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Speaker 1: Global business news twenty four hours a day. If Bloomberg

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Speaker 1: dot Com the radio plus mobile lapp and on your radio,

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Speaker 1: this is a Bloomberg Business flat from Bloomberg World Handquarters.

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Speaker 1: I'm Charlie Pellett. Stocks are fluctuating near records held down

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Speaker 1: by a route in energy producers after crude oil moved

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Speaker 1: below forty dollars of barrel. West Texas Intermediate is trading

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Speaker 1: a down three point six percent, down a dollar forty

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Speaker 1: eight forty dollars twelve cents right now on w E

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Speaker 1: t I Gold up two tens of one percent, picking

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Speaker 1: up to sixty ounce, the thirteen fifty five, the ten

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Speaker 1: year down eleven thirty seconds. The yield there one point

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Speaker 1: four nine percent. NATS stack up twenty one points fifty

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Speaker 1: one eighty four, a gain of four tenths of one percent.

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Speaker 1: SMP five decks down three to seventy a drop there

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Speaker 1: of two tenths of one percent down, Industrials down thirty six,

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Speaker 1: a drop there also of two tenths of one percent.

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Speaker 1: I'm Charlie Palett, and dat's a Bloomberg business. You're listening

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Speaker 1: to taking stock with pin Box on Bloomberg Radio in China.

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Speaker 1: The Shanghai Composit closed down about eight tenths of a percent.

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Speaker 1: And in China, the Official Manufacturing Purchasing Managers Index, the

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Speaker 1: p m I attracts the health of large and state

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Speaker 1: owned enterprises, came in at forty nine point nine and

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Speaker 1: that compares to fifty that was logged in June. Here

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Speaker 1: to tell us more about investing in China is Brendan Hearn.

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Speaker 1: He is the chief investment officer for Crane Shares and

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Speaker 1: he brought along his wee chat and his d D,

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Speaker 1: so he's here to tell us everything. Brendan, thanks for

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Speaker 1: coming in. Let's start off with the bigger picture and

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Speaker 1: the p m I report from China. What's that signaling

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Speaker 1: to you? Well, China is certainly affected by tepid global growth.

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Speaker 1: Their export driven manufacturing is going to be affected by

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Speaker 1: weak demand, both here in the United States as well

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Speaker 1: as here in Europe. So I think it's not overly

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Speaker 1: surprised using that to your point, the official National Bureau

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Speaker 1: Statistics p m I was a little light. At the

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Speaker 1: same time, we did have the Shy Shin p m I,

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Speaker 1: which covers more small medium enterprises, actually increased month over

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Speaker 1: month as well as I think for us as investors,

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Speaker 1: what we really want to focus on is non manufacturing

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Speaker 1: p m I, which actually increased in the month of July. Now,

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Speaker 1: why do you want to focus on the non manufacturing is?

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Speaker 1: I mean, is China already so much like the United

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Speaker 1: States were manufacturing? Is such a small park? Don't a

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Speaker 1: lot of Chinese people still work in factories. Well of

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Speaker 1: GDP and came from the industrial sector, Kathleen. At the

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Speaker 1: same time, fifty of d P came from the service sector.

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Speaker 1: So there's a lot of talk about China rebalancing. Our

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Speaker 1: opinion is that a healthy part of the economy has rebalanced,

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Speaker 1: and while part of China's economy faces tep and global growth,

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Speaker 1: domestic consumption is doing quite well, and we as investors

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Speaker 1: want to want to position ourselves in that in that

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Speaker 1: sweet spot of the China in they's economy. How do

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Speaker 1: you invest in Chinese technology companies when it's impossible to

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Speaker 1: really know as an amateur, uh, what is accurate, what's

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Speaker 1: not accurate, and how to suss out the details from

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Speaker 1: their annual reports. Yeah, and certainly standards in both Shanghai

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Speaker 1: and Shenzend, the two onshore markets are catching up to

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Speaker 1: where we are here in the West. At the same time,

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Speaker 1: Hong Kong as well as US listed Chinese companies have

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Speaker 1: to adhere to US GAP standards, they have to adhere

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Speaker 1: to US exchange listing standards. They're audited by the big

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Speaker 1: four US accounting firms. So we love the internet and

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Speaker 1: e commerce companies listed both in Hong Kong as well

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Speaker 1: as here on the New York and NASTAC exchanges. When

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Speaker 1: I follow on this because I don't think it's just people,

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Speaker 1: I don't think it's just you know, the amateurs who

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Speaker 1: have a tough time making sure they get a good

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Speaker 1: view of UH China's books and what their companies are

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Speaker 1: really doing. You're saying then that you trust the information

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Speaker 1: they give to those international auditors. The international auditors actually

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Speaker 1: go inside the companies because there's been some high profile

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Speaker 1: short sellers, as you know, activists who have gone after

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Speaker 1: some of the big Chinese companies. That is true, and

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Speaker 1: I think this broader trend about domestic consumption in China.

