1 00:00:00,120 --> 00:00:10,440 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 2 00:00:10,520 --> 00:00:13,720 Speaker 1: Daybreak Asia podcast. I'm Doug Krisner. You can join Brian 3 00:00:13,800 --> 00:00:16,640 Speaker 1: Curtis and myself for the stories, making news and moving 4 00:00:16,680 --> 00:00:19,560 Speaker 1: markets in the APAC region. You can subscribe to the 5 00:00:19,600 --> 00:00:23,080 Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio, 6 00:00:23,320 --> 00:00:26,080 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. 7 00:00:27,560 --> 00:00:31,760 Speaker 2: US Treasury Secretary Janet Yellen acknowledged concerns from her counterparts 8 00:00:31,800 --> 00:00:35,280 Speaker 2: in Japan and South Korea on exchange rates. The three 9 00:00:35,360 --> 00:00:38,680 Speaker 2: discussed sharp declines recently in the Japanese yen and South 10 00:00:38,760 --> 00:00:41,920 Speaker 2: Korean one. Just this year, the yen has dropped about 11 00:00:42,040 --> 00:00:45,280 Speaker 2: nine percent and the one roughly seven percent against the dollar. 12 00:00:45,920 --> 00:00:48,440 Speaker 2: Before the meeting, the South Korean and Japanese officials had 13 00:00:48,479 --> 00:00:52,320 Speaker 2: aired concerns about their currencies slumping to multi year lows. 14 00:00:52,760 --> 00:00:55,880 Speaker 2: South Korea and Japan warned of taking appropriate steps to 15 00:00:55,960 --> 00:01:00,960 Speaker 2: counter any drastic volatility. Past G twenty agreements have emphasized 16 00:01:01,040 --> 00:01:04,600 Speaker 2: allowing markets to determine exchange rates, but they do leave 17 00:01:04,640 --> 00:01:10,399 Speaker 2: the door open for action against excessive market volatility. Joining 18 00:01:10,440 --> 00:01:12,600 Speaker 2: us in our studios in Hong Kong is Helen jew 19 00:01:13,080 --> 00:01:17,119 Speaker 2: nonfun Trinity Managing director and chief investment officer, to take 20 00:01:17,120 --> 00:01:20,520 Speaker 2: a closer look at markets. So, Helen, let me ask 21 00:01:20,600 --> 00:01:23,280 Speaker 2: you this in as blunt of fashion as I can. 22 00:01:23,720 --> 00:01:26,839 Speaker 2: Does a bull market really end because growth is strong? 23 00:01:28,520 --> 00:01:32,760 Speaker 3: I think the bullmarket typically ends either because the policy 24 00:01:33,040 --> 00:01:37,480 Speaker 3: has inflected to the other side very hawkishly, or because 25 00:01:37,680 --> 00:01:40,040 Speaker 3: you know, the growth is not good anymore. Right, So, 26 00:01:40,240 --> 00:01:42,039 Speaker 3: when the growth is not good, that's probably the biggest 27 00:01:42,040 --> 00:01:44,680 Speaker 3: threat to market at that point. Even if the policy 28 00:01:44,720 --> 00:01:49,200 Speaker 3: turn is more dubbish, people have skepticism. So weaker growth 29 00:01:49,280 --> 00:01:51,360 Speaker 3: data from the US is probably the bigger concern that 30 00:01:51,400 --> 00:01:55,160 Speaker 3: we would have over just you know, the FED, you know, 31 00:01:55,640 --> 00:01:57,160 Speaker 3: taking a little bit longer to cut rates. 32 00:01:57,440 --> 00:01:59,000 Speaker 1: That's one of the things that a lot of FED 33 00:01:59,000 --> 00:02:01,880 Speaker 1: officials have been saying. I mean, they've been very stubborn 34 00:02:01,920 --> 00:02:05,360 Speaker 1: in their unwillingness to kind of let go of this 35 00:02:05,520 --> 00:02:08,320 Speaker 1: idea that hire for longer is what's necessary. But if 36 00:02:08,360 --> 00:02:10,440 Speaker 1: you look at what the market is telling us right now. 37 00:02:10,840 --> 00:02:12,520 Speaker 1: I was just doing a story on this the other 38 00:02:12,600 --> 00:02:15,239 Speaker 1: day that City Group economists are looking for still five 39 00:02:15,360 --> 00:02:18,280 Speaker 1: twenty five basis point rate cuts between now and the 40 00:02:18,400 --> 00:02:20,840 Speaker 1: end of the year. And a lot of the traders 41 00:02:20,919 --> 00:02:24,000 Speaker 1: in the FED Fund's futures market are betting on aggressive 42 00:02:24,320 --> 00:02:27,200 Speaker 1: cutting as well. Do you think the Fed runs the 43 00:02:27,280 --> 00:02:31,000 Speaker 1: risk right now of a policy error maybe and not 44 00:02:31,120 --> 00:02:33,239 Speaker 1: getting out in front of what we're seeing in terms 45 00:02:33,320 --> 00:02:34,800 Speaker 1: of signs of economic weakness. 46 00:02:36,280 --> 00:02:38,239 Speaker 3: Well, I think the FED has made it amply clear 47 00:02:38,360 --> 00:02:41,079 Speaker 3: that their rate path is going to be more dependent 48 00:02:41,120 --> 00:02:43,280 Speaker 3: on the inflation data rather than the growth data. Right 49 00:02:43,280 --> 00:02:46,280 Speaker 3: they have a dual mandate, and at the moment, protecting 50 00:02:46,320 --> 00:02:49,720 Speaker 3: growth is not really that vital compared to just making 51 00:02:49,720 --> 00:02:52,480 Speaker 3: sure that the inflation side doesn't serve as a constraint. 