
  Speaker 3: for example, private data sets at protests in China. Now
• 13:56
  Speaker 3: they're relatively small scale, we're talking about in the hundreds,
• 14:00
  Speaker 3: but by and large, we have seen those continue to climb,
• 14:03
  Speaker 3: particularly over the course of this year. They tend to
• 14:06
  Speaker 3: be very economic focus. These are economic issues. They're rarely political.
• 14:09
  Speaker 3: In fact, actually they're off and around housing issues, They're
• 14:12
  Speaker 3: often around unpaid wages. So to that point of knowing
• 14:16
  Speaker 3: sort of where to look is you can see these
• 14:19
  Speaker 3: pockets of real tension, particularly at the local government level
• 14:23
  Speaker 3: where finances are really strained. And then over we think
• 14:27
  Speaker 3: about the consumer mood. Of course, most consumer indexes will
• 14:31
  Speaker 3: still show that we.
• 14:32
  Speaker 4: Are pretty far from where we were pre.
• 14:35
  Speaker 3: Pandemic as well, so overall that mood is different. But
• 14:38
  Speaker 3: to how Hung's point, I will say, there has been
• 14:40
  Speaker 3: a remarkable transformation and how this is all viewed as
• 14:43
  Speaker 3: a result of the trade war. When we think about
• 14:46
  Speaker 3: last year, all of these stories about deflation, Robin extensively
• 14:51
  Speaker 3: about concerns about the property market when we're going to
• 14:54
  Speaker 3: see a bottom and really the cost for ordinary people
• 14:57
  Speaker 3: of Presidencyedion Ping's pushed to transform economy. Was this really
• 15:01
  Speaker 3: going to pay off the end of the boom years?
• 15:03
  Speaker 3: So were these sort of quite existential questions we are
• 15:05
  Speaker 3: asking now we are seeing this extraordinary support from many
• 15:10
  Speaker 3: parts of the economy for presidency, backing China standing up,
• 15:14
  Speaker 3: and this sort of resurgence of sort of a nationalism
• 15:16
  Speaker 3: and a nationalist feeling and patriotic feeling as well. So
• 15:20
  Speaker 3: you know, in some ways that's nothing to do with
• 15:22
  Speaker 3: the Chinese economy. We're talking about the sort of enemy
• 15:25
  Speaker 3: that the US has created for itself that has changed
• 15:28
  Speaker 3: the national mood in China.
• 15:29
  Speaker 2: I think, well, Robin, I think we've established that Rebecca
• 15:32
  Speaker 2: is a very careful reader.
• 15:33
  Speaker 4: Of your work.
• 15:35
  Speaker 2: But I'm interested in how you see that. And I
• 15:38
  Speaker 2: think also we see maybe a change in the mood
• 15:43
  Speaker 2: supporting the leadership, But have we also seen a change
• 15:47
  Speaker 2: of direction from the leadership in terms of its commitment
• 15:50
  Speaker 2: to rebalancing the economy or is that just wishful thinking
• 15:53
  Speaker 2: on the part of the Americans, you know, a commitment
• 15:56
  Speaker 2: from the top to a more consumption led economy, which
• 15:59
  Speaker 2: is of course what economists have been lecturing the Chinese
• 16:02
  Speaker 2: about for many years.
• 16:04
  Speaker 5: Well's definitely, I think Rebecca, you are spot on about
• 16:07
  Speaker 5: the change.
• 16:08
  Speaker 7: Of because she's been reading, you know, I have been wondering, right,
• 16:14
  Speaker 7: and the decline of readership readership of Mind Definition report
• 16:20
  Speaker 7: last year it was all dominated by definition, housing adjustment,
• 16:24
  Speaker 7: over capacity.
