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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App well.

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Speaker 2: The European Union has opened a new probe into TikTok's

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Speaker 2: parent company by Dance. Bloomberg's Joanne Wong has more from

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Speaker 2: Hong Kong.

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Speaker 3: The EU is looking into whether the new TikTok light

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Speaker 3: app has violated a new content law. The app promise

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Speaker 3: is to pay users through a points system. The European

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Speaker 3: Commission said that might have an addictive effect on users.

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Speaker 3: TikTok was given twenty four hours to deliver a risk

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Speaker 3: assessment to the Commission, otherwise the app could be fined

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Speaker 3: up to one percent of its total annual income. The

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Speaker 3: EU also said it plans to order TikTok to to

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Speaker 3: span the apps reward system until the future can be

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Speaker 3: fully assessed. In Hong Kong, joined Wong Bloomberg Radio.

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Speaker 2: And joining US Now for further discussion on this is

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Speaker 2: Alex Barinka, Bloomberg Tech Reporter taking the closer look. So, Alex,

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Speaker 2: the EU wants TikTok Light to do a proper risk assessment.

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Speaker 2: That sounds pretty reasonable. But on the other hand, the

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Speaker 2: EU is critical that users can be rewarded through a

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Speaker 2: points system because that might have an addictive effect on them. Now,

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Speaker 2: some might say that's overreach, but I'm sure it's more

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Speaker 2: nuanced than that. Walk us through it.

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Speaker 4: It certainly is, and so the EU is given the

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Speaker 4: company twenty four hours on this risk assessment or resk

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Speaker 4: fines up to one percent of its annual income. And

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Speaker 4: the kind of regulations over there have been much more protective,

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Speaker 4: we'll say, over its users than in other countries like

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Speaker 4: in the US. It's not the first time that the

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Speaker 4: EU's has got involved looking at the app's addictive design,

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Speaker 4: looking at screen time limits and privacy settings. It's been

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Speaker 4: scrutinizing and investigating TikTok under the Digital Services Act on

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Speaker 4: its main TikTok app, so under the umbrella Byte dance,

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Speaker 4: whether it's TikTok or this new TikTok Light app that

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Speaker 4: pays users through a point system. It does seem that

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Speaker 4: the European Commission is being a lot more thoughtful about

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Speaker 4: what it allows tech giants to introduce to its users

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Speaker 4: within the block and making sure that they won't have

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Speaker 4: a negative effect on the citizens.

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Speaker 1: There big question mark over the future of this company

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Speaker 1: with passage over the weekend of the House bill. As

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Speaker 1: you know, Alex, I mean you either divest control of

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Speaker 1: TikTok and I'm talking here about the Chinese parent Byte Dance,

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Speaker 1: or face a ban in the US. Now today, the

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Speaker 1: company's essentially saying it will fight this measure in court.

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Speaker 1: Do you think they have a legal leg to stand on?

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Speaker 4: They will certainly try so. As you mentioned, this is

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Speaker 4: the US divest or ban bill that flew through the

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Speaker 4: House on Saturday, tied up with the Ukraine Israel Aid bill,

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Speaker 4: and it's expected to get a vote in the Senate

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Speaker 4: as soon as this week, could be as soon as tomorrow,

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Speaker 4: with Presidential Biden saying he would sign it immediately.

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Speaker 2: Now.

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Speaker 4: Bite Dance has said, according to a person familiar with

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Speaker 4: the matter, that it expects it could get a restraining

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Speaker 4: order that could kind of draw out this legal battle

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Speaker 4: to more than a year. We have reported in the

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Speaker 4: past that any kind of divestiture the company sees it

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Speaker 4: as the absolute last resort. So hearing that now with

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Speaker 4: this bill almost an inevitability in its passage, that they're

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Speaker 4: looking at their legal options isn't so much of a surprise.

