1 00:00:02,440 --> 00:00:05,840 Speaker 1: Global business news twenty four hours a day. If Bloomberg 2 00:00:05,840 --> 00:00:08,920 Speaker 1: dot Com the radio plus mobile lap and on your radio, 3 00:00:09,200 --> 00:00:13,120 Speaker 1: this is a Bloomberg Business Flash and I'm Karen Mostow. 4 00:00:13,160 --> 00:00:15,480 Speaker 1: This update is brought to you by Sector Spider E 5 00:00:15,600 --> 00:00:17,520 Speaker 1: t F. So why buy a single stock when you 6 00:00:17,560 --> 00:00:20,840 Speaker 1: can invest in the entire sector? Visits sector s p 7 00:00:21,000 --> 00:00:24,079 Speaker 1: d R S dot Com are called six sector e 8 00:00:24,239 --> 00:00:27,720 Speaker 1: t F B MW reporting a five point two percent 9 00:00:27,840 --> 00:00:31,240 Speaker 1: gain and profit last year on higher vehicle deliveries as 10 00:00:31,280 --> 00:00:33,800 Speaker 1: the world's largest maker of luxury cars pushes to stay 11 00:00:33,840 --> 00:00:37,000 Speaker 1: ahead of Mercedes Benz. Stock traders are putting the clins 12 00:00:37,000 --> 00:00:39,680 Speaker 1: in Asia behind them. As European markets rise with US 13 00:00:39,720 --> 00:00:43,280 Speaker 1: stock index futures and commodities, government bonds are falling, gold 14 00:00:43,320 --> 00:00:46,280 Speaker 1: sliding the euro weakening. We check the markets every fifteen 15 00:00:46,280 --> 00:00:49,960 Speaker 1: minutes throughout the trading day on Bloomberg Snpe Many futures 16 00:00:50,040 --> 00:00:52,560 Speaker 1: up ten points, DOWIE Mini futures of seventy nine and 17 00:00:52,680 --> 00:00:55,920 Speaker 1: NASDAC E mini futures of twenty one. DAX in Germany's 18 00:00:55,920 --> 00:00:59,000 Speaker 1: at one point two percent ten your treasury down thirteen 19 00:00:59,080 --> 00:01:01,520 Speaker 1: thirty seconds, the at one point eight seven per set 20 00:01:01,880 --> 00:01:04,399 Speaker 1: yield on the two year point eight nine percent. Now 21 00:01:04,440 --> 00:01:06,920 Speaker 1: I'm execrat oil off one point nine percent or sixty 22 00:01:07,000 --> 00:01:09,800 Speaker 1: eight cents. The thirty seven eighteen a barrel co. Mykes 23 00:01:09,840 --> 00:01:12,399 Speaker 1: gold is down four ten percent or five dollars fifty 24 00:01:12,440 --> 00:01:15,600 Speaker 1: cents at twelve fifty seven fifty announced the euro at 25 00:01:15,600 --> 00:01:18,120 Speaker 1: dollar oh nine seven seven the N one twelve point 26 00:01:18,200 --> 00:01:21,040 Speaker 1: four eight and that's a Bloomberg business flash. Tom and 27 00:01:21,120 --> 00:01:24,800 Speaker 1: Mike Okay Rosco, thank you very much. We're talking with 28 00:01:25,240 --> 00:01:28,600 Speaker 1: David Goldman from Age of Times about China. It's a 29 00:01:28,760 --> 00:01:32,640 Speaker 1: new policy conference and whether the Chinese economy. They are 30 00:01:32,680 --> 00:01:36,600 Speaker 1: announcing additional monetary stimulus. They're going to raise the amount 31 00:01:36,600 --> 00:01:40,759 Speaker 1: of cash in circulation, David, they've cut the reserve ratio. 