52 00:02:52,600 --> 00:02:54,600 Speaker 3: So I think so long as the inflation data starts 53 00:02:54,639 --> 00:02:57,240 Speaker 3: to come off, they will jump off with the first 54 00:02:57,320 --> 00:02:59,760 Speaker 3: rate cut. But how many they do subsequently, I think 55 00:02:59,800 --> 00:03:01,720 Speaker 3: really depends on the path in the second half of 56 00:03:01,760 --> 00:03:03,679 Speaker 3: this year. If you think back to last year, though, 57 00:03:03,720 --> 00:03:06,000 Speaker 3: you know, we had many ups and downs, right, people 58 00:03:06,120 --> 00:03:08,680 Speaker 3: thinking that there are going to be you know, more 59 00:03:08,760 --> 00:03:11,520 Speaker 3: rate hikes, less rate hikes, and the scare in the spring, 60 00:03:11,600 --> 00:03:13,799 Speaker 3: and then everything looking great in the summer, and the 61 00:03:13,800 --> 00:03:15,799 Speaker 3: scare again in the fall, and everything looking great again 62 00:03:15,800 --> 00:03:17,280 Speaker 3: at the end of the year. I wouldn't rello out 63 00:03:17,280 --> 00:03:21,160 Speaker 3: the possibility that the expectations regarding rate cuts, inflation, and 64 00:03:21,200 --> 00:03:23,760 Speaker 3: growth continue to kind of jerk back and forth later 65 00:03:23,800 --> 00:03:24,720 Speaker 3: on this year as well. 66 00:03:24,760 --> 00:03:27,119 Speaker 2: I just see them all as inputs. I'm a fan 67 00:03:27,160 --> 00:03:30,840 Speaker 2: of math, so I look at equations and basically you 68 00:03:30,880 --> 00:03:34,520 Speaker 2: think about it. With higher for longer rates, that's a 69 00:03:34,520 --> 00:03:37,760 Speaker 2: potential negative for some companies because the costs will be 70 00:03:37,840 --> 00:03:41,400 Speaker 2: up a little, but with growth stronger than thought, sales 71 00:03:41,440 --> 00:03:44,440 Speaker 2: would be up. So net net, that would feel a 72 00:03:44,480 --> 00:03:47,560 Speaker 2: little bit like a standoff a neutral. Yet the market 73 00:03:47,600 --> 00:03:52,480 Speaker 2: is acting at the moment like it's net net sell. 74 00:03:52,640 --> 00:03:55,520 Speaker 3: I would say, you're right in a strong growth scenario, 75 00:03:55,960 --> 00:03:58,720 Speaker 3: so long as you know nominal is still going up 76 00:03:58,800 --> 00:04:02,720 Speaker 3: and we actually have very robust growth. And I do 77 00:04:02,760 --> 00:04:05,600 Speaker 3: think the markets earnings and valuations since one tend to 78 00:04:05,600 --> 00:04:08,160 Speaker 3: do well. But I think the thing that we need 79 00:04:08,200 --> 00:04:12,360 Speaker 3: to watch out for is really that people may start 80 00:04:12,400 --> 00:04:16,760 Speaker 3: to worry about much bigger cracks. Right, So we might 81 00:04:16,800 --> 00:04:21,800 Speaker 3: actually have a scenario whereby the consumer not necessarily because 82 00:04:21,800 --> 00:04:24,479 Speaker 3: of where rates are today, but rather because of the 83 00:04:24,520 --> 00:04:27,039 Speaker 3: fact that rates have held high for quite some time 84 00:04:27,080 --> 00:04:30,840 Speaker 3: and the refinancings at whichever levels. If rates basis points 85 00:04:30,880 --> 00:04:34,560 Speaker 3: lower than today or the current level, the refinancings from 86 00:04:34,640 --> 00:04:36,640 Speaker 3: the fixed rates they had three or four weeks years 87 00:04:36,640 --> 00:04:40,039 Speaker 3: ago gets more painful. So it's more about time accruing 88 00:04:40,279 --> 00:04:43,120 Speaker 3: and holding rates at a relatively higher level, whether fifty 89 00:04:43,120 --> 00:04:45,960 Speaker 3: basis points lower or at the current level, rather than 90 00:04:46,080 --> 00:04:48,640 Speaker 3: just the absolute level itself. That makes a bigger difference. 91 00:04:48,760 --> 00:04:51,720 Speaker 1: One of the things we learned from the latest Beage 92 00:04:51,720 --> 00:04:54,400 Speaker 1: Book survey which was released today in the US, firms 93 00:04:54,400 --> 00:04:57,960 Speaker 1: are reporting greater difficulty in passing on higher cost Do 94 00:04:58,000 --> 00:05:00,480 Speaker 1: you think margin pressure is something we really got to 95 00:05:00,480 --> 00:05:01,480 Speaker 1: concern ourselves with. 96 00:05:03,160 --> 00:05:06,080 Speaker 3: I think margin pressure is. But you have to break 97 00:05:06,120 --> 00:05:09,839 Speaker 3: it down between gross margin and operating margin, right, So 98 00:05:10,240 --> 00:05:15,880 Speaker 3: gross margin probably responds more to things like you know, 99 00:05:15,960 --> 00:05:18,240 Speaker 3: commodity costs and some of these things that are fluctuating 100 00:05:18,240 --> 00:05:20,839 Speaker 3: more frequently. On the operating margin front, a lot of 101 00:05:20,839 --> 00:05:23,880 Speaker 3: it is operating leverage, right, fixed costs, et cetera. So 102 00:05:24,160 --> 00:05:27,080 Speaker 3: sometimes a lot of the fixed costs can be amortized 103 00:05:27,120 --> 00:05:29,880 Speaker 3: over a bigger revenue base, and that's what makes margins 104 00:05:29,920 --> 00:05:32,960 Speaker 3: go up in the upcycle. And you know, things like 105 00:05:33,240 --> 00:05:35,320 Speaker 3: wages or rents and those types of things are not 106 00:05:35,480 --> 00:05:38,120 Speaker 3: likely to move as volatively as some of the inputs 107 00:05:38,120 --> 00:05:41,520 Speaker 3: into gross margin. So generally speaking of inflation comes off 108 00:05:42,240 --> 00:05:45,800 Speaker 3: and revenue doesn't grow as quickly, then you will tend 109 00:05:45,839 --> 00:05:49,280 Speaker 3: to have margin pressure because you don't have as much 110 00:05:49,320 --> 00:05:51,800 Speaker 3: operating leverage, or you may even have some operating de leverage. 