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Speaker 4: What has been a surprise to me, frankly, as is,

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Speaker 4: in the last week they've been relatively quiet. We've seen

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Speaker 4: folks like their VP of policy Michael Beckerman, give interviews

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Speaker 4: to TikTokers, talking to the TikTok audience. We've seen kind

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Speaker 4: of small communications from them. But this does mean that

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Speaker 4: the first kind of big wave of getting TikTok's official

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Speaker 4: public point of view might actually be around some of

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Speaker 4: these legal arguments they make if this bill does get

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Speaker 4: signed into law as soon as this week.

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Speaker 2: To what degree is TikTok in the United States really

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Speaker 2: amping up, muscling up on it on its lobbying.

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Speaker 4: It has been muscling up quite a lot, so last

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Speaker 4: year was its biggest year on record for lobbying in

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Speaker 4: the United States. And it's an interesting distinction with TikTok.

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Speaker 4: TikTok actually doesn't file lobbying documents. It's Byte Dance that's

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Speaker 4: doing all the lobbying on behalf of them. We just

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Speaker 4: got the new numbers for TikTok's parent Byte Dance, and

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Speaker 4: it's said that they spent two point seven million dollars

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Speaker 4: in the first quarter of this year. That's up from

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Speaker 4: one point six million dollars in the same period in

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Speaker 4: twenty twenty three. So you can see that they are

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Speaker 4: kind of muscling up their lobbying effort and have been. Now,

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Speaker 4: if you're a person like me who's been watching the

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Speaker 4: progression of bills and legislation against TikTok working its way through.

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Speaker 4: Now we're sitting here on the eve of one of

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Speaker 4: those bills actually passing, you do have to ask how

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Speaker 4: much are these high powered lobbyists actually having an effect

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Speaker 4: in DC. Folks who are watching the passes of this

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Speaker 4: bill kind of looming might say not as much as

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Speaker 4: they might hope.

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Speaker 1: You know, I understand the being compelled to try to

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Speaker 1: fight it in court, But if you look at the

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Speaker 1: twenty seventeen National Intelligence Law in China, it's pretty clear

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Speaker 1: there's a legal obligation for Chinese companies to turn over data,

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Speaker 1: collect it abroad and domestically. This just fortifies the US

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Speaker 1: position that this is a national security issue. One of

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Speaker 1: the questions that I was wondering about is whether or

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Speaker 1: not the Chinese government could use the TikTok issue as

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Speaker 1: a way of negotiating what it would like to get

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Speaker 1: from the US government in any way. Do you think

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Speaker 1: that's possible.

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Speaker 4: I mean, when with this bill passed last week, it

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Speaker 4: was quickly or it was introduced last week, that the

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Speaker 4: House was going to do this in this aid package,

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Speaker 4: that news was quickly overshadowed by President Joe Biden having

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Speaker 4: some kind of strong words against China in a meeting

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Speaker 4: just a few hours later. So I wouldn't be surprised

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Speaker 4: if this gets tied up in this kind of back

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Speaker 4: and forth discourse or tension. We do know that Beijing,

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Speaker 4: the Chinese government, would stand in the way of any

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Speaker 4: kind of divestiture. Divestiture of TikTok from ByteDance would require

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Speaker 4: approval from Chinese regulators, and a person familiar with the

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Speaker 4: matter told us in just the last twenty four hours,

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Speaker 4: the government in China has made it clear it wants

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Speaker 4: neither TikTok's prized algorithm or that really valuable data to

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Speaker 4: fall into American's hands. So certainly this is kind of

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Speaker 4: another point of potential tension when it comes to the

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Speaker 4: back and forth between Washington and Beijing.