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Speaker 1: We would say, even look at US listed companies geared

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Speaker 1: to the Chinese consumer. Nike, McDonald's, UH Apple, UM, who's

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Speaker 1: who else has done very well recently. I think. I

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Speaker 1: think Nike has been been a big, big standout Starbucks

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Speaker 1: going from twenty five hundred to five thousand stores over

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Speaker 1: the next few years in China, um you see it

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Speaker 1: in the US companies doing business there. We like holding

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Speaker 1: the Chinese companies themselves, just for the reasons that Uber

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Speaker 1: China had a little bit of a struggle as a

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Speaker 1: foreign company operating in China. Tell us a little bit

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Speaker 1: about k Web. This is the Crane Shares Technology e

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Speaker 1: t F. Largest holding there is ten Cent, followed by Ali, Baba,

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Speaker 1: Baidu and j D dot Com. This is really have

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Speaker 1: fun geared to the domestic consumption trend, which increasingly takes

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Speaker 1: place online. In China, your smartphones your primary source of entertainment.

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Speaker 1: While retail sales went up just about eleven in twift

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Speaker 1: online retail sales went up over thirty. So not only

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Speaker 1: in China are you using your cell phone for for

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Speaker 1: rechat the Facebook of China, for using d D to

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Speaker 1: order a taxi cab, but you're actually buying things as well. Now,

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Speaker 1: in particular with this deal where d D ends up

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Speaker 1: buying our chunk of Uber, Uber retains about of its

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Speaker 1: company of ruising battle. You can read all the phrases

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Speaker 1: about how Uber just couldn't quite get it done. Was

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Speaker 1: this a fair fight or was d D favored because

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Speaker 1: as a Chinese company. Talked to any almost any US

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Speaker 1: company who's tried to do business in China, and they

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Speaker 1: talk about how it is not a level playing field.

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Speaker 1: Going alone for any Western company in China, where you're

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Speaker 1: trying to displace a local company that employs employees tens

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Speaker 1: of thousands of locals is going to be very difficult.

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Speaker 1: A few weeks ago we had Walmart dot Com through

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Speaker 1: in the Towel partnered with j D dot Com. We've

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Speaker 1: seen Dove US part of Union Lever, tried to go

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Speaker 1: into China alone, really struggled. Now now Dove as part

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Speaker 1: of Ali Baba's Tabo and te Mall uh e commerce

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Speaker 1: platforms is doing very well. So so where dee D

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Speaker 1: had a very very strong advantages one UH the founder

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Speaker 1: she comes from the chairman of Lenovo is her father. Uh.

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Speaker 1: One big part of of d D success was in

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Speaker 1: order to do an expense report in China, if you're

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Speaker 1: an employee, Ba Piao is getting an official receipt that

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Speaker 1: you can use to basically show that you paid for

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Speaker 1: something Uber China never was able to get that sort

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Speaker 1: of put them to a big disadvantage in terms of

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Speaker 1: getting corporate clients in China. Now you brought your wee

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Speaker 1: chat already loaded on your mobile, and I'm wondering if

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Speaker 1: you could tell people how does we chat manage or

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Speaker 1: organize or help you organize your life. It's more than

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Speaker 1: just a Facebook. Now allows us to communicate friends, family,

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Speaker 1: business partners. In China. I'm able to like a PayPal

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Speaker 1: to pay for goods and services. It's like an auto

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Speaker 1: pay on my bank account where I can pay my

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Speaker 1: utility bills UM. I'm able to buy mutual funds UM.

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Speaker 1: I can literally move money into a money market fund

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Speaker 1: out of my bank account va F via we chat.