111 00:05:52,160 --> 00:05:53,920 Speaker 2: So, as you were saying in the answer to the 112 00:05:53,960 --> 00:05:57,440 Speaker 2: first question, really it's a lot of this is about growth. 113 00:05:57,440 --> 00:06:00,479 Speaker 2: If growth falls off and inflation is relatively then you 114 00:06:00,520 --> 00:06:03,919 Speaker 2: have a major issue in terms of canaries in the 115 00:06:03,960 --> 00:06:08,359 Speaker 2: coal mine, the doubt transports, and the semiconductors and not 116 00:06:08,440 --> 00:06:11,480 Speaker 2: trading very well here down about four percent in a 117 00:06:11,560 --> 00:06:16,520 Speaker 2: month now one month is not a trend, and it's 118 00:06:16,600 --> 00:06:18,159 Speaker 2: kind of in line with the correction in the S 119 00:06:18,200 --> 00:06:20,480 Speaker 2: and P five hundred off about four or five percent. 120 00:06:20,560 --> 00:06:23,080 Speaker 2: Now after a big start to the year, is it 121 00:06:23,120 --> 00:06:25,640 Speaker 2: the start is something big or really just too early 122 00:06:25,680 --> 00:06:26,000 Speaker 2: to say. 123 00:06:26,760 --> 00:06:29,039 Speaker 3: I would say for things like the semiconductors, they have 124 00:06:29,200 --> 00:06:31,400 Speaker 3: been just on a tear right over the last six 125 00:06:31,400 --> 00:06:35,440 Speaker 3: to twelve months, and so it's not necessarily something fundamentals related, 126 00:06:35,440 --> 00:06:39,360 Speaker 3: but probably just valuation and positioning and some profit taking 127 00:06:40,080 --> 00:06:44,960 Speaker 3: that's quite obvious as a temptation after such a tremendous run. 128 00:06:45,360 --> 00:06:48,039 Speaker 3: If you have something that's got the same earnings expectations 129 00:06:48,080 --> 00:06:50,280 Speaker 3: as a month ago, but you know you're just talking 130 00:06:50,279 --> 00:06:53,279 Speaker 3: about a difference between eighty times PE and sixty times PE, 131 00:06:53,320 --> 00:06:56,400 Speaker 3: then people would rather sell that than sell something that's 132 00:06:56,400 --> 00:06:58,520 Speaker 3: already gone down quite a lot or they haven't really 133 00:06:58,560 --> 00:07:00,560 Speaker 3: made much money on. So I think it's probably been 134 00:07:00,600 --> 00:07:04,440 Speaker 3: more just coming from that rather than fundamental changes or 135 00:07:04,480 --> 00:07:07,360 Speaker 3: inflection points at this time, Helen. 136 00:07:07,120 --> 00:07:09,600 Speaker 1: Maybe we can talk about China first. Spell here that 137 00:07:09,800 --> 00:07:12,760 Speaker 1: GDP print was pretty impressive, but if you look at 138 00:07:12,760 --> 00:07:15,560 Speaker 1: the monthly activity data from March, it looks like things 139 00:07:15,560 --> 00:07:18,720 Speaker 1: are softening a bit. I mean, how are you reading 140 00:07:18,720 --> 00:07:20,200 Speaker 1: the Chinese economy right now? 141 00:07:21,560 --> 00:07:23,960 Speaker 3: Well, I think that you probably saw a couple of 142 00:07:24,000 --> 00:07:27,520 Speaker 3: brokerages have actually upgraded their GDP forecast for this year 143 00:07:27,640 --> 00:07:30,680 Speaker 3: from let's say mid to high force to closer to 144 00:07:30,840 --> 00:07:34,400 Speaker 3: high force to five percent. So previously people are very 145 00:07:34,480 --> 00:07:37,600 Speaker 3: very skeptical, but recently we've started to see some more 146 00:07:37,640 --> 00:07:40,920 Speaker 3: promising data, as you mentioned, coming out of the destocking 147 00:07:41,400 --> 00:07:45,000 Speaker 3: period in December January and kind of coming more in 148 00:07:45,080 --> 00:07:48,760 Speaker 3: back into a restocking period. So I would say, net, 149 00:07:48,760 --> 00:07:51,400 Speaker 3: we're not really completely out of the woods. But certainly 150 00:07:51,440 --> 00:07:54,680 Speaker 3: things look to have landed to some extent, and maybe 151 00:07:54,680 --> 00:07:57,440 Speaker 3: there are some slight mild surprises. Of course, the market 152 00:07:57,520 --> 00:07:59,760 Speaker 3: is going to be most worried about what happens in 153 00:07:59,800 --> 00:08:01,280 Speaker 3: the latter part of the year, towards the end of 154 00:08:01,320 --> 00:08:03,360 Speaker 3: the year or maybe beginning of next year, depending on 155 00:08:03,360 --> 00:08:06,440 Speaker 3: what happens on the tariff and geopolitical side post the election. 156 00:08:06,720 --> 00:08:11,040 Speaker 3: That's probably the biggest overhang on this economic l shaped 157 00:08:11,120 --> 00:08:11,840 Speaker 3: landing story. 158 00:08:12,040 --> 00:08:14,640 Speaker 2: So putting this CIO hat on for a moment, what 159 00:08:14,720 --> 00:08:17,920 Speaker 2: looks the best at the moment in terms of new capital. 