32 00:01:40,959 --> 00:01:45,480 Speaker 1: Are you expecting more fiscal or monetary stimulus or is 33 00:01:45,680 --> 00:01:48,200 Speaker 1: what they've done enough at this point. Now, China has 34 00:01:48,240 --> 00:01:51,960 Speaker 1: the highest real interest rates of any major economy in 35 00:01:52,000 --> 00:01:55,280 Speaker 1: the world, and as a result of Chinese currency is 36 00:01:55,280 --> 00:01:58,840 Speaker 1: appreciated in real terms. According to the b I asked 37 00:01:58,880 --> 00:02:02,680 Speaker 1: by about twenty scent in the past two years. That's 38 00:02:02,720 --> 00:02:05,360 Speaker 1: one of the things killing Chinese exports. If you look 39 00:02:05,400 --> 00:02:08,959 Speaker 1: at the composition of growth around the world, Europe is 40 00:02:09,000 --> 00:02:11,959 Speaker 1: doing a good deal better after the massive devaluation of 41 00:02:12,000 --> 00:02:15,320 Speaker 1: the euro. Japan is doing a bit better. Chinese exports 42 00:02:15,320 --> 00:02:20,359 Speaker 1: are doing very poorly, and that's largely the redistribution of 43 00:02:20,480 --> 00:02:24,400 Speaker 1: a fixed or shrinking pile of world trade. According to 44 00:02:24,560 --> 00:02:29,520 Speaker 1: price currencies that rise get less exports. So yes, they 45 00:02:29,600 --> 00:02:32,919 Speaker 1: do have more to do, and uh, they're very cautious 46 00:02:32,960 --> 00:02:37,320 Speaker 1: about doing it in a disruptive fashion. There's been a perception, 47 00:02:37,639 --> 00:02:41,040 Speaker 1: uh that this can lead to an exhausted reserves or 48 00:02:41,200 --> 00:02:43,799 Speaker 1: financial crisis. As you know, I have disagreed with that, 49 00:02:44,240 --> 00:02:46,919 Speaker 1: but they have to proceed costly. So that's the one 50 00:02:46,960 --> 00:02:49,679 Speaker 1: witted way of saying, yes, they've got more to do 51 00:02:49,800 --> 00:02:52,240 Speaker 1: in terms of monetary stimulus. What does it give us 52 00:02:52,240 --> 00:02:55,480 Speaker 1: an update? David Goldman on the power of Beijing versus 53 00:02:55,600 --> 00:02:59,240 Speaker 1: the regional powers in China. Is this a stronger Beijing 54 00:02:59,760 --> 00:03:03,240 Speaker 1: or left twelve months? Well, the regional powers in China 55 00:03:03,360 --> 00:03:06,400 Speaker 1: have the problem that they've been financing all this massive 56 00:03:06,480 --> 00:03:10,760 Speaker 1: infrastructure growth on the basis of local government financing vehicles. 57 00:03:10,840 --> 00:03:15,320 Speaker 1: It's like a local business development corporation sponsored by municipality. 58 00:03:16,000 --> 00:03:20,079 Speaker 1: That's a fabulous amount of debt, and the government is 59 00:03:20,160 --> 00:03:24,919 Speaker 1: consolidating that debt into provincial debt backed by tax revenues 60 00:03:25,000 --> 00:03:28,799 Speaker 1: as opposed to local entities backed by assets that will 61 00:03:28,840 --> 00:03:32,000 Speaker 1: occur at much lower interest rates should happen over five 62 00:03:32,120 --> 00:03:35,880 Speaker 1: years uh, and that will shift about the debt equal 63 00:03:35,920 --> 00:03:42,360 Speaker 1: to about GDP away from municipalities to the government. So 64 00:03:42,480 --> 00:03:47,840 Speaker 1: I think there's a massive consolidation of centralized power based 65 00:03:47,960 --> 00:03:51,680 Speaker 1: on the substitution of tax revenues as the basis for 66 00:03:51,760 --> 00:03:55,600 Speaker 1: government debt from these local government financing vehicles backed by 67 00:03:55,680 --> 00:04:03,200 Speaker 1: real estate. Where does the does the government come into it? 68 00:04:03,320 --> 00:04:06,680 Speaker 1: In terms of dealing with the banks. Now, banks are 69 00:04:06,920 --> 00:04:10,240 Speaker 1: a major concern for for people. Even they may not 70 00:04:10,360 --> 00:04:12,320 Speaker 1: have a systemic impact on the rest of the world, 71 00:04:12,920 --> 00:04:17,040 Speaker 1: but people are