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Speaker 1: Hi everyone. Today we're gonna jump right in. We're gonna

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Speaker 1: start off the show with an interview we did with

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Speaker 1: Ali Azadi Najaf Body. He leads our research in the

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Speaker 1: Asia Pacific region. He'll tell us about the beginnings of

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Speaker 1: the recovery in China and across the region. I found

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Speaker 1: it very interesting to think that while some of these

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Speaker 1: economies are starting to recover their export economies, so they're

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Speaker 1: waiting on the rest of the world so they can

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Speaker 1: really get going. Please note that BENIF does not provide

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Speaker 1: investment or strategy advice, and you can hear a full

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Speaker 1: disclaimer at the end of the show. I'm Mark Taylor,

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Speaker 1: and you're listening to Switch on the BENIF podcast. Hi Ali,

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Speaker 1: Hi Mark, thanks for calling in. Than We just published,

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Speaker 1: like literally twenty minutes before we started this conversation a

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Speaker 1: report called wu Han Recovery in numbers, planes, trains, and automobiles.

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Speaker 1: From what we know, everything started there, but it's also

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Speaker 1: the first to go through or start recovery. Can you

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Speaker 1: tell us a bit about that. What's going on? How

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Speaker 1: is it starting the recovery? So yesterday was the official

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Speaker 1: lift off of the lockdown in Juhan. It's been seventy

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Speaker 1: six days since the original lockdown was put in place,

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Speaker 1: and we're starting to see a gradual signed that certain segments, So,

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Speaker 1: for example, passenger hicle volumes recovering not all the way

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Speaker 1: back to the levels that they were before the lockdown

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Speaker 1: was in place, but still a good sign that economic

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Speaker 1: activity is returning. At the same time, if you look

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Speaker 1: at segments like aviation, you can still see signs that

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Speaker 1: you're nowhere near being back to normal. Maybe we might

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Speaker 1: not be indepotient to comment fully on this, but does

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Speaker 1: it feel like a full recovery or does it feel

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Speaker 1: like a step start slow, dip your toe in the

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Speaker 1: water type of thing. There's two ways to look at it.

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Speaker 1: One is, of course, we can look at the statistics,

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Speaker 1: and if you look at the statistics, you can see,

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Speaker 1: for example, road congestion there's a bit of an opturn.

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Speaker 1: If you dig into it, it's quite interesting. You can

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Speaker 1: see actually, and big cities like Beijing and Shanghai, for

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Speaker 1: certain hours the congestion is even now higher levels than

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Speaker 1: it was before the whole COVID nineteen outbreak, But at

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Speaker 1: other times the congestion levels are still lower than before

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Speaker 1: COVID nineteen, what's happening is we're seeing people trying to

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Speaker 1: get back to their normal lives, so going back to work,

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Speaker 1: but they're shunning using public transport, so they're using their

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Speaker 1: cars to go over to work more often. At the

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Speaker 1: same time, they're not taking as many non essential trips

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Speaker 1: as they used to, so the traffic congestions that you

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Speaker 1: had associated, for example, for going on a road trip

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Speaker 1: during the weekend or on the holidays, that's not happening

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Speaker 1: as much. And then if you go on a personal level,

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Speaker 1: so talking to our college specifically, who are now finally

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Speaker 1: going back to the office, there's a whole process involved.

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Speaker 1: So anywhere you want to go to a major office

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Speaker 1: buildings or commercial buildings in China, usually you encounter security

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Speaker 1: court on at the beginning, where you have to scan

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Speaker 1: a QR code that says you're healthy, you have met

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Speaker 1: all the quarantine rules that the local authorities have put

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Speaker 1: in place for people who have traveled before, and you

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Speaker 1: can use that your code to enter. There's still health checks,

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Speaker 1: they monitor your temperature at many spots, and there's still

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Speaker 1: a little bit of a concern around ensuring that there

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Speaker 1: is no second wave. So this means economic activity is

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Speaker 1: going back, and then on the power sectors for China, Unfortunately,

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Speaker 1: there's no live data, so it's always monthly data and

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Speaker 1: we still don't have the data for March yet. But

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Speaker 1: from the cold consumption levels, definitely it seems like we

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Speaker 1: are more or less back to where you would expect

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Speaker 1: to be at this time of year. So the consumption