160 00:08:18,960 --> 00:08:21,680 Speaker 3: Well, we think that things are probably in the goldielocks 161 00:08:21,760 --> 00:08:25,840 Speaker 3: and no landing and some rate cuts plus no economic 162 00:08:25,920 --> 00:08:29,240 Speaker 3: weakness type of mindset. In the US, bond yields have 163 00:08:29,320 --> 00:08:32,120 Speaker 3: popped quite a lot recently because of the concerns about 164 00:08:32,120 --> 00:08:35,360 Speaker 3: one or two inflation prints which really resulted for example, 165 00:08:35,400 --> 00:08:39,120 Speaker 3: the March inflation print pop was really because of auto 166 00:08:39,200 --> 00:08:42,800 Speaker 3: insurance and some very idiosyncratic and narrow categories that we 167 00:08:42,840 --> 00:08:44,800 Speaker 3: don't know whether they're going to change in the next 168 00:08:44,800 --> 00:08:46,960 Speaker 3: couple of months. So we actually think that we would 169 00:08:47,240 --> 00:08:49,880 Speaker 3: find treasury to be more attractive at the four point 170 00:08:49,880 --> 00:08:52,440 Speaker 3: five four point six level on the ten year versus 171 00:08:52,520 --> 00:08:54,960 Speaker 3: what we have seen in quite a while, so some 172 00:08:55,120 --> 00:08:57,240 Speaker 3: of that might be a lot more interesting versus the 173 00:08:57,480 --> 00:08:59,760 Speaker 3: last couple of years. And then we also think that 174 00:09:00,440 --> 00:09:04,400 Speaker 3: is quite attractive. Really, all is pretty low and cheap 175 00:09:04,400 --> 00:09:07,920 Speaker 3: at the moment, So hedge the sections of the economy 176 00:09:07,920 --> 00:09:10,520 Speaker 3: that have performed well with the dollar reaching with the 177 00:09:10,559 --> 00:09:12,920 Speaker 3: d X y reaching one oh six, we think we're 178 00:09:12,960 --> 00:09:15,840 Speaker 3: probably getting closer to a dollar peak. And all the 179 00:09:15,920 --> 00:09:20,400 Speaker 3: segments like AJA, emerging market equities and local currency bonds 180 00:09:20,400 --> 00:09:22,319 Speaker 3: that have been crushed by the dollar, we think those 181 00:09:22,360 --> 00:09:23,480 Speaker 3: are looking more interesting. 182 00:09:23,520 --> 00:09:25,480 Speaker 1: Well, it's interesting you make that point because I was 183 00:09:25,520 --> 00:09:27,640 Speaker 1: going to ask you about the comments that we had 184 00:09:27,640 --> 00:09:32,000 Speaker 1: from Treasury Secretary Yellen speaking with finance ministers of Japan 185 00:09:32,120 --> 00:09:35,600 Speaker 1: and South Korea about the depreciation of both the yen 186 00:09:35,679 --> 00:09:37,880 Speaker 1: and the wand as the result of a stronger dollar. 187 00:09:38,320 --> 00:09:40,880 Speaker 1: And you feel as though the dollars put in kind 188 00:09:40,920 --> 00:09:43,360 Speaker 1: of a near term top here and you're not expecting 189 00:09:43,440 --> 00:09:45,040 Speaker 1: much more in the way of strength. Is that right? 190 00:09:46,240 --> 00:09:50,040 Speaker 3: I think unless there is a massive you know, multi 191 00:09:50,200 --> 00:09:54,120 Speaker 3: months CPI, you know, inflation upside surprise, I think the 192 00:09:54,160 --> 00:09:57,080 Speaker 3: dollars basically got to, you know, the peak of this 193 00:09:57,160 --> 00:10:00,200 Speaker 3: mini cycle. And I would agree that it's really the 194 00:10:00,240 --> 00:10:03,679 Speaker 3: FED and what's happening in the US that's swinging currencies 195 00:10:03,679 --> 00:10:06,240 Speaker 3: around more than whatever the boj or Bank of Korea 196 00:10:06,280 --> 00:10:06,720 Speaker 3: are doing. 197 00:10:06,880 --> 00:10:08,880 Speaker 2: Yeah, and with these yields this high, you've got to 198 00:10:08,920 --> 00:10:11,480 Speaker 2: worry about asset allocators coming in and just you know, 199 00:10:11,679 --> 00:10:15,320 Speaker 2: they picking off five percent they like that over ten years. 200 00:10:15,320 --> 00:10:18,600 Speaker 2: It's something that could disrupt equity pricing. 201 00:10:18,679 --> 00:10:20,320 Speaker 3: Right, that's right, that's right. 202 00:10:20,960 --> 00:10:23,680 Speaker 2: Thank you very much for coming into our studios. Helen 203 00:10:23,760 --> 00:10:28,000 Speaker 2: June Nanfung Trinity, a managing director and chief investment officer. 204 00:10:34,960 --> 00:10:38,640 Speaker 1: Today, President Biden vowed to keep US Steel a totally 205 00:10:38,679 --> 00:10:41,840 Speaker 1: American company. He made that pledge during a speech to 206 00:10:41,920 --> 00:10:44,800 Speaker 1: the United steel Workers in Pittsburgh. Let's take a closer 207 00:10:44,800 --> 00:10:48,880 Speaker 1: look now with Laura Davison, who is Bloomberg Politics Deputy 208 00:10:49,000 --> 00:10:53,040 Speaker 1: team leader. She joins us from just outside Washington, d C. 209 00:10:53,240 --> 00:10:55,880 Speaker 1: Thanks for taking time to chat with us, Laura. I'm 210 00:10:55,920 --> 00:10:58,720 Speaker 1: wondering I know that the union is so strongly opposed 211 00:10:58,720 --> 00:11:03,359 Speaker 1: against the bid Nippon Steele to acquire US deal. Obviously, 212 00:11:03,800 --> 00:11:06,520 Speaker 1: Pennsylvania is a big player in that it's a swinging 213 00:11:06,559 --> 00:11:09,840 Speaker 1: state for Biden. Do you think this has the potential 214 00:11:09,880 --> 00:11:13,719 Speaker 1: to go through after the election. Is this merely kind 215 00:11:13,720 --> 00:11:15,920 Speaker 1: of an election ploy on the part of the president. 