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Speaker 2: Yeah, this is certainly going to be with us for

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Speaker 2: a while. If I had to take the over under

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Speaker 2: on ten discussions with you over the next year on this,

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Speaker 2: I'd probably shake the over I wanted to go back

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Speaker 2: to the Europeans Union story because we know that TikTok

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Speaker 2: is planning to fight in the United States and this

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Speaker 2: is pretty new, this this new set of restrictions that

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Speaker 2: the EU is putting on by dance in TikTok. But

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Speaker 2: in some ways it highlights the real difference between the

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Speaker 2: systems in the West and in China, because one of

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Speaker 2: the things that the EU is complaining about with this

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Speaker 2: is that it's really like almost paying users to watch

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Speaker 2: videos and run up the numbers of TikTok, And that

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Speaker 2: seems kind of weird or wrong or something. But it's

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Speaker 2: a little bit like by do I mean by do

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Speaker 2: actually rewards those companies that want their searches to come

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Speaker 2: in high, I mean those companies are willing to pay

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Speaker 2: for it. So it really does highlight the difference between

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Speaker 2: the systems. And I wonder whether or not you know,

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Speaker 2: there's a place for TikTok in a place like the

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Speaker 2: European Union, which is heavy on the regulation side.

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Speaker 4: Anyway, in my industry or folks in the industry that

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Speaker 4: I cover, we call it the attention economy, right where

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Speaker 4: the actual kind of value that these companies are getting

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Speaker 4: out of you is your attention. So certainly, as you know,

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Speaker 4: TikTok has really changed the game in the social media

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Speaker 4: industry where it's not about who you follow, it's about

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Speaker 4: showing you things that you're interested in, with almost an

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Speaker 4: addictive quality of keeping you in the app for a

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Speaker 4: longer and longer time. So as the EU kind of

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Speaker 4: grapples with TikTok, I would also think it's a decent

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Speaker 4: argument to make that you would have to look at

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Speaker 4: YouTube shorts or Instagram reels or Facebook reels along the

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Speaker 4: same lines, because some of the kind of core of

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Speaker 4: how those apps work have been, you know, lifted from

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Speaker 4: TikTok and are kind of striving to do the same

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Speaker 4: thing of keeping you there, keeping you scroll and keeping

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Speaker 4: your attention for longer and longer, because that's where they

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Speaker 4: find value both in the app and for the advertisers

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Speaker 4: that are willing to pay for your eyeballs.

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Speaker 1: We have to remember this as a monster company. The

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Speaker 1: parent Byte Dance. I think it's privately held a valuation

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Speaker 1: of around two hundred and sixty eight billion. I think

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Speaker 1: TikTok's you business is closer to between forty and fifty

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Speaker 1: billion and valuation. Alex, always a pleasure. Thanks for making

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Speaker 1: time to chat with us, Alex Baranka, Bloomberg Tech reporter

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Speaker 1: talking today about TikTok.

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Speaker 2: Tamala embler Apak, investor intelligence head at jll Pamla, Thank

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Speaker 2: you very much for joining the program. I think one

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Speaker 2: question on a lot of people's minds really across the

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Speaker 2: region is when we might see a little bit of

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Speaker 2: progress on getting a handle on China's property market. Do

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Speaker 2: you see that anytime this year?

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Speaker 5: Yeah, Well, when it comes to China from the capital

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Speaker 5: market standpoint, we are already beginning to see activity picking

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Speaker 5: up from before. So just looking at our Q one numbers,

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Speaker 5: it is a decline of roughly twenty percent year over year.

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Speaker 5: But when you look at what has been the active

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Speaker 5: capital sources, it's not only the local developers and foreign

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Speaker 5: investors that have been offloading assets at discounts. Insurers are

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Speaker 5: also looking for opportunities to make acquisitions taking advantage of

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Speaker 5: those dislocated pricing.

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Speaker 1: So I'm curious as to whether or not in everything

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Speaker 1: that you're looking at that there is opportunity, whether it's

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Speaker 1: in commercial real estate or any sector of the market

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Speaker 1: that has been so badly beaten down so ignored, whether

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Speaker 1: you're finding potential opportunity.

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Speaker 2: Yeah.

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Speaker 5: Well, if you think about investors their thoughts around the

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Speaker 5: stock market, that people are the most familiar with, the

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Speaker 5: buying opportunity is always when there is a pricing dislocation,

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Speaker 5: when there is value to be found in the market,

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Speaker 5: and similarly in commercial real estate, it is the same situation.

