WEBVTT - Trade War Begins With Tariffs Set to Slam China 0:00:02.520 --> 0:00:06.199 You're listening to Asia Centric from Bloomberg Intelligence, the podcast 0:00:06.240 --> 0:00:09.480 that explores the big ideas and trends moving money across 0:00:09.480 --> 0:00:12.880 the region. I'm Katy Dmitrieva here in Hong Kong, and I'm. 0:00:12.800 --> 0:00:16.400 John Lee on assignment in Seoul, South Korea. Katya, the 0:00:16.480 --> 0:00:18.120 trade war is finally upon us. 0:00:18.480 --> 0:00:21.040 Yes, it feels like it's been a long time coming, 0:00:21.120 --> 0:00:25.119 but it has finally happened. It's kicked off. We're recording 0:00:25.120 --> 0:00:27.520 this on February fourth. We should know it for our 0:00:27.560 --> 0:00:30.720 dear listeners, because a lot could happen between now and 0:00:30.760 --> 0:00:33.479 when the episode airs. But as of right now, what 0:00:33.560 --> 0:00:37.479 we know is that Mexico and Canada, two of America's 0:00:37.560 --> 0:00:41.040 largest trading partners, have managed to escape tariffs, at least 0:00:41.040 --> 0:00:44.320 they're on hold for now. And as for China, well 0:00:44.440 --> 0:00:46.720 that's where the trade war is actually kicking off. The 0:00:46.880 --> 0:00:50.280 US has imposed ten percent tariffs on China across the board, 0:00:50.560 --> 0:00:51.880 and China has fought back. 0:00:52.400 --> 0:00:55.600 Everything's still in a flux at the moment, lots of uncertainties, 0:00:56.040 --> 0:00:58.520 but what we do know is that the world's two 0:00:58.600 --> 0:01:01.959 largest economies, in US and China, are in a trade war, 0:01:02.360 --> 0:01:05.800 and that has huge ramifications for the whole global trade. 0:01:06.240 --> 0:01:06.520 Yeah. 0:01:06.560 --> 0:01:09.720 Absolutely, and I can't think of a better time to 0:01:09.760 --> 0:01:11.959 have our guest here today to walk us through all 0:01:11.959 --> 0:01:15.680 this and definitely what it means for Asia as a whole. 0:01:16.120 --> 0:01:19.520 Joining us today is Helen Chow. She's the chief economist 0:01:19.520 --> 0:01:22.440 for Greater China Bank of America. Welcome to the show, Helen. 0:01:22.760 --> 0:01:24.800 Nice meeting you all. 0:01:24.840 --> 0:01:27.679 Helen. I wanted to start with the topic of the day. 0:01:27.840 --> 0:01:30.600 We're going to be talking a lot about China, but 0:01:31.160 --> 0:01:34.080 tariff specifically. So we know that the deadline passed, We've 0:01:34.120 --> 0:01:37.840 now got ten percent tariffs on Chinese goods. China's retaliated 0:01:37.920 --> 0:01:41.120 as well, So what's going to be the impact. 0:01:42.440 --> 0:01:45.360 Well, I would say, first of all, the start of 0:01:45.400 --> 0:01:50.160 this tariff imposition overnight was probably nothing too surprising. It 0:01:50.200 --> 0:01:53.880 was well telegraphed so that actually people were largely expecting it. 0:01:54.360 --> 0:01:57.080 So I would say also the second thing is that 0:01:57.120 --> 0:01:59.360 this is not the first time that China is seeing 0:01:59.520 --> 0:02:02.440 the the tariffs of being imposed on Chinese imports into 0:02:02.480 --> 0:02:05.360 the US, mainly because that if you look at what 0:02:05.520 --> 0:02:08.680 has been imposed back in twenty eighteen and then later 0:02:08.720 --> 0:02:12.200 in twenty nineteen, most of those tariffs actually remained in place. 0:02:12.639 --> 0:02:15.239 So in other words, we are seeing just on top 0:02:15.280 --> 0:02:19.200 of an existing set of on average about twenty percent 0:02:19.280 --> 0:02:22.280 of the tariffs on the Chinese products being imported into 0:02:22.280 --> 0:02:26.799 the US, we're seeing a blanket edition of about another 0:02:26.840 --> 0:02:29.480 ten percent on top of that. So this is actually 0:02:29.480 --> 0:02:32.200 what we see an escalation of what is already in place, 0:02:32.480 --> 0:02:36.680 rather than a completely introduction of something new. That said, 0:02:36.800 --> 0:02:39.000 I would say that still going to hurt the Chinese 0:02:39.000 --> 0:02:42.320 economy even with the expectation, even with the fact that 0:02:42.400 --> 0:02:46.480 this is not completely new, we are expecting the overall 0:02:46.600 --> 0:02:50.320 growth to be hurt, probably more visibly starting from a 0:02:50.360 --> 0:02:51.079 second quarter. 