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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Welcome to the Bloomberg Daybreak Asia podcast. I'm Dan Schwartzman.

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Speaker 2: We're just hours away from the August first tariff deadline

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Speaker 2: imposed by US President Donald Trump. We'll have more on

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Speaker 2: trade in a moment, plus a look at the Chinese

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Speaker 2: property sector. Later on, we'll bring you Doug Prisner's conversation

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Speaker 2: with Adriel Chan, chair of Hang Lung Properties. President Trump

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Speaker 2: will keep minimum global tariff rates at ten percent, according

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Speaker 2: to a White House statement Thursday. Meantime, it appears that

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Speaker 2: the US and Canada have not reached a trade agreement.

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Speaker 2: The White House says the terifate on Canada has now

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Speaker 2: been increased from twenty five to thirty five percent. Thailand

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Speaker 2: and Cambodi have received a nineteen percent tariff rate, while

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Speaker 2: Taiwan's was set at twenty. Switzerland was a standout the

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Speaker 2: rate of thirty nine percent. For a closer look, we

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Speaker 2: heard from Jenny Gordon, non resident fellow the Loewe Institute.

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Speaker 2: She spoke with Bloomberg's Sherry on In Heidi Stroud Watts

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Speaker 2: on the Asua trade.

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Speaker 3: Jenny, really great to have you with us, particularly at

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Speaker 3: a time where the news and the tariff news continues

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Speaker 3: to move at such a frenetic pace. We're still sort

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Speaker 3: of a few hours out from the official deadline, of course,

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Speaker 3: But has anything surprised you about the numbers that we've seen,

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Speaker 3: and also the fact that, you know, obviously for maximum

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Speaker 3: leverage or negotiating pressure, this is pushed to the eleventh hour. Industry,

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Speaker 3: logistics exporters and importers, not a whole lot of time

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Speaker 3: to be able to prepare for these scenarios.

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Speaker 4: No, no's that's definitely the case. And I think the

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Speaker 4: other problem is that nobody's clear that August first and

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Speaker 4: all these numbers will be the final round. You know,

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Speaker 4: Trumps could well ask for more at some other point

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Speaker 4: in time, and I suspect probably will, so I guess

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Speaker 4: there's that lack of certainty is a real concern for

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Speaker 4: most countries. I think the one that really surprised me

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Speaker 4: was thirty nine on Switzerland. I had thought they might

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Speaker 4: get kind of treated like the rest of Europe, but

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Speaker 4: that one was a surprise. The fact that it's fairly

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Speaker 4: common nineteen percent across Indonesia and Malaysia and many of

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Speaker 4: the other countries in Southeast Asia. I suspect is you know,

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Speaker 4: that's a common tariff, the high tariff on Lao and Cambodia.

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Speaker 4: There's very little trade and most of it is in

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Speaker 4: consumer goods. I think that's probably reflecting concerns about transshipment

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Speaker 4: and the ability to control transhipment from China, so it

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Speaker 4: might reflect that. But none of this is good. None

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Speaker 4: of this is good for the globe, nor actually for

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Speaker 4: the US consumer. And I think one of the big

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Speaker 4: things is the US imports a lot of inputs and

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Speaker 4: so costs are going to rise, even in non traded industries.

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Speaker 4: So you know, it's going to get more expensive to

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Speaker 4: set up a new business or a new factory in

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Speaker 4: the United States as a result of these tariffs on

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Speaker 4: the inputs as well as on the final goods.

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Speaker 3: It's interesting because as you say, none of this is good.

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Speaker 3: Obviously ten percent tariff is better than a forty percent tariff,

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Speaker 3: and on that it's interesting. Australia isn't even on this

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Speaker 3: annex that we can see at the moment, so not

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Speaker 3: quite clear what the tariff is on the likes of

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Speaker 3: Australia for now. But do you think that there is

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Speaker 3: a level of complacency. Certainly that we've seen in financial

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Speaker 3: markets that well, these are you know, levels and tariff

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Speaker 3: rates that were better than expected and so therefore somehow

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Speaker 3: more palatable.

