WEBVTT - China Sets Growth Target 0:00:02.480 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio news. 0:00:09.640 --> 0:00:12.840 This is the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. 0:00:12.920 --> 0:00:15.400 You can join Brian Curtis and myself for the stories, 0:00:15.440 --> 0:00:18.560 making news and moving markets in the APAC region. You 0:00:18.600 --> 0:00:21.439 can subscribe to the show anywhere you get your podcast 0:00:21.520 --> 0:00:24.919 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:00:24.920 --> 0:00:26.080 Bloomberg Business app. 0:00:28.200 --> 0:00:30.920 And joining us now for some discussion is Rebecca Cheng Wilkins, 0:00:31.120 --> 0:00:35.159 Bloomberg's Asia Government and Politics correspondent. And one of the 0:00:35.159 --> 0:00:37.280 other numbers that I think, well, there's another number that 0:00:37.520 --> 0:00:41.000 sounds quite impressive, that China plans more than half a 0:00:41.120 --> 0:00:44.440 trillion dollars worth of special local government pawns. But the 0:00:44.479 --> 0:00:46.280 other one that I think investors might be a little 0:00:46.320 --> 0:00:50.040 bit disappointed in is the budget deficits set at three 0:00:50.120 --> 0:00:54.160 percent of GDP. I think some were expecting more. Your 0:00:54.200 --> 0:00:56.760 thoughts on the mix of numbers that. 0:00:56.720 --> 0:01:00.360 We got this morning, Yeah, let's talk about that. That 0:01:00.400 --> 0:01:03.000 deficit ratio three percent, I mean three percent is the 0:01:03.000 --> 0:01:05.440 sort of target that they've generally tried to stick to, 0:01:05.560 --> 0:01:07.919 but worth remembering, of course, we did have to raise 0:01:07.959 --> 0:01:09.839 that last year to three point eight percent. 0:01:09.959 --> 0:01:12.200 They can certainly exceeded and they don't really have to 0:01:12.200 --> 0:01:13.319 say anything, just do it. 0:01:13.480 --> 0:01:15.920 Yeah, absolutely, and it doesn't quite tell the full story. 0:01:15.959 --> 0:01:17.880 I think one of the big pieces of news coming 0:01:17.959 --> 0:01:20.600 so far is the unveiling of this one trillion un 0:01:20.720 --> 0:01:24.000 worth of Ultralong Special Central Government bonds. So it's a 0:01:24.000 --> 0:01:26.199 bit of a mouthful. It is the only the fourth 0:01:26.240 --> 0:01:28.920 time we've had these type of bond sales come in 0:01:28.920 --> 0:01:31.080 the last twenty six years or so. I mean, it's 0:01:31.120 --> 0:01:33.400 important because this is a is a potential source of 0:01:33.440 --> 0:01:36.280 funding for those infrastructure projects where it's just seen as 0:01:36.600 --> 0:01:39.240 a really key part of both funding for local government 0:01:39.400 --> 0:01:41.720 but also trying to get growth up and running again. 0:01:41.920 --> 0:01:44.520 So I'm going to spitball this because it looks as 0:01:44.560 --> 0:01:49.360 though about thirty percent of that one trillion in Ultralong 0:01:49.560 --> 0:01:53.480 Special Government bonds is going to be allocated for science 0:01:53.680 --> 0:01:55.840 and technology research and development. 0:01:56.800 --> 0:01:59.560 Yes true, And then that again interesting, right, we are 0:01:59.560 --> 0:02:03.080 seeing and center these other ambitions. If she didn't ping 0:02:03.800 --> 0:02:07.760 high end manufacturings focusing on strategic technologies, they shift to 0:02:07.840 --> 0:02:12.920 boost both domestic manufacturing and consumption as well. I mean, 0:02:12.960 --> 0:02:15.480 I think we'll expect to see more in that work report, 0:02:15.560 --> 0:02:18.360 but that emphasis again taking it back to these core 0:02:18.560 --> 0:02:21.280 aims that she didn't ping has laid out time and 0:02:21.320 --> 0:02:22.120 time again. 0:02:22.520 --> 0:02:25.440 And it seems like the target of five percent for 0:02:25.520 --> 0:02:30.080 GDP growth will be a little ambitious or aggressive in that, 0:02:30.400 --> 0:02:32.320 you know, the comps will be more difficult this year 0:02:32.360 --> 0:02:36.280 than last year. Do they believe then that what they've 0:02:36.360 --> 0:02:39.120 rolled out, and you know, far be it for you 0:02:39.160 --> 0:02:41.880 to answer what they believe, But it is the thinking 0:02:41.960 --> 0:02:46.280 then that the initiatives that they've announced here will enable 0:02:46.360 --> 0:02:50.120 them to bump growth up without doing anything extra special. 