0:02:51.360 --> 0:02:53.840 How much do you think we are. 0:02:53.720 --> 0:02:58.040 Expecting that in sequential terms, potentially removing as much as 0:02:58.120 --> 0:03:01.480 more than two percent points Q and Q analyzed terms, 0:03:01.680 --> 0:03:04.920 so in year terms it's probably much less. So, you know, 0:03:05.360 --> 0:03:08.960 moving the GDP growth from five percent as of you know, 0:03:09.040 --> 0:03:11.880 last year or the last quarter five point four percent 0:03:12.240 --> 0:03:15.280 to maybe in first quarter now, I think the risks 0:03:15.280 --> 0:03:19.360 are increasingly higher that we're seeing the possible negative impact 0:03:19.400 --> 0:03:22.720 maybe in Q one already hurting the numbers, and we 0:03:22.760 --> 0:03:25.320 could see this number coming below five percent for the 0:03:25.360 --> 0:03:28.040 first quarter and for the second quarter, I think the 0:03:28.120 --> 0:03:30.280 risks are that we can see it going a little 0:03:30.280 --> 0:03:33.200 bit bigger over time. In Q three and Q four, 0:03:33.240 --> 0:03:35.920 I think it could probably look a bit better when 0:03:36.400 --> 0:03:40.160 Chinese exports find alternative routes to send the products, probably 0:03:40.320 --> 0:03:43.280 you know, without being counted as Chinese director exports to 0:03:43.360 --> 0:03:46.320 the US, or they can figure out some exemptions, and 0:03:46.400 --> 0:03:49.000 therefore I think the impact on growth might be a 0:03:49.040 --> 0:03:52.320 little bit less. And secondly, also because of the potential 0:03:52.440 --> 0:03:55.800 Chinese policy easing measures that they're going to introduce that 0:03:55.960 --> 0:03:58.960 is also going to help offset the headwinds coming from 0:03:59.040 --> 0:04:01.640 export side. So for those reasons, I think that Q 0:04:01.720 --> 0:04:03.800 three and the Q four will look better and the 0:04:03.920 --> 0:04:07.200 risks are still probably I was say, relatively balanced on 0:04:07.240 --> 0:04:10.600 either side around our GDP growth forecast this year at 0:04:10.600 --> 0:04:11.600 four point five percent. 0:04:12.040 --> 0:04:14.200 I want to let John ask another question. I know 0:04:14.720 --> 0:04:17.360 something you wanted to ask, but just given your answer 0:04:17.440 --> 0:04:20.440 just now, I wonder if you can just quantify for 0:04:20.600 --> 0:04:24.279 listeners how big of a deal this is. At the beginning, 0:04:24.400 --> 0:04:28.080 you know that it was ten percent tariffs, much lower 0:04:28.080 --> 0:04:31.279 than the sixty percent promise during the campaign trail, and 0:04:31.400 --> 0:04:34.600 China retaliated, but not to the degree that the US 0:04:34.640 --> 0:04:37.040 has imposed heariffs, So like, how do you quantify this? 0:04:37.160 --> 0:04:40.120 Maybe on a scale of like one to ten. How 0:04:40.120 --> 0:04:41.400 should we be thinking about this? 0:04:42.520 --> 0:04:46.560 Well, great question. I do recall that many of our clients, 0:04:46.640 --> 0:04:49.719 many of our colleagues, have been asking about how about 0:04:49.760 --> 0:04:53.279 sixty percent up front? Right? That probably was seen as 0:04:53.320 --> 0:04:57.560 one of the you know, very likely but worse scenario 0:04:57.760 --> 0:05:01.039 compared to what we currently see. I would remind everyone 0:05:01.080 --> 0:05:04.560 that not only there was this potential scenario where there 0:05:04.880 --> 0:05:07.480 could be a sixty percent up front, there was also 0:05:07.560 --> 0:05:11.280 this mentioning during the campaign rally that President Trump back 0:05:11.320 --> 0:05:15.839 then also mentioned one hundred percent on Chinese products, And therefore, 0:05:16.320 --> 0:05:19.279 I would like to remind everyone then maybe compared to 0:05:19.320 --> 0:05:23.120 one hundred percent, ten percent is indeed a very small 0:05:23.200 --> 0:05:28.440 amount of teriff punishment. But the problem is two things. 