• 16:26
  Speaker 5: Then suddenly, as Rebecca you mentioned, there is a changing
• 16:29
  Speaker 5: narrative and how you also briefly touched it. At least
• 16:33
  Speaker 5: right now, despite China is nothing a sustainable recovery path,
• 16:37
  Speaker 5: yet at least there is a bification of the narrative
• 16:42
  Speaker 5: a tale of two economies. You have a very dynamic
• 16:46
  Speaker 5: tech economy. Every other week you heard the new technology progress,
• 16:50
  Speaker 5: either AI model or next generation of batteries, or self
• 16:54
  Speaker 5: driving cars, or even recently China's a healthcare boutech had
• 16:58
  Speaker 5: its own deep thick moment able to make fast follow
• 17:03
  Speaker 5: drugs at competitive.
• 17:05
  Speaker 1: Quality at a fraction of the US cost.
• 17:08
  Speaker 5: So all of these are showing a very dynamic tech
• 17:10
  Speaker 5: economy that helped Hong Kong. I think in your Hong
• 17:13
  Speaker 5: Kong conference today is becoming bigger partially because Hong Kong
• 17:17
  Speaker 5: is back with the ecosystem. Private acity invest in tech
• 17:21
  Speaker 5: using Hong Kong as acts the channel creating new money.
• 17:24
  Speaker 5: That animal spirity is largely back. But once you take
• 17:28
  Speaker 5: off your augmented reality glass you look at conventional consumers
• 17:33
  Speaker 5: as are mentioned or housing construction, they are pretty much
• 17:38
  Speaker 5: stuck with definition and as the economists, we have to
• 17:41
  Speaker 5: explain why these sifications happened. I think fundamentally China has
• 17:46
  Speaker 5: not shifted from a supply centric business model policy approach
• 17:52
  Speaker 5: towards consumption centric.
• 17:54
  Speaker 1: They did some.
• 17:55
  Speaker 5: Baby steps social welfare or consumer trading, but these are
• 17:59
  Speaker 5: too little. Fundamentally, the local government incentives, the GDPKPI, the
• 18:05
  Speaker 5: government revenue largely relying on at which is linked to production,
• 18:09
  Speaker 5: all of these are showing past dependency. They are still
• 18:13
  Speaker 5: pretty much in supply centric mentality. We proposed they should
• 18:17
  Speaker 5: upgrade their Made in China twenty twenty five to something
• 18:21
  Speaker 5: called an open China Market tunicity, focusing on boosting domestic
• 18:26
  Speaker 5: demand and consumption in a sustainable way, providing deep social
• 18:31
  Speaker 5: safety net that social welfare household centric reform to unlock
• 18:36
  Speaker 5: China's consumption potential. However, according to Bloomberg, they are probably
• 18:41
  Speaker 5: still debating on doubling down on PECK and the supply
• 18:44
  Speaker 5: side in the next five year plan. So I do
• 18:47
  Speaker 5: think that's the reason of the bification of the economy,
• 18:51
  Speaker 5: a tale of two economies. Unfortunately, for a bigger part
• 18:55
  Speaker 5: of the macroeconomy, they are still stuck with deflation. So
• 18:59
  Speaker 5: volume grow fine definitely. You mentioned many people maintained or
• 19:03
  Speaker 5: upgraded their China forecast to four and a half cent
• 19:07
  Speaker 5: or higher for this year, but that's for real GDP,
• 19:10
  Speaker 5: that's for volume. Once you look at the value or
• 19:14
  Speaker 5: nominal side, we think China's normal.
• 19:16
  Speaker 1: Or GDP growth was there at the subdual level of.
• 19:19
  Speaker 5: Three and a halfvent throughout maybe the end of next year,
• 19:23
  Speaker 5: given the deflation problem and the recent the example of
• 19:26
  Speaker 5: they did some interesting introduction of self driving cars, but
• 19:30
  Speaker 5: meanwhile you see all these cut through the pricing war
• 19:34
  Speaker 5: during IV car among all these TV cut firms. So
• 19:37
  Speaker 5: that's a perfect example of the supply versus a demand
• 19:40
  Speaker 5: imbalance is quite persistent in China.