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Speaker 4: Well it's funny, isn't it, Because as you go from

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Speaker 4: almost zero tariffs to ten, fifteen, twenty, you know, thirty

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Speaker 4: five percent, you're kind of saying, oh, thank goodness, I

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Speaker 4: don't have thirty five percent. I've only got fifteen percent.

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Speaker 4: And so you know, it's kind of interesting because really

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Speaker 4: the baseline was close to zero in most cases, and

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Speaker 4: so this this is a massive cost impost and you know,

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Speaker 4: you could almost think if you had one single uniform tariff,

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Speaker 4: then it would be largely a revenue raising exercise and

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Speaker 4: it would almost be like putting a value added tax

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Speaker 4: on the American consumer. And that'd be one way to

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Speaker 4: think about it. But this is creating different opportunities for

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Speaker 4: different countries because of different tariff rates. The actual rates

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Speaker 4: don't actually reflect very closely what those countries export to

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Speaker 4: the United States. So there doesn't seem to be an

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Speaker 4: overwhelming strategy of you know, countries that export mainly inputs

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Speaker 4: into production face lower tariffs and countries export final goods.

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Speaker 4: So there seems to be I can't quite work out

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Speaker 4: the rhymal logic to all of this, right, and I

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Speaker 4: don't know stock markets have woken up to it either.

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Speaker 1: I'm trying to get through this annex and I'm not

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Speaker 1: sure if I'm reading this correctly. But is Brazil's tariffy

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Speaker 1: a ten now? Because then President Trump just threatened fifty

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Speaker 1: percent tariffs and in fact he was ready to impose them,

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Speaker 1: and he had linked some of that animosity with Brazil

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Speaker 1: and President Lula to political reasons around the former president

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Speaker 1: Bilsonaro as well. Right now, I'm seeing the annex, and

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Speaker 1: as we're trying to digest his new tariff rates, Brazil

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Speaker 1: is now back a ten percent. Jenny. When he comes

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Speaker 1: to linking geopolitical issues with economic sanctions like tariffs, has

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Speaker 1: President Trump changed the pleabook?

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Speaker 4: Now? Well, I think the US has always used financial

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Speaker 4: sanctions for geopolitical purposes, and so they've tended to use

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Speaker 4: that rather than tariffs. And part of that was because,

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Speaker 4: you know, really they'd been part of this global commitment

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Speaker 4: to bring tariffs down across the world, and the only

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Speaker 4: sort of potential upside of Trump's threatening tariffs was to

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Speaker 4: help other countries who were struggling politically to bring down

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Speaker 4: their tariffs to do so in exchange for lower tariffs.

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Speaker 4: But I think this has moved the US into entirely

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Speaker 4: new territory. And this is why I don't think we

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Speaker 4: feel like we've seen the end of tariffs and that

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Speaker 4: this final set of numbers is the one that will

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Speaker 4: go ahead, because Trump has changed the way he uses tariffs,

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Speaker 4: and that just increases the uncertainty in the global economy,

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Speaker 4: and if you're trying to get investment going, that's the

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Speaker 4: last thing you want his uncertainty. Investors need certainty. And

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Speaker 4: so even though he's extracted promises of large amounts of

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Speaker 4: extra investment into the United States, that faces some real

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Speaker 4: barriers to go ahead, because one, you've got a shortage

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Speaker 4: of construction workers anyway in the United States, so constructing

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Speaker 4: new manufacturing plants is going to take time. And two,

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Speaker 4: it's just that you're not sure what that tariff ruling

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Speaker 4: is going to be. And if you know, the Trump

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Speaker 4: administration gets annoyed at a particular leader in a country

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Speaker 4: or a particular country for doing something, then they might

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Speaker 4: just sort of say, oh, we're going to raise your

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Speaker 4: tariff again. So it just completely undermines the certainty that's

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Speaker 4: needed for investment around world.