0:05:28.520 --> 0:05:32.719 Number one is that the tariffs on Chinese products, probably one, 0:05:32.760 --> 0:05:37.120 compared to those on the Mexican and Canadian imports, tend 0:05:37.200 --> 0:05:41.120 to be more permanent, which means if they are introduced, 0:05:41.160 --> 0:05:44.520 they probably will not be taken away. In other words, 0:05:44.600 --> 0:05:47.719 you know, if you look at the Mexico and also 0:05:47.760 --> 0:05:50.120 the Canadian twenty five percent, it was set out to 0:05:50.120 --> 0:05:53.720 be higher. However, it was avoided basically a few hours 0:05:53.720 --> 0:05:57.520 before it is going into action, and even if that 0:05:57.680 --> 0:06:01.400 goes into action, it probably wouldn't stay very long, mainly 0:06:01.440 --> 0:06:03.840 also because of the fact that this would hurt the 0:06:03.960 --> 0:06:07.120 US economy and especially on the consumer side a bit 0:06:07.160 --> 0:06:11.000 more visibly. But for China, I think now that ten percent, 0:06:12.000 --> 0:06:14.400 you know, while it does not necessarily look like as 0:06:14.400 --> 0:06:16.880 bad as one hundred percent, I think it has the 0:06:16.960 --> 0:06:21.120 potential challenge that here it also implies that it is 0:06:21.200 --> 0:06:24.560 going to stay on top of those existing twenty and 0:06:24.720 --> 0:06:28.040 therefore will end up with thirty, so that is definitely 0:06:28.080 --> 0:06:32.159 more hurtful. And secondly, I would say beyond these headline numbers, 0:06:32.200 --> 0:06:34.839 I think we also need to see into the details. 0:06:34.880 --> 0:06:37.719 For example, you know, on China, what happens to the 0:06:37.760 --> 0:06:41.400 exemptions of the previous you know tariffs that a lot 0:06:41.440 --> 0:06:44.080 of the products, the producers of those products have been 0:06:44.120 --> 0:06:48.679 applying and actually got waived of those tariffs temporarily many 0:06:48.680 --> 0:06:51.960 of them were expiring and we probably are about to 0:06:52.040 --> 0:06:55.560 expire in twenty twenty five. So whether those exemptions can 0:06:55.560 --> 0:06:59.200 be granted were extended I think could also be something 0:06:59.279 --> 0:07:01.719 to explore, which we do not know at the answer 0:07:01.760 --> 0:07:05.080 to number three. I think also, you know, the role 0:07:05.200 --> 0:07:10.680 on the small package, especially the TERRAFF waiver policies in 0:07:10.720 --> 0:07:14.080 the past on those small packages I think now have 0:07:14.160 --> 0:07:17.880 been revoked. So does it mean that these you know, 0:07:18.000 --> 0:07:21.960 small packages would have a completely different way of reporting 0:07:21.960 --> 0:07:24.720 to the customs? Are they going to buy the ten 0:07:24.760 --> 0:07:27.880 percent or are they going by the ten percent plus? 0:07:28.240 --> 0:07:31.160 You know, some average consumer goods are subject to about 0:07:31.200 --> 0:07:33.480 four percent of terraffs, so is that going to be 0:07:33.520 --> 0:07:36.960 on average fourteen percent? We still do not know. There 0:07:36.960 --> 0:07:39.560 are too many things right now. As you said, many 0:07:39.560 --> 0:07:41.920 things are still developing, and you know, it's hard to 0:07:41.960 --> 0:07:44.960 tell how it would be exercise. But so far, I 0:07:45.000 --> 0:07:47.840 think we have already found that in almost every single 0:07:47.880 --> 0:07:49.480 dimension there are many things that. 0:07:49.360 --> 0:07:50.040 We do not know. 0:07:51.440 --> 0:07:55.200 Asia Centric is produced by Bloomberg Intelligence, where more than 0:07:55.200 --> 0:07:59.120 five hundred experienced analysts and strategists work around the clock 0:07:59.160 --> 0:08:03.000 to bring you timely, world class research. Our coverage spans 0:08:03.040 --> 0:08:07.600 two hundred market industries, currencies, commodities and industries, as well 0:08:07.640 --> 0:08:10.760 as over two thousand equities and credits. If you like 0:08:10.800 --> 0:08:12.960 what you hear, don't forget to subscribe and. 0:08:12.960 --> 0:08:17.400 Chair Helen, you mentioned that the China's economy is likely 0:08:17.480 --> 0:08:19.880 to