216 00:11:17,240 --> 00:11:19,640 Speaker 4: It has the possibility to go through, But when you 217 00:11:19,679 --> 00:11:22,600 Speaker 4: think about that, both Trump and Biden are opposed to 218 00:11:22,640 --> 00:11:25,560 Speaker 4: this deal, so you know, effectively, no matter who wins, 219 00:11:25,840 --> 00:11:27,840 Speaker 4: the president is likely to be opposed to the deal. 220 00:11:28,160 --> 00:11:31,040 Speaker 4: That really has the potential to really put the brakes 221 00:11:31,040 --> 00:11:33,560 Speaker 4: on this. You know, you mentioned, you know, Pennsylvania is 222 00:11:33,559 --> 00:11:35,560 Speaker 4: a swing state. It could be one of the states 223 00:11:35,559 --> 00:11:38,559 Speaker 4: that decides this election, and it is you know, for 224 00:11:38,720 --> 00:11:40,920 Speaker 4: Joe Biden, it is his home state. He was born there. 225 00:11:41,280 --> 00:11:44,080 Speaker 4: You really saw him in his element today that there 226 00:11:44,160 --> 00:11:46,800 Speaker 4: is you know, really not a lot of love both 227 00:11:46,840 --> 00:11:49,000 Speaker 4: within the Union community as well as the broader US 228 00:11:49,040 --> 00:11:50,760 Speaker 4: community for this deal of Nepon steel. 229 00:11:51,640 --> 00:11:55,040 Speaker 2: Critics would say that more steel tariffs is really just 230 00:11:55,160 --> 00:11:59,040 Speaker 2: brazen politicking. I'm tough for run China. No, I'm tough 231 00:11:59,080 --> 00:12:01,000 Speaker 2: for Runshine, No tougher on China. 232 00:12:03,600 --> 00:12:05,480 Speaker 4: Yes, this is really what you're seeing happen. You know, 233 00:12:05,520 --> 00:12:08,600 Speaker 4: both Trump and Biden they disagree on a lot, but 234 00:12:09,679 --> 00:12:13,240 Speaker 4: tariffs on China and specifically tariffs on steal from China 235 00:12:13,280 --> 00:12:15,800 Speaker 4: are one area where they really agree. The tariffs that 236 00:12:15,840 --> 00:12:18,160 Speaker 4: but Biden announced today as part of this trip, you know, 237 00:12:18,240 --> 00:12:22,559 Speaker 4: tripling some tariffs on metal from China are really symbolic. 238 00:12:22,800 --> 00:12:25,319 Speaker 4: You know, the tariffs that Trump put in place are 239 00:12:25,360 --> 00:12:28,120 Speaker 4: so high that really imports have ground to a halt 240 00:12:28,720 --> 00:12:32,360 Speaker 4: from Chinese steal coming into the US. But this is 241 00:12:32,360 --> 00:12:35,120 Speaker 4: really a way for him to message and signal to voters. Look, 242 00:12:35,240 --> 00:12:37,520 Speaker 4: I am serious about you know, made in America, keeping 243 00:12:37,600 --> 00:12:40,360 Speaker 4: union jobs here, but this is kind of you're really 244 00:12:40,360 --> 00:12:42,800 Speaker 4: starting to see the transition from you know, the White 245 00:12:42,840 --> 00:12:45,679 Speaker 4: House working on you know, serious policy to policies that 246 00:12:45,720 --> 00:12:47,240 Speaker 4: they know that they can take to the campaign trail. 247 00:12:47,440 --> 00:12:50,120 Speaker 1: When I think of issues like the border, when I 248 00:12:50,160 --> 00:12:55,000 Speaker 1: think of the abortion issue, and then I consider industrial policy, 249 00:12:55,040 --> 00:12:57,560 Speaker 1: it doesn't seem like it's going to be up there 250 00:12:57,600 --> 00:12:59,920 Speaker 1: on the on the list of pressing concerns during this 251 00:13:00,040 --> 00:13:01,880 Speaker 1: election season? Am I right or wrong? 252 00:13:02,840 --> 00:13:04,560 Speaker 4: That is true and we've seen time and time again, 253 00:13:04,600 --> 00:13:07,360 Speaker 4: you things like the Infrastructure Package, things like the Chips 254 00:13:07,400 --> 00:13:10,320 Speaker 4: Act are not issues that the voters are really thinking about. 255 00:13:10,520 --> 00:13:13,679 Speaker 4: But they are thinking about things like jobs and inflation, 256 00:13:14,360 --> 00:13:16,120 Speaker 4: and those are the kinds of things that at least 257 00:13:16,160 --> 00:13:17,800 Speaker 4: the White House says, you know, are are helped by 258 00:13:17,800 --> 00:13:20,640 Speaker 4: some of these policies, you know, by having semiconductors made here, 259 00:13:20,679 --> 00:13:22,280 Speaker 4: although they're not you know, they're very far away from 260 00:13:22,320 --> 00:13:25,160 Speaker 4: still being made in the US with these new these 261 00:13:25,200 --> 00:13:28,320 Speaker 4: new fabs that are being announced that they're kind of 262 00:13:28,320 --> 00:13:30,040 Speaker 4: hoping to get ahead of that and saying, look, you know, 263 00:13:30,080 --> 00:13:33,360 Speaker 4: we're setting the US up to sort of renew its 264 00:13:33,520 --> 00:13:36,800 Speaker 4: industrial might. But this is a real big gamble for 265 00:13:36,840 --> 00:13:38,520 Speaker 4: the for the White House because they're seeing in poll 266 00:13:38,600 --> 00:13:41,480 Speaker 4: after poll that voters aren't really registering. They call this 267 00:13:41,520 --> 00:13:45,360 Speaker 4: whole program Bidenomics. It didn't really land with voters. So 268 00:13:45,400 --> 00:13:47,680 Speaker 4: now they're having to rethink their their strategy on you know, 269 00:13:47,679 --> 00:13:49,880 Speaker 4: how do you talk about both the economy as well 270 00:13:49,920 --> 00:13:52,439 Speaker 4: as abortion, which is where you've really seen Democrats in 271 00:13:52,480 --> 00:13:54,400 Speaker 4: the past two or three weeks pivot to having that 272 00:13:54,440 --> 00:13:55,840 Speaker 4: be their central campaign issue. 