watching the banks and their extended loan 72 00:04:17,160 --> 00:04:21,599 Speaker 1: portfolios forum whether or not they can continue to sustain 73 00:04:21,680 --> 00:04:25,240 Speaker 1: growth in China. Oh no, the banks have basically been 74 00:04:25,960 --> 00:04:30,480 Speaker 1: attached to the suse. They're very inefficient. We estivate the 75 00:04:32,000 --> 00:04:35,520 Speaker 1: bad loan ratio, the NPL ratio for banks that's somewhere 76 00:04:35,520 --> 00:04:38,880 Speaker 1: around seven eight percent, which is manageable. There are basically 77 00:04:38,920 --> 00:04:41,719 Speaker 1: two things that government has to do. Wants to permit 78 00:04:41,800 --> 00:04:46,280 Speaker 1: securitization of up coming loans, which has standard much more important. 79 00:04:46,920 --> 00:04:53,960 Speaker 1: Let the e finance uh entrepreneurs substitute for the banks 80 00:04:54,400 --> 00:04:59,200 Speaker 1: and make capital available for spoil and medium enterprises. The 81 00:04:59,279 --> 00:05:02,400 Speaker 1: banks have been hopeless attack They just shovel money into big, 82 00:05:02,480 --> 00:05:07,560 Speaker 1: in inefficient acities. But the new entrepreneurs doing e finance, 83 00:05:07,880 --> 00:05:12,760 Speaker 1: like Absinential Jack Mas company, are much better at evaluating 84 00:05:12,800 --> 00:05:17,000 Speaker 1: credit for smaller enterprises. And that's for China's futures lives. 85 00:05:17,120 --> 00:05:21,680 Speaker 1: So given the regulatory go ahead to allow the new 86 00:05:21,839 --> 00:05:26,400 Speaker 1: financial technologies to leapfrog over the old ones is going 87 00:05:26,480 --> 00:05:29,800 Speaker 1: to be the most I'll go, that's brilliant. But can 88 00:05:29,920 --> 00:05:33,160 Speaker 1: you do that within the government regime that they have, 89 00:05:33,480 --> 00:05:38,160 Speaker 1: that they have true command and control psychology? Can you 90 00:05:38,320 --> 00:05:44,160 Speaker 1: hope for Silicon Valley entrepreneur attributes, Well, you can hope, 91 00:05:44,760 --> 00:05:50,960 Speaker 1: uh tom uh. Obviously it's certainly possible. Within the political framework. 92 00:05:51,320 --> 00:05:53,720 Speaker 1: There will be a lot of people who don't like it. 93 00:05:53,880 --> 00:05:58,400 Speaker 1: Nobody likes being leapfrog uh. You know, Jack Mau expresses 94 00:05:58,440 --> 00:06:01,560 Speaker 1: great optimism. The other intro preneurs expressed grad option. There's 95 00:06:01,560 --> 00:06:05,080 Speaker 1: an They've really been a driver of the Chinese economy. 96 00:06:05,360 --> 00:06:09,320 Speaker 1: It's the double digit growth and consumption which is holding 97 00:06:09,480 --> 00:06:13,000 Speaker 1: China up while some of the older sectors languish. My 98 00:06:13,160 --> 00:06:17,760 Speaker 1: view is the Chinese government can't afford not to work 99 00:06:17,800 --> 00:06:20,400 Speaker 1: with the entrepreneurs because if they don't, they won't get 100 00:06:20,440 --> 00:06:25,200 Speaker 1: the growth and they lose the mandative. Heaven. What's the 101 00:06:25,240 --> 00:06:28,280 Speaker 1: most important thing for China in this next year to 102 00:06:28,360 --> 00:06:31,200 Speaker 1: try to live up to their promises? The most important 103 00:06:31,240 --> 00:06:36,400 Speaker 1: thing is to turn loose the creative juices of entrepreneurs, 104 00:06:36,480 --> 00:06:38,880 Speaker 1: small and medium sized enterprises. You have a lot of 105 00:06:39,120 --> 00:06:42,039 Speaker 1: extremely