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Speaker 1: levels are fairly similar for what you would expect on

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Speaker 1: a seasonal level. On the oil side, the refinery run

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Speaker 1: rates have recovered, but the consumption levels and the price

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Speaker 1: response is still a bit lagging. Remains to be seen

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Speaker 1: if you see demand fully recovering to the same level

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Speaker 1: as before and the assembly lines. It seems the Chinese

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Speaker 1: factories are kind of the heart of every other business

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Speaker 1: that we cover in BNF. Yeah, so that's where things

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Speaker 1: get a lot more interesting and there's a lot of

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Speaker 1: push to recover them. And initially the challenge was because

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Speaker 1: you had a lot of lockdowns is still in place.

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Speaker 1: Access to labor was quite difficult. A lot of factors

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Speaker 1: rely on migrant labor workforce which have gone back to

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Speaker 1: their hometowns and it was quite challenging for them to

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Speaker 1: get back. Based on the latest indicators, we're getting close

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Speaker 1: to have everyone back. Typically after the lunar holidays, maximum

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Speaker 1: takes three weeks to get back. This year, you're now

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Speaker 1: over seventy days and we're roughly at out seventy. Do

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Speaker 1: you think that's because they're stuck in their hometowns and

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Speaker 1: not able to return to the factory city, or they're

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Speaker 1: not starting up the assembly lines yet. So on the

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Speaker 1: manufacturing side, the first challenge was once trying to implemented

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Speaker 1: the lockdown. People could not go out. Because the lockdowns

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Speaker 1: happened during the lunar New Year holiday. A lot of

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Speaker 1: the microting workers had already gone back to their hometowns

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Speaker 1: and these restrictions prevented them from coming back. Now, the

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Speaker 1: restrictions were gradually eased, but even when they were eased,

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Speaker 1: it required that if you traveled back to your place

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Speaker 1: of work, you have to actually self quarantine for two

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Speaker 1: weeks before you were allowed to enter the factory of

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Speaker 1: the office, and of course even after entering, they have

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Speaker 1: implemented some physical distancing measures to make sure that there's

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Speaker 1: no second wave, So that process has already taken place.

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Speaker 1: What's now unknown is the impact from the export markets

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Speaker 1: of China. So China, as everyone calls it, the factory

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Speaker 1: of the world. The challenge now with the downturn in Europe,

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Speaker 1: North America and now increasingly in the rest of Asia Pacific,

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Speaker 1: the concern is that what are these factors doing. And

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Speaker 1: there's already anecdotal evidence that factors are receiving cancelations of

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Speaker 1: orders that basically the customers are saying that please hold lot,

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Speaker 1: we don't need it. In some cases, you not have

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Speaker 1: other countries that have already closed their airports, but all

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Speaker 1: supports are increasingly scrutinized and restricted. So we may see

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Speaker 1: a scenario where China internally has recovered and they're managing

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Speaker 1: an outbreak, but the rest of the world is still

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Speaker 1: trying to tackle this contagion. We've already seen this play

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Speaker 1: out a little bit in a pack, So when China

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Speaker 1: implemented these measures, the rest of a pack was of

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Speaker 1: course fine, but it was already having a ripple effect

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Speaker 1: or on other countries like Japan and Korea, whose supply

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Speaker 1: chains are very much tied to China. So you had,

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Speaker 1: for example, some auto manufacturing in Korea in February having

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Speaker 1: to temporarily shut down because they couldn't get certain parts

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Speaker 1: from China. You're in Korea, here, in UK and in

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Speaker 1: the US. We kept hearing we should handle this like

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Speaker 1: South koretas is South Korea beginning a recovery effort now

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Speaker 1: and do you expect a trend of recovery around a

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Speaker 1: pack will apack first? So Korea and Taiwan they have

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Speaker 1: been very special in the sense that they never are

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Speaker 1: actually implemented any lockdown measures. So Korea mid to late

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Speaker 1: February was considered outside of China epicenter of the outbreak,

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Speaker 1: but because of the experience that Korea had had with MERGE,

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Speaker 1: they actually implemented really good measures. They tested heavily, and

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Speaker 1: they had very good usage of technology in terms of

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Speaker 1: relying on cell phone as well as applications to track

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Speaker 1: and trace that allowed them to not have to resort

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Speaker 1: into any sort of lockdown measures. The government did encourage

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Speaker 1: companies that could implement work from home measures to do that.