• 19:43
  Speaker 2: And just to unpack a little bit for people listening
• 19:45
  Speaker 2: to you and not always listening to the sort of economist
• 19:48
  Speaker 2: debates about this, when you talk about the rebalancing and
• 19:50
  Speaker 2: when you talk about still focus on supply and some
• 19:54
  Speaker 2: of the incentives. I mean, it's an economy that is
• 19:56
  Speaker 2: geared around an extraordinarily high level of investment many many years,
• 20:01
  Speaker 2: and much lower consumption than you see in most economies,
• 20:04
  Speaker 2: certainly advanced economies but also economies of a similar income.
• 20:08
  Speaker 2: And what you were saying, Robin, is that the local
• 20:10
  Speaker 2: government officials are incentivized still around just pushing out output
• 20:14
  Speaker 2: rather than getting income to households or providing welfare services.
• 20:19
  Speaker 2: How and then when we discussed this before the session,
• 20:22
  Speaker 2: you made the point that this was about not just
• 20:24
  Speaker 2: rebalancing the Chinese economy but also the US economy. I'm
• 20:28
  Speaker 2: not sure that's the way the US sees that, but
• 20:30
  Speaker 2: just explain that briefly to us.
• 20:32
  Speaker 6: Yeah, well, I think to rebellance, both sides has to
• 20:35
  Speaker 6: work together. I think the Chinese consume too little, invest
• 20:39
  Speaker 6: too much, and then the US is still reverse. If
• 20:42
  Speaker 6: you want to rebalance this structure, the US has to
• 20:45
  Speaker 6: produce more, consume less, and then vice versa for the Chinese.
• 20:48
  Speaker 6: I think for China is a monumental task in the
• 20:51
  Speaker 6: sense that if you look at the domestic economy just now,
• 20:54
  Speaker 6: we have mentioned about the housing bubble bursting process. Now,
• 20:57
  Speaker 6: in this process, indebted department of the Chinese economy is
• 21:01
  Speaker 6: really the household. The household is borrowed up to their eyeballs.
• 21:05
  Speaker 6: The non financial that the GDP racio is about three
• 21:07
  Speaker 6: hundred percent in China. So when you have this department
• 21:11
  Speaker 6: that is borrowing heavily to buy our properties, and then
• 21:14
  Speaker 6: now we're in a property priced inflationary process. It's very
• 21:17
  Speaker 6: difficult for this department to deleverage because this department cannot
• 21:21
  Speaker 6: print money.
• 21:22
  Speaker 1: But then on the other hand, the.
• 21:23
  Speaker 6: US is a different situation where you have the public
• 21:26
  Speaker 6: department that is boring up a lot of that, and
• 21:29
  Speaker 6: then the US households deservice racial is all it's still
• 21:32
  Speaker 6: at odd time low. In this kind of economic structure,
• 21:36
  Speaker 6: then you'll see an inflationary process. The US government can't
• 21:39
  Speaker 6: keep its budget deficit down, but then at the same
• 21:41
  Speaker 6: time you're facing higher and high inflationary pressure.
• 21:44
  Speaker 1: And then in.
• 21:45
  Speaker 6: Chinese the opposite. If you really want to rebalance, it's
• 21:48
  Speaker 6: a global rebalance process. It's not just about China. If
• 21:51
  Speaker 6: you look at China, so the way we manage our economy, right,
• 21:55
  Speaker 6: so we try to rebalance it for like decades I
• 21:58
  Speaker 6: remember still since two thousand and seven, right, so when
• 22:02
  Speaker 6: the ex covernment was in charge, there was this saying
• 22:05
  Speaker 6: about the Chinese managing Chinese economy is about it's riding
• 22:09
  Speaker 6: a bicycle, right, so if you're too fast too slow,
• 22:12
  Speaker 6: it will tep over. I think you know, if you
• 22:14
  Speaker 6: look back now, almost twenty years later, we look at
• 22:17
  Speaker 6: the Chinese economy is actually more investment driven than before
• 22:22
  Speaker 6: and less consumption, so that it is telling you that
• 22:24
  Speaker 6: whatever happened in the past two decades hasn't been successful.