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Speaker 1: And Jenny, we're also seeing that the White House is

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Speaker 1: really emphasizing the transship goods. So if there are any

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Speaker 1: ways to try to evade the thirty five percent tariff,

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Speaker 1: I think it's talking about Canada that there will be

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Speaker 1: subject to transhipment tariffs of forty percent. And that has

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Speaker 1: been a key issue right because we have seen other

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Speaker 1: countries like China, for example, trying to send goods through

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Speaker 1: Southeast Asian countries. How meaningful is it that this administration

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Speaker 1: is cracking down on transhipments.

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Speaker 4: Well, I think that actually makes you know, more difficult

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Speaker 4: for China's strategy is to how does it bring down

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Speaker 4: you know, just the stretcham shipment is you just you know,

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Speaker 4: stick it in a container and take it to somewhere

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Speaker 4: and relabel it and ship it off. But the bigger

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Speaker 4: issue is all the componentory. That is where you've got

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Speaker 4: the integrated supply chain problem, where countries, particularly in Asia,

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Speaker 4: import a lot of components, add value to them and

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Speaker 4: may ship it back to China and then gets shipped

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Speaker 4: back again. The complexity of supply chains is enormous, and

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Speaker 4: so what Asian countries are looking to do is almost

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Speaker 4: have dual supply chains, so that they'll have one set

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Speaker 4: of supply chains that try to keep Chinese content out

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Speaker 4: in order to ship to the US, and then they'll

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Speaker 4: have another set of supply chains that use Chinese content

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Speaker 4: because of the price advantages of it. And so that's

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Speaker 4: I think from what I'm here from Asian colleagues, is

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Speaker 4: what they're trying to kind of work towards. And it

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Speaker 4: adds costs, so it just is less efficient than the

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Speaker 4: character and which means the prices of everything go up.

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Speaker 2: That was Jenny Gordon, non Resident fellow at the Lower Institute,

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Speaker 2: speaking to Bloomberg. Sherry On and Heidi Shroud wants coming

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Speaker 2: up a conversation with Adrial Chen Chaff Hang Lung Properties

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Speaker 2: here on the Daybreak Asia podcast.

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Speaker 5: Welcome back to the Daybreak Asia Podcast. I'm Doug Krisner.

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Speaker 5: Let's turn our attention now to the property markets in

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Speaker 5: both Hong Kong and on the Chinese mainland. Joining me

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Speaker 5: is the chairman of Hong Long Properties, Adrial Chan. Adrill

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Speaker 5: joins us from our studios in Hong Kong. Good of

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Speaker 5: you to make time to chat with me. I want

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Speaker 5: to bring up a source subject right out of the gate.

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Speaker 5: I'm sorry because I noted that net income for your

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Speaker 5: company was down fourteen percent year over year in the

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Speaker 5: latest period. Can you give me a sense of what's happening,

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Speaker 5: what you're struggling with right now?

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Speaker 6: Thanks Doug. The decrease in net income really is as

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Speaker 6: a result of a lower number of sales of apartments,

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Speaker 6: and that is something that fluctuates for us. The primary

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Speaker 6: sector of our business is retail leasing and office leasing.

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Speaker 6: So commercial leasing is actually down low single digits, which

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Speaker 6: is a lot less bad than being down fourteen percent,

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Speaker 6: but that's the explanation for that. If you look into

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Speaker 6: retail and offices, retail has been actually surprisingly resilient in

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Speaker 6: the mainland. I think our share price has reacted relatively

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Speaker 6: well since the announcement of our results, and that was

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Speaker 6: a little bit of a surprise to me, honestly, But

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Speaker 6: I think that the market was perhaps expecting worse. So

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Speaker 6: we're down retail sales low single digits, but I think

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Speaker 6: people were probably expecting worse than that.

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Speaker 5: So give me a sense of what your portfolio looks like.

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Speaker 5: When you talk about retail spaces, I think shopping malls

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Speaker 5: are you catering to retailers that perhaps service the higher

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Speaker 5: end of the market. Are these luxury type retailers primarily?

