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Speaker 1: China's economy, we can further in July with a resurgence

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Speaker 1: in COVID outbreaks. That's according to China beije Book International.

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Speaker 1: And joining us now to discuss this is Chazad Kazi,

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Speaker 1: managing director at China beige Book. So we thought we

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Speaker 1: have a little bit of a rebound in June, uh,

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Speaker 1: that some of those high frequency numbers looked a little better,

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Speaker 1: and then July seems like it's a little bit more

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Speaker 1: troubled again. I want to put a kind of a

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Speaker 1: complicated question to you, Chazad. Uh, the market performance in

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Speaker 1: China has been pretty dismal. Uh. You have the reverse

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Speaker 1: wealth effect in the housing market that is is harming

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Speaker 1: household spending, and the aggressive regulation that we've seen seems

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Speaker 1: to have dampened confidence among consumers. Our our policymakers just

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Speaker 1: killing the animal spirits in China. Hey, thanks for having

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Speaker 1: me on. You know, first of all, I'll counter with

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Speaker 1: something very quickly. You know, you got actually a little

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Speaker 1: bit of a bounce in Chinese markets well in to June. Now,

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Speaker 1: I think that that bounds was really not fueled by

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Speaker 1: anything substantive other than hope. It wasn't fueled by data

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Speaker 1: showing that the economy was doing better, or that zero

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Speaker 1: COVID was being dialed back um, or that even there

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Speaker 1: was going to be any type of real regulatory easing.

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Speaker 1: Uh So, hope was all that was driving in. And

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Speaker 1: now we're of course seeing how how dismal that performance

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Speaker 1: looks like and and some of the losses that have

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Speaker 1: been suffered. UM. I think the party, um, you know,

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Speaker 1: has some larger goals in mind that the markets have

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Speaker 1: kind of missed because the markets have missed how the

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Speaker 1: party is thinking about its economic man you know, management

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Speaker 1: of the economy has evolved, whether it regards to accepting

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Speaker 1: a slower pace of growth, whether in regards to coming

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Speaker 1: down hard against h major companies both because of their

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Speaker 1: political threat and their monopoly threat to the marketplace and

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Speaker 1: so forth. And I think that's kind of one of

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Speaker 1: the reasons why we're seeing some of these losses now

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Speaker 1: and Chinese equity markets. One of the things that you

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Speaker 1: kind of we thought would hold up okay would be

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Speaker 1: the retail sector, given that if you've got borders closed

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Speaker 1: and people are you know, still earning income, then they're

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Speaker 1: going to spin. But retail is very much facing the

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Speaker 1: brunt here so tell us, I guess the diet outlook

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Speaker 1: here for that sector. Yeah, retail unfortunately has had had

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Speaker 1: a bad Q one followed by a worst Q two.

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Speaker 1: So two back to back quarters off, slowdown. We're now,

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Speaker 1: you know, looking at another a bad number for retail

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Speaker 1: in July in China Beije book data. The problem is this,

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Speaker 1: when you shut parts of the economy down, especially some

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Speaker 1: of the richest, most prosperous parts, uh, and you have

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Speaker 1: a general state of economic uncertainty which has not pervaded

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Speaker 1: the Chinese economy for I think you know well over

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Speaker 1: two years. Households can't be relied on to spend. As

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Speaker 1: a matter of fact, if you know they they'll want

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Speaker 1: to cut back on spending. Uh And and and hold

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Speaker 1: those pocketbooks tightly if you will. And I think that

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Speaker 1: goes a long way in terms of suppressing a consumer

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Speaker 1: demand because oppressing retail spending. The other aspect of it,

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Speaker 1: again linked to zero COVID, is the fact that you

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Speaker 1: can I if transportation networks and logistics networks are operating

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Speaker 1: at a fraction of their capacity, well then even if

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Speaker 1: you are, for example, ordering things online and trying to

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Speaker 1: consume things online and detailing and so forth is taking off. Well,

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Speaker 1: if you're not getting what you ordered or what you're

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Speaker 1: looking for, that in itself will again have a downward

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Speaker 1: impact and all way down on retails spending. So so

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Speaker 1: retail is most certainly at a very very tough spot

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Speaker 1: in the economy if you're going to stick with dynamic zero.

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Speaker 1: What's the key in China to getting things moving again?

