WEBVTT - Baidu Plunges as AI Costs Hurt 0:00:00.160 --> 0:00:10.440 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:10.520 --> 0:00:13.720 Daybreak AISIA podcast. I'm Doug Krisner. You can join Brian 0:00:13.800 --> 0:00:16.640 Curtis and myself for the stories, making news and moving 0:00:16.680 --> 0:00:19.560 markets in the APAC region. You can subscribe to the 0:00:19.600 --> 0:00:23.080 show anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.320 --> 0:00:26.120 the Bloomberg Terminal, and the Bloomberg Business app. 0:00:27.320 --> 0:00:32.080 Byde's quarterly adjusted operating income beat expectations by five point 0:00:32.120 --> 0:00:36.920 four percent due to better cost control. However, AI related 0:00:36.960 --> 0:00:41.360 losses deepened and adjusted profit in BYDO was actually down 0:00:41.520 --> 0:00:44.040 seven point one percent, and the stock is trading off 0:00:44.400 --> 0:00:47.440 four point three percent in the early action this morning. 0:00:47.680 --> 0:00:50.520 Joining us now for some analysis is Robert Lee, who 0:00:50.560 --> 0:00:52.760 is senior analyst at Bloomberg Intelligence. 0:00:53.040 --> 0:00:54.160 To take a closer. 0:00:53.840 --> 0:00:58.120 Look, So revenue was up something like six percent. That's 0:00:58.120 --> 0:01:00.920 not particularly good for a company of this ILK really 0:01:01.280 --> 0:01:06.080 in the area of technology for Hong Kong and China. 0:01:06.640 --> 0:01:08.720 But then the expenses, as we mentioned there. 0:01:08.560 --> 0:01:10.919 Were up a lot. Is that likely to continue? Robert? 0:01:10.959 --> 0:01:12.479 And can we see losses going forward? 0:01:13.959 --> 0:01:18.000 Great questions. I think taking a step back the reality 0:01:18.280 --> 0:01:20.760 of what body is today. Although it was seen a 0:01:20.840 --> 0:01:23.200 year ago as China's leading AI play. 0:01:23.600 --> 0:01:25.200 The reality is it's a. 0:01:25.200 --> 0:01:28.120 Search engine business that accounts for the bulk of its 0:01:28.160 --> 0:01:32.399 revenue and the bulk of its earnings. Searches, like in 0:01:32.440 --> 0:01:35.320 most countries, are fairly mature industry. By Doo is the 0:01:35.400 --> 0:01:39.040 number one ranked search engine in China. You know, Google's actually, 0:01:39.120 --> 0:01:42.560 because of geopolitics, etc. Is not operational in China. 0:01:43.560 --> 0:01:46.080 So the issue for the core of Bidou's. 0:01:45.640 --> 0:01:52.400 Business is their search business is advertising driven revenue model, 0:01:53.040 --> 0:01:56.360 which is obviously tied to the underlying economy, and as 0:01:56.400 --> 0:01:59.160 we go into a period of slowing economic growth, obviously 0:01:59.400 --> 0:02:02.680 corporate clibs and advertisers are tightening their belts and that 0:02:02.920 --> 0:02:06.240 we saw early evidence of that coming through in the 0:02:06.360 --> 0:02:09.360 numbers that were reported last night, plus it was referred to. 0:02:09.240 --> 0:02:09.720 On the call. 0:02:10.040 --> 0:02:13.720 So I think that's one issue that impacted sentiment and 0:02:13.720 --> 0:02:16.160 accounts for the decline we're seeing in the market today. 0:02:16.560 --> 0:02:19.240 The sort of other side of the businesses, they have 0:02:20.000 --> 0:02:21.840 a fingers in a lot of different pies on the 0:02:21.880 --> 0:02:26.000 AI side, from autonomous vehicles to their early bot chap 0:02:26.040 --> 0:02:30.000 GBT like product. They do have some traction there on 0:02:30.040 --> 0:02:33.200 the revenue front or their revenues remain very small at 0:02:33.200 --> 0:02:35.880 this moment. They're looking for a few hundred billion of 0:02:36.040 --> 0:02:38.760 revenue this year. That's in the context of a business 0:02:38.800 --> 0:02:42.200 that turns over something like one hundred and thirty billion revenue, 0:02:42.280 --> 0:02:44.519 So it's quite small beer at the moment, and it's 0:02:44.600 --> 0:02:48.280 AI businesses in