0:02:50.760 --> 0:02:52.600 Well, we'll have to wait to see a little bit 0:02:52.600 --> 0:02:55.080 more of those details of figure out precisely how it 0:02:55.160 --> 0:02:57.480 is we are going to get to that five percent target, 0:02:57.480 --> 0:02:59.480 but I think it's safe to say that if they 0:02:59.560 --> 0:03:02.040 want to get there, they are going to have to 0:03:02.160 --> 0:03:05.400 roll out some kind of stimulus more forcefully and more 0:03:05.480 --> 0:03:08.400 swiftly than we have seen in the past, because, of course, 0:03:08.440 --> 0:03:11.160 twenty twenty three was coming up from that very low 0:03:11.240 --> 0:03:14.119 base of the pandemic. Twenty twenty four target of five 0:03:14.160 --> 0:03:17.280 percent is much harder for them to reach. Is worth 0:03:17.320 --> 0:03:20.160 bearing a mind though, despite sort of the pessimism around 0:03:21.000 --> 0:03:24.920 how we get there, policymakers did appear quite confident, actually 0:03:25.000 --> 0:03:28.000 quite cool, calm and collected last year, think about Lee 0:03:28.080 --> 0:03:30.600 and so on. Speaking about how they got to five 0:03:30.639 --> 0:03:33.239 percent last year, they seemed pretty comfortable with the fact 0:03:33.240 --> 0:03:35.440 that they were able to get that without any kind 0:03:35.480 --> 0:03:38.840 of big stimulus. That's a disappointment for some investors, but 0:03:38.920 --> 0:03:41.440 does suggest the kind of element of confidence in Beijing. 0:03:41.600 --> 0:03:43.880 One of the other headlines that our team is moving 0:03:43.960 --> 0:03:48.440 in terms of this work report China vowing faster legislations 0:03:48.440 --> 0:03:51.720 on promoting private sector. I would imagine that that's a 0:03:51.760 --> 0:03:54.240 growth story, and this is going to come to the 0:03:54.280 --> 0:03:56.680 market in a way that's friendly. I would imagine because 0:03:56.880 --> 0:03:59.640 regulatory risk has been a big factory. 0:04:00.240 --> 0:04:03.600 See what exactly the details are on this and how 0:04:03.680 --> 0:04:05.560 much meat is put on the bone here. But this 0:04:05.680 --> 0:04:07.960 is going to be a big story for investors if 0:04:07.960 --> 0:04:12.400 we get some substantive details. I would place this alongside 0:04:12.720 --> 0:04:15.680 this target or this emphasis for a year long push 0:04:15.720 --> 0:04:18.760 for consumption to try and boost that, as well as 0:04:18.760 --> 0:04:22.239 this focus on creating over twelve million jobs in urban areas. 0:04:22.320 --> 0:04:25.120 All of these factors are combined because the private sector 0:04:25.200 --> 0:04:28.640 the biggest employers in cities. Now it's worth saying that 0:04:28.880 --> 0:04:31.760 to really support both the property market and the private 0:04:31.760 --> 0:04:34.600 sector in China, you have to get urbanization going up 0:04:34.640 --> 0:04:37.960 and running again. Typically about twenty two million people move 0:04:38.000 --> 0:04:41.120 from the countryside into city centers in China. Over the 0:04:41.160 --> 0:04:44.039 last couple of years, we've seen just ten million moving. 0:04:44.240 --> 0:04:47.760 There is a twelve million shortfall in the number of 0:04:47.760 --> 0:04:50.200 people going. And you need to get the private sector 0:04:50.560 --> 0:04:54.159 hiring up and running to boost consumption, but also to 0:04:54.200 --> 0:04:56.839 provide some of that funding to property companies too. 0:04:57.320 --> 0:05:00.880 So creating twelve million new urban jobs arged and then 0:05:01.240 --> 0:05:04.640 urban unemployment getting it to around five and a half percent. 0:05:06.200 --> 0:05:08.719 How does that compare with where we sit at the moment. 