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Speaker 1: Let's get to our guest, Becky Leeu, who stead of

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Speaker 1: China macro Strategy at Standard Chartered Bank. Becky, the market

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Speaker 1: seemed to be taking this Pelosi trip to Taiwan mostly

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Speaker 1: in stride why from the markets perspective, park market would

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Speaker 1: still priced as a UH an event that might not

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Speaker 1: be tickering major military conflict and UH But from the

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Speaker 1: medium to long term perspective, we feel that the rising

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Speaker 1: geopolitical tension in the Taiwan's chat will be something influencing

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Speaker 1: both the China and Taiwan local markets, including the currencies

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Speaker 1: as well as the interest rate environment. But at this stage,

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Speaker 1: I think markets expectation is that China's reaction were mostly

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Speaker 1: confined with some um signaling actions instead of something really

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Speaker 1: hurting their economy. And therefore, at this stage we feel

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Speaker 1: the market reaction has so far been still relatively moud,

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Speaker 1: but we just need to be concerned about the medium

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Speaker 1: to long term implicate sations. You mentioned the currency moves

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Speaker 1: and it could be just more flow on through than

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Speaker 1: what we see on the Taiwan dollar to I mean,

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Speaker 1: we're looking at this potential visit buffering the one to

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Speaker 1: how are you viewing the Chinese current theory action. Well,

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Speaker 1: at this stage, if we just look at the c

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Speaker 1: N wise reaction, it has been still relatively modest, and

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Speaker 1: the c Y strength has indeed been driven by primarily

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Speaker 1: it's fundamentals, i e. The very strong current account steps

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Speaker 1: which has just hit a record high in the first

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Speaker 1: quarter of this year, or the trade balance which is

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Speaker 1: a all time high in the first half of this year,

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Speaker 1: or rising fifty nine percent from the same period of

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Speaker 1: last year. So from the markets perspective, it's promis it's

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Speaker 1: still primarily reflecting the underlying cross border flows that's supporting

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Speaker 1: the CRY. But on the other hand, we also need

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Speaker 1: to recognize that UM in the second half of this year,

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Speaker 1: the from an expectation prospective market could become less concerned

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Speaker 1: about the UM as well. We are talking about a

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Speaker 1: economic divergence in the second half of this year, with

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Speaker 1: China growth likely rebounding while many other economies might be moderating,

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Speaker 1: and we are already seeing signs for a turning around

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Speaker 1: of the capital outflows UM, and we are also talking

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Speaker 1: about likely continued strong chase the plus partly because of

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Speaker 1: the zero COVID policy that has been curving China's outflows

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Speaker 1: so specting yours yours is a slightly optimistic view. Then

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Speaker 1: for China at least in the second half, What about

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Speaker 1: some of the other countries, So from which we've seen

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Speaker 1: weakening p M eyes and weakening data, are you expecting,

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Speaker 1: for instance, in Europe and the United States to see

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Speaker 1: recovery in the second half UM. I think at this moment,

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Speaker 1: market consensus is for the developed market growth to be

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Speaker 1: moderating slightly, And to be honest, when we look at

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Speaker 1: the labor market situation or local demand, it does look

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Speaker 1: like the developed markets are economic situation at least as

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Speaker 1: of today, it's still fairly strong. So on the contrary,

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Speaker 1: if you look at China, we are talking about a

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Speaker 1: bottoming out because the second quarter GDP was so low

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Speaker 1: at only point four percent, and domestic demand was very

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Speaker 1: very weak. For example, if you look at catering tourism,

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Speaker 1: it's more than twenty percent from a year ago, and

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Speaker 1: in the last two years on average they're down by

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Speaker 1: some twenty five percent from the pre COVID level. So

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Speaker 1: we are talking about a recovery from a very very

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Speaker 1: low level. But the direction appeared to be changing, led

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Speaker 1: by infrastructure investments, and we saw of course, that manufacturing

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Speaker 1: data not great yesterday in terms of the p m I,

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Speaker 1: and still a lot of concerns about the property sector

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Speaker 1: to home sales extending that plunge in China, evergrand failing

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Speaker 1: to unveil that long promised restructuring framework. How much of

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Speaker 1: a concern all these headwinds and the COVID zero policy

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Speaker 1: for China's growth. We are still expecting a gray recovery

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Speaker 1: in the second half, but we also acknowledge that this

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Speaker 1: round of the growth recovery will likely to be slower

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Speaker 1: than the second half of due to two reasons. One

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Speaker 1: is the long lasting COVID impact as resurgens become more

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Speaker 1: and more frequent, and second is, as you correctly pointed out,

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Speaker 1: the real estate sector, which will still likely to see

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Speaker 1: more pressure ahead. However, we are also seeing some of

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Speaker 1: the bright spots in the p m I s over

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Speaker 1: all week data. For example, the construction pm I has

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Speaker 1: been rising and the current level is quite close to sixty,

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Speaker 1: indicating a pretty quick um expansion of infrastructure investment activities.