aggregate and loss making, and those losses 0:02:48.320 --> 0:02:51.519 are likely to increase in the coming year. So you've 0:02:51.560 --> 0:02:54.200 got the core advertising business which is going into a 0:02:54.240 --> 0:02:56.720 period of slow in growth, potentially with some margin pressure, 0:02:57.040 --> 0:03:00.919 and AI businesses that remain very early stage, and arguably 0:03:00.960 --> 0:03:03.800 the losses on those interneture are going to widen. So 0:03:03.960 --> 0:03:06.320 you know, we're not seeing that earning earning kicker come 0:03:06.400 --> 0:03:09.239 through unlike a lot of them, you know, magnificent seven. 0:03:09.600 --> 0:03:12.400 So when it comes to the use of AI in search, 0:03:12.440 --> 0:03:14.519 whether you're by do or here in the States, whether 0:03:14.560 --> 0:03:17.239 you're talking about Google, is there a lot of evidence 0:03:17.320 --> 0:03:21.520 to suggest that the implementation of AI is necessarily going 0:03:21.520 --> 0:03:25.040 to deliver better results where we're kind of conventional search 0:03:25.160 --> 0:03:27.200 is concerned, or we just don't have enough data to 0:03:27.240 --> 0:03:28.000 make that statement. 0:03:29.680 --> 0:03:30.639 Again, great question. 0:03:30.919 --> 0:03:34.000 I think the anecdotal evidence is absolutely there that it 0:03:34.040 --> 0:03:38.000 does it will enhance the search capabilities, etc. But the 0:03:38.080 --> 0:03:40.560 key question is are people going to pay for it? 0:03:41.080 --> 0:03:43.640 Because on the consumer side, and particularly in China, we 0:03:43.680 --> 0:03:44.000 live in. 0:03:43.920 --> 0:03:46.640 A world where people are used to these services for free. 0:03:46.760 --> 0:03:48.680 I mean again, you go on the web, you Google, 0:03:48.880 --> 0:03:51.400 you pay nothing as a consumer. So I think it's 0:03:51.480 --> 0:03:55.240 very difficult for Buydo, and it's peers overseas as well, to. 0:03:55.240 --> 0:03:56.760 Start charging for these services. 0:03:57.360 --> 0:03:59.800 And the other side is again that the corporate users 0:04:00.280 --> 0:04:03.640 going to start paying extra for their advertising on the 0:04:03.680 --> 0:04:07.200 back of any incer enhanced search. And again that remains 0:04:07.280 --> 0:04:10.360 very unclear at the moment. So the monetization efforts are 0:04:10.440 --> 0:04:13.040 very unclear and indistinct at the moment. Not just for 0:04:13.120 --> 0:04:15.840 by Do, I'd say that also applies to a lot 0:04:15.840 --> 0:04:17.200 of the uspers as well. 0:04:17.640 --> 0:04:20.600 So just to remind our listeners that we have our 0:04:20.680 --> 0:04:24.680 reporters in Bloomberg News and then we have our analysts 0:04:24.720 --> 0:04:28.920 in Bloomberg Intelligence. So Robert is giving you his neutral 0:04:29.000 --> 0:04:32.400 analysis of the company. And I want to go back 0:04:32.440 --> 0:04:34.240 to the point you made, Robert, which seems like you're 0:04:34.240 --> 0:04:36.960 saying that the misstep that we see here for by 0:04:37.040 --> 0:04:40.480 Do is really down to weakness in the economy and 0:04:40.560 --> 0:04:46.840 not in fact missteps in strategy management considerations. Is this 0:04:46.920 --> 0:04:51.039 company do you think in good shape with its fundamentals 0:04:51.400 --> 0:04:54.200 and will get better if and when the economy improves. 0:04:56.520 --> 0:05:00.479 It's a profitable business, it's generating healthy free CA flow. 0:05:00.960 --> 0:05:03.600 Its core search business may not be particularly high growth, 0:05:03.640 --> 0:05:05.880 and as I've said, it is tied to the outlook 0:05:05.920 --> 0:05:09.799 for economic growth, but there's no fundamental concern on that front. However, 0:05:10.040 --> 0:05:12.279 as I said, it was certainly a year ago it 0:05:12.360 --> 0:05:15.360 was seen as China's leading AI play. The sort of 0:05:15.440 --> 0:05:18.560 level of AI related revenues is going to generate in 0:05:18.600 --> 0:05:20.680 the next year is relatively. 