0:05:09.240 --> 0:05:11.560 Yes, I mean five point five percent. It's worth saying 0:05:11.600 --> 0:05:14.200 it's a little higher than we have now five percent, 0:05:14.200 --> 0:05:18.080 but it is actually in expectation. There is a question mark, 0:05:18.120 --> 0:05:20.480 I would say here there is some skepticism from some 0:05:20.600 --> 0:05:24.520 corners over whether this is a truly accurate picture. And 0:05:24.560 --> 0:05:27.520 we know, for example, in addition to just the figure 0:05:27.560 --> 0:05:32.120 of unemployment, there are these other issues. For example, wages, 0:05:32.160 --> 0:05:36.560 are we seeing wages actually growing stalling, falling, benefits being 0:05:36.600 --> 0:05:39.560 pulled back? We know there are reports for example even 0:05:39.560 --> 0:05:42.480 among local government officials. These are the foot soldiers expected 0:05:42.520 --> 0:05:45.960 to roll out the findings in this report that they 0:05:45.960 --> 0:05:48.479 have actually had to repay their bonuses back to the 0:05:48.480 --> 0:05:51.520 government in past years because finances are so strained. So 0:05:51.839 --> 0:05:54.840 unemployment itself as a headline figure doesn't really tell the 0:05:54.880 --> 0:05:57.840 full picture or the full challenges that China faces here. 0:05:57.920 --> 0:06:00.120 Yeah, I'm trying to understand as I'm listening to the 0:06:00.160 --> 0:06:03.120 youth unemployment story when I think the last print because 0:06:03.160 --> 0:06:06.640 of the revision, was something closer to fifteen percent, thirteen 0:06:06.680 --> 0:06:09.320 and a half to fifteen I can't remember exactly, but 0:06:09.600 --> 0:06:13.320 I'm wondering how that correlates with a plan to target 0:06:13.400 --> 0:06:16.400 kind of an urban unemployment rate of around five and 0:06:16.440 --> 0:06:18.360 a half percent. Is a lot of that going to be, 0:06:18.600 --> 0:06:22.039 you know, in support of helping the youth find work? 0:06:23.080 --> 0:06:25.120 To be frank, I don't think we know quite enough 0:06:25.160 --> 0:06:27.920 to make that comment. I think youth unemployment certainly is 0:06:28.000 --> 0:06:30.640 a big priority. One of the difficulties we have in 0:06:30.839 --> 0:06:33.480 understanding that figure is we cannot do a sort of 0:06:33.520 --> 0:06:37.080 apples apples comparison because they have fundamentally changed the way 0:06:37.120 --> 0:06:40.440 that they calculate that figure. So it has come up 0:06:41.040 --> 0:06:44.720 in the latest monthly revision. We can't really understand how 0:06:44.760 --> 0:06:48.480 that figure compares directly to the numbers that we've seen before, 0:06:48.640 --> 0:06:52.159 but anecdotally youth unemployment, it is still an issue, and 0:06:52.200 --> 0:06:54.760 of course is focused more on on urban centers. 0:06:55.200 --> 0:06:58.360 And they set the CPI growth target rate at around 0:06:58.400 --> 0:07:01.919 three percent. We're under that now. But I saw a 0:07:01.920 --> 0:07:05.480 report yesterday that farmers were going to cut pork production 0:07:05.600 --> 0:07:07.760 expecting pork prices to go up. So that's one thing 0:07:07.800 --> 0:07:11.120 that will help. Where is China in the fight against 0:07:11.120 --> 0:07:13.200 deflation and inflation? 0:07:13.760 --> 0:07:16.640 Yeah, I mean this is going to be a prevailing issue. 0:07:16.680 --> 0:07:18.880 And part of this does, of course touch back to 0:07:18.920 --> 0:07:20.640 some of the other things that we're talking about, this 0:07:20.760 --> 0:07:24.800 issue of consumption and confidence, this issue of whether or 0:07:24.840 --> 0:07:27.239 not we see the property market come back up, whether 0:07:27.280 --> 0:07:30.520 we see wages starting to rise again and people willing 0:07:30.560 --> 0:07:32.960 to go out and spend. Some of these factors, though, 0:07:32.960 --> 0:07:35.840 it's worth saying with deflation, are sort of cyclical. So 0:07:35.960 --> 0:07:39.560 for example, you'd talk about pork, that will help the number, 0:07:39.600 --> 0:07:41.920 but it is something that is a cyclical factor rather 0:07:42.000 --> 0:07:44.760 than perhaps being truly representative as shifting sentiment. 