• 22:28
  Speaker 6: We have to change the way of thinking for China.
• 22:31
  Speaker 6: Just rebalancing on its own it hasn't been successful. I
• 22:34
  Speaker 6: think it's a global rebalancing process.
• 22:37
  Speaker 2: I want to just have a just say something a
• 22:40
  Speaker 2: bit about not just the rebalancing of the individual US
• 22:44
  Speaker 2: and China economies, but I would say globally there's a
• 22:47
  Speaker 2: sort of rebalancing in markets that's happening. We're seeing the
• 22:51
  Speaker 2: dollar fall relative to every currency, but certainly many around here,
• 22:55
  Speaker 2: and we are seeing a reallocation of investment. People are
• 23:00
  Speaker 2: still heavily invested in the US it's hard to avoid,
• 23:03
  Speaker 2: but certainly at the margin we're seeing money flow, particularly
• 23:07
  Speaker 2: perhaps into this region. Rebecca, just tell us a little
• 23:11
  Speaker 2: bit about how you see the impact for Hong Kong
• 23:14
  Speaker 2: as a financial system, for the relative role of the
• 23:17
  Speaker 2: dollar here and investment sentiment.
• 23:20
  Speaker 4: In this part of the world, not just in Hong
• 23:22
  Speaker 4: Kong but in Asia.
• 23:23
  Speaker 3: This broader question of the role of the US dollar
• 23:26
  Speaker 3: going forward. There'll be people in this room who, over
• 23:29
  Speaker 3: the last year, whether it was trading the Taiwan currency,
• 23:32
  Speaker 3: whether it was trading the Japanese carry trade, who have
• 23:35
  Speaker 3: been on the forefront of feeling this sort of this
• 23:39
  Speaker 3: shift in the tectonic place. Essentially, there was a big
• 23:42
  Speaker 3: debate over whether or not actually we were seeing some
• 23:45
  Speaker 3: kind of reversal of the Asian financial crisis, essentially declining
• 23:49
  Speaker 3: confidence in the dollar, strengthening local currencies, and whether or
• 23:53
  Speaker 3: not that would essentially mean a massive return of capital
• 23:57
  Speaker 3: back home. Now that sort of phenomenal It hasn't really
• 24:00
  Speaker 3: started already yet in massive numbers, but certainly we are
• 24:04
  Speaker 3: already starting to see that playing out. And I think
• 24:07
  Speaker 3: for many Asian countries broadly speaking, economically, there's this question
• 24:11
  Speaker 3: of how that impacts their export driven economies that have
• 24:14
  Speaker 3: of course so relied on that currency disparity. But also
• 24:19
  Speaker 3: from a sort of financial markets point of view, there
• 24:22
  Speaker 3: will be this question of how deep and liquid home
• 24:25
  Speaker 3: markets are and their capacity to absorb back that home currency,
• 24:30
  Speaker 3: and whether if they are sort of I suppose mature enough.
• 24:33
  Speaker 4: To start to start adapting that back. But by and large,
• 24:36
  Speaker 4: there is this.
• 24:37
  Speaker 3: Potential good news story that we will see the sort
• 24:40
  Speaker 3: of reinvestment back into home currencies.
• 24:44
  Speaker 4: I took a trip to the US not so long ago.
• 24:46
  Speaker 3: I spoke to a lot of US fund managers, particularly
• 24:49
  Speaker 3: outside of New.
• 24:50
  Speaker 4: York, in places in New England and so on.
• 24:52
  Speaker 3: And what struck me that was sort of really remarkable
• 24:55
  Speaker 3: is anecdotally, although a lot of them.
• 24:57
  Speaker 4: Are persisting with their various.