fall to some like four point five percent this 0:08:20.040 --> 0:08:23.640 year from five percent last year. How will these tariffs 0:08:23.680 --> 0:08:28.120 impact the different sectors which will be hurt the most well? 0:08:28.840 --> 0:08:32.160 When we are having this forecast on GP we do 0:08:32.240 --> 0:08:36.600 not specifically make by industry forecast or by sector, but 0:08:36.720 --> 0:08:40.679 we would imagine that this year the external sectors will 0:08:40.720 --> 0:08:44.360 probably be hurt more compared to the more domestic oriented 0:08:44.440 --> 0:08:49.280 ones because we are expecting such uncertainty around the tariffs, 0:08:49.480 --> 0:08:54.240 especially coming from the US, could potentially derail this external 0:08:54.280 --> 0:08:57.320 sector recovery that we saw from last year. A lot 0:08:57.360 --> 0:08:59.920 of those sectors in the in last year were actually 0:09:00.160 --> 0:09:03.400 I think benefiting from the fact that while domestic demand 0:09:03.520 --> 0:09:07.280 has been quite weak and the PPI has been staying 0:09:07.280 --> 0:09:11.000 in the deflationary territory and therefore their causes relatively low, 0:09:11.960 --> 0:09:15.360 what they have seen is rather robust demand coming from 0:09:15.360 --> 0:09:18.640 the US and elsewhere. I would say that for those 0:09:18.720 --> 0:09:21.680 that rely particularly on the US demand, I think the 0:09:21.800 --> 0:09:24.520 challenges that this year whether they would be able to 0:09:24.640 --> 0:09:27.880 go through twenty twenty five, especially against a very high 0:09:27.880 --> 0:09:31.280 base in twenty twenty four, when many of those US 0:09:31.360 --> 0:09:35.480 importers probably frontloaded there in their orders and try to 0:09:35.640 --> 0:09:38.760 take more inventory. At that point, they should have already 0:09:38.840 --> 0:09:43.600 thought about twenty twenty five when such peak demand goes over, 0:09:43.800 --> 0:09:47.000 and they probably need to prepare for some period of 0:09:47.120 --> 0:09:51.480 quietness or think about trade diversion. So that, I think 0:09:51.559 --> 0:09:54.240 is the most important thing that we are actually putting 0:09:54.240 --> 0:09:58.720 in our forecast without explicitly giving let's say a sector 0:09:59.440 --> 0:10:04.040 growth or production activity growth forecast. Second, I would also 0:10:04.160 --> 0:10:07.720 mention that while the external sectors, you know, for those 0:10:07.880 --> 0:10:10.440 that are actually more reliant on US demand seems to 0:10:10.480 --> 0:10:15.280 be more under pressure last year, China's export rebound was 0:10:15.320 --> 0:10:18.439 not completely based on just the US. If you look 0:10:18.480 --> 0:10:21.720 at what we have published, we actually were saying that 0:10:21.960 --> 0:10:24.360 last year a lot of the demand that came from 0:10:24.520 --> 0:10:31.680 the global South rather than global North. We basically put Japan, US, Europe, 0:10:32.120 --> 0:10:35.720 and also Australia and Canada together and look at China's 0:10:35.760 --> 0:10:39.400 exports and we found that for these destinations export growth 0:10:39.480 --> 0:10:42.520 have held up reasonably well, but they did not jump up. 0:10:42.800 --> 0:10:46.600 What has jumped up and overtaken their large share from 0:10:46.640 --> 0:10:49.680 the past was actually the global South. If we look 0:10:49.720 --> 0:10:53.920 at you know, Latin America, Africa, Asian countries thousand countries 0:10:53.960 --> 0:10:58.880 are becoming very important nowadays, as well as Russia, India 0:10:58.960 --> 0:11:01.560 and the Middle East countries as well as the Eastern 0:11:01.559 --> 0:11:05.000 European countries. We also saw a lot of the exports 0:11:05.000 --> 0:11:07.840 going there. I think that is partly related to the 0:11:07.920 --> 0:11:11.480 Chinese companies going overseas them so that I think could 0:11:11.520 --> 0:11:14.800 be more sustainable coming back. And you know, looking at 0:11:15.080 --> 0:11:18.360 the tariff impact, I would say that we probably cannot 0:11:18.400 --> 0:11:21.120 be just putting everything into one block and say that 0:11:21.320 --> 0:11:24.240 external sector is going to face a very tough time. 0:11:24.640 --> 0:11:28.320 I think depending on the destination market, if it is 0:11:28.360 --> 0:11:30.840 the US and primarily the US, I think that this 0:11:31.000 --> 0:11:34.440 is probably the time that we need to see some diversion. 