Speaker 1: Joining us for some live discussion. Is Steven Angel, Bloomberg's
Speaker 1: chief North Asia TV corresponded, It's a pity we're not
Speaker 1: here to talk about Nancy Pelosi because I wanted to
Speaker 1: ask you the question of whether or not, Well, you
Speaker 1: don't know yet because she hasn't, um, you know, she
Speaker 1: hasn't actually made the decision yet to go to Taiwan
Speaker 1: or not. But the question would have been, is Nancy
Speaker 1: Pelosi in the process of inadvertently handing China a big win?
Speaker 1: We're not meant to be talking about that. We're meant
Speaker 1: to talk about now. Let's let's talk about China Everground,
Speaker 1: because there will be another time once we know what
Speaker 1: happens with Pelosi. Strip I don't know, just teasing it,
Speaker 1: teasing it. Yeah, but ever Ground, Okay, this is a
Speaker 1: big story. So they didn't come through with this preliminary restructuring,
Speaker 1: which I think a lot of people doubted was coming anyway. Um,
Speaker 1: but what's the significance of it or asset sales as
Speaker 1: part of, of course, what would likely be China's largest
Speaker 1: ever debt restructuring, you know, three hundred billion dollars in liabilities,
Speaker 1: twenty billion dollars in dollar bonds among those total liabilities. Uh.
Speaker 1: And the sheer size of every grand's death has left
Speaker 1: obviously global investors worried that any collapse, if I'm going
Speaker 1: to use the C word, could spark financial contagion and
Speaker 1: curb you know, growth. You know, we we have those
Speaker 1: p m I numbers that look pretty bad on the
Speaker 1: manufacturing front. We know, of course the COVID zero has
Speaker 1: a dampening effect on growth in the first half of
Speaker 1: this year. Uh. We we have to watch this. This
Speaker 1: is not just dollar bond holders not getting their coupons paid.
Speaker 1: This is potential systemic risk to banks and other parts
Speaker 1: of the economy. But yeah, I think we've spoken to
Speaker 1: someone in this Bloomberg story saying the whole pyramid is
Speaker 1: collapsing now. So things really kind of worse than they
Speaker 1: were even a year ago. Steve, I don't want to
Speaker 1: call the Chinese economy a pyramid, but I get where
Speaker 1: you're going there. Um, there's there's a big problem because
Speaker 1: the there's no other sector of the Chinese economy that
Speaker 1: has as large as of an exposure to the property
Speaker 1: sector than drumroll, please, banking seven point seven trillion dollars.
Speaker 1: I think it was the last count five point eight
Speaker 1: trillion US dollars and outstanding mortgages in the banking system
Speaker 1: in China, and another one point nine trillion dollars of
Speaker 1: loans to those developers. So there, if there's a contagion
Speaker 1: through the property sector with ever Grand at the top
Speaker 1: of that pyramid going down into the banks, SMP and
Speaker 1: Deutsche Bank, among others are saying that there could be
Speaker 1: between six and a half to seven percent of those
Speaker 1: outstanding mortgages at risk, and that's gonna be a big
Speaker 1: problem obviously for the Bank's tricky to see how the
Speaker 1: contagion would work in China, given that the banking sector
Speaker 1: is essentially a state backed banking sector. That's the key. Yeah,
Speaker 1: And and the government obviously could print money and step
Speaker 1: and step in. But one definite sidebar to this is
Speaker 1: the reverse wealth effect, because people in the past in China,
Speaker 1: over the past say fifteen years, have been buying real
Speaker 1: estate and seeing their wealth expand, and now it's going
Speaker 1: the other direction, and so they're spending less. Absolutely, look
Speaker 1: in the last twenty years or so, and I lived
Speaker 1: in China and lived in Beijing, and I owned a
Speaker 1: property there as well. There was a one way bet
Speaker 1: essentially in property, and they've never really seen a big crash. Yes,
Speaker 1: the property market in China has, you know, peaks and valleys,
Speaker 1: it always does, and they reined in and there's policy,
Speaker 1: but again, this has been a pretty much of one
Speaker 1: way bet. It's unbelievable some of the wealth creation by
Speaker 1: property from property. But all things come to an end.