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Speaker 1: They also did shutdowns venues that would be involved around

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Speaker 1: gatherings of too many people, because one of the major

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Speaker 1: source of the outbreak was a religious service gathering where

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Speaker 1: you had about thousand people in a combined space and

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Speaker 1: that causes spread. But beyond that, Essentially, they did very

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Speaker 1: targeted measures and not an economy wide lockdown. But the

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Speaker 1: challenge they're having, of course, is there are another export

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Speaker 1: oriented economy and whiles in China, what happens in the

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Speaker 1: US albums in Europe heavily impacts like we're in economy.

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Speaker 1: So it seems a lot of countries in Apec are

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Speaker 1: ready to get going again, but they're waiting on the

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Speaker 1: rest of the world to kind of catch up. I

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Speaker 1: wish that was true. If you look at the situation

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Speaker 1: now in India and Southeast Asia and South Asia, that

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Speaker 1: certainly does not look like that. So you're seeing a

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Speaker 1: fragmented recovery. If anything, some countries are just at the

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Speaker 1: beginning of the outbreak. They're nowhere near the peak yet. Internally,

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Speaker 1: when we're thinking about all our forecasts, it's one of

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Speaker 1: the most challenging parts around how do you come up

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Speaker 1: with scenarios around recovery where the starting point for countries

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Speaker 1: is so different. So we may end up in a

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Speaker 1: scenario where you see some countries recover, others still struggle,

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Speaker 1: and this continues to economically impact even the countries that

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Speaker 1: have had a recovery health wise. So that was the

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Speaker 1: topic of our episode last week where we talked without

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Speaker 1: turning about how to do any sort of credible forecasting

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Speaker 1: during this time. It seems in most of a pack

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Speaker 1: based on your comments just now, that the forecasters still

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Speaker 1: being drawn very much with datted lines scenarios, which are A,

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Speaker 1: B and C scenarios. But at least in China, could

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Speaker 1: you say maybe getting a handle on what could happen,

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Speaker 1: what the recovery could look like. That dependent on the

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Speaker 1: rest of the world. Still, there's two factors for China.

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Speaker 1: One is you have to have a view around what

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Speaker 1: happens the rest of the world, given that China's economy

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Speaker 1: is export dependent. The second part of it is the

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Speaker 1: measures of China itself is implementing around stimulating the economy.

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Speaker 1: So what China has done is both the central government

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Speaker 1: as well as the local government are announcing a series

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Speaker 1: of measures. And what's interesting is we have already seen

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Speaker 1: some entities like investment banks and others rush to put

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Speaker 1: out forecast and the challenge with that approach is that

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Speaker 1: they are actually missing some big chunks of what's coming in.

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Speaker 1: For example, people already rushing saying that it's not enough

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Speaker 1: or it's going to blow certain sectors and others. There

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Speaker 1: have been already a lot of criticism, and while some

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Speaker 1: of the criticism is valid, I would also caution that

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Speaker 1: it's too premature to draw the full picture. Not only

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Speaker 1: China is in the process of announcing stimulus measures in

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Speaker 1: response to CODE nineteen, this is also the year that

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Speaker 1: China is finalizing the fourteen five year plan. And one

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Speaker 1: advantage that China has over many other countries is that

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Speaker 1: because in their last five year plans they had identified

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Speaker 1: some key sectors that they wanted to invest in, they

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Speaker 1: have a lot of shovel ready projects to go, and

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Speaker 1: those shovel ready projects they can reshuffle those based on

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Speaker 1: what has happened in COVID nineteen. Now, the downside to

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Speaker 1: that is it does mean the hope that many had

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Speaker 1: that like maybe China will do it massive green stimulus

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Speaker 1: similar to what happened in the aftermath of the global

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Speaker 1: financial crisis. It may very well be that this time

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Speaker 1: he won't be as green as people would like it,

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Speaker 1: because they would prioritize the economic recovery. At the same time,

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Speaker 1: I think it's still too early to judge what's going

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Speaker 1: to happen in China. Well, we'll be checking in to

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Speaker 1: hear more about what's going on in China and the

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Speaker 1: rest of a pack. Ali, thanks for joining us, Thanks

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