0:11:34.800 --> 0:11:38.400 But otherwise I think that for the Global South, I 0:11:38.440 --> 0:11:42.480 think those exportsers are probably still going to do well. Meanwhile, 0:11:42.720 --> 0:11:45.760 if we look at the domestic economy, those that are 0:11:46.000 --> 0:11:49.160 you know, more reliant on the domestic demand. For example, 0:11:49.440 --> 0:11:51.560 you know a lot of people were saying that the 0:11:51.600 --> 0:11:55.440 consumer subsidies in China are finally coming and in the 0:11:55.440 --> 0:11:58.559 first three days of the Chinese New Year, we actually 0:11:58.600 --> 0:12:01.280 saw the data from t MAOL saying that they have 0:12:01.360 --> 0:12:05.000 seen these cell phone sales going through the roof growing 0:12:05.040 --> 0:12:07.840 by more than fifty percent, you know, year on year 0:12:07.920 --> 0:12:09.880 compared to the first or three days of the last 0:12:09.920 --> 0:12:12.920 Golden Week holidays around Lunar New Year in twenty twenty four. 0:12:13.640 --> 0:12:17.000 And this is probably because that there was this subsidy 0:12:17.360 --> 0:12:20.000 by as much as fifteen twenty percent from the local 0:12:20.040 --> 0:12:22.200 governments that if you buy a cell phone, then you 0:12:22.240 --> 0:12:25.960 can be subsidized, and that I think could probably be 0:12:26.120 --> 0:12:28.439 you know, some of the spotlight areas that we should 0:12:28.480 --> 0:12:31.960 be looking out for this year within Chinese economy to 0:12:32.040 --> 0:12:35.480 see that when policy comes out to help offset the 0:12:35.480 --> 0:12:39.360 pain from the tariffs impact, which sectors could potentially do better. 0:12:39.559 --> 0:12:41.560 Is there a limit to that though, like in terms 0:12:41.600 --> 0:12:45.000 of the stimulus that China can do, like what level 0:12:45.040 --> 0:12:48.120 of tariffs I guess or economic pain would kind of 0:12:48.640 --> 0:12:52.439 cross that threshold to where Chinese officials, you know, are 0:12:52.520 --> 0:12:55.920 kind of stuck. They can't necessarily give more of these 0:12:56.080 --> 0:13:01.000 incentives to consumers or change the mortgage rates or whatever 0:13:01.080 --> 0:13:03.920 other subsidies or stimulus they have. 0:13:04.679 --> 0:13:08.760 So Kadia compared to twenties eighteen twenty nineteen, China probably 0:13:08.840 --> 0:13:12.480 has less. I would a levers to pull given that, 0:13:12.760 --> 0:13:16.160 you know, the domesa demand is less robust, you know, 0:13:16.240 --> 0:13:19.600 and then the room for easing on both physical and 0:13:19.720 --> 0:13:24.120 monetary policy fronts seems to be more limited right now. However, 0:13:24.280 --> 0:13:26.760 I wouldn't necessarily say that we are going to run 0:13:26.800 --> 0:13:29.560 into a constraint in any time in the near future. 0:13:29.920 --> 0:13:33.480 For example, on the monetary side, we're expecting potential tripleard 0:13:33.600 --> 0:13:37.080 cuts as well as interest rate cuts. We're expecting as 0:13:37.160 --> 0:13:40.000 much as forty basic points of seven day reverse report 0:13:40.080 --> 0:13:40.960 rate cuts this year. 0:13:41.080 --> 0:13:44.120 And what is that, just for listeners who aren't familiar. 