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Speaker 5: Absolutely so.

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Speaker 6: Our biggest exposure is to the luxury brands, and as

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Speaker 6: we've been seeing over the past couple of days, the

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Speaker 6: luxury brands have been posting let's say, mixed results. Asia

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Speaker 6: extrapan is sort of broadly flat ish, while Japan is

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Speaker 6: down significantly, and that kind of I think is what

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Speaker 6: explains our reasonable performance. A lot less Chinese outbound tourism

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Speaker 6: to Japan for shopping and staying on shore to do

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Speaker 6: that shopping. So that's one of the macro trends that

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Speaker 6: we've seen. I don't know if that's because of all

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Speaker 6: this rumors about earthquakes and this and that, but for

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Speaker 6: various reasons, the Chinese consumers seem to be staying put

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Speaker 6: on shore.

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Speaker 5: So when you cater to that segment of the real

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Speaker 5: estate market, those higher end retailers, do they have expectations

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Speaker 5: about certain upgrades or modifications that the landlord in your

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Speaker 5: case has to provide them, And does that kind of

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Speaker 5: draw down or maybe force you to do a little

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Speaker 5: bit of cap X.

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Speaker 6: Oh, it certainly does. So you know, in terms of

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Speaker 6: luxury moles, this sector in the mainland of China has

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Speaker 6: only been around for maybe twenty years or so, twenty

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Speaker 6: twenty five years, and so if you think about the

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Speaker 6: life time of a mall, that's kind of the time

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Speaker 6: that you need to definitely start looking into capex upgrades.

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Speaker 6: We've done quite a few. We've done three upgrades in

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Speaker 6: three of our separate malls across the mainland. They've been

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Speaker 6: well received. I think now in terms of the market cycles,

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Speaker 6: it's a relative down market, it's probably a good time

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Speaker 6: to be investing in oneself. That being said, because we're

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Speaker 6: in a down market, the tenants have pricing power. It's

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Speaker 6: a buyer's market for our tenants, and so we have

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Speaker 6: to make sure that we're on the ball in terms

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Speaker 6: of how those capex upgrades go and our ability to

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Speaker 6: deliver on operations and service.

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Speaker 5: Okay, let's change gears talk a little bit about the

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Speaker 5: commercial office space and the return to work. What is

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Speaker 5: that situation right now and how is it impacting your business?

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Speaker 6: So the return to work phenomenon is more important here

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Speaker 6: in Hong Kong, less important in the mainland of China

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Speaker 6: because in main and China they never really worked from

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Speaker 6: home except for during certain lockdowns here in China. What

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Speaker 6: we're hearing actually just over the past couple of weeks

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Speaker 6: has been that some of the big banks are asking

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Speaker 6: their staff to come back to the office. And you know,

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Speaker 6: there's the vacancies in central Hong Kong have been pretty high.

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Speaker 6: There's been a lot of new supply, but there's been

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Speaker 6: a lot of pressure on both occupancies and rents, and

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Speaker 6: I think that this request for people to come back

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Speaker 6: into the office is going to help with both of those.

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Speaker 6: I don't know if it can take up all of

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Speaker 6: the slack, but certainly it'll help.

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Speaker 5: I have to ask you about high technology. There's been

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Speaker 5: so much focus right now in the market around artificial intelligence.

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Speaker 5: Are you tempted to do a little bit in the

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Speaker 5: data center end of things?

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Speaker 6: You know, we looked at the data center end of

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Speaker 6: things probably ten years ago. At the time, we felt

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Speaker 6: like maybe we were even late to the game. In hindsight,

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Speaker 6: we probably weren't. So yes, we are tempted, if you may,

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Speaker 6: to look at that. But we've made this, We've basically

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Speaker 6: made the decision that that's not our business model. It's

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Speaker 6: real estate, but everything else about it is very different

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Speaker 6: from the location to operations, the capex required.