0:07:45.680 --> 0:07:48.040 Okay, Rebecca, out of time. Unfortunately, but thank you for 0:07:48.080 --> 0:07:51.720 coming into our studios Rebecca Chong Wilkins, Bloomberg Asia Government 0:07:51.760 --> 0:08:06.880 and Politics correspondent Robert Lee, who is Bloomberg Intelligence Senior Analyst, 0:08:07.280 --> 0:08:09.920 to take a closer look at AI and the tech 0:08:10.000 --> 0:08:13.720 aspect of the NPC meeting, because we no doubt got 0:08:13.960 --> 0:08:17.040 Robert quite a little bit from the NPC this morning, 0:08:17.360 --> 0:08:21.400 just talking generally about the type of special performance that 0:08:21.440 --> 0:08:22.960 they want in China going forward. 0:08:23.040 --> 0:08:28.240 Your thoughts, No, that's absolutely right, and I suppose it's 0:08:28.240 --> 0:08:31.120 still early days in this Sorry, we're into the first 0:08:31.120 --> 0:08:34.800 few hours the MPC session. So far they've sort of 0:08:34.800 --> 0:08:39.080 confirmed they're going to increase spending national level on science 0:08:39.120 --> 0:08:41.880 and technology research by around ten percent, which to think 0:08:42.000 --> 0:08:44.520 is sort of no great surprise to anyone and broadly 0:08:44.520 --> 0:08:47.600 in line. But the key priorities for the investment are 0:08:47.600 --> 0:08:51.679 going to remain semiconductors in AI, both for national reasons 0:08:51.720 --> 0:08:55.679 and also to try and put their stamp more globally 0:08:56.280 --> 0:08:58.760 that China is a you know, to reinforce the view 0:08:58.760 --> 0:09:02.520 that China is a major play on the global technology stage. 0:09:03.000 --> 0:09:06.839 So those areas will remain in focus. I think we'll 0:09:06.840 --> 0:09:11.040 probably hear some more details as the two day event unfolds. 0:09:12.200 --> 0:09:15.360 But China's greatest challenge going forward is clearly on the 0:09:15.360 --> 0:09:20.720 semiconductor side, given the US export restrictions and given the 0:09:20.880 --> 0:09:24.480 sort of embargos that the likes of ASML in Europe 0:09:25.280 --> 0:09:27.480 and the issue or the impact that that's happening on 0:09:27.480 --> 0:09:31.559 their domestics semiconductor business. So can no doubt talk. 0:09:31.400 --> 0:09:34.400 About yeah, clearly. I mean, the export controls are beginning 0:09:34.440 --> 0:09:36.520 to bite. I think they have been for a while, 0:09:36.600 --> 0:09:38.760 and that's certainly going to limit a lot of the 0:09:38.800 --> 0:09:42.160 advancement on the AI front. But is there a way 0:09:42.200 --> 0:09:46.200 for China to kind of home grow if you will, 0:09:46.240 --> 0:09:50.360 I mean a semiconductor industry that I think it's going 0:09:50.400 --> 0:09:52.600 to take years, But I mean, you know, we've talked, 0:09:52.720 --> 0:09:55.439 Brian just mentioned the AMD chip. I mean, if you 0:09:55.559 --> 0:09:58.920 speak to industry analysts looking at the time frame that 0:09:58.960 --> 0:10:02.280 it would take for China establish an industry that could 0:10:02.360 --> 0:10:04.800 rival what the West has, and I'm thinking of a 0:10:04.880 --> 0:10:08.600 company like in Video. I mean, this is years long process. 0:10:08.679 --> 0:10:11.160 This is not anything where you can just simply throw 0:10:11.200 --> 0:10:12.440 some money and flip a switch. 0:10:13.760 --> 0:10:17.560 No, that's absolutely right. And let's briefly look at a 0:10:17.600 --> 0:10:21.520 place like Taiwan. I'm not sure of the exact year, 0:10:21.520 --> 0:10:23.720 but I think at some point in the nineteen sixties, 0:10:23.840 --> 0:10:28.000 did you know Taiwan's number one export was sugarcane. So 0:10:28.120 --> 0:10:31.600 that country has evolved from agricultural based economy to the 0:10:31.640 --> 0:10:35.920 world's leading semiconductor region for semiconductors and not just mainstream 0:10:35.960 --> 0:10:39.679 semi conductors, advanced semiconductors. But that is a path through 0:10:40.200 --> 0:10:45.480 you know, national investment and you know prioritization on education 0:10:45.679 --> 0:10:49.080 and producing the high quality engineers. That's taken the best 0:10:49.120 --> 0:10:51.439 part of fifty sixty years to get there. Now I'm 0:10:51.480 --> 0:10:53.880 not saying it's going to take half a century for 0:10:54.040 --> 0:10:57.040 China to get there, but you know, it's an immense 0:10:57.120 --> 0:11:00.880 task that China faces. Having said that, another quick fact 0:11:00.880 --> 0:11:04.040 at you if you just pay with yeah, now right, 0:11:04.160 --> 0:11:05.839 if you go on to Google, you google how many 0:11:05.880 --> 0:11:09.079 engineers does China you know, come out of Chinese universities. 