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Speaker 5: People are not looking to act until they believe that

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Speaker 5: prices or valuations is bottoming. Diference is when it comes

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Speaker 5: to public markets, you're talking about being able to mark

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Speaker 5: to market, and so to identify a bottom in pricing

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Speaker 5: is easier than a less liquid market like commercial real estate.

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Speaker 5: But in reality, because of what we're seeing in terms

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Speaker 5: of the trades that have taken place, especially in Q

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Speaker 5: four and Q one, it's giving investors new benchmarks to

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Speaker 5: look at for pricing, and that's going to compel investors

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Speaker 5: to then act.

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Speaker 2: One of the dislocations probably can be seen, I would

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Speaker 2: imagine on of Hong Kong property and the fact that

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Speaker 2: the economy has struggled really of late, because of what's

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Speaker 2: happening in China, because of the pandemic, at a time

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Speaker 2: when US interest rates were high, and because of the

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Speaker 2: fixed exchange link, you had high interest rates here in

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Speaker 2: that kind of environment, at some point that changes. Do

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Speaker 2: you think that when that happens, when the FED finally

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Speaker 2: starts cutting interest rates, that it will sort of be

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Speaker 2: you know, when the sun comes out for Hong Kong property,

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Speaker 2: or do you think that that ship has already sailed.

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Speaker 5: Well. Absolutely, Hong Kong is one of the markets that

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Speaker 5: time and time again they have gone through challenges and

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Speaker 5: come out the other side in a very resilient manner.

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Speaker 5: They have proven that they can bounce back. It's happened

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Speaker 5: before in the Asian Financial Crisis. It's happened after SARS.

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Speaker 5: It's happened of course with COVID, where we saw a

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Speaker 5: search in for hotels for example rev Har a jump

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Speaker 5: in terms of the demand. And also we're coming seeing

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Speaker 5: that from from the retail standpoint. So sure, it's most

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Speaker 5: likely that this time around it's taking a bit longer

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Speaker 5: than expected, because as you mentioned, China's recovery is also

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Speaker 5: also slower than expect did. But the situation with Hong

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Speaker 5: Kong also is that connection with the mainland really allows

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Speaker 5: it to have a very very unique position. It is

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Speaker 5: basically the market where capital can access essentially one of

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Speaker 5: the world's largest economies.

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Speaker 1: We were just talking about the problems with the shadow

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Speaker 1: banking industry in South Korea, particularly as it relates to

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Speaker 1: real estate, and I'm wondering in this conversation, by the way,

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Speaker 1: there was the issue of the government really monitoring the

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Speaker 1: situation and stepping in. We have seen a very very

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Speaker 1: reluctant Chinese response to the problems with the property sector,

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Speaker 1: maybe a little bit grudgingly. They have made some adjustments

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Speaker 1: around the edges, but I think there's been this belief

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Speaker 1: that leadership wants to deflate this bubble in an orderly way.

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Speaker 1: Is it progressing in an orderly way still or do

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Speaker 1: you feel that there is some risk that maybe still

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Speaker 1: in a system that could be very damaging.

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Speaker 5: Absolutely, and I think this is a really important question.

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Speaker 5: The reason why I think a lot of investors in

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Speaker 5: market watchers are waiting for the PBOC to take more

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Speaker 5: action and they are not. Is you got to look

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Speaker 5: at the bigger picture, which is the global macro situation.

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Speaker 5: So we have the FED, which at one point at

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Speaker 5: the beginning of the year we're talking about quite aggressive

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Speaker 5: rate cuts, which has almost reversed itself in terms of

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Speaker 5: that narrative and what markets are pricing in. So of

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Speaker 5: course the PBOC is looking at that very carefully because

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Speaker 5: when you look at policy diversions, historically speaking, that has

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Speaker 5: created large amounts of capital outflow from China. China does

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Speaker 5: not want that to happen, and to protect its economy

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Speaker 5: and to grow its economy, it has to be very

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Speaker 5: thoughtful about the stimulus in which it provides to support

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Speaker 5: the economy because you're looking at multiple factors to propel investments.