0:05:20.160 --> 0:05:21.920 Small and they're all loss making. 0:05:22.279 --> 0:05:24.400 So are we going to get that earnings kicker coming 0:05:24.400 --> 0:05:26.120 through from AI in the next year or two. 0:05:26.560 --> 0:05:27.720 It's highly unlikely. 0:05:28.200 --> 0:05:32.839 Therefore, there's nothing fundamentally wrong with by Do in any way. 0:05:33.120 --> 0:05:35.680 But I don't think it, you know, anybody would really 0:05:35.720 --> 0:05:39.560 describe it as a growth company. And I you know, 0:05:39.640 --> 0:05:42.599 and the other thing on the AI side, the China's 0:05:42.640 --> 0:05:46.680 leading Internet giants like Ali, Barbar, ten Cent and Huawei, 0:05:47.040 --> 0:05:50.400 are you know, quite quickly narrowing the technology gap and 0:05:50.440 --> 0:05:51.320 catching up with by Do. 0:05:51.520 --> 0:05:53.000 So theres a competitive. 0:05:52.440 --> 0:05:55.920 Element potentially threatening them over the next three years as well. 0:05:56.200 --> 0:05:59.279 We were just talking the other day about this investment 0:05:59.360 --> 0:06:03.280 that is making in a new AI startup. The name 0:06:03.400 --> 0:06:04.880 escapes me at the moment. I think it was a 0:06:04.920 --> 0:06:07.640 billion dollar leading the funding on the round, and I 0:06:07.640 --> 0:06:10.160 think the startup is valued now at around two and 0:06:10.240 --> 0:06:15.880 a half billion US. Was it Moonshot or something like that, Yeah, yeah. 0:06:15.920 --> 0:06:17.080 Yeah, moon Ai. 0:06:17.240 --> 0:06:20.760 Okay, So generally speaking, when if you had to compare 0:06:20.800 --> 0:06:24.839 what's happening here at the consumer level, where AI is 0:06:24.920 --> 0:06:27.480 kind of intersecting a lot of these platforms, with what's 0:06:27.560 --> 0:06:29.560 going on in China, one of the things that I 0:06:29.600 --> 0:06:32.279 think about in China is the restrictions on the Internet 0:06:32.320 --> 0:06:36.280 more broadly, and if you have to train these models 0:06:36.720 --> 0:06:40.680 on data that is really not as inclusive, I would 0:06:40.720 --> 0:06:43.359 think that that the end, the output is going to 0:06:43.360 --> 0:06:44.680 be very limited. Am I right in that? 0:06:46.880 --> 0:06:47.520 Absolutely? 0:06:47.640 --> 0:06:51.120 Because something like ninety percent or thereabouts of all the 0:06:51.480 --> 0:06:55.279 data and information on the World Wide Web is in English, 0:06:55.520 --> 0:06:59.680 so Chinese language data and information accounts for around ten 0:06:59.800 --> 0:07:02.960 seven and as you've just you know, referred to, their 0:07:03.000 --> 0:07:07.680 are censorship restrictions. So I think and I read something 0:07:07.680 --> 0:07:10.600 interesting last night as well, looking at the longer term 0:07:10.640 --> 0:07:14.560 performance and accuracy of some of these chatbots, and that 0:07:14.600 --> 0:07:16.640 they all sort of average out a sort of similar 0:07:16.720 --> 0:07:20.800 level over time. The key differentiator is access to training data. 0:07:21.240 --> 0:07:25.160 So if China's AI models and chatbots are being trained 0:07:25.160 --> 0:07:29.080 off for a relatively restricted data set, that will impact 0:07:29.160 --> 0:07:33.360 their accuracy and usefulness in the long run. Having said that, 0:07:33.520 --> 0:07:37.960 by Do is China's number one ranked chatbot on the moment, 0:07:38.320 --> 0:07:40.400 and from you know, from where we see at the moment, 0:07:40.480 --> 0:07:43.680 it will likely remain in that position for the foreseeable future. 0:07:43.720 --> 0:07:45.840 But is it making money or is it likely to 0:07:45.880 --> 0:07:46.400 make money? 