Speaker 1: And this you know, you alluded to implicit guarantees from
Speaker 1: the government on on banks and deposits and this and that,
Speaker 1: but there has not been a lot of guarantees for
Speaker 1: homeowners and and and and uh and the developers who
Speaker 1: are overly indebted. And so that's why there's a lot
Speaker 1: of concern about the developers. I think. Heading towards the
Speaker 1: Party congress, though, you're gonna see more policies that are
Speaker 1: going to be backing these mortgage holders who are now
Speaker 1: boycotting because at the end of the day, they do
Speaker 1: not want social unrest tied to this. Let's talk about
Speaker 1: that and what kind of further stimulus we could see
Speaker 1: announced too, because as you mentioned a couple of moments ago,
Speaker 1: we did see weakness coming through once again in the
Speaker 1: China economy in terms of factory activity unexpectedly contracting, and
Speaker 1: all of this not voting very well when we're looking
Speaker 1: to the latter part of the year and very far
Speaker 1: away from these growth targets that they kind of ditched
Speaker 1: last week. Anyway. Yeah, p m I Manufacturing p m
Speaker 1: I as we've just been reporting forty nine. We were
Speaker 1: expecting fifty point three. So that's thirteen basis points essentially
Speaker 1: away from the consensus. That's a lot. So it's in contraction.
Speaker 1: And we only had one blip upwards in June after
Speaker 1: Shanghai came back into the into the fold. It was
Speaker 1: not long lasting. As Bloomberg Economics says, this is an
Speaker 1: abrupt loss of momentum, and the data was grim across
Speaker 1: the board. Pretty you know there their hot takes on
Speaker 1: Bloomberg Economics is pretty grim for sure for the Chinese
Speaker 1: ec of me, what's working the best at the moment
Speaker 1: in China, because there's so many areas where we can
Speaker 1: see fault lines, but yet the country is still growing,
Speaker 1: The economy is still it's still growing. Yeah, it fits
Speaker 1: and starts. Obviously, there's been some you know, of course,
Speaker 1: the property sector, and you have these mortgage boycotts seen
Speaker 1: in more than nineties cities across China. You do also
Speaker 1: have uh various COVID outbreaks and lockdowns. Wuhan was locked
Speaker 1: down again. So but as far as the strength, you
Speaker 1: have to look over at the non manufacturing pm I
Speaker 1: held up pretty well fifty three point eight. That services
Speaker 1: which have come back boy in, I think it was
Speaker 1: April it was down to forty one. Because Shanghai is
Speaker 1: a services based economy really right with manufacturing on the periphery.
Speaker 1: But construction is part of that services non manufacturing p
Speaker 1: m I. So you've seen pick up in construction as
Speaker 1: the government has been encouraging uh these developers at all
Speaker 1: costs get these unfinished apartments completed so people will not revolt.
Speaker 1: As Dave a quick question on what we're hearing in
Speaker 1: Hong Kong as well. I mean, you just got out
Speaker 1: of quarantine. Maybe if you'd waited a couple more months,
Speaker 1: that could have been shorter. Yeah, I don't think my
Speaker 1: boss would give me a couple more months of vacation.
Speaker 1: I think I did my seven days and and you know,
Speaker 1: after the fifth day, you're ready to get out, and
Speaker 1: you've been tested ten times through five days, right, uh
Speaker 1: rap tests rapid engine tests and also the PCRs, so
Speaker 1: you pretty much know you're standing after five days. So
Speaker 1: I'm in all not surprisingly I'm in support of a
Speaker 1: five day quarantine in the hotel. Well, I'm actually zero,
Speaker 1: I'm in supportive. Yeah. The chief executive John Lee told
Speaker 1: the Hong Kong Economic Journal that that they would be
Speaker 1: announcing this very shortly, that they would be cutting the
Speaker 1: required days of hotel quarantine, but he said that they're
Speaker 1: looking at different data to decide on the exact number
Speaker 1: of days to cut. Have you heard anything about that,
Speaker 1: and and also whether or not it's mainland China or
Speaker 1: foreign countries that are affected. First, yeah, I think they're
Speaker 1: going to have a different arrangement for mainland China. Um.
Speaker 1: But as far as the data, they're looking at every
Speaker 1: possible granular data that they have to determine if there
Speaker 1: is a risk of letting people out of hotel quarantine
Speaker 1: with these latest variants, whether it pops up a lot sooner.
Speaker 1: So they'll make the decision, at least publicly, they will
Speaker 1: say this based on their the most readily available data
Speaker 1: that they have right now, up to date data. Okay,
Speaker 1: we will at some point in the near future talk
Speaker 1: about Nancy Pelosi and her trip to Asia, So I'll
Speaker 1: save that for, you know, another another hour. Thanks for
Speaker 1: Steve Stephen Ingol or TV correspondent, This is Bloomberg