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Speaker 5: And another consideration is, of course there are, as you mentioned,

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Speaker 5: thoughtful actions taken by the government, whether that is asking

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Speaker 5: slightly more well capitalized insurers to step in to support

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Speaker 5: the developers through this challenging period of time. So there

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Speaker 5: are multiple prongs. I believe the government is utilizing.

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Speaker 2: Pamela Ambler Apak Intelligence investor intelligence head at j L L.

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Speaker 1: Well, there are signs of stress building in South Korea's

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Speaker 1: shadow banking industry. Delinquency rates as one measure for a

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Speaker 1: key group of Korean banks right now is nearly double

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Speaker 1: what it was last year at our round six and

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Speaker 1: a half percent. Let's take a closer look now with

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Speaker 1: Finbar Flynn, Bloomberg's Asia Credit markets editor, who joins us

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Speaker 1: from the Japanese capital Finnbar, thank you so much for

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Speaker 1: making time with us. How much of this is actually

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Speaker 1: a direct exposure to real estate When we talk about

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Speaker 1: the extent to which the shadow banking industry in South

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Speaker 1: Korea has grown so dramatically.

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Speaker 6: Hey, good morning, thank you, it actually is all real estate.

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Speaker 6: It comes down to real estate all across the board.

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Speaker 6: Because like in money markets, when cash was cheap and

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Speaker 6: interest rates were low, these highly levered bets, and they're

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Speaker 6: especially highly levered in Korea based on how they actually

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Speaker 6: fund these deals. People poured into them and when rates

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Speaker 6: went up, things started to give.

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Speaker 2: So in the old days we refer to a shadow

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Speaker 2: banking lot in China is very much considered a negative,

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Speaker 2: and now it's called private credit and it seems to

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Speaker 2: have a much better reputation in the West. But one

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Speaker 2: thing that runs through all.

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Speaker 6: Of this can be liquidity issues, correct, There's no doubt

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Speaker 6: about that. And I like the point about the difference

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Speaker 6: between shadow banking and private credit in Korea. It is

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Speaker 6: basically these smaller financial institutions, smaller savings banks and smaller

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Speaker 6: securities companies who've taken on most of this debt. It

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Speaker 6: looked like a good idea at the time, but Korea

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Speaker 6: has a history of these repeated sort of bubbles in

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Speaker 6: its commercial property sector, and people are looking out for

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Speaker 6: more headlines in the second half.

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Speaker 1: So what does this mean for systemic risk in the

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Speaker 1: financial system right now in South Korea?

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Speaker 6: So basically the government in South Korea is throwing everything

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Speaker 6: at this and they're going in there. They're buying property.

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Speaker 6: The property, they're putting up guarantees against existing loans and

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Speaker 6: new loans. So what is the So that the downcase scenario,

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Speaker 6: the downcasse scenario is that we have more we have

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Speaker 6: more restructurings, and it could cause the Bank of Korea

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Speaker 6: to a cup more than it has signaled this year.

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Speaker 6: It could cause the government to pour money into it.

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Speaker 6: So this has brought systemic implications because about a third

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Speaker 6: to four tenths of the entire economy is in this finnbar.

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Speaker 2: Is there a lesson here for other jurisdictions in Asia?

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Speaker 2: I mean, is this an issue that's likely to be

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Speaker 2: repeated in other countries?

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Speaker 6: I certainly think there is. And I would say it's

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Speaker 6: beyond Asia because we've seen the creeks and the cracks

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Speaker 6: in property from New York to Los Angeles, to Berlin

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Speaker 6: to London. So there are lots of places that have

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Speaker 6: these issues. But they're just the Bank of Korea a

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Speaker 6: height quicker, so they are facing these issues probably a

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Speaker 6: little bit earlier on.