0:07:47.200 --> 0:07:51.080 We've seen some notable stumbles from Google with Gemini and 0:07:51.120 --> 0:07:53.760 it really set back to start quite a bit. And 0:07:53.800 --> 0:07:56.360 then today we hear that even Microsoft has had some 0:07:57.160 --> 0:08:02.000 issues with its bot as well. And I'm wondering whether 0:08:02.080 --> 0:08:04.080 or not buy Do in China. I'm not sure it 0:08:04.120 --> 0:08:06.600 would be made public. But have we heard anything about 0:08:06.600 --> 0:08:10.520 any mistakes or distorted data coming out of it's AI search? 0:08:11.960 --> 0:08:14.120 Yeah, I think again, going back to censorship in the 0:08:14.120 --> 0:08:17.600 early days, you know, if you want to ask something 0:08:17.640 --> 0:08:21.520 about politics or the president, you know, it gave some 0:08:21.760 --> 0:08:26.120 potentially inappropriate answers which have been clamped down on by sensors, etc. 0:08:27.800 --> 0:08:30.920 But you know, just again anecdotally, obviously myself and my 0:08:30.960 --> 0:08:34.440 colleagues of UC systems and experimented with them in a 0:08:34.520 --> 0:08:37.440 very sort of informal way. I think the accuracy of 0:08:37.480 --> 0:08:42.240 the answers that ernie bot produces versus a chat GPT, 0:08:43.160 --> 0:08:46.640 there is a noticeable lack of detail on the Chinese side. Again, 0:08:46.720 --> 0:08:50.920 whether that's due to the underlying algorithms or the accessibility 0:08:50.960 --> 0:08:53.679 of the underlying data set for training, it's probably more 0:08:53.720 --> 0:08:54.840 the latter, I would say. 0:08:55.320 --> 0:08:58.800 So next week we're looking to the NPC meeting and 0:08:58.920 --> 0:09:01.040 one of the questions that we've been asking is about 0:09:01.160 --> 0:09:03.760 you know, the growth target, yes, but also the focus 0:09:03.800 --> 0:09:06.600 of where this activity, this economic activity is going to 0:09:06.600 --> 0:09:10.360 come from. And I think for the private sector, particularly 0:09:10.880 --> 0:09:13.720 in China, where technology is concerned, there has been a 0:09:13.760 --> 0:09:17.640 little bit of trepidation, big question mark over government policy. 0:09:17.760 --> 0:09:20.120 I think that the people who play in this field 0:09:20.160 --> 0:09:23.559 have sometimes felt as though the rug has been pulled 0:09:23.559 --> 0:09:27.559 out from underneath them perhaps midstream. Do you think the 0:09:28.120 --> 0:09:33.280 leaders in China understand the importance of this technology economy 0:09:33.440 --> 0:09:36.480 in providing a lot of the engine for future growth. 0:09:38.320 --> 0:09:40.400 Absolutely, I think they do, and I speak as someone 0:09:40.440 --> 0:09:45.240 who's British and hopefully independent of everything. No, absolutely, Ali 0:09:45.240 --> 0:09:49.000 Baba and China. Ali Baba, Tencent and Huawei are the 0:09:49.080 --> 0:09:51.680 three and may arguably Bite Dance as well, are the 0:09:51.720 --> 0:09:55.160 three or four large technology giants within the Chinese economy. 0:09:55.240 --> 0:09:59.439 They absolutely underpin not just the growth in the technology 0:09:59.440 --> 0:10:02.520 sector itself, but they're important drivers of economic growth and 0:10:02.559 --> 0:10:05.600 if you look at any pronouncements from the senior leadership 0:10:05.640 --> 0:10:07.520 in China, I think they do understand that. 0:10:07.880 --> 0:10:09.640 However, as a one party. 0:10:09.360 --> 0:10:12.160 States, there are you know, particular issues with the way 0:10:12.240 --> 0:10:17.280 trying to like to manage things, censorship, etc. But looking forward, 0:10:17.360 --> 0:10:20.640 I think we should see a more stable regulatory environment 0:10:20.840 --> 0:10:24.480 going forward. That's a key point which has obviously been 0:10:24.520 --> 0:10:27.079 an area of significant concern in the last few years. 0:10:27.160 --> 0:10:29.720 Well, that fuels my next question, which was kind of 0:10:29.760 --> 0:10:33.200 about politics. So we saw Ali Baba stumble to a 0:10:33.240 --> 0:10:37.760 certain degree because of jack Maa's relationship with policymakers, and 0:10:38.120 --> 0:10:40.880 although it didn't come out in public, ten Cent with 0:10:41.280 --> 0:10:42.960 a little bit of a struggle ponym I had to 0:10:42.960 --> 0:10:45.800 step back a little bit. How is Baidu's relationship with 0:10:45.840 --> 0:10:46.680 the party. 