0:11:09.080 --> 0:11:11.560 You get a lot of different stats, you know, so 0:11:11.600 --> 0:11:14.360 it's quite hard to pin down exact number. But just 0:11:14.400 --> 0:11:17.640 looking at a South China Morning Post article from the 0:11:17.720 --> 0:11:22.400 last year, in terms of PhD so doctorates students trying 0:11:22.400 --> 0:11:28.360 to produce seventy seven thousand PhD students or graduating with 0:11:28.400 --> 0:11:32.520 PhDs and doctorates. That's the projection for twenty twenty five 0:11:32.640 --> 0:11:36.520 versus forty thousand in the US. So my point I'm 0:11:36.559 --> 0:11:39.280 trying to make here is, I mean, like everything related 0:11:39.320 --> 0:11:42.160 to China, there's a huge domestic population and there's a 0:11:42.160 --> 0:11:44.040 bit of a number game, numbers game at the end 0:11:44.040 --> 0:11:46.440 of the day. So whilst it's very difficult to put 0:11:46.440 --> 0:11:49.880 a finite timeline on how quickly they may narrate a gap, 0:11:50.280 --> 0:11:53.840 they are their domestic universities are producing a lot of 0:11:53.880 --> 0:11:56.520 engineers and I think, I mean, that's the only option 0:11:56.880 --> 0:11:59.760 to throw money at the problem and throw bodies at 0:11:59.760 --> 0:12:02.319 the problem, and I think in time they will. 0:12:02.200 --> 0:12:02.800 Narrate a gap. 0:12:02.880 --> 0:12:05.000 The question is is that going to be a two 0:12:05.080 --> 0:12:06.760 or three year process, is it five year? Is it 0:12:06.800 --> 0:12:09.400 going to be in multi decades? It's very very difficult 0:12:09.559 --> 0:12:10.240 to answer. 0:12:10.600 --> 0:12:12.480 One thing we have to remember, though, is that for 0:12:12.720 --> 0:12:15.720 a lot of Chinese tech companies, the market is China 0:12:16.040 --> 0:12:19.840 and they don't have US competitors there for the most part. Now, 0:12:20.000 --> 0:12:22.839 you know, it depends on whether you're talking smartphones or 0:12:22.840 --> 0:12:26.880 whether you're talking about Internet services and such. But for instance, 0:12:26.920 --> 0:12:29.760 on the E commerce front, there's there's not US. There's 0:12:29.760 --> 0:12:33.280 not big US competition for JD dot Com and Ali 0:12:33.320 --> 0:12:36.560 Baba and such. So, you know, as we look now 0:12:36.679 --> 0:12:39.400 at this environment, because investors listening to the program, they 0:12:39.400 --> 0:12:41.680 want to they want to find some successes. I mean, 0:12:41.760 --> 0:12:45.040 where are there some areas here that investors can mine 0:12:45.280 --> 0:12:46.959 for our performance by Chinese companies. 0:12:48.200 --> 0:12:53.400 Okay, again, you know there are obviously huge technical barriers 0:12:53.400 --> 0:12:57.320 to entry on the semiconductor side. You know, you're working 0:12:57.320 --> 0:12:59.880 at the cutting edge of physics, you know, building the 0:13:00.000 --> 0:13:04.200 devices at the atomic scale. That's an incredibly, incredibly different, sorry, 0:13:04.200 --> 0:13:08.360 difficult problem to overcome, whereas the barriers on the software 0:13:08.400 --> 0:13:09.880 side and much lower. At the end of the day, 0:13:09.960 --> 0:13:12.240 quite simply, you need a desktop, a high powered desktop, 0:13:12.600 --> 0:13:14.480 and the right skill set to do it. So I 0:13:14.520 --> 0:13:18.240 think it's far easier for China to develop its domestic 0:13:18.360 --> 0:13:21.640 software business and internet business. I think that's the direction 0:13:21.760 --> 0:13:24.520 of travel and the most easy route that China can 0:13:25.240 --> 0:13:27.000 drive new global leaders on that front. 