273 00:13:56,800 --> 00:13:58,960 Speaker 2: Laura, what do we know about the US and this 274 00:13:59,160 --> 00:14:01,960 Speaker 2: probe on chine in a shipbuilding industry, it's actually more 275 00:14:02,000 --> 00:14:06,080 Speaker 2: it's it's kind of a full gamut of maritime industry, 276 00:14:06,120 --> 00:14:09,880 Speaker 2: including logistics, UH and other aspects. So what do we 277 00:14:09,920 --> 00:14:10,520 Speaker 2: know about that. 278 00:14:11,640 --> 00:14:14,840 Speaker 4: Yeah, so this will be a pretty comprehensive study. We've 279 00:14:14,880 --> 00:14:17,760 Speaker 4: already seen, you know, in the Chinese response to this 280 00:14:18,080 --> 00:14:22,200 Speaker 4: from the Commerce Ministry earlier today was a very stern 281 00:14:22,280 --> 00:14:25,080 Speaker 4: rebuke on this thing. It was not necessary. And so 282 00:14:25,120 --> 00:14:27,040 Speaker 4: that's where you really see kind of the you know, 283 00:14:27,040 --> 00:14:29,400 Speaker 4: it's a little bit under the water, you know, so 284 00:14:29,440 --> 00:14:31,880 Speaker 4: to speak. The tariffs are kind of a big headline thing, 285 00:14:31,920 --> 00:14:34,960 Speaker 4: but this uh, you know, review could be more where 286 00:14:34,760 --> 00:14:38,160 Speaker 4: there's actual you know, kind of economic power and sort 287 00:14:38,160 --> 00:14:40,880 Speaker 4: of an economic hurt that goes from Washington to China. 288 00:14:40,920 --> 00:14:42,640 Speaker 1: One of the things that we were talking about earlier 289 00:14:42,680 --> 00:14:45,680 Speaker 1: on the program is the fact that this Byte Dance bill, 290 00:14:45,800 --> 00:14:48,160 Speaker 1: the TikTok bill, is going to be moving through the 291 00:14:48,200 --> 00:14:52,600 Speaker 1: Senate very soon. The President still committed to the to 292 00:14:52,720 --> 00:14:55,400 Speaker 1: the idea that he would sign this bill and potentially 293 00:14:55,520 --> 00:15:00,280 Speaker 1: forced by Dance to divest ownership of TikTok or bannit outright, right, 294 00:15:00,440 --> 00:15:01,760 Speaker 1: do you have a sense of how this is going 295 00:15:01,840 --> 00:15:03,800 Speaker 1: to play out over the next couple of weeks. 296 00:15:04,520 --> 00:15:06,960 Speaker 4: Yeah, this is really a fast moving bill that the 297 00:15:07,520 --> 00:15:10,840 Speaker 4: Speaker Johnson, a Republican in the House, is looking to move, 298 00:15:11,240 --> 00:15:14,320 Speaker 4: you know, potentially as soon as this weekend. This is uh, 299 00:15:14,400 --> 00:15:18,200 Speaker 4: you know, really scott bipartisan support, and it's been a 300 00:15:18,200 --> 00:15:20,080 Speaker 4: bill that has been out there and has been floundering, 301 00:15:20,240 --> 00:15:22,800 Speaker 4: but as of right now it looks to have the 302 00:15:22,800 --> 00:15:25,800 Speaker 4: support to pass. I will note that Congress is a uh, 303 00:15:25,840 --> 00:15:28,840 Speaker 4: you know, infamously fickle place where last minute deals get 304 00:15:28,880 --> 00:15:31,400 Speaker 4: cut all the time. But right now this bill is 305 00:15:31,440 --> 00:15:33,400 Speaker 4: set up for a vote, and you know, no one 306 00:15:33,440 --> 00:15:35,880 Speaker 4: should discount the fact that this could become a US law, 307 00:15:36,320 --> 00:15:37,720 Speaker 4: you know, in the next couple of weeks. 308 00:15:38,440 --> 00:15:42,880 Speaker 2: I guess one aspect of the TikTok information in that 309 00:15:42,960 --> 00:15:46,440 Speaker 2: bill is that it's one company, and it's kind of 310 00:15:46,560 --> 00:15:50,240 Speaker 2: unusual to come up with a law that targets one company. 311 00:15:50,280 --> 00:15:54,000 Speaker 2: And I think Maria cantwell raised the idea of having uh, 312 00:15:54,040 --> 00:15:57,680 Speaker 2: you know, a lot of judicial action targeting this. What 313 00:15:57,760 --> 00:16:00,600 Speaker 2: is what are the sorts of of claims that would 314 00:16:00,600 --> 00:16:03,200 Speaker 2: come perhaps from the Chinese side on that. 315 00:16:04,400 --> 00:16:06,760 Speaker 4: Yeah, and so there's a lot of concern both from 316 00:16:06,760 --> 00:16:08,360 Speaker 4: the Chinese side as well as you noted from the 317 00:16:08,440 --> 00:16:11,080 Speaker 4: US side here that this is targeting one specific company 318 00:16:11,520 --> 00:16:13,240 Speaker 4: and that this you know, is almost certain to be 319 00:16:13,400 --> 00:16:17,240 Speaker 4: mired in appeals and judicial reviews that really that there 320 00:16:17,240 --> 00:16:18,760 Speaker 4: should be a you know, some sort of standard that 321 00:16:18,760 --> 00:16:21,640 Speaker 4: would apply to any social media platform, whether it's bike 322 00:16:21,720 --> 00:16:24,440 Speaker 4: dance and TikTok or something else that should come to 323 00:16:24,480 --> 00:16:26,920 Speaker 4: the future. So we're not just you know, reactively legislating, 324 00:16:26,920 --> 00:16:28,360 Speaker 4: but instead looking at, you know, sort of what is 325 00:16:28,360 --> 00:16:30,920 Speaker 4: the standard we want and having things meet or fall 326 00:16:30,920 --> 00:16:31,360 Speaker 4: short of that. 327 00:16:31,840 --> 00:16:33,680 Speaker 1: Laura, thank you so much for being with us. We 328 00:16:33,760 --> 00:16:36,520 Speaker 1: covered a lot of ground there. With Laura Davison, Bloomberg 329 00:16:36,600 --> 00:16:39,800 Speaker 1: Politics Deputy team leader joining us from Washington. 