0:13:45.040 --> 0:13:48.280 That is the policy interest rate in China. It's comparable 0:13:48.320 --> 0:13:51.360 to the federal funds deposit rate. The federal fund rate 0:13:51.440 --> 0:13:55.000 cuts in the US would generally be seen to be 0:13:55.080 --> 0:13:58.400 conducive to more accommodative financial conditions, and so is the 0:13:58.440 --> 0:14:02.280 rate cut in China. Policy rate cut lowers the cost 0:14:02.600 --> 0:14:06.600 potentially for the borrowing in the interbank market, so that 0:14:06.840 --> 0:14:10.120 actually it could be seen as being helpful to ultimately 0:14:10.160 --> 0:14:13.520 reducing the borring cost for households as well as corporate 0:14:13.679 --> 0:14:17.040 And if they cut it by let's say twenty basis 0:14:17.080 --> 0:14:21.120 points each time, and we have probably at least twice 0:14:21.160 --> 0:14:24.520 as much of twice of such cuts. Going forward, I 0:14:24.520 --> 0:14:27.520 think we could potentially see a boost to boast the 0:14:27.560 --> 0:14:30.640 investment as well as a consumer demand at the same time. 0:14:31.040 --> 0:14:34.080 Physical deficit is another area where China can do more 0:14:34.120 --> 0:14:38.040 of well. You know, of course, not all the deficit 0:14:38.160 --> 0:14:40.680 will be put onto the consumer subsidies that we just 0:14:40.800 --> 0:14:45.440 mentioned on home appliances, cell phones, paths, or cars. I 0:14:45.480 --> 0:14:47.800 think that a lot of that has also been put 0:14:47.840 --> 0:14:52.720 into infrastructure investment, et cetera. So physical deficit that we're 0:14:52.800 --> 0:14:55.560 expecting this year to grow from three percent last year 0:14:55.600 --> 0:14:59.440 to three point five percent for economy that is growing 0:14:59.520 --> 0:15:02.880 with a sub substantially you know, at a level that 0:15:03.000 --> 0:15:06.360 is substantially lower than its long term potential. I would 0:15:06.400 --> 0:15:10.000 say that China has been perhaps almost too disciplined on 0:15:10.080 --> 0:15:14.120 the physical side, that they have not really borrowed as 0:15:14.200 --> 0:15:17.120 much as they could, and they have kept the central 0:15:17.120 --> 0:15:20.600 government's budget at a pretty conservative level with a deficit 0:15:20.720 --> 0:15:24.560 running at only about three percent. We definitely see the 0:15:24.640 --> 0:15:26.720 upset to it, and we think they can increase it 0:15:26.760 --> 0:15:28.560 to at least at three point five this year, if 0:15:28.600 --> 0:15:32.080 not higher. And could that be helpful well, depending on 0:15:32.080 --> 0:15:34.640 how they use it, And there are many other, you know, 0:15:35.280 --> 0:15:37.920 I would say potential policy tools that they can use 0:15:38.080 --> 0:15:41.040 beyond the monetary policy and those physical deficits that we 0:15:41.160 --> 0:15:44.680 just mentioned to relax the equidity conditions of the local 0:15:44.720 --> 0:15:48.560 governments and potentially allow them to pay back their debt 0:15:48.760 --> 0:15:52.800 to local companies as well as pay employees and the 0:15:53.040 --> 0:15:55.880 boost to reboot the local economy. So we think that 0:15:55.920 --> 0:15:58.240 there is quite a lot more that they can do. 0:15:58.720 --> 0:16:00.800 But this is not all all for the sake of 0:16:01.000 --> 0:16:04.240 offsetting the impact from the tariffs. I think that Chinese 0:16:04.240 --> 0:16:08.200 domesad economy is in a state that requires and the 0:16:08.200 --> 0:16:11.920 warrants more policy eating, so that they definitely should do more. 0:16:12.600 --> 0:16:15.040 Helen. It feels like we've been talking about this issue 0:16:15.080 --> 0:16:18.720 for a number of years now a week domestic economy 0:16:18.760 --> 0:16:21.600 in China. Now, a lot of global investors have been 0:16:21.640 --> 0:16:25.440 anticipating like almost like a big bang in terms of stimulus. Now, 0:16:25.480 --> 0:16:27.840 all these stimulus measures that you just mentioned, do you 0:16:27.880 --> 0:16:31.360 think there'll be enough to appease or satisfying. 0:16:30.760 --> 0:16:35.400 Investors, Well, it's a jo I think that's a little 0:16:35.400 --> 0:16:38.359 bit hard to guess. How much is the institutional investors 0:16:38.560 --> 0:16:41.520 expecting and you know by when the market will be 0:16:41.520 --> 0:16:45.440 saying Oh, that's good enough. Clearly that China is not 0:16:45.680 --> 0:16:49.920 delivering something like a Basuoka package that many probably have 0:16:50.040 --> 0:16:53.320 been hoping for. For example, many were in the past 0:16:53.600 --> 0:16:56.960 probably two years, have been hoping for China to deliver something, 0:16:57.240 --> 0:17:00.280 you know, along the lines