0:13:27.040 --> 0:13:29.480 I can see people sharpening their pencils now looking for 0:13:29.520 --> 0:13:31.720 the best software companies to get their hands on. Robert, 0:13:31.720 --> 0:13:35.400 Thank you, Robert Lee, Bloomberg Intelligence Senior Analyst. 0:13:46.280 --> 0:13:48.319 Let's get to our guest. Ron Temple joins us. He 0:13:48.679 --> 0:13:52.280 is chief market strategist at Lazard Asset Management on theline 0:13:52.280 --> 0:13:54.600 from Hong Kong. Ron, thanks for being with us. We're 0:13:54.600 --> 0:13:56.400 talking a lot about what we're getting out of the 0:13:56.480 --> 0:14:00.880 NPC here. Let's begin with a five percent growth target. 0:14:00.960 --> 0:14:05.080 It's not really five percent, it's at around five percent, 0:14:05.160 --> 0:14:08.280 so there's some plus and minus there just but generally speaking, 0:14:08.320 --> 0:14:09.160 what's your takeaway? 0:14:11.480 --> 0:14:13.439 Yeah, I might take away from the first read and 0:14:13.600 --> 0:14:17.480 watching the speech this morning is really that this is 0:14:18.000 --> 0:14:21.080 there's no surprise, let's put it simply, and probably no 0:14:21.200 --> 0:14:25.040 surprise is not good enough. If we look at the targets, 0:14:25.120 --> 0:14:28.040 they are generally the same as last year. You know, 0:14:28.080 --> 0:14:31.200 there's some minor cement differences. For example, this year the 0:14:31.240 --> 0:14:34.080 target is over twelve million new urban jobs. Last year 0:14:34.120 --> 0:14:38.200 it was about twelve million, so again minor differences there. 0:14:38.520 --> 0:14:41.600 But when it really comes to getting the Chinese economy 0:14:41.680 --> 0:14:46.440 moving again, there's there's nothing in this NPC announcement that 0:14:46.520 --> 0:14:49.520 seems like it'll be terribly effective in that regard. And 0:14:49.520 --> 0:14:52.040 I would say the biggest issue facing China really still 0:14:52.080 --> 0:14:54.640 is the real estate industry and housing issues and I 0:14:54.640 --> 0:14:57.080 don't see anything here that's going to materially move the needle. 0:14:58.360 --> 0:15:01.080 Is it more time that is need did here ron 0:15:01.520 --> 0:15:04.080 as opposed to a large stimulus package or do you 0:15:04.120 --> 0:15:07.840 think investors are right in expecting and hoping for more? 0:15:10.200 --> 0:15:11.960 Yeah, I think you've just put your finger on the 0:15:12.000 --> 0:15:14.720 really big issue on the housing market. I think this 0:15:14.760 --> 0:15:17.120 is going to take two to three years to basically 0:15:17.120 --> 0:15:20.480 find a new equilibrium on housing. And just keep in 0:15:20.480 --> 0:15:23.080 mind this all really started three and a half years 0:15:23.080 --> 0:15:26.960 ago when the Chinese government announced the three Red Lines policy, 0:15:27.320 --> 0:15:29.240 where it basically said if you're a property or a 0:15:29.280 --> 0:15:33.080 real estate developer and you exceeded certain key metrics in 0:15:33.240 --> 0:15:36.920 regards to leverage, that your ability to access additional credit 0:15:36.960 --> 0:15:40.600 was significantly curtailed. So they effectively shut off additional credit 0:15:40.640 --> 0:15:43.640 for highly levered developers, and then you started having a 0:15:43.720 --> 0:15:47.040 series of rolling defaults from the developers. And the problem 0:15:47.120 --> 0:15:50.760 with that is as developers defaulted, consumers lost confidence that 0:15:50.800 --> 0:15:53.200 they should be buying apartments from these people because if 0:15:53.240 --> 0:15:55.560 you buy the apartment, it might not be delivered. If 0:15:55.560 --> 0:15:57.720 you fast forward to today, out of the top one 0:15:57.840 --> 0:16:01.680 hundred real estate developers in China, over eighty five percent 0:16:01.680 --> 0:16:04.720 of the private developers are in default, and over thirteen 0:16:04.760 --> 0:16:07.200 percent of the state owned developers are in default. And 0:16:07.240 --> 0:16:10.720 so effectively, you've had a sharp decline in new housing sales. 