smart people in China. You've got a new generation 106 00:06:43,400 --> 00:06:47,599 Speaker 1: which has PhD s from the better Chinese universities, foreign universities, 107 00:06:47,680 --> 00:06:51,360 Speaker 1: very smart engineers and scientists, people who can innovate. You 108 00:06:51,560 --> 00:06:56,360 Speaker 1: have to turn that innovation into GDP growth. That's the 109 00:06:56,480 --> 00:06:59,760 Speaker 1: key thing. Yeah, but again, how do you do that 110 00:07:01,040 --> 00:07:05,520 Speaker 1: within this government? Uh? Well, I think the financing e 111 00:07:05,640 --> 00:07:08,880 Speaker 1: commerce are a great example. One of the huge hute 112 00:07:08,920 --> 00:07:12,320 Speaker 1: things about doing this over the internet for the Chinese 113 00:07:12,480 --> 00:07:15,080 Speaker 1: is that the more of the economy that goes over 114 00:07:15,160 --> 00:07:18,880 Speaker 1: the internet for more of a look see that the 115 00:07:18,960 --> 00:07:22,160 Speaker 1: government has as to what people are doing. From the 116 00:07:22,240 --> 00:07:25,600 Speaker 1: standpoint of a centralized government, um, you get a lot 117 00:07:25,680 --> 00:07:28,160 Speaker 1: of information about what people are doing over the internet. 118 00:07:29,080 --> 00:07:31,160 Speaker 1: At the same time, you give entrepreneurs a lot of 119 00:07:31,280 --> 00:07:34,160 Speaker 1: room to swing, so that may end up being a 120 00:07:34,240 --> 00:07:39,960 Speaker 1: marriage of interest. David, help me here with productivity. You've 121 00:07:40,000 --> 00:07:42,320 Speaker 1: been a great synthesis and of course we focused on 122 00:07:42,480 --> 00:07:46,520 Speaker 1: Asia with you so much. But help me with your 123 00:07:46,680 --> 00:07:52,280 Speaker 1: thoughts on whether our productivity challenge now is demand based 124 00:07:52,520 --> 00:07:56,440 Speaker 1: or supply basis and a great distinction. Well, I think 125 00:07:56,520 --> 00:08:00,120 Speaker 1: there are two things going on. There's been an we're 126 00:08:00,200 --> 00:08:04,320 Speaker 1: must shift in employment away from high productivity to low 127 00:08:04,360 --> 00:08:08,680 Speaker 1: productivity sectors. We lose manufacturing jobs, we gain fast food 128 00:08:08,720 --> 00:08:13,160 Speaker 1: and healthcare jobs, which are low paid, low productivity service jobs. 129 00:08:13,200 --> 00:08:15,880 Speaker 1: So a great deal of the productivity decline we've seen 130 00:08:16,400 --> 00:08:19,560 Speaker 1: in the past dozen years, a growth rate decline, is 131 00:08:19,840 --> 00:08:21,720 Speaker 1: simply due to the fact that we have a shift 132 00:08:21,800 --> 00:08:25,680 Speaker 1: in composition of the workforce. The second important thing is 133 00:08:25,800 --> 00:08:31,000 Speaker 1: that we have a client in capital investment. UH. Capital 134 00:08:31,080 --> 00:08:34,559 Speaker 1: investment uh measured, but you know they're not by a 135 00:08:34,640 --> 00:08:38,880 Speaker 1: number of measures, hasn't even reached the two thousand seven peak, 136 00:08:39,360 --> 00:08:45,079 Speaker 1: much less peak at the height of the telecom and 137 00:08:45,840 --> 00:08:49,439 Speaker 1: internet bubble. So if we have less capital investment and 138 00:08:49,600 --> 00:08:51,960 Speaker 1: we have a shift in composition to the labor force 139 00:08:52,080 --> 00:08:56,319 Speaker 1: towards lower productivity activities. Tom of course we're going to 140 00:08:56,400 --> 00:08:59,680 Speaker 