0:10:47.480 --> 0:10:50.439 As far as I'm aware, I think they have good 0:10:50.480 --> 0:10:54.800 relations so it's not so much an issue of that. Again, 0:10:54.840 --> 0:10:59.360 it's fundamentally it do have the monetization model, the right 0:10:59.400 --> 0:11:03.439 revenue model to drive significant earnings growth on these AI tools, 0:11:03.920 --> 0:11:08.080 and you know, it's very unclear. And then from my 0:11:08.200 --> 0:11:10.760 point of view, I think it's highly unlikely we'll see 0:11:10.800 --> 0:11:13.520 that earnings kicker come through, not just this year, but 0:11:13.559 --> 0:11:14.880 in the next two to three years. 0:11:15.640 --> 0:11:16.760 That's the main issue for them. 0:11:16.760 --> 0:11:20.240 It's just an issue of the corporate management and the 0:11:20.400 --> 0:11:21.600 fundamental earnings model. 0:11:21.640 --> 0:11:22.280 It's not an. 0:11:22.200 --> 0:11:25.600 Issue of their relationship with the party or the government, etc. 0:11:25.960 --> 0:11:28.000 I think the government would love to support them as 0:11:28.160 --> 0:11:29.880 in as best they can, but if they don't have 0:11:29.960 --> 0:11:32.240 the right business model there, they're not going to make money. 0:11:32.440 --> 0:11:34.719 Yeah, I probably should have instead said the relationship with 0:11:34.760 --> 0:11:37.320 the party. I probably should have said with policy or 0:11:37.320 --> 0:11:39.960 with the regulators, and that would be a little bit 0:11:40.040 --> 0:11:42.959 less political. And the current always says after coming off 0:11:43.000 --> 0:11:47.240 this program that he really enjoyed his morning workout. Deep breath, 0:11:47.320 --> 0:11:50.840 excel slowly, Glad that's over with Robert. Nice to have 0:11:50.880 --> 0:11:53.640 you playing game with us, playing the game. Robert Lee, 0:11:53.679 --> 0:12:04.000 Senior Analyst, at Bloomberg Intelligence. This is bloom joining us 0:12:04.040 --> 0:12:06.160 to discuss this a little bit further as John Leu, 0:12:06.280 --> 0:12:07.640 who is Bloomberg. 0:12:07.200 --> 0:12:08.840 Executive editor in Beijing. 0:12:09.360 --> 0:12:11.199 So, John, a couple of issues here. One is the 0:12:11.280 --> 0:12:13.679 root of the problem, what's causing people to want to 0:12:13.760 --> 0:12:17.480 short stocks and to make these downside bets. And the 0:12:17.520 --> 0:12:20.839 other is, you know, some of these measures taken by 0:12:20.960 --> 0:12:26.600 quant funds that actually sort of lead to exacerbating the losses, 0:12:27.440 --> 0:12:30.040 are they Do you think policymakers are getting at both 0:12:30.080 --> 0:12:31.040 of those objectives. 0:12:32.720 --> 0:12:35.240 So on the first question, Brian, I think there is 0:12:35.320 --> 0:12:39.160 a lot of pessimism about the outlook for the economy. 0:12:39.280 --> 0:12:42.560 That has been the case for the last probably I 0:12:42.559 --> 0:12:47.200 would say a year or so. That last year, you'll remember, 0:12:47.240 --> 0:12:49.600 there was a lot of optimism coming out of COVID, 0:12:49.640 --> 0:12:54.600 people expecting an economic boom to happen as people got 0:12:54.640 --> 0:12:56.880 out of lockdowns, went out and spent, and that just 0:12:56.960 --> 0:12:59.080 never occurred. And on top of that, we had the 0:12:59.120 --> 0:13:02.680 property crisis that has made things worse. And so we 0:13:02.800 --> 0:13:05.040 come into twenty twenty four with a lot of people 0:13:05.080 --> 0:13:07.520 worried about where the economy is going, and that has 0:13:07.640 --> 0:13:11.600 led to this desire to hedge their positions when it 0:13:11.640 --> 0:13:15.559 comes to the stock market, to short the market when 0:13:15.600 --> 0:13:19.440 it comes to this strategy and quant funds