• 25:00
  Speaker 3: Macro and global trades and bullish on the US, they
• 25:03
  Speaker 3: still believe in the US exceptionalism story. By and large,
• 25:05
  Speaker 3: Almost every single one of them told me that when
• 25:08
  Speaker 3: it comes to their personal investments, they were all worried
• 25:10
  Speaker 3: about overexposure to the dollar. They're all worried about thinking
• 25:14
  Speaker 3: about where else I diversify, what other currencies do we
• 25:17
  Speaker 3: go to gold? Even though it's too late, except I
• 25:19
  Speaker 3: just had this conversation come up again and again and again.
• 25:22
  Speaker 3: It's so interesting taking that into the Asian context and
• 25:25
  Speaker 3: how that resonates with traders and investors here as well.
• 25:30
  Speaker 2: Robin, you mentioned the role of Hong Kong, but do
• 25:32
  Speaker 2: you also see just a long term shift, this reversal
• 25:36
  Speaker 2: of the age of financial crisis if you like.
• 25:38
  Speaker 5: For this reason, Hong Kong benefited from three waves of inflows.
• 25:43
  Speaker 5: You mentioned about the capital flows. First the wave think
• 25:46
  Speaker 5: September last year. Part of the maker in Beijing believe
• 25:51
  Speaker 5: stock marketing is a very important and confidence vote, confidence
• 25:55
  Speaker 5: of prography. So in terms of the national team or
• 25:58
  Speaker 5: reserve management or as a sovereign worth education. Now they
• 26:02
  Speaker 5: value Hong Kong more than ever before that was a
• 26:05
  Speaker 5: stage wark more driven by government. Then after this earlier
• 26:10
  Speaker 5: this year deepsick moment, people realized that Okay, China still
• 26:13
  Speaker 5: has these innovation capabilities and due to LAXI issues, a
• 26:17
  Speaker 5: lot of big tech laans are listed in Hong Kong,
• 26:21
  Speaker 5: not in on shore China.
• 26:22
  Speaker 1: So Hong Kong.
• 26:23
  Speaker 5: Benefited from that narrative change. Okay China innovation and animal
• 26:27
  Speaker 5: spirit in tech is back. Recently the April second Deliberation
• 26:32
  Speaker 5: day and as you Stephanie and Rebeccom mentioned, people are
• 26:35
  Speaker 5: debating on the falling of US exceptionalism, weakening US dollar
• 26:42
  Speaker 5: and the third wave of influence. If not from global
• 26:46
  Speaker 5: money yet it's from Chinese offshore money. High networks individuals
• 26:53
  Speaker 5: or exporters who parked too much of their money in
• 26:56
  Speaker 5: US asses in the last five years.
• 26:58
  Speaker 1: They were too exposed to US dollar assets.
• 27:01
  Speaker 5: Now they are participating in things like Hong Kong asses
• 27:05
  Speaker 5: or Hong Kong ipo, so called the high quality. They
• 27:08
  Speaker 5: may be assets listed in Hong Kong. So Hong Kong
• 27:11
  Speaker 5: benefited from that. But the final wave, the most important one,
• 27:15
  Speaker 5: has not come yet, global money allocating to China and
• 27:19
  Speaker 5: Hong Kong. Well, China is participating in this debate on
• 27:23
  Speaker 5: week dollars. Maybe China can benefit from that, but I
• 27:26
  Speaker 5: don't think they are fully ready to seize this moment.
• 27:30
  Speaker 5: They need to improve policy transparency, They need to refleate
• 27:33
  Speaker 5: and the rebalance, try to get rid of the definition problem.
• 27:38
  Speaker 5: If Beijing can deliver this, I think they will benefit
• 27:41
  Speaker 5: much more and fully seizing this opportunity of so called
• 27:45
  Speaker 5: diversification away from US dollar. But SOFA Hong Kong money
• 27:49
  Speaker 5: is mostly Chinese money, either from Beijing or from offshore Chinese.
• 27:54
  Speaker 5: That's the way they benefit the sofa.
• 27:57
  Speaker 1: How long we'll have.
• 27:58
  Speaker 2: The last word? Do you agree with Robin that we're
• 28:00
  Speaker 2: just at the first stage of a process. That's quite
• 28:02
  Speaker 2: a few steps to go if we're going to have
• 28:04
  Speaker 2: this shift in the center of financial gravity in this direction.