0:16:10.760 --> 0:16:13.600 You have a sharp decline of new housing starts. It's 0:16:13.640 --> 0:16:15.960 going to take time for the supplies that we're started 0:16:16.000 --> 0:16:17.760 over the last two to three years to work their 0:16:17.760 --> 0:16:20.160 way through the system and to find some kind of 0:16:20.200 --> 0:16:23.800 new equilibrium on demand and supply in this market. And 0:16:23.880 --> 0:16:26.680 I do worry, by the way that the longer this persists, 0:16:27.000 --> 0:16:30.360 the more damaging it is to consumer confidence and optimism 0:16:30.440 --> 0:16:32.000 and willingness to take risk in China. 0:16:32.080 --> 0:16:34.840 And do you have a sense as to what might 0:16:35.840 --> 0:16:39.000 might the government do to help this situation to turn 0:16:39.040 --> 0:16:41.240 it in any way? I mean, it seems like more 0:16:41.280 --> 0:16:45.920 stimulus is required, but given the GDP to debt story 0:16:45.960 --> 0:16:48.160 in China, that doesn't seem to be forthcoming. 0:16:50.280 --> 0:16:52.640 Yeah, I mean, I actually give some credit to the 0:16:52.720 --> 0:16:55.800 Chinese government. I think what they've recognized is, don't you 0:16:55.880 --> 0:16:58.680 do not solve the debt problem with a lot more debt, 0:16:59.280 --> 0:17:02.080 And so they've been quite disciplined in trying to de 0:17:02.320 --> 0:17:06.760 lever the property segment and actually right size it. I 0:17:06.840 --> 0:17:09.159 do think when you look at the other stimulus measures 0:17:09.200 --> 0:17:13.000 you just mentioned, the Ultralong bond, the local government special bonds, 0:17:13.040 --> 0:17:16.800 those are largely unchanged amounts from last year, especially as 0:17:16.800 --> 0:17:19.400 it relates to local government bonds. But I do think 0:17:19.440 --> 0:17:22.560 when you go through the dozens of stimulus measures announced 0:17:22.960 --> 0:17:26.320 in the last six to nine months, including in most 0:17:26.359 --> 0:17:28.879 recent weeks, the twenty five basis point reduction and the 0:17:28.880 --> 0:17:32.880 prime loan rate for the five year LPR, those will 0:17:32.920 --> 0:17:36.320 all cumulatively add to economic momentum in my view and 0:17:36.520 --> 0:17:39.560 other parts of the economy. So importantly, that five year 0:17:39.680 --> 0:17:43.760 LPR is the benchmark for mortgage rates, and so by 0:17:43.840 --> 0:17:47.040 lowering that rate twenty five basis points, for example, it 0:17:47.119 --> 0:17:51.280 reduces payments on existing mortgages, which should lead the consumers 0:17:51.320 --> 0:17:54.600 having extra disposable income that of their mortgage payments, and 0:17:54.640 --> 0:17:56.680 they should be able to spend morning on more money 0:17:56.680 --> 0:17:59.119 on things other than real estate. So I think you 0:17:59.200 --> 0:18:02.359 put all these together, the government is announcing kind of 0:18:02.359 --> 0:18:05.520 a drip feed of stimulus measures. Do you think over 0:18:05.560 --> 0:18:07.280 the next six to twelve months that will start to 0:18:07.320 --> 0:18:08.040 perk up growth? 0:18:08.440 --> 0:18:11.560 Yeah, well, we need a story. I think we don't 0:18:11.600 --> 0:18:14.199 really have a story for China. We've got a story 0:18:14.240 --> 0:18:17.320 in Japan, We've got a story in India, and the 0:18:17.359 --> 0:18:20.320 AI story in the US. Let's talk a little bit 0:18:20.359 --> 0:18:24.800 about the US. The equity market has been grinding higher. 0:18:25.480 --> 0:18:28.119 Some would say that it's likely to continue in this 0:18:28.240 --> 0:18:33.399 direction until we see either economic data signal a slowdown, 0:18:33.920 --> 0:18:36.920 or maybe if inflation looks so sticky that the FED 0:18:37.000 --> 0:18:40.240 has to change course. What do you views on whether 0:18:40.320 --> 0:18:43.000 or not to stay the course inequities in the US. 0:18:45.160 --> 0:18:47.359 I think the story of the US equity market is 0:18:47.359 --> 0:18:50.120 a very different one. We've obviously had a narrowly led 0:18:50.200 --> 0:18:53.480 market rally. We've all talked about the Magnificence seven, the 0:18:53.520 --> 0:18:55.640 Fab five, all the different kind of names we've given 0:18:55.680 --> 0:18:58.040 these