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Speaker 5: What about your act sss to capital these days? Are

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Speaker 5: you having difficulty or is it not a problem for

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Speaker 5: a company such as yours.

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Speaker 6: It's a little bit polarized. So we have a very

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Speaker 6: good access to capital. We just raised ten billion Hong

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Speaker 6: Kong dollars earlier this year, and you know that was

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Speaker 6: We did that at a very favorable rate as well,

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Speaker 6: you know, because we're a high quality and because people

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Speaker 6: trust us because they see our financials in the very

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Speaker 6: sound But definitely it's a polarized market and if you're

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Speaker 6: not in my camp, then it could be a very

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Speaker 6: difficult time to raise money right now.

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Speaker 5: So you do business obviously, both on the mainland and

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Speaker 5: in Hong Kong. Talk to me a little bit about

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Speaker 5: what happens when you're dealing with two different currencies, the

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Speaker 5: Hong Kong dollar on one hand and the Chinese you

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Speaker 5: on on the other.

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Speaker 6: I mean, it's it's like any other company that has

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Speaker 6: exposure to multiple currencies. We experienced a depreciation of the

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Speaker 6: R and B over the past half year, so our

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Speaker 6: numbers from mainland China are about one point four percent lower.

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Speaker 6: In reported currency, which is Hong Kong dollars, and you know,

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Speaker 6: thankfully the fluctuations haven't been too big, but when they

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Speaker 6: come around, you know, we do have to make sure

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Speaker 6: that we're on top of that in terms of currency

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Speaker 6: swaps and the way that we borrow, where we finance

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Speaker 6: in mainland China versus offshore, so on, so forth.

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Speaker 5: So when you're dealing with let's call it a soft

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Speaker 5: market in relative terms, are you inspired maybe to expand

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Speaker 5: at this time or do you have any expansion plans?

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Speaker 6: You know, we just announced one partnership in hang Jo,

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Speaker 6: which is the final city in which we have yet

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Speaker 6: to open our mall. And by expansion in partnership, what

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Speaker 6: I mean is we've agreed to rent the neighboring plot

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Speaker 6: to our shopping mall that we're building ourselves. So we

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Speaker 6: have our own asset, which is the main asset, and

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Speaker 6: we've rented the neighboring plot in which we will extend

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Speaker 6: our footprint, and that sort of represents our commitment to

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Speaker 6: the market, our conviction in the market as well. Honzo

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Speaker 6: is a super strong market in me and then China.

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Speaker 6: I think it's probably the hottest right now.

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Speaker 5: Because of tech.

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Speaker 6: But also because of commercial.

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Speaker 5: Are there areas of the market that you're curious about

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Speaker 5: that you might begin to test And I'm thinking of

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Speaker 5: gaming being one industry. Does that interest you at all?

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Speaker 6: I am always looking at different sub sectors of the market.

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Speaker 6: Gaming financially is great, it's just not our bread and butter, though.

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Speaker 6: It's something that we have agreed many years to stay

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Speaker 6: away from despite the financial returns, and so that's in particular,

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Speaker 6: it's not something that we're looking at. However, I think

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Speaker 6: it behooves us to make sure that we're looking at

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Speaker 6: all the opportunities in the market.

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Speaker 5: Adriel, we'll leave it there, Thank you so very much.

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Speaker 5: He is Adriel Chan, the chairman of Hong Long Properties,

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Speaker 5: joining us from Hong Kong here on the Daybreak Asia Podcast.

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Speaker 5: Thanks for listening to today's episode of the Bloomberg Daybreak

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Speaker 5: Asia Edition podcast. Each weekday, we look at the story

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Speaker 5: shaping markets, finance, and geopolitics in the Asia Pacific. You

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Speaker 5: can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel,

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Speaker 5: or anywhere else you listen. Join us again tomorrow for

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Speaker 5: insight on the market moves from Hong Kong to Singapore

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Speaker 5: and Australia. I'm Doug Chrisner, and this is Bloomberg