• 28:08
  Speaker 6: Yeah, well, I think more likely than not, you know,
• 28:10
  Speaker 6: the US dollar will continue its depression process over the
• 28:14
  Speaker 6: next couple of years. I think a very strong US
• 28:17
  Speaker 6: dollars has been a symptom of the global imbalance. And
• 28:20
  Speaker 6: also the Chinese currency is way too weak. And I
• 28:23
  Speaker 6: think one of the reasons why the Chinese currency was
• 28:26
  Speaker 6: so weak was because firstly, we have to maintain the
• 28:30
  Speaker 6: edge in our export sector. And then at the same time,
• 28:34
  Speaker 6: I think the Chinese currency rate is more driven by
• 28:38
  Speaker 6: capital flow rather than trade flows. So I think as
• 28:41
  Speaker 6: a result in the past couple of years, usually seeing
• 28:42
  Speaker 6: the capital keep flowing out of China and going into
• 28:46
  Speaker 6: the US capital market, and also for the US dollars
• 28:49
  Speaker 6: that the Chinese export have been receiving, they have been
• 28:52
  Speaker 6: keeping it overseas to be reinvested in.
• 28:56
  Speaker 1: The US market.
• 28:57
  Speaker 6: So I think as a result you can see, you know,
• 28:59
  Speaker 6: in the past years, the Chinese currency has been weak.
• 29:02
  Speaker 6: You know, it's because of the direction of the capital
• 29:05
  Speaker 6: flow has not been favorable to the Chinese currency. But
• 29:08
  Speaker 6: now the table has turned. I think the narrative of
• 29:11
  Speaker 6: the Trump administration is making it itself hostile not only
• 29:15
  Speaker 6: to the Chinese economy, but also to the global economy
• 29:18
  Speaker 6: actually hitting hard on the airlines as well. All right,
• 29:21
  Speaker 6: So I think in this process, and also after the
• 29:24
  Speaker 6: Russian and the Ukraine War, I think people start to
• 29:27
  Speaker 6: realize that, you know, the US or the holding may
• 29:30
  Speaker 6: not be as safe as they once were, and now
• 29:33
  Speaker 6: you know, they have to thing for themselves. So I
• 29:36
  Speaker 6: think as a result, you know, we're seeing money being
• 29:39
  Speaker 6: reallocating out of the US market. Otherwise how could you explain. Right, So,
• 29:43
  Speaker 6: after a very significant risk of events on the liberation Day,
• 29:47
  Speaker 6: the US or to continue to depreciate, and I think
• 29:50
  Speaker 6: the the process could accelerate from here.
• 29:54
  Speaker 2: Well, this is making me feel a bit old talking
• 29:58
  Speaker 2: about the full circle for the age of financial crisis,
• 30:01
  Speaker 2: because my first ever trip to Hong Kong was in
• 30:03
  Speaker 2: the autumn of nineteen ninety seven with the US Treasury.
• 30:07
  Speaker 2: I just joined the US Treasury. There was the World
• 30:09
  Speaker 2: Bank meetings, and we were just getting to grips with
• 30:12
  Speaker 2: at that point the crisis in Thailand, but of course
• 30:15
  Speaker 2: it became the financial crisis. I'm not sure we're full
• 30:18
  Speaker 2: circle stance then, but we've certainly come a very long way,
• 30:21
  Speaker 2: and in this region, probably most of all. Thank you
• 30:30
  Speaker 2: very much for listening to Trumpanomics from Bloomberg. It was
• 30:33
  Speaker 2: hosted by me Stephanie Flanders. I was joined by Bloomberg's
• 30:36
  Speaker 2: Rebecca Chong Wilkins, Morgan Stanley's Robin Singh and Lotuses how Hong.
• 30:42
  Speaker 2: With special thanks to the team at Bloomberg Hong Kong
• 30:45
  Speaker 2: invest Thanks very much.