there the 0:13:19.520 --> 0:13:24.000 regulator at this moment has been trying to stop the 0:13:24.120 --> 0:13:28.400 trajectory of the downward trajectory of the market by every 0:13:28.480 --> 0:13:31.880 means that its disposal. We've seen state funds go into 0:13:31.880 --> 0:13:37.000 the market, We've seen regulators step in to tell institutions 0:13:37.000 --> 0:13:40.120 what they can and cannot do, and this is part 0:13:40.160 --> 0:13:44.280 and parcel of that. There was a lot of blame 0:13:44.360 --> 0:13:49.000 placed on this strategy. People saw it as having amplified 0:13:49.440 --> 0:13:52.320 some of the some of the declines that we saw 0:13:52.360 --> 0:13:55.560 at the start of the year, partly because it was 0:13:55.679 --> 0:13:58.640 such a It was a strategy that relies so much 0:13:58.760 --> 0:13:59.600 on leverage. 0:14:00.120 --> 0:14:01.760 Yeah, that was going to be one of my questions, 0:14:01.800 --> 0:14:04.439 the degree of which to which leverage is being used. 0:14:04.440 --> 0:14:06.280 And the other thing, I don't know what the swaps 0:14:06.320 --> 0:14:09.079 market is like in China. Here in the US it 0:14:09.200 --> 0:14:11.320 trades kind of in the over the counter market, so 0:14:11.400 --> 0:14:14.920 there's not an exchange per se that's creating a level 0:14:14.960 --> 0:14:20.000 of visibility into potential counterparty risk. So it just kind 0:14:20.000 --> 0:14:22.360 of exacerbates a little bit of the volatility. And if 0:14:22.400 --> 0:14:26.080 we're talking about using the equity market as a way 0:14:26.520 --> 0:14:30.560 to measure sentiment. Obviously, if you're a retail investor and 0:14:30.600 --> 0:14:33.720 every day you look at you know, media to try 0:14:33.720 --> 0:14:36.920 to gauge an understanding of where equities are trading, just 0:14:36.960 --> 0:14:39.000 to use the equity market as an example, and you 0:14:39.080 --> 0:14:41.760 see a steady decline in the value of those assets, 0:14:41.800 --> 0:14:44.280 I mean it's going to weigh on sentiment in quite 0:14:44.320 --> 0:14:46.360 a dramatic fashion to the downside. 0:14:47.800 --> 0:14:48.240 Exactly. 0:14:48.320 --> 0:14:52.000 So, you know, the swaps market is fairly opaque here 0:14:52.000 --> 0:14:55.560 in China, and a lot of these this direct market 0:14:55.600 --> 0:14:58.760 access the strategy, A lot of it was directly between 0:14:58.880 --> 0:15:02.320 the quant fund and the broker, and so there was 0:15:02.400 --> 0:15:04.600 not a lot of visibility. That was one of the problems. 0:15:04.920 --> 0:15:08.240 You had leverage that was up to three times and 0:15:08.280 --> 0:15:11.360 now the securities regulators saying that has to be rained 0:15:11.400 --> 0:15:14.440 back to one times. Whatever the amount of money is 0:15:14.480 --> 0:15:21.160 being deployed there is especially for the retail investors, if 0:15:21.160 --> 0:15:23.800 you look at the media, I think we have in 0:15:23.840 --> 0:15:27.160 the past few months seen a big attempt by state 0:15:27.240 --> 0:15:32.080 media to put a brave face on things, to try 0:15:32.120 --> 0:15:37.560 and highlight and amplify the positives, and I think the 0:15:37.560 --> 0:15:40.400 biggest thing that's happened so far is so far in February, 0:15:40.400 --> 0:15:43.480 we've mostly had green days, days when the market has 0:15:43.520 --> 0:15:47.040 gone up, mostly because of the regulator's intervention in the market, 0:15:47.080 --> 0:15:49.040 but that is having an effect on centiment. 0:15:50.040 --> 0:15:52.720 Sometimes you read between the lines on what the regulator 0:15:52.760 --> 0:15:56.240 puts out. In this case, it added the CSRC did 0:15:56.280 --> 0:16:00.560 that they would severely crack down on illegal activities. So 0:16:00.600 --> 0:16:03.960 it was this illegal and what sort of message does 0:16:03.960 --> 0:16:07.400 it send that you know that the regulators seem to 0:16:07.440 --> 0:16:10.400 always think that it's because of bad actors rather than 0:16:10.440 --> 0:16:12.560 bad policies, So. 0:16:12.960 --> 0:16:14.920 This strategy is not illegal. 