1: have declining productivity. I don't think there's a mystery here. 141 00:09:01,000 --> 00:09:03,560 Speaker 1: We certainly heard that yesterday, Michael the key from Dominic 142 00:09:03,679 --> 00:09:09,280 Speaker 1: costom as well. Lack of mystery involved. Well, you know, 143 00:09:10,200 --> 00:09:14,920 Speaker 1: the question is what will drive additional productivity because businesses 144 00:09:14,920 --> 00:09:19,640 Speaker 1: aren't um seeing a way, seeing a reason to invest 145 00:09:19,800 --> 00:09:24,800 Speaker 1: that will significantly change things. Well, I think you have. 146 00:09:25,040 --> 00:09:30,640 Speaker 1: You've had a business unfriendly environment coming from Washington, and 147 00:09:30,960 --> 00:09:35,920 Speaker 1: you have perhaps the most monopolized, carnalized economy that the 148 00:09:36,000 --> 00:09:38,920 Speaker 1: United States has had since the post World War two period. 149 00:09:39,520 --> 00:09:43,520 Speaker 1: Virtually all the employment growth under the Obama administration has 150 00:09:43,520 --> 00:09:47,800 Speaker 1: occurred for the S and T. There's been very little 151 00:09:47,880 --> 00:09:51,319 Speaker 1: job growth from small businesses and startups, and that's a 152 00:09:51,440 --> 00:09:56,840 Speaker 1: gigantic reversal from any previous economic recovery. It's always been 153 00:09:56,880 --> 00:09:59,520 Speaker 1: the startups that creates a productivity, that do the innovating, 154 00:10:00,040 --> 00:10:04,120 Speaker 1: and startups are the major force in the economy that's 155 00:10:04,120 --> 00:10:08,160 Speaker 1: been absent in this recovery. David Goldben, thank you so much. 156 00:10:09,120 --> 00:10:12,160 Speaker 1: The Asian Times greatly appreciated, always thoughtful in Asia and 157 00:10:12,920 --> 00:10:16,679 Speaker 1: on the linkage of markets into economics is Michael I. 158 00:10:17,000 --> 00:10:21,199 Speaker 1: I'm fascinated by this idea of an innovation transfer to China. 159 00:10:21,960 --> 00:10:24,280 Speaker 1: I I'm not qualified even a pine on it for 160 00:10:24,320 --> 00:10:27,000 Speaker 1: a second, but I just don't understand how you do 161 00:10:27,200 --> 00:10:31,840 Speaker 1: entrepreneurial spirit within their government system. Well, that's a question 162 00:10:31,840 --> 00:10:34,520 Speaker 1: a lot of people have asked, because it requires a 163 00:10:34,640 --> 00:10:36,920 Speaker 1: level of freedom that's so far they haven't granted. And 164 00:10:37,000 --> 00:10:39,160 Speaker 1: I go back to Bob Hormatson when he said years 165 00:10:39,200 --> 00:10:43,720 Speaker 1: ago in a book, expect the unexpected about China. Maybe 166 00:10:43,760 --> 00:10:46,320 Speaker 1: that's what we'll see as well. Right now we expect 167 00:10:46,360 --> 00:10:49,240 Speaker 1: the data check which you need. Futures up nine down, 168 00:10:49,280 --> 00:10:51,440 Speaker 1: futures up seventy nine. It has been a four day 169 00:10:51,559 --> 00:10:55,960 Speaker 1: churn in the markets. Brent crude forty point three six. 170 00:10:56,160 --> 00:10:59,120 Speaker 1: What a debate on whether oil we've had over the 171 00:10:59,200 --> 00:11:02,840 Speaker 1: last two or three days on the show. Stephen Short 172 00:11:03,280 --> 00:11:06,800 Speaker 1: to join us here at some point, looking forward to that. Yeah, 173 00:11:06,960 --> 00:11:12,640 Speaker 1: one seven stronger, Yet another hour with you, Bloomberg Surveillance, 174 00:11:14,880 --> 00:11:14,920 Speaker 1: h