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Speaker 1: At the same time, we are also seeing some signs

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Speaker 1: that the top authorities are meeting um closer to a

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Speaker 1: bolder step in terms in terms of stepping up their

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Speaker 1: support to the real estate sector. Indeed, so we saw

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Speaker 1: that from the polar Buro meeting, and sorry, Becky, we

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Speaker 1: saw that from the polar Burero meeting. With the market

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Speaker 1: seems to be interpreting this is too weak. They don't

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Speaker 1: believe that enough help is is getting out there. I mean,

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Speaker 1: the policymakers asked the banks to help support the developers,

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Speaker 1: the troubled developers, uh, and they certainly want to see

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Speaker 1: a lot of the incomplete projects get completed. But it

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Speaker 1: doesn't seem to impress the market because you know, July

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Speaker 1: was a very very tough month for risk assets in China. Indeed,

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Speaker 1: so market has been disappointed for too long, and to

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Speaker 1: be honest, a lot of the earlier rollbacks of their

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Speaker 1: previous tightening did not really tackle the real issue. While

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Speaker 1: we are getting slightly less concerned at the stage, is

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Speaker 1: that we view that the authorities are finally tackling the

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Speaker 1: right issues, which are strengthening the refinancing abilities across the

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Speaker 1: Chinese developers as well as to show our investor's confidence. So,

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Speaker 1: following the mortgage boycott event, we have already seen a

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Speaker 1: number of those projects restarting construction, and we are seeing

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Speaker 1: more intensified support across various local governments in order to

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Speaker 1: ensure that the refinancing ability of key developers remain okay.

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Speaker 1: So we are expecting the real estate sector to remain weak,

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Speaker 1: but we are likely to be very close to a

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Speaker 1: turning point. Becky, I wanted to talk to you about

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Speaker 1: your point on the revival of Hong Kong's dim Sum

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Speaker 1: bond market and what that's showing you. The revival of

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Speaker 1: the Hong Kong dem Sam bond market reflects two issues

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Speaker 1: in our view. The first one is there's indeed some

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Speaker 1: progress in the German b internationalization after the war, and

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Speaker 1: second it reflects um a reversing interest rate situation between

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Speaker 1: onshore and offshore. So following the start of the southbound

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Speaker 1: bond connect late last year, the onshore investors, including onshore

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Speaker 1: banks and other financial institutions become a lot easier to

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Speaker 1: directly tap and invest in the offshore bar market, including

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Speaker 1: the entire dim Sam bard market. So with offshore yields

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Speaker 1: now being quite a bit higher than on shore yields,

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Speaker 1: we are seeing an increased demand from local investors into

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Speaker 1: the Hong Kong market to buy the dim sum bonds.

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Speaker 1: So these UM stands across all the top tier UM

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Speaker 1: high quality names, including for example, short data government bonds,

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Speaker 1: short data PBOC bills, short dated CDs issued by major

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Speaker 1: Chinese banks and so on. So this is more of

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Speaker 1: a reflection of a more connected capital market between the

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Speaker 1: mainland and Hong Kong. Okay, what about Hong Kong's future

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Speaker 1: as a financial hub in Asia? UH, does the government

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Speaker 1: need to make some wholesale changes to the quarantine policy.

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Speaker 1: I think Hong Kong is indeed planning to make some

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Speaker 1: change to its quarantine port policy, and we are of

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Speaker 1: the view that Hong Kong were likely to further relax.

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Speaker 1: There's policy in the forestable future UM. But as for

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Speaker 1: Hong Kong's um UH stands as an international financial center,

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Speaker 1: we are also seeing some further progress, partly also reflecting

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Speaker 1: a more connected capital market between the mainland and Hong Kong. Alright, Becky,

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Speaker 1: thank you so much. Becky Lou is head of China

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Speaker 1: macro Strategy at Standard Chartered Bank. And this is Bloomberg