0:16:15.640 --> 0:16:19.960 I think the there have been other actors that have 0:16:20.120 --> 0:16:22.600 been punished by the securities regulator in. 0:16:22.600 --> 0:16:26.040 Recent weeks for activities that were illegal. 0:16:26.360 --> 0:16:30.000 I believe last night the securities Regulator also announced that 0:16:30.040 --> 0:16:30.880 they were taking. 0:16:30.640 --> 0:16:35.800 Some punitive measures against another fund for sort of. 0:16:37.280 --> 0:16:42.000 Controlling unbeknownst to the regulator other funds that they had 0:16:42.040 --> 0:16:46.360 not disclosed, and so that that obviously was in violation 0:16:46.480 --> 0:16:49.040 of rules. And so I think the regulator is trying 0:16:49.040 --> 0:16:51.960 to do two things at once. One is trying to 0:16:52.120 --> 0:16:56.440 rein in strategies that are illegal and allowed, but trying 0:16:56.480 --> 0:17:00.320 to reduce the amount of risks that they they bring 0:17:00.320 --> 0:17:02.800 to the market by raining in how much leverage they 0:17:02.800 --> 0:17:05.800 can take, but at the same time also issuing warning 0:17:06.280 --> 0:17:09.680 to any traders institutions that they have to get their 0:17:09.720 --> 0:17:12.800 acts together and that the regulator, if anything is being 0:17:12.880 --> 0:17:16.439 done that's not up to the rules, the regular is 0:17:16.440 --> 0:17:17.000 going to punish. 0:17:17.160 --> 0:17:19.440 So I'm wondering, as I'm listening to you, John, I'm 0:17:19.480 --> 0:17:23.639 wondering whether at next week's NPC, the National People's Congress 0:17:24.240 --> 0:17:27.480 meeting that gets underway on the fifth, whether the new 0:17:27.520 --> 0:17:30.720 Premier Lee Chiung is going to address any of these 0:17:30.720 --> 0:17:34.240 issues that he will discuss, or at least address the 0:17:34.320 --> 0:17:37.560 issue of maybe tighter regulation in terms of the way 0:17:37.680 --> 0:17:39.400 financial markets have been behaving. 0:17:40.720 --> 0:17:43.920 So I think a good way to look at the 0:17:43.960 --> 0:17:46.720 Premier's address at the NPC is to see it as 0:17:46.760 --> 0:17:50.320 sort of the Chinese form of the state of the 0:17:50.440 --> 0:17:51.959 Union that we have in the United States. 0:17:52.320 --> 0:17:53.119 And so this. 0:17:53.920 --> 0:17:58.960 Address will be will be written in a way to try, 0:17:59.200 --> 0:18:03.760 I believe and still confidence, to make the public feel 0:18:03.840 --> 0:18:07.000 good about the economy. So I would expect a lot 0:18:07.200 --> 0:18:09.760 of verbiage in there about how things are getting better, 0:18:10.520 --> 0:18:14.639 how underlying fundamentals are not as bad as people might think, 0:18:15.040 --> 0:18:19.920 and how things are starting to look better. I think 0:18:20.000 --> 0:18:23.480 he will probably mention the fact that the economy is 0:18:23.520 --> 0:18:26.440 not as great as everybody had hoped, that the families 0:18:26.480 --> 0:18:28.639 across the country are facing hardships, But I think the 0:18:28.680 --> 0:18:30.760 main point he will make is that things aren't going 0:18:30.800 --> 0:18:31.480 to get better. 0:18:32.720 --> 0:18:35.720 John, do you feel that policymakers will feel as though 0:18:35.720 --> 0:18:38.600 they need to be delicate here because if they come 0:18:38.640 --> 0:18:43.920 out with really sweeping policy changes, like let's say, running 0:18:44.560 --> 0:18:47.600 budget deficits spending up over four percent, that it might 0:18:47.680 --> 0:18:50.520 send a worrisome message. 0:18:50.640 --> 0:18:52.680 Is that part of the consideration do you think? 