of giving helicopter dropping ash 0:17:00.360 --> 0:17:02.880 to everyone, so that you know, like what the US 0:17:02.880 --> 0:17:06.640 did to the American household, writing the blank checks, so 0:17:06.680 --> 0:17:09.520 that you can actually get an immediate boost to consumer 0:17:09.680 --> 0:17:13.840 demand right away. That I think has pretty much been 0:17:13.880 --> 0:17:17.080 seen as being very unlikely by now. But you can 0:17:17.119 --> 0:17:20.120 see that there are alternative measures that have been adopted 0:17:20.440 --> 0:17:24.280 that are actually designed to do something similar. For example, 0:17:24.520 --> 0:17:27.640 the subsidy program, right the consumer product trade in So 0:17:27.760 --> 0:17:31.320 this treateding program started last year and then it covers 0:17:31.359 --> 0:17:35.680 from cars to home appliance and also now to technology products. 0:17:35.720 --> 0:17:37.120 Pretty successful, right. 0:17:37.960 --> 0:17:40.800 I think so. Even some of your colleagues over here 0:17:40.840 --> 0:17:42.920 told me that she bought quite a lot using the 0:17:42.960 --> 0:17:45.880 subsidies because she was getting married, so I trust her. 0:17:46.240 --> 0:17:49.720 I wasn't able to use it, but I have heard 0:17:49.800 --> 0:17:52.320 a lot of people saying that that has been pretty 0:17:52.320 --> 0:17:56.199 effective because they probably were still hesitating in terms of 0:17:56.359 --> 0:17:58.560 if they should buy a new one or they stay 0:17:58.640 --> 0:18:02.320 put with the existing gear. But then this really gives 0:18:02.320 --> 0:18:05.320 them the push to say that okay, let me frontload 0:18:05.359 --> 0:18:08.320 the person decision and let me get it done. So 0:18:08.359 --> 0:18:10.800 I think that those turn out to be pretty effective, 0:18:11.000 --> 0:18:14.040 and according to the Ministry of Commerce, it has really 0:18:14.040 --> 0:18:17.520 boosted retail sales quite substantially, especially in the second half 0:18:17.560 --> 0:18:21.480 of last year. But I would say would that be enough. 0:18:21.840 --> 0:18:25.879 Probably not, especially not only from a market perspective to 0:18:25.920 --> 0:18:29.720 make all the investors happy, which tend to be more transient. 0:18:30.080 --> 0:18:32.400 I think it's more important to see if we are 0:18:32.480 --> 0:18:36.560 seeing all these boosts to the economy to ultimately deliver 0:18:36.720 --> 0:18:40.560 the productivity growth that we were looking for, the technology 0:18:40.640 --> 0:18:44.440 progress that we were hoping to see, so that ultimately 0:18:44.480 --> 0:18:47.920 we can see more sustainable growth down the road. That's 0:18:48.040 --> 0:18:50.879 actually where we mentioned that we need to see probably 0:18:50.920 --> 0:18:54.119 more than just a consumer subsidy program, more than the 0:18:54.119 --> 0:18:57.720 physical deficit expansion, and not just the interest rate and 0:18:57.800 --> 0:19:01.480 trip our cuts. Beyond that, we need to see that 0:19:01.800 --> 0:19:06.159 actually if there could be some measures being taken to 0:19:06.200 --> 0:19:10.040 promote the positive incentives in our view, in the system 0:19:10.400 --> 0:19:15.200 so as to allow people to work towards their individual 0:19:15.200 --> 0:19:18.879 goals more efficiently. When we mentioned that, I think a 0:19:18.880 --> 0:19:21.080 lot of people were saying, what kind of positive incentives 0:19:21.119 --> 0:19:24.120 are you talking about? Well, what we mean is it's 0:19:24.160 --> 0:19:27.600 not just about these headline you know, physical and monetary 0:19:27.600 --> 0:19:31.439 policy measures, but instead we hope to see that for 0:19:31.800 --> 0:19:36.760 governmental officials, for SOE managers, as well as private individuals, 0:19:37.119 --> 0:19:40.960 business owners and households. We hope to see more upside 0:19:41.119 --> 0:19:45.680 so that they could potentially work harder and more willingly 0:19:45.760 --> 0:19:49.399 take risks, and therefore we could see a stronger economy 0:19:49.720 --> 0:19:52.800 when the investment demand comes back. That I think is 0:19:52.840 --> 0:19:56.320 probably more crucial then let's say a fifty basic points 0:19:56.359 --> 0:19:58.040 of a physical deficiting expansion. 