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Speaker 1: I think the first thing is the market's perception versus

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Speaker 1: I think, what what president she and others around him

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Speaker 1: it might be thinking the party I think has accepted

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Speaker 1: that they are going to have to live with a

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Speaker 1: much lower pace of growth than even they themselves thought

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Speaker 1: would would would have would take place. So that's number

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Speaker 1: one number you, of course is within that, how do

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Speaker 1: you how do you protect the economy from uh, you know,

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Speaker 1: suffering just an outright contraction? Right, So how do you

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Speaker 1: keep the economy moving moving at a low place using

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Speaker 1: things like the bubble method or the closed loop system

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Speaker 1: and so forth, Because the alternative is really scary. The

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Speaker 1: alternative is a country where you don't have mRNA vaccines,

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Speaker 1: low levels of adult vaccinations, and if you start getting

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Speaker 1: mass outbreaks, that will have a far bigger economic impact

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Speaker 1: than anything you're seeing right now. I think preventing the

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Speaker 1: economy from going anywhere near the horrors of I think

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Speaker 1: even two years ago in the first quarter is probably

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Speaker 1: the base case there. The real estate crisis is continuing

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Speaker 1: to balloon, to playing through into a number of areas.

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Speaker 1: I mean, we're watching moves in on or you've got

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Speaker 1: Goldman seeing still demand heading for a five percent decline

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Speaker 1: this year. Just tell us about I guess the impact

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Speaker 1: here to the construction led growth model. Yeah, the construction

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Speaker 1: led growth model is, you know, it's clearly run out

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Speaker 1: of road. And again, as as I mentioned earlier, I

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Speaker 1: think I think Beijing understands that, uh you know, but

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Speaker 1: the reality is it's not going to go overnight, and

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Speaker 1: so you're going to see these repeated crises play out

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Speaker 1: in the property sector. We're dealing with one right now.

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Speaker 1: And you know this is after it looked like almost

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Speaker 1: in the month of June to the property market may

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Speaker 1: have bottomed out, especially the housing market, but looking ahead,

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Speaker 1: I wouldn't be surprised if in our proprietary data we

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Speaker 1: see additional pain in the property sector. Again, the party's

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Speaker 1: focus seems to have shifted. They're more interested in systemic risk.

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Speaker 1: They're more interested in weeding out any sources of larger

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Speaker 1: financial market crises where additional bad capital good capital just

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Speaker 1: has to go, you know, towards towards bad loans and

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Speaker 1: and protecting the economy from a bigger downfall. And so expect,

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Speaker 1: expect more trouble ahead for yours to come in the

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Speaker 1: property market. And how close are we getting to unemployment

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Speaker 1: becoming a big issue where people lose their jobs and

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Speaker 1: then start to adge. Yeah, the labor market is another headache.

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Speaker 1: You know, you saw downturn the labor market through the

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Speaker 1: second quarter, really for the first time since that massive

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Speaker 1: downturn and key when when covid at first struck China

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Speaker 1: and the world subsequently. Uh, you know, you're seeing companies

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Speaker 1: dial back on hiring, You're seeing companies dial back on borrowing,

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Speaker 1: You're seeing companies dial back on investment. So I think

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Speaker 1: the job market, if it was looking bad and over

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Speaker 1: the second quarter, well it's it's only gotten unfortunately a

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Speaker 1: little bit worse into July, and we'll see what the

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Speaker 1: rest of the quarter turns up for us. But as

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Speaker 1: as as we head into a politically sensitive time period,

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Speaker 1: labor market stress is yet one more problem for for

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Speaker 1: Presidentry almost out a time. But what could help things

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Speaker 1: turn everything around? I mean it's it's clearly stimulus, but

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Speaker 1: what else in your view, Uh, it's really not going

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Speaker 1: to change very much from where we are today. I

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Speaker 1: think for the foreseeable future, the singular driving force here

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Speaker 1: is COVID. The absence of time RNA vaccines and therefore

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Speaker 1: the continuation of zero COVID in some way, shape or form.

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Speaker 1: We're not going to get the type of big bang

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Speaker 1: stimulus that markets had been thinking. What happened last year

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Speaker 1: and through this year. I think now it's become blatantly obvious.

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Speaker 1: You're gonna get a little bit of fiscal stimulus that

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Speaker 1: will help a little bit along the way. If you

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Speaker 1: don't get too many new outbreaks or new variants. Perhaps

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Speaker 1: that avoids the lockdowns you've seen the major metropolitan areas. Okay, alright,

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Speaker 1: says thanks very much for joining us. Uh. Chazant Kazi here,

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Speaker 1: managing director at China Beige Book