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Speaker 1: I'm wondering whether the regulators in South Korea fear worst

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Speaker 1: case scenarios something like what Japan went through thirty years ago,

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Speaker 1: where you have bank failures that it's just more than

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Speaker 1: a couple of small banks that have problems, you know,

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Speaker 1: in stress that may be building on their balance sheets.

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Speaker 1: Whether there is a real risk of bank failures at scale,

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Speaker 1: is that a distinct possibility.

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Speaker 6: Well, the good news there is good news. The good

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Speaker 6: news is not the bigger banks. They are very well

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Speaker 6: capitalized in the top four or five banks, So in

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Speaker 6: terms of the bigger banks, the actual scenario more likely

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Speaker 6: is that theyably buying up the smaller banks. That's not

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Speaker 6: to say that the government doesn't have to be very

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Speaker 6: careful because it's not just the commercial property. South Korea

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Speaker 6: has the most housing debt per capita almost of any

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Speaker 6: country in the world, so they cannot allow these two

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Speaker 6: things to meld together, which would be really systemic.

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Speaker 2: So what can you tell us about some of the

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Speaker 2: restructurings that we've seen, both successful and unsuccessful, and what

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Speaker 2: the message to be drawn is.

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Speaker 6: So we have one key case going on, and to

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Speaker 6: be honest, this is still I would say in its

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Speaker 6: early stages. We just had the election in South Korea.

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Speaker 6: People had expected things to be kept on board in

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Speaker 6: the first few months of the year and then for

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Speaker 6: the government and authorities to become a little bit more

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Speaker 6: stringent in the second half. But we have a company

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Speaker 6: called Tayung. They surprise Marcus at the end of twenty

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Speaker 6: twenty three when they said they needed a restructure debt.

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Speaker 6: They're a large mid sized lender or excuse me, quite

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Speaker 6: a construction company, and they have a vote at the

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Speaker 6: end of this month, and that will basically mean that

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Speaker 6: lenders have to take an equity swap of fifty percent

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Speaker 6: of their debt. So they'll be taking fifty percent equity

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Speaker 6: for their debts, so they'll be basically taking a cut,

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Speaker 6: and then the rest of the fifty will all depend

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Speaker 6: if the company can pay it back. But interestingly, people

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Speaker 6: said this company young it may be the first, but

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Speaker 6: it's not the last.

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Speaker 1: It's kind of staggering when you look at the numbers.

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Speaker 1: I'm bringing up data on overall GDP for South Korea

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Speaker 1: in dollar terms. The latest data that I have is

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Speaker 1: for twenty twenty two one point six seven trillion, and

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Speaker 1: we're talking about six hundred and seventy one billion dollars

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Speaker 1: worth right now of exposure to this debt in real

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Speaker 1: estate alone. I mean, when you consider the amount of

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Speaker 1: money relative to annual GDP, it's just it's an amazing figure.

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Speaker 4: It is.

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Speaker 6: It's an astounding figure. And the only the only upside

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Speaker 6: is I think, and this is a good good thing

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Speaker 6: for the South Korean economies. They obviously are a huge exporter,

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Speaker 6: so they are, and they're a huge beneficiary of the AI,

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Speaker 6: you know, whole trend, so the economy that could lift

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Speaker 6: the economy sufficiently so they don't have to suffer too much.

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Speaker 6: But it's a really difficult balancing act they have in

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Speaker 6: the next couple of months.

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Speaker 1: No doubt about it. And Finbar, thank you so much

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Speaker 1: for joining us and helping us bring a little clarity

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Speaker 1: to the story on the signs of stress building in

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Speaker 1: the shadow banking industry in South Korea. Fin Bar Flynn,

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Speaker 1: a Bloomberg Asia Credit Markets editor, joining us from our

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Speaker 1: studios in Tokyo here on Daybreak Asia.

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Speaker 2: This is the Bloomberg Daybreak Asia podcast, bringing you the

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Speaker 2: stories making news and moving markets in the Asia Pacific.

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Speaker 2: episodes of this and other shows from Bloomberg. Subscribe to

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