0:19:59.000 --> 0:20:02.320 What do you think is about this time around between 0:20:02.680 --> 0:20:06.440 monetary policy? Like, I know you had mentioned the potential 0:20:06.560 --> 0:20:09.920 for more essentially interest rate cuts in the years ahead, 0:20:10.160 --> 0:20:12.639 the sort of counterbalance as impact of tariffs, But doesn't 0:20:12.640 --> 0:20:14.320 that risk the currency? Like, how do you think the 0:20:14.359 --> 0:20:17.560 government is thinking about that balance? Well? 0:20:18.640 --> 0:20:21.280 I do think that the government is probably trying to 0:20:21.320 --> 0:20:25.000 stabilize the exchange rate as much as possible. I think 0:20:25.040 --> 0:20:28.159 there are easy options at this point. Right if China 0:20:28.200 --> 0:20:31.840 has seen this tariff increase, it could potentially relax the 0:20:31.880 --> 0:20:35.000 controls on effects and let the women be depreciate. But 0:20:35.480 --> 0:20:38.400 so far we do not necessarily see a lot of 0:20:38.400 --> 0:20:42.760 this being used as a weaponry basically by the PBOC 0:20:43.200 --> 0:20:46.000 to offset the pain from the tariffs. I think this 0:20:46.160 --> 0:20:49.360 is probably due to the going concerns. Number one, the 0:20:49.400 --> 0:20:53.479 effects of depreciation is probably easy to implement. However, you 0:20:53.480 --> 0:20:56.480 know that probably raised a question to your other trading 0:20:56.520 --> 0:20:59.040 partners that what are you trying to do here? 0:20:59.200 --> 0:20:59.400 Right? 0:20:59.680 --> 0:21:02.040 You know, nobody wants to see a bigger side neighbor 0:21:02.080 --> 0:21:06.959 type of situation with a competitive exchangeerate depreciations. And at 0:21:07.000 --> 0:21:10.480 the same time, I would say that the depreciation may 0:21:10.520 --> 0:21:14.520 not necessarily send the right signal to people holding the 0:21:14.680 --> 0:21:18.960 one assets or REMAMBI assets on shore were offshore, because 0:21:19.280 --> 0:21:22.640 nobody wants to hold on to a currency that is depreciating. 0:21:23.000 --> 0:21:23.119 Uh. 0:21:23.200 --> 0:21:26.240 And it seemed to be continue to be this depreciating 0:21:26.240 --> 0:21:30.359 over time, and therefore it may trigger more capital outflows 0:21:30.680 --> 0:21:34.120 uh And therefore you know, kind of increasing the pressure 0:21:34.160 --> 0:21:37.199 on the effects. So I don't necessarily think that the 0:21:37.359 --> 0:21:40.520 exchange rate approach, well, let's say depreciation would be an 0:21:40.720 --> 0:21:45.560 easy and efficient approach to really address the domestic issues 0:21:45.600 --> 0:21:48.560 over here, and that is why in our view that 0:21:49.040 --> 0:21:52.160 the Chinese government probably so far has been refraining using 0:21:52.200 --> 0:21:55.760 that as the most important tool to address the growth 0:21:55.800 --> 0:21:59.800 concerns well going forward, Whether they would continue to hold 0:21:59.800 --> 0:22:02.679 on to the current level in USDC and white terms, 0:22:02.720 --> 0:22:05.040 we're not so sure because that also depends on what 0:22:05.119 --> 0:22:05.879 the dollar does. 0:22:06.000 --> 0:22:06.200 Right. 0:22:06.440 --> 0:22:10.720 If the dollar actually substantially appreciates against other currencies, I think, 0:22:10.880 --> 0:22:13.200 you know, then if the PBOC looks at the c 0:22:13.359 --> 0:22:16.679 FATS and they consider the nominal effective exchange rate, they 0:22:16.760 --> 0:22:19.600 might need to do something different. But at the moment, 0:22:19.640 --> 0:22:23.480 if we're seeing a relatively stable dollar index, I think 0:22:23.520 --> 0:22:27.560 that we could potentially see the central bank probably being 0:22:27.640 --> 0:22:30.880 willing to hold on to a relatively stable exchange rate 0:22:31.080 --> 0:22:34.239 level and at the same time probably use more a 0:22:34.240 --> 0:22:38.360 combination of quannotative as well as price based approach domestically 0:22:38.400 --> 0:22:42.399