330 00:16:46,200 --> 00:16:48,040 Speaker 2: We thought we would take a closer look now at 331 00:16:48,080 --> 00:16:52,200 Speaker 2: the trials and tribulations of policymakers in China. Joining us 332 00:16:52,320 --> 00:16:56,040 Speaker 2: on the show is Lillian Lee, Vice president, Senior credit 333 00:16:56,080 --> 00:17:00,240 Speaker 2: officer at Moody's Ratings. Lillian, thank you for joining us. 334 00:17:00,640 --> 00:17:03,200 Speaker 2: It would seem at the moment China is caught in 335 00:17:03,200 --> 00:17:06,160 Speaker 2: the middle a little bit between looking at the long 336 00:17:06,240 --> 00:17:09,520 Speaker 2: term drivers of growth and tinkering with that versus the 337 00:17:09,560 --> 00:17:11,480 Speaker 2: need to do something in the short term in the 338 00:17:11,480 --> 00:17:15,600 Speaker 2: way of short term cyclical stimulus for the economy. How 339 00:17:15,640 --> 00:17:18,160 Speaker 2: would you say it's managing that balance at the moment. 340 00:17:20,040 --> 00:17:22,560 Speaker 5: Yeah, thanks for the questions. So right now we see 341 00:17:22,600 --> 00:17:26,359 Speaker 5: that the Q once China's GDP growth actually big market 342 00:17:26,400 --> 00:17:30,800 Speaker 5: expectations range up to five point three percent. That is 343 00:17:30,920 --> 00:17:35,080 Speaker 5: largely driven by those supply side measures from the governments 344 00:17:35,359 --> 00:17:39,320 Speaker 5: as well as the explored the sectors showing quite a 345 00:17:39,320 --> 00:17:44,359 Speaker 5: delightful pictures because of the global resident demand. But however, 346 00:17:45,200 --> 00:17:50,760 Speaker 5: how sustainable with this effect from supply side measures is uncertain. 347 00:17:51,200 --> 00:17:55,000 Speaker 5: So we see that China is facing its structural long 348 00:17:55,080 --> 00:18:00,680 Speaker 5: term challenges now, including for example, some of them balancing 349 00:18:01,040 --> 00:18:04,159 Speaker 5: in its supply and demand in some sectors and the 350 00:18:04,400 --> 00:18:07,639 Speaker 5: physical imbalance between central and local government, as well as 351 00:18:07,680 --> 00:18:11,960 Speaker 5: the low productivity of growth. So how could they balance 352 00:18:12,080 --> 00:18:17,480 Speaker 5: these challenges in shorter and long term While these policy settings, 353 00:18:17,520 --> 00:18:22,119 Speaker 5: it is the key things for the government to drive 354 00:18:22,280 --> 00:18:28,040 Speaker 5: its growth potential. So actually the contributions from its new 355 00:18:28,080 --> 00:18:33,000 Speaker 5: growth drivers like new evs and renewed energies, their contributions 356 00:18:33,040 --> 00:18:37,440 Speaker 5: to GDP cannot match those engines like property and infrastructure. 357 00:18:37,960 --> 00:18:40,679 Speaker 5: And then over reliance on some of the government support 358 00:18:40,840 --> 00:18:44,440 Speaker 5: to support for these new sectors could lead to potentially 359 00:18:44,560 --> 00:18:51,000 Speaker 5: some overcapacities and price distortions as well. The shorter challenges 360 00:18:51,160 --> 00:18:57,119 Speaker 5: and long term structural factors risks could both require significant 361 00:18:57,160 --> 00:19:01,000 Speaker 5: focus and expenditure from the government, So that's really a 362 00:19:01,040 --> 00:19:03,760 Speaker 5: tricky thing. How would they balance the shift that really 363 00:19:03,800 --> 00:19:10,320 Speaker 5: needs needs coordinated policy approaches, was consistent policy directions to 364 00:19:10,480 --> 00:19:14,640 Speaker 5: implement its policy measures already announced. 365 00:19:14,359 --> 00:19:16,439 Speaker 1: Lily, And I'm very curious as to whether or not 366 00:19:16,480 --> 00:19:19,720 Speaker 1: in your work you look at debt to GDP and 367 00:19:19,760 --> 00:19:22,600 Speaker 1: whether that ratio is important to you. I was struck 368 00:19:22,600 --> 00:19:26,160 Speaker 1: today by the fact that the IMF was saying that China, Yes, 369 00:19:26,480 --> 00:19:29,080 Speaker 1: China and the US will together drive much of the 370 00:19:29,160 --> 00:19:32,800 Speaker 1: increase in global public debt over the next five years. 371 00:19:33,400 --> 00:19:36,600 Speaker 1: And they are This is the IMF, the analyst there 372 00:19:36,640 --> 00:19:40,240 Speaker 1: projecting that public debt in both China and the US 373 00:19:40,800 --> 00:19:45,240 Speaker 1: under current policies will nearly double doubled by twenty fifty three. 