stocks. But the reality is, if you look back, 0:18:58.080 --> 0:19:00.760 say from January of twenty twenty two, from the prior 0:19:00.840 --> 0:19:03.960 market peak to where we are today, the bulk of 0:19:04.000 --> 0:19:06.720 the earnings growth and the price action has really been 0:19:06.760 --> 0:19:09.760 in a narrow group of tech stocks and maybe GOLP 0:19:09.960 --> 0:19:13.800 one inhibitors around the healthcare space. But you know, when 0:19:13.800 --> 0:19:16.800 I look at the market going forward, to me, the 0:19:16.800 --> 0:19:21.040 only way that AI tech juggernaut can be sustained is 0:19:21.080 --> 0:19:24.000 if the companies buying those goods and services from the 0:19:24.080 --> 0:19:27.400 tech providers get a return on investment. And I think 0:19:27.400 --> 0:19:29.280 where you're going to see that return on investment is 0:19:29.280 --> 0:19:33.200 a broadening out of productivity and earnings growth in the 0:19:33.280 --> 0:19:36.600 other parts of the market where people successfully deploy these tools. 0:19:36.960 --> 0:19:38.600 And so I think you're going to see a a 0:19:38.600 --> 0:19:41.320 broadening of earnings growth. But b let's just keep in 0:19:41.320 --> 0:19:43.520 mind that the geography of the earnings within the us 0:19:43.640 --> 0:19:46.800 P five hundred has been really dispersed. Over the last 0:19:46.840 --> 0:19:49.440 two years. You've seen major declines and energy earnings in 0:19:49.480 --> 0:19:53.440 the most recent year, declines in healthcare earnings, big increases 0:19:53.440 --> 0:19:56.280 in tech earnings. I think over twenty twenty four and 0:19:56.320 --> 0:19:58.280 twenty twenty five, you're going to see some real moving 0:19:58.359 --> 0:20:02.480 parts around. For up, perhaps the financial sector see lower earnings, 0:20:02.680 --> 0:20:05.080 whereas you might see higher earnings and energy. So to me, 0:20:05.200 --> 0:20:07.560 this is going to be more of a stock picker's market, 0:20:07.640 --> 0:20:10.720 less of a beta trade. And very importantly, by the way, 0:20:10.800 --> 0:20:14.879 I think the discount rate trade meaning buying equities writ 0:20:14.960 --> 0:20:17.000 large because ten year yields are going to go down. 0:20:17.119 --> 0:20:20.280 I think that trade's largely over. It's really all about 0:20:20.400 --> 0:20:24.880 earnings growth from here, not PE expansion, not lower discount rates. Ron. 0:20:24.920 --> 0:20:26.720 I think that's an important point to get back to 0:20:26.760 --> 0:20:30.960 the AI productivity story. Yes, we have a CAPEC spending up, 0:20:31.600 --> 0:20:34.040 a lot of companies investing in AI, but it's to 0:20:34.080 --> 0:20:37.359 be seen whether or not they really benefit that in 0:20:37.440 --> 0:20:41.760 the way in which kind of the spending would justify, right, 0:20:41.800 --> 0:20:43.920 I mean we've yet to really see that play out. 0:20:46.160 --> 0:20:49.080 Yeah, And I do think, you know, there's no question 0:20:49.160 --> 0:20:52.200 in my mind that AI is going to be revolutionary 0:20:52.240 --> 0:20:54.159 for the economy. I mean, when I think about the 0:20:54.240 --> 0:20:57.680 two biggest changes in the global economy in our lifetimes, 0:20:57.680 --> 0:21:01.240 it's likely to be the energy transition. In the question 0:21:01.359 --> 0:21:03.760 is the timing right? And if you're thinking about it, 0:21:03.760 --> 0:21:05.879 if you're in the C suite of a major corporation 0:21:05.960 --> 0:21:09.199 and you've invested X million dollars or even billions in 0:21:09.200 --> 0:21:13.800 some cases into AI technology, if you don't see rewards 0:21:13.880 --> 0:21:16.320 or fruits from those investments, what you tend to do 0:21:16.400 --> 0:21:18.720 is ring that spinning back in and say, let's figure 0:21:18.720 --> 0:21:20.480 out how to make sure we're getting a return on this, 0:21:21.080 --> 0:21:22.879 and then maybe you resume the spending later when you 0:21:22.880 --> 0:21:24.800 figure out how to build it into business flows. So 0:21:24.840 --> 0:21:27.520 I think it's all about timing here. The market's been 0:21:27.560 --> 0:21:30.160