0:18:54.119 --> 0:18:57.640 I think there is a lot of concern within government 0:18:57.720 --> 0:19:02.000 here in Beijing that, let's say, if we lever up 0:19:02.440 --> 0:19:08.200 central government books and sort of borrow kind of borrows 0:19:08.240 --> 0:19:11.520 its way out of this current situation, that that will 0:19:11.640 --> 0:19:14.240 lead to an even worse crisis down there. There is 0:19:14.240 --> 0:19:16.360 a lot of concern about that. But at the same time, 0:19:16.359 --> 0:19:18.560 I think there's a lot of people here who are saying, 0:19:19.119 --> 0:19:20.639 if the house is on fire, you got to put 0:19:20.680 --> 0:19:21.600 the fire out first. 0:19:21.960 --> 0:19:22.880 And so I. 0:19:22.840 --> 0:19:26.440 Think at this point, the government, based on what we've 0:19:26.480 --> 0:19:28.720 heard from the premiere. Just a couple of weeks ago, 0:19:29.560 --> 0:19:32.919 they had a meeting where to discuss his work report 0:19:32.960 --> 0:19:35.400 that he'll deliver at the NPC, and the readout from 0:19:35.400 --> 0:19:39.560 that meeting actually had a lot of verbiage around him saying. 0:19:39.240 --> 0:19:40.120 We got to do more. 0:19:40.160 --> 0:19:42.600 We have to take real, concrete steps to show people 0:19:42.920 --> 0:19:45.640 that the government is responding to the economic situation. 0:19:45.760 --> 0:19:48.399 So I do think in turns aside, they're going to 0:19:48.400 --> 0:19:49.240 try to do what they can. 0:19:49.400 --> 0:19:52.720 So I understand what you're saying in terms of admitting 0:19:52.760 --> 0:19:55.600 that things are really difficult right now, But internally, I'm 0:19:55.600 --> 0:19:59.520 wondering whether what's happening right now in the economy is 0:19:59.560 --> 0:20:03.040 being viewed to something that is or was as serious 0:20:03.280 --> 0:20:05.440 as what we had in twenty fifteen. 0:20:07.359 --> 0:20:10.320 I think the I think the concern is greater at 0:20:10.320 --> 0:20:15.040 this point for a few reasons. One, the relationship with 0:20:15.080 --> 0:20:17.400 the United States is not good. It's much worse than 0:20:17.400 --> 0:20:21.120 it was in twenty fifteen. That was the Obama administration. 0:20:22.160 --> 0:20:25.960 China hosted the G twenty. Barack Obama and Shijiqing stood 0:20:26.000 --> 0:20:28.320 up at the G twenty in Hanjo and announced that 0:20:28.400 --> 0:20:32.040 the US and China we're going to cooperate on carbon goals. 0:20:33.480 --> 0:20:37.600 That period of time has ended. The relationship is much 0:20:37.640 --> 0:20:40.959 more competitive. At the same time, there are other issues. 0:20:41.040 --> 0:20:44.320 The population in China is now shrinking. There's a demographic 0:20:44.920 --> 0:20:47.480 sort of conundrum that is much more pronounced now than 0:20:47.480 --> 0:20:50.800 it was in twenty fifteen. And so those issues I 0:20:50.800 --> 0:20:53.080 think make this current situation much more different. 0:20:53.520 --> 0:20:56.080 Yeah, it does seem it seems a little bit more 0:20:56.160 --> 0:20:58.359 dangerous at the moment, John, Thanks so much for joining us. 0:20:58.400 --> 0:21:01.560 John Liu, Bloomberg, executive editor in Beijing. Doug, if we 0:21:01.600 --> 0:21:05.280 had a political analyst on instead of our own executive editor, 0:21:05.480 --> 0:21:08.000 I might have asked him, is there a gap between 0:21:08.280 --> 0:21:11.240 the premier's approach and the president's approach? Most people would 0:21:11.280 --> 0:21:14.840 say perhaps no, but one seems to want to get 0:21:14.840 --> 0:21:15.840 more aggressive, the other a. 0:21:15.840 --> 0:21:18.040 Little bit more cautious. This is Bloomberg. 0:21:24.920 --> 0:21:27.800 Well, tech stocks have taken a little bit of a 0:21:27.800 --> 0:21:30.920 back seat of late in the US market. We've seen 0:21:31.040 --> 0:21:35.200 a few other sectors like industrials and financials and consumer 0:21:35.280 --> 0:21:38.640 discretionary take a little bit more of a leading role 0:21:38.680 --> 0:21:39.880 in the markets here of fleet. 0:21:40.200 --> 0:21:41.680 Does that continue? Is tech done? 0:21:41.720 --> 0:21:44.439