374 00:19:45,680 --> 00:19:49,280 Speaker 1: Are you concerned about the high debt levels that you're seeing, 375 00:19:49,520 --> 00:19:54,560 Speaker 1: let's stay focused on China. Is that a concern for you? Yeah. 376 00:19:54,680 --> 00:19:58,480 Speaker 5: Indeed, actually, the elevated debt as well as a debt 377 00:19:58,680 --> 00:20:03,960 Speaker 5: rising debt servicing cost are the major challenges for the 378 00:20:04,000 --> 00:20:08,240 Speaker 5: government fiscal to constrain their physical capacity to support growth. 379 00:20:08,600 --> 00:20:12,840 Speaker 5: It is one major concern from our ratings on to 380 00:20:13,000 --> 00:20:17,639 Speaker 5: evaluate China sovereign credits. And that's actually exactly one major 381 00:20:17,720 --> 00:20:22,159 Speaker 5: drivers of we changing our look negative last November and 382 00:20:22,280 --> 00:20:25,560 Speaker 5: going forward. As I mentioned just now, the government continued 383 00:20:25,600 --> 00:20:27,959 Speaker 5: to face the balance between long term and low and 384 00:20:28,119 --> 00:20:32,760 Speaker 5: short term growth target. In that essense, the capacity could 385 00:20:32,800 --> 00:20:36,280 Speaker 5: be more constrained if they are continued to face these 386 00:20:36,840 --> 00:20:41,840 Speaker 5: elevated debts. But right now the local government has limited 387 00:20:43,280 --> 00:20:47,360 Speaker 5: fiscal and strength to support growth. So in that essense, 388 00:20:47,560 --> 00:20:50,399 Speaker 5: the central government is trying to shift some of the 389 00:20:50,400 --> 00:20:53,920 Speaker 5: burdens to the central government balance sheet, so that could 390 00:20:53,960 --> 00:20:58,320 Speaker 5: be some way to help mitigate some of the burdens 391 00:20:58,320 --> 00:21:01,720 Speaker 5: on local governments and trying to make be a transition 392 00:21:01,800 --> 00:21:06,800 Speaker 5: period a little bit more uncomfortable for the low government 393 00:21:06,880 --> 00:21:08,199 Speaker 5: to continue to support growth. 394 00:21:08,760 --> 00:21:13,000 Speaker 2: Households are under stress, and it's in part because the 395 00:21:13,040 --> 00:21:16,679 Speaker 2: social support system in China is not so well advanced. 396 00:21:17,160 --> 00:21:19,040 Speaker 2: I mean, there's so many things that are so far 397 00:21:19,119 --> 00:21:22,959 Speaker 2: advanced in China, but in terms of the average person 398 00:21:23,400 --> 00:21:27,680 Speaker 2: feeling comfortable about his or her retirement, about medical needs, 399 00:21:28,119 --> 00:21:31,320 Speaker 2: you know, unemployment insurance and these types of things, is 400 00:21:31,359 --> 00:21:33,080 Speaker 2: there a lot that China can do on that front? 401 00:21:33,080 --> 00:21:35,280 Speaker 2: I know it takes time, but should they be doing it. 402 00:21:37,160 --> 00:21:40,520 Speaker 5: Well. On this point, I need to say that China, 403 00:21:40,920 --> 00:21:45,679 Speaker 5: the government spending on social security actually has kept increasing 404 00:21:45,720 --> 00:21:48,440 Speaker 5: in the past couple of years, and that has been 405 00:21:48,480 --> 00:21:54,119 Speaker 5: reflected by ex pension, healthcare per capita spending, so you 406 00:21:54,160 --> 00:21:57,080 Speaker 5: could see, I mean, from my personal view, I could 407 00:21:57,119 --> 00:22:01,119 Speaker 5: see a quite noticeable improvement on this front. However, of course, 408 00:22:01,680 --> 00:22:06,080 Speaker 5: they should have been doing more to further promote this 409 00:22:06,359 --> 00:22:09,560 Speaker 5: quality of services, especially though in some of the lower 410 00:22:09,840 --> 00:22:13,200 Speaker 5: tier cities and remote area as well as the rural 411 00:22:13,240 --> 00:22:16,720 Speaker 5: areas that could help to release more of the consumption 412 00:22:16,880 --> 00:22:21,560 Speaker 5: powers from their savings. Yeah. So in essence, I would 413 00:22:21,560 --> 00:22:24,399 Speaker 5: say that the government should continue to do what they 414 00:22:24,400 --> 00:22:28,199 Speaker 5: are doing right now already so only. But on the 415 00:22:28,320 --> 00:22:30,960 Speaker 5: other hand, as I mentioned before, there could be a 416 00:22:31,000 --> 00:22:34,840 Speaker 5: constraint from their physical balanceship because they need to still 417 00:22:34,880 --> 00:22:39,639 Speaker 5: support growth from investment in infrastructure. That could be probably 418 00:22:39,680 --> 00:22:42,600 Speaker 5: shown more on the GDP growth numbers. 419 00:22:42,720 --> 00:22:45,800 Speaker 2: Ye, Lillian, thank you very much for joining us. Lillian Lee, 420 00:22:46,000 --> 00:22:50,080 Speaker 2: vice president and senior credit officer at Moody's Ratings. 421 00:22:52,160 --> 00:22:55,080 Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you 422 00:22:55,160 --> 00:22:58,240 Speaker 1: the stories making news and moving markets in the Asia Pacific. 423 00:22:58,760 --> 00:23:01,880 Speaker 1: Visit the Bloomberg Podcast channel on YouTube. To get more 424 00:23:01,920 --> 00:23:05,520 Speaker 1: episodes of this and other shows from Bloomberg, subscribe to 425 00:23:05,560 --> 00:23:09,359 Speaker 1: the podcast on Apple, Spotify, or anywhere else you listen 426 00:23:09,440 --> 00:23:12,560 Speaker 1: and always on Bloomberg Radio, the Bloomberg Terminal, and the 427 00:23:12,560 --> 00:23:13,640 Speaker 1: Bloomberg Business app.