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Speaker 1: There's so much more to this fintech. That's actually when

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Speaker 1: I just got back from China about three weeks ago,

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Speaker 1: people made fun of me for carrying a wallet. They said,

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Speaker 1: that's so western of you to have a wallet, and

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Speaker 1: and I do have a giant George could stands a

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Speaker 1: like wallet. At the same time, I was deemed an

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Speaker 1: old person because I actually had physical cash. Everything is

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Speaker 1: being done on your smartphone QR codes. I can pay

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Speaker 1: for Starbucks in China, but you can do that here

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Speaker 1: in the United States. Not off on I don't think

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Speaker 1: on one company's application, I don't think you can come

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Speaker 1: close to doing what e chat or what we chat

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Speaker 1: provid sides today. And if the we chat is another

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Speaker 1: one of these Chinese companies that basically got the plicit

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Speaker 1: backing of the government, and there's so much interplay between

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Speaker 1: people wore powerful and government now and whose kids started companies, etcetera, etcetera.

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Speaker 1: You're you're sort of buying into this whole Chinese model

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Speaker 1: of you know, if you're the dominant company, you're going

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Speaker 1: to be supported. Not real true competition likely understand the

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Speaker 1: United States. I think there's instances where certainly Bad, Ali

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Speaker 1: Baba and ten Cent are very very fierce rivals. A

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Speaker 1: lot of what we're speaking about with with we chat

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Speaker 1: is available on both bad as well as Ali Baba,

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Speaker 1: so so they do compete very, very fiercely. It's very

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Speaker 1: difficult for smaller players to compete about these could buy

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Speaker 1: to compete with Facebook, No, not today, not here in

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Speaker 1: the US. And we Chat, just to give you the detail,

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Speaker 1: has over a billion accounts and seven hundred million active users,

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Speaker 1: in China. They've got seventy more million outside of China

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Speaker 1: who are also using we chat. So is we chat

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Speaker 1: going to be a global business? Dey, well, I think

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Speaker 1: him first forces. Only half a Chinese population has access

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Speaker 1: to the Internet today. That's an internet that's an opportunity, right,

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Speaker 1: So there it's going to go into the rural areas. Uh.

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Speaker 1: The Tier one cities have a high utilization rate, but

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Speaker 1: Tier three, tier four cities, it's a very low internet

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Speaker 1: penetration rate. UM. China just past the US pass a

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Speaker 1: fifty percent utilization rate in two thousand two UM, so

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Speaker 1: it shows the upside to these companies. At the same time,

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Speaker 1: A ten Cent did just by super Cell the finished

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Speaker 1: GameMaker that's the provider of the Clash of Clans, and

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Speaker 1: ten Cents is the creator of we chat correct correct

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Speaker 1: um wach ten Cents founders were really in online gaming

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Speaker 1: and got into social media like Facebook. UM. At the

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Speaker 1: same time, they just by buying Clash Clans, they have

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Speaker 1: twenty five million global users outside of China, so they

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Speaker 1: just picked up a healthy footprint for going global. In

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Speaker 1: turn of your E t F, what what can we expect?

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Speaker 1: How's it done over the past few years. I'm thinking

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Speaker 1: you're wedding a lot of people's appetite for some kind

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Speaker 1: of investment vehicle in China. What takes advantage of some

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Speaker 1: of these big names you just mentioned. Well, Kathleen, I

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Speaker 1: think people will be surprised that today is actually the

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Speaker 1: three year anniversary of of k Web being listed on

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Speaker 1: the Nastack Exchange. We've actually beaten the S and P

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Speaker 1: five hundred solely holding Chinese companies UM. At the same time,

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Speaker 1: we're beating the largest China et F by about hundred

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Speaker 1: basis points. So it's really about orientating ourselves to this

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Speaker 1: domestic consumption trend that's the sweet spot of China that

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Speaker 1: we want to hold. Export dam manufacturer will come back,

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Speaker 1: but probably not in the short term. As a matter

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Speaker 1: of fact, I was just looking at my Bloomberger at

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Speaker 1: China retail sales. You can go to your eco page

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Speaker 1: brows for China, get right to those retail sales numbers

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Speaker 1: coming up next week. They were as hot as thirteen percent.

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Speaker 1: Now they're down to about ten percent, still a very

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Speaker 1: impressive number. Betta to her, and thanks so much for

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Speaker 1: joining us. Chief investment officer at Crane cheers joining us

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Speaker 1: right here in our New York studio Kathleen Hayes, along

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Speaker 1: with Pim Fox, this is Bloomberg.